Property Hunter Magazine August Issue 2014 | Page 54
/// International Property News
Brisbane Property
Set to Boom
Singapore Official Discusses ‘Uneasy Calm’, Tells Banks to
Prepare for Financial Collapse
You never get full price
in a crisis (unless you’re
Goldman Sachs and
can call up your BFF the
Treasury Secretary). So,
in the process of raising
cash, banks end up taking
heavy losses on their
balance sheets.
Now, banks that have
healthy balance sheets will
be able to withstand these
losses.
Brisbane, Australia
Brisbane is predicted to be
Australia’s strongest property
performer in the next three
years, with economic forecaster
BIS Shrapnel’s latest Residential
Property Prospects report
forecasting a 17 per cent increase
in median house prices.
Report author Angie Zigomanis
said the strongest conditions were
forecast for New South Wales and
Queensland as both markets had
an undersupply of dwellings.
“The pieces are falling into place
for the Brisbane residential market
to continue to strengthen,” Mr
Zigomanis said.
New housing construction had
fallen below underlying demand in
the Queensland market in recent
years and a shortage of dwellings
had emerged, with vacancy rates
in Brisbane at 2.3 per cent in the
March quarter, Mr Zigomanis said.
While Brisbane’s median house
price at June had risen 8 per
cent for the year to an estimated
$475,000, it was still 7 per cent
below its June 2010 peak in real
terms which, together with the low
interest rate environment, had
resulted in affordability being at
early-2000s levels.
While just about every
other central bank on the
planet is giving everyone
two thumbs up on the
economy, the deputy
chair of the Monetary
Authority of Singapore
(Lim Hng Kiang) said last
night at a dinner that “an
uneasy calm seems to
have settled in markets”
and that “we remain in
uncharted waters.”
It was pretty amazing,
really, to see such pointed
language from a central
banking official.
Mr. Lim jabbed at the
“obvious” risks and said
there would be “bumps on
the road” ahead.
That’s putting it mildly.
Warren Buffet once said
that ‘only when the tide
goes out do you discover
who’s been swimming
naked.’ (In my mind he
says it like ‘nekked’ but
I seriously doubt he
pronounces it that way…)
That’s exactly what
happens in severe
financial crises. You find
out which banks have
been playing it safe…
and which have so
mind-numbingly stupid
it’s a miracle they’re still
around.
There are a number of
ways to judge how safe
a bank is. One way is by
looking at its liquidity;
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my preferred metric is to
calculate how much cash
a bank has on hand as a
percentage of customer
deposits.
Note- this doesn’t mean
physical currency, as
in bricks of paper cash
stacked up in a vault.
Those days went away
long ago. I’m talking about
electronic currency–
typically deposits with
central banks.
The more cash a bank
has on hand, the safer it
is. Because in a financial
crisis, people tend to panic
(hence the crisis) and want
to withdraw their money.
Banks bleed cash. And if
they don’t have enough of
it on hand, the bleeding
turns into a sucking chest
wound.
It’s at this point that
they’ve been caught red
handed swimming naked,
and they need to go raise
cash from somewhere,
anywhere else.
So they start selling
assets– loans, securities,
and even shares of the
bank itself.
But this is not an orderly
liquidation in a wellfunctioning market. It’s a
distress sale brought on
by a full blown crisis. Asset
prices are collapsing, fear
has taken hold, and it’s
difficult to find a buyer.
But banks with razor thin
capital ratios (i.e. a bank’s
net equity as a percentage
of total assets) will fold.
Or go to the taxpayer with
their hats in their hand
claiming to be too big to
fail.
This is precisely what
happened to the US
financial system back in
2009. Lehman Brothers.
Wachovia. Washington
Mutual. Etc. They were
all swimming naked, with
very little liquidity and
miniscule capital levels.
Singapore’s monetary
authority is obviously
concerned about financial
markets. They understand
that you can’t expect to
conjure trillions of dollars
out of thin air without
creating epic bubbles
and even more epic
consequences.
Sure, you can shuffle
those consequences out
a few months… even a few
years. But at some point
those bubbles must be
reckoned with.
Perhaps the greatest
concern is how few people
seem to care.
Central banks and
institutional investors
turn a deaf ear to obvious
risks and fundamentals
that are screaming out in
desperation hoping some
conservative steward
will notice that we are
tap dancing on a knife’s
edge, where nearly every
single financial market is
simultaneous at/near an
all-time high, and central
bankers keep pumping
money into economies
that they claim to be
‘recovered’.
This is the ‘uneasy calm’
that Mr. Lim discussed – a
prevailing attitude that
there’s nothing to see
here; keep calm and buy
the all-time high.
And he’s telling banks to
get ready for something to
happen.
Curiously, Singapore’s
banks are already better
capitalized and more
liquid than most western
banking systems. Back
in 2008, Singapore
demonstrated a lot of
resilience as a financial
center, sidestepping most
of the problems with zero
bank failures.
But for a country that
went from third world to
first world in just a few
decades, complacency is
not a cultural norm.
According to Mr. Lim,
Singapore’s experience
with the 2008 crisis “shows
how the buildup of risks
can severely destabilise
even the most developed
and sophisticated financial
markets.”
So he wants them to
increase their capital and
liquidity even more.
If a senior official presiding
over one of the world’s
safer banking jurisdictions
wants his b [