RBA too late the hero on mortgage risks

ScreenHunter_31 Aug. 28 07.42 By Leith van Onselen The Reserve Bank of Australia (RBA) has provided its second submission to the Murray Financial System Inquiry (FSI), which reportedly warns against moves to bolster competition in the mortgage market for fear that it would pump even more funds into property and heighten financial system risks.  From Business Spectator: “The supply of mortgage finance in Australia is ample,” the RBA said. “Therefore, any proposed policies that could further increase that supply should be subject to rigorous analysis of their costs, benefits to consumers and risks to financial...
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Why are we going to bomb Iraq?

imgres Some months ago, Prime Minister Abbott declared his resistance to the idea that Australia commit any air power to strikes upon Syria because it was a case of: "It is not goodies versus baddies, it is baddies versus baddies, and that is why it is very important that we don't make a very difficult situation worse." This raises the possibility that the Abbott foreign policy agenda is values based and that Australia will participate in far flung wars when "goodies" are threatened by "baddies".  Today, the Prime Minister and his Holt Street press office are clearly preparing Australia for just such...
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It’s time to allow “grey” car imports

ScreenHunter_29 Aug. 27 14.45 By Leith van Onselen The Productivity Commission's (PC) report into Australia's Automotive Manufacturing Industry recommends relaxing controls on so-called "grey" imports of second-hand cars, noting that Australian consumers are being fleeced, particularly when it comes to purchasing higher-end vehicles: It might be the case that some ‘premium’ vehicle segments (such as luxury European made motor vehicles) are characterised by larger profit margins and are relatively less competitive compared to overseas pricing because of the existence of fewer close substitutes. An increased supply of...
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Daily iron ore price update (uh oh)

anvil Here are the iron ore charts for August 27, 2014:       Paper market weakness returned with a vengeance with new lows on everything. Physical is worse. The iron ore contango is gone and steel prices are now in free fall. Fresh CISA fast data has large steel mills increasing production in the mid August period 0.5% to reach 1.83 million tonnes. It seems to be largely going towards increased inventories with CISA also reporting that mill stockpiles were at 15.25 million tonnes as of Aug. 20, up from 14.57 million tonnes ten days earlier. That'll keep weighing on steel prices, thanks very...
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Chinese iron ore production is booming

dgfqeaws The one question that nobody in the iron ore sector (or Australia more generally for that matter) dare ask is what if Chinese iron ore production does not close as Australian miners ramp up output. The reason nobody asks it is that the outcome will be calamitous. But it's a very real question to pose, especially since the evidence too date supports that very outcome. We should all recall that throughout the last few years every miner and his dog has argued that Chinese production will close down on mass from $120 downwards, giving birth the so-called "$120 price floor" notion. Well, we're sub-$90...
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Iron ore “idiocy spread” goes mainstream

3 There's no acknowledgement as usual but it's clear from Roger Montogmery's latest post that he is familiar with the "idiocy spread": We are following, with great interest, the discussion currently unfolding in the market about iron ore and the big miners. On the one hand, we have the spriukers calling for a ‘rotation’ out of banks and into the big miners. The logic is no more sophisticated than saying: “You should sell the banks and buy the miners because the banks have gone up a lot and the miners have gone down a lot, so it’s now time for the miners to go up a lot”. On the other hand,...
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Chinese property stumbles into peak season

jinan1 Cross-posted from Investing in Chinese Stocks. Ifeng reports that China's Real Estate Cheerleader, Ren Zhiqiang CEO of Huayuan Property and one of China’s most prominent online personalities (with 16 million followers on his blog) is a little more cautious today. Instead of saying prices won't fall, he says prices will rise again in September 2015, assuming current conditions hold and the government doesn't greatly add to supply with more affordable housing and shanty redevelopments. That won't please the Jinan homeowners who are protesting Glorious Property (0845.HK). In the past two...
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Links 28 August 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: U.N. Draft Report Lists Unchecked Emissions’ Risks - New York Times When FX wars become negative interest wars - Financial Times We should not be surprised that different sectors shine at different times - Crossing Wall Street The return to “behemoth stocks” - Aleph Blog Risk control vs. risk avoidance - A Wealth of Common Sense A simple switching model between value and momentum - Alpha Architect The active vs. passive debate has become tiresome -  Capital Spectator Active vs. passive is the wrong question: cost is what matters -...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Chris Weston, Chief Market Strategist at IG Markets We enter a new and crucial stage in the multi-year equity cyclical bull market, with the S&P 500 now commanding a two handle and showing little sign the bulls will let their grip slip. If you want to point to a negative from yesterday’s US cash session, it has to be the awful volumes, which were 30% below the 30-day average and 11.5% below the five-day average (on the S&P 500). If you believe it’s not always about getting from A to B in the markets, but the quality of the journey, then the recent volumes would be a concern. However,...
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S&P warns WA budget on iron ore

Travel-Warning From Standard and Poors this arvo: Standard & Poor's Ratings Services said today that its 'AA+/Stable/A-1+' issuer credit ratings on the State of Western Australia are not immediately affected by the recent fall in iron ore prices to less than US$90 per ton. The potential loss in the state's iron ore royalties would not by itself lead to a lowering of the ratings. We anticipate the Western Australian government's operating balance will remain in surplus after considering the potential earnings loss, at between 0% and 5% of operating revenues. At the same time, we project the state's...
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Hope persists for miners as iron ore futures fall

dfgwr You can't keep a good dead company down! Iron ore juniors and majors are mostly up today, even as Dalian iron ore futures fall 3 points to their Monday lows and rebar futures stall in China: The idiocy spread hasn't deteriorated much yet (remember these are one week moving averages) but remains at a record wide:   Clearly markets are still reckoning on a rebound soon. Some sort of Q4 restock will probably still come but at the current rate of decline in Chinese housing data it ain't going to be much chop. I remain of the view that equities are not sufficiently discounting this...
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China bank loans still slow into August

l8yfig-660x424 From Shanghai Securities News via Forexlive: The Big Four state-owned banks extended CNY131 billion in new loans in August through the 24th, up from CNY56 billion a week ago, unidentified sources said. Banks’ credit officials said some banks, especially small and medium-sized ones, are reluctant to lend due to concerns about rising non-performing loans A report by Shenyin Wanguo Securities said some banks have tightened lending approval to privately-owned enterprises and small business while smaller lenders have resumed mortgage lending as it carries fewer risks. The newspaper also said...
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NBN cost-benefit analysis signals end of an era

ScreenHunter_26 Aug. 27 14.14 Cross-posted from The Conversation: The long-awaited cost-benefit analysis of the National Broadband Network suggests the days of politicians shooting from the hip with taxpayer dollars are numbered. As Labor’s NBN unfolds amid reviews and revelations, it’s apparent the NBN was a political move based on romantic notions of policy-making ending in Labor’s electoral defeat in 2013. In government, the Coalition called for a strategic review of the NBN, revealing a number of problems with the project’s implementation. Malcolm Turnbull also promised to deliver an independent...
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Shock horror! Super funds are gouging members

ScreenHunter_25 Aug. 27 12.57 By Leith van Onselen Australian Super chief executive, Ian Silk, has bemoaned that the financial services industry is using the compulsory superannuation system to enrich themselves, rather than look after their members. From The AFR: As pressure grows on super funds to cut fees, Mr Silk on Tuesday warned there was a risk that savings from the funds becoming more efficient were not being passed on members. “The biggest concern as the superannuation sector grows is that the financial benefits from the economies of scale are being captured by the agents and not ordinary Australians,” Mr...
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Mining unwind drags construction activity down

ScreenHunter_03 Jul. 23 09.31 By Leith van Onselen The ABS has released data on the value of construction work done for the June quarter of 2014, which registered a seasonally-adjusted 1.2% fall in total construction activity over the quarter and a 0.6% decline over the year. The result disappointed analysts' expectations for a 0.5% fall over the quarter. The 1.2% quarterly decline in construction activity was driven entirely by a 3.1% fall in engineering construction, which more than offset the 2.2% rise in residential construction and the 0.5% increase in non-residential construction (-1.5%): Residential...
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Chinese consumer confidence frays

zdfgwe Fresh from Westpac: The Westpac MNI China Consumer Sentiment Indicator, hereafter the Westpac MNI China CSI, fell modestly to 113.3 in August from 114.8 in July, a –1.3% change over the month and –2.4% over the year. The August outcome is 6.8% below the long run average. The survey indicates that the anxieties gnawing away at the Chinese consumer through the first half of the year remain in evidence, and have arguably strengthened. We noted at the time of the July release that a head-to-head comparison with the manufacturing surveys implied that households were less impressed with...
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Labor’s NBN gold-plated

ScreenHunter_17 Aug. 27 10.44 By Leith van Onselen The Coalition's 196-page cost benefit review into the National Broadband Network (NBN) has been released and finds that Labor's plan for fibre-to-the-premises (FTTP) broadband is markedly ($16 billion) inferior to the Coalition's multi-technology mix (MTM) solution. The study compares four main scenarios: leaving things as they are with no further progress; an unsubsidised rollout of hybrid-fibre coaxial (HFC) and fibre to the node (FTTN); a full fibre to the premises (FTTP) rollout with wireless and satellite in high-cost areas; and a multi-technology mix...
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Big banks generously embrace competition

imgres From the AFR: Global rules forcing smaller banks to hold twice as much capital against mortgage lending as the big four is distorting home loan competition, The Australian Bankers Association has said. In its second submission to the Murray inquiry, the ABA argues the Australian Prudential Regulation Authority should recognise efforts by regional banks to improve their systems and reduce the amount of capital they must hold against mortgages. The major banks are deemed “advanced” by regulators as a result of their investment in information systems so are able to use their own...
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Lifting Chinese home puchase restrictions fails

.jbjb From BofAML's excellent David Cui: Housing market, still a key risk in 2H Many in the market expect housing sales volume to recover in 2H, helped by a loosening of home purchase restriction (HPR) and mortgage policy, among others...Our conclusion: it’s still debatable whether the removal will have any sustained impact on local volumes (on balance, probably not) but it’s reasonably clear to us that the impact nationally is weak at best. Soufun provides some weekly transaction volume data on 89 cites; of the 89, 45 had/have HPR; of the 45, 33 had loosened HPR in recent months; of the 33,...
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Abbott too slow to give ground on PPL

ScreenHunter_03 Jun. 26 21.56 By Leith van Onselen The AFR has revealed today that Prime Minister Tony Abbott has finally conceded to the Coalition party room that he needs to give ground on paid parental leave (PPL) if the policy is ever to come to fruition: Coalition MPs are predicting Tony Abbott will water down his paid parental leave scheme in order to salvage it after the Prime Minister confided with colleagues that more change to the policy should be expected... According to details of the conversation now circulating throughout the Coalition, Mr Abbott told the gathering “there’s been some water under the...
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Car industry’s job losses will be worse than forecast (members)

ScreenHunter_10 Mar. 29 12.46 By Leith van Onselen The Productivity Commission has released a new report on the closure of the car industry. It concludes: Australia's automotive manufacturing industry is undergoing significant change. Motor vehicle producers in Australia have not been able to survive in the highly competitive global and domestic automotive markets — Ford, Holden and Toyota have announced they will cease local manufacturing before the end of 2017. Component manufacturers face ongoing adjustment pressure and rationalisation. It is estimated that up to 40 000 people may lose their jobs as a result...
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How high for the S&P2000?

dfga Last night saw more Goldilocks US data. Case Shiller house prices are now rising at 6.2% in the 20 city index and will likely ease further into a soft landing. Durable goods orders went mad on a spike in aircraft orders for Boeing, up 22.6% in the month and roughly $50 billion above any previous peak!  Conference Board consumer confidence rose to the highest since late 2007. Gold and oil were flat, the US dollar firmed a touch, short end bonds were flat and the long end sold off a little. But all eyes are on the S&P500, which closed above 2000 points for the first time: How high can it...
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Bursting the banks’ “no bubble” bubble (members)

ScreenHunter_04 Apr. 15 22.05 By Leith van Onselen As noted yesterday afternoon by Houses & Holes, Australia's big four bank chief economists united for an interview with The AFR to declare that Australian housing is not a bubble. For a bit of fun, I thought that it was worth evaluating each of the banks' arguments to determine whether they hold water. First up is the ANZ's Warren Hogan: “Certainly no bubble,” said Mr Hogan. “The perceived expensiveness of our property market is as much as anything a social issue, affordability issues. We simply don’t have the speculative credit element there to describe...
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The politico-housing complex has turned on itself (members)

images Long term readers will recall that I see Australian property not as a "market" but a highly-distorted quango that has largely eaten the economy. Recall the 2011 post that laid out this view: When the baby-boomer generation first took power and reshaped Australia in the 1980s, the promise was for a new kind of meritocracy. The old “Australian Settlement” described brilliantly by Paul Kelly in the End of Certainty - a protectionist social contract between unions, industry, government and the people – was swept aside in favour of a neo-liberal vision. The new world demanded an open, more...
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Daily iron ore price update (2014 low) (members)

anvil Here are the iron ore price charts for August 26, 2014:   Paper markets rallied moderately, including rebar futures. Spot has formed a small contango with the 12 month swap, one signal that a reversal maybe at hand. However, it's tiny so not overly convincing. Prices of port stocks are rumoured to still be falling. The BDI cape is now reversing sharply. Steel First is reporting that both BHP and Rio have closed port berths for maintenance, which may be normal or playing silly-buggers. Reuters has texture: But China's raw iron ore output has continued to increase, with...
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