Opinion Michael Pascoe: Property prices + interest rise threat = Clickbait

Michael Pascoe: Property prices + interest rise threat = Clickbait

Speculation about rising interest rates is wishful thinking, Michael Pascoe says. Photo: TND
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When not promoting the government’s shakedown of Google and Facebook, the main focus of media companies is attracting eyeballs in the hope of subsequently gaining a few pennies from advertisers.

And that, folks, is why we have clickbait.

Wardrobe malfunctions, anything real or imagined about the Royal family, two-headed snakes and frightening new diseases are great eyeball catchers – but if you’re a finance journalist, it’s difficult to work them into the business pages.

There, the equivalent of a rumoured Royal pregnancy is the suggestion that interest rates are about to rise while a pop star’s nip slip is a mention of housing prices.

Speculation about higher interest rates is great for clickbait. Photo: Getty

If you can write a headline combining soaring property prices and the RBA lifting rates, well that’s a princess shedding her clothes after being bitten by a two-headed snake suspected of spreading reptilian flu.

Which is what Nine Entertainment’s online SMH managed ahead of the RBA board meeting on Tuesday – “Surging property prices could force RBA to reassess ultra-low rates, economists warn”.

It doesn’t matter that the RBA has explained numerous times and as recently as last month that housing prices are not its problem.

Its primary concern is trying to encourage more employment so that the labour market will tighten, theoretically producing decent wage rises again, which in turn might get inflation off the floor and sustainably into the bank’s target band.

More expensive housing, despite the other problems it causes, is explicitly part of the “transition mechanism” whereby the RBA hopes low interest rates will create more jobs through the wealth effect and encouraging more building.

If lending for property gets too ropey along the way, that’s APRA’s job to fix with macroprudential policy to tighten standards or ration lending, not with interest rates.

The nearest the SMH story came to justifying the headline and lede was to record that two out of 23 economists thought the RBA might start increasing rates next year.

RBA governor Philip Lowe continues to emphasise the importance of jobs, tightening the labour market and decent wage rises. Photo: AAP

The RBA itself has promised rates will not be increased until 2024 at the earliest. Why two economists think otherwise was not explained.

In fairness, those two economists aren’t the only souls who’ve been speculating about inflation reviving sooner than central banks hope.

There’s been plenty of commentary around about the allegedly all-knowing bond market signalling inflation was on the way back thanks to  the money printing by the world’s central banks coming home to roost, especially President Biden’s $US1.9 trillion stimulus package.

(Note market commentary concerned about spending and debt is greater when there’s a Democrat in the White House than when there’s a Republican however much the Republican spends. But I digress.)

If anyone still remembers all the way back to 2019, the US yield curve went negative for a while – longer-term securities offered lower interest rates than short-term securities. That was supposed to mean the bond market was forecasting a recession.

No, American bond traders did not know in advance about a certain virus – they didn’t know anything more than anyone else. The yield curve inverting for a while added up to nought.

And the bond market doesn’t know any more now than anyone else about when inflation will finally revive. Nobody really knows.

Colleague Alan Kohler wrote on Monday about last week’s bond market wobbles and why inflation breaking out doesn’t look likely and market veterans have weighed in what the jump in bond yields was really about.

The US bond market was pointing to a recession in 2019, as short-term rates started to rise against longer-term (10-year) yields.

Regular readers will know I’m a fan of the British commentator and retired bond dog, Anthony Peters. Among many other things, he noted that even Warren Buffett had declared ‘bonds are not the place to be these days’.

“What he fails to tell us is whether they are not the place to be because yields are miserable and uncompetitive vis a vis equities or because rates are set to rise and bond prices to fall,” Mr Peters complained before himself quoting a fellow veteran bond dog, Melbourne’s Alex Moffatt of J Palmer & Sons.

“Last Friday at around midday a headline appeared on the online version of the Australian Financial Review screaming “Worst bond bloodbath since 1994”.  

My first reaction was to suspect that neither the author nor the contributor of the vignette of news was born in 1994 or, if so, was still wearing a primary school uniform and playing foursquare in the quadrangle.

“A few old bond dogs who shall remain nameless and I worked through that meltdown and came out the other side the better for the experience. I contacted one of those old bond dogs, Karl, on the matter and he responded just as I anticipated he would – ‘Yeah these whipper-snappers ain’t seen anything yet. This is just a position unwind. Every man and his dog was long 5s30s (a Treasuries spread trade) or a similar butterfly and they’re getting rinsed.”

Surging copper prices are creating headlines.

As for the idea that the surging copper price was heralding immediate inflation, Mr Peters was dismissive.

“Over the past months I have on a few occasions pointed towards the rise in the price of the metal as a good indicator that China is once again powering ahead,” Mr Peters said.

“That made plenty of sense when it was trading at around $US350/tonne at the beginning of February. Then came the universal declaration of the inception of a new commodities super-cycle and as at the time of writing it is heading for $US420/tonne. That’s a 20 per cent rise in 20 days.

“Is there substance to the rise? A super-cycle is a matter of firm price development over years and decades and cannot be traded to the full in just three weeks. A year ago you couldn’t give the stuff away at half the price. So what’s the big difference? Leverage, my dear Watson, leverage.”

Cheap money has investors and traders chasing anything that can move.

Bell Potter veteran Richard Coppleson recorded in his Coppo Report that dividends to be paid by ASX companies over March and April will be the second highest ever.

There’s increasing comfort with the idea that the world is becoming a better place, which means the safety of bonds isn’t as attractive as the promise of increased dividends from shares.

As Mr Peters concludes: “Until bond yields can offer a risk-adjusted premium over dividends, they remain in my thinking a rather silly place to tie up one’s money. At the moment they can’t even match inflation.”

But don’t let that get in the way of good clickbait.

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