The brilliant thing about the Australian property market is the ease with which the same data can be used to demonstrate wildly different conclusions. One man’s simple increase in residential lending and home prices, courtesy of cheap overseas credit that can only be brought undone by a profound jump in unemployment, is another man’s reckless dismissal of history, where housing markets that reach seven-times earnings are doomed to fail. This morning, The Sydney Morning Herald’s Ian Verrender digs in to rubbish the property doomsayers, arguing that our houses are overvalued – certainly – but a crash is not on the cards. Elsewhere, The Age’s Adele Ferguson has a brilliant insight into Gina Rinehart’s attitude towards the media in the context of an M&A deal, while football rights and the Australian dollar are also up for discussion.
Firstly, it’s The Sydney Morning Herald’s Ian Verrender, who takes the property ‘scaremongers’ to task by arguing not only that property is expensive (although not poised for a crash), but that it’s always been the case. The banks didn’t lend enough for many to buy homes at all, but once they discovered cheap offshore credit in the 1990s, it lifted the price of houses and the big four made a killing.
"It was a windfall for the banks, for the real estate boom resulted in ever larger loans. And those larger loans bloated the earnings of our major banks, a financial perpetual motion machine that now came to an end more than two years ago. As a nation, it's left us with a serious, but not insurmountable foreign debt problem. (That's right, it's a private, not a government, debt that is the problem.) It also is the reason global ratings agencies are considering downgrading our banks, particularly given the threat to international finance from Europe. And it goes a long way to explaining why our banks have aggressively switched back to domestic funding, to raising their cash at home. The adjustments are in place. A crash? Don't bet the house on it.”
Second in this morning’s Distillery is The Age’s Adele Ferguson, who gives a useful peek into the media machinations of Australia’s richest person, Gina Rinehart.
"Buying a stake in Fairfax and pushing for a board seat does two things: it gives Rinehart influence either overtly or more subtly, and it gives her a seat at the table in any potential takeover with the ability to either encourage it or block it. When a few radio stations were put up for sale in regional mining towns she called her old friend John Singleton and asked him if he was going to buy them. She told him she would be happy if he was, but very worried if 'they fell into the wrong hands'. This gives an insight into what she thinks about the media and its powers.”
The Australian’s John Durie took one look at Optus’ win in the Federal Court and saw not just consequences for the AFL’s exclusive internet broadcast rights deal with Telstra, worth $153 million – not to mention its $1.3 billion deal with Seven and Foxtel – but other media deals as well.
"Exclusive content is the key drawcard for pay and free-to-air television and this will now be compromised. Consider also the retransmission fees paid to free-to-air broadcasters and the people who supply them with programs. The value of those contractual fees would be slashed. Communications Minister Stephen Conroy's convergence review could not have been better timed. Here is yet one more example of the inadequacy of statutes in the face of technological change."
And fourthly, The Age’s economics editor Tim Colebatch reminds readers to remember that Australia’s currency isn’t just rising because it’s a 'safe haven', pointing to the currencies of China and South Korea – both nations that grow faster than Australia – and their depressed currencies.
"Both China and South Korea have grown much faster than Australia in the past decade but they manage their currencies to keep them down so their manufacturers stay competitive. Australia won't do that. The Reserve Bank has never intervened to stop the dollar rising, only to stop it falling. Both the Reserve and Treasury see this mining boom lasting for years and probably decades. On that assumption, they believe the dollar is in the right zone and if companies can't cope, that's their problem. Gillard agrees.”
Staying with the Australian dollar for the rest of this morning’s commentaries, BRW editor-in-chief Sean Aylmer writes in the Fairfax pages that Prime Minister Julia Gillard is mistaken in her characterisation of the Australian dollar as a newly dubbed 'safe haven' currency. Let the reader be the judge.
Undeniably, the Australian dollar’s strength has a lot to do with our mining industry, although the share prices of the two majors haven't been so swell over the last nine months or so. However, Fairfax’s Peter Ker expects BHP Billiton and Rio Tinto to get a bump over the medium-term, with cunning investors leaning on the latter. Still in resources, The Australian’s Robin Bromby finds head of Canada-based Scotiabank’s commodities research, Patricia Mohr, dashing the aluminium industry’s hopes of China one day becoming a big net importer. They’re investing far too much domestically, she concludes.
Returning to the Rinehart share raid – the topic the business commentators just have to take a bite at – The Age’s Michael West throws up the prospect that Gina Rinehart could march into Roger Corbett’s office and offer him a share cancellation deal in exchange for the writer’s newspaper, as well as The Sydney Morning Herald and The Australian Financial Review. The Australian’s Mark Day says Rinehart will find it difficult to influence Fairfax’s staunchly independent editorial culture with a 15 per cent shareholding. His colleague Jennifer Hewett hits similar notes, while veteran News Limited scribe Terry McCrann offers up a definitive history of the Fairfax Media register. The Australian’s Tim Boreham points out that Fairfax has been a sitting duck for years, but has somehow managed to remain a listed company with an open register for 20 years. Hope of a Rinehart takeover should be kept to modest levels.
Turning to Australia’s trading partners, The Sydney Morning Herald’s Asia-Pacific editor Hamish McDonald attended the Global Steel conference in Delhi, brining news of push and pull forces for one of Australia’s biggest cash cows and one of India’s greatest costs – coal. Meanwhile, The Australian’s Rowan Callick gets a grip on the scale of puzzlement about the Chinese economy and where the growth is going to come from.
In company news, The Sydney Morning Herald’s Elizabeth Knight takes a look at Optus’ internet broadcast court coup, explaining just how risky it was for Telstra to enter into a five-year exclusivity agreement with the AFL covering a technology that’s moving much faster than the accompanying copyright legislation.
The Australian Financial Review’s Chanticleer columnist Tony Boyd finds Singapore Telecommunications chairman Simon Israel struggling to recall an instance where Australia has been dubbed an innovator.
Meanwhile, The Australian’s Bryan Frith delves into the complicated, overlapping interests that can collide during a pro-rata renounceable entitlement offer and a traditional rights issue, as Fairfax’s Insider columnist Ian McIlwraith takes a look at Silver Lake Resources.
And finally, The Australian Financial Review’s Fleur Anderson delivers a considered defence of remuneration for politicians, with the telling example of a doctor that has to choose between letting their qualifications lapse and losing significant earnings potential for a prolonged period, or serving another term that could end in disaster.