Category — Finance

Imagine you are one of two people playing Monopoly. While you follow the rules religiously, the other player, who also happens to be the banker, does not.

He routinely appropriates properties. If he doesn’t like the score on the dice, he simply changes them. He continually takes as much money from the bank as he likes. Whenever the rules don’t suit he arbitrarily alters them in his favour.

Oh, and he hates to lose. Rather than concede defeat, he is perfectly willing to set fire to the table.

Imagine no longer. This is the state of the financial markets. You are playing against the world’s central banks.

For some time now, the Financial Times has been running articles (under the inauspicious label of ‘Collateral Damage’) discussing the merits or demerits of central banking. Only one contributor, Ron Paul, has challenged the status quo:

“[W]hile socialism and centralised economic planning have largely been rejected by free–market economists, the myth persists that central banks are a necessary component of market economies.”

[Read more →]

March 29th 2012 – Australasian Investment Review – (AIR)

Shares in the Bank of Queensland relisted yesterday after the first stage of a $450 million capital raising, and contrary to previous belief, the damage to the share prices wasn’t too heavy.

The Bank told the market that it had strong support from institutions for the capital raising and will now push ahead with the retail leg of the cash call.

Shares in the regional lender opened 1.2% lower at $7.21 after coming out of a trading halt this week.

They then bounced to be up nearly 5% or 37c at $7.67 which is a strong vote of confidence from investors.

[Read more →]

A lot of people probably think we are out of the woods now that Greece is “done”. But we are in the middle of a deep dark forest.

Maybe the simplest way to describe where we are is to say that we are in the centre of a balloon, which is itself surrounded by a diminishing number of balloons. Think of a Russian nesting doll with a smaller Babushka inside each bigger Babushka. Now replace a homely Russian grandmother with balloons.

The largest balloon popped in 2007 when the US housing market crashed. Ever since then, the remaining balloons have popped too. In 2008-2009, the banking and insurance balloons popped. That was okay because inside those balloons were even more balloons: government bonds and central banks.

Since 2010, the government bond balloon has leaked air. From deeper inside that balloon, central banks have been conjuring up even more air to keep the government bond balloon from totally deflating.

February 29th 2012 – Australasian Investment Review – (AIR)

For Australia’s largest insurer, QBE, 2011 is a year to forget with a 45% fall in full-year profit and a sharply lower dividend.

And the company revealed yesterday in a flurry of statements that there would be a change of CEO and surprised investors with the news that it needed to raise up to $US600 million in new capital, quickly.

And, QBE said shareholders will face a lower dividend payout ratio because directors say the company wants to retain more profits to build up its capital position and meet new capital rules from regulators.

A very busy day and the shares will come under enormous downward pressure when they relist today after the fund raising is completed.

The annual results reveal that QBE went close to incurring a loss in the December half year, with net after tax profit plunging to just $US31 million, from $US838 million in the last six months of 2010. [Read more →]

In order to understand the Australian financial market, you need to look beyond Australian shores.

There’s a sales pitch that stocks are cheap and investing in the stock market is a hedge against inflation. While that’s true to some extent, it shouldn’t be taken at face value and certainly shouldn’t be a reason to move all your assets into the stock market.

However as an investor holding most of your assets in Australian dollars (that’s what I’m assuming, anyway), you must think about the investment world from this neck of the woods.

For example, it’s possible to get a 6% risk-free return on cash in Australia. If your investment view was from the US or Japan, where cash rates are non-existent, your strategy would be entirely different. [Read more →]

February 28th 2012 – Australasian Investment Review – (AIR)

For the second time in a week a senior financial regulator has warned our banks against relaxing their lending standards on home loans.

A week ago last Friday, Dr John Laker, the head of APRA, the country’s lead bank regulator, repeated a warning on home lending he made a year ago in his first appearance of the year in the Senate Estimates hearings.

Last Thursday, the head of the Reserve Bank’s Financial Stability Department Luci Ellis reminded a mortgage conference in Sydney that lenders had to guard against reducing standards.

The two warnings have raised speculation that the regulators have spotted our banks trying to drive revenue growth by relaxing lending standards. But regulatory sources say there’s no sign of this at the moment from the banks, and that the two public comments are a form of ‘jawboning’ ahead of any problems developing. [Read more →]

I think we’re now approaching the final act of the four-year-old Global Financial Crisis.

How it will play out is anyone’s guess. But one thing’s for sure: there’s still a lot of uncertainty in this market.

And not only in shares.

The Aussie dollar is trading near all-time highs against the US dollar and the euro.

The banks are overweight on mortgage debt.

Have you stopped to ask how safe your cash is?

If you perceive a risk in the stock market, do you really think it’s any safer to put your cash in term deposits or cash management accounts in Australian banks? [Read more →]

The Reserve Bank left its cash rate steady at $4.25% yesterday for the very good reason that there was no need to cut it.

The decision is bad news for the banks, for bank investors (aren’t we all!), but good for retirees and good for depositors, and those on fixed incomes.

For those with home loans, it won’t really impact because the banks would have pinched all or some of the cut.

And besides, over 50% of mortgagees are repaying their loans faster than they have to.

The dollar jumped on the news, rising about one US cent to $US1.081 – a six-month high – within minutes of the RBA’s announcement at 2.30 pm.

It also touched fresh records against the euro and hit a 27 year-high against the pound.

The dollar later fell back around one US cent to around $US1.075. [Read more →]

The Reserve bank delivered the bad news to the banking sector yesterday, no rate cut and no chance to rebuild profit margins by hanging onto all or some of the widely expected 0.25% cut.

Now we will see more talk from the banks about pain, job losses and the like.

And, judging from yesterday’s trading updates from the National Australia Bank (a solid first quarter) and Macquarie (a big ouch, job losses and a fall of 25% in full year earnings for the March year), the news in the next couple of weeks is going to be confusing as the bigger moaners at the ANZ and Westpac grapple with slower revenue and higher funding costs.

Westpac and the ANZ produce their trading updates in the next week, while the Commonwealth Bank will reveal its interim results a week today.

The NAB revealed a modest 7.7% increase in first-quarter cash earnings and revealed that it could get rid of its troubled UK operations after a review.

NAB reported a first-quarter cash profit of $1.4 billion, up from $1.3 billion a year ago, slightly below an average forecast of $1.45 billion from analysts. [Read more →]