Call us on 1300 794 893

Your Money

Doomsday addiction

hose who would have us in recession jumped on the worse-than-expected economic growth numbers this week as proof that we are slipping down the gurgler. But don’t believe them.

This week I did a television interview and pointed to the economic and market positives that have been emerging and the host ended by signing off with a disappointed tone with the words: “That’s Peter Switzer with an optimistic outlook.”

One radio station headed up its news bulletin when interest rates were cut by 1 per cent with the following: “Bad news for savers with interest rates slashed by the Reserve Bank by 1 per cent.”

Mind you, I do feel for those dependent on savings and bank deposits but if the economy is not rescued by vastly reduced interest rates, the possible recession could turn into a depression and banks could go broke and we could see what real dole queues look like.

Right now many economists, the OECD, Treasury and the Reserve Bank think we can dodge recession. But as I argue, it will be a close run thing.

Remember, a technical recession means six months or two quarters of negative economic growth. This week the three months to the end of September reading came in at 0.1 per cent.

Doomsday merchants quickly wanted to take out the farm sector and call recession. Others wanted to take our inventories and call recession.

These items are always in our statistics when we look at economic growth, so it is unfair to take them out now. But those who trade in bad news don’t worry about how negativity feeds on negativity.

This week we got bad dwelling approvals numbers — down to seven year lows. And new car sales were down to six-year lows.

As you can see, I am not avoiding reality but this weakness explains why the Reserve Bank has cut interest rates by 3 per cent since September, taking the cash rate to 4.25 per cent.

Want some more good news on this front? Most economists think it will go to 3.25 per cent as early as March. This could create home loans between 5 and 6 per cent.

For more good news this week, our trade surplus jumped from $1.2 billion to a record $2.9 billion in October.

Add this to the better-than-expected retail sales number for the same month, which went up 0.7 per cent and the December quarter could end up in positive territory as well.

I refuse to give in and go negative and have created a Good News Daily window on my website which I add to each day. And guess what? You can find good news if you want to find it.

On my Money Makers program on Sky Business this week we had a debate between Professor Steve Keen from UWS and Rob Mellor from BIS Shrapnel over property prices.

Keen picked the stock market demise but thinks property prices will fall 40 per cent in coming years.

Mellor disagrees and points to Australia’s population growth as one big reason why Keen could be wrong. Though I respect Keen’s previous calls, I reckon he is wrong on this one.

In the 1990-92 recession, unemployment was 10.9 per cent but house prices actually rose by 2 per cent. That’s why I am punting to the positive.

Published on: Saturday, December 06, 2008

blog comments powered by Disqus
Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300