The Pool Room Friday 19th June 2009

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AUSTRALIAN-RELATED LINKS:

Aussie Banks Addict­ed To For­eign Bor­row­ing, Dai­ly Reck­on­ing, 18 Jun
“The deposit base of Aussie banks is ‘too low’. Aussie banks are over-reliant on off­shore mon­ey. This entire sit­u­a­tion is a ‘threat to eco­nom­ic recov­ery’. So it appears Aussie banks are addict­ed to for­eign bor­row­ing and are cur­rent­ly suf­fer­ing from with­draw­al symp­toms… Aus­trali­a’s prop­er­ty boom was bought with bor­rowed mon­ey. Both res­i­den­tial and com­mer­cial prop­er­ty val­ues soared with the cred­it boom. If you think the banks are fine because they don’t have a sub­prime prob­lem, think again. The banks have a prop­er­ty prob­lem, and you can find it on the asset side of the bal­ance sheet.” Well said. Our robust and con­ser­v­a­tive bank­ing car­tel hasn’t had to account for a prop­er­ty crash. Yet. Green shoots com­men­ta­tors claim that high unem­ploy­ment is the only fac­tor that may cause a dip in prop­er­ty prices, ignor­ing the role of the whole­sale for­eign fund­ing required to keep the Aussie Ponzi scheme alive and kick­ing. We put our­selves in hock to for­eign cred­i­tors to cre­ate the illu­sion of dou­bling or tripling house prices. Col­lec­tive­ly, we are all the Greater Fool.

Jen­man Prop­er­ty Report, 12 Jun
Brick­bat alert as Jen­man Fights Back! From the far reach­es of the out­er galaxy come claims that the FHOG is not that rel­e­vant in explain­ing why low-end prop­er­ty prices are hold­ing up well and fur­ther claims that econ­o­mists are nat­u­ral­ly pes­simistic. Oh yeah, that whacky Steve Keen bet­ter bloody well check his mod­els as they don’t take into account emo­tion­al fac­tors unique to the Aus­tralian psy­che. Some peo­ple just don’t get it… like debtdeflation.com read­ers. Con­tributed by Peter.

Falling Hous­ing Starts Leave Build­ing Groups As Sick As A Brick, SMH, 18 Jun
“Fig­ures show­ing a con­tin­ued slump in hous­ing activ­i­ty in Aus­tralia in the March quar­ter have all but con­firmed the upcom­ing full-year prof­it sea­son is going to be ugly for com­pa­nies such as Boral and Wat­tyl. Fig­ures from the Aus­tralian Bureau of Sta­tis­tics for the three months to March 31 show a 24.7 per cent dive in hous­ing starts com­pared to the pre­vi­ous year.”

New Hous­ing Boom Set To Go Through The Roof, SMH, 18 Jun
Stop the press! Ignore that last link as it’s all set to go through the roof now! “As NSW record­ed its low­est fig­ures for con­struc­tion of new homes, devel­op­ers have pre­dict­ed the worst is over and the state is on the verge of a hous­ing boom.” When was the last time that the real estate indus­try said that it was a bad time to buy? “’There will be a boom,’ said Stephen Albin, chief exec­u­tive of the Urban Devel­op­ment Insti­tute of Aus­tralia.”

House Prices Tipped To Lift By 2012, The Aus­tralian, 14 Jun
Steve writes: “Soon as I read the head­line I thought “This has to be anoth­er BIS Shrap­nel report”…and sure enough… Inci­den­tal­ly, have BIS (or is that BS?) Shrap­nel EVER been right with ANY of their sup­posed fore­casts?  Me thinks not.” Michael also not­ed that the Couri­er Mail also regur­gi­tat­ed the same data.

Home Buy­ers’ Stamp Duty Sur­prise, SMH, 16 Jun
Not so sur­pris­ing. What to do when the first home can­non fod­der has run out? “The Rees gov­ern­ment will pro­vide a $64 mil­lion boost to peo­ple buy­ing new homes, cut­ting their stamp duty by half.” It reminds me of Fred­die Mac – in the ear­ly days of the prop­er­ty boom the qua­si-pub­lic sec­tor body sub­sidised low-income minori­ties. By the end it was offer­ing sub­sidised inter­est rates on Jum­bo loans (greater than $500k) for upper-quar­tile income earn­ers in Cal­i­for­nia and oth­er boom states.

Cash Rolls Into Real Estate Trusts, SMH, 19 Jun
Whose cash I won­der? There’s a “high lev­el of demand from insti­tu­tion­al investors”. Could that be your super­an­nu­a­tion fund on the line? Or your future tax pay­ments? If you look around and can’t spot the suck­er in the room then he’s prob­a­bly you.‘

Busi­ness Bor­row­ing Dives, Hous­ing ‘Bub­ble’ Grows, ABC News, 15 Jun
Full-time media whore and part-time econ­o­mist, Steve Keen, tells ‘em where it’s at: “We have been liv­ing in a bub­ble econ­o­my, and you don’t get out of the trou­ble caused by a bub­ble by mak­ing it grow even big­ger.” In anoth­er celebri­ty appear­ance, Steve offers diet sound-bites on the dereg­u­lat­ed bank­ing sys­tem and fol­lows up with a full-fat radio inter­view (busi­ness bor­row­ing is down 70% and the busi­ness sec­tor is bat­ten­ing down for a seri­ous eco­nom­ic down­turn).

Net Inter­est Mar­gins High­er Than Before Glob­al Finan­cial Cri­sis, The Aus­tralian, 18 Jun
Nev­er waste a cri­sis.

Plas­tic Less Fan­tas­tic As Cred­it Card Use Falls, SMH, 18 Jun
“‘Despite ear­ly signs that the glob­al econ­o­my is sta­bil­is­ing, con­sumers con­tin­ue to remain cau­tious, shun­ning debt at every oppor­tu­ni­ty… Cred­it card lend­ing is actu­al­ly con­tract­ing in annu­al terms mark­ing the weak­est read­ing in since records were main­tained 14 years ago.”

Mild Reces­sion A Digres­sion, Michael Stutch­bury, The Aus­tralian, 18 Jun
Clas­sic delu­sion­al think­ing wor­thy of Char­lie Aitken. “The big news of the past few weeks is that Australia’s reces­sion looks much milder than the deep down­turns of the ear­ly 1980s and 90s… We’re still not out of the dan­ger zone giv­en that the big fall in iron ore and coal prices is yet to ful­ly hit. But the con­sen­sus now sug­gests the offi­cial bud­get fore­casts of zero eco­nom­ic growth in 2008-09 and a 0.5 per cent con­trac­tion in 2009-10 are a touch too pes­simistic.” “And, when the reces­sion is over, the R‑word itself might lose some of its scare-fac­tor stig­ma.” “Reces­sions hap­pen. The trick is to make sure the econ­o­my is in rea­son­able shape when they hit and man­age them pru­dent­ly.” Phew. All that wor­ry for noth­ing.

Let The Gongs Sound For The World’s Great­est Trea­sur­er, SMH, 16 Jun
Do you think this head­line is tounge-in-cheek? Yes, I did too before I had the mis­for­tune to read the sto­ry. He’d get a gong from me, “Hey Hey It’s Sat­ur­day” style. And while Swan is laud­ed Chi­na gives Rudd a bol­lock­ing for being a Key­ne­sian dinosaur. Poor Kevin.

Worst Of Down­turn Is Over: Econ­o­mists, SMH, 19 Jun
This is get­ting bor­ing. “’With the Aus­tralian econ­o­my avoid­ing a tech­ni­cal reces­sion, defined as two con­sec­u­tive quar­ters of neg­a­tive growth, we think that the worst of the slow­down is over but expect weak growth to con­tin­ue for most of 2009,’ Mel­bourne Insti­tute research fel­low Michael Chua said in the body’s lat­est month­ly bul­letin.”

GLOBAL ECONOMY / BANKING / FINANCE:

U.S. MBA Mort­gage Appli­ca­tions Index Fell 16 Per­cent Last Week, Bloomberg, 17 Jun
“Mort­gage appli­ca­tions in the U.S. fell last week to the low­est lev­el since Novem­ber as the jump in bor­row­ing costs over the last month caused refi­nanc­ing to plunge fur­ther.”

Chi­na’s Econ­o­my in Tur­moil: Bub­bles in a Down­turn, Chi­na Stakes, 13 Jun
“There’s ice on the export side, while there’s flame on the real estate mar­ket side, and Chi­na’s effort to cre­ate inter­nal demand is being dis­tort­ed. Chi­na’s eco­nom­ic stim­u­lus, which is bull­doz­ing ahead, is caus­ing prob­lems for Chi­na’s eco­nom­ic recov­ery. Man­u­fac­tur­ing is steadi­ly declin­ing, employ­ment and con­sump­tion growth are weak, but bub­bles are begin­ning to gath­er in the real estate indus­try.” Con­tributed by Hugh. More from Chi­na Stakes as “shrink­ing real estate sales are spread­ing, from Shen­zhen north­wards to Shang­hai and Bei­jing”.

For­eign Invest­ment In Chi­na Tum­bles, The Age, 15 Jun
More gloom from Australia’s great red hope. “For­eign direct invest­ment in Chi­na fell for an eighth month from a year ear­li­er as com­pa­nies cut spend­ing to weath­er the worst eco­nom­ic slump since the Great Depres­sion.” And they’ve raised their export tax rebates sev­en times this year (so far) after exports dropped 20% in the first quar­ter.

TrimTab’s CEO Pro­vides Real­is­tic View On the Econ­o­my, Zero Hedge, 18 Jun
Real­i­ty strikes back. CNBC inter­view­er: “The retail investor is back. Why is that such a con­trary indi­ca­tor? Why can’t the retail investor be sig­nalling that this new mon­ey com­ing in is a pos­i­tive?” Guest: “Well, they’ve always been wrong before… they invest with their eyes on the rear-view mir­ror and their foot on the gas and won­der why they crash reg­u­lar­ly.” Unlike Wall St experts and super­an­nu­a­tion fund man­agers. This 5 min video is well worth watch­ing.

The Debt Conun­drum Part 1, Seek­ing Alpha, 13 Jun
Good sum­ma­ry arti­cle high­light­ing the luna­cy behind the cur­rent bear mar­ket ral­ly. Exam­ines what a “return to nor­mal” means.

Cri­sis Of Faith For High Priests Of Ratio­nal Mar­kets, FT, 15 Jun
“A new real­i­sa­tion has dawned among the most fer­vent advo­cates of finan­cial analy­sis and col­lec­tive investor wis­dom – mar­kets are not always ratio­nal… The British CFA recent­ly asked its mem­bers for the first time if they trust­ed in “mar­ket effi­cien­cy” – and dis­cov­ered that more than two-thirds of respon­dents no longer believed that mar­ket prices reflect­ed all avail­able infor­ma­tion.” The oth­er third were all work­ing in acad­e­mia.

Why Econ­o­mists Failed to Pre­dict the Finan­cial Cri­sis, Whar­ton, 13 May
This is a bit rich com­ing from a major US busi­ness school but in these tough eco­nom­ic times we need to stay flex­i­ble. ““It’s not just that they missed it, they pos­i­tive­ly denied that it would hap­pen.” ““The most remark­able fact is that seri­ous peo­ple were will­ing to com­mit, both intel­lec­tu­al­ly and finan­cial­ly, to the idea that hous­ing prices would rise indef­i­nite­ly, a real­ly bizarre idea.” Con­tributed by Peter.

Big Banks Suf­fer­ing As Sub­prime Mort­gages Get Repaid, Mar­ket Skep­tics, 13 Jun
Great sto­ry: “I can’t empha­size how much I am lov­ing this devel­op­ment”. Also not­ed by Michael here.

Ran­dom Walk Down Madison’s Gold­en Mile, Zero Hedge, 13 Jun
A pic­ture tells a thou­sand words. 18 pic­tures of closed store-fronts tell even more. Also see com­ments.

Ger­man Cred­it Crunch Deep­ens, Tele­graph (UK), 14 Jun
“A DIHK sur­vey of Ger­man indus­try, to be released this week and obtained by Der Spiegel, found that over a third of all large com­pa­nies are still see­ing cred­it con­di­tions tight­en fur­ther, if they can bor­row at all. Terms are now tougher than they were at the height of the glob­al cri­sis over the win­ter.”

The Cru­ci­fix­ion Of Latvia, Tele­graph (UK), 14 Jun
Com­pares the col­lapse of Argenti­na in 2001 to poor old Latvia. Nao­mi Klein’s “Shock Doc­trine” comes to mind here. For a much more in-depth and reveal­ing look at these issues, see Michael Husdon’s piece on Ice­land (or watch the 17 min video inter­view).

Idle Rail­road Cars, Where Do They Go?, Mish Shed­lock, 15 Jun
Zeit­geist watch. “The eco­nom­ic slump has idled about 70,000 Union Pacif­ic rail­cars, now side­tracked wher­ev­er space can be found.”  Ayn “Atlas Shrugged” Rand would be lying smug­ly in her grave bitch­ing about how the gov­ern­ment caus­ing all this. I doubt she’s too fond of her num­ber-one fan, Mr Greenspan.

Do the Trea­sury Pro­pos­als On Secu­ri­ti­za­tion Go Far Enough, Naked Cap­i­tal­ism, 16 Jun
“Cred­it became more depen­dent on secu­ri­ti­za­tion than many real­ize. By pret­ty much any met­ric, the role of banks rel­a­tive to oth­er play­ers has declined since 1980, by some mea­sures as much as a 50% drop in mar­ket share… in case you missed it, secu­ri­ti­za­tion has slowed down to a trick­le.” “Going back to old-fash­ioned lend­ing would require banks to have much larg­er bal­ance sheets, hence more equi­ty. The banks are hav­ing enough trou­ble com­ing up with enough cap­i­tal to sup­port their cur­rent foot­ings that rais­ing even more equi­ty would seem to be a non-starter.”

Thai Exports Tum­ble the Most in at Least 17 Years, Bloomberg, 19 Jun
“Thailand’s exports fell the most since at least 1992 in May as the worst glob­al reces­sion since the Great Depres­sion erod­ed demand for prod­ucts. Ship­ments dropped 26.6 per­cent from a year ear­li­er.” Worse than the 1997 Asian Cri­sis then.

Track­ing Eco­nom­ic Reces­sion and Recov­ery in America’s 100 Largest Met­ro­pol­i­tan Areas, Brook­ings, June
Good source of data for US eco­nom­ic decline.

Con­sumer prices edge up in May; infla­tion in check, Yahoo Finance, 17 Jun
“Con­sumer prices rose less than expect­ed in the month of May and post­ed the steep­est annu­al drop in 59 year… fresh evi­dence that the reces­sion is keep­ing infla­tion in check.” So defla­tion is now spun as “keep­ing infla­tion in check”. Tell that to Japan.

States In Deep Trou­ble Over Plung­ing Income Tax Rev­enues, Mish Shed­lock, 18 Jun
US col­lapse watch. “Total per­son­al income tax col­lec­tions in Jan­u­ary-April 2009 were 26 per­cent, or about $28.8 bil­lion below the lev­el of a year ago in states for which we have data. In April 2009 alone (April being the month when many states receive the bulk of their bal­ance due or final pay­ments), per­son­al income tax receipts fell by 36.5 per­cent, or $18.2 bil­lion.”

What’s Next For The US Econ­o­my, or What’s Left of It?, The San­i­ty Check, 11 Jun
A new post from an expert on finan­cial cor­rup­tion, one of the founders of the move­ment that exposed sys­tem­at­ic naked short sell­ing. “It’s ugly, folks. About as ugly as one could imag­ine… remem­ber that preda­to­ry inter­ests don’t real­ly care whether economies or cur­ren­cies get wrecked or not — they ben­e­fit main­ly by mas­sive volatil­i­ty, in either direc­tion, caused by their actions. They know the tim­ing as they engi­neer the swings, thus are per­fect­ly posi­tioned to prof­it from every­one else’s loss.” I sug­gest you also read the com­ments in detail.

GEOPOLITICAL:

De-dol­lar­iza­tion: Dis­man­tling America’s Finan­cial Mil­i­tary Empire, Michael Hud­son, 13 Jun
Must-read link-of-the-week by one of the best GFC pun­dits. “When Chi­na and oth­er coun­tries recy­cle their dol­lar inflows by buy­ing US Trea­sury bills to “invest” in the Unit­ed States, this build-up is not real­ly vol­un­tary. It does not reflect faith in the U.S. econ­o­my enrich­ing for­eign cen­tral banks for their sav­ings, or any cal­cu­lat­ed invest­ment pref­er­ence, but sim­ply a lack of alter­na­tives. ‘Free mar­kets’ US-style hook coun­tries into a sys­tem that forces them to accept dol­lars with­out lim­it. Now they want out.” “US inter­est-rate and tax reduc­tions in the face of explod­ing trade and bud­get deficits are seen as the height of hypocrisy in view of the aus­ter­i­ty pro­grams that Wash­ing­ton forces on oth­er coun­tries via the IMF and oth­er Wash­ing­ton vehi­cles.” “For­eign­ers see the IMF, World Bank and World Trade Orga­ni­za­tion as Wash­ing­ton sur­ro­gates in a finan­cial sys­tem backed by Amer­i­can mil­i­tary bases and air­craft car­ri­ers encir­cling the globe.” Too many quotable quotes to list here…

BRICs May Buy Each Other’s Bonds in Shift From Dol­lar, Bloomberg, 16 Jun
In case you thought Hud­son was mak­ing it all up. “Brazil, Rus­sia, India and Chi­na are con­sid­er­ing buy­ing each other’s bonds and swap­ping cur­ren­cies to lessen depen­dence on the U.S. dol­lar, Russ­ian Pres­i­dent Dmit­ry Medvedev’s top eco­nom­ic advis­er said.” The next day Bloomberg poo-pooed this sto­ry by claim­ing that the return on US secu­ri­ties was high­er than BRIC issued secu­ri­ties so they would be fool­ish to diver­si­fy. Nice try. More from Mer­co­Press.

Cur­rent Account Trade Deficit Drops To $101.5B, Yahoo Finance, 17 Jun
“The deficit in the broad­est mea­sure of trade plunged sharply in the first three months of the year as the coun­try’s deep reces­sion depressed imports of oil and oth­er goods… a 34.5 per­cent decline from the deficit in the fourth quar­ter. It was the low­est cur­rent account deficit since the final three months of 2001 when the coun­try was mired in the last reces­sion.” This has huge impli­ca­tions for the USD, as the cur­rent account deficit is plugged by for­eign cred­i­tors buy­ing US trea­suries there­by prop­ping up demand for the USD. Time for more QE.

April Net For­eign Sales Of Long-Term US Secu­ri­ties, WSJ, 15 Jun
Short but not so sweet. “Net for­eign sales of long-matu­ri­ty U.S. secu­ri­ties totaled $8.8 bil­lion in April, fol­low­ing pur­chas­es of $36.5 bil­lion the month before, accord­ing to a U.S. Trea­sury Depart­ment report released Mon­day. Mean­while, the report shows that Chi­na, Japan and Rus­sia — three large pur­chasers of U.S. Trea­surys — all trimmed their hold­ings of U.S. debt.” See some mean­der­ing spin on the sub­ject by Bloomberg.

USDA Delib­er­ate­ly Mis­lead­ing Investors To Hide Loom­ing Food Short­age, Mar­ket Skep­tics, 17 Jun
MS has been writ­ing about food short­ages for months now. Is he right? I don’t know but it’s worth keep­ing in mind.

The Strange Incon­sis­ten­cies Behind the $134.5B Bear­er Bond Mys­tery, Under­ground Investor, 16 Jun
Prob­a­bly the best arti­cle on this fan­tas­tic sto­ry so far. Oth­er pun­dits think that they may be not be fakes but a way in which the US has unloaded debt sales on the sly.

Glob­al Sys­temic Cri­sis In Sum­mer 2009: The Cumu­la­tive Impact Of Three “Rogue Waves”, Leap2020, 17 Jun
If you think the oth­er links are depress­ing then puck up and read this… “Because the ori­gins of the cri­sis remain unad­dressed, we esti­mate that the sum­mer 2009 will be marked by the con­verg­ing of three very destruc­tive ‘rogue waves’ [mas­sive unem­ploy­ment, ser­i­al cor­po­rate bank­rupt­cies, crash of USD, UST and STG], illus­trat­ing the aggra­va­tion of the cri­sis and entail­ing major upheaval by September/October 2009.” “These three waves do not appear in quick suc­ces­sion… they are even more dan­ger­ous because they are simul­ta­ne­ous, asyn­chro­nous and non-par­al­lel. Hence their impact on the glob­al sys­tem accen­tu­ates the risks because they hit at var­i­ous angles, at dif­fer­ent speeds and with vary­ing strength. The only cer­tain thing at this stage is that the inter­na­tion­al sys­tem has nev­er been so weak and pow­er­less to face such a sit­u­a­tion.” Does any­one want to share the costs of a sub­scrip­tion?