Australia’s boom to bust

By Leith van Onselen Find above an interesting video interview on The AFR with Lindsay David, author of the new book Australia Boom to Bust. In the interview, David slams Australia's record high mortgage debt (see next chart), claiming that "no one in the Western world has ever done what we are doing”. He also claims The AFR article attached to the interview that the three pillars of the Australian economy: real estate, resources and the banks will eventually collapse: He says that as Chinese authorities appreciate, they’ve built more houses and apartments than they need, demand...
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SMSF lobby hogs the tax trough

ScreenHunter_05 Apr. 15 22.08 By Leith van Onselen In an extraordinary showcase of self-interest, the lobby group representing self-managed super funds (SMSFs) - the SMSF Alliance - has slammed calls to tighten tax concessions around superannuation, arguing that the rich are entitled to their tax breaks. From The AFR: The $1.8 trillion superannuation industry has defended its generous tax breaks, saying it should not be used as a cash cow to rescue the budget deficit at the cost of healthy retirement savings. ...an alliance of self-managed funds said that the rich were just as entitled to benefits... “People who...
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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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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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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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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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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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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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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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Links 27 August 2014 (members)

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: 2008 Meltdown Was Worse Than Great Depression, Bernanke Says - Wall Street Journal OECD GDP growth up 0.4% in Q2 - OECD Never say never in the stock market - Brian Lund Successful investing is more about avoiding mistakes than anything else - ThinkAdvisor Pimco is going extend its active ETF business to equities - ETF Why are alternative asset mutual funds still so expensive?  - Morningstar North America: Where are we in the credit cycle? - Aleph Blog Case-Shiller house price growth slowing - Calculated Risk Blacks, Latinos Dominate...
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Come along to the 123rd Henry George dinner

ScreenHunter_10 Aug. 26 15.12 If you live in Melbourne, please consider attending the 123rd Henry George Commemorative dinner, hosted by Prosper Australia, on Wednesday 3 September at the Royal Society of Victoria, 8 Latrobe St, Melbourne. This year's guest speaker is Professor John Freebairn from Melbourne University, one of Australia’s most pre-eminent economists (and my first microeconomics lecturer). With the state election nearing, Professor Freebairn will be speaking on the reforms Victoria needs to keep on the move. Professor Freebairn holds the Ritchie Chair in Economics at the University of Melbourne, and has...
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Trade deficit to subtract 0.7% from Q2 GDP (members)

ScreenHunter_01 Jan. 25 13.29 From Westpac this afternoon comes analysis of today's preliminary June quarter estimate of Australia's international trade balance from the ABS, with Westpac estimating a 0.7% drag on GDP growth over the quarter - a sharp turnaround from the 1.4% positive contribution made in the March quarter: Australia’s international trade balance was a deficit of $4.69bn in the June quarter, a turnaround of $7.26bn on the revised March quarter surplus of $2.57bn. These figures are broadly in line with the monthly trade release, which reported a $7.74bn deterioration between Q1 and Q2. Export earnings...
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Coalition metadata targets innocent

ScreenHunter_07 Aug. 26 13.14 By Leith van Onselen The Australian has revealed today that the Attorney General's Department is seeking a wide array of powers in its bid to require telecommunications companies to store detailed information about the calls and internet use of its customers for two years: Confidential consultations with the companies — including Telstra, Optus and iiNet — commenced late last week with the circulation of a paper that has been obtained by The Australian... The paper, prepared for “preliminary discussions”, reveals the companies should retain records that would identify the names and...
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Interest-only mortgages hit record

ScreenHunter_31 Sep. 02 16.36   By Martin North, cross-posted from the Digital Finance Analytics Blog: APRA just released their quarterly data on housing exposures of the Authorised Deposit-taking Institutions in Australia for the June 2014 quarter. As at 30 June 2014, the total of residential term loans to households held by all ADIs was $1.23 trillion. This is an increase of $29.7 billion (2.5 per cent) on 31 March 2014 and an increase of $97.2 billion (8.6 per cent) on 30 June 2013. Owner-occupied loans accounted for 66.2 per cent of residential term loans to households. Owner-occupied loans were $811.7 billion,...
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Why won’t the rationalists stand-up to privatisation?

ScreenHunter_06 Aug. 26 11.45 By Leith van Onselen The Australia Institure's Richard Denniss has produced a ripper article today in The AFR questioning why the economic rationalists of the 1980s and 1990s have gone silent on the privatisation of natural monopolies, which threaten to worsen outcomes for Australian consumers: Who could have foreseen however, that by 2014, their desire to privatise and cut taxes would see [economic rationalsist] supporting the creation of monopolies in order to “generate revenue” for governments... The whole point of economic rationalism was that the consumer was king... How far the...
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Australia’s budding youth jobs crisis

ScreenHunter_05 Aug. 26 10.29 By Leith van Onselen The Age has posted a sobering report today on the emerging youth jobs problem, which is fast approaching crisis levels: Youth unemployment has leapt to a 15-year high in Victoria... An analysis of youth unemployment data reveals that the situation has deteriorated in 12 of the state's 17 regions in the past year. Thousands of young Victorians from all backgrounds are finding themselves caught up in a spiral of unemployment, and the situation is particularly dire in socially disadvantaged suburbs of greater Melbourne and rural areas... The region of Warrnambool and...
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ANZ-RM consumer confidence rises

ScreenHunter_15 Mar. 18 16.24 By Leith van Onselen The ANZ-Roy Morgan Research (RMR) consumer confidence index has risen for the second consecutive week, increasing by 1.0 point (0.9%) to 113.5, taking it just above its long-run average reading of 113.2 (see next chart). This week's rise was driven entirely by an 11.1% bounce in household perceptions about their ‘financial situation compared to a year ago’. The below chart plots the most recent Westpac-Melbourne Institute Consumer Sentiment index against the ANZ-RM Consumer Confidence...
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How to make the retirement system fairer (members)

ScreenHunter_08 Feb. 03 14.45 By Leith van Onselen The Guardian's Greg Jericho has written another well-argued piece calling for a fairer approach to retirement policy reform: While there is a need to address the issue of the ageing population, and the increasing cost of the age pension it needs to be done in both a sustainable and equitable manner. ...the government’s response to the growing outlays of the age pension was to hurt everyone receiving a pension rather than attempt to make it more targeted and equal... Reducing the indexation below the cost of living of pensioners to the CPI will only exacerbate this...
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You want regressive, try bracket creep

ScreenHunter_64 Jul. 29 15.04 By Leith van Onselen The Australian's David Uren has produced some good analysis today of the growing tax burden likely to fall on lower-income Australians as bracket creep, brought about through inflation, pushes them into higher tax brackets and raises their average tax rate: ALLOWING inflation to push more personal income into higher tax brackets will punish low-­income earners the hardest, ­increasing their tax rates by as much as 25 per cent over the next four years, while leaving those at the top of the income scales virtually untouched. While the government struggles to get savings...
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Links 26 August 2014 (members)

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Jackson Hole Theme: Labor Markets Can’t Take Higher Rates - Bloomberg The small cap cycle may be over - Crossing Wall Street Why value investors have to be both steadfast and realistic - The Brooklyn Investor Why your trading should be boring - Adam Grimes What Stage of the Bull Market Are We In? - awealthofcommonsense.com Time, not timing, is key to investing success - Washington Post North America: The Mystery Woman Who Runs Our Economy - Politico Fueling Road Spending with Federal Stimulus - Federal Reserve Three quarters of whites...
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WA credit rating downgraded

ScreenHunter_3921 Aug. 25 14.32 By Leith van Onselen From Moody's today comes news that Western Australia's credit rating has been downgraded to to Aa1 from Aaa and the outlook changed to stable from negative (my emphasis): The ratings downgrade reflects the state's ongoing deficit position, the deterioration in its debt metrics, and a growing risk that this trend may not be reversed soon. The challenges related to narrowing the budget gaps include greater volatility in the state's revenue base, reflecting its increasing reliance on royalty income, expenditure pressures related to the rapid expansion in the state's economy...
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South Australia’s Uber ban doesn’t hold water

ScreenHunter_3920 Aug. 25 14.12 By Leith van Onselen The South Australian Government has joined the other mainland states in banning Uber's ridesharing service on public safety grounds. From The Canberra Times: Treasurer Tom Koutsantonis says the service could put vulnerable passengers at risk. "People get into taxis and hire cars late at night, they may have had a bit to drink (or) they may have had a very, very big night," he told ABC radio on Monday. "It's a very dangerous option to take an Uber service - you don't know who's driving the car. "You don't know if the car has been checked and, most importantly, we...
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