Winston's Charts

[WinstonWolfe]

As long as GDP per capita is growing, our std of living (theoretically at least - that bit that doesn't just go into inflating property prices! ) and service provision should also be improving - no?

I thought the same at first, but you have to appreciate gdp per capita is more sensitive to downturns than gdp, when the population is increasing at a higher rate than gdp.

GDP per capita has actually decreased for the last 4 qtrs.

But I would be more justified in talking about GNI or RNNDI, which account for domestic income net of that paid to foreigners. I am stilll on a learnign curve with this stuff myself. In fact, the more I read about gdp, the more it seems like BS. Imputed rents, those hypothetically paid to owner occupiers by themselves represent up to 10% of gdp. But this income doesn't exist.

 

[WinstonWolfe]

Australian Population

Natural increase is births less deaths.

Birth and death rate per 1000 people, and resident population.

 

[WinstonWolfe]

Trade Balance

 

[WinstonWolfe]

NFD is net funds lent between Australian residents and non residents. It is mostly made up of capital borrowed by our banks to lend to us for property and business.

NFE is net ownership of Aussie companies and property by non residents; and foreign co. and property by residents.

Note that although not depicted on the Y axes, NFD and NFE are both negative. i.e. Australia is a net debtor and owns less foreign assets than foreigners own Australian assets.

 

[WinstonWolfe]

If NIIP is considered Australia's foreign borrowings, then the Current Account represents our cash flow with same.

Foreign cash flow consists of
- net exports (goods and services)

- interest paid on net foreign borrowings; and yields, divs, profit paid to foreign investors or owners of Aussie assets (income)

- a very small net amount of remittances between residents and non residents and one way govt pmts (current transfers)

The rapid growth in the red 'income' line below continues to overwhelm recent positive cash flow from net exports.

Much of the red line is interest paid on property mortgages. The problem of Australians borrowing foreign capital to bid up Aussie property prices is that we send more of our cash overseas as interest payments. That leaves less cash at home to circulate and lend amongst each other to fund economic growth and buy property.

So like property investment, Australia has a problem. We have taken on debt and -cf now, in hope that future productivity is high enough to generate +cf high enough to pay interest and pay off principal.

If we don't increase productivity sufficiently, we have no option but to sell assets to foreigners, at a price they are prepared to pay, until we have no more assets to sell.

The other problem is the larger NFD grows and the more enduring CADs become, the rest of the world will see us as a higher risk debtor, and charge us higher interest rates. That will adversely effect our property values because the cost of borrowing foreign funds will be too high for most Aussies to buy homes at today's prices.

 

[Philip Thomas]

Focused on the Local Market

Hi WW I like you work.

Two comments I’ve got:

1. Unemployment is a key driver of the Australian local Economy. How does this fit into your charts?

2. Looking at trends on a national basis is very general. Real Estate is very much influenced by local conditions. Have you looked at expanding your work into the major capital cities?

Philip

 

[willair]

)

.

So like property investment, Australia has a problem. We have taken on debt and -cf now, in hope that future productivity is high enough to generate +cf high enough to pay interest and pay off principal.

If we don't increase productivity sufficiently, we have no option but to sell assets to foreigners, at a price they are prepared to pay, until we have no more assets to sell.

The other problem is the larger NFD grows and the more enduring CADs become, the rest of the world will see us as a higher risk debtor, and charge us higher interest rates. That will adversely effect our property values because the cost of borrowing foreign funds will be too high for most Aussies to buy homes at today's prices.

Makes me think do we have any world class businesses in Australia that are still Australian owned ?,and do they still have a competive world "WIDE"advantage despite some that carry huge bad debt? and return above 15% return on equity,the more is see these "charts"Winston" the more i'm starting to think that the tidal wave that has hit most investors worldwide over the past 18 months,will still surface in some property sectors in time all markets go from undervalued to overvalued then back to overvalued again,once you understand what undervalued means ,just got all the BCC rates notices today,a few blocks we control have gone up in value by above 80k from the past year values,nothing like overvalued land values to bump up the land tax and rates bills,no to mention the price we now pay for water in Qld..imho ..willair..

 

[WinstonWolfe]

1. Unemployment is a key driver of the Australian local Economy. How does this fit into your charts?


I see unemployment as a RESULT of two phenonema:

1. what we do with capital.
If we use capital to produce goods and services valued higher by ourselves and the world, than the goods and services we consume, then we would have +CF via a sustained trade surplus. This surplus would over time, provide enough domestic capital for us not to be net borrowers of foreign dollars, for investment in business or property.

2. skill levels
The population has to stay educated and trained to make a meaningful contribution to production. Those who don't have no other choice other than to become under-employed, and rely on whatever welfare the country can afford.


2. Looking at trends on a national basis is very general. Real Estate is very much influenced by local conditions. Have you looked at expanding your work into the major capital cities?

Philip

Agree about national trends being very general. Yes, I could focus on state local conditions and might in the future, but at this point, I am trying to develop ABS spreadsheet systems that auto update particular charts and understand our reliance on foreign debt. Once I get code right, then it would be less labor intensive to delve into state figures.

I also believe there are national and international forces that influence the market, that are not immediately apparent or talked about enough i.e. our growing reliance on foreign debt to fund property purchases and our growing susceptibility to external shock, or international cost of credit. The recent rise in fixed interest rates and the big 4 banks' failure to pass on rate decreases are a direct repercussion of this.

Over the last 5 years, I have come to believe it is the cost and availability of credit that has been the major influence on Australian property prices. And I believe that credit is growingly dependent on higher net foreign debt. This is a trend I can't see sustained in the very long term. Maybe we can grow NFD for 5,10,15 years, but eventually the rate of growth has to contract and go negative. Property prices would then follow suit, if we don't manage a massive cultural change in productivity and export income.

 

[topcropper]

1. Unemployment is a key driver of the Australian local Economy.

Not sure about this, but Michael Pascoe reckons,.......

http://au.pfinance.yahoo.com/b/michael-pascoe/333/plenty-of-pay-packets-for-spending



......." On the latest figures available today, there are actually more people in work in Australia than there were in May 2008 when the unemployment rate was 3.9 per cent.

Of course quite a few jobs have disappeared since then, but more have been created. New jobs though don't get headlines.

There are pluses and minuses about the changes in employment over the year - there are more part-time and fewer full-time jobs, for example, and the number of jobs in the private sector has fallen by roughly 100,000 while public-sector jobs have increased by 150,000'........



While Michael seems to think this is a great thing, I have my doubts. How are more public sector jobs being created? What industries? Creating jobs out of thin air is all well and good, but if they are just being created to keep unemployment undercontrol at great cost to the tax payer? And of course it means there are less workers to pay the tax and more public servants to cost the nation to employ.

See ya's.

 

[WinstonWolfe]

You raise valid points TC. The employment and unemployment stats have been massaged so deeply that they severely mask underemployment.

Both sides of the political fence have been guilty of vacuous rhetoric in relation to how many 'jobs' they create. Recently, Anna Bligh and her consorts were spouting off about the x,000 jobs they were creating with this stimulus and that. A brave journo asked her how many of the jobs were full time and how long they went for......he got Anna's look of death, and she admitted many of them were as little as 3 hours a week for 3 months.

Shadowstats in the US always adds around 7% to the official unemployment stats and I think it would be the same here. Anyway, better to check exports, GDP, and BOP to get an indication of whether people are employed.....gainfully. Productivity is arguably a better measure of employment.

 

[willair]

Found this on U-Tube makes you think this one,i listened to this one after
updating myself on what Marc Faber is thinking for the Fin-Year, I know this is about the "US" AND IT'S GOING TO BE DIFFERENT THIS TIME AROUND,I've decided to bluff my way through the next crisis,just like the last one..
imho willair..
http://www.youtube.com/watch?v=JKlB...sh-coming-huge-36721/&feature=player_embedded
http://www.youtube.com/watch?v=w_UprqluSj0&feature=fvw

 

[WinstonWolfe]

Australia is reputed to have the highest net foreign debt per capita in the world.

Relating back to households:

With an average household size of 2.6 persons, each Aussie household has an $83,000 debt to the rest of the world.

Over the last 5 years, we have grown this debt at an average 12.4%pa.

Each household's cash flow with the rest of the world
= last 5 years' average annual current account deficit per household
= -$7200pa


So, in effect, each household has negative cash flow, is capitalizing interest, AND simultaneously borrowing more.

The only way to get out of a hole like this is to sell assets or increase export income well above imports.

 

[WinstonWolfe]

5609.0 9a

All figures below are 'original' data, not tampered with to form trend or seasonally adjusted.


The two charts below show how powerful a stimulus the fhog bonus was.
Take particular note of the second chart - financing per million population.
FHBs were never as vigorous prior to the fhog bonus.

The first chart shows that since the bonus, FHBs are taking historically high loans and a lot more than nonFHBs.

The chart below is the percentage of all housing loans that are fixed interest. Shows there must be a lot of people crying for fixing in the last 2 years.

 

[WinstonWolfe]

Housing Loans Outstanding

ABS blurb below.

I think the RBA analyses outstandings more comprehensively.
Interesting that the slope/rate of outstanding $s has gone up since May 07, and didn't come down as rates came down. If I find 'no. of loans' outstanding, I'll post, as $s will be naturally effected by rising median house price.



HOUSING LOAN OUTSTANDINGS

At the end of May 2009, the value of outstanding housing loans financed by authorised deposit-taking institutions was $875,023m, up $11,345m (1.3%) from the April 2009 closing balance. Owner occupied housing loan outstandings financed by authorised deposit-taking institutions increased $9,151m (1.5%) to $607,785m and investment housing loans financed by authorised deposit-taking institutions increased $2,194m (0.8%) to $267,238m.

Bank housing loan outstandings increased $10,884m (1.3%) during May 2009 to reach a closing balance of $830,370m. Owner occupied housing loan outstandings of banks increased $8,756m (1.6%) to $570,902m and investment housing loan outstandings of banks increased $2,128m (0.8%) to $259,468m.

 

[boz]

Australia is reputed to have the highest net foreign debt per capita in the world.

Relating back to households:

With an average household size of 2.6 persons, each Aussie household has an $83,000 debt to the rest of the world.

Over the last 5 years, we have grown this debt at an average 12.4%pa.

Each household's cash flow with the rest of the world
= last 5 years' average annual current account deficit per household
= -$7200pa


So, in effect, each household has negative cash flow, is capitalizing interest, AND simultaneously borrowing more.

The only way to get out of a hole like this is to sell assets or increase export income well above imports.

Hi WW,
how did you get this data?
I think it is a bit tricky to have a good measure as depend on exchange rates and on how much banks are hedging on it.
at what exchange rate the 83k AU$ debt is calculated? I believe it would be much higher if the AU$ will fall back to 60 UScents or less or much lower at 90 UScents or higher

 

[WinstonWolfe]

Hi WW,
how did you get this data?
I think it is a bit tricky to have a good measure as depend on exchange rates and on how much banks are hedging on it.
at what exchange rate the 83k AU$ debt is calculated? I believe it would be much higher if the AU$ will fall back to 60 UScents or less or much lower at 90 UScents or higher

ABS time series:
net foreign debt
population
household size

like gdp, nfd is only calculated every quarter. terms of trade are accounted for, which includes fx variation.

 

[boz]

ABS time series:
net foreign debt
population
household size

like gdp, nfd is only calculated every quarter. terms of trade are accounted for, which includes fx variation.

ok, thanks,
so the last data is from march when the AU$ was at 65 cent, i would assume a drop in NFdebt with latest data.
I am not sure I trust the data on debt as i believe banks (or other ent ity) wouldn't disclose exactly how much foreign debt and currency exposure they have every quarter. also how abs quantify foreign investment holding by australian entity? anyhow, the data showed an increase of nf debt in december reading when the au$ dropped and i am sure the june reading will look better with 80 US cent exchange rate

 

[Piston Broke]

So, in effect, each household has negative cash flow, is capitalizing interest, AND simultaneously borrowing more.
The only way to get out of a hole like this is to sell assets or increase export income well above imports.

Yep!
That's why we have a recession, current norm seems to be that credit will never end and debt can go up forever and repaying debt is no longer important.
But sooner or later the credit runs out, and chances of increasing export income to compensate are slim.
Prices may rise due to inflation, but if nobody is buying the market either halts, or sellers dump.
Or we have 20 yrs like Japan did of dead economy.

 

[WinstonWolfe]

ok, thanks,
so the last data is from march when the AU$ was at 65 cent, i would assume a drop in NFdebt with latest data.
I am not sure I trust the data on debt as i believe banks (or other ent ity) wouldn't disclose exactly how much foreign debt and currency exposure they have every quarter.

There's strict regulations regarding the data the banks are compelled to make available to the govt Boz. The RBA and ABS use the same data. Yes there will be some error, but Australia follows the same IMF SNA (system of national accounts) as the majority of developed economies.

also how abs quantify foreign investment holding by australian entity? anyhow, the data showed an increase of nf debt in december reading when the au$ dropped and i am sure the june reading will look better with 80 US cent exchange rate

Net International Investment Position
= net foreign equity + net foreign debt

Net Foreign Equity
= foreign asset equity (Aus ownership of foreign companies) - foreign liability equity (Foreign ownership of Aus companies)

Net Foreign Debt
= foreign asset debt (Aus foreign borrowings) - foreign liability debt (Foreigners borrowings from Aus)

The June quarter will be helped by fx, but remember :
- we are running a CAD due to our foreign borrowings overwhelming our BOT (balance of trade). This adds to nfd every month.
- our foreign assets (debt and equity) are devalued by stronger aud, which counters fx advantage.

Other things that will influence NFD in the June qtr.
- the property market heated up....and 30% of every new housing loan is foreign wholesale debt. That will drive up the CAD and NFD.
- we bought more cars from Japanese and Korean manufacturers, which will increase CAD and NFD.
- but we sold more iron ore and coal, but at reduced prices. this will help offset our imports somewhat.



edit:

note the apr/may/jun bot below. it adds up to -1.4 Billion.
(ignore that they have -441m over july09, it is june's figure)

now what happened to the income component of the current account?
I don't know where to find monthly data that comprises the quarterly figures, but let's look at the last 10 quarters (to Mar09) of income data.
-11286m
-11205
-10924
-13262
-12215
-11787
-11516
-12178
-10186
-9278

Considering we've had a run in the property market, I'd take a stab the june figure will be more than -10.5B

So we put BOT and Income together to get the main components of the current account, -1.4B + -10.5B which takes us up around -11.9B for the June qtr. That has to be added to NFD!!!!

 

[WinstonWolfe]

Yep!
Or we have 20 yrs like Japan did of dead economy.

There's more people recognizing this about the US at least.
Click on the top tab for the graphic.