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

[Aaron Sice]

understanding what is happening is one thing, tryng to predict an outcome is another entirely different thing - hence my point.

how anyone can say "oh, this will probably happen now" or "that will happen in a few months" is a joke. go back to earlier threads and have a read of some "predictions" that are laughable now.

i say to anyone out there who thinks they know what will happen - keep those predictions to yourself and stop confusing the issue any further.

 

[MarkandTina]

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.

Makes you wonder whether someone could be so smart that they deliberately make a huge gaffe so as to get publicity from it. Your link does mention his next movie.

 

[Kennethkohsg]

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.

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Dear Winstonwolfe,

1. Thank you for your sharing and my own self-education, please.

2. Based on your explanation, I do not think that it will work well for Australia at this point in time.

3. The main reasons for me saying so is that

a. Australia is presently in a high inflation threat scenario with annual inflation rate running above its desired 2%-3% inflation targets and with further risks of higher than expected aggregate income from its resource boom coming from its various resources sales to China and India etc as is previously projected by the RBA,

b. Australia is presently experiencing a tight labour market and by competing with the private business sector for the limited labour available under the present tight labour market situation, the ALP Federal Govt is likely to significantly increase the Project costs unnecessarily. at this point in time,

c. given the present limited spare capacity available/constraint faced by the Australian Economy, its present full employment status and the present ongoing tight labour market situation, Australian Economy is hardly in need of a economic stimulus package at this point in time;- and

d. not when most of the OECD countries are presently undergoing a severe asset de-leveraging amidst the present global Credit Crunch Crisis where costs of overseas wholesale fundings is expensive, on a rapid increase or/and not readily available at this point in time.

4. The other logical reason why I believe that Kevin Rudd is presently thinking of applying the Kenynesian Economics Theory and introducing an economic stimulus package into the Australian Economy context at this point in time is that he and his ALP Federal Govt are "fearing" that the present economic slow-down in Australia is more likely to result in an Economic Recession for Australia in the near future, rather than the desired economic slow-down, as is presently anticipated by the RBA, at this point in time.

5. Consequently, by its pre-emptive actions, the ALP Federal Govt is actually showing its own lack of confidence in the RBA's present management of the Australian Economy and is thus, indirectly undermining the RBA's independence and its subsequent economic management outcome for Australia, at this point in time.

6. Thus, Kevin Rudd and his ALP Federal Govt are presently trying to "intervene" indirectly into the RBA's present proper management of the Australian Economy by wanting to apply this Keynesian Economics Theory and to introduce an economic stimulus package into the overall management of the Australian Economy.

7. Just like , Kevin Rudd, Wayne Swan and the ALP Federal Govt were "inappropiately" talking up the risks of a runaway inflation scenario in Australia in early January-February 2008 period, so as to "pressurise" the RBA into increasing the official interest rate further in order to slow down the Australian Economy, it seems to me that they are trying to do just the reverse, i.e how to "re-jump start" the present slowing-down Australian Economy, at this point in time, so as to avoid a hard landing and an official Recession in Australia in the near future.

8. For your further comments and discussion, please.

9. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

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.

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Dear BlueCard,

1. We all learn from one another through this property discussion forum.

2. If our educated guess and discussion are not actually materialising in the real world, was there something "wrong" in our basic premises used in our educated guess/discussion in the first place?

3. By discussing the various likely implications/scenarios for the Australian Economy and/or the various housing markets in Australia, will allow us to be mentally prepared and pro-actively adopt the required investing decisions/actions to effectively counter its worst consequences as correctly anticipated in advance, instead of leaving the less informed/less experienced members to "react" or/and to defer/make the wrong investing decision at the very last minute, with regards these newly emerging unfavourable developments outside Australia, that may indirectly and adversely affect our own property investing decisions, please.

4. for your kind considerations and further comments/discussion where neccessary, please.

5. Thank you.

regards,
Kenneth KOH

 

[josko]

Blue Card,

Did that baby keep you up last night?


I haven't the time to think straight lately but am enjoying the odd minute to read what evryone's thoughts are on this currrent economic situation. Although I can't contribute much to this, there are some people on this forum that can...and I thank them for their input.

Regards JO

 

[Aaron Sice]

like i said the understanding of the issue is great. these explanations are fantastic and are opening my eyes wider.

predictions on what could / would / should happen are just ludicrous. a lot of people predicted that the bailout would occur as planned. a lot of people thought that subprime was just another hiccup. a lot of people are predicting what will happen to Aus.

understanding the situation will help us adapt - not predictions.





and yes ... i was awake a lot last night ...

 

[Peter 14.7]

http://www.smh.com.au/news/national...our-home/2008/10/01/1222651146523.html?page=2

Comment from HIA on prop prices taken form a very fundamentalist view.

Essentially, flat to 5 to 10% fall over the next 12 months and then rising to above now in 18 months.

Fundamentals:

• no enough being built
• immigration strong
• banking sector secure
• rates to drop

FYI
Peter

PS I acknowledge HIA has vested interest.

 

[Kennethkohsg]

like i said the understanding of the issue is great. these explanations are fantastic and are opening my eyes wider.

predictions on what could / would / should happen are just ludicrous. a lot of people predicted that the bailout would occur as planned. a lot of people thought that subprime was just another hiccup. a lot of people are predicting what will happen to Aus.

understanding the situation will help us adapt - not predictions.

and yes ... i was awake a lot last night ...

*********************

Dear BlueCard,

1. It is interesting to observe that the DJIA has lost some 777.68 points on Monday night as a result of mass market panic after Henry Paulson's proposed US$700 Billion Bail-out Plan was voted out by the US House of Representatives and yet the same DJIA was able to recover back some 490.95 points on the following night on Tuesday evening.

2. How do you fully explain such "irrational" market phenomenon on the DJIA or/and on the ASX Stock market movements over the last few days? What are its real underlying causative factors?

3. Alternatively, is this seemingly "irrational" market phenomenon, in fact truly a real opportunistic and logical fundamental game play intentionally created by certain selfish big fish/players out to prey or/and trying to eat up the remaining some fishes among the various retail investors on the DJIA or/and ASX and other major stockmarkets alike?

4. It is interesting to note that both the stock markets in Singapore and Malaysia suffer no major drama or/and significant widespread stock market movements over the last few days following the same DJIA's sudden heavy stockmarket slump on Monday night and subsequent meteoric market recovery on Tuesday night.

5. Did the local players in the Singapore and Malaysia stock markets able to see certain things that the other players in the other major stock markets such as those on the ASX or/and on the HK Hang Seng Index or/and the Japanese Nikkei Index have all failed to see, in the first place?

6. Looking forward to learning from your informed views, please.

7. Thank you.

regards,
Kenneth KOH

 

[Aaron Sice]

*********************

Dear BlueCard,

1. It is interesting to observe that the DJIA has lost some 777.68 points on Monday night as a result of mass market panic after Henry Paulson's proposed US$700 Billion Bail-out Plan was voted out by the US House of Representative and yet the same DJIA was able to recover back some 490.95 points on Tuesday night.

2. How do you fully explain such "irrational" market phenomenon on the DJIA or/and on the ASX Stock markets over the last few days? What are its real underlying causative factors?

i cant - but i will note that whenever there is a huge drop that falls outside previous support, the market nearly always self corrects in the near-immediate term. take NAB when it fell to $19 for example - the market re-corrected itself and now we see sell recommendations on NAB. anyone smart with options would have been looking at the Oct 08 $19 put prices for NAB when it corrected back to $24. now the sell recommendation is here where do you think it's going?

same with the DJI. they dont them "dead cat bounces" for nothing.\

3. Alternatively, is this seemingly "irrational" market phenomenon, is in fact real opportunistic and logical fundamental game play intentionally created by certain selfish big fish/players out to prey or/and trying to eat up the remaining some fishes among the various retail investors on the DJIA or/and ASX and other major stockmarkets alike?

i'm not sure - the big cats are BIG CATS and can buy/dump a truckload of shares in an instant. they may have seen where it can go, now shorts are banned, and decided on a pump-n-dump. why would a diversified investor like Warren Buffet pump USD$5bil into one company? doesnt make sense or add up. maybe it was a private bail out. no idea, speculating is a waste of time.

4. It is interesting to note that both the stock markets in Singapore and Malaysia suffer no major drama or/and significant widespread stock market movements over the last few days following the same DJIA's sudden heavy stockmarket slump on Monday night and subsequent meteoric market recovery on Tuesday night.

sorry mate - as much as i would like to follow the Singas market, i have a hard enough time watching the US and AUS. my only guess would be that Malaysia / Singapore arent as associated - perceptively - as Australia is, therefore the attention was more heavily biased elsewhere.

5. Did the local players in the Singapore and Malaysia stock markets able to see certain things that the other players in the other major stock markets such as those on the ASX or/and on the HK Hang Seng Index or/and the Japanese Nikkei Index have all failed to see, in the first place?

again - speculation. i dont know. maybe it's because the BIG CATS dont have their claws in those markets yet, or not enough to make a difference.

6. Looking forward to learning from your informed views, please.

7. Thank you.

regards,
Kenneth KOH

and i hardly think my view is informed - i call things as i see them.

 

[Kennethkohsg]

Dear Bluecard,

1. I believe that the big cats whom you are referring are the Hedge Fund/Pension Funds Managers.

2. Whether their Hedge/Pension Funds ultimately makes monies or not, it does not truly matter to many of these Hedge/Pension Managers as they are still very well paid, at the end of the day;- after all, all those monies in the various respective Hedge/Pension Funds do not actually belong to them, in the first place.

3. The resultant loss suffered by their Hedge/Pension Funds do not hurt them as much as their poor retail investors on the ground who have chosen to believe them in the first place and who risk losing all their entire life savings if they are not careful in their investing.

4. Likewise, many of the past CEOs in the MNCs like the Lehman Brothers, AIG etc have suddenly become multi-millionaires overnight when their respective Companies have actually fallen into bankruptcy and need to be officially bailed out by the US Govt subsequently.

5. Consequently, is it then, any wonder that the various stock markets around the world, need to have to sufficiently volatile and challenging moments/trends at times enough in order to create ample risk-taking opportunities in a timely manner for its various players to risk making big monies for themselves as well as risk losing their entire life savings too.

6. For your further comments/discussion, please.

7. Thank you.

Cheers,
Kenneth KOH

 

[Aaron Sice]

Dear Bluecard,

1. I believe that the big cats whom you are referring are the Hedge Fund/Pension Funds Managers.

maybe - it's hard to tell. you dont get to see who places what order. But one could assume that because Hedge Funds have the most cash, they therefore play harder.

2. Whether their Hedge/Pension Funds ultimately makes monies or not, it does not truly matter to many of these Hedge/Pension Managers as they are still very well paid, at the end of the day;- after all, all those monies in the various respective Hedge/Pension Funds do not actually belong to them, in the first place.

sad but true. find your industry super fund!

3. The resultant loss suffered by their Hedge/Pension Funds do not hurt them as much as their poor retail investors on the ground who have chosen to believe them in the first place and who risk losing all their entire life savings if they are not careful in their investing.

if people are going to blindly trust their money to one company to rely on for their nest egg, then they leave themselves open to abuse (being fees and reckless exposure). not that these ill-educated fellows deserve such - but - if you are playing with money and/or letting other people invest your money, then you should understand the process and be wary. que cera cera.

4. Likewise, many of the past CEOs in the MNCs like the Lehman Brothers, AIG etc have suddenly become multi-millionaires overnight when their respective Companies have actually fallen into bankruptcy and need to be officially bailed out by the US Govt subsequently.

5. Consequently, is it then, any wonder that the various stock markets around the world, need to have to sufficiently volatile and challenging moments/trends at times enough in order to create ample risk-taking opportunities in a timely manner for its various players to risk making big monies for themselves as well as risk losing their entire life savings too.

there's another train of thought for us all. booms are created by big players playing with big money. that creates more big players. new player comes along, wants more market shares, fundamentals dont allow any further growth, new player sells down market, distributed wealth from big player to little player makes little player = big and big player = bankrupt. and so on and so forth.

6. For your further comments/discussion, please.

7. Thank you.

Cheers,
Kenneth KOH

just my opinion.

 

[WinstonWolfe]

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Dear Winstonwolfe,

1. Thank you for your sharing and my own self-education, please.

2. Based on your explanation, I do not think that it will work well for Australia at this point in time.

3. The main reasons for me saying so is that

a. Australia is presently in a high inflation threat scenario with annual inflation rate running above its desired 2%-3% inflation targets and with further risks of higher than expected aggregate income from its resource boom coming from its various resources sales to China and India etc as is previously projected by the RBA,

Just a quick off the cuff response Ken....will go away and read the ABS figures later. Could I suggest you think about the contribution of credit towards aggregate demand. Household debt is at an all time high, and a great deal of aggregate demand has been financed by credit. If global credit continues to tighten (as in the banks not passing on RBA rate drops), then agg demand must decrease too. And it already has (check consumer discretionaries ASX:XDJ).

Even though aggregate income might be up (though I am not sure it is), more of it is going towards interest, rent, petrol, and everything else that is inflating beyond the level of headline inflation. Consumer sentiment has changed drastically in 2008.

Check some of the measures of business confidence and activity- AIG Performance of Service Index, Perf. of Manufacturing Index, NAB's Business Survey....Consider wages static, inflation rising, consumption static, GDP decreasing......

b. Australia is presently experiencing a tight labour market and by competing with the private business sector for the limited labour available under the present tight labour market situation, the ALP Federal Govt is likely to significantly increase the Project costs unnecessarily. at this point in time,

I thought the same a few months ago. But many sectors are slowing. Ask anyone in small business....especially property sales and development, finance.

c. given the present limited spare capacity available/constraint faced by the Australian Economy, its present full employment status and the present ongoing tight labour market situation, Australian Economy is hardly in need of a economic stimulus package at this point in time;- and

I'll have to read more. The rate increases have certainly killed some sectors...


d. not when most of the OECD countries are presently undergoing a severe asset de-leveraging amidst the present global Credit Crunch Crisis where costs of overseas wholesale fundings is expensive, on a rapid increase or/and not readily available at this point in time.

Rudd would fund the stimulus by issuing govt bonds. There is growing demand for these internationally, as they are supposed to be safer than banks. Maybe Rudd thinks it is an opportune time to be raising capital this way.....

4. The other logical reason why I believe that Kevin Rudd is presently thinking of applying the Kenynesian Economics Theory and introducing an economic stimulus package into the Australian Economy context at this point in time is that he and his ALP Federal Govt are "fearing" that the present economic slow-down in Australia is more likely to result in an Economic Recession for Australia in the near future, rather than the desired economic slow-down, as is presently anticipated by the RBA, at this point in time.

I agree....and the credit crunch could bring that on quicker more acutely than anyone thought...

5. Consequently, by its pre-emptive actions, the ALP Federal Govt is actually showing its own lack of confidence in the RBA's present management of the Australian Economy and is thus, indirectly undermining the RBA's independence and its subsequent economic management outcome for Australia, at this point in time.

I agree the RBA raised rates too high too quick....imho, they have messed with the calculation of headline inflation to the point it bears little relevance to reality.....to exclude the effects of interest rates, petrol, and many foods is incomprehensible. What sealed my total disgust and disbelief in how cpi is calculated was the massive increase in cpi attributed to bananas. The ABS also uses a concept called substitution which states that if goods go up too high due to scarcity, people buy something else instead. That they didn't apply this to bananas is a joke. And then when bananas went down, there was never a corresponding decrease in cpi. Someone is cooking the books..

I think where the RBA have been incompetent is in not evaluating the risk of sub prime. I also think they should have tightened credit well before they did, to inhibit the property bubble that unfolded due to the credit bubble.....that credit was due to lax credit regulation within the USA which led to the sub prime mess. I ask, why did the RBA have no insight into the harm this could do....


6. Thus, Kevin Rudd and his ALP Federal Govt are presently trying to "intervene" indirectly into the RBA's present proper management of the Australian Economy by wanting to apply this Keynesian Economics Theory and to introduce an economic stimulus package into the overall management of the Australian Economy.

Personally, I think like Ron Paul and Jim Rogers in that central banks are not necessary. The market raises and lowers rates of its own accord, and I'd argue with a more efficient effect on the market. If they do need a central bank to change rates, a computer program could do it.


7. Just like , Kevin Rudd, Wayne Swan and the ALP Federal Govt were "inappropiately" talking up the risks of a runaway inflation scenario in Australia in early January-February 2008 period, so as to "pressurise" the RBA into increasing the official interest rate further in order to slow down the Australian Economy, it seems to me that they are trying to do just the reverse, i.e how to "re-jump start" the present slowing-down Australian Economy, at this point in time, so as to avoid a hard landing and an official Recession in Australia in the near future.

Agree Ken....the RBA pushed rates purely because of inflation....then as soon as we have a credit crisis, they forget that inflation is still over 3% and say we need to drop rates. Though I understand that the credit crisis is a serious problem and can understand the need to drop rates to keep the wheels of the free markets lubricated with liquidity (credit).

8. For your further comments and discussion, please.

9. Thank you.

regards,
Kenneth KOH

..............................

 

[boz]

I agree the RBA raised rates too high too quick....imho, they have messed with the calculation of headline inflation to the point it bears little relevance to reality.....to exclude the effects of interest rates, petrol, and many foods is incomprehensible. What sealed my total disgust and disbelief in how cpi is calculated was the massive increase in cpi attributed to bananas. The ABS also uses a concept called substitution which states that if goods go up too high due to scarcity, people buy something else instead. That they didn't apply this to bananas is a joke. And then when bananas went down, there was never a corresponding decrease in cpi. Someone is cooking the books..

I think where the RBA have been incompetent is in not evaluating the risk of sub prime. I also think they should have tightened credit well before they did, to inhibit the property bubble that unfolded due to the credit bubble.....that credit was due to lax credit regulation within the USA which led to the sub prime mess. I ask, why did the RBA have no insight into the harm this could do....

Well, you should explain better what you mean as you first said the RBA raised rates too high and too quick then later in the same post you say they should have tightened the credit well before. I would agree if you mean they should have tightened more when house prices went up and the bubble was forming in the last 5 - 8 years. I think the RBA did ok this last year as the Economy is still in good shape and even retail sale number that come up yesterday are good, only lending and building permit show bad numbers, that is not because of policy of the last year.
About inflation I think it is very bad that a country of the importance of Australia have official inflation reports every 3 months while most oecd countries have it every month. I don't know is ABS cook the books but I am pretty sure Australian inflation is not lower then what has being reported and to my personal price monitoring in the long term looks higher then most developed countries (specially europe)

 

[nonrecourse]

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 .

I hope you were thinking of me when you wrote that Keith.

In the Australian Financial review today on page 4 an article entitled "Banks hold on to cash as costs soar" and the sub title "Its a lot more difficult now for businesses to get acess to capital" Quote by Citigroup's Shane Lee.

If you go back to my posts from January-March 2007 I started to talk about a soft depression and I mentioned how difficult it will be to borrow money particularly for small businesses. The reason why we will see interest rate at 2% in the next few years is that the reserve bank and the government will be desperate to avoid a full blown depression.

I've also said that we are going to see the ASX at 3500 before the end of October. If I'm wrong then we may not see residential property in Oz drop 30%. I'm more pessimistic with commercial property as I would not be surprised to see it drop 50%. This is where I am exposed and have been unsuccessful in selling the jewel in our crown. We did manage to sell our least valuable property that took a year and we had to lop off $200,000 in the end to move it.

How can I make these assertions you ask? In July 2007 I discovered what sub prime mortgages were and collateralised debt obligations from reading on the internet. I became very concerned and my family started to notice that after my regular 12 hour day at work instead of rolling in around 8 p.m. as usual I started coming home aroung 1 a.m.

For over a year I have seen the nonsense published in the papers week in, week out that only told part of the story. The information has been freely available on the internet since June 2007. Gradually the public has been told a little more and a little more...... by now no one should be in any doubt we are facing a financial catastrophe.

In 2009 and 2010 you are going to see the world economy brought to its knees as wave after wave of rate adjustable mortgages (ARM's) come up for renewal.
A lot of these defaults will be a step up from sub prime NINJA loans. Namely a lot of these people will be non conforming self employed individuals.

After them come the middle class conforming borrowers which if this occurred would take my soft depression and turn it into a dirty 1930's nightmare

The losses we are talking about (ARMS) are in the trillions. The gross domestic product of the US last year was 13 trillion dollars?

We are reaching a point where people will not act rationally. Believe it or not there is still some time to protect yourselves before this tidal wave engulfs Australia. We are in for 10 very difficult years. Make no mistake this is not a 1990 property recession or a 1987 stock market crash. It is no wonder that the average american has been phoning their elected representitives and threatening them about bailing out the wall street crooks.

 

[WinstonWolfe]

Well, you should explain better what you mean as you first said the RBA raised rates too high and too quick then later in the same post you say they should have tightened the credit well before.


I mean RBA let house price growth far exceed growth of gdp. And any economist will tell you asset price growth beyond the rate of gdp growth is unsustainable. Further, RBA was aware DSRs were rapidly going up to never seen before levels. They also knew home loans were more and more being sourced from foreign sources. It appears the RBA did not know why the source of cheap credit in the world, and the risk that credit carried. So the RBA would have to have known more mortgage interest was going overseas. How on earth is this possibly good for Australia? - that Aussies borrow more foreign money to drive up property prices. All that happens is more household savings flows overseas.

The RBA say they aim to keep inflation under 3%......I say house price growth as we have seen in the last 10 years is a form of inflation. Higher mortgages and rents add to inflation, even if the RBA wants to exclude them from headline inflation and gdp deflator.

IMHO, the RBA started pushing rates up too late. And then they went too high. Economists agree rate rise effects can take 6 mths to show. but the rba was pushing them a lot quicker than that.

I would agree if you mean they should have tightened more when house prices went up and the bubble was forming in the last 5 - 8 years. I think the RBA did ok this last year as the Economy is still in good shape and even retail sale number that come up yesterday are good, only lending and building permit show bad numbers, that is not because of policy of the last year.

disagree.....look at aig and nab business surveys....also look at discretionary expenditure via ASX:XDJ


About inflation I think it is very bad that a country of the importance of Australia have official inflation reports every 3 months while most oecd countries have it every month. I don't know is ABS cook the books but I am pretty sure Australian inflation is not lower then what has being reported and to my personal price monitoring in the long term looks higher then most developed countries (specially europe)

Check out www.shadowstats.com. The site reveals how successive US govts have manipulated cpi for a couple of decades to dilute it down. Why? because wage rises are based on it, gdp is based on it. and these things determine very much what a currecny is worth and whether foreigners will buy govt bonds. Australia messes with cpi and gdp similarly.

I reiterate, the RBA failed in its primary mandate, to protect the AUstralian Financial System. Why did they fail? Because they did not understand the source or size of risk inherent in cheap foreign credit flowing into Australia. Even up until a few weeks ago, the RBA did not see what would happen since. I ask, how smart are these guys?

 

[boz]

I mean RBA let house price growth far exceed growth of gdp. And any economist will tell you asset price growth beyond the rate of gdp growth is unsustainable. Further, RBA was aware DSRs were rapidly going up to never seen before levels. They also knew home loans were more and more being sourced from foreign sources. It appears the RBA did not know why the source of cheap credit in the world, and the risk that credit carried. So the RBA would have to have known more mortgage interest was going overseas. How on earth is this possibly good for Australia? - that Aussies borrow more foreign money to drive up property prices. All that happens is more household savings flows overseas.

The RBA say they aim to keep inflation under 3%......I say house price growth as we have seen in the last 10 years is a form of inflation. Higher mortgages and rents add to inflation, even if the RBA wants to exclude them from headline inflation and gdp deflator.

Definetly agree with that,
I also add that the Howard - Costello team was responsable as well as the RBA.

IMHO, the RBA started pushing rates up too late. And then they went too high. Economists agree rate rise effects can take 6 mths to show. but the rba was pushing them a lot quicker than that.

disagree.....look at aig and nab business surveys....also look at discretionary expenditure via ASX:XDJ

strongly disagree, are you forgetting that only untill july resources prices where throught the roof and inflation was the big thing of the year. Did you back in early july seriously thought RBA was rising too fast? Only when I saw oil prices going down together with resources I start to believe we are seriously heading to deflation, and even now I am still not so sure about it (at least for Australia with the AU$ in free fall). Same is the view of the ECB that is keeping rates up at 7 plus year high (and I think the ECB is the central bank that did the best job in the last decade).
Also 6 months has passed since the last hike from RBA, is it that bad now? don't think so: unemployment at 4.1%, retail sales high, trade deficit still negative...
do you really think that if in the last year RBA would have risen less now the Australian economy would be much better and house prices, building industry and AU$ in better shape? The RBA as you said did really bad in the years before middle 2007, not after.

 

[Aaron Sice]

hang on - if the RBA failed to protect financials, and the RBA is a cartel of major banks, then major banks are to blame for their own demise? as in, they were instrumental?

if the RBA were runaway with rate rises - then surely it could be argued they were artificailly inflating the value of the dollar in preparation for the slapdown to come...?

 

[WinstonWolfe]

Definetly agree with that,
I also add that the Howard - Costello team was responsable as well as the RBA.

I can accept that. Everyone thought the mining boom would smooth over other problems, even poor NSW and Vic economies. Costello and Howard reassured that the public sector did not carry a deficit......and he didn't think there was anything wrong with private debt in the stratosphere.


strongly disagree, are you forgetting that only untill july resources prices where throught the roof and inflation was the big thing of the year. Did you back in early july seriously thought RBA was rising too fast?

I was actually stunned when property took off again at the beginning of last year. I had several houses and a devt site under contract at that time and haggled heavily after building inspections cos I didn't think prices could move much beyond inflation. But then they flew up 25% by Nov 07....then stalled. However, I had let the houses go and only taken the dev't site, on the basis that it was a more ethical decision to increase housing supply, rather than compete with fhb's by buying existing stock. It was around Feb 07 that I started researching more intensely how much more credit and debt service capacity was left in the Australian market. I just couldn't believe DSRs could go up higher. And I was concerned about the price of oil going up and up.


Only when I saw oil prices going down together with resources I start to believe we are seriously heading to deflation, and even now I am still not so sure about it (at least for Australia with the AU$ in free fall). Same is the view of the ECB that is keeping rates up at 7 plus year high (and I think the ECB is the central bank that did the best job in the last decade).

At the same time the RbA were caning rates, oil was going up as well as food and rents. And some of the banks had started to up rates due to higher cost of funds. I believe the real cost of living (not cpi) would have slowed consumption anyway....and if you look at XDJ you'll see how discretionary expenditure was dropping rapidly.....rate rises were coming too quick after March 07.....oil and rents and bank hikes should have been allowed to take effect.


Also 6 months has passed since the last hike from RBA, is it that bad now?

Ask the CEOs of Myer, David Jones, and other discretionaries. Ask Raptis and Beachwood and other property developers who have gone bust. Ask Stockland acquisition employees who have been sacked in the last 2 months. And ask those competing to find a place to rent in Sydney due to a lack of new supply...

don't think so: unemployment at 4.1%, retail sales high, trade deficit still negative...

which retail sales is that??? exports are a small part of the Australian economy....we are a service oriented consumer economy....just ask NSW and Victoria state govts...

do you really think that if in the last year RBA would have risen less now the Australian economy would be much better and house prices, building industry and AU$ in better shape?

I think we would be better off if the rba had begun rate rises in 2002 and stopped earlier. that way the heat would have been taken out of the property boom......more time would have been available to bring new supply on.........but we also needed local govt to smooth approvals and drop charges on land release and medium density so that supply could keep up with demand. As it is, I think we are at extreme risk of having significant asset deflation, which we may not recover from for a decade..

I think we needed the RbA and govt to recognise credit was way too loose...and when credit tightened, asset prices would fall further with drastic consequences.

The RBA as you said did really bad in the years before middle 2007, not after.

They did bad in many respects imho, before and after. That's why I don't trust them or govt. If asset prices deflate seriously, do you think the RBA isn't partially responsible for not recognising there was an credit bubble feeding an asset price bubble???

 

[boz]

They did bad in many respects imho, before and after. That's why I don't trust them or govt. If asset prices deflate seriously, do you think the RBA isn't partially responsible for not recognising there was an credit bubble feeding an asset price bubble???

Yes, I agree with that. You also have to consider that like politics the RBA is not always the same and the governor change every now and then

Ask the CEOs of Myer, David Jones, and other discretionaries. Ask Raptis and Beachwood and other property developers who have gone bust. Ask Stockland acquisition employees who have been sacked in the last 2 months. And ask those competing to find a place to rent in Sydney due to a lack of new supply...

don't think so: unemployment at 4.1%, retail sales high, trade deficit still negative...

which retail sales is that??? exports are a small part of the Australian economy....we are a service oriented consumer economy....just ask NSW and Victoria state govts...

Come on! you can't just ask CEO and people in general, that is why we have bubbles, you have to look at the data, have a look the last financials from DAVID JONES? you think it was surprising about the 2007 house price rise, have a look at the file of DAvid jones first 6 months of 2008 profit up around 25% for both the whole financial year and same for just the 6 month to july 2008.
the retail sales (change in the total value of sales at the retail level) from ABS that just came out yesterday show a very good number of +0.3% (+3.2% for the last 12 months) better then forecast, you can ask as many business you want but the ABS number is the one to look at and that is good (RBA will look at that as well). I think if economy goes up 3% a year and businesses goes bust is not because we need a stronger economy but there is something wrong with the business and after so many years of economy growing beyond their limit a lot of businesses badly managed have survived and that is probably not going to happen anymore.
So i am just point out that rates in march were not too high and when (and if) the trouble will come (probably next year) that would be just because of bad management of the economy previous 2007. the RBA this year untill now has managed a soft landing as planned.

And ask those competing to find a place to rent in Sydney due to a lack of new supply...

...and excess of demand for a strong economy, I am sure when more tenent will loose their job they can squeeze 3 person for each home instead of the actual 2.4.
But we all agree that if we had an economy that grow within its limit is good for everyone as you get stable growth, stable number of new houses, immigrant, employment and home prices and rent growth

 

[WinstonWolfe]

Yes, I agree with that. You also have to consider that like politics the RBA is not always the same and the governor change every now and then

That shouldn't make a difference to their ability to carry out their mandate. They are supposed to work more like a scientific body, rather than a political or ideological animal. They observe stats and decide the timing and intensity of rate changes. Apart from that, they increase money supply. Last year they increased it 20%, when gdp went up 3%....go figure

Come on! you can't just ask CEO and people in general, that is why we have bubbles, you have to look at the data, have a look the last financials from DAVID JONES? you think it was surprising about the 2007 house price rise, have a look at the file of DAvid jones first 6 months of 2008 profit up around 25% for both the whole financial year and same for just the 6 month to july 2008.

You are right, I shouldn't have mentioned David Jones. They have done well even if by reducing costs rather than increasing revenue. But look at xdj as a whole, which is a better indicator of confidence. It fell off a cliff in May 07.


the retail sales (change in the total value of sales at the retail level) from ABS that just came out yesterday show a very good number of +0.3% (+3.2% for the last 12 months) better then forecast, you can ask as many business you want but the ABS number is the one to look at and that is good (RBA will look at that as well).

I don't believe retail sales is sensitive leading indicator. It groups discretionary and staples together and doesn't account for declining profit margins. Support for that can be found in the AIG indices - services , construction manufacturing.


I think if economy goes up 3% a year and businesses goes bust is not because we need a stronger economy but there is something wrong with the business and after so many years of economy growing beyond their limit a lot of businesses badly managed have survived and that is probably not going to happen anymore.

The economy is only going up 3% pa (as in gdp growth) if you believe the gdp deflator is as low as the govt would have you believe. As I have said above, if you look at how cpi estimate has been adjusted over the last 30 years, and how fuel, finance, clothing, health, pharmaceuticals, and food are manipulated, some say inflation is a lot higher, therefore growth is not 3%. Further, 3% growth is on the back of growing private debt. In financial terms, return on equity has to be compared to return on capital to confirm whether higher debt has benefited Australia.


So i am just point out that rates in march were not too high

Rates themselves don't tell the full story. My issue with the RBA is that they should have be looking at household debt and DSRs where credit card, personal loans, and mortgage debt is considered.

and when (and if) the trouble will come (probably next year) that would be just because of bad management of the economy previous 2007. the RBA this year untill now has managed a soft landing as planned.

If you think that, then we have to just respectfully disagree. My whole critique of the RBA (and govt) is that they have unwittingly exposed Australians to extreme risk in the form of an asset bubble that has growingly become dependent on the cost of foreign credit. If not, then the ASX would not be reacting in unison wiht the NYSE, non bank lenders would not need 4b, and the majors wouldn't need to expand profit margins (by not following rba rate decreases) to cover provisions for sub prime exposure.


...and excess of demand for a strong economy, I am sure when more tenent will loose their job they can squeeze 3 person for each home instead of the actual 2.4.

That is true. I agree the housing shortage is more to do with sociocultural change....but it is a different world to what it was in the 1950s where people married earlier and had families....and separation and divorce wasn't as high.

But we all agree that if we had an economy that grow within its limit is good for everyone as you get stable growth, stable number of new houses, immigrant, employment and home prices and rent growth

I agree the goal should be to avoid wild swings in credit availability so as to smooth out economic cycles. I also think the RBA and govt allowed a global credit bubble cause an asset bubble in Australia. And this is going to cause a lot of real pain to many Australians for years to come. This is why I don't think these guys should be put on pedestals. They say we have a free market but they still interfere with it when it suits their analysis. And I think allowing the property bubble was a gross error of judgement on their part.