A more-depressing-than-usual weekend Financial Review

I will try and make this really quick and won’t waffle on about anything too much. At the start of this year I actually decided I was not going to do any ‘economic’ postings anymore, but after flicking through this weekend’s Australian Financial Review—as I sipped my way through a bottle of Jacobs Creek Chardonnay Pinot Noir Brut Cuvee—I just could not resist.

Regular readers will know that I often refer to the Australian Financial Review (AFR) as ‘the most depressing paper in the world’. In fact, as I actually read very few other papers, I have no relative idea how depressing it is compared to all the other paper in the world. But I am pretty sure it is at least ‘the most depressing paper in Australia’. But I do like it, and I buy it mostly every day and try very hard not to miss the jam-packed seriously-depressing weekend edition; even though it costs me $3.30. Yep! I kid you not. $3.30 for a paper.

Anyway … back to this weekend’s edition … Saturday the 15th March, 2014.

Full of depressing news really.

So very quickly . . .

It seems we now have a rental glut in Perth WA. This is after about three years of being told that Perth was heading for a severe housing and rental shortage. The glut is especially evident in the ‘apartment’ category where, it seems, there are about twice as many apartments available (or about to become available) than there are people who want them. Not a good story for anyone who has, or is about to, invest in apartments.

“Global uncertainty hit local shares” whereby local they mean ‘Australian’ shares. So the share market has taken a 2.8 percent hammering and one of the key reason is the current global uncertainty—which decoded means the trouble between Russia and the rest of the world over Ukraine. Did you know that some of the largest nuclear reactors are in Ukraine, and in fact the largest nuclear reactor in Europe is in Ukraine?

While the real estate market is generally trending upwards over in the eastern states and for Australian in general, property prices continue to trend down in Western Australia with Perth prices falling by 1.1 percent so far this year. This follows a 2.8 percent fall in the average property price in 2013. The next item might explain part of the reason for this.

The price of iron ore, the primary source of income for all of Australia (indirectly or directly), continues to trend down. I think it would be safe to say that within my remaining lifetime—assuming I get to live at least another 10 years—we are never going to see iron ore get back to anything like its previous peak of almost $190 a ton. We will be lucky if it manages to stay above $100 a ton for the year. The only way that the Big 3 iron ore exporters (BHP Billiton, Rio Tinto, and FMG) are managing to make useful money from iron ore is by doubling (and more) their production. Even then, with double the production, they are only making about the same profits they were making three years ago (even though they are shipping twice the product).

They are building and selling apartments in Fitzroy (Melbourne) that are 33 square metres! There is a bed, a built-in wardrobe, a toilet and shower, and a wee kitchen area. All squeezed into 33 square meters. My kitchen and family area is about 41 square metres (I just measured it). I remember seeing about ten years ago how people in Japan were paying rent for tiny ‘apartments’ that just managed to fit a bed in. I never thought I would see something similar in Australia.

On top of the iron ore price trending down the world banks are downgrading China growth. There is no longer any optimistic talk of China returning to double-digit growth in 2014/2015 like we were hearing and seeing at the last quarter of 2013. Now the thinking is that growth in China for 2014 is more likely to to return to pre-2008 levels and be around 7.8 percent for 2014 and possibly under 7.0 percent in 2015 with a possible up-tick in 2016.

The Australian taxation system needs ‘massive’ reforms if the Australian government is going to be able to fund basic services, and provide much needed infrastructure repairs and upgrades, over the next ten years. To me this is code for saying ‘taxation has to go up wether we like it or not’. So how will they increase the taxes? Increasing the GST seems like one of the most popular (with ‘them’) options. But increase it to what? From 10 percent to 12.5 percent, or just go directly to 15 percent? Another option for saving/making money is to increase the pensionable retirement age to 70! Crap! I will have to work at least 10 more years. Another option being considered is to remove or modify the leveraging for investment properties.

The government initiated MySuper plan was supposed to make superannuation simpler and cost less. If the various articles in the AFR are correct (there are two or three of them) then MySuper has achieved neither. Most superannuation now has added complexity and the costs of having superannuation have increased. MySuper would appear to be another complete failure, but I am no expert on superannuation and am simply taking what I have read at face value.

Okay. I hope I kept it tight and brief and I promise to try really hard not to post much, if only once a month, on the state of the economy.

BarryMark