When most Australians are asked about ‘the X factor’ they think the question is about a talent show on TV.
However, ‘the X factor’ is also talked about in the less glittery world of economic forecasting.
Economists refer to ‘the X factor’ when an unforeseen event or situation blows all their carefully laid forecasts away.
Like the subprime crisis did in 2008.
I first came across the term “X factor” many years ago when distinguished economics commentator, Dr Don Stammer, used to try and predict it for the forthcoming year in the January edition of BRW magazine.
Of course, by definition the X factor is unforeseen, so you can’t really predict it.
But it was a little game he used to play and then review his prophecy 12 months later.
And it is a game I also took up many years ago and have had fun with over the years.
Of course the X-factor can be negative (the aftermath of the Global Financial Crisis of 2008) or positive (the China driven resources boom of 2010-12) and it can be local or from abroad (the US subprime mortgage crisis of 2008.)
These X factors affect the economy at large, which of course affects our property markets, but our property markets also have their own specific X factors – unforeseen events that affect the best laid plans and predictions.
The lesson is while it’s important to take a long term view of the economy and our property markets, you also need to allow for uncertainty and surprises by only holding first class assets diversified over a number of property markets and having patience.
One of the X factors for 2014 was that interest rates remained at historic lows.
It wasn’t that long ago that economists were expecting a rise in rates by now
Trying to predict the X-factor is futile: if it’s been predicted, it’s not the X-factor, but let’s have a look at a list of major past X-Factors from Dr Stammer, who now writes for The Australian.
THE X-FACTOR FILES:
2011 Continuing problems with European government debt
2010 European government debt crisis begins
2009 The resilience of our economy despite the GFC
2008 The near-meltdown in banking systems
2006 Big changes to superannuation
2004 Sustained hike in oil prices
2001 September 11 terrorist attacks
1997 Asian financial crisis
1991 Sustainable collapse of inflation
1990 Iraq invasion of Kuwait
1989 Collapse of communism
1988 Boom in world economy despite Black Monday
1987 Black Monday collapse in shares
1986 “Banana Republic” comment by Paul Keating
1985 Collapse of $A after MX missile crisis
1983 Free float of Australian dollar
Now it’s your turn to play the game and predict the coming year’s X-Factor.
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