plenty plenty plenty to talk about
Unbelievably, George is making a comeback - henry that is. Seems he
gets a mention on all sorts of interesting market sites these days.
You know, Americans can seem pretty dumb at times, (like the leaders
they choose) but for all that, some incredible research comes out of the
place. The pro's understand where the cycle comes from you can be sure
of it, though nobody ever says much. For us though, and timing it all,
Gann is the key. Oil attachment shows you one reason why.
[Attachments not available with this site update, subscriber only
material, refer to commodities section of the site, ed, 2006.]
Suggest you read things in this order;
the bit on oil (this is incomplete unfortunately - I have been unable
to scan in the bits of Yergin's book as yet that I wanted, his stories
and description of the speculation that went on in these years are
hilarious, however I want to now get this email out. When completed, I
will fwd it on.)
the re-written 1929 real estate cycle research. Again this is
incomplete, but readable enough for the moment. (I just love Proudhon's
quote. Note the possible 90 years terrorist repeat history leading into
the 1929 addendum (to show you that the 1930's depression had nothing
to do with the 1929 stock market crash but was instead real estate
induced. I am not forecasting another depression for after 2009, but
1929 plus 82 years is 2011 which is highly likely to be a low point.
1929 plus 90 is 2019 for a high, but this is not tradable info so ignore
then visit www.financialsense.com/editorials/petrov/2004/0902.html
And make an effort to read Homer Hoyt's 100 years of land values in
Chicago. Hoyt pointed out that every Chicago real estate cycle was
marked by extra government infrastructure development in the last half
of the cycle. So note;
For China, Beijing olympics 2008, they will be doing absolutely
everything possible to showcase the country in this year
Good timing. China now produces 30% of the world's TV's, 21% of the
world's pc's, and 50% of the world's cameras, and is in the midst of a
very large land boom. Scary isn't it. Land booms ALWAYS bust.
At the end of October China announced an increase in interest rates for
the first time in nine years, you may have noticed. But read the fine
print. The decision to raise rates was done in conjunction with
deregulating them at the same time. In the past, the govt tightly
limited the maximum rate of interest any bank could charge its
customer. This limited the lending to bigger firms, rather than those
that might have been a bigger credit risk and therefore would have
required an increased interest charge for the higher risk to the bank.
Now, the banking area deregulation of China approaches something much
more western free market based. This smells to me of a possible
expansion in the supply of credit, albeit at higher rates. But as long
as the returns to the borrowers of the money are covered by higher
returns in what they are investing in, ie land, the higher rates become
irrelevant. Bit like the late 1980's scenario of Australia. Time will
tell but i think you will find credit expand for the moment in China.
Significantly, if reports in US papers are correct, China bank stock
shares rose on the news. That tells me the market thinks the decision
will fatten china bank profits does it not ? Banks fatten profits by
expanding their credit base. The news in our market areas related to
China brought a confirmed high, but so far a correction to a higher low.
Australia, infrastructure spending:
road toll construction for Victoria out in the south east of Melb (ie
land value up) - Australia's biggest single road project. You should
have learnt by now to view it in the following way:
Total value of the road at present is forecast at $2.5 billion. $1.1
billion will be requested from investors via an IPO. $290 million from
the organizers Theiss, John Holland and Macquarie (see how they are
using other people's money to run with) and $2.1 billion in bank loans.
Now there is the interesting part. $2.1 billion in credit creation,
coming into the community as a debt (If you have done my cycles class,
remember the example I give about the building of a bridge across the
river ?, remember too what Abe Lincoln had to say about money from banks
introduced as a debt ?) which feeds into the price of government
granted licenses, in this case land value.
There will be huge investor focus in property along the road - if it
hasn't begun already (the government telegraphs this to investors in
advance thru its planning agency, see Melbourne 2030 for example,
otherwise known as the speculators handbook) and land price will rise,
if not double in some parts.
Importantly for our purposes, the real estate cycle simply cannot turn
down whilst this credit creation process goes on. Still to come in
Australia, Sydney's Westlink M7, Sydney's M4 east, and Brisbane's
Billion dollar Gateway bridge duplication just for starters. Watch for
these things to peak and at what time.
Politicians remain as honest as ever of course - Bracks in 2002; no
tolls; no ifs, no buts - they always say what you least need to hear.
The IPO price should go as follows:
price will move up as construction continues, whilst the organizers
issue bullish announcements about targets and numbers. Upon opening of
the road, price will retrace by half as early user numbers will be lower
than optimistic forecasts released in the building phase and as
disgruntled potential users vent their anger in a boycott, but price
will then run a repeat range up as car owners see the advantages and
usage goes up.
Anyway, leaving aside environmental questions and the issue of car use
and urban sprawl, the road building is an example of the productive use
of the credit creation process, used to fund an asset that the community
gets, but it falls down in the sense that the price of government
granted licenses take all the gain, most of which is land value,
creating the real estate cycle. It is all happening in front of you.
[May I point out, the road could have been funded without the credit
creation and without the debt, simply by taking the increase in the
value of the adjoining land, but such discussions are too difficult for
Joe and Jane average, nor is it desired by banks and vested property
interests. Canberra was financed solely in this exact way, as demanded
by the designer Walter Burley Griffin, so too the Sydney Harbor Bridge,
so too Melbourne's underground rail loop, to mention just three - no
debt and no taxes were then payable by the community which ended up with
great assets largely for free, but that's another story. Also shows you
the absolute ignorance of politicians who continually complain that
their governments never have enough money to do things the community
wants. It is just utter crap. The wealth is stored in those government
granted licenses, and is always collected by someone.]
We might note also;
the scheduled completion of rebuilding the twin towers site in New York
is presently for 2009. Tallest buildings in the world have a consistent
habit of opening as the real estate cycle turns nastily downward. See
Hoyt as to why this is so. Australia this time perhaps is not getting
the world's tallest, but we are getting Australia's longest toll road
construction, if you see what I mean... though the Eureka tower is
coming along I understand.
The boom continues, rising interest rates will, later this decade, turn
the yield curve negative and voila, a downturn. A set up is coming. I
just hope it isn't too obvious.
To other things, a few things noticed:
US third largest bank, Bank of America profits rose 29% last quarter on
increased lending and higher fee income from consumer banking. You know
what that means, credit creation going on in earnest.
The IMF Global Financial Stability report said "the system looks
resilient" Well they said that about Asia in 1997 too. It goes on:
"Short of a major and devastating geopolitical incident or terrorist
attack undermining, in a significant and lasting way, consumer
confidence, and hence financial asset valuations, it is hard to see
where systemic threats could come from in the short term." Oh deary
me. So let me tell them, via you; watch the creation of money, and land
price. The IMF watches neither very well. At the peak of every real
estate cycle, the thing that pushes the cycle over the top and into the
down turn has to be credit or banking related. Terrorists attacks will
have nothing to do with it. It will come internally from within some
country's banking system, but only when land price has been driven to
unsustainable levels. And we ain't there yet.
Ansell reported steady demand in its consumer (condom) division to
underpin growing earnings for next year. The've called the three year
strategic program to grow earnings 'operation full potential' That's
nice isn't it
As quoted by The Bulletin Oct 19 issue, "Liberal Party research and
endless anecdotal evidence showed that memories were still keenly
attuned to Paul Keating's recession and the massive interest rates that
followed." Yep, it takes time for memories to wind down after big
bubbles like that one, but by 2009, no one anywhere in the world under
40 (except in parts of Asia) will have any direct experience of a real
estate decline. Only then can it happen. And rarely before.
An Asic officer file note of Dec 3 2001;
"in summary, go for Rich, Keeling and Greaves - strategically and
legally not go for Packer, Murdoch and Adler" (AFR 15th October)
And profoundly misled they were too...
We live in a funny world.
The UK can find untold billions to create, borrow and invest in military
ventures around the world, but can't stop 200 thousand elderly who died
prematurely last decade in houses they could not afford to heat.
Muammar Gadafy, during talks in Libya with the German Chancellor to hand
over the $35 million as a part payback to those from the 1986 West
Berlin disco bombing, so that the country can be welcomed back into the
non pariah states; but interesting rascal that he is goes on to suggest
Germany might reimburse Tripoli for the 18 million anti-tank mines still
in the neighbourhood desert put there by Field Marshal Erwin Rommel's
retreating army and stomped on every day by careless nomads wandering in
and out. Said Gerhard, "Well, I think we should move on from the
past..." The mines were also laid by Britain and Italy, particularly
in and around the town of El Alemain.
Said President Bush to Iraqi Americans on the campaign trail in St
Louis, year 2000: Arab Americans are racially profiled on what's called
secret evidence. People are stopped. And we've got to do something
about that. It's not the American way." (Guardian Weekly, Oct 22.)
Big court case got underway here in Paris this month. 12 former govt
officials and senior police officers (one now the current head of
Renault) are on trial for running an illegal phone tapping operation
used by the then President, Mitterand (now deceased) to keep tabs on,
and dig for dirt on potential political enemies and thus ensure his own
potential scandals could be 'neutralized'. The operation was originally
set up as an anti-terrorist operation but, as the defense intend to
argue, was 'diverted' at the instructions of the President to assist his
political campaigning. Quite successful it was too - especially in
diverting further digging by french journalists into the sinking of the
Rainbow Warrior in New Zealand in 1985.
Proudhon would be proud.
Click here to see the file...