Traffic Accident

If the Green New Deal bans air travel…

…CM looks forward to catching a train to Hawaii.

Alexandria Ocasio-Cortez also intends to get every fossil fueled powered car off the road in a decade. The US has 270 million registered vehicles, the overwhelming majority being petrol powered. The US sells 16-17mn cars a year (sadly slowing). Therefore in the US, 16 years would be required to achieve that target. That’s before taking into account auto maker EV capacity.

Global EV sales were 2.1mn last year. So her plan would take 128 years. That’s unfair as capacity would grow. Let’s assume auto makers could conceivably increase capacity by 2m every 2 years (plants take 2 years to build and those poor Congolese child slave laborers will be run off their feet digging for cobalt to go in the batteries) then conceivably 30mn.cumulative EV units could be built over 10 years. That’s 11% of her goal. Let’s not forget the fossil fuels required to power auto factories to satiate this plan not to mention the steel that goes into the bodies.

Global auto production is c.80mn units. That assumes that the world’s auto makers will snub the ROW to meet her demands.

Socialist mathematics is never quite up to the task. Is Ocasio-Cortez was a true patriot she’d demand GM, Ford & Tesla be the sole products that consumers are allowed to buy to support domestic jobs. They’ll need them because she’ll be causing the lay offs of a shed load of Boeing line workers if planes are banned.

When she finally gets into the Oval Office we should look forward to her catching Ground Force One from 1600 Pennsylvania Avenue Station to travel the country and tell Americans how much better things have become.

Stemming the cycling casualty cycle

A cyclist colleague asked CM to look at the stats behind road fatalities of pedal power in Australia. The stats highlight some of the issues.

On the face of it, the authorities would look to the achievements of a reduction in cyclist fatalities and pat each other on the back. 35 cyclist deaths in 2018 is down on the 2013 peak of 50. On balance cyclists are around 2-4% of total road fatalities. Between 2005 and 2009 cyclist fatalities were 2.3% of total and 2010-2014 that rose to 3.2%. In bike friendly ACT, the figures were 2.5% and 7.4% respectively. Total road fatalities fell from 1,600 to around 1,200 over the same period.

A 2015 BITRE report showed that cyclists were 16% of hospitalizations from traffic accidents. The extent of non-fatal crashes is not reported. Note that “fatalities” are only statistically counted when the death occurs inside 30 days. Die in 30 or more days and the stat is not tallied as a road accident.

In 2005/6, 4,370 cyclists were hospitalized nationwide. In 2011 that rose to 5,393 (+23%).

Speed a factor? 45% of crashes according to BITRE happened sub 50km/h. 42% between 50-60 km/h. Of course cyclists aren’t allowed to use dual carriageway which would skew accidents to urban areas.

Cars are responsible for 96% of casualty crashes involving cyclists. 25% of accidents involving a bike and car happen at intersections. No surprises there.

One can get drowned in the analysis but the question is how do we cut the deaths of cyclists if there is a concerted effort to increase their use?

The ‘Australian National Cycling Strategy 2011-2016’ aimed to double cyclist participation. In 2013, another national survey showed cycling numbers drifted down. So if the plan remains to increase usage, it makes sense to allow more shared off-road infrastructure and or dedicated bike lanes.

The question arises on how to tackle the casualty problem. As a motorcyclist it is not hard to be frustrated to see drivers with mobile phone in hand. Cyclists would concur. Whether texting while driving or failing to note a traffic light has changed to green. It is dangerous and frustrating for other road users. Can a social media reply wait 5 minutes? It is often impulsive to pick up the phone and tap away. The punishment for phone use while behind the wheel remains too soft. If drivers don’t focus 100% on conditions then is it any wonder that accidents occur?

ADAS or advanced driver assistance systems (lane guidance, auto braking or wing mirror warning devices) are helping drivers become more alert but at the same time some are becoming too reliant on these devices being failsafe. How often have we seen Tesla drivers crash when the systems don’t work properly? They’re there as a last resort, not a first. Look at the fools who take videos of their Tesla autopilot in action.

It is not to say that cyclists shouldn’t ride with due caution. There are no stats on rogue bikers chopping up cars. We’ve probably encountered an overzealous bike courier who gives the rest a bad reputation. It is fair for drivers to feel frustrated if a cyclist jams himself at speed into a tight gap. Yet it doesn’t justify some drivers whizzing past cyclists in close proximity through pure frustration. Many videos, including those of the late cycling advocate Cameron Frewer, show how selfish some drivers can behave.

Is lowering speed limits the only answer? Perhaps speedo gazers trying to avoid fines create a dangerous loop. Is there an argument to install mobile speed warnings signs that allow drivers to keep eyes glued to the road rather than the speedo needle? At what cost?

Or is it a case or enforcing all vehicles to install drive recorders? In the US more police are wearing body cams to help prove cases against them for excessive force. It wasn’t long ago that dashcam footage helped jail a motorist for 15 years for deliberately ramming a motorcycle. Drive recorders are cheap. Insurance companies would surely approve. Cyclists would do well to wear cameras too.

It ultimately comes down to mutual understanding. While drivers may limit injury through airbags and seatbelts, bikers don’t have that luxury if hit by negligent drivers.

That is not to make cyclists devoid of responsibility but simply having a “Safe System” approach which is a big picture idea of better roads, better conditions and more active/passive safety systems in cars won’t overcome inattentiveness and those keen to check Twitter while moving.

Sydney Harbour Bridge is falling down?

CM is no construction engineer but this bridge expansion joint on the right (under the south side of the Cahill Expressway 100~150m before it veers left across Circular Quay) is looking rather sickly. While the top has a ball joint and the bottom leading edge looks to have a beveled surface to allow some flex/give to the structure above, it looks as if it has been sitting in that position for quite some time. Simple physics around force distribution at odd angles and metal fatigue data on a 60yr old part might be worth checking.

Averaging 30,000-40,000 cars a day and a dedicated bus lane means it gets a regular pounding. NSW RMS Minister Melinda Pavey has been informed of it.

UN hit with yet another scandal

Kết quả hình ảnh cho Michel Sidibé

Independent experts have concluded that UN AIDS Executive Director, Michel Sidibé,  has been responsible for creating a toxic environment that promoted “favoritism, preferment and ethical blindness.” Sidibé accepted no reponsibility for any sexual harassment, bullying or abuse of power that occured under his watch.

The investigation started after Sidibé’s deputy was accused of  forcibly kissing, groping and trying to drag a colleague into his Bangkok hotel room in 2015.

In a survey of the 670 staff members at the UN agency conducted by the independent investigators, 18 admitted they had experienced some form of sexual harassment in the previous year and a further 201 said they were on the wrong end of workplace abuse.

One staff member went on the record saying, “U.N.AIDS is like a predators’ prey ground…You have access to all sorts of people, especially the vulnerable: You can use promises of jobs, contracts and all sorts of opportunities and abuse your power to get whatever you want, especially in terms of sexual favors. I have seen senior colleagues dating local young interns or using U.N.AIDS resources to access sex workers.

UN Secretary General Antonio Guterres, who made it clear he had a zero tolerance policy with regards to sexual harassment when he took office,  has refused to fire him. Despite his term ending in January 2020, Sidibé has offered to quit in June 2019 in order to ensure a stable transition period! In what world does a person outed for turning a blind eye to such a poisonous culture get to leave on his own terms? Sacred cows.

Sidibe admitted in an email after the investigation was published, “not all of our staff, in all their diversity, are experiencing the inclusive work culture to which we aspire.” Choice words.

Why do governments continue to fund the UN when it shows time and time again that it operates without any form of governance or ethical code? Remember it wasn’t that long ago that certain people at the UN thought former Zimbabwean dictator Robert Mugabe would make a sensible ambassador for the World Health Organization (WHO). Why would any country seriously want to sign over sovereign powers to the UN with respect to the compact on migration? The UN isn’t fit to run anything of substance.

Why after all the scandals with the IPCC do people put faith in their ability to manage climate change summits? The Delinquent Teenager, written by Canadian investigative journalist Donna Laframboise chronicles how the IPCC participants are picked by governments, not for their scientific knowledge and expertise, but for their political connections and for “diversity.” You can read some of the ridiculous selection processes for lead authors here.

Note the UN promised to streamline. As CM noted 15 months ago,

“The latest U.N. regular budget, while superficially smaller than the previous budget, made no fundamental programmatic or structural adjustments—e.g., reducing permanent staff, freezing or reducing salaries and other benefits, and permanently eliminating a significant number of mandates, programs, or other activities—that would lower the baseline for future U.N. budget negotiations. Despite the Secretary-General’s proposal to eliminate 44 permanent posts, the 2012–2013 budget actually increased the number of permanent posts by more than a score compared with the previous budget. The failure to arrest growth in U.N. employment, salaries, and benefits is especially problematic because personnel costs account for 74% of U.N. spending according to the U.N.’s Advisory Committee on Administrative and Budgetary Questions (ACABQ). Without a significant reduction in the number of permanent U.N. posts or a significant reduction in staff compensation and related costs, real and lasting reductions in the U.N. regular budget will remain out of reach.”

Complacency kills – the ticking time bomb for Aussie banks

クリックすると新しいウィンドウで開きます

In the late 1980s at the peak of the property bubble, the Imperial Palace in Tokyo was worth the equivalent to the entire state of California. Greater Tokyo was worth more than the whole United States. The Japanese used to joke that they had bought up so much of Hawaii that it had effectively become the 48th prefecture of Japan. Japanese nationwide property prices quadrupled in the space of a decade. At the height of the frenzy, Japanese real estate related lending comprised around 41.2% (A$2.5 trillion) of all loans outstanding. N.B. Australian bank mortgage loan books have swelled to 63% (A$1.7 trillion) of total loans.

REpx.png

Sensing the bubble was getting out of control, the Bank of Japan went into a tightening rate cycle (from 2.5% to 6%) to contain it. Unfortunately it led to an implosion in asset markets, most notably housing. From the peak in 1991/2 prices over the next two decades fell 75-80%. Banks were decimated.

In the following two decades, 181 Japanese banks, trust banks and credit unions went bust and the rest were either injected with public funds, forced into mergers or nationalized. The unravelling of asset prices was swift and sudden but the process to deal with it took decades because banks were reluctant to repossess properties for fear of having to mark the other properties (assets) on their balance sheets to current market values. Paying mere fractions of the loan were enough to justify not calling the debt bad. If banks were forced to reflect the truth of their financial health rather than use accounting trickery to keep the loans valued at the inflated levels the loans were made against they would quickly become insolvent. By the end of the crisis, disposal of non-performing loans (NPLs) among all financial institutions exceeded 90 trillion yen (A$1.1 trillion), or 17% of Japanese GDP at the time.

The lessons are no less disturbing for Australia. Don’t be surprised to hear the authorities and local banks champion stress tests as validity that we are safe from any conceivable external shock. The November 2018 Reserve Bank of Australia minutes revealed that the next rate move is likely up but the board is happy to sit on its hands because housing is slowing even at 1.5% cash rates.

With US rates heading higher, our banks are already facing higher funding costs because of our reliance on overseas wholesale markets to fund mortgage lending. Japanese banks have 90%+ funding from domestic deposits. Australia is around 60-70%. Our banks need to go shopping in global markets to get access to capital. Conditions for that can change on a dime. External shocks can see funding costs hit nose bleed levels which are passed onto consumers. When you see the press get into a frenzy over banks passing on more than the rate rises doled out by the RBA, they aren’t just being greedy – a large part is absorbing these higher wholesale funding costs.

What about America? Who could forget former Goldman Sachs CEO and US Treasury Secretary Hank Paulson tell us how robust US financial institutions were right before plugging $700 billion to rescue the crumbling system? US banks such as Wells Fargo, Citi and Bank of America (BoA) have been reducing mortgage exposure relative to total loans outstanding. Yet each received $10s of billions in TARP (bail out funds) courtesy of the US taxpayer.

By 2009 the Global Financial Crisis (GFC) had turned over 16% of Bank of America’s residential mortgage portfolio into either NPLs, mortgage payments over 90-day in arrears or impaired (largely from the shonky lending practices of Countrywide (which BoA bought in 2008). Countrywide’s $2.5bn acquisition price turned out to cost BoA shareholders a further $50bn by the end of the clean-up. Who is counting?

Oh no, but Australia is different. Residential property prices in Australia have had a far steadier rise over a longer period – a 5-fold jump over 25 years – meaning our local banks should be less vulnerable to external shocks. There is an element of truth to that, although it breeds complacency.

Property loans in Australia as at September 2018 total A$1.653 trillion. 82% of those loans are made by the Big 4 banks. Interest only loans are around $500 billion of that. As a percentage of total loans outstanding in Australia, mortgages make up 65%. The next is daylight, followed by Norway at around 40%. US banks have cut overall property exposures and Japanese banks are now in the early teens. Post GFC, US banks have ratcheted back mortgage exposure. They have diversified their earnings through investment banking and other areas. You can see this below.

REEx

The advent of interest only loans has helped pushed property prices higher. NAB notes in its latest filing that 29% of its mortgage loan book is in interest-only form. The RBA expects $120 billion of interest only loans resetting to principal & interest (P&I) each year to 2020 which will hike monthly mortgage repayments to jump 30-40%. If investors were up to the gills in interest only mortgage repayments, adding one third to the bill will not be helpful. This is before we have even faced a bump in wholesale finance rates due to market instability. Look at the way that GE – once the world’s largest company in 2000 – is being trashed by the credit markets as they seek to reprice the risk attached to the $111bn in debt after a credit downgrade. This is a canary in the coalmine issue.

We also need to consider what constitutes a bubble in property. Sensibly, affordability makes the strongest argument. At the height of the bubble, the average central Tokyo property value was around 18.2x income. Broadening this out to greater Tokyo metropolitan area this was around 15x. This figure today is around 5x. Making arguments that ever higher levels of migration will keep property buoyant is not a sound argument as affordability affects them too.

Back in 2007, Sydney house prices were 8x income. In 2017 Demographia stated average housing (excluding apartment) prices are in the 13-14x range. The Australian Bureau of Statistics notes that 80% of people live in houses and 20% on apartments. Only Hong Kong at 19x beats Sydney for dizzy property prices.

In 2018, Australia’s GDP is likely to be around A$1.75 trillion. Our total lending by the banks is approximately $2.64 trillion which is 150% of GDP. At the height of the Japanese bubble, total bank lending as a whole only reached 106%. Mortgages alone in Australia are near as makes no difference 100% of GDP.

Balance sheets are but snapshots in time. If we look at our current bank exposure to mortgages, it is easy for analysts to paint rosy pictures. Banks’ shareholder equity has quadrupled in the past 16 years. Prosperity and record bank profits should give us comfort. Or should it? We need to understand that the underlying tenets of the Australian economy are completely different to that of a decade ago.

At the time of Global Financial Crisis (GFC) Australia’s economy was lucky to get away broadly unscathed. We carried no national government debt and were able to use a $50 billion surplus to prime the economy through that period of turmoil. Many countries were not so lucky. Our fiscal stewardship leading up to the crisis allowed economic growth to remain in positive territory soon after. Now we have $600 billion debt and charging the national credit card with all of the promises so aggressively that we should expect $1 trillion of debt in the not too distant future.

Australian banks are highly leveraged to the mortgage market. It should come as no surprise. In Westpac’s full year 2018 balance sheet, the company claims around A$710 billion in assets as “loans”. Of that amount, according to the latest APRA data, A$411 billion of lending is ‘real estate’ related. Total equity for the bank is A$64.6 billion. So equity as a percentage of property loans is just shy of 16%. If Australia had a nationwide property collapse (we have not had one for three decades) then it is possible that the banks would face significant headwinds.

What that basically says is if Westpac suffered a 16% decline in the value of its entire property loan book then it would at least on paper appear in negative equity, or liabilities would be larger than assets. Recall in 2009 that BoA had over 16% of its residential loan portfolio which went bad. It can happen. CommBank is at a similar level. ANZ and NAB are in the 20% range before such a hypothetical situation would be triggered. See the chart below. Note how the US banks stung by the GFC have bolstered balance sheets

RESHREL.png

Of course the scenario of a housing collapse would imply that a growing number of borrowers would have to find themselves under mortgage stress and default on payments. It also depends on the portfolio of the properties and when those loans were written. If the majority of loans were made 10 years ago at 40% lower theoretical prices than today then there is lower risk to solvency for the bank if it foreclosed and dumped the property.

Although if we look at the growth in loans since 2009, the Australian banks have been making hay while the sun shines. As it stands, the likes of Westpac and CommBank each have extended mortgage loans to Aussies to nearly as much as BoA has to Americans. That said the American banks, so stung by the GFC, have become far more prudent in managing their affairs.

REGrowth.png

It goes without saying that keeping one’s job is helpful in paying the mortgage. If you were a two income family and one of you lost your job, it is likely that dining out, taking fancy overseas holidays, buying new cars (which have been awful this year) and so on will go on the backburner. Should those actions swell to a wider number of mortgage holders, the economic slowdown will exacerbate in a downward spiral. Even your local coffee store may be forced to close because $4 is just cash you and others might not be able to spend. Boarded up High Streets were everywhere in America and Europe post GFC.

UnempvHPI.png

The following chart shows the negative correlation between housing prices and unemployment rates. US unemployment doubled to 10% when Lehman collapsed. Housing prices took heavy hits as defaults jumped. It is not rocket science.

AusUnempHPI.png

On the other hand, Australia’s unemployment curve remained below 6% for around two decades. Even with GFC, jobless numbers never got out of hand. Our housing prices only suffered a mild dip.

We can argue that a sub-prime style mortgage crisis is highly unlikely. But it does not rule the risk out completely. To have that, mortgage holders would need to be in arrears on monthly payments, their houses would need to be in negative equity and banks would be required to take asset devaluations.

An ME Bank survey in Australia found only 46% of households were able to save each month. Just 32 per cent could raise $3000 in an emergency and 50 per cent aren’t confident of meeting their obligations if unemployed for three months.

According to Digital Finance Analytics, “there are around 650,000 households in Australia experiencing some form of mortgage stress. If rates were to rise 150 basis points the number of Australians in mortgage stress would rise to approximately 930,000 and if rates rose 300 basis points the number would rise to 1.1 million – or more than a third of all mortgages. A 300 basis point rise would take the cash rate to 4.5 per cent, still lower than the 4.75 per cent for most of 2011.”

Do you know how many homes NAB has under repossession on its books at the latest filing? Around 277. Yes, Two hundred and seventy seven. Out of 100,000s. Recall BoA had 16% of its loan portfolio go bang in 2008?

If we think about it logically, examining the ratio of total assets to shareholder equity (i.e. leverage), the Aussie banks maintain higher levels than the US banks listed below did in 2008. Were total asset values to suddenly drop 7% or more ceteris paribus, Aussie banks would slide into a negative equity position and require injection.

TASE.png

Human nature is conditioned to panic when crisis hits. Sadly many of our middle management class have never experienced recession. They are in for a rude shock. As for depositors note that you should be focused on the return “of” your money, not the return “on” it.

As Mark Twain once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so!

 

 

Yamaha’s MotoGP woes in stats

MotoGP.png

Many in the MotoGP world are questioning the horrible performance of Yamaha in 2018. As it stands Yamaha holds no victories this year with a handful of races left in the season. This would equal its worst performance in 15 years.

Yamaha’s successes really started to trend much higher after hiring Honda legend Valentino Rossi (who took the 2001, 2002 & 2003 crowns for Honda). He subsequently took 2004 & 2005 crowns for Yamaha. After narrowly missing the 2006 title to Honda’s Nicky Hayden and losing to Aussie Casey Stoner in 2007 on a Ducati (the first title for the Italian maker) Rossi won for Yamaha in 2008 & 2009.

Yamaha won the championship again in 2010, 2012 & 2015 under Jorge Lorenzo. Honda won the 2011 with Stoner and the 2013, 2014, 2016 & 2017 titles under Marc Marquez who looks odds on to win 2018. At tonight’s Aragon GP in Spain, Yamaha’s four riders start 12th, 14th, 17th & 18th on the grid.

In August this year after the poor performance at the Austrian GP, Yamaha made the unprecedented motion of apologizing to its riders for having such a rubbish bike. The problem has continued for 18 months now. No doubt the developers in the team back in Iwata, Japan are still busy working out how to take responsibility instead of working to fix it.

The reality is that the other motorcycle teams have got much better. The Italians didn’t qualify for the recent Football World Cup and Germany was bailed out in the pool games. So Yamaha needs to stop resting on the laurels of having two world class riders with 10 championships between them to come up with a competitive product.

N.B. Suzuki withdrew from MotoGP in 2012 & 2013. Ducati entered MotoGP in 2003.

Is BMW hurting bad enough to offer 10yrs free servicing?

F766F1E7-A008-441C-AEA7-EBF203AF1B5F.jpeg

10 years? Sounds a bit desperate. A bit like the Korean makes a few decades back using monster incentives to lure customers by a value to good to refuse proposition. Have luxury car sales become so hard to get in Australia that the prestige make has to offer 10 years of free servicing and 1yr free insurance?

BMW sales in Australia fell 12.2% year on year in August 2018. Audi crumbled 25.8%. Benz did better at -3.4%. Land Rover fell 32%, Lexus down 11.7%. Porsche crumpled 25.4%.

It is likely the fine print in the 10 years free servicing basic package isn’t transferable between owners so if most buyers hold their BMWs for 5 years the total incentive is much less to roll out. If the fine print allows transfers it only adds to the desperate state of having to hurl freebies to shift metal. Dealers tend to make less on the sale of the car but plenty on gouging customers for service and spares.

Seems the tyres are going flat. Total car sales in Australia were down 1.5% in August. Passenger car sales fell 13.4% while those eco conscious Aussies bought 8.3% more SUVs. Medium and large sedan segments fell 24.1% and 60.3% respectively. Every SUV segment rose except upper large. Toyota finished up 1.7% for the month with 19.8% share.