A comment from Australia's top bank regulator that the country's lenders have enough funding for months may be meant to reassure, writes Cynthia Koons, but it's like an airplane pilot saying he has enough fuel for a few more hours. Aussie banks are unusually dependent on overseas funding, and are thus impacted directly by EU stress. WBC +1.5% YTD.
"The biggest bubble in recent history is heading for the mother of all hard landings," writes SocGen's Albert Edwards, tagging onto his bearish partner-in-crime Dylan Grice's analysis of Australia. Channeling Minsky, Edwards notes the lack of volatility in Oz's economy (no recession since 1991) leads to an excessive build-up in debt and a "bigger crash down the road."
Among Australia's troubles are banks that can't pass on RBA rate cuts (50 bp last night) because - reliant on overseas markets - the lenders' funding costs are on the rise. "Infatuation" with Oz's debt (foreign ownership gov't bonds is skying) may be propping up the aussie, writes Anthony Doyle, but not for much longer. FXA -0.7%.
Answer: Australia. Question (courtesy of Dylan Grice): "What do you call a credit bubble built on a commodity bull market built on a much bigger Chinese credit bubble?" The country has 5 of the world's most 15 expensive cities, runs a current account deficit despite booming commodity sales to China, and has seen a steep rise in debt/income. Shares: EWA +10.9% YTD, the aussie: FXA +1.1% YTD.
Might Genworth's (GNW -21%) delay of its Australian mortgage insurance business IPO be ringing a bell for the Oz property market? The company cites deteriorating market conditions in the Aussie mortgage market "as lenders accelerated the processing of late-stage delinquencies ... at a higher rate and severity than expected." Westpac WBK -1%.
Australia's major banks - needing to raise $100B in 2012, dealing with a reversal in the country's bubbly property market, and facing an economy gasping for air in all but the mining sector - have been put on negative ratings watch by Fitch. The good news is the RBA's 4.25% benchmark rate - there's a lot of room for funding costs to decline.
Australia begins to say "uncle" to the continued surge in its currency, as chatter begins regarding intervention. "We're seeing the worst trading conditions experienced in the last 30 years," says the head of a tourism council. Shares -0.85% last night, down nearly 5% the last 3 weeks. Aussie -0.6%.
In order to get borrowers into mortgages, Australian banks have been plugging cost of living assumptions well below the poverty level into their qualification models. It's not quite NINJA, but the practice would make New Century proud.
Cracks being to emerge in one of the planet's frothier real estate markets as Australia sees isolated (thus far) areas of weakness. Queensland's Sunshine and Gold Coasts are seeing a sharp slowdown in sales, falling prices and plenty of inventory. Nationwide, prices are still holding onto the flat line.
Moody's places Australia's 4 largest banks on review for possible downgrade, worried about their reliance on overseas funding and noting the speed at which investor confidence can shift. Share prices are unaffected, all rising in Sydney. ADRs: WBK, NABZY.PK, ANZBY.PK, CBAUF.PK.
A 44% rise in property listings belies myths of an Australian housing shortage that bulls point to as reason for higher prices. Especially heavy supply on Queensland's Gold and Sunshine coasts is drawing comparisons to Florida circa 2006/7. Expected interest rate hikes are not helping.
The debate over the existence of an Aussie housing bubble continues. Australian Property Investor calls it a myth. An expat Aussie dives into data to show how off-base the "cult of property" has become. Aussie banks and the mortgage market are more reliant than ever on overseas funding.