We’ve all thought it. Actually, we’ve all said it. And now there’s proof.
We’re referring to the widely held belief that newspapers are editorially biased towards spruiking for the property market. It’s fairly obvious really.
You only have to pick up the Saturday edition of The Age newspaper with its three real estate sections to see that Fairfax makes a motza from the real estate industry.
Well, yesterday the ‘Benedict Arnold’ of newspapers, Marika Dobbin spilt the beans:
“The REIV is funded by real estate agents and, because of this, gets a higher rate of sales reported to it than say Australian Property Monitors. APM has the advantage of a national perspective and also claims to be more independent, although it is owned by Fairfax (owner of The Age), which sells real estate advertisements.”
So there you have it. I know it’s not exactly a ‘smoking gun’ but at least it gives you some ammo when your mates accuse you of being a conspiracy nut job.
But of course, we don’t really need the newspaper men and women to tell us what we already know. The facts speak for themselves.
If newspaper sales are declining then your only other option is to scratch the back of the advertisers. Seriously, most of the property ‘reporting’ is more like advertorials than editorials.
At times we half expect the cheery souls from Danoz Direct to drop into the article telling you that if you buy one property they’ll give you a second for free!
Anyway, as we’ve pointed out before, it’s not just the real estate spruikers and the mainstream media that are in on the act, there’s the banks to worry about too.
It’s a right old triumvirate of trouble.
We should have short sold CBA
Not so long ago – two weeks ago in fact – we said that short selling Commonwealth Bank [ASX: CBA] shares looked like a good trade. The red circle on the chart pinpoints the spot:
If only we had actually written, “Short sell CBA now!” we could have crowed on about it. But we didn’t. In all honesty we thought there was still a chance the market could push the zombie bank higher.
Two weeks later and the CBA is down nearly 10% from its recent peak.
Quite frankly it’s still overvalued if you ask us. Based on what goes on the scenes behind this and every other bank, the share price should be around $1 – not a penny more. Here’s why…
Yesterday we took a peek at the Australian Prudential Regulation Authority’s (APRA) Monthly Banking Statistics. It’s been quite a while since we’d done so, but it’s always worth a look just to reinforce our belief that the banking system is one giant Ponzi scheme.
Seriously, the stuff you find out about the banks just by looking at the publicly available information is mind-boggling. You can only imagine the stuff that goes on behind the scenes, out of the public gaze.
Anyway, naturally enough we choose to pick on Commonwealth Bank. It is after all – by their own admission – the Australian bank with the biggest exposure to the housing industry.
What the banks do with your money
According to APRA, Commonwealth Bank has $277 billion of customer deposits. That’s money which you may have earned and which you’ve deposited at the bank for safe keeping – “Look after it folks, it’s all I’ve got” is what you may say if you had to physically deposit the cash.
So, you can imagine if every Commonwealth Bank customer logged onto their internet banking account at exactly the same time and wrote down the balance and then gave it to someone to add up all the numbers, the total balance of deposits would be $277 billion.
That’s reasonable enough isn’t it? That’s what you’d expect. And that’s exactly what you find.
However, thanks to the weird and whacky world of fractional reserve banking, guess how much cash the Commonwealth Bank really has in its vaults?
It has less than 3% of that amount held as “Cash and liquid assets.”
This is from one of the banks that’s touted as being one of the strong ’4 Pillars’ of the Australian banking system.
Yet despite it being so strong, it only has enough cash on hand to meet 2.2% of its cash deposit obligations.
In fact, get this. Despite the CBA more than tripling the number of loans it’s issued in the last eight years, its cash reserves have actually fallen.
In 2002, the CBA had ‘Cash and liquid assets’ of $7.76 billion on its books, today it’s a pathetic $6.12 billion.
It’s the only one out of the 4 Pillars to have a lower cash reserve today than eight years ago. ANZ Bank and National Australia Bank have doubled their cash reserve, while Westpac has added marginally to it.
Now, the banks will argue, “Ah, but because markets are more sophisticated these days, we have cash tied up in ‘trading securities’ and ‘investment securities’.”
Just $2.20 for every $100 you deposit
Well that doesn’t make things any better. When you deposit your money in a bank account you do so because you want someone to look after it for you.
Right now, for every $100 you deposit in the bank, the CBA keeps just $2.20 in cash. Another $17.60 it invests in ‘Trading securities’ and ‘Investment securities’. And pretty much the rest it invests in loans to businesses and households.
The majority of it going to Australian residential property market.
It’s no wonder the mainstream economists are so panic stricken by the thought of another interest rate rise.
On reading the report from Fujitsu Consulting that 45% of first home buyers were facing mortgage stress, AMP Capital chief economist Shane Oliver said:
“This is a scary survey. It provides a clear warning to the RBA not to push rates up too far or too fast.”
But it’s not the first homebuyers per se that Oliver is concerned with, more likely it’s the need for AMP to offload several billions of dollars of mortgages onto the securitisation market:
“AMP, Australia’s second-biggest asset manager, almost doubled its residential mortgage-backed securities to $1 billion in the nation’s first sale of the bonds this year. AMP had planned to sell $543.5 million of bonds. It priced the main class of $920 million in notes to yield 130 basis points more than the bank bill swap rate.”
Yet again it’s another classic example of the mainstream economists getting economics back to front.
Each argument they make is more illogical than the last one…
Cheap money created asset bubbles which caused the economic meltdown therefore we need to make debt more available so people and businesses can borrow more to stop asset values from falling but this will cause another bubble as people and business borrow more because asset prices didn’t fall, etc…
And so it goes on and on and on. Each attempt at manipulating and already over-manipulated market just creates bigger problems.
And the Australian banking system is at the core of these problems. So, the next time your employer pays your wages into the CBA – or any other bank – just consider that for every $100 that goes in, the bank only ‘looks after’ $2.20, the rest it punts on the financial markets and the housing market.
Happy saving!
Cheers.
Kris.
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My understanding of the Government ‘guarantee’ prior to end 2008 as the s*it hit the fan was that there was no implicit warranty required from the banks in respect of coughing up depositor savings. It appears to be one of the things nobody thought of as the traditional links between ‘government’ owned banks such as Bank of NSW (morphing in Westpac) and eventually the Commonwealth Bank sell out. Whilst banks were government owned there was no risk that you could loose your life savings. At end 2008 I think there was a commitment by St. Kevin and confirmation from then Liberal leader Malcolm Turnbull that $20,000 of savings in bank accounts would be guaranteed. In the context of those recent scary days they quickly realised that wasn’t enough to stop a run. Many ‘doctors wives’ were already on their way to their local banks with a suitcase! Rudd kicked it up to $1M and extended it to non-bank savings (but not super of course) and thence it stays today with no end in sight as far as I know?
That’s right, BB. Now the government guarrantee is in, it’s probably going to be there forever. The government might put a fee on it to make it look like the banks are paying something for it. Same goes for the guarrantee of borrowings. But regardless of the tweaks that may or may not occur, I think it’s safe to say that there will always be an implicit guarrantee. As several others have said, the banks know the government will step in and bail them out as soon as things start looking shaky. Out overleveraged financial system depends on it.
It’s moral hazard of the worst kind and I think it stinks. But it’s there. I would be able to live with it better if the gov’t had the guts to beat the banks into shape a little in return – a bit of quid pro quo if you like. Asking the banks to boost their reserves and increase their liquidity is not too much to ask in return for the safety of a guarranteed taxpayer bailout when the $hit hits the fan.
Bravo that, Ralph. You would expect at least that much.
However, we might see our wish granted in the form of government bonds that the banks will be required to hold as part of their reserves. Clever, ey? Treasury killing two birds with one stone.
I may have it all wrong, but, as a small business operator, I am constrained by laws, (not to mention controlled credit), that prohibit me from operating insolvent. It seems to me that the bigger the business the less constraints you have on you, all the way to the ‘TOP’(?), that is the Government, who operate under a situation where the whole assets of the nation could not bail them out.
Why not invoke their own laws on bankruptcy, wipe all their gambling debts and restart our own National Bank, like the CBA used to be, and build our Nation back up.
Sound too far fetched? It worked when our own Government credit system paid our own way through the second world war, exactly as did the USA, and came out of it healthily industrialised.
It worked when the Government via the CBA financed the Snowy Mountain Scheme and paid for it before it was even completed through profits already generated.
The problem is we are under the RULE of a world wide MONETARIST system, and that is a three tiered system, PROFIT FIRST, PROFIT SECOND AND ALL PROFITS to the financial empire that runs it.
Bailing out the banks? No, just let them drain our Super, get us further in debt with easy credit, further into their control, and so it goes on.
Australia wasn’t meant to be this way.
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