The Pool­room week end­ing 30th Sep­tem­ber 2011

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A wild fort­night of tur­bu­lence in the exotic world of finan­cial…

AUSTRLIAN/GLOBAL RELATED NEWS LINKS:

Sharp drop for econ­omy, IMF warns (http://www.theage.com.au/business/sharp-drop-for-economy-imf-warns-20110920-1kjn6.html)

, The Age, 20 Sept

First and fore­most, the IMF has down­graded GDP fore­casts, ‘warn­ing of a new global reces­sion that would hit com­mod­ity prices and drive mil­lions world­wide into unem­ploy­ment.’ Now sug­gest­ing growth to be “anaemic” in advance economies (1.6%). ‘How­ever, this assumes Euro­pean pol­i­cy­mak­ers con­tain the cri­sis in the euro area periph­ery, that US pol­i­cy­mak­ers strike a judi­cious bal­ance between sup­port for the econ­omy and medium-term fis­cal con­sol­i­da­tion, and that volatil­ity in global finan­cial mar­kets does not esca­late’ the fund said.

Aus­tralian fore­cast­ers outdo IMF for gloom (http://www.theage.com.au/business/australian-forecasters-outdo-imf-for-gloom-20110921-1kkbb.html), The Age, 21 Sep­tem­ber

Notably, ‘Aus­tralia will out­per­form its rich nations peers, but less so than the IMF fore­cast in June. Pen­cil in 1.8 per cent this year (down from 3 per cent) and growth of 3.3 per cent in 2012 (trimmed from 3.5 per cent.)’ Unfor­tu­nately, ‘the IMF tends to be behind the curve when it comes to fore­casts.’ Our big banks now fore­cast­ing 2011 growth as the fol­low­ing:

WBC:   1.2%

ANZ:    1.3%

CBA:    2%

NAB:   1.9%

Gold­man Sachs rules the world: UK trader (http://www.theage.com.au/business/world-business/goldman-sachs-rules-the-world-uk-trader-20110928-1kvv4.html), The Age, 28 Sept

And, of course as every­one is aware now UK trader Alessio Rastani’s state­ment regard­ing the future of the world econ­omy; ‘Per­son­ally I’ve been dream­ing of this moment for three years. I have a con­fes­sion, which is I go to bed every night, I dream of another reces­sion.’ I’m sure it would have been very sat­is­fy­ing for the neo­clas­si­cal eco­nomic com­mu­nity had he have sim­ply been one ‘satir­i­cal’ Yes Men. (See also: http://www.theage.com.au/business/who-is-alessio-rastani-20110928-1kw8a.html)

AUSTRALIAN RELATED NEWS LINKS:

House prices extend slide: NAB (http://www.theage.com.au/business/house-prices-extend-slide-nab-20110928-1kwck.html), The Age, 28 Sept

Back home on the hous­ing front the NAB Res­i­den­tial Prop­erty Index fell 14 points for the Sep­tem­ber quar­ter. A decline from a 5-point drops in the June quar­ter ear­lier this year.

Mort­gage stress hits roof (http://www.theage.com.au/business/who-is-alessio-rastani-20110928-1kw8a.html), The Age, 28 Sept

Mean­while, Moody’s rat­ing agency recently accounted, ‘MORE Aus­tralians are falling behind on their home loans despite the min­ing boom, accord­ing to a report released yes­ter­day by rat­ings agency Moody’s.’ A prime exam­ple of this was, ‘the 6182 post­code, tak­ing in Rock­ing­ham, 30 kilo­me­tres south of Perth, has the high­est delin­quency rate, with 5.31 per cent of mort­gages more than 30 days over­due — more than three times the national aver­age of 1.67 per cent…

Moody’s senior ana­lyst Arthur Kara­bat­sos said the two biggest declines in mort­gage per­for­mance were in min­ing boom states West­ern Aus­tralia and Queens­land. ”What I’m say­ing is: if you’re in min­ing, you’re sweet. If you’re not, you’re screwed.”’

Homes in five WA regions among nation’s worst rate of neg­a­tive equity (http://www.watoday.com.au/business/property/homes-in-five-wa-regions-among-nations-worst-rate-of-negative-equity-20110928-1kxa3.html#ixzz1ZIhda6G4)

The Age, 28 Sept

Not sur­pris­ingly, WA ‘has the sec­ond high­est num­ber of homes with neg­a­tive equity (4.9 per cent) in Aus­tralia, and is home to five of the 10 regions with the high­est rates in the coun­try, the RP Data annual Equity Report shows. The national aver­age is 3.7 per cent.’

About Craig Tindale

CEO in the software and technology industry qualifications economics and computer sciences well read on Minksy, Marx, Fisher , Schumpeter , Veber and dozens of of others
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  • The Peak Oil Poet

    ah, yes, it all looks so famil­iar

    it’s like deja vu all over again

    but wait! What will Aus­tralia do?

    Why of course!

    immi­gra­tion!

    think of how great our house prices would appear to the tiny per­cent­age of Chi­nese investors we’d need to keep it all chug­gin’ along if

    1. our dol­lar fell to new lows (say like 52% of the USD)
    2. the Chi­nese econ­omy looks so fright­en­ing they just gotta sell up and put the money any­where

    things are dif­fer­ent here

  • It is so nice to see prop­erty prices revert­ing to true pre ponzi lev­els, 20% down now, another 50% to go in 5 years. Cash is king, earn­ing 6.95%/year on it is even bet­ter.

  • ken

    It’s like a series of bat­tles, where if you win, you just get to fight again like the glad­i­a­tors. Even­tu­ally you know that they are going to lose, and that seems to be the fate of the reserve banks.

  • Jovial

    Kalman. Here is a puz­zle­ment for you.
    Go to;
    http://www.australiansuper.com/investments-and-performance/superannuation-performance/investments-performance-fytd.aspx

    On the right side click all three fixed inter­est options.
    These are flat rates. returns are between 14 and over 20 per­cent annu­alised.
    The inter­na­tional fixed inter­est may be explained by hedg­ing and the drop in AUD.
    How to explain Aus­tralian fixed inter­est return­ing 3.56% for the first quar­ter alone?
    Yes I have asked Aus­tralian Super. They sent a use­less glossy for my trou­ble.

  • Dear Jovial,
    The answer for your ques­tion is sipmle.

    per­haps none of the invest­ment in the items out­lined are real. Once the money goes to the invest­ment it is used to sus­tain a ponzi pyra­myd sys­tem, the money is gone in an instant and some is paid out includ­ing returns from new investors.

  • Lyon­wiss

    @ Jovial Octo­ber 4, 2011 at 8:56 pm
    @ Kalman Octo­ber 5, 2011 at 9:16 am

    Aus­tralian­Su­per is a huge dis­ap­point­ment for me, not that I’ve lost money, as I’m not a mem­ber. But I have been observ­ing how they oper­ate.

    Super­an­nu­a­tion is a another scam to ben­e­fit the finan­cial indus­try. (Banks are heav­ily involved.) It takes out about three per­cent in taxes and fees per year, or about $40 bil­lion per year from the sys­tem. About two per­cent of the cost comes from fees, mostly for invest­ment man­age­ment.

    Aus­tralian­Su­per is non-profit, which is a good start, prob­a­bly sav­ing mem­bers about one per­cent. Through merg­ers and acqui­si­tions, it now man­ages $40 bil­lion of work­ers sav­ings.

    In prin­ci­ple, economies of scale low­ers cost and ulti­mately ben­e­fit mem­bers in higher net returns. Yet, Aus­tralian­Su­per con­tin­ues to shirk its respon­si­bil­ity by out­sourc­ing invest­ments to over 100 exter­nal man­agers.

    http://www.australiansuper.com/investments-and-performance/approach-and-holdings/our-investment-managers.aspx

    These invest­ment man­agers play the game of casino cap­i­tal­ism, at a huge cost to ordi­nary work­ers. Even whole­sale dis­counted rates, it would cost between one to two per­cent of assets, ie $400 mil­lion to $800 mil­lion per year, lin­ing many pock­ets.

    The cost is unnec­es­sary and avoid­able. The huge num­ber of man­agers, some win­ners and losers, all net out to pro­duce aver­age mar­ket or index returns for Aus­tralian­Su­per mem­bers. What Aus­tralian­Su­per needs to do is to set up its own invest­ment oper­a­tion for $100 mil­lion per year (say), invest largely pas­sively, at a cost of 0.25 per­cent, increas­ing net return to its mem­bers by 0.75 to 1.75 per­cent per year or up to $700 mil­lion.

    It is prob­a­bly another case of cor­rupt union offi­cials on the take.

  • you can’t make money out of noth­ing, super, prop­erty, shares and other so called invest­ments. One must pro­duce, or offer somet­ing in return for ongo­ing reli­able prof­its.

  • Lyon­wiss

    @ Kalman Octo­ber 5, 2011 at 3:08 pm

    The word “invest­ment” indi­cates an intel­lec­tual defi­ciency in dis­cus­sion, because it is ambigu­ous. Pro­duc­tive invest­ment is the build­ing of fixed cap­i­tal, such as machin­ery or intel­lec­tual cap­i­tal (eg edu­ca­tion), which has the capac­ity to pro­duce goods and ser­vices.

    Super­an­nu­a­tion is finan­cial invest­ment where sav­ings (cash in bank) are traded for shares of future cash flow streams (debt or equity) of insti­tu­tions which pro­duce and sell goods and ser­vices.

    You are right. Trad­ing of finan­cial claims is not invest­ment in the sense of enhanc­ing eco­nomic pro­duc­tion, but is merely a spec­u­la­tion on the val­ues of those claims. For this rea­son, much of the so-called invest­ment has no net eco­nomic value, except for those who facil­i­tate the activ­ity: fund man­agers and bro­kers.

    The jus­ti­fi­ca­tion that all the spec­u­la­tive trad­ing makes mar­kets more effi­ciently priced and there­fore helps cap­i­tal allo­ca­tion has lit­tle empir­i­cal sup­port. In fact, mar­ket volatilty appears to increase mis­pric­ing, help­ing the trans­fer of wealth to the finan­cial sec­tor.

  • In real­ity all the cash that is sucked into the finan­cial mar­ket is stolen and replaced with (I owe you’s with + or – returns of more I owe you’s). If all the shares were to be exchanged for items of fun­da­men­tal value there would not be enough to pay out every­one, not 1% would get real intrin­sic returns back. Just like when you have a bank run, there is not enough money com­pared to the amount shown on peo­ples deposits let alone pay for inter­est earned returns, that is sim­ply paid from new depos­i­tors, it is called pozi scheam.

  • Jovial

    Thank you Lyon­wiss for the link.
    Showed me there is at least one super fund not using Mac­quarie for cash invest­ments. I agree super is a scam made pos­si­ble by gov­ern­ment man­dat­ing con­tri­bu­tions and resul­tant client iner­tia.

    Thank you Kalman for point­ing out the ponzi ele­ments in super. I think they are indi­rect, through the stock mar­ket and other cap­i­tal mar­kets, not inside the super funds them­selves.
    Which makes 14% annu­alised on AUD deposits in Aus­tralia so hard to explain.
    Aus­tralian Super, even if a pure ponzi scheme, has no need to declare such high returns. Com­pared to their ASX returns, any pos­i­tive return will do.