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  1. Morgan Stanley analyst bearish on housing market

    * Michael Bennet

    * From: The Australian

    * August 17, 2010 12:11PM

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    property auction

    Auctioneer David Dickson of DJD Auctions calls for bids at a property sale. Picture: Melanie Russell Source: The Australian

    LOCAL property investors have become "Ponzi borrowers" in a market 40 per cent overvalued, according to a Morgan Stanley strategist.

    In a bearish note to clients this morning, Morgan Stanley strategist chief strategist Gerard Minack warned Australia's housing "bubble" could be pricked should banks tighten credit or "loss-making" middle-class landlords start to sell.

    He argues owner-occupiers are in too much debt and investors are riskily relying on capital gains to repay their loans and interest repayments.

    Compounding the problem is "ill-advised policy", such as the government's first home-buyers grant, which has combined to make Australian houses "40 per cent above fair value", Mr Minack says.

    "Buying an asset that's over-priced never ends well," he said. "The real return on residential property over the next decade is likely to be negative, in my view."

    Start of sidebar. Skip to end of sidebar.

    Related Coverage

    * A quick return to surplus could show the world the way The Australian, 19 Feb 2010

    * Interest rate rise in doubt Perth Now, 1 Dec 2009

    * Households coping with lower income The Australian, 24 Sep 2009

    * Economic imbalances remain The Australian, 5 Jul 2009

    * More banks to lift home rates Courier Mail, 14 Jun 2009

    End of sidebar. Return to start of sidebar.

    "Owner-occupiers have played a game of financial chicken, competing for property by taking on increasingly imprudent amounts of debt.

    "Investors have become Ponzi borrowers -- Hyman Minsky's term for borrowers who rely on capital gains to repay debt and interest -- in the belief that housing is a sure-fire long-term investment. History shows that it isn't."

    Australian Bureau of Statistics figures show overall average house prices rose 18.4 per cent for the full year to June, with Sydney prices rising 21.4 per cent -- the largest since it began recording these figures in 2002.|

    But the rate of growth has been slowing in recent months as rising interest rates feed through the economy.

    Commonwealth Bank of Australia, the nation's largest bank by market value, also warned last week it could be forced to raise rates independent of the Reserve Bank. CBA's full-year results showed some key business units were struggling with higher costs.

    On the positive side, Mr Minack said the most plausible trigger for a correction in the Australian housing market -- broad-based jobs losses -- doesn't appear likely in the near term. This means big price declines in the near term "seems low".

    Australia's jobless rate rose to 5.3 per cent in July, from 5.1 per cent, as more people decided to look for work and as full-time employment fell for the first time in 11 months.

    The RBA – one of the few central bank's in the developed world to raise rates since the global financial crisis -- has been on hold since May as six rate rises since October feed through the economy. The official cash rate stands at 4.5 per cent.

    But Mr Minack said Australia dodging of the worst of the global financial crisis didn't demonstrate that there's no housing bubble.

    "I'm not persuaded by arguments that houses are sustainably priced; I'm not persuaded by the view that debt is not a problem; and I'm not persuaded that policy-makers could prevent collateral damage to banks," he said.

  2. SYDNEY (Dow Jones)--Australia's sharply overpriced stock of housing remains a major risk to the economy, but the danger of hefty price declines over the near term seems low, Morgan Stanley said Tuesday in a research report.

    "Dodging the worst of the global financial crisis didn't demonstrate that there's no bubble, in my view it just showed we dodged the *****," said Gerard Minack, chief economist at Morgan Stanley in Australia.

    "I'm not persuaded by arguments that houses are sustainability priced, I'm not persuaded by the view that debt is not a problem and I'm not persuaded that policy-makers could prevent collateral damage to banks," he added.

    The comments come as house price growth in Australia has flattened out under the weight of multiple interest rate increases between October 2009 and May this year.

    The property sector has been the subject of intense debate after prices doubled through the late 1990s to around 2004, and then remained firm even as the sub-prime mortgage crisis swept the northern hemisphere.

    "Australian house prices are expensive on every value metric. They are expensive relative to history, and expensive relative to houses in comparable countries," Minack added.

    Minack contends that most measures suggest house prices are around 40% above fair value, saying they clearly define a housing "bubble."

    "Buying an asset that's over-priced never ends well. The real return on residential property over the next decade is likely to be negative, in my view," he added.

    Minack said broad-based job losses across the economy would likely be a trigger for the collapse of the bubble, but admitted that doesn't appear likely with unemployment now just above 5%.

    "Broad-based job losses are clearly a bubble-popper. I don't expect to see broad-based job losses in the foreseeable future, although there are obvious downside risks to the global outlook," he said.

    The more imminent risks include bank tightening credit and/or "Australia's army of loss-making middle-class landlords starting to sell."

    "Over the past decade property has been an excellent investment. But it is, in my view, extremely unwise to expect such gains to continue given current valuations. The investment fundamentals of housing have sharply deteriorated," he said.

    While not a lone wolf in the debate, others in the market argue that Australia's market won't implode.

    Adam Boyton, chief economist at Deutsche Bank, said last week the outlook for the property sector is a lot more sanguine with both structural and cyclical elements supporting the housing sector. Aggregate house price to income ratios across capital cities have been in a slow decline since 2003, and that trend will continue, he said.

    Research by ANZ Bank was similarly upbeat this week.

    "With interest rates expected to rise, we expect house price growth will (temporarily) slow to low single digits in 2011," said Ange Montalti, senior economist at ANZ.

    "Nonetheless, in the absence of a major economic downturn, a critical shortage of housing will see house prices and rents grind ever higher and housing affordability and availability will become major social and political issues in the decade ahead," Montalti added.

    -By James Glynn, Dow Jones Newswires; 61-2-8272-4685; [email protected]

  3. How a Housing Index Could Work...

    But Won't

    Monday, 16 August 2010 – Melbourne, Australia

    By Kris Sayce

    * How a Housing Index Could Work... But Won't

    As mentioned in Friday's Money Morning, today's newsletter follows on in the same theme - the idea of a tradeable housing index.

    An index which would allow investors to buy if they thought house prices were going up, and sell if they thought house prices were going down.

    If it's done properly, a housing index could provide a useful purpose. Both as a measure of house prices but also as a way to bet on the performance of house prices.

    That's the plus side. The down side of the idea is that the high price of housing could actually increase a person's risk exposure to housing. Or the capital required to enter the trade could be so prohibitive as to make it not worthwhile.

    But let's look first at how a housing index could be created...

    On Friday we wrote that a tradeable housing index that was based on theoretical values or fancy computer modelling would be doomed to failure. That's our opinion anyway.

    We can't see how any serious investor would be interested in investing in something that was based on an opaque and unfathomable set of mathematical formulae.

    So, what's the alternative?

    As we see it, it's important to not try and reinvent the wheel. For all its faults, stock markets are still the most transparent market for trading there is. So therefore why not just copy the stockmarket model?

    In the case of shares, most investors want to know a few key points. Chief among them is, what profit does the company make now, and what profit is it likely to make in the future?

    Once you've run the numbers you can then figure out if the stock is currently trading at a discount, a premium or at fair value to its future profit potential.

    So, is it possible to do the same with housing?

    Of course it is.

    But not with a fancy-pants computer model.

    The simplest way to figure out the current and future value of housing is to use residential rental properties. The residential rental market provides all the figures you need to know about current and future profits.

    A portfolio of rental properties provides the three vital ingredients you need: a purchase price, maintenance and financing costs, net rental income, and sale price (if the property is disposed of).

    With all that information, not only would it be possible to monitor the increase or decrease in property values as properties are sold from the portfolio, but it would also give investors a genuine indication of the total income generated by the properties.

    As you know, one of our biggest criticisms of property investing is that it's priced for perpetual growth, with no regard for how much income the property is generating - a classic sign that an asset class is trading in a bubble.

    Just like the dot-com boom, and just like the US housing boom. Income was ignored simply because prices continued to rise, and the punters thought that would continue forever.

    Residential property investors are happy to make a loss on their rental homes because they've been brainwashed into believing house prices can only ever go up.

    But let's suppose this idea took on. Who would manage and monitor this portfolio of rental properties?

    Well, there are two options. First is that property investors simply place their investments in a "managed portfolio", handing over administration of the properties to the property manager for a fee - not too dissimilar to how things work right now with real estate agents.

    The second option is to rely on the data records of existing property managers, requiring them to provide purchase, sale and rental details for a random selection of properties they manage.

    Either way, for the most part the data is already there. It's just a case of there being the will for someone to collect and maintain the records.

    The benefit of this approach - while by no means perfect - is that the income generated from the rental properties would provide investors with an indicator of whether housing is undervalued or overvalued relative to the value of the underlying portfolio.

    Sure, there would still be a degree of guesswork by investors, figuring out what the value of the underlying properties should be. But that's no different to the stock market.

    The benefit that the rental index would have over the stock market is that properties are bought and sold all the time. If a property is sold from the portfolio, investors would be able to see how the sale price compares to the purchase price.

    In other words you'd get a combination of growth and income data based on real prices and real rental incomes, rather than airy-fairy computer models.

    Of course, it wouldn't be perfect. But no investment or index is perfect. Again, just look at the stock market for proof of that.

    But that's the whole point of investing. Uncertainty is what drives prices in the market. Once you have complete certainty either way then you can guarantee that prices are ready for a reversal because they are either priced for perfection or priced for destruction.

    And in reality, neither is likely.

    The important point is that it would give investors a picture of comparative risks. Investors could easily compare the yield on a property index against that of a stockmarket index.

    They could then figure out whether that's a yield worth investing in. Investors would then need to consider whether that makes it overpriced or not.

    If they think so, then they can use the index to short-sell for profit, or to hedge an exposure.

    Which brings us on to our other point. We've been told that one of the benefits of a housing index is that it would allow homeowners to hedge their housing exposure.

    If they've bought a house worth $500,000 and they're worried the price could fall then they could short sell the index and neutralise their market position. They'd be protected against falling property prices, but because it's a hedge, they'd also miss out on any gains if prices continued to rise.

    Right there you have your problem.

    Quite frankly if you've bought a $500,000 house and you're worried the price could fall, then you've seriously got to consider whether paying that much for a house was a good idea in the first place.

    You see, unless you're prepared to take a punt up to the supposed value of your house then it isn't a full hedge.

    Is it really such a great idea that not only have the spruikers and banks and policy makers conspired to pump prices up to bubble proportions, that the some wonks are now encouraging people to take another punt on house prices in case they fall... to the tune of another half a million dollars.

    Don't get me wrong, hedging a portfolio can be a great idea. It can help to protect your investments should something happen.

    But do you really want to take a risk on short selling an index when you're betting against the most manipulated asset class in Australia? Would you really want to place a down bet when you know the government could come in to prop the housing market up with another billion or so dollars?

    Sure, if you own a home then that intervention may have helped to support your house price.

    But let's say house prices do go up. That means you're losing on your down bet. If it's a true hedge then as the price of the house increases your loss on the hedge also increases.

    Imagine the irony if you'd hedged your $500,000 house at the beginning of 2009 only to see the index showing a 20% increase in house prices and then suddenly you're out of pocket by $100,000 on your bet... only to have to sell your house in order to cover the hedging loss!

    You'd want to hope your house price had increased in line with the index in that scenario.

    But even before that, how would you even place the bet? Would you have to stump up $500,000 in cash? Or would you do it on margin using a loan from, erm, a bank? Probably using your house as security.

    From a hedging perspective the whole idea is getting smellier and smellier the more we think about it.

    But the point is, as we've written many, many, many, times before, the ultimate use for a house is that it's somewhere for you to live. A house is a home not an investment. A house is a cost for an owner occupier, not a source of income.

    Besides, if you're sensible then you'll have taken out building and contents insurance.

    So do you really need to take out an insurance policy (hedging using a housing index) to insure against the value of your house falling?

    Maybe you do. Certainly many homeowners in the US and UK probably wish they could have hedged their house price. But that's only because house prices were pushed up to such a crazy level - much as they have been here.

    But as we see it, the creation of a housing index is the equivalent of a drug dealer giving his customers "downers" after spending years pumping them with "uppers."

    The real cure is not to get the market high to begin with.

    When all's said and done, regardless of what any potential housing index looks like, even if it's based on our idea, the reality is that anyone considering using a housing index to hedge the price of their house really shouldn't have spent that much on a house to begin with.

    A housing index might be fun for a punt, but it won't prevent the housing market from crashing and it won't prevent overextended borrowers from losing not only their shirts, but their entire wardrobe as well.


    Kris Sayce

    For Money Morning Australia

    :unsure: We are all gamblers as all forms of investment carry risk.

  4. Property owners looking to sell might need to hurry, expert warns

    Monday, 16 August 2010 11:48

    Patrick Stafford

    E-mail Print

    More on Property

    * Property owners looking to sell might need to hurry, expert warns

    * A flood of new property listings will force sellers to discount: Expert

    * ASIC shuts down unregistered property schemes

    * What businesses can learn from Australia’s big shift to the city

    * Experts question price data to see where property market is moving

    Property owners thinking of selling in the next 12 months should put their home on the market now in order to cash-in on recent growth before buyers start seeking more discounts in the spring selling season, one expert warns.

    The comment comes as the Real Estate Institute of Victoria said over the weekend a record 18,000 properties have been put up for auction so far this year, with sellers keen to cash in on the strong price growth in Melbourne.

    But SQM Research founder Louis Christopher says sellers who are thinking of putting their properties on the market should do so now.

    Growth is starting to trail off, according to the latest figures from agencies including RP Data and Australian Property Monitors, and if you want the most for your money now is the time to sell.

    "It does depend on personal circumstances, but if I had to sell in the next 12 months then I would be considering selling now," he says.

    "There have been many sellers trying to cash in this year, but I think the boat really left earlier this year and since then buyer demand has really dropped off. I still think it's going to continue dropping off."

    Christopher expects listings to increase over the next six months even as buyer demand backs off, resulting in a flat market with very little price growth, if any. He points to the recent RP Data figures which showed prices dropped by 0.7% across the country in June.

    However, Real Estate Institute of Australia president David Airey says there are too many factors weighing into the decision to sell a property, and most of those decisions relate to family circumstances rather than a desire for cash.

    "Death, divorce and debt are the main reasons behind selling a house. For those who have the luxury of decision-making, the market isn't bad, it's just not growing. If you're selling now, or waiting, I think people are taking a punt either way."

    "It just depends on a lot of things, there is really no rationale here."

    Meanwhile, auction results have continued to remain at relatively low levels for the year, but the Real Estate Industry of Victoria said in a statement the result indicates rates have begun to stabilise.

    "The clearance rate for this weekend's auctions was 68%, a small increase from last weekend but largely in line with results this winter. Since the start of winter the clearance rate has been 70% or higher twice, a remarkable contrast to summer and autumn when it was never lower than 73% and frequently in the 80s."

    Christopher agrees, saying that "clearance rates over the last four weeks have steadied, and I think that will be the case heading into Spring".

    A total of 535 properties were put up for auction, with 364 selling. At this time last year, 504 properties were on the market and 85% sold. The REIV said only 300 properties will be up for sale next week due to the federal election.

    Sydney managed to record a 67% clearance rate, with 170 properties selling out of a total of 238 on the market. Total sales value came to $146 million.

    In Brisbane only seven properties sold out of a possible 26, with total sales coming to $2.4 million, while in Adelaide only six properties were sold out of a possible 11%, resulting in a clearance rate of 55% and total sales of $4 million.

    Related Items :

    * A flood of new property listings will force sellers to discount: Expert

    * Halving of Bryon Bay coastal property land values a warning to other coastal property owners: Expert

    * Buyers start to return as house prices cool further

    * Backlog of property listings will put pressure on price growth, experts say

    * Investors warned to remain cautious of property market until bargains appear

  5. Population debate overflows


    23 Jul, 2010 12:27 PM

    Geranium is a memory of a time forgotten. At the turn of last century, the South Australian Government sank a bore deep into the ground, and water was life. Around the graziers and wheat farmers came shops and a post office, schools and churches, a blacksmith and mechanic.

    The mechanic was its ruination, because mechanisation meant bulk grain handling and John Deere reapers. Geranium became just a blink on the highway between Tailem Bend and Lameroo. Families drifted to the capital, the last passenger train ticketed the last passenger and the high school closed in 1990.

    Geranium, like a hundred other towns in country South Australia, has been depopulated.

    But not Adelaide. Like other Australian capitals, Adelaide has grown so that it’s now straining at its boundaries, its public infrastructure completely inadequate for its exploding population, its water supply drying and its affordable housing an oxymoron.

    In Sydney, Melbourne and Brisbane, the population burden is itself unsustainable. Tapping into voter apprehension about Kevin Rudd’s “Big Australia”, newly appointed Prime Minister Julia Gillard immediately ditched the policy to replace it with a different message.

    “It is time to reconsider whether our model of growth is right for an Australia facing fundamental constraints on our water supplies, an Australia where land use is increasingly contested, for example, between mining and farming ... or market gardens versus development on our suburban outskirts,” she said on Tuesday.

    And wherever she’s been campaigning this week, Ms Gillard has spoken against the sort of unlimited growth which is Mike Rann’s future for Adelaide.

    The Federal Government’s intergenerational report predicts an Australian population of 36 million by 2050. In SA, the State Government wants half as many people again – 560,000 extra in Adelaide alone. Mt Barker, in the electorate of Mayo, has been declared by the State Government as the repository of an extra 50,000 more people in just 15 years.

  6. Well the stories of boom have evaperated.

    The green shoots?

    Very little about the volume of houses on the market, rents are not as tight as before.

    I see for sale signs in street apon street, a different landscape than the boom years.

    Soon some will be more motivated then there compeditors to sell.

    The media is now side tracked with the politics side show.

    Dick Smith has got the anti big population is best, rolling.

    Labour smells votes and victory and will back a sustanable Australia. Finally reason and wisdom preval :D

    I have bet on a Labour win on Saturday.

  7. Debt costs rise on Irish, Greek fears

    In this section »

    * Banks prepare to give Arnotts extra €10m

    * Price falls levels off as phone costs increase hits consumer

    RICHARD MILNE in London

    INVESTORS ARE braced for renewed turmoil in euro-zone bond markets as fears about the health of Ireland and Greece pushed the borrowing costs of highly indebted nations sharply higher.

    Official figures showing Greece had sunk deeper into recession in the second quarter of this year spooked investors who had returned to buy the euro and peripheral euro-zone government bonds in the belief Europe’s sovereign debt crisis was easing.

    The National Treasury Management Agency (NTMA) yesterday had to pay investors nearly double the rate of interest it paid three weeks ago in a sale of treasury bills.

    German benchmark interest rates fell to record lows. The premium paid over bunds to investors buying Greek, Portuguese, Irish, Italian and Spanish debt has risen sharply in the past week after the US Federal Reserve announced the first steps towards further monetary easing. “It is an interesting little warning sign this week. The problems have not gone away, the cracks have just been papered over,” said Gary Jenkins, head of fixed income at Evolution Securities.

    The NTMA sold €500 million of six-month bills at an average yield of 2.458 per cent, against one of 1.367 per cent on July 22nd. It also sold €500 million of nine-month bills. Analysts fretted that Ireland, held up as a model for deep budget cuts early on, had little further room for manoeuvre. There was speculation the European Central Bank (ECB) had intervened to buy Irish bonds, which saw yields stabilise.

    The spread over German benchmark bunds has widened by 51 basis points since Friday. Fresh concerns about Irish banking have put the bonds under pressure too.

    “Ireland has done almost all it can and it still is vulnerable. It is quite a worrying prospect long term . . . ” said Jim Reid, bond strategist at Deutsche Bank.

    Irish 10-year yields fell slightly on the rumours of ECB action and were down three base points to 5.29 per cent. But Italian, Greek and Spanish yields all rose. Ten-year German bunds reached record lows before stabilising at a yield of 2.42 per cent.

    The move from riskier assets, after weak data in the US and China, has hurt peripheral euro-zone countries’ bonds and caused the optimism of last month’s bank stress tests to evaporate.

    “The stress tests and better-than-expected earnings: they are all just a sideshow to the economic data,” said Mr Jenkins.

    Many investors are bracing for more turmoil in the euro zone in the coming months. – (Copyright The Financial Times Limited 2010

  8. Mish's Global Economic Trend Analysis Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

    Australian Malls Lose Their Shine

    Things are not well down under either. My friend "Brisbane Bear" comments "Retailer business models are broken yet most retailers are hoping things come back. They won't".

    Please consider The gleaming malls are losing their shine

    The disparity in Australia's two-speed economy, between a resource sector that is in overdrive and the hard scrabble of retailing, hit home to financial planner Kate Kimmorley when the Marina Mirage shopping centre slipped into receivership last month.

    Ms Kimmorley maintains an office near the gleaming halls of designer clothes shops and boutique restaurants on the Southport Spit. She shops there and likes to drop in after work to one of the bars overlooking the rows of million-dollar motorboats and yachts.

    Some of her best customers run shops in the centre -- and they're feeling the pain that is rippling through retailing, belying the stellar performance of mining.

    "I sometimes wonder how they're going to cover the rent because they've had this fantastic refurbishment but there's less people there," Ms Kimmorley said yesterday.

    Sam Hue, the self-styled "Wok Man" of the complex, said takings for his fast-food business last month were 30 per cent down on those 12 months ago.

    "This is a great place and the people will come back," he said. "But they're not here now."

    Brisbane Bear writes ...

    The adjustment phase will render at least 50% of these retailers redundant.

    'Things' ain't coming back.


    Brisbane Bear

    Australia Commercial Real Estate Bust

    Inquiring minds are reading Retail profits under attack for a decade, warns ex-Macquarie banker

    The aftermath of the global financial crisis and changes in consumer behaviour could hit retail profits for a decade. The warning has come from former Macquarie Group property investment banking head Bill Moss.

    Shopping centre owners and retail property would be one of the hardest-hit sectors, with real estate generally having further to fall in value, Mr Moss said.

    "We're heading into a decade, or a generation, of changing consumer trends." Mr Moss said.

    The population was ageing, the internet was eroding sales in shopping centres, the middle consumer market was disappearing, and discretionary spending patterns were changing sharply.

    With retail sales falling and more uncertain economic times, Mr Moss questioned how many retailers were defaulting on their rent payments. "My guess is shopping centre rents will fall," he said.

    "The global recession really is affecting us, despite what Julia Gillard says. It will affect us and retail profits for a decade."

    US GDP Overstated

    Economists were surprised by the last downward revisions in GDP yet another downward revision is on the way thanks to a rising trade deficit.

    Bloomberg reports Wider Trade Gap Signals Weaker U.S. Second-Quarter Growth

    A swelling trade gap, less stockpiling and weaker construction indicate the U.S. economy slowed even more in the second quarter than the government estimated last month, economists said.

    Revisions due later this month may shave last quarter’s 2.4 percent annual growth rate by 1 percentage point or more, according to Morgan Stanley’s David Greenlaw and Nomura Securities International Inc.’s David Resler. The trade deficit in the U.S. unexpectedly widened by $7.9 billion to $49.9 billion in June, Commerce Department figures showed today in Washington.

    A surge in imports means American companies contributed less to the rise in gross domestic product, the value of all goods and services produced in the U.S., than previously estimated. Earlier reports showing smaller gains in inventories and less of a rebound in commercial construction than the government projected will also reduce the pace of expansion.

    “The slowdown occurred earlier than we thought,” said Harm Bandholz, chief U.S. economist at UniCredit Global Research in New York. “We expected the recovery to lose momentum only in the second half and now it occurred in the second quarter.”

    Trade probably subtracted 3.25 percentage points from growth, the most since 1982 and up from the 2.78 points the government estimated last month, Bandholz said.

    By Resler’s calculations, the world’s largest economy probably grew at a 1.3 percent pace from April through June, while Greenlaw’s estimate is down to 1.4 percent.

    That should put a nice international flavor to the "Non-Recovery".

    Hmmmmmmmmm I notice a change: :huh:

    Once any bearish comment was instantly jumped on by Bardon and his alter ego Aussie Boy.

    Were are they now?

    Were is the endless ramping coments on house increases?

    I will make a prediction:

    We will hear less and less from him as house prices fall, he has panted himself into a corner :P

  9. ECB Buys Irish Government Bonds to Calm Market

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    The European Central Bank has bought short-dated Irish government bonds over the past 24 hours in a bid to calm rising market volatility stemming from concerns on the creditworthiness of Irish banks, two people familiar with the matter said.

    The move, part of the ECB's current program of bond purchases which it launched in May in a bid to stabilize euro-zone government bond markets, came after volatility rose sharply in short-term Irish government bonds amid low trading volumes, the people said.

    The ECB declined to comment on the matter, but will announce the amount of bonds it bought this week on Monday.

    The benchmark two-year Irish government bond, a 3.9% security maturing in May 2012, saw its bid price drop to a low of 100.795 on Thursday, down from 101.585 at Tuesday's close, equating to a yield of 3.35%, up from 2.837% on Tuesday, according to TradeWeb data.

    The bond's yield, which represents the cost of borrowing for the Irish government, rose further in early trading Thursday to a high of 3.426% although it has since dropped to 3.216% in mid-morning dealings, the data show.

    The market ruction was triggered partly by the Bank of Ireland's announcement Wednesday that its underlying pretax loss nearly doubled in the first half of 2010 amid high loan impairment charges. On top of that, the European Commission has cleared the Irish government to inject another €10 billion ($12.89 billion) of capital into Anglo Irish Bank beyond the €14.3 billion already provided.

    These events suggest the government will continue to have to bail out the country's banks, pressuring public finances and denting the outlook for Irish government bonds.

    Investors are particularly concerned about the ability of some Irish banks to raise new financing when their existing government-guaranteed debt issues mature in September. They are also worried about an auction on Tuesday next week of two bond issues due 2014 and 2020.

    The Irish National Treasury Management Agency managed to sell €1 billion of two series of treasury bills, receiving total bids of €3.38 billion, or 3.4 times the amount on offer.

    The two people, who are bank dealing sources, said the ECB started soliciting offers for short-dated Irish government bonds on Wednesday in a move designed to restore confidence in the market and a few trades were then executed by the ECB.

    "Because the volumes in the market were very low, it was enough for them [the ECB], to a certain extent, to just ask dealers for prices to remind everybody that they would step in," said one person. "However, there were some flows so the ECB has definitely bought some bonds."

    The annual cost of insuring €10 million of Irish debt rose around €12,000 on Thursday, hitting €282,000, up from around €200,000 at the start of the week. The cost of insuring a similar amount of bonds issued by Anglo Irish Bank and Allied Irish Banks PLC were both around €50,000 higher on the week at €532,000 and €425,000 respectively.

    The risk premium that investors are demanding to hold Irish government bonds is "ridiculous," said Patrick Honohan, Ireland's central bank governor, in an interview with the Daily Telegraph newspaper, published on Thursday. They aren't giving Ireland credit for cutting its budget deficit, he said.

    The ECB has been reducing its bond purchases gradually in recent weeks. It said Monday that it bought only €9 million in the first week of August, down from €81 million the week before and €176 million the week before that.

  10. Australian unemployment in surprise pre-election jump

    A mine in Western Australia Demand for Australian commodities has helped to keep the country's economy out of recession

    Australia's unemployment rate rose to 5.3% in July, according to official figures released just ahead of the country's national elections.

    About 24,600 more people were out of work, raising the rate from June's 5.1%. Analysts had predicted no change

  11. Supply outstrips demand as market slows: new research

    August 9, 2010

    An increase in the number of online property advertisements in July is further evidence the housing market is slowing, research suggests.

    Data released today by SQM Research shows residential real estate listings across the country rose by 5.1 per cent to total of 309,000 property advertisements last month.

    Property advertisements for Melbourne jumped 6.97 per cent from June to July.

    In a normal market during the traditional winter slowdown listing numbers remain flat or record a marginal drop.

    Over the past three months the SQM Index has recorded an increase in supply, research manager Louis Christopher said.

    New stock was coming on the market at a normal or ''slightly elevated'' rate but the overall volume of advertisements increased was because older stock was not moving, Mr Christopher said.

    "Vendors have been more often than not failing to get the price they're after. The old stock hanging on the market is competing with new stock coming on, resulting in an increase in overall supply," he said.

    Advertisements for south-west Melbourne, covering suburbs like Altona and Sunshine, showed a significant jump of 14.1 per cent to 4990. Advertisements covering north-west Melbourne increased in volume by 12.3 per cent.

    SQM research tracks individual property advertisements in all the major online classified sites in Australia.

    Recent data from the Real Estate Institute of Victoria shows auction clearance rates have fallen from 85 per cent before Anzac Day to an average of 67 per cent in July.

    In further signs the market is slowing dwelling approvals posted a surprise 3.3 per cent fall in June and the volume of new home sales also declined.

    Experts suggest the market also backs off during election campaigns.

    REIV figures show 580 auctions are expected this weekend. On election day 320 auctions are listed. The following week 720 properties are expected to go under the hammer.

    Spring will be the next big test for the property market with more vendors expected to put their homes up for sale.

    :D Finally the tide is going out!

  12. It will be interesting to see how the ABS employment report reads when it is released on Thursday. That should give us all a relatively unbiased health check of the heartbeat of the economy.

    In the meantime all we have to feast on is the entree.

    Jobs ads rise 1.3 per cent in July - ANZ

    August 9, 2010

    The total number of ads was 35.1 per cent higher than July 2009, seasonally adjusted - the fastest annual growth rate since November 2007. ANZ chief economist Warren Hogan said the result highlighted the resilience of the Australian economy in an uncertain global economic backdrop.


    :D Here it is unemployment is up

    :( Didnt see that comming did you?

  13. LOS ANGELES (AP) -- The number of U.S. homes lost to foreclosure surged in July, another sign lenders are moving quicker to take back properties from homeowners behind in payments.

    Lenders repossessed 92,858 properties last month, up 9 percent from June and an increase of 6 percent from July 2009, foreclosure listing firm RealtyTrac Inc. said Thursday.

    Banks have stepped up repossessions this year to clear out the backlog of bad loans. July makes the eighth month in a row that the pace of homes lost to foreclosure has increased on an annual basis.

    Meanwhile, homeowners who are falling behind on their payments are being allowed to stay in their homes longer because lenders are reluctant to add to the glut of foreclosed homes on the market.

    The number of properties receiving an initial default notice -- the first step in the foreclosure process -- rose 1 percent last month from June, but tumbled 28 percent versus July last year, RealtyTrac said.

    Initial defaults have fallen on an annual basis the past six months.

    The latest data reflect a foreclosure crisis that continues to drag on as many homeowners struggle to make their monthly payments amid high unemployment, slow job growth and an uneven rebound in home prices.

    Economic woes, such as unemployment or reduced income, are now the main catalysts for foreclosures. Initially, lax lending standards were the culprit, but homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures.

    Lenders are offering a variety of programs to help homeowners modify their loans, but their success rates vary. Hundreds of thousands of homeowners can't qualify or fall back into default.

    The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis but has made only a small dent in the problem. More than 40 percent, or about 530,000 homeowners, have fallen out of the administration's main effort to assist those facing foreclosure.

    That program, known as Making Home Affordable, has provided permanent help to about 390,000 homeowners, or 30 percent of the 1.3 million who have enrolled since March 2009.

    Still, RealtyTrac estimates more than 1 million American households are likely to lose their homes to foreclosure this year.

    In all, 325,229 properties received a foreclosure-related warning in July, up 4 percent from June, but down 10 percent from the same month last year, RealtyTrac said. That translates to one in 397 U.S. homes.

    The firm tracks notices for defaults, scheduled home auctions and home repossessions -- warnings that can lead up to a home eventually being lost to foreclosure.

    Among states, Nevada posted the highest foreclosure rate in July, with one in every 82 households receiving a foreclosure notice. The number of properties in Nevada receiving a foreclosure warning last month rose nearly 7 percent from June, but fell nearly 30 percent from the same month last year.

    Rounding out the top 10 states with the highest foreclosure rate last month were: Arizona, Florida, California, Idaho, Michigan, Utah, Illinois, Georgia and Maryland.

    Las Vegas continued to be the city with the highest foreclosure rate in the U.S., with one in every 71 homes receiving a foreclosure notice in July -- more than five times the national average

  14. Oz RE spruiking king switches teams ?

    A couple of weeks ago we mentioned that a well known spruiker stated he had given up on housing price growth. It now seems that after years of telling people that houses were , well "as safe as houses", and producing hundreds of internet posts and media releases as to why "Australia is different", he is now looking for a way to short the market.

    Christopher Joye from the research group Rismark International says a house price index would allow people to protect themselves against falling house prices.

    "The single biggest source of household and financial system risk is the housing market," he said.

    "There's $3.5 trillion of housing in Australia and there's no way to hedge or insure against house price falls."

    Admittedly salesmen will say anything when they are trying to sell a product, and we have no doubt this is a statement aimed at drumming up business for Macquaries derivatives team.

    But we can still hear the Australian property bears laughing from here. Just another warning readers. :lol:

  15. From beer tasters to koala catchers, Australia launches new “dream job” campaign

    Posted on: 10 Aug 2010 at 11:25 AM in Tourism News


    From beer tasters to koala catchers, Australia launches new “dream job” campaign

    Following the success of their “best job in the world” campaign, Australian tourism officials have launched a new initiative to lure bored Brits Down Under for the ultimate working holiday.

    Jobs on offer include beer tasting, tagging sharks and catching koalas, as well as a Fairy Penguin home remodeller, and a “roo poo” harvester.

    Targeted at Brits aged 18-30, the initiative by the South Australian government is advertising a range of seasonal jobs that promise a “stark contrast to the UK’s long working hours, high taxes and increasing retirement age”.

    Officials hope the examples of dream employment opportunities across South Australia will convince workers that a life Down Under is more exciting than being chained to a desk in the UK, and instead provide the “ultimate work-life balance”.

    Australian agent general in the UK Bill Muirhead said: “This isn’t about one job that everyone has to compete for, but rather about showing people that South Australia offers more exciting work and travel options than anywhere else in the world.”

    :P Yep plenty of wealth creating jobs here!

  16. Bank Profits a sign of economic sickness, not health

    Published in August 11th, 2010

    Posted by Steve Keen in Debtwatch


    The record $6 billion profit that the Commonwealth Bank is expected to announce today is a sign of an economy that has been taken over by Ponzi finance. Fundamentally, banks make money by creating debt, and the amount of debt we’ve been enticed into taking on is the sign of a sick economy rather than a healthy one. The level of private debt that is actually needed to support business and maintain home ownership at historic levels (ownership levels have fallen over recent years!) is possibly as little as one sixth the current level.

    Because of that debt level, bank profits have gone through the roof as a share of GDP. Back before we had a financial crisis—when debt levels were far lower than today—so too were bank profits as a share of GDP. A sustainable level of bank profits appears to be about 1% of GDP. The blowout from this level to virtually six times as much began when bank deregulation began under Hawke and Keating, and then took off as Howard and Costello encouraged everyone to become “Mum and Dad Investors”, which meant borrowing money from the bank and gambling on share and house prices.

    As readers of this blog know, I build models of financial instability, and in my models, one symptom of an economy that is headed for a Depression is a rise in bankers share of income at the expense of workers and capitalists. The model below has yet to be calibrated to the data, but the similarities with the actual data are still ominous.

    One empirical reality illustrated by the model as well is that even if firms are the ones taking on the debt (as they are in this model—it does not include household borrowing), workers are the ones that pay for this in terms of a declining share of national income: rising debt is associated with a constant profit share of GDP but a falling workers share.

    When the crisis really hits, both workers and capitalists suffer as bank income goes through the roof—leading to a Depression. The only way out of this is to abolish large slabs of the debt, and coincidentally to drive bankers share of income back down to levels that reflect is supportive role as a provider of working capital for firms—rather than a parasitic role as the financier of Ponzi schemes.

    This is the real debt story of our economy right now. As the first chart above indicates, private debt is far higher than Government debt, even after the increase last year due to Rudd’s stimulus package. Government debt is currently 5.5% of GDP, whereas private debt—even though it has fallen slightly due to business deleveraging—is over 150% of GDP: 27 times the size of Government debt. The so-called debate that the major parties are having over the size of Government debt is an embarrassment.

  17. The reality is that over 50 workers who labour are more likely not as good as they were when 21.

    The over 50 is likely to stand up for there rights, likely to go workers compensation.


    When the country is filled to the brim with young Eastern European workers willing to work below basic rates?

    Business is about profit.

    All arguments for their employment are just hot air

  18. How Australia's banks could trigger a property crash


    August 2, 2010

    Comments 49

    If you're a dyed-in-the-wool property bull who hates seeing a negative thought written about property prices, stop reading now; what follows will only upset you. But if you're open to considering alternative views, please read on.

    First, let me make it clear that I'm not making a prediction about a setback in the Australian property market. To insist that prices must fall seems as foolish to me as ignoring the possibility of a fall altogether. What follows is simply an observation about a potential risk, alluded to in a speech given by Phil Coffey, Westpac's chief financial officer.

    In a presentation to the Australian Banking & Finance Capital Markets Forum last week, Coffey touched on the risks:

    ''Notwithstanding our strong credit ratings and our healthy relationship with global investors, at some point, institutional investor appetite or concentration risk may become a constraint. It is unusual and untested for an ongoing current account deficit to be funded so much by the majors of a banking system.''

    These candid comments point to an inversion of the argument frequently advanced by banking bears: that falling property prices could cause enormous problems for the banks. There's certainly truth to that position but what Coffey is alluding to implies the opposite. Risk also lies in the exposure of our banks to offshore funding; that it may, in fact, be this reliance on offshore funding that triggers a property market meltdown.

    Traditionally, banks use depositor funds to finance their lending. Yet that's no longer the case in this country (see Bank headlines you won't want to see). Australian banks now finance much of their lending from offshore because our national thirst for credit outstrips our collective ability to fund it. And, in exhausting our domestic savings pool, our banks have headed offshore to fill the breach, rather than curtail their lending.

    Coffey, perhaps unwittingly, is inviting us to consider what might happen to the costs of servicing our mortgages and other loans if our foreign benefactors lose the will to extend further credit at some point. He politely described this disaster scenario as a ''constraint''.

    We saw how our banks reacted to the reduced availability and increased cost of wholesale funding during the credit crisis of 2007, the forerunner to the global financial crisis. Credit was rationed and higher funding costs were passed on to borrowers. That provided a small dress rehearsal for what might happen if the cost of the banks' funding were to rise sharply, or dry up altogether, as a result of ''Coffey's constraint''.

    A$ risks

    Any such loss of confidence or appetite for Australian credit by international investors would most likely be accompanied by a loss of confidence in our currency. Again, we've had a fairly recent preview of this in late 2008 when the Aussie dollar plunged from more than 90 US cents to just 60 US cents in three short months. It's not popular to say, but several key parts of the Australian economy are dependent on the continued confidence of foreign investors.

    The nightmare scenario goes something like this: International investors refuse to extend our banks credit at a reasonable price. This forces the banks to pass on additional costs to their customers and, in some cases, refuse credit.

    These tight credit conditions could squeeze property developers and highly-geared property investors alike. Many developers would be forced to offload housing stock quickly- by reducing sale prices - to raise cash to repay their loans as they fell due and/or cover the increasing costs of their debt.

    Ordinary property investors would face a similar squeeze; seeing prices fall and facing growing debt-servicing costs. Some would be forced to sell into a falling market, pushing prices even lower.

    In effect, we'd witness the reverse of the positive feedback loop we've seen in the property market for many years. Instead of positive sentiment driving prices higher, negative sentiment, a lack of available credit and higher interest costs would push prices lower.

    Again, this disaster scenario is not a prediction -it isn't even likely. The chances of this playing out as described are remote indeed. Our Reserve Bank, for one, has a few shots in its locker. But you only have to look at the US or Japanese housing markets to realise that once people's confidence is broken, low interest rates can only do so much.

    The events of the past few years have shown that most of us are prone to underestimating our exposure to low probability/high impact events (see Nassim Taleb's book The Black Swan for more on this topic). Australian banks' reliance on foreign funding may well be one of those factors that seems all too obvious a risk in hindsight but nobody bothers to raise beforehand. With thanks to Phil Coffey, consider it raised.

  19. I cycled and lived a tent in Ireland for 6 months

    I liked it but I have to say the frost is hard on you living close to nature.

    Some nights even with all my clothes on and a sleaping bag I woke up shivering.

    I got trench rot on my feet and had to dispose my boots wearing those Zoggs my feet came good again.

    Rained a lot it was not much fun packing up in the rain ariving soked to the skin and setting up a wet tent in the rain than crawling in side to wipe the water out with a sock or some thing.

    The farmers allways let me camp and were very freindly.

    I recon tent life is a summer type thing.

  20. Perth is already crashing


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    robertsherlock robertsherlock is offline

    Junior Member

    Join Date: Aug 2010

    Location: The Woodlands (Houston) Texas

    Posts: 5

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    Default Perth is already crashing

    Perth dropped 2% in May and 1.5% in June, averaged over a year that is 20%. Note this drop was in the middle of the bias Australian media talking it up and up. There is not one article anywhere that highlights this 2 monthly drops in a row. I predict a 2% drop each month for the next 4 months and then it should drop a further 40%+ over the next year, once the media picks the story up, back to year 2000 levels. It will be still expensive but at a level that can be sustained into the future.

    The suburb that I live in in Houston, Texas has a average household income of $125k and a median house price of $215k, note Perth only has one suburb at that income level and that median is 3.5 million.

    Please note that Texas never had a bubble, never had a drop in prices. Has a great economy, low unemployment, higher GDP, higher wages. Higher population increase (as a percentage and as numbers), low taxes. It doesnt have a foreclosure problem and has a stronger resource base than Australia.

    If anyone is interested in some great graphs on "land shortage" cities and what happens when they burst. Goto Housing Bubble Graphs: Charts of inflation-adjusted, historical home prices.

    and click on each of the cities, please note these are the cities that had "land shortages", suprisingly the cities that did not have the "land shortages", like Houston did not go down!

    City State 2007 2008 2009 %Drop from 2007 to 2009

    San Diego California 589 386 359 39%

    San Francisco California 805 622 493 39%

    San Jose California 837 668 530 37%

    Sarasota Florida 310 240 170 45%

    Houston Texas 152 152 153 Slight increase

  21. Well Well, houses are at long last not selling quickly.

    More and more for sale signs.

    Interest rates are slowing things down , I see Virgin Money is offering 6.75% at call for savings.

    I think banks here will have to up rates independently of the resurve bank.

    The last catalist is high unemployment.

    Unless the rest of the world suddenly pays of all the borrowings things here are set to drop off.

  22. It's Time to End the Stimulus Bubble

    Friday, 6 August 2010 – Melbourne, Australia

    By Kris Sayce

    * It's Time to End the Stimulus Bubble

    * Market News This Week


    Will your portfolio survive when the China bubble bursts?

    Click here to find out now.


    To paraphrase Crocodile Dundee, "That's not a test, THAT's a test!"

    That's what we thought after reading the following headline from Bloomberg News yesterday: "China Said to Test Banks for 60% Home-Price Drop".

    Ooh, imagine that. Surely that would have to be pretty painful.

    And it puts to shame the Australian Prudential Regulation Authority's (APRA) stress test that used a 25% drop in house prices in its scenario.

    Considering how housing is funded in the respective nations you'd think they'd have those numbers the other way round.

    According to Michael Klibaner, head of China research at Jones Lang LaSalle, China's housing market is "cash-driven" rather than debt driven.

    We'll have to take his word for that. But we know one thing's for sure, the Australian housing market is anything but cash-driven. It's debt driven. Debt driven to the tune of about $1 trillion.

    Or to put it another way, roughly one-third of the entire value of Australian housing is in hock to the banks. And that's based on the current inflated values too.

    Even so, Dr. Luci Ellis at the Reserve Bank of Australia (RBA) doesn't believe Australia has a "credit-fuelled" housing boom. In that case it must be a cash-fuelled credit boom then.

    But even cash-driven housing booms aren't immune from a crunch. According to Klibaner, "We actually expect a very healthy correction, something in the order of 15 or 20 percent in terms of price correction."

    [spits coffee across table]

    Sorry about that! [Wipes keyboard] A "very healthy correction... of 15 or 20 percent." If that's what you get with cash, imagine the carnage with a credit-fuelled housing market... which apparently Australia doesn't have.

    Look, we don't even take Dr. Ellis' comment about the lack of a credit-fuelled boom with a pinch of salt. We just disregard it. It's a daft comment. One that further encourages the idiotic rationale that Australia is somehow different.

    Take a look at the chart below and tell me that doesn't look like a credit-fuelled boom to you:

    Credit-fuelled boom or not

    Source: RBA data

    Just between 1998 and today there's been a nearly five-fold increase in the size of the housing debt.

    And yet still the RBA boffins say there's no bubble. Bless 'em

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