any other bears wish to admit they were wrong

http://www.businessspectator.com.au/bs.nsf/Article/Rory-Robertson-Hawkish-pd20090901-VFV9Q

When I checked on Friday, the futures market was pricing mortgage rates of around 7 per cent by mid 2010 (assuming no margin expansion from the banks, which is likely to have an endogenous impact on the setting of monetary policy any way – ie, the cash rate will not rise by as much).

Even supposing that home loan rates hit 7 to 8 per cent, they will be no greater than they were in 2000-01.

Furthermore, our very conservative (and highly profitable) banks ordinarily assume that borrowers can absorb a 2 per cent hike in rates when assessing their credit risk profile.

And you can be sure that the credit risk analysis undertaken by the banks since the advent of the GFC has been as cautious as it has ever been.

Long story short, measured lending rate rises of 1-2 per cent should be comfortably accommodated by the housing market.

In this regard, Australia’s leading interest rate strategist, Rory Robertson of Macquarie Bank, almost always has his nose in front of his peers when it comes to divining the intentions of those who occupy the hallowed halls of our central bank (of which he is an alumnus).

So much so that it was rumoured in the 1990s that when senior members of the RBA met with Rory they had to annotate the content of their discussions for governance purposes (ie, there were concerns that “rate cut Rory” was getting his calls correct too often for some folks’ liking).

In more recent times, Rory was way ahead of the pack during the GFC with his accurate calls of the RBA’s savage rate cutting cycle.

He has, however, shedded his dovish cloak of late and is now warming us up for rate rises in October. (I have enclosed a summary of his latest note below.)

Warnie says..."BTW he was correct"

Rory also understands our housing market better than most, and has made the subject a specialty over the years.

This was bad news for my old pal, associate professor Steve Keen of the University of Western Sydney, who shot to fame last year with his predictions – relentlessly reiterated on 60 Minutes, the 730 Report, Lateline and so on – that Australian house prices would fall by 40 per cent while unemployment would shoot through the roof to “depressionary” levels.

I recall having a coffee with the old fella one day and noting that the media demands on his time were so great that he had had to acquire two mobile phones.

Anyway, Rory tends to get his nose out of joint when he thinks folks are big-noting themselves without the requisite firepower (incidentally, for those of you who like hunting safaris, Rory offers pig-stalking and barra’ catching trips up at his far north Queensland station, Strathburn).

Stevie, who after years of gloom and doom had been temporarily vindicated by the GFC, is a bright (and nice) guy who can make contributions to the public debate with alternative points of view (particularly on leverage).

PLEASE READ.....

"But he is the first to admit that he was perhaps a bit out of his depth when it came to house prices."

Rory thought he would offer up the community a “public good” of sorts by making an example of Stevie and minimising the likelihood of mass hysteria next time a relatively unknown commentator came out with an Armageddon-like call that had the potential to needlessly spook millions of households (ie, by encouraging the media to apply a sanity test to these statements).

Of course, the rest is history.

Stevie, who has publicly indicated that he now regrets making the bet – “the only reason I’m sorry for myself is for letting this exchange (Macquarie Group interest rate strategist Rory Robertson sprang the bet on me in front of an audience at Parliament House) distract me from my main focus on the macroeconomy” – is about to shed some serious kilos in a long hike from Canberra to Mt. Kosciusko (see here for the terms of the bet and the diagram below).

Stevie himself has been forced to acknowledge the rather adverse reality he now faces.

In his latest blog posting, he comments that the resilience of Australian house prices “will also almost certainly guarantee that I'll be walking (and running) to Kosciuszko under the first half of the bet with Rory Robertson”.

For the record, I am happy to donate 50 cents to the charity of Stevie’s choice for every kilometre of the 226km journey that he runs.

"Warnie will donate $2 per kilometre"




But Stevie also appears confused. He seems to be labouring under the misapprehension that he made not one, but two bets.

I noticed this when he referred to the “first half of the bet with Rory”. To the best of my knowledge there was only one bet and certainly no “second half”. And Steve lost that bet if Australian house prices recovered their previous 2008 peak and did not fall by more than 20 per cent.

Unsurprisingly, that is exactly what has happened.

Based on the July RP Data-Rismark Hedonic Index results, Australian home values are now 1.8 per cent above their previous peak in February 2008.

The slower-moving ABS index, which only includes detached houses and reports quarterly (not monthly), is a couple of percentage points beneath its March 2008 peak.

So on the best available measure of overall Australian house price movements, Steve has clearly lost his bet (this is the second month that the index has been above its previous peak). If he wants to wait until the ABS eventually confirms that truth, that is, of course, his prerogative.

But let’s be clear about one thing: once you have lost a bet, you’ve lost the bet.

There are no second bites at the cherry. It’s not as if you go down to the TAB on Melbourne Cup day and back a loser and then when the horse does win the next year tell the TAB that, on reflection, that was the race you really meant to punt on.


..........


And one should not complain about the influence of the government’s fiscal stimulus—my blind poodle could have forecast that the government was going to undertake countercyclical measures to minimise the impact of the global downdrafts on the domestic economy.

It’s like saying, If the RBA had not cut rates by 40 per cent and the government had not decided to shift the budget into deficit, I might have been right!

While the July RP Data-Rismark release received much media attention, Rory was the first to link the data to the RBA’s conduct of monetary policy.

5 per cent, the lowest rates most of us have ever seen let alone enjoyed – house prices started trending up again.

So, while the latest brighter news on our still-weak economy suggests the RBA soon will start edging away from its loosest-ever monetary-policy stance, the case for aggressive rate hikes still seems rather weak.

Thus any series of RBA hikes from today’s 3 per cent cash rate to 5 per cent probably will take a couple of years, and come in fits and starts, a scenario quite different from the steady straight line of hikes that market participants now have priced-in with confidence over the 12 months from October.