RBA Correct In Addressing A Pear-shaped Economy

RBA Correct In Addressing A Pear-shaped Economy

For the last two months, I have been calling on the Reserve Bank of Australia (RBA) to slash the official cash rate by 50 basis points – yes, we were one of a select few who got this call right. I find it somewhat frustrating to keep hearing about the banks’ higher exposure to borrowed funds. The “Big Four” now find themselves caught between a rock and a hard place – the rock being higher funding and the hard place being a property crash which would leave them with huge losses. These losses are much more severe on the property side than on the funding side.

The real reason (as I keep pointing out) is that the RBA ‘playing catch – up ‘due to CPI data deficit – this is really embarrassing for such an authority where its very economic monitoring has been blind folded.”HSBC Australia chief economist Paul Bloxham has called for the consumer price index – a measure of the change in price of a standard basket of goods – to be published on a monthly basis rather than every three months, so the RBA can stay abreast of inflation and better adjust rates to changing circumstances.”

Quite unbelievable that in 2012, the RBA can’t organise the Australian Bureau of Statistics (ABS) to provide monthly updates over quarterly CPI data updates. For the record, Australia and New Zealand remain the only countries in the Organisation for Economic Co – operation and Development that rely on quarterly updates.

To put last Tuesday’s 50 basis point reduction into perspective, it was an emergency decision, as the Australian economy is becoming toxic from an economic perspective.


When the RBA cash rate was announced, the ASX rallied + 33 points with the market hitting the highest level in 8 months. I expect the cash rate to be at around 3.00 or 3.25 by December 2012.

Enter the ‘fool on the hill in Canberra’ – otherwise known as the “World’s Greatest Treasurer” who declared to everyone that the RBA rate cut was made possible by (his) government’s fiscal discipline. “Today’s interest rate cut and the two before have been made possible by disciplined fiscal policy delivered by this government.” Only a fool would make such a statement. When the cash rate is reduced, it is because the RBA realises that the economy is toxic and requires stimulation. DOH!

It is abundantly clear that the RBA rate cuts in November and December resulted in a next to nothing result, considering that house prices across Australia have continued to fall. Just as interesting, is that the ABS was the only data aggregator to get this statistic correct – which sends a message that the others could be self-serving. This brings me to the next graph which highlights the “rock and hard place scenario”.

The “Big Four” presently have a 92.5 percent exposure with the non-banks sitting at 7.5 percent. So let me ask, is higher funding exposure the concern or maintaining equilibrium of property values? I know it is the latter – so in the meantime we can expect to see the “Big Four” off-load mortgages to the non – banks. This is clearly evident by the deliberations over this week’s cash rate reduction.

Wayne Swan delivers his fifth “fudge–it” next week, which is amazing considering that in his four previous “fudge – its”, the estimates have been much higher than previously predicted. The “real” figure will come in at closer to $50 billion so only an idiot would suggest that in the current economic climate a government would deduct this amount from an obviously struggling economy.

    MOSMAN – 2088

    • Number of houses on the market last week– 106
    • Number of houses on the market this week – 111
    • Number of apartments on the market last week – 100
    • Number of apartments on the market this week – 104

    CREMORNE – 2090

    • Number of houses on the market last week– 13
    • Number of houses on the market this week – 14
    • Number of apartments on the market last week – 34
    • Number of apartments on the market this week – 35

    NEUTRAL BAY – 2089

    • Number of houses on the market last week – 14
    • Number of houses on the market this week – 19
    • Number of apartments on the market last week – 61
    • Number of apartments on the market this week – 66

Source: Domain Property Monitors

For this week’s sales in Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Cremorne real estate, Cremorne Point real estate, Neutral Bay real estate, Cammeray real estate
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With school holidays now over, a somewhat minute increase in stock levels which is actually a positive indication of where Mosman property prices are headed. Our market is consolidating and tightening.
When you have the cash rate significantly dropping and property markets consolidating, it means that real estate prices have bottomed. Our markets won’t be doing hand stands, nor booming, for that matter.

Having said that, it still remains a buyer’s market however, if history repeats itself (we see no reason why, this won’t happen again) we can see this returning to a vendors’ market in the coming winter months.

Looking ahead – Australia is presently being run by the most incompetent government in its history. Labor would lose both chambers if an election were held now where the cross benches are some way from passing the budget – which faces a strong possibility of being rejected.

Having said that, ‘rejected’ is a familiar word that constantly confronts Australia’s most ever popular leader.

Cheers ^__^

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