Artificial intelligence proving to be a slow horse

Businesses anticipate a long lag of perhaps three-to five years before the peak impact on their job headcount by using artificial intelligence materialises.

Right now, doubts about Artificial Intelligence and whether it has been over-hyped, over-invested in and over-bought by US-dominated share players explain why stock prices have been negative of late. However, here in Australia, a Reserve Bank study shows our take-up of AI is on the low side.

Sure, while plenty of people in business are using the likes of Microsoft’s Copilot or ChatGPT that generate answers to questions we put into our browsers, the RBA has found the adoption of AI processes in businesses is “shallow to date, with nearly 40 per cent indicating minimal use so far”.

While AFR’s Technology Paul Smith reports that “the use of, and investment in, AI has exploded since ChatGPT was introduced in 2022” that spend was more overseas. However, our data centres have outlaid money to prepare for the expected greater use of AI and its eventual increase in demand on data centres like those of Next DC and the Goodman Group.

Locally, the RBA found our spending on technology was more for cybersecurity. While those investing in AI are yet to see notable productivity gains, they expect it to be a future pay-off. “For AI specifically, firms anticipated a longer lag – which could perhaps be between three-to-five years – before the peak impact on their headcount materialises,” the RBA’s research revealed. “This slightly longer timeframe could reflect AI’s position as a relatively new technology that firms must first embed into their processes and augmented workflows and train their staff to use to optimise its use.”

These expectations of greater benefits of AI down the track has led to the investment in machinery and equipment by tech companies rising to a record $1.4 billion in June.

To show how significant the likes of NextDC and the Goodman Group are, see what Smith reported: “An analysis on Tuesday found a surge in data-centre construction has made technology firms one of the biggest drivers of the economy, with spending on technology tripling over the past two years.”

AI is a slow train coming, which means workers don’t have to worry about their jobs any time soon.

In fact, yesterday’s job numbers showed the Australian economy unexpectedly created the most jobs in six months in October, with firms taking on more full-time workers, lowering the unemployment rate from a near four-year high of 4.5%. to 4.3%. While this reinforces my message, the AFR tells us that “the jobs most at risk, according to the RBA report, are routine finance roles such as bookkeeping, loan assessment and payroll, administrative and clerical support, contact centre jobs and junior professionals in general.” Meanwhile, there will be plenty of jobs in a future AI-world for engineers, data architects and customer experience specialists.

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Welcome the new lender: Granny Bank

The Bank of Mum and Dad was once the source of financial assistance for their kids. As these unofficial ‘bankers’ age, a new participant is emerging: Granny Bank!

The big four banks and the so-called Bank of Mum and Dad have a new rival — the Bank of Ma and Pa. Well, to be more accurate, the Bank of Mum and Dad is morphing into a ‘subsidiary’ called the Bank of Grandma and Grandpa, as the housing crisis and other social trends leave baby boomers in a rescue role for their adult children and, ultimately, their grandchildren.

Personally, I think Granny Bank is a better name so I’ll run with that.

The Adelaide Advertiser tells us that this ‘new’ participant in Australian financing was revealed “in an in-depth study of 30 middle-class families in Victoria with at least one child aged 18 to 25 has found over half of the ageing parents are factoring the ongoing support in their retirement planning.”

Lead author Julia Cook from the University of Newcastle and the study made the following conclusions:

  1. Most parents were keen to support their young adults with investments and commitments.
  2. They were prepared to do it beyond the adolescent years.
  3. They didn’t want their offsprings to suffer a “real possibility of downward class mobility”.
  4. Help on offer included renovating homes to enable their offspring to live at home rent-free for longer.
  5. They bought cars, paid for medical insurance and their weddings.
  6. They let adult children live at home, rent-free, to help them save for a deposit for their own home.

But these parents who were often progressing into the grandparent stage of their lives, refused to bankroll their entertainment, clothing and takeaway food outlays!

Dr Cook said such ongoing support well beyond age 18 “may initially appear to be at odds with the desire to cultivate greater independence that many of the parents also articulated”.

Cook said it wasn’t all excessive over-protection news as there was a notable trend that supports tended to loosen over time, so their ‘dependent’ adult children could “stand on their own two feet.”

Susie O’Brien, The Adelaide.com.au journalist, pointed out that this study “comes as Productivity Commission data shows those aged 18–34 are in a weaker financial

position than any other living generation were at a comparable age.”

Of course, most of this financial assistance was the domain of the Bank of Mum and Dad but as these unofficial ‘bankers’ age, they’re becoming Granny Bank!

Dr Cook points out that “just over half of the participants’ retirement planning actively accounted for the financial needs of their children, whether this was renovating their home to facilitate prolonged

cohabitation or setting aside funds to assist with entry into home ownership.”

Stockhead.com.au looked at this trend of the emergence of grandparents funding school fees. “Over the past 20 years, private school fees have risen by more than double the rate of inflation, with the most prestigious grammar schools costing well into the $40,000 range for year 12 and some above $50,000. Remembering that school fees are not tax ­deductible, a family with two children in private schools on the highest marginal tax bracket needs to generate pre-tax income of close to $200,000 a year just to pay school fees before even thinking about mortgage repayments and other living expenses.”

One financial advisory group reported 70% of its clients were grandparents paying school fees and are making sure that these clients were doing the maths on their commitment.

Dr Cook said the parents in the study were mostly “aware of the structural challenges facing

contemporary young adults and viewed their support as a necessary means of ensuring that their children would be buffered from the impact of these challenges”.

One interesting issue that’s often ignored is that parents and grandparents who assist their adult children are in a sense providing a bridge of support so they can say own a home or educate their kids. But Generations X and Y will retire with very big super balances. And they’ll need them because many of these funding parents of today might blow their super and sell their properties if they live too long.

These assets — super and property — used to be what parents and grandparents left their children when they passed. But given all this current bankrolling of their offsprings, it might be a case of “Honey, we’ve shrunk the kid’s inheritance on them!”

Have Aussie exporters beaten Trump at his tariff plays?

With figures for our exports to the US at record levels, has this lower tariff policy for Aussie exporters been an act of charity by America’s ‘super’ President? Or true to the American way, is there merely something in it for them?

Despite the Trump tariffs, Australian exports to the USA have surged. While some see this as the US President’s cunning plan backfiring on him, maybe it should be portrayed as us getting the favourite ally treatment. After all, our exports only cop a 10% tariff slug while many of our rivals are being asked to pay a much greater levy on their exports sold into the US.

The AFR’s Michael Read has looked at the trade figures and revealed the following: “Australian businesses sold a record $6.9 billion of goods to the United States in the three months to September, up from $5.8 billion one year earlier. Sales to the United States have not just held up but strengthened in the months since the tax came into effect across most major product lines.”

So, how is this so? Let’s consider the following:

  1. US rivals can’t easily get some of our exports elsewhere, including parts for Boeing and plasma from CSL.
  2. Products like our local beef are preferred. Beef saw a 26% rise in sales to the US putting the figure at $1.6 billion for the three months to September.
  3. Commercially sensitive exports (called “confidential” exports) were up three times to $412 million.
  4. Possibly the US economy and/or certain sectors in that economy more closely linked to our exports have expanded, increasing demand for what we sell.
  5. But probably and more importantly, as Read points out: “Australian exports face a 10 per cent tariff compared with Brazilian exports which now have a 50 per cent tariff.”

Read also revealed that despite threats of a 100% tariff on our pharmaceutical exports, which was a big negative for the outlooks for CSL and Telix Pharmaceutical, these haven’t materialised and both companies argue it won’t significantly affect their bottom lines.

On the subject of whether these export gains have been helped by a stronger economy than was expected, despite the tariffs, John Kunkel of the United States Studies Centre told the AFR: “Notwithstanding what many economists think, the American economy has remained very robust.”

That might a contentious matter because the President’s US record 41 day shutdown has meant the US Statistician hasn’t delivered economic data, which has meant two jobs reports for September and October haven’t been delivered.

While Fed boss Jerome Powell used the F-word to describe the central bankers problem of trying to work out if his economy needed another rate cut, with no official economic data, he is operating in a “fog”.

When that fog clears, we might find the US economy is weaker than currently expected. However, these export figures that favour us, could also be saying the US economy and its famous innovative entrepreneurs are actually pivoting in a Trump tariff world and doing okay, possibly helped by AI, so Australian exporters have been beneficiaries of the President’s ‘outside the square’ trade policy.

That said, I bet that the 10% tariff has been a big help, given the likes of India has copped a 50% slug and 39% for Switzerland. The same goes for other export rivals, which has been a nice leg up for a pretty close ally of the US like us.

Interestingly, containers out of Sydney, Brisbane and Melbourne are up 5-7% in September compared to last year, which implies rising export sales. Some of this has to be because Donald Trump played favourites with an ally that, by the way, historically buys more from the US than it sells to its big brother buddy.

If we can accuse America’s new ‘super’ President Trump of being pro-Australia, we shouldn’t be surprised that his act of charity had something in it for him. For superman fans it’s called: “The American Way!”

US government shutdown ending, but markets are still up against it

While the stock market might cheer an end to one ‘spook’ factor, the US economy is likely to show the negative effects of this unusual American practice of sending public servants home because of money problems!
 
Our stock market had a strong finish to yesterday’s trading, and the big driver was news that the US government shutdown (the longest in history) was about to end.
While the stock market might cheer an end to one ‘spook’ factor that has sent share prices down over the past two weeks, the US economy is likely to show the negative effects of this unusual American practice of sending public servants home because of money problems!
Give or take 24 hours, this shutdown has gone on for 41 days, surpassing the record set by Donald Trump’s first ‘gig’ as President in 2018/19 that lasted 35 days. Bill Clinton racked up 21 days in December 1995, while Barack Obama had a 16-day closure, showing shutdowns are an all-American stunt!
Causing the shutdown was a Republican-Democrat spat over Affordable Care subsidies, but the stalemate ended when eight Democrat senators sided with their opponents to pass the bill.
But in true Hollywood tradition, a last minute change of mind by an individual senator could throw a spanner into the works. “There is more to come before the government can reopen. Any one senator can delay consideration of the package for several days, plus the House will have to return and adopt the deal struck in the Senate before it gets sent to President Donald Trump’s desk,” CNN explained.
But the economic implications of this shutdown could be felt for a number of months or longer, which partly explains why stocks have been falling over the past two weeks. “The shutdown’s effects are being felt across the country,” CNN again reported. “Ahead of the vote, Transportation Secretary Sean Duffy said he believed air travel would be “reduced to a trickle” ahead of Thanksgiving. And the Department of Agriculture ordered states to stop issuing full food stamp benefits after a Supreme Court move.”
Food stamps being issued, undoubtedly to public servants who aren’t being paid, underlines the issues that currently face some Americans and their economy.
Thanksgiving at the end of November is followed by Black Friday, when retailers historically go into the black after being in the red profit-wise for a large part of the year. Clearly, the shutdown could make this first day of the US holiday season of shopping a weak one, which wouldn’t be a plus for the economy or stock prices.
On Friday, the apnews.com reported the following: “Consumer sentiment dropped to a three-year low and close to the lowest point ever recorded by the University of Michigan one month into the government shutdown, with pessimism over personal finances and anticipated business conditions weighing on Americans.  The November survey showed the index of consumer sentiment at 50.4, down a startling 6.2% from last month and it plunged nearly 30% from a year ago. Also, with public servants returning to work, we will soon the latest updates on the US economy, which have gone missing because government statisticians were shut out of their jobs.”
On Saturday in the Switzer Report, I looked at why stock prices were falling and came up with these seven challenges to investor optimism:
1. AI over-investment concerns have hit tech and consumer discretionary stocks.
2. Bitcoin, which often tracks tech stocks, has dropped 8% this week and can be an omen indicator of trouble ahead.
3. At the Global Financial Leaders Investment Summit in Hong Kong on Tuesday, valuation concerns were voiced by several Wall Street CEOs.
4. Trump’s tariffs are now in the hands of the US Supreme Court and could be ruled illegal.
5. The US government shutdown has reached its 37th day, marking the longest shutdown in the nation’s history.
6. While The Challenger Gray survey showed layoff announcements rose to 153,000 (the highest monthly tally outside of March this year and during Covid lockdowns), there is a shutdown impact in these numbers.
7. China’s exports unexpectedly contracted 1.1% in October, dealing a blow to an economy already at risk of a slowdown in the final months of the year.
Undoubtedly, the shutdown and AI concerns were the biggest negatives for stocks. While one problem looks set to dissipate, doubts over AI being over-hyped and over-invested-in could remain as a brake of stock buyer enthusiasm.
Crucial for stocks on Wall Street and then here will be what the US economic data drops for unemployment and inflation tell us over coming months, as US statisticians update us on what has been going on in the US labour market and with prices.
While the December quarter is usually a good month for US stock prices and then for us here in Australia, some of the historically wild challenges for stocks such as shutdowns, the Supreme Court’s view on the legality of the Trump tariffs and this spectacular impact of AI on the share prices of big tech companies means this is a very unusual December quarter.
While I’m usually good at hitting a curve ball from the stock market and the economy, there are so many curve balls right now that I’m lacking confidence on where share prices might be heading. And this comes as a more notable pullback for stocks is overdue.
While it's a good sign that US stocks rose on the shutdown solution news, government won’t be back to normal until January!
The following from Tim Holland, chief investment officer at Orion, on CNBC, sums up the cautious optimism that now prevails on Wall Street. Holland cited investor anxiety around company valuations, a possible AI bubble and the shutdown as the primary catalysts for the recent downbeat sentiment.  “It’s been a bumpy November for risk assets. The concerns last week were reasonable, but I think we’ve at least taken one of those three concerns out of the picture, and I think that’s a big deal.”
He added: “If you think about the government reopening, the One Big Beautiful Bill Act, probably 13% year-on-year earnings growth and seasonality being a tailwind, we’re still pretty optimistic on the economy and on risk assets into year-end.”
That said, there are still curve balls out there for stock players and, ultimately, for the US economy.
If you ask me if I think stocks can resume rising right now, I’ll confidently give you a “definite maybe’!

Shocking news: PM Albo could bring back power rebates as prices soar

Want to be shocked? Try this: energy experts tip our average power bill will go up about 15% at the end of the year but the PM M is mounting a household cost of living rescue plan.

The average east coast household bill will go from $428 a quarter to $503 from January.

Why? The end of the $150 power bill rebates from the Federal Government will push up the inflation rate, partly explaining why economists can’t see an interest rate cut until mid-2026!

But wait a minute, wasn’t the last spike in the CPI in the September quarter because of the end of rebates on power bills? Yes, while that’s right, they were state government rebates, so we know that when these nice guy subsidies end it leads to higher inflation and no rate cuts, which we saw play out last week on Cup Day, when the RBA virtually said: “No rate cut for you!”

However, PM Albanese is mounting a household cost of living rescue plan and outlined it to the Daily Telegraph’s Joe Hildebrand.

This is his possible plan:

1. He could extend the $150 rebate that lower bills.

2. Or new ways could be found to reduce the cost of living.

That’s it. That’s all he put forward, admitting his Government would maintain “a healthy Budget”, despite his intent to reduce the cost of living on average Australians.

The goal is a timely one, even if the PM’s plan doesn’t look well thought out at this stage.

Hildebrand cited a Salvation Army survey that found there were big reasons to be worried about average Aussie households. Here are the big findings:

1. 30% of families said they wouldn’t be able to afford Christmas presents for their kids.

2. 31% expected utility bills to be their biggest source of financial stress in the new year.

3. Mortgage stress was the biggie for 38% of those surveyed.

4. Insurance concerns were number one for 19%.

5. Back-to-school worries affected 7% and car payments 4%.

In case you forgot, the energy rebate was extended in March. It was a temporary help for inflation, which was swamped by the end of state rebates that showed up in the September quarter inflation number. The quarter rise of inflation was 1.2% and the annual rise was a worrying 3.2%, which killed off rate cuts for the short term.

When that number was released, the CBA economics team noted: “Electricity prices soared 9% in the September quarter, driven by annual price reviews and the timing of rebates. Power prices surged 23.6% over the 12 months. The ABS reported, “The annual rise in electricity costs is primarily related to State Government rebates being used up by households. State Government electricity rebates that were in place in September quarter 2024 included the Queensland $1,000 State rebate, the Western Australia $400 State rebate, and the Tasmania $250 State rebate. Over the year, those rebates have been used up, and those programs have finished.”

The tricky bit for the PM will be how to maintain a “healthy Budget” and deliver cost relief for average households and voters.

There are two themes that could make these two goals of the PM hard to deliver simultaneously.

The first is most governments around the world, including our federal and state governments, carry big debts boosted by the Covid lockdowns. Second, a stock market selloff can’t be ruled out after some big rises in the past three years. This could mean budgets might have to blow out more to stop unemployment surging.

Budget experts are tipping retirees with big super balances will become those who’ll be milked by governments to ensure cost-of-living relief happens without pumping up bigger deficits.

Of course, if a big stock market crash happens, then inflation and interest rate cuts will be the least of Albo’s and Jim Chalmers’ concerns. It will be how to win an election with lots of Aussies out of work!

Better hope Donald Trump and other global leaders — both political and corporate — help in order to avoid a stock market crash.

'Big brother' ATO getting bigger as tax take surges

The ATO is using a cunning plan to hit any big company dodging tax. That cunning plan is called a rare thing called common sense.

When the Australian Tax Office (ATO) calls, few taxpayers celebrate and bring out the fatted lamb. If any public service body has been likened to Orwell's all-dominating “big brother” from 1984, the ATO had no peer.

And in recent years, the country’s biggest big brother has actually got bigger, with our biggest companies that pay no tax receiving a new, invasive and bruising experience from the investigators at the Tax Office.

What’s the result? This is what The Australian’s David Ross has told us, with a little bit of help from the big brother’s press team:

1. The crackdown on companies and their tax advisers has meant the number of companies owing no tax has fallen to the lowest level on record.

2. Tax receipts from companies remain at near record levels.

3. Large companies paid more than $100bn in tax in the 2023-24 financial year.

4. That said, 28% of large companies paid no

tax in 2023-24, down from 31% in 2022-23.

5. This is the lowest number since the ATO has been collecting data on non-tax paying companies.

6. Around half of non-taxpayers were because of losses. If the losses are legitimate, no tax to pay is OK.

So, how come there has been such great results? Well, it looks like the ATO has tried common sense with tax dodgers!

Looking at the 4,110 companies with income over $100 million, ATO assistant commissioner Michelle Sams effectively explained that investigators used no-tax-to-pay assessments from accountants as a trigger to investigate. “Where we see no taxes paid, we investigate it carefully to make sure it reflects commercial circumstances.”

Yep, this looks like common sense. And this new, smarter approach to big company tax dodgers has meant multinational companies, miners and many using low tax countries such as Singapore, have come in for some big brother investigations.

Interestingly, the ATO is also hunting down high-end accountants who are seen as tax coaches and at least one high-profile bean counter has been banned by the Tax Practitioners Board.

Sams tells us that the ATO has a balanced approach to their inquiries. “We of course don’t look at things in silos, we look holistically at the market, we have good coverage across the entirety of the market and use intelligence available to us to take appropriate action.”

Once again, this is a common sense approach, which undoubtedly is being helped by what the computer and internet age has delivered to the ATO. But this holistic approach needs to be applied when all our tax collecting bodies at the federal and state levels start prowling for tax from smaller businesses.

Excessive spending by governments and growing budget deficits has resulted in some tax assessors being given carte-blanch to smash small business owners with unfair, falsely calculated tax bills, where the right of reply is only possible after the tax bill plus penalties plus interest of 10-12% is imposed and paid!

These tax investigators are presuming these small business owners are guilty and scam merchants. The small business has to prove otherwise, which is grossly unfair!

Only politicians can tell these tax collectors to play fair and legitimate investigations cannot become unreasonable interrogations!

While these small operators might have a tax problem, they’re also job creators, and they are actual tax collectors on wages and salaries, GST and super payments. Government tax bodies shouldn’t be ignorant of how their rough house tactics, often to collect incorrect tax amounts, could ruin businesses and kill future tax collections.

There is one thing you learn in business, which I’m sure non-business owners haven’t thought about because they’ve never had their house and wealth on the line. This is about the lifelong value of a client you keep.

Dumb business owners cancel some clients too easily, failing to see how ongoing revenue is given up because they fail to solve a problem rather than seeing it as a ‘make or break it’ situation.

U-turn: is a November cut really off the table?

What’s the learned view on what we should expect next month in terms of a rate cut?

While economists, including yours truly, got the RBA’s September rate call right yesterday, the November interest rate decision will be like picking the winner of the four-legged lottery we call the Melbourne Cup. And yes, the central bank’s rate-setting board meets on Cup Day, namely the first Tuesday in November, that being the 4th of that month.

So, what’s the learned view on what we should expect next month?

The starting point is that the RBA left the cash rate of interest at 3.6% and inflation hitting 3% for the year in August on a monthly basis. This was the highest level in more than a year.

The board’s statement was clear about its inflation concerns:

“Recent data, while partial and volatile, suggest that inflation in the September quarter may be higher than expected at the time of the. August Statement on Monetary Policy.”

It also noted that its economic guessing was telling the board members that the economy was growing better than earlier in the year when quarterly growth was 0.2% in the March quarter, meaning the annual number was a weak 1.2%.

That’s why we’ve seen three rate cuts totalling 0.75% this year, so far.

The RBA has cut rates by 75 basis points so far this year, after holding them steady at 4.35% since November 2023 in its bid to rein in inflation.

This led the board to conclude:

“Stronger-than-expected data on growth and inflation may indicate that households have become more comfortable consuming ... [but] growth in consumption might not persist, particularly if households become more concerned about overseas developments.”

Central bank boss, Michele Bullock, didn’t rule in or out a cut in November and pointed to the potential global issues out there. And she was happy that monetary policy had firepower to help the economy if rate cuts were needed.

CBA economist Belinda Allen looked at the board’s statement and concluded that:

“the decision to hold interest rates steady was “unanimous” across the nine-member rate-setting Board, which appears willing to wait for confirmation that inflation is on track to sustainably hit the midpoint of its 2-3% target band.”

The next time we see our latest quarterly CPI reading on inflation is Wednesday October 29, which is six days before the Cup Day rate decision.

In the previous week, the RBA will get to see the latest economic growth number on October 23, and then the September unemployment figure the next day.

That’s a virtual arsenal of economic statistics that should be sufficient for the RBA to make a firm decision on whether a cut’s needed. And that’s the crucial point — the central bank will cut if the economy needs it. Lower inflation and economic growth would force its hand to cut. Also, rising unemployment would help those praying on another cut ASAP.

Interesting, the US business website CNBC looked at our rate cut prospects and quoted a note from Harry Murphy Cruise, Oxford Economics’ Head of Economic Research and Global Trade, who said the RBA had “effectively won its fight against inflation. He forecasts that Australia’s trimmed mean inflation — a gauge of core or underlying inflation — to ease to 2.6% in the third quarter of 2025 and added that this should pave the way for a rate cut in November. An additional cut in the first quarter of 2026 can be expected, as underlying inflation by that time will have approached the midpoint of RBA’s target band, but the unemployment rate is expected to rise, warranting additional monetary support, Cruise said”.

But unlike the last survey of economists and commentators by Finder.com.au, when 32 out of 32 respondents to the survey said “no cut”, the Cup Day decision will split economic experts.

Belinda Allen announced that her colleagues had pushed the next and final rate cut out from November to February!

However, the AMP chief economist and his team see it differently. “We see September quarter trimmed mean inflation being close enough to RBA forecasts at 2.6-2.7% year-on-year to allow another rate cut in November but concede it’s a very close call.

“Beyond that, we are forecasting one more rate cut in February taking the cash rate to a bottom of 3.1%. The risks are that they are delayed, or we get even less cuts.”

By the way, Oliver points out that the money market players who live and breathe interest rates are allowing for another one and a half more 0.25% cuts with around a 54% probability of a cut by year end.

So, in horse-racing betting terms, a cut is no certainty and remains a 50:50 chance.

No rate cut today but here’s the form for a Cup Day cut

While the RBA looks a certainty to stay ‘on hold’, the next decision on Cup Day in November looks like a good each way bet for a 0.25% cut. And here’s why.

With 32 out of 32 economists and commentators telling a Finder.com.au survey that there’d be no change to the cash rate of interest from the RBA today, the words of J.K. Galbraith, one of my favourite economists, came back to me.

These words are: “In economics, the majority is always wrong.”

While the word “always” makes Galbraith’s astute observations debateable, it has always been something I’ve never forgotten when it comes to trying to make sense out of economies, government policies and stock, as well as bond markets.

While his statement wouldn’t be so impactful, I’m more comfortable with substituting “always” for “often”. This is really good advice for anyone who aspires to make money out of financial markets.

That said, the majority of economists should be proved right today. While the RBA looks a certainty to stay ‘on hold’, the next decision on Cup Day in November looks like a good each way bet for a 0.25% cut.

However, it will depend on the data drops between now and November 4, when ‘the race that stops the nation’, competes with the RBA for front page headlines.

Given that Mark Twain, the great US social commentator and historically great bagger, was credited as coining the description “the race that stops a nation” in 1895, even Twain would have a wager on the winner of the Cup beating a rate cut for top headline in our bet-crazy country! (By the way, ChatGPT, disputes that Twain penned this observation of the Cup, but it does say he loved the occasion.)

But I digress. Back to the reason for no cut today. So let me list my reasoning that the cash rate will be held at 3.6% today. Here goes:
1. We’ve had three cuts totalling 0.75% already this year.
2. Monthly inflation went back to a too high 3% in August.
3. Unemployment is only 4.2% and didn’t rise in August.
4. Economic growth was 0.6% in the June quarter and annual growth was 1.6%, which was better than the March figures of 0.2% for the quarter and 1.2% for the year.
5. Electricity prices soared 24.6% in the 12 months to August, with the large increase primarily due to state and federal governments energy rebates being phased out, and now the state rebates have lapsed.
The maker or breaker of a Cup Day rate cut will be the quarterly Consumer Price Index number delivered on October 29. This report needs to show both headline and underlying inflation is firmly in the 2-3% band.

Before that, on October 24, we see the National Accounts that will tell us how the economy was growing at the end of September. If it’s less than 1.6% that will help those praying for a rate cut. If it’s higher, then the RBA board would think a rate cut isn’t necessary. That’s why the inflation reading five days later will be the big determinant on whether a cut happens on Cup Day.

While I’d like to say you can bet on a November rate cut, as Twain once said: “Truth is stranger than fiction and

How much do you need to earn to live in our cheapest suburbs?

If you want to borrow to buy and live in an Australian capital city and still live comfortably, the question you need to answer is this: how much do I have to pay to do this?

Sydney’s Bellevue Hill would cost you around $95,582 a month. If that’s out of your league, the country’s cheapest suburbs will slug you $10,000 a month!

New figuring from CoreLogic shows that to be comfortable in a $10,000 a month suburb, you need $15,000 or $180,000 a year!

This revelation means buying a house to live in requires double incomes, with the median salary being around $93,000.

The Daily Telegraph looked at the struggle to buy a home in our capital cities and found the following:

1. Experts say to live comfortably you need 50% of your pay to cover essentials.

2. You’d have 30% in the bank after meeting those essentials.

3. Based on the average home price of $1 million, experts say to be comfortable, your average income a month should be $13,118. To be well-off, you need $18,365.

4. In Sydney’s cheapest suburb, a double income family will need $10,360 a month to be comfortable or $14,504 to be well-off!

Apart from making buying a home increasingly more difficult (and lenders do this figuring too), potential homeowners are increasingly looking at apartments. But that window might not remain open for long! “Young people are looking at apartments as an option,” said Ray White economist Nerida Conisbee. “In Brisbane, Adelaide and Perth, we are seeing apartment prices increase more quickly than house prices. We think that’s to do with affordability and people look at suburbs they want to live in. They definitely can’t afford a house but can afford an apartment.”

Conisbee says all these developments around rising house prices and near impossible affordability has made the rent-vest option more attractive. That’s where a home buyer purchases a property to purposely rent out as a landlord/investor (which gives tax deductions appeal) and then rent where they’d really like to buy and live but can’t afford to do that as a homeowner.

There’s one big concern that one day might make capital city properties more affordable and that’s if we have a job-killing recession! With so many homeowners on very tight budgets, if unemployment surges, then forced selling would bring prices and homeowning affordability down, big time!

Let’s hope whatever Treasurer Chalmers, RBA boss Bullock and President Trump do to their economies (and then financial markets) doesn’t create a recession any time soon.

Locally, politicians must make changes to increase the supply of homes or else this crazy property problem will only get worse.

Radio 2GB and 3AW could be sold off by Nine

If the price is right, some of the best performing radio stations in the country could be up for sale.

Some of the best performing radio stations in the country could be up for sale. This includes 2GB and 3AW. How do we know this? Well, the owner’s newspaper, The Australian Financial Review, is revealing that Nine Entertainment is up for listening to offers to buy the business.

In case you’ve missed it, Nine Entertainment includes the Nine TV Network, the SMH and AFR newspapers, Stan, Nine Events and Nine Radio, which is largely the old Macquarie Radio Network.

Nine Radio’s stations include 2GB, 3AW, 4BC, 6PR, 2UE, Magic 1278 and 4BH.

Nine Entertainment recently sold Domain for $3 billion. This shows that if the price is right, the board of Nine is happy to entertain offers from buyers with deep pockets.

In 2019, Nine paid close to $114 million to take control of the Macquarie Radio Network, valuing the business at $275.4 million. But the business might find it difficult to get that kind of money in the modern context.

Why? Try these:

  1. Unlike previous generations, younger generations don’t listen to radio.
  2. The Internet has taken away lots of listeners and advertisers.
  3. The age of the shock jocks, who brought legions of loyal fans to radio stations, is no longer as socially acceptable.
  4. Social media backlash has scared off radio stations from being too divisive and has made advertisers wary of being linked to controversial radio agitators.
  5. As a consequence, radio is less profitable, especially when it’s run by a big end of town player. A more entrepreneurial business might have more potential to have a higher return on capital.

That said, Nine’s new CEO, Matt Stanton, isn’t saying the business is definitely up for sale.

The AFR’s Sam Buckingham-Jones looked at Stanton’s precise take on the subject and reported the following: “We have had a number of unsolicited inquiries about our radio business. Contra to what has been in the press, because some of that stuff is completely wrong, but we have had a number of approaches,” Stanton told staff. “We have decided to do a review of the audio business. So, what does that mean? That doesn’t mean we’re going to sell the radio business, per se. We will review all options, which could be continuing to keep radio and investing in it, and maybe investing more in digital. It could be partnering with people, and it could be selling the business.”

For the record, this is prudent behaviour for the CEO and his board. The Nine board now has a new chairman in Peter Tonagh, who replaces Catherine West, who stepped in when former Federal Treasurer Peter Costello resigned in June 2024, after reportedly clobbering a pesky reporter from The Australian.

Tonagh was former CEO of News Corp Australia and Foxtel boss, so he knows the new age media world that Nine has to compete in.

In the modern world, relatively speaking, old media has less eyes and ears. And advertisers are no longer as dependent on radio, TV and newspapers, so their value has declined.

This doesn’t mean they can’t be profitable. Possibly a different approach to running these businesses, using the likes of AI in concert with outside the square thinking (when it comes to leveraging the customer base that still loves TV, radio and newspaper content) could produce profitable results.

In February, radiotoday.com.au reported rumours that former Macquarie Media owner, John Singleton, was putting together a consortium to buy back the radio network at a bargain price.

And price is the critically important issue on who eventually owns Nine. In the 1990’s, Nine owned and aired the TV show hosted by Larry Emdur called The Price is Right. And that’s what it has to be for Nine to sell its still impressive radio business. It’s just not as impressive as it used to be.

Inflation shoots up and kills a September rate cut!

Don’t get too worked up about this latest inflation number. It’s the quarterly inflation number out late next month that’s far more important for a rate cut.

Inflation for the month of August has come in at 3%, which is a jump from the pretty big 2.8% rise in July. So, newspaper headlines are accurately telling us that inflation is on the rise again, making another rate cut next week a non-goer.

Importantly, the main reason for this higher-than-desired inflation result isn’t debated — it’s all down to electricity prices and Australia’s commitment to not using coal to power our energy supply. It’s us doing what most of the world is doing to fight climate change that’s delivering us this higher inflation number.

This comes as President Donald Trump told the countries of the world in his UN speech that his administration supports fossil fuels and opposes renewable energy. “I’ve been right about everything, and I’m telling you if you don’t get away from the green energy scam, your country is going to fail,” he said.

While some economists are telling us that this result knocks out a chance of an interest rate cut next Tuesday when the RBA board meets, the fact is that a September 30 rate reduction wasn’t really expected anyway. While most economists thought Melbourne Cup Day on November 4 was a live chance for a cut, it largely depended on what was happening to underlying inflation (or the trimmed mean number) and whether unemployment is rising.

Headline inflation is less important to the RBA, but it’s the underlying inflation rate that cuts out one-off price-rising developments, such as the end of electricity rebates that explains why headline inflation spiked to 3% in August.

As Tony Galloway in The Australian noted: “The end of state power bill relief has sent electricity prices soaring 24.6 per cent over the year, fuelling the sharpest rise in inflation in 12 months and reigniting political clashes over the cost of living.”

For those praying for a rate cut, the focus has to be on the next quarterly inflation number, which is released on October 29. Then six days later we’ll be betting on a four-legged nag to win the Cup and hoping we also get a dividend from the RBA giving us a 0.25% cut.

Here, the underlying inflation rate will largely determine what happens, in company with the state of the jobs market.

Right now, Opposition leader Susan Ley is blaming the Albanese Government for mismanagement of the economy. Certainly, if Treasurer Chalmers had been stingier with tax cuts, the economy would be weaker. While this would have suppressed the demand-creating aspects of inflation, the cost of being green with our energy would still have added to inflation.

Of course, if Labor had given less tax cuts, the economy would have created fewer jobs and unemployment would be higher, and then those who have a mortgage and a job would be enjoying lower interest rates.

In New Zealand, they played harder with interest rate rises and gave less tax cuts, so total unemployment has gone from 3.3% to 5.2%. And yep, they went into a recession.

Source: NZ Government

Deputy Chief Economist at AMP, Diana Mousina, has looked at these numbers and points out that the current 2.6% trimmed mean figure is just above what the RBA wants at 2.5%, which is pretty good. Throwing in a still slower-than-expected economy, the AMP economics team expects a 0.25% rate cut in November and two more in February and May next year.

While I hope these guys are on the money, we’ll need to see inflation (both headline and underlying) head downwards because I can’t see the Albanese Government taking the advice of Mr Trump to go back to coal and “drill, baby, drill” for oil.

First Homebuyer Scheme to push prices up, helping sellers not buyers

Our Reserve Bank Governor says the Albanese Government’s first homebuyer scheme will make it harder for first home seekers because it will add to the explosion in real estate prices nationally.

RBA Governor Michele Bullock has criticised the Albanese Government’s first homebuyer scheme suggesting its biggest impact will make it harder for these property seekers by adding to the explosion in real estate prices around the country. The Governor gave the unmissable message that this policy is good news for sellers but not so good for buyers, who should expect higher prices when they go to auctions or inquire with an agent.

In a story in news.com.au, Alex Blair reveals that new homebuyers account for a whopping 20% of new loans made by lenders, so making it easier for them to borrow is also good news for banks as well! Meanwhile, sellers will benefit from more potential buyers in the market.

In case you’ve forgotten, let me remind you what the PM said when he announced his First Homebuyer Scheme revamp in August this year: “The Albanese Labor Government is helping more Australians realise their dream of home ownership sooner, by launching 5 per cent deposits for all first home buyers early on 1 October 2025, instead of next year. Through the expanded 5 per cent deposit scheme, the Albanese Government will guarantee a portion of a first home buyer’s home loan, so they can purchase with a lower deposit and not pay Lenders Mortgage Insurance.”

The PM added: “Under the changes, all first home buyers will have access, with no caps on places or income limits. Property price caps will also be set higher in line with average house prices, providing access to a greater variety of homes. The expanded scheme means a first home buyer in Brisbane can purchase a $1 million home with a $50,000 deposit. They could save up to 10 years off the time it takes to save for a deposit, save about $42,000 in mortgage insurance, and could pay up to $350,000 towards their own loan instead of paying rent.”

While no one can argue that this isn’t done with the best of intentions, this is what Governor Bullock said: “The deposit scheme thing is more a demand side thing. We have done a little bit of work on this,” she told the House of Representatives Standing Committee on Economics.

The Governor maintains our housing problem is not access to loans or demand for properties but it’s the new supply of homes that’s too low. Undoubtedly, immigration adds to the number of potential buyers as well. “The RBA says the government’s measure is good news for current homeowners, and terrible news for the next generation of workers,” Blair reported. “RBA assistant governor Brad Jones said the policy was expected to lift housing credit by between 1 and 2 per cent.”

Treasury says help for our supply problem is on the way, but it will be a longish time coming! “The Treasury has also done some work on medium-term supply response, and their sense is that you will see, over time, an uplift in supply in response to that extra demand as well, and so that will end up dampening the price effect over the medium term,” Dr Jones said.

Unless the governments of Australia become developers, which isn’t something we need, then it’s time those governments killed the obstacles to private developers actually making more supply.

Like what? Try this:

  1. The cost of regulation on developers from the three levels of government can be over 30% of the cost of building a new home. That has to be reduced.
  2. Positive incentives for developers like lower effective taxes on profits.
  3. Look at the impact of state-levied slugs such as payroll tax on entrepreneurs who build houses and apartments.
  4. Have the guts to lean against Not-In-My-Backyard Individuals or NIMBYS, who scare politicians off from actually making more homes that young people might want to buy.

To be fair, while this example from the PM shows that his measure will help homebuyers in cheaper suburbs and towns, they’ll still pay more because there’ll be more bidders.

This is what he said: “It means that a first home buyer in Bendigo could purchase a $600,000 home with only a $30,000 deposit. They could save up to 6 years off the time it takes to save for a deposit, save about $25,000 in mortgage insurance, and could pay up to $126,000 towards their own loan instead of paying rent.”

It could be a good policy if say three years ago the Albanese Government and state governments had agreed to help builders build! But that would be an achievement of real leader, the likes of which we haven’t seen from both of our political parties in decades.