Will the bubble end?

I’d like someone to explain to me what happens to house prices and our economy when interest rates inevitably rise again.

When interest rates rise, so will house repayments for most people, even those on fixed mortgages will have less than 5 years respite at the most, but what will the consequences be? Investors will need more money to service their loans, but negative gearing will give them a larger tax break, and they can always put up rents. Owner occupiers, however, may be pushed beyond their capacity to service their mortgage ending in forced sales or foreclosures.

What I want to know is how the market will react in the scenario where we begin to see an increase in the number of people who can’t afford their mortgage? Will we see the bubble burst, with all of the flow on effects that we’ve seen in the US, UK and Europe, or will the equity rich investors simply concentrate the ownership of real estate further still and continue the bubble?

The combination of negative gearing, combined with the capital gains tax discount, seems to me to be distorting the market so much that my latter scenario doesn’t seem implausible. Would the banks tighten up lending if they saw more defaults, or would they double down on investors in an attempt to save the value of their assets? At what point would propping up the market become untenable? How much worse would the collapse be then?

The Australian real estate market looks to me like a financially ruinous game of chicken. If I’m wrong, I’d like to know why. If I’m right I’d like to know how the hell to get out of the way.

Christmas a victim of carbon price

BREAKING: Globally respected present delivery specialist Santa Claus has revealed that due to the newly announced carbon price he will cease visits to Australia.

Despite the fact that his reindeer led sleigh runs on magic, and is therefore unaffected by a price on carbon, Mr Claus believes that there will be impacts on other parts of his business.

“Traditionally I’ve delivered coal to people on the naughty list,” intoned a disappointed Claus, “and with the number of lies being told by some members of the Liberal and National Parties with regards to carbon pricing, not to mention some of the folk at News Ltd, I’d need a record load this year. That much coal means a financial burden that I can’t bear, and that I have no capacity to pass on”

Asked whether he would seek compensation, or an exemption, from the carbon price Santa gave a resolute “No”. He explained “Everyone understands that we need to take action on climate change, and that a market based price on carbon is a part of that. The simplest and best solution is for Malcolm Turnbull to have a serious talk with some of the anti-science nutbars that he works with, if Tony Abbott could “Stop the Bullshit” about carbon pricing we might be able to get a few of his colleagues off the naughty list and bring my coal order back to a manageable level.”

Efforts to convince Santa to switch to a renewable resource for people on the naughty list have thus far failed to find an alternative. “The reason that I have a naughty list is to convince people to modify their behaviour, I can’t be held responsible if some of the people are too stubborn or ill-informed to make the necessary changes.”

Neither the Prime Minister or Opposition Leader were available for comment, although a spokesman for the PM’s office said that she was particularly disappointed, as she had hoped that finally taking a step towards addressing climate change would have been enough for her to get a pony and a plastic rocket from the man in red this Christmas.

Why wireless will never rival the NBN.

One of the favourite pieces of anti-National Broadband Network nonsense is that wireless technology will make it obsolete. But a group of residents in Thurgoona have demonstrated precisely why that will never be the case.

Thurgoona residents slam Optus tower

Both parties pleaded their case to councillors last night in their scrap over Optus’ plans to build a 25-metre mobile phone tower on Thurgoona Golf Course

The Thurgoona residents, who claim the phone tower is a visual blight that will affect the value of their homes, were last night furious with Optus for refusing to reveal statistics showing a need for the new tower.

Good luck getting a mast on every street corner for a nationwide high speed network.

Election night drinking game 2010

It’s time once again for the Dave from Albury’s Federal Election Drinking Game, with at least 5% fresh material since 2007.

This drinking game is easy. Tune in to the ABC on election night and drink when any of the following are said:

  • Bellwether
  • Small booths
  • Redistribution
  • Pendulum
  • Eden Monaro
  • Early returns
  • Quietly confident
  • The Australian people
  • Notionally
  • Large booths
  • The door’s still open
  • Too close to call
  • Lindsay
  • We’ll know more shortly
  • Vindication
  • Scrutineers
  • Factional Warlords

If you really want to get smashed include the following:

  • Swing
  • Preferences
  • Balance of Power

The advanced section for seasoned gamers is as follows:

  • Two drinks whenever Antony Green has bought up the wrong slide.
  • Two drinks for a cross to the tally room.
  • Two drinks whenever Kerry chuckles after interviewing a losing candidate.
  • Three drinks whenever Antony says that the computer is wrong.
  • Three drinks whenever someone seen as a ‘future leader of the party’ loses. (This does not apply to Peter Dutton, no-one seriously believes he could lead a Shetland pony)
  • Three drinks whenever a Politician on the panel refuses to concede a seat that their side has obviously lost.
  • Three drinks if you can get a tweet read out on air

And for the truly committed ALP and Greens supporters:

  • Scotch and razor blades if you hear the phrase “Tony Abbott is our new Prime Minister”.

Reflections on PMs past

The Hawke telemovie, airing as an election has been called, has had many wonks reminiscing about PMs past. There is still a lot of affection for Paul Keating from many Labor voters because of his wit, his vision and his passion. While I admired Rudd as PM, and feel that it’s disappointing that a government that actually performed well through difficult circumstances has been incapable of selling its achievements, he never really matched Keating in my mind.

Last night, watching the Hawke bio-pic, the difference between Rudd and Keating was crystalised for me in two moments, their respective victory speeches after winning an election. Both Keating and Rudd’s victories were impressive for different reasons, but after 11 years in the wilderness it’s not hyperbole to say that Labor supporters were absolutely desperate for their 2007 win and so had enormous expectations for Kevin Rudd.

This is what he gave them.

And there was another 15 minutes or so that you can search out if you like. I remember how ecstatic I was when Howard conceded, how thrilled I was to hear what Rudd would have to say, and how flat I felt after he delivered a pretty mediocre speech. Which is not to say he couldn’t deliver a great speech, the apology to the Stolen Generations gave me shivers, but on the night that he defeated Howard I wanted more than dull platitudes.

Compare that to the brilliance of Paul Keating speaking after beating John Hewson.

It’s hard to pick a favourite part from that speech, but I find the overall tenor, his belief in the people of Australia, inspiring.

And to the Australian people, through hard times, it makes their act of faith all that much greater. It’ll be a long time before an opposition party tries to divide this country again. It’ll be a long time before somebody tries to put one group of Australians over here and another group over there. The public, the public of Australia, are too decent, too conscientious and they’re too interested in their country to wear those sorts of things. This, I think, has very much been a victory of Australian values, because it was Australian values on the line and the Liberal party wanted to change Australia from the country it’s become: a cooperative, decent, nice place to live where people have regard for one another.

I think that for Keating it was about more than winning, it was about a vision for a more egalitarian and proud Australia. I wish that Kevin Rudd or Julia Gillard could inspire such passion for our nation, we are all poorer for the anodyne, vacillating, focus group tested blandness that passes for political discourse from all of our major parties these days.

We miss you Paul.

(Hat tip to @cooo_ee who found the Keating audio and transcript for me.)

Knowing who your friends are.

Some of life’s lessons can only be learned the hard way, the knowledge can only come from experience, which is sometimes very painful. It can be hard to watch someone you care about putting themselves through the sort of experience that leads to these insights, wishing you could simply make them understand the reality that was before them, but knowing that they’d have to figure it out for themselves. This is exactly how it has felt to be a supporter of the ALP while they’ve attempted to introduce a new tax on mining, the Federal ALP has learnt who their friends are, sadly for them it isn’t a long list.

Oh sure, it must have felt wonderful for the last couple of years having Heather Ridout nodding on cue every time that the PM made an announcement, and I have no doubt that you all loved reading her press releases that contradicted the opposition as they were busy behaving like a bunch of injured seagulls fighting over a chip as they attempted to decide on a leader, but you should have known it couldn’t last forever. As soon as you introduced policies that might harm the bottom line of corporate Australia they showed you where they stood, and it wasn’t by your side.

The naivety displayed by Rudd and Swan was almost touching as they put together a policy which not only improved the way the Australian people are compensated for the mineral wealth that our nation holds, but also had some very positive changes for the broader business community. The ALP knew they would face a fight with the big miners, but did they really believe that they’d receive support or plaudits from the rest of the business community? Did Kevin Rudd and Wayne Swan really believe that small mining companies, who received some incredibly generous terms from the RSPT, would defend the new policy and risk upsetting the larger miners who they will one day hope to attract as joint venture partners or sell out to?

The stark reality is that corporate Australia doesn’t like the ALP. They’ll tolerate a Labor government and they’ll even cozy up to it while the Liberals are going through one of their periods of opposition induced self immolation, but it never lasts. Did the whiz kids running the ALP machine believe that all of the donations before the 2007 election were a sign that the business community were looking to forge a new partnership with the ALP? They should have known better if they did, the corporate world knows which side its bread is buttered on and was just hoping to play nice in the hope of not having to face any real reform.

Rudd has been criticised, especially in the wake of today’s agreement, for being too confrontational with the mining companies, I say that’s bollocks. If anything Rudd wasn’t confrontational enough. If the RSPT had been a basic 40% tax on profits beyond the bond rate, with no sweeteners at all, today’s deal may have ended up looking like the original Rudd proposal. There’s no point for the ALP to try to play nice with corporate Australia because their efforts will never be appreciated and they will never receive any support when the going gets tough. If you want proof of that you need look no further than the gaggle of industry groups who today came out whinging about elements of the reform policy which have had to be scrapped to allow the miners to have their way. Not one of these organisations has been heard from supporting the RSPT, they sat on the sidelines rather than helping to secure something in their own interest, and now they bleat about the fact that they’re not getting all that they thought that they would.

The question that needs to be asked is whether Prime Minister Gillard and her cabinet will learn this lesson? The ALP need to start behaving like a real Labour government and place the good of ordinary citizens first, because it’s become brutally clear that the corporate sector will not lift a finger to support this government. What makes the whole affair even more disappointing is that the government already had a template about how to deal with big business in the shape of Stephen Conroy. The way that Conroy effectively sidelined Telstra via the National Broadband Network was brilliant, he played hardball and looks to be on track to achieve the reform of Telstra that is so sorely needed. Compare that to the antics of Sol Trujilo and Phil Burgess when dealing with the previous government and you realise how effective Conroy has been.

This same lesson is playing out again with News Limited. The News Limited tabloids tentatively jumped on the Kevin 07 bandwagon because they don’t like backing a loser, but the honeymoon lasted until about December 2007 before they started going feral. The ALP needs to treat News Limited like the hostile organisation that it is and deny it the sort of access, and government advertising, that it craves.

It’s time for the ALP to remember its roots, to sell their policies based on what they will do for the Australian people, and prepare for the onslaught from self interested lobby groups who will never be truly satisfied while we have a Labor government. It’s time for the ALP to remember who its friends are.