Australian Housing Market & Economy August 2024
Summary
TLDRIn this episode of 'Nuggets News', hosts discuss the alarming global trend of censorship and the arrest of the Telegram founder in France, hinting at a shadow government controlling information. They delve into the social media's impact on freedom of speech, the challenges of diverse opinions, and the influence of government and big tech on public discourse. The conversation also touches on economic topics, including market fluctuations, the potential for US interest rate cuts, and the implications of China's economic slowdown on global markets, particularly for Australia.
Takeaways
- π£οΈ The discussion highlights concerns over freedom of speech and increasing censorship on social media platforms, with examples such as the arrest of the Telegram founder in France.
- π There's a growing awareness of a 'shadow government' influencing policies and narratives, with Mark Zuckerberg admitting to past censorship mistakes on Facebook.
- π€ The importance of diverse viewpoints for a healthy debate and the emergence of self-censorship in mainstream media due to fear of repercussions.
- π The US markets experienced a significant drop and subsequent recovery, raising questions about the stability and future of market valuations.
- π The equal weighted index is back at record highs, indicating a market broadening, but with concerns about overvaluation compared to historical price-earnings ratios.
- πΉ There's uncertainty about the Federal Reserve's next move, with implications that rate cuts might signal economic weakness rather than a simple return to neutral stance.
- π Global debt has reached 315 trillion USD, with the US interest payments alone hitting 1 trillion USD annually, indicating a potential instability in the financial system.
- ποΈ The Reserve Bank of Australia (RBA) is under pressure, with high household debt and conflicting economic signals, making it difficult to predict future interest rate movements.
- π The housing market in Australia shows signs of weakness with reduced auction clearance rates and an influx of properties on the market, affecting different regions differently.
- π China's economic slowdown is impacting Australia significantly, particularly in the iron ore market, which could lead to a budget shortfall.
- πΌ Rising costs of living, including power bills and insurance, are putting pressure on households, with some individuals taking on second jobs to make ends meet.
Q & A
What is the main concern regarding freedom of speech and social media censorship discussed in the script?
-The script discusses the growing concern over the attack on freedom of speech and censorship on social media platforms. It highlights the arrest of the Telegram founder in France and the increasing awareness of shadow powers influencing what can be openly discussed, which is seen as a threat to the diversity of views and opinions.
How does the script describe the current state of the US markets?
-The script describes the US markets as having experienced a significant drop followed by a recovery close to all-time highs. It mentions the fear gauge (VIX) having a significant fluctuation and the market's reaction to various economic indicators and global events.
What does the script suggest about the Federal Reserve's policy direction?
-The script suggests that the Federal Reserve is signaling a shift towards policy adjustment, with rate cuts expected. However, it also raises the question of whether these cuts are due to a neutral stance or because of underlying economic pressures such as potential recession.
What is the significance of the equal weighted index reaching all-time highs as mentioned in the script?
-The script points out that the equal weighted index reaching all-time highs indicates a broadening of the market, suggesting that the market gains are not just concentrated in a few large tech stocks but are more evenly distributed across various stocks.
How does the script address the issue of global debt and its implications?
-The script highlights the massive global debt of 315 trillion USD and the concern that the increasing interest payments, now reaching a trillion dollars annually for the US, are unsustainable. It suggests that this level of debt could lead to instability and is a significant factor that will influence economic strategies.
What is the script's perspective on the role of the US dollar in the global financial system?
-The script discusses the debate over the role of the US dollar, questioning whether its preeminence is waning or if it will continue to be the dominant currency in global transactions. It also touches on the potential for dollarization and the impact of a strong or weak US dollar on global markets.
How does the script evaluate the current economic situation in China and its impact on other economies?
-The script evaluates China's economic slowdown, particularly in the steel industry, and its ripple effects on other economies, especially Australia. It mentions the suspension of steel plant approvals in China due to weak demand and the subsequent impact on iron ore prices, which could create a significant budget shortfall for Australia.
What does the script suggest about the Australian housing market?
-The script suggests that the Australian housing market is showing signs of weakness, with auction clearance rates dropping and more properties coming onto the market. It also discusses the high household debt-to-income ratio and the potential impact of sustained higher interest rates on the housing market.
How does the script view the role of immigration in the Australian housing market?
-The script views immigration as a critical factor influencing the Australian housing market, suggesting that the significant population increase through immigration has contributed to housing price inflation. It contrasts this view with mainstream economists who, according to a survey mentioned in the script, largely do not see immigration as a key issue to address.
What is the script's commentary on the Reserve Bank of Australia's (RBA) actions and communication?
-The script provides a critical view of the RBA's actions, suggesting that they have been slow to respond to economic changes and have not always made the correct decisions regarding interest rates. It also discusses the new Deputy Governor's speech, which cautions against false profits and the overconfidence of predictions, indicating a need for humility in economic forecasting.
Outlines
π Global Censorship and Social Media Concerns
The conversation begins with a discussion on the alarming increase in censorship and the attack on freedom of speech across social media platforms. The speakers touch upon the arrest of the Telegram founder in France, hinting at a shadow government controlling narratives. They express concern over the suppression of diverse opinions and the difficulty in accessing unfiltered news. The conversation also includes the influence of social media on public opinion, with references to Mark Zuckerberg's regrets over Facebook's past censorship and the challenges faced by influencers and mainstream media in expressing unbiased views.
π Market Volatility and Economic Indicators
This segment delves into the recent fluctuations in the US markets, highlighting a significant drop followed by a recovery near all-time highs. The discussion includes the fear gauge, VIX, and its impact on investor sentiment. Economic indicators such as job data and the Japan carry trade's influence on market movements are analyzed. The speakers also consider the implications of interest rate cuts by global central banks, including the Reserve Bank of New Zealand and the Bank of England, and the potential for similar actions by the US Federal Reserve, alluding to possible market reactions to such policy changes.
ποΈ Political Influence on Economic Policies
The focus shifts to the influence of political decisions on economic policies, with a critique of governments controlling economic narratives. The conversation discusses the potential for increased market volatility due to uncertainties around the US elections and differing policy implications. The speakers also touch on geopolitical issues, such as tensions in Ukraine and the Middle East, and their potential impact on global markets. Additionally, the conversation includes the challenges faced by Europe regarding immigration and the UK's handling of the issue, emphasizing the complexity and uncertainty in current economic and political landscapes.
π΅ US Dollar Dynamics and Global Debt
This part of the discussion centers on the US dollar's role in the global economy, questioning whether its preeminence is challenged or if it will continue to dominate. The conversation explores the implications of a strong or weakening dollar on global financial markets. Additionally, the speakers address the issue of global debt, which has reached 315 trillion USD, and the burden of interest payments on economies. They discuss the potential instability caused by high debt levels and the challenges it poses for future economic stability and growth.
π Decoding Market Trends and Economic Challenges
The speakers analyze market trends, noting the disconnect between central bank policies and the continued expansion of the debt market. They discuss the concept of quantitative tightening and its limited impact on curbing the growth of the money supply, as governments continue to issue bonds. The conversation also highlights the potential for market instability due to the current monetary system's structure, with a pyramid of debt and derivatives resting on a small base of tangible assets. The discussion concludes with a consideration of alternative financial systems, such as digital currencies, as potential responses to current economic challenges.
π Housing Market Insights and Economic Impacts
This segment discusses the Australian housing market, focusing on the challenges faced by renters and the impact of high-rise developments on the property market. The speakers note the struggles of builders to complete and lease high-rise properties, despite incentives. They also highlight the broader economic impacts, such as the increase in people taking second jobs to cope with rising living costs and the ongoing inflationary pressures from factors like insurance costs. The conversation underscores the complexity of housing market dynamics and their interplay with economic conditions.
π Economic Outlook and Policy Critique
The final part of the discussion revolves around the economic outlook, with a critique of mainstream economic perspectives. The speakers express skepticism about the effectiveness of current economic policies and the reluctance of economists to address critical issues like immigration's impact on housing markets. They also discuss the Reserve Bank of Australia's challenges in managing inflation and interest rates, highlighting the need for humility and scenario planning in economic forecasting. The conversation concludes with a call for a nuanced understanding of economic complexities and the importance of considering multiple scenarios in decision-making.
Mindmap
Keywords
π‘Freedom of Speech
π‘Censorship
π‘Shadow Government
π‘Social Media Influencer
π‘Diversity of Views
π‘Mainstream Media
π‘Quantitative Tightening (QT)
π‘Global Debt
π‘Interest Payments
π‘Digital ID
π‘Economic Update
Highlights
Discussion on the increasing censorship and control over freedom of speech on social media platforms.
Telegram founder's arrest in France highlights the growing concern over powers behind the scenes controlling information.
Mark Zuckerberg's admission that Facebook shouldn't have censored certain topics that later turned out to be true.
The importance of freedom of speech for the emergence of truth through debate is being compromised.
Concerns about self-censorship in mainstream media and the influence of undisclosed payments on public opinion.
Robert F. Kennedy Jr.'s decision to form his own party to openly discuss controversial topics like the pandemic and vaccines.
The potential dangers of social media regulation, such as arrests for expressing government-disagreeable opinions.
Over a thousand people in the UK have been detained for association with riots, highlighting the crackdown on social media activities.
US markets' volatile performance with a significant drop followed by a recovery close to all-time highs.
Analysis of the fear gauge (VIX) and its implications for market sentiment.
Debate over the Federal Reserve's decision to cut interest rates amidst economic uncertainty.
Concerns about market valuations being potentially overdone and the impact of potential earnings revisions.
The impact of AI and technological advancements on market valuations and the economy.
The upcoming US election's potential to cause market volatility due to differing policies of the candidates.
Geopolitics, including tensions in Ukraine, the Middle East, and China, contributing to market uncertainty.
The European situation with riots, immigration policies, and their effects on the economy and society.
The US dollar's strength and its influence on global financial markets.
US interest payments reaching $1 trillion annually, indicating the scale of global debt and its sustainability.
Quantitative tightening by central banks and its impact on global debt and money supply.
The potential instability of the current financial system, with a focus on derivatives and unfunded liabilities.
The role of gold and other real assets as potential safe havens in times of financial instability.
China's economic struggles and its ripple effects on global markets, particularly impacting Australia.
The Reserve Bank of Australia's stance on interest rates and inflation amidst a complex economic landscape.
Australian household debt levels and their implications for economic stability and policy decisions.
The impact of China's economic slowdown on the Australian property market and the broader economy.
The disconnect between mainstream economists' views and the realities of housing affordability and supply-demand imbalance.
The challenges faced by renters due to rising costs of living and the lack of effectiveη§ protection measures.
The uncertainty principle in economics and the need for a multi-scenario approach to navigate the complex economic environment.
Transcripts
hi guys thanks for tuning in to another
episode of nuggets news or our monthly
housing and economy update With Our
Friend Martin North how are you Martin
I'm extremely well thank you good to be
back for another month and boy what a
month it was yeah we're kind of joking
about how crazy the world had got last
month and we'll see what happens in the
following month but maybe we should
start on a few of those world news
points and I think um some of the things
that I'm finding interesting is just
this attack on freedom of speech that
we're seeing everywhere and censorship
on social media and we've seen it
firsthand I know I've got strikes in the
past for saying the wrong thing but just
in the past week we've seen the telegram
founder being arrested in France where
he' got a citizenship and I think more
and more people waking up to the fact
that a lot of these things that were
conspiratorial a number of years ago are
out in the open now that there are
powers that be behind the scenes that
are almost above government or a shadow
parallel government who are pulling the
strings um and so it's a bit of a worry
Mark Mark Zuckerberg Facebook's come out
and said as well that they shouldn't
have succumbed to the pressure that they
got back in the the co era and censoring
a lot of things that people were trying
to say that ended up being true a few
years later so this is the whole reason
we have freedom of speech to allow
debate and the truth to surface but what
are your thoughts on um on all this
stuff happening in the social media
World being being a social media
influencer yourself Mar well it's an
interesting question what is truth right
and if truth is is essentially what uh
you know the government wants you to
think then I have a problem with that to
my mind we should be having diversity of
views and opinions and we should be able
to make up our own minds about things
unfortunately uh that is getting tougher
when in fact there is a filtering going
on sometimes uh people self-censor for
example I know people in the mainstream
media you know for the in the ABC for
example who won't touch specific stories
because they know that if they do
they're going to get into trouble
another example would be that Senator
jarard renck recently announced that he
was actually going to found his own
party um and in fact I'm interviewing
him later in the week on this very fact
the reason is that the noise and opinion
around covid is now being fundamentally
questioned and yet in the mainstream and
in government circles they don't want to
talk about it so you've got to I think
understand that it is quite hard to get
unfiltered straightforward opinion
straightforward news and quite often we
need to ask about what filters are in
place and uh you know Twitter is
actually an interesting or X is an
interesting example where of course Elon
Musk is uh essentially saying well this
should be a you know an open Forum but
even there I'm not sure it's as open as
some people think so it's tough and
wherever you look governments are trying
to control the message um you know
formally through sping doctoring and
informally through their own use of of
social media um and there are a lot of
influencers of course and many of those
influences are actually being paid under
the table as well to say specific things
and uh not say other things you only
have to look at the US election where
you've got uh YouTubes and uh you know
other channels where people are
absolutely pushing one side or another
side but there's no actually good debate
about this versus that it's always this
is right and everybody else is wrong and
I have a problem with that so as a
philosopher I like to have multiple
views multiple opinions triangulate them
and then form my own views and
governments get in the way of that
sometimes yeah and I guess Al think to
touch on his RFK now running with with
Trump is a pretty big um I think it's
pretty significant because his views and
he said pretty openly even just the past
couple of days I want to look into
things like the pandemic um
vaccines uh Chemtrails these again
things that were full on conspiracies 10
or 20 years ago and RFK saying well at
least can we have a debate and talk
about these whether or not they're true
I just think it's really interesting
watching this and we have got to be so
careful because as you said in UK
they're already arresting people for
saying things that the government don't
agree with on social media and Australia
wants to roll out this digital ID for
social media I think it's pretty soon I
think isn't it September 1st comes into
effect and they're saying it might be
voluntary and blah blah blah because I I
see Australia is almost a test bed for
these orus nations where we had the
harshest lockdowns and the harshest
mandates and they're probably going to
be the harshest here on social media so
pretty worrying times in Australia if
they do roll this out we start seeing
people going to jail for even just
retweeting something or maybe liking a
Facebook post that they deem as you know
hateful or racist or anything so yeah no
it's a big deal so more than the
thousand people have been locked up in
the UK because of the uh association
with the uh riots now I think riots is a
bit overstating it in some cases other
not but just sharing social media posts
um and in fact very going after people
not just in the UK but around the world
who actually was part of that um res
sharing process that's a bit of a
concern again you know I'm not saying
that everything on social media is true
or right and there are some really nasty
things out there but as soon as we
actually say what the government needs
to decide what we can see then I have a
major problem yeah Okie do let's dive
into these slides of yours and starting
off with um us markets have been on a
tear
again well we had this heart attack
right so over the last month we had this
massive drop and we'll talk about what
caused it in a second but we're now back
up close to all-time highs and if you
look at the next Slide the fear gauge
the uh the vixs also had a massive
Hiccup and then came back down again now
two or three weeks ago when there was a
trough everyone was saying oh the
markets are going to crash uh the ett
econom is going to crash uh we had job
data so the next slide just gives you an
example of that so suddenly there was a
big revision to to us jobs d dat and of
course the other factor that was driving
it was the so-called Japan carry trade
which is the next slide just showing you
the significant movements in the um in
the Yen and how that played out and of
course a lot of people were borrowing in
Yen at pretty much no interest rates and
were actually investing elsewhere and
suddenly the Yen moved and that created
an issue so all of these things
basically hit the markets and everyone
was thinking oh it's going to be pretty
bad and there were people calling for 50
basis points emergency rate cuts from
the us and all of those weird things and
then of course some it settled down
meantime we had the uh Reserve Bank in
New Zealand cutting interest rates we
have the bank of England and the UK
cutting interest rates for the first
time so the the rate cycle is beginning
to turn and then of course this last
week we had pal on the next slide uh at
Jackson Hall basically coming out and
saying the time has come to adjust our
policy the direction of travel is clear
but the timing and pace of right Cuts
will depend on incoming data the
evolving Outlook and the balance of
risks and so now of course the markets
are saying whoopy the rate cuts are
coming the rate cuts are coming and uh
the markets are now saying at least one
maybe two maybe even three or more this
year um and more next year so that's the
story that's the back cloth and we're
now in the situation where the FED is
looking as though it's also going to cut
too now of course the real question is
why why are rates now being cut is it
just coming com back to a more neutral
stance or is it because the economies
particularly in the US are actually
under recessionary pressure and that's
really the unknown unknown so you've got
the Bulls and the Bears battling now
over you know is this good news because
it means that we can actually uh
basically go again on higher Market
rates or is it actually something more
serious in terms of job compression
unemployment rising and valuations
perhaps overdone so this is now going to
be the next thing to watch
yeah okay so even that equal weighted
index is um back at record highs yeah so
this is the other thing so the you know
if you look at the um high-tech sector
and particularly Nvidia Nvidia is about
7% of the total um Market at the moment
in terms of its move so are we're going
to have the Nvidia results coming out
later on today and uh if those results
are significantly below expectations we
could see a significant drop the reverse
is true but actually what's happened is
that the markets have broadened so in
fact what we're seeing now is the equal
weights index moving to alltime highs
which is quite interesting but it is
just noting worth noting the fact that
if you look at the the price earnings
ratio it's 21 times across the market at
the moment the long-term average is
15.7% and okay you can argue that some
of this is to do with AI and the tech
sector but you got to ask the question
is this overvalued and it really comes
to the question of well what's going to
happen to the economy um if the US
economy is going to continue to go ahead
quite strongly and some of the results
from the results season were pretty good
then that's fine but it does look as
though in the US some consumers are
finding it quite difficult some of the
reports particularly from some of the
retailers for example were much less
strong and here's the real Clincher if
you go to the next slide what you can
see there is that every time pretty much
the Federal Reserve has started to cut
markets have corrected the average
actually over over the sort of the last
five or six times is 23% down and in
some cases more some cases less so when
the FED pivots that is an indication
potentially of Market weakness and look
it could well be that we are going to
see um earnings easing back because if
we are seeing a bit of a recessionary
Trends unemployment Rising Etc ET in the
US that could actually mean lower
earnings if earnings are lower that
means that market valuations are way too
high and that means that market need
needs to handle that so that's one side
of the equation the other side of the
equation is different this time we got
AI um you know we're still in an
relatively tight interest rate um
environment and one of the big debates
of course is what our star is which is
what is the neutral rate you know what
is the rate at which interest rates
neither boost nor weaken growth and
nobody quite knows where that is so
we're feeling our way towards our star
it's probably above three rather than
below three which is what the FED thinks
at the moment but my warning is is
actually when the FED starts to cut and
they probably will in September expect
markets to fall yeah I I tend to think
it's going to be pretty choppy up until
we get a clearer result of who's going
to win the election even if it's just um
because whoever wins that is going to
change where you want to put your money
so much with their differing policies so
I think a lot you might see people just
taking a few more chips off the table
and raising cash levels depending on who
they think is going to get elected um I
guess that's my gut feel for the next
couple months yeah I think volatility is
absolutely in in the mix of the moment
and we're going to see people swinging
from one side of the boat to the other
side of the boat you know there's a
recession Iceberg over there panic panic
or no no no everything's fine it's all
sunny and we'll go the other way so it's
interesting there a lot of money um held
by investors out of the financial
markets at the moment and you in
shortterm funds whether you get 5% or or
what whatever because there's a level of
uncertainty among investors and I think
we're seeing that and the risks ahead if
you just go through them we've obviously
got September and October were generally
are weak months for the markets if you
look at where crashes have happened they
often happen in September and October
we've also got the US election and as
you say there are some significant
differences between the two parties I
would also make the point that in some
cases the differences are being overdone
so both sides of politics are sort of
thinking about tariffs particularly to
do with h with China by the way Canada
imposed um EV tariffs on on China very
recently as well um we've also got
geopolitics things like Ukraine the
Middle East China Taiwan all of those
things the bricks is um you know having
a bit of a go at the moment and there's
some meetings going on there to um
continue to propagate alternatives to
the US dollar so all of those things are
in the mix I don't think anybody can
call how this is going to shake out over
the next three to six months and so uh
expect volatility expect uncertainty and
um I think the only thing we can be
certain about is uncertainty yeah and
the only thing I'd probably add to that
list is uh Europe where we've seen um
you the riots and immigration we've seen
some countries start to take a tougher
stance or even stop immigration or even
look to reverse it maybe so this is
really becoming a hotly debated topic
that um raises the emotions of people
yeah well in the UK they've basically
said well what we're going to do is
we're not going to just uh Chuck people
out of the country who come in illegally
uh that's is what the previous
government was trying to do we're
actually going to have to handle them
and that means in some cases finding
them places to live so there's a real
uproar here now where effectively some
people are saying well hang on a moment
is it true that some of these uh
migrants who came in through um
nefarious means are now being offered
housing ahead of uh um people in the UK
it's it's a you know weird policy um we
have to deal with some of these
migration issues of course in Australia
we've also now got um uh the student
caps coming in so next year 270,000
rather than 500 and something thousand
this year and of course the universities
are calling poor there so wherever
you're look you've got all this noise
and uncertainty so it's uh I think it's
going to be a you know a bit of a weird
time yeah was there another US state um
was it California or somewhere I'm
thinking of that's um if for the
immigrants they can get home loans with
zero down and they're also giving them
um some sort of payments and
accommodation all these things that
they're giving to immigrants in that the
homeless um you know people on the
street drug addicts all these other
things that the money could be going to
and fixing looking after your own
population people saying well hold on
why are these people that have just come
here getting all these benefits and
you're not looking after the people that
are really battling locally so some of
these things don't make sense to me how
that policy can be effective or fair to
everyone no and I think um fair for
everyone is the interesting question
right it depends a little bit on your
perspective as to where fairness lies
but if you look at Ordinary People in
many countries um cost of living is
still Rising you know inflation may be
coming back slightly but it's still
extended compared with two or three
years ago income have not been growing
um to the same level so a lot of people
are under pressure cost of housing have
gone through the roof for all the
reasons we know about and so many people
feel that the political class are
completely disconnected from reality
when it comes to Ordinary People and
ordinary businesses and I think that's
probably the truth and so at at what
point do people say we've had enough of
this um or do we just um roll over again
and you know in some of the recent um
experiences in the UK was that people
were saying well no actually there are
issues here that we should be talking
about give you another example in the UK
they just announced a 10% rise in the
cost of energy over the October period
onwards and they've withdrawn a lot of
the energy support programs that were in
place previously so effectively a lot of
particularly older people are going to
find it very tough to pay their energy
bills through the next winter season and
this is another classic example of when
politicians say one thing before the
election and then after the election oh
it's all much worse than we thought and
we can't do what we said we're going to
do and we going to do other things and
made stala made a speech in fact uh just
yesterday saying it's going to get
really tough for the next two three four
years before we can actually get some of
these things under control so once again
what we are seeing is that polit
politicians say one thing before they're
elected and then say something else
afterwards and then claim everything's a
lot worse uh we're in a Nutty world we
are okay so US dollar has just been
range bound of late well it's
interesting because of course the US
Dollars come back it was quite strong
and now the question is what happens
next and there's a lot of debate and
it's all tied up with um are we going to
see dollarization you know has the role
of the dollar effectively gone forever
or um are we going to continue to see
the preeminence of the US dollar
remember a lot of the US Dollars live
not in the US but around the world euro
dollar and those sorts of things it's
almost an uncontrolled and very large
market and um just to be clear if we see
a significant move up in the dxy that
could lead to dollarization
if we continue to see the rate go the
other way it's more likely to continue
the preeminence of the dollar so in fact
where the dollar sits is actually very
important not just for the us but for
many other countries as well and also
those people who don't believe
necessarily that the US dollar is um a
firm currency that should be effectively
grasping the whole financial system
globally which it does pretty much
because the majority of transactions are
still in US dollars so this will be a
interesting a really interesting one to
watch
yeah okay so next up we've got us
interest payments hitting that magical
$1 trillion a year
mark well it it is just worth standing
back and looking at the slide on the
right the global debt
315
trillion dollars that's US Dollars 315
trillion it's gone up and keeps going up
and uh it's 333 per of gdps but yeah
with higher interest rates of course the
costs of that debt is actually huge and
you can see here that the1 trillion
dollar now that the US interest payments
have now reached that's horrible what
that means is that it's basically
sucking uh taxpayer money out to pay the
debt of course or more likely what
they're really doing is actually
mortgaging the future even more severely
and the point I've got is that with this
amount of debt in the system and with
this amount of interest payments now
being made we've got huge instability
here how much longer can it gone for
probably longer than people think but at
some point where there were some really
hard questions to be asked and in even
in the US now a few people are beginning
to question whether the path of Greater
debt makes any sense at all um they've
got some capacity to go even higher of
course some other countries less so but
this Global debt story and the interest
rate payment story is one that I think
will determine the strategy over the
next one to two years yeah all right
next up uh quantitative tightening
yeah so the point here is whilst the
global debt is going up it's now not
central banks driving it so if you look
at the bank of England the ECB uh Bank
of Japan they're all to a more or lesser
extent talking about or actually doing
quantitative tightening so they're
actually effectively reducing the size
of their balance sheet that means
getting rid of some of the bonds and
other assets that they held uh in some
cases they're holding to maturity uh in
some cases they're not they're actually
selling early of course problem there is
a lot of central banks have negative
balance sheets as a result of the big
Bond movements and that's a significant
factor there but if you go to the next
slide um if you look at the M2 that's
the sort of the money supply in the US
you can see that even with the uh fed
effectively doing QT money supply is way
out there and it's ticking up again and
that's because of course the treasury in
the US is still massively issuing more
bonds to fund very large programs in the
us and we're seeing other players around
the world so the debt bomb is still
expanding even if the central banks are
actually going into QT yeah so just to
yeah drive that point home that man's
talking about so if you think of this as
the total money supply um while the
central banks are talking about
unwinding it
and reversing what we've done in the
past blah blah blah I think it's
important to say that this is almost the
best they can do now is put things on
Paws and go sideways for a little bit
well they have all these other exotic
policies that no this isn't QA or this
bailout or we're going to guarantee the
bonds that are sitting on bank's balance
sheets at a loss all these things that
are trying to patch the holes of the
water spilling out before it we take off
on the next big debt binge but um as we
saw those numbers it's really getting to
the point now where people are saying
this is falling apart this is
unsustainable it's not something that's
10 or 20 years away now it's we need to
talk about it well you know how
sustainable is is the question and of
course it amazes me that uh you know
governments around the world seem quite
happy just to mortgage the future even
more and more but just be to be clear
future Generations are going to have to
pay one way or the other now if they go
on issuing more and more debt that means
that effectively more and more debt
needs to be serviced and that means that
there's there's less money available to
do other things like health care and
those things or if somebody says well
we're going to start paying down the
debt well you know that is a lot of debt
to try and pay down and just go to the
next slide it's it's worth understanding
this if you look at where the it's
called the money pyramid is you know the
claims on the monetary base so you've
got gold there that little tip which is
sort of you know at least linked to
something and then you got the paper
money above that and then you got the
government bonds and treasury bills
above that and then you got the
corporate Min and the other bonds and
the securitized debt and the listed
stocks and then you've got the
non-monetary Commodities and private
businesses and real estate which is a
massive but the biggest is actually
derivatives and the unfunded government
liabilities that's where a lot of the
problem is in terms of the size of the
problem and uh what we can see here is
that this is a very unstable pyramid
right it's on a very small base and
that's why a lot of people are
questioning to what extent the whole
monetary system is actually going to be
able to actually continue in a stable
state or are we going to get more
wobbles and more difficulties and that's
one of the reasons why of course the
gold price is now at um 2,500 us that's
pretty much alltime High China and some
other countries are buying up world big
uh and so there's a real a question
about what do we use as the Cornerstone
of the financial system which of course
takes us then into well what about some
digital alternatives for example which
is another angle that some people are
exploring yeah and I was just going to
say the uh the smaller textt is hard to
see but that derivatives is in the 1 to2
quadrillion range so you we're talking
thousand trillion dollars so for me it's
always been this this race of these fake
money derivatives and oblig ations and
IUS at the end of the day it's always
going to rush for something that's real
um whether that's go I really think you
could put almost all assets in that that
tip in terms of people are going to rush
for Real Estate or any anything real oil
Commodities this is where I think we can
see a lot of inflation when the system
collapses and obviously crypto Believers
say well hold on bitcoin's also um
scarce and finite and it has basically
no risk of default you know no one else
is the counterparty if you holding it
yourself and and that sort of thing so
interesting times yeah let me just pick
you on one point real estate of course
is in that um triangle further up
because the value of real estate is
directly linked to the devaluation of
dollars and other currencies right so in
fact the reason that there hasn't been
an asset explosion is not necessarily
because assets are really worth a lot
more it just means that the value of the
dollars and other currencies over the
last 20 to 30 40 50 years have been
devalued and devalued and devalued and
devalued
and when I talk about high home prices
what we're really talking about is low
value of the dollar yes and that's the
cause of the problem why because of
course all of the money printing because
of all of the massive quantitative
easing that happened ultra low interest
rates government stimulus all of those
things so it's very interesting that
back to Jackson hle um chair poell said
that Supply shocks drove inflation no no
no no didn't it was one of the factors
but the biggest Factor was this massive
money printing quantitative easing
government support no surprise at all
that we had massive inflation and I
can't believe that central banks are
still in denial that they caused it in
the first place yeah now so I should
clarify that a bit more I think um what
I'm getting at there with Ru assets M
when I say real estate is I think more
and more people are seeing something
like a bit of land maybe out of the city
where you can maybe grow some of your
own food collect some of your own water
like what value can you put on that
compared to yeah I agree like a house or
an apartment in the city it's completely
different way to Value but people want
something that's real and can if times
get tough they want to know that they're
safe and that type of thing so I think
that's becoming the dream for a lot of
people now SPO on well talking about
times getting tough let's talk about
China briefly um so China's economy is
still struggling uh there's a lot of
issues with torist as I mentioned but
one of the really interesting
developments over this last month was
that that China has suspended steel
plant approvals um basically because
there's a demand slump and uh they can't
find a way to export it um the world's
second largest economy has grappled with
weak consumer demand and the prolonged
property slowdown prompting greater
intervention from policy makers in
recent months to try and shock
confidence but the consequences of this
is dramatic particularly for Australia
and if you go to the next slide you can
see there that the uh harsh winter for
uh China is going to cause economic pain
for Australia the plunging iron oil
price could believe a$3 billion hole in
the federal budget um it's collapsed
significantly down about 30% over the
year and interestingly and the point I
want to highlight isn't just the big
miners that are actually catching a cold
here the impact of China's economic
slowdown not was not just felt in the
commodity markets but shares in A2 milk
for example one of the largest suppliers
of INF milk formulate to China plunged
by more than 18% on Monday um and that
the point there's a really significant
Fallout so we've been very Reliant in
Australia on China and trying to trade
trade and of course the iror price so
this is something which is very very
significant and important to watch
because the impact for the local economy
in the Australia is actually very
significant in my view absolutely okay
so the RBA holding firm for now and
there's been a lot of commentary about
the RBA on Twitter recently absolutely
so we can spend the whole show talk
talking about the RBA but look the fact
is they came out and said uh inflation's
too high um we look through some of the
government handouts and support so the
headline inflation dropped a little bit
because of the electricity support but
they're not looking at that they're
looking at the underlying they're
expecting that interest rates will have
to stay higher for this year into next
year Market still think it's going to be
there's going to be a cut um who knows
but um The Reserve Bank is quite stuck
now in so far that it's one of the few
central banks that really has no chance
in the short term to cut rates and of
course if the FED does cut in September
that's going to put more pressure on the
reason is that local inflation is is
there some of it's to do with the uh
recent decisions that the government
took in terms of the programs to support
the economy um guess what $40 billion of
um tax cuts and other stimulus measures
from the government is inflationary and
in fact the RBA Albert said that and if
you go to the to the next slide you can
see there that um Christopher Joy is of
course all over this highlighting the
fact that house prices in Australia are
significantly higher we've got um
taxation um issues in Victoria squeezing
Victorian people migrating to Interstate
um the Michelle government talked um
about where right are going so
effectively giving some forward guidance
without officially giving forward
guidance so where where's that going and
of course he's been talking about the
fact that there's a really big
contention now between what the RBA is
trying to do and what the government is
trying to do the government of course is
saying well we're trying to Bear Down on
inflation when in fact they're doing
strategies that are actually creating
inflationary pressures and uh the RBA is
looking through those short-term support
measures so underlying inflation it came
down just slightly looking at the most
recent data that came out overnight and
interestingly there you can see that the
energy relief was one of the reasons why
inflation dropped that's the monthly
data so we are in a very significant
problem at the moment China slowing
recessionary pressures building
inflation still high RBA a bit caught
and um frankly I think they've muffed it
again
yeah all righty so we anything to add
here Martin with that so on the yeah
just quickly to say if you look at the
household debt to opposable income
everyone is talking about Kenna's
Canada's a bit of a basket case
Australia is the prize though we are so
leveraged and this is one of the reasons
why there res bank has been very quiet
on terms of keeping rates lower than
other players around the world because
they know the debt pressure on
households um the problem is the debt to
income ratio household debt is huge and
that's going to create another problem
for the RBA and then of course then the
question becomes well what's going to
happen in terms of ahead um if prices on
uh interest rates are going to stay
higher for longer how's that going to
catch people and we're starting to see
some signs of home price weakness in
some areas so for example the most
recent auction clearance rates were a
little bit weaker than some expected
particularly in some geographies and the
clearance rates were down a little bit
there are more properties now coming on
the market and so expectations now have
been moderating about where prices may
go that said of course home prices have
been quite strong in Perth in particular
it's very very strong at the moment
ridiculously strong in Melbourne of
course prices are still going backwards
and going back directly to what I said
before about what Christopher Joy said
guess what people are actually still
running away from Melbourne some
investment properties are actually
coming on the market and um people are
worrying about the um you know economy
particularly in in Mel my point is um we
can't necessarily expect this strong
this strength in house prices to
continue given all those external
factors we've talking about and some
places are are cheaper than a decade ago
but I'd say that's um fairly few and far
between yeah well I mean it's it's like
in everything you can always find a data
to prove whatever point you want to make
but this was an interesting article
because it made the point that in some
areas over the last decade prices have
gone absolutely nowhere and that
includes quite a lot of units in the
number of areas some houses in some of
the outer Suburban areas too and that
may be because of some of the different
changes of mix of property over that
time but it is interesting that this
story that everything's going up
everywhere which is what the mainstream
has been pushing is is way too
unsophisticated for what's actually
happening sure there are areas where
prices are very strong particularly in
houses particularly in the west but um
in other areas not so much oh and by the
way if you want to give another angle on
that if you look at the story about um
the highrise sector so a lot of um
Builders are actually struggling to
build high-rise at the moment but
they're also struggling to let those
highrises so this was an article saying
that landlords are being offered um uh
landlords are offering one month's rent
or something try and get people to take
those properties there's a lot of
vacancies in some of these new high-rise
developments that everyone's thinking is
is going to solve the housing sector
problem um I'm a little bit skeptical of
that and some of it is because rents are
still relatively High relative to income
um and again the inflation numbers that
came out today show there was a little
bit of an easing back but not
dramatically so yeah and more broadly if
you look at the other story here you've
got things like the um Power bills are
still very high um we've got the
hardship some for power spiking so we
had
35,000 um 40% % rise in the number of
customers looking for help about their
power that's significant others are
being forced to get a second job as one
of the Articles showed here we're seeing
that in our surveys quite a lot of
people um because frankly if you are not
seeing your income rising and your cost
of living Contin to rise what can you do
well you can try and find another job
and so more people are getting second
jobs and that of course puts more
pressure on on the those and then their
families another factor to bear in mind
is that um the insurance costs are
Contin to rise that's one of the biggest
inflationary factors we're seeing that
coming through again so a lot of people
are really struggling to make ends meet
at the moment even now there are others
doing well and not everyone's in the
same boat but a lot of people are are
finding it difficult now in that context
I just want to make a point that a lot
of renters are really
struggling and some people have tried to
use the official processes to try and
get some help and so this article was
stunning when it came out and said there
was just one penalty notice issued to a
landlord about excessive rents in the
last Financial year despite formal
complaints to the state government
storing two other letters were actually
issued this is the New South Wales Fair
trading um there's 200 complaints over
the last 12 months with excessive rent
increases but it's the tip of the
iceberg and that's the point A lot of
people are not even bothering to make a
fuss about Rising rents that's a problem
um rents are really soaring still and
I'm I'm skeptical as to whether the
reduction of students we mentioned ear
on is going to have any major impact on
the uh on the rental situation because
there's such significant demand at the
moment yeah that yeah it's crazy and I
do feel for people and um another thing
we saw after Co was that move away from
the city and we've seen the measures
being put in place to try to track
people back into cities but like we
discussed before a lot of people don't
want that lifestyle um anymore so all
these things are still I guess finding
their new equilibrium as we move
forward absolutely and the last three
slides I just wanted to give you three
little insights which I think give you a
little bit of a flavor of of if you like
a contrast between what people are
saying on reality the first one relates
to CBA so CBA came out and said that
they're reducing some of their interest
rates on new own occupied borrowers
0.25% down if you've got a 20% deposit
now that may sound interesting um and by
the way the banks are actually squeezing
term deposits now to try and actually
create capacity to lend as they go into
the spring selling season but just worth
noting that CBA has tended to have
premium rates on its mortgages but then
actually um when you actually negotiate
with them they'll wriggle a bit and and
give you a better rate so I think this
is more to do with marketing spin than
reality and I don't regard it as a major
sea change in in the mortgage industry
so that's the first sort of interesting
gap between reality and uh what the
media has been talking about the second
one is this one here so there was a very
interesting set of
um surveys run talking to Leading
Economist about basically what's wrong
with the housing SE sector and what
needs to be done and it's fascinating
that the mainstream Economist that they
surveyed only 6% rated immigration as
one of the critical levers that should
be addressed that's fascinating they're
talking about planning restrictions or
more public housing or tighten negative
gearing capital gains concessions and
maybe reducing stamp duty all of those
things are sort of interesting but the
migration one which is the critical one
you know we've had massive migration in
Australia and that's one of the reasons
why the demand Supply equilibrium is all
over the place the mainstream economists
want nothing to do with it and that's
what we're seeing in a lot of the press
that people don't want to talk about
this but for me this is one of the
things that should be being spoken about
yeah it's just just a no-brainer when
you let increase your population by 5%
in 18 months the basics of supply and
demand how can that not be one of the
main drivers of price inflation it's
absolutely astonishing but you know
pretty much all the mainstream
economists no no no immigration's fine
and by the way the greens are still
saying you know Mass immigration's fine
too it's nuts and then the final one and
this was just worth spending just a
moment or two on um the the RBA we
mentioned the RBA earlier on but um
Andrew Hower the new Deputy Governor a
Brit actually has come to Australia made
a very interesting speech and he
basically well he told he told the um
the audience that uh they should um be
aware of false profits those people who
make predictions about um uh where
interest rates are going and he was
definitely you know throwing bricks at
the mainstream economists and the the
mainstream media in Australia uh and boy
did that create a Rea reaction so we had
um Christopher joy and a few other
people saying no no no actually we
should be having these debates and you
know the RBA got it wrong it's not the
economists getting it wrong but you know
there's there's a really interesting
point that that I think I to highlight
what he was actually saying was there is
massive amounts of uncertainty out there
at the moment it's really really hard to
try and figure out what's going on so
maybe it's not surprising that sometimes
the RBA forecasting isn't very accurate
and of course it's not been very
accurate they left rates too high for
too long um they then cut rates too
dramatically they didn't respond when
rate inflation started to get away so
you know pretty much every time the
rba's done the wrong thing and what he
was basically saying is we need to be
humble and you know maybe we don't
always get it right now I have a feeling
that some of the economists out there
should be actually taking some of that
on board saying well we should be a bit
more humble because there are so many
things that are uncertain at the moment
we've touched on a lot this evening and
and the bottom line is this it's very
hard to make a clear call about where
things may be going I think it's very
interesting that bank's review of the
bank of England said people should be
running with multiple different
scenarios about how things can play out
because nobody knows nobody can actually
be clear about all of these factors out
and therefore anybody who says
definitively interest rates are going to
get cut in the next two months or three
months or rates are going to go high or
house prices are going to go up or down
um it all depends and so I want to leave
you with this thought Alex the
uncertainty principle is one that's
really important there are so many
factors here all interl all pushing in
different directions it's very hard
whether you're a central bank an
economist or an ordinary person to try
and work out precisely how this is all
going to play out so what you need to do
is you need to basically have a little
bit of a sense of if this happens I
might do that if that happens I might do
this have a series of scenarios rather
than trying to sort of pin your tail on
the donkey and say I know for sure
what's going to happen over the next
year yes absolutely and I'm looking
forward to that interview with Senator
renak one of my favorites I follow on
Twitter Martin if you're having him on
your show um I'll make sure I share that
one on Twitter for you as well but um
it' be great yeah we'll hopefully be
that be on Friday looking forward to it
awesome well guys I hope you've enjoyed
that chat as always we'll see you Martin
next month all the links to follow his
stuff down below and all the links to
follow my stuff and our crypto research
down below too otherwise we'll see you
next month Martin cheers take care
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