By the time you read this the holiday season will be behind us (mostly) and 2019 upon us. As always,
\na time to reflect and give thanks that the MD continues to put up with me and my children still
\nremember my birthday.<\/p>\n
And what a funny old year 2018 turned out to be. Poor dear Malcolm gets the bums rush, The
\nDonald is still in the White House, the Aussie cricket team can\u2019t even get cheating right, the cash rate
\nremains lethargic and people are still borrowing for business.<\/p>\n
In 2018 I started to notice two significant trends in Australia which I am going to adopt to help in
\npredicting our expected economic wellbeing. I shall refer to my new thesis as the PM Revolving Door
\nCash Rate matrix and I think you will soon agree that there can be no better benchmark in assessing
\nthe likely future fortunes of our great country.<\/p>\n
Since 1996 we have had the dubious honour of seeing 6 prime ministers come and 5 go. The trend
\nline includes the tenure of one John Howard from 1996 to 2007. Since 2013 the RBA cash rate has
\nchanged 7 times. In the same time frame, we\u2019ve had 5 prime ministers if we include the Rudd
\nresurrection. Here\u2019s the thing, in the past 5 years we have had 3 prime ministers, 2 since 2015. The
\ncash rate has not budged in 27 months and indeed, hasn\u2019t done anything particularly remarkable
\nsince May 2015.<\/p>\n
The correlation is clear. The more the prime ministerial door revolves, the lower and more
\nconsistent the RBA cash rate stays. If you are a borrower you may well say, you beauty, those
\ngeniuses in Canberra couldn\u2019t demonstrate unity or policy cohesion if we paid them (and we do) so
\nrates will stay low and all is well. But, of course, it\u2019s not.<\/p>\n
The cash rate is a reflection of the wellbeing of the economy. It\u2019s also a reflection of jobs growth,
\nreal wage growth, consumer confidence and inflation among other factors. The lower the rate the
\nmore a central bank may be using it to try and kick start economic growth. It doesn\u2019t take a stretch
\nin imagination to see that political instability and the cash rate are joined at the hip. Hence the
\nmatrix.<\/p>\n
Of course, one of the consequences of low cash rates are low home loan rates and we all know what
\nhappens when you give Aussies cheap debt. Good old supply and demand drives the great
\nAustralian dream and housing prices go up. Well, to be more precise, Melbourne and Sydney prices
\ngo up. So, given the revolving door and Mike\u2019s matrix, how did the politicians confront the cheap
\ndebt housing price dilemma in 2018? They folded to the bleeding hearts and had a royal
\ncommission. The result, record low interest rates but no one can get a home loan anymore because
\nthe commission reckons in order to borrow you need to be able to prove you don\u2019t need the money.
\nI exaggerate but I am sure you get the picture.<\/p>\n
To be fair we could probably have done with a bit of financial navel gazing after the GFC. 10 years
\nago the cash rate was 7.25%. That\u2019s 5.75% above todays rate. It\u2019s true that banks tinker with base
\nrates and margins in ways they didn\u2019t 10 years ago. However, it\u2019s a sobering thought that people are
\nborrowing money on 25 year home loans with interest sensitivity tests at 2% to 3% increases.<\/p>\n
In 2019 I expect more of the same. More political uncertainty, more compliance obligations and
\nmore paperwork. I also expect Australia to continue to be the country of choice for domestic and overseas tourism and a beacon in a sometimes-crazy world. Our politicians may not be wonderful
\nbut at least they\u2019re not certifiably nuts (mostly). Our royal commissions issue recommendations, not
\nfatwahs and we don\u2019t execute blasphemers. The population don\u2019t feel intimidated when they cast
\ntheir vote and we seem pretty comfortable with each other, regardless of race, colour or creed. We
\nare blessed with abundant natural resources, a mostly benign and relaxed population and a broad
\nsense of goodwill.<\/p>\n
It could be worse.<\/p>\n","protected":false},"excerpt":{"rendered":"
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