–Remember Ben Ali, the Tunisian President who was forced to flee his country this week as rising food prices drove people into the streets? Well, France’s Le Monde is reporting that he didn’t leave Tunis empty handed. According to Le Monde, Ben Ali and has family absconded with 1.5 tonnes of gold in their luggage (very strong luggage). That’s about €45 million in gold.
–Please note that they did not depart with Tunisian government bonds…or Spanish government bonds…or French government bonds. Or any government bonds at all, according to reports. Trust a thief to know best: gold is money.
–You know it’s an upside down world when the best way to a big-pay day is to flee/get deposed/retire. For example, AXA Asia Pacific chief Andrew Penn will receive a $17 million payout as part of his termination payment when his firm merges with AMP. The Age reports the termination payout is a combination of $8 million in options and $9 million in payout.
–The obvious advice: get terminated! Of course that will only work if you’re a highly-paid executive at a financial services corporation. If you’re not, you had better keep getting wealth the old fashion way through hard work and good work.
–We don’t have anything against highly-paid executives, by the way. Who wouldn’t want to be one of them? They often work many years under a lot of pressure. And running any kind of big, complex, multinational organisation these days requires a certain amount of talent.
–But Mr. Penn’ payout is an example of how good times have been for the financial services industry lately. In an economy that’s been “financialised” by huge credit growth, the money shufflers of the world are going to make a killing. When they start jumping ship (as many CEOs did in 2007), you should take note.
–The wider Australian market continues to take its cues from events abroad. Yesterday, the fear is that China did too much to slow down inflation and as its economy slows, so will Australia’s. China, for its part, is ploughing ahead with efforts to prick its various credit bubbles before they pop in everyone’s face.
–For example, The People’s Daily Online reports that Shanghai Mayor will announce new measures to make local housing more affordable to young professionals (it sounds so familiar). “We will step up macro-control measures, prioritize the supply of non-luxury residential units to be owned and occupied by ordinary citizens, and prepare for the trial reform on property tax as required by the central government,” Han said, according to Bloomberg.
–The trouble with bubbles is not that they are difficult (impossible) to manage. It’s that once an economy has misallocated credit and real resources to speculative activity, the losses have to be written off before you can move on to a new investment frontier.
— Governments try to soften the blow of a bursting bubble by drawing out the consequences. But this usually turns what would be a sharp but short-lived adjustment into a long, drawn-out affair that ties up capital in old, non-productive investments. Sort of like all that bad housing debt that still sits on the balance sheets of American banks like a big fat stink bomb.
–But good luck with that property bubble Shanghai! Home prices were up 26.1% in Shanghai last year and nearly 30% in Chongqing, according to Soufun Holdings, Ltd. That makes Melbourne, with its 10% gains in 2010, look miserly.
–The trouble for the People’s Bank of China (PBOC) is that banks have exceeded its loan quotas routinely in the last two years. This is why the PBOC is now trying reserve ratios to reign in the asset bubble. Thus the state of a global fiat dollar standard, where Chinese banks are just as capable of irresponsible lending as banks in Australia, Europe, and America.
–Bad news for the Australian housing market could come in the form or rising interest rates. HSBC economist Paul Bloxham says interest rates will have to go up soon. He told clients that, “Food prices will rise due to the floods . . . against the backdrop of food markets which were already pretty tight.”
–“The more important issue,” he added, “is that, with the labour market already around full employment, additional expenditure on reconstruction and repair will put further upward pressure on wages and thus inflation.” He reckons rates will go up by 75 basis points this year and a full point by this time next year, to 5.75%.