Winston's Charts

[topcropper]

There's only poor excuses from Australia, for not converting mining profits into becoming world leaders in telecommunications and solar technology/IP and pharmaceuticals.

I suppose Australia has de-industrialised because we could. We have commodity exports to pay our way in the world, and there are many reasons why we have a competitive advantage exporting rocks and dirt, natural advantages that just can't be copied by others. Who wants dirty industrial areas and factories? Who wants to work in them? Not me. So we are slowly building houses and shops and coffee places on top of where the factories used to be.

In contrast, the Poms de-industialised but had no right to. They'd run out of coal, and they have not much oil left and they have to import food to feed themselves. The Poms had no chance of succeeding, unlike us, and now are paying the price.

http://www.businessspectator.com.au...ndustry-pd20100330-423BK?OpenDocument&src=kgb

........"Suddenly the British realise that it was perhaps a tad premature to wave goodbye to the old economy that actually produced things other than hot air. The same circles that used to feel smug vis-à-vis manufacturing reptiles like Japan and Germany are now debating how to develop a new industrial base in Britain. Given the sorry state of Britain’s secondary sector, this is much easier said than done. After an era of de-industrialisation, there is little left on which a revival of British manufacturing could be built".......




By keeping our secondary industries going, we would be competing against people who can't fail. People like the Japanese. They have no commodities, import 60% of their food. 130 million people living in an area half that of NSW. They have no other choice than to make manufacturing work or else they go hungry. An aggresive Japan went to war to get what it needed, and that didn't work. A placid defeated Japan then set to work building stuff, and now trades for what it needs, with us.

Competing with Japan would be like a pet Labrador fighting with a wounded dingo. Australia is the pet labrador and Japan the wounded dingo. We would never win because we don't have to but they do.

If we can import a big LCD TV for $1000 bucks, but to make one here would cost $10,000, we are still better off importing as the consumer has $9000 to spend elsewhere.


See ya's.

 

[WinstonWolfe]

I suppose Australia has de-industrialised because we could.

agree with most of what you say, apart from the presumption I mean we should go back to a manufacturing base. the industries I mentioned are more reliant on intellectual wealth.

further, I could add automation to that list, and Australia could then use automation/robotics to produce goods for less than China, with the added bonus we keep more of our wealth in our borders to use for developing intellectual property.

there seems to be this belief that trade is imperative. I disagree. If a natural resource country like Australia is smart and productive enough, it could be totally independent of the rest of the world, and have the highest gross national income per capita (ppp) in the world. And none of it is dependent on population size.

We'd also be able to develop the most advanced defence systems, and have a better chance of defending what we own.....unlike now, when we are a lame duck waiting to be taken by any of several Asian foxes.

 

[topcropper]

there seems to be this belief that trade is imperative. I disagree. If a natural resource country like Australia is smart and productive enough, it could be totally independent of the rest of the world, and have the highest gross national income per capita (ppp) in the world. And none of it is dependent on population size.

.

I'd disagree there. As I said in the post above, if we can import stuff at a tenth of the price we could make it ourselves, surely we are better off importing that good, and the consumer can put the money saved into something else that would improve their standard of living.

I think I must believe in globalisation and what it's done to improve everyones lot. But it's hard to prove, as no one really knows how expensive stuff would really be if we had to make it ourselves. I think we would get a shock.


See ya's.

 

[WinstonWolfe]

I'd disagree there.

I am talking quite hypothetically above TC.

Globalization is fine for as long as the competition for scarce resources doesn't get too aggressive. There's always unstable equilibrium re global trade.. Look at the situation between China and USA/Europe. China now has a strategic power advantage over the USA. THe ability of the USA to defend itself has been severely eroded in the last 50 years... same happened to Russia. And the 'potential' of China to wage war has escalated dramatically. And they are using this in their negotiation tactics with the rest of the world.

If we were more economically independent and had superior defence capabilities, we wouldn't need to be such moral hypocrites as we are in trading with China when its human rights record sucks (Tibet, Tianamen Square, Phalun Gong, Africa). As it is, we fawn in fear in our negotiations with China....because we know we need them more than they need us.

Sure we can outsource production to countries with cheaper labor. But if that results in a CAD, sucking wealth out of the country, then I argue the opportunity cost is high. Robotics and automation could very well produce things cheaper than cheap Asian labor. And considering we have to reduce the world's population, cost effective robotics will become more important.

 

[topcropper]

Globalization is fine for as long as the competition for scarce resources doesn't get too aggressive.

Most of the wars in the world right now seem to be caused by overpopulation [Africa] or religion [Africa, Middle East].

In the civilised world with stable populations there seems to be a lot of peace right now. I don't suppose globalisation and trade is the secret here? China and the US need each other as trade partners. Japan and Australia need each other as trade partners. If we were all able to live without trade, I'd wonder if war might be more likely? I think it would.


See ya's.

 

[WinstonWolfe]

If we were all able to live without trade, I'd wonder if war might be more likely? I think it would.

I agree global interdependency has helped reduce war.
But it is also masking long term trend changes in relative power, and the global trade of today doesn't ensure less war in the future.

Asian nations that have gained more economic power, ergo military potential, without the same respect for human life as Western nations, are already creating moral dilemmas for Westerners. China is happy to do business with Mgabe and trash Tibet. Indonesia is happy to carry out genocide in East Timor.

All Australia or the UN can do is shake a finger because none of us have the power to enforce the values of civilization we delude ourselves exists.

 

[Jonril]

Asian nations that have gained more economic power, ergo military potential, without the same respect for human life as Western nations, are already creating moral dilemmas for Westerners. China is happy to do business with Mgabe and trash Tibet. Indonesia is happy to carry out genocide in East Timor.

All Australia or the UN can do is shake a finger because none of us have the power to enforce the values of civilization we delude ourselves exists.

Looking back on the not so distant history of the human race it could be argued that Western dominance can be contributed to Western powers willingness to use Dictatorships/colonialism/Imperialism all of which led/lead to varying degrees of human oppression through history).

If anything, Developing nations could argue they are only trying to play catch up with the West (in human oppression stakes). Who can predict what developing nations can achieve once they catch up to the West. They could prove to be benevolent overlords just like the West, crusading to right wrongs for the oppressed and poor of the world.

It can also be argued that all that has happened is that as the West has developed and prospered and human oppression has become unfashionable domestically, it has inevitably been out sourced to developing nations.


... How's that for off topic?

Apologies for the cynicism, but I don't see Western Powers as guilt free in the oppression, at best the west is ignorant of its involvement in human oppression at worst it is complicit.

 

[WinstonWolfe]

Apologies for the cynicism, but I don't see Western Powers as guilt free in the oppression, at best the west is ignorant of its involvement in human oppression at worst it is complicit.

How about we let foreign migration flows decide the issue.

 

[HiEquity]

further, I could add automation to that list, and Australia could then use automation/robotics to produce goods for less than China,

Hi WW

Manufacturing is over-rated IMO anyway. It's a margin business won by whoever can convert raw material A into finished good B for the cheapest cost. Intellectual property is only a means of delaying the inevitable for this purpose.

Eventually Chinese intellectual horsepower will overtake ours in this "leading edge" stuff. They have a far higher number of people (brains) to pick from. We come with a historical advantage and an advantage in freedom of expression, both of which are likely to be lessened as time goes on as China catches up.

After that, Africa will be the new low cost manufacturing location for the world and Chindia will have to find something else to do.

We'd also be able to develop the most advanced defence systems, and have a better chance of defending what we own.....unlike now, when we are a lame duck waiting to be taken by any of several Asian foxes.

Yes there is that feeling about it isn't there. ANZUS doesn't seem anything like the protection it once did... To seriously compete with China though we would need to put in a similar amount of effort. Difficult for a democratic government and that is our key weakness.

But I like to take a positive view - I reckon China's political system will break down internally before it gets to profit from it's advantages on the battle field. Anyway, the alternative doesn't bear thinking about...

 

[WinstonWolfe]

But I like to take a positive view - I reckon China's political system will break down internally before it gets to profit from it's advantages on the battle field. Anyway, the alternative doesn't bear thinking about...

Interestingly, I attended a local Buddhist centre to listen this fellow some weeks ago. He was warning that 2012 will have some disturbing events, and he hinted at earthquakes and tsunamis, and suggested people see the 2012 movie.

He has a big following of Chinese and SE Asians around the world, and came across as an authentic teacher, so I am keeping in mind what he says....

Maybe the global economy and power struggles will be the least of our problems.

 

[WinstonWolfe]

There's a lot of talk about Australia's 2 speed economy, mining boom, etc.
Here's some charts of ABS retail turnover data

8501.0 Retail Trade, Australia
TABLE 6. Quarterly Retail Turnover Percentage Change, Volume(a) and Price, Seasonally adjusted - By State

Qtrly percentage change is still positive, but on a downtrend.

Some possible reasons:

- considering population growth, cheaper imports and stronger aud might be responsible for the trending decline in growth, despite the aud's up and down ride.

- higher mortgages and casualization of the workforce, leave less money for retail purchases.

- any form of compound growth is geometric, i.e. when plotted the curve gets progressively steeper. Just as this is unsustainable for population growth, so too for retail expenditure and economic growth. Nevertheless, all other things being equal, retail turnover should follow population growth.

A plot of retail turnover per capita would be interesting.
Some economists believe Australia's heavily service based economy would suffer profoundly with zero population growth. services would contract more than the contraction in growth rate.... They also believe pop growth is masking many serious structural problems. One red flag is the inability to provide new and replace aging infrastructure, without selling these assets to foreign interests.

 

[WinstonWolfe]

I've been updating my investment property xls. It now has a dashboard as captured in the gif below. The spin buttons update all charts in real time, which clarifies how sensitive an IP is to a specific variable.

 

[WinstonWolfe]

My recent reading has focused on the rate of credit growth versus gdp growth.

Some economists believe an economy must expand both at a similar rate if credit is to not be inflationary. Two exceptions would be where business investment leads output gains, or foreign investment where assets and profits are not reflected in gdp.

Below are RBA charts from the chart pack series.
They show credit expansion has exceeded NOMINAL gdp growth since 1998. Interestingly, that's the time Melbourne and Sydney property booms took off. Since GFC, credit growth backed off a little and is flat. However, it's still 50% above gdp growth.

It is concerning that credit growth outpaces nominal gdp (gdp in inflated dollars). It is difficult to see how credit growth is not inflationary, especially with house prices.

How long credit growth can remain higher than GDP growth is interesting to ponder. Especially when one considers that to do so, credit money has to come from somewhere. It can either be borrowed from overseas thus contributing to Australia's net foreign debt and increasing flow of funds out of Australia via interest payments, or by increasing money supply through lower fractional reserve requirements.

 

[WinstonWolfe]

An interesting qtrly bulletin from the RBA yesterday.
They analyse housing turnover and first home buyers.

Their chart below reveals change in housing loan approvals leads a slowing in house price growth. This supports my view that lenders drive property price growth, not supply demand dynamics.

One could counter argue that as prices rise, the portion of high quality loan applications decreases. There might be some truth in this, but let's consider that a high portion of the 6% average annual housing churn, is not speculative.

 

[HiEquity]

Their chart below reveals change in housing loan approvals leads a slowing in house price growth. This supports my view that lenders drive property price growth, not supply demand dynamics.

It also supports the view that increasing demand leads to more transactions in the market which causes the aforementioned surge in lending in the first place.

Lenders can't lend if there is no-one to lend to as much as borrowers can't borrow if there is no-one prepared to give them some money.

I suspect the truth lies somewhere in the middle with lenders and supply / demand dynamics each being in control a bit and periodically swapping the upper hand. However IMO no conclusions can be drawn from those charts on this topic.

 

[WinstonWolfe]

It also supports the view that increasing demand leads to more transactions in the market which causes the aforementioned surge in lending in the first place.

Lenders can't lend if there is no-one to lend to as much as borrowers can't borrow if there is no-one prepared to give them some money.

That's the superficial theoretical perspective. The reality is we have a growing population and virtually no one pays cash for a house.

I suspect the truth lies somewhere in the middle with lenders and supply / demand dynamics each being in control a bit and periodically swapping the upper hand. However IMO no conclusions can be drawn from those charts on this topic.

We will have to disagree, unless you can show that housing supply and demand are in balance when price growth is around zero.

The trend in annual housing turnover has dropped from its 2002 8% 15 year peak to 5.5% in 2009. Your view must then be that demand and supply are approaching equilibrium, as 2009 was below the long term average churn of 6%.

 

[HiEquity]

We will have to disagree, unless you can show that housing supply and demand are in balance when price growth is around zero.

The trend in annual housing turnover has dropped from its 2002 8% 15 year peak to 5.5% in 2009. Your view must then be that demand and supply are approaching equilibrium, as 2009 was below the long term average churn of 6%.

Hi WW

We may be speaking at cross purposes? From my POV there are two factors that at the core control the demand for credit:

1 The appetite of the borrower to take on debt.
2 The appetite of the lender to lend.

These two factors are indistinguishable in the data you presented. All we can see is the volume of debt and prices. We have no information on what is actually driving changes in the volume of debt - whether the sentiment or capacity of borrowers (ie the actual supply / demand dynamics) or that of lenders? We need more information to tell the difference between 1 and 2. Paying cash for a house or not has nothing to do with it.

 

[WinstonWolfe]

We have no information on what is actually driving changes in the volume of debt - whether the sentiment or capacity of borrowers (ie the actual supply / demand dynamics) or that of lenders?

What we might be disagreeing on is that you are focusing on the shorter term influence of sentiment, which can only overshadow fundamentals for short periods.

But I see what you are saying......falling loan approvals could be equally indicative of falling demand (=less loan applications) or tighter lending standards.

But if housing demand and supply worked so efficiently, why does the RBA bother raising and lowering rates, or lenders adjust LVRs, postcodes, and lo doc criteria? And when are lenders ever short of loan apps?

 

[WinstonWolfe]

I am becoming more bearish on the global outlook and more partial towards building gold positions. The Dow has just dropped below 10,000 and Chinese exports are slowing significantly.

I irregularly update the charts in the first post of this thread.
The cash rate implied yield curve is flattening and the cash and bond yield curve is starting to invert. Yesterday, 90 day cash crossed above 5 year bond.

All our acounts are out of stocks, am long gold and vix etf's and short palladium. I will start increasing % holding of unallocated gold bullion. If the global outlook worsens, I'll move out of etf's altogether, into allocated bullion.

 

[hobo-jo]

WW, out of curiosity are you looking at Gold stocks at all? They have disconnected from the main market during other bull markets, but haven't been tracking particularly well recently, especially those in Australia that have taken the RSPT hit...there are some obscenely profitable producers with Gold at these levels so it will be interesting to see if the market heads down, Gold up, what will happen, especially with the RSPT now in questions in current form.