L/S mgr, banks specialist. ExSBCWarburg/UBS. Securities industry since March1987. BSc(Syd, Biology) Skier. Cyclist. General advice only for wholesale investors.
Sydney, Australia
Joined December 2009
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James Falkiner retweeted
3/5
"In the past," he continues, "when foreign experts warned China about China’s “Japanization”, I always opposed them, right? I always said China is not going to become the Japan of the 1990s.
But today, when someone says that China is going to become another Japan, I am not that confident anymore to oppose them, and many economists in China think the same as I think."
James Falkiner retweeted
1/5
Yao Yang, former dean of Peking University’s National School of Development, and one of the most prominent economists in China, has traditionally been fairy optimistic (at least in public) about China's economic prospects and someone who always firmly rejected the Japanization thesis.
That makes his recent interview all the more interesting as an indication of the seeming change this year in the way prominent economists (and perhaps policymakers) are seeing the economy.
sinification.org/p/conversat…
"Today’s policy decision was by majority: six members voted to increase the cash rate target by 25 basis points to 4.85 per cent; three members voted to leave the cash rate target unchanged at 4.60 per cent."
So today, in their results release $WBC.AX decided that the base case assumption for FY27 should be for house prices to rise 3%. At present Sydney house prices are falling at 18% annualised. There is no regulatory pressure on our banks to front up. #APRA
Sydney is the market leader, it is down 11% from the peak (3/2026) and falling at 18%pa. The vast majority of loans are variable (ARM) rate, typically at a rate 180bp above the RBA cash rate.
At the peak Australian housing stock was worth about A$11tn, or ~400% of GDP. About 1/3 of the housing stock is mortgaged with $2.6 Tn of debt, about 2/3 owner occupiers, 1/3 investors.
Since the peak, actual listings have risen 20% to about 40k or 1.3% of all Sydney houses. There are probably another 10k available for sale but unlisted. Sydney, at the peak auctioned about 900 properties a week and sold about 75% of those. Now about 600 are offered each week, and only 35% (200) are sold. Apart from auction sales, another 1800 are sold each week via private treaty.
Regulators tell us about 2% of all mortgages currently have negative household cashflow but other comments about negative equity are very rubbery as they lack a price level. From what we can see about 10% of borrowers are distressed, 5% very distressed.
There is not enough regulatory pressure on our banks to tell the truth about asset quality in resi mortgage books. Banks have to offer changed loan conditions to borrowers who declare themselves suffering hardship. These changes may include principle repayments deferred if the loan is P&I, maybe repayments are suspended if there is enough borrower equity. Actual interest rates charged are not amended.
The regulator, APRA, doesn't require banks to report their stock of hardship loans, or the flows in and out of the bucket. $CBA.AX recently reported 147k new hardship cases, so sector new hardship cases are likely running well over 500k pa. Technically hardship loans can be thought of as loans that have been evergreened. Hardship loans are a type of substandard loans, with a few being currently classified as non-performing.
NPA rates reported by banks remain very low (~1%) , as do relevant provisions. In my view the real NPA rate in Australian banks resi books (75% of total loans) is now about 3-5%. Resi mortgage portfolios typically carry a risk weight density of 25%. Overall CTE/Asset leverage ratios are about 4.7% whilst Tier 1 ratios are obviously much higher, and flatter the banks.
Taylor led Coalition now getting polling rubber on the road. @AlboMP is finished. Won’t contest the next election if Labor proves true to form.
Maybe Green Hydrogen is the Magma Copper experience for FMG.AX?
James Falkiner retweeted
A lot of ink has been spilled on GPU financing lately. I spent over a decade trading ABS on Wall St, and structured over $2B+ of debt financings as an operator (including at @tryramp). Figured I'd try to make sense of this market, so I went back to a framework I knew well: aircraft ABS and aircraft engine ABS.
My take: a GPU neocloud runs on airline economics, and the debt behind it looks a lot like aircraft engine ABS.
The parallels:
• Perishable inventory. An empty seat after the door closes is gone forever. So is an idle hour on an energized H100 rack.
• 85%+ of cost is fixed (servers, 10-year rack leases, 10-14% debt service). One more hour of compute costs pennies of power.
• Utilization is everything. Airlines break even around 80% load factor, a levered GPU cluster around 65-75%. The returns live in those last 25 percentage points.
• NVIDIA is Boeing and Airbus rolled into one. Powered shells and grid interconnects are the new airport slots.
• Wall St copied the aircraft financing playbook: take-or-pay contract plus servers in a bankruptcy-remote SPV, 70-80% LTV.
Part 1 of my blog post goes into a lot more detail:
alexyangsong.com/blog/alumin…
#FOMC If Warsh moves to PCE TM (Dallas) will that change how we see the outlook for FFR.
NZ (Auckland) provides some interesting context for Australia/Sydney w.r.t. interest rates and house price trends. Auckland house prices peaked in Nov '21, about the time that interest rates (OCR) started rising. The OCR then rose from 0.25% to 5.5% and the real rate hit almost 300bp. The RBNZ is now back in a tightening phase as the CPI TM remains above 3%. Auckland house prices are now still down 27%, and falling at about 4% pa.
Sydney is the market leader, it is down 11% from the peak (3/2026) and falling at 18%pa. The vast majority of loans are variable (ARM) rate, typically at a rate 180bp above the RBA cash rate.
At the peak Australian housing stock was worth about A$11tn, or ~400% of GDP. About 1/3 of the housing stock is mortgaged with $2.6 Tn of debt, about 2/3 owner occupiers, 1/3 investors.
Since the peak, actual listings have risen 20% to about 40k or 1.3% of all Sydney houses. There are probably another 10k available for sale but unlisted. Sydney, at the peak auctioned about 900 properties a week and sold about 75% of those. Now about 600 are offered each week, and only 35% (200) are sold. Apart from auction sales, another 1800 are sold each week via private treaty.
Regulators tell us about 2% of all mortgages currently have negative household cashflow but other comments about negative equity are very rubbery as they lack a price level. From what we can see about 10% of borrowers are distressed, 5% very distressed.
There is not enough regulatory pressure on our banks to tell the truth about asset quality in resi mortgage books. Banks have to offer changed loan conditions to borrowers who declare themselves suffering hardship. These changes may include principle repayments deferred if the loan is P&I, maybe repayments are suspended if there is enough borrower equity. Actual interest rates charged are not amended.
The regulator, APRA, doesn't require banks to report their stock of hardship loans, or the flows in and out of the bucket. $CBA.AX recently reported 147k new hardship cases, so sector new hardship cases are likely running well over 500k pa. Technically hardship loans can be thought of as loans that have been evergreened. Hardship loans are a type of substandard loans, with a few being currently classified as non-performing.
NPA rates reported by banks remain very low (~1%) , as do relevant provisions. In my view the real NPA rate in Australian banks resi books (75% of total loans) is now about 3-5%. Resi mortgage portfolios typically carry a risk weight density of 25%. Overall CTE/Asset leverage ratios are about 4.7% whilst Tier 1 ratios are obviously much higher, and flatter the banks.
Just more mushroom talk from the RBA.
"Conditions in the housing market have softened,... ...Financial stability risks...remain contained: ...only a small share of borrowers are in negative equity or facing severe repayment difficulty."
rba.gov.au/speeches/2026/sp-…
James Falkiner retweeted
S&P 1500 Software revenue per employee has gone parabolic.
If you are looking for evidence that AI is starting to impact the real economy, this is exhibit A.
James Falkiner retweeted
We (Jonathan Elkobi, me) are happy that @chinaquarter has accepted our new piece “The End of Fiscal Autonomy. ” Yes, it’s provocatively titled but this is an important data point for analyzing China’s economy. A large literature suggests that local autonomy, including fiscal “federalism” has been a key ingredient to growth and local reform initiatives. If local governments literally have little to no autonomy, their incentives and ability to use local initiatives to generate growth also declines. Below, I summarize our findings with link of pre-pub version at the end.
Quick primer: Chinese budgeting is broken into 1. ordinary budget to finance public services, civil service salaries and 2. Extra budgetary fund (EBF) used to finance land acquisition/sale, infrastructure projects and other discretionary spend. The source of the problem is here—ordinary revenue at the local level has grown very modestly over a 6-year period (21%), while EBF revenue (land income) has not grown at all due to the property crackdown. Central transfers made up the bulk of the growth in non-debt sources of income for local governments. (1/N)
James Falkiner retweeted
Important question. I’d argue that the constraint ultimately is debt capacity limits. If productivity rises faster than wages in a capital-rich economy, demand can only keep up with supply to the extent that fiscal and household debt rises to fill the gap.
