Capitalism and democratic choices are a distant memory in Australia

Remember how, back in the mists of time there used to be a clear choice for voters; a party of the free markets and less government spending versus a party representing the working class and unions?

Perhaps we’re looking back with rose tinted glasses and t’was always thus. Nonetheless, Australians were given a very clear glimpse of what lies ahead should the economy take more than a minor dip over the coming months and years; the federal government becomes lender of last resort to crap businesses.

No. Really.

Treasurer Josh Frydenberg and Small Business Minister Michaelia Cash will announce the small business funding policy on Wednesday, promoting the soon-to-be-established Australian Business Securitisation Fund as a way to overcome banks typically only lending to the self-employed when they pledge their personal home as collateral.

To summarise the announcement; “if the banks looked at your business and decided it was a poor bet and you didn’t have enough skin in the game, we’ve just decided the Australian taxpayer and their superannuation funds will lend you the money anyway“.

It’s very easy to be generous with other people’s money, isn’t it?

This is bound to end well.

The irony is that this policy wasn’t announced by either of the openly Socialist parties but by one of the two parties that historically claimed to be champions of free markets and minimal government intervention.

At a state level, similar disconnects have been shown between expressed and revealed preferences. Here’s a “free markets” politician bailing out rent-seeking taxi medallion speculators.

The $2bn fund to lend money to businesses judged by commercial lenders to be poor risks is an interesting development though, coming as it does so soon in to the worst housing crash in a generation, but particularly after this little legislative gem was snuck through onto the statute books with hardly any media coverage or explanation; insolvent banks can be rescued by confiscating deposits.

Bill’s Opinion

Will a “bail-in” of superannuation funds or bank deposits ever happen in Australia?

Unlikely, but not impossible. The risk isn’t zero.

There’s a great and often quoted dialogue in Hemmingway’s The Sun Also Rises;

‘How did you go bankrupt?’ Bill asked.

‘Two ways,’ Mike said. ‘Gradually and then suddenly.’

Perhaps this is the “gradually” part for Australian depositors. If so, it might be an idea to know how quickly you could act to not be caught out by the “suddenly“.

Special pleading to commence in 5, 4, 3…..

Australia’s stellar run of property price inflation has come to an end.

The current decline is already the worst in modern history;

So what? Markets are cyclical, trees don’t grow to the sky, etc. The current decline comes after many years of incredible capital gains for those exposed to the asset class. These single digit percentage falls should be of no concern to anyone except those who speculatively bought in the last two or three years or who have taken on extreme levels of debt.

Everyone with a brain and access to standard economics textbooks should have been able to predict that, eventually, there would have been a correction, either minor and slow or major and quick. One way or another, the fact that the double digit percentage increases would not have continued forever should have been news to nobody, not least those paid large sums of money to navigate these markets.

Our old friend Brian “admire my signals of virtue at shareholder expense” Hartzer seems to have been slightly startled by reality, however;

Westpac’s profits flatline, which, to be fair, still means they’ve made a truckload. However, trends are important.

What’s also important is that throwaway line above; “the country’s biggest lender to landlords“.

Let’s pose a question here for Westpac shareholders –

Q. In a falling market, which categories of mortgage debt are least likely to perform well?

If you answered, “the most heavily-leveraged and properties that are not the primary residence of the mortgagee“, give yourself a pat on the back.

Elsewhere Stephen Koukoulas has smashed the glass to get at the emergency alarm button; The next rate move by the RBA should be down.

An RBA rate cut is not about housing – it’s about exports and investment

Many people misunderstand my concern about falling house prices and the coincident call for the Reserve Bank to cut official interest rates.

Well sure, but given that your call for rate cuts conveniently occurred at the point it became obvious these price falls weren’t a blip and, in fact, show many signs of being the new normal for the next year or two, allow us a few moments to consider quite how unbiased your views are.

As for this claim;

The house price declines in the current downturn are much what I was forecasting a year ago.

Are you sure about that? This interview from 14 months ago suggests otherwise;

He’s talking specifically about Sydney prices there. If by “flat” he meant negative 7.5%, then fair enough but that would seem a generous retrospective reading.

Other commentators with an even worse track record are pleading to higher authorities now too.

From the same article, our friend “Doctor” Andrew Wilson (he’s a doctor of property! No, really!) making a prediction so accurate that he got it almost exactly 100% wrong;

So much for a doctorate in property economics. Where was it from, the University of Baghdad, studying under Professor Comical Ali?

Based on that stunning example of incompetence in his core area of expertise, perhaps we might also be allowed to ponder the altruism behind his current pleading for rate cuts;

Economics-wise, that’s just all over the place. Explain please, how lowering rates improves savings rates, for example…..

Bill’s Opinion

Predictions are a fool’s errand on something as complex as an economic system.

We can, however, provide a conditional prediction here today of which we are extremely confident;

Should the decline in Australian property values continue, the current low whine of calls by vested interests to lower interest rates will become a defeating cacophony as they claim it’s in the best interests of the entire country, not just themselves as they are staring down the barrel of large paper, possibly soon to be realised, losses.

The pips will squeak.

Brigette Hyacinth and the view from the top of the pyramid

We just couldn’t leave this subject alone….

When one has over a million followers on Creepbook for Business LinkedIn, success comes naturally, opportunities come to you without the requirement to seek them out.

Brigette Hyacinth is in this enviable position; a thought leader to her disciples, a successful author and sought-after public speaker.

If you find yourself in Manhattan, perhaps you too should benefit from her wisdom by attending this speaking event, hosted by the Irish Business Organisation of New York (LinkedIn followers – 542).

Tickets can be purchased here. Breakfast and a show for $30? Great value!

There can’t be much margin to be made on those tickets, assuming everyone gets a juice, coffee and croissant.

That’s ok, she’s probably hired a massive hall so the money will be made on volume of sales rather than high margins. Madison Square Gardens here we come!

Oh, that’s curious; the Fitzpatrick Hotel looks lovely but, at just 91 rooms, it’s little more than a boutique hotel. In fact, they only advertise a couple of boardrooms for functions, so one might presume that this breakfast event is going to be hosted in the restaurant. We’ll let you speculate on the number of seats available in the restaurant of a hotel with only 91 rooms….

Bill’s Opinion

Building a LinkedIn profile with millions of followers, providing unique and interesting content must take an awful lot of effort.

Only a few people are going to manage to reach this pinnacle. Everyone else, like my Network Selling mate, stand little to no chance of emulating this.

Based on the slim pickings evident by Brigette’s potential real life audience who are prepared to pay for extremely low margin tickets to witness her genius first hand, there is absolutely no reason for anyone else to try to emulate this business model.

Canny marketing and self promotion only gets one so far. If the underlying content and substance is bollocks, people won’t pay for the product.

Monetising “likes” and “follows” is where the rubber hits the road. Or doesn’t, as Brigette is illustrating.

If this is all Brigette can achieve with her massive “network”, what hope do the rest of the aspiring chumps influencers have?

Lastly, draw your own conclusions on how inspiring Brigette’s talk is likely to be. Here’s a recent interview.

Sadly, I couldn’t find one with Oleg….

Brigette and Oleg, like the last few scenes of an Alien movie

Those of us who have to work for a living and frequently change employers find ourselves dipping in to the productivity black hole that is Creepbook for Business LinkedIn in the vague hope that some positive outcome will result from all that desperate networking.

Newflash; it never does. Buy a weekly lottery ticket instead, at least you’ll win ten bucks back once or twice a year.

If one views LinkedIn as anything more than a glorified electronic rolodex with the names and contact details of people you’ve met at work, you are setting unrealistic expectations.

That’s not to suggest that using LinkedIn to tout yourself like a truckstop hooker doesn’t pay off for some people. In fact, you can absolutely be certain that it does otherwise it would have gone the way of Pets.com long ago. Just like the infamous Nigerian “419” scam emails, despite the minuscule odds of success, the proof that the business model works is that the activity continues.

Recently I received an unsolicited connect request from someone working in an adjacent field of expertise to me. Against my better judgement, I connected and then had a follow up dialogue which resulted in the offer of a coffee meeting.

Fine“, I thought, “not much to lose and there’s a slim chance he might be able to introduce me to my next employer“.

The gentleman was pleasant enough, clearly knowledgeable and not particularly creepy.

He told a story of a radical change in career in the last 6 months. Filling in the gaps, it looks like a redundancy cheque, a significant birthday and some professional advice had diverted him away from continuing with his current career trajectory to concentrate on becoming a recognised person of influence within his industry instead.

Quite what that meant was left somewhat opaque, but it seemed to involve being a public speaker, published author and, as I later discovered, really fucking annoying on my LinkedIn timeline.

How really fucking annoying? Regardless of the time of day, whenever I logged in to the social media website there would be some asinine comment from him on a random subject ranging from mental health to the best type of tenant to be sought for his investment property (I’m not joking).

This, it would seem, was due to advice given by a consulting firm he had paid about $15,000 to for training on how to be a recognised person of influence (not quite their wording but close enough – I’m not in the business of being sued).

A pattern was emerging with these annoying time pollutants too; he was commenting on the same half a dozen people’s content and they were doing the same back. What’s the betting they were all on the course together?

Rather than cut him off without warning, we had the following SMS exchange;

Me:

Hey, can I offer some unsolicited advice?

I think you’re being too promiscuous on LinkedIn. The video content is great but the one sentence replies to other people’s “Facebooky” posts risks diluting your brand.

I have clicked the “unfollow but remain connected” button on loads of connections due to posting volume not value.

Sorry, if that’s not welcome advice!

Him:

Thank Billy. I hear you. It’s a balancing act. To gain traction on linked in, one needs to comment and be commented on. So today, it’s part of a numbers strategy where we help each other. I don’t much like the grouping though.

A few more exchanges did nothing to dissuade him. I suspect there’s more than an element of “sunk cost bias” going on here. He’s paid his consulting fees and is desperate to see some kind of return.

I’ve seen this behaviour before.

Network Marketing, 1995 style.

Over the course of a couple of years in London, three seperate friends and acquaintances tried to pull this water filter/supplements/storage boxes sales scam on me.

Use your network to make money“, they would say. “I introduce you and you introduce others and they introduce their friends and we all make money“, they’d beam with a smile one normally associates with Jehovah’s Witnesses.

Except they didn’t make any money. None.

The 1995 article linked above from the former newspaper, The Independent, has a line which particularly resonates;

Unemployed graduates, freelancers and management victims of “company downsizing” are particularly likely to be tapped.

The ones I batted away in 90s London and this chump have something in common; they were recently retrenched.

Back to LinkedIn…

There are two superstars of the “influencer” variety that one just can’t shake off the timeline; Brigette Hyacinth and Oleg Vishnepolsky. They operate on very similar principles of writing an utterly crap, barely believable anecdote about some counter-intuitive act of kindness or virtue-signalling they claim to have performed and then asking their network “what do you think?“. Cue a thousand sycophantic comments demurring and cheering along.

One assumes they make money from this somehow, just like the most successful Nigerian “prince” or “government” minister requesting your bank account details did.

Everyone else though, my new best friend included, gets nothing.

Well, that’s not quite true; he got unfollowed by me today.

Bill’s Opinion

The Alien series of movies have a fairly formulaic ending; Sigourney or some other hero kills off the beast and settles back ready for hibernation and a journey back to a safe planet, but then we realise the alien is not quite dead and the battle recommences.

Blocking Brigette and Oleg from your LinkedIn feed is quite analogous; just when you’ve clicked the three little dots and selected “unfollow but stay connected” on whichever bastard polluted your timeline this time, another one pops up.

By the way, have you heard about these great water filters that aren’t available in the shops? It’s a great business opportunity!

Welcome to the Hotel Wagga Wagga

You can check out any time you want, but you can never leave“.

One wonders what the likelihood is of this idea being successfully implemented and being successful in its outcomes;

A Government proposal to mandate immigrants live in regional areas.

For some mysterious reason, known only to a select few people with massive intellects, new immigrants to Australia almost exclusively favour the largest cities as their first choice when selecting an area to move to.

To be more specific, the they favour the two largest cities; Melbourne and Sydney.

This causes significant headaches for politicians as they are required to ensure infrastructure and essential services are in place and planned commensurate to the likely population levels in each area.

There are other headaches to be had for those poor hard-working politicians too. Specifically, the problem that the economies of their regional constituencies are being “hollowed out” as young people increasingly vote with their feet as soon as they are able and leave their rural hometown for life in the busy metropolitan areas (no, we’re not talking about you Adelaide, sit down).

There’s a critical mass problem in regional Australia where there needs to be farmers and farm workers to grow the produce the city slickers want to eat but providing quality infrastructure services, ensuring there’s good medical and dental care, maintaining a public school system, etc. becomes increasingly expensive relative to the economies of scale that can be achieved in higher density areas.

To a certain extent, t’was always thus the world over. Australia has an additional nuance to this due to her physical size and lower density of population distributed outside the main conurbations.

Over the very long term, one can imagine the solution to Kim Stanley-Robinson’s Malthusian Fallacy will be found using technology and scientific breakthroughs to automate agricultural production reduce the reliance on humans performing traditional roles on farms.

Perhaps the problem is only a 10 to 20 year one then, after which everyone can live in in the megacity with hot and cold running soy decaf and kale smoothies on demand.

Nonetheless, there’s a bit of a problem to be solved here; the politicians don’t want to hamstring economic growth. One way to ensure the GDP figures keep rising is to increase the number of productive workers contributing to it. Put bluntly, they have to persuade the existing population to either throw away their birth control pills or accept a constant flow of immigration.

Note, the politicians aren’t offering a third or fourth option to have flat/contracting GDP growth, or economic growth built on a technological solution to productivity. The parameters of the debate are constrained within an Overton Window to “rising GDP is good, immigration is the solution to achieve this“.

Which is, of course, the the reason why the debate has turned to methods to encourage immigrants to live in places the existing population, especially the politicians, don’t want to. Our old friend expressed versus revealed preferences is at work again.

Back to our original question then, what’s the chances it’ll work?

Some categories of Australian immigration visas already mandate and enforce an element of rural living. There is a “working holiday visa” which rewards the holder to a longer duration of stay if they spend a period of their time performing seasonal work on remote farms. So there is precedent.

There’s some not insignificant differences between what is currently in place and what might be proposed however, not least of which is the demographics involved. The seasonal workers tend to be young people, often single and with no dependents. They are here for a good time not a long time.

The new immigrants who will be mandated to live in the regional areas are likely to be older, married and parents of dependent children. According to Maslow’s Hierarchy of Needs, their prime concern is to going to be less focused on earning enough to spend the weekend partying on MDMA and browsing what’s on offer on Tinder but more about improving the quality of their housing, the education of their children and affording the airfare back to their country of origin every couple of years.

If the employment options, housing, schools, medical care and ability to save money are sub-optimal in Buttfucksville, Queen’sland, they are going to pack up their belongings and move to the city.

How might the government prevent this, do we think? Checkpoints on all the major roads? Random visa checks? Further requirements on employers to perform the role of Immigration Officer?

Perhaps there’s a clue in the incentives for the working holiday visa workers? Perhaps the initial visa granted is temporary and it can only be converted to permanent residence status after a defined and proven period living in the regional area? What might go wrong with that idea?

Bill’s Opinion

Mandating where immigrants live when they have made the huge personal decision to relocate countries feels like a reasonable idea but it relies on so many factors to be aligned to ensure success;

What if there are no job vacancies in the area, what if the available jobs aren’t suitable for the immigrants’ skills or don’t pay enough to make life sustainable to support their families?

What if the education options available can’t cope with the additional demands of children living in households where English isn’t spoken?

These people will, quite reasonably, claim special status and exemptions due to the government not holding up their end of the bargain.

Here’s a prediction worth noting; the Australian government’s proposals, whatever they are, will not result in a significant shift in the location immigrants live and work, ether due to gaming of the system or failure of an arm of government to plan effectively and exemptions being granted as a consequence.

But the most interesting aspect about this debate is what we are not talking about; what is the full range of solutions to the problem of falling productivity and why aren’t we being shown these, if only for the opportunity to agree that immigration is the only solution?

Open the Overton Window!

Mission Impossible

Mission Australia are running a “Chugger” (“charity mugger”) funding campaign on the streets of Australia.

Young backpackers in purple T-shirts are pestering passers by with statistics about child poverty.

Where is the child poverty they are trying to reduce? Africa? Asia? South America?

Nope. Australia.

No really, according to Mission Australia, one in six Australian children are living in poverty.

Does that pass the sniff test? If you live in or have ever visited Australia, have you ever seen extreme poverty to that level?

No? Perhaps you didn’t visit the right locations. After all, poor people don’t tend to live in the apartments overlooking the Opera House, one supposes.

But one in six is still a lot of kids, where might they all be living if they aren’t immediately obvious to people in the main population centres?

Ah, perhaps the statistic is due to terrible poverty and deprivation in the Aboriginal townships?

Well, maybe but given that only 3.3% of the population is Aboriginal, that doesn’t make sense either.

Where are all these Aussie kids who are living in poverty then? There’s got to be a small city’s worth hiding in plain sight.

This is just a working hypothesis, but maybe there’s a clue to be found in the definition of the word “poverty”.

About halfway down their webpage, Mission Australia repeat the claim and point to this study as the source.

How is “poverty” defined in the Acoss study?

Ah;

So, poverty is defined as relative to other people, and before receipt of public housing, tax credits, unemployment benefits, Medicare and free schooling.

Of course, when your definition of poverty is based on what everyone else is earning, it’s hardly surprising that statements such as the one above, “Internationally, Australia’s poverty rate remains above the OECD average, despite our relative prosperity” can be written without a hint of irony.

Bill’s Opinion

Relative poverty isn’t poverty, it’s envy.

Anyone who has visited Africa, Asia or South America can tell you what child poverty looks like and it certainly isn’t what Mission Australia claims it is.

I find it highly unlikely that Acoss or Mission Australia were unaware of the statistical obfuscation they had to commit to print T-shirts claiming one in six Australian children live in poverty.

What might their motivation be for such mendacity, do we think?

Dick by name….

Australia is home to a gentleman called Dick Smith. He owns an eponymous chain of electronics’ stores where one can purchase all manner of flat screen TVs, music systems, white goods and other devices.

To the best of our knowledge, practically none of these devices are manufactured domestically. Like most western economies, Australia used to manufacture TVs and radios but the availability of cheaper and better quality imports from its northern neighbours in Asia hastened the decline of the industry.

Dick Smith has personally benefited greatly from this destruction of the local industry.

Imagine our surprise therefore that he feels the need to berate an overseas supermarket chain from copying his successful model but in the grocery sector.

Apparently, the management of Aldi are morally reprehensible for providing good quality imported food products at a lower price than can be produced domestically.

Ponder that for a moment. Now look at the brand of phone, tablet or PC on which you are reading this. Where was it made? Korea?

Now look at the label in your shirt or dress. Was it tailored domestically? Unlikely.

What should be done about this?

Bill’s Opinion

Dick Smith is typical of most Australian “entrepreneurs” in as much that, once he has made his fortune, he sees no reason to feel shame about lobbying and making public statements to pull the ladder up and prevent others from following his example.

His competitor, Gerry Harvey, is another example of this syndrome, campaigning for the federal government to impose the 10% General Sales Tax on low value overseas internet purchases, despite the fact that this will incur a net cost to the taxpayer.

“Capitalism” is a much maligned noun these days but consider whether there really is that much of it about. Certainly the people who often are pointed at as being “capitalist” are no such thing. Dick and Gerry have more in common with the mercantilists of the 16th century than Adam Smith or Ayn Rand.

The answer to the question might not be very welcome

Those readers who find themselves in Sydney at the start of September may consider the following opportunity to “analogue troll” for $45.

Of all the breakout sessions, this one piqued our interest particularly;

Where to start? In the words of Luke Skywalker, “Amazing. Every word of what you just said was wrong“.

Let’s answer the question asked in the session’s title last and pick off the sentences in the description first.

42 billionaires now own more wealth than the bottom half of the world’s population.

Interesting use of language there; bottom half. I think they mean poorest half if we’re trying to not be judgemental or insulting. Anyway, the relevant question to ask about that statement might be, how does this situation compare against previous periods in human history? Is the trend improving or worsening?

Pick your data source and point in time for comparison but it has been estimated that for most of human history, the average daily income was the equivalent of $1.

At the time of Croesus, the world’s population was approximately 115 million.

Comparing averages is dangerous statistical activity, as is comparing net wealth with income, but let’s assume half of the people alive with Croesus had an income of $1 a day in modern terms. Let’s also assume that they had no real savings to speak of and were living hand to mouth. So, do we think Croesus’ net wealth was less than $57.5m, i.e. half of the population multiplied by a dollar a day?

Similar examples might be made with Alexander the Great, Ghengis Khan, several of the Emperors of China, the Pharaohs of Egypt, various Indian emperors, etc.

What about any number of other historical figures who concentrated massive wealth and land? Do we think their wealth was above or below about $57.5m in modern terms? If above, we’ve just dismissed the first statement of our Sydney Socialist friends as being irrelevant.

Let’s look at the next assertion;

In a world that’s never been richer, hundreds of millions remain trapped in poverty, facing starvation and disease, especially in the so-called “third world”.

Well, the world has indeed never been richer. This is an interesting chart from The Atlantic (a publication not known for blindly supporting free market capitalism) showing GDP per capita over the last few hundred years;

Gosh, I wonder what might have caused that huge improvement since 1800 in Western Europe and the USA? Sure, that’s about the time Marx and Engels wrote their envious little book but, in the real world, something was happening in England that was changing the level of wealth and finally breaking the Malthusian model.

The statement about hundreds of millions remaining trapped in poverty is less accurate and, in fact, increasingly wrong as time proceeds. Don’t believe us? Ask the UN. The target of halving the number of people living in extreme poverty was achieved 5 years early.

Again, why do we think that happened?

The last sentence is a question, which we’ve already shown to be asked from a false position;

What has led to this obscene situation, and who is to blame?

Bill’s Opinion

The answer to the question, “Why is the third world so poor?” could be as simple as “Collectivism, i.e. Socialism”.

Perhaps the better question to ask is, “Why is the third world being lifted out of poverty so rapidly?

To which we would offer the answer, “An embracing by the general population of free markets, international trade and the individual desire for self-improvement”.

Capitalism, in other words.

Before the industrial revolution, people were living in abject poverty in hand to mouth existences. Marx and Engels could have watched the starving farm workers being buried in the ground if they had visited rural England. Instead, they went to the concentrations of populations gathered around the new factories. The conditions they saw were also terrible but, and this is the elephant in the conference room at the Sydney Socialism event, it was better than the rural alternative. That’s why the farm workers voluntarily moved to the cities in the first place.

Let’s just leave this chart here and ask ourselves whether the Sydney Socialists really have the answer to the problem;

Uber 1 – London’s Mayor 0

Uber has won its battle with London’s Socialist Mayor, Sadiq Khan, and can continue to provide great value services to Londoners.

As we pointed out earlier, the decision to terminate their licence was purely political and not underpinned by any factual basis.

Bill’s Opinion

It’s nice to see the rule of law still sometimes works in London.

Perhaps the London ratepayers should send the legal bill to Mr. Khan.

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……”