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.
Geopolitical:
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.
