Monday, December 26, 2016

MacroBusiness Censors Comments At Odds With Narrative

The comments section at MacroBusiness, once a lively space for robust economic discussion, now often acts as little more than an echo chamber.

If the response from readers is strong enough in disagreement with the site authors, then those commenting are belittled and ignored (as I wrote in MacroBusiness Persists with War on Cash in Australia). If there is an alternative view or statistics put forward which don't fit the MacroBusiness narrative, then they are ignored, name calling begins or in some cases the comments are edited or deleted altogether.

The most recent example of the latter was in the comments section of their recently released report 'Can the great “can kick” save Australia?' (paid subscriber only content). Basically the report amalgamates a range of charts and narrative which supports an outlook that several dark clouds on the horizon (end of car manufacturing, slow down in construction and mining, etc) will converge in a short space of time and crater Australia's economy. They have been writing to this script for a number of years now, slowly pushing out the timing as unexpected economic circumstances have impacted their predictions.

The report was released late Christmas Eve and I happened to be up at the time. After reading their report and having seen some statistics on manufacturing employment at Pete Wargent's blog around the same time, I decided to post these numbers under the report:

Click Image to Enlarge

The report posited that there is basically no hope that these converging economic headwinds might be offset by some other factor which hasn't been considered. I was simply suggesting that if the Australian Dollar is smashed to 50c or lower (against the USD), as has been predicted on MacroBusiness, then perhaps a resurgence in Australian manufacturing could be one positive factor to keep an eye on:

Click Image to Enlarge

My comment was met with a ridiculous level of hostility (particularly from David Llewellyn-Smith):

My original comment (first screenshot above) was later deleted along with a number of replies.

It's a real shame that the editors / owners of MacroBusiness feel the need to use personal insults and name calling to push their agenda. It's also ironic that they attack others for 'selective analysis' while censoring current or potential future positive economic developments (that they've ignored in their own analysis) from being posted in the comment section of their site.

Note: A number of my comments have been edited and/or deleted recently on MacroBusiness. To date I have only noticed edits which remove part of the content rather than add to it (this can still distort context). Be skeptical of my comments there if something looks amiss or I don't respond to your replies. You can always reach out via Twitter or email.


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Sunday, December 18, 2016

MacroBusiness Persists with War on Cash in Australia

I'm a regular reader, subscriber and intermittent commenter at MacroBusiness (less frequently since my comments started getting trapped in their spam filter or outright deleted when disagreed with). They often produce well thought out arguments on finance and economic topics, which aren't being covered adequately by the mainstream media.

However, these quality pieces containing mostly original content are interwoven with myopic 'filler' articles which often appear rushed, copy and pasting swathes of text from other sources, adding a few lines of comment and then posted to the site, acting as an aggregator of news. One such example recently had blogger Leith van Onselen writing about the elimination of large denomination bank notes, it ended on this note:
"Personally I believe Australia should phase-out both $50 and $100 notes. We are turning into a cashless society anyway, so phrasing-out these bills wouldn’t create much of a burden to the ordinary law-abiding person."
The article included a quote from UBS analyst Jonathan Mott, "Removing large denomination notes in Australia would be good for the economy and good for the banks" and this corker from Peter Martin, "Phasing out high denomination notes would be painless, for those of us with nothing to hide" (eerily similar to a quote often attributed to Nazi propagandist, Joseph Goebbels).

The post on MacroBusiness generated hundreds of comments from readers who disagreed with the blogger. Many of them putting forward solid arguments against his conclusions, which included the following:
“..legalising all drugs would do much more to stamp out organised crime than removing large bills.”

“I don’t see why a digital record of every transaction I make should be kept and intercepted and stored by an all seeing government. There are some cases where cash makes sense and where you don’t necessarily want certain individuals to know what you’re buying, when and why. Not all of it is illegal.”

“How are banks held accountable in your cashless society? If banks (let’s say all of them), take undue risks, how is a depositor to “opt out”?”

“Let’s make it so no small market can exist. We can’t have farmers growing good food and selling it straight to people who want it. We MUST force everyone into the big supermarkets. Let’s make it so when all these mad elitist bastards want negative nominal IR’s there is no way to avoid their lunatic scheme for the world.”

“Moving to a cashless economy presently means that you must use a bank as an intermediate. The banks are private corporations that are so powerful they can’t be investigated.”

“..removing 50’s and 100’s has no impact on the black economy. It just becomes an inconvenience for everyone else.”

“We can’t trust the banks to give us financial advice, and we need a Royal Commission into them just to try and get them honest (unlikely to happen), but it’s okay to eliminate high-denomination notes and keep that money in banks instead?”

“..If we real see yields on bank deposits head to/below zero and stay there…….why would you keep your money in a bank in that environment”

“The problem with non cash transactions is the simply ridiculous amount of information (data) that’s being collected (and permanently stored) about individuals and what they buy, when and where. Big data is the corporate gold mine that industry is just starting to really use, most governments are still in the clueless category but they’re learning quick AND they are being sold different service packets by big-database owners. So it’s not simply about the government storing purchase information information about you tomorrows big data is a global corporation and provides a 100% clear picture of each and every individuals life, who they associate with and when and where this happens. Transactions are the glue that ties it all together, the purchase that links you personally with all the available data.”

“China only has 100 RMB notes (about $20 AUD). It didn’t stop tax evasion. It didn’t stop money laundering. It didn’t stop drug dealing’. Of course, having high denominations will make it easier, but to say all of this will magically disappear when the $100 is phased out is wrong.”
Eliminating cash eliminates the option of using cash to protect oneself in various difficult circumstances – some legal, some quasi-legal and some no doubt illegal…. but all *ethical*. The most obvious one is trying to survive when your government falsely believes you are a criminal. This happens all too often now and is probably only more likely in future. Removing cash without providing an alternative for people who might face these challenges is a VERY F*CKING BIG DEAL.
Leith's response in the comments included praising India for their recent demonetisation of "large" denomination notes (value of which are in the vicinity of A$10-20), calling those who disagreed with him tin foil hatters, suggesting that removal of the $100 note would "certainly interrupt the black economy" and finally bowing out of the comments without addressing many of the valid arguments raised by his readers.

I had considered writing this post after this first article, but thought I would give Leith the benefit of the doubt, perhaps his brain fart would not be repeated and he would not broach the subject again. I was wrong. In the last week Leith published a follow up article supporting comments from Kelly O’Dwyer (oft referred to as Kelly O'Liar in MacroBusiness headlines when she says something they don't agree with), vilifying the $100 note. Leith failed to address any of the reasoned comments which followed his last article.

The article generated more comments worthy of consideration, which included the below:
"What on earth is wrong with people holding cash if they choose to? As many have noted – criminals will readily find some other way of settling their transactions. Opposition to cash usually boils down to the latest efforts by the private banks and their minion neoliberal cheerleaders wishing to extend the already virtual private monopoly over money creation to a complete monopoly."

"I’m still in Vietnam at present and took cash with me to exchange while here for spending money. Every money exchanger I have come across has $100 notes, I only brought $50 notes as I withdrew them from the ATM. How many other money exchangers and foreign banks have pools of Aussie $100 for exchange purposes across the world? Maybe instead of blaming criminals they should be considering this?"
The second comment in particular makes a lot of sense and explains one reason we may be seeing an increase in demand for high denomination notes, for tourists traveling to our country (in the 12 months to October 2016, the annual number of arrivals increased by 11.1% relative to the corresponding period of the prior year):

A recent RBA Bulletin (The Future of Cash) points to similar reasoning: with major cash industry participants indicates that increases in overseas demand are a fairly usual occurrence when the Australian dollar depreciates. Part of this demand is likely to stem from the increased attractiveness of Australia as a destination for tourism and education, with both of these groups of visitors tending to be large users of cash.
The bulletin highlights that due to the anonymous and untraceable form of cash, it is impossible to calculate how frequently cash is used in facilitating illegal activities:
A potential source of currency demand that has attracted international attention recently is the use of cash, particularly high-denomination banknotes, to avoid reporting income to the authorities, or to finance illicit activities. Cash may be valued by those engaged in such activities because it is anonymous and untraceable. By definition, however, this also means that it is not possible to assess the demand for cash for these purposes accurately.
However, it does highlight that phasing out the $100 note is unlikely to be disruptive to criminal elements:
As noted, it is not possible to estimate the extent to which cash, or any particular banknote denomination, is used in illegal activities. However, liaison with AUSTRAC (Australian Transaction Reports and Analysis Centre) and the Australian Crime Commission suggests that it is the $50 denomination – rather than the $100 – that tends to be preferred by criminal elements because of its ubiquitous use in legitimate transactions. This suggests that to the extent that the $100 banknote is being used for nefarious purposes, any phase-out may not be particularly disruptive to those engaged in such activities.
This directly contradicts Leith's claim that getting rid of $100 notes would "certainly interrupt the black economy".

And if you thought about it rationally, a lot of the transactions occurring to avoid tax (e.g. tradies performing 'cashies') or buy illegal goods would continue unimpeded using smaller notes as the transaction would typically be only a small handful of notes regardless of whether using $50s or $100s.

The RBA highlights there are many legitimate uses for cash:
Demand for cash in the economy stems from its roles as a means of payment and a store of value.

As a means of payment, cash has a number of attributes that may be valued by end users.

It has near-universal acceptance, facilitates simultaneous exchange and instantaneous settlement, is convenient for person-to-person payments and can still be used at times when electronic payment methods are unavailable due to internet or electricity outages.

Cash transactions are also anonymous and, with low rates of counterfeiting in Australia, fraud may be less of a concern than when using alternative payments.

Cash can also be used as a store of value and, for this purpose, its attributes come to the fore in times of economic/financial uncertainty. In particular, in circumstances in which the viability of banks is under question – as was the case in many countries during the 2008–09 financial crisis – cash may be considered a superior store of value to money held in the form of bank deposits. That is, claims on the central bank are preferred to claims on a commercial bank.
And let's face it, a move to reduce large denominations is really a nudge toward a cashless society, which would have it's own problems as recently highlighted by the BIS:
There are academics and politicians advocating the abolition of cash. What do you think of that?

Negative nominal interest rates, especially if persistent, are already problematic. Quite apart from the problems they generate for the financial system, they can be perceived as a desperate measure, paradoxically undermining confidence. Getting rid of cash would take all this one big step further, as it would signal that there is no limit to how far into negative territory nominal interest rates could be pushed. That would risk undermining the very essence of our monetary economy. It would be playing with fire. Also, it would be quite a challenge for communication, even in simply economic terms. It would be like saying: "We want to abolish cash in order to tax you with lower negative rates in order to - tax you even more in the future."
All things considered phasing out $100 (or large denomination) notes would be a pretty awful policy direction for Australia to take. It would:
  • Make it more difficult to keep spending private (from government / corporations / banks)
  • Limit options when trying to protect oneself from risky banks (ironically something MacroBusiness highlights often)
  • Inconvenience those needing to use cash regularly in transactions, a majority of which would be conducted legally.
And all despite lack of evidence or reasoned argument that doing so would reduce the so called "black economy".

The team at MacroBusiness need to think this one through a little better.


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Sunday, November 6, 2016

Perth Mint Dragon and Phoenix 2017 1oz Silver Coin

I have another coin recommendation for readers' consideration. That is the: 

Perth Mint Dragon and Phoenix 2017 1oz Silver Bullion Coin


I posted a thread about this coin a number of days ago on Silver Stackers to get some market feedback as I thought the coin had a lot of potential. With a mintage of only 50,000 and only 5,000 of those being sold directly from Australia, it reminded me a great deal of the 2014 Wedge-Tailed Silver Eagle Coin I had recommended on this site a couple of years ago (which has increased in value substantially despite spot price having moved little since).

Interest was strong with a number of members expressing they would like to purchase 100 or more coins, so I don't expect the 5,000 being sold through Australian distributors of the coin to last long.

The Perth Mint gave an indication on their blog that it is a 'one off' however I was contacted by the company who commissioned the coin (LPM) and they advised to expect different coin 'types' with the same design, such as a high relief and/or gold version. The coin was conceptualised and designed over two years before release. Design approvals for a 2018 coin are in the pipeline, meaning this is intended as the first coin in a series (which in my view adds to it's collectability), described by the LPM contact as being 'Chinese based with international appeal'.

Dragon and phoenix have been represented together on a number of coins in the past. When I asked in the Silver Stackers thread about the significance / symbolism I received the following response from one member:
In China, dragon and phoenix are also symbols for marriage harmony.

Traditionally, the groom wears a red suit with dragon pattern on it, and the bride wears a red dress with phoenix pattern.

Dragon is also the symbol of the Emperor and phoenix is the symbol of his wife being the Queen.
Perth Mint said the following on their blog:
The dragon has supreme status in Chinese mythology as the greatest divine force on Earth. The Phoenix is regarded as an immortal bird whose rare appearance foreshadows harmony at the ascent to the throne of a new emperor.

In Feng Shui, the dragon and phoenix are perfect matches for one another. The phoenix is ‘yin’ while the dragon is ‘yang’ in the Chinese philosophical account of natural balance and interdependence. Their portrayal together is a widely recognized symbol of everlasting love.
The coin designer was Tom Vaughan who also designed the 2014 Year of the Horse Gold and Silver Coins for Perth Mint and the 2017 Year of the Rooster Silver Coin (along with many others). In my opinion the coin design looks great, though I wonder whether it would have looked better with the creatures head to tail, instead of head to head and also perhaps smaller on the coin, so the design looks less 'busy'. Also I'm not a fan of the 'cartoon like' eyes on the dragon. Nit picking aside, I am sold and think it is worth buying if you can purchase for less than $10-11 over spot (and have bought some myself).

The phoenix and dragon have been represented on a number of Chinese coins and medals in the past including this coin from 1990:

And this recent beauty from the Nanjing Mint (photo via Chinese Medals):

This medal is very nice with a fantastic design and high relief finish, however is minted in very low numbers and is much more expensive and difficult to source, so I see it belonging to a different market to the Perth Mint coin.

The Perth Mint Dragon and Phoenix 2017 1oz Silver Coins can be purchased (at present) from:


I understand that Modern Coin Mart is the exclusive distributor in the North American Market, so you can probably expect to see these appearing soon in slabbed / graded form.

Those who follow my bullion coin recommendations will see they are often a hot product which sell out quickly, so best to move fast and avoid disappointment if you have an interest in purchasing for release prices. For those who missed out on the Monkey King Coin which I recommended previously (they have since sold out at Perth Bullion and APMEX), these can still be purchased at LPM for a great price (currently 'on sale').


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Saturday, October 8, 2016

Monkey King: A Perth Mint Year of the Monkey Novelty

Earlier this year I recommended a couple of silver bullion coins (for those interested in buying silver), those being the 1oz Perth Mint Silver Koala Coin 2016 and the 1oz Perth Mint Silver Kangaroo Coin 2015. This post will be a brief coverage of a third (and one that I have purchased personally).

I have covered the reasons for my preference toward Perth Mint silver bullion coins many times in the past, they have a (relatively) low mintage (compared with many other silver bullion coins), are minted with aesthetically pleasing designs, often come individually capsuled with a quality finish and while priced as bullion coins on release, often attract additional premiums in the future.

I haven't purchased any of the recent lunar bullion coins from Perth Mint in bulk (the last was the horse). While the designs for the goat, monkey and recently released rooster are fine (realistic depictions), they are somewhat less interesting animals than those earlier in the series such as the dragon, snake and horse, which in my view makes them less attractive to buyers. From time to time Perth Mint releases additional lunar coins during the year, which don't match the standard lineup. Examples have included a coloured gold dragon coin, the design of which differed to the standard release and privy coins (of which I'm not a fan). Another which I only recently discovered is the 'Monkey King', produced as a one-off, but falls within the 'Lunar / Year of the Monkey' category of coins.

The Monkey King silver coin was struck in 1/2oz, 1oz, 2oz, 5oz, 10oz, and kilo sizes. However, only the 1oz size was released at retail by The Perth Mint in presentation packaging (now unavailable on the website). The other coins were manufactured on behalf of Perth Mint's international wholesale clients.

Maximum mintages for the Monkey King silver coin are as follows (though final sales may end up lower):

1/2oz = 100,000
1oz = 100,000
2oz = 10,000
5oz = 10,000
10oz = 5,000
1 kilo = 5,000.

The Perth Mint housed these coins in capsules for delivery to wholesale customers (e.g. Baoquan) who were responsible for any additional presentation packaging (as pictured in this thread on Silver Stackers).

I purchased a box (100) of these coins, they are available from Perth Bullion and APMEX (Perth Bullion appear to be sold out now). These were the cheapest prices I could find, there are other dealers selling them for substantially higher prices. At the time of writing there are only 113 available from APMEX and 255 at Perth Bullion (was 355 earlier this morning). I expect that once they are sold at dealers the premium for these coins will begin to rise.

The one negative aspect is that this coin doesn't naturally fall into a standard series that may see collectors trying to collect an 'entire set' in the same way as the standard silver lunar coins, koalas, kookaburras and kangaroos. However I suspect the novelty of the coin and Chinese origin of the design may see them sought out by collectors and investors alike, increasing their value over purchase price. It was a little more over spot than I would normally like to pay (A$11, which is almost 50% more at current prices), however think this purchase will turn out ok and took an opportunity to 'buy the dip' with the recent pullback in the price of silver.


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Tuesday, September 20, 2016

Gold Exposure For Superannuation Without An SMSF

I have written on gold exposure in superannuation without the need for a Self Managed Super Fund (SMSF) in past articles here, for example some funds allow direct equity investment. IOOF Employer Super (previously know as Spectrum Super) is one such fund and has a fairly extensive list of direct shares and securities (including gold miners and PMGOLD).

As mentioned in a recent post I have added gold related positions to my super the last couple of years with Silver Lake Resources (SLR), Medusa Mining (MML), Norther Star Resources (NST) and since then Regis Resources Limited (RRL), but not everyone wants to expose themselves to the risks associated with miners. Not everyone wants a level of involvement in their super investments such as that which is required to pick miners or work out what allocation they should have to gold.

What is a conservative allocation to gold in your superannuation fund anyway? 5%? 10%? How does 25% sound...
"The Permanent Portfolio is an investment strategy developed by Harry Browne in the 1970s that advocates splitting your money equally across four assets – cash, gold, equities and bonds – and rebalancing back to that split whenever they diverge too much. Mainstream financial planners would probably balk at a 5% allocation to gold, let alone 25%, but how does such a strategy perform in reality and could you get your financial planner to consider it?

For Australian investors hard numbers on the Permanent Portfolio strategy can be found by looking at the Cor Capital Fund, run by Davin Hood. His latest Quarterly Report is out and his fund’s performance, as summarised in the chart below, I think justifies giving the strategy some consideration."
The above written by Bron Suchecki in 2015 was paired with a chart which I have taken the liberty of updating for this article:

Click Chart to Enlarge
Bron continues:
"It is important to note that the blue line is the theoretical performance of the strategy before the fund started and the white line is its actual performance. What is clear from this chart is the low volatility of the fund’s performance – yes, you don’t get big gains (as the Australian Equities line shows in 2006 & 2007) but nor do you get the big losses (as happened in 2008). For those looking for a consistent and safe investment plan for the long run, this chart shows that the strategy has merit.

Part of the performance comes from not just the choice of asset classes to allocate to but the disciplined rebalancing between those asset classes. Unless you are willing to hold all of these asset classes, and sell those which are up and buy those which are low, the strategy probably will not work as indicated.

Unfortunately, if you are looking for someone else to be that disciplined investor for you, Cor Capital is currently limited to sophisticated/wholesale investors, which means, for example, an initial investment of $500,000."
It has been highlighted to me that this fund is now far more accessible for Australian investors, particularly for those with an interest to buy in through super. You can allocate as little as $1000 to the Cor Capital Fund if you have at least a $5000 super account balance.

As briefly described on the ABC Bullion website:

1). Open a brightday Complete Super Account
2). Transfer some or all of your Superannuation to brightday
3). Invest in the Cor Capital Fund

They have a more in depth brochure available here.

On seeing this, my first thought was to take a look through the Cor Capital Fund PDS (cynical I know). A number of risks associated with gold were listed (price risk, government risk e.g. change in laws), but interestingly saw no mention of custodian risk and the only mention of how the gold was held, "Physical gold is held in professional bullion vaults on our behalf."

I sent an email to enquire how the gold is stored and received a prompt reply from the Portfolio Manager (Davin Hood): 
"The Fund precious metals allocation (25% approx.) is currently 99.8% in physical gold and we keep about half in Perth at the Mint and half in Sydney at Custodian Vaults (ABC)."
I do like that the fund has a conservative approach even with the storage of it's gold, diversifying across the two companies and locations.

I don't have any intention in the near future to move a portion of my super into this fund, however it looks like a reasonable option to consider for those who want to have exposure to gold as part of a diversified portfolio in their super.


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Thursday, August 4, 2016

Australian House Prices in Gold / Silver Ounces (2016)

Every 12 months I have been updating the data I keep on Australian house prices measured in ounces of Gold and Silver. Here is the latest update which takes us through to June 2016 (inclusive).

Data for house prices is via Residex (median house price indices).

Data for Gold and Silver prices is via Perth Mint (bid average AUD).

Key Figures:

Adelaide (Ounces to buy a house) 
Housing Peak Against Gold (February 2005): 501oz Gold
Latest Figures (June 2016): 258oz Gold, 19,332oz Silver
Based on Current Spot Price: 249oz Gold, 16,389oz Silver

Brisbane (Ounces to buy a house)
Precious Metals Peak (January 1980): 62oz Gold, 1091oz Silver
Housing Peak Against Gold (February 2004): 600oz Gold
Latest Figures (June 2016): 296oz Gold, 22,237oz Silver
Based on Current Spot Price: 286oz Gold, 18,852oz Silver

Melbourne (Ounces to buy a house)
Precious Metals Peak (January 1980): 67oz Gold, 1181oz Silver
Housing Peak Against Gold (February 2004): 661oz Gold
Latest Figures (June 2016): 433oz Gold, 32,460oz Silver
Based on Current Spot Price: 417oz Gold, 27,519oz Silver 

Perth (Ounces to buy a house)
Housing Peak Against Gold (July 2007): 642oz Gold
Latest Figures (June 2016): 295oz Gold, 22,128oz Silver
Based on Current Spot Price: 285oz Gold, 18,759oz Silver

Sydney (Ounces to buy a house)
Precious Metals Peak (January 1980): 103oz Gold, 1811oz Silver
Housing Peak Against Gold (February 2004): 1100oz Gold
Latest Figures (June 2016): 625oz Gold, 46,876oz Silver
Based on Current Spot Price: 603oz Gold, 39,741oz Silver

(Spot Price ratio calculated on A$27/oz for Silver, A$1780/oz for Gold)

Gold and Silver (monthly data) outperformed all capital city prices since the last update.

My position remains the same as it has been since 2014:
"Over the same period (next 3-5 years) I expect rising precious metal prices and a lower Australian Dollar, so do think investors stacking ounces for the eventual purchase of a house will be rewarded (even those in Sydney). Only time will tell if I'm right." 
That said I purchased my own home again in the past 12 months as recently covered on the site:
"But my advice would be not to live your whole life waiting for, planning for, or even hoping for, the next "big crash" (either of the financial system or housing market, arguably the two are joined at the hip in many modern economies).

That might sound odd coming from someone who's analysis, speculation and investments led them to buy a lot of precious metals and write under a handle like 'Bullion Baron'. Some readers may picture me as a nutter with a bunker full of long life food, guns and Gold, just waiting to live out the financial apocalypse 'doomsday prepper' style, but the reality is far less intense.

I'm not saying you shouldn't be prepared for and insure yourself against financial catastrophe, but once you have done so, go out and live a little. The last significant purchase of Gold I made was in late 2014 (after accumulating in the dips periodically in the 6 years prior). I have recently felt comfortable buying a home again in my local property market, Adelaide."
Here are the charts (click any to enlarge).


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