Hi,
I read this and I thought you'd be interested. It's got fancy graphs, statistics and much more meat – it's a 36 page document.
Retail Outlook: A Strong 2007
A strong year for retail despite higher interest rates. More tightening coming through. So far consumers are continuing to show resilience.Policy levers at loggerheads
Monetary tightening being stymied by fiscal boosts and booming labour market.
Rate hikes and tighter credit conditions will impact on disposable income, new borrowing and may see consumers turn cautious but these negatives are being offset by strong job markets, strong gains in wealth and non labour income plus a hefty boost from the government.
Net effect has been positive for household disposable incomes.Household cashflows tell the story
Surge in income has swamped higher interest payments and even allowed households to rebuild savings while also spending strongly.
Situation is set to continue with labour demand still strong and another $10.5bn in tax cuts and other payments to households.Interest rate will bite harder in 2008 with household interest payments likely to hit $100bn.
But the incremental impact on aggregate household cash flows will again be swamped by labour income.Risks centre on financially vulnerable households
Impact on financially vulnerable households is the real risk. Bankruptcies and home loan arrears still comfortable while cross sction analysis suggests most indebt households are well-placed to meet their obligations.Still significant number of exposed households eg. 11k low income first home buyers which are likely to be accounting for most of the rise in bankruptcies so far. Risk is that there prove to be significantly more households in this grey area, but few signs of a serious problem so far.
Inflation pressures continue
Higher inflation and interest rates looming as the main threat in 2008. Two more 25bp rate hikes in 2008H1 should do the trick but risk that more may be required.Escalating prices erode purchasing power as well, most notably through higher food, fuel and rent costs.
Global prices and the AUD
Relative cost of many retail items has improved significantly over the last 7 years helped by the GST, falling global prices and a rising AUD.Chinese deflation threat has moderated / reversed. Currency price effects will also reverse medium term. AUD to push back above 90c US but gains will be hard to sustain.
A return to pricing power for retailers?
Strong profits as surging sales volumes have combined with well contained costs. Some recovery in pricing power has also helped but still in the context of strong long run trend decline.Wages: watch this space
Wages have been remarkably well contained at least in part due to the introduction of Workchoices. Policy will change under the new Labor GovernmentResurgent housing market a clear upside risk
Housing is a key source of upside risk for retail. Housing shortages appear to be driving an upturn, albeit one constrained by affordability problems. Rate hikes will dent the upswing but it may still gain momentum. Upside risk to demand for housing fit-out items but also a big boost possible through rising household wealth.Household wealth and housing equity withdrawal
Housing equity withdrawal an unpredictable ‘wildcard’ for demand.Outlook for 2008: some moderation
Retail: Real sales growth to slow from a stellar 4.6% in 2007 to trend 3.3% in 2008.
AUD: Volatility remains high as credit issues stalk the landscape. The current account deficit position comes under major scrutiny whenever liquidity tightens. AUD denomination of foreign debt is a partial hedge.
Interest rate: Interest increase to 50bps in the 1st half of the year despite weaknesses offshore.
Australia: Growth is at a 3 year high but is this the peak? We remain optimistic that 4% growth is achievable in 2008. Constructions look formidable and capital expenditure still has legs. The export recovery has arrived and consumers will be resilient due to robust income growth.
Australian consumers: Our analysis of income flows shows that rate hikes and tax cuts broadly cancel each other out. Neither comes close to matching the importance of old fashioned labour income. Jobs are the key factor, and at this stage the outlook is good. The real risk to households revolves around the impact of rate hikes on financially vulnerable segments, not a squeeze on the sector as a whole. Job creation has accelerated and broadened to more sectors. Wages tend to have done likewise with traction retained in construction and manufacturing even though communications, finance &insurance, property and business services has not seen jobs growth but remains robust.
Share markets: Volatile times to persist into 2008. Wall Street stages a partial recovery but economic outlook is soft. Australian market outperformance to continue in 2008 but unlikely to shine as brightly as 2007.Cattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
Who knows, F.
As I said; broadly speaking.
You can go through and find contradictions on either side forever.
They're both crap anyway.
sheesh.
foundation wrote:L.A Aussie wrote:simple wrote:OK, bright part of Aussies have elected the Labor party to rule the country. I hear that they are
Labor is a party that looks after the down-and-outers and favours hand-outs to the masses; looking to keep them happy at the expense of longer term national economic activity and investment. Noble; but not necessarily good for the Country. They take away incentive for people to get off their ar$es and work to keep the economy ticking over.Liberal is a party that tends to look more to encouraging and supporting business, investment, economic endevours first, the hand-outs for the sheep are second. The motivated get rewarded; the others don't – as it should be.
But it was the Lib's who decided to tax unproductive speculation at less than half the rate of actual productive activity, right?
F. [cowboy2]
1 word – CHINA
Hi all …
How do you think Mr Rudd will handle the challenges facing the government with the interest rates and petrol hickes on low income families …
D
Update:
RBA/Banks now talking not " rise interest of not" but " how much to rise"
On the other hand Brisbane real estate seem to hesitate in some price brackets ($700-$900K), but the rest still selling strong. Where do the people getting so much money from our days??? Good help them if they borrowing the lot.
I sense bargains times ahead.
Hi Simple yes I agree interesting times ahead … poor Sydney has been hit the hardest and I feel sad for the people hurting out West …
Brisbane and the East Coast is doing very well … hotspotting says that Harvey Bay is looking good again … Airlie Beach has dropped off completely and Laguna Resort in all sorts of financial difficulty …
D
BOOM – sound of bobble starting to collapse… Here we go Lads and Gents, welcome to the era when conservative low geared people rule. As predicted by some, tipping over point is reached.
simple wrote:BOOM – sound of bobble starting to collapse… Here we go Lads and Gents, welcome to the era when conservative low geared people rule. As predicted by some, tipping over point is reached.We are on the verge of a downturn never before seen!! Front page of Mebournes Herald Sun "Home buyers bolt" clearance rates down to 60% and this is just the begining!!! lol man am I guna enjoy sitting back watching all the mayhem when I was made to feel like an idiot any time I said the boom couldnt continue!!! Hahahahahahaah
The Mother of all Credit Meltdowns has started in the US and UK and there are lot of recenly enterd property investors upside down, a bank run has happened in the UK , major crisss nd downgrding of all teh US big fincers, German Bank looking very iffy, US in recession, no one trusts anyone anymore ,and no one knows where the dead bodies are buried and how many there are.
No doubt this is the big one and some say the worlds financial systems are at tipping point but others say that the crisis has already been priced into the markets. The FED have dropped interest rates at a record pace and these rates are not being passed on. Global inflation has broken awy and for the first time is is not a national identfit yit is global this is a first.
China is cashed up and hasn't had to play any of its economic cards yets unlike the US and UK which have played most of theirs. Lets hope that decoupling is a reality some say it isn't.
Oz doesn't exist in a vaccum and will be affected and who knows how it will pan out. Those investors that bought well and have worked out their holding costs shouldn't be overly concerned. The economic fundamentals are still very strong in oz, employment, commodites and surpluses so I would rather be here than elsewhere in the next few years. I cant see an employment shock as there re so many major projects on now or in the pipeline.
I have decided to pull my own head in and backed out of a few investments in coal and oil. Fixed all my investment loans have a decent LOC facility if I need a buffer or want to invest in a bargain and otherwise sitting back and watching the meltdown in US and UK unfold. Listings have shot up in Brisbane they say that sellers and investors trying to beat future rte rises so looks like supply might increase and we know what that means.
At Melton West, a mortgagee sale of a six-bedroom house passed in at $200,000 — $255,000 had been offered in November.
A MODERN four-bedroom Vermont home passed in for $800,000, despite five buyers having made earlier offers about $850,000;
The housing boom in Perth was the result of the mining boom which has in no way slowed and continues to underpin prosperity in this country. Prices no doubt will soften slightly with all the media hype but the demand is still strong and as investors with the shortage of houses in some areas there are some great positively geared deals to be had as in mining centres througout WA rental income is through the roof. I sometimes wonder if the media has more to answer for than the reserve bank when it comes to puting fear into people
I don't understand why property investors would be worried about property values dropping anyway we know it is a cycle and will eventually rise in the meantime doesn't it mean there are going to be some very cheap deals to be had as people begin to panic and sell up in a buyers market.
Iron Ore Price up 60% coal up similar commodities seen globally as a good hedge against falling Us $ and inflation Brittish Gas just invested 300million Brittish Pesos in QGC their first foray into oz and some big global guys talking up oz as follows.
quote
The storm hanging over the U.S. economy has stalled. Key indicators aren't turning up; heck, they're not even turning sideways yet.
It's clear the dark clouds raining down on the economy won't be going anywhere anytime soon. Thus, we should soon start to expect some peripheral flood damage.
That means bad things for some currencies.
The Dollar Has Been Severely Beaten,
And the Euro and Pound Are NextThe Philadelphia Fed economic index recently showed manufacturing in the Philly area contracted more than twice as much as expected.
But that was only the first beat in a drum roll of bad news this week. There was also negative data on inflation and jobless claims.
So are analysts jumping all over the R-word again? Actually, they're skipping to the next letter of the alphabet in evaluating the U.S. economy. I'm talking about an S-word — stagflation. You know; that delightful combination of near stagnant growth amidst rising prices.
The buck has already received a severe beating on account of these pitiful fundamentals. And as I told you last week, the euro and the British pound are priced for perfection and thus in danger of getting hammered.
Here's the good news: There ARE other currencies out there that aren't weighed down by lousy fundamentals. And among these strong currencies …
The Australian Dollar Is
In a League of its OwnAustralia is a prime example of a major industrialized economy that is NOT suffering from financial-led turmoil.
And that means the Australian dollar stands to benefit.
Here are just two reasons why …
Great Fundamental #1:
Demand for CommoditiesAustralia's economy is driven by natural resources. And when gold is trading well over $900 an ounce and crude oil closing above $100 per barrel for the first time ever this week, you can see why a resources-rich country like Australia is flourishing.
Demand for natural resources should power the Australian dollar higher!
Thanks to steady demand from China and other emerging Asian markets, Australia is rolling along like a snowball down a hill!No doubt you've heard of China's unrivaled demand for natural resources? Well, the Australian labor market proves it's true.
In January, Australian unemployment fell to its lowest level since 1974. And the addition of 26,800 new jobs marked the 15th consecutive month of gains.
Why? The Australians can't dig up gold or ship out wheat fast enough to meet demand!
And remember that Australia's job market strength comes as the employment situation in the U.S. is softening. Opposite ends of the spectrum, indeed.
There's no doubt Asian demand is a boon to Australia's economy.
Internal Sponsorship
It's official: Government reveals U.S. is now a
STAGFLATION NATION!» Inflation: Accelerating!
» U.S. Manufacturing: Tanking!
» Unemployment: Rising!
» Leading Indicators: Plunging!
Here's what to do now to harness the enormous profit power of this new stagflation environment, and go for gains of up to 46 to 1 as weak U.S. stock sectors get slammed …Great Fundamental #2:
Relatively High Interest RatesCurrency trading, at times, is largely determined by the difference between countries' interest rates. Generally speaking, a currency that throws off a yield of 6% is a far more attractive investment than a currency yielding only 0.5%.
These yield differentials make up the mechanics of the carry-trade .
As you can see, the Australian dollar is second only to New Zealand (8.25%) in terms of yield. But what's even more appealing is the direction rates are expected to take.
Most major central banks around the world are in one of two positions:
#1. They have already cut rates and are expected to cut rates further.
OR …
#2. They are expected to begin cutting rates.
The Reserve Bank of Australia happens to be in a different position: they're pushing rates in the other direction — UP.
Why? Because they can!
As I pointed out a minute ago, the Reserve Bank of Australia is working on a firm growth foundation. They have no worries about tightening up monetary policy to control rising prices, which stem largely from the country's super-tight job market.
Other central banks would have to sacrifice economic growth with interest rate increases. And that's just something Australia won't have to do.
While the Australian Dollar Is
Well Positioned, Stay Alert!You know now why I'm bullish on the Australian dollar over the long term. However, it's important that you also understand that even the strongest swimmer can have a tough time staying above water in a perfect storm.
Currencies that attract investment via high yields are vulnerable to downside in an environment flooded with risk, despite strong fundamentals. This is just the kind of environment we have right now.
So we could see money exit the Aussie dollar in search of less volatile and less risky investments at any point.
The key question is whether traders are willing to look past near-term problems in the global markets and follow the fundamentals.
Bottom line: I think the Australian dollar has a date with U.S. dollar parity in the long-term. But we cannot underestimate the trouble yet to unravel in the American, British, and European markets, either.
Lets hope we are decoupled
THE CRISIS IN FIGURES
Number of families with a sub-prime mortgage: 7.2m
Proportion of sub-prime mortgages in default: 14.4%
Sub-prime loans outstanding: $1,300 billion
Sub-prime loans outstanding in 2003: $332 billion
Percentage increase from 2003: 292%
Proportion of loans approved without fully documented income: 43%-50%
Number of sub-prime mortgages that will have their interest rate reset this year: 1.8m
Typical rise in monthly payment (third year): 30%-50%
Sub-prime share of all new mortgages in 2006: 28%
Sub-prime share of all new mortgages in 2003: 8%
Number of homes not in foreclosure whose value will decline in 2008-9 as sub-prime foreclosures lower the prices of surrounding homes: 45m
Value of that decline: $233 billion
blogs wrote:simple wrote:BOOM – sound of bobble starting to collapse… Here we go Lads and Gents, welcome to the era when conservative low geared people rule. As predicted by some, tipping over point is reached.We are on the verge of a downturn never before seen!! Front page of Mebournes Herald Sun "Home buyers bolt" clearance rates down to 60% and this is just the begining!!! lol man am I guna enjoy sitting back watching all the mayhem when I was made to feel like an idiot any time I said the boom couldnt continue!!! Hahahahahahaah
60% clearance rates at auction is still quite healthy really, its the 80% that they were running at that was unusual. Personally I dont get much pleasure from the prospective hurt of others, but I guess we are all amused by different things. This whole thread is a pessimists paradise, if it keeps up for long enough (a couple of years now) it will eventually be true as we go through the boom bust cycle as before. We will just have to see how intense it is.
The sooner we have a bust or correction. The sooner the doom and gloomers can jump up and down and celebrate the misery of others and the sooner we can look foward to a boom time.Let the babies have there bottle for a few years hey.
devo76 wrote:The sooner we have a bust or correction. The sooner the doom and gloomers can jump up and down and celebrate the misery of others and the sooner we can look foward to a boom time.Let the babies have there bottle for a few years hey.No, not celebrating the doom and gloom, but the inherint greed and self obsessed stupidity that has driven property prices out of reach of a lot of people….I have no sympathy for people who have to have it all now who will then cry the loudest when they find them selves over threir head who then expect to be bailed out usually at the expense of those who have saved and gone without.
Fair enough. But do you think the rich invester with many properties are the one that are going to suffer.The majority are going to be people struggling to pay there PPOR morgage and now they may have negative equity on top.Plus the average Joe who is trying to build a nest egg with 1 house for retirement. These are the people that are going to get hurt. there not greedy. just trying to better there life.I would be interested to know what the suicide rate is in Australia over the next few years.fact is this has the potential to destroy lives. I will not lie but, I hope to be in the position to buy cheap properties if a crash accurs. But i will behave maturely about it because i would know that my gain has possibly come from anothers loss.
You dont have to have a $550k mortgage, brand new car, plasma and surround sound to get by in Australia-but these are the same people who will cry the loudest. They expect our sympathy-its a joke. In the HeraldSun just last weekend there was a sob story about a poor couple who were facing loosing their house, has a nice photo of them standing at the front gate, big sad faces with puppy dog eyes, wowe is me type look WITH their nice new Commodore in the driveway!!!!! lol People want everything regardless of wether they can afford-its their fault we as a nation are so in debt and inflation is getting so high. There are plenty of houses for $200k-but why buy them when you can be in debt to your eyeballs and keep up with the jones'?
bardon wrote:At Melton West, a mortgagee sale of a six-bedroom house passed in at $200,000 — $255,000 had been offered in November.Actually that one sounds like a good buy – any more info?
devo76 wrote:Fair enough. But do you think the rich invester with many properties are the one that are going to suffer.The majority are going to be people struggling to pay there PPOR morgage and now they may have negative equity on top.Plus the average Joe who is trying to build a nest egg with 1 house for retirement. These are the people that are going to get hurt. there not greedy. just trying to better there life.I would be interested to know what the suicide rate is in Australia over the next few years.fact is this has the potential to destroy lives. I will not lie but, I hope to be in the position to buy cheap properties if a crash accurs. But i will behave maturely about it because i would know that my gain has possibly come from anothers loss.Steve,
You don't have to be greedy to get burned or wiped out.
All you have to be is financially uneducated, and a poor money manager.
There are PLENTY of very high income earners who go broke. Why?
Because they spend more than they earn on depreciable items such as $20k holidays to Tuscany, or a fully loaded 850 series BMW, or a $3 mill house on Beach rd, Brighton and so on. If you buy a house that is WELL within your means, then you can't go too far wrong.
Doctors are one of the worst offenders as a group for this. Academically smart, but not always financially smart; and lots of disposable income to murder, and a (perceived) image to project.
Here's an example; I know a doctor in LA who is a member at the Brentwood Country Club in Santa Monica. Nice golf course, but not the best in the world. He paid $200k to join this place, and it's another $600 per month on top for membership fees. He could join a Golf Club that is just as good a few miles away for about $5k, plus another $2k per year in yearly fees, and be able to afford a few IP's.
But no.
It's not often you see a person earning $250k per year living in a $350k house out in somewhere like Roweville in Melb, driving a 4 year old Honda Accord. No; they're hocked up to the eyebrows with a $950k house in Kew, and there are two brand new BMW 4WD's in the garage. Actually; they're not in the garage; the boat is in there; there's no room for the cars.
I'm not saying they shouldn't buy these items if they truly can afford them, but from my experience, people spend all their income and more to keep up with the Jones, don't do any investing in much other than "stupor-annuation" and don't allow for "rainy days" and "life".
Something happens like a car accident, loss of work – or both, or a downturn in real estate and a jump in interest rates while carrying very high LVR's, and so on.
Or, you'll get the average soccer Mum and Dad on a combined income of say $60k.
But there out there buying brand-new Pumpkin Patch clothes for the kids, they both smoke, they both have a new car on HP, they have cable tv, a video library membership, Mum spends $100 on her hair every month, they buy lattes every other day when they're out and about, they have 3 credit cards; all being hammered on a regular basis and only paying the minimum repayments per month, and they have a 35 square house with a double garage, and so on.
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