–Yesterday’s Daily Reckoning left off with a tantalising question. Will the regime-toppling global inflation wave hit Australia’s shores? And if it does, what will it mean to your investments? For every variable rate mortgage holder in Australia (and that’s most of them) this is probably the most important question of 2011.
–But you’ll have to wait one more day to get our considered answer to that question. We’re a day behind on the weekly update for Australian Wealth Gameplan and there’s news afoot that needs reporting. Most of that news is influenced by what’s going on in the Middle East. How?
–Well, no one knows, politically, what shape things will take in Libya (or Iran). But we do know generally that when there’s approaching civil war in a major global oil exporter, it’s going to put the spotlight on energy. On cue, Brent crude prices spiked to $108 a barrel for the first time since 2008. Nerves.
–The last time oil prices hung around the $100/barrel zip code, natural gas and other conventional energy substitutes got a lot of attention from investors. Yesterday’s biggest conventional energy investor was BHP Billiton. It announced a $4.7 billion punt on the Fayetteville shale assets of U.S. based Chesapeake Energy.
–Now is that the best use of BHP’s cash war chest? We’ll ask our resource guru (Dr. Alex Cowie) and our value guru (Greg Canavan). But as a self-styled big-picture guru, your editor likes the story because it confirms the investment idea in our most recent issue of Australian Wealth Gameplan: shale gas assets.
–That’s as much as we can say about it without giving away the store. But if you’re looking for one strategic investing take-away from the rising oil price it’s this: large, untapped energy reserves and the companies that own them are going to command a premium in the coming years. Invest accordingly.
–Let’s hit the mail box now. It’s been awhile since we’ve done so. With over 60,000 readers, we don’t have time to respond to every letter you send. But we read as many as we can. In today’s mailbag a claim that we’ve accused Australians of being lazy and that our advertising is appalling. Read on…
—In today’s DR ((Monday, 21 February 2011) Dan makes a pretty good argument against royalties.
No royalties, no money for dictators to buy weapons to enslave their people. No royalties, no money for governments to create the welfare state and make the populations lazy (and useless).
And maybe the recognition that the value of resources is acquired by the effort to get it out of the ground and make it useful. Well done. Keep it up.
Really somehow we are now lazy. I work in the mining industry and I work hard. We work a 12 hour nightshift for 7 days straight and then another 7 by 12 hour day shifts and when the average temperature hits 45 degrees plus outside (and it does regularly) not to mention how hot it gets in mills and furnaces I believe I can appreciate the notion of a hard day’s work for a hard day’s pay.
I normally like your stuff but I believe even as well intended as you’re comments were they were written poorly. Further I would suggest to you that these comments are in fact ill informed. For example you know as well as I that Australia has had natural resources for a very, very long time and it has only been in very recent times that the mining industry has even looked like returning a positive return on their investments. The mining industry has historically returned a negative return on capital investment. BHP were lucky to achieve a 7% rate of return on their iron ore investments and were thinking of selling the business off. Please look up these statistics because they are very interesting especially given your thoughts on the Dutch disease.
I do however agree with you insofar as pointing out that YES my parent’s generation had it tough no doubt and their parent’s generation had it tougher and that at the end of the day it is because of the hard work of previous generations that has allowed us to live a much better life. I certainly agree with that sentiment. And yes I believe we need to invest our time and effort educating our children that life is tough and teach them the value of hard work and especially the value of money.
But Dan the importance of free market economics is to allow people, companies to take risks and invest capital in industries like the mining industry to try and make a buck. Should we fight the Dutch disease by lobbying government to incentivize the manufacturing sector? Free market encourages people to take risks, invest capital and they should expect a return on their investment.
How can doing this very well somehow create a “lazy” populace? Go figure!
–Michael, we’re making the same point. For-profit enterprises can’t afford to be lazy if they want to survive. They have to create value for customers. That takes industry, skill, and intelligence. There’s no doubt about that.
Our point was that in resource-rich countries, it’s everyone outside the industry (and especially those in government) who take wealth creation from extractive industries for advantage. They forget about the down years in the commodity cycle when there are no profits.
They only see the bumper years and that’s when they become acquisitive and grasping.
In Libya, the Gaddafi regime got “lazy” because it relied on one source of export income to fund all the promises of the State (and the graft and theft of the establishment). The same is happening in Venezuela, where Hugo Chavez is methodically wrecking the economy and squandering his country’s energy wealth.
The bigger point is that making a profit in the free market is difficult to do. The “resource curse” is that it gives some people the impression that resource profits are effortless and don’t require any long-term planning, delayed gratification, and prudent investing.
Of course you wouldn’t expect the government to understand how to create wealth. It doesn’t create a single penny of wealth, ever. It can only redistribute money it’s taken from someone in the private sector. When you have that coercive power, making money is as easy as taking money. And that’s lazy, in addition to being theft.
–Finally, here’s the kind of note we get periodically questioning our integrity, credibility, marketing sense, and a whole lot of other things. Our response follows.
Just wondering if you will be ceasing publication if the housing market doesn’t crash in 2011 like your add states? It would seem to me that would be the honourable thing to do. But then again, you’ve been calling for a crash for years, and no doubt IF it happens you will claim you were calling for it to happen, even if it doesn’t happen for another 5, 10 or 20 years! LOL
What you should really be advertising, is that you’re a person without any credibility or integrity. That you only show information which you deem to be bearish to justify your cause, and that even the information you present as bearish isn’t in fact bearish at all. It is in fact the lowest common denominator scaremongering, directed towards those who are also bearish or to those who are so easily led by your lies.
You must be one seriously unhappy and frustrated person, as clearly you would have sold all your property holdings many years ago, only to see them continue to rise. Failing to sell all your holdings would make your integrity even lower than it already is, if that were possible.
Anyway, just thought I would drop you a line to find out when you plan on ceasing publication, and doing all Australians a favour by ceasing to place such misleading adverts as you do. Even if we assume the worst outcome coming true, it would merely bring house prices back to where you would have sold, or maybe even higher, as no doubt you’ve been bearish property most of your life. LOL
You must be so embarrassed at how useless your publication is, and how it has only hurt people who have acted on your advice. Have you refunded all their subscriptions to show you’re an honourable person? Have you apologised to them? The one upside of your scaremongering marketing is that it keeps many others bearish on property, which is in fact the best recipe for continued rising prices LOL
Will property crash one day? Who knows. Maybe. That isn’t the issue, it is when. Timing is everything, but you wouldn’t have a clue about that. That’s probably why you publish a newsletter, because you can’t make a dime yourself, and have lost so much by not being in property. I’m actually shocked you hold an AFS license, but that probably goes more to showing how poor our licensing requirements are.
The fact that such atrocious advice can be dished out every year, and be allowed to continue. I am just reading your webpage, where you ask for people to sign up, so you can provide contrarian investment advice. LOL
That is so funny, because it’s actually true. You give advice opposite to what is reality in the market, so definitely contrarian. Certainly not contrarian to the public views though where a significance % also agree house prices must come down. But we all know those people are the ones who do not own property.
–Yeah we were overdue for this kind of broadside. It contains a number of recurrent criticisms against our editorial message, our business model, and our general moral fibre. So from time to time, we try to address these issues.
–Our prediction that Australian house prices are going to crash isn’t based on envy. We don’t own a home in Australia. Never have and never will. So we have no personal wish to see housing fall to a price where we sold, or where we could buy. You’re completely deluded about the motivation of our analysis.
–The motivation is to warn people about making what could be the single biggest financial mistake they’ll ever make: taking on massive debt to buy a home at the top of the price cycle and the bottom of the interest rate cycle. We could be wrong, of course. But since we’ve seen it happen before in the UK and the US, we doubt it.
–The prediction is based on the extraordinary growth in household debt levels over the last 30 years. Nearly all of that is mortgage debt. Australians carry a heavy, interest-rate sensitive debt burden. And right now you have historically low interest rates, historically high house prices, and full employment. This is as good as it gets. And when it can’t get better, it usually doesn’t.
–Are we early? Maybe. But so what? That doesn’t make us wrong. And frankly you’re an idiot for saying so. If house prices are seriously unaffordable and overvalued in Australia, then not alerting our readers to that would be dishonourable. We’re happy to be early. It will give people time to avoid the big loss when the crash happens.
–And it will happen. Sooner or later, in response to an external credit crunch, the house price correction is going to come. If we’re wrong in our precise timing it does not make us wrong in our underlying observation. And getting the big trend right in asset prices is just as important as timing.
–There must be some underlying resentment or grudge you have for thinking our publications are useless and require apologising for. What is it? Maybe you misunderstand what we’re trying to do. So we’ll clarify: our aim is to tell you investment stories that you’re not going to find elsewhere, or until much later (like LNG and rare earths, to name two examples on which our subscribers were many months ahead of the popular curve).
–Nobody needs to be told to buy the big banks or miners. You get told that every day. Nobody needs to be warned about the threats they already know about. Our business is to explore the opportunities and threats that are outside the mainstream press and investment establishment.
–That’s the only real way you can have an advantage as an investor, by knowing something somebody else doesn’t. In order to do that, you have to be willing to think about the world differently, imagine what might happen, and then investigate it more thoroughly to see who the winners and losers are, and then take a punt.
–Of course we won’t always get it right. But we have a team of people now dedicated to doing that work in their respective sectors. And we have tens of thousands of happy subscribers, many of whom have made a profit from this kind of thinking. Why would we apologise for that?
–If it were possible to refund your free subscription to the DR, we would. But here’s an alternative: if you don’t like it and don’t find it valuable or thought provoking, unsubscribe! It won’t cost you a thing. And there’s a good chance it will make you a lot happier. LOL