Friday, August 26, 2011

Glenn Stevens and Credit Default Swaps

Listening to RBA Governor Glenn Stevens' appearance before the House of Reps Economics Committee earlier today I noted that he made the point that, if anything, Australia is in a better position to weather the current round of global economic uncertainty than it was in 2008/09.

Credit default swap levels show that the the markets agree strongly with Stevens – current 5-year swap levels for Australia are well under half what they were in early '09.

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Contrast the situation in many Euro countries like France and (in particular) Spain, where levels are much higher than they were at the height of the GFC. Even the mighty German economy is virtually back to the levels seen back then.

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Tuesday, August 16, 2011

DIX Index in overdrive

The DIX Index, which measures the standard deviation of interest rate forecasts amongst the tipsters we follow, has risen above 2 for only the second time.

imageThe last time was in October 2008 when it reached a stellar 2.6.  That month saw the second (of what would ultimately be 5) RBA cut, with the cash rate reaching 6%, down from its cyclical high-point of 7.25%.  Forecasts for the cash rate setting as at December ‘08 ranged from a steady 6% to a dramatic fall to 4.5%.  Of course the reality was that rates in December went even lower, to 4.25%.  The forecasts for March, June and September ‘09 reflected the same story, with forecasts ranging from a flat 6% (in one case, a hike to 7%) to further cuts to 4%.  The reality was that rates fell to 3.25% by March 2009, and to 3% by June.

Which was the forecaster that came so much closer to reality than the rest of them?  It was the cash rate forecasts implicit in bill futures pricing.  And guess what the situation is today, with one forecaster tipping that rates will plunge to a recession-evoking 3.25%, while the rest (bar one or two) are essentially calling for rate hikes?  Yes, its the bill futures again, although it’s significant that one of the better tipsters over a long period of time has been Bill Evans of Westpac, and he broke ranks some weeks ago with an aggressive call for four rate cuts over the next year.  None of the economists we track has followed him, although ANZ has canned its previous forecast of one or two rate hikes in favour of a flat forecast.

US debt – where did the $14 trillion come from?

Amidst all the angst about the size of the US deficit, I thought this graph showing where all that debt came from was fascinating:

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So much for fiscal conservatism!

Monday, August 15, 2011

CBA arrears – a minor uptick?

CBA’s profit announcement last week was impressive in many ways.  The data pack that went with the announcement was also impressive (see here), with a ton of data on CBA’s business.  However, one of the less impressive features was this graph:

image If you look closely, you’ll see that 90 day arrears have risen by something like 60% over the last two years…a modest uptick indeed!

Wednesday, August 10, 2011

Too good to fail?

Financial services marketing types are often keen to use climbing related imagery to promote their wares, generally with laughable results.  Check here for some prime examples.  Consequently when The Economist Intelligence Unit used a climbing theme for a recent report I subjected it to close analysis to see what flaws lay therein:

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Surprisingly it all looks pretty good – the quick draw and chalk bag are hanging at the right angle and it’s clearly a climber doing the climbing and not some air headed model.  Just one thing…no helmet?  On the cover of a risk management paper?  I realise it’s a sport climb, where helmets are considered very naff (as opposed to trad climbing where they are only partially naff), but even so, risk management?  It’s also worth noting that he only has one quick draw left on his harness – he’s either very near the top or he’s looking at the mother of all run-outs.

Wall St. forecasters and Romanian witches

Given the Weatherman’s focus on the accuracy (or otherwise) of Australia’s economic forecaster, it was interesting to hear the Freakonomics podcast on Wall St. forecasters, crop forecasts and Romanian witches.

Check it here.

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Tuesday, August 2, 2011

Gotti’s Plot-free Zone

Another extraordinary spray from Gotti in today’s Business Hysteria.  Try foaming at the mouth while reading this to give it it’s full effect:

Will garbage statistics throw rates reason?

Robert Gottliebsen

Published 7:15 AM, 2 Aug 2011 Last update 10:20 AM, 2 Aug 2011


Do not do it. Do not do it. This is my message to the board of the Reserve Bank as they meet later today to consider whether to lift interest rates. There are a series of dodgy figures which the zealots at the Reserve Bank will see as a call to interest rate action. The board must look beneath those figures into the real world. And, believe me, there is little joy out there in non-mining Australia.
But there is a good chance the zealots will win at today’s Reserve Bank board meeting and interest rates will rise. If they do, then the board of the Reserve Bank needs to understand that they are putting the job of governor Glenn Stevens on the line. If an interest rate hike catapults the non-mining Australian economy into a deep downturn – as I expect it will – then the governor would have to offer the government his resignation.

Damn those zealots!

It’s intriguing that every time the RBA looks to hike rates someone has to pin the blame squarely on the RBA Governor.  Who can forget this priceless font page from the Daily Telegraph back in April 2008:

 

I doubt we’ll ever see another shot of Pup and Lara arm in arm, but I suspect we’ll continue to see the RBA Governor slagged every time the commentariat feels we’ve gone a rate hike too far.

It’s intriguing how little credibility Stevens gets for his role in helping to steer the country through the GFC so effectively.  At least he’s now paid well to cop the abuse.

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