Get Rich, Get Terminated

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–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%.

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. I’ve been running a hypothesis to anyone who would listen : the floods have the ability to tip the housing market into a severe slowdown or reversal. Much of the property that was flooded is in high-value suburbs. The general thinking in Brisbane was that a big flood was unlikely because of the flood mitigation in Wivenhoe dam. Now that has been proven to be a false faith, aren’t the affected property/suburbs likely to drastically fall in value, taking median values with them? And with so many people watching median prices as an indicator of ‘health’ of the market, this could be the pin that bursts the bubble of belief in a never-ending rise in the market, in Brisbane, at least. Sure, the affected housing stock is but a tiny perecentage, but I can’t see them getting buyers at any price for quite a few years. Perhaps historians can tell us what happened after 1974.

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  2. Interesting point brc – and add that to the number of recent receivership cases on whole apartment developments on the Gold Coast and a broader trend may start to emerge on median data in Qld….

    Richo (the Second)
    January 19, 2011
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  3. When and not if the property bubble pops, the usual spruikers will blame the “floods of biblical proprtions” for the downturn/loss of equity/flooded housing market/fire sale prices/add your own.

    Private sector debt is what in this country? 160 of gdp?

    The four majors are exposed to what % of their books to property? 60? – 70? – 80%? Ah well.

    What’s another 4-500 bill to take national debt to 100% of gdp thanks to “benny and the inkjets”.

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  4. “team tagging”? – pots and kettles comes to mind. Biker’s training would be fun to watch though – NO!!! Nurse trainee Biker … I said attach the electrodes to his TEMPLES; NOT his testicles! :)”

    I’m afraid Post-Natal Birth Control is frowned on (even in mental hospitals) these daze, Ned. I’d need that policy changed in his case. ;)

    When Harris wrote his text “I’m OK, You’re OK” back in the sixties, he probably hadn’t realised there are some individuals who are simply ‘Not OK’. Hence his later book ‘I’m OK, You’re NOT OK’.

    The naysayer definition describes to a ‘T’ _T_his sad individual.
    Discredits us when we post? Well, he wouldn’t want that…
    Oh, the humour of that irony. :D

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  5. brc, there is no doubt that flood affected properties will decline in value significantly and even those properties which did not flood but were close to the inundated areas will drop as well, imho.

    People will be wary of purchasing property on the river for many years to come, just like after 1974.

    Many of the properties inundated will be insured and will be fixed up, but they will still be in the flood zone and it could take the best part of a generation before people forget about flood risk.

    Flood maps of 1974 were never perfectly accurate, but with the advances in technology since then, I’m very confident the flood map of 2011 will be spot on and new purchasers of riverfront property should be well aware of the risk they are taking.

    Again, I believe Brisbane properties that were obviously unaffected may become more attractive in the future, which can only be good for those people who don’t live in a flood zone,(like me), so we may see a 2 speed real estate market. As to the overall median price for a city, how relevant is that really to a buyer? It’s only a statistic.

    Cheers

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  6. Speaking of flood maps check out the before and after aerial shots on the link below, by sliding the black line from right to left. As someone who lives in Melbourne this helps put it all in perspective.

    http://www.abc.net.au/news/infographics/qld-floods/beforeafter.htm

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