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Taking the market’s temperature

Bonds yieldsShelby Davis, one of the greatest value investors you’ve probably never heard of, who in 47 years turned $50,000 into a $900 million fortune, said: “You make your money during bear markets – you just don’t know it at the time”.
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In my experience the inverse is also true. We make our biggest mistakes in bull markets but we don’t know it until the market turns ugly.

So with the All Ordinaries Accumulation Index up 111 per cent since the lows in March 2009, let’s use Howard Marks’ Poor Man’s Guide to Market Assessment discussed in his book The Most Important Thing, to see what action we should be taking.

Poor Man’s Guide To Market Assessment

(1) Economy: vibrant/sluggish. Australia’s economic growth is tipped to be slightly below average over the next few years but we’ve ticked “vibrant” as the economy is performing relatively well, even though it may not feel like it.

China is still growing strongly thanks to renewed stimulus, official unemployment isn’t far off record lows and low interest rates are reducing debt repayments.

(2) Outlook: positive/negative. Bill Smead of US funds manager Smead Capital Management says: “In the latest week (October 21-25), individual investors, as measured by the American Association of Individual Investors and investment newsletter writers, as measured by investors’ intelligence, were bullish by nearly a 3:1 ratio to bearish”.

(3) Lenders: eager/reticent. In March last year interest rate comparison website RateCity warned that nearly 70 per cent of lenders were accepting mortgage deposits as low as 5 per cent. The competition has only heated up since then.

(4) Capital: loose/tight – see (3).

(5) Terms: easy/restrictive – see (3).

(6) Interest rates: low/high. Rates are at record lows, which is usually not a good sign for shareholder returns.

(7) Spreads: narrow/wide. Junk bond yields have fallen to record lows below just 5 per cent (see chart).

While defaults are very low, there’s no margin of safety if bankruptcies or interest rates increase.

(8) Investors: optimistic/pessimistic; sanguine/distressed; eager to buy/ not interested in buying – see (2).

(9) Asset Owners: happy to hold/rushing for the exits. Not only are passive owners happy to hold, but the initial public offering market has sprung to life as private equity groups and entrepreneurs take advantage of investors prepared to back companies with short histories, leveraged balance sheets and few competitive advantages.

(10) Sellers: few/many – see (9).

(11) Markets: crowded/starved for attention. Many individual investors have shunned the market since the global financial crisis, with 38 per cent of Australians owning shares. Of those, 34 per cent are direct investors, down from a peak of 44 per cent in 2004.

Things could be changing though. Perpetual recently recorded its first inflows for a while, and investors fed up with low interest rates may be jumping back in to the sharemarket to avoid missing out on further gains.

Institutional investors are also increasing their weighting to stocks and we’ve heard that local small-cap managers are winning mandates, which is a sure sign of bullishness.

(12) Funds: hard to gain entry/open to anyone. I chose “hard to gain entry” as hedge fund managers Seth Klarman and Dan Loeb are returning funds to their clients due to a lack of attractive investing opportunities. I’d weight their actions over just about anyone else’s, given their remarkable records with large sums.

(13) Recent performance: strong/weak. The All Ordinaries Accumulation Index is up 36.4 per cent over the past two years.

(14) Asset Prices: high/low. From art to stocks, asset prices across the board are being inflated by low interest rates.

(15) Prospective returns: low/high. In an article republished in the US with the headlines “Market valuations are obscene” and “The stockmarket will probably crash”, US fund manager John Hussman recently calculated that “virtually every reliable measure of market valuation we observe is now within the highest 1 per cent of historical observations prior to the late 1990s bubble.”

In Australia, Perpetual reportedly calculated that the price-to-book ratios of the big four banks have breached levels from the tech boom and before the global financial crisis.

(16) Risk: high/low. Marks recounted earlier in the year that in his career the list of risks had never been so long.

(17) Popular qualities: aggressiveness/caution and discipline. I picked aggressiveness as margin loans have been increasing despite remaining well below pre-financial crisis levels. With the amount of money flowing into property, many individual investors scarred by the financial crisis may end up swapping one bubble for another.

More importantly, though, institutions have been taking larger and larger risks as interest rates have fallen, particularly in the fixed-income markets. This could be another bubble waiting to pop.

What to do

Marks advises that for “for your performance to diverge from the norm, your expectations – and thus your portfolio – have to diverge from the norm, and you have to be more right than the consensus.”

First, that means you need to avoid highly valued, popular stocks. The best margin of safety is a cheap valuation and, right now, just about every high-quality, high dividend-paying stock is achieving record highs with regard to price and valuation.

Second, don’t lose your discipline and invest in poor quality stocks you wouldn’t normally consider. However, keep an eye open for average stocks priced cheaply because of short-term quality concerns.

Caltex is a good example of an ugly duckling that should look more like a swan in a few years, as its retail fuel business grows. Profits and cash flow should also become more predictable once the Kurnell refinery closes.

Third, control your portfolio limits. Don’t risk your wealth by getting overexposed to particular stocks or sectors.

Fourth, don’t get sucked in to chasing stocks as they climb, and let valuation and a decent margin of safety temper any greedy thoughts.

The time to be aggressive was in 2009 and 2011. Now’s the time to ensure you hang on to your profits.

Fifth, don’t be afraid to build your cash holdings. Billionaire investor David Tepper recently told a class of graduates that even in a world of derivatives and complex securities, cash was the best hedge against uncertainty.

His fund is 40 per cent in cash, which has never been the case before, and plenty of other respected value investors have 30-40 per cent cash holdings and are returning capital to clients.

Sixth, consider taking advantage of the high Australian dollar to invest overseas. As well as opening up more opportunities, this will reduce your dependence on the local economy and, by extension, Chinese growth.

Finally, maintain your focus on value. There are still opportunities but they may not be in the areas you normally expect to find them. Despite the extreme conditions, we’re still finding stocks that combine defensive characteristics and attractive valuations.

This article contains general investment advice only (under AFSL 282288).

Nathan Bell is research director of Intelligent Investor Share Advisor.  You can unlock all of Share Advisor’s stock research and buy recommendations by taking out a 15-day free membership.

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Ten shareholders to vote on billionaire-backed loan

Rescue plan: Lachlan Murdoch and James Packer join billionaire Bruce Gordon in a plan to guarantee a “covenant lite” loan for the Ten Network. Photo: Rob HomerTen risks breaching its debt covenants if shareholders do not approve a deal that could hand security over all of the media group’s assets to three of its billionaire shareholders, James Packer, Lachlan Murdoch and Bruce Gordon, in return for the three guaranteeing its new $200 million loan.
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A covenant breach could lead to another highly dilutive capital raising if the “covenant lite” loan is not approved at its December 18 shareholders meeting.

“Given current operating conditions and recent performance, there is no guarantee that Ten will be able to meet covenants,” the company said in its notice of meeting, which was released on Monday.

In the company’s annual review, which was also published on Monday, Ten chairman Lachlan Murdoch said: “The outlook for the media sector remains challenging”. Advertising bookings remained short and the outlook for advertising was “uncertain”.

The media group’s independent expert, Deloitte, said the transaction – which could cost the company up to $43.8 million in interest costs to its lender, Commonwealth Bank, and fees to the guarantors – was fair and reasonable to shareholders not involved in the transaction.

Most of the money would go to the billionaire guarantors, who will receive a minimum 3.5 per cent fee for the life of the four-year loan.

The fee may rise if the company’s debt breaches certain ratios but could cease earlier if earnings improve to the point that the company can arrange a less onerous loan.

The fee is also convertible into shares in Ten – at the option of the guarantors when the loan ends – with a strike price based on the average share price in the 10 days leading up to the company shareholders meeting next month.

Ten has said Australia’s richest person, Gina Rinehart, has indicated she will vote her 9.9 per cent stake in approval of the transaction, which she declined to be involved with.

The guarantor shareholders will not be able to vote their combined 32.8 per cent stake on the proposed transaction.

The transaction will free Ten of loan covenants that are preventing it from investing in programming at a time when its ratings are at record lows.

“Without these covenants, Ten will have greater capacity to pursue its programming and turnaround strategies during this period of depressed and potentially volatile earnings,” said David Gordon, who heads the independent board committee that dealt with the directors providing the guarantees.

Commonwealth Bank will take security over Ten’s assets and earnings in return for its “covenant lite” loan, but if Ten is in breach of its loans and the guarantors are forced to act, the security over Ten’s assets passes to these guarantor shareholders.

“This may lead to the shareholder guarantors having the right to enforce that security and appoint a receiver which may conduct a sale of Ten group assets in which the shareholder guarantors may participate,” the company said in the explanatory notes to the meeting.

This week News Corp denied reports that its chairman, Rupert Murdoch, spoke with government “about the possibility of acquiring the Ten Network”.

At the meeting next month, shareholders are also being asked to approve the issue of up to 50 million shares to chief executive Hamish McLennan under its executive incentive share plan.

Ten’s shareholders will be asked to approve an incentive plan for Mr McLennan.

The long term incentive component, worth up to $1.48 million a year, will be awarded to him each year in the form of loan-funded shares in Ten with the value of these options based on the share price on issue and “potential volatility of the company’s shares over the life of the loan”.

Any dividend will be paid to Ten as interest on the loan, which is effectively non-recourse to Mr McLennan. Ten is responsible for the debt if the incentive shares are below the market price.

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Game of Thrones author George R.R. Martin rules out sharing Westeros

Game of Thrones’ author George R.R. Martin speaking in Brisbane, with actor Jerome Flynn, who plays Bronn. Photo: Renee MelidesGeorge R.R. Martin, the author of the epic bestselling novel series A Song of Ice and Fire, which has been adapted for television as Game of Thrones, has vowed that he will never let anyone else write a story set in the universe he created.
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“Not while I’m alive,” Martin says. “But eventually I will not be alive because Valar Morghulis – all men must men die.”

Martin has followed up comments in Brisbane at the weekend, where he described fan fiction as lazy, by ruling out the possibility of allowing other authors to write licensed works set in the lands described in the Song of Ice and Fire series.

Yet he seems resigned to the notion that Westeros will not die with him.

“I don’t think my wife, if she survives me, will allow that either. But one thing that history has shown us is eventually these literary rights pass to grandchildren or collateral descendents, or people who didn’t actually know the writer and don’t care about his wishes. It’s just a cash cow to them.

“And then we get abominations to my mind like Scarlett, the Gone with the Wind sequel.”

Martin himself has written three novellas, the Dunk and Egg series, which are set in the same world, 100 years before the events of A Song of Ice and Fire. However, he will not license other authors in the manner that the estates of Ian Fleming (James Bond) or Robert Ludlum (Jason Bourne) have done, or that George Lucas did with the Star Wars franchise.

“I’d hate to see that actually,” said Martin. “I’ve always admired [J.R.R.] Tolkien and his immense influence on fantasy. [And] although I’ve never met the man, I admire Christopher Tolkien, his son, who has been the guardian of Tolkien’s estate who has never allowed that.

“I’m sure there are publishers waiting in the wings with giant bags of money just waiting for someone to say ‘yes, go ahead, let’s write Sauron Strikes Back’.

“I hope I never see Sauron Strikes Back written by some third rate writer who leaps at the opportunity.”

George R.R. Martin will appear at the Dymocks luncheon in Sydney on Tuesday, hosted by Giles Hardie. In Melbourne, Martin will appear at the Wheel Centre on Wednesday night and at the Dymocks luncheon on Thursday. Martin will attend the Supanova convention in Adelaide at the weekend.

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Podsiadly ready for new start with Crows

James Podsiadly has a bit of a head start on his peers when it comes to any butterflies which might be associated with joining a new club at a more senior age than most recruits.
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Firstly, he’s done the football rounds over the years. Including his junior career, Adelaide becomes the seventh different club of any description for whom he’s played. And then there’s the matter of his deceptive birth certificate.

The former Geelong key forward might be 32, but in football years, has a profile a fair bit younger. Podsiadly didn’t even start playing the game seriously until the age of 17.

And as far as the wear and tear of AFL-standard football goes, there’s just four season’s worth. Compare that, say, with the similarly-aged but recently-retired St Kilda veteran Jason Blake, for whom 2013 was his 14th.

“I’ve got to go against the trend,” he conceded on Monday after a first training run with Adelaide’s younger list players. “I know physically and mentally I’m right, but just learning the game is where I think I can improve and take my game forward.

“I don’t know what a 32-year-old footballer is supposed to feel like, but from what I’ve been told I don’t feel like that. I’m not here to fill spots or fill numbers, I’m hopefully here to make an impact.”

And early indications are that Podsiadly will have every chance to do that. One of the key factors in the demise of Adelaide in 2013 was its inability to score enough, the Crows falling from a ranking of second for points scored in their top-four finish in 2012 to only ninth last season.

The hole left by the departure of Kurt Tippett was never adequately filled, the subsequent loss of Taylor Walker early in the season to a serious knee injury proving a fatal blow. And with Walker’s return date still uncertain and another key forward in Josh Jenkins recovering from ankle surgery, Podsiadly may end up playing much more than the 20-25 games coach Brenton Sanderson said he would over the duration of his two-year contract.

“The club could have a whole heap of injuries and if you’re not prepared to play 25 games after a pre-season you’re almost letting the team down,” Podsiadly said. “If it’s five, if it’s 10, if it’s 25 it doesn’t really affect me.

“I definitely wouldn’t have put my hand up and asked a club to give me a contract if I didn’t think I could play a full season. When the start of the season comes we play the NAB Challenge games, we’ll see where the side’s at and where my body’s at.”

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Online poll pans giant hat pergola

Crass, tacky, and an unnecessary waste of ratepayers’ money.
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A proposal to build a hat-shaped pergola to honour Orange’s poet Banjo Paterson has been almost universally slammed by Central Western Daily readers.

As of Monday afternoon, 87.8 per cent of 303 respondents in an online poll said Orange City Council should abandon the hat pergola.

Just 12.2 per cent wanted the council to build the $30,000, five-metre-high monument.

Many of the reader comments objected to ratepayer funds being directed to the Paterson tribute, with several saying the money would be better spent on road repairs or efforts to improve employment prospects in Orange since Electrolux announced its closure.

But the man behind the pergola idea, councillor Chris Gryllis, is unswayed by the criticism and believes it could even be a selling point for the would-be tourist attraction.

“Quite often controversial things bring attention,” he said.

“If it becomes controversial, the more publicity we get out of it. We might have it on the national news.”

Cr Gryllis said people were free to express their opinions opposing the pergola, but he had received an encouraging response from ratepayers supporting the project.

“Beauty is in the eye of the beholder,” he said.

“It will serve a purpose and create an undercover area for people to enjoy a meal and it won’t be out of place. It won’t make anyone broke.”

The few favourable reader comments said the giant hat would put Orange on the map and could bring thousands of tourists to town.

Cr Gryllis believes there is still time for the pergola to be up in time for the Paterson festival in February.

Members of the public have 28 days to have their say about the pergola before councillors make a final decision.

Footing the bill for Banjo’s birthday

If Orange City Council decides to honour Banjo Paterson with a $30,000 hat-shaped pergola, it will bring the total spend for the poet’s 150th birthday celebrations to $187,000.

And the money is well worth it to celebrate the one-off event, according to councillor Chris Gryllis.

So far the council has budgeted $20,000 to improve Banjo Paterson Park and $10,000 to design a life-sized bronze sculpture of the poet.

Taste Orange was given $5000 to manage February’s 10-day Banjo Paterson Festival and last week the council agreed to give $5000 to the Rotary Club of Orange towards the official opening of the restored Emmaville Cottage.

The estimated $90,000 for the bronze sculpture and $30,000 for the pergola has not been budgeted.

The council is also yet to allocate funds for $7000 extra needed for the cottage restoration and about $20,000 for its landscaping. Cr Gryllis said Paterson deserved more than one monument.

“These bits and pieces bring people to that area. I don’t think it’s a waste of money … it’s not extravagant and it’s not overkill,” he said.

FEDORA UP: Councillor Chris Gryllis and mayor John Davis want to construct a giant Akubra to commemorate Banjo Paterson

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Home is where the heartbreak is for GOMOs

Generic housing at Bella Vista housing development Photo: Louie Douvis On the hunt: The Reids have missed out on five places. Photo: Edwina Pickles
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It’s a phenomenon fast becoming known in the property industry as ”GOMO”: Grief Over Missing Out.

Prospective buyers who pin their hopes on a dream home and are outbid at auction by competitors are increasingly slumping into a state approaching clinical depression, experts say.

“Some people put an enormous emotional investment in a particular place and fall in love with it before they’ve been able to buy it,” said Amanda Gordon, a clinical psychologist and adjunct associate professor at the University of Canberra.

“They invest a lot of time, energy and money into the search, having reports done, organising the loan, imagining themselves living there and putting off other things as a result,” she said. ”Then, when they fail to buy it, they are disappointed, distressed and can despair that they’re ever going to get anything. It can be like being left at the altar, and there’s a real danger then that they can become depressed.”

The housing market continues to heat up, with a record 784 Sydney homes under the hammer on Saturday and a clearance rate above 80 per cent for 15 of the past 17 weekends.

Agi O’Hara, a visiting lecturer in psychology at the University of Sydney, said it goes much deeper than would-be young home-owners feeling they’re entitled to purchase the home they want; it’s about the ethos of home-ownership being under serious challenge.

“For generations, it’s been a long-held assumption that people will automatically become home-owners but now some people are for the first time realising they might never be able to achieve that,” she said.

“It’s awful. They see it as a personal failure and become clinically depressed.

“It’s not just the young, either. It’s also older people who believed they’d have a house by the time they were 40 and their lives would turn out so differently as a result. We’re seeing more mature people too for treatment who, without a house, are depressed and fear that when they stop working, they won’t be able to afford rent, and could be homeless.”

Tim Reid and his family know exactly what it feels like to be continually knocked back in efforts to buy a home. Since Easter they’ve been looking for a house on the lower north shore, with the search growing more desperate after they sold their two-bedroom semi in August. Mr Reid, his wife Martine and their sons, aged six and eight, are living with her parents while they continue to make offers on houses.

“We’ve tried to buy five houses so far, paying for full inspections on three, then were outbid on two at auctions, two others went on pre-auction offers and we lost out on the fifth in a private sale,” says Mr Reid, who’s now enlisted the help of McGrath Lane Cove agent Brent Courtney.

“It’s pretty demoralising and frustrating, especially as we’d always planned to be in a new home by Christmas and this will be the first time in 15 years we won’t be in our own home. My wife’s getting depressed about it.”

It’s a similar story for first-home buyers David Astwood and his partner Bianca Harris, who started off looking for a two-bedroom apartment in Paddington and, nine months later, have now spread their hunt all around the eastern suburbs.

“It can be very depressing,” says Mr Astwood, 33, an advertising executive.

“There’s a lot of emotional purchasing going on which pushes up the prices.”

Australian Property Monitors senior economist Andrew Wilson said it’s unlikely to improve much in the near future. He said the market from $750,000 to $2 million was very hot, with most properties selling 10-15 per cent above the reserve price.

“It’s a Hobson’s choice for them – they can wait but it might not get any easier and there might not be the choice later, either.”

LJ Hooker chief auctioneer Graeme Hennessy said he was seeing the same people at auctions getting outbid in a market that’s the hottest he’s witnessed.

“You can see they’re getting desperate, and often get emotionally over-heated and very disappointed. They walk away dejected and probably go outside for a hug and cry afterwards.”

It’s not simply increasing numbers of frustrated home-owners being hit by depression over the house that got away, says psychologist Meredith Fuller, from the Australian Psychological Society.

“Buying a new home is about the promise of a new life, moving on, realising your dreams and fantasy of how you see your life in the future. Losing out is about losing out on all of that, being stuck in limbo and seeing your dreams receding. We can see how that can cause depression.”

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Good news finally good news for US stocks

The US sharemarket has reversed its “good news is bad news” approach to economic data, at least for the moment, after a raft of improving figures raised hopes that the country was on a sustained path to recovery.
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Stocks rallied and the US dollar strengthened following a better-than-expected rise in jobs growth in October, with employers adding 204,000 new positions for the month. The October payrolls data came on the heels of third-quarter US GDP figures that showed growth had risen to 2.8 per cent on an annual basis, up from 2.5 per cent in the second quarter.

Financial markets have reacted negatively to positive signs of economic improvement in recent months, amid fears such figures could bring forward the US Federal Reserve’s plans to wind back its $US85-billion-a-month bond-buying program, which has boosted sharemarkets.

“It’s a departure from the ‘good news is bad news’ mentality that investors have had recently,” FXCM market analyst David de Ferranti said.

“[The data] is bullish for the global growth story, which is bullish for equities, and that’s one reason why we saw a big rally in the S&P500.”

The shift in sentiment could reflect optimism that there has been a fundamental improvement in the US economy, which would support earnings, JBWere executive director Mike Kendall said.

“[The jobs data] was so far in excess of what the market was looking for that I suspect that people thought that maybe the economy is moving forward on a fundamental basis. A lot of the previous reads – while the trend has been there – haven’t been as convincing,” he said.

With expectations increasing that a Fed tapering could come earlier than March 2014, all eyes are set to turn to Janet Yellen. Ms Yellen, the candidate appointed by the White House to succeed Fed chairman Ben Bernanke, will testify in the US on Thursday local time at her confirmation hearing.

“Every single word will be dissected. [Investors] will be looking for a view on [tapering] timing. Whether Yellen actually gives that remains to be seen. But it will be eagerly anticipated,” Mr Kendall said.

Looking ahead, Mr Kendall said the optimism could be sustained if earnings reports in the US and Australia, as well as Christmas trading figures, reflect the bullishness in equity markets.

“There’s been a swing in confidence in the Australian market and economy. All of that is suggesting that the sentiment is much more positive towards equities, and if we start to see it filter through to earnings – with everyone being very aggressive in managing their costs – we could see some nice profit spikes.”

Business confidence reached a new high in October, building on the lift in sentiment following the September federal election, Roy Morgan Research figures released on Monday showed.

The proportion of Australian businesses expecting a positive financial environment rose to 76.7 per cent, the highest since the survey was launched in December 2010.

“While sources such as the Reserve Bank appear to forecast the next 12 months to be particularly tough for Australian businesses, businesses themselves do not appear to share this pessimism,” Roy Morgan business research director Nigel Smith said.

“The retail, accommodation and food services and personal services industries, in particular, have their highest figures we have yet recorded coming into the Christmas season.”

At the same time, a report released by forecaster BIS Shrapnel on Monday said Australia was set to become a more mining-focused economy, not less, despite a peak in the resources investment boom.

The report said mining activity as a share of Australia’s GDP was set to increase from 18.7 per cent to 19.8 per cent.

“With respect to the mining boom, it’s probably fair to say that this is not the beginning of the end, but the end of the beginning,” BIS Shrapnel’s infrastructure and mining senior manager Adrian Hart said.

“Over the next five years, the strong boost from mining production, led by LNG and iron ore, will more than offset the economic negatives from falling mining investment which will flow through to construction and manufacturing.”

Even so, the boost to Australia’s growth would not be matched by a sharp increase in mining jobs, the report said, with resources firms expected to continue to keep a tight rein on costs as the Australian dollar remains at elevated levels and amid lower commodity prices.

“We expect that mining operations employment will rise only 11 per cent over the next five years, mainly in oil and gas and iron ore, whereas mining construction employment will slump 40 per cent,” Mr Hart said.

On Friday, the Reserve Bank said in its quarterly Statement on Monetary Policy that it expected a faster drop-off in mining investment than previously. The central bank lowered its forecasts for Australia’s growth in 2014 by 0.5 percentage points to 2 to 3 per cent.

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The plot against France

‘Time bomb’ in the heart of Europe? Photo: Louie DouvisOn Friday Standard & Poor’s, the bond-rating agency, downgraded France. The move made headlines, with many reports suggesting that France is in crisis. But markets yawned: French borrowing costs, which are near historic lows, barely budged.
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So what’s going on here? The answer is that S&P’s action needs to be seen in the context of the broader politics of fiscal austerity. And I do mean politics, not economics.

For the plot against France — I’m being a bit tongue in cheek here, but there really are a lot of people trying to bad-mouth the place — is one clear demonstration that in Europe, as in America, fiscal scolds don’t really care about deficits. Instead, they’re using debt fears to advance an ideological agenda. And France, which refuses to play along, has become the target of incessant negative propaganda.

Let me give you an idea of what we’re talking about. A year ago the magazine The Economist declared France “the time bomb at the heart of Europe,” with problems that could dwarf those of Greece, Spain, Portugal and Italy. In January 2013, CNN Money’s senior editor-at-large declared France in “free fall”, a nation “heading toward an economic Bastille.” Similar sentiments can be found all over economic newsletters.

Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties — who isn’t? — but in general performing as well as or better than most of its neighbours, with the admittedly big exception of Germany.

Recent French growth has been sluggish, but much better than that of, say, the Netherlands, which is still rated AAA. According to standard estimates, French workers were actually a bit more productive than their German counterparts a dozen years ago — and guess what, they still are.

Meanwhile, French fiscal prospects look distinctly non-alarming. The budget deficit has fallen sharply since 2010, and the International Monetary Fund expects the ratio of debt to GDP. to be roughly stable over the next five years.

What about the longer-run burden of an aging population? This is a problem in France, as it is in all wealthy nations. But France has a higher birthrate than most of Europe — in part because of government programs that encourage births and ease the lives of working mothers — so that its demographic projections are much better than those of its neighbours, Germany included.

Meanwhile, France’s remarkable health care system, which delivers high quality at low cost, is going to be a big fiscal advantage looking forward.

By the numbers, then, it’s hard to see why France deserves any particular opprobrium. So again, what’s going on?

Here’s a clue: Two months ago Olli Rehn, Europe’s commissioner for economic and monetary affairs — and one of the prime movers behind harsh austerity policies — dismissed France’s seemingly exemplary fiscal policy. Why? Because it was based on tax increases rather than spending cuts — and tax hikes, he declared, would “destroy growth and handicap the creation of jobs.”

In other words, never mind what I said about fiscal discipline, you’re supposed to be dismantling the safety net.

S&P’s explanation of its downgrade, though less clearly stated, amounted to the same thing: France was being downgraded because “the French government’s current approach to budgetary and structural reforms to taxation, as well as to product, services and labour markets, is unlikely to substantially raise France’s medium-term growth prospects.” Again, never mind the budget numbers, where are the tax cuts and deregulation?

You might think that Mr Rehn and S&P were basing their demands on solid evidence that spending cuts are in fact better for the economy than tax increases. But they weren’t. In fact, research at the IMF suggests that when you’re trying to reduce deficits in a recession, the opposite is true: temporary tax hikes do much less damage than spending cuts.

Oh, and when people start talking about the wonders of “structural reform,” take it with a large heaping of salt. It’s mainly a code phrase for deregulation — and the evidence on the virtues of deregulation is decidedly mixed. Remember, Ireland received high praise for its structural reforms in the 1990s and 2000s; in 2006 George Osborne, now Britain’s chancellor of the Exchequer, called it a “shining example.” How did that turn out?

If all this sounds familiar to American readers, it should. US fiscal scolds turn out, almost invariably, to be much more interested in slashing Medicare and Social Security than they are in actually cutting deficits. Europe’s austerians are now revealing themselves to be pretty much the same. France has committed the unforgivable sin of being fiscally responsible without inflicting pain on the poor and unlucky. And it must be punished.

The New York Times

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Flood fighting ferry terminal designs released

ferry terminal brisbane An artist’s impression of the new ferry terminal at Sydney Street, New Farm. Photo: Supplied
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Brisbane City Council has released concept design plans for eight new ferry terminals, designed to weather a one-in-500-year flood event.

Seven of the new terminals will replace those washed away in the 2011 floods, at a cost of $70 million to the state and federal Governments.

An eighth terminal, at Milton, is a new addition to the Brisbane River and will come at a cost of $5 million to ratepayers.

Lord Mayor Graham Quirk said the construction of the replacement terminals would be undertaken within the next two years.

“After being severely damaged in the 2011 flood, temporary terminals were installed to get services up and running as quickly as possible,” he said.

“Each terminal will have a slightly different design to suit its specific location, however they will all be built to have a flood resilience of one in 500 years, compared to the previous standard of one-in-100 years, as will the Milton terminal.

“Brisbane’s CityCat fleet is a key component of the city’s broader public transport network, so it’s important these new ferry terminals are stronger and more accessible than ever before.”

The replacement terminals are the University of Queensland stop at St Lucia, Regatta at Toowong, North Quay in the CBD, Maritime Museum in South Brisbane, QUT Gardens Point in the CBD, Holman Street in Kangaroo Point and Sydney Street in New Farm.

In addition to their flood resilience Cr Quirk said the new terminals had been designed to provide greater accessibility for people with vision or mobility impairment.

“For example, the Milton Ferry Terminal will include tactile ground surface indicators, journey maps with braille to indicate where the commuter is and which direction they can travel to other terminals and designated seating for people with mobility impairments,” he said.

Construction on the Milton terminal will begin early in 2014, while the other terminals will be progressively upgraded next year and in 2015.

Residents are invited to view the concept plans and speak with council officers at the following times and locations:

Tuesday 19 November

7.30-9.30am – Maritime Museum

4-6pm – Sydney Street

Wednesday 20 November

8-10am – QUT

4-6pm – Regatta

Thursday 21 November

8-10am – UQ

4-6pm – North Quay

Friday 22 November

7.30-9.30am – Holman St

4-6pm – Smiddy Park, Park Road, Milton (weather permitting)

Saturday 23 November

11-2pm – Smiddy Park, Park Road, Milton (weather permitting)

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Development is the name of the game at the Rugby League World Cup

As the World Cup moves into sudden death mode, calls are set to grow for rugby league’s powerbrokers to do more for the development of minnow nations – and referees.
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While the achievements of Scotland and the USA in finishing top of their pools and qualifying for quarter-finals against New Zealand and Australia deserve to be lauded, the truth is that they and whichever of Samoa and France play England next weekend are merely making up the numbers.

The other quarter-final between Fiji and the winner of the France-Samoa game is also really a play-off for fourth place as the winner faces the Kangaroos in the semi-final at Wembley.

By the time of the next World Cup in 2017, the game needs to ensure more than three nations have a genuine chance of winning the tournament.

Considering that most of the other 11 countries play little international football between World Cups, the performances of Fiji, Italy, Tonga and Samoa – as well as the Bravehearts and Tomahawks – are encouraging, while Papua New Guinea will benefit from having a team in the Queensland Cup next season.

Being exposed to regular Test matches and playing together more often would obviously help these nations and the World Cup crowds in England and France, in particular, and television viewing figures on 7Mate show that league fans have an appetite for international football.

The Kiwis match against PNG attracted 134,000 viewers, either live or on replay, around Australia on Saturday, while 60,000 watched Scotland come from 8-0 down at halftime to beat USA 22-8 last Friday.

Given the fact the Kangaroos weren’t playing, many people claim they cannot get 7Mate as they use Foxtel to access digital TV and kick-off time at 7am in NSW and 6am in Queensland, those viewing figures are considered good and compare more than favourably to Six Nations Rugby and Champions League football.

In comparison, last Friday night’s delayed telecast on free-to-air of the A-league match between Western Sydney Wanderers and Melbourne Heart drew 137,000 viewers on SBS, although it was also available live on FoxSports.

Proposed changes to the eligibility rules outlined by this column on October 28 will make it easier for NRL players to commit to developing nations, as the likes of Penrith hooker James Segeyaro will be able to play for Queensland – if he qualifies – without having to turn his back on the Kumuls.

What those countries need now is more matches to be scheduled – and funded, as players in the USA, Italy and other teams are playing for nothing in the World Cup.

More international matches would also increase the opportunities to develop referees as there has been a notable difference in the World Cup between the styles of NRL whistleblowers Shayne Hayne, Ashley Klein and Henry Perenara, Super League pair Richard Silverwood and Phil Bentham and Frenchman Thierry Alibert.

Only Australia, New Zealand, England and France are represented in the refereeing ranks.

With the NRL still the sole competition to use two referees and not every match in Super League televised. Silverwood and Bentham appear more decisive and do not refer to the video referee as frequently – although not all of their calls have been correct.

The NRL trio also seem inclined to blow more penalties and both Klein and Perenara have been heard desperately asking for another camera angle or stating that they were unsure when used as the video referee.

However, the players appear more settled when matches are controlled by just one referee and while it would take a massive shift for the NRL to dump the dual referees system, the World Cup should have officials considering changes.

Hearing the video referee talking through a decision as he considers whether to award a try has been a revelation for those who don’t watch Super League but it has also poses the question of whether the referee would be better suited to that role.

The advent of an NHL-style bunker system would be an even better solution as the same panel would be doing the job at every match.

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