Confidence

Bin Shaming

The bright sparks inside the City of Adelaide Council believe that “bin shaming” residents into correctly separating rubbish is the way forward to save the planet. Not only will they replace perfectly good plastic rubbish bins with see-through plastic bins made from fossil fuels but tell us the other merits.

Adelaide City Councillor Robert Simms said, “having transparent bins would be helpful to people fishing for cans and bottles to recycle for 10c a pop as part of the state’s container deposit scheme.”

Such genius! Imagine being one of the 25,000 residents waking up at 2am in the morning because someone was rummaging through their bins to save the planet. Just what they want the council to do.

Ratepayers don’t need sanctimonious lectures from activist councillors to tell them how to behave. What is the bet these bins start to get incredibly grimy after repeated use? Never mind they’ll just produce more.  Afterall pretending to care about the planet is more important than doing anything truly meaningful to mitigate climate change. The only transparency in this program is the space between the ears of the council.

CM is currently running through NSW council budgets to look at trends in their spending. The first cut looks damning.

British Airways places order for 200 Boeing 737 MAX

Nothing like a confidence boosting 200 plane order for the highly criticized Boeing 737 MAX jet at the Paris Airshow. British Airways CEO Willie Walsh said,

We have every confidence in Boeing and expect that the aircraft will make a successful return to service in the coming months.

There is no doubt Boeing offered a competitive price to generate some positive news spin since the crisis erupted. As CM always contended,

Ultimately the market will decide on the 737MAX. The plane has a 4,000+ unit backlog. Even if airlines wanted to change to A320neos, the switching costs would be prohibitively expensive in terms of pilot certification, maintenance and joining the end of an equally long queue. The order book is unlikely to suffer widespread cancellations.”

The mainstream media proves again its proclivity for sensationalist journalism without understanding the industry dynamics or the facts.

Climate change to cause more murder, rape and burglary

The only climate grief CM is dealing with is moving out of a warm bed this winter. The Extinction Rebellion (XR) is now trying to link climate change to mental health. Perhaps it should link it to education instead. “Let our grief move us to action” is the call Perhaps XR should channel Orson Welles to spread panic.

Depression and resignation about the future caused by the effects of global warming? NBC reported a mother of teenager daughters in Salt Lake City (where they held the Winter Olympics) who read a copy of an October 2018 U.N. report saying the climate catastrophe could arrive by 2040. It lead them to the following:

The emotional reaction of my kids was severe…There was a lot of crying. They told me, “We know what’s coming, and it’s going to be really rough.

The American Psychological Association (APA) need their own heads read in its report.

Some human health effects stem directly from natural disasters exacerbated by climate change, like floods, storms, wildfires, and heatwaves. Other effects surface more gradually from changing temperatures and rising sea levels that cause forced migration. Weakened infrastructure and less secure food systems are examples of indirect climate impacts on society’s physical and mental health.”

Rising sea levels? Forced migration? Weakened infrastructure? Less secure food systems? Not to worry the APA suggest the following to ease the mental burden:

1.) Physical commuting enhances a sense of well-being. Choosing to bike and/or walk (assuming it is safe and practical to do so) is one individual step that can help reduce the use of climate change–driving fossil fuels.

2.) Public transportation invigorates community mental health. Moving people from individual cars to public transit also results in lower greenhouse gas emissions. In addition, several studies have shown that using public transportation leads to an increase in community cohesion.

3.) Green spaces diminish stress. More time spent interacting with nature has been shown to significantly lower stress levels and reduce stress- related illness. Interestingly, this evidence is supported across socioeconomic status, age, and gender.

4.) Clean energy benefits lung function in children and can help prevent symptoms of anxiety and depression that are brought on by pollution.

Did you know?

The psychological impacts of warmer weather on aggression and violence have been extensively studied. The relationship between heat and violence may be due to the impacts of heat on arousal, which results in decreases in attention and self-regulation, as well as an increase in the availability of negative and hostile thoughts.

Is the APA confusing merely being hot under the collar? Rarely do we meet people who say it’s not a beautiful day when the sun shines. Conversely it is not often we see people, outside of farmers, celebrate rainy days.

It goes on,

Rising levels of frustration in society consequently lead to interpersonal aggression (such as domestic violence, assault, and rape). Ranson (2012) calculated that between 2010 and 2099, climate change would cause an estimated additional 30,000 murders, 200,000 cases of rape, and 3.2 million burglaries due to increased average temperatures.”

Will a court show leniency? Instead of claiming insanity in a murder case, why not claim climate change?

Perhaps the best way to stop the psychological impacts of climate change would be just to dial down the hysteria and indoctrination of children.

The APA shouldn’t complain. It should embrace climate change as the easiest way to fill their members’ appointment books. If they manage to convince patients onto public transport they’ll have a quicker run into work every day.

RBA should expect a dead cat bounce from the rate cut

The RBA has cut rates to a record low 1.25%. The irony here is people and businesses invest because they see a cycle, not because interest rates are low. Lowering rates will do little to spur investment, especially as the global economy cools.

Post the Hayne Royal Commission, the banks will likely pass on the full amount which will only impact margins and weaken them given the high reliance on wholesale funding.

The other problem the RBA faces is that banks have become so reluctant to lend post the RC that the net impacts of the rate cut will be negated by the unwillingness to lend at levels we have seen in the past given the penalties associated with it.

CM still contends that the Aussie banks tread a perilous path given their leveraged balance sheets. CM thinks part nationalization or worse is a real prospect if the slowdown is severe enough. The equity buffers are tiny relative to the real estate portfolio. All contained in the above link.

The rate cut is unlikely to boost confidence other than loosen the noose around stretched borrowers’ necks.

737 MAX is more Audi TT than Ford Pinto

1452871681-787.jpg

The NY Times has come out with a hit piece on Boeing and the ill-fated Boeing 737 MAX. Yet to CM, the problem seems more an Audi TT or Mercedes A-Class than a deliberate case of manufacturing flaw that was the Ford Pinto.

Recall that Ford deliberately placed the fuel tank to save money, knowing that it could spontaneously combust if hit from the rear. Yet the financial boffins deduced that the cost of making the move to a safer position would not be worth the risks of such a scenario playing out. Boeing never designed the 737 MAX to have inherent instability. The computer modelling power now is such that the most extreme scenarios would have passed muster. The FAA felt confident that the plane was airworthy to approve it.

Audi had an issue in 2000 with the TT. The sleek 2-door sports car was built off the VW Golf platform. However, the car was found to be prone to uncontrolled spins which killed 5 drivers. Audi was forced to install a spoiler and more sophisticated driver aids (software) to prevent the problem from occurring again. Same for the Mercedes Benz A-Class which failed the elk test conducted by a Finnish motoring magazine in 1997. It flipped when trying to avoid a dummy elk on a test track. This forced Mercedes back to the design room to install stability software to overcome the problem and restore its reputation for safety.

This is essentially what has happened at Boeing. While the press wishes to point to evil doings, the reality is that poor internal communication on such a big project was to blame, not willful negligence. Planes are pushed well beyond what they would ever be likely to encounter in real life. Take the 787’s wing flex test at 30% more than the plane would ever encounter while flying in the worst conditions.

It makes absolutely no sense for Boeing to take such massive risks on the 737 MAX, its #1 selling aircraft, by making it in such a way that it had a high propensity to crash.

The Boeing 737-400 series had inert fuel tank issues where near empty scenarios could cause the vapor to ignite in the centre tank that could lead to a deadly explosion. Several did. Some in the air. Some on the tarmac. These planes weren’t grounded. World aviation authorities, like Australia, issued advisories on how to mitigate the risk of it happening.

The 737 also had a rudder hard-over fault which led to several crashes. The design flaws were rectified when one pilot was able to recover the near-death experience. It was a faulty rudder actuator which could stick under certain temperatures.

The list of 787 airworthiness directives (from fire issues, wings, flight controls to landing gear) stands at 52. FIFTY-TWO. Sure a 787 has not crashed yet but where have the authorities been trying to ground the type until it has no ailments at all? Do they need a crash to rally into action? Or do they look at the issue on its individual merits? The 737 can fly without this AOA safely, which is why the FAA still allows its operation.

Having been a former aerospace analyst, this is the first time in a very long time CM can remember that a virtual global ban was put on any aircraft type. When Qantas flight QF32 (an Airbus A380) had an uncontained engine failure which ruptured the wing tanks and severing hydraulics, the airlines grounded their own planes as a safety measure, not the authorities. Singapore Airlines suspended its A380 flights for one day before resuming operations.

When AA587 crashed in Queens after the tail and engines sheared off, Airbus A300s weren’t summarily grounded. When AF447 crashed into the ocean off the coast of Brazil, A330s weren’t grounded as a precaution. It was pilots not paying attention to basics protocols, becoming overreliant on systems.

Ultimately the market will decide on the 737MAX. The plane has a 4,000+ unit backlog. Even if airlines wanted to change to A320neos, the switching costs would be prohibitively expensive in terms of pilot certification, maintenance and joining the end of an equally long queue. The order book is unlikely to suffer widespread cancellations.

Airlines run on razor-thin profit margins and the extra efficiency the MAX will offer over the existing fleet is why airlines want them now. The new LEAP-X engine technology is a once in 50-year event. The engines offer more power, 15% better fuel economy and lower emissions. The components are now ceramic matrix composites (CMC) which allows the engine to burn hotter and increase performance without suffering extra fuel burn. Nippon Carbon is the sole supplier of this magic material.

There has undoubtedly been a breakdown in communication with the FAA and Boeing. This engineering flaw can be safely encountered by software. While the NY Times has tried to over-exaggerate the fault in design, the reality is that all aircraft have engineering limitations. The 737 is a 50 years old airframe with over 1 billion passenger miles.

CM has stated many times that pilots have become too reliant on safety systems. AF 447 was a perfect case in point. When these glass cockpits with all manner of electronic trickery go wrong, pilots only need first principles to fly.

CM is sure that Boeing will recover from this incident and 737 MAX deliveries will continue as they had. The press just seems too eager for click bait, not understanding the complexities of developing new aircraft.

Cate Faehrmann plays investor for a day

Investment managers have difficult jobs. They have to forecast a whole plethora of variables from global economic growth, currencies, commodity prices and micro level corporate industries. If governments can provide ironclad policy certainty, investment choices become relatively easier. Unfortunately, perfect information detracts from performance because things get priced almost instantaneously.

It might be nice that 415 funds all call for a ratification of Paris Climate Accord (which means nothing in practice as the US isn’t a signatory and its emissions have fallen while China is a signatory and emissions continue to rise) but truth be told,  it sounds what is commonly termed in financial circles as “talking one’s book.” NSW Greens MLC Cate Faehrmann pretends to understand finance in her latest piece.

While these 415 firms might represent $32 trillion in assets under management (AUM), the truth is not all of those funds are spoken for in terms of climate-related investments. Investment advisors by their very nature have very diverse client bases. They cover basic low-risk pension (i.e. stable income) funds all the way to riskier return profiles for clients that want more exposure to certain themes or countries. If clients aren’t interested in buying climate funds, the asset managers don’t gather fees. Pretty simple.

Much of the fund industry has focused on ESG (environment, social responsibility & governance) since its inception in 2005. ESG represents around $20 trillion of global AUM, or 25% of total professionally managed funds. Therefore the other 75% of monies are deployed without this in mind. In reality, this is done because investment managers must hunt for the best returns, not those which sacrifice profitability for virtue. If NAB offered you a 10% 1-yr deposit and no solar panels on the HQ roof and Westpac offered a 1% 1-yr deposit because it did, would you invest in the latter based on its ecomentalism?

Let’s take the world’s largest public pension fund (2 million members), California Public Employees’ Retirement System (CalPERS) which is a cosignatory to this demand for climate action. Apart from the fact that this $380bn fund has been so poorly managed (marked to market unfunded liabilities are c.US$1 trillion), its portfolio consists of widespread ownership of met coal, petroleum and other mining assets. It owns bonds in fossil-fuel producing nations such as Abu Dhabi, Qatar and Saudi Arabia as well as highly environmentally unfriendly aluminium smelters in the world’s biggest polluter, China. So there goes the rhetoric of “demanding” Paris is ratified, that we shift to a low carbon economy and we force companies to report their carbon commitments.

It is frightening that some members of our political class believe that investment managers which collaborate in groupthink are worthy of listening to. On the contrary, the performance of many must be sub par. It is a sad reality that 80% of large-cap fund managers fail to outperform the index on a regular basis. So praying for governments to backstop investments they deployed capital into shows more desperation than innovation.

Maybe we should think of Adani as a classic example of investment at work. While Annastacia Palaszczuk’s government is backflipping on the Adani Carmichael coal mine after the electoral drubbing handed out to federal colleagues, the voluntary infrastructure tax is a cynical way to try to make the project less financially viable. After 8 years of ridiculous and onerous environmental approvals, Adani probably think it only needs to wait til October 2020 when an election will wipe out Queensland Labor from government and the infrastructure tax will be repealed soon after.

CM has long held that the non-ESG names are the place to invest. Most of the auto-pilot, brain dead, virtue signalling group think money has been poured into ESG. All non-ESG companies care about is profitability, not focusing on all the soft cuddly things they do displayed on the corporate lobby TV screens on a loop. Sadly when markets inevitably implode, investors always seek safe havens to limit the damage. As so much money is collectively invested together, so the bigger the stampede to the relatively attractive values provided by the stocks that have been cast aside by “woke” investors.

NZ Wellbeing Budget? Kiwis still better off in Australia

Image result for wellbeing budget nz

NZ PM Jacinda Ardern’s Wellness Budget is receiving lots of accolades. A true leader! Champagne socialist Sir Richard Branson also praised her saying other countries should take note. The idea that a budget should be solely based on economics is not progressive and more should be directed at “well-being”. That is not to say this budget is not “well-intentioned”. However, the statistics compared to across the ditch do not fare well on relative terms.

Comparing her newest policies versus Australia reveals the kangaroos get better access to social services than the kiwis. How surprising that none of the mainstream media bothered to look at the budget numbers on a like for like basis? Just praise her because she represents their ideal version of a socialist leader.  CM has looked through both budgets and adjusted for currency to make for easier like-for-like comparisons.

When it comes to health spending per capita (currency adjusted), Australia is expected to climb from A$3,324 in 2019 to A$3,568 in 2022. NZ is expected to go up slightly from A$3,516 to A$3,561 respectively.

On social security and welfare, Australia is expected to pay out A$7,322 per capita in 2019, growing to A$7,977. NZ, on the other hand, is forecast to go from A$5,573 per head to A$6,489.

On mental health, Australia forked out around A$9.1bn exclusively on these services reaching 4.2m citizens last year. NZ is planning on spending A$45.1m in 2019 with a total of A$428m by 2023/24 to hit 325,000 people on frontline services for mental health. While the move is a positive one, NZ will allocate A$1.78bn to mental health as a whole over 5 years. On an annualised basis, Australia will still allocate 5x the NZ amount to mental health per capita. So much for wellbeing.

On education, NZ plans to increase per capita spending 7.9% between 2019 and 2022 whereas Australia will lift it 12.5% over the same period. NZ spends around 2x Australia per capita on education although PISA scores between 2006 and 2015 are virtually identical (and both heading south)

On public housing, Ardern can claim a victory. Australia is expected to cut spending per capita from A$240 in 2019 to A$194 in 2022 when NZ will go from A$137 to A$282. Although let’s hope Ardern has more success than her KiwiBuild policy. The Australian’s Judith Sloan rightly pointed out,

“Ardern also has stumbled with other policies, most notably KiwiBuild. The pledge was to build 100,000 additional affordable homes by 2028.

It has since been modified to facili­tation by the government to help build new homes. Moreover, the definition of afford­ability has been altered from between $NZ350,000 ($340,000) and $NZ450,000 to $NZ650,000.

What started off as an ill-considered public housing project has turned out to be an extremely unsuccessful private real estate scam. The government estimated that there would be 1000 homes built last year under KiwiBuild; it turned out to be 47.”

In the process, NZ’s national debt per capita will grow from A$21,550 in 2019 to A$25,206 by 2022. Australia will climb from A$22,764 to A$23,293.

Look at page 119 of the NZ Wellbeing Budget, we can see the government is forecasting the economy to slow and unemployment to rise.

As we wrote several weeks ago, the statistics that Aussies are about to pack their bags and head of to NZ are not supported. CM wrote,

“According to the Australian Bureau of Statistics, there are 568,000 New Zealanders in Australia, or more than double the total 3-decades ago. Therefore more than 11% of the Kiwi population lives in Australia. At last census count, 35,000 New Zealanders migrated to Australia in 2018.

According to the New Zealand Statistics Bureau, 38,700 Aussies live in New Zealand. In the January 2018 year, 24,900 migrants arrived from Australia and a similar number departed for Australia.

Stats NZ stated, “Over half of migrants arriving from Australia are actually returning Kiwis who have been living across the Tasman for more than a year…The number of migrants going back and forth to Australia in the past year almost balanced each other out – the net gain was just 40 people in the last 12 months.”

As socialists love to point out, “feelings matter far more than facts“. Just goes to show how easily people will fall for a catchy headline, rather than judge it on its merits. Time the “woke” wake up from this slumber. By all means, celebrate more recognition of higher mental health spending but best put it in perspective. Jacinda Ardern is ordinary.