Five reasons to prepare for Australian recession

imgres Sigh. The moment has come to call a spade a spade. The Chinese property bust is smashing iron ore. Thermal and coking coal are still falling and/or catching up to past falls in contract prices: Gold and oil/LNG are also down sharply in the past few months. In short, Australia's terms of trade (ToT) are getting smashed to the extent that it's rapidly assuming the proportions of an external shock, especially since the Australian dollar has totally detached itself from the economy. I can only estimate the ToT falls in train but can say with confidence that they are much bigger than forecast by...
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Daily iron ore price update (miners hammered)

anvil Here are the iron ore charts for August 28, 2014: Sheesh, where to begin! Paper markets got pulverised yesterday. The Singapore swaps rebounded before day's end but Dalian didn't. Rebar futures are roughly 100 yuan south of physical and still falling. The benchmark iron ore price fell another $1 to $87.30 within a whisker of the post-2009 low at $86.70 and it's going to break. A small contango with long swaps has reformed but given the broader weakness in paper remains unconvincing as a turning signal. The following chart from Axoim Capital also suggests it's not over. Observe...
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Chinese developers caught in accelerating bust

images101-200x200 It may be time for developers to start panicking. Remember the buyer stampede when Hangzhou lifted home purchase restrictions? Ifeng is reporting that the effect is fading quickly as buyers wait for prices to bottom. One sales agent said it seems like ending buying restrictions had no effect. The reporter in the story says that the gap between a rebound in sales and sales agents not seeing a change in the market is due to the market having not yet formed a bottom. A rebound is preceded by a bottom, but the market in Hangzhou hasn't stopped falling. Perhaps the reason is because the market has put...
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Weekly RP Data Australian house price update

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen In the week ended 28 August 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.28% (see next chart). Growth in this week's home values was fairly broad-based, with all capitals except Brisbane experiencing rises (see next chart). So far this month, home values have risen by 1.32%, with gains across the board but strongest growth in Sydney and Adelaide (see next chart): Values are up by 6.36% so far in 2014, with all major capitals except for Perth experiencing growth, and particularly...
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Mining gets its coolies

ScreenHunter_59 Aug. 29 07.46 By Leith van Onselen Despite overall unemployment at 12-year highs (and rising), a budding youth unemployment crisis, and its own Department of Employment revealing that skills shortages are at an "historic low", with employers able "to recruit skilled workers without marked difficulty" and "generally large fields of applicants vying for skilled jobs and employers filled a high proportion of their vacancies", the Coalition has announced that it will materially loosen rules to enable employers in specific regions to import more labour from overseas. From The Australian: ...the federal government...
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War adds to US bid

_77221029_023659940-1 More good data in the US overnight with Pending Home Sales strong: The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 3.3 percent to 105.9 in July from 102.5 in June, but is still 2.1 percent below July 2013 (108.2). The index is at its highest level since August 2013 (107.1) and is above 100 – considered an average level of contract activity – for the third consecutive month.  Weekly unemployment claims were firm: In the week ending August 23, the advance figure for seasonally adjusted initial claims was 298,000, a decrease of 1,000 from the previous...
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US begins Ebola vaccine trials

images From the World Health Organisation: The aim is to stop ongoing Ebola transmission worldwide within 6–9 months, while rapidly managing the consequences of any further international spread. It also recognizes the need to address, in parallel, the outbreak’s broader socioeconomic impact. It responds to the urgent need to dramatically scale up the international response. Nearly 40% of the total number of reported cases have occurred within the past three weeks. The roadmap was informed by comments received from a large number of partners, including health officials in the affected countries, the...
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Links 29 August 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: The stock market can decline without an inversion of the yield curve - Pension Partners Albert Edwards warns on the end of the stock buyback boom - Business Insider Investors can’t help themselves chasing performance - A Wealth of Common Sense Dividend paying stocks are not a substitute for bonds - Pragmatic Capitalism Which hedge funds are attracting big assets - Bloomberg Why S&P 500 index funds are a second-best choice - Rick Ferri North America: Weekly initial unemployment claims continue to trend below 300k - Calculated...
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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 another fairly quiet day in Asia with most of the domestic focus on Australian capex and the turnaround story that is Qantas, with underlying earnings providing some confidence that the worst is behind the airline. Australian private capital expenditure intensions were revised for the coming year and, at A$145.2 billion, it was enough of an increase to cause a pop in the AUD, with AUD/USD hitting a high of 0.9372.The RBA won’t see too much in the finer details to suggest animal spirits are driving spending, although they will be...
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Dump stamp duty for land taxes

ScreenHunter_30 Aug. 27 15.36 By Leith van Onselen The Housing Industry Association (HIA) yesterday released a report lamenting the high cost of stamp duty in Australia, which "makes household indebtedness worse by increasing required borrowings" and damages the "long-term financial well-being of ordinary homebuyers": “The typical homebuyer in Victoria is hit with a $24,100 stamp duty bill, the highest in the country,” remarked Shane Garrett. “In states like New South Wales and Western Australia, the average homeowner can look forward to handing almost $20,000 over to the state government before the removals truck...
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More on Chinese iron ore output

1033017e6d From Reuters: Australian exports have risen to account for more than 60 percent of China's total draw from the rest of the world in the past couple of months...That's displacement of higher-cost supply with lower-cost supply in action. The biggest displacement, based on where production sits on the global cost curve, should take place in China itself. ...Yet the official figures from the National Bureau of Statistics (NBS) suggest the opposite. Those for July showed iron ore production up 11 percent year-on-year with cumulative year-to-date growth running at 9 percent. This may in part be...
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Has Abbott blundering saved the RET?

images From the Australia Institute's Richard Denniss today in Crikey: In a clear vote of no confidence in the Australian economy, Australia’s largest ever investment in solar energy was scrapped this week. The problem for the government is that while there is a big difference between media strategy and economic strategy, this government doesn't appear to be doing a good job of either. Whoever leaked the rumour that the Prime Minster was keen to kill off the Renewable Energy Target (RET) is no doubt pleased with the front-page splash he or she achieved in The Australian Financial Review. No doubt...
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Why super lump sums must go

ScreenHunter_44 Aug. 28 13.16 By Leith van Onselen First Super chief, Bill Watson, has hit back at calls to require superannuation members to withdraw their super as an annuity to ensure that retirement savings last longer and create less of a drain on the Aged Pension. From The Canberra Times: Mr Watson said he was very concerned by the "kite flying by the Financial Services Council on denying retirees the option of a lump sum and forcing them to take a pension of some description". Referring to the council's push to require retirees to use part of their savings to buy a product that makes periodic payments, such as an...
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Fortescue hit as iron ore futures tumble (updated)

dfwe Today's midday iron ore update sees Fortescue Metals showing some material weakness down 3.5% to $4.15 and not too far above its 2014 low at $3.96. The other majors are also down firmly: The idiocy spread remains very wide: The juniors are selling hard as well with AGO down 4% to .59 and fast approaching its 2014 low of .54: More than a hint of capitulation now with Dalian iron ore futures down 14 points to 628 in China and rebar futures down sharply as...
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Actual capex in surprise lift

ScreenHunter_07 Apr. 05 12.46 By Leith van Onselen The Australian Bureau of Statistics (ABS) today released data on capital expenditures (capex) for the June quarter of 2014, which registered a surprise seasonally-adjusted 1.1%lift in capex over the quarter but a 4.0% decrease over the year. The result beat analyst’s expectations of a 0.9% fall over the quarter (see below table). While Houses and Holes has covered the more important capex intentions survey, which covers industry’s forward-looking capex plans over the coming years, below are some backward looking charts showing actual capex up to the June quarter...
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Expected capex still sees big cliff

imgres The Australian Bureau of Statistics has released the much admired Private Capex report today and it looks like Glenn Stevens is going to have to do a little more whinging. Estimate 7 for last year is weak and shows capex fell year on year. More importantly, after last quarter's strong rebound, expected capex is easing back: Estimate 7 for total capital expenditure for 2013-14 is $157,869 million. This is 1.7% lower (-$2,661m) than Estimate 7 for 2012-13. Estimate 7 for equipment, plant and machinery decreased by 8.9% (-$4,997m) while Estimate 7 for buildings and structures increased by 2.2%...
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New home sales boomlet ends (members)

dfedv From the HIA today: A downward trend in total new home sales has emerged, affirming previous calls that sales had reached a peak earlier in 2014. The 2013/14 financial year saw the recovery in new home sales gather strong momentum. The 2014/15 financial year, however, has started with the emergence of a downward trend, suggesting that monthly new home sales peaked back in April. Total seasonally adjusted new home sales fell by 5.7 per cent in the month of July 2014, a result reflected in both detached house as well as multi-unit sales. Detached house sales declined by 4.7 per cent, while multi-unit...
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Flying dog crashes into amateurs

Capture While the pollies whine: Markets gain, from Mac Bank: Qantas reported its FY14 result today, delivering an underlying loss of -$646m vs. consensus of -$780m (MRE -$753m) and a statutory loss of -$2.8bn, driven by a writedown of the international fleet of $2.5bn. This is likely to be overlooked, in our view. The key elements to come out today are: 1) No sale of frequent flyer business; 2) A split of the business into discrete international and domestic vehicles, à la Virgin (VAH, Neutral, TP $0.40); and 3) outlook for 1H15 is for a return to underlying profit. Impact Underlying...
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Australia’s boom to bust

ScreenHunter_01 Feb. 17 18.55 By Leith van Onselen Find above an interesting video interview on The AFR with Lindsay David, author of the new book Australia Boom to Bust. In the interview, David slams Australia's record high mortgage debt (see next chart), claiming that "no one in the Western world has ever done what we are doing”. He also claims The AFR article attached to the interview that the three pillars of the Australian economy: real estate, resources and the banks will eventually collapse: He says that as Chinese authorities appreciate, they’ve built more houses and apartments than they need, demand...
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Is China’s property bust cyclical or structural?

fad From Reuters via the AFR: Property launches in China are set to surge in the latter half of the year with developers sticking to their schedules despite mounting inventories, spelling double trouble for a market hammered by months of falling prices. Prices started to decline in March as the slowing economy hit demand, inventories ballooned and developers began offering discounts. The current slump was confirmed by official data only around the middle of the year, way after developers had already committed themselves to completing projects for 2014. Developers also have little choice but to heap...
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UBS: Australian growth rebounding!

dvsd You've go to love the sell side, or is that the sunny side? From UBS today: Weekly SEEK job ads in August point to another modest ~2% monthly gain in the ANZ  job ads series (due 8 Sept, Figure 1), lifting its y/y to almost 8%, its best since 2011  (Figure 3). Despite the recent unemployment jump, this is consistent with a pick-up in  jobs growth to over 1½% by end-14, usually enough to lower the unemployment rate. The weekly BDO retail series – after forecasting the June retail rebound (Figure 2) –  points to a ‘flat’ July (due 4 Sept), and a modest ~½% m/m gain in August. This...
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SMSF lobby hogs the tax trough

ScreenHunter_05 Apr. 15 22.08 By Leith van Onselen In an extraordinary showcase of self-interest, the lobby group representing self-managed super funds (SMSFs) - the SMSF Alliance - has slammed calls to tighten tax concessions around superannuation, arguing that the rich are entitled to their tax breaks. From The AFR: The $1.8 trillion superannuation industry has defended its generous tax breaks, saying it should not be used as a cash cow to rescue the budget deficit at the cost of healthy retirement savings. ...an alliance of self-managed funds said that the rich were just as entitled to benefits... “People who...
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RBA too late the hero on mortgage risks (members)

ScreenHunter_31 Aug. 28 07.42 By Leith van Onselen The Reserve Bank of Australia (RBA) has provided its second submission to the Murray Financial System Inquiry (FSI), which reportedly warns against moves to bolster competition in the mortgage market for fear that it would pump even more funds into property and heighten financial system risks.  From Business Spectator: “The supply of mortgage finance in Australia is ample,” the RBA said. “Therefore, any proposed policies that could further increase that supply should be subject to rigorous analysis of their costs, benefits to consumers and risks to financial...
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Why are we going to bomb Iraq? (members)

imgres Some months ago, Prime Minister Abbott declared his resistance to the idea that Australia commit any air power to strikes upon Syria because it was a case of: "It is not goodies versus baddies, it is baddies versus baddies, and that is why it is very important that we don't make a very difficult situation worse." This raises the possibility that the Abbott foreign policy agenda is values based and that Australia will participate in far flung wars when "goodies" are threatened by "baddies".  Today, the Prime Minister and his Holt Street press office are clearly preparing Australia for just such...
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It’s time to allow “grey” car imports (members)

ScreenHunter_29 Aug. 27 14.45 By Leith van Onselen The Productivity Commission's (PC) report into Australia's Automotive Manufacturing Industry recommends relaxing controls on so-called "grey" imports of second-hand cars, noting that Australian consumers are being fleeced, particularly when it comes to purchasing higher-end vehicles: It might be the case that some ‘premium’ vehicle segments (such as luxury European made motor vehicles) are characterised by larger profit margins and are relatively less competitive compared to overseas pricing because of the existence of fewer close substitutes. An increased supply of...
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