Australian economy having a tough time

As said by Hugh Young of Aberdeen Asset Management in a recent interview.  Link here

Steve Keen takes on the banks

A lot of people are debating Australia's property markets and whether they are in a bubble.  None more entertaining than that between banking mogul John Symond of Aussie Home Loans and controversial economist Steve Keen.  The amusing video is here.

It is worth taking note of Keen's work - ahead of the curve throughout and before the crisis Keen has consistently pointed to the flaws leading up to the crisis and in the response and rightly identified the largesse which would be consumed by the banks and withheld from the functioning economy post 2008.  As noted in this article he has called the bubble in property and predicted  likely crash - as well as calling for unconventional measures which could actually have an impact like a debt jubilee (something being tried by the Occupy movement in America currently).  

Keen gets a mention in this article about a foreign central banker debating Australia's bubble (here). Stay tuned! 

Ozzie Banks to get Cyprussed!!

That's push back on deposit guarantees from the prudential regulator and more...!

Huge news for the Australian banking industry today from Standard & Poor’s, which is rethinking its approach to the implied government guarantee that gives major banks and Macquarie a ratings advantage over smaller players in the Australian financial landscape.

At present, Standard & Poor’s essentially assumes that the majors and Macquarie are too big to fail. As a consequence, the agency assumes “extraordinary government support” for those organisations, and boosts their ratings by 1 notch.

But APRA is considering a new approach to crisis management that would force creditors of troubled banks to write off some of the debt they are owed, allowing banks to avoid bankruptcy without taxpayers having to step in.Standard & Poor’s has not made a final decision on the ratings impact yet but its report, released this week, suggests that it is seriously considering a change.

This has huge implications for the Australian economy, the cost of borrowing in the economy, the attractiveness of Australian assets and the level of the Australian dollar if Standard & Poor’s decides to take the path of downgrades. (here)

Some more links on overpriced banking and housing sectors...

...Two markets are at risk of significant overvaluation – Australia’s $4 trillion housing sector and the $405 billion big banks that furnish most of the funding we use to buy homes... (here).

...Bubble-like conditions in the nation’s most populous city have pushed average Sydney house prices to arecord A$718,122 ($666,858) compared to $806,000 in New York City and $536,237 in London, according to data compiled by Bloomberg News.

One in five Sydney suburbs now boast a median home price above A$1 million, up 31 percent from a year earlier, according to APM data.

While the United States and United Kingdom saw their housing markets sold off during the global financial crisis, Australian home prices have not fallen by more than 10 percent in any single year from more than 40 years... (here).

Lunacy

Notwithstanding the amount of money Australians have invested in the big 4 banks and their smaller cousins this appeal for more funds is just plain scary!

'I can't help thinking that the investment mantra of 'diversification' has cost me money and I would have been a lot better off being just a little bit naughty by ignoring it and holding more banks" (here). 

That's choosing to allocate more to an overvalued asset with bad risk and reward profiles...Watch out Australia!!