It’s pretty bad out there. Before he left to have his Visa renewed in New Zealand, our technical analyst Gabriel Andre told us to watch 5,050 on the All Ordinaries. We’re watching. The All Ords opened up and promptly fell two percent to 5,105. It’s a new 52-week low.
What about that data yesterday on the housing market and retail sales? Retail sales rose by 0.7% in May. Apparently that was stronger than analysts expected. Should it surprise anyone? People are good at spending money these days. We live in a spend at all costs society. Saving, not so much.
New building approvals fell 6.5% in May. There are two ways to read this (more probably, but two that we can think of). The first is that tight credit conditions are choking off demand. Investors and builders aren’t interested in borrowing to build, especially if potential buyers are less likely to take loans out at higher rates.
The other way to read it is that builders don’t see demand for housing so they’re not building houses. Yes, yes. That must sound like utter nonsense if you believe there’s a genuine housing crisis. But is there a crisis in Australia’s stock of available housing? Or is it an affordability crisis? There’s a huge difference.
Why are price signals not working in the Australian housing market? High prices tend to attract production. New production-more new houses- brings prices down. It’s all text book stuff.
Price signals can be distorted by bad public policy or bad monetary policy. Are Aussie builders stymied from building new houses by rising input costs and a minefield of regulations? Is it just too expensive to borrow money right now? Or do the builders realise there are already plenty of houses? There just aren’t any inexpensive ones in places people really want to live.
Oil traded up again on the NYMEX overnight. August light sweet crude traded at US$144.15 in after-hours trading. The U.S. Energy Information Administration said U.S. crude oil inventories fell by 2 million barrels. Everyone else expected them to rise. It was a disappointing result.
Here’s the thing. High oil prices are going to cause even more economic pain. If investors think they can flock to oil and ride its rise as the global economy goes to hell, they should remember that if the global economy goes to hell, the oil price is going to fall.
Right now it’s just the stock market that’s falling to pieces. This is the markets way of telling us that the second half of 2008 is going to be bad for corporate earnings. High petrol prices, tight credit, more expensive imports…gloom, gloom, and more gloom. We’re sticking with our call that oil is topping.
Markets and Money