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RBA rates decision, Trump and housing
Rates Day. The new research analysts Ali and Edison have both been eager to provide some information about the RBA’s rates decision. It’s been interesting to chat with some of the younger generation about their views of the future. Recently, I had a chance to speak to Sparky’s son Ricky (18), Edison and Ali (20), and my brother-in-law Tony (30) about their views of the future. They are all good, respectful young men who are keen to improve.
What was remarkable was the high degree of alignment between all their views, which gives us a tiny window into the zeitgeist. They all expressed concern about how they would make enough money to get married, buy a house, and afford to have children. I had the same thoughts at their age, although the situation is more dire now than ever by any objective metric. It all points back to a fundamentally broken monetary system favoring the wealthy.
Despite being the second richest country in the world per capita (after Luxembourg), only 20% of Australians now believe that their children will have a better future than they will. This was down from 27% in 2022. What’s more telling is that the same pattern is evident in most of the wealthy countries in the world.
In some ways, this reflects the changing world order, with the rise in living standards of countries in the BRICS and other countries of the global south and the declining power of the older empires in the global north. It also reflects our monetary order as the age of the US empire gets closer to the end than the beginning. As always, the solution is to be born wealthy; failing that, the next best solution is to own assets, and the earlier you can start, the better.
This brings us to Donald Trump. Steering a failing, debt-laden empire that parasites have overrun to a soft landing is an incredibly difficult job. He has campaigned on bringing a close to the endless foreign wars the US has become entangled in, but he’s swimming in a sea of neocon sharks ready to undermine him. His biggest weakness is likely that he’s an American and ignorant about the rest of the world, which makes him easy to manipulate. A great war has marked every decline of a hegemon as the waning empire struggles to hold onto power. I hope that Trump can make good on his promises and avoid this tragedy, but getting into the White House has suddenly turned every president into a warmonger somehow.
“The old world is dying, and the new world struggles to be born: now is the time of monsters.”
Antonio Gramsci
While the conflict in Ukraine seems to be close to ending, the US-backed Israeli bombing of (largely civilian) targets in Palestine has resumed in full force. On top of this, the US has bombed Yemen for attacking Israeli ships in the Red Sea in protest of the treatment of Palestinians. Bombing Yemen has historically been an exercise in futility. The Saudis already bombed them for 10 years straight, only for them to emerge stronger. Moreover, we are quickly learning that asymmetric warfare with drones and hypersonic missiles has made force projection using aircraft carriers increasingly obsolete.
The global risk here, other than the humanitarian crisis, is that the US/ Israel’s real target is likely Iran – the most powerful military force in the Middle East. An attack on Iran has a real risk of escalating into WW3 as the Russians have a security agreement with them. Based on the reports of former US Colonels, the only way to attack Iran’s missile bases hidden under mountains is with a nuclear bunker buster. Of course, a nuclear attack will trigger a response where other missile sites will launch an attack on all the US bases and oil facilities in the region. This will likely bring China in to intervene due to their reliance on the oil market – it gets very ugly very quickly.
Out of all that has happened in the short time Donald Trump has been in office, his policies around the Palestinian issue have been the most disappointing to me. However, it’s hard to guess what he will do next since he often contradicts himself. One thing he has been consistent on is wanting to avoid a nuclear confrontation where everyone loses.
Okay, onto local matters. Today, the RBA held rates steady. It’s interesting to see Michele Bullock’s caution compared to her predecessor. Her caution likely also reflects the uncertainty in the global economy, with China, Japan, and South Korea now in agreement to ‘closely cooperate’ in response to US tariffs, which should be released on Thursday (AEDT).
Nevertheless, without any engine driving the economy and the GDP per capita barely breaking positive in the last quarter, it’s still only the ongoing acceleration in government spending that keeps the economy afloat. The private sector remains mired in recessionary conditions. The next move will be lower—it’s just a game of chicken to see what breaks first.
The money markets have become more confident of at least two more cuts this year and are pricing in a 75% chance of a cut on May 20th and a 100% chance of a cut on July 8th. The longer the central banks wait to cut, the deeper the cuts will need to be.
The housing market has already responded to the first cut with a spike in the Sydney and Melbourne markets. The highest-priced properties tend to be most sensitive to rate movements, and we are likely to see the growth rates of the lower-priced and higher-priced properties begin to converge in the short term before the market switches back to cheaper markets. In the long run, we are likely in a broader structural trend that sees more and more demand switch to lower-priced housing stock as affordability pressures bite.
That’s about all from me today – I’ve already gone on longer than I should have. I hope you enjoy the rest of the day!
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