Martin North – Page 98 – Digital Finance Analytics (DFA) Blog

Has The RBA Greenlit Home Price Falls?

The logic I hear all the time is the RBA won’t let home prices fall too far because of the financial stability risk consequences. But that view might be plain wrong.

First the RBA has lifted rates by 2.25 percentage points since May, and markets expect the cash rate to reach 3.3 per cent by the end of the year, before peaking at 3.9 per cent in April next year. RBA governor Philip Lowe said last week there was a “narrow path to a soft landing” for the Australian economy, which would be difficult to stay on if global economic conditions deteriorated.

And reflect on this. Within a 24-hour period this week, there will be 16 central bank decisions including the US, UK, Japan, Switzerland, Norway and Taiwan. Cumulatively, we could see over 500 bps in rate hikes across the globe this week.

In addition, Westpac came out yesterday with a revised forecast for the RBA Cash Rate, saying “We now expect the Reserve Bank Board to raise the cash rate by 50 basis points in October for a terminal rate of 3.6% by February (revised up from 3.35%)”.

It seems the RBA is giving the green light to home price falls. Because if prices fall you would need a smaller mortgage (even if the interest rates were higher). Let that sink in. Those who are arguing the RBA won’t be prepared to let home prices fall very far, take note!

Go to the Walk The World Universe at https://walktheworld.com.au/ Today’s post is brought to you by Ribbon Property Consultants. If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you. Buying property, is both challenging and adversarial. The vendor has a professional on their side. Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make. Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest. Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

The RBA’s Interest Rate Debacle…

Whilst the rate of interest rates rises is likely to ease ahead, eventually, as the RBA’s Jonathan Kearns, Head of Domestic Markets said today in a speech titled Interest Rates and the Property Market that there are important connections between property prices and interest.

https://www.rba.gov.au/speeches/2022/sp-so-2022-09-19.html

He said interest rates both affect, and are influenced by the economic effects from, both residential and commercial property prices. We can be confident about some aspects of the impact of interest rates on property prices, but there is considerable uncertainty about other aspects.

Today’s post is brought to you by Ribbon Property Consultants. If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing alongside you. Buying property, is both challenging and adversarial. The vendor has a professional on their side. Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make. Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest. Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Are The Financial Cops Helping The Crooks?

Today is the second IOTP installment in our series of financial crime. In our last episode, Adams and North painted the scene that financial crime inflicts significant financial and human costs on the victims.

We documented recent stories from both the UK and Australia as shown by BBC’s Panorama and the ABC’s Four Corners. We also show from both programs and from another clip that financial regulators such as the SEC, the FCA and ASIC have failed at their jobs to put a stop to financial crime and in particular intervene in the early pre-collapse stages.

Today we are going to be spending more time on the performance of ASIC in responding to reports of alleged misconduct.

If anyone would like to obtain a copy of the ASIC performance data or source documentation discussed in this episode, you can email John Adams at john@adamseconomics.com who can provide you with assistance.

Go to the Walk The World Universe at https://walktheworld.com.au/

Is Risk Hiding In Plain Sight?

Deep in the financial system plumbing, risks are rising. And the question is – will something break, as rates are hiked, and liquidity withdrawn? Massive Federal Reserve buying of Treasuries stabilized the market over the past two years, but liquidity gauges have eroded since the purchases stopped.

The market for U.S. Treasuries has grown to more than $24 trillion, expanding nearly tenfold over the past 20 years at the same time that major regulatory changes have blunted the ability of some bank-owned dealers of government debt to increase their purchases.

The Fed is this month accelerating the pace of winding down the nearly $US9 trillion balance sheet it built up for more than a decade in an effort to cushion the economy from shocks. It aims to shrink the total by $US95 billion a month — double the August pace.

Yet in fact the Federal Reserve Weekly Assets went up last week, which is weird, given the fact that Quantitative Tightening is meant to have started and we did see a fall in total assets less eliminations over recent weeks. But on the 14th of September the balance was reported at $8,832,759M, whereas the preceding week it was $8,822,401m, so a net rise of $10.36 billion.

Looking down the list of assets, we see US Treasury Securities fell by 3.73 billion, the bulk of which was bills, while mortgage-backed securities rose by $9.23 billion.

On the other hand, reverse repos rose by $66.8 billion (this is money parked at the Central Banks by Financial Institutions).

Right now, when bonds held by the Fed mature, the central bank churns the money back into the market. When it stops doing that, investment banks — known as dealers — must mop up any excess paper in the system on top of any new bonds that the US Treasury issues. It is not certain that the commercial sector has the stomach for this. Bank of America head of US rates strategy Mark Cabana said: “Dealers will inevitably be holding more Treasury inventory.

They’re going to have to finance that, which puts upward pressure on repo rates, that over time will probably contribute to more volatile Treasury markets, potentially worsening Treasury liquidity.” This is all looking a bit messy and a signal there are liquidity pressures emerging. In fact, the US Federal Reserve’s more rapid exit from crisis-era policies is placing the $US24 trillion US government bond market under extra strain, heightening concerns about the bedrock of the global financial system.

Go to the Walk The World Universe at https://walktheworld.com.au/

Here Comes The Wealth Destruction…

As foreshadowed, we are now seeing the sharp reversal in asset prices, which were driven through the roof due to ultra-low interest rates, central bank quantitative easing, and government support through COVID plus huge debt growth.

Of course, the recent gains were largely spurious, and a correction was always going to come – hopefully some watching our shows are best prepared for this process (which will take some time), but be clear wealth will be destroyed across property, shares, bonds, metals and crypto.

No surprise then that U.S. stocks ended sharply lower on Friday, tumbling to two-month lows as a warning of impending global slowdown from FedEx hastened investors’ flight to safety at the conclusion of a tumultuous week.

The session also marked the monthly options expiry, which occurs on the third Friday of every month. Options-hedging activity has amplified market moves this year, contributing to heightened volatility.

All three major U.S. stock indexes slid to levels not touched since mid-July, with the S&P 500 closing below 3,900, a closely watched support level and suffereing its worst weekly percentage plunge since June.

“It’s been a tough week. It feels Halloween came early” said David Carter, managing director at JPMorgan in New York. “We are facing in this toxic brew of high inflation, high interest rates and low growth, which isn’t good for stock or bond markets.”

Go to the Walk The World Universe at https://walktheworld.com.au/

The Monetary Arms Race Is Here!

The RBA was interrogated by Parliament today regarding its monetary policy stace and interest rates. But it was all a bit pointless as really as the Federal Reserve sets interest rates in the US, but effectively also for the entire world, given the fact that the US dollar behaves as the reserve currency.

Persistently high inflation in the United States and elsewhere has forced the Federal Reserve to aggressively raise interest rates, giving the dollar a significant yield advantage that has triggered a rampaging rally against its major global peers.

That will put pressure on the RBA. Eventually, the Fed’s actions will come back to bite it and the US. By then all the many trillions of dollars of stimulus work done during the pandemic will have been unwound. What a phenomenal waste of time, money and effort.

The fallout on the FED’s myopia will be felt more in other countries, including Australia, which means we are on the end of the see-saw driven by the US. This is soft power at its worse, transmitted to a monetary system which is built to favour one nation over the rest. The question is of course whether this will change. Without major reform it will not, not least in recognition of fact that many international institutions such as the IMF, WEF and BIS are strongly aligned to the interests of the US. So The Monetary Arms Race Is Here.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants. If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you. Buying property, is both challenging and adversarial. The vendor has a professional on their side. Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make. Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest. Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Is Employment On The Turn?

The ABS released their latest data on the labour market today, and it was not quite what was expected by the markets. In fact the seasonally adjusted unemployment rate rose to 3.5 per cent in August 2022, according to the ABS.

The key reason for the rise in unemployment was the 0.2% lift in the labour force participation rate to 66.6%. The participation rate now sits just below the record high 66.8% recorded in June.

Today’s post is brought to you by Ribbon Property Consultants. If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you. Buying property, is both challenging and adversarial. The vendor has a professional on their side. Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make. Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest. Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.