In our last post, we quoted Australia’s Treasurer, Joe Hockey when interviewed on CNBC in New York denying a bubble exists in Australia’s overheated property market.
Last fortnight, The Australian Financial Review’s Christopher Joye interviewed First Eagle portfolio manager Matthew McLennan.
Q: You are clearly very knowledgeable on the Australian economy – what are your views on the resurgent Aussie housing market?
It is interesting to me when you hear a politician saying this is not a housing bubble – that is just a supply-constrained market.
At the end of the day, I think the Australian housing market is instinctively on the full side of fair value in a situation where the natural constituency, the marginal buyer, is already quite levered.
I don’t understand why people feel the need to say a market is not in a bubble. I don’t think that’s a prudent approach when you see large levels of leverage and fairly low rental yields. While I get it that you want to support confidence, I don’t know what the upside is in talking down legitimate risks.
We’ve always made money by not losing money. Ultimately you feel far more confident when a management team tells you what it is worried about than when it displays complacency.
Mr McLennan said he wouldn’t invest in our banks “because the raw equity-to-asset ratios . . . are lower than our comfort zone.”
“I have a few question marks over the Australian economy and think the outlook could be potentially quite challenging,”
» Why this $80bn fund manager won’t touch Australian banks – The Australian Financial Review, 19th October 2013.
» Interview transcript: First Eagle portfolio manager Matthew McLennan – The Australian Financial Review, 19th October 2013.
Seems to me the reason for saying there’s no bubble is because they want the bubble to continue. If they admit there’s a bubble, then by definition a bubble has to burst. The longer they can prolong and grow the bubble, they can at least kick the can further down the road.
It always boggles the mind though, when they say that housing is more affordable now than ever before because interest rates are low. I mean, how can anyone say housing is affordable when the average house in Sydney is $800,000 and the average mortgage in NSW is $500,000? And Vic is not that far behind.
Take away all the artificial props, and then there would be no bubble any more.
While Joe Hockey is not telling you he is worried, his actions certainly say otherwise. He is trying to get a 500 billion debt ceiling though, while pumping up the RBA balance sheet with 8.8 billion of borrowed tax payer money for any headwinds or challenges ahead.
I say he is getting ready for something big. I think we all know what it is.
@ Pete.
I agree. The government says debt will top at $400billion. They want $500billion limit.
What will $100 spare billion do in a $1trillion dollar mortgage market?
Actually quite alot-swan gave 16.5billion out during the gfc with “great” results.
This spare $100 billion would almost certainly get them to the 2016 election. And governments dont change in western economies during uncertain times. So we more than likely will see a full blown bank bail out closer to 2020 than most of us here think.
The ironic thing is when the collapse does occur and interest rates spike, the press will howl that you’d be mad to buy a house during collapsing prices when the banks will pay you high interest on deposits.
I never said I loved capitalism, I just follow the rules.
Ultimately I am finding it more difficult to blame corrupt politicians for the impending financial economic and housing meltdown than to blame the voter. If politicians have the nerve to lie and mislead people publicly then they do so with the tolerance and support of voters. For the minority of us who do not vote for anyone but take an active role in criticizing voter and politicians actions on ‘Who crashed the economy’, Facebook, Twitter etc., writing critical letters to newspapers, political offices etc., taking part in public protests, marches etc., is what is all about being an active conscientious citizen and not a voter as a majority of people seem to confuse with showing care about the economic welfare of Australia
Theo, what choice did we have?
I am not surprised the fund manager won’t invest in Australian banks. If the property bubble bursts and housing loses 40% of its value which it could quite easily considering how over priced it is. The banks holding 80% + of the mortgages will be cactus. No off shore banks will lend them their required operating capital so the taxpayer will suffer the consequences. Also I use the term Australian banks loosely. The big 4 are in large part owned by HSBC (Drug Cartel Money Laundering) JP Morgan (Fined for market manipulation) Citi and others.
@ Don’t Prop Up the Ponzi
Choice? You have many choices:
1) Vote for other as per usual and “pray or hope” for the best.
2) Unplug from the system, i.e. leave the place per se and not getting involved in anyway.
3) Industrial action.
4) Like what Theo (above) has stipulated.
5) Run the office and manage “it” yourself.
6) Join commercial world and strive to break free from the “forces”.
7) Find a sweet spot among the choices above.