Friday, 15 July 2011

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.


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.


  1. Yep - that's it - all tied to credit and the illusion of wealth via housing. That dream is over for now - consumers are in restraint mode and will be so for some time. Not helped by political ineptitude, state utility price rises, carbon tax fug - imagine if we had to pay for petrol without the benefit of strong exchange rate.

    China Fanboy

  2. Thanks CF,

    West Texas Crude (WTI) has had a definite inverse relationship (hedge) with the USD for the last few years. That relationship has protected our arse. If it disconnects, lookout.

    I'm anti [direct] taxation fullstop.

    Do some research on Switzerland's tax scheme, very nice and encourages earning and investment whilst pulling in ample revenues for the govt.

    Thanks for the comment,

  3. ...forgot to add, ZIRP (Zero Interest Rate Policy) didn't help the Americans or Japanese one iota. When the heard turns, its turning.