The trouble with Trump

Less than fifty days ago, my inbox was chock-a-block with emails like this one:

“HELP! My share portfolio is getting smashed! On the news last night Alan Kohler said that Trump’s Liberation Day tariffs are much higher than the Smoot-Hawley tariffs that caused the GREAT DEPRESSION! Is it time to sell?”

At the time the share market was 16% off its highs, and it suffered its biggest one day drop in five years.

What happened next?

Well, as I predicted, Trump folded like a cheap Aldi table, pausing the tariffs for 90 days. This caused the market to roar back as if nothing had happened.

And all those worried emails?

They stopped coming. 

Do you know what this reminds me of?

Actually, the Great Depression. 

Black Monday, October 1929, is etched in world history. You’ve probably seen that iconic photo of the poor bloke trying to flog his luxury car for $100 on the streets of New York. The sign on the bonnet read: “Lost all on the stock market”.

Yet here’s what most people don’t know:

By April 1930, the stock market had bounced back … it was up 48% from the October lows.

US President Herbert Hoover boldly declared to the world that “the worst is over”. 

Phew!

Yet, as soon as those words left his lips, the market began puking.  

Violently. 

And it kept chundering for the next two long years. When it finally lifted its head from the toilet bowl, the share market had dropped a staggering 89% from its 1929 peak.

Now let me be very clear: I am not saying we are on the verge of the greatest crash in history.  What I am saying is that humans have short memories. (Okay, and that US presidents cannot be trusted.) 

Arguably the world’s shrewdest banker, JP Morgan chief Jamie Dimon, agrees. He’s worried about the Trump tariffs, even in their reduced form, arguing that the US hasn’t felt their effects yet. “The market came down 10 per cent, it’s back up 10 per cent. I think that’s an extraordinary amount of complacency”, says Dimon.

The fact is that Trump has three more years in the Oval Office, and what about this guy says, “I’m just going to go about things quietly, diligently and make no waves”?   

My guess is that he’ll get even crazier as the days tick down.

Now, if you’re like me and you got through the Trump tariff tantrum without checking your portfolio, you’re probably good to go with whatever comes next. However, if you were one of those people sending me anxious emails fifty days ago – consider this your ‘do over’.

As Warren Buffett warned investors last week, while the long-term trend is up, “you will see a period in the next 20 years that will be a hair curler compared to anything you've seen before”.

Plan accordingly.

Tread Your Own Path!

Here’s what happens next to house prices

So the election is done and dusted.

Albo has been given the rose by Australia. He is our most eligible political bachelor. And, if the Internet is true (and I’m sure it is), I saw a picture of Dutton working at McDonald’s.

So where are we at?

Well, I caught up with my old mate Louie Christopher from SQM Research, who’s predicting that in this  calendar year property prices are going to rise …

By up to 10%!

And do you know who that reminds me of?

My young pup Lucky. 

I throw her a bone … and she pounces on it, like a first home buyer at an auction in an outer suburb.

And just as she’s about to grab that juicy bone … I kick it just a little bit further.

“The first home buyer deposit policies are stupid … they will just push prices higher”, says my mate Louie.

Indeed they will.

Yet what clenches my sphincter is that Albanese, Chalmers and Dutton knew it.

None of them would sit down at Sunday lunch and tell their sister (if she was a single mum on a low income) to go out and buy a house with a 2.5% deposit. Nor would they tell their own kids to sign up for a 5% deposit loan. 

Instead, they’d say: 

What if interest rates go up? What if you lose your job? What if you can’t make the repayments?

However  it’s a totally different thing when it’s campaigning for faceless voters.

So, as they bask in their glory and buy a burger from Dutts at Macca’s, I think Albo and Jimbo should read this question I got from one of their constituents, Sarah, this week:

Hi Scott,

Two years ago I purchased my first property using the Government’s single parent grant, which meant I only had to save a 2.5% deposit and the LMI was waived. Buying this property was a huge achievement as a single mum on a low income. Unfortunately, with the rise in interest rates and cost of living, I can no longer sustain the cost of my mortgage. My daughter and I are really struggling. What options do I have?

In the coming week I’ll put on my financial counsellor hat and help Sarah.

It’ll be a good warm-up. After all, come January 1, when Labor’s 5% deposit policy kicks in, there will be a lot more Sarahs coming through the door. 

Make no bones about it.

Tread Your Own Path!

My thoughts on the election

In the holidays, I spent $60 in fuel and tolls driving my thirsty ute across Melbourne … 

… to save $30 on a camping dunny. 

True story. 

That’s right, I literally burned more fuel than I saved … to buy a glorified bucket with a lid. (It’s for a camping trip – hey, we’ve four kids that aren’t strong enough to use a shovel.)

Yet I also scored four uninterrupted hours in the car with my 11-year-old son – a day of good chats and dodgy servo snacks. 

Priceless! 

As we drove out the farm gate, we passed what used to be golden paddocks where sheep would graze and old blokes would give you a dusty nod from the top of their tractors. 

Now? 

Sardine tins. Sold at caviar prices. 

The northern fringe of Melbourne — where we live — is growing faster than my inbox after a long weekend. But the roads? Still the same goat tracks, just with more SUVs and road rage. 

As we hit peak-hour gridlock, my son let out a theatrical sigh.

“Perfect,” I said. “More time to read election billboards.”

We passed Clive Palmer glaring down at us blowing his own trumpet.

“Is that our version of Donald Trump?” my son asked.

“Sort of. If Trump was raised on talkback radio and meat pies.”

As we snaked our way down the highway we passed billboards of ‘dead-eyes’ Dutton, and ‘tiptoe’ Albo. Seriously, these two have all the charisma of suburban accountants debating depreciation schedules. 

“All the billboards mention the cost of living”, remarked my son.

Spot on, mate.

And the biggest cost? The roof over our heads — rent or mortgage. That’s where the squeeze is. 

Australian homes are now some of the least affordable on Earth. And to afford them we’ve racked up world-class debt. Back in the mid-2000s, the average house cost four times the average income. Now it’s more than eight.

It’s clear that we’ve priced ordinary Australians out of their own neighbourhoods.

So what are the bold economic plans we’ll be voting for in the election?

Well, Labor wants to slash deposits to 5 per cent. Which is as dumb as it is dangerous. Remember, the US subprime crisis was created by politicians making it easier for broke people to buy homes. 

Not to be outdone, Dutton, the so-called economic conservative, is promising to allow first home buyers to raid their super and write off their mortgage interest. 

It’s madness. 

Both policies are like turning up at an auction and handing everyone a suitcase full of cash. It doesn’t make homes cheaper. It just lets buyers bid higher — and history shows they always do.

And the result?

It drives house prices higher. It drives rents higher. 

It seems like both sides have designed their housing policies to fit on a highway billboard: 

Big font. Feel-good slogan. Eye-roll logic. Paid for with borrowed money. 

And in doing so they’ve turned the great Australian dream into a financial trap. (Welcome, postcode povvos!)

After a long day of driving we got the portaloo and made it back home. Yet I couldn’t shake the feeling that our national housing plan was cooked up in the same aisle as the dunny bucket: cheap, flimsy, and bound to leak. 

Tread Your Own Path!

The Greens Party Listens

Hi Scott,
 
You seem to be singing from the Greens playbook. This week they are shrewdly threatening to not pass the government’s Help to Buy scheme unless they agree to stop negative gearing and freeze rents. Plus, their stunt on calling out the number of pollies that own investment properties (most of them) was also very Barefoot. So, are you a member of the Greens party?
 
Sarah
 
Hi Sarah
 
I’m a V8-ute driving, gun-owning, farmer, who has proudly never eaten tofu. So no, I’m not a member of the Greens party (or any other political party for that matter). However, that allows me to sit on the (barbed wire) fence when it comes to politics. So, I think the Greens should be congratulated for not supporting the Help to Buy scheme because it’s a dud policy that will incentivise broke people to buy homes they can’t afford.
 
However, their policy proposal of freezing rents is Barnaby Joyce-like embarrassing.
Think of it from the landlord’s perspective: if the government limits what rent they can charge, what incentive do they have to spend more money maintaining the property? And what’s stopping them from bypassing these laws and getting a higher rent from Airbnb?
 
Look, there are no easy answers to our housing crisis – and it’s something that’s happening the world over. Yet if I was a politician for a day, I’d wave my magic wand and scrap all the first homeowners grants and policies like Help to Buy that simply serve to push prices higher, and instead spend the billions on rebuilding public housing so vulnerable kids (and their parents) have a secure roof over their heads.