It’s a question worth asking. So we’ll take a look at that in a moment.
But before I do, a quick note on today’s front page of the Australian Financial Review (AFR).
There’s a saying that “The pen is mightier than the sword.” In other words, the written word can be more powerful in its effectiveness than, we assume, stabbing someone.
It’s a nice phrase, but even so I’d rather someone wrote something mean about us than shoved a nine inch blade in our guts.
Anyway, it’s a phrase that should be embraced by the newspaper industry. In fact we’ve a vague recollection that one of the daily UK papers used to use the phrase in its advertising.
The papers should use it to signify the power of the press. How they will show neither fear nor favour to those in authority…
A free press should be something to be feared by those in power.
Well, that’s how we always thought it was supposed to be. Clearly our expectations about the mainstream press are way above anything they can possibly deliver.
As we noted in yesterday’s Money Morning, Communications Minister Stephen Conroy will make internet filtering compulsory. A top secret list of banned websites will be provided to internet service providers, and it will be up to them to guarantee no one can access them.
The list will be compiled and maintained by a supposedly independent body that’s, erm, appointed by the government. There will be no way of knowing what websites are on the list, and it will be at the discretion of the government appointed body as to what websites are added to the list.
You’d think this blatant attack on freedom would be grist to the mill for our merry band of journalists.
After all, surely freedom of information is vital if you’re in the business of newspapers.
So how does the Australian Financial Review respond? As I mentioned yesterday, in Wednesday’s paper it took pride of place in the technology section on page 47.
Today the AFR goes one step further by putting Stephen Conroy on the front page. Holding him to account? Scrutinising his proposal? Hmm, I’ll let you decide.
Here’s the opening paragraph to the hard hitting investigative story by Pamela Williams:
“Stephen Conroy is a speed freak. He likes to go flat out downhill. On a snowboard. The skiing fraternity might hold snowboarders in contempt for lacking finesse and a complete absence of any fancy moves, but don’t try telling Conroy. ‘All that matters is getting to the bottom as fast as you can,’ he says.”
We had to pinch ourselves. Were we reading Australia’s premium financial newspaper, or were we reading a celebrity interview in Hello! magazine?
We were hoping to see some soft focus pictures of the Conroy family draping themselves across a chaise longue. But then again, that would probably fall foul of the internet filter anyway!
And not surprisingly, not a single mention of the internet filter. Instead the article should have been accompanied by the word ‘Advertisement’ above it. It’s nothing more than a promotional puff piece for the national broadband network (NBN).
And the mainstream press continues to wonder why no one’s prepared to pay for their online content.
Anyway, back to our original question. You may think we’re mad for asking it, but we have wondered over the last few days whether a plasma or LCD television is a better investment than gold.
For a start, our chum at The Age, Michael Pascoe thinks gold is a load of old rubbish:
“The gold bugs’ faith has taken a little beating lately when a [sic] just a tiny stir by the US dollar has been enough to halt the yellow metal’s rally. But wait, there’s more – much more. Gold that is. Part of the dogma of the less rational gold bugs is that the world is running out of the stuff. As an article of faith, it makes a pleasant change from the idea that fiat money is about to be exposed as huge confidence trick and we’re heading back to the caves. (Why you’d bother with gold in that scenario is beyond me – I’d figure tomato seeds, chooks and possum skins would be the new wealth if civilisation crumbled.)”
I won’t go into a full scale rebuttal of Pascoe’s one-eyed denunciation of gold. Our publisher Dan Denning did a pretty good job of doing that yesterday over at the Daily Reckoning.
But we will make one comment. Sure, tomato seeds, chooks and possum skins probably would be handy if “civilisation crumbled”, but if it was a choice between having a few ounces of gold or having a few grand in paper/plastic money I know which I’d rather have.
Obviously Pascoe would opt for the brightly coloured $20 and $50 notes. Not that they’d be worth anything at that stage, but never mind.
Anyway, we’ve digressed again. We’re slightly baffled by the way the mainstream press is quick to claim gold is in a price bubble after a 36% jump in the US dollar price this year and a zero price gain in Aussie dollar terms.
Yet we still see headlines such as that in yesterday’s AFR, “Real estate set for another big year.” That’s for an asset class which has risen virtually without break for the last twenty years.
And so, after gold has fallen by nearly USD$100 per ounce in the last week or so, the likes of Pascoe have been quick to jump up and claim gold is in a price bubble and that it’s a ridiculous investment.
But maybe he’s right. Certainly if you gauge the willingness of people to buy gold compared to the willingness of people to buy a plasma television.
The comparison between gold and TVs isn’t as daft as you’d think. We’ll guess most gold investors pay cash for gold. And we’ll also guess that most people pay cash for a Plasma TV. Discounting those that use credit cards or interest free deals at Harvey Norman.
Even so, plasma TVs aren’t a big expense (although your editor thinks the Sayce family could be the only household in the country without a plasma/LCD TV!), from what we’ve seen you can pick one up for well under a couple of grand.
People seem more than happy to spend a grand or two on a big TV. And why not, you get to see a big TV picture, and apparently the picture quality is ‘amazing.’
But the point is the general public spends that amount in full knowledge that it’s a depreciating purchase, like a car. The value of your plasma TV isn’t going to rise at any time, regardless of how long you own it.
Keep it for five years and you might be lucky to get back one-tenth your purchase price if you flog it on eBay. Adjusted for inflation it would probably be closer to one-twentieth the purchase price.
So why is there such a fuss about gold being in a price bubble? Sure, you can’t watch your favourite soap opera on a bar of gold, but even if we look at gold as a consumer item rather than an investment item it doesn’t make sense that so many professional investors and analysts and even the general public would rather not buy the stuff.
I mean, let’s imagine you buy an ounce of gold at the current price of AUD$1,264.29, what do you think the worst possible outcome could be?
Could it fall to AUD$1,000? Sure it could. Could it fall to AUD$800? Why not.
And could it even fall to AUD$500? Of course it could. But we know the price of a TV is going to fall much more than that over the next five years. We know that as a fact.
Yet that doesn’t stop consumers from splashing out a couple of grand on the latest 600 inch plasma.
Let’s look at it another way. Last week we came across a news item from The Australian newspaper. It was headlined, “Golden parties as people cash in on price boom.”
The article explained that Australian housewives were cashing in their old gold jewellery in exchange for cash. These savvy punters were taking advantage of the high gold price.
The article quoted gold dealer Roy Cohen who had bought 572 grams of gold from the grateful punters:
“More women are realizing gold is money. These women realize their old gold jewellery is now too old-fashioned to wear. If you pay hundreds of dollars for a designer bag or sunglasses, you will get hardly anything back if you sell it on eBay.”
He goes on to say:
“With their children not interested in inheriting these pieces, many are selling off their gold pieces for cash.”
Undoubtedly the cash will then be used to buy a depreciating designer bag or sunglasses! Or maybe even a plasma TV.
See what I mean. The punters are happy to sell something that holds its value in exchange for items that become almost worthless – in dollar terms – the moment they are bought.
It hardly strikes your editor that gold is in a bubble when housewives are selling gold.
Look, as I’ve mentioned before, your editor isn’t a diehard gold bug. We don’t sleep with a few ounces tucked away under the pillow. But we do appreciate its value as a long term store of value.
While many – such as Pascoe – may see the gold bug argument as irrational and weird, we see the anti-gold position as much more irrational and weird.
So what if the price of gold falls in the next few months or years. It certainly wouldn’t hurt the household balance sheet by as much as when the property market falls in a heap.
Like I mentioned above, most private investors pay for gold in cash. How many private investors pay cash for a house?
Buy five ounces of gold in cash for less than $10,000, or use the $10,000 to take out an investment property loan leveraged up twenty times. I think I know which one is more likely to be a bubble than the other.
The argument that gold is in an unsustainable price bubble just looks ridiculous when you compare it to the debt fuelled credit bubble of the housing market.
The way I look at it is, if you’ve got a few grand laying around which you don’t need immediate access to, then rather than keeping it for ‘safety’ with one of the ‘ponzi’ banks, why not buy a few ounces of gold instead.
We know for a fact that it will be worth more than your plasma TV in thirty years’ time. If buying that plasma was an easy choice, then it seems a no-brainer to buy something that will most likely appreciate in value in thirty years.
So, in a roundabout way, the answer to our question is, “No.”
Cheers.
Kris.
60-Second Market Round Up
by Shae Smith
The S&P/ASX200 was down slightly by 11 points, ending the day at 4,661.90. Another batch of reports are coming out today and an interesting one will be the RBA’s monthly bulletin, which will include figures on credit card spending.
The Dow Jones Industrial Average finished the day down by 10 points, closing at 10,441.12. It was no surprise to anyone, but the Fed has confirmed that it has no intentions to raise interest rates anytime soon. Read more here.
In the UK, the FTSE ended the day at 5,320.26, up by 34 points.
The Nikkei finished the higher by 93 points to 10,177.44.
The price of spot gold in Australian dollars is trading at $1,264.29 while in US Dollars it is trading at $1,137.95. The price of silver in Aussie dollars is $19.68 and in US Dollars it is $17.72.
The Aussie dollar versus the US dollar is trading at USD$0.9005, and against the Japanese Yen JPY80.85
Crude oil closed at USD$72.81.
For the biggest movers on the market yesterday click here…
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Nick – There are many unknown factors to make an educated guess about what is in fact happening in China. For example, just because a building stays empty, it does not mean that its owner or owners are going to go broke, because if they happen to have alternative sources of income, then they maybe all right even if the building is ultimately demolished and never makes them a single cent in profits.
We also don’t know as to how much of those empty buildings and cities has been built with saved money, and how much of it was built on borrowed money. Saved money, if lost, is a loss, but may not send the owner bankrupt, whereas borrowed money, will demand interest payments and if the buildings and investments are not making a return, the debt makes the situation worse, putting more pressure on the owners, even if they happen to have alternative sources of cashflow.
Anyhow, you see what I am trying to say. When we see unproductive assets, we suspect trouble for their owners, but that goes with certain assumptions about their owner’s ability/inability to absorb mounting losses going forward. Just too many variables that are unknown to us to be able to even guess as to whether there is a danger of collapse as a result of misallocated effort and resournces, and if there is a danger, how long it will take, if it is going to happen at all.
Strange piece Kris – dont agree with much of what you have said.
Surely the purchase of gold and plasma are just not worth comparing. The buyer of a plasma TV is buying a consumer good that they know will depreciate in value, but they also know will provide thousands of hours of benefits. Gold on the other hand will provide no benefits, however it will retain and hopefully appreciate in value.
If you buy too many consumer goods you will run out of money. If you buy too many assets that preserve your wealth, you will die a rich, but unsatisfied person.
The real items you should be comparing gold with are the other ways in which people preserve wealth….cash, equities, other precious metals etc….
……. and, of course, property.
Property v Gold would have been a much more interesting discussion…Not that Iwould use either to preserve wealth.
PuntPal – you have my attention. What would you use to preserve the purchasing power of your current savings for your retirement, 30 – 35 years from now? I reckon both property and gold would be good vehicles. Cash will probably lose some 80-90% of its purchasing power over that time, I suspect, even with the interest you earn after taxes. You might disagree, so what would you advise?
I will repost this link again in response to today’s article, as it will be more relevant there, but in the meantime here it is for those of you interested to get a well-grounded response from a cool headed and articulate scientist to a warmist idiot of a politician of the ALP. It sums up well the politics, the sham, the science, and the state of play regarding climate change and climategate. With more and more analyses coming out from honest and uncorrupted scientists, where will Rudd and Wong going to hide? Or will they slap on censorship of the internet quickly enough to shut down the voices of dispassionate science and reason?
http://www.quadrant.org.au/blogs/doomed-planet/2009/12/why-barry-jones-is-wrong
Ah, and a few quotes from Professor Carter’s “offending” article, which the twice over idiotic Barry Jones decided to respond to. I say twice over, because it is bad enough to be caught paddling a fraud and a scam, but he decided to also attack an honest and reputable scientist over the issue, who is clearly an intellectual giant when compared to Jones and his sleezy minions. Anyhow, here is Bob Carter’s piece. And given that writings like this are getting out slowly, the longer the warmists try to push their agenda, the deeper a hole they are going to dig for themselves. Unless, of course, they shut down the internet.
“The Climategate files have demonstrated the scientific malfeasance of an influential and internationally well networked segment of the climate research community. A small group of scientists and computer modellers – with the aid of an enormous supporting cast of environmental activists and organisations, self-interested business groups, and crusading journalists – have managed to turn the global warming issue (which in 1990 was an entirely sensible matter to have raised) into the scientific scam of the century, if not the biggest ever.
………………
That the global warming scare should turn out to be precisely the scam that climate rationalists have been banging on about for years is shocking enough; many future PhD theses and books will undoubtedly be written about it. Yet it is but the tip of the iceberg so far as the public prostitution of science is concerned. Climategate being currently in full swing, the obvious question is when (not if) the parallel Reefgate, Murraygate and Fishgate scandals will erupt in Australia?
All Australians should contemplate deeply the questions that are raised by the global warming scandal, including the systemic corruption of science and the dereliction of duty by media news organisations that it reveals. Key questions include the following.
Why has our formerly excellent national science agency, the CSIRO, been allowed to become a consultancy arm for the government?
Why, amongst other shameless activities, has CSIRO been allowed to go around selling region-customized reports that are implied to provide climate predictions, but which in fact contain projections that are statistically no better than flipping a coin?
(CSIRO’s back is protected, of course, by the doubtless expensive lawyers who have insisted that the following disclaimer be inserted in all such reports: “This report relates to climate change scenarios based on computer modelling. Models involve simplifications of the real processes that are not fully understood. Accordingly, no responsibility will be accepted by CSIRO or the QLD government for the accuracy of forecasts or predictions inferred from this report or for any person’s interpretations, deductions, conclusions or actions in reliance on this report”. Would you buy a used car from these people?).
Why has the Australian Research Council been required to apply “national science priorities” as if any scientist, however distinguished, let alone a bureaucrat or politician, has the wisdom to discriminate between useful and “useless” research?
Behind the corrupted science of Climategate and the fall of the IPCC, then, lie two things. The first is the degradation, mainly by political interference, of research conditions and practices within modern government-funded research groups. The second is the power and financial clout of the modern, ecoevangelistic Green movement, egged on by crusading media reporters and editors. The world has probably never before seen a propaganda and political machine that is as well oiled, well funded and well organized as this modern army of apocalyptics and their media flag-wavers. ”
http://www.abc.net.au/unleashed/stories/s2764827.htm
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