Are you qualified to write about Superannuation to individual investors? Do you have at least five years of experience in the Super industry? Are you curious by nature? Do you want a job with our growing financial publishing business here in Australia?
We ask those questions before launching into today’s Markets and Money for a specific reason. We’d like nothing better than to discuss – in detail – the benefits and drawbacks of the Cooper Review of superannuation. But we can’t!
That is, the terms of our current Australian Financial Services License do not permit us to comment, report, or repeat the comments of others on financial subjects for which we are not licensed. The Corporations Act is so broadly defined that virtually anything you publish – even just publishing the opinions of a third party – can be considered financial advice. And if you’re not licensed to publish that advice…uh oh!
But naturally it would be silly of us to NOT cover super. But in order to do so, we must add a capable member to our research team who has worked in the industry and has the relevant qualifications to write about Super matters. If that’s you, and if you believe that fiat money is a giant fraud and that the only way responsibly prepare for your retirement is to actively question ALL conventional wisdom, then we may have a job for you. Serious inquires only to firstname.lastname@example.org
Now, back to the business of business. And yesterday on Wall Street, business was good! The Dow rallied by nearly three percent and so did the S&P 500. For one day at least, investors decided to price stocks for a recovery instead of a recession. The very positive retail sales figures helped.
About those figures. The International Council of Shopping Centres (there is such a group) reported that sales at big-box U.S. retailers are growing at the fastest pace in four years. And just like that, the theme that emerges is that the U.S. consumer is healthy, happy, and spending again. Who needs China? America is back baby!
Or maybe not. The big picture, we believe, is that after a generation of going into debt to support asset price purchases and high consumption levels, U.S. households are deleveraging and beginning to live within their means. You could argue U.S. spending is supported by people who are not paying their mortgage. That can’t last.
More importantly, what kind of brain-dead moron thinks the way to future prosperity lies in spending more money?
And speaking of spending borrowed money, shall we talk about refinancing it? “Australia’s big banks will need to borrow more than $130 billion over the next year to repay existing debts and fund growth in mortgages, forcing them onto shaky international financing markets where costs are ballooning,” reports George Lionidis in the Australian Financial Review.
According to JPMorgan, $90 billion of that borrowing will simply be to refinance existing debt that matures next year. The rest is for new mortgage lending. JPMorgan reckons the Big Four will need to borrow $142 billion in the next financial year and then $116 billion the year after.
Of course maybe by the time it’s time to refinance these debts the anxiety in European credit markets will have gone away and funding costs will go down. But if not, Australian banks will have to raise more deposits locally to fund mortgage lending. And generally, to attract deposits, you have to raise interest rates, which means you probably have to raise mortgage rates too.
According to the figures, Commonwealth Bank increased its mortgage lending by $80 billion in the last two years. Westpac followed in a close second by expanding its loan book by $67 billion. CBA grew deposits by $30 billion in the same time, presumably borrowing the difference – $50 billion – to expand the loan book. Westpac grew deposits by $27 billion, borrowing the other $40 billion.
A billion here…$40 billion there….
“Standard Chartered has told clients to prepare for a fall in property prices of up to 30pc in Beijing, Shanghai, Shenzen, and other large cities in China as the delayed effects of monetary tightening begin to bite. Stephen Green, the bank’s China economist, said a glut of newly built homes were hitting the market just as buyers are restrained by higher down-payments and curbs on speculation.”
Global credit bubble equals misallocated capital and elevated asset prices. Central banks act to support by slashing interest rates. Levitation achieved. Gravity asserts itself. Asset prices fall.
This is the world for which we’re preparing an investment strategy. Mostly it’s defensive. But not always. More on that tomorrow.
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