Mish's Global Economic Trend Analysis

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• Australian Lenders Learn Nothing from US Housing Bust: Mortgage House offer 105% Mortgages, Westpack offers 97% Mortgages
• Inflation in China Escalates - Miracle Expansion or Bubble to Burst?
• Sunday Funnies 2010-09-12 Worthless Dollar

Australian Lenders Learn Nothing from US Housing Bust: Mortgage House offer 105% Mortgages, Westpack offers 97% Mortgages Posted: 12 Sep 2010 09:13 PM PDT Smack in the face of a US housing bust and an enormous property bubble in Australia, Australian lenders are offering up to 105% mortgages. It is amazing to see sheer stupidity played out on the assumption "It's Different in Australia". Please consider Lenders back to throwing cash at buyers Next month, non-bank lender Mortgage House will offer a home loan equivalent to 105 per cent of the property's value - the most generous deal since the global financial crisis kicked in three years ago. The company also offers a 99 per cent loan-to-value ratio loan, which it launched last month, and says applications have been flooding in. "Demand is really strong; people are finding it difficult to save substantial deposits" Mortgage House CEO Ken Sayer said. Last week, Westpac raised its LVR for new customers from 87 per cent to 92 per cent, reversing the cut it made back in January; while ANZ also last week raised the maximum LVRs from 95 per cent to 97 per cent for existing customers, and from 90 per cent to 92 per cent for new borrowers Westpac denied it was fuelling house-price growth and said the falling unemployment and strong economy were behind its decision. "This change reflects our growing confidence in the economic environment, reflected in the low level of delinquencies for this market segment," it said. Australia Lenders Fuel the Bubble In the US banks loosened lending standards and kept right on doing it until the whole mad scheme blew up. Australian banks are now making the same mistake. People find it difficult to save for a down payment for the specific reason Australia is in a bubble. And just as the US bubble burst so will Australia's. It is really sad to see Australia lenders fuel the bubble this way. One thing different in Australia regards the ability to "walk away". Clearly the lenders are playing off that, with no regards to ethical conduct. It won't matter. Bubbles always pop no matter what the conditions or restraints are. For example, the Bankruptcy Reform Act of 2005 was supposed to halt bankruptcies in the US. After the bill passed, lenders, especially credit card and Home Equity lenders, took advantage of the situation counting on home prices to rise and the inability of consumers to declare bankruptcy. The mess blow up in the lenders' faces anyway. The same scenario is destined for Australia. Moreover, the bigger the bubble the bigger the bust. Australia's bust will be staggering. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Inflation in China Escalates - Miracle Expansion or Bubble to Burst? Posted: 12 Sep 2010 09:06 AM PDT The New York Times reports Inflation in China Is Rising at a Fast Pace From street markets to corporate offices, consumers and executives alike in China are trying to cope with rising prices. The National Bureau of Statistics announced on Saturday that consumer prices in China were 3.5 percent higher compared with a year earlier, the largest increase in nearly two years. To make matters worse, inflation over the short term also seems to be accelerating. A seasonally adjusted comparison of August prices to July prices showed that inflation was running at an annualized pace closer to 4.8 percent. Prices are rising in China for reasons that many Americans or Europeans might envy. The economy is growing, stores are full and banks are lending lots of money, according to other statistics released by the government on Saturday. Compared with August of last year, industrial production rose 13.9 percent last month, retail sales increased 18.4 percent, bank lending climbed 18.6 percent and fixed-asset investment surged 24 percent. All four categories rose slightly more than economists had expected, in the latest sign of the Chinese economy's strength even as recoveries seem to be flagging elsewhere. But salaries for recent college graduates, at $300 to $500 a month in coastal areas, have actually declined in the last few years, even before adjusting for inflation. A rapid expansion of universities over the last decade has resulted in more young men and women with undergraduate degrees than companies are ready to hire, except at lower pay. And as in many countries, retirees are among the most vulnerable to inflation. Ms. Lam said her own mother lived on a pension of just $150 a month. Rising wages are putting pressure on companies to increase their prices. Mr. Dong, the sales manager at the Ningbo Deye Domestic Electrical Appliance Technology Company, said the company had to raise wages by 10 percent a year, while raw material costs were also climbing. "It is impossible to transfer our cost increases entirely to our customers, because if we do so, they will all run away," he said. "We are currently doing a study of our assembly line work processes to see where we can achieve greater efficiency." But as the powerful growth in fixed-asset investment last month showed, Chinese companies are still responding to rising prices by building more factories, office buildings and other equipment, instead of cutting back. Chinese officials have said for many years that they regard 5 percent inflation as unacceptable, and they have shown a willingness to clamp down on bank lending and investment whenever annual increases come close to that level. They have taken some of these steps in recent months, but more recently eased back on lending controls as some Chinese economists suggested that domestic demand might not be as strong as the August data showed. Economic Stress and Property Bubbles, or Miraculous Expansion? Let's not confuse an economy booming because of loose economic policy, massive currency intervention printing Yuan to buy dollars, and stimulus that at a minimum rivals that in the Unites States. Also the Chinese property market is in one enormous bubble with vacant malls, vacant offices, and vacant apartments. For more on the Chinese property bubble, please see ... Ponzi "Shark Loans" Fuel China's Housing Bubble; Home Sales Plunge 44% in Xiamen; Bubble Busts in Tianjin Gold-Diggers in China say "Show me the House" - No House? No Car? ... No Marriage Stephen Roach says China's Housing Boom is Not a Bubble; I say "Nonsense" The US appeared to be growing rapidly in 2006 and early 2007 on the backs of housing and commercial real estate expansion. When housing crashed, people were reluctant to spend, banks were reluctant to lend, and businesses were reluctant to hire. Before anyone gets too excited about the miraculous looking expansion in China, one needs to take the above ideas into consideration. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Sunday Funnies 2010-09-12 Worthless Dollar Posted: 12 Sep 2010 08:09 AM PDT The following is in reference to Instant Insanity - my comments on three whacko ideas by Willem Buiter, chief economist for Citigroup, to cure deflation. Please give it a look if you have not done so already. Given enough time, all fiat currencies go to zero (relative to some starting point). 2% inflation a year is enough to do it. This should not be confused with hyperinflation, a complete loss of faith in currency. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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