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?
Friday, 16 November 2012
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.
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