Thar’s  deposits in them thar hills – and thar all mine!

Thar’s deposits in them thar hills – and thar all mine!

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That is what The Emperor (Kevin Rudd) thought and now they are fighting words where Fort Fumble (Federal Government) will be forced to perform yet another monumental back – flip on policy. Back to that over-worked drawing board where a 2010 federal budget is on the political rack.  The gloves are off as government and miners trade blows over tax as Wayne’s world comes unstuck which should not come as a great surprise when one looks at a government built around crumbling policy failures.

Ross Gittins in the Sydney Morning Herald wrote this  interesting story “Shonky advisers have led Rudd badly astray” It’s not just The Emperor’s reputation on the line, the Australian economy is on the nose too. The Minister for Mining, Ken Henry, who these days is wearing many hats, has a different interpretation.

Rudd’s dollar delusion – Since the end of April, the Australian dollar has been hit much harder than the euro, so for our decline to be entirely linked to the global crisis, Australia would need to be on its knees with a huge debt problem. But, of course, as Kevin Rudd correctly points out, the Australian government is in a strong borrowing position.  Leaving aside what was apparent in the marketplace, logic dictates that the mining tax had to be part of the slump.  A cavalier effort last Friday when dollar rout ‘stemmed by Reserve Bank’.

Let’s look back at The Emperor’s blackboard of back – flips: save the whales, fuelwatch, grocerywatch, kids laptops, takeover of hospitals by mid 2009, hospital reform, schools stimulus infrastructure programme, 2020 Summit (where he met Kate Blanchet), insulation program, refugees,  insulation industry, foreign investment review board removal, mining tax, childcare centre building program, carbon emissions programme and of course his “greatest moral challenge of our time” the list goes on. Is this the worst CV in Australia’s political history? In search of a photographic capture that best describes Fort Fumble’s business and economic outlook?

TheWreck

BUY PRINT

On Q&A this week, former Australian Prime Minister Malcolm Fraser (stole the show for mine) when he took this question from the audience and what a wordsmith he  is (and resigned from the Liberal party).

Paul Sherrington: “Controversial Melbourne columnists like Andrew Bolt and others have declared the Rudd Government to be the worst and most wasteful government in living memory, perhaps unfairly. Given a choice between the Whitlam Government, as you intimately know it, Mr Fraser, and the Rudd Government so far, which do you think is better?”

Malcolm Fraser: “Oh, you’ve got to say – I’d use different terms; “least worst”. The Rudd Government so far, but you didn’t take a very good – I don’t want to criticise journalists, because you know, some journalists have very extreme views and generally only report one side of a question, as we’ve heard, perhaps. The administrative failures of the current government, whether it’s in delivering houses to indigenous people, or whether it’s in putting insulation in roofs or building classrooms for schools with government schools costing several times what it costs private schools, or what other things they have sought to administer? They’re going to muck up the hospitals next. The administrative failures are gross and half of them aren’t pursued by the opposition and the administrative  failures are as great, if not greater, than the administrative failures in Gough Whitlam’s government. But Gough’s failures were of a different kind, of a different quality, and I don’t want to go into those now. It wasn’t straight out of administering what should have been a plain, straightforward programme, which for some reason this government seems totally incapable of doing.”

Now to those other deposits – not mineral but banking.  This week, we saw the “Big Four” banks  realise, given the current economic movements, (downwards) that they now ant your hard earned monies trapped away in their vaults – the banking oxygen of the future. Global Financial Crisis II looms if debt woes grow so it is reasonable to assume that our banks urgently require a topping up of liquid funds. Lending ratios have fallen from 100 per cent to 60 per cent in a matter of months for residential properties. The current offers are 6.00 + which is much higher than the current cash rate of 4.50 per cent. I would not lock and load in yet as it will get higher given the global demand for money. Throw in the fact that the Reserve Bank of Australia announced this week that credit card purchases rose 12.2 per cent over the year to March 2010. The value of purchases made in March was $19.9 billion, up by $2.1 billion from the previous year.

0.3BE!OpenElement&FieldElemFormat=jpgA busy few weeks for the Reserve Bank of Australia – who just released its Competition in the Deposit Market. See a pattern forming? For depositors, retribution, given term deposits are now challenging investment in the shock market, hedge funds can’t short you now and no more wild ride for Australian equities.
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24-05-2010 11-16-03 AM

We are definitely witnessing a shift where businesses and households are actively paying down debt as a direct result of the uncertain times ahead. Unsustainable home loans are of great concern where we now have a rise in middle – class bankrupts where even the Pope, ECB chief slam spendthrift governments. In Australia, we are already witnessing first hand interest rises kicking the stuffing out of auction clearance rates.

24-05-2010 11-19-06 AM
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24-05-2010 11-19-43 AM

This explains why deposit rates are suddenly attracting all the attention at the moment and in all probability will remain a major player for the foreseeable future. Work within the markets and not without them as this is not a viable time to pinch – hit profit taking models. Ever seen a correction before? Not sure if Hedge funds are actually not Dredge funds and it should also be noted that  Fort Crumble (NSW government) has successfully dredged NSW where in terms of infrastructure, it is now paralysed by parliamentary past performances. Prepare for 20 years of transport despair given it will be decades before any new roads are built.

Fort Crumble approves 4,500 new North shore houses where residents will now spend their annual leave on the Pacific Highway. Cashed – up foreigners snap up homes who spent $14.900 billion on houses and land last year. Once again The Emperor identified that he is an economic  illiterate and foreign investors selected Victoria and Queensland ahead of NSW. NSW once upon a time, like the fairytale, was the number one choice.

Sydney one of the world’s top 10 cities Australia’s other state capitals are out of the world’s top 20, but still in the top 40, with Perth ranked 21, Canberra 26, Adelaide 32 and Brisbane at 36.

  • Vienna, Austria
  • Zurich, Switzerland
  • Geneva, Switzerland
  • (tie) Auckland, New Zealand
  • (tie) Vancouver, Canada
  • Dusseldorf, Germany
  • (tie) Frankfurt, Germany
  • (tie) Munich, Germany
  • Bern, Switzerland
  • Sydney, Australia

As Malcolm Fraser once said “life was not meant to be easy” which he scripted from within his very own government. I wonder what it should be under the present Labor regime? A suggestion: hey “big spender” bankruptcy is our very own act of life!

The number of security clearances of asylum seekers by ASIO has risen tenfold in recent years. (Security clearances by asylum seekers up) in 2008/09 ASIO processed 207 irregular security assessments and in the period of July 2009 to March 2010 – 2028 assessments, which is attributed to KRudd border security – and guess who pays for that?

Our website sponsors announced this week – First Home Buyers offered a helping hand from Mortgageport which many subscribers to Virtual Realty News will find interesting. Also, the Balmoral Burn is on this Sunday and this event has become an iconic Sydney event.

Cheers ^__^

This week’s sales Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Cremorne real estate, Cremorne Point real estate, Neutral Bay real estate, Cammeray real estate Click Here

9 Responses to “Thar’s deposits in them thar hills – and thar all mine!”

  • Ann says:

    Now KRUDD will spend $38m promoting his New Taxes “Reform” , after he dumped Auditor-General from this vetting role on political advertising in March.

    http://www.smh.com.au/business/bending-its-own-rules-rudd-government-goes-on-the-attack-against-miners-20100528-wj4o.html

  • Yet another good weekly read of the depressing and incompetent actions of those at Fort’s Crumble and Fumble.

  • Ann says:

    We have had it. Emergency Powers!!! please

    CANBERRA (Dow Jones)–Australia’s government on Friday invoked emergency powers to embark on an advertising campaign to promote its planned new 40% tax on mining industry super profits.

    The unusual step comes as debate between the center-left administration of Prime Minister Kevin Rudd and the country’s powerful mining lobby over the controversial tax proposal becomes increasingly heated.

    Under Australian campaign advertising guidelines, political parties are constrained from running campaigns for party political purposes, except when the campaign is initiated on the basis of a national emergency, extreme urgency, or other compelling reasons.

    In granting approval for the advertising campaign, Cabinet Secretary Joe Ludwig said he was acting on advice from Treasurer Wayne Swan that “there is an active campaign of misinformation about the proposed changes”.

    “As the changes also affect the value of capital assets and impact on financial markets, I am satisfied that a compelling reason for an exemption exists, particularly given the nature and extent of misinformation against a backdrop of continuing market volatility,” Ludwig said in a statement.

    The country’s chief mining lobby, the Minerals Council of Australia, has been running full page advertisements in major daily newspapers panning the tax proposal.

  • Whilst speaking about Emergency Powers – I just had lunch with a subscriber and he told me that our financial markets refer to the post GFC now as the KFC – Kevin’s Financial Crisis and it ain’t finger licking good

    What we are seeing before our very own eyes is a government imploding.

  • Business Spectator’s Stephen Bartholomeusz wrote Labor’s emergency tax exit.

    Omigod! Australia is facing a national crisis so threatening that the federal government has had to invoke national emergency powers. The crisis? Someone disagrees with the government!

    http://www.businessspectator.com.au/bs.nsf/Article/resource-rent-tax-super-profits-RSPT-emergency-Hen-pd20100528-5V6QB?OpenDocument&src=sph

  • Ann says:

    The Emergency Powers were enacted last Monday, but not announced until Friday, to avoid questions during the Senate Estimates during the week. The next opportunity to discuss these emergency powers during Senate Estimates is during November, which will be after the election.

    So another $38 million to the Media Companies.

  • Robert,
    Thank you for my weekly read ..this week is a cracker! You keep me in the loop on many levels and also I love your irreverence…a good laugh to boot…keep it coming
    m

  • Mark says:

    Julia Gillard in Question Time in Parliament on June 2 was asked about a radio interview that Brad Orgill (Head of Building Education Revolution Rorts Taskforce) gave that day on 2GB saying that he had NO ACCESS to cost data for any of the projects he was investigating. It like doing a report with hands tied and mussled.

    Anyway when asked in Parliament Julia Gillard said that she has not heard the radio interview. Around 30 minutes later during another question she said that her staff had seen the transcript and that the Opposition’s Question saying that Orgill has said there was “no access to cost data” was a FABRICATION and she went on with a tirade.

    The Radio station (2GB) played the interview today and he indeed said that, so Julia Gillard has clearly misled parliament.

    So what the hell is Brad Orgill’s taskforce looking at if does not have complete access to every BER project, its documents and the people involved in those projects.

    Looks like a Taskforce to deliver the result Julia Gillard wants?

  • Mark says:

    Interesting Post that was sent to me

    Don’t you Labor apologists get it? If the govt wacks a 40% tax on super profits over and above the long term bond rate it obviously reduces the cash generated from the project that the company has available for reinvestment in growing the business. Therefore FMG concluded after careful analysis of its cash flows from its existing business that it could not fund the expansion internally to the extent it was originally planning if 40% of its gross earnings were taken by the govt. This means it would have to go to the international money markets to raise the extra funds.

    But, it cannot raise the finance externally either since 16 out of 17 major banks which were interested in partly funding the development have now withdrawn. Banks are NOT interested in the possibility of the govt covering 40% of the losses if the projects go belly up for 2 reasons – firstly they are not willing to fund projects that have a slight possibility of losing money. That is why financiers require detailed project feasibility studies to be done to examine the sensitivity of a mining project to variables such as mine head grade, mining dilution, metal recoveries, operating costs, metal prices and currency exchange rates, etc to show that the project is profitable under most reasonable scenarios. Secondly they do not trust the govt to make good on its promise to return 40% of the losses especially if those losses run into $100m’s. The risk is that the govt will only allow a tax credit and not pay up actual cash. A tax credit assigned to a mining company is of absolutely no value to a bank – they want to see the cold hard cash coming from taxpayers. You try going to your bank to borrow funds for an investment property and telling the bank not to worry if you make a loss on the project and wont be able to repay the borrowed funds because the govt has promised to give you a tax credit for 40% of your losses. They will quickly show you the door and that is exactly how 16 out of 17 banks have responded to FMG. Do you Labour apologists seriously deny this is the reality?

    This is why FMG announced it is deferring any further development of its 2 new projects. This has an immediate effect on the work load of geologists, drilling crews surveyors, camp caterers etc who were working on site – they no longer have a job so they no longer need to travel to and from the site, so pilots and air crews have a reduced work load. Then there is the impact on others assigned to these projects in Perth – engineers, draftsmen, and estimators in the immediate term, then later on builders, tradies of all kinds, mining plant operators etc. Thse impacts are real and cannot be denied – whether they amount to 30,000 jobs is perhaps debatable, but even if it’s 1/10th of that it’s still a big number of jobs at risk – and they are real people: Rudd’s “Australian working families” with kids and mortgage commitments.

    As I understand it too, the 40% super profits tax is intended to be assessed on the gross return from the project before interest and depreciation are deducted – ie before deducting the cost of funding the project. Interest and depreciation are legitimate deductible expenses for the purposes of calculating company taxable profit, which are available for any tax payer to claim – whether you want to claim interest and depreciation for your own personal taxable income, whether you are the local coffee shop or department store or glass manufacturer or mining company. Yet these are to be disallowed for the purposes of calculating the super profits tax liability. It is simply inequitable and unjustifiable to deny these expenses for the purposes of calculating super profits tax liability when they are essential expenses incurred in the development and operation of a mining project.

    Without including these significant expenses, the super profits tax liable to be paid becomes so large and has such a big impact on FMG’s free cash flow that it becomes at risk of breaching its covenants with its existing financiers – banks and bond holders – on interest cover provisions. If that becomes the case then they may be entitled to call in their loans. Now Ken Henry is not a project financier, nor a mining project developer and obviously is unaware of these kinds of impacts from his tax as it is designed.

    This is the reality of mining project development – it is not political spin. Yet all the mining co’s get back in response from our leaders in Canberra is political spin, being accused of being liars, being accused of uttering bunkam and balderdash. Sure mining companies make big profits – but they also invest much larger sums of money to develop mining projects.

    Would you be willing to invest huge sums of money in projects that have a geological risk, a geotechnical risk, a metallurgical risk, an OH&S risk, a labour market risk, a financing risk, a commodities market risk, and now a sovereign tax liability risk in the hope of earning only the long term bond rate of around 5.75% which is totally risk free? The risks that mining companies take on in embarking on developing a mineral resource are of an entirely different order to the risks faced by a shopping centre developer or retailer or banker or your local plumber. Yet Henry has obviously not considered the risk profile of the mining business, which is perhaps one of the highest risk businesses in Australia, in proposing a profit threshold of a ridiculously low 6%. No other business in Australia would consider anything they earned over 6% as a “super profit”. Some contractors will not go into a project if they do not expect to earn at least 15% profit.

    It would be refreshing if there was more genuine analysis done and reported in the media, and if both sides of the political divide would present genuine and detailed economic and financial analysis to support their respective positions rather than the spin and denial we are getting from the govt. There have been some great questions coming from the opposition during question time to try to get the govt to face cold hard facts, but all they get in response from Rudd, Swan and Tanner is political spin, dodgy, misleading and erroneous figures and emotive rhetoric.

    If you Labour apologists want to respond to this post, then please don’t use personal invective or political spin, but respond with reasonable argument based on facts.

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