Australia's Home Price Drop For the Third Consecutive Quarter — Central Bank Drops Rate

The Australian real estate bubble has popped and there is probably no end in sight, but here's the news about the third consecutive quarterly decline.

This is something I forecast more than a year ago, about actually 15 months ago and reiterated many times since then (including here): interest rates have peaked in Australia, and the next move is down.

Well, today, after much anticipation, I was proven right.
Nov. 1 (Bloomberg) -- Australian house prices declined in the three months through September, the third straight quarterly drop, as the developed world’s highest borrowing costs curbed demand. 
An index measuring the weighted average of prices for established houses in eight major cities dropped 1.2 percent last quarter from the previous three months, when it fell a revised 0.5 percent, the Australian Bureau of Statistics said in Sydney today. 
The median estimate of 19 economists surveyed by Bloomberg News was a 1.5 percent fall. They declined 2.2 percent from a year earlier.
Nov. 1 (Bloomberg) -- Australia’s central bank cut interest rates for the first time since 2009 and a Chinese manufacturing index slid, stoking concern that Europe’s debt crisis is weighing on Asia’s export-dependent economies. 
The Reserve Bank of Australia today reduced its key lending rate to 4.5 percent from 4.75 percent, saying Europe’s woes are starting to hit Asian trade. 
In China, a purchasing managers’ index fell to 50.4, the lowest level since February 2009, while South Korea reported the smallest gain in exports in two years. 
Nov. 1 (Bloomberg) -- The Australian dollar fell for a third day against its U.S. counterpart after the Reserve Bank cut interest rates for the first time in 2 1/2 years on signs global growth is moderating. 
The so-called Aussie declined against its 16 major peers after RBA Governor Glenn Stevens said inflation is close to the central bank’s target, adding to prospects policy makers may further reduce rates. 
Demand for the Australian and New Zealand dollars was limited after data showed manufacturing in China, the South Pacific nations’ major trading partner, slowed. “The Aussie is lower after the RBA rate cut,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. 
It seems like they have opened the door for more rate cuts because they say that inflation is likely to be close to target. I think there’s a possibility there may be another cut in December.”
With China imploding, and the end of the commodities bubble, and the collapse of the real estate bubble, Australia will face the implosion of two enormous bubbles and the only engines of their bubble economy.

From here, I think the probability for the Australian Bubble Economy to fall into the abyss is very high. So high that I wouldn't be surprised to see the AUD/USD trade at 0.50. The probability for this to happen is in my opinion much much higher than to see it at 1.50 as one of my bullish blogger states.


Tiho said...

the end of the commodities bubble... the AUD/USD trade at 0.50.... Hahahaha!

I love this stuff, you are the man! The contrarian indicator man!!!

Aussie Dollar to $1.50 in a few years or by decade end, commodities up 2 to 3 times higher in a few years to a decade end from now, not gonna come near 50 cents...

pej said...

We'll see dude. Let's make a bet, the one among us who's right flies to the country of the other and buys the other one a pint. And please, no crappy Foster mate. Something decent, Belgian beer please. Deal?

Tiho said...


Even if I win I'll still fly to Asia, coz the nightlife is better there... well maybe not Singapore. To clarify my call for the bet:

Commodities higher by 2 to 3 times from current level, Aussie not to touch 50 cents and hit at least $1.50 from here. Timeframe... secular trend, so years to decade end!

No excuses, no bullish.

pej said...

Singapore's nightlife is cool, but you have to know the places. Glad to see you want to visit me :-)

Your deal is too complicated. Let's just bet on the AUD/USD: if it gets to 1.50, beers on me. if it gets to 0.50 beers on you.

As you can see, the bet is currently closer to your target than mine. But who cares? No excuses, no bullshit.

Tiho said...

Ok done.

I'm only winning by 2.7 cents, as the Aussie is pretty much at parity! At 50 cents you win and 1.50 I win...

I don't wanna hear excesses like, Aussie fell to 75 cents and I was close... bla bla bla. Its either 50, which is back to the start of the bull market in 2001/02 or 1.50 which would be back to the 1974 peak... nothing in between!

pej said...


It's just going to be a pity if it goes to 0.5002 before stabilizing there ;-)

Tiho said...

It's sounds nice and all, but in reality, that will never happen, not even close.

The US Dollar is doomed!