Weekly GFC Roll for May 29th 2009

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Thanks again to blog mem­ber Evan Har­ris for com­pil­ing this week­ly list, and for blog mem­bers pass­ing on their sug­ges­tions. If you see any arti­cle or blog entry that you think deserves record­ing for pos­ter­i­ty, send the link to gfcwrap at gmail.com.

And a reminder for any blog mem­bers in Syd­ney that I’ll be speak­ing at Pol­i­tics in the Pub tonight at the Gael­ic Club in Devon­shire St Sur­ry Hills, start­ing at 6pm.

The Pool Room – Week End­ing Fri­day 29th May

Aus­tralian-Relat­ed Links:

Hous­ing & Hous­ing Finance: The View From Aus­tralia & Beyond, Luci Ellis [RBA Research], Dec 2006

Blog mem­ber Tom con­tributes some RBA howlers. From the “Ris­ing Indebt­ed­ness” sec­tion: “The most impor­tant les­son to draw from recent inter­na­tion­al expe­ri­ence is that a run-up in hous­ing prices and debt need not be dan­ger­ous for the macro­econ­o­my, was prob­a­bly inevitable, and might even be desir­able.” “These rel­a­tive­ly benign out­comes point to the under­ly­ing robust­ness of the finan­cial sys­tems in these economies.” Price­less.

The Aus­tralian Expe­ri­ence with Infla­tion Tar­get­ing, Guy DeBelle (speech), 15 May

Oh God. A neo­clas­si­cal dis­ci­ple of inter­est-rate set­ting defends the reli­gion against upstart infi­dels. The first line of the con­clu­sion sums up the dog­ma: “Infla­tion tar­get­ing in Aus­tralia has coin­cid­ed with a peri­od of low and sta­ble infla­tion, and a pro­longed eco­nom­ic cycle with a high aver­age rate of growth, which has only recent­ly come to an end.” So if we exclude the great­est finan­cial melt­down since the Great Depres­sion (many say worse) then the exper­i­ment since 1993 has been a great suc­cess!

Size of First Home Own­ers’ Loans Inflat­ing, news.com.au, Nick Taba­coff & Joe Kel­ly, 25 May

The FMOG keeps the real estate Ponzi scheme alive at the expense of young peo­ple who are tak­ing on a larg­er debt bur­den in a peri­od of job uncer­tain­ty. Sourced from Bubblepedia.net.au.

 Bendi­go Banks $ 615m Expo­sure To Great South­ern, SMH, 26 May

Bendi­go mar­kets itself as a “Com­mu­ni­ty Bank”. So how does it ben­e­fit the com­mu­ni­ty to offer its cus­tomers lever­aged loans to invest in ded­i­cat­ed tax-avoid­ance schemes? And how does it ben­e­fit the com­mu­ni­ty to acquire Macquarie’s mar­gin lend­ing busi­ness? More like the Com­mu­ni­ty Bub­ble Bank.

 The Great Mort­gage Gam­ble, Robert Got­tlieb­sen, Busi­ness Spec­ta­tor, 26 May

Excel­lent arti­cle exam­in­ing the dif­fer­ent lend­ing strate­gies with­in our robust and con­ser­v­a­tive bank­ing car­tel. Sourced from Bubblepedia.net.au.

Glob­al Bust Hits Home: Prices Diced For Iron Ore Exports, SMH, 27 May

Defla­tion watch – cuts of up to 44%. These cuts are bad news for our Terms of Trade. Michael Strutch­bury writes a sen­si­ble arti­cle bemoan­ing our inabil­i­ty to save in the extra­or­di­nary com­modi­ties boom of the last few years.

Coun­cils To Pick Up Tox­ic Return, Clan­cy Yates, SMH, 29 May

Coun­cils across the state — from Can­ter­bury to Coffs Har­bour — put up to $625.6 mil­lion into tox­ic debt prod­ucts through Lehman and its pre­de­ces­sor, Grange Secu­ri­ties.” All invest­ments were rat­ed AAA by those “tough cus­tomers” at S&P. Ear­li­er in the week they had the temer­i­ty to ask the courts to see Lehman’s insur­ance poli­cies but the courts turned them down. They will only recoup between 2 and 13 cents in the dol­lar. Any con­nec­tion to coun­cils charg­ing like wound­ed bulls to make up lost rev­enue? “In a stand-off between big busi­ness­es owed mon­ey by Lehman and dozens of coun­cils and char­i­ties, the big end of town won the day.” Lehman exec­u­tives bonus­es were paid out by admin­is­tra­tors ahead of coun­cil claims.

Busi­ness Invest­ment Plunges, Chris Zap­pone, SMH, 28 May

Invest­ment by com­pa­nies plunged a record 8.9 per cent in the first three months of 2009, the sharpest rever­sal in more than 12 years.” Time for those green shoots pun­dits to declare that everything’s turned around since the lows of Q1, so there’s noth­ing to wor­ry about.

Hous­ing Recov­ery Soon: Hous­ing Indus­try Asso­ci­a­tion, Chris Zap­pone, SMH, 28 May

The HIA projects the total num­ber of com­plet­ed homes in Aus­tralia will rise from 129,500 in 2009 to 139,200 homes in 2010” That doesn’t sound like much of a recov­ery to me. The Big Pic­ture enjoys fight­ing its way through the non­sen­si­cal press releas­es from the [US] Nation­al Asso­ci­a­tion of Real­tors.

Suncorp’s Calami­ty Painful­ly Emerges, Ian Ver­ren­der, SMH, 28 May

The slump in com­mer­cial prop­er­ty mar­kets, par­tic­u­lar­ly in Queens­land, has start­ed to bite. Trou­bled loans rose to $1.241 bil­lion in the nine months to the end of March, up from $986 mil­lion to the end of Decem­ber. Bad debts have risen to $491 mil­lion.” And the dif­fer­ences in whole­sale fund­ing costs, backed by the Fed­er­al gov­ern­ment, are result­ing in less com­pe­ti­tion for the car­tel – nev­er waste a cri­sis.

Ris­ing Bond Yields A Sign of Good Times Return­ing, Char­lie Aitken, The Aus­tralian, 28 May

Char­lie “pas­tries” Aitken is back! The whole world bemoans the threat of explod­ing US trea­sury yields on the US prop­er­ty mar­ket and the broad­er econ­o­my (lots on this below) but Char­lie says this is great news! Mike Shed­lock begs to dif­fer offer­ing a polar oppo­site inter­pre­ta­tion (also below).

Sales slide at an end, says Myer, Jamie Freed, SMH, 29 May

Remem­ber the quote: “I think this is the start of a very slow burn up in retail… and par­tic­u­lar­ly depart­ment store retail.” Remem­ber the com­pa­ny: Myer. Remem­ber the CEO’s name: Bernie Brookes. Remem­ber the date: 28 May. All locked in so we can make use of this quote over the next few years.

Glob­al Econ­o­my:

Lost Vegas [25min video], Van­guard, 13 May

Absolute­ly sen­sa­tion­al­ly bril­liant must-watch video exam­in­ing the col­lapse of Las Vegas. Con­tains excel­lent analy­sis of the root caus­es of this cri­sis. Email it to your friends.

[Cal­i­forn­ian] Gov­ern­ment Plans To Com­plete­ly Elim­i­nate Wel­fare, LA Times, 21 May

… for fam­i­lies, med­ical insur­ance for low income chil­dren and cash assis­tance for col­lege stu­dents.” Bet those Aus­tri­an econ­o­mists will love this one. Also read the com­ments below to gauge the mood of the US. It looks like some read­ers have been lis­ten­ing to Alan Jones: “How about drug test­ing all indi­vid­u­als on wel­fare?”

Infla­tionisms Seduc­tive Bat­tle Cry, Doug Noland, 22 May

Bril­liant piece by Doug Noland of Pru­dent Bear. I sug­gest you skip through to the last sec­tion.

San Fran­cis­co Fed Con­cerned About Con­sumer Delever­ag­ing, Zero Hedge, 22 May

Con­tributed by blog mem­ber Chris. “Regard­less of how many trea­suries are issued, and how much addi­tion­al debt the U.S. incurs, the demand side for cred­it is just not there, stick­ing banks with base­ments full of shrink-wrapped pack­ages of hun­dred dol­lar bills, that will sit dusty and unused for years.”

CSL Expan­sion Plan Thwart­ed, Eli Gleen­blat, SMH, 26 May

The US Fed­er­al Trade Com­mis­sion has indi­cat­ed that it is like­ly to block a planned $US3.1 bil­lion takeover of Tale­cris Bio­ther­a­peu­tics.” When was the last time a US cor­po­ra­tion was unable to pur­chase an Aus­tralian com­pa­ny based on a pro-com­pe­ti­tion argu­ment? It looks like CSL needs to invest more in lob­by­ists as this result just doesn’t make the grade.

Case-Shiller: [US House] Prices Fall Sharply In March, Cal­cu­lat­ed Risk, 26 May

Prices are still falling [2% in March] and will prob­a­bly fall for some time.” But don’t wor­ry as US Con­sumer Con­fi­dence leaps to an eight month high! The real­i­ty gap goes unre­port­ed in the oz media.

The Worst Is Over For the Econ­o­my, Yahoo Finance, 27 May

The stim­u­lus is kick­ing in and the hous­ing, man­u­fac­tur­ing, employ­ment, and con­sumer-spend­ing trends are begin­ning to improve…” Thank GOD for that.

Mort­gage Mar­ket Locks Up, Mike Shed­lock, 28 May

Explains the omi­nous links between a steep­er US trea­suries yield curve, US mort­gage rates and the US hous­ing mar­ket. 

Mort­gage Delin­quen­cies, Fore­clo­sures, Rates Increase, Bloomberg, 28 May

US hous­ing mar­ket bot­tom­ing? It doesn’t look like it to me. “The U.S. delin­quen­cy rate jumped to a sea­son­al­ly adjust­ed 9.12 per­cent from 7.88 per­cent, the biggest-ever increase, and the share of loans enter­ing fore­clo­sure rose to 1.37 per­cent.” “Prime fixed-rate home loans to the most cred­it­wor­thy bor­row­ers account­ed for the biggest share of new fore­clo­sures at 29 per­cent.” “The fig­ures show that the mort­gage cri­sis has shift­ed from sub­prime to bor­row­ers hold­ing the safest type of mort­gages.” As Cal­cu­lat­ed Risk notes: “We’re all sub­prime now!” On the same news day, The Aus­tralian report­ed via it’s Dow Jones feed that demand picks up in the US econ­o­my.

Glob­al Banking/Finance:

Cred­it Where Cred­it is Due, Mike Whit­ney (“they said you’d nev­er make it”), Coun­ter­punch, 19 May

Bril­liant, must-read arti­cle dis­cussing the struc­tur­al prob­lems behind claims that the econ­o­my will re-bound at the end of the year. “The prob­lem is the break­down in the secu­ritza­tion mar­kets which has cut off the flow of easy cred­it to con­sumers and busi­ness­es.” It is cru­cial to under­stand that the cred­it secu­ri­ti­sa­tion mar­ket, head­quar­tered in Wall St and the pin­na­cle of a vast and cor­rupt pyra­mid sell­ing scheme, deter­mines the price of your house, the bal­ance in your super­an­nu­a­tion fund and impacts Aus­tralian GDP more than any oth­er met­ric. Add in immense de-lever­ag­ing and you’re left with a very bear­ish fore­cast, irre­spec­tive of short-term bounces in the stock mar­ket and gov­ern­ment smi­ley faces.

The $1.4 TRILLION Com­mer­cial Real Estate Tidal Wave, Clus­ter­stock, 24 May

Noth­ing like a catchy head­line. Lots of “mays”, “mights” and “coulds” but if the lit­tle boy who cried wolf is warn­ing of an actu­al wolf this time around then it will be inter­est­ing. The com­ments below the sto­ry also had use­ful infor­ma­tion.

JP Mor­gan $29b WaMu Wind­fall, Bloomberg, 26 May

Alarm­ing­ly hon­est account of how dodgy account­ing stan­dards allows Wall St banks to fab­ri­cate prof­its. “One of the beau­ties of pur­chase account­ing is after you mark down your assets, you accrete them back in.” Remem­ber that it was bogus “sur­prise prof­its” claims in ear­ly March (coor­di­nat­ed with a pos­i­tive media and gov­ern­ment blitz) that start­ed this bear mar­ket ral­ly. As always, it pays to look at the fine print.

Deep Thoughts From Bob Jan­juah, Zero Hedge, 26 May

Seems like a sen­si­ble analy­sis of stock mar­ket expec­ta­tions to me. Makes strong pre­dic­tions for a con­tin­u­a­tion of the bear mar­ket ral­ly through to July then a 30/40% crash. Long gold and oil.

The Great­est Swin­dle Ever Sold, The Nation [US], 26 May

Excel­lent sum­ma­ry of the cor­rup­tion behind the TARP. “Here, then, are six of the most bla­tant and alarm­ing ways tax­pay­ers have been scammed by the gov­ern­men­t’s $1.1‑trillion, pub­licly fund­ed bailout.” Here, here.

The $4 Tril­lion Hous­ing Headache, CNN Money.com, 27 May

From blog mem­ber Lyon­wiss, “after 32.2% of house price decline (Case-Shiller index) since July 2006, the US mort­gage debt to GDP at 73% has hard­ly budged from its peak of around 75%”. That’s debt defla­tion for you.

It Is Fail­ing: ALL OF IT, Karl Den­ninger, 27 May

Den­ninger has called the end of civil­i­sa­tion a few times now (most notably on March 5 this year) but in this post he notes that the 30-year fixed mort­gage rate increased by 30% in a sin­gle day. This will have huge impacts on the US econ­o­my as the Fed has already set inter­est rates to zero so can not manip­u­late retail mort­gage rates down fur­ther to stim­u­late the econ­o­my. Zero Hedge pro­vides an analy­sis of bond sup­ply and demand: Time for QE2.

Bond Car­nage, Mud­dled Infla­tion Think­ing & Fed Options, Naked Cap­i­tal­ism, 28 May

A more in-depth look at this week’s top sto­ry. Key quote: “if the Fed were to step up pur­chas­es sys­tem­at­i­cal­ly, it could very well wind up own­ing the mar­ket. How many investors would decide to sell into its bid? So QE would indeed cre­ate infla­tion, but might not con­trol bond yields as much as the Fed hopes unless it is will­ing to buy what­ev­er it takes to hold a giv­en inter­est rate.” Note that Vockler’s surg­ing inter­est rates in the ear­ly 80s was a major cat­a­lyst in bank­rupt­ing of the US sav­ings and loans indus­try. The banks had sold 30-year fixed mort­gages at, let’s say 10%, but their financ­ing pipeline came from short-term rates. So when the whole­sale mort­gage inter­est rates rose to 20% they became instant­ly insol­vent.

Reg­u­la­tors Should Require Bond Bank Buffers, Bloomberg, 28 May

You scratch my back, I’ll scratch yours. The Fed/Treasury didn’t cre­ate $12.8 tril­lion and give it to the banks for noth­ing. This is shad­ow QE: the Fed buys Trea­sury bills with the stroke of a key­board; the Trea­sury bails out the banks; banks use the bail out mon­ey to bail out the Trea­sury and Fed. Prob­lem solved. There’s been some chat­ter in the blo­gos­phere about the Fed using shock and awe to push the yields back down. Watch this space.


Loud Par­a­digm Shift Rum­blings, Jim Willie, Goldenjackass.com, 22 May

I’m a bit ner­vous link­ing to Jim Willie as he often comes across as an unhinged crank. But this is a great post, so long as you take a few claims with a pinch of salt. It presents a very com­pelling view of the state of the US rel­a­tive to oth­er emerg­ing pow­ers. If you have a spare six months, you could also check out an anno­tat­ed ver­sion of the same arti­cle on Mar­ket Skep­tics (com­plete with razor blades and pain killers).

Chi­na Unveils First Sov­er­eign Cred­it Rat­ing Stan­dards, Chi­na View, 23 May (via Mar­ket Skep­tics)

One to watch. “The sov­er­eign cred­it rat­ing stan­dards would be able to eval­u­ate the will­ing­ness and abil­i­ty of a [for­eign] cen­tral gov­ern­ment to repay its com­mer­cial finan­cial debts as stip­u­lat­ed in con­tracts.” How will they rate US gov­ern­ment debt (like “tough cus­tomer” Moodys)? Or Australia’s for that mat­ter, now that we’re run­ning $70b deficits. How would Chi­na rate Westpac’s lat­est bond offer­ing?

Russia’s First Per­sian Gulf Naval Pres­ence Coor­di­nat­ed With Tehran, DEBKAfile, 26 May

More bad news for the USD: “… this is the first time a Russ­ian flotil­la will have tak­en on pro­vi­sions and fuel at the same Gulf ports which hith­er­to ser­viced only the US Navy.” Kind of impor­tant, don’t you think? But don’t wor­ry; read­ers of the main­stream press were kept up-to-date on break­ing Russ­ian news when a small girl was found behav­ing like a dog.

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