Aus­tralian Share­hold­ers Asso­ci­a­tion Investor Hour Talk

Flattr this!

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.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
Bookmark the permalink.
  • W800I

    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!!

  • DrBob127

    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?

  • DrBob127

    MMitchel,

    I don’t sup­pose that you’re a RAAFie are you?

  • DrBob127

    I am, of course, a twit. 

    I apol­o­gise to both MMitchel and W800I for mis­tak­ing your sep­a­rate com­ments for one long one.

  • 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

  • ueber­baer

    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.

  • KBH

    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.

  • DrBob127
  • Mike Stasse

    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

  • clive

    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?

  • 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.

  • MACCA

    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

  • MACCA

    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.

  • clive

    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.

  • clive

    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

  • W800I

    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

  • DrBob127

    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

  • BH

    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)?

  • watch­ing

    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?

  • 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.

  • Jim

    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