Just a few quick comments from your editor today before we hand over to assistant editor Shae Smith.

We’re concentrating on the May issue of Australian Small-Cap Investigator for most of this week, but we should still find time to lob a few grenades at mainstream thinking.

So, before Shae takes up the slack, a couple of quick things that took our fancy…

I said yesterday it might be worth waiting for the Aussie dollar to strengthen a little and the gold price to fall. Good luck with that. It’s piled on another few bucks overnight, trading above AUD$1,400.

And the GOLD exchange traded fund (the one your editor owns a few shares in) is trading above $139 per share.

But as the stock market continues to head south – as we feared it might, but hoped it wouldn’t – we think back to the warnings we offered over a year ago about the stock market rally and economic recovery being an illusion.

A government and central bank created illusion. But more on that another day.

Anyway, up in Sydney yesterday Luci Ellis, Head of Financial Stability at the Reserve Bank of Australia (RBA) spoke at an Australian Financial Review sponsored conference on housing. But for a start we’d like to grade her ‘F’ for the job she’s doing on overseeing financial stability considering how quickly the value of the Australian dollar continues to devalue thanks to inflation.

But best of all we liked this comment in her closing “Final Thoughts”:

“Recent data suggest that we do not have a credit-fuelled speculative boom on our hands. It would not be desirable for the current situation to turn into one.”

We have this image of Ms. Ellis standing in front of a large bubble that she’s tried to cover with an overcoat, insisting to passersby that there’s nothing to see.

But what “recent data” would Ms. Ellis be referring to?

I mean, it couldn’t be the data from the Australian Bureau of Statistics (ABS), the chart of which Ms. Ellis used to open her presentation:

ABS - Real Dwelling Prices

Because pardon us for commenting, that’s got bubble written all over it. Well, our version has anyway:

ABS - Real Dwelling Prices - Bubble

And obviously she hasn’t noticed the numbers contained on the RBA website which provide an insight into the, erm, non-existence of the “credit-fuelled boom”:

Non-existence of the Credit-fuelled Boom

Those numbers are in millions. We pointed out last week that residential borrowing had increased 50% in the last two-and-a-bit years.

Clearly that’s not a “credit-fuelled boom.”

But then Ms. Ellis would naturally deny the existence of a credit boom considering it’s her employers that have caused it. You know the rules, gotta tow the company line.

We do like how she used the following chart, which unwittingly should help to dispel the myth that rising population growth is necessarily linked to house price growth:

ABS - Dwelling and Population Growth

Prof. Steve Keen pointed out in an article for Business Spectator last week that if population growth running faster than new dwelling growth leads to rising house prices, why didn’t house prices fall between 1955 and 2004 when dwelling growth exceeded population growth?

The simple answer is that the real driver of house prices is easy credit. Plain and simple.

And when that stops – which it hasn’t yet remember… POP!

Finally, before we hand over to Shae, a quick note on a wonderfully dumb comment from Emperor Ken Henry:

“Projects which are earnings super normal profits will continue to earn super normal profits.”

Ha, ha… We’ve had “normal profits”, then “super profits”, and now “super normal profits.”

What’s next? “Super normal extra spicy profits”? “Vindaloo profits”? “My God, What a Profit”?

Not that a coercive sector servant has any idea what a profit is anyway, but that’s another thing.

As our Slipstream Trader Murray Dawes pointed out, the idea of companies making big profits is that it draws new entrants into the market, so that they too can get a slice of this so-called “super profit” action.

But if governments decide to take a big slice of those big profits, guess what, where’s the incentive for new entrants to enter the market, provide competition, and therefore drive those profits down?

By taxing the super profits, or super normal profits, it actually kills several birds with one stone. It punishes the incumbent for making a profit, it reduces their enthusiasm to produce extra, knowing that it will face a higher tax burden, it makes it less attractive for new entrants to come into the market, and finally it puts a handbrake on supply, potentially causing prices to rise.

Anyway, we’ve blathered on enough this morning, over to Shae to wrap things up…

Cheers,
Kris.