another 2011 prediction - Aussie Luck Could Run Out
(snip)MARKET INSIGHT REPORT
Aussie Luck Could Be Running Out
John Taylor, Chief Investment Officer
Jim Chanos seems to have lost his high profile perch as a China basher in the popular press, but he is still confident that China will be slowing and property values will drop sharply. Another analyst with an outside the box view about Australia and its coming problems has also gone quiet lately – me – as the last letter we wrote on this was dated March 11, titled The Lucky Country. Our conclusions were that “leverage is a dangerous thing and ‘excess leverage is always a disaster in the waiting” and finally that “luck will run out this year.” We’re waiting. Both Chanos and FX Concepts made the same error: we had not appreciated how far Ben Bernanke would go to flood the market with dollars. The Fed’s attempt to float the weak US economy on a pool of excess dollars resulted in a banner year for China, Australia, commodities, emerging markets, and a host of other things. Isn’t this still going on? What has changed? We think the answer is almost everything.
Considering that the Fed recently announced a new qualitative easing program that will put $75 billion into the global system each month until June, it might seem a stretch to say that things are changing, but they are both in the US and in Australia, plus the rest of the world including China. Front and center in the US is the 112th Congress which begins on January 3, which we expect to be one of the most tight-fisted in history. Just last night the 111th Congress in one of its last acts passed a bill to keep Washington running for another 10 weeks – only hours before it would have run out of money. What is impressive is that this bill freezes all budgets at current levels, does not fund the new healthcare bill or the financial regulation bill, and puts all future spending decisions off to the new Congress. The Buy American Bonds (BAB) program seems to have been left for dead, which could pitch California and other near-bankrupt states into a dark hole within a few months. There just won’t be any spending coming from Washington or the states. Most analysts are expecting better US growth from the personal tax compromise, Obama’s cutting of Social Security deductions, and extension of unemployment insurance. Even if this does not create growth – which it might not – it means that the government must borrow more and there will be fewer dollars for the rest of the world. If the Republicans play rough and California craters, fiscal tightening will be the rule, US rates will be higher than Bernanke wants, the dollar will be strong, and foreign markets will be hurt. The odds favor an outcome like this, and the Fed is not free to ride to the rescue again. With Ron Paul riding hard over Bernanke, the Feds wild ways will be corralled. With fewer excess dollars, the growth game, and the markets that follow it, are over.
Interestingly the Shanghai Composite Index and the Australian dollar are showing a six month correlation of 89%. Sydney looks like Shanghai south, but the Chinese authorities are slowing their economy – and Chanos says this will turn into a sharp slide."(snip)
The premise behind Mr. Taylor's assessment is that Australia ... and similarly situated natural resource export based economies like Canada ... are going to be left with fewer export buyers as well as with smaller natural resource / export profit margins when China ... and similarly situated rapidly developing countries like India ... are forced to throttle back their growth rates to address accelerating domestic inflation plus a major reduction in 'global liquidity' ( i.e. the US FED finally being restrained from printing money like a drunken sailor by next year's more fiscally conservative US politicians) .
This view received some very significant corroboration today via China's having conducting a 'failed' bond sale ( i.e. at existing interest rates, there weren't enough willing buyers for the new bonds China wanted / needed to sell ). See
This virtually guarantees that China will have to raise Yuan interest rates extremely quickly ... which will strengthen the Yuan, reduce Chinese manufacturing export product cost competitiveness, reduce demand for natural resource commodities, and in the process cause Australia ( and Canada ) to experience a decline in their currency valuation as well as a decline in their export volume as well as a decline in their export profits ... as well as a decline in gov't royalty payment revenue and gov't tax revenues that are tied to those natural resource commodities.
Re: another 2011 prediction - Aussie Luck Could Run Out
Re: another 2011 prediction - Aussie Luck Could Run Out
here's an interesting update ...
(snip)"Please consider Australians sinking under debt burden
With banks warning they will be forced to raise mortgage rates by 0.50 per cent in 2011 and Sydney rents forecast to rise by between $160 and $190 a month, according to analysts Residex, householders look set to suffer.
Repossessions and tenant evictions are expected to rise sharply. "It's going to be tough" said Shane Oliver, chief economist at AMP Capital. "Families face many rising costs and while most people have slowed their borrowing, our debt is still growing and that's a big problem."
Despite more cautious spending in recent months, household debt is still up by 5.8 per cent on a year ago and a recent survey by Westpac found only about 20 per cent of people thought paying off debts was the best use of their money. Most households in the US, UK and much of Europe are still busily paying down their borrowings, particularly unsecured debts such as personal loans and credit cards.
"Unlike the rest of the world, Australia has slipped back into its old habits," said Steve Keen, professor of economics at the University of Western Sydney. "We're spending ourselves right back into trouble. With so much extra debt to service, we don't need interest rates to reach anything like the 9.6 per cent they hit in 2008.
"We may find repossessions spiking much more quickly than they did two years ago."
Weekly Living Costs Up $100
Real estate has peaked and so has the shopping center economic model based on the strong Australian dollar. There is no reason here to like either Australian equities or the Australian dollar. Strong commodity prices will no longer help Australia.
Australian real estate has already been hit by rising interest rates and with Weekly living costs up $100, more rate hikes may be coming.
FAMILIES face cost-of-living increases that could drain the weekly budget by up to $100 this year.
New data shows Australians are being levelled with record expenses for basic services and Sydney residents are some of the hardest hit in the country.
After floods that have wiped out crops in Queensland and NSW, fruit and vegetable prices are predicted to rise by up to 50 per cent.
Any hope the strong Australian dollar would shield motorists from increases in fuel prices have been dashed - global oil prices are tipped to hit record highs.
This year's price increases will compound the cost pressures already inflicted on households.
The trio of utility costs alone represents an extra yearly burden of about $1000 - or $20 a week - for an average household of four, while grocery bills are set to rise on average by $50 a week, based on a weekly bill of $150.
Housing affordability has taken another dive, with industry figures showing the largest annual decrease in a decade.
A report by the Real Estate Institute of Australia showed the proportion of income required to meet loan repayments increased 5.8 per cent to 34.8 per cent over last year, a 10-year high.
Additionally, the amount of rent people are paying has increased by 18.6 per cent in Sydney over three years, above the national average.
The Bureau of Statistics also identified health costs, communications services and petrol prices as having risen sharply over the year."(snip)
from
The 'bad news' that Australia's costs of 'necessities' is rising even more rapidly than America's costs of 'necessities' tends to indicate that average Australian household budgets will force even larger reductions in 'discretionary' spending ... like strip clubs. The main difference between Australia and America in this regard is that the Australian gov't is unable / unwilling to forcibly hold down interest rates ... leading to an increase in home mortgage payments thus rent prices on top of all of the increases in utility bills, food and gasoline prices.