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Rudd Economics 101: When in doubt spend like crazy.

May 20th, 2009 · Greg Atkinson · 34 Comments

It appears that finally the Australian media and by default the wider public are starting to worry about Rudd’s mountain of debt. At first many Australian’s were quite happy to pocket their Government handouts in some crazed belief that is was magic money that would not have to be repaid some day or at least, not by them. But perhaps the latest Federal Budget has finally got people thinking as opposed to living happily in ignorance in the Matrix.

Over the last 12 months I have moved from being mildly annoyed at Rudd and Swan for being economic twits to considering them as I do now, as potential wreckers of the Australian economy.  Rudd I fear is more of a threat to the nation than that other great Labor icon, Gough Whitlam, whereas Swan is probably a pretty average sort of guy trapped in a world of spin and social engineering.

This year’s Federal Budget has highlighted the core element that formulate Rudd Economics. This core element has been developed in Rudd’s own mind and is not as a result of years of academic study or hard yards in the private sector. Instead Rudd Economics is all about keeping Rudd in power and of course, keeping him “popular in a “Sunrise” type of way.

The cornerstone of Rudd Economics is: if in doubt, spend like crazy. This strategy is similar to that employed by poorly trained troops who begin wildly shooting into the dark because they heard a noise in the scrub somewhere.

They are not sure what is out there, but they figure if they pump enough lead into the vicinity where they thought the noise was coming from then everything should be okay. If that doesn’t work, well they can reload and blast in all directions until they run out of ammunition.

Rudd Economics operates in much the same way. When the crisis first came along Captain K. Rudd and his poorly trained troopers first pretended there was no noise (“Hide the troops Sergeant Swanny, maybe the noise will just go away”) but then finally in panic they let rip with a few clips of ammunition (i.e the pre-Christmas cash handouts) and hoped all would be well.

But alas they did not concentrate their fire and many of their rounds went harmlessly off in the wrong direction. Worse still, the disturbing noises from the jungle grew louder and so Captain Rudd decided that the best course of action was to blast away again, this time in every direction until they had exhausted their last remaining ammunition.

Just for good measure they would try and settle some old scores and fire a few rounds up into the trees to try and hit some of those noisy birds who seemed to be enjoying the jungle more than them.

So Rudd and his troopers fired once more in all directions and they were most pleased to see some feathers drift down to earth. “Ah” said comrade Gillard, “We have a least hit some of those noisy birds and from the feathers I would say they were from the species ‘medius ordo’, so that should keep them quiet for a while.

As Rudd and his comrade troops looked around the jungle they could see they had indeed made an impact and so they reckoned that whatever was “out there” was probably now either dead or running in terror due to their decisive show of “hock and bore”.

However they now had no ammunition left and would be in serious trouble if the jungle noise came back, but hopefully by then they would be far away and the next patrol would have to deal with it.

In any case they would get back to town and tell everyone they had killed the beast, wiped out some pesky birds and they would be heroes! Captain Rudd would be as popular as ever!

This is the point where we are now. Rudd and Co. have economically speaking blasted away, and now they hope that they bought themselves enough time until China, Japan and the United States can return to growth and save the day. Maybe they are right, but if they are wrong then what next?

More debt..more blasting? They have told us all what a great job they have done, but they fear someone might actually check to see if they really did spend wisely.

Of course people will leap to their defence and say the IMF recommended that governments should introduce economic stimulus measures, true…but the IMF did not say spend like idiots. There is a difference!

For example let’s look at where some of the $800 million dollars of your money is going via Community infrastructure investment which is component of the Australian Government’s $42 billion Nation Building – Economic Stimulus Plan. Remember this is borrowed money.

  • In the ACT part of the $2 million assigned is for a new facility which “will include youth spaces, performance stages, rest and respite areas, Ipod and wireless docks, art display areas and a street style skate plaza with rideable objects such as railings and steps”.
  • In NSW the Young Shire Council will receive $388,000 for various projects including one project involving the “Design and installation of tourist and information banners to enhance the streets of Young”.
  • Finally not to be outdone, in Western Australia $100k will be given to the Shire of Beverly “to provide asphalt and kerbed access ways to cemeteries”.  Mmmm….nation building for the afterlife?

Would any sane person say that the above projects are examples of productivity enhancing spending?

Now just in case anyone thinks I picked out only bad examples then I invite them to go to the Government’s own community infrastruture website and see how Anthony Albanese is tossing around your money.

As I have said on numerous occasions I am not against money being spent to position Australia for the future, but blowing $800 million on toilets, tourist signs, park upgrades and ipod docking stations etc. seems like nothing more than vote buying wasteful spending to me, especially when we will have to borrow all of this money!

But maybe I am wrong, maybe the path to greater productivity in the 21st century is via improved park dunnies?


34 responses so far ↓

  • 1 GoWest // May 21, 2009 at 10:57 pm

    I for one am trying to work out how Australia is going to have over 4% continuous growth to pay for this especially with the costs involved in Wong’s Carbon tax

  • 2 Greg Atkinson // May 22, 2009 at 11:24 am

    You can make that two of us 🙂 I think the global recession will do a nice enough job of keeping emissions down without Wong joining the fray

  • 3 Ned S // May 22, 2009 at 11:31 am

    The mentality is right through governments at all levels. And has been for years. Can recall a few years back when I saw the local city council tear up a what certainly seemed to be a perfectly good (but plain) concrete footpath and replace it with a new red tinted one with flagstones embedded in it, my thought was Why waste the money? (Plus, I know who’ll be paying for this.)

    But then I pretty much ascribe to the theory of live within your means and save a good whack for a rainy day. That hasn’t been popular in the West for many years now. Although it does seem to be standing China in reasonable stead for now.

    The US is interesting – They are so panic striken they’ve taken on Keynes’ ideas about spending on public works PLUS Friedman’s ideas about printing money – Talk about covering all your bases – Just in case one of them did have some idea what he was talking about maybe?

    As you say, Rudd is spending money while he sits around hoping a sucker might get an even break (as in the rest of the world will recover and Oz will be flying high again.) Plus Oz had to be seen to be doing its bit I suppose from the global perspective. I always questioned the handouts too. But he was told Go early and go Families or somesuch by the rocket scientists who are advising him.

    But as you say, If it doesn’t work, then what? Inflation I think.
    Re same see following:
    “Despite being the advocate of an unrestrained free market, Friedman eventually admitted monetary policy had failed when it mattered most. The use of the quantity of money as a target has not been a success,” he said in 2002. “I’m not sure I’d push it as I once did.” What Friedman did prove was the link between the supply of money and the rate of inflation.”

    http://www.sundayherald.com/oped/opinion/display.var.2480646.0.translating_governmentspeak_this_week_quantitative_easing.php

    Wonder why Friedman eventually decided printing money wasn’t such a great idea? Maybe he decided inflation wasn’t as much fun as it’s cracked up to be? Maybe he looked at Japan? Don’t know.

    But I do know the mob are in debt so they need inflation to bail them out. And the mob are voters. And Rudd will pander to the voters. And no government seems to need to be clever to cause inflation. So Yes, inflation and higher wages and higher taxes are coming if the sucker doesn’t get lucky. And maybe even if he does get lucky – Seems inflation gets governments out of debt too?

    Whitlam – Did his best to turn Oz into a welfare state with people having a handout/entitlement mentality – Some would say that was a good thing – Leastways if they are welfare workers or happy living on tax payer handouts as a lifestyle. I’m pretty sure we don’t need any more of it intentionally entrenched within the system though.

  • 4 Greg Atkinson // May 22, 2009 at 2:43 pm

    I think the current crisis is giving governments around the world who like spending and control the perfect cover for doing just that. In the U.K., Australia and the U.S. for example we are seeing the central government grab power and wield much more influence than they would normally get away with doing. In the U.S. for example, it is interesting to see how Bush used the war on terror to grab “conservative” power and now Obama is using the war on Wall Street to gain “socialist-like” powers.

    The problem is that with political leaders all this power can zap their brains and things can end up lurching too far in their direction. Whereas they might have started off with good intentions the urge to hang onto power can overcome them and that is where I think we are now. Perhaps the spending is going a little too far and I fear we now have people with few real economic or business skills starting to think they are the masters of the global financial markets!

  • 5 Pete // May 24, 2009 at 8:26 pm

    Good points all!

    I think that Rudd honestly believed that when he got into power, he could be a good PM and make Australia a better place. I think he wants to be remembered as one of the best PM’s. However the GFC really threw a spanner into that one.

    Now the really big problem is that Rudd is expecting a recovery in the short-term. He has priced in that recovery into his borrowing plans so much that IF (is it really an IF?) the recovery does not go to plan, well then basically we are up poo creek without any propulsion devices (huge debt/liabilities, decreasing GDP).

    Now, lets go one step further. What if Rudd is really wrong. What happens if Australia is headed for a 5 year depression? Gov spends up big, waiting for the recovery…that never comes. Which may force the Gov to:
    – borrow even more (if thats possible)
    – sell off more assets to China (if they even want them)
    – increase taxes (not a good re-election tool)
    – print money (the ‘hidden’ tax of inflation)

    Okay, so i’ll just quickly talk about the evils of printing money (or Quantitative Easing…QE).

    QE would be a very tempting offer. Firstly, the USA is doing it. The UK is doing it. Why not Australia?
    The resulting inflation allows the Gov to pay for things without initially suffering for them. Plus, all the money they give out in pensions and wages will ultimately be worth less. And they don’t have to worry the populace too much with even more enormous deficits, because they can print instead.

    So from a Gov. perspective, QE looks pretty tempting. From a citizens perspective, it is a killer. What we get is – higher interest rates, higher cost of living, lower ‘real’ wages, eroded savings, price distortions, much higher overseas borrowing costs (again, high interest rates), devalued dollar (hurts for all our imports and borrowing costs).

    And of course, there is the ‘threat’ of hyperinflation. Its far too early for that to occur. But definitely possible within a 5 year timeframe. Hyperinflation DESTROYS an economy.

    So you have two extremes.
    1) If the Gov gets it really really right (somehow?), then we’ll recover well (but we’ll keep our crappy companies and institutions that aided the GFC issues).
    2) If the Gov gets it really wrong, our economy may be destroyed.

    And of course there’s option 3 – World War. Australia would get obliterated by most other countries, unless we are protected by larger ones. Mostly impossible to predict at this stage.

  • 6 Greg Atkinson // May 24, 2009 at 10:12 pm

    Pete, you have raised an interesting point regarding QE. That would seem like an attractive option if things do not pick up as the Government and Treasury expect.

    Even if global demand does pick up I think Australia may actually be one of the last nations to come out of this mess because of the lag in commodities prices coming back up again. As I understand it the Chinese are now locking in low prices and these will be around for at least the next 12 months so even if demand does pick up, BHP and RIO etc. will still be a long way from the “boom” days of 2007-2008.

    I wonder what iron ore prices etc. Treasury punched into their calculators for the next few years?

  • 7 Ned S // May 26, 2009 at 1:53 pm

    Pete – Re QE, I just read what I assume is Bernanke’s infamous “Helicoptor” speech.

    http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm

    Some comments:

    * Because Ben was reasonably confident he could fix any problem, the Americans didn’t take the precautions against preventing problems that they should have perhaps?

    * In that regard his comments about Japan at the time and why America was different seem to be pretty pitiful in hindsight. (Although I do personally see many other advantages that America has – Not only over Japan, but over most of the world.)

    * When I read statements like “By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services … We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” and “If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.” I am reminded that we are dealing with a very dangerous and deceitful entity AND that this man’s brain takes comfort from rather different things to me at least.

    * China of course have refused to play, by on one hand locking their ER to the USD quite closely and on the other hand beginning to move away from their exposure to it.

    * I find it interesting that Ben said ” … the United States is a large, relatively closed economy … ” – And wonder if reversion to that “closed” state in so far as it is no longer true, might be seen as “good.”

    * The thought flicked through my mind, Yes if you are the global reserve currency holder and see yourself as a large relatively closed economy (and a reasonably diversified one to boot), QE might sound like a bit of a get out of jail free card – Although I suspect the likes of Australia could get very badly hammered for trying it on.

  • 8 Pete // May 27, 2009 at 9:05 pm

    Good points Ned.

    Re: Your last point about inflating a Reserve currency:

    …it won’t be the reserve currency for long.

    Every dollar that is inflated makes it a less popular trading tool. Already China has started making contracts in Yuan with other countries because the USD is not reliable.

    The less people can depend on the USD, the more keen they will be to move to a more stable currency. In the future these ‘may’ include:

    – Chinese yuan
    – Gold/gold back currency
    – Petro-dollars?
    – That IMF backed currency thing (can’t remember what they call it)
    – Commodities (other than precious metals)
    – Energy credits (a bit like petro dollars)

    Those are the ones I could think of. The Euro is in big trouble, so none of that. I doubt the Yen would suffice.

    At the moment its looking like it will be Yuan or Gold.

  • 9 Ned S // May 28, 2009 at 11:29 am

    Pete – At one time I felt that governments could fight a gold standard tooth and nail – But now my feeling is more that they’ll just display indifference to it based on the logic it is a “barbaric relic” – They tried it and it keeps them way too honest for their liking. And the simple facts are that no one can force them onto a bullion standard so it would have to be mutually agreed thing. With no major government really wanting it just in case the day comes that it actually keeps them honest. Plus it is actually a fairly small market I gather?

    At only about 7% of world GDP, China is still too small an economy for the Yuan to be a serious contender – In that regard they are only about 4.5 times the size of Oz. (Similar to Japan at 8% though.) At 30% the Euro would be the go. But the Europeans still don’t seem to have learned to work together convincingly. And Europe has lots of problems right now as you say. The ECB has even commited to buying some bank bonds.

    The other issue with the Yuan is that China doesn’t have the track record in place to instill that level of confidence yet. They are still pally with North Korea for example. They definitely aren’t a democracy and the world surely feels more comfortable with “stable democracies” than “single party socialist states” when it comes to who they trust their money with long term.

    Your point about the USD is well taken. I supsect that is at least part of the reason for the recent stock market rally – Once the markets got a bit of a feel for who might be allowed to go broke and who wouldn’t be, owning shares starting to sound better than holding USD with QE coming. (For now anyway.) And if the US stock market goes up so do the rest. Of course the fact that things are getting less bad and just could stabilise surely doesn’t hurt. The focus seems to have shifted to the bond markets though. America is trying to sell off a lot of debt this week.

    More likely a basket of currencies eventually I think in an attempt to cushion the impact of major movements in any particular currency. At a real fundamental level America won’t like that. If my take on it is correct, it will mean that they will have used their get out of jail free card (as best they can anyway) and also have lost the advantage of being the global reserve currency. One could guess they are thinking in terms of Well we’ll let it go a bit for now as it is a hassle and providing we don’t really overdo this QE thing we’ll get it back because the world is a bit short for alternatives right now. But they will like it if the Chinese loosen their ER tie to USD.

    All of this stuff pretty much boils down to a case of “for every action, there is a reaction.” And if the likes of you and I are watching it then the economists of the major nations will be all over it like a rash on a 24/7 basis with all sorts of models being revised based on their best guesses. And juggling and balancing and rethinking their strategies depending on what they think will serve them best – It’s one thing to come up with a budget – But “things change” as they say. So just because something is in a budget plan doesn’t even mean it is necessarily going to happen.

    If Oz was to show any indication of going down the QE track I’d have to buy something tangible quick smart. (Most likely mining/energy stocks? And most likely in some country that I thought was stable and in surplus and showing no signs of going with QE – If I could find one that I could buy into?)

    One thing that just could keep Oz under control in that regard is that we have a fair bit of our own debt to hawk and recent experience shows that we aren’t real high in the world’s list of priorities when it comes to loving our debt. The world will buy our miners at the right price. But I think our debt would be a very different story if we decided to go down the track of actively devaluing our currency?

  • 10 Ned S // Jul 5, 2009 at 6:22 am

    The following seems to do a reasonable job of summing it up:
    http://www.theaustralian.news.com.au/business/story/0,28124,25729817-36418,00.html

  • 11 Ned S // Jul 10, 2009 at 9:11 am

    Some of the stuff that comes out of this GFC really is quite funny. A recent one: “Kevin Rudd … is in Italy for a few tips on how to run a crisis prone capitalist economy from other leaders who are there for a few tips on how to run a crisis prone capitalist economy.”

    But Kev’s comment that “It is highly unlikely that anything will emerge from the MEF in terms of detailed programmatic specificity …” was undoubtedly a most enlightening contribution – Now the rest of the world has every reason to suspect he is full of it as well – Smile!

    Or as another chap said “… one of the greatest indicators of high intelligence is the ability to communicate clearly with everyone, not just a select few …”

  • 12 Dan // Jul 10, 2009 at 9:24 am

    Ned, re: your earlier comment on the gold standard. The governments wouldn’t have a problem with adopting it – only as long as they could run it as a fiat system (ie: they get to ‘print’ gold). I reckon if the IMF issues a metal based standard, or if the world adopts one by some other route, it will still be rigged and basically a fiat system which will work for a generation or two and then be shown up to be worthless.

  • 13 Ned S // Jul 10, 2009 at 12:24 pm

    Dan, for them to ‘print’ it they’d have to confiscate the existing stuff – Globally I think? I wouldn’t want to even mention that possibility elsewhere as I’m sure I’d get my head torn off. And rightly so, as I can’t see it happening.

    But that aside, I fully suspect you are correct in saying whatever they might come up with will be rigged. Gold obviously was under the old bullion standard. I’m just eyeballing the numbers off Kitco’s 1833 – 1999 chart so don’t hold me to any huge degree of accuracy, but there is no way it was worth USD 33 or whatever it was after America confiscated it and revalued it in the early 1930s and much the same (exactly the same?) when Nixon decided he wasn’t going to give it the French at that price.

  • 14 Dan // Jul 10, 2009 at 12:33 pm

    Exactly, Ned. We ought not to be Emus that go for anything that shines, but use our brains and invest in things people actually want (even better, _need_).

    If you bought a house 20 years ago for 3 median-income-units and can sell it for 5 median-income-units, then you made a profit, whatever the dollar value, whatever the up-or-down of the market you might read about in the newspaper. Tangible, necessary things are easier to understand and less easily manipulated by well-dressed men in far away skyscrapers.

  • 15 Greg Atkinson // Jul 10, 2009 at 1:22 pm

    Dan/Ned – For me the thing about owning physical gold is that it earns you nothing until you sell. If you are a long term investor for example you would have to be willing to sit on gold for say 5 years and not have any income from it and hope that at some point you make very tidy capital gain. If you a trader then you have to get the timing right or else you can be out of pocket quite a tidy sum.

    I am not anti-gold but like I have said a few times I am just not a fan of gold at over $900 USD an ounce especially when gold miners get it out of the ground at between $400-600 USD an ounce. I feel there are a lot of people with vested interests in the shiny metal talking it up a lot, and this raises a question about their “independence” in my view.

    Ned – don’t you just love those staged photo opportunities at the gathering of world leaders? Personally I like the APEC meetings because of the loud shirts that are worn.

    As for Kev I am sure he is a legend in his own little world. I do wonder what the other world leaders think of him though…do they understand much of what he says?

  • 16 Ned S // Jul 10, 2009 at 3:54 pm

    I don’t think I’m anti-bullion either. But as Greg says, at these prices and in this environment, I’m not buying any. I feel the same way about houses – Even though it is an asset class I think I’ve openly stated my liking for? Despite the fact, that as I’ve commented on this site, I feel they could(???) fall by 20%

    But as I’ve also indicated elsewhere, if I HAD to make a choice between some gold and a house at this time, with the longer term in mind, I’d go for the house – Again, because as Greg says, it returns rent. And one can put that rent into some bullion (10% ?) and some cash (15% ?) and some Oz blue chips (45% ?) and some more speculative Oz stocks (15% ?) and some BRIC stock (15% ?) – Maybe?

    At even $9K pa going in from the after tax rent on a pretty modest house (more if it’s held in the name of a low income earning spouse or a family trust or a superannuation fund) and with a little bit of growth(?), that could potentially build up into a pretty useful nestegg over 10 or 15 or 20 years. Plus whatever the house may be worth then?

    Re photo shoots: I’ve been a little bit curious as to who exactly the nuggety middle aged ginger haired lady is who is often seen gazing adoringly up into Barrack Obama’s eyes from a person or two away from centre of his shoots? (While Bernanke seems to be battling the temptation to wipe the perspiration off his pate and Giethner seems torn between deciding on whether he would best serve the nation by focussing on not blinking or refraining from relieving that irritating itch in his nostril.) Is she really one of the US policy movers and shakers??? Or is she just a devious Democrat PR plant put there regularly to reinforce the perception of matronly American voters that Mr BO remains deserving of their adulation too? (Smile.)

    Greg, some days I wonder if KEV understands much of what he is saying? It certainly is a real big challenge for us lesser mortals! (Triple Smile!!!)

  • 17 Senator13 // Jul 10, 2009 at 4:13 pm

    Hi all. Yes, I agree with your points regarding Gold. I don’t know all that much about it but just two basic points from observing it at the moment is that it seems too expensive and does not pay a return in the form of dividends. It just sits there. If the gold price does not move, you essentially loose money. Both stocks and real estate at least can pay you rent/dividends and even increase those payments overtime if managed right. Also, I think you have more control of the underlying asset of real estate and shares then something such as gold eg you can renovate the property, turn it into a duplex, knock down and rebuild ect to try and increase its value. As with shares the underlying company can be controlled to some extend by the board eg: reduce debt levels, increase/decrease production depending on demand for its products, increase/decrease dividend payments depending on the conditions ect. Where gold just sits there.

    As for Rudd gallivanting with his international counterparts – I don’t think they really know what to make of him. I see the German interpreters defiantly had a hard time interpreting his Ruddish.

  • 18 Ned S // Jul 10, 2009 at 5:31 pm

    I agree fully Senator – In fact, the more I think about it, one of the reasons I do favour housing is because I have some control over it. In relation to choosing it initially and in relation to developing its potential.

    Again, as Greg has said in the past, lots of people don’t buy it primarily as an investment. But for those who do, we SHOULD have some VERY clearcut ideas on just what made that specific property a buy while all the others we considered were not.

    Its at times like these, a bloke like me who does have serious skin in the game (in terms of the $ values he thinks in anyway), has to decide to just what degree his ability to pick an investment property might protect him against any potential falls. Especially if he is prepared to put a bit of cash and labour behind supporting his punt – If necessary – I’m not easily seperated from either my cash or my labour – Smile!

    While that may well sound arrogant, I do think I’ve got some idea of what I’m good at and what I’m not good at. I go all brain numb at the prospect of picking stocks??? – Not my thing! No idea!! Dumb As!!! Could I learn from reading and the internet? Maybe?? But it isn’t a real substitute for having “owned” one’s first block of dirt at 8 and striding over it with a sense that it is very important this high grass is cut down and I am responsible for things like this and having grown up on building sites chewing on asbestos shavings and sitting around filling in time while waiting to give a hand with cramping up the floor boards and just generally soaking up a daddy’s property musings maybe? – Plus noting his mistakes – And later one’s own.

    Funny stuff property – Might be a good idea if I hedged out of it – Smile!

  • 19 Dan // Jul 10, 2009 at 6:08 pm

    The reason stocks are such a mystery (to me too) is because there remains something hidden about them. They are attractive, but so is a casino, and like in a casino you only about the winners and the celebrity players. I put the mystery partly down to insider trading and market manipulation, because there are clearly those who seem to always pick the winning trades.

    In younger days I was in the know of who was who and what was what in greyhound racing, and I can tell you that if you knew the right trainer, you could find out after a few beers which dog was doped and which wasn’t. It got a bit out of hand when a dog would win 20 races in a row, sometimes by 40 lengths. The poor punters at the TAB didn’t have a hope. I think stocks might be similar in many respects, especially after reading about the Madoff story.

  • 20 Senator13 // Jul 10, 2009 at 6:50 pm

    Very true Ned, there is no better experience then skin in the game. And the more experience the better one gets. Research can only take you so far but as soon as there is money on the line the amount you lean greatly increases. And if you make a mistake and loose a few grand it sure does hurt but it sure is hell is going to prevent you from making the same mistake again in the future more then just reading theory. I’m fairly young and only just starting out (so I have heaps to learn) but defiantly want to get better at both share and real estate investing. Maybe down the line I will prefer one a lot more over the other for what ever reason but at the moment I can really see the advantages and disadvantages in each and just try and make a call at the time the best I can. Hopefully over time I get better with experience and learn from all my mistakes – which I’m sure there will be lots more of. I like the saying “Fool me once, shame on you. Fool me twice, shame on me”. So hopefully I don’t make too many mistakes twice.

    Dan – I think there is a level of corruption in most things. There is always going to be inside trading and stock manipulation and someone knowing a little more then others and take advantage of it. But there is also the same type of people in property as in the share market. There are the dodgy agents/brokers and property seminar spruikers who promise amazing returns. I think we all have to be vigilant and try our best to avoid such things. But I think in terms of level of control over an investment, property, defiantly has to be up near the top of the list. Owning shares your fate and that of the company is ultimately in the hands of the directors. Where property, it is all yours 100% and you can call the shots. It also moves at a slower pace which gives you time to reposition your self or a chance to think things through a little longer. Where the share market can wipe you out in a day if you’re not careful.

  • 21 Ned S // Jul 10, 2009 at 7:03 pm

    Dan, I think it can be taken as a given that some people in some companies at some times will have knowledge that is “enlightening”? How many use it? In the absence of any real evidence one might take a punt and say about the same % as cheat on their taxes perhaps???

  • 22 Greg Atkinson // Jul 10, 2009 at 9:56 pm

    What truly worries me is that we have some many Governments around the world using this economic crisis as a cover to implement some social policy changes. I guess this was always going to happen, but as they do they pile on more debt so in the future we are going to have to deal with some sneaky little revenue grabs.

    The question is where will the Rudd Government for example try and claw money back from us? I would guess Superannuation is a major target? But of course if they have a go at Super you can be sure that the politicians pension scheme will not be touched.

  • 23 Ned S // Jul 11, 2009 at 11:09 am

    If Kev doesn’t get his 4.5% pa growth for 3 years coming out of the recession in 2010 or whatever the figures were that they forecast before the last budget, or they blow the budget in any other way, then the tax grabs will be big and blatant rather than little and sneaky I suspect?

    The Oz tax review is going to come at a very convenient time for government. For some reason I had the feeling that one of the original thoughts behind it was that with all its wealth, Oz could afford to become more caring and sharing (read socialist). But now it has the potential to have considerably more urgency behind it and bite to it.

    And it will fit one of the teflon man’s numerous seamless styles very nicely – Of course he doesn’t want to do nasty things, but Mr Henry says it is necessary, so what is a poor helpless leader to do? (He has many hats does our Kev – Smile!)

    Not a lot can be done about it though – We live in a democracy and the expectation that government will provide has become increasingly more entrenched in the Oz public’s mind over many years – So outcomes that support that are going to be popular. Even more so than in America where there still seems to be a collective self perception that they are all really successful capitalists who just mightn’t have got their turn yet? While Aussies seem to have collectively decided that the truly clever are those who’ve worked out how to spiv their livlihood from the government gravy train.

    While one waits for outcomes of Ken Henry’s pontificating and Rudd’s subsequent poking moist pinkies up to see which way the wind blows, it’s just a matter of committing to nothing much new. Then subsequently reorganising as seems best.

  • 24 Dan // Jul 11, 2009 at 4:44 pm

    Senator – you’re right, of course – everything has some degree of corruption. I guess the thing is understanding how and to what extent a thing can be corrupted, and having an idea how to sniff it out and account for it. The problem with stocks the grand scale and rapid speed at which a ‘market correction’ can take place, triggered by one of the big fish. But again, none of that really matters if you are buying shares in order to get dividends, where you are buying into a company on the basis of fundamentals. But in that situation, shares are mostly terribly overvalued, as better returns are obtained from real estate, even now.

  • 25 Ned S // Jul 11, 2009 at 5:59 pm

    Senator – What you are doing is wise. Way better to have a good feel for a range of asset classes than just one I think. With the two biggies in Oz seeming to be RE and stocks. (It is a source of frustration to me that I don’t understand stocks better. But rather than whinge about it I would make some more effort if I was really interested.)

    Your point that the volatility is pretty off putting is a good one – That always served to keep me from having any interest in knowing more. But I have at least learned from this GFC that there is such a thing as a trailing stop loss. Which seems to be handy knowledge even if I never do choose to buy a single stock myself?

    Looking back, one of the biggest mistakes I’ve made is not being prepared to use much debt – In relation to property anyway. But I wouldn’t recommend that right now of course – In relation to anything? The thing that will be interesting will be to see if that changes over time. As in will the world fundamentally lose its taste for debt for some time? It doesn’t really seem possible the way all our financial systems are structured??? But is just one I’m bearing in the back of my mind for now.

  • 26 Dan // Jul 12, 2009 at 7:33 am

    Ned, re: use of debt (leverage I guess is the euphemism). It was a clever trick to use debt prior to the big crash, and a lot of investors did extremely well from it, but I remember conversations with friends who were doing it. They basically all knew the housing market was a bubble, a Ponzi scheme, or whatever we call it now, but didn’t use those words. They just said “yeah, everyone is in on it now, and we all know it’s not sustainable – eventually the debt is going to be bigger than anybody’s ability to pay – but so far so good” .. their house prices appreciated enormously, but they ran on a rule that when one house could be sold to pay off all the others, they did it.

    I also know people who used debt to trade shares online. Frankly, they were gamblers – they had exactly the same personality, body language, everything, the same as a punter at the races. And when the crash happened many of them refused to believe it until it was way too late.

    So I think it’s all a matter of knowing what the hell is going on, and not believing the hype. Nothing wrong with using whatever is around to spin hay into gold, as long as you understand the poisonous nature of debt.

  • 27 Ned S // Jul 12, 2009 at 10:17 am

    Maybe about 2005 a work mate was singing the praises of some mob I’d never heard of back then called Storm Financials – He explained the basic principle to me – Your mortgage free house is worth $250K so you go to the bank and borrow $2.5M against that and give it to your good mates at Storm who put it in the stock markets and when the market goes up by 10% you’ve made a cool $250K – Too easy eh?

    I’ve wondered how he made out since – I left that job in 2007. I didn’t “invest” – As it broke one of my fundamental financial rules of life – Namely if you have a mortgage free house to live in you don’t jeorpordise that financial security for noone, no way, no how! Smile.

  • 28 Ned S // Jul 12, 2009 at 10:42 am

    So I guess that while I’ve missed some financial opportunities in life I’ve also avoided being financially wiped out. I commented a while ago to my accountant on just how scarey it was how many people seem to have been so badly damaged by the GFC – Yet that I seemed to be holding OK – To which he just said Yes, but we weren’t greedy!

  • 29 Senator13 // Jul 12, 2009 at 10:56 am

    I think Storm Financials is a good one to have let go through to the keeper.

  • 30 Greg Atkinson // Jul 12, 2009 at 11:26 am

    What really surprised me was that so many so called “high flyers” were wiped out by margin loans. It seems they had no plan to ever deal with a margin call and simply believed there was no way their stock holdings could ever go down in value.

    I think the BRW rich lists have also been shown up as being pretty inaccurate. Clearly many people that make the list either have large personal debts or the companies they own have. So when party stops and the income falls they end up bankrupt, which is actually not an easy thing to do is you have little debt and a well managed, cash flow positive business.

    Taking on debt itself is not a problem, but it has to be a reasonable level of debt and the borrower needs to have a plan in place to cover the interest on the debt even if things do not quite work out as planned.

    My own little rule of thumb is to be prepared for around a 30% hit across all my investments at any time and be able to deal with at least 2 years where returns are reduced by a similar amount. So far this little bit of planning has allowed me to sleep at night even during the GFC, which I quite openly admit has been more severe and longer than I thought it would be.

  • 31 Ned S // Jul 12, 2009 at 1:46 pm

    The other little rule that has helped so far is bearing in mind that If something seems too good to be true then it is!

  • 32 Greg Atkinson // Feb 4, 2010 at 11:19 am

    At last the mainstream media seem to be picking up that Rudd’s handouts were not the solution to all our economic woes: http://www.smh.com.au/business/sales–and-shareholders–hit-as-stimulus-fades-20100204-newq.html

  • 33 Ralph // Feb 4, 2010 at 2:01 pm

    yes, indeed. Does that mean it’s time for some more? What’ll keep our ‘miracle’ economy going now?

    Cue Oliver Twist…”please, sir, can I have some more?”…

  • 34 Greg Atkinson // Feb 4, 2010 at 2:53 pm

    Ralph I probably do go on about the stimulus money too much but it just makes me so annoyed that the money was not used to really prepare the nation for the decades ahead. Will the public transport mess in Sydney be sorted out as a result of all this spending? No. Have we taken steps to reduce our dependence on fossil fuels? No. Have we boldly invested in the technology sector…mmm..well no again.

    Our big signature project is..the NBN…now isn’t that scary!?! It is already a mess, will be built using imported technology and by the time they have it up and running (and I doubt it will ever been completed as planned) it will be dated! Oh we are so 21st century aren’t we 🙂

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