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Speaker 1: Welcome to Fear and Greed Q and A, where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Michael Thompson, and good morning Sean Ayle.

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Speaker 2: Good morning Michael.

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Speaker 1: Sean. Today, if we have to pick one of those

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Speaker 1: categories for this episode to fall into, it falls squarely

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Speaker 1: into the economics category.

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Speaker 2: That's good.

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Speaker 1: It's good news. It's very good news because this is

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Speaker 1: your area of expertise, which maybe setting you up a

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Speaker 1: little bit here, isn't it. But we've had a lot

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Speaker 1: of data coming out recently. We talked yesterday and over

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Speaker 1: the last couple of days as well, we've had kind

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Speaker 1: of the West Back Melbourne Institute readings coming through talking

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Speaker 1: about consumer confidence. We had the National Australian Bank Business

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Speaker 1: Conditions Measure, we had the household spending from Wealth Bank

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Speaker 1: that we were talking about in today's episode. The question

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Speaker 1: is is the economy too strong to hope for interest

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Speaker 1: rate cuts next year?

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Speaker 2: HM? So if I was Shane Oliver or the wonderful

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Speaker 2: Dynamssena who's part of our show, they'd say, well, we

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Speaker 2: think there's going to be another one next year. If

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Speaker 2: I was Warren Hogan, I would say Nope, not a chance.

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Speaker 2: So there is no definitive answer to that. What really

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Speaker 2: took I took note of was Matt Common, the boss

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Speaker 2: of Commonwealth Bank this week. Commonwealth Bank has all this

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Speaker 2: credit card data, debit card data, lots of home loans,

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Speaker 2: lots of deposits. They kind of know what's going on

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Speaker 2: in the household sector. For Matt Common to come out

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Speaker 2: and say that the Australian economy remains resilient, economic growth

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Speaker 2: is recovering, disposable income is rising for many households, that

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Speaker 2: is significant. He's only going to say that if he's

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Speaker 2: convinced and the Commonwealth Bank's economists are convinced that things

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Speaker 2: are picking up somewhat, So that is really promising. Now

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Speaker 2: you mentioned that consumer sentiment reading, was it one hundred

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Speaker 2: and three point eight? It means more optimist and pessimous,

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Speaker 2: you know out just part COVID best in seven years.

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Speaker 2: That is a rogue reading, but still still it might

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Speaker 2: suggest that we are happier.

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Speaker 1: Then it may not be as high necessarily as that,

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Speaker 1: but certainly it would be kind of heading in that

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Speaker 1: direction by the sound of it.

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Speaker 2: Yeah, yes, I don't know the answer to that, Like

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Speaker 2: I'm fudging that totally the National Australia Bank Sentiment and

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Speaker 2: Business Conditions Index. What was really interesting in that is

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Speaker 2: that there's capacity constraints in the economy. Now, you have

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Speaker 2: capacity constraints in the economy when things are going okay

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Speaker 2: and you can't produce more stuff. Now. The offshoot to that,

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Speaker 2: of course is inflation, which comes back to your question

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Speaker 2: about interest rates next year. If we're getting inflation, we

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Speaker 2: are not going to get interest rate cuts Reserve Bank.

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Speaker 2: You know, is inflation is front and center for the

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Speaker 2: Reserve Bank. And if the data from National Australia, from Westpac,

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Speaker 2: from what Matt Common says is true, then we're not

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Speaker 2: getting any more rate cuts. I think the difference that

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Speaker 2: we've seen this week is this data is so much

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Speaker 2: stronger than it's been previously. There's been hints of it,

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Speaker 2: but it is still much stronger.

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Speaker 1: And while you do have kind of those outlies that

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Speaker 1: big jump right, there does seem to be some consistency

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Speaker 1: and that there is positivity right that you look at

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Speaker 1: them as a whole rather than individual things, and that

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Speaker 1: they do seem to be telling a fairly consistent story.

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Speaker 2: Yes, I think what's interesting is this is what Jim

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Speaker 2: Chalmers argues that the growth in the economy is shifting

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Speaker 2: from the public sector to the private sector. So it's

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Speaker 2: not the government that is propping up the economy. I don't.

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Speaker 2: They're not adding to growth, but there is still a

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Speaker 2: lot of help from much higher wages. And I mean

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Speaker 2: there's a record number of bureaucrats. You did a story

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Speaker 2: last week that you know, the states have almost two

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Speaker 2: million people employed. The feeds are just under it's about

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Speaker 2: three undred and eighty thousand or thereabouts. So the governments

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Speaker 2: are still propping up to some extent. But when you

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Speaker 2: shift the driver of growth to the private sector, that

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Speaker 2: is when you really find out whether the economy is

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Speaker 2: going okay or not.

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Speaker 1: Okay, I want to look at it just quickly from

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Speaker 1: two different perspectives. Okay, the perspective of yours and mine,

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Speaker 1: I'm guessing are actually probably quite closely aligned. No, homeowners, okay,

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Speaker 1: and what they make of this and the potential end

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Speaker 1: for rate cuts, but small business owners as well, what

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Speaker 1: do they make of this data of the improvement in

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Speaker 1: kind of consumer confidence a bit more kind of household spending,

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Speaker 1: et cetera. Should they be looking to good times ahead?

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Speaker 1: Kind of heading into Christmas or is really the only

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Speaker 1: way to know that. However it plays out over the

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Speaker 1: next month.

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Speaker 2: They shouldn't be looking for worse times over the next

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Speaker 2: few months. And if you're a retailer, like the Black

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Speaker 2: Monday sales going to be all black Friday, Cyber Monday.

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Speaker 2: There you go, combine them into one. Yeah, that's the

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Speaker 2: great weekend, The great weekend all important, the run up

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Speaker 2: to Christmas all important. That's not just retailers, but hospitality

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Speaker 2: those sorts of groups as well. And it actually looks

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Speaker 2: okay for them, Like the outlook does look kind of okay.

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Speaker 2: We've had a few surveys out notwithstanding administrations are still

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Speaker 2: at very high levels and liquidations at very high levels,

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Speaker 2: but it just does look a bit better. It's for

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Speaker 2: the more business next, the Reserve Bank has said that

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Speaker 2: it's liaison a program with the small business sector. Suggests

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Speaker 2: the worst is over for that. Take the homeowner side

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Speaker 2: of the equation. We all want lower interest rates, right,

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Speaker 2: but we've had three cuts already. Most people, the majority,

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Speaker 2: are still paying the higher rate of interest if the

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Speaker 2: economy picks up. Also, if your house is suddenly worth

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Speaker 2: you know, after a year up nine percent for the year.

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Speaker 2: The wealth effect, the wealth the wealth effect, that's it

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Speaker 2: that kicks in big time. So I don't mind if

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Speaker 2: my house is going to keep appreciating and I'm still

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Speaker 2: paying more because I've never changed my repayments from that

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Speaker 2: same here, I don't mind, you know, like I'm not

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Speaker 2: hanging for lower interest rates. I suppose the other thing.

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Speaker 2: And this is what many economists have been predicting for

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Speaker 2: a long time. We had the Global Financial Crisis, right,

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Speaker 2: we ended up having interest rates during COVID, But you

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Speaker 2: know that whole period in the run up between the

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Speaker 2: GFC and COVID falling, staying low, ultra low in COVID.

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Speaker 2: Now we are kind of back to more normal. And

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Speaker 2: so whatever the interest rate is now, I mean the

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Speaker 2: cash rates three point six percent, let's say you're paying

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Speaker 2: five points something for your homelan normal. What we were

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Speaker 2: playing before wasn't normal. So people should really get used

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Speaker 2: to this type of interest.

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Speaker 1: Rate, okay, Which then essentially means the pressure on the

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Speaker 1: question that we asked that we started with, is the

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Speaker 1: economy too strong basically to hope for interest rate cuts

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Speaker 1: next year? It might happen, it might not happen, and

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Speaker 1: it just can't bank on it.

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Speaker 2: Yeah, you certainly can't bank on it. The Reserve Bank

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Speaker 2: has talked about what they call the neutral of inflation,

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Speaker 2: and up until probably that last meeting that they had,

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Speaker 2: last board meeting, they said that interest rates aren't detracting

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Speaker 2: from growth. They've sort of changed their mind and that

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Speaker 2: they're saying, well, maybe they're about neutral. And if they're

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Speaker 2: in neutral, that's where the Reserve Bank wants to be. Yeah,

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Speaker 2: you know, four and a half percent unemployment's great, inflation

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Speaker 2: underneath three percent interest rates where they are, I think

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Speaker 2: the bank could be quite happy with that.

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Speaker 1: Okay, all right, thanks very much, Sean.

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Speaker 2: Thanks Michael.

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Speaker 1: If you've got a question that you'd like us to

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Speaker 1: dig into, then send it through on LinkedIn, Instagram, Facebook,

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Speaker 1: or at fear and green ac com dot au. I'm

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Speaker 1: Michael Thompson and this Fear and Greed Q and A