Start worrying when this happens…

Tuesday, 30 January 2018
Melbourne, Australia
By Bernd Struben

  • In the sweet spot
  • Trickle down Down Under

Home owners take heart.

Renters…be patient.

As you likely know, the last few months have seen declining property prices in most of Australia’s capital cities. That led to a wave of predictions that the great Australian property bubble had begun deflating.

CoreLogic’s latest Home Value Index shows prices in Sydney fell 0.93% in December. Even Melbourne’s red hot market saw a fall of 0.20%. Year-on-year that leaves the average home value up 3.09% in Sydney and 8.89% in Melbourne.

But prospective home buyers, hoping the recent price falls would continue and put their dream within reach, may be disappointed. Property owners, on the other hand, should be pleased.

At least according to Macquarie analysts. They’ve concluded that house prices have already stopped falling.

From The Australian Financial Review:

“It is now looking very likely that housing prices at the national level are again rising modestly,” the [Macquarie] analysts said in a note to clients.

Their analysis is based on an assessment of seasonally adjusted house price data from Domain’s APM and CoreLogic’s RP Data.

“Dwelling price growth and activity are quite seasonal so the data must be seasonally adjusted to get a clear read on housing price trends.”

“After seasonal adjustment, monthly growth in APM’s measure of capital city dwelling prices has picked up modestly in recent months.”

And it’s the same for CoreLogic.

“Utilising CoreLogic’s data to mid-January shows a clear improvement in seasonally adjusted dwelling price growth, with the caveat that sales volumes in January are very low.”

However, the analysts do not expect a return to double-digit price growth. Government crackdowns on investor loans and the spectre of rising interest rates should keep the price growth more subdued.

Could this be the slowdown leading us into the mid-cycle downturn?

We’ll get back to that right after the markets…

(If you’re not familiar with mid-cycle downturns, you can bring yourself up to speed here.)

Markets

Overnight, the Dow Jones Industrial Average closed down 177.23 points, or 0.67%.

The S&P 500 fell 19.34 points, or 0.67%.

In Europe, the Euro Stoxx 50 index finished down 4.37 points, or 0.12%. Meanwhile, the FTSE 100 climbed 0.08%, and Germany’s DAX lost 15.69 points, or 0.12%.

In Asian markets, Japan’s Nikkei 225 is down 348.27 points, or 1.47%. China’s CSI 300 is down 0.70%.

In Australia, the S&P/ASX 200 is down 52.50 points, or 0.86%.

On the commodities markets, West Texas Intermediate crude oil is US$65.49 per barrel. Brent crude is US$69.46 per barrel.

Gold is trading for US$1,340.76 (AU$1,655.67) per troy ounce. Silver is US$17.18 (AU$21.22) per troy ounce.

One bitcoin is worth US$10,917.17.

The Aussie dollar is worth 80.98 US cents.

In the sweet spot

If you subscribe to Phil Anderson’s Cycles, Trends and Forecasts you’ll be familiar with mid-cycle downturns already. And you’ll know when to expect the next one.

You’ll also know it’s been about 18 years since the last one.

I first met Phil in 2014. At the time, many of my colleagues at Port Phillip Publishing were predicting a housing crash and an end to Australia’s lengthy recession-free run. And their arguments were compelling.

Phil, on the other hand, said interest rates would go down, and governments would do everything they could to maintain the upswing in stocks. He also noted that the enclosure of the economic rent would ensure Aussie properties marched onwards to ever higher highs.

Right up to a certain point…

Here’s what Phil wrote to his subscribers this morning:

We are now approaching the peak of the first half of the real estate cycle.

You will find that the professionals — the traders at Blackrock and the big fund managers who bought up so much seven or eight years ago — will now start to think about taking a few profits.

But they’re not going to tell you this. Because they want buyers for what they’re taking profits on.

Those guys know there is a real estate cycle and that — for them at least — it turns about every 7¬9 years. You have the added advantage of knowing the genuine length, and the difference between the mid-cycle and the extreme top.

We’re now in the sweet spot of the cycle. If you’ve read my book you’ll have a very good idea about how the next couple of years could play out.

It’s highly likely to happen the way I’ve described it. There’s now almost 400 years of detailed data backing it up.

Good news will come out. Statistics will be shown to prove that world economies have stabilised. Worries and anxieties will dissipate.

And we’ll all start feeling a lot more secure this year.

I’d start worrying when that happens.’

Phil is channelling Baron Rothschild here, an early contrarian investor.

The time to make the biggest gains isn’t when everyone is feeling complacent and piling into the market. Rothschild himself made a fortune snapping up bargain assets following Napoleon’s rout at Waterloo.

As Rothschild famously stated, ‘The time to buy is when there’s blood in the streets.’

The mid-cycle downturn Phil forecasts should offer investors some good bargains. But you shouldn’t panic heading into this slowdown.

Unlike the end of cycle downturns — think GFC — the coming mid-cycle downturn will be a bump in the road.

As Phil writes:

We’ll see some sort of stock market panic, then an economic slowdown the following year. But I am not expecting this to be serious.

After that there will be a strong recovery.

Governments will do everything possible to engineer it.’

Governments have already largely driven the global recovery since 2009. They’ve printed trillions of dollars, yen and euros. And they’ve dropped interest rates to zero and below.

And it’s worked a treat.

Just ask any homeowner who bought property in Sydney five years ago.

Or any investor who went the easy rout and bought an index-tracking ETF. Like the SPDR Dow Jones Industrial Average ETF, for example. It’s up 89% since 1 February 2013.

At some stage though, even the world’s almighty governments will run out of tricks.

That’s when we’ll see the extreme corrections. The next end of cycle downturn.

In his new free tutorial, Phil Anderson tells you exactly when he expects that to be, based on his lifelong analysis of 400 years of real estate and market data.

You can access the free tutorial here, and discover what Phil sees happening next in stocks, property, and commodities.

More than that, he’ll explain how you can make these same calculations yourself.

Trickle down Down Under

In yesterday’s Port Phillip Insider, we had a look at the early effects of the US corporate tax cuts, where rates were slashed from 35% to 21%.

Businesses and their executives will certainly benefit from having to hand over less of their hard-earned revenue to the government. As should shareholders. But we also saw that hundreds of companies in the US are already spreading the joy to their workers.

JPMorgan, Walt Disney, Starbucks, Apple and Wal-Mart — to name a few — have announced hundreds of millions of dollars in bonuses, pay rises, and beefed up employee benefits.

Yet in Australia, socialist leaning pollies continue to argue that cutting Australia’s corporate tax rate for all businesses to 25% from 30% will benefit only the wealthy.

Writing in The Australian Financial Review today, Richard Holden, professor of economics at UNSW Business School, begs to differ. As a professor his writing is fairly heavy. Below are a few relevant extracts:

‘[A] recent empirical study by three German economists, published in the flagship American Economic Review, contains an ingenious way to get at the causal effect of company tax rates on wages…

‘[O]n average, workers bear 51 per cent of the total company tax burden. And because of their worker-level data, the authors can speak to which workers are affected the most and hence the distributional consequences of company taxes.

They find that higher company taxes reduce wages most for the low-skilled, women, and younger workers…

The striking implications of how high company taxes can undermine the progressivity of the income-tax-transfer system certainly apply to Australia, too.

The best, most credible evidence we have suggests that a cut in the Australian company tax rate is not a gift to the so-called “big end of town”. It provides a benefit to businesses and workers in fairly equal measure. And the benefits to workers tend to flow disproportionately to women, young people, and the less skilled.

Just some food for thought. Perhaps good for a little light-hearted banter over the dinner table with any left leaning friends or family.

That’s all for today.

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The Australian government’s current overkill on laws to combat espionage are only the latest example.

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Cheers,
Bernd