The AFR and mathematics

More sackcloth and ashes stuff concerning employment data in today’s AFR, including the strident by-line “Swan’s maths are a mess when it comes to our employment data”.

Determined to find a problem with an unemployment rate in the low 5’s, John Black makes much of the fact that if the labour force participation rate hadn’t “…slumped a massive 1.6%…” since December 2010, our unemployment rate would be much worse; 7.2% in fact.  This is of course on the assumption that “…there’s an extra 300,000 Australians who have lost the confidence to chase jobs since 2010”.

I’ve got a few issues with this approach, namely:

1. Black uses raw data to calculate the 1.6% fall.  The seasonally adjusted numbers only show a 0.7% decline over that period, so are ignored.

2. Not everyone who drops out of the labour market does so because they have “…lost the confidence to chase jobs”.  Presumably one or two have dropped out because their mortgage payments are now miles less than what they were, and their families no longer need two incomes to get by.

3. Finally, what was so magic about December 2010 that we have to use the participation rate at that time as some kind of gold standard?  If we go further back in time the participation rate was way less than it is now:

Ten years ago the participation rate was barely above 63%. Any guesses what the unemployment rate would be today if we had a 63% participation rate today?  A fair bit lower than 5%, and a whole lot lower than 7%.

Dix Index Update

Ever since the GFC hit in '08, the Dix Index (a measure of the extent to which the Weatherman's panel of economists agree on the the future direction of interest rates) has been struggling to get back below 0.5, having rocketed above 2.5 at the height of the crisis. As things around the world start to look a shade more benign the index is now just above that level.

Ernst & Young crankin’ it

Yet more financial services / rock climbing linkages, this time with Ernst & Young stretching the point with this graphic:

It’s a mystery to me what this guy has to do with divesting assets or driving value through carve-outs, but what I can say is that:

• he’s making this look way harder than it is
• notwithstanding the chalky fingers his chalk bag is shut tight

Chalk related problems seem to be common in these things - check "Share investing and sport climbing" for some more of the same.

ps I’m prepared to award extra points for the daggy climbing pants, the holes in which are suggestive of a squeeze-chimney horror story at some time.

Ninjas strike back!

Some time ago I posed a question about why the Australian Office of Financial Management would want to include low doc loans in its purchases of securitised mortgages (see Low doc loans? Ship ‘em in! and Low doc loans a concern to ASIC).  It seems that the matter is now getting airtime in the Senate’s banking/GFC enquiry (see the Macro business story and part of the hearing transcript here) although it seems like an answer is as far away as ever.

The Lucky Country

Following on from his recent "glass half full” speech the RBA Governor Glen Stevens recently gave a talk entitled "The Lucky Country", in which he sought to reiterate his views about the strength of the economy and its stark contrast with the "glass half empty" view taken by many commentators and business leaders. The speech was another strong effort aimed at bolstering confidence in our economy, but it's worth speculating on the title of his talk.  The phrase "The Lucky Country" was coined by author Donald Horne in his 1964 book of the same name. Far from being a boast, Horne used the term as a criticism of Australia's political and business leadership, who he perceived were content to allow the country to prosper purely on the back of its natural resources, rather than creating an innovative or clever society - in his words, "Australia is a lucky country, run by second-rate people who share its luck".  Horne has since revised his views to a degree ("Things have changed for the better. But the jury is still out", he wrote in 2004) but you have to wonder if Stevens had this sub-text in mind when he penned his recent speech.     

In regard to the detail in Stevens' speech, he noted that some of the negative views about Australia's economy are rooted in the view that Australia's relative prosperity was a product more of luck than of good management.  While there may be some aspect of luck in terms of the boom in Chinese demand for Australia's huge stockpile of natural resources, Stevens noted that some of the keys to Australia's strength had nothing to do with luck, including:

- the strength of Australian financial institutions going in to the global financial crisis

- the scope that existed within the Australian economy for substantial macroeconomic policy stimulus, and the effectiveness of those measures in sustaining growth

It was also noted that while there had been modest declines in house prices, these had stood up remarkably well, partly as a result of the fact that repayment pressure on borrowers had moderated as interest rates have fallen:

The honesty of Nigerian scammers

This article from a Microsoft researcher poses an interesting question: why do Nigerian scammers say they’re from Nigeria?  It’s such an instant turn-off for people reading it, you’d think that simply claiming to be from somewhere else in the world would dramatically increase their hit rate.  It turns out of course that this is the last thing they want – the viability of scamming relies on having a smallish number of mega-gullible people to target, and what better way to find that group than by getting them to self-select by responding to an email that’s so blatantly dodgy that 99.999% of the population will instantly discard it, leaving a small pool of highly viable targets?

It’s all here, complete with charts and formulae.

OECD Better Life

The OECD has a great website here that ranks countries by various health and wellbeing indicators like housing, education, jobs, health care etc.  Overall results are as follows:

No particular surprise there, considering how well things are travelling here and how badly much of the rest of the world is going. However, one of the great features of the OECD model is that it allows the users to weight any of the inputs up or down.  So, if we weight “Work Life Balance” at 100% and everything else at 0%, this is what we get;

On this measure Australia is ranked #31 – looks like we need to get some Danes down here to show us how to chill out.

Banks lifted rates to boost profits…or maybe not

Mark the ABC news story below.  Headline says “Banks lifted rates to bolster profits: RBA”.  Story says “Banks didn’t lift rates to bolster profits: RBA”.

Presumably you need to be an ABC copywriter to understand the nuances of this.

Get to the top…of something very small

Cranfield’s use of climbing imagery to promote its MBA program ("...get to the top in today's business environment...") misfires on the basis that this bloke is obviously bouldering, so the thing he’s scaling is probably a full 12’ tall.  Inspirational stuff!

Adelaide’s first billion dollar homes

Adelaide’s Sunday Mail reports today that average house prices in the leafy inner-east suburb of College Park are about to hit $2m. The Mail discusses this with the President of the Real Estate Institute, who explains that he’s not surprised by the news.

"That's because real estate prices traditionally double every seven years," Mr Moulton said.

They double every seven years do they?

On this basis, some simple maths tells us that the current median house price of $395k will grow to – wait for it – one billion dollars by the year 2091.  Incomes will grow as well – allowing for an optimistic 5% growth rate over that period will see the average South Australian pay packet rise from $47k to a seemingly hefty $2.23 million p.a. However, with average house prices at a billion dollars, the would-be home owner will need a deposit of at least $50 million (22 years work!) in order to get a loan of $950 million.  That’s a loan to income ratio of 426, compared with a current maximum of around 5.

I’m glad that’s all clear.