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Irrational Economics: The Numbers Vs. The Narratives | Australian Investment Education

Irrational Economics: Amidst the Coronavirus Pandemic, the economic statistics versus the economic narratives are painting two very different pictures. Our perceptions and opinions of what’s actually going on seem outrageously irrational given some statistics we have before us, here’s why:

Concentrated confusion

Any investor knows that you need to have confidence to successfully invest. Confidence means being certain, and as we all know – markets love certainty. The anecdotal evidence of our economic state seems to be rather different from how the statistics paint us. This means planting the flag in one spot as an investor becomes awfully challenging and anything but certain.

Australia is experiencing a record rate of real unemployment yet has a 7-year high consumer confidence figure. Our property market is booming yet 1 in 7 rental properties have been left without a tenant. As host Andrew Baxter states, it just simply doesn’t make sense.

The real rate of unemployment

Let’s face it – If you’re working hours a month are you really employed? Our answer – definitely not. Right now, here in Australia, our real rate of unemployment (including underemployment) sits at around about 13.5%. A record high. With this, for every available job right now there are over 12 applicants on average.

This means the potential for people getting back into the workforce is also extremely low as demand exceeds supply in the job market. Despite this, says host Andrew Baxter, there is so much government subsidy out there particularly with incentives to hire young people. The question arises, why aren’t employers hiring when they can be paid to do so?

Business uncertainty 

The reason any business becomes successful because they are looking forward. As a wise man once said – you don’t drive your car looking out the rear mirrors, you look at the windscreen looking what’s coming towards you. As a business owner this becomes awfully challenging due to the high degree of uncertainty amidst the COVID-19 and election environments, posing tough economic conditions – how do you forward look with any with predictability if the road is constantly changing?

At this point, businesses can’t be sure whether or not borders will remain open or closed. It’s unsure what kind of subsidies they qualify for (if any), or where the future direction of our economy lies with any real certainty. For example, if you’re out of business because a premier decides on ‘no tourists’, this is not any fault of yours and rather a result of unprecedented environmental change.

Interest rates and inflation

For only the third time in Australian history, this June our rate of inflation fell to a negative rate. This meant the prices of goods and services were going down, not up. At present, the inflation rate has jumped back up to an annualized 0.3% – well below the norm of 2-4%. Thinking about this anecdotally, it doesn’t really feel any cheaper to buy anything, does it?

Looking now at interest rates, RBA cut a record low of 0.1% to provide an incentive for people to borrow.

With that, we have seen a soaring property market and rental yields through the roof. How is that possible when there are basically no overseas buyers and unemployment at record highs? Quite frankly, the headlines don’t match the anecdotes.

The stock market is off to the races

Post US Democratic election win by (almost) President, Joe Biden, the stock market has been soaring to new highs. Despite, statistics presented in the post and the negative anecdotes, the stock market has continued to rally to the races. 

Host Andrew Baxter thinks the market is going in absence of Donald Trump’s Tweets causing the market to go bananas. Realistically, it’s quite weird that the stock market soaring yet our economy is knees as per the numbers.

 

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