What Effects Will The U.S Market Downturn Have On Australia?

[WinstonWolfe]

From October 07,
Has China Decoupled from the United States?

The article clarifies some important points.

- Although only 20% of Chinese exports go to the USA, around 50% go to other developing economies, especially Asian. And this % is increasing rapidly at the expense of exports to Japan. Japan gets about 10% of Chinese exports.

- Developing Asian economies and Japan are much more reliant on exporting to the USA. If the USA slows, these economies will slow, and that effect will flow onto china.

Because of the dispersal of US credit crisis risk across G7 countries, G7 will suffer credit and economic contraction similar to the USA. This will in turn adversely impact Asia (excluding China), and thereby China.

Finally, if you want evidence of how reliant on the US economy the financial markets think China is, watch what's happening with their share market.

 

[lizzie]

there are a couple of questions that may affect the outcome in the coming months.

the china's gdp economy is 80% internally based. 80% of the demand for goods and services is from within their own country. they are only exposed 20% to global exporting factors. how will this 20% affect the other 80%?

i do not know the figures for india.

the australian banking system is strong and the lending criteria strict with a very low mortgage default level (compared to usa, uk etc), a stable government, stable workforce, strong economy (atm) base ... so if you were an overseas investment bank looking to invest some money in a safe location with good returns - wouldn't australia be on the top of your list?

maybe i'm just looking at the optimistic side.

 

[lizzie]

Finally, if you want evidence of how reliant on the US economy the financial markets think China is, watch what's happening with their share market.

there share market didn't really move in either direction - up 0.6% today, i think from memory

 

[Kennethkohsg]

Dear All,

1. Since 21st April 2006, the Australian Federal Govt was said to have officially cleared all its previous A$96 Billion worth of Commonwealth Debt, which was left behind by the former ALP Federal Govt since Paul Keating's time.

2. In less than one year after the ALP has won the Australian Federal Elections, the ALP Federal Govt under Kevin Rudd's PMship, was recently reported to again favour incurring new Commonwealth Debt, to finance the various infrastructural development projects in Australia.

3. Why is this so?

4. I am wondering what is Kevin Rudd's real motive for talking up about incurring new Commonwealth Debt to finance the various infrastructural Projects in Australia midst the present ongoing global financial crisis where there is much asset de-leveraging process presently ongoing in America and around the Europe?

5. Is Kevin Rudd's ALP Federal Govt trying to keep the local CDO/money markets open in Australia midst the present ongoing global Credit crunch Crisis?

6. Alternatively, is the ALP Federal Govt not receiving sufficient revenues from its various tax programmes or/and is the National Reserve of Australia being run down too rapidly by the RBA, due to its continued requirements to repeatedly make some cash injection into the local money market from time to time so as to improve its cash liquidity, each time to the tune of a few tens Billions of Australian Dollars since 2007.

7. Looking forward to be further educated, please.

8. Thank you.

regards,
Kenneth KOH

 

[boomtown]

Let's try not to draw any lessons from Chinas sharemarkets as they are a farce. Large state owned entities incorporate a subsidiary and list the subsidiary on the market but only 40 percent of the shares of the subsidiary are freely tradeable - the parent keeps 60 percent.

The parent can pump money into the subsidiary pushing the stock price up or pull the money out at any time collapsing the stock.

There is no concept of continous disclosure. There wasn't even a word in Chinese for "conflict of interest" until 2001 - they had to make up a new word.

Anything that happens to A shares or any other Chinese stock has no connection to reality so let's try not to learn anything from their market movements.

 

[WinstonWolfe]

there share market didn't really move in either direction - up 0.6% today, i think from memory

Try the forest view Lizzie....
http://finance.yahoo.com/q/ta?s=000001.SS&t=my&l=on&z=m&q=l&p=&a=&c=
Their market is down 67% over the last 12 mths. Hard to justify when gdp is growing around 10%. There's a lot of bad stats in China. Govt corruption manipulates it all for their own ends, which includes screwing their own public. Their inflation rate is also played with (as is the west's). It is officially 7%, but Chinese food inflation is supposed to be 20%, while wage growth is quite flat.

1. Since 21st April 2006, the Australian Federal Govt was said to have officially cleared all its previous A$96 Billion worth of Commonwealth Debt, which was left behind by the former ALP Federal Govt since Paul Keating's time.

regards,
Kenneth KOH

Ken, Rudd wants to apply a classic Keynesian economic stimulus. When a credit bubble cannot grow further and threatens to burst, and the private sector has no choice but to contract significantly, Keynes believes it is better for the govt to print money or borrow from overseas in the form of govt bonds, and throw it into the economy in the form of massive public infrastructure spending.

This capital expenditure is then supposed to be repaid from general tax revenue over many years as the private sector starts making bigger profits on the back of renewed credit.

 

[MarkandTina]

I've got this metaphor of the world market in my head now and I'd like one of our more experienced people here to pls tell me why its wrong.

I've got this picture of America as a fat kid sitting on a couch watching TV and being continiously offered junk food and the kid keeps handing over cash to everyone that brings him food.

Somehow the kid got a loan and he has this large barrel of cash that he keeps reaching into to pay these people.

Everyone has just noticed that the pile is stating to run out.

---
Unfair?

 

[WinstonWolfe]

I've got this metaphor of the world market in my head now and I'd like one of our more experienced people here to pls tell me why its wrong.
---
Unfair?

Same as Australia, except the US fat kid also owns a lot of wealth producing assets around the world.

Think about where Ford, GM, and Coca Cola profits in Australia have gone for the last 50 years. And guess who owns vegemite and a stack of other Aussie icons. If Australia didn't buy its weapons from the USA, we'd have to buy them from China or the USSR.

 

[boz]

Try the forest view Lizzie....
http://finance.yahoo.com/q/ta?s=000001.SS&t=my&l=on&z=m&q=l&p=&a=&c=

Ken, Rudd wants to apply a classic Keynesian economic stimulus. When a credit bubble cannot grow further and threatens to burst, and the private sector has no choice but to contract significantly, Keynes believes it is better for the govt to print money or borrow from overseas in the form of govt bonds, and throw it into the economy in the form of massive public infrastructure spending.

This capital expenditure is then supposed to be repaid from general tax revenue over many years as the private sector starts making bigger profits on the back of renewed credit.

I think it is a good idea as much as it is done to rescue the economy and not to bubble it up again, it also would need to be only for few years or a short term. If australia will slow down for sure the budget would suffer and I'll be surprised if next year we would get another surplus. In UK and Us with the slowing economy budget got really bad, specially UK that luckily for europe is not part of the euro.
The temporary expenditure would help a bit the building industry that would struggle in the slowdown. it is very important for the future to save the building industry like you'll do with banks.

 

[boomtown]

You know barbie dolls? They are made in China by Mattel. They sell in a box for about 25 dollars.

China gets to keep about 20 cents out that final sale price. The other 24.80 goes to guess who.

The kid may be fat but he's not stupid.

 

[boomtown]

I'm not sure the building industry needs more stimulus - its pretty flat chat atm.

 

[boz]

I'm not sure the building industry needs more stimulus - its pretty flat chat atm.

yes, you are right, I mean to do it in case we get in a situation as bad as it is in UK or US. For sure it is not the case now. I also think it isn't a good idea to throw 4 bil of good money after bad money like swan want to do now, there is no need jet.

 

[natmarie73]

So if, as has been stated, credit will become tighter and more expensive, why are interest rates in both Australia and the US going down. Doesn't that mean credit is getting cheaper?

My only concern with this apocolypse is that my bank may not let me refinance my loans next year and I won't be able to buy more property/shares, but this is only a very teeny tiny concern. Overall I'm the Mad Magazine guy - What, me worry?

 

[keithj]

So if, as has been stated, credit will become tighter and more expensive, why are interest rates in both Australia and the US going down. Doesn't that mean credit is getting cheaper?

My only concern with this apocolypse is that my bank may not let me refinance my loans next year and I won't be able to buy more property/shares, but this is only a very teeny tiny concern.

Precisely...... some posters would have us all believe the world is due to end by next week . Things will be different from the last 8 years, probably a lot more like 90s, but with a higher demand for commodities. Those who manage the risks & adapt will thrive, and I think many here will be among those .

 

[boomtown]

And lets pause and reflect on what happened in the 90s.

Property prices went flat for 4 years (and probably backwards in real terms) but flipped CF+ at the end of that stretch across the board. IP nirvana.

If we have 4 flat years followed by a burst of CF+ - I reckon that would be a pretty good outcome

 

[WinstonWolfe]

Precisely...... some posters would have us all believe the world is due to end by next week . Things will be different from the last 8 years, probably a lot more like 90s, but with a higher demand for commodities. Those who manage the risks well will thrive, and I think many here will be among those .

I was listening to some analysts on Radio National this morning who made the point no one knows what Aussie majors exposure is to sub prime fallout. They aren't that open about it, and they probably cannot measure it accurately because the exposure is subject to further deterioration in US banking and housing.
CBA has very large questionable entries on their balance sheet.
NAB has more exposure to annouce before Oct 1.

Re the world ending this week, well it has already ended this week for some non bank lenders, as mentioned on other threads.......and it wasn't due to lack of demand for cheap credit...

Over 60% of the last 5 years share market value has gone, much of it foreign capital.

My view is to cover the downside and let the upside look after itself. At this point, no one can state clearly the size of the downside. Fear has strong positive feedback circuits, and confidence takes a long time to be restored.

To compare current events with previous is to not understand the extent of the credit bubble magnified by US sub prime and how its associated risk was dispersed across the globe, the convergence of these events with an global economic slowdown, an unsustainable household debt to gdp ratio, and rising demand for oil from developing economies.

People were calling the bottom every month during the great depression.

I am not saying this is the end of the world, but I am under no illusions of what is going on the world either. Things have only continued to get worse since June last year. These events are unprecedented. At the end of the day, everyone should do their own due diligence, and not presume others views are gospel. Even governments, banks, and many analysts didn't see this stuff coming, even as recently as 3 months ago.

 

[Player]

Trying to pick the bottom is like trying to catch falling knives. The bottom will be revealed with the benefit of hindsight.

As Winston mentions above, we don't know what the fallout will be with our major banks. Their exposure to this leveraged, fractionalised (is that a word?.....I've just made it one) mess is hardly transparent. Even local govt bodies such as councils, invested in sub prime loans.....yipee now our rates will go up further.

I'm not a D&G'er. I do however believe it is time to be conservative with LVR's as I'm thinking that credit will remain tight. Be careful those who have fixed rate loans due to come off soon, you may have your LVR's challenged.

Expect the best however prepare for the worst. Now is not the time to be taking out 100-105 % lends on newly purchased IP's. We may get to the point where banks (in the near term anyway) may actually want to see some hurt money in terms of the folding stuff or evidence of saving and not merely accept soft equity ffrom other properties. I have heard that some development finance is being treated this way.

These are interesting times and not seen before. I posted elsewhere at length yesterday that I am not educated in economics, however have invested from mid-80's to now.

There will be (and are) bargains out there now and can be improved by creative negotiating or strucuturing of deals, however portfolio LVR's should be well below the banks radar and not just under 80 % to save on LMI, but around 70 % to buffer out any further softening that may occur.

 

[Aaron Sice]

we should stop trying to predict what is gonna happen and just bloody well sit tight and wait.

could have saved about 12 threads in here so far.

the thing is, our banks will only tell us what they want to, unless they are subpoenaed otherwise. speculating what may or may not happen is a huge f_ing waste of time, as even the most educated and fundamentally based guesses are still not materialising.

i still think this is different to the depression. the only similarities i draw is that the stock market is in free fall. what wil happen when shorts are re-instated after our 30 days? i don;t know and i don;t care because it's all too "in the moment".

step back and take a long view of the market. that'll tell you more in a few seconds than reams and reams of bandwidth banter.

i think everyone should remind themselves that

- stockmarkets don't go to zero.
- a return to average can be expected
- media hype is about sensationalism - the words "recession" and "depression" are clearly defined terms in finance and are used very generally. They can be applied to 10% negative growth or 0.1% negative growth.
- people still need somewhere to live.
- if banks don't pass on rate cuts in full, it helps them protect their dollar at the expense of the erosional buying power of ours. our banks are fiscally responsible entities - as much as i hate to admit it, given the current climate, i would rather pay a little now to hold them up than have the economy go spatchcock on me because they can't get help and i lose my house or get margin calls.
-for god's sake, don't forget the fundamentals.

 

[WinstonWolfe]

we should stop trying to predict what is gonna happen and just bloody well sit tight and wait.

could have saved about 12 threads in here so far.

I don't think everyone is trying to concretely predict the future BC....moreso try to understand what is happening, the associated risks, and modify our plans and expectations.

That's a pretty sensible thing to do imho. Sure it creates a lot of banter and uninformed opinion, but I think the forum has stimulated many to do their own reading. If someone says something I don't agree with, I am motivated to read up on it more. I think it is good that everyone is reading more, and throwing up their 2cw. As a group, we'll all be better educated for it. But just to take the word of the media or the banks or the govt or one or two successful forumites, will not give you the same perspective as broader more inclusive reading.

If I just stuck my head in the sand, and things went downhill a lot further, I'd be remorseful for not taking a more informed interest. If things don't go down hill further, well at least I have learnt a lot more about global finance and economics....and will make more informed decisions. Nothing lost...

It is all about covering your downside....that's just smart risk management.

 

[WinstonWolfe]

And at least if we all try to stay better informed, we'll be able to weigh Russell Crowe's solution better. chalk another point up for Aussies being considered the white trash of Asia.