Links 9 March 2018

Global Macro / Markets / Investing:





Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. The Traveling Wilbur

    February 21, 2018 at 6:26 pm,

    Hi, my name is Frangipani and I am an utter moron; I have never disputed that, much to the chagrin of a certain other – lol

    Sell the rally. The top’s have been reached already.

    [ S&P 500 Futures – Mar 18
    Then: 2,740.00
    Now: 2,731.75 and climbing

    Well one of the two assertions above was right.]

    • The Traveling Wilbur

      News just in 2,740.50.

      Done. Totally done.

      Anyone else want to keep listening to a random muppet who’s just wrong more than they are right? (and no, I am not referring to myself)

      Do your portfolio a favour and just ignore it. I certainly will be now.

      Couldn’t even call a fall in the market right in March… and in the middle of a trade war…

  2. Stephen Morris

    From this morning’s “Letters Fairfax Won’t Publish” file (although perhaps understandable this time given its unusual length):

    7 March 2018

    Yet again Ross Gittins makes the claim (“If governments don’t get this message they will be tossed out”, The Age, 7 March 2018) “we’re just emerging from a period of more than 30 years in which the Western world flirted with the notion that economies work best when businesses are given as free a hand as possible”.

    It’s a pity Ross Gittins didn’t study history instead of economics. Had he done so he might have had the perspective to see that what we’re actually emerging from is a period of some 150 years in which “ordinary” people had some small say in how their world was governed. All of Mr Gittins’ examples of “people power” are drawn from this very recent, highly anomalous period of history.

    Far from being unusual, the past 30 years are in fact a return to the historical norm. Viewed with proper historical perspective, it was the Industrial Era – culminating in the halcyon days of Mr Gittins’ youth – which was the economic, social and political aberration.

    The Industrial Era saw human physical power and human physical dexterity replaced by machines, while humans themselves retained cognitive superiority. Indeed, industrialisation made workers’ cognitive superiority relatively more valuable since a properly trained human could control a much greater value of production. This is what improved workers’ bargaining power, reduced inequality, and even allowed the masses to demand some limited say in political affairs.

    The return to inequality (in developed countries) began some 40 years ago as the industrial economy began transitioning to a services economy. If industrial workers controlling hugely expensive plant went on strike they’d be likely to get a pay rise. They might even be able to demand political changes. But if a fitness trainer or Uber driver “goes on strike” no-one will even notice.

    Such anomalies have occurred before. The Peasants’ Revolts of 14th Century Europe arose from the acute labour shortages caused by the Black Death. But just as the ruling classes crushed the 14th Century revolts as soon as conditions permitted, so has the industrial era “revolt” is being crushed. Farm wages in England doubled between 1350 and 1450 but then remained unchanged for 400 years (and only improved then because mechanisation restored workers’ bargaining power.)

    With AI and robotics removing the cognitive superiority of human workers, there is no reason whatever to expect any end to the current resurgence of inequality and elitism.

    Taking an historical perspective, it is enlightening to run through all the ways in which the Modern Era is going into reverse.

    First is the oft-reported inequality of wealth. While inequality may still be falling in some poorer countries – those which are still transitioning into industrialisation – it is steadily increasing in those transitioning out of industrialisation.

    Secondly, taxation. Worldwide, the move is on to reduce taxation on business (the way in which the Elite hold and grow their wealth) and to increase it on consumption, whether directly through consumption taxes or indirectly through private “tax farms”. Just as in pre-revolutionary France, the Elite are mounting the argument, “Why should WE be asked to pay anything. WE’RE not the ones who seek services from the State!” Just as in pre-revolutionary France, taxing powers are being transferred to new “Fermes Generale” backed by statutory powers to collect the money. Is Transurban’s ring of tolling points really any different from the “Wall of the Farmers General” which encircled Paris?

    (Mr Gittins’ example of the recent bank tax is no rebuttal. Under Australia’s privatised pension system, the burden of such tax will fall mainly on superannuants. What is striking is who is NOT being taxed. Those with real political power – senior bank management and directors – are untouched by this scheme. Which is of course the point: to give the impression of doing something without much harming those with real power.)

    Third, there is property ownership. On multiple fronts, the Modern Era ideal of widespread and/or public ownership of property is in full reverse:

    – the re-concentration of wealth is being accompanied by an expansion in the very concept of “property” with private ownership rights being extended to various new types of “intellectual property” (such as software methods and business methods), while existing intellectual property rights (such as copyright) are being extended in duration;

    – the Modern Era ideal of public ownership of strategic monopolies, essential services and critical databases in in full retreat. Contrary to Mr Gittins’ pollyanna optimism, there is no sign of this trend stopping. Indeed, governments everywhere are expanding the scope of privatisation. The Trump infrastructure plan will do to the United States what successive governments have done to Australia. And in Australia, governments are looking for ever more assets (such as the land titles offices) which they can privatise. The basic government function of age pensions has been privatised in the form of the byzantine and hideously expensive private, compulsory, defined-contribution superannuation system. The provision of basic infrastructure has been contorted into expensive public-private “partnerships” which do at vast expense what the Modern Era state used to do cheaply and simply with competitive tendering and government bonds;

    – the Modern Era ideal of widespread land and home ownership – of a direct real property stake in society – is in full reverse. We are being returned to a system of feudal landlords and landless renters. The new Elite like to portray this as an inter-generational battles, but it is not. Elite children who can rely on the “bank-of-mum-and-dad” are not excluded from property ownership. This is a class battle, with the landed class winning!

    Fourth, the Modern Era ideal of equal opportunity of higher education for all levels of society is being comprehensively reversed. The Modern Era ideal that children from all classes of society might aspire to the elite professions is being abolished:

    – publicly funded higher education has been abolished, presenting poorer children with the invidious choice of risking life-long debt or forgoing the chance of higher education;

    – elite degrees are being converted from undergraduate to postgraduate, makingit harder for children from poorer families to “stay the course”; and

    – the criteria for university entry is being stealthily changed from purely academic achievement to a combination of academic and “co-curricula” factors, with the favoured co-curricula factors being those most readily achieved by elite children from elite feeder schools.

    Universities are being returned to their traditional role of elite marriage markets where elite children, together with a smattering of determined scholarship students, can form the professional and social networks which will enable them to exercise power in the coming generation.

    Fifth, the Modern Era ideal of governments accountable to the citizens is in full reverse. The system of elective government (“government-by-politician”) has been completely subverted by moneyed interests. Not only are career politicians beholden to their donors but – far worse! – they (and the senior bureaucrats) act always with one eye on their retirement and the million-dollar-a-year directorship they can expect to receive provided they “play the game” and promote elite interests. Contrary to Mr Gittins’ pollyanna optimism, there is absolutely no sign of that coming to an end. Transparent and accountable government has disappeared behind a veil of commercial-in-confidence secrecy. Transparent price-based tendering has been replaced by “commercial negotiations” and we are asked to accept that politicians and bureaucrats will be kept honest by “independent” financial advisers, advisers who are themselves players in the game!

    Bizarrely, those lobbying for change are lobbying to make the system LESS democratic. Bizarrely, those who label themselves “progressive” are crying out for “strong leaders” subject to fewer elections, with longer parliamentary terms. Some are even lobbying to have taxing power taken out of the hands of elected government altogether and given over to an unelected “authority”.

    Bizarrely, those lobbying for change want to make the system MORE elitist. They condemn their fellow-citizens who vote for “populist” policies or candidates and complain that “they’re not even university educated!” As if a degree in architecture or pharmacology or media studies – or even economics – somehow makes one’s subjective opinions on policy superior to those of “bogans” and “deplorables”. As if a tertiary degree somehow immunises people from narrow self-interest!

    The Modern Era ideal of the universal adult voting franchise is nowhere more than 125 years old. Does anyone imagine that it will not be re-introduced if the masses persist in obstinately voting for the “wrong” candidates? Already in Australia we have seen the Senate voting system changed to eliminate smaller parties. In the US, the Republican Party is making it harder for poorer people to register and vote. Is it so fanciful to envisage an “education qualification” to effectively restore the old “property qualification” for voting?

    Sixth, the Modern Era ideal of national self-determination and self-government is being steadily subverted by supra-national states like the EU and so-called “free-trade” agreements. These invariably lack effective mechanisms even of elective government, let alone anything approaching democracy. Like the EU they may have the FORMS of representative government (like the European Parliament) to appease those who do not know about how politics actually works. But the SUBSTANCE of power rests with unaccountable organs (like the EU Commission or the Council of Ministers).

    Such organisations always tend to grow in power. They embody the principle that “Power is Centripetal”: those with power draw more power to themselves. It took the EU a mere 60 years to transform itself from a customs union into a political super-power.

    Even if national governments wanted to respond to their citizens, they are increasingly unable to do so without violating some treaty provision which has been agreed outside the democratic process.

    Mr Gittins’ pollyanna optimism isn’t helping anybody. It is counter-productive. It encourages the complacency which allows these trends to continue unabated. It prevents the radical reform of government which is required if we are not to lose the Modern Era entirely.

    Would someone please tell him.

    Stephen Morris

    • The Traveling Wilbur

      Uncanny. I once had the same issue with some photos I submitted to Playgirl.

    • HadronCollision

      these should be on a blog! Makes sharing your ideas easier rather than burying in MB!

    • bolstroodMEMBER

      Although I agree with just about all you say Stephen , I am not surprised you were not published.
      a, for length, and bcde etc for writing stuff that is verboten.
      You do realise that if your ideas were widely promulgated they could cause a revolution.
      If you can find a vehicle to present your ideas to the younger generations , you may well succeed .
      PS I am sending your comment to all my younger nephews and nieces and grand children, so that they may know what influences are controlling their lives .
      Thank you for your work.

    • With respect, I would put the primary cause of widening inequality down to the debt-based monetary system, which has created two distinct classes of people: those who own assets and those that don’t. Those who’s only access to wealth is the wage they earn are doomed, because the monetary system is fundamentally inflationary and wage increases never keep up with the true level of inflation, while asset prices benefit directly. Those who have no assets end up going backwards at a rapid rate.

      Handing power to unelected officials like central bankers/planners has been a disaster because they only know one trick and that is to inflate asset prices in order to create the illusion of wealth. The illusion of wealth is then meant to ‘trickle down’ to the lower ranks but it only does so in insignificant amounts.

      The current monetary system is at the heart of pretty much all the major problems we face today, including many of the social issues and until this system expires (which it will), Govt policy will be largely ineffective as it never addresses/recognises the true causes.

  3. NY Timjes
    So a chronic Current Account Deficit of between $500B and $600B is just fine!!!!! Would all the critics of Trump’s tariffs please explain what the end game for the USA is supposed to be – unless you are one of those craving its total destruction. In that case you are right on track.

    • Fl Gunna, we’ll never see 76 again, has a post saying the debt level is relative, mostly correct.
      It was a coupla days ago.
      Assuming he is correct the price of gold should be through the roof.

    • The other way to look at it flawse is that the U.S. is exchanging worthless IOUs for real goods from all these countries (to fund the deficit).

      You and I both know that the US will ultimately default on their debt (directly or indirectly) so who’s getting the raw end of the stick here? It’s the equivalent of me heading into a BMW dealership and exchanging a suitcase full of A4 printing paper for a brand new set of wheels.

      • Yep!
        I guess it is short term and long term effect. Short term it looks that way and is the big trick that is pulled. Once the money is printed (and spent) it is out there as paper. The problem arises when those holding the paper start putting it into assets other than Treasuries. The result is initially high prices in things like houses and farms that locals cannot afford to pay (familiar ? :)) then industry follows and core infrastructure.
        The Americans have knocked back a few takeovers on a strategic excuse. They start doing it too much and the currency collapses because there is nothing the holders can buy with it.
        I would just like ONE of these idiots would explain what end game they have in mind for us all. I guess it is war.

  4. How could you miss this?: Queensland’s corruption watchdog has confirmed it is investigating allegations Gold Coast Mayor Tom Tate influenced council decision-making for personal benefit, failed to declare possible conflicts of interest, and did not disclose flights and accommodation received from a Chinese developer within the required timeframe. The latest complaint is by a group of leading lawyers, a retired judge and businessmen. Queenslanders are calling for local government to be held to higher standards following the cascade of issues concerning mayors, councillors and their election. As the level of public administration that’s closest to the decision making, councils are much more susceptible to conflicts of interest and corruption. The spectacle of the Mr Popular, Ipswich Mayor Paul Pisasale, Tom Tate and others facing charges has only served to further erode public trust in councils.

  5. NExt stop, Speciality fashion integrates into Myer
    Myer closes most of its shops and becomes an on line retailer
    All the other up market fashion retailers close.
    INcluding Billabong surfstitich oakley boardriders, RM williams etc

    • @ww
      I’ll be dressing like the infamous emperor if compelled to do online shopping. What a drag.