Parliament acts on dodgy foreign property money

ScreenHunter_5115 Nov. 24 09.52 By Leith van Onselen The Parliamentary Committee examining foreign investment has released its report, and if I had to sum it up in one word it would be "transparency". Here is a summary of the recommendations: Retaining the current framework applying to foreign purchases of Australian housing to encourage foreign investment in new dwellings and increase housing supply. Improving the internal processes at Treasury and the Foreign Investment Review Board (FIRB) and removing barriers to enable adequate audit, compliance, and enforcement of the foreign investment framework. Applying a modest...
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Morgan Stanley: 45% chance of rate cut

dfveq From Morgen Stanley: RBA loses another friend in the ‘hold’ club: The RBA is increasingly standing out as a pillar of monetary stability, with the PBoC becoming the third major economy to join the ECB and BoJ’s 2H14 easing, in addition to Korea in the region. Outside of high-inflation India and Indonesia (which recently hiked rates to 7.75% following the fuel subsidy cut), it is only the RBNZ that has been charting a course towards tighter monetary policy – but even here, market pricing of further rate hikes over the next 12 months has fallen from 40bp to 20bp. Imported deflation, and...
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Murray review a boon for smaller banks?

ScreenHunter_01 Aug. 01 06.58 By Leith van Onselen The head of Suncorp, Patrick Snowball, has claimed that the recommendations of the Murray Financial System Inquiry are likely to make it much easier for smaller authorised deposit-taking instritutions (ADIs) to compete against the Big Four banks. From The Australian: “The inquiry has fuelled a robust level of discussion and debate about capital and what levels should reasonably be expected to improve financial system stability"... “It seems a very real possibility that one outcome of the inquiry will be that Australia's largest banks will need to increase their capital...
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Uren: Throw FHBs to foreign wolves

snarling-wolf By Leith van Onselen The Australian's David Uren has produced a half-baked defence of foreign investment into pre-existing dwellings, arguing that concerns about foreign investment are a fallacy and that there is "little economic justification" for tightening enforcement of the foreign ownership rules. Let's examine Uren's arguments. If I am selling a house, and a Chinese buyer wants to pay more than an Australian, I make a larger capital gain and can use the additional proceeds to buy the house of my dreams — possibly a new one — or add more to my superannuation, or spend it on consumption,...
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Macro Morning: Australian dollar touches 84s

marketmorning by Chris Becker Good data prints - or more importantly, positive reaction to data - all round helped risk markets inch higher last night with the S&P500 achieving another record high in its secular bull market: The data mix from the US at first glance was mixed, with the closely watched durable goods order for October headline print being higher than expected, but core data coupled with a rising trend in initial jobless claims and lagging home sales point to a cooling US economy. Coupled with a slightly weaker Chicago PMI (but still very high) this didn't stop US bond markets strengthening...
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PBO describes Budget carnage

small-red-ink-splash-md By Leith van Onselen Following Macroeconomics' forecast earlier this month that Federal Budget revenues would be slashed by $52 billion over four years courtesy of slumping commodity prices, falling mining investment, and weak income growth, analysis by the Parliamentary Budget Office (PBO) has released a new report predicting big increases in the Budget deficit if labour productivity is not improved and if world commodity prices fall by 30%. Key extracts from the report, which analyses the "sensitivity" of three main drivers of the Australian economy -  labour productivity growth, the labour...
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Oil wars as GFC 2.0

imgres Today we return to the loneliest man in Davos from Oliver Wyman who predicted in early 2011 that the next GFC will spring from a commodities crash in 2015: During phase 1 we distinguish between two sources of demand affecting commodities prices: demand for use in the production of other goods (“real” demand) and demand for the purpose of price speculation (“speculative” demand). There are three major groups of players in our scenario. Firstly, there are economies, such as Latin America, Africa, Russia, Canada and Australia, which are the largest commodities producers. Secondly, there is China,...
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Daily iron ore price update (Titanic deck chairs)

anvil6-200x200 Here are today's iron ore price charts: Slightly better price action in paper markets. But who cares. Physical is now tumbling with benchmark leading Qingdao and also down hard to $68. The CISA high frequency steel output data for mid November was also poor. It will still be a little APEC affected but it didn't rebound at all suggesting demand is getting worse heading into winter. Effectively, steel production is back to 2012 levels, which only make things worse for iron ore. Reuters has texture: Sucden Financial analyst Kash Kamal said "a glut of material from Western Australia and...
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Daily LNG price update (no cut)

fh45e The news for the oil price is more weakness, from Reuters: OPEC leader Saudi Arabia signaled on Wednesday it was unlikely to push for a major change in oil output at the producer group's meeting this week, a day after Russia refused to cooperate in any production cut. Saudi Oil Minister Ali al-Naimi said he expected the oil market "to stabilize itself eventually." Iranian Oil Minister Bijan Zangeneh said some OPEC members, although not Iran itself, were gearing up for a battle over market share and insisted that non-OPEC producers needed to participate in any OPEC-led output cut. "The most...
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Gittins: Australian house prices are different

economists-carmen-reinhardt-and-ken-rogoff-explain-why-growth-wont-cure-debt By Leith van Onselen Fairfax's Ross Gittins has produced a thinly veiled defence of Australia's exorbitant housing costs, arguing that housing values are inflated "because Australians have an unusual relationship with their homes". In making his case, Gittins draws on a recent research report from Saul Eslake, which provided six reasons for Australia's expensive housing. Much of the explanation comes from the insights of economic geography, the study of how we're affected by the spatial dimension of the economy and, in particular, of the way big cities work... Almost 60 per cent of Australians...
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Links 27 November 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Cheap energy is the new cheap labor - Financial Times Oil prices won’t stay low forever - Alliance Bernstein Krugman: Keynes Is Slowly Winning - New York Times The brutal monotony of all-time highs - The Reformed Broker Bullish find assets double bears for first time - Dana Lyons The case for international stocks - Total Return The energy sector has been declining for some time now - Pension Partners Seven simple things investors don’t do - A Wealth of Common Sense How limits (or constraints) can actually make you a better trader -...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Chris Weston, Chief Market Strategist at IG Markets Asia has generally been positive, with better buying of Australian equities and banks and key mining names finding good inflows. Japan has continued to be a focal point, with many hoping for some kind of pullback to work long Japanese equities and Nikkei future positions. The 14 December election could spur volatility in assets, especially with the FOMC meeting just days after. One-month USD/JPY implied options volatility is currently at 10.89%, which is still below the five-year average of 11.5%, so I believe buying volatility may be worth...
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Foreigners guzzle Melbourne apartments

images By Leith van Onselen The AFR has produced an interesting report today on a 92-storey apartment development by Malaysian developer, UEM Sunrise, which reportedly has all but sold out after just two weeks, with three-quarters of the apartments selling to foreign buyers: With 941 apartments, the 92-storey Aurora is the first project in Australia by the developer... The developer has sold down 895 units already, mostly through its strong networks in south-east Asia and China, local buyers will account for 25 per cent of the stock. Around 60 per cent of buyers are investors... UEM Sunrise plans to...
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The Australian budget’s illusory strength

gnetbwe From the SMH blog: A recession in the next five years could have a devastating effect on the world's heavily indebted nations, although Australia would emerge relatively unscathed, a report shows. Global investment manager Standard Life Investments, in its report Defusing the Fiscal Timebomb, said that developed nations with high debt could be in deep trouble if current forecasts for economic recovery did not eventuate. ...The report divides countries into four categories based on their level of vulnerability. Greece, Ireland, Italy, Japan and Portugal are most...
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‘Straya: Determined to be dumb

ScreenHunter_16 May. 13 15.31 By Leith van Onselen Australia is cementing itself as a houses and holes economy, with the report today that the CSIRO will cut 1,400 science jobs: Previous governments have fought to stem the flow of our cleverest minds offshore in their search for better pay and research facilities. Now, cuts from the previous and current Federal Governments are driving out one in every five jobs at the nation’s internationally renown research centre, CSIRO. That’s the total loss of about 1400 scientists and assistants. Science communicator Julian Cribb told ABC Radio yesterday the cuts were...
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BREE’s cupboard is dangerously bare

thyj64u The now dead Bureau of Resource and Energy Economics (BREE) has released its last update on the pipeline of major Australian resource projects and reading between the lines the future is bleak. Here's the summary: This release of the Resources and Energy Major Projects Report provides an update on resource and energy project developments over the period May 2014 to October 2014. It comes at a time when investment in Australia’s resource and energy sector has been declining in response to a general decline in commodity prices. The environment of lower prices has encouraged resources companies...
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Sydney brick-maker says “It’s all in the land”

ScreenHunter_5164 Nov. 26 11.04 By David Collyer, cross-posted from Prosper Australia The AFR today reports Brickworks Ltd calling for steep increases in Sydney land supply to assist affordability for homemakers. Developers on the outskirts of all the major Australian cities are dribbling out lots piecemeal – stifling supply, household formation and economic activity. It is entirely rational for them to seek to maximise their profits in this way, but I see no reason why state governments should aid and abet this private capture of the future earnings of citizens through staggeringly high land prices. From The AFR: The...
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PM Pork to pull funding if VIC votes Labor

Capture By Leith van Onselen Prime Minister Pork has warned Victorians not to vote for the Labor party in this weekend's state election, claiming that he would pull funding allocated to the East-West Link road project if Labor fulfills its promise to tear-up the contract to build the road if it forms government. From The Australian: “I want to make it absolutely clear to the people of Victoria that the $3bn the commonwealth government has committed to this project is for one purpose and one purpose only — and that is to build East West Link. “Let me repeat: the $3bn the commonwealth government has...
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China consumer confidence remains weak

fthu4 From Westpac's Huw MacKay: The Westpac MNI China Consumer Sentiment Indicator, hereafter the Westpac MNI China CSI, was essentially unchanged in November, printing 111.0 versus 110.9 in October, a +0.04% change over the month and –10.3% over the year. The November outcome is 8.7% below the long run average. The survey indicates that the anxieties that have been gnawing away at the Chinese consumer throughout the year remain in evidence. However, there are some tentative signs that the dominant themes of late - pronounced pessimism regarding the housing and labour markets - are shifting...
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Iron ore miners firm on Glenrio delusion

fghe5 Ivan Glasenberg's illusory tilt at RIO has all major miners firming today with BHP up 1%, RIO is up an opium-addled 2% and FMG flat. After all, when he's done buying RIO, BHP and FMG will be next.  Here are the comparative indexes: The idiocy spreads are all widening now and the moron cross (BHP falling faster than RIO) is back in play: Apparently Mr Glasenberg's ambitions do not extend to the juniors: Not sure why. If he's good to his word then Mr Glasenberg's cutting of RIO production will save the juniors, right? Or maybe they'll rush into the volume gap with BHP, Vale, FMG,...
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Is there a PBOC “put” in the making?

long-put From Reuters: China's central bank will wait until fourth-quarter economic data is out and monitor U.S. and Japanese monetary policy before considering any more rate cuts or easing, a central bank adviser said on Tuesday. The People's Bank of China surprised the markets by cutting rates last Friday for the first time in more than two years to help stabilize the world's second-largest economy. Reuters then reported that China was prepared to ease policy again. "Regarding the next step, whether to cut rates again or take similar action, we still need to look at the fourth quarter's macroeconomic...
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NT LNG boom softens construction downturn

ScreenHunter_5170 Nov. 26 12.01 By Leith van Onselen The ABS has released data on the value of construction work done for the September quarter of 2014, which registered a seasonally-adjusted 2.2% fall in total construction activity over the quarter and a 5.1% decline over the year. The result disappointed analysts' expectations of a 1.9% fall over the quarter. The 2.2% quarterly decline in construction activity was broad-based, with engineering construction falling 3.2% and building construction falling 1.0%: Residential construction – the great hope as the mining investment boom unwinds – disappointed, falling...
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Will the iron ore crash destroy house prices?

19g0dseuuoeyxjpg Back in 2010 when MB was just taking shape, one of the very few sell side analysts to get the iron ore price right in advance, Tim Toohey of Goldman Sachs, wrote an equally excellent piece on what the great iron ore correction of 2014 would do to house prices. Here is some of it: On whether Australian house prices constitute a speculative bubble: No  • We think that the behaviour of house prices over the past year, and indeed the past decade does not resemble a speculative bubble. Our rationale is that: i) Refinancing of established homes is at a 9-year low. ii) The turnover of home sales that...
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The slow dawn of iron ore horror

021 From the AFR: Former Rio Tinto chief Tom Albanese says weak iron ore prices are here to stay for longer than expected and “volatility is the new normal”, as iron ore sank below $US70 a tonne overnight Tuesday for the first time in five years. ...“As long as there is a large amount of new supply you are going to have a much softer pricing world than people would have anticipated, for at least a couple of years.” He said the ditching of the benchmark pricing system in 2010 had transformed the market. ...“While it’s fun on the way up, it’s painful on the way down.” Yes, it is,...
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PPL ball and chain drags on Budget progress

bloom By Leith van Onselen With the year winding down, and many of the May Budget measures still stuck in limbo, the Abbott Government is preparing to "clear the barnacles" and water down or junk some unpopular measures in order to start the new year on the front foot. As reported in The AFR today, the $7 medical co-payment is set to be scrapped by the Government, along with the attached Medical Research Fund, with Abbott's signature paid parental leave (PPL) policy also likely to be watered down. It is also seeking a compromise with the Senate on university fee deregulation: Senior government...
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