The Wealth of Australia
Australian Household Wealth Tops A$5 Trillion
The fruits of Australia's long economic boom were illustrated in some figures published today by the Australian Bureau of Statistics:
"Private sector wealth was estimated to be $5013.3 billion at the end of June 2004, according to figures prepared by the federal Treasury and published by the Bureau of Statistics yesterday.
The measure of wealth covers a variety of assets including cash, shares, bonds, houses, factories and other business assets. Housing makes up more than 60 per cent of Australia's net wealth.
The Treasury figures showed Australia's private debt at $384 billion or $19,140 per person, up 10 per cent in the past year."
The net wealth figure works out at around $250,000 per person, compared with $126,000 per person in mid-1997. Before inflation, this represents an increase of 10.3% pa which is a rapid rate by any standards.
"The average house price has more than doubled since 1996 and the share price index has almost doubled in the same period. The benchmark S&P/ASX 200 rose to another record high yesterday (Oct 13), closing up 7.8 points at 3725.2"
Couple of things strike me about these figures. Firstly, the doubling of wealth has come largely from the increase in asset values of property and shares. Housing makes up more than 60% of net wealth so these figures are vulnerable to any significant setback in the property market.
Secondly, I'm a little surprised by the debt figures. They don't seem that large to me especially given a lot of the concern recently about the build up in household debt in recent years.
"Economists have expressed concern about the growth in household debt, which has risen to about 150 per cent of annual household income. Interest payments as a proportion of income are also at record levels, despite relatively low interest rates. Repayments are higher than when rates reached 17 per cent in the 1980s."
Australia has a high proportion of home owners (about 70%) so the picture that I see is a huge proportion of people already own their house free and clear, while there is a smaller proportion (recent home buyers) who are carrying a heavy debt load. On balance, we don't appear to be looking at a catastrophic credit bubble. This is a little contrary to what I had previously thought, so I will look into these figures further.
Given these figures, the recent election result should have been no great surprise and not because of the "interest rate scare". The fact is, people would be feeling wealthy and in those circumstances the incumbent is always favoured.
Going forward, I think we are about to enter choppy waters. The housing market appears to have peaked and I think the stock market is not far behind.
The stock market made a new high yesterday before retreating somewhat today. I'm looking for a significant high somewhere around here. We're likely to see a pullback and then one more push up, possibly to a new high. After that, the market is likely to be in a bear market phase for a significant period (5-10 years). Basis for this forecast is the Elliott Wave Theory from the folks over at Elliott Wave International (www.elliottwave.com). In Australia we appear to completing a 5th wave up which started in the early 1990's. The US market is already in the early stages of a protracted bear market and this is likely to start gathering force on the downside soon.
Just to round off today's post, this from the "Daily Reckoning" on the US.
"Imagine a place where you could spend far more than you earned for years without consequence," writes Gary Duncan in the Times of London. "Imagine a place where you could pay your way by writing cheques that nobody would bother to cash. Welcome to America, today."
Americans have never had it so good. But Nature has her ways of keeping things in balance. Like fat little lemmings rushing into the sea, Americans seem to have an urge for mass financial suicide; they couldn't wait to put themselves in deep water.
"Over the past decade or more," Duncan continues, "the United States has been living far beyond even the vast means commanded by the world's largest economy. America's households have spent far more than they earn, borrowing extravagantly against the rising value of their homes and other assets. The U.S. government has been no less profligate, dramatically increasing spending while making hefty cuts in taxes. "
In the last five years, for every dollar Americans earned, they've spent $1.20. In barely a decade, the United States became the world's biggest debtor, with the percentage of U.S. government debt in foreign hands rising from 20% to nearly half. Foreign lending - the kindness of strangers - is what keeps the U.S. economy going.
I (and a lot of other bearish commentators) have been saying for quite a while that this cannot continue. And yet it has! However, I think it would be highly imprudent to assume it will continue and my guess is that we are close to a major crash in the US. I'll save further comment on that for a separate post.
In the meantime, Australia can enjoy the sunshine and I think we're in relatively good shape to weather the storm ahead.
The fruits of Australia's long economic boom were illustrated in some figures published today by the Australian Bureau of Statistics:
"Private sector wealth was estimated to be $5013.3 billion at the end of June 2004, according to figures prepared by the federal Treasury and published by the Bureau of Statistics yesterday.
The measure of wealth covers a variety of assets including cash, shares, bonds, houses, factories and other business assets. Housing makes up more than 60 per cent of Australia's net wealth.
The Treasury figures showed Australia's private debt at $384 billion or $19,140 per person, up 10 per cent in the past year."
The net wealth figure works out at around $250,000 per person, compared with $126,000 per person in mid-1997. Before inflation, this represents an increase of 10.3% pa which is a rapid rate by any standards.
"The average house price has more than doubled since 1996 and the share price index has almost doubled in the same period. The benchmark S&P/ASX 200 rose to another record high yesterday (Oct 13), closing up 7.8 points at 3725.2"
Couple of things strike me about these figures. Firstly, the doubling of wealth has come largely from the increase in asset values of property and shares. Housing makes up more than 60% of net wealth so these figures are vulnerable to any significant setback in the property market.
Secondly, I'm a little surprised by the debt figures. They don't seem that large to me especially given a lot of the concern recently about the build up in household debt in recent years.
"Economists have expressed concern about the growth in household debt, which has risen to about 150 per cent of annual household income. Interest payments as a proportion of income are also at record levels, despite relatively low interest rates. Repayments are higher than when rates reached 17 per cent in the 1980s."
Australia has a high proportion of home owners (about 70%) so the picture that I see is a huge proportion of people already own their house free and clear, while there is a smaller proportion (recent home buyers) who are carrying a heavy debt load. On balance, we don't appear to be looking at a catastrophic credit bubble. This is a little contrary to what I had previously thought, so I will look into these figures further.
Given these figures, the recent election result should have been no great surprise and not because of the "interest rate scare". The fact is, people would be feeling wealthy and in those circumstances the incumbent is always favoured.
Going forward, I think we are about to enter choppy waters. The housing market appears to have peaked and I think the stock market is not far behind.
The stock market made a new high yesterday before retreating somewhat today. I'm looking for a significant high somewhere around here. We're likely to see a pullback and then one more push up, possibly to a new high. After that, the market is likely to be in a bear market phase for a significant period (5-10 years). Basis for this forecast is the Elliott Wave Theory from the folks over at Elliott Wave International (www.elliottwave.com). In Australia we appear to completing a 5th wave up which started in the early 1990's. The US market is already in the early stages of a protracted bear market and this is likely to start gathering force on the downside soon.
Just to round off today's post, this from the "Daily Reckoning" on the US.
"Imagine a place where you could spend far more than you earned for years without consequence," writes Gary Duncan in the Times of London. "Imagine a place where you could pay your way by writing cheques that nobody would bother to cash. Welcome to America, today."
Americans have never had it so good. But Nature has her ways of keeping things in balance. Like fat little lemmings rushing into the sea, Americans seem to have an urge for mass financial suicide; they couldn't wait to put themselves in deep water.
"Over the past decade or more," Duncan continues, "the United States has been living far beyond even the vast means commanded by the world's largest economy. America's households have spent far more than they earn, borrowing extravagantly against the rising value of their homes and other assets. The U.S. government has been no less profligate, dramatically increasing spending while making hefty cuts in taxes. "
In the last five years, for every dollar Americans earned, they've spent $1.20. In barely a decade, the United States became the world's biggest debtor, with the percentage of U.S. government debt in foreign hands rising from 20% to nearly half. Foreign lending - the kindness of strangers - is what keeps the U.S. economy going.
I (and a lot of other bearish commentators) have been saying for quite a while that this cannot continue. And yet it has! However, I think it would be highly imprudent to assume it will continue and my guess is that we are close to a major crash in the US. I'll save further comment on that for a separate post.
In the meantime, Australia can enjoy the sunshine and I think we're in relatively good shape to weather the storm ahead.
posted by Kevin Francis at
2:21 pm
