MB Members Report: Perth property at the precipice

wile-e-coyote In last year's members report on the Perth housing market, we noted that storm clouds were gathering on the horizon for the Western Australian economy, thanks to the unwinding of the biggest mining and commodity price boom in the state's history. This, we argued, would take up to 18 months to manifest, which would presumably see Perth housing hit the wall sometime from 2015. This report revisits the Perth housing market and finds that the canary in the mine is dead, and represents a risky proposition for both housing investors and first home buyers alike. The evolution of Perth house...
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Is defence one big entitlement industry?

ScreenHunter_3500 Jul. 28 11.40 By Leith van Onselen ABC's The Business last night aired a segment on the Defence discussion paper, released earlier this week, which questioned whether Australia should build defence hardware locally or instead purchase it off-the-shelf at lower cost offshore. It's an interesting issue, particularly in light of the Government's commitment to increase the nation’s defence budget to $50 billion within a decade, with defence spending’s share of GDP also targeted to increase to 2% of GDP from 1.6% currently. Included in this planned spending is the procurement of armoured vehicles,...
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Carr, Bloxo want recession to stop house prices

imgres Mad Adam Carr today takes a tilt at macroprudential: Five years after the GFC, many nations appear to be lurching head first into yet another housing crisis. In response, increased macroprudential regulation has become the policy du jour, proudly advocated by the International Monetary Fund and widely adopted around the world. ...Suspicion should be raised, however, when what were previously well accepted principles are so easily cast aside. ...Remember that the US housing crisis was not result of insufficient regulation. Instead the crisis was caused by a combination of a housing glut,...
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Why Work for the Dole is poor policy

ScreenHunter_10 Mar. 29 12.46 By Leith van Onselen Employment Minister, Eric Abetz, has acknowledged business' criticism that its beefed-up "Work-for-the-Dole" program, which would require the unemployed to apply for 40 jobs a month in order to continue to receive benefits, could create a deluge of sham job applications, and has signaled possible changes. From The Guardian: Abetz emphasised that the government did not want “red tape and inconvenience to employers” and would listen to feedback... Asked whether there was a risk the 40-application rule would become a box-ticking exercise, with people applying for jobs...
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Graduates stuck in jobs mire

k.jbj From the annual Graduate Careers Australia survey: This section of the Graduate Destinations report examines the progress of new higher education graduates, from all levels of study, four months after course completion, comparing employment and further study outcomes. Table 1 examines the broad outcomes of 2013 graduates by level of award. Outcomes include graduates available for full-time employment (those in full-time employment as well as those seeking full-time employment), those in full-time study, those graduates interested only in part-time or casual employment (whether in it, or...
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What Grattan’s city-centric report really showed

ScreenHunter_3524 Jul. 29 16.37 By Catherine Cashmore, a market analyst, journalist, and policy thinker, with extensive industry experience in all aspects relating to property. Follow Catherine on Twitter or via her Blog. “Too many workers live too far away to fulfil our cities’ economic potential” - is the conclusion of a recently published study by the Grattan institute. The report maps the dollar value of goods and services produced by workers within a particular area of Australia’s biggest cities. Demonstrating a disproportionate 80% is created on just 0.2% of the nation’s land mass. It mirrors findings...
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West African Ebola spreads

Diseased_Ebola_2014 From The Australian: COUNTRIES infected by the deadly Ebola virus in ­Africa are resorting to increasingly desperate measures amid the worst outbreak the world has known. Liberia’s President Ellen Johnson Sirleaf closed all but four of the country’s borders while Nigeria shut and quarantined a hospital as the death toll rose to at least 674 in four countries. Mrs Sirleaf also restricted public gatherings and quarantined the most heavily affected communities in Liberia after one of the doctors who was treating patients here in the capital died of the ­disease on Saturday. Only the...
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Australian gas blunders set example in N. America

0510140604004 The AFR's John Kehoe has an interesting piece today on LNG: Australia is setting an example to the United States Congress: how not to open up an energy market. ­Manufacturing companies and their lobbyists are briefing legislators on Capitol Hill that Australia’s natural gas prices have tripled because of the extra demand from overseas buyers. Congressional Republicans introduced legislation last week that would loosen the United States’ historic restrictions on gas sales overseas. The idea is for the US to ­supply more gas to allies in Europe who are beholden to Russia for...
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Daily iron ore price update (property punt)

fgea Here are the iron ore charts for July 29, 2014: We're all green today with physical chasing paper markets higher. Rebar futures joined the party. The BDI cape remains becalmed. Reuters has texture: "The sentiment towards the second half for China has really improved but we still believe that the stimulus we have seen is minuscule and the property market remains tough," said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong. Optimism over China's economy rose after HSBC's preliminary survey showed manufacturing activity there quickened to an 18-month high in July,...
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China will slow again by next year

images17 Some good material from around the web today supports MB's current base case for the Chinese economy - that it's current stabilisation not a renewed cycle of credit-driven activity and that reform will move forward again before long, culminating in a steady slowing over the next few years. The first piece is from Nomura via FTAlphaville, which shows stabilisation has succeeded in lowering corporate bonds yields materially: Liquidity injections and targeted easing so far this year has had a material impact on corporate bond yields. Corporate bond yields have dropped across the rating spectrum,...
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Links 30 July 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: The dangers of portfolio patriotism - Patrick O’Shaughnessy Stocks are not bonds, and vice versa - Blackrock Blog If you can't lose, you're a loser - Barry Ritholtz Why you need to have an investment plan - Irrelevant Investor Spread Your Wealth or Lose It - Bloomberg View North America: Home price gains are slowing down - Real Time Economics A possible miss on Q2 GDP - Humble Student The Injustice of Marijuana Arrests - New York Times Higher Minimum Wage, Faster Job Creation - New York Times The New Geography of U.S. Consumer Debt -...
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ASX at the close

ScreenHunter_31-Jun.-04-16.424-200x2001 Chris Weston, Chief Market Strategist at IG Markets Asia has been fairly subdued today, although price action on an index level still points to holding a favourable bias towards China, Hong Kong and Japan. In Australia, the ASX 200 saw good buying off the early morning low (5565), although defensive names have outperformed. The talk on the floor was around QBE and its latest downgrade, and surprisingly, it has surprised the market. Over the last few years you’d be hard pushed to find a daily chart in the local market with more gapping issues than QBE; however the sell-side continues to see...
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MPs to quiz Chinese on Aussie property purchases

ScreenHunter_06 May. 06 09.27 By Leith van Onselen From The Australian comes news that members of the Parliamentary into into foreign property investment will embark on a week long tour of China to help ascertain the degree of investment in Australian property: The delegation is being led by committee chair, Kelly O’Dwyer, who is joined by fellow Liberals Peter Hendy and Scott Buchholz and Labor’s Pat Conroy... This is not the reason for the trip but the MPs will have the chance to get China’s perspective about the sensitive foreign investment issues... And on the question of Chinese investment in housing,...
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QLD prepares for asset fire sale

ScreenHunter_2966 Jun. 24 15.17 By Leith van Onselen The AFR is reporting today that Queensland Treasury Corp has called for expressions of interest to sell $33.6 billion of ports, power generators, electricity distribution networks and water pipelines (see below graphic). Studying the for sale list makes me nervous, as most of the assets appear to be essential infrastructure, whose sale could potentially lead to deleterious outcomes for taxpayers. As argued previously, it is the degree of market competition that usually determines whether an asset sale is positive for the public. And essential infrastructure...
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Miners rise as iron ore futures gain

logo It's all green again for iron ore miners today as Dalian iron ore futures are up almost 1% and rebar futures are following, up...
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S&P outlines Australia’s doom scenario

imgres Standard and Poors has today affirmed Australia's AAA sovereign rating: The sovereign credit ratings on Australia benefit from the country's strong institutional settings, its wealthy and resilient economy, and a high degree of monetary and fiscal policy flexibility. The country's high external and household indebtedness, as well as vulnerability to weakening commodity export demand, moderate these strengths. We have affirmed the unsolicited ratings on Australia at 'AAA/A-1+', and the outlook remains stable. The stable outlook is based on our assumption that Australia's historically...
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Iron ore juniors fiddle while China burns prices

Capture The media loves it, but this one goes in the totally irrelevant category. From the AFR: Australian iron ore miners are playing with the structure and dating of contracts for the ore in a bid to lessen the impact of big discounts being forced on them by Chinese buyers. ...Instead of continuing to set prices in accordance with the previous month’s average iron ore price, BC Iron managing director Morgan Ball said his company had been offering buyers a choice of several reference periods against which to calculate the iron ore price. For example, ore delivered in April may actually be priced...
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S&P warns on increasing mortgage risks

ScreenHunter_30 Oct. 10 06.15 By Leith van Onselen Standard & Poors (S&P) has released a new report warning of increasing risks for the Australian housing market due to rising investor participation, slowing income growth and softening employment prospects, which could create mortgage repayment pressures for recent, highly leveraged, purchasers: All else being equal, falling interest rates have brought improvements to lending serviceability and, after a brief period of balance-sheet restoration, renewed lending demand, with Australian households--and investors especially--at the forefront. These easing conditions,...
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Victorian iron ore dreams eat dust

imgres This one was always in the deep hopium category. From the ABC: The company proposing a new iron ore mine at Nowa Nowa says it will have to re-evaluate the economics of the project. Eastern Iron had hoped to export the ore from Eden but the owner of the bulk wharf facility, South-East Fibre Exports (SEFE), has withdrawn its offer. SEFE exports woodchips and timber from the wharf but it announced earlier this year it will stop sourcing timber from East Gippsland. The managing director of Eastern Iron, Greg De Ross, says he is investigating a smaller naval wharf near Eden or other port options...
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GS: High dollar to force rate cut

images From the AFR: The Reserve Bank may be forced to cut the official cash rate before the end of the year to beat back of a wall of foreign money that has driven the Australian dollar higher, according to Goldman Sachs Asset Management’s bond expert Phil Moffitt. Mr Moffitt, a 30-year veteran of the bond market and one of Goldman’s most senior Australian partners was speaking at the sidelines of the $935 billion asset managers’ client conference in Sydney. He said the confluence of weak domestic growth, an expected fall in inflation as the carbon tax is discarded and the high currency was...
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New home sales have peaked (members)

zxfgfda The HIA is out with its new home sales index: New home sales took a step higher in the month and quarter of June 2014, said the Housing Industry Association, the voice of Australia’s residential building industry. The HIA New Home Sales Report, a survey of Australia’s largest volume builders, shows an increase of 1.2 per cent in the month of June 2014 and a rise of 2.0 per cent in the June quarter. Sales of multi-units drove the monthly result, surging by 15.9 per cent. Detached house sales fell by 1.0 per cent in June. “Detached house sales increased by 2.6 per cent in the June...
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Consumer confidence highest since January

ScreenHunter_15 Mar. 18 16.24 By Leith van Onselen The ANZ-Roy Morgan Research (RMR) consumer confidence index has more than recovered from its Budget-induced slump, rising another 2.7 points in the week ended 27 July to 116.2, and is now at its highest level since late-January and some 2.7% above its long-run average reading of 113.2 (see next chart). According to ANZ chief economist, Warren Hogan: While the improvement in confidence was relatively broadly based last week, households’ perceptions about ‘financial situation compared to a year ago’, a subindex most closely correlated with consumer demand, has...
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No Nick, FHBs should not be allowed to use super (members)

ScreenHunter_3508 Jul. 29 09.47 By Leith van Onselen Independent senator, Nick Xenophon, has announced that he will introduce legislative changes in the Spring session of parliament to allow first home buyers (FHBs) to access their superannuation savings to pay a house deposit: Such a scheme successfully operates in Canada, called Home Buyers’ Plan, leading to improved housing affordability... In Canada up to $25,000 can be accessed for a first home, and it’s made a dramatic difference for housing affordability there. However, Senator Xenophon will be moving for changes to Superannuation Act 1976 to allow the...
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LNG price crash persists

GLNG_chart2 From Reuters today: Asian spot liquefied natural gas (LNG) prices edged lower last week as buyers low-balled sellers amid ample supply from Papua New Guinea and Australia, while bets of a winter price pickup spurred some into floating storage plays.Spot LNG prices for September delivery slipped slightly to $10.50 per million British thermal units (mmBtu) last week, compared with $10.60 per mmBtu on the week ended July 18."I think buyers are bidding around $10 for Sept delivery, perhaps up to $11 for October. So there may still be further downside, or we could have reached the floor," one trader...
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Platinum founder warns on property “act of faith”

ScreenHunter_3505 Jul. 29 08.50 By Leith van Onselen The founder of Platinum Asset Management, billionaire investor Kerr Neilson, has released an interesting report warning about Australia's frothy house price valuations and the risks of a correction once "conditions change, [and] a lot of the assumptions are found wanting". The report highlights four "facts" about Australian housing: 1. Returns from housing investment are often exaggerated and flattered by inflation. 2. Holding costs of rates, local taxes and repairs are estimated to absorb about half of current rental yields. 3. Long-term values are determined by...
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