Saturday, June 29, 2013

CairnsWatch June Report

"There were no substantive changes in direction of the Cairns economy over the last month. Cairns is continuing to build its economic recovery momentum."

No news is good news perhaps? Well at least the Cairns post saw it as all good news:

THE economy of Cairns continues its upward climb with jobs, tourism and housing leading the city's financial recovery.
Employment, airport passengers and home sales are increasing while unemployment and forced property sales are down, according to the June Cairns- Watch report.
Housing? The building approvals trend in the report (blue line) remains flat at depressed levels around historical lows.  Rick describes a "modicum" of local building activity. Modicum definition: "A small, moderate, or token amount". There should be only one way it can go from here! At the same time the firmest trend in median property prices is in vacant land?

Forced property sales have been included in this month's report and show the receiver overhang may now finally be almost out of the market which can only be positive. Mortgagee sales have declined but are not low and still above average pre-crash levels.

Employment remains the most positive regional indicator with the HTW trend employment increasing 4.8% over the past year. This compares with the 5.6% based on raw numbers (which were the subject of a recent post) and 3.8% based on the Government Statisticians 12 month moving average. Again, appropriate trend data should be preferred with this dubiously volatile data.

The report notes an overall increase in airport traffic of 2.3% over the past years but does also note some soft recent months following a strong start to the year. Could this be Chinese seasonal counter-cyclicality? While trends remain sound the most recent monthly traffic data point on the graph at the international terminal is a shocker which can only be hoped to be some kind of outlier?

As always it is interesting what the Cairns Post doesn't publish or mention from the report:

Who can resist a tongue poke at the Compost? Not me! Meanwhile the weather is fine, the City seems busy and vibrant with school holidays, and an influx on Rugby Lions soon to be replaced by ukulele revellers: Cairns Ukulele Festival

Update: Conus has a good analysis of the Cairn's Posts reported property boom: House price rise in Cairns

The war on derp

The word "derp" had its origins in South Park and has now become common on twitter. What does "derp" mean? Josh Barro has a useful post on this related to economics and statistics: Sorry, Haters: "Derp" Is A Useful Term, And It's Here to Stay

Bayesian probability basically says that “probability” is, to some degree, subjective. It’s your best guess for how likely something is. But to be Bayesian, your “best guess” must take the observable evidence into account. Updating your beliefs by looking at the outside world is called “Bayesian inference“. Your initial guess about the probability is called your “prior belief”, or just your “prior” for short. Your final guess, after you look at the evidence, is called your “posterior.” The observable evidence is what changes your prior into your posterior.
How much does the evidence change your belief? That depends on three things. It depends on A) how different the evidence is from your prior, B) how strong the evidence is, and C) how strong your prior is…
When those people keep broadcasting their priors to the world again and again after every new piece of evidence comes out, it gets very annoying. After every article comes out about a new solar technology breakthrough, or a new cost drop, they’ll just repeat “Solar will never be cost-competitive.” That is unhelpful and uninformative, since they’re just restating their priors over and over. Thus, it is annoying. Guys, we know what you think already.
English has no word for “the constant, repetitive reiteration of strong priors”. Yet it is a well-known phenomenon in the world of punditry, debate, and public affairs. On Twitter, we call it “derp”.
Which is to say, a policy commentator is “derpy” when his or her (usually his) prior assumptions about the world are so unwarrantedly strong that he is unswayable by evidence. Derpers have a faith-based approach to policy.
I came to this derp definition via another post from Barro and also Krugman on why perceptions of inflation in the USA don't match the actual statistics:
Erickson’s rant is literally the definition of derp. He has a strong prior inclination to believe that inflation is high. As such, his view is not responsive to strong evidence to the contrary, such as BLS data showing very low inflation both overall and in the specific products that Erickson is whining about.
The same perception is relevant to Australia where perceptions of the high "cost of living" don't match the statistical evidence. Yes, there have been some high profile price hikes in electricity and insurance but CPI and relevant indexes have remained benign. So how did the "cost of living" issue become elevated to such prominence? Derp!

Note: Stephen Koukoulas has written on this several times in recent years: Cost of Living?

Friday, June 28, 2013

Red tape unravels on Spence St

Kitchenslut has posted a couple of times on the requirement of the ACCC that if a restaurant wishes to impose a public holiday surcharge it should issue an entire new menu with adjusted prices. A simple statement of a surcharge of 10% or whatever did not suffice.

It was apparent that this was often abused or ignored but anyway. This week the Assistant Treasurer acted on 'red tape':
Cutting red tape for restaurants and cafés
Restaurant and café owners will face less red tape after the passage of new legislation through Parliament today, said Assistant Treasurer David Bradbury.
The amendments to the Australian Consumer Law will mean that small businesses in the restaurant and café sector no longer need to provide a separate menu for days when they choose to apply a surcharge, such as on public holidays and weekends.
"Restaurants and cafes are a valuable part of the Australian economy, so it is important that these businesses are not subject to any unnecessary regulatory burden," said Mr Bradbury.
"These amendments will cut red tape for small business, enabling many venues that are open on weekends and public holidays to go about their business without fear of accidentally falling foul of the law."
27 June 2013
I must say I do agree with this change as the previous requirements were excessive and unnecessary. However this week also I wandered past a new restaurant on Spence St and next to the window menu, with included prices, was this statement:
"Prices subject to change without notice" 
I do hope they at least notify any changes before one orders? Note to small business: if you object to regulation then best to think, do the right thing, and communicate appropriately in the first place!

Wednesday, June 26, 2013

Insurance: missing word in Coalition policy?

 Media reports today of a warning on insurability in high risk zones:
The speed at which oceans are warming could see parts of the world become uninsurable if climate change is not checked, warned the Geneva Association, a global insurance think-tank, adding that governments need to invest more in flood defences and tighten building restrictions in risky locations to mitigate the fallout from extreme weather hazards.
The speed at which the oceans are warming is threatening insurers’ ability to sell affordable policies in a growing number of places around the world, forcing insurers to change their assessment criteria for the risk of natural disasters hitting a specific area, said the Geneva Association on Monday. 
“Traditional approaches, which are solely based on analysing historical data, increasingly fail to estimate today’s hazard probabilities,” said the industry group in a report. 
"A paradigm shift from historic to predictive risk assessment methods is necessary," it stressed, adding that the insurance industry needed to support scientific research to gain a better understanding of when and where weather-related disasters will hit.

The report from the Geneva Association here: Warming of the oceans and implications for the (re)insurance industry
In some high-risk areas, ocean warming and climate change threaten the insurability of catastrophe risk more generally. To avoid market failure, the coupling of risk transfer and risk mitigation becomes essential.

Interesting that the term 'market failure' is used given that market failure in the tropical strata market was denied by the Insurance Council. A search on the recent Coalition 2030 Vision for Developing Northern Australia reveals not a single occurrence of the word "insurance" in the 46 page document?

Tuesday, June 25, 2013

Cairns Council Budget

The Cairns Regional Council 2013 - 2014 Budget has been released.

A balanced budget featuring a $132.5 million capital works program, a modest 3.69 per cent rise in general rates and a $3.6 million reduction in debt was handed down today by Cairns Mayor Bob Manning. 
In announcing the $297.5 million operating budget, Cr Manning said Cairns Regional Council had identified efficiencies and savings across the organisation to be able to present a balanced budget for the 2013-14 financial year. 
This represented a significant turnaround from the $6.6 million deficit in 2012-13, he said. 
A modest increase of 3.69 per cent in the general rate yield and a 4 per cent increase in fees and charges have been applied to meet increases in the cost of delivering core Council services. 
"We recognise the financial pressures now being experienced by the community and imposts on the cost of living of local ratepayers. In response, we have limited rate increases to a minimum," Cr Manning said. 
"This means that 97 per cent of ratepayers will receive a general rate increase of less than 4 per cent. Our cost base has been adjusted through a concerted effort to identify savings and efficiencies to lower our cost of operations to levels that can be sustainably funded. 
"We will balance these initiatives against a determination to maintain our frontline services to the community and we will continually challenge our traditional ways of doing business and how we deliver our projects and services. The scrutiny placed on how we do business will be ongoing. We will maintain flexibility that will allow us to respond to changing conditions." 
A $132.5 million capital works program includes $46 million in water and waste operations, $59 million on transport and drainage and $17 million on community, sport and cultural facilities. 
Council debt is expected to be reduced by $3.6 million to $85.2 million in the budget year. This equates to $1062 per ratepayer, down from $1111. Cash assets of $66 million are planned at year end.

While rates and charges have been increased 4% the rate for strata units has been frozen at last years level. With the minimum rate also increased by 4% that doesn't really address the structural problem which results in many anomalies between strata properties. An ongoing project and will now have to update spreadsheets on that.

Detailed budget papers are available here:

BTW: When it comes to strata rates the decision by Gold Coast to reverse what was the best and only evidence based policy is lamentable: High rise 'view tax' out the window. A subject for a later post when I finally complete my own report.

Monday, June 24, 2013

The Quaid Sugar Boom?

From the North Queensland Register: Banks move on cane land

Further north at Mossman, receivers BRI Ferrier have appointed Colliers International managing director Stacey Quaid to sell a 185 hectare cane farm. Most of the land is under sugar cane, with an expected 2013 production of about 10,800 tonnes.
"With the resurgence of sugar cane production in Mossman following a recent sale to Mackay Sugar, together with the expected economic benefit anticipated to flow from the stronger sugar price, we believe the properties should be readily contested," Mr Quaid said. The property could sell for between $1.5 million and $2.5 million.
Good to see that Stacey Quaid at least keeps up to date with sugar prices related to the cane land he is flogging! A 10% decline in the currency will be of limited support. Perhaps he is looking for a sea changer with a hobby in cane toads and large snakes?

Ministry for Northern Development

The Coalition's 2030 Vision for Developing Northern Australia was released last week. There is a good deal of cynicism and dissenting opinion around some aspects of this such as scale of the northern food bowl. I haven't looked through the document in detail which seems to contain a good amount of political rhetoric. The actual proposal so far is to produce a white paper on northern development within a year of being elected.

What did draw my attention was commentary on tourism. It is stated that Northern Australia has attracted 1.5 million international visitors in the past year and this could be expanded to 2 million. Given that the timeframe is 2030 this hardly seems a demanding objective at compound growth of 1.7%? Particularly when you consider the UNWTO forecast is for 3.3% pa growth in international tourism up to 2030.

Some historical political perspective to this most recent drive for northern development sounds awefully familiar:

There is little doubt that the Australian people desire a faster rate of development. For many it is an uneasy feeling about an empty and defenceless north … Australia can make a unique contribution in the settling and development of a huge tropical area by an advanced people of European origin.
The increased export earnings which the north can provide are necessary to raise the productive capacity of the south … what happens in the Fitzroy Basin in Central Queensland or on the Fitzroy in the southern Kimberleys is important to the people who live in Fitzroy, Melbourne.
We will establish a Ministry for Northern Development. Mr Chifley regularly conferred with the premiers of Queensland and Western Australia on northern development. Sir Robert Menzies, Mr Holt and Mr Gorton never did. I shall.” - Gough Whitlam

A Ministry of Northern Development was established by Whitlam following the 1972 election and subsequently dismantled during the period of the Fraser Government.



Saturday, June 22, 2013

Male & Female Employment

A quick post on this weeks employment data with an updated graph of male and female employment in the Far North. The Year-on-Year gain to May of 7,200 jobs being widely reported, or 5.6% growth, was the second highest among the Queensland regions. North-North West was the highest with 7.2% growth on that basis.

However that growth was almost entirely a recovery in female employment of 10.3% from what had previously been a very weak trend. Male employment grew at 1.7% which is basically in line with population.

As a hypothetical exercise if the participation rates had remained the same as May 2012 then the male unemployment rate over the year would actually have increased from 8.6% to 9.0%.  The female unemployment rate would have fallen from 9.7% to 2.5%.
Best to avoid volatile raw regional monthly data as statistically deficient even for such year-on-year comparisons. Trend data is preferred such as by Conus, and the Government Statistician adopts a 12 month moving average which results in jobs growth of 5,100 or 3.8%. I have included 12 month moving averages on the graph.
Queensland Economy Watch has posted a regional unemployment map. Macrobusiness also has a post with a break down of sector job gains and losses in Queensland.

Thursday, June 20, 2013

Men on Strike?

The ABS unemployment rate in the Far North fell to just 5% in May. No longer are we near last in Australia on this score and that's now below the Queensland unemployment rate. The Cairns Post will likely break out the champagne and the King Parrot ruffle his plumage and squawk. However, some of the underlying numbers were not quite so positive.

As so often the key driver in these volatile numbers was the participation rate which fell to 64.9%. That is almost a new low with the very wet March 2012 being the only lower month at 64.7%. Within that the male participation rate was easily the lowest since the series began and has now 8.6 percentage points below last August and down 2.4 percentage points for the month.

Male employment was also slightly down on the month although the estimate for total number employed in the Far North remains well above levels a year ago. So the improving trend and gains in employment have been sustained.

It should also be noted that last month I made reference to the regional employment data as a lottery with the winners for April being West Morton and Sunshine Coast. Both substantially reversed a large part of those gains this month.

Update: A couple of posts at Conus:

Tuesday, June 18, 2013

A curious poll result

The current political environment has become noxiously toxic. I was at high school during the turbulent Whitlam era when yes, vigorous debate extended into social forums. However the personal vitriol we are now experiencing against the current PM is unprecedented in a way which does the nation, or those responsible, no credit:

Polls as part of politics have become theatre and it was interesting to see a post this week from Poll Bludger on a poll by Essential Research when people were asked how they voted in 2010:

Respondents were also asked who they voted for in 2010, an exercise which is generally recognised as being blighted by the tendency of some to mis-remember having voted for the winning party. Sure enough, once “didn’t vote” and “don’t know” are excluded, the results are 44% for Labor, 42% for the Coalition and 8% for the Greens, compared with election results of 38.0%, 43.6% and 11.8%.
Some differences here apperar to be outside the margin of error for the poll. There were 4% of people who didn't know how they voted in 2010 and 7% polled who didn't vote. However, a statistically relevant proportion of them polled were deluded on who they actually voted for last election?

Monday, June 17, 2013

A Canadian Comparison

Paul Krugman has an interesting post with some comparisons between the USA and Canadian household debt and property markets in the context of the GFC: Worthwhile Canadian Comparison.  Canadian house prices have been quite robust in recent years compared to the USA.

Real house prices, 1975:1 = 100. 

Canadian household debt has also continued to rise coincident with housing prices.

Krugman thinks perhaps"Canada offers a useful test case for theories about what lies behind the Great Recession and the Not-So-Great Recovery" and has some concerns:
So if the new, non-bank-centered view is right, Canada ought to be quite vulnerable to a big deleveraging shock despite its boring banks. Of course, people have been saying this for several years, and it hasn’t happened yet — but remember, the US housing bubble took a long time to pop, too.
While there are some obvious differences, particularly the proximity and border with the USA, Canada is often used as a comparison with Australia as a developed country with a large resource sector. This is a similar graph of household debt from the RBA chart pack.

Household Finances graph

So Australian household debt has been almost flat since the GFC relative to household disposable income, sort of half-way between the USA and Canada trends, albeit at levels currently comparable to the USA, UK and Canada. A look at the trend for Canadian deficits & surpluses in recent decades has similarities with Australia also.

Friday, June 14, 2013

Will momentum restart the property clock?

A post today at the RP Data blog on regional property market performance: Largest falls and greatest gains in property values around the country.  Far North units have barely managed to escape the bottom slot for the largest decline from the market peak.

Where's the pain

However, Far North houses have been more resilient and escaped the list altogether. This also appears consistent with the comparative performance between the two sectors based on median prices in the HTW Cairnswatch report. The RP-Rismark data is based on their more sophisticated hedonic index.

Regional unit markets along the Queensland coast stand out among the hardest hit with RP Data commenting:

  • Unit dwellings within the lifestyle regions generally show a larger proportion of investor owners and holiday home / second home owners.  In times of financial distress, the investment property or second home will often be the first to be divested.  A large number of properties were added to the market in these areas at a time when buyer demand was virtually non existent.
  • Additionally, unit dwellings within these markets are often more reliant on short term holiday rentals or long term rental demand from service workers associated with the tourism and retail sectors, both of which have shown weakness post GFC.
  • These markets were prime beneficiaries of the ‘sea change’ phenomenon where retirees or prospective retirees were driving migration and housing demand in these locations.  I would expect that this trend (and hence housing demand) has slowed substantially as many retirees and prospective retirees look to rebuild their wealth post GFC before embarking on their sea change.
  • There’s also the fact that most of these markets recorded a strong run up in values pre-2008 and were arguably overvalued.

  • There has been a more optimistic tone recently to property market commentary around Cairns and  Port Douglas. The Cairns Post has typically been trying to drum up business for advertisers and there was also a positive report yesterday from property analyst Terry Ryder.

    While the outlook is more positive the HTW Cairnswatch property clock for Cairns residential remains at the bottom of the cycle where it has now been for some years. In real terms it is a long way back up for strata unit owners and investors.

    Tuesday, June 11, 2013

    Gavin's Gonski Gap

    I'm not really familiar with detail of the Gonski Review education funding proposals. The debate (slanging match) between State and Feds seems to be the story of the week so it was interesting to see the negative Facebook post today by the Member for Cairns:
    "More detail emerges on Gonski. It's my view that education system reform needs to be about more than just a catchy slogan and expensive Federal Government TV ads paid for by taxpayers"
    This post provided a link to a media release today by Qld education minister Langbroek. The spin here was that there will be at least 160 schools in Queensland worse off. The 160 schools will get increased funding but it is claimed not as much as they would under current funding models.

    So we are back to the same pointless stupidity as the recent health funding debate between Brisbane and Canberra on who had cut and who had not when funding growth is reduced. The Liberal education minister in NSW, which has agreed to Gonski, has a different view: NSW to Coalition: you are wrong on Gonski school funding

    The Langbroek media release: Gillard's own figures show losers under Gonski. This includes a list of the 160 schools it alleges will by worse off and his source (Source: Which is interesting because the Courier-Mail report was: Gonski means more money for every Queensland state school

    The Courier-Mail have listed the funding outcomes for all 1,235 state schools in Queensland. Langbroek has used the lowest 160 which are listed as receiving a base increase of 19.4% up until 2019 (approximately 3% per year). There are a handful of mostly small schools here from the Far North however that is not representative of the regional outcome.

    After doing a cut & paste of the C-M data for Queensland into Excel the average funding increase for a state school in that period to 2019, per student, is 36.8% and the median school 35%.  For the Far North (based on Wikipedia list of FNQ schools) the average school funding increase is way higher at 47.2% and the median 45.2%.

    Part of this is related to indigenous communities with large increases in places like Yarrabah, Pormpuraaw, Western Cape, Torres Strait. However, the larger state high schools in Cairns are also big winners a long way above state averages, or the 19.4% base adopted by Langbroek as being 'worse off':

    Trinity Bay High School            63.4%
    Cairns State High School           45.2%
    Woree State High School           48.8%
    Gordonvale State High School   50.8%
    Smithfield State High School     39.6%

    That would appear to leave a big potential funding gap missed by the Far North if Queensland rejects Gonski?

    How to interpret housing finance data?

    Almost simultaneous tweets today on housing finance data from Fairfax Business Day (SMG/Age) and Andrew Wilson from Fairfax owned Australian Property Monitors:

    Business Day@BusinessDay                6m        Markets Live: #AUD slides to a 32-month low on weak housing finance data ...
    Andrew Wilson@DocAndrewWilson                6m        Unsurprisingly strong April home loan data from the ABS confirms rising activity in housing markets as indicated by auction clearance rates

    Toss a coin or choose whichever fits your bias or preconception?

    Sunday, June 9, 2013

    Paradise one day, Macau the next?

    An interesting report has emerged in the News Ltd Sunday papers of a proposal for a massive development project at Yorkeys Knob: Newman Government in secret talks with Hong Kong magnate Tony Fung for $3b casino complex in Cairns.

    HONG Kong billionaire Tony Fung is privately lobbying the Newman Government for support to build a $3 billion Macau-style casino and five-star resort complex in tropical north Queensland.
    His grand vision is to build a new casino, five luxury hotels, the biggest aquarium in the southern hemisphere, a golf course, residential villas and lagoons on a beachside site in Cairns.
    The Hong Kong banker, from one of Asia's wealthiest families, is the latest high roller to make a bid for a new casino licence in Queensland and has recruited former premier Rob Borbidge to head negotiations.
    Justin Fung, chief executive of Australian Group Investments, in a Sunday Mail exclusive, has confirmed the Fung Family secured a five-year option over a 283ha parcel of land at Yorkeys Knob, north of Cairns.
    "We look forward to engaging with all stakeholders to ensure any development is sympathetic to the site and the region and provides a much-needed boost to the Queensland tourism industry," he said.
    Under the plan, the former site of the failed 1980s mega-style resort Rainbow Harbour development will be transformed from existing canefields into a multi-structure casino similar to those in Macau and Las Vegas.
    I'm not sure a Las Vegas style casino sounds overwhelmingly sympathetic to the location, or the image and tourism branding of Tropical North Queensland. I suspect community response may be mixed.

    The report of Barron River MP Michael Trout as a "driving force behind the project" is also interesting given the adjacent interest in Blazing Saddles at Yorkeys? One would have thought Trouty may have a not insignificant conflict of interest?

    Update: The Cairns Post has now caught up with its News Ltd brethren in reporting the casino proposal. Always interesting to observe the subtle differences and no mention here of Las Vegas or Macau!

    The "driving force" Trouty is reported here as not privy to the size or scale of the project? Rather the focus is on the proposal for the largest aquarium in the southern hemisphere. Will that have consequences for the currently proposed city aquarium?

    Update: Mining boom over! All heil the casino gambling boom?