Remaining on the subject governments and regulation, yesterday the Reserve Bank of Australia released a discussion paper titled “Promoting Liquidity: Why and How?” It is only 44 pages long, but we haven’t had time to read through the whole thing yet.
However it didn’t get off to a good start with its claims on the first page that “liquid markets do not exist for all financial assets at all times… this can be thought of as market failure.”
You can blame the car market so much if no-one wants to buy your clapped-out 25 year old rusty Datsun Sunny. If something is rubbish then the market is doing its job by telling you it is rubbish…
A more valid argument could be that the market actually ‘failed’ when the rubbish debt was changing hands at good prices. But we won’t argue that.
By this time we have managed to skim read to page 24 of the document which does show an interesting chart:
The chart tells us that “Inside” assets held by Australian banks have increased to 15% of all assets held by banks. The report classifies “Inside” as being the liabilities of another financial institution. Which, according to the numbers in the report would put these inter-bank asset/liability values at approximately $52 billion.
Another way to look at it is that the banks are doing a lot of inbreeding. And we know how unwise that can be.
Yes, We Have No Banana Republic – Yet
Oh, how we yearn for years like 1997 and 2002. Everything seemed so much simpler back then. Sure, unemployment may have been high. OK, interest rates were higher too. And in 2002 everyone was still fretting about more terrorist attacks.
But at least we could laugh at those crazy foreigners and their crazy government interventions. The Asian Financial Crisis was a hoot for Australia. Barely any side-effects at all.
And what happened in 2002? Well, that was the year Argentina defaulted on its debt. It froze customer bank accounts and manipulated the currency to try and preserve its value.
During this past week the Argentines have been at it again. This time they have decided to nationalise pension fund assets. Why would they do such a thing? Easy. To force the pension funds to buy government debt that no-one else wants to buy.
Imagine that. The funds that you had squirreled away for years, painstakingly saving a portion of your wage have now disappeared. You don’t have a penny left except an assurance from the government that you won’t be disadvantaged by the move as now you will be able to collect the state pension.
Wait a minute, some of this is sounding a bit familiar. And guess what? As I look around I don’t see anyone laughing at those crazy foreigners anymore. I especially don’t see any politicians or executives snootily assuring us that sort of thing couldn’t happen here.
And to that extreme it probably won’t. But it’s all getting a little too close for comfort. We’ve got the RBA buying Aussie dollars because of a lack of ‘liquidity’ in the markets – bankspeak meaning that no-one else was buying. We’ve got debt securities that can’t be traded. We’ve got mortgage trusts that have been frozen. And we have a Treasurer telling self-funded retirees not to worry because they can go to Centrelink and get a pension payment from the state.
Unfortunately we still don’t know whether we are at the beginning, middle or the end of all this mess.
A Gold Star for Lihir
Amongst all the gloom there is at least something positive going on out there. We read this morning that Lihir Gold [ASX: LGL] has posted record breaking gold production for the third quarter.
The miner yanked 250,000 ounces of gold from the ground at a production cost of only USD$412 an ounce. It sold the gold at an average price of USD$847 an ounce. This production figure was a 42% increase on the previous quarter due to production increases at all of its mines.
Looking ahead the company is forecasting total annual production for 2008 at 850,000 ounces with that increasing to one million ounces in 2009.
Now they just need the gold price to go up again.
Cheers.
Kris.