Meditations on risk and investing

My MacroBusiness colleague The Prince has written at length on this site about some of the shortcomings of the “modern portfolio theory” (MPT) that still forms the basis of  investing today. I have had this post stewing for a while, so at the risk of repeating some of the material already covered in The Prince’s

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Guy Debelle on Banking

Guy Debelle , the Assistant Governor (Financial Markets) of the RBA gave a speech this morning to the  Conference on Systemic Risk, Basel III, Financial Stability and Regulation. Today I am going to talk about a few interrelated issues concerning the banking system: collateral, funding and liquidity. The financial crisis brought into sharp relief the


Trading Day: 28th June

The S&P/ASX 200 jumped over one percent at the open this morning, but has fallen after midday, now at 4473 points, up 11 points or 0.26%. Asian markets are up, with the Nikkei 225 up 1.08 percent to 9681 points, and the Hang Seng up 0.36% to 22,121 points. Other risk assets are also up,


Lack of posting

On behalf of MacroBusiness, we wish to apologise for the lack of posting over the past week. Our colleague, David Llewellyn-Smith (aka Houses and Holes), is currently recovering from an illness and out of action. We wish David a speedy recovery and hope that he will be back on board next week. With David’s absence



Once in a while a real estate article gets published in the mainstream media that is so bad that it just has to be dissected.  Mark Armstrong, an independent [sic] property analyst, adviser and director of Armstrong Property Planning, published one such article yesterday in Fairfax, entitled Bold investors buy in a softer market. Here


June 28 Links: Euro bounce

Down:  ore, CRB ,metals , Aussie, gold , $US  Mixed: energy, grains Up: Euro Sovereign easing: Ireland, Portugal, Spain, Italy, Belgium, Greece Market Analysis Bloomberg The world bets on an RBA rate ease Bloomberg , Kiwi falls on trade surplus downgrade More French bank plans for Greece Reuters Europe claims to have a Plan B Reuters , Soros isn’t convinced Bloomberg Deutche Bank CEO warns against rushing a deal Reuters 


CBA pushes against the tide

The poor performance of the housing market mixed with banking competition has finally seen a move by a major bank. CBA has announced a small rate cut to one of its lending products. The Commonwealth Bank has cut the interest rate on its recently launched ”no fee” home loan offer as the battle for market


Trading Day: 27th June

The S&P/ASX 200 has fallen over one percent on the open this morning, and continues to fall after midday, now at 4455 points, down 53 points or 1.19%. Asian markets are also down, with the Nikkei down 0.86 percent to 9595 points, and the Hang Seng down 0.55% to 22,048 points. Other risk assets are


Un-normal analysis

Broker analysis relies heavily on looking at the fundamentals: assessing earnings forecasts, the validity of future earnings multiples, and discounting back to the present from the future. That tends to be highly normative. That is, it works best when markets revert to the norm: normal consumer demand, normal economic activity, normal price earnings ratios and


A small step of declaration

My long term readers would be aware that one of my pet hates is that members of the real estate industry do not have the same legal declaration requirements as other traders of financial wares. Your local bank teller has to declare far more when you open a new bank account than a real estate


Aussie investors flock to US housing fund

As reported in Fairfax last week, the US Masters Residential Property Fund (Investment Overview provided below) recently closed its initial public offering (IPO) for Australian investors, receiving more than double the minimum subscription. The Fund raised $69.5 million from over 1,500 investors, well above the minimum subscription level of $30 million, with the majority of


Bank offshore funding coming back to bite

The risks inherent in the Australian banks’ heavily reliance on offshore funding has received a lot of attention on this blog (for example see here). Now with the European debt crisis seemingly reaching a crescendo, it looks like these borrowings might now be coming back to bite. From the Australian: AUSTRALIAN and South Korean banks


June 27 Links: Watching and waiting

China pledges to continue European support WSJ French Bank’s plan for Greek Debt WSJ The German warning Reuters Greek Parliament’s rocky week ahead Reuters Week ahead on the Dow Calculated Risk All others eyes on the ISM Reuters Four outcomes to the Global public debt crisis ZeroHedge Bulletproof Mexico BeyondBrics The US warns Syria BBC Syria


Less economics, more leadership

The climate change proponents are clear on the matter. We need a “price” on carbon so the market can set about fixing the problem. Great. More derivatives. Exactly what we don’t need and yet another excuse to avoid the difficult job of governing. Consider what happened when there was a “price” on risk, perfected in


RBA debunks immigration boosters

The media’s response to the reported slowing of Australia’s population growth on Thursday summoned the usual hysterical commentary from those concerned about skills shortages and the flow-on impacts to wages growth and inflation. For instance, the usually reliable Tim Colebatch made the following comments in an article published yesterday in Fairfax [my emphasis]: NET migration


Weekend Musings: Language and $2 million

Since most of the MacroBusiness crew are under the weather, I thought I’d stick my oar in this weekend with some quiet musings. Two things to consider in this post: the notion of sound economic language, and how would you allocate $2 million for your retirement? Language is for the Birds Houses and Holes recently


June 25: Weekend links

We are running a bit behind this weekend. Illness is still attacking the team so this will be a shorter than usual. Hopefully we will all be back to full strength next week. Down:  ore, CRB ,metals , euro, Aussie, gold, grains Mixed: energy Up: $US Sovereign contagion: Ireland, Portugal, Spain, Italy, Belgium, Greece Market Analysis Bloomberg European liquidity issues hit Italy Bloomberg What’s really driving Canadian


Australian Dollar Weekly Wrap

I’ve been out of the office for the back end of the week so my observations are more ex-poste than normal. Sometimes that’s a good thing because we can always write history perfectly but at other times you miss the nuances that you gain when you are sitting in the midst of what’s going on. But I


RPData reports no change

RPData has put out their latest newsletter today and once again it isn’t great news for the housing market. The RP Data-Rismark Home Value Index results for May 2011 will be released next week and there is little evidence to suggest that there will be any significant change to market conditions with values likely to


SocGen on China’s construction bubble

Societe Generale (SocGen) has released a fascinating 50-page research report entitled Chinese construction bubble – Preparing for a potential burst. The report argues that the exponential growth of real estate and infrastructure spending in China is unsustainable and a painful adjustment will occur sooner or later, although SocGen acknowledges that it is impossible to predict when the slowdown or correction


Trading Day: 24th June

The S&P/ASX 200 has steadied after midday, now at 4498 points, down 0.04%, after opening slightly higher. Asian markets are mainly up, with the Nikkei up 0.28 percent to 9624 points, and the Hang Seng up strongly, 1.22% to 22,025 points. Other risk assets are mixed, although the AUD is just below 1.055 against the


The battle rages on

The battle for the hearts and mind of who’s telling the truth about housing prices in Australia rages on. In the latest installment SQM research’s Louis Christopher has returned serve to Michael Matusik via SQM’s newsletter. I have talked Mr Matusik previously, he is a housing bull , turned bear, who now seems to flip-flop between


Saul Eslake on commodity prices

Saul Eslake, Director of Productivity Growth Program at the Grattan Institute, yesterday presented a paper at the International Conference of Commercial Bank Economists in Amsterdam, the Netherlands, on some of the longer term demand and supply factors shaping the behaviour of commodity prices, over the past decade and over the next 5-15 years. The full paper is below and


The Sensational Foster’s Buyout!

In an odd juxtaposition, the bogan, while poorly informed on almost all matters, will still have an opinion on most things, and is actually a relatively voracious consumer of media. The media have long known the enticing power of the bogan buck, and once their websites gave them the power to monetise bogan clicks, and


Charting Commodities

On news of the 4.6 percent decline in crude oil yesterday, in response to the International Energy Agency’s announcing a release of supplies from strategic reserves, and after my look at gold yesterday (which also fell last night) I thought I’d have a closer look at where we stand with commodities. First, the two major


Merry-go-round confusion

Judging by comments on the net and the press and in general public discourse, it appears that there’s still confusion between the role of the carbon price signal and the role of the distribution of proceeds from revenue raised. The latter has derisorily been referred to as a great big merry-go-round. Here’s an example of


June 24 links : Oil spill

Down:  ore, energy ,CRB ,metals , euro, Aussie, gold Mixed: grains Up: $US  Sovereign easing: Ireland, Portugal, Spain, Italy, Belgium, Greece Market Analysis Bloomberg , Telegraph UK Greece has a new deal? Reuters  Greece’s pledges to IMF Reuters , while Greek PM doubts parliament will accept deal and let’s not forget the people WSJ More Argetina talk Krugman European liquidity isn’t improving ZeroHedge Oils big falls on reserve release


Sweden’s bubblicious housing

In conducting research for last night’s post on the German housing market, I came across some interesting information on the housing bubble developing in Sweden. It’s a story worth sharing since it offers important insights and parallels for Australia. Before I kick-off, first consider the below chart of real house prices since the mid-1980s: As


Would you Twizy ?

A little off topic tonight, but hopefully not too far. One of the things I used to talk about on my old blog was a concept I called GPEC. I am not going to discuss it again here, but basically it is a measure that I suggest government economic policy should be judged by. GPEC


China’s property bubble spreading

China Daily has published an interesting article, Record realty prices head to lower-tier cities, explaining how tightening measures undertaken by the Chinese Government to curb soaring property values in China’s major cities is causing bubble-like conditions to spread to second and third tier cities [hat tip World Housing Bubble]. Below are some of the key