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NZers and Aussies: Switching it up


The Anti-Targ
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2 hours ago, ants said:

Although I absolutely agree with this, it is also worth noting Australian households weren't as leveraged in 2011, and so weren't as sensitive either. 

According to the ABS, average household liabilities went up from $146,000 to $203,000 during the period 2009-2020. That's a significant increase in nominal terms, but isn't actually that massive after adjusting for inflation / rising incomes during the decade. 

Plus, Australian households in aggregate are still sitting on a significant pile of liquidity post COVID.

As a random anecdote, my parents haven't taken a vacation since 2018. Pre-COVID, they were probably spending at least $5,000 on travel each year. Those savings add up. Happily, they are finally getting out of Perth soon to visit me in Winterfell...

Edited by Paxter
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8 hours ago, Paxter said:

According to the ABS, average household liabilities went up from $146,000 to $203,000 during the period 2009-2020. That's a significant increase in nominal terms, but isn't actually that massive after adjusting for inflation / rising incomes during the decade. 

Plus, Australian households in aggregate are still sitting on a significant pile of liquidity post COVID.

As a random anecdote, my parents haven't taken a vacation since 2018. Pre-COVID, they were probably spending at least $5,000 on travel each year. Those savings add up. Happily, they are finally getting out of Perth soon to visit me in Winterfell...

I think it really depends on your demographic. A lot of older Australians are doing pretty well, sitting on big property gains, at higher income levels with lower (or no) debt, and not doing as much travel as before. Interest rate rises won't do much to them because they don't have big mortgage balances, and if they're saving money they would have usually spent on a big overseas trip, their incomes will have "gone up" regardless of inflation. Most people in this older, richer demographic also have much more controllable spending. They don't have to spend on young kids, education, activities etc.

At the other end you have younger people on lower incomes (early career), much higher expenditures if they have children (and the type of expenditures that are beholden to inflation), and much higher mortgage balances. Interest rate rises are killing this group and it's a real shame that as such it really is widening the inequality gap.

I'm fortunate to be somewhat in the first group despite still being youngish (37). Our household has a boatload of expenditure (two young kids) which seems neverending and doesn't allow for any level of savings, but our mortgage balance is comparatively low (about 3 times my gross income, which would be even less when/if wife goes back to work), and we had the presence of mind to fix our rate until August 2024.

At the moment, on my income, we're just about breaking even. No real ability to save, but if a big bill did come up, I held onto some liquid assets (shares, from the time when I was single and actually had excess money!) that I could sell if we needed to cover a big emergency. I'm banking on the fact that wife will be back at work by the time we come off the fix in 2024, assuming rates are still pretty high then.

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4 hours ago, Jeor said:

I think it really depends on your demographic.

Demographic and homeowner status.

Home ownership rates have been consistently lower for successive birth cohorts than older groups, so even though younger homeowners are hurt more by the recent monetary policy changes, fewer young people are directly exposed to them. As an example, just over half of people born between '87 and '91 didn't own a home between the ages of 30 and 34 (according to the '21 census). But two thirds of boomers did own during the same age bracket. 

Renters will, of course, end up hurting from the recent increase in rates, but the relationship is not 1:1, since not all investment properties are mortgaged and renters are somewhat shielded by fixed-term leases. Renters also have more flexibility than homeowners to manage their cash flows by finding a more affordable lease (difficult though that may be right now). Plus rents were increasing well before the rate rises, due to a massive shortage of available rental properties across the capital cities. This isn't the fault of rate rises. 

From a personal perspective, I am in a rent-controlled apartment. So the only way the landlord can pass on higher financing costs (the policy interest rate is now 4.5%) is to find a way to kick me out :P. 

Edited by Paxter
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 This line from NAB's earnings call made me raise an eyebrow:

Quote

NAB has contacted 7000 borrowers it thinks could strike trouble – mainly first-time borrowers who took out mortgages during the pandemic housing market peak – but McEwan says just 13 wanted extra help.

Makes me wonder whether the borrowers are OK or if they simply didn't want to talk to their bloody banker :P. 

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10 hours ago, Paxter said:

 This line from NAB's earnings call made me raise an eyebrow:

Makes me wonder whether the borrowers are OK or if they simply didn't want to talk to their bloody banker :P. 

Yes, NAB's stock price (and the other Big Four) all tanked today. I think people are sensing any coming recession isn't going to be pretty for the banks.

I think banks generally have come a long way - especially after the Royal Commission. I remember in the mid 90s my uncle had his house repossessed and he was thrown out of it after his life went in a downward spiral (my parents took his children in and they lived with us while he got himself back on track). These days I think there are a huge amount of hoops banks have to jump through before they can take that kind of action. 

But yes, if a banker called me and asked if I needed help I can understand why some might be suspicious at first blush.

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1 hour ago, Jeor said:

Yes, NAB's stock price (and the other Big Four) all tanked today. I think people are sensing any coming recession isn't going to be pretty for the banks.

The market still seems to be hopeful that Australia will avoid recession. But certainly the banks got slammed yesterday after the NAB miss on Net Interest Margin. Basically, the cost of capital is increasing more for the banks (they are very reliant on offshore wholesale funding) than their ability to extract higher income from their lending books. 

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7 hours ago, Paxter said:

The market still seems to be hopeful that Australia will avoid recession. But certainly the banks got slammed yesterday after the NAB miss on Net Interest Margin. Basically, the cost of capital is increasing more for the banks (they are very reliant on offshore wholesale funding) than their ability to extract higher income from their lending books. 

In some ways the rapid interest rate rises have not been their friend. The cost of living crunch has put much more onus on mortgagees to shop around and find any deal that is better which is why the competition is so high and banks are having to offer inducements to keep good customers and hence undercut their own profits. Sort of the way a free market is supposed to work, but it does mean money isn't automatically flowing into the bank coffers as easily as it used to. They're still making big profits overall, of course. But a lot of the Big Four strategically concentrated their businesses into the mortgage lending book, divesting their wealth management, insurance, and financial advice arms. They might be regretting that now.

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Oh they are loving the profit boost. Bank stocks are paying good dividends again. It’s just not as big as analysts were expecting, because the expectation was that they could throw their oligopoly power around. Instead they are competing hard to get deposits and loans. 

Insurance was never a money spinner for them but the loss of wealth management does narrow their business models. 

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1 hour ago, Paxter said:

Oh they are loving the profit boost. Bank stocks are paying good dividends again. It’s just not as big as analysts were expecting, because the expectation was that they could throw their oligopoly power around. Instead they are competing hard to get deposits and loans. 

Insurance was never a money spinner for them but the loss of wealth management does narrow their business models. 

In some ways it is actually a confirmation that the Big Four government policy is working. With four major players there is enough competition to keep prices rational. This doesn't help the non-bank lenders or regionals, but it's at least proof that the dominant market position of the Big Four isn't a cartel.

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36 minutes ago, Jeor said:

In some ways it is actually a confirmation that the Big Four government policy is working. With four major players there is enough competition to keep prices rational. This doesn't help the non-bank lenders or regionals, but it's at least proof that the dominant market position of the Big Four isn't a cartel.

The current inquiry into deposit rates might indicate otherwise! And we are going to lose Suncorp at some stage, which is kind of a shame. With the demise of Bankwest and St George years ago, there really isn’t much choice at the regional level. 

Having said that, it would be unusual for a country of our size to have many more banks than we do. And it’s not as if the US is a great exemplar right now with its ultra-diffuse market for financial services.

Edited by Paxter
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It's the first time in my life that inflation has been high enough to be noticeable and it's gone substantially past that point. If I'm even noticing it then there must be a lot of people getting absolutely hammered by it, and a lot of those are going to be the ones stuck in rental so even if the rate rises don't hit them they're already under significant financial stress.

I thought I was going somewhere with this at the start of the post but I forget where haha.

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4 minutes ago, karaddin said:

It's the first time in my life that inflation has been high enough to be noticeable and it's gone substantially past that point. If I'm even noticing it then there must be a lot of people getting absolutely hammered by it, and a lot of those are going to be the ones stuck in rental so even if the rate rises don't hit them they're already under significant financial stress.

I thought I was going somewhere with this at the start of the post but I forget where haha.

I guess I'm hoping that if the RBA manages to get inflation back under control, that will end up being a boon for most renters and probably worth the interest rate hikes. 

And let's not forget what got ourselves into this inflation mess:

  • Global lockdowns that froze supply chains and caused shortages of goods
  • Massive and overly prolonged fiscal and monetary stimulus both at home and abroad
  • A sharp rebound in demand for services like travel, dining out etc. 
  • Labour shortages in key services industries (the biggest chunk of the Australian economy)
  • War in Europe causing a global commodity-price shock

The RBA is trying to fix this mess with the only tool in their toolkit: interest rates. And as others in this thread have pointed out (Anti-Targ chief amongst them), it's actually a pretty shitty tool. 

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I may not remember my point but it definitely wasn't criticizing the RBA for the hikes just to be clear. I agree that they're making a good faith best effort to control the issue with the available tools. I think I was just saying that the current strain is shared across the whole community even if you aren't being directly impacted by rate rises. 

It's the most strained I've seen the Australian economy as an adult. 

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13 minutes ago, Paxter said:

I guess I'm hoping that if the RBA manages to get inflation back under control, that will end up being a boon for most renters and probably worth the interest rate hikes. 

And let's not forget what got ourselves into this inflation mess:

  • Global lockdowns that froze supply chains and caused shortages of goods
  • Massive and overly prolonged fiscal and monetary stimulus both at home and abroad
  • A sharp rebound in demand for services like travel, dining out etc. 
  • Labour shortages in key services industries (the biggest chunk of the Australian economy)
  • War in Europe causing a global commodity-price shock

The RBA is trying to fix this mess with the only tool in their toolkit: interest rates. And as others in this thread have pointed out (Anti-Targ chief amongst them), it's actually a pretty shitty tool. 

The thing is, using a hammer when when what's needed is a drill, a skill saw, a chisel and glue ends up making things worse than not using the hammer. 

 

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On a different topic, so a different post, my son told me that his university has implemented a spending freeze with lecturer's not even allowed to buy whiteboard markers. Across all NZ universities enrolments are significantly down, and hence headcount revenues have plummeted. What's the situation in Australia with university enrolments?

We have 100,000 more people in the country than in 2020, but fewer university students.

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I don't think my uni has made the figures public yet, so I can't comment on ours. I know some of the other big unis had a shortfall in domestic students - in some cases reducing the surplus and in at least 1 resulting in a budget deficit. I think international student numbers are steady.

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2 hours ago, Paxter said:

The current inquiry into deposit rates might indicate otherwise! And we are going to lose Suncorp at some stage, which is kind of a shame. With the demise of Bankwest and St George years ago, there really isn’t much choice at the regional level. 

Having said that, it would be unusual for a country of our size to have many more banks than we do. And it’s not as if the US is a great exemplar right now with its ultra-diffuse market for financial services.

Term deposit rates are quite healthy. All the Big Four are offering 12-month term deposits at rates exceeding 4% (i.e. greater than the RBA cash rate) which isn't to be sneezed at. Deposit rates in more flexible savings accounts are lagging but every bank actually has a decent interest-bearing account, it's just often of the "bonus" nature requiring a few hoops to jump through, growing balances, depositing more money etc.

I'm glad we don't have the patchwork of banks that the US does, and most importantly, that all banks in Australia have to abide by the same regulation (rather than the two-tier system). When your whole business is in confidence and trust, you want there to be a pretty high bar for entry into the market.

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58 minutes ago, The Anti-Targ said:

On a different topic, so a different post, my son told me that his university has implemented a spending freeze with lecturer's not even allowed to buy whiteboard markers. Across all NZ universities enrolments are significantly down, and hence headcount revenues have plummeted. What's the situation in Australia with university enrolments?

We have 100,000 more people in the country than in 2020, but fewer university students.

So speaking from the smallest of the G8 unis (Adelaide), I haven't noticed any kind of financial strain, though I'm pretty far removed from the finance department. If anything it seems easier to get the necessary money for our research operations from my pov (infrastructure projects, routine maintance and equipment repairs) than it has been over the past decade.

I think in general Australian unis did some big, big cuts during covid, but then came out far better than they thought they would, and now the overseas students have started to flood back. That's certainly the case here. Though we are still officially in a hiring freeze.

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7 hours ago, Jeor said:

I'm glad we don't have the patchwork of banks that the US does, and most importantly, that all banks in Australia have to abide by the same regulation (rather than the two-tier system). When your whole business is in confidence and trust, you want there to be a pretty high bar for entry into the market.

Yeah the prudential framework is generally pretty good. It’s not quite a level playing field as the large banks are permitted to implement their own capital rules via internal models, while the smaller banks have to use a completely standardized approach (much to their dismay). That tiered system has slowly been watered down over the years as APRA has followed new Basel rules that effectively restrict the use of models.

The major banks also get a two-notch upgrade on their credit ratings because Moody’s and S+P both believe they are implicitly guaranteed by the government. This gives them an edge in funding markets. 

But overall it’s a quite conservatively and I think fairly regulated system. There’s a bias towards the safety of the big players, but that’s arguably a feature more than a bug.

ETA: On deposit rates, I think it was the speed of increases (or lack thereof) rather than the level of rates that was the concern. But it’s good that TINA is now over, at least for a while. I hate the idea of negative interest rates and wish we had never taken that path globally.

Edited by Paxter
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  • 2 weeks later...

Budget day yesterday. I didn't delve into much detail but it looks like the govt has committed several $bn to recovery from recent natural disaster events - storms and floods, which is good.

They look to be set to end the petrol tax cut they put in about a year ago, which is appropriate, but it's going to hurt some people, but maybe it will help people trade up to hybrids and EVs to reduce their petrol consumption, so hopefully good for our climate change goals. Tough for the low income people who can't afford to buy hybrids and EVs since they are still way more expensive than ICE cars, even with the subsidies, on an age/mileage/power comparison. low emission vehicles need to be accessible to the low-income side of the economy if we are serious about wanting to get polluting clunkers off the road. You can buy a pretty serviceable ICE car for $5-6000, but there's slim to no pickings for EVs and hybrids at that price.

They are making public transport cheaper for students and retired people, which is great, though it's a bit of a head scratcher at the age cut offs they've made for the students: under 13s public transport is free. A large proportion of under 13s don't take public transport because dedicated school buses are already free, and parents rarely leave their under 10s to take public transport. I think it'll mainly be delinquent 11-13 year olds that take advantage of it to joyride around town. I don't see how 14 and 15-ear olds are financially any different to 13 year olds. The free public transport policy should have been up to 17. Then they have half-price public transport for 14-25 year olds. Again weird, since there is a very large proportion of 18-25 year olds, including 21-23 year old university graduates that are full time workers and not earning substantially less than 26-30 year olds. It seems like for not a lot more money they could have simply made a policy of half price public transport for adults (18+) with a valid student ID, and free public transport for minors. The announced policy feels like penny-pinching, subsidising on the cheap. But regardless of all that my train fare will be doubling in a month or so, since I was benefiting from inflation relief half price fares, and they will be 7% higher than they were a year ago, since there was a base price increase recently.

Universities are getting 5% funding increase, nice to know that teaching staff will be able to buy whiteboard markers now. Problem is, even with that 5% increase over the last 10 years university funding has gone up 16% while costs have. Universities will also be getting $55m extra for research fellowships and an "applied doctoral training scheme" whatever that is, Aussie rough equivalent would be around AUD $250m (in proportion to population). I have no clue whether that's good, bad or OK as a research fellowship bump, and I'm not sure if it's a one off or annual allocation. My son, doing his PhD, says universities are not creating post-doc positions because they are so expensive, which is terrible because that means out PhD grads bugger off overseas to do post-docs, and we can't attract PhD grads from overseas to come here for post-docs. So I hope some of that money will go to creating post-doc positions across the board. Spreading that money though all the universities across all, or most departments makes that $55m feel a bit thin, esp if it's a one off.

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