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Hi,
Well in Australia with a new government as per normal the fun and games has begun to discredit the previous one and make the new one look good.
All of this political bickering aside, as it's not an issue, I wish to look at a modern phenomenon and compare us to other nations.
Nowadays the usual measures in stock markets quite often do not work. One reason for this is like when a new government comes in, they overestimate everything and blame it on the previous government. In the process they make their management look better and the previous managers incompetent. In a company vs a government, your unlikely to have the CEO come back and manage the company, with governments this is the case.
In a company, usually prior to the board spill or as it's happening massive write-downs occur making the sacking of the CEO very clear and again making the new CEO's starting point very easy to build from.
So late 2013, all political bickering aside. Australia has a very low debt to GDP number. In 2013 its sub 300 billion, the nation has 50 billion in FX reserves and as such a NET debt to GDP would be in the region of 250 billion vs a GDP total of 1,400- billion. So its actually around 18%.
I read today papers and see Mr Hockey, more political blubbering and gas.
Both parties for whatever reason have done very well. Mr Howard and Keating and Hawke and even the ones who inherited the GFC. It was not their doing. The sale of CBA and Telstra made gaping holes in government federal pensions go away and getting 50 billion for Telstra does help.
As to Mr Hockey removing the carbon tax but not the benefits promised as a result, Joe, seriously, if you abolish a tax and keep the spending of course the deficit will be larger.
Even this is not what I wish to highlight other than the post 2000 trend in companies and governments to do this. I pat both political parties on the back for a job well done. Not about to get into what or whom is better.
The issue I wish to raise is about our debt. Australia’s and compare it to the USA. Today and for many weeks and months this has been a topic of the weak minded journalists in Australia. Our debt, NET debt is 18% of GDP. In the USA which just passed a budget for 2 years, they put off spending cuts of 64 billion, got savings of 23 billion so a NET negative of 40 billion, have a debt to GDP of 110% for the nation and not anyone really debated it in the USA.
I of course welcome the bickering and argy bargy of the political debate here in Australia. This is NOT something I wish to discuss and not the point of this post. It is about the debt.
So I read on in the Murdoch owned paper and as always its very important to instill fear and it stated as is correct in these papers by 2026 the debt will rise to 700 billion from 300 billion. Sad and funny thing is that by then the GDP with GDP growth and inflation will be nearly double. So as they used the GROSS debt and forgot the FX reserves which will likely rise with the GDP, the GROSS debt at 300 billion vs 1,400- billion GDP late 2013 at 21.4% will rise to possibly under worst case 26% in 2026.
Now none of us wants a massive debt. But it is something a government is able to use and should use in slow times, conversely when we have strong growth it should raise the tax take, run surplus budgets and reduce the number.
For a country like ourselves, developed but small, and debt under 60% of GDP is quite acceptable. France has 90% debt to GDP, Spain well over 100%. We are not even in the same ballpark or planet.
Not suggesting we ever join them, but reading the debate alive and well in Australia all be it by two people making noise for little point, it just highlighted the debates around the world.
In the EU austerity measures and budget cuts have been the topic for the last 3-5 years. UK to some extent. USA ? I understand Khloe Kardashian is going out with someone else. Not a hint of panic, just like 2007. In fact its identical to 2007. There wasn’t even a sniff of fear in the US markets in their dance until early 2009 when they lost all support and fell 24% in 6 weeks to their lows.
What I wish to highlight is the EU has balanced its books, governments have taken harsh measures. Australia, a worst case scenario presented yesterday is a rise in debt to GDP of 4.4% in 13 years, a rise from 21.4% debt GROSS to 26% in 2026 is a big deal. Basically in both cases the debt to GDP EU frozen at current levels and hopefully falling as inflation and GPD growth erodes the ratio to GDP ever downwards are policies which can be in place for 100 years.
Australia, well if we see 4.4% in 13 years, worst case, someone trying to appear intelligent by evoking the fear side, in 100 years hmmm … 55.2% debt to GDP worst case in 100 years time ? Obviously that was prior to the reason for all the hot air yesterday and that was to cut some spending, so the 26% number will not even be reached now in 2026. Oh and lets scare you some more the 300 billion now will be 700 billion in 2026, the GDP in 2014 will be 1,400- billion and in 2026 it will be 2,700- billion basically double !! so 300 billion now will be 578 billion in 2026 and it will rise to 700 billion.
You can see me rolling my eyes at the children games.
Back to the USA, if you believed the budget estimates from there, the GDP is meant to rise by 25% in 2014-17. Corporate tax up 80% with no real rise announced and its plan for the deficit in 2014 is 700 billion or 4.4% of GDP minus.
So going down this track, USA tells us they will be reducing their debt to GDP with some magical recovery in income. Rates will stay at zero till they tell lenders they can lend to them at below zero. Increases of an aging population are in the main missing from estimated spending in forward years.
And all that was discussed was Khloe Kardashian and her new boyfriend.
As the 2014 budget estimates are already out the window in the USA, the estimated income rise in corporate tax unlikely if not impossible, the income tax rising at a level above GDP and inflation which again is hard to see if not impossible, I wonder if they will ever debate this budget in the USA ?
Or will it debate Khloe Kardashian and her woes ? One is healthy, the other is unhealthy. One is guaranteed to be fatal, the other the debate and healthy debate could go on for 100 years but unlikely to be fatal. In the case of the EU and its overall debt to GDP being up around 100% it was threatening and action was taken, draconian and painful. In the USA it's what lip gloss is she wearing ? Revlon number 4 just in case if your wondering, the same shade Mr Paulson used during the GFC when dressing certain things up to make them look pretty.
I did actually get a response from the expensive newsletter writer, it did not acknowledge me of course, it didn't even raise the loss year to date, but his first article this week was about the US Feds reserves, about its leverage and about the size of its position. Sadly despite their claims and being bearish, they were not able to read the US Feds own balance sheet correctly and the loss of mark to market between September 2012 and the last one September 2013 was 200 billion. As they used average rates for the quarter which were suspiciously low about 0.5% away from current bond levels I cant wait till the next one comes out February 2014 which shows the US Federal reserve has negative capital.
The question for me will be had Khloe Kardashian changed out of her pink tutu and Revlon number 4 ? Or will anything actually entice the USA to debate its budget and debt hole or the fact its central bank is technically broke ? I doubt it but I did get a lot of amusement out of this persons $2,350- paid for comments, yes for that each year you can learn the inside thoughts of the man ….. waiting ….. waiting …. waiting …... waiting …..
Sadly he has been bearish since 2002, he was correct in 2008-9, but at any point since or prior to that wrong. He is bearish in 2013, so yep I agree with him but for vastly different and more pressing reasons.
When this report comes out for the US fed for the end of December quarter 2013 the tip will be to look at 15 and 30 year MBS securities and how they revalue them. Since last time, they used a duration, that is length of 50% LESS than the actual duration of the bonds to revalue them at 3.3 years vs one over 5 years, I wonder how far they move this so as to make it NOT appear the US fed is actually broke ? The last one for September can be found on
http://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm#quarterly
What is of interest is System Open Market Account (SOMA) Holdings its the mark to market value of holdings and in 2012 the value of these were 165 billion plus. In June when bond rates were 2% for a 10 year bond and 3.2% for a 30 year bond this 165 billion profit had dwindled to 46.4 billion of a loss mark to market of 120 billion. Page 15 of the PDF June report !!
So out comes the end of September report PDF page 14 and they have decided to use, well whatever means they like to revalue these assets, the actual bond yields are double to move off the lows, one would have presumed the loss, even using funny accounting would be around double, merely went from a holding value of 46 billion to one of 33 billion. Still a loss of 130 billion, but not close to the real extent of it, you may find my wry amusement awaiting this publication out in February 2014 for the end of December 2013 period. The loss is at least double the 120 billion it was in June 2013. Bond rates in 2013 went from 1.55% in 10 years to 2.85% in December 2013. In June 2013, 10 year bonds were 2.08% vs 1.55%. So if that inflicted a 120 billion dollar loss what will 2.85% vs 2.08% a move of 0.77% do at the end of 2013 vs 0.53 % up to June which cost 120 billion ? I assure you US 10 year rates and treasuries are 2.85% right now as I type.
I know still in disbelief ? Doing the same for 30 years, lows late 2012 2.55%, June 2013 at 3.2% now at 3.88%. Again HALF.
So if half the move caused even with very shoddy accounting a 120 billion loss, its going to cause at least 240 billion end of year. Real loss and being fair is as I said 300 billion. I have used the correct duration for the bonds, NOT using ones which half the mark to market impact. I have checked the duration many times on 15 and 30 year MBS securities and the US Fed has chosen NOT to report the loss but to cut the duration in half !!
Sadly I suspect the same will occur in December 2013 report out in February 2013, to preserve at least the appearance of some capital and stop annoying questions to the US Federal reserve which Yellen should have been asked. Sadly its year-end and even the US fed is audited. The numbers during the year are not. Then again a good auditor who will sign off on a loss of 300 billion is always easy to find if you know where to shop. Will the US fed admit its reserves are gone ? They are in reality, so its a mad shopping frenzy to find that special auditor they need !!
In the meantime, Khloe Kardashian is now Time magazine person of 2014.
take care
Well in Australia with a new government as per normal the fun and games has begun to discredit the previous one and make the new one look good.
All of this political bickering aside, as it's not an issue, I wish to look at a modern phenomenon and compare us to other nations.
Nowadays the usual measures in stock markets quite often do not work. One reason for this is like when a new government comes in, they overestimate everything and blame it on the previous government. In the process they make their management look better and the previous managers incompetent. In a company vs a government, your unlikely to have the CEO come back and manage the company, with governments this is the case.
In a company, usually prior to the board spill or as it's happening massive write-downs occur making the sacking of the CEO very clear and again making the new CEO's starting point very easy to build from.
So late 2013, all political bickering aside. Australia has a very low debt to GDP number. In 2013 its sub 300 billion, the nation has 50 billion in FX reserves and as such a NET debt to GDP would be in the region of 250 billion vs a GDP total of 1,400- billion. So its actually around 18%.
I read today papers and see Mr Hockey, more political blubbering and gas.
Both parties for whatever reason have done very well. Mr Howard and Keating and Hawke and even the ones who inherited the GFC. It was not their doing. The sale of CBA and Telstra made gaping holes in government federal pensions go away and getting 50 billion for Telstra does help.
As to Mr Hockey removing the carbon tax but not the benefits promised as a result, Joe, seriously, if you abolish a tax and keep the spending of course the deficit will be larger.
Even this is not what I wish to highlight other than the post 2000 trend in companies and governments to do this. I pat both political parties on the back for a job well done. Not about to get into what or whom is better.
The issue I wish to raise is about our debt. Australia’s and compare it to the USA. Today and for many weeks and months this has been a topic of the weak minded journalists in Australia. Our debt, NET debt is 18% of GDP. In the USA which just passed a budget for 2 years, they put off spending cuts of 64 billion, got savings of 23 billion so a NET negative of 40 billion, have a debt to GDP of 110% for the nation and not anyone really debated it in the USA.
I of course welcome the bickering and argy bargy of the political debate here in Australia. This is NOT something I wish to discuss and not the point of this post. It is about the debt.
So I read on in the Murdoch owned paper and as always its very important to instill fear and it stated as is correct in these papers by 2026 the debt will rise to 700 billion from 300 billion. Sad and funny thing is that by then the GDP with GDP growth and inflation will be nearly double. So as they used the GROSS debt and forgot the FX reserves which will likely rise with the GDP, the GROSS debt at 300 billion vs 1,400- billion GDP late 2013 at 21.4% will rise to possibly under worst case 26% in 2026.
Now none of us wants a massive debt. But it is something a government is able to use and should use in slow times, conversely when we have strong growth it should raise the tax take, run surplus budgets and reduce the number.
For a country like ourselves, developed but small, and debt under 60% of GDP is quite acceptable. France has 90% debt to GDP, Spain well over 100%. We are not even in the same ballpark or planet.
Not suggesting we ever join them, but reading the debate alive and well in Australia all be it by two people making noise for little point, it just highlighted the debates around the world.
In the EU austerity measures and budget cuts have been the topic for the last 3-5 years. UK to some extent. USA ? I understand Khloe Kardashian is going out with someone else. Not a hint of panic, just like 2007. In fact its identical to 2007. There wasn’t even a sniff of fear in the US markets in their dance until early 2009 when they lost all support and fell 24% in 6 weeks to their lows.
What I wish to highlight is the EU has balanced its books, governments have taken harsh measures. Australia, a worst case scenario presented yesterday is a rise in debt to GDP of 4.4% in 13 years, a rise from 21.4% debt GROSS to 26% in 2026 is a big deal. Basically in both cases the debt to GDP EU frozen at current levels and hopefully falling as inflation and GPD growth erodes the ratio to GDP ever downwards are policies which can be in place for 100 years.
Australia, well if we see 4.4% in 13 years, worst case, someone trying to appear intelligent by evoking the fear side, in 100 years hmmm … 55.2% debt to GDP worst case in 100 years time ? Obviously that was prior to the reason for all the hot air yesterday and that was to cut some spending, so the 26% number will not even be reached now in 2026. Oh and lets scare you some more the 300 billion now will be 700 billion in 2026, the GDP in 2014 will be 1,400- billion and in 2026 it will be 2,700- billion basically double !! so 300 billion now will be 578 billion in 2026 and it will rise to 700 billion.
You can see me rolling my eyes at the children games.
Back to the USA, if you believed the budget estimates from there, the GDP is meant to rise by 25% in 2014-17. Corporate tax up 80% with no real rise announced and its plan for the deficit in 2014 is 700 billion or 4.4% of GDP minus.
So going down this track, USA tells us they will be reducing their debt to GDP with some magical recovery in income. Rates will stay at zero till they tell lenders they can lend to them at below zero. Increases of an aging population are in the main missing from estimated spending in forward years.
And all that was discussed was Khloe Kardashian and her new boyfriend.
As the 2014 budget estimates are already out the window in the USA, the estimated income rise in corporate tax unlikely if not impossible, the income tax rising at a level above GDP and inflation which again is hard to see if not impossible, I wonder if they will ever debate this budget in the USA ?
Or will it debate Khloe Kardashian and her woes ? One is healthy, the other is unhealthy. One is guaranteed to be fatal, the other the debate and healthy debate could go on for 100 years but unlikely to be fatal. In the case of the EU and its overall debt to GDP being up around 100% it was threatening and action was taken, draconian and painful. In the USA it's what lip gloss is she wearing ? Revlon number 4 just in case if your wondering, the same shade Mr Paulson used during the GFC when dressing certain things up to make them look pretty.
I did actually get a response from the expensive newsletter writer, it did not acknowledge me of course, it didn't even raise the loss year to date, but his first article this week was about the US Feds reserves, about its leverage and about the size of its position. Sadly despite their claims and being bearish, they were not able to read the US Feds own balance sheet correctly and the loss of mark to market between September 2012 and the last one September 2013 was 200 billion. As they used average rates for the quarter which were suspiciously low about 0.5% away from current bond levels I cant wait till the next one comes out February 2014 which shows the US Federal reserve has negative capital.
The question for me will be had Khloe Kardashian changed out of her pink tutu and Revlon number 4 ? Or will anything actually entice the USA to debate its budget and debt hole or the fact its central bank is technically broke ? I doubt it but I did get a lot of amusement out of this persons $2,350- paid for comments, yes for that each year you can learn the inside thoughts of the man ….. waiting ….. waiting …. waiting …... waiting …..
Sadly he has been bearish since 2002, he was correct in 2008-9, but at any point since or prior to that wrong. He is bearish in 2013, so yep I agree with him but for vastly different and more pressing reasons.
When this report comes out for the US fed for the end of December quarter 2013 the tip will be to look at 15 and 30 year MBS securities and how they revalue them. Since last time, they used a duration, that is length of 50% LESS than the actual duration of the bonds to revalue them at 3.3 years vs one over 5 years, I wonder how far they move this so as to make it NOT appear the US fed is actually broke ? The last one for September can be found on
http://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm#quarterly
What is of interest is System Open Market Account (SOMA) Holdings its the mark to market value of holdings and in 2012 the value of these were 165 billion plus. In June when bond rates were 2% for a 10 year bond and 3.2% for a 30 year bond this 165 billion profit had dwindled to 46.4 billion of a loss mark to market of 120 billion. Page 15 of the PDF June report !!
So out comes the end of September report PDF page 14 and they have decided to use, well whatever means they like to revalue these assets, the actual bond yields are double to move off the lows, one would have presumed the loss, even using funny accounting would be around double, merely went from a holding value of 46 billion to one of 33 billion. Still a loss of 130 billion, but not close to the real extent of it, you may find my wry amusement awaiting this publication out in February 2014 for the end of December 2013 period. The loss is at least double the 120 billion it was in June 2013. Bond rates in 2013 went from 1.55% in 10 years to 2.85% in December 2013. In June 2013, 10 year bonds were 2.08% vs 1.55%. So if that inflicted a 120 billion dollar loss what will 2.85% vs 2.08% a move of 0.77% do at the end of 2013 vs 0.53 % up to June which cost 120 billion ? I assure you US 10 year rates and treasuries are 2.85% right now as I type.
I know still in disbelief ? Doing the same for 30 years, lows late 2012 2.55%, June 2013 at 3.2% now at 3.88%. Again HALF.
So if half the move caused even with very shoddy accounting a 120 billion loss, its going to cause at least 240 billion end of year. Real loss and being fair is as I said 300 billion. I have used the correct duration for the bonds, NOT using ones which half the mark to market impact. I have checked the duration many times on 15 and 30 year MBS securities and the US Fed has chosen NOT to report the loss but to cut the duration in half !!
Sadly I suspect the same will occur in December 2013 report out in February 2013, to preserve at least the appearance of some capital and stop annoying questions to the US Federal reserve which Yellen should have been asked. Sadly its year-end and even the US fed is audited. The numbers during the year are not. Then again a good auditor who will sign off on a loss of 300 billion is always easy to find if you know where to shop. Will the US fed admit its reserves are gone ? They are in reality, so its a mad shopping frenzy to find that special auditor they need !!
In the meantime, Khloe Kardashian is now Time magazine person of 2014.
take care
