The state of the economy at the street level

[Valued]

I attended a seminar tonight where one of the guest speakers was a very famous economist. He gave a very basic and broad talk, nothing too specific or leading, but I got the vibe that he was trying to keep things positive and avoided the 'R' word.

He thought the Sydney property prices might remain stable for the next year, that the AUD would fall to about mid to high 60's by next Dec, and that the ASX200 would reach 5800 by that same time too. He had a rather positive outlook on unemployment rates as well.

You have to be skeptical of economists because you don't know what school of thought they ascribe to. The problem with macroeconomics is that all they can do is use models based on assumptions. The types of assumptions they use depend on their view of how the world works and how people work. That is the social science aspect of economics. Different schools use different assumptions so they come up with different results. The mathematics that they use is correct and it is deductive but it is a deduction from the assumptions so if the assumptions are wrong the conclusion is wrong even if the mathematical argument is correct. That's my problem with macroeconomics.

So when an economist tells me the market is going to go on a bull run, he is assuming a hell of a lot. I also wonder whether he is long on stocks.

 

[DeepState]

a very famous economist.

Who?

 

[Tyler Durden]

Who?

It was Craig James at a CBA organised seminar.

One thing I remember now is he used luxury car sales as an indicator of how well the Australian economy was going, saying it was at an all time high, so people were confident in spending. I wasn't too sure what to make of that, as it seems to me a lot of people who can afford these cars probably aren't always making a legitimate income.

One interesting thing of note is that he said he drives a 1991 Ford Falcon, which I think shows how humble the guy is.

 

[sptrawler]

One interesting thing of note is that he said he drives a 1991 Ford Falcon, which I think shows how humble the guy is.

Not humble, just has common sense, unless you need a car to make an income, it is only depreciating transport.

 

[sptrawler]

The W.A slowdown is showing no sign of decelerating.

https://au.news.yahoo.com/thewest/wa/a/30178698/outlook-on-homes-front-grim/

The last couple of paragraphs were interesting:

Separate research by the NAB shows applications for WA jobs are at their highest level on record as people fight over advertised positions.

At the same time, the wages of advertised jobs in WA are falling. Jobs in NSW are now advertising higher wages than those in WA which is closing in on Victorian wage levels.

NAB senior economist Ivan Colhoun said at a national level the weakness in WA was being more than off-set by strength in the services sectors in areas such as NSW, Victoria and increasingly Queensland.

 

[Knobby22]

Is WA looking recessionary, sptrawler?

 

[sptrawler]

Is WA looking recessionary, sptrawler?

It depends how you measure that, there are a lot of shops vacant, people generally are worried because most know someone who has been laid off.
Whether it is technically in recession, the statistics will be massaged to whatever the desired outcome is.

Broadly speaking though, consumers have tightened their belts for the long haul, IMO.

 

[Macquack]

It was Craig James at a CBA organised seminar.

One interesting thing of note is that he said he drives a 1991 Ford Falcon, which I think shows how humble the guy is.

Not humble, just has common sense, unless you need a car to make an income, it is only depreciating transport.

I have my doubts Craig James actually drives a EB Falcon, except as a "classic" collectors weekend use only vehicle. Ha Ha Ha ?

For one thing the 24 year old EB Falcon was a notorious fuel guzzler and any true "economist" worth their salt would not drive one on principle.

My guess is if Craig James is so f***ing smart he will be scrapping his EB Falcon and up-grading to a diesel powered Volkswagen because he is a "smart ars*" and will do a "killer deal" with some "sucker" trying to offload their "illicit" product.

 

[luutzu]

I have my doubts Craig James actually drives a EB Falcon, except as a "classic" collectors weekend use only vehicle. Ha Ha Ha ?

For one thing the 24 year old EB Falcon was a notorious fuel guzzler and any true "economist" worth their salt would not drive one on principle.

My guess is if Craig James is so f***ing smart he will be scrapping his EB Falcon and up-grading to a diesel powered Volkswagen because he is a "smart ars*" and will do a "killer deal" with some "sucker" trying to offload their "illicit" product.

That makes a lot of sense Macquack.

But then like all economists, James economics is 50% mental and 50% what the clients want to hear.

 

[Macquack]

That makes a lot of sense Macquack.

But then like all economists, James economics is 50% mental and 50% what the clients want to hear.

I think it is "100% what the client wants to hear", and the "economists" are fully "hedged" against that position (or what ever fancy term they use to do the exact opposite of what they are saying). Get rid of the parasites.

 

[luutzu]

I think it is "100% what the client wants to hear", and the "economists" are fully "hedged" against that position (or what ever fancy term they use to do the exact opposite of what they are saying). Get rid of the parasites.

True.

Can we get rid of Fund Managers too?

With what must be a trillion dollars in aussies savings, they don't seem to know what to do with it but throw it all over the place and asking for more... oh, and getting paid for the troubles too.

 

[Smurf1976]

Broadly speaking though, consumers have tightened their belts for the long haul, IMO.

My observation, from both on-line and real world observation, is that pretty much everything that isn't either housing or overseas travel is getting squeezed out as consumers either don't spend at all, or put their money into these two areas.

 

[DeepState]

It was Craig James at a CBA organised seminar.

One thing I remember now is he used luxury car sales as an indicator of how well the Australian economy was going, saying it was at an all time high, so people were confident in spending. I wasn't too sure what to make of that, as it seems to me a lot of people who can afford these cars probably aren't always making a legitimate income.

One interesting thing of note is that he said he drives a 1991 Ford Falcon, which I think shows how humble the guy is.

Thanks.

Car sales and luxury car sales are to Australia what the durable goods figures are to the US in some ways. The luxury car sales figures are pretty volatile. For example, in Oct there were only 107 sports cars over $200k sold [BMW 6-series, Porsche 911, Aston Martin..]. Only 71 'Upper Large above $100k' [Mercedes S-Class, Masarati Quattroporte, Porsche Panamera...]. It jumps around a lot.

The relationship between overall car sales and consumer consumption is there. As to whether it suggests durability of the story, acts as a lead or lags consumer....well, yes and no:



He has made the standard ~10% upside prediction for equity market returns over the coming year. These retail sell side guys are in a tough bind. Ultimately they are there to sell stock. You need to be in a position to see them privately to get their real thoughts. I hope you took what you needed out of it to add to your viewpoints.

Adding to the list of curious stats.... I understand that IVF treatment cycles are picking up. Now that's a sign of confidence in the economy more broadly than just the rarified air of ill-gotten gains.

On investment professionals driving old cars, it isn't that unusual. Some just don't value personal wealth very much at all, just the craft. One of the big time investors out there in the big smoke, who seems to be on Bloomberg a lot and ran a huge asset manager whilst continuing to invest a deca-billion portfolio drove a 20 year old purple Volvo with a missing hub cap. He earned over USD$20m a year. Gave most of it away at the church he played the organ at, lived in a modest house, flew economy when on business... he was extreme in many ways, but the concept of not caring too much for the high life despite ability to do so is fairly common. Of course, there's also a lot who do the opposite, but that's hardly constrained to the world of finance.

I just sold my 16yr old car and added to the economy.

 

[Vixs]

True.

Can we get rid of Fund Managers too?

With what must be a trillion dollars in aussies savings, they don't seem to know what to do with it but throw it all over the place and asking for more... oh, and getting paid for the troubles too.

Well gee, you can't argue with your well informed, clearly articulated and evidence based position. I don't think there's any choice but to get rid of fund managers.

 

[luutzu]

Well gee, you can't argue with your well informed, clearly articulated and evidence based position. I don't think there's any choice but to get rid of fund managers.

I detect sarcasm there?

What evidence do you need?

The fact that the majority of fund managers couldn't beat the index over any long period of time? Or that a few people whose super statement I can look at showed that for some years, theirs actually lose money and in the good years made a few bucks but the fees ate most of it?

At sept 2015, Australia has some $2.6 Trillion under management. If managed properly, you might solve world hunger with that kind of cash in a decade.

But according to industry experts and insiders, that's not enough money and if we're lucky the average Australian worker may just be OK at retirement from those savings... chances are we won't be OK so the gov't should raise the compulsory superannuation rate, just to be sure.

Enough evidence I think.

If you want a model, go ask the fund managers... most seems to know how to build a few dozen where it's so smart it tells them to throw money all over the place and results where they'd be lucky to match a lazy, no good, stupid index... even before their fees are deducted.

 

[fraa]

Re Active vs Passive investing, if you look into it in detail, you will find that there are VERY few who are true passive investors - most of us are "fund managers" to an extent.

True passive investing (i.e. taking what the market gives you) means you maintain a market neutral portfolio (i.e. the global market portfolio) - ANY deviation from this means you are making a bet and there will be someone on the other side of your bet (i.e. you making making an active call).

Even on hardcore index investing communities like Bogleheads, no one (or very few) invests in the global market porfolio. Instead, the very first step in the official vanguard/boglehead recommended process is to decide on bonds vs equities mix based on beta risk you want to take. This is a active call as you are already deviating from the bond/equity mix in the global market portfolio. Even more so, many Bogleheads dont bother with international equities (Jack Bogle himself said dont bother) and just stick with vanguard US TSM for their beta risk, so this itself is a concentrated bet on the USA, which is far from true passive.

So outside of few (any ?) people who are investing in the global market portfolio, everyone else is making active calls - so we are all "fund managers" in a sense.

 

[Junior]

I detect sarcasm there?

What evidence do you need?

The fact that the majority of fund managers couldn't beat the index over any long period of time? Or that a few people whose super statement I can look at showed that for some years, theirs actually lose money and in the good years made a few bucks but the fees ate most of it?

Australian Super is the country's biggest fund. Their default balanced option returned 7.3% per annum over the last 10 years. That is effectively CPI + 5% net of fees and tax. That period of time includes the GFC.

Are you suggesting we remove all fund managers and invest all in cash or government bonds?

 

[luutzu]

Australian Super is the country's biggest fund. Their default balanced option returned 7.3% per annum over the last 10 years. That is effectively CPI + 5% net of fees and tax. That period of time includes the GFC.

Are you suggesting we remove all fund managers and invest all in cash or government bonds?

View attachment 65120

You're not going to pin the "get rid of all of them" as literally all of them right?

Of course there are some outstanding fund managers, that's just the nature of the bell curve. Within those outstanding ones, there's the bell curve again.. But I think you'd agree that on average, the vast majority of fund managers, while probably somewhat smart and educated people themselves, as a group they have not perform well at their job... and so yes, should be fired.

 

[luutzu]

Re Active vs Passive investing, if you look into it in detail, you will find that there are VERY few who are true passive investors - most of us are "fund managers" to an extent.

True passive investing (i.e. taking what the market gives you) means you maintain a market neutral portfolio (i.e. the global market portfolio) - ANY deviation from this means you are making a bet and there will be someone on the other side of your bet (i.e. you making making an active call).

Even on hardcore index investing communities like Bogleheads, no one (or very few) invests in the global market porfolio. Instead, the very first step in the official vanguard/boglehead recommended process is to decide on bonds vs equities mix based on beta risk you want to take. This is a active call as you are already deviating from the bond/equity mix in the global market portfolio. Even more so, many Bogleheads dont bother with international equities (Jack Bogle himself said dont bother) and just stick with vanguard US TSM for their beta risk, so this itself is a concentrated bet on the USA, which is far from true passive.

So outside of few (any ?) people who are investing in the global market portfolio, everyone else is making active calls - so we are all "fund managers" in a sense.

It's a combination of them being very active and doing stupid things that are the problem. When you don't know what you're doing, best for the clients to be passive, sit down and watch youtube or something.

Diversification between asset classes, between geographies etc.... that's all sensible and I am NOT against that. But you can't just diversify because it's safer.. it's more risky to diversify into things you have no clue about. You just have to invest in what you know.

So if the Fund have enough analysts, have managers who understand, say China, or China and China's industry A and Company B... unless they can understand that, being active and buy into Company B in China so your Fund or your Asian Fund is "balance" is pretty stupid.

Stupid but sensible. When something is dumb but it make a lot of sense to keep doing it, somebody will get hurt - and it's never the guy that get pay no matter what happen.


Anyway, the whole industry is a scam. There are maybe a couple hundred managers who actually know what investing is and actually does it in managing clients money. The rest just set up a fund, get admin and marketing people in to promote and keep the paper works and payment churning, and the rest is either outsourced or simply divide each portfolio's fund into equal portion according to index weighing or whatever the marketing material claim the fund to be.

If "growth" fund then buy a lot more small caps, but still according to its market cap weighing; If "balanced" then half blue chip, maybe a quarter mid-cap and some micro cap... If it's Asian Growth then... you get the picture.

It's sensible to do these because performance is mark to market. But it's pretty stupid and people shouldn't be paid that kind of money to do useless things like that.

So no, they're active managers but they're not like us retail, not sophisticated investors.

 

[Tyler Durden]

I have a friend, approaching mid-20's, graduated with a degree in the finance field. Can't find a job in his relevant field and has been looking for more than a year.

Another friend is in HR who tells me that the job market is pretty tight right now.