Property market

Home loans

2012-02-08T17:41:00.002+11:00

The iSelect Home Loans Leader Board (Most popular home loans products sold via iSelect)

1. BankWest - PREMIUM SELECT HOME LOAN <75% LVR (MIN LOAN AMOUNT $200,000) – 6.35%

2. Macquarie - CLASSIC RATE P&I <80% LVR (MIN LOAN AMOUNT $150,000) – 6.39%

3. Macquarie - CLASSIC PACKAGE 3 YEAR FIXED - 5.99%

4. ANZ - BREAKFREE PACKAGE STANDARD VARIABLE LOAN $500,000 (<80% LVR) – 6.40%

Interest rates

2011-11-01T20:28:00.001+11:00

INTEREST rates have fallen to 4.5 per cent, providing a massive boost for struggling households and the retail sector ahead of Christmas.
The Reserve Bank of Australia today Tuesday Nov 1 slashed rates by 25 basis points in a bid to boost consumer spending and turn around the depressed property market.
Most of Australia's biggest home lenders cut mortgage rates soon after the central bank reduced the cash rate for the first time since April 2009, and many of the country's small lenders followed suit.
Westpac and Bank of Qld will lower their standard variable home loan rate (SVR) to 7.61 percent.Commonwealth Bank (CBA), Australia's biggest home lender, followed suit, cutting their SVR to 7.61 per cent
Prime Minister Julia Gillard earlier warned the banks that they had "no excuse" if they failed to pass on a likely interest rate cut to customers.
A fall in interest rates to 4.5 per cent has given homeowners a $600 reduction on annual mortgage repayments for a $300,000 loan.New home sales have declined in September, with detached house sales falling to their lowest point in 11 years, according to the Housing Industry Association.
Monetary policy is arguably the most powerful economic tool in modern open economies but interest rate cuts still take time to boost the economy

What goes up.....

2011-08-11T15:23:00.001+10:00

This commodity price chart squares with what RBA Governor Glenn Stevens has said about Australia at this point in history. Namely, the increase in the terms of trade and in commodity prices is historic and “structural”. If that’s the case, then this period where the Aussie market is influenced by debt woes in Europe and America ought to be transitional. There ought to be a point at which Australian stocks are more correlated to Asian and Chinese growth.

--But we don’t seem to be at that point yet. We seem to be at a point where credit writedowns and the contraction of global credit are leading investors to be pretty bearish about growth. You don’t pay a lot for stocks when you aren’t convinced they’ll grow earnings.

Whats replacing mortgage exit fees?

2011-07-23T15:57:00.000+10:00

SO YOU'VE heard that mortgage exit fees have been banned and banks, led by National Australia Bank, are cutting or axing many hated fees and charges.
But beware. Banks are busily replacing that lost income with new fees and higher charges.
Some are clear, upfront and easy to avoid for savvy bank customers who are prepared to compare and switch products. Others will be hidden and passed along the supply chain to consumers who will be unable to dodge them, bank analysts say. The total bank fee take last year was down for the first time, but only slightly, according to the latest Reserve Bank data.Banks raked in $4.25 billion, down 16 per cent, in bank fees levied on households, but their total fee take remained steady, falling just $14 million or less than 1 per cent."Only exception (penalty) fees have gone down," said Damian Smith, chief executive of financial comparison service RateCity.

"Other types of bank fee income have gone up to largely make up for that lost fee income.
"Ongoing fees for maintaining a mortgage have gone up, for example. In 2009, ongoing fees on mortgages listed on our database averaged $165, and now they average $240 per year. That's a rise of $75." Commonwealth Bank, ME Bank, Greater Building Society and Aussie Home Loans have announced increased upfront fees on some of their variable rate home loans recently.
Those fee increases come as exit fees disappear from the market. As of yesterday, all lenders have ceased charging exit fees on their variable mortgages, compared with just 56 per cent on June 1, according to RateCity. The highest average increase in upfront fees was $600, by the Commonwealth Bank, which lifted upfront fees across its suite of mortgages from $64 to $664 on average, Mr Smith said.
However, over the whole mortgage market, the average upfront fee on a standard variable mortgage has gone up just $32, from $374.40 in June to $406.40 now, according to data supplied by RateCity.
At the same time, early exit fees have gone down an average of $326."And upfront fees are both more readily comparable and 'negotiable' than exit fees," Mr Smith said.
Borrowers refinancing to get a better deal are a big driver of growth in the mortgage market, he said.
"We believe that removal of exit fees is the key driver behind this greater level of switching."
Fees on credit cards are changing as well and will change further as new consumer credit protection laws kick in this year.Credit card late-payment and over-limit penalty fees have gone down, but other credit card fees have gone up in recent years. "Some credit card 'exception fees' have dropped," said Mr Smith. "Others, such as ongoing fees, have increased. "For instance, in 2008, the average annual credit card fee (out of all cards that charge a fee) was $78.52, and now it's $92.45. "That's an increase of nearly $14, or around 18 per cent, in just three years, which is more than double the inflation rate over that same time."
The number of credit cards with annual fees has also risen. Three years ago, more than a quarter (28 per cent) of credit cards being offered to Australian consumers carried no annual fee.
Now just 31 credit cards, or 13 per cent, have no annual fee. Another 18 credit cards waive the annual fee if the cardholder meets a minimum spend each month, usually $1000.
Mr Smith recommends comparing your credit card rates and charges with some of the low-rate, low-fee cards now on the market.

Inflation and the housing market

2011-07-21T18:05:00.000+10:00

There is mounting evidence to suggest that Australia’s housing market rests at a critical juncture. The evolution of Australian dwelling values since 2000 and 2006, respectively show the latest innovation in the housing cycle, where overall Australian home values have tapered by a modest 2.3%. So the question here is what lies ahead?
Sydney dwelling values have massively underperformed the rest of the Australian market over the last 11 years or so according to current data even though the Perth and Brisbane housing markets have suffered 7.5% and 5.9% declines in the past year, they have actually been our two best-performing conurbations over the past 11 years.
The near-term destiny of Australia’s housing market very much depends on next week’s second-quarter inflation numbers. If inflation is low, the RBA will likely be on the sidelines for the rest of the year. It can argue that it was vindicated for not responding to the very high first-quarter results, and will in any event be downgrading its economic growth forecasts for 2011, which were always on the high side.
Talk in the media will galvanise more firmly around rate cuts. Consumers will start to scale back their still extraordinarily hawkish interest rate views with 84% anticipating rate hikes. Given the average Australian thinks he will be hit by two or more rate hikes in the next 12 months, it is no surprise that underlying economic conditions have been so soft.
In this low-inflation scenario with no future hikes and the prospect of cuts, the forecast predicts that Australia’s housing market has the ability to start grinding out very modest capital growth, which, of course, should be complemented by healthy rental returns

In the less favourable alternative, where inflation next week is reported high – at, say, 0.8% for the quarter or more the central bank will be very much on the interest rate warpath. That means the likelihood of a rate hike, or hikes, before the year is out and the hold that the RBA currently has on Australia’s housing market will only tighten.
The divergence of beliefs between economists and the financial markets are that ANZ’s interest rate forecasts contrasted against the futures market’s expectations. Whereas the futures market is predicting rate cuts, ANZ thinks we will get hikes.
Who is right? That all depends on inflation. So, if you are looking to buy but have not found a place yet, you should be hoping for a high inflation outcome, which will inevitably result in persistent, interest rate-induced pressure on prices. If, on the other hand, you are looking to sell, you should be praying for a low number next week

Westpac ratecuts

2011-07-18T13:05:00.000+10:00

Westpac’s chief economist Bill Evans has shocked the market by forecasting a series of interest rate cuts.
Mr Evans said low consumer sentiment could force the Reserve Bank of Australia to slash the official cash rate by up to 1 per cent in 2012.
“We were all talking not long ago that rates could go up, but if the consumer remains subdued there may be interest rate reductions and if that occurs that would be a very strong stimulus for the consumer to save less and spend a little bit more,” he said.
But it seems not everyone shares Mr Evans’ view on rates.
Last week ANZ’s head of Australian economics and property research Ivan Colhoun said he expects the Reserve Bank to keep the official cash rate on hold at 4.75 per cent until February 2012, when it will start raising rates again.

Home prices predicted to fall

2011-07-14T13:44:00.000+10:00

Home prices are predicted to fall over the next 12 months after a sharp decline in the expected value of Victorian houses dragged the national forecast lower, says a new report.
The National Australia Bank NAB residential property index, which predicts houses prices, rents and real estate market conditions over the coming year, said national home prices would drop by 1.4 per cent in the 12 months from June, reversing an earlier prediction that home values would rise 0.6 per cent in the 12 months from last March.
In New South Wales, the NAB index declined from 39 points in March to 18 points in June, making it the strongest state in the national market.
For Victoria, however, the index plunged to minus 16 in the June quarter from a positive 23 point reading in the March quarter."There has also been a notable deterioration in house price expectations across the country since our last survey," said NAB chief economist Alan Oster.The June quarter's expectations were pushed lower by Queensland, where respondents predicted a 2.3 per cent fall over the year, and Victoria, where they saw a 2.1 per cent slide.But in sobering news for homeowners elsewhere, the survey predicted house prices would drop in all states except Western Australia, where values were forecast to rise by 0.2 per cent over the year. Homes in New South Wales would fall by a modest 0.7 per cent, while South Australian homes would lose 1.7 per cent.
After performing strongly in 2010 the Australian housing market shifted into a lower gear in 2011. Auction clearance rates have hovered in the 50 per cent range in New South Wales and Victoria, down from the highs of 80 per cent seen last year, and borrowers appeared to be less willing to take out large loans for fear of interest rates rising.RP Data said in June that national home prices have slumped 2.7 per cent in the first five months of the year.
The survey, drawn from the opinions of real estate agents, managers, property developers, and other industry voices, said tighter lending criteria and higher interest rates were the two major burdens on the market in the June quarter."Housing affordability was also identified in the current survey as a 'significant' constraint and was viewed as being most problematic in Victoria and Western Australia," the report said."The sustainability of house price gains was also cited as a 'significant' concern, with these concerns highest in Western Australia and NSW."In Queensland the index sank to minus 27 in June from minus 5 in March. In South Australia, the index moved from minus 8 to minus 6 in the same period, while in WA it remained in positive territory, moving from 12 in the March quarter to 5 in June.
The NAB survey also showed rental yields softening over the year, falling to 1.3 per cent in June from 1.7 per cent in March.

Property listings

2011-07-08T12:02:00.000+10:00

Property listings remain some 25% higher within Australia’s capital cities than last year, and 29% higher across the country, according to RP Data.
The 50,854 new house and unit listings over the past month take the total for sale across Australia to 279,605. There were 217,442 listings across Australia this time last year.
“Less than 48% of total listings nationally are within the capital cities,” RP Data research director Tim Lawless said earlier this month. New listings saw 50,854 properties added over the past month, with the capital city new listing volumes 2.8% higher than the same period last year.
As the winter hibernation sets in the number of new properties advertised for sale increased by 1.8% across the country in the last four weeks, compared to the previous four weeks ending 26 June 2011.
Queensland has the highest number of total listings at 86,188, followed by 73,673 in NSW.
The number of new properties advertised for rent has fallen by 2.7% over the past four weeks.
Capital city new rental listings fell by 3.1%.
Despite the fall, new rental listings nationally are 14.3% higher than the same time last year, and in the combined capital cities they are 11.9% higher.
Rental listings remain at much higher levels than the same time last year, up 12.8% nationally and 10.7% in the capital cities, Lawless said.
This article first appeared on Property Obsever, Australia's top site for property investment news

what do low clearance rates mean?

2011-06-27T11:39:00.000+10:00

Australia wide, the delinquency rate has climbed from around 1.4 per cent to 1.79 per cent. It may be low in comparison to Europe and America, but it’s a figure the Reserve Bank of Australia should be paying close attention to because it seems there are other distressed vendors flying under the radar and trying to bail out before they get to the delinquency stage.

According to RP Data the average time Australians stay in their homes is 7.5 years, although in the established suburbs of Melbourne – close to the water and city – it’s 9.1 years. However there seem to be increasing numbers of vendors selling prime real estate after only one or two years of residence (something I’m seeing more and more often when I research the sales history of homes). In many cases these homes are struggling to sell, with days on market stretching into months as vendors try to achieve their ‘wish price’ (a return on investment) in flat conditions. These are often people who purchased when interest rates were low and now rates have climbed they find themselves labouring to make the repayments.
Investment in real estate is a long-term game plan, so trying to get a return on price one or two years down the line is a gamble no one should take, or be forced to take. Therefore in a flat market, with the possibility of interest rate rises rising on the horizon, paying the right price and insuring that decision by purchasing the right property, is not only important, it’s crucial! Pay too much in the first place and you’ll get no short-term capital growth. Choose a ‘lemon’ and if you need to sell in a soft market reducing the price will be the only way to do so.
So how do you know you’re paying the right price? Just because the papers are screaming ‘buyers’ market’ and the agent is giving you a ‘discount’ on the asking price, it doesn’t equate to a ‘bargain’. Drawing comparables against the weekend results in the paper won’t always help as they only list exact addresses for auction sales and many of those are now ‘undisclosed’. In fact, sales results won’t help you much at all unless you’ve been monitoring the market closely and assessing the individual properties listed – and furthermore, how do you know someone else didn’t over pay on the property you’re comparing against? I was recently asked to help with a report into vendor discounting, which is the amount the vendor discounts throughout the sales campaign in order to sell. It wasn’t hard to find examples, however it was much easier to find examples of advertised prices (private sale) which had been exceeded!
There are three numbers in real estate – what the vendor wants, what the market (you) is willing to pay and what a property’s reasonable market value is against comparable sales. Unless you’ve got a handle on all three you can’t negotiate effectively. If you’re a current buyer who has little experience negotiating and find yourself judging a property’s value based on the quoted range, or ‘reserve’ price, rather than a solid base of knowledge, beware! Selling agents know all the tricks to con a buyer into paying more, from touting they have other offers on the table, to convincing them the ‘distressed’ vendor has ‘a very reasonable’ reserve.
And what about choosing the right property? Well, even in flat markets with well-publicised drops over any one year, there are those properties which buck the trend – the roses amongst the thorns – in locations with unique aspects that drive owner occupiers to stretch budgets. And these are the very properties investors need to target if they’re going to prosper during boom and bust cycles.
A suburb-by-suburb look through Melbourne highlights a few of these areas which are withstanding current conditions. Take, for example, Kew, located southeast of Melbourne’s CBD. Made up of roughly 70 per cent owner occupier, it’s already seen a 29 per cent jump during the first quarter in median value and a steady 74 per cent year to date clearance rate, according to the Real Estate Institute of Victoria. While this doesn’t guarantee every home in Kew will buck the downturn, you can be pretty sure that if you own a good well-positioned property that suits the buyer demographic of the area, it’s going to attract attention.
I would never advise someone to purchase a property unless they’re fully committed to a long term game plan, however what I would strongly advise is the essential need. C. Cashmore

Steady as she goes

2011-05-18T17:51:00.000+10:00

According to ANZ Bank’s latest Pan-Regional Housing Outlook Australia’s home prices may well hover for the rest of this year without a “wholesale downward shift” in values.
The report argues Australia’s buoyant economy and tight housing market will continue to keep house prices steady.
The strong labour market and skills shortage will put upward pressure on wages and, as a result, “forced” selling of homes will remain at low levels, the report said.
“Nonetheless, rising interest rates and deteriorating affordability will cap price gains and we expect little movement in house prices over the year ahead,” the report said.
Paul Braddick ANZ head of property research said the local housing market was “delicately poised” but would avoid further price drops so long as there was not a rapid rise in interest rates or unemployment levels.
The on-going housing shortage would result in lower rental vacancy rates and higher rent, providing a “clear signal” to investors that the housing market was improving, Mr Braddick said.
In fact the latest results from the RP Data – Rismark Home Value Indices RP Data show that over the 12 months to March 2011 capital city rental rates have increased by 2.9% which is well below average. However, over the last quarter, capital city rents have increased by a much larger 4.8%.
The view that rents are starting to increase is supported by the most recent CPI data from the ABS which suggests that rents have increased by 1.3% during the first quarter of 2011.

Rental Market in Canberra

2011-04-27T10:12:00.001+10:00

Canberra is a particularly bad black spot in Australia's very dark rental affordability picture, and prices are expected to show significant further growth this year, two new reports say.
Australian Property Monitors rental report said rents for Canberra houses rose at the second-fastest rate in the country so far this year.
At the same time Anglicare ACT general manager Jenny Kitchin said the charity's Rental Affordability Snapshot found Canberra and Queanbeyan was the only major population centre in Australia with no affordable housing for lower-income earners in the private rental market.
''In a very dark picture nationwide, Canberra stands out as particularly bad black spot,'' she said.
''It is clear that many low-income families will be falling into the gap between the private rentals and government-run social housing.''
Ms Kitchin said it would be almost impossible for someone on the minimum wage or government benefits to live in a private rental property in Canberra.
It comes as the latest Australian Property Monitors rental report said rents for Canberra houses rose at the second-fastest rate in the country so far this year.
They were up 2.2 per cent to a median $470 a week in the March quarter, taking annual growth to 6.8 per cent the fastest in the country.
The median rent for units rose 2.4 per cent to $430 in the quarter, and by 6.2 per cent over the year.
It compares with quarterly growth of 2.3per cent for units and 0.1 per cent for houses nationally.
Australian Property Monitors economist Andrew Wilson said Canberra's strong rental growth reflected ongoing high demand and a shortage of available properties.
Renters should prepare for significant growth in rental prices this year, driven by the improving economy and housing shortages.
''However, it is expected that rising rental yields will renew investor interest in the market and may provide some relief for renters in the longer-term,'' Dr Wilson said.
Source: Canberra Times

RBA

2011-04-11T12:20:00.000+10:00

--But not the Big Four banks! In fact, we learned over the weekend that even though foreign banks accounted for 70% of the $110.7 billion in borrowing from the Fed's Primary Credit Dealer Facility (PCDF), Australia's banks were pretty circumspect with their emergency borrowing.

--Commonwealth Bank borrowed $75 million from the Fed on July 17th, 2008. It borrowed another $25 million on November 12th. But in public statements, the bank said it only borrowed the money to make sure it could. You know, sort of the way you test an emergency key to your front door, to make sure it works when you actually need it.

--Which brings us back to last week's subject: the Reserve Bank of Australia. It won't have to deal with any embarrassing revelations when it meets tomorrow. It can focus on fixing the price of money in Australia. In this respect, anyway, it functions the same way as the U.S. Federal Reserve.
the RBA didn't formally come into existence until 1959 as part of the Reserve Bank Act. Its mission is nominally similar (and unachievable): price stability, full employment, general economic prosperity and welfare. But its board is not, at least at first appearances, entirely beholden to the banking sector.

--In fact, section 17 of the Reserve Bank Act stipulates members of the RBA's board can't be employees, officers, or directors of an authorised deposit-taking institution. This would, again at a casual glance, appear to make the board more independent of the Big Four. The Fed is controlled by its member banks. The Reserve Bank appears to keep Australia's financial industry at an arm's distance.

--Is that really the case? Hmm. We'll see. You may have noticed last week that Donald McGauchie and Warwick McKibbin have not been invited back to serve on the Reserve Bank's board once their terms expire. Both men have been critics of the RBA at times. Jillian Broadbent's term will be extended five years. And later this month the Board will welcome Queensland-based Catherina Tanna, who is currently an executive vice president for BG Group and managing director of QGC.

what didn't happen 2010 to happen 2011

2011-03-08T10:16:00.000+11:00

A major government will go broke in Europe. Ireland came close. Portugal avoided it (so far). But for Spain or Italy, 2011 could be a fatal year. Expect higher bond yields, a falling Euro, and trouble in the streets. In my newsletter I've been exploring what this means for the Aussie dollar and your investments.

A U.S. Debt Reckoning. The U.S. government is rapidly nearing its statutory "debt ceiling." The Tea-Party Congress may compromise with the President to cut taxes and some spending. But the real crisis may come as U.S. cities and States (Illinois, California, and New York) approach bankruptcy and need their own bailout. Will your portfolio be positioned to profit when that day comes?

China will tighten up. One of the main recipients of the inflation being exported by the Fed is China. It's desperately trying to contain that inflation (in food, housing, and stock prices) before it leads to social and political instability. But if it "tightens" monetary policy too fast, it could produce a crash - leading to much lower commodity demand. If you don't know what that means for your Australian investments, you're not prepared.

I know it's a gloomy prognosis. But I believe in planning for a worst-case scenario, even if it doesn't happen.
In truth, most of these things should have happened last year. But the central banks won 2010. There's a much smaller chance they will stave off a huge market crash in 2011.
Even if they do... it's coming eventually. And you need create a portfolio of investments that withstands this crash when it happens.

what is till to come...

2011-02-25T12:50:00.002+11:00

Mr. Prechter, based in Gainesville, Ga., is a social theorist and technical market analyst with a very unconventional approach. It is based on his own version of the Elliott Wave Theory, which originated in the writings of Ralph Nelson Elliott, an accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and 40s. The market still moves in cycles, large and small, Mr. Prechter says, based mainly on “social mood,” which, in turn, influences the economy.
The current cycle will lead the unwary to ruin, he says, “We are in a long-term bear market that started in 2000.” He says the rally that has been so enjoyable for stock investors is just a mini-cycle in that longer swoon.
“I think the bear market will end when most debtors default and the media change from calling it a great recession that’s over to calling it a great depression that isn’t,” he says.
Part of his argument will be familiar to anyone who follows the financial news. We are living “in a world saturated with debt,” he says. “Newly conservative regulatory policies have been clamping down on bank credit,” he adds. “State and local governments will soon cut spending and borrowing, and when the federal government finally cuts spending and borrowing and the Fed — either from within or without — is forced to stop” its quantitative easing program, the game will be up.

needs v wants

2010-11-24T22:44:00.000+11:00

at the Gold Symposium a few weeks ago, it was stated that you should expect to see inflation in the things you need and deflation in the things you want. Cars and white goods and plasma TVs are getting cheaper in a world with excess productive capacity and over production. But where the rubber meets the road in daily life for billions of people, inflation is pushing up food and fuel prices.

Blowout

2010-11-09T21:44:00.000+11:00

The Federal Government is expecting a bigger budget deficit this financial year than originally forecast.
The updated budget papers predict a $41.5 billion deficit, which is almost $1 billion more than the July forecast.
Key points: Budget to return to black in 2012/13 with $3.1b surplusProjected budget surplus in 2012/13 down $400mBudget deficit to increase to $41.5b in 2010/11Unemployment rate to fall to 4.5% by June 2012
Treasurer Wayne Swan's release of the Mid-Year Economic and Fiscal Outlook (MYEFO) confirmed predictions that a rising Australian dollar would hinder the Government's bottom line.
But while the 2010-11 budget forecast has blown out, the Government is still on track to return a surplus of $3.1 billion in the 2012-13 financial year.
This compares with the $3.5 billion predicted by Treasury and Finance in the Pre-election Economic and Fiscal Outlook (PEFO) released in July.
The economic update also shows employment conditions will continue to strengthen, with the jobless rate falling to 4.5 per cent by 2012.
A return to surplus by 2012-13 was one of the Labor Government's key election pledges.
Mr Swan says it is the fastest positive turnaround in the budget in more than 40 years.
And he says the Government is determined not to repeat the mistakes of the past.
"We put our fiscal rules in place in February last year because we understood that as we moved to strengthen the economy we had to formulate the exit strategy for the future," he said.
Mr Swan says he is optimistic about Australia's economic future.
"A strong economy is an economy that creates jobs, creates opportunities for people," he said.
"What they (the figures) represent is hundreds of thousands of more Australians in work.
"To be coming back to surplus in three years, well ahead of any other major advanced economy, is something that we should all be optimistic about."
Mr Swan also defended changes to the revenues generated from the minerals resources tax.
He says the revised forecast for the tax relates to the change in the exchange rate.
"What we're dealing with is solely here the exchange rate effect. That's why tax [revenues] overall are down about $10 billion. It largely reflects lesser company profitability," he said.

fiat currency

2010-11-07T11:11:00.000+11:00

when a countries economy is backed and based on a fiat currency, that is one that has no real value other than the paper its printed on without an intrinsic physical value then this currency becomes useless and when the population registers this in their consciousness and devalues it in their mind, then the country faces financial and economic ruin. this is where america is now. the empire is crumbling at the foundation, the chain reaction was started quite some time ago and will now rapidly deteriorate

AUS $

2010-11-07T10:36:00.002+11:00

Mr Swan told Saturday AM the Government will lose billions in revenue because of the high value of the Australian dollar. He says profits for Australian exporters will fall and this will have consequences for the Government's tax take."There's no doubt we're going to cop a fairly significant whack to our revenue in the mid-year budget update, that's just the reality of having a higher dollar," he said."The Australia dollar has appreciated by around 15 per cent against the US dollar in recent months. What that does is really hit the profitability of our exporters and as a result of that is reduces companies and resource taxation."Some estimates say the Government's mid-year economic outlook - due within days - will show a $10 billion loss in revenue over the next four years.Mr Swan would not confirm that number, but says the impact of the lost revenue will be significant."None of that alters our determination to continue the budget discipline that we've put in place over the past couple of years and to make sure that our public finances remain the strongest in the developed the world," he said.

Big banks and Aus economy

2010-06-23T17:46:00.003+10:00

A "sound financial system" is a big reason Australia had one of its "mildest" recessions in the post-War period while the US and several European countries had one of their "most serious", Reserve Bank of Australia governor Glenn Stevens said in April.
One is a cooling housing market. After rising for 16 consecutive months, capital city house prices were virtually unchanged in April, according to the RP Data-Rismark Hedonic Home Value Index. Weak demand for home loans – the number approved in April was the lowest since March 2001 – suggests other capital cities might soon follow Brisbane, Perth and Darwin, where prices are already falling.
If this happens, bank profits are sure to follow. Why? Because the share of home loans in banks' total lending stands at 58 per cent, according the RBA. Falling house prices spell fewer buyers, borrowing less and paying banks less interest.
If they fall enough, house prices can drag down an entire economy. This is what happened in the US in 2006 when falling prices led to a jump in the number of Americans unable to pay their mortgages and, a year later, a sharp rise in unemployment. The newly jobless swelled the ranks of defaulters until the losses tipped thousands of US banks and mortgage firms into bankruptcy and the global financial system into crisis.niversity of Western Sydney economist Steve Keen can see something similar happening in Australia. He says households are so indebted – the ratio of mortgage debt to gross domestic product has quintupled to 85.7 per cent over the past two decades – they can borrow no more."Our current level of economic performance is dependent on an increasing level of debt to GDP," Keen says. "As soon as you have a stabilising, which we are seeing now, then you are in trouble."
The head of the RBA's financial stability department, Dr Luci Ellis, counters that the recent US experience is historically anomalous. "Financial crises are normally sparked by other sources," she told a conference in May. "These [sources] include commercial property, property development, leverage buyouts, sovereign debt and so on."Which is why the developing sovereign debt crisis in Europe provides a second reason to worry about local banks. While the big banks have little exposure to European governments in difficulty, the RBA's Stevens concedes the most important effects in Australia will come through "the impact on world and Asian growth, on resource prices and on the cost and availability of global capital"."A collapse in China – or even a global slowdown – will have an impact on the economy, Australian income growth, and that would certainly feed into house prices," Australian School of Business researcher Glenn Otto says. "The impact of unemployment is also crucially important for house prices; an economic shock pushing up unemployment would have even more consequences for house prices."While few economists are as pessimistic, most agree the big banks are now too big for any government to let fail. "They are all too systematically important to fail," real estate funds manager Rismark's managing director, Christopher Joye, says. "That is one reason why taxpayers offered the major banks deposit and liability guarantees during the GFC."
Fortunately, they did not have to draw on those guarantees. But what if they do in the future? Is the government's balance sheet big enough to cover the big banks' deposits and liabilities?"The Armageddon outcome would be the complete implosion of the banking system if taxpayers were not there to backstop institutions in the case of a crisis, which could cause extreme credit rationing and precipitous price falls," Joye says.According to a former chief economist of the International Monetary Fund, Simon Johnson, Australia's big banks pose a bigger risk to the economy than the biggest US banks do. Johnson thinks no single bank should own assets (mainly housing, small business and corporate loans but also derivatives and other investments) worth more than 4 per cent of a country's economic output.
Yet NAB owns assets equal to 54 per cent of Australia's GDP, followed closely by CBA 51 per cent) and Westpac (49 per cent).Even the bank with the fewest assets, ANZ (42 per cent) is almost three times the size, in relative terms, of the biggest US bank, Bank of America (which owns assets worth 15.6 per cent of US GDP)."One of the lessons of the global financial upheaval was that sometimes simple is best – and mutuals are very sound, with straightforward balance sheets, conservative funding, high-quality assets and high capital," she says. "Global collapses and bail-outs were about very big, very complex, aggressive and 'creative' institutions."For this reason, Rismark's Joye is more concerned about the overseas expansion of ANZ and NAB than he is about a collapse in house prices."The major banks' peers in the UK and Europe had far greater direct exposures to the US sub-prime crisis through their overseas expansion strategies," he says."My single greatest concern with the major banks right now is their offshore expansion plans, which directly undermine their greatest source of strength during the GFC."Like Joye, Keen is also cool on a size cap, believing banks would successfully lobby it away during stretches of economic and political stability. He favours a cap on the size of home loans instead – equal to 10 times the rental income from a property – and other measures to reduce demand for credit in the first place.Of course, the failure of a big bank is still an unlikely, if no longer a preposterous, idea. According to John Laker, chairman of the Australian Prudential Regulation Authority (APRA), the main bank regulator, the big banks would survive a Chinese and global economic downturn severe enough to raise unemployment to 11 per cent and lower house prices by 25 per cent.However, as Laker admits, a future downturn will "not play out as specified" in APRA's so-called "stress-test". "It is just one of a myriad of future possible outcomes," he said in early June.Among clear lesson of the global financial crisis is that the unlikeliest outcomes become possible in a crisis. After all, the best computer models said US house prices would fall by 20 per cent only once every 10,000 years.

OECD says rate rise for Australians

2010-05-28T10:23:00.001+10:00

A global economic research body has warned Australians that interest rates will rise by up to 1.2 percent in the coming year.In its global economic outlook, the Organisation for Economic Cooperation and Development (OECD) said that while there are risks to the Australian economy from the current crisis gripping European markets, the Reserve Bank will push interest rates up.The OECD says official interest rates wil rise from their current 4.5 percent to 5.7 percent by June 2011.That would likely push real mortgage interest rates towards 9 percent.However, Australian economists are calling for the RBA to pause after its raising rates six times since October last year.The OECD has warned that there are negative risks to Australia's rosy economic outlook from the uneven pace of the global recovery and volatility in financial markets.It says there are substantive risks related to sovereign debt markets which, while originating in some euro-area economies, has spread to other euro members and other parts of the world."Overheating in emerging market economies also poses a risk," it says."A boom-bust scenario cannot be ruled out, requiring a much stronger tightening of monetary policy in some non-OECD countries, including China and India."For Australia, it also says rising confidence and more favourable international trade conditions may lead to more buoyant demand that needs a more rapid rise in interest rates.These risks aside, the OECD expects the Reserve Bank of Australia (RBA) will in any case have to add to its six rate rises so far."After weathering the crisis well in 2009, the Australian economy is projected to experience strong growth in 2010 and 2011, above its trend rate," the OECD says.It is forecasting economic growth of 3.2 per cent in 2010, accelerating to 3.6 per cent in 2011, after 1.4 per cent growth in 2009.This growth will be driven by booming exports and domestic demand.It expects the unemployment rate - currently at 5.4 per cent - to fall below five per cent by the end of 2011, while inflation will be moderate.This, it says, will keep confidence among households at high levels, although the pace of decline in the jobless rate will slow as working hours expand.It expects the consumer price index to hit the top of the RBA's two to three per cent target band in 2010, before easing to 2.7 per cent in 2011.The Paris-based institution says for Australia, managing the exit strategy from the global crisis is "less problematic" than in most OECD countries, and the tightening of both monetary and fiscal policy is welcome given the rebound in activity.It says rising private demand, fuelled by investments and stockbuilding by companies, is expected to replace public demand as the main force driving the recovery in 2010 and 2011."Companies in the mining sector should benefit in particular from the dynamism force of Asian markets and the significant pick-up in the terms of trade," it says."These developments, coupled with the rise in real estate investments, are likely to improve the employment situation."Responding to the report, Treasurer Wayne Swan said it highlighted how Australia's economic growth and employment outlook were among the best in the OECD."The OECD report is a reminder of the strong economic management that has seen Australia fight off global recession and which is returning the budget to surplus three years early and halving peak debt," he said in a statement.Mr Swan also welcomed the OECD's observation that mining companies would benefit from Asian demand and an improvement in Australia's terms of trade.But he pointed out the underlying weakness in Europe was a threat to global recovery.

Land prices

2010-04-19T19:34:00.002+10:00

The price of the average residential block of land has risen to a record high in the December quarter, a new survey says. The Housing Industry Association (HIA)-RP Data land residential report for the December quarter found the weighted median price of a vacant housing block increased by 2.2 per cent in the December quarter to $185,222.Over the year to December 2009, the weighted median land price rose by 14 per cent, the fastest annual rate since mid-2004, the report said. HIA chief economist Harley Dale said land values rose substantially quicker than building costs and the rate of inflation during the previous upturn in the housing cycle. Dr Dale said new house prices (excluding land) rose by an annual rate of 2.8 per cent in December 2009, building materials increased by one per cent, yet median land prices increased by 14 per cent."Only six months into a new home building recovery this situation is happening all over again," Dr Dale said."If this situation continues then the recovery will stall, the housing shortage will worsen, and there will be upward pressure on rents and on existing home values that could have been avoided."Sydney had the dearest median price of residential land in Australia, $275,000. This report has obviously not taken into consideration the ACT where land prices are well over $350,000.The cheapest market in Australia was the northern region of South Australia ($59,165), followed by Mallee in Victoria ($75,000).RPData.com national research director Tim Lawless said policy makers had to act to arrest the recent drop in the number of land sales."With Australia's population growing at a rapid rate and housing undersupply worsening we should be seeing land releases and consequent sales volumes rising not falling," Mr Lawless said."... without further construction of homes we are likely to see affordability worsen and more prospective buyers looking towards an already very tight rental market for their accommodation requirements."We believe that policy markers must act to provide additional residential land which affordable as well as being close to necessary amenities."

Goldman Sachs accused of fraud

2010-04-19T17:34:00.004+10:00

17/04/2010 2:12:21 PM

The US government has accused Wall Street's most powerful firm Goldman Sachs & Co of fraud. They sold mortgage investments without telling the buyers that the securities were crafted with input from a client who was betting on them to fail, which they did to the tune of $US1 billion ($A1.07 billion).A hedge fund, capitalised on the housing bust. The civil charges filed by the Securities and Exchange Commission are the government's most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession.The news sent Goldman Sachs shares and the stock market reeling as the SEC said other financial deals related to the meltdown continue to be investigated. It was a blow to the reputation of a financial giant that had emerged relatively unscathed from the economic crisis but who continued to play the same games that brought down the US economy in the first place

The fraud allegations focus on how Goldman sold the securities. Goldman told investors that a third party, ACA Management LLC, had selected the pools of subprime mortgages it used to create the securities. The securities are known as synthetic collateralised debt obligations.

The SEC alleges that Goldman misled investors by failing to disclose that Paulson & Co. also played a role in selecting the mortgage pools and stood to profit from their decline in value. Two European banks that bought the securities lost nearly $1 billion, the SEC said. The global game continues."Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party," SEC Enforcement Director Robert Khuzami said in a statement.

economy and property

2010-04-15T12:08:00.003+10:00

The Australian economy has returned to debt-driven growth, with the household sector carrying the full burden for the private sector. Will this period of debt-driven growth last as long as in previous bubbles when our private debt to GDP ratio was half what it is today?
Banks & mortgage lenders have been biggest beneficiaries as mortgage debt has risen from under 20% of GDP in 1990 to over 85% at end of 2009.
So how does Australia keep house prices high? By encouraging households to get into yet more debt.The rise against GDP is far more dramatic than against household disposable income because other government policies—the stimulus package itself and the RBA’s 4% cut in interest rates—boosted disposable income dramatically in 2009 (but even so, mortgage debt is now a higher proportion of household disposable income than before the GFC). The Boost-inspired house price bubble was financed by households adding another 6% of GDP to their already unprecedented debt burden, when prior to The Boost they were on track to reduce mortgage debt by about 3% of GDP in 2009.We’ve avoided hitting the ground of deleveraging by climbing to a higher cliff but stepping off the cliff will eventuate unless there is a totally new solution to the dilema. Saying all this we have Grace on our side because we are still an expanding relatively new country with a growing population that does need a place to live.
Australia’s still unburst bubble drove the real price of housing to 140 percent above the level of June 1986–that is, real house prices are now 2.4 times what they were in mid-1986
Australia's Debt Bubble has kept going while other countrie's have already popped is the same old reason-debt. This is the biggest debt bubble in our history. The previous two record highs were in 1882 at 104% of GDP, and 1931 at 77% of GDP. Record debt is 158% as of March 2008.
large reason why Australia has had such a mild GFC so far is because Australian households were enticed back into debt by the First Home Vendors Boost, and by the impact of the Government stimulus package upon household disposable incomes.Households were reducing their mortgage exposure prior to the introduction of The Boost: mortgage debt had peaked at 81.3% of GDP in June 2008, and was trending down prior to the Boost. It then hit a bottom of 80.3% in December 2008 before rising to an all-time high of 86.8 in January 2010.The change has been less extreme when mortgage debt is measured against Household Disposable Income (HDI), since the Australian government’s stimulus package and the interest rate cuts by the RBA boosted household incomes by almost ten percent last year. As a result, mortgage debt fell only slightly as a percentage of HDI, from 133.6% to 130.3%, and it took longer to fall. But ultimately, even though incomes had been boosted so substantially, the increase in mortgage debt last year finally exceeded the increase in incomes: by January 2010, the mortgage debt to HDI ratio had hit a new peak of 134.2% The overwhelmingly important reason why this happened is the policy that the Government called the First Home Owners Boost.

Gearing and Super

2010-04-14T07:58:00.002+10:00

ONE way to get around the non-concessional contribution caps for superannuation is to use gearing. Under super tax rules, to avoid paying excess contributions tax of 46.5 per cent, you are allowed to contribute only $150,000 a year in non-concessional contributions. However, you can utilise a three-year cap by making a one-off contribution of up to $450,000 if you are under 65 and then not contributing any more than that for another two years.So if you have a commercial property worth more than $450,000 that you want to transfer into your self-managed super fund through an in-specie contribution, you could run into difficulties.By using gearing, however, you can borrow the value of the property either from a financial institution or from yourself or your business at a commercial rate.This is because whatever you borrow is not included as a contribution provided the borrowing arrangement complies with the conditions set out in the law.In fact, you can borrow as much as the fund can service. It's worth noting, however, that most commercial lenders apply an interest cover ratio where the fund's investment income must be a set multiple of the interest cost of the loan. Failure to meet this ratio may give the lender the ability to call on the loan.You can use this strategy to bolster your superannuation balance, regardless of what you make in non-concessional contributions.Of course, gearing into superannuation is not for everybody. Whether it's to invest in shares, property or works of art, it's a complex process that requires sound financial advice and a cost-benefit analysis to make sure it's the optimum route for your circumstances.And it is not cheap either, with estimates running into the thousands of dollars just to establish the loan. Additional costs may include legal advice to establish proper trust and other arrangements, transaction and stamp duty costs and asset administration fees. The importance of establishing the loan and trust arrangements properly cannot be understated as there may be unnecessary capital gains tax and-or stamp duty costs if you don't.Before 2007, superannuation funds were not allowed to borrow to purchase assets. However, uncertainty about whether instalment warrants and instalment receipts involved borrowing meant there was a need to change the legislation.The new rules not only allowed SMSFs to invest in more traditional instalment warrants and instalment receipts generally involving shares, but also in non-traditional instalment warrant arrangements over such assets as property. However, it's important to be aware that the normal investment rules that apply to SMSFs also apply to investments that are purchased using an instalment warrant borrowing arrangement. For example, you cannot make an in specie contribution of a residential property into the fund although you are at liberty to buy residential premises on the open market as long as it is not purchased from yourself or a related party.However, a number of grey areas in the treatment of instalment warrants within super have proved a deterrent to gearing in SMSFs.Last month, the government moved to clarify how instalment warrants will work, particularly in relation to capital gains tax.When an SMSF buys a property or shares through an instalment warrant, it has to set up a separate trust. This separate entity is known by a variety of names: a bare trust, a security trust, a warrant trust or a debt instalment trust. They are basically all the same thing.
If your fund were buying a property under an instalment warrant arrangement, it must be held in the trust until the debt is paid in full, at which point it is transferred into the SMSF. The grey area was always whether that transfer triggered capital gains tax.But last month, Financial Services, Superannuation and Corporate Law Minister Chris Bowen announced an amendment to the tax law so that a superannuation trustee entering into a limited recourse borrowing arrangement to purchase an asset would be treated as the owner of the asset for income tax purposes."The changes will ensure that trustees to superannuation funds who have entered into permitted limited recourse borrowing arrangements will not face CGT obligations at the time the last instalments are paid," Bowen says.Another grey area was whether the super fund trustee or the instalment warrant trustee should be the one to declare any income earned on an asset.The latest announcement confirms it is the super fund trustee who should declare the income. And equally, the fund can claim a tax deduction from earning that income."If structured properly, it will look as though the investment trust does not exist," says Philip la Greca, technical services director at Multiport. "Income flows through to the fund; dividends and depreciation flow through to the fund. It looks as though the fund owns the asset directly."La Greca goes on to say the issue of CGT has been a big concern given that an asset held for five or 10 years could have a reasonable capital gain.Another issue is stamp duty, which, rather than being a federal tax like GST and CGT, is administered by the states and territories. Generally speaking, however, the transfer of a property from a bare trust to an SMSF should be exempt.The recent announcement also brought gearing property into SMSFs into the framework of financial products.As a result, providers have to be licensed. In the past, real estate agents and property developers had been promoting the strategy and this has caused some concern. The move to licensing underlines the importance of having sound financial advice to ensure the strategy is right for your SMSF's circumstances.A downside of having property in your SMSF is that not only is it an illiquid asset but it can also be a large chunk of your fund's investments.What would happen, for instance, if one of the members of your SMSF were to die early and the fund had to make a payout?Deb Wixted, head of technical services at Colonial First State, says in such circumstances it could take time to unwind the arrangement and could be expensive.She also comments that although the latest government announcements have cleared up a number of issues, there is still a lot of scope for interpretation."The Australian Tax Office is still sifting through the issues, so what you do now could still be called into question in the future," Wixted says.But there are other positives in gearing, not least that if the fund still holds the property when it enters the pension phase there will be no capital gains tax payable on the sale of the property. But the wisdom seems to be that the gearing should be well and truly completed by then, otherwise you may have problems with cashflow at the time you may be needing to draw an income out of your super on which to live.Another plus is that once you are in the pension phase, the rental income will no longer be tax assessable, although that also means the interest costs won't be deductible.Of course, gearing into super is not all about property. Indeed, most reports are that while there are plenty of inquiries about borrowing to buy property within super, very few actually end up going down that road.Far more popular is the use of instalment warrants for direct share purchases or to invest in managed funds, although with the latter it may be simpler to invest in a geared managed fund rather than have your SMSF undertake the gearing.Graeme Colley, national technical manager at ING Australia, says borrowing to buy shares in your SMSF means the fund can enjoy the benefits of franking credits. With fully franked dividends taxed at 30 per cent already and your SMSF only paying 15 per cent tax on its earnings, the fund can use the 15 per cent difference to offset other income in the fund.And if you are gearing into these shares, then, assuming the market remains positive, you benefit from the extra exposure. Of course, if shares tumble then you will take a bigger hit.On the shares front, Macquarie, for example, has Equity Lever, which allows you to get leverage in an SMSF.Peter van der Westhuyzen, head of sales and marketing at Macquarie Margin Lending, says Equity Lever has been on the market for some 18 months and has enjoyed strong support."Equity Lever gives you increased investment size in a tax effective environment along with diversification," van der Westhuyzen says. Just as the banks want a low loan-to-value ratio when customers are borrowing for property, the LVR for Equity Lever is below 50 per cent.The initial investment can be as low as $20,000 but the interest rate on the product is 9.55 per cent. borrowing to invest, whether inside or outside super, can be fraught.But if the fund makes the right investment and can service the loan, you could be bolstering your super benefits.And given that superannuation payments are tax-free to those aged over 60 and there is no capital gain on assets sold when in the pension phase, it makes for a reasonably solid argument.If the limited recourse loans start to offer competitive rates of interest and the grey areas of gearing are cleared up, it may well prove an effective strategy for your SMSF.
Gillian Bullock From: The Australian April 14, 2010

GFC

2010-03-31T10:12:00.002+11:00

While GDP certainly decreased during the GFC, Australia avoided sliding into an official recession. And while the unemployment rate rose (reaching a high of 5.8% in June 2009), those that retained employment actually experienced an overall increase in disposable income.Many Australians are actually in a better position now than before the downturn – what with significantly lower interest rates (currently at 4%, compared to 7.25% at the start of September 2007) and greater national disposable income (estimated by IBISWorld to reach $194,500 in the March 2010 quarter compared to about $181,000 million in late 2007).Add to this lower fuel-prices (now at US$80 per barrel compared to US$145 per barrel in mid-2008) and it's not surprising that household spending has been relatively strong over 2009-10.

Where to from here?

Average Australian households remain better off now than before the GFC and the first home owner boost encouraged many Aussies to enter the mortgage market – meaning we are just as indebted now as pre-GFC. Interest rates, fuel and electricity prices have all risen and many Australian families will again feel the pinch this year and onwards.Nonetheless, conditions are forecast to continue to improve, with IBISWorld projecting that slow economic growth in the March 2010 quarter will be replaced by solid growth for the remainder of the year, as households continue to spend and businesses join the fray.IBISWorld also expects the unemployment rate to continue to trend downwards and, barring any reversal of the improving trend internationally, the Australian economy will remain strong for the foreseeable future.

John Edwards of Residex speaks

2010-03-26T16:11:00.002+11:00

The markets across Australia are indicating that they have passed the first peak in a normal part of a growth cycle. For most capital cities this means that we will see a slowing in the rate of growth (but still growth) during autumn and winter and a move back to higher rates of growth in the second part of the growth cycle.

This second phase or part of the growth cycle is usually longer and stronger than the initial growth period. The cycle has moved to being more normal, with upper cost areas of the market now leading the way forward. This is as one should expect as confidence among the ranks of our executive and upper management groups become stronger. It will flow on to other areas as corporate profits improve and there is lower unemployment and some wages growth.

Slowing is evident from the number of slightly negative growth numbers in the month of February for houses. The relatively strong performance in the unit market is evidence that investors have become much more active.

Here are the house and unit market statistics for February 2010.

Houses
		Growth	Growth
Area	Median value	Feb 09 to Feb 10	10 year average
ACT	$501,500	9.45%	10.74%
Melbourne	$547,500	16.32%	10.16%
Brisbane	$469,000	6.52%	11.81%
Sydney	$634,000	13.28%	6.62%
Perth	$481,000	2.00%	11.67%
Hobart	$362,500	5.20%	11.98%
Darwin	$501,500	11.20%	11.28%
Adelaide	$400,000	7.95%	10.48%
Units
		Growth	Growth
Area	Median Value	Feb 09 to Feb 10	10 year average
ACT	$394,000	7.84%	10.98%
Melbourne	$422,000	16.39%	9.85%
Brisbane	$357,500	3.10%	10.36%
Sydney	$444,500	10.41%	6.00%
Perth	$391,000	7.27%	11.08%
Hobart	$277,000	9.01%	12.50%
Darwin	$410,500	17.02%	11.09%
Adelaide	$306,000	8.01%	11.57%

Darwin houses are at last taking a breather and the growth for the month was for the first time negative in more than a year. Its rental yield remains the highest of all capital cities and will cause further investor interest which will continue to drive prices but at a lower level given the cost of property which is now relatively high by comparison to the other opportunities. The cost of an unit investment here is now only very marginally lower than in both Sydney (8%) and Melbourne (3%).

Graph 1: Major Capital City Trends

Graph 1 Major Capital City Trends clearly shows that the market is now softer than it was in September/October 2009.

The auction clearance rate in Sydney last week was approximately 65% while the clearance rate in Melbourne was in the 80% range. The impact of the RBA to increase interest rates has been more noticeable in Sydney but is a reasonable outcome given the higher cost of housing and the larger mortgage position for most when you consider that Sydney has been more expensive over a longer period. The momentum and confidence of Melbourne property buyers in a city which is growing strongly is likely to carry its growth phase for longer than in Sydney. However, both cities are exhibiting a slowdown as we move into winter. In both capitals investors are active in the unit market and prices are moving forward.

Our other cities are also exhibiting a softening but it is not as noticeable as in the two majors (see Graph 1). Again, this result is probably an expression of the lower impact of unaffordability and the RBA´s move on interest rates. (see Graph 2 Minor Capital Cities Trends).

Graph 2: Minor Capital City Trends

I have recently been reading suggestions and arguments about a price bubble in Melbourne forming.

I can see no evidence of this. Yes, houses are too expensive across Australia but that position is unlikely to change for at least a decade as it will take that length of time for governments to correct the stock shortage issues.

Further our population needs to expand to satisfy the fundamental needs of a growing resource sector. Add to this – the recent breaking of the drought and it is clear that Australia is in very good shape with the population more likely than not to see growth in wages, and reductions in unemployment than anything else. Add to this – a banking network that is strong and has the capacity to continue to lend to this sector and needs to, to maintain profits and we have a recipe for moderate to good total returns from our housing assets. Please note that I speak of total returns as the affordability issue will lead to renting becoming more normal than in the past and creating moderate capital growth, but at the same time causing rentals to rise.

But I digress a little. The RBA interest rate increases are having a slowing affect and the data is clearly showing that the rate of growth is moving back a little. This in itself points to a "bubble" being avoided as the growth rate would need to be increasing for there to be the potential of any major problem. One last point on this; our more than 170 years of data tells us that capital growth rates in the last 60 years are less each cycle and hence as property becomes more expensive, bubbles become harder to create. Having said that, we have to bear in mind, any long period of moderate growth with excessive bank lending with higher leverage being allowed or encouraged can lead to problems if the economic circumstance of the country turns down.

Our banks are well controlled and governed so a rapid adjustment to our housing values to make them affordable looks very unlikely.

With the market moving to a normally quieter period during winter, it is a good time to identify opportunities. For me winter is the best time to purchase as there is less competition in the market and sellers at this time are usually more anxious. You probably have a better opportunity to negotiate that bargain, particularly in Melbourne.

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new banks entering the market

2010-03-24T11:53:00.002+11:00

The decision by Credit Union Australia and AMP Bank to slash variable interest rates on home mortgages is good for the property market and will spur competitive activity, industry experts have said.The move by the two lenders came as Westpac chief executive Gail Kelly reportedly told a private briefing the bank would continue to raise interest rates due to cost pressures despite political pressure from Canberra.Credit Union Australia announced a 25 basis point cut in its variable rate to 6.37%, putting its products well below the interest rates offered by the big four banks. The closest competitor is NAB at 6.74%."We agree with the Treasury Secretary that the banking sector has become more concentrated over the last few years. There is a crying need for more competition and we are taking an active step in driving that competition," chief executive Chris Whitehead said in a statement."At the end of the day our profits go to our customers, not shareholders, in the form of investment in more competitive products and services. We are already a leader in the delivery of great service – this reduction in our SVHL rate means we are keen to take a leadership position in the products we offer as well."The statement comes as the property market is heating up. AMP Bank cut its rates late last week to 6.27%, while Aussie Home Loans also continues to finalise a $1 billion funding program in a return to the industry. Additionally, Macquarie Bank issued nearly $500 million worth of low-doc loans earlier this week.CommSec chief economist Craig James says he was a little surprised by the move, but says it makes sense as more players fight for the lower-end of the market."I think it's a move which has grabbed a lot of attention and I feel CUA will win a little bit of market share out of it. When you see Macquarie getting into the game again with low-doc loans, I think it shows there are more players coming into the market.""Economically speaking, it isn't a surprise, and if it's true that the banks are starting to gouge, the barriers to entry will remain high and give these lenders somewhere to move. There is a new context for the new players, and it's a good thing for the market which may make the banks watch their backs a little more."SQM Research founder and Advisor Edge property researcher Louis Christopher says the broad message of these cuts indicate the market is moving into a more competitive state, indicating a good time for investors to enter the market."The good news for borrowers is that there is now a lot of choice, and it's merely a case of doing your homework on these sorts of things. Certainly the expectation is that rates will continue to rise rather than fall, and people need to take that into their outlook. Also consider it may be a competitive deal now, but rates are going to rise no matter what.""But certainly in terms of the fact there is some competition, it is a good thing for the broader economy and borrowers, and has the potential to encourage other lenders and encourage greater growth."

Iron ore and world economy instability

2010-03-15T10:06:00.003+11:00

Chinese Premier Wen Jiabao not only warned the world of a possible return to recession, but was subject to impassioned pleas by steel makers over the enormous price rises looming in iron ore. The Australian economy depends more than any other in the world on the Wen Jiabao forecast and the iron ore strategic discussions.Whether we have a global recession will depend in part on whether the world cost of money rises substantially as the US, European and other governments step up their borrowing. In turn, that will partly depend on how much of the global money demand China can fund.But when it comes to iron ore pricing, it is China that caused the problem and Wen Jiabao has made the first moves that may lead to a big fall. The spot market for iron ore is double the 2009-10 contract prices, so the Chinese are looking at a truly enormous rise in costs, which will flow right through the Chinese economy. That spot iron ore price increase was mainly driven by incredible spending by the Chinese on infrastructure and dwellings as part of their response to the global financial crisis. In turn, that forced the Chinese steel mills to pay big prices on the spot iron ore market to gain material to satisfy the demand.A lot of the Chinese infrastructure spending was very productive, but a vast amount was wasted. The Chinese have built empty blocks of apartments, roads and rail that they will not need for years.This took place because the bulk of the capital expenditure was undertaken by local governments. Imagine what would happen if our local councils or state governments had the ability to borrow virtually unlimited amounts of money. Almost certainly they would spend it to satisfy local vested interests. The Chinese behaved exactly as you would expect equivalent bodies in Australia to do.According to JPMorgan, Chinese local governments were responsible for some 80 per cent of the capital spending and therefore dominated demand for our iron ore and are the main drivers of the price rises. It is also a force fuelling overall inflation in China.Even though it is the wasteful spending that is causing the problem, reversing the policy will be hard. But Wen Jiabao has taken an important first step removing the guarantees that enabled the local councils to borrow. In theory at least, the central government will then have a much bigger say over what takes place, but slowing the economy means many jobs will be lost.The stance of BHP is that annual iron ore price talks are just too disruptive, but a switch to spot prices would see the price sky rocket. Gradually, Rio Tinto and Brazil's Vale are coming to a similar view although they are sensitive to the Chinese demand for certainty.But one way or another, iron ore pricing is going to be much more orientated to the spot price and/or other short term price mechanisms.If Wen Jiabao is successful in curbing the expenditure of the local governments, then we will see a significant fall in the demand for iron ore late in 2010 or 2011, assuming current tasks are completed. Such forecasts have been made in the past and have been wrong as the demand for iron ore just keeps rising. But Wen Jiabao's prediction of a possible global recession is unprecedented.Both BHP and Rio Tinto believe that the Chinese growth story will not be a straight line graph and will have big variations. We will need to watch the curbs on Chinese local government work. And if the Chinese do pull back, Australia will bear a lot of the short term pain.

This article first appeared on Business Spectator.

Is there trouble on the horizon?

2010-02-10T12:22:00.005+11:00

THE world's top central bankers began arriving in Australia Feb 6, 2010 as renewed fears about the strength of the global economic recovery gripped world share markets. Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet at a secret location, the Herald Sun reports.
Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.
Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed.The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.
Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.Australia's ASX 200 slumped 2.4 per cent, to its lowest close since November 5, echoing a sharp fall on Wall Street.Asian share markets were also pummelled, with Japan's Nikkei 225 down almost 3 per cent and Hong Kong's Hang Seng slumping 3.3 per cent.The damage was also being felt by European markets last night with London's FTSE 100 down sagging 1 per cent in early trade.Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night."This does feel like '08 and '07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,'' said H3 Global Advisors chief executive Andrew Kaleel."Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.''
It wasn't all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.
The outlook for global growth is likely to be a key theme of the high level central bank talks.
The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night. On the Australian market 31 billion was wiped off as the all ords plunged by
2 1/2%
In addition:
EUROPE'S top central banker Jean-Claude Trichet yesterday cut short his visit to Australia as fears intensified in global bond markets that Greece, Portugal and Spain would default on sovereign debt this year and trigger a new financial crisis. Mr Trichet, the president of the European Central Bank, left a meeting of central bank governors in Sydney a day early to attend an emergency summit of European Union leaders later this week. His sudden departure came as risk premiums continued to blow out on bonds issued by debt-laden European governments such as Greece, Portugal, Italy and Britain. Mr Trichet arrived in Sydney at the weekend where he had high level talks with the governor of the People's Bank of China, Dr Zhou Xiaochuan.
European financial leaders are agitating for China to invest in bonds issued by troubled European countries in an effort to head off a regional financial crisis in the region.Rumours last week that China was set to invest in southern European sovereign debt triggered a rally in Greek bonds, but this was short-lived after the speculation was rejected by officials. Without support from China it is doubtful whether Greece will be able to refinance 54 billion ($A79 billion) of debt due this year.Global equity and money markets have come under extreme pressure in the past two weeks as worries of a second wave financial crisis have gripped traders.The Dow Jones index slumped almost 8 per cent since January 19, while falls on European markets have been more severe.Australia's $65 billion Future Fund yesterday moved to allay concerns that it had significant exposure to Euro-zone bonds after its general manager Paul Costello appeared before the Senate estimates committee.Mr Costello said the Future Fund was not holding any bonds issued by countries such as Spain and Portugal.
The rising risk of government defaults is believed to have figured prominently in the deliberations of central bankers in Sydney on Sunday and Monday.But the outcomes of those high-powered meetings have been kept secret by participants, which included Mr Trichet and representatives from 24 central banks.One of the key players in the meetings was the general manager of the Bank for International Settlements, Jaime Caruana, who is scheduled to speak in Melbourne today.The BIS is developing a new regulatory framework for the global banking system, which also covers new remuneration principles on executive pay.In a speech given yesterday at a symposium organised by the Reserve Bank of Australia, Mr Caruana said that some central banks were not properly equipped to maintain financial stability in their banking systems.

To raise rates or not?

2010-01-28T09:36:00.002+11:00

Economists believe a rate rise next week is a near certainty after a rise in the cost of living in the final three months of last year. Australia's headline consumer price index (CPI) rose 0.5 per cent in the December quarter, for an annual rate of 2.1 per cent, the Australian Bureau of Statistics (ABS) said on Wednesday.Fruit, holidays, beer and house prices all rose, but were offset by lower petrol prices (lower petrol prices?gee folks, I must have missed that one!). Electrical goods and pharmaceutical prices also fell. The trimmed mean CPI rose 0.6 per cent in the December quarter, for an annual growth rate of 3.2 per cent.The weighted median CPI rose 0.7 per cent in the December quarter, with an annual rise 3.6 per cent.The median market forecast was for the headline CPI to have risen by 0.4 per cent in the December quarter, for an annual pace of 2.0 per cent.Economists had expected the average of the two underlying measures of inflation to rise by 0.6 per cent in the December quarter, for an annual pace of 3.35 per cent.The ABS calculates the trimmed mean and weighted median measures on behalf of the Reserve Bank of Australia (RBA), which uses them to gauge the underlying trend in inflation.
Unlike the headline CPI, the RBA's underlying measures are subject to revision due to the seasonal adjustment of some of their components.The RBA is still likely to raise official interest rates next week, economists predicted. (yeah, so what's new?)Commsec senior economist Craig James said the headline result was above than market expectations, albeit not substantially higher.The good news was that the annual growth rate of CPI inflation was within the RBA's two to three per cent target band, he said."If there is any risk, it is that it could end up bottoming out right at the top end of the band or slightly above, so I think on balance the Reserve Bank will increase interest rates in February," he said.But a rise in the cash interest rate after the bank's board meeting, to be held next Tuesday, was by no means certain."The Reserve Bank will be using a lot of strategy in terms of looking at interest rates over the next few months," he said.
"It may decide to wait in February and look at a bit more evidence on the economy." (yes! please do that. allow people a breathing space, recovery is slow and uncertain. don't blow it for Australia's economy, RB)Interest rates in Australia remain well below long term averages.
Mr James said the high point for the cash rate, currently at 3.75 per cent, in 2010 would probably be somewhere between 4.75 and 5.00 per cent."I don't think that's under threat, but clearly there's a lot of things the Reserve Bank has got to juggle in its own mind - things like the special stimulus being applied from tax breaks, the [federal] government's assistance payments and what the cessation of those measures is likely to do to the economy," he said. (yes! they need to look at how the tax breaks have eased the situation and how an increase in rates will make things so much more difficult)"I don't think the (latest result) is going to stop the Reserve Bank lifting rates up to more normal levels."He said inflation at this stage looked "reasonably controlled," but could creep higher if the economy picked up steam amid strong employment growth.The trajectory of rate increases throughout the year was still "an open question," he said.ICAP senior economist Adam Carr said he could not see how the RBA could pause on raising interest rates at its next board meeting on February 2."We are not looking at a subdued inflation backdrop," he said."We're looking at a situation where although core inflation is moderating, it's not really going down fast at all."It's grinding lower and going into what could be a very strong recovery."It's very dangerous to have core inflation well and truly above the target, or even at the top end of the target, so for a forward-looking central bank with an existing stimulatory policy setting I think they will be compelled to hike by 25 basis points."Mr Carr said the prospect of an interest rate pause by the central bank in March was "questionable"."There's no automatic resting point for the RBA."I think that's a misunderstanding by people in the market."He said the underlying inflation figure was the main driver for the RBA to lift interest rates next monthMr Carr predicted inflation would not fall much below three per cent by the end of the year."I think we will be at three per cent by the end of the year, notwithstanding RBA rate hikes."He forecast the RBA would lift interest rates by 100 basis points by the end of 2010. staff

'Mingles' and investment properties

2010-01-20T12:54:00.003+11:00

What is a 'mingle'? Glad you asked. A mingle is the middle-aged single person from the baby-boomer generation as a social group which is becoming a force to be reckoned with in our property markets. So yuppies and dinks, make way for the "mingles" because here we come!
Mingles are single, independent and know what we want and probably have pets.
So what does this mean for the property investor? This means an increasing demand for smaller houses, units and pet-friendly apartments. While more 45 to 59 year olds are choosing this life style, some mingles do not live alone by choice but by divorce or the death of a partner.
Taken from Michael Yardleys article:
In 1976 the number of Australians in this age group who were single was 381,000," Salt says. "These mingles broke down into three more or less equal categories -- the widowed, the separated and divorced and the never married. The latter group would have contained most of the gay community in this age group at that time."Over the quarter of a century to 2001, the mingles managed to multiply to 834,000. In an era when the middle-aged population has increased by 66 per cent, those ensconced in singledom soared by 119 per cent."But some categories have multiplied faster than others.While the number of middle-aged widows of both genders shrank, the never-marrieds expanded. And the separated and divorced rocketed up in numbers by nearly 400 per cent to over 500,000.These half a million extra mingles underpin a huge demand for housing, so as a property investor it is interesting to understand the type of property that would attract these them.Unlike the young singles who are more likely to live in an inner city or near city high rise apartment, the mingles are more likely to prefer a smaller dwelling or a unit in the middle suburbs.
Remember these single baby boomers are not hermits. Many have a relationship, but they just don't want to live with another person. Particularly if they are recently divorced. Instead they prefer living with animals who require less emotional and physical “maintenance.”

What will 2010 bring?

2010-01-10T18:34:00.001+11:00

here's a start:
“The global 2009 stimulus money is going to start drying up. When that happens, we are going to see another economic collapse,the Crash of 2010.” - Gerald Celente, Editor, Trends Journal

ponder them thar words....

2010

2010-01-10T17:30:00.000+11:00

A new year and a new post.
2010 will be a year the world economy remembers because that which the governments have glued together with rebates and infrastructure work will now be running out of steam and cash and the fall that was averted before by these gimmics will now happen.
So, hold onto your hats and mittens kids, we are in for a unique ride and opportunities to buy properties at greatly reduced prices, if you are cashed up that is.

Aussies living beyond our means

2009-12-27T21:37:00.004+11:00

Aussies are $1.2 trillion in debt ! Wow!
In a new record, Australians now owe more in household debt than the country's entire economy earns in a year. Reserve Bank figures show mortgage, credit card and personal loan debts now stand at $1.2 trillion, up 71 per cent from just five years ago and equating to $56,000 for every man, woman and child in the country.Our spending binge, fuelled most recently by the federal government's First Home Owner Grant, means personal debt now totals 100.4 per cent of Australia's annual GDP - one of the highest ratios in the developed world. "It's the first time household debt has cracked 100 per cent of annual GDP and it's a terrible, terrible sign," University of NSW economics professor Steve Keen told News Ltd. "It shows we are living beyond our means and many highly geared borrowers are now extremely vulnerable to further rate rises - they are already saturated with debt and will not be able to tolerate much of an increase to their repayments." Australia's financial headache is likely to get worse before it gets better. The country is in the midst of the peak spending season, when billions goes on the plastic, yet the Reserve Bank data dates back to October's debt levels only, so that means there are another two months of First Home Owner Grant-fuelled mortgage activity still to be taken into account. The extra cost is expected to add billions to the burgeoning debt tally.

2010 forcast

2009-12-27T11:11:00.004+11:00

As prospective home buyers look for the best time to jump into the market, many of the nation’s top housing analysts have forecast modest residential price growth of about 5 or 6 per cent in 2010. Some of Australia’s leading economists believe demand for homes will stay strong as investors and upgraders pick up the slack from first home buyers. But a small group of doomsayers is convinced a combination of rising interest rates, the winding up of the first home owners grant boost and over-inflated prices could lay the foundations for a crash.
Happily, the nation is emerging from the global financial crisis with strong population growth, the lowest interest rates in decades and a rosier jobs outlook. Most economists, industry heads and real estate agents see the sun continuing to shine on residential property next year. BIS Shrapnel senior project manager of residential property Angie Zigomanis predicts steady growth of about five to six per cent in established residential property next year. ‘‘I’d expect you’d see steady low-to-mid single digit growth next year,’’ Mr Zigomanis said. ‘‘Over the next two or three years I think you’ll find interest rates will keep slowly edging upwards and it’ll keep a lid on the massive double digit price growth we were seeing previously.’’ Annual established house prices in Australia grew 6.2 per cent to September 2009, the latest Australian Bureau of Statistics data show. ‘‘If you look at most markets, prices declined last year and while people are talking about booms and everything else, most of what it did was really put prices back to where they were 12 to 18 months ago,’’ Mr Zigomanis said. First home buyers would not be excluded from the market until the Reserve Bank of Australia (RBA) raised interest rates by another 1 or 2 per cent, he said. Investor demand and upgrader’s demand picked up in the last few months of 2009 and would continue well into next year. As city rents increased due to low vacancy rates, more first home buyers in the 25 to 35 year age group would be encouraged into the market. Housing Industry Association chief economist Harley Dale said Australia would experience significant 20 to 25 per cent growth in new housing stock through to mid 2011. He also supports predictions of about five to six per cent growth in established home next year.‘‘With prices, we’ll probably continue to get a little bit more growth over the next six to 12 months but probably not at the rate that we’ve seen over the last six months which has been driven a lot by the first home-owner base,’’ he said. Mum and dad investors, who tended to look at the same type of investment housing stock as first home buyers, were beginning to step in to fill the gap. A shortage of housing, low interest rates and the first home buyer’s grant had helped support prices, he said.But University of Western Sydney Associate Professor of economics and finance Steve Keen said the rates and grants combination had already helped cause a housing boom in 2009.‘‘The fact that rates are rising as we enter 2010, combined with the ending of the boost and the winding back of government stimulus packages, means that rising interest rates are likely to end the (housing) bubble that began in 2009,’’ Mr Keen said. The implications would be ‘‘substantially negative’’ for all properties, not just those valued under $500,000.‘‘I’d expect a five per cent or so fall (in residential house prices), probably returning to somewhere between the current peak and the previous one in September 2008.’’ Meanwhile Commonwealth Bank economist James McIntyre cites wages growth as a key part of the equation, while predicting significant skills shortages emerging within 12 to 18 months.He said house prices would grow in the ‘‘mid single digits’’ next year, but those increases depended on how the build up of wages translated to other sectors of the economy. ‘‘If the whole economy catches fire with a strong growth in wages, then that will really be supportive of a continued strong growth in house prices.’’ He dismissed suggestions the Reserve Bank of Australia (RBA) had waited too long to increase interest rates and said there was a very low chance of house prices falling. It would take a ‘‘significant global shock’’ and an unprecedented surge in building approvals of between 200,000 and 250,000 homes to see significant weakness in house prices, he said. Ray White Real Estate chairman Brian White believes Australia has avoided a dramatic downturn in house prices. ‘‘All of us seem to have forgotten the anguish of the first four or five months of the year and we’re trying to understand just how on earth the year finished so strongly,’’ Mr White, who heads the nation’s largest group of real estate agencies, said. He also forecast growth of about 5 per cent in 2010 and said it had become a vendor’s market. ‘‘Now we’re going into the new year with a number of interest rate increases occurring but with quite strong growth.’’

Rents increase

2009-12-02T23:32:00.004+11:00

SYDNEY rents are set to climb more than 21 per cent over the next three years, the forecasting group BIS Shrapnel says. It suggests that after rising 6.2 per cent this year, Sydney rents will increase by 7.1 per cent a year for the next three years.
The tightening rental market will cause the vacancy rate to drop below 1 per cent, then remain very low in 2011, BIS Shrapnel predicted. The envisaged rent rises were an outcome of medium- and high-density dwelling construction starts plunging 28 per cent in 2009, reaching their lowest level since 1987. ''Housing supply is set to fall due to the low pipeline of new apartments,'' Jason Anderson, an economist at BIS Shrapnel, said. "While supply (of new apartments)has plunged, demand remains very strong.'' The net addition to the population from migration in 2008/09 is estimated at about 300,000, a record high, Mr Anderson said. Tighter lending restrictions on development projects following the global financial crisis had also contributed to the decline in supply. ''It is uncertain as to how long it will be before lending restrictions are eased and, even if some improvement were to occur in the near future, it would be some time before supply improves as most projects take 12 to 18 months to complete,'' he said. The rush to buy a first home was another factor adding to the pressure on rental markets. "A first-home buyer moving out of the family home, and purchasing a former investment property, will have actually reduced the available rental stock," Mr Anderson said. The long-term rental growth in Sydney between 2002 and 2008 was 3.5 per cent. The latest official data from the NSW Department of Housing indicated rents rose 3.9 per cent in the year to September. This reflected a $395 weekly median for two-bedroom rentals across Sydney. Rental growth was highest in the outer suburbs, with a 6.9 per cent annual increase to $310 a week. It was up 4.2 per cent to $375 a week in middle-ring municipalities and up 2.2 per cent to $500 in the pricier inner ring suburbs. The estate agent John McGrath said he expected rents would increase next year by between 5 and 10 per cent due to continuing short supply. He said yields would be maintained around current levels. Yields had dropped slightly from an average 5.3 per cent for apartments to 5.1 per cent, he said, and house rental yields had dropped from 4.4 per cent to 4.3 per cent.
adendum
Renters Becoming Latest Victims as Foreclosure Crisis Widens - (Washington Post - November 23, 2009)A new wave of foreclosures stands to hurt people who may have never taken out a mortgage: renters. In cities such as New York, Chicago and Los Angeles, where many investors are carrying upside-down mortgages on large rental buildings, some tenants are watching their homes fall apart along with the financing. The impact on tenants is uneven. New York City officials say the owners of the vast majority of buildings in foreclosure there are likely to maintain decent standards of living. Yet, of the 200 properties on the city housing agency's 2008 list of buildings with the worst maintenance problems, at least 77 had been in foreclosure. In buildings where a landlord is struggling to make loan payments, maintenance is often the first thing to go. Garbage can pile up, lists of overdue repairs get longer, and vermin multiply. http://www.washingtonpost.com/wp-dyn/content/article/2009/11/22/AR2009112200927.html

Trusts and ATO

2009-09-17T18:39:00.003+10:00

Tax experts are furious at a planned crackdown by the Australian Taxation Office on a commonly-used trust structure and say the ATO's backflip on the issue will have widespread ramifications for taxpayers and their advisers. The ATO is unhappy with the use of discretionary trusts with corporate beneficiaries. It is believed there are around 200,000 of these trusts in operation. Peter Bembrick, tax partner at HLB Mann Judd, says the structure is often used by trust owners who wish to accumulate funds within a trust. Under the structure the ATO wishes to target, distributions from a trust are allocated to a corporate beneficiary, but not actually paid (this is known as an "unpaid present entailment"). This allows the owners of the funds to reduce or defer income tax. The funds can then accumulate in the trust and be reinvested. "Where this does work particularly well is where you are looking to reinvest the money," Bembrick says. The ATO is growing increasingly concerned at the level of accumulated funds inside discretionary trusts, of which there are around 460,000 in use. It is believed half of these trusts have corporate beneficiaries. The ATO is particularly worried about the use of "unpaid present entitlements" and appears to be moving towards a position where entitlements should be treated as a loan and taxed accordingly. But Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants, says the ATO's new stance represents a complete backflip from its previous position, which has been made clear in a number of tax rulings. "There definitely is a strong case to the say that ATO has previously been asked a specific question on this issue and the ATO has in effect, sanctioned the use of these structures." Bembrick agrees. "A change would have very big ramifications and goes against a lot of the planning and structures that people have a place." El-Ansary, who is part of the national tax liaison group that meets regularly with the ATO, is in Canberra today for a meeting on the issue with tax comissioner, Michael D'Ascenzo. El-Ansary expects robust discussion and says his organsiation remains concerned about the position of tax advisers, who could find themselves under fire from clients if the ATO does reverse its ruling. "There is potentially a significant implication for advisers," he says. "Ultimately, what we are aiming for is a solution that is workable for the ATO and taxpayers and their advisers."Read more on: Tax Strategy Trusts Tax planning
lets hope that the ATO gets some common sense and realizes that trusts are a way of protecting assets from unscrupulous litigators. Lets encourage entrepreneurship rather than destroy it, bureaucracy is the most destructive force to progress(LT)

Aus leading the way

2009-06-06T13:13:00.002+10:00

Australia will help lead the world out of recession, as the local economy rebounds strongly off the back of rising consumer confidence, a survey has found. In the "first glimmer of hope" for the global economy, an Ipsos Reuters poll of 23,000 people across the globe has found that confidence is beginning to stabilise after eighteen months of decline. The upbeat analysis follows yesterday's surprise revelation that Australia has dodged a technical recession. Ipsos, a market research group, said that the resurgence of consumer confidence was strongest in the Asia Pacific region. While average global confidence remained flat, the percentage of Australians that deemed the current economic situation either 'good' or 'very good' actually jumped 6 percent, and outstripped the global average by 7 percent. "Interestingly, in the Asia Pacific region overall, including Australia, there was an increasing trend overall from 32 percent to 38 percent. This suggests that our region will lead the world out of recession and emerge relatively strongly", the Ipsos study concluded. The group said the stabilisation has been fuelled by the green shoots of improvement in US consumer confidence, alongside "significant improvements" in China and India. Meanwhile, the blame game has not shifted, with 42 percent of Australians naming the banks and financial professionals as the prime culprits in the crisis. America's former Bush administration and the current Obama administration were also blamed for the global fallout.
Surveying 23 countries, covering 75 percent of the world's gross domestic product (GDP), Ipsos found that by contrast to Australia, Europe - as well as the emerging economies of Russia and Brazil -recorded declining confidence. With Italy the only country in Europe to register a positive change – with a rise from 10 percent to 17 percent in consumer confidence. The company also found that around three quarters of Australians have cut their household spending in response to the economic downturn. This figure has not changed over the last year, indicating that the health of the economy has begun to stabilise. Australia's national accounts, published yesterday, showed that exports and household spending actually helped the economy grow by a 0.4 per cent in the first three months of the year - preventing a second consecutive quarter of negative growth that defines a recession.

variable mortgage rates

2009-05-25T15:36:00.000+10:00

Home buyers are flocking back into variable rate mortgages, which now account for 91 per cent of the residential lending market, their highest proportion in four months, a leading mortgage broker says. Mortgage broker Mortgage Choice reported on Tuesday that in April basic variable mortgages accounted for 48.15 per cent of all home loans approved - up nearly one per cent from March, while standard variable mortgages comprised 42.77 per cent of the market, down 1.47 per cent from March. Basic variable loans generally have fewer loan features than a standard variable loan, Mortgage Choice says.Fixed rate loans accounted for four per cent of all approvals, up one percentage point from a month earlier."Basic variable loans have been the most popular loan type for four months now, after overtaking standard variable for the first time on our records in January 2009," Mortgage Choice senior corporate affairs manager Kristy Sheppard said in a statement.Rates charged on variable home loans move in line with interest rates as set by the Reserve Bank of Australia (RBA), which has successively cut its overnight cash rate since September last year to a 49-year low."Despite interest rates being at their lowest in decades, the volatile global and domestic economic climate is having a strong influence over loan product preferences," Ms Sheppard said."Consumer conservatism with rates and fees continues to win out against loan flexibility and extra features."Line of credit loans in April, popular with property investors, posted a fall of five per cent from the previous month.
Commitments for owner-occupied housing rose 4.9 per cent in March, seasonally adjusted, to 59,793, Australian Bureau of Statistics data this month showed.Total housing finance by value rose by 6.7 per cent in March, seasonally adjusted, to $20.688 billion, the latest month in which data was available.

Federal Budget and Reserve Bank differ

2009-05-19T20:54:00.004+10:00

Just a week after the Federal Budget, Reserve Bank of Australia (RBA) estimates suggest the numbers do not add up.By the RBA's calculations, the Budget could be out by $11 billion.
Documents obtained by 7News show the RBA has a major difference of opinion on Treasury's growth predictions. Treasury secretary Ken Henry today rejected criticism of the "optimistic" economic forecasts put forward by his department and defended its independence from government interference. Last week's Budget forecasts predicted the economy will see a recovery with above-trend Gross Domestic Product (GDP) of 4.5 per cent in 2011-12.
Treasury says the stimulus measures taken prior to the Budget will raise GDP by 2.75 per cent.
But Reserve Bank estimates, obtained under Freedom of Information by 7News say they will boost growth by roughly 1.75 per cent. That is a difference of 1 per cent of GDP, or $11 billion.
When the anomaly was pointed out to the government today the response was that Reserve Bank estimates were three months old and that part of the Budget had been clumsily worded.
Shadow Treasurer Joe Hockey is concerned there may be other errors in the Budget. "The Budget is barely one week old and now it has this multi-billion dollar problem," he said. "These Budget papers need to be corrected immediately." The section referring to measures taken prior to the budget should have included measures taken in the Budget. It would have added another 0.75 percent of GDP, bringing the document closer to the Reserve Bank's prediction. Giving his annual post-Budget address to business leaders in Sydney today, Dr Henry took at swipe at those who "seemed to think we must have simply plucked the numbers out of the air".Dr Henry said Treasury's method for calculating GDP used several factors, including the unemployment rate, the population aged over 15 and productivity. "We can obtain an index of real growth domestic product simply by multiplying together those five things and that's actually what we did," he said. "Taken together, those factors produce a GDP growth rate of 4.5 per cent." Reserve Bank Governor Glenn Stevens gave his assessment of Treasury's outlook in hardly a ringing endorsement. "I don't think it's, crazily optimistic," he said. Prime Minister Kevin Rudd says Australia's debt will peak around $300 billion.
Mr Rudd had to be asked the question several times on television before he would name a figure.
He said the peak projected public debt would be 13.8 per cent of GDP in 2013-14. "We're aiming to a gross figure of 13.8, which comes out at about 300 (billion)," Mr Rudd said.
Read the Freedom of Information documents here (WARNING: Large PDF file)

capping salary sacrificing on super

2009-05-13T22:17:00.001+10:00

The federal government has cut by half the amount some Australians can save in superannuation through salary sacrificing and has reduced its contribution to lower income earners who choose to save more."The government will reduce the generosity of some superannuation concessions for those with greater private wealth," Treasurer Wayne Swan said on Tuesday as he handed down the federal government's 2009/10 budget.
"The cap on concessional super contributions will be lowered and the matching rate of the superannuation co-contribution will be reduced temporarily."The cap on concessional super contributions for people aged under 50 will be reduced to $25,000 from $50,000, the budget documents said.The cap for those aged 50 and over, which was an interim measure to make up for the fact that they hadn't participated in the super scheme for as long, would be reduced to $50,000 from $100,000 up to the 2011/12financial year.The concessional contributions allows employees to salary sacrifice, avoiding the normal income tax rates of 30 per cent or more, and put the money into their super scheme, which is taxed at 15 per cent.The government will also reduce the super co-contribution matching rate to 100 per cent from 150 per cent, for lower income earners for the next two financial years. The rate will rise to 125 per cent for 2012/13 and the year after that.Up to this financial year, the government had contributed up to $1,500 to those who put an extra $1,000 after tax into their super scheme. The maximum contribution for the next two years would now be $1,000.

Budget 2009

2009-05-13T21:05:00.000+10:00

Some Australians bore the brunt of those hard choices, while others are set to benefit from the Treasurer's recession-busting budget plan.
Here is a breakdown of this year's winners and losers:
WINNERS
Pensioners Single pension payments boosted by $32.49 per week, $10.14 per week extra for couples on the full rate.
Carers Mr Swan plans to introduce one-off bonuses for Australia's 500,000 carers - $600 per year for carer payment recipients and an extra $600 per year for carer allowance recipients.
Parents18 weeks of Paid Parental Leave from 2011 – paying minimum wage of $540 a week - worth $731 million over four years.
Homebuyers First Home Owners Fund extended by a further six months from June 30.
People who enter into contracts on or before September 30 will still be eligible for a grant of $14,000 for an existing dwelling and $21,000 for a new home.
The more generous scheme will then been phased down, and end after December 31. Read more
CompaniesSmall businesses will be able to claim a 50 percent tax deduction on new capital worth $1,000 or more, such as vehicles, purchased between December 13, 2008 and December 31 this year. Read more
Larger companies – particularly industrial and transport groups – are set to gain from the $22 billion infrastructure plan.
Low-income earnersThe average person will be better off from July 1 - when the tax savings from last financial year will range from nearly $3 for those with annual salaries of $30,000 up to about $10.50 for those on $100,000 a year.
Middle-income earnersThey will receive the tax cut but some will be hit by the rise in the Medicare Levy, the phase out of Private Health Insurance rebate and changes to superannuation contributions.
InvestorsThe vast infrastructure plan will lift activity from listed industrial companies and promote growth. However, some investors will be hit by the changes to concessional superannuation contributions.
Students$1.5bn for the Jobs and Training Compact, providing education and services to support young people, retrenched workers and local communities.
LOSERS
Baby boomersThe decision to raise the pension age to 67 will come as a big blow for baby boomers born after 1952.
The qualifying age will increase in six monthly increments between 2017 and 2023 as the government attempts to lighten the burden of the "demographic time bomb" of a growing pension bill and a shrinking workforce.
The rich High-income earners will suffer a rollback of tax breaks on superannuation. Read more
From 1 July 2010, the private health insurance rebate will be reduced on a means tested basis by 30 percent for those earning more than $75,000.
The Medicare Levy will be pushed up from 1 percent to 1.5 percent for singles earning above $90,000/couples $180,000, single income earners above $120,000 will pay the full surcharge of 1.5 percent.
Middle-income earnersWhile generally winners, middle income earners will also be hit by cap on salary sacrificing for superannuation. Read more
From 1 July 2010, the private health insurance rebate will be reduced on a means tested basis by 30 percent for those earning more than $75,000.

Difficult times ahead

2009-04-02T17:55:00.002+11:00

AUSTRALIA will encounter an increasingly difficult time over the coming months as the economy battles against the backwash of the global financial crisis, the head of the Commonwealth Bank said yesterday.But Ralph Norris stopped short of agreeing with Gail Kelly, his counterpart at Westpac, that the country would fall into recession this year as a consequence of the worldwide drop-off in economic growth.Speaking a day after Mrs Kelly said a local recession was now unavoidable, Mr Norris, who heads the country's second largest bank by market capitalisation, said his organisation, remained cautious about the short- to medium-term outlook for growth.With more than 70 per cent of the developed world now in recession, the Commonwealth Bank chief executive told a Credit Suisse-organised investment conference in Hong Kong that the current state of play represented the "worst economic performance in our lifetimes".World growth was now forecast to go backwards this year and this would have a direct impact on the Australian economy, which was already slowing and experiencing rising unemployment, Mr Norris said. The effects would be felt across a broad range of the bank's customers, which made the domestic outlook "increasingly difficult".However, he joined both Mrs Kelly and ANZ Bank's chief executive, Mike Smith, who spoke at the same conference this week, in praising the strong policy responses by the Government and the Reserve Bank in helping to offset the worst of the global downturn.
The Federal Government's twin stimulus packages totalling $52 billion and the deep cuts in interest rates by the Reserve Bank would help to "soften the impact" of the slowing economy.
Mr Norris also highlighted the strength of the Australian banking sector which, unlike the shattered financial services industries in the US and Britain, was now among the strongest in the world. With four of the only 12 globally "AA" rated banks, the Commonwealth, Westpac, ANZ and National Australia Bank were also now listed among the world's top 20 safest such institutions, he said.Each was profitable, well capitalised and, just as importantly, continuing to lend, as witnessed by the finance flowing to the housing market. That was being helped by three main drivers: a chronic undersupply of homes, the boost provided by first-time home buyers, who have been bolstered by the Government's direct grants, and the 400 basis points cut in interest rates.As for the state of consumer credit - a key indicator of both the economy's immediate health and the quality of the bank's lending book - Mr Norris said its housing and personal loan portfolios remained sound.While conceding that there had been a small rise in the arrears rate of those home-owners who were 30 days or more behind in their repayments, this, he argued, was off an historically low base.As to a recent jump in credit card arrears, that could be put down to a one-off change in the minimum monthly amount that borrowers now needed to meet

Housing shortage to increase

2009-03-12T08:28:00.002+11:00

The federal opposition says housing shortages in the near future are likely to be far higher than predicted in a new report.In a report commissioned by the federal government, the National Housing Supply Council has confirmed there is plenty of land available for development on the fringes of Australia's major cities.But it says without significant government and industry intervention the housing crisis could increase tenfold by 2028.In 2008, the housing shortfall was around 85,000 dwellings.In three years, the number was expected to reach 203,000 and hit 431,000 by 2028.The forecasts are based on recent housing development and government funding trends.But if these trends slow, the predicted shortfall could top 800,000, the report warned.The shortfalls could also be higher than the report predicts because it fails to include the impact of the global financial crisis.Opposition housing spokesman Scott Morrison said the projections are "overly optimistic"."Banks and housing groups have been forecasting an undersupply of 200,000 dwellings in the next financial year and I think that's pretty accurate," he told AAP.Mr Morrison said exorbitant state and local government charges associated with new housing development must be cut and more land released.The government should also be doing more to help the private sector rather than public housing, he said.But National Housing Supply Council chairman Owen Donald said the majority of housing demand was coming from the bottom end of the market and people from lower socioeconomic backgrounds were going to be hardest hit as rents and housing prices lift.He said there had been a significant boost to housing investment, particularly in social housing, by the Rudd government but much more was needed."The absence of a very significant industry response and a very significant response from government will actually lead to a deterioration of housing supply ... and ... affordability," Dr Donald told reporters.Housing Minister Tanya Plibersek said the bleak outlook should not be seen as a sign that the Australian dream of home ownership was no longer achievable."No, this report shows that with government action and with industry responses we can begin to close the gap between housing demand and housing supply," Ms Plibersek told reporters.Ms Plibersek said it should also send a clear message to industry."The incentive is that they want to build the sort of houses that people want to buy, that's their bread and butter."

housing sustained by first home buyers

2009-03-07T14:15:00.002+11:00

It's only first-home buyers entering the property market that is keeping the sector afloat, the Property Council of NSW says.The housing market in Sydney's west is enjoying a mini-property boom, the latest figures from the NSW Office of State Revenue shows.The number of sold sales across all western Sydney suburbs for the three months to February soared by up to 20 per cent on last year, News Limited reported.Sales in suburbs such as Blacktown and Penrith sales are up 20 per cent. In Liverpool, Campbelltown and Fairfield they are up 12 per cent - to a six-year high.The number of contracts exchanged in the three months to February was up more than 1,100 over the same period last year.But it is only the first-home buyers that are producing the figures, the NSW Property Council says.Its executive director, Ken Morrison, says the figures point to the need for extending incentives to get buyers into the market."The rest of the market is very, very flat and falling and we saw that this week with new data out from the ABS (Australian Bureau of Statistics) on development approvals figures."So the rest of the market is extremely flat and falling."The only thing that is holding it up is this first home buyer incentive."NSW Treasurer Eric Roozendaal also attributed the sales increase to first time home buyers entering the market.He said that half the homes sold in the areas had been bought by first-home buyers, adding that more than 8,500 contracts had been exchanged in the last three months."We're seeing people take advantage of the NSW government stamp duty concessions and the first home-owners grant to move from rental accommodation into their first home," he told ABC Radio on Saturday.

well, lets see if the councils can see their way through being power wielding dictators and actually allow small developers to build and help the economy to resurrect instead of obstructing the way as they have been to date

Rate cut or not to rate cut, that is the question

2009-03-02T16:40:00.003+11:00

The Reserve Bank's recent aggressive policy of interest rate cuts could be coming to an end this week, a prominent economic expert says. The RBA gave strong indications two weeks ago that it would be backing away from a series of drastic rate cuts that have seen four percentage points shaved off the cash rate in the past six months.While some are predicting the central bank will ease rates by as much as 1 percentage point tomorrow, others, including Macquarie Bank's interest rate strategist, Rory Robertson, think it could leave rates on hold. "I think this week's policy decision probably boils down to a choice between a 50-basis-point cut or a policy pause," he told AM. "The Reserve Bank's cut by four percentage points in the past five or six months; that's the sharpest easing in monetary policy in their history and mortgage rates in Australia now, in the 5 to 6 per cent range, are as low as they've been in 40 years. "So I think the Reserve Bank has flagged pretty clearly its inclination to think about pausing. "Whether or not it pauses tomorrow, I'm not sure. I think there is a real possibility the Reserve Bank will pause after cutting at five consecutive meetings."
Mr Robertson says he thinks Australia is heading into a recession, but he argues there may be justification for keeping some "fuel in the tank" for later interest rate cuts to stimulate the economy. He says with the second stimulus package injecting money into the bank accounts of millions of Australians from April, the Reserve Bank could afford to see whether the economy recovers without the need for further rate cuts. "The Australian economy to this point hasn't shrunk at a dramatic pace," he said. "We've cut as hard as any other central banks have cut and our policy rate is actually connected to something that matters and that's mortgage rates at least," he said. "So I think there is room for the Reserve Bank to take into account of the fact that interest rates have come down across the economy, there have been two fiscal packages, and the Australian dollar has come down a lot. "I'm not convinced that faster is better in terms of rate cuts from here. I think that's the story the Reserve Bank is in the process of telling."Don't expect a rate cut this month.

Economists predict modest rate cuts

2009-02-17T20:49:00.002+11:00

Economists doubt the Reserve Bank of Australia (RBA) has finished cutting the official cash rate just yet, but borrowers shouldn't rely on any more aggressive reductions.The RBA's minutes from its February board meeting - where it cut the cash rate by another 100 basis points - indicate the central bank remains concerned about the short-term prospects for the economy.It says its 400 basis points worth of rate cuts since September and the government's stimulus package will give a "significant" boost to the economy, but will take time to be effective."Given the speed at which the global contraction had occurred, short-term prospects were thus still for weakness in demand and output," the minutes said."Nonetheless, the substantial measures taken would help to cushion the economy from the contractionary forces coming from abroad and, over time, work to establish conditions conducive to stronger demand later in the year."Macquarie Securities economist Benjamin Dinte said the RBA would be hesitant to continue lowering rates at an aggressive pace."(But) we do believe that further softness in global economic conditions and domestic confidence is enough to justify another reduction in rates in March," he said.Federal Treasurer Wayne Swan conceded the government's latest $42 billion stimulus package, which passed the parliament last week, will take time to work through the economy."That's what the government has said about the package and why we moved so swiftly last October and again in recent weeks," Mr Swan told reporters.Economists are looking for the government's $10.4 billion stimulus package announced in October to help lift Wednesday's December quarter retail sales by 1.0 per cent after just 0.1 per cent growth in the previous three months.New opposition treasury spokesman Joe Hockey, unsurprisingly, doesn't believe the government has got the response to the global recession right."It's time to be prudent, it's time to be careful, it's not a time to panic," Mr Hockey told the Fairfax Radio Network."You have to show confidence, you have to believe things are going to get better, you have to have a plan to get things better. I don't think the government is doing any of that."But Mr Swan said it was the coalition that didn't understand the depth of the global recession and the type of response required."You've seen underscored today from the Reserve Bank minutes the need for a very substantial fiscal stimulus for our economy," he said.Still, despite the expected boost to consumer spending, the RBA expects the December quarter gross domestic product will be "broadly flat"."... a relatively good result in comparison with other developed economies," the minutes said.JP Morgan Australia chief economist Stephen Walters said it was the performance of those other economies that was likely to determine the need for further interest rate cuts.He said economic conditions among Australia's major trading partners had shown an "alarming deterioration" particularly in Japan - Australia's largest single destination for exports - where output had collapsed."Already, on current forecasts ... 62 per cent of Australia's export partners will be in recession in 2009, including eight of the top 10 destinations," he said."A pause (in rate cuts) next month is possible if economic conditions improve, but so too is a cut of more than 50 basis points, depending on how the data prints, particularly offshore."Financial markets have fully priced in a 50 basis points cut by the RBA next month.

$42b stimulus package for Australia

2009-02-12T16:17:00.004+11:00

The Rudd Government will pour an extra $42 billion into the economy over the next four years in its latest bid to defy the economic gravity that is dragging down economies around the world.
The extra spending was contained in a package of measures announced today by Prime Minister Kevin Rudd and Treasurer Wayne Swan, as the Government battles to adjust its policies and forecasts fast enough to cope with the rapidly deteriorating global economy. It brings the total stimulus efforts by the Government to $88.7 billion.The Government also halved its 2008/09 growth forecast for the economy to 1% from a November forecast of 2%. Today's spending package includes $28.8 billion for infrastructure, schools and housing, as well as $12.7 billion cash payments for low and mid-income earners, to be paid in March, 2009.''The Government will move heaven and earth to reduce the impact of the global recession on Australia,'' Mr Rudd said .
Opposition Leader Malcolm Turnbull, speaking on Sky News, pledged to work with the Government on the stimulus budget but said the Opposition would go through the spending proposals ''line by line'' in the coming days.The "substantial" package ''will be felt in the short term,'' said ANZ economist Katie Dean. "It should provide a significant boost to growth in the March and June quarters" and "may delay a technical recession''.Nonetheless, the scale of the global slowdown will likely overpower the Government's best efforts to prevent the recession from taking hold here, she said.''A lot of the shock has already flowed into the economy and it will be very difficult to for Government to avert a very sharp downturn in business investment.''
Today's additional outlays are expected to support about 90,000 jobs over the next two years, the Government said.Calling the global financial crisis ''a crisis not of Australia's making,'' Mr Rudd flagged an "exit strategy" to running public debts and said economic growth should eventually return the budget to surplus ''over time''.The Government would keep future discretionary spending to 2% in coming years in an effort to ease debt.However, he warned, "no one knows how long and deep this part of the economic cycle will be''.The announcement comes just hours before the Reserve Bank is expected to do its bit to help spark a revival in confidence among consumers and businesses alike. The bank's board is meeting today and markets expect it will cut its key interest rate by at least 100 basis points, or 1 full percentage point, to 3.25% when it reveals its decision at 2.30pm.
Red ink
The additional spending - coming on top of other measures including October's $10.4 billion stimulus plan - means the Federal budget faces years of deficits. Canberra has not clocked up a budget deficit since 1997-98.Mr Rudd said the Government now predicts its deficit for the year to June 30 will total $22.5 billion alone. That shortfall compares with projections of a surplus of $5.4 billion as recently as November and a massive $21.7 billion surplus when it announced its budget last May.The deficit will expand further to $30 billion in the following two years.
Feb 5, Mr Rudd said the global financial crisis would punch a $115 billion hole in the Government's expected revenues between this year and 2011-12, with taxes from businesses set to shrink by $76 billion alone as profits wither.That revenue drop prompted ANZ economist Katie Dean to forecast this year's Federal deficit would come in at between $10-15 billion (about 1% of gross domestic product), rising to as much as $35 billion next fiscal year.''The Government is doing what they can, given their finances, but the pull from not only dysfunctional credit markets and but deepest global recession since the 1940s, is too much,'' ANZ's Dean said.
Other countries are preparing big spending programs in a bid to reverse a slowdown that is now dogging virtually every economy.The new US administration led by President Barack Obama is seeking Congressional support for a stimulus package of at least $US819 billion ($1.3 trillion), or equivalent to about 5.8% of the country's GDP.
Growth, jobless
Asia, home to six of Australia's 10 largest trading partners, has seen a sharp slowdown in growth in the past six months, triggering big falls in prices of many of Australia's main exports with more to come.''The global economic outlook has drastically deteriorated since Mid-Year Economic and Fiscal Outlook 2008-09," today's report by the Government stated.In the wake of the intensification of the financial crisis in September 2008, confidence has fallen and the inter-connected impacts of declining orders, production and employment have combined to produce the most extraordinarily synchronised slump in global economic activity in decades."
"The December quarter 2008 is likely to have recorded the weakest quarterly global GDP performance since World War II."Apart from halving this year's GDP growth rate for Australia, the Government today predicted growth would slow further to 0.75% next fiscal year.Those tallies compare with respective forecasts of 2% and 2.25% made by the Government in November.More people are now expected to lose their jobs as the economic downturn savages business, with the unemployment rate now forecast to rise to 5.5% in 2008-09 and 7% in 2009-10.In November, the Government had forecast respective jobless rates of 5% and 5.75%.
The unemployment rate was 4.5% in December.
Bonus payments
The $12.7 billion cash payments will include one-off bonus payments of $950 each for low- and middle-income households and individuals through five bonuses to be paid in the next few weeks through either the Australian Tax Office or Centrelink.It means 8.7 million workers earning $100,000 or less will receive a lump sum payment of $950 each from April.About 1.5 million single-income families will also receive the payment, provided they receive Family Tax Benefit Part B, in the fortnight beginning March 11.Farmers will also receive a $950 bonus payment, as will families eligible for FTB Part A who have a child at school. They will receive an immediate payment of $950 this week.The Government will also provide a one-off $950 training and learning bonus for eligible students and people outside of the workforce returning to study to help with the costs of education and training.The package, which is virtually a mini-budget in all but name, is the second major economic stimulus package announced by the Government since the $10.4 billion economic security strategy released in October.
$88.7 billion and counting
It takes the total amount spent by the Government on stimulating the economy since september to $88.7 billion, including bank deposit guarantees, the car industry package, as well as nvestment in residential-backed mortgage securities, local government, infrastructure projects, and on the states through the Council of Australian Governments (COAG).The statement said that while the nation was in a better position than most other countries to weather the global recession, Australia could no longer ''resist the pull of global economic forces''.The infrastructure spending in this package involves a major roll-out of $890 million to fix accident black spots, install rail boom gates, repair regional roads and build community infrastructure such as libraries, town halls, community centres and sport centres.Schools around Australia will benefit from $14.7 billion over three years to construct school halls, libraries, indoor sports facilities and performing arts centres.The package includes funds of between $250,000 and $3 million for primary schools for capital expenditure projects and $1 billion for the construction of science and language laboratories in secondary schools, while all schools will be able to apply for extra funding of between $50,000 and $200,000 for minor maintenance and infrastructure.
Housing, small business
Public and community housing will receive a $6 billion boost to allow for the construction of about 20,000 new homes to be completed by December 2010.Small business also gets $2.7 billion in extra tax breaks aimed at supporting jobs.This means, for example, a business which buys a $2000 computer by the end of June this year will receive a $600 additional deduction while a business which buys a $60,000 backhoe before the end of June will receive an extra $18,000 deduction.The Government will also provide free ceiling insulation to 2.7 million homes to improve energy efficiency by increasing the solar hot water rebate from $1000 to $1600 from Tuesday and the low emissions plan for renters rebate will double to $1000.

Rates to be 2.5%, cost of living falls

2009-01-28T16:02:00.002+11:00

A massive fall in petrol prices has pushed the cost of living down for the first time in two years and opened the way for interest rates to fall to as low as 2.5 percent.Petrol prices fell by more than 18 percent in the December quarter as unleaded petrol fell from around $1.50 per litre in September to close to $1.00 per litre in December, mirroring falling oil prices.According to official figures released today, the consumer price index – which tracks the cost of living in Australia – fell by 0.3 percent in the December quarter. Over the 12 months to December, the CPI rose by 3.7 percent, well below its previous reading of 5 percent.The fall in the cost of living - which is the fastest decline logged in 10 years - is expected to open the way for further rate cuts from the Reserve Bank of Australia (RBA), starting with its first meeting of the year, to be held next week.Economists expect the RBA to trim the cash rate by 75 basis points, a move that would take the cash rate to 3.5 percent.“There’s nothing of concern in these figures for the Reserve Bank that will stop it aggressively cutting interest rates next week,” Riki Polygenis, economist at ANZ Bank told ninemsn.She believes rates will fall by 75 basis points next week and will ventually fall to 2.5 percent this year.While the fall in prices and interest rates may be good news for consumers, other economic figures released today showed a sharp slowdown in economic activity.The Westpac/Melbourne Institute index of economic activity - which tracks the likely pace of economic growth in the future - contracted by 2.2 percent in November, and analysts said it showed that the odds of Australia entering a recession this year are shortening.“With the –2.2 percent growth rate for November we are now reporting the first negative reads for growth since May 2001,” said Bill Evans, Westpac’s chief economist. “In the past this has been a useful signal ofthe likelihood of Australia experiencing a recession.

28/01/2009 By Stuart Fagg, ninemsn Money

3 day work week

2009-01-27T21:39:00.000+11:00

British workers could have their working week cut to three days under plans being considered by the government to help companies cope with recession.The government is understood to be considering paying firms to cut the working hours of thousands of staff instead of retrenching them in an attempt to stop unemployment soaring past two million.Now business secretary Peter Mandelson is facing calls to offer compensation for workers who have their hours cut.Unnamed ministerial sources told The Observer newspaper that a compensation scheme for workers was an option being discussed but was "not imminent"."Government sources said there were issues about whether to restrict compensation to the car industry or apply it to all firms," the newspaper said.The Department for Business is already advising employers on its website to consider cutting staff hours as a way to save money, saying it might be better than making staff redundant.Similar measures were after a series of crippling strikes by mine workers in the 1970s which had dramatic knock-on effects through the rest of the nation's economy.Former prime minister Margaret Thatcher introduced a short-time working directive in the 1980s to cover earnings lost through shorter hours.

Aus economy

2009-01-19T11:23:00.002+11:00

Federal Treasurer Wayne Swan says he won't speculate on whether Australia will go into a recession, despite a new report saying Australia's budget is "buggered".The Access Economics report, to be released on Monday, warns Australia will go into recession this year as the economic boom unwinds.A blow out in the account deficit and a loss of 300,000 jobs is likely to be a result of the downturn, it says.The report demonstrates the difficult global conditions that Australia confronts, topped off with a shrinking economy in the US and slowing in economic growth in China, Treasurer Wayne Swan told ABC Radio on Monday.But when asked whether Australia would go into a deficit, he replied: "I certainly don't speculate about that."I mean every day will bring a new set of private sector forecasts and I don't intend to... respond to them on a daily basis."But I guess what this report does do is point to the impact of a global recession, and what it will mean for world growth."The government would respond "if necessary in a timely way", with a further stimulus package if it was needed, Mr Swan said.

More on this subject from an ABC report....
A key economic forecast says Australia will definitely fall into recession this year and has described the Federal Budget as being "buggered".The latest business outlook from Access Economics says that Australia's prosperity will unwind quickly because of the slowing Chinese economy and unemployment will be up to 7 per cent by next year.The report says global growth is slowing at a scary speed, and Australia's growth prospects are expected to follow the lead in similarly swift fashion.Chris Richardson from Access Economics says the implications for this year's Federal Budget are tough, and the Government faces some ugly policy choices."It doesn't however mean that the Government should stop doing what it's doing," Mr Richardson said.Federal Treasurer Wayne Swan told ABC Radio's AM program that budget revenues will be more seriously affected than first thought.He says the report confirms the very difficult global conditions faced by the Australian economy, but he would not speculate on a recession."Revenues will take a heavier hit than was thought at the end of last year, but we'll account for that in good time," he said"We face the prospect of the United States economy shrinking, and of course the prospect of China not growing anything like [what] was expected only a few months ago.
"There's no doubt that a slowing China will have a very substantial impact on countries in this region, and most particularly Australia."Both those events are deeply concerning for growth in this country and the impact in terms of revenue for the Budget and also the impact on employment."

A Path Less Travelled

2009-01-16T19:40:00.000+11:00

A friend of mine was saying how much they are enjoying a book called "A Path Less Travelled" by Scott Peck and it reminded me that it was this book that I first read many, many years ago that started me on my quest for personal fulfillment. With this I would like to recommend this book to anyone who has an interest in self development and achieving the maximum achievement, wealth, abundance, freedom and everything their heart desires to read this book.

What to do to acquire a multi million dollar net worth

2008-12-12T18:54:00.000+11:00

what does an individual need to do in order to acquire a million dollar

net worth?

There are several things that you can do to propel yourself to this

enviable position, each comes with diligence and perseverance.

When you are working in a job you need to invest extra time.

Arrive an hour earlier than you have to and put that time in working

on upgrading your skill and understanding of your job.

The other end of the spectrum is that you leave an hour later than

others and capitulate the day's work and information processed.

Learn from your job and also by following these steps you are bound

to impress your superiors that you are keen to learn and expand

your horizons. Remember you do this for yourself but there are

other benefits along the way.

This is just a beginning to getting a person started on the road

to vastly expanding their net financial worth.

Stay tuned for more tips over the coming weeks.©

"Bailout" won't stop the ship from sinking

2008-11-26T18:17:00.003+11:00

Nov. 24 (Bloomberg) -- The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago. The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department's $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis. When Congress approved the Treasury Department's $700 billion Troubled Asset Relief Program (TARP) on Oct. 3, the need for transparency was acknowledged.Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in, as well they should. Better late than never but limitations need to be placedon the Fed so that authority returns to elected officials as opposed to appointed ones. Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government's rescue effort. The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14. Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.There's no transparency to it so who's to say they're right in doing this.The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world's companies and brought down three of the biggest Wall Street firms.Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the U.S. economy. Most of the spending programs are run out of the New York Fed, whose president,Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary.

The money that's been pledged is equivalent to $24,000 for every man, woman and child in the country. It's nine times what the U.S. has spent so far on wars in Iraq and Afghanistan. It could pay off more than half the country's mortgages.There's a lot of supposedly smart people who look to be totally incompetent and it's all going to fall on the taxpayer."

President Roosevelt’s New Deal of the 1930s, when almost 10,000 banks failed and there was no mechanism to bolster them with cash, is the only rival to the government's current response. The savings and loan bailout of the 1990s cost $209.5 billion in inflation-adjusted numbers, of which $173 billion came from taxpayers, according to a July 1996 report by the U.S. General Accounting Office, now called the Government Accountability Office.

And still they play and manipulate and have no cognisance of the fact that all the problems in the first place were produced by the behind the scene manipulators playing a game of chess with the worlds population as the pawns. It looks like this game will not end untill the whole American economy completely colapses and the human spirit rises to the rescue when there is a realisation that pieces of paper with little pictures on them can not save or help anyone or anything.

Future world economic events

2008-11-18T21:38:00.000+11:00

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events. His track record includes predicting the Crash of '87 and the 1991 fall of the Soviet Union. He successfully predicted the 1997 Asian Currency Crisis, the subprime mortgage collapse and the massive devaluation of the U.S. dollar. He predicted in a November, 2007 UPI article that 2008 would be known as the "Panic of 2008" in which he specifically warned that "giants would tumble to their deaths." Celente's predictions aren't the result of either Divine revelation from Heaven or demons working a Ouija board. It's more along the lines of 'prophesying' that a dog left in the house for three days will poop on the floor. That's why we spent as much time as we did examining how the economy got into this predicament. So you could see for yourself that Celente is simply analyzing the trends -- putting two and two together and coming up with four. That, plus his track record, which demonstrates that he's been paying attention to those trends. Let's compare what Celente sees for the next four years, based on current trends, to what the Bible predicted would befall a single generation, somewhere in time.

"There will be a revolution in this country," he said in a recent interview. "It’s not going to come yet, but it’s going to come down the line and we’re going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen." This is what Celente predicts as well -- he says that the country is going to suddenly realize that they've been had. "The first thing to do is organize with tax revolts. That’s going to be the big one because people can’t afford to pay more school tax, property tax, any kind of tax. You’re going to start seeing those kinds of protests start to develop." "We’re going to start seeing huge areas of vacant real estate and squatters living in them as well. It’s going to be a picture the likes of which Americans are not going to be used to. It’s going to come as a shock and with it, there’s going to be a lot of crime.' "It’s going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we’re going to see many more." "And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people’s minds weren’t wrecked on all these modern drugs – over-the-counter drugs, or crystal meth or whatever it might be. So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody’s comprehension."

I checked Celente out. He's the real deal. He has been hailed as some kind of predictive genius by CNN, USAToday, the Wall Street Journal, the Economist . . . the point is he is neither a crackpot nor is he regarded as a crackpot by the mainstream. So, what does this mean to us? Well, lots -- and not much. It depends on your own perspective. It doesn't mean that much in the sense you probably already know all this. Maybe not Gerald Celente or the Trends Research Institute. Or his track record. But by and large, the narrative is familiar. Is Celente right on every detail? I don't know -- the details haven't all unfolded. Gerald Celente is forecasting four years into the future based on his analysis of current global trends.

Getting better

2008-11-10T11:31:00.002+11:00

In a brave and sensible move, the Reserve Bank of Australia has ridden to the economy's rescue with a big 0.75% interest rate cut just as some negative types have been predicting a recession. Mind you, they might end up being right, but this action by the RBA increases the chances of making them wrong.

The listed 12 positives that had mounted up and happily the local and global stock markets have come in on cue to swing to the positive.This is the summary:

- Deutsche Bank research said over the past 80 years a bottom of a bear market has been created in the last week of October.

- November has a great track record for stock markets, and historically November to April has been good for share prices.

- This bear market has run longer than the average bear market.

- The 3-months LIBOR versus Fed Funds rate spread has fallen to around 200 basis points, but it was 330 basis points.

-Stock markets look 6-9 months ahead and things might look crook now but in 6-9 months the US economy could be coming out of recession.

- The US consumer confidence measure dropped to the lowest level ever, which sounds bad, but there's history showing that there is usually a big 20% plus bounce of the stock market after the consumer confidence reading hits rock bottom.

- The roll out of the rescue package for the banks has been well-received.

- Co-ordinated interest rate cuts worldwide are raising hopes.

- Valuations for great companies look attractive.

- The volatility index or fear index is falling.

- A range of US companies have reported surprisingly good numbers.

- The US election will take away uncertainty and that should be good for share prices.

Memories of 1991

We were hit by recession headlines. Leading these warnings is the chief economist from J.P.Morgan, Stephen Walters, who has pulled out the dreaded R-word."Australia faces its first recession since 1991 as prices fall next year for iron ore and coal, the nation's largest exports," he said.He thinks the economy will contract in the six months to March because of weakening export growth, which will cause companies to put off or even KO investment spending. And he has dragged down his calendar year forecast for growth from 1.4%, which he made on October 22 to 0.7%.The good news was that he argues the Reserve Bank will have to be more aggressive with their interest rate cuts to minimize the damage. And that's what the Big Bank has done with its surprise 0.75% cut in their cash rate of interest.

In the opposite corner

Against Walters we have the CEOs of ANZ and St. George - Michael Smith and Paul Fegan - who have predicted that Australia will dodge a recession.Even the Deputy Governor of The Reserve Bank Ric Battellino has argued we will avoid a recession.If the Big Bank was as negative as Walters, it would be shooting for a 4% cash rate, but this would also be in the context of rising unemployment and bankruptcies.At this stage, the RBA's view is more preferable to J.P.Morgan's. So, who is more likely to be right?Walters thinks the December quarter will be negative 0.3% and 0.4% for the March quarter. He thinks the 40% plus of the stock market, frozen funds and negative headlines will spook the consumer.

What the chief economists think

By the way, none of the big name economists at the big four banks are out there claiming their crystal balls are revealing a recession.Bill Evans, Westpac's chief economist, can't see a negative December quarter. "We are expecting zero growth in the March quarter and then only very small growth as the effect of the stimulus dies away," he said.And NAB's chief economist Alan Oster also has tipped no recession.Meanwhile, ANZ's respected chief economist Saul Eslake dismissed the speculation about a recession here in Australia.Finally, CommSec's Craig James has weighed into the argument criticising doomsday merchants and also insisting that we can avoid a recession.So at the moment, good stuff is outweighing bad stuff - to put it very simply - but we still have a long way to go.

What we have to hope for is some really smart government decisions right around the world and central bank decisions that help keep confidence as high as it can be, given the economic problems that are still out there.

The good news is...

This week's credit markets kept improving and European governments talked about a co-ordinated fiscal policy response to try and kick-start the Eurozone economy.Then along came the US election result with a win to Barack Obama, which should be another positive for the US economy.The good continues to outweigh the bad!

Why is gold dropping when it shouldn't?

2008-10-28T21:46:00.001+11:00

Why is gold dropping right now when anyone in their sane mind would expect it to rise? The simple answer to this question is, " because Comex-gold isn't gold " - and because it deceptively pretends to be 'the' price-setter for real gold.

Gold is gold, paper is paper, and "Comex gold" is nothing but paper masquerading as gold while simultaneously pretending to be the price-setting medium for actual gold in the world. Now, finally, Comex-gold is in the process of being unmasked. The real supply and demand determinants for Comex gold are not actual gold investors but fund managers . Fund managers are inextricably intertwined with the world of contract-based credit instruments. They use bet on Comex gold contracts to hedge their other (currently horrendously losing) bets with something they all, in their in-bred belief in paper markets, believe will 'go up' in value while everything else is going down.
However, these very same fund managers and their paper-bound investment psychology are the exclusive reason why Comex gold is dropping in these times when everyone (including fund managers) expects gold to rise. As already stated, though, and as they now finally realize to their own dismay, Comex-gold just isn't gold - and that causes even further selling.
Fund managers' other bets are losing money fast, now, so they need to raise cash to keep up the overall value of their respective funds, so they can earn their management bonuses and avoid getting booted for lack of relative performance. Guess what they cash in on? The very same Comex paper-gold they mistakenly bought as a 'hedge', of course. Meanwhile, real investors in real gold are enjoying their shopping spree - except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarket shelves in the old Soviet Union - bare . This is the only 'bare-market' in real gold the world will see for a long, long time to come. With this split, this disconnect, between Comex illusion and gold reality, one thing or the other will have to give, and it won't be physical gold that gives. My reaction: I am certain the US is less than a month away from a currency collapse. The fed and treasury are not even taking the time to think at this point: they are just throwing money and guarantees at each new problem that pops up without worrying about the consequence. Since no one can imagine a currency collapse, there isn't the political will to take the painful steps needed to prevent it (reign in fed and let institutions fail). The forces and trends behind the financial collapse are too powerful to stop.
By Eric deCarbonnel http://www.marketskeptics.com

Market shutdown

2008-10-28T21:40:00.001+11:00

Former Clinton economic adviser Nouriel Roubini says hundreds of hedge funds will fail and that policymakers might have to shut down financial markets for a week or more in response.

"We've reached a situation of sheer panic. There will be massive dumping of assets," and "hundreds of hedge funds are going to go bust," said Roubini, a New York University professor. He was speaking to attendees at a hedge fund conference in London.Roubini is known for his predictions. In July 2006 he said that the United States would enter an economic recession.Earlier this year, he forecast a "catastrophic" financial meltdown that he said global central bankers would fail to prevent and would lead to the bankruptcy of large banks exposed to mortgages and a sharp drop in equities.He warns, too, that the world is heading for a protracted recession that will end the financial dominance of the United States.Roubini told CNBC that he believes the United States is going to have two years of negative economic growth, quite at odds with most predictions of quarter or two of recession ahead."The last two recessions lasted only eight months each. … This time around, this is going to be three times as long, three times as deep. This is going to be the worst recession the United States has experienced since the 1980s."Emmanuel Roman of GLG Partners, a former division of Lehman Brothers Holdings, agreed with Roubini's dire prediction.He told the Telegraph that 25 percent to 30 percent of the world's 8,000 hedge funds will disappear "in a Darwinian process," either by going bust or deciding that meager profits are not worth the effort."This will go down in the history books as one of the greatest fiascos of banking in 100 years. There needs to be some scapegoats, and the regulators are going to go hunt people. That will be good in the long run," Roman said

Government meets business

2008-10-26T15:44:00.001+11:00

The federal government wants to hear what actions, apart from its $10.4 billion economic stimulus package, business leaders believe are necessary to help Australia weather the global financial crisis.
Prime Minister Kevin Rudd will meet business leaders in Sydney on Friday.
"It's very important to hear directly from the business community on the ground about what's going on and about what further actions may be necessary in the future," Mr Rudd told Sky News.
"Canberra is not the ultimate repository of all wisdom.
"So we'll be out and about talking with the business community and the general community over what's still going to be a very, very tough time ahead."
Some of Australia's biggest companies will be represented at the round table.
Bosses from miners BHP and Xstrata, accounting firms DeLoittes and Ernst & Young, American Express , property group Leighton Holdings, IBM and Microsoft and News Ltd are expected to attend.
Meanwhile, Mr Rudd has likened the world financial crisis to a "cancer" which has spread to the Australian economy.
He also defended the government's decision to implement a $10.4 billion economic stimulus package ahead of official data to be released next month revealing the strength of the local economy.
Mr Rudd said financial institutions had spread around the risk of "dodgy loans" made in the US.
"When the original mortgage payments couldn't be made, the cancer didn't just stay local, it spread across the world to all the other institutions that had been wrapped up in it," he told Sky News on Friday.
The crisis was now affecting the real Australian economy.
Mr Rudd is resisting calls from the opposition for the release of Treasury advice the government received in developing its stimulus package.
Updates would be included in the mid-year economic forecasts, due for release next month, he said.
But the government could not wait for "final, conclusive proof of economic problems" before taking action, Mr Rudd said.
"Guess what, by then it's too late, you need to act decisively and early because it takes some time for these stimulus measures to flow through to the economy."
"The logic of the Liberal Party's position is this, they would say that you should wait until basically the car starts to sputter through lack of petrol in the tank before you put more petrol in."
When pressed about what the government was doing to help self-funded retirees weather the financial crisis, Mr Rudd said the government was maintaining the stability of the financial system.
Guaranteeing bank deposits would help them, he said.
Opposition Leader Malcolm Turnbull says, many small businesses have not seen any benefit from the recent cut in interest rates, even though the federal government is prepared to risk billions supporting the banks.
Only one bank had passed on fully this month's one percentage point rate cut to small business, a sector of the economy that employs most Australians, he said.
"So ( Prime Minister Kevin) Rudd is providing deposit guarantees to help the banks, he's providing wholesale term funding guarantees, which by the way puts the taxpayer potentially on the hook for many billions of dollars," Mr Turnbull told Sky News on Friday.
"So he's doing all that for the banks, and he's spending $10 billion in stimulus, but the stimulus of the interest rate cut is not yet apparently finding its way in that part of the economy where most Australians are employed."
Mr Turnbull is continuing to press the government to reveal what advice it used to formulate its $10.4 billion economics stimulus package announced and what impact it would have on interest rates.
"They're the one's sitting around the table with Treasury, what has Treasury told them, everyone is entitled to know," he said.

Recession alarm rings around the world

2008-10-26T15:40:00.002+11:00

World giants in the automobile, airline and technology industries have ordered emergency action in response to the financial crisis, while the IMF set aside more than $US200 billion ($A297.09 billion) for debt-laden countries.

Even a 1.5 million barrel a day production cut by OPEC failed to stop oil prices falling in the face of swelling fears of a deep global recession which led shares to take a hammering yet again.

Wall Street followed other exchanges downwards as a wave of panic selling and a meltdown in share prices swept around the world.

US shares later recovered some of their losses and fell less than many other global stock markets in early trade.

Grim financial news came in from around the world.

Iceland's government said it had asked for $US2 billion ($A2.97 billion) of support from the International Monetary Fund, the first Western country to do so since 1976.

The IMF said it had tentatively agreed to the loan and announced it had set aside hundreds of billions of dollars to rescue stricken nations.

"The IMF has more than 200 billion dollars of loanable funds and can draw on additional resources through two standing borrowing arrangements with groups of IMF member countries," the institution said on its website.

China, Japan and 11 other Asian nations agreed to set up an $US80 billion ($A118.84 billion) war fund to fight what ex-US Federal Reserve chief Alan Greenspan called a "once-in-a-century credit tsunami".

French automobile giants PSA Peugeot-Citroen and Renault ordered huge production cuts, while Japan's hi-tech giant Sony Corp and Europe's biggest airline Air France-KLM issued profits warnings.

In Britain, official figures confirmed the country was about to enter a recession, while Turkey's central bank took action to strengthen bank liquidity and prop up the slumping currency.

The combined impact sent shares tumbling in both Asia and Europe.

Japan's Nikkei index plunged 9.60 per cent, ending below the key 8,000-point level for the first time in more than five years, and Hong Kong fell 8.3 per cent.

European shares had lost up to 10 per cent by midday trade before mounting a late rally.

French shares still fell 8.0 per cent to finish at five-year lows, while Frankfurt's DAX 30 index and London's FTSE 100 were off around five per cent.

"The best word to describe what's going on right now is panic," said Credit Suisse strategist Satoru Ogasawara.

Technology giant Sony, a bellwether of corporate Japan , saw its shares plunge more than 11 per cent after forecasting net profit of 150 billion yen ($A2.31 billion) for the year to March, down 59 per cent on last year.

Air France-KLM suffered a near nine per cent drop in its share price after acknowledging it would be "very difficult" to meet its billion-euro ($A1.93 billion) earnings target.

Europe's biggest airline unveiled a plan to cut costs by up to 1.2 billion euros ($A2.32 billion) over the next five years.

The suffering extended to the automobile industry. with Renault ordering almost all French plants closed for at least one week and shorter shutdowns in Turkey, Russia and Slovenia.

PSA Peugeot-Citroen chairman Christian Strieff said he had ordered "massive" production cuts as the group forecast a 17 per cent fall in car sales in Western Europe in the fourth quarter.

Chrysler LLC , the number three US automobile maker, meanwhile said it would cut up to 5,000 administrative and temporary jobs by the end of the year.

ArcelorMittal, the world's biggest steel producer, shut smelting furnaces on a temporary basis in France, Germany and Belgium, according to union chiefs who met with management.

New figures showed industrial confidence in both France and Italy had fallen to the lowest level since 1993.

There was also grim data on the jobs front, with Spain's unemployment rate jumping to 11.33 per cent - the highest level in more than four years.

Adding to the gloom, OPEC oil ministers decided at emergency talks in Vienna to cut output by 1.5 million barrels per day from November 1.

The cut was designed to increase prices but Brent North Sea crude for December delivery slumped to $US61 per barrel, the lowest point since March 2007.

"There won't be any impact on inflation, there's not going to be any impact on growth," the cartel's president Chakib Khelil told reporters.

"Growth has disappeared already in the US, it's disappeared in Europe."

New figures meanwhile showed Britain's economy shrank by 0.5 per cent in the three months to September, compared with the previous quarter, marking the first contraction since 1992.

The country's economy screeched to a halt in the second quarter with zero growth. However, it must experience two successive quarters of negative economic growth to be classed as in recession.

The Australian market

2008-09-26T20:23:00.002+10:00

For all those who watch the market closely and saw today’s slump snap two days of wild gains on our Aussie stock market, with some bigger stocks reaching a two week high, it is a case of (literally) two steps forward, one step back. This comes as Wall Street falls into the heavy realisation that it really doesn’t matter what [US Treasury Secretary Henry] Paulson and the gang do over the coming weeks to avert financial catastrophe — the recession in the US is going to be deep, and there just ain’t no getting aw ay from it. But just how much that will really hurt us remains to be seen. There’s no doubt our market has been just as battered as the US markets in the past 6 or so months — some say unfairly, given that the fundamentals of our banks and financials remans just as strong as they were during the last bull run.We have to be able to convince investors both domestic and foreign that our market is worth investing in, that we’re on the way up, and that a very strong mining industry coupled with sound financial institutions makes a country — and a market — worthy of investing in.As Americans get more and more scared to invest in US equities — as seen by those unprecedented spikes in gold as investors flock to its safe haven — why don’t they consider the Australian market? Just like there were sales people in Australia selling ‘safe’ Lehman Brothers bonds to local councils — how many Australian spruikers are over in the States letting American investors know that Australia, the world’s sandpit, is a pretty good place to park your dough right now?And is it safe enough to be spruiking such things? Those that called the bottom of our market yesterday weren’t shouted down by screaming pessimists — and they weren’t fools either. If the educated guess is that we’re at the bottom — let’s let a few more people know about it, and get some money back in there. Because with a whole layer of sellers wiped out of the market for the next 29 days, surely, the only way is up. By Joanna Townsend,September 23, 2008

Being successful

2008-09-21T21:28:00.000+10:00

Rather than focusing on strengths too many people focus on their weaknesses and what they are not good at. They feel unworthy of success as a result of this focus and this inturn limits what they can achieve in their life and work.
Their life forms into a 'holding pattern' which is governed by the confines of their perceptions of unnecessary fears of what people may think about them. by staying in these confines their full potential is never reached.
To some degree, we all have some aspect of this in place in our lives but if we focus on our strengths we can achieve so much in our lives. People who are successful accept or ignore their weaknesses and put their energy and focus on their strengths. They know they are worthy of success and are not disappointed by achieving it. The more you value 'you' the more of everything you will attract.©

'Who's next?' The question as billions lost in market chaos

2008-09-18T09:48:00.002+10:00

It is becoming clear that there is more bad news in the Wall Street pipeline despite the US Government's bail-out of giant insurer American International Group.Wall Street was looking grim from the outset overnight but it took a very heavy tumble in the final minutes of trade as the frightening new reality set in that some big dominoes are stacked up, waiting to fall.With three of Wall Street's top five banks gone, the focus is on the remaining two and whether they have come clean with any bad news.So investors have run for the exits.Goldman Sachs and Morgan Stanley fell by record amounts after reporting profits yesterday, the former losing as much as 26 per cent, the latter as much as 44 per cent.If you look at Wall Street itself, around half the gains of the bull market that began in 2002 has been erased.And it is a flight to safety as credit markets freeze up in fear and suspicion.For example, gold - the haven in turbulent times such as war - jumped nearly $US85 overnight. Oil was up $US6.And investors are jumping into the safety of US treasury bills. As a result, yields on three-year notes have fallen to their lowest levels since World War II.Fallout to spreadBut no one should think this is just a problem for the wealthy.The fallout is showing signs of spreading from Wall Street to Main Street, according to financial analyst Jeff Kleintop, speaking on Bloomberg."A lot of what's been going on here has really been a Wall Street problem, but obviously when you start to question the solvency of money markets, that hits the man in the street and so you've started to see some of that, you've started to see money move very much into the safest securities," Mr Kleitop said."The [US Federal Reserve] has been on top of that in recent days but clearly needs to put a lot of money to work very short term in this market to ensure there isn't a seize up among banks as investors really question their money market funds, and where the safest place to put their money is in these turbulent times."For some perspective on the scale of the situation, the ratings agency Standard and Poor's says AIG and a dozen other US companies have collectivity lost the equivalent of Switzerland's stock market value so far this year.Their combined market value tumbled by about $US1 trillion by yesterday, exceeding the $US998 billion value of the Swiss market, which is the tenth biggest in the world.And this is just the beginning of the fallout, with economists saying they've experienced nothing like this.The only comparison is with the Great Depression.US regulators are certain to intervene again to restore calm to protect banks as customers worry about their deposits.

Your photos

2008-09-08T18:11:00.000+10:00

Send in photos of what you would like to on sell.
Let's see what we can do to help you achieve this goal.

My home is my castle

2008-09-08T17:45:00.000+10:00

Owning your own home brings a feeling of security in these difficult and changing times.
At the end of the day it is the place of rest where you can close the door and lock the world out and enjoy the company of your family and friends.
So no matter how humble or how opulent it is your place to 'get away from it all'

Australia's Federal Treasurer's view

2008-09-08T14:51:00.003+10:00

Federal Treasurer Wayne Swan says the Australian economy is strong enough to withstand what he describes as the worst global conditions in 25 years.However, Mr Swan says there is no doubt that the economy is slowing.Speaking ahead of this morning's release of the national account figures for the June quarter, the Treasurer told Lyndal Curtis on ABC Radio's AM program Australia was facing tough global economic circumstances."There's no doubt the economy is slowing and it is slowing on the back of the global credit crunch, it's slowing on the back of the 10 interest rate rises that occurred under the Liberal Party," he said."But the extent of that slowing will only be clear when we see the national accounts today."Mr Swan says Australia cannot escape the effects of the credit crunch but maintains the economy is in a good position."I think it's important to get this into perspective," he said."There is a lot of pessimism around on the back of the global credit crunch and the impact it has had, particularly on global stock markets."But here in Australia we have many advantages over the rest of the world."
Yesterday the Reserve Bank (RBA) cut interest rates by 0.25 per cent to 7 per cent but Mr Swan would not comment on whether there should be another cut in the next few months."What I except responsibility for doing is putting in place a disciplined fiscal policy, an investment for the future that will promote growth in a lower inflationary environment," he said."If we want to get interest rates down over time we've got to get inflation down."

Rules for playing the game

2008-09-08T12:06:00.000+10:00

Our property markets are changing and we are moving into a new era, where the rules for property investment are different to what they have been to date.

The way many investors have invested in the past just won't work any more at least for some years to come and perhaps the old way of investing will never return.
The times are changing and we are in a difficult economic climate and may be heading to a much more difficult situation in the coming year. We need to be alert not alarmed.
It's time to educate oneself,take note of lessons learned in the past and adapt them to a new and evolving situation where all the cards have not been played by the major players. It is not a time to react emotionally but to detach, survey what is going on in the economy and form an opinion that can be put into an option for action.

Stay fluid, attentive, market ready, and put together several action plans that can be put into motion when they are necessary.
Keep the assets you have and protect them.

Why interest rates are going down

2008-09-08T09:59:00.000+10:00

YOU beauty. Interest rates have been cut and happy days are here again. For good measure, we've even got petrol prices coming down.Sorry, don't be too sure about that. The Reserve Bank has cut its official interest rate only because times are getting tougher. That's the way interest rates work: they go up when times are good and come down when times are bad.
To put it another way, a welter of indicators - for retail sales, the home-building industry, business and consumer confidence, levels of debt owed by households and businesses, and job advertisements - suggest the economy has entered a steep dive. Now the Reserve is cutting interest rates in an attempt to pull it out of its dive. Let's hope it succeeds and we suffer nothing worse than a brief and reasonably painless slowdown.
I have to tell you, however, that its record of success at this point in the business cycle isn't reassuring. Of course, those home buyers confident of holding on to their jobs during what economists euphemistically refer to as a "hard landing" have little to fear. For them the pressure is off.And the likelihood of recession in America, Europe and Japan suggests that weaker demand for oil in the developed world will see petrol prices continuing to fall for some time. interest rate movements are like cockroaches - there's always more than one. It's likely that this cut in the official interest rate will be followed by at least another one, probably as soon as next month. How many we get after that, however, depends on whether the economy continues its rapid slowdown next year.On this the Reserve Bank was at pains to point to the parts of the economy that are still strong: the further leap in the prices we are receiving for our exports of coal and iron ore, and the continued growth in business investment in equipment and construction.Provided the economy is holding up overall, the Reserve will be reluctant to cut rates a lot further. That is because the inflation rate is still well above the desired 2-3 per cent range.But if domestic activity continues its dive, the Reserve will soon stop worrying about inflation, confident that rapidly rising prices and weak demand can't coexist. In this case it will continue cutting interest rates next year, but this would be a sign our luck had finally run out. SMH 2/9/08

Just a beginning

2008-08-22T18:34:00.000+10:00

Everyone is looking for a quick fix to their financial
dilemas. What do I need to do to fix my finances?
you say. This is a global issue
affecting the majority of the world's population.
In order to "fix finances" a firm foundation of
everlasting fundamentals need to be in place.

I will give you my take on this very serious issue
facing us all at this point in time as the world
remains in a state of great flux and uncertainty.

Investment opportunities

2008-08-14T08:24:00.002+10:00

While the sharemarket has fallen to its lowest level in about two years - share prices of household names like Harvey Norman, Commonwealth Bank and David Jones are down by more than 30% since November 2007 - there are plenty of investment opportunities out there.Let's put it in perspective. Often when we see prices fall, many of us race in to catch a bargain. When it comes to shares we tend to react differently. If the share prices of well-managed, dividend-paying companies fall, we view them with suspicion and fear, when perhaps we should see them as opportunities.Sometimes share prices do fall for a good reason. It's true that when recessions occur, company earnings will decline and some companies will make losses. Does that mean all companies will make losses? And are we about to enter the sort of recession we saw in the early 1980s and again in the early 1990s? We think not.Growth in the Australian economy over the next two or three years may not be as robust as it's been for the past ten years but we believe it will grow. That's because our population is growing, the world needs the products we sell and Australian companies are reinvesting much of their profits back into their businesses.
The populations of our capital cities are unlikely to shrink over the next five years, so the companies that have been profitably supplying their needs for the past fifty years should continue to do so. There's also been a lot of growth in Asia - so they will be buying our resources and adding to economic growth.Let's look back at what happened after the 1987 crash. From the end of 1987 to the end of 1989 the share prices of all the major banks rose by more than 50% - as did BHP, Rio Tinto, Harvey Norman, Coca-Cola, Caltex, Wesfarmers and QBE Insurance. These were household names providing services at a profit. This is what many businesses are doing now and will continue to do in 2009.While it's easy to be gripped with fear, it's important to look at history and at what makes the market tick. Some share prices have fallen for good reasons; others have just fallen when investors became fearful and sold everything. This is when bargains emerge and investment experts work hard to take advantage of them.

Part 2

2008-07-17T09:38:00.001+10:00

Until recently, both these nations were low-cost exporters, providing cheap manufactures to the West. In reality, their main export was low inflation as our clothing and electronic goods became ever cheaper.Now they are becoming self-sufficient economies - similar to the US. Their own economies are fuelling their growth and they are becoming less reliant on exports.Tom Albanese, the head of the mining giant Rio Tinto, doesn't exactly see eye to eye with BHP Billiton's chief executive Marius Kloppers on much.But the one thing they do agree on is China. Both see continued strong economic growth for years, and even stronger growth in the appetite for metals.Metals are one thing. The real change being wrought on us is in energy. And it is energy - or rather the cost of energy - that will determine our future.It was energy that started the Industrial Revolution 200 years ago - when we first started burning hydrocarbons in the form of coal. And it was energy, in the form of oil, that sparked the transport revolution a century ago.
You'd have to be blind not to notice what is going on now. It's all over the news, it hits you in the hip pocket every time you pull in at the petrol pump.Pfff, we've had oil price spikes before, I hear you say. But the oil price shocks of the 1970s were caused by an artificial restriction of supply. This time around, the spike is being driven by demand. And if you ask any seasoned oil explorer, even they now talk about peak oil being just a few years off.Peak oil is the point where we are on the downhill run in known supplies. There is still oil out there. But it is in ever deeper water, in more politically unstable areas or in tar sands where the cost of extraction has been so high it has been uneconomic. Some of it will be developed, which will stabilise prices and perhaps even push prices temporarily lower. But supplies are finite and demand is soaring.Think about our energy use in the West. Take an average Australian of a century ago and compare him or her with us in terms of our energy consumption. We've got electricity on tap, 24 hours a day. We ride around in fast fuel-guzzling cars. We leave home and land in Los Angeles in 16 hours.Until recently, several billion Chinese lived as we did a century ago. Imagine their energy demands rising to our levels and you'll quickly figure oil prices aren't going to return to the levels of a year ago.Add to that the damage we are doing to the environment in the form of greenhouse gas emissions and the extra costs of pricing that damage through carbon trading.So is this the ultimate disaster scenario?Not necessarily, according to a recent issue of The Economist. Higher oil prices make alternative energy sources more viable - biofuels, solar and wind power. And if money and expertise are invested in those areas, they will become more efficient, more economic and maybe, just maybe, lead to a bright future. But prepare for a lot of pain along the way. John Edwards

Part 1 2008 a critical year for Australia

2008-07-15T12:16:00.003+10:00

The stormclouds are gathering. Our market has plunged below 5000 for the first time in two years, oil prices are soaring, America is in (unofficial) recession and the Reserve Bank is clearly worried about the home front.After years of partying, many believe it's time for the inevitable hangover when gloom and doom replace the exuberant optimism that just a few months ago seemed as though it would never end.But how much of this is just another cyclical downturn and how much of it is related to a more permanent shift?I'm going to go out on a limb here with a couple of bold predictions. I think we are at a pivotal point in history; that we are witnessing the early stages of a massive shift in the global economy, in the balance of power and in the way we live.Australia has become a barometer for these far-reaching changes. We are being pulled in opposite directions as we send vast quantities of resources off to China while a virus that started on Wall Street and spread across the US and Europe has infected our financial system.In years to come, it's quite probable we will look back at 2008 as the year in which everything changed. And most of the changes being wrought upon us relate to energy, our use of it and its cost.There are several powerful forces at work at the moment; some cyclical and some far more fundamental.Let's look at the cyclical ones first. The worst credit squeeze in history is under way. Give it follows the biggest debt binge the world has ever seen, it's not surprising. On top of that we have a recession under way in the US. On their own, those events are not particularly worrying. Markets and economies go up. And then they go down. What is worrying, however, is that in the early stages of a recession, Wall Street's biggest financial institutions already have been forced to go cap in hand to the Middle East and Asia for emergency funding.And that's where we come to the more fundamental and permanent changes at work on the global economy.What is happening in China and, to a lesser extent, India is akin to what occurred in North America in the 19th century. Back then, the balance of economic power shifted from the Old World to the New World. It's happening again now.There are differences - vast differences - in this new shift. Unlike the rise of North America, China and India already have vast populations. And as these populations move rapidly from Third World to First World, they will demand more resources, to live the lifestyle we enjoy. TBC

story by Ian Verrender from the business section of the Age "The Year everything changed"

Not good news with property values falling across Australia

2008-07-14T15:36:00.003+10:00

Plummeting property values have prompted warnings Australia is heading for a one in a 100 year slump. New figures from property analyst Residex showed house and unit prices in nearly every city and rural centre fell in June, News Ltd reports. The last time all states fell at the same time was just before the Great Depression. The slump is affecting the top end of the market as well as the lower end.Residex chief executive John Edwards has warned of tough times ahead.
"It looks like we're moving into a one-in-100-year event," Mr Edwards is quoted as saying.
"It points to a situation where unless the government and Reserve Bank take action Australia could move into a recession."The only other times this has ever occurred are before we have moved into severe recessions."The Residex statistics come at the end of a gloomy week for the Australian economy.Official figures released last week showed housing construction fell for a fourth consecutive month and demand for loans declined by a quarter in the four months to the end of May.Higher petrol prices and interest rates, and the share market slump also saw consumer confidence drop 51 per cent to its lowest level since 1992, when the economy was recovering from recession. Mr Edwards said housing markets in different states usually rose and fell at different times.
"To see an adjustment going on a wholesale basis across the whole of the nation is incredibly unusual," he said."Never in my lifetime have I seen so many converging negative events." Residex reports the current median house value in Sydney is $573,000, down 1.05 per cent in June compared with 1.81 per cent for the three months to the end of June.The falls are happening all over Sydney. While property values in Sydney's battler suburbs in the west and southwest have been dropping for some time, homeowners in well-off areas are now being hit.Among the 20 worst-performing suburbs for houses are the wealthy northern enclaves of Whale Beach, Clontarf, Palm Beach, Elanora Heights, Clareville and Mona Vale.
While Plumpton, near Mount Druitt, was the worst-performing suburb, with negative capital growth of 5.74 per cent in the three months to June and 1.96 per cent in June, Whale Beach came in as the third-worst performer, with negative growth of 3.73 per cent and 1.14 per cent, respectively.Maria Cassarino, from Richardson and Wrench Seaforth, which covers the Clontarf area, reported fewer people had attended open houses in recent months."This time last year we were getting 30 people though a property and now we are getting five," she said.While Seaforth usually had low turnover, Ms Cassarino said the types of properties that had sold after four to six weeks were taking much longer.John Gavagna, principal of Residential Real Estate at Mona Vale, said there had been a slowdown in sales of properties over $1 million, as buyers were more cautious.RP Data's director of property research Tim Lawless said what happened in the coming months would depend on inflation.He showed some optimism, although he said values would probably fall further in Sydney this year."Coming into 2009, it's likely - and it depends on what happens with interest rates - we will start to see some value improvements return to the market, albeit relatively small," he said.It's the same story for units, with Casula the worst-performing suburb with negative growth of 1.8 per cent in the three months to June, and 0.55 per cent in June.Suburbs such as Milsons Point, Double Bay and Greenwich are also among the poor performers.And Sydney rents rose 15.29 per cent in the year to June, the biggest jump in the country. The average Sydney rent is $490 a week, a jump of $65 from last year. Article from Ninemsn