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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GB- i dont like it either with these cops but they have reduced the roadtoll & saved lives
with the teenagers, too many late night venues & drugs combined is getting out of hand ,,but its all jobs & revenue for cops ,judges alcohol industry etc
cb- with this global warming? the important aspect is 450pper million of watever, is that dangerous if it say doubles?
to those who still feel China will be our “saviour”
http://prudentinvestor.blogspot.com/2009/08/4-minute-tour-of-china-property-bubble.html
etch – that is the relevant question to ask, indeed. These are a few things we know about CO2.
1. Unlike CO1, which is poisonous and will kill you, CO2 is a largely inert gas, and will hot harm you in much higher 10x, 20x, etc. concentrations than we have at the moment. After all, this is what you drink in all fizzy drinks and good old trusty soda water. Whomever has been rushed to hospital because they drank a litre or two of soda water to date? I have heard of no one. So, there you have all the proof you need that CO2 is no immediate danger to human health.
2. On the other hand, we also know that CO2 is essential food for plants, and in order to stimulate healthy and rapid plant growth, CO2 levels are often increased in hothouses some 500 times higher than outside levels. With higher CO2 concentrations, plants grow stronger and faster and they need less water. Plants thrive on CO2, and we in turn thrive on plants.
3. As for the warming scare hysteria currently sweeping the planet, there is no credible evidence that CO2 should cause any significant warming of the atmosphere, and any warming it might cause is so minute that it is virtually undetectable. If anything, historical data clearly shows that atmospheric CO2 levels follow global warming with approximately 800 years delay, so the warmist pseudo science has the arrow of causation the wrong way around. How they ever imagined that they will get away with such blatant falsehoods that are not a matter of opinion, but that of scientific record, is beyond me.
4. According to the historical record, Earth’s atmosphere definitely had as high as ten times more CO2 in the atmosphere, and possibly as high as 20 times more than at present without thereby causing runaway global warming. I assume that you have seen the ice core data slide show, which puts in context the warm and cold trends in the Earth’s atmosphere and climate. Those rhythmic swings up and down, as far as we can tell, have always been FOLLOWED by higher and lower CO2 levels, NOT preceded by them.
5. Finally, CO2 is not a massive, bulky part of the atmosphere, but a mere trace element, and CO2 as a trace element does not possess any known properties that would enable it to have a disproportionate impact on atmosheric temperature levels relative to its bulk, or quantity in the overall mix.
To appreciate this last point at a very basic level, divide 450 by one million and then multiply that by 100 to get the percentage of its size relative to the overall mix in the atmosphere. Here it is: 450 / 1,000,000 x 100 = 0.045%, wich means that it constitutes less than half of 0.1% of the mix that we call our air. This is an absolutely miniscule amount, and postulating that a doubling, trippling, or even a ten-fold increase in the quantity of this inert gas is going to warm up the atmosphere to any significant or noticeable degree is pure fiction.
There are no scientifically established reasons for believing such a thing, as confirmed by empirical observations where higher concentrations of CO2 were predicted by climate change models to cause increased warming in certain specific regions of the atmosphere, whereas no such warming has been detected.
The whole thing is a scam and a sham, a bandwagon and a gravy train onto which every freeloader and schemester has been keen to jump for their own specific motive, agenda, and purpose. The US Military Industrial Complex, for example, most likely sees it as a possible mechanism to police and control China’s development. Just listen to Obama’s open and undisguised attack at Copenhagen on China’s refusal to be policed by the UN over their emissions (read: cheap and competitive energy production), to see an aspect of this game at the highest levels.
By contrast, Wall Street bankers, brokers and gamblers see the proposed international trading of carbon credits as a money flow that they can syphon off through the trading system for their own profit and benefit. This is why they oppose a simple carbon tax, but insist on a trading scheme instead, where they can slice off a much larger portion of the pie for themselves.
Poor nations, by contrast, see money in it, as they have been promised billions of dollars from rich nations just for signing up, and agreeing to be controlled and monitored with respect to their resource use and development. Their dictators in power don’t care about development in any case, so they will happily sign such off, if they are paid the billions they were promised, which they then can syphon off for their own benefit and their cronies and hangers on of all sorts.
Closer to home, Rudd sees the proposed ETS as a great way of collecting billions of taxes, and then being able to redistribute the money as they deem it necessary for re-election. And Abbott, who does not believe the climate change hysteria, we know this because he has said so before, still goes along with the farce, but with a different plan and agenda, which is not as yet totally clear. One glimpse of it came with his endorsement of having a nuclear debate. Well, it looks like, similar to Howard, he might use the hysteria as a way of pushing us into nuclear power stations “to reduce emissions,” so my guess is that the nuclear lobby, with Ziggy in the background, is working away at the Coalition, hoping that they can at least get on board one major political block. Disappointingly, even Barnaby Joyce is willing to shut up about the scam, in return for having a seat on the front bench.
Anyhow, I am rambling. Heaps here for thought and discussion.
At least Dubai “worked” for a while. this one hasn’t even got of the ground in a country with the world’s larget population!!
Has anyone heard of this in the mainstream media? Are we “immuned”?
http://www.pbs.org/pov/utopia/
GB – I agree, we are on a downhill slide into an ever more controlling, autocratic and tyrannical bureaucracy, whose narrower interests are at odds with the interests of the general populace, and represent the greatest threat to individual freedoms. Those, who are supposed to be public servants, serving the public interest, the public trust, are more and more feeding on the rest of us whom they are supposed to serve.
As for Rudd, my impression is that he has the mentality of a petty bureaucrat, and he is a little dictator who, if he can help it, will not tolerate dissent. The fact that the public broadcaster (The ABC) has been reduced to little more than the dissamination vehicle of the propaganda arm of the government over the whole ETS affair, and the way the CSIRO has similarly become and uncritical warmist machine behind the same ETS bandwagon, are just two signs of his petty tiranny. When a country’s critical institutions are captured and politicised like this, it bodes no good for the future of its democracy and freedoms.
But, like all dictators, he also has feet of clay, one manifestation of which is that he has hitched his wagon to a scam whose aims, and methods run contrary to known scientific truths and knowledge. Consequently, no matter how much he agonises and keeps trying to push for this scam, given that we live in the information age, his petty scheming and thieving will be widely known and exposed as a sham. Mind you, he seems to be working on that problem already, with the proposed censorship of the internet. It should be no surprise that he should now go after the medium that threatens his longer term plans and aspirations to higher office in the UN.
GB – and if you wanted to have your mood spoiled even further, here is the evidence. I am not kidding – notice especially that, further to the co-option and corruption that Rudd has already wrought on the national broadcaster and the CSIRO, he is extending the power of the police to enforce his proposed ETS. Seriously, you cannot make this stuff up:
“REFORMS TO ENHANCE POLICE CAPABILITY
18 December 2009
Minister for Home Affairs, Brendan O’Connor, today announced significant administrative reforms to the Australian Federal Police (AFP) as part of the government’s response to the Federal Audit of Police Capabilities.
Conducted by Mr Roger Beale AO, the audit examined the AFP’s capacity to meet contemporary and future demands, and government priorities.
“In line with our election promise, the Australian Government is improving policing capability to respond to current and future law enforcement challenges,” Mr O’Connor said.
The major areas of reform include:
a new funding structure providing flexibility to meet existing and emerging priorities including: counter-terrorism; serious and organised crime, including e-security crime; border protection; overseas deployments and peace keeping; criminal law enforcement in business regulation; and support to the enforcement of the anticipated Carbon Pollution Reduction Scheme. ”
http://www.ag.gov.au/www/ministers/oconnor.nsf/Page/MediaReleases_2009_FourthQuarter_18December2009-ReformstoenhancePolicecapability
And here is a glimpse of how the public broadcaster’s journalists are being gagged and directed from above as to what they can and cannot say in public. I suspect that what comes out in such little glimpses is not even the tip of the iceberg of what really is going on behind the institution’s walls.
http://www.theaustralian.com.au/news/nation/abc-journalists-warned-not-to-express-opinions-on-the-drum-website/story-e6frg6nf-1225811889233
And, as my intended last Hurrah for the day, here is a piece on how the Warmists have hijacked Wikipedia on the subject of climate change. Some time ago I accused Rycoka of trying to mislead this audience and disseminate more misinformation by trying to whitewash Climategate by referring people interested in this subject to Wikipedia. I said, that Wikipedia was a biased and captured warmist site concerning this subject, but now we are getting to know how the hijacking was done. Read it here:
http://network.nationalpost.com/np/blogs/fpcomment/archive/2009/12/19/lawrence-solomon-wikipedia-s-climate-doctor.aspx#ixzz0aApCEqRz
Nick, good question. I visited the Mall of America in MN, some 10 years ago, and even then I was wondering how the majority of those businesses there could possibly be making enough money. The traffic certainly looked rather thin to me, even though those were relatively good times for the consumer.
Now, fastforward to China. Here is another brief report on the City of Ordos, where they have built an entirely new city, some 30km away from the old one, but which stands empty.
http://www.youtube.com/watch?v=0h7V3Twb-Qk
These massive malls and empty cities are the manifestations of gigantic misallocations of resources. As such, it is hard to tell if and for how long they can go on before collapsing. The reson is similar to that of a millionaire profligate, who can carry on indefinitely, as long as their source of cashflow does not dry up to sustain the waste. So, in the case of China, the question is about whether they will have the cashflow to sustain these massive misallocations of resources, all these buildings and cities that are not being used, and stay empty, idle and unproductive. They are like the building of pyramids by a society. As long as they have enough surplus wealth and productivity, they can keep building largely useless monuments forever.
Now, as to what is likely to be the case for China, I would suspect that they would have plenty of extra resources and capacity to keep sustaining all that waste, save that they are probably in the West’s crosshairs. Just like the Arab world, it will not be allowed to represent any sort of serious challenge to Western supremacy, and the more they try pushing their luck, the more they will be resisted, weakened and undermined.
With an export-based economy, their source of new money can be cut off by their largest customers to start with, and we are already seeing signs of that happening. And now that they managed to avoid the trep set for them through the IPCC’s Climate Change scam, they will have other problems, and more of them. Either way, they are being watched, and the continued projection of their power and influence is going to be checked more and more aggressively. One of their potential sources of oil, for example, and namely Iran, has been well and truly marked by the West, and will be thrown into chaos if and when needed. China is huge, but encircled, and the immediate outcome of a direct and open showdown is most unlikely to be favourable to her.
Dubai has been bankrupted through debt. China has heaps of surplus, so the approach will have to be different, but still very much in the myst of the future. But given its precarious and exposed situation, the communist leadership will probably just keep opening the door onto the country and will allow the West’s gigantic banking and business interests the access they want to China’s limitless and cheap human resources. And if so, if peace can be maintained, then raw materials will be in demand, and we might not fare all that badly going forward.
It is hard to know, but my guess would be that the communist dictators are like all dictators: they will sell out the country’s interests more readily than give up their power, so that is the most likely scenario.
I can see the logic in your view cb. Interesting clip. What I can’t understand is that with all this construction going on and no one filling the structures (both residential and commercial), does this not flood the market with real estate that is not “productive”? The clip states that “investors’ are securing their money by placing it into real estate “for safe keeping”, but what does this ultimately do to the “value” of that real estate. Where is the return? When does saturation occur? What happens WHEN saturation occurs? Is this not the foundations of a “bubble”? How can the value of this real estate keep increasing with “oversupply”? I can understand that resources will be required until that day comes and it may be years away but does this make the next GFC even greater? Assuming no major conflicts occur in the meantime.
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