WBC reduces LVRs to 87 for new clients

[northie]

Does this affect property investors as well?

 

[WinstonWolfe]

Something I have just read tonight.
Aussie banks are paying the govt around ~1% pa for wholesale funds borrowed under the govt guarantee.

No wonder WBC are hiking their rates above the cash rate rises.
What a paradox.......Borrowers are paying the govt fee the govt imposed on the banks to ensure Gail got her bonuses.



"Government guarantee of wholesale funding
In October 2008, the Australian Government announced guarantee arrangements for wholesale borrowing. Given that these guarantees were being implemented in a number of other countries - as a result of huge disruption to financial markets at that time - it was important that Australia also had such a system in place to ensure continued and smooth access to capital markets.
The guarantee fees provide an ongoing monthly revenue stream for government over the life of the debt issuance, with some maturities out to 2014. For May 2009, institutions participating in the scheme paid guarantee fees of $83.7 million to the Australian Government, taking the cumulative fees paid, so far since December 2008 to $392.7 million. Total guaranteed debt issuance stands at $100 billion as at the end of May 2009."

 

[Rolf Latham]

now u know why

1. The gov doesnt want th guarantee to go in a hurry
2. Why small to medium mortgage funds relying on private investors are almost all out to pasture


ta
rof

 

[WinstonWolfe]

2. Why small to medium mortgage funds relying on private investors are almost all out to pasture

ta
rof

isn't that anti competitive of the govt to charge big lenders LESS than the little lenders? Leftist ideology never wins over a buck huh?


"The fee varies with the credit rating of the bank taking up the guarantee.

Credit Rating : Debt Issues Up to 60 Months
AA 0.70%
A 1.00%
BBB and Unrated 1.50%

 

[willair]

It kind of is.

Have a look at what's been happening with term deposit rates and ask yourself why banks would be paying that sort of money for domestic funding if supply of same wasn't tight

..could be explained a number of ways.

Plentiful, predictable and sustainable funding might not be one of the

I was standing in the que at the bank the otherday thinking the same thing ,i think the sign inside the bank said 6% on 10k plus for six months fixed,something gotta give,i hope all that borrow read the all monies clause in the back pages of the financial contract they signed..willair..

 

[cloudyday]

From what I've read over at http://www.moneymorning.com.au, CBA and Westpac will soon be on a short sell list because things look troublesome at the back. Time will tell though.

 

[Intrinsic_Value]

Understand 'real' Chinese economic growth and you will have the most profound insight into nominal and real Australian property growth.

the (USD) gold price will get bashed around around for a while......but that's only half its value, to an Aussie. watch the AUD, like Gail.

Sorry i dont understand the text in blue in between the comments i made.
Why did the Chinese government support buying US debt? because they had no choice. Its a circular trade, no buying debt, US debt costs will skyrocket.
US debt costs skyrocket, economic conditions deteriorate further in the US.
Economic conditions deteriorate, unemployment would have gone up even more.
Unemployment goes up more, less money to buy chinese exports and more pressure for US protectionist measures.

In regards to understanding 'real' Chinese economic growth, again i am not sure if you are being sarcastic or not.
There is definately a component of real economic growth, but i have a very strong feeling that there is also a significant proportion of growth that is funded by asset appreciation/speculation.

I just returned from a trip to China and what i saw worried me. Some indicators:
1) discussions with my older chinese contacts: property property property
2) discussions with my younger chinese contacts: DAY TRADING FOR A LIVING, making a heck of a lot more money than working in an office job.
3)got a flight delay cancellation and was put in a 3 star hotel and the 3 star hotel had a stock brokers office where you can trade.
4) on my return flight the English chinese newspaper business section (weekend edition markets were closed) comprised mainly of commentary regarding property.
5) some major regional cities had new highrise 5 star office space springing up well outside the major CBD equivalent area (i thought we build up because of the underlying value of the land in the CBD area).

Most importantly the government has to achieve 8% economic growth to achieve social stability. WTF?????????????
Try calculating 8% growth into perpetuity. As China becomes more dominant as a % of world GDP this will become harder and harder to consistently achieve.

I strongly recommend reading Michael Lewis 'Money Culture'. Was written in the 1990's but has some great articles about Japan. Really insightful reading and with hindsight its very funny. But at the time the 'story' made sense.

Now like all good parties, i have no idea when the China party will have a pause (i dont think the party will permanently end, there will be a major hangover from the current party which will need several aspirins, and a good nites sleep). Recognising bubbles and knowing the timing of those bubbles pricking are two different things. One is easy one is not.

But when it does i can nearly guarantee that there will be dramatic effects on global markets at least whilst China recovers from the hang over.

 

[Intrinsic_Value]

Does this affect property investors as well?

The answer is 100% unequivocally no questions asked YES.
However, and this is the difficult part to answer, what proportional effect will it have? I dont have the answer to this.

 

[Intrinsic_Value]

From what I've read over at http://www.moneymorning.com.au, CBA and Westpac will soon be on a short sell list because things look troublesome at the back. Time will tell though.

What the hell is this guy ranting on about.
First of all a line item of $240 million is didily squart for a company the size of CBA. Whats the movement in their provisions over the last year? i bet its alot more than $240 million.

Then he goes on about mortgage funds. Last time i checked colonial had numerous funds of various natures, not just mortgage funds.

Of course with a turnaround in equity and debt markets, 'Investment experience' profit should increase. Why do you think AXA is being bid for, bottom the cycle earnings pickup (however i wont comment on the price).

This is sensational rubbish journalism. It does nothing to value add to your investment knowledge.

 

[cloudyday]

You read the second update, I guess you didn't bother reading the first one because your post shows you didn't understand why they go on about this single line.

http://www.moneymorning.com.au/20100120/an-investment-experience-from-commonwealth-bank.html

and btw, it's not about $240 million if you bother to read the first article.

 

[WinstonWolfe]

Sorry i dont understand the text in blue in between the comments i made.
Why did the Chinese government support buying US debt? because they had no choice. Its a circular trade, no buying debt, US debt costs will skyrocket.


Yes China needs to protect a key trading partner from self destruction.
And it also needs to protect the value of the capital it invests in US bonds to achieve that.

How does it achieve both? It devalues the Yuan at a faster rate than the US devalues the dollar.......ergo, the last 9 mths of ridiculously loose credit.....and only now are they theatrically making a lot of noise about reining in credit to prevent asset bubbles, when it was their intent all along to inflate.



In regards to understanding 'real' Chinese economic growth, again i am not sure if you are being sarcastic or not.
There is definately a component of real economic growth, but i have a very strong feeling that there is also a significant proportion of growth that is funded by asset appreciation/speculation.

I was underscoring that a significant % of China's 8% growth is inflation fueled, whch in turn is loose credit fueled.....so yes, there's a big diff between nominal and real growth.....and that's unsustainable, and that will impact commodity prices, commodity currencies, and our flavor of the month status with foreign creditors.....but how much, and when, who knows.

I just returned from a trip to China and what i saw worried me. Some indicators:.

Hugh Hendry pointed out the same mid last year. terrible home video, but that's Hugh.

I am trying real hard to understand the Chinese situation.
There's no doubt they will have a significant slowing, eventually. Like Russia, they may keep throwing their reserves at it to artificially prop it up in classic Asian face saving style....until like Russia, they have no more reserves. That could float their boat for years, potentially.

But then those same reserves are needed to keep the US consumer alive.

And it is likely there'll be a couple of false starts along the way.....the bond markets' response will be telling.


My point about pog is that Aussie investors buy it initially with AUD....and both have been southbound at the same rate for the last week or so.....the moves offsetting each other.

 

[Intrinsic_Value]

Thanks thats an interesting viewpoint and one i will have to consider.
Especially the part about exchange rates. Maybe not devaluation of the yuen, but preventing it from appreciating as it was doing from around 2006-early 2007.

 

[Intrinsic_Value]

Interesting point concerning the increase in reserve requirements by China.

There is some institutional chatter at the moment which is quite insightful.
It goes something like this:
When central banks increase interest rates its like a father at the restaurant dinner table quietly telling his son off for being to roudy.
When central banks increase reserve ratios its like using a hammer to whack a recalcitrant mule (or in the terms of the mafia: you dont listen to me i'm going to f*** you up).

When such statements are made public they are couched in softer sounding 'fed speak' but make no mistake to the professionals they are reading this loud and clear.

The interesting part from here is what happens afterwards. If markets temporarily go down but then recover and the party continues look for the second increase in reserve requirements. Once this happens get ready for a nice shock in the near term.
And for those thinking that exposure to commodities and gold will protect you, think again. Look at the downwards movement of both when the announcement was made.
Gold could go up in the future if there is instability in currencies/cash liquidity, however the fact that gold falls on such announcements is an indication that it is also caught up in the carry trade. This will have to be worked through first.

This should have been posted in the economics section.
Anyway we now have the 2nd increase in reserve requirements by China out today.

You have been warned........