I’m speaking at the Australian Shareholders Association Investor Hour next Tuesday (August 18) at 12pm with the topic “The Market Crash: Origins and Prospects”.
I’ll take a long view of the financial data–going back to 1890–and explain the booms and crashes of stock markets as symptoms of debt bubbles and their bursting. From that point of view, this is the largest asset-price bubble in the last 120 years–and probably in all of history. The prognosis for the market is therefore grim, despite the current rally.
The venue is the Wesley Centre Theatre, downstairs at 220 Pitt Street, Sydney. The seminar is free for members of the ASA, and $5 at the door for others. Click here for further information.
August 12th, 2009 at 1:45 pm
Hi Steve,
Will you be able to post your ASA lecture notes on this website?
August 12th, 2009 at 1:56 pm
I have a standard presentation (which I modify for each talk and in the light of recent data) that should post here at some stage Philip. Whether I’ll ever have the time to do so is another question! I’ll try to put something up in the next week or so, including the first 3 of my lectures in Behavioural Finance.
On which note, I’d better get back to writing number 3!
August 12th, 2009 at 2:35 pm
Who is in control of credit money supply in China, the government/central bank or corporations/commercial banks?
“CHINESE policy makers are tightening the credit taps to avoid banking problems, asset bubbles and inflation, amid the first signs of deceleration in the resurgent economy.”
” the People’s Bank of China said yesterday that the value of new loans had fallen to 356 billion yuan last month, from 1.53 trillion yuan in June.
While the Premier, Wen Jiabao, and senior policy makers have recently insisted the country’s loose monetary policy settings remain unchanged, Huang Yiping of Peking University said the central bank had been telling commercial banks to slash their lending. The new central directives were not strict credit quotas but “more like window guidance”, he said”
http://business.smh.com.au/business/china-pulls-back-on-bankcredit-throttle-20090811-egzv.html
(The whole article is worth reading).
However in the US the tail wags the dog.
August 12th, 2009 at 2:41 pm
Steve & Philip,
I just checked the ASX website and they appear to record all their monthly Investment Hours and then make them available for free on their website at the following URL:-
http://www.asx.com.au/resources/podcast/2009.htm
They provide the audio (mp3), the slides (pdf) and the audio+slides (Flash).
Below I have reproduced the information about the seminar from their website:-
Sydney
Topic: The Market Crash: Origins and Prospects, Professor Steve Keen of University of West Sydney
When: Tuesday 18 August
Where: Wesley Conference Centre, 220 Pitt Street, Sydney
Time: 12 noon – 1pm. Please arrive by 12.00 noon for start
Cost: $5 (incl. GST). Tickets can be purchased at the door 30 minutes prior to the presentation
While many market commentators are predicting that the bear market is over and that we are in the early stages of recovery Steve Keen, Associate Professor at the School of Economics at University of Western Sydney has a different view. Despite recent hopes of recovery, the outlook for the stock market is “grim”, says Professor Steve Keen. Professor Keen said he would take a long view of the financial data – going back to 1890 – and explain the booms and crashes of stock markets as symptoms of debt bubbles and their bursting. “From that point of view, this is the largest bubble in the last 120 years – and probably in all of history – and the prognosis for the market is therefore grim”.
Professor Keen is author of the popular book Debunking Economics. He has academic publications on topics as diverse as financial instability, the money creation process, flaws in Marxian economics, the application of physics to economics, Islamic finance, and the role of chaos and complexity theory in economics.
We recommend arriving early to avoid disappointment. No bookings taken.
August 12th, 2009 at 3:47 pm
Thanks for checking that Jim. The Sydney ASX investor hour usually gets podded so Ill look forward to the profs talk.
Not really an economic related point but the link below is to a ABC podcast at the BBC.
Its titled
“Hell for Leather”
“How do you manage a traditional family shoe repair firm with 550 outlets all over the country? John Timpson does it by dropping in on them all the time to find out what’s going on, day by day. He calls it ‘upside-down management’. Peter Day went along for the ride”
http://www.bbc.co.uk/programmes/b00lvlv3
I thought this was a well spent 30 minutes hearing about a different management methodology!
August 12th, 2009 at 6:59 pm
Steve,
Here is some good material to add to your talk next week:-
Entering the Greatest Depression in History (link below)
http://www.lewrockwell.com/orig10/marshall1.1.1.html
What gives this article credibility is the repeated references to the Bank of International Settlements (BIS) report. I have copied sections below, that I think you will find of interest:-
In late June, the Bank for International Settlements (BIS), the central bank of the world’s central banks, the most prestigious and powerful financial organization in the world, delivered an important warning. It stated that, “fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation.”
The BIS, “The only international body to correctly predict the financial crisis … has warned the biggest risk is that governments might be forced by world bond investors to abandon their stimulus packages, and instead slash spending while lifting taxes and interest rates,” as the annual report of the BIS “has for the past three years been warning of the dangers of a repeat of the depression.” Further, “Its latest annual report warned that countries such as Australia faced the possibility of a run on the currency, which would force interest rates to rise.” The BIS warned that, “a temporary respite may make it more difficult for authorities to take the actions that are necessary, if unpopular, to restore the health of the financial system, and may thus ultimately prolong the period of slow growth.”
In 2007, it was reported that, “The Bank for International Settlements, the world’s most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.”
August 12th, 2009 at 7:52 pm
Since when does a “traditional family shoe repair firm” have 550 outlets!
The traditional family shoe repairers I used had like on outlet. Slightly different business model.
August 13th, 2009 at 1:24 am
Just want to alert you to http://www.reuters.com/article/ousiv/idUSTRE57B0SV20090812?sp=true
“SYDNEY (Reuters) – Policy makers daunted by the idea of puncturing asset bubbles in coming years can learn from Australia’s central bank, one of the very few to have deflated a housing boom without turning it into a crash.”
August 13th, 2009 at 10:35 am
This is an interesting chart that graphs US Employment/Population Rate x Number of Hours Worked/Week
http://2.bp.blogspot.com/_8rpY5fQK-UQ/SoDcIsKNAVI/AAAAAAAAHoc/PKNS6dIbKaQ/s1600-h/hours1.png
I was wondering if there is an equivalent chart for Australia?
August 13th, 2009 at 12:03 pm
I have been diligently reading this post for the last 6 months. I am scheduled to be married next year and with about 5 years of savings (not much or near enough for a home but it is all I have to start a family), I am awfully worried about government handouts / bailouts diluting those savings through inflation. I also think that buying a home is incredibly risky since a crash will condemn my future family to real poverty. Finally I am worried about leaving my money in the bank because if there is a property crash they will also be in trouble (I know there is a Government guarantee but it is not indexed with CPI and all the Government will most likely do is print paper that will not have the same value.)
Can anyone offer advice on what do with my money? I don’t want get rich quick (happy to work hard for every dollar). I just want to protect my savings. Some people advise to diversify into different currencies. Others have suggested stocks of primary industry output. Any advice would be greatly appreciated.
And thanks for everyones input into this site…its is rivetting.
August 13th, 2009 at 2:18 pm
Hi Steve and others,
Steve any idea where interest rates are heading? From your last comments I recollect you mentioned that interest rates would fall further to record lows from the current 3.25% (Whether banks pass it on is totally different). This has not happened so far on the contrary the kevin and stevens have been preparing for us for an increase. No doubt these morons will lift rates higher, do you reckon this is sustainable?
No matter what the MSM has done to lift sentiments and everyone is feeling upbeat the FACT remains that it is very difficult to find work . I absolutely do not trust the ABS employment stats because they just do not make sense or add up with job adds and the difficult job market. What are your thoughts? Will the biggest ponzi scheme hold up very well with interest rate rises? Or will they lift it and then revert back like a bunch of clowns?
August 13th, 2009 at 3:09 pm
Great posts
Just as a matter of interest, I looked up a few sites on the Web to compare how much you could borrow (with no deposit) for a mortgage – comparing UK with Aus. Assuming 1 pound = $2. The UK nominal interest rate was not shown but the figures were:
UK: Salary 75000 sterling : Max amount possible 262,000 – 375,000 sterling (depending on financial circumstances)
Aus: (2 people each earning $75,000) : Max amount possible $1,000,000 (average of 2 sites, one assuming interest of 7.4%).
Ouch! Looks like Australians can manage twice as much debt as anyone else… Of course, there are other possibilities – the info was wrong OR Aus banks think the Ponzi scheme has further to run OR they’re already in it to the point where they cannot tighten credit without bringing the end on faster….. Perhaps the Rudd government feels the same nervousness about abolishing negative gearing and CGT holidays with regard to speculation on existing (as opposed to new) residential housing. hmmmm
August 13th, 2009 at 6:37 pm
Hi Joshua,
If the current apparent recovery continues for another six months then I think it’s quite likely the RBA will put its base rate up at least 0.25-0.5 percent. Then the recovery will peter out and/or turn savagely down and the RBA will be blamed for causing it. In fact their changes will be a minor contributing factor, since deleveraging (or at the very least the ending of debt-financed demand) will dominate. But a rate rise with the level of financial fragility now will nonetheless add to the woes.
In summary I expect the RBA to make the wrong move for a while and then be forced by circumstances to cut further next year.
August 13th, 2009 at 7:00 pm
I am extremely hesitant to cross swords with someone of such superior knowledge as you Steve. I guess i’m a fundamentalist. Artificially low interest rates result in misallocation of scarce resources…in Australia’s case the resource that limits us most is REAL money based on savings. Hence we borrow without care and spend with profligacy. Artificially low interest rates simply aggravate the existing problem that you talk about…too much debt, or, in other words no savings. Now I agree we can end up with positive interest rates as a result of deflation. In fact that may be the inevitable correcting factor in all this and your prognosis will be spot on.
I cannot remember a time when the interst rate on savings has been positive…and I am now 60 years old!!! Bear in mind what I mean by positive interst rates is positive REAL intereat rates after REAL inflation and TAX!!!! So we have this enormous debt.
As a fundamentalist…there is a price we have to pay for all this damned irresponsible debt and over-consumption…and we are some day, one way or another, going to pay it. There is no way out. As Finster says ” The solution lies back in time” Artificially low interst rates just postpone the inevitable and alter who pays. Low interst rates ask the prudent to pay while the profligate prosper. You’ll immediately perceive there is not too much technical about my wee rant!!!!
I read everything you write as a guide to how it is going to happen!!!
Thanks again for all your hard work and sharing with us your great knowledge.
August 13th, 2009 at 7:02 pm
PS I do know how to spell INTEREST – my fingers don’t move as fast as my brain!! That’s not saying much as I am an ex farmer with pretty busted up hands!!!!
August 13th, 2009 at 7:21 pm
whattodo…when you find the answer let all the rest of us know!!!! If you believe Steve you get a whole lot of cash and bury it in your back yard!!! You only then have to watch out for eventual inflation and mildew!!!!
Here’s what I am doing…not a recommendation! I’m generally right…just 20 – 30 years wrong in timing – which is much the same as being wrong!!! I am so far out in timing because I keep thinking someone, somewhere in a Govt of some colour is going to try to do the right thing….but I am ALWAYS wrong about that!!!
I have a business which imports. So, if all things correct as they should I will lose most of that. So if you are a wage earner look at your job. Is it in health? Or do you have a skill which will be damned useful making things if Aus can’t afford to import anymore? Get a job in an import replacement or exporting company.
I hold a fair amount of Gold as a hyper-infaltion hedge…I don’t trust govts at all.I don’t care which political persuasion they are…they all operate for their own self-interst not Australia’s interst.
I keep a fair holding of cash. Other than my business this is my major allocation. I have been a follower of Steve’s for quite a few years. Inflation MAY eat it!! It’s just insurance against really bad sudden happenings. At the moment it “appears” unnecessary…but I don’t trust my own judgement!!!
I have shares in resource companies. Again a sort of hedge against a decline in the A$
I don’t own a house…this may prove an error of political judgement. Maybe Govts can hold back the tide for longer than I think!!
One answer would be to be a farmer. However my experience there is that they are such a small number of votes the Govt (of either colour) does not hesitate to destroy them financially in order to redirect wealth to the cities. The evidence of that is clear.
Now I’d guess none of that helps you at all. It’s just my own spread and the reasons for it.
August 13th, 2009 at 7:26 pm
whattodo…just a clarification on “CASH” – by that I mean the paper notes kind. I also have a lot of savings in the Bank – but i’ll not hesitate to go down and get it all out in “Cash” one day. I keep an eye on Bullturnedbear posts!
August 13th, 2009 at 7:28 pm
Sorry!!! I guess notes are plastic these days..so they are probably ‘buryable’ Bury it deep!!!! I know a bloke dug a hole 6′ deep for his Gold!
August 13th, 2009 at 9:58 pm
“Artificially low interest rates result in misallocation of scarce resources…in Australia’s case the resource that limits us most is REAL money based on savings.”
A common myth I think. Interest rates have fallen to 2% or below many times in UK history going back to the 17th century, without necessarily a period of mis-investment. It doesn’t matter if rates are low (reflecting relative demand and supply of loanable funds), as long as underwriting standards are appropriately managed (i.e. no subprime, liar loans or 125% mortgages).
As to the limiting factor, it’s not investment capital but demand which is the limiting factor. Demand leads to profits, which leads to jobs and more demand. Demand is always sensititve to a very marginal propensity to consume. Demand seems to me to be at the centre of steve’s work and viewpoint, and rightly so IMO.
The idea that increasing investment capital will lead to a healthy economy is false, if demand remains depressed. Why does demand remain depressed? – either because the majority of consumers don’t have the purchasing power to consume output, or because they are inclined to save their income (e.g. in a pension) rather than spend it.
Demand must come first, then that can be followed by profitable investment at sensible rates. Therefore only two things can restore demand, an increase in real income of the consuming classes relative to the capitalist/investor classes, and a social structure that reduces people’s propensity to save (for retirement, employment shock etc).
August 13th, 2009 at 10:38 pm
I have the solution to the Global Credit Crisis.
The key is for all Govt’s around the world to print money (say 8% of GDP) and use this for pruchase of Green technologies and other technologies to improve productivity.
It must be enough to prevent deflation but not enough to create hyperinflation.
Since all countries around the world are printing money at the same percentage of their GDP the question of exchange rate devaluation then do not come into picture.
Hence we print our way out of this crisis while private debt is slowly paid off over 20 years or so.
August 14th, 2009 at 1:42 am
Hi Steve and everyone,
I think I agree with Outback on this one. Wouldn’t current low credit costs mixed with mass investment speculation backed by heavily controlled media spruiking (ie real estate segments on the 6 o’clock news) create an Australian GFC tornado of “sub-prime” proportions. But then a raise in rates would increase the $AUS destroying exporters? Bah…. this is all too hard to fathom, sorry Steve, carry on.
August 14th, 2009 at 7:13 am
Up and Away…why do you presume that all the money printed will direct itself in exactly the way you ideally want it to be distributed? The essential point is that money never does that. As horsome says…you print a whole heap of money in Aus at the moment would go straight to housing…and I’ll be the first one to start the ball rolling as soon as I hear of it. A mixture of bad policy and artificially low interest rates ensure specualtive bubbles in whatever is popular at the time.
Scepticus, your time horizon is like 3 or 6 months. Over the past 50 years in Australia we have had plenty of demand! The whole damned country, driven by ‘demand’ has been sealed with bitumen carparks surrounding massive shopping centres on every second corner. Now look at Australia and think what the last 50 years of negative interest rates have brought us. We live in, probably, the richest country in the world as far as natural resources per head of population is concerned. Yet now we find ourselves buried in a mire of foreign and domestic debt and most of our industries sold off to whatever foreign corporations want them. Our only solution is to borrow more and sell off what few resources we still own.
That is the reality of Australia at the moment. We don’t have to look at the UK. It results directly from artificially low, in fact negative, interest rates for so long.
As to the UK, it was rescued in the 1970’s by the discovery of large oill fields in the North Sea. The idea that Thatcher was some free market financial genius is somewhat misplaced. The whole edifice has been built on increasing debt. Now the UK is left with massive debts, no resources, no industry, little oil, no way to pay for new oil and gas supplies, and no great Navy to once again to control and reap the benefits of controlling an Empire. The resources of its Empire have filled over large chasms in the UK for a long period.
Scepticus i would not argue with you about a need to balance realtive wealth in our society. However the empirical evidence suggests that the inequalities we perceive have been fuelled by the financial environment of the last 50 years. The liar loans and 125% mortgages are a very recent phenomenon.
Further I would suggest that the rebalancing necessary is nowhere near as simple as the simple one you suggest. You have to rebablance whole sectors of the economy. Simply extracting wealth from the ‘investing classes’ and giving it to the ‘onsuming classes’ is not a solution. In any case no such distinction exists. The extravagant consumption and waste by people who got money all to easily is everywhere for everyone to see. The lines are not just blurred. They do not exist.
Further, there are many within your so-called ‘consuming class’ who are prudent. If someone, who works hard and honestly, wants to forsake immediate gratification in order to better secure the future for themselves and their families, I see no reason why they should be penalised for it.
Currently, a family who save are being taxed 120 to 200% on their savings!! That is NOT an equitable arrangement.
August 14th, 2009 at 8:43 am
“If someone, who works hard and honestly, wants to forsake immediate gratification in order to better secure the future for themselves and their families, I see no reason why they should be penalised for it.”
This pre-supposes that wealth should always without exception be transportable into the future without penalty. Given that the only practical vehicle for deferred consumption to be transported into future wealth is a debt instrument, then the degree to which deferred consumption can be transported and the loss or gain accruing therein is dependant on the supply of borrowers and savers, and on the quality of investment opportunities offered to savers by borrowers.
These variables will all change over time and will determine the safety of stored wealth. One cannot easily impose by fiat an accomodation in favour of one party or another, without creating serious distortions which lead to trouble.
August 14th, 2009 at 10:34 am
The Science of Economic Bubbles and Busts
http://www.prudentbear.com/index.php/thebearslairview?art_id=10258
Which refers to the original article from scientific american.
http://www.scientificamerican.com/article.cfm?id=the-science-of-economic-bubbles
August 14th, 2009 at 10:47 am
At risk of being labelled a nutter I want to point out some possibilities for preserving wealth that are a bit more “out-there” than your standard solutions. Dmirty Orlov proposes gradually getting rid of your money by over time buying the things that will have real value in the near future (I guess this is the Chinese strategy but on a micro scale).
If we are facing an oil depleted future within the next decade then the things you might want to consider include the traditional alternatives to oil (used extensively in Australia during WW2) such as investing in making a gas-producer:
http://www.gengas.nu/byggbes/index.shtml
This seems one of the cheapest, most effective ways to produce energy. I was put on to it by a friend of mine who has been living in an alternative community which for the last 30 years has been trying to become energy self-sufficient. They have tried: hydro schemes, windmills, steam engines, solar systems galore, however, after all this money and effort he can still only watch about 1 hour of TV each night – that is how difficult it is to do things without fossil fuels.
Ueberbear talked about gardening, this requires a significant effort and some expense to contruct proper beds and to build up a good quantity of productive soil. Water tanks or a bore are essential for this. Water tanks are probably better, as bores deplete the water table.
If you want to think more broadly about these ideas I have just been put onto this by a friend:
http://transitionnetwork.org/Primer/TransitionInitiativesPrimer.pdf
Some areas (Portland Oregon for example, but also many Australian towns) are already registered and planning for this path. A list is available at: transitiontowns.org.
In regard to stashing money in the backyard, I have been wondering if you are going to do that you may be better to use our everyday coins. Coins have an intrinsic metal value that may mean they can still be used for exchange even if our currency crashes, they may also hold some value against inflation, in the worst case, at least you can melt them down and make jewelery (or tooth fillings maybe?).
August 14th, 2009 at 10:53 am
The following bit was on Neil Jenmans twitter page,
“The median home price in Australia is now $420,000. The median mortgage payment is $1,983. It looks bad for 1st homebuyers. It will improve.”
I’m not sure what improve means but I harp back to something I said recently. That is if the prices for property were as solid as the property bulls say they are then the feds should be able to remove the
- FHOG- First home owners grant &
- Negative gearing
Thus the structurally strong property market would power ahead with or without government intervention.
Of course what would happen if the feds did this is easy to see as we have another train wreck to observe in Managed investment schemes to see what happens when governments skew markets and then withdraw concessions.
To me this is the fundamental question that should be asked of anyone that seriously believes that this financial crisis is over.
Can property stand on its own two feet or not? If the business spectator boys say yes then lets get K Rudd on the phone and save the taxpayers some money!
The second question if the answer is no to the first is, why can’t their be some honesty about how fragile the private property market is? Commercial property is a mess with their being little glossing of that problem that I can see!
The third question would be for how much longer can the government continue pumping up the real estate market before only millionaire’s can afford a basic house??
Oh and us renters even though we are technically subsidised by negative gearing keeping rents artificially low are hurting. Try getting a 3 bedroom house within 30 minutes of the Adelaide CBD for anything less than $350 and you are very lucky!!!
As the prof has said, their has been a massive pump up of 70% of the private property market by the government.
I subscribe to the slow moving train wreck theory. The first part of which is affordability. How on earth can the average family afford nearly $2000k a month in mortgage payments without both parents working, the kids and the dog.
Add to this if the big whigs in charge at the reserve bank start increasing interest rates in line with their theories then a $2000k mortgage payment increases rapidly.
Unemployment hasn’t spiked but I can attest that companies have certainly been raining in costs , cutting hours and overtime is a ohhh so distant memory.
Just as an aside their is a new housing development going up nearby here in Adelaide called St Clair. Bit controversial as it is going to sit on the old Cheltenham race course and some locals are peeved about losing it. The interesting thing I saw was the listed house and land prices at approximately $450K. I don’t know whose going to live their but it won’t be battlers that’s for sure!!
Anyone’s thoughts on how to unravel this mess without causing a mess would be good!
W800I ideas- Toughen up First home owners grant to make loans taken out with this grant for the house and land only. No refinancing for plasmas or holidays!! If people want to do this then they have to pay back the grant. eg if your bank thinks you have enough equity in the property to pay back the grant they’ll do that so as you can re fiance to a different kind of loan. Also people do get divorced and people do die young so when the property is sold the grant should be re paid in these circumstances as well.
Landlords when purchasing their second and more properties to negatively gear shouldn’t be able to use properties financed with negative gearing as collateral. Only properties freely owned or not financed using negative gearing could be used. Thus a landlord adding a new property would have to use free cash or assets from somewhere else to finance the loan.
Ween the drugs of slowly man!!
August 14th, 2009 at 11:25 am
MMitchel,
Nice to see the crow-eaters represented here.
while I agree with most of what you said, my wife, baby duahgter and I are moving to a rented three bedroom house in Mawson Lakes ($330/week). We are moving because the new house is a bit nicer has more storage than our current three bedroom house which is also rented for $310 per week (also in ML)
“Try getting a 3 bedroom house within 30 minutes of the Adelaide CBD for anything less than $350 and you are very lucky!!!”
Perhaps your figure should be $300 per week?
August 14th, 2009 at 11:28 am
MMitchel,
I don’t suppose that you’re a RAAFie are you?
August 14th, 2009 at 12:11 pm
I am, of course, a twit.
I apologise to both MMitchel and W800I for mistaking your separate comments for one long one.
August 14th, 2009 at 12:32 pm
Here is Nassim Nicholas Taleb (author of “The Black Swan”) slamming Nouriel Roubini (or rather strongly disagreeing with). Pretty entertaining… http://www.businessinsider.com/taleb-slams-roubini-for-sucking-up-to-the-fed-2009-8
August 14th, 2009 at 1:50 pm
MMitchel,
regarding alternative ways to power things consider making your own bio diesel and then run a Listeroid slow speed diesel with an AC generator hooked to it. The listeroid burns 280g/Kwh and one acre of Jatropha can yield up to 500lt (from 2nd year after planting) of oil which can be used without any refinement. The listeroid is hand-cranked and will run for a very, very long time. Jatropha grows well in poor soils and semi-deserts.
Jatropha tree: http://en.wikipedia.org/wiki/Jatropha_curcas
Lister(oid) engine: http://www.utterpower.com/listeroi.htm, http://www.f1-rocketboy.com/lister.html, http://www.youtube.com/watch?v=YGmfeNMqYVk&feature=related
Oil press: http://www.oilpress.com/typ40a.htm
Nut sheller: http://www.instructables.com/id/Universal-Nut-Sheller/
By the way, Jaropha oil can be used unrefined for practically any diesel engine.
August 14th, 2009 at 2:14 pm
Re Burying Money.
Had a relative who burried lots during the 1930s – no one trusted the banks then. Banks restricted access to savings – withdrawals.
He burried it in the backyard, and in the local bush-park. He got senile, and died in the 1940’s.
My parents/grandparents kept finding burried tins of money in the backyard, right up till the 1980’s. The money burried in the bush-park is lost.
If someone discovers it, they will have a nice trove of old notes & silver coins.
Best to keep money in the bank for now. At least it is safe, and earns a bit of interest. If things get real bad, then re-think your options.
If you do decide to bury it, make sure the tins can’t corrode and are properly sealed. Money goes off when damaged by moisture.
August 14th, 2009 at 3:41 pm
“Germany, France bucks recession”
http://www.sbs.com.au/news/article/1072227/Germany,-France-bucks-recession
August 14th, 2009 at 5:33 pm
whattodo….
Our circumstances are almost certainly totally different. I’m pushing 60, and our kids are grown up (almost 22 yo, twins).
Knowing what I now know, I would not have had children, and my wife (who was the one who insisted) now agrees in hindsight. My take is that we are heading for total collapse. We’re not just facing a depression, but also Peak Oil (and hence Peak Everything), and Climate Change means all bets are off….. I strongly urge you to do Chris Martenson’s Crash Course. http://www.chrismartenson.com/crashcourse
At our age, of course, my wife and I are ‘wealthy’, and I’d hate to be starting out now with no money, or few assets, but here is what I would do, almost exactly what we HAVE done…. Not having children is the ONLY thing we haven’t done that I recommend!
Sell everything, and buy land for cash, somewhere with half decent rainfall and soil. You don’t need more than 2 acres. Learn Permaculture. Practice it. It is possible to build shelter with bugger all money if you’re prepared to do the hard yards YOURSELF. I built my own house, as in MYSELF, banging in all the nails etc, and I was over 50 when I started, so a spring chicken like you (am I wrong here…?) should have no trouble. I had never built a house before though I had designed quite a few.
If you come out the other side with no money, or a very small debt, you have succeeded! My efforts can be viewed at http://damnthematrix.wordpress.com/ Don’t hesitate to contact me via that blog if you so wish.
Good luck…!
Mike
August 15th, 2009 at 12:07 pm
It appears the baltic dry Index has slumped quite a bit recently. There a two stories to this.
1. An Increase in the number of new ships coming into service.
2. A drop in demand from China as it struggles to get rid of the enormous stockpile it has.
I’m more inclined to go with 2. What do all you BDI and China watchers think?
August 15th, 2009 at 12:29 pm
Curiously, France is one country I picked to weather the crisis better than most of the OECD because, unlike its confreres, its debt to GDP ratio actually fell over the last 3 decades.
Germany had one of the lowest rates of growth of debt to GDP over those 3 decades–only Canada and Italy had lower growth rates (so I’d be curious about Canada’s and Italy’s relative success over time too). As a result, France has less deleveraging to cope with than it would have had 3 decades ago, while Italy’s and Germany’s deleveraging will be from lower levels than extreme Ponzi economies.
Check the first graph in this RBA speech:
http://www.rba.gov.au/Speeches/2007/sp_dg_250907.html
For the relative data. It’s displayed in a less than clear way, with countries ranked in descending order of the growth of nominal credit, so that the relative growth rates of debt to GDP have to be “eyeballed” by looking at the gap between that bar and the one for growth in nominal GDP.
August 15th, 2009 at 12:56 pm
Hi Clive,
There is no doubt that the BDI is sinking because of reduced demand. BHP says as much in the article below. The huge uptake of bulk commodities in Q1 and Q2 by China was in some part a response to the collapsed freight rates, as well as the waves of cheap money being loaned out courtesy of China’s stimulous. I recall (sorry lost the link) an article back in April/May by SteelGuru about how something like more than 60% of ships in China offloading bulk cargoes then were ex speculators and not smelters/producers, an unusual circumstance. This has now run it’s course and shipments are falling fast.
Who knows where the BDI may settle but looking at this report from BHP they are not sounding confident. It is important to seperate hopes from facts. Like all big multi- nationals, BHP “hopes” for a lasting recovery too;
“The world’s largest miner BHP Billiton (LSE: BLT) revealed the exact impact the “rapidly deteriorating economy” has had on its operations in its full year report for the year ending June 30 2009. The group also repeated concerns over restocking activities in China, which the commodity sector heavily relied on during the economic downturn in the second half of 2008 and first half of 2009.
The plummeting demand for commodities sent BHP’s H2 profits down 62% to US$11.6 billion, while the company’s EBITDA (earnings before interest, tax, depreciation and amortisation) declined 21% to US$22.3 billion and revenues dipped 16% to US$50.2 billion.
Supplies were cut 5 to 25% year on year in H1 in view of the declining spot prices for BHP’s commodities, which fell 50 to 90% over the period, amid destocking in all markets.
The Melbourne-based company reiterated that China has been the most supportive market since the beginning of the economic crisis with the government pouring heavy investments into infrastructure, keeping the demand for raw materials at a high level.
However, the economic outlook remains mixed as the commodity restocking in China is “largely complete” and it’s hard to gauge the economic growth beyond the period of each stimulus program, said the company.”
http://www.proactiveinvestors.com.au/companies/news/2225/bhp-billiton-posts-62-h2-profit-slump-expects-commodity-demand-to-strengthen-over-long-term-2225.html
August 15th, 2009 at 1:05 pm
As a commodity country, we also have competition. Russia is an enormous resource exporter and is in very serious trouble. We can be certain that Australia’s resources will be come under major pricing pressure as Russia, and others, try to claw their way out of an increasingly deteriorating financial situation;
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6011832/Russias-economy-contracts-11pc-as-Putin-model-hits-dead-end.html
“Russia’s economy shrank at an annual rate of 11pc in the second quarter and has yet to show any signs of durable recovery, despite the rebound in the price of oil. President Dmitry Medvedev blamed the country’s reliance on energy and commodity exports, saying the economy “crumbled” as the global crisis hit. “We can’t develop like this any further. It’s a dead end,” he told party leaders. “We’re hovering in place, and the crisis brought this home. We will have to make decisions on changing the structure of the economy. Otherwise our economy has no future. The situation is outrageous and has been for a long time. We continue to ship raw timber for export, and processing isn’t being developed.”
My take is Medvedev is talking it up for the foreign investors. Putin has an iron grip on Russia and the commodity sector in Rusia is controlled by cowboys masquerading as corps. Russia’s response will be to try to make up for the revenue shortfalls with higher commodity volumes.
August 15th, 2009 at 1:45 pm
Thanks MACCA,
I think Brazil has been doing it’s fair share of price cutting which can’t help Oz much either.
Interesting Medvedev saying Russia can’t continue to be a bigger and bigger hole in the ground. We don’t here too much of that from Rudd or Turnbull.
August 15th, 2009 at 8:33 pm
This makes it 102 now if you include 2008
Colonial BancGroup shut down by federal officials
WASHINGTON — Real estate lender Colonial BancGroup Inc. has been shut down by federal officials in the biggest U.S. bank failure this year.
The Federal Deposit Insurance Corp., which was appointed receiver of the Montgomery, Ala.-based Colonial and its about $25 billion in assets, said the failed bank’s 346 branches in Alabama, Florida, Georgia, Nevada and Texas will reopen at the normal times starting on Saturday as offices of Winston-Salem, N.C.-based BB&T.
The FDIC has approved the sale of Colonial’s $20 billion in deposits and about $22 billion of its assets to BB&T Corp.
Regulators also closed four other banks: Community Bank of Arizona, based in Phoenix; Union Bank, based in Gilbert, Ariz.; Community Bank of Nevada, based in Las Vegas; and Dwelling House Savings and Loan Association, located in Pittsburgh.
The closures boosted to 77 the number of federally insured banks that have failed in 2009.
http://www.google.com/hostednews/ap/article/ALeqM5gg9RS-ZvzlfzrcnujKaEDMXrYyYgD9A36DIO0
August 17th, 2009 at 11:01 am
Hello MMitchell,
No Iam not a RAAFie. I work in freight, not as glamorous I’m afraid.
Mawson Lakes, the Mrs and I looked up their for a rental. Very nice area and a very nice price you got, well done. The cafe across from Woolies makes a very nice cappuccino.
Cheers
W800I
August 17th, 2009 at 1:10 pm
sorry W800I,
I thought that MMitchel and you comment were the same one and now you have thought that my reply camwe from MMitchel. Perhaps there is an option in wordpress to Highlight the name of the poster to clearly indicate the name of the poster (in bold rather than italics) so that individual comments are more clearly delineated.
I know what you mean about the (Boatdeck) cafe being a grat place to sit and enjoy a cuppa by the lake. If you’re interested the house that we’re moving out of is available through realestate.com.au for $320 per week.
Bob
August 18th, 2009 at 5:41 pm
Steve, I enjoyed the ASA Investor Hour talk you gave today and it looked like you got a nice bottle of something in that box you were carrying out too!
I was comparing what you said about the creation of money not being in the RBA control and that they know it with Benanke’s printing press quote and base money expansion. I’m still left wondering about the divergence. Would it be correct to say that the Fed and out RBA having pushed their strings are not so relevant at the moment for what happens next (assuming they don’t pull their strings)?
August 21st, 2009 at 5:36 pm
Hi Steve,
I enjoyed your ASX lecture the other day.
At the start of the Great Depression (ie the 1930s one), the US sharemarkets went down about 90% (MASSIVE)(over a 3 year period I think) whereas the Australian sharemarket went down “only” about 45% (like a “normal” (but larger than average) bear market). This “superior” Australian sharemarket performance was despite the unemployment rate getting to 29% in the 1930’s in Australia vs 25% in the US. I do not know if these rates were determined on a comparable basis, but I assume that things were pretty bad at the time in Australia, just as they were in the US. GDP I understand went down greatly in both countries (of the order of 10% pa for each year over 3 years?) and deflation was substantial in both countries in the 1930s also.
I take your point that private debt levels are substantially higher now in both countries compared with those just before the Great Depression (being quite a bit higher in the US compared with Australia on both occasions).
Questions:
1. Why didn’t the Australian sharemarket go down nearly as much in the first 3 years of the Great Depression as it did in the US?
2. In the event of the US sharemarkets falling significantly in the next couple of years (eg via a second leg downturn and then possibly a third):
Are the differences between Australia and the US and the differences in the interactions between these countries and the rest of the World now compared with at the start of the Great Depression sufficient to indicate that the Australian sharemarket will fall more in line with the fall in the US sharemarket in the coming couple of years compared with in the 1930s? If so, why?
August 22nd, 2009 at 11:51 am
I can’t say for sure watching,
But my guess is that, then as now, Australians were not the speculators on the stock market that the Yanks were (and are). The prices therefore hadn’t been leveraged as high and had less to fall. Again that seems so today–the DJIA and the ASX were at much the same level after the 1987 crash; 13 years later theformer was 12,000 and the latter 3,000. Even recently the DJIA peaked at 14000 versus 6000 for the ASX. So again we have less to fall than do the Yanks.
August 22nd, 2009 at 7:49 pm
For people that missed the live event, just letting you know that Steve’s talk is now up on the ASX website at the URL I previously indicated:-
http://www.asx.com.au/resources/podcast/2009.htm