–Well ANZ’s Phil Chronican is not going to win any friends at the country club if he keeps saying things like this. Chronican says there isn’t a house price bubble in Australia because there wasn’t the huge over-building of new supply here like there was in America. The lack of inventory overhang, he reckons, will prevent prices from crashing. But he’s not exactly bullish on house prices either.
–“There is no doubt,” he writes, “the capital gains made by most people in the property market over the past 15 to 20 years has created an unsustainable perception of housing as an attractive investment vehicle…Remember, the primary purpose of a house is as a place to live, not a speculative investment vehicle.”
–Ye gads. That is downright sensible.
–Chronican also had the audacity to suggest some of the Australians who were lured into the housing market over the last two years with the first-home buyer’s grant are in danger of getting behind on their mortgage. He said mortgage arrears are, “a problem that is going to stay with us for a while. I don’t know if it will get worse or not…It is a concerning trend … yes, you want to watch it, but it is not a disaster.”
–Hopefully it won’t be. But if it is, it’s largely self-inflicted, or government inflicted. Australia did not have a huge “sub-prime” class of loans that led to house price gains but put marginal buyers at risk. So the Rudd government went ahead and created that class with the first-home buyer’s grant. And now those folks are in trouble.
–By the way, our own in-house house-price uber bear, Kris Sayce, is on his way up to Sydney this week to clash swords with the property bulls. The massive steel cage match event features eight speakers, each of whom will make their case, followed by questions from the crowd. It begins at noon tomorrow at the Wesley Centre on Pitt Street. Tickets are $50. Go here for details on how to register.
–It looks like the share market will open up this week doing more of what it did last week: going down. Wall Street had another bad Friday. The Dow Jones Industrials have closed lower for five straight weeks. That’s the longest losing streak on the Dow since 2004—the early days of Alan Greenspan’s great reflation.
–You’d expect the Australian market to have “de-coupled” from the performance of the Dow and the S&P 500. After all, the earnings of Australia’s biggest companies are determined by Chinese demand for things like iron ore and coal, or the ability of Aussie banks to grow their loan books in commercial and residential property. Yet take a look at the chart below and you’ll see that since markets became even more casino-like in early March of 2009, the Aussie market has tracked the U.S. market step by step.
Dow and All Ords Bounce 50% from GFC Lows
–The chart shows the weekly closes of both the Dow and the All Ords. The weekly close smooths out a bit of the day-to-day volatility in the price action and gives you a picture of the trend. By the way, this chart doesn’t take into account currency movements. That’s important.
–Foreign investors, especially Aussies, would have much smaller returns in U.S. stocks once they converted their money back into local currency. The decline of the U.S. dollar may make U.S. equities cheaper and more attractive. But it can also ruin your return. Conversely—and this is one of the arguments behind a recent recommendation we made in AWG—a weaker Aussie dollar means you might get a nice bounce in your U.S.-listed investments.
–What else is interesting on the chart? Well, both the All Ordinaries (the green line) and the Dow (the black line) have gone up by about 50% since March 9th of 2009. That’s a big bounce. What’s notable is that the All Ords—mostly because of rebounding commodity prices—recovered a lot more quickly. You can see that by April of 2010, the Aussie index was easily outperforming the Dow.
–The Dow has only recently hit the 50% up mark from the March lows of 2009. And as you can see, the All Ords have consistently bounced at the 50% level. Murray Dawes at Slipstream Trader has identified this level—about 4,700 on the All Ords—as the “point of control” for the price action. If you’re not sure what all that means, you should check out Murray’s explanation of what’s going on in this video presentation.
–Murray ducked his head into the office this morning, incidentally, to point out how strange Friday’s action was. The euro rallied. But both the U.S. dollar and U.S. stocks fell. This is an unusual departure from what’s been going on the last 18 months are so. The dollar has habitually rallied a bit when fears about “growth” dent emerging markets and commodities. Is that changing now? Hmmm. Stay tuned.
Markets and Money Australia