The Lolly Scramble of Life

A brilliant post from Bruce Sheppard from the Stirring the Pot Blog just has to be commented on and included on my blog today:

If you want to understand human nature before the OSH, PC police, education and society in general have done with corrupting it, examine kids and a lolly scramble. Perhaps the real reason the OSH police don't like lolly scrambles is not because kids get hurt, but because it reminds kids what human nature is really about. Maybe they are the thought police from Orwell. And guess what? Real life resembles a lolly scramble. John, go to a kids lolly scramble and then look at the world as it is and you might find the flaw in your dream of a world of equals.

And parents, ignore the PC crap. Make sure every kid experiences a free for all lolly scramble at every opportunity. Tell the OSH people to go swim in an unfenced pool.

So imagine this: You are in a field with a whole lot of kids, keen and full of anticipation. On the four sides of the field there are the angels of opportunity the lolly throwers. And on the four corners of the field there are the watchers of activity, the policemen, the government, the regulators, call them what you will. Full article here.

Bruce's analogy of life being a lolly scramble is the perfect expression of how life actually is rather than how some would like it. It is hard, competitive "unfair" but it is life and it is the best way forward.

Any other constructed way of life - especially the current one pushed by the lefty interferers - is an inferior facsimile of life and eventually doomed to failure, with the consequent victims scattered like the dead ghosts of Stalin's wet dreams.

True Capitalism, the best way forward in business and something that I shout from the rooftops often is also the antidote to the lefts stealing from those that are hard working and resourceful.

Imagine the wealth we would all have if in the lolly scramble we didn't have half of the participants as government bureaucrats stealing 50% of all the lollies for themselves!

It aint sweet for some but a pure unadulterated calorie laded lolly scramble is what we need again to move us forward and take the bitterness of State sanctioned interference away.

That and a good rough game of bullrush.

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BRUCE SHEPPARD: Recession, how deep? How ugly?

A very interesting blog post from Bruce Sheppard's Stirring the Pot I missed it in all my travels recently but it discusses the subject of our failing economy and where Bruce sees things going.

He is very pessimistic but elements of his post ring with clarity for me.

If things do descend into chaos there is no doubt the economy will face very tough times.

This post is essential reading for those who like to get all sides of the economic story.

Bruce Sheppard in Stirring the Pot | 2:08 pm 8 May 2008

For two years now I have been predicting the collapse of the finance sector and the result will also be a collapse of the domestic economy. It will not be isolated as Reserve Bank governor Alan Bollard thinks.

Let us start by joining the factual dots to date.

• New Zealand households are seriously screwed. Over the last 5 years they have binged on debt and consistently spent $1.20 for every dollar they earned, on average. What this means is that the bottom end of the economy probably spent $1.50, the median household spent $1, and the top end spent maybe 75c.

For households to do this they had to have access to debt, either in the form of credit card, finance companies or mortgage top ups. For banks to do this they had to have access to cheap offshore funds, largely funded via the carry trade that has held up our currency, and screwed our exporters.

• Then 12 months ago the sub prime bubble started to burst and progressively the merchant banks in the middle of all this hype have hemorrhaged value, destroying the savings of middle and upper income households globally. NZ is not immune, a number of managed funds have now suspended redemption's.

• Finance companies to the extent they have survived are struggling to maintain liquidity, so they are not lending. The banks are now also faced with increasing defaults on the back of a property melt down, so they have now got an increasing incidence of asset impairment, so they too will now struggle to maintain liquidity. This means they will be exceedingly unlikely to top up homeowners for consumption expenditure.

Now, the next predictable outcomes of all of this that are now being borne out by some statistics:
The net effect of all this is the bottom end is going to be forced to live within their means and reduce expenditure. The middle sector will find that they too need to borrow to maintain their lifestyle and may well be disinclined to do so.

The top end has already seen significant wealth elimination. Falling share markets, falling property prices, finance company defaults and investment scams like Blue Chip. Thus they feel poorer. When the relatively wealthy feel poorer they simply spend less and save more. Not a single sector of the economy is consuming at the levels they were 12 months ago.

In October last year I was quoted in the media as saying we would be in recession by Christmas. And that the Christmas of 2007 would be the worst for retailers for a decade, that NZ has to forget all the talk of a soft landing, and even for that matter hard landing. This recession is going to be a crash landing. Briscoe managing director Rod Duke at the time commented that he thought this was unlikely. Now his group turnover is down 10 per cent on a year ago and he is blaming the Government and rightly so.

He should have been yelling a year ago. My advise to Rod at the time, was forget his mantra of “stack em high and watch them fly” and instead adopt a mantra of “stack em low and don’t let them grow”.
Was this avoidable 2 or 3 years ago? The simple answer is yes. Did I nag Finance Minister Michael Cullen and Bollard? Yes. What needed to be done?

• The OCR had to fall, and more or less we had to adopt a monetary policy on interest rates that reflected that of our major trading partners. If we had done that we would have an OCR of around 4 per cent and a currency to the US dollar of around 60 cents, most likely. The export sector would then be viable, thus providing an employment balance for the inevitable correction in the domestic economy.

• To correct the property market bubble Cullen had to effectively ring fence rental losses, and he could have done that by treating all investment income (including rental) as a separate tax base and capping the tax on rental income at, say 30 per cent, the same rate as Portfolio Investment Entities (PIEs), but only allowing investment losses to be offset with investment gains. A sizable incentive to save, which could have been increased even further by lowing the tax rate on investment income to, say 20 per cent. And we needed to save.

• To correct the consumption bubble the regulation of credit creation by banks and finance companies could have been redressed by simply increasing the level of equity and near cash holdings as a percentage of lending. I.E. a reversion to, or a tightening of, the reserve asset ratio regime.

The lower OCR would have significantly reduced the carry trade and the domestic credit expansion that fuelled the property boom.

All of these points are covered in my submission to the Finance and Expenditure Select committee in September last year. Six months on still no action. Useless leadership again.

It is now too late for any of that. So what might the next twelve months look like?
Everything I say about what might come next is conjecture.

• Domestic expenditure will shrink as will the domestic economy over the next 12 months. It will take down retailers, importers, and manufactures that are dependant on the domestic economy with it.

• Unemployment will rise strongly, maybe to depression levels.

• As unemployment rises mortgage and credit card defaults will accelerate. More finance companies will fall over. It won’t be a matter of how few fall over it will be a matter of how few are left.

• As the default rate on mortgages climb, banks will scramble for liquidity. And will press good customers to repay. I am already seeing this happening.

• The property market tumble will accelerate, but most likely the banks won’t bother mortgagee selling much as there won’t be any buyers. Bankruptcy will rise.

• Bollard will lower interest rates, first cut will be a full 1 per cent and my guess is as early as July. It won’t make any difference; the banks will increase their spread to pay for the bad debts that will be mounting. Bollard will cut each month thereafter through to Xmas, until the OCR is around 3.5 per cent and still it will make no difference. He will then have to request the Government to regulate bank spreads so that mortgage rates fall.

• While all this is happening the carry trade will reverse with a vengeance. The balance of payments will go to hell in a handcart, all on invisibles and capital account. We will have a reasonable balance of trade surplus, but the currency will haemorrhage. We will fall against the USD to mid 40 to 50c, and against the Australian dollar to high 60’s.

• Petrol will hit $3 per litre by Xmas and inflation will be running in the high teens, a regular stagflation depression.

Now, how will our people react to this, will we just hunker down and accept a significantly diminished lifestyle, or……. might it be really ugly and if it is how will we as a nation deal with that?
By the election we may have a rising level of civil unrest. The public marches against the Electoral Finance Bill will be nothing compared to the turn out for the “decent life” marches. They might even turn into riots, and then the demoralised police, will have to turn on the public to restore order.
There is a chance, remote admittedly, that they won’t have the stomach for the task. I doubt you would have a police force that is prepared to deal with Springbok rugby tour level civil unrest in the same forceful manner today. The army then might have to be called in, but we don’t have one. In a worst case scenario the poor who have been used to spending $1.50 and now being forced to live on a third less might just decide to take what they can’t buy. In short anarchy.

Could this really happen? Maybe. The poor today are not the poor of the 1930’s. A substantial minority of our population have been brought up with an expectation of being able to pull money out of an ATM machine without doing anything to put it in, in the first place. Our grandparents expected nothing but the right to work.

I am not sure who would want to win such an election.

But whoever wins the election this year will have a number of unpleasant tasks to complete.
The first might be to restore order. This means the usual unpleasant stuff; expect that they might hire overseas mercenaries for the task.

Then they have to stabilise the haemorrhaging dollar. This means the Reserve Bank will have to support it and they will need crown funds to do it. The chance of taking it out of taxes is nil. So crown assets will be sold out of necessity, which in reality is what Roger Douglas and David Lange confronted in 1984, but way worse.

Then they will have to restore middle NZ households’ spending capacity. Maybe there will be debt moratoriums including a regulated inability to charge interest on household debt. Savers confronted with high inflation and low interest will then have no choice but to buy property and shares to preserve their wealth and so the cycle will begin to reverse.

To stimulate employment employers will be offered subsidies and benefits will be reduced. Universal national super will be abolished with all crown benefits means tested.

The lower dollar won’t be enough to get the value add labour employing sector going again. So expect research and development incentives to be increased further, corporate tax rates cut further to attract inbound foreign investment and a return to export incentives.

The free trade agreement with China will die a natural death as will our involvement in the Kyoto Protocol.

These tough moves should within 3 years turn the asset deflationary cycle around, employment levels will rise, the tax base will increase and we should be through the worst in 3 years.

But we are dealing with politicians and MMP so don’t expect any of these tough decisions to be made. As a result we will languish in a recession much longer until eventually Australia makes us an offer we can’t refuse, and Tasmania gets a promotion.

Bruce Sheppard: Another Asset Theft

Bruce Sheppard is a non-politically correct agent
provocateur and founder of the New Zealand
Shareholders' Association. An accountant by
profession, he is passionate about New Zealand
but has no hesitation in exposing its shortcomings.
He is regularly sighted tackling Auckland's traffic
armed only with a bicycle.



Bruce Sheppard in Stirring the Pot from Stuff.co.nz| 1:26 pm 4 March 2008

This government thinks it is OK to interfere in the private property rights of its citizens, and dresses this up as the protection of the national interest. Last year Telecom got dealt to, this year it is Auckland Airport, next year who will it be?

While I had little empathy with the Canadian bid and was not going to vote in favour of it with my shares, I will now support a yes vote and an acceptance. Then I will let the Government tell 10’s of thousands of New Zealanders that they can’t have their money.

As far as the NZ control/ ownership issue is concerned the horse bolted years ago. Auckland International Airport is already over 40 per cent foreign owned. Who cares if it is a selection of hedge funds or a Canadian pension fund if it is just about ownership? Frankly a pension fund is better as at least they will take a long-term view , hedge funds just look for the next quick profit fix.

If it is control, then not much changes. The Canadians have guaranteed that the board will have enough independent directors to remain an independently governed company still listed in NZ.

What is more important here is the crown interference. What this does is undermine the effectiveness of our capital markets and it also increases the risk of investing in NZ if you are a foreigner. Obviously the repricing of risk internationally is having an effect on our sharemarket and this sort of short sighted nonsense from our politicians will simply make matters worse.

If you want to fix foreign ownership of NZ Inc, you have to encourage Kiwis to own NZ instead. To do this our people have to stop spending $1.14 for every dollar they earn. It is not rocket science, the 14c is funded with debt or asset sales. Now why would a New Zealander who is saving, invest in NZ when the Government appropriates economic advantages on one ill-conceived whim or another? Much easier to invest offshore out of Michael Cullen’s sticky, thieving hands.

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Disclosure: I own AIA shares

Links c Share Investor 2008

BLOG: Bruce Sheppard - Stirring the Pot

Bruce Sheppard is a non-politically correct agent provocateur and founder of the New Zealand Shareholders' Association. An accountant by profession, he is passionate about New Zealand but has no hesitation in exposing its shortcomings.

Authors Note  Bruce no longer writes this particular Blog. 

But here it is.


Stirring The Pot Blog

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