A Debate With Rory Robertson

Well it didn’t have any conviction, but Friday’s 46 point loss on the Dow was the 7th consecutive losing session and brought America’s share idol to a 9-month low. The Dow is trading below the “psychologically important” 10,000 level. And investors in the US are resigned to the fact that the labour market’s problems may be far worse than they expected and take a lot longer to recover.

Not to be Danny Downer, but we reckon that the Western World is just waking up to the fact that globalisation has wrought structural changes to labour markets. Many skilled manufacturing jobs (and unskilled too) have migrated to markets with lower labour costs (and easier labour laws…and no labour unions). Those high-paying jobs probably aren’t coming back. And to the extent they’ve been replaced at all, they’ve been replaced by lower-wage salaries in the service economy.

The Australian market was virtually unchanged Friday, although the Sydney Futures are down this morning. Incidentally, we’re working from Sydney for most of this week. We’ve come up to prepare for our debate tonight with Macquarie Bank interest rate specialist Rory Robertson. Tickets to the event – dinner, drinks, debate – are limited but may still be available. Send emails to thoughtbroker@gmail.com

And speaking of Macquarie Group, how different it is to be a financial institution in Sydney than a miner in Melbourne or Perth. This article in today’s Age revealed an October 7th, 2008 dinner between Macquarie executives and then-financial services minister Senator Nick Sherry at Macquarie’s Martin Place redoubt here in Sydney.

Five days later a federally backed deposit guarantee was in place along with a valuable wholesale funding guarantee that made it possible for Macquarie and other Aussie banks to “rent” the government’s triple AAA credit rating.

According to the article, “Under the wholesale funding guarantee, Macquarie was able to use the taxpayers’ AAA-rated backing to access money on credit markets at a cheaper rate than it otherwise could before lending it at a higher rate to make a profit on the spread. The bank paid $200million to use the rating. Its corporate and asset finance division tripled its profit last year, in part by using the cheap funding to buy loan books at a discount. The risk to the taxpayer AAA rating remains until all the loans are repaid in full.”

Nice work if you can get it, huh? What was that about socialising losses and privatising profits again? The article points out that shortly after the collapse of Lehman Brothers in New York, ASIC banned short-selling on Australian financial firms. That stopped the bleeding.

Our point? Well of course a responsible government would do what it thought necessary to prevent a collapse in a major financial firm. That’s the way things work these days. But aren’t we constantly assured that no such crisis is possible with Australia’s well-regulated and well-capitalised banks?

Yes we are!

Of course it’s possible extraordinary actions are only required in extraordinary situations. But it’s also possible that the events in October of 2008 were the beginning of a giant transfer of risk in the Australian financial system from the private sector to the public sector. It’s this same transfer of risk that’s put so much pressure on sovereign credit ratings in Europe.

In fact, one of the current proposals in front of APRA is for a Financial Claims Scheme which makes permanent the guarantee on all Australian bank deposits. It’s a government guarantee. So as far as we can figure, the government, in principle, is putting itself on the hook to guarantee all Australian bank deposits should an Aussie bank, in some unlikely circumstance, go under.

Not possible? It is possible. Unlikely? Maybe.

But if you accept the premise that the last thirty years have seen fiat money credit bubbles leak their way into all sorts of markets, and one by one that those markets have topped out and fallen as the supply of cheap money fell away…and if you look at the huge levels in household debt growth in Australia (primarily mortgage debt) and see just how exposed the banking sector is to a) wholesale borrowing costs from overseas and b) residential housing… well then?

You get Aussie banks chock full of assets bought with borrowed money. Safe as houses? Hmm. More on that tomorrow.

Dan Denning
for Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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15 Comments on "A Debate With Rory Robertson"

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With Macquarie the wholesale funding could be used any which way and that included the punting on its own book. Don’t know why Ken Henry didn’t just show up at Randwick and Flemington and hand over the stakes directly. Better than the overbid and overpaid 3rd world infrastructure that MAC and their funded mates got into.


Incredible they’re trying to tax one of the few industries making money, because they’re making “super profits”, then on the other hand putting public money at risk propping up private enterprise to help PROTECT THEIR “super profits”.

All about having friends in high places it seems.

Slimy bastards they all are, really.


I know this is slightly off-topic but has anyone been affected by the Sonray debacle? Was anyone here referred to Sonray by the publishers of Australian Wealth Gameplan? Strange how nothing has been mentioned on this forum, but there must be other people who invested with Sonray, in the belief that they were a normal broker, just like any other. We have been devastated with our loss in this scam.

Tony Hansen

While your politeness is commendable – I doubt that they deserve to be rated as highly as you have said.

Richo (the Second)

Good point OMG – I wasn’t a Sonray customer however I do have CFD accounts with other providers and the Sonray article gave me a wake-up call – has definitely changed my account management practices – if I make a small profit I immediately withdraw it to my (hopefully) safe big 4 bank account rather than accumulating a balance in the CFD account.


Same here. I clear my CFD profits weekly except on weeks where I dont make a profit. I dont trust anyone :( I like CFDs because you can get lots of leverage therefore working capital requirements are low.
Sonray incident confirms it for me.

Dennis Letch
I am a client of the sonray group and had the only remaining investment money tied to this group. I have been trading in stocks and CFD products since 1996. I have spent considerable time and money educating myself on these products. I am well aware of the risks involved when trading products like these and use proper risk management techniques to manage the products. The risk of losing your own cash not associated with trading by having it pooled into company accounts never crossed my mind, it was a risk that i felt would be eliminated by the reglarity… Read more »
I like CFDs because you can get lots of leverage therefore working capital requirements are low. Sonray incident confirms it for me. Hang on … Are you saying CFD’s have managed to morph into a perfect risk free trading device? Working capital requirements are low ! Sorry Lachlan, but a loss is a loss. You are risking as much as you have the potential to profit. No scheme or device can avoid this. So as a consequence your working capital requirement is as big as your loss. If you seek big profits, then you must accept the risk of big… Read more »

We didn’t have CFDs – we just had normal shares, thinking of course that they were ours. With the collapse of Sonray, it didn’t matter whether you were investing in CFDs, options, shares or whatever, none of it was bought in the name of the investors. Isn’t there anyone out there who is in the same position as us – advised in the little booklet when subscribing to AWG to use Sonray as a broker?

Biker Pete
It’s difficult to prove negligence in these cases, OMG. Not saying you shouldn’t try, but we know of a similar class action which is experiencing difficulty. The classic here was our FA encouraging us to move all our Super into an agroforestry (plantation timber) scheme. We investigated it fully and then immediately sacked him. Initial and trailing commissions were ludicrous. Like many tax-avoidance schemes this one collapsed, taking out immense sums of people’s savings ($1.2 billion, I seem to recall). After a second FA told us he wanted $10K+ per year to manage our money, we decided no-one cared about… Read more »
Hi Joe. I keep precious metals Joe. Its a risk management strategy amongst other things buts that argument is too big a kettle of fish. Suffice to say that if I love various markets which I do and want to be involved without selling the hard stuff out…then leverage works to get me there…hence CFDs. The risk management plan and market timing is a given for that scenario. I have made a lot of trades over the last year and I made a profit but it was a lot of work for what I got. Either Í’ll make a better… Read more »

Australia still faces a Tripple Wammy that will result in the economy ending up in the gutter.

1. Property Bubble.
2. China Crash
3. Socialist Governments

Ned S

Nothing much can be done about the socialists – Pick your flavour is about it – ALP or Coalition.

China crash – Grantham doesn’t seem too worried about same:


Oz property and economy generally – As above perhaps?

Bargeass, I would have agreed with you 6 months ago but it maybe another Japan in the making where the rich are protected through the crisis and prices level off for the next 10-15 years. The government has realized the housing market is now so vital for the economy it has actually almost become the economy. If the non tangible wealth of “equity” is eroded then cars, lounges, tv’s and other non essentials won’t be purchased and the economy stops. As you all know most, if not all homeowners in this country have either redrawn off the mortgage to buy… Read more »

I for one am a mega-bear. We need quality commentary not shills (Rory?)telling us everything will be fine, or maybe they are just really lost. Either way, the truth is that private debt levels are too high, that is the only chart you need, and there is no mystery or argument about it what-so-ever.

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