ASX bath of blood misreads Japanification

The forex market has the Depressionberg deflation budget spot on:

So does the bond market:

But the ASX bath of blood has it wrong:

Nor is the rise driven by the sectors that it should be, that will benefit from the lower AUD. It’s not Big Iron:

Nor Big Gas:

Nor Big Gold:

It’s Big Banks that are up, on broker upgrades:

Yet there is nothing bullish about a deflationary shock budget that drives the central bank ever deeper into unconventional policy tools below zero that destroy bank margins a’la Japan and Europe.

Absolutely nothing.

David Llewellyn-Smith

Comments

  1. I’ve been watching the rally today, thinking, ‘What the heck?!’

    I am clearly not very good at this!

    Ok… longer-term timing is more important, other than daily noise, yes ..

  2. so brokers upgraded our banks because our banks have truck loads of bad loans and no other revenue stream?

  3. happy valleyMEMBER

    ” … drives the central bank ever deeper into unconventional policy tools below zero that destroy bank margins a’la Japan and Europe.”

    Combined with Josh Rainbowberg’s totally irresponsible lending policy, the RBA happy clappies may actually trip over their own stupidity and destroy one of the banks per se just for fun?

  4. And there lies the answer, unconventional policy… What do you mean bank margins will be squeezed? Their margins have never been higher in recent times – borrow at 0.25%, sell at 2+% = cream. Will the RBA take away the TFF? Not likely. Will it decrease the borrowing rate over time? Likely. Banks, coupled with the ending of the 2nd wave and the removal of lending standards look pretty good. Throw in some ‘good news’ about immigration returning and you’re looking at 1.5-2x.

    When housing is the economy, it will be protected – this should be obvious to all who ever doubted this in the past (read, immigration will return).

    • Guess we really are like the Irish pre GFC. Expect I guess we also have mining tax receipts (a mini portion of mining profits) to use as house deposits.

    • The RBA can only lowe wholesale funding costs further but not deposits. This gives them scope to cut mortgage rate further but each time that they do the deposit funding eats up some more margin.

  5. Banks are up because tax cuts will be 4-5x leveraged into mortgages and therefore house prices

      • Think you’re underestimating it

        An extra $11,000 in the pocket every year translates into an extra $500,000 of serviceable mortgage debt

        • How does $11k translate into $500k of serviceable mortgage debt?

          $30k or 40, perhaps. $50k if you’re lucky.

          And dare I say it, it’s a one-off bump for prices. In any case by 2024 the world will likely be a very different place – probably in the grips of a depression or significant monetary meltdown.

          • $500,000 at 2.2% interest p.a
            =$11,000 p.a

            That is how much more mortgage debt can be serviced with an extra $11,000 post tax income

        • “That is how much more mortgage debt can be serviced with an extra $11,000 post tax income”

          But that is not what a bank is prepared to lend you.

          • Why would it not ?

            banks base affordability on post tax income

            All other things will remain the same

    • I was going to ask this question yesterday – is this why they are so keen on tax cuts, cos they are modelling large bang for buck?

      • this is the nature of capitalism, as described by Marx

        eventually all profits accrue to the owners of capital

        David needs to read up on economic theory

        • GunnamattaMEMBER

          Karl, if ever you read him, also referred to tendency, instability, and monopoly en route to consuming itself vis capitalism, Dr Hate Boner

      • GunnamattaMEMBER

        They are keen on the tax cuts so they can hand over to their end of town (fresh back from an accountant organised and taxpayer funded sabbatical or home holiday) and then from government or opposition lecture the punting masses with warnings about dire budget crises ever after (with the odd extra exhortation to tighten belts etc)