Thing are a bit ‘Crook in Tobruk’—ASI=6.5

When I was young my dad had a saying which I am sure was “Things are crook in Tobruk” (Tobruk is pronounced too-brook). However, when I did a Google search for this it came up as “Things are Crook in Tallarook”. But anyway, what this saying means is that things are not going well. Something is or has gone wrong; things are not going as planned. Even though the saying refers to Tobruk, or Tallarook—whichever is correct—it just means something is going wrong right here and now, where-ever it is that you happen to be.

In the case of this post I am using “Things are a bit Crook in Tobruk” to refer to Western Australia, and probably more particularly, Perth; and I am mostly referring to the economy.

While most of the numbers and percentages we hear on the TV and read in the paper seem to indicate that most things financial are more-or-less kind-of tracking along okay, these numbers and percentages generally refer to the whole of Australia. Hence they don’t give a very good picture of how things are tracking in Western Australia.

Unfortunately, when you drill down on the status of things for Perth the picture changes from not-to-bad to somewhat scary.  One might say: Things are a bit Crook in Tobruk.

As an example, while the national unemployment number improved in the last three quarters by dropping from 6.3 percent to 5.9 percent in October, Western Australia’s unemployment rate got worse by going from 5.9 percent at the start of the year to 6.3 percent now—the exact opposite of the national numbers. And these are the ‘official’ numbers which don’t take into account people who are not applying for unemployment benefits and discounts people have work of some kind but who can’t get enough work to support themselves. If you dig a bit deeper you will find that the ‘real’ unemployment rate in Western Australia is probably closer to 8.5 percent.

But even at the official rate of 6.3 percent it is the worst unemployment rate for Western Australia in 13 years.

If you just look at people under 25 the ‘real’ unemployment rate is just over 19 percent, indicating that 1 in 5 people under 25 are unable to get paid work.

Another example is household debt. Australian’s have a higher household debt than the USA. Nationally the household debt as a percentage of GDP is 128 percent. By comparison for the USA it is 105 percent, for New Zealand it is 95 percent, and for the UK it comes to about 85 percent. So 128 percent for the whole of Australia is bad enough, but when you look at just Western Australia this skyrockets to 141 percent. WA owes 41 percent more than we can possibly pay back based on current income. If we were a company we would be in bankruptcy court.

The story for real estate is not much better. While for Australia taken as a whole real estate has been going up rather nicely for the last five years, when you drill down into the number for Western Australia things look a bit sadder. According to the Australian Bureau of Statistics, after adjusting for inflation, real estate across Australia rose by 6.8 percent in 2014, and by whopping 9.4 percent in 2013. The final percentage for 2015 is not available yet but, based on RP Data numbers, it will be in the range of 7 to 8 percent.

However, for Western Australia the last three years have seen a negative trend in real estate values. From May 2014 to May 2015 the real estate graph fell 11 percent putting the median price of a detached house at $550,000. If you bought a detached property in Western Australia as an investment sometime near the start of 2013 then by the end of 2015 you will likely be looking at a capital loss in the order of 12 percent (as an average—it obviously depends where and what you bought). So that $750,000 house is probably worth about $90,000 less. The story for apartments is not quite so bad. They have only dropped about half as much, but that is still a loss over three years of around 5 percent.

As bad as the stock market has performed over the last three years, at least it has gone up by 11.4 percent (All Ordinaries index). So if you put your investment into stocks three years ago you are probably a lot better off—but again that is based on the average; it depends what you bought.

Basically the issue is that the Western Australia focused 30-year resource boom only lasted 10 years, and when it fell it fell much more rapidly than any forecast. The thinking in 2013 was that the resources boom would continue through until at least 2020 if not into mid-20s and that as the China-based boom began to fade then the India-based ‘boom’ would start to kick in. Also, as the boom faded then the related commodities—mainly iron ore, gas, and coal—were forecast to drop by 30 to 50 percent as a worst case scenario.

But the boom began to decay early in 2015, and the decay has been much more rapid and deeper than forecast. The decay happened over months and not years, and the fall in commodity prices has been much more severe than 50 to 60 percent with iron ore falling 75 percent.

The bottom line is that Australia overall is now financially in a far worse place than it was at the peak of the Global Financial Crisis (when we had billions of spare cash in the Future Fund, lots of room to move in interest rates, our banks were not debt-burdened, and a resources boom on the climb), and if Australia sits at 5 out of 10 on the Abalook Scary Index (ASI) then Western Australia has to be at least 6.5 and nudging at a 7.