Phil Lowe fleshes out Pasconomics

imgres Given Michael Pascoe's kindergarten economics is now running the central bank, it is only fair that we give him plenty of space today to expand upon the doctrine at the centre of RBA thinking: Maybe RBA deputy governor, Phil Lowe, had that among the material at the  back of his considerable mind when he made the most valuable contribution to today’s House of Representatives hearings. He was introduced by his boss as having “very strong views” on what’s needed to get Australia going, on our reticent “animal spirits”. On a Reserve Bank scale of emotion, it was nearly a cry from the...
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Mr and Mrs Hockey take their entitlement

ScreenHunter_3857 Aug. 20 13.01 By Leith van Onselen It seems Treasurer Joe Hockey's war on entitlements doesn't extend to his own family, with the Daily Telegraph uncovering that taxpayers are footing the bill on his family's $1.5 million home in Canberra: JOE Hockey has defended his practice of claiming a $270-a-night taxpayer-funded travelling allowance to stay in a Canberra house majority-owned by his wife... The Treasurer has legitimately claimed $108,000 in travel allowance for 368 nights over the past four years including many nights for parliamentary sitting weeks where he has stayed at the Canberra house... The...
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Is China is loosening credit again?

images10 Throughout much of this year, China has tightened credit conditions in its quest for structural adjustment. Rates in interbank markets have all steadily risen since March. In repo markets: And SHIBOR: But since mid July that has reversed, in tandem with renewed strength in the yuan:   It is important to understand that these two events are not separate. When the yuan falls, it deters investors from buying Chinese assets, including those of the shadow banking system. So currency weakness also crimps credit growth. Currency strength typically does the opposite, drawing more...
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Joye warns again on housing bubble

url Australia's only MSM voice of reason on the bubble (yes, peeps) Chris Joye today slams the RBA for its runaway housing bubble that has re-ignited after an Autumn slumber: ...The RBA says we should not get exercised about stonking house price appreciation because Australia’s housing credit growth rate is modest. In his July speech Stevens said “the growth of credit outstanding for housing is about 6 to 7 per cent per annum, or slightly above trend nominal income growth”. “It’s hard to mount the soap box to complain about that pace,” he averred. Really? Credit growth is only...
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Paying for public servants to live longer

ScreenHunter_07 Oct. 11 11.09 By Leith van Onselen Financial services giant, Mercer, has released new research claiming that Australian public servants live on average four years longer than the rest of the population, and that this longer life expectancy poses problems for future taxpayers who will be called upon to fund their generous defined benefit pensions. From The Canberra Times: ...male workers in Australia’s state and federal public sectors have an average life expectancy of 88 and female bureaucrats will live on average to 91. Australian Bureau of Statistics figures show an average life expectancy of 84 years...
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Capital growth wealth effects by state

AverageCapitalGrowthAll Cross-posted from Martin North's DFA blog. In the Opening Statement to House of Representatives Standing Committee on Economics today, Glenn Stevens made the following points: not only are funding costs low, but banks want to lend and are competing to do so more actively than they have for some years; net worth per household has risen by about $120,000 over the past two years; the community’s monetary assets have risen by around 13 per cent – over $180 billion – over the same period; It is worth reflecting on the fact the main reason for the increase in net worth is a bounce in...
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DEEWR job vacancies grind up

gfbdr The Department of Employment and Education (DEEWR) has released its job vacancies index for July an the grind continues with another small gain on the month: The trend is a very slow rise relative to past cycles:   Worryingly, job ads are still lead by WA: Skilled shows only construction with real momentum:   The labour market remains in a weak recovery. Full report...
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Leading Index remains weak

sfwqa Fresh from Westpac: Although the deviation from trend narrowed a little the key message from the Index remains intact. This is the sixth straight month that the growth rate in the Index has been below trend. The index continues to indicate that we can expect growth in the Australian economy to stay below trend in the second half of 2014 and into 2015. That view is consistent with the revised forecasts recently released by the Reserve Bank of Australia in its August Statement on Monetary Policy. While the Bank forecasts using ranges, an analysis of the mid points of these ranges...
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Say hello to generation rent (members)

ScreenHunter_01 Jan. 27 23.41 By Leith van Onselen The Age's Clay Lucas has written a good article today summarising an upcoming report from the Tenants Union showing the strong shift towards renting by Victorian families since the early-1980s: ...families now rent 42 per cent of the state's privately leased homes. Experts say the change is the consequence of the massive spike in home prices since 1997, and argue Victoria needs to dramatically change its laws around renting to give more power to tenants and make it harder for landlords to evict long-term renters. ...the research shows renting for a decade or more has...
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Captain Glenn embraces Pasconomics

imgres Captain Glenn Stevens appeared in Parliament this morning for his biannual testimony in which he pinned all of our hopes and dreams upon the nebulous notion that business lacks confidence: Since the hearing in March, the global economy has continued its expansion at a moderate pace, and Australia's trading partner group has been growing at about its long-run average rate. With the abatement of the adverse winter weather, the US economy recovered in the June quarter and the labour market has continued to strengthen. Growth in China has remained close to the target of 7.5 per cent, though...
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Australia must shift taxes off productive effort (members)

ScreenHunter_3843 Aug. 20 08.38 By Leith van Onselen In the wake of biotechnology manufacturer, CSL's, decision on Monday to build its new $500 million factory in Switzerland rather than Australia, Reserve Bank of Australia (RBA) board member, John Edwards, has called on Australia to cut its company tax rate to boost global competitiveness. From The AFR: Dr Edwards said Australia needed to do more to ensure its tax system could compete... “We always need to be concerned about the competitiveness of our taxation system”... “In the long run we probably need to reduce the rate of company tax to one that is closer to...
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The Palmer singularity sucks in all

images Clive Palmer's spectacular personality explosion continues to wreak havoc in politics. Following the last few weeks of conservative hand-wringing and bluster over free speech and the "right to be a bigot" ensconced in the now withdrawn repeal to section 18c of the Racial Discrimination Act, conservatives are now queuing up to condemn and shut down that very right for Clive Palmer. Ironically, it is the erstwhile libertarian newspaper The Australian leading the assault: THE Abbott government has warned Clive Palmer against using his elected position to pursue a private feud with Chinese...
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Mortgage lending choking-off business lending (members)

ScreenHunter_12 Sep. 23 12.54 By Leith van Onselen Industry Super Australia has lodged a submission to the Murray financial system inquiry claiming that the banks' bias towards housing lending is crowding-out lending to productive businesses, reflecting an unproductive use of capital. From The AFR: The economy is being held back by banks favouring home loans over lending to productive businesses, industry super funds say... “Consistent analysis demonstrates that we have a systematic issue ­transitioning national savings to real productive capital, such as nation-building infrastructure,” chief ­executive David...
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UN sees Australian housing bubble

images Another day, another bubble warning, this time from the UN, for what it's worth. The Age reports: Australia's economy faces "sluggish" growth amid warnings of an asset bubble in the property sector that needs to be "closely monitored", the United Nations says in its latest economic report for Asia and the Pacific. The UN report forecasts economic growth for Australia of 2.8 per cent in 2014, "due to falling mining investments, fiscal restraint and fragile private consumption", ahead of the 2.3 per cent set for 2013. The slide in commodity prices, a driving force of growth in recent years, is...
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Daily iron ore price update (weak) (members)

anvil Here are the iron ore charts for August 19, 2014: Still a very weak market. 12 month swaps held on but Dalian is sinking to new lows daily. Same goes for rebar futures. In physical markets, rebar average continues to fade away as well, though iron ore spot is holding up. The BDI cape rally stalled. Were we at any other point in the cycle I would be crying "lower prices ahead" but Q4 is a reliable restock and even though underlying demand is weakening it should go ahead. Housing will have to enter virtual crisis to prevent it, which is not at all impossible but the not the base case (for...
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The big Australian hammered

images Late yesterday the big Australian booked a profit of $US13.83 billion, up 23.2%. Underlying profit rose 10.1% missing consensus slightly. Revenue for the year was up 1.9% to $US67.21 billion as production growth slightly outweighed price falls. However, EBIT was own $US3.4bn. The US62c fully franked dividend was up 4% on last year. London hated it, selling it down 5% overnight in a rising market. JP Morgan has a net pros and cons summary: The negatives Investors potentially no longer need to own a large stake in BHP Ltd to gain a large stake in NewCo. BHP is now trading at...
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Goldilocks US data stabilises markets

inflationJuly2014 Good US data last night. Inflation eased (chart from Calculated Risk): According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.5% annualized rate) in July. The 16% trimmed-mean Consumer Price Index also increased 0.1% (1.6% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1%...
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Ebola update

Capture12-200x200 Overnight Ebola news on Ebola was not too bad. A suspected case has appeared in Berlin but is low probability: A female patient in Berlin is currently awaiting tests to determine whether she has Ebola, but spokespeople from the Charité hospital where she is being treated say it is unlikely she has the virus. “The patient suspected of having Ebola has arrived at the Charité. The Charité experts do not assume at this time that they are dealing with a case of Ebola. The patient has not stayed in one of the affected regions. The physicians are leaning more toward an infectious...
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Links 20 August 2014 (members)

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Using Warren Buffett’s portfolio as a watchlist - James Altucher Beware the promise of junk debt - Larry Swedroe PIMCO scoops up quality junk debt - Bloomberg Junk bond shorts are expensive to maintain - Bloomberg Fear and liquidity in the high-yield market - nickdunbar.net The credit derivatives markets have revived - Financial Times The financial markets could use more T-bills - FT Alphaville Where Google is putting its cash - Globe and Mail North America: Housing starts up solidly in July - Calculated Risk Inflation cools in July -...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Chris Weston is Chief Market Strategist at IG Markets One thing we have learnt this year is that geo-political shocks will happen from time to time; however they seem to provide a reason for traders to cover short positions and re-initiate longs, with the mantra ‘climbing the wall of worry’ holding true. There have been some strong moves lower of late in the energy complex, with Brent crude at a 14-month low. While Kurdish troops seem to be taking back key assets, the falls have been assisted by increased production out of Libya. Ultimately however, the falls in WTI and Brent would be helping...
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Renewable energy target cut would hit Budget

ScreenHunter_3841 Aug. 19 14.23 Cross-posted from The Conversation Reducing the renewable energy target would cost the federal budget about $680 million more to meet Australia’s target of 5% emissions reduction by 2020, according to modelling released today by climate and conservation groups. The modelling found that cutting the RET would increase the profits of coal power stations while boosting the costs for the public through more pollution without reducing electricity prices for consumers. It would see “the loss of billions of dollars of investment in the short term”; by further destabilising the policy...
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Confused economists on RBA minutes

images Here's wrap of delusional comments on today's RBA minutes via the SMH blog BC Capital Market’s Su-Lin Ong: The August RBA minutes shed limited new light but uncertainty appears to have stepped up, hinting at a central bank that is likely to sit on its hands for even longer. As we have often argued in the past, the RBA tends to sit on its hands when it is uncertain, awaiting further data and developments. This appears to be very much the case well into 2015. Michael Workman, CBA: We still believe that the question the RBA will be likely to debate early next year is...
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Melbourne riddled with dodgy taxi drivers

ScreenHunter_24 Jun. 25 08.09 By Leith van Onselen Here's a story to make you laugh. Only one taxi driver out of 234 have passed Victoria's new knowledge test designed to "weed out" bad taxi drivers. From The ABC: The test, which was a key recommendation in last year's taxi industry inquiry, was introduced in June by the Napthine Government in a bid to lift industry standards. It covers driver behaviour, customer service and geography. Would-be drivers have two chances to pass the test before being forced to wait 12 months before taking it again. Of the 234 people to sit the exam, driver trainer Karen Downie was...
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Iron ore zombie rises!

imgres Iron ore junior Arrium reported today and is soaring nearly 10%. From Mac Bank: ARI reported FY14 underlying NPAT of $296m (Macquarie at $285m). Reported NPAT was $205m. It declared a 2H14 unfranked dividend of 3cps (in line with our estimate of 3cps). Mining EBIT of $481m was slightly ahead of our forecast EBIT of $469m. ARI has indicated that it is operating at a ~13Mtpa sales rate from 1Q13. Mining Consumables EBIT of $140m, was also slightly ahead of our $136m forecast. FY14 Australasia rail wheel volumes were down 46% on pcp and grinding media down 9% due to the Indonesia export...
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Did APRA force the QBE LMI float?

imgres The Pascometer has an interesting observation today: With QBE making issues and selling off bits and pieces to raise capital, someone more eagle-eyed than most spotted a sentence in the company’s results announcement that raises a question about whether a quiet little word has been had with the global insurance company. ..."When executed, these initiatives deliver significant additional cash and capital resources that will substantially improve the group’s financial flexibility and ability to better withstand a reasonable range of downside scenarios." After QBE’s increasingly monotonous...
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