I know it’s the 2nd August, but your editor is still scurrying to finish the July issue of Australian Small-Cap Investigator.
We had hoped to have it flying out the door by Friday afternoon, but that didn’t happen. But a weekend of reading, research and ‘riting – interrupted only by attempts to help the Sayce kids build a dolls’ house – means that we’re close to putting the final touches to it.
So, if you’re a subscriber to Australian Small-Cap Investigator you should expect to get the July issue in your inbox today or tomorrow.
And I promise to have the August issue delivered in August!
Just one more thing. Diggers & Drillers editor Dr. Alex Cowie is in Kalgoorlie this week for the Diggers and Dealers annual mining and resources bash. Each day this week Alex will be reporting in Money Morning on what he’s seen and heard, and who he’s met.
Anyway, on with today’s Money Morning…
It’s not often your editor is impressed by what’s written in the mainstream press. But Terry McCrann’s column in last week’s The Australian did fill us with some hope that not all mainstream writers are Keynesian Muppets.
Read it for yourself, but in a nutshell he’s having a crack at the drones who keep banging on about the need for a “Big Australia”. That the Australian population will get to, or needs to get to 50 million by 2050… Or whatever number the drones decide to come up with.
Mr. McCrann’s last two paragraph’s sum up the article perfectly:
“At core the new “populate or our future fortunes will perish” cry is the ultimate national pyramid scheme. We need to get to 36 — or 50? — million, to have the taxpaying workforce to support the now ageing baby-boomers. Beware of a Japanese-style population implosion!
“Oh yeah? And when all those younger new arrivals start to age, we will presumably then need to move to 72 — or 100 — million, to have a sufficiently large taxpaying workforce to support them. Just as every boom busts, even our China one will; the laws of arithmetic always topple even the most elegant pyramid scheme.”
Mr. McCrann calls it a Population Pyramid. You could just as easily call it a Population Ponzi Scheme.
It doesn’t matter which you use – although technically Pyramid and Ponzi schemes are different – it adds up to the same thing. And that is the mainstream economists, policy makers and commentators (excluding Mr. McCrann) have absolutely no understanding of how an economy works.
You see, the typical mainstream economist is really just a frustrated mathematician. They weren’t smart enough to take a maths or physics degree so they plumped for what universities misrepresent as an economics degree instead.
In reality it isn’t real economics at all, it’s just playing around with numbers and half-baked theories.
The problem is, economics is actually all about human interaction and human behaviour rather than fancy equations, pie charts and made-up indexes.
Economics isn’t about guessing what the latest Consumer Price Index (CPI) number will be, or the latest home loan or credit growth data.
But that explains why mainstream economists don’t understand the big picture. And it also explains why they’re only capable of seeing what’s immediately in front of them.
For example, here’s what they saw during the economic meltdown in 2008 – They saw an economy built on credit. Then they saw an economy which is faltering. Finally they saw a population that’s using less credit.
Their conclusion? Their conclusion is the only one they can possibly make. And that is to increase the supply of credit. Voila! Everything will be fine again.
Yet they fail to see that the economic growth was built on nothing more than a credit pyramid. A credit pyramid that needs ever greater loans in order to keep it going.
Once the lending stops, the whole thing collapses.
And rather than admitting that the growth of the last thirty years has been at the expense of growth over the next thirty years, these dopes are just determined to keep the party going.
Rather than the likes of the Baby-Boomers saying, “hey we benefited at your expense without you knowing it, so now we’re going to put the brakes on,” they’re more than happy to let the Ponzi scheme going and let the next generation keep paying.
Because that’s what the credit boom has done. The Baby-Boomer generation has benefited but they don’t want things to change. And funnily enough, it’s that very same generation who are now pulling the strings in government and the central banks.
Simply put, prior generations have lived beyond the economy’s means. And now that it’s time for payback, that same generation doesn’t want a bar of it. That’s why they’re trying to push the payback period out into the future – increasing the population should help!
But back to Mr. McCrann’s article. He makes a great point on the bogus population argument. Their mainstream’s only solution for the increased cost of welfare and healthcare is to encourage an increased population. But as Mr. McCrann points out, what happens when those people get old?
More immigration? An even bigger population? It all comes back to the issue of exponential growth that we wrote about a few months back.
At some point the exponential growth breaks down, because it isn’t sustainable. If the only reason for increasing the population is so those new-comers can pay for the old timers or to keep house prices up, then that’s a policy heading for disaster.
Besides, if you know that’s the only reason you’re being welcomed into the country what are the odds you’ll stay, or even come here in the first place?
The crazy part of their theory if you work it all the way through to the logical conclusion is that the exponential growth would mean Australia needing the entire population of the world to move to Australia in order to maintain the welfare and health payments.
Our question would be what happens next?
Of course, everyone knows that isn’t going to happen. The whole idea that you can get an economy out of economic strife just by increasing the population is ridiculous. It isn’t sustainable, full stop.
It’s no more sustainable than their claim that you can solve a credit bubble by issuing more credit.
The fact is, these mainstream dopes have no more clue about economics than a fourth grader. In fact, you could argue that young kids actually have a better idea on how markets and economies work.
As an aside, your editor was mightily impressed by our youngest daughter and her practical understanding of how markets work a few weeks back.
On Friday evenings the Sayce kids skip off to the local Uniting Church for what we can best describe as a Friday version of Sunday School. On one particular evening they were holding a market night.
The idea being that the kids would turn up with stuff from home, or stuff they’d made, or even stuff they’d bought. They would then sell it to the other kids and any money raised would go into the church coffers.
Well, Sayce kid No 2, spotted what you might call a mispricing in the market. How so? One of the other kids was selling bags of lollies for 15 cents a bag. Each bag contained about 10 lollies.
What Sayce kid No 2 figured was that if she bought these bags of lollies for 15 cents she could split the bags and sell them individually for 10 cents per lolly. And that’s what she did to great effect – and profit, none of which she got to keep of course!
But here’s the thing. Your average mainstream economist or commentator probably wouldn’t have identified the mispricing opportunity. They would have been too busy suggesting that more lollies need to be made in order to keep the price low and satisfy demand, whereas in reality the market was quite content to pay a higher price.
Of course the population nonsense isn’t the only area where they’ve got no idea. But it does help to explain why they think as they do on the issue of credit and borrowing.
You know the story. Apparently the solution to a credit and debt crisis isn’t to stop spending. And it isn’t to stop going further into debt. The solution – they say – is to spend more!
The solution is to go further into debt. To encourage the banks to lend again.
Just like their solution to a housing bubble is to lower interest rates and provide buyers with taxpayer funded grants.
A nine year old could figure out that’s not gonna do anything to solve the problem, it’s just going to push prices up even higher. Yet it’s the very solution you read every day in the mainstream press.
Not content with having stuffed the economy by shoving debt down the throats of Australians – “because it’s good for you” – the same pointy-heads are now throwing their weight behind the only way they know of keeping the credit Ponzi scheme going…
And that’s to back it up with a population Ponzi scheme.
So now we’ve got the beginnings of a pyramid of Ponzi schemes. Great!
Again it just proves that the people with the most power and influence are the ones least capable of doing what’s best for the economy and for you, because ultimately their own vested interests take greater priority.
Cheers.
Kris Sayce
For Money Morning Australia
From the Front Line in Kalgoorlie
By Dr. Alex Cowie, editor, Diggers & Drillers
This week Diggers & Drillers will be attending Diggers and Dealers!
The one ending in ‘Drillers’ is the commoditie and resources investment newsletter that I write.
The other is Australia’s leading mining conference in Kalgoorlie. It’s where hundreds of mining companies, mining service companies, brokers, bankers, and investors get together to talk shop.
I can see the Diggers & Drillers/Diggers and Dealers similarity causing a bit of confusion when people read my name badge. I reckon all week everyone’s going to be asking me for directions, or what time the next presentation is on.
The conference grows each year. This year about 3,000 people are expected to be there. But I was lucky to get a ticket. And I also nearly missed out on getting a seat on the plane, and was looking at catching the train from Perth to Kalgoorlie at one point!
As editor of Diggers & Drillers I get along to as many of these industry events as I can to get my hands on new ideas, sniff out a good story, and meet with as many companies as possible.
Here there will be a presentation every twenty minutes or so. So all in all it’s a great opportunity to update your knowledge on dozens of companies at once, as well as check the whole industry’s pulse.
I even hear that some of the guys have a quiet beer at the end of the day as well…
As well as this I’ve been getting out to mines quite a bit, with recent trips taking me to mines in remote parts of Queensland, South Africa and Botswana. It’s all great experience and you can’t beat checking a mine out for yourself, and meeting the team behind it.
So, this week I’ll be sending in reports from the front line straight to you in Money Morning. So keep a look out for those.
As for the best investment ideas that come out of the conference, that’s only for Diggers and Dealers, I mean Diggers & Drillers readers!
Alex Cowie
Editor, Diggers & Drillers
For Money Morning Australia
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Thanks PF….the higher end seems to be suffering in all areas of retail as well, not only real estate. As an indication brought to my attention only a few minutes ago, I was talking to the travel agent who arranges the corporate travel for my company, she told me that the Cruise industry is very worried. Generally cruises are booked 12 months (if not more) in advance. Currently most are only half booked . For this time of the year it is “disastrous” as most of these are for the Dec/Jan months and the ship companies are running specials to spark thing off. Also mentioned was the fact that most of the bookings are for the cheapest accommodation, the middle to upper is “ghost town”.
Further evidence is that airlines are doing away with the first class seats due to “lack of interest”.
Do you have any feedback on the FHBuyers (lower end). Has that slowed?
I’m told that there is a lack of “stock”. The explanation given is that many are fearful that their debt is greater than the price they can get for their homes/investments so they are sitting it out. Some are bailing due to the financial burden, but it hasn’t reached a desperation point yet. General feeling is tense. Do you see it that way?
Thanks, PF. That is very informative.
Drew – you are an incorrigible cynic, lol.
Nick – generally across Aust FHB have fallen to about 10% of the market. I’ll get an update on the AFG figures in a couple of days for July, so that will be interesting.
Stock on the market has increased a lot since May, and sales volumes have fallen considerably. I think a lot of the reason for that was the continuous interest rate increases, so it will be interesting to see what happens over the second half of this year. Whether the hold on rate increases will get the buyers out in the market is yet to be seen.
Drew @ 41 – I don’t write a regular analysis on where to buy, so I’m not sure when I first started to think that the Sunshine Coast and the Gold Coast were good buying.
I did put in an offer for a house in the Sunshine Coast hinterland about 4 or 5 months ago that I thought was a great buy, and I have been looking at a block of land at Mt Tamborine for about 12 months that I think I could get for a good price, but I’m in no hurry.
Usually the market changes over time so nominating a day when it goes from a sellers market to a buyers market is simply not possible, but maybe around mid 2009 I was aware that prices in the holiday areas of the Gold and Sunshine Coast were quite good.
I realise you were trolling, but that is your answer.
Haha, thanks cb – I’ll take that as a compliment.
Thanks Peter Fraser. Although you didn’t quite answer my question. I wasn’t asking for a date that you decided they were a good buy. To put my question another way, do you recall a time where you suggested (or even thought) that top end properties in the Sunshine Coast and Gold Coast could potentially fall by 50%, or did the magnitude of the fall take you by surprise? I’m genuinely interested.
k…I sympathise with your views. An accident of any kind is a tragedy. I have lost two friends due to a car accident that was caused by a drunk driver. He lived without a scratch. Should we ban alcohol and Cars?
My first experience in the big city when I started Uni was to be mugged by 4 hoons while stopping to make a phone call in a phone booth. It’s for the grace of God granting me with strength that turned the situation in my favour. Unless you have had the feeling that you are fighting for your life, you cannot understand what comes over you.
When I was growing up, you could buy a gun at K-Mart and put it in your shopping trolley. No one would look twice at it. It drew the same response as a fishing rod would.
The right to defend one’s self, ones property and those he loves is paramount to our very existence. There is civil law which we should all abide by, however, when there exists the element that chooses to abuse and live outside that law, then natural law kicks in. To stifle one only allows the other to flourish.
I have a son and daughter, both in their teens, both members of Mensa. To be eligible in Mensa you need an IQ within the top 2% of the world population. Both are highly skilful with a gun, they are proficient with its use and caring. Are they to be considered dangerous citizens?
Let’s assume that we outlaw all guns, do you seriously think that gun crime will cease overnight? Again let’s assume that guns were totally wiped off the planet and thugs invaded my home, as the law stands today in Australia I can’t even carry a baseball bat in the house and use it as protection. The thugs love that.
Many gun owners I know have shotguns worth up to $35,000 with incredible engraving on them. Beautiful woodwork and generally works of art. They take them out and shoot them (clays mainly) and polish them and just generally admire them.
I like to look at modern cars, the technology, the engineering; however, the hoons have caused more deaths in those than guns have.
Put it in perspective, sure I’m all for laws that control who should be issued with a gun license and who should not, just the same should apply to cars, but what I object to is the fact that those who do the correct thing are penalised and those that don’t get off scott free.
NOW let’s apply that to what is going on in the financial world…then you will understand why there has to be order.
But who do we have to apply it fairly?
Drew – only the multi million dollar properties fell by that much. I do recall thinking that the Hedges Avenue property prices could not be sustained when they were running hot.
I have always considered the Gold Coast and to a lesser extent the Sunshine Coast to be too volatile to warrant buying there. I would if I chose to live there though.
I don’t think you can use either of those areas as the litmus test for Australia.
Still doesn’t answer the question PF. Did you ever think a 50% fall on those multi-million dollar properties was possible, or did it take you by surprise?
Drew – I have seen properties fall by 50%, but you don’t seem to be listening, that is not an across the board fall. Even in the luxury end if you tried to buy for 50% less you would fail, it is just a few distressed sales where I have seen that.
Don’t think you can go to the Gold Coast and expect to buy at a 50% reduction unless you just get lucky.
That is your answer – end of story.
@ Greg
“Do you really think that will happen?
The closest I have ever seen to population planning is when big business decides that it is cheaper to import cheap labour and leave the local population unemployed than to train the locals.”
Nah — I dont think it would happen — they cant even build a link from the Eastern Freeway to the Tullamarine Tollway for goodness sakes! (in Melbourne)…….
Thats true about what you said about the importation of cheap labour at the cost of locals — but, thats life man…what are you gonna do about?
People on the bottom of the rung are always going to be on the bottom of the rung. Its hardly the fault of big business. Its the beliefs these people have that stuff them up.
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