Weekend Links – September 1

Global Macro:

  • No QE without a crash – ZeroHedge
  • 3 Bankers guilty of Muni bond rigging – this industry really lost its moral compass. Reuters
  • Stocks confound the bears seeing summer drop – Bloomberg

Jackson Hole:

  • Full Text of Bernanke’s speech – here
  • QE3 on table but it might not work – WSJ Blog
  • Gavyn Davies thoughts on Bernanke – here
  • Krugman’s take on what he said – here
  • Bernanke promises nothing – Forbes
  • Mr B says he won’t rule out bond buying – Bloomberg. Ever positive!
  • Bernanke gives market reasons to rally – WSJ Blog
  • Bernanke is irrelevant anyway – Fortune
  • BOE’s Posen says ECB should cap bond yields – WSJ Blogs
  • Posen again advising the Fed to help housing – WSJ Blogs
  • I often say we have the best Central bank in the world here in Australia but I reckon Andrew Haldane is probablly the best Central bank thinker – here is some of what he said at JH – FT
  • We can limit not escape contagion – Reuters

United States:

  • Consumer sentiment in US at 3 month high – Bloomberg
  • Factory orders show biggest rise in a year – Reuters Perhaps the US doesn’t need QE?
  • Facebook down again – Reuters
  • No holiday from Facebook’s Stock Fiasco – Forbes
  • Great piece from Henry Blodget on Facebook and the fact it seems no one read the IPO Docs – so they should stop complaining about the price. I didn’t read it either but I heard the very honest public utterances and its why I would never have bought FB shares.
  • Peter Schiff says the US will be on the gold standard in 2 years – really! UK Telegraph


  • Weidmann resignation – Reuters
  • Don’t expect the ECB to be able to do it all – Charlemange
  • Spain creates “Bad Bank” for bailouts – BBC
  • Bankia has €4 Billion loss – Reuters
  • Schauble backs bank bonus cap – Banking is heading back to a utility status, I hope. Reuters
  • Now that Bernanke is behind us we focus on Draghi next week but Morgan Stanley says we need to worry about the German Court decision the following week – Business Insider
  • Eurozone slide accelerates – WSJ
  • 1 in 4 Spanish unemployed – CNN


  • ICBC profit growth slows as past due loans rise – Bloomberg
  • China’s stock market continues to get thrashed – Bloomberg


  • Negative gearing to stay – Sky
  • Swanny not honouring $100m promise to WA – The Oz
  • Sydney property market about to get moving higher – SMH. Lead story on the Website its not sex that sells. It’s PROPERTY!
  • Pollies getting worried CFMEU action in Melbourne could spread to mining – AFR
Latest posts by Deus Forex Machina (see all)


  1. “…we believe it (negative gearing) has been effective in some ways.” It sure has Brendan! Pushing property prices up and away from the struggling Australian property buyers that you purport to be worried about, being the main one. Remove negative gearing and the market will be awash with no longer economic – taxpayer subsidised – property, emasculating prices. But that wouldn’t be good for your re-election chances, would it, Brendan….

      • Its spring!

        Clearly the excitment of a new season has an intoxicating effect in the corridors of the SMH.

        I am so excited there will be two chamomile tea bags in the pot this morning.

        Lets see if by summer we have seen more than the ocassional swallow.

        • Yet, “We recently let go of a holiday house in Sydney’s Palm Beach.” writes Christopher Joye in the AFR,“During the eight-month sales process I was struck by how many bidders already owned two, three, or four multimillion-dollar properties in the immediate vicinity. These were sophisticated folk who had built up considerable wealth during their careers. They had a rich universe of alternative investments available to them. Yet there seemed to be a visceral attraction to the assumed safety of bricks and mortar.” When those in the know start selling, it’s past time to get out.

        • Intoxication appears to have been an understatement. Page 2 of the Sun Herald has a glorious picture of a double rainbow captioned “Property’s pot of Gold”

          I think they may have been sounding the Klaxon’s “All spruikers return to base, leave is cancelled, the Spring Offensive is under way”

          The result reported for Marrickville doesn’t appear quite so super (though these days may simply mean avoiding a capital loss).

          Purchases in 2009 for $830K, spent $80K of improvements. Total Spend $910K. Sale price at auction $1,030K.

          Capital gain = $120K (13% over 3 years)

          = 4.3% approx.

          Then take out some selling costs, interest expense on loans amounts, stamp duty on new property and all those other expenses that ruin fairy stories and it is looking more ear of pig than purse of silk.

          • Did you notice that all the comments on those stories have been disabled? There was a stampede of people calling them out on the initial “spring fever” article who’s opinions have since been disappeared into the memory hole…

            Like you, PFH, I couldn’t resist doing the numbers on that Marrickville property. I think it was something like 2.8% per annum. So if these are the ones they’re actually cherrypicking from the heap it does make you wonder somewhat.

            Fairfax is a disgrace. I hate to say it, but I am taking some satisfaction from their current travails. A newspaper that deliberately lies to its readers is not deserving of sympathy. I’m a supporter of Fairfax in principle, but it’s so horribly compromised at present I can’t feel sorry about what’s happening.

      • Mav, that a great graphic, and I’m not surprised, but I doubt some of those people percentages. Do 69% of people own their homes, or is it that they have a mortgage? BTW lots of gen Y’s have NG’ing on the go that I’m being told. I need to check ABS.

        • I think they included both those who own their homes outright and those with a mortgage in that 69% figure.

          From memory, it was an even spread between outright home owners, mortgage holders and renters.

      • Politico housing complex nicely explained there. People expecting the market to do reasonable things (like correct) probably do massively underestimate just how much of vested interest the party machines have in the game.

  2. The big property spruik on the SMH website today is just absurd. Its so transparent. Does anyone take this sh*t seriously?

  3. Ore slump hits home – The Age

    But Fortescue’s margin has already been crunched to $US9 a tonne, according to the UBS research team led by Glyn Lawcock, and would dip in the red if iron ore prices fell further.

    This is tragic news for a great Australian. Lets hope Twiggy’s big bets on FMG this week pay off.

  4. Sydney property market about to get moving higher – SMH. Lead story on the Website its not sex that sells. It’s PROPERTY!

    Yeah, but the “Property Editor” still doesn’t have the [email protected] to open up the comments section to his readers. Then you can tell how many of his readers are actually buying his tripe.

    • It was open originally but after 7 comments, all of which were calling bullshit on the story, comments were disabled and the original ones removed. Sinisterer and sinisterer.

    • BB and that was Ben using “open mouth policy”.

      What of Draghi’s upcoming bond buying? Bloomberg as that the ECB might get to power to grant banking licences and I can see them doing that to get around the law, but the ECB also regulating the 6000 EZ banks is a moral hazard, yet that seems like it will fly.

      So my question to you is what this going to do for gold? Some of this might be priced in.

      • With Gold being in a secular bull market whether we get QE3 or ECB action or not (I think the hand of both will be forced at some point) is of little consequence and would only play a part in sending Gold higher.

        There is a lot of attention paid to US/Euro actions and effect it might have on the Gold price, but what about China, India and other BRIC countries?

        IMO it could easily be Chinese buyers who send the price parabolic at some point. Chinese inflation has slowed, but if it picks up with Chinese stimulus measures the populace there will be looking for wealth protection and new restrictions on the property market could turn the hot money to Gold & Silver…

        Lot’s of possible outcomes, I think relying on US/Euro fiscal activities to drive the price of Gold higher is a mistake as there are so many other drivers which could send it higher.

      • Deus Forex Machina

        Hey BB/AV

        I just learnt two new terms for charting. My 9 year old was looking at the gold chart I posted and wanted me to explain it to him. WHich I tried but he said “kid speak” –

        So I now have foundation lines (Support) and roof lines (resistance) – he could understand that.

        His Journey begins 🙂

        • hahaha I’ll be teaching my kids about intrinsic value of physical assets vs paper money before I go introducing trend lines, but nicely explained.

          And great Gold chart!

      • My 5 year old son is often asking “why are you looking at the charts Dad?”

        If I show him a plain price chart and ask “is it going up or down or sideways?” and he gives a definite Up or Down, I know I have a good trend on the screen and am not just imagining it!

        1 year old daughter has yet to show any interest 😉

  5. Come on Mr O’Conner. Two parties vying for the same property, one to occupy the other as an investment. Surely the investor with NG in their armory it’s a lay down mezzaire.
    Level the playing field Mr O’Conner.

  6. Michael West has a cracker of an article:

    As miners, the big three take tumbles, but as tax lobbyists …

    A PERNICKETY and uncharitable person might say that Rio Tinto and BHP Billiton have toasted $50 billion in proceeds of the mining boom in fruitless acquisitions overseas. You get to the cool 50 by adding Rio’s monumental $38 billion Alcan mishap to the roughly $12 billion BHP has written down over the past five years.

    When it comes to government relations though, they have played a flawless game. Getting the mining tax watered down from the proposed $100 billion over 10 years to the presently mooted $39 billion was a stunning success. Shareholders may grumble over meagre dividends and dud acquisitions but not over prowess in lobbying.

    Surely Kloppers and Albanese deserve an AO for toasting taxpayer’s and shareholder’s money overseas.

  7. Brendan O’Connor – “Some people say (negative gearing has) attracted capital to the housing sector, which has increased housing stock” “But we’ve ruled out reviewing negative gearing (because) we believe it has been effective in some ways.”

    Im sure I’ve seen statistics on MB showing that the vast majority of negatively geared IPs are existing properties, as opposed to new builds, meaning NG does not lead to increased housing stock and therefore increase housing affordability. Would someone be so kind as to publish that data (or post a link). I am going to write to Mr O’Connor to ask for his full explanation as to how NG has “been effective in some ways”


    • Perhaps when you write to Brendan O’Connor you could suggest, not too subtly, that one of the ways negative gearing has been effective is in subsidising the purchase of investment properties by parliamentarians.

  8. The following is taken from the wikipedia article on Negative gearing.

    “Deduction of negative gearing losses on property against income from other sources for the purpose of reducing income tax is illegal in the vast majority of countries, the exceptions being Canada, Australia, and New Zealand.”

    It really does say it all, doesnt it. We are one of the few nations in the world that deliberately destroys the property owning aspirations of entire generations and then tries to spin it as it somehow helping make housing more affordable. I think not.

    • innocent bystanderMEMBER

      or we could say that since other countries have had property bubbles withe -ve gearing then in Oz it could be seen as one of the contributing factors.
      just saying, not defending.

    • Nice link. But maybe New Zealand is starting to breaking ranks. In the last budget we started relating occupancy-time with expenses claims. Those properties that were ‘on the rental market’ for, say, 48 weeks a year (a ‘coincidence’ that for 4 weeks of the year the owners got to use them over Chrissy etc) got to negatively gear those expense for the entire 48 weeks against other income, rented or not. Now it applies against only the income derived, and not against time-available-for/actually-rented minus personal use. Baby steps, but ones in the right direction that hopefully will be gradually more widely applied.

  9. I’m just going to reproduce the best bits from Michael West’s piece on the MRRT today because it deserves as much exposure as possible.

    When it comes to government relations though, they have played a flawless game. Getting the mining tax watered down from the proposed $100 billion over 10 years to the presently mooted $39 billion was a stunning success. Shareholders may grumble over meagre dividends and dud acquisitions but not over prowess in lobbying.

    If Fortescue’s Andrew Forrest is right they won’t pay one red cent. Forrest reckons they’ve pulled a swiftie on Canberra. They did help design the minerals resource rent tax, after all.

    Tax is complicated stuff, so making projections would be pure speculation. They may decide to pay something, even if they don’t have to, just to quell the ire of Treasury and allay the prospect of yet another tweak to the legislation.

    A cursory perusal of the accounts of the big three – Xstrata being the other big resources house to have thrashed out the MRRT with a freshman Gillard government a few years ago – would suggest the miners are off to a splendid start.

    BHP’s recent accounts show a tax credit of $US637 million relating to the petroleum resource rent tax (PRRT) and MRRT. There was no breakdown provided, or any meaningful commentary.

    For its part, Rio recognised a ”deferred tax asset” of $1.1 billion in regards to the MRRT. And the inscrutable Xstrata, which looks to be paying very little tax at all on these shores, if any, has booked a $US579 million income tax credit relating to the MRRT.

    All up then, the big three have recognised gains of $2.3 billion in relation to the great big new tax. It is a deluxe start to be sure, at least in light of earlier portrayals of this grotesque and menacing slight to Australia’s sovereign risk.

    Daylight robbery. A total perversion of our democratic processes. Simply breathtaking greed.

    No wonder the MineBot is pleased with the MRRT.

    • Lorax, I agree totally, but our leaders let this happen, and to me this makes them even more incompetent, stupid, or complicit than I ever imagined.

      • Complicit. These things and their likely outcomes are understood very well by the advisors and the parties have access to this information.

        • I find that hard to believe aj. My experience with these types is that they think they are smart, particularly in things political, but they get played constantly at their own game by big business.

          There is just no known way that a person who has never EVER run a business or been in private enterprise at the coalface can outplay those that are.

          • Appreciate your point J, but the reality is that at the large corporates there is no divide. The same people work for the Gov departments, the firms and the co’s, they just swap roles from time to time.

            We know the same stuff and we communicate it to the executive – fact is they don’t care that the goals never materialise as long as there is room to keep the spin up.

    • The tragic thing is that all this is a not so secret inside joke in the industry. The punters really are made fools of by the corporate aristocrats.

      West again the only MSM journo to break ranks.

    • Just wanted to +1 before the paid astroturfing begins.

      I’ll never forget the instrumental role the mining lobby played in the execution of a popularly elected, albeit imperfect, first-term Prime Minister by his own party.

    • This is a good article.

      However it’s interpretation, this Gov’t has been completely outwitted. Not only that, they went on to stuff the whole MRRT construct up completely. This kind of policy balls up is par for the course when looking back on Rudd/Gillard’s record of so called achievements.

      Blaming the big miners for the own-goal of Labor’s political and so public assasination of it’s democratically elected Leader (twice??) defies plausability, let alone commonsense.


      “The ALP factional heavyweights, the so-called ‘faceless men’ of the Labor Party and the UNION movement were condemned for engineering what many saw as a backdoor grab for power, a political stab in the back.”

      There are your culprits Merk.

      • I agree the government was outwitted and and outmaneuvered but it was up against a very powerful (snd very wealthy) adversary that played hard ball. All industries are entitled to lobby the government to change policy to suit their interests, but the multi-million dollar advertising campaign took lobbying to a whole new level.

        Will we ever see mining billionaires “protesting” again? I think not!

        • Lorax,
          The Gov
          t was up against it’s own obvious shortcomings, lack of real world knowledge and frankly they were and are cowards. Graduates first the groupthink worlds of of Uni and then Unionsism.

          NFI of what it takes to run busineses,produce goods or employ people. Content to sail along, reliant on spinning the media for our benefit.

          Then the wheels fell off when they didn’t have the courage of their convictions and caved to a deal offerred behind closed doors by BHP, Rio and Xtrata.

          Shortly after came the cowards act of backstabbing their PM who Australia elected.

          Lot to answer for there I’d say.

          • Again, I’m not going to argue that the government managed the mining tax negotiations well, but you don’t get pushed into a poor outcome unless someone is doing the pushing. At the time (2010) the mining sector was widely portrayed as the saviour of the Australian economy, and was riding high on rapidly recovering commodity prices. It wielded enormous political and economic power.

            And its not like the opposition offered a better policy alternative. All we got from Abbott was the Great-Big-New-Tax scare campaign that given the outcome — big miners sitting on large tax credits — looks like blatant deception for short term political advantage.

          • “..doing the pushing..”

            I think you would agree, forces opposing you are to be expected in our democracy. Important as I know it is to you ,I don’t expect that you are advocating suspending democracy over this issue.

            Seems to me the root cause why their negotiations failed is not because of the miners or their campaign , rather because Gov’t proved themselves simply not up to it. For the reasons cited earlier (shortcomings).

            I’m reading Abbott’s response to Govt spending (which the resources tax was designed to aid) is that the spending needs to be reigned in, not creatively funded so that it can become bigger. Or, stop the borrowing and increasing our Debt.

            Enjoy your Sunday.

          • GSM if you believe the industry-funded media campaign against the RSPT had no impact on the outcome you are delusional. Westminster democracy is government vs opposition, not government vs industry-funded media campaigns.

            I can’t wait for Abbott to implement slash-and-burn austerity during a simultaneous mining and housing bust. Sounds like brilliant policy for a government that by any measure has low levels of debt. It pretty much guarantees a deep recession, much weaker tax receipts, and even more debt.

            I’d love to see him repeal the carbon tax and lower the tax free theshold down to $6000 again. Should be wildly popular. I’m sure Malcolm T will be encouraging him every step of the way as well.

          • Lorax,
            Of course the industry funded campaign had an impact.I agree with that.

            Who sat behind closed doors and negotiated the MRRT with just the Big 3? If they had the country behind them along with the courage of their convictions they should have been able to withstand any influence.

            They are the Govt. Elected by the public. They had a mandate. I think it’s a shallow argument blaming the miners when Govt has the powers to tell them to p*ss off. There were other influences afoot that determined why the MRRT turned out as it did. You are giving the worlds greatest Treasurer a free ride here. My question is why?

      • Hardly an own-goal when you spend millions lobbying and get billions in tax savings. I think you and the bot protest too much with your attempts to shift the blame.

        Not to worry, though – I won’t be forgetting the treachery of Labor and the faceless cockroaches either. I did say instrumental role of the mining lobby, not full responsibility.

        • Merk,

          The own goal I refer to is the political assassination of Rudd by Labor- twice.

          “Shift the blame”. Don’t need to to. It’s pretty obvious where it lies. Govt caved to a deal due to it’s own shortcomings. Blaming miners for fighting their corner is pointless.

          • Yes, it was clear you were talking about Labor. I was talking about the mining lobby, and pointing out that their interests are in many respects contrary to the national interest.

            Selfishness and greed will always benefit individual material wealth, but will never be the moral foundations of a decent society. Sorry to break this to you.

          • The “national interest” is all things to all people. Not a soapbox in the possession of one team or another.

            Sorry to break this to you but your moral society is obliged to have a thriving economy in order to provide for the growing services it requires. Unless of course you are advocating society becomes slaves to Debt ( borrowing to pay for services) so you can feel good.

          • No need to become slaves to debt, there are other alternatives. For instance, leave the sick and poor to fend for themselves, or (my clear preference) extract a reasonable return for the dirt that belongs to us all. Don’t see how that could be anything other than in the broad national interest, however nebulous the concept is.

          • extract a reasonable return for the dirt that belongs to us all.

            The problem with this idea, Merk, is that what you think is a reasonable return might be more than the market will wear. Dirt is only worth what other people will pay for it. If, after costs of exploration, extraction, processing and shipping, state royalties and a profit margin acceptable to the providers of the capital, there is nothing left, what do you do?

            Oh, that’s right, you impose an MRRT and a carbon tax and the investors take their capital elsewhere (viz Olympic Dam). This is not a win, unless you are a diehard greenie.

          • Oh, that’s right, you impose an MRRT and a carbon tax and the investors take their capital elsewhere (viz Olympic Dam).

            That’s bullshit. Kloppers said as much, and Abbott was made to look a complete fool on 7.30 trying to spin the same story.

            Why do you even bother posting such unsubstantiated bullshit?

          • Lorax,
            Here is what was reported by the Age;

            “BHP Billiton head Marius Kloppers has told European investors that Australia’s carbon and mining taxes have helped to render the nation’s coal industry unworthy of further investment at this time.
            Despite reassuring Australians that the taxes were not to blame for BHP’s mothballing of the $US30 billion Olympic Dam expansion, Mr Kloppers referred to both when telling British media that new investments in Australia’s coal sector would not be profitable.”

            Anybody who believes that the MRRT and the Carbon Tax do not factor into all of BHP’s NEW investment decisions in Australia is delusional or just ignorant.

            They most certainly were factored into the OD decision making process and not as a plus either. To what degree the taxes effected the outcome we don’t exactly know. But I suspect the rank animosity directed at miners by this Govt made Kloppers’ decision to suspend OD and return money to shareholders that much easier.

  10. Thanks for the great links DFM, particularly linking the different takes on JH. The speech was what I expected it to be but the market reaction was surprising. Will it be the usual post- meeting upward euphoria followed by a rethink and sink within days, or will the QE expectation rally continue?

  11. Great doco on Armstrong and the moon landings on SBS now

    “In the Shadow of the Moon”

    Mod: sorry, your comment got stuck in the filter