Hike in Fed Funds Rate Would Cause Damage to Collateral on Books of America’s Banks


Free beer. It’s even better than free money. Beer you can drink right away. Money has to be exchanged.

Your editor is thinking about beer because he’s going to win some of it from Kris Sayce at Money Morning. The Sayceninator was one of several colleagues last week who expressed the view, if we understand them correctly, that the Fed’s decision to raise the discount rate last week was a sign of monetary tightening.

This triggered a flurry of speculation what the net effect would be. Sell equities? Sell bonds? Buy bonds? Sell gold? Buy gold? What what what?!!

Our response: don’t believe the hype.

So we made a bet with Sayce: if the Fed raises the Fed Funds rate at any time in the next three months, or even fixes short term rates at 0.25% instead of today’s free-floating range, we’ll buy him three barley pops. If the Fed Funds rate goes nowhere, that’s more beer for us.

The market seems to agree with us, so far. After an initial fainting spell on Thursday, it remembered itself and gathered its composure. Granted the S&P and Dow didn’t do much on Friday. But they didn’t crash, either. And today Aussie stocks have held their nerve as well and sprinted higher.

The simple, unarguable, world-conquering, completely undeniable, not-to-be-disputed truth is that the Fed cannot raise the Fed Funds rate without doing serious damage to an American real estate market that’s already in intensive care. We would bet a keg of Heineken on it. Why?

A hike in the Fed Funds rate would do more damage to the collateral on the books of America’s banks. It would wipe out more (already thin) capital cushions. And it would undo the work the Fed has done in other markets (securitisation) to get credit flowing. The Fed can’t risk all that.

It’s not the big money-centre banks in Wall Street you have to worry about. It’s the smaller regional and community banks. The Federal Deposit Insurance Corporation shut four more of them over the weekend. That’s 20 for this year, which is a lot less than the 140 last year. But if you wanted to see a spike in U.S. bank failures, you’d definitely raise interest rates.

Besides, why bother? The Euro is in slow-motion imploding as a currency experiment. The dollar, as the not-euro, is getting a bid. At the very least, the dollar bears are closing their shorts for now. The U.S. dollar index is still testing resistance at around 80. As Murray said last week, if it can hold 80, the next stop is 84. That’s consistent with a much weaker euro.

All of this happened without a puny 25 basis point rise in the discount rate. If the Fed really wants to get tight, it can shrink its balance sheet and quite directly supporting lending and asset prices in any number of markets. Until you say a shrinking balance sheet, don’t think Ben Bernanke has suddenly turned in Paul Volcker.

Long-only stock fund managers can sigh a breath of relief then. The easy-money conditions that have led stocks up since March of last year are not disappearing any time soon, as far as we can see. Not that you have an all clear to buy Aussie stocks. But where does that leave us?

It leaves us pretty much in the same position we were to start the month: having no idea what the future holds. We know what SHOULD happen. More global deleveraging ought to lead to lower prices for stocks and real estate and even commodities. We’d expect a bear market in paper money that would have a corresponding bull market in precious metals and precious metals equities.

This is how we resolve having a fundamentally bearish position on the economy but still recommending you own some stocks. Yes, it’s risky. But it is a strategy nonetheless.

Still, we can’t help but think that official policy makers here still underestimate how vulnerable Australia might be to another credit shock. No one is worried about Australia’s sovereign debts because, by comparison, they are a smaller as a percentage of GDP than many other nations. The country’s debt burden is lighter, and thus, easier to service.

But if there is another credit crunch in America due to falling commercial and residential real estate values – how eager are American and European lenders going to be to to lend money to Australian banks? Won’t they want to conserve capital instead? And then where will the money come from?

This leads us back briefly to a few more facts about Australia’s net foreign debt. And here we mean the debt owed by households and corporations too, not just sovereign debt. Based on the maturity schedule of the debt and composition of lender countries, we’d say Australia could have a massive debt shock rather easily.

That would put the Federal government in the position of lender or debt guarantor of last resort. And THAT could quickly lead to rising government debt-to-GDP ratios-exactly the same kind that blew out in America and Europe in the last two years due to similar circumstances. But where’s the proof?

First, have a look at the chart below. It shows that the UK, the US, and Japan make up combined make up 49% of Australia’s foreign debt country. To the extent the banking resources of these countries will be dedicated to saving their own hides in a second credit crisis, you can assume they might not have as much money to lend here. That leaves a huge burden on the remaining lenders, including the 32% classified as unallocated (whoever that is).

Composition of Foreign Debt by Country

But the problem is more serious when you read about the maturity schedule of Australia’s foreign debt. According to 2008 data, over $400.1 billion dollars of Aussie foreign debt – or 35.4% of the total – matures in 90-days or less. Nearly half the debt total – $514 billion – matures in one year or less. What does that mean?

We think it means two things. First, that’s a lot of debt to roll over in a short period of time. It gets even harder to do when your lenders have bigger fish to fry. Second, it makes your borrowing a lot more interest rate sensitive. You may indeed be able to borrow. But it will cost you a lot more to do so. And you can be sure that if the Big Four Aussie banks have to pay higher rates internationally, they’re going to pass on those rates domestically. We’ll see what happens to housing finance commitments then.

One guess is that the government will have to pony up more money in the residential mortgage backed securities market (RMBS). The government has pumped more than $8 billion into the market since 2008, according to Danny John in today’s Age. This means the housing boom is being propped up by government borrowing to support lending.

There are more than few outrageous aspects to all of this. For one, it looks to use like many of the non-traditional lenders who are financed via the AOFM are loosely affiliated with Big banks anyway. It’s a way for the Big Banks to practice high-risk lending and sell the loans to the AOFM, all in the name of making housing “affordable” to people whom the Big Banks won’t lend to on their own balance sheet. That’s pretty shady.

The issue for Australia is whether the back-door rigging of Aussie house prices by the AOFM will eventually endangers Australia’s ability to pay its sovereign debts. Granted, $8 billion here or there hardly seems like the sort of thing to break the national bank these days. But it’s the trend that concerns us.

That trend is that in markets where traditional financiers and lenders won’t participate, the government is forced to come in and put the public balance sheet on the line. There are few markets more politically important than housing. You can see why the government is committed to supporting prices even if it means supporting friendly affiliated non-bank lenders with billions in the securitisation market when few others will.

But our question this week is what happens to that $500 billion in foreign debt with a maturity date of less than one year? What happens in another credit crunch if Australia’s main borrowers – and let’s be clear it’s the big banks and financial companies we’re speaking off – have to pay more to borrow (assuming they can get it?)

One obvious answer is that the federal government will have to step in. This could lead to transfer of private liabilities on to the public balance sheet here in Australia in just the same fashion it happened in the U.K. and the U.S. And for a nation already carrying a large foreign debt burden, it might not take much for such a crisis to put the federal finances on incredibly unsteady ground.

But maybe we’re just grumpy because it’s Monday.

Dan Denning
for The Daily Reckoning Australia

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.


  1. It’s interesting that after the emperor has been walking around with no clothes on for long enough people stop looking, or even noticing.

    Here is my 4 step plan for western nations to get back in the black with no pain whatsoever:

    1. Nationalize the illegal drug industry. ( Yes i know we hate nationalizing things, but hey..). Conservative estimates put that at about $100 billion per year in the US…..I would estimate it to be more like $200 billion. Everybody likes getting high. Always have. Always will. In fact historically the only things we seem to like better are screwing and killing. And somebody is already making cash outta those.

    2. Scrap the DEA and all other massive government bureaucracies that do nothing. Estimated money spend purely on drug enforcement in the US : $60 Billion per year. Again a massively conservative estimate, as it does not take into account the police resources spend on burglary, assault etc, which only occur to fund drug habits.

    3. The US spends roughly $60 billion per year incarcerating felons. An estimated 90% of those are for drug trafficking, possession or related crimes. Band….another $50 billion odd in savings.

    4. Wait till the industry is up and running at a nice profit….and privatize it. Big pharma will love it.

    What do you think the chances are?

    ( Oh i have a step 5 too…but nobody will ever go for it…..it involves sacking 80% of public *cough* servants *cough* )

  2. Your most insightful discussion yet of the mechanisms that will probably lead to the total devastation of the Australian Housing Market following in the footsteps of the U.S. Our only hope is if our currency remains in demand as a hard commodity currency.

  3. Mark: “…the total devastation of the Australian Housing Market…”

    Attempting to generalise the US and Japanese situations to that of Australia is precisely the mistake made by Steven Keen, whose hunches about Australian property, interest rates and unemployment rates were all _hopelessly_ wrong.

    “Following in the footsteps (hoofprints?) of the US”(?) Good luck with that hope, Mark. You’re relying on us following those cowboys down the yellow brick road? Happy trails, pardner! ;)

  4. Hmmm. Let’s put this into a scenario your average punter can understand.

    You have to re-finance the residual on your car loan (the foreign debt)in a couple of days and you’ve kept it in reasonably good nick (the economy) and might still have some equity against the re-sale value (the Howard surplus),not like your Greek neighbour with the ’91 Nissan Pulsar, however the finance company (Wall Street) wants some projections and they’re worried about your biggest client (China)getting the wobbles and reducing your cashflow; your missus recently blowing out the credit card (Rudd Government deficits; the kids squabbling for more pocket money (union wage demands); and the fact they will have to re-possess your neighbour’s ’91 Nissan Pulsar any old day at a big loss.

    The answer is: Sorry mate, can’t do it at the old rate and the loan would have to be real short term. You go into a panic. You are going to lose your car! You can’t afford the payments at the new interest rate or term!

    You go home and tell the missus. She says, no worries, she’ll get her relatives (taxpayers) to take out the loan for you in their names (Government finances the debt) and then they will all be responsible for the payments!

    You breath a sigh of relief! Not only can you keep driving you can stick the relatives, who you don’t like anyway, with the bill and they’ll keep paying the repairs bills to keep those mechanics employed.

    Rob of Currumbin
    February 23, 2010
  5. My theory for Dans quick trip back to the states…he has found a property in the beautiful Colorado wilderness for pennys on the dollar, where he can set up his “Mogambo Guru” style bunker complete with harem and stocked with loads of weapons and baked beans to see out the financial catastrophy that awaits us all! Hopefully whilst still publishing the DR Aus. Hope everything is well Dan, have a safe trip, Cheers Luke.

    Luke Of Stafford
    February 23, 2010
  6. Biker.. Steve Keens was not WRONG per se.. His timing is out is all and unprecedented responses to the GFC post his comment altered that timing.

    The multi billion dollar FHOG stimulus can not be denied on having an impact on suring up property prices.

    Unemployment, downturns in the past were catalysts for major redundancies in the workforce this time around we had reduced hours… from todays The Age..

    “in September 2007, there were 518,400 classed as underemployed. A year later there were 655,000….but there are no such doubts over the rise over the following year, when underemployment jumped to 811,600 in September 2009
    The latest labour force figures show unemployment has fallen sharply in the past few months, with 612,000 officially unemployed and the unemployment rate at 5.3 per cent.”
    So we now have 800000+ people that are casualised or had hours reduced and want to work more hours but can not… A conservative guess at say 25% of them kept their jobs but had hours reduced would mean a near on 30% rise in unemployment.. even so we have 1.4 million of working age people not earning as much as they would like to be earning.. I will concede the zero interest rates though.. I doubt we will get that low ever.. 13.5% (8% or 9% RBA Rate) is a possibility though with our 2 speed economy and that will be interesting, even 10% mortgage rates (6.5%/7% RBA Rate) will have major imapct on the Melbourne/Sydney real estate markets.. less so your WA markets because our resource sector will have to be booming to get that high.

    February 23, 2010
  7. Shoe-son, yes, I’m well aware that Keen complains that Rory Robertson ‘ambushed’ him; ie., that the crash is _still_ going to happen, given 10 – 15 more years. But Keen’s failure to consider that governments would protect the third largest Australian industry, construction; and, in so doing, protect employment and our tax base, means that Keen wasn’t really aware of the ‘big/ger picture’. Economists should include such likely factors, particularly if they crave media attention. Keen saw a domino effect… US, Japan, UK… us next… and then found data to support his thesis.

    There will be plateaus and corrections in property prices during the next three decades… as there have been during the last three.

    For the three events Keen proposes to occur (0% interest, 40% property crash, 10% unemployment) Bill Bonner’s capital D Depression would need to occur, right here in Australia. Were that to happen, you’ll probably wish you had bought physical gold(!)

    It’s more likely that events we’ll eventually see as ‘small blips on the radar’ will occur over time. Things in WA certainly look pretty optimistic, given some recent predictions:



    We’re sure that, of _anywhere in the world_ to own property now, WA is the ideal. If we knew of a safer or more potentially rewarding location, we’d be buying and building there, now… .

  8. Steve Keen tried to time the market – And was wrong.

    As to “ifs” – Well, “if” me aunt had dangly bits she’d be me uncle eh? :) Let’s face it, “if” one particular blogger here hadn’t believed the government would stimulate housing, he would’ve been wrong like the rest of us!

    Been working on that plan Biker – It’s not perfect. But I DON’T care – As it’s shaping up to quite possibly mean I’m gunna be debt free in my own humble little dunger with $45k pa coming in after tax for the next 4 years (’till I’m 55). And then $50k pa plus adjusted for inflation (deflation even?) for the rest of my covetous little life.

    And Yes, it involves buying one more house and building two.

  9. Sounds like a good move to me, Ned.

    We’ve had a string of requests for rentals today, including numerous long-term _government_ contracts, which we’ve never had before. With our one-year-lease policy, we’ve declined; but we’ve only one vacant, anyway; waiting to be painted and carpeted. Have a feeling the 1% vacancy rate may have fallen.. .

    I responded to Shoe-son, but have been hit by the WWW Cops… so I’m waiting, waiting, waiting to see if/when my response gets aired. Starting to see a possible pattern here; if one posts a link or two, the filter puts the post ‘on hold’. Maybe DRA copped a link to something highly questionable, possibly from the UK… ?

  10. They like to review links to Wikipedia. And to at least some of their own old DRA stuff is about the best I’ve been able to make of it Biker.

    As to the plan – Yep, I’ve had a look at the stock trading thing and reckon it’s not my bag. And figure if things should go real crook then neither cash nor bullion are where I want to be. So figure I’ll keep on keepin’ on – Or somesuch? :) :) :)

  11. _Biker-Pete_

    $350000 Unit
    $300000 Mortgage
    30 year term
    9% Interest
    Repay $555 per week
    Repay $459 per week

    My wage after tax
    $1127 per week

    Rent $260 perweek

    $200+ Extra per week to invest with

    Real Estate Bulls are right and Capital Gain is 7% a year for next few years… just keeps up with interest bill at 6.99%
    @9% I will actually be falling behind.

    More likely to get better than 7% return on investments in shares so I am in front.
    Rent goes up 10% a year (average $286pw for 3 years)
    I just signed of on a pay deal 5% a year each year for next 3 years ($75pw + Gross ) Still in front.

    February 23, 2010
  12. Nah Pete, it’s WordPress’s spam filter which looks for positioning of links and all kinds of other fuzzy criteria and it rarely misses a real spam message – but it means they have to manually scan for genuine stuff fairly often.

  13. Thanks for that, Dan. Sorry to have to sink the ‘wages containment’ ship… .

  14. I think I might have mentioned the Cairns situation here before – high unemployment, 14% or thereabouts and a depressed tourism market and we are in the middle of the wet season.

    Anyway we started looking for a 2br apartment to rent about 12-16 months ago and I distinctly remember at the time that there was hardly anything available under $250 and what was there was pretty rubbish. Did a search on realestate.com today and for 2 br (not looking just interested) – there is nothing above $230 in the 2br range now. New apartments, the paint barely dry for $230! Over 20 pages of places available as well – over 200 properties all up. Of course I am not saying move here or anything, it just illustrates a point about the effects of high unemployment on rents I suppose. I have no idea what the vacancy rate is running at but I am sure it is high now – way over 1% that is for sure! I am not sure what has happened to property prices as yet but this would be putting some serious downward pressure for sure – youchies!

  15. Pretty amazing, Don. My kids are paying twice and three times that amount for their apartments.

    What’s Cairns like, from a lifestyle point-of-view? Wouldn’t mind owning an apartment right on coastal QLD… . We should both be retired (whatever that means) by mid-2011.

  16. LOL! what a bunch of penny pinchers.

  17. Lifestyle isn’t too bad during the dry season – usual rules apply though, always have an air conditioned bedroom otherwise you go nuts :)

    We used to live in the Northern Beaches – Palm Cove – which is a beautiful spot and the mozzies are quite sparse. Of course you have to be careful in the water during the dry season – Box Jellies and the Irukandji (little tackers – very painful sting, end up in ICU for a week or so on painkillers – look on youtube for some footage of that!)

    We moved to a 2br house in Edge Hill in town – nice area, quiet, not too much crime – all in all quite pleasant and there are some extremely nice houses up the hill (literally) from where we are. Stay away from any areas which begin with M – Manoora, Manunda etc – high crime and not very nice :(

    Cairns city itself I do not find very attractive at all – it has the feel of a washed out tourist market in Bali or something like that. All the shops are tourist traps which have a sameness about them. It is also not a good idea to walk around the central city at night, especially if you are alone and drunk. During the day it is not so bad and the public pool they have built on the esplanade was a fantastic idea and is very popular.

    The surrounds of Cairns are stunning though – beautiful rainforest and the drive to Port Douglas along the coast road is magnificent. Cairns really needs to change tact and reduce its reliance on tourism big time.

    I think if you lived in Cairns, more than likely you should have a decent boat so you can enjoy the fishing/reef trips. Give the wet season a miss though, in it can rain for weeks and you can get generally pretty foul weather – not to mention the cyclones….

    Over the Kuranda Ranges you have the Atherton tablelands,parts of which are quite stunning. Extremely fertile soil, plenty of rainfall. You will drive through parts that are so green and hilly that you will wonder if you are in Oz. Quite a few people I know have a house on a decent block of land around the rainforest area or are having a go at farming – small scale of course. If you like that sort of thing definitely worth checking out.

    I think there are plenty of options lifestyle wise for sure, it all depends on what appeals to you of course :)

  18. I know there are people who are sure of the coming housing crash and fine with that but god I feel for these people up here. I used to be one of them 10 years ago :(

    To be stuck with a dud unit/house (house rents are only slight higher!!! aiiiyeee), knowing that you are competing with so many others just trying to land a half decent tennant whilst the big body corporate and council fees just keep rolling on in. In 1997! – we used to get about $200 per week from our 3 bedroom unit in Westcourt! That same unit would be lucky to get $220 now – 10 years later. That is not what you call income growth or whatever else you want to name it. Yes, yes, yes hoorah for the tennants of the world but there are two sides to every story :(

  19. The scenario you’ve described is hard to imagine, Don. Meanwhile at almost the same latitude, Broome is booming, property-wise. As Greg Atkinson states, there’s a diversity of markets across Australia.

    NV doing a Cobain on us? Heard a loud bang and there he was writhing on the floor, abdomen totally disconnected !~

  20. Don, if rents are low and prices are high, maybe it’s a good time to test the market by perhaps cashing in and taking profits? Otherwise, if the place has no debt on it, then it’s just a reflection of the general ability to pay IMO, and it’s likely all investments will perform similarly poorly in the coming years – no miracles there. As you say if wages aren’t rising, then something else has to adjust. A place has to have a reason worth living in, after all, be it a mining boom (Broome) or as a tourist Mecca (Cairns) and identifying the changes early means you get a better catch.

    This is the thing, though, about real estate – as with any market – the signs of change come early if you are looking for them, but the will to act is often late because people’s opinions take time to adjust (if they ever change).

  21. Incidentally, I was referring to Cairns in particular. Ability to pay is obviously going to be changing globally, but seriously who, except for a few, is likely to take on the complexities of travelling internationally to buy and sell investment properties?

  22. I agree Dan, unless you fall in love with the place you would give investing here a miss. Cairns does have a reasonable number of people living there who FIFO to places like PNG and the like which does offer some support and has prospects for growth in the future. However the impression I get is that tourism is definitely no longer growing up here and that is the problem. The official population of Cairns is about 150k.

    I see what you mean with Broome Biker – the rent there starts at $230 and looks like an average of $580-600 per week. Mind you that $230 looks shall we say…. a little basic, and there is only one.

    As I mentioned a while ago, Cairns definitely represents a bit of a microcosm about the effects of high unemployment on house prices. Now all they have to wait for is for the interest rates to creep up slowly this year and that will really put the cat amongst the pidgeons. Of course you don’t read in the local paper that things are bad, and it is the wet season when things are at their quietest all granted. However when I was looking for a place last year – we started in January and it was nothing like it is at the moment. All in all an interesting study – painful but interesting.

  23. Interesting posts Don :)

  24. Maybe Steve Keene should walk to Cairns intead :)

  25. Broome is hardly a mining town, Dan… . More one of WA’s tourist meccas. Pearling probably contributes in a minor way, but the premiere business is definitely tourism.

    Dan: “…who, except for a few, is likely to take on the complexities of travelling internationally to buy and sell investment properties?”

    Not sure it’s about ‘buying and _selling’_. Our hope has been to locate one of those fabled bargains in the NH we keep hearing about, as a holiday home. The problem is that if there were such amazing opportunities, the locals would have snapped them up. The only great buys we inspected were in Nova Scotia, which is freezing cold for a good part of the year. Location is even more critical in Canada than it is here… .

    Sent a few URLs from Nova Scotia last year. That mansion on six acres by the sea sold to a French family, as a holiday home, BTW.

    Haven’t abandoned the Nova Scotia possibility. There would be very little capital growth, but that’s not the main objective. We just need a future holiday base…

  26. Don: “I see what you mean with Broome Biker – the rent there starts at $230 and looks like an average of $580-600 per week. Mind you that $230 looks shall we say…. a little basic, and there is only one.”

    It will be very, very basic, Don. And there will probably be major issues not readily visible on the internet! Average of $590 pw seems about right.

  27. I have been giving it some thought overnight about where you would look at in FNQ for a holiday/retirement place.

    Cairns: If money was not tight I would look at buying a elevated place (ie on a hill looking out towards the sea or Cairns way). Edge Hill has some nice spots (hence the name) and I have seen a few nice ones at Yorkey’s Knob (pity about the name but oh well). There are others dotted around the place as well. Be aware of what floods regularly if you want to buy on the flats (old cane fields are not a good idea). Failing that a beachside place on the Northern Beaches are not too shabby – Yorkeys, Clifton Beach aren’t too bad. Be aware that if a cyclone somes you will be cut off from Cairns until the flood waters recede – this can be a pain :(

    Port Douglas: It is a nice spot and the Marina means you can be practically on the reef in no time (the reef around Cairns is shagged due to the nutrient outflow from the Barron River), houses are priced accordingly (high) and once again I would look at elevated or on the beach.

    Mission Beach (200 kms south of Cairns): Beautiful spot and some nice places along the beach but no Marina from what I can recall so you will be forever having to launch your boat.

    Atherton Tablelands: Rains a fair bit in some places – but if you are into the farming side of things not a bad spot but of course research thoroughly.

    So I guess it all depends on what lifestyle you envisage!

  28. It seems at FNQ that whatever shortcomings there may be living there are easily filled with alcoholic beverages (the builder’s-bog of lifestyle).

  29. Terry Ryder (Hotspotting… I’d post the link, but they don’t get through…) has just named his best picks for 2010. Last year, one of our locations was picked in the top three.

    Only one WA location this year… . Merredin (wheatbelt) $160K – $220 K.
    Rental demand high… .

    Ryder’s Top 10 “cheapies with prospects” in Australia

    Merredin, WA

    Ceduna, SA

    Gawler, SA

    Glen Innes, NSW

    Hunter Valley, NSW

    Kingaroy, QLD

    Launceston, TAS

    North West NSW

    Port Lincoln, SA

    Portland, VIC

  30. It would seem that ‘hotspotters’ are also community destroyers. I read an article that mentioned on town being overrun by speculators after it was mentioned in a top 10. Locals got priced out of their own town. Social responsibility does not pay these people’s salaries though.

  31. That’s one perception, Sambo. Another might be that Ryder is doing FHBs a service by alerting them to locations they can afford. I sent the same list to a younger couple who can’t afford to buy in Perth at $500K, but could easily afford to service a debt of $160K in Merredin.

    Many wheatbelt towns, having lost the next generation to regional centres, Perth, or the northwest mines, actually promote and market their community’s benefits to the rest of WA, very keen to have an influx of new families, in order to retain medical services, secondary schools, police services, etc.

    I’d hardly call it destroying a community. ‘Restoring community’ seems more apt.

  32. All

    When are you guys going to relaize that the DR guys are full of shit! Look closely they are hypocrites, in one breath they tell you all of the stock markets are goign to collaspe , China is going to implode etcetra. Then in the next breath in their paid news letters they have the next best resource investment directly linked to China since sliced bread! Ok the world may implode and there are some serious issues happening at the moment. What we dont need is to pay these guys for contradicting advice.So guys which is it? If there are no good investments then stop selling us bullshit in your pay news letters and do your subscribers a favour and refund our money, because by your own word stocks are bad gold is good! Gents you are full of it!

  33. I’m sorry but you are wrong Biker Pete. It is not FHBs that flock to these towns, because there is not enough work to compensate. It is speculators. Also, there is no point encouraging property or population growth in a town if there is not enough work to support it.

  34. The list Biker Pete provides is not devoid of employment opportunities. They are generally good places to live and for people with the right kinds of jobs (tradies, retail, health, farming related etc) would have no trouble in those areas. I don’t think any of the places on that list (to my knowledge) is doing particularly poorly economically either.

  35. The particular family to whom I referred has a breadwinner whose online business is a fledgling enterprise which earns him a reasonable _starting_ income. His partner is a teacher, who would be happy to pick up relief teaching work in a wheatbelt town. I realise that a ‘let-small-towns-die’ perspective may be consistent with a ‘let-the-economy-die’ ethic, but I support neither. I’d have thought that by encouraging young families to take up rural opportunities, reducing severe pressure on the cities, an oft-stated goal of reducing competition for homes in the city might be achieved.

    Having lived over a decade in some of these towns myself, when I couldn’t raise the capital to buy in Perth early in my working life, I can confirm that it’s a great way to start, providing a foot-in-the-door for couples just starting out.

    Love your opening sentence BTW, Steven, I mean Sambo. Not ‘In my opinion…’ or ‘Have you considered…” or “That’s your perception…” ;
    just “I’m sorry but you are wrong… ” That should have got you a clip under the ear early in life, or in your local pub… . Your apology really doesn’t soften the arrogance implied in the ‘I-am-right-you-are-wrong’ response, son.

  36. You are a strange man Biker Pete. Violence and name calling never solved anything.

  37. Gawler eh? We used to travel out there from Adelaide pretty well every weekend for two decades to visit grandma. What was noticable over that time was the way what was market gardens and farmland were slowly turning into housing estates. I therefore have a soft spot for the place and my aunty and cousins live there and are doing quite well thank you :) Nice little town all up, slowly becoming a suburb of Adelaide.

  38. Biker, I know a little of wheat belt towns but not of WA. The wheat belt is still dealing with the relentless drive for efficiency on farm. From bagged wheat to bulk handling, and from gatmrts that formerly had owned machinery now moving to contractors both hit hard at townie employment. Then there were “benefits” income migrants.

    What these towns all need however is supplementary income. One of my interests is up country containerisation of commodities as a holistic logistics enterprise. That means not just container logistics but getting around the bulk import distribution infrastructure in the end destination country to deliver in the standard unit load that it is packed in up country (standard container washed to food grade prior to be sent inland and using temporary bulkhead for loading. Taking these orders out of the bulk system is good for marketing diversity, non bulk rail freight services, and value add done up country which provides economic opportunity and entrepeneurial spin off for other local produce that can be stuffed into containers efficiently. Grain aggregation can also be performed at places other than expensive port land if rail services are efficient. In NSW many communities are relying on small mining ventures to move rail and water infrastructure forward locally that in turn can create legacy spin off opportunity including engineering skills.

    One thing all these places need to nurture growth in their communities though is high quality teachers and doctors and dentists that pay the taxpayer & export earning enterprises that afford those same taxpayers their daily bread, a payback for the cost of their education & training by being assigned to these regional towns and cities for many years before they can practice in cities.

  39. Can’t argue with that, Ross. One of the chief complaints we hear in WA is in regard to the imminent removal of essential services used by rural people for generations. As you say, agriculture is one of our critical industries.
    I feel for small communities which lose these services. And, as you say, why should these communities suffer any inequality of service?

    The container concept is interesting. Unfortunately we’re only just starting to realise the value of rail again. Did I read recently that Warren Buffett is actively buying rail services?

  40. Sambo: “It is speculators.”
    Ah, name calling. You are a very forgetful man, Sambo.
    Sambo: “Violence and name calling never solved anything.”
    Perhaps not, but I’ve always found it particularly satisfying in dealing with horseflies. Bad this time of year… .


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