If you are going to be a forecaster, you need to forecast everything, often.
With that, here are three predictions for 2018:
A sovereign country will adopt a cryptocurrency as their fiat currency in 2018
My mechanic is mining Bitcoin. He started trading a year ago and quickly joined a Bitcoin mining pool.
I once impressed my mechanic with my understanding of the stoichiometry of his EH Holden, but I was not prepared for his knowledge of cryptocurrencies.
Bitcoin is no longer just for drug dealers and ‘doomsday preppers’, though the latter may still describe my mechanic. Bitcoin is so mainstream that it has inspired the creation of more than a thousand other cryptocurrencies. There is now even a cryptocurrency for owners of solar panels, in Australia, to trade excess electricity amongst themselves. The potential of this cryptocurrency is significant, but at the moment there is a very limited number of Australians with excess solar electricity willing to transact in cryptocurrencies.
Bitcoin is the Napster of cryptocurrencies. It is what the Model T Ford is to the Automotive Industry. It is the first. It is the disruptor and it has redefined what is possible with advances in computing technology. But Bitcoin is not what is going to leave a lasting legacy on sovereign currencies or global monetary policy.
Blockchain is the game changer. Bitcoin is its first application. Blockchain is a potential game changer in all supply chains. It offers every supply chain the advantages of enhanced transparency, security and efficiency.
The banking system has already moved to establish their own cryptocurrency(s) as a means of improving the efficiency of international transfers.
The full potential of the technology as a currency exchange will be realised when sovereign countries are able to overcome the risk they pose to taxation systems and independent monetary policy.
Perhaps as a response to these challenges, the solution will be that countries will adopt their own cryptocurrencies rather than challenge Bitcoin’s legality. This will allow countries to continue to control monetary supply and even improve tax transparency.
The next federal election is still a long way off
The Canberra rumour mill is running wild with expectations of a Cabinet reshuffle before the end of the year. The chattering contingent is also forecasting a second reshuffle in January as the new Prime Minister appoints his own cabinet, but this is to be expected at this time of year. Not that a change is likely – simply that when the Prime Minister is behind in a poll or two, the gossip starts.
The logic of this chattering group is that Newspoll has accurately forecast the outcome of ‘59 state and federal elections.’ The argument goes: because Newspoll has accurately forecast election outcomes and the Prime Minister is behind in the polls, he will lose the next election.
This is an example of a political syllogism. Or in other words, it is a logical fallacy.
As forecasters, we often look back at our own accuracy. It is also interesting to look back on that of others. To be fair to the pollsters, they do not claim to be forecasters. Opinion polls are just a snapshot in time.
As Prime Minister of Australia for 11 years, John Howard experienced only rare occasions when he was ahead of his opponent in the polls. These rare occasions always coincided with a federal election, with the exception of one time in 2007 when he was behind in the Newspoll and lost the federal election.
The reason Newspoll can claim this level of accuracy is that their final survey, undertaken days before the federal election, has predictably shown a high degree of accuracy. In cricketing terms, this is like calling a ‘six’ well after the batsmen has hit the ball high into the air.
By forecasting everything, often, forecasters are rarely wrong. It appears the same is true for pollsters.
The capacity of opinion polls to accurately forecast the outcome of the next federal election, outside of an election time frame, appear to be less accurate than a coin toss. The reasons for this are that those being polled have little interest in the topic and/or they have an opportunity to vent their opinion without consequence. It is not until an election is called that the public focus their minds on choosing a leader and opinion polls begin to be an accurate reflection on the election result.
The next federal election must be held before 2 November 2019; in practical terms it will be before 2 July 2019. If it is held before 14 August 2018, the Senate would not be up for election (not even a half Senate election) making it a House of Representatives election only.
On this basis, the next federal election would appear to be more than seven months away. Citizenship challenges and by-elections may force an election before then, but even if the Turnbull Government loses its majority in the House of Representatives they are not forced to an election as long as they maintain the support of the independents. The Rudd/Gillard Government held office with five fewer representatives than the Turnbull Government holds.
If the election is this far away, the polls are not a good indicator of the result.
Having said that, two of Australia’s last four Prime Ministers have not been elected by the people, they were ultimately selected on the basis of opinion polls. Therefore, even though recent evidence shows that polls are not good at forecasting the outcome of far off federal elections, they have recently been good at forecasting future Prime Ministers.
Housing prices will barely rise
On the demand side, wage growth is skimming along the bottom, international investors are facing punitive taxes if they invest in Australian real estate and slow rental price inflation will cool the rush for domestic investors.
On the supply side, a record pipeline of new dwellings – particularly for apartments in metropolitan areas – will help satisfy pent-up demand from first home buyers and keep the lid on house prices in markets that have been growing rapidly for a number of years.
After decades of undersupply, this record supply of apartments will clear the market quickly, with the exception of those units that are not meeting the demand for the type or location that the market requires.
With the growth in supply and constraints on demand, house price growth next year will be slower than we have been accustomed to in recent years.