“APRA

ASIC climate change amateurs dictating terms to professionals

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The Australian Securities & Investments Commission (ASIC) is now seeking more oversight on corporates reporting on climate change. Since when did ASIC hold any sufficient expertise in climate science? Wouldn’t it be nice if ASIC placed more faith in capital markets to self-determine those risks instead of forcing ideologies into boardrooms via new regulations?

Don’t laugh. It is already happening. The Australian Prudential Regulation Authority (APRA) and ASIC  are “getting closer” to the action in boardrooms and the workplace. Already, boards have had visits from an organisational psychologist and company employees have received random calls from ASIC officers for “off-the-record” chats seeking “inside information” on the behaviour of their colleagues. APRA even want to sit in on board meetings to ensure governance oversight!

Climate change reporting is the next big thing ASIC is going after. Despite having no expertise in the field, ASIC wants to dictate terms. By its own admission, it has conducted studies with simplistic approaches which probably accurately assesses its amateur credentials.

Back in September 2018, ASIC released a report where it stated the following,

We undertook a high-level review of the prevalence of climate risk and climate-change-related content in annual reports for all listed companies for the calendar years 2011 to 2017 (inclusive). We searched approximately 15,000 reports and analysed the aggregated results across listed companies over time and by market capitalisation. We defined ‘climate change content’ as a reference to any of the following key terms: climate change, global warming, carbon emission, greenhouse gas, climate risk or carbon riskThis is a relatively simplistic approach which did not involve assessing the context within which our key terms were used. Our analysis was not designed to produce qualitative conclusions but rather to provide high-level insight into the prevalence of express disclosure on climate-change related topics in listed company annual reports.”

The unfortunate result for ASIC was the chart above. It fell from 22% to 14% over 5 years, during a time alarmists warned things were getting worse. Non-ASX300 companies reporting climate change fell from 18% to 10% of the total. How could that be? Maybe 90% of the ASX knows better than ASIC about the effects of climate change on their businesses?

Easier for ASIC to lean on a KPMG study that said 48% of CEOs surveyed saw climate change as a risk despite 58% being more worried about technological disruption and 54% concerned about territorialism. Or in other words, 52% of CEOs don’t see climate change is an issue and a whole band in the 48% that did probably felt pressured by their internal PR departments to comply with ESG malarkey, save getting caught out straying from the corporate realpolitik.

Will we see companies feel pressured to hire Chief Climate Change Officers (CCCOs) approved by the Climate Council run by Tim Flannery to appease ASIC? Will they determine the strategic direction of Harvey Norman? Or will shareholders prefer Gerry Harvey and Katie Page to lead that charge?

What constitutes compliance? How will ASIC aggregate the corporate climate change related information it garners in a way that produces qualitative results? Will the positioning of three new potplants in the boardroom be counted as sufficient reporting in climate abatement disclosure as affixing solar panels to the factory roof or switching the CEO’s car to an electric vehicle? Will the mere mentioning of the word “climate change” in an annual report suffice? Will ASIC get a warm fuzzy feeling if it conducts another 15,000 ‘CTRL F’ searches for words where 100% of corporates measure it? Job done? Will “name & shame” tables be produced to bash a mining company for having higher emissions than a tech start up?

It was only last week we were told that banks, insurers and super funds would be put through tough new climate change “stress tests” to be run by the  (APRA). We weren’t aware that APRA’s expertise extended to climate change either.

APRA should look at the 29% growth in assets within the 600,000 self-managed super funds (SMSF) which invest as much money as the very industry funds who lobby it to change the rules to force such disclosures as a guide. It probably says that more Aussies want to manage their own affairs instead of having nanny state rules that limit the scope of what they can invest in. Shouldn’t investors have a right to invest in tobacco, mining or gambling stocks if they see compelling value which assists the ultimate aim of putting more savings into retirement?

We pointed out that the industry funds collect the highest fees from those socially responsible (SRI) portfolios, even though they chronically underperform the market. If we look at YTD, 1 or 10-year performance all of the SRI portfolios as indicated by published performance (listed on their websites) of local Australian Council of Superannuation Investors (ACSI) members, they have “underperformed” the benchmark index.

ACSI is behind this push for SRI. It even extends to pushing companies to have gender quotas, despite over half the members of ACSI failing to meet their own requirements. You can’t make this stuff up.

ASIC should promote free markets. It should rightly punish those companies that break laws. However, it should be up to shareholders to correctly assess risks. If climate change is a big deal then they can ask for their monies to be deposited into ACSI members’ SRI funds. The future growth of SMSFs will be a telling factor.  It will reveal those individuals looking to escape the grasp of limited investment options provided by rent-seeking industry funds looking to push their members into higher fee-paying products on the notion of saving the planet. Isn’t that just the type of red-flag the regulators should be looking to crack down on? Or does climate change grant get out of jail free cards? We all know the answer to that.

It is a disgrace. Amateurs dictating terms to professionals!

In order to be called a think tank, critical thinking would help

The problem with think tanks nowadays is that many are giving the rest a bad name. It would seem that not enough are actually doing the thing they are supposed to be doing – critical thinking.

It was only yesterday that the World Economic Forum’s 2020 report on gender justified a superior “health & survivability” gender gap score to Syrian women even though they live on average 15 years less than Australian women. Why? Because the WEF put more emphasis on the age gap between the sexes rather than longevity, poor Syrian males whose average life expectancies struggle to make 52-yo get back-handed applause for doing their bit for gender equality.

Closer to home, the think tank, The Australia Institute (TAI), has proposed the idea of a $1/ton carbon tax on fossil fuel companies to put into an independently administered climate disaster fund.

As ever with left-wing think tanks, taxation is the only viable cure to all ills. On page 37, TAI doesn’t miss the chance to write a few lines about our poor Pacific neighbours at risk of being inundating by rising sea levels despite a study showing 88.6% of Pacific islands and atolls being stable or growing in size. Who needs evidence when we want a narrative?

Don’t forget the one important takeaway. TAI was named as one of the four supposed “experts” prepared to put its name in a Climate Change Performance Index (CCPI) report which scored Australia dead last on international and domestic climate policy. Remember this was the mob that handed Australia a 0.0 (zero point zero) score.

Only foaming at the mouth alarmists could derive such a ridiculous total and only a research body with little interest in objectivity would allow it to be included. If you are hunting for credibility, you won’t find it in the CCPI report.

Therefore if this is the standard at the TAI, why should we pay the slightest attention to them in terms of policy options to mitigate disasters?

TAI wrote in the heavily media, BoM & Deloitte sourced National Climate Disaster Fund report,

It is now clear that global warming increases both the frequency and intensity of many types of natural disasters including floods, bushfires, droughts and other extreme weather events. This is borne out by the science and experienced in unprecedented extreme events in Australia and globally.

Then why did the UNIPCC, the carbon cathedral of climate alarmism, state in its March 2018 report on weather extremes the following with respect to anthropogenic induced global warming?

“…There is low confidence in observed trends in small-scale phenomena such as tornadoes and hail because of data inhomogeneities and inadequacies in monitoring systemsin some regions droughts have become less frequent, less intense, or shorter, for example, in central North America and northwestern Australia. There is limited to medium evidence available to assess climate-driven observed changes in the magnitude and frequency of floodslow confidence for the attribution of any detectable changes in tropical cyclone activity to anthropogenic influences..low confidence in projections of changes in extreme winds.. low confidence in projections of changes in monsoonslow confidence in wave height projections…overall low confidence because of inconsistent projections of drought changes…low confidence in projected future changes in dust storms…low confidence in projections of an anthropogenic effect on phenomena such as shallow landslides.”

Low confidence” is mentioned 230 times in the above report. “High confidence” gets talked about 169 times. “Cold” is mentioned 82x. “Hot” 44x. “Cold extreme” 11x and “Hot extreme” 8x. Is this a coincidence?

Backed by such “low confidence”, why would we lend time to TAI to give us solutions which only raise taxes on fossil fuel industries? Why hasn’t TAI consulted with the Australian Institute of Criminology (AIC) to learn that 85% of Aussie bushfires are either deliberately, suspiciously or accidentally lit? Why not consult the WA Government’s Bushfire Front site which debunks the myth of climate change causing megafires?

Never mind such trivialities, TAI quotes the head of the Australian Defence Force, General Angus Campbell, who noted that Australia is in “the most natural disaster-prone region in the world” and thatclimate change is predicted to make disasters more extreme and more common.Since when did Australian military personnel become climate experts? Given our Navy uses pink nail varnish to promote recruitment is it any wonder he makes such activist statements?

For FNF Media, who does not profess to be a climate scientist, there is no escaping the list of activists straying out of their lane to push their non-existent credentials on the environment.

Take the Australian Medical Association (AMA). How is it that the AMA is being regarded as an expert on climate change? Does getting a degree in medicine bestow one insights on the impacts of hurricane or drought activity?

The Doctors for Environment Australia have jumped on the activist bandwagon too saying, “three medical colleges, the RACP, ACEM and ACRRM representing tens of thousands of doctors recently declared climate change a health emergency.

Yet do the AMA, RACP, ACEM or ACRRM speak for the each and everyone of their members? The stats say otherwise. In 1962, more than 95% of doctors belonged to the AMA. By 1987 it was 50%. AHPRA reports that in 2016 there were 107,179 registered medical practitioners. The 2016 AMA annual report notes a membership of 29,425. That is 27% of doctors. Shouldn’t the AMA board raise the alarm and focus on the hollowing of its base?

Or should we just follow the money? The non-warmist RACGP has more than doubled its revenues since 2012, while AMA has trickled up 10%. Not surprising AMA revenues have stalled when it has sought to get medical students, which now represent over 1/3rd of members to sign up for free in order to pad the numbers in the hope they’ll join the save the planet cabal.

Even the financial sector is blowing the alarmist trumpet. The Australian Prudential Regulation Authority (APRA) stated earlier this year, “there is no excuse for inaction on climate change, warning there is a high degree of certainty that financial risks will materialize as a result of a warming climate.”

Why isn’t anyone asking what APRA is doing by shaming companies that do not meet voluntary climate risk disclosure targets which are set out by the Task Force in Climate-related Financial Disclosures, a private sector body chaired by none other than global warming alarmist Michael Bloomberg? Where is the independent thought? Talk about taking one’s eyes off the ball.

Our own central bank is burning witches too. In a speech given by the Deputy Governor, the RBA is basing its assertions on the prophecies of the IPCC and BOM, two of countless organisations which have been caught red handed manipulating climate data. Why doesn’t data malfeasance constitute a red flag in the RBA’s internal analysis? Do they apply the same rigour to interest rate policy?

Or our mega banks that refuse to lend money to the Adani project, not based on any valid financial risk assessment but ideological moral preening. Shouldn’t shareholders be concerned that banks are making such irrational investment policy when they need to offset the alarming imbalance in their mortgage loan books? Never mind.

Or the revelation that a band of 29 former fire chiefs, who are proclaiming global warming expertise, are backed by the even more alarmist Climate Council, who we called out on their own “colossal bullshit.” Yes, the Climate Council’s Chief Councillor is none other than Tim Flannery, a man with an absolutely terrible record of dud predictions about our climate.

FNF Media couldn’t hold a flame to these gentlemen in understanding fire behaviour and how to extinguish them, but feels justified questioning the extent of their expertise in climate science.

Because therein lies the problem. The list of supposed experts keeps growing. Yet the ever compliant media falls into line and joins the cheerleading squad. Throw a Cate Blanchett into the mix and get celebrities to espouse their superior intellect to the rest of us.

Perhaps we might ask our click bait journalists whether they consult their bank manager for climate change wisdom anymore than they do the Bob Jane T-Mart tyre fitter for relationship advice?

There is a sad truth that more and more think tank tomes are succumbing to ideological clickbait group think rather than pushing rigid processes to come up with meaningful outcomes. TAI just adds to the growing list of those reverse engineering a narrative. Perhaps the TAI carbon tax solution should also include the manufacture of the raw materials that go to making solar cells, wind towers and battery backups (all derived in part from fossil fuels).

Oh and yes, there is no doubt Syrian men and women would trade a trimming of the health and survivability gender gap to add 15-20 years to their lives.

This can only end in tears

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As Sweden’s economy slows to the worst economic growth rate in 5 years under a negative interest rate policy, one would think the Swedish Central Bank (Riksbank) would be seeking to prudently manage its asset book on the basis of appropriate risk/reward as opposed to lecturing Australia and Canada on their respective carbon footprints. What we are witnessing is yet another discrete move by authorities to manipulate markets based on fantasy rather than fact.  The hypocrisy is extreme as we shall discover.

While the Riksbank should have complete freedom in how it wishes to deploy capital, we should view this is a pathetic sop to the cabal at the European Central Bank (ECB). Since when did central bankers become experts on climate change? The RBA is no better. Deputy Governor, Guy Debelle, gave a speech in March 2019 on the risks posed by climate change which based prophecies on the data accident-prone IPCC and Bureau of Meteorology. Why not seek balance? Easier to fold to group think so as not to be outed as a pariah. Utterly gutless. Our own APRA is also pushing this ridiculous agenda on climate change reporting. It is willful negligence.

While it is true that on a per capita basis, Australia and Canada’s emissions are higher than the global average, why doesn’t the Riksbank give us credit for lowering that amount 11.4% since 2000? Even Canada has reduced its carbon emissions by 7.3% over the last 18 years. Admittedly Sweden’s emissions per capita have fallen 21.9% according to the IEA. Greta will be happy.

Why hasn’t the Riksbank taken China or India to task for their 169.9% or 94.7% growth in CO2 emissions respectively? There are plenty of oil-producing nations – Qatar, UAE, Bahrain, Saudi Arabia and Oman that have worse per capita outcomes than Australia or Canada. Do these countries get special dispensation from the wrath of the Riksbank? Clearly.

The US has pulled out of the Paris Climate Accord. If the US has marginally lower emissions per capita (15.74t/CO2-e) than Australia (16.45t/CO2-e), isn’t a double standard to write,

The conditions for active climate consideration are slightly better in our work with the foreign exchange reserves. To ensure that the foreign exchange reserves fulfil their purpose, they need to consist of assets that can be rapidly converted to money even when the markets are not functioning properly. Our assessment is that the foreign exchange reserves best correspond to this need if they consist of 75 per cent US government bonds, 20 per cent German and 5 per cent British, Danish and Norwegian government bonds.

Essentially Riksbank commitment to climate change is conditional. The US which is responsible for 13.8% of global emissions can be 75% of holdings. Australia at 1.3% can’t. No doubt sacrificing Queensland Treasury Corp, WA Treasury Corp and Albertan bonds from a Riksbank balance sheet perspective will have little impact on the total. In short, it looks to be pure tokenism. The Riksbank has invested around 8% of its foreign exchange reserves in Australian and Canadian central and federal government bonds. So perhaps at the moment, it is nothing but substitution from state to federal. Why not punish NSW TCorp for being part of a state that has 85%+ coal-fired power generation?

At the very least the Riksbank admits its own hypocrisy.

The Riksbank needs to develop its work on how to take climate change into consideration in asset management. For instance, we need a broader and deeper analysis of the issuers’ climate footprint. At the same time, one must remember that the foreign exchange reserves are unavoidably dominated by US and German government bonds. The Riksbank’s contribution to a better development of the climate will, therefore, remain small. This is entirely natural. The important decisions on how climate change should be counteracted in Sweden are political and should be taken by the government and the Riksdag (parliament).

Still, what hope have we got when Benoît Cœuré, member of the Executive Board of the ECB, lecturing those on “Scaling up Green Finance: The Role of Central Banks.” He noted,

2018 has seen one of the hottest summers in Europe since weather records began. Increasing weather extremes, rising sea levels and the Arctic melting are now clearly visible consequences of human-induced warming. Climate change is not a theory. It is a fact.

Reading more of this report only confirms the commitment of the ECB to follow the UN’s lead and deliberately look to misallocate capital based on unfounded claims of falling crop yields and rising prices (the opposite is occurring) and rising hurricane and drought activity (claims that even the IPCC has admitted there is little or no evidence by climate change). Sweden is merely being a well-behaved schoolboy.

Cœuré made the explicit claim, “The ECB, together with other national central banks of the Eurosystem, is actively supporting the European Commission’s sustainable finance agenda.

CM thinks the biggest problem with this “agenda” is that it risks even further misallocation of capital within global markets already drowning in poorly directed investment. It isn’t hard to see what is going on here. It is nothing short of deliberate market manipulation by trying to increase the cost of funding to conventional energy using farcical concocted “climate risks” to regulate them out of existence.

Cœuré made this clear in his speech,

once markets and credit risk agencies price climate risks properly, the amount of collateralised borrowing counterparties can obtain from the ECB will be adjusted accordingly.

What do you know? On cue, Seeking Alpha notes,

Cutting €2bn of yearly investments, the European Union will stop funding oil, natural gas and coal projects at the end of 2021 as it aims to become the first climate-neutral continent.

All CM will say is best of luck with this decision. Just watch how this kneeling at the altar of the pagan god of climate change will completely ruin the EU economy. The long term ramifications are already being felt. The EU can’t escape the fact that 118mn of its citizens (up from 78m in 2007) are below the poverty line. That is 22% of the population. So why then does Cœuré mention, in spite of such alarming poverty, that taking actions (that will likely increase unemployment) will be helped by “migration [which] has contributed to dampening wage growth…in recent years, thereby further complicating our efforts to bring inflation back to levels closer to 2%.

Closer to home, the National Australia Bank (NAB) has joined in the groupthink by looking to phase out lending to thermal coal companies by 2035. The $760 million exposure will be cut in half by 2028. If climate change is such a huge issue why not look to end it ASAP? This is terrible governance.

Why not assess thermal coal companies on the merits of the industry’s future rather than have the acting-CEO Philip Chronican make a limp-wristed excuse that it is merely getting in line with the government commitment to Paris? If lending to thermal coal is good for shareholders in 2036, who cares what our emissions targets are (which continue to fall per capita)? Maybe this is industry and regulator working hand-in-hand?

The market has always been the best weighing mechanism for risk. Unfortunately, for the last two decades, global central bank policy has gone out of its way to prevent the market from clearing. Now it seems that the authorities are taking actions that look like collusion to bully the ratings agencies into marking down legitimate businesses that are being punished for heresy.

This will ironically only make them even better investments down the track when reality dawns, just as CM pointed out with anti-ESG stocks. Just expect the entry points to these stocks to be exceedingly cheap. Buy what the market hates. It looks as though the bureaucrats are set to make fossil fuel companies penny stocks.

CM on Sky

https://www.skynews.com.au/details/_6102427118001

CM appeared on Sky News to discuss the situation with our banks, the potential risks from the recommendations of the Hayne Royal Commission and the issue of mortgage stress.

Our education is the problem, not the climate

You know things have got to be bad when Zali Steggall OAM MP is launching The Australia Institute’s (TAI) ‘Climate of the Nation 2019‘ report which claims 81% of Aussies are concerned that climate change will impact droughts and flooding. Huh? The IPCC has already admitted, “available climate data do not show any increasing trend in extreme weather events (e.g. extreme precipitation, extreme drought, thunderstorms, winter blizzards) in any part of the world.”

Did TAI conduct the survey at the Australian Medical Association (AMA) which is now trying to dictate climate policy? Between the RBA, APRA and the AMA, we might need a beauty contest to see which of them takes over at the Department of Environment & Energy. CM is surprised that the AMA hasn’t demanded to take over the organization of the Royal Easter Show from the Royal Agricultural Society now they are experts in food security!

Why do people get so embroiled in talking about the “science being settled”. OK, let’s assume it is. We use all of the well publicized and peer-reviewed data scrapes from the IPCC reports, the EU’s in house statistics bureau, Eurostat, and the EIA.

We only need a basic Year 7 grasp of elementary mathematics to educate on the facts. The IPCC claim that CO2, as a proportion of the atmosphere, is 0.0415%. It also tells us that human-made CO2 is 3% of the total. 97% is natural. Australia for its sins is 1.08% of human-made global CO2 emissions.

So, 0.0415% x 3% x 1.08% = 0.00001345%. Let’s forget the science and say it was the interest earned on a 20-year compounding deposit of $10,000. If you doubled or halved the above percentage across that deposit you’d get virtually the exact same result in all three scenarios.

Farting cows are no different. Methane is an even smaller part of the atmosphere. 722 parts per billion. Animals (in total) make up 13% of the methane produced meaning that 0.00000939% of the atmosphere is down to animals. Angela Merkel was imploring Chinese don’t grow a meat habit so she can save the planet (aka justify a meat tax increase at home). By the way, Australia has 26mn cattle out of a total of 1 billion worldwide. So Australia is 2.6% of global head of cattle. So 2.6% x 0.00000939% = 0.00000024%. That is a disingenuous number because it doesn’t factor horses, ducks, sheep, household pets and budgies. Perhaps Africans need to educate lions to move to plant-based meat substitutes and leave water buffalo alone.

Do people realize that rice paddies account for more methane than cows? Where are the environmentalists and climate alarmists demanding that Asian nations, 40% of the global population, must cease eating rice? Better tell Mother Nature that she creates 45% of the methane out there through peat bogs and tundras.

How ironic that Zali Steggall, the Member for Warringah (home to the Northern Beaches Council (NBC)) is TAI’s champion. Did she read that NBC declared a climate emergency after having a sermon delivered by Tim Flannery, who has made countless dud predictions leading to the waste of billions of spending in desal plants?

In the  2017/18  NBC annual report it states the council saved 293 tons of CO2. Given that Australia produces around 561m tons, this amazing effort has meant a reduction of 0.0000522% of Australia’s total. Put it against Australia’s CO2 impact vs the entire atmosphere means that Northern Beaches have hammered home a mammoth 0.000000000699857% saving! Yes, 9 zeroes. C’mon Zali, you should be citing this impactless tokenism in your address. By the way, we’re still waiting for wind farms on Balmoral Beach.

The range of claims made in the TAI report speaks to little more than agenda based data gathering with leading questions.

For instance, if Labor was destroyed in the federal election over Adani, how could 73% of Queenslanders possibly want Australia’s coal-fired power stations phased out as soon as possible or gradually? Did the pollsters mistakenly manage to interview Bob Brown’s anti-Adani convoy which skewed the findings? If you want to get answers to questions that effectively make claims (climate change already causing) it is easy if it is written as though it is a fact to begin with,

“Melting of the Polar ice caps” (51%) – IPCC has already climbed down from such claims
“More heatwaves and extreme hot days” (48%) – no consistent data on this. 
“Destruction of the Great Barrier Reef” (44%) – it isn’t happening – just ask Peter Ridd or the Vice-Chancellor at James Cook University
“More droughts affecting crop production & food supply” (42%) – global crop yields growing
“More Bushfires” (36%) – fallen over time
“Water Shortages in the Cities” (30%) – haven’t experienced one 

Taking bushfires as an example. Facts from the Australian Institute of Criminology (AIC) show that 85% of bushfires are either deliberately, suspiciously or accidentally lit. The AIC sees that while the data is somewhat sketchy that the most common profile of arsonists was “white male, mid-20s, patchy employment record, often above average intelligence, but poor academic achievement and poor social development skills…56% of convicted structural arsonists and 37% of bushfire arsonists in NSW had a prior conviction for a previous offence. ”

In the US those figures are around 90%. A study in the journal Science determined the global burnt area from fires, rather than growing, had declined by roughly 25% from 1999 to 2017.

So do the stats support global warming or successful mainstream media coverage sensationalising the truth to feed narratives? Don’t get started on the Amazon fires. CM wrote about it here.

Energy source rank went Wind (76%), Solar (58%) & Hydro (39%) although nuclear power ranked above coal and gas. Surprise, surprise.  (p.11).

Apparently, 64% of Aussies want to be net-zero emissions by 2050. To do that we’d need to stop all mining, end farming and phase out all fossil-fuel power from transport to power generation. Just think of the UK’s plan to do this. Going to be a bit hard when 85% of British households rely on gas to heat their homes. Will the power grid hold up to a switch to electric heating?

On p.25, TAI makes reference to the Icelandic glacier, Ok, that lost its status 5 years ago. According to the UN Chronicle, “The sudden surging of glaciers is not related to climatic fluctuations, and surges can take place even at times when glaciers retreat. This is the usual behaviour of some glaciers and can not be evidence of an impending surge… unfortunately, direct observations of a change in the movement of a glacier at the onset of a surge are still very rare, and the causes for surges are not yet clear…It should be emphasized that the problem of climate change is extremely difficult to understand, and it has still not been possible to know what factors in the past decades — natural or anthropogenic — have caused the warming. There are still many uncertainties in solving this problem. IPCC estimates are rather wide in their range of accuracy and, therefore, cannot predict with confidence…at least not in the coming decades and centuries.”

Maybe we just need to accept that China produces more GHG in two weeks than we do in a year. At the rate it is going, by 2030 it will likely be closer to one week. Once again folks, education seems a bigger problem than climate change. Basic fractions are more valuable than deep knowledge of climate science. Even using numbers supplied by the organisations they constantly espouse as the oracle, the minuscule impacts we can have are never mentioned. Tokenism is somehow virtuous.

The depression we have to have

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In his 1967 presidential address to the American Economic Association, Nobel laureate economist Milton Friedman said, “… we are in danger of assigning to monetary policy a larger role than it can perform, in danger of asking it to accomplish tasks that it cannot achieve, and as a result, in danger of preventing it from making the contribution that it is capable of making.

What we are witnessing today is not capitalism. While socialists around the world scream for equality and point to the evils of capitalism, the real truth is that they are shaking pitchforks at the political class who are experimenting with economic and monetary concoctions that absolutely defy the tenets of free markets. As my learned credit analyst and friend, Jonathan Rochford, rightly points out, central banks have applied “their monetary policy hammer to problems that need a screwdriver.

Never has there been so much manipulation to keep this sinking global ship afloat. Manipulation is the complete antithesis to capitalism.  Yet our leaders and central banks think firing more cheap credit tranquillizers will somehow get us out of this mess. IT. WILL. NOT.

BONDS

As of August 15th, 2019, the sum of negative-yielding debt exceeds $16.4 trillion. That is to say, 30% of outstanding government debt sits in this category. Every single government bond issued by Germany, The Netherlands, Finland and Denmark are now negative-yielding. Germany just announced a 30-yr auction with a zero-interest coupon.

Unfortunately, insurance companies and pension funds are large scale buyers of bonds and negative interest rates don’t exactly serve their purposes. Therefore the hunt for positive yield (that ticks the right credit rating boxes) means the pickings continue to get slimmer.

Put simply to buy a bond with a negative yield, means that the cost of the bond held to maturity is more than the sum of all the coupons due and the receipt of face value combined. It also says clearly that controlling the extent of the loss of one’s money is preferable to sticking to strategies in other asset classes (e.g. property, equities) where TINA (there is no alternative) is the rule of thumb.

CM believes that there is a far bigger issue investors should focus on is the return “of” their money, not the return “on” it.

Rochford continues,

Central banks have hoped that extraordinary monetary policy would kick start economic growth, but they have instead only created asset price growth. In applying their monetary policy hammer to problems that need a screwdriver they have created the preconditions for the next and possibly greater financial crisis. The outworkings of many years of malinvestment are now starting to show with increasing regularity.

Argentina’s heavily oversubscribed issuance of 100-year bonds in 2017 was considered insane by many debt market participants at the time. The crash to below 50% of face value this month and request for maturity extensions is no surprise for a country that has a long rap sheet of sovereign defaults. Greece’s ten-year bond yield below 2% is another example of sovereign debt insanity…

…There have been three regional bank failures in China in the last three months, likely an early warning of the bad debt crisis brewing in China’s banks and debt markets. Europe’s banks aren’t in much better shape, there’s still a cohort of weak banks in Germany, Greece, Italy and Spain that haven’t fixed their problems that first surfaced a decade ago. Deutsche Bank is both fundamentally weak and the world’s most systemically important bank, a highly dangerous combination.”

What about equity markets?

EQUITIES

We only need look at the number record number of IPOs in 2018 where over 80% launched with negative earnings, you know, just like what happened in 2000 when the tech bubble collapsed.

Have people paid attention to the fact that aggregate US after-tax corporate earnings have been FLAT since 2012? That is 7 long years of tracking sideways. Where is this economic miracle that is spoken of?

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The only reason the markets have continued to remain excited is the generous share buyback regimes among many corporates which have flattered earnings per share (EPS). The “E” hasn’t grown. It is just that “S” has fallen. Credit spreads between AAA and BBB rated corporate paper has been so narrow that over 50% of US corporates now have a BBB or worse credit rating. Now credit spreads between top and bottom investment-grade bonds remain ridiculously tight. At some stage, investors will demand an appropriate spread to account for market “risk.”

Axios noted that for 2019, IT companies are again on pace to spend the most on stock buybacks this year, as the total looks set to pass 2018’s $1.085 trillion record total. Pretty easy to keep markets in the clouds with cheap credit fuelling expensive buybacks. Harley-Davidson is another household name which suffers from strategy decay yet deploys more cash to share buybacks instead of revitalising its core franchise. Harley delinquencies are at a 9-yr high.

Companies like GE embarked on a $45bn share buyback program despite a balance sheet which still reveals considerable negative equity. GE was the largest company in the world in 2000 and now trades at 20% of that value almost 20 years later.

Should we ignore Harry Markopolos, who discovered the Bernie Madoff Ponzi scheme, when he points to the problems within GE? GE management can protest all they like but ultimately the company is not winning the argument if the share price is a barometer.

Valuations are at extreme levels. Beyond Meat trades at 100x revenues. Don’t get CM started on Tesla. A largely loss-making third rate automaker which is trading at outlandish premiums. The blind faith put in charge of a CEO that has lost over 100 senior management members.

Bank of America looked at 20 metrics to evaluate current market levels of the S&P500. 17 of them pointed to excess valuations relative to history including one metric that revealed S&P500 being 90% overvalued on a market cap to GDP ratio. Never mind.

Then witness the push for diversity nonsense inside corporate boardrooms. CM has always believed if a board is best suited to be run by all women based on background, skills and experience, then so be it. That is the best outcome for shareholders. However, to artificially set targets to morally preen will mean absolutely nothing if a sharp downturn exposes a soft underbelly of a lack of crisis management skills. Shareholders and retirees won’t be impressed.

It was laughable to hear superannuation funds ganging up on Harvey Norman last week for not having a diverse enough board. Even though Harvey Norman is thumping the competition which focuses too much on ESG/CSR, the shortcomings of our retirement managers are only too evident. Retirees want returns and their super managers should focus on that, rather than try to push companies to meet their ridiculous self-imposed investment restrictions. Retirees won’t be happy when their superannuation balances are decimated because fund managers wanted to appear socially acceptable at cocktail parties.

PROPERTY

It was only last month that Jyske Bank in Denmark started to offer negative interest mortgages. That is the bank pays interest to the mortgage holders. Of course, the bank is able to source credit below that rate to make a profit however net interest margins for the banks get squeezed globally. What next? Will people be able to sign up to a perpetual negative interest mortgage? Shall we expect a Japan-style multi-generational loan?

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The RBA’s latest chart pack shows net interest margins at the lowest levels for two decades. With the Hayne Banking Royal Commission likely to further crimp on lending growth, we are storing up huge pain in property markets despite the hope that August clearing rates signal a bottom in the short term. Yet more suckers lured in at the top of a shaky economy and financial sector.

Of course, central banks will dance to the tune that all is OK. Until it isn’t.

Don’t forget former US Treasury Secretary Hank Paulson, said “our financial institutions are strong” right before plugging $700bn worth of TARP money to save many of them from bankruptcy in 2008.

CM has previously investigated the Big 4 Aussie banks who have equity levels that are chronically low levels. Our major banks have such high exposure to mortgages that a severe downturn could potentially lead to part or whole nationalisation. Of course, between signalling the importance of factoring climate change, APRA assures us the stress tests ensure our financial institutions are safe.

Back in 2007, Sydney house prices were 8x income. In 2017 Demographia stated average housing (excluding apartment) prices were in the 13-14x range. The Australian Bureau of Statistics notes that 80% of people live in houses and 20% in apartments. Only Hong Kong at 19x beats Sydney for dizzy property prices. In 2019, expect that price/income rates remain at unsustainable levels.

In 2018, Australia’s GDP was around A$1.75 trillion. Our total lending by the banks was approximately $2.64 trillion which is 150% of GDP. At the height of the Japanese bubble, total bank lending as a whole only reached 106%. Mortgages alone in Australia are near as makes no difference 100% of GDP. Where there is smoke, there is fire.

At the height of the property bubble frenzy, Japanese real estate related lending comprised around 41.2% (A$2.5 trillion) of all loans outstanding. N.B. Australian bank mortgage loan books have swelled to 64% (A$1.8 trillion) of total loans.

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Sensing the bubble was getting out of control, the Bank of Japan went into a tightening rate cycle (from 2.5% to 6%) to contain it. Unfortunately, it led to an implosion in asset markets, most notably housing. From the peak in 1991/2 prices over the next two decades fell 75-80%. Banks were decimated.

In the following two decades, 181 Japanese banks, trust banks and credit unions went bust and the rest were either injected with public funds, forced into mergers or nationalized. The unravelling of asset prices was swift and sudden but the process to deal with it took decades because banks were reluctant to repossess properties for fear of having to mark the other properties (assets) on their balance sheets to current market values. Paying mere fractions of the loan were enough to justify not calling the debt bad. If banks were forced to reflect the truth of their financial health rather than use accounting trickery to keep the loans valued at the inflated levels the loans were made against they would quickly become insolvent. By the end of the crisis, disposal of non-performing loans (NPLs) among all financial institutions exceeded 90 trillion yen (A$1.1 trillion), or 17% of Japanese GDP at the time.

The lessons are no less disturbing for Australia. As a percentage of total loans outstanding in Australia, mortgages make up 65%. The next is daylight, followed by Norway at around 40%. US banks have cut overall property exposures and Japanese banks are now in the early teens. Post GFC, US banks have ratcheted back mortgage exposure. They have diversified their earnings through investment banking and other areas. That doesn’t let them off the hook mind you.

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Japanese banks have 90%+ funding from domestic deposits. Australia is around 60-70%. Our banks need to go shopping in global markets to get access to capital. Conditions for that can change on a dime. External shocks can see funding costs hit nose bleed levels which are passed onto consumers. When you see the press get into a frenzy over banks passing on more than the rate rises doled out by the RBA, they aren’t just being greedy – a large part is absorbing these higher wholesale funding costs.

Central banks need a mea culpa moment. We need to move away from manipulating interest rates to muddle through. It isn’t working. At all.

Rochford rightly points out,

Coming off the addiction to monetary policy is going to be painful, but it is the only sustainable course. It is likely that normalising monetary policy will result in a global recession, but this must be accepted as an unavoidable outcome given the disastrous policies of the past. Excessive monetary and fiscal stimulus has pulled consumption forward, the process of unwinding that obviously requires a level of consumption to be pushed backwards.”

Rochford is being conservative (no doubt due to his polite demeanour) in his assessment of a global recession. It is likely that this downturn will make the GFC of 2008 look like a picnic. CM thinks depression is the more apt term. 1929, not 2008. Central banks are rapidly losing what little confidence remains. If the RBA think QE will be a policy option, there is plenty of beta testing to show that it doesn’t work in the long run.

It is time to have the recession/depression we had to have to get the markets to clear. It will be excruciatingly painful but until we face facts, all the manipulation in the world will fail to keep capitalism from doing its job in the end. The longer we wait the worse it will get.

“It’s not what you don’t know that gets you into trouble…..it is what you know to be sure that just ain’t so! – Mark Twain.

Actually, vote on the political emergency

No surprise to see The Guardian parrot on about a climate emergency. The editorial completely misses out on the political emergency we face. The economic climate is a massive issue facing Australia. When Bill Shorten tells us that he “will change the nation forever” we shouldn’t view that positively. It is probably the honest thing he has said. Labor’s policy suite is the worst possible collection one could assemble to tackle what economic headwinds lie ahead. Our complacency is deeply disconcerting.

First let’s debunk the climate noise in The Guardian.

The math on the climate emergency is simple. Australia contributes 0.0000156% of global carbon emissions. No matter what we do our impact is zip. If we sell it as 560 million tonnes it sounds huge but the percentage term is all that is relevant. Even Dr Finkel, our climate science guru, agrees. What that number means is that Australia could emit 65,000x what it does now in order to get to a 1% global impact. So even if our emissions rise at a diminishing rate with the population, they remain minuscule.

Bill Shorten often tells us the cost of doing nothing on climate change is immeasurable. He’s right, only in that “it is too insignificant” should be the words he’s searching for.

Perhaps the saddest part of the Guardian editorial was to say that the Green New Deal proposed by Alexandria Ocasio Cortez was gaining traction in the US. It has been such a catastrophic failure that she lost an unsolicited vote on the Senate floor 57-0 because Democrats were too embarrassed to show up and support it. Nancy Pelosi dismissed it as a “green dream.” At $97 trillion to implement, no wonder AOC says feelings are more important than facts.

With the 12-year time limit to act before we reach the moving feast known as the tipping point, it gets confusing for climate sceptics. Extinction Rebellion wants things done in only 6 years. The UK House of Commons still can’t get a Brexit deal done inside 3 years but can act instantaneously to call a “climate emergency” after meeting a brainwashed teenager from Sweden. It speaks volumes of the desperation and lack of execution to have to search for political distractions like this.

The ultimate irony in the recent celebration of no coal-fired power in the UK for one week was fossil fuel power substituted all of it – 93% to be exact. Despite the energy market operator telling Brits that zero carbon emissions were possible by 2025 (40% of the current generation capacity is fossil fuel), it forgot that 85% of British homes heat with gas. Presumably, they’d need to pop on down to Dixon’s or Curry’s to buy new electric heaters which would then rely on a grid which will junk 40% of its reliable power…good luck sorting that out without sending prices sky high. Why become beholden to other countries to provide the back-up? It is irrational.

Are people aware that the German electricity regulator noted that 330,000 households (not people) were living in energy poverty? At 2 people per household, that is 1% of the population having their electricity supply cut off because they can’t afford to pay it. That’s what expensive renewables do. If the 330,000 could elect cheap electricity to warm their homes or go without for the sake of the climate, which would they choose? 100% cheap, reliable power. Yet Shorten’s plan can only push more into climate poverty which currently stands at 42,000 homes. This is before the economy has started to tank!

If one looks across Europe, it is no surprise to see the countries with the highest level of fossil fuel power generation (Hungary, Lithuania & Bulgaria) have the lowest electricity prices. Those with more renewables (Denmark, Germany & Belgium), the highest. That is Australia’s experience too. South Australia and Victoria have already revealed their awful track record with going renewable. Why did Coca-Cola and other industries move out of SA after decades? They couldn’t make money with such an unreliable

Ahh, but we must protect our children and grandchildren’s futures. So low have the left’s tactics sunk that using kids as human shields in the fight for climate change wards off conservatives calling out the truth because it is not cool to bully brainwashed kids. We should close all our universities. As the father of two teenagers, CM knows they know everything already so there is little requirement for tertiary education!

The Guardian mentioned, “But in Australia, the Coalition appears deaf to the rising clamour from the electorate [on climate change].” Really?

CM has often held that human consumption patterns dictate true feelings about climate change. Climate alarmist Independent candidate Zali Steggall drives a large SUV and has no solar panels on her roof! Her battleground in the wealthy seat of Warringah is probably 70%+ SUV so slapping a Zali bumper sticker does nothing but add to the hypocrisy.

Why do we ignore IATA forecasts that project air travel will double by 2030? Qantas has the largest carbon offset program in the world yet only 2% elect to pay the self-imposed tax. Isn’t that telling? That is the problem. So many climate alarmists expect others to do the heavy lifting.

SUVs make up 43% of all new car sales in Australia. In 2007 it was 19%. Hardly the activity of a population fretting about rising sea levels. In Warringah, waterfront property sales remain buoyant and any bank that feared waves lapping the rooves of Burran Avenue would not take such portfolio risk, much less an insurance company.

Shorten’s EV plan is such a dud that there is a reason he can’t cost it. Following Norway is great in theory but the costs of installing EV infrastructure is prohibitively expensive. It will be NBN Mark II. Will we spend millions to trench 480V connectors along the Stuart Highway?

Norway state enterprise, Enova, said it would install fast chargers every 50km of 7,500km worth of main road/highway. Australia has 234,820km of highways/main roads. Fast chargers at every 50km like the Norwegians would require a minimum of 4,700 charging stations across Australia. Norway commits to a minimum of 2 fast chargers and 2 standard chargers per station.

The problem is our plan for 570,000 cars per annum is 10x the number of EVs sold in Norway, requiring 10x the infrastructure. That would cost closer to $14bn, or the equivalent of half the education budget.

The Guardian griped that “Scott Morrison’s dismissive response to a UN report finding that the world is sleepwalking towards an extinction crisis, and his parliamentary stunt of fondling a lump of coal”

Well, he might doubt the UN which has been embroiled in more scandals related to climate change than can be counted. Most won’t be aware that an internal UN survey revealed the dismay of unqualified people being asked for input for the sake of diversity and inclusion as opposed to choosing those with proper scientific qualifications. The UN has climbed down from most of its alarmist predictions, often citing no or little confidence of the original scare.

Yet this election is truly about the cost of living, not climate or immigration. The biggest emergency is to prepare for the numbers we can properly set policy against.

We have household debt at a record 180% of GDP. We have had 27 years of untrammelled economic growth. Unfortunately, we have traded ourselves into a position of too much complacency. Our major 4 banks are headed for a lot of trouble. Forget meaningless stress tests. APRA is too busy twiddling its thumbs over climate change compliance. While the Royal Commission may reign in loose lending, a slowing global economy with multiple asset bubbles including houses will come crumbling down. These banks rely 40% on wholesale markets to fund growth. A sharp slowdown will mean a weaker dollar which will only exacerbate the problem.

We have yet to see bond markets price risk correctly. Our banks are horribly exposed. They have too little equity and a mortgage debt problem that dwarfs Japan in the late 1980s. Part/whole nationalization is a reality. The leverage is worse than US banks at the time of the Lehman collapse.

We have yet to see 10% unemployment rates. We managed to escape GFC with a peak of 6% but this time we don’t have a buoyant China to rescue us. Consumers are tapped out and any upward pressure on rates (to account for risk) will pop the housing bubble. Not to worry, Shadow Treasurer Chris Bowen assures people not to panic if their home falls into negative equity! This is the level of economic nous on the catastrophe that awaits. It is insanely out of touch.

Are our politicians aware that the US has to refinance US$8.4 trillion in US Treasuries in the next 3 years? That amount of money will crowd out a corporate bond market which has more than 50% of companies rated BBB or less. This will be compounded by the sharp rise in inventories we are witnessing on top of the sharp slowdown in trade (that isn’t just related to the trade war) which is at GFC lows. The 3.2% US economic growth last quarter was dominated by “intellectual property”, not consumption or durable goods.

China car sales have been on a steep double-digit decline trajectory for the last 9 months. China smartphone shipments dwindle at 6 year lows. In just the first four months of 2019, Chinese companies defaulted on $5.8 billion of domestic bonds, c.3.4x the total for the same period of 2018. The pace is over triple that of 2016.

Europe is in the dumps. Germany has had some of the worst industrial production numbers since 2008. German GDP is set to hit 0.5% for 2019. France 1.25% and Italy 0.25%. Note that in 2007, there were 78mn Europeans living in poverty. In the following decade, it hit 118mn or 23.5% of the population.

Global bellwether Parker Hannifin, which is one of the best lead indicators of global industrial growth, reported weaker orders and a soft outlook which suggests the outlook for global growth is not promising.

This election on Saturday is a choice between the lesser of two evils. The LNP has hardly made a strong case for reelection given the shambolic leadership changes. Take it to the bank that neither will be able to achieve surpluses with the backdrop we are headed into. Yet when it comes to economic stewardship, it is clear Labor are out of their depth in this election. Costings are wildly inaccurate but they are based on optimistic growth scenarios that simply don’t exist. We cannot tax our way to prosperity when global growth dives.

Hiking taxes, robbing self-managed super fund retirees and slamming the property market might play well with the classes of envy but they will be the biggest victims of any slowdown. Australia has run out of runway to keep economic growth on a positive footing.

We will do well to learn from our arrogance which has spurned foreign investment like Adani. We miscalculate the damage done to the national brand. Adani has been 8 years in the making. We have tied the deal up in so much onerous red tape, that we have done nothing more than treating our foreign investors with contempt. Those memories will not be forgotten.

There will come a point in years to come where we end up begging for foreigners to invest at home but we will only have ourselves to blame.

The editorial closes with,

However you choose to exercise your democratic decision-making on Saturday, please consider your candidate’s position on climate and the rapidly shrinking timeframe for action. We have endured mindless scare campaigns and half-baked policy for too many decades. We don’t have three more years to waste.

This is the only sensible quote in the entire article. The time for action is rapidly shrinking. However, that only applies to the political and economic climate. One can be absolutely sure that when the slowdown hits, saving the planet will be furthest removed from Aussie voters’ minds.