Wednesday, January 21, 2009

Australia - the next domino to fall

Very sober figures, via the Daily Reckoning, show we have a problem here in Australia:
--First up is Christopher Wood, regular analyst at CLSA Asia-Pacific and writer of handy newsletter called GREED and Fear. "The ban on shorting Australian financial stocks is due to expire on 27 January," he writes. "If it is not extended, this presents a clear opportunity for absolute-return investors. GREED and Fear continues to take the view that Australian financials will be the last area of Anglo-Saxon consumer financing excess to bottom with, as in Britain and America, the seemingly inevitable involvement of taxpayer money before the end of the cycle."

--"GREED and Fear also continues to recommend, as has been recommended since March 2008, that Asia-Pacific relative-return investors maintain a zero weighting in Australian financials. Australian banks, including their New Zealand subsidiaries, are characterised by high loan-deposit ratios and low loan loss provisions."

--"Meanwhile, the household sector is extremely leveraged while the former high flying residential property market is weakening fast. Household debt to disposable income is still running at 156%, compared with 130% in America. While Australian residential building approvals fell by 32% year-over-year in November, with new home sales down 15% year-over-year."

--"GREED and Fear hears from recent visitors to the 'Lucky Country' that there is still a state of denial, which is certainly not the case in America or Britain. If so, this mentality will not last. But the good news is that reluctant Australian taxpayers will be able to afford to pick up the tab. Public sector debt is only 15% of GDP."