As you may have noticed, we’ve given the climate change/global warming “tree” a bit of a shake over the last few days.
Given the response, we’ve clearly strayed into dangerous territory. More dangerous perhaps than when we took on the property clowns and their lies about a housing shortage and that property doubles every seven years.
Anyway, many of the comments we’ve received to the Money Morning mailbag have agreed with our view. Others haven’t. Others still have suggested your editor is a “right wing extremist” and a “climate change denier.”
And even that we’ll claim we’ve been abducted by aliens next!
We’re pleased to confirm that none of those are true.
Rather than being a climate change denier or climate change skeptic, we are more of a “government skeptic.” As I’ve stated from the start, I know virtually nothing about science. It’s been over twenty years since we took a physics, chemistry or biology class.
Our simple position is that based on the limited information we’ve read, the policies being followed are more about increasing government control and power rather than doing anything about the perceived problem of climate change.
You only have to look at yesterday’s cursory analysis of the report on rising sea levels by the Department of Climate Change to see that.
Why would a government department claim that the increases in sea level observed between 1993 and 2003 hadn’t been experienced for thousands of years, even though the Bureau of Meteorology (BoM) clearly states it had observed similar increases in previous decades?
It’s either an innocent schoolboy error, or a calculated attempt to deceive. But when you consider the Department of Climate Change has a budget of $240 million for the 2009-2010 year it’s hard to imagine they can’t afford to pay for a proof reader or fact checker.
But the reason we get the kind of response we do is that we write things you won’t read anywhere else in the mainstream press. Many people just can’t get over the idea that a finance writer like us has such strong views about the free market and keeping government out of the way.
Many people are used to the tepid pap written by Michael Pascoe, Ross Gittins and others. The type of analysis that adores the Reserve Bank of Australia and Australia’s corporate executives.
I mean, it wasn’t so long ago that everyone in the press sang the ‘free market’ song. It turns out they were just miming like Britney Spears. Because in reality they were closet Keynesians and government lovers.
In contrast we’ve stuck to our guns. We believe that the only real solution to the economy is to embrace a truly free market. And that government interference in anything – economies, environment, education, health, etc – only makes the perceived problem worse.
We’re yet to see any reasoning from anyone that alters that view.
I try to offer you something different.
Anyway, we’ll give climate change a wide berth today, but we will come back to it. I’ll just leave the subject on this note for the time being…
Just as Keynesian Economics has proved to fail and has been proven to destroy economies, so will Keynesian inspired Environmentalism. If people, scientists and governments genuinely are concerned about the environment there is only one solution, and that is Free Market Environmentalism.
But as I say, we’ll have more on that another day. Because for today’s Money Morning we’ll look at a perfect example of how regulation harms the consumer.
You may have seen the news that ratings agency Standard & Poor’s has withdrawn its application for a financial services licence.
If you didn’t know, in order for any company in Australia to provide financial advice or financial services to retail investors, the company needs something called an Australian Financial Services Licence (AFSL). For instance, the publisher of this newsletter Port Phillip Publishing has an AFSL.
Having an AFSL means the company has to comply with a whole bunch of rules. One of them is continuing professional development (CPD) which means your editor has to take several short tests throughout the year and attend seminars about the finance industry.
Anyway, I think you get the picture. As with any form of regulation it increases the costs to a business.
Well, following the debacle last year over how junk bonds and sub-prime debt was able to achieve triple-A ratings, the Australian government and ASIC decided it would be a good idea to get the ratings agencies to have an AFSL if their ratings were to be used by retail investors.
That plan seems to have backfired, because the leading ratings agency Standard & Poor’s (S&P) has decided they can’t be bothered with the fuss and so fund managers and brokers will no longer be able to use the S&P rating when they recommend a product to clients.
Have a guess what my initial reaction was to that news?
Yep, you’ve got it, we thought, “So what?”
You may have thought the same thing. To be honest, if S&P decides it can’t be bothered, then based on its recent history, retail investors are probably better off not knowing what S&P thinks of a company or a fund.
Seriously, these are the guys that gave the thumbs up to Wall Street by rating ‘crap grade’ investments on the same pegging as supposedly risk-free sovereign debt.
Although now we think about it, it appears that they did get that part of it right. Sub-prime loans and US government debt do deserve the same rating, only it’s not triple-A, it’s a C rating they should both be given.
According to S&P, a C rating is used for companies where:
“Obligations that are currently highly vulnerable to nonpayment…”
That just about sums up the US debt position.
Anyway, from January 1st retail investors will no longer be able to know about the ratings given to an investment by S&P. As we say, “so what?”
Maybe it will put the onus back on investors to take a bit more responsibility over their own investment decision making rather than blindly following the guidance of a pin striped boffin from Collins Street or Martin Place.
But here’s the thing. While it is a good thing for investors to take more responsibility for their own actions, it surely can’t be a good thing for governments to, in effect, bar people or organizations from having an opinion on something.
Perhaps S&P are just playing brinkmanship here. Maybe they are trying to call the bluff of the government and regulators, hoping to get the regulations watered down.
But maybe they just don’t see the benefit of going through the regulatory rigmarole.
Think about it this way. When was the last time you actually read a research report from Standard & Poor’s?
The answer is that you’ve probably never read one. If you’re like most people, the only time you’ve seen anything from S&P is when they’ve put their rating against a fund or a financial instrument.
The important part of this is not so much what S&P is going to do, it’s more about the high barriers to entry for competing ratings agencies. It suggests that if S&P doesn’t see the benefit in applying for an AFSL because of all the hassle that goes with it, then other, smaller agencies are likely to have the same view.
As I said, Money Morning isn’t about to shed any tears because S&P has decided to pull up stumps, but it does seem that the trend continues where the average retail investor is left with fewer and fewer choices over where to source useful financial information.
Cheers.
Kris.
60-Second Market Round Up
by Shae Smith
The S&P/ASX200 had what was described by one newspaper as a ‘tranquil’ day. The Aussie Index finished the day up only 9 points, closing to 4,739.
On Wall Street the Dow Jones Industrial Average had a slow session overnight, only finishing the day 11 points down, to 10,426.31. Technology stocks have copped the blame for the Dow finishing in the red.
Not much happened in the UK markets last night, the FTSE100 closed down a tiny 3 points, ending the day on 5,342.13
The Nikkei dropped overnight by 53 points to 9,676.80
The price of gold in Australian dollars is trading at $1,230.48, while in US Dollars it is trading at $1,143.85
Currently the price of silver in Aussie dollars is $19.98 and in US Dollars it is $18.57.
The Aussie dollar versus the US dollar is trading at USD$0.9295, and against the Japanese Yen JPY83.00
Crude oil closed at USD$79.58
For the biggest movers on the market yesterday click here…
{ 8 comments… read them below or add one }
Hi. You are spot on with your assessment of the ratings agency, in my opinion. It doesn’t seem that long ago that they were giving AIG a triple AAA rating, and it was at the time on the verge of bancruptcy. I remember Marc Faber treating the issue with riddicule at the time and suggesting that whatever credibility these institutions had left was evaporating with their most recent deceptions, that were quite clearly obvious to all. They were still in a game of liars poker, and had completely forgotten to stop playing when everyone was looking. Whenever I see a referance to the rating agencies pronouncements, I have a little chuckle to myself and wonder why they even bother to continue when it would be quite stupid for anyone to believe a word they say. A bit harsh you might say. Well lots of people have lost a great deal of money through their deception over the years. Good riddence to them I say. Herumph! Kind regards, Nige
YEAH G’BUY TO A BUNCH OF SCAMMERS
I find the Money Morning opinions here contradictory to the ideas previously put forward.
Without ratings Australia is going to fail to attract O/S institutional investors and the money Australia needs to the mining project.
Australia has the longest companies act in the work and the ASIC imposed guidelines are some of the most onerous.
No wonder Australia is the land of Duopolies.
No chance for the new guy to get over the starting barrier.
Can the aliens come earlier than next week.
Freedom can not be regulated. Freedom encourages one to trust ones own judgement and take control, certainly, its buyer beware but, I trust myself more than I trust a ratings agency or a government. I live with my mistakes and try to profit from the experience good or bad for future use.
Kris,
your commitment to free market economy is admirable. I am just uncertain if this dream is achievable. As an example, the industry where I work can sustain one or two service providers. How many domestic airlines can be sustained by Australian market? How many banks, power distributors, other utilities?
And a monopoly or oligopoly in any key industry can potentially suffocate the rest of the economy. So what do you do then?
Peter Fraser 11.20.09 at 8:34 am
“”"Can the aliens come earlier than next week. ?”"”
lol
its the thing that will save the situation (s)
humans wont fix it
Gerard, get used to it, Mate. Half-baked and half-true ideas are the order of the day in these postings, and outright contradictions are not the worst of it.