Killing Australian car manufacturing – dumb and dumber

Yep the closure of Australian Car Manufacturing says everything about the ignorance and stupidity of our politicians and many of our economic commentators.

The Glass Pyramid doesn’t care whether we produce cars or not BUT it does care that a local industry is closing for no other reason than our ‘economic’ commentary class are idiots when it comes to understanding the significance of capital flows in an age of currency warfare.

If the effective tariff on local workers and industry generated by massive unproductive capital inflows was removed, or at least severely restricted, and the car industry was still unable to survive – with or without subsidies – we would be having been a different discussion but the fact is that we are allowing our trade rivals to crush our car and other export or import competing industries with blatant currency warfare in the form of predatory capital flows.

An effective and self-imposed tariff on Australian workers and industry – What does that mean?

For details of how currency warfare is waged with capital flows to impose an effective tariff on Australian workers and industry click this.

Last year we we bought over 1.1 million new vehicles. At an average cost of $40,000 that is approximately $44B in new car sales.

Once the local car factories close we are going to have to find ALL of the cash required to buy our cars from other exports or, more likely, from the sale of assets or increasing claims on our future incomes (selling IOUs to foreigners).

Worth keeping in mind that the value of our iron ore exports in 2015 was only $50B.    Think about that – all of that iron ore is barely enough to buy all the cars we will need to import.

But rather than talk about how unproductive capital inflows (the big three are (1) offshore borrowing by private banks related to their domestic mortgage lending, (2) commonwealth bonds sold offshore and (3) mere transfer off shore of title to local capital assets) operate as an effective tariff on all Australian manufacturing all we are going to get is a lot of dumb commentary trying to explain that car manufacturing is closing because:

1. Our market is too small (1.1 M cars is hardy a niche production run)

2. Our costs are too high

3. We cannot afford subsidies (that at best never came close to offsetting the unproductive capital inflow tariff)

4.  Australia’s future is in teaching people English, making each other lattes and selling  citizenship for the best price we can get.

In the early 2000s when the $AUD was trading at circa 50-60 cents our car industry was exporting engines and cars in volume so the idea that Australia has no future in car manufacturing or any other manufacturing for that matter is rubbish.

The problem is quite simple. People don’t understand capital flows and how unproductive capital flows are the key methods by which our trading rivals are manipulating exchange rates and driving our industries out of business.

The only comfort is that establishing manufacturing plants has never been easier and once we finally get the cold hard wake up call when our trading partners start to withdraw their lines of credit and the $AUD starts to seriously tank, someone will realise that there is an opportunity to produce cars locally and import a car plant and commence local production.

Who knows they may even use some of the car making raw materials we have in abundance but lack the wit to use to produce finished exports!

Why will we start buying locally again when we have gotten used to buying imported cars?

For the simple reason we will not be able to afford to buy imported cars once the price of our line of foreign credit starts to rise and the $AUD drops through the floor.

The land dumb under.

Sick Australia – Trade deficits up, household and foreign debt up

Simply amazing what an inflated exchange rate will do !

160705 - Aust Monthly Trade Balance - MB

Gutting export and import competing industries right across the nation.

And there is unlikely to be any improvement on that front whilst both sides of politics give a big thumbs up to APRA allowing our banking sector to guzzle on unproductive capital inflows (ZIRP/NIRP hot money) in order to dish out super low mortgage rates to the speculator class.

In that regard Mr Morrison is a determined cheerleader.160705 - Trade

If we are serious about transitioning the economy from a lotus eating wonderland we need to stop kidding ourselves that there is any alternative to directing APRA to require the banks to wind down the unproductive capital inflow guzzling that has been keeping mortgage rates low.

That means specific direction and limits on their off shore borrowing habits to support their mortgage operations.

APRA has the powers and used them after the GFC. Now is the time (actually 4 years ago was the time) to do it again but with a clear objective of reducing wholesale borrowing related to mortgage lending operations to ZERO within 5 years.

It is all well and good to argue for a lower target rate but without APRA stopping the unproductive capital inflows those calls will lead to even faster unproductive capital inflows and a higher dollar as our banking sector seeks to deliver the lowest possible mortgage rates for a given target rate.

And before all the “bedwetters” starting complaining that if APRA restricts unproductive capital inflows for mortgage operations, mortgage rates may rise and the end of civilization will be upon us, they are free to continue to lobby the RBA to cut the target rate further or for the government to take other measures to ensure a supply of cheap credit to their mates in the speculator class.

Whether we should is another matter.

Needless to say, the fact that APRA has continued to do nothing/little and encourage the banks to keep borrowing offshore (with an implicit taxpayer guarantee) to keep mortgage rates at record lows makes it very clear that both the RBA and APRA are not really interested in the exchange rate.

What they are interested in is avoiding a debt deflation asset price collapse due to a collapse in credit growth.

To make the point even clearer – they are willing to accept an inflated exchange rate (i.e. higher than our trade performance warrants) and all the damage that causes to our export and import competing industries if that means mortgage rates will be lower and credit growth does not collapse.

Keep that in mind while waiting for the next 2.30 pm RBA target rate announcement in August 2016.

Don’t be surprised if the RBA decides that in a world of uncertainty the Debt Machine needs even lower bait rates to keep it running.

Don’t be surprised if APRA remains prepared to sacrifice a competitive exchange rate to ensure there is plenty of unproductive capital flooding in to maintain our record low mortgage rates.

Auction Action: Big Bubbles? No trouble!

The management/Board of the RBA and APRA must truly be in PM Malcolm Turnbull and Mr Morrison’s good books at the moment.

Governor Glen can expect a triumphant retirement full of flowery speeches and trumpets and parades.  Better biscuits for the RBA Board Meetings as well.

Perhaps a new cone of silence for APRA?   toddler-1312858__180

Nothing a drifting government likes more than a huge bubble in assets prices bubbling away during an election campaign and the RBA and APRA have delivered a beauty!

The latest “bait rate” cut by the RBA really got the juices flowing in Sydney yesterday with a crackling winter day of auction action.

  • 649 auctions listed – and the results of 72% of them reported. Not quite as frantic as 2015 but still streets ahead of 2011 and 2012. The comparison with 2011 and 2012 is the correct comparison as those years were before the RBA and APRA decided to blow the housing bubble up a few sizes on a surge of foreign debt.
  • A clearance rate of 78%
  • Over $7M estimated in agents commissions and no doubt plenty of goodies for the other ‘service providers’ in the FIRE sector.

This bubble blowing effort by the RBA and APRA is even more impressive when one considers:

  • The hysterical fear campaign being run by the government warning that the nation is only a few votes away from economic oblivion.
  • The endless campaigns by property industry rent seekers trying to frighten folks with talk that housing is like a “house of cards”
  • The increasingly determined efforts by the Chinese government to stop illegal capital outflows from China into Sydney property.
  • The announcement by Gladys Berejiklian – the NSW Treasurer – that she is going to follow the Victorian government and start milking foreign property owners with some vigor after 1 July 2016 (when foreign buyers will be required to reveal themselves when buying or selling property)
  • The ATO is now beavering away building a massive national database of property ownership and rental records to help them extract more revenue from property speculators.
  • The FIRB is now working closely with the ATO to extract fatter fees from foreign buyers

With such tales of woe and such determined new gouging of property owners by Federal and State governments one might have thought the Sydney property market might be getting a bit tetchy.

But no!

The Sydney property market listens to Yazz and will accept no other direction than UP.

Of course this wonderful housing bubble is all made possible by APRA’s green light in 2013 to the local banks to take on massive external liabilities.

Without all those hot money / currency war flows rushing in and keeping mortgage rates as low and as close to the RBA target rate as possible – we would not have the amazing combination of record low mortgage bait rates AND an inflated $AUD that makes all those imported cars, gadgets and trips overseas so tempting.

Most Australians don’t even realise that when APRA allowed the banks to go mad – again – after 2013 borrowing ZIRP/NIRP capital offshore it meant that our exchange rate stayed inflated (even as the terms of trade declined) and the ongoing shut down of our manufacturing sector and other export / import competing industries was guaranteed.

But then why would they realise?   It is not as though either of the major parties care to point this out.

When was the last time you heard anyone mention the unmentionable – our exploding privately owed foreign debt?

Why would either of them want to be the one to tell the entitled property speculators of Australia that the price of those record low mortgage rates is their children’s future?

What a buzz kill!

Check out that graph and keep in mind that as it climbs towards $500B – the squabbling about the federal deficit each year usually involves a few billion at most.  Chicken feed compared to the mountain of foreign debt driving the housing bubble.

 

160613 - External Liabilities

The Sydney Morning Herald and Australian Property Monitors report indicates that agents reported only 72% of the 649 auctions listed for Saturday – which is below average.

160618 - Snapshot

Note:   In order to encourage agents to help APM collate the most complete stats each Saturday night, the Glass Pyramid is presenting all results as a percentage of the number of Auctions Listed.  The reason for this is that agents are more likely to report ‘good results’ sooner and that can tilt the figures when results are presented as a % of what agents have bothered to report on Saturday afternoon.

Realestate.com.au 

Each week Realestate.com.au publishes auctions results (click here) compiled by the good folk at Core Logic RP .  The difference between these results and the SMH/APM results usually arises because they include all auctions during the week, whereas the SMH/APM results are for auctions listed just on the Saturday.  This means that the realestate.com.au number of scheduled auctions is usually higher.

Click on the link to read all the details in their natural habitat but the key “Auction Action” metrics are:

  • No of Auctions:                   728 
  • % of results reported:       75% (549 of 728)
  • Number cleared/sold:        410
  • Clearance as % of rep:       75%
  • Clearance as % of sched:  56%  
  • Pre-Action Panic:               19% (140) of the scheduled auctions
  • Hammer Time:                    43% (310) of the scheduled auctions
  • Seller Sadness:                     14% (99) of the scheduled auctions
  • The metrics are reasonably consistent with the SMP/APM results having regard to the differences in reporting rates.  The higher clearance rate reports by Core Logic probably means that more of the mid-week auctions were successful.
  • The reporting rates for the Core Logic rates varies a lot each week and that affects the figures when expressed as a % of the scheduled number of auctions.

Anyhow – onto the good stuff!

There are THREE tables this week.  The first contains yesterday’s APM’s  results pdf sliced and diced.  The second contains a summary of recent weeks and the third contains the data and averages for the first 13 weeks of Auction Action fun.

Table 1 – Saturday 18 June 2016

160618

Table 2 – Summary of recent results.

160618 - Summary

Table 3 – Summary of the first 13 weeks of Auction Action

160423 - 1st Quarter Summary

Auction Action is Back!

Auction Action is back!

Apologies for the dead air but all Glass Pyramid operatives have been busy storing acorns for winter and throwing beer cans at the TV in unsuccessful attempts to scare away the politicians filling up the horror movie that is the 6.00 o’clock news during the election campaign.

Hopefully the gaps in the data line can be plugged by idle operatives while they celebrate the special Australian birthday of our Australian Queen with some home made fireworks consisting of various combinations of flammable liquids and an inventive use of a second hand Soda Stream filler acquired at a garage sale.

UPDATED

The gaps in the data line have been updated and the comparison for this week has been stretched back 6 years to 2011.    Keep in mind that the comparison is by date and not all of those earlier years were long weekends.

This makes it much easier to spot just when the RBA and APRA started to spray the housing market with cheap credit and allow the banks to support their mortgage operations with large globs of unproductive inflows of ZIRP/NIRP capital.   The graph below shows how external liabilities took off (after flattening out post GFC) in 2013 as the housing bubble surged to new heights.

160613 - External Liabilities

The picture below extracted from Table 1 has the median and estimated agents commissions highlighted in red boxes. Not hard to idenitfy a couple of groups who have benefited greatly from the surge in taxpayer guaranteed foreign debt since 2013 – existing asset owners and real estate agents

160613 - Agents commissions

The Sydney Morning Herald and Australian Property Monitors report indicates that agents reported only 71% of the 284 auctions listed for Saturday – which is below average but is understandable as they may overlooked this task as they rushed for flights to property sales seminars in the Greek Islands over the long weekend.  

Core Logic managed to round up 79% of results – probably because more auctions were scheduled for the middle of the week before the long slumber of a long weekend

In summary – a long weekend of auction inaction.

  • A scrawny number of auctions this week  (APM counted 284 and Core Logic 427)
  • Clearance rates of 44% or 60% of scheduled auctions (70% or 76% of reported) APM v Core Logic.
  • A median of $1,035,000
  • A mean of $934,034  (OMG back under $1M – the RBA will be chopping again soon)
  • Hammer Time – slid back below average to 26%
  • Agents commissions on the sales estimated at about $2.6M on sales of approx $133M.

160611 - Snapshot

Note:   In order to encourage agents to help APM collate the most complete stats each Saturday night, the Glass Pyramid is presenting all results as a percentage of the number of Auctions Listed.  The reason for this is that agents are more likely to report ‘good results’ sooner and that can tilt the figures when results are presented as a % of what agents have bothered to report on Saturday afternoon.

Realestate.com.au 

Each week Realestate.com.au publishes auctions results (click here) compiled by the good folk at Core Logic RP .  The difference between these results and the SMH/APM results usually arises because they include all auctions during the week, whereas the SMH/APM results are for auctions listed just on the Saturday.  This means that the realestate.com.au number of scheduled auctions is usually higher.

Click on the link to read all the details in their natural habitat but the key “Auction Action” metrics are:

  • No of Auctions:                   427 versus 284 on SMH/APM
  • % of results reported:       79% (337 of 427)
  • Number cleared:                 257
  • Clearance as % of rep:       76%
  • Clearance as % of sched:  60%  
  • Pre-Action Panic:               13% (57) of the sched auctions
  • Hammer Time:                    50% (212) of the sched auctions
  • Seller Sadness:                     16% (68) of the sched auctions
  • The metrics are reasonably consistent with the SMP/APM results having regard to the differences in reporting rates.  The higher clearance rate reports by Core Logic probably means that more of the mid-week auctions were successful.
  • The reporting rates for the Core Logic rates varies a lot each week and that affects the figures when expressed as a % of the scheduled number of auctions.

Anyhow – onto the good stuff!

There are THREE tables this week.  The first contains yesterday’s APM’s  results pdf sliced and diced.  The second contains a summary of recent weeks and the third contains the data and averages for the first 13 weeks of Auction Action fun.

Table 1 – Saturday 11 June 2016

160611a

Table 2 – Summary of recent results.

160611 - Summary

Table – Summary of the first 13 weeks of Auction Action

160423 - 1st Quarter Summary

APRA Watch: APRA’s role is attracting more eyeballs

Macrobusiness turned a bright illuminating spotlight on APRA this morning in an article that raised a series of very important questions about the regulation of the Australian Banking and monetary system and the roles of the RBA and APRA.160610 - APRA

The roles of APRA and the RBA would make another excellent paragraph in the Terms of Reference for the forthcoming Banking Royal Commission that Malcolm Turnbull (former banker) and Scott Morrison (former FIRE sector executive) are so desperate to avoid.

A Glass Pyramid operative added their own government issued 2 cents in the comments (sightly modified here) to the article Continue reading

APRA Watch -The ultimate credit controller

The good thing about all this attention on APRA is that people are slowing starting to understand the significance of APRA as part of our regulatory framework.APRA

Having said that the discussion is still mostly incoherent.

Moody’s talk as though APRA (and other similar prudential regulators) are horse breakers faced with a particularly unruly steed and there is no guarantee that even a very skilled and experienced APRA could hope to control the beast.

What a load of hogwash.

APRA has all the power it needs to stop credit creation DEAD in its tracks.

No death stares, voodoo dolls, smoke signals, cuddles after midnight required.

APRA can direct the banks ANYWAY they want when it comes to credit creation.

They can specify Continue reading

APRA Watch: Big bubbles don’t come easy

 

There is a lot of speculation at the moment about what is going on in the Australian credit creation industry and what exactly APRA is trying to achieve.

There is a growing concern that APRA is working to maintain rather than resolve or deflate the massive bubbles in Australian house prices and the related bubbles in household debt and foreign debt.

There is good reason for concern – it all fits a consistent narrative that starts with the ‘unexpected’ end of the mining boom and a search for solutions by the RBA and APRA within the neoliberal post Wallis framework of regulators “independent” from the political process.

If mining and the associated CAPEX could no longer be relied on for economic activity and employment an alternative was required. If the public balance sheet had been neutered by ‘fiscal conservatism’ obsessions that just left the private household balance sheet – the gift that had already been giving for a decade. Continue reading

Why the housing boom is ruining our economy and is ready to pop.

The RBA/ APRA strategy of filling the unexpected mining bust hole with low interest rate stimulated residential construction and the household debt that goes with it was always misconceived.

Such a strategy could only work for a short time because the ex-mining workforce required to build the housing was always going to be able to fill the housing supply gap quickly in a few years– especially with the very efficient (cheap, fast and nasty) construction methods now available.

Sure population ponzi immigration booms help provide demand for some of this excess housing output but the ponzi population folk need jobs and construction cannot support more than a fraction of them.  If it tries it would only build even more housing stock more quickly – and in part that actually happened.

The only thing that has really kept the model going for this long is that much of the excess supply is staying off the market.

If all the new supply was made available for rent or purchase to owner occupiers things might be very ugly already. Continue reading

RBA Watch: Savers demand a seat at the RBA table

A story that appears in the AFR today and was noted by Macrobusiness concerns a call by Doug Turek, managing director of Professional Wealth, for more representation, on the Board of the RBA, of the interests of retirement savers who have been suffering  as the RBA and APRA desperately try to keep the economy floating on growing private debt – mostly household – by setting ultra low “bait” rates.160518 - RBA Board2

It is excellent that we are now seeing some real lobbying for seats on the RBA board as that indicates that finally the political nature of what the RBA does is being understood by the community.

It is not surprising that groups are starting to realise that if they want to influence the Macro-Political activities of the RBA they need a seat at the table. It will not be long before they understand they also need to influence the credit control, allocation and price setting role of APRA.

Even better would be to completely rewrite the charter of the RBA and limit it to the following. Continue reading

Deflating the Australian deflation pandemonium

You might have thought we had more than enough”scare campaigns” this election festival what with Malcolm and Morrison prowling the streets of our cities spinning yarns of doom, gloom and desperation if the public even dare think about handing the reins of economic management to anyone else.

Which is not exactly a positive message to be selling…

 “Hey if you think the economy is a bit stinky now just imagine how much worse it could be

..but then fire and brimstone is natural territory for the conservative end of the political spectrum.

However, there is a new scare in town that is growing in spooky power day by day.

Deflation!!!!   – Quick run for the hills the prices are falling ! Continue reading