The Kangaroo In The Metals Mine: Fortescue Trying To Raise $1.5 Billion From 20 Banks As Iron Prices Implode

Tyler Durden's picture

While last week's surprise announcement that GM was desperately seeking up to $5 billion in additional cash through a new revolver (meaning the administration's pride and bailed out joy, Government Motors, is once again burning far too much cash and that channel stuffing only pays in porn movies) took precisely nobody by surprise (at least not anyone who has been following our 2 year long series tracking AOL GM's dealer inventory warehousing habits), a far more sinister cash need has developed a very short time ago in a continent far, far away. Because while we have also noted the collapse in steel inventories and iron ore prices , which have recently imploded to 3 years lows as the Chinese hard landing, no longer maskable or avoidable, is finally sending shock waves around the world, as well as what these mean for a world that is sliding into a deep recession, promises by various impotent central bankers notwithstanding (see here, here and here), so far this wholesale collapse in the iron market had not translated into discrete events at the corporate level. Until now that is, because that second derivative of the "Chinese economic miracle", Australian hyper-levered iron ore miner, Fortescue, which is the fourth largest in the world, and is also the kangaroo in the iron ore mine for not only China, but Australia as well (and with a cornucopia of junk bonds in its balance sheet, a massively levered one at that) just telegraphed to the world that it is in desperate need of cash. According to Bloomberg, Fortescue Metals Group has approached about 20 banks as it markets a $1.5 billion loan in syndication, according to three people familiar with the matter.

And like that we are back to those days of 2008 when the Chinese demand collapse meant any day could be FMG's last. Happy days are back again.

More from Bloomberg:

  • A range of international banks, including Chinese and Japanese lenders, are considering joining the facility and are processing credit approvals, the people said, asking not to be identified because the details are private.
  • Bank of America agreed to solely underwrite, and syndicate, the debt earlier this month
  • Some banks decided not to pledge funds to the facility as it’s an unsecured loan, the people said
  • The loan is split equally into a term part and a revolving credit portion and matures in December 2013
    • Margin: 425bps over Libor 
    • Fee: 135bps fee for bank pledges of $150 million and above and title of mandated lead arranger and bookrunner. 100bps fee for bank pledges of $100 million to $149 million and title of mandated lead arranger
    • All-in rate: ~530bps
    • Information from people familiar with the matter, who asked not to be identified because the details are private

Details on the bank's existing credit facilities as well as its newly syndicated piece which crams down all those who are below it:

And, as usual, the bond market is the first to get the memo that the landing is going to be a hard one.

We give the farce that is known as equities about 4-6 weeks before they too get the memo.

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Dr Benway's picture

Nah everything is just fine according to the newspapers here. Just fine.


They all just need to buy each other, pass legislation that doubles the proportion of pay (currently 9%) that is forcefed into the financial system, and all will be well.

AldousHuxley's picture

watch olympics reruns and see USA #1.....

Newager23's picture

I was in Australia last week and read a few newspapers. It was evident to me that while they will take hit on China's slowdown, they also have significant natural gas plays that are huge and will keep Western Australia vibrant. The rest of the country will fall down a bit and real estate will fall substantially. On the whole, however, Australia is going to fare much better than the rest of the world

In fact, if you want a place to work, you couldn't do much better than Western Australia. Long term, that would be a good place to live. Nice climate, isolated, pretty women, jobs ... not a bad place at all. Oh, housing is expensive and is not likely to fall much. Adn the cost of living is high.

The bankers will give Fortescue the money. Why? They can't help themselves. They want the huge fees, even if it is a highly risky investment.

The bankers and financial institutions are betting on growth, because we have always had growth. When the music stops, we are all in trouble. That's why gold makes so much sense today, and why you keep hearing about gold projections much higher. If you have any doubt about global economic growth, then gold makes sense. -- if you like gold or silver mining stocks.

hannah's picture

australia is levered to the max....they cant take any reduction in growth or they are toast. funny that all the LNG projects are behind schedule and already massively over budget and they havent produced one ship of product yet. gorgon has what? 2 years to go before it starts production?

i dont think they will make it before the world stops....


* also forgot this little tittle.....everyone always crows that aussie is 'resource rich'...well how much of these lng and iron and coal projects have been sold to the chinese? some of these projects are close to 50% chinese ownership. the aussie companies have quitely been selling their share for cash to pad the ceo's pockets. before this ends the chinese will own 100% of the projects and then what good does it do australia? the mines are already laying off aussie workers and shipping in chinese and african labour.

blunderdog's picture

    how much of these lng and iron and coal projects have been sold to the chinese? some of these projects are close to 50% chinese ownership.

This is an important thing to keep in mind about Chinese business strategy.  They are very shrewd when they set up rights agreements--they usually require legal contracts guaranteeing themselves direct access to the sites to be exploited.

This means that no matter WHAT happens economically, if the contracts are honored, the Chinese can send labor directly to the mines (or whatever) and extract resources. 

I suspect there have been more than a few Westerners who've been chumped as badly as the American Indians were when the white man offered to buy their land.

tooktheredpill's picture

i agree the Aussies are relatively well placed given a super inflated dollar and rates still above 3% - although the government has a very convenient basket for inflation. Still its going to be nasty - 2 of my brother in laws in mining were given notice today. I wish I was joking.

tooktheredpill's picture

(both in Qld). The gov there is also going nuts - letting go of most contractors and a high % of permies.

zilverreiger's picture

Morgan stanley collapse imminent?  close your account now!

trebuchet's picture

+10   " channel stuffing only pays in porn movies"   

ZH just gets better every day 

Dr Benway's picture

First you fingerbone, then you channel stuff.


You can't just go straight for the linford christie.

Barometer's picture

The AUD is about to start with a 5 in front of it

tooktheredpill's picture

remember how well it did during the credit crunch - i think it went from the 90s to 60s in 3 months.

Element's picture

Nnnooooo! ... not during the election gravvy-stroke!!!

- Barry

bullionbaron's picture

Time for aussies to sell their investment properties (or their home in some cases), convert their cash to bullion and ride the wave which drives AUD down, Gold up, leveraging their capital against property prices:

Element's picture

Why?  If you sell you realise losses, many of these 'investment properties' as opposed to family homes, were bought by foreign hot money btw.  The actual families in homes are almost certainly not going to sell, so lagged foreclosures will bring the prices down, not people flocking to sell.  But I think even many foreign investors in RE are going to look at the global and Oz situation and decide there's not necessarily better options for spreading the wealth-preservation footprint.

And foreclosures are still low, employment is still high (though this will slide soon), and people are generally not going broke here.  But the economy has gone soft over the past 9 months, as you would expect, but the inevitable waves of stimulus have not even begun.  And just like last time the Govt will seek to plateau house prices, guarantee bank deposits, and fill bank accounts of tax-payers with direct injections of cash, as necessary.

The AUD will indeed shit the bed for a time, and almost everyone in Oz will let out a little cheer (though we will then feel the real rises in imported fuel costs unless oil goes down in parallel, which it probably will) and people will save plus pay down some debt.  And another wave of Asian aspirants will realise the conditions and opportunities for another investment boom have landed.

The aftermath of a new global-trade collapse will be more damaging, so a bounce is likely to be lower and slower, due to accelerating bank meltdown, globally, which will also intensify and accelerate the sovereign debt collapse as treacherous deviant puppet Govts move criminally-generated debts from bankster's liabilities to the taxpayer's liabilities.

So hot-money will again be seeking new homes and soon will overheat Australia's economy, as foreigners attempt to buy everything in sight ... including RE.

AUD's picture

Nathan Tinkler is going broke.

bullionbaron's picture

"many of these 'investment properties' as opposed to family homes, were bought by foreign hot money btw"

Got data to back up this claim (?) as the data I have seen from FIRB would indicate foreign money doesn't make up a large number of purchases at all.

Current stock on market (housing inventory for sale) in Australia is 9-12 months worth of sales.

Lending growth is at 35 year lows (YOY).

There is a clear sign of disleveraging, especially in some states such as Victoria where recently the net number of mortgages fell (more discharged than new ones taken out).

Even with interest rates slashed prices are struggling to stay green.

Talk of hot money seeking property in Australia is pure speculation.

There's been talk of foreign buyers buying up US property on the cheap as well and driving a recovery... years on and I don't see anything substantial yet.

Element's picture

RE auctions have been overwhelmingly dominated by foreign-buyers since mid-2009 and there's been an endless stream of reporting and commentary on this in all media since.  Ignore that at your peril.  The total quantity of purchases is not as significant as the price level as they are buying the cream and not the generally more reasonably-priced family home.  This propped and also pushed up prices in that RE segment.

Families for the most part not interested in selling, as they are not interested in realising a loss, nor wanting more loans, and they still need a place to live, and maintain a stable life.  Renting is very expensive and far less stable, plus dead money, so they keep their home or buy another like it elsewhere.

As for Victoria, in 2009 house prices in Melbourne rose 27% - pure insanity!  But it wasn't the average Aussie family doing that.  So why any surprise RE is bleeding badly there - so it should!  But a lot of those losses are in the high-end, so really, who gives a damn?  This is where the foreign money has been predominantly spent, so why should we care if they wear appropriate losses for tremendous dumbness, and also for screwing with the domestic market?  Fuck 'em!

And interest rates have hardly been "slashed" yet, far from it, down ~1.25%. So they've got a lot of room left to fall, so definitely no sign of any crisis there yet.

But you're seriously comparing mere rumours of pending housing recovery in the US to ACTUAL expansion and quasi price stability in Australia?  The US crashed hard, to much lower levels, and stayed there, or got much worse. In Australia prices wavered briefly then drove substantially higher, and more or less plateaued, then slowly tapered-off, as the insane price rises driven predominently from foreign investments ran into depletion of the available sucker-dom.

You can see the outcomes are polar-opposites, right?

bullionbaron's picture

So you're convinced by few sensationalist mainstream media articles that foreginers are buying all our homes? Let's not rely on data, let's just form our opinion from MSM. LOL.

Look at the finance commitments from First Home Buyers over the boost period when Melbourne saw that extreme growth:

Of course Australian families were in there bidding up prices.

RBA has cut rates from 4.75% to 3.5%, a drop of 25%. I guess it depends on how you look at it, but personally I would say anything that has dropped by 25% in 7 months could be considered "slashed".

Element's picture



"Of course Australian families were in there bidding up prices."

Oh really? Got data for this claim (?) as it's pretty clear they stayed away in droves, and/or were priced out of the market bid.  In fact we had a severe and protracted construction downturn as well while this occurred, and the former home renovation industry basically went into a depression, because Aussie families stopped all the extravagant non-essential spending, for a couple of years.

Refreshing to find such reliance and confidence in stats alone, particularly when presented by a central bank, as the MSM never do that sort of thing ... or do they?  Why yes, they do!

But what I am saying to you is hardly the story being told by the MSM, now is it, smart-arse?

bullionbaron's picture

There's data in my post supporting a huge increase in First Home Buyer (read: Australian families) activity. Your suggestion that foreign buyers were the sole driver of price rises with local buyers "priced out" is truly laughable. I can only conclude that you are a troll account. Except you are not even a clever one like that MillionDollarBonus.

But hey if you are for real and you argument relies on putting MSM articles ahead of data from the RBA then I am wasting my time here either way. Good night.

Element's picture

Dude as soon as the first home buyers subsidy went away the demand went away.  Look at your own graph.  Who doesn't want 'free' sugar money?  It was the subsidy that was partially bidding up the price, as Steve Keen has repeatedly pointed out.  That's what subsidies do.

But you seem determined to ignore the fact that auctions have been dominated by foreign buyers, and that ordinary Australian families were out bidded from the market by hot money pushing up price to crazy levels. So when the foreign suckers were done, and the subsidy cash was gone, the prices started to fall off, because it's beyond even credit-based imaginary 'affordability' for Australian familes--and they know it.

But this does NOT mean the housing market is about to fall off a cliff, nor even to unwind by 40 to 50%. 

It could, but it most probably wont, due to the reasons I have given.

Others much better informed than you have made that prediction, and they were wrong.  And it matters not that they can now explain why they were wrong, or what changed to make them subsequently wrong.  Their conclusions were padded with an ocean of stats, quantitatively modelled, empirically constrained, widely debated and teased-out ... ... but it was wrong!

And you will be wrong also if you wish to make assertion of pending RE collapse on far more flimsy basis. 

The reality is that the pattern and the dynamics I've described accords with what actually happened, in practice.

I also don't see anywhere where you have produced any valid counter-points or counter logics to this.

So forgive me if your assertion has little rational, logical or material impact upon my take regarding what's the most likely outcome for the Australian economy, if or rather when we get another major global trade shock.

hannah's picture

element - i am not disputing your claim that the chinese bought heavily into the re market in australia BUT i havent been able to quantify what they bought? it is a bitch to try and find what the real numbers are for foreign ownership....


i do have to disagree with the 'housing wont fall off a cliff' statement. the mines are slashing consulting positions and everyone i speak with has been canned for several months now. it looks like the chinese really did stop buying (dirt) last year. if you dont have a job, you dont make a mortgage payment.

i have looked at rents in NW aussie australia and they are really cheap compared to the usa. home prices dont look to have moved much (this year)....

Element's picture

Keep in mind hannah that the mining industry literally went into pre-emptive mothballs in late-2008 and early-2009.  They closed and terminated their contractors and closed mines.  But by mid-2009 mineral demand exploded, and the mining sector switched back to overdrive exports and development of resources.

But RE still did not fall off the cliff even in that lull and unemployment rise.  Keep in mind also that in the early 1990s a 10% to 12% unemployment level was situation 'normal' for the Australian economy, so we have had it pretty good for a long time now, and the GFC really became a non-event in most respects with regard to NET unemployment levels (due to stimulus, and AUD, and oil ... and ... and ).

Because the Govt reacted extremely quickly, paying two cash injections into bank accounts, and propped the RE sector with another round of subsidy, and provided the smashed new-construction and renovation industry with a massive public works program in the interim.

And it was very effective, particularly because it was fortunately combined with a massive and surprising surge in mineral and energy demand that followed due to oil dropping to $33 USD, coal becoming dirt cheep, and industrial minerals falling to very attractive input pricing levels that were just too good to pass-up in Asia.

All of this was combined with massive Asian stimulus shock-treatment trigger, as Asia simply could not and will not stand still, so Australia didn't either.

And it is this secular Asian demand, that with certainty will re-emerge (at an unknown level), combined with Canberra spending and interest rate falls, and AUD and energy responses that makes it reasonable and logical for me to assert an RE plunge-off-the-cliff, and ka-splat, is rather unlikely.

So I think it's reasonable to view that as a low-risk outcome overall.  

I think it's more likely we'll bounce back again, but to a lower level of intensity, but all depending on the flow and control of hot money, and the longer-term actually productive investment flow, and the level of underlaying Asian demand. 

The mining industry know the days of high prices are over, and efficient cost-effective reliable bulk-supply is what they face now.  And my reading of the situation is that the Australian mining and energy sector has a lot of room to move in that regard, when compared to its principle competitor's issues/constraints.  

So I don't see a plunge in total market share coming here, as this is where the industry will get to demonstrate its real advantages over other competing suppliers.  i.e. don't necessarily equate the process of cutting off the fat, in order to exert underlaying competitive capacity, as a signal that the industry as a whole is going on the blink.  

Low debt miners will rationalise operations and try to take more of the market share off its competitors, right now.  And the ones who do this first, and do it the best, will survive the global shake-out and stick around.  Thus the rapid changes you've mentioned. 

Workers at the moment also need their respective companies to take more market share, of a reduced volume market. This is what will have implications on profitability, revenues, sustainable employment levels, wage levels, and NET economic effects - pro plus con. 

bullionbaron's picture

"But you seem determined to ignore the fact that auctions have been dominated by foreign buyers"

The onus is on you to backup such claims, which you haven't done apart from suggest some MSM articles told you it was happening. How did the journalist know whether the money buying at auction was foregin? Because they looked Asian?

Most of the claims you are making here are assumptions with no factual evidence.

Element's picture

I did not claim ANYWHERE that I got information from MSM articles you fucking lying little twat.

That was YOU who claimed this you ridiculous dishonest jerk-off.

All I said to you was that YOU were putting forwards and solely relying on stats from central banks as your argument, and I pointed out that the MSM does the very same thing, you dishonest little prick.

You can't even be honest and discuss rationally, and you then resorted to calling me a troll, as well as misrepresenting what I say, and I'm supposed to take what you say seriously or be persuaded by your position and content?

You are a pathetic boring little nugget, and that's me giving you the benefit of the doubt.

Get a clue about what you are talking about, or shut the fuck up, you brainless ignorant idiot.

bullionbaron's picture

"RE auctions have been overwhelmingly dominated by foreign-buyers since mid-2009 and there's been an endless stream of reporting and commentary on this in all media since."

That's the only evidence you've provided for your claims that foreign buying has dominated. They are your words not mine.

If you want to further backup your claims that foreign buyers are "dominating" the Australian market (or were in 2009/2010) then feel free to post some data, because the only thing you've provided to date is reference to a few MSM articles.

Element's picture

From: Property Observer 


Foreign investors banking wealth in Australian real estate and hurting affordability
By Catherine Cashmore
Tuesday, 01 May 2012
" ... However, out of all the models of investment that inspire healthy, contentious debate, there is nothing quite as igniting as foreign ownership of Australian assets – and in particular, residential real estate.  In the latest annual financial report from the foreign investment review board, we learn that in 2010-11 10,293 proposals were received, of which the majority (9,771) were approved for residential real estate.  There is a spike in the figures between 2010-11 compared with 2008-09 simply because hotly contested changes to the rules for temporary residents wishing to purchase property were relaxed by then prime minister Kevin Rudd in the previous year.  Therefore we have no idea of the 2008-09 figures, which – considering relaxation of requirements – were no doubt higher.
Despite the recent doldrums, foreign investment in residential real estate is the playground of the wealthy.  Recently a report by Colliers International outlined that with “an unemployment rate of 5.2%, annual GDP growth of 2.5% and higher yields for prime-grade assets, compared to other global markets’ Australia’s property market is viewed to be particularly attractive”.  CBRE –  “the world’s largest commercial real estate services firm” – earlier this year reported in The China Daily that “more than 1,200 apartments were either planned, being marketed or were under construction by Chinese companies in Australia in the fourth quarter of 2011”.  Accordingly, the company goes on to say: “Foreign developers made up about 30% of the Australian market last year, and China took up 9% of that – an increase over previous years.”
Asian buyers are active in various markets across the globe and principally in Australia because we possess something they don’t have in China – “freehold” laws.  In China, purchasing residential real estate not only requires large deposits as a down payment (some 40% to 50%), the laws surrounding Chinese property ensure there is no private ownership of land, only “rights” to use that land and no guarantee it won’t be whipped away by the government if so desired.   Therefore, as a sales agent from J P Dixon in a recent ‘China Daily’ report so eloquently said: “"Unlike in China, once a buyer purchases property in Australia, it's theirs forever and can be passed down from one generation to another."
When you read the requirements published by the FIRB for the purchase of established residential real estate in Australia it seems very straightforward.  For established dwellings, there must be a commitment from temporary residents to use the property as housing and if not seeking permanent residency in Australia at the end of their term, sell the home.  Foreign relatives may purchase on behalf of those with temporary visas under the same requirements.  Companies can also purchase established dwellings as long as the property does not sit vacant for more than six months. If so, it must be advertised and leased on the open rental market.  The application process is simple.  An online form is used and a few boxes need to be ticked requiring the purchaser to disclose intentions for the home.  As can be seen from the figures, putting aside those who withdrew applications, only 42 applications for residential real estate were rejected. Huge numbers are clearly taking advantage of the ability.
It’s interesting however to ponder how many fall through the net. As much as property has been in the doldrums of late and even accounting for our strong Aussie dollar, due to the shortage of land surrounding our capital city locations, property is viewed as a low -risk investment and a safe haven for foreign investors to “bank” their wealth.  In an economy that’s performing as well as ours in comparison to Europe and the USA, coupled with a shortage of live able desirable land plus strong population growth, the prospect of losing money in a property investment long term is a low-risk proposition.


[did you get that butthead? LOW-RISK]


I know from experience in my own field of work, enquiry from the foreign market – in particular Asia – is in abundance, and seeking FIRB approval seems to be a simple online  “take my word for it”,  “box-ticking” process.  For example, those who don’t employ the services of a buyers’ agent (most of whom will check if the client has a legal right to purchase for reasons of liability) will find that when purchasing established or new property – they are not asked for ID when filling in a contract, or evidence they are an Australian citizen or even permanent or temporary resident!  All that most agencies require on a real estate contract is a signature and deposit cheque for – “ideally” – 10% of the purchase price.
A solicitor or conveyancer acting on someone’s behalf is not required to check his or her viability to purchase Australian real estate. Even for those who have been approved by the FIRB  at the present time, there is seemingly no follow up process to ensure the “box-ticked” rules are being adhered to. All we are told in the FIRB financial review is the board is “moving toward a systemic series of targeted investigations of non-compliance by foreign investors.”
Therefore, at the present time, who checks if a property has been sitting vacant for six months or more?  Who establishes whether a home purchased by a temporary resident is sold when they leave the country or simply sits vacant?  In view of the numbers, ongoing regulation under the current system would require significant manpower and considering proof of ID is not a usual requirement when buyers purchase a property, keeping tabs on those who never applied for FIRB approval in the first place would likely fall through the net of observation. ..."


So much for your precious fucking reliance on FIRB 'data', you bloody fool. 

Like all official 'data' it's no less bullshitery than a third-hand anecdote - so bang that up your Khyber Pass you dismal little idiot.

bullionbaron's picture

lol. 10,000 transactions out of how many sales per year? Around 400,000 last count, probably higher over the period in question above. So a couple of percent. Yeah those foreigners are really dominating our market. hahaha

Element's picture



" ... Accordingly, the company goes on to say: “Foreign developers made up about 30% of the Australian market last year, and China took up 9% of that – an increase over previous years.” ..."


Just what don't you understand about the 30 percent level of foreign investment involvement in Australian RE, cited within the report that was discussed?  The whole analysis shows that the FIRB figures, that you're still quoting (!), as though they once upon a time reflected reality, were clearly wildly inaccurate all along, ... but you've still trotted out the same discredited numbers again and want to continue to pretend they mean something?


3 0   P E R C E N T   Y O U   F U C K H E A D  !


They even cited 9% of total involvement in the Australian RE sector to be Chinese in origin ... and 9%, of Chinese participants alone, is quite a bit more than 2% ... you dismal fucking moron!

bullionbaron's picture

You are just posting rubbish and insults dude. Pathetic.

Developers aren't the same as the end buyer.

Your first post talks about foreign buyers dominating the auction market... so what does developer figures have to do with the auction market? Nothing. You are just scrambling for any figure which might distract from your own incompetence.

Sad, sad little man.

Element's picture

Because bucket loads of foreign money pouring into RE does nothing to push up prices, because of course, there are no rich foreigners buying  into RE ... rriiiiight.

I can't believe how retarded you are to not even be able to acknowledge what's right in front of you, but keep up this pathetic back and forth just because you can't face that you've imbibed or else concocted a preferred fantasy-position that Australian RE bids were, and remained, virtually unaffected by foreign investment impact, since 2008.  

It's quite a laughable and incredible position because this has been a hot-button issue for a couple of years now, as ordinary Australian buyers complained bitterly of being priced-out of the market and sidelined from auctions by foreign buyers.

But here you are, re-writing hystery, denying this even happened, waving discredited statistics to prop an academic or theoretical analytical position, that is actually a real-world test = FAIL.

And other than this pish you keep yapping about, you have entirely ignored the other issues that I pointed out would lead to a very different outcome than that which so often pervades any discussion of the reality of Australia's position now, and the more likely outcomes in the event of a Chinese and general global recession.  You only keep clinging to this tattered hope of FIRB data, to justify your thoroughly unconvincing non-position and actual non-argument that Australian RE is going to collapse entirely.

Har-Har, good one!

So you are indeed a hopeless dismal and tedious idiot.  In the circumstances, this is actually a fairly accurate and conservative description.  And by the way, it was you who kicked off the resort to insults when you insisted I surely must be a troll account ... but now you're snivelling about being 'insulted'?

ha! no really!

You don't even get a look in with that shallow misrepresentation ... while the alleged troll kicked your arse all over the place.

bullionbaron's picture

This drivel could be little else but the works of a troll.

I didn't say there are no foreigners buying Oz RE, I just disagreed with your claim that they are dominating the market and that Australian families aren't buying at these prices. You continue to discredit the FIRB data but it's all we have, other than anecdotal observations which were often used in MSM to backup sensationalist stories which had little or no data to backup their wild claims.... an Asian looking bidder at an auction oh no must be the foreigners buying all our property!!!

I've referred to the FIRB data, you've referred to MSM articles, some BS article about developers which are not bidders at auctions, you're the one who has provided sweet F* all to this comments section. Laughable really.

Element's picture

Well there's a very simple test of who's right, it's called actuality.

You recommended that everyone sell their house and buy gold, because AUD is going down, and RE relatively.

Firstly we'd have to ignore that a collapsed AUD makes Australian RE (and mineral exports) look like attractive bargains, as a reserve storage to foreign investors (and would actually fire-up several sectors of the domestic economy and provide relief to many families as a result).

And we would also have to not e that if everyone sold their investment house and/or family home, like you suggest, yes, this would indeed crash the RE market, because that sort of circular logic would indeed become a self-fulfilling prophecy.  

And I'll also have to ignore your ignorant jackass comments that you think that all foreign investment in Australian RE is Asian, even though the report cited says 30% foreign investment, and doesn't say its all Asian, and nor does the FIRB, and nor have I said that anywhere.  So that idiotic blather is all just the ignorant fuckhead-based diatribe that's coming from you.

Whereas I'm saying there's a reasonably LOW-RISK that there will be a protracted RE collapse, as per a US subprime style shakeout, for the several interlocking cyclic reasons that were given.

I said that most-probably RE will stagnate and more slowly deflate, than most expect, and it will be the beneficiary of many supportive inputs, that will tend to arrest a decline, and maintain it at a surprisingly elevated level in comparison to a subprime-type collapse situation in the US.

And I pointed out that the Australian economy is far less inclined to implode than people think, that it didn't happen last time.  That in fact the very opposite tendency emerged, and I contend it most likely will again  So it's not unreasonable to rationally expect growth to return fairly quickly from a downturn, and even from a global recession, because Asia, if nothing else, will not stay still economically. Asia will make rapid adjustments, as that's what they tend to do.

I also said I expect a bounce to be less vigorous than last time, due to accumulative damage from two global trade collapses in succession, and a global banking meltdown.  But that secular demand from Asia will reassert and be supportive of the economy, and thus to RE.

And I have pointed out that Australian RE will indeed be subject to a further wave of foreign investment, as that process unfolds.

But according to a dimwit like you, who has pinned his hopes on BS data from FIRB, any person saying such things must surely be a troll.

Fortunately, most people in Australia are not so dumb or naive, and would not concur with you're assertions.


And I'm reasonable confident the pending ACTUALITY TEST of the next 18 to 24 months will bare out what I've said.

bullionbaron's picture

I haven't said and don't think Australia will have a US like crash in housing. I also expect a slow melt, but 10-20% off prices while metals multiple 2-3x from current prices still makes a nice trade.

The 30% was developers, not foreign investors buying property, so it's not even relevant to the situation we were discussing. Such is the nature of your attempts to deceive.

Peter Pan's picture

Of course the official Australian statistics can be relied upon. Only in recent monthe did the Australian bureau of statistics admit that they had over estimated the number of households by 1 million in a population of 23 million.

My take is that Austalia is super vulnerable. Its currency over valued. It's real estate unreal in terms of price. Its government clueless and its people too reliant on government handouts of all sorts.

But still undoubtedly God's country by far. In fact it's God's second attempt at Paradise. Although it has a plentiful supply of snakes, Adams and Eves.

Zoran's picture

But the economy has gone soft over the past 9 months, as you would expect, but the inevitable waves of stimulus have not even begun.  And just like last time the Govt will seek to plateau house prices, guarantee bank deposits, and fill bank accounts of tax-payers with direct injections of cash, as necessary.


They'll certainly try to stem the house price falls again, through some sort of stimulus package no doubt. But the public baclash this time will be immense. The punters know the damage the last housing stimulus cause, pushing the property bubble to new highs. The problem is the govt has promised a surplus, backed themselves into a corner, and now it's obvious that's not going to happen. See below.....

Wayne Swan's budget surplus is dead in the water, isn't it?; What are his options now? Deficit spending to stimulate property market?

So yes, they'll do a bit to stimulate, what they think they can get away with. But this time it won't work.

The Aussie housing bubble is dead. Finally!

Dr Benway's picture

It's more than the backlash though, it's the impossibility of keeping house prices stable.


House prices are driven by self-enforcing mechanisms ensuring boom-bust cycles, and this is exacerbated by government policies that encourage property speculation over saving, such as negative gearing. House prices can't stay flat, because long-term flat prices is sure to cause investment property owners to sell and cause lower prices. For house prices in the current system, it is either strongly rise or crash.


Any stimulus will cause a brief ramp at best. Rudd tried to head off the property crash in 2009, but instead of a gentle comedown the tweak sent the market on another high. And that will have increased the price to pay, just as any can-kicking does.

Element's picture

Well said, maybe so.  But let's say it falls, I don't think it can result in a US subprime-style plunge-off-the-cliff and ka-splat.

There's too much secular buoyancy in the Australia economy, too much inertia for that, plus huge room for AUD to fall, for oil to fall, for rates to fall, for massive stimulus to catch it and prop, too much tendency to further massive foreign investment buying everything not nailed down.

This is not a situation primed for protracted crash, but it is a situation where credit will shit the bed, and the system will stagnate and deflate.

It will be the secular Asian demand that allows it to be a quasi-stable affair.

Element's picture

If they needed to they can easily manage $1.5 trill of stimulus.

But they will do maybe 150 billion, and if the past example is anything to go by, it'll be surprisingly effective, in conjunction with the other factors I already mentioned.

People presuming Australia will fall in a heap any time soon are dreaming.  In 2004 we had practically and effectively zero significant trade with both China and India ... but somehow we managed to still have a large and stable prosperous economy and full employment.

Sorry, but people who simplistically assume a hard-landing in China equates to the demolition of the Australian economy are a wee bit retarded.

Not having any of that sort of laughable argument.

bullionbaron's picture

This surely has to be a troll account... ?

Element's picture

And you surely must be an idiot.

Mister Ponzi's picture

"[Fortescue] is ramping up its annual iron ore output to a rate of 155 million metric tons--which it expects to reach mid-2013--from just 55 million tons last year. The miner has, however, had to secure substantial debt facilities in order to fund the aggressive expansion program, which it estimates will cost it US$9 billion at a time when iron ore prices are falling." (

Sounds like a company to short to zero...

Element's picture

Over-production and high-debt at Fortescue = massively cashed-up BHP and RIO buy shit-hot bargins and mothball it ... 'till later.

Dr Benway's picture

Nah dude didn't you hear? The Fortescue boss says that iron ore prices will rebound to 120 bucks within months.


So it will all be ok.

Mister Ponzi's picture

Unbelievable. I guess, when you live inside a bubble it is quite difficult to see the bigger picture - but it is really epic to cite the official Chinese growth projections to justify one's forecast

NuYawkFrankie's picture

Re. The Kangaroo In The Metals Mine


If it was "The Kangaroo In The Coal Mine" that's OK.

In this case "The Marsupial In the Metals Mine" sounds better.

Dr Benway's picture

I applaud your appeal to apply alliteration.

NuYawkFrankie's picture

Accompanying accolades are always appreciated - Adieu Amigo ;)