BARVENNON.COM

AUSTRALIAN DIARY


ARCHIVES07+

13 August 2007

CURRENT EVENTS

CONTINUING MARKET TURMOIL.

I wrote about the looming problems of the sub-prime mortgage market last April. (Of course that term "sub prime" was not in common use at the time). Well those pigeons have come home to roost.

In some ways I did not apprehend the specificity of the problem. This because the efforts of various entrepreneurs in buying up all those bad ("sub prime") mortgages, then bundling them into a CDO (Collateralized Debt Obligation) with a minimum of good mortgages so that they attract a favorable rating from the various rating companies, then selling those well rated mortgage backed CDOs to unwitting amateur retail investors. So most of the hit is being taken by retail investors, e.g. age pensioners and soon-to-be age pensioners, or wealthy but naive local governments.

There has been some flow on. House prices have eased, which cuts into retail spending by homeowners. Retail investors are selling shares to cover losses in the sub prime bonds. This selling was causing some angst in the equity and bond markets.

On 10th August the Central banks in the US, Europe, Japan, Australia and Canada added about $140 billion to the financial markets. This is an ominous move, which makes me believe that things are much worse than I had believed. Of course they can avert a meltdown by supplying (printing) sufficient money, however that would probably result in increasing the inflation rate.

It might be a good time to move into inflation resistant products.

RUDD & HOWARD

It does seem that Kevin Rudd has become the flavor of the month. He has done this by picking his battlefields. His economic policies "mirror" those of the Liberal party. In fact, the only difference is his opposition to "work choices" Of course that is an economic policy, but where is it written that politicians have to be consistent?

PM John Howard is looking and sounding quite desperate. The left leaning ABC (Australian Broadcasting Commission) is trumpeting his discomfort in his own seat of Bennelong from ex ABC journalist challenger Maxine McKew.

I still anticipate a bounce in the polls when an election is called in (supposedly) the next six weeks. However it is beginning to look as though that bounce might be a "dead cat bounce".


mail comment