Weekend links April 11-12

Sorry for the lack of W/E links, my youngest yard ape turned 8 yesterday so it was a bit of a crazy day.

Global Macro / Markets / Investing:

Americas:

Europe:

Asia:

Local:

Other:

 

Comments

  1. stop the stoats

    What do people think of quantitative easing? Is it producing any genuine sustainable growth or just pumping a bubble in stocks, bonds, etc?

    • Protecting bank balance sheets – what it was designed to do.

      Deflation is death (or so we’re told by geared asset owners)

    • What I suspect is that the Monetary Authorities do not recognise the capacity of markets to grossly over-produce … and in how loose monetary policy exacerbates the problem At at the same time, fuelling hugely destructive asset bubbles along the way as well.

      When these asset bubbles collapse, let’s see what happens to liquidity then.

      As 2Big2Fails excellent video of the interview with Nassim Taleb illustrates, these schooled people in markets have no sense of the risks involved.

      • UPDATE1 – China Premier says economy faces growing downward pressure … Reuters

        http://www.reuters.com/article/2015/04/11/china-economy-northeast-idUSL4N0X804X20150411

        (Reuters) – China’s economy faces increased downward pressure, the premier has said, as the country prepares to announce first-quarter economic growth.

        The government must “stand up to the downward pressure,” Premier Li Keqiang said late on Friday, to avoid an impact on employment and incomes, according to a statement on the government’s website.

        “At this time, the national economy is running smoothly, but downward pressure continues to grow,” Li said. … read more via hyperlink above …

      • The messages from China Premier Li seem clear …

        Reform, innovation key to boost demand, growth: Li|Politics|chinadaily.com.cn

        http://usa.chinadaily.com.cn/china/2015-04/11/content_20411685.htm

        CHANGCHUN – Local governments should keep track of changing economic patterns and fine-tune policies through reform and innovation accordingly to steady growth, Chinese Premier Li Keqiang said after a two-day inspection trip to northeastern Jilin Province.

        The new-type urbanization is crucial to economic growth and restructuring and infrastructure development can not only supply necessary services but also boost employment, Li said after visiting a construction site of a local transportation hub. … read more via hyperlink above …

    • Unless you are specifically trained to recognise risk and learn the manner to engage, manage and mitigate risk, nearly everyone gets the outcome wrong (it is human nature to underestimate risk).
      What we are seeing in Australia, with for examples, the failure of the GLNG projects but on a more easily observed scale, such as the collapse of Atlas Iron, is the inability of management to recognise risk, then when the “unfortunate” events are upon them to successfully navigate back to safety with the least amount of damage, is the small but obvious future outcome for the Nation.
      The public should expect a better outcome from the management of our businesses and Government, and should enough punters realise they have been short changed on the management of, for example, the likes of Atlas Iron, and have a legal review of the management procedures of such companies, and where applicable jail the offenders, will the balance of the population get the picture that our Govt is short changing all of us.
      The call to revolt of that French National Anthem, may be appropriate. WW

      • @WW
        Frankly I dont believe that “managing risk” is correct way run a company like Atlas Iron.
        Companies like Atlas are the poker equivalent of an “all In” bet and like an all-in bet you try to ensure you have the best possible hand but once you commit there’s no turning back you’re either going to win big or be lucky to keep the shirt on your back.
        Financial Risk management belongs at the portfolio level. IMHO this is best done by creating a series of pair trades, for something like Atlas I’d have invested in their Bonds and sold short sufficient stock to cover the bond investment. This creates a nice simple financial structure specifically tailored to managing this exact risk. There also would have been other ways to build this hedge using counter-cyclical China plays or directly by buying / selling IO futures.
        With the financial loss managed within the finance community my desire is to see Atlas management execute their mining business plan to the best of their ability, or in poker parlance they need to play the cards their dealt.

        Individual Investors that dont understand the risks inherent in these sorts of all-in bets probably shouldn’t invest in them and they certainly shouldn’t ever expect the management team to execute in a half assed manner to somehow “protect” their investment.

        Edit: Just to be clear, what I’m saying is that there is a huge difference between a Market risk (what ultimately sank Atlas) and a project execution risk. The market risk can be easily hedged however poor execution of a project cant be hedged and robs the trade (investment) of the possible upside which was fundamental to the investment.

      • Yeah cb, but a poker player who’s successful would kno what the odds were before going all in.

      • CB, we are not talking about trading in Atlas here, we are talking the ability of the company directors to get the best return for the shareholders, which they are legally obliged to do.
        Those obligations require the directors to be aware of the facts, relating to the management of the company, in all its obligations.
        Now it has been abundantly clear that since maybe last November the price of their product was in decline and that decline would threaten the viability of the companay at some level. The latest info is the price was 64/dmt. so as the price neared the threshold the company should have had a plan to cease trading and preserve shareholder value, or undertake some other strategy to maximise shareholder value. Certainly a review of the options available to the company directors will show the directors did not adequately risk those options, and keep shareholders informed of the situation.
        Now I have moved on from taking deficient management to account, but I’m sure there is a ripe opportunity for some aware legal company to review the operations on many of these companies, and seek relief for the shareholders from the management, where appropriate. You guys in the west, particularly, are about to get a wake up call as to who has been swimming naked, and the consequences. WW

      • @stat agreed BUT looking back over the last hundred years, wrt IO, there wasn’t a better hand dealt or a better time to go all-in on IO. History will tell us that the China story ended early and the Chindia story never really took off and that for their excessive optimism Atlas investor paid the price, believing it could have been otherwise is classic monday morning quarter-backing,
        So I personally have no problems with Atlas’s aggressive investment decisions nor FMG’s for that matter, Both teams drank their fair share of the Kool-aid and then some, but that’s the way it must be, because the management must be 100% committed just to be able to envisage and execute this sort of ballsy business plan. Trust me if the management displayed reservations than the investors would not have funded the venture, but as such it’s naive as an investor to believe 100% of what this management tells you, because the very process of selecting these investments favours the uber-optimist This creates a form of investment cognitive bias that needs to be managed, and IMHO is best managed at the financial level.

      • @WW On this point I suspect we’ll just have to agree to disagree.
        I’ve stood where Atlas management stands, so I do understand that they had options to cease operations earlier BUT to do so was to give up the dream that management and employees had worked sooo hard to create. While you’re focused on Share-holders I’m more focused on the actual Atlas team and the rights they also have to see the venture through. As for “share-holders” as in equity investors, theyre toast however you slice it. There is little or no difference between the equity being worth zero today and zero 3 months ago, zero is still zero The equation is slightly different wrt Debt and Bond owners but IMHO Australian laws favor the banks /bond holders too strongly and that furthermore this legal bias adversely effects investment decision in risky ventures (aka start-ups).

      • CB, this is too easy, the facts are Atlas management have crashed the company, in the pursuit of a dream you say, Well lets hope a Slater and Gordon or some other successful class action specialist is able to show the shareholders just how the pursuit of a dream on behalf of the company management, has wiped out the dreams of the shareholders.
        We are not talking maybe here, the company is toast, the forensic review will be interesting. WW
        You may also wish to ask those shareholders who departed from the register in the week leading up to Easter, who tipped them off. There were no dreams there!

      • Stat S, here are the odds:
        Commentator Tim Treadgold said the collapse of Atlas was inevitable, given the low price.
        “It was doomed from the day it started,” he said.
        “You cannot road train material to Hedland, you cannot road haul a low value, bulk commodity, which for a few remarkable years was a high value commodity. WW

      • @WW
        As an equity holder you have a functioning market called the share-market that readily enables small holdings to be bought and or sold at your will, so if you were unhappy with the direction that management was leading the company then you should sell…that easy. It’s not that easy for Atlas management or Atlas workers to change their focus just because the market shifts, both groups are committed to seeing through their dream (that’s right their dream the one you hitched your wagon too through an Atlas equity purchase)
        IF you purchased Atlas on the way down as a kinda “vulture capital” play assuming that management would simply fold (and distribute the excess cash) the moment the game became cash-flow negative than frankly you’re clueless because in the real world this just isn’t the way it works. If your part of a Vulture capital / Activist-shareholder or Greenmail group then frankly you failed to execute YOUR plan to wrest control of the company away from the management and force a cash distribution, again that’s your failure not their failure.

        If you’re suggesting that Atlas management did some sort of deal like Babcock’s Rubicon purchase (google it) then I’m 100% in Agreement that management should be sued and then jailed, as far as I know this is not the case.

        Edit: BTW: Class action Lawyer’s only ever get involved when there are excess assets or an obvious deep pocket, in the absence of cash or an identifiable deep pocket there’s no way they’ll touch a shareholder dispute.

      • CB, you have any number of suggestions, but all i’m asking is was Altas Iron. asx listed company, AGO managed in accordance whit the listing rules of the ASX, and the principles of good company governance. that the company is temporarily suspended, shows errors may have been made and should the company be suspended errors must have been made. The workers for that company also have a case to put in that they have an expectation the company to which they are providing a resource, is being managed in good faith. You cant just place 600 workers, and the entities associated with the ongoing employment of those persons, on the footpath and expect no repercussions, All your responses are only pouring more fuel on the fire. Hopefully this is the start of something big, you could be a martyr.WW

      • @WW I have no dog in this Atlas race so the outcome is immaterial to me. I do however believe that it’s silly regulations “like the ASX rules” and excessive power of the Aussie banks that adversely effects the ability of entrepreneurs in Australia’s to securely fund their visions. Look at any number of stories by Micheal West about the ways liquidator/banks are caring up otherwise successful companies to protect their debt with little or no regard for Equity or Employees.
        WRT Atlas they are dead meat at IO prices of under $60/tonne, EVERYONE knows this, employees even more so than investors, they live it they breathe it and they see the reality everyday. A sharp recovery in IO price was the best case outcome for employees and in this case it’s a gamble they made and lost.

        Edit: dont get me wrong there are stable well established Equities that should be managed as you suggest but these standards have no place in a volatile startup iron Ore junior like Atlas especially not one that’s trying to carve a business out of China’s once-in-a-century boom economy.

      • @WW

        Equity’s are the bottom of the barrel residual claim on assets E.g. you have nary any rights.

      • CB Skippy, you are missing the point, irrespective of the value of the equities or infact and residual value after the company is wound up, the management, the directors and their advisers can be sued for damages, against them personally and now against any funds they may have redirected elsewhere, to a spouse for example, for mismanaging the business opportunity. In the same manner a skipper may be held accountable for running a ship aground management (who normally have professional indemnity insurance, paid for by the shareholders) can be held accountable for the end result of the maneuverings of a companies business activities.
        Dont either of you 2 go into business, sounds to me like you dont understand the rules.WW

      • @WW,

        Corporatist wrote the laws, especially wrt personal responsibility. Why do you think noone got done for Sarbox, Rico, et al, you have to prove intent, personal beliefs about responsibility mean nothing.

        Skippy…. have you forgotten Onetel?

      • @WW
        You’re right about one thing, I dont know how to run a small Australian growth company Frankly I dont believe that anyone can do this job well if they’re expected to run a high risk startup the same way you’d run a stable 100 year old company. If you ever try to do this (play their game) you will fail every time, for clarity EVERY TIME. A startup (or junior miner) MUST leverage the market and understand HOW, WHEN and Where they create value. This is as true for Atals Iron today as is was for say Qualcom 15 years ago. There was a time when it looked like Qualcom would go under yet today they’re considered the poster child for startup Hogh tech success, They invented the strategy they execute, TI couldn’t run that strategy, Motorola couldn’t do it even the mighty Intel couldn’t run Qualcomm’s strategy, yet Qualcommm could AND did. admittedly Atlas is a little different because they sell a commodity and have a higher basic cost structure. So they’re caught between a rock and the hard place when prices fall. Atlas management knew this and any competent investor should have known it…after all its not rocket science.
        If you really want to live in a country that policies the laws you suggest are appropriate than dont be surprised if no one puts their hands up to start the next Atlas or for that matter the next Atlassian. ….and for this the country is the poorer.

    • Er, that is my old cous Dougal,
      Never mistake a Wolf for a Fox, You will only do it once. WW

  2. (Re the Vox U link). Who would have thunk it!
    “The authors find stronger link between output growth and asset price deflations ….There is no evidence that high debt has so far raised the cost of goods and services price deflations, in so-called debt deflations. The most damaging interaction appears to be between property price deflations and private debt.”
    To me, it’s obvious! When prices fall, more is bought and more is made = more jobs are needed. The longer we go the Other Way, and try to stop prices falling, the further away any meaningful economic revival is.

  3. Interested in what remarkable plans Greens have for horrendous economic, family, social, sole destroying Sydney traffic. I found this.

    Greens maths is not so strong. They want us to “reduce the share of trips made by private cars to 50% (currently 67%)”. Ignoring that within 5 years our population will have grown to completely negate their massive (dream) reform.

    For a ‘green” party it’s astounding they entirely miss our number one environmental and social issue of population growth.

    GREENS = MENTAL ILLNESS/DUMB FUCKS. Only surpassed by those that vote for them.

    http://www.jamieparker.org/the_greens_launch_transport_plan_for_liveable_communities

    “reduce the share of trips made by private cars to 50% (currently 67%) and a subsequent 17% increase in the share of trips made by public and active transport by 2030”.

    We need politicians to make LNP spend money on transport OR STOP POPULATION GROWTH. Instead we get these fucking morons.

  4. ““Many inner west residents live within a bike ride or a walk from work, or a short car trip from their local bus or train stop. Our plan will deliver more park and ride stations, and more and better cycling and walking infrastructure”

    Lala, and if we put more and more people into the same environment they can all travel around on bicycles, making the carbon and environmental footprint of Sydney neutral. lala. We do not expect any of these people to eat, go to hospital, use anything that’s transported to the area, go on holidays. Just ride bikes to work where they won’t eat, drink, use the toilet lalalalala. Greens are all over this environmental issue.

    Australia needs hard people making hard decisions. Not airy fairy weak BS.

  5. Hey Rich, with all the shithouse politicians we have why single out the greens for special attention?

    • Yeah must admit some of his posts give a bit of a hysterical anti-green vibe, like a shill account that pays lip service to the majors being bad to give an air of legitimacy to their postings.

      • @Jason. What BS. The other parties are evil thieving criminals, but that’s no secret. We all know what they are but continue voting for them.

        Greens have this band of fucking fruit cakes following them thinking they’re fixing the world by recycling plastic bags. Massive difference.

        Suggesting I have an allegiance to either of the other parties is insulting.

      • I don’t think so. It’s good to have the greens called out on a bit of stupidity on a site that gives short shrift to the cynical career pollies in the Laberal party.

        Greens are embedded with the financialisation of everything.

      • The financialization of everything is a direct result of the freedom and liberty posse private contracts are private rational agent model.

        Skippy…. I don’t think corporatist funded the Green party’s launch like they did Lippmann venture, Volker fund et al or the Chicago schools.

      • aj.

        Bargaining power dictates out comes not beliefs nor policy, no matter how well informed E.g. the greens have no real bargaining power, so that leaves the two legacy party’s, one that has always been corporatist and the other that has transformed over the last decades to be corporatist, albeit with more inclusive social tendencies.

        Skippy… go start your own party… send a post card…

      • “The other parties are evil thieving criminals, but that’s no secret. ”

        You should really read some of Skippy’s comments on power and who really wields it. Our political system is there to placate us and give the illusion of genuine choice. It’s not there as a mechanise to deliver meaningful structural change (outside what those with real power want or will tolerate).

        Anyway, if you think independents will be able to behave any different to Labor/Liberals then you will be very, very disappointed.

      • Yeah yeah, I know the rules… Heart was in the right place so let’s stay mum.

        Voters is stupid.

    • The Greens are a national liability. Fortunately only around 10% of the population pay them any heed, mostly the misguided employees of the ABC and Guardian. Unfortunately, Senate shenanigans ensure Greens an underserved and rather hysteric sense of power.

      It’s been a blast watching Milne play like she or the Greens have any understanding of Australian and International tax protocol. Somewhat alarmingly for Labor, Dastyari has been equally out of depth.

      Greens failures are many: hypocrisy, economic illiteracy, socialist intent, poor dress sense and endless moaning. Sadly, current configuration of both Labor and Libs also lack ticker. To vote Green is to deliver the death knell to your children’s future in Australia. Don’t do it.

      • The Greens had nothing to do with establishing the playing field, which those that did, summarily blew themselves up.

        Skippy… but yeah…. that kinda logic you and your stripe apply is pretty wonky on a good day….

      • Mining shill and climate denier 3d said:
        To vote Green is to deliver the death knell to your children’s future in Australia.

        Oh, the irony 🙄

      • Skip, the Greens just shared a few years of Government with Labor! Yet Milne and Dastyari wait until well out of Government to raise the tax issue – a furphy created off the back of a report the ATO itself says is flawed. Hopeless.

      • AET and neo classical’s have had damn near over 50 years of increasing ratchet effect culminating in the GFC…. and…. you have the audacity to lay blame on a party which had minimal input in the last few election cycles.

        Skippy… go read some Toynbee… it should be formatted for your preferred mental bent…

      • Yep, with one seat in the House of Reps, I’m sure the Greens were the decisive force in the policy the ALP passed between 2010 – 2013.

        EDIT: Note that that was 0.7% of available seats the Greens won with around 11% of the primary vote. Australians are attempting to mandate change from the two majors, especially Labour, but it isn’t happening.

      • @StatSailor. The reality is Greens have nothing to offer whether they have the ability to make it happen or not. They are clueless, driven by ideology.

        BTW, when they had all the power federally, what did they do about population growth? Stood by and watched the western worlds highest growth, that’s what they did. They should be in jail.

      • In the sense that you’ve deliberately avoided engaging with my point it is you are at least as dishonest.

        Given the chances of Adam Bandt forming a coalition with Abbott, he was no more relevant in policies the Australian parliament implements then as he is now.

        EDIT: Note that population growth peaked in 2009

      • @StatSailor. Has Bandt ever said in Parliament or in public that population growth is harmful to Australia’s future?

      • It’s simply irrelevant.

        It’s like there’s a couple of houses burning on the street, and the fire brigade (ALP/LNP) take hours to arrive and can’t work the pumps when they get there. All the while, you’re beating up some neighbourhood kid, ’cause you reckon the water pistol he shot at the fire wasn’t big enough. You’re either demented, or you’ve got some hidden agenda.

      • drsmithyMEMBER

        It’s a struggle to find a more favourable recommendation of the Greens, than the minebot’s shrill fearmongering.

      • drsmithyMEMBER

        The reality is Greens have nothing to offer whether they have the ability to make it happen or not. They are clueless, driven by ideology.

        I must confess I’m still amazed you write this, time after time, when pretty much every exposition on your views you’ve ever given, has seen them almost completely aligned with Greens policies.

        It is kind of funny to see you accuse someone else being driven by ideology, however, given your completely obsession with population/immigration control, to the exclusion of pretty much everything else.

        BTW, when they had all the power federally, what did they do about population growth?

        More delusion.

        The Greens have never had “all the power federally”. They are utterly reliant on the support of one of the two major parties for anything they want to do.

      • “The Greens had nothing to do with establishing the playing field, which those that did, summarily blew themselves up.”

        Exactly right, Skip! They may have sold us a dud of an economic ideology (neoclassical economics), but you have to admire their talent for obfuscation and manipulation. We’re all just useful idiots to them.

      • Yeah – it’s really interesting how they gaffaw at the anti immunisation twits and their idea that the persistent, 100%, cross cultural, cross political consensus on immunisation is all a big conspiracy …

    • They are good at generating reasons to cut welfare. Eventually they were going to cut welfare for a reason that seemed less unacceptable than usual.

      • Ahh. That makes far more sense…..and there I was thinking, this might be the start of good government …

    • It’s a win-win. Anti-vaxxers are a minority, and assuming a normal voting split, only a subset of that minority would be LNP voters. Tony gets to do something that is politically popular (e.g. with parents who do vaccinate – the majority), may or may not save a few bucks, and will cost him bugger all votes.

    • who ever is dumb enough to pay over a million, actually over 600k for that shit hole deserves to be broke for the next 25-30 years any way

      thats crazy shit Turnitup, how about that gucci house that sold for 7.8 mill on the water front around the corner from there. just stupid,

    • Admittedly I think the upkeep on one of those french castles would be a killer, but still, it does highlight the absurdity of Sydney prices.

      And good god, it also really highlights how dead ordinary most of our units are. Your typical 3 storey walk-up is just so ugly.

  6. I think the final couple of paragraphs from the article “The Real Role of Land Values in the United States” are worth quoting.

    Rising land values in superstar cities like these are increasingly seen to be a key factor in growing inequality of the sort identified by Thomas Piketty in his bestselling book Capital in the Twenty-First Century. My own work, as well as that of Michael Porter, Edward Glaeser and many others, has highlighted the close association between clustering and productivity that creates lopsided demand for land in just a few, high-density places.

    Land and housing, as MIT graduate student Matthew Rognlie points out, have been major contributors to the growth in net capital income over the past several decades. “Economists combine a lot of different things into ‘capital,’” writes the economics blogger Noah Smith. “Rognlie points out that almost all of the increase in the value of capital over [the last few decades] comes from land, instead of from other forms of capital.” “The soaring price of land in superstar cites,” The Economist adds, “has brought the once fading relic of pre-industrial times back as a fundamental constraint on growth in the post-industrial age.” Or as Smith bluntly put it: “[I]t’s landlords, not corporate overlords, who are sucking up the wealth in the economy.”

      • Come now skip you know where the collateral for the debt that funds the iEverything comes from…

      • Right now their almost up to their eye balls in bonds… not property…. property is a depreciating consumable…. tho it has tax advantages. Apples biggest collateral asset is its revenue stream, it is the foundation of their businesses model imo.

        Skippy… funny how those with Librarian Liberty* [* cough propertarians] inevitably reduce everything to property ownership, must be the belief that property ownership imbues individuals with special rights via supernatural powers, same problem with currency mediums.

      • Bullshido. Dare you to collapse the property collateral.

        … cause those bond holders didn’t care that prices were collapsing. Holy QE batman.

      • Maybe you should read some J. Robinson wrt capital E.g. what if Bonds are safer than exposure to Property even in light of low or neg yields… plus liquidity preferences.

        “Apple is selling more debt.

        On Monday morning Apple disclosed in a filing with the SEC that it’s preparing to sell $US5 billion in new debt to cover “general corporate purposes.”

        The debt is expected to cover stock repurchases and dividend payments, among other things.

        Apple’s offering, which may price on Monday, is expected to be issued in some combination of floating-rate five-year notes and fixed-rate notes with durations ranging from 7 to 30 years.

        Goldman Sachs and Deutsche Bank are managing the offering.

        The offering comes after Apple’s latest earnings report revealed the company has $US178 billion in cash sitting on its balance sheet.

        Apple’s latest offering also comes amid new record lows for interest rates around the world, with 7 European markets — Germany, Switzerland, Denmark, Sweden, the Netherlands, Austria, and Finland — now featuring five-year debt that is in negative territory.

        US yields are also near multi-year lows, with the 30-year bond at a record low and the 10-year yield closing in on its low of 1.38% hit in 2012.”

        http://www.businessinsider.com.au/apple-to-issue-debt-2015-2

        Skippy…. Apples main concern is its stock price as China bob pointed out its a form of money and its how the C-suite remunerates itself, equity holders are just churn bots.

      • Nice dodge.

        … Debt is equity equity is debt – what’s your point? Of course everyone is piling into bonds in the face of a deflation risk. Doesn’t mean it will help.

      • No dodge, your the one with the property thingy as well as I know Noah Smiths take i.e. as a new Keynesian Smith is fighting with shadows — in this case, the shadows of monetarism and the ISLM.

        It also demonstrates the incoherent New Keynesian thinking on inflation, where they almost always assume it is a monetary phenomenon despite their claim to fully understand endogenous money and its implications

        Skippy…. hence painting themselves in a corner with Zirp and excessive and poorly targeted QE.

      • Don’t worry we’re all hep post-property groovers now.

        … There’s a new collateral underpinning all that endogenous money isn’t there…

      • Taxes under pin FRN as well as law, still, property is an asset class and a form of collateral so its not a post property pejorative.

        Skippy… thing is, all the propertarians are selling sovereign collateral off, too include water rights, just so they can privatize everything out of ideological purity and not much else. Beautiful logic… eh.

    • @Hugh…. it might be better stated that the Fed and CB’s can’t do governments job, nor should they, yet they could issue till resources or inflation dictated other wise.

      Skippy… It was always a political problem, the Fed and CB’s can’t promote fiscal policy.

  7. Here’s an excerpt to enlighten your Sunday evening from “The Evil Princes of Martin Place: The Reserve Bank of Australia, the Global Financial Crisis” by Chris Leithner:

    Today, Australians and Westerners more generally are, considered as a whole and in economic and financial terms, fat (although, to be sure, some are less obese than they were a few years ago), stupid and lazy. Relative to their capacity to produce, people and governments have long spent and borrowed too much and saved too little. How long can this continue? Similarly, the mainstream refuses to acknowledge that the painful process by which poor policies are repudiated, malinvestments liquidated, debt purged and savings rebuilt — i.e. the bust — is as unavoidable as it is salutary. Whether it’s called the downturn, recession or depression, it’s the inevitable consequence of the boom and the necessary economic repentance for financial sin. The artificial boom is a time of infection; the genuine bust is a time of healing. Alas, during the bust the Western mainstream continues to tout the snake oil of “stimulus.” Revisiting fallacies exploded log ago, it insists that, just as we allegedly could in the recent past, today and into the future we can borrow and spend our way to affluence. It indignantly denies the truth: we can only save, invest, and produce our way to recovery and prosperity.

  8. Reserve Bank of Australia (RBA) governor Glenn Stevens giving his testimony to the Senate select committee (2009). Mr. Stevens was asked, “Given the devastation and given the challenges that are being put to the Reserve Bank, could you explain exactly why we did not see this coming?”

    Mr. Stevens response:

    There were not that many people who accurately forecast that sequence of events. After these sorts of events, it is normal to see a few people pop out and say, ‘I predicted all this.’ But I think that most of those claims could be taken with a certain degree of salt. What I would say is that if you go back several years there were people who were saying things like: ‘There’s leverage building up. There is very skinny compensation for risk being paid to investors. There’s a lot of complexity here. We’re worried.’ The official community of supervisors and central bankers and those who think about stability said things like that for a few years. The thing that they could not do, though, was say: ‘Not only do I have this concern but I can tell you how it’s going to unfold. What will happen is that these American subprime loans will start to go sour. Then there will be a sequence of failures. Then there will be a retreat from risk taking. These concerns will spread to Europe. Then there will be a rescue of the No. 5 American investment bank, but then when No. 4 comes under pressure it will not be rescued. And then after that Armageddon will follow.’ I am not aware of anyone who predicted a sequence of events like that.

    Don’t know about you, but the first thought that came to my mind after reading this was WTF??????
    Unless you can provide an exact date and an exact scenario (about future events), you’re not worthy of respect according to our friend Glenn.

    • the public servants errr… senate would have been happy with that, they rub each others backs alot

  9. BuyHighSellLow

    Hi, I appreciate this may not be the correct place to post this, however during the week there was an article relating to dividend imputation that I was not able to comment on at the time. A lot of comments referred to the imputation system as simply preventing double taxation and other passing comments with no regards to the consequences. At the individual level this appears the case however at the Macro level there are several implications. These include:
    – dividend imputation encourages companies to pay dividends rather than invest for future potential growth
    – companies with franking credit balances are encouraged to distribute these balances with limited regard to the consequences. For example the recent Harvey Norman capital raising, the company issued new shares to pay a franked dividend, the issue was underwritten by Gerry allowing him to consolidate his holdings should others not be unable to partake in the issue. The underwriting fee could cost the company indicating these situations are not in the best interest of all shareholders as well as allowing major shareholders to consolidate their positions.
    – due to the consistent payouts and tax advantages resulting from the system this has potentially retarded the development of a retail corporate bond market in Australia. This is where a lot of retirement funds should be placed in later years allowing the share market to continue to aim for growth and take risks.
    – the system also has the potential to discourage international growth for Australian companies as the overseas profits are not eligible for the credits. It is far easier to remain domestic and simply raise prices and profits leading to increased payouts and share prices resulting in increased bonuses etc.
    – the fact that the system also encourages the payment of taxes by Australian companies this has the potential to disadvantage said companies against global competitors who are able to minimise these obligations. Although this is in the national interest it could be argued that if domestic and international companies avoided corporate taxes in unison it would encourage a faster redress of the current issues.
    I am still relatively new to the site and about to become a paying member. Please continue to question the imputation system regardless of how vocal the support is thanks

    • That discussion filled a gap for me. Imputation is pretty meaningless … Unless you have a system that makes super funds in retirement phase tax free. The penny drops – imputation is the only reason the grocery duopoly and the banks have onshore head offices, and pay tax… well sorta … which is rebated to pension millionaires…

      Funny stuff