Following the August rate cut the RBA maintained "dwelling prices have been rising only moderately" and had "declined a little in most capital cities in July", which gave it confidence that "the likelihood of lower interest rates exacerbating risks in the housing market has diminished". It also alleged that auction clearance rates were weaker than 12 months ago.

On September 22 new governor Phil Lowe doubled-down on these rubbery assertions, assuring politicians that "the two interest rate cuts we have had this year do not seem to have stimulated a new round of house price increases". He could not have been more wrong.

Months ago we showed that the August and May rate cuts had resurrected the boom with spectacular capital growth in our two largest cities underpinned by auction clearance rates that had soared above their 2015 levels.

We also demonstrated the only other evidence supporting the RBA's case for benign conditions—falling sales volumes in Sydney and Melbourne—was an artefact of a sustained decline in new listings as the number of vendors willing to sell properties dried-up as the boom extended into its fourth year.

When in 2013 we controversially predicted a bubble would emerge care of double-digit house price growth fuelled by the RBA's easy money policies, many panned our anxieties as unwarranted.

The RBA's head of financial stability, Malcolm Edey, went as far as to describe these views as "unrealistically alarmist".

Every year since we have forecast strong capital gains and a widening disconnect between prices and the fair value of Aussie bricks and mortar assuming the cost of capital eventually normalises.


In the same way that an insular Australian Security and Intelligence Organisation was unwilling to engage in the introspection required to identify the pervasive penetration of Russian moles within its ranks during the Cold War for fear of undermining its perceived "credibility", the RBA is institutionally incapable of publicly acknowledging its analytical errors. (In spook circles ASIO's sieve-like qualities earned it the moniker "Channel 10".)

Was Phil Lowe serious when he advised parliament on September 22 that "the high level of house prices relative to our incomes is not primarily a result of our interest rate policy"?

Blind Freddy can see that the unprecedented increase in the national house price-to-income multiple from 4.5 times in June 2012 to a record 5.7 times today is partly a function of the fact the RBA has bequeathed borrowers with the cheapest home loan rates in history.

Yes, the relatively rigid supply-side of the housing market is important, as Lowe emphasised, but so too is demand.

The RBA's desperate effort to shift the blame on supply is ironic given that it contested the conclusion in my 2003 report for prime minister John Howard that supply-side inertia was inflating housing costs (a novel insight at the time).

The RBA countered that prices were being driven by demand (specifically, incomes and interest rates).

The bad news for borrowers is that the long-term cost of capital is normalising, whether the RBA likes it or not.

The three-year government bond yield, which represents investors' best guess of where the cash rate will be over this period, has risen sharply again in October, punishing anyone exposed to "duration".


Bloomberg's AusBond Treasury Index, which tracks the total returns on a portfolio of AAA rated fixed-rate Australian government bonds, has lost 1.83 per cent of its value over the month. In contrast, Bloomberg's floating-rate note index has climbed 0.18 per cent.

Magellan's Hamish Douglass should have stuck to his guns on long-term interest rates, which he once thought would rise more than markets expected (he backed away from this view in June, declaring that he had "moderated" his "expectations on the extent of the likely rise in longer term bond yields").

Backing hackers

The segue into spies was not entirely random. In March 2013 we revealed that Chinese hackers had tried to penetrate the RBA seeking information on G20 negotiations.

This week the RBA disclosed it was being probed every two seconds (it is now much more fashionable to be honest about digital vulnerabilities).

In April 2013 we reported that the Australian Bureau of Statistics was being hammered by relentless cyber-attacks, notably years before the Census drama.

A month later we broke the news that Chinese-owned Lenovo computers had been banned from Western intelligence agencies' top-secret networks, which was recently reiterated by US officials.

In July 2013, I also interviewed the former director of the CIA and NSA, General Michael Hayden, who triggered a global furore when he accused Huawei of spying for China.

This led me to conclude that investors should consider allocating capital to nascent cyber-security companies.

I am thus delighted to see that the exchange traded fund provider, BetaShares, is giving retail investors access to the trade by launching a new global cyber-security ETF under the ticker "HACK", which tracks the performance of NASDAQ's cybersecurity index.

Picking winners in this space is hard unless you have deep technology expertise—a sector-wide exposure could therefore make sense.