A road to nowhere…?
A recent article on the nab asset management website entitled "The Grumpy Australian Consumer" concluded that given the rapid rise in the cost of electricity and health, coupled with subdued income growth and high household debt, Australian consumers are entitled to feel grumpy, and that these pressures can account for the recent retail spending figures as well as the modest performance of the Australian sharemarket in 2017.
The article had a series of excellent charts and tables, the most worrying of which was this one provided by the RBA, and dated March 2017. With household debt having climbed dramatically, and interest payments as a percentage of disposable income having fallen courtesy of low interest rates since 2012, it is not difficult to see the Reserve Bank's dilemma - It won't take much in the way of an increase in interest rates to dramatically increase the percentage of disposable income consumed by mortgage repayments, creating even more grumpy Australians, particularly if consumer confidence remains low.
At least investor confidence has been given a boost recently with the ASX finally touching the 6000 level, albeit still 10% below its all-time high in 2007. TheAustralian market is frequently negatively compared to the S&P500, but it is worth remembering that the ASX delivers Australian shareholders a dividend income of 4%, much of it also having the benefit of franking, whilst US companies distribute just 2.5% to shareholders as dividends.
The NAB article above referred to Leonard Cohen's song Anthem,
"You can add up the parts,
You won't have the sum"
Which is perhaps why we have economists to help us.
In Hedge Clipping's opinion a further reason for Australians to be grumpy, and thus the low levels of consumer confidence, is the lack of direction coming from Canberra, which might be equally summed up by the title of Talking Heads' 1985 hit song "A Road to Nowhere". The title is where the similarity ends, as the words to the song run:
"Well, we know where we're goin'
But we don't know where we've been
And we're not little children, and we know what we want
And the future is certain, give us time to work it out"
Unfortunately, if all the reported talk in Flemington's Birdcage on Derby Day was anything to go by, the words could be changed to:
"Hey, do you know where you're goin'
Do you know where you've been?
And you're not little children, and you should know what we want
And the future's uncertain, you've had time to work it out"
Meanwhile some managers certainly knew where they were going in October, in a strongly rising market.
