By Leith van Onselen The fallout from Treasury Secretary, Dr Martin Parkinson's, speech yesterday on budget forecasting processes has continued, with economists questioning the Treasury's forecasting abilities given the big writedown to budget revenues over the past year. The above segment from ABC's The Business summarises the debate well. As explained yesterday, the Treasury has effectively been caught-out by a sharper than expected fall in commodity prices which, when combined with the stubbornly high Australian dollar, has depressed growth in nominal GDP, adversely affecting tax...

Citi is out this morning with a note downgrading Australian equities to a sell: A Strong Run — Australian equities have started 2013 well and the local index has now hit our strategists’ year-end target. Tony Brennan, our Australian strategist notes that PE valuations in Australia have moved 10% higher than the two decade average which was largely a period of low inflation and interest rates. The recent rerating of Australian equities has been concentrated in the more defensive stocks. Global Search for Yield — Australian equities have performed well as the global search for yield has...

Tonight is a big night for stocks and markets more broadly because when Bernanke speaks he is likely to get a reaction. The reason I say that is because I have no doubt that the entire stock market rally is related to the Fed's QE operations and as such if there is a sign that the "taper" is coming then it seems likely that stocks might swoon. But what he is going to say is less clear than we may think because the battle continues to rage inside the Fed as to the appropriate course of action. As a sop to the hawks the Fed has announced it will change tack when unemployment hits 6.5% but they...

Find below or from our dedicated podcast feed (click the purple icon in the "Follow Us" sidebar to subscribe) a new podcast with Leith van Onselen and Gunnmatta examining recent released tax statistics covering the use of negative gearing in the Australian property market. The discussion is drawn from a much more comprehensive report available in the May MacroBusiness Members Report by clicking here for the Member's Pavilion forum thread. If you would like to become a member then...

Goldman Sachs yesterday released an uber-bullish forecast for US equities: End of US economic stagnation suggests S&P 500 P/E expansion In advanced economies, P/E multiples expanded by an average of 15% during the year before GDP growth returned to trend. Our year-end 2013 implied forward P/E of 15x would represent a 13% increase vs. 2012. Our S&P 500 forecast reflects a one P/E multiple point premium Reasons for P/E expansion include confidence in the medium-term outlook for US economic growth and the wide gap between equity and persistently low bond yields that we assume will be...

By Leith van Onselen Master Builders Australia (MBA) has forecast a big recovery in housing construction, although non-residential construction (including mining-related engineering construction) is expected to struggle. From Property Observer: The embattled residential building sector is forecast to recover strongly over the next three years, with the catalyst being low interest rates... Masters Builders Australia (MBA) forecasts the value of residential building work done, in real terms, to grow from $46.2 billion in 2012-13 to $60.9 billion in 2015-16. Over this same time frame,...

Cross-posted from Mark the Ballot. With a fresh Budget to assess, every polling house was in the field searching for a Budget bounce. And you would never read about it, but they found one. The combined message is one of a small bounce-let for the Government. (And this is where I feel a compelling need to utter the following mantra as a public service: don't confuse correlation with causation. Just because some polls went up, it still could be noise, and even if its real it doesn't mean the Budget made it...

Find below the iron ore price table for May 21,...

Global Macro/Markets: “The gold standard remains the best available monetary mechanism” - marketmonetarist.com On Whose Research is the Case for Austerity Mistakenly Based? - harvard.edu The "Austerity Myth": Gain Without Pain? - repec.org How bad could the crisis get? Lessons from Iceland - VOX Instead of Low Rates, Let's Have Bigger Deficits - Bloomberg New Era for Global Bonds: Everything You Know Is Wrong - CFA Institute North America: Drop in U.S. underground water levels has accelerated -USGS - Reuters The Unemployed Need Bold, Creative Moves from the Fed - The...

The S&P 500 couldn’t quite make it into positive territory, although momentum is clearly positive, with Bespoke Investments highlighting that the market has put on gains 61 out of the last 96 days. Interestingly, there has only been one year in history where the S&P 500 was more consistently positive. It also points out that the Nasdaq has made a higher high for sixteen straight days, which is the longest streak since 1999. The index closed at 1666.29, just a tick below the 200% retracement of the May to October 2011 sell-off at 1666.39 (see chart). A break here on a closing basis would...

By Leith van Onselen Please find below a speech today by Treasury Secretary, Dr Martin Parkinson, to the Australian Business Economists. The speech goes into great detail about the Australian Treasury's budget forecasting processes and record, arguing that the Australian economy has been buffeted by large shocks - both positive and negative - which have made forecasting budget revenues extremely difficult: We have: seen Australia’s terms of trade rise to record highs; witnessed the largest downturn in the global economy since the Great Depression; experienced sharp rises and falls in asset...

By Leith van Onselen Following-on from today's profit warning and announcement of job losses from Transfield Services, which follows similar announcements last week by Coffey, UGL and Worley Parsons, drilling contractor, Boart Longyear, has today lowered its earnings guidance and amid slowing mining activity. From the AFR: Drilling contractor Boart Longyear has said its revenue and earnings will be at the low end of analyst forecasts, which have already come down significantly this year as the company struggles with a weakening mining market... The company, now led by former Newmont Mining...

By Leith van Onselen Today, the Pascometer has published an interesting article outlining a proposal by the Association of Super Funds of Australia (ASFA) to tax superannuation lump sum withdrawals in order to prevent retirees from running down their retirement savings. From Business Day: The superannuation industry's peak body wants a 15 per cent tax applied to lump sum superannuation withdrawals, rising to 30 per cent for withdrawals over a certain, yet to be defined, limit... ASFA argues that it is necessary to encourage individuals not to run their retirement savings. “The primary...

MB has been contacted by Joe Hockey's office this afternoon denying the Shadow Treasurer has any intention of touching negative gearing, the third rail of Australian taxation. The missive from the office reads: Tony Abbott was clear last Thursday night, saying if a Coalition Government is elected it “will consult with the community to produce a comprehensive white paper on tax reform. We’ll finish the job that the Henry review started and this government squibbed. We want taxes that are lower, simpler and fairer and will take proposals for further tax reform to the following election.” Mr...

By Leith van Onselen My decision on election day has become easier after Federal Treasurer, Wayne Swan, today ruled-out making any changes to negative gearing rules, which cost the taxpayer around $4 billion currently. From News.com.au: FEDERAL Treasurer Wayne Swan has ruled out supporting any changes to the existing negative gearing arrangements... "We ruled out any change to the existing arrangements in our response to the Henry (tax) report," Mr Swan told reporters in Adelaide on Tuesday. "It appears that the Liberal Party have thrown open that whole discussion. It's entirely a matter...

By Leith van Onselen The Reserve Bank of Australia (RBA) has just released its Minutes of the May Monetary Policy Board Meeting where it decided to cut the official cash rate by 25 basis points to 2.75%. According to the Minutes, the decision was based primarily on the benign inflation print for the March quarter, which came in at only 0.1% (2.5% year-on-year) on a seasonally-adjusted basis. Optimistically, the RBA does not believe that Australia is facing a sharp contraction in mining-related capital expenditures, and believes that GDP growth will return to trend (circa 3.0%) in 2014 as...

  Just in from Moody's Credit Ratings Agency: Sydney, May 21, 2013 -- Moody's Investors Service says that the delinquencies across all Australian asset-backed security (ABS) programs have increased in Q1 2013 from Q4 2012. Nonetheless, losses have remained stable. "At end-March 2013, for instance, the 30-plus delinquencies were at 0.46% for SMART ABS deals, and 3.14% for Bella ABS deals, compared with 0.42% and 2.39% respectively at end-December 2012," says Alena Chen, a Moody's Analyst. "Nonetheless, net losses are stable as can be seen by motor vehicle recovery rates. ABS...

By Leith van Onselen Earlier this month, we noted how falling mining equipment sales could be a harbinger of a sharper than expected reduction in mining capex. Then last week, mining services contractors, Coffey, UGL and Worley Parsons, 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, construction and engineering company, Transfield Services, has announced a profit downgrade and confirmed that it will cut 113 jobs due to the slow down in the mining industry and cost cutting across all sectors....

  Update: Note that the office of Joe Hockey has approached MB and denounced the West Australian story as scurrilous misreporting. By Leith van Onselen From The West Australian newspaper today comes news that a Coalition Government might look to abolish negative gearing: Joe Hockey's tax review could pave the way to end the $13 billion a year tax break 1.2 million Australians claim on investment properties. The coalition has promised a white paper on tax reform if it wins office and the shadow treasurer confirmed yesterday this could include a look at negative...

By Leith van Onselen Earlier this year, Tulet Prebon released a report showing how UK households are being squeezed by falling real incomes and rising living costs since the onset of the Global Financial Crisis (GFC): Between 2007 and 2012, growth of 10% in average nominal wages was far exceeded by cumulative CPI inflation of 17%, leaving real incomes 6.3% lower in 2012 than they were in 2007. In 2007, wage-earners were 13% better off, in real terms, than they had been in 2002. Since 2007, about half of that previous gain has been lost. This is bad enough in itself, of course, and...

We really should do something about having the ratings agencies as the arbiters of what is good and right after the performance they put in prior to the GFC, but somehow they remain at the centre of global finance. Last night Moody's warned the US that it faced a downgrade to its Triple A rating if a budget deal is not cut. I say big deal and let them cut so people can start to make up their own minds about what is a good and a bad risk and take responsibility for it rather than a rote reliance on AAA, AA or BBB. Indeed in Australia some of the more sound ADI's are rated lower in the BBB+...

Find above MBTV's inaugural interview with Professor Ross Garnaut on the magnitude of the structural shift underway in the Chinese economy and the difficult adjustment ahead for the Australian economy. In summary, Professor Garnaut's points are: current conditions in China are subdued a renewed stimulus package is possible in the next few months, however it will be focussed almost entirley on energy efficiency and environmental amenty, not infrastructure China is managing four simultaneous structural shifts: a shift away from exports; a shift towards growth in its interior provinces...

Yesterday, CBA reached a record high share price. The Wall St Journal responded thusly: Quiz question: What is the world’s most expensive bank? Analysts at UBSUBSN.VX +1.65% think the answer is Commonwealth Bank of AustraliaCBA.AU +0.38%, having crunched numbers like its price-earnings ratio or book value and compared them to global peers such as Citigroup Inc. C +0.29% or HSBC Holdings PLC. HSBA.LN +1.49% CBA’s shares hit a record high of A$74.18 Monday and are up almost 50% over the past year. That means its stock is trading at 10.2 times its profits before accounting for...

Cross-posted from Kate Mackenzie at FTAlphaville. Many factors affect the development of the economy, notably among them a nation’s economic and political institutions, but over long periods probably the most important factor is the pace of scientific and technological progress. That’s Ben Bernanke addressing a graduating class at Bard College at Simon’s Rock, Massachusetts, on Saturday. He goes on to say that not everyone believes this advancement is going to continue at such a great pace. Yes, he is talking about Robert Gordon and Tyler Cowen, and their arguments that much of the...