Mr Whittaker. He was banging on about mortgage and financial advisors all through the late 90s and early 2000s. Telling everyone to ask serious questions. So I did when my GF took me to the trusted one her colleagues all used. That guy didn't like questions about how his commissions might vary between financial products. He got upset when I was talking about getting a manageable loan we could pay down in 8 to 12 years. He even asked if this was some of that "Noel Whittaker" stuff. I copped an earful for embarrassing my GF. We split soon after. The next year that whole shit show got exposed. I will always appreciate Noel. He got me out of two dodgy situations.
Yes I bought a couple of his books in the late 80's when I bought my 1st house at 22. His advice set me up for an easy life. Paid that house off in 5 yrs and the 2nd house by age 34, no debts at all by that age and a couple kids etc. I was able to retire recently at 55 with way more income in retirement than I ever had working. He's 1 of the few guys I pay attention to.
Nice! A work mate in the 90s was a mechanic who bought a place, got in 3 people to rent with him and paid it out super fast. I laughed at him at the time, being a dumb know it all, but have had time to reflect :-).
This is not true in Queensland and you must follow your local council’s direction (ie Logan only allows for 1.2m and all machine guns must be wheelchair accessible).
Market shuts at 4 and doesn’t open til 10am. The 7-7 allows time for defensive reweighting before the short sellers come over the trenches at market open and just after the end of day grenades from short term institutional sell offs
mounted mine to the two stroke dirt bike, so I get a tax break for wear and tear, plus the neighbours will never know where it currently is for defence.
Interestingly a friend’s father owns a fleet of ex soviet and Australian tanks. One of the Arabic countries (forget which one) reached out asked if they could buy parts from him.
Unfortunately ASIO got involved and denied him.
His last sentence is a good explanation
>Take a good look at your finances and put safety buffers in place to safeguard your position for what lies ahead
It's spot on, now would be a really good time to review your finances. Get rid of some subscriptions, move some services to the cheaper providers. Build buffers where you can, savings or income insurance.
It's more like saying if you live in a high crime area review your security systems. Increase or strengthen them where you can.
You would think so, but there are so many people with the same mortgage as when the bought the house, same teleco, same insurance, same banks etc. Lazy loyalty.
generally it means reduce risk, which for most people means reduce debt or don't take on new debt a.k.a. 'deleverage'. unfortunately this is also one of the main propagators of recession.
what is rational for individuals can sometimes be poison for the economy as a whole.
Oh I didn't really think twice about the term actually. I knew the idea behind it but I was more curious as to which strategies he meant. (Although now I understand it to be to play defensive.)
I don't get the issue here - what's wrong with 4% cash rates? Those are still historically fairly low? Is it really that scary for anyone except a small minority living on the edge?
There is nothing wrong with it in the larger scheme of things, it has been below that for about 10 years though so there is a large number of people who have come into adult hood and taken on debt without ever experiencing a rise.
Few things at play here for younger people though.
* They are just starting their careers, so their earning potential is likely to (but admittedly, not always) outpace inflation as they gain experience.
* They should have factored in at least 2-3% increase into their serviceability, 4% is not a stretch past this.
* Brokers, bankers, financial advisors, and just about everyone say never borrow at capacity. The majority of people would not have.
* A fair percentage of buyers are on fixed rates (at least partially) for the next few years.
I'd wager that the cross-section of people who fall out of line with all 4 conditions above are the ones in danger - and that would be a minority of young people, and a drop on the ocean of the overall housing market.
And as always, people seem to forget that housing is a core need. Young people spend a lot on lifestyle compared to their parents at the same age, and when push comes to shove will tighten their belt and make the payments, just as the RBA expects.
My dad and I are fairly comparable in earnings at the same points in our lifes, ofcorse taking inflation into account.
He got acerage 50 mins from the CBD, owned a cabin by the lake, had a boat, co owned a plane which he travelled australia with, had newish cars lived a good life all on a single wage with 3 kids at that particular time
Me who got married and bought a house roughly 8 years later in life than he did almost purely due to chasing the housing/land inflation, barely travelled, owned a new work car but sold it for a stronger deposit on a home, second guess going out while we save for a new family car, house is on only 900sqm 1 hour from the CBD. On a dual income, no kids. I dont struggle but I sure as hell do not have the same quality of life he had for a very similar incomes.
I dont think our 2 generations are at all comparable, even if its purely due to the land sizes they had avaliable to them, they are now advertising 450sqm blocks as big blocks, how far the Australian dream has fallen.
Last thing to note is just 6 months ago when I went for my home loan the banker said 'its refreshing to see a couple not wanting their capacity', this was in melbournes west, a high growth area. This does not give me high hopes but is also only a comment made by a banker.
I think what it comes down, a lot of the time, is population. OP's dad could buy acreage 50 minutes from the CBD because there was actually acreage to buy. The vast majority of that land anywhere near a large city has long since been subdivided. That means that anything that remains is going to be priced at a premium, and there area lot more people competing for the same land even if you can afford it.
You have to add in the shady lending practices of banks and also brokers....
There is brokers out there that will deliberately forge income papers to get a loan through.
As an example, a 4% cash rate will likely increase my mortgage repayments by $1500 a month. A lot of people don't have the extra cash and haven't made allowances for this to happen. A lot of people are going to be put under financial pressure, especially with cost of living increasing at the same time and wages not growing.
>lot of people don't have the extra cash and haven't made allowances for this to happen
I really think this is a assumption you've made, and not necessarily a given. RBA who have access to this data more so then any of us believes that the risk of default is extremely low across the market due to the space in people's circumstances to pay their mortgages. Yes lifestyles will take a heavy hit - but when its a choice between a roof over your head, you tend to make those tough compromises.
This is from personal experience with people I know who have borrowed over the last year or so. I'm not necessarily saying people will default, I'm saying that people will be in financial stress.
There's nothing wrong with it and everyone has been assessed as to their ability to pay their mortgage at higher rates than 4%. It's not going to ruin people living on the edge because they'll just cut back on spending.
It can ruin people by shrinking the economy which should result in higher unemployment. Obviously if you lose your job its hard to pay a mortgage, especially when repayments are going up.
For investors it can ruin the investment because obviously the only reason to invest is for returns and the cost of your mortgage going up does not help this. I imagine many invest for the capital gains in Australia and with property forecast to drop 15% this is obviously not optimal. Mum & Dad investors are also affected by losing their job and I imagine all of these things potentially could have a snowball affect on property prices in Australia.
The only other aspect to this is whilst 4% is historically low, household debt is historically high. 4% on a million dollar mortgage is the same as 8% on a 500k mortgage or 20% on a 200k mortgage.
I like your comment about shrinking the e economy. I think people are forgetting that bit and how that will flow on to more unemployed persons unable to pay their mortgage. If rates keep rising I know my weekly trip to the cafe is out, no more Uber eats or takeaway etc, and I’ll be fine, but what does that mean for
The cafe/takeaway staff/owner of business slows.
I think what is really scary is the amount of financially illiterate Aussies out there living on the edge atm. A huge amount of young Aussies who have never experienced a ir increase are mortgaged to the eyeballs will unfortunately be the first to fall. Reckless government policies has caused this mess. Young people will be the ones who must now pay for it
Its a minority of borrowers. Even then RBA's own stretch case of a 20% reduction in house prices shows only 3.5% of house holds in negative equity. Its a myth that everyone borrowed to their maximum amount. The average owner occupied loan has a 2 year buffer in redraw. The unemployment rate is the lowest its ever been. There is a line of people trying to get into the country and work etc.
I agree. There aren't going to be mass defaults and Australia won't turn into a Mad Max wasteland because house prices have fallen 20%.
This gives the RBA licence/freedom to continue pushing rates up and keeping them higher for longer to battle the bigger economic threat (which is in their direct purview) - inflation.
\> Its a myth that everyone borrowed to their maximum amount.
I see the assumption of overleveraged FHB constantly regurgitated by many - I'm really not sure where this narrative has come. I get that a lot of people are scared sure and sacrifices will need to be made in the short term, but I think some are blowing this out of proportion.
This is from the RBA, more recently in March 2022 just before the first rate hike: https://www.rba.gov.au/publications/bulletin/2022/mar/are-first-home-buyer-loans-more-risky.html
18% of first home buyers out of new loans in the beginning of 2022 were between 6 to 8 times debt to income. Around the same amount of other owner occupiers did the same. 30% of investors did 6x-8x as well.
Cool I appreciate you trying to provide source on this. Have you read them?
\> [https://www.rba.gov.au/publications/rdp/2020/2020-05/why-is-australian-household-debt-high-relative-to-history-and-other-countries.html](https://www.rba.gov.au/publications/rdp/2020/2020-05/why-is-australian-household-debt-high-relative-to-history-and-other-countries.html)
The conclusion;
\> ...not evidence of widespread excessive leverage
\> ...highly resilient to adverse shocks to households
\> [https://www.macrobusiness.com.au/2022/05/aussie-banks-tighten-clamps-leveraged-mortgage-borrowers/](https://www.macrobusiness.com.au/2022/05/aussie-banks-tighten-clamps-leveraged-mortgage-borrowers/)
confirms what we all know
\> The impact will be harshest on those that took out jumbo mortgages at record low rates last year.
Ofcourse the impacts will be biggest on those who have the biggest mortgages relative to house value, who would have bought at the most recent peak.
Neither indicates how many people fit into this 'jumbo' mortgage category, and how much they will be impacted. I made another comment earlier that highlights that even people who bought at the peak of the market would have had to make 3-4 grave mistakes in order to be severely concerned - and that would be a significantly small minority of mortgages.
Your response shows that you read the links, interpreted them correctly and have accurately captured the conclusion.
You are now banned from r/ausfinance for not including irrelevant anecdotes and instead relying on fact and logic.
You can't use historical cash rates then determine the impacts going forward. There needs to be a sensitivity analysis.
4% cash rate will be more impactful say then a decade ago due to household debt.
I can agree with this point - the impact is larger due to the relative increase, but it was expected to happen eventually.
Even at the height of the mania, rates were still expected to rise in 2024. With a 30 year loan, starting at 0.10% cash rate means the rates can only go one direction in the future - moving that date forward 2 years to 2022 *should* not impact a *majority* of people *significantly*. I emphasize select words because there will be sacrifices to be made by everyone in the short term as they readjust to their smaller budgets, and a small percentage will be doing it very tough with a minimal excess to spend outside of necessities.
Those people knew rates were going up at some point in the future - moving that date from 2024 to 2022 on a 30 year loan should not cause significant hardship. Those that are in this position would be in a very small minority as indicated by the RBA's predicted default/distress rates.
I think it will pretty drastically change a lot. We’ve had a long time with rates so low that savings accounts have been unviable for a lot of people. It’s not just about mortgage repayments. As rates go up, money will be pulled out of markets by a lot of people, capital will be harder to acquire. So many companies have been running on next to free money. There’s going to be a weird transition period soon imo.
I think it’s going to have a significant effect on a very large cohort of borrowers, and then the flow on effect from that is an aggregate reduction in our economy from materially lower consumption.
It’s not inconceivable we could have negative economic growth but above target band inflation.
We saw this happen in the 70’s.
Central banks thought they had gotten on top of inflation but it can back again and was even worse.
It led to the Volcker moment, which was rates having to go to 20% to finally kill inflation.
Contemporary central banks will, in my view, try and not repeat the mistake of Arthur Burns.
Not sure. I understand the argument, however our debt loads in the economy are far higher than then. Central banks dont have a good option in a high inflation/low growth environment.
My gut feel is politics will win out and central banks will be hesitant to crush growth more, particularly when most of the inflation is supply side.
We have a cash rate now at 1.85 and there is already pages of editorials tearing strips off the rba with consumers already struggling with other cost of living pressures. We already have government enquiries into the rba's function/process.
Will be interesting to say the least, i think the path for rates will be somewhere down the middle, not as high as most forecasts and likewise not 'cuts next year' as some others are hinting at.
When you say “politics will win out”, my first though is “run to the hills”.
When politicians make economic decisions, it usually involves money printing and price controls.
First lead to more inflation and second to shortages, then no one wins.
I lived though Brazil’s hyper inflation in the 90’s as a small boy, remember some stuff and heard the stories
A Great Depression 2.0 is not great.
At least on both scenarios the toxic debt is cleared out, I guess? Personally I’d prefer depression over out of control inflation
I completely agree. We have too much debt and it will be dealt with. In prior societies where debt has been high, inflation has always been the path that is chosen. Depression isnt politically viable. I also dont mean that our literal politicians will be making bank policy, but an acknowledgement that ultimately the rba answers to the government and are not immune from public sentiment/struggles. Particularly when they (the rba) are seen (rightly or wrongly) as at least part of the problem
Depends what you mean by historically. Over the last 50 years, 4% is on the low side. But over the last 500 years, the average cash rate is around the 3% mark, albeit the data pre-1900 can get a bit dodge.
The interest rise on our home loan is going to be pretty brutal. Currently it is $2560/m on 2.55% and looking at 4.5% as my estimated rate when we come off our fixed rate next Sept, it will go up to $3100/m, a $540/m increase. 5.5% will make it $3460/m or $900/m extra. That is not far off our childcare costs of $1200/m. My wife and I both have gotten pay increases which help a bit, but there are only so many expenses I can cut down, especially given inflation and cost of everything going up. We borrowed up to our limit to get into the housing market to get closer to the Brisbane city as the commute from our old place was brutal for us and the kids (3 hr return). Everyone told us rates won’t increase until 2024, so we went with a three year fixed rate. Wish we got 4 or 5. Will have to see how we go.
A recession would be in the interests of central banks and those with assets (particularly largely overinflated assets that have relied on rock-bottom rates).
What happened when the US announced a second quarter of negative GDP growth? Market went on a huge rally.
The markets *want* a recession. The markets *want* rock-bottom rates to return. The markets *want* QE to begin again.
& also massive issues with supply lines from overseas - companies won't be able to work or complete projects without overseas goods. I agree, a recession is on the way.
Can't say I agree with 'Putin's position looks stronger than ever', or that 'inflation is caused by wage increases', nor that 'shortages of supplies and the building industry' is inflationary, either. I think that's backwards - it was cheap money that drove building industry demand, not that the build itself is particularly inflationary. The crash of it certainly isn't, raising interest rates causing building demand to drop is part of the whole reason they're being raised.
That said, I wouldn't be surprised if we did see interest rates at close to 4%, overshooting a bit of the neutral level and then staying there for a while. There's a lot of cheap cash to pull out of the market before things stabilise a bit.
>Can't say I agree with 'Putin's position looks stronger than ever'
Winter is coming for Europe, which will be a rare chance to cause havoc in Western Europe via control of gas. Wait until the rationing and energy restrictions kick in, populations in Europe will kick off big time. Do you remember the French rioting over diesel taxes?
Uh huh. And Putin's army is poorly supplied, barely moving forward and suffering atrocious losses. Ukraine is still receiving supplies and materials - moreover, they're receiving them from the US who won't be affected by gas shortages from Russia.
Wait until the dead of winter, when Russian soldiers are freezing to death in the snow. Ironic that a cold winter will be the death knell of a Russian invasion.
Right now real rates are deeply negative.
Hard to see how 2.5%, if neutral, is going to help tighten financial conditions all that much?
Surely we need to tighten to a contrarian monetary setting?
Because I think that with a reduction in the construction industry as a result of rate rises, supply chain constraints due to covid, electricity prices and fuel shocks we will probably tip into a recession, which will help pull inflation numbers down pretty sharpish, but that it still won't be within band for the RBA's mandate. I also expect that because the RBA look at mostly lag indicators, inflation will have been in band or close to it by the time they stop raising rates but will over egg it. They're moving aggressively now because they're seeing rates get to 7ish per cent. By the time they're getting to high 2s, low 3s they would probably have it under control by mid-2023 but by then I think we'll see rising unemployment numbers and dropping consumer confidence.
I also think we're going to see a reduction in government spending, especially in some sectors like Defence. The new government is saying they want to clamp down on things like consultants and contractor payments. I'm not sure they'll do that and still deliver services, but I can see them stopping or slowing large projects to halt the money spigot that was going full blast the last couple of years.
It depends on how quickly we get up there, really. Commodity prices, as ever, could be the key to threading the needle and keeping us out of a contraction or the two needed to be in a recession, but then again they could not. Iron ore prices are down, China's experiencing financial woes of their own, but thermal coal prices are high. Glencore is saying close to $400 a tonne, which is a big jump.
What I’m saying is, for monetary policy to be contractionary, and to slow inflation, isn’t it required to go *above* neutral?
Which isn’t an “overshoot”, but a deliberate policy setting.
Putin has almost complete control atm over the eastern front of Ukraine.
Their primary objective.
[27/7/22 BBC map ](https://ichef-bbci-co-uk.cdn.ampproject.org/ii/AW/s/ichef.bbci.co.uk/news/640/cpsprodpb/16AB9/production/_126075829_ukraine_invasion_south_map-nc.png)
And continues to advance.
If you are keen on military history you’ll find that’s the flavour of Russian tactics for at least the last 100 years.
Waffling around for months to years with low grade tech, retreating and advancing in waves. But advancing just a net teensy weensy little bit more over the long term than retreats.
Less tech, more ongoing/infinite/continuous onslaught that just tires out the enemy.
Wars of attrition.
Russia controls less territory now than they did in the first week of the war. They were knocking on Kyiv's door at one point and then collapsed spectacularly due to vicious unexpected resistance and intelligence failures. Ukraine isn't doing great but they have the backing of the US, UK and Poland, and to lesser extent the EU both militarily and economically. Look at how Russian media carries on about HIMARS to see how big of an impact modern western equipment is having.
Latest figures out of Russia's central bank are not looking good long term, and those numbers have almost certainly been massaged. Ural oil already sells at a discount and now with oil prices falling they will get even less per barrel. The Rouble is being propped up artificially by Russian purchases, once Russia's foreign currency reserves run out, the rouble will be in freefall. The Russian economy is a house of cards, eventually the breeze will blow and take the rear with it.
It’s not 1945 anymore and Russia is relatively speaking a lot weaker than the Soviet Union. And I don’t see how “waffling around for months to years” applies to either the Brussilov offensive, the deep battle doctrine of WW2 or their 7 days to the Rhine plan.
Russia has the strategic depth, but they can’t just throw people at the problem like they used to.
He got that entirely wrong, and his hyperventilating about the construction industry is lacking in any basic insight. It doesn’t give me a lot of confidence in the rest of his article.
I know Noel is ‘famous’ and all, but this article really makes me question if he knows as much as he thinks he does.
Now - get your income and pay tax.
Raise your income 7%, raise prices 7%, still pay tax as usual. So no difference, really.
He only counted the tax against the second scenario (or counted the tax double).
But there would be a small difference - that the 7% additional income is charged at your 'marginal tax rate' instead of your prior 'average tax rate'. But the government would fix that over time - raising tax brackets.
Or just dumb. I tuned out somewhat when he shanked that so badly.
There is actually a slight discrepancy since the overall tax rate we pay (as a percentage of total income) is always less than our marginal tax bracket. So he has a point but to the tune of a few percent, not 35%
Hi OP,
I was thinking lately how some people don’t want to hear what you have to say, but afaik you are actually respectful to others and you make excellent well thought out contributions here. So even if people don’t want to hear it sometimes, I think you’re just what the community needs.
Having said that, we all have a tendency to cherry-pick information that confirms our existing beliefs and reject information that goes against it (confirmation bias).
While I do think you are doing your research, do you think your research is balanced and have you been able to mitigate confirmation bias? Or do you lean solely on opinions that support your position?
Thanks so much mate.
I am very grateful for your kind words 🤝🏻.
Truth be told I look at everything.
But I mostly share the things which are bearish, and of course this support my viewpoint (or narrative if you like).
The reason for this is that for the most part this subreddit, and most users, lean bullish and this means there isn’t as much bearish stuff shared, on balance.
I of course have a reputation for being an Uber-bear, but I’ve only been bearish since 2018/19. Before that I made all my wealth as a bull.
Because I now share so much contrarian/bearish I think it does help to offer a counterpoint or balance to the subreddit overall.
Yeh will agree with the OP. I used to role my eyes a bit when I saw you post. But it’s a solid well thought out counter balance to the bull nature of the sub and Australian economics. Keep it up.
>Workers have never had it tougher. Power bills are skyrocketing, petrol is taking band even bigger chunk of their income, bills are increasing, and now they are copping a pounding with increasing mortgage repayments.
Workers who rent may be ameliorating landlords’ mortgage repayments.
I agree but We have increasing wages and a smaller supply as rental properties switch back to short term (student and Airbnb) in many places .rent is going up quicker then property prices are going down
When demand is low, the price is set by 'how little landlords will accept'.
(Ie. Input costs - capital gains expectations)
When demand is high, the price is set by 'how much tenants are willing to pay'.
(Ie. The things the other guy said)
Got to love his math skills. If your pay goes up by 7%, your take home goes up by 7%.
Let's say your pay is x and taxes are 32%. Your take home is 0.68x.
Now with a 7% raise, your pay is 1.07x. Your take home is 1.07x*0.68...which is 1.07 times 0.68x. The 7% raise does not magically become 4%.
Got an annuity based retirement I can live on ok. No mortgage, no car payment or child support. No credit card or personal loans. Don’t eat out hardly at all and don’t drive 100k’s in a week. I’m all set to hunker down.
did this guy skip economics class? there are so many things wrong with this I don't even know where to start... how about this one... if you get a 7% increase to your gross income, how is tax going to leave you with a 4.7% raise? if you increase your pre-tax income by 7% your post tax income is increased by \~7% too... bruh??
Using paycalculator.com as my source for post tax income, a gross income of $100,000 increased by 7% will lead to a net income increase of 6.1%. This will change based on the tax bracket you are in, eg 7% increase from $150,000 gross will be 6.0% net increase
... no... Take for example someone on a 200k salary.
Their post-tax take home is $139,333.
If they get a 7% raise their pre-tax income is now 214k and their post tax income is $147,033.
I.e. their post tax income increased by 147,033 / 139,333 = 1.055 = 5.5%.
This is because their salary increased exclusively within the highest tax band.
Source for tax amounts:
https://moneysmart.gov.au/income-tax/income-tax-calculator#!focus=1
using some unrealistic example and changing tax brackets (which is not what the author is saying) you still don't even come close to their number, which seems to be erroneously derived from 7% \* (1-0.325) \~= 4.7%
Just saying that your assertion that increasing your pre-tax will have a basically proportional increase to your post-tax isn't correct. Not saying the author isn't totally off base.
What do you mean unrealistic? 200k salary is pretty normal around here by all accounts 😂.
It’s hard to disagree with Mr Whitaker’s analysis. Interest rates of 4% imply mortgage rates somewhere in the 6-6.5% range and further rent increases.
In the words of Mr Buffet, the tide appears to be going out. And we will soon see who is swimming naked…
Australia will be insulated by both the agriculture and mining sectors and a floating dollar. Inflation will continue to inflate asset prices as the reserve print money and inflate away the debt relative to GDP
Inflation is still only marginally being caused by wage increases, for the most part it's still profits, including but not limited to fuel and housing, that continues to worsen inflation.
Like Lowe, Whitaker is talking in unlikely hypotheticals, claiming “if wage increases become common in the 4% and 5% range” that will make it harder to get inflation back to their target. This seems unlikely to occur as, in real terms, the minimum wage will fall again this year, as it did last year. EBAs only saw a 2.6% rise and it's unlikely they'll see much movement either.
I think the real drivers of inflation are the usual protected species.
If you're earning a base salary (X) minus taxes (Y) today, increasing the base salary (X) by 7% will result in a "pretty close to 7%" (due to tax brackets the taxes will be somewhat higher the more you make) increase to your take home salary (X - Y).
Nowhere near as little as the 4.7% they're talking about.
I think Mr. Noel is not telling us the truth at all.
There is high demand in construction and other shortage of skills. Does not tell you this is due an overheated economy coming from easy access to money (low interest, people consumes more demand goes up), and when interest go up people cut their spending (it actually is what he's suggesting) and it will just happen the opposite (demands go down) then the workers shortage would eventually become just the opposite.
Obviously this won't happen tomorrow morning, but over the next 3 years.
In not sure who thought that Putin would just give up and “crawl back to his bunker”? It seems to me almost all political pundits said that this will be a drawn out war. There’s only 100+ years of the Soviets vs the Western allies as evidence.
Controversially I do not believe there is a “normal” to go back to. We just experienced a global pandemic that set into motion a chain of events. Things are never going back to the way that they were, we need to carve out a new future.
Are you serious? Builders are going insolvent left right and centre due to slim margins initially (which required volume) to then be smashed by price increases on materials, labour and basically all input costs.
Add to this the supercharged domestic building market caused by govt grants (meaning many fixed price contracts signed in a very short period) prior to the materials shortage being fully understood.
Plus massive delays in actually getting the materials. But yes.
Add to that the additional demand making availability of all trades scarce and it's much harder to co-ordinate trades to actually get a job done to get you the next stage to get paid. For example when building a house, builders need to organise a plumber, tiler, painter basically heaps of people come on to do their part - if all are delayed, all of the staged payments come later, putting them either further behind.
There certainly are some domestic builders that went like a pig at a trough when these grants were announced, taking on way to many contacts than they could reasonably do and paying the price. This little ripple will be felt for ages I think
So complete been but do you think they have taken into consideration that a lot of people have savings cos didn't spend during two year covid lock down? Hence raising rates
Not saying you’re wrong mate, just wondering where that is from is all.
Personally I think the equilibrium interest rate is 5.25% (that’s what I was taught at uni anyway).
You may well be right, whatever it is will probably be much higher than people are used to after the last decade and will bring many people pain if they hit trouble with repayments
Mr Whittaker. He was banging on about mortgage and financial advisors all through the late 90s and early 2000s. Telling everyone to ask serious questions. So I did when my GF took me to the trusted one her colleagues all used. That guy didn't like questions about how his commissions might vary between financial products. He got upset when I was talking about getting a manageable loan we could pay down in 8 to 12 years. He even asked if this was some of that "Noel Whittaker" stuff. I copped an earful for embarrassing my GF. We split soon after. The next year that whole shit show got exposed. I will always appreciate Noel. He got me out of two dodgy situations.
Sounds like good advice stands the test of the time.
Yes I bought a couple of his books in the late 80's when I bought my 1st house at 22. His advice set me up for an easy life. Paid that house off in 5 yrs and the 2nd house by age 34, no debts at all by that age and a couple kids etc. I was able to retire recently at 55 with way more income in retirement than I ever had working. He's 1 of the few guys I pay attention to.
Nice! A work mate in the 90s was a mechanic who bought a place, got in 3 people to rent with him and paid it out super fast. I laughed at him at the time, being a dumb know it all, but have had time to reflect :-).
What does he mean by "bunker down"? What are some examples of bunkering down? (wow I sound like an exam question)
It means get defensive. So dig some trenches your front yard and think about installing a machine gun.
Ohhh...ok...I hope council is ok with this. I'll ask NAB for some mini guns
As long as the machine gun isn’t longer than 1.5m you don’t need a permit.
This is not true in Queensland and you must follow your local council’s direction (ie Logan only allows for 1.2m and all machine guns must be wheelchair accessible).
My council doesn't allow me to have a rooster, but I can light up the mini gun up until 10pm on weeknights.
Sure, but you can’t use it until after 7am on a weekday which limits its usefulness for nighttime financial defence.
Market shuts at 4 and doesn’t open til 10am. The 7-7 allows time for defensive reweighting before the short sellers come over the trenches at market open and just after the end of day grenades from short term institutional sell offs
mounted mine to the two stroke dirt bike, so I get a tax break for wear and tear, plus the neighbours will never know where it currently is for defence.
The money never sleeps !!
Logan is unrestricted based on what I’ve seen previously?
For all the fatties in mobility scooters in Logan lol
Interestingly a friend’s father owns a fleet of ex soviet and Australian tanks. One of the Arabic countries (forget which one) reached out asked if they could buy parts from him. Unfortunately ASIO got involved and denied him.
*unfortunately
Rightly so
And as long as the trenches are less then 600 deep they’re exempt development under SEPP infrastructure
Remember to Dial-Before-You-Dig..
No mini guns, only howitzers
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Aren’t the machine guns to keep NAB away from repossession?
If you're in Vic you can have unlimited size laser weapons, so long as they're mains powered. I know because reasons
Would digging a moat be at least passable?
Yes, you just need a child safety fence around the moat.
And extra signs if the moat has crocodiles.
Land mines, razor wire, that kind of thing.
Dragons too.
I hear Amazon has flat pack pill boxes up for grabs. You just have to mix the concrete and put up the wire
And remember. Knives never run out of bullets.
never bring a knife to a gunfight.
Say it with me folks: overlapping fields of fire.
As an expert, would you say it's time for people to crack open each other's skulls and feast on the goo inside?
Yes I would Kent.
Pretty sure it's an eggcorn too. I think the original expression is "hunker down".
His last sentence is a good explanation >Take a good look at your finances and put safety buffers in place to safeguard your position for what lies ahead
That is such a BS statement. It offers nothing practical to help people. It is like saying "if you live in a high crime area, don't get robbed"
It's spot on, now would be a really good time to review your finances. Get rid of some subscriptions, move some services to the cheaper providers. Build buffers where you can, savings or income insurance. It's more like saying if you live in a high crime area review your security systems. Increase or strengthen them where you can.
Aren't these things you should be doing anyway?
You would think so, but there are so many people with the same mortgage as when the bought the house, same teleco, same insurance, same banks etc. Lazy loyalty.
True but breaking lazy loyalty is not going to protect you from the devastation this guy is predicting. Which is what I was driving at.
I personally didn’t read that as devastating, it read as a “tough time ahead”.
Plenty of people do not always do the things they should be doing. Sometimes they need to be pointed in the right direction.
I take it as don’t hold your breath waiting for the rates to drop again. Climb to higher ground.
[So Professor, would you say it’s time to panic?](https://frinkiac.com/meme/S05E11/263562.jpg?b64lines=IFlFUywgSSBXT1VMRCwgS0VOVC4=)
Yes, yes I would
I think it's a mishearing of "hunker down"
generally it means reduce risk, which for most people means reduce debt or don't take on new debt a.k.a. 'deleverage'. unfortunately this is also one of the main propagators of recession. what is rational for individuals can sometimes be poison for the economy as a whole.
Stick some guns in the pipes outside. Murica
The term he was trying to say was "hunker down". Bunker down is not really a thing even though Google attributes it to golfing and shipping fuel.
Oh I didn't really think twice about the term actually. I knew the idea behind it but I was more curious as to which strategies he meant. (Although now I understand it to be to play defensive.)
‘The unreliability of economic forecasts…’ Proceeds to make economic forecasts.
Do you use tea leaves or coffee grounds?
I look at the skid mark in my undies
I don't get the issue here - what's wrong with 4% cash rates? Those are still historically fairly low? Is it really that scary for anyone except a small minority living on the edge?
There is nothing wrong with it in the larger scheme of things, it has been below that for about 10 years though so there is a large number of people who have come into adult hood and taken on debt without ever experiencing a rise.
Few things at play here for younger people though. * They are just starting their careers, so their earning potential is likely to (but admittedly, not always) outpace inflation as they gain experience. * They should have factored in at least 2-3% increase into their serviceability, 4% is not a stretch past this. * Brokers, bankers, financial advisors, and just about everyone say never borrow at capacity. The majority of people would not have. * A fair percentage of buyers are on fixed rates (at least partially) for the next few years. I'd wager that the cross-section of people who fall out of line with all 4 conditions above are the ones in danger - and that would be a minority of young people, and a drop on the ocean of the overall housing market. And as always, people seem to forget that housing is a core need. Young people spend a lot on lifestyle compared to their parents at the same age, and when push comes to shove will tighten their belt and make the payments, just as the RBA expects.
My dad and I are fairly comparable in earnings at the same points in our lifes, ofcorse taking inflation into account. He got acerage 50 mins from the CBD, owned a cabin by the lake, had a boat, co owned a plane which he travelled australia with, had newish cars lived a good life all on a single wage with 3 kids at that particular time Me who got married and bought a house roughly 8 years later in life than he did almost purely due to chasing the housing/land inflation, barely travelled, owned a new work car but sold it for a stronger deposit on a home, second guess going out while we save for a new family car, house is on only 900sqm 1 hour from the CBD. On a dual income, no kids. I dont struggle but I sure as hell do not have the same quality of life he had for a very similar incomes. I dont think our 2 generations are at all comparable, even if its purely due to the land sizes they had avaliable to them, they are now advertising 450sqm blocks as big blocks, how far the Australian dream has fallen. Last thing to note is just 6 months ago when I went for my home loan the banker said 'its refreshing to see a couple not wanting their capacity', this was in melbournes west, a high growth area. This does not give me high hopes but is also only a comment made by a banker.
Thanks for sharing! This is the sad reality and I can’t see a way out
And a generation or two before your dad's and you could stake a claim on acreage almost for free!
I think what it comes down, a lot of the time, is population. OP's dad could buy acreage 50 minutes from the CBD because there was actually acreage to buy. The vast majority of that land anywhere near a large city has long since been subdivided. That means that anything that remains is going to be priced at a premium, and there area lot more people competing for the same land even if you can afford it.
You have to add in the shady lending practices of banks and also brokers.... There is brokers out there that will deliberately forge income papers to get a loan through.
As an example, a 4% cash rate will likely increase my mortgage repayments by $1500 a month. A lot of people don't have the extra cash and haven't made allowances for this to happen. A lot of people are going to be put under financial pressure, especially with cost of living increasing at the same time and wages not growing.
... and the increase isn't a short term increase. It could be an increase like that for many years to come.
Yeah this is the hard bit for me.
>lot of people don't have the extra cash and haven't made allowances for this to happen I really think this is a assumption you've made, and not necessarily a given. RBA who have access to this data more so then any of us believes that the risk of default is extremely low across the market due to the space in people's circumstances to pay their mortgages. Yes lifestyles will take a heavy hit - but when its a choice between a roof over your head, you tend to make those tough compromises.
Is this the same RBA that said they wouldn’t be raising cash rates until 23? I’m not entirely sure they know what’s going on either
This is from personal experience with people I know who have borrowed over the last year or so. I'm not necessarily saying people will default, I'm saying that people will be in financial stress.
There's nothing wrong with it and everyone has been assessed as to their ability to pay their mortgage at higher rates than 4%. It's not going to ruin people living on the edge because they'll just cut back on spending. It can ruin people by shrinking the economy which should result in higher unemployment. Obviously if you lose your job its hard to pay a mortgage, especially when repayments are going up. For investors it can ruin the investment because obviously the only reason to invest is for returns and the cost of your mortgage going up does not help this. I imagine many invest for the capital gains in Australia and with property forecast to drop 15% this is obviously not optimal. Mum & Dad investors are also affected by losing their job and I imagine all of these things potentially could have a snowball affect on property prices in Australia. The only other aspect to this is whilst 4% is historically low, household debt is historically high. 4% on a million dollar mortgage is the same as 8% on a 500k mortgage or 20% on a 200k mortgage.
I like your comment about shrinking the e economy. I think people are forgetting that bit and how that will flow on to more unemployed persons unable to pay their mortgage. If rates keep rising I know my weekly trip to the cafe is out, no more Uber eats or takeaway etc, and I’ll be fine, but what does that mean for The cafe/takeaway staff/owner of business slows.
I think what is really scary is the amount of financially illiterate Aussies out there living on the edge atm. A huge amount of young Aussies who have never experienced a ir increase are mortgaged to the eyeballs will unfortunately be the first to fall. Reckless government policies has caused this mess. Young people will be the ones who must now pay for it
Be fair. Reckless government policies added to irresponsible lending caused this. Well also the people who signed up for their debt too or course.
9 years of neoliberal worshippers? I suppose so
Its a minority of borrowers. Even then RBA's own stretch case of a 20% reduction in house prices shows only 3.5% of house holds in negative equity. Its a myth that everyone borrowed to their maximum amount. The average owner occupied loan has a 2 year buffer in redraw. The unemployment rate is the lowest its ever been. There is a line of people trying to get into the country and work etc.
I agree. There aren't going to be mass defaults and Australia won't turn into a Mad Max wasteland because house prices have fallen 20%. This gives the RBA licence/freedom to continue pushing rates up and keeping them higher for longer to battle the bigger economic threat (which is in their direct purview) - inflation.
\> Its a myth that everyone borrowed to their maximum amount. I see the assumption of overleveraged FHB constantly regurgitated by many - I'm really not sure where this narrative has come. I get that a lot of people are scared sure and sacrifices will need to be made in the short term, but I think some are blowing this out of proportion.
This is from the RBA, more recently in March 2022 just before the first rate hike: https://www.rba.gov.au/publications/bulletin/2022/mar/are-first-home-buyer-loans-more-risky.html 18% of first home buyers out of new loans in the beginning of 2022 were between 6 to 8 times debt to income. Around the same amount of other owner occupiers did the same. 30% of investors did 6x-8x as well.
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Cool I appreciate you trying to provide source on this. Have you read them? \> [https://www.rba.gov.au/publications/rdp/2020/2020-05/why-is-australian-household-debt-high-relative-to-history-and-other-countries.html](https://www.rba.gov.au/publications/rdp/2020/2020-05/why-is-australian-household-debt-high-relative-to-history-and-other-countries.html) The conclusion; \> ...not evidence of widespread excessive leverage \> ...highly resilient to adverse shocks to households \> [https://www.macrobusiness.com.au/2022/05/aussie-banks-tighten-clamps-leveraged-mortgage-borrowers/](https://www.macrobusiness.com.au/2022/05/aussie-banks-tighten-clamps-leveraged-mortgage-borrowers/) confirms what we all know \> The impact will be harshest on those that took out jumbo mortgages at record low rates last year. Ofcourse the impacts will be biggest on those who have the biggest mortgages relative to house value, who would have bought at the most recent peak. Neither indicates how many people fit into this 'jumbo' mortgage category, and how much they will be impacted. I made another comment earlier that highlights that even people who bought at the peak of the market would have had to make 3-4 grave mistakes in order to be severely concerned - and that would be a significantly small minority of mortgages.
Your response shows that you read the links, interpreted them correctly and have accurately captured the conclusion. You are now banned from r/ausfinance for not including irrelevant anecdotes and instead relying on fact and logic.
You can't use historical cash rates then determine the impacts going forward. There needs to be a sensitivity analysis. 4% cash rate will be more impactful say then a decade ago due to household debt.
I can agree with this point - the impact is larger due to the relative increase, but it was expected to happen eventually. Even at the height of the mania, rates were still expected to rise in 2024. With a 30 year loan, starting at 0.10% cash rate means the rates can only go one direction in the future - moving that date forward 2 years to 2022 *should* not impact a *majority* of people *significantly*. I emphasize select words because there will be sacrifices to be made by everyone in the short term as they readjust to their smaller budgets, and a small percentage will be doing it very tough with a minimal excess to spend outside of necessities.
Lots of people with million dollar mortgages fixed under 2% are in for a rude shock when the fixed rates expire.
Those people knew rates were going up at some point in the future - moving that date from 2024 to 2022 on a 30 year loan should not cause significant hardship. Those that are in this position would be in a very small minority as indicated by the RBA's predicted default/distress rates.
I think it will pretty drastically change a lot. We’ve had a long time with rates so low that savings accounts have been unviable for a lot of people. It’s not just about mortgage repayments. As rates go up, money will be pulled out of markets by a lot of people, capital will be harder to acquire. So many companies have been running on next to free money. There’s going to be a weird transition period soon imo.
I think it’s going to have a significant effect on a very large cohort of borrowers, and then the flow on effect from that is an aggregate reduction in our economy from materially lower consumption.
Literally the reason they are raising interest rates, so yes.
But no guarantee to kill inflation in that short run.
It definitely fixes (or more accurately mitigates) half the problem - forex driven inflation.
You reckon the disparity between our cash rate and the Fed funds rate is driving inflation?
Which will lead to pausing at a cash rate below what is currently suggested.
It’s not inconceivable we could have negative economic growth but above target band inflation. We saw this happen in the 70’s. Central banks thought they had gotten on top of inflation but it can back again and was even worse. It led to the Volcker moment, which was rates having to go to 20% to finally kill inflation. Contemporary central banks will, in my view, try and not repeat the mistake of Arthur Burns.
Not sure. I understand the argument, however our debt loads in the economy are far higher than then. Central banks dont have a good option in a high inflation/low growth environment. My gut feel is politics will win out and central banks will be hesitant to crush growth more, particularly when most of the inflation is supply side. We have a cash rate now at 1.85 and there is already pages of editorials tearing strips off the rba with consumers already struggling with other cost of living pressures. We already have government enquiries into the rba's function/process. Will be interesting to say the least, i think the path for rates will be somewhere down the middle, not as high as most forecasts and likewise not 'cuts next year' as some others are hinting at.
When you say “politics will win out”, my first though is “run to the hills”. When politicians make economic decisions, it usually involves money printing and price controls. First lead to more inflation and second to shortages, then no one wins. I lived though Brazil’s hyper inflation in the 90’s as a small boy, remember some stuff and heard the stories A Great Depression 2.0 is not great. At least on both scenarios the toxic debt is cleared out, I guess? Personally I’d prefer depression over out of control inflation
I completely agree. We have too much debt and it will be dealt with. In prior societies where debt has been high, inflation has always been the path that is chosen. Depression isnt politically viable. I also dont mean that our literal politicians will be making bank policy, but an acknowledgement that ultimately the rba answers to the government and are not immune from public sentiment/struggles. Particularly when they (the rba) are seen (rightly or wrongly) as at least part of the problem
If they don’t kill inflation nothing else will matter.
I agree.. Lots of people are going to be paying twice as much interest. That's meaningful
You misspelt "large majority"
Depends what you mean by historically. Over the last 50 years, 4% is on the low side. But over the last 500 years, the average cash rate is around the 3% mark, albeit the data pre-1900 can get a bit dodge.
The interest rise on our home loan is going to be pretty brutal. Currently it is $2560/m on 2.55% and looking at 4.5% as my estimated rate when we come off our fixed rate next Sept, it will go up to $3100/m, a $540/m increase. 5.5% will make it $3460/m or $900/m extra. That is not far off our childcare costs of $1200/m. My wife and I both have gotten pay increases which help a bit, but there are only so many expenses I can cut down, especially given inflation and cost of everything going up. We borrowed up to our limit to get into the housing market to get closer to the Brisbane city as the commute from our old place was brutal for us and the kids (3 hr return). Everyone told us rates won’t increase until 2024, so we went with a three year fixed rate. Wish we got 4 or 5. Will have to see how we go.
Same for me. When I come off fixed rates my buffer is going to get chewed up fast
Market isn't pricing in 4%. We will most likely enter recession like the US. Aggressive rate hikes have a cost.
A recession would be in the interests of central banks and those with assets (particularly largely overinflated assets that have relied on rock-bottom rates). What happened when the US announced a second quarter of negative GDP growth? Market went on a huge rally. The markets *want* a recession. The markets *want* rock-bottom rates to return. The markets *want* QE to begin again.
I would caution that Eurobank wants a recession as it could lead to sovereign debt crisis. Italy isn't looking good and Greece isn't far off either.
& also massive issues with supply lines from overseas - companies won't be able to work or complete projects without overseas goods. I agree, a recession is on the way.
we already are
Also, it takes time for increase interest rate to filter down the economy. Raising interest rate now won't have immediate effect.
Yep currently 3.345 predicted peak in March. https://www.asx.com.au/data/trt/ib\_expectation\_curve\_graph.pdf
Can't say I agree with 'Putin's position looks stronger than ever', or that 'inflation is caused by wage increases', nor that 'shortages of supplies and the building industry' is inflationary, either. I think that's backwards - it was cheap money that drove building industry demand, not that the build itself is particularly inflationary. The crash of it certainly isn't, raising interest rates causing building demand to drop is part of the whole reason they're being raised. That said, I wouldn't be surprised if we did see interest rates at close to 4%, overshooting a bit of the neutral level and then staying there for a while. There's a lot of cheap cash to pull out of the market before things stabilise a bit.
>Can't say I agree with 'Putin's position looks stronger than ever' Winter is coming for Europe, which will be a rare chance to cause havoc in Western Europe via control of gas. Wait until the rationing and energy restrictions kick in, populations in Europe will kick off big time. Do you remember the French rioting over diesel taxes?
Uh huh. And Putin's army is poorly supplied, barely moving forward and suffering atrocious losses. Ukraine is still receiving supplies and materials - moreover, they're receiving them from the US who won't be affected by gas shortages from Russia. Wait until the dead of winter, when Russian soldiers are freezing to death in the snow. Ironic that a cold winter will be the death knell of a Russian invasion.
Right now real rates are deeply negative. Hard to see how 2.5%, if neutral, is going to help tighten financial conditions all that much? Surely we need to tighten to a contrarian monetary setting?
I didn't say 2.5% is neutral. I said 4% is an overshoot.
Why is it an “overshoot”?
Because I think that with a reduction in the construction industry as a result of rate rises, supply chain constraints due to covid, electricity prices and fuel shocks we will probably tip into a recession, which will help pull inflation numbers down pretty sharpish, but that it still won't be within band for the RBA's mandate. I also expect that because the RBA look at mostly lag indicators, inflation will have been in band or close to it by the time they stop raising rates but will over egg it. They're moving aggressively now because they're seeing rates get to 7ish per cent. By the time they're getting to high 2s, low 3s they would probably have it under control by mid-2023 but by then I think we'll see rising unemployment numbers and dropping consumer confidence. I also think we're going to see a reduction in government spending, especially in some sectors like Defence. The new government is saying they want to clamp down on things like consultants and contractor payments. I'm not sure they'll do that and still deliver services, but I can see them stopping or slowing large projects to halt the money spigot that was going full blast the last couple of years. It depends on how quickly we get up there, really. Commodity prices, as ever, could be the key to threading the needle and keeping us out of a contraction or the two needed to be in a recession, but then again they could not. Iron ore prices are down, China's experiencing financial woes of their own, but thermal coal prices are high. Glencore is saying close to $400 a tonne, which is a big jump.
What I’m saying is, for monetary policy to be contractionary, and to slow inflation, isn’t it required to go *above* neutral? Which isn’t an “overshoot”, but a deliberate policy setting.
Well yeah, it's right there in the name 'contractionary', lol. But you can raise too hard and too fast and too long which is what I said.
Fun fact: the 100 year average IR in Australia is 5%
I tend to think that’s a pretty fair rate.
Putin has almost complete control atm over the eastern front of Ukraine. Their primary objective. [27/7/22 BBC map ](https://ichef-bbci-co-uk.cdn.ampproject.org/ii/AW/s/ichef.bbci.co.uk/news/640/cpsprodpb/16AB9/production/_126075829_ukraine_invasion_south_map-nc.png) And continues to advance. If you are keen on military history you’ll find that’s the flavour of Russian tactics for at least the last 100 years. Waffling around for months to years with low grade tech, retreating and advancing in waves. But advancing just a net teensy weensy little bit more over the long term than retreats. Less tech, more ongoing/infinite/continuous onslaught that just tires out the enemy. Wars of attrition.
Russia controls less territory now than they did in the first week of the war. They were knocking on Kyiv's door at one point and then collapsed spectacularly due to vicious unexpected resistance and intelligence failures. Ukraine isn't doing great but they have the backing of the US, UK and Poland, and to lesser extent the EU both militarily and economically. Look at how Russian media carries on about HIMARS to see how big of an impact modern western equipment is having. Latest figures out of Russia's central bank are not looking good long term, and those numbers have almost certainly been massaged. Ural oil already sells at a discount and now with oil prices falling they will get even less per barrel. The Rouble is being propped up artificially by Russian purchases, once Russia's foreign currency reserves run out, the rouble will be in freefall. The Russian economy is a house of cards, eventually the breeze will blow and take the rear with it.
It’s not 1945 anymore and Russia is relatively speaking a lot weaker than the Soviet Union. And I don’t see how “waffling around for months to years” applies to either the Brussilov offensive, the deep battle doctrine of WW2 or their 7 days to the Rhine plan. Russia has the strategic depth, but they can’t just throw people at the problem like they used to.
That worked in the past because the Russians had a massive manpower advantage over their enemy, not the case today.
He doesn't understand maths about the 7%. People 'already' pay for goods from their post-tax income.
He got that entirely wrong, and his hyperventilating about the construction industry is lacking in any basic insight. It doesn’t give me a lot of confidence in the rest of his article. I know Noel is ‘famous’ and all, but this article really makes me question if he knows as much as he thinks he does.
But the point is that the increase in pay doesn’t offset inflation. Which is correct right?
Now - get your income and pay tax. Raise your income 7%, raise prices 7%, still pay tax as usual. So no difference, really. He only counted the tax against the second scenario (or counted the tax double). But there would be a small difference - that the 7% additional income is charged at your 'marginal tax rate' instead of your prior 'average tax rate'. But the government would fix that over time - raising tax brackets.
Yeah it’s totally disingenuous
Or just dumb. I tuned out somewhat when he shanked that so badly. There is actually a slight discrepancy since the overall tax rate we pay (as a percentage of total income) is always less than our marginal tax bracket. So he has a point but to the tune of a few percent, not 35%
Hi OP, I was thinking lately how some people don’t want to hear what you have to say, but afaik you are actually respectful to others and you make excellent well thought out contributions here. So even if people don’t want to hear it sometimes, I think you’re just what the community needs. Having said that, we all have a tendency to cherry-pick information that confirms our existing beliefs and reject information that goes against it (confirmation bias). While I do think you are doing your research, do you think your research is balanced and have you been able to mitigate confirmation bias? Or do you lean solely on opinions that support your position?
Thanks so much mate. I am very grateful for your kind words 🤝🏻. Truth be told I look at everything. But I mostly share the things which are bearish, and of course this support my viewpoint (or narrative if you like). The reason for this is that for the most part this subreddit, and most users, lean bullish and this means there isn’t as much bearish stuff shared, on balance. I of course have a reputation for being an Uber-bear, but I’ve only been bearish since 2018/19. Before that I made all my wealth as a bull. Because I now share so much contrarian/bearish I think it does help to offer a counterpoint or balance to the subreddit overall.
Yeh will agree with the OP. I used to role my eyes a bit when I saw you post. But it’s a solid well thought out counter balance to the bull nature of the sub and Australian economics. Keep it up.
Thank you mate. Really appreciate that also! 👍🏻
Join the fun at zerohedge mate. Little Aussie group of us there.
>Workers have never had it tougher. Power bills are skyrocketing, petrol is taking band even bigger chunk of their income, bills are increasing, and now they are copping a pounding with increasing mortgage repayments. Workers who rent may be ameliorating landlords’ mortgage repayments.
Rent is a function of wages and localised supply and demand, not landlord input costs.
I agree but We have increasing wages and a smaller supply as rental properties switch back to short term (student and Airbnb) in many places .rent is going up quicker then property prices are going down
It used to be
When demand is low, the price is set by 'how little landlords will accept'. (Ie. Input costs - capital gains expectations) When demand is high, the price is set by 'how much tenants are willing to pay'. (Ie. The things the other guy said)
Still is. I haven’t see anything to show otherwise anyway.
Got to love his math skills. If your pay goes up by 7%, your take home goes up by 7%. Let's say your pay is x and taxes are 32%. Your take home is 0.68x. Now with a 7% raise, your pay is 1.07x. Your take home is 1.07x*0.68...which is 1.07 times 0.68x. The 7% raise does not magically become 4%.
I might have to sell my body to the local elderly widows to get some extra finances!
I hear they're gentler with no teeth.
Got an annuity based retirement I can live on ok. No mortgage, no car payment or child support. No credit card or personal loans. Don’t eat out hardly at all and don’t drive 100k’s in a week. I’m all set to hunker down.
did this guy skip economics class? there are so many things wrong with this I don't even know where to start... how about this one... if you get a 7% increase to your gross income, how is tax going to leave you with a 4.7% raise? if you increase your pre-tax income by 7% your post tax income is increased by \~7% too... bruh??
Using paycalculator.com as my source for post tax income, a gross income of $100,000 increased by 7% will lead to a net income increase of 6.1%. This will change based on the tax bracket you are in, eg 7% increase from $150,000 gross will be 6.0% net increase
... no... Take for example someone on a 200k salary. Their post-tax take home is $139,333. If they get a 7% raise their pre-tax income is now 214k and their post tax income is $147,033. I.e. their post tax income increased by 147,033 / 139,333 = 1.055 = 5.5%. This is because their salary increased exclusively within the highest tax band. Source for tax amounts: https://moneysmart.gov.au/income-tax/income-tax-calculator#!focus=1
using some unrealistic example and changing tax brackets (which is not what the author is saying) you still don't even come close to their number, which seems to be erroneously derived from 7% \* (1-0.325) \~= 4.7%
Just saying that your assertion that increasing your pre-tax will have a basically proportional increase to your post-tax isn't correct. Not saying the author isn't totally off base. What do you mean unrealistic? 200k salary is pretty normal around here by all accounts 😂.
the author was talking about **32.5% bracket only**
I think what he is saying is that the burden of inflation isn’t fully offset by commensurate wage increases due to taxation.
what he has written is blatantly wrong
It’s hard to disagree with Mr Whitaker’s analysis. Interest rates of 4% imply mortgage rates somewhere in the 6-6.5% range and further rent increases. In the words of Mr Buffet, the tide appears to be going out. And we will soon see who is swimming naked…
Yeah I think this rings true. Australia will have it worse than most due to our huge debt levels and overvalued asset values.
Australia will be insulated by both the agriculture and mining sectors and a floating dollar. Inflation will continue to inflate asset prices as the reserve print money and inflate away the debt relative to GDP
How does the “floating dollar” help? If inflation continues then our society collapses. It’s not an option.
Happening across the whole world isn’t it
Yeah pretty much. Makes me wonder if the global slowdown accelerated if we won’t face a debt deleveraging event on a world scale.
Stopped reading after "Putin's position is stronger than ever"
Yeah that’s definitely extremely questionable.
Inflation is still only marginally being caused by wage increases, for the most part it's still profits, including but not limited to fuel and housing, that continues to worsen inflation. Like Lowe, Whitaker is talking in unlikely hypotheticals, claiming “if wage increases become common in the 4% and 5% range” that will make it harder to get inflation back to their target. This seems unlikely to occur as, in real terms, the minimum wage will fall again this year, as it did last year. EBAs only saw a 2.6% rise and it's unlikely they'll see much movement either. I think the real drivers of inflation are the usual protected species.
A new dark age is amongst us
Bunker down - prepare for rising costs and mortgage repayments.
If you're earning a base salary (X) minus taxes (Y) today, increasing the base salary (X) by 7% will result in a "pretty close to 7%" (due to tax brackets the taxes will be somewhat higher the more you make) increase to your take home salary (X - Y). Nowhere near as little as the 4.7% they're talking about.
Time to start shopping at Aldi I guess .
All I heard is BBBY calls
I think Mr. Noel is not telling us the truth at all. There is high demand in construction and other shortage of skills. Does not tell you this is due an overheated economy coming from easy access to money (low interest, people consumes more demand goes up), and when interest go up people cut their spending (it actually is what he's suggesting) and it will just happen the opposite (demands go down) then the workers shortage would eventually become just the opposite. Obviously this won't happen tomorrow morning, but over the next 3 years.
TLDR - We are screwed
Well some are. Over-leveraged positions may well be liquidated.
It does read that way.
In not sure who thought that Putin would just give up and “crawl back to his bunker”? It seems to me almost all political pundits said that this will be a drawn out war. There’s only 100+ years of the Soviets vs the Western allies as evidence. Controversially I do not believe there is a “normal” to go back to. We just experienced a global pandemic that set into motion a chain of events. Things are never going back to the way that they were, we need to carve out a new future.
he means to dig in some basements in every australian property so the extra square footage will stop the slide in valuations
Why are builders going bankrupt, and how does this happen if construction is in high demand?
Are you serious? Builders are going insolvent left right and centre due to slim margins initially (which required volume) to then be smashed by price increases on materials, labour and basically all input costs. Add to this the supercharged domestic building market caused by govt grants (meaning many fixed price contracts signed in a very short period) prior to the materials shortage being fully understood.
So most builders quote a fixed cost under the expectation low variation of input costs, only to get wrecked by supply chain woes and inflation?
Plus massive delays in actually getting the materials. But yes. Add to that the additional demand making availability of all trades scarce and it's much harder to co-ordinate trades to actually get a job done to get you the next stage to get paid. For example when building a house, builders need to organise a plumber, tiler, painter basically heaps of people come on to do their part - if all are delayed, all of the staged payments come later, putting them either further behind. There certainly are some domestic builders that went like a pig at a trough when these grants were announced, taking on way to many contacts than they could reasonably do and paying the price. This little ripple will be felt for ages I think
He's off by 1%. It will hit 3% long term, inflation will be between 4-5% long term
Jabba likes what he reads.
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see the grey haired man has seen an interest rate before
So complete been but do you think they have taken into consideration that a lot of people have savings cos didn't spend during two year covid lock down? Hence raising rates
Complete newbie
I think they probably have considered it as they have mentioned this in their commentary.
“a major cause of inflation is electricity prices” stopped reading there, im out
It’s true though isn’t it?
Just having a rich wife, all the problems go away..
Yeah "just don't be poor lol"
Normal is around 6.4%......
What brings you to this figure?
His user name....
Iirc the historic average for interest rates over the last century is around 6.4%
Not saying you’re wrong mate, just wondering where that is from is all. Personally I think the equilibrium interest rate is 5.25% (that’s what I was taught at uni anyway).
You may well be right, whatever it is will probably be much higher than people are used to after the last decade and will bring many people pain if they hit trouble with repayments
Pretty good read from a smart bloke whose been around the block a few times.
Good to see you read the SMH bruh, and not toilet paper
I try to read a broad range of sources.
 Here for the comments