Australia to have recession in 2009 - IMF

The IMF proves itself to be one of the slow kids by only now forecasting a recession in fiscal 2009. The forecast was from 1.8% down to -0.2%, a 2% cut from low but noticeable growth to contraction. One has to wonder what events caused this change since November, or if nothing, what value is present in a forecast that consistently is altered in the downward direction as the date approaches, after half of the period you were forecasting has already elapsed.

Australia is strong!

Australia has been announced to have a strong balance sheet. It also says the housing market has "positive characteristics", a statement severely lacking conviction, and talks of AUD appreciation - not sure when that happenend.

The article is actually about A$45 billion additional stimulus. In addition to that, there is to be a Ruddbank set up to fund commercial real estate too risky for the banks to lend to, which is to have A$4 billion, with Rudd being even less concerned with moral hazard than the RBA. I would think A$4 billion is too small to affect our commercial real estate market, but there you have it.

This is going on while rumours about of the US setting up a "bad bank" to take all of the worthless assets at modeled rather than market prices and then slowly cost money over years.

British Banks pounded

Royal Bank of Scotland's share price slides 67% in one day in spite of being a recipient of government bailout funds on news that it expects to lose £28B this year, and now trades at a price that implies the stock market thinks its shares are a gamble to be worth anything at all. Lloyds fell 34%, Barclays was down 10%, having fallen over 20% on Friday, and HSBC was down 6%, recovering from 13% down. HSBC is expected to need £20-30B, according to Morgan Stanley.

Got AAA?

Ireland, Greece, Spain and Portugal have all been warned since Friday by Standards & Poors Rating Company, regarding their national debt - some "credit watch" and some "negative outlook". Yes, they're considering the possibility of nations defaulting on their debt at some point in the future. Note that only Ireland and Spain had AAA.

Update: Spain has been downgraded to AA+.

Printing

Printing is now the sport of choice for Central Bankers around the world. How much can you print before someone notices?

The US:
Nearly 100% in 3 months.


The UK:
6% in a year (not completely shameful), but doesn't want to tell anyone any more.

Australia:
5% in October, 1.5% in November. The statistics don't yet have December.

New Cars - What are they good for?

Apparently, new cars are not as important as they used to be.

US December Sales YoY change:
Subaru -7.7%
Mitsubishi -22.6%
GM -31%
Nissan -31%
Ford -32%
Honda -35%
Toyota -37%
Crysler -53%

The World - guess on December Sales YoY change: -40%
Why is world demand slowing relatively more quickly than the US?

Australia December Sales YoY change: -11.3%
Australia Overall 2008: -3.6%
Australia Overall 2009 forecast: -13% - is the industry being realistic this time around?

Bail Faster!

$15 Billion bail out from the TARP goes to PNC (proud new owner of NCC), Fifth Third Bank, CIT Group and SunTrust. This is, of course, preventative - the US financial system is fundamentally strong.

What is Gyromancy?

Gyromancy is divination through use of circles. In the case of this blog, it refers to using cycles that are quite clearly present in the past to predict the future - only a slight stretch.

This blog is aimed at providing short and snappy news about the economic future of Australia - given the interconnected nature of the global economy, much of it will be global economic news.

The past globally:

• US investment banking has crashed, with the taxpayer footing the bill for much of it
• In Europe, a large proportion of banking has been nationalised, especially in the UK
• All interest rates are falling
  
• The people running things all argue that no-one could have seen this coming, to excuse their completely inaccurate predictions, but still confidently act upon the future

The past in Australia:

• Resource prices have collapsed
• Interest rates have been slashed halfway to zero
  

The present globally:

• Countries are getting IMF bailouts (Iceland, Hungary, Ukraine, Pakistan)
• States in the US are heading toward bankruptcy very quickly (California, Nevada, Arizona, Florida)
• Essentially all solvent countries are throwing money at the debt monster to make it go away, in the form of both banking bailouts and economic stimulus, whist attempting to "avert recession"
  
• There is much post mortem analysis of the crisis that is in progress - it seems strange

The present in Australia:

• Housing is being bailed out with an A$8 billion purchase of RMBS (residential mortgage-backed securities) by the Australia Future Fund - all AAA rated, of course
• Housing is being bailed out with an increase of the first home buyers grant, to the tune of an estimated A$1.5 billion increase - I guess that means the subsidy is now A$2.5 billion per year
• Banks are being supported by purchases of debt from the Australia Future Fund - A$500 million for ANZ, unknown amounts for NAB and Westpac - the CBA is not involved due to a conflict of interest from the director of the Fund
• Banks (the big four, Maq Bank and Suncorp) are receiving free government guarantees for newly issued debt - US$11.2 billion as of Dec 17 - and it is getting issued in currencies including US Dollars and Yen
• In spite of this, we still have declarations that the banking system here is strong
  

The future globally:

• Everywhere seems 100% committed to throw as much money at the debt monster as it takes to make him go away - but he keeps coming back bigger and hungrier

The future in Australia:

• A recession is to be averted using the same techniques that have proven ineffective everywhere else
• Housing will not be allowed to correct to realistic prices without a fight - ZIRP (zero interest rate policy) may be used
  

According to governor of the RBA, Glenn Stevens:

"I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it."

If you could not see the inevitable consequences of past policy, how do you expect to engineer future policy with favourable consequences?