Where Is Investor And Consumer Sentiment Really Heading?

It’s long been recognized that a looming election will put consumer’s hands in their pockets, reluctant to spend until the final outcome of the election is revealed. And the same goes for investors.

A recent survey, reported in the Sydney Morning Herald earlier this week, showed that for the past seven elections, spending and sharemarket investing has actually picked up in the months leading up to the election.

According to Paul Dales, Editor at Capital Economics, an analysis of the facts shows a very different pattern than what is commonly believed:

[blockquote cite="Paul Dales, Editor at Capital Economics" type="left"]"It is possible that elections actually boost confidence as they give households a chance to influence the political debate and future policies," says Mr Dales "So as investors settle in for the longest election yet, businesses who pull the plug or postpone their plans may do so just at a time when investors and consumers are actually gearing up to get involved."[/blockquote]

Source: Sydney Morning Herald, April 25

It’s a good lesson for property investors too – procrastinate and pay the price. Those who act now will save.

Politicians Miss The Mark On Interest Rates

Customer satisfaction with the big banks has fallen in the first three months of this year – admittedly from 80.9% down to 80% according to Roy Morgan research. It’s a result of the industry-wide rate hikes in home loan interest rates late last year, and consumers are calling for a royal commission.

Of course the public are against rate hikes, but the politicians are misguided – directing their attack to the bank’s financial planners. Wake up Pollies! It’s your own policies that need to change. They are missing the big issue!

I think the RBA will lower their rate next month. Will the banks, in this ‘Anti Bank’ climate be game to not also reduce theirs? I don’t think so! I am not fixing. Low rates for longer!

And yet, the wool is still hanging over the eyes of bank shareholders, with an ever increasing profit expectation, they continue to fleece their their customers in an economy that just won’t cut it! Here’s what former ANZ Banking Group chief economist, Warren Hogan said on the issue:

“Over the past five years, banks have been attempting to achieve a return on equity of more than 15 per cent in an economy where the long-term risk-free interest rate has been around 3 to 4 per cent Senior management have been under tremendous pressure to achieve financial outcomes which could easily mean long-term considerations of ethical and customer issues are overlooked in the name of business outcomes".

Veteran banking analyst Brian Johnson, from CLSA, also points to a "staggering" gap between banks' ROE of 15 per cent and the 2.45 per cent return on 10-year government bonds. He describes the banks' profitability as "egregious".

Happy Investing!

Kevin Young Founder & Director | Property Club