Leithner Letter Nos. 84-86
26 December 2006 - 26 February 2007

The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after a change in conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the condition which makes the event imminent. A man will tell you that he has worked in a mine for forty years unhurt by an accident as a reason why he should apprehend no danger, though the roof is beginning to sink; and it is often observable, that the older a man gets, the more difficult it is to him to retain a believing conception of his own death.

George Eliot (a.k.a. Mary Anne Evans)
Silas Marner: The Weaver of Raveloe (1861)

When the Reserve Bank meets tomorrow to decide whether to wind back Australia’s inflation by raising interest rates for the third time this year, it will also be deciding the future for thousands of Australians on the brink of financial ruin. ... For some, the hammer has already come down. The collision of rising interest rates, falling house prices and easy money has led to an unprecedented number of mortgagee sales. In the outer suburbs of Sydney and Melbourne, the sheriffs are busy locking out more and more homeowners who can’t make their payments.

The proportion of household income that is used to pay interest is at an all-time high by a considerable amount. People are spending more money on interest than they are on education and health combined. That’s an extraordinary phenomenon. And The World Today can reveal that the banks and the other mortgage lenders are working to conceal the scale of the sell-off, telling real estate agents not to market the properties as mortgagee auctions. ... In fact, one Sydney real estate agent told the program that he estimates nine out of 10 auction sales in outer western areas of Sydney are now the results of mortgage defaults.

Radio National
“The World Today” (6 November 2006)

Of Black Swans and Out-of-Cycle Events

The end of one calendar year and the beginning of the next is an appropriate time to reflect upon the outgoing year’s twists and turns, triumphs, trials and tribulations. It is also a good time to place these things into a broader context, consider their possible causes and consequences, learn one’s lessons and set a course for the twelve months to come. With this objective in mind, and focussing upon finance and investments in Australia (and to greater or lesser extents Britain, Canada, New Zealand and the U.S.), it seems to me that four points are most salient. None is cheery. So if you strive to radiate merriness and festiveness at this time of year, put this Letter aside until January.

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Chris Leithner


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