I see that Bloomberg reports that the accounting standards people in the US (FASB) are being “pressured by lawmakers” to change the fair-value rules which are “blamed for worsening the financial crisis”. Apparently this will enable “significant judgment” to be used instead of slavishly following market prices in cases where lack of liquidity renders those prices useless.
Hopefully some common sense will prevail but I’m not holding my breath.
See the story here.
The December ‘08 update of the tipsters league table showed that Westpac had come from nowhere to take the lead, overtaking ANZ (which had held the lead since August ‘07) and my team (which had previously led all the way back to August ‘01). It’s worth noting that as recently as December ‘07 Westpac were stuck on the rails in second last position.
So why the dramatic improvement for the Bill Evans-led team at Westpac? Essentially it boils down to the speed with which they recognised that serious problems were afoot and big monetary policy initiatives would be needed. Bear in mind that as recently as May ‘08 several forecasters were calling a 7.50% cash rate for March ‘09 (ANZ even more so – see below), implying another 0.25% rate hike on the then-current rate. Westpac were predicting a 7.25% rate at that time – a massive 4% above the actual result, but still better than the consensus view. As economists lowered their forecasts over the rest of the year Westies were consistently at the bottom of the range, and are now reaping the benefit:
So what happened to ANZ? As recently as September ‘08 Saul Eslake and his team were leading the league – they’ve now gone so far back in the running that a steward’s enquiry might be warranted. The reason for this form reversal stems from mid-2008, when ANZ’s forecasts had the biggest variance to actual results we’ve seen since we started tracking this stuff in 2000. ANZ’s forecasts at that time versus actuals look like this:
| Jun ‘08 | Sep ‘08 | Dec ‘08 | Mar ‘09 | |
| Forecast | 7.25 | 7.50 | 7.75 | 7.75 |
| Actual | 7.25 | 7.00 | 4.25 | 3.25 |
This makes an average absolute differential for the four observations of around 2.13% (a record high) – not bad when you consider that the June ‘08 result was virtually a given when these readings were taken.
Note that we don’t expect the record differential of 2.13% to hold up for very long – if Westpac’s forecast of a 2.50% cash rate by June ‘09 comes to pass the average differential on ANZ’s July 2008 forecasts will be a massive 3.44%, at which time we may bypass the stewards and go straight to the trackside veterinarian.
I see the ASIC Summer School is on again. No doubt the term “summer school” means different things to different people but in my mind it’s indelibly associated with just one thing – you failed your year-end exams but have a chance of redemption via summer school and the dreaded supplementary exams. Perhaps that’s appropriate in this case.
Hopefully they’ll publish the papers from this thing, as there’s one or two items that we’d like some clarification on, such as:
The first day of the conference generated some very astute observations from a couple of ANZ heavies who were present:
Mike Smith, CEO. "Banks should be boring," Mr Smith said. "Banks have got quite interesting recently and they shouldn't be in that space."
Ian MacFarlane, Director. Mr Macfarlane said banks in Europe and the US were inadequately regulated, and resorted to increasingly risky measures to boost profits because they constantly feared being taken over by their rivals. Australian banks did not have to aggressively chase risk to the same extent because they were protected from being taken over, he said. This point relates to a (unintended?) consequence of the four pillars policy, which prevented consolidation among the top four banks.
