OP 2019: Australian central bank launches QE on housing bust Down Under
Summary: Binge no more – 2019 sees the "Australian Dream" implode in spectacular fashion afters decades of galloping house price inflation.
Please note: Outrageous Predictions should not be considered as Saxo Group’s official market outlook. It is instead the events and market moves deemed outliers with huge potential for upsetting consensus views. See the full list here.
The debt-fuelled surge in Aussie house prices has led to one the longest rallies in the
world, with prices gaining a monstrous 6,556% (373% after adjusting for inflation) since
1961. The “Australian Dream” was financed through an epic accumulation of debt as
interest rates collapsed, with household debt standing at 189% of disposable income.
The Great Financial Crisis was responsible for deflating housing bubbles in other
advanced economies, but not in Australia. In a bid to stave off the crisis’ effects,
Canberra’s “economic security package” further fuelled the spectacular run-up in
leverage, kicking the proverbial can down the road.
In 2019, the curtains close on Australia’s property binge in a catastrophic shutdown
driven most prominently by plummeting credit growth. In the aftermath of the Royal
Commission, all that is left of the banks is a frozen lending business and an overleveraged,
overvalued mortgage-backed property ledger and banks are forced to further
tighten the screws on lending.
The confluence of dramatic restrictions in credit growth, oversupply, government
filibusters and a slowdown in global growth cement the doom loop ; property prices
Down Under crashing by 50%.
Australia falls into recession for the first time in 27 years as the plunge in property
prices destroys household wealth and consumer spending. The bust also contributes to
a sharp decline in residential investment. GDP tumbles.
The blowout in bad debt squeezes margins and craters profits. Th e banks’ exposure is
too great for them to cover independently and to skirt the risk of insolvencies and
collapse, the RBA moves in to purchase securitised mortgages and fund the government’s
recapitalisation of its major banks with a whopping AUD 300 billion QE/TARP programme.
The grand irony is that Governor Lowe’s hand is forced toward unconventional
monetary policy and he implements QE1 Down Under. With the banks at the forefront
of financial stability they are deemed “too big to fail”, not least because Australia’s baby
boomers and superannuation investment pools rely heavily on the banks’ consistent
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)