Sanity prevailing?

  • End the Fed
  • R-Day
  • Allegedly

Is a sense of sanity finally emerging in the property and banking sectors?

The Age reports:

Commonwealth Bank-owned Bankwest is further tightening the screws on property investors, no longer taking into account negative gearing tax breaks in new loan applications.

After a recent surge in property investor lending at CBA, Bankwest told mortgage brokers that from Monday, the calculators it used to assess customers for loans would not include the tax benefit investors receive if their property is loss-making.

We think we can hear the faint sound of the air coming out of the Australian property market.

This news from Bankwest comes hot on the heels of a decision by parent company Commonwealth Bank of Australia [ASX:CBA] to refuse applications for certain new property investment loans. This from The Australian:

Commonwealth Bank of Australia will be turning away property investor customers of rival banks wanting to refinance their loan, in an ominous development likely to send shivers through the rest of the major lenders as scrutiny over rampant investor lending reignites.

Is it possible that things aren’t as rosy at the Commonwealth Bank as the mainstream would have you think? It’s also hard to believe that, after a 30-year housing boom, putting a pause now on new investment loans will fix things.

But we’ll see. CBA is due to release its half-year results on Wednesday. Could that give us some clues? Perhaps an update on bad loans and arrears? This could be the beginning of the long-awaited housing market crash…


Over the weekend, the Dow Jones Industrial Average closed up 96.97 points, or 0.48%.

The S&P 500 gained 8.23 points, for a 0.36% gain.

In Europe, the Euro Stoxx 50 index fell 6.96 points, for a 0.21% drop. Meanwhile, the FTSE 100 gained 0.4%, while Germany’s DAX index added 0.21%.

In Asian markets, Japan’s Nikkei 225 index is up 86.15 points, or 0.44%. China’s CSI 300 is up 0.72%.

In Australia, the S&P/ASX 200 is up 40.09 points, or 0.7%.

On the commodities market, West Texas Intermediate crude oil is US$53.79 per barrel. Brent crude is US$56.64 per barrel.

Gold is trading for US$1,229.57 (AU$1,603.25) per troy ounce. Silver is US$17.93 (AU$23.38) per troy ounce.

The Aussie dollar is worth 76.68 US cents.

End the Fed

Your editor is in Florida this week on business, via a short stopover in Dallas, Texas.

If we come across anything of interest while we’re here, we’ll be sure to let you know. Although, truthfully, when it comes to major events, in our view, all the important stuff is happening in Australia.

You likely know why, but, if not, we’ll remind you shortly. Until then, you may enjoy this photo of the Federal Reserve Bank of Dallas building.

chart image

Source: Port Phillip Insider

It’s of no significance. We just like to ‘boo’ whenever we pass a central bank building. Quietly, of course. In our head. It’s not cowardice, it’s just our chosen method of protest.


We’re approaching ‘D-Day’ for the Aussie economy. Or should that be ‘R-Day’. That is, 28 February. The day when the Australian Bureau of Statistics (ABS) reveals whether the Aussie economy went into recession during the last quarter.

The press tells us not to worry about a recession. They say that everything is fine. In fact, the Weekend Australian Financial Review headlined with ‘Don’t Worry, Be Happy’.

What more can we say? The subhead reads, ‘Eight years after the global financial crisis smashed the global economy the signs are beginning to turn’.

The Weekend AFR report continues:

“We’re seeing better economic conditions globally, so much so that for the first time since 2012, we’ve actually revised our global growth forecasts higher”, says Paul Bloxham, HSBC Australia chief economist.

The improved outlook, he says, partly reflects the stronger-than-expected pick-up in European economic activity. But it also reflects an expectation that US President Donald Trump’s economic plans – which include tax cuts, increased infrastructure spending and cuts in regulation – will boost US growth in 2017 and 2018.

We guess the global economy could be turning. We guess the Aussie economy could be turning.

But what if the so-called strong economy is all on the surface? What if, underneath, the economy is stagnating, and is in the worst shape it has been in for years?

For all the grief we give the mainstream media about viewing the Aussie economy through rose-tinted glasses, we should give credit to ABC News:

Australia has ridden 25 years of economic growth without a recession. An amazing stretch of prosperity and a badge of honour that governments of all persuasions have tried to claim as their own.

Much has been written about the importance of the 1980s economic reforms in setting Australia up for this quarter century of expansion. A mining boom of historical proportions was also a massive help.

But often underappreciated is the role that migration has played. A huge increase in migration has fuelled headline GDP growth, keeping Australia technically out of recession. But, it’s also masked a dirty secret, individuals haven’t felt the benefit of this record run.

In fact, since the GFC, Australia has seen per capita income go backwards and it’s only recently recovered…

But more people does not mean that the living standards of the existing population also rise. In fact, it can have detrimental economic effects for the people who are already here.

New workers mean greater competition for jobs, which suppresses wages. The most recent data shows that wages growth in Australia has hit a record low of just 1.9 per cent per annum.

More people also mean more demand for scare goods and services. When there’s already a tight supply of a particular good, it can mean huge price rises.

Ah, so foreigners coming into the country do push down wages. That’ll be a tough one for the progressives to grapple with. Regardless, of course an increase in labour pushes down wages. It’s supply and demand.

It’s another reason why governments try to push through minimum wage laws, in order to stop wages falling. The consequence, of course, is that minimum wage laws don’t actually help. Minimum wage laws just put a burden on businesses.

Furthermore, minimum wage laws bring forward key business decisions. Those business decisions may involve automation, or even offshoring of jobs — which is ironic. The immigrants come here; the jobs go there. Funny that.

The point is, since last year, when the ABS revealed that the Aussie economy had contracted in the third quarter, the message from the mainstream was that it was a one-off…that the economy will rebound when the fourth quarter number comes out this month.

For instance, in a survey conducted in January, economists predict the Aussie economy will have grown 2.4% in 2016, 2.5% this year, and 2.8% in 2018.

Up, up, up.

Even after 26 years of economic growth, it seems that no-one in the mainstream can believe the Aussie economy can possibly go backwards.

That’s why we believe the market will be taken completely by surprise when the ABS shows a contracting Aussie economy.

And it’s why we’re encouraging Aussie investors to spend some time familiarising themselves with the ‘Big Australian Short’. It’s the idea that investors and markets are blind to the real risks facing the Aussie economy.

If you haven’t checked it out yet, to get the details of the ‘Big Australian Short’, go here.


We saw the ‘grassy knoll’. We saw the plinth on which Abraham Zapruder stood in order to record one of the world’s most historic moments. And we saw the white cross painted on the road in Dealey Plaza to ‘mark the spot’.

And we saw the old Texas School Book Depository Building, here in Dallas, Texas. But the thing we liked the most was the sign on said building. Specifically, how various people have scored around the word ‘allegedly’ in its reference to the assassination of former US president John F Kennedy.

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Source: Port Phillip Insider

Now all we need is for NASA to add the word ‘allegedly’ each time it refers to the Moon landings, and we’ll be happy!

Back tomorrow.