What is everyone calling?
Sounds like 0.4% is the consensus amongst the twitter experts
Does punxatawny phil have the balls to go shock and awe and really bend Albo over
I can’t quite believe what is happening. Seems like a manufactured crisis to further the great reset but here we are
Inflation numbers justify a 40bps hike, at least. But who knows. Read the knob over at EmBe and he seems to think the RBA hiking once has destroyed services. lol if true.
yes he’s spent the last 10 years declaring that interest rates would go negative or zero, and that this, somehow, would cause the collapse of the aussie housing bubble
It never made sense
now the housing bubble is going to collapse, its because interest rates are going up
Probably the MB fund is long bonds
He’s got to talk his book, not that it matters at this point about to get steamrolled
https://www.macrobusiness.com.au/2022/06/rba-delivers-energy-war-profiteering-recession/#comment-4283708
The membership is starting to figure them out.
im a bit on the fence here. Yes I know that interest rate differentials feed into fx rates, but EZFKA faces a much muted effect of that, due to iron ore/coal/gas trade. So “imported” inflation due to AUD devaluation shouldn’t be as bad as many imagine.
I also would entertain the possibility that Labs will curb-stomp the energy exporters some in order to bring down domestic CPI.
these are both factors that should mean rates rise less than some folk expect.
that said, <1% rates are fucking ridiculous and are definitely not “too high”
Ronin doesn’t know what he is talking about. If hypothetically, price inflation could occur in isolation with no wage rises, then it would eat into disposable income (real wages falling). That scenario would more likely lead to a rate cut rather than a rate rise.
The reality is RBA is concerned about workers demanding compensation (wage rises) to offset price inflation. If this was to occur there would be a potential for a classic inflation spiral. So RBA are very much concerned about wages.
And yes, there are other factors such as AUD and imported inflation as Peachy mentioned. I was just pointing out the assertion “nothing to do with wages” is incorrect.
ive asked this question last week
but isn’t exactly this the best case scenario (given the situation we are in)
A period of inflation and particularly wage inflation will make the existing debt burden more manageable,
We can get debt-to-income ratios back to a more reasonable level, and increase (nominal) consumption
this avoids the need for a complete reset/debt jubilee
RBA were hoping for early 2000s scenario of inflation around 3% and wage growth slightly higher. Rates rising slowly over the period of several years.
I am guessing the combination of higher than anticipated price inflation and Labor pushing for minimum wage rises to match inflation has the RBA spooked.
going to take a very long time to inflate it away at 3%
a hard sharp 1970s style episode would have the added benefit of leaving mental scars and stopping people from overleveraging again for a couple decades
you can’t really inflate it “away” without badly screwing the banks [/lenders], as I’ve been trying to explain.
I think that the asx is beginning to understand this.
I think yields are in play. Dividend yields usually around 2% or so higher than cash rate. CBA dividend yield at 3.5%. If deposit rates rise to 3% then dividend yield will settle closer to 5%. Only two ways this can happen:
1) Rising profits and dividends
2) Falling share price
that will also be an element, yes 👍
i don’t understand how this “badly screws” the banks
EXCEPT that there will be less new loan creation (and therefore less profit growth)
AKA a recession
AND the potential for more nonperforming loans
AND the potential for more public pressure to reduce their spread/profit margin
but if wages are also going up (at the same rate), it theoretically cancels out
can you explain the mechanics in your mind?
we need to start here, because the definition of “inflation” which we use matters.
the sort of inflation that would smash the banks would be the 1970s kind – wages through the roof, but interest rates kind of muted.
this significantly devalues assets in real terms. This includes bank balance sheets.
you seem to have something else in mind – some kind of synchronous increase in wages and interest rates and prices. My view – and we’ve discussed this before – that such a simultaneous ratcheting up doesn’t actually achieve “inflating the debt away” or any kind of reset
“devalues assets in real terms”
let’s assume that is correct
a banks EXISTING assets are its debts (mortgages)
its EXISTING liabilities are its deposits
if money gets devalued, both of these change in real value at the same rate
any new assets and liabilities are created contemporaneously at the new value of money
So I don’t understand the real value being any different
help me work through this
Are you saying that a bank has equal assets and liabilities and a net worth of exactly 0?
In general yes
A bank’s balance sheet is nothing like a non-bank’s
if we are talking about its share price, which is a derivation of its current and future yields/profits then of course it will be reduced by the same mechanism that freddy has stated
So the banks(or their shareholders) are the ones eating it? Except for balance sheet technicalities? I’m really struggling to work out what your actual position is here.
In an inflationary environment where interest rates are lower than inflation the banks income is falling in real terms, so how can they not be getting screwed? New loan creation will never result in loans that don’t continue to screw them until interest rates are equalling inflation again.
A bank’s share price is not related to its balance sheet
of course, higher interest rates will compress PE multiples
For all companies not just banks
PE multiples are not what we are discussing, but you seem to be agreeing the banks will get screwed, along with shareholders?
So capital?
MY BROTHER IN CHRIST, YOU ASKED ME THE QUESTION
a banks balance sheet sums to zero
you are aggressively stupid, and I don’t want to talk to you anymore
Man up, luv
I think coming finally understood the answer to his initial question above.
Cognitive dissonance is fun to watch sometimes…
it is Good to talk through these things.
you know you really understand something properly when you can explain it to/teach someone else
why aren’t you answering my questions then?
wage push inflation does not negatively impact a bank’s balance sheet
if anything it improves it, as reduces the likelihood of nonperforming debt and write downs
The question has been answered many times already. The flavour of inflation (push, pull, whatever) doesn’t matter.
What matters is if inflation is higher than interest rate. then bank gets caned.
perhaps as a different approach: an example in extremis – pretend tomorrow the minimum wage is $1billion, people bring home $20m a week.
in less than 1 day every mortgage and consumer debt is paid off. And the CBA’s $60b balance sheet looks laughable. The bank is finished.
How is the bank “finished”?
You claimed that it would trash the bank’s balance sheet
in fact, its balance sheet looks as secure as possible – there is no way that loans could be non-performing, so its liabilities are fully secured by its assets
where is the loss?
Banks can only lose money if they have to write down the value of their assets, or mortgagees stop paying interest
why do you not believe people would not take new, larger loans?
Why would average house prices not be now $8 billion dollars?
I think the burden lies on you to make your case since the common thinking is the complete opposite
https://www.google.com/search?q=do+banks+do+well+in+rising+interest+rates
https://www.google.com/search?q=do+banks+do+well+in+inflation
the loss is massive. The balance sheet has been shrunk almost out of existence.
…a medium sized Toyota dealership now has stock on the lot valued at more than $60b…
again, why do you think credit creation would just disappear under this scenario?
People will simply borrow larger sums, to compete against each other for houses etc
I think Peachy is referring to Household debt to GDP ratios. Low inflation and rates means banks are raking in bigger profits relative to GDP.
Peachy possibly also agreeing with me that higher wage inflation means people are paying off their mortgages sooner despite higher rates 😉
Think peachy is maybe very confused or otherwise needs to write to this Chanticleer bloke and explain to him how the entire finance industry has got this all wrong
The bank’s assets and liabilities on balance sheet sum to zero both before and after this overnight inflationary event
Bank profit MARGINS shrink on lower rates and inflation, as this USB analyst has explained
If banks are making bigger profits RELATIVE to GDP, its because GDP is lower not because banks profits are higher
If GDP increases, bank balance sheets and profit margins increase – thats a good thing for banks as well
In fact, here is an article from today’s AFR stating exactly the same thing that I have said
https://www.afr.com/chanticleer/why-banks-stocks-have-entered-correction-territory-20220609-p5asm2
Literally the opposite of what you have said
That is, a FALL in wages/employment
That Fed Guy also said bank profits would rise along with interest rates. But is that true in real terms? Not saying it isn’t. Just that I believe that is the actual topic being discussed.
i remember now you are the crypto idiot I swore I would not respond to any more
Forgot your handle
Here is why you are an imbecile, before I check out
-Peachy claimed that wage push inflation would damage bank’s balance sheets
-bank’s balance sheets contain assets (mortgages) and liabilities (deposits)
-you ask me if those really sum to zero
-i reply “basically”
-you claim this is a technicality
-i have no idea what this has to do with Peachy’s initial claim since it isn’t a technicality, as Peachy claim was that banks would face balance sheet problems (ie face solvency issues)
-then you claim that you somehow won the argument
in an inflationary environment where interest rates are lower than inflation the banks income is falling in real terms, so how can they not be getting screwed? New loan creation will never result in loans that don’t continue to screw them until interest rates are equalling inflation again.
This makes nearly zero sense to me, in an English language sense
But let me try to unpack:
-interest rates have been lower than inflation for quite a few years/decades now. Have you noticed banks getting screwed in that period of time?
-if interest rates rise and inflation does too, then the banks increase their variable rates on all the existing debt.
-Banks are classically thought to do well in a rising interest rate environment
-Banks are classically thought to do well in in an inflationary environment
If you google “do banks do well in a rising interest rate/inflationary environment” you will find many affirmative links
But I think fundamentally you have failed to understand what a Bank’s balance sheet consists of, and therefore the entire conversation has gone completely over your head
Shorter term loan repayments rise dramatically. Longer term wage rises win out and you effectively get your jubilee. That is how the Boomers accumulated so much wealth.
It was possible in the 70s because credit was MUCH tighter. Debt servicing at max 30% disposable income. Also, if you couldn’t keep up it was easy to get a 2nd job or get the wife to work part time.
The problem today is debt servicing closer to 50-60% of disposable income on many loans (according to DFA) and already dual income. It would be a disaster.
to me that says that the ratchet was not simultaneous and that wages grew more than interest rates…. Or that interest rates were not raised enough to compensate for the rise in wages.
one way or another, at that time labour banked the gains and financial capital ate the corresponding losses.
this could happen again, sure. I’m just trying to point out that there is not an “everybody wins” scenario. Best that can be done is to try to hand the losses to foreigners, but I don’t think that anyone is smart enough or brave enough to get that done
If for example wage inflation was 10% and mortgage rates doubled overnight from 6% to 12% the mortgage repayments would rise by around 65%.
65% rise is mortgage repayment is bad. However, it only takes 5-6 years for wages to catch up. Thereafter it becomes a debt jubilee.
This is how it would have played out in 70s and today as I see it.
70s:
Today:
IMO 70s were a one-off in many ways.
If we do get persistent high inflation the bits in bold could be a problem for asset prices this time around.
You missed a really big one.
Crazy beneficial worker/dependent ratios as the baby boom bulge headed through their 20’s, with a significant chunk of the older generation no longer there to grow old.
They are now squeezing out the arse and creating the drag you would expect from such a position.
True. Although the plan seems to be to dilute the pension and force retirees to sell their assets. I also expect the healthcare benefits to wither away over time. My pensioner mother had to pay $14k for an urgent operation which was considered elective.
All these things mess with the distribution of resources but don’t change the fundamental facts that more man hours and resources will be used supporting the dependent population from less available man hours overall.
I’m getting the feeling this current inflation may be the manifestation of the first serious reduction in living standards for a very long time.
Calling for 0.4% to bring the cash rate back to a multiple of 0.25% seems a little OCD to me. I bet RBA would cop flack for it too.
phil seems like a very anal retentive, conforming fellow – probaby how he ended up with the job
For this reason I think it will be 0.4% no surprises
If he does surprise, I think it will be to the low side 0.25%
If he goes bigger than 0.4 I will be shocked
They’ll go to 1%.
If they puss out and don’t then a larger rise will be next month after US Fed goes higher next week.
Either way, I’m convinced the 50 year mortgages and super for deposits cards will come out in some form before September.
Your fame (infamy) will eclipse bcnich if you are right about this.
you will be crowned the new doom-lord!
Is bcnich famous? Their prediction is yet to come true. The way they act over EmBee, it is like he/she accurately predicted a house price crash.
bcnich predicted 17 house price crashes, of which not one has come to pass. Instead of one of the predicted crashes he actually got a pandemic which shot prices up 20%….so he is not famous for accurate predictions.
rather he is famous for being a big bad mega-bear.
And a 1% rate rise is one of a few things that could out-bear bcnich. Which is why I will recognise A47 as the doom-lord of it happens.
Just clarifying I’m calling to 1% so .65% raise not the full 1%. More likely it will be .4% but fuck it, im for a penny in for a pound.
Bcnich will be right eventually after his 523rd prediction. Just like Davo is.
My feels are that it will be 0.5% today.
Peachy correct once again. Is that you Phil?
“She” is deep state for sure
It’s a small world, and it smells bad.
Peach has some insider knowledge.
not sure why she needs to beg for donations, when she can make unlimited amounts of money front running the market
why are we not getting investment tips along with our subscriptions, Peachy?
i do give investment tips (Which are obviously not investment advice) – but only very occasionally, when I have a strong hunch about something.
Eg the other day I announced that I’m wading in to get some 2-3yr maturity bonds. (Freddy told me off a bit for this).
as to donations – youse should all pull youses fingerses out and get some cryptos to donates, because one day the old girl might go down and stay down.
I didn’t tell you off Peachy. I just said I prefer shorter terms so that I am not speculating on rates.
I know, I know 😁
However, I do want to speculate on interest rates a little.
so both approaches are valid, we are just after different kinds of exposures.
What do you mean by this ?
what are you speculating on if not rates ?
I think he means just buying yield.
At 2% ?
why bother
I trade CFDs which are highly leveraged. That means I only need a few percent of my savings in the broker account.
Nearly all the rest of my cash is in bonds. I don’t care too much about the yield as I make a lot more on my trading. I am more interested in the “risk free” that you keep referring to.
Just put it in the bank then ?
you make a living off trading ?
I don’t trust the banks with all my cash. I was vindicated during covid when they blocked sizeable withdrawals. I keep about 5% in banks for emergency purposes.
The only easy way I know to answer that is, if my trading system continues to work I will be making more money from trading than wages next year some time. The compounding effect will continue raising my returns exponentially… until it doesn’t. That is the dilemma. Trading systems decay over time. It is unknown by how much, how soon, and whether I will be able to replace it with another profitable strategy. For that reason, the prudent thing to do is to continue working.
what?! when did they block withdrawals?!?!
but i think if they block you from making withdrawals, they will certainly block you from selling bonds
and who would you sell your bonds to if there are no withdrawals?
and even if you did sell them, how would you withdraw the proceeds?
So not sure if that is really vindicated lol
There was a bank run during the first few weeks of Covid. Some banks placed withdrawal limits. If you wanted more money you had to provide documentation with a valid reason. “I want my money” was not an acceptable reason.
It was worse with superannuation. The superfunds collectively blocked redemptions.
ok but you can’t sell your bonds for cash in hand!
I am not worried about cash in hand. I am worried about bail-ins that Peachy has alluded to.
Aus govt refused to explicitly exclude deposits from recently bail-in laws. You have to ask yourself why.
so you’re holding a substantial proportion of wealth in cash/bonds/equivalents?
you’ve got no debt?
an important difference is that bank deposits are predominantly held by mug punters who don’t matter jack.
whereas bonds are held by foreign investors, foreign governments and sovereign wealth funds. Who have clout and matter a lot.
you want your lot thrown in with the second bunch.
this was demonstrated in Greece, when the mug wogs with bank accounts got screwed and all the bondholders were saved
What is the best way to buy bonds as an individual in your own name?
I presume if you buy it in a fund, there is some other way they will fuck you
You can buy them from a broker. Treasury will issue a certificate.
Bonds – prices (asx.com.au)
but this is on the asx? so you don’t actually own them on record at the RBA/treasury?
you only own a share certificate that represents the bond that is held under the name of a primary dealer?
Sort of like PMGOLD?
who’s the market maker here?
seems like there might be some risk
There is a market maker but they are selling real bonds. Once the sale goes through you will have no further interaction with the broker unless you choose to sell.
You will receive a letter from AOFM with the bonds registered in your name. You then go online and register a bank account that will receive the interest and the funds when bonds expire.
Treasury Bonds | AOFM
ps: I used Commsec.
and if you want to sell it before maturation?
you have to call one of these dealers?
i assume you’re going to get fucked hard on spreads/commissions
You can sell like you do shares.
yes, there’s a bit of a bid/offer spread, typically… but not extortionate.
You can buy/sell online as you do stocks. The ASX codes in this link. There is a spread but it is not ridiculous. I recall shorter term bonds having more liquidity/smaller spread.
Bonds – prices (asx.com.au)
Also, if you hold them until expiry then you effectively only pay half the spread.
No, these are not like pmgold.
These are actual bonds, directly owned by you (via CHESS, usually).
Yield on 12 month bond rose 1% in quick time. That means the bond price fell 1%.
Over the same period the yield on 10-year bond rose from 1.6% to 3.5% = 1.9% x 10 = 19% fall in bond price.
Doesn’t it depend on how much time is left on the bond ?
Yes, of course it does. Longer bonds tend to react more in price than shorter bonds.
but it’s not just the overnight rate that moves the price – it’s the whole interest rate curve out to time of bond maturity (I.e expectations of future interest rate environment)
So a more complicated equation
but both your gains and losses will be magnified
but if you had bought 3yr bonds when you said you did you would have lost quite a bit of value today ?
1yr and 3yr both went up by 1% today ?
10yr went up by 0.5%
is it time to buy these soon ?
yes, right on both counts.
down approximately 1% from $101 to $100. Which is to say that the rate rise wasn’t quite priced in.
I don’t want to play in the 10yr space. It’s a very very long time. Could easily get hyperinflation (or at least double-digit inflation) in 10 years which would wipe your bond position out.
but you could just sell the 10yr bond after a few days/weeks/months whatever
so its more that its just more volatile up and down than the short durations bonds?
You also said you were wading in to a (successful) punt on Labor.
I bought TBT at 19.35 and still holding. I did lose on the libs though.
nice! When do you think you’ll pull the plug? After Another 0.75 out of the FED?
Great call!
.
DLS has his panties in a bunch over the RBA lol. Some belt tightening might be in order at MB HQ.
pfh007 is absolutely roasting DLS today, without mentioning his name, as is his way. I wish I had his restraint and emotional intelligence.
I am going for 0.4%. They need to raise rates more than 0.25% to ensure the dollar doesn’t drop and we import more inflation. They can’t raise too much otherwise the asset holders will suffer. And we’ll suffer from their constant whining.
Alright
When is it announced ?
A few more minutes.
2.30
https://www.rba.gov.au/media-releases/2022/mr-22-14.html
0.5!
edit: I misjudged Phil as an anal retentive . Apologies !
Glorious.
.85, I was only .15 off the mark.
Next stop is 1.25 imho.
That would be a hop, step and a jump – quite elegant I think.
I’ll discuss it with the boys.
And there goes ASX 200
The AUD up nearly 1c too
and the 1yr AGB up 10%
now we wait for the nucleus fund results
Someone needs to create a regular post here about nucleus fund performance.
I enjoyed peachys take on afterpay vs MB. It’s what originally led me here.
Boom! I’ve been saying this all along, rates are going up, up and away.
Rates are not topping out at 2-3% this cycle, the great Australian property soufflé is officially overcooked.
If the last 12 years following the property bubble has told us anything. It’s I wouldn’t count chickens until they’ve hatched. RBA will probably overcook it and then have to put rates back down. Govt. will throw all sorts of stimi at it to keep a pulse.
lol, maybe.
But I bet they chicken out and drop the rates again as soon as ANYTHING starts crashing.
They can’t cut rates to save housing and financial markets when inflation is out of control. And inflation is going nowhere for a while.
They can’t control inflation when it’s all imported and energy prices either though.
From comment section of the age
Baradhur wrote “We don’t have a choice now, we need to remove negative gearing and redirect that money to help people that were granted 95% LTV and will be loosing their homes because or rates rises. Getting a home is good, keeping it is even better!”
Translation = Taxpayers should pay for my shitty financial decisions!
EZFKA really is a country that every fuck has their hand out and want the government to cover their mess.
Pro-level property bro! Awarding extra points for “loosing”, too!
I think the deductible interest payments (like in the USA) is the next go. DTI drops, instant support for house prices, and the gov’t gets to play generational warfare with Libs in 3 years’ time – Boomers vs. Gen X/Millennials, over housing! What’s not to love! And hiking interest rates to save the economy doesn’t matter anymore – it is tax deductible! Genius!
I disagree with your sentiment. APRA’s negligence has enabled Aus banks to replicate US Subprime. i.e. treating temporary rate cuts as though they were permanent.
APRA serves up inflated mortgages to young Australians – EZFKA
thats the “LOL” element of “MPLOL” 🥰
The history of interest rates since inflation targeting became the driver has been that overall the rate cuts are permanent, with small blips up a little between cuts.
We have gone from 17% to 0% over the course of that experiment.
I love when people say rates will go back to the “long term average” without understanding that is a line of negative slope, not a constant value.
You are generalising. The stimulus measures were not part of the normal inflation targeting, and RBA made it clear they would be withdrawn.
If you are so confident long term rates are going to zero you should load up on 30 year bonds.
Real estate is my preferred exposure to interest rates, with the added benefit of exposure to Government housing policy as well, + much more leverage possible.
Yeh, nah.
MB has been in a permanent state of surprise for a decade now
Do the Embee boffins really believe that the RBA should be holding (or going negative MPLOL) in the face of massive global inflation while every other CB is struggling to raise rates fast enough?
I legitimately can’t understand what they think the outcome would be, and how that would be beneficial to the Australian economy. It’s sad as they once had useful things to say, now you can’t distinguish them from a RE fluffer playing an economist.
Nathan Birch was also surprised!
That’s a gem, Gouda.
still, old Nath should be OK – last little while should’ve pushed his rental yields way way up.