Weekend Links 9-10 February 2013

Here’s a list of things Reynard read over night.

Global Macro/Markets:

North America:

  • Canadian jobs report draws skepticism – Wall Street Journal
  • Canada housing starts plunge in January – Reuters
  • Trade Deficit in U.S. Plunges on Record Petroleum Exports – Bloomberg
  • Trade Deficit declined in December to $38.5 Billion – Calculated Risk
  • Trade deficit narrows sharply, points to stronger GDP – Reuters
  • Americas Genius Glut – New York Times
  • The Fed Gets a Bubble Cop – New York Times
  • America’s weak economic recovery under threat from reckless Congress – The Guardian
  • Americans Are Tapping into Home Equity Again – Yahoo! Finance – Yahoo


  • UK banking reforms will need tough regulators – Money Marketing
  • The Draghi Rorschach test – FT Alphaville
  • Germany’s trade surplus rises to second highest level since 1950 – The Guardian
  • Cracks appear in European banking union scheme – Reuters
  • ECB eschews global monetary stampede – Financial Times
  • Europe Leaders Bow to Cameron Push, Deepen Spending Cuts – Bloomberg
  • Germany’s trade surplus rises to second highest level since 1950 – The Guardian
  • Cracks appear in European banking union scheme – Reuters
  • Europe consuming more coal – Washington Post
  • French economy to avoid recession, says central bank – BBC
  • EU Leaders Agree on Budget Deal – Wall Street Journal



  • Joye: House price boom around the corner – The AFR (Free). Didn’t he say that in January 2012?
  • After a property market lull, the time and price is right – The AFR
  • Sydney housing strong as Queensland struggles – The AFR
  • Libs super pledge to hit poor hardest – The Age
  • The super threat – The AFR
  • Gittins: Employment numbers game not so simple – The Age
  • Mining tax leaves $2 billion black hole – The Australian
  • How to fund without wrecking economy – The Australian
  • Bankers crying all the way to the poorhouse – The SMH
  • Crowded LNG signals rising local prices – The SMH
  • 12% super is unaffordable, says Hockey – Business Spectator


  1. “12% super is unaffordable, says Hockey – Business Spectator”

    He seems to be saying something different on Twitter.

    “@JoeHockey: Would be nice if Nine News had checked the facts…Coalition remains committed to keeping increase in compulsory superannuation from 9-12%.”

      • No worries. The proposal for the plant is being challenged by environmental groups so will be interesting to see outcome. I understand some legislation allowing sale of LNG to non FTA countries still needs to be passed through Washington – all very fluid.

    • Thanks 3d1k. Must keep an eye on this. Another element of Fossey’s scenario coming to pass? Along with a decline Brakken production.

      Incidentally, watched Gaslands during the week. What a nightmare!

    • Truly bizarre!

      I suppose someone needs to be out working hard to generate all those fresh mortgages that Ben and the Fed are buying up.

      They have quite an appetite at the moment.

      Just as well nothing could possibly go wrong with their credit quality control procedures.

      But then does it really matter, the most important think is getting the enervating (and ultimately debilitating) debt flowing again.

      With student loans going gangbusters happy days are surely just around the corner.


  2. Tomorrow I am running a session for some students and parents about considering the Australian media, and the way it presents business/economic issues.

    They are going to consider Christopher Joye. Let’s look at him word for word………


    Housing values maintain build-up

    Housing affordability is now at its best level in a decade…..

    OK, let’s accept that. Let’s look away from the possibility that that decade has had by far the worst housing affordability in Australia’s history.

    …so there is every chance capital growth will accelerate this year.

    Well frankly I am bemused that nobody in the AFR editorial section didn’t pick up something here. He relates housing affordability in the past to capital growth in the future, seemingly without recognising that the capital growth over that same decade has been, well substantial to say the least. He offers no actual reason as to why capital growth this year apart from the previous statement that housing affordability is at its best in a decade, and offers no recognition that other factors (debt levels, employment certainty, GDP growth, etc) may be a factor.

    This has ramifications for buyers and sellers, builders and developers, investors seeking to resolve asset allocation questions and the Reserve Bank of Australia’s monetary mandarins.

    Is there anything which doesn’t have ramifications for all of the above? He doesn’t actually say why best housing affordability in a decade or the possibility of capital growth accelerating may have interest for any of the above, nor consider the possibility that these two (at least) may in fact have ramifications for any of the above which run contrary to each other, or may not be consistent with each other.

    In the middle of last year some misanthropes were not prepared to accept that the RBA’s 75 basis points’ worth of rate cuts over May and June, coupled with the 50 basis points salvo in late 2011, had reinvigorated Australia’s moribund residential market.

    Misanthropes? OK I understand there needs to be some sort of emotive content to get the average Australian even remotely interested, but misanthropes? Misanthropy = a general disdain for human nature. Is it misanthropy to suggest that Australia’s housing market has not been reinvigorated by 175bp worth of rate cuts over last 18 months? Is it human nature to expect a buoyant housing market?

    Seven Network’s David Koch was a prominent sceptic. In July, “Kochie” rejected evidence from RP Data that Australian house prices were climbing again. “[House price rises are] just not happening yet,” he wrote, predicting that “tough times for Australian property appear set to continue”.

    Without knowing anything about ‘Kochie’ (I don’t even look at commercial Australian TV, or News ltd print/internet media) I would observe that looking at the end of year ABS 2012 data 8 city housing prices were up 2.1% YoY (much of that during 4Q2012, after further rate cuts). Does that constitute reinvigorated? While recognising that reinvigorated is a subjective term, what other factors may feed into it? (credit growth? Volumes? Etc). Frankly without ever having met the guy I would still be inclined to buy Kochie a beer in thanks for making what would seem to be a reasonable call about Australian housing.

    One source of his conviction was Louis Christopher, a property commentator with SQM. After the publication of RP Data’s June house price index results, Christopher issued a media release to say that the numbers were simply wrong.

    “I do not believe for a moment that house prices are now rising in Sydney or Melbourne as RP Data have claimed,” Christopher said. There were “no other measurement[s] . . . indicating that prices are rising”.

    OK, Louis Christopher has issued a statement about what he (Louis Christopher) believes, lovely. Christopher doesn’t believe prices are rising. Maybe he is looking at factors other than Joye.

    These conflicts are par for the course when it comes to the question of whether the cost of Australian bricks and mortar is rising or falling. It is no surprise that the issue attracts attention given that 60 per cent of household wealth is invested in residential property. House prices matter.

    OK, these conflicts are normal, the subject is important. What is he getting to?

    The bad news for those hoping to see housing depreciate further is that Kochie and Christopher were wide of the mark. We know this because we have the benefit of the 2012 house price data from the three benchmarks used by the RBA.

    According to APM’s monthly index, Sydney and Melbourne prices have appreciated at annual rates of 6 per cent and 7 per cent respectively since June 2012. RP Data offers a similar picture with monthly dwelling values in Sydney and Melbourne rising at a 7 and 6 per cent annualised clip from their depths in May 2012.

    The Australian Bureau of Statistics index, which ignores the apartment market and is only calculated on a quarterly basis, shows that free-standing house prices in Sydney and Melbourne have inflated at more modest rates.
    The bottom line, all three measures broadly tell the same story: home values were increasing in the second half of 2012.

    OK, three measures all pointing to housing prices rising during 2H2012:

    RP Data’s “hedonic” index, which controls for renovations and changes in the types of properties, suggests that dwelling values in the eight capitals have been expanding at a healthy 6 per cent annualised rate since the mid-2012 nadir. This is faster than wages and disposable household income growth.

    Yep, OK, a plug for RP Data’s hedonic index, restatement of the 6% annualised rate increase figure. Acknowledgement this is more than wages and disposable income growth. First reference to these last two factors. No reference to how these historically may compare with house prices, nor recognition of where we currently sit vis house prices, wages, and disposable income. No indication of why or how prices may rise faster than wages or disposable income, no reference to debt, which given that debt to disposable income is currently siting at about 145% may be quite a factor.

    House prices are being driven upwards by a tremendous improvement in affordability, the result of generous RBA rate cuts. UBS data show that mortgage repayments as a share of disposable income are at their lowest level in 10 years.

    I don’t think he has measured or quantified the tremendous improvement in affordability. What factors make up affordability? How are these changing? Are they all changing enhance the likelihood of increased affordability? Are they bringing in additional risk factors? Over what period may the increased affordability (such as it currently is) be likely to remain? There has been improvement in affordability since mid 2010, but that is a retracement (and small) from the most profoundly unaffordable housing Australia has ever had, in part fuelled by FHOG a government throwing money at people, and a mining boom.

    For those analysts who cling to the concept of a “prudent” Australian consumer who shuns risk and leverage and is squirrelling away more savings than they have done in 20 years, the next 12 to 24 months will be a formidable test.

    Why? Are they less in debt? Are they earning more? Are they more confident about their employment?

    According to UBS’s measure, housing affordability is now better than it was in early 2009 just before a spectacular run-up in national prices. In that year Australian home values jumped about 14 per cent.

    To be sure, they had the tailwind provided by an enlarged first-time buyers’ bonus. Yet we also had a global economy in recession. Today local and global growth prospects are demonstrably more positive.

    OK, according to UBS affordability is better now than early 2009 when prices jumped. He attributes some of this to FHOG – good. ‘Today local and global growth prospects are demonstrably more positive’ OK in China they may be, in the US they may be, in EU they probably aren’t, (is any of this going to feed into Australia with the AUD where it is?) In Australia they are certainly not – ref consumer data, RBA outlook, various state governments etc.

    The last time Australian housing affordability was this good was in 2001. That year Australian dwelling prices surged 19 per cent. They ballooned again in 2002, by 16.7 per cent and in 2003 by 17.6 per cent.

    See chart. Anyone looking at the chart will note that since March 2002 Australian house prices have been on a plateau in terms of affordability which has generally seen them ranked amongst the worlds less affordable, and considerably less affordable than in Australia historically. Anyone looking at 2001 will be able to see that Australian housing was considerably less affordable then than at any time in the preceding 40 years.

    Note his chart at the top of the article (on the right) refers to ‘mortgage payments as a share of disposable income’ and obligingly refers to the late 1980s. Ask your parents about interest rates circa 1989 and 1990 – they went well above 15%. Apart from the late 1980s there has not been a period when mortgage payments as share of disposable income have been anywhere near as high as they currently are. Referring to mortgage payments as a share of disposable income also masks the impact of other debts and credits usage by Australians (which would all be included in debt to disposable income) which has jumped significantly since mid 1980s.

    One important difference in 2001 was that Australia’s household debt-to-disposable income ratio was a substantially lower 95 per cent. By 2006 it had hit 150 per cent, which is about where it is today. In the early 2000s families could assume more leverage to bolster their purchasing power. They may not be able to do this again.

    Here we go, acknowledgement of Australian private debt to disposable income. No quantification of how this has changed historically leading to the point where we are now. Those interested may care to look at how debt expansion since circa 2000 relates to house price growth, or how house price growth since then relates to average debt to disposable income.

    However, the signs of housing momentum are building. Australia’s largest mortgage broker processed more home loans last month than in any January previously.
    RP Data’s CEO, Graham Mirabito, says that his valuation subsidiary, ValEx, which covers 80 to 90 per cent of all loan transactions,, last week mediated more valuation requests than ever before.

    Note double comma after transactions – often indicates piece has not been subbed.
    OK, more activity in January 2013 than in Januaries past. More valuation requests. More home loans applications would point to more housing activity. What else could it point to? (given recent interest rate reductions). More valuation requests in January than ever before. Does this suggest more people looking to buy or more people looking to sell (or both)?

    The RBA with its policy settings is certainly doing everything possible to fire up the embers. It says rates are not at “emergency lows” but they sure look like it.
    During the GFC, the RBA pushed the average discounted home loan rate down to 5.4 per cent. Discount home loan rates today are only 30 basis points higher at 5.7 per cent.

    OK, he suggesting that RBA rates may be at emergency lows. If true why would RBA have rates at emergency lows? What implications would the emergency lows have for job security? For those heavily in debt? By implication what may the emergency low RBA rates have for the outlook on Australian house prices? Is it about pushing them higher or minimising a fall?

    Fixed-rate home loans are cheaper than ever. The average three-year fixed-rate loan in 2009 was 6.6 per cent. Today it is just 5.5 per cent. On Friday, Westpac announced a two-year fixed-rate product for just 4.99 per cent.

    OK, fixed home loans are cheaper than ever. What factors other than the interest rate on the loan will influence whether more people will apply for/get loans? (deposit, size of loan, job security and anticipated future earnings, whether banks anticipate capital growth on homes being borrowed against)

    It is hard to imagine how these circumstances will not stimulate hearty asset price inflation.

    How could these circumstances not lead to hearty asset price inflation?

    What is the impact of hearty asset price inflation? (on those with assets and those without assets)

    Questions about the this article

    Is it newsworthy? (what opinion would you expect Christopher Joye to have)

    Does it make a convincing contention?

    Does it acknowledge competing views?

    Does is draw on relevant facts?

    Do the charts at the top of the page inform the reader? Do they support the authors contention in the article?

    Questions about the media

    What is the intention of this piece? To look at recent price movements and factors surrounding these, or to encourage housing purchases?

    Does the author of this piece have a vested interest in encouraging a particular view?

    Does the author present a convincing argument about why house prices can be expected to rise in 2013? Over years beyond 2013?

    Does he include all factors you would consider appropriate?

    Does he address factors which would run counter to his argument?

    Does he balance factors for and against?

    This piece has been run in the Australian Financial Review. Do you consider the AFR to be premium or mainstream media?

    What strengths do you think the AFR would point to in order to encourage circulation?

    What strengths do you think the AFR would point to about its readership to promote advertising?

    Do you believe the AFR has been interested in the contention being put forward in this piece?

    Do you believe the AFR has examined the contention of this piece?

    If the AFR would be considered premium media, do you think pieces of lesser or greater quality than this would be more or less likely to appear in mainstream media and tabloid and commercial media? ABC?

    Does this piece encourage confidence in other pieces being run in the AFR?

    What factors would influence whether this piece was run or not in the AFR? Newsworthiness? Respected opinion? Paid advertising? Quality of contention/argument?

    Does this piece carry any implications for the credibility of Australia’s media?

    How do you judge your media? (Particularly on subjects about which you may not know much)

    Why is it important to understand who writes or produces (for TV/radio) content, and to understand the editorial bias of any given media vehicle.

    • Sure, housing affordability, as measured by mortgage interest pmts to household disposable income, is the best in a decade, but it still aint exactly affordable.

      Check out this chart, which tracks the amount of aggregate household disposable income chewed-up by mortgage payments. It’s still 34% higher than when interest rates peaked at 17% in 1989! That ain’t exactly cheap.

      I’m not sure what figures UBS has used, but it isn’t backed-up by the official RBA statistics.

        • “…(I don’t even look at commercial Australian TV, or News ltd print/internet media…”

          A thought. Limiting media consumption to Fairfax and ABC could be as problematic. In fact, if you had abstained from Fairfax and stuck with The Oz you would have been spared reading this article.

    • According to APM’s monthly index, Sydney and Melbourne prices have appreciated at annual rates of 6 per cent and 7 per cent respectively since June 2012. RP Data offers a similar picture with monthly dwelling values in Sydney and Melbourne rising at a 7 and 6 per cent annualised clip from their depths in May 2012.

      Why is Chris Joye annualising the 6 month rise WHEN the actual annual data for the whole year is available??

      • Because it suited his agenda.

        As pointed out by Chris Vedelago ‏on Twitter:

        “I never, ever saw @cjoye annualise the figure when RP Data-Rismark figures are showing falls”

  3. Climate change “sceptic” Viscount Monckton is in Australia to launch a new party for creationist nutters.


    “The human race has lived on Earth for 6000 years. If you believe in evolution, then you will disapprove of what I’m saying. We know the world existed possibly for millions of years but the fact is that humankind was created 6000 years ago and that is what the the Bible in Genesis Chapter 1 says.”

    3d1k, Weren’t you the host on his last speaking tour? Will you be present this time round?

    • Mav, rather than labelling them “nutters”, I think we should instead show a little compassion. In my experience, those who hold firm to the view expressed in that quote typically are nice, well-meaning folk who would think you were blaspheming if you mentioned the word “exegesis”.

      • I am ok with their views on abortion; to each, his own. Even their anti-evolution stance is ok, as long as they don’t force the government to teach it to our children at school.

        But to me, their anti-muslim and anti-multiculturalism qualifies them for that label. Anyway, I’ll call them the Australian Taliban if you want.

  4. Looks like another climate related prediction bites the dust. Dr Cox changes his mind. Also further evidence supporting the thesis that trees have significant influence over global climate.Far from “settled”, new studies and incoming data are proving just how much is still unknown regarding climate ;


    Amazon forest more resilient to climate change than feared – study

    “I am no longer so worried about a catastrophic die-back due to CO2-induced climate change,” Professor Peter Cox of the University of Exeter in England told Reuters of the study he led in the journal Nature. “In that sense it’s good news.”

    Cox was also the main author of a much-quoted study in 2000 that projected that the Amazon rainforest might dry out from about 2050 and die off because of warming. Others have since suggested fires could transform much the forest into savannah.

    Plants soak up carbon dioxide from the atmosphere and use it as an ingredient to grow leaves, branches and roots. Stored carbon gets released back to the atmosphere when plants rot or are burnt.”

  5. Breaking Up Banks Wouldn’t Stop Risk: Rubin – American Banker

    Rubin is just obfuscating. Of course, it won’t stop Risk. But breaking up the banks will reduce the systemic risk borne by the taxpayers. That is the whole effing point!

    No wonder he went to CNBC to answer the softball questions. A real interviewer would have hauled him over the coals..

    • +1

      Rubin, the key architect and builder of the GFC. This guy is pure evil. Anyone who reads his bio and CV will see he was at the heart of all the elements that provided the crisis.

      Systemic corruption.

      He and Greenspan were instrumental.

  6. Rebecca Wilson exposes the fraud and deceit;


    “IT is the biggest charade in Australian sporting history but the damage it has caused will have long-term ramifications across the world for Australian athletes.

    At least two of the sports bosses who lined up alongside the Crime Commission and Government ministers at the mother of all media conferences on Thursday did so under great duress.

    They said privately the whole thing was a “Kate Lundy special” alarmist, misleading and, most of all, based on flimsy evidence.”

    • desmodromicMEMBER

      Clearly the investigators were trained at the same university as the climate scientists!

      • Mining BoganMEMBER


        Seriously though, the messenger shooting of has started big time. Who are these people to try to stop the Australian culture of doping and gambling in sport? Bloody fascists!

  7. Suggested listen: “Innovation in Australia. – getting to where” The science show, ABC radio national.

    What innovation really requires is discussed in detail. If you don’t have time to listen to it all, skip to the end – Robin has a chat with the author.


    Also, the Economists story on Norway gets a mention – and why it gained much more from the North Sea Oil than England did.