15 December 2019
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C'mon Donald ' crack a trade deal!

Peter Switzer
30 May 2019

As someone who has copped a barrage of insults from spruiker to dummy for simply doubting that our national house prices will fall by 40%, it’s good to see positive headlines about property prices hogging the front pages of our newspapers. However, the friend of the property doomsday merchants could end up being one Donald J. Trump!

Journalists who I castigated for carrying excessively negative stories about 40% house price falls are now headlining their latest yarns with positive banners such as “Expect house prices to rise in 2020: Capital Economics.”

That’s what the AFR told us so I guess it’s time for the doomsday merchants to take over from me and start bellyaching about the media’s bias and short-sightedness.

Of course, I did have a legitimate reason to complain about 40% house price calls because I still reckon they’ll be proved to be over-the-top. 

If a Trump-created black swan or another source for those dear little swimming black birds rattles the world economy, we could end up in a recession. And that could easily take Sydney and Melbourne house prices down more than the 20%.  That was the worst case drop I speculated about our house prices but I always argued that we’d need to see a serious recession with a huge spike in unemployment for that to happen.

Capital Economics, which always expected a fall in house prices to be under 20%, sees in its economic crystal ball rises of 3% in 2020 and 5% in 2021.

The national drop has been 9.4% and the economic number crunchers from CE expect another 3% this year. So the national peak to bottom drop since it all started in 2017 is set to be around 12.4%, which is a long way from 40%!

Let’s hope CE is on the money. It’s strange that professional economists aren’t stressed by our level of debt and boy, I hope they know more than Professor Steve Keen and his hoard of naysayers.

I know the enemies of the doomsters get banded together and labelled as “establishment economists” but it is strange that every chief economist, RBA, Treasury and corporate economist all can make their economic calls not overstressed by our household debt to GDP levels being the second biggest in the world behind Switzerland.

On present issues, the most likely way the DD merchants will get their day in the sun, sorry I mean their day in the eye of the economic storm, is if Donald Trump mishandles his trade deal/war negotiations with China.

JPMorgan’s CEO Jamie Dimon has voiced concern about the consequences of an ongoing trade war between the U.S. and China, as negotiations have so far failed to result in an agreement.

“Trade has gone from being a skirmish to being far more important than that,” Dimon said, as reported by CNBC. “If this goes south in a bad way, and you have other surprises, that could be part of the thing that changes confidence, changes peoples’ willingness to invest.”

His comments follow the work of his economics team, who have marked down future US growth because of the trade war.

The first quarter US real GDP growth was 3.2% and up a full percentage point from 2.2% in the last quarter of 2018.  Consumption, business investment and US as well as global manufacturing are not looking promising. They think “unresolved trade tensions may exacerbate a slowdown in global growth.”

This is a nice way to say Donald is becoming a big problem for world, US and our growth.

But we might not be as badly affected as you’d think and we can thank our miners.

“The trade war between the United States and China will shave just 0.07 of a percentage point off Australia's gross domestic product in the next two years – five times less than Canada and three times less than the global economy, new modelling by JPMorgan shows,” reported the AFR. “Australia is likely to be less affected by the trade war than other countries because of  iron ore exports feeding into China's construction sector and their potential fiscal stimulus, as well as likely cheaper imports from excess Chinese products hurt by US tariffs.”

Helping us fight the black swans will be two or three interest rate cuts, tax cuts, less restrictions on lending, a first homebuyer scheme, the lower dollar and the confidence rebound since the election.

Just imagine the economic boost if Donald turns his trade war black swan into a dear little white swan! I still think house price rises would be measured but our economy and stock market would get a really big boost.

C’mon Donald — crack a trade deal! I know my doomsday buddies won’t give up on their 40% house price calls but I’d love them to have to wait to kingdom come.

If a trade war is averted, some think we could see another two or three years of growth. In April Fox Business ran with this headline: “Jamie Dimon” US economy can grow for 2 years.”

But this was when a trade deal looked like it was going to be inked within a few days. As I’ve said: C’mon Donald — crack a trade deal!

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