Economic Insights by Clifford Bennett

Christmas Cheer

Property Club Economic Highlights

Wishing everyone of all beliefs a wonderful Christmas and the best of the holiday season!

As for the world, and the Australian property situation, everything seems to be reasonably in tune.

We might start this week however, with people talking about property prices in Australia being over-valued? That there is some kind of bubble market?
Now, I am among the first to point out bubbles when they occur. In fact, the currency of the United States, the US dollar, may be a bit of a small bubble itself at the moment. Speculators and institutions alike have been buying the US dollar due to the fact that interest rates there are going up. Well, they are, but still to very low levels historically and certainly not to any kind of level that screams a must have. They are only now approaching the meagre level of 2%.
The reason though is for people seemingly, increasingly desperate in our computer game age to have something simple to hang on to. A belief that they can lay claim to. This is what has happened with the US dollar. Interest rates are going up, so the US dollar must go up. In doing so, people ignore the far more powerful factor of trade in the long run. The US still has massive trade deficits. While Europe and China have massive trade surpluses. It really makes no sense at all to suggest the US dollar should go up because you can earn almost 2% there?

For instance, in Australia, the official cash rate is in a real-world sense virtually the same at 1.5%.

This is why the Australian dollar selling that has occurred recently has been exhausted and our currency is already beginning to bounce strongly. As too will our property market.

When you have people claiming to be able to forecast Australian property prices, because since 2013, that’s just four years mind you, and coming after Australian property prices had already been rising for five years, they said prices would rise, being a lead story for the Australian Financial Review, then you know to be cautious of their latest prediction. Ok, so that was a long sentence. The point is, the media is still highlighting the negatives about the Australian property market just as it did the stock and property markets all these great wonderful investing years.

Virtually every lead story in the Australian media about property and stocks has been wrong for the past decade on a daily basis. How is that for a bit of misinformation.

This is exactly what the current discussion is, misinformation. You see these commentators are making the same mistake our politicians do. They are looking at Australia from an Australian perspective. When decades ago we became part of a grand economic region, and that economic region is booming.

The Australian economy and Australian asset prices including property, have for a long time been driven by a unique historical perspective. One that has never existed in the history of the world before.

The biggest economic boom the world has ever seen involving over 3 billion people, surrounding a small population of 24 million people. Who has a better climate, environment, food and lifestyle. Who also happens to be sitting on the world’s wealthiest pile of rocks which the 3 billion desperately need. There is no precedent for this. Especially, as this age of easy flow of capital, goods, and people is itself totally new.

Calculations and comparisons of Australian domestic statistics or that specific city property prices are as high as in other great global capitals, completely miss the new reality.

The external pressures on our relatively small, but wealthy in many ways population are immense and virtually unfathomable.

Don’t forget fear sells. Just don’t buy into it.
Buy some great Christmas presents instead, and celebrate the great and prosperous times we live in. When it comes to Australian property, expect prices to accelerate right in the face of the usual media negativity.

Enjoy the prosperity,

Clifford Bennett