I have a Canadian friend who lives in Taipei, where he works for the Taiwan international trade development corporation. We have been friends for many years and I have a high regard for his judgement, especially when it comes to China. Most of his friends are, and always have been, Chinese. On politics, however, we are polar opposites. I am a free market conservative and he is a Trotskyist.
He began going on about the "One Percenters", the target of so much wrath around the world, the one percent of the population who are supposed to rule the world. I initially wrote it off as part of his Trotskyist leanings. When I said it was hard for Australian workers to "maintain the rage" when many of them earn $100,000 a year, live in million dollar houses and change cars every couple of years, he said they were being "bought off". The Occupy Wall St movement did much to highlight the alleged role of the One Percenters. According to my friend, the Sage of Omaha, Warren Buffett, said the One Percenters were a bunch of crooks. That is irrelevant. Membership of the One Percenters is not decided by personal nomination.
I have been involved in politics since I was a teenager and I have been writing about business-related topics for over 30 years. I will restrict my comments to Australia, as I have a fairly intimate knowledge of Australian business, government and politics. I also know quite a bit about Taiwan and China, both of which are very different to Australia.
The first thing to note is that Australia is a small country in terms of economic activity and population. The population of Australia in mid 2012 was just under 23,000,000. Second, Australia is, and always has been, an importer of capital and an exporter of raw materials. Its finance and trading industries are not internationally significant and are oriented towards the domestic market. As Australia is a young country, very few of its business and financial elite are more than a few generations removed from the farmyard or factory floor. Few people would rate as being wealthy by intrernational measures, with obvious exceptions such as Rupert Murdoch (now officially an American), Gina Reinhart, the iron ore heiress (said to be the richest woman in the world) and Frank Lowy (Westfield shopping centres, one of the world's largest chains). The Australian business elite is highly concentrated, less than one percent, but its membership is not a secret.
Australia has only four significant centres of economic activity. Sydney, capital of New South Wales, and its hinterland, the financial centre of Australia; Melbourne, capital of Victoria, mining, commercial and manufacturing centre of Australia; south-east Queenland, centred on Brisbane, the coal centre of Australia; and Perth, capital city of Western Australia, administrative and service centre for iron ore production, Australia's number one export. South Australia, the Northern Territory and Tasmania are mendicant states that contribute little to national output.
Thus, we have four more or less distinct centres of economic activity. Not so long ago, most enterprises were restricted to one State. They would be closely related to the State governments, over whom they would exercise significant influence. National players, like the Broken Hill Proprietary Co (BHP) would tailor their investment decisions to maximise their political leverage. Now, most of the regional companies have gone and have been consolidated into national or international enterprises. The business elite has thus become more concentrated. I would, however, doubt that the membership of the business elite would be much of a secret to regular readers of the financial press. I have only ever met one businessman who didn't like getting his name in the paper. He introduced himself only as "Michael" and said his investment bank made several billion by buying up pubs and their accompanying poker machine licenses when they were introduced into Victoria. He certainly wasn't the average pub blowhard but I have no idea if he was telling the truth. He valued his privacy above all else. As indicated, the fact that membership of this elite is widely known does not mean shonky deals between business and government do not occur.
Other elite structures, such as goverment, public service, police, armed services are, in Australia at least, largely meritocratic and contestable. Some, such as the Australian Labor Party, are developing family linkages similar to the Mafia. While deals are done under the 'old mates act' and many institutions are more corrupt that we would like to think, Australia is a fairly clean country. Blatant nepotism in official structures is rare.
That a governing elite exists is beyond doubt. The important thing to keep in mind is that membership is contestable In my (brief) socialistic youth I toyed with the idea of confiscatory death duties to 'level the playing field' but it would be almost impossible to imagine a more unpopular policy for the average Australian voter than death duties. Death duties are political poison. No-one seems to mind, or even envy for that matter, billionaires like James Packer or Gina Reinhart as long as they are gainfully employed. Australia is a young country and dynastic fortunes are not common. Most second and third generation "trust fund babies" don't like to dirty their hands with business and go in for philanthropy, the arts and so on. China is not a meritocractic country. The elite is co-opted into the Communist Party, which is ruled by the 'princelings.' We have no idea what goes on in the Communist Party. That is not the case in Australia. Shareholders in companies with a family tradition, such as the Myer department store chain, find it reassuring that the founding family still takes an interest in the business.
Friday 28 December 2012
Thursday 20 December 2012
sense and nonsense about homosexuality
When I told me wife I was going to write about homosexuality, my wife's advice was "don't say anything nasty." It is not gay men or lesbian who are peddling nonsense, however, it is their critics. Some of their beliefs seem to defy reason.
Take for example the belief that all males are naturally heterosexual and are somehow converted -- or subverted -- into being gay. In my experience, most gay men discover around the age of 15 -- usually to their horror -- that the are not attracted to the opposite sex. Rather, the reverse. They are quite alarmed to find the are attracted to other males. This can be very disturbing, especially to young men who have strong religious beliefs in faiths that emphasise heterosexual marriage. A humorous account of this can be found in "Naked" by David Sedaris (Little, Brown 1997). I am not much in favour of the "Scale of Sexuality" where there is a progression from heterosexuality to homosexuality -- most men are either gay, or they are not. Of course, particularly in show business, many men are not as heterosexual as they appear but this mainly for publicity. You can't "convert" someone to homosexuality.
Other cultures have different ideas. In Asia, its quite acceptable for gay boys to have their fling, particularly in cultures like Thailand. They are expected to eventually settle down, marry and produce children. I once had the extreme misfortune to share a dorm room with two Thai boys who went to sleep in each other's arms every night and played the same three Thai songs over and over again, day and night. A relation of mine is Chinese, gay, married and has recently produced a child. He does not live with his wife. This is not as unusual as it sounds in China.
Are there no genuine bisexual men then? I am told that most gigolos are bisexual and that they are very good lovers. On the other hand, I believe the number of genuinely bisexual men to be small. "As Nature Made Him: The Boy Who Was Raised as a Girl" by John Colapinto (Harper Collins 2000) shows just how difficult it is to change a person's sexual orientation. I therefore regard aversion therapy and other forms of behaviourial modification therapies aimed at changing a person's sexual orientation as being a form of torture. David Riemer had his penis and testicles removed by surgery but he was still a heterosexual male.
I have a number of friends who I either know or suspect are gay. To be quite honest, I feel uneasy around the classic effeminate gay man but mostg gay men don't worry me at all. I consulted two experts on what I should do if one one of my friends made a pass at me, as has happened before. One said that gay men have a very good idea about a person's sexuality (gaydar) and if he valued our relationship he would be unlikely to make advances. Another said "if he loves you, why shouldn't he?"
According to my research, a certain proportion of males (always small) in any culture are gay. Even where homosexuality is punishable by death, these gay men will seek an outlet for their sexuality. A smaller proportion will be lesbians. This accounts at least in part for the "man shortage". It is not a figment of the imagination of 30 something women looking for partners. These days, it is far more socially acceptable to be both openly gay and unmarried.
The whole discussion about male and female sexuality has become enmeshed in the gay marriage debate. The two are related, but only tangentially.
My advice to those who campaign against homosexual people, rather than the radical gay political agenda, is to follow the advice of "The Moonshiner"
I'm a rambler, I'm a gambler, I'm a long way from home
And if you don't like me well leave me alone
I'll eat when I'm hungry, I'll drink when I'm dry
And if moonshine don't kill me I'll live til I die.
Take for example the belief that all males are naturally heterosexual and are somehow converted -- or subverted -- into being gay. In my experience, most gay men discover around the age of 15 -- usually to their horror -- that the are not attracted to the opposite sex. Rather, the reverse. They are quite alarmed to find the are attracted to other males. This can be very disturbing, especially to young men who have strong religious beliefs in faiths that emphasise heterosexual marriage. A humorous account of this can be found in "Naked" by David Sedaris (Little, Brown 1997). I am not much in favour of the "Scale of Sexuality" where there is a progression from heterosexuality to homosexuality -- most men are either gay, or they are not. Of course, particularly in show business, many men are not as heterosexual as they appear but this mainly for publicity. You can't "convert" someone to homosexuality.
Other cultures have different ideas. In Asia, its quite acceptable for gay boys to have their fling, particularly in cultures like Thailand. They are expected to eventually settle down, marry and produce children. I once had the extreme misfortune to share a dorm room with two Thai boys who went to sleep in each other's arms every night and played the same three Thai songs over and over again, day and night. A relation of mine is Chinese, gay, married and has recently produced a child. He does not live with his wife. This is not as unusual as it sounds in China.
Are there no genuine bisexual men then? I am told that most gigolos are bisexual and that they are very good lovers. On the other hand, I believe the number of genuinely bisexual men to be small. "As Nature Made Him: The Boy Who Was Raised as a Girl" by John Colapinto (Harper Collins 2000) shows just how difficult it is to change a person's sexual orientation. I therefore regard aversion therapy and other forms of behaviourial modification therapies aimed at changing a person's sexual orientation as being a form of torture. David Riemer had his penis and testicles removed by surgery but he was still a heterosexual male.
I have a number of friends who I either know or suspect are gay. To be quite honest, I feel uneasy around the classic effeminate gay man but mostg gay men don't worry me at all. I consulted two experts on what I should do if one one of my friends made a pass at me, as has happened before. One said that gay men have a very good idea about a person's sexuality (gaydar) and if he valued our relationship he would be unlikely to make advances. Another said "if he loves you, why shouldn't he?"
According to my research, a certain proportion of males (always small) in any culture are gay. Even where homosexuality is punishable by death, these gay men will seek an outlet for their sexuality. A smaller proportion will be lesbians. This accounts at least in part for the "man shortage". It is not a figment of the imagination of 30 something women looking for partners. These days, it is far more socially acceptable to be both openly gay and unmarried.
The whole discussion about male and female sexuality has become enmeshed in the gay marriage debate. The two are related, but only tangentially.
My advice to those who campaign against homosexual people, rather than the radical gay political agenda, is to follow the advice of "The Moonshiner"
I'm a rambler, I'm a gambler, I'm a long way from home
And if you don't like me well leave me alone
I'll eat when I'm hungry, I'll drink when I'm dry
And if moonshine don't kill me I'll live til I die.
Saturday 15 December 2012
Exams for investors are a bad idea
ASIC chairman Greg Medcraft's suggestion that investors should sit a two hour exam before investing in certain financial products has set the cat among the pigeons.
The Australian Securities and Investment Commission (ASIC) is intended to regulate certain financial markets. The big four banks are regulated by the Australian Prudential Regulation Authority (APRA). Among ASIC's clients are a host of deadbeats that give the appearance of being banks without being banks. The most recent failure was the Banksia ( note "Bank"sia ) finance group centred on Kyabram, a rural township in the north of the State of Victoria. Why anyone would entrust their life savings to an institution of this nature when they could cross the street get the security of a major bank at the cost of a few percent is beyond me. But then I am a city slicker, I don't hate the banks as many country people with long memories do. As far as fixed interest investments are concerned, the difference between the return on a secure investment and a risky one is so inconsequential it is not worth bothering about.
But what the ASIC chairman was really on about were things like contracts for difference (CFDs), debentures, FX trading and self managed super funds (SMSFs).
There may be people who make money out of CFDs, let us just say I've never met anyone who has. CFDs tend to be marketed to gullible people who have no idea of the risks involved. As for FX trading, the average punter would be competing against professional traders who in all likelihood have PhDs in maths. I was at one time fairly good at maths, but when I last tried balancing my cheque book (a long time ago when I had one) and was defeated, I decided my maths weren't up to FX trader standards. The truth is all these instruments exist to transfer money from the amateurs to the professionals, much the same as any gambling product.
Can you tell people this? Of course you can. Will they listen? Probably not. It's amazing how many people will commit thousands to an investment they don't understand when their largest previous outlay was a Lotto ticket.
Any investment is about the evaluation and management of risk. Without risk, there will be no return. The greater the risk, the greater the potential return. The risk involved should be appropriate to the individual concerned. If a young man gets dudded for a few thousand on CFDs, it will be probably be a worthwhile learning experience. For an old age pensioner, it may be the difference between eating steak or cat food.
Even if it could be shown that a two hour examination would prevent people from making foolish investments -- which I very much doubt -- do they have a place in financial management? It is not the government's role to protect people from themselves. Financial advisers, stockbrokers and a host of other professionals exist to help people invest their money. On top of all that, do we really need an exam?
For a time I invested in what are known as "penny dreadfuls." Some people claim they make money from these stocks, which are more formally known as "small cap mining stocks". I know for a fact that some investors do make money from these stocks, but like most gamblers, you hear more about the winners than the losers. I broke about even. In the end, I decided it wasn't worth the aggravation. But if someone thinks they have found the next Woodside or News Corporation, they should be allowed to have a punt. If they want to have a share in a stock whose sole asset is an expanse of kangaroo pasture, that's their business.
A fool and his money are soon parted. It's an old saying but a true one. No investment is risk free, even if it is the risk that the capital value will be eaten away by inflation. In the end, you can't protect people from themselves. Exams for investors are a bad idea.
The Australian Securities and Investment Commission (ASIC) is intended to regulate certain financial markets. The big four banks are regulated by the Australian Prudential Regulation Authority (APRA). Among ASIC's clients are a host of deadbeats that give the appearance of being banks without being banks. The most recent failure was the Banksia ( note "Bank"sia ) finance group centred on Kyabram, a rural township in the north of the State of Victoria. Why anyone would entrust their life savings to an institution of this nature when they could cross the street get the security of a major bank at the cost of a few percent is beyond me. But then I am a city slicker, I don't hate the banks as many country people with long memories do. As far as fixed interest investments are concerned, the difference between the return on a secure investment and a risky one is so inconsequential it is not worth bothering about.
But what the ASIC chairman was really on about were things like contracts for difference (CFDs), debentures, FX trading and self managed super funds (SMSFs).
There may be people who make money out of CFDs, let us just say I've never met anyone who has. CFDs tend to be marketed to gullible people who have no idea of the risks involved. As for FX trading, the average punter would be competing against professional traders who in all likelihood have PhDs in maths. I was at one time fairly good at maths, but when I last tried balancing my cheque book (a long time ago when I had one) and was defeated, I decided my maths weren't up to FX trader standards. The truth is all these instruments exist to transfer money from the amateurs to the professionals, much the same as any gambling product.
Can you tell people this? Of course you can. Will they listen? Probably not. It's amazing how many people will commit thousands to an investment they don't understand when their largest previous outlay was a Lotto ticket.
Any investment is about the evaluation and management of risk. Without risk, there will be no return. The greater the risk, the greater the potential return. The risk involved should be appropriate to the individual concerned. If a young man gets dudded for a few thousand on CFDs, it will be probably be a worthwhile learning experience. For an old age pensioner, it may be the difference between eating steak or cat food.
Even if it could be shown that a two hour examination would prevent people from making foolish investments -- which I very much doubt -- do they have a place in financial management? It is not the government's role to protect people from themselves. Financial advisers, stockbrokers and a host of other professionals exist to help people invest their money. On top of all that, do we really need an exam?
For a time I invested in what are known as "penny dreadfuls." Some people claim they make money from these stocks, which are more formally known as "small cap mining stocks". I know for a fact that some investors do make money from these stocks, but like most gamblers, you hear more about the winners than the losers. I broke about even. In the end, I decided it wasn't worth the aggravation. But if someone thinks they have found the next Woodside or News Corporation, they should be allowed to have a punt. If they want to have a share in a stock whose sole asset is an expanse of kangaroo pasture, that's their business.
A fool and his money are soon parted. It's an old saying but a true one. No investment is risk free, even if it is the risk that the capital value will be eaten away by inflation. In the end, you can't protect people from themselves. Exams for investors are a bad idea.
RBA despairs as Aussie dollar powers ahead
Everyone wants the Aussie dollar to retreat, except for travelers going overseas. The welcome fillip tourists get to their spending power is little consolation for exporters and import competing manufacturers who cannot compete against cheap imports.
The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points (bp) on Tuesday 4 December 2012 to 3 percentage points, a level which the RBA had previously described as "desperation". The 3 percent rate has not been seen since the days of the global financial crisis (GFC) when the RBA and the government hurled everything except the kitchen sink at the economy to prevent a "depression". As it was, Australia was lumbered with useless school halls, self igniting ceiling insulation and cash handouts that pensioners -- working on the principle it wasn't their money anyway -- shoved down the the mouths of poker machines all over Australia. That even a dysfunctional organisation like the Australian Labor Party could even contemplate reinstating the author of this lunacy, Kevin Rudd, as prime minister is enough to make one despair for the democratic process.
The reason the Aussie dollar won't come down is that it is now a reserve currency. In the days gone by, when the International Monetary Fund (IMF) ruled the world, fixed exchange rates were fixed by governments. Nations could devalue their currencies in a series of competitive devaluations. With exchange rates now -- in theory -- set by the market, this shouldn't happen. These "beggar my neighbour" policies, which many economic historians blame at least partially for the Great Depression of the 1930s, are not supposed to happen now. But the pundits didn't count on the Fed's "Helicopter Ben" Bernanke cranking up the printing press and flooding the world with greenbacks. It's only dawning now on America's competitors that this is a form of devaluation aimed at giving US exporters a competitive advantage. This devaluation works because most the world's trade is still conducted in US dollars.
For smaller economies without the clout of Bernanke's Federal Reserve or the US Treasury, there is only so much they can do to hold the line. The Swiss have accumulated reserves running into the hundreds of billions as they try to hold their peg against the euro. For Australia, no matter how low the cash rate goes, the Aussie dollar will hold up, not least because the Aussie dollar is a proxy for the Chinese yuan. Unless the Chinese banking system collapses, which is possible but unlikely, the Aussie dollar will hold up. The more likely situation is that China will go from double digit growth to steady growth in the mid to high single digits on the back of domestic demand. For those buying the Aussie dollar, it's an indirect bet that the Chinese economy will achieve sustainable growth without China basing its economic growth on being the lowest cost exporter. As for the RBA being able to force the Aussie dollar down through unilateral action, forget it. About all they will be able to do is annoy FX traders from time to time.
For previous posts, see "Aussie dollar unlikely to collapse" (4 Oct. 2012) and "Aussie dollar just won't stay down" (9 Nov. 2012).
The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points (bp) on Tuesday 4 December 2012 to 3 percentage points, a level which the RBA had previously described as "desperation". The 3 percent rate has not been seen since the days of the global financial crisis (GFC) when the RBA and the government hurled everything except the kitchen sink at the economy to prevent a "depression". As it was, Australia was lumbered with useless school halls, self igniting ceiling insulation and cash handouts that pensioners -- working on the principle it wasn't their money anyway -- shoved down the the mouths of poker machines all over Australia. That even a dysfunctional organisation like the Australian Labor Party could even contemplate reinstating the author of this lunacy, Kevin Rudd, as prime minister is enough to make one despair for the democratic process.
The reason the Aussie dollar won't come down is that it is now a reserve currency. In the days gone by, when the International Monetary Fund (IMF) ruled the world, fixed exchange rates were fixed by governments. Nations could devalue their currencies in a series of competitive devaluations. With exchange rates now -- in theory -- set by the market, this shouldn't happen. These "beggar my neighbour" policies, which many economic historians blame at least partially for the Great Depression of the 1930s, are not supposed to happen now. But the pundits didn't count on the Fed's "Helicopter Ben" Bernanke cranking up the printing press and flooding the world with greenbacks. It's only dawning now on America's competitors that this is a form of devaluation aimed at giving US exporters a competitive advantage. This devaluation works because most the world's trade is still conducted in US dollars.
For smaller economies without the clout of Bernanke's Federal Reserve or the US Treasury, there is only so much they can do to hold the line. The Swiss have accumulated reserves running into the hundreds of billions as they try to hold their peg against the euro. For Australia, no matter how low the cash rate goes, the Aussie dollar will hold up, not least because the Aussie dollar is a proxy for the Chinese yuan. Unless the Chinese banking system collapses, which is possible but unlikely, the Aussie dollar will hold up. The more likely situation is that China will go from double digit growth to steady growth in the mid to high single digits on the back of domestic demand. For those buying the Aussie dollar, it's an indirect bet that the Chinese economy will achieve sustainable growth without China basing its economic growth on being the lowest cost exporter. As for the RBA being able to force the Aussie dollar down through unilateral action, forget it. About all they will be able to do is annoy FX traders from time to time.
For previous posts, see "Aussie dollar unlikely to collapse" (4 Oct. 2012) and "Aussie dollar just won't stay down" (9 Nov. 2012).
Friday 16 November 2012
Dump Australian gas stocks
In its usual slow witted way, the Australian Securities Exchange (ASX) is gradually waking up the fact that US shale gas will likely put Australian natural gas producers out of business when it is unleashed upon world markets.
With gas trains costing in the multibillions, this is very serious business. US shale gas is on the market for a fifth the price of Australian gas. US gas can be landed in Asia at half the price of Australian gas. Local gas users are going ballistic because they can't get a guaranteed supply of gas from local gas producers except at extortionate prices. This assumes the US Government will give shale gas producers export licenses, but the first shipment of US gas will arrive in Asia in 2015 -- surely the first of a tidal wave of such shipments. Within 20 years, the US will be self sufficient in petroleum products and will be able to do away with economic lunacy like ethanol for fuel.
Of the Australian petroleum producers, Santos is the most exposed. Santos is a major partner in one of the three gas trains planned for Gladstone, a port city in Queensland. Santos is offering an inferior product, namely coal seam gas, which has only half the heating value of natural gas. The company is very unpopular with land owners, who are seeing their farms destroyed by gas wells. Coal seam gas is not produced by the notorious fracking procedure, though occasionally it is similar, but this doesn't make it any more popular with the public.
Most gas these days is sold on long term contract. With more gas coming on stream, more gas will be sold on the spot market, meaning customers will be able to play one supplier off against the other. Is it likely Tokyo Power, for example, will pay double, or five times, for Australian gas when US gas will do the same job?
For further information, see "US shale gas will change the world" by Jeffry Babb (News Weekly, 21 July 2012)
With gas trains costing in the multibillions, this is very serious business. US shale gas is on the market for a fifth the price of Australian gas. US gas can be landed in Asia at half the price of Australian gas. Local gas users are going ballistic because they can't get a guaranteed supply of gas from local gas producers except at extortionate prices. This assumes the US Government will give shale gas producers export licenses, but the first shipment of US gas will arrive in Asia in 2015 -- surely the first of a tidal wave of such shipments. Within 20 years, the US will be self sufficient in petroleum products and will be able to do away with economic lunacy like ethanol for fuel.
Of the Australian petroleum producers, Santos is the most exposed. Santos is a major partner in one of the three gas trains planned for Gladstone, a port city in Queensland. Santos is offering an inferior product, namely coal seam gas, which has only half the heating value of natural gas. The company is very unpopular with land owners, who are seeing their farms destroyed by gas wells. Coal seam gas is not produced by the notorious fracking procedure, though occasionally it is similar, but this doesn't make it any more popular with the public.
Most gas these days is sold on long term contract. With more gas coming on stream, more gas will be sold on the spot market, meaning customers will be able to play one supplier off against the other. Is it likely Tokyo Power, for example, will pay double, or five times, for Australian gas when US gas will do the same job?
For further information, see "US shale gas will change the world" by Jeffry Babb (News Weekly, 21 July 2012)
Ratings agency model is broken
My father was a panel beater. He ran what the Americans would call a body shop. In the days before insurance companies got smart and started issuing their assessors with standard schedules for various types of collision damage, my father made a very good living by manipulating the prices of parts, labour and so on. He occasionally substituted second hand parts for new parts and so on, which wasn't strictly legal -- but it was highly profitable. Above his shop he had a battered sign which said "All care but no responsibility taken." According to my legal friends, that declaration has no legal status, which he found out to his cost several times.
The ratings agencies have always operated on the same principle. Their business model has always struck me as being very peculiar. And now an Australian judge has ruled that the "All care but no responsibility" model is worth about as much as the sign above my father's shop when it comes to offering them protection from legal remedies.
For those of you who don't know how their model works, the ratings agency will rate a product, and be paid by the firm issuing the product. Is it any wonder then that the ratings agencies rated CDOs (colatoralised debt obligations) AAA when they should have rated them c.r.a.p.? Of course, then no one would have invested in them, especially as some bodies have a statutory obligation to invest only in financial instruments with a certain rating.
The Federal Court of Australia ruled on November 5 that Standard & Poors was jointly liable with ABN AMRO for the losses suffered by local government bodies in Australia when they bought the product promoted by the bank. The ABN AMRO product, called a "constant proportion debt obligation" (CPDO), was a wonder of financial engineering best described in layman's terms as "double up or quit" when the market went down. S&P denied its ratings were inappropriate and aims to appeal the ruling. The AAA rating S&P gave the CPDLOs meant that the ABN AMRO product has as much chance of going bust as the US Treasury. A sadly inaccurate expectation .
Now the ratings Three Stooges -- S&P, Moody's and Fitch -- are defending some 40 similar cases around the world. The standard defence is that ratings are only "opinions" and no one should rely on them. If they are only opinions, why have them? And why is there a statutory requirement for many investors -- including government bodies -- to only invest in financial instruments with a certain rating?
Some say Moody's, commonly held to be the best of the bunch, must be good because Warren Buffet, the Sage of Omaha', is a major invest. Sorry, much as his acumen and integrity draw near universal acclaim, he is a businessman, not the Good Housekeeping Seal of Approval.
Instead, what about asking investors, who are using the service, to pay for it? Cash flow might suffer, but it would seem to be a better method of promoting accuracy. "The Big Short: Inside the Doomsday Machine" Michael Lewis's excellent account of the collapse in the CDO bubble, demonstrates what can happen when the ratings agencies go haywire. In the meantime, who are the ratings agencies kidding? Are they seriously saying they are producing a product on which investors can't rely? If so, why bother?
The ratings agencies have always operated on the same principle. Their business model has always struck me as being very peculiar. And now an Australian judge has ruled that the "All care but no responsibility" model is worth about as much as the sign above my father's shop when it comes to offering them protection from legal remedies.
For those of you who don't know how their model works, the ratings agency will rate a product, and be paid by the firm issuing the product. Is it any wonder then that the ratings agencies rated CDOs (colatoralised debt obligations) AAA when they should have rated them c.r.a.p.? Of course, then no one would have invested in them, especially as some bodies have a statutory obligation to invest only in financial instruments with a certain rating.
The Federal Court of Australia ruled on November 5 that Standard & Poors was jointly liable with ABN AMRO for the losses suffered by local government bodies in Australia when they bought the product promoted by the bank. The ABN AMRO product, called a "constant proportion debt obligation" (CPDO), was a wonder of financial engineering best described in layman's terms as "double up or quit" when the market went down. S&P denied its ratings were inappropriate and aims to appeal the ruling. The AAA rating S&P gave the CPDLOs meant that the ABN AMRO product has as much chance of going bust as the US Treasury. A sadly inaccurate expectation .
Now the ratings Three Stooges -- S&P, Moody's and Fitch -- are defending some 40 similar cases around the world. The standard defence is that ratings are only "opinions" and no one should rely on them. If they are only opinions, why have them? And why is there a statutory requirement for many investors -- including government bodies -- to only invest in financial instruments with a certain rating?
Some say Moody's, commonly held to be the best of the bunch, must be good because Warren Buffet, the Sage of Omaha', is a major invest. Sorry, much as his acumen and integrity draw near universal acclaim, he is a businessman, not the Good Housekeeping Seal of Approval.
Instead, what about asking investors, who are using the service, to pay for it? Cash flow might suffer, but it would seem to be a better method of promoting accuracy. "The Big Short: Inside the Doomsday Machine" Michael Lewis's excellent account of the collapse in the CDO bubble, demonstrates what can happen when the ratings agencies go haywire. In the meantime, who are the ratings agencies kidding? Are they seriously saying they are producing a product on which investors can't rely? If so, why bother?
Friday 9 November 2012
Aussie dollar just won't stay down
Despite admissions that the Reserve Bank of Australia (RBA) is selling the Aussie dollar, the little Aussie battler just won't stay down. Last time I blogged on the Aussie dollar, just over a month ago (4 October 2012), the Aussie was at 1.023. Today (Friday 9 November) it is at 1.0426, despite a 25 basis point cut in the cash rate to deter investors. The Aussie dollar has gone up, instead of down, as it was supposed to do.
As I predicted in my last post "Aussie dollar unlikely to collapse", there are a variety of reasons why the A$ will stay strong, not least the fact that the Federal Government is locked into structural deficits of $122 billion between 2013 and 2016. The government's spending plans are sheer lunacy. At a time of tightening revenue, the ALP has announced a $10 billion disability support plan (it was $1 billion when they tried to sell the plan to the States, but it grew) and a multi billion dollar universal dental plan. I developed the habit of asking my friends in the ALP "how many billions did they spend today?"
After the farce of the mining tax, which raised no revenue at a time which the Gillard government alleges is the height of the mining boom, what other piggy banks can they raid? A rise in the GST is the next cab off the rank, though the Greens are unlikely to obligingly commit political suicide to pass the tax, as the long-dead Australian Democrats did with the GST.
Faced with a strong dollar which is killing off what remains of Australian manufacturing industry, RBA Governor Glenn Stevens is desperate to get the A$ lower, but the tools he can use are limited. Apart from annoying traders by intervening in the FX market, he can cut rates again, but that would be about the last shot in his locker. A rate below 2.75% is getting into desperation territory. It's amazing how just about every market economist in Australia can misjudge the RBA's intentions so frequently. Governor Stevens is no doubt taking into account that a further rate cut is likely to encourage another housing bubble, and with housing affordability already heading into the political danger zone, another rate cut this year is no certainty.
The Aussie dollar has become a de facto reserve currency as central banks diversify away from the US$. Press reports indicate that the Swiss central bank, which is holding in excess of US$400 billion in reserves, which it has bought to keep the franc down, has been buying Aussie dollars direct from the RBA to minimise upward pressure on the Aussie dollar. While the US$ remains shaky and Australian fundamentals look relatively sound,, central banks can be expected to keep buying the Aussie dollar as a diversification from the US$ and the Aussie dollar will remain under upward pressure. There's not much the RBA can do about this.
As I predicted in my last post "Aussie dollar unlikely to collapse", there are a variety of reasons why the A$ will stay strong, not least the fact that the Federal Government is locked into structural deficits of $122 billion between 2013 and 2016. The government's spending plans are sheer lunacy. At a time of tightening revenue, the ALP has announced a $10 billion disability support plan (it was $1 billion when they tried to sell the plan to the States, but it grew) and a multi billion dollar universal dental plan. I developed the habit of asking my friends in the ALP "how many billions did they spend today?"
After the farce of the mining tax, which raised no revenue at a time which the Gillard government alleges is the height of the mining boom, what other piggy banks can they raid? A rise in the GST is the next cab off the rank, though the Greens are unlikely to obligingly commit political suicide to pass the tax, as the long-dead Australian Democrats did with the GST.
Faced with a strong dollar which is killing off what remains of Australian manufacturing industry, RBA Governor Glenn Stevens is desperate to get the A$ lower, but the tools he can use are limited. Apart from annoying traders by intervening in the FX market, he can cut rates again, but that would be about the last shot in his locker. A rate below 2.75% is getting into desperation territory. It's amazing how just about every market economist in Australia can misjudge the RBA's intentions so frequently. Governor Stevens is no doubt taking into account that a further rate cut is likely to encourage another housing bubble, and with housing affordability already heading into the political danger zone, another rate cut this year is no certainty.
The Aussie dollar has become a de facto reserve currency as central banks diversify away from the US$. Press reports indicate that the Swiss central bank, which is holding in excess of US$400 billion in reserves, which it has bought to keep the franc down, has been buying Aussie dollars direct from the RBA to minimise upward pressure on the Aussie dollar. While the US$ remains shaky and Australian fundamentals look relatively sound,, central banks can be expected to keep buying the Aussie dollar as a diversification from the US$ and the Aussie dollar will remain under upward pressure. There's not much the RBA can do about this.
Thursday 8 November 2012
Why do intelligent people do stupid things?
I have a friend who is a senior barrister, specialising mainly in commercial law. I don't believe he has a great deal of money to invest, but he is anxious to get a good return on his capital because he isn't getting much work at the moment. He described a seminar he attended which was run by a so called "property expert."
He was enthusiastic about the seminar. When he outlined the "expert" pitch I was not surprised to learn that it was the same pitch I had heard 30 years ago from a similar organisation when I first arrived in Melbourne. Of course, there have been several bad slumps since and anyone following these pitchmen's advice would be broke by now. The operation revolves around strata titling, which involves buying a blocks of flats, which had been rented out individually but are on a corporate title (or apartments as they are now called) and changing the title to an individual title, so each apartment can be sold separately. Today they are doing almost the same thing, except the apartments tend to come from slow-moving residential developments. Of course, they offer finance. You would be very silly to accept this highly leveraged offer, as are are no doubt getting a hefty commission.
My friend was tempted, but he is too intelligent to be caught, but smart people do get trapped into this sort of deal. But what about when an entire community is trapped? Banksia was a financial group operating in the northern part of Victoria, around Kyabram. It was, apparently, a generous funder of community activities and offered interest rates a bit above a bank. Banksia functioned like a bank, but was not supervised by the Australian Prudential Regulation Authority (APRA) as the banks are. Australian banks are among the most strictly regulated financial institutions in the world with self sustaining ratings to match. Banksia's funds were invested mainly in commercial property and dubious ventures such as golf clubs. Banksia had less than half the liquid reserves banks are required to maintain by law.
Cruel though it is to tell the girl who has lost the money she saved for her wedding or the retiree who lost his life savings that they are fools, but they are. Luck doesn't enter into it. How can an entire community be conned? It has happened numerous times in Australia. It's almost a carbon copy of what happened with the Pyramid financial group, also in Victoria. Pyramid caused a near depression in Geelong, where it had its headquarters. Geelong, about 70 kms south of Melbourne, is the largest provincial city in Victoria.
Not only country dwellers get trapped. The Teachers Credit Society in Perth, Western Australia, went bust when it invested most of its members' funds in a chain of health studios, which failed, like most other health studios did at the time. In a scandalous abuse of taxpayers' funds, the State government bailed the teachers out, even though there was no legal justification for doing so. But how could a government facing an election allow every teacher in the State lose his or her life savings?
The lucky electors of Kyabram have Paul Weller of the National Party representing them. The National Party can be expected to play true to form and put the thumb screws on the Premier, Ted Baillieu, whose Coalition Government is holding onto power by one vote in the Legislative Assembly, especially now the odoriferous Geoff Shaw's car usage has been referred to the police. It is thus a lay down misere that the trusting people of Kyabram will suffer, but not too much if the National Party can help it.
Why do people do these things? Greed is certainly right up there but you would have to be a bit simple minded to trade a term deposit in one of the Four Pillars, which have better ratings than many sovereign nations, for a percentage point of so more in an unregulated deposit taking institution. Then there's the "support the local business" argument, especailly if they cost effective marketingf such as supporting local sporting clubs. Again, people convinced by this argument can't be too bright, but for people in a regional area (including Western Australia) it is a very convincing argument. The gnomes of Zurich aren't popular in the country. Sheer irrationality in the face of money is a predominant factor in all these cases.
And one should not forget sheer ignorance. My mother said the only investments she has ever lost a lot of money on were "property investments". She means mortgage trusts where the mortgages were held over commercial property. When I told her mortgage trusts go bust about every 20 years, she was quite confused. "But the financial adviser told me to invest in them. If you can't trust a financial adviser, who can you trust?" Well said, Mum! When I added that most people understood the principle that the higher the interest rate, the higher the risk, she said she had never heard of it and she got her financial information by "talking to her friends." My mother does not subscribe to a daily paper.
I don't think people should be rescued from the consequences of their own stupidity, ignorance or bad luck for that matter People either make their own decisions, or they don't. Former Liberal Prime Minister John Howard transformed Australians from a nation of free people to a nation of mendicants. Bad luck used to be part of life, now Australians expect the government to rescue us from the consequences of our own stupidity.
He was enthusiastic about the seminar. When he outlined the "expert" pitch I was not surprised to learn that it was the same pitch I had heard 30 years ago from a similar organisation when I first arrived in Melbourne. Of course, there have been several bad slumps since and anyone following these pitchmen's advice would be broke by now. The operation revolves around strata titling, which involves buying a blocks of flats, which had been rented out individually but are on a corporate title (or apartments as they are now called) and changing the title to an individual title, so each apartment can be sold separately. Today they are doing almost the same thing, except the apartments tend to come from slow-moving residential developments. Of course, they offer finance. You would be very silly to accept this highly leveraged offer, as are are no doubt getting a hefty commission.
My friend was tempted, but he is too intelligent to be caught, but smart people do get trapped into this sort of deal. But what about when an entire community is trapped? Banksia was a financial group operating in the northern part of Victoria, around Kyabram. It was, apparently, a generous funder of community activities and offered interest rates a bit above a bank. Banksia functioned like a bank, but was not supervised by the Australian Prudential Regulation Authority (APRA) as the banks are. Australian banks are among the most strictly regulated financial institutions in the world with self sustaining ratings to match. Banksia's funds were invested mainly in commercial property and dubious ventures such as golf clubs. Banksia had less than half the liquid reserves banks are required to maintain by law.
Cruel though it is to tell the girl who has lost the money she saved for her wedding or the retiree who lost his life savings that they are fools, but they are. Luck doesn't enter into it. How can an entire community be conned? It has happened numerous times in Australia. It's almost a carbon copy of what happened with the Pyramid financial group, also in Victoria. Pyramid caused a near depression in Geelong, where it had its headquarters. Geelong, about 70 kms south of Melbourne, is the largest provincial city in Victoria.
Not only country dwellers get trapped. The Teachers Credit Society in Perth, Western Australia, went bust when it invested most of its members' funds in a chain of health studios, which failed, like most other health studios did at the time. In a scandalous abuse of taxpayers' funds, the State government bailed the teachers out, even though there was no legal justification for doing so. But how could a government facing an election allow every teacher in the State lose his or her life savings?
The lucky electors of Kyabram have Paul Weller of the National Party representing them. The National Party can be expected to play true to form and put the thumb screws on the Premier, Ted Baillieu, whose Coalition Government is holding onto power by one vote in the Legislative Assembly, especially now the odoriferous Geoff Shaw's car usage has been referred to the police. It is thus a lay down misere that the trusting people of Kyabram will suffer, but not too much if the National Party can help it.
Why do people do these things? Greed is certainly right up there but you would have to be a bit simple minded to trade a term deposit in one of the Four Pillars, which have better ratings than many sovereign nations, for a percentage point of so more in an unregulated deposit taking institution. Then there's the "support the local business" argument, especailly if they cost effective marketingf such as supporting local sporting clubs. Again, people convinced by this argument can't be too bright, but for people in a regional area (including Western Australia) it is a very convincing argument. The gnomes of Zurich aren't popular in the country. Sheer irrationality in the face of money is a predominant factor in all these cases.
And one should not forget sheer ignorance. My mother said the only investments she has ever lost a lot of money on were "property investments". She means mortgage trusts where the mortgages were held over commercial property. When I told her mortgage trusts go bust about every 20 years, she was quite confused. "But the financial adviser told me to invest in them. If you can't trust a financial adviser, who can you trust?" Well said, Mum! When I added that most people understood the principle that the higher the interest rate, the higher the risk, she said she had never heard of it and she got her financial information by "talking to her friends." My mother does not subscribe to a daily paper.
I don't think people should be rescued from the consequences of their own stupidity, ignorance or bad luck for that matter People either make their own decisions, or they don't. Former Liberal Prime Minister John Howard transformed Australians from a nation of free people to a nation of mendicants. Bad luck used to be part of life, now Australians expect the government to rescue us from the consequences of our own stupidity.
Sunday 21 October 2012
Understanding Australian Rules Football
As Australia's pre-eminent historian, Geoffrey Blainey wrote, Australian rules football is "a game of our own".
Australian football is club based -- that is the locus of a fan's passion, especially in Victoria, the game's spiritual home. Although State of Origin football originated in Aussie rules and is popular outside of Victoria, Victorians aren't interested in it. This post will give a very brief outline of the game's history in Victoria then concentrate on the identity of the teams that made up the Victorian Football League (VFL) before it took in, under duress, teams from interstate and became the Australian Football League (AFL)
The first officially recorded game of Australian Rules Football was played in 1858, although some form of the game had been played in the 1840s in Melbourne. Tom Wills, an Australian who had experience with football at Rugby School in England, led the way for regular games and codification of the rules. For the early days of the game, two excellent histories exist, one by Geoffrey Blainey "A Game of Our Own: The Origins of Australian Football" (Black Inc, 2010) and the other by Greg de Moore "Tom Wills: His Spectacular Rise and Tragic Fall" (Allen and Unwin, 2008). The books reflect the backgrounds of the authors.
Prof. Blainey is a professional historian with a flair for a memorable turn of phrase. He coined the phrase "the tyranny of distance". This book, sad to say, is not his best; not because it is unscholarly, but because it tends to be a bit dry for the average reader. As history, however, it is excellent, putting to rest many of the myths that surround the game's origins. Aussie rules, for example, is not derived from Gaelic football and it is unlikely to be related to Aboriginal games collectively known as marngrook.
Dr de Moore's biography of Tom Wills, founding father of Aussie rules, is a gripping tale of a man who did more than any other to codify and popularise the game. In the end, Tom Wills could not come to terms with his fading powers and took his own life. This book can be recommended without equivocation to anyone interested in the early days of Aussie rules. Dr de Moore is a Sydney psychiatrist with a research interest in male suicide.
The first thing to establish about Australian Rules Football is that it is a product of Melbourne's inner suburbs. The VFL came into being when eight teams broke away from the Victorian Football Association (VFA) to form the VFL in 1897 -- Carlton, Collingwood, Essendon, Fitzroy, Geelong, Melbourne, St Kilda and South Melbourne. The VFL became the AFL in 1990. It has been conclusively proved recently that the Victorian teams did not want interstate teams in the competition and only allowed their entry to gain their entry fees, as the VFL was nearly bankrupt. Teams to gain entry, over time, were the Adelaide Crows, Port Adelaide, the West Coast Eagles, the Brisbane Bears, the Gold Coast Suns, and the Greater Western Sydney Giants. Cynics attribute the expansion of the AFL to non traditional territories to be more to do with marketing than passion, but so far the expansion teams have done reasonably well. Which is to say, better than could have been hoped.
Each AFL team has an ethos or a 'meaning' associated with it. Football is like a religion in Melbourne (see previous post on football codes entitled "Ecology of Australian Football"). You are more likely to change your religion than your football team. Victoria is still the heart of the AFL, with ten teams.
Carlton are known as the Blues. The Blues have won 16 premierships, equal top with Essendon. Carlton claims to have have more club members on the BRW Rich List than any other club. If Carlton doesn't have the best players, the club will buy them. Breaching the salary cap won the club a premiership but cost it draft picks which put it back a decade, a sorry legacy only now being overcome. The Blues last flag was in 1995, an unusually long premiership drought. They now have the best AFL coach available for the next three seasons, Mick Malthouse, said to be on over $1 million a year. Although some would disagree, it's not strictly correct to call Carlton silvertails because Carlton is not old money. The "famous old dark Navy Blues" can never be counted out.
Carlton is loathed by other football followers, Collingwood is merely detested, Collingwood are known known as the Magpies (from their black and white strip), frequently shortened to the Pies. Collingwood is the only club to have won four flags in a row. Dark rumors circulate that John Wren's money played a hand in this feat. Collingwood is said to be the most powerful sporting club in Australia. The Woodsmen are proudly working class and the slogan "kill for Collingwood" is only a slight exaggeration. If your partner barracks for Carlton or Melbourne it is known as a mixed marriage.
Essendon are known as the Bombers. Essendon, Carlton and Collingwood are the three powerhouse clubs of the AFL. When games were played at the suburban grounds, Essendon were headquartered at Windy Hill. Their long serving coach Kevin Sheedy once tied down the flag at Windy Hill, presumably so the opposition couldn't gauge the wind. Essendon, also known as the Dons, are equal with Carlton in flags won, but they have also suffered a premiership drought in recent years. The Dons are lower middle class, a bit like Carlton with an attitude and less money.
Fitzroy are extinct. In theory they merged with the Brisbane Bears but the only result was that the Bears became the Lions. Fitzroy supporters were said to do more damage to their own club than their opponents. Fitzroy was Melbourne's first suburb, it has always been small in area and population.
Geelong is a regional city about 80 kms from Melbourne. Known as the Cats, Geelong have had a good run in recent years, picking up several premierships. Geelong gets deranged about football, even more so than Melbounre. There is nothing even remotely fair about the seating allocation for visiting clubs at their stadium and that's the way Geelong people like it. Heroes at Geelong include Graham "Polly" Farmer, the man who reinvented handball and won them a flag, and Gary Abblett, a forward of freakish talent who never quite achieved greatness. Geelong was once called a "handbag team" but they have toughened up.
Melbourne are definitely silvertails, an upper middle class team who once dominated the VFL. Seemingly, they are now in a hole from which they may never emerge. They had champions like master coach Norm Smith and champion Ron Barassi but lost them both. Their recent champion was Jim Stynes, an Irishman who did much to revive the club and who died young. Melbourne is "too proud to merge." Extinction would be deserved and would probably ensue without Melbourne's history as the AFL's founding club.
St Kilda probably deserves the wooden spoon as the least successful club in the AFL. The Saints have won only one flag in their whole history in the VFL and AFL. St Kilda is said to be a fragmented club, which hinders its on field endeavors. Many of its players have been male models, or so it is said. St Kilda covers a traditionally Jewish area -- pre WWII Jewish immigrants typically barrack for Carlton, post war Jewish immigrants barrack for St Kilda. Despite its lack of success, St Kilda has a strong following in Melbourne's southern suburbs. Recently, its main on field problem has been inconsistency. One week the Saints will play a blinder, the next they will will fall over.
South Melbourne relocated to Sydney in 1982. The Sydney Swans, as they are now known, as in theory not a new team. The Swans won the 2012 Premiership. They have won respect for their hard, uncompromising brand of football. The Swans, after some hard early years, have done well on the field. Full forward Warrick Capper's short shorts and Dr Geoffrey Edelsten's antics attracted attention early on. They still have loyalists in Melbourne who remember them as "the Bloods".
The Western Bulldogs, formerly known as Footscray, joined the AFL in 1925. They have only ever won one flag, equal to St Kilda. Footscray is in the western suburbs of Melbourne, a depressed area. Footscray is now "spot the Aussie" territory. The club under David Smorgon, whose family had extensive business interested in the area, has reached out to the immigrant communities. David Smorgon deserves a knighthood for what he has done for the Western Bulldogs. When his presidency winds up next year, he will have been in office for almost 17 years. The VFL wanted to merge the Bulldogs with Fitzroy. Even if they haven't prospered, they have survived, mainly because under leading lawyer Peter Gordon and David Smorgon they have had competent managers, unlike the parade of publicans and bone headed ex players who blighted the club's previous administrations. Being a Bulldogs supporter requires a special kind of stamina. The Bulldogs have never been very good for very long, they are an unfashionable team from an unfashionable area. Even their greatest son, Mr Football, Ted Whitten was known as "kick it to me Ted" by his teammates because he told rookie players if they didn't kick the ball to him he would make sure they didn't get a game next week.
Hawthorn joined the VFL along with North Melbourne and Footscray in 1925. They are probably the greatest club of the modern era. Hawthorn the suburb is an upper middle class area that doesn't deserve Hawthorn the football club. If the people of Hawthorn don't seem to be excited when Hawthorn is in a Grand Final, it's because they are not. Hawthorn have won ten premierships, all since the 1960s. Great players include champion full forward "the Captain" Jason Dunstall, "Lethal" Leigh Matthews who also coached the Lions to three flags, Michael Tuck, the all time AFL games record holder, and Robert "Dipper" Dipierdomenico, one of the most successful Australians of Italian origin ever to play AFL football. Hawthorn were first known as the Mayblooms and were about as effective as their nickname would suggest. Now they are now known for their tough unsociable brand of football.
North Melbourne also joined the VFL in 1925. For years, North were the cellar dwellers of the VFL. Then in 1973, the Kangaroos hired the great Ron Barassi as a coach and recruited several champion players and won a string premierships. The Kangaroos are also unofficially known as the Shinboners, from the local abbatoirs where a number of their players made their living. Alan Aylett, the president in North's glory years, is said to have gone to the local bank manager with a proposition to buy champion players and repay the loan with earnings from their premierships. North Melbourne is not a big suburb, it is still semi industrial and even given its otherwise desirable location near the city, it is not a great place to live. Life has always been hard for North, even when they have had on their roster players like "The King", Wayne Carey at centre-half forward, regarded be many as the greatest player of all time. The Kangaroos are commonly regarded as having the smallest supporter base of any Melbourne club. They won Premierships in 1975 and 1977, plus two more in 1996 and 1999, but life has always been tough at Arden Street.
TO BE CONTINUED IN MY POST 'AUSTRALIAN FOOTBALL OUT OF MELBOURNE'
Australian football is club based -- that is the locus of a fan's passion, especially in Victoria, the game's spiritual home. Although State of Origin football originated in Aussie rules and is popular outside of Victoria, Victorians aren't interested in it. This post will give a very brief outline of the game's history in Victoria then concentrate on the identity of the teams that made up the Victorian Football League (VFL) before it took in, under duress, teams from interstate and became the Australian Football League (AFL)
The first officially recorded game of Australian Rules Football was played in 1858, although some form of the game had been played in the 1840s in Melbourne. Tom Wills, an Australian who had experience with football at Rugby School in England, led the way for regular games and codification of the rules. For the early days of the game, two excellent histories exist, one by Geoffrey Blainey "A Game of Our Own: The Origins of Australian Football" (Black Inc, 2010) and the other by Greg de Moore "Tom Wills: His Spectacular Rise and Tragic Fall" (Allen and Unwin, 2008). The books reflect the backgrounds of the authors.
Prof. Blainey is a professional historian with a flair for a memorable turn of phrase. He coined the phrase "the tyranny of distance". This book, sad to say, is not his best; not because it is unscholarly, but because it tends to be a bit dry for the average reader. As history, however, it is excellent, putting to rest many of the myths that surround the game's origins. Aussie rules, for example, is not derived from Gaelic football and it is unlikely to be related to Aboriginal games collectively known as marngrook.
Dr de Moore's biography of Tom Wills, founding father of Aussie rules, is a gripping tale of a man who did more than any other to codify and popularise the game. In the end, Tom Wills could not come to terms with his fading powers and took his own life. This book can be recommended without equivocation to anyone interested in the early days of Aussie rules. Dr de Moore is a Sydney psychiatrist with a research interest in male suicide.
The first thing to establish about Australian Rules Football is that it is a product of Melbourne's inner suburbs. The VFL came into being when eight teams broke away from the Victorian Football Association (VFA) to form the VFL in 1897 -- Carlton, Collingwood, Essendon, Fitzroy, Geelong, Melbourne, St Kilda and South Melbourne. The VFL became the AFL in 1990. It has been conclusively proved recently that the Victorian teams did not want interstate teams in the competition and only allowed their entry to gain their entry fees, as the VFL was nearly bankrupt. Teams to gain entry, over time, were the Adelaide Crows, Port Adelaide, the West Coast Eagles, the Brisbane Bears, the Gold Coast Suns, and the Greater Western Sydney Giants. Cynics attribute the expansion of the AFL to non traditional territories to be more to do with marketing than passion, but so far the expansion teams have done reasonably well. Which is to say, better than could have been hoped.
Each AFL team has an ethos or a 'meaning' associated with it. Football is like a religion in Melbourne (see previous post on football codes entitled "Ecology of Australian Football"). You are more likely to change your religion than your football team. Victoria is still the heart of the AFL, with ten teams.
Carlton are known as the Blues. The Blues have won 16 premierships, equal top with Essendon. Carlton claims to have have more club members on the BRW Rich List than any other club. If Carlton doesn't have the best players, the club will buy them. Breaching the salary cap won the club a premiership but cost it draft picks which put it back a decade, a sorry legacy only now being overcome. The Blues last flag was in 1995, an unusually long premiership drought. They now have the best AFL coach available for the next three seasons, Mick Malthouse, said to be on over $1 million a year. Although some would disagree, it's not strictly correct to call Carlton silvertails because Carlton is not old money. The "famous old dark Navy Blues" can never be counted out.
Carlton is loathed by other football followers, Collingwood is merely detested, Collingwood are known known as the Magpies (from their black and white strip), frequently shortened to the Pies. Collingwood is the only club to have won four flags in a row. Dark rumors circulate that John Wren's money played a hand in this feat. Collingwood is said to be the most powerful sporting club in Australia. The Woodsmen are proudly working class and the slogan "kill for Collingwood" is only a slight exaggeration. If your partner barracks for Carlton or Melbourne it is known as a mixed marriage.
Essendon are known as the Bombers. Essendon, Carlton and Collingwood are the three powerhouse clubs of the AFL. When games were played at the suburban grounds, Essendon were headquartered at Windy Hill. Their long serving coach Kevin Sheedy once tied down the flag at Windy Hill, presumably so the opposition couldn't gauge the wind. Essendon, also known as the Dons, are equal with Carlton in flags won, but they have also suffered a premiership drought in recent years. The Dons are lower middle class, a bit like Carlton with an attitude and less money.
Fitzroy are extinct. In theory they merged with the Brisbane Bears but the only result was that the Bears became the Lions. Fitzroy supporters were said to do more damage to their own club than their opponents. Fitzroy was Melbourne's first suburb, it has always been small in area and population.
Geelong is a regional city about 80 kms from Melbourne. Known as the Cats, Geelong have had a good run in recent years, picking up several premierships. Geelong gets deranged about football, even more so than Melbounre. There is nothing even remotely fair about the seating allocation for visiting clubs at their stadium and that's the way Geelong people like it. Heroes at Geelong include Graham "Polly" Farmer, the man who reinvented handball and won them a flag, and Gary Abblett, a forward of freakish talent who never quite achieved greatness. Geelong was once called a "handbag team" but they have toughened up.
Melbourne are definitely silvertails, an upper middle class team who once dominated the VFL. Seemingly, they are now in a hole from which they may never emerge. They had champions like master coach Norm Smith and champion Ron Barassi but lost them both. Their recent champion was Jim Stynes, an Irishman who did much to revive the club and who died young. Melbourne is "too proud to merge." Extinction would be deserved and would probably ensue without Melbourne's history as the AFL's founding club.
St Kilda probably deserves the wooden spoon as the least successful club in the AFL. The Saints have won only one flag in their whole history in the VFL and AFL. St Kilda is said to be a fragmented club, which hinders its on field endeavors. Many of its players have been male models, or so it is said. St Kilda covers a traditionally Jewish area -- pre WWII Jewish immigrants typically barrack for Carlton, post war Jewish immigrants barrack for St Kilda. Despite its lack of success, St Kilda has a strong following in Melbourne's southern suburbs. Recently, its main on field problem has been inconsistency. One week the Saints will play a blinder, the next they will will fall over.
South Melbourne relocated to Sydney in 1982. The Sydney Swans, as they are now known, as in theory not a new team. The Swans won the 2012 Premiership. They have won respect for their hard, uncompromising brand of football. The Swans, after some hard early years, have done well on the field. Full forward Warrick Capper's short shorts and Dr Geoffrey Edelsten's antics attracted attention early on. They still have loyalists in Melbourne who remember them as "the Bloods".
The Western Bulldogs, formerly known as Footscray, joined the AFL in 1925. They have only ever won one flag, equal to St Kilda. Footscray is in the western suburbs of Melbourne, a depressed area. Footscray is now "spot the Aussie" territory. The club under David Smorgon, whose family had extensive business interested in the area, has reached out to the immigrant communities. David Smorgon deserves a knighthood for what he has done for the Western Bulldogs. When his presidency winds up next year, he will have been in office for almost 17 years. The VFL wanted to merge the Bulldogs with Fitzroy. Even if they haven't prospered, they have survived, mainly because under leading lawyer Peter Gordon and David Smorgon they have had competent managers, unlike the parade of publicans and bone headed ex players who blighted the club's previous administrations. Being a Bulldogs supporter requires a special kind of stamina. The Bulldogs have never been very good for very long, they are an unfashionable team from an unfashionable area. Even their greatest son, Mr Football, Ted Whitten was known as "kick it to me Ted" by his teammates because he told rookie players if they didn't kick the ball to him he would make sure they didn't get a game next week.
Hawthorn joined the VFL along with North Melbourne and Footscray in 1925. They are probably the greatest club of the modern era. Hawthorn the suburb is an upper middle class area that doesn't deserve Hawthorn the football club. If the people of Hawthorn don't seem to be excited when Hawthorn is in a Grand Final, it's because they are not. Hawthorn have won ten premierships, all since the 1960s. Great players include champion full forward "the Captain" Jason Dunstall, "Lethal" Leigh Matthews who also coached the Lions to three flags, Michael Tuck, the all time AFL games record holder, and Robert "Dipper" Dipierdomenico, one of the most successful Australians of Italian origin ever to play AFL football. Hawthorn were first known as the Mayblooms and were about as effective as their nickname would suggest. Now they are now known for their tough unsociable brand of football.
North Melbourne also joined the VFL in 1925. For years, North were the cellar dwellers of the VFL. Then in 1973, the Kangaroos hired the great Ron Barassi as a coach and recruited several champion players and won a string premierships. The Kangaroos are also unofficially known as the Shinboners, from the local abbatoirs where a number of their players made their living. Alan Aylett, the president in North's glory years, is said to have gone to the local bank manager with a proposition to buy champion players and repay the loan with earnings from their premierships. North Melbourne is not a big suburb, it is still semi industrial and even given its otherwise desirable location near the city, it is not a great place to live. Life has always been hard for North, even when they have had on their roster players like "The King", Wayne Carey at centre-half forward, regarded be many as the greatest player of all time. The Kangaroos are commonly regarded as having the smallest supporter base of any Melbourne club. They won Premierships in 1975 and 1977, plus two more in 1996 and 1999, but life has always been tough at Arden Street.
TO BE CONTINUED IN MY POST 'AUSTRALIAN FOOTBALL OUT OF MELBOURNE'
Friday 19 October 2012
Ecology of Australian Football
Many non-Australians have trouble understanding Australian football. We must first distinguish between the various Codes of football in Australia. This is an alien concept for Americans for example -- football is football, what is a Code?
Australia has four Codes, all claiming to be authentic football. They all have completely different rules, scoring systems and so on. The four Codes are Australian Football, Rugby League, Rugby Union and soccer.
The most financially viable Code is Australian Football, also referred to as Australian Rules Football or AFL, from the Australian Football League. AFL has at least two teams in all the mainland States. This is the football most people automatically think of when they think of Australian football. AFL originated in Melbourne, capital of Victoria, over 150 years ago. Some AFL clubs are among the oldest sporting clubs in the world. In Melbourne, AFL is not a game, it is a religion. A Melbourian is far more likely to get a divorce than change his or her football team. Your football team is a badge of identity you carry through your life. Conversion from being Protestant to being a Catholic may be considered extreme, but conversion from Carlton to Collingwood would be considered to be sacrilegious, almost insane.
AFL in Melbourne is a universal code. It is unchallenged as the city's first sporting love. No matter if you are a silvertail who supports Melbourne or a battler who supports the Western Bulldogs, there is a team for you in the AFL. AFL is part of the social cement that binds Melbourne together. AFL is part of the social ecology of Melbourne.
The second major Code is Rugby League. Rugby League originated in the north of England because Rugby Union was a purely amateur sport. League players have always been paid. Rugby League began in Sydney in the early 1900s. Rugby League is played mainly in Sydney, capital of New South Wales (NSW) and Queensland. The State of Origin series played annually between NSW and Queensland causes great excitement in those two States. The rest of Australia couldn't give two squirts of cat's piss, as my father would say. Attempts to establish Rugby League outside of NSW and Queensland have been marginally successful. The Melbourne Storm have done well on the field and have developed a small following in Victoria. Victorians are always prepared to give a good team a fair go, but efforts by the press to beat up the Storm haven't made much impression. Part of the beat up may be attributed to the fact that Rupert Murdoch's News Ltd has a financial interest in the game. Far more Victorians watched the Storm win the Rugby League grand final in Sydney than New South Welshmen watched the Sydney Swans beat Hawthorn in the AFL grand final in Melbourne.
Rugby League is the working man's sport. Its heartland is Sydney's western suburbs, what is commonly described as a 'lower socio-economic area.' Manly, the Sea Eagles, are known as the Silvertails. The AFL has established an expansion team, the Greater Western Sydney Giants, in the western suburbs coached by Kevin Sheedy, one of the AFL's great characters. Another expansion team has been established on Queensland's Gold Coast, also Rugby League territory. Both have been moderately successful, probably more so than the AFL marketing department hoped.
Rugby Union is largely played by public (that is, private) school boys, mainly in NSW and Queensland. Attempts have been made to establish Rugby Union teams in Perth, the Western Force, and in Melbourne, the Rebels to participate in the international Super Rugby competition with out a great deal of success.
What differentiates Melbourne from NSW and Queensland is that AFL is universal in Melbourne, while Rugby League and Rugby League divide NSW and Queensland along class lines.
If you are confused about the difference between League and Union, first you may wish to follow my wife who calls League 'the stupid one' and Union 'the smart one.' League consists of running head first into your opponents until you break through for a try. Union is said to be 'the game they play in heaven.' The rules are complex but a lot more appears to happen in Union rather than in League. Sorry, New Zealanders, who imagine we Aussies hang on every Wallabies game, most Aussies don't understand Rugby Union and apart from ex players, mostly private school old boys, aren't interested in it. Until recently, Union players weren't paid because they were all gentlemen who played for the love of the game and if you weren't a gentleman and needed the money, well, you could play League. Union is, outside ex-public school boys, a minor sport. That is not to say it is unimportant, as its followers tend to be well educated and financially secure.
I will call soccer soccer, because outside certain ethnic communities, no one calls it football. The soccer federation have been trying for years to get us to call it football, but we're not listening. They have also been trying for years to stop soccer being seen as an 'ethnic' or 'multicultural' sport. Australia has produced a few handy players like Harry Kewell and Craig Johnson but none of them have been world beaters. Until recently, every soccer team had some ethnic allegiance. Soccer has always had bigger crowds in Sydney, further fragmenting the football Codes. Soccer has never been popular among the Anglo Celts.
Frank Lowy, the brains behind the Westfield shopping empire, who is worth some $5 billion, has put a lot of time into trying to put soccer in Australia on a sounder financial footing. Soccer team ownership tends to attract immigrants and the sons of immigrants who have made good, because you need deep pockets to own a soccer team in Australia. However, the international framework of soccer is so corrupt that even Frfank Lowy doesn't have the money to by a World Cup final series for Australia. Frank Lowy was born in Czechoslovakia and is of Jewish origin. He is one of the most successful of Australia's entrepreneurs.
It is unfortunate that a boring, low scoring contest has become the World Game. If there was something to distract the young men who form the bulk of the crowds and allow them to discharge their testosterone, soccer crowd violence would probably be substantially reduced. The rules, apart from the off side rule, are very simple and you don't even need a ball to play -- you can use a rolled up piece of newspaper. Soccer is a good game to play, it's just not a good spectator sport. Australia doesn't have real slums, so you can't call soccer a slum sport. Soccer is popular with mothers who don't want to see their children exposed to the injuries that are an inevitable consequence of participation in the other Codes.
Finally, if you are American, I know it's hard to cope with the fact that there are four popular football Codes in Australia. No one in NSW really cares that the Sydney Swans won the Premiership and not many people in Melbourne care that a bunch of thick heads called the Storm won the League grand final. American Football unifies the nation; in Australia football divides the nation. And a final PS: there is no such thing as 'Australian Rugby football' or similar combinations: there are four distinct varieties of football in Australia and everyone is very possessive about their Code and their team.
Australia has four Codes, all claiming to be authentic football. They all have completely different rules, scoring systems and so on. The four Codes are Australian Football, Rugby League, Rugby Union and soccer.
The most financially viable Code is Australian Football, also referred to as Australian Rules Football or AFL, from the Australian Football League. AFL has at least two teams in all the mainland States. This is the football most people automatically think of when they think of Australian football. AFL originated in Melbourne, capital of Victoria, over 150 years ago. Some AFL clubs are among the oldest sporting clubs in the world. In Melbourne, AFL is not a game, it is a religion. A Melbourian is far more likely to get a divorce than change his or her football team. Your football team is a badge of identity you carry through your life. Conversion from being Protestant to being a Catholic may be considered extreme, but conversion from Carlton to Collingwood would be considered to be sacrilegious, almost insane.
AFL in Melbourne is a universal code. It is unchallenged as the city's first sporting love. No matter if you are a silvertail who supports Melbourne or a battler who supports the Western Bulldogs, there is a team for you in the AFL. AFL is part of the social cement that binds Melbourne together. AFL is part of the social ecology of Melbourne.
The second major Code is Rugby League. Rugby League originated in the north of England because Rugby Union was a purely amateur sport. League players have always been paid. Rugby League began in Sydney in the early 1900s. Rugby League is played mainly in Sydney, capital of New South Wales (NSW) and Queensland. The State of Origin series played annually between NSW and Queensland causes great excitement in those two States. The rest of Australia couldn't give two squirts of cat's piss, as my father would say. Attempts to establish Rugby League outside of NSW and Queensland have been marginally successful. The Melbourne Storm have done well on the field and have developed a small following in Victoria. Victorians are always prepared to give a good team a fair go, but efforts by the press to beat up the Storm haven't made much impression. Part of the beat up may be attributed to the fact that Rupert Murdoch's News Ltd has a financial interest in the game. Far more Victorians watched the Storm win the Rugby League grand final in Sydney than New South Welshmen watched the Sydney Swans beat Hawthorn in the AFL grand final in Melbourne.
Rugby League is the working man's sport. Its heartland is Sydney's western suburbs, what is commonly described as a 'lower socio-economic area.' Manly, the Sea Eagles, are known as the Silvertails. The AFL has established an expansion team, the Greater Western Sydney Giants, in the western suburbs coached by Kevin Sheedy, one of the AFL's great characters. Another expansion team has been established on Queensland's Gold Coast, also Rugby League territory. Both have been moderately successful, probably more so than the AFL marketing department hoped.
Rugby Union is largely played by public (that is, private) school boys, mainly in NSW and Queensland. Attempts have been made to establish Rugby Union teams in Perth, the Western Force, and in Melbourne, the Rebels to participate in the international Super Rugby competition with out a great deal of success.
What differentiates Melbourne from NSW and Queensland is that AFL is universal in Melbourne, while Rugby League and Rugby League divide NSW and Queensland along class lines.
If you are confused about the difference between League and Union, first you may wish to follow my wife who calls League 'the stupid one' and Union 'the smart one.' League consists of running head first into your opponents until you break through for a try. Union is said to be 'the game they play in heaven.' The rules are complex but a lot more appears to happen in Union rather than in League. Sorry, New Zealanders, who imagine we Aussies hang on every Wallabies game, most Aussies don't understand Rugby Union and apart from ex players, mostly private school old boys, aren't interested in it. Until recently, Union players weren't paid because they were all gentlemen who played for the love of the game and if you weren't a gentleman and needed the money, well, you could play League. Union is, outside ex-public school boys, a minor sport. That is not to say it is unimportant, as its followers tend to be well educated and financially secure.
I will call soccer soccer, because outside certain ethnic communities, no one calls it football. The soccer federation have been trying for years to get us to call it football, but we're not listening. They have also been trying for years to stop soccer being seen as an 'ethnic' or 'multicultural' sport. Australia has produced a few handy players like Harry Kewell and Craig Johnson but none of them have been world beaters. Until recently, every soccer team had some ethnic allegiance. Soccer has always had bigger crowds in Sydney, further fragmenting the football Codes. Soccer has never been popular among the Anglo Celts.
Frank Lowy, the brains behind the Westfield shopping empire, who is worth some $5 billion, has put a lot of time into trying to put soccer in Australia on a sounder financial footing. Soccer team ownership tends to attract immigrants and the sons of immigrants who have made good, because you need deep pockets to own a soccer team in Australia. However, the international framework of soccer is so corrupt that even Frfank Lowy doesn't have the money to by a World Cup final series for Australia. Frank Lowy was born in Czechoslovakia and is of Jewish origin. He is one of the most successful of Australia's entrepreneurs.
It is unfortunate that a boring, low scoring contest has become the World Game. If there was something to distract the young men who form the bulk of the crowds and allow them to discharge their testosterone, soccer crowd violence would probably be substantially reduced. The rules, apart from the off side rule, are very simple and you don't even need a ball to play -- you can use a rolled up piece of newspaper. Soccer is a good game to play, it's just not a good spectator sport. Australia doesn't have real slums, so you can't call soccer a slum sport. Soccer is popular with mothers who don't want to see their children exposed to the injuries that are an inevitable consequence of participation in the other Codes.
Finally, if you are American, I know it's hard to cope with the fact that there are four popular football Codes in Australia. No one in NSW really cares that the Sydney Swans won the Premiership and not many people in Melbourne care that a bunch of thick heads called the Storm won the League grand final. American Football unifies the nation; in Australia football divides the nation. And a final PS: there is no such thing as 'Australian Rugby football' or similar combinations: there are four distinct varieties of football in Australia and everyone is very possessive about their Code and their team.
Thursday 4 October 2012
Aussie dollar unlikely to collapse
There's no secret why Glenn Stevens, governor of the Reserve Bank of Australia (RBA), cut the cash rate by 25 basis points (bps) to 3.25% on Wednesday 2 October 2012 -- to use his own words "investment in dwellings has remained subdued", prices for non-residential real estate have remained weak, the labour market is softening and the exchange rate has remained stubbornly high. What he didn't spell out is that manufacturing is falling off a cliff due the the high exchange rate and Australia's main export industries are rapidly following manufacturing over the same cliff. Lowering the exchange rate may aid manufacturing industry, but it's not going to turn the balance of payments deficit around. And the little Aussie battler will continue to remain "stubbornly high."
Why then is the Aussie dollar holding up so well, much to the displeasure, we presume, of Governor Stevens? On Thursday 4 October the A$/US$ rate was 1.0213. For one thing, the Aussie dollar is one of the top ten traded currencies in the world, despite the fact that many economies are bigger than Australia. This means that the Aussie dollar doesn't always trade on its fundamentals.
Second, even though interest rates are, by Australian standards, low they are still higher than Japan, for example. This gives rise to the carry trade, where Japanese housewives borrow in yen and buy the Aussie dollar, trading, so it is said, on their cell phones.
Third, a growing number of central banks now hold the Aussie dollar as a core holding of their reserves, as it is seen as a stable currency with good fundamentals (well, better than most) and Australia has a relatively low level of sovereign debt.
Fourth, it's likely the RBA will cut by 25 bps towards the end of 2012 but anything more than that would be regarded as a sign of desperation. An Australian version of quantitative easing (QE) is unlikely, so the Aussie dollar is likely to remain supported in foreign exchange (FX) markets as a hard currency. The Swiss franc is too hard, even for the Swiss who have been buying euros to hold it down. The Aussie dollar may not by the Pacific franc, but it's certainly no longer the Pacific peso. Given an inflation rate of 1.2% and positive interest rates, the Aussie dollar is looking better than a lot of other currencies. With the US rolling out QE3 and the near certainty it will lose its AAA rating some time next year, the world's central banks will be looking for a safe haven for their money.
What are the negatives for the Aussie dollar?
Australia's main export commodities are in retreat. Coal volumes are falling and iron ore shipments to China are in retreat. International grain prices are excellent, with droughts in the US and Russia, but growing conditions in southern and western Australia have been patchy. Gas is being promoted, but the US will start shipping shale gas to Asia from 2015 at half Australia's price. The US is likely to become a net gas exporter and US crude production is at 6.52 million barrels per day, a 15 year high according to Australian stockbroker Ord Minnett. Australia has developed a structural deficiency in liquid petroleum and the international petroleum giants are shutting down their small, outdated Australian refineries, meaning more imports of processed petroleum products. In the last balance of payments figures, Australian showed a shock $2 billion deficit.
New spending programs announced so far this year by Julia Gillard's Labor government will punch a $20 to $25 billion hole in the Budget. Even her own backbenchers are getting worried, as tax revenues are beginning to fall sharply. Revenues from the mining tax will not meet expectations. The ALP is trying to buy the next election, hoping the electorate won't ask "who's paying the bill?"
The Australian housing market is looking weak, with anecdotal evidence of dramatic falls in residential property prices in the resource-rich states of Western Australia and Queensland, which have been carrying the rest of the nation. Real estate prices in Queensland coal towns have halved and the locals are moving back in. Prices in New South Wales and Victoria, the two most populous states, remain soft. Prestige properties (over $2 million) have been especially hard hit. As residential property is the main asset class for the Big Four banks, any dramatic fall in residential property prices would destablise (but not bankrupt) the Big Four banks and possibly wipe out some of the minnows. (See 'Time to short Australian residential property?)
One thing you can say about Australia, at least at the Federal level, is that outright thievery is rare. The RBA, despite its marginal involvement in the polymer banknotes scandal, is both honest and transparent The Australian Prudential Regulation Authority (APRA) now supervises authorised deposit taking institutions If Australia was as good at building companies as it is at building bureaucracies, we would all be far richer.
Thus, the Aussie is unlikely to fall markedly, at least in the short to medium term. One suspects that Governor Stevens will soon be getting a few worried calls from Treasurer Wayne Swan to "do something." but there's not going to be much he can do. The RBA is a statutory body that is independent of the Federal Government and what Wayne Swan wishes is unlikely to overly sway RBA Governor Glenn Stevens.
Why then is the Aussie dollar holding up so well, much to the displeasure, we presume, of Governor Stevens? On Thursday 4 October the A$/US$ rate was 1.0213. For one thing, the Aussie dollar is one of the top ten traded currencies in the world, despite the fact that many economies are bigger than Australia. This means that the Aussie dollar doesn't always trade on its fundamentals.
Second, even though interest rates are, by Australian standards, low they are still higher than Japan, for example. This gives rise to the carry trade, where Japanese housewives borrow in yen and buy the Aussie dollar, trading, so it is said, on their cell phones.
Third, a growing number of central banks now hold the Aussie dollar as a core holding of their reserves, as it is seen as a stable currency with good fundamentals (well, better than most) and Australia has a relatively low level of sovereign debt.
Fourth, it's likely the RBA will cut by 25 bps towards the end of 2012 but anything more than that would be regarded as a sign of desperation. An Australian version of quantitative easing (QE) is unlikely, so the Aussie dollar is likely to remain supported in foreign exchange (FX) markets as a hard currency. The Swiss franc is too hard, even for the Swiss who have been buying euros to hold it down. The Aussie dollar may not by the Pacific franc, but it's certainly no longer the Pacific peso. Given an inflation rate of 1.2% and positive interest rates, the Aussie dollar is looking better than a lot of other currencies. With the US rolling out QE3 and the near certainty it will lose its AAA rating some time next year, the world's central banks will be looking for a safe haven for their money.
What are the negatives for the Aussie dollar?
Australia's main export commodities are in retreat. Coal volumes are falling and iron ore shipments to China are in retreat. International grain prices are excellent, with droughts in the US and Russia, but growing conditions in southern and western Australia have been patchy. Gas is being promoted, but the US will start shipping shale gas to Asia from 2015 at half Australia's price. The US is likely to become a net gas exporter and US crude production is at 6.52 million barrels per day, a 15 year high according to Australian stockbroker Ord Minnett. Australia has developed a structural deficiency in liquid petroleum and the international petroleum giants are shutting down their small, outdated Australian refineries, meaning more imports of processed petroleum products. In the last balance of payments figures, Australian showed a shock $2 billion deficit.
New spending programs announced so far this year by Julia Gillard's Labor government will punch a $20 to $25 billion hole in the Budget. Even her own backbenchers are getting worried, as tax revenues are beginning to fall sharply. Revenues from the mining tax will not meet expectations. The ALP is trying to buy the next election, hoping the electorate won't ask "who's paying the bill?"
The Australian housing market is looking weak, with anecdotal evidence of dramatic falls in residential property prices in the resource-rich states of Western Australia and Queensland, which have been carrying the rest of the nation. Real estate prices in Queensland coal towns have halved and the locals are moving back in. Prices in New South Wales and Victoria, the two most populous states, remain soft. Prestige properties (over $2 million) have been especially hard hit. As residential property is the main asset class for the Big Four banks, any dramatic fall in residential property prices would destablise (but not bankrupt) the Big Four banks and possibly wipe out some of the minnows. (See 'Time to short Australian residential property?)
One thing you can say about Australia, at least at the Federal level, is that outright thievery is rare. The RBA, despite its marginal involvement in the polymer banknotes scandal, is both honest and transparent The Australian Prudential Regulation Authority (APRA) now supervises authorised deposit taking institutions If Australia was as good at building companies as it is at building bureaucracies, we would all be far richer.
Thus, the Aussie is unlikely to fall markedly, at least in the short to medium term. One suspects that Governor Stevens will soon be getting a few worried calls from Treasurer Wayne Swan to "do something." but there's not going to be much he can do. The RBA is a statutory body that is independent of the Federal Government and what Wayne Swan wishes is unlikely to overly sway RBA Governor Glenn Stevens.
Monday 1 October 2012
Master of the market: Warren Buffett's secrets
The Chinese have a fascination for money. Without doubt, their greatest hero is Warren Buffett because he started out with nothing and became one of the wealthiest people in the world solely by investing on the stock market. Bill Gates is a geek but Warren Buffet is an investor.
At the China Post in Taipei, where I was employed as chief copy editor, I was regarded as the in-house expert on Warren Buffett. We had a graphic biography sent to us, which the publisher, Jack Huang asked me to review. The publisher also sent me along to a two-way satellite meeting with Peter Lynch of Fidelity Investments, who was also regarded with awe by local investors. His famous dictum was "invest in what you know."
Warren Buffett was the son of a stockbroker who fell on hard times in the Depression. Buffett was a pupil of Benjamin Graham, the originator of value investing. Graham said Buffett was the most outstanding student he had ever had but refused to give him a job.
Several Jewish friends of mine have asked me if Warren Buffett is Jewish. He is not Jewish. Benjamin Graham refused to give him a job because there was great discrimination against Jews and Buffett was not Jewish at a time when many Jews in the finance industry were unemployed. Graham was Jewish.
Buffett lives in Omaha, Nebraska. He is said to live in a very plain, middle class house. A friend of mine who studied at the University of Nebraska at Omaha said they sent him an invitation every year for him to address their Commencement but he never replied. A Commencement is a rather peculiar American term for what we Australians would call a graduation ceremony. She said they went out a few times trying to find Buffet's house, but they never succeeded.
Nebraska is on the Great Plains. The entire State has a population less than half that of suburban Melbourne. Nebraska is a treeless prairie -- very flat, prone to tornadoes and thunderstorms, very good for running cattle, producing other agricultural products and not much else. It is, however, rumored to be home to silos housing Inter Continental Ballistic Missiles (ICBMs.)
What is Warren Buffett doing there? He's a folksy man and would fit in well. Nebraska tends to produce Republicans of the moderate sort such as Gerald Ford, who was born there. William Jennings Bryan, the Little Giant, edited the Omaha World Herald and represented a Nebraska district in the US Congress. His "Cross of Gold" oration, advocating free coinage of silver, to the Democratic National Convention in Chicago in 1896 is said to be the most famous speech in American political history.
Buffett has always had a profound admiration for cheap money. He discovered this early on when involved in the advertising coupon business. The money would be paid up front, which he could use as a free float. That's why he likes the insurance business. The policy holder pays his his premium, which the insurer keeps and invests until a claim is made on the policy. This is not rocket science, it's been standard practice for centuries, but it's one thing to know the theory and another to put it into practice. The Buttonwood column in the latest issue of the Economist (29 Sept. 2012) puts Warren Buffett's success down to two man factors -- leverage, and low beta stocks. The Economist estimates Buffett is leveraged by about 60% but the insurance companies have been essential at times when the market has been down and raising money has been difficult.
The low beta theory is more interesting. High beta stocks bounce around a lot, low beta stocks don't. Just like Dame Edna's dear little New Australians, investors like colour and movement. After all, "active management" is all about beating the market average, so you need high beta stocks. Of course, when the market retreats, so do the high beta stocks. If you get a 4% management fee when the market is up but you are beating the market, your investors won't mind, but if you're still charging 4% when the market is down, they will (or should) be screaming like stuck pigs. But as Alfred E Neuman said in Mad Magazine "What? Me worry?" Of course, you can invest in Vanguard whose funds track the market. In the US Vanguard boasts "In passive we're massive" and their management fees are much lower, but that's not nearly as much fun.
Buffett has stuck to low beta stocks but as he said "it's far better to buy a wonderful company at a fair price than fair company at a wonderful price." Some stocks he has held for decades, like CocaCola. Some he has snapped up opportunistically, such as when General Electric was almost blown up by GE Money during the global financial crisis. GE was funding its enormous loan book with short term money which dried up overnight. Buffett did some very good deals with Goldman Sachs and San Francisco-based Wells Fargo.
It's the combination of leverage and brilliant low-beta stockpicking that's put Buffett where he is today. The man who is widely regarded as the the greatest investor of this century is worth $47 billion, making him the third richest man in the world.
Just to clear up one thing. Buffett intends to give the bulk of his fortune to his good friend and bridge buddy Bill Gates to disperse as charity. But he is a philanthropist, not an altruist. He believes that altruism and business do not mix. Good deeds don't make good business.
At the China Post in Taipei, where I was employed as chief copy editor, I was regarded as the in-house expert on Warren Buffett. We had a graphic biography sent to us, which the publisher, Jack Huang asked me to review. The publisher also sent me along to a two-way satellite meeting with Peter Lynch of Fidelity Investments, who was also regarded with awe by local investors. His famous dictum was "invest in what you know."
Warren Buffett was the son of a stockbroker who fell on hard times in the Depression. Buffett was a pupil of Benjamin Graham, the originator of value investing. Graham said Buffett was the most outstanding student he had ever had but refused to give him a job.
Several Jewish friends of mine have asked me if Warren Buffett is Jewish. He is not Jewish. Benjamin Graham refused to give him a job because there was great discrimination against Jews and Buffett was not Jewish at a time when many Jews in the finance industry were unemployed. Graham was Jewish.
Buffett lives in Omaha, Nebraska. He is said to live in a very plain, middle class house. A friend of mine who studied at the University of Nebraska at Omaha said they sent him an invitation every year for him to address their Commencement but he never replied. A Commencement is a rather peculiar American term for what we Australians would call a graduation ceremony. She said they went out a few times trying to find Buffet's house, but they never succeeded.
Nebraska is on the Great Plains. The entire State has a population less than half that of suburban Melbourne. Nebraska is a treeless prairie -- very flat, prone to tornadoes and thunderstorms, very good for running cattle, producing other agricultural products and not much else. It is, however, rumored to be home to silos housing Inter Continental Ballistic Missiles (ICBMs.)
What is Warren Buffett doing there? He's a folksy man and would fit in well. Nebraska tends to produce Republicans of the moderate sort such as Gerald Ford, who was born there. William Jennings Bryan, the Little Giant, edited the Omaha World Herald and represented a Nebraska district in the US Congress. His "Cross of Gold" oration, advocating free coinage of silver, to the Democratic National Convention in Chicago in 1896 is said to be the most famous speech in American political history.
Buffett has always had a profound admiration for cheap money. He discovered this early on when involved in the advertising coupon business. The money would be paid up front, which he could use as a free float. That's why he likes the insurance business. The policy holder pays his his premium, which the insurer keeps and invests until a claim is made on the policy. This is not rocket science, it's been standard practice for centuries, but it's one thing to know the theory and another to put it into practice. The Buttonwood column in the latest issue of the Economist (29 Sept. 2012) puts Warren Buffett's success down to two man factors -- leverage, and low beta stocks. The Economist estimates Buffett is leveraged by about 60% but the insurance companies have been essential at times when the market has been down and raising money has been difficult.
The low beta theory is more interesting. High beta stocks bounce around a lot, low beta stocks don't. Just like Dame Edna's dear little New Australians, investors like colour and movement. After all, "active management" is all about beating the market average, so you need high beta stocks. Of course, when the market retreats, so do the high beta stocks. If you get a 4% management fee when the market is up but you are beating the market, your investors won't mind, but if you're still charging 4% when the market is down, they will (or should) be screaming like stuck pigs. But as Alfred E Neuman said in Mad Magazine "What? Me worry?" Of course, you can invest in Vanguard whose funds track the market. In the US Vanguard boasts "In passive we're massive" and their management fees are much lower, but that's not nearly as much fun.
Buffett has stuck to low beta stocks but as he said "it's far better to buy a wonderful company at a fair price than fair company at a wonderful price." Some stocks he has held for decades, like CocaCola. Some he has snapped up opportunistically, such as when General Electric was almost blown up by GE Money during the global financial crisis. GE was funding its enormous loan book with short term money which dried up overnight. Buffett did some very good deals with Goldman Sachs and San Francisco-based Wells Fargo.
It's the combination of leverage and brilliant low-beta stockpicking that's put Buffett where he is today. The man who is widely regarded as the the greatest investor of this century is worth $47 billion, making him the third richest man in the world.
Just to clear up one thing. Buffett intends to give the bulk of his fortune to his good friend and bridge buddy Bill Gates to disperse as charity. But he is a philanthropist, not an altruist. He believes that altruism and business do not mix. Good deeds don't make good business.
Friday 28 September 2012
The market and me: a stockpicker's confession
I have been trading shares since I was 18 and my last big loss was when the music retail chain Brashes went broke in 1998. I wish I could say I was a great success as a stockpicker, but I can't. I have made money consistently but the only chance I have had to make big money was with Webjet which I bought for 5 cents. Webjet closed on Friday 28 September 2012 at $4.09. I got a bad case of cold feet and pulled out. At the time, the broker was despairing and said I was the only person who'd made money on Webjet. Famous last words.
I bought my first stock with Eyres Reed in Perth from Peter Eyres, nephew of the firm's principal, Gordon Eyres. I bought 2,000 Ferrovanadium Corp at 9 cents. I said they were a long term investment -- 18 months. Peter Eyres expressed some astonishment, as holding anything beyond the close of trade was considered to be a long term investment in those days. This was in 1971, at the tail end of the nickel boom. Ferrovanadium owned a vandadium deposit at Barrambie, north of Meekathara in outback Western Australia. I had an insider tip that the mine would be developed "within 18 months". It's now 2012 and it's still waiting to be developed. All Ferrovanadium's assets were sold in exchange for two stripper wells, in Arkansas, I believe. At the time, I had a good laugh but I could afford to -- by then I had sold out. I was reminded of Mark Twain's definition of a gold mine -- "a hole in the ground surrounded by liars". Vanadium, by the way, is used to make tool steels and there is an eternal shortage, but never severe enough apparently for anyone to bother developing the Barrambie mine.
I did not buy more shares following my less than satisfactory experience with Ferrovadium until I returned from Taiwan in 1982. I spoke to Gordon Eyres and we bought a very good portfolio based on Western Australian regional companies -- Calsil, Peters WA, WA Trustees, Swan Brewery and several others. I made money on all of them. They have all ceased to exist as independent companies. By the time the so called "entrepreneurs" got going, it was like shooting fish in a barrel. I was continually being harrassed by companies soliciting my stocks in takeovers or proxy battles. I well remember jumping up and down for joy when John Elliott announced a bid for Carlton and United Breweries (CUB) , which I held. When the government announced overseas invested companies such as Cadbury Scwheppes and P&O would no longer be required to have a local minority shareholding it was almost like getting free money when they took out the minorities.
Owning stocks used to be fun. The Central Norseman Gold Mines AGM was held about half an hour before the Western Mining AGM. When Central Norseman found some new gold and was actually making money, Hugh Morgan would be harranged by the shareholders, numbering in total about 20, all over 70, who demanded to know when the firm would pay a dividend. "I've held this bloody stock since since the 1950s and want to get a divie out of it before I die" yelled one elderly gentleman at Hugh Morgan. Of course, the Central Norsemen AGM was held in the expectation that they were also WMC holders and wouldn't delay the WMC AGM by asking too many awkward questions. While all shareholders are entitled to attend the AGM, those that do can be broken down into two groups -- the analysts and other serious investors and the retirees, who turn up for the refreshments. BHP Goldmines had a great spread, while one other well-known firm, which invited shareholders to stay for a "cup of tea and a biscuit" provided exactly that.
The best advice I've had on trading shares is "when the ship starts sinking, don't just stand there, jump!" That adage may have cost me some money from time to time, it has also saved me many thousands of dollars. When it comes to "trade or buy and hold", most people don't hold, they just don't do anything. Those who've held the punters' favourites like BHP and the Big Four banks have done well, not because they've had a conscious strategy to hold, but because they've done bugger all. When another one of my mother's shares goes bust, most recently Alseco, which collapsed from $12 to near zero, she will tell me as if imparting some great secret that a capital loss is a tax deduction. As I tell her with great restraint you can only offset a capital loss against a capital gain and she has never -- not once in 20 years -- taken a profit.
While I have made consistent profits, they have not been great profits --- useful, rather than spectacular. I would like to turn my attention two two men who have made real money.
You would never guess John Babb was a wealthy man. He was a taxi driver, known to his fellow cabbies as "night and day" because he wouldn't stop working. He read the Financial Review, often dropped in on the Stock Exchange of Melbourne when all trades were recorded on the chalk board in the exchange in Collins Street. He kept is ear to the ground, and he had the ear of -- and an account with -- just about every major broker in Melbourne. He bought Poseidon twice in its journey to $280 in February 1970. Although I spoke to John many times, usually at least twice a week, I never found out just why he was so much better than me as a stock picker. Towards the end he started losing his touch -- he did $20,000 cold when Budget Rent a Car went bust a few days after it floated. He lost a lot of money but he made a lot more money. He bought News Ltd on the float and made many hundreds of thousands.
"Big Bill Baillieu" is the most influential businessman Australia has ever known. Asked why his floats often did better in London than Australia, he is reputed to have said "the further you get from a mine, the better it looks." His career is recorded in one of the best business biographies of the post-war era "William Lawrence Baillieu: Founder of Australia's Greatest Business Empire" by Peter Yule (Hardie Grant, 2012). His fortune was founded on the the mines of Broken Hill and encompassed just about every sphere of Australian business. He was an entrepreneur in the true sense of the word.
Over the period I have owned stocks, I have dealt with brokers in all mainland States. A very few of them are crooks; most are just following advice produced by the research department or pushing what they are told to sell. Some are very good. They almost always have "skin in the game." The two best brokers I have dealt with are Gordon Eyres of Eyres Reed and Ian Gillion of Gilllon Derham. Ian was the odd lots broker to the Exchange. In the old days, you had to deal in a "marketable parcel" of a certain number of shares. If you had an "odd lot", that is, a small number of shares, Ian Gillon would buy them from you at a deep discount. Ian's daughter, Sally, also worked in the business. I recall one day calling into the Gillion Derham office to deliver a cheque and asked Sally what Santos were doing. She looked at the Reuters screen and
said "you'd better be quick, they've just struck oil." It turned out it was a development well in the Cooper Basin. I had a good laugh with Ian about that later but the stock did well.
A computer screen is a lot more efficient than dealing direct with a broker. It is also a lot less fun and doesn't know what the current gossip is. If you want a price, you are a lot less likely to follow it up with an order, which is probably a good thing. When deregulation came the Australian share market, Ian Gillion said "It's completely stuffed this business. I think he was right.
If you want a tip, I have held Swan Breweries, CUB, Wolf Blass Wines, Mildara, SA Brewing (which became Southcorp), Foster's and made money on all of them. I now hold Treasury Wines Estates and I'm doing very well on them, so if you want a tip, buy TWE. As the US economy recovers they will gradual.ly improve and the will be a very tempting morsel for any international buyers who wants to get their hands on Australia's best brands. Did I hear China?
I bought my first stock with Eyres Reed in Perth from Peter Eyres, nephew of the firm's principal, Gordon Eyres. I bought 2,000 Ferrovanadium Corp at 9 cents. I said they were a long term investment -- 18 months. Peter Eyres expressed some astonishment, as holding anything beyond the close of trade was considered to be a long term investment in those days. This was in 1971, at the tail end of the nickel boom. Ferrovanadium owned a vandadium deposit at Barrambie, north of Meekathara in outback Western Australia. I had an insider tip that the mine would be developed "within 18 months". It's now 2012 and it's still waiting to be developed. All Ferrovanadium's assets were sold in exchange for two stripper wells, in Arkansas, I believe. At the time, I had a good laugh but I could afford to -- by then I had sold out. I was reminded of Mark Twain's definition of a gold mine -- "a hole in the ground surrounded by liars". Vanadium, by the way, is used to make tool steels and there is an eternal shortage, but never severe enough apparently for anyone to bother developing the Barrambie mine.
I did not buy more shares following my less than satisfactory experience with Ferrovadium until I returned from Taiwan in 1982. I spoke to Gordon Eyres and we bought a very good portfolio based on Western Australian regional companies -- Calsil, Peters WA, WA Trustees, Swan Brewery and several others. I made money on all of them. They have all ceased to exist as independent companies. By the time the so called "entrepreneurs" got going, it was like shooting fish in a barrel. I was continually being harrassed by companies soliciting my stocks in takeovers or proxy battles. I well remember jumping up and down for joy when John Elliott announced a bid for Carlton and United Breweries (CUB) , which I held. When the government announced overseas invested companies such as Cadbury Scwheppes and P&O would no longer be required to have a local minority shareholding it was almost like getting free money when they took out the minorities.
Owning stocks used to be fun. The Central Norseman Gold Mines AGM was held about half an hour before the Western Mining AGM. When Central Norseman found some new gold and was actually making money, Hugh Morgan would be harranged by the shareholders, numbering in total about 20, all over 70, who demanded to know when the firm would pay a dividend. "I've held this bloody stock since since the 1950s and want to get a divie out of it before I die" yelled one elderly gentleman at Hugh Morgan. Of course, the Central Norsemen AGM was held in the expectation that they were also WMC holders and wouldn't delay the WMC AGM by asking too many awkward questions. While all shareholders are entitled to attend the AGM, those that do can be broken down into two groups -- the analysts and other serious investors and the retirees, who turn up for the refreshments. BHP Goldmines had a great spread, while one other well-known firm, which invited shareholders to stay for a "cup of tea and a biscuit" provided exactly that.
The best advice I've had on trading shares is "when the ship starts sinking, don't just stand there, jump!" That adage may have cost me some money from time to time, it has also saved me many thousands of dollars. When it comes to "trade or buy and hold", most people don't hold, they just don't do anything. Those who've held the punters' favourites like BHP and the Big Four banks have done well, not because they've had a conscious strategy to hold, but because they've done bugger all. When another one of my mother's shares goes bust, most recently Alseco, which collapsed from $12 to near zero, she will tell me as if imparting some great secret that a capital loss is a tax deduction. As I tell her with great restraint you can only offset a capital loss against a capital gain and she has never -- not once in 20 years -- taken a profit.
While I have made consistent profits, they have not been great profits --- useful, rather than spectacular. I would like to turn my attention two two men who have made real money.
You would never guess John Babb was a wealthy man. He was a taxi driver, known to his fellow cabbies as "night and day" because he wouldn't stop working. He read the Financial Review, often dropped in on the Stock Exchange of Melbourne when all trades were recorded on the chalk board in the exchange in Collins Street. He kept is ear to the ground, and he had the ear of -- and an account with -- just about every major broker in Melbourne. He bought Poseidon twice in its journey to $280 in February 1970. Although I spoke to John many times, usually at least twice a week, I never found out just why he was so much better than me as a stock picker. Towards the end he started losing his touch -- he did $20,000 cold when Budget Rent a Car went bust a few days after it floated. He lost a lot of money but he made a lot more money. He bought News Ltd on the float and made many hundreds of thousands.
"Big Bill Baillieu" is the most influential businessman Australia has ever known. Asked why his floats often did better in London than Australia, he is reputed to have said "the further you get from a mine, the better it looks." His career is recorded in one of the best business biographies of the post-war era "William Lawrence Baillieu: Founder of Australia's Greatest Business Empire" by Peter Yule (Hardie Grant, 2012). His fortune was founded on the the mines of Broken Hill and encompassed just about every sphere of Australian business. He was an entrepreneur in the true sense of the word.
Over the period I have owned stocks, I have dealt with brokers in all mainland States. A very few of them are crooks; most are just following advice produced by the research department or pushing what they are told to sell. Some are very good. They almost always have "skin in the game." The two best brokers I have dealt with are Gordon Eyres of Eyres Reed and Ian Gillion of Gilllon Derham. Ian was the odd lots broker to the Exchange. In the old days, you had to deal in a "marketable parcel" of a certain number of shares. If you had an "odd lot", that is, a small number of shares, Ian Gillon would buy them from you at a deep discount. Ian's daughter, Sally, also worked in the business. I recall one day calling into the Gillion Derham office to deliver a cheque and asked Sally what Santos were doing. She looked at the Reuters screen and
said "you'd better be quick, they've just struck oil." It turned out it was a development well in the Cooper Basin. I had a good laugh with Ian about that later but the stock did well.
A computer screen is a lot more efficient than dealing direct with a broker. It is also a lot less fun and doesn't know what the current gossip is. If you want a price, you are a lot less likely to follow it up with an order, which is probably a good thing. When deregulation came the Australian share market, Ian Gillion said "It's completely stuffed this business. I think he was right.
If you want a tip, I have held Swan Breweries, CUB, Wolf Blass Wines, Mildara, SA Brewing (which became Southcorp), Foster's and made money on all of them. I now hold Treasury Wines Estates and I'm doing very well on them, so if you want a tip, buy TWE. As the US economy recovers they will gradual.ly improve and the will be a very tempting morsel for any international buyers who wants to get their hands on Australia's best brands. Did I hear China?
Time to short Australian residential property?
A close relative of mine returned recently from New York, where he worked on mergers and acquisitions for a major international commerical law firm located within a stone's throw of the New York Stock Exchange. As an official member of the New York Bar, he was fully qualified to work on some of history's biggest deals -- exactly which ones he wasn't permitted to disclose. On his return to Australia, he did announce one thing -- that he, along with just about every institutional investor in the US, believes Australian residential property is 50% overvalued. he said he wouldn't be buying a residence until property prices are a lot lower.
Just how justifed is this? Michael Lewis in his best seller "The Big Short" (Penguin, 2010) shows how the lunatics took over the Wall Street asylum. What we in Australia call the global financial crisis (GFC) was due to financial engineers manufacturing products no-one understood which were then forced down the throats of borrowers who didn't understand them either. The infamous NINJA loans (no income, no job, no assets) were a one way bet that house prices would keep rising -- and not just rise, but rise consistentally and substantially. Of course, that bet didn't pay off but the feeding frenzy that accompanied the massive profits generated by mortgage backed securities blinded all but a prescient few that America's banking system was headed towards disaster and would likely drag the rest of the world with it.
Australia's RMBS (residential mortgage backed securirties) market was a cheap source of wholesale funds before the GFC. Now few foreigners will touch the RMBS market. Australian boss of the bond Goliath Pimco "speaking personally" says most instituional investors believe Australian residential real estate is the world's biggest property bubble. One might say, however, if it is a bubble, it has remained inflated for a very long time without deflating. In addition, major lenders are said to evaluate low doc/no doc loans very carefully, although evidence exists that mortgage originators do turn a blind eye to applicants who do not meet the required criteria. The major banks are still trying to sort out the mess they were landed in through their association with Queensland-based Storm Financial, which will cost them hundreds of millions of dollars. On the whole, the banks' loan standards are high and they are under no pressure to shower the indigent with a gushing fountain of money.
One, then, should look at the macro factors driving rhe Australian economy. No prizes will be awarded to those who nominate China. The "China put" is looking very shaky. Shipments of one of Australia's main export, iron ore, have fallen 16% this year, the first reversal in almost two decades. Increasingly, it is looking like China's "borrow to export" model has hit the wall, with the currrent slowdown heralding a new phase of China's development rather than a cyclical downturn. The much-discussed shift to a consumer-based economy doesn't seem to be happening. Most people are too busy staying alive and saving for education, medical treatment and their old age to be too worried ablout consumer goods. And by the way, Shanghai has one of the world's lowest birth rates -- no new consumers.
Another factor is US shale gas coming on line. The first gas exports from the US to Asia set to begin in 2015. The US can supply Asia at 20% of rhe current price The current price is set by reference to the crude oil price. Some elements of Australia's so-called "investment pipeline" are beginning to look even more marginal, such as the coal seam gas projects, which are already marginal. Within 15 years, the US will be a net energy exporter. They have so much shale gas they literally don't know what to do with it all.
In the event of a real crash in the Australian residential market, what would happen? According to a recent IMF "stress test", in an "Ireland scenario", where house prices halve and unemployment rises to 16% , the Big Four would have to raise capital, but they would survive.
Moody's, the most respected of the three major international ratings agencies, has recently re-risked Australian RMBS. This has not been favourably received. Moody's has factored in the China slowdown but not a "black swan" event such as hostilities between China and Japan in the East China Sea over rhe Senkaku islands disrupting two-way trade.
National Australia Bank's June 2012 property survey shows a generalised weakening of residential property, with ongoing weakness in New South Wales and Victoria, the two most populous states. Wesstern Australia and Queensland, the two resource-rich states, are showing modest growth. NAB does not expect sustained growth across the nation for at least two years. NAB's next survey will be released in mid October.
In all, Australian property does seem overvalued from an international perspetive but Australia has been enjoying the best terms of trade for a century. Australia is by any measure a remarkably propserous nation. But now it's when the merry-go-round stops, rather than if. As Warren Buffett, the Sage of Omaha said, it's only when the tide goes out you see who's been swimming naked. As far as I can see, we'll all be observing a gentleman called Tony Abbott to see if he's got his budgie smugglers on. Julia Gillard will be by that time, we can only hope, back in the changing rooms.
In the meantime, there's an old market adage to keep in mind:
He who sells what isn't his'n
Must pay the price or go to prison
Just how justifed is this? Michael Lewis in his best seller "The Big Short" (Penguin, 2010) shows how the lunatics took over the Wall Street asylum. What we in Australia call the global financial crisis (GFC) was due to financial engineers manufacturing products no-one understood which were then forced down the throats of borrowers who didn't understand them either. The infamous NINJA loans (no income, no job, no assets) were a one way bet that house prices would keep rising -- and not just rise, but rise consistentally and substantially. Of course, that bet didn't pay off but the feeding frenzy that accompanied the massive profits generated by mortgage backed securities blinded all but a prescient few that America's banking system was headed towards disaster and would likely drag the rest of the world with it.
Australia's RMBS (residential mortgage backed securirties) market was a cheap source of wholesale funds before the GFC. Now few foreigners will touch the RMBS market. Australian boss of the bond Goliath Pimco "speaking personally" says most instituional investors believe Australian residential real estate is the world's biggest property bubble. One might say, however, if it is a bubble, it has remained inflated for a very long time without deflating. In addition, major lenders are said to evaluate low doc/no doc loans very carefully, although evidence exists that mortgage originators do turn a blind eye to applicants who do not meet the required criteria. The major banks are still trying to sort out the mess they were landed in through their association with Queensland-based Storm Financial, which will cost them hundreds of millions of dollars. On the whole, the banks' loan standards are high and they are under no pressure to shower the indigent with a gushing fountain of money.
One, then, should look at the macro factors driving rhe Australian economy. No prizes will be awarded to those who nominate China. The "China put" is looking very shaky. Shipments of one of Australia's main export, iron ore, have fallen 16% this year, the first reversal in almost two decades. Increasingly, it is looking like China's "borrow to export" model has hit the wall, with the currrent slowdown heralding a new phase of China's development rather than a cyclical downturn. The much-discussed shift to a consumer-based economy doesn't seem to be happening. Most people are too busy staying alive and saving for education, medical treatment and their old age to be too worried ablout consumer goods. And by the way, Shanghai has one of the world's lowest birth rates -- no new consumers.
Another factor is US shale gas coming on line. The first gas exports from the US to Asia set to begin in 2015. The US can supply Asia at 20% of rhe current price The current price is set by reference to the crude oil price. Some elements of Australia's so-called "investment pipeline" are beginning to look even more marginal, such as the coal seam gas projects, which are already marginal. Within 15 years, the US will be a net energy exporter. They have so much shale gas they literally don't know what to do with it all.
In the event of a real crash in the Australian residential market, what would happen? According to a recent IMF "stress test", in an "Ireland scenario", where house prices halve and unemployment rises to 16% , the Big Four would have to raise capital, but they would survive.
Moody's, the most respected of the three major international ratings agencies, has recently re-risked Australian RMBS. This has not been favourably received. Moody's has factored in the China slowdown but not a "black swan" event such as hostilities between China and Japan in the East China Sea over rhe Senkaku islands disrupting two-way trade.
National Australia Bank's June 2012 property survey shows a generalised weakening of residential property, with ongoing weakness in New South Wales and Victoria, the two most populous states. Wesstern Australia and Queensland, the two resource-rich states, are showing modest growth. NAB does not expect sustained growth across the nation for at least two years. NAB's next survey will be released in mid October.
In all, Australian property does seem overvalued from an international perspetive but Australia has been enjoying the best terms of trade for a century. Australia is by any measure a remarkably propserous nation. But now it's when the merry-go-round stops, rather than if. As Warren Buffett, the Sage of Omaha said, it's only when the tide goes out you see who's been swimming naked. As far as I can see, we'll all be observing a gentleman called Tony Abbott to see if he's got his budgie smugglers on. Julia Gillard will be by that time, we can only hope, back in the changing rooms.
In the meantime, there's an old market adage to keep in mind:
He who sells what isn't his'n
Must pay the price or go to prison
Monday 24 September 2012
Clever countries do not reward stupidity
As I sit at my computer on at 8:20 pm Monday 24 September 2012, I am quite aware I am a deviant. Why? Because just about everyone in Melbourne, plus tens of thousands more in the old football states of Tasmania, South Australia and Western Australia plus many more in the new territories of New South Wales and Queensland are watching the Brownlow Medal count. Even my wife, who had never even seen a game of Australian Football until she was well into her '20s, is watching. The Brownlow is the trophy for the best and fairest player in the Australian Football League, the most outstanding player in what is now certainly Australia's national game. The Brownlow is the highest indivudual honor a footballer can attain.
It is not my intention to say footballers are stupid -- these days, many are highly educated -- or that the viewers of the Brownlow count are necessarily stupid. But it is true that smart countries do not reward stupidity.
The term 'clever country' was coined by Prime Minister Bob Hawke on 8 March 1990 when he said "No longer contnet to be the lucky country, Australia must become the clever country." We will overlook the fact that the "lucky country" was an ironic term coined by the late Donald Horne, and the fact that my wife, who is Chinese and therefore values both cleverness and education (not the same thing) burst out laughing when when she heard the PM say this phrase, as it was so obviously absurd. Australia is known for a number of things in Asia, but cleverness is not one of them.
Tonight on the ABC TV news the government announced a new education policy and paraded a snaggle toothed moron as evidence of its necessity. Now the government has already 'fessed up that its new handicapped care policy (see my post 'Be hard hearted with handicapped') will cost not $1 billion but at least $10 billion! as I predicted. These days I greet my friends in the ALP with the words 'how many billions have they spent today? For reasons of sheer economic necessity and common sense, Australia should concentrate its educational resources, in the first place, on the most capable young people.
The best description of Australia's economic good fortune I have ever read came from a French journalist who said 'Australia is like the village idiot who wins the jackpot every time he buys a lottery ticket ."
Truly intelligent societies, like Taiwan, which lives on its wits -- not by how many million tons of rocks they dig up and ship to China -- respect and reward intelligence. Scholars are important and respected in Taiwan. Their opinions are often quoted in the press. How else would a tiny island half the size of Tasmania with a population slightly larger than Australia not only gain an enviable standard of living but also become a world leader in high tech?
In China, few things are sacred, but the gaokao, the nationwide university entrance exam, which gives the poorest peasant's son the same chance to excell as the Party Secretary's son, is regarded as the great leveler in the Middle Kingdom. University entrance, which is highly sought after as the gateway to fame and wealth, is decided on the results achieved in the gaokao.
Bob Hawke came from a priviledged background. His uncle was Premier of Western Australia and his father was a learned man. His fellow students said he had a 'Jewish mother' because she pushed and pampered him. He went to Perth Modern School, the best high school in the State. He was a Rhodes Scholar and studied at Oxford University, one of the most respected universities in the English-speaking world. Bob Hawke has been doing his yobbo act for so long, including his corney 'Solidarity Forever' rendition at the last Australian Council of Trade Unions (ACTU) conference, that people forget he is a scholar from the upper middle classes. Bob Hawke may try to disguise the fact, but he is a highly intelligent man and the best Prime Minister of Australia since Sir Robert Menzies.
Some may regard the attention paid to educating nature's fools as the mark of an enlightened society but I regard it as sheer stupidity. Many, if not most, children of Chinese origin in Australia attend on their weekends what are known as bushibans, or cram schools. Chinese parents know that Australia is honest enough that one exam paper is marked the same as another and if their children get better marks that Anglo-Celtic students, then their kids will get the place in dentistry, medicine or whatever. In other words, the best jobs with the best incomes.
Therefore, Bob Hawke's 'clever country' statement can be regarded as what the Chinese call 'pi hua' --- literally, 'fart talk.'
It is not my intention to say footballers are stupid -- these days, many are highly educated -- or that the viewers of the Brownlow count are necessarily stupid. But it is true that smart countries do not reward stupidity.
The term 'clever country' was coined by Prime Minister Bob Hawke on 8 March 1990 when he said "No longer contnet to be the lucky country, Australia must become the clever country." We will overlook the fact that the "lucky country" was an ironic term coined by the late Donald Horne, and the fact that my wife, who is Chinese and therefore values both cleverness and education (not the same thing) burst out laughing when when she heard the PM say this phrase, as it was so obviously absurd. Australia is known for a number of things in Asia, but cleverness is not one of them.
Tonight on the ABC TV news the government announced a new education policy and paraded a snaggle toothed moron as evidence of its necessity. Now the government has already 'fessed up that its new handicapped care policy (see my post 'Be hard hearted with handicapped') will cost not $1 billion but at least $10 billion! as I predicted. These days I greet my friends in the ALP with the words 'how many billions have they spent today? For reasons of sheer economic necessity and common sense, Australia should concentrate its educational resources, in the first place, on the most capable young people.
The best description of Australia's economic good fortune I have ever read came from a French journalist who said 'Australia is like the village idiot who wins the jackpot every time he buys a lottery ticket ."
Truly intelligent societies, like Taiwan, which lives on its wits -- not by how many million tons of rocks they dig up and ship to China -- respect and reward intelligence. Scholars are important and respected in Taiwan. Their opinions are often quoted in the press. How else would a tiny island half the size of Tasmania with a population slightly larger than Australia not only gain an enviable standard of living but also become a world leader in high tech?
In China, few things are sacred, but the gaokao, the nationwide university entrance exam, which gives the poorest peasant's son the same chance to excell as the Party Secretary's son, is regarded as the great leveler in the Middle Kingdom. University entrance, which is highly sought after as the gateway to fame and wealth, is decided on the results achieved in the gaokao.
Bob Hawke came from a priviledged background. His uncle was Premier of Western Australia and his father was a learned man. His fellow students said he had a 'Jewish mother' because she pushed and pampered him. He went to Perth Modern School, the best high school in the State. He was a Rhodes Scholar and studied at Oxford University, one of the most respected universities in the English-speaking world. Bob Hawke has been doing his yobbo act for so long, including his corney 'Solidarity Forever' rendition at the last Australian Council of Trade Unions (ACTU) conference, that people forget he is a scholar from the upper middle classes. Bob Hawke may try to disguise the fact, but he is a highly intelligent man and the best Prime Minister of Australia since Sir Robert Menzies.
Some may regard the attention paid to educating nature's fools as the mark of an enlightened society but I regard it as sheer stupidity. Many, if not most, children of Chinese origin in Australia attend on their weekends what are known as bushibans, or cram schools. Chinese parents know that Australia is honest enough that one exam paper is marked the same as another and if their children get better marks that Anglo-Celtic students, then their kids will get the place in dentistry, medicine or whatever. In other words, the best jobs with the best incomes.
Therefore, Bob Hawke's 'clever country' statement can be regarded as what the Chinese call 'pi hua' --- literally, 'fart talk.'
Sunday 23 September 2012
He Fan's 'China Challenge' is ludicrous nonsense
Asian language education is suddenly the Holy Grail of Australian education. Students studying Asian languages are conned into believing they will somehow get a great job as a result of their studies. I speak two Asian languages fluently -- Bahasa Indonesia and Mandarin Chinese -- and I can tell you I have never gained a single hour of paid employment as a result. All bachelor degree level Chinese will get a young graduate in China is a job as an English teacher.
That being said, I have no regrets at all about learning Mandarin because I have been able to travel alone and unassisted from Aomen in the south and Dalian in the north and from Shanghai in the east and Si'an in the west. Almost without exception, the only cities Anglo Australians have heard of are Beijing and Shanghai. This is comparable to visiting Australia and seeing only Toorak and Point Piper. Beijing and Shanghai constitute about 2 percent of the population of China. How many Australians have even heard of Zhengzhou, capital of Henan Province, a marvellous city of 8 million people, known as the Chicago of China? Or Dalian, a city of bone and sinew, where I could look out of my window and see high speed trains being manufactured and an old Soviet era aircraft carrier being reconstructed? Or Gongyi, a city where heavy indsutry rules -- most of it still in private hands -- making it one of trhe most prosperous cities in China?
This allows me to say without equivocation that He Fan's article 'The China Challenge '(AFR, 21 September 2012) is total self serving rubbish. For those of you who have not read the Review section of Friday's Australian Financial Review, headed 'Your Guide to the World of Issues, Ideas and Opinions, He Fan 'says Australia must change its view of Asia if it is to befriend The People's Republic.' He Fan is the deputy director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, Beijing. He is consultant for the Ministry of Finance, Ministry of Commerce, Ministry of Foreign Affairs and the People's Bank of China. He is also a member of the Bellagio group of central bankers and academics (Group of Thirty). I have no proof of the veracity of this biography, as it is entirely derived from the statement accompanying his article in the AFR.
The aim of this article is to convince Australian readers that we can somehow get on good terms with the neighborhood bully be being nice to him. Take the second paragraph. "Fairly speaking, this is not because Chinese people are ignorant of foreign affairs. On the contrary, international politics is a hobby to many Chinese, like sport is to many Australians.' Now, I have talked to dozens of Chinese (in Mandarin) about many topics, from taxi drivers to Party secretaries, including sensitive issues such as the fate of the One Child Policy and not a single one has mentioned foreign affairs. As far as Australia is concerned, occasionally someone will mention koala bears, but that's about the sum total of Chinese knowledge of Australia.
Let me draw an analogy. My late half sister loved what she believed to be Chinese food. She was a poor person, and Chinese food was a special treat. Her favourite dishes were lemon chicken and beef with black bean sauce. She truly believed she understood China because she liked Chinese food and the serving staff (always Chinese) smiled at her. Well, lemon chicken and beef with black bean sauce is a created cuisine. It is not Chinese food at all, it is Australian food. You will never be served lemon chicken or beef with black bean sauce in China because it is not Chinese food. Similarly, He Fan's article has nothing to do with Australia. It is a Chinese confection intended to achieve Chinese goals.
He Fan writes as if China has a choice in buying the products it purchases from Australia. He posits spurious comparisons between the ANZ Bank and Citigroup and between ANU and Harvard and Stanford. Each has its role. As for raw materials, China has been attempting to develop alternative sources of supply in Africa, where the Chinese are cordially loathed, without success.
He Fan quotes ANU's Hugh White as proposing a "shrewd strategy" of balancing itself between the United States and China, allowing for the US to make "strategic space" for China. It suits He Fan to quote an appeaser like White because in the narrow and deluded world of international strategic analysis in Australia he carries some weight.
Australia should not devalue its strategic assets. We will always be freer, more prosperous and a more spacious land than China. Our geostrategic situation gives us influence above that which our population would suggest. Given a chance, Chinese in their millions would emigrate here and make good citizens. Let's tell He Fan to take his delusions with him and go home to China.
That being said, I have no regrets at all about learning Mandarin because I have been able to travel alone and unassisted from Aomen in the south and Dalian in the north and from Shanghai in the east and Si'an in the west. Almost without exception, the only cities Anglo Australians have heard of are Beijing and Shanghai. This is comparable to visiting Australia and seeing only Toorak and Point Piper. Beijing and Shanghai constitute about 2 percent of the population of China. How many Australians have even heard of Zhengzhou, capital of Henan Province, a marvellous city of 8 million people, known as the Chicago of China? Or Dalian, a city of bone and sinew, where I could look out of my window and see high speed trains being manufactured and an old Soviet era aircraft carrier being reconstructed? Or Gongyi, a city where heavy indsutry rules -- most of it still in private hands -- making it one of trhe most prosperous cities in China?
This allows me to say without equivocation that He Fan's article 'The China Challenge '(AFR, 21 September 2012) is total self serving rubbish. For those of you who have not read the Review section of Friday's Australian Financial Review, headed 'Your Guide to the World of Issues, Ideas and Opinions, He Fan 'says Australia must change its view of Asia if it is to befriend The People's Republic.' He Fan is the deputy director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, Beijing. He is consultant for the Ministry of Finance, Ministry of Commerce, Ministry of Foreign Affairs and the People's Bank of China. He is also a member of the Bellagio group of central bankers and academics (Group of Thirty). I have no proof of the veracity of this biography, as it is entirely derived from the statement accompanying his article in the AFR.
The aim of this article is to convince Australian readers that we can somehow get on good terms with the neighborhood bully be being nice to him. Take the second paragraph. "Fairly speaking, this is not because Chinese people are ignorant of foreign affairs. On the contrary, international politics is a hobby to many Chinese, like sport is to many Australians.' Now, I have talked to dozens of Chinese (in Mandarin) about many topics, from taxi drivers to Party secretaries, including sensitive issues such as the fate of the One Child Policy and not a single one has mentioned foreign affairs. As far as Australia is concerned, occasionally someone will mention koala bears, but that's about the sum total of Chinese knowledge of Australia.
Let me draw an analogy. My late half sister loved what she believed to be Chinese food. She was a poor person, and Chinese food was a special treat. Her favourite dishes were lemon chicken and beef with black bean sauce. She truly believed she understood China because she liked Chinese food and the serving staff (always Chinese) smiled at her. Well, lemon chicken and beef with black bean sauce is a created cuisine. It is not Chinese food at all, it is Australian food. You will never be served lemon chicken or beef with black bean sauce in China because it is not Chinese food. Similarly, He Fan's article has nothing to do with Australia. It is a Chinese confection intended to achieve Chinese goals.
He Fan writes as if China has a choice in buying the products it purchases from Australia. He posits spurious comparisons between the ANZ Bank and Citigroup and between ANU and Harvard and Stanford. Each has its role. As for raw materials, China has been attempting to develop alternative sources of supply in Africa, where the Chinese are cordially loathed, without success.
He Fan quotes ANU's Hugh White as proposing a "shrewd strategy" of balancing itself between the United States and China, allowing for the US to make "strategic space" for China. It suits He Fan to quote an appeaser like White because in the narrow and deluded world of international strategic analysis in Australia he carries some weight.
Australia should not devalue its strategic assets. We will always be freer, more prosperous and a more spacious land than China. Our geostrategic situation gives us influence above that which our population would suggest. Given a chance, Chinese in their millions would emigrate here and make good citizens. Let's tell He Fan to take his delusions with him and go home to China.
Saturday 22 September 2012
Masters of black arts manipulate Muslim street
Most people know very little about politics. They are essentially stupid. Even in what passes for democracy in Australia, only around 30% of citizens would vote if they were not forced to do so. I refer to this as "enforced consent" The voter turnout figures are little better for local government elections in England, where local government delivers far more services than in Australia. People get the governments they deserve. That might sound cruel -- no one deserves Julia Gillard, or Tony Abbott for that matter -- but this blog is after all entitled 'very,very un-PC'
Because of their stupidity, people are easily manipulated by the masters of the black arts. China is currently up in arms about the Japanese occupation of the Diaoyu Islands. There's nothing like a nationalist hurrah to divert the population from a bad economy -- and China's economy is bad. Some fool in China surrounded his Honda with anti-Japanese slogans and set it on fire. The ironic thing is the car was probably made in a Chinese factory. If you watched the Chinese protesters on the islands, two were side by side, one waving a Republic of China (Taiwan) flag and one was waving a People's Republic of China flag. Any oil or gas under said to be under the islands is irrelevant, a mere diversion. This is blatant Han Chinese chavinism designed to stir up trouble.
Britain's Dark Lord, Peter Mandelson, put Tony Blair in power and helped keep him there. Regarded as the architect of New Labour, he was elevated to the peerage and the Privy Council, earning a new title, the Prince of Darkness.
Australia's own Master of the Black Arts, Bill Shorten, member for Maribrynong, is distinguished by his ability to wholeheartedly agree with any statement made by his political superiors, even if he has yet to hear it. His most notable claim to fame is that any 'reform' he makes to industry superannuation only serves to tighten the union movment's stranglehold over the nation's savings. His latest stroke of genius is to legislate so that Queensland public servants made redundant in recent downsizing must be employed -- by private sector employers -- under public service terms, conditions and salaries.
But for sheer idiocy and ease of manipulation, the world's Muslims must take the cake. I do not wish to imply that all Muslims are stupid. There are as many stupid Muslims as there are anyone else. But what country would declare a public holiday so the public could have a riot apart from Pakistan? Quite frankly, I do not know why second generation Muslims are radicalised while their parents, like all immigrants, simply want to establish themselves in their new country and get ahead.
As far as the movie which set off this chain of mayhem, I have seen it and it is obvious that it was designed to be offensive as possible to people of the Islamic faith. As far as its value as cinema is concerned , it is completely devoid of merit. I know I'm supposed to say 'the poor Copts, Christians in Egypt are persecuted blah blah blah, boo hoo hoo' but quite frankly the people behind the movie were Copts just stirring up trouble.
I can see no reason why anyone should doubt the historicity of the Prophet Mohammed. Scholars do not doubt that Jesus existed or even that the historical Buddha, Siddhartha Gautama, existed, even though he was born almost 1,000 years before Mohammad. The truth is that Islam has a very similar relationship to other faiths to Christianity in the late Middle Ages, before the Rennnaissance, before the Reformation, before the Enlightenment and before Modernism. Islam provides a complete world view for its adherents. Islam has a dynamism and energy Christianity lost centuries ago. Thus, when its fundamental belief system is threatened, it provokes a visceral reaction similar to that of a conservative Catholic when confronted by an evangelical Protestant. The Muslim street is very easily aroused.
It seems only logical that, as we now have a considerable number of Muslims in Australia, we should help them integrate into our society. Going soft on lawbreakers will be conterproductive but the response of trhe older Anglo-Celts, that 'we should send them back where they came from' is not possible.
Because of their stupidity, people are easily manipulated by the masters of the black arts. China is currently up in arms about the Japanese occupation of the Diaoyu Islands. There's nothing like a nationalist hurrah to divert the population from a bad economy -- and China's economy is bad. Some fool in China surrounded his Honda with anti-Japanese slogans and set it on fire. The ironic thing is the car was probably made in a Chinese factory. If you watched the Chinese protesters on the islands, two were side by side, one waving a Republic of China (Taiwan) flag and one was waving a People's Republic of China flag. Any oil or gas under said to be under the islands is irrelevant, a mere diversion. This is blatant Han Chinese chavinism designed to stir up trouble.
Britain's Dark Lord, Peter Mandelson, put Tony Blair in power and helped keep him there. Regarded as the architect of New Labour, he was elevated to the peerage and the Privy Council, earning a new title, the Prince of Darkness.
Australia's own Master of the Black Arts, Bill Shorten, member for Maribrynong, is distinguished by his ability to wholeheartedly agree with any statement made by his political superiors, even if he has yet to hear it. His most notable claim to fame is that any 'reform' he makes to industry superannuation only serves to tighten the union movment's stranglehold over the nation's savings. His latest stroke of genius is to legislate so that Queensland public servants made redundant in recent downsizing must be employed -- by private sector employers -- under public service terms, conditions and salaries.
But for sheer idiocy and ease of manipulation, the world's Muslims must take the cake. I do not wish to imply that all Muslims are stupid. There are as many stupid Muslims as there are anyone else. But what country would declare a public holiday so the public could have a riot apart from Pakistan? Quite frankly, I do not know why second generation Muslims are radicalised while their parents, like all immigrants, simply want to establish themselves in their new country and get ahead.
As far as the movie which set off this chain of mayhem, I have seen it and it is obvious that it was designed to be offensive as possible to people of the Islamic faith. As far as its value as cinema is concerned , it is completely devoid of merit. I know I'm supposed to say 'the poor Copts, Christians in Egypt are persecuted blah blah blah, boo hoo hoo' but quite frankly the people behind the movie were Copts just stirring up trouble.
I can see no reason why anyone should doubt the historicity of the Prophet Mohammed. Scholars do not doubt that Jesus existed or even that the historical Buddha, Siddhartha Gautama, existed, even though he was born almost 1,000 years before Mohammad. The truth is that Islam has a very similar relationship to other faiths to Christianity in the late Middle Ages, before the Rennnaissance, before the Reformation, before the Enlightenment and before Modernism. Islam provides a complete world view for its adherents. Islam has a dynamism and energy Christianity lost centuries ago. Thus, when its fundamental belief system is threatened, it provokes a visceral reaction similar to that of a conservative Catholic when confronted by an evangelical Protestant. The Muslim street is very easily aroused.
It seems only logical that, as we now have a considerable number of Muslims in Australia, we should help them integrate into our society. Going soft on lawbreakers will be conterproductive but the response of trhe older Anglo-Celts, that 'we should send them back where they came from' is not possible.
Charity muggers devalue philanthropy
We have all encountered them on the streets of our major cities -- charity muggers,as they are called, or reduced to the portmanteau word 'chuggers'. As far as I can tell, the term 'chugger' is English. Not even the most trusted charities are immune from this trend.
Some time ago in Perth I was accosted by collectors from Medicine Sans Frontiere (MSF), the French charity which is often known by the English translation of 'Doctors Without Borders.' They explained that as they are known to refuse any government contributions, they alone could get emergency relief into Somalia, which was suffering from a famine. It is not too closely guarded secret that MSF is well thought of in the Islamic world and not well regarded in Israel. Somalia is an Islamic entity. I offered the MSF collectors $100 cash on the spot. They refused to accept my donation. They only wanted a commitment to a regular payment scheme. Having previously been stung by another charity, I refused and so MSF lost my $100.
The charities will tell you that regular payment schemes give them guaranteed cash flow which makes budgeting easier. This is, to a certain extent, true. What they don't tell you is that the average payment scheme lasts 15 to 18 months, but the first 12 months of payments are absorbed by the marketing company which recruited the donor as their commission. Now, I know several pensioners who donate in excess of $2,000 to charity (as they call it) via regular contribution schemes without realising that these donations, which are a significant proportion of their meagre incomes, are in fact commissions paid to marketing companies.
On the latest available figures (2005) Australian individuals and businesses donated $11 billion to charity annually. Of this amount, $7.7 billion came through cash donations from individuals, while another $2 billion came though events such as fun runs and so on. It is estimated 87% of adults donated to charity, or some 13.4 million individual donors. For the 2008-2009 tax year, the average donor claimed $450 in deductions for charity. Taxpayers with incomes of $1 million or more claimed an average of $48,700 tax deductible donations. Some 33% of all donations were to religious institutions -- churches, synagogues, mosques and so on. Community based and welfare institutions, international and development aid groups and medical research all each accounted for 10% of the total funds donated. Donations peak in June, just before the end of the financial year, and around Christmas time.
I really have no problem with people making charitable donations, but I hate being harrassed by young backpackers, most of whom I believe are on an hourly rate, to sign up to a long term plan to aid a charity to which they have no connection beyond a paypacket and no personal commitment at all. I do believe philanthropy is the basis of a civil society and that it is commendable, but that it should be targeted if it is to benefit society.
Let me give an example. My mother is by most measures a wealthy woman. She loves the ballet, the opera and the symphony. The symphony asked her to become a patron. She refused, saying 'I'm not a philanthropist, I already pay $1,000 a year to go to the symphony.' At the same time, she makes donations to dozens of so-called charities over the phone, some of which verge on being fraudulent. The symphony relies on its patrons to survive. It is a worth ornament of modern life and surely is a more deserving cause than many of these bogus 'charities.'
It is literally months since I have had an unsolicited call seeking an donation because I tell them abruptly not to waste their time and mine by making future calls. I do make donations to organisations I think are worthwhile, such as the Salvation Army, and other civic groups whose aims I support but I don't make them in the street or over the phone. But even the Salvation Army, to whom I made a donation in the Red Shield Appeal, rang me to sign me up to a regular contribution scheme.
When an organisation such as the Salvation Army, which is held in high esteem by people rich and poor, feel they have to get onto the regular contribution scheme bandwagon, it's a sad day for philanthropy.
Some time ago in Perth I was accosted by collectors from Medicine Sans Frontiere (MSF), the French charity which is often known by the English translation of 'Doctors Without Borders.' They explained that as they are known to refuse any government contributions, they alone could get emergency relief into Somalia, which was suffering from a famine. It is not too closely guarded secret that MSF is well thought of in the Islamic world and not well regarded in Israel. Somalia is an Islamic entity. I offered the MSF collectors $100 cash on the spot. They refused to accept my donation. They only wanted a commitment to a regular payment scheme. Having previously been stung by another charity, I refused and so MSF lost my $100.
The charities will tell you that regular payment schemes give them guaranteed cash flow which makes budgeting easier. This is, to a certain extent, true. What they don't tell you is that the average payment scheme lasts 15 to 18 months, but the first 12 months of payments are absorbed by the marketing company which recruited the donor as their commission. Now, I know several pensioners who donate in excess of $2,000 to charity (as they call it) via regular contribution schemes without realising that these donations, which are a significant proportion of their meagre incomes, are in fact commissions paid to marketing companies.
On the latest available figures (2005) Australian individuals and businesses donated $11 billion to charity annually. Of this amount, $7.7 billion came through cash donations from individuals, while another $2 billion came though events such as fun runs and so on. It is estimated 87% of adults donated to charity, or some 13.4 million individual donors. For the 2008-2009 tax year, the average donor claimed $450 in deductions for charity. Taxpayers with incomes of $1 million or more claimed an average of $48,700 tax deductible donations. Some 33% of all donations were to religious institutions -- churches, synagogues, mosques and so on. Community based and welfare institutions, international and development aid groups and medical research all each accounted for 10% of the total funds donated. Donations peak in June, just before the end of the financial year, and around Christmas time.
I really have no problem with people making charitable donations, but I hate being harrassed by young backpackers, most of whom I believe are on an hourly rate, to sign up to a long term plan to aid a charity to which they have no connection beyond a paypacket and no personal commitment at all. I do believe philanthropy is the basis of a civil society and that it is commendable, but that it should be targeted if it is to benefit society.
Let me give an example. My mother is by most measures a wealthy woman. She loves the ballet, the opera and the symphony. The symphony asked her to become a patron. She refused, saying 'I'm not a philanthropist, I already pay $1,000 a year to go to the symphony.' At the same time, she makes donations to dozens of so-called charities over the phone, some of which verge on being fraudulent. The symphony relies on its patrons to survive. It is a worth ornament of modern life and surely is a more deserving cause than many of these bogus 'charities.'
It is literally months since I have had an unsolicited call seeking an donation because I tell them abruptly not to waste their time and mine by making future calls. I do make donations to organisations I think are worthwhile, such as the Salvation Army, and other civic groups whose aims I support but I don't make them in the street or over the phone. But even the Salvation Army, to whom I made a donation in the Red Shield Appeal, rang me to sign me up to a regular contribution scheme.
When an organisation such as the Salvation Army, which is held in high esteem by people rich and poor, feel they have to get onto the regular contribution scheme bandwagon, it's a sad day for philanthropy.
Sunday 2 September 2012
Topple Australian banking's Four Pillars
Australia's financial system is based on the Four Pillars -- Commonwealth Bank of Australia, Westpac Banking Corp, National Australia Bank and the Australia and New Zealand Banking Group. The Four Pillars doctrine was established in 1990 by Treasurer Paul Keating during the Hawke administration. There were originally to be Six Pillars -- the Four Pillars plus the two major life offices, National Mutual and the Australian Mutual Provident Society. (AMP).
The Six Pillars, however, were already beginning to collapse. National Mutual wanted to overtake AMP as number one life office and was doing so by offering capital guaranteed products at uneconomic levels. When it reverted to sustainable rates, the flood of funds dried up. AXA of France, eyeing National Mutual's difficulties and burgeoning Asian business, made a move on the Melbourne-based life office, which prevented half of Australia's households losing their retirement savings.
The original aim of financial deregulation was to expand choice in the Australian banking market. The government offered a 'who's who' of international banking domestic banking licenses, with the aim of shaking up the domestic industry. In fact, the reverse happened. No foreign bank has a substantial retail banking business in Australia. They have either left or sold out to the major Australian banks. HSBC retains a small retail presence, as does Citibank.
Of course, there are (or were) State government owned regional banks. State Bank of Victoria was sent to the wall thanks to the wunderkinder at its investment banking offshoot Tricontinetal Corp and was taken over by Commbank. The State Bank of NSW was also taken over, in a roundablout way, by Commbank. Commbank also end up with BankWest, the avatar of Western Australia's Rural and Industries Bank (and also inherited many unhappy customers). The State Bank of South Australia collpased and was acquired indirectly by Westpac.
Three small banks, usually referred to as regional banks, have battled on. The Bendigo and Adelaide Bank uses a quasi communithy based ownership structure, which has proved to be great for launching branches and much less effective in closing them down when they prove to be unviable, as some inevitably must be. Bank of Queensland operates on a franchise model, which has not prevented it from taking some heavy hits in commercial property. Suncorp is entrenched in the Queensland market.
What has been the net outcome of banking deregulation? The opposite of that intended. Just about every financial institution of any note has been taken over by the Big Four. Some may object that Macquarie Bank has been excluded. First, MacBank is an investment bank with a very narrow market and second, without the government guranteeing is ovgerseas loans during the global financail crisis (GFC) it is likely MacBank would have gone to the financail knacker's yard.
The premise of the initial round of bank rationalisations in the early 1980s was that banks would be stronger and more competitive. NAB took over the the Commercial Banking Compnay of Sydney (CBC) and the Bank of New South Wales merged (in much the same way Germany merged with Poland in 1939) with the Commercial Bank of Australia to form Westpac, then Australia's largest bank. In case you missed the subtext, the CBC was a Sydney bank and the CBA was a Melbourne bank.
To put anyone who is totally ignorant about Australian banking out of their misery, both Melbourne and Sydney host two of the Four Pillars -- Melbourne has the ANZ and NAB, while Sydney has Commbank and Westpac. This suits the politicians very nicely -- and the rest of Australia not very well.
As with most things in Australia, banking is over controlled and over regulated. Apart from Westpac's pathetic attempt to reboot the Bank of Melbourne -- after it took over the original Bank of Melbourne, an excellent business based on the highly popular RESI building society which it then killed off by rebadging all the branches with Westpac red -- "innovation" by Australian banks has been rare in recent years. The Bendigo did absorb the mnnow Bank of Cyprus but the Big Four have cleaned up just about everything else.
Why not let rhe market have a go? Whether the governemnt admits it or not, the Four Pillars are "too big to fail". Why not encourage a small to medium business bank, or let the Australian Post Office compete in the retail market? After all, it's run by a former NAB banker.
Like any organism that's been in a lush paddock for too long, the Big Four have become fat and lazy. It's time they had a shakeup. And it's woth noting the Four Pillars policy doesn't stipulate that the Four Pillars must be Australian owned.
The Six Pillars, however, were already beginning to collapse. National Mutual wanted to overtake AMP as number one life office and was doing so by offering capital guaranteed products at uneconomic levels. When it reverted to sustainable rates, the flood of funds dried up. AXA of France, eyeing National Mutual's difficulties and burgeoning Asian business, made a move on the Melbourne-based life office, which prevented half of Australia's households losing their retirement savings.
The original aim of financial deregulation was to expand choice in the Australian banking market. The government offered a 'who's who' of international banking domestic banking licenses, with the aim of shaking up the domestic industry. In fact, the reverse happened. No foreign bank has a substantial retail banking business in Australia. They have either left or sold out to the major Australian banks. HSBC retains a small retail presence, as does Citibank.
Of course, there are (or were) State government owned regional banks. State Bank of Victoria was sent to the wall thanks to the wunderkinder at its investment banking offshoot Tricontinetal Corp and was taken over by Commbank. The State Bank of NSW was also taken over, in a roundablout way, by Commbank. Commbank also end up with BankWest, the avatar of Western Australia's Rural and Industries Bank (and also inherited many unhappy customers). The State Bank of South Australia collpased and was acquired indirectly by Westpac.
Three small banks, usually referred to as regional banks, have battled on. The Bendigo and Adelaide Bank uses a quasi communithy based ownership structure, which has proved to be great for launching branches and much less effective in closing them down when they prove to be unviable, as some inevitably must be. Bank of Queensland operates on a franchise model, which has not prevented it from taking some heavy hits in commercial property. Suncorp is entrenched in the Queensland market.
What has been the net outcome of banking deregulation? The opposite of that intended. Just about every financial institution of any note has been taken over by the Big Four. Some may object that Macquarie Bank has been excluded. First, MacBank is an investment bank with a very narrow market and second, without the government guranteeing is ovgerseas loans during the global financail crisis (GFC) it is likely MacBank would have gone to the financail knacker's yard.
The premise of the initial round of bank rationalisations in the early 1980s was that banks would be stronger and more competitive. NAB took over the the Commercial Banking Compnay of Sydney (CBC) and the Bank of New South Wales merged (in much the same way Germany merged with Poland in 1939) with the Commercial Bank of Australia to form Westpac, then Australia's largest bank. In case you missed the subtext, the CBC was a Sydney bank and the CBA was a Melbourne bank.
To put anyone who is totally ignorant about Australian banking out of their misery, both Melbourne and Sydney host two of the Four Pillars -- Melbourne has the ANZ and NAB, while Sydney has Commbank and Westpac. This suits the politicians very nicely -- and the rest of Australia not very well.
As with most things in Australia, banking is over controlled and over regulated. Apart from Westpac's pathetic attempt to reboot the Bank of Melbourne -- after it took over the original Bank of Melbourne, an excellent business based on the highly popular RESI building society which it then killed off by rebadging all the branches with Westpac red -- "innovation" by Australian banks has been rare in recent years. The Bendigo did absorb the mnnow Bank of Cyprus but the Big Four have cleaned up just about everything else.
Why not let rhe market have a go? Whether the governemnt admits it or not, the Four Pillars are "too big to fail". Why not encourage a small to medium business bank, or let the Australian Post Office compete in the retail market? After all, it's run by a former NAB banker.
Like any organism that's been in a lush paddock for too long, the Big Four have become fat and lazy. It's time they had a shakeup. And it's woth noting the Four Pillars policy doesn't stipulate that the Four Pillars must be Australian owned.
Tuesday 28 August 2012
AFL is kicking goals, cricket misses the cut
'Howzat', the story of how Kerry Packer revolutionized cricket, scored 2 million viewers for Channel 9 on two nights. That was in the 1970s, when men were men and women were sheilas. But cricket, compared to other sporting codes, is looking distinctly seedy.
Several factors need to be considered. First, AFL and of course soccer, have always have a strong strong following in the ethnic communities. Cricket in Australia has yet to produce a true champion of South Asian origin, a natural target market. So many AFL champions have come from non-Anglo Celtic backgrounds that it would take all of this blog and more to list them.
Second, women have always formed one third of all AFL spectators. If you find a woman at the cricket, she is probably reading a book to stave off boredom. The AFL women's competition is said to be the fastest growing female sport in Australia. Women's cricket is overlooked, even though it has had an important role in the development of the sport.
Third, access to major events often requires membership of a club such as the Melbourne Cricket Club (MCC). Now, I have no intention of casting aspersions on the probity of the MCC's membership selection process, but I will say that in the near-on 20 years that I and my children have been on the MCC waiting list I have heard nothing at all from the MCC. When I made a telephone inquiry, all I could find out was that was indeed on the list. The club categorically refused to offer any estimate on when I would be offered membership.
Fourth, a great many people share my memories of cricket -- some lout in the nets throwing a very hard ball at you as fast as he can; sitting in the sun getting third degree burns; looking away as a relief from the aching boredom, only to hear a shout go up as something actually happens for the first time in half an hour. In other words, unless you were brought up in a cricket culture, like the South Asians, cricket is awfully boring. This is not helped by the fact that the Australian Test team is in a slump. Cricket rarely even rates a mention on the TV news any more.
AFL, on the other hand, has bravely struck out where many marketers might fear tread, by launching the Gold Coast Suns and Greater Western Sydney Giants. A very long time ago, I owned shares in a company that was taken over by Qintex Australia, which was controlled by Christopher Skase. After examining the annual report in some bewilderment, the only businesses Qintex Australia appeared to own were a small boatyard and the Brisbane Bears football team. One of my peculiarities is that actually take an interest in the businesses I hold, so when we were holidaying on the Gold Coast I went to Carrara to inspect the Bears' ground. It was in the middle of nowhere and the seating looked distinctly temporary; jerry built, one might say. But the AFL did not give up -- the Bears became the Lions, moved to Brisbane and won three premierships in a row, unmatched in the post-war era. The Suns were recently relaunched on the Gold Coast and on the second last fixture in the home and away round not merely beat, but humbled, the might of Carlton, one of the most successful AFL teams of all time.
As for the Giants, what marketer worth his salt could pass over 2 million people? Sure, it's in Sydney's west in what is coyly called a 'lower socio-economic area' and it's the heartland of rugby league but those people have considerable spending power; if you're offering an advertiser blanket coverage, it's a gap you have to fill. Expectations were perhaps a bit high but membership sales were good. Kevin Sheedy, the Giants' mentor, is a one man walking press release as well as being one of the outstanding coaches of the modern era.
Will Western Sydney be a bridge too far for the AFL's Andrew Demitriou and his marketing department? Every major market now has the requisite two teams. The ACT, the Northern Territory and Tasmania hold promise but are commonly judged to be too small (or poor) to host their own teams. Hawthorn is very popular in Launceston, not least for the business the Hawks draw on their regular visits to northern Tasmania. Do we discern the siren call of foreign shores?
If cricket is danger of missing the cut, the AFL is alive and kicking -- hard.
Several factors need to be considered. First, AFL and of course soccer, have always have a strong strong following in the ethnic communities. Cricket in Australia has yet to produce a true champion of South Asian origin, a natural target market. So many AFL champions have come from non-Anglo Celtic backgrounds that it would take all of this blog and more to list them.
Second, women have always formed one third of all AFL spectators. If you find a woman at the cricket, she is probably reading a book to stave off boredom. The AFL women's competition is said to be the fastest growing female sport in Australia. Women's cricket is overlooked, even though it has had an important role in the development of the sport.
Third, access to major events often requires membership of a club such as the Melbourne Cricket Club (MCC). Now, I have no intention of casting aspersions on the probity of the MCC's membership selection process, but I will say that in the near-on 20 years that I and my children have been on the MCC waiting list I have heard nothing at all from the MCC. When I made a telephone inquiry, all I could find out was that was indeed on the list. The club categorically refused to offer any estimate on when I would be offered membership.
Fourth, a great many people share my memories of cricket -- some lout in the nets throwing a very hard ball at you as fast as he can; sitting in the sun getting third degree burns; looking away as a relief from the aching boredom, only to hear a shout go up as something actually happens for the first time in half an hour. In other words, unless you were brought up in a cricket culture, like the South Asians, cricket is awfully boring. This is not helped by the fact that the Australian Test team is in a slump. Cricket rarely even rates a mention on the TV news any more.
AFL, on the other hand, has bravely struck out where many marketers might fear tread, by launching the Gold Coast Suns and Greater Western Sydney Giants. A very long time ago, I owned shares in a company that was taken over by Qintex Australia, which was controlled by Christopher Skase. After examining the annual report in some bewilderment, the only businesses Qintex Australia appeared to own were a small boatyard and the Brisbane Bears football team. One of my peculiarities is that actually take an interest in the businesses I hold, so when we were holidaying on the Gold Coast I went to Carrara to inspect the Bears' ground. It was in the middle of nowhere and the seating looked distinctly temporary; jerry built, one might say. But the AFL did not give up -- the Bears became the Lions, moved to Brisbane and won three premierships in a row, unmatched in the post-war era. The Suns were recently relaunched on the Gold Coast and on the second last fixture in the home and away round not merely beat, but humbled, the might of Carlton, one of the most successful AFL teams of all time.
As for the Giants, what marketer worth his salt could pass over 2 million people? Sure, it's in Sydney's west in what is coyly called a 'lower socio-economic area' and it's the heartland of rugby league but those people have considerable spending power; if you're offering an advertiser blanket coverage, it's a gap you have to fill. Expectations were perhaps a bit high but membership sales were good. Kevin Sheedy, the Giants' mentor, is a one man walking press release as well as being one of the outstanding coaches of the modern era.
Will Western Sydney be a bridge too far for the AFL's Andrew Demitriou and his marketing department? Every major market now has the requisite two teams. The ACT, the Northern Territory and Tasmania hold promise but are commonly judged to be too small (or poor) to host their own teams. Hawthorn is very popular in Launceston, not least for the business the Hawks draw on their regular visits to northern Tasmania. Do we discern the siren call of foreign shores?
If cricket is danger of missing the cut, the AFL is alive and kicking -- hard.
Subscribe to:
Posts (Atom)