Olibeneli

I'd agree with you Devlin and disagree with Amazulu.

Every BIS Shrapnel economics forum I attend over the last 2 years stated quite clearly that the resources boom would turn to a blimp sometime soon. The recent crisis has made indicated it will now happen sooner.

IvanM

If mining is OK the Oz economy is OK. If mining goes down the pan then this country is well and truly *****3d way beyond what is happening in the US and UK. Before the boom taxes were higher than in the UK and kicked in at lower incomes.

The commodity boom is that commodities have more than quadrupled in price in the last few years. They will probably go back to double what they were before the boom. That boom led to speculative projects with a number of high risk companies. That fringe element will slow right back.

The main problem with that is that there will be a rationalisation which basically means companies will review all projects and cut back on those that have become uneconomic due to inflation and the drops in prices.

IvanM

http://business.smh.com.au/business/...1013-4z8w.html
CDS and Aussie banks

A Citibank report from mid-July shows ANZ at the top of the CDS pile in Australia. It had $45.7 billion worth of CDS in its conduits.

While all the banks used CDS to hedge their credit risk, ANZ actively traded them.

In other words, as with its primacy in stock lending (of Opes Prime fame), it took the greater risks.

As of March, the bank had some $23.4 billion in ``long'' CDS positions and $22.3 billion in ``short'' CDS positions.

``ANZ entered short CDS positions with counterparties who desired credit protection whilst simultaneously purchasing offsetting protection for a cheaper premium from different counterparties (we understand these counterparties were "monoline" insurers on around half of all occasions). The spread differential between the short premium and long premium generated trading income,'' says the Citibank report.

When one such monoline insurer, ACA, was downgraded from investment grade to CCC in February 2008, ANZ was forced to recognise a provision of $226 million based upon a $1.5 billion notional contract value.

``In effect, they were saying that the long leg of the trade was not suitable in terms of providing insurance - as the rating of the insurer was sub-investment grade the hedge was no longer viable.''

As with other financial stocks now underperforming their peers, ANZ partied hard in the good times by indulging too much in high-yield securities. Now it is clear they were not high-yield for nothing.

Its rivals carry risk but not to the same degree.

CBA has $5.9 billion ($3 billion bought and $2.9 billion sold), Westpac has $15.6 billion ( $9.4 billion and $6.2 billion) and NAB, which Citigroup rates second to ANZ on risk has $24.4 billion in CDS ($13.7 billion and $10.7 billion).

This, of course, is all before we get to CDOs, CLOs, ABS and so on.

There will be nasties to come, and before the banks come clean and tell us who their counterparties are, the mystery will continue to erode confidence.

eugene43

I work in making teeth for people who has lost most or all of them & I have probs with recession.

eugene43

Sorry no probs with recession

asprilla

See, this is what gets me about these kind of discussions. People make sweeping statements that are very often factually incorrect.

We are all guilty of doing this. When someone makes a persuasive argument to us, we believe it, then we repeat it in parrot-like fashion to whoever else will listen.

The mining sector made up less than 8% of GDP in 2006-07 according to the ABS.

DrWho

FFS man, you missed out the punchline...


Times are tough, but some look for levity, as one joke doing the rounds goes:

"This is way worse than a divorce ...I've lost half my net worth and I still have my wife."

Amazulu

I've posted loads on this over the last few weeks. Do a search.

BHP, Rio and FMG remain confident - so am I.

This is my last post on this topic.

autorock

Many of the same problems that are happening over here in the UK and in the US of A are evident in Oz:

• Massive and unsustainable housing price bubble (don't kid yourself, just watch)
• Upward pressure on inflation
• Unprecedented levels of personal unsecured debt
• Exports to any other country experiencing recession will drop

On the upside:

• Australia has 4 of the remaining 20 AA rated banks on earth
• Australia has a VERY limited sub-prime mortgage market
• Australia is not massively in debt
• The RBA has more flexibility with interest rates than say the US as there's plenty of downside to play with (US Fed rates are at 1.5% so many more rate cuts aren't possible!!)

Despite these upsides, Oz will get sucked into the fray and suffer a recession. I reckon it'll be worse than a lot or people seem to think (hey - I'm on the side of pessimism this time!!) But it won't be as bad as UK/USA.

I think it's time for everyone to rip up those credit cards and save, save, save. Don't buy a house, don't buy stocks, don't buy a new car and don't quit your job!!

Just live like your Grandma did and if I'm wrong you'll thank me anyway in 5 years when you have $100k in the bank!

asprilla

But by doing this, you are exasperating the problem.

If everyone in the UK followed your lead, the economy would suffer a terrible recession, with massive job losses in every sector.

IvanM

8% is highly significant part of the economy. What is more significant is the proportion of exports (35%) and tax receipts at all levels of government. It is no co-incidence that as mining has done well so has the Australian economy. Without it the foreign income goes down, government income goes down as well as the sectors servicing mining. The tax cuts over the last few years have only been possibile due to mining. Without mining your taxes go up and services will be cut. Needed infrastructure will then be postponed and the rest of the economy will slow even more.

Mining has also put a large upwards pressure on wages.

BTW my job depends on Australia's primary industries. It is not in my interest nor that of other migrants for a mining recession.

DunRoaminTheUK

To whoever 'gets it right'....can I have next weekends winning Lotto numbers too please (I'll cut you in...)?

Thanks.

Devlin

I did and no informed analysis is among them. I guess the views of these companies with clear vested interests is all the information you require!

renth

That's the reason we are in this situation - people spending vast sums of money they didn't have: credit cards, re-mortgaging the house etc...

asprilla

I largely agree with your statement above. However, your original comment was a bit sensationalist and massively overstated the importance of mining in the Australian economy.

Mining may well take a hit in years to come. But there is no evidence to suggest that the economy will fall apart as a result.