Consumer Sentiment Weak - Interest Rates Likely to Fall

[meconium]

http://www.bloomberg.com/news/2011-...nfidence-fell-to-nine-month-low-in-march.html


An interesting article.

With Australian Consumer Sentiment at a 9 month low and the soaring Australian dollar making our exports increasingly uncompetitive, it is more than likely that the next move in interest rates will be down.

We have had 7 hikes in interest rates since Oct 2009. This is more "medicine" than any other developed nation has had to take since the GFC began in 2008.

The Governor of the RBA has signaled that there will be no more interest rate rises. On the balance of probabilities, I predict that the next move in interest rates will be down.

Caution: Don't use this bit of good news as an excuse to get out there and over-pay for a property that you cannot afford. The best capital gains come when you buy cheap properties in the lowest decile of your home city's sales. It's very hard to go wrong when you buy cheapies.

 

[Aaron Sice]

mate - the sentiment argument is non-existent - remember, no stats.

the RBA won't raise or lower rates based on sentiment - if the decision is audited they can't just argue "it's everything, it's the vibe, it's mabo".

while indeed sentiment may be low and will affect prices paid at the coalface for property, no federal macro policy will take it into account.

while i don't think rates are going any higher, it's not because of sentiment. and if they do go higher, they'll come back just as quick like 09.

 

[meconium]

mate - the sentiment argument is non-existent - remember, no stats. .

I will go further and say that a rate cut will happen this year, as early as Aug-Sept. Why? Because the economy is hitting some seriously rough spots that even the resource boom cannot overcome:

1. Overseas student market (a huge export of sorts) drastically down.

2. Overseas tourism has plummeted. Places like Cairns are taking a huge hit and many businesses are being badly hurt, with many jobs lost.

3. More Aussies are spending their cash overseas. Either in holidays or in overseas assets or often just on ebay. Not good for domestic employment.

4. Major natural disasters have caused havoc and loss of export revenue in both the mining and agricultural sectors.

5. Consumer sentiment is on a 9 month low, off a low base.

6. An excessvely hight exchange rate = less jobs for Aussies

The budget this year needs to be trimmed. Or so Julia says. Expansionary fiscal policy won't be able to take up the slack from reduced Domestic Consumption and Investment. The RBA will have no choice but to act. I suspect the first rate cuts may occur as early as August-September. By December, there will be a definite downward trend in interest rates.

This will be a welcome relief for property investors. The usual caveats apply. Don't use falling rates as an excuse to buy overpriced inner-city junk that will have no potential to appreciate anytime soon. Buy cheaply, taking care to select low status, cheapest- of- the-cheap suburbs in major cities. Melbourne is my preferred pick for outperformance. Again, not the innercity. Buying overpriced apartments and small shoebox units will leave you disappointed in the long run.

Goodluck everyone. I hope this has given some of you a glimmer of hope that the light is at the end of the tunnel. After 7 consequtive interest rate hikes since late 2009, I daresay we deserve a break. No other OECD country has had to suffer 7 rate hikes since the GFC. It's time for us battlers to have a break.

Those of you who have taken my challenge will owe me quite a few mars bars. Be sure to pay up. That includes you Aaron.

 

[turk]

http://www.bloomberg.com/news/2011-...nfidence-fell-to-nine-month-low-in-march.html


An interesting article.

The Governor of the RBA has signaled that there will be no more interest rate rises. On the balance of probabilities, I predict that the next move in interest rates will be down.

Hi meconium

Amazing news, would you please direct me to where the RBA Govenor stated that there would be no more rate increases, hate to see Mum and Dad property investors making decisions on misleading statements.

Cheers

Pete

 

[Deltaberry]

I just can't see rates falling. At best they'd stay flat, but I reckon they'd go up at least another 25bps.

Unemployment is low and keeps falling. Mining and mining services, and the ripple effect of this into other areas such as construction/banking & finance/professional services, are significant.

Sure retail might be hit because of a new savers' mentality. But wages are still going up, rents still going up etc. It's the dynamic of the two-speed economy.

And yea I'd love to see this apparent article where the RBA Governor said rates aren't going up...

 

[ziggy2214]

I will go further and say that a rate cut will happen this year

You could be right, the lenders could also lower rates independently of the RBA

 

[eeew]

I just can't see rates falling. At best they'd stay flat, but I reckon they'd go up at least another 25bps.

Unemployment is low and keeps falling. Mining and mining services, and the ripple effect of this into other areas such as construction/banking & finance/professional services, are significant.

Sure retail might be hit because of a new savers' mentality. But wages are still going up, rents still going up etc. It's the dynamic of the two-speed economy.

And yea I'd love to see this apparent article where the RBA Governor said rates aren't going up...

yup.well said. i agree fully.

 

[VYBerlinaV8]

2. Overseas tourism has plummeted. Places like Cairns are taking a huge hit and many businesses are being badly hurt, with many jobs lost.

3. More Aussies are spending their cash overseas. Either in holidays or in overseas assets or often just on ebay. Not good for domestic employment.

A part of this is that Australia, especially from a tourism perspective, is getting bloody expensive. Our family holidays overseas because it's often cheaper.

 

[Mooze]

If you want to go general "feel" of whats going on
- average joe is shifting from consumerism to investment - probably not to the extent of most on this board but putting away a few pennies each week instead of throwing them into the pokies etc - the risk that what happened in the US could happen here is finally kicking in - unconcious risk mitigation (or for some concious) is taking place
- lending (housing especially but all personal lending) has fallen off a cliff - will do a reuters graph grab Monday but basically we're back below 2001 levels
- MENA/Ongoing natural disasters etc are just creating havoc within the markets - have been told in the last few days by more than 1 econo that if oil hits 120 a barrel it'll be unpleasant - 140 and we're screwed. Combine that with a market that has the attention span at the moment of an 18 month old (oooh look next shiny new thing) and it's just outta whack

Lots of fear and loathing going on out there. Still a long term bull.

 

[BayView]

It's very hard to go wrong when you buy cheapies.

Tend to agree.

It doesn't take much of a drop in dollars to buy at a decent percentage discount.

However - if you are able to buy at a higher level - many high-end places are bought by people with a lot of cash and not necessarily a lot of financial nouse, and/or a secure high-end income.

The result can be you might buy a high-end house for a very low price when they are offloaded after the income disappears. These types of places also go up in value quickly when the tide turns and then you can make some very good CG.

 

[eeew]

If you want to go general "feel" of whats going on
- average joe is shifting from consumerism to investment - probably not to the extent of most on this board but putting away a few pennies each week instead of throwing them into the pokies etc - the risk that what happened in the US could happen here is finally kicking in - unconcious risk mitigation (or for some concious) is taking place
- lending (housing especially but all personal lending) has fallen off a cliff - will do a reuters graph grab Monday but basically we're back below 2001 levels
- MENA/Ongoing natural disasters etc are just creating havoc within the markets - have been told in the last few days by more than 1 econo that if oil hits 120 a barrel it'll be unpleasant - 140 and we're screwed. Combine that with a market that has the attention span at the moment of an 18 month old (oooh look next shiny new thing) and it's just outta whack

Lots of fear and loathing going on out there. Still a long term bull.

I read in a very respected article that if oil hits 150 a barrel, recession for sure. We are at about 115/barrel at the moment.
This has i think come down by a small amt with the situation in japan ( initial shock results in low sentiment and thus demand) , but demand will soon pick ( rebuilding the infrastructure) up and if there is still unrest in OPEC countires when demand picks up, we may be looking at economic woes that are quite serious. Not just us, pretty much all OECD countiries.

 

[Mooze]

Been quoted the 140 mark by more than one, all independant (with independant research branches) of each other for a major recession. Excluding that little regional financial crisis (US and Europe - pretty much the occidental world) that happened just recently, check out what's kicked off the last few rounds of recession.

Other interesting thing will be what does Japan do now for electricity generation? which fuel is safest for them/ what will they rebuild with?

The rumbles in MENA have been going on for the last two years fairly unnoticed. Last few weeks they've been top of list on NYTimes app - despite everything going on in the US (rare for an American paper).

And yet there's a lending war brewing in Australia? (several of the banks are flush with cash - seriously to the point where they have over funded their books for this financial year already). No ones borrowing north of the border - Sydney's meant to be a different kettle of fish (and with NSW leading the jobs this year rather than Vic not surprising) but overall lending has fallen off the cliff.