Economy

Up or Down? You decide.

May 23, 2019
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Reading Time: 2 Minutes

Sigh.

“Don’t wish things were easier, wish you were better”.

I know, I know – Jim Rohn quotes are pretty corny sometimes aren’t they?

But oh so TRUE.

A bit bonkers this week, the parents are away which means that it’s yours truly’s turn to dog-sit for them for a couple of weeks.

Not that I mind, look at that little fluff ball:

“Kawaiiiiiiiiii”

Feels good having her around. I mean, MrsFrugalSamurai is good and all… but she can’t give me licks down “there” y’know?

Points to feet. (I know what you thought, wacko).

Still, as pleasurable as her feet licking is, there comes a time when even a dog knows not to do it straight after master comes home from a hard day’s work.

I guess that’s the gauge of how hard you actually worked…

Ahem, anyway enough about dogs and their voyeuristic ways, because in the last couple of days we’ve had some pretty big news here in Australia.

Of course, over the weekend, the centre-right liberal/coalition party won the national election unexpectedly which was seen as a boon for businesses and the economy.

Then we had news that our financial regulators were going to relax borrowing measures for home-buyers – since 2014 they had implemented a servicing “buffer” when calculating a person’s borrowing capacity. This buffer was set at 7% interest rate on loan repayments (lenders typically used 7.25%).

Whereas the actual borrowing rate on a loan is usually around 4-5%.

It’s still early days, but by removing this buffer, you’d expect servicing calculations to be slightly relaxed to around the mid-6’s I imagine.

Which means extra borrowing power, which means we can borrow more money, which means we can spend more – YAY!

Oh, and of course, our central bank – the Reserve Bank could not have been more clearer in releasing it’s last meeting minutes with the short-term future of the official cash rate (1, possibly 2 cuts in near-term), again giving a boost to our economic predictions.

Image result for down down
“Down, down, prices are down” is a famous national song of Australia.

So what then – that’s good right?

Um, yeah it can be good, but I’m not convinced.

I mean, yes the liberal party coming to power provides certainty and a bit of stability for markets (markets love certainty and stability), and yes the relaxing of credit is good news for our property sector…

BUT, and there’s always a but, I think the cutting of interest rates leaves the RBA with a very small margin of doing anything in a global economic climate looking decidedly shaky.

Just thinking big picture here.

No government policy, no matter how good can boost markets as well as a fully firing economy.

Similarly, no housing market can rise without the benefit of a fully functioning economy, no matter how much people can borrow.

And that’s what it boils down to – the economy.

In all fairness, the RBA’s hands are tied, they can only try and get ahead of the recent negative economic reports that have been released – unemployment, retail sales, home sales etc. etc.

But still… don’t you get a feeling we’re just… how best to put it…

“As long as the music is playing, you’ve got to get up and dance”.

That was said in July 2007, and we all know what happened a year later.

So I’d be very interested in watching this space in the short-medium term to see how far the run up this boost can have.

But at the same time, I’m continuing to take money off the table, sitting idly in cash waiting for when valuations turn more “attractive”.

Until then, where did that dog go?

Here girl, c’mere girl.

Takes socks off. 

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P.S. As always, all posts are the opinion of a boy-genius sitting behind the thin veil of cyberspace. Much research must be completed before you make any financial decision, but you’re here. There are worse places to start!

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