Special Report: Gerard Minack on whether mining will bust housing

dominoes Exclusively for MB paying members from Gerard Minack of Minack Advisors. Australia enjoyed two booms over the past 20 years: the well-known once-in-a-century mining boom, as well as an unprecedented boom in banking, borrowing and buying houses.  The economy is now struggling with the end of the mining boom.  The bear case for Australia is that a mining bust bursts the banking boom. Australia’s 24 year expansion has run on the back of two booms, in mining and housing/banking.  Exhibit 1 shows the rising share of real GDP for both sectors.  This under-states the impact of their growth.  For...
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WA knocked off top mining perch

1dfvwf From the AFR: The Fraser Institute annual survey of mining companies showed Western Australia slipped to No. 5 last year from being the world leader in 2013, replaced by Finland as the most desirable mining jurisdiction based on investment attractiveness, factoring in perceptions of policies and geological potential. Saskatchewan, Nevada and Manitoba placed ahead of Western Australia. Queensland placed No. 27 on the list, behind the African nations of Namibia and Botswana. ...The impact of royalty payments on miners' bottom lines last year was a likely reason that Australia was seen as a...
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ASX valuations charted

3 From Morgan Stanley: Consensus forward Price to Earnings multiples continue to re-rate, will all Macro Sectors trading at or above +1 std to long-term average. On the back of stronger market returns and flat earnings profile, the ASX 200 is trading at 16.2x, ~21% above LT average of 14.1x. Stripping out resources and financials the Industrial ex Financials has moved higher to 18.5x with Resources now trading at 5 year highs of 16.1x. •Consensus aggregate earnings growth forecasts for FY15 and FY16 have moved lower through reporting season. The market is now forecasting flat earnings growth...
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The great grey gouge of the West

ScreenHunter_6346 Mar. 04 10.06 By Leith van Onselen There's an inter-generational war going on in the UK, which is also being played-out across most developed nations, whereby older generations are 'making out like bandits' at the expense of their children and grandchildren. Here's the Financial Times: Average twentysomethings have seen their living standards slip from a position of comparative affluence to well below par over the past 35 years as average pensioners have enjoyed a rapid rise up the national league tables of incomes... They come as David Cameron intensifies his efforts to woo older voters, pledging to...
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Macro Morning: Fade

marketmorning-200x200 By Chris Becker Apologies for lateness today. The weak session in Asia yesterday, which saw the Nikkei flat but the ASX200 lose nearly 0.5% and Chinese stock markets down around 2%, translated into falls on the European and American bourses overnight. Although a solid retail sales print in Germany should have helped the bulls, it was a case of sideline action with the DAX retreating 1.1% but still well on trend: The FTSE was off 0.75%, continuing to meet resistance overhead on the dailies, with another bearish rising wedge pattern forming amid worrying falling daily volatility: One...
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Stock on market surges in Perth, Darwin

ScreenHunter_03 Jan. 30 13.18 From SQM Research comes their stock-on-market data for February, which registered a 0.1% rise over the month and a 1.6% increase over the year: As shown above, there is significant divergence between capital cities, with stock levels down over the year in the frothy markets of Sydney and Melbourne, but up massively in the mining-heavy jurisdictions of Perth and Darwin. According to SQM: While property listings were mostly steady over the month, in Perth and Darwin they were much higher from a year earlier, reflecting weakness in those property markets given the mining downturn. Sydney...
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Bank boom pushes services PMI up

2 From the AIG: The services sector expanded for the first time in 12 months in February, following generally stable conditions in January. The seasonally-adjusted Australian Industry Group Australian Performance of Services Index (Australian PSI®) improved again by 1.8 points to 51.7 points in February. Much of this growth was concentrated in the health and community and financial and insurance services sub-sectors. • The three-month moving average for the Australian PSI® also increased to 49.7 points this month. Recent results from the Australian PSI® suggest growth in Australian...
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Bears roar!

hqdefault The AFR goes all bear porn today: Highly regarded Australian Ethical Investment portfolio manager Mason Willoughby-Thomas warns "the risk of capital loss once monetary conditions eventually normalise could be significant as investors rush for the door en masse." ...Baillieu Holst equity analyst and author of market newsletter Sunset Strip Mathan Somasundaram is also comparing current stock market conditions to what happened prior to the 1987 stock market crash and GFC, which saw the stock market nearly halve in value. ...Pete Wargent, property buyer and co-founder of AllenWargent property...
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SQM: No housing bubble

ScreenHunter_6337 Mar. 03 17.08 By Leith van Onselen SQM Research's managing director, Louis Christopher, released his weekly email newsletter last night, which attempted to dispel the notion that Australia has a housing bubble [my emphasis]: Well, the Reserve Bank surprised markets today by holding interest rates steady. Moreover, it made clear in a statement that while Sydney’s market may be hot, property elsewhere isn’t so hot, with more varied performances in other cities in recent times. We think today’s statement will put to rest talk of a national housing bubble. The RBA doesn’t appear to be too concerned about...
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FIRB forces $36m foreign buyer property sale

ScreenHunter_4459 Oct. 13 10.08 From the AFR: China’s 15th richest man has 90 days to sell one of Sydney’s finest homes, at whatever cost, or face the prospect of prosecution. The $39 million Point Piper mansion Villa de Mare was sold last year in contravention of existing laws that prohibit foreigners buying property without government approval, Treasurer Joe Hockey said. The grand home, once owned by recruiter Julia Ross, was bought by Golden Fast Foods, a holding company ultimately owned by Evergrande Real Estate Group under Xu Jiayin, who is known as and for having strong connections to the Chinese Communist Party and...
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Has The Abbottalypse passed?

Gua07_0688 It's a rare good day for Prime Minister Abbott today with several stories suggesting his immediate crisis has passed. The first is Malcolm Turnbull offering praise, from the AFR: Malcolm Turnbull has lauded Tony Abbott as an intelligent, courageous, brave and thoughtful man but added the only attribute that really matters is that the Prime Minister has the majority support of colleagues. As well, Peter van Onselen lays into IPSOS: LEADING pollsters have lined up to condemn the overreach of Fairfax’s new polling boss, Jess Elgood, when analysing Ipsos’s poll results in Monday’s Fairfax...
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Business rallies against secretive TPP trade talks

ScreenHunter_3418 Jul. 23 10.44 By Leith van Onselen Fairfax's Peter Martin is reporting today that the Australian Chamber of Commerce and Industry (ACCI) has called on the text of the Trans-Pacific Partnership (TPP) - the US-led trade agreement between 12 Pacific rim nations (including Australia) - to be opened and negotiations monitored in real time by the Productivity Commission (PC): The ACCI wants negotiating drafts to be shown to community and business groups who would then be under an obligation to keep them confidential. Negotiators would retain their power to conclude deals without reference to the parliament but...
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World Bank offers iron ore a ray of hope

1280px-Ray_of_Light_on_Cap_Haitien,_Haiti_(7908717282) From Bloomie: If history is any guide the global glut in iron ore may persist for as long as two years, according to the World Bank, which forecasts that the steel-making raw material will average $75 a metric ton this year. “From experience from earlier iron ore episodes as well as other metal markets, it takes about one to two years for either excess supplies to get back to normal levels or excess demand to be met by larger supplies,” John Baffes, a senior economist at the lender, said in an e-mail response to questions. “Weak economic growth prospects in the global economy is the key...
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Assessing RIO risk

5 Given the magnificent rally that has transpired in RIO this year, I thought I'd take a look at a few metrics to see how it is travelling. Consensus for RIO pre-tax profits is for a small rise from last year to $10 billion in 2015. Then onto $11.8 billion in 2016, $13.6 billion in 2017 and $16.6 billion in 2018. A smooth and accelerating 75% ramp in profits. Price to book is currently 2x and the price earnings ratio 13-14x forward earnings on a yield of 4%. Pretty rich stuff! By now we all know the argument that in a low yield environment stocks will reprice and traditional metrics cease to have...
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Glencore attacks RIO again

1 From the AFR: Mr Glasenberg went to lengths on Tuesday to position himself as a superior marketing manager to his counterpart at Rio Tinto and the other iron ore majors, which continue to pump tonnes into a heavily depressed market and push down prices. Glencore is slashing its annual Australian coal production by 15 million tonnes, or about 15 per cent. Mr Glasenberg stressed the tonnes Glencore was withholding were profit making, and dismissed the argument – used by the iron ore majors – that if you withhold supply, your competitors will simply fill the gap. Let's see, then, is Glencore...
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Commodity price index keeps on falling

ScreenHunter_13 May. 01 13.26 By Leith van Onselen The RBA has released its commodity price index for February, which registered another 2.7% fall in SDR (currency weighted) terms - the key determinant of the terms-of-trade - but a small 0.1% rise in Australian dollar terms, on the back of ongoing currency depreciation: Preliminary estimates for February indicate that the index declined by 2.7 per cent (on a monthly average basis) in SDR terms, after declining by 0.1 per cent in January (revised). A significant contributor to the decline in February was the price of iron ore. The base metals and rural commodities subindices...
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Daily iron ore price update (lows)

anvil-200x200-200x2001-200x200 Here are the iron ore charts for March 3, 2015: Spot weakened with benchmark falling 0.8% to $62.30. Paper was firmer though not strong. Rebar average slid to its recent low and CISA released its steel production data for mid-February which, as you can see, is running at almost 2011 levels. This was the holiday period so the next few periods into late February and early March will tell us lot about the extent of weakness in underlying demand. Reuters has texture: "I heard some mills are expecting prices to fall further this month so they are looking at prompt cargo," said a...
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Daily LNG price update (Wood Mac gloom)

elephant-clipart-black-and-white-13285-cartoon-elephant-clip-art-design-200x200 The Brent oil price recovered some lost ground overnight to trading up 1.5% at $60.39 as I write. Reuters has texture: Oil rebounded on Tuesday from the previous session's tumble, lifted by fighting that threatened Libya's oilfields, although U.S. crude struggled to hold to gains due to record crude inventories. Higher prices imposed by Saudi Arabia for its crude buyers in Asia, the U.S. and northwest Europe did not immediately boost benchmark Brent and U.S. oil futures, although some traders saw the move as supportive. The indicative LNG contract price lifted to $8.82mmBtu: In news, Wood...
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Links 4 March 2015

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Two Theories on Berkshire Hathaway - New York Times Buffett and Hedge Funds Share a Trait: No Alpha - Alpha Architect Company Cash Bathes Stocks as Monthly Buybacks Set Record - Bloomberg This is nuts, where have all the bonds gone? - Financial Times Bank of England warns of financial risk from fossil fuel investments - The Guardian Yellen Turning from Friend to Foe for Dollar Bulls - Bloomberg North America: Corporate-Bond Market Poses Systemic Risk, SEC’s Gallagher Says - Bloomberg The Fed Is Weird. Get Over It - Bloomberg View Foreign...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Chris Weston, Chief Market Strategist at IG Markets There has been a marked increase in the use of the term ‘bubble’ in various asset classes over the past 24 hours. Some of the concerns are justified in my opinion, some not. In Australia the word ‘bubble’ has been used fairly liberally of late around the domestic housing market, although today’s super-strong building approvals print could alter that perception somewhat on the idea there is new supply coming on to the market. It seems the moves in property have been the key reason why the Reserve Bank of Australia left rates on hold,...
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Bill Evans: RBA to cut in April/May

unnamed From Westpac's Bill Evans: The Reserve Bank Board decided to leave the cash rate unchanged at 2.25%. When we forecast two rate cuts in February and March back on December 4 last year we expected that for such a significant about turn in policy the Bank would have been comfortable with consecutive moves. Since the February move we saw no compelling reason to change that view. That view has turned out to be a misjudgement. However it appears that the Governor has adopted a strong easing bias, effectively indicating that another cut can be expected over the next month or two. It is worth noting...
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We’re all suspects now thanks to data retention

ScreenHunter_6329 Mar. 03 14.37 Cross-posted from The Conversation: Australia’s Parliamentary Joint Committee on Intelligence & Security (PJCIS) last week endorsed the data retention bill, which means we’re all suspects now. The Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2014 provides for mandatory retention by internet service providers (ISPs), phone companies and other entities of telecommunications metadata -– data that in aggregate provides a picture of our lives. The data will be accessible by a wide range of law enforcement and other bodies, potentially extending from the...
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RBA holds, adopts easing bias

scaredpassenger2-b04ecad64574418020cb16196efcd47cd5a20c9e-s800-c15 The Reserve Bank of Australia (RBA) has just announced its March interest rate decision to hold rates but they adopted an easing bias. Here's the statement: At its meeting today, the Board decided to leave the cash rate unchanged at 2.25 per cent. Growth in the global economy continued at a moderate pace in 2014. A similar performance is expected by most observers in 2015, with the US economy continuing to strengthen, even as China’s growth slows a little from last year’s outcome. Commodity prices have declined over the past year, in some cases sharply. The price of oil in particular has...
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Australia’s terms-of-trade hammered

ScreenHunter_4044 Sep. 05 12.36 By Leith van Onselen Within today's data dump of partial measures that feed into tomorrow's national accounts release for December was the important news that Australia's terms-of-trade has fallen another 1.7% (seasonally adjusted) and 1.9% (trend) over the quarter to be down by 10.6% (seasonally adjusted) and 9.5% (trend) over the year (see below charts). As you can see, we are fast approaching the GFC low with much further still to fall. And since the terms-of-trade measures the price received for Australia's exports relative to the price paid for imports, the sharp fall in the...
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Net foreign debt approaches $1 trillion

url Ironically, we refer to Craig James today on Australia's net foreign debt which is growing exponentially as both public and private balance sheets leverage into the mining bust: Our high level of foreign debt represents a risk – if export income was to dry up it would constitute a problem. But exports continue to rise, resulting in our debt servicing ratio improving to the best levels in almost 30 years. Of further comfort in the current environment is the fact that the current account deficit improved markedly in the past quarter. And while the terms of trade fell, increased volumes of...
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