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IrrAUSional Exuberance

Tyler Durden's picture




 

While Australian bank credit spreads are rising dramatically in the last few months and the ASX 200 index has dropped significantly (though remains 27% above its 2009 lows), nowhere is the levered bet on China's ongoing dominance and growth writ larger than in the massive number associated with Australian Miners' Capex in the last few years. As Sean Corrigan of Diapason Commodities notes, the 1017% (or 39.5% annualized) rise in the absolute spend over the last 7 years clearly went exponentially ponzi-like in the last few years as it did compared to Manufacturing and Total CapEx. While equities and credit have fallen, it seems the 'expected' cut in spending from slowing China demand has yet to hit CapEx and that means troubled for all those levered bag-holders.

 

Source: Sean Corrigan

 

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Mon, 06/04/2012 - 15:13 | 2492992 DormRoom
DormRoom's picture

Like, Canada, doesn't Australia also have a housing bubble to worry about?

Mon, 06/04/2012 - 15:14 | 2492995 ACP
ACP's picture

Or...if irritionality is the norm, is it really irrational?

Mon, 06/04/2012 - 15:19 | 2493015 A Lunatic
A Lunatic's picture

Short exuberance.

Mon, 06/04/2012 - 15:23 | 2493033 FranSix
FranSix's picture

The housing bubble for Australia might be as a result of leveraged bets in mining or resource sector stocks.  So when there really is a crash in mining, or perhaps oil prices, then the housing bets go south with it.

The leveraged bets come out of the rising equity in homes, which is then parried on rising mining stocks.  Many of the homes would have had equity in them, since they were probably paid off the same way.

The play which gets all the attention in Canada are oil sector stocks, especially those regarding tar sands producers.

Mon, 06/04/2012 - 15:34 | 2493086 Dr Benway
Dr Benway's picture

The Australian housing bubble is actually due to the same reasons as housing booms everyhere. It is the result of a ponzi of ballooning debt and expectations, compunded by skewed incentives. In Australia a large factor is "investment properties", also known as a halfmillion dollar speculative levered bet into property that low-income people love to take because thay have been brainwashed to think it can't lose.

 

But if we are talking Australian Ponzi, you mustn't forget listed invetsment companies. The LICs flag price have dropped as they are in essence a levered bet on the share market dragged down by fees. So the LICs started buying each other to prop up the share prices, instead of buying actual investments. Many of the LICs are run by the same people.

 

I tipped ZH about this but I guess Tyler gets a lot of mail. The LICs have bought up half a billion dollars of each other.

 

Mon, 06/04/2012 - 15:46 | 2493098 Dr Benway
Dr Benway's picture

I am now officially a ranting ZH loon off on my own personal tangent, lol... feels good. 

 

http://i975.photobucket.com/albums/ae233/dildq/LICcrossholdings.png

 

The LIC sector is a levered bet on a levered bet on a levered bet...

Tue, 06/05/2012 - 03:42 | 2495018 Lamarth
Lamarth's picture

So... short them with leverage?

Mon, 06/04/2012 - 15:25 | 2493038 Stoploss
Stoploss's picture

Now we know why the miner pumpathon.

Broke mofo's doesn't even begin to describe it.

Mon, 06/04/2012 - 15:19 | 2493016 BandGap
BandGap's picture

That's funny, I thought the Chinese were buying/building like crazy in Australia.

The Chinese are the carpenter ant of the species.

Mon, 06/04/2012 - 15:31 | 2493064 BlueCollaredOne
BlueCollaredOne's picture

Or the dung beetle. Australia is shit. They have some of the most draconian laws of any nation on book to date in regards to Internet censorship, copyright, free speech, ectc. No wonder the Chinese like them...

**Paging AnAnonymous. Come in AnAnonymous to use the words "US citizenism"**

Mon, 06/04/2012 - 16:07 | 2493241 ffart
ffart's picture

I think he's ORI's alter ego. They always come out together to tandem shit threads up. Same writing style and general system of values too.

Mon, 06/04/2012 - 16:18 | 2493317 Lore
Lore's picture

"[Australia has] some of the most draconian laws of any nation on book to date in regards to Internet censorship, copyright, free speech, ectc. No wonder the Chinese like them..."

Their government also swallows Agenda 21 hook, line and sinker. They haven't gone as bonkers as the British yet, but they're trying hard. Eco-socialism is the next big-government wealth vampire to be vanquished.

Mon, 06/04/2012 - 16:29 | 2493373 BlueCollaredOne
BlueCollaredOne's picture

You're wrong sir. In regards to agenda 21 they are Britain cubed

http://planet.infowars.com/uncategorized/australian-main-stream-news-ign...

Tue, 06/05/2012 - 03:36 | 2495012 Unique Snowflake
Unique Snowflake's picture

Another lie from that tossknuckle. Alex Jones is a fucknut of monumental proportions. Anything coming out of his jizz festooned mouth is about as credible as USA government statistics being presented by Bill Clinton's penis. He is another media bullshit artist, money grubbing, sensationalist cunt JOURNALIST, who only cares about how much money he can rake in, catering to the likes of dumb Chicken Little dickbrains like you. It's fucking retards like him, (and the cocksmokers like you who believe him) that propose the most insane, idiotic, fantastical nincompoopery(David Icke, Bill Cooper)  that actually harm the revealing and widespread awareness of the ACTUAL truth of what's happening in the world. The tiny proportion he actually reveals is swamped by the rest. It's not fucking lizards. It's not a grand conspiracy. There are no aliens here. They aren't poisoning the water and spraying chemtrails, you hammer toting mouthbreather. Just greedy men. It's fucking fear, greed, power...simple basic weak human psychology, combined with the essential truth, ie: You know how dumb someone of average intelligence is? Well 50% of the entire world is dumber than that. Power hungry, greedy men fearing for their wealth and power, who are as dumb as the average man. There's no stopping what's coming. No solution. The maths is undeniable and human nature doesn't change in a group dynamic. The only answer is to save yourself and anyone you care about. Carry gold. Move to a less corrupt country. Keep your head down. Guns wont help you. You'll die alone. If you build a community, you'll all be up against military drones flown by civilian contractors. I doubt most real soldiers would kill their own nationals, but dumb hicks playing drone computer games inside a buliding in Washington will be more than happy to take out your little insurrection.

 

That being said. I'm Australian. I live here. It's the biggest welfare nanny state in the world. It's a house of cards. We're fucked at some point. 

Tue, 06/05/2012 - 03:42 | 2495019 AnAnonymous
AnAnonymous's picture

While maybe less enjoyable, it is enough to say that Alex Jones is a US citizen who happens to be a journalist.

Mon, 06/04/2012 - 15:21 | 2493023 GeneMarchbanks
GeneMarchbanks's picture

Yes. But as should be rather obvious by now, the Australian government stands firmly behind this speculative bubble of their own creation.

Mon, 06/04/2012 - 15:26 | 2493040 Ahmeexnal
Ahmeexnal's picture

Hey, you don't want the sheep down under panicking, do ya?

Mon, 06/04/2012 - 15:55 | 2493183 geewhiz190
geewhiz190's picture

i've read that mortgage debt is at levels seen here in 2006.  all the years of the mining boom has led to a big uptick in leverage.  WestPac was in the US market   with some debt issuance here last week. haven't seen that name  here in a long time. a yellow light in my opinion

Mon, 06/04/2012 - 19:06 | 2493939 huggy_in_london
huggy_in_london's picture

more likely to be the opposite of what you think... that is, thats a good thing if they are able to borrow at reasonable economic terms there.  Previously the margins were just too large, hence why they pulled back (and focused on raising more deposits).

 

Mon, 06/04/2012 - 20:14 | 2494063 Squid-puppets a...
Squid-puppets a-go-go's picture

We do have a housing bubble, and i've actually been waiting for years for a decent article concerning to what degree our mining sector have been betting the farm.

We still have some mitigating factors that cant be discounted entirely:

* low govt debt

* short supply of houses (development regulations have prevented oversupply)

* Australian households seem to have responded wisely to the 2008 crash and have been paying down some of their private debt, and

* I have some anecdotal evidence that chinese creditors do find Aussie real estate a decent place to park their equity (use it or lose it if America goes into hyperinflation while the yuan is still pegged)

Tue, 06/05/2012 - 05:46 | 2495075 short'n nekkid
short'n nekkid's picture

There is a no undersupply of houses ... the numbers (from ANZ etc) are based on ... wait for it .... the number of homeless people and those living in caravans!!

I shit you not.

Mon, 06/04/2012 - 15:16 | 2492994 Cognitive Dissonance
Cognitive Dissonance's picture

Scotty - "She's breaking up Captain. I can't hold her together."

Kirk - "Just a few more seconds Sco..........."

Mon, 06/04/2012 - 15:16 | 2493005 DoChenRollingBearing
DoChenRollingBearing's picture

Hah!  I like the revised version even better, + 1!

Mon, 06/04/2012 - 15:19 | 2493017 Cognitive Dissonance
Cognitive Dissonance's picture

The one that got away........from everyone.

"More power. I need more po........."

Ummm....not this time Ben.

Mon, 06/04/2012 - 15:15 | 2492999 DoChenRollingBearing
DoChenRollingBearing's picture

This is all going to end so great!

Mon, 06/04/2012 - 15:16 | 2493007 A Lunatic
A Lunatic's picture

If only it would end.........

Mon, 06/04/2012 - 15:22 | 2493029 Cognitive Dissonance
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Rest assured it will.

You can fool some of the people all the time. And you can fool all the people some of the time. But you can't fool all the people all the time.

This is why (unbacked) fiat currency regimes always fail. It's only a matter of when, not if.

Mon, 06/04/2012 - 15:36 | 2493097 NotApplicable
NotApplicable's picture

Unbacked? The sky will fill with mushroom clouds first.

It's a Mad, Mad, Mad, Mad World.

Mon, 06/04/2012 - 15:16 | 2493008 Ted Baker
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JPMORGAN HEADING FOR THE 28DOLLAR A PIECE AS EXPECTED AND SP PREPARING US BANKING DOWNGRADES?

Mon, 06/04/2012 - 15:21 | 2493021 fuu
fuu's picture

Might have to dust off that old Silver:JPM again for giggles. .91172680412

Mon, 06/04/2012 - 15:23 | 2493032 idea_hamster
idea_hamster's picture

It's true because it's typed in ALL CAPS!

Mon, 06/04/2012 - 15:36 | 2493101 NotApplicable
NotApplicable's picture

Well... FUCK ME.

Mon, 06/04/2012 - 15:19 | 2493014 LawsofPhysics
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Buy high, sell low?  Oh wait...

Mon, 06/04/2012 - 15:25 | 2493034 junkyardjack
junkyardjack's picture

Damn how long can the market take this BS middle of day ramp that gets re-faded by the end of the day before everyone just calls it quits? Is it just me or does this seem like blanant manipulation where instituation investors are ramping up the market to get as good of prices as they can before they dump at the end of the day? Shits going to get real soon...

Mon, 06/04/2012 - 15:28 | 2493050 Peter Pan
Peter Pan's picture

Australia is unortunately a two customer economy with around 50% of its income coming from China and Japan. It is also just a two product eonomy with around 50% of its income coming from coal and iron ore.

Politicians in Australia still think that China will continue to buy their ground's dirt and are in denial about a cHinese slowdown, cancellation of orders and stockpiling of iron ore and copper even in car parks.

In the meantime the government has announced more handouts for thingamajigs.

Reality will bite this lucky country sooner or later and only then will it realise how stupid it has been.

Mon, 06/04/2012 - 15:30 | 2493062 Piranhanoia
Piranhanoia's picture

Roulette.  Big dogs,  all in big trouble and betting it all on the number.  Not red any more.  They need way more than 1:1 payoff.  Whalemoney.  Asteroid money.  At this point it must be a fight between psychopaths for bragging rights.  Since they don't feel human, they won't act human.

Get ready.

 

Mon, 06/04/2012 - 15:41 | 2493118 FieldingMellish
FieldingMellish's picture

CapEx is also high because its getting more expensive to get every next ounce, kilo or tonne of material out of the ground. This is both a reflection of the dwindling purchasing power of fiat and the ever-decreasing ROI in the non-renewable resource sector.

Mon, 06/04/2012 - 15:55 | 2493182 TheTwoJohns
TheTwoJohns's picture

Jpm = fb = 6-8 bucks per share?

Mon, 06/04/2012 - 16:17 | 2493303 FieldingMellish
FieldingMellish's picture

You are overvalueing JPM.... and FB.... and "bucks".

Mon, 06/04/2012 - 16:32 | 2493393 Dr Benway
Dr Benway's picture

No no. He said that JPM and FB should be at 6-8=-2 bucks. I think that's fair.

Mon, 06/04/2012 - 17:00 | 2493513 FieldingMellish
FieldingMellish's picture

I like your math... you should be a quant.

Mon, 06/04/2012 - 17:02 | 2493455 slewie the pi-rat
slewie the pi-rat's picture

we banged offa this a few weeks/month ago when china reneged on the commodities shipments of iron ore, wasn't it?

and i was trying to get at this dynamic earlier:  in the "expando" mode, old debt gets carried,  re-fied, covered, or "wrapped" with cheaper fiat, inflated, worth less

>>the debt is in-flated or re-flated away

but motherNature is a stern mistress no matter how "uncoupled" we pretend to be

and funny money will never beRealMoney, anyhow!

now, we see the deflationary side of the moon, BiCheZ!  and the benzelbub is ok with it too, but it is gonna cost a fortune or 50 to have carried this bullshit zombie fuking "debt" this far and hafta carry/pay/refi it with MORE valuable, de-flated fiat

but, there is no getting around it:  it is gonna take more oil @ $85/bbl to pay the $300K annual retirement benefits of the old poleeece chief and  the school principal and the parks super (all wunnerful wunnerful people, of course, and great family people, too;  we'll be lucky to get thru these times without them on-the-job, by cracky!) than it would take at $105/bbl

ditto private debt, corporate debt, muni debt, state dabt, nat'l debt and any other fuking fiat IOUski ever signed by you or you "proxy" private, public, pass-thru, JV, subordinated, convertible, or partership0'foolz  goobermint which was fuking you in the ass while you were fuking somebody else in the ass

so, if you are still in that "really smart leveraged expando" debt daisy-chain you better hope "they" print $20Tril!

but they can't!  they have more important shitheads to answer to than you and your paper-hanging brainiac friends~~the pols;  and the pols need it all, BiCheZ!   they hafta mail the checks!  and, they shall! 

plus, they must maintain CONFIDENCE in the system (in slewienomics:  simply that the goober-checks and food stamps WILL be in the mail

but your credit?  well, if you're here on zH you're probably ok and cashed out;  but if you borrowed $1000 and got money worth $1 and hafta pay it back with money worth $1 = $1.50, NOT $1 = $0.75, we hope you will still brag about how you got the money "for under 5%" when some fool is cutting what's left of yer hair...

the benzelbub knows whereof he speaks:  the USD inflation was transitory and sucked up by the black hole of fraud and license

the cBanksters are working together as never before;  but the US is still the US;  and just in case you forgot:  the dollar is still the fuking dollar, debt-slaves!  L0L!!!   pirates, however,  are free men and women!  borrow?  lend?  wtf are you on?

imo, the "sovereigns and cBs" can handle the "collective" debt ok, at least for now

if you are into the "private" side of this IOU mess as a debtor?  dress for gallagher, BiCheZ!  as a creditor?  just dress for the showers and bend over!  time's up!  L0L!!!

repeat after slewie:  cash talks and bullshit walks!

any kwestions, ask tyler or seanC, ok?   only 30 zeroHeads can understand more than 2 sentences from any "blogger" anywho...   ?

Mon, 06/04/2012 - 18:05 | 2493761 Flying Tiger Comics
Flying Tiger Comics's picture

Australia is a capitalist country with a communist government. Small business, middle class whites, entrepreneurs who actually build things people want, freeborn farmers- these are the enemies of the Australian government.

Mon, 06/04/2012 - 19:04 | 2493931 indianajohns04
indianajohns04's picture

How can you trade this?

 

Mon, 06/04/2012 - 20:08 | 2494097 chump666
chump666's picture

Australia will be a short trade from hell.  Two charts, metal prices and houses prices (Aust), the banks will blow up when the housing market crashes, then the government when the mining/capex boom collapses.  Bonds will be short as the AAA will come under pressure.  Short AUD. 

Could be a major deflation trade, small population, any sticky inflation could be wiped off the map as the country spirals in a tailspin.  So mining + wealth effect - total income collapse = freefall

Mon, 06/04/2012 - 20:15 | 2494126 Kina
Kina's picture

I suspect if needed Aust govt would guarantee banks again to aid their access to markets, with maybe the addition of 50 tons gold collateral to keep rates low, my idea.

Mon, 06/04/2012 - 21:18 | 2494305 WageSlave
WageSlave's picture

Aussie Aussie Aussie

Mon, 06/04/2012 - 21:18 | 2494306 WageSlave
WageSlave's picture

Aussie Aussie Aussie

Mon, 06/04/2012 - 22:23 | 2494579 Rantabulous
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Oi Oi Oi

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Tue, 06/05/2012 - 04:37 | 2495041 savagegoose
savagegoose's picture

yeah we have a houseing bubble, you see alll our good mines are on national parks, and you aint allowed to build houses there.

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