Talking About the First Home Buyer’s Grant Again

This is what the first home buyer’s grant does. It “brings forward demand.” But really, how generationally selfish is it to go into debt today so you can maintain your standard of living? That stimulus spending will have to be paid for. Taxes will have to rise. Or, more of the government’s tax takings will go to pay off creditors.

Either way, isn’t there something inherently greedy about the whole idea of deficit spending? Households, businesses, the government…all of them take excessive risks in the boom phase of the credit expansion. Then, rather than reckoning up the investments, taking the losses, and moving on to the next cycle of economic growth, they try to have all gain and no pain.

They do this by borrowing a little. Then a little more. Then a lot. It all sounds very textbook and officially appropriate. But all of it is to “fight” the very recession that is a natural part of the business cycle anyway. When you get right down to it, there is something tawdry and small spirited about it. Think that your avoidance of consequences allows to put future generations in debt is also just plain vulgar, materialistic, selfish, and not honourable.

And let’s not forget deceptive! Here we’re talking about the first home buyer’s grant again.

“The average loan size for first-home buyers has risen by $52,000 – or 23 per cent – in the past two years, raising fears that the much-publicised government incentives for young buyers are artificially inflating the market,” report Nick Tabakoff and Joe Kelly in yesterday’s Australian.

Prices at the bottom end of town are moving up because of the grant. This is forcing those new buyers to take out even larger loans. We can see how this is good for real estate agents, lenders, stamp duty collectors, and mortgage insurers. We can’t see how it’s good for first home buyers to see the entire value of the grant tacked on to the price.

And while we’re at it, it’s hard to see how getting into the housing market at the bottom of the rate cycle with huge question marks in the economy about employment, is, you know, a smart, safe, financially prudent thing to do. But if the government says it’s a good idea, it must be true.

And of course, we’re certain the banks have been prudent in keeping the strictest lending standards. They would never, ever make a loan to someone who might have trouble servicing the debt. That just wouldn’t happen in Australia. Impossible.

Of course you could make the argument that keeping house prices inflated by whatever means necessary is a policy goal in Australia, just as it was a policy goal in America. With the stock market in a secular bear phase, the idea of financial and personal security from ownership is one of the most powerful remaining myths in public life (the idea of retirement is already under attack, once you do the demographic math.)

So it IS possible the government will do even more to support house prices. But it is also possible there is nothing the government can ultimately do to support house prices if they really are seriously unaffordable, as we believe they are. You can keep interest rates low, make grants, guarantee loans, or even buy securitised mortgages. But you can’t make prices affordable by throwing more money at them.

Yet throwing more money at the economy through quantitative easing is just what the U.S. and the U.K. are doing. It is a back-door devaluation of the currency which is directly reflected in the recent performance of both the pound sterling and the greenback.

What you need to know as an investor is that governments will ALWAYS choose the path of radical devaluation and inflation over accepting recession or deflationary depression. That is why gold and other forms of tangible wealth are the best ways to prepare for the coming re-devaluations. They are on their way.

by Dan Denning for The Daily Reckoning Australia

Credit Default Swaps Show A Decrease In The Fear Trade

Credit Default Swaps (or default risk) have really come in over the last week, and as shown below, an index of CDS prices for 125 investment grade North American debt broke its uptrend and key support in recent days.  A break of these key technical levels leaves plenty of room to run on the downside, which is a positive for the overall market.

Below we highlight the CDS prices for four big banks and brokers.  Default risk for these companies has also dropped significantly over the last few weeks.  CDS prices for Morgan Stanley and Goldman Sachs have really moved back to more normal trading levels, while Bank of America and Citigroup are down but still have a lot further to fall before anyone can say the coast is clear.

Source: Bespoken Research

Financial Institutions, Market Cap, 1999-2009

1999: Top 20 Financials by Market Cap

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2009: Top 20 Financials by Market Cap

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Financial Institutions, Market Cap, 1999-2009

Fascinating infographic via the FT on the top twenty financial institutions, according to market cap.

Click either of the graphics to reach the interactive charts, and then use the slider to see the changes take place.

1999: Top 20 Financials by Market Cap

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2009: Top 20 Financials by Market Cap

Source: The decade for global banks

You Will NOT have a Market Reversal Without this Index …

Some investors were excited last week with a nice market move on oversold conditions.

Is it real, or is it part of a market attempt to find a bottom?

Think about it … who or what got us into this whole trouble? The answer is the Banks.

So, it makes imminent sense that the banks are going to have to show that they are out of trouble and trending up before the stock market can find its way to a new Bull Market. This is important, because over 13% of the S&P 500 is made up of Financial stocks.

Therefore, let us look at Banking Index today (symbol: $BKX).

This daily chart goes back to 1993, 17 years ago.

On Friday, the Banking Index closed at 25.59. That was a level just above the 1993 and 1994 support levels. As you can see on today’s chart, the drop after the Banking Index’s 2007 peak has been precipitous.

In fact, the down movement in the past two and a half years erased 14.5 years of up movement. The fall in the Banking Index depicts the seriousness of the the financial troubles this country is in.

So, what is the Banking Index telling us now?

The daily chart looks pretty depressing. But, take a look at the close-up insert in the upper left hand corner. That is a picture of the Index’s movement since January of this year.

First, note the fan lines. We have had rising fan lines which is a sign that the Banking Index is trying to stabilize.

Sounds good? Not quite yet … note the arrows I drew in the close-up. They still show lower/highs and lower/lows … a classic definition of a down trend. Until that changes, the Banking Index will remain in a technical down trend.

So, what we are seeing is a mixture of two conditions … one negative and one positive. This could be a basing attempt which would translate into the Banking Index trying to establish a hold-able bottom. While that would be good news, it hasn’t happened yet. Such an event is a process, not an instantaneous happening.

So, be patient. The Banking Index is showing some progress … it now has to show a trend reversal and that will take some work.

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Tricom Today ASX Stock Market Report 25-02-09

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The market is up 11,was up 51 earlier – underperforming the 70 point rise predicted by the SFE Futures this morning. Financials up 0.3% following the 14.8% rise in the banks in the US overnight on the back of positive comments from Bernanke reassurance that the banks won’t be nationalized. All our banks up 1-2% early on. Resources up 0.1% – BHP and RIO up 0.9% and 0.4% following significant jumps in the miners overnight in the US and a rise in metal prices. Industrials up 1.7% – APN News and Media (APN) posted a FY NPAT loss of $24m. Final dividend will be 12c. Guides FY09 underlying NPAT to be $120m in-line with consensus. Balance sheet in good shape. Doesn’t expect further jobs cuts. Expects a slow 1H09, picking up in the 2H. Property up 2.1% after recent heavy falls - Westfield up 2.4%.

Financials Wipeout

In the first chart below we highlight a ratio of the S&P 500 to the S&P 500 Bank group going back to 1940.  When the ratio is rising, the financials are getting weaker relative to the S&P 500 as a whole.  As shown, the ratio is currently as high as it has been over the entire time period, meaning the banks are as small as they’ve been relative to the overall index.  Where we go from here, nobody knows, but the financials are pretty much getting wiped off the investment map.

Below we highlight the percentage declines from peaks of various asset class busts in the last decade.  Prior to the declines that financials, oil, and homebuilders are seeing currently, the only recent comparison for the current generation of investors was the Nasdaq bust from 2000-2002.  As shown, the Nasdaq went down 78% from its March 2000 peak to its October 2002 low.  Following the bursting of the Internet bubble, many investors didn’t think they’d see a similar bust for decades.  But the current declines in financials and homebuilders have now eclipsed those of the Nasdaq, and oil has also gone down just as much. 

Oil’s decline of 77% from July 2008 to its low in December was the fastest bust of the group, while homebuilders have gone down the most and for the longest period of time.  Since July 2005, the homebuilders are down a whopping 87%!  And the S&P 500 Financial sector is down 81%, which isn’t as bad as the homebuilders, but given the fact that it didn’t go up nearly as much as the homebuilders, it’s probably worse.

Source: Bespoke Research

Tricom Today 11-2-09

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The market is down 27, doing better than the 80 point fall predicted by the SFE Futures this morning and is down just 1.1% despite a 4.6% fall on Wall St post a disappointing bank rescue plan which made it clear that there is no Obama miracle cure for the financial crisis after all. It has been terribly received in the US and criticized for a lack of detail. It seems the new administration are still making it up as they go along and have no convincing strategy to stop the financial crisis. Resources down 1.8% with metals all down. BHP down 2.8%. RIO up 1.9%. Energy stocks down on the lower oil price. Gold stocks mixed . Newcrest, Lihir and Sino Gold down, but smaller players up. One broker predicts another 3 year bull market in gold. Financials are down 0.7% – banks all down 1-2% early on with CBA up 0.7% and outperforming on the back of 1H results in-line with their profit upgrade last week. CBA will pay 113c dividend which goes ex on Monday. Property down 1.1% as Stockland Group posted a 1H NPAT loss of $726m with 1H revenue loss of $803m . SGP down 7% early on. Westfield down 1.0%.

Tricom Today 4-2-09

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The market is down 19 bit disappointingconsidering the 26 point rise predicted by the SFE Futures this morning. All sectors down.Property falling heavily again on the back of the Westfield $2.9bn capital raising yesterday 276.2m new shares WDC down 13% earlyon and already back to the 1050c placement price – sector down another 9.9% after a 6.3% fall yesterday. BHP is up 1.8% after posting interim results at the bottom end of the expected range but with a confident statement.Fortescue up 5% early on restructuring some shipping contracts with Bocimar. RIO down
1.4%….the BHP results took the shine off itdespite an 8% rise in ADR form. Base metal stocks mixed. Industrials down 1.1%. Banks all down 1-2% except for Westpac Bank which is up 1.2%.

Tricom Today 3-2-09

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The market is up 52 well ahead of the 7 point rise predicted by the SFE Futures this morning. Financials are up 3.7% – all the banks flying on a CBA guidance upgrade . CBA up 9% and pulling the whole sector up. Westpac up 7.1%. Resources up 0.2% – BHP and RIO up 1.5% and 33%. Gold stocks down on the lower gold price. Newcrest
down 4.5% after completing their $750m institutional placement. Property tanking . down 4.7%. Stockland Group, CFS Retail Group, Dexus, GPT and Goodman Group all big fallers . all down 9-13%. Lend Lease (LLC) up 4.5% on being selected as the preferred partner to build GBP1.2bn in Birmingham schools. Incitec Pivot had a profits warning and fell 30%.

Tricom Today 30-1-09

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The market is down 26 outperforming the 96 point fall predicted by the SFE Futures this morning. Financials down 1.5% – banks down 1-2%. Resources down 1.1% on the lower oil and metal prices. Energy stocks up 0.9%. BHP and RIO down 1.8% and 3.3%. Base metal stocks mixed. Gold stocks doing well on the higher gold price overnight with the flight to precious metals continuing. Newcrest up 2.9% and Lihir up 4.4%. Property stocks doing the worst  down 3.4%. Westfield down another 4.5% and Stockland down 3.6%.

Tricom Today 29-1-09

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The market is up 29 underperforming the 63 point rise predicted by the SFE Futures this morning. Resources leading the way up 1.8% – BHP up 4.6% and RIO down 1.3%. Lots of RIO research this morning discussing the options for a capital raising after the announcement yesterday that a rights issue was a possibility. Financials up 1.0% – banks all up 1% or 2% – NAB outperforming up 3.0%. Industrials lagging – down 1.1% – Wesfarmers down 3.3% announcing a retail entitlement offer.

Tricom Today 28-1-09

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The market is up 40 points compared to the 43 point rise predicted by the SFE Futures.The Banks putting in a great performance. Financials up 2.8%. CBA up 7.2%. Property Trusts are underperforming after Westfield – the sectors biggest company – announced late last night it would writedown $3bn worth of assets. Building stocks are struggling on the back of a profit warning from Boral – down 15%. Resources down 0.4% – BHP up 0.4% and RIO down 2.8% saying it won’t rule out an equity raising to pay down debt later this year.The Dow Futures suggest an 87 point gain on Wall Street tonight.

Long-term charts of the financial sector

“A look at long-term charts of the S&P 500 Financial sector is downright depressing. The first chart below dates back to 1990, and as shown, the sector closed at its lowest level since March 1995 yesterday. The sector is now down 79% from its highs in 2007. A chart of the sector all the way back to 1940 shows just how much the sector has fallen in such a short period of time.”

Source: Bespoke, January 21, 2009.

Tricom Today 23-1-09

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The market is down 104 underperforming the 24 point fall predicted by the SFE Futures this morning. Resources and property taking it in the neck down 4.2% and 3.5%. BHP and RIO down 3.9% and 2.1% as China announced their 4Q GDP figure yesterday at 6.8% – in-line but the slowest pace in 7 years and down from 9% in the 3rd Q. Japan and China have already cut steel production by 28% and 5% respectively. Oz Minerals received a bridging facility for $140m to tide them over until the 27th Feb when their $1bn in debt needs to be rolled over.
Financials weak all the banks down about 3-4%. CBA reported funds under administration and management down about 11% each due to net retail outflows of about $749m. The Dow Futures suggest a 34 point fall on Wall Street tonight.

Tricom Today 21-1-09

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Our market is down 66 but holding up well considering the Dow Jones falling 332 overnight and having its worst inauguration day fall in history. Most of the damage was already done in yesterdays 3% market fall. Financials falling again with all of the big 4 banks down 3-4%. Property Trusts down 3.0%, Westfield down another 4.1% today to 1173c and resources down 1.9%.

Obama’s inauguration is all over the media, blocking out almost everything else. Obama’s speech has continued with the message that it will get worse before it gets better with a somewhat disappointing plea for patience. Dow Futures currently up 26.

Tricom Today 20-1-09

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Disappointing day for our market down 128 underperforming the 14 point fall the SFE Futures suggested. The big drop comes on the back of the UKs financial sector collapse overnight. US Markets were closed in recognition of Martin Luther King holiday. Financials are struggling down 3.9% overall, big four banks the worst performers all down over 4.3%. Resources also underperforming led by BHP and RIO, both down over 5%.

Tricom Today 19-1-09

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The market is up 24 outperforming the 10 point rise predicted by the SFE Futures this morning. The major miners are mostly up with RIO leading the way. Banks mixed and Property Trusts are in the red after Citi put out a piece of negative research on industry leader Westfield (down 1.2%).