ANZ Bank Tips 2 More Interest Rate Cuts - More Fuel For Positivity

Lord Shanghai said:
Thanks to the RBA's private jawbonings to journalists and economists, it's now a minority of economists who think rates won't be cut.

If you are in debt, this is great news. When peoples IPs are cash flow positive, they are less likely to sell.

http://www.news.com.au/finance/busi...te-cuts-for-2015/story-e6frfkur-1227185589657
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Haha if this happens, it'll most likely fuel another round of acceleration in asset values. Great news for the SS community if it happens.
 
First of all, it's not 'news', it's 'noise'.

Secondly, do you know how many times economists have predicted rate cuts that never eventuated? They're (news.com.au) just selling you clickbait to make money.

Here's a picture of the business card I received from an economist one time:

1399152322259490.jpg
 
Mr. Fabulous said:
Here's a picture of the business card I received from an economist one time:
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As the joke goes....

I met a female economist in a bar. I asked for her number. She gave me an estimate.


Jokes aside, I don't see the RBA cutting rates. They already consider rates "accommodative". Inflation is bang on the mid-point of the desired band - and even if it drops further the sentient point about the CPI target is that is is "an average, over the cycle" (so dips below and peaks above ≠ a certain change in rates).

Here's the thing - if they cut rates now... what do they do if the shizen really hits the fan?

If they can help it, they'd be more than happy to sit tight I expect.

As ever, I retain the right to be wrong.
 
Interest rates

I think people forget that interest rates are usually a very short term thing. They can go up as quickly as they come down. So it is important to always have a buffer on the given interest rate at any time.

Off course like most if you benefit from a rate cut its great. However, any upward acceleration on house prices is more the market as a whole going up so has little net benefit for a person in particular, especially if they are still accumulating properties. Thus a decrease in interest rates results in increased prices thus making future purchases more expensive so not necessarily having a long term benefit.

I have heard plenty of economists talking both ways. More importantly having an interest rate that keeps going down is actually a very bad sign for the economy.
 
Tony3008 said:
It also would make the politics of removing negative gearing easier.
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They tried that in 1985. As a result, rents skyrocketed and they had to restore Ngative Gearing within a year.

The slogan d'jour seems to be "Macroprudential Controls" ie. making it harder for folks to qualify for loans.
 
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Sean M said:
However, any upward acceleration on house prices is more the market as a whole going up so has little net benefit for a person in particular, especially if they are still accumulating properties.
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In terms of housing, the way lending works, any acceleration in prices can work magic. 'Nominal' gains can get you to a larger asset base fast! Even if your real wealth hasn't increased dramatically.

The purchaser only needs 10% of his 'equity' in the purchase, but gets 100% of any gain!! This can then be reinvested. E.g. person x owns at 500k. Market pushes up to 800k. Person X now has $300k in equity. Can now purchase 3 $800k assets!
 
wategos said:
Myth Alert !!!
As most people know, this never happened. Rents did not skyrocket and were not the reason NG was restored.
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I presume you were in primary school when Negative Gearing was abolished. My recollections are more clear - I owned property at the time. Rents rose massively within a year of the removal of NG. I've never seen anything like it happen in my many years of property investing. Although economists with axes to grind like Saul Eslake blamed it on a tight rental market, the fact remains that the tight conditions were the effect of the removal of NG. The Treasurer did something unprecedented - he backtracked and restored NG.

Abolishing Negative Gearing would be a disaster for those renting. It would massively disadvantage the poor. Although negative gearing rules may well be tightened, it would appear that this tax break is a sacred cow which can never be slain.
 
Lord Shanghai said:
I presume you were in primary school when Negative Gearing was abolished. My recollections are more clear - I owned property at the time. Rents rose massively within a year of the removal of NG. I've never seen anything like it happen in my many years of property investing. Although economists with axes to grind like Saul Eslake blamed it on a tight rental market, the fact remains that the tight conditions were the effect of the removal of NG. The Treasurer did something unprecedented - he backtracked and restored NG.

Abolishing Negative Gearing would be a disaster for those renting. It would massively disadvantage the poor. Although negative gearing rules may well be tightened, it would appear that this tax break is a sacred cow which can never be slain.
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Rents were already rising 'before' NG was withdrawn. Inflation was going to the moon early to mid 80s and Volker pushed interest rates to the ceiling to contain rampant inflation. Rent growth didn't stop after NG was pulled either.

Rent growth only crashed when global markets crashed in Oct 1987.

The pro NG lobby used the rent rise acceleration as a political tool to reinstate NG.

Rental growth correlates well to CPI inflation. I doubt NG had any real effect at all. In fact he total value of investment finance commitments in September 1987 was 41.5% higher than in September 1985.

Annual-change-in-CPI-Rent.jpg

The data clearly shows that rental growth was present over this period and it was greater than it was over the two year period directly preceding it (The above chart shows the period for which the negative gearing rules were changed and are bolded black). Here you can see that rental growth was well above average, particularly recent averages, but it was not unprecedented with rents growing by a greater amount on an annual basis in late 1982 and early 1983.
 
Another interesting correlation is the explosion in private credit growth around that period.

ScreenHunter_87-Feb.-13-07.45.gif


Govt effectively exchanged public debt for private debt and scooped the tax windfalls that were used to reverse this position. Australia's (and the worlds) boom time was essentially a debt fueled spending spree.
 
Not that I totally support negative gearing, what a lot of people don't understand is that negative gearing applies to all form of investments, whether it is bonds, shares or business.

Why should negative gearing be removed for property but kept for businesses or shares?
 
D_One said:
Not that I totally support negative gearing, what a lot of people don't understand is that negative gearing applies to all form of investments, whether it is bonds, shares or business.

Why should negative gearing be removed for property but kept for businesses or shares?
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I tend to agree. The corporate world's use of NG tax breaks makes the NG property numbers pale in comparison I'm betting.

The risk for the PI is that when govt's come up short they tend to pilfer from the weakest and least able to (politically) fight back. Then again a lot of poly's have a bob or two tucked away in property. I doubt you'll see NG seriously attacked until things get really bad budget wise.
 
D_One said:
Not that I totally support negative gearing, what a lot of people don't understand is that negative gearing applies to all form of investments, whether it is bonds, shares or business.

Why should negative gearing be removed for property but kept for businesses or shares?
Click to expand...

No reason at all, I wouldn't allow it for them either. Personally (I am biased by birth and upbringing!) I'd adopt the UK system: IP gains/losses are ring-fenced: if you make a loss you can carry it forward to offset against future profits from the same source.
 
Lord Shanghai said:
Abolishing Negative Gearing would be a disaster for those renting. It would massively disadvantage the poor. Although negative gearing rules may well be tightened, it would appear that this tax break is a sacred cow which can never be slain.
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Of course it would not be a disaster, renting functions just fine in every other country that doesn?t have negative gearing. The poor would not be disadvantaged. I find it amusing the "concern" some property investors have for the poor regarding negative gearing, come on folks, what?s your real reason for wanting to keep it ?

Freckle described what really happened when NG was removed. Rents went up in 2 cities, but due to other factors as they kept rising when NG was restored. Mathematically it doesn?t make sense anyway that rents would rise, there are still the same number of people and properties.

Removal of NG would actually be good for a lot of aspiring home owners since some competition from speculators would be removed and prices would fall.
 
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