Category: Australia & NZ

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Why Sweden Has Riots | Cato Institute

Johan Norberg explains why Sweden, with the lowest poverty rate (1.2%) in Europe, still experiences riots amongst disaffected, largely immigrant youth in parts of Stockholm:

……there is serious inequality in Sweden, but the divide is not so much between the rich and the poor as between those with jobs and those without. And frequently this is an ethnic divide. As the author Fredrik Segerfeldt points out in a new study, Sweden has the largest employment gap between natives and foreign-born of all the rich countries where data is available. Only 6.4 per cent of native Swedes are unemployed, but almost 16 per cent of the immigrants are…….. In Husby, where the riots started, 38 per cent of those under 26 neither study nor work.

So what’s to blame? The aspect of the Swedish social model that the government has not dared to touch: strong employment protection. By law, the last person to be hired must be the first person to be sacked. And if you employ someone longer than six months, the contract is automatically made permanent. A system intended to protect the workers has condemned the young to a succession of short-term contracts. Sweden’s high de facto minimum wage — around 70 per cent of the average wage — renders unemployed those whose skills are worth less than that. Sweden has the fewest low-wage, entry-level jobs in Europe. Just 2.5 per cent of Swedish jobs are on this level, compared to a European average of 17 per cent.

This highlights the paradox of strong labor laws intended to protect employment. They discourage permanent employment and create a two-tier society: those with permanent jobs and “permanent” casual-workers. High minimum wages, again do not guarantee that those with low skill-levels earn a decent wage. It guarantees that they will be unemployed and dependent on social welfare. Australia should take note.
Read more at Why Sweden Has Riots | Cato Institute.

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Forex: Aussie falls but Euro and Yen unfazed

After a weak rally to $0.98, the Aussie Dollar broke primary support at $0.96, signaling a strong down-trend. Long-term target for the decline is $0.80*.

Aussie Dollar/USD

* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80

Canada’s Loonie is also likely to break support at $0.96, offering a long-term target of $0.82*.

Canadian Loonie

* Target calculation: 0.94 – ( 1.06 – 0.94 ) = 0.82

The euro, however, broke resistance at $1.30 and is headed for a test of $1.32. Breach of that level would offer a target of $1.36*. But respect of $1.32 would warn of a head and shoulders reversal — completed if support at $1.27 is broken.

Euro/USD

* Target calculation: 1.32 + ( 1.32 – 1.28 ) = 1.36

The greenback reversed sharply against the Yen in the last week, falling from ¥104 to ¥99. But the scale of the reversal is placed in its proper perspective on a monthly chart. The primary up-trend is unfazed, and recovery above resistance at ¥100 would signal a fresh advance with a target of ¥110*. The 30-year secular bear trend is over. Long-term target for the advance is the 2007 high at ¥125*.

USD/JPY

* Target calculations: (a) 104 + ( 104 – 99 ) = 109; (b) 100 + ( 100 – 75 ) = 125

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ASX 200: The last straw

The ASX Small Ordinaries Index is already in a primary down-trend, but breach of the 2012 low at 2050 warns of a decline to 1700*.

ASX Small Ords Index

* Target calculation: 2050 – ( 2400 – 2050 ) = 1700

The ASX 200 was in a strong up-trend until its recent breach of support at 4900, following bearish divergence on 13-week Twiggs Money Flow. Penetration of the the rising trendline would be the last straw, confirming reversal to a primary down-trend.

ASX 200 Index

Follow-through below 4750 would test support at 4400/4500.

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Nikkei, ASX find support but India & China weaken

Dow Jones Japan index found support at its long-term rising trendline.  Follow-through above 77 would indicate the correction is over, suggesting an advance to 100*. Breach of the trendline, however would warn that the primary trend is weakening.

Nikkei 225 Index

* Target calculation: 85 + ( 85 – 70 ) = 100

The ASX 200 also encountered buying pressure, with a hammer candlestick at the primary support level of 4900. Recovery above 5000 would indicate the correction is over, but breach remains as likely and would confirm the primary down-trend suggested by bearish divergence on 21-day Twiggs Money Flow.

ASX 200 Index

India’s Sensex is testing medium-term support at 19600. Breach would signal a correction to test primary support at 18000. Bearish divergence on 21-day Twiggs Money Flow warns of selling pressure. Recovery above 20000 is unlikely, but would suggest an advance to 22000*.

BSE Sensex Index

* Target calculation: 20 + ( 20 – 18 ) = 22

Dow Jones Shanghai Index broke its rising trendline, warning that the rally is running out of steam. Failure of support at 294 would signal another test of primary support at 275. Respect of support is unlikely, but would indicate a test of primary resistance at 314.

Shanghai Composite Index

The overall outlook for Asia remains bearish apart from Japan.

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The history of Australian land prices | Leith van Onselen | Macrobusiness.com.au

Re-blogged with kind permission from Macrobusiness.com.au

Posted by Unconventional Economist in Australian Property on June 4, 2013

Australian Housing

By Leith van Onselen

As argued previously, the sharp escalation of Australian home prices since the mid-1990s has been caused primarily by a surge in land values, which roughly doubled in size relative to the size of the economy, as measured by GDP (see next chart).

Housing Values to GDP

The explosion of land values is also reflected by the below chart showing the growth of house values (including both structures and land) far outstripping the growth of the ABS project homes index, which measures the cost of building new dwellings (excluding the land):

House Prices v. Construction Costs

On Friday night, Prosper Australia released a brand new long-run dataset on Australian land values, which has been painstakingly developed by Philip Soos, who is a research Masters candidate at Deakin University as well as a researcher for Prosper Australia. The data has been pulled together from a variety of public and private sources, including from economists Robert Scott, Doug Herps, Alan Taylor, Terry Dwyer and Nigel Stapledon.

While there is lots of useful data in the series, my favourite dataset is illustrated by the below chart showing the ratio of Australian land prices (residential, commercial and rural) to GDP:

Land v. GDP

As you can see, land prices relative to GDP doubled between 1996 and 2010. And while land values have deflated somewhat, it would appear they have much further to fall.

My long held view is that residential land prices (and by extension house prices) will experience a “slow melt” whereby values relative to GDP deflate back to their mid-1990s (pre-boom) level. The big question is whether this deflation will occur via prices falling outright or by GDP growth outstripping price growth. With any luck (from a financial stability perspective), the adjustment will take place more through real price reductions than nominal price falls. But the process could take a long time.

Soos’ land price dataset can be downloaded from here.

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Forex: Aussie tests support

The Aussie Dollar is testing its major support level at $0.95/$0.96. Declining 13-week Twiggs Momentum warns of a long-term down-trend. Breach of $0.95 would offer a target of $0.80.

Aussie Dollar/USD

* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80

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Half a million investors have walked away from stocks, ASX finds | The Australian

Andrew Main at The Australian writes (May 21st) that the number of Australians who own stocks decreased by more than half a million between 2010 and 2012. According to an ASX survey, total share ownership (including managed funds) peaked at 55 per cent in 2004 before dropping to 38 per cent by 2012.

One of the biggest losers in the survey was the managed funds industry, which copped a shellacking through the GFC for the fact that its charges were in many cases out of line with the indifferent performance provided by fund managers. The percentage of investors who had equities exposure through managed funds fell from 32 per cent in 2004 to only 12 per cent in 2012. The survey concluded that a lot of investors had decided that they may be able to do better as investors by going direct and not paying a manager.

Read more at Half a million investors have walked away from stocks, ASX finds | The Australian.

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