ASX chases zombie banks higher

The Aussie dollar is down this morning:

Bonds are bid:

XJO up a bit:

Big Iron is clearly skeptical of the Dalian surge:

Big Gas is stalled:

Big Gold is up at last:

Big Banks to the moon!

Aussie banks are zombies right along with European now. A brief value rotation won’t change it. It’s structural:

Big Tech is draining way:

Give me a house price boom and a part-nationalised, zombie bank to fund it!

David Llewellyn-Smith
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Comments

    • I imagine: ‘We will just buy their bonds to keep banks going, and bail them out if need be; we will probably be buying government bonds to give money to people soon…so what is there to worry about? Prices mean nothing.”

      • Yes. Last week I was suggesting that is what they’ll do. To add to it, the Gov and RBA will guarantee banks that in an event of loan defaults the Gov and RBA will take care of the banks so banks can start lending to anyone and everyone. Principal will be covered no matter what.
        Hence why Josh is portraying RBC as evil. They just don’t care what they do to future generations. These guys only want to make sure nothing happens on their watch and plus they try to profit from this as much as they can.
        Watch it – loans that can not be repaid will be issued. Loans that originally can be partially serviced will be issued as long as borrower has kids that will soon join the workforce. Then the kids also join the syndicate and start fully servicing that loan. In the meantime that loan will grow in size as banks will be adding interest to it while borrower is only able to pay part of the interest.
        This sounds totally silly but if one think about it is not. We are at the very near of our borrowing capacity so even irresponsible lending is not going to help when people can’t even pay interest back. The only way to make prices go up is to do what I said above.
        Also, expect to see warlords, Arab despots and druglords buying our RE without being challenged by our low enforcement agencies.

      • happy valleyMEMBER

        And if it goes pear shaped, the RBA will dump on APRA, those useless plodders down the road that thankfully John Howard hived off from the super smarts at the top of Martin Place.

        • I am actually surprised gold is not following BTC. US spending is slowing down as stimulus money are drying out and there is no sign that parties will agree on new short term package anytime soon. This means parties will agree on short term package soon – otherwise there will ne riots unseen to date. People will be killing each other over a can of tuna. As new package is being negotiated gold should go up. New package will be at least $1tn.
          Then whoever wins the WH (let’s be clear elections results are being contested so I will not assume who wins) will start working on larger stimulus – gold should go up again.

      • boomengineeringMEMBER

        Burb,
        Was the Same, in property (told agent I would put offer on a reginal as missus busting to flee Syd) but Fear of buying at top won out, decided to back off, reason being that rising prices being exacerbated by the last interest rate cut was the last straw for savers fueling the frenzy and that will burn out. Still believe deflation will happen before inflationary effects of monetary stimuli kick in.
        Nik
        As per physical, gave up on the as well after a tiny dabble.
        What is one to do ?, Warrens advice of wealth going from the impatient to the patient “is so very hard to do”

        • You think logically as I used to. Let your imagination fly little bit. Ask yourself this: What can I do to make RE prices go higher while knowing there will be no price to be no matter how immoral, unethical or even criminal my actions will be.

          • Yes Niko, that’s is generally what we are now realising, but you don’t seem keen to put money in it?? My Mrs has convinced me to buy an IP, but I’ve convinced her QLD, at least we can pay off P&I at those prices

          • @mark777 – I think I am making a mistake but I just can’t compute how prices can be this high in the middle of a pandemic and prolonged recission that follows. I can now see banks not going broke as per comments further up, but I can clearly see the country going broke and probably most of the western world. For how long can CBs buying bank’s and other corp bonds without rendering their fiats useless? We are at that point where things will start to stink – over next 5 years.
            I think owning gold and copper miners shares will pay better than anything else. RE only if you are not on a hook with the bank – if you can own it outright. I don’t think loans will be forgiven – not for the unwashed.

          • Niko, I think you’re right about debts not being forgiven for the great unwashed. They will simply be packaged up and on-sold to another financial institution.

            A bit like Mortgage Backed Security’s during the GFC.
            This time it’s the government pushing into the collapse, not the banks
            The rba.gov.au/education/resources/explainers/the-global-financial-crisis.HTML is a polished turd version of what actually happened.

            Read it and every time it says banks, substitute Aus government, and that’s a road map for 2021-25.
            Only, I don’t know who’s going to bail out the government.

          • @ Niko – Genuine question, why own the miners rather than the metals themselves? In a cash constrained environment or CB Govt default scenario, could these miners get the debt they need to fund the exploration and mining activities?

        • The genuine challenge any govt, regardless of stripes has with a housing bust is that it will literally destroy this country if it happens. $7T of housing value, $1.8T of debt. The debt is not the problem but if that $7T goes to $3.5T with a 50% fall then the feedback loop would be cataclysmic. We are a 2 trick pony with houses and holes, every politician knows this. The smart ones would be using the gov balance sheet to fund industrial transformation and innovation, i.e. build things, grow things and develop IP due to smart people. Instead we have gutted education and stuffed all our collective eggs into housing wealth.

          In some ways trying to bail out home owners is highly patriotic as it saves a huge amount of wealth from being destroyed. The counter position is that wealth was never real to start with so destroying it should not be a problem. With all that said, can you imagine an Australia with $3.5T less dollars in it? It would be real ugly, real quickly.

          Personally, I sold a house in 2018 and rented since as I saw the falls coming. I’ve had a larger farm for 7 years and have sold that (settling in January). I did not want to yield and buy something but practical decisions forced my hand and bought a multi dwelling place which can generate some income as short term accom /bnb. Its also small acres so I can still do small scale farming, build a self sufficient life and hopefully get out of corporate long term. Before I signed the docs I had to sleep on the idea that it could be worth 30% less in 12 months time. My comfort came from getting out of cash into something tangible and knowing it would be a long term buy. If AUD inflation comes or gets Venezuela’d then my logic is you need to own something real to not be stuffed. Its a bet, its a hedge, its smart and its dumb…only time will tell if it was a good decision.

          Totally agree with the thread though, houses are stupid expensive in Australia without justification. I see the same in stocks and cannot justify any of the numbers being asked.

          • Responding to your questions above. My view/strategy is:
            Miners with zero debt or very little debt.
            Miners with operations in safe jurisdictions – mainly.
            Miners with lot of cash reserves.
            Miners with low AISC and proven record to reduce AISC substantially if they make acquisition.
            If these people struggle to get finance on their projects then it is truly the end of the world and nothing is safe.
            Miners share will go much when price of gold goes up than holding PMGOLD.

          • Mike Herman TroutMEMBER

            thanks for the post Gareth, sums up my current thinking and position better than I could.

          • Part of the way any Govt deals with the situation is to print money — lots of it.

            But there are limits.

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