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RBA: “We’re happy to inflate house prices”

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The RBA has changed its tune. Look out.

Rates are going to get cheaper.

That was the key take-away from a speech from the RBA Governor Phil Lowe last week, which I’ve seen at least one commentator describe as “the most dovish speech ever.”

(If you’re new to the lexicon, dovish means inclined to rate cuts, hawkish means inclined to rate hikes.)

So yeah, it seems pretty clear to me that the RBA will cut rates a fraction lower at their November meeting, they’ll extend the TFF (cheap money for banks), and maybe even try and crunch the longer end of the yield curve.

That is, our super cheap money is about to get even cheaper.

But I’ll talk more about that, but there were a few interesting things in his speech I wanted to pull out.

First, I noted last week that the Covid crisis is having a disproportionately strong impact on small and medium sized businesses.

The RBA actually has clear data on that, which shows the huge hit to SME revenue, while big business has largely sailed through the crisis unscathed, and then saw a big bounce in sales once the money started flowing into the system. 

(I’m sure they’re going to hand back all the money they took in Jobkeeper. That’s totally going to happen.)

The other thing ol Phil noted was that even though incomes are holding up, households have bunkered. Consumption has tanked and savings have spiked to the highest level on record.

As he notes, the really interesting question is what they do with all that money once the crisis passes. Might make for a nice deposit on a house, for example.

He also notes that part of that saving spree is heading in to mortgage and offset accounts, as people pay down debt.

And he also notes that even though our government debt has exploded, it’s still pretty small in the scheme of things.

So, we can be relaxed about that.

And we can be extra relaxed about it because the RBA is just buying up all the debt anyway, as their balance sheet doubles:

But the key take-aways were around the direction of monetary policy.

First up, they now reckon that more rate cuts could be useful:

When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing. The solutions to the problems the country faced lay elsewhere. As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier.

They’re also pretty relaxed about the potential for super-cheap money to create asset-bubbles.

A second issue is the possible effect of further monetary easing on financial stability and longer-term macroeconomic stability. This is an issue that we have paid close attention to in the past when we were considering reducing interest rates in a relatively robust economic environment… To the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans. In so doing, it can reduce financial stability risks.

That is, we don’t mind inflating house prices, so long as people have jobs.

So that’s why it’s a super-dovish speech.

The economy is still struggling. More rate cuts will be useful. We don’t care if asset prices inflate.

Let’s get this party started!

JG

No B.S. Friday: Slaying energy vampires…

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I haven’t been taking enough care with the company I keep. I need to follow this advice.

Be careful who you share your soul with.

Not everyone is going to get it. 

Not everyone is going to see the vision you have. Not everyone will be able to see it all coming together, you – in the full richness of your life, your dreams taking shape in the wake of your hands. 

Not everyone is going to be able to see that. 

They will say your crazy. An idealist. A dreamer.

I’ve heard it all before. 

And not everyone is going to be able to support you in your dreams, even if they can see what you are trying to create. 

To many people, your success is scary. It’s a challenge to the victimhood stories they are telling themselves – the mythology of a horrible universe where there’s never enough and there’s no possible way to succeed. 

People need those stories. Otherwise they’d be forced to take responsibility and forced to take action. 

They’d much rather see you fail. They’d much rather talk you out of your dreams than actually have to do anything with their lives. 

You don’t need that. 

I really mean that, you don’t need that in your life. Nobody does. 

And you know who they are. It’s like they pull a plug in your belly, and your energy just drains away whenever they are around. 

Keep these people at a distance. Don’t share your soul with them. Don’t invite them into your inner world. 

You have enough on your plate with your own fears, your own insecurities, your own doubts. 

You already have the fight of your life on your hands. You need every ounce of energy you can muster. 

There’s no room for energy vampires. Keep them at a distance.

And careful the company you keep. 

No B.S. Friday: Love the cold.

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Exactly. No point crying about it. If you don’t think you have a choice you need to see this. 

I was on a ferry from the Greek mainland out to one of the islands, and I ended up chatting to a Norwegian fellow. He said that he loved ice-fishing – it was one of his favourite things to do.

Personally, I couldn’t imagine anything worse. Out in the freezing cold, standing on a big block of ice, just waiting around for hours and hours, like a penguin at a bus-stop.

It would drive me mental. 

But you know, I try to keep it polite. 

“Sounds like fun,” I say. “But how do you handle the cold?”

He says, “It’s not so bad. When I was young, maybe 4 or 5, my father took me ice-fishing. It was freezing. I started to cry but my father said, ‘look, you’re here now. You can either spend the whole day crying about it, or you can learn to love the cold. You’ve got a choice. You can either choose to be miserable, or chose to love the cold.’ And so that’s what we did. We just learned to love the cold.”

To me this is life in a nut shell. 

Existence is suffering. You have a body that breaks down and eventually wobbles its way into poor eyesight and wetting your pants. You have more dreams than can ever be realised, and you heart will be broken again and again and again. 

Life is suffering. The world is a hard place. 

But look, you’re here now. You can spend your whole life crying about it if you want to – how you’ve had to suffer from this or that, been on the receiving end of this or that injustice, seen your love ones betray you and pawn your antique golf clubs to buy breast implants. 

We’ve all been there. 

If you wanted to spend the rest of your days having a massive sook, you’d have every excuse. 

I give you permission. 

But is that what you really want to do?

Because you have a choice.

You can choose to accept the suffering that is your lot, and just see it as the entry price to Amusement Park Earth. 

That’s what I do. 

You can just choose to see every sling and every arrow and just another experience, another pattern in the rich tapestry of life.

Scars are the consequence of a life well lived. 

You can choose to take every blow that’s coming to you, and just have a flipping good old time anyway. To dance and laugh and live fully. 

That choice is yours. 

So what’s it going to be, penguin?

No B.S. Friday: DON’T GO BACK TO SLEEP!

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He’s right. Sleep is easier. No wonder so many people are into it.

What’s the first thing that happens when you wake up?

You probably feel grumpy, disorientated. Maybe you’re angry at whatever it was that woke you up – your partner, your alarm clock.

You were in a lovely dream-world. You were at rest. The needy demands of your body were quiet.

But now you’re awake. And now they’re here, at full volume – the ache in the back, the knees, the hunger, the feelings of inadequacy…

…the listlessness around your ankles like lead.

Things were better when you were asleep weren’t they?

Growing up is a journey of a 1000 waking ups.

At every stage of our growth, we have to wake up into a new way of being, a new understanding of the world.

We must wake up and realise that our parents don’t control the world and can’t protect us from everything.

We must wake up and realise that we are not the centre of the universe and we have to work hard and support ourselves like everyone else.

We must wake up and see that ideals like justice, fairness, reason – the world has a passing commitment to these at best, and it’s nothing less than a miracle that the human race keeps it shit together at all.

And then there is the greater waking up…

But each time we wake up, it’s the same. We’re disorientated and agitated. We’re angry at whatever woke us up. We long to go back to sleep.

It’s not easy. It’s why some many people choose sleep…

… their whole lives.

But if you are seeing this video, then you are probably walking the path of courage. I congratulate you for that.

And I wish you strength, because sleep is a lot easier than what you’ve got in store for you.

And I wish you a good sense of humour, because everything is about to start looking pretty odd.

And I wish you companionship, because it can be lonely too.

But you’re not alone. There are many people doing the best they can to live courageously and consciously.  Cherish them when you find them.

But this above all, don’t go back to sleep.

When the alarm clock in your soul starts ringing, answer.

… however hard it feels.

No B.S. Friday: THE TRUTH: It’s no an accident

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I’d never noticed before but he’s right. They’re using pity to control us.

The world has a massive double standard.

And it’s the difference in the reaction we get when we celebrate ourselves, and when we feel sorry for ourselves.

Imagine two scenarios.

In the first, you’re standing on the seats at the train station, pumping your chest like some kind of Conan the barbarian, singing your own praises.

“I am really good at my job. I am dependable friend. I am a loving and attentive father and I have nicely defined calf muscles.”

You’ll probably get locked up, right?

Now imagine you’re at the train station again, but you’re complaining about how hard your life is.

“My back is continually sore. My children never call me. I’m behind on my mortgage repayments and I can’t eat muffins any more because they give me gas.”

What happens? Probably nothing, right? It’s actually pretty normal.

We live in a world where self-pity and feeling sorry for yourself is totally normal, but feeling great about yourself and outwardly celebrating yourself is treated as strange, almost pathologic.

That’s an interesting double standard, right?

But let me ask you this. Which one of these is more useful to you – which one puts you in a better state of mind, is more attractive to be around, and helps you get more done with your days?

Self-worth or self-pity?

And let me also ask you which one is more useful to the powers that be? Which one makes you demotivated and compliant, de-energised and cynical, disempowered and apathetic?

Which one makes you a better cog in the machine?

Self-worth or self-pity?

This double-standard is not an accident.

You are not here to be small and I don’t want to hear you complaining about how hard your life is. Don’t give in like that.

Create a discipline around celebrating yourself – around recognising your strengths and allowing yourself to just feel good about yourself.

It’s a simple act.

But it’s one of the most revolutionary things we can do.

No B.S. Friday: Right and Wrong? IT’S ALL A LIE!

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Ha! He just flipped this old philosophical problem on its head!

There’s a popular thought experiment in philosophy called ‘The Trolley Problem’.

Basically, a rail car is hurtling down a track, on course to kill 5 people. You have the power to switch it on to another track, where it will only kill one person. Should you do it? Should you kill one to save five?

What is the ‘right’ thing to do?

The trolley problem first surfaced back in 1905.

And we’re still talking about it.

More than 100 years later, philosophers are still debating it, writing endless essays and journal articles on all the nuances of moral obligation.

It’s been going on for so long that the Trolley Problem even has its own Facebook group!

And this isn’t just a thought experiment to entertain scholars. Soon, autonomous vehicles will be everywhere. What do we tell them to do if given the choice between ploughing into a school bus or swerving on to the curb and killing a pedestrian?

Someone’s got to program that.

For me, I think the reason why the trolley problem is so hard is because we’re making the job too difficult for ourselves at the get go. We start with the assumption that there is a ‘right’ and a ‘wrong’ thing to do.

Right and wrong only exist in abstraction. Like in maths. 2 + 2 = 4 is ‘right’. 2 + 2 = 7 is ‘wrong’.

But the world is not abstract. The world is complex. So this need we have to cling to simple ideas of right and wrong is like trying to cram a square peg into a round hole.

It says more about our inability to deal with complexity than it does about our wonky moral compasses.

And the tragedy is that we bring this need for simplicity into our daily decisions. What is the right thing to study? What is the right career to choose? What is the right way to invest?

Who should I marry?

There’s no right or wrong answer here because, in reality, these aren’t right or wrong questions.

They are complex. They can be considered from different, sometimes competing perspectives, you rarely have all the information that is relevant, and you often don’t know what you would actually prefer if you really got down to it.

You just don’t know yourself that well.

It’s just complex, and you can bend your head if you spend too long trying to figure it out. And you can waste precious years if you spend too long trying to figure it out.

Such a waste.

What I think it means is that we’ve got to be ok with just doing the best we can.

Do some research, but then just pick your career, pick your investments, pick your partner, and just make it work.

This is where the living is – in just making it work.

And this is where the richness of life is – in the bewildering complexity of life, feeling yourself bundled along by forces much greater than yourself.

So let go of your attachment to right and wrong, it doesn’t serve you, and step into a state of action-driven wonder.

Party? They’ve got no idea what’s coming

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This economist reckons the housing party has already started.
That’s not even the half of it.

Did you get your invite to the house price party?

It’s going to be sik. House prices’ parents are away for the weekend and it’s gonna go off.

Hang on… wait. What do you mean it’s ‘already started’?

That’s a question for the Australian Financial Review’s economist Christopher Joye. He is one of the best in the game. And last week he reckons everyone is being too pessimistic, and that, actually, “the housing party is just getting started”:

“House prices are climbing again in some areas with Melbourne home values up 0.1 percent in June in what is the first capital gain the city has recorded since November 2017. 

According to CoreLogic, Sydney has also experienced its best monthly result (-0.1 percent) since July 2017 while the overall five capital city index is similarly signaling the correction is coming to an end.

This confirms our April 2019 forecast that the housing downturn would end if the Reserve Bank of Australia cut rates and we retain our May projection that national prices will climb 5 to 10 percent over the 12 months following the second RBA rate cut. 

The bottom line is that with more cuts coming, and APRA yet to reduce its 7 percent serviceability test, the housing party is just getting started.

This is pretty similar to what I’ve been saying for a while now, though perhaps I haven’t stuck my head out quite so far.

I still think we could see things be fairly flat through to the end of the year.

But there’s not much point quibbling about the timing. Joye sees what I see. The market cycle has clearly turned. Momentum is with house prices now.

The other thing that Joye flags is something else I’ve pointed to: banks find it tougher in an ultra-low interest rate environment. It squeezes their profit margins and they make less money.
 
And that means that as the RBA drives interest rates towards their lower bound of 0.5%, the banks will find it increasingly hard to go with them. They’ll have to hang on to more and more of each cut.
 
… meaning that each time, the RBA gets less and less bang for their buck.
 
It is, as a result, plausible that the RBA gets less than two-thirds of the lending rate reductions it would normally expect from a brace of standard cuts.
 
…That immediately introduces the need for a third cut, which may be why financial markets are pricing one in by the end of the year. The problem, of course, is that the RBA will get even less pass-through at that time, perhaps as little as 5 to 10 basis points.
 
…This presumably explains why RBA governor Phil Lowe is suddenly talking about the “limits of monetary policy” and expressing a desire to see fiscal policy furnish more support. 
 
Yep. The limits of monetary policy. Interest rates can only go so low. After that, you’re into unfamiliar territory for Australia. We never saw the money printing that happened in America and Europe.
 
But it will be our turn soon. The political capital is building for this kind of spending spree.
 
(I've written about this before too.)
 
So it will be rate cuts followed by helicopter money that sloshes straight into asset prices.
 
The ones who saw this coming in America made a Motza.
 
Now it’s our turn.

No BS Friday: Before you make a decision

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Do you wonder why you make bad decisions? This is the answer.

Have you ever made a bad decision?

That’s ok, everyone has.

But do you know why you made a bad decision?

That’s a really interesting question.

A lot of people look back at the really bad calls they made in life and they’re like, “Wow. What was I thinking? I don’t even know why I did that.”

I reckon the answer often comes down to stress.

Stress is an epidemic. Most of us are stressed out of our eyeballs and we don’t even realise it.

But you can’t make good decisions when you’re stressed.

Because when you’re stressed, your fight or flight modes are activated. You’re on edge, in a situation you want to get out of, either by punching your way through or turning on your heels and running for it.

And that means you are looking for an immediate solution.

But what if the problem doesn’t require an immediate solution? What if the problem requires a considered response and a carefully chosen strategy, diligently executed?

No! No time for that. I’m stressed. Just get me out of here.

And so we’ll back long-shots and crazy plans. Or we’ll burn bridges with people that shouldn’t be burned. We rush it just because we want to get away from the discomfort of our current reality.

Psychologists call it ‘The Hail-Mary bias’.

And it affects all us… when we’re stressed.

And we’re all stressed.

So if you want to set yourself apart from the pack, give yourself an edge, learn how to de-stress yourself before you make decisions… or before you do anything really.

I don’t care how you do it. Meditation, running, snorting incense… whatever works for you.

But if you can make decisions from a clear and calm centre, you will totally change the trajectory of your life.

And you will live a life that most others could only dream of.

No BS Friday: You are at war

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You are at war. 

Make no mistake about that. You are at war, and if you want to achieve your full potential – to live the rich and beautiful life you know is possible, then you have to fight. 

Nothing will be handed to you on a platter. Your enemy is strong and clever. Your enemy is cunning and ruthless. 

But this is the thing. The war is not out there. It’s in here. 

And the enemy is not out there. The enemy is you. 

Success has nothing to do with conquering the world. That’s just nothing but logistics. 

Success is about conquering yourself – conquering lazy, conquering timid, conquering pitiful. 

And it sounds easy until you actually meet that enemy in the field. And you see how tricky they are. You see how relentless they are. 

And you see how, just as you stand on the cusp of your achieving everything you’ve been fighting for, your own mind will come from behind you, and drive rusty blades into your hamstrings. 

And as you watch everything you’ve built go up in flames around you, you must face this bitter truth as well – that it was your own mind who betrayed you. That you have no one to blame but yourself. 

This is hard. Bitterly hard. And it’s why so much human potential goes unfulfilled. 

And so the first battle you must win is with your own mind. Minds are truly marvelous machines, but you have to take control. Submit to the disciplines and the practices that will give you this control, whatever they are. 

Because if you win this battle here, the war is yours. From that point on, success is nothing more than arranging pieces on a board. 

Go within. And slay the enemy you find sleeping there. 

No B.S. FRIDAY: The One Key to UNLEASH YOUR POWER

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Now THIS is the key to real power in the world.

You are a powerful being.

But all that power is useless if you don’t know how to use it.

Most people seem to think the success journey is about becoming more powerful. It’s about learning new skills, become more efficient, more effective. Learning how to bend the world to your will.

And it is. But that’s not all it is.

Think about it this way. Imagine you have an old Datsun car. Now you strap a booster jet from a military cargo plane to it.

That car just got a tonne more powerful.

But will that power do it any good? Power is just dangerous if you don’t know how to handle it.

Or imagine you want to go to an awesome Vietnamese restaurant across town. You’re trying to figure out how to get there and you’re friend says, lets put some extractors and a supercharger on this thing. Make it fully sik.

Again, that will give you more power, but power wasn’t your problem.

If you don’t know where you’re going, more power just means you get lost more quickly.

This is true in all things.

It’s not enough to focus on your skills, your techniques, your strength. It’s not enough to focus on the things that give you power.

We also have to be constantly cultivating wisdom. We have to be cultivating the awareness and maturity that will help us navigate through life. We have to know where we are going.

And the only way to do this is to live. To live broadly and courageously. Seek out new experiences, meet new people, take on new challenges.

Be playful, brave and be constantly curious.

This is the discipline of power. Wisdom is nothing but experience made conscious.

And it is wisdom – wisdom is the key to realising the promise of the power you already possess.