If you’re worried we’ve forgotten the National Australia Bank [ASX: NAB] and Westpac’s [ASX: WBC] secret loans from the United States Federal Reserve – don’t.  We’re still on the case.

We’ve still got them in our sights… Oops!  Apparently we shouldn’t use that imagery.  Sorry… how about this then:

That’ll do it.

No harm with that image.  After all, going by mainstream logic, although it’s clearly inappropriate for individuals to have the right to self-defence with a small firearm, it’s OK for governments to threaten to destroy the lives of millions of people at the flick of a switch with something much deadlier.

No double standards there.

Anyway, if we get our gnashers into any more of the banks’ grubby secrets we’ll be sure to let you know.

But before tucking into today’s Money Morning, we couldn’t resist showing you this from the Financial Times:

“Europe’s bail-out fund is expected this week to announce the banks that will market the first Eurozone bond amid hopes that demand from the world’s biggest sovereign wealth funds and private investors will ease the continent’s crisis.

“A number of European banks are expected to underwrite the deal, billed as a test of investor sentiment at a critical time.

“Bankers say they have rarely seen such demand for debt with some of the wealthiest sovereign and private funds eager to snap up the bond designed to help fund the Irish bail-out.”

As it happens, last night the banks were named.  Those in charge for handling the bond sale are Citigroup, HSBC and Société Générale.

That would be American bank Citigroup which secretly borrowed $89 billion from the US Federal Reserve… and needed $25 billion from the US government – a stake that resulted in Uncle Sam owning 36% of the company.

That would be UK headquartered bank HSBC.  It secretly borrowed $4 billion from the US Federal Reserve.

And that would be French bank Société Générale which secretly borrowed $124 billion from the US Federal Reserve.  The same Société Générale where Jerome Kerviel racked up trading losses of €4.9 billion in 2008.

But all that aside, it’s more evidence of how messed up financial markets are.

What you’ve got are banks that made a bunch of bad investments – thanks in part to government influence.  Banks that needed a bail-out from national governments.

Those bail-outs were so huge the national governments were at risk of going bust.  The solution?  Banks that were bailed out by national governments are now underwriting an issue of government bonds that will be used to help the governments pay for the bail out of the banks!

Confused yet?  You should be… because we are.

The whole thing looks like Escher’s Waterfall:

How the bail-outs work

You can’t figure out which way is up or which way is down.  Which way the money flows?  Does it even matter?

All we know is the banking system is corrupt.  And those in government who support the system are equally corrupt – that goes for Australia’s banks and politicians too.

Meanwhile…

“Floods tipped to hit house prices”, says today’s The Age.

The mainstream press has got it spot on for once.

Of course, the mainstream still denies the existence of an Aussie housing bubble.  The floods will be a scapegoat.  We can picture their argument now: “Oh, if it wasn’t for all the flooding, Aussie house prices would be up 10% this year – that’s the normal growth rate you know.”

In fact, we speak too soon.  The Age quotes Andrew Wilson from Australian Property Monitors:

“Mr Wilson expects a recovery in Brisbane property by the end of the year, providing there’s no downturn in the economy or additional severe natural disasters.

“’We’re expecting a pick-up in the Brisbane market around about the third quarter this year,’ he said.  ‘That’s probably been postponed a little bit – but only by a quarter.’”

Ha, ha, ha… Is he kidding?  Postponed by a quarter!  It’s more likely that house price growth will be postponed for five years.  Or even ten years… perhaps longer.

According to the same article, “28,000 homes would need to be completely rebuilt, while many houses would be uninhabitable for weeks, months or even years.”

We’ve even seen some comments that suggest house prices could surge because of the floods.  That a diminished supply coupled with a new and unexpected increase in demand will force prices higher.

“It’s supply and demand” they say.  No it’s not, it’s wishful thinking.

The Queensland floods will decimate house prices.  No doubt about it.

Think about it this way.  The spruikers are always keen to point out that roughly one-third of people own their home outright.  Another third have a mortgage on their home.  The remaining third rent.

So, out of 28,000 homes, that’s just about 9,333 homes in each category.  And we’re not factoring in the homes with less damage.  So you can more than double that number.

Now let’s work through it and figure out where the boom will come from.  Remember it’s likely less than half these households will be insured for flooding.

For those that own their home outright, you’ve got between 4,500 and 9,333 people who have seen the value of their “asset” drop by a significant amount.  I mean, let’s be honest.  Who wants to buy a home or land that’s flooded – ducks… geese… fish?

If – and granted most won’t – they tried to sell the land today, they’d be lucky to get one-third the pre-flood value…

But we’ll guess most probably won’t want to sell up.  Mainly because despite the floods they probably like where they live.  And besides, they’ll get nowhere near the price they’d like if they put their property on the market.

These debt free householders will need to borrow a stack of cash to build a new home on their now empty block of land.  Most likely a much smaller home in order to keep the costs down.

Next, what about the folks with a mortgage?  These guys and gals are the ones in even big trouble.  Most likely at least 4,500 of these mortgages will be in negative equity.  That’s where the size of the loan exceeds the value of the property.

Thanks to recourse loans, even if these guys could sell, odds are they’ll still have a massive loan to pay off.  It’s not like the New Orleans floods where home owners could walk away debt free.

These folks will still have the burden of a loan.  A loan that, even if it’s refinanced, would become an unsecured loan and would involve a huge increase in the interest rate being charged.

And what would be the chances of these folks getting a new housing loan if they wanted to buy something else?  Our guess is they wouldn’t have much luck.  Besides, there’s the small matter of needing to save for a deposit as well.

Not forgetting whether they’ve still got a job.  With thousands of businesses shut down temporarily or even permanently, many could find themselves homeless and jobless too.  Try getting a loan with those credentials.

Finally, there’s the renters… ah, the much-ridiculed renters.  Those who have been scoffed at for missing out on the property boom.  Well, aside from losing their home and their possessions, the upside is that unlike those with a mortgage, renters won’t walk away with a debt hanging over them.

The same can’t be said for the landlords, who – thanks to the tax breaks – are likely to be maxed out on their investment mortgage.  But then again, isn’t property investing all about making losses?  We’re sure that’s how it works.  They must be delighted with the losses they’ll make from the floods… mugs.

Back to the renters.  Sure, they may still face issues such as not having a place to live and not having a job, but at least they won’t have to fork out monthly repayments for a loan on a house that no longer exists.

And at least they haven’t seen the value of their biggest asset drop by 40%, 50%, 60% or more overnight.  And in the case of the landlords, the income against the property drop by 100%.

But surely the floods will cause a migration of people to other parts of Queensland and the rest of Australia… maybe.  But it won’t lead to a rise in house prices.  There’s not even a guarantee it’ll lead to a rise in demand for housing.

Remember, the vast majority of these people won’t be cashed up.  Even those without a mortgage and who have cash to spend are unlikely to consider hocking themselves up to the eyeballs with a brand new mortgage…

Not after it’s taken them twenty-odd years to pay off the old one.  And not after the experience they’ve just gone through of seeing their primary asset slump in value.

Also don’t forget, many consider their home to be their retirement savings.  How often have you heard that?  “Oh, we don’t worry about superannuation or investing, our retirement fund is our house.”

Good luck with that.

The simple fact is, from a house price perspective there’s no silver lining to the floods.  The decimation of the supply won’t lead to increased demand.

In fact it’s more likely to result in prices across Queensland softening further.

Aussie house prices were already destined to fall off a cliff this year and next as the credit bubble reached breaking point.

The destruction of paper housing wealth and the burden of non-asset backed debt could be the trigger that finally sends Queensland and Australian property values tumbling.

Regards,

Kris Sayce
For Money Morning Australia

Chinese stocks helped drive the main index of Asia-Pacific stocks (excluding Japan) to an 11 month high, as two surveys showed accelerating Chinese factory output growth. Car and tyre makers were among the biggest winners, after the US Government announced increased funding for its "cash for clunkers" program to encourage households to trade up to more fuel efficient vehicles.

• In Tokyo, the Nikkei finished flat at 10,352.
• Hong Kong’s Hang Seng was up 1 per cent at 5:38pm (AEST).
• Mainland China’s Shanghai composite index gained 1.5 per cent to 3,463, its highest level since March last year.
• Singapore’s main share index was flat at 2,659.

Currency markets

The resurgence is due to increased optimism about a global economic recovery, and demand for currencies linked to commodities. At 5:53pm the Australian dollar was fetching:

• 83.60 US cents
• 79.41 Japanese yen
• 58.80 euro cents
• 49.96 British pence
• 1.2612 New Zealand dollars

Major movers in Australian market

The Australian share market has extended its rally, rising 0.5 per cent on the back of another strong showing by the banks.

At the close, the S&P/ASX 200 was 19.4 points higher, or by 0.5 per cent, at 4263.4 while the broader All Ordinaries rose 21 points, or 0.5 per cent, to 4270.5 points.

• ANZ and NAB led the charge of the big banks, with both up 2.5 per cent, and CBA and Westpac both up by just under 2 per cent. The banks have benefited from broker upgrades as the wave of economic optimism has led analysts to upgrade their profit forecasts. The ANZ also gained after sources told several media outlets that ANZ is close to a deal worth around $1 billion to purchase some of RBS’ Asian assets.
• Aquarius Platinum was amongst the best gaining miners, surging 8 per cent on a broker upgrade.
• Wheat exporter GrainCorp jumped 6.7 per cent to $8.00 after it raised its profit forecast for a second time. Competitor AWB also gained 4.2 per cent on the news.
• Sino Gold picked up 2.8 per cent on the discovery of gold mineralisation near its White Mountain mine in China.

Westpac slashes bank fees

Consumers have scored another victory in the battle against exorbitant bank charges when the Westpac group announcing plans to cut a range of penalty fees from as much as $40 to just $9.

The decision by Westpac and St George – the NSW-based bank it bought last year – follows a move last week by their big four rival, National Australia Bank, to axe the entire overdraft fee of $30 on accounts used by 700,000 personal customers from October 1

KUDOS to NAB FOR BEING THE FIRST BANK TO ACTUALLY CARE.. The rest will follow just to be competitive

Westpac said it would reduce "exception” fees across credit cards and personal and business accounts to $9 from current levels of up to $45. The move includes Westpac subsidiary St George Bank.

Major oil stocks were also mixed, with Oil Search losing one cent to $5.63, Santos up 18 cents at $14.70 and Woodside Petroleum dropping 80 cents, or 1.8 per cent, to $44.90.

Gold miners had mixed fortunes, with Lihir Gold easing 3 cents to $2.74, dual-listed Newmont Mining jumping 16 cents to $4.96 and Newcrest Mining steady at $30.00.

Rams  Home loans has been spiking into positive territory for the past 3 days. i bought this tock back when it was 0.29 Cent and things were looking bad. since then it has been bought over into the  Westpac group and things have changed for the better. with Westpac doing well  RHG also seems to be benefiting from their relation with Westpac.

Westpac Banking Corp. (WBC AU) climbed 2.4 percent to A$19.96, the highest close in a week. Australia’s biggest lender by market value said first-half profit fell 6 percent and announced its first dividend cut in 17 years after charges for bad debts tripled.

I will be definitely Holding on to my parcel  of RHG shares  while  Looking forward to more positive spikes.

With the current market conditions we do not know for sure if it is a bear trap or then we have started in to the bull phase. But we can only hope so.

Harvey Norman  is another stock i would be keeping a close eye on  , specially with the Ruddstatic  tax bonus  of $900 dropping into  everyone’s coffers. we would see a lot of that money being spent on   Big  refrigerators or  then big screen televisions like i will. And that is definitely going to look good on Harvey Normans profit and loss statements.

Harvey Norman Holdings Ltd. (HVN AU) dropped 3.9 percent to A$3.20. Australia’s largest electrical retailer was cut to “underweight” from “neutral” by analysts at JPMorgan Chase & Co. in a note to clients.

Roc oil has also thrown in the gauntlet for a good cause  and  surely there will be takers if not later then sooner  and i will be watching this one as well . On other news the Australian $$ is rising , so some will be happy while some will be sad

CORRECTION:

RHG has *nothing* to do with Westpac.

The ‘old’ RAMS Home Loans had three assets:
#1 The RAMS brand.
#2 The RAMS distribution network of franchisee loan writers.
#3 A $16 billion book of existing home loans.

Westpac bought assets #1 and #2, and continues to trade as RAMS Home Loans. Anything being written by RAMS outlets is now going into a brand new loan book, funded by Westpac.

The ‘old’ company was renamed “RHG Limited”. It has retained asset #3 (the old loan book), which it is attempting to maintain funding for, and make a margin on. This is quite a struggle, given the $16 billion was originally lent out over 25 or 30 years using funding that needs to be repaid over 90 days or so. Short-term money used to be a lot cheaper than what RAMS on-charged its home loan customers, but the global financial crisis has put an end to that.

RHG has been forced to continuously re-fund the old loan book, on an almost month-to-month basis. This is sort of like taking a cash advance on your credit card in order to lend money to someone, then paying off one credit card with another as they become due – all the while trying to make a margin on the difference between your bank’s rate and what you earning on the money lent out.

As confusing as it may seem, RAMS Home Loans and RHG have *nothing* to do with one-another these days.

To verify Details please check with  www.westpac.com.au and  www.rams.com.au

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