Posted on July - 05 - 2011

Breathtaking Stupidity

–And here we go again.

–The ratings agency Moody’s has taken a decidedly negative outlook on the sovereign debt of Portugal. The ratings agency published its findings yesterday. Its report said the downgrade was a result of:

“The growing risk that Portugal will require a second round of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a pre-condition.”

–All of our two eyes are now on the Aussie dollar. Europe’s slow-motion fiscal meltdown ought to be a negative for “risk assets” like the Aussie dollar. And then yesterday the Reserve Bank of Australia revised its growth forecast for the economy lower. Traders are now betting there’s a greater chance of an interest rate cut by next year than an interest rate rise.

–If “risk assets” are off and interest rates aren’t headed up any time soon, that takes two legs out from underneath the Aussie. It will make an even more attractive target for those foreign short sellers and speculators we spoke about earlier this week. So what’s the silver lining?

–It’s gold actually. An ounce of gold in Aussie dollars will cost you about $1411.80, not including dealer premiums, especially if you’re buying a coin. The chart below shows that the strong Aussie dollar has put a lid on the price of gold here. We’re still about $100 below the high set in 2010.

–The Aussie dollar is strong now, relative to the absolutely feeble U.S. dollar. But let’s remember one important thing: paper money not backed by precious metals is not really sound money. Precious metals ARE money. Owning bullion is a way of owning money that can’t be produced by a central bank.

–Of course bullion doesn’t give you much leverage. And it pays no interest. But we like to buy it on weakness anyway. We leave the leveraged gold stock plays to Alex Cowie at Diggers and Drillers and the undervalued gold plays to Greg Canavan at Sound Money. Sound Investments.

–The economic stupidity of Australia’s government is truly breathtaking. We say this with all due respect as an American citizen whose own government (of both parties) is taking economic sabotage and vandalism to new lows. But the brazen wealth destruction by Australia’s current government is pretty impressive, at least inasmuch as it’s impressive to watch someone punch their own face for no good reason.

–We’re writing, of course, about the carbon tax. It’s apparently slated to come in at $23-25 per tonne. In order to secure support for this, the government has basically had to bribe various constituencies and interest groups with a cut of the loot garnered from the tax. Someone get Julia Gillard a Robin Hood costume. If you had any doubts about the underlying goal of the tax – a new source of wealth to rob and redistribute – those should be laid to rest.

–We hope future imbeciles are taking notes on how to destroy an economy. Take an industry like the power industry. Take a colourless, odourless gas that’s a by-product of coal-fired power production and call it “pollution”. Tax this by setting an arbitrary price.

–Now, as a result of your tax, manufacture economic failure where none existed before. The tax prevents power companies from financing long-term debt through credit markets. The government becomes the lender of last resort and must subsidise the failure it has created.

–This is a plan that could only be designed by someone who’s never run a business before and has no respect for the long-term calculations that come with capital intensive industries. A policy that destroys a business in order to make it dependent on state financing could only come from the brain of a deliberate economic vandal or a complete economic ignoramus, or collusion between the two in the grip of money lust.

–The need for “compensation” from the carbon tax only arises because the government’s economic intervention is impoverishing someone. This exposes the carbon tax for what it really is, an elaborate source of new wealth to redistribute to favoured political and industry groups. It will lead to higher energy prices and less energy production.

–Incidentally it’s also another indirect transfer of a private sector liability – the power industry’s borrowing from the credit markets – to the public sector. Now the Australian taxpayer will have to subsidise the business failure created by the new carbon tax. People who are used to leaching off the public – politicians – probably don’t understand that most of us don’t aspire to be rent seekers, living at someone else’s expense.

–Of course the argument for the tax is that environmental considerations are far more important than economic ones, and that when the two are in conflict, the ethical and moral thing to do is cop the tax and save the planet. This position demands you accept that carbon dioxide is pollution and that it’s changing the climate in destructive and soon-to-be-irreversible ways.

–While we’re sure to cop it in the mail for being an energy-industry shill, we copped it from the rev-heads yesterday…mostly for our exclusion of any Fords from our muscle car list…and our inclusion of the ‘66 Impala. Here’s some of the mail…

Oh dear, you’ve totally blown any pretence at credibility by listing 5 overweight, miserably-handling, hopelessly-braked, poorly-gearboxed examples of all the reasons not to buy an American car.

Sorry, they may well have had horsepower, but that was the end of the asset list. You’re in poor shape if this is a reflection on your accuracy of the housing crash, the silver price, peak oil, the future of gas or indeed the wisdom of the US Fed.

Shame on you, sir.
Max H.

Hey there Dan. I usually agree with and enjoy most of your writings, but how can you include a ‘66 Impala in your top 5 muscle cars of all time? If you had said a ‘62 ss Impala then I’d agree but a ‘66?

Cheers,
Dean

Now you’ve done it Dan, I just have to respond:

I like your list, but ‘66 Impala at the top of the ladder? Surely you mean ‘66 Chevelle 375hp 396 (convertible)? I’m thinking ‘67 Z28 instead of 69, and we must both be closet Dukes of Hazzard fans (I was 18 when it came out, I have an excuse) to have the 69 Charger in there (hemi being an unspoken implied mill). But then we’ve left out the ’70 Buick GSX (automatic, we’re stock market investors now, we have earned luxury muscle), ANY Olds 442 , then there’s the……oh hell I need to go back to work.

Have a great day
Peter

1982 Chevrolet Impala

–Perhaps we should explain. We learned to drive behind the wheel of 1982 Blue Chevy Impala. It looked a little like the one pictured above. It was inherited from a distant family relative who never drove it more than 35 miles per hour (she was in her 80s when she bought it).

–But it had a small-block V-8. And one fine day, we took the Impala out and set sail on the mountain roads of our home town in Colorado. Our high school’s Driver’s Education instructor in the passenger seat.

–The car handled like a land barge. But it was all new to us. And it was powerful. The engine didn’t purr. It hummed with a satisfying vibration that we could feel in our bones. It was a beautiful drive.

–But as we pulled into the apartment complex we lived in to park the car and drop the instructor off, we accidentally hit the accelerator and nearly ploughed into the foyer of the building. Fortunately, we hit the brakes in time. Neither the car nor the passengers were injured. The middle-aged Driver’s ed. instructor screamed and then turned purple with anger and scolded us for being a day-dreaming imbecile (the first, but not the last time this has happened to us).

–However, we honestly couldn’t tell you the last time we drove a car. If you added up the number of hours we’ve actually spent behind the wheel of a car, it’s easily less than 20. We’ve never even had a legal driver’s licence, have never owned a car, and never made an insurance payment. We did work at a gas station to pay our way through university and put a lot of air in a lot of tires.

–We used to tell people that not driving was a way of showing we didn’t “support a petroleum based economy.” That was just a joke. It was mainly because it seemed like an expensive proposition to own a car. And having lived in densely populated cities like Washington D.C., Paris, and London, we never needed one anyway. Besides, were would you park an Impala in Paris?

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