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...

By Leith van Onselen Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 19 May 2013. This week’s report includes: Latest weekly dwelling value results; Latest median house & unit prices; Average time on market & vendor discounts; Auction results & clearance rates; Number of for sale listings; Mortgage market activity; and New listings activity. Full report below. RP Data Weekly Market Update (WE May 19...

Find below the iron ore price table for May 20, 2013: In news, it appears the large steel inventory build, poor sales and shifting context of structural change has once again spooked Chinese steel mills. From the FT: Analysts said that the past week’s tumble in prices had been caused by an outbreak of bearish sentiment in the Chinese steel industry, which accounts for 60 per cent of global seaborne iron ore imports. In particular, large Chinese steel mills had been selling their inventories on the market, they said. “Chinese mills appear to be undertaking yet another iron ore destock,...

Global Macro/Markets: Helicopter money as a policy option - VOX Learning About Growth from Austerity by Michael Spence - Project Syndicate Is There a Stock-Market Bubble? - New Yorker BIS and IMF attacks on quantitative easing deeply misguided warn monetarists - The Telegraph Gold falls for eighth session, silver down sharply - Reuters Andy Xie Column -- Too Big To Fail Is Bigger than Ever - Caixin North America: Learning from Houston: Great interview with America's first openly lesbian (Democratic) mayor - Wall Street Journal Housing recovery? What housing recovery? -...

It was a strange open in Asia today, with USD/JPY coming off sharply from its Friday close of 103.21 to hit a low of 101.97. This occurred after the Japanese Economic Minister said the JPY’s excessive strength had been largely ‘corrected’ and any further moves may have negative connotations. The sharp moves south have also been blamed on the 9% spike lower in silver to $20.33, as traders liquidated other asset classes to pay up for margin calls. Throw in some wafer thin liquidity and stops, and you can see how you get a sizeable move like that. The 90-pip rebound in USD/JPY is testament to...

By Leith van Onselen Following last week's Memorandum of Understanding between the Reserve Bank of New Zealand (RBNZ) and the New Zealand Government, the RBNZ has today outlined how it will use macro-prudential policy tools to target high loan-to-value (LVR) mortgage lending - i.e. mortgages where the deposit or equity in the property is less than 20%. From Interest.co.nz: The Reserve Bank is getting banks to break down their high loan-to-value (LVR) housing lending by borrower type as it outlines a preference for "speed limits" and "tiered limits" - as opposed to outright caps - in the LVR...

MB contributor, Rumpletstatskin, wrote an interesting post on the Australia property cycle this morning. In it he mused that: The crucial lesson in all this is that Australian nominal asset prices have been supported by fiscal policy during the financial crisis, ongoing monetary policy adjustments, and foreign investment (including in mining infrastructure), which all supported employment and incomes. This support allowed a slow melt adjustment since the financial crisis. Home prices have fallen, mortgage rates are down, and rents have increased. This means that buying a home is more affordable...

Cross-posted from Tiho at The Short Side of Long. Equities Chart 1: VIX & S&P 500 divergence continues... Source: Short Side of Long While not an outright sentiment indicator, Volatility Index (VIX) usually tends to lead the S&P 500 lower. Red divergence lines, in the chart above, show how VIX refuses to make a lower low while the stock market moves higher. Disagreement tends to be a warning signal majority of the time (doesn't always work). It seems that traders tend to buy protection in anticipation of an up-and-coming corrections. This is definitely a warning signal,...

By Leith van Onselen From the AFR today comes news that the Coalition has identified $75 billion of expenditure cuts and tax increases over the next four years required in order to address the "fiscal emergency" and return the Budget to surplus: As well as the $43 billion in cuts and tax rises contained in the federal budget which he supports, Opposition Leader Tony Abbott has separately announced at least another $14 billion savings, including his budget-in-reply promise to defer increases to the superannuation guarantee. Furthermore, the Coalition is backing about $13 billion savings Labor...

By Leith van Onselen From Westpac Economics today comes a report arguing that Australia's housing recovery will remain tepid and uneven: The current recovery in Australia's housing markets has been slow to form and despite a quickening in early 2013 remains uneven across segments and states. We expect more of the of the same going forward. Price expectations suggest current positive momentum is well-entrenched but ‘consumer caution’ and a reluctance on the part of buyers to stretch themselves financially will remain a major ongoing restraint. Concerns around job security remain...

From ANZ: Iron ore prices ended the week with a 5% drop, the sharpest fall since mid-March when China’s growth expectations for this year were reduced. Iron ore prices are now sitting around 6-month lows and remain under pressure from the weakness in Chinese steel prices. Coking coal prices also posted the 4th consecutive week of declines to USD144.9/t, with prices at three and a half year lows. In response, Baltic Capesize rates (key gauge for iron ore and coal shipping), turned lower for the first time in 4 weeks. Coal markets could be hit by China’s National Energy Administration’s...