Turnbull's ambush. Gas guzzlers back. Bonds in distress.

Napoleon Turnbull's ambush 

Wry & Dry was probably not Robinson Crusoe in thinking that, by and large, Napoleon Turnbull could go into the Christmas season sleeping well at night.

Of course exiled ex-PM Abbott would continue to vent his spleen, notwithstanding a 54/46 Coalition lead in the Newspoll, surrounded and encouraged by his band of loyal ex-ministers whose collective competence would suggest a long stint of retraining at a TAFE if they didn't have the sinecure of a seat in parliament.  Hell hath no fury like an MP scorned.  But the court of public opinion sentenced Abbott long before his colleagues did.  And so Abbott can be ignored.

Of course Mal Brough would stuff things up, it's just a matter of waiting until after parliament rises (as it has now done).  Then he will either fall on his sword or he will be pushed onto any available sword.  So Brough can be ignored.

Of course the Senate cross-benchers (Lambie, Lazarus, Muir, etc) will surprise on the downside.  How can it be otherwise with an average IQ in the single digits?  And the superannuation governance set-back can be revisited in February.

But, whoa.  Hang on!  What's this, a National Party ambush?

Most political defections are a surprise [1].   And this was no exception.

A dumped Liberal minister has defected to the Nationals?  Ex-Industry Minister Ian Macfarlane has turned his coat from Liberal blue to National (dark) green.  To the delight of Labor and the Gnats.  The Gnats, who would still use pounds, shillings and pence if given the chance and who collectively detest Turnbull, have executed a shrewd and totally surprising move of skulduggerous excellence.   The additional MP gives the Gnats the right to another government ministry, which will probably mean Macfarlane (a somewhat self-interested and archetypal agrarian-socialist) returns to the ministry!

So much for a Sleep Well Turnbull.

Americans choose gas guzzling over fuel efficiency

WD would never stand between the average Joe in the US and a cheap car/petrol deal.

US motor vehicle sales boomed in November, traditionally a slow month.  The sales of 1.3m cars was the best month for 14 years.  The driver, as it were, was the purchase - an astounding 59% of sales - of 'light trucks' e.g. SUVs and 'pick-ups'.  It seems as though the cheap price of petrol (about A$0.72 per litre - US fuel taxes are about one third of Australia's) has weaned Americans away from the fuel-efficient and back to the gas-guzzling. 

After last week's article, W&D posits that cheap petrol is Viagra to the average American Joe. 

And notice the stone-motherless-last VW.  Could things get any worse?

GDP result gets some folk stoked.  But W&D reads the fine print.

The September quarter GDP growth figure of 2.5% (up from 1.9% in June) seemed like a shot of heroin in the market.  For some.  The Australian dollar jumped, bank share prices jumped and Treasurer Jim Morrison fronted his first post-GDP media conference with a smile.

But the GDP figure was boosted by the biggest quarter of exports in 15 years, from good weather and the now diminishing resources boom.  Upon what should Treasurer Jim rely for GDP happiness next time?

No, Australia is not going to have a recession, W&D's crystal ball suggests.  The effects of lower interest rates, the lower currency and weaker oil prices are flowing through the economy.   But let's not get too carried away.

W&D has been beating the drum about a better measure of living standards for some time.  And that measure in per capita national income.  And that figure is down for the sixth successive quarter.   Australia's standard of living continues to fall.

And, by the way, there is the matter of the budget deficit.  Time for some hard decisions to be made by Napoleon Turnbull and Treasurer Jim.

"Red, red, red for Brazil"[2]

Brazil was the world's sixth largest economy in 2011.  And was looking forward to its largest city, Rio de Janerio, hosting the 2016 Olympic Games.  

Well, it's now becoming very ugly in Latin America's largest economy, as France, India and Italy have pushed Brazil down to ninth in global GDP rankings.

GDP fell 1.7% in the September quarter.  That's September quarter, not the 12 months to September.  And that is after falling 2.1% the previous quarter.   That makes it six successive contractions.  Unemployment is 8.9% and rising.  Inflation is over 10% p.a.  And the central bank's base rate is now 14.25%.  Industrial production in September fell 10.9% y-o-y, the 19th month in a row of contraction.

But wait, there's more.  An epic corruption and kickback scandal surrounding state-run oil company Petrobras is spreading up the government pyramid to the highest levels : a week ago, the government’s Senate leader was arrested for allegedly trying to meddle in the investigations.   On Monday, the government imposed a partial shutdown and froze discretionary spending.  On Tuesday, impeachment proceedings were commenced against President Dilma Rouseff.  Standard & Poors has slashed Brazil's credit rating to junk, citing government finances, the political mess, and the deepening economic nightmare. 

The usually circumspect Goldman Sachs say, "pretty soon we have to start labelling this a depression".

Not even the Olympic Games can save this basket case.

Get out the Bex [3]

Not that W&D wants to depress you any more, but... as readers know, W&D has been concerned about the massive issue of corporate debt in the US by companies wishing to take advantage of record low interest rates.  

Investors, lured into the $1.8-trillion US junk-bond minefield by the Fed’s siren call to be fleeced by Wall Street and Corporate America, are now getting bloodied as the value of these investments are plunging.

Standard & Poor’s 'distress ratio' for bonds, which started rising a year ago, reached 20.1% by the end of November, up from 19.1% in October.  This is its worst level since September 2009.  Bonds are 'distressed' when prices are so low that the yields are greater than 10% points higher than US government bonds.  The 'distress ratio' is the number of non-defaulted distressed junk-bonds divided by the total number of bonds.  

This is what the end of a credit bubble looks like.  It unravels from the bottom.  Investors who had been desperately chasing yield, thinking that the Fed had abolished all risks, dived into bonds with absurdly low yields.  Caveat emptor.

And then there is Mexico, where ICA, that country's largest construction company, is about to default on its US$ debt.  If it happens, this will be Mexico's biggest bond default since the so-called Tequila Crisis of 20 years ago.

According to Bloomberg, ICA's debt is 10.75 times its EBITDA (Earning Before Interest Taxes, Depreciation and Amortisation).   Good grief!  On top of declining government contracts, it's the age old problem of having your debt in one currency and your revenues in another.  

The logic is simple, even to W&D's at-capacity brain:  Interest rates go up.  The dollar goes up.  The peso goes down.  The company goes bust.

-       Anthony Starkins

[1]  For example: Mal Colston (Labor to Queensland First); Bob Katter Snr (Labor to DLP to Liberal to National) and Cheryl Kernot (Democrat to Labor).

[2]  In the 1980 Moscow Olympic Games, Australia won its only men's 4 x 100 medley relay gold medal.  The ABC's Norman May's call of the race has become legendary, with his final shout of "Gold, gold, gold to Australia". 

[3] Bex was an over the counter analgesic, that was widely used, especially amongst Australian women as a pick-me-up, until it was banned in 1977.  Users were recommended to take as many as three doses per day, dissolved in tea or water.  It contained an addictive pain killer phenacetin that also caused kidney cancer.  The phrase 'take a Bex and have a good lie down' came from a a comedy revue in Sydney's Phillips St Theatre from 1965.  Veganin and APC also contained phenacetin.