What Ferrari Signals About Australia

Today’s Markets and Money is going car shopping. Specifically we’re after the latest Ferrari model, the 488 GTB. Surely we can put the $469,888 asking price on expenses?

Actually, the first hurdle we have isn’t paying for it (*cough*), it’s getting our hands on one to take it for a test drive. The Australian Financial Review reports that there is now a two year wait, such is the demand in Australia already. The first one won’t even hit the road until December.


Do wave to your DR Editor if we meet at the lights

Source: Ferrari

Click to enlarge


There are some interesting aspects to this. The most obvious one is that there’s enough confidence and money around to put these on back order before one has even hit the streets. That’s despite gloomy headlines and a waning mining sector.

What’s also worth noting is apparently the typical Ferrari buyer is a sole trader or businessman —not the CEO of a major corporation. This doesn’t signal a recession anytime soon.

Another aspect is a comment the chief executive of Ferrari Australasia made as reported by the AFR:

He says the steady unemployment rate nationally in Australia has prompted a renewed demand from sole traders who want to reward themselves after building up a business.

They were reluctant to do that in the past few years when there was large amounts of restructuring and people losing their jobs.

‘”When you’re letting people go, it’s not the coolest thing to be seen driving a Ferrari,” he says. “There’s been a period of abstinence since the GFC”.

Notice the psychological shift away from the aftermath of 2008 to the return of conspicuous consumption. That will only get bigger as the GFC collapse recedes further and further into memory.

Soon 2008 will become just an evocative date, like 1987. But the causes and times that brought on the decline will be forgotten, except to those who study history.

Of course, it’s not just Ferraris flying off the car lots. Take a look at the chart of AP Eagers Ltd [ASX:APE]. This company owns and operates car dealerships all over Australia.


Source: STEX
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On 16 June, the company announced that it expects a record profit result for the half year to 30 June. Its net profit before tax is up 29%. That’s a big move.

Let’s leave the auto industry there for now. This week also saw the Australian Bureau of Statistics come out and say the data shows ‘typical’ prices we pay across the whole economy are growing at less than a third of their historical average.

In the June quarter, prices rose by an annual 0.9%. That’s compared to the average annual increase over the last 16 years of 2.9%. At the height of the commodity boom, prices rose 4.8%.

It’s a similar story all over the world. Over in the Eurozone, the Wall Street Journal reports that declining prices between December 2014 and April 2015 gave real disposable incomes the sharpest rise since 2009. Lo and behold, consumption went up!

Of course, the WSJ puts the usual line in when falling prices come up in the conversation:

Many economists believe falling consumer prices are bad for economic growth over the long-term because they discourage spending and investment…

That’s why central banks have tried so hard to avoid slipping into deflation, with the European Central Bank launching a new program of quantitative easing.’

This argument is of course totally bogus. Falling prices are a boon for consumers because they can buy more with the same amount of money. That raises their standard of living.

What damages the economy is asset price deflations, especially falling real estate. One reason is because asset values are collateral for the banking system. This is why elites in the central banks and governments do everything they can to prop up asset prices — until the market overwhelms them.

But let’s get back to the deflationary trends all over the world. The Wall Street Journal also reported that the consumer price index in the US was up only 0.1% over the past year.

But here’s the kicker: across the country, the data shows ‘tame’ inflation — with the exception of rent.

The WSJ:

‘“Rents have skyrocketed so much and incomes haven’t kept pace, so we have an affordability crisis in some of our major metropolitan areas for the middle housing market,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.’

Of course, mainstream economists don’t understand that the low wages are a result of high property prices. Incomes (wages) will never ‘keep pace’.

But low CPI inflation is bullish for business and stocks in general all over the world. I’d expect that Ferrari waiting list to get longer before it gets shorter. For all the reasons why, click here.


Callum Newman+,

Editor, Markets and Money

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Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

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