Malaga - I have to admit that since 2007 it would appear that the bears have been right. Median house prices across the majority of capital cities have lost value in real terms. The luster of negative gearing whereby you lose money today in the hope that one day, you'll get that money back and then some is wearing off. Unless you are an established baby boomer with equity banked to play at the IP casino it seems the property spruikers are having a harder time finding greater fools of the next generation. Which the negative gearing ponzi scheme needs to sustain itself.
Now I'm at work (on my lunch break of course) so not a great deal of time. But I thought I'd share with you a new chart which reinforces how hard the brakes will be slammed on the WA economy over the next 8 months.
The chart below shows how much Mining CAPEX has contributed to Australia's GDP over the last 12 years, its gone from being insignificant to our GDP , to a portion of our national GDP that can really hurt us in a hard landing scenario. Now I know a lot of the bulls here dismiss the layoffs and manufacturing plant closures on the east coast as not having a significant impact on our economy. This graph shows you why, since things have started to come undone in 2010ish in manufacturing, the Mining CAPEX has absorbed 4% of Australia's GDP, this flows through into obviously GDP growth, but also acts as a cushion to those layoffs and manufacturing going to the toilet. Therefore, because of the explosion in mining capex, this acts as a deodouriser for the bad smell coming from the manufacturing sector.
Now, when you look at ANZ's hard landing predicted for mining CAPEX the velocity at which these things will unwind cannot truly be appreciated.
Now, I'm not advocating here that Australia will enter into a great depression for a decade. But what will happen is a period of probably 24-36 months of GDP contractions (hard reset), followed by another 3 years of dabbling in between growth and contraction. By this stage australia's competitiveness on a world stage would have reset back to sustainable levels and we can start the property/construction/mining/resources bubble again.
The things that will impact the severity of this contraction are:
ZIRP - I don't believe Stevens will do it, nor will it make the amazing different property punters believe it will as our Big 4's funding profile is around 40% dependent on foreign wholesale funding.
Govt Projects - Although private debt in Australia is high, public debt is low, therefore the government of the day could undertake a significant building program. The issue with this is anything major which is designed to lift a economy out of the doldrums needs years in the planning phase. To my knowledge there is nothing big enough sitting around thats been designed that the government can pickup and go out and build in time to offset a significant contraction.
Commodities Rally - 'Something' triggers a rally. Be it half of california is levelled in an earthquake and some major world event drives demand for our iron ore.
Anyway Malaga, pat yourself on the back you and the rest of the punters at the IP Casino just rode a 22 year uninterrupted period of economic growth. Everyone know's one day the music stops, well unless your David Airey from REIWA....
