Weekend Links 15th September

Global Macro:

  • Fidelity reckons you need 8 times final income for retirement – better get your Macro Investor subscription quick
  • Roubini – Fiddling at the fire. Pro Syn
  • Soc Gen’s Albert Edwards tees off on market complacency about China – BI
  • Bernanke and Draghi add fuel to gold fire – Forbes
  • But the Wall Street Journal says they cant do it all on their own – here
  • Mark Faber – Fed will destroy the world – Bloomberg
  • But at least Financial Market stress is low – Bloomberg

North America:

  • White House announces Fiscal Cliff spending cuts – CNN
  • New Yorker salutes uncle Ben – here
  • The Dow is being rebuild – MarketBeat but Apple didn’t get in – here
  • Fed getting closer to its roots – WSJ Blog
  • This round of QE is going to be the biggest yet – Reuters. Agreed
  • Ritholtz suggests we don’t forget the economy – The Big Picture
  • As does BI which says it won’t work because of no demand for credit – here
  • Even if you are all powerful its hard to fix the economy – NPR
  • Fed’s Raskin says disappointed with employment – Reuters.
  • Zuckerberg gets it about profit now – Marketwatch

Europe:

  • Spain urged to clarify aid needs – Reuters

Asia:

  • Chinese Leadership tensions – BI
  • QE3 shouldnt trigger a wall of money into EM – WSJ Blog
  • Australian business hitting out on China ties – The Oz Paul kelly saying luck not enough – here. Nothing like a fall in revenue to get the gaze focussed on the navel.
  • Stokes and Packer say bend the knee – AFR

Local:

  • Go Harvey – A dinosaur fights back, SMH
  • Apparently there is a Sydney Real Estate revival – SMH Lead story on the website!
  • Twiggy’s wealth dropping $8 m a minute – SMH here he’s saving his empire
  • AFR says Twiggy looking at asset sales
  • China “salvation of WA” – SMH
  • Global rally puts pressure on RBA over rates – SMH MY OATH rates to 2.5% in the next 12 months. AFR says the same
  • Tinkler playing with his empire – Oz
  • AFR says Mirvac threatening him with insolvency to get their cash.


Comments

  1. Benanke is testing a hypothesis we have all considered at one time or another.

    If you run off a cliff and keep moving your legs faster and faster AND never look down will you just stay suspended in mid air.

    The scientific laboratory of Saturday morning cartoons never fully tested the theory so I am pleased that Ben is pursuing the experiment with great vigor.

    Apologies for any misuse of scientific terms such as hypothesis, experiment, suspended, laboratory.

  2. “MY OATH rates to 2.5% in the next 12 months.”

    if thats right then should also be expecting the ASX to be +5000 points over the same time frame….

    • Deus Forex Machina

      Not sure about that – the preconditions that drive rates to 2.5% are unlikely to be suppportive of the big banks or the miners.

      • you dont reckon dividend yield vs a cash rate of 2.5% will be supportive of equities? 5000 points would be conservative

        • Deus Forex Machina

          We can never rule out dividends in the australian market as a reason not to get too bearish aussie stocks (unless of course we are in the midst of a global stock crash – which we clearly are not) So I accept your point entirely.

          Equally the Aussie market has hardly roared so it would be disengenuous to be calling it sharply lower.

          Rather I simply thing that economic weakness will constrain the big guys and in doing so constrain the index.

          But as you note in the sector play idea there are always ways to make money in any market. So while I may not hold the big 4 for a while there will be other stocks worth owning

          And here’s the ad for Macro Investor – Chris and Michael will help you find them 🙂

          • i dont reckon they will cut to 2.5% in 12 months anyway DFM. UE is too low, inflation is low but not that low and GDP growth still good. The RBA will want to leave themselves room to move for when the capex boom ends in 2013/14.

            lower rates are supportive of banks though as it reduces the chance of bad debts blowing out. Australians are heavily indebted and as long as they can continue to service that debt banks will continue to make good profits and pay those profits out to shareholders.

            I agree the RBA will be forced to cut now though after QE3 just to take some heat out of the AUD which raises the question…for the broader economy, what is really all that bad about a strong currency?

            Im struggling to see an economy wide problem at all. Those with money are getting increasingly wealthier as their spending power increases with the currency gains. Those with debt will get some relief with lower rates the strong currency allows while those without money are able to borrow more cheaply than they could otherwise? All while inflation remians a non issue.

            doesnt seem to be a bad problem to have…..

        • The lessons from elsewhere ( Japan, for instance) is that ZIRP can be accompanied by a fall in equity markets rather than a rise.

          • Deus Forex Machina

            True – but the US is proving the other point for the moment.

            I think deflation is the difference between the two and why Bernanke is fighting so hard to ward it off

          • My opinion is that what we have here, and everywhere else, isn’t a ‘stock market’; a mechanism for businesses to raise capital and investors take participate in the success or failure of a business, but simply a financial market, with ‘real’ stocks, tacked on somewhere. It won’t be corporate performance that drives prices, ( a lowering of interest rates, say) but ‘interference’. When that stops, as it will inevitabley one day, we will see Father, Son and Holy Ghost of all Corrections. The longer we fiddle, the worse it’s going to be.So the questions is really just one of: When is one day, and why?

          • My pencil isn’t a sharp as yours, Greg! That’s why I take an interest in your charts. “One day” will show up quite prominently, just as Black Tuesday and Black Wednesday do now. So perhaps it will be on a Thursday!

      • GB & DFM – 2.5% interest rates would be ‘supporrtive’ for the Housing Market almost certainly. Reason being Australian’s want a safehaven and nothing is as safe as houses to an Aussie. I think when the crisis happens in 2013, it will be 2008 revisited – Swan at the helm, rates fall fast and great stimulus is injected with an ‘once in a life time infrastructure building program.’ The stockmarkets of the world, including Australia’s dive – so stimulus & capital go into Housing – it rose 20% last time; probably more this time, even though it is not warranted or sustainable – irrational, Yes, probable? Most likely.

        • People don’t take on debt, at any cost-even free, if they don’t have job security, or an sort of uncertain future, especially when they are likely borrowed to the gills already. What they do is ‘downsize’; take what equity they can release and look for a cheaper replacement or rent. When the stock market corrects again, it will be the 4th time in living memory that we will have seen our apparent household wealth evaporate before our eyes (87,00,08 and whenever). An aging population aren’t going to borrow-to-buy against that painful backdrop; and the younger buyers won’t have the purchasing power ( they are already in consumer/educationally generated debt). I doubt ‘next time’ property will get anything but a kick in the guts as people get out with whatever they still have left, stimulus or not.

          • I think Neil’s point you’re missing there Janet is once the economy and rates hit the skids, unemployed speculators will have infinite time on their hands to buy and sell more property than ever.

            Who needs a job, income, assets or any other financial foundation to acquire property these days? Use Macquarie via a broker. They’ll have the broker leave the income/assets section of the application blank for ‘internal use only’.

          • Agreed again Janet. My Big Picture view is that ’08 was a tipping point for the “lots of debt is fine” social psychology paradigm of multiple decades. The broad direction of the herd shifted perceptibly, towards savings, and lower debt. Rather like setting off a bomb in front of a herd of running bulls.

            The old “rules” (lower interest rates / stimulus / FHOBribes will spike demand) no longer apply. At least not to the extent they did before. And I suspect that even the extent to which those rules do apply is only set to weaken further.

          • Janet – I should say that my above described scenario is ‘probable’, mainly because of the irrationality & fear produced by another GFC. I get private investors staying on the sidelines, but self funded supers & Union run Supers have to plop their money somewhere, especially if the stockmarket is down. I also feel that China will stimulate big time and this will keep employment up in the mining industry. This is just an opinion, but I personally believe it, because of Australian’s love affair with property.

          • You know Neil, you could just be right. But juts like we all fell in love with the person of our dream, doesn’t mean that 33% of us didn’t get divorced; and 18 % of us gave it another go; and 10% a third….People often do not learn from experience. We shall see, soon enough.

          • Neil you could very well be right, but the love of home ownership is not unique to Australia. This meme is really a species of “my country’s the best in the world coz we’re all such responsible homebodies”. It was rife in Ireland circa 2005 when I was there. It’s a kind of mystical and irrefutable, astrology-type explanation for irrational property prices. But when you think about it, it really doesn’t make any sense. Didn’t stop me believing it about Ireland in 2005 though!

          • Neil you could very well be right, but the love of home ownership is not unique to Australia. This meme is really a species of “my country’s the best in the world coz we’re all such responsible homebodies”.

            It’s not that, it’s the belief that real estate – housing – has an intrinsic value. Ie: no matter how bad things get, you still have somewhere to live (and others less fortunate will need somewhere to live you can rent your other houses to).

            If stocks go bad, on the other hand, or a bank dissolves, you can quite literally be left with nothing at all to show for your hard slog.

            The distinction is not entirely without merit, but it is substantially dependent on either full ownership of the property in question, or at the very least lower mortgage costs than would otherwise be required to rent an equivalent. Obviously this is not true for a hell of a lot of people today (and vastly more than in the past, I’d wager).

          • dumb_non_economist

            While I agree with Neil’s view about Australia’s love affair with RE of which most MB readers are aware and which will need a hard wack around the ears to correct, my monies on Janet’s take.

            Janet for Prime House Wife!

          • DrSmithy, my point is that a love of real estate, for whatever reason, will crumble in the face of financial gravity. This has been seen time and again around the world, despite the fact that in many places RE is loved above all else, and it is the rule, not the exception. Try as governments might, they cannot prevent it. We can be sure that our government(s) will throw everything they can at it if/when that day comes.

          • Tend to agree McPaddy. Looking at 08, while the world was disintegrating, to alot of people it did not feel like Australia was in any real danger (real or perceived) hence the FHB’s willingness to take on debt. Onto 2012 and thanks to that bloody Mayan calendar thingy, we’re all doomed.(jj) In 2012 and going forward, debt is the jilted bride dumped at the alter as Australia’s love affair with debt ends. If interest rates go too low, Australians will realise this is not because things are great but rather the opposite. Consolidation is the new norm.

      • DFM, I’ll admit partiality to this notion, as it is part of my “Stagnation” thesis, but we should consider the notion that on-going Central Bank / Govt interventions into the global economy could trigger an on-going scenario where many (even all??!) various indicies and prices go up (ie. wholesale inflation).

        The actual value, relative profit differentials, however, are likely to compress, and be harder to find.

        That is, prices and other arbitrary indicators may appreciation / inflate due to wholesale inflationary pressures, but the actual purchasing power of the asset (beit currency, bond, whatever) may decrease with time, as the cost of the desired end (eg. food) inflates faster than the price of the asset – ie. there is a margin/profit/budgetary squeeze, with a net result of Stagnation.

        Hence, the ASX could appreciate/inflate, but what is the marginal value of the asset, compared what the value’s end result is to be used for (eg. Food).

        Deliberately inflationary systems are nasty…

        My 2c

    • I did tweet to him (and AFR) about the lack of disclosure about a YBR MI scheme that pretends to be/competes with bank deposits, while writing an AFR article about banks and deposits.

      His “excuse” was that particular product had a tiny share of YBR’s overall sales volumes. * cough * product has no takers* cough *

      • ‘His “excuse” was that particular product had a tiny share of YBR’s overall sales volumes’.

        Yeah and it looks like they’re working very hard to increase it. I haven’t been all that critical of him in the past, but this one is a disgrace.

  3. It is time for one monkey to scratch the other monkey’s back:

    http://www.theage.com.au/national/watchdog-bungled-rba-probe-20120914-25y1r.html

    The Saturday Age can reveal that so strong is the evidence of possible corporate malfeasance that prior to referring the matter to ASIC, the federal police considered taking the rare step of getting a special delegation from the Gillard government to investigate corporate law offences. ASIC’s failure to conduct the most basic of investigations into the matter has not only infuriated senior law enforcement sources in Canberra, but left a major part of Australia’s worst corporate corruption scandal untouched.

    In the email, ASIC also mistakenly writes that the AFP ”was given delegation by the minister to prosecute Corporations Act offences as part of their investigation,” despite the fact that this was not ultimately given to the federal police by the government.

    There you have it – an abdication of its authority and responsibilities under the Corporations Act. We may as well abolish ASIC and save some taxpayers money.

  4. Since the Fed was instituted in 1913 , there has been only one other time (other than now) that the Fed was tested to it’s limits. That was during the GD. I don’t believe the Fed can take any credit for resolving that event .WW2 ended that episode in all the destruction we know so well. The Fed was still largely evolving in those days and the complexity of the GD’s dynamics was so new and powerful at the time, efforts by the Fed during the 30’s simply were ineffective to a large degree. One could say then that it took around a decade of Depression to plunge the world into war. A telling stat is that when the US entered the war, UE in the US was still over 15%. The Fed’s score at the start of WW2 was 0 from 1.

    So, in light of the Fed’s announcements this week looking at the history and genesis of the Fed as it struggles with this latest mega banking/economic crisis (GFC) it may be instructive to coolly consider the Fed’s history and genesis as a guide to our futures.

    We know the Fed was established as a private institution. Privately owned by leading banks. Those banks are controlled through cross share holdings by very influential , wealthy and private families.

    “CPA Thomas D. Schauf corroborates McCallister’s claims, adding that ten banks control all twelve Federal Reserve Bank branches. He names N.M. Rothschild of London, Rothschild Bank of Berlin, Warburg Bank of Hamburg, Warburg Bank of Amsterdam, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Bank of Italy, Goldman Sachs of New York and JP Morgan Chase Bank of New York. Schauf lists William Rockefeller, Paul Warburg, Jacob Schiff and James Stillman as individuals who own large shares of the Fed”
    http://theintelhub.com/2011/12/07/the-federal-reserve-cartel-part-i-the-eight-families/

    If we go further back beyond 1913, it appears that JP Morgan ,the most powerful US banker at the time the private enterprise called the Fed was established, was in fact a representative of Rothschild in the US. Rothschild, with all it’s massive historical financial political power and influence exercised over Europe and the BoE, was there at the very beginning of the establishment of the Fed , in the form of JP Morgan.

    “The Morgan-Rothschild connection explains the otherwise incomprehensible mystery of why J.P. Morgan, famed as “the most powerful banker in the world”, left such a modest fortune at his death , a mere $11 million after his debts were secured. Although the present members of the Morgan family seem financially secure, none of them is counted among the “big rich”.
    http://modernhistoryproject.org/mhp?Article=WorldOrder&C=1.1

    Every Bank, Fed or otherwise, has it’s first duty to it’s shareholders. Those families outlined earlier. The Fed’s oversight by Congress is in place however it seems clear that while there is much pageantry for public consumption surrounding this relationship, the Fed’s operations are undertaken as a private enterprise, effectively managing it’s business. That business is in effect a large part of the world’s financial system and thereby the world economy. The Fed is acting first and foremost for the benefit of it’s shareholders, those families.

    Now, right there is the biggest conflict of interest- ever.

    • Deus Forex Machina

      I’ve never really adhered to this view about the origins of the Fed and the structure of the various regional Fed Banks. But I know that many share your view – I don’t happen to be one of them though.
      having said that though, a related issue is key and for me the biggest issue and the worst thing that happened in the past 5 years or so was the US Supreme Court decision that lobbying was a first amendment – free speech – right.

      That means that big business, banks or otherwise now and forever control the institutions of government.

      It is a terrible outcome for average Americans and any real chance at changing the incentive structure and reforming US banks.

      • DFM,
        I would rank also the repealing of Glass-Steagal in 1999 during Clinton’s Admin ( Rubin ex GS as Sec Treas) right up there with the “big issues” that led up to the GFC.

      • Can you share your view of the origins of the fed and its structure? Genuine question – we all see a lot of the conspiracy theories and tall tales on this subject, but i’m yet to see a reputable site like MB tackle the fairly straightforward question of ‘what is the fed and where did it come from?’

        • csfn,

          Sorry but to my knowledge there is no one site or source.

          This link attempts to chart the establishment of the Fed as a starting point.

          http://www.save-a-patriot.org/files/view/whofed.html

          This book also provides research leads on the personalities of the time;
          http://www.amazon.com/The-Creature-Jekyll-Island-Federal/dp/0912986212

          But these are insufficient. Research into the history of business relationships formed by the families dominating US and European banking and finance and banking during that era is required. Most important is their relationships with one another.

          ” In 1871, he partnered with the Drexels of Philadelphia to form the New York firm of Drexel, Morgan & Company. Anthony J. Drexel became Pierpont’s mentor at the request of Junius Morgan.”

          http://en.wikipedia.org/wiki/J._P._Morgan

          Prior to the Fed’s establishment, large Banking and Finance influences migrated from Europe / England across to the US in the 18th and 19th centuries. There were several failed attempts to establish a US Central Bank before the Fed in the 17 and 1800’s.

          Yes, there has been labels of “conspiracy theory” applied to this. I guess you have to form your own opinion from what can be found and relied on. But the link between Rothschild and JP Morgan is key. JP was instrumental in the establishment of the Fed in 1913 and in NY Banking prior to it’s establishment. Rothschild’s history of banking in Europe over the centuries is well documented.

          Some links perhaps of interest;

          http://www.whale.to/b/m_ch5.html#40_

          http://en.wikipedia.org/wiki/JPMorgan_Chase

          Tracing back through the links that these ones provide is tedious but interesting in seeing the business and family relationships form. It takes some digging through. The paths all lead to Europe where it becomes a much smaller basket to study.

          A path of study also is to understand the relationship between the Bank of England and the Rothschild family;

          http://en.wikipedia.org/wiki/Rothschild_banking_family_of_England

          The BoE was hugely influential in all banking worldwide during the 18th, 19th and 20th centuries prior to the Fed , not that they are not now of course.

        • I suspect that one of the key reasons why reputable sites like MB do not tackle such … controversial … issues, is because any inference or assertion, much less (God forbid) conclusion, that might be construed as giving any credence to views that are widely labelled (by whom? and why? something to consider) as “conspiracy theory”, pose a risk of being labelled a disreputable site.

          Labelling of topics in this way is an insidious undermining of free thought and free speech. How so? It creates an atmosphere of self censorship.

          Any who have not read Steven Poole’s Unspeak should make a point of doing so –

          What do the phrases “pro-life,” “intelligent design,” and “the war on terror” have in common? Each of them is a name for something that smuggles in a highly charged political opinion. Words and phrases that function in this special way go by many names. Some writers call them “evaluative-descriptive terms.” Others talk of “terministic screens” or discuss the way debates are “framed.” Author Steven Poole calls them Unspeak.

          Unspeak represents an attempt by politicians, interest groups, and business corporations to say something without saying it, without getting into an argument and so having to justify itself. At the same time, it tries to unspeak — in the sense of erasing or silencing — any possible opposing point of view by laying a claim right at the start to only one way of looking at a problem. Recalling the vocabulary of George Orwell’s 1984, as an Unspeak phrase becomes a widely used term of public debate, it saturates the mind with one viewpoint while simultaneously makes an opposing view ever more difficult to enunciate. In this fascinating book, Poole traces modern Unspeak and reveals how the evolution of language changes the way we think

  5. I see we now got to improve our Chinese relations. Where’s Johnny Howard’s asian xenophobia when you need it ! I have had a few as landlords and look out when they take over Australia. Allowing customers to take a slice of raw materials companies only comprises the market and company decisions.

  6. Janet,

    “People don’t take on debt, at any cost-even free, if they don’t have job security, or an sort of uncertain future, especially when they are likely borrowed to the gills already. What they do is ‘downsize’; take what equity they can release and look for a cheaper replacement or rent”

    It’s early 2009. The stock indexes are crashing and there was panic, real raw panic abroad over the future viability of the world’s financial system. Up to then I didn’t pay any attention to what Geoff Ballmer uttered, but after I saw this speech- at that time- I knew he had nailed it dead right. And his forecast was spot on even at that early point in the GFC.

    A lot has happened since then, namely the shift of private debt onto public books via bail outs etc. But the words were so accurate.

    “For the past 25 years, the world has certainly enjoyed incredible, incredible global growth. Average incomes around the world grew at unprecedented rates, millions of people moved from out of poverty into the middle class for the very first time.

    “I think that expansion was built on three things: innovation, globalization, and debt, increasing debt.”

    “The current situation looks a lot like several–not one but several previous cycles of long-term private sector debt”

    “In my view, what we now have will be a fundamental economic RESET. The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate.”

    http://allthingsd.com/20090206/microsofts-steve-ballmer-talks-innovation-at-democratic-policy-confab-the-full-speech/

  7. Yeah,Go Harvey,leave me with the hard questions..n next time your in store checking on the popularity of the latest “Price Meltdown” promo ,n you might take the time to steel yourself from the pond ripple readings and head down to the home-goods dept,grab a mirror,sorry,i mean take it easy that’s your future profits your holding,and ask yourself “Didn’t people flock my stores to full once upon-atime ..and the answer is you’ve just found one..anyway ,best of luck with the flock of horses.. Gerry
    Cheers JR

      • I’m starting to wonder whether we need to ban all middle men in financial transactions, ie finance brokers, mortgage brokers, etc. That way there is a direct link between the person and the entity, and if the person doesn’t understand what they are buying, they won’t do it. Same for tax. Requires a simple system that everyone on the street can understand, personal responsibility for decision making, no opportunity for this kind of fudging except if you have done it directly yourself. I’m guessing a few professional bodies would take issue with the idea.