MARKETS, REAL ESTATE & SME

Hello dear readers and welcome to this week’s edition of Markets Real Estate & SME.

We hope you have had a pleasant weekend so far and we look forward to reading your responses to the article we bring you today from Nick Hubble...

MARKETS

Living in a Keynesian Fictional Paradise

By Nick Hubble • July 27th, 2013

So it looks like we’re back in a mind numbing surreality when it comes to the stock market. Good old 5000 on the ASX 200. We’ve only been here about a dozen times in the last seven years. Unfortunately, your editor is also reading Brave New World, which is the fictional version of the current reality you have to invest in.

In the book, the world went through a rough patch and came out looking a lot worse. All the crosses got their tops lopped off, leaving us worshiping Ford and his Model T instead of God. Production lines, consumerism and eugenics are the ways of the world now.

Back in your reality, things don’t look so different. Capitalism got its bottom lopped off, with no stock index allowed to fall, no bank allowed to fail and no consumer allowed to save. We’re worshiping Federal Reserve Chairman Bernanke and his bailouts and money printing.

The moral of the story and the lesson the real world will learn the hard way is that life without risk, failure and pain is meaningless. It’s an especially tough lesson to learn for characters in the book because promiscuity has become a virtue. Getting laid is as easy as buying a pie. Clothes are designed to come off easily. It doesn’t sound so bad at first...

The book is a criticism of Keynesianism, the ideology we’re stuck with here in reality too. People’s hobbies are evaluated based on how much equipment they use. Equipment needs to be made and that creates jobs. New hobbies can’t be invented unless they use more equipment than the old hobbies in case jobs are endangered. It’s just like Keynes’ old ‘pay people to dig holes and fill them back up again’ idea.

Taking the concept full circle, people themselves are produced. They’re made in factories to fill all these jobs that need to be created. Why create people to fill jobs for the sake of filling jobs? We’ll let you know if Huxley, the author, explains that bit. In the meantime, do you feel like you live in this type of world already? As if you’re only around to maximise consumption?

Daily Reckoning editor Bill Bonner pointed out a few months ago that the more or less self-sufficient Greeks living on islands in the Mediterranean suffer from a severe lack of GDP. They make their own wine, grow their own olives and walk home if they can after an evening of the two. None of this is registered economic activity. ‘Poor bastards’ wrote Bill.

In Australia we live in a paradise, comparatively speaking. You can’t do a thing without contributing to GDP. If a tree falls in the forest and nobody is around to hear it, it’s probably still counted in lumber inventory by the Australian Bureau of Statistics. Even if you don’t want to contribute, try living off the grid. The Australian Electoral Commission will hunt you down.

In the book, people are conditioned into liking whatever it is they are ordained to do at birth. People who will be sent to the tropics are blasted with cold air while they still take up little more than the bottom of a test tube. They’ll grow up wanting to live somewhere warm. Babies are given electric shocks when they see flowers. Flowers aren’t labour intensive enough to produce for them to be desirable.

Bernanke gives us his own electric shocks. All he needs to do is talk about tapering off his money printing and all hell breaks loose in stock markets. He reminds us how miserable a world without him is. Here in Australia, our government does what it can to make the same message clear. Greg Canavan sent this email over showing how the government can pick and choose winners and losers at a whim:

‘If you want to get an idea of who will win the next election, keep an eye on the share price of McMillan Shakespeare (MMS).

‘Its share price plummeted this week after emerging from a trading halt, the reason for which was the government’s proposed changes to Fringe Benefits Tax laws. In short, the government wants to make it much harder for people to salary package a car. They reckon the changes will save them around $1.8 billion in tax.

‘Where the government gets a win on taxes, the private sector loses, and it’s the salary packaging companies who stand to lose out the most. Hence MMS’ 50% price fall after the market digested changes to the tax.

‘But Tony Abbott has said he will overturn the changes if the Liberals win the upcoming election. This turns MMS into an election barometer. If its share price continues to gain ground in the lead up to the election, you’ll know Abbott and the Liberals are looking good. If it heads south, you’ll know Kevin has managed to sweet talk the electorate into giving Labor another crack.

‘Neither scenario sounds good. It just goes to show that running a business (or investing in one) that depends almost entirely on government tax policy is a nightmare scenario. Especially in an age of deficit holes that need to be patched up in any way they can.’

In the fictional and real worlds both, it’s dangerous to object to the status quo. Enforced happiness still feels good. Higher stock prices still make you feel rich. Questioning the two is depressing.

Apparently the sceptic character in the book ends up committing suicide. Your editor is often asked by Daily Reckoning readers when we’ll do the same.

But Huxley later wrote he regretted giving the sceptic a false choice in the plot. At the end of the book he has to choose between a harsh reality, a village in India, and a faux paradise in London. (No wonder he commits suicide.) Huxley’s third option he considered adding years later would’ve been a place where economic decisions were decentralised, where politics was anarchist, and science and religion served humanity instead of the other way around.

Sounds like there’s hope.

Regards,

+Nick Hubble
for The +Daily Reckoning Australia 

Here is an interesting video posted by the +Daily Reckoning  two weeks ago on their Youtube channel. I am all for buying Gold as a long term investment and buying through the highs and the lows.

REAL ESTATE

House prices picking up

Australian house prices reached three-year highs in the June quarter and look set to keep climbing.

National median house prices rose by 2.8 per cent in the June quarter - and 5.4 per cent in the year to June - a level of growth not seen since March 2010, the Australian Property Monitors quarterly housing report shows.

It was the third consecutive quarterly rise for national house prices.

Unlike the price boom of 2009 and 2010, buying hasn't ...continue reading

Key steps to property success

IT hasn't been a fruitful winter for Australian sports on the global stage.

No joy in the tennis, the golf or the Tour De France. And let's not mention that horrible c-word - cricket.

However ...continue reading

Investor magazines' 2011 unit hotspots are more misses than hits two years on

The Queensland mining towns of Gladstone, Toowoomba and Chinchilla account for three of the five locations that have delivered median unit growth above inflation (around 5% over two years) when measured by both RP Data and Australian Property Monitors (APM) – the two information providers used by Your Investment Property and Australian Property Investor in compiling their Top 100 lists.

In line with Property Observer’s analysis earlier this week of the 21 collective detached housing hotspots which appeared in both magazines 100 'best buy' suburbs of  two year's ago, analysis of collective unit hotspots also reveal that very few have delivered any ...continue reading

SME

Abbott pitches to SMEs

A coalition government will place small business concerns at the heart of its economic decision-making rather than looking at them like "animals in a zoo", Opposition Leader Tony Abbott says.

He has pledged to make the small business minister part of cabinet and put policy decisions under the Treasury portfolio.

But Mr Abbott also announced that he would install people with small business experience on the Board of Taxation, the Australian Competition and Consumer Commission and the Fair Work Commission.

"We want small business concerns, small business interests to be at the ...continue reading

Lack of credit hurts SME sector

SMALL to medium sized businesses in Australia are badly hampered by their inability to access finance to replace existing facilities that are not being renewed, says Andrew Robb, shadow minister for finance, deregulation and debt reduction.

Speaking at the first webinar in the GE Capital Gains series, Mr Robb made it clear that the SME sector has been particularly disadvantaged by the ...continue reading

Government to strengthen $130 billion franchising sector

The Australian Government today moved to strengthen and improve Australia's $130 billion Franchising Sector by responding to the 2013 Independent Review of the Franchising Code of Conduct.

Releasing the Government's response, the Minister for Small Business Gary Gray said the Code would deliver better outcomes and provide certainty for franchisors and franchisees.

"The government will move to introduce ...continue reading

Until the next time dear readers...

MARKETS, REAL ESTATE & SME

Hello dear readers and welcome to this week’s edition of Markets, Real Estate & SME. We trust you had a pleasant week and we look forward to bringing you some “cross-blog” content today.

Your editor has recently started running the blog for the Enterprise Network for Young Australians and will occasionally be referencing relevant materials from that portal.

Today we bring you some content from one of our usual sources, the Daily Reckoning Australia, more specifically the weekend post by Sam Volkering, which focuses on your editors favorite industry, technology.

MARKETS

The Dark Side of Technology - See the original article here

By Sam Volkering • July 20th, 2013

'One ought never to turn one's back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half. Never run away from anything. Never!' - Winston Churchill

It's with the words of Winston Churchill in mind that we need to confront an issue that will exist as long as we continue to drive forward as a connected, technologically advanced world. The issue we face lurks in the shadows and underground movements.

It's the dark side of technology...

There is 'world ending' potential that innately comes with great tech breakthroughs and innovation. It's those that twist technology with the potential for good to be an instrument of evil and to take part in illegal, criminal activity that we must be aware of.

It's the epitome of good vs. evil, Skywalker vs. Vader.

You only need to watch the daily news or head down to the local cinema to see how the world will end up when technology takes over. Rise of the Machine, Big Brother, HAL9000, The Matrix...all (fictional) examples of technology spreading evil and atrocity.

Typically we paint a rosy picture of the future. We think technology will bring great prosperity to the world. The benefits of technology will far outweigh the perils and dangers that are so often the focus of people's mindset.

However, it would be remiss of us not to delve into some of the potential dangers of technology. And thus in understanding the good that comes from tech, it's important to understand the darkness that also comes with breakthroughs and innovation.

To paraphrase Churchill, don't run from it, confront these issues and you might have a part in making sure the future of our world sides with the good technology can bring, not the dark side.

The Dark Web, Your Online Shadow

One fact of life you need to get your head around if you have a computer is this: according to the annual Norton Cyber Crime Report (NCCR) there's a 66% chance you have already experienced cybercrime. That figure will grow over time. It's rational to say if you use a computer you will experience cybercrime at some stage in your life.

That's serious. You will experience cybercrime. Maybe they should change the famous saying to, 'There are only three certainties in life, death, taxes and being hacked.'

The NCCR also estimates in 2011 Cyber Crime fleeced the world of over $110 billion. Let's break that down a bit further.

Every second of the day 18 people fall victim to cybercrime, that's 556 million people per year. If it takes you 10 minutes to read this essay, 10,800 people will have been victimised by some form of cybercrime.

And cybercrime comes in some innocuous forms. Most cybercrime operates silently, through malware, viruses and trojans. (These are all types of little bugs that silently sit in your computer and provide information to their creators, hackers.)

You might see it as an email from 'Canadian Pharmacy' or possibly an email from a lawyer in Nigeria claiming you're entitled to a multi-million dollar estate claim. At the other end of the spectrum, you might be a direct target. Your bank account defrauded, your identity stolen or your website hacked.

Scammers send over 75 million scam emails every day. And every day about 2,000 people fall into the trap.

But when it comes to your online security there's actually a pretty easy solution to it all. Have strong passwords and some level of online security.

It's that simple. Have a difficult password with both upper case and lower case letters and numbers. Do that and you greatly decrease your risk of becoming another cyber victim.

It will take a hacker over 438 times longer to crack a six digit password with upper case and lower case letters and numbers, than a password with just lowercase letters.

However as strong as your security might be, there's a situation where no matter what you do, no matter how much security you have, if hackers want your information bad enough, they'll get it.

And I'm not talking about some well-paid teenager in a warehouse full of computers in the backstreets of Moscow. (Most people think the US and China have the most active hackers. Russia actually has more hacks originate from it than any other country in the world.)

I'm talking about hackers that sit inside the walls of the civil service. I'm talking about government employed hackers, spooks, and spies. If they want information they'll comfortably find a way to get it.

You might have heard of the US National Security Agency (NSA) and their PRISM program. Effectively PRISM is a monitoring project with the NSA taking information about everyone from the data servers of Google, Facebook, Yahoo, Microsoft and other major tech companies.

If it wasn't for the now infamous whistleblower Ed Snowden we'd all still be none the wiser. And the NSA would continue on their merry way watching everything we do online. Note: There's a pretty good chance they're still doing it anyway.

But it's not just American government agencies that are proficient in monitoring their citizens. Have you ever received a letter or email from the Australian Tax Office (ATO) saying you haven't declared interest from one of your online savings accounts? I have, and so has Kris. It concerns us how the ATO knows I had $2.63 in interest in the 2011-12 financial year.

It's the same deal when e-Tax asks if you want to pre-fill your tax return. Pre-fill? With what information? Oh, just my income, interest, purchases and sale of stocks, Medicare info, etc. The list of information the Australian government has about me is profound. And disturbing. If you think your information is private, you're wrong.

With that in mind, when the government asks you to voluntarily part with your information for research or for maintenance, tell them to bugger off.

One more point on online security and privacy. You need to treat your mobile phone and tablet as a portable computer. Meaning you need the same security measures to protect yourself on the go. If you ever connect to a public Wi-Fi network make sure you've got high level security. When you use public Wi-Fi, you may as well be a Millwall fan walking into a West Ham pub...you will be attacked.

So be smart, have different passwords, make them difficult, and don't open any emails from Nigerian Lawyers. Also be discreet with how much of your own information you hand over to government departments. It will go a long way to protecting you online.

But the dark side of technology isn't just about cybercrime and the pitfalls and perils of living in an interconnected world.

Don't Think About It, It Might Land You in the Slammer

Take for instance our ever increasing knowledge of the human genome and the current work to map the neurones and connections of the brain. This will help take the world forward in neuroscience and our understanding of human biology. It will also help us develop computer and artificial intelligence systems to improve the efficiencies of the world.

But there of course is a dark side to all this. What if particular brain activity and genes that you had meant that were potentially a psychopath, or a career criminal?

Think about it. What if because of your DNA, and your brainwaves, scientists could predict that you were more likely to commit crime in your life?

What if they had the power to lock you up...even before you'd actually committed a crime? And who's to say you would ever commit a crime? Because science also says environmental factors play a significant role in criminal activity.

We all know governments love to find a way to control citizens and they always find a way to take an authoritarian approach to crime. With the use of powerful supercomputers, algorithms, molecular and neuroscience maybe the next step in fighting crime is to predict it. It's already happening.

Scientists in New Mexico are already using brain scans to predict criminal behaviour,

'The scientists studied the brains of 3,000 convicted criminals using magnetic resonance imaging. They specifically studied the anterior cingulated cortex (ACC), a brain region associated with error processing. What they found is that inmates with low ACC activity were twice as likely to commit crimes within four years of being released as those with high ACC activity.'

And if the study of the brain goes a way to predicting criminal behaviour, what if even before a child is born genetics will be able to determine criminal traits?

With readily available technology you could manipulate the unborn child's genes to silence the unwanted genes, breeding crime out of future generations.

Not only does that kind of genetic manipulation throw up a whole range of ethical issues, but it also goes a long way towards generations of genetically modified children. Is that wrong? Or is that the inevitable way of the future?

That's a whole different discussion which we won't delve into now. But one thing's for sure, molecular technology will have a big impact on the lives of generations now and generations that aren't even born yet.

Iraq, Iran...What About Albert Park?

Finally one of the more underground elements of the dark side of technology is accessibility of illegal things to everyone.

With the internet effectively connecting everyone it means more and more people have the resources available to take part in illegal activity.

Put it this way. Right now without too much stress I could anonymously get online, find my way through to a black market website and purchase guns, high powered lasers or illegal substances.  It's as easy as shopping on Catch of The Day or eBay.

And if you're a smart kid, with an interest in science, there's opportunity (with the wrong influences) to start down a path that leads to some pretty terrifying stuff. Michio Kaku, a famous Theoretical Physicist, describes the potential dark side technology has for the generations to come,

'You can create a laser beam, a laser beam with exactly the energy of the difference between these two [Uranium, U235 and U238] so that you can activate one but not the other. In other words laser beams can be used to zap these atoms and separate out U235 from U238. Well this means in some sense somebody in their basement at some point in the future might be able to build a separation device to create U235. That's a nightmare we don't have yet, but it's a nightmare we will have in the coming years as the price of laser enrichment of uranium goes down.'

What Kaku is describing is the potential for someone with access to the right tools in the near future to create enriched uranium. In other words weapons grade uranium. Forget Iraq and Iran, it might mean weapons of mass destruction (WMD's) next door!

The building works across from our office looks to have a suspiciously fortified basement being constructed...maybe it'll be a secret science lab? A nuclear test facility? It's unlikely, but it's possible in the near future. Who really knows what goes on in the neighbour's basement science lab?

It's a pretty extreme example of the kind of dark activity technology provides access to. But you need to understand that it's something that will always lurk around the corner in the shadows. The dark side of technology is always going to be complimentary to the positive advances it brings.

The best way to combat the dark side of technology is to understand it and don't get paranoid about it. By getting a grasp of the things that are possible, and the likelihood of things actually occurring, you will have a better understanding of how to deal with it.

Yes you will likely be hit with a virus of malware, yes your information at some point will likely be used without permission and yes your neighbour will likely make some homemade rockets (WMD's are unlikely). But don't get paranoid about it. There are more positives to take out of technology than bad points.

Just be smart. Have secure passwords, don't divulge with information so freely, be aware of your surroundings and take care online just like you would if you were walking the streets at night on your own.

When you see the warning signs, when you notice something is awry in your bank account, when you read that Nigerian email, or notice your son is spending way too much time in the basement with his lasers, you'll be able to take action.

As we all have a greater understanding of technology, the good and the bad, we will be able to help shape the future to ensure good technology always outstrips the dark side.

Regards,

+Sam Volkering
for the +Daily Reckoning Australia 

REAL ESTATE

Chinese appetite for Australian residential property hits $5.4 billion as demand for luxury property rises

The value of Australian residential property purchased by Chinese-based buyers reached $5.4 billion in the 2013 financial year, according to figures from Chinese property portal Juwai.com.

This is around a 25% increase on US$4 billion ($4 billion to $4.2 billion in local currency) of Australian property purchased by Chinese buyers in 2011.

"Chinese make up the fastest growing ...continue reading

Australian housing is not overvalued but “dire predictions” spooking new housing investors: Christopher Joye

“Hysteria” about Australian housing being overvalued is spooking institutional investors from investing in much needed new housing, says Rismark economist Christopher Joye.

Joye says contrary to what’s being said by some in the media, housing in Australia is not overvalued.

Delivering a presentation titled “Australia’s Broken Housing Model” at the recent HIA Housing Summit which highlighted a serious ...continue reading

Real Estate Investment Trusts roll out results

The 2013 reporting season will start this week, with Australand the first real estate investment trust to reveal its performance for the past six months.

The remainder of the REITs roll out their full-year numbers from mid-August and all are expected to show solid growth.

Analysts are expecting the directors' narrative to focus on the ongoing balance sheet repair, including debt refinancing at lower margins.

This is good news, as it has led many REITs' security prices to be ...continue reading

SME

22% of top Australian firms have zero social media usage

Earlier this year, Australian financial services firm, Bibby, released its latest Bibby Barometer small business survey and found previous social media success is driving more and more firms to adopt social media strategies.

Almost two-thirds of businesses (65%) surveyed reported social media has ...continue reading

Rudd’s fringe benefit tax change drives an SME admin increase – what it means for you

Small to medium businesses will be burdened with more administration obligations following Prime Minister Kevin Rudd’s decision to abolish automotive salary sacrificing arrangements.

The decision was made to pay for the move to an emissions trading scheme one year ahead of schedule. But the change means small businesses will only be able to use one ...continue reading

Free trade agreement back on the table with China – good news for SMEs

Trade Minister Richard Marles will travel to China early next week to discuss a possible free trade agreement, signalling future opportunities for SMEs.

The move follows Kevin Rudd's re-appointment as Prime Minister, since earlier this year free trade talks were abandoned in favour of a potential agriculture-only deal.

A free trade agreement with China has been in the works for close to nine years and a spokesperson for Marles confirmed to SmartCompany this morning he is planning to ...continue reading

Cross Blog Content

Business Schools:  Are they disconnected from the entrepreneurial realities?Are universities and more specifically business schools presenting the right type of “stuff” when it comes to entrepreneurship?Are they too focused on teaching students about entrepreneurship as a phenomenon, rather than how to be an entrepreneur? And can that even be taught? I mean is entrepreneurship a profession, like becoming a doctor, or an engineer, or an accountant and can you learn a set of principles and standards on becoming an entrepreneur?Well maybe not exactly, but there is certainly a need to present entrepreneurship courses that are linked to the ‘real-world’ experience of entrepreneurs, incubator support programs and start-up business associations. There are of course two or perhaps three sides to this story talking in very general terms – 1) Students’ story; 2) Universities’ story; and 3) Support Organisations’ story

 

Source: http://www.babson.edu/enterprise-education-programs/education-educators/babson-insight/Articles/Pages/Ten-Secret-Elements-of-the-Entrepreneurial-Experience.aspx

 1) Students’ story

On the one hand there are student expectations when they enroll in entrepreneurship courses. What do you expect to get if you enroll in a uni entrepreneurship course? What is your level of commitment to that course and tasks or activities that are required in that course? Not all students have the same expectations. Some enroll in entrepreneurship, because they are fascinated by it – they may pursue an entrepreneurship course to learn about entrepreneurship and gain more knowledge. Another group of students could be labeled as “dreamers” – they have heaps of great ideas and numerous ideas; and what they really want to do is dabble in their new venture ideas, but a course that requires them to put effort into turning these ideas into realities, is just too much hard work. There is also another, smaller group which research indicates is about 2 to 10 percent of students, who will take action even when they are studying. They not only want the action and excitement that surrounds a new entrepreneurial idea, but will get started at uni on their business, however small scale ~ indications are that these students are the most likely to start-up new ventures. Is there perhaps a group I’m missing here – those who are serious, dedicated and want a business one day, but they’re not sure what it will be and how to get there – are these students’ needs being met? Read more on the ENYA blog

That's it for this week's news filter. Until the next time dear readers...

MARKETS, REAL ESTATE & SME

Hello dear readers and welcome to this week’s edition of Markets, Real Estate & SME. Your editor is excited to announce his new position as the blogger for the Enterprise Network for Young Australians (ENYA). ENYA is the Australian representative for the G20 Young Entrepreneurs' Allience (G20YEA) and will be hosting the G20YEA Summit in 2014, which is probably the most significant event to ever come to Australia for young entrepreneurs. ENYA is a not for profit organisation which supports and promotes the active participation of young people in enterprise, in an ethical and sustainable manner. The ENYA blog discusses specific topics in the lead up to the G20YEA Summit and will have guest bloggers ranging from heads of university entrepreneurship programs, successful young entrepreneurs and other young thought leaders. Get involved in the conversation at The ENYA Blog or contact ENYA directly if you want to get involved on a voluntary basis or if you believe your organisation could assist in the lead up to the summit and in improving the barriers to entry for young entrepreneurs.

“These young Australians are keen to share their experiences and help other young entrepreneurs. We need to back our young business and social entrepreneurs…” Prime Minister John Howard, May 2003.

MARKETS

Some insight from Dan Denning. We have included the section of Daily Reckoning reader emails to illustrate the unbiased stance of their newsletter, as this is the number 1 reason we include a post from them in our weekly Markets, Real Estate & SME.

The Agonists and the Ecstasy of the Financial Market

By The Daily Reckoning  July 12th, 2013

Exactly how much of the future is foreseeable? Exactly none, at least when it comes to human events. But then, maybe predicting the future is as easy as looking at the past (or Remembering the Future, as Phil Anderson puts it). ‘What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun,’ the writer of the book of Ecclesiastes tells us.

Translation: it’s all been done before and will be done again. There have always been Ben Bernanke’s in the world. And there will always be people who believe the universe owes them something, or that you can get something for nothing. In a just universe, these people would get what they deserve. In an indifferent universe, what you get is random.

Today, what you’re getting is all-time highs on the S&P 500 and the Dow Jones Industrials. Markets rallied after Fed Chairman Bernanke told a conference, ‘You can only conclude that highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy.’ The bar is open. Drink up.

We’ll leave the policy debate to the wonks. A more useful way to analyse this news is to study the long-term effects of addiction on the biochemistry of the human brain. This has become a quite personal topic to us for various reasons. We were told recently that more Americans die from overdoses of prescription narcotics than die in car accidents.

We’re not certain that’s true. But the effects of addiction to prescription drugs are similar to the effects of prescription monetary policy. Initial pleasure is followed by addiction, and then the intense pain of withdrawal. Or death. Bear with us a moment and we’ll show you why it’s a useful analogy to the Fed’s situation, rather than a trite and careless one.

When you develop an addiction to opiates (morphine, heroin, oxycontin) you guarantee yourself a lot of pain when you stop, if you can stop. Opiates are agonists, which means they activate or perform the same action as a normal bodily function or process. In the case of opiates, they activate the receptors in the brain that suppress pain and produce sensations of relaxation and euphoria.

We call naturally occurring opiates endorphins. You can produce them by eating a hot chili, or running, or having a horizontal ending to a fabulous night out with your significant other. Use of opiates also leads to increased dopamine production. Dopamine is the brain’s way of telling you to do something again because it feels so good.

What opiates do, then, is increase the function of an existing neurochemical system. Alas, there is such a thing as too much of a good thing. Addiction to opiates increases the sensitivity of pain receptors in the body. You either have to flood the brain with more of them, or experience what the Klingon’s call ‘bij,’ a form of punishment for bad behaviour.

But calling in punishment doesn’t do justice to the pain and trauma of having altered the way your brain works. Stopping your use of opiates means enduring the howls of pain as your hyper-sensitive brain cries out for more drugs. This is why the relapse rate is so high for addicts. It’s less painful to get high than it is to get straight.

Now, it is not hard to see how all this applies to financial markets. Bernanke can’t get straight (sound money). Every time he tries to make the market off EZ credit, the pain in the system is expressed as higher interest rates and falling stock prices. The brain (investors) howls for more. And yesterday it got what it wanted.

What you have, then, is a financial culture addicted to pleasure and hyper sensitive to pain. It becomes increasingly dysfunctional, irrational, and euphoric. The market is high, literally. And the only way to keep it from coming down is to give it more.

That’s the nature of the rally you’re investing in right now. And that’s why we’ve casually called Bernanke a drug dealer in the past. He’s not just altering the internal wiring of the market. He’s incentivising people to seek out risky behaviour to their own detriment. There is a moral aspect to this that’s comparable to the way drug dealers profit from the destruction of a human soul.

Of course, this being a free e-letter, not all readers will be comfortable with the moral condemnation of monetary policy. If that’s the case, go read the Age. The social implications of altering human economic behaviour are real and damaging, whether you choose to acknowledge them or not, just as the cost of addiction is the destruction of lives, whether you choose to acknowledge it or not.

Let’s close the week with some reader mail, shall we?

‘Hi Dan, from a confused reader

‘Why did you say credit is a form of energy? It's not, and saying so is confusing to readers (like me) who understand that.

‘Because we all consume energy to live, it is true that only those with sufficient energy (or money to buy food etc.) can afford to give or extend credit. That explains why investors give (and receive) credit for limited periods and according to their ‘wealth’.

‘Common but seldom mentioned credit providers are employees. Unwealthy or poor employees paid in arrears need sufficient energy or money to subsist until paid. If they don't, they must depend on others, for example children may depend on parents until they leave home. However even the wealthiest individuals cannot afford to give or extend unlimited credit for short periods or limited credit forever — not even 'Helicopter Ben' and his cronies!

‘I could go on but my question remains: Why add to readers' confusion by saying credit is a form of energy?

‘Regards

Jim S
PS:We met at 2011 Gold Symposium :]

Hmm. Good question Jim. Let’s begin with definitions. We define energy as the capacity to do work, in a physical sense (the sense you can measure). Accumulated savings represent potential energy. They are stored surplus energy in the same way the carbon-based energy is stored solar power. You ‘spend’ solar income when you burn wood, coal, gas, and oil. In a healthy economy where credit does not exceed available savings, then, credit is the potential to do new ‘work’ based on new productive investment. We suppose the problem occurs when the supply of credit exceeds available savings. What happens then is that credit booms borrow from future prosperity by ‘bringing it forward’ now.

Come to think of it, this is similar to the way agonists mimic a normal biological process. Our main point, though, is that if you try to get too much of a good thing by producing too much credit, you do long-term damage to the viability of the system, whether it’s biologic (like the human body) or a complex adaptive system (like the economy).

By the way, we haven’t committed to going to this year’s Gold Symposium due to an uncertain travel schedule. But we note the yellow metal is up over three per cent in US dollar terms since yesterday. Gold is not monetary dope. It remains the real metal deal. And the Gold Symposium is the best place in Australia to talk about it.

‘Hi team, I had dinner with a mate on Saturday night, he drives semi-trailers from Perth to Port Hedland. He told me, for the past few years it was difficult to find a parking space in a truck bay, now they are practically empty. He was also saying he rarely had a back load and came back to Perth empty most trips, now has a back load most of the time. I'd say things have changed. The boom is definitely behind us.

‘Cheers,
Stephen’

Last night at the Crown casino we visited with a colleague from the US and conveyed the same message. The three-phase resources boom — an increase in prices, and increase in investment, and an increase in production volumes — created an enormous increase in national income and real wealth in Australia. It was probably the greatest boom in 200 years. But we’re on the other side of the boom now.

‘Dan

‘I think your statements concerning the consumer cost of energy are a little overstated.

‘You are right in respect of the wholesale cost of gas. We are going to see this increase from around $3.50/GJ to parity with the supply cost to the LNG facilities currently around $9.00/GJ. Note that the sale price of LNG includes a major energy input cost for the liquefaction process. 

‘However, in respect of the domestic gas supply prices the effect will be greatly subdued. Domestic gas suppliers buy/obtain gas at $3.50 and sell the same gas to their customers for close to $20. The difference being their profit and the cost of maintaining their distribution networks. These will be largely unchanged with the increase in wholesale costs. The consumer price therefore is likely to be around 40% not 300%.

‘Similarly, but even more so, the price increase for electricity will be much smaller. Gas fired generation constitutes only 10% of our total electricity generation. Of this the gas supply cost is only around 40% of the generation cost. In addition the generation cost only constitutes around 20% of the price we pay for domestic power supply. So the gas supply cost component of our domestic power supply is just 0.8%. Tripling this will have a barely noticeable effect on domestic power prices.

‘Having said all that, I agree with your conclusions. Although it does not sit well with my free market disposition, I believe all state governments should have a domestic reserve policy similar to the one deployed in Western Australia.

‘John R.’

Thanks for that John. Australia ought to move to more gas-fired power. It will be more expensive than coal, given how much coal Australia has. But it would be cleaner, and a great boon to industry to have cheaper power. The best way to lower power prices is to produce more natural gas, in our view, and modernise the power generation fleet.

On the issue of domestic electricity prices, we reckon they’ll find a way to increase anyway, despite the case you’ve made. It will be interesting to see. The energy market makes very little sense to us right now. For example, we only recently learned that smart meters estimate your bill, not your actual energy use!

Imagine paying your bills based on your estimate of what it cost you. It would never be acceptable. But somehow it’s acceptable to bill someone based on an estimate of what they used, rather than what the actually used. It’s insane.

Regards,

+Dan Denning 
for the +Daily Reckoning Australia 

REAL ESTATE

Foreign Buyers in Australia Double

Property professionals in Australia say the number of foreign buyers focused on new property has doubled in the last two years, with Queensland and Victoria reporting the most activity.

A survey by the National Australia Bank found property activity in the new property market was about 13 percent of total demand in the second quarter, up from 5 to 6 percent in 2011, NAB reports. The figure was up to 20 percent in Queensland and 14.1 percent in Victoria, which "remain the choice locations for foreign investors."

Asian investors, primarily from China, have been the key...continue reading

Getting the tax structure right for an investment property purchase

“People considering purchasing an investment property need to consider the right tax structure for that purchase…” writes Thor McDowell, SuperShift Affiliate Vivid Advisory.

The right tax structure to be used comes down to a combination of considerations. Perhaps the most significant is the tax effectiveness of the purchase. One option is to use a...continue reading

Weak tenant demand hurts Aussie property outlook

Subdued demand in a number of sectors means that Australian commercial real estate has become less attractive, according to La Salle Investment Management.

While the real estate investment specialist remained positive on the Australian property market overall, there were some signs of weakness. Read more

SME

Chamber of Commerce lists four priorities as it pushes national economic reform to top of election agenda

ABOUT 45,000 supporters have rallied behind a campaign to push Australia's legion of small businesses to the top of the federal election agenda.

"The BIG 4 You Can't Ignore" campaign highlights the urgent need for national economic reform, especially when it comes to red tape, according to Australian Chamber of Commerce & Industry chief Peter Anderson.

He said the BIG 4 priorities politicians needed to commit to were to cut down on...continue reading

Work-life balance worsens in Australia

AUSTRALIA'S work-life balance trails that of Mexico, India and China, according to a business survey.

The study found Australia is losing ground on the Regus Work-Life Balance Index, which surveyed 26,000 people across over 90 countries.

This year Australia scored...continue reading

Regulators can do more for business

More than 95 per cent of Australian businesses are small. Small businesses account for around one third of GDP and wages and salaries and almost half of total employment.

Yet, despite the importance of small businesses, often the behaviour of regulators does not sufficiently recognise the challenges they face.

Regulatory compliance is often a fixed cost meaning that it places a far greater relative burden on small businesses than large. Almost universally, a lack of staff, time and resources means small businesses face greater challenges than other businesses in understanding and fulfilling their compliance obligations. Read more

Have a great weekend dear readers! Until the next time...

MARKETS, REAL ESTATE & SME

Hello dear readers and welcome to this weeks edition of Markets, Real Estate & SME.

We have heard a lot this week from both sides of the political fence about policy change and approaches that could have a positive influence on small business and young entrepreneurs in Australia but it remains to be seen if any such policies can or will be delivered before or even after the federal election.

Let's see what +Greg Canavan has to say about the global markets and China....

MARKETS

China’s Economic Rebalancing and the Impact on the Australian Economy

By Greg Canavan • July 4th, 2013

The demand for easy money is a powerful one. Europe’s austerity drive (also known as living within one’s means) has hit a few road blocks — again. Portugal has had enough and the political situation there looks shaky. As a result, government bond yields shot up to 8% yesterday.

Germany has had to give Greece another clip around the ear for not adhering to its reform program, and is (once again) threatening to withhold the next tranche of bailout money unless Greece gets on with it.

And the situation in Egypt is volatile, with the army having just booted out the one-year old government of President Mursi following mass protests against his rule.

But that’s all happening on the other side of the world. There’s quite a bit going on here too. This week, a deluge of data on the Australian economy gave us a few big clues as to where we are headed.

Let’s start with retail sales, which came in at just 0.1% growth for May, versus expectations of a 0.3% increase. Earlier this week, a survey of manufacturing activity showed improvement in the industry but with a reading of 49.6, it’s still shrinking, just at a ‘less fast’ pace (anything below 50 reflects contraction).

Yesterday saw the release of the services sector survey, and it wasn’t pretty, coming in at 41.9. According to the release:

‘Businesses in most household-oriented sub-sectors are yet to report any signs that recent interest rate cuts have helped boost sales. Personal & recreational services was the only sub-sector in this group to expand in June. The activity indices of the retail and hospitality sub-sectors both suggest that activity declined further in June and, in three month moving average terms, are at their lowest levels this year.’

So both the services sector and the manufacturing sector are in recession, and have been for some time. And yesterday we got renewed confirmation that the mining construction boom has peaked, with the Australian Bureau of Statistics (ABS) reporting a 3% fall in the value of engineering construction work over the March quarter.

So what’s the good news? Well, new homes sales increased 1.6% in May after rising 3.2% in April. The growth is coming off a very low base so nothing to get excited about, but this could reflect a reengineering of the state government based first home owners grant.

Most states have, or soon will, only offer a first home owners grant on newly built homes. This should stimulate housing construction far more effectively than the old grant, which was on existing homes too. Moreover, the old grant was effectively a transfer of cash from taxpayers to home vendors and a completely useless stimulus measure.

By far the most intriguing release of the week was the trade data, which showed that Australia recorded a seasonally-adjusted trade surplus for May of $670 million, well above forecasts.

The driver of the surplus was a big increase in the export of iron ore and coal. And it all went to China, with exports to the country up a large $718 million. In fact, Australian exports to China hit a record high in May.

We are now more dependent on the Middle Kingdom than ever, with 35.6% of our exports heading to Chinese ports in May.

But isn't China slowing down? Aren’t they supposed to be cutting back on steel production and debt-fuelled infrastructure spending?

Yes they are, but it’s not showing up in the data yet. While China’s growth may be slowing, that’s not to say its construction boom is too. Projects that got underway last year or earlier this year will still be completed. Despite the efforts of the central planners, property prices are still rising in China, which throws off the false signal to build still more.

So demand for iron ore remains strong, evidenced by the large export volumes and robust price (it’s still just under US$120 per tonne).

But this is a lagging indicator. The tight liquidity seen in China’s financial markets recently is a better indicator for what is to come. That is, financial markets are starting to allocate capital much more prudently and this will eventually work its way into the real economy.

The finance for an apartment block (no doubt approved by local bureaucrats for a tidy sum) will not be found so readily in the future now that the People's Bank of China (PBoC) have made it clear they won’t be providing torrents of liquidity at the first sign of trouble.

The landscape has changed in China, and that is not yet reflected in the trade data. But we think it will be.

The stock market is a proven leading indicator and if you look at the performance of Rio Tinto this year, it perhaps provides a clearer sign of where the iron ore market is headed.

As you can see from the chart below, Rio (one of the world’s largest iron ore producers) rallied from $50 to $70 last year on hopes that a new stimulus program in China would keep the iron ore party going. It did that, but only for a few months.

During 2013, the share price has gone back to the $50 mark in anticipation of lower prices and/or weaker demand. At these levels Rio looks cheap if you think China’s demand for iron ore will remain strong.

But if you think that China's economic rebalancing hasn’t even started yet, then Rio is a value trap.

And if that does turn out to be the case, then recession fears could well become reality towards the end of this year.

That’s because strong trade data boosts economic growth via a positive net export figure. If this positive influence on GDP fades as the year progresses (and we think it will) the economy will slip towards stall speed and unemployment will continue growing at a faster rate.

Which means the dollar, and interest rates, will continue to fall.

Unless of course you think low interest rates will lead to another house price boom and higher consumption via the ‘wealth effect’. That’s what Glenn Stevens’ is hoping for…but it’s all about confidence.

His speech yesterday was an interesting one, in which he talked about confidence being an ingredient of economic growth. For example:

‘Turning to the current conjuncture, it can be observed, in conventional expenditure accounting terms, that some key areas are well placed to expand once they have the confidence to do so…

‘The second thing to say is that much depends on ‘confidence’ – that intangible thing that is hard to measure and very hard to increase. We are talking here about confidence that the future will be characterised by growth, that there will be customers for products, that innovations are worth a try, and so on. That confidence seems pretty subdued right now.’

We would suggest that confidence is a symptom, not a cause, of current events. When people see squabbling children with giant egos running the country, central bankers experimenting with money and getting it wrong, and white collar crime on a grand scale with little to no consequences, no wonder confidence is low.

And the way things are heading, confidence won’t be improving anytime soon.

PS: Happy Independence Day to all our US readers!  

Greg Canavan
for The +Daily Reckoning Australia

REAL ESTATE

Rick Otton Urges Aussies Suffering Mortgage Stress to Look At Property Options

                                                                                       

Real estate millionaire, Rick Otton, has seized on a think-tank’s new report that reveals increasing numbers of Australians suffer from negative equity and mortgage stress. Mr Otton says traditional property investment strategies are no longer working and it’s time for serious property investors to adopt more creative ‘no-money-down’ methods if they wish to gain financial freedom. Read more...

Experts Blow Prices Out Of Proportion

Most property commentators over-emphasise median prices and the fact that they continually use this as their yardstick for assessing the condition of the property market is worrying, claims one advisory group.

“Far too much commentary about residential property these days focuses on price.  Very little is actually said about sales,” argued Michael Matusik, head of property advisory group Matusik Missive. 

Matusik said that ...continue reading

Interest is Skye high from Asian apartment investors

THE fall in the dollar will boost apartment sales to offshore investors as a raft of new projects are launched across the country, according to developers.

Asian investors, who have ploughed hundreds of millions of dollars into the Australian residential market in the past year, are expected to capitalise on the dollar's fall from a high of almost $1.06 in January to its present level of about 92c.

"The weakening of the Australian dollar creates stronger buying power for foreign investors," said William Young, Lend Lease's regional sales director, Asia, who is based in Singapore.

Mr Young said foreign buyers ...continue reading

SME

Gen-Y young guns taking their shots

ENTREPRENEURS aged in their late 20s defied the global financial crisis to emerge as an unexpected powerhouse of the Australian economy.

An analysis of the nation's entrepreneurs has revealed the rate of growth of Generation Y workers who employed others outstripped the overall employer population.

However, entrepreneurial activity generally was not badly hit in Australia by the GFC, with the number of people in the workforce who owned and managed a business that employed others increasing by 3 per cent despite the tough conditions.

A study of census data by The Australian's social editor Bernard Salt found that ...continue reading

Australian start-ups expect strong growth this year

Compared to more established SMEs, start-ups worked less hours for better financial reward last year and are more confident about this year’s revenue performance, according to Australia’s largest accounting software provider.

The MYOB Business Monitor report, based on the recent survey conducted by Colmar Brunton, compares the attitude, results, intentions and expectations of Australian businesses less than two years old with that of their peers.

In the year to February 2013, start-up businesses reported stronger revenue performance than ...continue reading

Research finds women business owners not paying themselves a wage

Research by the Australian Women Chamber of Commerce and Industry has revealed the majority of women small business owners do not pay themselves a wage.

The survey results released yesterday from an AWCCI study of 3000 female respondents showed 50% of the businesses required more capital to grow.

It also found a large majority of women start a business with under ...continue reading

Until the next time...