One pundit says this property bubble will burst.
Another says there will be an 'orderly' correction…
Almost every Australian — in their superannuation investments, whether they be direct, or indirect — has a MASSIVE exposure to the property market courtesy of the weighting the big four banks have in the ASX.
So if you're reading this, and you don't want to see your superannuation go up in smoke, you better hope like hell any property correction is indeed orderly.
You better hope these elevated house prices can persist for years upon years. Like they do in London, Hong Kong, New York, Vancouver.
And we Australians can all keep living happily ever after, in our $1.3m properties, something that makes us feel smart and wealthy.
And complacent…
Twenty-five years of unbroken economic growth brings a certain level of complacency. As does almost entirely dodging the worst of the GFC.
We think…
— Property only ever goes up.
— Bank shares only ever go up.
— We are entitled to government hand-outs — never mind the ballooning structural budget deficit — be they tax breaks on superannuation, a heavily subsidised public health system, negative gearing, dividend imputation or family tax benefits, just to name a few.
All hell would be to pay if this was indeed a property bubble, and it ever did burst…
Yet bubble or not, something has to give.
Collectively, we're already in hock up to our eyeballs, with the household-debt-to-disposable-income ratio now sitting at about 189%.
Our savings rate — the amount of money we save each month — is falling fast, down towards 5%, its lowest level since around the GFC. Put that down to higher interest rates on mortgages, low wage growth, and higher living costs. Perish the thought that we'd maintain our savings rate when the easy option is to spend it like Michael Jackson. We've got a very comfortable lifestyle to maintain.
Best case scenario, we're in for an extended period of slow economic growth.
Worst case, the property bubble bursts, and believe me, you don't want to go there, even if you are property bear.
I don't much write about politics.
But with the prospect of slow economic growth on the horizon, it's time for a political party with vision, a willingness to shake things up, and for Australia to take some big bold steps forward.
Like increasing the GST, while lowering income tax. Like abolishing negative gearing. Like investing in infrastructure, including starting with a high speed rail link between Sydney and Melbourne. Like easy-to-understand superannuation reform, unlike the shemozzle we're dealing with now. Like fixing the structural budget deficit.
Instead, we get incremental tinkering around the edges. Partisan politics. Policy for votes rather than policy for growth.
The polls say the Coalition will get unceremoniously booted from office at the next election.
Yet, largely because of the party's own internal disharmony, Malcolm Turnbull and the Coalition government can't and won't offer anything substantial in terms of economic reform, even though they're likely sleep-walking to almost certain electoral defeat.
If you can't be bold in the face of an almost certain defeat, you deserve to go. But then again, turkeys don't vote for Christmas and Australians aren't going to vote for higher taxes and lower government handouts.
Labor could stroll into power on no other mandate than it's time for a change. Cue more of the same, tinker around the edges, policy for votes, a sniping and smarting opposition, an obstructionist Senate…
Depressing, huh?
That's why I don't care about politics. Or overly care who is our prime minister or which party is in power. Worrying about it gets you nowhere. I have no individual influence, and whoever is in charge, my life will carry on largely unchanged.
Something else that's carrying on largely unchanged is this low interest rate environment… more so now the big banks are increasing mortgage rates independently of the RBA's cash rate, effectively doing the central bank's heavy lifting for them.
Our fragile economy — its foundations creaking under a mountain of debt — simply can't handle significantly higher interest rates.
Bad news for savers.
But good news for stock market investors — lower interest rates mean, by comparison, dividend yields continue to be attractive. No wonder then that Citi recently increased its year-end target for the S&P/ASX 200 Index from 6,000 to 6,250.
That implies another 6% gain from here. And that's before dividends.
Add them in, and include franking credits, and if Citi are right, you could be looking at double-digit returns between here and the end of 2017.
Not bad at all in a fragile economy….
