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What is the Market REALLY doing ? Does anybody know ? TALK TO ME ! ! !

Home prices post biggest fall in 14 months
Home prices

• The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – reported that home prices fell by 0.7 per cent in seasonally adjusted terms in June – the biggest decline in since April 2008.
• Home prices are up still up 10.5 per cent in June on a year ago – but it is the slowest annual growth rate in eight months.
• Home prices fell most in Perth (down 1.5 per cent) and Melbourne and Canberra (both down 1.4 per cent).

What does it all mean?
• The Reserve Bank clearly has another reason to stay on the interest rate sidelines. Home prices slumped in June according to the RP Data-Rismark Hedonic Australian Home Value index. And given that the index has the capability of tracking every property transaction in Australia, the preliminary June results clearly represent a wake-up call.
• While the APM house price index posted a healthy gain for the June quarter, it suffers from definitional problems much like the Bureau of Statistics survey. The Reserve Bank as well as rating agency Moody’s rely on the RP Data index as the best guide to home price trends.
• We had always argued that the May rate hike was a step too far. In fact the April move can also be questioned. But it will be important now for the Reserve Bank to stay on the interest rate sidelines to give shell-shocked consumers and home-buyers a chance to catch their breath.
• It may be the case that interest rate levels are only at “normal” levels. But the pace of rate hikes – the most aggressive tightening cycle in 16 years – clearly has taken its toll.
• Overall housing market fundamentals are positive. Population growth is still firm, the job market is healthy, housing supply still lags demand in many markets and wealth is at record highs. So this correction still looks more like the ‘pause that refreshes’.

• Home-buyers and home owners must factor in more normal growth of home prices in 2010/11 around 5-8 per cent. And some markets like Melbourne may face a more protracted period of softness. Provided rates remain on hold until at least late this year, the housing market should experience a soft landing.
• While the outlook still remains positive, a 0.7 per cent fall in the space of a month is clearly unsettling.

What do the figures show?
House Prices
• The RP Data-Rismark Hedonic Australian Home Value Index fell by 0.7 per cent in seasonally adjusted terms in June – the biggest monthly fall since April 2008. The monthly growth rate peaked in January at 1.7 per cent and has consistently softened since.
• House prices fell 0.8 per cent in the month with apartments down 0.5 per cent.
• Home (dwelling) prices are up 10.5 per cent on a year ago with house prices up 10.2 per cent and apartment prices up 11.4 per cent.
• The biggest fall in home prices occurred in Perth (down 1.5 per cent), followed by Melbourne and Canberra (both down 1.4 per cent), Darwin (down 1.0 per cent), Brisbane (down 0.8 per cent), Adelaide (down 0.7 per cent)and Sydney (down 0.1 per cent).
• In all capital cities home prices are higher than a year ago. Leading the way is Melbourne (up 16.0 per cent) followed by Darwin (up 14.3 per cent), Canberra (up 10.6 per cent), Sydney (up 10.4 per cent), Adelaide (up 9.1 per cent), Perth (up 5.1 per cent) and Brisbane (up 4.5 per cent), and

What is the importance of the economic data?
• The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database including over 280,000 sales during 2009. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.
• The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results compare the end of March index with the end of December index

What are the implications for interest rates and investors?
• Investors need to readjust their sights. Double-digit annual growth in home prices is never sustainable – the long-term average is 8 per cent and that’s where prices are headed. In fact prices are likely to overshoot with growth easing to the very low single digits before bottoming.
• The Reserve Bank now has even more justification to stay on the sidelines. Fortunately inflation has eased, otherwise the RBA would have had a difficult decision – firm inflation and falling home prices is a dangerous combination.
• The fundamentals for housing are still positive. Nevertheless the sharp drop in home prices in June will reduce the appeal of banks and housing-dependent stocks in the short-term.

Source Craig James, Chief Economist, CommSec

Money Education From RONIN Asset Management

How Exchange Rates Work
Maybe you’ve travelled to the U.S. or Canada, and exchanged your Aussie dollars for the Green back or Loonies. Or, perhaps you’ve traveled from England to Japan and exchanged your English pounds for yen. If so, you have experienced exchange rates in action. But, do any of us really know how they work?
You’ve probably heard the financial reporter on the nightly news say something like, “The dollar fell against the U.S. today.” In this article, we’ll attempt to explain what exchange rates are and some of the factors that can affect the value of currency in countries around the world.
The Cost of Money
National currencies are vitally important to the way modern economies operate. They allow us to consistently express the value of an item across borders of countries, oceans, and cultures. We need exchange rates because one nation’s currency is not always accepted in another. You can’t walk into a store in Japan and buy a loaf of bread with Aussie Dollars. First, you’d have to go to a bank and buy some Japanese yen with your Aussie Dollars. An exchange rate is simply the cost of one form of currency in another form of currency. In other words, if you exchange 1 Aussie Dollar for 86 Japanese yen, you really just purchased a different form of money.
The Floating Exchange Rate
There are two main systems used to determine a currency’s exchange rate: floating currency and pegged currency. The market determines a floating exchange rate. In other words, a currency is worth whatever buyers are willing to pay for it. This is determined by supply and demand, which is in turn driven by foreign investment, import/export ratios, inflation, and a host of other economic factors.
Generally, countries with mature, stable economic markets will use a floating system. Virtually every major nation uses this system, including Australia the U.S., Japan, Germany and Great Britain. Pegged rates are for economies trying to get themselves up to the international standards required for the free flow of money. They have their currency pegged for stability, China is in the news at the moment about this very thing. With countries like the U.S. saying that the Chinese are using their pegged rate as leverage and that they are now in a position to let their rate float. Floating exchange rates are considered more efficient, because the market will automatically correct the rate to reflect inflation and other economic forces.

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Australia's unexpected record trade surplus

hot gossip - When is good news seen as bad, and yet still good?

When is good news seen as bad? When you see the trade surplus figure below!
Australia's trade surplus unexpectedly reached a record in June as Chinese demand spurred exports of coal and iron ore, while imports stagnated amid a slowdown in domestic spending.
The excess of exports over imports reached AUD$3.54 billion, a Bureau of Statistics report showed in Sydney today. A separate report showed house-price gains decelerated in the second quarter, underscoring the impact of the central bank's six interest-rate increases since early October. An example of this is a client of ours at Ronin who told us this week that the value of his house at Palm Beach in Sydney had been devalued to the tune of 30%, ouch.
This has lead to the creation of a new term, "the two speed economy" in which domestic spending has been throttled back and yet external spending (China buying coal and steel) had almost doubled, giving concern that the RBA may raise rates again in an attempt to slow any gain in inflation caused by the flood of money coming in to the country.
Exports gained 7 percent in June to AUD$26.7 billion, today's report showed. Sales of metal ores including iron surged 23 percent and coal shipments jumped 15 percent.
Today's trade surplus, the largest since the statistics bureau began measuring the balance in 1971, has expanded for three straight months, ending 11 consecutive months of deficits.
It is true that the policy makers did expect that a trade surplus was inevitable after the GFC proved to be very short lived in Australia it is also true that this surge was not expected to be as large as we have seen.
The other concern running around in the back of the RBA's mind is the effect of NOT having a mining super tax, and let's be realistic if the Labor party wins the next election I think it is safe to say they have been really stung by the backlash from both Queensland and WA, and thus it will be allowed to stay well and truly buried in the pile of things to think about, never to see the top of that pile.
And yet still Good?
All that being said we feel this is good news for traders as the miners are still out there digging holes and that's good. The banks are lending money and that's good. You can't make a good return on your property so your money goes into the market and that's good.