the Coffee party

[Ash]

Found the same article from the Herald:

http://www.heraldsun.com.au/business/cba-slows-down-mortgage-loans/story-e6frfh4f-1225946528010

Firstly, some context: Commbank and Westpac are the biggest borrows of the Australian banks from overseas markets to fund their mortgage books.

Recently, Commbank and Westpac have been desperately trying to prove to overseas investors that Australia does not have a housing bubble. Westpac admitted prices were house prices were high and that we're probably in for (to paraphrase) "a year or two of stagnation", but Commbank actually went to great pains to play with numbers to show that house prices are at long term averages and are not high at all. A few articles floating around (and comments from the ABA) are saying that overseas lenders aren't buying it, so Commbank and Westpac are now barely growing their mortgage books as at - as shown by the above article.

 

[Ash]

BTW, here's where the CBA got called out on its misleading report:

http://www.moneymorning.com.au/2010...berately-misled-investors.html/comment-page-1

(Word of warning: be careful reading Chris Sayce. Take everything from him with a grain of salt - but what he called out the CBA on is pretty clear).

CBA's release is available from the ASX here:

http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01096650

The misleading (well, lying to be fair) graph is on page 4. And the graph on page 7 is a very worrying trend. I wouldn't have shown it.

Just the fact that Commbank went to the effort to put that together (and were deliberately misleading in it) shows that there is something wrong.

 

[The_Brown_Hornet]

I would have thought some stagnation in housing price growth for a few years wouldn't be a bad thing while incomes catch up? Chris Joye's blog has plenty of interesting stuff around this and even a property market bull like him is saying the demand and pricing are going to be at least flat in the medium term.

For my own part, I have given up following what the property market is doing or going to do. There are so many wildly diverging opinions, each talking their own book, that its hard to know who to give any credence to.

 

[Ash]

Yeah, Chris Joye can make for interesting reading. He's a very smart guy, but he really likes to show it, and he's smart enough such that he can often make numbers prove almost anything. He's also, as you said, yet another vested interest so you are never too sure and was a bull until recently. I think that he was actually the first well known bull to openly forecast stagnation, but I take that with a grain of salt - my guess would be that he saw the RP Data/Rismark data start trending down and made the call well ahead of its release to consumers.

I would love a major correction in housing prices, but I think that you're right in saying that a good thing for the Australian economy is a stagnation of house prices for a few years. Long enough to get the ridiculous mentality of "doubles every 7 to 10 years" out the the general psyche, and long enough such that house prices aren't effectively robbing our next generation blind. A general large correction (read: crash) could be quite disastrous for the economy, and I wouldn't rule out the government panicking on a moderate correction and bringing out some silly stimulous which would make the problem worse.

 

[The_Brown_Hornet]

Agreed on all counts. A major correction wouldn't actually be a good thing for the country, as much as some of bears might like to predict it (and people whinging about pricing). From the data that Joye has presented previously, it appears that we mostly have these flat periods rather than full on crashes. The most recent one apparently was in Sydney in the early 2000's. In my home market of Perth, I can't remember us ever having a major correction.

And I agree that Chris can be a bit full of himself, but I'll say this for him: he always brings the data and points of view other than his own.

 

[Scotty]

I think we are going to need the government to do something about capital gains taxes for there to be any major correction (short of another GFC of course). There is too much reliance on investing in housing in this country, and this is pushing up the prices. I'd love nothing more than 5-7 years of stagnation, because ultimately it will mean no crash. Prices not moving are much better than the possibility of everything coming crashing down in one moment.

Lose the capital gains discount for housing. Encourage most people to own just the houses that they live in.

 

[The_Brown_Hornet]

I think we need some reform on taxation in general. It appears that the Henry report had a lot of useful suggestions, but unfortunately few of them were taken up by Rudd/Gillard/Swan. If we are going to look at taxes on carbon, et al, they can't be done in isolation. They shouldn't just be revenue raising exercises.

 

[The_Brown_Hornet]

BTW, some excellent commentary from Henry Ergas on the banking system in yesterday's OZ

http://www.theaustralian.com.au/new...-baked-solutions/story-e6frg6zo-1225948009446

 

[Ash]

Government backing of RMBS is coming.

You wonder if Australia's government can be that incredibly stupid. When there's vested interests and the housing market, mortgage market and ill directed public outrage at hand, you bet that they can.

By the way, if this gets through, it will probably have bipartisan support from Labor and Liberal, proving yet again that they both really are just as dumb as each other.

It's shit like this that makes me want to leave the country.

 

[Scotty]

Yes, lets create a bubble on top of the existing bubble.

 

[The_Brown_Hornet]

The populist drum beating from both sides is starting to worry me. Doesn't this set us up for Freddie and Fannie style shenanigans?

 

[Ash]

Yes, yes it does. Just look at the lunacy from both sides that is still continuing.

Covered bonds. Your deposits will be used to guarantee bank loans so they can lend more money for mortgages at cheaper rates. If the loans go bad, you lose your deposits.

Problem is, the RBA will simply jack up rates if cheap debt comes flying in. So the punters are likely to get nothing - but risk is transferred (just like the government back RMBS). Just how dumb are Hockey and Swan? All in the false guise of "bank competition". In reality, all it will do is increase private debt in this country - when the country is already buckling under the weight of it.

Just listen to the government going on about cheap credit as well. What do they was one of the major factors that caused the GFC? It couldn't be cheap debt, could it?

And here's a reply - including why APRA has banned covered bonds. I am starting to want to leave this country to get away from our moronic politicians more and more.

In a year's time I don't know what to do with my money. If covered bonds come in, maybe I'll start buying government backed RMBS, at least that's "safe". Perhaps buy shares and take short positions at the same tiume. Perhaps buy gold and stick it in a safe. I don't know.

 

[Scotty]

I think I am right in saying that deposit covered bonds are a Swan idea? How stupid is he to think that could increase banking competition? Actually it will reduce it - because the banks will be even more competitive with rates, and the smaller, non-bank lenders won't be able to raise the money at anywhere near the same rates.

I am curious though Ash, what country would you go to, to find non-moronic, non-populist politicians?

 

[Ash]

Techinically, it's both a Hockey idea and Swan idea. It was a suggestion in part of Hockey's "9 point plan", but Swan and co. are claiming it was already part of their reform package I think. Both sides of politics are equally culpable in the lunacy of what is happening right now. Both want to be seen by the average person, who knows no better, to be able to "reign in the banks".

I think the idea of allowing covered bonds is more about providing cheap credit then competition (reducing IRs to the public). This is stupid as I said, as the RBA will raise rates if the IRs offered to business and people go under the RBA's target setting. Also note that covered bonds have been long banned by our regulator APRA as being against the tenets of banking in Australia.

Where would I go? I don't think there is anywhere else, really, with either non-moronic, non-populist policitians or a form of politics where rich vested interests are not given favourtism. Maybe there are just places that are not quite so bad.

If China falters, I fear what will happen to us.