State of Play: Is the Party Over?

Hi there and welcome to Thursday’s State of Play. So, it seems things are on the mend, things are getting better. And it means that if you haven’t sort of ridden the Corona virus wave, then a little window of opportunity may be closing for you. What do I mean by that? Let’s deep dive into some facts and figures and statistics, and I’ll pull it all together for you at the end.

So the first thing to note like in the past 24 hours is, Australian Bureau of Statistics have released figures. Now, before we make too much of this, remember ABS figures are always backwards looking. So, they’ve looked at business figures, but in the rear view mirror. So what they’ve said is that seven out of 10 businesses have suffered a decline in earnings since Corona virus. They’ve found that 70% of businesses have been forced to change the way they operate. So, for example, restaurants doing take-away that sort of thing, 70% of them.

Businesses that had changed the way they operate, were more than twice as likely to be experiencing a downturn or a loss to their normal trading. So 83% versus currently 37%. So that was from John Shepherd who’s the head of industry statistics at the ABS. Three quarters of businesses have access the Corona virus support measures, whether it be through JobKeeper, which was 55% of all businesses, or some sort of wage subsidy and 38% of them have tapped into other government support measures. So maybe it’s the government guaranteed loan that we had 50% government guarantee up to $250,000 and other such measures.

So, at the end of the day, businesses have done it tough. But remember that is looking backwards to COVID months like March and April, when we were in shutdown. What about going forward? It seems, I don’t know, if you’re sensing it, but people are far more positive. There’s a more of an air of exuberance. I know in our building here in Sydney CBD, the cafes are starting to come back. All their hope faces are there, you’re going in to get your coffee, people are happy and nodding in lifts. People are even pushing into lifts and other people are getting angry, but we seem to have forgotten it all. Like I had a lift this morning with about six people, and what do you do?

I want it to tell people, “Hey, this isn’t cool. Get out.” But you can’t be rude. So, everybody is feeling like the worst is behind us. Does the facts and figures accord with that? It seems so. So, the Reserve Bank governor Philip Lowe spoke today to parliament, and first of all, he got hammered a bit by Jacqui Lambie, Senator in Tasmania, and she said, “Well, credit cards are ridiculous. And banks, aren’t helping the little guy and interest is all being capitalized. It’s going to be a whole lot of debt for people to pay at the end of the day.” And his answer to that was, “Well, people will have more interest to pay it, but hey, the economy’s coming back to normal. As long as they’ve got jobs, it’s not going to be overwhelming. We’re talking a few months, spread out over the life of a loan. The way it’s structured, we’re all not going to hell in a hand basket at the end of the day.”

And yes, he agreed. He got asked about credit card interest rates, and he said, “Yeah, you shouldn’t be paying them, sort something out.” So more on that in a moment. But something to remember, if you’re carrying personal loan debt or credit card debt, unsecured debt, in other words, there’s no house or there’s no asset, there’s no mortgage like a car loan where they could take the car or a home loan where they can take the house.

It’s just debt for a credit card or a personal loan or that sort of thing, an overdraft maybe, there is a window of opportunity to do something about that now. Even if you’re paying on time, even if it’s all okay, but you may be feeling the pinch or you just may be paying 20%. I know that I had a credit card once, I maxed it up to a 20 grand limit. And then for years, literally about 10 years, I just made minimum repayments every month. And then when things went bad for me, they came and they said, “Well, we need the whole thing.” And all the interest that occurred. And I said, “When I’ve looked at this, I borrowed 20,000 and yes, I spent the 20,000, but I have paid you like 60,000 to over the years and I’ve paid it off three times over.” But that’s the idea of credit cards.

So if you ever wanted to get that monkey off your back now is the chance. And I say now, because things are getting back to normal. I’m seeing in our debt management department, that what was rubber stamping concessions during Corona virus, it was like, we’re going to help everybody. Everyone’s looking after each other. Banks were really bending over backwards to help people and support them and give them every concession.

Now, they’re hardening up. So the sliding doors are closing and they’re saying, “Well, okay, we were good. Now kind of the war is over. Back to business, get a job, earn an income. We don’t care. We want our money.” So it’s less of uncertain times. It was almost an Anzac spirit where we all supported each other and everyone had each other’s back, and we love the government and the reserve bank and the prime minister and our leader.

We all came together in Corona virus in Australia. Now I’m sensing the commercial world, where everyone’s got a little bit sharper, everyone’s now saying, “Well, we’re back to normal now. And the battle lines are redrawn and resumed.” So, the economy does appear to be getting better. So what Philip Lowe said, “Now we’ve come back. We’ve come out of isolation earlier than we thought or hibernation.” He said, “At first, we thought that it was going to be far worse than it was. So the government don’t need to spend more than they’ve already budgeted for JobKeeper. The economy is doing a bit better,” he said. And this is a really conservative guy who guards his language. So, he did say a bit better, “The economy is doing a bit better than was earlier feared. People were talking about a six month hibernation,” he said, “but businesses are opening up now.”

So that’s what they call forward guidance from the Reserve Bank Governor. Talking ahead. So, if he says it, if people hear it, if they believe it, it’s kind of a self-fulfilling prophecy. As Napoleon Hill once said, “Whatever man can conceive and believe he can achieve.” If we all believe things are getting better, if we all believe the economy’s kick-starting, we go out and we spend our money and we believe in the future of Australia and that’s kind of what’s happening now.

So he said, “It’s really good news that the amount of money that…” Then they were cross examining him and questioning him about JobKeeper. And he said, “It’s good that we’ve saved that and that extra amount, that blunder doesn’t have to be spent. Right now, I don’t think that they do need to spend more on the JobKeeper allowance than what they budgeted for.” And he said, “The issue isn’t now. The issue is in three to four months time.” So, remember that there’s a bit of a cliff there and we don’t know what’s going to happen. But what he says is, “As far as I can tell the way things are looking on the figures and the numbers, at the moment, it’s really plausible that in three or four months time, we can come out of JobKeeper.”

So it could be a really smooth landing, soft landing for us all. APRA, on the other hand have come out. So APRA is the Australian Prudential Regulation Authority, and they look after banks and give guidelines. They’re the watchdog, if you like for banks in Australia. So, APRA chairman, Wayne Byres has said overnight, he gave a speech in International Banking Summit. He said, “We shouldn’t be dangerously naive, and assume that we’ve all snapped back.”

He told banks to delay rebuilding their capital buffers. So he said to banks, “Just keep money for a rainy day. There may be a lot of bad debt out there.” And what he said APRA is looking at now is, threats to financial stability. And he called them substantial. So he said, “We haven’t come through the choppy waters yet. There’s still massive risk for the banking system.”

So just because we’re coming out of lockdown, it looks like people are spending, people seem happy, they look happy. The RBA governor says, “Hey, happy days, it’s looking better.” He said, “Don’t be fooled by that yet.” So he said, “APRA is vigilant.” And that’s his job really. They’re going to direct their resources to what they perceive to be areas of greatest risk. So what are those areas? He said that the real battles for the financial sector haven’t been felt yet. They’re in front of us, because we’re still in happy land on JobKeeper and JobSeeker and all sorts of government subsidies and reserve bank money pumped into the economy.

So, what he said is that lenders have to give investors and shareholders transparency. So, we talked on Tuesday about the government, Scott Morrison, Josh Frydenberg, coming out and saying, “It’s so hard to predict, and we don’t want all these class actions against company directors and boards who had to be transparent and reported figures and projections, the best they could, and suddenly they’re held accountable for that.” So they won’t be accountable for the next six months. There’s like a get out of jail, free card for them where they can do their best, and they won’t be held responsible. And what Wayne Byers has said, “Banks should give their figures. Be fully transparent,” because if you’re silent, have you take advantage of those new laws and those new rules, then people will assume the worst.

Credit reporting agencies that is rating agencies like Moody’s, Standard & Poor’s, Fitch, whatever. If they don’t give figures and come out and be public and transparent, then those agencies will assume they’ve got something to hide. They’ll assume the worst, and they’ll drop their credit rating. When their credit rating goes down, then that means it costs them more to borrow money. So their wholesale borrowing rates go up, they’ll pass it on to people, their books will be in a mess.

So, best to just steady as she goes, be honest, be truthful, be transparent and conservative in the figures, but keep communication key, and also make sure that you’ve got enough to allow for all the bad debt in the system. So, he says that ensuring financial and operational resilience was a priority. Because again, he keeps using this word, “The threats to the financial stability of our system are substantial.” So he wants measures to backstop liquidity. That is the amount of money banks have.

So, their war chest basically, in case of worst case scenario comes into play. So there may be solvency risks in other words, the banks don’t have enough money and credit risks that come to the foreign. The reason he said that is because banks across the board have deferred repayments on 703,000 loans worth more than $210 billion. So, there’s a cliff, as I said before in the government and financial support. So when these loan holidays come to an end or JobKeeper and other income support is phased out, people won’t have money.

So, we’re snapping back now, but we got a massive safety net underneath us. In fact, we’ve got someone, we’ve got the government, we’ve got the Reserve Bank, we’ve got the Australian Banking Association, everyone’s holding our hands. So, don’t get lulled into that sense of false security. And also don’t let them look after number one, because the APRA and the chairman there, Wayne Byers is saying to the banks, “Hey, don’t be too generous. Keep money install for a rainy day, because there’s going to be a whole lot worse that may be out there.”

And it’s not just about Australia. It’s globally. Remember the GFC, Australia didn’t really have a problem, but there were all these problems with loans in America. Banks got scared, credit dried up, the banking system collapsed in other countries, but it meant Australian banks couldn’t get credit. They couldn’t get money to offer to Australians. And that meant that no one spent. And we’ve managed to get through it, but those choppy seas may also lie ahead.

Doesn’t feel like it now. So the figures recent figures in consumer spending have showed… And they’ve looked at Commonwealth Bank and ANZ credit card data, and what they’ve said is, “We’re actually at the same level as we were this time, last year.” So, post-federal election, everybody’s happy uncertainties over, and right now people are spending what they did this time last year. So no one seems to be afraid.

So for the week to May 22nd, so last week, spending was in positive territory. So up 2.3%, depending who you listen to, ANZ said it’s 2.3% higher and CBA data on CBA credit cards show spending’s up 4%. ANZ said, “Look, it may just be an anomaly. It’s too early to tell because we’ve just come out of lockdown. People may have money to burn that they were saving to go on holidays over Easter that they didn’t get to do, and now that’s found an outlet. So, we need to see more data,” they’re basically saying to see a pattern and to know that it’s a trend that’s ongoing.

The other thing that’s happened is retail spending in last week. So the week of May 22nd, is 22.4% higher than the same week last year. That’s huge 22.4% we’re spending more than the same week in May, 2019. And grocery and pharmacy spending is up 23.9% higher. And as predicted we know the industries, if you’re looking at businesses that are doing well versus businesses that are really being challenged at the moment, travel and entertainment are 53% lower than this time last year.

And obviously when hotels and cinemas and outlets are close, then obviously they’re not making money. So, it just seems across the board when we average that all out, credit now is in full swing, people are buying and the recovery is really building up ahead of steam. So, spending fell 17.9% in April, and it’s now bounce back. And the biggest one get this, was household furnishings. So household furnishings and equipment and stuff for around the house up 55% for the week from the same period last year.

So people are obviously spending a lot more time at home, noticing things at home going, “Oh, I need to get a new desk for my study because I’m working from home or whatever.” So huge spending on the home. Maybe that’s longer term, we had Bernard Salt, so Australia’s leading demographer come and speak to our mentoring community, at our summit, we did a live stream summit on the weekend, and one of his big takeaways is that, “The world is going to change the way we live, the way we do business all of that is changing now.” And he said a big factor is going to be, whereas they say, “Oh, the kitchen is the heart of the home in selling houses. Make sure you’ve got kitchens and bathrooms to appeal to the lady of the house because women really have the rubber stamp and the can tick the box when it comes to the buying decision.”

He said, “A big thing now is going to be home offices. People will work more from home.” So, his prediction is, this is not just a flash in the pan. The way we live our lives will change forever. This isn’t just some blip and we’ll go back to normal. People have now realized, hey, we’ve got the technology. We can work from home. Things are going to be different. And spending patterns may change as well. Too early to see whether or not that plays out, but definitely people are feeling good. It feels like the war is over. And there’s a certain sense of exuberance. Victoria a little slow to follow compared to the other States, but you know that famous wartime video clip of the guy with the hat dancing in the street, that’s what it feels like anyway, to me in Sydney CBD. Maybe I’m a bit of a shopaholic, but it’s just nice to have things open and people doing business.

So, what we can see with these graphs here are changes in credit and debit card spending. So, we can see that the industries that have suffered over here on the left entertainment. So cinemas, ticket agencies, like your Ticketek for concerts and things, they’ve fallen off a cliff for April and May, haven’t really come back. But what is getting an uptick here is travel. So petrol stations, car parks, higher, accommodation, transport, all of that is gone from hit rock bottom now and going from bad to less bad so off. The other thing that you’re seeing there is credit card spending change. So, this is total growth in credit card spending, hit rock bottom in April and bounce back in May, and reaching new heights it seems. And if we look at the one with the dark blue lines. So the one on the right there, that is showing you total retail spending.

So, retail is really coming back and hitting nearly the highs that it was before everything shut down in March this year. And we usually see that, that’s a normal pattern where January, February, people are sort of getting over Christmas. They’re not really out spending. They had a big spending binge leading up to Christmas, the holiday, summer and then they’re just taking it easy before the year kicks off again when we fell off a cliff this year. And the other thing that’s changing is, spending in certain areas. So maybe it balances out. We can see exercise, gym memberships or fitness clubs is a red line there on the left, that’s fallen off a cliff. Whereas the blue line is like rebel sports and things. So people have been buying a lot more stuff to do weights or whatever to do at home. Sneaker sales, gym shoes has gone through the roof, hyped stores and accent shoes have just gone off the charts.

And what people are spending in store again, has gone up from rock bottom. The blue line is CBA credit card spending, but it’s mirrored so that the data is accurate. They also look at merchant facilities and we can see everything’s coming back. So, are we at business as usual yet? And for many of us, most Australians have our wealth tied up as equity in property. We’re far more likely to have half a million dollars equity in property than we are to have half a million dollars cash in the bank. In fact, the biggest sector of wealth, where we store our wealth in Australia by far and away is our residential property market. So economists the Reserve Bank, the government, everyone watches that so keenly, because if something happens in residential real estate, it affects so many people, not just real estate agents and building and construction and people who work in the industry, but our feelings.

And markets are driven by greed, hope, ignorance, and fear. They’re driven by human emotion. So whatever we feel then becomes a self-fulfilling prophecy. If we feel afraid and we don’t spend, then the economy goes into a decline. So if people’s house prices go down, if I’ve got a house worth a million dollars, the housing market falls 30%, my house is only worth $700,000, I feel like I’ve lost $300,000. And then I close my wallet I tightened up by shutdown shop and I said, we’ve got to tighten our belts kid, because we’ve just lost money. And we’re far more frugal, which means much less spending. When that happens across a whole economy where most people have their wealth tethered or tied to residential real estate, it has a big knock on effect.

So what are they saying? We’ve talked about some of this, but HSBC economists gave their prediction. And what they said is, “Next year housing prices could fall between two and 12%.” Now it’s different in the bigger cities. So Sydney and Melbourne are dependent on house prices to some degree by migration, especially foreign students and people coming there to either study or get work or on Skilled Migrant Visa. And what they said is, “In Sydney, they could fall anywhere between five to 15% and Melbourne seven to 17%.” But it’s not all bad news because we actually had gains in the market from this time last year to now, because the federal election was over and remember negative gearing was on the table, if a labor government got in.

So everyone will like rats from a sinking ship from property, and post-election, the market’s sword again. So, what we’re seeing now is not going to take us back or drop us down 30, 40%, but depending on how you listen to, of course, there’s always extremes, and how long is a piece of string, but on the information that’s currently available. So predicting the present into the future, which may not be certain, but what economists have said is that it shouldn’t be too bad. Now it will go backwards, worst case scenario there, and then that’s what we have to look at, because we have to look at, even though interest rates are really low, which is good for property prices and a property market, there’s uncertainty around the economy and the impact of COVID-19.

We don’t know where that’s going to lead because we’re artificially on… It’s like being on painkiller, we’re on JobKeeper, JobSeeker, government allowance, stimulus, loan holidays. What about when we remove that sort of life support? So there’s first of all COVID fallout to the economy. Second of all, really, really high unemployment is likely and could get worse, and low migration. So, we depend a lot in Australia, on people coming into the country and spending money and buying property and soaking up excess supply.

So they’re all unknown factors. Factoring the worst of it then, and seeing it come from the top of the market now, as the aftermath of COVID starts to flow through, Melbourne’s house prices have apparently just fallen 1% in the last month. And Sydney prices are at that tipping point and starting to go down and turn negative. So if you’ve been waiting to get in, you’ve hit the top of the market now, and things are going down. So, Commonwealth Bank said, “Look, 11% good case scenario and worst case scenario, 32%.” AMP said, “20%, worst case scenario.” Louis Christopher of SQM said, “30% decline.” But at the other end of the scale is columnist, Christopher Joye, who said, “Look, they’ll either just go nowhere, they’ll go sideways, or we might see a 5% fall, but then they’ll bounce back and we’ll have a huge boom after that.”

So let’s put it all together what does it mean for you? It means that at the moment, things are looking better. We’re going from bad to less bad, but there is uncertainty because we could be… When you’ve had something bad and you have painkillers or whatever, or you get in an ambulance and they make you suck on that thing that makes the pain disappear, you feel 10 foot tall and bulletproof, but you have to remember, that’s just an effect from medication. So, we’re feeling great at the moment, but what happens when we get rid of our painkillers and our medication, when we come off, JobKeeper, JobSeeker, government stimulus, will we feel pain, and could it get a whole lot worse? That’s uncertain.

Banks are now going, “Okay, well, the war was over. We gave you some concessions, but now it’s time to pay the piper.” So all of that interest is being capitalized onto loads. What we’re seeing now is lenders being far more generous. In our debt management department, and I can say just across section there of volume, what we’d see when COVID hit was, you’d ring them up and say, “Look, my client needs some concessions let’s renegotiate,” and they were like, “Whatever you want, just we’ll run a rubber stamp it.” Now, they’re like, “Okay, well I want to see a bit more. And we warned you that this was coming, a month or so ago.” They’re now saying, “I want to see this and that and payslips,” and they’re scrutinizing more.

And we can see that APRA and Wayne Byers is pushing that for banks. You’ve got to look after your bottom line. You’ve got to be transparent for investors, for shareholders, for everyone, and there could be instability, maybe not from Australia, but he was speaking internationally at that stage financial fallout. And he said there was a significant risk. And Phillip Lowe said, “Look, it seems good. We’ve had a bit of an early mark coming out of hibernation, but of course we have to be careful and it’ll be three or four months before we know what’s really happening.”

So great early first signs people out spending, and what that means is that technically everyone feels like in the institutions are saying the war is over, don’t ask for credit. And at the end of the day, they may tighten those ratings. So, now is the time to renegotiate, to vary loans, to get the best possible terms and negotiate with your lender, because that window is going to close soon and it may be business as usual, or else it may get a whole lot worse. We just don’t know. But act today to get your own house in order with the view that the next three to four months may get better, before it gets a whole lot worse come September, October.

So, if you want to take that offline, what I’m making available is a strategy session, because it’s not one size fits all. It’s horses for courses. People have different journeys, different assets and different ways of looking at things in your current situation. So, if you want to deep dive into your situation and what you should be doing now, you can book an appointment at dgidm.com.au because lenders, institutions are still doing deals in spite of what APRA has said. And that door is closing. The warning signs are there. So get yourself in the best possible position with all of your creditors right now, because the COVID concessions are coming to an end.

So if you go to that link there and it’s hyperlinked in the comments section, you can book in a time. Don’t take it if you don’t feel you need it, or if you’re not going to show up, because we’ve got resources tight, obviously, and huge opportunity there. So, only those who are serious about it, please book that appointment and we’ll take it offline and get you in the best possible position to ride a wave of change that’s coming through at the moment.

Thank you for following us, but make sure you follow us on Facebook and we can give you regular updates and share this with family and friends, tag them in the comment section. And if you’re watching on YouTube, of course, subscribe hit the bell and we’ll notify you every time we release new content. That’s it for today. We’ll catch up again at our State of Play next Tuesday at 4:02 in the meantime, have a great afternoon, have a lovely weekend. Stay safe, take care, and we’ll talk next week. (silence)

Dominique Grub…:Hi there and welcome to Thursday’s State of Play. So, it seems things are on the mend, things are getting better. And it means that if you haven’t sort of ridden the Corona virus wave, then a little window of opportunity may be closing for you. What do I mean by that? Let’s deep dive into some facts and figures and statistics, and I’ll pull it all together for you at the end.

So the first thing to note like in the past 24 hours is, Australian Bureau of Statistics have released figures. Now, before we make too much of this, remember ABS figures are always backwards looking. So, they’ve looked at business figures, but in the rear view mirror. So what they’ve said is that seven out of 10 businesses have suffered a decline in earnings since Corona virus. They’ve found that 70% of businesses have been forced to change the way they operate. So, for example, restaurants doing take-away that sort of thing, 70% of them.

Businesses that had changed the way they operate, were more than twice as likely to be experiencing a downturn or a loss to their normal trading. So 83% versus currently 37%. So that was from John Shepherd who’s the head of industry statistics at the ABS. Three quarters of businesses have access the Corona virus support measures, whether it be through JobKeeper, which was 55% of all businesses, or some sort of wage subsidy and 38% of them have tapped into other government support measures. So maybe it’s the government guaranteed loan that we had 50% government guarantee up to $250,000 and other such measures.

So, at the end of the day, businesses have done it tough. But remember that is looking backwards to COVID months like March and April, when we were in shutdown. What about going forward? It seems, I don’t know, if you’re sensing it, but people are far more positive. There’s a more of an air of exuberance. I know in our building here in Sydney CBD, the cafes are starting to come back. All their hope faces are there, you’re going in to get your coffee, people are happy and nodding in lifts. People are even pushing into lifts and other people are getting angry, but we seem to have forgotten it all. Like I had a lift this morning with about six people, and what do you do?

I want it to tell people, “Hey, this isn’t cool. Get out.” But you can’t be rude. So, everybody is feeling like the worst is behind us. Does the facts and figures accord with that? It seems so. So, the Reserve Bank governor Philip Lowe spoke today to parliament, and first of all, he got hammered a bit by Jacqui Lambie, Senator in Tasmania, and she said, “Well, credit cards are ridiculous. And banks, aren’t helping the little guy and interest is all being capitalized. It’s going to be a whole lot of debt for people to pay at the end of the day.” And his answer to that was, “Well, people will have more interest to pay it, but hey, the economy’s coming back to normal. As long as they’ve got jobs, it’s not going to be overwhelming. We’re talking a few months, spread out over the life of a loan. The way it’s structured, we’re all not going to hell in a hand basket at the end of the day.”

And yes, he agreed. He got asked about credit card interest rates, and he said, “Yeah, you shouldn’t be paying them, sort something out.” So more on that in a moment. But something to remember, if you’re carrying personal loan debt or credit card debt, unsecured debt, in other words, there’s no house or there’s no asset, there’s no mortgage like a car loan where they could take the car or a home loan where they can take the house.

It’s just debt for a credit card or a personal loan or that sort of thing, an overdraft maybe, there is a window of opportunity to do something about that now. Even if you’re paying on time, even if it’s all okay, but you may be feeling the pinch or you just may be paying 20%. I know that I had a credit card once, I maxed it up to a 20 grand limit. And then for years, literally about 10 years, I just made minimum repayments every month. And then when things went bad for me, they came and they said, “Well, we need the whole thing.” And all the interest that occurred. And I said, “When I’ve looked at this, I borrowed 20,000 and yes, I spent the 20,000, but I have paid you like 60,000 to over the years and I’ve paid it off three times over.” But that’s the idea of credit cards.

So if you ever wanted to get that monkey off your back now is the chance. And I say now, because things are getting back to normal. I’m seeing in our debt management department, that what was rubber stamping concessions during Corona virus, it was like, we’re going to help everybody. Everyone’s looking after each other. Banks were really bending over backwards to help people and support them and give them every concession.

Now, they’re hardening up. So the sliding doors are closing and they’re saying, “Well, okay, we were good. Now kind of the war is over. Back to business, get a job, earn an income. We don’t care. We want our money.” So it’s less of uncertain times. It was almost an Anzac spirit where we all supported each other and everyone had each other’s back, and we love the government and the reserve bank and the prime minister and our leader.

We all came together in Corona virus in Australia. Now I’m sensing the commercial world, where everyone’s got a little bit sharper, everyone’s now saying, “Well, we’re back to normal now. And the battle lines are redrawn and resumed.” So, the economy does appear to be getting better. So what Philip Lowe said, “Now we’ve come back. We’ve come out of isolation earlier than we thought or hibernation.” He said, “At first, we thought that it was going to be far worse than it was. So the government don’t need to spend more than they’ve already budgeted for JobKeeper. The economy is doing a bit better,” he said. And this is a really conservative guy who guards his language. So, he did say a bit better, “The economy is doing a bit better than was earlier feared. People were talking about a six month hibernation,” he said, “but businesses are opening up now.”

So that’s what they call forward guidance from the Reserve Bank Governor. Talking ahead. So, if he says it, if people hear it, if they believe it, it’s kind of a self-fulfilling prophecy. As Napoleon Hill once said, “Whatever man can conceive and believe he can achieve.” If we all believe things are getting better, if we all believe the economy’s kick-starting, we go out and we spend our money and we believe in the future of Australia and that’s kind of what’s happening now.

So he said, “It’s really good news that the amount of money that…” Then they were cross examining him and questioning him about JobKeeper. And he said, “It’s good that we’ve saved that and that extra amount, that blunder doesn’t have to be spent. Right now, I don’t think that they do need to spend more on the JobKeeper allowance than what they budgeted for.” And he said, “The issue isn’t now. The issue is in three to four months time.” So, remember that there’s a bit of a cliff there and we don’t know what’s going to happen. But what he says is, “As far as I can tell the way things are looking on the figures and the numbers, at the moment, it’s really plausible that in three or four months time, we can come out of JobKeeper.”

So it could be a really smooth landing, soft landing for us all. APRA, on the other hand have come out. So APRA is the Australian Prudential Regulation Authority, and they look after banks and give guidelines. They’re the watchdog, if you like for banks in Australia. So, APRA chairman, Wayne Byres has said overnight, he gave a speech in International Banking Summit. He said, “We shouldn’t be dangerously naive, and assume that we’ve all snapped back.”

He told banks to delay rebuilding their capital buffers. So he said to banks, “Just keep money for a rainy day. There may be a lot of bad debt out there.” And what he said APRA is looking at now is, threats to financial stability. And he called them substantial. So he said, “We haven’t come through the choppy waters yet. There’s still massive risk for the banking system.”

So just because we’re coming out of lockdown, it looks like people are spending, people seem happy, they look happy. The RBA governor says, “Hey, happy days, it’s looking better.” He said, “Don’t be fooled by that yet.” So he said, “APRA is vigilant.” And that’s his job really. They’re going to direct their resources to what they perceive to be areas of greatest risk. So what are those areas? He said that the real battles for the financial sector haven’t been felt yet. They’re in front of us, because we’re still in happy land on JobKeeper and JobSeeker and all sorts of government subsidies and reserve bank money pumped into the economy.

So, what he said is that lenders have to give investors and shareholders transparency. So, we talked on Tuesday about the government, Scott Morrison, Josh Frydenberg, coming out and saying, “It’s so hard to predict, and we don’t want all these class actions against company directors and boards who had to be transparent and reported figures and projections, the best they could, and suddenly they’re held accountable for that.” So they won’t be accountable for the next six months. There’s like a get out of jail, free card for them where they can do their best, and they won’t be held responsible. And what Wayne Byers has said, “Banks should give their figures. Be fully transparent,” because if you’re silent, have you take advantage of those new laws and those new rules, then people will assume the worst.

Credit reporting agencies that is rating agencies like Moody’s, Standard & Poor’s, Fitch, whatever. If they don’t give figures and come out and be public and transparent, then those agencies will assume they’ve got something to hide. They’ll assume the worst, and they’ll drop their credit rating. When their credit rating goes down, then that means it costs them more to borrow money. So their wholesale borrowing rates go up, they’ll pass it on to people, their books will be in a mess.

So, best to just steady as she goes, be honest, be truthful, be transparent and conservative in the figures, but keep communication key, and also make sure that you’ve got enough to allow for all the bad debt in the system. So, he says that ensuring financial and operational resilience was a priority. Because again, he keeps using this word, “The threats to the financial stability of our system are substantial.” So he wants measures to backstop liquidity. That is the amount of money banks have.

So, their war chest basically, in case of worst case scenario comes into play. So there may be solvency risks in other words, the banks don’t have enough money and credit risks that come to the foreign. The reason he said that is because banks across the board have deferred repayments on 703,000 loans worth more than $210 billion. So, there’s a cliff, as I said before in the government and financial support. So when these loan holidays come to an end or JobKeeper and other income support is phased out, people won’t have money.

So, we’re snapping back now, but we got a massive safety net underneath us. In fact, we’ve got someone, we’ve got the government, we’ve got the Reserve Bank, we’ve got the Australian Banking Association, everyone’s holding our hands. So, don’t get lulled into that sense of false security. And also don’t let them look after number one, because the APRA and the chairman there, Wayne Byers is saying to the banks, “Hey, don’t be too generous. Keep money install for a rainy day, because there’s going to be a whole lot worse that may be out there.”

And it’s not just about Australia. It’s globally. Remember the GFC, Australia didn’t really have a problem, but there were all these problems with loans in America. Banks got scared, credit dried up, the banking system collapsed in other countries, but it meant Australian banks couldn’t get credit. They couldn’t get money to offer to Australians. And that meant that no one spent. And we’ve managed to get through it, but those choppy seas may also lie ahead.

Doesn’t feel like it now. So the figures recent figures in consumer spending have showed… And they’ve looked at Commonwealth Bank and ANZ credit card data, and what they’ve said is, “We’re actually at the same level as we were this time, last year.” So, post-federal election, everybody’s happy uncertainties over, and right now people are spending what they did this time last year. So no one seems to be afraid.

So for the week to May 22nd, so last week, spending was in positive territory. So up 2.3%, depending who you listen to, ANZ said it’s 2.3% higher and CBA data on CBA credit cards show spending’s up 4%. ANZ said, “Look, it may just be an anomaly. It’s too early to tell because we’ve just come out of lockdown. People may have money to burn that they were saving to go on holidays over Easter that they didn’t get to do, and now that’s found an outlet. So, we need to see more data,” they’re basically saying to see a pattern and to know that it’s a trend that’s ongoing.

The other thing that’s happened is retail spending in last week. So the week of May 22nd, is 22.4% higher than the same week last year. That’s huge 22.4% we’re spending more than the same week in May, 2019. And grocery and pharmacy spending is up 23.9% higher. And as predicted we know the industries, if you’re looking at businesses that are doing well versus businesses that are really being challenged at the moment, travel and entertainment are 53% lower than this time last year.

And obviously when hotels and cinemas and outlets are close, then obviously they’re not making money. So, it just seems across the board when we average that all out, credit now is in full swing, people are buying and the recovery is really building up ahead of steam. So, spending fell 17.9% in April, and it’s now bounce back. And the biggest one get this, was household furnishings. So household furnishings and equipment and stuff for around the house up 55% for the week from the same period last year.

So people are obviously spending a lot more time at home, noticing things at home going, “Oh, I need to get a new desk for my study because I’m working from home or whatever.” So huge spending on the home. Maybe that’s longer term, we had Bernard Salt, so Australia’s leading demographer come and speak to our mentoring community, at our summit, we did a live stream summit on the weekend, and one of his big takeaways is that, “The world is going to change the way we live, the way we do business all of that is changing now.” And he said a big factor is going to be, whereas they say, “Oh, the kitchen is the heart of the home in selling houses. Make sure you’ve got kitchens and bathrooms to appeal to the lady of the house because women really have the rubber stamp and the can tick the box when it comes to the buying decision.”

He said, “A big thing now is going to be home offices. People will work more from home.” So, his prediction is, this is not just a flash in the pan. The way we live our lives will change forever. This isn’t just some blip and we’ll go back to normal. People have now realized, hey, we’ve got the technology. We can work from home. Things are going to be different. And spending patterns may change as well. Too early to see whether or not that plays out, but definitely people are feeling good. It feels like the war is over. And there’s a certain sense of exuberance. Victoria a little slow to follow compared to the other States, but you know that famous wartime video clip of the guy with the hat dancing in the street, that’s what it feels like anyway, to me in Sydney CBD. Maybe I’m a bit of a shopaholic, but it’s just nice to have things open and people doing business.

So, what we can see with these graphs here are changes in credit and debit card spending. So, we can see that the industries that have suffered over here on the left entertainment. So cinemas, ticket agencies, like your Ticketek for concerts and things, they’ve fallen off a cliff for April and May, haven’t really come back. But what is getting an uptick here is travel. So petrol stations, car parks, higher, accommodation, transport, all of that is gone from hit rock bottom now and going from bad to less bad so off. The other thing that you’re seeing there is credit card spending change. So, this is total growth in credit card spending, hit rock bottom in April and bounce back in May, and reaching new heights it seems. And if we look at the one with the dark blue lines. So the one on the right there, that is showing you total retail spending.

So, retail is really coming back and hitting nearly the highs that it was before everything shut down in March this year. And we usually see that, that’s a normal pattern where January, February, people are sort of getting over Christmas. They’re not really out spending. They had a big spending binge leading up to Christmas, the holiday, summer and then they’re just taking it easy before the year kicks off again when we fell off a cliff this year. And the other thing that’s changing is, spending in certain areas. So maybe it balances out. We can see exercise, gym memberships or fitness clubs is a red line there on the left, that’s fallen off a cliff. Whereas the blue line is like rebel sports and things. So people have been buying a lot more stuff to do weights or whatever to do at home. Sneaker sales, gym shoes has gone through the roof, hyped stores and accent shoes have just gone off the charts.

And what people are spending in store again, has gone up from rock bottom. The blue line is CBA credit card spending, but it’s mirrored so that the data is accurate. They also look at merchant facilities and we can see everything’s coming back. So, are we at business as usual yet? And for many of us, most Australians have our wealth tied up as equity in property. We’re far more likely to have half a million dollars equity in property than we are to have half a million dollars cash in the bank. In fact, the biggest sector of wealth, where we store our wealth in Australia by far and away is our residential property market. So economists the Reserve Bank, the government, everyone watches that so keenly, because if something happens in residential real estate, it affects so many people, not just real estate agents and building and construction and people who work in the industry, but our feelings.

And markets are driven by greed, hope, ignorance, and fear. They’re driven by human emotion. So whatever we feel then becomes a self-fulfilling prophecy. If we feel afraid and we don’t spend, then the economy goes into a decline. So if people’s house prices go down, if I’ve got a house worth a million dollars, the housing market falls 30%, my house is only worth $700,000, I feel like I’ve lost $300,000. And then I close my wallet I tightened up by shutdown shop and I said, we’ve got to tighten our belts kid, because we’ve just lost money. And we’re far more frugal, which means much less spending. When that happens across a whole economy where most people have their wealth tethered or tied to residential real estate, it has a big knock on effect.

So what are they saying? We’ve talked about some of this, but HSBC economists gave their prediction. And what they said is, “Next year housing prices could fall between two and 12%.” Now it’s different in the bigger cities. So Sydney and Melbourne are dependent on house prices to some degree by migration, especially foreign students and people coming there to either study or get work or on Skilled Migrant Visa. And what they said is, “In Sydney, they could fall anywhere between five to 15% and Melbourne seven to 17%.” But it’s not all bad news because we actually had gains in the market from this time last year to now, because the federal election was over and remember negative gearing was on the table, if a labor government got in.

So everyone will like rats from a sinking ship from property, and post-election, the market’s sword again. So, what we’re seeing now is not going to take us back or drop us down 30, 40%, but depending on how you listen to, of course, there’s always extremes, and how long is a piece of string, but on the information that’s currently available. So predicting the present into the future, which may not be certain, but what economists have said is that it shouldn’t be too bad. Now it will go backwards, worst case scenario there, and then that’s what we have to look at, because we have to look at, even though interest rates are really low, which is good for property prices and a property market, there’s uncertainty around the economy and the impact of COVID-19.

We don’t know where that’s going to lead because we’re artificially on… It’s like being on painkiller, we’re on JobKeeper, JobSeeker, government allowance, stimulus, loan holidays. What about when we remove that sort of life support? So there’s first of all COVID fallout to the economy. Second of all, really, really high unemployment is likely and could get worse, and low migration. So, we depend a lot in Australia, on people coming into the country and spending money and buying property and soaking up excess supply.

So they’re all unknown factors. Factoring the worst of it then, and seeing it come from the top of the market now, as the aftermath of COVID starts to flow through, Melbourne’s house prices have apparently just fallen 1% in the last month. And Sydney prices are at that tipping point and starting to go down and turn negative. So if you’ve been waiting to get in, you’ve hit the top of the market now, and things are going down. So, Commonwealth Bank said, “Look, 11% good case scenario and worst case scenario, 32%.” AMP said, “20%, worst case scenario.” Louis Christopher of SQM said, “30% decline.” But at the other end of the scale is columnist, Christopher Joye, who said, “Look, they’ll either just go nowhere, they’ll go sideways, or we might see a 5% fall, but then they’ll bounce back and we’ll have a huge boom after that.”

So let’s put it all together what does it mean for you? It means that at the moment, things are looking better. We’re going from bad to less bad, but there is uncertainty because we could be… When you’ve had something bad and you have painkillers or whatever, or you get in an ambulance and they make you suck on that thing that makes the pain disappear, you feel 10 foot tall and bulletproof, but you have to remember, that’s just an effect from medication. So, we’re feeling great at the moment, but what happens when we get rid of our painkillers and our medication, when we come off, JobKeeper, JobSeeker, government stimulus, will we feel pain, and could it get a whole lot worse? That’s uncertain.

Banks are now going, “Okay, well, the war was over. We gave you some concessions, but now it’s time to pay the piper.” So all of that interest is being capitalized onto loads. What we’re seeing now is lenders being far more generous. In our debt management department, and I can say just across section there of volume, what we’d see when COVID hit was, you’d ring them up and say, “Look, my client needs some concessions let’s renegotiate,” and they were like, “Whatever you want, just we’ll run a rubber stamp it.” Now, they’re like, “Okay, well I want to see a bit more. And we warned you that this was coming, a month or so ago.” They’re now saying, “I want to see this and that and payslips,” and they’re scrutinizing more.

And we can see that APRA and Wayne Byers is pushing that for banks. You’ve got to look after your bottom line. You’ve got to be transparent for investors, for shareholders, for everyone, and there could be instability, maybe not from Australia, but he was speaking internationally at that stage financial fallout. And he said there was a significant risk. And Phillip Lowe said, “Look, it seems good. We’ve had a bit of an early mark coming out of hibernation, but of course we have to be careful and it’ll be three or four months before we know what’s really happening.”

So great early first signs people out spending, and what that means is that technically everyone feels like in the institutions are saying the war is over, don’t ask for credit. And at the end of the day, they may tighten those ratings. So, now is the time to renegotiate, to vary loans, to get the best possible terms and negotiate with your lender, because that window is going to close soon and it may be business as usual, or else it may get a whole lot worse. We just don’t know. But act today to get your own house in order with the view that the next three to four months may get better, before it gets a whole lot worse come September, October.

So, if you want to take that offline, what I’m making available is a strategy session, because it’s not one size fits all. It’s horses for courses. People have different journeys, different assets and different ways of looking at things in your current situation. So, if you want to deep dive into your situation and what you should be doing now, you can book an appointment at dgidm.com.au because lenders, institutions are still doing deals in spite of what APRA has said. And that door is closing. The warning signs are there. So get yourself in the best possible position with all of your creditors right now, because the COVID concessions are coming to an end.

So if you go to that link there and it’s hyperlinked in the comments section, you can book in a time. Don’t take it if you don’t feel you need it, or if you’re not going to show up, because we’ve got resources tight, obviously, and huge opportunity there. So, only those who are serious about it, please book that appointment and we’ll take it offline and get you in the best possible position to ride a wave of change that’s coming through at the moment.

Thank you for following us, but make sure you follow us on Facebook and we can give you regular updates and share this with family and friends, tag them in the comment section. And if you’re watching on YouTube, of course, subscribe hit the bell and we’ll notify you every time we release new content. That’s it for today. We’ll catch up again at our State of Play next Tuesday at 4:02 in the meantime, have a great afternoon, have a lovely weekend. Stay safe, take care, and we’ll talk next week.

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