Episode 18

Porsches, Paintings and Property Prices: Alternative investments and what they can mean for property and the economy

Alternative investments and what they can mean for property and the economy

  • Classical Car Index
    • The CommSec Luxury Vehicles Index lists the following as luxury vehicle makers: Audi, Aston Martin, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, Maserati, Maybach, Mercedes-Benz, Morgan, McLaren, Porsche and Rolls Royce
  • Wine index – Liquid assets
  • Art or Luxury Property

 

Characteristics

  1. Almost like an asset backed security – No income, gains come from the increase in price of the good that backs it
  2. Capital growth focused rather than income
    • Pretty volatile – Based around demands

 

Luxury Investment Index

  1. Subjective pricing – Good example of ‘elastic’ and ‘inelastic’ demand
    • Imagine Demand supply cure
      • Demand slopes down, supply up
      • Demand – very vertical = Inelastic (remember through I being vertical)
    • Inelastic – necessities, price changes don’t affect demand
    • Elastic – horizontal – responsive to changes in demand, change in price, due to close substitutes
  2. Financial crisis – luxury declines – elastic good
    • Small change in quantity demanded, big change in price

 

So… what does this have to do with property?

  1. In economics no relationship is perfect – but they can be related. Lead-lag relationship
    • Historically: slowdown in sales of luxury vehicles = a slowdown of upper-end property prices.
    • This infiltrates the broader market.
  2. Luxury vehicle sales are still good – growth of sales is coming down from high levels

 

All about consumer confidence

  1. Confidence is demand: more confidence, more demand
  2. This is why there is a relationship in most assets that work off supply and demand –
    • Types of assets that are risky = Drop when confidence drops
    • People sell so the price drops
  3. Confidence (demanded) affected by many factors, a few factors:
    • Affordability – Wage growth
      • Plus, low inflation – 3% wage growth with 0% inflation better than 12% with 15%
      • Car affordability has never been better – Lower car costs, wages increasing
    • Anticipated environment – Prices continue to go up
  4. Confidence – Self-fulfilling prophecy – If people think that the economy is doomed, they run!

 

Components of the index – Micro and Macro

  1. Estimates of family finances compared with a year ago – up from 12.9 to 15.2
    • Looking back – own personal finances
  2. Estimates on family finances over the next year – down from 29.3 to 29.00
    • Looking forward
  3. Economic conditions over the next 12 months – up from 13.7 to 15.3
  4. Economic conditions over the next 5 years – down from 15.2 to 14.6
  5. Good time to buy a major household item – rose from 38.6 to 43.3

 

The current state 

  1. ANZ – Consumer sentiment – Rose 1.2% to 123.5 – Highest in 4 years (long run average = 112.9)
  2. WBC – Consumer confidence – Rose 3.9% to 106 

 

What will impact the future confidence and overall economy

  1. Wage growth – 2% wage growth required some adjustment after years of 3-4% per cent annual wage growth. But more people are realising that prices are growing at a slower rate than wages or are even going backward.
  2. Affordability – interest rates – Current borrowing to finance expensive goods is low
  3. External factors – market crashes in shares/business
    • Individual demand dried up
    • Leads to companies not earning as much (people are buying)
    • Leads to companies having to cut costs (affects supply potentially)
    • Leads to further demand drying up as people lose jobs
      • Incomes go down (or are expected to)
    • All of it has a similar pattern and is a chain of events.
    • Everything working together leads to an increase
    • Everything working against one another out of fear leads to an inevitable decrease

 

The take away

  1. Not designed to profit off – relationships aren’t perfect
    • Correlation doesn’t equal causation!
  2. When luxury car sales are in retreat – higher probability that home prices aren’t far behind.
  3. This episode was to give a better understanding about how the economy works
  4. Economy is a collective of millions of people
    • Bacteria – Growth
    • Microcosm where one good can show a trend for the overall health of the economy

 

Thanks for listening!

Furious Fridays: What should the government be involved in?

Hi Guys and welcome to Finance and Fury the Furious Friday edition. This is part 7, the last episode of the miniseries about all things politics. Sorry it took a while to cover, I wanted to do this topic justice and explain all the steps and outcomes instead of...

Artificial Intelligence and Investing: The future is here

Episode 29 Artificial Intelligence and Investing: The future is here Today’s episode of Finance & Fury we’re talking about Artificial Intelligence taking over the ETF and investment market. The discussion was actually started by one of our listeners, Gabriel who...

Economic Robin Hoods – the 200-year-old economic theory providing the basis by which developed countries are used for GDP redistribution

Welcome to Finance and Fury, The Furious Friday edition Continuing SDGs – today we are covering Economics or SDG 8 First, look at the economics of the UN itself – something never talked about Who pays for the UN – Member states - A complex formula - US pays most at...

Currency wars, trade wars and how they can act as a pre-curser to hot wars.

Economic Warfare through currency, trade, and sanctions – tools that can be used to crush a nation without firing a shot – but have historically been a pre-curser to war – also – the war on all of us financially – conducted by Central banks/Fed   James Rickards –...

What is Luck? And how can we be manipulated through information, destroying the luck that we have

Welcome to Finance and Fury, the Furious Friday edition Last week: Being grateful for what we have, where Australia started and where we have come Today: Luck truly running out How it can be manipulated What is luck? Success or failure apparently brought by chance...

Never let a good crisis go to waste – The new evolutionary phase of the economic system.

Welcome to Finance and Fury – Last year through September, October and November – was running through the future of the economy – was looking at this through a few episodes – interesting to see a lot of what was discussed playing out now In those episodes – went...

Where to invest in a post election world?

Welcome to Finance and Fury There is a saying that goes hoping for the best but planning for the worst. With the election around the corner, for those wanting to make it for themselves and create financial security may be in for a bit of a shake up Today I want to...

How fear can control the share market and how to invest without fear

Welcome to Finance and Fury. Today we’ll talk about what rules the market, fear, and why it is important to have some fears but also overcome them Fears rule the market – and the more fear makes the market more volatile  Occurs on both side – fears of losing money –...

Red versus Blue team and wishes versus reality

Welcome to Finance and Fury, The Furious Friday edition.  Episode 2 in this larger series - The last episode – Talked about historical events – resulted from people acting out their conspiracy – act of making plans with a counterparty to commit an unlawful or harmful...

8 Tax Loopholes, Trump’s tax losses, and thoughts on progressive taxation

Episode 3 8 Tax Loopholes, Trump's tax losses, and thoughts on progressive taxation Welcome to Finance & Fury! Today we're talking about increasing your net income …and the way to do that is reducing tax. So, in today's episode we'll run through why we pay tax,...

Pin It on Pinterest

Share This