Australia & NZ Archives - Page 74 of 97

October 28, 2012

Australia: Household debt crisis

A few days ago I mentioned that Australia is in a housing bubble. The easiest way to gauge this is to compare Australian household debt/disposable income (DPI) to the US peak before the global financial crisis. After all, household debt is the fuel for a housing bubble.

Housing Finances

Australia’s current ratio of 150% (or 1.5 times DPI) is higher than the US peak of 1.3 times DPI during the housing bubble. And far higher than the current US ratio of 1.1 times DPI.

Credit Growth by Sector

No time to be complacent.

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

October 25, 2012

Australia: RBA running out of options

The Reserve Bank of Australia must be viewing the end of the mining boom with some trepidation. Cutting interest rates to stimulate new home construction may cushion the impact, but comes at a price. Consumers may benefit from lower interest rates but that is merely a side-effect: the real objective of monetary policy is debt expansion. And Australia is already in a precarious position.

Further increases in the ratio of household debt to disposable income would expand the housing bubble — with inevitable long-term consequences.

Housing Finances

While debt expansion is not in the country’s interests, neither is debt contraction (with growth below zero), which would risk a deflationary spiral. The RBA needs to maintain debt growth below the nominal growth rate in GDP — forecast at 4.0% for 2012-13 and 5.5% for 2013-2014 according to MYEFO — to gradually restore household debt/income ratios to respectable levels.

Credit Growth by Sector

If the RBA’s hands are tied, similar restraint has to be applied to fiscal policy. First home buyer incentives would also re-ignite debt growth. The focus may have to shift to state and local government in order to accelerate land release and reduce other impediments — both financial and regulatory — to new home development. Lowering residential property development costs while increasing competition would encourage developers to cut prices to attract more buyers into the market. While this would still increase demand for new home finance, lower prices would cool speculative demand fueled by low interest rates.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 25, 2012

Forex: Aussie Dollar, Euro, Pound Sterling and Canada's Loonie

The Aussie Dollar (daily chart) is headed for another test of resistance at $1.04 against the greenback. A 63-day Twiggs Momentum trough above zero suggests a primary up-trend. Breakout above $1.04 would offer a target of $1.06*.

Aussie Dollar/USD

* Target calculation: 1.04 + ( 1.04 – 1.02 ) = 1.06

The Euro (weekly chart) is testing resistance at $1.32. Recovery of 63-day Twiggs Momentum above zero suggests a primary up-trend. Breakout above $1.32 — and penetration of the descending trendline — would confirm, offering an immediate target of the 2012 high at $1.35.

Euro/USD

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

Pound Sterling (weekly) rallied off primary support at €1.225/€1.23 against the euro. Breach would complete a head and shoulders reversal with a target of $1.18*. Reversal of 63-day Twiggs Momentum below zero suggests a primary down-trend. Expect a test of resistance at $1.26 followed by another attempt at primary support.

Pound Sterling/Euro

* Target calculation: 1.23 – ( 1.28 – 1.23 ) = 1.18

Canada’s Loonie (daily) is consolidating between $1.00 and $1.01 (USD). Downward breakout — and penetration of the rising trendline — would warn of another test of primary support at $0.96. But 63-day Twiggs Momentum is bullish and a trough above zero would suggest an advance to the 2011 highs at $1.06.

Canadian Loonie/Aussie Dollar

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Australia: ASX 200 test of 4400

The ASX 200 is retracing to test support at 4400/4450. Respect would confirm a primary advance to 4900*. But correction in US markets is likely and would cause a breach of the ASX 200 rising trendline. Respect of 4250, however, would still indicate a healthy up-trend — as would a 13-week Twiggs Money Flow trough above zero.

ASX 200 Index

* Target calculation: 4450 + ( 4450 – 4000 ) = 4900

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Australia: Submarine folly

The Australian government is poised to commit to building 12 new diesel submarines at a cost of $40 billion without even considering the option of more efficient, more powerful, nuclear-powered alternatives.

Simon Cowan, author of Future Submarine Project Should Raise Periscope for Another Look, released today by The Centre for Independent Studies, says the government risks repeating the mistakes of the current Collins Class submarines, with high running costs and reliability issues.

“Australia needs world-class submarines and the US Virginia Class looks like the best option.”

“Nuclear-powered submarines are superior in almost every way to diesel-powered submarines – they can travel further, faster and stay deployed for longer, and they have more powerful weapons, systems and sensors.”

“However, the government has refused to consider nuclear-powered submarines for reasons that don’t stack up.”

“Safety considerations are important when talking about nuclear power,” Cowan notes, “but the safety record of the US Virginia Class is flawless. These subs don’t carry nuclear weapons and never need refuelling – and if Australia leases them from the United States, the US could dispose of spent nuclear material.”

“Australia could also save more than $10 billion by leasing eight Virginia Class submarines and up to $750 million a year on operational and maintenance costs as well.”

via Axe dud subs and look to nuclear option, says new CIS report.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Australia: Becoming a welfare-dependent state

Extract from an opinion by Robert Carling:

In democratic welfare states, the proportion of the electorate that attracts more in social benefits from government than it pays in tax has become so large that candidates who promise to curb the welfare state have a hard time winning elections.

The same issue has been raised in the United Kingdom, where a recent study by the Centre for Policy Studies revealed that 53.4% of households receive more in benefits than they pay in taxes……

The Australian Bureau of Statistics (ABS) has compiled data on total taxes paid [including GST] and total social benefits (cash and in kind) received by households in 2009–10 classified into five slices (quintiles) from bottom to top according to their private income. The first three quintiles (that is, 60% of households) each received more in direct social benefits than they paid in taxes……

via Centre for Independent Studies: Self-sustaining leviathan.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 18, 2012

Forex: Euro, Pound Sterling, Canadian Loonie and Aussie Dollar

The Euro rallied off support at $1.28 and is headed for resistance at $1.32. Recovery of 63-day Twiggs Momentum above zero suggests a primary up-trend. Breakout above $1.32 would confirm, offering an immediate target of the 2012 high at $1.35.

Euro/USD

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

Pound Sterling is testing primary support at €1.23 against the euro. Breach would signal a primary down-trend. Target for the completed head and shoulders reversal would be $1.18*. Reversal of 63-day Twiggs Momentum below zero would strengthen the signal.

Pound Sterling/Euro

* Target calculation: 1.23 – ( 1.28 – 1.23 ) = 1.18

Canada’s Loonie found strong support between $1.01 and $1.02 (USD). Breakout would indicate an advance to the 2011 highs at $1.06. Rising 63-day Twiggs Momentum strengthens the signal.

Canadian Loonie/Aussie Dollar

The Aussie Dollar found support at $1.02/$1.015 against the greenback. Expect another test of $1.06. 63-Day Twiggs Momentum troughs above zero indicate a primary up-trend. Breakout above $1.06 would offer a target of the 2011 high at $1.10*, though there is bound to be some resistance at $1.08.

Aussie Dollar/USD

* Target calculation: 1.06 + ( 1.06 – 1.02 ) = 1.10

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 15, 2012

Australia’s Future Fiscal Shock | Centre For Independent Studies

by Robert Carling

Long-term prospects for Australia’s public finances are not receiving the attention they deserve. It is one thing for Commonwealth and state governments to balance their budgets in the short term, as they are attempting to do, but spending commitments are being made as though nothing beyond the four-year horizon of the forward estimates matters. Under current policies, Australia is heading in the long term for a substantially larger share of government spending in the economy, which will bring pressures for higher taxation or borrowing or both. Spending by governments at all levels as a proportion of gross domestic product (GDP) (currently around 36%) could rise to well above 40% over the decades ahead, if not sooner…….

via Australia’s Future Fiscal Shock (pdf).

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 12, 2012

Forex: Euro recovers, Aussie & Sterling weaken

The Euro is headed for another re-test of resistance at $1.32 and its descending trendline. Breakout would signal a primary up-trend. Recovery of 63-day Twiggs Momentum above zero strengthens the signal. Reversal below $1.26 is unlikely but would warn of another test of primary support at $1.20.

Euro/USD

* Target calculation: 1.275 + ( 1.275 – 1.20 ) = 1.35

Pound Sterling is testing support at €1.23 against the Euro. Breach of support — and the rising trendline — would warn the primary up-trend is ending. Retreat of 63-day Twiggs Momentum below zero would strengthen the signal.

Pound Sterling/Euro

Canada’s Loonie is testing support against the greenback at $1.02/$1.01. Respect of support — with recovery above $1.027 — would confirm the primary up-trend. A 63-day Twiggs Momentum trough above zero would strengthen the signal. Target for the advance is the 2011 high of $1.06.

Canadian Loonie/Aussie Dollar

* Target calculation: 1.04 +( 1.04 – 1.01 ) = 1.07

The Aussie Dollar found support at $1.02/$1.015 on the daily chart. Follow-through above $1.03 would suggest another test of $1.06. Failure of support is unlikely but would signal a primary down-trend. 63-Day Twiggs Momentum troughs above zero indicate continuation of the primary up-trend. Expect strong resistance at $1.06: the Aussie may be range-bound for some time.

Aussie Dollar/USD

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 11, 2012

The difference between California and Texas

Amusing parable told by Dallas Fed President Richard W Fisher at the Cato Institute:

“The governor of California is jogging with his dog along a nature trail. A coyote jumps out and attacks the governor’s dog, then bites the governor. The governor starts to intervene, but reflects upon the movie Bambi and then realizes he should stop because the coyote is only doing what is natural.

“He calls animal control. Animal control captures the coyote and bills the state $200 for testing it for diseases and $500 for relocating it. He calls a veterinarian. The vet collects the dead dog and bills the state $200 for testing it for diseases. The governor goes to the hospital and spends $3,500 getting checked for diseases from the coyote and getting his bite wound bandaged.

“The running trail gets shut down for six months while the California Fish and Game Department conducts a $100,000 survey to make sure the area is now free of dangerous animals. The governor spends $50,000 in state funds implementing a ‘coyote awareness program’ for residents of the area. The Legislature spends $2 million to study how to better treat rabies and how to permanently eradicate the disease throughout the world.

“The governor’s security agent is fired for not stopping the attack. The state spends $150,000 to hire and train a new agent with additional special training, re: the nature of coyotes. People for the Ethical Treatment of Animals (PETA) protests the coyote’s relocation and files a $5 million suit against the state.

“The governor of Texas is jogging with his dog along a nature trail. A coyote jumps out and tries to attack him and his dog. The governor shoots the coyote with his state-issued pistol and keeps jogging.

“The governor spent 50 cents on a .380-caliber, hollow-point cartridge. Buzzards ate the dead coyote.

“And that, my friends, is why California is broke and Texas is not.”

Australians will identify with his description of a “nanny-state”.

via The United States Is Not Europe and Texas Ain't France: America as the Thoroughbred Economy – Dallas Fed.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.