One of the puzzles of the global financial crisis has been that there has been no push for debt to equity swaps. In previous crises, most notably the Latin American debt crisis of the 1980s, arguably the beginning of the modern era of hyper usury and financial debauch from globalising Western banks, the situation was solved by at least the appearance of debt for equity swaps. The obvious difference being that with equity the risk lies with the creator of the funds and with debt the risk lies with the recipient of the funds. When there is a risk to the whole system, this is a way to reduce the... The savings heist
Posted by Sell on News in Economics on May 18, 2013 | 20 comments
One of the puzzles of the global financial crisis has been that there has been no push for debt to equity swaps. In previous crises, most notably the Latin American debt crisis of the 1980s, arguably the beginning of the modern era of hyper usury and financial debauch from globalising Western banks, the situation was solved by at least the appearance of debt for equity swaps. The obvious difference being that with equity the risk lies with the creator of the funds and with debt the risk lies with the recipient of the funds. When there is a risk to the whole system, this is a way to reduce the... 
Forum, Podcasts and Member Reports
Posted by Chris Becker in MacroBusiness on May 18, 2013 | 0 comments
By Chris Becker
As our regular readers know, we recently launched the MacroBusiness Forum, a place for more robust discussion about any topic, and this week's hot topic was no surprise - climate change. Please note that registration in the The Forum is automatic - if you've registered as a reader at the blog, you're already logged into the forum, and can comment or start your own threads.
For signed up MacroBusiness Members, there is also a separate "Member's Pavilion" where you can add your thoughts on how MB can hold the broader media, policy and investment community to account. Early next...
Trading Week: Australian dollar “to the ground”
Posted by Chris Becker in Australian Dollar, Markets on May 18, 2013 | 10 comments
By Chris Becker
The local finance news this week has been agog at the Australian dollar, as it fell, and kept falling, below parity with the USD. Beyond the actual price volatility, is the reaction of a mainstream press looking for an excuse for the weakness in the USD rising.
As I said last week, something else is afoot with the AUD/risk-on/commodity nexus. Stock markets continue to rise, commodities rebound, but the "battler" to crumble. Are we seeing the start of the great Australian adjustment, long considered the most beautiful in the Great Ugly Western Economy...
Weekend Links May 18-19
Posted by Delusional Economics in Links on May 18, 2013 | 32 comments
Global Macro/Markets:
Central banks saved the world economy, now beware the fallout: IMF - Reuters
Mine union threatens to bring South Africa to 'standstill' - Reuters
Gold Bears Revived as Rout Resumes After Coin Rush: Commodities - Bloomberg
Does sentiment still matter? - Capital Observer
North America:
Secretary Lew sends debt letter to congress US Treasury
Wal-Mart Second-Quarter Forecast Trails Estimates - Bloomberg
Why U.S. Manufacturing Can’t Get Off the Mat - Business Week, Prag Cap
Philly Fed Manufacturing Survey Shows Contraction in May - Calculated Risk
Occupy...
ASX at the close
Posted by Chris Weston in Australian Shares on May 17, 2013 | 1 comment
It’s been a week to remember, especially for those who have AUD exposure. The kitchen sink has been thrown at the AUD this week and finally the bond market has not been able to save the currency as it closes in on a commodity price-based fair value model of around 0.9400. The AUD has lost 1.4% on a trade-weighted basis this week and 2.6% against the greenback, with AUD/USD also making six consecutive daily lower lows.
This week we have had BHP and Rio lowering capital expenditure by 18%; a number of well-known hedge funds shorting the AUD; talk of Japanese funds preferring Mexican bonds to...
Australia’s painful budget choice
Posted by Unconventional Economist in Australian budget on May 17, 2013 | 26 comments
Cross-posted from The Conversation
More than a decade ago the federal treasury produced the first Intergenerational Report (IGR), warning of the challenges facing the Australian economy due to demographic change.
The IGR warned that the living standards of future generations would depend on the decisions made at that time. Unfortunately budgetary decisions made in the past decade have not begun to meet the challenges of an ageing population, and in most cases have taken us backwards.
We are not, on the current trajectory, headed for a smart, productive workforce enjoying high living...
HIA trades report suggests ongoing weak construction
Posted by Unconventional Economist in Australian Economy on May 17, 2013 | 1 comment
By Leith van Onselen
Earlier this month, the ABS released construction materials data, which showed ongoing weakness in the production of concrete blocks, clay bricks, roof tiles, and plasterboard - items typically associated with housing construction (see next chart).
Today, the Housing Industry Association (HIA) has released its March quarter Trades Report, which is a quarterly measure of trade prices and availability on a capital city and rest of state basis for 13 different trade categories in the 5 largest states. The data is sourced each quarter from a sample of HIA builder and...
Budget sacrifices education, saves speculators
Posted by Unconventional Economist in Australian Economy on May 17, 2013 | 32 comments
Cross-posted from Paul Wallbank.
In researching the tech angle of the 2013 Australian Federal budget for Technology Spectator the other night, one thing kept really bugging me – the government’s cap on tax deductible education expenses.
The decision to cap self education deductions was made earlier in the year by Treasurer Wayne Swan.
The Government values the investments people make in their own skills and recognises the benefits of a tax deduction for work related self-education expenses. However, under current arrangements these deductions are unlimited and provide an opportunity...
Argus warns on Australia’s private debt load
Posted by Unconventional Economist in Australian Economy on May 17, 2013 | 33 comments
By Leith van Onselen
Finally, we have a high profile Australian - former BHP Billiton chairman and NAB chief executive, Don Argus - talking sense on Australia's high private debt and how it is a millstone on Australia's future productivity. From the Australian:
Australia was set to inherit the same challenges confronting stricken economies elsewhere in the developed world; there was "Ponzi financing" of debt in the global economy; and if the crippling cost rises striking resources projects continued, "our so-called boom will finish sooner than we think"...
"There is a big difference between...
Mining canaries dropping like flies
Posted by Unconventional Economist in Australian Economy on May 17, 2013 | 13 comments
By Leith van Onselen
Earlier this month, I noted how falling mining equipment sales could be a harbinger of a sharper than expected reduction in mining capex. Then earlier this week, mining services contractors, Coffey and UGL, cut their earnings guidance for 2013 and announced plans to cut jobs amid a raft of project delays and cancellations in the mining industry.
Today, Worley Parson's has provided yet another indication of a sharp slowdown in mining capex, lowering its profit guidance following lower demand for resources infrastructure in Western Australia. From the AFR:
WorleyParsons...
Think tanks and ageing agendas
Posted by Rumplestatskin in Economics on May 17, 2013 | 35 comments
Propaganda from the loon bin seems to fill ever more pages of the mainstream media. Take this recent example from the UK
Higher state pension ages are not only possible (given longer life expectancy) and desirable (given the fiscal costs of state pensions) but later retirement should, in fact, lead to better average health in retirement [emphasis added]. As such the government should remove impediments to later retirement that are to be found in state pension systems, disability benefit provision and employment protection legislation.
...
The policy implication of this research is that...
Is Canberra housing cruising for a bruising?
Posted by Unconventional Economist in Australian Property on May 17, 2013 | 23 comments
By Leith van Onselen
There was an announcement in last nights Budget reply speech that should send a shiver down the spine of all highly-indebted ACT home owners:
We’ve announced that we’ll reduce by at least 12,000, through natural attrition, the size of the Commonwealth public sector that’s now 20,000 bureaucrats bigger than in 2007.
When the Coalition was sworn into Government in March 1996, it embarked on a program of public sector cuts, which saw "public administration & safety" employment - a proxy for the bureacracy - fall to 30-year lows relative to the total Canberra...
Tony greeted with the sound of one hand clapping
Posted by Houses and Holes in Australian budget on May 17, 2013 | 39 comments
On Tuesday and Wednesday we were all treated to an inundation of Budget media and research. Last night was Tony Abbott's Budget reply and there is an echoing silence today. The MSM vaguely gestures a hand at it and there is NO research in the markets that I can find.
The best I've come with is ANZ's morning wrap which offers the following:
In Australia, opposition leader Tony Abbott delivered his Budget Reply speech last night.The Australian reports the Coalition will: (i) accept most of the savings and tax measures proposed by the Treasurer in Tuesday night's budget (with the Treasurer also...
Gerard Minack’s parting warning
Posted by Unconventional Economist in Global Macro on May 17, 2013 | 12 comments
By Leith van Onselen
Please find above an interesting video on ABC's The Business with Gerard Minack, the soon to be ex-Chief Global Equity Strategist with Morgan Stanley.
In this interview, which is Minack's last before leaving Morgan Stanley, he provides his outlook for the global economy.
Minack warns that low interest rates are creating an environment akin to 2006. He sees lending standards weakening and Emerging Market debt and low quality corporate debt blowing out.
Minack, who said he would take time off before establishing his own advisory, warned on the same theme when he...
Macro Morning: Australian dollar falls again
Posted by Deus Forex Machina in Australian dollar on May 17, 2013 | 5 comments
More of the same overnight with another round of weak data in the US as jobless claims rose 30,000 to 360,000 which is a six week high. The Philly Fed was also very weak dropping from 1.3 in April to -5.4 in May with the market having expected a rise to 2. Housing starts were also weaker than expected but so was inflation which to a certain extent mitigates the economic weakness because it takes any pressure off the Fed to swiftly begin taking back it's stimulus efforts as inflation everywhere (except for stock prices) remains subdued.
That is not to say that the Fed isn't warning on the...
Bizarro Australian dollar denial
Posted by Houses and Holes in Australian dollar on May 17, 2013 | 26 comments
The AFR has some deeply erroneous patter about the dollar this morning:
The Australian dollar has crashed against the US dollar and currency strategists say it could fall further as confidence about the future of the US economy grows.
From $US1.055 on April 12, the Aussie has lost 6 per cent of its buying power against the US dollar as it slumped below parity. It sagged further to trade at $US98.3 on Thursday.
The source of the difference is bubbly optimism in the US, says Macquarie bank currency strategist Brian Redican.
“I don’t think the story in Australia has changed . . ....
Weekly RP Data house price update
Posted by Unconventional Economist in Australian Property on May 17, 2013 | 30 comments
By Leith van Onselen
In the week ended 16 May 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a -0.45% decline, which followed last week’s 0.38% rise. It was the biggest weekly decline in more than year (see next chart).
All capital cities recorded falls over the week, with Sydney fairing the best and Adelaide the worst (see next chart).
Values are up by just 0.11% so far in May at the 5-city level, led by strong gains in Melbourne and Perth, partly offset by falls in the other major capitals (see next...
S&P downgrades NZ banks
Posted by Unconventional Economist in New Zealand Economy on May 17, 2013 | 4 comments
By Leith van Onselen
Back in March, Standard and Poors (S&P) released a report warning about the increasing risk of a New Zealand property crash and noting that Australia's Big Four banks, which own New Zealand's Big Four, would be on the hook in the event that they needed to be bailed-out (my emphasis):
In our base case scenario we expect that strong asset quality ratios are likely to be maintained at levels supportive of banks’ current ratings.
Potential risks to the banking sector include a sharp correction in property prices and a disruption in...
RBNZ readies macroprudential arsenal
Posted by Houses and Holes in New Zealand Economy on May 17, 2013 | 1 comment
From Banking Day:
The Reserve Bank of New Zealand has agreed a memorandum of understanding with Finance Minister Bill English that will give the bank the power to limit low equity mortgages as soon as July.
..."These new tools...can promote financial stability by helping to build capital buffers and reduce incentives for speculative behaviour, which can contribute to boom-bust cycles in credit and asset prices," Wheeler said.
The four tools agreed are all in line with the RBNZ's March proposals, including adjustments to the ratio for core or stable funding, a counter-cyclical capital...
Goldman joins the mining cliff bears
Posted by Houses and Holes in Australian Economy on May 17, 2013 | 1 comment
In a note today in which he forecasts a 90 cent Australian dollar within twelve months, Tim Toohey also offered the following chart of GS' estimates of the mining investment cliff:
I've added this to my growing accumulation of forecast cliffs and the news is not great with GS more or less supporting ANZ's uber bearish view:
As usual, take this chart as guide only owing to definitional difference and and assumptions about forecsast...
There ain’t no mining cliff: Wood Mackenzie
Posted by Unconventional Economist in Australian Economy on May 17, 2013 | 1 comment
By Leith van Onselen
Yesterday afternoon, consultant Wood Mackenzie poured cold water over the view that Australia is on the verge of a mining investment cliff, whereby mining-related capital expenditures (capex) fall sharply from their current lofty level of nearly 7% of GDP (see next chart).
From the Wall Street Journal:
SYDNEY—Investment in Australia's resources sector should remain strong over the next three years, according to consultancy Wood Mackenzie, which Thursday said fears of a sharp slide in spending after a 2013 peak aren't likely to be realized.
While some major...
Daily iron ore price update
Posted by Houses and Holes in Commodities, Iron ore price on May 17, 2013 | 1 comment
Find below the iron ore price table for May 17, 2013:
At $15, the 12 month swap to spot spread has returned to historically consistent dimensions for this price range. The spread to rebar remains very wide.
So, either both iron ore prices keep falling or rebar keeps rising if the reversion to mean is to continue. I'll return Monday with the...
Links 17 May 2013
Posted by Unconventional Economist in Links on May 17, 2013 | 32 comments
Global Macro/Markets:
Soros Leads Gold-Stake Cuts Before Bear Market Drop - Bloomberg
Gold bar premiums hit record in Asia on supply constraints - Reuters
Gold Prices Falling - Business Insider
U.S. Officials Deal Blow to Bitcoin - Wall Street Journal
The deflation gang - FT Alphaville
North America:
Brooklyn to California Bubble Threat Grows in Housing - Bloomberg
The Fed’s Credibility Problem - ProPublica
The Question the Fed Should Be Asking - Bloomberg
Homebuilder Confidence in U.S. Climbs as Outlook Improves - Bloomberg
U.S. Stocks Rise on Stimulus Bets as...
ASX at the close
Posted by Chris Weston in Australian Shares on May 16, 2013 | 0 comments
The US equity market rolls on, and if you are a equity money manager and not making money at present, you probably never will. The moves seen in stocks highlight the power behind the bull market, and while bad news is soon forgotten, good news provides another opportunity to buy.
Perhaps the raft of data in upcoming trade could be the next catalst, with CPI, Philly Fed, housing starts and building permits to be released. The CPI print will be closely watched, although it’s worth bearing in mind the Fed’s prefered measure is core PCE (personal consumption expenditure), which was recently...
China steel mills re-selling iron ore
Posted by Unconventional Economist in Featured Article, Iron ore price on May 16, 2013 | 16 comments
By Leith van Onselen
From the AFR this afternoon comes news that Chinese steel mills have been re-selling iron ore bought under long-term contracts into the spot market, helping to explain why spot prices are at a five month low, 20% below their 2013 peak:
China's steel producers are selling some iron ore cargoes back into the market, cutting inventories to manage costs as slow demand for steel in the world's top consumer keeps profit margins under pressure.
Over the past two weeks, traders estimate that Chinese steel mills have resold 2 million to 3 million tonnes of cargoes bought under...
