More annoying banter from your editor to the ASX:

“So when can we expect the ASX to make an announcement on this?

“I’m sorry, but this is a no-brainer. As I say, the ASX’s own website states: Timely disclosure must be made of information which may affect security values or influence investment decisions, and information in which security holders, investors and ASX have a legitimate interest.

“It’s no excuse to say that there wasn’t any price action therefore the ASX can’t investigate. You can’t know if the news will impact the price until after the news has been released. Under ASX rules the news must be released under the reasonable person test. If a reasonable person expects that it could impact the share price then the news must be released. There’s little doubt that if this information had been made public at the time it would have impacted the price and therefore it should have been made public. Or is the ASX’s view that it’s OK to keep some information secret because it may adversely impact the share price?

“The ASX is doing itself a major disservice by not immediately asking NAB and Westpac to explain their actions. More importantly, the ASX is doing investors a major disservice. We can only wonder what other information the ASX is conspiring to keep secret from investors!”

It’s no wonder your editor receives so few invitations to dinner parties. Considering how annoying we can be!

And thanks to Money Morning reader Dean for bringing our attention to this story, “Law Firm to Launch Class Action Against Aust Miner Oz Minerals”

According to the news report:

“Slater & Gordon practice group leader Van Moulis alleged OZ Minerals failed to release important financial information between February 29, 2008 and December 1.

“‘The market relies on being fully informed and with OZ Minerals, we believe, shareholders were sadly let down,’ Mr Moulis claimed in a statement

“Investors have alleged OZ Minerals breached its continuous disclosure obligations and understated its liabilities by about A$300 million.”

It makes you wonder if short-sellers in Australia’s banks could launch a class action against NAB and Westpac for non-disclosure of the Fed secret loans. I mean, there’s little doubt that if investors had been aware of these loans it would have had a further negative effect on the share price.

Short-sellers could have made a killing if NAB and Westpac had fully disclosed the secret loans.

In fact, non-disclosure of the loans could have resulted in many short-sellers losing a lot of money as bank share prices rallied. As investors were led to believe Australia’s banks were strong and secure.

As I’ve said before, I’m no legal eagle, but we’re sure investor protection goes both ways. If OZ Minerals can be sued for non-disclosure of negative information, why shouldn’t NAB and Westpac?

In both cases investors have been harmed. We’re struggling to see the difference. Perhaps if you’re a lawyer you could drop us a line to let us know.

On that subject we notice Reserve Bank of Australia (RBA) assistant governor Guy Debelle has made a half-baked attempt to justify the bailouts.

As you’d expect, he doesn’t mention NAB and Westpac specifically. In a speech to the 23rd Australasian Finance and Banking Conference, Mr. Debelle said:

“The RBA participated in the swap line [with the US Federal Reserve] to help distribute US dollars into this time zone… It did not reflect any issue with the Australian banking system’s own need for US dollars. The funds provided under the swap line were cheaper than the extremely wide market price at the time. As a result, Australian based banks availed themselves of this and in a number of cases on-lent the funds to banks in other jurisdictions.”

What utter nonsense.

You’d think an RBA assistant governor would understand how these things work.

On any given day a bank may need to roll over millions or billions of dollars’ worth of debt. If – as was the case in 2008 and 2009 – credit markets seize up, the bank still has to repay the loan. In normal circumstances it would simply take out a new loan to pay for it. But at that time it was much harder.

Mr. Debelle’s own chart proves that:

In a nutshell, it shows that debt became more expensive. It became more expensive for two reasons – first was the risk premium demanded by investors. And second was the drop in the supply of debt buyers.

It’s for these two reasons why the Aussie banks had to crawl to the US Federal Reserve and the RBA for emergency funding.

This whole idea that the Aussie banks were sitting back and licking their lips at getting hold of some cheap funding in order to earn a few dollars profit is just ridiculous. But, it’s the kind of excuse that the mainstream press will fall for.

Just remember what thin capital margins the banks run on. Failure to roll-over even a small amount of funding means that the banks’ capital levels slump.

The article of page 45 of today’s Australian Financial Review (AFR) shows you that. The margins are so tight that according to the AFR:

“If ANZ was forced to lift its risk weighting [on some corporate debt] from 65 per cent to 100 per cent, it would need to find enough capital to support an additional $50 billion of loans.”

In other words, according to analysis from Axiome Equities, ANZ is claiming certain assets on its books are less risky than they really are… just so the bank can hold less capital on its books.

Incidentally, we like the closing paragraph at the end of the article, “A spokesman for APRA declined to comment citing provisions under the APRA Act.”

That would be the Section 56 secrecy provisions of course. Since when was secrecy an investor’s best friend? We’ll ask ASX that question the next time we pester them…

Anyway, yesterday it was Commonwealth Bank of Australia’s [ASX: CBA] turn to have a [ahem!] so-called computer glitch.

Don’t panic, the bank said. Everything is under control. Today’s AFR quotes from the CBA media release, “At most, up to 5 per cent of CBA accounts were impacted.”

Well that’s alright then.

Computer glitch indeed. The fact is, it’s another sign of the systemic failure of the modern banking system. And even scarier is the fact that so few people are aware of it. In no small part thanks to the incompetent mainstream press.

As you know, they’ve been almost deathly silent on the National Australian Bank [ASX: NAB] and Westpac [ASX: WBC] Federal Reserve Bailouts. Aside from a half-baked article in the Fairfax papers – although bizarrely, not in the Australian Financial Review which didn’t cover it at all – and an even more bizarre attack on your editor by the same organisation’s CBD column.

Why the CBD column didn’t report the actual bailout instead of ridiculing your editor is something only it knows.

So ignorant (and we mean that kindly, not meanly) are most people about the secret loans that we noticed this comment by MrBungle in the comments section of an article in yesterday’s The Age about the Commonwealth Bank “glitch”:

“‘Are people aware that during the global financial crisis that two of our major banks borrowed $5b from the US Federal Reserve and the RBA borrowed $53b from the US Federal Reserve?’

“Ok, now that I’ve stopped laughing (after about 10 minutes) I’ll ask you this George…

Point me to some evidence of this mate, otherwise you’re obviously not wearing your tin-foil hat tightly enough…

“That is, they’ve got at you ! ;-D Seriously tho, a link to evidence of this would be appreciated…”

MrBungle – if that’s his real name – was having a pop at another reader who had mentioned the secret loans.

It gives you some insight into how uninformed the majority of the population is. Most people have been trained to believe everything they read in the mainstream press. And they’ve been trained to believe that the current banking system is normal.

That it’s the result of progress in banking. And that today’s system is obviously so much better than how things used to be because, well, it’s modern and we know better than all those clowns who used to carry gold and silver around in their pockets.

But take a look at the other news stories to fill page 45 of today’s AFR:

“ANZ slated for ‘inadequate’ capital holdings”

“CommBank abused franking credits, says ATO”

“Mortgages not retired”

The last story states, “Almost half of Australians won’t pay off their mortgages before they retire…”

So much for the dream of retiring at fifty and then playing golf non-stop for forty years.

And then look at this story from The Age:

“Property chiefs warn on units glut”

Don’t tell me there’s an oversupply of housing already. What happened to the “chronic housing shortage” the property spruikers have been banging on about for years?

I tell you what happened to it… it never existed.

It was just a beat-up by the vested interests. It was one of the many fraudulent excuses they used to cajole young and old into paying ever greater amounts for houses.

But as we’ve been writing for the past two years, the numbers never really stacked up.

Take these numbers as a perfect example of the joke that is the so-called housing shortage. According to the Australian Bureau of Statistics (ABS) in 1998 there were 7,015,200 occupied private dwellings.

At the same time, according to the World Bank, Australia had a population of 18,700,000.

That gives you an average of 2.66 people per private occupied dwelling.

Fast forward a few years to 2010, the ABS reckons there are 8,395,000 occupied private dwellings. And the ABS population clock claims there are 22,557,247 people living in Australia.

Now, remember that Australia has a “chronic housing shortage.” That there has been a massive underbuild of housing, especially over the past five years. All that said, what’s the average number of people per private occupied dwelling?

It’s, erm… 2.68.

We’re no statistician, but we’re pretty sure that at two decimal points your statistical chaps would call that a rounding error. The fact is, the number of people per dwelling hasn’t changed in twelve years.

Where’s the shortage of housing?

Yet somehow, despite that startling revelation, the mainstream press has been hoodwinked into believing the property spruiking spin – that Australia has a chronic housing shortage. When in reality it has nothing of the sort.

In fact, if we believe the property developers quoted in The Age, we’ve got the opposite of a shortage. We’ve got a glut.

But look, we’ll take The Age article with a grain of salt. It’s based on what two property developers are saying. They are clearly not impartial observers and likely have some reason for pointing out the lack of a shortage.

Besides, you don’t need to listen to them anyway. The numbers speak for themselves.

More shocking is the fact that more people are approaching retirement and old age still mired in debt.

And other numbers from the ABS show you what a difference it can make to an economy. And why it’s no surprise retailers are feeling the pinch. According to the ABS, in 2008 the mean weekly housing costs for a person without a mortgage was just $33.

That’s right, $33.

But for a person with a mortgage, the mean weekly housing costs were $384.

If more people are stitched up with a mortgage for longer, there’s no doubt that it means more money spent on servicing mortgages, and less money going towards savings or consumption.

And not only that, but thanks to the suckering in of first home buyers in recent years, they’ll have even less disposable income than if they’d remained in a rental property.

Occupiers of rental housing only have a mean weekly housing cost of $267 in 2008. That’s significantly less than the person with a mortgage.

As we see it, the poor sales and profits figures from retailers in recent months are set to continue into 2011. And the idea that Australia’s miracle economy will continue to prosper is likely to flounder in a sea of massive personal debt.

Oh, and as for the idea that Australia’s savings rate has increased. Take that with a grain of salt too… the ABS certainly does. The mainstream has lauded the 10.1% national savings rate as being a sign of lower debt.

This is what the ABS has to say about it’s own statistic:

“Household saving in not measured directly. It is calculated as a residual item by deducting Household final consumption expenditure from Household net disposable income. As the difference between the two aggregates is relatively small, caution should be exercised in interpreting the Household saving ratio in recent years, because major components of household income and expenditure may be subject to significant revisions.”

We’re wary about ABS data at the best of times. But when they tell us to be cautious about it themselves then that’s exactly what we do.

Cheers.

Kris Sayce
For Money Morning Australia

Is it ANZ Bank’s [ASX: ANZ] turn to “do a NAB”?

According to the grapevine, both ANZ online banking and the ANZ owned E*Trade broking platform have both been offline this morning.

Is it another case of another Aussie bank suffering liquidity problems? Or is it just another glitch in the system.

The Money Morning mailbag has continued to receive literally one’s of emails (four at the last count) from readers in the IT industry saying they aren’t surprised by the so-called computer glitch at the NAB.

The best of the bunch was this one posted to the Money Morning website by reader ‘N’:

“A few years ago I project managed the IT transition from one building to another, for one of the very well known 2nd tier banks. The whole thing was in shambles. Example – under a desk we found a very old PC (90′s) which, it turned out, was also the host of an ancient application that enabled visa payments for a particular (large) product class. The application was unsupported and only ran on one of the 90′s Windows versions. My initial advice from the propellerheads was just… don’t… touch… it.

“Investigations kicked off (this was about 1% of total project scope) and no replacement system could be identified. Hence we had to move the damn thing to the new building, and even more frightening TURN IT OFF in order to do so. There was less than 50% chance that the damn thing would start up again. We managed to get it across and it booted back up. If it hadn’t worked, well…

“I can imagine that it still sitting under a desk somewhere, and by now the turnover in the IT department probably guarantees that no-one knows about it anymore.

“So in summary – No, there is no limit to the risk incurred by utterly sub-standard IT infrastructure in our banks. I could give you a dozen more examples.”

The words “secure” and “stable” hardly spring to mind when you read stuff like that. And these are the institutions responsible for taking care of your hard-earned wonga.

Another reader, ‘k’ wrote:

“Banks are required (as are many other financial institutions) to have off site systems, however oftn the capacity of thise systems is far far below what the everyday system is- there appears to be an assumtion that should it be needed everything can operate at a slower pace.

“The more legacy systems are lying around the place, entangled into the new ones, the better the chance that something like this will happen- a variation on the Y2k threat- but without the attention and push to fix.

“That said- it shouldn’t have taken 6 days- I had a brief conversation with an ex Centrelink person- they had similar servers/server issues and it took about a day to rectify. 6 days does indicate something else was happening, particularly when the debits continued to flow- so all of the corrupt code was only on the credit side?

“If I were inclined to the criminal mode and had access to those servers and historical data- I would be going after any big unattended accounts and getting some odd debits in- it could be yers before anyone thinks to object, and easy money.”

There you go, one day versus six days. And we’re sure, considering it was the public sector, even that one-day job would have been knocked off in just a couple of hours by an IT guy in the non-bank private sector.

Anyway, there’s more than a fishy smell to the NAB debacle. We can smell a rat too.

But just as the Commonwealth Bank [ASX: CBA] ignored us when we were the first to reveal their lies about house price to income ratios (ahead of the sleeping mainstream press), we’re sure NAB will continue on with their glitch excuse.

But who cares about all that. The market is roaring ahead today. Everything is fine again with the world.

The US Federal Reserve’s Beige Book revealed that ten of the twelve Federal Reserve districts had seen economic growth, the Europeans have vowed to do “whatever it takes” to try and re-float their economies, and the US Federal Reserve has said it will help out the Europeans if they need it…

Quite how it’s going to do that, we’re not sure. Oh, that’s right, it’ll just create a bunch of numbers on the Fed supercomputer and email that to the European Central Bank.

That seems to be how wealth and economic growth is created these days!

But as we write, the Aussie market is up about 1.5% on yesterday’s close.

Everything is up… except gold. Must be time to think about buying a bit more. “Buy gold on the dips,” our colleague and Daily Reckoning veteran Bill Bonner tells his readers.

We like that advice. In fact, we’ve liked that advice for the past six years when we started out as the first editor of the Australian version of the Daily Reckoning.

Of course, we always regret not having bought more when the price is high. But funnily enough, when the price falls we never regret having bought it. That’s something we can’t say for other investments.

But yesterday’s market action was interesting. Interesting because of the sense of déjà vu.

Here’s the chart below:

Source: CMC Markets Stockbroking

On Tuesday we wrote about the strong rally as the market reversed from a twenty point loss (red circle) to finish with a twenty point gain. The rally from the top to bottom was over 1%.

Yesterday, an almost identical thing happened. The only difference was that the lift off happened later in the day, at about 2.30pm (the other red circle).

After reaching the low point of the day – at the same level as Tuesday’s low – the market hot-footed it to almost close in the black. This morning the market gapped higher and is trading higher than Tuesday’s high.

If nothing else, those two bounces off the bottom show you how important key technical levels are to the market.

Traders would have had that low point in their sights. When it reached that level it was a case of whether the bulls could beat the bears.

So once the market failed to break through, bosh, the market took off as traders and institutions just kept buying in to the rally. The only thing that stopped the market moving even higher was the end of the trading day.

Obviously this morning’s rally shows you there was some unfinished business. Add in the excitement of supposedly positive economic news from overseas and you get the kind of rapid-fire rally you’re seeing now.

The problem with this kind of market move is that it can drag reluctant buyers into the market. Buying into stocks on the fear of missing out on bigger gains.

That’s what can make stock markets so dangerous.

It’s fine if you’re a day trader, a short-term trader, or a punter. But what about if you’re an investor?

On a day like today, when you see the main Aussie index pile on seventy points, it can be hard to resist the urge to dive in.

If you did that at point 1 on the chart below in 2006 then you would have done quite nicely:

Source: CMC Markets Stockbroking

But if you’d jumped in at point 2 in late 2007, well, the picture wouldn’t have been quite so pretty.

And remember I’m talking about being an investor here. The sort of investor who typically buys and holds for a while.

The reason I mention this is that I know how hard it is to keep your emotions in check when you see the market take off.

But it’s important to remember that we’ve seen this kind of big move before. In fact, it was as recent as the first week of November that the main index gained a similar amount… only for it to drop by 200 points over the course of the month.

To my mind, whatever the government statistics claim, the fundamentals for a strong market just aren’t there. Everything is being propped up by government and central bank manipulation.

Take that away and… you know the rest. And ultimately it must be taken away. The longer the support remains the harder and more painful the consequences.

Because of that, you need to be careful about what you buy. I wrote to Australian Small-Cap Investigator subscribers last night telling them that there are plenty of good stocks on the market but that “doesn’t mean to say you should pay any old price for them.”

The same goes for blue-chip stocks. I’m looking at my watchlist of about 35 blue-chip stocks this morning and all but two of them are up.

But I’m not a blue-chips kind of guy. I prefer the specky tiddlers. But if you are into blue-chips what do you do when you see a list like this:

Source: CMC Markets Stockbroking

I mean, how do you know which is the best value? Brambles Ltd [ASX: BXB] is up 2.34% as I write, but does it have the potential to go higher? And if so, by how much?

Or maybe you’re better off getting into CSR Ltd [ASX: CSR] which is only up 0.6%.

Or perhaps you should go with the strongest gainer and plump for BlueScope Steel [ASX: BSL], after all it is up over 3%, what’s to say it can’t go even higher?

To be frank, I can’t give you a clear answer on that. Because they aren’t the kind of stocks I follow. I’m more of an opportunist and a speculator. But that’s no good if you’re not that kind of investor.

But as a speculator or a punter I would be tempted to say that something like AMP Ltd [ASX: AMP] might be worth having a flutter on:

Source: CMC Markets Stockbroking

But only for a punt. For no other reason than it’s down about 30% over the past year.

But again, that’s not a good enough reason if you’re a medium to long term investor. If that’s you, rather than taking advice from a punter like me, you’re better off taking advice from a value investor.

Someone who doesn’t worry too much about charts. Someone like my old pal Greg Canavan at Sound Money Sound Investments.

When markets are trading all over the place, and when every stock is going up or every stock is going down, you want to know which stocks are being unfairly sold off and which stocks are being unreasonably bought higher.

That can be tough to figure out. You’ve got to put in a lot of ground work and read a lot of company reports to find out whether a stock truly is trading below its intrinsic value. It’s not usually something you can easily pick up just by looking at a price chart.

The fact is, the market right now is one of the toughest I’ve ever seen as a stock picker. It’s easy to get carried along with the crowd. And while that can give you some easy gains, it can also cause you to suffer some pretty painful losses if you’ve bought in to the wrong stock.

So, considering how tough it is right now, I’d suggest you give yourself a free-kick by grabbing hold of Greg’s Sound Investments Series.

The series includes what I believe is the probably the most important report you’ll read over this Christmas holiday period – The Value Investors Secret to Identifying Quality Underpriced Stocks.

If you’re a medium to long term investor and you’re not sure whether to buy into this rally, then my advice is don’t… at least not before you’ve read Greg’s special report.

The stock market rises and falls all the time. It’s important not to jump in when you may be better off waiting.

Cheers.

Kris Sayce
For Money Morning Australia

It’s pretty easy to say that when you’re a career leach. Sorry, we mean public servant… No, actually, we do mean ‘leach’ after all.

On reading those words from Emperor Henry, it rather reminded us of this moment back in 2003:

“Major combat operations in Iraq have ended. In the battle of Iraq, the United States and our allies have prevailed… [Applause, whooping and hollering] And now our coalition is engaged in securing and reconstructing that country.”

At the time it did indeed appear as though the ’shock and awe’ military strike in Iraq had ‘worked.’ Seven years later and, erm, well, the last we heard there was still a bit of bother going on there.

The story is similar with the global economy. Thanks to the meddling of national governments and central bankers, there’s the impression – a false impression – that the worst is behind us.

But as you’ll know from reading Money Morning, the facts are different. The worst is yet to arrive. Although if you look at the news, there are signs beginning to show that the delayed effects of the global financial meltdown may only be just around the corner.

Like George ‘Dubya’, the bankers and governments believe they’ve got this thing licked. And that after saving the world they’re now determined to secure and reconstruct the global economy.

New regulations are proposed. New taxes are being invented. Government will take the driving seat instead of leaving things to so-called free markets.

But the real outcome of their meddling is plain for all to see. The dodgy situation in Greece is a perfect example. But we’ll have more on that tomorrow…

First, a look at those ‘amazing’ job numbers that sent the markets and commentators wild last week.

“What we particularly celebrate about these figures today is the thought that 52,700 Australians have told their families in January that they got a job.”

That was Treasurer Wayne Swan’s comment in Parliament last week after the release of the Australian Bureau of Statistics (ABS) employment data.

According to the ‘great’ news in the mainstream press last Thursday and Friday, “Australia’s jobless figure [fell] to 5.3 per cent from 5.5 per cent.”

Gee, wouldn’t that be nice if it was true. Wouldn’t it be nice if the unemployment rate really was 5.3%? And wouldn’t it be nice if 52,700 Australians really did tell their families they got a job.

Look, we’re sure plenty of people did get work in January. That’s the nature of the job market. Some people get a job and some people lose a job.

The problem is, in the world of statistics, what the press is actually reporting isn’t actual job numbers. What they are actually reporting is a statistic.

It may seem obvious, but it’s important to realise that a statistic is just that, it’s a number contrived by the ABS rather than an actual picture of job gains or losses.

It’s a bit like the home index numbers. It’s an index that’s based on real numbers, but which gets fed into a fancy computer programme, out of which comes a neat little number.

But if you look at the unemployment numbers there’s more than one way to interpret them. We’re not saying our interpretation is any more accurate than Wayne Swan’s, but what we will say is that if you look at the original numbers rather than the ‘trend’ or ’seasonally adjusted’ number, it tells a completely different story to what has been reported.

And furthermore, as we’ve seen many times over the years, the ability of the mainstream economists to make accurate forecasts based on economic data has been woeful.

As we pointed out with the misleading reporting of the ANZ Job Advertisements, the same misreporting has happened with the unemployment numbers.

In both instances, the press reports and analyst commentary has gone cock-a-hoop over the fantastic numbers that show Job advertisements rising and the unemployment rate falling.

When in fact the reverse is the case.

The mainstream press reporting of the December ANZ Job Ads chose to only look at the seasonally adjusted figures. In other words, they looked at a statistic rather than the raw data.

That was only the start of the deception because the January job ads were even worse.

According to the ANZ, total internet and newspaper job advertisements fell to 109,177 in January, a 25.8% decrease on the January 2009 number, and a 50.8% decrease on the January 2008 number.

In fact, get this, the January job ad number was the worst since at least November 2004.

Of course the argument could be that, “It’s bound to be lower because the Australian economy didn’t lose as many jobs, so employers don’t need to advertise.”

Well, you could argue that, and it could be true.

In fact, if you look at the employment numbers from the ABS it tells you in January there were 10.85 million employed persons in Australia compared to just 10.61 million employed persons two years earlier.

So, during the global financial meltdown Australian businesses maintained total workforce numbers.

But the not-so-rosy number is the number of unemployed people. That’s increased by 150,000 during the same time.

And in fact, according to the ABS, a net 196,961 people told their families they’d lost their job in January alone.

That’s because the total number of employed people dropped from 11.047 million in December, to just 10.850 million in January.

Look, we’re aware of the reasons behind the use of ’seasonally adjusted’ and ‘trend’ numbers. It helps to smooth out seasonality and give a bigger picture view.

However, although it may smooth the numbers, it also hides the real story.

What the numbers likely tell you is that thanks to the stimulus spending and government bail-outs, many businesses recognised they could afford to maintain staff numbers.

Of course, that’s only the net employment position. Some industries will have fared better than others. Especially those in the construction sector and allied industries.

Over this time many businesses have been able to maintain their pricing levels and their staff numbers. If they’d had to cut prices, odds are more businesses would have fired workers to try and cut costs.

The stimulus programmes and bail-outs prevented that from happening.

The consequence is that prices didn’t fall. The proof of that is in the consumer price index (CPI) numbers which indicated rising prices during the last year.

And contrary to mainstream opinion, that’s bad news.

Because the biggest fear now is that what should have happened in 2008 could very well now happen in 2010, only it’ll be worse.

It’s easy to think that a stable employment number is good. That the stimulus programmes prevented these people from losing their jobs. The reality is different. It certainly helped those in some industries, but it has punished those in other industries that didn’t receive the benefit of the bail-outs.

Besides, look at where many of those jobs have gone. Crazy government funded projects such as the Green Loans scheme and wasteful school building projects.

But even worse than that is the fact that those stimulus programmes need to be paid for at some point. The only way the government can do that is to pay for it through the tax system.

Right now, according to the Australian Office of Financial Management, there is $124 billion of taxpayer subsidised government debt outstanding. $117 billion in Australian dollars, and nearly $7 billion in foreign currency denominated debt:

That works out to around 11% of Australia’s GDP.

But that’s not all. Add in the private sector debt and as we’ve noted recently, Australia’s debt position is well above 100% of its total income.

The problem for the economy now is what will happen over the next year when we assume there won’t be any further stimulus packages? That’s billions of dollars worth of spending that was in the economy last year but which won’t be there this year.

We’ve already seen that the retailers have produced revenue and profit numbers below market expectations.

And this year the economy faces the prospect of increasing interest rates and higher taxes.

One alternative is for the government to follow the Greek, US and UK example to the next level. And that’s to keep spending, and then borrowing more money to cover it.

You only have to look at Greece to see the mess it’s in. Yet it would be a mistake to think that Greece is a basket case, and that Australia is so much better off.

In nominal terms, the Greek public sector debt is €294 billion. That’s around AUD$449 billion, or about four times the Australian public debt.

But then compare household debt. According to Barron’s: “Greek consumers are relatively frugal, with household debt equal to just 61% of GDP.”

Which puts Greek household debt at around the equivalent of AUD$313 billion, compared to Australian household debt which is over AUD$1 trillion – or nearly four times as much.

So, all up, the nation that’s been roundly scoffed at as an economic disaster, is not much more indebted than Australia. Certainly in terms of its GDP, the Greek position is worse, but in simple dollar terms Australia’s debt levels are far in excess of the Greeks.

And this is where the real problem for Australia is. Rising interest rates. Even without the impact of a Greek debt default, interest rates are pointing towards going higher.

Domestically, the Reserve Bank of Australia looks certain to raise interest rates to at least 5% by the end of this year. And considering the reliance of Australia’s banks on foreign debt, odds are that investors will demand higher interest rates in order to offset the risks of default.

And that will be the case regardless of how safe domestic commentators believe Australia’s debt position to be. If risk premiums are rising globally, whether we like it or not, there will be a flow on effect to Australia.

And being a commodity economy, that will add a further risk premium – especially as Australia doesn’t have much to offer the world apart from commodities.

So, while Australia’s ‘miracle’ economy may have escaped without much damage so far, it has only been due to China and excessive debt.

And right now, any investor will be very wary of relying on either of those coming to the rescue of any economy.

Cheers.
Kris.

Over at Daily Reckoning we gave the Climate Change ‘tree’ a bit of shake. You can check out what we had to say later on today after our webgeeks post the article to the Daily Reckoning website.

But on this side of the building on Fitzroy Street we’re taking another swipe at the banks.

Last week we tipped our cap to Westpac for trying to make a buck out of the interest rate rises by anticipating the Reserve Bank of Australia’s next move.

NAB spoiled the party by just raising by the same amount as the RBA, but then Commonwealth Bank and ANZ Bank rode in to split the difference between the two.

As we noted last week, the idea that the RBA can manipulate interest rates to perfectly control an economy is a complete fallacy.

It just can’t be done.

But anyway, the actions from the banks show just how desperate they are, and how close they are to insolvency.

As the back page of today’s Australian Financial Review points out, “[Westpac CEO Gail] Kelly’s aggression in home lending in 2009 delivered strong profits in the short term but it is now causing issues for the bank’s liability management. Westpac wrote $29 billion in new home loans in the year to September.”

You’ve seen the stats on home loans over the last year. A big percentage have come from first homebuyers who have been suckered into the market by the first homebuyers bribe.

It’s hardly likely that Westpac would have gone ‘underweight’ on first homebuyer’s mortgages. They would have lined up with the rest of them to get as many suckers onto their loan books as possible.

We mentioned above that the banks are close to insolvency, actually, there’s not much difference between the balance sheet of the banks and that of the frozen mortgage funds we wrote about last week.

The only difference is the banks have a government guarantee.

But aside from that the story is fairly similar. In some respects it’s worse because most of the bank’s deposits are in at-call accounts. That means accounts where savers have immediate access to their funds as opposed to a term deposit.

Yet on the other side of the balance sheet, the bank’s assets are tied up for the long term in mortgages and houses. The $29 billion of loans Westpac has written is against mortgages last 25 or 30 years.

But the savings inflows that have enabled the bank to make those loans would be mostly in at-call accounts. In other words the bank has let someone borrow your money for a term of 25 years yet the bank has no power to stop you from ‘calling in’ your funds by taking the cash out of your account.

It probably explains why the banks have been so desperate to raise more funds from the overseas markets using the government guarantee, and why they have been so quick to increase the interest rate on deposit accounts to discourage investors from withdrawing funds.

For instance, ANZ Bank has increased the rates on some term deposits by 0.75%.

It’s all part of the cycle of rising interest rates that we warned readers about earlier this year. And it’s these interest rate rises that will flow through to the inflation numbers as well.

While the mainstream has been harping on about inflation being dead, we see it differently.

Rising interest rates means a rising cost of living. And for individuals it means a coordinated attack from two sides.

You see, when interest rates go up, your disposable income goes down. You don’t need a Harvard degree to work that one out.

But by extension it also means your cost of living has gone up. Even if prices don’t rise, your cost of living has increased because you now have less money to spread across your weekly and monthly obligations.

The banks and property spruikers will tell you it’s “only” an extra $45 per month on an average mortgage, but they conveniently forget to mention that it’s $45 per month on top of $45 last month and $45 the month before.

They also forget to mention that in total, that’s $135 per month of after tax dollars that has to come from somewhere.

Does it come from savings? Maybe, but more likely it comes from your disposable income.

The individual this month has $135 less than they did three months ago. And chances are by the end of next year you can double and possibly even triple that amount as interest rates rise even further.

But that’s not the only place where individuals get stung. Because aside from the lower disposable income, the rising interest rates mean businesses that have borrowed will need to increase prices to cover their increased costs.

For all the rubbish about the rate of inflation being low at 2-3%, the real rate of inflation is much higher than that. It’s closer to 10% if you use the RBAs money supply figures.

So don’t think the interest rate increases have stopped there. By their own admission the RBA says rates are at emergency low levels.

It’s only a matter of time before rates are pushed up further, that price increases are filtered through to the consumer and the recession/depression that Australia famously avoided earlier this year rears its head.

On top of that, there’s the prospect of a further tax sting when the Stable Climate deniers get their way and foist a massive tax burden on the Australian public just at the time it needs it least.

Cheers.
Kris.

60-Second Market Round Up
by Shae Smith

The S&P/ASX200 finished down on Friday to 4,702.20, lower by 72 points. The market has opened up this morning, however you can expect a choppy trading session today.

The Dow Jones Industrial Average ended the day higher by 22 points, closing at 10,388.90. The positive news regarding unemployment pushed the Dow to finish up, but could potentially lead to the Fed lifting the near zero interest rates. Read more here.

In the UK overnight, the FTSE was up 9 points to 5,322.36

The Nikkei was up to 10,022.59 higher by 44 points. The index added a total of 10.4% for last week, its biggest weekly gain in one year.

The price of spot gold in Australian dollars is trading at $1,270.65, while in US Dollars it is trading at $1,161.90. The price of silver in Aussie dollars is $20.22 and in US Dollars it is $18.49.

The Aussie dollar versus the US dollar is trading at USD$0.9150, and against the Japanese Yen JPY82.48

Crude oil closed at USD$75.47

For the biggest movers on the market yesterday click here…

Its a 15 Million splash by ANZ for thier New logo

Coming back right from a stockmarket bust to boom  this will surely look like a bit of overspend . Maybe some graphic designers can shed some light on how much a normal  or then a little bit more professional looking logo can cost a company!!

NEW ANZ 15 Million LOGO

ANZ bank has splashed $15 million on a new logo that it claims reflects its ‘human’ side.

The new logo, at right, features a ‘modernised’ font and a central ‘human’ shape that “represents ANZ’s customers and people” flanked by three shapes that signify the bank’s operations in Australia, New Zealand and Asia-Pacific.

Now lets wait for the 20 mill and 40 mill Comm bank and Westpac logo .. wot say !!

Just coming back from the great big  financial bust and dip , the banks  are now  flush with cash again  and looking more confident  with ANZ new Millions Dollar logo. The question it raises is, Is it Appropriate ? ( just like the  BIG  $$$ raises some CEO’s are receiving in spite of companies  running at a loss )

The new logo will be launched in an advertising campaign from Sunday and ANZ buildings, websites, stationery and marketing material will be re-branded in the coming year at a cost of $15 million.

Australian banks charged a total of $11.6 billion in fees during 2008. Exception fees accounted for $1.16 billion (10 per cent) of banks’ total fee income. Banks raked in approximately $960 million in penalty fees from households and $200 million from business customers.

Exception fees are typically charged by a financial institution when a consumer makes a late payment, overdraws an account or exceeds a credit limit. Most of these fees are pure profit for the banks. Analysis conducted by Deutsche Bank has revealed that 87 cents in every dollar a big bank takes from a customer in penalty fees is pure profit.

Bank fees can be very confusing. With several banking products available in the market, and with different terminologies used to describe the nature of the fees charged on these accounts, it is no wonder consumers often get confused or lose track of the fees they are paying. A simple understanding of when and where you get charged fees can help significantly reduce your fees by minimising the situations giving rise to fees.

Australian banks charged a total of $11.6 billion in fees during 2008. Exception fees accounted for $1.16 billion (10 per cent) of banks’ total fee income. Banks raked in approximately $960 million in penalty fees from households and $200 million from business customers.

Exception fees are typically charged by a financial institution when a consumer makes a late payment, overdraws an account or exceeds a credit limit. Most of these fees are pure profit for the banks. Analysis conducted by Deutsche Bank has revealed that 87 cents in every dollar a big bank takes from a customer in penalty fees is pure profit.

Key changes for exception fees:

ANZ

Currently customers are charged a flat rate of $35 for all honour, dishonour and periodical payment non-payment fees. Overdrawn, over-limit and late payment fees are also charged at $35. However ANZ Access Basic account customers (students and concession card holders) are charged $10 for these Exception Fees.

Commonwealth Bank

• Dishonour Fees will reduce from $35 to $5 on all personal and business transaction accounts. 

   

• Overdrawn Approval Fees will reduce from $30 to $10 on all personal and business transaction accounts 

   

• Late Payment Fees will reduce from $45 to $25 on all home, investment and personal loans

NAB

• Account Overdrawn Fees will be abolished from $30 to $0 on personal transaction and savings accounts

Westpac

• Account Overdrawn Fees will reduce from $40 to $9 on all personal and business accounts 

   

• Outward Dishonour Fees will reduce from $35/$50 to $9 on all personal and business accounts 

   

• Periodical Payment Not Made Fees will reduce from $35/$50 to $9 on all personal and business accounts 

   

• Missed Payment Fees will reduce from $35 to $9 on all credit cards and personal loans 

   

• Over-Limit Fees will reduce from $35 to $9 on all credit cards and personal loans

Today your editor is hunkered down trying to complete the first edition of Australian Wealth Gameplan before we head off on a few days break to Hobart.

The official launch is scheduled for the week after next. I’ve already picked six Australian income stocks that you can either add to your portfolio or start from scratch.

So, stay tuned and look out for more details on Australian Wealth Gameplan in the coming weeks.

ANZ Takes Lambs to the Slaughter

We nearly fell off the chair when we read this headline:

The fact that ANZ had previously sold $2.5 billion worth of stock to institutional investors is not surprising. Those institutions after all are spending ‘other people’s money’ (OPM).

But that “small investors” – 178,000 people apparently – should voluntarily hand over $14.40 per share of their own money is, frankly, worrying, but more on that in a moment…

In a nutshell, that’s the power of the mainstream press. If all you’ve read over the last year is parroted editorial on the strength of the Australian banking system then you’re bound to feel confident to invest your money.

And if you also read that the government shouldn’t and never will allow an Australian bank to go under, then you’ll feel even more confident.

A perfect example of the nonsense most people are subjected to from the mainstream press can be found in Michael Pascoe’s article for Yahoo! Finance – “Plenty of pay packets for spending.”

He writes:

“In reality, despite all the headlines about job losses and unemployment rising, the employment side of the equation is doing incredibly well considering that the world is suffering a very serious recession and we’re having (a so-far mild) one ourselves.”

He goes on to say:

“There are pluses and minuses about the changes in employment over the year – there are more part-time and fewer full-time jobs, for example, and the number of jobs in the private sector has fallen by roughly 100,000 while public-sector jobs have increased by 150,000.”

Got that? Private sector employment – you know, the part of the economy where things are made or services provided – has dropped by 100,000, which public sector jobs – you know, the part of the economy that leaches taxpayer money without providing anything of any productive value – has increased by 150,000.

Just when the economy is already faltering, the public sector decides to up the bill. In other words there are 100,000 fewer taxpayers to pay the wages of 150,000 new public sector zombies.

According to Pascoe that’s great news.

So it’s hardly surprising that so many ANZ Bank investors chose to buy more shares at a “discount” to the current price if that’s the kind of message the majority of the population are reading.

But perhaps the biggest clue about the weakness of the ANZ Bank and other Australian banks is that they were more than happy to suck in every last dollar from investors.

ANZ Bank was only looking to raise $350 million from small investors, yet when applications for $2.2 billion of stock came in how could they possibly refuse to accept it?

They couldn’t.

Like a drunken bum, ANZ Bank couldn’t bring itself to refuse another drink.

Pity the sensible ANZ Bank investor who decided not to hand over more cash. With all these extra shares being issued chances are their dividend will be cut even further.

Actually we won’t pity them too much, we see very little reason why anyone would want to own bank shares in the first place.

But for the bank it’s nothing less than a windfall. That’s $2.2 billion of hard cash going straight to the balance sheet, and it’s money the bank can immediately use to prop up the housing market a bit longer.

We continue to say, sell the banks, and buy… (almost) anything else!

Other Stuff on the Markets

The S&P/ASX200 fell 0.12% yesterday, while there was marginally better news overnight on Wall Street with the Dow Jones Industrial Average adding 4.76 points. In Europe the FTSE100 gained 0.45% and the CAC40 added 0.54%.

The price of gold in Australian dollars is trading at $1,164.97, while in US Dollars it trading at $914.06.

The Aussie dollar strengthened slightly versus the US dollar and Japanese Yen, trading at USD$0.7846, and JPY72.79.

Further strength for Crude oil overnight, closing at USD$60.74.

For the biggest movers on the market yesterday click here…

Cheers.
Kris.