The 5 mega-trends that will define 2021
Ok, I’m still finalising plans for what is going to be the most epic ILRE year in history, but just quickly, here’s the 5 most important trends I’ll be watching this year:
1. Negative Interest Rates
Yep, I think this is going to be a thing. I don’t know that it will happen this year, but I expect the slow downward grind of interest rates (in effect since the GFC) will continue, and mortgage rates will push lower and lower.
It’s not hard to find rates with a 1 in front of them right now. In a year or two, we could have negative rates. The journey from here to there will send house prices much, much higher.
And how would negative mortgage rates happen? The infrastructure is there already. Right now, the banks are getting their money from the RBA through the TFF – term funding facility.
So basically, the RBA said to the banks, rather than getting your money from the capital markets, you can get it from us at practically nothing – 0.25%, and then you can go and lend it to people.
But this is the thing. The RBA sets this price. It’s 0.25% right now, but there’s nothing to stop it being -0.25%, or -1.5%. Whatever. The RBA is just printing the money anyway. It’s no skin of its nose.
With negative rates, the banks are in the money so long as the interest they pay to you is less than interest the RBA pays them.
So the RBA lends to them at -1.5%. The banks lend to you at 0.5%, and the bank makes 1% on the deal.
And you get paid to have a mortgage.
Anyway, we’re not there yet, but we’re on the way, and it’s the journey where the money’s made, not the destination.
2. Money Printing Madness
So the RBA is printing money ($100bn in six months, with more on the way), and using the money to buy government debt.
The government is, effectively, lending money to itself, and everything is free now.
Where does this end?
Who knows. People are still waking up to the fact that there’s money on tap now.
But the politics gets very interesting. If we came up with a trillion dollars to fight Covid, why can’t we have a few bill to save the reef, or build the wall, or connect the capitals with high-speed rail?
How do we come together and make these decisions?
Politics will be completely different post-Covid.
3. Trade War with China
I’ve written a lot about this, but this re-ordering of trade and geo-politics is not done yet. I expect it will come out in the wash, and there will be as many winners as there will be losers, but it’s going to continue to give things a gool ol shake, and the structure of the Australian economy will look quite different on the other side.
4. WFH and Regional Rotation
I think work-from-home is probably here to stay now. It’s been here long enough, and the shadow Covid is casting into the future is long enough now for businesses to start building some permanent plans around more flexible working arrangements.
This has a few interesting implications. I think the outlook for office space is going to be pretty shaky, as large firms rationalise how much floor space they actually need.
I also expect the boom in regional hubs, which kicked off in the second half of last year, will continue. That creates a headwind for the capitals, but could see some regional markets soar.
5. The Truth is Dead. Long Live the Truth
As the chaos in America shows us, we are all living in completely different universes now. Our media feed us the stories and the angles we want to see. The idea of a collectively-agreed on ‘truth’ if it ever existed, is well and truly dead now.
How do we meet the challenges of our times if we can’t agree on whether black is black or white is white?
Authoritarian nations (Russia, China), don’t have this problem, and so this looms as a challenge for liberal democracy itself.
Can we find a way to incorporate everyone’s differences – to allow and even celebrate difference – and still find a way to get along, make decisions and get stuff done?
Don’t underestimate the size of this challenge, and what happens in the next 12 months will determine whether freedom-living nations succeed or fail.
So much exciting
Hmmm. I’m thinking I probably need to say more about each of these topics. I’ll do that as the year rolls on.
But make no mistake.
This is a very, very exciting time to be alive.