Biggest Interest rate rise in a decade forecast.

I was in the fortunate position yesterday of attending an interesting speech by the RBA's Head of Regional & Industry Analysis. Though the story from the RBA was decidedly upbeat regarding Australia's position it was not exactly all beer & skittles. The rise in house prices was mentioned as a positive indicator and I didn't get the impression that he thought that the market was overheated at all, nor that it was a danger. The greater rise in apartment prices was put down to the dearth of supply coming on line. The RBA knows that this is due in large part to the banks not funding the developments. They are also watching the poor data on commercial building stats and are concerned that building is only holding up thanks to the stimulus (schools etc). There is still some structural weakness and they seem cognisant of the risks of hiking too fast & destabilising the recovery.

My impression is that he was cautiously optimistic whilst acknowledging that business investment is not really in a position to handle rapid rate rises (having had only half of the IR falls passed on). ACCI and other industry groups have certainly told the Bank that this month's 0.25% rise was premature. The RBA knows that only strong growth in the private sector will guarantee a sustained recovery and it should be said that, though not officially part of the RBA's agenda, it does have an eye on the $Au. Barring some extreme change in circumstances between now and then, I can't see mortgage IRs at anything close to 8% in 2010.
Then again, perhaps Glenn Stevens does have a fixation on housing finance as the prime economic lever in this country. We seem to as PIs, as does the media, but I suspect that the RBA is really looking at a broader economy.

nothing better than a statement from the horse's mouth. kudos.
 
Russia is a political train wreck run by drunken egomaniacs (literally....) and Argentina lacks any kind of non-corrupt govt officials to even contemplate competing on the world stage. Argentina's national slogan is "by the will, or by the force".....what does that tell you?

are you seriously comparing Russia and Argentina to Australia....?

IMPO - variable rate of 7 and 8 percent by end 2010 would KILL any recovering economy we have left.

7-8% in 2012-13 - absolutley.

Blue Card you have a point concerning Argentina, but I'm keeping an eye on the indicators just in case our powerless little economy, so favoured by currency speculators and commodity brokers, starts to look a little like Argentina in 2000. We may think we're doing OK but so did all the other countries in history where external economic influences brought them to their knees.

The bright spot on that horizon is that in Argentina, smart (lucky?) property investors had a buffer to the storm there. Fascinating perspectives on that at this blog.
http://ferfal.blogspot.com/search/label/real estate

and also on how people adjusted here
http://www.silverbearcafe.com/private/10.08/tshtf1.html

Not likely for Australia in mirror image,
http://www.globalpolicy.org/component/content/article/209-bwi-wto/42765.html
but food for thought.

Totally agree on the IRs too btw.
 
I think the bottom line is the people that make the country. We know what we got now, but who knows what we'll get with those extra 10 mil immigrant in the next 20 years? may be they'll not be corruption resistent.
Argentina was probably laughing about comparing them to Australia 100 years ago, now is the other way around...(I guess same with comparing England and AUstralia...)
 
Sure to scare a few people off. What are your thoughts?

Might be a good time to buy during the "panic" phase.

http://www.theage.com.au/business/cup-day-tip--big-rate-rise-20091020-h6xq.html

http://www.melbourneinstitute.com/research/macro/PressReleaseCSI20091014.pdf

“Back in 2003 household debt to income ratios were around 130% compared to the current
ratio of around 155%. Higher debt levels are likely to make households even more
sensitive to increases in the standard variable rate. It is reasonable to expect that once the
Reserve Bank's overnight cash rate starts exceeding 3.5% we will start to see sentiment
responding adversely to rate hikes.

Translation in plain English: Rates above 3.5% will kill the economy. Rates at 4% now will have the same effect on the economy as 16% rates of 90s when debt/income ratio was just 45%.

If even Bill Evans can understand that, then one must be complete imbecile believing in the recent hikes. This RBA board renown for rising rates when they shall be cut. 2008 it ended up with the lowest rates in 48 years, this bluff is going to result in nothing else but 0% rates.
 
http://www.melbourneinstitute.com/research/macro/PressReleaseCSI20091014.pdf

Translation in plain English: Rates above 3.5% will kill the economy. Rates at 4% now will have the same effect on the economy as 16% rates of 90s when debt/income ratio was just 45%.

.


You keep saying house prices are going on a rocket ride to the moon.? Wow!!, so people are rich and loaded.

But rates of 3.5% will kill the economy..?? Aremm..?? so everyone is really struggling at current rates?


You seem confused?


See ya's.
 
You keep saying house prices are going on a rocket ride to the moon.? Wow!!, so people are rich and loaded.

But rates of 3.5% will kill the economy..?? Aremm..?? so everyone is really struggling at current rates?


You seem confused?


See ya's.

I do not give a damn about people who can not see beyond their noses and constantly engage in the competition of who has more hair on their chest. If AUD is not a concern to you - fine. When you will be hit by falling grain prices it perhaps will start occuring to you - slowly.
Anyway -you are on my ignore list from now on.
 
I think the bottom line is the people that make the country.

How true. We are so lucky here that the worst excesses of greed, banking and corruption were contained, otherwise we'd be neck deep now. Our banks weren't more principled or careful, they were simply prevented from the wild excesses that crashed Wall Street. A friend was employed by one of the major four banks under extraordinary security to manually compile mortage obligations after the US sub-prime since this they had no idea of their total mortage exposures, and had no idea what sort of default levels would render them insolvent. Scary enough thought to keep cash on hand?

In the Seventies we had head on collisions in petrol stations with people accelerating to bowsers when the oil shortage was on - and that was just petrol - so I have no illusions about the way some people will respond in an emergency but I do have faith in the overall goodness of people. Unfortunately I don't have the same faith in corporations (see James Hardie's psychopathic behaviours) and these sort of bodies hold the financial reins so gold and property income are the best choices I can see to prepare for my fast approaching old age.
 
How true. We are so lucky here that the worst excesses of greed, banking and corruption were contained, otherwise we'd be neck deep now. Our banks weren't more principled or careful, they were simply prevented from the wild excesses that crashed Wall Street. A friend was employed by one of the major four banks under extraordinary security to manually compile mortage obligations after the US sub-prime since this they had no idea of their total mortage exposures, and had no idea what sort of default levels would render them insolvent. Scary enough thought to keep cash on hand?

In the Seventies we had head on collisions in petrol stations with people accelerating to bowsers when the oil shortage was on - and that was just petrol - so I have no illusions about the way some people will respond in an emergency but I do have faith in the overall goodness of people. Unfortunately I don't have the same faith in corporations (see James Hardie's psychopathic behaviours) and these sort of bodies hold the financial reins so gold and property income are the best choices I can see to prepare for my fast approaching old age.

Very good post, I like it.
About banks exposure it is hard to know exactly what it is for each bank, but the overall picture is quite clear and the overall market exposure in australia is well over 1 tril$ (the 4 major banks would have more then 1 tril$ combined). This when the market value of all home in Australia is around 4.5 tril$ (9 mil home by 500k value average). So, I believe The banks in Australia have massive exposure and at extremely risk (not worth the AA rating), another way to look at it is that they capitallise somewhat around 40% of the ASX. does that sound reasonable for any developed country? I think only Iceland had a banks capitalisation related to the overall market higher then that:eek: A final way to see it is that 5 of the top 20 banks in the world that had funding guarantee are australian (top 4 plus MQ)
 

good report that one from Tim Colebatch, I have to remember his name as you don't get many good opinionist on the australian press. He is right in pointing out those risks that, as I have said several times, are much higher in the medium/long term then people think (and even politicians, journalists etc).
Wonder if Iceland failed in having a population of just 300k, may be they would have been better off with a immigration policy, after all, 6 bil$ on 300k habitants stand same as 420 bil$ on 21 mil habitants, hang on, Australia foreign debt is much higher then that:eek:
Anyway, Australia risks are not high at all at present and should be ok at least for weeks into the future, we just have to keep an eye on commodity prices and global share markets
 
apart from fish - what is Iceland's main export?

service.

you can get some data from this link (I know you really love data...;) )
By the way, iceland fish export is very high of around 60% and around 20% is alluminium (as I believe they have plenty of cheap green energy), interesting to see that their financial chrisis brought a huge trade surplus considering the size of the economy (around 400 mil AU$ for the first 8 months of the year, that to put in relation with australia you have to multiply by by 70 times would bring 27.5 bilAU$ trade surplus).
Anyway, I am sure blue card would like to see the trade balance series of Iceland, here is from start of 2005 till august 2009, have a guess when they imploded...

EDIT: those numbers following are in mil Iceland Krona wich 1AU$=around 113 ICK

2005
January -4,719.2
February -4,951.8
March -5,865.6
April -4,705.2
May -8,125.8
June -6,893.0
July -10,012.7
August -12,972.6
September -10,361.5
October -5,544.2
November -11,007.3
December -9,380.5
2006
January -8,401.2
February -7,766.1
March -16,137.0
April -10,801.1
May -13,740.3
June -15,357.5
July -18,615.7
August -14,429.6
September -7,388.3
October -9,105.2
November -15,856.1
December -20,863.3
2007
January -2,842.5
February -5,045.2
March -3,305.2
April -11,057.5
May -9,485.7
June -9,521.4
July -13,037.6
August -13,025.2
September -9,570.0
October -8,566.2
November 2,611.9
December -9,300.7
2008
January -9,943.8
February -12,580.9
March -2,345.7
April -612.2
May -2,521.2
June 2,370.5
July -22,857.1
August -3,150.5
September 7,093.9
October 11,280.7
November 2,537.5
December 24,063.6
2009
January 325.0
February 4,563.6
March 6,949.2
April 1,001.2
May 7,414.7
June 7,210.9
July 4,556.5
August 12,636.9
September .
October .
November .
December
 
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