housing

Poverty, poverty on the wall, the French aren’t even the worst of all

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Why are we surprised at the yellow vest uprising across France? Poverty/risk of social exclusion across Europe has continued to spiral upwards since the Global Financial Crisis (GFC). There were 78mn living below the poverty line in 2007. At last count, Eurostat notes that number was 118mn  (23.5% of the European population). In the Europe 2020 strategy, the plan is to reduce that by 20 million.  37.5mn (7.5%) are living in severe material deprivation (SMD) , up from 32mn in 2007.

The SMD rate represents the proportion of people who cannot afford at least four of the nine following items:

  • having arrears on mortgage or rent payments, utility bills, hire purchase installments or other loan payments;
  • being able to afford one week’s annual holiday away from home;
  • being able to afford a meal with meat, chicken, fish (or vegetarian equivalent) every second day;
  • being able to face unexpected financial expenses;
  • being able to buy a telephone (including mobile phone);
  • being able to buy a colour television;
  • being able to buy a washing machine;
  • being able to buy a car;
  • being able to afford heating to keep the house warm.

The French are merely venting what is happening across the EU. The EU could argue that at 18% poverty, the French should be happy compared to other nation states. Europeans aren’t racist to want a halt to mass economic migration when they are the ones financially struggling as it is. Making economic or compassionate arguments aren’t resonating as they feel the problems first hand.

Is it a surprise that the UK, at 22.2% poverty, wanted out of the EU project to take back sovereign control? Project Fear might be forecasting Armageddon for a No Deal Brexit but being inside the EU has hardly helped lift Brits from under a rock. Why would anyone wish to push for a worse deal that turns the UK into a colony?

Why is anyone surprised that there has been a sustainable shift toward populist political parties across Europe? Austria, Italy, The Netherlands, Poland, Hungary, Sweden, Germany…the list goes on. Even France should not forget that Front National’s Marine LePen got 35% of the vote, twice the level ever achieved. Is is a shock to see her polling above Macron?

The success and growth of EU-skeptic parties across Europe will only get bigger. The mob is unhappy. Macron may have won on a wave of euphoria as a fresh face but he has failed to deliver. He may have suspended the fuel tax hikes, but the people are still on the street in greater numbers. He has merely stirred the hornet’s nest. Perhaps UK PM Theresa May should take a look at the table above and realise that her deal will only cause the UK to rise up. At the moment sanity prevails, and when it comes in the shape of Jeremy Corbyn that is perhaps a sign in itself.

Complacency kills – the ticking time bomb for Aussie banks

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In the late 1980s at the peak of the property bubble, the Imperial Palace in Tokyo was worth the equivalent to the entire state of California. Greater Tokyo was worth more than the whole United States. The Japanese used to joke that they had bought up so much of Hawaii that it had effectively become the 48th prefecture of Japan. Japanese nationwide property prices quadrupled in the space of a decade. At the height of the frenzy, Japanese real estate related lending comprised around 41.2% (A$2.5 trillion) of all loans outstanding. N.B. Australian bank mortgage loan books have swelled to 63% (A$1.7 trillion) of total loans.

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Sensing the bubble was getting out of control, the Bank of Japan went into a tightening rate cycle (from 2.5% to 6%) to contain it. Unfortunately it led to an implosion in asset markets, most notably housing. From the peak in 1991/2 prices over the next two decades fell 75-80%. Banks were decimated.

In the following two decades, 181 Japanese banks, trust banks and credit unions went bust and the rest were either injected with public funds, forced into mergers or nationalized. The unravelling of asset prices was swift and sudden but the process to deal with it took decades because banks were reluctant to repossess properties for fear of having to mark the other properties (assets) on their balance sheets to current market values. Paying mere fractions of the loan were enough to justify not calling the debt bad. If banks were forced to reflect the truth of their financial health rather than use accounting trickery to keep the loans valued at the inflated levels the loans were made against they would quickly become insolvent. By the end of the crisis, disposal of non-performing loans (NPLs) among all financial institutions exceeded 90 trillion yen (A$1.1 trillion), or 17% of Japanese GDP at the time.

The lessons are no less disturbing for Australia. Don’t be surprised to hear the authorities and local banks champion stress tests as validity that we are safe from any conceivable external shock. The November 2018 Reserve Bank of Australia minutes revealed that the next rate move is likely up but the board is happy to sit on its hands because housing is slowing even at 1.5% cash rates.

With US rates heading higher, our banks are already facing higher funding costs because of our reliance on overseas wholesale markets to fund mortgage lending. Japanese banks have 90%+ funding from domestic deposits. Australia is around 60-70%. Our banks need to go shopping in global markets to get access to capital. Conditions for that can change on a dime. External shocks can see funding costs hit nose bleed levels which are passed onto consumers. When you see the press get into a frenzy over banks passing on more than the rate rises doled out by the RBA, they aren’t just being greedy – a large part is absorbing these higher wholesale funding costs.

What about America? Who could forget former Goldman Sachs CEO and US Treasury Secretary Hank Paulson tell us how robust US financial institutions were right before plugging $700 billion to rescue the crumbling system? US banks such as Wells Fargo, Citi and Bank of America (BoA) have been reducing mortgage exposure relative to total loans outstanding. Yet each received $10s of billions in TARP (bail out funds) courtesy of the US taxpayer.

By 2009 the Global Financial Crisis (GFC) had turned over 16% of Bank of America’s residential mortgage portfolio into either NPLs, mortgage payments over 90-day in arrears or impaired (largely from the shonky lending practices of Countrywide (which BoA bought in 2008). Countrywide’s $2.5bn acquisition price turned out to cost BoA shareholders a further $50bn by the end of the clean-up. Who is counting?

Oh no, but Australia is different. Residential property prices in Australia have had a far steadier rise over a longer period – a 5-fold jump over 25 years – meaning our local banks should be less vulnerable to external shocks. There is an element of truth to that, although it breeds complacency.

Property loans in Australia as at September 2018 total A$1.653 trillion. 82% of those loans are made by the Big 4 banks. Interest only loans are around $500 billion of that. As a percentage of total loans outstanding in Australia, mortgages make up 65%. The next is daylight, followed by Norway at around 40%. US banks have cut overall property exposures and Japanese banks are now in the early teens. Post GFC, US banks have ratcheted back mortgage exposure. They have diversified their earnings through investment banking and other areas. You can see this below.

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The advent of interest only loans has helped pushed property prices higher. NAB notes in its latest filing that 29% of its mortgage loan book is in interest-only form. The RBA expects $120 billion of interest only loans resetting to principal & interest (P&I) each year to 2020 which will hike monthly mortgage repayments to jump 30-40%. If investors were up to the gills in interest only mortgage repayments, adding one third to the bill will not be helpful. This is before we have even faced a bump in wholesale finance rates due to market instability. Look at the way that GE – once the world’s largest company in 2000 – is being trashed by the credit markets as they seek to reprice the risk attached to the $111bn in debt after a credit downgrade. This is a canary in the coalmine issue.

We also need to consider what constitutes a bubble in property. Sensibly, affordability makes the strongest argument. At the height of the bubble, the average central Tokyo property value was around 18.2x income. Broadening this out to greater Tokyo metropolitan area this was around 15x. This figure today is around 5x. Making arguments that ever higher levels of migration will keep property buoyant is not a sound argument as affordability affects them too.

Back in 2007, Sydney house prices were 8x income. In 2017 Demographia stated average housing (excluding apartment) prices are in the 13-14x range. The Australian Bureau of Statistics notes that 80% of people live in houses and 20% on apartments. Only Hong Kong at 19x beats Sydney for dizzy property prices.

In 2018, Australia’s GDP is likely to be around A$1.75 trillion. Our total lending by the banks is approximately $2.64 trillion which is 150% of GDP. At the height of the Japanese bubble, total bank lending as a whole only reached 106%. Mortgages alone in Australia are near as makes no difference 100% of GDP.

Balance sheets are but snapshots in time. If we look at our current bank exposure to mortgages, it is easy for analysts to paint rosy pictures. Banks’ shareholder equity has quadrupled in the past 16 years. Prosperity and record bank profits should give us comfort. Or should it? We need to understand that the underlying tenets of the Australian economy are completely different to that of a decade ago.

At the time of Global Financial Crisis (GFC) Australia’s economy was lucky to get away broadly unscathed. We carried no national government debt and were able to use a $50 billion surplus to prime the economy through that period of turmoil. Many countries were not so lucky. Our fiscal stewardship leading up to the crisis allowed economic growth to remain in positive territory soon after. Now we have $600 billion debt and charging the national credit card with all of the promises so aggressively that we should expect $1 trillion of debt in the not too distant future.

Australian banks are highly leveraged to the mortgage market. It should come as no surprise. In Westpac’s full year 2018 balance sheet, the company claims around A$710 billion in assets as “loans”. Of that amount, according to the latest APRA data, A$411 billion of lending is ‘real estate’ related. Total equity for the bank is A$64.6 billion. So equity as a percentage of property loans is just shy of 16%. If Australia had a nationwide property collapse (we have not had one for three decades) then it is possible that the banks would face significant headwinds.

What that basically says is if Westpac suffered a 16% decline in the value of its entire property loan book then it would at least on paper appear in negative equity, or liabilities would be larger than assets. Recall in 2009 that BoA had over 16% of its residential loan portfolio which went bad. It can happen. CommBank is at a similar level. ANZ and NAB are in the 20% range before such a hypothetical situation would be triggered. See the chart below. Note how the US banks stung by the GFC have bolstered balance sheets

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Of course the scenario of a housing collapse would imply that a growing number of borrowers would have to find themselves under mortgage stress and default on payments. It also depends on the portfolio of the properties and when those loans were written. If the majority of loans were made 10 years ago at 40% lower theoretical prices than today then there is lower risk to solvency for the bank if it foreclosed and dumped the property.

Although if we look at the growth in loans since 2009, the Australian banks have been making hay while the sun shines. As it stands, the likes of Westpac and CommBank each have extended mortgage loans to Aussies to nearly as much as BoA has to Americans. That said the American banks, so stung by the GFC, have become far more prudent in managing their affairs.

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It goes without saying that keeping one’s job is helpful in paying the mortgage. If you were a two income family and one of you lost your job, it is likely that dining out, taking fancy overseas holidays, buying new cars (which have been awful this year) and so on will go on the backburner. Should those actions swell to a wider number of mortgage holders, the economic slowdown will exacerbate in a downward spiral. Even your local coffee store may be forced to close because $4 is just cash you and others might not be able to spend. Boarded up High Streets were everywhere in America and Europe post GFC.

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The following chart shows the negative correlation between housing prices and unemployment rates. US unemployment doubled to 10% when Lehman collapsed. Housing prices took heavy hits as defaults jumped. It is not rocket science.

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On the other hand, Australia’s unemployment curve remained below 6% for around two decades. Even with GFC, jobless numbers never got out of hand. Our housing prices only suffered a mild dip.

We can argue that a sub-prime style mortgage crisis is highly unlikely. But it does not rule the risk out completely. To have that, mortgage holders would need to be in arrears on monthly payments, their houses would need to be in negative equity and banks would be required to take asset devaluations.

An ME Bank survey in Australia found only 46% of households were able to save each month. Just 32 per cent could raise $3000 in an emergency and 50 per cent aren’t confident of meeting their obligations if unemployed for three months.

According to Digital Finance Analytics, “there are around 650,000 households in Australia experiencing some form of mortgage stress. If rates were to rise 150 basis points the number of Australians in mortgage stress would rise to approximately 930,000 and if rates rose 300 basis points the number would rise to 1.1 million – or more than a third of all mortgages. A 300 basis point rise would take the cash rate to 4.5 per cent, still lower than the 4.75 per cent for most of 2011.”

Do you know how many homes NAB has under repossession on its books at the latest filing? Around 277. Yes, Two hundred and seventy seven. Out of 100,000s. Recall BoA had 16% of its loan portfolio go bang in 2008?

If we think about it logically, examining the ratio of total assets to shareholder equity (i.e. leverage), the Aussie banks maintain higher levels than the US banks listed below did in 2008. Were total asset values to suddenly drop 7% or more ceteris paribus, Aussie banks would slide into a negative equity position and require injection.

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Human nature is conditioned to panic when crisis hits. Sadly many of our middle management class have never experienced recession. They are in for a rude shock. As for depositors note that you should be focused on the return “of” your money, not the return “on” it.

As Mark Twain once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so!

 

 

Nothing to see here

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Aussie bank mortgage lending continues to reach ever dizzier heights. What is probably lost on many is that Westpac & CommBank have outstanding mortgage loans extended to as many Aussies as the colossal Bank of America (BoA) is lending to Americans.

Shareholder equity as a % of real estate loans looks like this. Note how post GFC  the US banks have shored up the balance sheet to avoid a repeat of the disastrous contagion when Lehmans collapsed. Note Citi, BoA and Wells Fargo each took $20-45 billion in TARP to prevent a collapse.

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Westpac & CommBank have shareholder equity vs R/E loans of 16%. That means if the aggregate loan value get smacked  by 16% or more via defaults or a sharp slowdown then these banks would be in negative equity. Extreme?

In 2009 the Global Financial Crisis (GFC) had turned over 16% of BoA’s residential mortgage portfolio into either NPLs, mortgage payments over 90-day in arrears or impaired (largely from the shonky lending practices of Countrywide (which BoA bought in 2008). Countrywide’s $2.5bn acquisition price turned out to cost BoA shareholders a further $50bn by the end of the clean-up. Who is counting?

In 2018, Australia’s GDP is likely to be around A$1.75 trillion. Our total lending by the banks is approximately $2.64 trillion which is 150% of GDP. At the height of the Japanese bubble, total bank lending as a whole only reached 106%. Mortgages alone in Australia are near as makes no difference 100% of GDP.

Japan ended up wiping out Y90 trillion ($A1.1 trillion) or 17% of its GDP at the time. The only thing that springs to mind with the Aussie banks is complacency and the RBA minutes today only reinforced that view. At least 3 years behind the curve. Yes of course people will lob stress tests as a reason not to worry (we were told in 2007 that everything would be fine until the whole edifice collapsed) but CM doesn’t buy it for a second.

Aussie banks are still beholden to global wholesale markets. In a world where rates are rising overseas and companies like GE are facing a massive wall of higher funding costs due to credit downgrades, risk is about to be priced properly. The Aussie dollar is likely to be hit too.

A recent ME Bank survey in Australia found only 46 per cent of households were able to save each month. Just 32 per cent could raise $3000 in an emergency and 50 per cent aren’t confident of meeting their obligations if unemployed for three months.

The Weekend AFR reported that according to Digital Finance Analytics, “there are around 650,000 households in Australia experiencing some form of mortgage stress. If rates were to rise 150 basis points the number of Australians in mortgage stress would rise to approximately 930,000 and if rates rose 300 basis points the number would rise to 1.1 million – or more than a third of all mortgages. A 300 basis point rise would take the cash rate to 4.5 per cent, still lower than the 4.75 per cent for most of 2011.”

Do you know how many homes NAB has under repossession on its books at the latest filing? Around 300.

Manhattan property in a gully

Manhattan property seems to be in a gully according to Elliman R/E in Q1 2018. While a slightly better QoQ performance, average prices fell 8.4%YoY, price per square foot fell 18.5%YoY and the number of sales transactions fell 24.6%YoY. This was the lowest quarter total in 5 years and the biggest annual decline in 9 years. Absorption rates hit 8.4 months in Q1, +38%YoY. New federal tax laws, higher interest rates and the end of legacy pipeline contracts were factors. At the luxury end of town average price per sqft fell 20.6%YoY with absorption up 50%YoY to over 20 months. As the real estate agent and stripper said in The Big Short, “it is just a gully we are experiencing right now.

Racial bias in US school discipline? Some shocking correlations

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The GAO has published a 98 page report on discipline in US schools. In a perhaps somewhat irresponsible manner of formatting, it suggests that teachers seem to pick on particular races and disabilities for those reasons alone. It is as if teachers are pushing kids with wheelchairs uncontrollably down ramps. Yet, ‘disability’ of course includes mental problems which could range from anxiety to depression. 11.7% of students are classified with a disability. Yet delving deeply within the stats, of the 56 million K-12 students, 5.7% have been in detention, only 0.4% of the total have been referred to law enforcement, 0.3% have been expelled, 0.2% received corporal punishment and less than 0.1% have been arrested. In short, 99.6% of students stay out of ‘big’ trouble and 94.3% stay out of detention. Single parent households and poverty levels are highly correlated to discipline. Reporting the headlines of the GAO makes for shock and awe but had they reported the 0.X% stats it would deflate the rhetoric.

The NY Times article implied there must be some sort of unconscious bias as teachers were being bigoted bullies. Doesn’t the mainstream media defend the very same people as the last bastions of educational excellence against the tyranny of Education Secretary Betsy DeVos. 80% of teachers are white. Although this has been on a long term decline.

If white students (K-12) represent 50.3% of the total is it fair to assume that they should hold an equal % of disciplinary actions? Do crime stats and incarceration rates reflect race based demographics anywhere in the world? In America, 24.7% of students are Hispanic and 15.5% are black. When it comes to higher levels of poverty, Hispanics are way under-represented in the disciplinary stats despite being higher proportions of the students. Whites are punished more or less in line with their population in that bracket.

In the interests of gender equality, why are girls, at 49% of all students punished at half the rate of boys? Unconscious bias or is it through our own experiences, women are far less likely to bring the wrath of teachers in class? A reasonably safe assumption to make.

Nearly half of all public school students went to schools where 50% or more of the students were low-income, and about a quarter went to schools where 75% or more of the students were low-income. Of the 11.5mn students in 75-100% low income backgrounds, 1 million spent time in out of school detention. Of the 9.9 million students in 0-25% low income schools, 217,000 spent time in out of school detention. 128,500 of those were white. Whites make up 78% of 0-25% low income school populations and only 16% of 75-100% low income schools. Therefore it stands to reason statistically that if students in less poverty stricken schools trigger fewer disciplinary issues, then the stats would naturally bear out such differences rather than it being pure racial profiling.

So it would appear that low income would impact the rates of delinquency. Referring to number of kids living with both parents/step-parent (according to a 2015 Pew Research Center study) in America we find:

Asian: 82%

White: 71%

Hispanic: 55%

Black: 31%

The GAO stats make clear that Asian kids get caught up in the least amount of disciplinary action both by absolute and percentage wise. Blacks the most, Hispanics second and whites 3rd. Could it be an inverse correlation? Psychological studies have shown boys seem to be more impacted by the lack of a father in the house than do girls. Children (especially boys) raised by single mothers are more likely to fare worse on a number of dimensions, including their school achievement, their social and emotional development, their health and their success in the labor market. They are at greater risk of parental abuse and neglect (especially from live-in boyfriends who are not their biological fathers), more likely to become teen parents and less likely to graduate from high school or college.

survey taken by the National Center for Education Statistics (NCES) in the US back in January of 1993 revealed poverty, alcoholism, student apathy and absenteeism were cited as big problems in secondary public schools. Lack of a parent was also high on the agenda.

The American Psychological Association, “poor (bottom 20 percent of all family incomes) students were five times more likely to drop out of high school than high-income (top 20 percent of all family incomes) students…Family poverty is associated with a number of adverse conditions — high mobility and homelessness; hunger and food insecurity; parents who are in jail or absent; domestic violence; drug abuse and other problems — known as “toxic stressors” because they are severe, sustained and not buffered by supportive relationships…Community poverty also matters. Some neighborhoods, particularly those with high concentrations of African-Americans, are communities of concentrated disadvantage with extremely high levels of joblessness, family instability, poor health, substance abuse, poverty, welfare dependency and crime

Broken homes and poverty are undoubtedly a big issue. The report said, “Besides lack of parent involvement, the school problems viewed as serious by at least 10 percent of public school teachers included student apathy, poverty, student absenteeism, student disrespect for teachers, parental alcoholism and/or drug abuse, and student tardiness. Behaviors and attitudes of students were more likely to be seen as problematic by teachers at the secondary level than by teachers at the elementary level. Parent alcoholism, on the other hand, was described as “serious” as often by elementary teachers as by secondary teachers and poverty was described as “serious” more often by elementary teachers.”

85% of kids likely to go to college or higher levels of education came from stable family backgrounds. 61% of kids likely to drop out before graduating high school are from broken homes. Sixty One Percent!

So before reading into it that teachers must be subconsciously racially profiling students in handing out punishment, perhaps the overwhelming weight of societal evidence points to far bigger problems that need addressing. Poverty, single parent households and a whole raft of issues need dealing before the government watchdog should report back racial bias at a top down level. According to the logic, perhaps teachers should be forced into student discipline quotas. That way (un)conscious bias won’t afflict teachers and whites can be punished in line with their demographically representation.

Let’s not forget that financial institutions have often been targeted for charging black customers higher interest rates on loans than whites. What they always fail to mention is that Asians pay even lower rates than both. That is the problem with selectivity in data without meaningfully looking at the broader picture. Just like the recent Florida school shooting where a look at what is going on in terms of school security over decades paints a different picture to what the mainstream narrative would want us to believe.

True colours of the left exposed when it comes to white Sth African farmers

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There is something to be said of the left when it comes to compassion. For all of the sanctimony of how we must do our bit for social justice and fight to stop every -ism in the world, whites need not apply. It shouldn’t have escaped many that certain “white” South African farmers are fleeing persecution while their land is being confiscated. Murders, beatings of men and women, children having their faces given the “joker’s cut” with razor blades. It’s truly horrific. Yet some are prepared to cynically fire off “the poor whites…”

Yet because of their skin colour some on the left deem their “white privilege” should be checked first. It would seem in order to restore justice, white South African farmers should get a taste of their own medicine after the oppression of apartheid some 30+ years ago. Surely people in need are indeed just that – in need. Are all white farmers guilty of apartheid? Back of the line. Sacrifice your lives for the sake of equality.

Australia is often beaten over the head for its asylum seeker policies. That somehow asylum seekers kept in detention centres (where they demand Hyatt 5-star  services and amenities) awaiting processing on Manus Island got a raw deal as ‘fellow whites’ get a fast pass. What the media, like The Guardian often fail to do is report the balance. Immigration Minister Dutton fast tracked the visas of 700 Yazidi women who had escaped ISIS rape gangs. They aren’t white. They were in grave danger. Instead of congratulations it wasn’t reported.

On the flip side 12 Iranians had their visas revoked by Dutton’s office for lying in their applications. They had pleaded they were fleeing persecution in Iran yet the first thing they did on receipt of visas was to fly back to the very danger zone they had escaped for a holiday. Was that racist policy or one that is simply preventing visa fraud to ensure integrity in the immigration system?

Asylum seeker policy is a touchy subject. How Angela Merkel was praised for her social caring programme by granting a come one come all refugee policy, one which ended up being the mother of all misguided altruism. Instead of helping the truly needy, the EU tallied that 80% were economic migrants seeking better fortunes in the West. That’s right 80% weren’t fleeing war zones.

Since she started her benevolence, Merkel gagged the media, muzzled the police and silenced those that spoke out about the cover up of the deterioration in public safety, rapes and crime which even now Merkel admits has led to the creation of no go zones which never existed before. She’s now paying for refugees to leave with generous incentives. Yet where is the left’s media outrage? Why not just admit it was a dreadfully executed policy which cost her the worst election result for her party in 70 years and gave the anti-immigrant AfD the second largest following in Germany from nowhere?

Then the folly is extended to the EU which then tried to cover up for Merkel by enforcing migrant quotas like they were cattle. Asylum seekers were mostly making a B-line to Germany yet the EU in its infinite wisdom thought all members had a duty to take a share. If they truly spared a thought for asylum seekers, why would any wish to be allocated to countries like Hungary that held a referendum on the topic and got a 98.4% response against having them? Not a promising starting point.  Then we sit back and wonder why the Italians voted for anti-immigrant, eurosceptic parties? Or why the UK voted Brexit? Or why the Austrians also voted in a government that put a right wing anti-immigration party in charge of immigration? Or The Netherlands? Poland? Hungary? The list goes on.

Yet the media focuses on a drowning 3 year-old boy on a shoreline and tried to shame our collective lack of compassion. Still the media refused to focus on the billion dollar illegal people smuggling industry that lured so many who weren’t fleeing persecution to their deaths. That poor little Aylan Kurdi died, not  because he and his family were fleeing  to safety (they already had been for 3 years in Turkey) but that his life was put at risk without a life jacket in a flimsy vessel for the sake of his father’s own dental treatment.

Why not beat Gulf states over the head for not doing their bit? The Saudis can accommodate 3 million, chair the UN Human Rights Council yet refuse to step up and the media stays silent. Why not smash up Japan for letting in low double digit numbers of asylum seekers? Is it a coincidence that the 98% homogeneous society has such low crime rates, social harmony and safety record the envy of the world? It is not to say that foreigners commit most of the crime in Japan because they don’t (per head of population they do) but Japan is not prepared to throw its culture out the window to get with the times on doing its bit for humanity. Japan would prefer to throw billions in foreign aid to fix the problem at source.

The better narrative is to pick on the West. Shame our white privilege. Mock our colonialist past and tell South African farmers to go to hell.

Compassion for the truly needy should only depend on the danger faced. Skin colour, religion, sexual orientation or any other identity based criteria should be irrelevant. People who are desperately fleeing for their lives should fall over themselves to willingly respect the rules of their new house. They should be only too happy to repay the generosity of those that provide safety and strive to become model citizens. Many Vietnamese fleeing the ravages or the Vietnam War have paid back our support in spades.

Yet too often those who have not escaped persecution end up being the ones that expect society to bend to their culture not the other way around. Our authorities and judiciaries are becoming self annointed justice warriors often turning a blind eye to crime by meting out lenient sentences for armed robbery, rape, child grooming, assault and manslaughter with paltry community service orders. Take this example. Ibrahim Kamara, from Sierra Leone, received a suspended sentence of just over one year, with an 18-month good ­behaviour order, after admitting to five counts, including grooming and having sex with a minor. The ACT Supreme Court judge said “(Kamara) has tried to make a good start on his life in Australia”. Or last week a Sudanese woman, Ayou Deng, was given 80 hours community service for running over and killing a 13yo boy in a car she was driving unlicensed. What message is being sent to the people that we would hope want to integrate in the great Aussie way of life? Do what you please as the worst you’ll get is a slap on the wrist.

Then should we criticize Australia’s asylum seeker policy when we ask for the recipients of asylum visas to sign a code of conduct order which explicitly tells them that rape and sexual harassment of women and children is not accepted? Surely civilized society shouldn’t need to have to force new arrivals to sign a document for common decency but apparently they do. Clearly the immigration department saw it as a requirement supposedly to stem the tide of countless incidents before it was introduced. Then again Canada is trying to remove female genital mutilation from its new citizen’s code of conduct for fear it might offend. You can’t make this stuff up.

So to the left that wants to selectively administer asylum seeker policy based on prejudices. In the quest for diversity they should check their own hypocrisy before asking white South African farmers to check their privilege as they cry for genuine grounds for asylum. The true colours of the left are exposed for what they are. Institutionalized diversity folks is anything but. No one wins acceptance by denying their own identity,

Fasten your seatbelts!

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The “Fasten your seatbelts” edition (March 6, 2018) of the High-Tech Strategist by Fred Hickey is best read with antidepressants or a stiff drink. To be honest I hadn’t seen a copy of this research for at least 5 years. Today I’ve read it three times hoping I haven’t missed or misread anything. It is well reasoned and well argued. I would even admit to there being confirmation bias on my side but it is compelling. Usually confirmation bias is a worrying sign although prevailing sentiment or group think, it isn’t!

Perhaps the scariest claim in his report is a survey that showed 75% of asset managers have not experienced the tech bubble collapse in 2000. So their only reference point is one where central banks manipulated the outcome in 2007/8. S&P fell around 56% peak to trough. I often like to say that an optimist is a pessimist with experience. A lot of experienced punters have quit the industry post Lehman’s collapse, hollowing out a lot of talent. That is not to disparage many of the modern day punters but it does experience is a hard teacher because one gets the test first and the lesson afterwards.

Hickey cites an interview with Paul Tudor Jones who said that the new Fed Chairman Powell has a situation not unlike “General George Custer before the battle of the Little Bighorn” (aka Custer’s Last Stand). He spoke of $1.5 trillion in US Treasuries requiring refinancing this year. CM wrote that $8.4 trillion required refinancing in 4 years. In any event, with the Fed tapering (i.e. selling their bonds) couple with China and Japan feeling less willing to step up to the plate he conservatively sees 10yr rates hit 3.75% (now 2.8%) and 30 years rise above 4.5%. Now if we tally the $65 trillion public, private and corporate (worst average credit ratings in a decade) debt load in America and overlay that with a rising interest rate market things will get nasty. Not to mention the $9 trillion shortfall in public pensions.

Perhaps the best statistic was the surge in the number of articles which contained ‘buy-the-dip’ to an all time record. Such lexicon is often used to explain away bad news. It is almost as useless as saying there were more sellers than buyers to explain away a market sell off. In any event closing one’s eyes is a strategy.

Hickey runs through the steps leading up to and during the bear market that followed the tech bubble collapse. It was utter carnage. Bell wether blue chips like Cisco fell 88% from the peak. Oracle -83%. Intel -82%. Sun Microsystems fell 96%.

To cut a long story short, assets (bonds, equities and property) are overvalued. The Bitcoin bubble and consequent collapse have stark warnings that he saw in 2000. He recommends Gold, Gold stocks (which he claims are selling at deeper discounts than the bear market bottom) Silver, index and stock put options (Apple, Tesla, NVidia & Amazon) and cash. Can’t say CM’s portfolio is too dissimilar.

As Hickey says, “fasten your seatbelts