Hedge Funds Are Betting Record Amounts on Meltdown of Australian Banks and Housing Bubble
by Wolf Richter
WolfStreet.com
May 23, 2016
Best way to short Australian real estate, or “widow maker trade?”
It has been called the “widow maker trade,” based on how short sellers have been dealt with over the past few years.
The fundamentals have been inviting: Australia has been in a fully blooming housing bubble. Households are the most indebted in the world, based on debt to disposable income. To maintain the housing bubble, the central bank slashed interest rates to record lows (1.75%). The government wants to keep the bubble going for as long as possible. So regulators close their eyes, according to media reports, to questionable or even illegal lending practices. Home prices, after soaring for years, are clearly unsustainable.
But just because it’s a bubble doesn’t mean it has to implode on schedule. It will implode, as all bubbles do, but on its own time. If short sellers get the timing wrong, they’ll get run over by market euphoria. Hence, “widow maker trade” for betting against the housing bubble by shorting the banks.
The biggest four banks in Australia are special creatures. Total assets of Commonwealth Bank of Australia (CBA), Australia & New Zealand Banking Group (ANZ), Westpac Banking Corp (WBC), and National Australia Bank (NAB) amount to 220% of Australia’s GDP!
The assets (mostly outstanding loans) of the big four Australian banks have skyrocketed. For example, in 1999, CBA’s assets amounted to 14% of GDP. That was already high, for just one bank! By the end of 2014, they reached 51% of GDP. How’s that possible? A housing bubble with sharp price gains funded by ever larger mortgages extended by ever blinder loan officers. If these four banks topple, as we noted almost a year ago, they can sink the entire Australian economy.
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