William of Ockham’s First Law of NSW Politics

All NSW political careers end suddenly with a difficult conversation at an anti-corruption hearing about property development.

Don’t blame me, I only observed the pattern;

Exhibit 1 – Eddie Obeid

Exhibit 2 – Ian McDonald

Exhibit 3 – Eric Roozendaal

Exhibit 4 – Barry O’Farrell

Exhibit 5 – Gladys Berejiklian (pending)

Exhibit 6 – Rod Staples (pending)

That’s just a small, hastily-collated sample, of course. Readers with a better grasp of history will no doubt be able to furnish us with multiple examples from all political hues, as this is a problem that crosses the ideological divide.

Bill’s Opinion

It’s not that these politicians are more or less corrupt than any other group of politicians, they aren’t particularly smarter or dumber either.

It’s just that Australia’s economy is so heavily skewed towards property as the only reliable way to make capital gains that the inevitable subset of corrupt politicians will top up their salaries almost exclusively in that sector.

Who can blame them though, when the executives managing the nation’s pension funds are shameless in their contempt for their customers by switching their own funds to avoid losses whilst letting the regular punters take the hit.

Of course, any reasonable “civilian” would look at that behaviour, conclude the deck is stacked against them ever seeing useful capital gains and that their pension fund is simply a forced deposit account. They logically conclude that the only safe place for their savings is in bricks and mortar.

Which brings us back to the incentives for politicians to take a dip; it’s not going to stop, ever.

Rinse. Repeat.

Don’t take your financial advice from Mumsnet

Jessica “big smarty pants” Irvine has written another blog post on Mumsnet again this week.

This time she’s woman-splaining to us all about three topics; how financially astute she is, how she can lose weight by the magical discovery of eating fewer calories than she burns and how she likes a good stationery order from Office Works.

No, seriously; without a hint of irony, The Sydney Morning Herald has published an article under “economics” where this type of self-indulgent guff is written:

…..I was completing my daily paper-tracking sheet for my food consumption and energy expenditure.

At the end of the day, after I’ve finished eating and calculated my daily calorie deficit, I get to enjoy the immense satisfaction of emblazoning the day’s tracker with a depressible ink stamp that says “ENTERED”.

It continues in the style of a low IQ Jordan Peterson self-help guru:

The desk contains six wooden pigeon holes that house my stamp, my highlighters, my paper receipts for the month and my three paper-based journals.

They are an appointments diary, a gratitude journal and a thoughts journal, into which I periodically spill all my deepest, darkest thoughts. Exposed to the crisp, white pages, these thoughts lose their power. Having identified the thoughts – and the resulting emotions – I journal new, more helpful thoughts to hold.

She also reminds us that she is considerably more intelligent than you and I:

I don’t know about you, but my brain definitely runs faster than my ability to write. By committing to writing things down by hand, therefore, you force your distracted monkey brain to sit.

Hands up who else suspects her lips still move when she reads, though?

The thing is, her Mumsnet post is just a rehash of this self-indulgent shite from two years ago. The only difference is the admission of a love of a tidy desk and coloured pencils.

That’s fair enough, I suppose, the SMH can publish whatever guff they want, but it does seem somewhat tin-eared to print Jessica’s verbosity about her ability to save money during a once in multiple generations recession while there are a record number of Australians registered as unemployed and many more about to join them. Saving money must seem a luxurious memory for those souls.

Not to worry though, we can amuse ourselves with the knowledge that Jessica is stuck inside a shitty two bedroom apartment that she bought at the very top of the property market and is now staring down the barrel of that most depressing of financial situations, negative equity. She hasn’t realised that, if she loses her job now, she’s homeless.

Bill’s Opinion

We’ve learned a lot of things during these months of Kung Flu. In addition to the incompetence of experts and the cowardice of politicians, we can also finally put to rest the notion that anyone employed in the media understands graphs and statistics.

That’s probably why Jessica is writing about crayons and coloured paper, like some teenage girl in a bedroom full of cuddly toys and posters of ponies.

We can’t blame Jessica for not wishing to write about economic reality though, as this updated chart is what it looks like before the government wage subsidies taper off and the unemployment figures start to more accurately reflect what’s been going on since March:

Don’t look down, Jessica.

The Dreamtime Phoney War

On the June 1st episode of the podcast, TRIGGERnometry, Peter Hitchens made an interesting observation on the the current attitude of many people in the UK (but it applies equally to any other country undergoing government Kung Flu largesse):

He describes many people as living in a happy dreamtime where most, if not all, of their wages are being paid for by government relief schemes, the weather is pleasant and the consequences of incurring the biggest peacetime national debt have not yet been felt.

His opinion is this cannot continue and, when the plug is pulled on these various furlough schemes, there will be a difficult and tragic reckoning to be had.

The likely timeline for this mean reversion differs by jurisdiction but the 3rd and 4th quarters of 2020 is generally when these government cash drops are due to either finish or begin to taper off.

I say this without any hint of glee, but there are individuals and entire industries that are going to experience the financial equivalent of cold turkey.

What’s cold turkey feel like? Let’s ask a professional:

I can’t imagine what other people think cold turkey is like. It is fucking awful. On the scale of things, it’s better than having your leg blown off in the trenches. It’s better than starving to death.

But you don’t want to go there. The whole body just sort of turns itself inside out and rejects itself for three days. You know in three days it’s going to calm down. It’s going to be the longest three days you’ve spent in your life, and you wonder why you’re doing this to yourself when you could be living a perfectly normal fucking rich rock star life.

And there you are puking and climbing walls. Why do you do that to yourself? I don’t know. I still don’t know. Your skin crawling, your guts churning, you can’t stop your limbs from jerking and moving about, and you’re throwing up and shitting at the same time, and shit’s coming out your nose and your eyes, and the first time that happens for real, that’s when a reasonable man says, “I’m hooked.” But even that doesn’t stop a reasonable man from going back on it.

Keith Richards

Bill’s Opinion

Governments and central banks are about to discover restarting an economy is a significantly different prospect to stopping one.

I have no doubt our money, our children’s money and our grandchildren’s money will be generously thrown at the problem.

Some of it may even stick.

In fact, the Australian Government is mooting plans to throw figures like $20,000 at new home builds or to renovate existing homes. Obviously, this will have the effect of increasing the price of everything by a leveraged ratio of $20,000.

I understand the Keynsian theory is it doesn’t matter what the money is spent on but, now we’ve just run the biggest experiment to prove most people don’t need to live 8km from the CBD to be productive, why are we installing granite kitchen worktops in Mosman rather than building high speed rail links to an open plain in the middle of nowhere for developers to build around?

In the meantime, this organ has been sadly missing a previous regular commentator from Brisbane who frequented this place with gleeful tales of his investing prowess and acumen.

If he were to return, we might ask him to review this updated chart and answer the question, “what happens next?“.

Bird? Plane? No, Superhubris!

Pension funds in Australia (or “Super”, in the vernacular) are, obviously, a big deal.

To a large degree, they are a captured market as legislation requires all employers to contribute 9.5% of salary into an employee’s chosen fund.

Typically, there isn’t much movement between funds, you are offered one when you start work and many people don’t pay attention to which is good, bad or mediocre.

Similarly, and like passive investors the world over, people don’t tend to pay much attention to what investment choices their Super fund is making on their behalf. One occasionally hears horror stories about people close to retirement in 2008 suddenly discovering they were all in on USA CDOs.

One such Super fund is Hostplus, the “industry” fund for people working in hospitality. Obviously, one doesn’t have to sign up to Hostplus, but I assume it’s one of the main options offered when you start a job.

Hostplus’ members are worst hit by this virus-induced recession and presumably most likely to want to take advantage of the changed rules allowing early access to $20,000 of their money.

Hostplus have a problem though;

They’ve slipped a clause into their product disclosure statement preventing members from withdrawing funds. It’s not clear whether this is even allowed under legislation such as the Corporations Act, but regardless, it’s a bad precedent and one that won’t give people much comfort in the security of their pensions.

There is a some mild amusement to be had at the directors’ expense (well, ultimately the members’ expense, poor bastards);

This from those heady days of January 2020;

Bill’s Opinion

What follows is not financial advice, and you should never seek financial advice from pseudonymous bloggers on the internet.

However if you are young enough for this current crisis to not completely destroy your imminent retirement plans, may I suggest taking a far more active interest in the following elements of your finances;

  1. Is a single managed fund really the best option for you, or should you consider diversifying across funds (e.g. via a self-managed fund)?
  2. If you are staying in a managed fund, are you really invested in diverse (asset class and geography) assets?
  3. Are the management fees fair value?
  4. How quickly can you pivot your investments if required?
  5. How is your financial advisor paid and by whom?

Feed the birds, tuppence a bag“.

Awkward silences by the barbecue

There are some axioms of Australian life that are best observed from an outsider’s aspect.

They can be witnessed in action at suburban social gatherings, such as barbecues or kids’ sport.

The rule is, when a group of middle aged Australian parents (and this is particularly true for Sydney and Melbourne) gather socially, there must be sufficient time allocated for conversations on the following subjects:

  1. Which high schools will little Atticus and Chlamydia be attending? The sub-rule to this is that the discussion must be started by the parent who believes they have the best bragging rights in this regard. As in, “So, we’re sending Tarquinus to Shore, where are you sending Shane? Oh, local public school? I’m so sorry.”.
  2. How many foreign holidays will you be taking this year? To European readers, this might seem strange but bear in mind a return overseas flight from Australian in cattle class is about a thousand dollars, the total cost of even a budget holiday soon racks up. One annual trip is good, two is impressive, three is multi-millionaire status.
  3. How much has your house risen in value and how many additional investment properties do you own? Everyone wants to open the conversation with this but allow the previous two discussions to play out first to avoid appearing gauche.

However, we’re not in Kansas anymore, Toto….

Our chart has been updated with the last data points before the China Flu lockdowns commenced.

Some context might be useful; the RBA has been publishing the lending data since the 1970s and, from that time until 2017, the monthly increase in lending for domestic property has fallen to 0.3% or lower only three times.

Bill’s Opinion

The chart is already suggesting a further leg down was on its way in the winter of 2020, before the impact of the pandemic hit the data.

What happens from here is anyone’s guess; there will be competing factors of bank forbearance, historically low interest rates, removal of lender’s insurance, a sharp increase in unemployment, economic slowdown due to isolation policies, etc.

My view is there will be a sharp and relatively deep fall in property values, realised only by those unfortunate enough to be forced to sell (by the three Ds; death, divorce or dole).

Let’s say about 30% from the peak. Perhaps that’s wrong by a large factor, but if you agree there will be further falls, there is only one question left to answer;

What will the people talk about at barbecues when they don’t want to talk about property prices and the major sports leagues haven’t restarted?

There’s going to be some awkward silences…..

Compare and convirus

Readers outside of Australia might not be aware of the slightly mad scenes in some Australian supermarkets over the previous week, with panic buying (“hamsterkauf” as the Germans call it) in preparation for the inevitable COVID-19 impact on daily life.

This is the status of the flour section of our local supermarket:

There’s suddenly been a spike in interest for home baking. They’ve wiped out both the plain and self-raising flour shelves.

Walking around the neighbourhood, the olfactory delights of home-baked sourdough and delicious sponge cakes are everywhere.

No, not so much.

The same scene is repeated in the dried pasta section.

Panic buying flour and pasta at least makes some sense; they’re sources of food with very long shelf life that wouldn’t be regretted if there were to be shortages later. You’ll use it all up eventually.

Toilet roll, however?

Nobody wants to be caught short of bog roll but, seriously, that’s the item you want to fill your spare room with in anticipation of the zombie apocalypse?

If you listen carefully, you can hear the sound of a billion Indians typing into Google, “toilet paper kya hai?”.

Imagine a world where, simultaneously, this happens:

And this:

Bill’s Opinion

In this age of “big data” it would be fascinating to learn what the Venn Diagram looks like describing the relationship between two schools of thought; those who believe Australia is about to enter a period of shortages and mass sickness and those who believe the price of property will continue to increase at multiple percentage points this year.

Speaking of which, our tracker is updated below.

Widening jaws, bouncing dead cats

We’ve not updated this for a couple of months:

Well, that’s certainly telling an interesting story, isn’t it?

Regarding the lending figures; prior to 2019, the monthly change had only previously fallen to 0.3% or lower three times since the 1970s. It had never fallen as low as 0.1% until this October and November.

Market volumes must surely be playing a part in this picture.

Bill’s Opinion

Despite the voices claiming all is well and there’s never been a better time to buy, the lending data is flashing a red warning sign.

Unless buyers have found a new, magical source of capital, this recovery is likely to be short-lived.

My personal view is, stay out of this market until at least three consecutive months’ lending change figures above 0.3%.

Nobody named Brian is ever competent

It’s an uncomfortable but unconscious truth that some first names are not associated with success. Those which immediately spring to mind include; Wayne, Kevin, and Nigel.

Brian is another example. Yes, the guitarist from Queen is highly competent in the fields of music and astrophysics, but he’s the exception, like Farage is amongst all the Nigels.

Australia has a classic “incompetent Brian” running (ruining?) the bank, Wokepac.

Luckily for Brian, he’s a member of The Club, which is handy because this time next year he’ll need to find a new job.

Why?

Two reasons:

Firstly, he’s been at the helm during the latter phases of the multi-decade ongoing decline of the weakest of Australia’s “big four” banks, culminating in the apologetic letter (from page 10) in the annual report.

Secondly, he’s got to find $8m cash in his personal bank account between now and March next year.

Now, I’ve no doubt Brian’s personal wealth easily exceeds that; he earns over half of that a year in the salary component of his package alone, notwithstanding his generous decision to waive his performance bonus.

The more pertinent question is whether or not he has enough personal belief in the future of Wokepac, the Australian banking industry and the Australian economy in general, to cash in $8m of his investments and personal wealth and transfer it to shares in the dog of the banking sector?

Bills Opinion

Since joining The Club, Brian has feathered his nest nicely whilst virtue signalling, using shareholder’s money, on matters LGBTQ+, Aboriginal, diversity and every other cause célèbre.

The time has come to see quite how committed he is to this as a future business strategy. Chicken or pig, Brian?

John McGrath; inside a trade, thing

This amused me today.

We’ve discussed the altruistic character that is John McGrath previously, and how his track record is very clearly to create wealth for people called John McGrath whilst absolutely destroying value for those who invest in his company or, indeed, listen to his advice on the trends in the real estate market.

In fact, without wishing to say, “I told you so”, I will have to say, “I told you so”. As I wrote just under 12 months ago in response to McGrath’s advice for property owners to hold their nerve and not sell as the market will definitely recover quickly:

If you really want to become a millionaire, take 6 million dollars and invest it in whatever John McGrath tells you to.
A cynic might suggest John would like you all to not flood the market with your firesales until he’s finished the conveyancing on his.

What a difference a year makes.

Bill’s Opinion

One can accuse John McGrath of many things; share market con artist, pathologically-addicted gambler on horse races, double-faced spruiker, etc., but he definitely knows more than most about the Australian property market.

Whether he needed to cash in his assets for reasons of expediency due to crippling gambling debts or not, we might never know, but there’s a big flashing sign for anyone who believes the personal stock trading of company directors is a good indication of whether or not to buy their shares.

In the meantime, this is yet another example of the delta between expressed and revealed preferences.