{"id":16497,"date":"2018-07-05T07:32:39","date_gmt":"2018-07-05T07:32:39","guid":{"rendered":"http:\/\/thepatientinvestor.com\/?p=16497"},"modified":"2018-07-07T08:32:56","modified_gmt":"2018-07-07T08:32:56","slug":"australia-the-good-news-and-the-bad-news","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2018\/07\/05\/australia-the-good-news-and-the-bad-news\/","title":{"rendered":"Australia: Good news and bad news"},"content":{"rendered":"<p>First, the good news from the <a href=\"https:\/\/www.rba.gov.au\/chart-pack\/\">RBA chart pack<\/a>.<\/p>\n<p>Exports continue to climb, especially in the Resources sector. Manufacturing is the only flat spot.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-exports.png?w=525&#038;ssl=1\" alt=\"Australia: Exports\" \/><\/p>\n<p>Business investment remains weak and is likely to impact on long-term growth in both profits and wages.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-businvestment.png?w=525&#038;ssl=1\" alt=\"Australia: Business Investment\" \/><\/p>\n<p>The decline is particularly steep in the Manufacturing sector and not just in Mining.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-investment.png?w=525&#038;ssl=1\" alt=\"Australia: Business Investment by Sector\" \/><\/p>\n<p>But government investment in infrastructure has cushioned the blow.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-infrastructure.png?w=525&#038;ssl=1\" alt=\"Australia: Public Sector Investment\" \/><\/p>\n<p>Profits in the non-financial sector remain low, apart from mining which has benefited from strong export demand.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-profits.png?w=525&#038;ssl=1\" alt=\"Australia: Non-Financial Sector Profits\" \/><\/p>\n<p>Job vacancies are rising which should be good news for wage rates. But this also means higher inflation and, down the line, higher interest rates.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-job-vacancies.png?w=525&#038;ssl=1\" alt=\"Australia: Job Vacancies\" \/><\/p>\n<p>The housing and financial sector is our Achilles heel, with household debt climbing a wall of worry.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-hhdebt.png?w=525&#038;ssl=1\" alt=\"Australia: Housing Prices and Household Debt\" \/><\/p>\n<p>House prices are shrinking despite record low interest rates.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-housing.png?w=525&#038;ssl=1\" alt=\"Australia: Housing Prices\" \/><\/p>\n<p>Broad money and credit growth are slowing, warning of a contraction.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-credit-broadmoney.png?w=525&#038;ssl=1\" alt=\"Australia: Broad Money and Credit Growth\" \/><\/p>\n<p>Bank profits remain strong.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-banks.png?w=525&#038;ssl=1\" alt=\"Australia: Bank Profits\" \/><\/p>\n<p>But capital ratios are low, with the bulk of profits distributed to shareholders as dividends. The ratios below are calculated on risk-weighted assets. Raw leverage ratios are a lot weaker.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-aus-capitalratios.png?w=525&#038;ssl=1\" alt=\"Australia: Bank Capital Ratios\" \/><\/p>\n<p>One of the primary accelerants of the housing bubble and household debt has been $900 billion of offshore borrowings by domestic banks. The chickens are coming home to roost, with bank funding costs rising as the Fed hikes interest rates. In the last four months <a href=\"https:\/\/www.macrobusiness.com.au\/2018\/07\/aussie-mortgage-stress-climbs-20-year-high\/\">the 90-day bank bill swap rate (BBSW) jumped 34.5 basis points<\/a>.<\/p>\n<p>The banks face a tough choice: pass on higher interest rates to mortgage borrowers or accept narrower margins and a profit squeeze. With an estimated 30 percent of households already suffering from mortgage stress, any interest rate hikes will impact on both housing prices and delinquency rates.<\/p>\n<p>I continue to avoid exposure to banks, particularly hybrids where many investors do not understand the risks.<\/p>\n<p>I also remain cautious on mining because of a potential slow-down in China, with declining growth in investment and in retail sales.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2018\/2018-07-05-china-activity.png?w=525&#038;ssl=1\" alt=\"China: Activity\" \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>First, the good news from the RBA chart pack. Exports continue to climb, especially in the Resources sector. Manufacturing is the only flat spot. Business investment remains weak and is likely to impact on long-term growth in both profits and wages. The decline is particularly steep in the Manufacturing sector and not just in Mining. &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2018\/07\/05\/australia-the-good-news-and-the-bad-news\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Australia: Good news and bad news&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[40,31,45,46,10,13,3778,1],"tags":[348,3832,381,1328,1828,1858,1882],"class_list":["post-16497","post","type-post","status-publish","format-standard","hentry","category-australia-nz-countries-regions","category-the-fed-banks-interest-rates","category-debt-levels","category-deficit-spending-employment","category-housing-economy","category-inflation-economy","category-international-trade","category-uncategorized","tag-bank-capital-ratios","tag-bank-margins","tag-banks","tag-exports","tag-inflation","tag-interest-rates","tag-investment"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Australia: Good news and bad news - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Australia: Good news and bad news - the patient investor\" \/>\n<meta property=\"og:description\" content=\"First, the good news from the RBA chart pack. Exports continue to climb, especially in the Resources sector. Manufacturing is the only flat spot. Business investment remains weak and is likely to impact on long-term growth in both profits and wages. 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He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.","sameAs":["https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/","https:\/\/www.instagram.com\/colin_thepatientinvestor","https:\/\/au.linkedin.com\/in\/colintwiggs"],"url":"https:\/\/thepatientinvestor.com\/index.php\/author\/investor\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9tQ4n-4i5","jetpack_likes_enabled":false,"jetpack-related-posts":[{"id":16340,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/06\/09\/12-charts-on-the-australian-economy\/","url_meta":{"origin":16497,"position":0},"title":"12 Charts on the Australian economy","author":"Colin Twiggs","date":"June 9, 2018","format":false,"excerpt":"Australian GDP grew at a robust 3.1% for the year ended 31 March 2018 but a look at the broader economy shows little to cheer about. Wages growth is slowing, with the Wage Price Index falling sharply. Falling growth in disposable income is holding back consumption (e.g. retail spending) and\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":39471,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/12\/10\/australia-hard-times\/","url_meta":{"origin":16497,"position":1},"title":"Australia: Hard times","author":"Colin Twiggs","date":"December 10, 2022","format":false,"excerpt":"You don't have to be an Einstein to figure out that 2023 is going to be a tough year. Australian consumers have already worked this out, with sentiment plunging to record lows. The bellwether of the Australian economy is housing. Prices are tumbling, with annual growth now close to zero.\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"Australia: Consumer Sentiment","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-12-09-aus-sentiment.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":19880,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/03\/07\/australia-the-bear-case\/","url_meta":{"origin":16497,"position":2},"title":"Australia: The bear case","author":"Colin Twiggs","date":"March 7, 2020","format":false,"excerpt":"The RBA cut the cash rate by 25 basis points on Wednesday this week, to a record low of 0.50%. This was necessary in order to limit the interest rate differential with the US and protect the currency. But it will not do much to help the economy. Household debt\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":42439,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/06\/17\/china-recovery-falters\/","url_meta":{"origin":16497,"position":3},"title":"China recovery falters","author":"Colin Twiggs","date":"June 17, 2023","format":false,"excerpt":"China's exports plunged 7.5% year-on-year in May.... https:\/\/youtu.be\/sjegqSfcdWE Westpac tell a similar story: Reversing our perspective and moving a month forward in time to May, China\u2019s trade surplus narrowed to US$65.8bn as exports weakened and imports rose. Exports to the US have declined on a year ago basis every month\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"China Fixed Asset Investment","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-06-15-china-fai_595x571.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-06-15-china-fai_595x571.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-06-15-china-fai_595x571.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":26279,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/06\/12\/australia-investment-employment\/","url_meta":{"origin":16497,"position":4},"title":"Australia: Investment &#038; Employment","author":"Colin Twiggs","date":"June 12, 2021","format":false,"excerpt":"Employment in Australia has recovered strongly, with both employment and total hours worked exceeding the pre-pandemic high. But business investment continues to plunge, warning of low job growth ahead. And low wages growth as a result. Conclusion The Australian economy is a one-trick pony. Collapse of iron ore exports to\u2026","rel":"","context":"In \"Business Investment\"","block_context":{"text":"Business Investment","link":"https:\/\/thepatientinvestor.com\/index.php\/tag\/business-investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":41466,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/04\/03\/economic-outlook-march-2023\/","url_meta":{"origin":16497,"position":5},"title":"Economic Outlook, March 2023","author":"Colin Twiggs","date":"April 3, 2023","format":false,"excerpt":"Here is a summary of Colin Twiggs' presentation to investors at Beech Capital on March 30, 2023. The outlook covers seven themes: Elevated risk Bank contagion Underlying causes of instability Interest rates & inflation The impact on stocks Flight to safety Australian perspective 1. Elevated Risk We focus on three\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"Treasury Yields: 10-Year minus 3-Month","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-03-31-10y3m.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-03-31-10y3m.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-03-31-10y3m.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16497","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=16497"}],"version-history":[{"count":5,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16497\/revisions"}],"predecessor-version":[{"id":16555,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16497\/revisions\/16555"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=16497"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=16497"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=16497"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}