ASX at the close

ScreenHunter_31 Jun. 04 16.42 Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets Calm restored in Asia Sentiment is somewhat improved in Asian trade in the absence of fresh developments from the Yemen conflict. Currency moves remain key at the moment and there are signs the greenback might be looking to start gaining momentum yet again. The greenback has been a sleeping giant since the FOMC meeting and this has allowed some of the risk currencies to get back in the game against it. EUR/USD for example managed to find a bottom a couple of weeks ago and this took the pair back to around the 1.1000 mark. The pair...
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Comrade Colin embraces the cartel

broken-promises-logo1-200x200-200x200 From Fairfax: Colin Barnett said there had been an over-reaction to Mr Forrest's idea, including by Rio Tinto chief executive Sam Walsh, who labelled it a "harebrained scheme" and "absolute nonsense". "I don't think Andrew Forrest ever used the word cartel and I think the response has been a little bit exaggerated," the Liberal leader told Radio 6PR on Friday. "I think the point he's trying to make is if you flood the market, you hurt yourself, you hurt the smaller companies, you certainly hurt your shareholders, and I think the iron ore industry should be supplying to meet the...
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Saxo Bank: 50% chance of Aussie recession

ScreenHunter_30 Oct. 10 06.15 By Leith van Onselen Steen Jakobsen, chief economist at Denmark's Saxo Bank, has given a stinging critique of the Australian economy, claiming that it is afflicted by a housing bubble and has a 50% chance of falling into recession. From Yahoo Finance: The mining boom had inspired laziness and arrogance... There's dangerous levels of investment in the banking sector and housing market, and not enough investment in technology, infrastructure and education... "What is booming in Australia is housing and banks, the two sectors that provide zero productivity and no new jobs"... "You're shooting...
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Fortescue ‘worthless’ at current ore prices

ScreenHunter_07 Nov. 26 16.13 More scuttlebutt on Fortescue this afternoon, via The AFR: Fortescue's stock is worthless at current spot iron ore prices, analysts at CBA calculate. Zippo, zilch... There is $US7.5 billion ($11.5 billion) in net debt squatting on Fortescue's balance sheet. In Aussie dollar terms, that's approaching twice the company's market capitalisation – just a number, sure, but an ugly one. The combination of a single commodity focus, high debt and skinny margins makes Fortescue a massively leveraged play on the iron ore price... "Although Fortescue correctly points out that it has no debt due until...
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The TPP is so bad even the US congress is shocked

ScreenHunter_3418 Jul. 23 10.44 By Leith van Onselen More worrying details have emerged about the the Trans-Pacific Partnership (TPP) - the US-led regional trade pact between 12 nations (including Australia) - with the New York Times revealing that members of the US Congress have been viewing the secretive document and are disgusted by its contents: Members of Congress have been reviewing the secret document in secure reading rooms, but this is the first disclosure to the public since an early version leaked in 2012. “This is really troubling,” said Senator Charles E. Schumer of New York, the Senate’s No. 3 Democrat....
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Australia: one of the worst housing bubbles ever

Bubbles1-682_860161a By Lindsay David By all accounts, Australia is experiencing what is one of the greatest credit-fuelled real estate bubbles in modern times. On the back of a collapsing mining sector, we can thank the RBA, APRA, ASIC and the political elite in Canberra for creating a flawed household wealth-creation strategy that shares all the hallmarks of a predictable economic disaster. In plain English, since the mid-1990s, Australia's strategy is for home buyers and investors to borrow heavily from lenders and flip houses to the next buyer who has taken out even more debt to speculate. Today, all this...
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PIMCO shorts the Aussie dollar

ScreenHunter_6762 Mar. 27 11.27 Fixed income investment management company, Pacific Investment Management Co. (PIMCO), has told investors that it is short the Australian dollar, citing falling commodity prices and interest rates. From Bloomberg: “Our highest conviction views are in the currency markets, and we remain short the yen and the Australian dollar against a long U.S. dollar position”... According to FX Live, some of the factors underpinning PIMCO's view are: Slowing growth in China. The fragile domestic rebalance away from mining-led growth. Declining terms of trade from lower bulk commodity prices. Sub-trend...
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Should Australia cut company taxes to boost growth?

ScreenHunter_6761 Mar. 27 10.49 By Leith van Onselen The Australian Treasury’s head of revenue, Rob Heffren, is pushing to cut the rate of company tax in order to boost foreign investment. From The Canberra Times: Mr Heferen said lower company taxes boosted foreign investment, resulted in more jobs, higher wages and increased productivity... "Let's be clear: taxes have negative consequences for economic growth.. some are worse than others," Mr Heferen said... "Australia's company tax is relatively high by global standards, particularly with a number of other countries [in the developed world] having reduced their rates,"...
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Mortgages: The truth about households paying ahead

ScreenHunter_6760 Mar. 27 10.34 By Martin North, cross-posted from the Digital Finance Analytics Blog: One of the arguments often used to disprove any issues in the housing market is the fact that some households are paying well ahead of required repayments. For example in the recent RBA Bank Stability Report, they say “Outside of investor housing, household sector finances are currently less cause for concern. Household credit growth has remained moderate, because new lending for purposes other than investor housing has been more subdued and because existing borrowers are taking advantage of low interest rates to pay down debt...
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Labor blind as a bat on Aged Pension Reform

ScreenHunter_6712 Mar. 25 11.57 By Leith van Onselen The Labor party's denial around the Aged Pension beggars belief. Here were have a measure that currently takes up over a tenth of the Commonwealth budget (excluding civil servants) and costs around $40 billion currently or some 2.9% of GDP. The Aged Pension is also forecast in the Intergenerational report to grow to around 3.8% of GDP by 2055 without measures to curb its growth. At the same time, the proportion of workers is projected to dramatically shrink (see next chart), meaning the burden on younger working Australians from rising pension costs will rise...
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Daily iron ore price (Dalian crash) Updated!

anvil-200x200-200x2001-200x2001-200x200 Here are the iron ore charts for March 26, 2015: Benchmark Tianjin iron ore fell 1.3% to $54.80 a tonne, 60 cents from a new low. Qingdao was  a bit better. 12 month swaps are eroding toward their lows and rebar average is tanking but the cake today goes to Dalian 6 months futures which are limit down 5% this morning. It's a very good bet that all of the above will be at record lows Monday morning. As well, CISA released its mid March production output numbers for major steel mills and they fell 1.92% from the preceding ten days to 1.64 million tonnes, now running clearly below the...
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Where are the housing shortages and surpluses?

ScreenHunter_6753 Mar. 27 08.11 By Leith van Onselen With the release of population data for the September quarter yesterday by the ABS, I thought it timely to update the dwelling construction vs population growth figures nationally and across the major capitals to see where housing supply pressures might be easing/worsening. Note these charts represent a basic guide only and do not account for: The type of dwelling built, which is becoming increasingly important given the proliferation of tiny apartments across the major capitals, which necessarily house less people. Hence, a larger number of dwellings may need to be built...
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Aussie banks borrow offshore like drunken sailors

ScreenHunter_6745 Mar. 27 07.22 By Leith van Onselen The release of the Australian Bureau of Statistics (ABS) National Financial Accounts yesterday revealed a large $33 billion (5%) jump in Australian banks' gross external liabilities (offshore borrowings) in the December quarter, with borrowings now at all time record levels. This surge in offshore borrowings was driven by increases in One Name Paper (+$17 billion) which is debt under one year maturity, Bonds (+$13 billion) and Deposits (+$10 billion), partly offset by falling loans (-$7 billion), as shown in the next chart: In the year to December 2014, bank offshore...
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More flawed arguments for a “Big Australia”

ScreenHunter_09 Mar. 14 19.12 By Leith van Onselen The Australian's David Uren wrote an extraordinarily one-eyed article yesterday in support of rapid population growth, which espouses all of the so-called economic positives without due regard for the negative consequences: ...rapid population growth has been a vital support to the Australian economy since the global financial crisis... Apart from Luxembourg, there is only one other advanced country with a population growth rate above 1 per cent and that is Canada at 1.1 per cent... Australia’s population is rising more rapidly than those of India, Mexico or Indonesia and...
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RP Data weekly Australian house price update

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen In the week ended 26 March 2015, the Core Logic-RP Data 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.07% - the fifth consecutive weekly rise (see next chart). Values in Sydney, Adelaide and Perth rose, whereas they fell in Melbourne and Brisbane (see next chart). So far this month, values have risen by 1.16% at the 5-city level, with Sydney overwhelmingly leading the way (see next chart). Since the beginning of the year, home values have risen strongly in Sydney and Melbourne, are up slightly in Brisbane, but...
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A big and bloody Pilbara wet builds

1234456 Some years ago I described what was coming in the iron ore market as "blood flowing through the gullies of the Pilbara". We're still a long way from that but the first trickles are beginning to run. The Twiggy Forrest's outburst two days ago calling for a iron ore cartel has generated fantastic quote after quote from industry insiders. It began thus: At a business dinner in Shanghai on Tuesday night, Mr Forrest, founder of the fourth biggest iron ore exporter, Fortescue Metals Group, said he was “absolutely happy to cap my production right now” at 180 million tonnes. He said the other major...
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Mining “years” from bottom

falling-04 From the AFR comes some sense at last: The managing director of Denham Capital, Bert Koth, also defied optimists who have called the bottom for commodity prices. "We believe we are still two years away from the bottom and then we are going to stay there for at least four to five years," Mr Koth said. "The market is still a falling knife." ..."The reason we have a funding crisis [in the resources sector] is because the people who put their money into the public markets have lost it," he said. "Private equity is not going to close the funding gap." Unless they want to lose it of...
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Daily LNG price update (Yemen)

white elephant The Brent oil price took off last night as the Middle East launches a war on Yemen. As I write the price is up 4.5% at $59.06. The war will very likely be brief and is not a major strategic threat in the region. Here are some links: Saudi Arabia in air strikes Ground invasion next Iran has 30 million barrels of oil at sea John Kemp sums up why it matters at all: Air strikes by Saudi Arabia and its allies in Yemen have sparked a modest rise in oil prices of $3 per barrel, even though Yemen plays a marginal role in the global oil market. Yemen produces just 130,000 barrels per...
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On China and gold

China-slowdown-200x200-200x200-200x200 Cross-posted from Investing in Chinese Stocks. Here are snips from a long piece on gold's role, or lack of one, over the past 60 years. The KMT's plan to transport central bank gold to Taiwan was accidentally discovered by Western media and immediately reported. The widespread "gold run" on banks in Shanghai that ensued in the weeks afterward dealt a death blow to the regime's recently issued jinyuanquan, which had already been teetering on the brink of collapse. This also brought an end to the monetary system that the ROC government had been trying hard over the previous 10 months to build based...
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Links 27 March 2015

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Dow Marks Third Straight Day of Triple-Digit Losses - Bloomberg Warren Buffett Quadrupled His Ketchup Investment - Bloomberg View Investors Scoop Up Companies’ Bonds - Wall Street Journal Why Bombing This Tiny Oil Producer Is Roiling the Energy Market - Bloomberg The financial stability risks of ultra-loose monetary policy - Bruegel The biggest mistake investors are making right now - Fortune Americas: Trans-Pacific Partnership Seen as Door for Foreign Suits Against U.S. - New York Times The Real Villains in the American Health Care System...
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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 Oil rallies on Yemen conflict Equities have mostly unwound in Asia with a variety of factors pushing investors into cautious mode. The escalation of the situation in Yemen with Saudi Arabia launching airstrikes has the world on high alert and leaders will no doubt be holding talks to try and find a swift resolution and prevent deeper regional conflict. Predictably, this has had an impact on crude prices with WTI and Brent on the move in Asia, putting on more than 5%. WTI was trading at around $49/bbl at the beginning of Asian...
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RIO’s Walsh pulverises Forrest

cdn.indiewire From Rio Tinto CEO Sam Walsh via the AFR: "I don't know what Andrew was thinking," Mr Walsh said to a packed mining industry lunch on Thursday. "I think the comments are absolute nonsense, I'm not sure if Andrew actually sought legal comment before." "It (a cap) won't help us in the longer term to prop up projects that are actually not competitive. "It is essential that we foster Australian industry…that is internationally competitive, and is not being propped up by tariffs or artificial means. That is not a way to run this great country. We have the wherewithal to be...
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CommSec primes the population ponzi

ScreenHunter_6736 Mar. 26 14.36 By Leith van Onselen From CommSec this afternoon comes the following statements on Australia's population (immigration) numbers, released by the ABS: Population growth is healthy although in recent quarter it has eased – largely due to a slowdown in migration. Importantly population growth is still amongst the fastest across the OECD nations and as such more people coming to Australia means greater demand for houses, cars and retail items. Clearly faster population growth is good news for builders and retailers. Some people aren’t convinced that faster population growth is a good thing. It...
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Land shortages still holding back affordable supply

ScreenHunter_5080 Nov. 20 10.36 By Leith van Onselen Lindsay Partridge, the CEO of Building supplier Brickworks, has today echoed CSR's warning that shortages of developable land are preventing a bigger construction uplift and helping to reduce housing affordability. From The AFR: "Despite surging demand, Sydney still has the lowest number of lots being released for housing development of all major capitals. This is rapidly pushing up [home] prices and reducing the average lot size," he said. "There has been good progress in New South Wales to increase the release of land, but more land is required quickly. What we need are...
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Population ponzi slowing as mining unwinds

ScreenHunter_6733 Mar. 26 13.49 By Leith van Onselen The ABS has released its Australian demographic statistics for the September quarter of 2014, which revealed that Australia's population growth rate continues to fall, driven by declining growth in the two key mining states of Western Australia and Queensland. According to the ABS, Australia’s population grew by 1.53% in the year to September 2014 - the seventh consecutive quarterly decline in growth - albeit population growth remained well above the 30-year average of 1.38%. The growth in the number of persons in the year to September 2014 was 354,600, which was...
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