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No earnings, no price

"If you give me $1, I promise to give you 15¢". The SMH cannot understand why people aren't taking up this outstanding offer. I think I can ...

The offer is for the purchase of ANZ shares with a guaranteed dividend that amounts to more than 15% of the price. Michael Pascoe of BusinessDay thinks that if we don't take this up we're saying we don't believe that the banks are being run by competent people - and what's more the share price has the possibility of capital growth!

This is a classic piece of dud thinking whose underlying assumption is that when all this nasty stuff blows over it'll all be back to how it was pre-2007. But it almost certainly won't do that.

Back to basics

Time to rehearse some really  basic stuff. Some people still believe that the stock market is about raising capital for business, but that hasn't been true for many years: if you net off the IPOs with share buybacks, there has been no net new capital raised on most of the developed world's stock markets since the 1970s. So, when you buy a share, you are simply buying an annuity - a future revenue stream of dividends - from someone else who thinks that it is overpriced (or they wouldn't be selling).

If the stock markets were rational, the share price would be approximately equal to the net present value of all future dividends discounted at the cost of capital plus an estimate of the risk of those dividends not being paid. BTW, there is no evidence that stock markets have ever been rational (notwithstanding the never-ending financial page attempts to give rational explanations for what happens on them), but we'll leave that for another day.

People also punt their belief that the stock price may rise, giving a capital gain at some future date - but in the long run this just amounts to a belief that the dividend stream will rise enough to justify that price rise, and that future gain should also be discounted into the NPV. Sellers meanwhile are in effect saying they believe that the prospect for dividends is lower than the market is currently pricing. An alternative way of looking at it is that sellers believe that there is a high risk that the dividend stream won't be sustained, and hence discount the future payments at a higher discount rate.

Long-run basic part 2: dividends get paid out of earnings (unless the business is being run as a cash cow without reference to long-term viability - which the unkind might say is the Macquarie model). So, the deal is, we look at the dividend yield (dividend divided by share price), or, as a proxy for that, the price-earnings ratio (share price divided by profits).

What's wrong with this picture?

So, is the share price for ANZ unbelievably cheap, with a promised 15.3% dividend yield? Well, only if you believe that the ANZ share price will still be at least as much as it is today after the dividend has been paid, so that after the dividend you can potentially sell it and get your initial dollars back.

However, if you happen to believe for some reason that there is a prospect that future earnings will be lower than last year's, then you might believe that after the next payment future dividends will also be lower - and that therefore the share price once you've collected the dividend might be lower. If you think that the future earnings => dividends => share price might be as much as 8% lower, then that extraordinary, unmissable high yield gets reduced to the long-term average. If you, for some inexplicable reason, think that it's possible that share prices might fall even more than 8% over the next month, then that guaranteed dividend isn't high enough to support even the current price.

The rub

Other recent commentaries have similar speculations, which all boil down to a belief that the market has reached a bottom because the Div or P/E ratios have fallen to some particular benchmark. But the rub is: that's assuming there are future earnings. In a recession, no-one can guarantee profitability, nor easily predict when profitability will return (or indeed whether the business will have the cash to survive losses for as long as it takes). No profits means no dividends means no bottom to the share price above 1¢.

Volatility

In practice, no-one has a clue what the future dividend stream for individual shares is likely to be, and hence any share price, "high" or "low" is a punt. In these circumstances it is not at all surprising that share prices have been volatile: on one recent day, the Dow moved by 10% in a few hours (from 3% below the opening value to close more than 7% up). Unless you're buying an index fund, you have to buy individual shares, and these have been even more volatile.

The unrefusable offer of 15¢ on the dollar suddenly looks all-too-possible to miss.

Disclosure: the Roffey family don't own any shares at all except those vicariously owned through the UK pension schemes of PA Consulting Group and the London Borough of Haringey.

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Bailouts

This video is hilarious and a must see for everyone.

http://www.theospark.net/2008/12/fred-thompson-explains-bailouts.html 

The big I will come roaring back

Michael Samuelson: "Sorry Paul, you won't be seeing inflation for quite some time."

I didn't write we'll see it next week. Make no mistake it will be with us in the coming years. That I'll guarantee.

Shares

Well, I read that Berkshire Hathaway is a buy if it sinks to $85000, Paul Morrella!

Yes, the case for gold at least is strong:  platinum is not, eg.   It concerns me that everyone and their family dogs are buying gold:  it has a whiff of bubble to me.  However, regrettably this would not be the first time that I am wrong.

Inflation is a person's worst economic enemy

F Kendall: "You seem, in suggesting buying precious metals, to be supporting the views of such as Peter Schiff, Gerald Celente and Mark Faber...(the latter who would suggest that you also buy arable land)."

Precious metal is the choice for quick liquidity reasons.

Now, the inflation concept concerns me, because presumably if I were  buying stuff, eg a house, the price could inflate away from me....But hey!  Isn't the cost of houses going to drop by up to 40%?   Now, how does that work?

Returns on investments are minus inflation. It's theoretical to double your cash sum and still suffer a loss. Zimbabwean land may have gone from say 100 000 thousand to a billion Zimbabwean dollars. Anyone hear the celebration in the streets?

Knowing the boom-bust cycle is being one step ahead of it. It's not difficult to work out where we're currently headed.

In any case, it seems to me that very carefully chosen shares would be as good a place to park money as precious metals.  Why not?

Liquidity and the hedge against inflation are precious metals advantage. It's also a basic inflation play. That doesn't mean that it suits everybody. And it of course doesn't mean that a company or any other investment, can't supply superior returns. If you find one down the track, I hope you share the secret with me.

BTW have you ever noticed how reluctant governments are to index taxation? 

Inflation tax is a government's greatest smoke and mirrors trick - and the most devious trick played on the poor. Actually, you now have the chance to watch it first hand. 

Such are the things a "real" business journalist would be writing about.

A rush to invest at zero interest

"That sucking sound is all the world's capital going into the U.S. Treasury market"

http://www.nytimes.com/2008/12/10/business/10markets.html?_r=1&th&emc=th

"Rather than inflation, which was a worry for some a few months ago, many are now worried about deflation."

I feel absolutely confident that one of these views may be correct.

Paul Morrella

You seem, in suggesting buying precious metals, to be supporting the views of such as Peter Schiff, Gerald Celente and Mark Faber...(the latter who would suggest that you also buy arable land).

Now, the inflation concept concerns me, because presumably if I were  buying stuff, eg a house, the price could inflate away from me....But hey!  Isn't the cost of houses going to drop by up to 40%?   Now, how does that work?

In any case, it seems to me that very carefully chosen shares would be as good a place to park money as precious metals.  Why not?

Actually it's even worse, Eliot

.. the headlines tend to only tell where the index ended up, whereas the Dow has managed some days to move more than 4% several times (down, up down, up, from memory). 

OTOH, I do think that there is, in fact, a real pointer to the world on those days (such as that I was referring too) when the index wobbles around or drifts up all day and then drops sharply just before the close - it's a sign that there are no real buyers out there, just day traders who want to offload all their purchases and not hold them overnight.

It's analogous to the phenomenon I've remarked on before in which the headlines fail to distinguish between oil price movements in the middle and at the end of the contract dealing period, where the buyers at the end are mostly actually going to take delivery of the real oil.  But then they don't even distinguish when the contract date passes, and just compare the (essentially real) price for the old contract with the (essentially speculative) price for the new contract which has a month to run.

A world of blank pages

Ernest William: "So the Rudd government, already faced with a stalled economy due to the 10 interest rises, were caught up in the looming finanacial melt-down."

Sure.

So why were they pretending to fight "inflation". That was what the budget was all about, no? You know, curbing spending.

If they would've read my posts at the time, and acted on the posts - it may well have saved them from the present embarrassment. The posts in which I said the surplus was a monetary mirage (it didn't really exist). And that across the board tax cuts (much larger tax cuts) should be made. Though, it seems, fighting the scourge of fizzy pop took on a singular impotence.

So it is reasonable to say that the beginnning of the actions needed in Australia's economy, including the budget and any mini budgets thereafter were due to the Lehrman Brothers initial event.

Sure.

Though, they didn't act on it, did they?

Basically what they're doing now is economic suicide. It won't work, and it'll make things much worse. I could go into a whole lot of reasons why; though, not being political, they wouldn't interest you. So I won't.

What I will write is that there is a saving political grace for this incompetent bunch of yahoos. It appears their apparent opposition is even dumber (hopefully this race to the bottom continues). That this latest sham spending scheme, wasn't blown out of the water in ten minutes, in fact not even to date, tells one all one really needs to know.

In ancient times, courts would employ the mentally retarded for their daily entertainment. We of course are now thankfully in more sophisticated and understanding times. Such court jesters now find themselves in a political party (maybe as head of a government even) or in "business" journalism.

PS with your free shit buy precious metals. The latest round of government stupidity, of which Australia has become a major player, will result in the budget boogieman (the ghost of Christmas past): inflation. This time for "real" and it'll be unstoppable for a decent period of time.

Think of it as a Christmas gift.

Inflation???

Sorry Paul, you won't be seeing inflation for quite some time. The world ecconomies are quite clearly in a period of deflation that just may well be around for quite some time to come. Banks in Australia are about to feel the crunch when negative equity in housing bites, further writing down their balance sheets and increasing their liabilities. They too will stop lending. On the plus side, they will then hold the reserves that perhaps they should have always held, helping to eliminate the old fractional reserve system, thus over a period of time (maybe many years) restoring liquidity to the whole system.

Deflation, in itself, is not completely a bad thing. Times will be tough, and get a lot tougher, but inbalances in the system caused by quasi regulation will be corrected. It is also not a bad thing to retrain society to save then buy, not buy then pay.

Investment

Forty years ago I was used to seeing the shrivelled impoverished figure of Ethel Forrest walking around town in her tattered clothes and her awkward gait to cope with the flapping soles of her shoes. When she died – alerted by the stink of her starved, dead dogs chained to the bottom of her staircase – and faced with the huge task of clearing out her hoardings, volunteers and others tossed her huge pile of newspapers down the staircase. Which dislodged the banknotes she had hidden in their sheets. The millions? disclosed became the basis for the Ethel Forrest Centre, an appraising and old age facility: interestingly, a joint venture of the catholic and protestant churches.

Most of us these days don't see the hoarding of money in old newspapers as a good investment strategy. One is left with trying to appraise whether or not ANZ, 15% dividend or not, is a viable business.

It seems a rash call to suggest that the banks, necessary as they are, and protected as they are, and voracious and imperious as they are, won't continue to make profits. And, even, to grow.

A rational discussion?

Ernest, can I suggest that you don't waste your time here in trying to have a rational discussion with Alan Curran?

Perhaps in his real - as opposed to Webdiary - existence, Alan is a fair-minded, intelligent, decent person, not only aware of, but valuing the diversity of people  in his society, and their contributions; and possibly even having some interest in the well-being of the society that his children/grandchildren will be members of.

Like the rest of us, Alan could not function without the garbageman, or the plumber, or a number of other people towards whom he may well express contempt.  His way of life is dependent on the societal web that, at present, his apparent hubris as displayed here, is intent upon destroying.

Back to now

I'm intrigued that, apart from gloating stories about such as Eddie Groves going from $117 million to $900000+ (whose ownership he is evidently disputing with his wife), there are precious few front line stories about the situation. News is oblique.

So, such as the SMH report that inner-city Sydney rents are falling, because of job losses in the "finance industry" et al. No obvious report on the extent of the job losses - which presumably must be quite large to cause an observable fall in rents: just on the consequences of it.

And what will the consequences of that fall be on the many already negatively geared investors?

One of the usual commentators said this week that, for the Reserve to have reduced rates in the extraordinary way that they have in the last 3 months, the situation must be far worse than we know. I suggest that that is correct.

Less subtle maybe

F Kendall: "As for Bush-Obama policies being similar, I certainly agree. The upside of Obama/Rudd election is that, in their disappointment, people will stop looking for hope/change/actions benefiting the community from politicians. People will at last start to grow up and take responsibility themselves, and remove power from politicians".

That would definitely be the most desirable outcome. Such a thing eventuating because of a few personalities I'd find debatable. I think it would be more to do with an overall trend.

We indeed do agree.

But, you now seem to be agreeing with me that the powerful will get more powerful, irrespective of the strength or viability of their businesses. Quite a different kettle of fish.

No, the truly powerful have strong businesses. They've always had strong businesses. Really, they do still exist.

Truth is, they can do anything, and at present the taxpayer is compelled to pay up to support their sumptuous lifestyles. That's power, and they know it.

The taxpayer is paying for failures. Paying for failures on the false assumption they'll become winners. The "powerful" you speak of don't need that money, they've never asked for that money, they'll end up with that money.

The reasons for such a thing taking place are down to "true" leadership and systemic problems.

You seem to suggest that this is a good thing, and that it will continue. Am I misunderstanding you?

I've suggested that control (of things) must be somewhere. If "one" doesn't want it, "another" will. In an imperfect world, earning that right, is as good a way as any.

If such results lead to people being more aware of their personal responsibilities (even because forced), that's an acceptable result. That's the progression of the human species.

PS democracy throughout history has been around for very short periods of time. The type of democrocy we currently understand even less - a minor speck at best - there certainly isn't any reason to think it'll leave a lasting impression.

PSS I'm not an authoritarian person; in fact, I believe strongly in freedom (all freedom is personal). My own experience is that people don't seem to handle "freedom" all that well - they don't even like it very much. That doesn't mean it can never work, and it doesn't mean it's not something we should all aim toward.

PSSS without true personal freedom (and the responsibility that comes with it) can we ever have true freedom as a society.

Subtlety

Paul Morrella, as usual, I find your comments a little too subtle for me to understand.

As for Bush-Obama policies being similar, I certainly agree.  The upside of Obama/Rudd election is that, in their disappointment,  people will stop looking for hope/change/actions benefiting the community  from politicians.  People will at last start to grow up and take responsibility themselves, and remove power from politicians.

Your original comment was that "the strong will become stronger and the rest will fall by the wayside."

But, you now seem to be agreeing with me that the powerful will get more powerful, irrespective of the strength or viability of their businesses.  Quite a different kettle of fish.

"Boneheads and clowns".  It is so easy to see these fatuous robber barons as stupid. See my post above, where earlier this year Lehman was buying up its own stock at $49,60  - present price 4c;  and Merrill Lynch was buying its stock at $88, present price $11.40, which suggests just what kind of an understanding they had of their own business, of the economy/world economy, of their own products and their inherent  risks. 

Truth is, they can do anything, and at present the taxpayer is compelled to pay up to support their sumptuous lifestyles.  That's power, and they know it.

You seem to suggest that this is a good thing, and that it will continue.  Am I misunderstanding you?

Life is what you make it

Alga Kavanagh, the term "elitist" and the term "ideologist" has a strange habit of only being placed upon people you disagree with. Really a bit like calling a person a dickhead, a mere term, and nothing more. If it has any meaning you've never explained it. Which probably means it doesn't. You might think it just sounds smart. It by the way doesn't do that either.

The supposed “belly aching” mob you so surely disparage, will take matters into their own hands and cut corporate entities out of their lives as much as they can. You don't need violence to beat self centred idiots, just ignore and cut them out fo your life, then they go broke. Much more satisfying to see their kingdoms collapse.

They should really take matters into their own hands and attempt to improve themselves. I certainly would. The world is certainly not going to change for an individual. If things aren't exactly working out, it's a good sign improvement should be a consideration. Of course there's always a chump revolutionary (always hiding behind a fence)  to ease one's apparent pain. Naturally a ready made excuse for every occasion.

You need to get out in the world and live a bit, but you probably couldn't handle reality.

In my "reality" only cowards give up. Cowards and nickel and dime excuse makers wouldn't know anything about reality. They long ceased even considering such "uncomfortable" thoughts.

Most Pensioners I know have very sensible things in mind with the Rudd bribe and it doesn't include big business, who they despise.

Sure, using money wisely is a good thing. It's also an individual choice. Why would I have a problem with people helping toward their economic freedom? 

If asked I'd most certainly encourage a course of action toward economic prosperity. If people need personal economic hit lists for success, I certainly say more power to them.

Just another lecture

Paul Morrella: "Life is what you make it."

With respect (if deserved), that is a typical capitalist statement of the broad brush to eliminate any of the middle to lower class who may be happy with their lot or who may wish to share in the wealth of the nation.

Because they certainly suffer the most in times of war or recession.

But, with hubris, this person tells us that "life is what you make it".  No ifs or buts.  No qualifications allowed. Makes you wonder where he went to school or better still, where or IF he went to church.

I wonder why the holocaust happened?  Or the millions of dead in the World wars. Or the hundreds of thousands or Iraqis murdered by Saddam and the US led illegal invasion and after. Were those people allowed a "life that is what they made it?"

It is such a cop out cliche which is used mainly by those who have no consideration of people's lives and the societies in which they were born.

Like Malcolm Turnbull, who claimed he knew what it was like to go without when he had to wait until he was six years old to go to a private school.  Surely it was his father who went without? As many parents do.

There is something in the American elite which says that there is old money and new money.  I believe that it refers to the families who have been wealthy for perhaps for many scores of years and passed it on - as opposed to the ones who seized the opportunity to make money during wars and other times of exploitation.

I would imagine the former would have a dignity which honours the principle of noblese oblige. David Jones, Mark Foys, Grace Bros, Marcus Clarke to mention a few that exist or existed in Sydney. 

The latter would then be the beneficiaries of sweat shops, doubtful business practices and generally using the gullibility of those who didn't make their life better.

I could never come to terms with the claim that some are born to rule when it is used to excuse dishonesty, criminal activity, brutality and the like when, in fact, it comes with wealth. Irrespective of where it came from.

Whether we like it or not, we have classes too. Mainly those considered as the upper, middle and lower.

It has always been my belief, since leaving the Navy, that the gap between the major party's principles, and equally the wealth of our citizens, has been increased since WW 2 and especially by Menzies and Howard.

Conversely, it seems obvious that the Rudd Labor government is trying to more evenly spread the wealth of our nation on the basis, as I have said, that in good times all should benefit as indeed we should equally feel the pain in hard times.

As my father told us, a penny to a pauper is as much as a pound to the wealthy.  And surely the pain of bad times must be similar.

NE OUBLIE.

Lecture indeed

Ern: "Like Malcolm Turnbull, who claimed he knew what it was like to go without when he had to wait until he was six years old to go to a private school."

A bit like the Rudd kids struggling on the $millions Therese Rein and Kevin has managed to put aside. It really is sad when you see the lower classes like the Rudds suffering.

As for the Rudd government trying to more evenly spread the wealth, that is a figment of your imagination.

The gap between the classes is going to get even wider under Labor, always has and always will be.

So said Menzies

Alan, it went something like this: "We obviously cannot agree on this matter so, as reasonable men, let us discuss something we can agree on."

Wisdom from the benevolent dictator who was, after all, a Churchillian orator.

So, my friend, let us engage on the reason for, composition of, obligations attached to, and the voting intention of, the Australian Senate - a House of Review [not to be confused with a house of opposition].

From the Constitution:

7. The Senate shall be composed of senators for each State, directly chosen by the people of the State, voting, until the Parliament otherwise provides, as one electorate.

Contrary to the party politics of our contemporary Senate, this means to me that the originators of the Constitution were concerned at the possibility of the larger States overriding the smaller - by their Federal electorate numbers.

This also seems reasonable since the Senators are elected to a contract by the people of their respective States, and their duty is to protect the interests of that State to which they have been sworn. Surely that contradicts the lapse into party politics?

So, how come people like Barnaby Joyce (Q) and F.F. Fielding (Tas) can control a vote which may have nothing to do with their constituents but may which could adversely affect the entire nation? If it does not disadvantage their voters then they should abstain, shouldn't they?

But until the Parliament of the Commonwealth otherwise provides, the Parliament of the State of Queensland, if that State be an Original State, may make laws dividing the State into divisions and determining the number of senators to be chosen for each division, and in the absence of such provision the State shall be one electorate.

Interesting, but Malcolm B. Duncan may be able to explain that.

Until the Parliament otherwise provides there shall be six senators for each Original State. The Parliament may make laws increasing or diminishing the number of senators for each State, but so that equal representation of the several Original States shall be maintained and that no Original State shall have less than six senators. The senators shall be chosen for a term of six years, and the names of the senators chosen for each State shall be certified by the Governor to the Governor-General.

Clearly a State authority being authorised by the G-G? But doesn't that mean an acceptance into the overall authority of the Senate as individuals from individual States?

Again it appears to me that the intention is to have nothing to do with party politics but rather the Constitutional rights of the Senators to protect the interests of their State constituents by voting accordingly.

Perhaps, Alan, the Senate was intended to be like ancient Senates where it was supposed that each Senator was a noble individual independently selected by the plebes of that specific area.

I have noticed that some governments of Australia, bound by party rules, have abused the Senate process by enforcing their particular party politics on their States regardless of the effect on the citizens thereof.

I digress a little, Alan, with the example of the media loving Barnaby Joyce who was elected on the promise that he would protect his State from the sale of Telstra - and voted with his party to the contrary.

And juxtapose that with what I consider a truly independent attitude of Senator Xenophon from South Oz. (I wish his name was Smith).

Some administrations may excuse Senator Joyce's breach of faith to be "for the better good", but under our Constitution it would be diametrically opposed to the intention of the accepted model we now have?

Could Malcolm B. Duncan give his interpretation of that part of the Constitution and how it can be changed “if the Parliament otherwise provides”?

So said

Ernest William, of course if Labor had control of the Senate you would not be commenting on the matter.

Then this: "Again it appears to me that the intention is to have nothing to do with party politics but rather the Constitutional rights of the Senators to protect the interests of their State constituents by voting accordingly."

Tell me, Ern, when was the last time a Labor Senator crossed the floor?

Can you imagine what it would be like if the Senate was a rubber stamp for the Rudd mob?

The Senate

G'day Alan. The only times that I can remember in recent times, where one of the major parties was in complete control of both the lower and upper houses of Parliament, was during the Fraser era (and he did not abuse that power) and that of Howard, who said he wouldn't, but did.

This in no way abrogates my queries as to the constitutional validity of the senators who usually vote in accordance with the attitude of their political parties. (Albeit, lately we have an unusual rebellion in the ranks of the Coalition).

I quote the Constitution again: "The Senate shall be composed of senators for each State, directly chosen by the people of the State, voting, until the Parliament otherwise provides, as one electorate."

Does that mean as "one electorate" ie, Queensland or NSW?

Or does it mean that the senators, elected solely by the people of their state, should vote as a composite of the six so elected, irrespective of any party affiliation?

Or does it mean, as I assume, that they should only be concerned with issues that are particularly of concern to their state [albeit with others too], and irrespective of their federal affiliation? In fact, should they have a federal party involvement?

Should senators be independent in their applications for election? And should they be bound by the promises they have given to the people they seek to represent in a house of review?

IMHO I think the whole issue of the Senate and its powers should be re-evaluated and, if necessary, there should be a referendum to manage the political bias that, contemporarily, negates or hinders the democratically federally elected government of the nation.

Some suggest a double dissolution - or pouring more money into one or more of the states. Surely that only exacerbates the situation?

IMHO the Senate is too often a legislation bottleneck and should be resolved to allow the federally elected House of Representatives to function according to their election obligations, with due respect to legal appeals available to the Senate.

By the way, Alan, my wife and I have just bought a new washing machine, are considering an expensive carpet shampooer and will give Rosie's mother a wonderful Christmas.

Forget who is in government and get behind the world's desperate attempt to resolve a disaster caused by unregulated capitalism of the US.

Cheers Ern G.

Falling for the con

Ern, so you have fallen for the Rudd con and have gone out and spent his handout. I hope you bought a locally made washing machine and shampooer.

It would have been better to support your local businessman: take your washing to the laundromat and the local carpet cleaner in.

Nah, wait for Rudd's next $5 billion handout.

We need someone to help us

G'day Alan, I notice, old sparring partner, that no one seems interested in considering the most disorganised and unworkable part of the Constitution (the Senate) which apparently the founding fathers tried to make a water-proof protection for the States.

I would like Fiona, Richard, David, Dylan, Malcolm or someone with the expertise to open a thread simply on the malfunctioning of our Senate.

Why not?

The Liberal Party talks about changing the Federation because it doesn't work (Tony Abbot) but in my opinion, it doesn't work because of the party politics. Paul Keating calls them "swill". I have no hang-up with the current Liberal appointed President of the Senate because I believe that he is giving strictly constitutional decisions to most if not all of the matters of discontent. But that's just not good enough.

A decent Australian, Tasmanian Senator Harradine, had his vote bought by the incumbent Federal Government by offering special consideration to his State. He must have felt that he had done his duty to his constitutents.

Surely that is unacceptable?

Meg Lees was allowed, in my opinion, to spite the Democratic party for not keeping her as leader, by voting in the GST - and against her party's stand.

That more than anything, destroyed Don Chipp party, with its original policy of keeping the bastards honest. A tragedy for the different opinions surely necessary in a democratic national government.

I have been opposed to the headline seeking Barnaby Joyce since he was voted into Parliament on his lie that he would oppose the sale of Telstra. Some would ask why do I care, I'm not a bushie, but it is this sort of thinking that diminishes our unity - the them and us mentality.

Just imagine: That the reason for the State elected and State funded Senators voted according to the interests of their State per se (according to their Constitutional duty). And were not obliged to any larger Coalition partner whose assistance gave them a say in the House of Representatives. Which would be a bought situation which contradicts the purpose of the Senate itself.

Just imagine: That the Senators of each State were appointed by the popularly elected State Government by State voters. Who could then have their personal say in the House of Review, which is the ultimate exposure of the legislation? A confusing and expensive vote for Senators would not be necessary or consistent with the will of those people.

This would surely mean that if the major players in the larger States had elected a House of Representatives with a clear leaning to a future which did not favour their particular State, wouldn't Tasmania and the Northern Territory have at least an opportunity to force consideration of their States' problems? Wouldn't this also mean that the Senate oversees the sometimes number bias of the House of Representatives?

IMHO this would give the Senate a truly State voting involvement in a review for which I believe the Senate was intended.

To encapsulate, what is the real purpose of having a State elected State funded Senate representatives if they are committed to the Party of the Federal Government who they are constitutionally obliged to review?

Shall we employ the Mafia to investigate themselves? Nasty hey?

If it only works when the same party contols both houses, what is the point?

If we are independent thinkers, as Webdiary encourages us to be, why can't we at least push for a resolution of this abuse of the Constitution?

Come on Alan, if you really care about the balance of democratic power in our country, you will at least contribute to tell me I am stupid.

Pointless blaming the messenger

F Kendall: "That's a long way from "economic Darwinism"....in fact, it almost looks like "economic cronyism".   I look forward to your prophecies being realised."

Call it whatever pleases you. What you are witnessing is the greatest transfer of public money into private hands in history. The money will never be returned and the power structure will for at least our lifetimes be changed. And it all happened with democratic and public blessing. I see little point in arguing the merits of either Bush or Obama (or any other "national" leader) - all have the same policy. That meaningless argument is for the dupes (majority of voters) paying, whilst collecting their pieces of silver along the way.

My original forecast still stands.

Brats

Your response was very interesting, Alga Kavanagh, because in Paul Morrella's  comments  re no-talent, entitled brats, I had assumed that he was talking about GWBush and his cohorts.

Does the class of people of whom you speak:  hard working, ethical, family-(rather than consumer) -oriented, modest, pragmatic, decent, self-supporting, even still exist in the USA? 

Norman Rockwell eat your heart out.  They live and breathe here, and exhale decency over the whole society.

Disparaging economic elistists

“We live in a world where the "average" person takes for granted their worth. A world that has taught people to complain, demand, and cajole, and ye shall receive. A myth of course, yet that's what present day democracy is based upon.

Threats or actually resorting to violence can only be expected from the brat - or at least when the brat no longer gets its way. The brat has always, and will always, blame all bar itself. The brats thirst for "deserved" things can never be quenched or satisfied. Everything ever received becomes a natural right, and all that's not received becomes a natural right withheld. We live in a world of brats. They're everywhere."

 

How condescending and elitist you appear to be Paul Morella, you must have a very limited experience of life and people. Average people don't take for granted their worth, elitists do and they are wrong. Revolution doesn't always encompass violence, elitists are the ones who use psychological, economic, sociological violence and suppression against all they class as below them, until they are rebelled against.

 

When referring to brats, it appears you are referring to all those below your economic or perceived social standing, quite pathetic really and demonstrates why history shows us people do rebel when the elitists are repressing them and feathering their own nests at everyone's expense. However the real brats are those who perceive themselves as more privileged and deserving of a bigger slice of the economic pie, even though they are the cause of the problems. It's the peoples money and work which is propping up your ideological outlook and ilk. The supposed “belly aching” mob you so surely disparage, will take matters into their own hands and cut corporate entities out of their lives as much as they can. You don't need violence to beat self centred idiots, just ignore and cut them out fo your life, then they go broke. Much more satisfying to see their kingdoms collapse.

 

I notice a few elitists bleating about their failing businesses, Gerry Harvey comes to mind, he's moaning people aren't spending their money in his businesses, sounds good to me. Most Pensioners I know have very sensible things in mind with the Rudd bribe and it doesn't include big business, who they despise. You need to get out in the world and live a bit, but you probably couldn't handle reality.

economic Darwinism

Perhaps your prophecies are correct, Paul Morrella.

However, what we can observe at present is that powerful companies that fail are being propped up and financed by governments, that is, taxpayers. 

That's a long way from "economic Darwinism"....in fact, it almost looks like "economic cronyism".   I look forward to your prophecies being realised.

If the revolution came more than half would sleep in

Alga Kavanagh: "I believe the average person world wide is thoroughly sick of just a small number of people getting the majority of the benefits of industry and commerce, whilst the rest slave and grovel for just a few crumbs. Revolution always comes when the rich are getting richer and the poor are getting poorer, It's common sense and in this day and age, the elitists of the world no longer hold the reins of knowledge and understanding of economics."

We live in a world where the "average" person takes for granted their worth. A world that has taught people to complain, demand, and cajole, and ye shall receive. A myth of course, yet that's what present day democracy is based upon.

Threats or actually resorting to violence can only be expected from the brat - or at least when the brat no longer gets its way. The brat has always, and will always, blame all bar itself. The brats thirst for "deserved" things can never be quenched or satisfied. Everything ever received becomes a natural right, and all that's not received becomes a natural right withheld. We live in a world of brats. They're everywhere.

Where I live is very conservative for a rural area and until the last couple of years, any talk against the ruling class was met with derision. Now all the talk in every club, pub and social gathering is about the greed of the ruling class.

In between the belly aching, these people should take notice of those serving the drinks. Maybe it's a guy working a second or third job. Maybe a lady using the job to pay for education etc. Perhaps they're staring right at the future shadowy elitists?

People get back from life that which they put into it. Unless sitting around belly aching is a paid occupation, these people probably have the wrong game plan (and not a bad life for people so down on their luck). Although, there's no doubt many politicians that are willing to tell them differently. Tell them exactly what they wish to hear. At a cost mind you - everything costs.

Corporate greed

“In the next few years we'll see a mass of consolidation. A sort of economic Darwinism. The strong will become stronger and the rest will fall by the wayside (for better or worse). I believe we are entering, for the first time, an age were individual companies, indeed some individuals, will become more powerful than most (if not all) nation states. Given most of the boneheads involved with public institutions, and the clowns looking to be involved, the world will probably be better for it.

Something valuable might at least be achieved.”

I fail to agree with this statement, as a look at history will show attempts to monopolise the economies and resources of the world have all led to the same outcome, collapse and revolution. I believe the average person world wide is thoroughly sick of just a small number of people getting the majority of the benefits of industry and commerce, whilst the rest slave and grovel for just a few crumbs. Revolution always comes when the rich are getting richer and the poor are getting poorer, It's common sense and in this day and age, the elitists of the world no longer hold the reins of knowledge and understanding of economics. But then again, I would also say those who advocate this continuing slide into chaos in the hope they will reap more benefits to the detriment of the whole probably never get to talk to real people so don't have a clue.

Where I live is very conservative for a rural area and until the last couple of years, any talk against the ruling class was met with derision. Now all the talk in every club, pub and social gathering is about the greed of the ruling class. Along with that is developing a lot of hate for these types, as people see how they are being squeezed whilst the elite just continue to increase their profits and incomes, whilst denying most of their workers a decent and liveable income. When you consider the average wage is about $1000 a week, yet about 70 percent earn less than $35000 and about 50 percent of those earn less than $25000, you can understand why people feel the way they do towards elitists lies deception and greedy incompetence.

There will only be value in the future when there is more equality and a sane approach to the future. Currently I doubt there is one CEO who has the brains to do anything but greedily grab for more and stuff the outcomes. During the time I owned and ran my own hotels, my wage was the same as my managers, yet I worked twice as long as them and had responsibility for four businesses. I couldn't face my workers if I was greedily filling my pockets, and not looking after them properly. But then again, I care about people and don't just see them as a means to satisfy my greed and obsessiveness with more and more for less input.

My prediction is, we will see more and more companies collapsing until the biggest fall over because they can't sustain the macabre insanity of constant profit growth by rationalisation and downsizing of work forces and real talent. What these elitists fool fail to realise is, they need people to satisfy their greed and people are realising how deeply deceived they are by politicians and bug business, so they will rebel in many ways. We are seeing that in more and more shoddy goods, failure of companies to take responsibility for what they produce and the simple fact, we no longer have viable industrial production in this country, so rely upon imports. These imports as extremely inferior to what was produced locally and as prices rise so as to satisfy corporate greed, as we see now, people will stop buying and down will go the elite. Bring it on I say, we need a bit of fresh air in the world and less morons.

Economic fallout

David Roffey: "USA now officially declared to  have been in recession for the last year. Hmm, doesn't that go back to when Eliot and Paul M were telling us how strong the US economy was?

The USA will lead the world into recession, and it'll eventually lead it out. I've no idea what context my supposed quote about "strength" was written.

Personally I've been happy with this year - actually been highly successful - all things considered. So my forecasts couldn't be too bad.

In the next few years we'll see a mass of consolidation. A sort of economic Darwinism. The strong will become stronger and the rest will fall by the wayside (for better or worse). I believe we are entering, for the first time, an age were individual companies, indeed some individuals, will become more powerful than most (if not all) nation states. Given most of the boneheads involved with public institutions, and the clowns looking to be involved, the world will probably be better for it.

Something valuable might at least be achieved.

Ask and you shall receive

Roger Fedyk: "When a corporate captain works for under $100,000 a year I will agree with you".

The world's richest man, and CEO of the world's largest investment company, Warren Buffet, earns 100k salary. He also lives in his first home, worth a staggering 1 million dollars.

So there you go.

Omaha

Paul Morrella: "He also lives in his first home, worth a staggering 1 million dollars."

Mind you, it would be worth four times that much if it was in, I dunno, Parramatta? Or Haberfield?

Dead cat?

So, we're back into the "200pt fall in the last hour" syndrome again, with Dow down 7% overnight, 2.5% of that in the last few minutes, and Friday/Monday's rally probably exposed for what it was ...

USA now officially declared to  have been in recession for the last year. Hmm, doesn't that go back to when Eliot and Paul M were telling us how strong the US economy was?

In addition, Paul Morella

In addition, Paul Morella wrote this:

Mark Sergeant: "If, as you no doubt claim, you think that Rudd is responsible for the economic downturn, can you explain how it inspired sub-prime, Lehman Brothers and global economic meltdown?"

Lehman Brothers isn't responsible for the Australian budget, the Australian Government is."   (A half-truth at best)

However, the financial experts on the Insiders/Business program with Alan Kohler in fact gave the full version of the Lehrman Brothers collapse.

They made it perfectly clear Lehrman Brothers could have been saved from collapse but, they allowed the dominos to begin falling, firstly in the U.S. - then throughout the industrialised world - including Australia.

So the Rudd government, already faced with a stalled economy due to the 10 interest rises, were caught up in the looming finanacial melt-down.

So it is reasonable to say that the beginnning of the actions needed in Australia's economy, including the budget and any mini budgets thereafter were due to the Lehrman Brothers initial event.

Perhaps Paul shouldn't be so dismissive of other people's correct posts.

NE OUBLIE.

Trends

David Roffey: "So, we're back into the "200pt fall in the last hour" syndrome again, with Dow down 7% overnight, 2.5% of that in the last few minutes, and Friday/Monday's rally probably exposed for what it was ..."

Trying to read an economy on the basis of overnight trade in shares is not a very sound approach.

For example, while overnight the Hang Seng fell nearly 700 points, on Wall Street on the other hand "In mid-afternoon trade, the Dow Jones industrial average had risen 54.80, or 0.67 per cent, to 8,203.89 points."

The Chinese markets are now at half the value they were a year ago.

Ignoring the evidence

David Roffey: "Hmm, doesn't that go back to when Eliot and Paul M were telling us how strong the US economy was?"

You probably haven't noticed that all the leading stock markets of the world have been volatile right along with Wall Street.

This is because the American economy is far and away the most powerful economy in the world. It's about five times as big as the Chinese economy:

CHINA'S economic challenges are now so serious that they are a test of the Communist Party's ability to govern, says President Hu Jintao....

It's the very strength of the US economy that is causing the financial crisis to be 'global', and not local.

It wasn't that long ago, of course, the "pundits" were saying that wouldn't happen any more:

The possibility of Chinese commodities demand shielding Australia from a US-spurred global slowdown means the old truism about the world catching a cold when the US economy sneezes has to be revised, Pervan says. "Now it's when the US gets a cold, we sneeze.

You'd have to laugh now at the stupidity of anyone who thought that, wouldn't you?

Oh, wait? Didn't the Prime Minister say something like that?

Capitalist affection

My wife has IAG shares and, while the market value is $3-50 per share - Rosie has been offered $1-60 per.

The most important issue here is that to me, since modern business is based on deception, why did the offer come from a company who even gave the factual value of the shares that they wanted to purchase?

If this is due to regulation - thank heavens for regulation.

Our shares in an oil company have halved but, we have had some very good returns and, since it is a gamble that we can afford - we have no complaints.

I think that greed is not only the principle of the Wall Street barons.

Wake up Australia - get behind the current government because, if the destructive attitude of the opposition gains traction, where are we?

NE OUBLIE.  [And think.]

Can't agree less

Hi EW, on this, I can't agree "I think that greed is not only the principle of the Wall Street barons".

It is the only motivating principle. It has many euphemisms, including the one used to justify superannuation funds. But it is just plain greed.

When a corporate captain works for under $100,000 a year I will agree with you.

Can't agree

Roger Fedyk, why would any corporate captain work for less than $100,000 a year if he could command that sort of money or even more?

If he is running a successful company which employs hundreds of people, he deserves it.

After all, he does have more skills than, say, a bus conductor or builder's labourer.

I wouldn't be too sure about that

"After all, he does have more skills than, say, a bus conductor or builder's labourer."

Really  Alan? Tell me how a labourer could have made a bigger balls-up of AIG, HIH, Lehmann and a host of other major corporations that have, or should have, gone to the wall.

Truth In Advertising

EW, I do indeed believe the relevant authorities determined that they couldn't outlaw offers to pay half price for your shares, so they created a requirement to concurrently advertise the true value of the shares. Probably only appreciated directly by those who would have smelled a rat anyway, but perhaps the odd confused and bewlildered recipient might show the offer to someone who could set them straight. 

In good hands

I read - and maybe you did too, if you read newspapers - that earlier this year Lehman's spent $761 million buying its own stock, at an average price of $49.60. Current price is around 4 cents.

And, in 2007 Merril Lynch spent $5.27 billion buying its own stock, at an average price of $84.88.  Current price is around $11.40.

They obviously really had their assorted sticky fingers on the pulse. 

Who was that masked man?

We heard today how Kevin Rudd dropped in on a provider of basic services to the poor in Lima. He promised $45k to buy an Xray machine.

The Australian government is re-opening an embassy in Lima, apparently to service the needs of national icons that wish to get at Peru's deposits of silver, zinc and copper.

Australia's corporate philanthropists are a shy lot, preferring to hide their good works under a bushel, so to speak. One wonders if investors would ever be attracted to a company that ran the "Conzinc Clinics" or the "BHP primary schools" in Peru and whether any of the PM's advisors have joined the dots with silver bullet points.

Ah, the three virtues. The greatest of these is Hope, eh, Kevin?

Exchange rates

Trevor Kerr: "He promised $45k to buy an Xray machine."

Pisses all over the $1 billion we gave to the Tsunami victims, doesn't it?

Buy now, tomorrow it will be cheaper

It looks like Rupert Murdoch was correct about the price of oil. It's heading down, but if it gets to $20 the corporate world will be in turmoil. There's a sense that the number of leaks in the dyke will soon exceed the fingers, thumbs and toes available. If another retailer cracks it like Gerry Harvey did, consumers may get the idea that panic has set in at the top, that a glut of homewares, etc, will break through the dam and flood the market, so the idea will dawn that we should hold off on that new refrigerator for another week, because the prices can only keep getting lower. Consumers hanging onto their disposable cash, no wonder Gerry is concerned.

The rash of enthusiasm for the Rudd government in the main opinion pages of today's The Australian reads like a balm of confidence, designed to shore up consumer doubts.  This tactic seems to be informed by the historical fact that worried citizens hang onto their dollars. The subliminal message from that newspaper seems to be "go on, it's ok, get out and spend up big for Xmas, because, you know, poor retail figures could send the financial system into a tail spin; therefore, if you punters do not spend, it will be your fault if there is a recession". 

Corporations have enormous advertising budgets, so it's weird to watch media outlets come forth to do their public-spirited duty with such transparent duplicity. I guess an organisation that was flushed with it's own success at prosecuting the government's case for invading Iraq can only believe it can turn around an impending deflationary disaster. It's not just that organ,either.

The Age continues to run marketing flannel for millionaires and assorted parasites. The mother of convicted murdered Carl Williams has been found dead today. It's entirely predictable this little nugget of "news" will take up valuable front page space at The Age.  In the that paper today (Saturday) are pictorial glamour pieces for the AFL, for horse racing, house sales, Kylie, Madonna and Bernie Ecclestone. All of them can run their own spiel through their own agencies, so what part does Fairfax have in their businesses, other than fawning desperation? 

However, the piece on page three betrays the flawed and destructive philsophy underlying this corporatised approach to everything under the sun, where it's deemed to be good to be "marketable". The article in question discusses the evolving situation of the Australian National Academy of Music, which is being de-funded under the direction of Peter Garrett. It seems an offer too good to be refused has been received to take over the role of the ANAM by the University of Melbourne, where the Vice-Chancellor is Glyn Davis, a man destined for greater things under the Rudd government. The article leads in with the description of an auditioning process for a promising young cellist. As decribed, the event was nothing but a stunt designed to maximise the marketability of the glamorous young woman whose photo adorns the article. Heaven forbid that anyone should bother to present themselves to be groomed at the ANAM if they are not blessed with good looks and a trained presence for the stage. The perverse effect of a professional organisation allowing itself to be marketised, and thus made into useful currency for a newspaper that majors on the personal affairs of crime families, is right there on that page. The ANAM is about music, for crying out loud, and providing a point of access for talented musicians to the world of music performance. But not a note of music accompanies that picture of a youthful Mona Lisa. The ANAM, despite the desperation of its management, should have asked itself whether the people who would look twice at Sharon Draper, the cellist, in an off-shoulder frock, are the same people who could be persuaded to part with $100 for a concert at Southbank, or the Concert Hall or Melba Hall. 

Agonised supporters of ANAM are putting forward comparisons with NIDA and AIS. But their argument is flawed. People pay to watch a physical performance in sports, such that the people who excel are pretty good physical specimens and their looks are an inevitable part of the package and therefore of its marketability. The same goes for the dramatic arts. Performance music is akin to radio. The physical attributes and attire of the performer are relevant only to the point that they assist the musician to play a musical note or two. 

If the ANAM sought to shore up its viability with the tactic of exploiting the good looks of its clients, then it surely made a tragic error. And if The Age thought it was doing the ANAM a favour by giving it space next to Ma Williams, then Fairfax is a culpable meddler, and perhaps as desperate as the ANAM. 

One day someone will identify the points at which the inevitable slide in quality of life under raw market capitalism became obvious.  The cannibalisation of the ANAM by corporate culture will be one of them, although well down the track toward Depression. Music will survive, of course, but not before promising careers are destroyed by managerialism. 

Perhaps Rupert Murdoch spoke with Paul Morrella?

Trevor Kerr: "It looks like Rupert Murdoch was correct about the price of oil. It's heading down, but if it gets to $20 the corporate world will be in turmoil."

Remember these predictions?

"So, I predict, with caveats all over, that the headline oil price will reach US$145 a barrel or more by the end of the year. While I'm at it, I predict that the Aussie dollar will reach (at least) parity with the US dollar over that same period."

- David Roffey

Followed by this...

"The IEA has now online-released its 15 May Oil Market Report. It makes interesting reading, particularly the chapter with the title above, which appears to bear out a lot of of my reasoning (and doesn't support the more optimistic Lehman analysis released yesterday)."

- David Roffey on May 31, 2008 - 12:56pm.

Which was followed two days later by this...

"Personally, I think that by year's end, oil will have moved in the opposite direction. That's not a criticism of the article (which is well researched), simply an opinion. "

-  Paul Morrella on June 3, 2008 - 11:02am.

The price of oil

Well, Eliot, what I actually predicted was that if growth trends continued, the oil price would rise until it was high enough to stop growth, and that the price which would do that would be around $145.

What happened? The price reached $147 at the end of July, and that put enough strain on various financials that world economic growth collapsed. Given the admitted back-of-envelope nature of the predictions, I'm feeling pretty good about them.

Note also that the longer term futures contracts are still in the $80++ range, and the whole series is contango all the way through. Once the recession is over, we'll be back in the $140 range pretty quickly unless a LOT of money is spent on alternative energy sources in the recovery  phase.

Motto

Which reminds me, one of the most sensible pieces of advice I've ever read about share trading is something I came across in one of Emma Lathen's Wall Street whodunnits back in the 1960s or 1970s:

Be a bull, be a bear, but don't be a pig.

He'll be the saviour of us all

If you want an example of irrational volatility, this has to be it.

The Dow rose 500 points (6.5%) in the last hour of Friday trading because of a rumour that Timothy Geithner will be Obama's Treasury Secretary. Now I have nothing against Mr Geithner, who is certainly a better pick than the other tips (Larry Summers or Paul Volcker), but I don't think the prospect of his hand on the tiller in two months time has changed the fundamentals significantly ... 

Bear markets

For anyone thinking that the markets will bottom anytime soon, check out this graph.

Also with more bad news coming from the financials, see here and here.

While companies refuse to come clean about what they are holding off their balance sheets, the markets will refuse to reward them with value any time soon.

I'm bored with getting it right

Now where's  Geoff Pahoff when I want to rub his nose in it?

"those off-balance-sheet assets, used by U.S. banks to expand lending without tying up capital, are casting a shadow over earnings."

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