More farewells to manufacturing and jobs...

The future of more than 500 people in Orange who work for Australia's last refrigerator manufacturing plant may be decided on Thursday night (AEST) at a company boardroom in Stockholm.
A spokesman for Electrolux which employs 544 workers at the Orange plant said its future was ''high up on the agenda'' for discussion at the board meeting in Sweden. It is expected the board will decide whether to close the plant which injects an estimated $33 million into the local economy each year.
(here).

But not to worry there's more froth to be added to the housing bubble with keen rival MacBank ready to crash the party (Macquarie eyes a slice of Australian banks' home mortgage pie).  At a time when teenagers and toddlers are having houses and apartments bought for them in panic !

Ugly Sisters

A great piece from bondvigilantes.com featuring slides from a M&G presentation showing the extent of the bubble in property prices!

Here

Aussie bank bubble...

...is getting plenty of attention.  Here's some of the commentary:

It seems analysts are finally catching on to what we here at the Motley Fool have been saying for some time now. Share prices of the major banks have been inflated well past any measure of relative value.(here)

...and via the FT, via UBS:

 The Aussie banks are very good companies. They are profitable, resilient, well capitalised, well managed, shareholder focused and have a very strong industry and regulatory structure. However, following the significant leveraging of the Australian & NZ households over the last thirty years they are now low growth and remain heavily exposed to housing, funding markets & unemployment risk (here).

John Collet at the Sydney Morning Herald cared to disagree however:

Investors believe that lower interest rates are here to stay and the big bank profits add to their confidence....For Shane Oliver, chief economist at AMP Capital Investors, there is a risk of its becoming a bubble but "we are not there yet".
The banks are well managed and increasing their profits. One risk would be if interest rates were to rise. But markets are expecting the next move in interest rates to be down. (here)

The key phrase there being "well managed" - that will remain to be seen!

We're only halfway through...

Any guesses where this is written and what it is about? (hint - read it through, link at end)

... Data released by RP Data, APM, Residex and ABS in January and February 2013 showed that Australian house prices continued to rise throughout 2013.  This means the great Australian housing bubble has been expanding for almost two decades, since the mid-nineties, making it the largest and longest lasting bubble (of any type) that has ever existed in known history... (here).

You've been warned...

Many years have passed since the Economist identified a large, US-subprime style property boom in Australia.  A recent analysis by Leith van Onselen has drawn parallels with the disaster-prone Irish economy:

...Ireland’s house values have collapsed by 50%, on average, since 2007 and the island nation’s home owners have collectively lost the equivalent of A$315bn....Van Onselen notes that in 2004, Ireland was the ‘toast of Europe’, a country with a GDP per capita roughly 20% above the European average....“How things change… As is the case with most housing bubbles, Ireland’s was fuelled by a number of inter-related drivers: easy credit, speculation, and unresponsive supply.” ...

...“The risk for Australia is it basically hinges on the mining boom. If we had a big, big drop-off in mining, we could have a pretty big drastic adjustment. But it’s hard to say what the price adjustment would be if that happened. I couldn’t see Australia being anywhere near 50% [reduction in home values] but 20% could be possible.” (here)

Calling a market top

Life's pretty good for the Oz Corporate Sector.  Shares are looking up and for banks particularly.  A giddy piece by Myriam Robin painted a rosy picture, especially for the banks which "became more valuable by market capitalisation than all of those in the eurozone".

No worries about banking systems and debts exceeding the size and capacity of the underlying economy a la Cyprus then.  The Commonwealth Bank gets a special mention as it hit highest equity valuation for a day

...CBA has certainly been a very strong contributor, particularly because it’s attractive for investors seeking a lower risk.... Part of the reason why the banks, and indeed the whole economy, got through the GFC relatively unscathed is because of government-mandated limits on the amount of risks banks could take on. Our banks had relatively low levels of sub-prime debt, and were less highly leveraged than those overseas....(here)

A conventional view if not truly accurate.  CBA's mammoth position in the market is a result of it having swallowed up ailing Bankwest in a shotgun takeover in the midst of the outbreak of the GFC in 2008 (more details here).  And for better or for worse, the major banks oversized position has left them gouging their customers on deposits and mortgages and vulnerable to a turn in the wholesale markets.  Or to put it another way - being a large bank in a world where all other banks are trying to rapidly downsize is a bad thing!

As if to add to the sense that things can only head downhill, Chinese buyers are increasing their interest in Australia's financial sector:

..."What hasn't happened in a big way, but is starting to, is banking. Chinese banks finance a lot of banks around the world and we're starting to see them open branches in Perth and Sydney, looking to service Chinese clients here, but it is the beginning of what might be significant growth in the industry for China," he said....(here).

What bad could come from foreign investment and new funds? Well with Chinese investors, though capital rich, are not always successful investors.  In the mining sector, the most notorious failure is the $2.6bn Karara iron ore joint venture between China’s Anshan Iron and Steel and Australia’s Gindalbie Metals which has been weighed down by infrastructure design changes, rising material and labour costs, and currency movements and seen its budget blow out to $8 billion, then up to $10 billion (here).

Let's hope the new masters can handle the ride down from the top of the cycle when banks turn sour..

High price balconies

Showing a creative attitude and that evidently Sydney can still turn out good weather, one young accommodation seeker has taken to living on a balcony for the not paltry sum of $215 a week in inner Sydney while looking for a place to live.  Not only a tale of urban bohemia, Josh Chamberlin's story of moving to the pricey Sydney market illustrates the general degree of housing and mortgage stress in the  Sydney and Australian market - another side impact of central bank policy in allowing strong external financial flows to inflate asset bubbles including overpriced real estate markets.

One state government made noises this week about programs for increasing housing supply but these will doubtless get held up by delays and red tape.

Again more effects of hot money flows into Australia...

Gittins on Australia's lopsided, distorted economy

.... in a paper to be issued on Wednesday, ''Corporate power in Australia,'' by Dr Richard Denniss and David Richardson, of the Australia Institute, we're reminded that things here are far from ideal.....The authors argue that ''big business exerts influence through campaign contributions, influence over university funding, sponsorship of think tanks and in other ways''....

....The four most disproportionately influential industries in Australia, they say, are superannuation, banking, mining and gambling.... (here)

RBA's Glen Stevens doesn't get it!

...Reserve Bank Governor Glenn Stevens does not think Australian house prices are unreasonably high and does not believe they will drop. Nor does he agree that we have a price bubble (here).

Using price-to-income ratios - a gauge of affordability - and price-to-rent ratios, The Economist suggests home prices are overvalued by about 25 per cent or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (here).

“Property booms are never driven by supply and demand – they are driven by credit. And credit is the pretty hand-maiden of debt,” he told a room of about 300 people at the ticketed event....“It screams to me – running naked down Darling Harbour – that this property market is overvalued,” he said. (here)

The AUD at this very moment is hollowing out the economy – anyone not believing that should go have a chat with any exporting or import competing company and see if they are looking to take on more people and have more work, or are easing back.... .....Now cast your eyes to Australia’s banks. They are a significant factor in the overseas borrowings. They know that they can get overseas funds which are looking for a yield, and that they can place those funds in Australia. ............Bank lending, particularly for mortgages has helped inflate Australian housing prices to insane levels. The mortgages taken out by Australians have helped push their private debt levels to global highs. Current private debt to disposable income is circa 145%, mortgage debt to GDP is about 85% (here).