MARKETS, REAL ESTATE & SME

Good morning dear readers and welcome to this week's edition of Markets, Real Estate & SME. As most of you are probably aware, the Australian Labor Party had a change of leadership last night...again.

I shall refrain from giving my personal opinion on all matters politics, but I am curious to see what "stimulus" this may have on the markets today. Leadership uncertainty at a party and federal level has had an effect on many companies especially in mining. Lets sit back and watch what unfolds today on the markets and the "pulpits".


MARKETS

Before we jump into it, the link below is some interesting reading for those of you considering investing in technology companies.

Is Technology the Most Exciting Industry in the World? Click on this link to find out!

Now lets hand over to +Alex Cowie from +Daily Reckoning Australia 

Is This the Ultimate Contrarian Opportunity…Or a Death Wish?

Written on 26 June 2013 by Dr. Alex Cowie

Q: How can you spot a vegan at a dinner party?

A: Don’t worry, they’ll tell you…

Markets like this require a dose of humour to get through! Because stocks, bonds, currencies, commodities…the current rout is taking no prisoners.

As central bankers make moves to remove the stabilisers from the market, the mood is turning sour as quickly as asset prices are falling.

The consensus mood is almost universally bearish. The question is: will consensus be proven wrong?

With many asset prices at multi-year lows, will this be looked back on as a massive contrarian buying opportunity…or is buying this market today an investing death wish?

The well-worn contrarian quote from that 18th century financier Baron Rothschild goes, ‘The time to buy is when there’s blood in the streets.‘

In his case it was quite literal: he bulked up the substantial Rothschild family fortune by betting big after the carnage and confusion of the Battle of Waterloo.

However, the full quote was in fact, ‘Buy when there’s blood in the streets, even if the blood is your own.‘

Well, there are plenty of investors out there that could relate to that today.

Is it Time to Get Bullish Again?

It’s tough to imagine. Junior resource companies have been falling for two and a half years now, and have lost over 70% on average.

Small Resources Index – a World of Pain

Source: Bell Potter

The worry now is that in the last month the small resources index has crashed through the level set in the GFC. This means it’s now at nine year lows.

Right now it’s hard to think we have seen the worst of it. Until recently, I’ve been pretty bullish. The thing is even just talk of the Federal Reserve dialling back on the current $85 billion buying program caused the market to crash – even while the Fed is merrily still buying $85 billion each month.

If global markets are falling simply in anticipation of tapering, what will happen when tapering actually happens?

In yesterday’s Money Morning I explained how the Bank of International Settlements (BIS) is pressuring all central banks to step off the gas and tighten up monetary policy.

They may be getting their way. It’s not just the Federal Reserve talking about it, but China seems to be actually tightening already. This could have a major effect on commodities and resources in particular. Marc Faber reckons commodities look ‘horrible‘.

A mining exec I was in touch with recently said, ‘It will be interesting to see how the next 12 months plays out. I think there will be a lot of blood on the floor.‘

This strain is showing up in more than just stock prices. Brokers are leaving the industry each month in large numbers. The Australian financial services sector has now shrunk by around 10% from its recent peak.

Everyone is having a tough time. As a measure of retail investor activity, the web-traffic for the stock forums has more than halved in the last six months.

You can understand why. Even last year’s hot trotters are turning into this year’s dog food. Sirius (SIR), the rags-to-riches nickel explorer with the dream project, has fallen 70% in a few months from $5.00 to as low as $1.56 yesterday. Another recent market darling, Linc Energy (LNC), has crashed from $3.00 to $0.78 as of yesterday. There are many more with similar charts.

Sirius and Linc – Sharp Falls in Last Three Months

Source: Bigcharts

In recent days I’ve taken profit on some of the winners in the Diggers and Drillers tips, and cut some losers in anticipation of prices falling further. In all, I’ve halved the number of stocks in the portfolio.

But just as this all unfolds, some people in the market are getting very bullish, with talk of this being an outstanding opportunity. We’ve heard that the whole way down of course, but ultimately they may be right. Patience will be the key, as things may well get worse before they get better.

Just as some high profile resource funds are being forced to sell to meet investors’ redemptions, there are other funds out there that are starting to see value and buy ‘quality’ on the cheap. They admit that they will have to be patient.

Others, like mining legend Owen Hegarty, made the case for the current squeeze in mining to make the next bull market ‘stronger for longer‘.

History to Repeat?

Your regular editor, Kris Sayce, is certainly getting more excited by the day. The market reminds him of the collapse in 2008. Back then, when everyone was running for the hills, he tipped a raft of beaten up stocks which went on to put in big triple-digit returns, including gains of 242%, 338% and 458%.

The trigger that Kris saw back in 2008 (along with the torrent of central bank money printing) is happening today – the collapse of the yen.

The yen slumped from late 2012 through to the early part of this year, before rallying in recent weeks. But that rally looks to be over. If Kris is right, he believes that could be the catalyst for another Aussie stock rally.

It’s a risky strategy, but I don’t think I’ve ever seen him so confident.

Dr Alex Cowie
Editor, Diggers & Drillers

REAL ESTATE

Chinese Buyers Sway Australia Property Market

Conventional wisdom says a nation's house prices swing with its economy. In Australia, economists are paying increasing attention to another factor: Chinese immigration.

Wealthy Chinese are now among the biggest buyers of real estate in Australia, picking up properties ranging from modest suburban homes to waterfront mansions with views across Sydney Harbour.

In one of the biggest purchases this year, a Chinese buyer spent more than ...continue reading

Rick Otton Warns Australian Property Investors To Get Savvy as Data Shows Nation’s Real Estate Wealth Now Outranks Shares and Super

Real estate millionaire, Rick Otton, has revealed that it’s more critical now than ever for Australian property investors to get savvy with creative strategies to build long term wealth. Mr Otton was responding to new data which shows that the nation’s real estate wealth now outstrips shares and superannuation, and that investors make up ...continue reading

Report dismisses boom-and-bust property theory

PROPERTY prices are tipped to stagnate over the next 18 months as local and foreign investors pull back from the market, a new private sector report warns.

But the "boom-and-bust'' cycle some analysts are warning about is discredited as being overblown.

Instead, prices are tipped to continue to ...continue reading

SME

The carbon tax one year on: Businesses absorb costs as politicians squabble over impact

On the eve of its first birthday, politicians are once again butting heads over whether or not the carbon tax impacts small business.

While politicians are arguing, research published yesterday by the Australian Industry Group reveals the majority of businesses did not pass on costs to consumers.

The survey conducted by Ai Group of 400 Australian businesses shows 70% of businesses had not been able to pass on any energy cost increases ...continue reading

Australian SMEs leading the world in flexible and mobile work

Australian small business owners and employees are leading the way in flexible working arrangements, according to new research by international technology company Citrix.

The international survey of 1262 SME decision makers included 253 Australian business owners.

Half of the Australian business owners surveyed reported they had ...continue reading

SMEs positive about next 12 months

Small to medium-sized enterprise (SME) owners are positive about growing their business in the next 12 months, according to RSM Bird Cameron’s thinkBIG 2013 study.

The study benchmarked business confidence and the attitudes of owners towards planning, growth and profitability, exit planning and superannuation. Some 308 business owners participated in the 2013 study, providing insights into how ...continue reading

That's it for this week folks... We look forward to bringing you what's important again in next week's edition. Until the next time...

MARKETS, REAL ESTATE & SME

Hello dear readers and welcome to another edition of Markets, Real Estate & SME. 

We draw your attention to what has been happening in the US as unfortunately, the degenerates determining their monetary policy have an effect on our wallets and where we should be concentrating our investments. Take it away Mr Canavan...

Markets

QE is Dead, Long Live QE - (View the original article here)

By +Greg Canavan  • June 20th, 2013 via +Daily Reckoning Australia 

‘If only, if only…If only me aunty had bollocks she’d be me uncle’

David Brent, The Office.

Or to paraphrase Ben Bernanke, ‘If only the US economy would start growing sustainably will we consider scaling down our QE program.’

If only, if only…

Nothing really changed last night with Bernanke’s speech, except the market’s perception of what’s going on. Bernanke confirmed that the Federal Reserve may or may not ‘taper’ — it all depends on the incoming data. But whatever he said, the market wasn’t listening.

Try this headline from Bloomberg this morning:

‘Bernanke Says Fed on Course to End Asset Buying in 2014’

But in the meat of the article comes this quote from Bernanke:

‘“If you draw the conclusion that I just said that our policies — that our purchases will end in the middle of next year, you’ve drawn the wrong conclusion, because our purchases are tied to what happens in the economy,” he said. “If the economy does not improve along the lines that we expect, we will provide additional support.”’

The market isn’t listening to what Bernanke says…it’s panicking. Just about everything got hit overnight. Equities, bonds, commodities, precious metals, all were slammed as the US dollar rallied. The Aussie collapsed 2 cents…that’s a massive move in FX land.

The speculators got it wrong. They positioned for a soothing Bernanke statement. But they just got more of the same. That is, if the economy moves into a sustainable expansion, we cut out the asset purchases…if it falters, we’ll ramp them up.

That sounds pretty straightforward, but it led to a massive unwind of leveraged bets in anticipation of the beginning of the end of easy money.

Is it really though? The ‘end’ of quantitative easing (QE) might just be the thing that ensures it remains a part of the financial lexicon for years to come.

Why?

Well, bond yields are on the rise. The US 10-year bond yield, a benchmark for the global cost of credit, traded around 1.6% at the start of May. Following another sharp sell-off overnight, it’s now at 2.33%, the highest level in over a year.

In general, global market interest rates follow the lead of the US 10-year Treasury bond. So rising rates represent a tightening of monetary conditions in financial markets. Which means the US economy, for years heavily dependent on easy money, will come under pressure soon as higher interest rates begin to bite.

And if the US economy comes under renewed pressure, Bernanke won’t cut QE anytime soon. So no end to QE…long live QE!

But what if the US economy really is recovering? And what if this recovery DOES end QE sometime next year and then interest rates move back to normal in subsequent years?

That, dear reader, is not going to happen. It comes back to the ‘Holden Moment’ we talked about yesterday. The whole structure of the US economy (and much of the global economy to be honest) depends on easy money. Car sales, home sales, government spending, consumer spending…all depend on cheap money.

Years of zero interest rates have robbed the system of real savings. In its place, the level of total debt has ballooned to keep up the façade of healthy and sustainable growth. And in the meantime, the structure (industry, incomes, employment, profits taxes etc) of the economy grows around this ongoing provision of cheap and easy money.

If you try to take it away, the economy will fall in a heap. That shouldn’t be a big deal but we’re talking about the world’s largest economy, and consumer of last resort here. The US’ ongoing propensity to consume more than it produces is made possible by easier and easier money.

As money becomes cheaper, debt levels grow to fund consumption. The whole economic structure of the world economy grew out of this falling US interest rate/rising debt/excess consumption model.

You think we’re going to get out of it easily? You think the Federal Reserve can all of a sudden put an end to this multi-decade trend without major problems? Throw in the world’s second largest economic zone, (Europe) which is in the throes of its own painful structural adjustment…and the world’s second largest economy, China, which is about to experience what it’s like when a credit bubble goes bust, and…well, Houston, we have a problem.

As an aside, check out China's inverted yield curves (on the right hand side) here. Usually, in a non-QE monetary environment, inverted yield curves portend a major economic slowdown...

So if QE can’t really end, where to from here?

We'll go back to our comments from a few weeks ago. That is, confidence in the Federal Reserve and Bernanke is receding, and liquidity will soon follow. One of the most beneficial impacts of QE is that it instils confidence. Confidence creates liquidity which creates asset price inflation.

In the Q&A following the press conference, someone asked about sharply rising bond yields over the past few weeks, and how that reconciles with the Fed’s view that it’s the stock of assets it holds on its balance sheet that determines yields.

Bernanke responded that ‘we were puzzled by that’, and then tried to explain it away by citing other factors like potential optimism about the outlook for the economy (optimism not shared by any other asset class, by the way).

When you admit to being puzzled by the effects of the largest monetary experiment in history, which you implemented, it’s a confidence drainer. And with confidence goes liquidity.

So where do you hide in a market that has lost confidence in its chief puppeteer? Gold? It’s falling too, right? There’s more to that question than meets the eye.

More on that tomorrow…   

Regards,
Greg Canavan
for The Daily Reckoning Australia

Real Estate

Housing Market Compared To Toilet Paper

Controversial economist Leigh van Onselen has published an opinion piece comparing Australian property to the reported toilet paper shortage in Venezuela.

Quoting an article by The Telegraph detailing the Venezuelan government’s rationing policies and how they have caused shortages in household items – including toilet paper – van Onselen said that parallels could be drawn with Australian housing...continue reading

Loan Industry Giant Predicts Major Housing Market Gains After Elections

Recently, over 3000 real estate agents attended the Australian Real Estate Conference, which was held on the Gold Coast. One of the speakers was the founder of Aussie Home Loans, John Symond, who was also ranked number eight in a poll (naming the most influential economic, business and political leaders of the last 60 years), conducted by the Australian Financial Review.

During his speech, Symond predicted that the housing market would recover very quickly after the September election. Symond cited current ...continue reading

Rock star pads

AUSTRALIAN rock and roll legends have been active in the real estate industry lately, making the most of the buyer's market to cash in and trade up. Take a peek at some of their old and new digs.

Former Icehouse frontman Iva Davies has listed his Lilyfield home in Sydney while the former Divinyls guitarist Mark McEntee and his fashion designer partner Melanie Greensmith are moving to ...continue reading

SME

The four big things government can do to help small business

I know I am speaking to the converted here, and this is not news to SMEs, but in this election year, a campaign being run by the Australian Chamber of Commerce and Industry is trying to get government to seriously and properly focus on the needs of small business.

What business doesn't want those things, but it's just that SMEs are more dramatically affected by red tape and tax complications – they have less resources to deal with those problems.

The ACCI is running a "The BIG 4 You Can't Ignore" campaign which targets ...continue reading

Businesses grow their Internet earnings: ABS

Business earnings from the Internet increased $48.4 billion to $237.1 billion in 2011-12, according to the Australian Bureau of Statistics (ABS).

Data from the IT Use and Innovation in Australian Business 2011-12 report also revealed 45 per cent of Australian businesses have an online presence, a slight increase from 43 per cent in 2010-11.

The data compares to a recent report by Deloitte Access Economies,Connected Small Businesses, which found 59 per cent of respondents surveyed had a low to very low level of ...continue reading

M.H. Carnegie, Vivant Ventures announce $80 million startup fund

A new investment fund will make $80 million available for Australian startups specialising in digital technology.

M.H. Carnegie & Co announced a partnership with startup incubator Vivant Ventures to administer the accelerator fund, which includes $40 million from an AusIndustry grant.

The incubator has previously worked with startups ...continue reading

We'd love to hear your thoughts on the Australian housing market... We have heard the rumors of over supply and under supply from near to far but what has been your experience? The fact remains there are still some fantastic investment opportunities in the Australian housing market if you follow a strategy and don't leave yourself exposed.

Until the next time dear readers...

MARKETS, REAL ESTATE & SME

Hello dear readers and welcome to our usual Tuesday edition of Markets, Real Estate & SME, the news-filter that gives you access to the things that affect your wealth! Let's get straight into why we are here with an interesting read by Kris Sayce from Money Morning Australia.

MARKETS

Three Technology Breakthroughs You May Have Missed… (Original article here...)

By +Kris Sayce via +Money Morning Australia 

An old pal cornered your editor over the weekend. He asked:

‘Don’t you feel annoyed that all this news has come out about tech firms letting government spies in through the back door, just as you launch your new technology service?‘

We had a simple answer, ‘No‘. Why? Governments spy all the time.

They’ve done it for thousands of years. You could argue that one of the most famous examples of government spying and treacherous behaviour appears in the Bible. You’ve heard of Jesus Christ, Judas Iscariot and the Romans, right?

We agree that it’s annoying from a liberty perspective. But not from a technology investingperspective.

From that point of view, regardless of what immoral and maniacal governments and politicians get up to, one thing is clear – you’re living at a time that could deliver one of the biggest technological advances in history.

That’s something to embrace, not fear…

You’ve doubtless heard of codes and ciphers. These go hand in hand with spying and have existed almost since humans began to write.

So, while we may abhor governments spying on people, we have to just acknowledge it and move on.

After all, if our ancestors had given up on technology advancements due to spying by the Pharaoh’s, the French Kings, or European Emperors, we would still be rolling around in our own filth.

But fortunately, our ancestors didn’t give up. They pushed on and got on with trying to improve their lives – despite the best efforts of governments to hold them back.

And getting on with things is exactly what the world’s top scientists, researchers, innovators and inventers have done over the past week…

While You Weren’t Watching – a Cure for MS?

While everyone else seemed to focus on the US government and its corporate patsies, or the latest feuding in the Aussie federal government, you probably didn’t notice three key scientific breakthroughs:

5 June, The Independent – ‘Scientists are claiming a breakthrough in the treatment of multiple sclerosis after an experimental therapy given to a small group of patients had dramatic results.

‘The therapy involved extracting white blood cells from the patients which were mixed with proteins and re-infused producing a 50-75 per cent reduction in the body’s immune response.

‘In multiple sclerosis the immune system attacks the myelin sheath that surrounds the nerve fibres causing symptoms ranging from numbness to paralysis.‘

5 June, Science Daily, – ‘Researchers at the University of Copenhagen, in collaboration with Seattle Biomedical Research Institute, the University of Oxford, NIMR Tanzania and Retrogenix LTD, have identified how malaria parasites growing inside red blood cells stick to the sides of blood vessels in severe cases of malaria. The discovery may advance the development of vaccines or drugs to combat severe malaria by stopping the parasites attaching to blood vessels.‘

7 June, Latinos Post – ‘Humanity may not be able to beam someone to and from a planet’s surface like in Star Trek, but according to a new report in Nature Physics, we’ve just found out how to perform quantum teleportation reliably – which is something that, dramatically, the crew of the Enterprise never seems to be capable of.

‘Researchers working at the Niels Bohr Institute at the University of Copenhagen have successfully teleported information between two clouds of gas atoms using a laser. ‘

We noticed them. That’s the type of thing your editor and our technology analyst (Sam Volkering) look out for every day. And just as importantly, finding ways to profit from them.

Those are just three breakthroughs. There are many tens, hundreds if not thousands of revolutionary breakthroughs happening every day.

Most of them stay within the confines of the science world because the mainstream press is too busy focusing on things that most people knew anyway – that the government is spying on you.

That’s a shame, because there is so much opportunity out there…

Twenty Thousand Years of Progress in One Century

As we say, you could just give up on the future and assume things will get worse. We’ve no intention of doing that. Or you could take a positive outlook and believe that things will get better.

That’s how our ancestors dealt with adversity. You can look at the folks who used new technology to flee persecution in Europe and build a life in the New World.

Or you can look at the Pamphleteers in the 17th, 18th and 19th centuries who used the printing presses to get their message out. Not to mention the scientists and innovators who heralded the Industrial Revolution.

And now the human race is at another inflection point. One that could result in more technological advances and more wealth than all previous advancements combined. As futurist Ray Kurzweil notes:

‘Because of the explosive nature of exponential growth, the 21st Century will be equivalent to twenty thousand years of progress at today’s rate of progress; about one thousand times greater than the 20th Century.‘

In other words, if you thought the rate of technological change over the past 40 years was impressive, it’s nothing compared to the rate of change you, your children and your grandchildren will experience over the next 87 years.

It will be truly revolutionary.

This is why we believe it’s so important for you to not stick your head in the sand and keep all your money in cash. Because if you want any chance to profit from this new revolution, you can only do so by taking part in it.

Cheers,
Kris

REAL ESTATE

Sydney ranked in top five most expensive cities for construction, as auction clearance rates fall

The Australian construction market is the most adversarial in the world, with high costs placing Sydney as one of the five most expensive cities in the world to build commercial, multi-unit high rises and hotels.

In global firm AECOM's annual collection of data from more than 10,000 construction projects around the world, Sydney ranked in the top five most expensive cities for each category of development because of market conditions, including ...continue reading

Tax Issues For Foreign Investors

Australia’s real estate market is attracting a large number of foreign investors looking to get into this lucrative sector. Eddie Chung explains the tax considerations foreign investors need to take into account when investing in Australia

The Australian property market has remained a relatively stable and attractive option for investors, particularly when compared with ...continue reading

Investors keen on property

Investors appetite for investment property is on the rise with confidence high due to low interest rates, according to a new Mortgage Choice survey.

Mortgage Choice found one quarter of Australian homeowners were considering buying an investment property, with over half keen to get the ball rolling in the next ...continue reading

SME

Launching start-ups not enough to make them fly

It was a big week for start-ups in Sydney – and by extension Australia. SYDStart was a sold-out success with great presentations, interesting life stories of successful entrepreneurs, company exhibits, pitches and lots of energy. And CeBIT StartUp, one of several CEBit conferences at the Sydney Convention Centre, was packed with its own set of exhibitions, programs for entrepreneurs and pitches.

There's no doubt that start-ups are a hot topic in Australia. It seems we are in the middle of a start-up revolution. And what's not to like about start-ups? Nothing – but ...continue reading

Coalition backing the competition watchdog against Woolies is a sign of things to come

If the Coalition wins government in September's election it's clear Australia's competition laws are going to get a major revamp in a move which could boost small business.

The Coalition has already promised it will conduct a "root and branch" review of competition policy if it is elected.

It's a policy the Coalition says will ensure small businesses are given a fair go and it's promised the review within the first 100 days of Tony Abbott being in office. Continue reading

Women-run start-ups missing crucial opportunities for capital

Y Combinator is arguably the best-known start-up incubator in the world. It's basically a fusion between The Apprentice and a 'live-in camp'.

The organisation holds two three-month sessions every year during which time those ideas that made it through the rigorous 'camp' selection criteria get mentored on everything from technical aspects of their particular model, through to the crucial art of the pitch.

In the most recent period, January to March, Y Combinator received 2633 applications for its bootcamp intake.

Among the eight start-ups that graduated from the San Francisco-based incubator's first class in the summer of 2005 was the social-news site Reddit, recently valued at $400 million. Today the average value of a Y-Combinator-financed start-up is ...continue reading

Until the next time dear readers...

MARKETS, REAL ESTATE & SME

Hello dear readers and welcome to another edition of Markets, Real Estate & SME.
The RBA decided to keep the cash rate on hold for another month at 2.75%, not that we expected them to do anything different but what we would like to know is have you seen any change in your personal spending capacity?

MARKETS

Whether or not you agree with him is irrelevant but you have to admit, Greg Canavan always gets you thinking...

Big Trouble in the Australian Economy....Everybody Relax

By +Greg Canavan  • June 4th, 2013 View the original article here

In the movie Big Trouble in Little China there’s a classic line by the ‘hero’ of the show, Jack Burton. The group he’s leading is in a panic as they’re getting away from the bad guys. But Jack reassures them in a swaggering drawl… ‘Everybody relax, I’m here.’

Yesterday, Atlanta Fed president Dennis Lockhart did his best impression of Jack Burton. In a Bloomberg television interview he said, 

‘There certainly seems to be an acute fixation on the timing of any adjustment to the asset purchase program and I guess I would just encourage everyone to not lose sight of the bigger picture.

‘Any adjustment is not a major policy shift. The high level of accommodation will stay in place.’

There you go…everybody relax, the Fed’s here.

Or maybe just the Atlanta Fed. Because before that, San Francisco Fed President John Williams said an improving US economy would allow the Fed to pare back its purchases of bonds in the coming months.

This has all got beyond ridiculous. These Fed muppets have absolutely no idea what they are doing. They are desperately trying to placate markets while pretending to be committed to price stability and withdrawing record stimulus. 

Our friend Jim Rickards summed it up best in a recent tweet. ‘After two years of “risk on, risk off”, we now have “taper on, taper off”. Madness. There are no markets left, just puppet shows by the Fed.’

It wasn’t long before poor economic data turned the market from taper on to taper off. Because soon after the various Fed verbal acrobatics, we got news that US manufacturing contracted in May. The widely watched Institute of Supply Management’s gauge of manufacturing in the US fell to a four year low of 49, down from 50.7 in April. Any reading below 50 signals contraction.

But who needs manufacturing and the production of real stuff when you have the Fed?

Well, China could do with a bit more of it. After the ‘official’ reading came out over the weekend showing modest expansion, the HSBC reading out yesterday showed a manufacturing contraction. There’s a dilemma for you…do you believe the Chinese government or a bank? Either way, it shows China is struggling.

And you’d think Australia's economy could do with a little more manufacturing activity too. Our index came in at 43.8 in May, marking the 23rd consecutive month of contraction. While it was a better reading than the depression-like conditions of April (where the index had a reading of 36.7) our makers of ‘things’ are still clearly hurting.

That hasn’t been an issue for the past 20 months or so because we’ve had the mining boom to cushion the impact. But now that is going, going, gone.

So what does the Australian economy rely on to drive growth now? The RBA hopes that lower interest rates will lead to another boom in housing and consumption. Phil Anderson argues it doesn’t really matter…the stars are aligned to give housing another 14-year bull run.

Phil makes a convincing argument, but we’re sceptical. Then again our scepticism comes from taking note of the ‘fundamentals’, those quaint little bits and pieces of data that are meant to provide the foundation (or otherwise) for asset price movements. And they don’t seem to matter anymore.

Although RP data did report a 1.2% fall in Aussie house prices during May. Just a blip, we’re sure…

Anyway, we’ll see just how concerned the RBA is about the Australian economy at 2.30 today when it announces its interest rate decision. The consensus is that it will remain on hold. We have no idea what they’ll do. We can only tell you that rates will probably be a lot lower in six months’ time.

Because we doubt a new consumer or home construction boom will take up the slack of the slowing mining boom. So the RBA will have no choice but to resort to the same playbook that every other central bank in the developed world is resorting to. That is, cut interest rates and pray.

But Australia has one disadvantage in this game. We’re a peripheral economy and a large debtor nation. That is, we don’t have the same ability as the US, Japan, or even the UK to cut interest rates to the bone and still be able to attract foreign capital to fund our $800 billion-odd debt pile.

Yes we can cut interest rates, but that will send the dollar lower, which will eventually feed through to higher inflation, which will force interest rates back up. Keep in mind that although the higher dollar has hurt manufacturing and many other parts of the Aussie economy in recent years, it has enabled interest rates to remain very low and provided an added benefit for our foreign creditors to keep providing credit (that is, a currency windfall).

The strong Australian dollar has kept a lid on imported inflation…so even though domestic prices seemingly rise every other day, import prices have ‘deflated’ keeping the overall price level stable (that’s if you buy a mass-produced electronic item with your shopping every week). 

A weakening dollar will slowly (it takes a while to flow through into the economy) seep into higher imported inflation…and combined with higher domestic inflation, you’ll eventually see rising prices play havoc with the RBA’s ability to blow another bubble…somewhere, anywhere.

But that’s probably a story for 2014. Exchange rate effects take time to flow through to consumer prices and you have to take into account the fact that companies might absorb or pass on higher costs emanating from a weaker dollar.

For now, it’s fair to say that Australia is between a rock and a hard place. Slowly but surely, the vice is tightening.

But don’t worry. Channel your inner Micawber. Something will come up.

Everybody relax…

Regards,
Greg Canavan
for The +Daily Reckoning Australia

REAL ESTATE

Rick Otton Reveals How to Get the Property Investment Answer You Want

Real estate millionaire Rick Otton’s recent Creative Real Estate podcast sheds light on tricky property investment questions. In a recently released episode, Rick, with one of his most successful students, tackles some listener questions about property investing. Mr Otton discusses a strategy to challenge the standard property investment mindset, using reframing to get the answers you want to common questions from ...continue reading

Falling Australian dollar could discourage Asian apartment developers: MacroPlan Dimasi

A continued fall in the Australian dollar could discourage Asian developers from buying up development sites and undertaking new apartment projects, property consultants MacroPlan Dimasi have warned.

The argument is counter-intuitive to the traditional notion that a weaker Australian dollar makes it cheaper for foreign investors to buy Australian real estate.

However, according to ...continue reading

Investment diversity key in volatile times

IT'S one of those times when Peter Gunning's investment view dovetails nicely with his personal circumstances. For the past few years the chief investment officer for Russell Investments has been earning US dollars and spending Australian dollars on his family in Sydney.

The exchange rate has been going the wrong way pretty much since Gunning's wife and four children moved back from the US to Sydney so the children could attend high school.

That is, until May, when ...continue reading

SME

Increase in minimum wage bad for business: ACCI

The $15.80 a week increase in the minimum wage is a "body blow" for business, the Australian Chamber of Commerce and Industry (ACCI) says.

While the Fair Work Commission awarded a "modest" increase that was less than last year, ACCI chief executive Peter Anderson says the decision is still excessive.

"Today's minimum wage decision by the Fair Work Commission is a body blow to Australia's small and medium business community which do the bulk of ...continue reading

Investors: the missing link for female entrepreneurs

Wendy Simpson knows the one thing she would do to raise the number of women in business leadership.

"For all the discussion about the statistics on the number of women on boards (15.7% on the ASX200), and the number of women in senior management, the number that upsets me the most is that only 2% of venture capital money goes into businesses led by women," the Springboard Australia chief says.

 "If we fixed that, think of [how that] will shift our economy, and women's leadership in general."

The pressures women face sourcing capital is an issue close to Simpson's heart, given she experienced them herself back in 2010 while attempting to buy out ...continue reading

Australian Startup Incubator Pollenizer Reveals How It’s Making $3m Revenue A Year

Startup incubator Pollenizer made revenue of $3 million last financial year, pulling in about $750,000 in corporate consulting fees, $750,000 in startup consulting fees and $1.5 million from the 17 surviving startups in its incubation program.

But there was no profit: according to CEO Phil Morle, revenue barely covered operational costs, as Pollenizer provided design, mentoring, accounting and office space to its startups at cost price.

Pollenizer was founded by ...continue reading

That should do it for another week folks. Until the next time...