Aussie cut Variable rate by 0.50%
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Aussie Home Loans have announced today they are cutting the variable home loan rate by 0.50% to 7.59% for new customers from 29 October and for existing customers from 10 November 2008.
The decision by Aussie Home Loans puts the heat back on the big banks as it becomes increasingly evident that funding costs have reduced and the RBA is getting close to cutting interest rates again by 0.50%.
Financial Deregulation is Dead
Financial deregulation is dead as the focus switches back to greater regulation within economies to stop the current global financial crisis occuring again.
The deregulation of the last thirty years around the world unleashed a period of unexpected economic expansion throughout the globe as financial markets were opened up, tariffs reduced or abolished, currencies unhedged to the gold price and so forth.
These changes coincided with a greater focus on reduction of risks especially within the banking industry as less capital was deployed within the banking system as banks leveraged to seek stronger return on equity through investments.
Now as the world sits on the brink of financial oblivion the spectre of greater financial regulation is well and truly back on the table.
The G20 summit to be held in November with the world’s leaders will focus on among other issues the focus of imposing financial regulation upon their respective economies. No longer is financial deregulation king but financial regulation.
Once the washup is done from this global financial crisis we can expect to see a greater focus on financial security first and foremost among global financial institutions and a tougher regulations imposed by governments to minimise the risk of this occuring again.
Chief among items likely to be discussed will be the nature of the hedge fund business and the focus on short selling by hedge funds and the likely impact this has on the confidence and performance of financial markets.
They will also discuss plans to create liquidity in markets after recent stimulus packages flagged throughout Europe and the US.
Either way expect more the talk to be about financial regulation for the next decade, not deregulation.
Mortgage Funds block redemptions
The Australian Mortgage Funds are in a stay of disarray at the moment as a host of major funds have blocked redemptions of mortgage funds to prevent a run on funds that will not only destroy the funds but also seriously damage the long term results of the funds.
Earlier in the week the Challenger Howard Mortgage Fund worth $2.8 billion suspended redemptions. They have now been joined by Australian Unity, AXA Asia Pacific Holdings and Perpetual
The suspension of redemptions has sent fear through the economy as pensioners and long term investors had recently been withdrawing funds in some cases in excess of ten fold on normal levels due to the government guarantee on bank deposits.
The Australian Governement recently announced a plan to guarantee all bank deposits but mortgage funds were not included. This has caused people to run for the doors drawing investments from such funds and transferring into the safety of bank deposits.
No doubt in coming days these mortgage funds will be joined by others as the fear spreading through the economy will continue for a while to come as people see dollars in the bank as the only safe investment.
Have you had your funds suspended for redemption by the mortgage funds? Share your thoughts in our comments section.
Global Financial Crisis bites hard in Europe, Asia & US
The global financial crisis continues to bite hard around the world as more bad news is reported each day throughout Europe, US and Asia.
To give an idea how bad things are Wachovia, the big US bank unveiled a US $23.9 billion third quarter loss after writing down US $18.7 billion in goodwill and US $6.6 billion in credit losses.
Wachovia also projected an additional US $26.1 billion in mortgage related losses in 2009. Wachovia is currently preparing to be taken over by Wells Fargo.
Meanwhile, in Europe Hungary increased it’s interest rtes by 3 per cent to 11.5% to maintain it’s peg to the Euro currency. This is likely to continue throughout Eastern Europe to stem capital outflows.
This has followed heavy selling across currencies such as Russia, Turkey, India, Argentina etc. The currency sell-off has affected virtually every currency in the world including heavyweights the Yen, Euro and Pound as all currencies have depreciated against the USD.
The Yen carry-trade which has financed so much of the global investment binge has the hedge funds has started to be unwound as funds have deserted the Yen for the safety of the USD.
The contagion that is inflicting the world has definately impacted Australia with the sharemarket today hitting four year lows as the All Ordinaries fell under 4000 again. The AUD has also fallen heavily from near parity to below 65c since July.
It should be noted that while Australia has felt some pain it is nothing compared to some other countries around the world and it is hard to realise if most people realise still how lucky and insulated we have been.
At this stage it is up in the air how well Australia will survive in 2009. I suspect the bad times have only just begun should China not be able to quickly re-establish momentum in their economy.
Treasurer approves Westpac takeover of St George
The Australian Treasurer, Wayne Swan has approved the proposed takeover of St George by Westpac. The Treasurer has imposed some strict covenants upon the takeover that Westpac must insure all St George branches and ATM’s along with their own remain open.
The takeover still requires St George shareholder approval but has achieved all other hurdles. Should the takeover proceed Westpac will become the second largest bank in Australia.
AUD Currency continues to struggle
The Australian dollar continues to struggle today currently selling for 67c against the USD at the time of writing. The fall in the AUD has been dramatic after peaking around 97c in late July the AUD hit a low around 63c on last week.
The AUD fall has been dramatic and was not something envisaged in June or July when the USD was heavily under pressure and the AUD was looking like meeting parity to the USD.
How quick times change as the world economic crisis took hold and investors started heading for the exits the AUD was smashed. The Australian dollar has risen in recent years on the back the growing economic prosperity of Asia, in particular China which Australia has been a recipient of their amazing economic growth.
The mineral boom was a huge driver in what was seen as a miracle economy and the high interest rates on offer drove inflows into the AUD.
The question for most Australian’s is how far can the AUD go? This is not an easy question to answer as investors have become very negative towards the Australian economy and funds have flown into the safety of the USD.
The ongoing expectation of further rate cuts by the RBA continue to put pressure on the currency as further rate cuts over the remainder of 2008 have been built into money markets.
While a falling AUD is not good for Australian’s travelling overseas it could be seen as a boom for international tourists to our shores and also exporters. The only problem with this is travel is dramatically down around the world due to the economic crisis and consumers have cut back spending.
Next to rise will be consumer goods such as electrical equipment that has become as much as 30-40% cheaper due to the previously high AUD. With imports like to rise dramatically this will all put pressure on inflation.
The double whammy in 2009 could be rising inflation due to the falling AUD at the same time as falling domestic and global growth pushes the RBA to cut interest rates further which exacerbates the AUD fall as funds flow out of Australia.
It should be noted the RBA expect the inflation rate to fall but if it does not and inflation still hovers around 5% or even increases then Australia could be heading to a disastrous situation.
What do you think will happen in 2009? Share your thoughts through our comments section.
NZ Reserve Bank cut rates by 1.00%
Alan Bollard, the governor of the Reserve Bank of New Zealand cut interesr rates by 1.00% today in a move to help stimulate the local New Zealand economy.
The cut reduces the New Zealand cash rate to 6.50% and governor Bollard indicated more could be on the way depending upon how quick the global economy reacted to the stimulus packages announced throughout the world recently.
ANZ profit falls by 21% to $3.319 billion
Australia’s fourth largest bank, the ANZ announced an annual profit fall of 21% to $3.319 billion in what was a result within previous indicated guidance by the ANZ.
Bearing increasing pressure to the global financial crisis the ANZ was still able to record a cash profit that fell 23 per cent to $3.03 billion. Despite the pressure on the ANZ Bank CEO Mike Smith was pleased with the way the ANZ was able to absord and deal with the financial crisis gripping the globe.
The ANZ had taken $1.95 billion in provisions for its exposure to problem loans and the deteriorating global econony. The bank also took a $721 million charge for credit risk on derivatives. This was an increase from $45 million a year ago.
Mike Smith told reporters, “If everything stabilises, and we get back on track, then I expect to see an increase in earnings”. This is a positive sign from a CEO that is hanging his reputation on the success of the ANZ’s push to become a super regional bank within the Asia Pacific region.
ANZ declared a final dividend of 74 cents, taking the total dividend for 2008 to $1.36, the same as in 2007.
Click ANZ to read the profit media release announced this morning.
Has Australian Inflation peaked?
The Australian Bureau of Statistics revealed yesterday that annualised inflation had hit 5% in the September quarter. Excluding volatile items it was 4.6% still well above the rate the RBA have traditionally been happy to accept.
The RBA have indicated that the likely pressure on inflation will disappear through 2009 as slowing ecomonic growth, consumer demand and increasing jobless figures help drag down the inflation rate.
But the question begs what if the inflation risk does not disappear in 2009. We are likely to see as much as 1.5% come off interest rates in the next 12 months, perhaps more should the economic climate deteriorate further than expected. This would take the RBA cash rate down to 4.5%.
If inflation continues to persist as some economic forecasters speculate then the Australian and world economies could be heading for a disaster. The jury is still out at this stage but economic forecasters are sitting on both sides of the fence.
Do you think our inflation rate has peaked? Share your thoughts in our comments section.
Bank Deposit’s guarantee still on Australian agenda
After the recent announcement by the Australian Federal Government that they will guarantee all bank deposits comes an indication that banks or customers will be charged an insurance premium whether they like it or not to secure their money if they have in excess of $1 million.
Wayne Swan indicated that investors will not be able to opt out of the option.
No indication was provided on if the premium would differ depending upon the stability of the institution.
In recent days money has spilled from investment companies into the leading banks as the government announced that all bank deposits would be protected. The ongoing speculation of who would and would not be covered has dealt a heavy blow to some funds.
Do you think an insurance premium should be paid to secure a bank deposit in excess of $1 million? Should people be given a choice to opt in or not?
Please share your thoughts in our comments section.