It Just Gets Better

This was indeed an exciting week, as central banks around the world showed an increasing recognition of the prosperous age we are all fortunate to live in.

The European Central Bank kept interest rates at zero, but did say the outlook was improving. Though more work needs to be done on employment. As well as the hangover, particularly in youth unemployment from the sovereign debt crisis of a few years ago, Europe has imported a lot of unemployment from Syria and elsewhere.

So while corporate, business, and people with jobs are all doing extremely well, the boom that is really taking place is masked by the high unemployment level. The employment trend has been good though, despite still being at 9.3%, and looks a lot like that of the USA post the GFC. Now the US has full employment. So there really is hope for Europe. We shouldn’t underestimate however just how well Europe is doing overall.

The Federal Reserve in the USA raised rates and this momentarily spooked markets, but for no real good reason. We expect stock and other asset markets to again move higher over this next week. They are still, even with a little volatility around the Fed rate hike, lingering ever so closely to all-time records which were achieved earlier in the week.

The rate hike in the US was from a mere 1.00% to just 1.25%. So still lower than Australia and hardly likely to really impact business decision making or consumer behaviour there. Though the US is raising rates, we must remember rates are still at stimulatory levels. These are not rate hikes which will restrict or slow down growth at all, as the current settings actually continue to be a boost to the economy.

The big concern many in the market have, and the Fed Chair Janet Yellen herself referred to, is that inflation is too low? Well, this is purely a product of economists being used in previous decades to much higher levels of inflation as being normal. This was before the internet, however, and the global connectivity that drives both innovation and competition. Inflation will never be the animal it once was, and this is a good thing. It is a product of a fairer and more competitive world.

So while we have always forecast the world would have resurgent growth and still-low inflation, the great majority of economists think low inflation is a problem? Well, they get a lot wrong, don’t they?

Which brings us to China, where the data this week was nothing short of spectacular. The Chinese economy and Australian property prices are very similar. Both are constantly assailed by so-called experts and economists, and both keep sailing higher. Not to mention that it is the success of the Chinese in running their economy, that has been Australia’s strength.

When Australian leaders beat their chests about Australia having a globally historic run without a recession, they should be a little more humble, less satisfied. Haven't they noticed that this is in perfect correlation with China becoming an open economy, embracing capitalism, and persistently modernising. Haven’t they noticed the roll of resource exports to feed China’s hunger for growth in our overall economic performance?

Meanwhile, many Australia’s have slid down a slippery slope of the quality of life. Thank goodness there are property investors to help provide and keep rental prices as low as possible. Certainly, none of the government’s efforts such as APRA have played this role.

Property prices in Australia will continue to rise, and rental demand will only increase too. Don’t hesitate.

Clifford Bennett