Fantastic article on Aussie Banks

A very well presented argument here on why our "safe" banks may not be as safe as everyone thinks.

Whilst I would not be betting that house prices are going to fall 10% to 15% next year as the Credit Suisse report suggests, I would also not bet against it happening. Regardless of what the housing experts say (those with vested interests in talking up house prices - Fairax, News and the very trustworthy real estate agents), houses are not cheap and there is a reasonable risk that there could be a correction.

With baby boomers de-leveraging over the coming years, there are significant headwinds for the housing sector and therefore the banking sector. For those that are believing that the housing corrections that have happened elsewhere around the world cant happen here because it is Australia, then I suggest you rethink you logic.

Our core scenario is that as interest rates continue to fall over the coming year or two, house prices will most likely stagnate. However, we also believe that there is a moderate probability that there could be a correction. It all depends on how high unemployment reaches in the next cycle. I suggest that you should not be investing significant amounts of money in companies that are based on continued low unemployment to maintain their current earnings.

As Buffett says:

"You only know who has been swimming naked when the tide goes out."

I would hazard a guess that we are closer to high tide than low tide in Australia...