Containerisation

….is a word invented in 1956 by Malcolm McLean to describe the switch from loose freight that had to be manhandled in and out of trains, lorries, cargo ships, etc. to the standard TEU and FEU shipping containers we still use today.

Depending on your source of choice, containerisation lowered freight costs by almost 50% due to lower rates of breakage, pilfering and required labour. Obviously, if you were previously employed as a stevedore in a port, that last efficiency might not have felt quite so positive.

The word “contained” similarly can have positive and negative connotations today. Witness;

Here’s another use of “contained” to compare and contrast;

That was from Ben Bernanke.

He doubled down a couple of months later;

Hubris is a painful lesson to learn. Of course, if you’re the Chairman of the Federal Reserve, the only real injury you suffer from being proven utterly wrong and professionally incompetent is a bruised ego which you can nurse with your gold-plated pension (it’s funny how, in these times of fiat money, “gold-plated” is still used to refer to great pensions, isn’t it?).

Back then to Australian property prices….

For non-Australian readers, there are several important points to make before judging an opinion on the subject;

1. There is no such thing as a single “Australian property market”. In a country as large as Australia, with so many economic and climactic differences, there are multiple markets.

2. Many people have tried to apply lessons from other countries to Australia and been proven wrong continuously.

3. Opinions are like arseholes; everyone has one.

So, that being said, here’s some opinions with supporting information;

Sydney and Melbourne account for about 40% of the population and roughly 60% of the value of housing. Sydney is about 15% times larger in terms of population than Melbourne and 50% greater in terms of value (being mindful that “value” is determined by someone actually being prepared and able to pay the price quoted). For the purposes of this blog, therefore, we will use the term “Australian Property” as meaning the Sydney and Melbourne markets rather than, say, a small town next door to a mine that’s just been approved in a remote part of Queensland.

Predicting how a group of assets will be priced in the future is notoriously difficult, even the “experts” struggle with it. A search over the years for one such expert, Dr. Andrew Wilson (yes, he’s a doctor of property economics!) shows that he’s under-predicted the rises and not forecast the falls in his area of apparent expertise. The newspaper articles seeking his views never show his past performance in their analysis, however.

We might be able to at least predict the direction of the trend, perhaps?

Let’s list the main factors which might indicate main two Australian cities are on a trajectory for an increase in prices (“Column A”) and those which suggest a fall (“Column B”).

Ok, they aren’t actually presented as columns because I can’t be bothered to work out how to do that in WordPress, but you get the idea;

Column A – The bullish case for Australian property

The Federal government has a moment of largesse with taxpayer’s money and implements quantitative easing or hands out a cash gift to debt holders to sustain prices.

China primes the pump and begins another phase of massive infrastructure creation, requiring more of the stuff under the Australian gound.

India decides to rebuild the 3 largest cities and connecting infrastructure and strikes an iron ore deal with Australia.

Australia develops a widget that is manufactured locally and is as popular as an iPhone.

The largest natural disaster in history destroys a few states of the US and, the US Federal Reserve opens the faucets again.

Column B – The bearish case for Australian property

Lending criteria stays tight to retain the illusion of banking strength and prudence to the world.

An incoming new Federal government makes sweeping changes to the way tax is calculated, with negative unintended consequences.

Overseas funding for mortgages becomes more expensive. 60% currently comes from outside Australia and this is subject to the rate rises being seen elsewhere and Australia’s banks have fallen out of favour.

Banks play out Game Theory and reduce their exposure to riskier asset classes in the face of evidence of a downturn.

Criminal charges accumulate as political pressure demands scalps.

Employment weakens.

In anticipation of or in response to the decisions by the regulator, APRA, the banks impose and enforce tougher credit standards.

New rules and laws are introduced to regulate investment from overseas.

Chinese capital constraints are introduced, stemming the flow of funds south to safer Australian assets.

Interest-only loans reset to interest plus principal.

Global politics fracture further and protectionist stances become policy (in extremis, protectionism might create “hot” conflict).

Bill’s Opinion

It’s been a stellar ride, Sydney and Melbourne, but consider the possibility that your house might not be the pension fund you perhaps previously considered it to be. 18% annual rises will seem a distant memory if the current trend continues and “Column B” is stronger than “Column A”.

As for Scott Morrison, your Treasurer who is likely to be replaced within 18 months; in the words of Christine Keeler, “well he would say that, wouldn’t he……”