A flawlessly mismanaged mining boom and bust

b It is amazing to watch as the mismanagement of the mining boom turns to mismanagement of the mining bust. We all know what should have been done many years ago on the way up. Dutch disease is not a mystery. Everyone knows that the currency will rise and rise through a resources boom. The answer to it has been followed very successfully by other nations like Chile and Norway. You set up huge resource rent taxes and push the money offshore into sovereign wealth funds. Not only does it help keep the currency down, it prevents disruptive volatility in fiscal planning, containing spending during the...
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Mac Bank warns on property

images Finally a few sell-siders are catching up to monetary reality. From BS, Mac Bank sees: “Clouds looming over the domestic property market. Recent  announcements around macroprudential regulation represent a significant change in view from the RBA. Likewise the Government appears about to get serious about foreign buyers. While this is unlikely to result in a ‘train wreck’,  international experience points to 2 to 13 per cent underperformance by banking sectors faced with these kinds of interventions.  Domestically we believe the sector hasn’t skipped a beat mainly due to...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets FTSE 6360 -40 DAX 8874 -66 CAC 4073 -32 IBEX 10168 -82 MIB 19105 -161   Equities have pared back some of the recent gains with a sense of caution prevailing after a couple of events in US trade spooked investors. While the majority of headlines were centred on the situation in Canada and oil prices, I felt the inflation data perhaps didn’t get enough attention. The headline CPI came in a touch ahead of expectations, while the core readings were in-line with estimates. There had been speculation that the...
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Iron ore miners fall sharply with futures

dfgsws The big miners are all down today, almost 2% for RIO and BHP and 3% for FMG. There was a brief flurry around the insipid China PMI suggesting that traders are as bored as I am but that's selling into the afternoon. To the relative performance charts: With the recent price rebound, the idiocy spreads have shed a few extra IQ points and are now trading at the level of a gap-toothed moonshiner. At least the moron cross has receded: The death's head is still shadowing the prices of the juniors. Even poor Atlas can't find a bid with its heroic cost cutting efforts: In China, Dalian...
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Will Australia join the great global deflation?

deflationcycle By Leith van Onselen Dixon Advisory's Max Walsh has written a ripper piece in The AFR today warning about the dangers of pinning an economy on rising housing values and debt, which more often than not lead to a significant downturn and a period of financial instability: If you think you have heard the story of the finance-based, housing-led recovery that was the ideal medicine for an economy under stress, you are correct. A property boom underwritten by high leverage and/or low mortgage entry rates will collapse suddenly, ensuring a slow recovery. In Australia our banks have become little...
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Capt’ Glenn warns of macroprudential again

Warn In the Q&A after an unrelated speech today, RBA boss Glenn Stevens said: "The key points here are that we are keeping a close eye on the buildup of credit to investors in the housing market...Lending standards are things that need to be carefully watched in a time when house prices are rising quickly and competition from lenders are increasing." And on macroprudential: "Those discussions are continuing and when there is something to be said it will be said, all in good time." How times have...
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China Flash PMI flat

rtgw An uninspiring Flash PMI for China in October is out at 50.4 points, up slightly from 50.2. The internals were also drab with new order expansions slowing:   And the charts:   It appears at least that downward momentum has been...
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RET slashed, jobs go

11_166-300x195 Sigh...from Farifax: Australia's $20 billion alternative energy sector has been plunged into fresh uncertainty after the federal government indicated further policy changes to reduce the reliance on wind and solar power, potentially leaving billions of dollars invested in the sector stranded or devalued. Signalling it wants to reduce the 20 per cent renewable energy target by 2020 to what it calls  "a real 20 per cent", the Abbott government has proposed reducing the agreed green energy target of 41,000 gigawatt hours of baseline power by 2020 to closer to 26,000 gigawatt hours. I couldn't...
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Land prices spiral upwards

ScreenHunter_18 Jul. 05 10.22 By Leith van Onselen The Housing Industry Association (HIA) and RP Data have released their latest Residential Land Report, which reveals that median vacant lot price across Australia hit a record $205,330 as at June 2014 after rising by 1.1% over the quarter (see next chart). Capital city lot prices rose by 1.8% in the quarter to be up by 7.4% compared to the June 2013 quarter. By comparison, land prices in Regional Australia were essentially flat in the June 2014 quarter (down 0.1%) to be up by 4.1% over the year. Residential lot sales also rebounded, with the number of sales rising...
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How much iron ore production has shut?

fgwe From Morgan Stanley: What’s required for a rebalance? Assuming no  operations close and producers deliver what has been  guided, we estimate the global seaborne iron ore market  (including domestic Chinese production) would be in a  71Mt surplus in 2014. By next year, the surplus will rise  another 86Mt. These figures are the magnitude required  of material to exit the market to achieve price stability. Industry consultant, Wood Mackenzie,  estimates 52Mt of Chinese domestic iron ore capacity  has so far been permanently removed as a result of low prices. So far, the group claims, all...
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Housing requires both a supply AND demand fix

ScreenHunter_4628 Oct. 23 10.47 By Leith van Onselen The CEOs of the CBA and AMP have urged Australia's government's to invest in new infrastructure projects and undertake other supply-side reforms in order to improve housing affordability. From The AFR: Mr Narev urged governments to take the pressure off house prices by using infrastructure projects to increasing the supply of housing stock. “The appropriate dev­elopment of infrastructure, particularly roads and transport, will open up new opportunities to develop residential ­living and therefore create more supply in the market, which gets the overall property...
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Can cost-out save the ASX?

imgres Deutsche thinks so: FY14 marked a return to earnings growth for Australia, following two dismal years. But there is concern that much of the growth was driven by efficiency programs (6% EPS growth on 3% sales growth), which aren’t a sustainable driver of earnings. And with little sign of a top-line acceleration, the fear is the earnings recovery could fizzle out. The experience of the US suggests that efficiency programs can support earnings for some years. US firms have generated solid EPS growth (9%) from only modest sales growth (5%) for almost 4 years now. Inefficiencies can creep in when...
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Atlas slams into iron ore price deck

ATLAS-IRON-LOGO---FINAL Atlas Iron has released its Q3 production update and it's an admirable effort: All-in cash costs* A$68.90/wmt CFR for the September 2014 Quarter, down from $75/wmt in the June 14 Quarter > C1 cash costs $48.10/wmt (wet basis, FOB and excluding royalties) for the September 2014 Quarter, down from A$51/wmt in the June 2014 Quarter > Average headline price of US$69.62/dmt CFR received for Standard Fines over the September 2014 Quarter, after adjusting for US$5.24/dmt of negative provisional pricing adjustments > Competitive product discount of circa 10% achieved, resulting in average...
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Abbott’s PPL hits another road block

ScreenHunter_3900 Aug. 22 13.05 By Leith van Onselen Tony Abbott's flawed and unpopular paid parental leave (PPL) scheme has hit another major roadblock, with "Treasury officials revealing limited progress is being made in determining how state public service schemes will dovetail with the proposed Commonwealth one, or how much it will eventually cost". From The Canberra Times: Discussions between Canberra and the states had commenced before Christmas, according to the officials, and continued at a Council of Australian Governments meeting earlier this year, but they have apparently ceased with no discussions since the May...
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A rough birth looms for Australian LNG

screaming-birth From Fairfax: Under the regime, announced overnight Sydney time, a tax of 3.5 per cent will be levied on LNG export projects, compared with the original proposal in February of up to 7 per cent. The cut came after Malaysian national oil company Petronas threatened to suspend its plans for an LNG venture in Canada. It boosts the prospects for projects there, analysts say. "It's bad news for Browse because suddenly there's a lot more competition at the high end of the cost curve," said Macquarie Equities analyst Adrian Wood. "Cheap projects are going to go ahead no matter what, but suddenly if...
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Macro Morning: Oil slide

marketmorning By Chris Becker Mixed is the best one can spin last night's actions on markets as a lack of follow through from the four day rebound rally in risk could mostly be explained by a neutral CPI reading in the US, coming in as expected but in the "danger zone" well below 2%.  Across the Atlantic, the BoE kept interest rates and their QE plans steady with another central bank yet again noting no inflationary pressures building. Cable (GBPUSD) as a result broke down almost hitting the 160 handle - I"m watching the 16010 level very closely on the four hourlies and dailies as a sign of capitulation...
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Memo to business: The TPP is not free trade

ScreenHunter_3418 Jul. 23 10.44 By Leith van Onselen A consortium of Australian business groups have released a joint statement backing the Trans-Pacific Partnership (TPP) trade negotiations, and urging trade ministers to make a concerted push to conclude negotiations when they meet in Sydney on Friday. From The AFR: The Business Council of Australia, American Chamber of Commerce Australian chapter and the US Chamber of Commerce issued a joint statement on Wednesday declaring the US-led Trans Pacific Partnership “key to creating jobs’’... “A successful TPP will mean more jobs, higher wages, stronger growth, a...
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China and Australia trade blows

images From the FT: China will officially launch a new $50bn Asia Infrastructure Investment Bank on Friday as it steps up its challenge to global financial institutions like the World Bank that it feels are dominated by America and its allies. But only 20 mostly small economies, many of them effectively client states of China, will become founding members of the bank at Friday’s ceremony in Beijing after Washington lobbied furiously to stop other countries from signing up. ...India will be the only large economy to sign up to the Chinese initiative at the ceremony in the Great Hall of the People in...
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APM: House price growth slowing

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen Australian Property Monitors (APM) (now called Domain Group) has released its September quarter house and unit price results (below), which recorded a 1.2% increase in house prices over the quarter at the national capital city level, and a 0.3% rise in national capital city unit prices. In the year to September 2014, APM recorded an 9.4% increase in national capital city house prices and a 6.8% rise in unit values - a deceleration from the 11.0% (houses) and 8.5% (units) annual growth recorded in the June quarter release. Looking at the capital city breakdown, you can...
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What kind of macroprudential can we expect?

flat,550x550,075,f By David Llewellyn-Smith Macroprudential tightening is coming but what kind? In the course of a year, the Reserve Bank of Australia (RBA) has swung from a viewpoint that macroprudential is "dreaded" and the "latest fad" to an endorsement of doing something about the housing bubble that doesn't involve raising interest rates. Throughout this time there have been two lines of debate of what kind of macroprudential might be used. The first is requiring banks to list interest rate buffers within mortgage calculators: “Other than avoiding an over-easing of monetary policy, the most promising...
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Mirvac’s negative gearing plea doesn’t make sense

ScreenHunter_4625 Oct. 23 07.57 By Leith van Onselen Mirvac Group CEO, Susan Lloyd-Hurwitz, has thrown a wet blanket over calls to reform Australia's negative gearing regime, claiming that any wind back of the rules would pose serious risks to the stock of rental properties available. From The Australian: "...as a society, we would have to think long and hard about the removal of negative gearing because it has very far-reaching implications”... “We need rental stock and it’s currently owned by mum-and-dad investors, negatively geared,’’ Ms Lloyd-Hurwitz said, noting that, unlike the US, Australian institutions and...
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Daily iron ore price update

dfbw Her are the iron ore charts for October 22, 2014: Singapore was closed so no iron ore prices. The rebar average rally powered on but futures fell sharply again. Sensible enough given it's the Hebei effect described yesterday. That's it...
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More conflicting signals on Chinese property

201409reinv Cross posted from Investing in Chinese Stocks. Two Beijing real estate agencies are on pace to hit 17,000 sales in October, up from the 9109 sales the two combined for in September. Since their market share is 55%, analysts are extrapolating sales citywide hitting 11,500 already, while one insider at another agency thinks sales have already hit 16,000 homes. Average transaction price increased 2.6% in the past week, and another agency that measures bargaining room says the space for haggling has shrunk from over 3% in early October to 2.6% last week. iFeng: 房贷松绑20天作用渐显...
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Links 23 October

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Currency Wars Evolve With Goal of Avoiding Deflation - Bloomberg Forex-Rigging Fines Could Hit $41 Billion Globally: Citi - Bloomberg Some common lies investors tell themselves - A Wealth of Common Sense North America: Nelson Bunker Hunt, Texas Tycoon, Dies at 88 - New York Times Home Sales Reach 12-Month High - New York Times Fed Can Back Up Tough Talk on Bank Behavior With Action - Bloomberg US economic momentum is intact - Quartz Is cheap gasoline good for the US? - Fortune Why attacking the Fed for making inequality worse is mostly wrong...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets Asia has picked up the positive leads from European and US trade and rallied, with equities erasing some of the recent sharp falls. The rally in global markets began in European trade as investors reacted to reports the ECB is looking to add corporate bond purchases to the covered bond purchases it commenced this week. Markets saw this as a move closer to full-blown QE, and peripheral bonds rallied as a result – the IBEX and MIB outperformed the DAX and CAC. The market would really want to see government bonds and...
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