A Menace To The Economic Welfare Of The People
A look at the housing bubble fight down-under. The West Australian. “Prime Minister Tony Abbott says Labor leader Bill Shorten is talking down asset values to the detriment of families. Treasury boss John Fraser sparked the debate on Monday, telling a Senate estimates hearing that Sydney and wealthier parts of Melbourne are ‘unequivocally’ in a housing bubble. Mr Shorten asked Mr Abbott in parliament on Tuesday whether he believed Mr Fraser was right. ‘Does the prime minister have a plan for housing affordability for young Australians locked out of the housing market?’ Mr Shorten asked.”
“Mr Abbott said it was a ‘bizarre line of questioning.’ ‘What we do not want to do is to jeopardise the future of Australian families who are buying their homes by reducing the value of their biggest asset,’ Mr Abbott said.”
The Guardian. “Abbott said millions of Australians had home mortgages and the last thing they wanted to see was a decline in the value of their most important asset. He then turned the attack on the opposition leader, claiming that Shorten was saying people’s houses were worth too much and was ‘talking down our economy.’ ‘This is someone who wants to be the prime minister of Australia and he wants your house to be worth less,’ Abbott said. ‘What I don’t want him to do is wreck the housing market of Australia … Just imagine how you would go if you had to repay your mortgage and your house was not worth what it was when you bought it. That is the spectre that this leader of the opposition is now holding out to the people of Australia.’”
“‘What this proves is that this leader of the opposition is a menace to the economic welfare of the people of Australia,’ the prime minister said.”
The Daily Telegraph. “Analysis done for The Daily Telegraph showed Mr Abbott paid $351,000 in 1994 for his home and it is now worth $1.5 million. In comparison, Mr Shorten’s Melbourne home, which was purchased for $842,000 in 2009, would be worth $1 million. Belle Property Seaforth agent Matt Brady said Mr Abbott’s house — with four bedrooms on 696sq m — would be worth in the ‘mid $1 millions’ but was far from being flash. ‘He lives in a modest home in a modest street,’ he said.”
Smart Property Investment. “Lenders across the country are continuing to introduce measures to crackdown on investor activity. Wayne Byres, chairman of the Australian Prudential Regulation Authority (APRA) said investigations into hypothetical borrower scenarios found that ‘common sense was sometimes absent’ when it came to the banks’ treatment of borrowers’ income sources and credit assessment processes. He also said lending standards were ‘a little disconcerting in places.’”
“A particular area of concern arose in regards to lenders factoring in negative gearing benefits to investors’ serviceability calculations and failing to accurately account for investment property holding costs. ‘Another area of interest was the discount of ‘haircut’ applied to declared rental income on an investment property. The norm in the ADI [Authorised Deposit-taking Institution] seems to be a 20 per cent haircut, but we noted in our exercise that some ADIs based their serviceability assessment on smaller, or even zero, haircuts,’ Mr Byres said.”
“‘Bearing in mind that the cost of real estate fees, strata fees, rates and maintenance can easily account for a significant part of expected rental income, and this does not take into account potential periods of vacancy, the 20 per cent norm itself does not seem particularly conservative. We also came across a few instances in which ADIs were relying on anticipated future tax benefits from negative gearing to get a borrower over the line for a mortgage.’”
From MyWealth. “Australian capital city dwelling values in May recorded their first monthly fall since November 2014, according to CoreLogic. The drop of 0.9% in dwelling values for the combined capitals from April to May is nevertheless dwarfed by the 9% yearly rise to May, driven by Sydney and Melbourne property markets recording growth of 15% and 9% respectively. However, both those markets also fell last month, with Sydney prices sliding by 0.7% and Melbourne by 1.7%.”
“Tim Lawless, CoreLogic RP Data head of research also notes ‘over the past three years, dwelling values have risen more than three times as fast as rents. The net result is that gross rental yields have been compressed from 4.3 per cent back in 2012 to the current average gross yield of 3.7 per cent across the combined capital city index.’ However, Lawless argues ‘clearly, investors are not bothered by the low rental yields that are currently available with housing finance data showing investors comprise a record 51 of the value of new home loan originations.’”
The Sydney Morning Herald. “Criminals are targeting Australian real estate as a safe haven to launder money and hide the proceeds of crime, according to the national money laundering watchdog. ‘Criminals buy high-value goods such as real estate as a way of laundering or concealing illicit funds,’ the Australian Transaction Reports and Analysis Centre said in its report, Money laundering through real estate agents. The AUSTRAC report says criminals are drawn to real estate as a channel to launder illicit funds because they can ‘buy real estate using cash’ and ‘disguise the ultimate beneficial ownership.’”
“The ‘relatively uncomplicated’ nature of property transactions made it easy to wash large volumes of cash. ‘Large sums of illicit funds can be concealed and integrated into the legitimate economy through real estate,’ it said. Most pointedly, the report showed how criminals were hiding behind friends or family members and also taking out loans to disguise illicit funds as mortgage repayments. ‘Criminals may seek to buy property using a third party or family member as a legal owner,’ it said.”
From Fairfax. “The mystery owner of Australia’s most famous trophy home, Altona in Sydney’s Point Piper, is a Chinese property developer who concealed his investment behind an elderly Melbourne couple to avoid foreign investment laws. Fairfax can reveal that businessman Wang Zhijun paid $52 million for the harbourside mansion through a complex holding structure of shelf companies and holding trusts, including opaque nominee arrangements stretching from the Melbourne suburb of Elwood to the British Virgin Islands.”
“Fairfax can now reveal Mr Wang did not have permanent residency when he bought Altona two years ago, despite laws preventing foreigners from buying established housing. On Tuesday lawyers for Mr Wang’s interests took Fairfax Media to the Victorian Supreme Court in an unsuccessful attempt to prevent publication of this story. The revelation solves the most talked-about riddle in Australian real estate but raises major questions about the growing tide of offshore money washing into the Australian property market.”
The Australian Financial Review. “Mortgage arrears have risen sharply in mining towns over the past 12 months, coinciding with a fall in the iron ore price and a pull-back in mining investment, according to a new Standard & Poor’s report. Mining town arrears rates could rise further over the next decade with broker Citi downgrading its long-run iron ore price forecast form $US81 a tonne to $US55 a tonne by 2025 and quarterly Australian Bureau of Statistics figures showing private-sector mining investment down 4.1 per cent in the March quarter, its sixth straight quarterly decline.”
“LJ Hooker Pilbara estate agent Marg Hunter said there were ‘no enquiries whatsoever’ for properties she was selling in the WA mining zone. ‘I’ve not had a sale sign since December,’ she said. Ms Hunter said prices had fallen by as much as 50 per cent for some properties. ‘Properties that had been rented out at $2500 a week a year ago are now available at $400 to $500 a week,’ she said.”
“Ryan Crawford, director of the Crawford Property Group, which has offices in Hedland, Newman and Karratha, said over the last 12 months demand for housing in the Pilbara has reduced substantially ‘as mining companies large and small begin to tighten their belts in reaction to global resource prices and decreased exploration and expansion activity.’ ‘The recent downturn has brought previously overheated pricing down to much lower levels in these regions, while existing investors are battening down the hatches and adjusting to lower rents,’ he said.”
It’s been a long time since I’ve had a post just on Australia.
From the other day;
‘It is the B-word that few with their hands on the levers of Australia’s economy have dared to publicly utter. Until now. The head of Treasury John Fraser’s unexpectedly blunt assessment at Senate Estimates took many observers by surprise. ‘When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney. Unequivocally,’ Mr Fraser said. ‘Frankly, whatever the data says, just casual observation can tell you it’s the case.’
http://thehousingbubbleblog.com/?p=9050
Lot’s of strange stuff about all this ‘dare not to utter’ thing. In Australia, like Canada and China, they never had a bubble. That big blow up a few years ago was the Great Financial Crisis (GFC) - (they often just use the GFC, it’s that universal). The GFC was the housing bubble collapse in the United States that spilled over into Australia, etc. And that was all a sub-prime thing. Don’t fool yourself into thinking that house prices could ever be too high, mate.
‘The problem with bubbles is they only become really apparent after they’ve burst. This applies in any market – be it for shares, commodities such as gold and oil, or Dutch tulips – when demand is in considerable part driven by speculation of future price rises rather than yield.’
‘Bubbles are further inflated when they are pumped with cheap credit, which leads us to the Australian housing sector.’
‘The property shills will tell you there is no problem; that Australian housing is not overvalued and it’s all a matter of (not enough) supply and demand. Nothing to see here, move along.’
‘Another important point is that Australians, while tending on average to save since the GFC, have never been so indebted. Total household debt is about $1.9 trillion (or more than Australia’s entire Gross Domestic Product), of which about $1.4 trillion is mortgage debt.’
‘On average, the household debt to income ratio is 150 per cent – higher than other advanced nations including the UK, France, US and Germany, and about double the levels that prevailed 20 years ago.’
‘When it comes to home prices, on average the ratio of prices to household income now exceeds six-to-one, again about double the levels that prevailed 20 years ago. In some markets – take a bow Sydney – the ratio is even higher, and prices are still rising fast.’
‘The demand, amped up by cheap credit, is largely being driven by investors, with first home buyers now representing less than 15 per cent of new loans. In a world of low interest rates and tepid economic growth this is money looking for a capital return with the added benefit of negative gearing tax breaks.’
RE the Australia bubble, reminds me of when Arnold said “don’t be economic girlie man”
Was that before or after when Maria dumped him?
“Mr Abbott said it was a ‘bizarre line of questioning.’ ‘What we do not want to do is to jeopardise the future of Australian families who are buying their homes by reducing the value of their biggest asset,’ Mr Abbott said.”
Typical politician’s ploy:
If your argument holds no water, belittle the reasoning of anyone who points this out.
“Analysis done for The Daily Telegraph showed Mr Abbott paid $351,000 in 1994 for his home and it is now worth $1.5 million.”
It obviously follows that any Australian who buys a place today will automatically be sitting on over a million dollars in home equity wealth gains two decades from now.
“… reducing the value of their biggest asset.”
And this “value” is directly connected to the price, so what he really means is “… reducing the PRICE of their biggest asset”.
Which he can’t allow to happen because price equals value and value is directly connected to equity and equity (or lack of equity) is what determines whether one is above water or is underwater.
If one is above water then he has equity and hence he is RICH! And because he is rich he will SPEND! And if he spends then the economy will FLOURISH! And if the economy flourishes then Mr. Abbott will KEEP HIS JOB!
But if one is underwater then he will not spend because he will not be rich, instead he will be poor and everybody that depends on his spending will also be poor and hence the economy will suffer and Mr. Abbott will then lose his job.
So, to sum up: Such a price-equals-value economy works if people feel they are rich, and people feel they are rich if they have equity in their homes, and whether nor not they have equity in their homes is something that is determined by price, and price is something that is determined by strangers who may or may not be absolutely crazy.
And so here we are.
Note: In a crazy market it is the craziest of the crazys that set the prices.
Anyone who asks why ever-spiraling home prices are good for the children is engaged in a bizarre line of questioning.
Increasingly we’re seeing politicians whose claims to legitimacy are tied to prices of financialized assets. I’ve been outspoken about our own political leaders; they’re hideous, probably the worst since 1850. But British, Canadian, and Australian leaders are little better. I like Australians, a lot, but can somebody explain how Australia came to be governed by this clown?
Which clown…Abbott or Hockey Puck?
Kirkland, WA Housing Prices Fall 8%
http://www.movoto.com/kirkland-wa/market-trends/
Try again, HA ha ha . . .
Remember that real, actual, GOOD data comes from those with boots on the ground. Kirkland is still one of the hottest markets in the entire country. Houses that were $1M ten years ago are now selling for $2.5M.
Refute the data my friend.
Newcastle, WA(Seattle) Housing Prices Fall 8%
http://www.movoto.com/newcastle-wa/market-trends/
He won’t say where he lives, and you never read anything that even comes close to a first-hand observation.
Data my friend.
McKinney, TX Housing Prices Fall 10%
http://www.movoto.com/mckinney-tx/market-trends/
“‘Another area of interest was the discount of ‘haircut’ applied to declared rental income on an investment property. The norm in the ADI [Authorised Deposit-taking Institution] seems to be a 20 per cent haircut, but we noted in our exercise that some ADIs based their serviceability assessment on smaller, or even zero, haircuts,’ Mr Byres said.”
Insufficient discounting for ‘haircuts’ seems to be many an amateur real estate investor’s Achilles’ heel. The appearance of articles that point this out are a sign the mania is subsiding, as nobody notices ‘haircuts’ when they are masked by double-digit annual capital gains.
It would help if they spoke English in Australia. By haircuts, I think he means lenders calculating carrying costs into a borrowers financial situation:
‘we noted in our exercise that some ADIs based their serviceability assessment on smaller, or even zero, haircuts,’ Mr Byres said.’
‘Bearing in mind that the cost of real estate fees, strata fees, rates and maintenance can easily account for a significant part of expected rental income, and this does not take into account potential periods of vacancy, the 20 per cent norm itself does not seem particularly conservative. We also came across a few instances in which ADIs were relying on anticipated future tax benefits from negative gearing to get a borrower over the line for a mortgage.’
So they actually look into it and find lending standards are being disregarded. Much like the rules for foreign buyers have been completely ignored, for years.
“By haircuts, I think he means lenders calculating carrying costs into a borrowers financial situation:”
Yes, I noticed the weird definition of ‘haircut’. The word may soon turn into a double entendre if investors begin losing their shirts due to falling prices.
“LJ Hooker Pilbara estate agent Marg Hunter said there were ‘no enquiries whatsoever’ for properties she was selling in the WA mining zone. ‘I’ve not had a sale sign since December,’ she said. Ms Hunter said prices had fallen by as much as 50 per cent for some properties. ‘Properties that had been rented out at $2500 a week a year ago are now available at $400 to $500 a week,’ she said.”
Death of canary in the Australia housing market mine shaft duly noted.
‘China’s initial public offerings are such hot commodities that a company seeking $2 billion attracted bids approaching the entire annual economic output of Hong Kong.’
‘China National Nuclear Power Co., the country’s second-biggest atomic power operator, locked up 1.69 trillion yuan ($273 billion) in bids for its IPO, according to a company statement posted on the Shanghai Stock Exchange’s website.’
‘Shares of the 144 firms that went public this year have jumped an average 539 percent so far, including a 44 percent increase on the first day of trading, the maximum amount allowed by local bourses, according to data compiled by Bloomberg.’
‘Subscriptions for 23 local IPOs, including China National Nuclear Power, may lock up 4.9 trillion yuan starting in early June, according to the median estimate of six analysts surveyed by Bloomberg last month.’
Makes this look pale in comparison.
‘On August 9, 1995, Netscape made an extremely successful IPO. The stock was set to be offered at US$14 per share, but a last-minute decision doubled the initial offering to US$28 per share. The stock’s value soared to US$75 during the first day of trading, nearly a record for first-day gain. The stock closed at US$58.25, which gave Netscape a market value of US$2.9 billion.’
http://en.wikipedia.org/wiki/Netscape
Cue the square dancers!
This is breathtaking. It’s one of those “zing! What was that?” moments.
‘China National Nuclear Power Co., the country’s second-biggest atomic power operator, locked up 1.69 trillion yuan ($273 billion) in bids for its initial public offering. That’s almost equivalent to the entire annual economic output of Hong Kong.’
“The pressure from the IPO lockup of funds is just too large and there are no positive triggers,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. “It seems that investors don’t want to be caught in a technical correction and they are selling, which in turn makes the correction even worse.”
‘Tsinghua Tongfang Co. slumped 7.2 percent. The CSI 300 Information Technology Index plunged as much as 7.8 percent, the biggest intraday loss since July 2009. Tsinghua Tongfang owner Zhao Weiguo, who became a billionaire buying semiconductor companies, said the industry has entered a “serious bubble” in China.’
http://www.bloomberg.com/news/articles/2015-06-04/china-stock-index-futures-drop-after-benchmark-snaps-2-day-jump
Think about it. A company wants $2 billion and gets $273 billion. And Netscape was a new technology. These guys are in a decades old industry. In an economy that’s limping along. One is tempted to consider, “that’s it, nothing crazier can possibly happen.”
CNNP is the largest of 23 companies with IPOs this week, expected to lock up nearly 5 trillion yuan (US$807 billion) of liquidity. Under market rules, major shareholders of new stocks are subject to one or two years lock-up before they are permitted to trade.’
‘The IPOs come during bull market in China’s stocks. The Shanghai Composite Index has climbed 52% this year, the most among all global benchmark indexes. Two batches of IPO applications instead of one each month mean the China Securities Regulatory Commission has approved 123 IPOs this year.’
‘The IPOs may be partly to blame for the drastic fall on May 28 as investors tried to get capital together. Subscribers to the new IPOs see them as a sure way of making money.’
http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20150603000109&cid=1102
China Properties Investment Holdings Limited (0736.HK) -HKSE
Watchlist
3.33 Up 2.47(287.21%)
http://finance.yahoo.com/q?s=0736.HK
EPS (ttm): -0.19
“A company wants $2 billion and gets $273 billion.”
If only AlbqDan were around to post today, he could explain why this is simply another sign of the Chinese economic miracle roaring ahead at full tilt.
‘Yesterday Mr Abbott hit back, accusing Opposition Leader Bill Shorten of wanting the value of homes to fall. “He wants that asset that they have invested their heart and soul on to be worthless,” Mr Abbott said.’
‘In a statement released overnight, Mr Shorten rejected the suggestion. “What a patently absurd assertion,” he said. “Tony Abbott’s Treasury secretary has said there is unequivocally a housing bubble in Sydney and parts of Melbourne. If that’s what the Treasury secretary is saying, is the Prime Minister even listening?”
‘Labor senator Sam Dastyari said Mr Abbott is at odds with Mr Fraser. “You have the secretary of the Treasury say and use his own language that there’s a bubble,” he said. “At the same time you have the Prime Minister say the exact opposite, that you know that he wants to see prices keep increasing. What we don’t have at the moment out of any of this is a proper plan, a proper solution and a proper pathway to make sure we’re addressing some of the major housing concerns, particularly in the capital cities.”
‘Queensland Nationals senator and former productivity commission economist Matt Canavan said the best way to address housing affordability is to strengthen the economy. “I certainly don’t think we should be aiming for lower house prices, which seems to be the policy of the Labor Party, because lower house prices would mean a weaker economy,” he said. “The way we’re really going to get affordability, and what we can do at the Commonwealth level, is to make sure we have a strong economy, make sure people have a job, make sure people can earn the money they need to save up for a deposit and get their own home.”
‘Senator Canavan said it would have been wrong to lift rates because of an over-heated property market in just one part of the country. “I don’t think we should have economy-wide policy measures like interest rates trying to target problems in one city because what the Reserve Bank does doesn’t just impact Sydney,” he said. “Indeed, in some areas of Central Queensland and Western Australia house prices are falling considerably because of the mining boom tailing away.”
Courtney Barnett is an Aussie singer and songwriter who wrote this song about house shopping in Australia called “Depreston.” It has a very nice video, too.
You said we should look out further, I guess it wouldn’t hurt us
We don’t have to be around all these coffee shops
Now we’ve got that percolator, never made a latte greater
I’m saving twenty three dollars a week
We drive to a house in Preston, we see police arrestin’
A man with his hand in a bag
How’s that for first impressions? This place seems depressing
It’s a Californian bungalow in a cul-de-sac
It’s got a lovely garden, a garage for two cars to park in
Or a lot of room for storage if you’ve just got one
And it’s going pretty cheap you say, well it’s a deceased estate
Aren’t the pressed metal ceilings great?
Then I see the handrail in the shower, a collection of those canisters for coffee tea and flour
And a photo of a young man in a van in Vietnam
And I can’t think of floorboards anymore, whether the front room faces south or north
And I wonder what she bought it for
If you’ve got a spare half a million
You could knock it down and start rebuildin’
http://www.azlyrics.com/lyrics/courtneybarnett/depreston.html
Excellent:
If you’ve got a spare half a million/
You could knock it down and start rebuildin’.
‘Treasurer Joe Hockey says Australia should not fall into the trap of an over-supply of housing. Mr Hockey says strong demand in cities like Sydney needs to be addressed, but across the country there’s been a “significant increase in supply”.
“You have particular troubles in markets where supply exceeds demand - exhibit A, China; exhibit B, Ireland; exhibit C, the US,” he told reporters.’
“…exhibit A, China; exhibit B, Ireland; exhibit C, the US,…”
Interesting trio of examples!
‘Australia has been urged to tighten oversight of the booming property sector to prevent it from being used by criminals for global money laundering. The calls from analysts followed a report released last month by the Financial Action Task Force, the Paris-based anti-laundering agency, which assessed Australia’s property sector as high risk and urged the authorities to increase oversight of real estate agents, accountants and lawyers.’
‘The report warned that Australian property is at risk of being targeted by local and foreign organised crime syndicates making money from illicit drugs, fraud and tax evasion. It noted that Singapore is believed to be one of the main hubs for criminal funds being laundered in Australia.’
“Australia is seen as an attractive destination for foreign proceeds, particularly corruption-related proceeds, flowing into real estate, from the Asia-Pacific region,” the report said. “China; Hong Kong, China; Macau, China; Singapore and the United Arab Emirates were seen as major source, destination, and/or transit jurisdictions for proceeds of crime laundered into and out of Australia. Large amounts are suspected to be laundered out of China into the Australian real estate market.”
‘Foreign investors have poured in money, with the authorities approving A$74.6 billion (S$98.4 billion) worth of residential and commercial purchases last year, up from A$51.9 billion in 2013. According to Australia’s Foreign Investment Review Board, the biggest sources of real estate investment were China (A$12.4 billion), the United States (A$6.1 billion), Singapore (A$4.3 billion) and Canada (A$2.9 billion).’
‘But the booming sector has led to growing calls to ensure it is not used to funnel dirty money. There are about 35,000 real estate agents in Australia but they are not subjected to anti-laundering procedures.’
“Australian authorities are committed to ensure that Australia is not a safe haven for the proceeds of corruption,” a spokesman told The Straits Times. “The extension of anti-money-laundering/ countering-terrorism finance regulation to non-financial businesses, including the real estate sector, will be considered as part of the statutory review of Australia’s regime, which is currently under way.”
‘The attention on the Australian real estate sector has so far largely focused on corrupt Chinese officials investing in luxury houses, but the task force made it clear that the risk of laundering extends to a wide range of domestic and foreign criminals.’
‘An expert on international corruption and money laundering, Professor Jason Sharman of Griffith University, said the country’s enforcement and regulatory system relating to the property sector was “very, very weak”. “Australian real estate is a great way of laundering money - a lot of criminals are doing it,” he told The Straits Times.’
“There is a lot of money going into the sector, so it is easy for transactions to get lost. Criminals can use lawyers and real estate trust accounts and can put layers between them and the asset.”
‘The government should tighten its enforcement of existing laws and encourage bankers, lawyers, accountants and real estate agents to work with the authorities to prevent property-based laundering, he said. “It has not been a priority for law enforcement in Australia.”
”High risk’ property advisers under scrutiny from ATO’
‘The $52 million Altona purchase by Chinese developer Wang Zhijun is now a matter for the FIRB board. A preliminary audit of dodgy foreign investment in Australian real estate is looking at a network of “high risk” investment advisers, sources say.’
‘Breaches are expected to be clustered around individual advisers in a range of professional firms including at a top tier law firm and one of the “big four” accounting firms.’
‘The Australian Tax Office audit was initiated by Treasurer Joe Hockey and parliamentary secretary to the Treasurer Kelly O’Dwyer after resources available at the Foreign Investment Review Board, in the Department of Treasury, were found to be inadequate.’
‘Officials concede that FIRB has never previously enforced foreign investment laws in relation to residential real estate.’
‘The Tax Office, however, has put to use vast data banks and risk-screening systems that it usually uses to detect likely cases of tax avoidance. Fairfax understands that officials expect to find high-risk investment cases are largely clustered around particular accountants, lawyers and other advisers.’
‘Those advisers have been relying on the earlier practice of lax enforcement rather than the letter of the law, officials believe. Many of those advisers have also featured in previous tax audits and some have been identified in money laundering reviews and even organised crime.’
http://www.google.com/url?q=http%3A%2F%2Fnews.domain.com.au%2Fdomain%2Freal-estate-news%2Fhigh-risk-property-advisers-under-scrutiny-from-ato-20150603-ghg6lg.html&sa=D&sntz=1&usg=AFQjCNGqAi-eagJ1_gKqBfkO-PDOr2twIw
“Australian authorities are committed to ensure that Australia is not a safe haven for the proceeds of corruption,” a spokesman told The Straits Times.
___________________________/
That’s total and complete BS. BS without measure. When housing prices depend on corruption and criminality, those things tacitly are condoned.
I’m amused that the media only now are referring to real estate as a vehicle for money-laundering; I’ve forever been saying that in this space, although it helps that I spent years growing up in a part of Latin America notorious for the practice.
Snake charmer, that spokesman issued a message for the general public, not for the corrupt investors. It’s propaganda. The message for the corrupt investors is diametric: “We welcome all the money you’d care to bring since it makes us look like heroes.”
Bankers and nations only turn away money in stories. In reality, the dirtiest of money is winked and nodded into the banks since that’s what banks do: Deal with money.
There’s a very filthy and distinct reason why governments seem unable to control the financing of drugs and terrorism… since those are the same methods used by corporate financiers when they conduct their own international frauds. When you crack down on any of those methods, the corporate dudes pick up the phone and dial your number as well as your boss’ number, and then you’re either backpedaling or you’re soon out of a job.
The entire system is designed to run on dirty money. Read “Capitalism’s Achilles Heel” by Raymond Baker.
“Baker’s trajectory from a business man in Nigeria to a global campaigner against secrecy jurisdictions serves as the underlying platform to present an analysis of the main weakness of capitalist practices: the willingness of rich countries to accept dirty money from poor countries and their unwillingness to acknowledge that this contributes to continued extreme levels of poverty worldwide. The author explains how illicit financial flows (and the international financial systems’ role in enabling those flows) contribute to high inequality levels and result in extreme poverty.”
http://www.u4.no/recommended-reading/capitalism-s-achilles-heel-dirty-money-and-how-to-renew-the-free-market-system/#sthash.KbsznGWn.dpuf
“Confessions of an Economic Hit Man is a book written by John Perkins and published in 2004. It provides Perkins’ account of his career with consulting firm Chas. T. Main in Boston. Before employment with the firm, he interviewed for a job with the National Security Agency (NSA). Perkins claims that this interview effectively constituted an independent screening which led to his subsequent hiring by Einar Greve,[1] a member of the firm (and alleged NSA liaison) to become a self-described “economic hit man”.”
“According to Perkins, he began writing Confessions of an Economic Hit Man in the 1980s, but “threats or bribes always convinced [him] to stop.”
“According to his book, Perkins’ function was to convince the political and financial leadership of underdeveloped countries to accept enormous development loans from institutions like the World Bank and USAID. Saddled with debts they could not hope to pay, those countries were forced to acquiesce to political pressure from the United States on a variety of issues. Perkins argues in his book that developing nations were effectively neutralized politically, had their wealth gaps driven wider and economies crippled in the long run. In this capacity Perkins recounts his meetings with some prominent individuals, including Graham Greene and Omar Torrijos. Perkins describes the role of an economic hit man as follows:
‘Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign “aid” organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources. Their tools included fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.’
http://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man
Planned weekend entertainment: Posting a figure showing recent daily changes in the valuation of a thirty-year Treasury bond at constant maturity.
Anticipated result:
Treasurys have recently experienced violent volatility that would have made headline news, had this occurred in the stock market rather than the bond market.
To make the results interesting and obvious, I will index the figure to 100 on the day Treasurys hit their peak value this year.
I’m also happy to share the code for the calculation, if anyone is interested (it involves basic high school algebra written in a way the computer can understand).
‘On Thursday, US Treasury bond yields and German bund yields were spiking, extending a violent move that started on Wednesday, as both bonds hit a new year-to-date high.’
‘The yield on a 10-year German bund has spiked to almost 1% after trading down to 0.05% just a few weeks ago, while the 10-year Treasury yield touched 2.42%, the highest since October 2014.’
‘This is also the manifestation of something people in markets have been talking about for the last few months: liquidity. Liquidity can be defined a few different ways, which is sort of the problem: No one is exactly sure what it is. But the basic concern is that there isn’t enough liquidity, meaning that when an investor goes to sell out of a position, they might not be able to execute their desired trade without causing a ripple in markets or taking a loss. ‘
‘In the Treasury market right now, inventory is shrinking. This chart from Deutsche Bank’s Torsten Sløk shows how brokers and dealers currently hold a shrinking percentage of the Treasury market, and this chart tells the whole story. Right now, investors want to move in and out of the Treasury market, and there just isn’t enough paper to go around.’
‘Chinese stocks and several other major Asian share indexes plunged in Thursday afternoon trade, though they soon began moving off their lows of the session. The Shanghai Composite Index SHCOMP, +0.76% was down more than 5% at one point before trimming its loss. The more volatile Shenzhen ChiNext Price Index saw a more than 6% dive, with key indexes in Hong Kong and Taiwan also falling.’
‘According to several reports, the heavy drop was sparked by news that unlisted Golden Sun Securities had halted all margin financing and short selling for the Shenzhen ChiNext stocks. The selldown also coincided with a selloff in Asian bonds, with Dow Jones Newswires reporting some sovereign yields hitting their highest levels in years. The drop for Asian debt began after a sharp rise in yields on German bunds, the report said.’
Marketwatch dot com
Market Extra
Germany’s bond rout is a taste of things to come
By William Watts
Published: June 4, 2015 2:00 p.m. ET
How higher volatility begets more volatility
More rough seas ahead.
German government bonds got wrecked this week and the resulting spike in yields is causing all kinds of havoc across financial markets, including U.S. Treasurys, which more typically march to their own drummer.
It might be a taste of things to come when it comes to market volatility.
…
Sovereign bonds used to be the “widows and orphans” investment instrument of choice. Who could have imagined how sexed up they could get after several rounds of extraordinary rendition, facilitated through the quantitative easing mechanism?
Draghi Gets the Volatility He Foresaw as Global Bonds Surge Back
by David Goodman
Susanne Walker Barton
June 4, 2015 — 5:55 AM PDT
Updated on June 4, 2015 — 2:15 PM PDT
Mario Draghi’s laissez-faire approach to bond-market volatility is pouring fuel onto the fire.
Since touching an eight-month high earlier on Thursday, yields on German 10-year bonds reversed their gains, while U.S. Treasuries also rebounded. The 17 basis-point trading range on 10-year bunds was about four times the daily median in the past year and followed a slump in the bonds this week that triggered the worst two-day drop in the history of the euro area. The global rout gathered pace Wednesday when the European Central Bank president said markets should be ready for periods of higher volatility.
“It’s something we’re going to have to get used to,” Andrew Balls, chief investment officer for global fixed income at Pacific Investment Management Co., said in television interview. “We’re going to have these periods where you have market participants trying to transfer risk and the banks and brokers are just going to act less like market makers.”
The yield on Germany’s 10-year securities fell four basis points, or 0.04 percentage point, to 0.84 percent as of 5 p.m. London time, after earlier climbing as much as 11 basis points to 0.996 percent, the highest level since Sept. 25.
“This is the new world we live in, this extreme volatility that we have,” Jim Bianco, president of Bianco Research LLC, in Chicago, said Wednesday. “You get everybody betting on one side of the boat or the other.”
German Volatility
The German bund yield increased more than 34 basis points in the previous two days, the biggest jump since at least 1999. On both days the yield range was about 20 basis points, compared with a median of about four during the past year.
“It was an ugly move, especially in bunds,” Robert Sinche, a strategist at Amherst Pierpont Securities LLC in Stamford, Connecticut, said in an interview at the Institute of International Finance conference in New York. “It was pretty shocking.”
Since January, the yield volatility on the 10-year German sovereign debt has more than quadrupled, according to Bloomberg Intelligence analyst Jonathan Tyce. It is now nine times the average experienced in the 15 years to end-2014, Tyce wrote in a report Thursday.
The yield on U.S. 10-year Treasuries fell by six basis points to 2.31 percent, after climbing six basis points to 2.42 percent, the highest since October.
The Bank of America Merrill Lynch’s MOVE Index, derived from over-the-counter options on Treasuries maturing in two to 30 years, rose to 91.81 on Wednesday, the highest level since Feb. 24.
Gains Gone
“We should get used to periods of higher volatility,” Draghi said at a press briefing in Frankfurt on Wednesday. “At very low levels of interest rates, asset prices tend to show higher volatility. The Governing Council was unanimous in its assessment that we should look through these developments and maintain a steady monetary policy stance.”
The recent declines in global bond markets are wiping out gains made earlier in 2015. Euro-area securities lost 0.9 percent this year through Wednesday, after being up 4.6 percent as recently as April 15, according to the Bloomberg Eurozone Sovereign Bond index.
“Draghi added to the volatility with the comments and he’s probably right that we are going to have more,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “We had been expecting bond yields to go higher coming into the summer, but it’s been much more violent than expected.”
Getting Scary
DoubleLine Capital’s Jeffrey Gundlach, who said in April he was considering making an amplified bet against German debt, predicted Wednesday that German bund yields will rise to 1.25 percent. His April statement that yields were too low, coupled with Janus Capital’s Bill Gross calling bunds the “short of a lifetime,” contributed to a selloff in German debt that has seen 10-year yields increase from as low as 0.049 percent in April. A short is a bet an asset’s price will fall.
“I recognize the tremendous liquidity problems and the ups and the downs on a daily basis or even on a minute basis and it scares the hell out of me,” Gross, who runs the Janus Global Unconstrained Bond Fund, said in a radio interview Thursday.
…
There is no more powerful force in finance than a central banker’s self-fulfilling prophesy!
‘Be careful what you say about the economy. You are likely to be lampooned by Joe Hockey if you get it wrong. The treasurer unleashed on the “clowns” who were predicting the economy was heading into the dark clouds of recession after new figures this week showed growth expanding at a “good solid” pace in the first three months of the year.’
“They’ve been proven to be looking foolish,” he told reporters at his traditional national accounts press conference.’
‘Hockey didn’t say at whom he was pointing the finger, but you know who you are. If it’s a new strategy aimed at us all talking up the economy, let’s just hope it doesn’t backfire.’
‘The economy did indeed grow at 0.9 per cent in the March quarter compared with the previous three months, slightly above economists’ already upgraded expectations, and the strongest quarterly result in a year. A week earlier, and after weak sets of construction and capital expenditure numbers, economists were concerned that the economy had grown by a mere 0.5 per cent, perhaps even lower. But no one was using the “R” word.’
‘In the event, and despite all the recent hand-wringing about iron ore prices, exports surged five per cent, the strongest quarterly result in 15 years. This, said Hockey, is the dividend from the mining investment boom with more and more resource projects now hitting full production.’
‘Home building is also responding to the surge in house prices, while household spending has been encouraged by low interest rates.’
‘All up, Australia was one of the fastest growing economies in the developed world during the March quarter. “How good is that?” Hockey bragged.’
‘But not wanting to be labelled a “fool” or a “clown”, you can’t ignore the fact that annual economic growth has remained in steady decline because the economy has failed to keep pace with growth of the previous year.’
‘As of March, growth over the year was 2.3 per cent, down from 2.5 per cent in the 12 months to December and further adrift from its long term trend of 3.25 per cent. A rate of three per cent and above is widely seen as needed to absorb new entrants into the labour market and relieve upward pressure on the unemployment rate.’
‘One of the world’s most influential economic groups has warned Australian regulators against fuelling the rocketing property market, echoing the concerns of Treasury secretary John Fraser.
The Organisation for Economic Co-operation and Development said Australia’s red-hot housing market “adds to the risk of a sharp correction”. It advised the Reserve Bank to think carefully about the effect on house prices a further rate cut would bring.’
“Monetary policy firepower should be held in reserve given uncertainties about the outlook and the downside aspects of rate cuts on the booming housing and credit markets.”
He sounds like a cross between Donald Rumsfeld and former Toronto Mayor Rob Ford, just a condescending, self-aggrandizing bully who thinks he can talk his own reality into existence. He’s up there mocking people and bragging, when his country is on the cusp of the worst depression in its history.
Interestingly, before entering politics he was a lawyer representing financial interests. He is married to a woman who was a managing director at Deutsche Bank. Together they own four houses. You don’t say!
http://tinyurl.com/pbhqz6n
‘What this proves is that this leader of the opposition is a menace to the economic welfare of the people of Australia’
This is certainly a step up from a simple case of supply and demand!
If they want to be really prosperous, why not pass a law that all houses have to be $100 million. That would make them rich!
Inglewood, CA Housing Prices Fall 8%
http://www.zillow.com/inglewood-ca/home-values/
zillow says “cold” but has 2.6+ increase next year
makes no sense
Last year they said prices would increase but they fell 8%. :shrug:
Mercer Island, WA Housing Prices Fall 14%
http://www.zillow.com/mercer-island-wa/home-values/
CraterRage Animation Of The Day
https://goo.gl/LBqSIF
Video:
Mortgage rates: ‘Definitely in panic mode’
http://www.cnbc.com/id/102733866?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=102733866
Nobody could have seen it coming! (Especially Lil’ Sis, who is planning to sell one of her three homes in the very near future…)
Them’s some expensive houses…….
https://www.propublica.org/article/how-the-red-cross-raised-half-a-billion-dollars-for-haiti-and-built-6-homes