The politicisation of the climate change debate has and will damage Australian businesses and households. Science has been subverted by politics and some of those scientists who dissented have been publicly criticised or worse. The so-called "deniers". Shades of the Inquisition. How dare you not be "politically correct"?
How refreshing then it is to see documentaries on the ABC which actually have a factual basis and explain in laymans terms how variances in the earths' axis to the sun influence its climate to the point of major and catastrophic change. Perhaps these documentaries should be rebroadcast to the schools? Climate change has natural origins. What a novel idea lol.
Also refreshing is that, finally, august institutions like the Actuaries Institute predict that the "impact on private insurance premiums will be marginal over the next 60 years" (Submission to the Australian Senate reported in The Australian 26th April 2013). Actuaries are the very professionals who advise insurers on the quantification of risk.
After the taxpayer funded hysteria of dams running dry, the Gold Coast being swamped, and the hugely expensive electricity guzzling (coal fired) desalination plants being built around Australia, finally there is a dose of reality. i.e. those who underwrite property risk are being advised that, well, there is not that much risk after all. "Relatively small, when compared with inflation" actually.
Friday, 26 April 2013
Tuesday, 23 April 2013
INVESTING IN VOLATILE TIMES
Some of my readers have suggested that I am a "Contrarian". This may well have been technically true in the past, but it is obvious that the themes developed in these blogs are now becoming widely held views. Perhaps that is why there is exponential growth in the number of visitations to this site from some 15 countries.
From an Australian perspective, it is well worth reading the lastest article from Michael Knox, Chief Economist at RBS Morgans and someone I have enormous respect for. He writes on the fiscal consolidation occurring at most levels of government in Australia, and the need for the Australian Reserve Bank to reduce official interest rates by at least the amount implied by reductions in Australian GDP derived from fiscal consolidation. In practice, this could amount to further official interest rate reductions of 0.5-1.00%. ("An IMF View of the AustralianBudget:Cuts in the budget deficit mean interest rates have to fall further" April 22nd 2013)
From an international perspective, it is also well worth reading an article published in Money Morning (www.moneymorning.com.au) entitled "Uncle Ben has a problem". This deals not with the price of money but its velocity of circulation. The impact of declining velocity of circulation is similar to a credit squeeze: there is less economic activity per printed dollar and less tax revenue for governments. This is US data but its impacts are twofold: it is likely that the velocity of circulation of Australian dollars is also falling and, since the US is an international reserve currency its behaviour affects all non-autarkic economies.
The result clearly is, and is going to be: deflation. The demand for money of itself is high, the demand for spending it is low. This deflationary environment is yet to reach Australian shores in a big way, but it could.
Basically, the velocity of circulation of US dollars is approaching levels last seen in the recessions of 1983 and 1991.
What does this mean for investment? Well, there are always opportunities in volatile times, and great corporations have been founded in such times. It also means that the wealth creation strategies of the past decades may not repeat themselves.
From an Australian perspective, it is well worth reading the lastest article from Michael Knox, Chief Economist at RBS Morgans and someone I have enormous respect for. He writes on the fiscal consolidation occurring at most levels of government in Australia, and the need for the Australian Reserve Bank to reduce official interest rates by at least the amount implied by reductions in Australian GDP derived from fiscal consolidation. In practice, this could amount to further official interest rate reductions of 0.5-1.00%. ("An IMF View of the AustralianBudget:Cuts in the budget deficit mean interest rates have to fall further" April 22nd 2013)
From an international perspective, it is also well worth reading an article published in Money Morning (www.moneymorning.com.au) entitled "Uncle Ben has a problem". This deals not with the price of money but its velocity of circulation. The impact of declining velocity of circulation is similar to a credit squeeze: there is less economic activity per printed dollar and less tax revenue for governments. This is US data but its impacts are twofold: it is likely that the velocity of circulation of Australian dollars is also falling and, since the US is an international reserve currency its behaviour affects all non-autarkic economies.
The result clearly is, and is going to be: deflation. The demand for money of itself is high, the demand for spending it is low. This deflationary environment is yet to reach Australian shores in a big way, but it could.
Basically, the velocity of circulation of US dollars is approaching levels last seen in the recessions of 1983 and 1991.
What does this mean for investment? Well, there are always opportunities in volatile times, and great corporations have been founded in such times. It also means that the wealth creation strategies of the past decades may not repeat themselves.
Sunday, 21 April 2013
THE DESTRUCTION OF COMPARATIVE ADVANTAGE # 2
The drop in the European carbon price to around A$3.25 per tonne just demonstrates again what folly the Australian Federal government has visited on the businesses and people of this country with an Australian carbon tax at A$23 per tonne (rising shortly) and a tax payer funded compensation arrangement (for some) of A$56. The compensation is already paid but the tax revenue isn't there to support it.
Every business, every utility, every business, every employer, every household and every individual will pay. Not only in increased living costs, but much more importantly, in reduced employment opportunities.
Incitec Pivot have substituted fertiliser manufacturing in Australia for manufacturing in the United States. Why? Lower energy costs (reportedly by two thirds) and lower unit labour costs (reportedly by half). This is just the tip of the unemployment iceberg. Add in repeated job losses in other manufacturing operations, and in resources developments.
The real killer though is in small and medium sized businesses. Empty shops, empty commercial premises, fewer opening hours at the local Foodworks is where the real impacts of lower employment opportunities will start to bite. And they will bite the most vulnerable. The youngsters, students, renters who need these extra work hours just to live. Equally, men and women over 50: if you are retrenched, or lose paid hours, there is not a lot of hope of recovery any time soon.
These people will not be counted as unemployed, so they won't show up in the statistics, but there are lots of them, and the social impacts of government induced underemployment will be felt by all of us in the future.
Make no mistake, as I have long predicted in these blogs, there is a slowdown coming. What economists term a "Growth Recession" is already here. The "growth" comes from aggregate GDP data. The "recession" you can see in the streets.
This should mean a reduction in Australian interest rates. If people are worried about employment, they are not going to borrow, no matter how low the interest rate. The circulation of money will also slow. This is a deflationary cycle notwithstanding the money printing in the US, UK, Europe, and Japan.
Every business, every utility, every business, every employer, every household and every individual will pay. Not only in increased living costs, but much more importantly, in reduced employment opportunities.
Incitec Pivot have substituted fertiliser manufacturing in Australia for manufacturing in the United States. Why? Lower energy costs (reportedly by two thirds) and lower unit labour costs (reportedly by half). This is just the tip of the unemployment iceberg. Add in repeated job losses in other manufacturing operations, and in resources developments.
The real killer though is in small and medium sized businesses. Empty shops, empty commercial premises, fewer opening hours at the local Foodworks is where the real impacts of lower employment opportunities will start to bite. And they will bite the most vulnerable. The youngsters, students, renters who need these extra work hours just to live. Equally, men and women over 50: if you are retrenched, or lose paid hours, there is not a lot of hope of recovery any time soon.
These people will not be counted as unemployed, so they won't show up in the statistics, but there are lots of them, and the social impacts of government induced underemployment will be felt by all of us in the future.
Make no mistake, as I have long predicted in these blogs, there is a slowdown coming. What economists term a "Growth Recession" is already here. The "growth" comes from aggregate GDP data. The "recession" you can see in the streets.
This should mean a reduction in Australian interest rates. If people are worried about employment, they are not going to borrow, no matter how low the interest rate. The circulation of money will also slow. This is a deflationary cycle notwithstanding the money printing in the US, UK, Europe, and Japan.
Wednesday, 10 April 2013
THE POLITICISATION OF SCIENCE & THE DESTRUCTION OF AUSTRALIA'S COMPARATIVE ADVANTAGE
I was awarded an Honours degree in Zoology and Geology in 1973 from the University of Reading. It was a time when universities were moving curricula from comparative anatomy and stratigraphy to interdisclinary studies in ecology, environmental sciences, and animal behaviour.
It was also a time when universities were becoming more capital intensive and research oriented. That generated a "grants" culture around the world which were sourced in the main from governments and intergovernment agencies, including the United Nations.
We were told then by an american scientist, one Paul Ehrlich, that since the world was cooling - yes cooling - and the population was growing, that we would all run out of food and starve. This Malthusian prophecy was obviously completely wrong, and since then, not only has the world population doubled, but the quality and quantity of food has significantly improved in much of the West and in Asia. At the same time, the real cost of many foodstuffs has declined with increasing proportions of the population able to afford more and better foods.
Fast forward to the 21st century, and now we are told that the world's climate is heating from so-called anthropogenic sources with likely catastrophic results. The Australian Financial Review (3rd April) reprinted a chart from the Economist ("Hot Air") which demonstrates that these predictions, like Ehrlichs' before them, are sadly and dangerously wrong.
Studying natural sciences in a politically unbiased way, teaches you that climate is infinitely variable, and as Ian Plimer has written in his book "Heaven and Earth", subject to influences totally beyond the control of mankind.
The present follies, highly politicised, are in part a result of the grants system for research, and the politicisation of that. Woe betide a university researcher if you don't agree with the established, politicised view. All at huge tax payer expense. Like the predictions from Australia's own very expensive Climate Commissioner (Australian April 3rd).
The expense is not only now being measured in the accounting dollars for tax payer funded grants and salaries. The real cost of politicised science is yet to be measured, but it will include the utter destruction of Australia's competitive advantages in energy, resources and agriculture if this nonsense does not stop.
This destruction is starting to wreak havoc. It is a slow motion economic train wreck, inflicted by an academic and political class that puts preferred policy before facts. Never again should there be a statute called the "Carbon Pollution Reduction.....". The title is of itelf a lie. Carbon is fundamental to life and carbon dioxide is the food of plants, without which we would all assuredly starve.
The world has been far warmer, wetter and richer in carbon dioxide than today, yes richer: that is why we have coal in such abundance. That is why large animals like cold blooded dinosaurs prospered for millenia. What happened when natural climate change resulted in the Ice Ages: they all died.
A warmer, wetter climate will open vast areas of North America and Russia to agriculture. Mankind will not generate such a result, but climate change from known natural causes may. Or maybe we start to cool off? Who knows? Certainly not our politicised scientists.
It was also a time when universities were becoming more capital intensive and research oriented. That generated a "grants" culture around the world which were sourced in the main from governments and intergovernment agencies, including the United Nations.
We were told then by an american scientist, one Paul Ehrlich, that since the world was cooling - yes cooling - and the population was growing, that we would all run out of food and starve. This Malthusian prophecy was obviously completely wrong, and since then, not only has the world population doubled, but the quality and quantity of food has significantly improved in much of the West and in Asia. At the same time, the real cost of many foodstuffs has declined with increasing proportions of the population able to afford more and better foods.
Fast forward to the 21st century, and now we are told that the world's climate is heating from so-called anthropogenic sources with likely catastrophic results. The Australian Financial Review (3rd April) reprinted a chart from the Economist ("Hot Air") which demonstrates that these predictions, like Ehrlichs' before them, are sadly and dangerously wrong.
Studying natural sciences in a politically unbiased way, teaches you that climate is infinitely variable, and as Ian Plimer has written in his book "Heaven and Earth", subject to influences totally beyond the control of mankind.
The present follies, highly politicised, are in part a result of the grants system for research, and the politicisation of that. Woe betide a university researcher if you don't agree with the established, politicised view. All at huge tax payer expense. Like the predictions from Australia's own very expensive Climate Commissioner (Australian April 3rd).
The expense is not only now being measured in the accounting dollars for tax payer funded grants and salaries. The real cost of politicised science is yet to be measured, but it will include the utter destruction of Australia's competitive advantages in energy, resources and agriculture if this nonsense does not stop.
This destruction is starting to wreak havoc. It is a slow motion economic train wreck, inflicted by an academic and political class that puts preferred policy before facts. Never again should there be a statute called the "Carbon Pollution Reduction.....". The title is of itelf a lie. Carbon is fundamental to life and carbon dioxide is the food of plants, without which we would all assuredly starve.
The world has been far warmer, wetter and richer in carbon dioxide than today, yes richer: that is why we have coal in such abundance. That is why large animals like cold blooded dinosaurs prospered for millenia. What happened when natural climate change resulted in the Ice Ages: they all died.
A warmer, wetter climate will open vast areas of North America and Russia to agriculture. Mankind will not generate such a result, but climate change from known natural causes may. Or maybe we start to cool off? Who knows? Certainly not our politicised scientists.
Tuesday, 2 April 2013
ROGER MONTGOMERY, WEEKEND AUSTRALIAN MARCH 30TH 2013
I would like to refer my readers to the excellent article written by Roger Montgomery www.rogermontgomery.com
His arguments clearly support my theses published in this blog, and in particular, my views on investment strategy. He states "...we might just be able to take advantage of the high Australian dollar and become the foreign investors ourselves". Exactly my strategy and practice for some years.
However, he couches this statement within a large and useful article which describes why Australia and Australians are going to face a declining standard of living in future years, whilst we see higher end property, farms, and businesses sold to foreigners.
Interestingly he says: "...we need nine tonnes of exported iron ore to pay for one imported iPhone...". Imagine how many tonnes of ore Australia needs to export if the price of iron ore behaves as commodities do, and, as Andy Xie (a respected Chinese economist) says, drops to USD 70/80 a tonne. How many iPhones will a tonne of ore buy then?
As Deutsche Bank writes in its authorative "Long Term Asset Return Study: A Roadmap for the Grey Age": reversion to the long term mean.
Roger propounds Australia needs to: "incentivise innovation and entrepreneurialism". Absolutely we do, as I have been writing here at some length. Except that we don't.
He goes on:"We are on the path to serfdom. We will be working longer hours for foreign landlords, renting their property....." Immigration law which provides Australian visas for wealthy foreigners who invest in property and other assets will exacerbate this trend. The real estate dreams of many Australians will be exactly that as this migration puts up house prices whilst Australian real incomes decline. He calls it "Invasion by acquisition".
Comparative advantage in commodities is a fine thing, except that Australian costs structures are destroying that too. Worse is the fact that commodities comparative advantage benefit relatively few people directly. Australians would be very wealthy if there were fewer of us and we were'nt concentrated in large cities. There would'nt need to be much tax. However these conditions do not exist and Australia urgently needs to leverage its other qualities before Rogers' "Road to Serfdom" eventuates.
In the meantime, take advantage of the Australian dollar.
His arguments clearly support my theses published in this blog, and in particular, my views on investment strategy. He states "...we might just be able to take advantage of the high Australian dollar and become the foreign investors ourselves". Exactly my strategy and practice for some years.
However, he couches this statement within a large and useful article which describes why Australia and Australians are going to face a declining standard of living in future years, whilst we see higher end property, farms, and businesses sold to foreigners.
Interestingly he says: "...we need nine tonnes of exported iron ore to pay for one imported iPhone...". Imagine how many tonnes of ore Australia needs to export if the price of iron ore behaves as commodities do, and, as Andy Xie (a respected Chinese economist) says, drops to USD 70/80 a tonne. How many iPhones will a tonne of ore buy then?
As Deutsche Bank writes in its authorative "Long Term Asset Return Study: A Roadmap for the Grey Age": reversion to the long term mean.
Roger propounds Australia needs to: "incentivise innovation and entrepreneurialism". Absolutely we do, as I have been writing here at some length. Except that we don't.
He goes on:"We are on the path to serfdom. We will be working longer hours for foreign landlords, renting their property....." Immigration law which provides Australian visas for wealthy foreigners who invest in property and other assets will exacerbate this trend. The real estate dreams of many Australians will be exactly that as this migration puts up house prices whilst Australian real incomes decline. He calls it "Invasion by acquisition".
Comparative advantage in commodities is a fine thing, except that Australian costs structures are destroying that too. Worse is the fact that commodities comparative advantage benefit relatively few people directly. Australians would be very wealthy if there were fewer of us and we were'nt concentrated in large cities. There would'nt need to be much tax. However these conditions do not exist and Australia urgently needs to leverage its other qualities before Rogers' "Road to Serfdom" eventuates.
In the meantime, take advantage of the Australian dollar.