Here comes the budget pain

Last week's article, Hooked on property, provided some detailed facts and figures from RP Data highlighting how Australia's state and local governments are addicted to property-related taxes, and discussed how these revenues are expected to fall precipitously as housing sales decline and prices stagnate. The article concluded with the following statement: Over the past decade, Australia’s state and local governments have rode on the back of skyrocketing property prices. The revenues received have funded all kinds of expenditure – from public servants’ salaries to health care, schools and...
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Easter Musings: China Protests, RBA remuneration, Other Follow-ups

EasterEggs As you can probably tell we are all having a bit of a break over Easter. But just while I have a bit of time before the Easter Bunny arrives and my yard apes turn into sugar crazed lunatics I thought I would share a few stories I am watching. China Protests Over the last couple of days there has been a strike by truck drivers in China . At least hundreds of truckers held protests over rising costs in China's commercial metropolis, illustrating the potential for inflation to fuel unrest in the world's No. 2 economy, a response China's leaders fervently seek to avoid. The protests began...
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Australian Dollar Weekly Wrap

aud3 Another stellar week for the AUD, if you are a bull or long, and another new post float high and weekly close at 1.0738. The combination of a weak USD after the warning by Standard and Poors about the future of the United States AAA rating combined with solid terms of trade data and a general ebulllience in markets. I would normally expect pre-holiday trading to be thin and after such a good run higher I would have expected a counter-trend move as traders and investors took money off the table. But that was not the case this week as many markets across the globe pushed sharply higher after a...
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Looking beyond interest rates

ScreenHunter_02 Apr. 22 19.55 Sam Birmingham runs a top quality networking site for young professionals called WeBe, which provides up-to-date information on financial matters, work-related issues, lifestyle news and reviews, and current affairs and opinion pieces. WeBe also provides a platform where members can have their voices heard, express opinions and share ideas with other like-minded Young Professionals. Yesterday, Sam published an article on WeBe questioning if Australia has become too obsessed with interest rates and whether the RBA has the right tools at its disposal. Sam’s article is reproduced below for...
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Easter Friday Links: AUD High

DE Again, Up: gold, metals, energy, ore , grains Aussie Up too , with a new new new record Down: $US Analysis Bloomberg Obama looking for fraud in US energy Reuters Robots to do US dirty work in Libya News.com.au As Libyan rebel push on BBC $1b axe to fall on  Oz Fed public service  SMH Origin signs $90b LNG deal SMH Citi helping with Greek Probe WSJ. An e-mail stirred debt restructure rumours ? Have they looked at their own bonds ? It is a farce Alphaville Domain plays catch up on the FHBG Domain AUD love fest Elizabeth Knight We love term deposits...
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Triguboff sounds the alarm

triguboff I haven't mentioned Harry Triguboff previously. For those who aren't aware he is also known as "High rise Harry" and is the head of Meriton. Meriton are the largest developer of apartments in Australia with around 50,000 under their name. Harry is a huge supporter of "Big" Australia and is obviously a person who would usually "talk up" property.  This penchant for property has lead Harry to make so pretty poor calls on Australian property in the past, such as this one from late 2009 about the future of the Gold Coast. High-rise king Harry Triguboff, confident that the Brisbane and Gold Coast...
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Will the RBA step in front of the train?

I’ve raged against the fact that the AUD is hollowing out our import competing industries and our non-mining exports but today, as the AUD careens towards 1.10, I want to focus on whether the RBA is going to do anything about it.   Just now, the dollar is being buoyed by two major themes. The $US is falling and the investment world can't get enough of Chinese growth. With its rich commodity exposure, Australia is a leveraged bet on China. Throw in high interest rates, low sovereign debt and rocket-like technicals and we have the recipe behind the current tearaway rise. So against this...
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Trading Day 21st April – green across the board

Not my desk... Note: anything in quotation marks is a reference to earlier notes that I've made. These comments are read in context of an investor/trader with a medium term timeframe. The S&P/ASX200 Index (and others) Its green across the board: all stocks, futures and commodities are up and gold has surpassed $US1500 and change - but paradoxically it makes a great time for Australian buyers to step in. I'll be posting on how Australian's can hedge and possibly profit from gold (using ETF's and other vehicles) over the Easter break. The S&P/ASX200 is back to its medium term trendline after...
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Woolies vs Coles

There has been a lot of commentary about Coles' improved performance when compared with Woolworths'. Stephen Bartholomeusz enthuses about the "renaissance of Coles" although he is careful to  say that Woolworths is doing alright as well.  Elizabeth Knight enthuses about the "dazzling sales number from Coles raises the stakes in the mother of all supermarket battles between it and Woolworths". Brokers, meanwhile, are getting sceptical about Woolworths' strategy. But what is not getting much attention is that this is an uneven competition. One company, Woolworths, is just a retailer and mainly in...
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Dow set to pop the champagne

What a difference a couple of days can make. Earlier this week we had global inflation concerns, with a tightening from China weighing on markets. This was followed by growing sovereign concerns on restructure talk in Europe’s periphery and S&P’s downgrade to the outlook for the US’s sovereign debt rating. While these fundamentals are still ever present, which was evident overnight by the sharp move wider in bond spreads for Europe’s periphery, markets, with thin volume, are clearly trading in the here and now.   Another round of earnings reports, which in general were better than...
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Houses and holes forever!

The press is full of condemnation of Wayne Swan's preliminary Budget speech yesterday. Personally, it didn't strike me as so awful. In parts, it was a pretty candid take on the conundrum facing the economy: But this phase of the mining boom, mining boom mark II, will be very different to mining boom mark I, the boom my predecessor presided over in the middle years of last decade. Today I want to explain these differences because they matter greatly for our Budget. First of all, mining boom mark II carries with it some of the legacies of the GFC. This is a feature of the economic landscape that...
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Negative Gearing for the chop?

housing_bubble I can't quite believe what I am reading, but here it is from the SMH: The Gillard government has sounded out unions over steps to cool Australia's housing market, with measures that range from a new sales tax for investors sitting on large property portfolios, to curbing the popular strategy of using negative gearing for multiple properties. Senior federal Labor figures and key union backers are believed to have discussed the plan as a way to tackle housing affordability. Details of the proposals, which would apply to home owners with two or more investment properties, have not yet been developed....
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April 21 Links: Rebound and budget

DE Again Up: gold, metals, energy Rocket: Aussie , new new record Down: ore, $US Mixed: grains Analysis Reuters Angola to offer sovereign bonds Bloomberg Euro economists expect Greek default Reuters Euro Chamber of Commerce unhappy with China Telegraph UK France/Italy to send troops to Libya BBC , but only for "advice" There is a war of a different kind at Qantas ABC on top of the fuel levy The other guys aren't doing much better TheOz Ex-Woodside boss lashes out at East Timor TheOz Opposition on Wayne Swan after speech TheOz David Uren on the same David...
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Irish bust video

Max Keiser yesterday posted a video exposé (below) on the damage caused by the bursting of the Irish housing bubble and how the bad debts of the Irish banks have been transferred to Irish taxpayers (h/t Mish and Rota Fortuna). For readers unfamiliar with what happened in Ireland, consider reading my December article, Unluck of the Irish, where I documented the rise and fall of the Irish housing market. Max, as we know, is a bit of a nut. But this is well put together and revealing viewing. It makes one wonder just how long the Irish polity can't stand before demanding their government...
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Disleveraging hits the Budget

It is that time of year again where the government, specifically the treasurer gets to tell you what a wonderful job they/he are doing. This year the Treasurer seems to be using the old "it was the last guys fault" strategy to cover up his own inadequacies. His latest speech in Brisbane was a definitely a "softening up" affair. The real show is taking place at 7:30pm on 10th of May. It is still far too early in the spin cycle for any specific details, but it seems that Wayne Swan has taken the approach of "soften early, sweeten later". First the overview. It is estimated that the budget will be...
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Westpac: Leading indicators solid

From Westpac and the Melbourne Institute today comes leading indicators for the economy (full report below). And they're solid: The annualised growth rate of the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 4.7% in February 2011, above its long term trend of 3.3%. The annualised growth rate of the Coincident Index was 2.1%, well below its long term trend of 3.2%. The level of the Coincident Index rose 0.2% in February. Amongst the three monthly components, real retail trade rose by 0.3% while employment...
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Trading Day: 20th April

Not my desk... Note: anything in quotation marks is a reference to earlier notes that I've made. These comments are read in context of an investor/trader with a medium term timeframe. The S&P/ASX200 Index - XJO The S&P/ASX200 has bounced back slightly this morning on reflated overseas markets, up 0.7% around midday. As I said yesterday, the market is by no means oversold, and is still within a short term downtrend channel. [caption id="attachment_15410" align="aligncenter" width="300" caption="This trend is still in its downward channel. Don\'t get excited yet."][/caption] The market...
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Abolish the RBA

There is absolutely no evidence or even studies to produce evidence that the RBA provides any value to the Australian people. Anything the RBA does could be undertaken by the private banking sector. In fact the RBA can only perform three types of tasks. Tasks that the private sector would or are undertaking given the opportunity Tasks that protect vested interests inherent in  government policy ie major banks Taking market based initiatives that are bound to be wrong. The absence of evidence is not evidence in support of the RBA doing anything that is marginally useful. Nor is the...
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Australian dollar beloved by all

Yesterday I wrote that the Aussie was the Cinderella of the ugly sister currency contest and posed the question where in the world would you invest at the moment? This morning a Bloomberg story  highlights just this. Importantly it suggests ongoing buying support for the Aussie regardless of whether we are in a risk on, risk off or neutral market.   The Bloomberg article said: Credit default swaps protecting investors in Australian debt for five years traded at 51.2 basis points on April 18, 1.7 basis points more than the 49.5 investors were paying to guard against a deterioration in U.S....
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The gov’ment done it

An investment note by Southern Cross looks at the effect of Australia's political leadership on the stock market, which is a subject not often addressed, at least by analysts. Privately, many say that the Resources Super Profits Tax has scared off foreign investors for a very long time because it made Australia look "socialist". If they are scared, then they are dealing with their fears well. About two fifths of the local market is foreign investors. Not to mention the forthcoming capex boom which is, in some sigificant part, funded by foreign debt. Doesn't seem to be worrying them all that much....
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Spinning the Budget

The Treasurer has a nice splash across the media today on why the Budget will be painful. The following from Yahoo7 is as good as any: The second phase of the mining boom won't produce the "rivers of gold" of government revenue like the former coalition government enjoyed and wasted, Treasurer Wayne Swan says. In a keynote speech ahead of his fourth budget on May 10, Mr Swan will tell the Queensland Media Club on Wednesday that the consequences of the latest mining boom on the budget will be vastly different than the previous boom. Unlike between 2004 and 2007 when tax revenues were revised...
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April 20 links: Full faith and credit

Up: grains, gold, metals, energy. Flat: Aussie Down: ore, $US. Greek two-year higher still. Bloomberg Contagion: Portugal, Spain, Italy, Belgium Hurdles to Greek restructuring. Alphaville S&P negative watch smackdown. Naked Capitalism Asia backs US debt. Reuters American housing on the nose. Bloomberg, Calculated Risk QE 2.5. Bloomberg We need SWF. WSJ Tough Budget. SMH These cuts only mean one thing, they projected too much growth last year... Free challenger to RP Data. SMH Banks dismiss Merrill report. The Oz Well bugger...
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Australian dollar on support

With all the hoopla about the negative ratings watch for the US, the price action for the AUD/USD over the past day or so is instructive. Back on Saturday, when I did the weekly update for the Aussie I said that  “when I look at correlated markets like equities I think their momentum is waning which may ultimately see a “real” risk off event. Global markets are due for one.” Some of my fellow bloggers have alluded to this today and I reckon we may be getting one, particularly because of the thin markets into Easter. The problem I have, and as the chart below shows, is that the Aussie...
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D&B report credit concerns

credit Dunn & Bradstreet's latest report on credit is out and it is not for the faint hearted. One third of Australians expect to experience difficulties meeting their credit commitments over the next three months and nearly 40 per cent anticipate having to use their credit card to cover otherwise unaffordable expenses. At the same time one in four Australians are planning to apply for a new credit product, although the greatest product demand is for non-bank credit such as mobile phone plans. These are some of the findings from the latest Dun & Bradstreet Consumer Credit Expectations Survey,...
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Trading Day: 19th April

Not my desk... Note: anything in quotation marks is a reference to earlier notes that I've made. These comments are read in context of an investor/trader with a medium term timeframe. The S&P/ASX200 Index - XJO The S&P/ASX200 has fallen substantially this morning and continues into midday trading, hovering around 4800 points. This is now well below its 15 day moving average and about to go below the 50 day moving average. The market is by no means oversold, this dip could last longer, down to 4700 points or below. This is the sixth day of the dip - most small corrections only last a week...
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Schizoid RBA minutes

The following is the domestic economy section of the Minutes on Monetary Policy released today. Any regular reader of MacroBusiness will be unsurpised by the PROCESSION of negatives noted during the meeting. Indeed, we might have written these notes ourselves over the past two months. In total, it's a very negative assessment of the economy that is gleefuly accepted in the name of one item: "A strong pick-up in business investment remained the central element in the medium-term outlook." Let's hope it materialises. According to the national accounts, GDP had increased by 0.7 per cent in the...
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The great, steaming debt pile

Standard and Poors last night placed the outlook for the US’s AAA rating on negative watch for a potential downgrade citing not just this recent budgetary impasse but also the trajectory of the United States Governments debt position. The charts below show just why S&P is worried.   It’s common these days to think of debt in terms of a ratio to GDP and this chart, data from Bloomberg, highlights an alarming trajectory for the US’s fiscal position. Even the most conservative extrapolation of this trend would end in tears:   Now look at the monthly deficit position going back to...
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Don’t worry, be happy

The consensus on MacroBusiness is that housing currently has more downside risk than upside potential, that the banks's earning growth is increasingly limited and that the consumer has switched off. Being a bear by temperament myself, I can but agree. But we bears are often wrong and it is worth at least considering the opposite case. That has been put in a note by Morningstar, which argues that things are not so gloomy. It says that "scaremongers" -- for which read most of the bloggers on MacroBusiness -- continue to "push investment risks" such as "steeply higher interest rates, collapsing house...
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Another ponzi trick exposed

Merrill Lynch analysts (full report below) have sprung the banks on another method they use to expand the amount of money they can lend to anyone and everyone. From Banking Day: The long-standing use by banks of the poverty line as a proxy for living costs is the subject of a fresh, but sceptical, review by a team of Merrill Lynch banking analysts. The sell-side analysts at Merrill Lynch assessed the living costs used by major banks in Australia to work out the maximum loan a borrower could afford (taking into account other criteria such as the loan size, deposit and property...
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Mixed signals

There's a lot of noise today. And yes, it's threatening to be a "risk off" event. Some typical signs are there. Gold is up. Commodities and the Aussie are down. The euro got monstered. The $US bounced hard. But it isn't that simple. Grains are up solidly which is definitely a growth/inflation play and there was a lot of buying support for the Aussie once it fell a one cent: The S&P too bounced off early lows with buying all day: These are buy the dip patterns, not run for the hills patterns. Feels more like a temporary shock to me, brought on by the S&P shift to negative on...
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April 19 links: Sovereign default

Rockets: $US, grains. Up: gold. Down: ore, metals, energy, Aussie. S&P puts US on downgrade watch. FT No more QE. FT Cutting the US deficit. Calculated Risk US bond volatility. Alphaville Richard Koo on the absurdity of the downgrade. Money Game Greek two-year goes parabolic. Bloomberg Contagion: Portugal, Spain, Italy, Belgium The toxic route to fiscal union. FT Chinese inflation. NYT Fixing prices. John Garnaut Dutch Disease for Canada. Globe and Mail Borrow now before you can't. SMH They must be joking. Oil risk. The Oz Well der... Ore frenzy. The...
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Gold to break through $US1500 an ounce?

gold bars Gold looks like breaking through the $US1500 an ounce level in overnight trading. This new nominal historic high comes as no surprise due to the metals relentless march upwards in a primary bull market that has lasted 10 years. What is surprising is golds recent correlation with all other risk assets (e.g equity markets, commodities etc) has inverted - with European and US markets down 1-2% (Greece down almost 3% at time of writing) although "King dollar" is rallying against the majors, with US Dollar Index (DXY) up slightly. This recent spike may have been driven by the news that the...
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NZ considers new tools to combat housing bubbles

Earlier this month, I wrote about two policy actions being undertaken by the Reserve Bank of New Zealand (RBNZ) and the New Zealand Government aimed indirectly at reducing the economy’s exposure to the housing market. These measures included: the Open Bank Resolution (OBR) Policy, which seeks to protect taxpayers from funding future bank bailouts; and directing the Productivity Commission (modelled on the Australian body) to undertake an examination into housing affordability, with the stated aim of reducing the economy’s accumulation of debt and exposure to external shocks. Late last...
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Europe’s new issues

finns_1875126c As I noted in my previous article on Portugal the Fins have been posturing for more serious austerity from the PIIGS. It seems however that as of today the circumstances in Finland have changed somewhat and the outcome for the rest of Europe could have just become far more difficult. A Finnish election has just been held and the new parties don't seem too happy with the way Europe has been dishing out cash to the southerners. Finland’s euro-skeptic bloc is poised to enter a government with the pro-Europe National Coalition led by Finance Minister Jyrki Katainen after voters used yesterday’s...
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Roubini calls time on China (part 2)

Earlier this month, Houses and Holes posted a report from Professor Nouriel Roubini warning that the Chinese economy is overheating and risks a sharp slowdown sometime after 2013. Now Professor Roubini has followed up with an article on Project Syndicate fleshing-out his views in greater detail. Professor Roubini  more or less supports earlier warnings from Michael Pettis and prominent China bears: Jim Chanos, Vitaliy Katenelson, Gary Shilling, Puru Saxeena and Andy Xie. Below are the key extracts from Professor Roubini's Project Syndicate article. China’s economy is overheating...
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