I’m going to go out on a limb and make some pretty bullish forecasts here. But take a look at this data and tell me I’m wrong…
Ok, if you’ve been following me for a while, you know I’m a glass-half-full kinda guy. I’m optimistic by nature.
And I’m happy to have that on full display here because, 1. I believe it, and 2. I’m pretty sure whatever other media people are consuming is going to be biased towards bummersville. Fear sells.
But seriously, when I take a look at the factors lining up behind 2017, I’m starting to get a bit excited.
It was almost like there was a paradigm shift in the global mood when Trump became president (stronger economy mixed in with a more comical/dangerous diplomatic environment).
Thing is though, we’re already seeing that it play out in the data. Trump can’t take all that credit for that (if any!), but suddenly markets are marching to a much peppier tune.
And all of that is going to be a solid boost to Australian property markets, in my humble opinion.
So if I was to lay it out in themes, I would say that a stronger US economy is going to lift the global outlook, while renewed strength in China is going to directly pump-prime the Aussie economy.
The much-anticipated (hoped for) pause in Sydney and Melbourne isn’t going to materialise and FOMO is going to drive those markets back into double-digit growth. Expect more macro-prudential (=APRA meddling) as a result.
However, a resurgent resources sector is going to put a floor under markets in Perth and Darwin, and give a lift to the more resource-balanced Brisbane.
Put that together, and you’re painting a pretty decent picture for the major capitals.
Suddenly double digit growth for the nation is shaping as a possibility. I don’t think we’ll get there, but I reckon we’ll give it a nudge.
All that puts me at the bullish end of the economist pig pen – but then that’s exactly where I like to be!
But if you’ve been reading me for a while you also know I’m not one for just throwing outlandish claims about.
(I’m a data-nerd at heart.)
So let me lay it out for you.
First up is the US outlook. This market has a screaming buy on it for my money. It’s probably about 7 or 8 O’clock in the property cycle already. Trump is probably going to take it to 10 very quickly.
And the key signs of health are in the labour market. The unemployment rate continues to trend lower, and is now around a very healthy 4.7%.
As a result wages are rising. Wages growth is at a post-GFC high, and for the more stable segment of the employment market, we’re now back at 2007 highs.
So even before Trump takes office, all the ducks are lined up for him. He’s probably the luckiest president ever.
And Trump’s job is easy. Just make sure that people remain upbeat about the economy, and everything will take care of itself. For a master deal-maker (spin-demon) like Trump, that’s a walk in the park.
So lock in a solid year for the US.
And if the US is looking solid, suddenly the rest of the world doesn’t look so bad either. Take Europe. Unemployment has fallen to a seven year low.
Europe still has all sorts of problems, but suddenly things are looking up.
And then there’s China. Very quietly, China has been putting it foot on the gas in recent months. This chart shows output of electricity, steel, plate glass and cement – the ingredients of economic activity.
After a lull in 2015 and early 2016, they’re all on the rise.
And of course that’s fantastic news for Australia – the country that produces a lot of the ingredients of economic activity. Thanks to a resurgent China, commodity prices are off the floor again – in fact they’re booming!
(I know right? I almost missed that news too.)
And if you look at our export volumes, they haven’t backed off at all from boom-time levels.
So boom-time prices plus boom-time volumes equals boom-time revenues.
(*sound of champagne popping.)
Remember what happened last time there was a commodity boom? If you missed out then, you might just be about to get another crack at the cherry.
Of course the big winners are going to be the resource states of WA and the NT. However, the investment is already in place so it’s not going to be a repeat of the previous investment boom. That was crazy. But nevertheless, it should be enough to put a floor under these markets to my mind.
So, all-in-all, the outlook for Australia is actually looking fairly sunny.
And you can see this shift in sentiment in the share price of our banks. The finance sector bankrolls economic activity, so when the economy does well so do they. They are also highly geared around property, so they’re also going to reflect property market sentiment.
And they’ve surged 15% since Trump’s victory.
It’s a massive vote of confidence in the economy and in our property markets.
Not that I’m saying that you should take the idiocy of the markets as gospel, but there’s no mistaking where sentiment is at right now.
The US is back. China is back. The Aussie economy is back.
And property is in the box seat.
How do you think 2017 and beyond will pan out? Are you buying property this year, selling or standing aside waiting?
ron goddard says
hmmm..my chrystal ball says many things jonno. we must wait until 20th january 2017 to see if the ‘lunatic fringe’ will cause some disturbance to the presidential inauguration of USA. many strange things are already in development mode.
one thing of many disturbs me about your article jonno. it is not possible for a 4.7% unemployment rate in america. there is a 49,000,000 american stamp collection going on. (receiving stamps..welfare, sort of out of work). now in a population of 320,000,000 is a percentage of 16+%. but thats only the beginning. many millions more are designated as not able to find work but don’t collect food stamps. most commentators in america put the figure of unemployment at over 25%. and remember the figures put out by any government agency are ‘massaged’ to suit the equation. get my drift? .and only a fool would dispute this. so by hook or by crook that ‘massaged’ figure of 4.9% will be told to the public, and whats more they will believe it!! to me the american economy is in a downward spiral, a sort of vortex of uncertainty.
realism or foolhardiness? depends which side you are on. now we all know that the world population is growing at almost breakneck speed. but with the riches coming faster and faster to the rich people there is less for the middle class or poor people. (tarp, monetary easing etc. that money went to the elite banks to balance their books and a mere trickle went to the public.) to make matters worse who is paying it back with interest to the fed? why the public of course via increased taxation etc. it must be the biggest con of all time and is to a smaller extent in australia too. the rich got the tarp money etc,.and then the public had to pay it back. and they reckon we are dumb:-) of course we are.
trumpie is playing it cool right now….but beware the might of the ‘deep state’. as we follow america almost in lock step or three bags full sir, we cannot pretend to escape any future consequences that my happen in uncle sam territory. invest in america? you would be better served taking your money to the toilet. at least there are no strings attached there. good luck with that one jonno.
steve says
Yep got a 2nd er here for the bullshit 4.9% unemployment
KiwiAl says
Hi Ron,
Happy New Year! Santa has obviously brought you a brand new lead for your pencil! Nothing like a bit of a break to sharpen the thinking. You’re in great form.
Couldn’t agree more, the poorer are getting poorer, technology is eliminating more and more jobs, so how is the unemployment rate ever going to go back down? Another commentator (has Jonno also said something on this?) is talking about how to prepare for a jobless future…
Only the geeks are going to be in real demand, to design the robots. Everyone else will become increasingly redundant, machines and robots will do the work, faster and more reliably (better, more consistent quality – just compare a machine weld to a human one), without complaining… Not to mention more cheaply.
The human species is not well known for looking after it’s lower income members, so how bright is the future really?
Jonno, are you still running the old paradigm of growth = prosperity? Isn’t that what Trumpie stood against – Drain the Swamp, etc?
Kathy says
Hmmm, yes, there’s a lot of optimism about the global economy. Even the IMF have revised their forecast upward for this year. That’s enough for me to be pretty much reassured that it won’t happen.
We seem to be forgetting the debt genie is well and truly out of the bottle now. Global debt is now much higher than it was during the GFC. Something like 79% higher is the figure I saw the other day. And of course “official” rates of anything are a farce and in no way resemble the “real” rates.
The smoke and mirror “growth” is not really based on any real productivity. It’s all based on debt.
Sure it might continue for a while longer. Maybe a long while longer. After all, as Keynes supposedly said, the market can remain irrational longer than you can remain solvent and I think the highs may continue for a bit longer, especially if the stock markets break through to new heights.
But these bubbles were created by cheap credit and debt and are out there looking for a pin. It’s a matter of when, not if.
By all means take full advantage of the asset price rises. Trouble is there’s nobody ringing a bell at the top and when everyone realises the punch bowl’s empty and the party’s over, the rush to the exits will be ugly. I’m in the market but with one eye very firmly on the exit.
As a contrarian, I like to think of Warren Buffet and John Templeton’s advice at all times. To be fearful when others are greedy and to be greedy when others are fearful.