The government just introduced 5% deposits. People
can go and put a 5% deposit for a home. Dumb. All they're
doing is creating future debt servitude for young people in the country.
Stupid. And all that's going to do is pump up the price again because
this whole short-term idea of trying to help mortgage holders by dropping 25 basis
points to alleviate a couple hundred bucks a month, it's probably caused some big
problems long-term. They should have just bloody left it. What's happening in the government
level is they're so afraid of the word recession that they're
pulling all the levers they can to avoid it, which includes cutting rates.
But here's the thing. If you cut rates and inflation goes up,
you might avoid a recession for a period of time. But if inflation gets
entrenched, you start to whittle away the wealth of the country. We're currently
in the greatest property bubble in the country's history in the last 130 years.
It's obvious. I'm Lloyd James Ross, seven-figure investor and
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saw the July inflation data come in, and it is coming in hot, meaning
that's bad. What do I mean by that? Well, the Consumer Price
Index, or CPI Index, which is the rate at which prices of goods
and services rise on a monthly and annual basis, is
they saw this. Since the start of the year to June, CPI,
or inflation, was running at about 1.9%, which is right in
the band of where the Reserve Bank wants to see inflation. However,
Last month, they cut the rates 0.25% down
to 3.6%. So the cash rate or the reserve rate with
the RBA is 3.6%. And that's coming down lower,
which is going to stifle inflation. I mean, how stupid do you have
to be as a reserve bank to not realize that people
are spending money already, there's full employment. you're
immigrating a whole Canberra every single year
into the country, what do you think's going to happen if you reduce rates?
Of course, it's going to tick up inflation. And that's exactly what's happened.
It's exactly what's happened. So the data to July
has come in at 2.8%. So
the expectations were probably around 2.1, it's 2.8, that's
a huge pump. That's like a 40% uplift
in inflation. So inflation rose by 40% from the
expected numbers. Now, CPI or Consumer
Price Index, the number they're running from, it
covers generally housing, tobacco,
it covers food, and those numbers, frankly,
are actually higher. If you look at those specific three numbers of
inflation, food is like 3%, housing has gone up over 3%, and
tobacco is 6.5%. So Australians, yeah, we
like to eat, we like to have shelter and we like to smoke. So
you think about that. So the number's probably more like 3.1%, which
is unbelievable. So that's almost like a 50% jump in
the inflation rate. And the reason that's happened is because the
RBA has dropped rates when they should have left them as is. They should have
left them. And the reason why they didn't is
because most people in Australia have gone
and borrowed to the hilt as much as they can to buy
overpriced housing. Now, before you tell me it's not overpriced, let me
tell you something. Housing is a financial asset and
there is an episode on here. If you go click
through, hit the subscribe button and go click through the episode we talk about with
housing and what's happening in the housing industry. We've done lots
of episodes on that but there's some fresh ones so go check
it out. Housing is
a financial asset and the reason it's a financial asset is because
you can lease it out to a tenant and get income from it and
you produce yield, right? So the asset can yield income
and cash flow. And of course, because it's attached to land, over
time with population growth and demand, the supply of land is
static and demand, which is population growth, makes the
price of the land go up over time, right? And so, it's
a financial asset. And the reason I
know it's overpriced is because if you were to go and buy a property and
lease it out, the rental return of say
three and a half percent, which is what the tenant pays you, three and
a half percent of the asset value is what the rental return would be. The rent doesn't
cover the repayments of a typical mortgage. Doesn't because
if mortgage rates, the retail rates to say 6%, which
they are, and you've got rental
yields at three and a half to 4% that the
assets not producing enough to cover the repayments of a mortgage. So
it's prima facie overpriced. Now, if yields were
more like five or over 5%, it
would be fairly priced or potentially undervalued, but it's not.
And the reason it's also not is because there's tons of signals that dictate that
it's overpriced. There's people living in tents. The government
just introduced, just this week, they introduced 5% deposits
where people can go and put a 5% deposit for a home. And
all that's gonna do is pump up the price again, because
people are gonna be able to get in a little bit easier. Mind you, that doesn't make
it easier for them to service the loan, which is still important, but it
does reduce the amount of deposit required. So that's gonna pump
up a little bit. And they brought that policy forward three months. Why?
Because they're trying to get it to the next edge. They're trying to save the
property market. And if you look at what the RBA did, with
the rate cut, they are trying to save the property market,
or they're trying to save people with these big mortgages that they should never really have
got. But because of the policies and the immigration coming into the country,
it's created a property bubble. And it's
getting ridiculous now, really, frankly, but that's what's happened. And
so you've got this situation structurally where you've got inflated housing
because of immigration, frankly, If you pull in six
or seven or eight thousand people a year and there's only so much housing to
go around, and by the way, there's only 53,000, 53,000 market
jobs, meaning non-government jobs available. So what the hell are
700 or 600,000 people going to do when they come here when there's only
53,000 open market jobs available and the government jobs are done? I'm pretty
sure they're even stopping government jobs happening now because they
had employed a lot into the sector. And Australia is
now one of the highest employees in the public sector, in the
government. So what are they going to do with the 550,000 other people?
They can't all be Uber drivers, right? So you're going to have this situation where
property is being pumped up, and it shouldn't be. And
the reason why people are mortgaged to the Hiltons is because they have to borrow money to
buy the houses, right? And so we've caused
this ourselves. And of course when the RBA
drops rates to save mortgage holders,
because they've got a million dollars worth of debt, and every little morsel of
cut, like 0.25 or 25 basis points, That's
going to save them a couple hundred bucks a month. But that couple hundred bucks a month
to a couple who's already both working, got kids in daycare, and
is paying at their butt for petrol and gas and energy
because of energy policy, then a little bit does count
for them. So the RBA is considering mortgage holders when they make these cuts.
But what they don't realize, well, they might realize, is that when you cut rates, you
really crank up inflation. Because what you're doing then is
you're creating more You're certainly creating more debt
availability because people are borrowing more money. And it's also pumping up
the price of things because you are alleviating some cash flow in
the household budget for them to go and buy more cigarettes and buy more groceries
and so forth. So that's how it happens. Now, why
is this a problem? Why are you talking about this,
Lloyd? Why is it such a catastrophic decision? And
I put it on my stories on Instagram yesterday and a friend of mine said, what does this mean?
Cause I put there that the RBA made a catastrophic mistake by
cutting rates. The inflation's gone up by 40% in the
last month from the start of the year to now it's cranked up.
And the reason why it's an error is because if inflation gets entrenched and
you can't get hold of it and it starts to grow, you know, 3%, 4%, 5%, if
inflation goes up to five or more percent, which is what's happening currently in the
UK, I believe is. that
you start to cook the currency, obviously. And people in Australia call
our currency the Pacific peso because the policies in
place currently in the country are making our dollar worth a lot less.
And that's why people are running to things like Bitcoin and so forth
because they're trying to find something that doesn't destroy their
gains of wealth, right? And it's also why they also want
property too, because when you do buy property, you do
have a hedge against inflationary pressures. But it doesn't work so good when you've
got a massive mortgage and it's costing you more than, you know, you're
sucking out your whole life to pay for it. This is who cares, right,
about inflation if that's happening. But if inflation
does get carried away, then it has
a huge impact on the economic growth of the country. Just
quickly, if you're ready to take control of your finances but feel stuck on
where to start, I have a solution. My book, Money Bias Happiness,
simplifies investing and wealth building with practical steps to help
you achieve financial peace. Get your copy via the
link in the show notes and let's get your money working for you. Now back
to the episode. What's happening in Australia is we're very anemic,
like we're like a 0.5% fall
in GDP away from having an actual technical recession.
And by all accounts, and you'll say this in the comments no doubt too, we have been
in a GDP per capita recession for
seven quarters or eight quarters, so the last almost two years. And
so we are. But what's happening in the government level is they're
so afraid of the word recession that they're pulling all
the levers they can to avoid it, which includes cutting rates. But
here's the thing, if you cut rates, And
inflation goes up. You might avoid a
recession for a period of time, but if inflation gets entrenched, you
start to whittle away the wealth of the country and it starts to get extremely difficult
to grow. And you can go into what's called stagflation. And
stagflation occurs when you start to drop rates to stoke growth. But
it has the opposite effect because of inflation and all of a sudden you get negative
growth. And all of a sudden you cannot pull the lever of dropping
rates to restoke the economy. You can't do it
anymore. And you get stagflation. And stagflation is where we go into a bit of a
death spiral towards negative growth for consecutive quarters.
And that scares the government. And so it should. Because
it's what happened in the 1970s with the oil embargo, where the
price of oil went way up. And oil is
in everything. It's in our phones. It's in everything, right?
Plastics. So when price of oil goes up, everything goes up. So we had
this massive spike in inflation. And of course, the
currency was just getting burnt. And if you go into hyperinflation,
you can destroy the currency and it can absolutely turn the
country into an absolute economic
tornado. And it's what happened in Germany before World War II. It's
happened in many other countries. And they've had to,
I mean, the economy's just basically been destroyed and job losses
go way up, many bad things happen. So if you go and look
at history, stagflation is not a good place to be. And so what the government
will want to do is prevent that happening. So they'll have to actually bring
inflation down. Here's the only way
you can pretty much do that, is the only way to do that is to increase
the rates, increase the cash rate, increase the reserve
rate. So that means we're gonna, if inflation ticks up again and
again and again, and we can't get hold of it, to actually break inflation
and bring it down again, you have to lift rates above the rate of, way
above the rate of inflation. So don't be surprised if
instead of a rate cut or two that people are expecting in November, on
the 4th of November, the RBA will have a chance to either
keep rates the same, cut them or increase them. And they meet first Tuesday of
every month to do that. And when they do it next
time, don't be surprised to see no cuts. They'll probably
keep it on hold next month. And in November, usually
about the Melbourne Cup, on the Melbourne Cup, our big horse race here, our
annual sporting event, they
may even have to put it back up. And
so this whole short-term idea of trying to help mortgage holders by dropping
like 25 basis points to alleviate a couple hundred bucks a month, it's
probably caused some big problems long-term. They should have just bloody left
it. They should have just left it at 4.5% and let the
property market swallow it. But they're too
afraid because of the backlash, they're too
afraid of their own properties falling in value, because property is a religion in
this country. And heaven forbid it ever goes backwards by a
millimeter, because then, oh my God, right? But the reality is,
if you want a nice steady growing economy, having the odd recession is
not a bad thing. You can't have something just go straight up. The
only Ponzi schemes do that. Like Bernie Madoff's Ponzi scheme goes straight
up. And you're not going to have a property market that just goes up forever. It's not
going to happen. So we either deal with it now or we don't. And
it looks like they're not going to. They're dropping the deposit rates to
5%. Dumb. Dumb. All they're doing is creating future
debt servitude for young people in the country. Stupid. It's going to prop the
prices up again. Then they're cutting rates when they
should increase them and keep them. So I hope that the RBA
in the future, lifts rates back up, you have
foreclosures, short-term pain, to
then bring prices back down a little bit to where they're a little bit more affordable for
people, and you have a better country. But of course, the underlying
or the outlier to that equation, as to whether that will
happen or not, is of course, immigration. I
watched a wonderful talk from Pauline Hanson yesterday. Now, love it
or hate it, I don't really care. And you're welcome to put some comments down below. to
what you think, but I saw her do a talk yesterday and
it was just spot on. Drop immigration to 130,000 a year, which
sustains the birth rate and doesn't have a reducing population. A
lot of people think that we need all these people. We don't. We get all of our wealth
from resources in the ground. We only need 130,000 coming in to sustain growth. We
don't need crazy number of people here. So drop
the immigration rate down to 130k, start
to shift the energy policy and start producing gas and nuclear projects. And
again, all you nuclear, anti-nuclear people, pop your comments below,
have a whinge below. I'm happy to come and talk to you about it. But you
can't have a country that's producing all these natural resources and have
energy problems. And then of course, leave rates a
bit higher so we can have the recession that we need to have. to
reset prices and help the people that are
in this country, to help the citizens of the country, not the people just coming in randomly
who haven't been here and built the country. So go check
that out. I think if you go to her Twitter account or X account, you can listen
to what she said. Now, love or hate her, what she
says, she's the only one who's got any balls to say
what we need to say so we can save the economy in this country. Because
I don't know about you, but I love living in a prosperous country. I
love it when we can afford housing. I love it when we
have steady sustainable growth and right now we're on the precipice of not that.
Anyway, that's why the RBA may have made a catastrophic
mistake. I believe they did by cutting rates and don't be surprised if
you see him on hold and then don't be surprised if you see
him go up. So prepare for it, buckle up, start
putting things in place now to to actually de-lever if
you're leveraged up, to just de-leverage. No one says
you've got to keep a flip in hand. You can rent. Again, I know
the comments, oh my God, that's the worst thing you could say, but
I rent and I sleep well at night. Sometimes
it's not about keeping up with the Joneses, it's not about how big your house
is, it's not about I'm on the property ladder, it's about are you happy and
are you financially at peace? Most people aren't. So
perhaps shift your objectives, shift
your approach, start making some money moves to be financially
at peace and not simply on the treadmill or on the rat race
of trying to keep up with the Joneses who've got their fourth property. Because it
doesn't look like it's going to end well from here going forward. It will
happen. We're currently in the greatest property bubble in the country's history
in the last 130 years. It's obvious. It's obvious. So
just be aware if you take the 5% deposit and put in now and
rates go up, don't be surprised if you have to then foreclose because you
messed up. It's not a good time to be making the
bold property acquisition is in my eyes. But again, you
got to do what you need to do, but just be ready for what's going to happen in rates because
they may go up and that may impact you massively. All right, that's it. Leave
me a comment. Come fight me in the comments below or come and give
me some love. I don't mind. I reply to all the comments, right? My
buddy says, why do you reply to all the comments? It's brutal. I'm like, because I still love
everyone. They're entitled to their opinion and it makes a lot of fun, right?
I ain't scared for a fight. So, all awesome love. And if you love,
thank you. Thank you for watching the show. And if you are watching
Spotify, we have a video podcast on Spotify too, share this episode with
a friend and hit the subscribe button if you want more. I can't wait to
see the comments. What do you think about inflation going up?
And what do you think about where the RBA should set rates? Leave
your comments below and I'll see you in the next episode. Thanks for listening to Money Grows
on Trees. If you enjoyed the episode, leave a five-star review on Apple
Podcasts and Spotify and subscribe to us on
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make sure to check out the links in the show notes and follow me on all
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