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.