Tonight at 8:30 on ABC1 you can watch a program called “Debtland.” We haven’t seen it ourselves. But the blurb on the ABC website puts it this way, “Mortgages doled out to people on disability support pensions; loans to refugees with no English and no jobs that leave their families with next to nothing to live on; home loans so large they push borrowers below the poverty line…This isn’t America’s sub-prime meltdown – it’s Australia’s debt debacle, the legacy of a credit binge that’s sent household debt through the roof and lending standards through the floor. Now the hangover is kicking in.”
“As many as 300,000 Australian households may be at risk of losing their homes. It mightn’t take much – another rate rise or two, a family illness or maybe just the car breaking down – to send people under. And for thousands more who are better off but feeling the pressure, this credit crisis is getting too close to home.”
Say what you will about the quality of personal balance sheets in Australia. But it is much easier to sleep at night when your liabilities do not grossly exceed your assets. Consumer credit is one way for people to lever up their standard of living beyond what an ordinary income can provide. This kind of levering up-using credit to meet expenses-has been going all over the Western World as wages deflate and prices rise.
What’s going on in the sliver market? “Weird things,” according to Gabriel.
Silver’s price is up more than 20% year-to-date but is down 10% over the last month. Last week, it rallied again strongly before closing lower due to consolidation generated by profit taking (see chart below). Lots of choppy price action…
“It seems that several silver dealers in Canada, in the US and even in Australia are out of inventories. A US specialist of precious metals, Jason Hommel, reveals that some of these dealers are “big names in the business, Scotia bank, the Perth Mint in Australia, CNI Numismatics in LA, APMEX say they have some items, but are looking to buy.”
“The price has dropped of nearly $4 an ounce while there is a stock shortage in the coin shops. This sounds really weird. There are two possibilities to consider.
“The first one is to consider that there is an obvious paper short selling manipulation on the futures exchange. Silver futures are traded on the Comex, which merged with Nymex in 1994. It’s a futures exchange where there are almost no physical settlements, and where the stocks are therefore very low. It’s a financial market where physical silver demand from industry is difficult to satisfy, which can lead to a potential crunch.
“The second possibility is that dealers may be aware of such an illogical price action and expect the price to move up again in the near future. They hold before selling back to customers. Therefore the crunch does not exist. Anyway, as the fundamentals of the industry still remain the same, in both cases silver price should jump towards its recent high levels.
“Technically, as long as the main support line holds, the medium-term momentum will remain bullish. After the strong fall in March, the Stochastics and RSI indicators have turned bullish for the short-term perspective.”
If there’s something about silver you think we should know, send us an email to email@example.com
What’s this? Housing prices are headed up? Do tell…
“House prices throughout Australia are predicted to rise by up to 40 per cent over the next five years,” reports the ABC, quoting a report from BIS Shrapnel. “Economic forecaster BIS Shrapnel says the housing affordability crisis will only get worse as demand for housing continues to outstrip supply. BIS Shrapnel property analyst Angie Zigomanis says the outlook for the housing market is dire.”
Right. People have to live somewhere, especially all those people currently living in the streets…
The idea that there isn’t enough physical housing stock for Australia’s population is patently absurd, as is the idea that prices HAVE to go up as demand exceeds supply. There’s plenty of physical supply. It’s just not affordable given median housing prices in Australia and median incomes. But here’s what BIS reckons…
“Our forecast is for anywhere between 25 and 40 per cent across most of the capital cities. The environment will still stay tough for the next 12 to 18 months because of rising interest rates. But as the interest rate situation stabilises we expect a lot of those pent-up demand pressures to be released onto the market in terms of rising price growth.”
That’s right, as soon as interest rates go down, people will resume making stupid financial decisions. Let’s be clear. Needing a place to live doesn’t mean you are willing, or can, pay ten times your income. The BIS analysis, from what we can gather, confuses interest-rate sensitive buying decisions with a more a fundamental measure of affordability: incomes.
It doesn’t make any financial sense for a buyer to take out a loan at ten times his income to buy a house. So what if interest rates fall and the mortgage debt is serviceable? The size of the monthly mortgage payment is one factor. The total size of the mortgage is a much larger factor.
The only possible reason you’d buy a house more than ten times your current income is if you believed you could turn around and sell it for more than you bought it. This is exactly the kind of financial speculation (houses as investments rather than dwellings) that’s led to the affordability crisis to begin with.
Markets and Money