MARKETS, REAL ESTATE AND SME

Welcome to another edition of Markets, Real Estate and SME, the Australian news-filter that provides you information with regards to your financial future when investing in Australian Real Estate, Markets and Small to Medium Enterprise. We offer occasional opinions on the subjects we post about, the views of which should be taken in context and represent the view of the author only. We have no political affiliation, but will be providing articles relating to politics, especially considering the upcoming federal election and how the government influences your financial future. Enjoy!

REAL ESTATE

Hope rises for property market on yet more solid auction sales

Analysts are growing more confident of a sustained recovery in the property market following yet another strong weekend of auction clearance rates, with over two-thirds of residential properties selling at auction in Melbourne and Sydney.

However... continue reading...

How to score an investment property at a bargain price

HERE'S how professional investors ensure they pay the best possible price for a property.

Auctions: Auctions can be a great place to find a bargain but they can also be a great place to get caught out and pay well above the odds.

They key is to continue reading...

Don't wait for fixed rate loans

Most of the first-home buyer incentives have gone, but some determined young purchasers have found a way to fix their place on the property ladder.

Industry insiders say current low rates are just the carrot on a stick to give uninitiated buyers confidence -- and fixing them for one to two years could seal the deal.

L Janusz Hooker, LJ Hooker deputy chairman, said now was the time to continue reading...

MARKETS

"The heart of the matter, in today's context, is that the people running the world's financial systems are thieves." - Words from the article below. I can't agree more!

Monday, 4 March 2013 - View the Daily Reckoning Australia's home page here
Delray Beach, Florida – Melbourne, Australia
By +Dan Denning

• What would a clown make of Australia's finances?

• The Sequester: Paul Krugman's worst nightmare...

• Plus, reckoning with the fringy cyber experiment that threatens the lifeblood of the State...

From Dan Denning in St Kilda:
--Today's Daily Reckoning begins the week with a difficult task: dismissing the muddled thinking that passes for conventional wisdom in order to focus on the heart of the matter. The heart of the matter, in today's context, is that the people running the world's financial systems are thieves. As such, their idea of wealth is, at best, confused. At worst, they have no idea what wealth is, which would explain why they keep adding more debt.
--But let's deal with some facts first. It's a fact that China's official purchasing manager's index expanded in February. It read 50.1, according to the China Federation of Logistics and Planning, and anything over 50 indicates an expansion. It's also a fact that the February reading was lower than the January reading. Cue the nerves about the strength of China's expansion.
--It's not a fact that the China PMI is at all useful for investors. It's a survey. And there's no telling if the survey of China's purchasing managers produces accurate information about what's going on in the Chinese economy. And anyway, in causal terms, the PMI survey is secondary. In the world we live, the first cause of all growth is credit expansion.

--Australian investors worried about China's PMI should pay more attention to Chinese house prices. Some of those prices are rising 'excessively fast,' according to China's State Council. The Council warned banks to raise interest rates and down payments, especially for second homes and investment properties. It's worried that a property bubble is bad for social harmony.
--This is always the issue with excessive credit growth. The money has to go somewhere. The banks that take advantage of low central bank interest rates tend to put the money to its quickest use: inflating property prices. This happens at the commercial and residential level.
--China would prefer to have a more orderly flow of credit into fixed assets and public infrastructure. But you can't always get what you want, even in a command economy. And for Aussie investors hoping that China's credit growth flows directly into industries that demand commodities, there's no guarantee that resources will rebound.

--By the way, we know that both Alex Cowie and Greg Canavan have staked out their respective positions on this China issue. They have different positions, which is what happens when thinking people disagree. But it's a mistake to say you're either a China bull or a China bear. That's simplistic.
--The issue here is whether Chinese credit growth can be channelled into productive investment. If it can't - because there's too much credit growth - it's a bubble. If it can, well then it can. But this isn't about being a bull or a bear. It's about the real rates of return on investment in China and whether the investment boom is driven by investors or speculators.
--You can't blame Chinese speculators for buying extra houses, though. You have to beat inflation somehow. And what's happening in China is happening the world over: investors are pouring money into asset classes that can help them beat inflation or at least own something of value.
--Take US stocks. The Dow Jones Industrials are again trading at over 14000. The S&P 500 is prepared to make an attack run on 1600. Weary cash, tired of sitting on the sidelines waiting for something of value to come along, is off the bench and into the game. And the game itself is at an interesting turning point.
--Let's bring your attention back to a chart we published a few weeks ago. It's the gold/Berkshire Hathaway 'B' shares ratio. It tells you how many Berkshire 'B' shares it would take you to buy an ounce of gold. We've been using it as a way to measure the strength of stocks and the weakness of gold, and to identify turning points. Have a look.

Productive Businesses vs. Gold

--The lower the ratio gets, the stronger Berkshire's 'B' shares are relative to gold. If you wanted to translate that into economic and investment terms, you might say that the lower ratio goes, the more willing investors are to takes risks on stocks that can produce real wealth instead of buying gold as a defensive way to preserve real wealth.
--The ratio has declined 22.3% since we first looked in May of 2012. It was 19.88 then. The gold price is actually about the same now as it was in May of 2012. What's changed is that Berkshire's 'B' shares have rallied from US$82.22 to $102.25. Stocks and risk - or the flight from inflation - are beating gold.
--A caveman chartist could draw a nice crude trend line from 2004 to now. It would find 'support' right around 14. By 'support,' we mean that the gold price would start to get stronger. Since 2002, gold has gained on stocks. When you multiply the current share price by fourteen, you get $1428.70. That would be a ten per cent decline from gold's current price at $1580.
--We 'like' that level because it would clearly shake out all the weak gold hands and seriously question the conviction of the bulls. You don't get durable rallies until all the selling has been exhausted. But for the record, the ratio could just as easily return to 14 with a rally to $112.85 in the 'B' shares and a stable price.

--But what's this? Are we really constructing short-term forecasts on the basis of an unproven indicator? Is this really a secret signal for when to buy gold or when to sell stocks?
--What we're really trying to measure here is public perceptions of real wealth. Central banks have pacified the public into a stupor by inflating stock prices. This gives the impression of real wealth creation. But it's only inflation. Real wealth comes from producing more, not paying more for assets and calling yourself rich because you can afford it with debt.
--But all performance-enhanced stupors eventually wear off. And when they do, the investing public can't help but see things for what they really are. The ratio above tells us that when the gold price goes below $1500, people will see it as 'cheap'. When the S&P approaches 1600, investors will realise its expensive, given the weak growth in the US and the huge support the Fed has given the market.
--It's easier to see this process play out in politics, and much more entertaining. A start-up political party led by a retired clown won 25% of the vote in Italy's recent elections. This must be applauded as a big upgrade in the calibre of Italy's political class. Clowns are merely clever buffoons. Politicians are dangerous psychopaths.
--The clown in question, 64-year old Beppe Grillo, is performing the jester's role admirably. He refuses to form a government with either of the major political parties. And because he's a jester, he can say things to the ruling class that most people wouldn't dare utter.
--For instance, Grillo says that if 'conditions do not change' Italy 'will want' to leave the euro and take up the lira again. He points out that Italy must renegotiate its $2.5 trillion in debt, which it can never repay. He says that, 'Right now we are being crushed not by the euro, but by our debt.'

--Italy cannot devalue the euro to make its debts more bearable. The Germans control the value of the euro. The Italians do not. Even a clown knows you cannot beat the Germans at a game like this. And even a clown knows that adding more debt to the problem will not solve it.
--But the young voters who supported Grillo in a rush of exuberant adolescent defiance are now being overwhelmed by their idealistic desire to 'make things better'. Viola Tesi, a 24-year old member of Grillo's 'Five Star Movement' started a petition on-line asking him to save Italy's 'gentle revolution' and not waste her vote.

--Oh dear.

--Ms Tesi is still under the illusion that her vote matters. She's still under the illusion that in a modern democracy, the people have inalienable rights and that those who govern are accountable to those who vote. She's under the impression that the political system can be reformed from within by well-meaning students and the clowns they support.
--She's going to be bitterly disappointed, but such is life. Italy's politicians are engaged in a giant game of pretend, just like politicians in America and here in Australia. They pretend that the debts incurred are payable and that more government is the key to more economic growth. They either pretend this, or genuinely believe it, which is even worse.

--It's not an Italian problem. It's a misunderstanding of wealth problem. For instance, here in Australia Treasurer Wayne Swan has assured us all that the economy will be just fine because there is $187 billion in capacity expanding investment in the pipeline for 2013. He says $105 billion of that spending is in the mining industry and $63 billion in 'other industries'.
--This is presented as evidence that the mining boom isn't over, and even if it is, other industries will come along to support the economy in its time of need, and the government in its time of deficits. It is a nice tidy political and economic narrative. But it's unlikely to play out the way the Treasurer expects.

--Investment booms - big increases in cap ex - are much closer to the end of the commodity cycle the beginning. You get a rush of investment by firms hoping to crank up production in order to take advantage of higher prices. You get marginal firms banking on higher commodity prices spending on projects that can only work when prices are high.
--Commodity prices have already begun to fall. The cap ex in the pipeline doesn't indicate a longer boom. It indicates the end of the boom. The government has to tell it otherwise because it took advantage of booming commodity prices to raise the level of structural government spending. Now, with the revenues disappointing, the deficits are set to blow out even more.
--A clown would absolutely love to comment on what happened to Australia's public finances during the commodity boom. The country spent most of the boom running larger deficits and adding to the public debt. And because of the way government spending works, the higher base for public spending will be permanent, even though the revenues from the commodity boom were cyclical.

--The added trouble with all this new public debt in Australia is that it doesn't build anything productive. That's why you can be sure that between now and election in September there will be repeated calls for Australia to have a Chinese-style infrastructure boom, especially if it involves channelling money from the superannuation system into high-cost projects.
--Or, Australia could go the American route and buy an army of death drones. Your editor spent most of Sunday at the air show down in Avalon. America's military might was on full display, which is impressive for a country supposedly undergoing a budget crisis. Apparently the Pentagon didn't get the memo.

--There was an agile C-130 doing a touch-and-go on the runway. And there were four F-18s screaming through the skies over simulated explosions. And there was the titanic C-17 cargo plane spinning like a top, 180 degrees of rotation, in order to turn around and take off. And of course, there was the world's most expensive fighter plane, the F-22 Raptor, which sent the crowd into shivers of delight on a hot Melbourne day.

--But our favourite aerial vehicle of the day, by far, was the one you see below. It's the US Navy's new MQ-4C Triton. It looks a bit like its Air Force cousin, the more famous RQ-4 Global Hawk. But even though it has the same air frame, the Triton is designed for what the Navy calls 'Broad Area Maritime Surveillance,' or BAMS. It will have a sensor array allowing it to spot objects on the surface of the ocean in a 360 degree field of 'vision'.

--Your editor gave it the big 'thumbs down', but not because it's an ugly design. Because it doesn't have a pilot, we're assuming the Triton has room for a bigger sensor 'package' - electronic equipment that can pick up signals. Or it could be the above-mentioned radar. As a design, it's a cross between the head of the aliens in the Alien saga...and a cute beluga whale.
--In fact, that contrast just about captures the contrasting narratives around drones (or pilotless aircraft, as the Pentagon prefers). The soft and cuddly story is that they can improve border security and public safety by monitoring for 'threats' on a continuous basis. They are cute but formidable, like a Beluga whale.

--But let us not forget that drone technology is always migrating towards the lethal. That's the alien death aspect of the technology, and it's already familiar to anyone living in the tribal regions of Pakistan, or in Afghanistan and Yemen. Lest we forget.
--Your editor gave it the big 'thumbs down' because we can see drones becoming the un-manned gladiators of the modern world. Right now, President Obama can give an extra-judicial 'thumbs down' to anyone he deems a terrorist and an enemy of America. The drones do his bidding, without the oversight of the legislature or the people.

--But it will only be a matter of time before drone technology is democratised and commercialised. Pretty soon you may be able to start a petition at change.org to have your annoying next door neighbour killed by drone strike. If you get enough 'likes' on your Facebook page or 100,000 or more people to sign your petition, the Pentagon may be compelled to take your neighbour out (for a fee, of course...drones aren't free like healthcare).
--The democratic distribution of death is a great distraction from the plutocratic theft of wealth. The idea has legs. But perhaps it would make a better game show, though. Hmm. We'll think on this and get back to you tomorrow. Until then...

Regards,
Dan Denning
for The Daily Reckoning Australia - +Daily Reckoning Australia 

SME

Jobs ad rise for a 2nd consecutive month

Job advertisements rose in February to their highest level since October 2012, a leading employment survey says.

The ANZ Job Ads survey, released on Monday, showed the total number of ads was up continue reading...

Retailers' cries about online are a 'furphy'

SHOPPERS are flocking to online websites with almost $13 billion spent last year.

But it is domestic retailers rather than international websites that are the biggest winners with almost 75 per cent of goods purchased bought from Australian-based companies at an average price of just $60, according to the latest research.

National Australia Bank chief economist Alan Oster said this exposes as a "furphy" the cries of unfair competition from continue reading...

Gillard rejects business call to relax restrictions on foreign 457 work visas

JULIA Gillard has delivered a stern rebuke to calls by business to loosen restrictions on foreign workers, saying the 457-visa scheme was "totally out of control" during the Howard years.

On the second day of her blitz of marginal electorates in Sydney's western suburbs, the Prime Minister challenged the NSW government to submit a detailed plan to construct the WestConnex Motorway or forgo federal funding of the road, which would connect the M4 to the inner-city.

Asked about the government's recent crackdown on alleged abuse of foreign temporary work visas, including reducing the number of applications that can be made under the scheme and requiring businesses to demonstrate a genuine skill shortage in their area of operations, Ms Gillard said continue reading...

I would like to point out something with regards to the previous article which I am sure many of you may be thinking too. Focus on limiting the illegal immigrants entering our country, thus relieving the Australian Tax Payer of the burden of expensive 'humanitarian' expenses; especially considering we need to rebuild the detention centres every other week. At least 457 holders are paying taxes and for private health care. The government should stop showing the people entering our country the legal way in a negative light. If the system is being abused, the problem lies with the regulation thereof, not with the majority of applicants.

Until next time dear readers, we bid you adieu!