July 9, 2016

To Re-Examine Philosophies And Religions

A look at political change and the global housing bubble starting with News Limited in Australia. “There’s a revolution happening. It’s the rise of the ‘up yours vote,’ the protest movement that brought Britain to its political knees and continues to fuel the Trump campaign in America. That movement, simmering away for almost 20 years in Australia, finally bubbled over at the weekend when voters thumbed their noses at the political establishment, en masse. An unprecedented quarter of Australians have given their first preference to parties other than the Labor and the Coalition — the highest primary vote for minor parties and independents in the country’s history.”

“‘It’s the rage against the machine that is Canberra,’ says Craig Emerson, adjunct professor at Victoria University. ‘There’s a post-war unwritten agreement in Western countries which said it was OK for the rich to get richer as long as the poor and the middle got richer too. But that agreement has been broken — the rich are getting richer and the poor are going nowhere and that’s why Donald Trump has emerged as a candidate.’”

“‘There’s another agreement, an intergenerational agreement in which we ensure that future generations will at least be able to afford their own home. But that agreement has been broken by Baby Boomers who are saying, ‘It’s all mine and I want more’. The Coalition’s attitude is that the higher housing prices are, the better. It sends a very clear message to young people that they’re not relevant. In fact, the intergenerational problem they’ve created is greater than the other one. They are saying to young people, ‘We don’t care about you’ and young people are saying, ‘You know what? We don’t care about you either.’”

Radio New Zealand. “Prime Minister John Key has dismissed as ‘crazy’ a suggestion local and central government should deliberately crash Auckland house prices. A former Reserve Bank chair Arthur Grimes has said Auckland property prices must come down by 40 percent. John Key said that was just crazy. ‘Go and ask the average Aucklander who’s got a mortgage with the bank whether they want to see 40 percent of their equity disappear on a sort of notion from an economist that you’re going to crash the market.’”

“Dr Grimes said people who had already bought houses at inflated prices would lose out, but that was no different to in other parts of the country when prices had come down 20 to 30 percent in the past. ‘Don’t forget, prices in New Zealand and various places do fall 20 or 30 percent over a few years, east coast of the North is at the moment, South Island in the past. That’s the way it goes if you buy an overpriced asset, is you lose money, that’s just the normal way of things isn’t it.’”

Fairfax New Zealand. “The arguments between the young and old are well rehearsed, but that doesn’t mean they aren’t important. Millennials rail against a bubbly property market that locks them into damp boomer-owned rentals forever, sky high student loans, and continued inaction on climate change. In turn, baby boomers note that everything millennials have boomers gave them, record-low interest rates, and how much harder university entrance once was.”

“‘What frustrates young people is that from our perspective the older generation don’t appreciate what they had growing up, and so don’t feel strongly about preserving it for our generation,’ said 21-year-old Leroy Beckett of Generation Zero, a youth climate action group. ‘I don’t know if its a product of them benefiting from those things and throwing them because they no longer need them, or because they don’t realise they helped them get where they are today.’”

“Beckett is clear on what ‘things’ he means: affordable housing, free tertiary education, and a stronger social welfare system. On housing the numbers appear to back him up: in the 2013 census 74.9 percent of those aged 60-65 owned their own home, compared to 36 percent of 30-34 year olds and 18.4 percent of 25-29 year olds.”

“Economist Shamubeel Eaqub, an (older) millennial himself, doesn’t believe a generational war is coming - he believes it’s already in full swing. ‘A lof of the wealth and the success of the boomers is in fact burrowed from the future. [...] Millennials are hard done by and boomers are doing well out of that. They are sitting on undeserved asset price wealth that has essentially been stolen from their children and grandchildren. From that perspective I really do resent where the boomers are at - it’s not because they are really smart that the house prices are going. They think ‘I’m rich I must be smart’ - well no you’re rich because you were at the right place at the right time.’”

“‘Young folk do have some very legitimate grievances about what boomers have done to the property markets,’ said right-leaning Gen X economist Eric Crampton. ‘We are approaching a point where only rich old people can afford to live downtown. Once that starts tipping here you will see what happens in Sydney - where older people have killed all the nightlife. Go to any local board hearing where they are trying to talk about intensification or terrace housing - it’s just a sea of grey heads.’”

The Guardian in the UK. “We’ve have had no end of a lesson: it will do us no end of good!’ So said Rudyard Kipling of the Boer war, and he might well say the same today. David Cameron’s wild European gamble has failed. He and the British establishment took democracy for granted. They lined up all the toffs and boffins, the chief executives, tycoons and clever-clogs in the (south of the) land, and asked the nation to pat them on the back. The invitation to a punch in the face was too good to miss.”

“Brexit is starting to deliver. British politics was constipated and has now overdosed on laxative. It is experiencing a great evacuation. It has got rid of a prime minister and is about to get rid of a leader of the opposition. It will soon be rid of a chancellor of the exchequer and a lord chancellor. It is also rid of two, if not four, Tory heirs apparent. Across the spectrum the left is on the brink of upheaval and perhaps historic realignment, if only the Liberal Democrats have the guts to engineer it. The Greens and Ukip have both lost their leaders. An entire political class is on the way out. As Oscar Wilde said of the death of Little Nell, it would take a heart of stone not to laugh.”

“The speculative fever that has fuelled the London property bubble will end. The capital’s demented skyline is already ruined, but may win some respite. It will stand as an enduring monument to the Cameron-Johnson era: one of ugly, uncontrolled greed.”

“All governments, democratic as well as authoritarian, tend in time towards the Augean stables. They need regular cleaning out. But the cleaning is rarely at moments of their choosing, and the effort can be Herculean. But as Chesterton’s Napoleon of Notting Hill reflected in the heat of battle, there is nothing like being hit over the head ‘with six feet of pole with six pounds of steel’ to cause you to ‘re-examine philosophies and religions.’”

“Social democracy and capitalism both need hitting over the head from time to time. It detoxifies them of bureaucracy, monopoly and cronyism. Britain is experiencing such a time. It should do us no end of good.”

From Market Watch. “Many investors must be hoping that somehow they can wake up from a very bad dream and get on with their lives in a world where the U.K. had decided to stay in the European Union. That, as we now know, is not what happened. The worrying point for investors, however, is not just that they didn’t get the result they wanted. It is that they read the British referendum so completely incorrectly — and convinced themselves that the Remain side would eventually win.”

“That is hardly the first time that has happened. The markets got the 2015 election in Britain upside down as well. They didn’t think that Donald Trump would ever be the Republican nominee. They read the Spanish elections last month incorrectly, and the Austrian elections as well. An accident? Perhaps. After all, these things are intrinsically difficult to predict. But it is also possible that something more fundamental is happening — that investors have become completely unable to predict political changes.”

“There are two compelling reasons why that might be the case. One is that the polls have become far less reliable than they were in the past. The second is that traders and fund managers live within a privileged bubble and have little contact with angry voters who are driving populist insurgencies across the world. If either is true, they need to fix that — and fast — or else they are going to carry on losing huge amounts of money.”

“The people who actually make up the markets are bankers, brokers, fund managers, journalists, and well-off private investors. They are all inside a prosperous bubble. The people who are left behind are somewhere else. They don’t have a voice in the markets because they don’t have any money to invest (which is, of course, part of the problem).”

“As political battles across the developed world become increasingly a contest between the winners and losers from globalization, the markets have become more and more clueless. One reason most people thought Remain would win was because in the City, and in most of London, you didn’t encounter any Leavers.”

“Likewise, you don’t meet any Trump supporters on Wall Street or in Washington. The people inside a well-off bubble can’t read the political mood at all — because they have no idea how people outside that world feel. As populism becomes stronger and stronger, and as revolts against elites grow in force, the markets need to get better a handle on that. They need to understand that a lot of their fellow countrymen don’t live as comfortably as they do, and don’t have the same kind of opportunities.”

“Many are struggling to get by on minimum wages and facing intense competition for their jobs from migrants who will work for less. If they don’t start to understand that, they will keep getting blind sided — and will end up losing fortunes in the process.”