• Pete

    An interesting article Ed, thank you.

    So does this also suggest that RBA rate cuts could actually be the cause for potential rate hikes by banks? Because that is some sweet irony (not all that sweet really)

    In this case, foreign investors wanting out of our market would seem to indicate share price drops amongst the other things you mentioned. Especially for those ‘investors’ who use leverage to invest, or those listed companies or ‘funds’ that are highly leveraged.

    So, to jump to even more conclusions (as I do), could this type of thing cause such a cascading effect of forcing bank rates higher, meaning mortgage defaults and tighter credit, leading to more mortgage defaults, leading to higher rates, leading to more mortgage defaults yet again, leading to house price crashes?
    It sounds lovely :O

    If such a scenario occurred, I wonder how the banks and their share price would fare? Surely they would lose some serious money? I am not sure how that could be positive for them in any way.

  • Pete

    An interesting article Ed, thank you.

    So does this also suggest that RBA rate cuts could actually be the cause for potential rate hikes by banks? Because that is some sweet irony (not all that sweet really)

    In this case, foreign investors wanting out of our market would seem to indicate share price drops amongst the other things you mentioned. Especially for those ‘investors’ who use leverage to invest, or those listed companies or ‘funds’ that are highly leveraged.

    So, to jump to even more conclusions (as I do), could this type of thing cause such a cascading effect of forcing bank rates higher, meaning mortgage defaults and tighter credit, leading to more mortgage defaults, leading to higher rates, leading to more mortgage defaults yet again, leading to house price crashes?
    It sounds lovely :O

    If such a scenario occurred, I wonder how the banks and their share price would fare? Surely they would lose some serious money? I am not sure how that could be positive for them in any way.

  • Pete

    sorry paragraph 2 of my comment was supposed to read:

    “In this case, foreign investors wanting out of our market would seem to lead to share price drops amongst the other things you mentioned.

    If lending rates increase and the dollar falls even further, those ?investors? who use leverage to invest, or those listed companies or ?funds? that are highly leveraged would seem to be at the highest risk of failure and the most likely to run.”

  • Pete

    sorry paragraph 2 of my comment was supposed to read:

    “In this case, foreign investors wanting out of our market would seem to lead to share price drops amongst the other things you mentioned.

    If lending rates increase and the dollar falls even further, those ?investors? who use leverage to invest, or those listed companies or ?funds? that are highly leveraged would seem to be at the highest risk of failure and the most likely to run.”

  • Hi Pete!

    So does this also suggest that RBA rate cuts could actually be the cause for potential rate hikes by banks? Because that is some sweet irony (not all that sweet really)

    Well, that can be a contributing factor though we must emphasize that it must not be seen as the cause. The crucial question is, to how much this will cause money to tighten further in Australia. Remember, it is reported that 25% of Australia’s debt is sourced from overseas.

    Also, there are many contributing factors for the falling Australian dollar, mainly global de-leveraging. If the RBA cut interest rates aggressively, it will exacerbate the fall of the Australian dollar even further.

    So, to jump to even more conclusions (as I do), could this type of thing cause such a cascading effect of forcing bank rates higher, meaning mortgage defaults and tighter credit, leading to more mortgage defaults, leading to higher rates, leading to more mortgage defaults yet again, leading to house price crashes?

    That will take a very complete rout of foreign money to result in it to happen. This is another potential Black Swan- highly improbably statistically, but massive impact.

  • Hi Pete!

    So does this also suggest that RBA rate cuts could actually be the cause for potential rate hikes by banks? Because that is some sweet irony (not all that sweet really)

    Well, that can be a contributing factor though we must emphasize that it must not be seen as the cause. The crucial question is, to how much this will cause money to tighten further in Australia. Remember, it is reported that 25% of Australia’s debt is sourced from overseas.

    Also, there are many contributing factors for the falling Australian dollar, mainly global de-leveraging. If the RBA cut interest rates aggressively, it will exacerbate the fall of the Australian dollar even further.

    So, to jump to even more conclusions (as I do), could this type of thing cause such a cascading effect of forcing bank rates higher, meaning mortgage defaults and tighter credit, leading to more mortgage defaults, leading to higher rates, leading to more mortgage defaults yet again, leading to house price crashes?

    That will take a very complete rout of foreign money to result in it to happen. This is another potential Black Swan- highly improbably statistically, but massive impact.