Tipsters’ table – updated

Westpac’s Bill Evans has finally been tipped out of the top spot in the cash rate forecasters table, after 12 months at the top. Citi have now grabbed the mantle while ANZ continue their post-Eslake slide. 

Also of note is the continued improvement in the DIX index, which measures the standard deviation of cash rate forecasts amongst different forecasters.  It’s starting to trend back towards its long-term average, which indicates that the economists are once again starting to sing from the same hymn sheet.

解百姓住房难必先除权力自肥

The Chinese have the right idea!

That roughly translates as:

 To Solve The Populace's Housing Difficulties We Must Root Out Self-Enrichment By The Powerful

Read all about it here.

Gordon Gekko meets Jake & Elwood Blues

See how “greed is good”      

 

Evolved into “greed is God”

 

As Jake and Elwood would say, they’re on a mission from God!

Whack-a-banker

The new Space Invaders….

Olá Portugal

Latest sovereign risk credit default prices show a massive spike in Greek risk, which is hardly surprising, but what did surprise me was the extent to which Portuguese risk dipped below the price for sovereign US risk back in early 2009.  I know things were pretty rough back then, but under what circumstances could this possibly make sense?

A capital question

RBA Governor and occasional Chaser’s War stand-in Glen Stevens had this pearl of wisdom to share re the GFC:

The intention, after all, is that lenders will operate with more capital against the risks they are taking. But capital is not free; shareholders have to be induced to supply it, and it will have to be paid for. High-quality liquid assets typically carry lower yields too, so mandating higher liquidity will have some (modest) cost as well. Admittedly it can be argued that shareholders of financial institutions will have a less risky investment and so should be prepared to accept lower returns.

My question is, if investors are already expecting insane returns on capital invested in banks, will this change anything or will it simply put more pressure on banks to produce the same returns on a bigger capital base?  See here for the historical data. The bottom line is that in the 11 years to 2008 the big 4 banks had an average ROE of 18.4% compared with yields on 10-year Government bonds of 5.8%.  Just how risky are these things?

Asleep at the Wheel

The Senior Supervisors Group is an august body of 10 financial market regulators, with a very heavy representation from North America (Fed, Fed NY, SEC, the quaintly named Comptroller of the Currency and Canada’s Superintendant of Financial Institutions) and Europe (French Banking Commission, Swiss Financial Market Supervisory Authority, German Federal Financial Supervisory Authority and the UK’s Financial Services Authority).  Japan’s Financial Services Agency rounds out the ten.  So that’s:

North America	50%
Europe	40%
Asia	10%

Right.

The SSG has recently released an exciting report entitled Risk Management Lessons from the Global Banking Crisis of 2008.  Click here to see it.

A couple of things sprang to mind as I leafed through it:

• The crisis of 2008?  I didn’t think 2009 was so hot either.
• What’s with the cover page?

• The arrangement of logos is just too suggestive of something else:

The man who would be Mervyn King

Merv had a bunch of very insightful things to say recently, reported here in the Torygraph.  Especially eye-catching was this view:

"It is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities. The case for a serious review of how the banking industry is structured and regulated is strong."

He added: "The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion," adding: "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector."

Harping back to an old but related theme, if the risk free rate of return is 5% or thereabouts (before tax) and the banks are chasing 20% returns (after tax), presumably the differential between them represents a gigantic risk premium which doesn’t quite add up to their “too important to fail” tag.

Yet More Bill

Sept. 2009 and Bill Evans at Westpac continues to hold a big lead over the rest of the field:

Meanwhile the CBA has been asking the question: “How good are economic forecasters?”  A good question given where they are on the ladder.  Have a look at the article here.

One of the conclusions is:

But CommSec did find that a good approach for investors was to follow the consensus. An average of the
20 forecasters consistently outperformed the majority of individual forecasters over differing time periods. Of the 77 indicators tracked, the consensus economic forecast picked the direction of movement 78 per cent of the time. And on 60 per cent of occasions the consensus result was amongst the top forecasts.

Check their findings against the “Avg” indicator above – looks like pretty good advice to me.  The only better advice would be “follow Westpac” which would be reasonably courageous for a CBA economist.

Bill Evans – my hero

Bill Evans at Westpac has done it again, retaining a huge lead over the opposition in the rate tipsters ladder:

Not surprisingly the WBC groupies have been out in force….