A game of “snakes & ladders” – with more ladders required!

A game of “snakes & ladders” – with more ladders required!

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It’s the state Fudge–it week and Fort Crumble was on a roll. We’re not talking about polls either, thanks to asset sales and a property recovery leads surge into surplus. Our economy expanded by 4.4 per cent which is the fastest growth since 2007 – 08. So why was the Fudge–it not constructive, given housing all over Australia is showing alarming structural problems? Whilst construction has expanded in March, April and May it has been modest according to a recent survey conducted by the Australian Industry Group and the Housing Industry Association. Then the Real Estate Institute of Australia – dropped the bomb lowest level of housing commitments since 2001.

Construction activity expands at slower pace where the overall construction index fell 2.6 points in May to 53.2, but remained above the 50.0 threshold between growth and contraction  a strong probability that it will fall below the 50.0 threshold in June. Fort Crumble treasurer announced “the Keneally government is taking NSW forward into an era of economic growth, building a better future for families and businesses of NSW.” Australia is marinated in (hurtful hikes) where on an annual basis the number of new loans is actually down 25 per cent. The Australian Bureau of Statistics released this week that Australia will be home to 11.8m households by 2031 which is up from 7.8 million in 2006 – so why have the ladders disappeared?

Whilst new home buyers big winners on the Fudge–it, I’m not sure that the NSW Home Builders Bonus is the answer. Morphing First Home Buyers into ‘Residents Over 65 Buyers’ (as long as the acquisition is off the plan) is intriguing as seniors’ duty cut lacks stamp of approval. The former proposal was to entice people into the market and the latter, directed to people already in the market. These new subdivisions are well west of Sydney and plagued with massive transport infrastructure neglect. In May, apartment construction fell 16.8 to see the index now at 42.0 and house construction at 57.7 which is a direct result of a lack of available credit within the Australian economy. This statistic won’t be changing anytime soon.

toolsdown

BUY PRINT

Each week, I challenge Tim Mooney with a photo request and it is plain to see that he has on file, Australia’s largest aerial photographic library.

What Keneally and co achieved … and what they didn’t where simply put: “Kristina Keneally and her Treasurer did little or nothing to bring this revival about. It came thanks to national and international forces beyond their control.” I would call that constructive criticism because one major element that NSW keeps missing are those builders’ ladders. It is all very well to roll – out Stamp Duty relief announced for some buyers however let’s not forget that in May 2010 Fort Crumble introduced its Ad Valorem tax increase of 0.2 per cent for properties between $500,000 and $1,000,000, and 0.25 per cent for properties above $1 million – on top of the usual Stamp Duty fines that were not reduced in the Fudge–it.

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Here we have construction being dominated by the public sector over the private sector – so on with my missing ladder concerns. Alan Kohler on his Inside Business programme spoke with Nicholas Collishaw, Mirvac managing director. A great interview Nicholas Collishaw on encouraging development. Alan Kohler, “Australia is experiencing a dire shortage of houses – 40 – , 50,000 completions short of what the actually needs.” Nick Collishaw “Well, I certainly agree with that statistic. We expect a shortfall of 45,000 dwellings for the 2009 year and, as we see 2010 unfold and ’11 ahead of us, that gag increasing.” A must read, as too on Inside Business Christopher Joye discusses lower house prices given the headline mortgage rate has moved from 5.75 per cent to 7.4 per cent. Ironic, that property developers are finding it increasingly difficult to draw credit given no access to the housing emergency chest of funds. Conflicting in that The Emperor PM to pour $5.6 bn into poll fight a decision that shattered faith in PM.

medianPrices_420-420x0

Melbourne close to overtaking Sydney so up the ladder Melbourne goes and down the ladder Sydney goes because of its property structural problems. “With annual population in Victoria running at 2.2 per cent and driving demand in Melbourne, when compared with New South Wales 1.7 per cent growth, it is not hard to imagine Melbourne soon seriously challenging for the crown of Australia’s most expensive median priced city.” Whilst Sydney has a greater proportion of apartments (26.5 per cent compared to 16.7 per cent for Melbourne), Melbourne actually has more houses than any other city in Australia. Although it should be noted that infrastructure determines property values – position, position, position. So why do respective governments find themselves in opposition as against market directing? That would be political bias coupled with ignorance and an extension ladder aimed at re-election. Propping up marginal seats is not the answer given the vast majority of those constituents have re-located elsewhere across Australia.

A reason why the electorates are at loggerheads with The Emperor and his ailing Fort Fumble is exemplified, as he presides over a government that knows best. Trust the government? Not now whilst the result is clear: voters are fed up. Rudd set to lose election on mining tax Australia needs to get back to basics – why is our building demographic market contracting? It certainly does not help when lenders say no to loans as buyers knocked back as consumer sentiment drops in June. There is no doubt that Aussies are cautious after rate rises: RBA which was reinforced this week when RBA governor announced cut debt, save more: Stevens.

Loans and house prices-420x0 (1)

It is possible that never before, has Australia vented such anger at Fort Fumble and Fort Crumble – watch the Penrith by-election next week which will identify a record swing against the Premier Pristine government. Sovereign debt capitulations resonate through markets evidenced home loans drop to 9 – year low which represents the fewest number of new loans for owner–occupiers since 2001 and the seventh straight fall in housing finance commitments.

I’m sure that everyone was amazed to read this week lawyers consulted on sacking NSW government, says Governor whilst (not surprisingly) it does identify just how bad our governments are at present. I leave you with this comment from Alan Kohler on Inside Business Talking Point which says all about the RSPT. As Clint Eastwood once said “Do you feel lucky punk?”


Cheers ^__^

This week’s sales Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Cremorne real estate, Cremorne Point real estate, Neutral Bay real estate, Cammeray real estate Click Here

11 Responses to “A game of “snakes & ladders” – with more ladders required!”

  • Fantastic photo, Tim. Love it.

  • Gordon says:

    Robert, there may be a common thread between the carefully positioned Fort Crumbled budget concessions on housing, and the hugely wasteful rollout of the Fort Fumble BER program.

    The winners in both cases are the big developers and construction companies and some of the big unions. All of these groups are very large contributors to Fumble/Crumbled political slush funds.

    It seems that what goes around comes around. It’s just a pity that it’s our money that is being used on this particular roundabout, and we can’t do anything about it. Well, not for a few months. . .

  • Robbie Mac says:

    Straw polling this week:
    Business confidence waning and everyone starting to go into “hold” mode, pending resolution of the political landscape (a bit like 2007);
    Federal government advertising campaigns only booked until sometime in August, suggesting an election thereabouts or shortly after – a bit earlier than might be expected; and
    A Labor party powerbroker, off the record, when asked if Julia Gillard was being prepared to take over from The Emperor, not denying the assertion and quickly changing subjects.

    Conclusions:
    No change in interest rates until the Federal election, due to the economy stagnating pending political (and sovereign!) certainty;
    Property markets quiet for the same reasons, especially given the unknown impact of the RSPT on share prices and therefore property buyers’ budgets;
    The mining industry lobby far more powerful than first thought, which when combined with the paradox that by attacking the so called “fat end of town”, the employees of those companies, who are often Labor’s heartland constituency, are being disenfranchised;
    The Emperor has a new name – “Dead Man Walking”.

    For the record, as I have previously noted, I think we need a better rent resources tax regime. However, this is a classic example of how NOT to do it!

    Have an enjoyable and safe long weekend.

  • Tim Mooney says:

    Thanks Eleanor. The posture of the builder front near centre says it all.
    Tim

  • Patricia says:

    The only thing the builder’s posture is saying is ‘Why the heck is this helicopter hovering over my building site?’!

  • Ann says:

    The chopper must be fairly high, there would be dust flying everywhere.

  • Snow White says:

    Charlie Aitken hits nail on the head again

    Canada is the economy most often compared to Australia due to its commodity exposure and solid domestic banking system.

    Yet I see the Canadian dollar is 96.69 to the USD and the AUD is 85.91 to the USD. However, Canadian unemployment is 8.1% and Australian unemployment is 5.2%. Similarly, Canadian cash rates are .5% while the RBA has the domestic cash rate set at 4.5%. Why then does the world pay 10usc more for the Canadian dollar?

    The only answer I can come up with is perceived sovereign risk in Australia. However, as I mention above, it would only take a backflip on the RSPT (and a TLS/NBNco deal) to see those negative perceptions reversed. Right here right now, the AUD is the highest yielding OECD currency. In a world that will be short of genuine yield for at least the medium term I see that leading to support building for the AUD at these levels. Remember even AUD 10-year bonds are 5.3% versus 3.2% in the US and 3.3% in the UK. That’s kind of whacky too because our risk of default is lower than the UK or US.

  • Or, possibly the builder was saying “hey guys, tools down isn’t that Tim Mooney up there? Hey, we might appear on Virtual Realty News. 🙂

  • Snow White says:

    Long BHP, short the Prime Minister
    ________________________________________
    I am going to have another go at the proposed RSPT today because the more I sit here the more I believe it is the largest short-term negative variable in the perception and pricing of Australian assets.
    The issue is I believe that fundamental and structural problems in the Eurozone should have seen Australian assets re-rated as we deservedly attracted a greater percentage of the now highly mobile global capital flows. We have the highest cash rates in the OECD world, but also the lowest unemployment rate. We have solid GDP growth, a very robust domestic banking sector and the highest prospective dividend yield of any first world equity market (4.6%). Yet today, due to foreign investor perceptions of regulatory and sovereign risk, our equity market trades on a -20% discount to its long run P/E average (using consensus FY11 forecasts).
    While the AUD/USD cross rate is +10% above its long run average, our cash rates are 10x higher than the OECD world. Similarly net debt to GDP is 10x lower than many OECD countries. Our AAA rating is absolutely unquestionable.
    My view remains that “certainty”, due to its scarcity, is going to move to a big premium in the post GFC world. Australia does possess underlying certainty, but somehow Canberra has managed to convince foreign investors we now are just another uncertain investment alternative and they have taken their capital home. Considering the mess in the rest of the world and the very slow fix that is sovereign balance sheets, I would have thought all things being equal that the AUD would be over parity with the USD (note the CAD at 97usc) and the ASX200 trading at a +20% premium to its long run average. That is what we could have achieved with a maintenance of the sensible, steady state, foreign capital attracting policies of the previous decade. Alas that isn’t the case.
    Foreign investors believe we have lost our way. It is that simple. They don’t believe corporate Australia has lost its way, far from it, they believe regulatory and legislative Australia has lost its way. This is a top down issue, not a bottom up one. What we have seen is a broad and unilateral de-rating of Australia; from currency through to equities, all driven by top down concerns that accelerated with the release of Henry Tax Review.
    Since the Federal Government’s decision to apply draconian penalties to Telstra (TLS) shareholders if management refused to sell its copper network to the NBN for a song, I have been warning investors of the regulatory risks for the Australian equity market. Similarly, with the dramatic decline in the popularity of the Prime Minister Rudd due to a succession of policy failures, all year I have been highlighting that domestic equity investors should remain on “bad policy” high alert. While the insulation debacle, and the wasteful spending of the building education program have exposed the commercial ineptitude of the Rudd Government, the RSPT will almost certainly rank with one of the most ill-conceived, bad policy decisions since the dark days of the Whitlam Government.
    There is little doubt that Australia has been blessed over the last two decades with a politically stable, business-friendly and sovereign risk-free investment environment. However, it has now become very obvious to both the electorate and the financial services industry, that we have taken the politically-positive investment climate very much for granted. Yet while the RSPT represents the epitome of bad policy, it has now become a lightning rod for the governments electoral failings and a symbol of the Prime Minister Rudd’s political credibility.
    I have clearly outlined my opposition to the RSPT in previous reports. I have highlighted the failed logic in proposing the long term bond rate as the starting point for the calculation of economic rent when the average cost of capital is closer to 15-20% for resource projects. In addition, I also commented that the 40% government rebate for projects losses was ill-conceived and totally disregarded by banks when assessing potential investment funding. In the meantime however, the government has now confirmed that in the event of an environmental disaster, such as the oil spill in the Gulf of Mexico, Australian taxpayers would be liable for 40% of the clean-up costs. A conservative estimate of the US clean-up is now approaching $US20 billion. Can you imagine the government asking taxpayers to write a check for over $8 billion?
    In addition, it has now become clear that multi-nationals could exploit transfer pricing strategies by operating local mining projects at a loss, while generating massive profits through value-add smelting or refining processes overseas. Consequently, Australian taxpayers could potentially be subsidizing an overseas-domiciled resource company to operate tax-free. I thought the idea of the RSPT was to prevent the flow of local resource profits to foreign investors, or at least that was the initial spin. The RSPT has clearly exposed the flaws of academics with minimal business experience, setting policy for the real world without public debate or industry consultation.
    However, while the Prime Minister and the Treasurer continue to allude to discussions with the resources industry, they appear to remain oblivious to the tide of electoral and business criticism (note Wesfarmers joined in yesterday). Clearly the government has lost control over the debate as well as losing all political credibility due to its shameful misrepresentation of the tax paid by the mining industry.
    Recent figures from the Mineral Council of Australia (MCA) completely undermine the government’s previous claims that mining industry taxes have fallen significantly. In stark contrast to the government’s figures, according to the MCA, the tax contribution from the mining industry has actually risen from $2.6 billion in 1999 to $21.9 billion in 2009 – an increase of $19 billion over the last decade. As I mentioned in a previous report, I strongly believe that the RSPT is just another major tax grab, and further evidence of the Prime Minister’s concerted attempt to concentrate Federal power by redirecting State revenues back to the Commonwealth to fund a gaping Budget deficit.
    In the meantime while the Rudd government continues to vehemently reject any idea of a RSPT compromise, the argument has now passed from the academic stage to the harsh reality of delayed projects and job losses. Currently 70 national resource projects totaling $83 billion, including the massive Olympic Dam project, remain under a development cloud. However this represents merely the direct impact. A possible indirect impact of the RSPT is jeopardising $25 billion of ancillary work by contractors and mining service companies. The current political risk of the RSPT to the resources industry is just extraordinary and threatens to undermine decades of positive labor market reforms in Australia.
    However, the commercial ineptitude of the Rudd Government, which was so badly displayed by the disastrous home insulation scheme and the shambolic school building program, and now again by the RSPT, has been superseded by a much larger issue. The highly regarded new BHP Chairman Jac Nasser has warned that the RSPT has challenged confidence in Australia as a place to invest (click here to read the full letter to BHP shareholders). He said the RSPT has driven a “distinct change in attitudes towards Australia from all types of investors across all industries, not just mining and resources industries.” Trust me, I know Mr Nasser and he isn’t one for ‘hysterics’.
    Australia remains dependent on foreign investment to fund our large current account deficit and 50% of the domestic bank’s funding needs. The RSPT is now threatening our ability to attract overseas capital and clearly our sovereign risk is at stake. Given the recent rise in overseas funding costs and the tightening of global capital markets due to the EU sovereign debt crisis, could this threat to our sovereign risk have come at a worse possible time?
    The government’s attempt to regain electoral support by turning the RSPT into a “class war” has failed miserably. Rightly or wrongly, Australians do broadly believe the resource sector and our leverage to China saved us from a recession. BHP is the national flag carrier in resources and this is the feeling Prime Minister Rudd has badly misjudged. Had he gone after the major banks with a profits tax the story may well have been different.
    More importantly, instead of uniting both public and political support, the RSPT has managed to alienate both the Left and Right Labor factions as well as front and back benchers alike. In addition, the tax has managed to split the national union movement and undermine electoral support in key W.A. and QLD seats. In a further embarrassment for Labor, the Premiers of W.A, QLD and S.A have all publicly voiced concerns over the potential impact of the RSPT on jobs and investment. Recently, many high profile and well-respected industry leaders sympathetic to Labor, have also publicly denounced the RSPT as a flawed and failed policy which urgently requires reform.
    Clearly Prime Minister Rudd is between a rock and a very hard place. On one hand, if the Prime Minister refuses to alter the terms of the RSPT, then Labor will suffer very badly and could possibly lose the election. The latest W.A. opinion poll revealed that Labor’s primary support fell to an all-time low of 26% and the Coalition has a two-Party preferred lead of 68-32%. This confirms recent surveys in QLD and S.A. which have highlighted similar swings, as well as the latest Neilsen survey, which revealed the Coalition ahead by 53% to 47% on two-party preferred terms. On the other hand, if the Prime Minister admits defeat and bows to an RSPT compromise then what he risks what is left of his shredded credibility. Yet, faced with plummeting popularity, mounting anger from his own Party including State Premiers, negative comments from high-profile Labor supporters, overwhelming criticism from business and possible electoral defeat, a falling share market and currency, the Prime Minister remains in denial and steadfastly refuses to back down at this stage. Why?
    In order to answer this question it is worth highlighting the first two sentences from Prime Minister Rudd’s first speech to Parliament after winning the last election. At that time, the new Prime Minister said, “Politics is about power. It’s about the power of the State.” In previous articles I have highlighted my strong concerns that policies such as the National Health scheme, and now the RSPT, represent not just a clear tax grab from the States, but an attack on Federalism and the concentration of Commonwealth power. In this regard, it was very interesting hear Peter Walsh, former resources minister with the Hawke government, when he was asked why the Rudd Government had not adopted the same consultative industry process before the introduction of the PRRT. He said, “But there’s one obstacle to that, and that obstacle is Kevin Rudd.” Despite the Prime Minister pulling the national interest “card” on the RSPT, is the failure to engage with the resources industry just a power trip? I sincerely hope not, but you wouldn’t rule it out.
    Yet I believe the dramatic fall in the popularity of the Prime Minister represents not just a lack of political credibility due to bad policy decisions, but the acknowledgement that Prime Minister Rudd appears to have another political agenda driven by political power. The “kitchen cabinet” concept is clear proof. In addition, this approach to government is not the business-friendly, revisionist and reformist path chosen by the Hawke and Keating governments. Clearly senior Labor politicians are uneasy. They realize the Rudd brand has been severely, if not terminally damaged. As a result there is strong speculation for a change in leadership. Am I the only one who has noticed the equity market, Australian resource shares and the currency have done better since press speculation about Prime Minister Rudd’s leadership emerged?
    Similarly, am I the only who has noticed that BHP shares and the resource sector have started to recover since BHP stood up and calmly argued the facts in the press? You see I think the majority of Australian’s trust BHP over the Federal Government.
    I am certainly in that camp, and it appears I am not alone, as Australian retail (mums and dad) investor shareholders of BHP are now at a record level. Retail investor Australia is basically saying, via their record ownership of BHP, that BHP will outlast Prime Minister Rudd. They are right.
    Since BHP entered the fray and took attention away from “whining billionaires”, I believe the tide has really started turning. BHP’s approach is sensible, calm and constructive. They are playing the ball, not the man. Below I am going to use some slides from a recent BHP presentation because I agree with them and I think we can make money by backing BHP’s campaign to get a result.

    Note well that BHP hasn’t made threats, just focused on the facts. The chart above alone shows you that BHP has a portfolio that could guarantee decades of growth in the Australian resource industry (and resource service industry), while the previous chart shows BHP invested a massive 67% of group capex in Australian in FY09.
    BHP aren’t anti taxation reform; far from it. They like all of us believe there is a workable middle ground outcome to be found here via a genuine consultative process with the mining industry. However, as we stand here today that process is not occurring.
    So it’s time to take a view on what is going to happen here. You know our stance is strongly against the RSPT in its current form. What happens from here is either Prime Minister Rudd is rolled by his own party, backs down on some elements of the RSPT, or both. I am strongly of the view Prime Minister Rudd doesn’t have the backbone to take this RSPT, with BHP and the industry at loggerheads with him, to an election. He won’t have the spine because at the end of the day all politicians are about survival and he won’t survive if he maintains his head in the sand approach to the RSPT. His approval rating collapse is telling him what’s coming and he needs an “honorable exit” /”honorable compromise” on the RSPT and he needs it soon. So does the Australian equity market and the AUD.
    So how do we make money out of this? Long BHP, short the Prime Minister remains the right strategy. The best shorts are ones that start cracking on the downside. The Prime Minister’s approval ratings are his share price. They are cracking and so will he on the RSPT.
    I believe any backdown/backflip on the RSPT is worth +$4.00 per share to BHP in quick time, +300 ASX 200 points and +5usc for the AUD. The county’s risk premium will also reduce instantaneously reducing the cost of borrowing for all businesses and households. Hedge fund shorters will be forced to cover. It will be a win for all Australians. One way or another it’s coming and I am positioning portfolios for it.
    What a disgrace it is that I am forced to write equity strategy based off political strategy; that is not how free market economies should work.
    Go Australia.
    Charlie Aitken
    Director
    Head of Institutional Dealing
    Southern Cross Equities
    ________________________________________

  • Ann says:

    It would be hard for Rudd to defend delaying the election until April. The media would have a field day. I did some checking, I dont think any Federal Government in the modern era has delayed an election for more than a month beyond the 3 year due date?

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