InvestMacro Forex News

By Central Bank News

By Central Bank News

By MoneyMorning.com.au

China is Australia’s biggest trading partner. They buy more of our commodities than any other country. Our economy has relied heavily on the Chinese economy doing well.

So next Friday, when China releases their second quarter gross domestic product (GDP) figures, you can expect wide media coverage.

The Australian already noted this week that the previous numbers were just a little too ‘rosy’.

‘A growing number of economists are stating that the 8.1 per cent year-on-year growth China’s National Bureau of Statistics announced for the first quarter of this year was suspiciously rosy, even by the generally unreliable standards often ascribed to those statistics.’

It’s worth questioning the GDP results. After all, this is a country which produces a quarterly GDP result within two weeks of the quarter ending. Other countries, like Australia, can take up to three months to report our economic growth.

You have to wonder how a country of more than one billion people can announce a GDP result so quickly…

In fact, Chinese Vice Premier, Li Keqiang has been quoted as calling China’s GDP result ‘man-made’ and ‘for reference only’ in a Wikileaks cable. So if the Middle Kingdom’s own insider doesn’t trust the official numbers, what does he follow?

The three he feels best represent the Chinese economy are electrical consumption, freight volume and disbursement of loans.

And two out of three of these indicators are pointing toward Chinese economic growth slowing…

Chinese Electrical Consumption Expanded by 5.8% for May 2012

Overall Chinese electrical consumption was up 5.8% in May. Which should be good news, right? After all, growth is growth?

But it’s only when you start to break down the numbers that you see how much the Chinese economy is sputtering.

The overall consumption figure is comprised of the following: primary, secondary, tertiary and urban and residential consumption.

Primary industry is the agricultural side of the Chinese economy, accounting for 3% of total electrical consumption. And tertiary industry, which is the services sector of China’s economy, makes up 12% of all electrical needs. Then there’s 12% for urban and residential.

And secondary industry?

Well that comes from China’s mining and manufacturing industry…and accounts for a massive 73% of all electrical consumption.

Let’s have a look at how all of these separate categories are consuming electricity…

Both tertiary and urban and rural consumption achieved over 10% growth for May.

But the sector of China’s economy that consumes the largest amount of power, mining and manufacturing, barely eked out 3.8% for May.

And ‘growth’ was well below the previous two years.

Freight Volumes Drop in the Chinese Economy

But the bad news for the Chinese economy doesn’t end there.

Another one of the Vice Premier’s economic indicators, cargo freight, is trending down. Most economists tend to look at the purchasing managers index (PMI) to determine how healthy the manufacturing sector is. It’s an indicator of new orders, inventory, levels of production, supplier delivers and employment.

So why does VP Keqiang look at cargo, or freight volume, instead? Simply because it tells him how much stuff is actually being transported for export.

And all isn’t well for the freight sector. Volume is heading south…

Freight Volume increased by 3.6% for May

Freight volume was 3.6% higher from January to May this year. Yet it’s still less than half of the 2011 average. This is a huge drop.

Follow the Yuan

Overall lending was 16% higher in May, but that comes mostly as a result of the bank’s three reserve ratio requirement cuts.

Also, most of the new loans written went to government and state owned infrastructure projects. But that doesn’t mean the loans are going to anything the country actually needs.

This is why the Vice Premier uses loan disbursement as a more accurate gauge of lending activity. Called ‘total social financing’, other ‘senior’ Chinese officials feel this measurement better correlates with the Chinese economy’s growth.

Social financing includes bank deposits, bank loans, off balance sheet lending, and money raised through bond and equity markets. While there was 18% growth in total social financing to 1.14 trillion yuan for the month of May, overall deposit growth slowed to 11%. That is the lowest figure in 12 years.

For now, there is still growth in lending and deposits. But should growth in deposits stop, the central bank of China will have to cut the reserve ratio requirement even further to encourage banks to lend more. But that’s a cycle that can only go on for so long.

One person prepared for a slowing Chinese economy is Greg Canavan, editor of Sound Money. Sound Investments. He is convinced China is actually the next stage of the financial crisis.

This weekend, he releases a special note to readers about how to prepare for and survive the coming China crash. Keep an eye on your in-box for the report.

Shae Smith

Money Weekend

The Most Important Story This Week…

When you ‘short’ a stock, you are betting on the price going down. You sell a stock at a certain price and hope to buy it back at a lower price. The aim is to sell high, buy low. That way you can pocket the difference. The risk you run is the price of the stock rising instead of falling. Eventually you have to buy it back. If it’s more than you sold it for, you’ve lost money.

Traders and hedge funds short stocks all the time, but most retail investors don’t. But short selling is an important concept to understand because it can drive trends in the market. When short sellers want to get out of their positions, they have to buy the stocks they’ve ‘sold short’ back. The market can rise. A naïve investor can think stocks are rising because things are improving when they’re not.

Slipstream Trader Murray Dawes thinks it might be happening right now. Don’t be fooled – a big drop in the share market might be coming. See what Murray says in Did the European Summit Change the Market Trend?

Other Recent Highlights…

Nick Hubble on The Interest Rate Banana Your Stocks Will Slip On: “At least the price jump should offset the recent news in The Age that the, ‘Housing shortage [is] all smoke and mirrors’, and the number of vacant homes is just under a million. Before you get too optimistic about lower interest rates saving the Australian economy, consider this: The Australian yield curve looks like a banana. That’s a very bad thing.”

Satyajit Das on ‘Super Brussels’ Saves The World Again: Maybe!: “The Pavlovian response of financial markets to the European leaders’ summit of 28th and 29th June 2012 was remarkable. The frugal communiqu?of 322 words fired the ‘animal spirits’ of financial markets, which now believe that the European debt crisis has been ‘solved’. As comedian Robin Williams joked, ‘reality is just a crutch for people who can’t handle drugs.’ “

Dr. Alex Cowie on the LIBOR – The Banking Scandal That Could Cause A Riot: “This is the biggest banking scandal in years – and that’s saying something. Some of the biggest names in banking are being torn down, and heads are rolling. The latest scalp is the Chairman of the world’s 4th biggest bank – Barclays Plc. Barclays faces an industry record fine to boot: $451 million. That’s close to half a billion dollars. It won’t stop with Barclays.”

John Stepek on Investing in the Indian Economy: Your Best Bet of the BRICs Right Now: “The grouping together of the BRICs countries (Brazil, Russia, India and China) was always more of a crafty marketing slogan than anything else. But while everything was rising together, it was easy enough to just lump all the emerging markets into one big group. Today, you need to be more discriminating.”

The Data On The Chinese Economy You Really Should Read

By MoneyMorning.com.au

Fourteen years ago during the Asian financial crisis, Indonesian economy endured a currency collapse, a severe 2-year recession, and an embarrassing IMF bailout.

Western bureaucrats wagged their fingers incessantly at Indonesia, lecturing the country about the dangers of excess and fiscal irresponsibility.

How sweet the irony is. In a stunning rags-to-riches story, Indonesia contributed US$1 billion to the IMF last week in order to help bail out bankrupt Western nations.

As I’ve written before, unlike Japan, the US, and Europe – which all seem to think the answer to an economic bust brought on by a debt-binge is to borrow and spend even more money –  the Indonesian economy took its medicine when it collapsed back in 1998.

The government cut spending. The economy was de-regulated and thrown open to more foreign investment.

The banking system was restructured, and after a difficult and admittedly very painful two years, the foundation was laid for new economic expansion, which continues to this day.

To be sure, the 1998 collapse of the Indonesian economy cost the incumbent political elite their cushy positions. President Suharto’s three-decade long iron-grip came to an ignominious end. There were riots in the streets, and he was literally turfed out of office.

But so what? That’s EXACTLY what was needed. Part of the renewal process should always be to ship out the dead wood.

Wandering the streets of Menteng this week, Jakarta’s most up-market residential suburb, it’s as though the Suharto era never existed. The street where he used to live is just another non-descript, quiet, residential street in this leafy inner-city suburb.

Ironically, US President Barack Obama spent some of his childhood in this same suburb of Jakarta.

Unfortunately, as he pulls out all stops to cling to power for a second term, the kind of tough decisions that could help the US emerge from its economic malaise have no chance of being made.

What Free Markets?

Lest anyone accuse me of being “anti-Obama” or, shock-horror, FOR the Republicans, let me state emphatically that the PROBLEM is not one side of the aisle or the other. In fact, whoever coined the terms “Demopublicans” and “Repulicrats,” is right on the money in my book.

It’s the ENTIRE system that’s the problem. And that goes for nearly every Western, “free market,” democracy out there.

I use the term “free market” reluctantly, because these economies are anything but. There has not been a true free market economy anywhere in the Western world for many decades.

The most important price of all  – that of MONEY – is completely rigged by a small band of dark-suited men who sit around an impressive boardroom table and DECREE what interest rates should be. It is a farce.

Moreover, politicians from opposing sides of the political spectrum may disagree in public and harangue each other in the press.

But, at the end of the day, they’re generally all members of the same club – a cabal of privileged, self-righteous individuals who think they know how to spend your money better than you do.

This system has a vice grip on society, and nothing short of a revolution – such as what Indonesia experienced in 1998 – will force any change.

Tim Staermose

Contributing Writer, Money Morning

Publisher’s Note: This is an edited version of an article that originally appeared in Sovereign Man: Notes From the Field

From the Archives…

The Hard Lesson of a Stock Trader: No Pain, No Gain
2012-06-29 – Kris Sayce

How Gold Prices Look Set to Climb As Banks Crumble
2012-06-28 – Peter Krauth

‘Big Wednesday’ For the Aussie Dollar
2012-06-27 – Dr. Alex Cowie

Three Reasons Why Silver Could Take Off in 2012
2012-06-26 – Dr. Alex Cowie

Who is Winning the Battle Between the Bulls and Bears?
2012-06-25 – Kris Sayce

Why the West Should Learn From the Indonesian Economy

Article by Investment U

My iMac was smoking.

After writing a few weeks ago on why the U.S. dollar will remain the world’s leading reserve currency, the comments from readers came fast and furious.

“Are you stupid?” and, “How naïve you are?” were some of the more polite comments. Some suggested that before long the Chinese currency would eclipse the dollar as the world’s reserve currency.

Nonetheless, I noticed that as the euro crisis escalated, where have governments parked their precious cash? In the U.S. dollar – now trading at a three-year high. For example, the U.K. and France increased U.S. Treasury holdings 26% and 30%, respectively, in recent months.

Why are American Treasury bonds more attractive than gold, the Swiss franc, or the China yuan despite all of America’s budget and debt challenges?

It’s certainly not income with 10-year bond yields at 1.57%.

My view is that America’s strengths greatly outweigh its weaknesses, but it appears that I have more confidence in America’s future than most. A recent poll by the Chicago Council on Global Affairs indicated that 55% of those polled believe that the United States will be equaled or surpassed as a global power over the next 50 years. A group of Chinese polled believes their country will catch up to America in terms of global influence within 10 years.

And don’t think I sugarcoat the challenges America faces. More than half of my most recent book, Red, White and Bold: The New American Century, outlines these challenges and how to turn things around.

But when a country decides what currency to safeguard its billions, it’s looking beyond the headline news of GDP growth, budget deficits, or the latest job report.

They’re looking at a bigger and deeper picture, and especially institutions that promote stability, openness, flexibility, mobility and transparency.

Here are the 10 benchmarks I have come up with to measure America’s relative strengths compared to other countries, such as China:

• Protects citizen’s political, religious and economic freedoms.
• Provides educational opportunity for all.
• Ensures a strong defense and conducts a foreign policy based on the broad national interest.
• Nurtures a culture of risk taking and second chances while accepting inequality of results.
• Protects an independent judicial system and enforces the law in a fair, transparent and consistent manner.
• Prizes a tradition of service and philanthropy.
• Conserves and uses natural resources wisely.
• Demonstrates fiscal discipline and puts in place a low, fair and simple tax system.
• Maintains a quality healthcare system open to all.

Taking America for Granted

In my view, China, as a semi-market, state capitalist country would rank rather poorly on many of these benchmarks. We take for granted what is sorely missing in much of the world; due process, property rights, a free press and especially the transparent and smooth transfer of political power.

While America could use improvement across the board – its glaring weakness is fiscal discipline and tax complexity. It needs to move aggressively on both of these fronts immediately.

But on balance, America is an open, confident, flexible and transparent society with the deepest and most sophisticated financial markets in the world.

And despite its faults, the U.S. political system is the most transparent and stable in the world and much preferable to multi-party parliamentary systems such as in India, where a small Communist party coalition member can stall market reforms.

Then there’s the demographic angle. The United States, in large part due to immigration, is still growing, while most of Europe, Japan and especially Russia are rapidly declining. Most of Asia has a relatively youthful population, China being the exception, which will put tremendous strain on its budget.

America sure looks like a winner to me.

But don’t just take my word for it. The chief of Singapore’s $100-billion sovereign wealth fund, Tony Tan Keng Yam, in a recent Wall Street Journal interview, stated that:

“(Americans)… don’t see the potential in their own economy, which is one of the most innovative, open economies in the world. Foreigners seem more optimistic.”

About one-third of the fund he oversees is invested in the United States.

Finally, what markets are showing the best momentum in a turbulent world? Looking at composite (one-, three-, six-, 12-month) list of country returns, the United States leads the list followed by Malaysia, Mexico, Thailand and Singapore while India, Brazil, Russia and China are laggards.

Maybe the forward-looking markets are telling us something?

Good Investing,

Carl Delfeld

Editor’s Note: Today’s Investment U Plus pick is a strong play on the resurgence of U.S. retail sales. Sales topped $23 billion over the last 12 months. Earnings per share grew 17% and management earns a whopping 47% return on equity.

The company enjoys double-digit operating margins, with more than $1.6 billion in cash in the bank. For more information on how to receive this pick and our experts’ recommendations with each Investment U issue for less than $5 a month, click here.

Article by Investment U

The Story of How Entitlements Reached 200% of GDP

By Robert Folsom

Seventy-five years of positive mood trend has entrenched the idea that the state can afford to support an ever-expanding percentage of its citizens, including even the more affluent.

–Alan Hall, May 2012 Socionomist

Please take a moment and think about that sentence with me. It offers a wealth of information already, yet it’s even more instructive to consider what happens if you delete the first major premise. Here’s what I mean:

The state can afford to support an ever-expanding percentage of its citizens, including even the more affluent.

That is a straightforward claim. And the truth is, at least two generations of Americans agreed with the claim enough to vote in legislators who acted on it.

Now, what I removed from the sentence was the reason for the claim. Because the point I wish to make is, some reasons make more sense than others. For example, the original sentence could have said this:

America is a rich country, so the state can afford to support an ever-expanding percentage of its citizens, including even the more affluent.

But that’s not satisfying or even credible. America has always been a rich country. But it has not always had Federal entitlement programs, much less so many of them that they amount to 200% of GDP.

So, if the question is:

How and why could Americans ever think that straightforward claim was true?…

…Then socionomics offers a uniquely credible AND satisfying answer. It’s worth your time to understand that answer in full — and to get your head around the forecast that comes with it. The entitlement state as we know it may well be about to enter a very different future.

Read it for yourself, right now.

If you would like to receive the best of Social Mood Watch and other free socionomics content each week, sign up here.

This article is syndicated by The Socionomist, a publication of the Socionomics Institute, and was originally published under the headline The Story of How Entitlements Reached 200% of GDP. The Socionomist is designed to help readers understand and anticipate waves of social mood. Copyright © 2012 Socionomics Institute.

London Gold Market Report
from Ben Traynor
BullionVault
Friday 6 July 2012, 07:00 EDT

U.S. DOLLAR gold bullion prices continued falling during Friday morning’s London trading, extending losses from the previous day to hit $1592 an ounce by lunchtime, while stocks and commodities also traded lower and US Treasury bonds gained ahead of the release of June nonfarm payrolls data.

Silver bullion fell to $27.42 an ounce – a few cents below where it started the week.

“[Gold] has been in a three month consolidation range of $1528 to $1640,” says the latest technical analysis note from bullion bank Scotia Mocatta.

“We are either building a base, or preparing for another leg lower through $1500.”

Gold bullion fell 1.6% in less than two hours on Thursday, as monetary policy easing in Europe and China was shortly followed by a better-than-expected US jobs report. The Euro meantime fell more than 1% against the Dollar, dropping back towards two-year lows at less than $1.24.

The US economy added an estimated 176,000 jobs in June, according to Thursday’s privately-produced ADP Employment Report, which is published each month a day or two ahead of the official nonfarm payrolls number.

In advance of yesterday’s ADP release, which was delayed from Wednesday owing to the Fourth of July holiday, consensus forecast among analysts was for an additional 105,000 new jobs to be reported.

“People are concerned that today’s non-farm payrolls figures might [also] be better than expected, which will decrease the chances of quantitative easing by the Fed – bad news for gold,” says Yuichi Ikemizu, head of commodity trading at Standard Bank in Tokyo.

Ahead of Friday’s nonfarm payrolls release, analysts’ consensus forecast was for an additional 90,000 private sector jobs.

By Friday lunchtime in London, gold in Dollars was down around $5 an ounce on the week, while the gold price in Euros was still showing a 1.9% weekly gain following the weakening of the Euro.

The European Central Bank yesterday cut its main policy rate to a new record low of 0.75%. The rate paid to banks who deposit funds with the ECB was cut to zero – prompting Denmark’s central bank to push its deposit rate into negative territory at -0.2%.

“Cutting the deposit rate to zero has practically brought [the ECB] to the door of QE,” says Julian Callow, chief European economist at Barclays here in London.

“They have practically exhausted their conventional armory.”

“There is no such feeling that we are running low on policy options,” countered ECB president Mario Draghi yesterday, when asked by a reporter if the ECB would now turn to unconventional measures.

“We still have all our artillery ready to contain inflationary risk in order to pursue the objective of price stability…on both sides [and] in both directions…I do not think I want to elaborate on further non-standard measures at this point in time.”

Draghi added that asking the ECB “to act outside the limits of its mandate [risks] destroying its credibility”.

Here in London by contrast, the Bank of England’s Monetary Policy Committee, as widely expected, voted for a further £50 billion addition to its QE program yesterday, taking the total commitment to asset purchases to £375 billion since the policy began in March 2009.

“By merely matching market expectations the MPC has failed to deliver the ‘shock and awe’ it normally aims for when easing policy,” says Nomura economist Philip Rush.

“The ultra-loose monetary policy of the central banks speaks for an upward trend in the gold price,” says today’s commodities note from Commerzbank.

China’s central bank also eased policy yesterday, cutting interest rates for the second time in as many months.

“The rate cut is necessary but not enough,” reckons Gao Shanwen, chief economist at China Essence Securities in Beijing.

China’s vice premier Wang Qishan said Friday that the country will have difficulty hitting its official 10% trade growth target for 2012.

Chinese gold bullion imports from Hong Kong meantime – widely viewed as proxy for overall imports – fell in May for the first time in five months, according to official Hong Kong government data published Friday. Imports of gold into Hong Kong from China by contrast hit their second-highest level on record.

Over in India, the late monsoon has seen some farmers resorting to selling gold bullion in order to fund their expenses, India’s Economic Times reports.

“Last year, scrap gold sales in the market was to the tune of 130 tonnes,” says Prithviraj Kothari, president of the Bombay Bullion Association.

“But this year, scrap sales may go up to 300 tonnes.”

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

The euro fell across the board yesterday, following euro-zone interest rate cut which caused investors to shift their funds to safe-haven assets. The EUR/USD dropped to a one-month low, while the EUR/JPY fell some 140 pips during afternoon trading. Turning to today, all eyes are likely to be on the US Non-Farm Employment Change, scheduled to be released at 12:30 GMT. The greenback saw gains yesterday after a better than expected ADP Non-Farm Employment Change figure was announced. If today’s news also comes in above the forecasted 91K, the dollar may close out the week on a bullish note.

Economic News

USD – Non-Farm Payrolls Set to Impact USD

The US dollar saw significant gains against virtually all of its main currency rivals yesterday, as a euro-zone interest rate cut combined with better than expected American employment data caused investors to shift their funds to the greenback. The USD/JPY shot up to a two-week high after the ADP Non-Farm Employment Change figure was announced. The pair eventually reached as high as 80.08 before staging a minor downward correction. Against the British pound, the dollar gained over 100 pips for the day. The GBP/USD eventually fell as low as 1.5497.

Turning to today the US Non-Farm Employment Change figure is likely to generate significant market volatility when it is released at 12:30 GMT. The indicator is widely considered the most significant economic event on the forex calendar. Should today’s news come in above the forecasted 91K, the dollar could extend yesterday’s gains before markets close for the week. That being said, if today’s news disappoints, the greenback may take heavy losses against its main currency rivals.

EUR – Euro May Extend Losses Today

The euro took heavy losses against its main currency rivals yesterday, following the European Central Bank’s decision to cut euro-zone interest rates to a record low 0.75%. The EUR/USD fell almost 170 pips after the rate cut was announced, eventually hitting the 1.2362 level, a one-month low. Against the British pound, the euro fell close to 80 pips for the day, eventually reaching as low as 0.7964. Meanwhile, the EUR/JPY was down around 140 pips for the day to trade as low as 98.78.

As we close out the week, traders should anticipate another volatile day for the euro, as the US Non-Farm Payrolls figure is scheduled to be released. Should the indicator come in above the forecasted level, investors may continue shifting their funds to the greenback, which could result in the EUR/USD falling further. At the same time, traders will want to recall that the US employment data has come in below expectations for the last several months. If it happens again today, the euro could recoup some of its recent losses.

Gold – Gold Takes Moderate Losses after Euro-Zone News

he price of gold fell yesterday, after a euro-zone interest rate cut led to gains for the US dollar. A strong dollar tends to cause gold to turn bearish, as the precious metal becomes more expensive for international buyers. Gold fell be over $20 an ounce, eventually reaching as low as $1597.13 before staging a slight upward correction and stabilizing at the $1610 level.

Today, any movement gold sees is likely to be a result of the US Non-Farm Payrolls figure. If the news results in further gains for the greenback, gold may take additional losses before markets close for the week.

Crude Oil – Crude Oil Sees Gains after US Inventories Figure

After falling just under $2 a barrel during mid-day trading yesterday, following the euro-zone interest rate cut, the price of oil was able to recoup some of its losses after the US Crude Oil Inventories figure was announced. US inventories fell by 4.3 million barrels last week, well below the forecasted 1.6 million drop. The news signaled to investors that oil demand in the US is increasing.

Closing out the week, crude oil could see additional gains if the US Non-Farm Payrolls figure comes in above the forecasted 91K. Any better than expected news may be taken as a sign by investors that the US economic recovery is gaining traction and that demand for oil will continue increasing.

Technical News

EUR/USD

The Williams Percent Range on the weekly chart is approaching oversold zone. If it continues moving down, it may signal a possible upward correction in the coming days. This theory is supported by the MACD/OsMA on the same chart, which has formed a bullish cross. Going long may be the wise choice for this pair.

GBP/USD

Most long-term technical indicators place this pair in neutral territory, meaning that no defined trend can be predicted at this time. Taking a wait and see approach may be a wise choice, is a clearer picture is likely to present itself in the near future.

USD/JPY

The MACD/OsMA on the daily chart appears close to forming a bearish cross, signaling a possible downward correction in the near future. That being said, most other technical indicators show this pair range trading. Taking a wait and see approach may be the best option at this time.

USD/CHF

The Williams Percent Range on the weekly chart has almost crossed into overbought territory. Furthermore, a bearish cross has formed on the daily chart’s MACD/OsMA. Traders may want to go short in their positions ahead of a possible downward correction.

The Wild Card

Crude Oil

Technical indicators are showing that crude oil has entered overbought territory and could see a downward correction. The daily chart’s Slow Stochastic appears to be forming a bearish cross while the Williams Percent Range on the same chart has crossed above the -20 line. Forex traders may want to open short positions ahead of possible downward movement.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By MoneyMorning.com.au

But based on the recent numbers from the 2011 census, it looks like the glory days of the Australian housing sector are over.

Two events over the past four weeks sum up the desperation in the Australian housing lobby. The government funded National Housing Supply Council (NHSC) tried to talk up the so-called Australian housing shortage.

It was a brave attempt, but just over a week later, their case was shot down. Here’s how Bloomberg News reported the NHSC update:

‘The revised national estimate of the housing shortfall at end-June 2010 is 200,000 dwellings, 13,000 greater than previously published.’

It was a gutsy move to revise the housing shortage numbers just two weeks before the release of the 2011 Census numbers. Too gutsy. We bet they wish they had waited.

What Australian Housing Shortage?

Reporting on the Census statistics, a Bloomberg News article revealed what we’ve said for four years — the Australian housing shortage doesn’t exist…

‘Australia has almost 1 million fewer households than assumed in government forecasts of a housing shortage, raising doubts about a supply shortfall cited as the main reason the nation will avoid a U.S.-style crash.’

The article continued:

‘The Pacific nation had 7.8 million households, data released yesterday from the 2011 Census showed. That compared with estimates of 8.7 million as of June 2010, according to the latest figures used by the National Housing Supply Council, a group created by the government in May 2008 to monitor housing demand, supply and affordability. Australia’s population also grew by 300,000 less than previously estimated, to 21.5 million.’

Oh dear.

There are 300,000 fewer people in Australia than previously thought. That’s a big difference. In fact, it’s a huge difference. It’s roughly equal to one year’s immigration numbers.

Put another way, one whole year of new arrivals (a big argument used by the spruikers for an Australian housing shortage) didn’t happen!

As for household estimates, the NHSC estimated Australia had 8.7 million households. It turns out there are only 7.8 million. Chairman of the NHSC, Owen Donald told Bloomberg News:

‘On the face of it, 900,000 is a gigantic difference. We need to get to the bottom of what’s in the statistics bureau numbers.’

The entire Australian banking sector is built on a fallacy. The banks built the housing bubble on the false belief that the Australian population was soaring. The government even appointed a Population Minister!

Turns out there wasn’t and isn’t a population crisis. There are 900,000 fewer Australian households and 300,000 fewer people than previously thought. What a miss!

An Australian Housing Boom, Bust and Recovery

So now there’s no denying it, Australia has a gigantic asset and credit bubble, and the property spruikers can’t even use the excuse of high immigration to back their case.

You’ve seen the Australian  housing and banking boom. Now get ready for the Australian housing and banking bust…the next part of the business cycle.

We’ve campaigned long and hard over the past four years, arguing that a Australian housing shortage never existed in reality. We were right. Those who called us mad are welcome to send their apologies to [email protected].

As we said at the top of this letter, credit and moneylending are vital to an economy. They enable the transfer of capital from those who don’t have a current need for their money (savers) to those who do have a current need but don’t have the capital (borrowers).

So, used in the right way (without artificially low interest rates), credit can boost an economy and help create innovation and progress. But used in the wrong way, it creates asset bubbles…and that creates problems.

Bottom line, the problem isn’t credit per se, but rather the central bankers and politicians who abuse it.

Cheers,
Kris.

PS. In the latest issue of Australian Small-Cap Investigator, we took a closer look at the Aussie lending market and discovered a company that not only has a sensible risk-weighted approach to setting interest rates, but is also an innovator in the market. To find out more about this company, click here to take out an obligation-free trial to Australian Small-Cap Investigator.

Related Articles

Market Pullback Exposes Five Stocks to Buy

The Interest Rate Banana Your Stocks Will Slip On

‘Big Wednesday’ For the Aussie Dollar

The Australian Housing Shortage That Never Existed