By Leith van Onselen The Canadian housing market, ranked by The Economist as one of the world's most overvalued, looks to have finally hit the wall. After peaking in August last year, house prices have begun to fall, down -1.2% nationally (see next chart). More importantly, a new report from the Canadian Association of Accredited Mortgage Professionals (CAAMP) forecasts a dramatic slowing of housing construction across Canada as recently tightened mortgage lending criteria, which reduced amortisations on CMHC-guaranteed mortgages to 25 years from 30 year, start to bite. These changes,...

Global Macro/Markets: Austerity: the history of a dangerous idea - The New Yorker 'Recessions Hurt, but Austerity Kills': Study - CNBC The banking crisis as a giant carry trade gone wrong - VOX Don’t fear the bubble - Reuters Are we living in a time of asset bubbles? - Marginal Revolution Fears grow over EM sovereign bond bubble - Financial Times BRICS risk 'sudden stop' as dollar rally builds - The Telegraph North America: Why US corporations should pay more tax - The Economist How Apple dodges paying corporate taxes - New York Times Creative destruction goes MIA in...

By Leith van Onselen Earlier this month, I posted an article arguing strongly that Australia's state and territory governments should look to replace stamp duties on property transfers with a broad-based land values tax, levied on all properties: Broad-based land value taxes (LVT) would... assist in the provision of new housing via two channels. First, an LVT would help make infrastructure investments self-funding for governments, since any land value uplift brought about through increased infrastructure investment (e.g. new roads, trains, etc) would be partly captured by the government via...

By Leith van Onselen RP Data has today released a short note (below) on the state of the nation's rental markets, which it notes are posting solid (but unspectacular) gains, with both rents and rental yields rising: Across Australia’s capital cities over the past 12 months to April 2013, rental rates have increased by 3.5 per cent for houses and 3.3 per cent for units. While according to Mr Kusher this is a relatively measured rate of growth, it remains higher than inflation. Across the combined capital cities, median weekly rents are recorded at $474/week for houses and $440/week for...

By Leith van Onselen The Australian newspaper today contains some interesting discussion on the state of Federal Government budget finances, which it argues are likely to remain in deficit for a prolonged period of time following reckless tax and spending decisions undertaken by both the formal Howard Government and the current Labor Government, which has left the budget in structural deficit: Ringing the alarm on fiscal policy barely one week after the federal budget, two independent reports from the Parliamentary Budget Office and the federal Treasury reveal a sharp decline in the structure...

By Leith van Onselen The Housing Industry Association (HIA) has released a new report (below) examining the state of the home renovation market, where activity has declined sharply over the past 18 months (see next chart). The reasons for the declining renovation activity are as follows, according to the HIA: One of the major shifts experienced in Australia’s economic environment since the GFC has been heightened consumer caution. This is demonstrated by the protracted weak consumer confidence measures and also the increased household savings rate – now at around 11 per cent, compared...

By Leith van Onselen The Federal Reserve Bank of St Louis recently released an interesting short report on China's epic housing bubble, which it warns could burst in the event that both household income growth and the savings rate start to decline, and/or capital controls in China begin to relax, removing housing's preferred status as a store of wealth (h/t Bernard Hickey at Interest.co.nz): Housing and land prices in China have increased continuously and dramatically for the past two decades. In fact, housing price growth has significantly outstripped income growth. Current housing prices...

By Leith van Onselen Yesterday, Shadow Treasurer, Joe Hockey, delivered his budget reply speech to the National Press Club (below), which contained some spurious assertions about the causes of recent budget deficits, whilst ignoring the former Howard Government's role in creating the current structural budget deficit. Let's take a look. The Government’s sixth budget fundamentally lacks integrity. Like everything else, they have over promised and under delivered. Let me give you five reasons why you can’t believe the Budget promises. Firstly, they have broken the most solemn promise...

Global Macro/Markets: Lessons at the Zero Bound: The Japanese and U.S. Experience - Federal Reserve Bank of New York - New York Fed Low yields and high uncertainty - businesstimes.com.sg Headed for euphoria - Sober Look Market Insight: Central bankers turn deaf ear on balance sheets - Financial Times North America: How Rail is Reshaping America’s Energy System - cmegroup.com Ford adds production in North America to meet new car demand - Reuters US farmland faces asset bubble test - Financial Times Europe: ECB: Euro area balance of payments in March 2013 - European...

Cross-posted from The Conversation Amid the doom and gloom of recent world economic reports, Japan has provided a rare source of good news. In the first quarter of the year, its economy grew by 0.9%, indicating an annual growth rate of 3.5%. This is considerably higher than most comparable nations; the US is growing, but at a lower rate, and much of Europe is still in recession. Japanese growth is particularly welcome as the country’s economy has stagnated for much of the past two decades. Confidence is in short supply, and investment and consumption are lacking. Even zero interest rates...

By Leith van Onselen As noted earlier by Houses & Holes, today's sharp fall in the Westpac-Melbourne Institute Consumer Sentiment Index was an unwelcome wake-up call for an economy that has struggled to gain momentum despite -2.00% of cuts to official interest rates since November 2011. The Consumer Sentiment index fell for the second consecutive month, slumping by -7.3 points in May to just to 97.6. It was the biggest monthly decline in the index since December 2011, with sentiment now running well below the 100-point threshold seperating optimists from pessimists (see next...

By Leith van Onselen Back in April, Kyle Bass, head of Dallas-based hedge fund Hayman Advisors LP, outlined to CNBC (above) why he is shorting the Yen and Japanese Government Bonds: Kyle Bass: I think it's really important to understand the magnitude of what they're embarking on. It's essentially doubling the monetary base. It is a giant experiment. Doubling the monetary base in two years is extremely experimental. But when you're backed into a corner, and your debts are more than 20 times your central government tax revenue, you're already insolvent. It's to the point that they have to do...

By Leith van Onselen The fallout from Treasury Secretary, Dr Martin Parkinson's, speech yesterday on budget forecasting processes has continued, with economists questioning the Treasury's forecasting abilities given the big writedown to budget revenues over the past year. The above segment from ABC's The Business summarises the debate well. As explained yesterday, the Treasury has effectively been caught-out by a sharper than expected fall in commodity prices which, when combined with the stubbornly high Australian dollar, has depressed growth in nominal GDP, adversely affecting tax...

By Leith van Onselen Master Builders Australia (MBA) has forecast a big recovery in housing construction, although non-residential construction (including mining-related engineering construction) is expected to struggle. From Property Observer: The embattled residential building sector is forecast to recover strongly over the next three years, with the catalyst being low interest rates... Masters Builders Australia (MBA) forecasts the value of residential building work done, in real terms, to grow from $46.2 billion in 2012-13 to $60.9 billion in 2015-16. Over this same time frame,...

Global Macro/Markets: “The gold standard remains the best available monetary mechanism” - marketmonetarist.com On Whose Research is the Case for Austerity Mistakenly Based? - harvard.edu The "Austerity Myth": Gain Without Pain? - repec.org How bad could the crisis get? Lessons from Iceland - VOX Instead of Low Rates, Let's Have Bigger Deficits - Bloomberg New Era for Global Bonds: Everything You Know Is Wrong - CFA Institute North America: Drop in U.S. underground water levels has accelerated -USGS - Reuters The Unemployed Need Bold, Creative Moves from the Fed - The...

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...

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...