Oil, bubbles and banks – nothing changes

Just back from an enforced layover in Italy and its good to see that’s nothing has changed. Everyone complains that PM Malcolm Turnbull isn’t doing enough, and when he tries to do something everyone jumps up and down and screams that its unfair if it affects them. 

Of course the PM is doing things and making some headway on cutting the budget deficit but with an overdraft bill of $37 billion it’s hard going. However as Turnbull keeps saying when he’s accused of compromising on issues ‘Eighty per cent of something is better that 100 per cent of nothing.’ 

RIGGING THE MARKET

And is it only me that finds it funny that when two of the world’s biggest oil producers – Saudi Arabia and Iran – set out to rig the global oil market, the worlds’ stock markets applaud. Yes, it looks like the Saudis experiment with free market if over and the OPEC spirit is alive and well even if the world’s biggest producer, Russia, isn’t in the tent yet. In fact the Russian are pumping like there’s no tomorrow with a production record set only last month. 

If any company in Australia decided it might be a good thing to cut back production in collusion with other producers in an attempt to push up prices and margins the ACCC would be all over them. But of course it’s a lot harder to punish a country. It should also be noted that the Saudis and the Iranians are in a proxy confrontation in Yeman as they back different groups fighting for control of the country. Hey, business is business. 

One can only hope that the Russians and the South Americans, and a re-energised US oil shale industry, come flooding back into the market. An artificially high oil price is no good for anyone. 

DANCING AROUND THE BUBBLE

The arguments keep coming over whether Sydney property market is just over-heated or the world’s biggest bubble. It is true that there have been some extraordinary high prices being paid  in the run-up to the Spring selling season, but I always fall back on supply and demand numbers. Around Australia property prices are evening out. In Sydney, Melbourne and Brisbane apartment prices are decidedly toppy as investors find it hard d to get finance and more and more stock joins the market, especially in the small unit category. Sydney will be the last to feel the pain as population growth and low borrowing rates keep prices steady at the low end.

But the real problem in Sydney is the lack of supply in the housing sector with some properties fetching well over reserve and grabbing the headlines. For a bubble to burst there has to be a disruptive factor in the market, like high unemployment, high interest rates or a black swan event like an international economic collapse. I agree with the RBA that the market will work it out. Prices may not go down much but they will flatten out. 

WHY BANKS ARE BASTARDS

And while i’m having a rant it will be interesting to see how the bank CEOs handle yet another parliamentary inquiry into their practices next week. Early noises from the Labour Party side seem to indicate they will be examining whether there’s enough competition in the sector, which strikes me as peculiar as over the past decades government after government has signed off on one bank takeover after another.  For example Bank of Adelaide, Bank of Melbourne, BankWest and St George.  I know some of these banks were in trouble, but in hindsight maybe a government rescue would have resulted in a better marketplace than the one we’ve got today.  

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