Quicklinks - 31 July

1. Murray Dawe's (Slipstream Trader) outlook for the ASX: 29th July 2011 - Slipstream Trader Market Update


2. Peter Brandt's scary post on Head-And-Shoulder Techs and the possibility of 75% declines in the NYSE (hat tip to Avidchartist):  Charts indicate a 75% decline in the U.S. stock market is possible

Jesse's notes (if you scoff at such declines):

• Christmas 1989, Nikkei 225 (Japanese Stock Index) tops at 38,916
• August 1992 - 14,820  Down 62% off peak in 30 months
• June 1995 - 14,517 Down 62.7% off peak in 5 years and 6 months
• October 1998 - 12,879 Down 67% off peak in 8 years and 10 months
• April 2003 - 7,874 Down 79.8% off peak in 13 years and 4 months (BINGO!!)
• February 2009 - 7,568 Down 80.6% off peak in 19 years and 4 months (BINGO MkII)
• Today (29th July 2011 close) it sits at 9,833 in 21 years and 7 months since its peak, its down 74.7% since peak (BINGO Mk III).

(The stock part of the chart below only goes to early 2008 before the GFC kicked off but it paints a trend)

3. Mike Shedlock on Cap-and-Trade: New NASA Data Blow Gaping Hole In Global Warming Alarmism; Idiocies of Cap-and-Trade Exposed


4. Bloomberg on one of the [many] holes in the Euroidiots 'solution' last week:  Greek Bondholders May Shun Rescue as Potential Losses Top 21%: Euro Credit


5. Crude Oil in Australian Dollars over 3 months, 15.5% declines (anyone noticed a 15.5% decline in petrol prices? Me neither); $WTIC:$XAD - May, June, July

Groundhog Day?

Came across an excellent site: http://macrostory.com/

...with an interesting post, Ominous Similarities.

Read the post yourself with the writers reasoning and analysis (and a ref to Jesse Livermore!!), but here is the teaser chart, 2011 on the left, 2007 on the right (click to enlarge).

Read the post but may I add he is a trader (for the uninitiated: SPY is the Exchange Traded Fund that tracks the SP500 NYSE Index; Long Puts, Debit Put Spreads and Theta are explained below quote):

In essence of full disclosure below is my current trading portfolio. Please note this is not investment advice.

I am currently short SPX via long SPY puts for both August and September and long SPY August debit put spreads. I did sell some SPY August puts today to offset the September puts I bought earlier in the week. The result my position size is the same but I was able to manage risk by shifting to a future expiration for about the same price. In other words I have the same capital at risk but have an additional month of theta.

Long Put
Bear Put Spreads
Theta

PS Theta is the enemy of naked option buyers (longs) as I am witnessing as Suncorp dawdles down to $7.50 from $8.50, where it was on 20th May when I bought my $7.70 strikes. $7.53 today almost there!!

PPS I suppose a 11.7% fall in 70 days to an bank/insurance company tied to the QLD property anvil is not totally dawdling. ;)

You Can Fool Some Of the People All Of the Time!

Terry McCrann Is screaming for a rate rise in the Australian and Victoria's freckle wiper the Herald-Sun.

Rates must go up and they will.

In his important speech on Tuesday -- it's important to understand, before he had any knowledge of yesterday's inflation figures -- Stevens argued that softening was achieving the necessary 'making way' in the non-resources economy for the resources boom.

But the clear inflation pressure means he can't assume that will continue. China is pouring a tsunami of money into Australia. We could all too easily see inflation kicking up above 1 per cent a quarter as it did in 2008.

A Tsunami? Australia's GDP is around $1 200 000 000 000 or $1.2T

Australia's exports to China was $58B last year
Australia's imports from China was $39B last year

A nett gain of $19B on trade.

China's foreign investment in Australia was  $16.3B last year.

FIRB Annual Report 2009/10 (p33)

Approved investment from the US fell by 1 per cent from $39.6 billion in 2008-09 to

$39.1 billion in 2009-10. Proposed investment was primarily in the mineral exploration

and development sector, accounting for 64 per cent of total US investment. The US was

also the leading nationality for foreign investment in the services sector, accounting for

48 per cent of investment in that sector.

The UK was Australia’s second largest investor in 2009-10 with $28.6 billion.

Investment in the mineral exploration and development sector accounted for

$22.2 billion, representing 77 per cent of total UK investment in Australia.

China was the third largest investor in 2009-10 with total proposed investment of

$16.3 billion. The majority of this proposed investment was in the mineral exploration

and development sector, accounting for $12.2 billion and representing 75 per cent of

that country’s proposed investment.

So a nett $19B in trade and $16.3B in Investment is a total of $35.3B or 2.9% of GDP.

A Tsunami?

Investing in Toxic Garbage with Taxpayer's Money

Everyone waxes rhetoric on the NBN and its cost. I don't, it may provide a return.

But, what about the facts that the govt has 'invested' $20B in the second biggest housing bubble in the world (China is No1)?

Deadly silence from the media (woohoo here comes a Carbon Tax).

You can read it [and weep] here:
http://www.aofm.gov.au/content/rmbs.asp

How goes it as the bubble unwinds? Downgraded baby. Moody's can see the writing on the wall.





Where have the fish gone Wayne?

The US Debt in $100 bills

One:

150 billion of them stacked = $15Trillion

Are we out of danger yet?

De Spiegel. After the Summit: Starting Fresh in Euroland

Greece's potential short-term non-payment has been considered a danger to be avoided at all costs. The ratings agencies have been waiting for such a "default" to downgrade Greece -- in case government bonds have to be exchanged for new bonds with different terms, for example, or in case the terms have to be extended. But that's precisely what will happen now. The agencies have indicated, however, that new bonds can immediately be upgraded after an exchange -- because then the EFSF would guarantee them.

Jürgen Matthes, at the Cologne Institute for Economic Research, says the danger still isn't over just because the ratings agencies have agreed to cooperate. "It can't be a guarantee that the financial markets reject," he said, adding that investors may yet react to Greece's short-term default with irrational speculation against other debt-ridden nations. "This could be playing with fire. It could still start a conflagration," he said.

Matthes points to an announcement from the ratings agency Moody's, claiming that other nations may be downgraded in the event of Greece's short-term non-payment.

If it came to that, said Matthes, "then something about the system is broken; then we're just programming in self-fullfilling prophecies." In this case it would be seen as legitimate to pressure the ratings agencies through American government oversight.

UK Telegraph: How many more times can eurozone visit 'last chance saloon'?

Surely it's impossible for the eurozone ever to revisit the events of this past week and maintain its credibility. But it’s far from certain that Europe is now crisis-free, thanks simply to the outcome of Thursday’s summit captured in a 1,300-word statement.

After yesterday morning’s brief euphoria, the cracks started to show and by tea time we had resumed the now familiar pattern of Italian and Spanish bond yields rising, while those in Germany and the UK were falling. Gold pushed through new highs.

Market reaction to the bail-out was predictably immediate but Merkel & Co are refusing to add any more detail to, say, the rules surrounding how the European financial stability facility will work. This is the key vehicle for stemming the contagion in Greece, Ireland and Portugal from spreading to Spain and Italy. Incredibly, that won’t happen until after the continent’s summer break. Angela Merkel won’t put the package to the German legislature until September.

The economic challenges facing these peripheral countries won’t cease. The newsflow reporting these events won’t take a break and neither will investors wanting to react, which means markets won’t pause and wait for the politicians and eurocrats to get a tan.

Europe’s previous attempts to get ahead of the problem were widely dismissed as kicking the can down the road – hence the need for Thursday’s emergency summit. Experts are now likening these latest bail-out arrangements to rolling a snowball down a hill

The markets will have looked at Thursday night’s statement, seen the obvious gaps and may well launch a new assault on Spanish and Italian debt next week to test the resolve of this new regime. But nothing new is actually in place to stop the rot. We saw it in 1992 when sterling was forced out of the European exchange rate mechanism. Governments can draw as many lines as they like but without the necessary resource, and the legitimacy of statute, those lines will prove no more effective than a line of pine trees in an avalanche.

Halfwits

The existence of raving imbeciles like this is why this country will be brought to its financial knees (ala Ireland and Spain).

Who the *&#k is lending a bus driver 7 figures?

Living proof that humans can mate with amoeba.

I despair at times.

2012 - We Were Warned

Not the Mayan prognostication of planet armageddon (whilst they had their cheeks stuffed with coca leaves), but financial chaos, the GFC continued after a quick break allowing govts to get underwater in debt.

Now that the Eurobuffoons have kicked the can into 2012, its time for a perspective post.

Ray Dalio is the sixty-one-year-old founder of Bridgewater Associates, the world’s biggest hedge fund.

Not a Mickey Mouse Neoclassical Spruiker/Economist spouting Keynsian bullshit from 2nd year university, he is a player, a money maker.

An article in the New Yorker: Mastering the Machine

-Dalio is a “macro” investor, which means that he bets mainly on economic trends, such as changes in exchange rates, inflation, and G.D.P. growth.

-In search of profitable opportunities, Bridgewater buys and sells more than a hundred different financial instruments around the world—from Japanese bonds to copper futures traded in London to Brazilian currency contracts—which explains why it keeps a close eye on Greece.

-In 2007, Dalio predicted that the housing-and-lending boom would end badly.


-Later that year, he warned the Bush Administration that many of the world’s largest banks were on the verge of insolvency.


-In 2008, a disastrous year for many of Bridgewater’s rivals, the firm’s flagship Pure Alpha fund rose in value by nine and a half per cent after accounting for fees.

-Last year, the Pure Alpha fund rose forty-five per cent (!!!), the highest return of any big hedge fund. This year, it is again doing very well.

Dallio is rich—preposterously rich. Last year alone, he earned between two and three billion dollars, and reached No. 55 on the Forbes 400 list. But what distinguishes him more from other hedge-fund managers is the depth of his economic analysis and the pretensions of his intellectual ambition. He is very keen to be seen as something more than a billionaire trader. Indeed, like his sometime rival George Soros, he appears to aspire to the role of worldly philosopher. In October, 2008, at the height of the financial crisis, he circulated a twenty-page essay immodestly titled “A Template for Understanding What’s Going On,” which said the economy faced not just a common recession but a “deleveraging”—a period in which people cut back on borrowing and rebuild their savings—the impact of which would be felt for a generation. This line of analysis wasn’t unique to Dalio, but almost three years later, with economic growth stagnating again, it does not seem off the mark

The punchline? 

Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said.

Read the whole article, its very impressive.

Kick That Can!!!

So the Euroidiots did it again.

What do you do with a bankrupt that can't pay its debts? Take money off those that can and lend the failure some more whilst telling him he has to go hungry for the forseeable future. Simple.

Fix a debt problem by lending more. Logical.

Why don't they bypass the PIIGS and give it straight to the banks and cut the smoke and mirrors and unity bullshit.

Only Germany can save EMU as contagion turns systemic

The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP

And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: "As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP." That's right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany's pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!

What do the Germans think about this?
60% of Germans Have "Little or Very Little Trust in Euro"

German voters are wary of any scheme that would see their taxes going towards other countries -- a so-called "transfer union" -- while eurobonds could also raise the borrowing costs of countries backing them, critics say.

A poll released by the Bild am Sonntag meanwhile showed 60 percent of those questioned in Europe's biggest economy with little or very little trust in the euro single currency, up from 54 percent in December.

The Greeks? They are getting the bailout and having a ball (actually the banks are getting bailed out with German taxpayers money, the Greek citizen is getting a battery acid enema).
Greece Threatened with Widespread, Long-Term Poverty

Greece is tightening its belt -- and the number of people living in poverty is surging as a result. Thousands line up in front of food banks and resort to rifling through rubbish bins. The country's financial crisis is rapidly turning into a social one -- while wealthy tax evaders manage to get off scot-free.

Time for a new game for my iPhone?

This will end badly.

Now for the lighter side. This clip is hilarious.

Sunday Mythbusting

(Whilst watching the Wallaby 2rd XV get their arses handed to them by a Pacific nation with the population of Geelong and a GDP per person 1/10th of ours -the Samoans are professionals from England, Europe, Japan and Super15. A lesson learned by the arrogant Australian Rugby Union? )

The Australian media and politicians have a love affair with China importing our dirt and our Coal mining exports - where any interruption due floods/carbon tax/moon phases/African famine/etc is a doomsday scenario.

Economies are generally evaluated by Gross Domestic Product (GDP).

(GDP = Private Consumption+Gross Investment+Government Spending+(Exports-Imports))

Sidenote: IMO any derived measure that includes government spending as a positive contributor is rooted in feel good spin and propaganda. What if the government is borrowing to spend ala Japan, European PIIGS and USA?

Without getting into Gross versus PPP, Australian GDP is around $1,200,000,000,000. Or $1.2 Trillion.

Thats a lot of money.

Lets Mythbust.

Myth: Our exports to China are the backbone of our economic successes.
Facts:

• Total Australian exports to China in 2010 was $58B equivalent to 4.8% of GDP
• Iron Ore exports to China was $34.6B of that number above or 2.9% of GDP
• Coal exports to China was No2 with $5.2B or 0.43% of GDP (Less than half of 1%!!!)

Myth: Our Coal exports are key driver of our economic success (when not interrupted by floods/carbon tax/moon phases/African famine/etc)
Fact: Australian Total Coal Exports total $42.9B or equivalent to 3.6% of GDP.

Myth: Mining is a major Australian employment sector.
Fact: Mining Employs a mere 1.8% of the workforce

Fact:
The whole mining industry contributes less than 8% in total to our GDP.

Australia's economy is based on a credit fuelled Property Ponzi scheme, Retail and Services with the latter two feeding off the former.

The only area of note that I applaud is the rapidly shrinking manufacturing sector which contributes just under 10% to the economy. I applaud its existence and hope it reverses and grows.

Refs to data:

1. DFAT-China
2. DFAT-Australia
3. DFAT - Summary Of Trade
4. ABS 5206 - National Accounts

Gamechanger?

I don't get amazed by tech or gadgetry but this is amazing.

Mike Shedlock is all over this.
3-D "Printing" Technology Technology Will Blow Your Mind

Tug of War Week

Goldman Sach's Noyce provides some good insight into a tumultous week ahead.

Next week:

• July 21 the Euro parliament will convene for an emergency meeting at which some speculate Greece's fate may be decided, leading to a "soft" or "transitory" default which will could lead to a big EUR selloff.
• July 22 in the USA is the deadline by which Congress is supposed to reach a decision (or not)  in order to meet the August 2 debt ceiling deadline, if no solution is reached in the next week, it will be the US Dollar's turn to possibly plunge.
• And, then there is Italian and Spanish default contagion risk thats brewing...

  

If they both sell off the main money flow could be to the Swissie (Swiss Franc - CHF).

Edit
A follower emailed me a valid point:

You forgot , sine qua non currency - GOLD. The last man standing.
(thanks Paddy, very remiss of me)

Bill Evans U-Turn

Does Bill Evans read my blog? I doubt it but it appears the lights have suddenly gone in Queen Gail's dungeons.

For days I've been waffling about European and US contagion creating a credit freeze whilst falling domestic house prices create a negative feedback loop with lower consumer confidence and rising unemployment.

He discusses all here and is the first of the major bank economists to recognise what the tea leaves are saying.

Snippets:

The dynamics of the economy over the course of the remainderof 2011 and 2012 will be dominated by the key channel of falling consumer confidence and global financial turmoil spilling over to business confidence which lowers investment and employment intentions leading to a fall in employment growth and an increase inthe unemployment rate. In turn this rise in the unemployment rate feeds back to consumer confidence and spending, further impacting businesses' employment decisions.

Here we go!

Our consumer survey also shows households are becoming progressively more nervous about prospects for house prices. Housing is the major component ofhousehold wealth. Fears about falling wealth are likely to spur further increases in the savings rate. That will further undermine consumer spending with a more significant bottom line impact onspending growth due to the weaker income backdrop.

The catalyst for the first rate cut is likely to be associated withthese European convulsions but further cuts will be driven by the combined negative impact of European events on confidence and specific domestic issues.

Fear within the financial system in Europe around the exposuresof counterparties are adversely affecting liquidity and look set tointensify. Sovereign defaults/major restructuring are likely to bethe only credible ‘solution’ for the weakest countries with these events triggering major losses for the European banks. The sizeand incidence of these losses will also be unclear but those banksexpected to be most exposed are likely to find credit more andmore scarce, imposing credit crunches across Europe.

Well done Bill!

The full report out today.



Lets see if CBA, NAB, ANZ etc follow suit.

Fiat Justitia, et Pereat Mundus

Martin Wolf writes for the London Financial Times via the Business Spectator.

Utopian dreams destroyed by debt

In the eurozone, the fiscal crisis is lapping on Italy’s shores. In the US, the administration declares it will run out of funding early next month if the debt ceiling is not raised. Far fewer Europeans than Americans believe public sector defaults are beneficial. But important Europeans share with Republicans the view that there are still worse outcomes. For reluctant Europeans, the eurozone must not be a ‘transfer union’. For recalcitrant Republicans, taxes must not be raised. Fiat justitia, et pereat mundus – let right be done even if the world perishes – is the motto
.
The fiscal crises we see are a legacy of the west’s private and public sector debt binges of recent decades. As the McKinsey Global Institute tells us in an update of last year’s study of the aftermath of the credit bubble, this is an early stage of a painful process of deleveraging in several economies (See: chart). “If history is a guide,” noted the 2010 report, “we would expect many years of debt reduction in specific sectors of some of the world’s largest economies, and this process will exert a significant drag on GDP growth.” So it is proving, with disappointment almost everywhere.

The link between private and public sector debt is intimate. In some countries, notably Greece, easy credit led to an upsurge in public sector borrowing. In others, notably Italy, it encouraged governments to relax attention to debt reduction: its primary fiscal budget (before interest) moved from a surplus of 6 per cent of gross domestic product in 1997, before joining the currency union, to 0.6 per cent in 2005. Elsewhere, the sudden end of private sector credit booms led directly to collapses in government revenue and surges in public spending: the US, UK, Spain and Ireland are examples.
 
Exploding fiscal deficits are mainly the result of collapses in activity and revenue rather than of bank bailouts. But fiscal weakness then undermines the banks, partly because the latter hold large quantities of domestic public debt and partly because they rely on fiscal support. The private and public sectors are intertwined. The view of Republican hawks in the US and of German or Dutch hawks in Europe that the crisis has fiscal roots alone is wrong. Easy credit ends up in fiscal crises. (take note Australia!)

US evidence is striking. Compare the forecasts for fiscal years 2010, 2011 and 2012 in the 2008 and 2012 presidential budgets, the first under George W Bush shortly before the crisis and the second under Barack Obama well after it (see: chart above). The 2011 deficit was forecast in 2008 to be a mere $54 billion (0.3 per cent of GDP). But in the 2012 budget, it is forecast to be $1,645 billion (10.9 per cent of GDP). In all, 58 per cent of this rise is due to unexpectedly low revenue and only 42 per cent due to a surge in spending, both of these changes mostly due to the financial crisis, not the modest stimulus package (about 6 per cent of GDP).
 
The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 per cent of GDP in 2011, far below their postwar average of close to 18 per cent. Individual income tax is forecast to be only 6.3 per cent of GDP in 2011. This non-American cannot understand what the fuss is about: in 1988, at the end of Ronald Reagan’s term, receipts were 18.2 per cent of GDP. Tax revenue has to rise substantially if the deficit is to close.
 
It is not that tackling the US fiscal position is urgent. At a time of private sector deleveraging, it is helpful. The US is able to borrow on easy terms, with yields on 10-year bonds close to 3 per cent, as the few non-hysterics predicted. The fiscal challenge is long-term, not immediate. A decision not to allow the government to borrow to finance the programs Congress has already mandated would be insane. As the fiscal expert, Bruce Bartlett, has argued, the law requiring Congressional approval of extra debt might even be unconstitutional.

Yet, astonishingly, many of the Republicans opposed to raising the US debt ceiling do not merely wish to curb federal spending: they enthusiastically desire a default. Either they have no idea how profound the shock would be to their country’s economy and society of a repudiation of debt legally contracted by their state, or they fall into the category of utopian revolutionaries, heedless of all consequences. Meanwhile in Europe, happily, nobody believes that defaults are good. But Europe is trapped in its own utopian project: the single currency. Just as members of the Tea Party hate paying taxes for those they deem unworthy, so, too, do solvent Europeans hate transfers to those they deem irresponsible.
 
Alas, as many have long predicted, what would, in the absence of the currency union, have been a straightforward currency crisis has now morphed, within these constraints, into an agonising fiscal cum financial crisis. Worse, spreads on Spanish and Italian 10-year bonds over German bunds have reached 328 and 296 basis points, respectively.
 
In slow-growing economies with overvalued real exchange rates, these spreads begin to be dangerous. If they became and remained, say, 400 basis points, the real interest rate on long-term debt would be 5 per cent. These countries would then be slowly shifted from a good equilibrium, with manageable debt, to a bad equilibrium, with close to unmanageable debt. Italy, with the fourth-largest public debt in the world, is probably too big to save: Italians themselves must make the decisive moves needed to restore fiscal credibility. That, in turn, requires both a sharp tightening and measures to raise the growth rate. Can this combination be managed? Only with difficulty, is the answer.

These are dangerous times. The US may be on the verge of making among the biggest and least-necessary financial mistakes in world history. The eurozone might be on the verge of a fiscal cum financial crisis that destroys not just the solvency of important countries but even the currency union and, at worst, much of the European project. These times require wisdom and courage among those in charge of our affairs. In the US, utopians of the right are seeking to smash the state that emerged from the 1930s and World War 2. In Europe, politicians are dealing with the legacy of a utopian project which requires a degree of solidarity that their peoples do not feel. How will these clashes between utopia and reality end? In late August, when I return from my break, we may know at least some of the answers.

America's Brewing Debt Storm - The Clock is Ticking

This is a must read (1.6MB PDF): Debt Limit Analysis

Also, August Invoices Show U.S. Treasury’s Limited Choices

The U.S. government, whose legal authority to borrow money expires on or about Aug. 2, expects to take in $172.4 billion next month — enough to cover little more than half of its bills due then, according to a study for the Bipartisan Policy Center, a research organization.

The U.S. may not have to default on outstanding debts or withhold interest payments for that month; it may be able to cover $29 billion in anticipated interest due on Treasury securities with its cash receipts.

This is just the first day after the money well runs dry:

This could get rather ugly if that debt ceiling isn't re-negotiated.

Smells Like?

Biggest fall in sales at DJs on record

David Jones says a dramatic plunge in consumer confidence among well-heeled shoppers, exacerbated by carbon tax fears, has led to a record fall in sales.

Hey dickhead, people have been using their spiralling home equity to splash out. Now they are losing $1000+ a week from the gabled roof Ponzi and the ATM in the garage is running out of cash. A primo example of how falling home values will infect business at EVERY level. Wait until the unpemployment is over 10%+ as the contagion spreads and the feedback loop gets stronger*.

Unemployment WILL rise (click on chart to expand)...

The company says it will consider more aggressive discounting, but believes the Australian retail industry is in uncharted territory.

No shit. Its well charted in the USA, Ireland, Spain etc. You ain't seen nothing yet.

"We saw a decline in May with slight negative sales, but we saw a significant decline in June and July and the result were certainly unprecedented," chief executive Paul Zahra told a media teleconference on Thursday.
"As far back as our records show, we haven't seen these sorts of declines in sales."

There was no Carbon Tax in June but there was significant data showing house price declines.

"I don't really know what we're entering into, but our future guidance fully factors in that negative sales environment."

How many million does this dickhead get paid?

*Feedback Loop.  Decline Home Equity (leads to)> Declining Consumer confidence/Spending>Rising Unemployment (Construction and Retail first hit)>Declining Home Equity (Rinse and Repeat). Now add panicking baby boomers "cashing out bfore its too late" and Small to Medium Enterprises (SMEs) that used home equity as collateral, getting credit lines slashed or loans called in.

The "A" Word

A Spanish newspaper has used the naughty "A" word. Abyss.

Italy and Spain are close to the abyss (Translated from Spanish).

For years, financial crises and defaults of countries have been associated with Latin America, Southeast Asia, the developing world. For generations, emerging countries were suffering from currency crises, bank failures, financial meltdowns and other economic woes known to modern man. These usually occur panic episodes in summer, when flocks of speculators have more ability to influence markets. It's summer and the crisis gets worse, but this is not Latin America or Asia: Europe is the new frontier of fear. The European Union was yesterday unable to give a change of direction and the crisis of peripherals (Greece, Ireland and Portugal) rammed full heart of the euro to a lesser extent Italy and Spain, totaling over 100 million inhabitants and a GDP of 2.5 trillion euros, peered over the precipice, with steep drops in the stock and especially with a severe correction in the debt markets.

Italy and Spain face a major problem. The main one is terrible crisis management by the European authorities, with several countries, primarily Germany, but also the Netherlands, Finland and Austria, making it difficult to achieve agreements. But internally, Spain faces a fragile recovery, combined with the effects of the bursting of the housing bubble, a time bomb for the accounts of banks and savings banks. Italy also faces a serious internal political crisis, adding to a stalemate that lasted for years and growing doubts about the health of their banks, which account for most of the huge public debt trans (120% of GDP, in absolute numbers the largest section of the third world debt, behind only the U.S. and Japan).

And this is just the beginning

Gold in Australian Dollars

Up 8% in 12 days on US and Europe debt mayhem:

Link to GOLD:XAD chart July 1 - 12

Tigers

Moody's downgrades Ireland to "junk" ("Tiger" to Junk in 4 years)

SAN FRANCISCO (MarketWatch) -- Moody's Investors Service on Tuesday lowered Ireland's foreign- and local-currency government bond ratings by one notch to non-investment grade of Ba1 from Baa3. "The main driver of today's downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current E.U./IMF support programme at year-end 2013," said Moody's in a statement. The outlook on Ireland's ratings remain negative.

The Celtic Tiger:  Irish Property Bubble

The fact that property valuations were steadily increasing tended to create a systematic feedback loop, where rising prices affected the psychology of market participants, causing further increases in prices.

Never seen that in Australia (*walks away whistling*). What! Our property debt exceeds GDP?

The banks have mortgaged 4 generations so you deluded folk that bought a property at least a decade ago (like me), and saw it go celestial in value could feel good about your perceived wealth last year. Note, LAST year. You are now losing equity at a rate of $000s a week.

Make sure you watch the videos on my post To be sure, to be sure

And, Unstable Pillars.

It will happen here.

The main stream media and the dopeys in suburbia (and Alan Kohler on the ABC) are obsessed with the Carbon Tax. WRONG! A halving in house values to NORMAL levels is the monster, and if that starts to happen there will be no carbon tax because we will become like the Irish. Hypothetically HALVE the values in your Real Estate holdings and see what you have. Feeling happy?

Up to a $400,000,000,000 hole in the finance sector. Bank failures. Credit freeze.
I wrote about this on Whats that on the horizon Captain?.

Keep sitting on your investment properties and snarl invective every evening at the Carbon Tax .

If you don't get it....

Now when the property slide gets to full cry... make sure you blame the government.

Its not YOUR greed or failure to interpret the bubble market. It wasn't the easy credit, the Liberal party policies of 2001 of FHOG, baby bonus, increase money supply etc... they were good policies (The KRudd stimulus of 2008/9 just added the cherry and foolishly kicked the can down the road and created Aussie sub-prime). It was never your failure to learn the history of the markets you were using equity to invest in. It was never your fault.

Blame the government. Its as Australian as a Meat Pie.

Just Raise The Ceiling FFS and Sort It Out Later.

Tensions rise on Capitol Hill as America runs out of money

By 2 August the US must raise the legal limit on its $14.3 trillion debt or face dire consequences, and Republicans and Democrats have been locked in battle on Capitol Hill. With the crunch deadline approaching, Obama hit out at Republicans last week, saying they favoured corporate jet owners over children and the elderly. Those high-flying fat cats got six mentions in a speech that set out the president's combative stance

That dire consequence is a debt default. You know, like Greece.

UPDATE: As Debt Talks Intensify, Republicans Shift Further Right

• Republicans won't support tax increases as part of deal to raise borrowing limit
• Signs mount that House Republicans who had been willing to compromise on spending may now be less willing
• Democtratic Rep. Welch wants House speaker to schedule vote on raising the debt ceiling without conditions.

WASHINGTON (Dow Jones)--Republicans dug in their heels Monday and said that they wouldn't support tax increases as part of a deal to raise the U.S. borrowing limit, amid signs that the caucus is shifting further to the right just weeks before the country's ability to finance its deficit expires.

After Obama's speech, Rep. Michele Bachmann (R., Minn.), a presidential contender who is currently at the top of the polls in Iowa, issued a statement reiterating that she wouldn't vote to raise the debt ceiling. She said Obama "has wrongly assumed that everyone agrees that we need to raise the debt ceiling... I disagree."

Rep. Peter Welch (D., Vt.) said House Republicans appeared to moving farther from a compromise with Democrats instead of closer. "What you're seeing in the Republican caucus is first, no deal that includes revenues; then the fallback position is the cuts aren't deep enough; and then the fallback position is we shouldn't raise the debt ceiling. Michele Bachmann is sort of leading the parade. They're playing dangerous politics and they're looking over their shoulder at a potential tea party challenge if they vote to raise the debt ceiling."

Welch said the House Speaker should schedule a vote on raising the debt ceiling without conditions.
"It would be political malpractice to deny us the chance to vote up or down on an increase in the debt ceiling to avoid a catastrophic default," Welch said.

Boehner already did hold such a vote at the end of May. The measure overwhelmingly failed, 318-97.

Whats wrong with America's wider economy? Mohamed El-Erian, CEO of PIMCO (Numero Uno in Bond Management, Funds and Investment) wrote an excellent article last week. How America can avoid another Lehman.

First, and nearly three years after the global financial crisis, the US housing market is still unable to find a firm enough footing. This undermines confidence and limits labour mobility.

Second, joblessness remains worrisomely high, and to make things even worse, is increasingly structural in nature. Witness the 9 per cent unemployment rate, declining labour participation and an alarming 24 per cent unemployment rate among 16-19-year-olds and a 40 per cent rate for African-Americans.

Third, credit is yet to flow properly in the economy. With bank lending still hampered, it is small companies and poorer households that suffer the most.

Fourth, there is a problem of debt and leverage. Coming off a ‘great age’ of debt and credit-entitlement that went way too far, balance sheet rehabilitation has been uneven and generally insufficient. Yes, some sectors, led by multinational companies, have recovered strongly. But far too many in the private sector are still over-indebted. Meanwhile, public balance sheets, be they of the Federal Reserve or the fiscal agencies, are contaminated to such an extent that they now constitute a source of medium-term uncertainty.

Paradigms and Plateaus

First, lets roll back the clock....

March 26th 2005; Its a totally new paradigm.

Quotes from 2005.

Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that "South Florida is working off of a totally new economic model than any of us have ever experienced in the past." He predicts that a limited supply of land coupled with demand from baby boomers and foreigners will prolong the boom indefinitely.

"I just don't think we have what it takes to prick the bubble," said Diane C. Swonk, chief economist at Mesirow Financial in Chicago, who was an optimist during the 90's. "I don't think prices are going to fall, and I don't think they're even going to be flat."

How did those markets go?

That new paradigm in Southern Florida of limited supply of land coupled with demand from baby boomers and foreigners [that] will prolong the boom indefinitely saw 55% falls in 34 months.

Roll forward 6 years to the Weekend's Mexican Bogan Rag, The Herald Sun. What a headline.

Decade of pain for Melbourne's property market


Deluded Quasi Pessimist:

The good news for homeowners is that AMP Capital chief economist Shane Oliver and Grattan Institute program director Saul Eslake - the ANZ's chief number cruncher for close to 14 years - say Victoria will avoid a US-style property crash which saw prices plunge by 30 per cent.

Instead, house prices will continue their single-digit slide into 2012 before stagnating for five to 10 years as wages catch up with a median house price which has climbed 133 per cent since 2000.
"We are facing a situation where we are just spinning the wheels for up to 10 years until incomes catch up with property prices," Mr Oliver said.

Deluded Industry Vested Interest Spruiker:

The Housing Industry Association's chief economist Harley Dale said price growth was likely to track inflation over the next 10 years. "That means you are not talking about any real growth," he said.

FAIL boys FAIL. History has shown it never happens. I wrote about this in April under History Never Repeats. Where Reinhart and Rogoff analyse 800 years of Markets....

The authors present eight centuries of financial folly, demonstrating the common theme that excessive debt accumulation regardless of the source — government, business or consumer — poses greater systemic risks than it seems at the time of the boom. (MoneyWatch recently interviewed Reinhart for her views on the current state of the economy.)

• Infusions of cash make a government look like it’s providing greater growth than is actually being provided.
• Private-sector borrowing binges inflate housing and stock prices beyond sustainable levels and make banks seem more stable and profitable than they really are.
• Large-scale buildups of short-term debt make an economy vulnerable to crisis of confidence.

They demonstrate that financial crises are protracted affairs that share three characteristics:

• Asset market collapses are deep and prolonged. Declines in real housing prices average 35 percent and stretch over six years. Equity prices collapse an average of 56 percent over a downturn lasting three-and-a-half years. Thus, the most recent crisis seems quite typical.
• The aftermath of banking crises is associated with deep declines in output and employment. Unemployment rises an average of 7 percent over cycles lasting more than four years on average. Output falls more than 9 percent over two-year periods, and it has taken about four-and-a-half years for output to fully recover.
• Government debt surges an average of 86 percent in real terms. The main cause is not spending but a decline in revenues

The bottom line is that the aftermath of crises has a deep and lasting effect on asset prices, output and employment. Unemployment increases and housing price declines have extended for five and six years, respectively. The authors also note that V-shaped recoveries in equity prices are far more common than V-shaped recoveries in real housing prices or unemployment. (2009 is certainly not an exception.)

IT IS NEVER DIFFERENT.

To cap it off the industry is as straight as a $3 note. A shining example of the fear, the dishonesty and total disrespect for buyers and the market: Agents withold house price data.

MELBOURNE real estate agents and vendors are increasingly withholding or manipulating data provided to the Real Estate Institute of Victoria, prompting calls for the mandatory reporting of all property sales to protect consumers.

A Sunday Age investigation has found that 27 per cent of all auction results published by the industry body in June were missing critical information - including the sale price, passed-in price or the reserve. Many auctions were not reported at all, distorting clearance rates that are used by buyers and sellers to gauge market strength.

Last month, agency RT Edgar sent a newsletter to clients warning there was a ''serious question mark'' over media reporting on the market because many agents were withholding sale prices and passed-in results. RT Edgar director Michael Ebeling said agents who were doing the right thing were being disadvantaged
because their competitors' clearance rates seemed better because they withheld information.

''We cannot see how the media is getting reliable sales statistics, and as a result are reporting misinformation about the market,'' the email said.

Despite conceding that the reporting system is a ''bit rubbery around the edges'', the Real Estate Institute of Victoria has refused to back calls for compulsory reporting of all auction results.

''It is not the role of the REIV to force home owners to publicly declare the amount for which their homes sell. If a person really wants to know the price for which a home sells, they can attend the auction,'' Mr Raimondo said.

But buyers advocate Christopher Koren said many agents were resorting to ''sneaky behaviour'' to mislead buyers over the true state of the market and that mandatory reporting was ''an obvious and necessary reform''.

Why would they withold the information it if it didn't indicate the shit was hitting the fan?

We are RED!

No blogging last week as I was beset with Queensland Rugby Fever. Suncorp was magnificent last night. I'll remember it forever.

I'll be back commenting on the impending GFC II and the Australian credit fuelled housing bubble in due course. My week in Brisbane has been magnificent and last night just so special.

For anyone that cares I shorted EURUSD on Independance Day at 1.456 and started taking profits Thursday at 1.426.

Money never sleeps.

Espana

Spain's unemployment is over 20%.

This is a result of Spanish House Prices going through the floor.

So the unemployed are not paying their mortgage. Bad for banks right (?). Nope, the insolvent Spanish Government to the rescue.

http://www.reuters.com/article/2011/07/01/spain-mortgages-idUSLDE75S0L820110701

MADRID, July 1 (Reuters) - Spain announced measures on Friday to help those struggling with high mortgage payments, but consumers said the moves gave limited relief for Spaniards mired in housing debt after the country's housing bubble burst.

The Socialist government, facing almost certain defeat in general elections that could come as soon as November, said it will increase the amount legally set aside for a debtor's own spending needs when banks start reclaiming funds.

"The amount excluded from any seizure of property will rise to 960 euros ($1,360) per month from just over 700 euros previously," the government said in a statement after Friday's cabinet meeting 

Spaniards, fed up with high unemployment and austerity measures imposed to placate international markets, have taken to the streets calling for changes in the political system and more equality in society.

Banks in Spain have the right to repossess properties and evict owners when they fall behind on debt payments, and the debtor continues to be liable for any shortfall between the value of the property and the mortgage debt.

The value of Spanish mortgage debt roughly doubled in the five years to 2009, as Spaniards leapt onto a bandwagon driven by easy lending conditions and rapid price rises.  (Sound familiar??)

Although bad mortgage debt is only about 2.5 percent of the total, according to Bank of Spain data, many Spaniards are having difficulty making ends meet.

"These measures will help so few people as to be insignificant," said Manuel Pardos, chaiman of banking customer association ADICAE.

ADICAE estimates that more than 1 million families face severe mortgage payment problems -- around 300,000 whose loans have been foreclosed, another 300,000 in the process of foreclosure and around 500,000 having difficulty making payments.

"(Debtors) who are still working have very low wages, and many of them are not working at all, so they have no income," said Pardos. Many Spaniards are eating in soup kitchens so they can make their mortgage payments, he said

Spanish Government Debt.

Who is holding the can?

You can see from the above chart, the Spanish situation dwarfs that of of Greece.