Budget

Cuomo to Rich New Yorkers – “Please come back”

The wealthiest 1% of NYS’ population contributes roughly 50% of the state’s coffers. Gov. Andrew Cuomo took to begging the rich to return to NYC from their second homes so they can pay taxes to fill the dwindling reserves. He said,

I literally talk to people all day long who are now in their Hamptons house who also lived here, or in their Hudson Valley house, or in their Connecticut weekend house, and I say, ‘You got to come back! We’ll go to dinner! I’ll buy you a drink! Come over, I’ll cook!’…They’re not coming back right now. And you know what else they’re thinking? ‘If I stay there, I’ll pay a lower income tax,’ because they don’t pay the New York City surcharge…

At the very least, Cuomo was smart enough to tell his largely Democrat-controlled legislature that raising taxes further on the rich probably wasn’t a wise idea.

If you pass a piece of legislation that requires New York to raise taxes, raise a millionaires’ tax in this environment in New York City, where we’re struggling … We used to be worried [with a] millionaires’ tax, people might leave…We’re going to make progress helping the homeless. We’re going to clean up the graffiti. We’re going to fix crime. On top of that, you’re going to say, ‘And by the way, when you come back, you get a big tax increase.’

Who knew? We are not sure of the culinary talent of the NY governor but if it is anything like his political acumen, it could well end up being a deterrent.

Japan aggressively steps up its Space investment

It wasn’t so long ago that the mainstream media went into a frenzy over the Space Force logo mimicking Star Trek’s Starfleet Command. Never mind that the US Army Air Force had used the delta symbol since 1942. Never mind that the Air Force Space Command has had the following insignia since it’s inception in 1982. As you can see the delta and globe shapes comes from that. We run through the history here. Such is the chronic nature of Trump Derangement Syndrome that no cure has yet been found.

Of course, the Trump-haters bashed him senseless over the moves to grant Space Force an independent status on the basis that he was indulging his immaturity. We have written for over a decade that the US has held deep concerns for its space assets given the astronomic (no pun intended) rise in China’s home-grown space technology which jeopardizes America’s ability to manage its huge military arsenal that relies so heavily on satellites.

China established the People’s Liberation Army Strategic Support Force (PLASSF) at the end of 2015 with a mission responsible for outer space, cyberspace, and electronic warfare. Where was the media bashing President Xi for this petulant behaviour?

Space investment has grown globally. In 2018, China launched 29 military satellites, exceeding six for the United States and eight for Russia.

So it made perfect sense to give the US Space Force proper recognition to counter the growing threats in orbit.

China to Launch 3 Astronauts to Chinese Space Station in June

Japan has raised similar concerns as the US. It will expand its own space investment under the name of Space Operations Squadron.

Janes Defense Weekly reported

The new squadron, which will now conduct personnel training and system planning in collaboration with the Japan Aerospace Exploration Agency (JAXA) and US forces, will be in charge of operating a space surveillance system designed to track space debris and the position of satellites in order to avoid collisions in space…The system, which includes a network of ground radars, has also been designed to monitor the activities of satellites of countries that may seek to disrupt Japanese and/or US satellite operations through, for instance, the use of anti-satellite missiles, laser irradiation, communication jamming, or so-called ‘killer satellites’.

Japan’s 2019 Defense White Paper openly states the growing risks in space.

There is no concept of national borders in outer space, meaning that the utilization of satellites enables the observation of, communication at, and positioning on any area on the Earth. Thus, major countries make efforts to enhance the capabilities of a variety of satellites and launch them for the purpose of enhancing C4ISR functions. Such satellites include image acquisition satellites for reconnoitring military facilities and targets, early-warning satellites for detecting the launch of ballistic missiles, for gathering radio signals, communication satellites for communications between military units, and positioning satellites for navigating naval vessels and aircraft and enhancing the precision of weapons systems. In outer space, various countries are thus rapidly developing their capabilities to ensure their military superiority.

From the viewpoint of ensuring their military superiority, various countries are also rapidly developing their capabilities to impede each other’s use of outer space.

So before the mainstream media pillories Trump over Space Force, if the most pacifist nation on earth is stepping up its investment substantially, know that there is a method in the madness. Weaponizing space isn’t about indulging childhood SciFi TV programs but navigating unchartered waters in military defence capability. It is nothing to be scoffed at.

Only one you can’t stop crashing at your place during COVID19 is the economy

Warning Signs Investors Ignored Before the 1929 Stock Market Crash ...

Brace yourself.

COVID19 will be defeated but the cure is turning out to be way worse than the disease.

Unfortunately, the sad reality is that at the rate governments are tightening legislation to keep us in shut down mode, we are day-by-day staring at a great depression.

While some will praise governments for throwing the kitchen sink at the economy with all manner of stimulus packages, the relief will be temporary because all of the ammunition for a sustainable recovery had been depleted years earlier. It is like supplying an alcoholic on rehab with an all-you-can-drink open bar.

Our feckless RBA has just embarked on QE, a mission that has failed every other central bank that has tried it. The velocity of money has been falling for decades. Who will be given access to borrowing at zero interest rates when the economy is in freefall? Which banks will lend against properties that will likely implode in value? 50% down? To think of all the reckless “first home buyer” schemes that loaded young people at the top of the property market. The RBA has been complicit. Not wanting to put pressure on the government to reform, it just kept cutting rates to keep housing afloat. It was totally negligent in its duty even though it will signal its role as a rescuer of last resort.

When will banks be forced to mark to book the value of mortgages on their balance sheet? Equity is thin as it is. 15-20% equity buffer to mortgages is pretty wafer-thin. They need to do this immediately so we can properly assess risk. Forget stress tests by APRA. They’re meaningless. Our housing market will collapse with higher unemployment. 50% falls from here are possible. Remember there will be hardly any buyers. Prices fell up to 90% in Japan after its property bubble popped.

Worse our regulators have been asleep at the wheel chasing financial institutions on their commitment to climate change, the absolute least relevant metric to save them from here. It shows how complacent they became.

Australia has made some interesting crisis policy choices. For instance, PM Scott Morrison is trying to pass rent moratoriums where landlords suspend payments from tenants until things return to normalcy. It is not enshrined in law yet. In principle that is a nice gesture even if the government is subsidizing the banks for forgone interest due to short term loan repayment moratoriums. Let’s assume this continues for 6 months. Apart from the astronomical size of the subsidy, who will ultimately end up sacrificing the 6 months? Landlords? It won’t be the tenants.

Shouldn’t landlords be free to choose whether they are prepared to forgo rent or not as a purely rational business proposition? Shouldn’t a landlord be free to enforce a rental agreement? Will contracts matter anymore?

At some stage, the free market must be allowed to function and the government will hit a tipping point of weighing stopping economic armageddon by allowing businesses to function and the marginal risk of infections. The people will be crying for this if shutdowns remain.

Landlords may be labelled un-Australian or worse but in 6 months time, if unemployment has surged to nose bleed levels well above the 6% we saw during GFC at what point will disposable income be able to support a daily coffee at a cafe?

A cafe might soldier on for a further 3 months on skeleton staff before realising that they can’t cover costs. A landlord would be well within reason to demand that early cancellation clauses and fees are enforced.

Then what of all the invoices to coffee suppliers, bakeries who provide muffins and croissants and utilities? Who misses out? What about the invoices of the coffee supplier? Will the bakery get called on by its flour supplier to pay upfront for future deliveries when it has no operating cash flow, instead of the long-standing 60-90 day terms? That happens overnight. It isn’t a managed outcome. Cash is king.

The question is why hasn’t the government taken advice from the banks on business lending so it can better assess the risks involved from those that deal every day with small companies?

We can’t just shut an economy down for 6 months and expect a return to normal when it is all over. Unemployment rates are likely to surge well above 10%.

As we wrote in an earlier piece, there are 13.1 million Australians employed as of February 2020. Full-time employment amounted to 8,885,600 persons and part-time employment to 4,124,500 persons. Retail trade jobs come in at a shade over 1.2 million jobs. Construction at 1.15 million. Education 1.1 million. Accommodation/restaurants /bars etc at 900,000. Manufacturing another 900,000. Noticing a trend in our employment gearing?

We can fudge the unemployment figures however we like. We can pay $1,500 a fortnight for 6,000,000 workers to pretend they still have a job. That is $18bn a month. The PM can talk about how this will help us bounce on the other side. If it continues for just over 6-months can the budgeted $130 billion will be spent. This is separate to NewStart payments too.

Yet, will people lavishly spend or pay down debt and economise as best they can? We think the latter unless moral hazard has truly sunk in.

What people need to understand is that our Treasury expects to raise $472.8 billion in taxes for FY2019-20. Throw in sales of services, interest and dividend income and that climbs to a total of $511 billion. Expenses are forecast at $503 billion. In the following three years Treasury anticipates $490.0 billion,  $514.4 billion and $528.9 billion in taxes. Expect those totals to be cut significantly.

So if ScoMo’s JobKeeper rescue package for workers goes beyond 6 months, that is equivalent to 27% of annual tax revenues. That doesn’t take into account the slug to tax collections of lower GST and vastly lower income tax for individuals and corporates. That is just at the federal level.

Note, states such as NSW have recently waived payroll taxes for small businesses in a  $2.3bn stimulus package. We shouldn’t forget that the NSW Government is the largest employer in the Southern Hemisphere at 327,000 staff.

We remind readers that according to the RBA small businesses employ 47% of the workforce. Medium enterprises employ 23%. That is 70% of the entire workforce who are most at risk from a slowdown.

In 2019-20 income tax collections will make up $220 billion. Company tax was forecast to generate $99.8 billion. GST $67.2 billion. Excise taxes (petrol, diesel, tobacco etc) $44.7 billion. This data can be found on page 21 here.

Local cafes are reporting a 60~80% fall in revenue. Pretty much all casuals have been let go. It is a bit hard to survive on coffee when a lot of stores aren’t stocking pastries for fear of spoilage.

It is not hard to assume a scenario where government income taxes fall to $160 billion (-28%) due to mass layoffs. One assumes many people will be able to get a tax rebate come June 30th. So this number may end up being conservative on an annualised basis.

Company tax could plunge to $40 billion annualised due to the drastic fall in revenues as customers change the manner of contracts and reign in their own spending. Anyone that thinks that business will resume as normal is crazy. The ripple effects will be huge.

Excise taxes may drift to $35 billion as people cut back on drink (currently $7bn in tax revenue), are limited in places to drive negating the need to fill up (currently $18bn in total tax take). The $17 billion in tobacco excise may weather the storm better than most.

GST could fall to $50 billion. People just aren’t spending much outside of food. Massive retail discounts will not make much difference. GST will be the best indicator of how much the economy has slowed. Even if we start to see a massaging of the GDP numbers, GST won’t lie. It will be the safest indicator.

If our assumed tax revenue sums to $285 billion annualised from the budgeted $472 billion that equates to a 40% haircut.

Trim the ‘other revenue’ column to $30 billion from $39 billion and we have $315bn. Will the government then chop away at the $503 billion in expenses? All of the stimuli doesn’t arrive at once but a lot of it in relatively short order. Surely a $300~400 billion deficit is a fait accompli?

We should also anticipate forward year tax revenues be cut c.30% for several years after. The question is when does the government realise that it must cut the public service and scrap wasteful projects like French submarines and other nice-to-have quangos? We won’t see a budget surplus for decades.

We must careful not to fall into the trap Japan finds itself in. It has a US$1 trillion budget funded by US$600bn in taxes and US$400bn in JGB issuance. Every. Single. Year.

Nothing short of drastic tax and structural reform will do. Instead of behaving more prudently by cutting budgets when we had the chance, instant gratification created by governments desperate to stay in power has only weakened our relative position. Since 2013, the Coalition has been responsible for 46% of the total amount of all debt issued since 1854.

States should quickly realise that the $118 billion in federal grants going forward will also be curtailed. NSW will likely fare the worst because its financial position is by far the best.

If the government had a proper plan, it would be looking to what essential industries have been given up to the likes of China that we need to onshore. Medical equipment, masks or sanitiser. For cricketer Shane Warne to be converting his Seven Zero Eight gin factory to produce hand sanitiser shows how much of a joke our local manufacturing has become.

We must never forget that a Chinese government-owned company displayed the Communist Party’s mercenary credentials by (legally) buying 3,000,000 surgical masks, 500,000 pairs of gloves and bulk supplies of sanitiser and wipes. So not only was it responsible for covering up the truth surrounding the virus in the early stages of the pandemic, we openly let it compromise our ability to combat the virus when it hit our shores.

China has shown it doesn’t give a hoot for ordinary Australians. So why should we continue to fold to its whims and cowardly surrender our industries for fear it’ll stop dealing with us? It is nonsense. We have some of the highest quality mineral resources which it depends on. We can bargain. We have chosen to appease a bully.

Our Foreign Investment Review Board (FIRB) needs to be far more vigilant to prevent takeovers by Chinese businesses. We should openly accept the way China conducts business practices and recognise that it is often incompatible with ours when national security is at stake. Surely this crisis has highlighted the true colours of the political system in Beijing.

That leads us to Japanese companies. Many are seriously cashed up, have a favourable exchange rate and have a long-standing history of partnering with local businesses. We should be prioritising our relationship with Japan and look to have them invest in our inevitable capital works programs – specifically high-speed rail. It is the type of project that has meaning for the future and a long enough timeline to turn an economy around.

People need to be prepared for the reckoning. There is no point softening the blow. The brutal truth will eventually arrive and we will have only put ourselves in an even weaker position with the policy suite enacted so far. Time to be rational about risk/reward. Whether we like it or not, the minimum wage will need to be cut substantially in order to get the jobs market alive again. Don’t worry, unemployment will be so high that people will demand minimum wages are cut because it is far superior to the alternative!

(Time to ditch your industry super and start shovelling your superannuation into gold)

Macron invites moral hazard

President Macron of France wants to suspend all utility and rent payments for 30 days. So what if Coronavirus lasts 6-9 months? Will landlords get special treatment from the banks to suspend loan payments on those properties forced into providing free rent?What about banks who have to pay for staff with reduced income because loan payments are frozen? Who pays? The very people the government is trying to help.

How long can a country subsidize employers and employees? What will happen when those French citizens who end up 6mths in arrears on rent? Should we expect that they have prudently set aside those payments to hand over as a lump sum to their generous landlords? Will the tenants claim that they had to spend it on other things and ask for the government to pay on their behalf? Of course they will.

These are the first steps to guaranteeing moral hazard. This misguided altruism will backfire big time. The vicious circle will mean the people he tried to help will end up in a worse place after it. Higher taxes, fewer jobs and more handouts with money that has been borrowed or printed.

What next? Bail out restaurants, bars and cafes that are affected by shutdowns?

We are staring at a Great Depression. No one likes to talk about it but we can’t just expect economies to shutdown for 2 months or more and then go back to business as usual once the whole pandemic has been defeated like nothing ever happened.

Take the example of a cafe. Most coffee shops buy in muffins and pastries. So if the coffee shop must cease trading for a while, it will tell its bakery to halt deliveries. Same for the coffee bean makers. And the coffee cup suppliers. They’ll tell their raw materials providers to stop until further notice. And so on and so on. The cafe will temporarily lay off staff. As will the baker, bean supplier and others.

Some staff or owners may have mortgages. Many won’t be able to meet monthly payments. They could default. Their homes could be repossessed by the banks which will then be faced with marking to market the value of the property on their loan books which could technically wipe out all their thin equity. Then the banks will be forced to ask for a bail out. Housing prices implode. Australia, are you listening?

Then home owners struggling to make payments cut back on non essentials. Out go gym memberships and cable TV subscriptions. Buying a latte becomes a luxury.

We are all going to have to realize we will have little choice but to click the big fat RESET button if the economy is to recover properly and soundly. It will be painful and bring out the worst in people but experience is a hard teacher. We’ll get the test first and the lesson afterwards.

And for Australia, which has experienced 28 years of non stop growth, the shock will be exacerbated because of so much complacency.

In a nutshell we all need to relearn the word “personal responsibility“. Governments are only doing everything in their power to remove us having to be accountable for anything.

Which government racked up the most debt in Australia?

Irresponsible! How conservatives used to hammer the Rudd/Gillard/Swan Labor government for squandering the massive surplus left by the Coalition under Howard/Costello. Yes, it was huge, but our current Abbott/Turnbull/Morrison Coalition is supposedly responsible for over half of the total of all gross debt since 1854 according to the Australian Office of Financial Management (AOFM). Is this true?

A question posed from a subscriber to FNF Media was, “what has driven the Australian debt since 2013?

First, a preamble.

We’ve seen this picture before. The Obama Administration almost ran up more national debt than all 43 previous administrations combined. From $10.699 trillion to $19.976 trillion. Federal debt as a % of GDP expanded from 64.4% to 105.2%. The latest count under Trump is $22.7 trillion, or 105.4%, virtually unchanged.

It is not an uncommon trend in other countries either. EU central government debt has grown from 52.6% in 2007 to 89.3% today. Japan has jumped from 134% to 196.4% respectively.

RBA-cash-rate-changes

The RBA starts off with an interesting chart (above) which explains how the steady lowering of cash rates triggered the explosion of federal debt. From the post-2000 peak of 7.25% (2008), interest rates are now at 0.75%. Since Sep 2013, we have been sub 2.5%.

Bonds

Note the Abbott Coalition took power in September 2013. According to the AOFM, at that time, Australia had $301.8bn in outstanding federal government debt. AOFM also reports the Dec 2019 outstanding figure was $556.6bn. Mathematically, if we assume that all previous administrations to Sept 2013 summed to $301.8bn that would mean the most recent Coalition would be responsible for 46% of the total amount of all debt issued since 1854.

If we look at it from a % of GDP perspective, gross debt in Australia has risen from 30.5% to 41.4% of the total between 2013 and 2019. Note that in 2007, Australia’s gross debt was only 9.7% of GDP.

What ultimately matters is “net debt.” Although even that is predicated on the value of assets being fairly treated at a particular point in time. In a sharp economic downturn, assets values can implode, while liabilities remain as they are. Net liabilities can move on a dime.

The Howard Coalition lost office in November 2007. At that time, the net surplus was +A$22.1bn. When Labor lost in September 2013, net debt was $174.6bn. Therefore the net increase under Labor was $196.7bn. Since that time, December 2019 net debt now sits at $403.0bn. Inflation-adjusted, it is probably on a par with the Coalition’s scorecard.

If we calculate the net deficits between 2012-13 and 2018-19, it sums to $184.1bn. So versus the $202.6bn in debt issuance, it is largely consistent with the first chart.

Net interest payments on interest-bearing liabilities according to the Department of Finance were $14.008bn on $306.228bn of debt or 4.57% average interest rate in September 2013. The projected interest bill for the FY2019/20 recorded in December 2019 was $18.215bn on $642.5bn or 2.83% average interest rate on that debt. So double the debt with only 28% more in interest costs.

Easy money has allowed lazy deficits. Although we could just blindly believe our government that the net debt will be wiped out by 2029/30…too easy…then again this is the dream world government departments live in.

Don’t forget we’ve been told by the BIS that central banks will be the “climate rescuers of last resort” despite reckless monetary policy where, in 2019 alone, we’ve had 71 rate cuts conducted by 49 central banks, laying the foundations for over-consumption and racking up excessive debt levels. You can read more about that here.

Net Debt

Now our authorities can use the half-truth of bushfires and the Coronavirus to explain away any weakness in the current quarter. Never mind, a bit of debt-fuelled government spending will be turned on again to save us and the budget papers, which so few people read, will see the the ‘net-debt’ projection pushed out another decade in the hope we won’t notice.

Australia remains in ‘relatively’ good shape but the trend is hardly one to take comfort from if the Australian government’s thinking remains that low-interest rates can let it kick the can down the road indefinitely.

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Data you’ve never seen compiled on our Australian fire services

CCFRNSW

For listed corporations, an annual report reads like an opus magnum which outlines the company’s major achievements, missions, strategic outlook, future concerns and goals. No ifs and no buts. The chair and CEO write glowing puff pieces about their achievements and why you, the shareholders, should keep them doing their jobs! Fire chiefs also write about the achievements during the year, every year.

Therefore when studying the language within the last 10 years of annual reports of the state fire services around Australia, why is ‘climate change‘, the words that 29 former fire chiefs told us is such a big factor, barely mentioned, if at all? Take Fire & Rescue NSW’s only mention of ‘climate change‘ on p.81 of its 2018/19 Annual Report,

Where practicable, FRNSW crews were encouraged to turn off all non-essential lights on 30 March 2019 from 8:30pm until 9:30pm, joining millions of people worldwide in showing their commitment to tackling climate change and inspiring all generations to support environmental initiatives and sustainable climate policy.

That is it. No words saying that the ‘catastrophic climate emergency’ preached by a 16-yo truant will lead to devastating increases in bushfires…Further evidence that we can sleep sound at night knowing that some (not all) firefighters might have switched the lights off for 1 hour on one day. So much for instilling a sense of unbridled panic preached by the retired fire chiefs…that’s right one mention of the word ‘climate change’ in 6 years.

Wasn’t Greg Mullins’ most important leadership role to warn NSW residents of the danger of climate change while in the top job? Wouldn’t it have been important to document those ‘climate’ fears in the annual reports that are presented to parliament each year? Clearly not. Best do it when sponsored by advocacy groups. Unfortunately, the ‘lack’ of acknowledgement by the fire service senior management surrounding climate change is an indelible mark by its very omission.

The chart above highlights the number of times the word ‘climate change‘ was mentioned in state fire authorities’ annual reports since 2010/11.

The QFES mentions ‘climate change’ 28 times in its 2018/19 annual report as it references an earlier report written on the subject. Prior to that, there are very few mentions.

Tasmania’s TFS notes ‘climate change’ alongside terrorism and economic downturn as things to watch in its 2015-16 annual report but makes no further in-depth reporting on global warming.

The Victorian Metropolitan Fire Brigade (VICMFB) mentioned climate change once in its 2011/12, 2012/13 and 2013/14 annual report but it only refers to the federal department that includes the name ‘climate change’ as a footnote. In 2018/19 the VICMFB refers to an “awareness” of climate change but it hardly sounds like a definitive statement.

Note that in 2011/12, FR NSW mentions climate change twice – once in the index and a loose passage that refers to it potentially having impacts. Yet FR NSW makes no determination by virtue of its own personal experiences. Note in 2010/11, ‘climate change’ is mentioned eight times by FR NSW but even then it refers to the IPCC research, not the findings of its own in-house data.

Let’s get this straight. If climate change was such a huge flashing red light issue in 2010/11, why no mentions between 2012 and 2017, a time when alarmist Greg Mullins was Chief Commissioner of FR NSW?

FNF Media encourages readers to save the following link for future reference. It is the 678-page IPCC internal review tabulating qualitative feedback on the processes of how it compiles the very climate bibles our media and governments swear by. A few excerpts comfortably debunk the credibility of the science contained within.

On page 16, someone complains that:

“some of the lead authors…are clearly not qualified to be lead authors.”

Here are other direct quotes:

There are far too many politically correct appointments, so that developing country scientists are appointed who have insufficient scientific competence to do anything useful. This is reasonable if it is regarded as a learning experience, but in my chapter…we had half of the [lead authors] who were not competent.” (p. 138)

“The whole process…[is] flawed by an excessive concern for geographical balance. All decisions are political before being scientific.” (p. 554)

“Half of the authors are there for simply representing different parts of the world.” (p. 296)

Even those from minority backgrounds agreed (p.330):

“The team members from the developing countries (including myself) were made to feel welcome and accepted as part of the team. In reality, we were out of our intellectual depth as meaningful contributors to the process.”

Remember this is the IPCC evaluating itself. Imagine if this was a topic that wasn’t related to climate change. Would you be concerned at diverting billions of taxpayer dollars against such woeful governance and amateur approaches to compiling data and legislating policy? Exactly. Frightening!

hazred.png

The alarming part of the annual reports published by the state fire fighting authorities is that they don’t contain much in the way of words that the laymen would expect to see e.g. hazard reduction or fuel load. However, there has been an explosion in words such as diversity and inclusion. These two charts below outline clearly where the shift in purpose would seemingly lie.

Diversity.png

inclusion.png

Note that Californian power utility PG&E took this approach. The company had absolute clarity on the breakdown of gender, sexual orientation and ethnicity of its workforce and suppliers. Sadly it had woefully incomplete data on the age and status of its infrastructure (aka its core business) which caused the scheduled blackouts and forest fires. Unfortunately, because of this focus on diversity & inclusion, it dropped the ball on providing the very service its customers paid for and is now bankrupt. Get woke, go broke.

Forgive FNF Media for being blunt. If your house is at risk of burning down, will you be secretly praying that the emergency crew sent to put the fire out ticks the diversity box or competency box? If you prefer inclusion over ability, then don’t complain that your prized possessions have gone up in smoke. It is such an irrelevant metric to focus on all of this warm and fuzzy data without reporting the very actions that we should be benchmarking the brave men and women who actually serve in the capacity of firefighters.

We can wail at climate change as the cause of these dreadful bushfires or accept the sickening amount of people arrested for arson.

Sorry to keep labouring the point. We should conduct a thorough audit of the fire services to determine whether they have lost their way in deprioritising the safety of the very people they are supposed to protect for the sake of woke causes. Make no mistake, we cast no aspersions on those who work as first responders.

We hope that people drop their climate alarmist/denial bias and take a cold objective view of the data. Take out the emotion. Seriously, does the only comment in the latest FR NSW annual report surrounding voluntary ‘Earth Hour’ participation strike one as making meaningful impact on climate change?

Perhaps we appear cynical but when we see alarmist former fire chiefs sound the alarm on climate change, we could have at the very least expected consistent, comprehensive and extensive data/research “on the record” while they were in a position to do so. They didn’t. Those actions really have the alarm bells ringing!

Rugby Australia chokes on its own incompetence

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After exchanging a politically correct, vomit-inducing and nose-bleedingly insincere prepared statement drafted by professional media consultants -not lost on anyone – the fact remains that Rugby Australia (RA) is the loser in the Israel Folau saga. We can forget the original source of the dismissal and the rights and wrongs of it. If RA thought it had a proper case, the legal fees (which it claimed were worth saving and settling out of court) would have been way less than the $10m payout he was demanding. So much for supporting the very communities the RA plasters all over its website.

The outcome was the result of management incompetence in thinking that appearing woke trumped legal due process. In full knowledge that Folau had a $1.6mn war chest (courtesy of Christians, free speech advocates and rugby fans alike) to take up the case against his former employer, the board was forced to buckle and issue an apology to the former rugby star, which would never have been necessary if it had a smidgen of judgment in the beginning.

RA CEO Raelene Castle can laugh off “wildly inaccurate” speculation on the $8mn rumoured settlement but the fact is the board knows the exact amount. Israel and Maria Folau wouldn’t have been grinning like Cheshire cats were he to have signed away for less than his rescinded contract. It will be fascinating to see the composition of the 2019/20 reported figures that will be published in due course. Expect some accounting trickery to fudge it into the numbers.

Castle said a few months back that the franchise could weather paying out Izzy Folau’s $10m claim. Although CM is not sure that paying out $10m + costs – which would wipe out almost 2/3rds of the $18mn in cash on the balance sheet – is something a CEO should think is worth boasting about. What she has long needed to focus on is arresting the declining operating performance. Yet she stated emphatically that the RA won’t have to make changes to the budget. Maybe her lawyers pieced together a multi-year drawdown of the sum to be paid to smooth out the ultimate impact. 

The RA franchise is the laughing stock of the rugby world. So transparent is the lack of accountability, woeful internal coordination and deteriorating financial results that it requires nothing more than a drastic overhaul if the entity is to thrive.

Former coach Michael Cheika let loose that it was no secret he had no relationship with the CEO and a very poor one with Chairman Cameron Clyne. This coming from the very individual running by far the biggest RA franchise. Despite possessing by far the worst performance record of any Wallabies coach, management persevered with a man who didn’t have a leg to stand on but cast aspersions on the executive team.

Therein lies the problem. RA can push all of the woke causes (e.g. LGBTQI+, gender equality) it likes, but if the ultimate end customer derives no value from it, it is a fruitless exercise which can’t escape the scrutiny of the free market come time to pay bills.

Castle may believe that this was a commercial decision for the sake of providing certainty. Had she done the right thing from the start she could have avoided getting embroiled in a scandal that has exposed the poor governance within.

Isn’t it odd that the LGBT activists are now attacking the very institution that set out to promote them – RA. CM has never thought much of his tweets but the reaction to them has been so over the top. The faux outrage mob finds oppression in everything.

Castle should resign and if she won’t the board should fire her despite her defiance against the bleeding obvious – she is in over her head. Fans won’t return with the status quo.

Get woke, go broke.

Q&A and Kiwi Envy

Oh, the irony.  Q&A, the climate change fearing ABC program, decided to fly to Fiji, belching harmful CO2 along the way to host the show and talk about the potential for climate refugees in the Pacific from rising sea levels and Kiwi envy.

First off the bat, if the ABC want to endorse the Kiwi envy narrative, Q&A might consider the funding structure and staffing levels of TVNZ while they’re at it. Maybe that way the broadcaster could arrest the long term slump in ratings and fix the discontented workforce.

CM wrote six months ago in regards to this,

If you want to look at why the ABC doesn’t need more money, look at the staff costs to income ratio. Despite plateauing between 2008 & 2011 it quickly exploded. It now sits at 46% of tax dollars appropriated. That is $524mn on staff costs per year and rising. 4,939 staff grace the ABC. Revenue per employee is $232,000. A decade ago it was $232,700. Is that what the management target is for hiring? Give the ABC $2bn and presumably, it will have employment costs of $1bn.

Maybe ABC should channel the New Zealand state broadcaster, TVNZ. It gets $310m of its $318m purse from advertising. It’s staff costs excluding capitalizing into programs is $72m which converts to 23% staff cost/revenues. They do with 642 FT employees. Revenue/employee is $495,000. It paid a dividend back to the government of $3.7m. i.e. it is a revenue-generating asset.

In 2007, TVNZ had $339m in revenue. It employed 1,023 people. Therefore revenue per employee was $331,380. So in a decade, TVNZ efficiency improved almost 50%. A 6% cut to revenue on 63% of the staff.

How envious are you now ABC? Thought so.

As to rising sea levels and climate refugees. Virginie K. E. Duvat of the Institut du Littoral et de l’Environnement, University of la Rochelle-CNRS, La Rochelle sponsored by the French National Research Agency; French Ministry of Environment, Energy and Oceans (MEEM) wrote.

Analysis “using tide gauges and satellites showed 30 Pacific and Indian Ocean atolls including 709 islands, revealed that no atoll lost land area and that 88.6% of islands were either stable or increased in area, while only 11.4% contracted.

So where are these climate refugees really coming from?

Then there was the demand that Australia gives up on coal mining. Suppose we do. We should then tell our Pacific neighbours that we can’t afford to cut multi $100mn cheques every year so they can waste it like PNG did on buying 40 Maserati Quattroporte sports sedans as government cars. Give them an option – no coal and no cash or coal and cash? We know which will be selected.

Yet CM loves the garbage espoused in the SMH which continues its hard-left bent, even after being acquired. One would have hoped lessons would be learnt. Clearly not. The SMH folded to the groupthink attack on the Minister for International Development and the Pacific, Alex Hawke for not being like NZ.

Perhaps Q&A might look at the facts there too. Remember when the media was fawning all over NZ PM Jacinda Ardern’s Wellness Budget? The idea that a budget should be solely based on economics is not progressive and more should be directed at “well-being”. That is not to say this budget is not “well-intentioned”. However, the statistics compared to across the ditch do not fare well on relative terms.

Comparing her recent policies versus Australia reveals the kangaroos get better access to social services than the kiwis. How surprising that none of the mainstream media bothered to look at the budget numbers on a like for like basis? Just praise her because she represents their ideal version of a socialist leader.  CM has looked through both budgets and adjusted for currency to make for easier like-for-like comparisons.

When it comes to health spending per capita (currency-adjusted), Australia is expected to climb from A$3,324 in 2019 to A$3,568 in 2022. NZ is expected to go up slightly from A$3,516 to A$3,561 respectively.

On social security and welfare, Australia is expected to pay out A$7,322 per capita in 2019, growing to A$7,977. NZ, on the other hand, is forecast to go from A$5,573 per head to A$6,489.

On mental health, Australia forked out around A$9.1bn exclusively on these services reaching 4.2m citizens last year. NZ is planning on spending A$45.1m in 2019 with a total of A$428m by 2023/24 to hit 325,000 people on frontline services for mental health. While the move is a positive one, NZ will allocate A$1.78bn to mental health as a whole over 5 years. On an annualised basis, Australia will still allocate 5x the NZ amount to mental health per capita. So much for wellbeing.

On education, NZ plans to increase per capita spending 7.9% between 2019 and 2022 whereas Australia will lift it 12.5% over the same period. NZ spends around 2x Australia per capita on education although PISA scores between 2006 and 2015 are virtually identical (and both heading south).

On public housing, Ardern can claim a victory. Australia is expected to cut spending per capita from A$240 in 2019 to A$194 in 2022 when NZ will go from A$137 to A$282. Although let’s hope Ardern has more success than her KiwiBuild policy. The Australian’s Judith Sloan rightly pointed out,

“Ardern also has stumbled with other policies, most notably KiwiBuild. The pledge was to build 100,000 additional affordable homes by 2028.

It has since been modified to facili­tation by the government to help build new homes. Moreover, the definition of afford­ability has been altered from between $NZ350,000 ($340,000) and $NZ450,000 to $NZ650,000.

What started off as an ill-considered public housing project has turned out to be an extremely unsuccessful private real estate scam. The government estimated that there would be 1000 homes built last year under KiwiBuild; it turned out to be 47.”

In the process, NZ’s national debt per capita will grow from A$21,550 in 2019 to A$25,206 by 2022. Australia will climb from A$22,764 to A$23,293.

Look at page 119 of the NZ Wellbeing Budget, we can see the government is forecasting the economy to slow and unemployment to rise.

As we wrote several months ago, the statistics that Aussies are about to pack their bags and head of to NZ are not supported. CM wrote,

“According to the Australian Bureau of Statistics, there are 568,000 New Zealanders in Australia, or more than double the total 3-decades ago. Therefore more than 11% of the Kiwi population lives in Australia. At last census count, 35,000 New Zealanders migrated to Australia in 2018.

According to the New Zealand Statistics Bureau, 38,700 Aussies live in New Zealand. In the January 2018 year, 24,900 migrants arrived from Australia and a similar number departed for Australia.

Stats NZ stated, “Over half of migrants arriving from Australia are actually returning Kiwis who have been living across the Tasman for more than a year…The number of migrants going back and forth to Australia in the past year almost balanced each other out – the net gain was just 40 people in the last 12 months.”

As socialists love to point out, “feelings matter far more than facts“. Just goes to show how easily people will fall for a catchy headline, rather than judge it on its merits. Time the “woke” wake up from this slumber. By all means, celebrate more recognition of higher mental health spending but best put it in perspective. Jacinda Ardern is ordinary.

Jacinda Ardern may sell her dream much better to the woke set, but give me ScoMo any day. Kiwi envy? Really.

Daft way to run a business

Why the celebration? CM is all for equal opportunity. Just not equal outcome. As CM said at the time of the US soccer team’s whinging over equal pay, if Megan Rapinoe and team make more revenues and broadcasting rights, pay them “more” than their male counterparts, not the same. Who could forget the almost North Korean level chants of “equal pay” during the Women’s World Cup this year?

How is equal pay remotely sensible for the Football Federation Australia’s (FFA) women’s team, the Matildas? Surely within the women’s team, there are proper stars and average players. Will those pay rates be equalised? So that the women’s soccer supremo that scores the most goals and achieves the highest number of tackles gets paid the same as the forward who can’t score and can’t defend to save herself? Who do the fans want to see? Who powers the turnstiles?

Look to other sports. Lewis Hamilton in F1 gets paid multiples more than fellow competitor, Romain Grosjean. Same job, Same conditions. Same everything. Yet, the 6x world champion gets factor fold levels of advertising dollars, hence he also banks that in his contract. Marc Marquez, the 8x world champion in MotoGP gets paid a fortune. Whereas Tito Rabat does not. Maybe because he is leading most of the time that the race coverage is focused at the front, rather than the back. It is all based on performance and TV exposure. Michael Jordan, Shaq, A-Rod and so on. The cream always gets paid what the market will bear. Some might call the $100mn that Ronaldo gets paid at Real Madrid as excessive but the club wouldn’t pay it if his magic didn’t cover the bills.

Ronaldo has 78 million Twitter followers vs his Real Madrid captain, Sergio Ramos who has a pitiful 16m. Surprise, surprise. Ronaldo makes more. Rapinoe has 899,700 followers. Should she get paid the same as Ronaldo? US men’s soccer team player Landon Donovan has 1.4m followers. Does the USSF see that the box office is sadly still skewed to the men’s game?

Once again, 260m watched the Women’s Soccer World Cup final in 2019. The 2018 men’s World Cup in Russia saw 1.12bn tune in for the final. 4.3x the audience.

To quote the Football Federation of Australia’s annual report of 2018,

Sydney FC had the honour of hosting the Westfield W-League 2018 Grand Final against
Melbourne City FC at Allianz Stadium. In front of a vocal crowd of 6,025.

Six thousand. Rugby Australia CEO Raelene Castle can feel a bit better about the abysmal attendance rugby has at home for the domestic series.

The men’s Melbourne Victory vs Newcastle Jets soccer final in 2018 saw 29,410 fans attend that match. 5x that of the women’s final.

Same for the Matildas. They achieved a peak crowd attendance of 16,829. The men’s Socceroo team saw 77,060 supporters at ANZ Stadium on 15 November 2018. 4.6x more fans watched the men’s national team over the women’s. It is nothing to do with gender. Fans prefer the men’s game. Because of that, sponsors are willing to pay for greater exposure.

This is not to denigrate the Matildas. It is to point out that this constant pandering to “equal pay” is a disastrous way to win over fans. Because if the right talent isn’t paid accordingly, an overseas league will quickly bid them away and hollow out the local market. Attendance will drop and the revenues and sponsorship dollars will dry up with it. Doesn’t require rocket science.

Still, get woke, go broke. The Wallabies are proof is in the pudding for management that focuses on inclusivity and diversity instead of accepting reality of what actually pays the bills – the fans. The financials continue to deteriorate.

By all means, if the Matildas smash the Socceroos for revenue, viewership and broadcasting rights then by all mean pay them more, not the same. Welcome to the Democratic Peoples Republic of Australia in 2019 where virtue signalling means more than merit.

Just watch the mainstream media gush at how progressive the FFA is before realising in years to come just how regressive it eventually becomes for the game and how could it have happened?

The Grim Repo

What a surprise to see markets show little reaction to the negative repo (repurchase agreements) market in the past week. So much nonchalance and complacency remain in financial markets. It is as if there is this false belief that the authorities can keep the ship afloat with magical modern monetary theory. Not a chance. The tipping points in the financial markets are quantum levels bigger than any that Sir David Attenborough could conjure up in his wildest pessimistic dreams. If we want to cut carbon emissions, the coming economic slump will take care of that.

On average there are $1 trillion of overnight repo transactions every day, collateralised with US Treasuries. Yet many missed that the repo market seized up late last week. Medium-term repos surged from the normal band of around 2.00~2.25% to around 5.25% on Monday. Some repo rates hit 10% on Tuesday.

Essentially what this said was that a bank must have seen that it was worth borrowing at an 8% premium overnight in return for pledging ‘risk-free’ US Treasuries at 2%. In any event, it allowed that particular bank to survive for another day. Banks use the repo market to fund the loans they issue and finance trades that are executed. It is like an institutional pawn shop.

Looking at it another way, why weren’t other banks willing to lend and take an 8% risk-free trade? A look at the global bank’s share price action would suggest that these bedrock financial institutions that grease the wheels of the economy are not in good shape. We just pretend they are. We look at the short term performance but ignore the deterioration in underlying balance sheets. The Aussie banks are future crash test dummies given the huge leverage to mortgages. As CM has been saying for years, the Big 4 risk whole or part nationalisation.

This recent repo action is reminiscent of that before the GFC. The Fed stepped in with $75bn liquidity per day to stabilise markets by bringing rates into the target range. The question is whether the repo action is a short-term aberration or the start of a longer-term quasi QE programme which turns into a full-blown QE programme.

The easiest way to look at the repo market action is to say the private markets are struggling to be self-funding, requiring central bank intervention. Bank of America believes the Fed may have to buy upwards of $400bn of securities to back the repo market this year alone.  This is another canary in the coal mine.

CM wrote a long piece back in July 2016 titled, “Dire Straits for Central Bankers.” In that report, we described how the velocity of money in the system was continuing to drift. As of now, central banks have printed the equivalent of $140 trillion since 2008 but have only managed to eke out $20 trillion in GDP growth. That is $7 of debt only generates $1 of GDP equivalent.

This is the problem. Companies are struggling to grow. US aggregate after-tax profits have gone sideways since 2012. We have been lulled into a false sense of security by virtue of aggressive share buyback programs that flatter EPS, despite the anaemic trend.

Despite the asset bubbles in stocks, bonds and property, pension funds, especially public sector retirement schemes, are at risk of insolvency given the unrealistic return assumptions and nose bleed levels of unfunded liabilities in the trillions.

Also worthy of note is the daily turnover of the gold derivatives market which has hit $280bn in recent months, or 850x daily mine production. This will put a lot more pressure on the gold physical market and also to those ETFs that have promissory notes against gold, as opposed to having it properly allocated.

We live in a world of $300 trillion of debt, $1.5 quadrillion in derivatives – until this is expunged and we start again, the global economy will struggle. That will also require the “asset” values to be similarly wiped out. Equity markets will plunge 90-95% relative to gold. That suggests a 1929 style great depression. The debt bubble is too big. Central banks have lost control.

Buy Gold.