The latest on an interest rate cut + Warren Buffett's big sharemarket move

Hi everyone,

An old economist mate of mine once told me, “Kochie if you’re going to forecast, you do it one of two ways. You either forecast often, so you can keep changing your mind; or you forecast so far into the future that when people get there, they’ve forgotten what you’ve said.”

Wise words indeed.

Reserve Bank Governor Michele Bullock doesn’t make forecasts - thankfully - and keeps her comments firmly grounded in current economic data. Her latest remarks form the centrepiece of this newsletter, as the RBA, as expected, kept official interest rates on hold.

In this newsletter:

• Why you shouldn’t hold your breath for future interest rate cuts.

• The property boom is steaming ahead.

• Property listings surge in spring, but are down on this time last year.

• How the World’s Best Investor sees the booming sharemarket.

• How to ditch debt forever.

• Why we’ve got nothing to whinge about when it comes to private health insurance.

Don’t hold your breath for any more interest rate cuts

The Reserve Bank wants to cut interest rates - but it doesn’t know when, and it can’t guarantee that cuts will happen at all. That’s the bottom line from Tuesday’s RBA decision to keep rates on hold, and the clear message from Michele Bullock’s press conference following the announcement.

The chart below is the most important one you’ll see this week when it comes to the outlook for interest rates. The RBA has updated its inflation forecast through to 2027 - the orange line shows the old forecast, while the green line represents the new one.

The September quarter trimmed mean CPI figure came in at the very top of the 2-3 per cent preferred annual target range. This new forecast (the green line) from the RBA shows how continuing to go higher above the 3 per cent maximum limit at least until the middle of next year and then coming down again.

Given this new forecast, it’s safe to assume no rate cuts for at least the next six months. That’s why the December and March quarter CPI figures will be critical in whether any further rate cuts eventuate.

Probably one small caveat is that from January, the monthly CPI figures will become more reliable because of a better measuring methodology. The RBA has tended to wait for quarterly figures before any change in rate settings but with more reliable monthlies they could possibly make quicker decisions.

This is a summary of the inflation and cash rate figures as it now stands.

While the current trend in inflation won’t lead to a rate cut, I’ve made the point before that a significant deterioration in the labour market could force the RBA’s hand - accepting higher inflation for longer in order to cut rates and support employment.

The RBA has two pillars to its charter: Keep inflation low and keep Aussies in jobs.

While the RBA changed its inflation forecasts, it has done the same for unemployment. The new forecast (see graph below) is the green line and the orange line is the old forecast.

Although the new one points to a slightly higher-than-expected inflation, it is not a major deterioration. Based on this, unemployment will not play a big role in their rate decisions if the forecast becomes reality.

During her press conference, Michele Bullock was asked what is causing inflation. She admitted the RBA had misjudged the high level of demand in the economy.

To illustrate the point, she used the example of how difficult it is to find a tradie these days - a clear sign of demand outstripping supply and pushing up prices, particularly for trades in hot demand.

I was disappointed that none of the media at the press conference followed up with a question about how record government spending is fuelling that demand and even luring tradies away from building sites to infrastructure and renewable energy projects.

Frankly, state and federal governments need to take some of the blame for fuelling the demand which is keeping inflation high and blocking interest rate cuts.

The property boom steams ahead

The pace of growth in Australian home values accelerated in October, rising by 1.1 per cent - the fastest monthly gain since June 2023.

According to property research group, Cotality, momentum has been building in the rate of housing value growth since the first interest rate cut in February, pushing the annual pace of growth to 6.1 per cent nationally.

“Before the February rate cut, housing conditions were losing momentum, even recording flat to falling values through late 2024 and January 2025,” said Tim Lawless, Cotality’s research director. “The first rate cut in February marked a clear turning point, with home values moving through a positive inflection across most regions and gathering steam since then.”

Monthly gains have been broad-based, with every capital city and rest-of-state region recording a monthly rise in value, ranging from a 1.9 per cent surge in Perth to a 0.3 per cent rise across Hobart.

There are many factors contributing to stronger housing conditions, but ultimately the uptick in growth is reflective of supply continuing to fall well short of demand. At the national level, Cotality’s rolling quarterly estimate of home sales is tracking 3.1 per cent above the previous five-year average, while advertised supply levels over the four weeks to October 26 were 18 per cent below average.

Such tight advertised supply levels against above-average levels of demonstrated demand have skewed selling conditions towards vendors through spring. Although auction clearance rates have eased a little, they have held above the decade average - in the high 60 per cent to low 70 per cent range since the start of spring.

The step up in growth rates also coincides with the expanded 5 per cent deposit guarantee scheme going live on October 1, which has likely added to housing demand, especially around the lower to middle price points of the market.

It is the broad middle and lower quartile of the market where gains are strongest. Across the combined capitals, dwelling values were up 1.4 per cent across the middle market and rose 1.2 per cent across the lower quartile, while upper quartile values were 0.7 per cent higher through the month.

Among the capital cities, for the first time in a while, Melbourne had a better monthly return than Sydney.

Regional markets also posted a solid increase in the monthly rate of growth, with the 1 per cent increase the highest monthly gain across the combined regional markets since March 2022. Regional WA recorded the strongest rise, with a 1.8 per cent increase in values, followed by Regional Qld up 1.1 per cent and Regional NSW with a 1 per cent lift.

Spring selling season sees a lift in listings, but is still subdued

While values are still rising, according to SQM Research the number of properties up for sale rose, as expected, for this time of year. National residential listings surged 10.9 per cent month-on-month in October, but remain 0.3 per cent lower year-on-year.

Sydney and Melbourne led the monthly lift - up 13.2 per cent and 15.4 per cent respectively - reflecting robust spring activity.

New listings (added in the last 30 days) rose 18.2 per cent nationally, driven by Melbourne (+23.7 per cent) and Adelaide (+33.5 per cent).

Old listings (180 + days) edged up 1 per cent month-on-month while distressed listings held steady nationally but are down 29.5 per cent year-on-year, with large declines in WA (-50.1 per cent) and NSW (-24.9 per cent).

This is why banks are comfortable with their home loan customers despite them having record levels of debt - their home values are going up which means very few are in negative equity.

If there is a need to sell, owners can do it quickly and at strong values.

What is the World’s Greatest Investor doing?

He’s often referred to as the ‘Oracle of Omaha’, but 95-year-old Warren Buffett is widely regarded as the world’s greatest investor. I often talk about how important it is to follow a money mentor - someone you admire who has built a long track record of success.

One of mine is Warren Buffett. So, I’m always interested in the results of his US-listed investment company Berkshire Hathaway (shares trade at US $715,000 for the A-class shares and US $475 for the B-class). Buffett will retire at the end of the year so this is his second last quarterly report.

Berkshire Hathaway's insurance underwriting profit surged over 200 per cent in the quarter to drive operating earnings to US $13.49 billion. The company’s top five investments are Apple, American Express, Bank of America, Coca Cola and Chevron.

Interestingly, Berkshire Hathaway continued to be a net seller of shares from its portfolio and did not buy back any of its own stock for the ninth consecutive month. As a result, Berkshire is now sitting on a record cash pile - a whopping US $381.7 billion.

So, the world’s best investor does not see value in the stock market at these valuations, is taking profits and building up cash to pounce when values inevitably pull back.

This could also be the reason why the Buffett Indicator is at an all-time high.

In December 2001, Warren Buffett wrote an essay for Fortune magazine in which he presented a chart spanning 80 years, showing the total value of all publicly traded US securities as a percentage of US GDP - essentially, the value of the entire economy. Buffett described this metric as “probably the best single measure of where valuations stand at any given moment.”

Buffett explained that for the annual return of US securities to materially exceed the annual growth of US GDP over a prolonged period, “you’d need to have the line go straight off the top of the chart. That won’t happen.”

Buffett finished the essay by outlining the levels he believed the metric showed are favourable and poor times to invest, saying:

"For me, the message of that chart is this: If the percentage relationship falls to the 70- 80 per cent area, buying stocks is likely to work very well for you. If the ratio approaches 200 per cent, you are playing with fire".

The metric is currently at 223 per cent.

How to ditch debt forever

If interest rates aren’t going to drop much lower our focus should be on reigning in debt levels because they aren’t going to get any cheaper.

Falling into a consumer debt trap is something that happens to most of us at least once in our lives. And when it happens, we swear it will never happen again. Working to pay off that debt is hard work - and all that extra interest we have to pay can feel like an unfair punishment.

But too often we only learn these lessons the hard way - and it’s so easy and convenient to pay for what we want when we want it by going into a little bit of debt.

That’s the thing with debt for everyday expenses: It accumulates over time. It gets bigger and harder to pay off. Meanwhile, spending money we don’t actually have gets easier - pulling out the credit card or clicking ‘Buy Now, Pay Later’ becomes a habit and can feel like a solution to short-term cash flow problems.

But here’s the truth: you’re not powerless. Staying out of consumer debt isn’t about how much money you make. It’s about mindset - choosing long-term peace over short-term pleasure.

Here’s a plan to help you become debt-free - for good.

Ditch the temptations

Should you keep chocolate in the house when you’re dieting? No.

In the same way, you need to rid your life (and your phone) of debt temptations.

Cut up your credit cards or store them somewhere inaccessible (like the freezer – seriously!), close those Buy Now Pay Later accounts, and delete saved payment methods from shopping apps and sites.

The goal here is to remove frictionless ways to spend – because the less available credit you have at your fingertips, the less likely you are to relapse into debt without thinking.

Change your thinking

Start getting into the habit of spending money intentionally, instead of impulsively or as a “reward”.

Ask yourself questions like:

• “Do I need this - or want this?”

• “Can I afford it now - or do I need to save for it?”

• “Does it support the life I’m building?”

• “Will I regret spending this money in the future?”

Plan to get out of debt

Make a list of all your debts. All of them – credit cards, student loans, car loans, personal loans, even money you owe friends or family.

This might feel overwhelming, but it’s the first step in creating a plan to pay them down.

While the ‘snowball method’ (paying off the smallest debts first) can feel easier, the ‘avalanche method’ (paying off debts with the highest interest first) will save you more money over time.

For example, the average credit card debt in Australia is around $3,500, according to Canstar Research. With interest rates currently at around 17.7 per cent, that’s $620 a year you could pocket just by paying it off. The trick is to always pay more off your credit card than the ‘minimum’ every month. That’s the hook that lenders use to keep you paying interest.

Once your credit card is paid off in full, look at which loan is charging you the next highest interest rate, and then start working on paying this down.

Ask for help

If you’re in financial trouble, please don’t suffer in silence. Help is out there.

Talk to your bank or lender about hardship programs, payment plans and payment extensions. Credit card companies and financial institutions will be much more lenient if they know you’re trying to tackle the problem and can assist you to get on track.

Also seek professional advice on the best way forwards for you. I always recommend the National Debt Hotline. It is free to call on 1800 007 007 and you’ll speak with a trained financial counsellor who will give good guidance.

Build a buffer

Without a small emergency fund, you’re always one unexpected expense away from falling back into debt.

To squirrel away some savings, start by just saving what you can and then keep adding to it.

This isn’t about wealth-building yet - it’s about giving you some financial breathing room and a cushion to fall on when life ‘happens’ - so you don’t need to borrow money.

Spring clean digitally

In today’s automated world, there’s a good chance you’re spending money you forgot about.

Go through your apps and cancel auto-renewing subscriptions you don’t use or need. Likewise, check that none of your policies auto-renew – especially as you can often get a better deal when they don’t.

Unsubscribe from marketing emails from shops where you know you're prone to impulse buying.

Basically clear the digital spiderwebs attached to your money.

Invest in financial literacy

I know I talk about this a lot, but financial literacy really is the foundation of good money management.

The more you understand how money works, the better decisions you’ll make.

To improve yours, read books by trusted financial educators, sign up to my newsletter (and others) and listen to money podcasts.

Learn how budgeting works, how interest compounds - in both good and bad ways. Learn how to spend smarter and make your money grow.

Find a money sponsor

Accountability is powerful. Tell your friends and family you’re on a “never-again debt reboot” and ask them to help you stay on track.

Also ask someone you respect financially to be your money mentor. Set regular check-ins with them to review your spending and budgeting, talk through challenges, and stay focused on your goals.

Finding financial freedom

If you make the necessary changes to your life and mindset, then I believe you will be able to stay out of consumer debt - forever.

Because “never again” isn’t just a promise to yourself. It’s a plan - which you can decide to stick to. And if you do? Financial freedom awaits.

Why we should appreciate our private health insurance system

In Australia, private health insurers are legally required to charge everyone the same premium for the same policy, regardless of age, health, or lifestyle. This system is known as being “community rated.”

This is not so in the US - where health insurance premiums vary widely according to age, location, and income. Older Americans pay more, as do those in rural areas, as both are likely to be sicker and more costly for insurers to take on.

The US system is “risk rated” like our insurance companies do with car, home and contents insurance but not private health insurance.

At the end of December, the US government subsidies for private health insurance (brought in by former President Obama and called “Obamacare”) will expire … and may not be renewed.

Without subsidies, that 60-year-old American will go from paying US $460 a month in premiums to paying US $1,380 a month – an increase of 300 per cent, or US $920.

According to analysis from Bondi Partners, this issue lies at the heart of the US government shutdown: Democrats in the Senate are refusing to fund the government until the subsidies are extended, while Republicans refuse to negotiate on a policy they have long opposed.

Free health insurance for low-income Americans is set to end, with around half of Affordable Care Act policyholders facing monthly increases of US $27-$82 - a big rise for someone earning less than US $2,000 a month. Because the expiring subsidies aren’t capped by income, higher earners will see much larger increases.

I know Australia can always improve our health system, but thank goodness we don’t have the American system.