This Time Is Different

Reddit

Well, so much for the supposed confidence-building announcements from the EU over the weekend. European equity markets fell heavily when trading resumed on Monday. Bond yields in Portugal, Spain, Belgium and even Italy continued to rise to new highs.

The bureaucrats in the EU are losing their already tenuous grip on the situation. Despite assurances that senior bondholders will not take ‘haircuts’ on their investments (not on lending before 2013 anyway) markets are imposing their own form of ruthless discipline.

For years the concept of risk was ignored. For years countries like Greece, Ireland and Portugal could borrow on terms almost identical to Germany, despite massive differences in economic structures.

Now, at a time when EU officials are desperately trying to convince markets that risk still doesn’t matter – that you can still have reward without risk – the markets are not buying it.

This puts mounting pressure on the European Central Bank (ECB) to ‘do something’. It meets on Thursday European time to discuss monetary policy. Bond investors will be sweating on the bank to open the liquidity floodgates and buy up peripheral European debt big time.

Whether it will do this is questionable. But even if it does, such action would only push the problem a few months down the track. We’re dealing with a problem of solvency here, not a liquidity problem. Such problems cannot be dealt with by temporarily monetising debt.

We wonder how Ben Bernanke is feeling about all this. On the one hand, he’s probably relived that some other central banker is the centre of attention for a change. On the other, he’s probably gutted that his QEII plans seem to have backfired.

Check out the chart of the US dollar index below

The dollar has rallied strongly since Bernanke announced his money printing scheme in early November. Things haven’t exactly gone according to plan for Ben. He’s trying to lower the value of the dollar to generate inflation and boost export competitiveness.

But he’s forgetting the minor point about the US dollar being the world’s reserve currency. In times of economic stability, the US dollar will generally trade according to domestic fundamentals. In times of turmoil though, it retains its safe haven status.

Because the euro is under all sorts of pressure, capital is now flowing back to the US dollar. It’s all relative in the world of currencies and as bad as the US dollar looks, it’s not as bad as all the other major currencies.

If there’s one lesson to be learned from the euro crisis it’s that problems begin at the core. The US dollar is at the epicentre of the global economy. The peripheral currencies (euro, yen) will likely come under major pressure before the greenback faces its day of reckoning.

But one thing is for sure, the dollar is not as good as gold. Gold is in a consolidation phase at the moment and just doesn’t seem to want to put in a decent correction. Dips are bought with gusto. It’s a sign of a powerful bull market when everyone seems to be waiting for a correction and it doesn’t happen.

The bull market in gold is the mirror image of the bear market in government policymaking and fiat currencies. The trend has a long way to run yet.

Closer to home, RBA governor Glenn Stevens was out last night talking about the terms of trade again. Unusually for a central banker, this was a thoughtful speech about how Australia should think about managing the recent jump in the terms of trade.

As you can see from the graph Stevens presented in his speech, the recent spike in the terms of trade is up there with past historical increases. The question he raises is whether it’s a permanent or temporary shift in our fortunes.

The terms of trade, by the way, measures the value of our exports in terms of imports. As Stevens puts it, ‘when the terms of trade are high, the international purchasing power of our exports is high.’

Stevens correctly points out that history suggests the huge increase in the terms of trade will be temporary. He just doesn’t know when the temporary bit will kick in.

If it is, he says that ‘it would probably not make sense for there to be a big increase in investment in resource extraction if that investment could be profitable only at temporarily very high prices’In other words, Australia’s resource sector could ‘probably’suffer from overinvestment if it turns out that China’s insatiable appetite for iron ore and coal is more a product of its massive credit boom than anything else.

Has Glenn Stevens been reading a bit of Ludwig von Mises lately?

Of course you don’t have to have studied Austrian economics to come to that conclusion, you just need common sense. Surprisingly for a central banker, Stevens seems to have plenty of it.

But let’s not get too excited. There is always ‘the other hand’.

‘On the other hand, experienced people seem to be saying that something very important – unprecedented even – is occurring in the emergence of very large countries like China and India. If the steel intensity of China’s GDP stays where it is already, and China’s growth rate remains at 7 or 8 per cent for some years to come, which appears to be the intention of Chinese policy-makers, then the demand for iron ore and metallurgical coal will rise a long way over the next couple of decades.’

Translation: ‘This time is different.’

Lookout.

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
Reddit

Leave a Reply

97 Comments on "This Time Is Different"

Notify of
avatar
Sort by:   newest | oldest | most voted
Ross
Guest

That last spike was the Korean War wool boom but the irony escaped Greg. They called it the meatgrinder. Rudd doesn’t appear flushed at all and somehow thinks he has the wherewithall to stand for the nation when he falls in behind the crazy confrontationalist Lee. But Rudd’s really batting for the wrong team altogether, hasn’t anyone noticed how he has that Dear Leader look and demeanor about him?

Lachlan
Guest

I like what I hear from Glenn Stevens lately. Noted in his speech that household savings in Aust are up from 1% to 9 or 10% in last five years or so. Encouraging. Glenn encourages savings over consumption for govs and individuals going forward. Wont hold breath waiting for govs to take the advice but well done Glenn anyhow. Maybe he has been taken back by all the economic carnage overseas.

Stillgotshoeson
Guest
Gerry Harvey of Harvey Norman Stores was in the paper last week complaining how retailers are doing it tough now and that it is a hard environment to be making money, he and other retailers ar not making money on flat scren TV’s as they are discounted out of margins. Harvey Norman just had a 60 months interest free promotion on Audio/Visual stuff to try and boost sales.. this if anything probably brought forward purchases to make November look good but a lul will probably ensue with post Christmas Sales taking a hiding. Gerry was also calling for the government… Read more »
Lachlan
Guest

I bought a computer at Harvey Normans this time last year Shoes and I asked the clerk how business was. He said it was fairish, but added they (HN) were predicting the GFC to be all over very soon now that the global recovery was underway. I didnt bother saying anything.
My markets are much softer now than at the outset of the GFC.
I am optimistic though… even more so than then. If markets tank again I wont be panicked. Certain trends are establishing themselves as I see it. I could be wrong but we all have to choose our path.

Stillgotshoeson
Guest

Back in March or so Gerry Harvey was in the news saying the GFC is over and it will be a bumper year for Harvey Norman Stores…

Stillgotshoeson
Guest

Work is very quiet for me. Many days I don’t go in as there is nothing to do.
We have 2 forward orders for February and March next year and that’s it.

Gladstone fell through so that is not a goer.
Numbers may be cut next year. Kind of hoping I am one of them. Have dropped hints that I would take a vountary redundancy.

Back has recovered well after the operation early in the year.. maybe get the knee done now while the company still pays my income protection :)

Lachlan
Guest

Well, lets face it Shoes. Conspicuous consumption suits Gerrys wallet. Thankfully Aussies are doing the right thing and taking some responsibility for their own financial well being…a reversal of the recent trend maybe. Gerry and his staff can look out for themselves and hopefully the gov will allow them to. Catch ya round Shoes.

Biker
Guest

Have been watching the price of large Sony screens for two years now.
Hardly Normal is BS-ing. His costs have dropped, but prices are virtually the same.

The story line? I’m _giving_ them away… . A little like REIWA’s line:
“Houses have never been so cheap!~” :D

Don
Guest
I don’t know about you guys but I feel that quality-wise flat screen tvs are a bit of a step backwards compared to the old CRT. Sure, running it on high definition using blu-ray you can get some amazing pictures but on the run of the mill tv channels it is a bit of a meh. As far as the size goes it is like going to the movies. After a few minutes the screen shrinks down to normal size and you hardly notice it – maybe I am just old fashioned but I haven’t seen any reason to justify… Read more »
Ross
Guest
Don, the LED’s with the equalising brightness according to room light have boosted them over the old ones. The big backed old digitals had more MHz until just recent flast screens too. As for Harvery Norman. I keep quoting Trevor Sykes. After the Korean War wool boom there was a period of half a decade where the pretence and commodity prices held up but then in 1960 it hit the fan. The part of the economy that went bust first was consumer credit in the appliance retail industry and their associated internal finance arms. They were the biggest financial busts… Read more »
Don
Guest

I have no doubt that the quality will improve Ross, just at the moment I have not seen anything that is going to make me jump. That is the nature of new tech – the longer you wait, the better and cheaper it gets – except for microsoft operating systems of course. :)

Ross
Guest

Big box prices are a funny thing Don. They dipped on lack of demand, came back up a bit on higher overseas costs, and then have dipped a bit again recently but nowhere near as much as the AUD’s rise. The story with the dollar might determine your best timing as there is a lag period between an AUD fall and retail price reaction. The less demand in that period the longer the price rise reaction period.

Being a one time German arbeiter yet a proponent of small government I reckon this one is right on the money

http://www.prudentbear.com/index.php/thebearslairview?art_id=10473

Stillgotshoeson
Guest
I think even if the price of the Sony flat screens have stayed about the same, the features and quality of picture would have improved. Panasonic are good units and they have come down heaps.. Ex and her boyfriend bought a Panasonic 50″ Full High Definition back in Feb or March for just shy of $2000. The updated version of the same TV is $1300 to $1500 depending on whomever has them on sale.. Good Guys, Harvey, Retrovision. I still use the 68cm CRT’s Kids have one for the X-Box, I have mine in the lounge. Set top box on… Read more »
gutfeeling
Guest
Stillgotshoeson, re. “I assumed (wrongly it may seem) that households had a little more spare capacity in household finances.” – that always seems to be the view of the RBA and Government, but I think so many people have borrowed to the hilt there is just nothing more left. There seem to be plenty of people who are earning good money, and those in government are still getting their CPI increases (or more – 10% at the NSW RTA this year for two people I know) but there are plenty whose wages haven’t moved very far at all in 10… Read more »
Biker
Guest
“I have no doubt that the quality will improve Ross, just at the moment I have not seen anything that is going to make me jump.” Same here, Don. In fact my 68cm Panasonic Model TC29V25A sounds identical to Shoes’. Probably the best TV on the market back in ’94. I’ve tracked every (new and existing) model Sony for two years. There have been periods when prices fell a little. This isn’t one of them. Perhaps Ross is spot-on when he states that: “…there is a lag period between an AUD fall and retail price reaction. The less demand in… Read more »
Stillgotshoeson
Guest
Comment by gutfeeling on 1 December 2010: Stillgotshoeson, re. “I assumed (wrongly it may seem) that households had a little more spare capacity in household finances.” – that always seems to be the view of the RBA and Government, but I think so many people have borrowed to the hilt there is just nothing more left. There seem to be plenty of people who are earning good money, and those in government are still getting their CPI increases (or more – 10% at the NSW RTA this year for two people I know) but there are plenty whose wages haven’t… Read more »
Biker
Guest

There may also be a point at which property investors and FHBs alike simply stop borrowing. Perhaps WestPac has already anticipated that, moving towards business loans rather than those for housing.

“Interesting 12 months ahead for the Australian economy” (?)

If true, WestPac may be hit first, as businesses fold. Traditionally business loans have been higher risk. Kelly is betting against this… .

Interesting 12 months? Personally, I suspect 2011 may be a stellar year for us. Won’t have all that long to wait, will we? ;)

Ned S
Guest
Either my dungers are worth more than I reckon, or there are some rather misinformed sellers in parts of SE QLD. Some readers might recall me mentioning that my parents moved about a year ago. Typical enough low set brick 4 Bed, 2 Bath, 2 Car type joint a bit over 20 km from the CBD as the crow flies. Paid high $300Ks. Similar joint in the same little street is now on the market – For a $79K higher ask than what my parents paid. Fully expect it would be a bit nicer inside – Allow $20K for no… Read more »
Stillgotshoeson
Guest
Just got back from catching up with a friend.. 2 houses near him up for Auction last Saturday.. Both passed in and are on market with for sale signs out front. He has a couple of dogs that he takes for a walk daily, reckons there are a dozen houses up for sale that have been up for sale for around 2 weeks or more.. Not normal for the area he is in he reckons houses normally sell in days.. He is thinking I might be right (finally :) ) about a turn in the housing market. He is around… Read more »
Biker
Guest
Lots of anecdotal references, particularly in WA… but how does one explain ABS data showing a 9.4% rise in Perth homes in the last twelve months? All the blogs I read are talking our market down… oversupply… Xty thousand homes on the market… longer waiting periods for sales… etc, etc… yet Perth house prices _rose_ 9.4%, October – October. No-one would doubt that there are more homes on the market, or that selling times are longer, or that auction clearances are down (in your eastern cities, anyway). Despite this, very few WA families would have picked up 9.4% after tax,… Read more »
Biker
Guest

Similar situation in one of our streets, Ned. We paid $323K for a 4X2X2 which is returning good rent. We imagined its value now at around $360K.
Far less impressive house in the same street has just been listed at $385K.
Doesn’t mean they’ll get it, but these are still ‘cheapies’ in that beach area. There’s nothing around those prices for sale, so if it sells, we may list ours at $405K.

Ned S
Guest
I wouldn’t be at all surprised if WA behaves differently to Brissie mate. Though over here, I’m definitely sniffing a buying opportunity coming along over the next year or so. But as I keep saying, I’m working in cash. (As are you effectively. And Shoes with the plan he’s discussed – I think?) For those working on leverage, their game is different. Plus there are quite different versions of the leveraged game anyway! We’ve all just got to play our own games according to our own circumstances. To our own best perceived advantages. And in my case, not being very… Read more »
Ned S
Guest
A somewhat older chap once said to me that you need 6 houses to support yourself in retirement. One to live in; And 5 to rent out. In a somewhat sane world I reckon he’s about on the money – 30% of a household income would be required to buy; Those who can only afford to pay 20% of their household income on accommodation would quite sensibly continue to choose to keep renting. And 5 times 20% of such potential entry level buyers’ household income makes up the basic livable income. For a household that owns it’s own home outright.… Read more »
Biker
Guest

No, you make good sense… even at 1:00 am, Ned… !

We’re open to any mix-and-match arrangement which permits a comfortable retirement. Flexibility, including the capacity to get a bargain or few, has to be the answer.

As I’ve inferred, it’s quite difficult to be sure of anything these days.
The immediacy of the internet means we all get continually conflicting and confusing data. When that data is exactly opposite, you have to ask WTF is going on!~ ;)

Stillgotshoeson
Guest
Comment by Biker on 2 December 2010: Despite this, very few WA families would have picked up 9.4% after tax, on their investments October 2009 – October 2010. My Christian Fletchers have gone up over 55% already :) Sell em today even after CGT and I am better than 25% after tax better off.. Thats in 2 weeks.. How about we annualise that.. 25×26=650% Figures and stats are amazing we can get what we want out of them.. even ABS stats that say 9.4%… wonder if they are annualised? ;) No need to be greedy though 300% Gross Profit will… Read more »
Stillgotshoeson
Guest
Bought through Super Ned I think it could be as low as 4 homes. 1 live in and 3 Investment 3 Houses in Melbourne giving $400pw Tax Free (over 60 current tax free rules) is $1200pw, I could live on that. Make it 4 investment for the few times 1 might be empty and you are still looking at $1600 on fully tenanted properties. This is why houses appeal to me for “income” not wealth generation. Nice steady income stream is appealing in my later years.. Making a non leveraged cash kitty is my aim for now. CGT on profits… Read more »
Chris in IT
Guest
“If not, the banks may raise rates in December, despite RBA recommendations. Good luck, Euan!~” I’ve got serious suspicions that the BOJ, FED and soon ECB printing presses will force the AUD so high as to make us suffer the same problems as China. Trouble is, with our bubble the way it is, we can’t really afford to drop rates to make buying AUD priced exports attractive. RBA is range bound. Drop rates and private debt increases more, driving up assets again further decreasing stability of society. Increase rates, and the AJ carry looks better driving up AUD and killing… Read more »
Biker
Guest

Yes, you’re definitely the average punter, Shoes. ;)

I imagine hundreds of thousands of West Aussies score 300% every month… :D

Stillgotshoeson
Guest

Comment by Biker on 2 December 2010:

Yes, you’re definitely the average punter, Shoes. ;)

I imagine hundreds of thousands of West Aussies score 300% every month.

After their drill results released today I might have to revise the figure to 1000% by this time next year…

Biker
Guest

That’s right, you never lose, son. You’re a legend!~ :D

Stillgotshoeson
Guest

http://www.theage.com.au/business/retail-sales-in-surprise-dive-20101202-18h9g.html#poll

Retail Spend unexpected drop… People are obviously hurting

Stillgotshoeson
Guest
Comment by Biker on 2 December 2010: That’s right, you never lose, son. You’re a legend!~ Occasionally I take a hit… sometimes on purpose to make a win, sometimes just plain, dare I admit, wrong.. Always seem to win more than I lose.. Stop Losses prevent big losses. Sometimes I sell too early and do not make as much as I otherwise might have, but you never lose selling for a profit. Share trading tip Set Stop Losses and don’t be greedy… never ever say I should have held longer because that could easily turn around and become I should… Read more »
Biker
Guest

Yes, that should set the interest rate soaring, Shoes. Those four rentals will soon be yours… . I figure 8% is the tipping point. Not long to wait.

(Was that you acknowledging the ‘God like powers’ of your tipster, BTW?!)

Stillgotshoeson
Guest

Is it just me? Or do you all see that Biker gets all narcy and defensive when I post about my good wins on Share Trades.. the ones that clearly outperform any of his property..

No, “Well done shoes nice to see your doing well”, He seems to turn into Mr Negativity and the bitter sarcasm comes out because my share trades are proving consistent out performers of property.. I don’t bag property, I think it has a place in a portfolio, just not mine, yet….

Stillgotshoeson
Guest

Just bought 100000 Shares in another Gold Miner, I expect 100% by April next year.

Biker
Guest

Is it just me, or has anyone noticed that Shoes obsessively posts negative comments about property here (and elsewhere)?

Any _tiny_ morsel gleaned from dozens of media sources is posted to demonstrate we’re on the imminent edge of Keen’s Krash… the Krash We Have to Have… . We even get to read The Dog Walker’s opinion, FHS… ;)

Shoes no longer posts weekly Auction Clearance Rates after I observed this obsession… but still can’t resist these exciting little snippets ushering in impending doom. :D

gutfeeling
Guest

“Shoppers shunned cafes and clothing outlets in October, sending retail sales to a surprise drop for the month and sparking worries about the pace of spending heading into Christmas.

Sales for the month fell 1.1 per cent, seasonally adjusted, to $20.2 billion, the biggest drop since July 2009. Economists had tipped a 0.4 per cent increase.”

Retail sales in surprise dive
http://www.smh.com.au/business/retail-sales-in-surprise-dive-20101202-18h9g.html

Stillgotshoeson
Guest
I am not negative on Property at all.. I am quite open in my belief that it should be part of a persons investment portfolio.. I just like to caution people that they should be careful with property investment, like all other investments because a)It DOES not always increase in value and b)It does not always double in value every 7 to 10 years like some (most) property bulls/spruikers would have them believe. Auction Clearance a Rates are in the Low 60’s High 50″s Percentile at the moment, tipped to fall even more.. I am watching more the average sales… Read more »
Stillgotshoeson
Guest

Drill results for my “Fletcher Cristians”

The results are listed in Table 1 for all intersections greater than 0.5g/t Au. They include:
· 2m @ 11.9g/t Au and 0.98% Cu
· 3m @ 19.9g/t Au and 2.0% Cu
· 16m @ 15.3g/t Au and 6.0% Cu
· 10m @ 5.4g/t Au and 1.9% Cu
· 4m @ 24.9g/t Au and 10.1% Cu
· 3m @ 12.5g/t Au and 3.1% Cu
· 2m @ 27.2g/t Au and 0.42% Cu in
· 10m @ 10.3g/t Au and 0.37% Cu
· 6m @ 16.0g/t Au and 2.2% Cu

Biker
Guest
Hey, c’mon, Shoes… lighten up! Tell us what the meter reader thinks… . Priceless, informed reading. Really miss your weekly Auction Clearance Rates… and your ‘tipped to fall’ views. Would you like me to provide my comments on “shares always double in value every 7 to 10 years” perhaps? I don’t have much experience in the actual share market, but I’m sure that if I post that little message frequently enough you’ll modify your investment practices. Mate, you had a house once. You’ve made an offer on another. You’re hardly a property expert, y’know?! Must be getting boring for others… Read more »
Stillgotshoeson
Guest

Comment by Biker on 2 December 2010:

Have the last LAUGH, by all means. :D

FIXED

Intend too ;)

Biker
Guest

to

Ned S
Guest
Damn Biker – That’s only the third one I’ve ever noticed – With you having ‘fessed up to “to/too/two”? (or ‘tu?’???) of them yourself anyway! :) As I’ve said before, and will quite possibly say again, when/if the poo hits the proverbial, one’s prospective mama in law is gunna want to know: * Do you have a job? * Do you own your digs? * Do you have any money in the bank? With car ownership also being pretty handy in a place like Oz. Though I’m yet to personally strike a prospective mama in law who wants to know… Read more »
Biker
Guest

You’ll recall my mom-in-law was adamant that her daughter wasn’t going to marry a stockbroker… her father having practised this trade until his early nineties!~

But, as that old song notes: “Girls don’t like boys, girls like cars and money …” Just as well I owned a home and a motorcycle when I met TLOML…!~ :)

On too/to/two, I offered the last word, not the last laugh. ;)
On two occasions, I’ve found it too much to pass up. Et tu? :D

Biker
Guest
Ned: “…mama in law who wants to know if I own any stocks and bonds or bullion?” That term ‘gold digger’ comes to mine :) here, Ned. We have some fascinating stuff her other granddad dug up around Whitehorse. Engineer on a paddlesteamer, he not only scored a lot of gold (which he fashioned into jewellery) but dug up a lot of mastodon ivory. Carved that into some beautiful heart-shaped pendants, etc. Great old bloke, who left me, among other treasures, his fishing gear and an absolutely mint 1915 Lee-Enfield .303. After his regiment, The Engineers, built a bridge in… Read more »
Ned S
Guest

Sounds like his bloody regiment, didn’t actually like, either fishermen, or stocks and bonds and bullion traders mate??? :D ;)

‘Course if his mama in law liked him, that would’ve/could’ve helped – A lot! :)

Ned S
Guest

An article that raises some issues concerning property through super on leverage:

http://www.smh.com.au/business/super-property-strategy-questionable-20101203-18jwc.html

Ned S
Guest

My mum dropped in today. Could tell me that a friend of her’s close by (20 km odd north of Brissie CBD) has just dropped the list price on her home by $30K – Husband is deceased and she doesn’t want/need a large family home now. Next drop (if it doesn’t sell now) will be less – Drop $10K off the ask is the plan. That would be getting close to a 10% drop on the initial ask overall. Things do seem to be correcting here. For now at least.

Steve
Guest

But Ned I thought there was a major shortage of properties all over Australia?
This piece also tells me there is an oversupply in the market in Brisbane.
I thought the real estate industry was always right?

wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au