Is the Eurozone Crisis really over?

Written by admin on October 30, 2011 – 3:27 pm

A plan announced on Thursday to address the Eurozone debt crisis has bouyed markets around the world. But questions remain if it will go anywhere near fixing the problem.

Eurozone leaders have formed an agreement with private banks and insurers to accept a 50 percent loss on Greek’s bonds. Long term, the aim is to cut Greece’s debt to GDP ratio to 120 percent by 2020. Despite Greece not being able to service it’s initial debts, this is not called a default. It’s also deemed to be voluntary as to not trigger any credit events (CDS). Bloomberg reports there are $3.7 billion in debt insurance contracts on Greece.

To help stabilise economies in the Eurozone, and in fact most of the world, the European Financial Stability Facility (EFSF) will be ‘leveraged’ up to 1 trillion euros and many European banks recapitalised. It’s this term again, ‘leverage’ that has caused so much concern. Ironically, it is in part what caused the GFC. The EFSF was first created in May last year, but it’s feared the fund is to small to be of any real assistance, so the plan is to leverage it by 4 or 5 times.

It’s not yet known how the leverage will be performed. Klaus Regling, the CEO of the European Financial Stability Facility flew over to Beijing after the deal was sealed on Thursday to gauge China’s interest in becoming a potential investor for EFSF bonds or investing into a Special-Purpose Investment Vehicle (SPIV). China Daily writes :

He said his conversations with Chinese officials were partly aimed at getting their preference, in order to find the “right structure” that would appeal to potential investors, adding the leverage mechanism would be “simple” and “transparent”, just like home mortgage loans.

ECB President Jean-Claude Trichet has said the eurozone sovereign debt crisis is not over – “The crisis isn’t over, but after the decisions made this week, I’m nevertheless confident that the governments will succeed in restoring financial stability,”. Only time will tell.

» Euro zone to leverage EFSF by 4 times to 1 trln euros – sources – Reuters, Wednesday 26th October 2011.
» Euro bailout chief says talks with China ‘productive’ – China Daily, Sunday 30th October 2011.


Posted in Australian economy, UK economy, US economy | 6 Comments »

Jeremy Grantham on Bubbles

Written by admin on April 29, 2010 – 11:56 pm

The Financial Times has an interview with Jeremy Grantham, founder and chief strategist at GMO, on bubbles.

Mr Grantham has identified over 34 bubbles over the years based on the 40 year event based from price and volatility. At present 32 of the 34 bubbles have moved back to trend before the bubble existed, with the Japan asset bubble, Tech Wreck and more recently the U.S. housing bubble included in these. He says the U.S. housing bubble was a good example of an ideal bubble.

He says two bubbles remain in play at present. These are the Australian housing bubble and the U.K. housing bubble. He believes mortgage rates came down significantly to protect these two bubbles and now we have to wait and see what happens when interest rates rise. If they don’t come down to the trend line multiple of family income, it will be the first time in history that the bubble hasn’t broken. (I guess property speculators here, do say Australia is different and it won’t happen here!)

He also identifies potentially forming bubbles as commodities and emerging market equities. Commodities could come as another blow to Australia.

Watch the interview here – Apr-19-Jeremy-Grantham-on-bubbles.


Posted in Australian Housing, UK economy, US economy | 2 Comments »

World housing crash accelerates with more record falls in the US and UK

Written by admin on February 26, 2009 – 7:11 pm

House price data for the UK market compiled by Nationwide shows in the 12 months to February, shows house prices fell 17.6%. This, the 16th consecutive contraction is now the biggest fall since Nationwide started to collect data in 1952.

Meanwhile Standard and Poor’s have released the latest update to the S&P/Case-Shiller 20 city composite index which shows in the 12 months to December, house prices in the US fell a record 18.5%. From the peak of the US housing bubble in quarter 2 ’06, US house prices are now down 26.7%.

» British house prices in record fall – AAP, 26th February 2009.
» U.S. housing market bottom may be a year away: Case – Reuters, 26th February 2009.


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Posted in UK economy, US economy | 3 Comments »

UK : Bank of England cuts rates to the lowest since 1694

Written by admin on January 9, 2009 – 8:04 pm

The Bank of England has today reduced the benchmark interest rate by 0.5% to 1.5%, the lowest rate since the Bank of England was established in 1694.

» BOE Cuts Rate to Lowest Since Bank’s Creation in 1694 – Bloomberg, 8th January 2008.


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It’s official – The USA is in recession

Written by admin on December 2, 2008 – 7:52 pm

The US National Bureau of Economic Research has released data confirming the USA is in recession. The peak of the cycle was a year ago in December 2007 and the US economy has been crumbling ever since.

Confirmation the US is in recession saw the Dow Jones shed almost 7% or 680 points overnight.

The largest economy based on GDP output now joins number 2, Japan who officially went into recession on the 17th November 2008, number 3 Germany who officially declared a recession on the 13th November 2008, and number 5, the United Kingdom who confirmed falling GDP on the 25th October.

On the 14th of November it was reported the Eurozone was in recession. Member countries France (ranked 6th largest economy) and Italy (ranked 7th) has so far only narrowly escaped recession.

The only economy in the top five not in recession is China. China has however experienced a rapid fall of GDP big enough to make it fell like it is in recession.


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China facing rapid economic slowdown

Written by admin on November 13, 2008 – 7:37 pm

China has received more evidence that its economic growth is slowing drastically.

The growth in China’s industrial output slowed to 8.2 per cent in October, compared to 11.4 per cent a month earlier.

» China facing rapid economic slowdown – Yahoo 7 Finance, 13th November 2008.


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World on brink of meltdown, warns IMF

Written by admin on October 12, 2008 – 7:11 pm

Only last week the IMF was quite conservative on this crisis. Today the head of the IMF, Dominique Strauss-Kahn is saying “Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.”

umm, on the brink of systemic meltdown you say?

» World on brink of meltdown, warns IMF – The Australian, 12th October 2008.
» IMF warns of world financial system ‘meltdown’ – The Telegraph, 12th October 2008.


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G7 vows to fight credit crunch

Written by admin on October 11, 2008 – 9:06 pm

THE G7 nations have vowed to take all necessary steps to unfreeze credit markets and ensure banks can raise money but have offered no collective course of action to avert a deep global recession.

» G7 vows to fight credit crunch – The Australian, 11th October 2008.


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UK house price fall steepest in 25 yrs – Halifax

Written by admin on October 9, 2008 – 8:25 pm




New data released shows UK house prices fell 12.4% for the year to September. This is the biggest annual fall in over 25 years.

» UK house price fall steepest in 25 yrs – The Guardian, 12th October 2008.


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Central banks cut rates to contain financial crisis

Written by admin on October 8, 2008 – 5:19 pm

The US Federal Reserve has led a global round of emergency interest rate cuts in an effort to contain the worst financial crisis since the 1930s.

The Federal Reserve said it was cutting its key federal funds rate by 50 basis points to 1.5 per cent.

» Central banks cut rates to contain financial crisis – The ABC, 8th October 2008.


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Dexia gets 6.4b euro three-state bailout

Written by admin on October 1, 2008 – 8:51 am

Dexia has become the latest European bank to need a state bailout with Belgium, France and Luxembourg pumping 6.4 billion euros ($A11.54 billion) into the group so that the financial crisis would not claim another victim.

» Dexia gets 6.4b euro three-state bailout – The Age, 1st October 2008.


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The most dangerous financial cliché in history; Nationalisation of Bradford & Bingley’s toxic portfolio.

Written by admin on September 30, 2008 – 4:58 pm

‘You can’t go wrong with bricks and mortar.’

This may go down in history as the most dangerously mistaken cliché ever uttered.

Over the weekend, another British high street bank has been nationalised. US politicians have been debating non-stop over an emergency bail-out that effectively part-nationalises the entire banking system.

Amid all the wailing about the capitalist system, all the blame-throwing between investment banks and government ministers, we should remember that all this boils down to one stupid but widely-held belief.

That property prices could only go up…

» The most dangerous financial cliché in history – MoneyWeek, 29th September 2008.


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UK : House price falls ‘accelerating’

Written by admin on September 26, 2008 – 9:31 pm

The fall in house prices has accelerated in England and Wales, according to the Land Registry.

.. with prices falling sharply in August, its monthly survey is starting to catch up fast with the surveys of lenders such as the Halifax and the Nationwide who have both reported that prices are down by 11% in the past year.

» House price falls ‘accelerating’ – BBC News, 26th September 2008


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UK house prices fall 11% in August

Written by admin on September 5, 2008 – 9:11 am

House prices in Britain fell by 10.9 per cent in August compared with the corresponding month a year earlier, the biggest drop in 25 years, home loan provider Halifax said in its monthly report.

Halifax, part of British banking group HBOS, said it was the sharpest 12-month drop since the series began in 1983.

O.k., so the Age is stretching the truth with it’s headline, but a 12 month fall in house prices of 10.9% is still significant and the biggest drop in a quarter of a centenary.

» UK house prices fall 11% in August – The Age, 5th September 2008.
» British houses prices slump – The Australian, 5th September 2008.


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UK economy in ‘worst crisis’ in 60 years

Written by admin on August 30, 2008 – 11:16 am

Britain’s Treasury chief has told a newspaper that the country is suffering its worst economic crisis for 60 years, and more pain is yet to come.

» UK economy in ‘worst crisis’ in 60 years – The Sydney Morning Herald, 30th August 2008.

» UK in ‘worst downturn since WWII’ – The ABC, 30th August 2008.


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Economic turmoil ‘as bad as the 70s’: banker

Written by admin on August 26, 2008 – 12:11 pm

A senior banker in the UK says the economic turmoil gripping the world is at least as bad as that seen in the 1970s, and will drag on for considerable time.

Charles Bean, the BoE Deputy Governor said “the downturn was at least as bad as the 1970s oil shock and possibly as bad as the Great Depression.”

» Economic turmoil ‘as bad as the 70s’: banker – The ABC, 26th August 2008


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UK: Britain’s economy stops growing in second quarter

Written by admin on August 22, 2008 – 8:52 pm

Britain’s economy saw zero growth in the second quarter compared with the first three months of 2008, official data showed Friday, leaving the country on the brink of recession, analysts said.

» Britain’s economy stops growing in second quarter – The Age, 22nd August 2008.


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The faster house prices fall, the better off we’ll all be

Written by admin on August 4, 2008 – 10:01 pm

Something must be done! This is something. Therefore it must be done. Following such logic, governments have blundered into all sorts of interventions which they have subsequently lived to regret.

But don’t prop up house prices. They have got wildly out of line with the economic fundamentals. They can only get back into line by falling or by the fundamentals adjusting to those prices. The latter would mean higher wages and salaries and that would entail much higher inflation for several years. That is a route we should want to avoid at almost all costs. Accordingly, it is house prices that have to do the adjusting. The faster that they fall, the sooner that they can get back to a reasonable level and normal conditions can resume.

» The faster house prices fall, the better off we’ll all be – The UK Telegraph, 4th August 2008.


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UK House prices falling at fastest rate since records began 50 years ago

Written by admin on July 17, 2008 – 5:16 pm

Eariler in May we reported US house prices were falling at the fastest rate since records began. Now it’s the UK’s turn :

House prices are falling at a rate not witnessed since records began in the 1950s, according to the latest report from banking giant Halifax.

Its figures show the price of the average home in Britain has plunged by £17,000 since January.

It begs the questions, how soon before it’s Australia’s turn?

» Number of homes sold falls to lowest rate since records began 30 years ago – The Daily Mail, 15th July 2008.
» Home and unit sales tumble to a nine-year low – Adelaide Now, 17th July 2008.


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UK : Revealed: the biggest new homes crash in 70 years

Written by admin on June 25, 2008 – 5:51 pm

Revealed: the biggest new homes crash in 70 years – The Evening Standard – 25th June 2008


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