This is a pandemic panic. Rate cuts aren’t going to cut it.

So the RBA cut rates last week.

No real surprises there.

As 2019 came to a close, I was saying my base case scenario was for one or two rate cuts in the first half of 2020.

… And then we had the bushfires.

… And now we have the Corona Virus.

And with the outlook for inflation and unemployment already too thin for comfort, and GDP this quarter set to print a doughnut, the RBA didn’t really have a choice.

But I actually think they’re behind the curve here.

And they’ve pretty much just got one rate cut left in the barrel now. After that, they can’t push rates any lower and they’ve got to come up with something else.

And so they’re out of ammo.

And for what?

What is 25bips going to do for us now?

Normally, rate cuts are meant to inject the economy with confidence. That’s what normally happens, but you want to talk about confidence? My local Woolies is still out of toilet paper!

People are getting in a flap about Corona Virus. They’re in a panic. And economically speaking at least, there’s very good reason for that.

The first round battered our tourism and education sectors. Now our major trading partners look like they’re on the verge of a shut-down.

And that’s all before flu-season in Australia hits.

There’s a lot of dark clouds and not much silver lining.

Oh no, there’s one silver lining. 25bps of rate cuts.

Thanks. We feel so much better.

I actually think the cut is wasted. I think the RBA should of held fire and kept its powder dry.

But it had to do something, so I think it should have jumped straight over to QE – Quantitative Easing – aka, money printing.

“Fire up the helicopter money, Phil.”

This is what a handful of countries have done already.

In Hong Kong, permanent residents aged 18 and above will each receive a cash handout of HK$10,000 (US$1,200.)

The government will also provide a guarantee on loans taken out by companies to pay wages and taxes.

In Macau, the government is giving residents shopping vouchers, while in Singapore, people will get between US$100 and $300 in a one off payment.

And over in New Zealand, they’re paving the way for their own QE measures.

This is what Australia should be doing.

This isn’t your ordinary, garden-variety confidence hit. This is a pandemic panic.

Time to nip it in the bud.

Fire up the helicopter, and start dropping money on people. Nothing says good times like free cash.

And drop off some toilet paper while you’re at it.

JG.

Economists just don’t know why this chart looks as scary as it does.

Is there a chart that keeps me up at night?

Now people sometimes call me a ‘Property Pollyanna’ – they say I’m always looking at the property market through rose-coloured glasses. Everything is always good!

But that’s not true. When I say it’s always a good time to buy, I mean it’s always a good time to buy a good deal, not just buy ‘anything’.

And while it’s true that right now the market is certainly going higher, and there are a bunch of factors lining up behind the property market, that’s not to say that it’s a one-way street, or that I’m blind to the risks that are out there.

Risks like this one. This is the one chart that keeps me up a night right now:

This monster is real household disposable income per capita.

Ok, there’s a lot going on, just in that title alone, so let’s unpack it.

Ok, so it’s household income. That is, it’s how much households, whether they’ve got one income or two (or three or four – I’m a modern guy), are earning.

It’s disposable income in the sense that non-discretionary items have been taken out of it. You don’t have a choice whether your going to pay your electricity bill or your rent, so this is the income that’s left after these things have been paid.

And it’s ‘real’ in the sense that it is adjusted for inflation. It’s what household disposable income would have looked like if the price of stuff never went up. It helps us understand how much purchasing power our income has.

Ok, so that’s what we’ve got: how much purchasing power do households have after they’ve paid for their essentials?

And what’s it telling us?

Well, this chart is telling us that household purchasing power hasn’t increased in 9 years! It increased solidly for 15 years (and for generations really, if we had the data), and then just hit a brick wall in 2011.

That is, households are no wealthier now than they were in 2011. And it doesn’t look like it’s improving anytime soon.

This scares me.

Why? Well, household income growth is essential for house price growth. This chart shows us how much wiggle room households have to spend more on their mortgage and bid up house prices.

Now, as I said, the outlook for property is still bullish. Falling interest rates increase purchasing power, regardless of what’s going on in wages, and the housing shortage means that people will pay more to secure a home, and then just cut back on other spending items.

So prices will keep going up.

But the wages and income data are still concerning.

The other thing that’s strange in all this is that economists don’t really know why wages aren’t increasing. The economy’s been doing ok. Wages should have been going up. Ross Gittins at the Age sums up the general confusion here. Maybe it’s decreasing Union power. Maybe it’s the unwinding of the mining boom. There’s no clear answer.

This is both concerning and comforting. It’s concerning that we have such a blindness around such an important part of the picture, but it’s comforting in the sense that mysteries in economics don’t tend to last long – they correct one way or the other.

So my base-case scenario is that wages and household income start to pick up in the near future, and that will add support to house prices.

But I can’t say with any certainty when that will happen.

And until then, this chart remains just downright scary.

JG.

Some incredible charts on what’s happening in China right now.

So the Coronavirus seems to be dragging on in China.

The Chinese government is saying that they’re close to being on top of it, but you know, I wouldn’t trust the CCP as far as I could throw the people’s plenary. Chinese data is notoriously dirty at the best of times, and I doubt virus numbers are going to be an exception.

But we do have this mind-blowing chart:

Look at those sales numbers! The entire property industry has been laid out on the mat.

People just aren’t buying.

Why?

Because people just aren’t moving.

Real estate offices, like most of the country, remain in shut-down.

And The New York Times reckons that half the population is facing strict travel restrictions:

At least 150 million people in China — over 10 percent of the country’s population — are living under government restrictions on how often they can leave their homes, The New York Times found in examining dozens of local government announcements and reports from state-run news outlets.

More than 760 million Chinese people live in communities that have imposed strictures of some sort on residents’ comings and goings, as officials try to contain the new coronavirus epidemic. That larger figure represents more than half of the country’s population, and roughly one in 10 people on the planet.

China’s restrictions vary widely in their strictness. Neighborhoods in some places require residents only to show ID, sign in and have their temperature checked when they enter. Others prohibit residents from bringing guests.

But in places with more stringent policies, only one person from each household is allowed to leave home at a time, and not necessarily every day. Many neighborhoods have issued paper passes to ensure that residents comply.

In one district in the city of Xi’an, the authorities have stipulated that residents may leave their homes only once every three days to shop for food and other essentials. They also specify that the shopping may not take longer than two hours.”

One in ten people on the planet effectively under house arrest! Wow.

And the CCP is saying that China has gone back to work, but that’s not what the data shows.

Road congestion data suggests that the roads are empty:

While daily trip numbers haven’t bounced back after the New Year holidays:

Suggesting this year is wildly different from past years:

As a result, Nomura estimate that only 20% of the workforce has actually gone back to work:

So no wonder property sales have tanked. Who’d be buying property when all this is going on?

But without volumes, prices are going to have to fall. Developers with stock on their books can’t wait forever for conditions to normalise. They’ve got debts to pay.

And so we’re already seeing sales incentives being rolled out:

China’s leading property developer Evergrande Group announced Sunday it is set to launch great incentives to lure domestic consumers via online subscriptions starting Tuesday, and an analyst said such a “self-rescue” promotion would attract more industry followers and help shore up the sluggish domestic housing market in February amid the novel coronavirus outbreak.

Evergrande plans to offer 25 percent off for consumers who purchase housing units, including apartments and office buildings, from Tuesday to February 29.

The discounts will continue and be adjusted to 22 percent off from March 1 to 31.

It will be the largest incentives the firm has offered in its business history, Liu Xuefei, vice president in charge of sales with Evergrande, told an online meeting on Sunday.

A “self-rescue” package. That’s cute.

Anyway, I think this is an interesting case study in how a disease epidemic can affect the property market.

It could happen in Australia too.

The key transmission mechanism is volumes. The real estate industry needs a minimum amount of trade to support the new-build sector.

If that trade dries up, it’s only a matter of time before prices start to fall.

Here’s hoping that it never happens here.

JG.

There’s a few achievements that I’m quite proud of, but none as much as my marriage.

How do you make a marriage work?

Today’s post is dedicated to my loving wife, my tireless life partner, Connie. Happy Valentines Day, babe.

I don’t know if people realise she’s been with me in the business since day dot. And not only did she raise an amazing business with me, she also raise three amazing kids and an amazing man in me. She helped me cross over that threshold from self-indulgent teenager to a man in his full maturity.

Who knows where I would have ended up with out her.

And not only did she perform these three minor miracles, she did them all, all at the same time.

She’s an inspiration.

And I wanted to make a little bit of a fuss this year because Connie’s birthday is on the 16^th. It’s like those poor kids born around Christmas time, who never get a real celebration for their birthday.

Our birthday and Valentine’s Day dinners long ago merged into the same thing.

So maybe this little post helps make up for that.

Anyway, so just how do you make a marriage work?

This is something I get asked every now and again. And look, I dunno. I’m a bit out of my comfort zone here. I’m on solid ground when I’m talking about wealth and self-education, but love..?

But hey, that’s never stopped me before. Let me have crack.

Ok, the first thing I’m feeling to say is that I think most people get love and marriage wrong because they just haven’t defined the problem properly.

Take love. Oh boy. Have we just led ourselves right up the garden path when it comes to love.

Yes, there is a love that is a teenage love, that is a Hollywood Rom Com love, that is a pop-song (I can’t live without you and I’m going to poke out my eyes if you leave) type love.

That exists. The trouble is that we’ve become so focused on this love – (and I get it. When you’re in this stage of love, it’s like being on drugs.) But we’ve focused on this stage of love at the expense of all other types of love.

And that teenage love is meant for teenagers. It’s meant to form bonds. It’s meant to push you out of your comfort zone and get you taking risks. It’s meant to give you a break from being relentlessly inwardly focused.

It was never meant to carry you and your partner for 80 years down a long and bumpy road called marriage.

So you’ve got to give space for a different sort of love – a love, for me at least, that is built around seeing and being seen.

That is, it is about learning to see someone deeply and truly – seeing through all the superficialities, and insecurities and whatever else it is might bother you, and seeing the essential being beneath. It’s about seeing that person, and celebrating that person for who they truly are.

And when you have someone who can do that for you in return – when you have someone who has been through enough rough and tumble with you that you feel safe enough to let your most essential self be seen – then you are seeing and being seen, and then you are in a love that is deep, enduring, and endlessly nourishing.

This is what we should be aiming for… I reckon.

I also think people have the wrong idea about what a marriage is.

To most people, a marriage is the perfection of that teenage love. It is that heady infatuation taken to its completion point.

But if that’s true, what can possibly come next? Nothing but the gradual failure and degradation of that ‘perfection’.

Much better to see a marriage as a commitment to journey together. I think this was easier to hold when the need for a travelling companion tapped more into our instinct for survival.

If you didn’t have a partner sharing the work of gathering resources or raising children etc., then there’s be a good chance you’d die.

That kind of reality could give a marriage a lot of legs.

And so our challenge now, in this day and age, is to find a shared journey and keep it front and centre in our minds.

The first part of that journey is love, seeing and being seen, and a commitment to grow into and explore those depths together.

After that… well, it can be anything. I love having Connie in the office with me, and it’s not just so we can play naughty secretary, but it’s because we’re on a journey together. We’re building the company, we’re growing our wealth, and we’re exploring all the richness that has to offer our lives.

This is something you and your partner have to figure out for yourselves, but I will say this, in my experience, there’s nothing as juicy as shared sense of journey.

So there we go. That’s my advice to young lovers. Get clear about what love actually is – and explore this idea of a ‘seeing and being seen’. And then define a shared journey for yourselves.

I think if you can do these two things, you won’t go too far wrong.

Happy Valentines Day, lovers.

JG

The corona panic gives us a fascinating insight into human nature and herd psychology. Here’s 7 take-aways:

So there’s a bubble in hand-sanitiser right now.

Yep. Thanks to panic around the Corona-virus, which hasn’t claimed a single life in Australia, The Age is reporting that demand for hand-sanitiser has mushroomed, and prices have doubled!

Is there any evidence that hand-sanitiser is effective in stopping the spread of Corona-virus? No, not really. Is there any evidence that using hand-sanitiser is more effective than washing your hands with soap? The Victorian Health Department doesn’t think so, so long as you wash your hands for a good 20 seconds.

But none of that matters.

Corona-panic is here! It’s practically the same as zombies invading the mainland. Only hand-sanitiser and face-masks can save us.

Now, I don’t want to trivialise the corona-virus. It’s now killed more people than SARS, and we do need to remain vigilant for the next global pandemic.

And I certainly don’t like the exponential shape of the chart of total cases in Hubei province:

But, the spread of corona-panic is eclipsing the spread of the virus itself ten to one.

It’s one of the reasons why I’m not going long face-masks or hand sanitiser. In fact, there’s probably money to be made short-selling them.

After the SARS outbreak – a price spike in face-masks caused a flurry of new face-mask production. After the virus petered out, leaving a glut on the market, the price of face masks collapsed from $1 each, to less than 30 cents.

But I do think that this is giving us a very interesting insight into herd-behaviour, panics, and bubble behaviour.

There’s seven insights I’m drawing from the current panic:

1. Seed of truth

All bubbles and panics have a seed of truth. The tulip bubble was based on strong demand for tulip bulbs. The dot-com boom was based on the revolutionary power of the internet. These things never come from nowhere.

2. Immediacy

Bubbles and panics need to impact your immediate reality to take hold. If the corona virus was something that potentially gave you cancer and killed you in 30 years, we’d probably just shelve it along with other problems like our retirement nest egg and that weird mole on our fore-arm.

The idea that you could be dead within the week really focuses the mind.

3. Panic short-circuits our rational responses

Once panic has taken hold (or FOMO in the case of a bubble), our rational responses are sidelined. We’re wired to fight or fight, not stop and think.

If people did think about it, they would realise that the risks to Australia are still minimal, and even if they did escalate, a sock would be a pretty good substitute for a 50c face-mask. But they’re not thinking about it. The fight or flight response has taken hold.

4. Very visual

Part of the corona-panic’s viral nature is based on its visual impact. Footage of Chinese nurses in full-body haz-mat suits, or that one guy lying dead on the side of the road give us something to latch on to.

5. Primed in the collective consciousness

I think, in Australia in particular, we are primed for a virus outbreak. Every flu season we see ads for virus protection, and we’re pretty obsessive about our anti-bacterial surface cleaners etc.

We are well-trained to be scared of viruses.

6. A sense of “we’re due”

The other thing that the Corona-virus taps into is a belief that another global pandemic is only a matter of time. It’s been a long time since the last plague, but no one believes that we’ve banished that evil for good. It’s only a matter of time, and it simply becomes more and more likely with every passing day.

7. We want it to happen

This is probably the most controversial, but I think we want it to happen. Not that we want specific individuals in China to die or anything, but as long as it remains abstract – as long as it’s affecting people we don’t know in places we’ve never heard of – then it’s a bit exciting. It’s the same it we get from horror or action movies.

Not that I think anyone would ever admit this, but the prospect of a global pandemic gives us a bit of a thrill… so long as we’re pretty sure we’ll be one of the survivors. And that gives the story legs.

People are stupid

Now, we could file this under the general heading of “people are stupid”, in a manila folder that is full to over-flowing, but that’s not really the point.

Humans are complex and messy animals, with instinctual programming that isn’t well suited to handling the complex problems of the 21^st century.

Weird outcomes like the corona-panic are just one of the manifestations of that glitch.

Now, I’m not looking to make money on this particular case of stupid, but I am always ready to play the herd when the herd starts moving.

It’s one of the safest bets in the market.

JG

Some things never go out of fashion – like Australia’s housing shortage.

Ok, what does the year hold for the Australian property market?

Now you can get tangled up analysing all sorts of factors, but at the end of the day, you’ve got to remember that it all comes down to supply and demand.

The supply and demand framework is simple but it’s incredibly powerful. It’s famous for a reason. It works. And if you can keep your thinking anchored in supply and demand, you can’t go too far wrong.

So let’s break it down.

DEMAND

First, let’s have a look at demand. We can think about housing demand as a function of the number of people in the country, and how much money they have.

On the first front, the Australian population continues to grow strongly. We have one of the highest population growth rates in the OECD. As the chart below shows, population growth remains well above it’s long-run average.

I’d like to tell you that’s because we’re having more babies, but it’s not. It’s largely due to our immigration program, which is also one of the largest in the OECD, relative to our population.

That means that housing demand is going to remain elevated, purely on a population basis.

But as I said, it’s also about how much money people have.

On that front, credit conditions continue to ease. APRA continues to walk-back the tight restrictions they introduced in 2016, and the banks themselves are shaking off the freeze that followed the Hayne Royal Commission.

We’ve also had a string on interest rate cuts, with another one likely in the first half of 2020.

With unemployment remaining low and wages steady, that means there’s been a decisive lift in how much money people have to spend on housing.

Put that together – strong population growth, and fat pockets – and housing demand will be strong – definitely relative to the last couple of years.

SUPPLY

On the supply front, 2020 looks to be a challenging year.

Detached housing remains constrained by the availability of greenfield sites, and people are now talking about a ‘construction bust’ in the high-rise sector.

We did have a boom in high-rise apartment construction through the second half of the last decade, but in 2019 high-rise construction approvals started to tank. This was driven by a tighter credit environment and the exit of some big foreign developers.

What’s worse, the high-rise sector remains beleaguered with quality control issues. The number of cracked buildings with structural faults points to something systematic, and the prevalence of flammable cladding is nothing less than alarming.

If this stock gets taken off-line for remediation, supply constraints will become even tighter.

But whatever the case it is clear that supply will be lower in 2020 than in previous years.

THE BALANCE

Put them both together and it’s not hard to see why prices will continue to rise into 2020. Demand remains strong, and is accelerating. Supply remains constrained, and is contracting.

That’s a recipe for price growth.

And the figures from the Urban Development Institute for Victoria are typical. They show that after a brief period of excess supply in 2018, the market has now gone back into shortage.

It will get worse in 2020.

This shortage has persisted for years now, as supply has struggled to keep pace with consistently strong population growth.

And this, more than anything, is why prices have grown as much as they have…

… and why they’ll keep growing into the foreseeable future.

JG

Have you ever thought about oysters. I mean, REALLY thought about oysters?

If you’re feeling life is tough these days, remember, you could be an oyster.

No seriously. Well, not in the sense that you could actually be an oyster. That’s probably not going to happen.

But there is definitely something to learn from the humble oyster.

I remember one time I was by the ocean in Greece, walking along the cliffs. I looked down at this particular point, and I could see all these oysters clinging to the cliff’s edge, either side of the water line.

And I got to thinking, man, what would life as an oyster be like? Think about it. You’re clinging to a hard rock face for dear life, as waves come in and out, each one battering you with water and sand and shit.

*BAM!

And after each waves comes in and pummels you against the rock, it goes out again, sucking you off the rock edge, like some sort of vacuum cleaner on curtain lint.

And this happens every few seconds. Smash, suck. Smash, suck. Smash, suck. Night and day. Day in, day out.

And this relentless pummelling is your baseline reality. It’s not something that happens to you now and then. It’s constant. Sure, some days it’s worse. Storms roll in and the waves become ferocious. Other days it’s not as bad. But still, pummel, pummel, pummel. That’s your life.

And you think you’ve got it tough.

Of course, the oyster is well-adapted to this reality. It has a shell.

It’s has a tough outer shell to protect it from the hammering waves, while the soft business of oyster life goes on inside.

… Now that we’ve come this far, watch me try and pull off one of the ballsy-est metaphors in the history of blogging.

You are an oyster, and the waves are…

… wait for it…

… your heart.

*boom.

Humans have an intense emotional life. Like, super intense. Our minds are now able to expand out over staggering horizons. I can tune in to the war in Syria. I can tune into the reality of people who have lost their homes to bush-fires. I can feel the sadness of people who have lost children to school-shootings.

And that’s not to mention my immediate emotional reality. The death of a loved one. The frustration of a failing relationship. The dull-ache depression of a life going nowhere.

Pummel, pummel, pummel.

Our lives are constantly being battered by a relentless emotional reality.

So what do we do?

Oyster up.

Or more specifically, embrace your oyster-ness.

Just as the oyster has developed a shell to protect itself from the battering waves, I think humans also have a shell that protects the pure life within from the pounding of their emotions.

The trick is to bring our awareness within the protection of this ‘shell’. If you are still enough and quiet enough, you can find a place within you where the troubles of the world – and all the grief and the sorrow your heart feels – can’t touch you.

A soft squoosy centre – the essential centre – where the magic of life happens.

This is something we all have, but we let our awareness spend too long outside the shell, where the battering of our emotions becomes horrific after a while.

So that’s what I reckon.

Come inside the shell, and find your peace.

I think I’m going to take on the oyster as my spirit animal. I might get one tattooed on my ankle….

… with some fancy cursive font beneath it…

“waves happen”.

JG