• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Fat Tail Daily

Investment Ideas From the Edge of the Bell Curve

  • Menu
    • Commodities
      • Resources and Mining
      • Copper
      • Gold
      • Iron Ore
      • Lithium
      • Silver
      • Graphite
      • Rare Earths
    • Technology
      • AI
      • Bitcoin
      • Cryptocurrency
      • Energy
      • Financial Technology
      • Bio Technology
    • Market Analysis
      • Latest ASX News
      • Dividend Shares
      • ETFs
      • Stocks and Bonds
    • Macro
      • Australian Economy
      • Central Banks
      • World Markets
    • Small Caps
    • More
      • Investment Guides
      • Premium Research
      • Editors
      • About
      • Contact Us
  • Latest
  • Fat Tail Series
  • About Us
Macro Australian Economy

Only Fools Will Believe This Guidance

Like 0

By Callum Newman, Tuesday, 30 November 2021

You don’t have to believe me on this. Regulators have been tinkering with capital levels since the 1980s.

We had panic selling on Friday and Monday.

It’s likely we’ll have relatively calm selling today. US stocks and oil steadied in overnight trade. The Yanks are back from their Thanksgiving turkey.

I don’t mind days like yesterday. I find them instructive. Which stocks got bought up on the day? Which ones didn’t sell down at all?

I can’t tell you the answers to all of that. But I did notice that mortgage lender and broker Australian Finance Group Ltd [ASX:AFG] didn’t move much.

Now, context is important here. AFG had already sold down in the previous month or so. Most real estate stocks in a similar vein have too.

But they released their AGM presentation last week. It makes for an instructive read.

The big banks are lifting their fixed home loan rates. This is after fixed rate loans surged thanks to the RBA’s cheap funding in response to the COVID collapse.

Now the market will switch back to variable rate debt. AFG says that should be tailwind for the non-bank sector.

They might have another advantage now too. APRA, the banking regulator, says that big banks will have to hold higher capital levels against certain types of property loans.

See the following comment in the press release:

‘APRA Chair Wayne Byres said an unquestionably strong banking industry is central to the stability of the financial system.

‘Capital is the cornerstone of the banking system’s safety and stability. It protects depositors during periods of stress, ensures banks can access funding, facilitates payments and helps banks to keep lending to their customers during good times and bad.’

This service is called The Daily Reckoning. Our mission is to give you the story the mainstream press and powers that be will never tell you.

Here goes it…only a fool would believe the above quote. Any study of history will show it for the garbage it is.

Capital is not the cornerstone of the banking system’s safety.

How to Survive Australia’s Biggest Recession in 90 Years. Download your free report and learn more.

What is?

The type of lending banks do.

If they lend to productive businesses, then that makes for a very secure banking system.

However, if banks make lots of unproductive loans — to real estate speculators, for example — then the banking system is built on very weak foundations.

You don’t have to believe me on this. Regulators have been tinkering with capital levels since the 1980s.

That’s why the current ‘reforms’ come under the umbrella of Basel III. There was a Basel I and II before this.

And in the same time frame, banks have collapsed in the Asian Financial Crisis in 1997 and the US in 2008. Lehman Brothers had more than enough capital (or so it thought) before it went bust.

There was a study done some years ago called The Great Mortgaging.

It showed economic recessions were the worst after real estate collapses.

Why is that? Because banks become very weak if their property loans go bad, and they pull lending into the general economy.

Why would their property loans go bad?

It’s the same old story since an asset market formed in land.

Swapping ownership certificates can be very profitable. But it is unproductive mostly. It doesn’t generate income to service the debt.

A history of property cycles shows that, in the end, people pay stupid prices to own real estate that can never be justified by the fundamentals.

Something comes along to wake society up from the collective madness. So confidence and buying evaporates. And all that’s left are huge debts and broken dreams.

Banks are left with gigantic levels of dodgy loans. High capital buffers cannot save them when the economy is gurgling its way down the toilet.

That’s what history shows. I couldn’t give a damn what APRA says on this issue.

The only way to make Australia’s banks truly secure would be to ban the creation of credit against land value.

That ain’t going to happen…

Look how loaded Aussie banks are with mortgage debt:


Residential Mortgages on bank balance sheets

Source: Australian Financial Review

[Click to open in a new window]

It’s a very profitable system too. Big Four bank profits were over $20 billion last financial year.

Give it five years or so and you’ll see the folly of believing APRA’s guidance on this issue.

But by then, I doubt anyone will give a damn. Everyone will be too busy trying to rip more gains out of property to realise the whole shebang is about to blow.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia

PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Callum Newman

Callum Newman is a real student of the markets. He’s been studying, writing about, and investing for more than 15 years. Between 2014 and 2016, he was mentored by the preeminent economist and author Phillip J Anderson. In 2015, he created The Newman Show Podcast, tapping into his network of contacts, including investing legend Jim Rogers, plus best-selling authors Jim Rickards, George Friedman, and Richard Maybury. He also launched Money Morning Trader, the popular service profiling the hottest stocks on the ASX each trading day.

Today, he helms the ultra-fast-paced stock trading service Small-Cap Systems and small-cap advisory Australian Small-Cap Investigator.

Callum’s Premium Subscriptions

Publication logo
James Altucher’s Investment Network Australia
Publication logo
Australian Small-Cap Investigator
Publication logo
Small-Cap Systems

Latest Articles

  • The US$2 Trillion Stablecoin Tsunami
    By Charlie Ormond

    These developments could transform the US$250 billion stablecoin market into a US$2 trillion juggernaut within years.

  • Trump Sparks Rare Earth Rally
    By Murray Dawes

    Murray and Callum pointed out three lithium stocks last week that surged 5–12% this week. Now they look at copper and rare earths.

  • Copper Breaks Out: Are You Positioned?
    By James Cooper

    Last week, James Cooper wrote about the need to be on high alert for a copper breakout. This week, copper is breaking out… James lays out the game plan from here.

Primary Sidebar

Latest Articles

  • The US$2 Trillion Stablecoin Tsunami
  • Trump Sparks Rare Earth Rally
  • Copper Breaks Out: Are You Positioned?
  • A radically innovative industry set to soar
  • Debt and declining demographics are a dangerous combination

Footer

Fat Tail Daily Logo
YouTube
Facebook
x (formally twitter)
LinkedIn

About

Investment ideas from the edge of the bell curve.

Go beyond conventional investing strategies with unique ideas and actionable opportunities. Our expert editors deliver conviction-led insights to guide your financial journey.

Quick Links

Subscribe

About

FAQ

Terms and Conditions

Financial Services Guide

Privacy Policy

Get in Touch

Contact Us

Email: support@fattail.com.au

Phone: 1300 667 481

All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

Fat Tail Logo

Fat Tail Daily is brought to you by the team at Fat Tail Investment Research

Copyright © 2025 Fat Tail Daily | ACN: 117 765 009 / ABN: 33 117 765 009 / ASFL: 323 988