Worldwide Boom to Flood Asset Markets

Worldwide Boom to Flood Asset Markets
  • An inevitable development gathers steam
  • Banks party like it’s 2007
  • Plus, why the world needs crypto to boom, and plenty more…

Today’s Daily Reckoning needs to take one step back before launching into the latest news.

Back in September, we made the case that mortgage competition remained hot, adding…

The most interesting thing to watch from here is the first-homebuyer market (FHB). What bothers this group more than anything is the size of the deposit they need, not the repayments…

But I’m sure there’s going to be more government tinkering to get this deposit problem down. I’m just not sure what it’s going to look like.’

Huzzah! Today’s Australian reports that the Property Council has come out and said that a government-backed low deposit home loan scheme could help address affordability.

There’s no real details on how this would be structured, other than it could be similar to the Keystart program that the West Australian state government runs.

Keystart lets buyers put a 2% deposit down in Perth, without paying lenders mortgage insurance.

I expect something like this to get up sooner rather than later. Already the government is trying to get legislation through to allow first home buyers to save inside their super fund. But it won’t be enough.

More buyers and lower deposits are bullish for the property market overall.

The loans should be pretty cheap too…

Aussie banks raising money on the cheap

The Aussie banks have raised $9 billion in the first 10 days of the year, according to The Australian Financial Review. The AFR suggests they’re now seeing their most favourable credit market conditions since the global financial crisis.

That’s an opinion, but the numbers suggest it’s right. ANZ just sold three- and five-year bonds. The rate they’re paying is 30% lower than what CBA got at the same time last year.

This will help the banks’ margins, and therefore their profitability. This is the kind of thing we need to see for the Aussie market to go higher. It needs the banks to do some heavy lifting here because they dominate the index so much.

We can also gauge the availability of credit in other ways. New development approvals are one way to do that.

Charter Hall just received Victorian approval for a $200 million tower in the Melbourne CBD. It’s due to be complete in the first half of 2020.

Melbourne CBD is booming in terms of construction. I’m going to head up to Brisbane the week after next to check things out up there, too.

We can see further green shoots in terms of credit expansion elsewhere in Australia, too.

We’re talking baby steps here, but ‘neo’ bank Xinja is raising money via licensed crowdsourcing intermediaries. In return, the company will issue shares to its online investors.

Xinja is a digital-only bank hoping to win over customers who are comfortable transacting completely off their smartphone.

When you think about it, crowdsourcing and crypto have the potential to undercut future listings on the share market. Companies have more than one way to raise money these days.

It’s a very positive development. Ideas need to meet capital for future growth to happen. The easier and more ways that can happen, the better it is for all of us.

There’s more positive news on this front. An Australia start-up called Trade Ledger might soon be able to help small- and medium-sized businesses get more financing too.

Trade Ledger’s software means lenders can make real-time and continuous risk assessment. It automates the whole process.

Information can turn into a digital asset that lenders can use as collateral.

It’s just another reason why I find it hard to be bearish on the state of the world. The pace of technological change is just so prodigious.

The wealth to keep pouring out of Asia

And let’s not forget that Australia is basically irrelevant in terms of global numbers. The Wall Street Journal reported that the Chinese ‘affluent’ are expected to grow at 13% per annum for the next five years.

Wait for it… This group could have as much as $US3 trillion worth of assets to invest in the next five years. China is already home to the largest number of billionaires in the world. The wealth pouring out of China and the wider Asia region is not going to stop.

Arguably, property, shares and bonds globally are already overvalued right now.

The Western markets are considered ‘investment’ grade for pension funds and money managers worldwide. There’s a limit to what they can take in terms of inflow.

Crypto could provide a very useful outlet here. The world needs another asset class. The bigger and more credible crypto becomes, the better. Certainly, bitcoin is well placed to eat market share from a variety of sources as a store of value.

The price of bitcoin has slipped lately. But the world’s biggest crypto exchange is adding millions of new users  every week.

The amount of money going into the crypto market is actually being inhibited right now by the sheer scale of interest swamping the exchanges. New accounts are taking a long time for approval.

It won’t be a smooth ride, but now’s the time to learn all you can about crypto.

There’s billions that can still flow into this industry.


Callum Newman
Editor, The Daily Reckoning Australia