Dogs Are Better People Than Politicians

Couldn't Keep Denying

It amazes me that the Abbott government keeps limping on being the way it is. Normally, being the host nation for something like APEC or the G-20 burnishes the standing of a nation, but somehow Tony Abbott and his miserable government managed to lower the standing of Australia, simply by being their climate-change-denying selves. At the end, Tony Abbott made a speech to the effect that all the governments represented at the G-20 wanted to do something about climate change. It hardly seemed plausible given the degree of resistance mounted and shown by the same government, during the lead up to the G-20 meeting. It sure was hard not to talk about something all these guests anted to talk about it.

I guess that's the nature of summit meets. The host nation doesn't really get to control the agenda if it isn't a nuclear superpower. Tony Abbott made Australia look like an adolescent who is in denial about having to do chores, on the international stage. I'm sure the world took notice. Now that China and America have decided to do something about climate change, then it also activated Clive Palmer and the PUP's agenda of keeping an ETS. Greg Hunt might think they've mothballed the thing but it might comeback from the dead sooner than people thought. After all, the problem with Direct Action is that it is not scaleable in the same way as the ETS. The more there is to cleanup, the better it would be to simply ramp up the ETS again, and be done with it.

No Cuts To Adelaide ABC? Then Don't Make Stupid Cuts

Chris Pyne, he of the Coalition Government that came to power promising not to make any cuts to the ABC and SBS but promptly started cutting as soon as they got in, started a Chang.Org petition to stop the ABC cutting the Adelaide production facility.
Let us now count the shades of stupid in this petition and petitioner.

1. He's a freaking minister of government. He's a lot closer the to the decision making than public petitioners and their petitions. 
2. He is a freaking minister of a government that is cutting $254million to the ABC budget.
3. He is a freaking minister of a government that is cutting that $254million in the face of the ABC asking them not to make such cuts.
4. The alarming hypocrisy of a minister of a government making largely gratuitous, political cuts, on alleged economic grounds (whether true or not) can't complain about such cuts affecting their electorate. 
5. Since when does Chris Pyne care about the ABC's production capacity anywhere? If he's going to start caring about that, maybe he should be looking into the plight of the Film & TV industries a lot more carefully?

Naturally we are underwhelmed. It would be a great shame if the Adelaide unit had to close because of the cuts. It would be a shame if any production facility had to close because of the cuts, because that's the very zero-sum game this government set up. You sort of wonder if these people have any actual brains.

Hooray For Jacqui Lambie (Can't Believe I Just Typed That)

Jacqui Lambie has been going rogue for a few weeks now, over the conditions of defence personnel and something to do with their Christmas bonuses. It has gotten to the point where to refuses to pass anything of the government unless they do as she says, which is to say, she's holding the government to ransom, all on her own-some. The early net effect of this ornery statesman-ship is that the ALP has corralled her into stiffing the Coalition's plans to water down the Future of Finance Advice changes.

This is no ordinary stiffing; this is being described as a "body blow" by the SMH, but more accurately, it's the moment when it has become untenable for the Coalition Government. To date, the Coalition Government has managed to get some of their idiotic plank of policy through the Senate thanks to Clive Palmer making deals with them. Only a couple weeks ago it looks like Palmer was the idiot in letting the Direct (In)Action policy through in time for the Brisbane G-20 summit. Yet now, the rogue PUP Senator is undoing done deals.

If it's bad enough that Joe Hockey's government hasn't been able to pass its awful-awful-awful budget, six months hence from its big debut, then the PUP disintegration ought to give them pause. This might be the moment where it forces the Coalition (the No-alition) to properly think about a Double Dissolution, because they ain't getting it done now. The earliest opportunity to vote out these drongos would be most welcome.

A Memorable G-20 Is Looming

To Hell In A Handbasket

Things in global markets are looking pretty crook. The first real signs of trouble that the markets are beginning to unravel around the world, are over in Europe where deflation fears are riding right over the rhetoric of the ECB saying they're willing to do anything - including their own version of QE3.

RBS estimates that the inflation rate has already dropped to below 0.1pc in the eurozone if one-off tax rises and fees are stripped out, and this measure may turn negative in October. “Deflation is already knocking on the door. We think it could happen as soon as next month given the latest fall in food prices,” said Mr Roberts.

“We are reaching the end game in Europe. If they don’t launch real QE and start reflation by the end of the year or soon after, the consequences are too awful to contemplate,” he said.

Ruben Segura-Cayuela, from Bank of America, said low inflation has become “the biggest threat to the dynamics of public debt” in the eurozone, warning that debt ratios risk “spiraling up” even at levels of around 0.5pc.

France’s debt will keep rising from 93pc to 102pc of GDP by 2016, even in the best of circumstances. It will reach 117pc under a “lowflation scenario”, and 120pc if there is no further fiscal tightening. Spain’s debt will hit 113pc under similar circumstances. “What worries us is that we are not even stress testing for deflation,” he said.

It's all going south because of the threat of deflation; deflation of course means the investor class have to take a rap in the economic cycle, and that is something all the central banks want to avoid. Though it has to be said after all through the years of QE 1 through 3, we've had a nagging feeling that the economy is fundamentally broken. If you have to print that much money to fill all the liquidity holes and keep things going, one has to start questioning if the whole global economy itself is actually viable. It might be that we've been pumping litres of blood through a corpse in the hope that it springs back to life.

They may (and will) talk about a lot of things to do with deflation at the coming G-20. You would have to wonder if they will be talking about the current unfolding market mayhem as a correction or the beginning of the end.

Interest Rates At Zero or Near-Zero Makes For Bad Decisions

When we Gen-Xers were kids, we used to have saving accounts, and these things would bear interest. You would be taught the benefits of saving by having these accounts, but more importantly the banks were legitimately interested in investing in some way as to return interest to investors. After the 1989 market rout, Alan Greenspan cut rates, and they never went back up to where they use to be. Through his tenure, Greenspan gave to the markets what is known as the 'Greenspan Put', and cut interest rates every time investors ran into trouble. In one sense, the economy never really recovered from 1989 because US Fed's interest rates have never been as high as they were then. Similarly, Australian interest rates have never been as high at the time it hit 17% just before Paul Keating's "recession we had to have". Since then Australian interest rates have fallen to historic lows and have been there for 15months-and-counitng.

The upshot of all this is that it absolutely punishes savers. It drives them to chase dividend yields and take risks they would not like to take. Investing gives way to speculation, and worse still, it makes it cheaper for people to borrow money to play the markets. Whatever you might say about the risk appetite, when interest rates reach close to zero, it opens the door for people to make really risky bets.  Just how risky? It's said that there are 7 trillion dollars worth of derivatives that could blow up if the US Fed were to raise their interest rates half a per cent. And if such moneys should go up in smoke, you can bet your bottom dollar that there will be a liquidity problem and markets would seize or crash or both seize and then crash.

It essentially means there is a sword of Damocles hanging over the US Federal Reserve to keep printing money and keep interest rates at zero. You can well imagine there's no such thing as 'prudential' in any of this. Worse still, it has effectively turned the market into one giant too-big-to-fail problem. And so we continue with the ZIRP (Zero-Interest-Rate-Policy) and Near-ZIRP around the world. It does make you wonder if the economy has flat-lined, if the only thing making the money markets go around is speculative bets made with borrowed money on near-zero interest. It seems completely non-sensical, but there you have it.

This article says we might even need QE indefinitely into the future. Ben Bernanke even said he would be surprised if QE ended during his lifetime. That's surprising on the surface, but not so surprising when you consider just how distorted markets have become.

There Is No Cavalry To The Rescue For Investors

The simple truth is, when you have America's Federal Reserve running Zero Interest Rate Policy AND Quantitative Easing (money-printing) for as long as it has, you sort of expect them to come to the rescue. That's been the moral hazard of printing money and giving it to Wall Street banks.

Except when the interest rate is at zero, and you've printed as much money as the Fed has, you have to say they've run out of bullets. So why are the markets jittering now? That would be because this is the month QE3 which started under Ben Bernanke's watch is going to finish its 'taper' under Janet Yellen. This is the end of the free punchbowl. The market jitters are a bit like an alcoholic's shaking hands when the grog supply is cut. It's amazing how the whole world's markets are jittering. That's a lot of investors who got drunk on the Fed's punch.

Anyway, with even the RBA in Australia at record lows in interest rates, there's really not much room for any of these Central Banks to move. I mean, what is the Bank of Japan going to do, when it's already doing 'Abenomics' and printing money like there's no tomorrow (...and maybe there isn't a tomorrow. Now there's a thought). And what has it done? Not enough to lift Japan out of its two decade long deflationary spiral. Maybe when the shit really hits the fan in Japan, they'll have jubilee and just cancel debts.

For the rest of us, we have a decades-long deflationary cycle looming up ahead. I wonder how they're going to address that at the G-20. Naah, they'll probably just throw Vlad and Tony in the ring to box and sell tickets.

Home Is Where The Bad Investment Decisions Live

It's like there's some chorus of bad news going on out there. Here's an interesting article about the property bubble in Australia.

No, blame high home prices on the global financial crisis five years ago. It gave us record low interest rates and a building slump even as the rate of population growth was increasing. 

So demand was fuelled by low interest rates and supply constrained by a lack of new building. 

If you believe the latest QBE annual Australian Housing Outlook, compiled by BIS Shrapnel, prices are going higher. 

I must admit each year it seems overly optimistic about property prices but that was so only once in the 13 years it's been published. Unfortunately that was a doozy because it got the direction wrong as well, and being in 2010 was just recent enough to survive my short-term memory. 

In Sydney, the market where the shortage of housing stock is the most chronic and investors are apparently running amok, it predicts prices will rise 9 per cent. Oops, that's over three years. In fact, the forecasts are for 7 per cent this financial year, slowing to 5 per cent the following year and then falling 3 per cent. 

Brisbane is the place to be. Its values are forecast to rise 17 per cent over three years with the Gold Coast not far behind with a projected 15 per cent.

That would be the standard explanation of how the current property bubble was allowed to remain in place by the RBA, back when the GFC began. This is the real trick. The RBA decided deflation was bad because it would hurt 'investors'. So they decided to run what amounted to a Price Keeping Operation for Australian property market by running a low interest rate policy. Naturally the real estate market and its rampant speculators stayed in the game - unpunished of their bad calls, rewarded with moral hazard removal. As a result, seven years later we have even more private debt, a lot of which is tied up in real estate, and the four major banks are even more Too-Big-To-Fail.

This is all very vexing because the real estate bubble is wreaking havoc on the rest of the economy. Australia is not alone with this problem. Canada, New Zealand and the UK all share this problem, and the property bubble in America certainly got a second wind in the last 24months. None of the  Central Banks have figured out a way of unwinding it without investors taking a real hit so they keep jawboning the future outlook of the property market down, but nobody seems to believe them; and they're right not to believe them because all these central banks are running ZIRP or near-ZIRP, the biggest enablers for the purposes of furthering speculative activity in property.

I do wonder if they'll be bringing up this problem at the G-20 as well.  This may well turn out to be the last G-20 meeting before the markets tank and global turmoil is unleashed in the markets again.