“At the end of the day Im just a mug punter but even I with my limited intelligence know the definition of “super” I mean imagine if Super mans powers were slightly greater than that of the average man….. he wouldnt really be “Super man” now would he, he’d be “Slightly better than average man” doesnt have the same ring to it though does it?”
We wrote about 8,000 words on the so-called Super Tax last week. But I reckon the post by ‘Young-Trader’ on Hotcopper sums it up just as well in only 65 words.
But before we get on to today’s Money Morning, a quick note about our new Money Morning YouTube channel. You can click here to view the, erm, only video we’ve managed to film so far.
We’ve been amazed at the number of people that have taken a look already. So, we’ll see if we can provide regular video updates on this site. Stay tuned over the next few weeks for more details…
Anyway, back to today’s Money Morning. We do find it amusing that Treasurer Wayne Swan would say that Australian mining companies are holding a “gun to the head“ of the nation.
Really? Exactly how are the mining companies doing that?
I don’t know about you, but the last time I checked, neither BHP Billiton [ASX: BHP] nor Rio Tinto [ASX: RIO], nor any of the other thousand-odd Australian mining companies have ever forced your editor to buy one of their products.
We could be wrong, but we’re pretty confident we’re right.
When we think about it, we’ve never seen the purchase of one tonne of iron ore automatically deducted from our pay packet.
And neither have we ever been informed that we’ve got to buy ten pounds of copper otherwise, well we’ve just got to whether we use it or not.
On the other hand, we’re 100% confident that every fortnight the government holds a gun to your editor’s head, forcing us to hand over a slice of our wages.
And we’re not just bleating over our own misfortune. You’re well aware of this yourself. Every week, fortnight or month, the government holds a gun to your head as it takes 20%, 30% or 40% of your wages.
And there’s nothing you can do about it. Unless you fancy taking tax tips from Glen Wheatley or Paul Hogan of course.
But forget all that, because this morning everything is fine with the world again. The Greeks have been bailed out, and Australian stocks are rallying.
As we write, those lovely banks are up – ANZ Bank [ASX: ANZ] up 2.7%, Commonwealth Bank [ASX: CBA] up 2.5% – and so are the resources stocks – BHP Billiton up 2%, Rio Tinto up 3% – so everything must be fine.
Phew! What a relief.
But the funniest thing about the last couple of weeks is how quiet the perma-bulls have been. They’re usually so vocal about how the recovery is going according to plan and how critics of government spending should just shut up.
And how everything will be fine as long as nobody sells their shares – “If we all refuse to sell then prices will never go down!”
You can see just how quiet they’ve been by looking at their absence from the Money Morning blogs, or by the lack of emails we’ve received into the Money Morning mailbag.
Of course today they’ll come back out of the word-work, or from under the table claiming they were too busy snapping up bargains.
Last Friday we asked, “where are the Keynesians now? Supposedly their spending plan was working. This is the way out of recession they said. Stoke the demand side and everything will be fine.”
That prompted our colleague, Nick Hubble over at The Daily Reckoning to point out exactly where the Keynesians are. They’re hiding under the table apparently! Nobel Prize for economics winner Paul Krugman wrote:
“And if Greece is in effect forced out of the euro, what happens to other shaky members?
I think I’ll go hide under the table now.”
We’ve taken some criticism from the Keynesians for daring to ridicule Krugman for his views. His view is that the US economy isn’t in better shape because politicians didn’t spend enough money on stimulus programmes.
But then, Krugman has a PhD and a Nobel Prize whereas your editor only has a DVD and a Third Prize, therefore Krugman is right and we’re wrong.
Naturally we beg to differ. Krugman couldn’t be any more wrong if he tried. And boy is he trying.
OK, maybe the “I think I’ll go hide under the table now” line is an attempt at a joke, but the reality is, the Keynesians have run out of ideas. Their one and only solution is to pour more and more money at the economy to try and stimulate a recovery.
The more spent the better. The more borrowed the better. The more that’s printed the better.
You see, the cruel thing about it is that all it does is give the impression of an economic recovery. What it hides is the real damaging effects. And because the damage is largely silent, you may never be 100% aware that it’s happening.
Sure, you may not have lost your job and unemployment is at record lows. But how come if everything is booming you don’t feel better off? In fact, you’re working longer hours but you can afford fewer luxuries.
And by luxuries I’m not talking about Gucci handbags and Cartier watches. I’m talking about soft toilet paper and brand-name cheese.
Your non-discretionary purchases have increased – food and fuel – so you’ve got less money left over to spend on fun things (not that toilet paper and cheese are all that fun, but you get what I mean!)
Yet you read in the paper and see on the news about how the Australian economy is booming. How China is buying up lots of resources. How property prices continue to surge upwards.
If that’s the case how come you don’t seem to be any better off today than you were two years ago?
That, my friend, is the work of inflation silently wreaking havoc on your wealth.
And don’t think that the government snatching extra tax from the resources sector will help you out, because it won’t. In fact, it will make it worse.
Because rather than the profits from the resources sector going straight into the pockets of investors and individuals, instead it will go straight to the government. And that’s where it gets to stoke the inflationary fires even more.
It’s all part of the inflationary policies both here and overseas. As new money is created by the central banks and bankers it first of all finds its way to those industries most favoured by the banks and the government.
But it doesn’t even need to create new money. It can just misallocate resources in the wrong areas, such as it typically does with any kind of government spending.
They take the money and spend it on all their little pet projects. Naturally this causes prices to rise through the economy as more new money chases the same number of resources and products.
By the time this new money finds its way into your pocket, it’s too late to be of any use to you as prices have already risen.
You can see that’s already happened with the increase in the consumer price index (CPI), which is already skirting close to the Reserve Bank of Australia’s supposed upper limit. The cost of living will always rise before you receive a matching rise in pay. You’re always playing catch up.
So even when your pay packet gets bigger you’re left scratching your head wondering where the extra money has gone. Naturally, you blame it on yourself for spending too much, or on evil businessmen for so-called profiteering.
That’s inflation for you. And it’s why the banks and governments love it so much. Because it gives them an unfair advantage.
They get to spend and lend the new cash first. Therefore they get the most bang for their buck.
But like any Ponzi scheme it requires a constant stream of new investors. Or in this case, a constant stream of new money to keep it propped up.
With the market up nearly 2% this morning compared with Friday’s close, has anything changed? No, not really. The phrase that does spring to mind is the one about a pig wearing lipstick.
And today we can certainly say that the little porker has scrubbed up a treat. Trouble is, when all is said and done… it’s still a pig!
Cheers,
Kris.
{ 27 comments… read them below or add one }
ive been thinking about the govts proposed 2% tax drop for companies – which will be paid for by the super profits tax… who actually benefits from a 2% drop in company taxes? as far as i can work out the only beneficiaries of this are foreign investors. companies have the benefit of spending first and only paying tax on whats left. when a company pays a fully franked dividend to its shareholders they can claim tax a input credit (or whatever its called) on the tax the company has already paid on your dividend. as the recipient of this dividend it all goes into the one big income pot and you pay tax on the lot, less what you have already paid… if the company has paid 2% less than YOU have paid 2% less and will probably have to make up the difference when you file your tax return… if on the otherhand you are an overseas investor you are now getting slighly more cash as the govt has reduced the tax on the company. so the super profits tax which mainly affects foreign investors results in foreign investors getting increased dividend earnings from every other aussie industry/company they have invested in… as a small business owner i cant see how the 2% drop in company tax will affect what i can put in my pocket as my income tax will bring it back to par….UN:F [1.7.3_972]
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Kris – Exactly who are the perma bears on this blog? What you have here is a bunch of bears, with the possible exception of Peter Fraser who is perhaps the most optimistic about the outlook, though he is hardly a perma bull. Seriously…..
Sorry I meant to ask who the perma bulls are, not the perma bears, of which we have plenty.
Damian,
I cannot see any material difference in the 2% tax change one way or the other, unlike the 40% super tax on profits. Yes, it would be a bit easier for companies to save for expansions or debt repayments, or overseas investors would be somewhat better off, but they will hardly notice.
Compare this to Hong Kong 10% company tax or Singapore 18% – now here is the difference!
cb – silver good today and gold down. what did you mean when you said it is currently 10% lower than all time highs, was that in USD or AUD? I have been buying on AUD strength regardless as am long term bullish gold and see this as a good way of buying, particulary if the AUD heads south! If the pollies get their way AUD will be back at 70c in no time. What do you think?
scroll down to the graph “Historical Growth of the Global Money Supply”
This is the “global” money supply. It went parabolic about 1994 but didn’t accelerate until about 2000 – the exact time gold started its bull market.
The author states in the article “Due to the rapid appreciation of the US dollar near the end of 2008, there has been a recent decline in the value of the global money supply” Well if fiat money or fractional reserve banking is in its death throes then there should be further declines in the value of the money supply which suggests the US dollar is going to strengthen??? Hard to swallow but maybe possible?
Another cause of the explosion in the global money supply could be superannuation which kicked in about the same time – if thats the case then KRUDD raising the amount to 12% is going to wreake havoc!!!
http://news.goldseek.com/GoldSeek/1231778551.php
cb @ 2
He is right though about the perma bulls being really quiet. I dont mean on this site but in MSM etc…
Its strange that the market can fall 7% in a week or all you hear are the crickets… Its like they have been waiting for this correction all along and have now turned bearish.
Maybe they are realising that the stimulus is wearing off and now taxes need to be raised Margaret Thatcher style to pay down debts which means very low growth?
They say markets correct once the bears become bulls but after the GFC people got burned so maybe the better theory might be that the market corrects once the bulls become bears – more of a self fulfilling correction or back to fundamentals trading?
Tel – Yes, I was talking about the AUD price of gold. If you earn your income and save in AUD, then this is the one that matters to you most.
Gold has been up and down in all currencies, but not in all of them at the same time. For example, it has been hitting all time highs in EUR and GPD of late, but it has been in a serious pullback in AUD because our dollar has been quite strong. As, and when, our dollar retreats against the USD (in which gold is primarily quoted and traded), then the AUD price of gold will probably start hitting new highs again.
In the latter half of February 2009 the AUD price of gold rose to around $1,500 per oz, and therefore the 10% pullback mark from this all time high is $1,350 per oz ($1,500 x. 90 = $1,350). Currently currently, gold sits around $1,300 per oz, which is below the 10% pullback mark, and therefore still a good buying opportunity, according to a strategy of buying the pullbacks, which I have described earlier. Dollar cost averaging, which you are doing, is an equally valid approach to take for anyone who takes a long term bullish view like we do. Cheers.
GB – Yes, I agree with you on that. The reality is that uncertainty and volatility have become the order of the day, and the mindlessly bullish will inevitably keep getting these slaps in the face with a cold fish or two. Those doing God’s work have bet many times over world asset valuations, and in a world where governments stand ready to make good on those bets, whether they work out right, or wrong for the gamblers, economies around the world are sitting on the edge of the abyss.
Will they fall off? Who knows? Can they be pushed off? You bet. Just look at Trace Meyer’s version of the liquidity pyramid to see the peril we are all finding ourselves in. World GDP of $55T is outstripped by derivatives alone by some 26x. Yes, these are the derivatives, the contracts and bets that Warren Buffet so aptly called “weapons of mass financial destruction.” The criminal gangs who created this monster are at large and are running riot. The psychopaths are running the asylum.
http://www.creditcontraction.com/images/affiliate/Great-Credit-Contraction-Liquidity-Pyramid-Large.jpg
The video clip on this site, contains Mayer’s explanation of the liquidity pyramid. Mayer’s is a variation on John Exter’s original conception of the pyramid, which focused especially on debt and the way debt contraction affected money flow from riskier to safer asset categories. But whichever version of the pyramid one looks at, it is hard to fend off the impression that the monetary metals are massively undervalued.
http://www.creditcontraction.com/
The (Almost) Crash of Wall Street
Courtesy of Robert Reich
Wall Street Begins Recovery After Dow Takes Wild Plunge
Ninety minutes before the end of the trading day today, the U.S. stock market almost melted down The Dow Jones Industrial Average dropped nearly 1,000 points. The market regained ground before the end, like a giant 747 narrowly averting a crash landing, but the questions of the day are: What happened? And What does it mean?
At this point no one knows why. Some say it was sudden burst of worries about Greece’s debt and the increasing possibility of a default that might cause a run by global investors. Others point to a “trading error.” Giant high-speed computers generate millions of trade based on instructions embedded in computer programs designed to move fast enough to beat everyone else. So when there’s a glitch in one of them it can immediately spread to all the other programs designed to move just as fast. Some say it was an erroneous trade entered by someone at a big Wall Street bank who mistyped an order to sell a large block of stock, and that the big drop in that stock’s price (Procter & Gamble?) triggered “sell” orders across the market.
Regardless of why it happened, it’s further evidence that the nation’s and the world’s capital markets have become a vast out-of-control casino in which fortunes can be made or lost in an instant — which would be fine except for the fact that most of us have put our life savings there. Pension funds, mutual funds, school endowments — the value of all of this depends on a mechanism that can lose a trillion dollars in minutes without anyone having a clear idea why. So much of the market now depends on computer programs and mathematical models that no one fully understands, so much trading is in the hands of a few people whose fat thumbs or momentary carelessness might sink the economy, so much of global wealth now depends on who can move their money quickest at the slightest provocation — that we are toying with financial disaster every day. The luck or foolishness of a few traders, and inside knowledge and information that some possess and others don’t, combined with ultra high-speed computers, put us all at the whim of a system whose risk is way out of proportion to any public benefits.
The financial reforms being considered on Capitol Hill are steps in the right direction. But the “systemic risk” now embedded in our capital markets is higher than ever, and will require far greater understanding and vigilance than now being considered.
What makes people think Europe’s debt crisis is over?
Greece had too much debt so private investors demanded higher premiums. The EU comes in and says everything is OK now because we will give Greece money.
But Greece still has too much debt!!! The only thing thats changed is other nations now have too much debt???
Am I missing something?
GB… how I understand it is that all that is happening is “quantative easing” basically printing money. The IMF is 25% owned by the Fed. This is why the Fed is kicking like a mad mule to prevent from being audited.
Nothing has changed and nothing will. It’s only being both delayed and growing in intensity. There are many Euro countries plus the US itself in a position of “no return”. Basically, fiat currency is in rapid decay. The only safe haven is precious metals, Gold & Silver.
why dont they look at the ‘Super’ profits earned by house flippers over past decade and then change the tax laws to take account of them???
lol, PuntPal. Now you are calling for the slaughter of some sacred cows. As Greek mythology tells us, that can be very costly. Politicians know this.
GB, Nick – I agree. Recall that debts diagram of the European nations. We know that most of it is unpayable, and what is unpayable is not going to be paid, but defaulted on. This much is obvious. So, the critical question to sort out is the dominant form this default is going to take.
My bet, like Nick’s, is that they will keep printing and devaluing those debts and unpayable promises, and if that is right, then blind Freddy should be able to see that the monetary metals, in spite of recent run ups, continue to have a massive upside with virtually no downside risk. Debt will continue to be monetised, and the excess money will keep diluting the existing stock of fiat currencies. So, the more of our savings we can rotate into the metals, the more robust our protection against the inevitable devaluation.
Debts that cannot be paid are not going to be paid, and promises that cannot be kept, will be broken. But both will be done in the time honoured, sneaky way, of printing up whatever money is needed at any given time.
Some notes from the US Weekend / Monday morning edition:
CNBC early this morning…Art Levin (I think..not sure) suggested the only real cure for Europe is for Germany to detach itself from the Euro and go back to a *new* Deutschmark… that way the the Euro can devalue to its true level. Also discussed was the cost of labor / competitiveness in Europe when countries join the Eurozone…Greece, Portugal, Spain, etc all had 30-40% increased in labor cost without matching increases in productivity… Another comment (paraphrased) “all that this new facility does it buy Greece time and let them continue to spend money…for about 2-3 years. At the end of that time their deficit and debt servicing will be much bigger than their ability to repay. Solution is detach Germany from EU, hyperinflate, and hope that they come out the back end”…(something along those lines)…
BBC expose on Goldman… how GS told everyone they were the “best of the best” (cue Top Gun music) and then cried like babies when they got beaned on their behaviour. The power of GS was summed up by a the following quote (paraphrase) “countries can no longer control their own destiny, for example GS can create more CDS’s or other bets against a country than the country can print money / sell bonds…exponentially more”. Also mentioned was a quote from the Rolling Stone article that “GS are a vampire squid attached to the face of humanity”…the author stated that GS “didn’t really like that”…
The Wolf’s tip (aka reinforcing “the record that cb / Nick / et al has been spinning long before I woke up and smelled the Brazilian blend coffee”): Buy gold…hard heavy lovely gold as close to spot as you can get it. Don’t wait to procrastinate…another $1T of Euro currency being printed and the GoPr drops by US$11oz (I apologize…it is a lot easier in the US to pursue this strategy earning US$…there is a massive market for this stuff here).
Fannie and Freddie loan book greater than the US deficit…2.25% or 2.5% delinqency ratio at Fannie I think I heard this morning…
Here is a little more on what we have just been discussing. came in on my email this morning….
“Yesterday, Fed Chief Ben Bernanke announced that the Federal Reserve will print UNLIMITED numbers of U.S. dollars and then use them to buy bonds offered by failing European governments.”
Nick@18
YIKES!
Wolf…if they are talking about a “*new* Deutschmark” as you mentioned. Plus there have been rumblings of a possible “new dollar” namely “the Amero” , it seems as if they already have it in their agenda that currencies will collapse. This is why it seems that they really have no solution except to “steal” our money through inflation and then wipe us out with a total revaluation and a new currency.
Perhaps that was what the recent “secret bankers meeting” in Sydney was about.
Paper is just that, Paper. Gold is what it has always been. My parent’s lessons to me all my life…. dam, don’t you hate it when your parents are always right.
lol, Nick, there is a saying that goes something like this: The older I grow, the wiser my parents become.
lol cb..cheers.
I think this solution in Europe will calm things down for a while. It has bought them time but austerity is going to lead to lower growth from now on (while banks become depression proof).
Next: Overheating Asia realises that the consumers aren’t coming back in time to rescue them so the next crisis will be there – its moving east. And what will Asia do? Print money, quantative easing, monetise debt…
I must say this is really terrifying but really interesting at the same time
GB…terrifying ONLY for the unprepared. For those with eyes to see and ears to hear, will be well positioned to ride the storm.
High Frequency Terrorism: How the Big Banks and Federal Reserve Maintained Their Death Grip Over the United States
http://ampedstatus.com/high-frequency-terrorism-how-the-big-banks-and-federal-reserve-maintained-their-death-grip-over-the-united-states
Fake Volume And Increased Volatility
by Trace Mayer, J.D. on May 10, 2010 · 0 comments
“VOLATILITY
When the financial markets experience unusual palpitations then those closely involved often flee for safety and liquidity. With high frequency trading powered by computer algorithms the result is a gigantic electronic herd moving at the speed of light. The result is an explosion in the VIX or CBOE Market Volatility Index.
The higher the VIX the more difficult it is for the entrepreneur, the individual that creates real wealth by providing the goods and services the economy desires, because making mental calculations of value becomes more difficult and therefore decisions to allocate capital become based on more arbitrary premises. In this current economy, value and price are completely discrete.
The end result is that holders of capital, instead of taking risk and buying an ice cream machine or building a new factory, buy gold, silver and platinum while waiting for calmer days. When the devaluation of intrinsically worthless fiat currencies happens it will likely be extremely quick.”
http://www.runtogold.com/2010/05/fake-volume-and-increased-volatility/?awt_l=KaQ4B&awt_m=1evb2_7dwLfdxm
Dylan Ratigan on the IMF-EU Bailout
Infowars.com
May 10, 2010
http://www.infowars.com/dylan-ratigan-on-the-imf-eu-bailout/
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