The fight against the misinformation spread by the mainstream press is an ongoing battle. So large is the battle that we’re thinking of giving the Fairy Ruddfather a call.

We’d like to know if he can spare a few million dollars of taxpayer money – $38 million should do it – to help support our campaign against the property spruikers.

We’ll let you know how we go…

Meanwhile, what happened to the housing shortage? You know the one I’m talking about. The “chronic” housing shortage. The one where Australia is short by 135,000… sorry, 200,000 homes.

The housing shortage which will reach – what is it – 400,000 homes by 2020.

I’ll tell you what’s happened to it, it’s gone up in a puff of smoke.

We’ve final proof that it never existed. And as far as we can tell, barring a man-made or natural catastrophe, there won’t ever be a housing shortage.

I don’t think I’ve laughed so much in a long time as when I read the headline in yesterday’s The Age: “Flood of property listings to hit Melbourne market.”

“Flood”. That implies a lot. It’s the opposite of a “drought”. A “flood” is a lot. According to the Microsoft Word dictionary, flood is a synonym to deluge, torrent and overflow. On the other hand, a “drought” is nothing. Hope you’ve got that.

According to the story, “The Real Estate Institute of Victoria is predicting 1210 auction listings over the next two weeks…”

But here’s the bit that had us rolling on the floor in laughter, “A 50 per cent increase of new home listings expected over the next three weekends comes as auction clearance rates begin to falter on pricier home loans and weaker buyer confidence.”

In other words, despite the housing shortage of 200,000 homes, the property spruikers and mainstream press have had the crap frightened out of them by an extra 605 houses hitting the market over the next two weeks.

Or to put it even simpler, if we average those numbers out, an extra 302.5 houses hitting the market next weekend is considered a “flood”. And it’s causing panic because it’s seen as a “flood” of supply.

Are these people insane?

One week they’re saying with a straight pen that there’s a 200,000 housing shortage and the next week they’re worried the whole market could topple over due to an extra 302.5 homes being offered for sale in one week.

Doesn’t make sense does it?

By our calculations, 302.5 homes equals around 0.15% of the number of homes needed to address the so-called housing shortage.

We’d have thought the spruikers would be cheering that the supply has increased. After all, with a shortage of 200,000 homes, surely an increase of just 302.5 properties isn’t going to burst the bubble.

This is the capacity increase they’ve been waiting for. Isn’t it?

Of course it isn’t. The housing shortage has been the biggest myth, furphy… and dare we say it, lie so far in the twenty-first century.

It has never had any factual basis to it. All they had to do was say it enough times and people would believe it.

Now they’re panicking.

And I’ll tell you why they’re panicking. They’re panicking because they’ve known all along that the housing shortage claim was just a massive hoax. And now it’s been exposed.

Of course, we’ve known all along that the housing shortage argument has been just a great big tissue of lies. We could see it from a mile off.

Spread by every vested interest going around – the real estate industry, the property spruikers, the over-leveraged property investors, the over-leveraged banks, those allied to the property industry. You name them, they’ve all had their nose in the housing shortage trough. Conning buyers into paying top-dollar for a super risky asset.

But still the excuses come.

That’s all they are, excuses. Nothing the spruikers or bankers come up with has any basis in fact or logic. It’s a constant stream of excuses. They know that each one only has a limited shelf life and so they have to quickly think up another.

The latest comes from the ANZ Bank. Assistant editor Shae Smith referred to the report in Money Weekend, so yesterday we glanced through the report for ourselves.

And glanced is the word. Four pages it is. So short is the report that the disclaimer on the last page contains more words than the report it’s disclaimering for!

It would seem the aim of the report is to show there isn’t a property bubble. That house prices have risen mainly because interest rates are lower. So because of that, there is no bubble and houses aren’t over-priced.

It’s just rather a shame that after all the [cough] work they’ve put in, their own evidence points to how irrelevant their argument is. Let me explain…

ANZ Bank head of property and financial system research, Paul Braddick starts off his report by getting on the front foot:

“International comparisons of house price to income ratios have been widely used to suggest that Australian house prices are significantly overvalued. These analyses are not only dangerously simplistic but explicitly ignore a key component of the housing affordability equation – interest rates.”

[Gasp!] Who’d have thunk it, interest rates impacting house prices. As our French buddies would say, “Zut alors! C’est tres amazement!”

Although it’s funny because one of the other arguments put forward by the spruikers is that interest rates don’t impact house prices. Funny old world innit?

But Braddick continues:

“In Australia, the house price to income ratio rose from an average of around 3 in the 1980s to an average around 5 since late 2003. That is, the median house price in recent years represents 5 times the average household’s annual disposable income compared to 3 times in the 1980s.”

Okaaaaaaaaaaaaay, you’ve got us interested. Tell us more Paul…

Ooh, a chart. We love charts:

There’s the proof. Interest rates averaged about 14% in the 1980s, and only about 7% in the 2000s.

But what strikes you about the chart? No rush, take your time.

Well, I’ll tell you what strikes me about the chart. If the chart is supposed to be the justification for high house prices, or rather that house prices aren’t high, that they are just normal, how come house prices in the US and the UK fell?

I mean, if a lower rate of interest justifies higher house prices and therefore not a bubble, why did this not prevent the house price slump overseas?

ANZ subheads the report, “Debunking house price to income mean reversion.”

From what we can see it hasn’t debunked it at all. It’s just floated another excuse. Another excuse that has been immediately debunked with its own evidence. The fact that US and UK house prices fell suggests the price to income mean reversion must have occurred – at least to some extent.

The ANZ hasn’t debunked anything. It hasn’t provided one jot of evidence to prove that there won’t be a reversion to the mean.

It shouldn’t have needed us to point that out. It’s fine for economists to come up with their little theories, but to then argue in favour of something which has already been disproved is a little rich.

Of course, we’ve got no proof that there will be a reversion to the mean in Australia. But contrary to the claims in the report, ANZ doesn’t have any proof that there won’t be. In fact their own report does more to justify the case that there will be a reversion than it does to disprove it.

But the following bit from the ANZ report really tickled our fancy more than you can imagine:

“However, the major reason for this has been a structural (read permanent) reduction in interest rates.”

Wow! You heard it from ANZ first. Interest rates will remain permanently low. That means forever. Interest rates will never go back up.

Ha, ha, ha…

It’s typical mainstream thinking. You know, the old levers and buttons theory. That the Reserve Bank of Australia (RBA) can pull levers and push buttons to manipulate the economy as it sees fit.

And now you’ve got the banks making bold claims that they know for a fact that interest rates will be permanently low.

Love it.

But laughter aside, let’s play ball with the ANZ. Let’s pretend that they’re right. I know that means suspending reality for a moment, but stick with me on this. If interest rates remain permanently low, is that a good thing?

Well, the simple answer is no. Not when interest rates are being kept artificially low by the central bank and their banking buddies.

Because the only outcome of cheap debt and money creation is that it will inflate the banks to wealth while simultaneously inflating the population to the poorhouse – Dickens style.

With an artificially low interest rate the population is hoodwinked into thinking the interest rate will never go up. Simply because they’ve been told there’s been a “structural (read permanent) reduction in interest rates.”

They’re fooled into believing their wealth is increasing when in fact it’s decreasing.

But here’s the real visible impact of what the ANZ claims. And it’s another simple schoolboy error.

The ANZ Bank has ignored the power of leverage. In my opinion that’s a terrible mistake to make.

Let’s explain with an example…

A loan of $100,000 at 14% interest equates to $14,000 in interest.

An interest rate increase to 15% means $15,000 in interest on a $100,000 loan.

In other words, the interest burden has increased by $1,000.

A loan of $500,000 at 5% interest equates to $25,000 in interest.

An interest rate increase to 6%, means $30,000 in interest on a $500,000 loan.

But what if the interest rate – as predicted by some – increases to 9%? On a $500,000 loan the interest expense increases to $45,000.

That’s right, the interest burden has increased by nearly double.

A similar sized move from 14% to 17% on a $100,000 mortgage would have just added $3,000 to the mortgage burden.

Of course, according to the ANZ, an increase to 9% won’t happen because interest rates are now permanently low.

But look, I won’t get too tied up with this ANZ report, because it really is just another excuse from the banks to try and prevent the inevitable.

The Ponzi housing market is creaking at the seams. And the vested interests are doing everything in their power to keep it together.

But the simple fact is that house prices can’t go on rising forever. Goodness know how many times we’ve written that. But we’re yet to see a well thought out argument to suggest it can. All we’ve seen are badly formed and argued excuses.

There is a housing bubble, and that’s a fact.

And contrary to what Dr. Luci Ellis from the RBA claims, it’s a credit-fuelled housing bubble. Anyone who takes a minute to view the RBAs own statistics on residential loans can see that.

As we’ve pointed out several times before, the facts are that residential borrowing now stands at $938.8 billion. That’s a 50% increase over just three years. And if you look at the chart below you’ll see how it’s gone ballistic over the last thirty years:

It’s the debt that’s done it. House prices aren’t high because Australians love their houses more than anyone else – that’s the craziest of all the arguments we’ve heard.

And they certainly aren’t high because of an actual housing shortage.

House prices are high because of a credit-fuelled binge. You’ve seen the consequences of what happens when the Ponzi credit market screeches to a halt. It ends in disaster.

As I pointed out last week, the credit market has hit top speed. It can’t go any higher. Those that can afford to borrow have borrowed. Even those that can’t afford to borrow have borrowed.

In order for the credit Ponzi to keep going up it needs an ever greater increase in credit. And I can tell you that won’t last.

Any market, whether it’s shares, houses, or cars is the same. It involves human interaction and human emotions.

Up until recently the Ponzi has been allowed to grow because of the belief that someone else will overpay for the house that you overpaid for. The greater fool theory. But eventually the Ponzi ends. And when it does it’s carnage.

Owners realise their mistake and they start to sell. That’s when you get the real flood of sellers, not the piddly 302.5 extra ones Melbourne will get this weekend. Sellers who are eager to get out before everyone else has the same idea.

You see this kind of price action on the stock market all the time as sellers leapfrog to get out of a position. They do the same to get into a position. That’s how the bubble forms. The rush to get out pushes the prices even lower until the price is oversold.

The only – and it is the only – difference is that because housing is less liquid than share trading it takes longer for this effect to occur. It doesn’t happen on a second-by-second or minute-by-minute basis like the stock market. It happens over the course of many months.

And perhaps, just perhaps, the first stage of the flood is beginning. You can see the impact that just 302.5 extra house sales is having on the psyche of property spruikers, just wait until that trickle becomes a real flood.

The property spruikers have gone quiet. Very quiet. They must be building an Ark waiting for the flood.

Cheers,
Kris.

Tags: General

The media is at again.

And yesterday, ‘inflation’ reached it’s highest annual level since October 2008, supposedly ’smashing’ through the Reserve Bank of Australia’s (RBA) own self imposed target inflation rate of 2 – 3%.

However, the media were quick to point out that smokers were at fault – again! You see, the new 25% tax on ciggies apparently caused the inflation gauge to increase as much as 0.5%.

And of course, with the RBA meeting today to decide to increase rates, according to one journalist these figures are a sure fire indicator that the RBA will have to raise the cash rate.

But then, according to another journalist, at the same paper, because lending and new credit has slowed, these inflation figures are only a warning sign, but it’s unlikely that interest rates will increase.

Then there’s the ‘other guy’ that suggested a 5% chance of a rate cut. Er, that’s unlikely.

Who do you believe? None of them. They’re all guessing.

One thing’s for sure, it’ll be a tough day for those at the RBA office today.

But you’ll notice that the inflation figures aren’t from the Australian Bureau of Statistics. In fact these figures have nothing to do with the supposedly all-important Consumer Price Index (CPI).

Now, the CPI data is only released quarterly and for over ten years the RBA decided that it needed monthly data because ‘…greater frequency may help to identify changes in underlying inflation more quickly.’

So the Melbourne Institute came along and developed the ‘Inflation Gauge’ that you heard so much about yesterday.

There are a few differences between the two measures, the most obvious one being the volume of the data collected. But most importantly, the Inflation Gauge seems to be a fairly accurate tool of consumer price inflation.

But however accurate an indicator is, it disguises what’s really important. And that is, whatever the mainstream press tells you, inflation just makes you poorer.

Let me explain…

As I mentioned before, the RBA has a target rate for inflation of about 2 – 3% per year. So basically, each year your dollar is worth about 3 cents less than it was the previous year.

Or so it seems. The RBA has a groovy tool on its website called the inflation calculator. So while it’s a bit of fun to play around with, it’s frightening when you work just how little your money is worth now.

As an example, your $500 in 1967 would be equivalent to $5,236.35 in 2009! Which gives you an ‘average’ inflation rate of 5.8% over that period. Or another way of thinking about it, the cost to you has gone up 947%.

Or to put it another way, the value of the dollar has declined by 94.7%.

How’s that fair?

See, I think anything that takes precious dollars out of your pocket as evil. But there are of course the arguments that inflation is good for you.

One of the biggest ‘pro inflation’ arguments is that it’s good for your debt levels.

If you have a fixed rate mortgage and the inflationary beast comes along, then as your salary rises your debt levels remain the same and because of inflation your mortgage essentially becomes cheaper to pay off as it takes up less of your salary.

While it sounds like a simple solution, it doesn’t work like that.

Firstly, inflation affects your everyday costs of living too. And you, like most people probably only have your salary reviewed once a year. You’ll spend a whole year waiting for your salary to go up to meet your already rising living expenses.

But inflation doesn’t stop once your salary goes up, it keeps going. So you’re still struggling with the ever increasing living costs, even though you just had a pay rise. It’s a scary thought to think that even though you’re getting paid more, you still can’t get on top.

Your pay goes up in nominal terms, but in real terms your pay has actually dropped.

There’s even the misguided attempt to suggest that inflation is what the economy needs, even if it isn’t what the consumer needs.

You see, central banks like the RBA believe that inflation is one way to ensure that there is moderate growth to the economy.

Most central banks believe that by slowly devaluing your dollar, and in turn decreasing your purchasing power the economy can grow at a stable pace.

And not to be outdone on the ‘inflation is good for you’ bandwagon is the US Federal Reserve. A few economists are suggesting that the only way to dig the country out of the subprime crisis is to raise the target inflation rate so people can pay off their debt!

That’s right, they’ll have to pay three or four times the price for a litre or pint of milk, but at least they can pay off the debt. Except that will probably encourage more debt as living costs rise and wages don’t keep pace.

If the US thinks higher than ‘normal’ inflation will fix the subprime crisis what are the chances of the RBA following suit? I mean, we all know that Australia has some of the highest personal debt levels in the world.

At the end of the day, all inflation proves is just how much individuals are manipulated by central banks. It’s sad, but true.

See you tomorrow.

Shae.

Tags: General

Yesterday the S&P/ASX 200 ended the day down by 27 points. However, the market has slipped down agin this morning on the uncertainly of the RBA’s decision on interest rates.

The US markets were closed last night for Memorial Day.

The UK markets are closed for the Spring Bank Holiday.

The Nikkei ended the day up by 5 points to 9,768.70.

The price of spot gold in Australian dollars is trading at $1,436.32 while in US Dollars it is trading at $1,214.75. The price of silver in Aussie dollars is $21.91 and in US Dollars it is $18.53.

The Aussie dollar versus the US dollar is USD$0.8437 and against the Japanese Yen JPY77.12.

Oil was up higher overnight, however it had its worst month since October 2008 on fears that European demand is shrinking. Crude Oil closed at USD$74.89.

For the biggest movers on the market yesterday click here…

That’s all I have for you today, see you tomorrow.

Shae.

Tags: General

In The Go-Giver, Ernesto Iafrate’s Italian-American Cafe was the example of an extremely successful restaurant, where the delicious cuisine was exceeded only by the ultimate dining experience.

In Go-Givers Sell More, within our discussion on the five aspects of Value — excellence, consistency, attention, empathy, and appreciation — John related the example of a restaurant where he and his lovely wife, Ana, used to go that had pretty good food … sometimes. And, sometimes it did not. The lack of consistency was unsettling enough that they instead now travel twice as far down the road to eat at a similar restaurant that is in fact consistently good.

Earlier today I was reading a new book by my friend, Les McKeon entitled Predictable Success. He made the following point about companies that are in the mode of business suggested by the book’s title:

“Watching the interaction of the different functional groups of [these sorts of organizations] is rather like watching a highly trained relay team hand the baton from one runner to the next: They can do it seamlessly, over and over again, at high speed, and without looking back.”

And, this reminded me — literally, as you’ll see in a moment — of my favorite restaurant where I live in Jupiter, Florida: Sala Thai.

Sala Thai is owned by a sweet and hard-working immigrant family from Thailand who personify the type of value Ernesto talked about in the story. Let’s look at it by way of the five areas or aspects of value mentioned earlier (excellence, consistency, attention, empathy, and appreciation), starting with excellence.

There is just no substitute for  excellence, is there? Sala Thai has truly excellent food, and an amazing staff that simply does it right. They serve superbly well, not only as individuals but also as part of a cohesive unit.

Reading Les’s statement brought back a memory from about a month ago, when I was at Sala Thai and they were slammed with customers. They were moving swiftly, but also smoothly — their energy was both fluid and calm.

At one point, Um’s cellphone (the main phone customers were calling for pickups and deliveries) went off while she was in the midst of serving. At the sound of the ring, one of the waiters suddenly and gracefully switched direction, as though part of a ritual rehearsed endlessly to perfection, putting another guest’s plate down and taking the cell-phone handoff as he headed to the main register to take the order. And Um was amazing: she discreetly slipped the phone out of her back pocket and gently handed it to him in a way that would have made an Olympic relay team or even the Flying Wallendas proud.

This is exactly what Les is talking about when he describes an excellent team as being like a relay team handing off the baton — only in this case it wasn’t a metaphor: they really were handing off the baton!

In Part 2, we’ll look at the other four aspects of value embodied by this very successful restaurant.

Until then, I’m off to enjoy an order of “Bob Sizzlin’” (yes, they know what I like and they’ve even named the plate for me when I visit) and some Chicken Padthai.

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Tags: General

Beginning with Part One we’ve looked at why commission sales are good for good salespeople, why they are good for the company, and why it’s good business for a commission salesperson to be honest (thus – and most importantly – why it is good for the consumer).

Now let’s look at what John David Mann and I believe is the determining factor in terms of what makes a great salesperson great and why that person will thrive in commission sales.

Here’s a surprise: It has little to do with belief in the product, product knowledge or selling skills. Please don’t misunderstand! All three are vitally important and a must for anyone to be successful. They are simply not the difference-makers. After all, we all know many average salespeople who possess all three of the above yet are still not financially successful.

I thought of this as a fitting close for our four-part series after I received an email from someone who said that a person might sell on commission because they have a money need. Well, we “all” have a money need to some degree or another, as money is the currency of exchange through which we both add and receive desired value. But our need is not only not the difference-maker but just the opposite. In fact, the more we focus on our needs the least successful we will most likely be.

The key  is making sure you put the needs of the customer before your money needs. That way you’ll focus more on the customer (and on creating value for them), and the money will follow. Remember, “money is an echo of value. It’s the thunder to value’s lightening.” (From Go-Givers Sell More).

Focus on the money – or commission – and you’ll typically provide less value, thus make less money. Focus on the customer and you’ll end up providing so much value that you’ll make a lot more money.

Yes, the key is your point of focus. Spectacularly successful commission-based salespeople are laser-focused on serving the needs of their customer.

Place your focus on the customer…and not the money…and you’ll make a lot more money.

Ahh, another paradox of life. Don’t ya’ love it!

Tags: General

So, was Ebenezer Scrooge really such a bad guy?

He’s certainly got a lot of bad press. Especially for a fictional character.

Now, I’ll be honest, it’s been a while since we read A Christmas Carol, but you could argue that all Mr. Scrooge was trying to do was run a business.

Sure, he could have let Kermit the Frog, er, I mean, Bob Cratchett put another coal on the fire, and he could have given him a pay rise. But then again, maybe Bob Cratchett was just grateful he had a job.

We’ll have to assume employment prospects couldn’t have been that great at the time if Bob considered working for Mr. Scrooge as the best alternative. The worse alternative would be a stint in a workhouse we’ll guess.

The reason we bring this up is the headline on page 13 of today’s Australian Financial Review (AFR), “Czechs choose Scrooge.”

And then it has a photo of Czech president Vaclav Klaus. Who isn’t the Scrooge in question, but a glance at the headline and the photo could easily leave you with that impression.

In fact president Klaus wasn’t even up for election, it was a parliamentary rather than a presidential election being held by the Czechs.

Headlines are a tricky thing. We know that. Sometimes we get it right, and sometimes we get it wrong. Ideally the headline should offer something that encourages you to read the accompanying story.

And equally ideally, the headline should accurately reflect the story as well.

Anyway, we read through the article that the AFR had syndicated from Bloomberg. And then we searched online for the original Bloomberg article which the AFR article was adapted from, which you can read here. Although Bloomberg’s headline was, “Czech Deficit Cutters Plan Coalition Cabinet, Boosting Koruna.”

Funnily enough, the Czech article in the AFR is below another headlined, “Spain loses AAA credit rating.”

But if the Czechs chose Scrooge, surely the headline for the Spanish credit downgrade could have been a little more colourful. What about, “Spain punished for p***ing tax dollars up against the wall.” Or what about, “Spain loses rating after blowing dough.”

It seems as though the headline writers and indeed the majority of mainstream financial journalists just don’t understand the massive debt problem the Europeans have gotten themselves into.

While the AFR writes, “All three campaigned for reduced spending, indicating they may be able to form a cabinet committed to cutting a deficit that swelled to 5.9 per cent of gross domestic product last year, almost twice the EU limit.”

It forgot to point out that Spain has a deficit of 11.2% of GDP. To read that you’d need to read the article on Spain that I mentioned before. And if you want to see just how the Czechs stack up compared to the Eurozone countries, just take a look at this:

Seems to us that the Scrooge-like Czechs have decided to vote for a bunch of people who don’t want to send the taxpayer and country broke.

Although to be fair, there’s barely a politician we’ve got a positive thing to say anything about, so we wouldn’t be surprised if the new mob in the Czech Republic fell into the same old tax and spend trap.

Perhaps the Czech people have good memories. They probably remember what it was like to live under a regime that believed it had all the answers. A regime that left nothing up to the individual citizen and instead made all the spending and investing decisions for them.

Dare we say that the Czechs remember what it was like to have bureaucrats pulling levers and thinking they know how to micro-manage an economy.

Not that the old Czech government is innocent of being spendthrift. The online version of the Bloomberg article points out, “The Czech Republic’s debt will rise to about 40 per cent of gross domestic product this year, from 18 per cent in 2008.”

That seems bad enough to us, but almost nothing when compared to many of the Eurozone countries:

Perhaps they’re keen to avoid debt reaching the 53.2% level of Spain, or the 73.2% of Germany, or even the 115.1% level of Greece.

It seems they are. According to Bloomberg, “In rejecting parties that promised to increase welfare spending, voters sent ‘a very clear message’ to politicians that they want ‘a stable fiscal path,’ Simon Quijano-Evans, head of emerging-market research at Credit Agricole Chevreux in Vienna, said in a note to clients.”

It’s a contrast to the mainstream thinking in the West. Perhaps that’s because the West still has the misplaced view that government knows best. That welfare spending is essential to ensure the overall wealth of an economy and society.

That’s why you’ll have seen the ridiculous arguments supporting the new mining super tax. The case is made that it’s essential that profitable mining companies pay for welfare and other government spending. Because it’s right that everyone pays their fair share.

We look at it differently. We believe that initiative and endeavour should be rewarded, not punished. And we certainly don’t believe that initiative and endeavour should result in you being fined (taxation) for having taken the risks.

The way we look at it is like this – but the end result is the same.

In some economies you have governments going heavily into debt now to pay for bureaucratic spending, requiring its citizens to repay the debt in the future through higher taxes.

While in other economies you have governments imposing higher taxes now to pay for bureaucratic spending and will require its citizens to become indebted at a later date as productivity and entrepreneurial activity are extinguished through excessive taxation.

The former would include the Europeans and the US, the latter would include Australia.

As I say, the end result is the same. Both involve hapless bureaucrats spending money which isn’t theirs on projects which no-one really needs. And furthermore coercively controlling the lives of its citizens at its own whim.

And none of it provides any benefit to anyone. Take the following as an example of coercive government incompetence, cruelty and wasteful spending. This headline from ABC News last week really says it all, “Government to get tough with jobless.”

The article says, “More than 350,000 job seekers will be targeted as the Federal Government toughens the rules for obtaining unemployment benefits. From July, those that do not turn up for regular interviews with Centrelink will risk losing the dole.”

As you know, we’re no fan of welfare. But it comes to something when a government punishes the very people that its own rules cause to be unemployed.

Yep, that’s right, it’s one of our favourite subjects, the minimum wage. The government implements an arbitrary minimum wage level that means tens or hundreds of thousands of people are prevented from getting a job.

Because it’s against the law for an employer to pay even 1 cent below the minimum wage, many people become unemployable. Their level of skill makes it uneconomic for a business to employ them and therefore the business will seek alternative solutions, such as exporting the jobs overseas.

Not content with having forced these people out of work and onto welfare, the government is then determined to punish them a second time. This time for not having a job.

But get this, it’s comments quoted from Human Services minister Chris Bowen:

“This is about making sure that they are … doing their bit to get a job and that we are doing everything we can do to assist them get a job. It’s about mutual obligation. It’s about them doing their bit and us doing our bit. The interviews in the past for many years have been largely, frankly, a ‘tick and flick’ exercise. In the past they’ve been one-minute interviews with about 30 seconds focused on compliance, which is not capable of allowing Centrelink to come to a considered view of the individual’s efforts. These will be interviews that are five times as long and with a very substantial proportion devoted to compliance measures and making sure that the person is looking for work and actively seeking work and checking to ensure that what they’ve told us is correct.”

Talk about victimisation. Whether you like it or not, the fact is simple, without a meddling, coercive and victimising government and bureaucracy, odds are that each one of those 350,000 people would be gainfully employed.

It may not be their perfect or ideal job, and it may pay less than they’d like, but they would have a job.

Scrooge may not be the most popular fictional guy in town, but it should be remembered that at the end of the story, Scrooge does give the Cratchett family something they actually need, a slap-up feed, oh, and a job for Bob.

Meanwhile in the old days the government shoved the poor in the workhouse to do such enlightening work as stone-breaking, corn-grinding, and bone-crushing. Today they may not physically put them in the workhouse, but is it less cruel to forbid someone to work at a wage they’re willing to accept and then force them to beg and plead from the same government that put them in that position?

Cheers,

Kris.

Tags: General

On Friday, the S&P/ASX 200 ended the day up by 1.79%, or 78 points, closing at 4,457.50. However, the Aussie market is likely to have another day in the red, as Fitch downgraded Spain’s credit rating from AAA to AA+.

The Dow Jones Industrial Average closed down 122 points (1.19%) on Friday. The poor performance of the Dow in May has many wondering if the US recovery is about to come undone.

One journalist has suggested that unless European governments fix their finances, any default could lead to a double-dip recession.

The FTSE ended the day down, by 6 points. Shares in BP [LON: BP] lost nearly 5% as the cost to fix the leak in the Gulf of Mexico nears US$1 billion (AUD $1.18 billion). The Footsie for the month of May has lost over 6%.

The Nikkei finished up 123 points to 9,762.98.

The price of spot gold in Australian dollars is trading at $1,434.70 while in US Dollars it is trading at $1,211.13. The price of silver in Aussie dollars is $21.74 and in US Dollars it is $18.35.

The Aussie dollar versus the US dollar is USD$0.8460 and against the Japanese Yen JPY76.94.

Crude Oil closed at USD$73.97.

For the biggest movers on the market yesterday click here…

That’s all I have for this Monday, see you tomorrow.

Shae.

Tags: General

In Part One we saw that commission sales is better for the salesperson (who produces) and in Part Two we learned it is better for the company. But, what about the fact that commission sales will cause some salespeople to try and make the sale dishonestly in their quest for the all-mighty dollar?

The problem comes when there is a character flaw in the salesperson. In this case, what they are doing does not in fact serve the person to whom they are selling.

Fortunately, there are two reasons why it is in the best interest of the salesperson to be scrupulously and fanatically honest when selling:

1. It’s the right way to be (duh) . But, of course, we can’t be so naive as to go with that as the only reason since – let’s face it – not every salesperson is interested in that reason. But that’s okay. Here’s why:

2. It’ s more profitable both short-term and long-term. Who gets more referrals, the dishonest salesperson or the honest one? The one who provides extreme value compared to the price or the one who does not? And, even immediately, unless someone is simply a really proficient con-artist (and there are indeed those in the world) knowing how to play upon the greed of the “I deserve something for nothing consumer” (and there are indeed those in the world), it’s difficult to pull off that kind of crud.

Years ago I met a business owner who was described both by others and even himself as being somewhat heartless and uncaring. Yet, his company’s level of service was above and beyond; flawless. His money-back guarantees were the best; he questioned no one who wanted a return or complained (even incorrectly) about  a problem with the product and he and his staff did whatever they could to please. Why? “It’s good for business” he told me.

So, putting great intent (which is even more powerful) aside, in commission sales – which is what you are in whether you own the business or simply have the title of salesperson – it pays much more to be good and to do good…for the customer.

We’ll wrap up our series in Part 4 with a final thought. Perhaps it’s the secret regarding why some people wildly succeed in commission sales and why others don’t. And, it has nothing to do with ability which, while very necessary, is not the determining factor.

What do you think it is?

Tags: General

Kris is away until Monday and so I have jumped into his shoes to write today’s Money Morning.

If you didn’t already know, my job here is generating trade ideas for subscribers to the two separate technically-based services I operate each day. I can safely say that the past few months has been nuts, but in the best possible way. There has been plenty of opportunity with the market overshooting to the upside in the first few months of the year and heading into very long term sell zones on the weekly charts.

If you’re not already a subscriber, let me tell you what we’ve been up to and how I’ve been treating this market from a trader’s perspective. It’s a bit different than a long-term investing perspective. But you may find it valuable. So here goes…

We have been getting short the market in the Slipstream Trader service since the 13th of April. It turns out that was just two days before the very high in the ASX 200 on the 15th. Having ridden the market down from the highs we now have the luxury of creating paired trades with the remaining short positions that I have already taken profits out of.

A pair trade is when you buy a stock in the sector of a stock that you are short. By pairing the positions, you make money on the relative movement between the two stocks. At least that’s the idea. And it’s worked out well.

By creating a pair trade with stocks that have already got a large amount of profit in them, we now have many options. We can ride a bounce in the market and then cut the short positions if the uptrend reasserts itself. Or, we can cut the new long positions and let the short positions continue to make us money if the market falls over again.

I’m not trying to have it both ways, although as a trader you can be market neutral and profit. But my indicators and intuition are telling me something, to be sure. My expectation is that we will see a short squeeze in the market that will last days to weeks. After it comes, I will look to take profit on the new long positions and maintain the shorts in an expectation that the market will begin to trend back down again.

Markets never move in a straight line. They will inevitably move in such a way that you will feel under pressure no matter what position you have on. This usually leads to the cutting of great trades in bad locations and the entering into terrible trades at just the wrong moment. How do you prevent yourself from making the wrong decision?

My philosophy is based on expecting the market to do what I don’t expect. Trading is an eternally frustrating exercise until you accept that trading is an eternally frustrating exercise. Then the frustration disappears. Weird. Maybe even Zen?

The market, a little like life, will never give you exactly what you want. You will never buy at the exact right time all the time or take profit at the perfect spot. Instead, you will cut the trade and watch in disgust as it turns around and rallies madly. Or you will hold on to the position and watch in despair as it continues to fall.

There is a better way to manage risk than trusting your emotions. In fact, anything is better than trusting your emotions as a trader. We all know that we need rules to follow in the market. But no one tells you exactly what those rules should be and so they become a moving target of trial and error, usually error.

My own journey has been an enormous roller coaster both emotionally and financially. The lessons that needed to be learned were certainly not the lessons that I thought I needed to learn. Philosophically, I think it’s within this process that personal growth occurs. Markets are certainly a fantastic way to learn a huge amount about yourself. Beware though, because not all of it will be rosy.

The market abhors an ego. The ego will lead you down a blind alley every time and the market will gladly kick you on your arse every time you get cocky. It is a great tool for learning how to be humble.

We have all read and heard the well known market sayings such as “cut your losses and run your profits” or “you can never go broke taking a profit”, but if you look at those two sayings side by side they contradict each other. Which one is it? Run your profits or take them when you can?

There is no easy answer and you must find your own way to answer that question based on your own personality. There are a million ways to make money in the markets; the only problem is that there are far more ways to lose everything.

My objective for the rest of the year, for my readers, is to apply my experience and my approach to this market. There will be a lot of ways to lose everything. But for traders, so much volatility definitely presents opportunity. But you also need to be aware of some of the fundamental factors that are going to affect share prices for the rest of 2010.

In fact, a bigger-picture view of the markets informs all of my trading. Without a top-down perspective as a trader—especially in an era of political intervention and sovereign debt risk—you’re not just flying blind. You’re flying stupid.

So what does the landscape look like from above?

The current state of the market is shaping up as the next leg of the Global Financial Crisis. There is the very real chance that this leg could end up being far bigger than the first one. Central bankers threw everything (i.e. your wealth) at the problem to stem the tide last time. Now Sovereign balance sheets are under pressure. There’s nowhere else to pass the parcel.

Of course there IS somewhere else. You! All the central bankers and politicians can do now that they have borrowed themselves into oblivion is to either tax you to death or trash their currency by printing, which is the same thing but by stealth.

Thankfully Australia isn’t at the same point of fiscal stress as other nations, but Rudd is doing his best to play some catch up.

Every dollar that any government ever borrows must be paid for by someone. No ifs and no buts. The government’s only revenue comes from the people. The miracle of government deficits is no miracle at all; it is just borrowing from the future to consume now.

In the end, the 1930’s and 1940’s had to pay for the 1920’s. I believe we are basically at the same point in the market that we were in during 1930, a year after the crash. From this point the market traded down in a straight line for three years and ended up 90% down from the all time highs.

I am not saying that we will fall by the same amount. I am just saying that the risk going forward is to the downside. It has become a traders market and investors buying for the long term at these prices are going to get burnt in my view.

When you have central bankers like Ben Bernanke running the world, I hold little hope of this ending well. I have to mention the speech that Ben made in Japan the other day. I nearly fell off my seat laughing when I read what he’d said.

He was trying to make a case for why the Fed shouldn’t be audited. This is a very important piece of legislation that has been making its way through both houses due to the hard work of Congressman Ron Paul. It is slowly getting watered down. But the Fed is still banging on in protest at having to show the American people what it has actually been up to for the past few years.

Ben had the audacity to say that a central bank that’s subject to political influence could be pressed to keep interest rates low to boost the economy and jobs which may lead to higher inflation in the future.

Ummm, isn’t that exactly what you and your predecessors have been doing for the past 100 years? Except, of course, when your hand was forced to jack interest rates up to obscene levels by the inflation that you created like under Volcker. How could he keep a straight face while he said such a thing?

According to Bernanke political interference can “generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.” You have to hand it to him. He has absolutely no qualms about lying through his teeth. It is the Fed that has, by its actions, been an instigator of the boom-bust cycles that we have experienced and also the huge inflation that has occurred since the Fed’s inception.

The Fed, with its power to print money, has the power over the wealth of the people and the wealth of the world that is designated in US dollars. It is a secretive organisation that looks after its banking buddies in times of crisis under the banner that the banks are “too big to fail” and therefore the people should bail them out. It is fighting freedom of information cases in the courts so it doesn’t have to show the American people what it has done with their money while at the same time saying that it is committed to “transparency.”

Keep your eyes peeled for any news about the auditing of the Fed. It is the most important piece of legislation America has seen in years. Unfortunately, I expect the usual 11th hour complete watering down into obscurity by some unseen hand. There is certainly a ground swell of discontent within the people after the bailouts from the crash. It will be interesting to see whether anything actually comes of it or if it is silenced by the establishment.

Overnight the US markets rallied 3%, initiating the short squeeze that I have been waiting for. How far this market rallies from here is anyone’s guess, but I think the used by date won’t be too far in the future, so if you are tempted to jump back into the market by this rally be very disciplined and take profits quickly and try and turn your positions into a free option as soon as you can.

There’s no need to be a hero at the moment. Volatility is very high so it often feels like the opportunity to make easy money is there, but the increased volatility can rip your arm off as well. Be careful.

Cheers,

Murray

Tags: General

No one in the editorial office could believe it. Ben Bernanke, chairmen of the Federal Reserve, strongly opposes government interference in monetary policy. So he said in a conference held at the Bank of Japan (BoJ).

‘Abuse by the government of the power to issue money as a means of financing its own spending inevitably leads to high inflation and interest rates and a volatile economy’ he said.

Oh, really.

He goes onto say ‘A central bank subject to political influence could be pressed to keep interest rates low in order to boost the economy and employment.’ Should we remind him that he made the ever so wise decision to lower rates to an ‘emergency’ level of 0.25%. And they’ve been at this emergency level since December 2008?

What this statement is really about is the potential audit on the Fed. In December last year, the House of Representatives in the US headed up a proposal to audit the Fed decisions.

Quite simply, the Fed doesn’t want anyone over looking their books or decision making. Because in all honesty, any audit will only result in more questions than answers. And that’s just the way the Fed likes it.

Let’s be honest, there’s been very little in the news aside from Ruddy’s super tax.

Doing the rounds on the main stream news papers is an open letter that 20 economists have signed supporting the super profits tax.

Alan Fels, the former head of Australia’s competition regulator Australian Competition and Consumer Commission (ACCC) is one of the ‘leading economists’ that has signed this open letter. And he has said that the tax ‘is consistent with economic theory’.

It was that statement, which lead Ian MacFarlane the opposition resources spokesman, to say that the ‘…government is using economist to put out pure economic theory. But in the practical world we all know this tax is destroying Australian jobs and Australians’ superannuation.’

The battle over this tax isn’t going away anytime soon.

And to wrap up, next week the Reserve Bank of Australia (RBA) meet to decide on interest rates. However, the media has made the decision for them.

Under the bold heading is the statement ‘The view is unanimous: Economists say there’s no chance of a rate rise’.

Are these the same economist that have signed have signed the open letter supporting the tax?

I’m not quite sure. But apparently the ‘17′ economists surveyed believe there’s no chance of a rate rise after the Australian markets have been smashed since their last meeting.

One economist kindly suggested that the RBA could be regretting their decision to increase interest rates in May.

However, these experts agree that interest rates will be somewhere between ‘4.75 and 5.25′ by the end of the year.

Have a great weekend.

Shae.

Tags: General