Don’t they ever read? The media loves a good Reserve Bank warning, so the new Financial Stability Review from the central bank produced the now-standard frothing and bubbling in print and broadcast outlets yesterday and this morning about the latest commentary on the dangers of hot house prices and lending. Don’t the media ever read previous reviews? Remember how the RBA generated headlines in the September review last year when it used the word “unbalanced” for the first time in a very stark warning about the dangers of a house lending boom? Here’s what the bank said in September in the review’s foreword:
“… the composition of housing and mortgage markets is becoming unbalanced, with new lending to investors being out of proportion to rental housing’s share of the housing stock. Both construction and lending activity are increasingly concentrated in Sydney and Melbourne, where prices have also risen the most.”
And this is the key paragraph from the latest review’s foreword:
“Household sector risks continue to revolve largely around the housing and mortgage markets. At this stage, competitive pressures have not induced a material easing in non-price housing lending standards. The composition of new mortgage finance remains skewed to investors, however, particularly in the largest cities.”
We’ve heard it all before, haven’t we? — Glenn Dyer
RBA’s tick. While the Reserve Bank has clearly fleshed out the warning issued in September, the world “unbalanced” has disappeared. In fact, the financial system, especially the banks, is solid (once you have taken into account these housing fears). Here’s what the RBA said in the latest review:
“Meanwhile, the Australian financial system continues to perform strongly. Banks’ asset performance improved further over the second half of 2014 … The Australian banking system has performed strongly since the previous Review. Banks’ profitability remains robust, supported by a further steady improvement in asset performance. Funding costs have declined modestly as competition in domestic deposit markets has eased.”
The media stories all skated over the positive comments on the financial system and the banks. Shares in Westpac and the ANZ hit all-time highs Wednesday, those in NAB and CommBank also rose. Investors noticed both the warnings, especially the comments about the strength of the financial sector and the banks. — Glenn Dyer
Watching the insurers. As Crikey pointed out last week, the RBA has its eyes on commercial property, which it fears is starting to show signs of overheating and possible stress as vacancy levels fall. The froth and bubblers spotted that one, after missing the upgraded warning in last week’s minutes of the RBA board meeting earlier this month. Real estate agents immediately confirmed the accuracy of the central bank’s concerns by claiming there were no problems in commercial property (they aren’t paid to think, they are paid to sell, no matter what). Interestingly, the RBA and APRA also have their eyes on general insurers (such NRMA, Allianz, AAMI, etc). Quite a few of the big insurers (NRMA and AAMI, for instance) have been releasing their reserves back into their profit-and-loss accounts because they overestimated claims and the reserves are no longer needed. That’s one way of keeping earnings looking solid and rosy, but not to sharp-eyed regulators. In fact, it is a heads-up warning for what is usually a boring sector. — Glenn Dyer
Vegemite gets another owner, or does it? Warren Buffett has grabbed another stake in a big-name brand company. In mid-2013, he teamed up with Brazilian group, 3G, to buy control of H.J. Heinz (the tomato sauce king). Overnight, Buffett teamed up with 3G again to make a bid for Kraft in a US$40 billion deal that will result in the two groups merging into one of the biggest processed-food groups in the world. The deal comes as many major US food makers (Kraft, Coca-Cola, Kellogg’s, General Mills) are struggling with changes in consumer tastes that have weakened their ability to sell packaged, processed food to increasingly sceptical consumers, especially those in younger age groups. The combined company, which will be called The Kraft Heinz Co., will have revenue of US$28 billion and will hold a portfolio of brands including Heinz, Kraft, Kool-Aid drinks, Maxwell House coffees, Oscar Mayer, Planter’s snacks,and Philadelphia Cheese, but not our Vegemite. — Glenn Dyer
No line dancing, we are Chinese. Sometimes you just have to be thankful for the po-faced mandarins of the Chinese Communist Party — they give and give. Take the delightful story in the Financial Times yesterday, which revealed (wait for it) that the Chinese authorities had started regulating “public line dancing”, which the paper says is the latest fitness craze among older mainland women. So, instead of traditional Chinese exercise, dancing at dawn and at dusk by millions of older Chinese — mostly women — has generated an upsurge in complaints, so out came the official reaction this week. As the FT reported:
“Twelve government-approved dance routines, complete with ‘scientifically designed gestures that will bring people positive energy’, according to state media. ‘Square-dancing represents the collective aspect of Chinese culture but now it seems that the overenthusiasm of participants has dealt it a harmful blow with disputes over noise and venues,’ Liu Guoyong, chief of the State General Administration of Sport’s mass-fitness department, was quoted as saying in the official China Daily newspaper. ‘So we have to guide it with national standards and regulations.’ The sports agency said the exercises were choreographed by experts to be ‘suitable and scientific for all demographic groups’.”
What’s next, the progressive barn dance? The world is ending. — Glenn Dyer
Need a car, hire an accountant. Hertz is one of the major car-rental companies around the world, but it seems to be having a bit of a problem keeping up with its financial obligations. It was chided this week by the New York Stock Exchange for not filing its accounts in time. The exchange says the company didn’t file a standard report with the US Securities and Exchange Commission, something that seems to be linked to the company discovering major accounting errors in June of last year. So how major are the errors? Well, so bad that Hertz says it will it have to restate its quarterly and annual financial statements for 2011, 2012 and 2013. It seems it’s still looking for the paperwork (and presumably its money). It has until September 17 to remedy the filing sluggishness. Perhaps someone left the accounts in one of its hire cars and it’s now somewhere in America? Just imagine if you returned your car to Hertz and told them you had lost the paperwork and wouldn’t be able to fix them up until later in the year … they would laugh you all the way to court. — Glenn Dyer
Now they will be called Crafty-Heinz, the first thing they will do to draw more public confidence is make 50% bigger tins with 60% less baked beans and spaghetti inside!!