Quick Shots - 07/Feb/2017

More On the Liberal Party Split Thing

As it turns out, there's more about Cory Bernardi that's worth knowing. We could have guessed it, but it bears pointing out:

Bernardi first sensed a problem in 2009, when during a heated and divisive partyroom debate on whether the Coalition should support Kevin Rudd's emissions trading scheme, one of his colleagues, the now deceased West Australian MP Don Randall, rose to his feet and said: "I don't give a stuff about the national interest, I want to get re-elected and this needs to go away." 

Bernardi went back to his Senate office and wrote down the quote. He never forgot it. It was the beginning of the end.

I don't know how else to put it but that right there is the mocking gun that these Liberal Party politicians are nothing but hacks sucking on the pubic teat. As if Bronwyn Bishop and Sussan Ley weren't enough proof, here in the segment above is the distilled essence of how these bastards think. 

The late WA MP Don Randall said he doesn't give a stuff about the national interest, he just wants to get re-elected. It begs the question why the hell we need to re-elect such a person; as it turned out, he died shortly before the recent election and truth be told, judging from the quote, it was probably a good thing too, because he certainly had no intention of serving the national interest. It's easily arguable that the most he served the national interest was when he died, thus depriving himself of more opportunities to suck at the public teat. 

That Cory Bernardi thought the quip was worth writing down as quote to which he is going to make his political credo, tells us well enough that he too doesn't think much about the national interest - he too is all about getting re-elected. It's strange that he thinks he has a better chance not as the Liberal Party's No. 2 on the SouthAustralian Senate ticket but as an independent. Maybe there's more money in being a leader of a party of one. It's hard to figure how the dollars an cents work out, but it would be remiss of the media if it didn't investigate this strictly pecuniary angle. After all, the man's motto amounts to, stuff the national interest, he's only in it for himself.

If I may offer a bit of gratuitous advice to Corgi BurntNazi, it is that the ALP have found "Disunity Is Death". Leaving a major party that would put you in as a senator is likely the dumbest move he's made in politics. 

Grexit Again?

If there's one thing that really puts the fear in the markets the world all over, it's the notion that Greece will default on its debts. That being said, the narrative to date has been, the Euro Zone won't let that happen, and the Greeks have to eat a lot of humiliation not to be allowed to default or leave the Euro. This has resulted in the ECB cycling through a lot of money that pays off the debt for Greece in exchange for Greece making immense cuts to its expenditure - some of which might have been reasonable but others that have resulted in terrible cuts to services. There doesn't even seem to be any coherent link between the cuts demanded by the Euro Troika and how the money is spent seeing that most of the money goes to paying off the bonds. And as the Greek economy shrinks and shrivels, it loses any chance paying off the debt.

With that in mind, here's something from Yanis Varoufakis, the ex-finance minister of Greece.

“This two-pronged preparation is the only way to prevent another excruciating retreat by the prime minister in the short term and [German Finance Minister Wolfgang] Schaeuble’s plan in the long term,” Varoufakis wrote. 

In his article, Varoufakis suggested that Schaeuble’s strategy is to lead Greeks to the point of exhaustion so they ask to leave the euro themselves. 

Noting that the “parallel payment system was already designed in 2014”, Varoufakis stresses that Tsipras had “two delusions” that led the government to the current impasse:

• a. that on the night of the referendum, the dilemma was between Schaeuble’s Grexit Plan and the 3. bailout
• b. that the obedience to the 3.bailout could be political manageable through a parallel, society-friendly program.

Both of these “working assumptions” were based only on autosuggestion, the ex finance minister stresses adding that he tried to explained this to the Prime Minister on the night of the referendum 

“In reality there was never a basis for hope that the toxic 3 bailout would be gradually rationalized, in terms that the European Commission would support Athens so that the austerity and anti-social IMF measures would relax, the IMF would force Berlin to accept debt restructuring and lower primary surpluses, the ECB would include Greece in the bond purchase program (QE),” Varoufakis wrote 

He accused leading European negotiators of lying. 

“That Moscovici [EU Monetary Affairs Commissioner], Coerer [ECB] and Sapen [French finance minister] might have given such promises was not an excuse.
Since May 2015 we were fully aware that these gentlemen know how to lie and fail to deliver on their promises when they do not lie.”

Greece remains the thin end of the wedge. If Greece goes, then, the dominoes are in play for the rest of the PIIGS, and will lead to the destruction of the Euro. While it stays in the Euro Zone, the world can live with the fiction that everything is okay, except there is the glaring issue of Brexit, whereby cozy assumptions about the health of the Euro Zone can't be ignored. If the UK can leave, then it offers a practical blueprint for Greece to leave.

The weird thing is that the UK need not ought to have voted to leave, while Greece needs to leave if it wants any semblance of control over its finances. The horror show of bluff and intimidation made by the Troika to keep Greece in the fold and to keep taking the austerity medicine in a sense informed the UK public as to the failings of not having control. Even more ironic may be the case that the UK already had kept its pound sterling as opposed to adopting the Euro, so in a sense it was the state with the least problems of losing control to the Euro Zone. thus if the UK still seems it fit to leave the Euro Zone, then it follows that perhaps Greece needs to reconsider its desire to stay.

If all things are equal, the next time the Grexit show hits the road and world markets panic over the possibility of Greece leaving the Euro Zone, it might be better to put your money on the likelihood that it does leave, and that it's a good thing.

News That's Fit To Punt - 08/Jul/2015

The Optimists' Corner

The really funny thing is that when things are going wildly in a bad direction, somebody will come up with a contrary opinion in wildly the opposite direction. It's hard to fathom it, but on a day where the Shanghai index had to suspend trade on 40% of their blue chip firms to stop people trying to squeeze out the door at the same time, Goldman Sachs said that it sees no bubble in the Chinese equity markets.

Goldman Sachs is sticking with its optimistic forecast in the face of record foreign outflows, the biggest-ever selloff by Chinese margin traders and a chorus of bubble warnings from international peers. The call hinges on the success of unprecedented government efforts to revive confidence among individual investors who watched equity values tumble by 3.2 trillion over the past three weeks. 

"It's not in a bubble yet," Lau said in an interview. "China's government has a lot of tools to support the market." 

Lau, who set his CSI 300 target on July 1, confirmed on Tuesday that the projection still stands. He's been forecasting gains in Chinese shares for much of the past year, a stance that paid off as the CSI 300 surged to a seven-year high last month.

Heck, they may be right. Maybe there will be an almighty bounce soon, what with China's government pumping in liquidity, but... there's just this chart here:

...which sort of paints a picture of how these kinds of things don't work out too well. 

Just to be sure, I sort of poked Roger in HK who - as his living - gives investment advice to the stupendously rich in Asia. To which he replied:

The Chinese can't go to the Macau casinos because of govt crackdown on corruption, so the money's gotta go somewhere. It's like one big wet market where you can get leverage financing. Buy10 bananas for the price of one now and pay later? Yeah give me a hundred!

After lunch, he sent back two phrases. The first, as the market opened was, "Meltdown". A few hours later he told me "It's a Bloodbath." I told him to tell his clients to BTFD ("Buy The Fucken Dips"). I only got a smiley-emoticon back. I'm sure Roger's laughing-out-loudly, because that's his natural nervous reaction to anything out of the ordinary.  

The other wildly optimistic article was this one that said there is no housing bubble, Australian property prices were 30% undervalued. 

What has changed since then is that real long-term interest rates have fallen substantially. That fall made housing more attractive relative to renting, despite the increase in prices." 

Dr Tulip and his co-researcher compared the cost of renting and buying identical properties, avoiding the common trap of comparing national average rents with national average prices. Because owned homes are typically "bigger and nicer" than rented homes, a lot of the apparent price difference reflects a quality difference. 

They calculated the annual cost of a bought home from the purchase price, the transaction cost, the expected mortgage rate and the running and depreciation costs offset by expected capital gains. 

The annual cost of owning a home bought in April was likely to be 2.7 per cent of its value. The annual cost of renting the same home was likely to be 3.9 per cent. 

"So you can either pay 2.7 per cent of the value of the property to buy, or you can pay 3.9 per cent of the value to rent," Dr Tulip told the conference.
"The undervaluation is 30 per cent. 

"It's unusually wide, the widest in at least 30 years. I can take you back further but the data quality deteriorates the further we go back.

Ri-i-i-ight. I can follow the maths where 3.9% is 30% over 2.7%. But this is based on TwIRP. I wonder what it would look like under ZIRP - probably even better. Mathematically speaking, the gap would open up even wider as interest rates asymptotically reached towards Zero. While mathematically being true, you sort of wonder whether the real world economics would reflect such calculations. When we get down to ZIRP, we may no longer have banks that are willing to lend to people wanting to buy multimillion dollar homes as their first homes, given that the economy is at a zero-sum game. 

Anyway, I just thought you'd be amused by those two wildly optimistic views of what we are looking at: a market crash in China and a property bubble in Australia.

The 'Greferendum', Revisited

Walk-off HBP thinks this one's a bit alarmist, but it contains some really interesting information that is a little disturbing. 

Greek premier Alexis Tsipras never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation - and intention - of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 "ultimatum" and suffer the opprobrium.

This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors' cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc.

They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis. They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the International Monetary Fund validating Greece's claim that its debt is "unsustainable". The IMF concluded that the country not only needs a 30pc haircut to restore viability, but also €52bn of fresh money to claw its way out of crisis.
They rejected Greek plans to work with the OECD on market reforms, and with the International Labour Organisation on collective bargaining laws. They stuck rigidly to their script, refusing to recognise in any way that their own Dickensian prescriptions have been discredited by economists from across the world.

"They just didn't want us to sign. They had already decided to push us out," said the now-departed finance minister Yanis Varoufakis.

So Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx.

Mr Tsipras is now trapped by his success. "The referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise," said Costas Lapavitsas, a Syriza MP.

"Tsipras doesn't want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him," he said.

Holy cow. So basically, the Euro creditors do want a Grexit, and sent terms that would be rejected by Greece and stuck to their guns. Tsipras didn't want to go to a Grexit so when he called a referendum, he was hoping to 'lose' to a 'yes' vote and use that as a catalyst to take Syriza out of government and the ongoing non-negotiations. But of course, the 'No' vote won which meant that Tsipras wasn't able to get his ticket to get out of the ongoing non-negotiations and had to head back. This explains Varoufakis' exit better, and how on Monday a new Finance Minister arrived Brussels without a plan. Yep. The Greek cabinet war gamed the Grexit and didn't like what they saw, so they tried to get back to Brussels with a white flag, but of course, there can't be a plan because they didn't expect the 'No' vote to win so resoundingly. 

Knowing all this now makes me more frightened. Thanks to both Greece and China, commodities have tanked as has the AUD. We may well not notice it immediately, but our balance of payments got worse by default in Australia. All this stuffs made us collectively poorer, and it's just the beginning. Economists are now readjusting the RBA outlook, thinking there's more than likely a interest rate cut coming. If it does, well, so much for TwIRP. 

Pathetic In Parliament

Pyne Begs Abbott

It turns out Christopher Pyne wasn't running some deep Machiavellian plot when he ran a petition to save the ABC production facility in Adelaide. Now we learn he's begging the Prime Minister for a rethink. All because he is not polling well in his own electorate and if he had to explain how he lost the production facility from Adelaide, it's hard to see how he doesn't get humiliated at every doorstep in his electorate. That's the funny thing about democracy - your constituent's opinions count for something some of the time.

To save the bit on his turf, Christopher Pyne is arguing that the ABC should be made to spend some of the money in regional production, which would save Adelaide's production facility. In other words, he's arguing for jobs protections for his constituency as being an exception. You'd think he was - god forbid - in favour of regulation as opposed to the rampant deregulation for things in his own portfolio.

Quite apart from the total departure from the regular Liberal Party economic rationalist patter, he wants to save his turf at the expense of somebody else's turf. As you can see it's unprincipled on at least three levels but I guess you try anything when it comes to trying to save your own skin.

Malcolm Fraser Thinks They Suck

Live long enough, you see lots of strange things. Perhaps principle amongst my list of strange things is the sight of Malcolm Fraser attacking the Liberal Party from the outside over the asylum seeker issue.

Mr Fraser says migration legislation passed last week has given Immigration Minister Scott Morrison "dictatorial, tyrannical powers" over the lives of asylum seekers and "destroyed the rule of law as we know it". 

He has accused the crossbench senators who supported the legislation, on the basis of concessions they negotiated with Mr Morrison, of committing "a political error of fundamental proportions".

Well Mr Fraser, we are talking about Scott Morrison here. You can't expect much better from that man on the best of days.

All the same, it's a very vexed topic where there is much electoral support to punish the asylum seekers. It's a weird thing, this impulse to punish the asylum seekers, but there are some clues as to the thinking out there.

A long while back, Sam told me about his qualms about asylum seekers arriving in boats. "It's a bit like if I tried to drown myself in a swimming pool in the Eastern Suburbs and they rescue me. And I tell them that people are trying to kill me in the Western Suburbs so I had to come to Vaucluse; and the only way I could think of making you take me in was if I tried to drown myself in your swimming pool. Now you have to let me live in your house."

Now, just to be clear, Sam was joking.
Sam went on to say that of course Australia is much nicer than wherever the hell the people come from, much as Vaucluse is much nicer than say, St. Marys. So if you're picking and choosing, you would pick Vaucluse as the place to pull your stunt rather than anywhere in between. Once you decide you don't want to live where you live, then it's time to shop and people are shopping for Australia as a destination. If we all had the choice, maybe we'd all choose to live in Vaucluse, in which case who would be left to live in the poor suburbs to work as garbage collectors and plumbers?

But if you're a resident of Vaucluse, should you take this choice seriously? Isn't it obvious that the people in Vaucluse would ring the police and have the intruder removed or arrested for trespassing? And that is essentially what Manus and Nauru and Christmas Island detention Islands are - prisons for trespassing. Naturally the people who believe in Manus and Naura (or Cambodia!) as a 'solution' believe that the prison system is a fine deterrent to crime. If you bought that, Sam also had a boat ticket for you to buy.
And so the analogy went. It was all a bit 'Down And Out In Beverly Hills'.

I can see one aspect to the fear is that Australia is in the middle of a housing bubble that is pricing lots of people out of the property market. There is a lot of mortgage stress even if you can get a piece of it. It's not an environment conducive to being generous to the needy when people are seriously worried about keeping their own roofs and backyards. Scott Morrison is obviously playing to this pathetic anxiety, which in turn is at the very core of this pathetic kind of politics we're witnessing in Canberra. However, on a deeper level, people are wanting to reject the asylum seekers because they see the boat-and-drown asylum seekers as gaming the system - and nobody wants to be a schmuck.

The sad thing is that people out there in voter land genuinely don't want to see people on boats drowning on our doorsteps. Their preference is that the charade stops altogether, and the problem simply went away;  but that would entail the dispossessed stop picking the metaphorical Vaucluse as the destination. Vaucluse is kind of nice if it weren't for the people. But it's those people who are saying piss off, don't care what your story is, just go back to St Marys.

I'm pretty sure Malcolm Fraser would be unhappy with this characterisation. It really is pathetic that Tony Abbott counts stopping the boats as an achievement. It would be an achievement if they went home because their homeland improved with our help. The deeper truth is that as a nation, we really don't give a shit about that part of the equation, and that makes us all just as pathetic as the politicians in Parliament.

Miscreants On A Mission

The Predictable Drive In To The Ditch

The news this week is that Tony Abbott's poll figures suck more than ever. Hands up if you find his surprising? No? Didn't think so.

The really interesting bit in all of the commentary is how Tony Abbott is trying to characterise his first year and a bit in government by saying there are accomplishments a plenty to go with the things they couldn't get done. In the list are things like the repeal of the Carbon Tax and the Mining tax. He doesn't seem to understand that these taxes weren't some idle notions dreamt up by the Left to destroy conservative Australia, but fairly important planks of public policy, in as much as revenue raising for the government was concerned.

For a guy who came to power banging on about deficits, Tony Abbott sure has't helped himself as Prime Minster if he thought the high points of his government were abolishing taxes that were paying for useful things. It also ignores the great retreat of car manufacturing out of Australia, a sequence of events precipitated by TonyAbbott's own government. The point being, all the accomplishments he lists are things that probably need not ought to have been done, while all the things for which he is receiving blame and rancorous criticism and - let's face it - hollered insults are things also he shouldn't have undertaken especially because they are his ideological projects.

In short he may well claim the glass is half full but it's no good if the fluid in the glass is urine.

The Tricky Submarine Situation

Not a lot of people are standing up to point out the problem with the ASC. It's a shame that the person making the most sense is Paul Sheehan. Maybe it's like a broken clock being correct twice a day, but after he pens his usual poisonous character assassinations of the ALP politicians, he points out something that needs to be pointed out (God knows I hate quoting this man):

"ASC was delivering no submarines in 2009 for $1 billion. They have not improved their output … They are $350 million over budget on three air-warfare destroyer builds. I am being conservative. It is probably more than $600 million but because the data is so bad I cannot tell you. You wonder why I am worried about ASC and what they are delivering to the Australian taxpayer. Do you wonder why I wouldn't trust them to build a canoe?" 

At last the truth about this from a defence minister. Billions of dollars have been poured down the drain by both sides of politics on this giant pork barrel for South Australia. The ASC could build a canoe, but it would cost a million dollars and spend more time in repairs than on the water. 

The ASC has accumulated an abominable record of cost over-runs and should never have been awarded the air warfare destroyer contract. Johnston's refreshing candour was an admission that the ASC has been a financial sinkhole for decades. It is more a strategic liability than a strategic asset. 

Senator Johnston is also the first Defence Minister in a hundred years to seriously confront the bullying sub-culture in the Australian military, which has a recorded history of rationalising these practices dating back to 1913. 

And there's the crux of the biscuit. The ASC has been going for some time chomping up money at a greater rate than desired while delivering sub-standard product (pun unintended). There is no competition for the ASC, so if the Australian government dreams up a product it needs, the ASC is there to take the money and waste it until it delivers a poor product that roughly approximates the brief. It's a happy little monopoly where there is no need to cut costs or make savings.

Yet this very monopoly has led to the notion that Australia should buy ready-made subs off the shelf from Japan, which is causing a lot of heartburn in the ranks of the white Australian sentimentalists. After all, how could we fight them in Kokoda and Darwin and wherever else and suffer the indignities of the Burma railway; and then buy their bloody submarines? Why indeed? The noises coming out of Tokyo and in particular the Maritime Self Defence Service is the mirror opposite where they would rather not part with hard won know-how of how to run proper submarine fleets, just for mere filthy lucre. Why indeed? (And I say, with allies like that, who needs the Chinese?)

It is a rational and sensible idea to buy the submarines from Japan. However it is obvious as daylight that it won't be happening. It's a bit like the high speed railway thing - If they ever decided to do it, they'd have to ask the Japanese to help, and of course, rural Australia would have a fit. It's about as likely as buying Space Rockets from Japan, Fighter Jets from Japan, Helicopter carriers from Japan, Tanks from Japan, small arms from Japan, communication devices from Japan... You get the picture. Cultural sensitivities being what they are, it's going to be "No Jap Sub, No Jap Anything."

And this is before we mention the problem of not having our own industry to build our own defensive wares. Bob Katter knows all about that one.

This leaves the Abbott Government squirming and Defence Minister Johnston twisting in the wind because they don't want to keep throwing money at the ASC. But they need to keep throwing money at the ASC because it's pork-barrelling that has to be done. And while I am a decidedly pinko leftist social democrat sort of dude, I have to say the ALP argument that buying subs from Japan is bad because of job losses in South Australia, seems too much of an endorsement of pork-barrelling.

So what can they do? They ought to split up ASC vertical into three companies and make them compete for tenders for contracts. It's the only way: Break up the monopoly. It's one thing they should be looking at privatising. But you know they won't - and more's the pity.

A Decade Of Pain To Come

This one's from Walk-Off HBP who is probably rightfully worried that things can get worse than merely having a government of miscreants and nincompoops. Yes, it seems if things don't look bad enough now, they can get a whole lot worse.

My worry has more to do with Abbott's economic priorities, which ignore how rapidly the world is changing around the Lucky Country. Although Abbott has talked about diversifying the economy away from its dependence on China, his policies have effectively done the opposite. 

Where the previous government moved to tax outsized mining profits to fund investment in education and infrastructure, Abbott has changed incentives so that commodities and mining companies become a bigger share of the economy and have an even bigger voice in politics. Scrapping plans for a carbon tax, and resisting any serious limits on emissions, has made the economy more vulnerable to international shocks and made Australia a punch line at this week's global climate talks in Lima, Peru.

Instead of undertaking painful and costly restructuring, Abbott has prodded the central bank to loosen monetary policy more and more. Whether all that easy money is pushing Australia toward a subprime-loan crisis has now become a matter of serious debate.
Over the last year, anytime a journalist asked Abbott or Treasurer Joe Hockey about frothy real-estate prices, they were dismissed as nervous nellies. When I probed Hockey myself in September in Sydney, he derided such views as "rather lazy analysis". 

Yet in an interim report in July, David Murray, the former head of Commonwealth Bank of Australia, called the surge in housing debt since 1997 and banks' exposure to mortgages a significant risk. Since that time, Murray's panel said, "household leverage has almost doubled," and "higher household indebtedness and the greater proportion of mortgages on bank balance sheets mean that an extreme event in the housing market would have significant implications for financial stability and economic growth." 

On Sunday, in the final report to emerge from his yearlong inquiry, Murray urged specific reforms, including cuts in much-loved housing tax breaks. The report called for "unquestionably strong" capital levels, which could force the four biggest banks to keep another $25 billion on hand for a rainy day.

It's a bit long but then, the list of things the miscreants and nincompoops are doing is long. What can I do? Some times I think we must look like idiots to the world. Here we are donning the hair shirt of unnecessary austerity and going around pretending that Global Warming isn't real. It's not exactly a government of integrity and clear-thinking that we've voted in for ourselves.

Clearly we're idiots.