Macro Afternoon

See the latest Australian dollar analysis here:

Macro Afternoon

A slew of bad internal data and new policy directions by Chinese authorities – not helped by another big easing in the Yuan fix by the PBOC today – has seen Chinese equity markets selloff to close the week out in a bad note. With no new direction from the Fed overnight, looking set to raise interest rates next month, currency markets re-evaulated their weak USD positions and turned them around, with the Aussie and Kiwi off the boil, the former not helped by a wishy washy SOMP by the RBA.

The Shanghai Composite looks set to close 1.3% lower, currently at 2601 points, barely hanging on to key support at the 2600 level as it has been unable to translate the recent swing gains into a proper recovery all week. The Hang Seng Index is off even sharper, down 2.4% to 25608 points, gapping down just after it was starting to get some traction above the previous support level at 26000 points:

US and Eurostoxx futures are stalled here going into the final session of the week with the four hourly S&P 500 futures chart continuing its pause here as the oversold rally looks set to just consolidate here above the 2800 point level:

Japanese stocks have retraced as Yen buyers stepped in briefly to cap the overbought USD, the Nikkei 225 suffering by falling just over 1% to 22250 points.  The USDJPY pair is looking very overextended here and is hovering just below the 114 handle as buying exhaustion is setting in here:

The ASX200 was the best performer, basically only treading water with a small fall of 0.1% to finish the day at 5921 points. The Aussie dollar is failing here with another poor session, down to the low 72’s as the USD gains strength:

The economic calendar finishes the week with UK preliminary 3Q GDP estimates, plus the University of Michigan consumer sentiment survey – plus the usual Trump drama.

Have a good weekend!

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  1. Good vibrancy on Bourke St today. Liked the video shot by non-English speakers.

    Hope everyone is ok.

    Hope scummo uses this as a (non-sequitur, populist, reactionary) reason to hit migration rates.

      • That whole scene seems more video game than real life. A car on fire, horn blaring and attacking pedestrians and police officers with a knife. Madness.

      • Religion: Specufestor
        Sect: Tarneit Landbanker
        Core Belief: Property Always Goes Up

        He just finished a conversation with his lender and his agent where they disrespected his core beliefs, and unable to handle the cognitive dissonance, he has headed downtown to exact vengeance upon the infidels.

      • I’d make a horrible cop….I would’ve shot him straight away. Not sure why they let it go on so long.

      • Mining BoganMEMBER

        Brenton, you weren’t in the crowd watching were you?

        Bloke was on the wireless this arvo saying that while the cops were yelling at the bozo to put down the knife the crowd was screaming to just shoot him.

      • Probably some fark wit on the comms telling them to restrain him. He was clearly prepared to use lethal force, and they’re dancing around trying to wrestle him…

        Nah mate, wasn’t there.

      • Applaud the action of shopping trolley guy. No safety boots, eye protection, or high vis. He is going to get reamed by HR first thing Monday.

      • Mining BoganMEMBER

        Also the bloke running in with the chair ready like an old western bar room brawl. He was going to clobber him until the bullet proved to be more effective.

      • TailorTrashMEMBER

        The poor cops are so overruled by process and procedure that they have no idea when they can draw their guns and do their job …(( which god forbid ) might be to enforce the law as empowered by the people under parliament ( jeez now that’s a tad idealistic ) ……expect this more and more in our vibrant future

      • Bloke was on the wireless this arvo saying that while the cops were yelling at the bozo to put down the knife the crowd was screaming to just shoot him.

        I wonder how far it is from “just shoot him” to going on a little walk for a discussion with his mates. In the absence of police action.

        Also I can’t believe that footage of the ROP enthusiast swinging at the cop with his knife, repeatedly, and the cop’s backup is just standing there. Any one of those swipes could remove lots of flesh.

  2. The Divine Right of Capital by Marjorie Kelly

    Gideon Rosenblatt March 1, 2011 Stakeholder Well Being

    Reading Time: 32 minutes

    The Divine Right of CapitalMarjorie Kelly’s The Divine Right of Capital is one of those mind-bending books that deserves to be read by a large audience. It tells a behind-the-scenes story of capitalism that we don’t often hear; one that shows how our preoccupation with shareholder “primacy” distorts capitalism in ways that generate serious harm for society and the planet. Kelly shows how our current problems with capitalism are not necessarily intrinsic to market forces or even capitalism itself, but to the particular version of it that we have today.

    In this brave book, Kelly highlights the historical roots of our current system and its ties to feudalism, and then lays out a set of prescriptions for rethinking how corporations actually could work.

    To help me digest this important book, I summarized each chapter, and in the hope of encouraging readers of this blog to read the book yourselves, I’m sharing these chapter-by-chapter overviews here on my blog – with the permission of the author.

    Chapter 1: The Sacred Texts

    The Principle of Worldview:

    In the worldview of corporate financial statements, the aim is to pay stockholders as much as possible, and employees as little as possible.

    Divine Right of Capital 1All societies have world views, the “unconscious mental habits” we use to make sense of the world – so deep, so pervasive as to be invisible. Aristocratic society in feudal times based its membership on property ownership. Back then, it was land. Today it’s wealth, or financial assets. Throughout the book, Kelly draws a connection between feudal aristocracy and our modern aristocracy, the wealthy shareholder.

    Today, our worldview has a bias – that stockholders are to be paid as much as possible, while employees are to be paid as little as possible. “Income for one group is declared good, and income for another group is declared bad.” Nowhere is this more clear than in our financial statements. Here’s the basic formula you’ll find on financial statements:

    Capital Income + Retained earnings = Revenue – (Employee income + Cost of materials)

    Kelly uses some simple algebra to show that this formula could just as easily be re-written as:

    Employee income + Retained earnings = Revenue – (Capital income + Cost of materials)

    In other words, the company could just as easily be optimized to maximize employee income. All it takes is a perspective shift. Kelly then talks about the fact that employees don’t even show up on the corporate balance sheet. That’s because employees are seen as an expense, not an asset, despite the common phrase “our employees are our greatest assets.” This is because employees are essentially treated as “outsiders” in the narrative of corporate financial statements. Kelly proposes shifting this, so that labor and capital both become considered “insiders” – full-fledged members of the corporate society, each with a claim on its profits.

    The last section in chapter 1 covers how companies externalize costs and how that translates into social and environmental degradation. – snip

    • Employees don’t put in capital. If they did they would be entitled to profit – eg. Employee share plan.

      • You know I’m not a fan of Marginalism and why, then some get confused about how the whole credit thing has gotten out of control and do I need to remind the whole drama with Friedman’s and Jenson’s little Bernays PR wrt share holder value trope moving away from the traditional capitalist view e.g. the Pinto was a direct result and the birth of the C-suite bonus incentive culture and its results.

        I suggest you read the entire work and not focus on just one aspect.

        I would also question your take on putting in Capital considering the above and the propensity to use jizzed equity through junk bond issuance to fund buy backs, buy and sell side marry go round or abuse of risk tools.

      • Its reality. Why would a capitalist put in capital if the net profit was going to be paid out to staff? They would only return enough to replace their capital ie. ebitda.
        This pre-dates marginalism btw

      • Please remind me of the core responsibility of a corp is again and can we also acknowledge past floor to executive ratios to current. Yet that still does nothing to respond to the above points about increased financialization which allows non productive enterprise to flourish whilst off loading risk on everyone else and extract rents.

      • The legal structure of the business is beside the point. Too much gets made of “corporations” in Chomskyite circles. As if the legal structure somehow makes the business more exploitative. It just limits the downside.

      • Executive ratios is a different question. Execs are staff. The ratio blowout is due to bad Corp governance where boards permanently delegate all operational powers to execs. Most executives wouldn’t know their top 10 shareholders.

      • btw Kelly is wrong. Employees do show up on the balance sheet on the liability side which is correct accounting as their labour is provided on credit (interest free). Both salaries and provisions.

    • Thanks for the link Skip. I will explore this book although I am convinced we need to revisit the purpose of having corporation as a separate entity and the notion of profits over and above wages/salaries. Seems to me something developed by wealthy landowner/capital owners to keep on exploiting the ‘freed’ surfs/slaves. and please, I am not proposing communism, a discredited theory much like capitalism

  3. The link between housing debt and home prices in Australia, in one chart

    Bill Evans says the RBA’s nirvana-like economic forecasts are ‘courageous’ and ‘unlikely to be achieved’

    The RBA’s optimism means a lot has to go right in the Australian economy before interest rates rise

    • Including gold that is on loan, the RBA’s gold holdings amount to 80 tonnes, with the full value of these holdings recorded as an asset on the RBA’s balance sheet. The RBA has not undertaken any sales or purchases of gold in the past two decades.

      Its part of a basket of assets and not a sign of a return to a hard moeny standard…. sigh…. bias confirmation….

  4. Someone should start a crowd fund to fund house sellers to sell for half price, and show the price sold.

    Then watch the ripple effect in action 😉

  5. If i had idle time on my hands, i’d start a fund stated explicitly for strategically bombing the housing market by secretly backing vendors to sell cheap.

    Bit like an antedote to the big 4 putting funds into the Block auctions.

      • With the market very toppy and vulnerable to a big over-correcting downfall, one could trigger that, then buy up the cheap carcases.

    • I hear the USA has the same penchant, but think its more about not letting anyone in the south get any bright ideas or the old oil price game. So much for self determination…. eh….

      • TailorTrashMEMBER

        Yes paper is easy to manufacture ( security printing and all that aside ) …..but the manufacture of gold seems to have eluded many over the centuries

        Disclaimer ….I have some paper gold and real gold in a stash …

        … the latter I trust ….

    • Wonder what happened about the fake gold bars rumour getting around a few years ago. Supposed to even gotten into fort knox. Must’ve been a storm in a teacup?

      • TailorTrashMEMBER

        Yes indeed ….and if gold could be faked then China would be far “richer“ than is now purported to be …….I have this deep premordial belief that one day we will define our wealth not on crumbling bricks and mortar and wind eroding Sydney sandstone ……but on something more enduring and permanent …,,..and it’s not Bitcoin
        ………cos you can’t put that in the seam of your jeans ..

      • For sure.

        So it’s definitely this – “our private companies have our complete confidence and should be relaxed and reassured that in no way will they be first up against the wall when everything turns to sh!t”.

  6. I do feel sorry for those in Melbourne today. Actually I feel sorry for them everyday after spending 25 years there. The weather is appalling.
    Re today’s apparent assimilation failure in Bourke St and the authorities confirming this potential assimilation failure was on the authorities radar. I wonder how many assimilation risks they are actually monitoring and what that is costing us.

  7. … AUSTRALIA: The bursting housing bubble … continued …

    CSR, Boral, James Hardie caught in housing blues | … behind paywall …

    The heavy sell-off in shares in Australia’s big building products companies is a pointer to where investors think the housing market is headed.

    CSR shares have tumbled 43 per cent in the past six months, Boral is off 21 per cent since the start of October and James Hardie has dropped 27 per cent in the past three months. In CSR’s case, $1.2 billion in sharemarket value has vanished since May, leaving shareholders wincing. … read more via hyperlink above (behind paywall) …
    Plunging mortgage lending levels in Australia mean ‘further weakness in house prices is likely’ | Business Insider
    UBS: Aussie banks still un-investable – MacroBusiness Australia

    • … It’s a very rough road to below a 3.0 Median Multiple … as the Irish learned (the hard way) following the ’07 event … when the average Median Multiple across its major metros went from 4.7 to 2.8 …

      Demographia International Housing Affordability Survey: All Editions
      … and as I explained early 2010 … in quoting Michael Lewis, author of Liars Poker … within …

      Housing Bubbles And Market Sense | Hugh Pavletich | Scoop New Zealand News

      … extract …

      … Michael Lewis, author of Liars Poker wrote recently within a Portfolio com article The End of Wall Streets Boom – most within the finance and investment sector, appeared to be oblivious to the existence of housing bubbles and even less aware of their consequences. As Michael Lewis explains – during late 2004 – only a few, such as Steve Eisman, Ivy Zelman and Meredith Whitney understood that the core problems were the inflating housing bubbles –

      “At the end of 2004, Eisman, Moses and Daniel shared a sense that unhealthy things were going on in the housing market.

      Lots of firms were lending money to people who shouldn’t have been borrowing it. They thought Alan Greenspan’s decision after the internet bust to lower interest rates to 1% was a travesty that would lead to some terrible day of reckoning.

      Neither of these insights was entirely original.

      Ivy Zelman, at the time the housing market analysis at Credit Suisse, had seen the bubble forming very early on. There is a simple measure of sanity in housing prices, the ratio of median house price to income.

      Historically, it runs around 3 to 1, by late 2004, it had risen nationally to 4 to 1.’

      All these people were saying it was nearly as high as some other countries’ Zelman says ‘ But the problem wasn’t just that it was 4 to 1.

      In Los Angeles it was 10 to 1 and in Miami it was 8.5 to 1.

      And then you coupled that with the buyers. They weren’t real buyers. They were speculators’.

      Zelman alienated clients with her pessimism, but she couldn’t pretend everything was good. ‘It wasn’t that hard in hindsight to see it’ she says ‘It was very hard to know when it would stop’.

      Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. ‘You needed the occasional assurance that you weren’t nuts’ she says.

      She wasn’t nuts. The world was.”
      … and explaining a few ‘home truths’ recently to Kiwis as well … with a leading New Zealand journalist Catherine Harris …

      Falling Australian house prices a warning for NZ: commentator | Catherine Harris |

      … Why do people … and their (supposed to be in a representative democracy … poll parrots) politicians … have to learn the hard way ?

    • It’s curious because it’s kind of a circular issue. The Chinese don’t trust their own government so they invest in real estate because they think it is the safest bet compared to stuffing money under the bed. The government is trying to curtail speculative investment in real estate because it’s eventually going to bring the economy to it’s knees resulting in CNY deval. Problem is that there is a lot of inertia in herd thinking when there is 1.4 billion of them!

  8. … NEW ZEALAND: When does Housing Minister Phil Twyford intend to stop playing games (Kiwibuild) … and instead JUST ALLOW new affordable housing to be built ? …

    KiwiBuild at threat of going ‘KiwiBust’ over ‘plummeting popularity’ |

    Kiwibuild’s plummeting popularity could spell out Kiwibust for the Government’s flagship policy.

    There are only 338 pre-qualified Kiwibuild applicants, while contracts for 3375 houses have been signed off by the Government. It was forced to push out the Kiwibuild ballot deadline in Wanaka, after receiving just 20 entries for 10 homes. … read more via hyperlink above …
    … Affordable housing is at or below 3.0 times annual household income … requiring a sensible mortgage of about 2.5 times …

    Why are New Zealand homes so pricey? It has nothing to do with avocados |
    … watch superb video …
    … Phil Twyford’s wasted 12 months … ignoring public opinion …

    Govt criticised for moving slowly on Auckland growth boundary |