Update No. 146 – 18/01/14

Only 7 weeks ago, I mentioned US housing starts had not lived up to my base expectations of 1 million+ in 2013. With the publication of the November figures (.pdf), however, it was looking like I’d be correct, with the annualised rate spiking to 1,091,000 starts. With the release of the December figures, 1 million turned out to be nearly exactly the right number with the bitter cold of December in the US causing a slowing to an annualised rate of 999,000.

US housing construction appears to be levelling off around 1 million per annum, which is a good way under the required rate. As I have said before, we have had a similar problem here in Australia (under-building) which leads to prices holding above their natural level. After strong price rises in both markets last year, if construction should lift to more appropriate levels, you should see the rate of appreciation in housing prices slow.

Back in the same week as the November release was made, the outgoing Federal Reserve Chairman Ben Bernanke finally started the winding back of ‘QE3’. I have said before in these pages that the sooner the global economy is able to find its natural equilibrium, the lower the likelihood of a really major economic dislocation caused by the interventions occurring. The slowing of global monetary easing will mean 2014 will not be as good as it might otherwise have been, but that future years will probably be better. Regardless of what you think of Bernanke (and I tend to the view that a recession is not a bad thing occasionally, it is important to allow the cleansing powers of capitalism to eliminate the weak & strengthen the strong), the stimulus, particularly QE3 has achieved its stated aims remarkably well. The 2013 fall in US unemployment is the 3rd largest annual fall since record keeping began.

The type and level of monetary stimulus conducted since about 2010 is unprecedented. The four largest central banks (FED, PBOC, ECB & BOJ) have all ‘eased’ like never before. Many economists and pundits predicted inflation would be the (almost) immediate consequence. I argued steadfastly that while everyone was doing it, that was not possible. One of your fellow EGP holders was (loudly) among this group, I told him he was wrong and nearly 4 years on, I am happy to be right so far.

In the game of monetary musical chairs, someone has to sit down for inflation to be triggered. The US looks like it will ‘sit’ first. Inflation in my view will come first to the country (or region in the case of the ECB) that ‘sits’ last, hopefully that country is Japan, which is the one of these four that would potentially benefit from above average inflation. But I continue to expect it will take longer for inflation to take hold than the majority of people think. Inflation levels through the 3rd decade of this century will be meaningfully higher than the first 2 in my view, but I don’t believe they will ever return to the levels we saw through the 1970’s and 80’s, for both demographic and policy reasons – Tony Hansen 18/01/2014


Apr 1st 2011

Jan 1st 2014

Current Price

Current Period

Since Inception

EGP Fund No. 1












EGP Fund No. 1 Pty Ltd. Up by 0.71%, leading the benchmark by 1.57% since January 1st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 65.47%, leading the benchmark by 41.29% all-time (April 1st 2011).

*1 after 31May 2013 dividend of 2.333 cents per share plus 1 cent per share Franking Credit

*2 calculated based on dividends reinvested