Weekend Links – July 26th-27th 2014

reynard Global Macro / Markets: Signs of things to come - Economist I.M.F. Reduces Its Forecast For Global Growth in 2014 - AP Don’t Tell Anybody About This Story on HFT Power Jump Trading - Bloomberg Greenspan says bubbles can’t be stopped without ‘crunch’ - Market Watch Corporatism not capitalism is to blame for inequality - FT Amazon’s Ambitious Bets Pile Up, and Its Losses Swell - NYT Amazon remains great for customers, not for shareholders - TechCrunch Americas: Obama Seeks to Close Loophole That Firms Use to Shield Profits Abroad - NYT Comments on the New Home...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Chris Weston, Chief Market Strategist at IG Markets It’s been a fairly quiet day’s trade in Asia today and this is perhaps a good time for money managers and strategists to touch base with clients ahead of what could be key week for capital markets. Geo-politics is never far away; while the tensions have failed to really shake confidence for any great length of time, developments will be watched closely. This means shying away from Russian assets, despite a view that markets here offer good value. The US accusing Russia of planning to arm the separatist movement could keep risk assets...
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AMA warns on risks lurking in TPP trade deal

ScreenHunter_3418 Jul. 23 10.44 By Leith van Onselen The Australian Medical Association (AMA) has urged the Australian government to reject provisions in the Trans Pacific Partnership agreement (TPP) that “could undermine the Pharmaceutical Benefits Scheme and compromise the ability of governments to improve public health”: The AMA Federal Council has called on the Federal Government to reject “any provisions in trade agreements that could reduce Australia’s right to develop health policy and programs according to need”. The Association said it was concerned that aspects of the proposed TPP could be used to...
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Joye: Big bank home loan profits could halve

ScreenHunter_06 Jun. 26 22.42 The AFR's Chris Joye has published a detailed article today explaining the skinny regulatory capital buffers held by Australia's big banks and why they are so low. Joye also estimates that the five internal ratings-based banks - the Big Four and Macquarie - could face a near doubling of their capital requirements in the event that the Murray Financial System Inquiry lifts their mortgage risk-weights in line with the smaller banks, building societies and credit unions: ...the four major banks have average home loan risk weightings of just 18.5 per cent. Macquarie is a bit higher at 24.4 per cent....
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Real Aussie house prices 2.5% below peak

ScreenHunter_15 Mar. 05 15.42 By Leith van Onselen RP Data’s Cameron Kusher has produced an interesting post on Australian housing values in the wake of Wednesday's June quarter CPI release from the ABS: At a headline level, combined capital city home values have increased by 10.1% over the 2013/14 financial year. The latest CPI data showed that inflation was recorded at 0.5% over the second quarter and at an annual rate of 3.0% throughout the 2013/14 financial year. ...home values generally remain well below their previous peak (in real terms) across the capitals. In non-inflation adjusted terms home values are...
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Should Australia tax the carry trade speculators?

ScreenHunter_3487 Jul. 25 13.24 Find above an interesting video from The Australian featuring John Abernethy from Clime Asset management. Abernethy argues that Australia should tax short-term speculative currency inflows - the so-called carry traders - in order to slow inflows and put downward pressure on the dollar. Such a move, he argues, would greatly assist the non-mining tradable economy and reduce the incidence of Dutch Disease. Sounds...
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IA boss should tread carefully on asset recycling

ScreenHunter_06 Jun. 06 09.33 By Leith van Onselen Infrastructure Australia boss, Mark Birrell, has urged the Senate to stop bickering and allow through the Abbott Government’s “asset recycling” program, arguing that it is essential to clear the project backlog in Australia. From The AFR: He said the plan, unveiled in the May budget, was a crucial next wave of reform that would mirror competition payments to the states in the mid-1990s. “Asset recycling is a key part of the future because it’s a fresh way of funding infrastructure that would otherwise not be built,” Mr Birrell told The Australian Financial...
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Atlas fugged

atlas From Goldman today on Atlas Iron full production update: On balance, we believe AGO has delivered a disappointing 4Q14 result. Production/shipments beat – AGO pre-announced FY14 shipments of 10.9mt, beating guidance (10.2-10.7mt) and our estimates (10.6mt). Inmtoday’s result we gain comfort that it was underlying 4Q production of 3.1mt (GSe 2.6mt) delivering the beat, rather than just destocking. Received pricing miss – Heavy discounting for low grade/quality has delivered a contract price of US$78/dmt CFR (vs 62% Fe index 103/dmt CFR), which once provision pricing, shipping and...
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What’s really driving Chinese property?

ScreenHunter_3481 Jul. 25 11.19 From Bank of America Merrill-Lynch comes a short note on what it believes is the real driver behind the Chinese housing market: interbank rates. The market generally believes that banks are now doing the government’s bidding to support the housing market; we are not so sure. While government’s moral suasion might have played a role, we judge the recent dip in interbank rates and PBoC’s action to maintain inter-bank liquidity as far more influential. We believe that, for mortgage rates to come down significantly, PBoC needs to guide down interbank rates meaningfully. It’s still too early to...
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Victoria to legislate against shoebox apartments?

ScreenHunter_3480 Jul. 25 10.20 By Leith van Onselen It looks as if Melbourne will soon implement new rules that will mandate minimum sizes on new apartments, as well other design rules, in order to prevent high rise from becoming "future slums". From The Age: Among the mandated rules for developers proposed under the Office of the Victorian Government Architect’s draft Better Apartment Design guidelines would be minimum ceiling heights of 2.7 metres... The draft guidelines... would also see minimum apartment sizes set at 37 square metres for a studio apartment. A one-bed unit would be a minimum of 50 square metres; two...
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Fallout from Hockey biography continues

ScreenHunter_3458 Jul. 24 11.45 By Leith van Onselen The fallout from Treasurer Joe Hockey’s new authorised biography – Hockey: Not Your Average Joe – continues, with The AFR's Laura Tingle slamming the book's poor timing and the portrayal of Hockey as a "very hollow vessel": Unfortunately the book has emerged at perhaps the worst possible time: the budget sales pitch has been a disaster; many budget measures face an uncertain future, and Hockey has been damaged – in the way of these things – by both criticisms of the budget and by perceptions it was ultimately an Abbott budget. This has only increased a dull...
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LNG spot weakness weighs on contracts

imgres From LNGWorldNews: Recent PIRA Energy Group weekly report finds that multiple offers comfort the buyers but hurt the spot sellers, and Henry Hub in the U.S. dipped bellow $4, while Europe’s oil-indexed pricing becomes more important in spot/contract relationship. “Explaining the current weakness of the spot LNG market is not a huge mystery; buyers are consuming LNG on a just-in-time basis and require less spot LNG to do so due to an increase in year-on-year liftings under long-term contract. Sellers are trumpeting the beginning of speculative buying to the press, but PIRA see no signs of...
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Iron ore miner profits are still stuffed (members)

liyvi In 1987, following the sharemarket crash, I approached my grandpappy, who was a cunning businessman with a large share portfolio, and asked him how depressed he was feeling about his lost wealth. He laughed long and loud. "Share market crash" he guffawed. "My boy, that's for the birds." He was a long-term investor, you see, and such gyrations were mere amusements to him. His portfolio boomed and boomed in subsequent years and he kept laughing. That's how I feel about iron ore mining stocks today, only in reverse. In recent days, after the tearaway BHP production report, we've seen a...
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The CIS is wrong on macroprudential

ScreenHunter_282 Nov. 14 14.15 By Leith van Onselen Stephen Kirchner from the Centre for Independent Studies (CIS) has posted a convoluted article in Business Spectator lobbying against macro-prudential controls on higher risk mortgage lending: ...monetary policy is a blunt instrument, making it unsuitable for addressing what are seen to be excesses in credit growth tied to specific asset classes. Central banks have a poor track record when it comes to taking an activist approach to changes in asset prices... When it comes to asset price booms and busts, central bankers can be divided into asset price ‘poppers’ and...
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Weekly RP Data Australian house price update (members)

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen In the week ended 24 July 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.02%. It was the sixth consecutive week of rises (see next chart). Growth in Sydney, Melbourne and Adelaide were almost fully offset by falls in Brisbane and Perth (see next chart). Values are now up 1.65% in July, driven by massive gains in Melbourne and strong gains in Sydney (see next chart). Values are up by 5.07% so far in 2014, with all major capitals except for Perth experiencing growth, and particularly...
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Deep T. bank capital critique makes the big time

stig_phone_jpg In case any of you are wondering whether MB is worth supporting, the following little piece from Banking Day should strengthen your resolve. MB's senior banking blogger, Deep. T., has been criticising Australian banks capital ratios (especially in reference to their international peers) for four years. That analysis is now bearing fruit. From Banking Day where John Watson writes: In a significant development on reporting of capital ratio comparisons, both David Murray, chairman of the FSI and Wayne Byers, chairman of APRA, have come out in the last week and cast doubt on the major bank claims that,...
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Trust us, we’re APRA

ScreenHunter_3294-Jul.-14-11.511 APRA's new chairman, Wayne Byers, appeared at a CEDA event yesterday: Australia’s big four banks are now offering “guarantor loans” at up to 100 per cent of the purchase price of houses and apartments. This means people can borrow without a deposit if they have a family member as a ­guarantor. Asked if this was too risky, APRA chairman Wayne Byres said the regulator was closely monitoring banks’ exposure to house prices. “The Australian banking system clearly has a concentration of risk in housing,” he said at a Committee for Economic Development of Australia event in Melbourne....
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Parko endorses macroprudential

imgres Treasury Secretary Martin Parkinson last night delivered a speech to London's Chatham House in which he joined the chorus of crisis-worriers over the low volatility in global markets, reminded of the limits of monetary policy, endorsed macroprudential measures and encouraged the G20 to adopt Australia's infrastructure growth agenda. It was a good speech that makes one wonder why APRA is not more obviously and openly engaged in macroprudential measures (or might suggest that they are coming). I've excerpted a goodly section below. It is all too easy to look back at how the Global Financial Crisis...
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Kohler spruiks the bubble on the ABC

Kohler+-+Dwelling+Supply1 I don't watch much free-to-air TV these days but yesterday I flicked onto the news on the ABC just in time to watch the finance section be delivered by Alan Kohler. In it he dedicated  a lot of time to yesterday's Moody's release about the relative prices of Australian houses, including the discussion about the declining effects of negative gearing and the various assessments of city house price value of otherwise. In his conclusion, Kohler editorialises that NG is adding $300 billion+ to house prices while only costing the government $4 billion in tax. A "good investment" he reckons. Quite...
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Daily iron ore price update: free fall (members)

anvil Here are the iron ore charts for July 24, 2014: Another bad day. Some paper market falls eased but Dalian looks headed for new lows to me. Rebar futures are bouncing along the bottom. Physical was worse with spot also headed for new lows in my view. Rebar average is fading away and the BDI cape is stuck at the bottom (it can't really go any lower). Gloom is spreading, from Reuters: "All the mills are now decreasing their inventories of iron ore - there are more than 100 million tonnes at seaports and so nobody is worried about supply," said Xu Zhongbo, the chief executive of Beijing...
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China pushes banks toward SMEs

images17 Cross-posted from Investing in Chinese Stocks. Chinese Premier Li Keqiang slammed banks yesterday for only issuing large loans to big enterprises. Li wants to reduce to cost of financing, which is a very big deal considering the country is seeing a very low return on its debt. China pledges more financial aid for small firms: After a weekly meeting chaired by Premier Li Keqiang, the State Council said many small Chinese companies still face financing difficulties, which could fuel risk in the economy. So the cabinet said the central bank would raise the sizes of its "re-lending" and...
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Links 25 July 2014 (members)

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: An Uneven Global Recovery Continues - IMF Global stocks hover near record highs - Financial Times As the market has risen bulls have headed for the door - Bespoke The relationship between long term Treasury yields and gold - Market Anthropology The Gold model revisited - Crossing Wall Street China’s stock market ready to breakout? - Kimble Charting German bond yields are nearing Japanese territory - MoneyBeat Why volatility could stay low for years - See It Market Getting over hedge funds - Barry Ritholtz North America: White House to...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Chris Weston, Chief Market Strategist at IG Markets Understanding sentiment towards markets can be a huge asset when trading with a short-term focus, so it’s been interesting to see the turnaround in sentiment towards China of late. The mainland equity markets are looking more bullish, although they are being held back by local players recycling cash out of other equity holdings to take part in the IPO cycle. The A50 index (the top 50 Chinese companies with the futures traded on the Singapore exchange) has printed a higher high and looks set to close above its 200-day moving average for the...
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Is China about to launch a QE credit flood? (members)

images From Forexlive: The CNY1 trillion in Pledged Supplementary Lending (PSL) that the People’s Bank of China recently conducted in the market “smacks of quantitative easing” The funds which have been relent to China Development Bank are “deliberate and significant expansion of the PBOC’s balance sheet via creating bank reserves/cash” He likens the exercise to the UK’s Funding For Lending scheme Says that the CDB’s balance sheet reflects the transfer of funds, even if the PBOC’s doesn’tThe CNY1 trillion reported — no details confirmed by the PBOC yet — will end up in...
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Moodys: Negative gearing adds 9% to prices

ScreenHunter_12 Sep. 23 12.54 By Leith van Onselen From The AFR comes some interesting analysis from Moody's estimating that allowing property investors to deduct rental property losses against unrelated wage and salary income - known as "negative gearing" in Australia - has added some 9% or $44,000 to the typical Australian home value: The report said that negative gearing costs the federal government around $4 billion in lost revenue and recognised by some economists as an “unfair and unproductive” distortion... With low interest rates the impact of the subsidy has fallen from a 2008 peak of 15 per cent, “yet...
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