Don’t take your financial advice from Mumsnet

Jessica “big smarty pants” Irvine has written another blog post on Mumsnet again this week.

This time she’s woman-splaining to us all about three topics; how financially astute she is, how she can lose weight by the magical discovery of eating fewer calories than she burns and how she likes a good stationery order from Office Works.

No, seriously; without a hint of irony, The Sydney Morning Herald has published an article under “economics” where this type of self-indulgent guff is written:

…..I was completing my daily paper-tracking sheet for my food consumption and energy expenditure.

At the end of the day, after I’ve finished eating and calculated my daily calorie deficit, I get to enjoy the immense satisfaction of emblazoning the day’s tracker with a depressible ink stamp that says “ENTERED”.

It continues in the style of a low IQ Jordan Peterson self-help guru:

The desk contains six wooden pigeon holes that house my stamp, my highlighters, my paper receipts for the month and my three paper-based journals.

They are an appointments diary, a gratitude journal and a thoughts journal, into which I periodically spill all my deepest, darkest thoughts. Exposed to the crisp, white pages, these thoughts lose their power. Having identified the thoughts – and the resulting emotions – I journal new, more helpful thoughts to hold.

She also reminds us that she is considerably more intelligent than you and I:

I don’t know about you, but my brain definitely runs faster than my ability to write. By committing to writing things down by hand, therefore, you force your distracted monkey brain to sit.

Hands up who else suspects her lips still move when she reads, though?

The thing is, her Mumsnet post is just a rehash of this self-indulgent shite from two years ago. The only difference is the admission of a love of a tidy desk and coloured pencils.

That’s fair enough, I suppose, the SMH can publish whatever guff they want, but it does seem somewhat tin-eared to print Jessica’s verbosity about her ability to save money during a once in multiple generations recession while there are a record number of Australians registered as unemployed and many more about to join them. Saving money must seem a luxurious memory for those souls.

Not to worry though, we can amuse ourselves with the knowledge that Jessica is stuck inside a shitty two bedroom apartment that she bought at the very top of the property market and is now staring down the barrel of that most depressing of financial situations, negative equity. She hasn’t realised that, if she loses her job now, she’s homeless.

Bill’s Opinion

We’ve learned a lot of things during these months of Kung Flu. In addition to the incompetence of experts and the cowardice of politicians, we can also finally put to rest the notion that anyone employed in the media understands graphs and statistics.

That’s probably why Jessica is writing about crayons and coloured paper, like some teenage girl in a bedroom full of cuddly toys and posters of ponies.

We can’t blame Jessica for not wishing to write about economic reality though, as this updated chart is what it looks like before the government wage subsidies taper off and the unemployment figures start to more accurately reflect what’s been going on since March:

Don’t look down, Jessica.

The Dreamtime Phoney War

On the June 1st episode of the podcast, TRIGGERnometry, Peter Hitchens made an interesting observation on the the current attitude of many people in the UK (but it applies equally to any other country undergoing government Kung Flu largesse):

He describes many people as living in a happy dreamtime where most, if not all, of their wages are being paid for by government relief schemes, the weather is pleasant and the consequences of incurring the biggest peacetime national debt have not yet been felt.

His opinion is this cannot continue and, when the plug is pulled on these various furlough schemes, there will be a difficult and tragic reckoning to be had.

The likely timeline for this mean reversion differs by jurisdiction but the 3rd and 4th quarters of 2020 is generally when these government cash drops are due to either finish or begin to taper off.

I say this without any hint of glee, but there are individuals and entire industries that are going to experience the financial equivalent of cold turkey.

What’s cold turkey feel like? Let’s ask a professional:

I can’t imagine what other people think cold turkey is like. It is fucking awful. On the scale of things, it’s better than having your leg blown off in the trenches. It’s better than starving to death.

But you don’t want to go there. The whole body just sort of turns itself inside out and rejects itself for three days. You know in three days it’s going to calm down. It’s going to be the longest three days you’ve spent in your life, and you wonder why you’re doing this to yourself when you could be living a perfectly normal fucking rich rock star life.

And there you are puking and climbing walls. Why do you do that to yourself? I don’t know. I still don’t know. Your skin crawling, your guts churning, you can’t stop your limbs from jerking and moving about, and you’re throwing up and shitting at the same time, and shit’s coming out your nose and your eyes, and the first time that happens for real, that’s when a reasonable man says, “I’m hooked.” But even that doesn’t stop a reasonable man from going back on it.

Keith Richards

Bill’s Opinion

Governments and central banks are about to discover restarting an economy is a significantly different prospect to stopping one.

I have no doubt our money, our children’s money and our grandchildren’s money will be generously thrown at the problem.

Some of it may even stick.

In fact, the Australian Government is mooting plans to throw figures like $20,000 at new home builds or to renovate existing homes. Obviously, this will have the effect of increasing the price of everything by a leveraged ratio of $20,000.

I understand the Keynsian theory is it doesn’t matter what the money is spent on but, now we’ve just run the biggest experiment to prove most people don’t need to live 8km from the CBD to be productive, why are we installing granite kitchen worktops in Mosman rather than building high speed rail links to an open plain in the middle of nowhere for developers to build around?

In the meantime, this organ has been sadly missing a previous regular commentator from Brisbane who frequented this place with gleeful tales of his investing prowess and acumen.

If he were to return, we might ask him to review this updated chart and answer the question, “what happens next?“.

Unintended consequences are governments’ only consequences

Anyone who has previously met a human might be forgiven for reading the following quote and laughing like a drain:

There is no better time to rid the states of inefficient taxes that hold back economic growth and I am talking stamp duty and payroll taxes,” Mr Perrottet said.

“We are not going to tax our way back into prosperity. Increasing or decreasing taxes is not tax reform.”

When asked which state tax was at the top of his reform agenda Mr Perrottet replied: “Stamp duty. I’ve raised it before, I think we need to get rid of inefficient taxes.”

Stamp duty, also known as transfer duty, taxes the sale of all properties in NSW and last year raised $7.5 billion for the state’s coffers. After payroll tax, stamp duty is the biggest source of taxation revenue for the states.

If you listen very carefully, you can hear the sound of a thousand Estate Agents each unwrapping a shiny new razor blade and settling into a final warm bath, whilst cradling a single malt.

Bill’s Opinion

I can’t read Dominic Perrottet’s mind, but I’m assuming his motivation for foreshadowing the idea of a replacement of Stamp Duty was to show the public the government was actively pursuing ways to get the economy moving. After all, “something must be done” is all the encouragement politicians need to hear to get on with fiddling with complex systems they don’t fully comprehend.

A quick dekko at the CV of the NSW Treasurer, Dominic Perrottet, tells you everything you need to know; his last “real” job was when he was 28 years old. Saying that, the profession was lawyer, so one assumes he’d only managed to gain three of four years post graduation and law school before he was dropped into a safe seat.

Let’s face it, he’s a career politician with practically zero experience in the real world.

If he had even the mildest understanding of how humans make important life decisions such as buying property, he’d have kept his mouth firmly shut until the legislation had been drafted, agreed and had a good chance of being passed into law.

Instead, he’s just told everyone who was considering buying or selling property in NSW that a very expensive tax might be replaced or even removed at some point in the near future, so it might be regrettable to go ahead with the transaction until clarity has been provided.

In related news, the chart has been updated.

Does anyone want to make a prediction on what the next 6 months might look like?

Orange line down, flat or up?

The blue line has never dropped below 0.2% since the 1970s, by the way.

Awkward silences by the barbecue

There are some axioms of Australian life that are best observed from an outsider’s aspect.

They can be witnessed in action at suburban social gatherings, such as barbecues or kids’ sport.

The rule is, when a group of middle aged Australian parents (and this is particularly true for Sydney and Melbourne) gather socially, there must be sufficient time allocated for conversations on the following subjects:

  1. Which high schools will little Atticus and Chlamydia be attending? The sub-rule to this is that the discussion must be started by the parent who believes they have the best bragging rights in this regard. As in, “So, we’re sending Tarquinus to Shore, where are you sending Shane? Oh, local public school? I’m so sorry.”.
  2. How many foreign holidays will you be taking this year? To European readers, this might seem strange but bear in mind a return overseas flight from Australian in cattle class is about a thousand dollars, the total cost of even a budget holiday soon racks up. One annual trip is good, two is impressive, three is multi-millionaire status.
  3. How much has your house risen in value and how many additional investment properties do you own? Everyone wants to open the conversation with this but allow the previous two discussions to play out first to avoid appearing gauche.

However, we’re not in Kansas anymore, Toto….

Our chart has been updated with the last data points before the China Flu lockdowns commenced.

Some context might be useful; the RBA has been publishing the lending data since the 1970s and, from that time until 2017, the monthly increase in lending for domestic property has fallen to 0.3% or lower only three times.

Bill’s Opinion

The chart is already suggesting a further leg down was on its way in the winter of 2020, before the impact of the pandemic hit the data.

What happens from here is anyone’s guess; there will be competing factors of bank forbearance, historically low interest rates, removal of lender’s insurance, a sharp increase in unemployment, economic slowdown due to isolation policies, etc.

My view is there will be a sharp and relatively deep fall in property values, realised only by those unfortunate enough to be forced to sell (by the three Ds; death, divorce or dole).

Let’s say about 30% from the peak. Perhaps that’s wrong by a large factor, but if you agree there will be further falls, there is only one question left to answer;

What will the people talk about at barbecues when they don’t want to talk about property prices and the major sports leagues haven’t restarted?

There’s going to be some awkward silences…..

Widening jaws, bouncing dead cats

We’ve not updated this for a couple of months:

Well, that’s certainly telling an interesting story, isn’t it?

Regarding the lending figures; prior to 2019, the monthly change had only previously fallen to 0.3% or lower three times since the 1970s. It had never fallen as low as 0.1% until this October and November.

Market volumes must surely be playing a part in this picture.

Bill’s Opinion

Despite the voices claiming all is well and there’s never been a better time to buy, the lending data is flashing a red warning sign.

Unless buyers have found a new, magical source of capital, this recovery is likely to be short-lived.

My personal view is, stay out of this market until at least three consecutive months’ lending change figures above 0.3%.

John McGrath; inside a trade, thing

This amused me today.

We’ve discussed the altruistic character that is John McGrath previously, and how his track record is very clearly to create wealth for people called John McGrath whilst absolutely destroying value for those who invest in his company or, indeed, listen to his advice on the trends in the real estate market.

In fact, without wishing to say, “I told you so”, I will have to say, “I told you so”. As I wrote just under 12 months ago in response to McGrath’s advice for property owners to hold their nerve and not sell as the market will definitely recover quickly:

If you really want to become a millionaire, take 6 million dollars and invest it in whatever John McGrath tells you to.
A cynic might suggest John would like you all to not flood the market with your firesales until he’s finished the conveyancing on his.

What a difference a year makes.

Bill’s Opinion

One can accuse John McGrath of many things; share market con artist, pathologically-addicted gambler on horse races, double-faced spruiker, etc., but he definitely knows more than most about the Australian property market.

Whether he needed to cash in his assets for reasons of expediency due to crippling gambling debts or not, we might never know, but there’s a big flashing sign for anyone who believes the personal stock trading of company directors is a good indication of whether or not to buy their shares.

In the meantime, this is yet another example of the delta between expressed and revealed preferences.

Cheer up!

Switching on the news and browsing the media websites this week is unusually depressing. Without perspective and a wider source of information and analysis, one could be excused for thinking the world is going to hell in a handcart. I’m not going to list the reasons why one might be feeling low, the media do a good enough job of running “if it bleeds, it leads” stories. 

In any case, I’m not convinced it’s true. In fact, I think the reality is almost 180 degrees the other way; there are far more signs things are going well and what we’re being served as news is simply a mixture of confirmation bias and a logical reaction to incentives. A regular browse of the good news stories on Human Progress is a useful counter to the media confirmation bias.

I don’t say this lightly…. I have become convinced, via conversations with friends, family and colleagues that the media business model, what is left of it, has become detrimental to the general mental health of the world.

Technological advances have resulted in a proliferation of volume (24 x 7 updates) and sources (you’re reading a personal blog, but it’s still “a source”) of news. Our old friend, Pareto distribution, drives eyeballs and clicks to those presenting the most compelling new information.

Not much bad stuff happened today” is not a headline we’ll continue to tolerate on consecutive days for very long.  

Let’s lighten the mood a little today then. Because it’s human nature to take pleasure at others’ mild misfortune (after all, that describes the basis for all comedy), today’s blog post is simply a bunch of happy predictions I am prepared to make and the timeframe within which I expect them to occur. 

If you share my optimism and outlook, they might cheer you up immediately. If you don’t, you might experience the even greater pleasure of delayed gratification when the deadline passes and you can return to the comments section and have a chuckle at my expense. 

Either way, I will benefit from a warm feeling of selfless, righteous altruism….

Bill’s Opinion Predictions

Sports

The Bledisloe Cup match this weekend will be won by Australia and, if this prediction transpires, they will go on to draw or win the return match the following weekend and therefore finally win the Bledisloe Cup for the first time in almost a generation. This one is a long shot and is based more on a feeling New Zealand’s team has become fragile and somewhat “woke”.  

The 2019 Rugby World Cup will be won by a northern hemisphere team. My preference would be England but I could probably live with it being Ireland and, after a little introspection and professional counselling, even Wales. The important point is, it’s not going to be New Zealand.

Brexit

Britain will leave the EU on October 31st without a deal. Boris Johnson will be Prime Minister at the time, but will call a General Election in January and will be returned with a clear but not large majority.  

No material changes will occur to the border between Ireland and Northern Ireland.

Britain will not experience significant disruption to trade or travel as a consequence to Brexit. Some luxury or highly-specialised goods or services might have a wobble but will be solved within a few weeks.

EU

As a consequence to the world not ending after Brexit, the EU will double down on their commitment to a European federal una-state, passing laws to ensure a single taxation code, a European military, centralised control of immigration and further adoption of the Euro.

Leo Varadkar will be ousted as Taoiseach by the Dáil before Christmas 2019 as a reward for being played by the EU with regards to Brexit.

USA

The Democrats will nominate Elizabeth Warren as the 2020 presidential candidate. Donald Trump will win a second term with an increased share of both the Electoral College and the popular vote. The presidential debates will comedy gold on a par with the best efforts of Monty Python and Ricky Gervais.

Media

Following the USA elections, there will be some high profile media casualties, with a consolidation or bankruptcy of several high profile brands such as CNN, MSNBC, The Washington Post and the New York Times.

In other countries, such as Canadia and Australia, several mastheads and broadcasters will be further subsidised or even nationalised.

Global Economy

Despite the continuing call for a global stock market crash, higher highs will be reached on the major indices. Gold and silver will see a 20% increase by the end of 2020.

China will “lose” the trade war with the USA. This will be spun as the opposite to save face but the trade indicators will show a material improvement towards the USA.  

Australian Economy

Flat as a pancake over 2019 and 2020 with a slight uptick in unemployment.

House prices in the two main cities will continue a slow atrophy with the occasional dead cat bounce for a month or two which will be lauded as signifying the “new bottom”. At the end of 2020, prices will be lower than today.

 

This is a knavery of them….

So said Bottom.

There’s another bottom around, apparently:

Sydney’s biggest correction in house prices since the 1980s should be over by year’s end but there is no sign of a return to boom times, according to new forecasts.

Ok. I’m sceptical but let’s hear their reasoning behind this.

Domain’s property price forecast for June 2019, released on Wednesday, expects median house prices in Sydney to bottom out at just about $1 million and median unit prices to dip just below $700,000 in spring.

I don’t want to play the man not the ball here but isn’t Domain’s entire raison d’être to sell property?

The market is tipped see a modest turnaround next year, a forecast supported by low interest rates, strong population growth and ongoing low unemployment. 

House prices are expected to increase by 3 to 5 per cent over next year, while unit prices are forecast to rise by 2 to 4 per cent.

The thing about predictions, as the American mathematician Stanislaw M. Ulam famously said, is they are notoriously difficult, especially about the future.

Domain economist Trent Wiltshire said the trifecta of an interest rate cut, the Coalition’s election win and potential lending rule changes helped the market bottom out sooner than expected.

Yes, all three of these are potentially good news for property prices. I suppose the missing question and answer is, are any of these actually the most important factor driving rises and falls in the asset class?

“The big factors contributing to prices bottoming out is what has happened in the past few weeks … it turned around the market’s thoughts,” Mr Wiltshire said. “People will be able to borrow more and that should follow through.”

Quite, Mr. River for a Firstname, County for a Lastname, “economist” for a property services website.

Perhaps people are able to borrow more, having the resultant flow on for prices as demand increases. It doesn’t necessarily follow they will borrow more though.

More on that later.

By the way, who knew that a market was a sentient being with thoughts? Hello Skynet.

Meanwhile;

Sydney’s auction clearance rate is at its highest in more than a year.

Don’t, whatever you do, mention that volumes are half of what they were at the peak and those few properties that do sell at auction (rather than sold privately earlier and then added to the highly-fictitious figures) are sold because they are being greatly-discounted to meet the market.

ANZ senior economist Felicity Emmett said the forecasts were in line with her expectations.

There’s a prediction we will return to in a year or so then.

Economist Stephen Koukoulas said it was more likely for property prices to see zero or negative growth than a dramatic turnaround next year.

Nice to see The Kouk has stopped trolling and returned to reasonable market commentary now he’s come to terms with not landing a plum government advisory job for the duration of this Federal term.

One has to love the use of “negative growth” there, if only there was a shorter, more commonly used synonym in the vernacular. I don’t know, something that rhymes with tall and is a homonym for autumn in American-ese….

Anyway, back to that minor factor impacting property prices; lending.

For reasons of incompetence or mendacity, most commentators talk about supply and demand as if the latter is simply a function of sentiment.

In a real world where most purchases are leveraged through borrowing, demand is less about what one would like to buy and more about what the bank will lend me in order to buy.

So, the RBA’s lending figures have been published for calendar month May. What’s the data saying?

Oh dear, that wasn’t supposed to be story.

Here’s the updated Are We There Yet, Mum? Index;

Now, obviously I’m not as educated and clever as someone employed as the “senior economist” for ANZ or “economist” for Domain but it would seem to me one of two things need to be true for property prices to stop falling and then begin to rise, either;

  1. The blue line on that chart needs to reach the 0.4% hurdle and stay there or above for at least a couple of months, but probably much longer, or
  2. A new magical source of funding is found that doesn’t involve domestic banks.

As you were, people, as you were.

There seems to be an obvious solution waiting to be found

The new oppressed class living amongst us is, apparently, single people.

No, don’t laugh. It’s true; The Sydney Morning Herald managed to find space between the Folau-dering to published an article about it, so it must be correct.

Grab a coffee, settle back and let’s try not to laugh too loudly as we witness mental illness given a public forum yet again in Sydney’s premier progressive organ:

Ok, you were warned. Here’s one of the oppressed;

Lucy Bloom says everyday household expenses such as rent, utilities, insurance and buying food or furniture can be twice as expensive if you’re single.

You may find this to believe but Marilyn, sorry, Lucy is single. Hardly credible, is it?

Now that you’ve got over that shock, here’s some barely believable maths for you to come to terms with;

A one-person household can spend $2835 per month on living costs – 27 per cent more than couples, who spend a combined $4118 per month.
Lucy Bloom can attest to the fact the singles tax is alive and well in Sydney, too.

If, like me, you’re struggling with the underlying equation resulting a statement that $2,835 is 27% greater than $4,118, consider inserting the words “per person” somewhere in the sentence. Sub-editing going well?

Lucy is a financial giant amongst us pygmies, however;

“So many things cost the same whether you’re a single or a couple, so it’s effectively twice the price to be on your own,” the management consultant says.

She’s a “management consultant”? Let that one sink in for a moment. 

It gets better;

“If I had a live-in partner, the only cost that would change would be food, but there would be two incomes to play with,” she says.

And if my mother had wheels, she’d be a trolley.

Actually, Lucy, if you had a live-in partner with another income, you’d have two incomes to play with.

But regardless of language semantics, she’s doing it tough. She barely knows where next month’s hair dye is coming from; 

“The only way I make it work is by renting out my spare rooms on Airbnb, which covers my mortgage.”

“Living by one of the best beaches in Sydney certainly helps my occupancy rate,” she says.

“On the upside, I have my personal freedom and an asset that has increased in value by $600,000 since 2017,” Ms Bloom says.

Right. Not exactly walking 20km barefoot to the well to collect drinking water each day, are we?

That last sentence in the quote is almost “Peak Sydney”; I’m sad and lonely and need to seek attention by dying my hair bright pink and whining about my life in a national newspaper but at least I’m an economic genius when it comes to investing in property. 

Let’s hope nobody bursts her bubble by showing her the CoreLogic indices relating to apartments in the Eastern Suburbs any time soon.

The best is saved for last though. Apparently, the oppressed singletons have one significant expense the privileged couples don’t;

One in four Australians spend $100 or more on pre-date preparation, including new clothes, shoes, hair and makeup and a further $79 on the first date.

They didn’t mention the additional costs associated with veterinary bills for cats, strangely.

Bill’s Opinion

This seems to align closely with Sailer’s First Law of Female Journalism;

The most heartfelt articles by female journalists tend to be demands that social values be overturned in order that, Come the Revolution, the journalist herself will be considered hotter-looking.

Soggy bottoms

If it feels like this month’s update to the “Are we there yet, Mum” Index has come around early, it’s because last month’s was late. Sue me.

Since the Federal election and yesterday’s decision by the RBA to cave in to the noise prudently lower interest rates to yet an even lower historical low, the Legacy Press (c) and social media has been awash with vested interests talking up their own book.

Notable characters included in this description are Doctor Andrew Wilson (he’s a doctor of property!), the usually mildly sober Pete Wargent and practically every estate agent left solvent and trading. Apart from offering tangible data about “da feelz“, sorry, “market sentiment“, an increase in the auction clearance rate (i.e. the ratio of properties sold against those put up for auction) is presented as evidence for this ding dinging of the bell calling the bottom.

Now, it may well be that the nadir of the Sydney market has been and gone. That data point is, thankfully, a relatively objective measure. We can probably confirm this in about 2 month’s time when this month’s sales information has washed through the databases.

Our updated index (presented below), isn’t suggesting the trend has reversed, however. The relative change in the RBA lending data is still bouncing along at the lowest it’s ever been (before 2017, one could count the months it had been at 0.3% or below on the fingers of one hand) and the CoreLogic price index is still showing “negative growth”, i.e. prices are still falling.

It could be credibly argued that the CoreLogic data is a lag measure, so Wilson, Wargent, et al, could be correct in their bottom-calling, but the RBA data is almost certainly a lead indicator. Awkward…

Bill’s Opinion

The index suggests we’re still about 2 to 3 months from a possible bottom in the Sydney property market, and that’s likely to be the continuing situation until we’ve seen a quarter of a year’s worth of lending figures above 0.3% increases.

For those who pay attention, I’ve switched the trend line from linear to moving average as it seems more useful now we’ve reached a (low) plateau.