Kochie’s economic update: Personal bankruptcies at record lows and property values continue to fall

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As Victoria starts its 6 week Stage 4 Lockdown, the Federal Government has made it easier for all Australian small businesses to access the extended JobKeeper scheme.

That’s great news. As I’ve said before, and reiterated with the Federal Treasurer this morning on Sunrise, as a country we can afford to subsidise keeping people in jobs and businesses afloat.

Government debt is not high (when compared to most other countries) and interest rates on that debt is low (the Government is paying well under 1 per cent interest on its new debt).

The more people you keep in jobs and the more businesses you can help keep afloat, the quicker an economy can recover. People in jobs pay tax as do businesses making a profit.

Personal bankruptcies are at record lows… hard to believe but true.

If you need any evidence of just how effective the Government stimulus is, personal bankruptcies and insolvencies are at record lows.

Yep you heard me right… record lows.

Australia is experiencing its biggest economic contraction since the Great Depression with the unemployment rate hitting 20 year highs of 7.4 per cent in June (and heading to 10 per cent by the end of the year). 

So you’d expect personal bankruptcies and insolvencies to be skyrocketing? 

No. Data from the Australian Financial Security Authority (AFSA) shows that the total number of personal insolvencies hit 24½-year lows of 4,239 in June… down 35.1 per cent from a year ago and the sharpest annual contraction since records began in the September quarter 1987.

The reason?

Record low interest rates, the Federal Government’s now $102.2 billion JobKeeper wage subsidy, the coronavirus income supplement (the $500 fortnight top-up to the JobSeeker jobless payment), childcare subsidies, superannuation withdrawals (currently totalling $42 billion) and bank loan deferrals (currently $274 billion in total) have kicked in to support Australian households. 

It is estimated that government support measures have boosted household disposable income by around $85 billion or 13 per cent over the past six months.

The Federal Government’s Coronavirus Small and Medium Enterprises (SMEs) Guarantee Scheme is also supporting up to $40 billion of lending to SMEs. 

Plus, amendments to the Corporations and Bankruptcy Acts… including the relaxation of insolvent trading laws for six months… will also be delaying business insolvencies and personal bankruptcies during the crisis.  

Australians are also getting smarter at managing their debt. Yes the national average mortgage size for owner-occupiers remains high at $484,500… up 11 per cent over the year to June.

But the way more expensive personal credit contracted by 10.5 per cent… the largest annual fall on record. That’s personal loans and outstanding credit card balances.

Property values continue to fall 

The CoreLogic July Daily Home Value index of five capital cities dropped 2.3 per cent…  after peaking on April 22. 

House prices also fell by 0.8 per cent in July and apartment prices eased by 0.6 per cent.

Home prices fell by the most in Melbourne (down 1.2 per cent), followed by Sydney (down 0.9 per cent), Perth (down 0.6 per cent), Brisbane (down 0.4 per cent), Darwin (down 0.3 per cent) and Hobart (down 0.2 per cent). But prices rose in Canberra (up 0.6 per cent) and Adelaide (up 0.1 per cent).

Why it’s shaping up as a very dangerous reporting season

Next week we head into the frenzy of profit reporting season… and you won’t miss a beat if you subscribe to the Ausbiz markets and business streaming channel.

But this week, showed what to expect. Two companies, two great results but two very different share price reactions.

On Ausbiz we interviewed director at Marcus Today, Marcus Padley, who told us sleep apnea giant Resmed had “blown the lights out” with earnings per share of US$1.22 against a consensus of 97 cents, but he said “there is a price for everything”.

“Resmed has been a fantastic investment – it’s been up 17 per cent in the past three months and 45 per cent in the last year but the share price is just starting to top out ahead of these results.”

“Although you’re seeing earnings up 24 per cent in this set of results, the forecast for next year is around 3 per cent. It’s on a PE of 45 and a 0.8 per cent yield and average broker target price is around 12 per cent below the current share price.”

Furniture retailer Nick Scali jumped 15 per cent on Wednesday on reported sales of $262 million for FY20, beating NPAT expectations by around 6.5 per cent with a positive outlook for FY21. Marcus warns that NCK is a very illiquid stock.

“You could move the price 10 cents with 10,000 shares probably.”

Nevertheless, he adds that the stock is looking cheap.

“The PE on Nick Scali is 15 with a 5.6 per cent yield… it looks like they are one of the slightly unexpected beneficiaries of the pandemic as everyone sits at home.”

Marcus says results NCK’s remind him that this is a “very dangerous” reporting season.

“Not only have we got things like high frequency trading and continuous disclosure, we have got the COVID quarter. The disparity between estimates and what will be delivered is huge.”

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