Japan

We pray the Gov’t makes more $60bn mistakes!

Can the media and shadow politicians get a grip? Since when should taxpayers complain when the government makes a huge error in our favour? We can pretty much stake our lives on the fact that 99% of government programs end up way more expensive than initially budgeted for. French Submarines anyone? NBN? We should be looking at the JobKeeper revision as a massive positive.

The federal government estimated that the JobKeeper program would initially cost $130 billion. Now it appears they overestimated it by $60 billion. That was driven by the idiosyncrasies of who would be eligible at the employer end – from the self-employed to big business and everything in between.

Given the limited time window, forgive the Treasury and Tax Office for not landing estimates on target. It is ridiculous to expect they could estimate such a fluid piece of legislation.

The unwelcome arrival of COVID19 and the sudden stay-at-home orders that ensued hardly gave a generous window of opportunity to apply Japanese level precision engineering to the process.

Our only criticism lies with the drip feed approach to restarting the hibernating economy. As we mentioned yesterday with respect to the 50 US states, so many appear to be copying each other rather than making bold data driven decisions based on facts not consensus.

The reality is that the Treasury will need to make many more multi billion dollar mistakes in the spirit of JobKeeper to help mitigate the damage caused by the looking trillion dollar deficits.

Perhaps the $60 billion saving can be redeployed to building a bullet train from Sydney to Melbourne. A 20-yr project that is just the type of infrastructure spending which ticks so many boxes – relieving pressure on the state capitol cities, housing, assist a growing population and provide lots of jobs.

China’s bullying is a blessing in disguise

We should view China’s recent bullying as a blessing in disguise. Our government should resist quickly bending to its will for we would only embolden Beijing by such a rapid display of weakness.

China’s true colours are on display. Barley tariffs, meat bans and now minerals are up for debate. All because we wish to have an inquiry into the beginnings of the virus.

We are not blameless. Our universities squeezed the Chinese student lemon until the pips squeaked. These educational institutions never built in contingencies. They are culpable for such pathetic risk management processes. Our property market has benefited from Chinese investment. Our primary industries rode the back of this panda and now fear they could end up inside.

However China is welcome to source its coal from Indonesia if it so chooses. We have globally competitive cost curves which would be welcomed in other nations.

Of course there will be short term disruptions but the entire global supply chain is being rewritten. That can only be in our favour. We aren’t playing aggressor while covering up a pandemic. This isn’t lost on most of the world, even if governments might tiptoe around the subject.

We should be revitalizing our relationship with Japan. At least we know when we sign a contract, the Japanese will stick to it rather than the Chinese style of starting negotiations after a deal is inked.

Why would we move away from our relationship with America? Much more opportunities in partnering with the US and India as well.

Chinese military aggression is self evident. Its investment in defence and space is exponential. While a fraction of US military spending the Chinese power projections in the South China Sea as well as the Paracels, Spratly and Senkaku Islands should raise concerns. Man made military island bases in the Pacific as well as ‘trading’ ports around the world which would welcome Chinese naval vessels.

Don’t take our word for it. Japan revealed in its 2019 Defense White Paper just how much China has been toying with it. Look at the trend of Japanese Air Self Defense Force jet scrambles to intercept Chinese military aircraft approaching its shores. Less than 100 a decade ago to over 600 in 2018.

The map at the top of this post shows how many times PLA Navy ships have sailed through Japanese territorial waters in what would be our equivalent of the Indonesian Navy sailing through the Bass Strait between Victoria and Tasmania without warning.

China’s true colours should make the rest of the world sit up and take notice. While China has trapped many countries in debt turning them into financial colonies, this pandemic will create a world that wants to rely less on China. The Middle Kingdom might be a formidable trading bloc but its domestic economy is challenged and the louder the external rhetoric, the more we know how much it is hurting inside.

We needn’t fold at the prospect of threats. Best forge new all weather friendships. China will quickly learn how fast the world that is not in debt slavery to it will ignore the Forbidden City. We can forget pandering to the Paris Accord which China ignores while we are at it.

The one fatal flaw experts forget when seeking to mimic #Abenomics style endurance

Pain

Over three decades ago, the Japanese introduced a TV programme titled, ‘Za Gaman‘ which stood for ‘endurance‘. It gathered a whole bunch of male university students who were challenged with barbaric events which tested their ability to endure pain because the producer thought these kids were too soft and self-entitled. Games included being chained to a truck and dragged along a gravel road with only one’s bare buttocks. Another was to be suspended upside down in an Egyptian desert where men with magnifying glasses trained the sun’s beam on their nipples while burning hot sand was tossed on them. The winner was the one who could last the longest.

Since the Japanese bubble collapsed in the early 1990s, a plethora of think tanks and central banks have run scenario analyses on how to avoid the pitfalls of a protracted period of deflation and low growth that plagued Japan’s lost decades. They think they could do far better. We disagree.

There is one absolutely fatal flaw with all arguments made by the West. The Japanese are conditioned in shared suffering. Of course, it comes with a large slice of reluctance but when presented with the alternatives the government knew ‘gaman’ would be accepted by the nation. It was right.

We like to think of Japan, not as capitalism with warts but socialism with beauty spots. Having lived there for twenty years we have to commend such commitment to social adhesion. It is a large part of the fabric of Japanese culture which is steeped in mutual respect. If the West had one lesson to learn from Japan it would be this. Unfortunately, greed, individualism and self-entitlement will be our Achilles’ heels.

It is worth noting that even Japan has its limits. At a grassroots level, we are witnessing the accelerated fraying of that social kimono. Here are 10 facts taken from our ‘Crime in Japan‘ series – ‘Geriatric Jailbirds‘, ‘Breakup of the Nuclear Family‘ and the ‘Fraud, Drugs, Murders, Yakuza and the Police‘ which point to that old adage that ‘all is not what it seems!

  1. Those aged over 65yo comprise 40% of all shoplifting in Japan and represent the highest cohort in Japanese prisons.
  2. 40% of the elderly in prison have committed the same crime 6x or more. They are breaking into prison to get adequate shelter, food and healthcare.
  3. Such has been the influx in elderly felons that the Ministry of Justice has expanded prison capacity 50% and directed more healthcare resources to cope with the surge in ageing inmates.
  4. To make way for more elderly inmates more yakuza gangsters have been released early.
  5. 25% of all weddings in Japan are shotgun.
  6. Child abuse cases in Japan have skyrocketed 25x in the last 20 years.
  7. Single-parent households comprise 25% of the total up from 15% in 1990.
  8. Domestic violence claims have quadrupled since 2005. The police have had to introduce a new category of DV that is for divorced couples living under the same roof (due to economic circumstances).
  9. The tenet of lifetime employment is breaking down leading to a trebling of labour disputes being recorded as bullying or harassment.
  10. In 2007, the government changed the law entitling wives to up to half of their husband’s pension leading to a surge in divorces.

These pressures were occurring well before the introduction of Abenomics – the three arrow strategy of PM Shinzo Abe – 1) aggressive monetary policy, 2) fiscal consolidation and 3) structural reform.

Since 2013, Abenomics seemed to be working. Economic growth picked up nicely and even inflation seemed like it might hit a sustainable trajectory. Luckily, Japan had the benefit of a debt-fueled global economy to tow it along. This is something the West and Japan will not have the luxury of when the coronavirus economic shutdown ends.

However, Japan’s ageing society is having an impact on the social contract, especially in the regional areas. We wrote a piece in February 2017, titled ‘Make Japan Great Again‘ where we analysed the mass exodus from the regions to the big cities in order to escape the rapidly deteriorating economic prospects in the countryside.

Almost 25 years ago, the Japanese government embarked on a program known as
‘shichosongappei’ (市町村合併)which loosely translates as mergers of cities and towns. The total number of towns halved in that period so local governments could consolidate services, schools and local hospitals. Not dissimilar to a business downsizing during a recession.

While the population growth of some Western economies might look promising versus Japan, we are kidding ourselves to think we can copy and paste what Nippon accomplished when we have relatively little social cohesion. What worked for them won’t necessarily apply with our more mercenary approach to economic systems, financial risk and social values.

Sure, we can embark on a path that racks up huge debts. We can buy up distressed debt and repackage it as investment grade but there is a terminal velocity with this approach.

The Bank of Japan is a canary in the coalmine. It has bought 58% of all ETFs outstanding which makes up 25% of the market. This is unsustainable. The BoJ is now a top 10 shareholder of over half of all listed stocks on the index. At what point will investors be able to adequately price risk when the BoJ sits like a lead balloon on the shareholder registry of Mitsui Bussan or Panasonic?

Will Boeing investors start to question their investment when the US Fed (we think it eventually gets approval to buy stocks) becomes the largest shareholder via the back door? Is the cradle of capitalism prepared to accept quasi state-owned enterprises? Are we to blindly sit back and just accept this fate despite this reduction in liquidity?

This is what 7 years of Abenomics has brought us. The BoJ already has in excess of 100% of GDP in assets on its balance sheet, up from c.20% when the first arrow was fired. We shouldn’t forget that there have been discussions to buy all ¥1,000 trillion of outstanding Japanese Government Bonds (JGBs) and convert them into zero-coupon perpetual bonds with a mild administration fee to legitimise the asset. Will global markets take nicely to erasing 2 years worth of GDP with a printing press?

Who will determine the value of those assets when the BoJ or any other central bank for that matter is both the buyer and seller. If the private sector was caught in this scale of market manipulation they’d be fined billions and the perpetrators would end up serving long jail sentences.

Can we honestly accept continual debt financing of our own budget deficit? Japan has a ¥100 trillion national budget. ¥60 trillion is funded by taxes. The remainder of ¥40 trillion (US$400 billion) is debt-financed every single year. Can we accept the RBA printing off whatever we need every year to close the deficit for decade upon decade?

In a nutshell, we can be assured that central banks and treasuries around the world will be dusting off the old reports of how to escape the malaise we are in. Our view is that they will fail.

What will start off as a promising execution of Modern Monetary Theory (MMT), rational economics will dictate that the gap between the haves and the have nots will grow even wider. Someone will miss out. Governments will act like novice plate spinners with all of the expected consequences.

In our opinion, the world will change in ways most are not prepared for. We think the power of populism has only started. National interests will be all that matters. Political correctness will cease. Identity politics will die. All the average punter will care about is whether they can feed their family. Nothing else will matter. Climate change will be a footnote in history as evidenced by the apparition that was Greta Thunberg who had to tell the world she caught COVID19 even though she was never tested.

Moving forward, our political class will no longer be able to duck and weave. Only those that are prepared to tell it like it is will survive going forward. The constituents won’t settle for anything else. Treat them as mugs and face the consequences, just like we saw with Boris Johnson’s landslide to push through Brexit.

The upcoming 2020 presidential election will shake America to its foundations. Do voters want to go back to the safety of a known quantity that didn’t deliver for decades under previous administrations and elect Biden or still chance Project Molotov Cocktail with Trump?

What we know for sure is that Trump would never have seen the light of day had decades of previous administrations competently managed the economy. COVID19 may ultimately work in Trump’s favour because his record, as we fact-checked at the time of SOTU, was making a considerable difference.

Whatever the result, prepare to gaman!

 

Global Coal-fired power statistics – Diary of a Wimpy Kid

What is it with the self-flagellation over coal-fired power? The announcement that the Morrison government intends underwriting “ONE” coal-fired power plant brings with it the hysteria of publicly force-feeding kindergarten kids with highly radioactive sludge at recess time. Naturally, none of this outrage is based on facts. It is all tokenism.

Here are the stats for coal-fired power stations globally:

Coal Capacity

Australia has only 2.5% of the coal-fired capacity of China. Versus our total of 58, China has almost 3,000 in service.

Coal Operation

Coal-fired plants that have been announced, are under construction, permitted and pre-permit stage around the globe total 1,046. Where are the climate activists in China, India, Vietnam, Pakistan, Indonesia, Bangladesh, Philippines, Japan, Russia, Mongolia, Botswana, Nigeria, Zimbabwe, South Korea, Thailand, Malawi, Serbia, Bosnia & Herzegovina, Turkey, Egypt, Poland and South Africa?

New Coal

The mt CO2-e output of each country is as follows. Note China produces 36x more CO2.

Coal CO2

So China and India are responsible for 58% of coal-fired power generated emissions and will be 50% of all new capacity additions going forward.

Coal CO2 Contrib

China has 100x more coal-fired power on the drawing board than Australia yet we behave as though we are the biggest climate sinners on the planet! China and India have consistently been 70%+ of all new coal-fired plant capacity additions since 2006.

Coal Capa

So do Australian activists honestly think that canning one domestic new coal-fired power plant will have the slightest effect on global temperatures when our Asian and African neighbours are full speed ahead?

There have also been arguments made by activists that our coal exports should be counted against our totals in terms of emissions. Fine. Then by that logic, FNF Media expects the total emissions of every car sold in Australia (including fuel consumed) to be charged back to Japan, China, Korea, America and Europe. Every aircraft, every electronic device, every imported building material, crane, bulldozer, wind turbine, solar panel and truck that transports it. It would equal itself out pretty quickly.

Our global neighbours seem to be prioritizing national growth over climate alarmism. For it would appear they do not have the same level of brain-washed fanatics telling our kids that they have inherited a planet that will make them the last people on earth to survive.

The quickest route for Australia to end its prosperity is to cower to this insanity. To fall in line to the idea that renewables are cheaper (they aren’t) and more green is preposterous. Wind turbine blades are being put into landfill and solar panels are toxic to recycle and likely to end in the same place. Germany is giving us a great beta test case of how renewables are failing them. Indulge yourself here.

Coal-fired plants in Australia are forced to run sub-optimally to cater to the demands of the fluctuations in renewables which must be given priority to the grid. Ask anyone in large scale manufacturing how being forced to run at fluctuating levels destroys efficiency. It really is that simple.

Coal Price

Thermal coal prices are far from going out of control. So our power plant electricity generation isn’t becoming pricier due to input costs.

We have to stop becoming emotional about numbers and data and look at what they are telling us rather than build a narrative and reverse engineer the results. It always catches up to us in the end.

Our government needs to show some backbone and provide easy to understand data about reality. Rather than fold at the confected outrage which appears backed by crony capitalists.

Now that former PM Turnbull is weighing in on the debate (contradicting comments made while PM) saying that it is lunacy to pursue coal. Given his record of poor judgment, it stands to reason building cleaner coal-fired power plants is a sensible way to lower energy prices and remain a competitive global economy.

As FNF Media likes to say, the numbers will always be right in the end. Fiddle them at your peril.

Ghosn’s gone? Is such lax security a risk for the 2020 Olympics?

How terrible must Japan’s immigration systems be to allow a man under house arrest to flee to Lebanon? No records at all. Nissan’s former CEO Carlos Ghosn has an instantly recognizable face. He has been in front of the media so many times and is so famous that cartoons have been written about the man who saved Japan’s second largest auto maker from bankruptcy. It is hard to imagine a customs official wouldn’t be able to spot him even with a pseudonym.

FNF Media has questioned Japan’s approach to airport security before. It is woefully inadequate. At Haneda Airport, FNF Media approached Airport Police to question why they allowed passengers to leave baggage unattended in front of an unopened check-in counter. It was met with a shrug of the shoulders.

Japan may be blessed with low crime rates and a population at ease with following instructions, but Ghosn has once again exposed more weaknesses. Don’t forget Japan has a terrible history of terrorism too. We wrote about this here.

One imagines he flew out on a private jet from a regional airport where detection would be far lower. Although entering Japan requires finger prints and a photo, exiting requires a passport and an exit card. Presumably Ghosn flew out on a new passport under a different name and a new exit card.

Lebanon has no extradition rights with Japan. For whatever crimes Ghosn is alleged to have committed, it was clearly worth Y1.5bn ($15m) to escape the Japanese criminal justice system.

As FNF Media has said for many years, the risk of a terrorist event at the ‘omotenashi’ (friendly) 2020 Olympics is higher than many would imagine. They are taking they same approach as did the Germans at the 1972 Munich Olympics. We all know how disastrously that ended. Japan is unprepared. As an investment, the two leading Japanese Olympics security firms, SECOM and Alsok, have nothing but downside risk if anything ensues. Let us pray nothing happens.

Japan-bashing at COP25

From the UN Climate Summit pages today.

Japanese Minister of Economy and Trade Hiroshi Kajiyama today (Dec 3) said his country wants to continue using coal, even though UNEP’s Emissions Gap Report recommends the opposite. Recent reports suggest Japan may not submit a new climate plan in 2020, as it should under the Paris Agreement.

JUST IN! Australia, Japan and Brazil are joint winners of COP25’s first Fossil of the Day award #FossiloftheDay (Dec 3).

Note the video for the COP25 Fossil of the Day award above.

When will these people get that shaming doesn’t do anything to sway skeptics of impending Armageddon? Skeptics will take it with the seriousness these alarmists dish their religious fervor out.

Note in SG Guterres’ opening speech for COP25 that he didn’t mention China or India once. Never mind. Just preach in the full knowledge that China has committed to grow an Australia in emissions every week by 2030 from the current 2 weeks.