Value Investing in uncertain times

Introduction

This summary analyses the effectiveness of investor tools, support services, methodologies and hedging strategies to facilitate wise investing in today’s volatile market. The outline will have particular appeal to direct investors in the stock market or other asset classes and for those either managing or contemplating managing their own super fund or investment portfolio. Topics include valuing listed entities, other asset classes combed and evaluating research sources. There is an underlying theme to sage investing since the same methodologies can be applied to most asset classes. Many come under the heading of uncommon common sense whilst some aspects will have more of an appeal to those who like to do a lot of analysis. Either way my aim is to be sufficiently broad so that it’s helpful to a wide range of investors albeit there is more emphasis on equities.

However it is important to note this summary is very general in nature since one cannot know or take into account individual circumstances. If necessary, anyone contemplating any form of investment should consult a licensed professional who will be able to take into consideration individual circumstances and investor risk profile.

     

A lot is made about philosophy and the link to the humanities claiming it has nothing to do with business or investing.  But the broader definition of philosophy is – “A set of ideas or beliefs relating to a particular field or activity; an underlying theory”. That is what I propose to pursue with this summary on the basis that value investing is a theory that believes prices will ultimately always follow value    

 The equity market in Australia

When you acquire shares you become part owner in a business not a market.  

By the equity market we are talking about owning shares. It’s important to note at the outset that when you acquire shares in a company you become the part owner of that company to share in the profits from dividends and increases or decreases in the share price. Hence you own a share of that business and not a share of an equity market since ultimately future values are dependent upon the individual returns.

Equity market

The overall market is rarely in a consolidation phase but rather long periods of the so called bull market (sentiment is   optimistic) are punctuated by bear periods where doom and gloom depress prices. But regardless of the cycle there will always be good underlying businesses for the patient investor. Of course, one could opt to simply invest in an indexed fund which mirrors the index, but the objective of value investing is to achieve superior returns to the index.   

          

The average bear market in Australia since WW2 has lasted about 5 years as we enter our fourth year in what could be described as a bear market stock prices have fluctuated within in a band up to 40% below 2007 highs. No one can say for sure when their will be a recovery accepting for certain there will be one eventually- with a rebound of renewed optimism.  Even so, some sectors are struggling sectors continue to be plagued by downgrades.     

On a more negative tone markets could stay stuck in this band as a consequence of continuing shocks from abroad for many more years to come.    

2.00 -A conservative approach underlies value investing

2.1 Keep enough in reserves to avoid forced selling  

A good starting point is to ensure one remains in a strong position 

and avoids any forced selling at temporarily depressed prices. 

Ideally you aim to be on the other side of the transaction as the 

astute investor investing in undervalued stocks. Ultimately prices 

always catch up with value – but not always in logical sequence so that the market prices will continually overshoot or undershoot fundamental values. This applies equally to other asset classes and especially to property when one wants to avoid the spectacle of the “liquidation sale”:      

Individual circumstances will vary but assuming you’re already in 

receipt of an income stream it’s a good idea to have sufficient cash or liquid assets to be able to draw on these reserves if necessary during any unexpected prolonged downturn.  This goes to the heart of good investing - buy when sentiment is low at depressed prices to unlock outstanding value but don’t be afraid to offload at the other end of the spectrum when they overshoot.  Always have enough in reserve to allow you to adopt this conservative stance. 

2.2 -The dangers of gearing (borrowings)   

Excessive gearing was possibly the single most important feature that helped bring on the onset of the global financial crisis and when you added this to trading in leveraged derivatives the explosive mix brought about counterparties going into bankruptcy. Gearing (borrowing to buy securities) or buying into products which are already geared magnifies the losses as well as the gains. Be careful you understand what products do and make a distinction between investing and speculating.

Generally speaking in Australia gearing is prohibited within you self managed super fund to buy securities except for installment warrants. An installment warrant is a derivative and when purchasing warrants whose underlying security is shares you receive all the dividends as if you owned the securities. Installment warrants are issued by Investment Banks who purchase the underlining security, which is held in trust for you until such time, at your option, you purchase the security by paying the final installment at the expiry date.  Warrants are essentially the equivalent of a loan to buy shares, upon which you pay an initial installment and the balance at your option at expiry. The Investment bank issuing the warrants recovers their interest margin and protection costs within the issuance cost for the warrants.  Buying a warrant does not afford you any form of protection that can apply to other forms of derivatives. You cannot write options over warrants but you can buy and trade put (option to sell) and call (options to purchase) warrant options.      

3.00 -Valuing a listed security

3.1 Introduction

Value investing implies choices based upon a value criteria- to determine a risk reward margin and the selection process to identify those reaching this hurdle. In Australia where we have about 1800 listed securities its apparent we are going to need some form of supportive research.            

3.2-Equities 

The risk reward margin is the level of return one would expect over non risky alternatives such as government guaranteed deposits or government bonds.  But before any consideration is given to entities that qualify one needs to weed out any securities considered an unacceptable risk. The degree of comfort an investor wishes to impose will vary – but excessive debts levels, a management or director record of poor governance, industries considered unethical or unsustainable have added elements of risk.  On the positive side entities with a low level of debt and prior good track records for earnings able to fund growth and pay dividends might pass our filters.     

Having eliminated those of unacceptable risks one needs to set a minimum return. There will ways be turnaround stories and start ups with current poor returns.  But given a choice, it’s less risky to invest in an entity that has already a proven track record with equaling appealing future prospects and sound governance.         

The investors expected rate of return is a subjective decision but generally a useful guide is around the 10- 12% mark which is the so called cost of capital. In other words this is the minimum return investors seek under new issuances based on the risk reward scenario.  For the sake of the exercise I will use the figure of ten percent.

In determining value an analyst would typically discount expected future returns using the discounted cash flow method which is in effect compound interest in reverse – in this case using the 10 % discount rate as a reference point.  But to initially illustrate my point I will revert to the more easily understood concept of the commonly used price earnings ratio- the multiple that earnings represent to its share price. Let us assume we are confident this current rate after will continue in the future in the examples provided in our table.   

An illustrative table below indicates preferences for A over B whilst C fails our criteria.     

Table 1

Shares	Earnings	Share price	Value	Diff	Multiple
A	4.00	35	40	5	8.75
B	2.20	20	22	2	9.09
C	1.50	20	15	-5	13.3

Another easily calculable methodology is to value an entities capital per share on the basis of that expected rate of return.  

All that is needed is to know the total number of shares on issue, shareholders funds and the profit after tax expressed as a percentage of shareholders funds. All of these figures are usually widely available and included in annual reports. The capital per share is a calculation as the total of shareholders funds divided by the average number of shares on issue and multiplied by a factor to find our value.      

The actual securities price then can be compared with this valuation based on this factor where 1.00 equals 10% as our benchmark. If it was 12% then a return of 12% would represent the benchmark factor of 1 and so on.  So if the return is 15% the factor on a benchmark of 10% is 1.5 and so on.

You discard any entities that earn less than 10% or those whose price includes a greater factor that your valuation.  In other words the share price multiple is too high to ensure you’re able to achieve your ten percent return on your outlay.             

An illustrative example is as follows which indicates D meets our criteria whilst E and F on face value fail   :

Table 2

	Capital per security	Earnings	Return	Factor	Stock Price	Value	Difference
D	18.00	2.70	15%	1.50	20	27	7
E	10.00	2.50	25%	2.50	30	25	-5.
F	1.00	.28	28%	2.80	3.80	2.80	-1

        

3.3 Dividend yield and effect of undistributed profits on valuations 

In the earlier tables we have assumed all of the profits after tax have been paid out in dividends which are clearly rarely the case. In the example provided  in  table 1 if half of the earnings were paid out in dividends a dividend yield would be half the earning rate to yield a dividend rate of either 5.7%, 5.5 % and 3.7% respectively for A, B and C but increasing to 8.1%, 7.8%  and 5.4%  if 100 % franking was available. The important point to note is under examples an A and B we have a grossed up dividend yield that already gives us around 8% and there remains undistributed profits to build up further incremental value so long as those returns can be maintained.

This is because the remaining funds in the business (those not paid out in dividends) are earning at a rate that exceeds your benchmark to justify you paying a higher multiple than was illustrated in the previous examples.    

This obviously only applies where your benchmark rate is exceeded – in this case 10%. 

It is crucial to understand the concept of value and to be able to determine the merits or otherwise of securities that will potentially make up your underlying investments.  An excellent source for further reading is Roger Montgomery s book entitled “Value able” - second edition. Roger also provides an on line facility called Skaffold ( click here to visit) which covers all Australian listed entities with pertinent information inclusive of an assessment of their intrinsic value.

 

Roger's book can be purchased by clicking here.    

He's also on facebook at His facebook also has an events section which covers all the tv and radio appearances.
Roger is also speaking at the Trading and Investing Expo, find the webpage by clicking here.  

3.4 Property

The Australian property market is made up of many different 

markets and the sage investor will apply the same principles to 

determining value as was illustrated for securities. What is apparent 

is there is no such thing as bargains since properties are usually 

widely advertised and recent prices are easily ascertained from 

recent history. The idea you can pick up bargains that no one else 

wants is a hope and not a strategy.   

The first point to make is that to achieve value an investment 

property will need to have both a good rental yield and a healthy 

future capital gain. In determining likely future appreciation in rents 

and values the investor will need to impose criteria and rule out 

unacceptable risks. Boxes that might need to be ticked could 

include such things as the proximity to public transport, educational 

and health facilities, median income level, the attitude of councils 

to planning and growth, employment opportunities and whether or 

not the region is supported by growth industries to underpin future 

value.  One needs to determine the key market drivers to future 

value which underpin renter appeal and support growth in prices.

3.5 Interest bearing securities

Interest rate security pays either a fixed or a floating rate of return 

either as interest or dividends.

This class of security has increased in value as larger corporates 

have become more dependent on the debt market to raise capital to 

fund their operations. The debt market comprises of both senior and 

subordinated notes and for those prepared to take on an element of 

risk corporate bonds offer attractive income opportunities with 

recent issuances carrying rates in excess of 7%. Typically they will 

offer low volatility with the prospect of modest capital appreciation 

in any period where we are likely to see declining interest rates.  

The hybrid market as the name suggests are in effect an interest 

bearing security which exhibits both the characteristics of equity 

and of a bond. Hence Preference shares are hybrids which rank 

ahead of ordinary equities but pay dividends and will be redeemed 

at their face value at some future time.

Convertible notes on the other hand are convertible at a future 

point of time into equity but during their issuance period pay an 

interest rate like a bond.  

When assessing these issuances ones need to do the same valuation 

as investing in equities to identify strong financials which underpins 

their value.  

3.6 Other assets classes

 Hedge Funds 

Hedge funds have captured investor interest due to the relatively poor returns over the past few years but little is known about their activities as you can’t be sure about what trades they have entered into. There is no definition of a Hedge Fund which may use both leverage and derivatives to magnify returns regardless of whether or not the market is up or down. However some will also aim to both hedge individual stock exposures and reduce volatility. 

Typically they will have clients from institutions and high net worth individuals.

Hedge funds attempt to earn absolute returns of 15% or more by 

uncovering miss pricing and unlocking value through quality 

research. They don’t provide the certainty of regular income which 

may be important for many investors.

However many of the tools available to the Hedge Fund Manager 

can be accessed by the value investor even adopting a conservative 

approach. Derivative can provide modest hedging and additional 

income and let me provide a number of risk minimization strategies 

and their solutions:

Alternative Investments - Derivative Securities

What is a Derivative?

A financial instrument derived from the value of an underlying security. An examples of derivatives include options. 

An option can be sold by one party to another offering the holder the right, but not the obligation, to buy (call) or sell (put) a security at the strike price at future date.

Buying Options
Options are called either putts or calls. When you purchase an option, you pay a premium to the option writer. Options are complex securities that can carry significant risks.
Buying a call gives you the right to buy a stock from the writer at a specific price during a specific period of time, while buying a put gives you the right to sell the stock to the writer.

You would purchase a call if you expect the market price of the 

stock to rise and purchase a put if you expect the price to fall. 

Hence a call is similar to a long position in a stock, increasing in 

value as the stock's price rises. A put is similar to a short position 

that gains value as the stock's price declines.

Selling Options
The motivation to sell (write) options is to earn a premium. Most investors who sell options hope the purchaser will not exercise those rights. The safest form of option writing is via  a covered call because the worst outcome would be to have shares already owned called away. A much riskier choice is selling naked options.

A naked option is an option for which the buyer or seller has no underlying position in the stock. A writer of a naked call option does not own the stock on which the call has been written. Therefore, if the stock rises and the holder of the call decides to exercise the option, the writer of the naked call will have to buy the stock at the higher price and sell it at a loss to the option holder.

Using derivatives to help protect portfolio and earn additional income.

Hence options are derivative and can be used for a variety of purposes. They can be used as a Hedging instrument and to earn additional income from your share portfolio. 

As a hedging instrument

Buying an American style put option (an option to sell) over a security or index gives you the options (but not the obligation) during the period of the option to exercise the option if the price falls below at agreed strike price in consideration of the premium paid.

Writing covered calls   

Call options are options to purchase at an agreed future price (strike price). The term covered calls is commonly used to describe an option writer and seller of a call who also owns the stock. Writing covered call generates income     

Before using options it highly advisable you undertake an educational course so you know what you are doing.      

  4.00 Research sources   

By now it’s become apparent one needs support to be able to undertake the analysis to determine value.      

Continued consolidation in Australia of financial services has reduced the numbers of independent research firms,   advisors and brokerages who are now more likely to be aligned to major financial institutions adding to the risk they aren’t always responsive to a client’s interests. Apart from that, brokers, financial advisors and analysts livelihood is dependent upon finding reasons to buy or sell when sometimes the best decision investment decision is the one not made at that time. Nevertheless there are a number of independent and well researched advisory groups and software available.

There is such a wide spectrum of opportunities one would be reluctant to make any recommendations.   

There are a number of sources which can arise from the more 

sophiscated credit scoring platforms, the research arms of 

independent brokers and from financial planners or other sources 

which match your investment philosophy. 

5.00 Diversification – helpful or a distraction? 

A great deal of attention today is given to the value of 

diversification to counteract volatility and create the notion that if 

you spread your wings you’re buying protection. But if you’re 

struggling to assess values in one asset class adding in new 

unfamiliar ones won’t help you one iota. Diversification in itself is 

not a panacea to reducing risk. But understanding the inherent risks 

and being able to value a security will enable you to do this.

Conclusion

The best person to look after your investments is you – but you need to be passionate and do a lot of homework.  Realizing  you can’t do it all yourself you also need to find trusted sources of support

Letters to the Editor updated

Below are my published " Letters to the Editor "  which appeared in the Australian Financial Review- several featured cartoons composed by their resident cartoonist are now included.  
Capital needs to flow back into Europe 

Robert Guy, in his article “G20 row over euro debt crisis” (AFR June 20), highlights growing tensions that haunt global markets.

Underlining these tensions is the flight to safety of capital flows ending up in the stronger European states or the US. But if European austerity measures are to have any chance of success, disadvantaged states such as Spain and Italy must have access to funds at comparable rates to other states, and be able to initiate stimulatory investments from the savings derived from austerity measures.

Italian Prime Minister Mario Monti makes the point that no one believes Europe was “the only source of the problem”.

The source of the problem is a lack of investment and fiscal stimulus, which applies to those voicing the heaviest criticism of Europe, the US and Britain, which remain reliant on their respective central banks to do all of their heavy lifting. No serious attempt has been made to identify any long-term budgetary savings as a source of funds for much-needed immediate investment expenditure to boost confidence both sides of the Atlantic. 
The current position is indicative of an absence of political leadership and is increasingly a source of frustration to central bankers running out of options to keep their respective fragile economies afloat.

Given decisive leadership combined with new investment spending, weaker European member states could again grow sufficiently to reduce their current crippling unemployment.

Australia better prepared than in 2008

Alan Mitchell’s article  (AFR, June 18) warns of possibly six months’ misery for Australia should Greece eventually exit the euro.

Mitchell draws on HSBC Hong Kong economist Frederick Neumann who posits that a Greek exit would precipitate “a full-blown credit crunch on a scale that would make 2008 seem mild (with the) European economy falling into a deep recession”, and this would have dire consequences for our region. However, since the onset of the 2008 global financial crisis, Australia’s position is a far cry from to what existed then as our banks are now far less reliant on short-term overseas wholesale bank funding.

The banks’ loan books have on average 4½ years until maturity and, combined with massive capital injections, mean any bond issuances rate highly with investors should additional funds be required.

But at present they already have sufficient funding to cover the next six months, assisted by a surge in customer deposits reflective of our high national savings rates – at 9.5 per cent of disposable income the highest in 30 years.

Should Europe enter a prolonged and deep recession, have no doubt our Reserve Bank also has the capacity to engage in quantitative easing to ensure increased funding is made available to the financial services sector.

Australia is now very well placed to actively deploy her very substantial defences against any future global

Importance of  Greece overstated

You would be forgiven for thinking Greece must be our major trading partner given the elongated Greek 
crisis has become a proxy to explain away sharp falls on our stockmarket. Our trading with Greece is negligible but if she was to exit from the euro zone a devaluation of her currency followed by an appreciation of the euro would boost our revenues from the region as our exports would be more competitive. The risk of contagion to Portugal and Spain is minimal as there exists ample monetary facilities within the euro zone (of half a billion people) to accommodate any credit fallout. The euro zone has managed to avoid a recession unlike that of the United Kingdom. Those who argue the euro is destroying employment and preventing member countries like Greece from competing because of their inability to devalue a currency ignore recent political history.
Greece’s economic woes of higher unemployment and falling gross national product followed on after the 2007 election when the New Democracy Party managed only a very narrow majority whilst the left significantly increased their standing.

The market fears that the June re-elections will have a similar result and should Greece leave the euro zone it will cause untold havoc. This is an exaggeration since we depend, as does any country, on both good governance and the continuing ability to create wealth before you can spend it. 

Victoria counts on illusory surplus 
In “Case of the $129m health bill” (May 14) Mathew Dunckley points out that making up $100 million of this year’s promised Victorian budget surplus under “other revenue” buried at the back of the budget papers is a transfer of medical indemnity liabilities to the Victorian Managed Insurance Authority.

Although the state technically correctly treats this transfer out of liabilities as creating a surplus under accrual accounting, this is only because the accounts for the VMIA are not included in the budget papers. Rather, under the Whole of Government Accounts consolidation the position is clear – the gain to the Department of Health transferring out these liabilities is matched by the same amount transferred in to the VMIA for a zero overall effect. So it is illusory to count on this reduction in liabilities in only one set of books as representative of funds that contribute to an overall surplus. 

The transfer does not create revenue or income available to pay for services. Finance Minister Robert Clark was reported as saying “the final wash-up is that the bottom line is more than $100 million better off because it no longer has to worry about the misdeeds of doctors stretching back a decade”. Presumably the fine line of distinction he refers to is that VMIA, not the Department of Health, now has to worry about that.

JP Morgan makes mockery of Fed 

The latest revelation is that it has managed to lose $US2 billion in risky synthetic credit securities which turned sour eclipses any notion they are following reasonable banking practices and makes a mockery of the recent stress testing of financial institutions by the United States Federal Reserve.

These tycoons of industry who are paid a fortune to run these institutions obviously pay scant regard for shareholders’ funds which are used as gambling chips to make for huge trading bets. JPMorgan obviously has not learnt from past mistakes and reports have recently emerged of renewed in-house proprietary trading (making risky greedy induced trading bets) by other institutions which are unconnected to traditional banking services.

Regulators are dragging their feet in outlawing in-house proprietary trading which is at the expense of critical business lending and banking services in demand during this elongated period of aftershocks following the global financial crisis.

Regulators need to be more proactive and have a quiet word in the ear of the chiefs at the same time as a closer look at the books – the shame game will soon catch on to ensure the banking sector acts in a much more responsible manner.

Thankfully both the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority seem to be more on the ball, but it is a salutary lesson as to how easily these giant institutions can completely go off the rails and cause confidence in the banking system to dissipate.

Ideology gone astray
When Conservative Prime Minister David Cameron came to power in England in May 2010, he said you could eliminate the budget deficit and still expand the economy, but given the last two consecutive quarterly contractions one can now say England is officially in a nasty recession.

Cameron’s simplistic approach seems to have gained resonance in Australia on both side of politics given the obsession to achieve a surplus. The point that recurrent entitlements and consumption expenditure should be matched by revenue does not negate investment expenditure funded from borrowings providing enhanced returns are assured in future years.
This is needed in the non-mining sector of the economy to help stimulate demand and would not lead to inflation. The unveiling of the budget did little to address this situation, nor is recognised in any policy from the opposition. 

Will misses target
Washington Post columnist George Will, in “The right man for Romney” (Opinion, April 10), never strays too close to anything remotely resembling a policy debate.
 
As an erudite writer, Will’s unashamedly pro-conservative perspective is simply dripping in contempt for the present administration in the United States. He contends that President Obama’s often breezy and “sometimes loutish indifference to truth should no longer startle” and he asserts Obama is “not nearly as well educated as many thought and he thinks”. 
Will names Paul Ryan and Bobby Jindal as two possible Republican running mates for Mitt Romney as those with the intellectual firepower to counter Obama’s not so smart approach. 
Ryan he describes as “no one more marinated in the facts to which Obama is averse’’. 
Will is long on emotive phraseology and very short on specifics, a good indication as to just how limited the debate is on any serious policy alternatives in the US presidential race

Security overkill with Huawei

Local Huawei chairmen John Lord is justified in rejecting the assertion that a security risk justifies exclusion of the local arm of the telco giant, the second-largest supplier of telecom infrastructure in the world, in the building of the $36 billion national broadband network (“Huawei: “We’re no risk”, March 27).

Huawei has more than 100,000 employees with nearly half employed in research and development in Germany, India, Russia, Sweden and the United States. Their network extends to over 100 countries including most of the world’s 50 largest telecoms. 
ASIO, of course, doesn’t have to justify its position to the public nor has our Prime Minister in her muted response “it’s prudent”. But with a project of this size one might reasonably ask why security safeguards and undertakings for all contractors aren’t already sufficiently robust to afford security protection. 
Perhaps we should also ban US companies on the basis that more US military involvement here poses a national security risk bearing in mind the ease with which their own top secrets were posted for all to see on the Wikileaks website.It doesn’t seem as if we have travelled too far forward from the time when the headlines screamed "Reds Under the Bed "!!.

Aboriginal claims in Twiggy case
Jonathan Barrett’s exclusive “Twiggy’s land grab ” (March 17-18) reports an investigation by AFR which has found the iron ore heavyweight Andrew Forrest, founder of Fortescue Metals Group, to be the main culprit of an industry wide practice known as “tenement parking”: whereby miners purposely keep their exploration from being granted until they are inclined to explore the land.

It also mentions a legal challenge by Forrest & Forrest against Fortescue in relation to mining tenancies over the Forrest-owned Minderoo station with a possible inference this action represents a stalling tactic. But what is not reported is Minderoo station is already subject to a native title agreement with the Buurabalayji Thalanyji Aboriginal Corporation for access and rights under the current pastoral leases. It seems likely future protracted negotiations to allow exploration activities at Minderoo now owned by a private company with shares held by both Andrew and his brother David Forrest may be the subject of this legal challenge. What is also not reported in the article is the delay in exploration activity as a consequence of objections under the National Native Title Tribunal by indigenous groups objecting against expedited procedures in the granting of mineral tenements.
For a cash-strapped WA state government to sit back and allow companies such as Forstescue to stall on exploration outside of given timelines to avoid paying rents seems somewhat implausible. 

Baillieu’s WorkCover grab
James MacKenzie, chairman of the Transport Accident Commission and Victorian WorkCover Authority, reaches the inescapable conclusion that a state government’s decision to impose a dividend on the workers’ compensation and work safe authorities is akin to simply another tax on employers (“Baillieu raid threatens WorkSafe’s full funding”, Opinion, February 28).

The Baillieu government has taken just this course in its move to take $471 million in additional dividends from the WorkCover Authority. I can remember the previous mess for workers’ compensation in the state several decades earlier, before the present reform when employers faced crippling premium rates as high as 8 per cent of wages as a consequence of large payouts under common law underwritten by a number of private insurers. Fortunately today, after much needed reform, we now benefit from the lowest rates in Australia.

But as MacKenzie correctly points out, these are now at risk if the government decides on a policy of dividend imposition that can only be recovered in increased premiums from employers. Hiding behind this ideological bent to pay a dividend should be seen for what it is – an additional premium increase on employers for no reason other than to boost the Treasury coffers and give the appearance of good economic management. 

Resources future assured

Stephen Wyatt’s “Boom glory days drawing to a close” (Commodities observed, February 23) continues his theme that prices beginning in 2013 will suffer severe falls and put pressure on the share prices of BHP Billiton, Rio Tinto and Fortescue Metals.

Forecasting one year ahead is difficult enough, but predicting a 50 per cent reduction in the iron ore price over the next three years, as Wyatt does, even when quoting commodity analysts, is implausible.
Wyatt fails to acknowledge that in India and China, softer future steel-making demand for construction (and hence iron ore demand) may be more than offset by robust growth in the consumption-related sectors such as machinery and transportation.
This is a natural progression for these developing economies fuelled by demand from a burgeoning middle class and echoes China’s latest five-year plan.
China is aiming at reducing its reliance on exports and investment to be more reliant on local consumption to sustain its economy.
If there is going to be any slowing in demand in commodities then a more likely outcome is a gradual decline but anyone predicting further massive falls is foolhardy. The dynamism of developing economies and their ability to sustain demand for resources over the next several decades should not be underestimated.

Hewson’s bank bashing unfair
John Hewson’s “Greedy banks cry foul” (Opinion, February 3) is another example of bank bashing lacking substance. I am intrigued by his idea that banks operate in a privileged position as a virtual oligopoly and are greedy.
Bank returns for the four majors vary from around 13 to 17 per cent on shareholders’ funds, with the top notch going to Commonwealth Bank of Australia and with each having a very distinctive customer base.
Many listed Australian icons easily exceed this return such as Telstra at 26 per cent, Woolworths 28 per cent and BHP Billiton 38 per cent. Given the cost of capital is 12 per cent, the banks’ average returns of 15 per cent can hardly be viewed as excessive. In fact our banking industry is extremely competitive, as evidenced by the string of foreign banks that closed their local operations unable to realise commercial returns.
Thankfully we have a strong industry, which did not succumb to the overtures by foreign banks to engage in the sub-prime securities and derivatives market that caused banking giants in the United States and Europe to need huge publicly funded bailouts to remain solvent.
The only reason banks have to seek wholesale funding overseas at higher interest rates is because their local depositor base here is insufficient. Hewson and the flurry of bank bashers only serve to undermine what is needed: a strong, healthy, profitable, competitive banking sector which is critical at a time when overseas credit markets remain constrained.

Asia resilient on Indian demand

Stephen Wyatt’s gloomy assessment on commodities “China props up shaky demand” (January 30) notes that while China remains the elephant in the room, it is not the only game in town.
Wyatt fails to mention some of the supply restraints emerging or that other resilient markets such as India and those in our Asian region can and are leading the way in a revival in construction projects whose increased demand for steel will lead to an increase, for instance, of iron ore consumption.
In fact, India’s consumption of iron ore is rising at a time in which it is reversing its position from self-sufficiency to a major importer since the government took action against illegal miners.
Further supply constraints are arising from Brazil, whose mines were recently affected by the very heavy rains.
Depressed levels in the euro zone and the United States are unlikely to get much worse so that overall, even if there was curtailment in China’s appetite, the slack might be offset by demand elsewhere combined with emerging supply restraints. 

Camperdown

We recently travelled to the historically significant rural town of Camperdown (population about 2800) located about a 2 hour drive south west from Melbourne. 

Camberdown is also regarded as the gateway to the Victorian Western Area conveniently located close to the Ballarat gold fields, the National Parks in the Otway’s and Grampians and the Twelve Apostles along the Great Ocean Road.

The region was first settled in 1839 by English immigrants Peter John and Thomas Manifold who eventually chose a 100,000 acre sheep run on the northern shore of Lake Purumbeke. Others followed and soon a bustling town was established. There are many historic buildings to visit  in the town including the Court House which was erected in 1886-87 and the Historic Museum built in 1896. An impressive Clock Tower ( see picture above ) extends 30 metres above the streetscape and was erected in 1896-97 in memory of Thomas Manifold who was killed in a hunting accident at the age of 30..

The local Historical Society has images of Camperdown when it was once a hub for the vast pastoral empires that dominated the region. Agriculture blossomed because of the rich volcanic soils and pockets of unusually high rainfall. you can see images by clicking here and to enlarge simply hover over the photographs.

By the early 1950's Camperdown had become a diversified centre for support industries to the wool dairying and agricultural sectors. But since those halcyon days the town has steadily declined due to both drought which curtailed the diary industry.and the closure of the butter factory. Nevertheless the town still provides support to rich pockets of the Dairy, Sheep and Beef farming communities.

There is plenty to see in the picturesque lakes area – Lake Corangamite is the largest lake in Victoria and was part of a vast system of 30 lakes formed from depressions of erupting volcanoes. On either side of the road in places you see the effects of this uncommon land forms ( See pictures) as broad circular giant volcanic creators with steep rock sides glisten with blue water nestled down from the declining green pastureland.

Hence the countryside is interesting and varied since it gravitates from a green lush land- form on one side of the road to one that is barren and foreboding on the other - a reflection of either bountiful volcanic rich seams of soil  to basalt dominated rocky field outcrops. Consequently prices per acre for farming land can vary enormously from as little as $2,500 to $10,000.

In some areas the immigrants took advantage of the readymade supply of basalt rocks to engage in stone fencing which is abundantly evident today in dry stone walls and homesteads. Initially the walls served three purposes; as boundaries; to keep out Rabbits; and to clear the land of rocks. 

The Djargurd Wurring peoples were the traditional owners of the land at the time of white settlement and consisted of about 12 clans.

Archeologists have unearthed many sites of fish traps, piles of surface scatters (artifacts or cultural material or shells) and burial sites. However Camperdown was subject to the same sordid history as other regions where pastoralists stole the land from the indigenous inhabitants and subsequently denied access. . 

The Djargurd in the 1830’s and 1840’s were subjected to several massacres in retaliation for sheep killed by aborigines for food.  One clan, the Tarnbeere gundidj, was massacred by a Frederick Taylor and others at a location known as Murdering Gully. Click here for the history

Here is a summary:  
This massacre site is of significant for the following reasons: the extent to which the local Aboriginal clan was decimated; the fact that oral histories of this event have survived, as has detail in local diaries; the perpetrators incurred considerable censure from Aboriginal protectorate officials, Wesleyan missionaries, and local people, who demonstrated their disapproval by changing the name of Taylors River to Mount Emu Creek; and finally, because of the notoriety of Frederick Taylor, one of the principal actors in the conflict.

A Djargurd wurrung clan that particularly suffered during the late 1830s was the Tarnbeere gundidj. This clan's name literally means belonging to Tarnbeere, or flowing water, a reference to nearby Mount Emu Creek. This clan was effectively exterminated in a massacre in early 1839 by a group of Europeans led by Frederick Taylor, the manager at George McKillop and James Smith's station at Glenorminston, adjoining Lake Terang. Glenorminston was also known as Weeraweeroit, after the Aboriginal name for the camping place and waterhole on the rivulet near the home station. Before his involvement in this massacre, Taylor had earned some notoriety through his involvement in the murder of a Watha wurrung Aborigine in October 1836. At that time, John Whitehead, a convict shepherd working for Taylor murdered Woolmudgin, the clan head of the Watha wurrung balug clan based in the Barrabool Hills near Geelong, apparently with Taylor's encouragement.

The Murdering Gully massacre took place in early 1839 and was investigated by Assistant Protector CW Sievwright, responsible for the Western District of the Port Phillip Protectorate. The massacre occurred at Puuroyuup, or Puuriyuup, a gully on the Mount Emu Creek (known to the Djargurd wurrung as Borang yalug), where the creek is joined by a small unnamed stream from Merida station. At this gully were camped between 45 to 52 men, women, and children. These people were predominantly Tarnbeere gundidj , along with members of other Djargurd wurrung clans and several Gulidjan people. Apparently the massacre was organised in retaliation for the killing of some of Taylor' sheep by two Aborigines.

Fortunately we can learn the details of the massacre from the five accounts that record the evidence of some of the survivors. From these accounts of this massacre it is possible to compile a list of Aboriginal informants and survivors.

These accounts are first hand, and although they agree on the details of the massacre, some differ on what happened to the corpses. A combination of them can be summarised as follows.

Having heard of the encampment at Puuroyuup, Taylor and associates James Hamilton and Broomfield headed a party of shepherds with the intention of attacking them. Taylor no doubt agreed with the conventional view held by most settlers that bullets were the only antidote to Aboriginal sheep stealing, and that, when a few were shot, the rest kept clear. Furthermore, many settlers believed that it didn't matter if those attacked were not the actual perpetrators as vicarious punishment was thought to be just as effective.

As they approached the gully on horseback, the party formed an extended line with Taylor in the centre. They found the Aboriginal people asleep and advanced  shouting and immediately fired upon them, killing the whole group except 12 people. They afterwards threw the bodies in a neighbouring waterhole. One of the survivors was Woreguimoni, a Gulidjan, who had hidden in the long grass. Karn, alias Mr Anderson, had also safely fled the gully when the Europeans approached. He returned after they had left the scene, and began to remove the bodies from the waterhole, placing them on the ground four deep, head by head. In the course of this, he was discovered by some of the Europeans, who took him and his wife and child, who had also escaped, to Taylor's home station, where he and his family were given provisions so that they would stay nearby, and away from the waterhole. With Karn removed from the waterhole, a cart was taken to the scene of the massacre and the bodies bought up to the home station, where they were conveyed to some other waterholes and thrown in.

Larkikok had been spared when he stood up and begged Taylor to spare his life. After the massacre, he sought the refuge of the Buntingdale Wesleyan mission near present-day Birregurra. Two further survivors of the massacre, Bareetch Chuurneen - alias Queen Fanny, the 'chieftess' of the clan - and a child, were pursued to Wuurna Weewheetch (the home of the swallow), a point of land on the west side of Lake Bullen Merri. With the child on her back, she swam across to a point called Karm karm, below present day Wurrong homestead, and escaped. Other survivors included Benadug, Born, Tainneague, and Mammalt.

The second account of the aftermath of the masssacre comes from Wangegamon, a Djargurd wurrung man, who escaped by running to the other side of the river and hiding in the grass behind a tree. From this vantage point he saw his wife and child killed. After the bodies had been thrown into the creek, the water became stained with blood. Grieving, he remained near the gully for two days. According to Wangegamon, two days after the massacre two men named Anderson and Watson visited the site and, seeing the bodies, felt remorse and asked Taylor why he had killed so many women and children. Anderson, Charles Courtney, James Ramslie, and James Hamilton subsequently made some fires and burned the bodies. Two days after cremation, Taylor, Watson, and Anderson returned with a sack and removed all the bones that had not been consumed by the fires.

It is possible that the differences between these two accounts may only be chronological; that is, that the cremation took place after removal of the corpes from the Mount Emu Creek Waterhole, thus the accounts are complimentary. The destruction of the corpses was a deliberate and commonly used attempt to destroy hard evidence.

Many of the survivors sought sanctuary at the Wesleyan mission, and it is largely through the efforts of missionaries the Reverend Benjamin Hurst and Francis Tuckfield, Assistant Protector Sievwright, and Chief Protector George Robinson, that we know so much about this massacre.

In 1861, after the establishment of the Framingham Aboriginal Station most of the surviving members of the Djargurd wurrung were forcibly removed to the station with the exception of some of the elders who stubbornly remained to eke out an existence on the edge of Camperdown.

Not all of the early settlers turned a blind eye to these injustices and acts of genocide and those remaining   were assisted by people like H K James Dawson, a Scotsman who became a guardian for the indigenous peoples from 1876 to 1882 and whose support came out of his own pocket.

Returning home from a trip home to Linlithgow in 1882 he found Fjargurd Wurrung Puyuun, the last survivor of the Djargurd Wurring people, had died and had been buried outside the Camperdown cemetery. After unsuccessfully appealing for public money to support a memorial  he had a granite obelisk erected with a plaque at his own expense.

It was a sobering reminder it took just 43 years of white settlement for the Djargurd wurrung to be displaced from the Camperdown area.


It  was a memorable trip discovering previously unexplored ( to us) beautiful pockets of rural Victoria .    

A tiny slice of Australia history

The first Australians

I vividly recall descriptions of aborigines from my early school books depicted as small tribes of nomadic hunter gatherers utilizing Stone Age implements and whose only shelter from the elements were primitive temporary shelters constructed from branches and the bark of trees.
A marked indifference to their culture ( with a few notable exceptions ) ensured only oblique references to their colorful carvings on the rock faces or the occasional news item about corroborees ( a ceremonial dance) or to “payback punishment " handed out to an offender of a tribe violating ancient law. Looking back to the 1950’ we find the first Australians did not rate a mention in a typically chronicled “A short history of Australia", notwithstanding an existence stretched back maybe 70,000 years. Those references that did make their way in the history books inevitably were prone to superficially. The significance of dreamtime stories which gave meaning to successive generations and ensured an ongoing affinity with the land was mostly overlooked as was their system of law. Prescribed penalties under their law were administered by the victims or their kinship groups under the watchful supervision of elders which generally meant a satisfactory end of the matter. Hence they saw no need to set up powerful rulers which was interpreted as a lack of human development


The fact the first Australians were able to survive successfully for so long under such a harsh environment was due to their optimum use of very scarce resources. This was achieved by trading between nations where abundant food and resources seasonally available in one region were traded with those exclusive to another over a vast network of tracks. Communication was via a painted message stuck to afford safe entry to the negotiators; meetings were then arranged to co-ordinate important ceremonial events or resolve tribal disputes and set up trade negotiations.

But the colonizers never contemplated any form of negotiations from the moment James Cook first proclaimed Australia as land belonging to the motherland. Even so, any such negotiation over who owned land would have seemed an anachronism to the aborigines as to them the land owns us as it was bestowed in the dreamtime. During the early period of the colony, according to historian Geoffrey Blamey, the colonizers formed a rather grand view the indigenous inhabitants would willingly forgo their culture and way of life to join what was imagined could be a utopian state. In other words a resplendent bi product of Mother England minus the ugly parts given the benefit of hindsight. But to the aborigines this must have seemed simply bizarre, watching in horror routine hangings, floggings and observing an almost comical inability to live off the land.

Various experiments were subsequently undertaken with young aborigines who were educated and dressed in fine clothes on the expectation upon returning to their tribe (extolling the virtues of the colonizers) they would likely act as a catalyst for aborigines to join in to help build the enlightened colony This experiment worked to the extent their learning exceeded expectations, but, at the very first opportunity, the young men bolted to return to their tribes. Acutely homesick, life amongst the tribe was indeed idyllic in comparison to the drudgery of work.

As the colony expanded from large scale immigration beginning in the 1830’s the aboriginal numbers were already in rapid decline, decimated by disease (over which they had little natural defense) alcoholism and conflicts with the pastoralists. An excellent introduction to aboriginal history in the far north coast region of NSW at Nambucca is included in the early chapters of Valley of the Crooked River from historian Norma Townsend. The numbers of aborigines in Australia must remain purely hypothetical since no census was ever undertaken. Townsend refers to the economist, Noel Butlin, whose demographic and ecological modeling posits a much higher figure than what was previously believed. From his analyis, according to Townsend, he estimates a population of 250,000 in 1788 for only just Victoria, which sadly by 1840had declined to 75,000.
As the pastoralists took over larger tracts of lands a type of guerrilla warfare broke out with power and might ultimately winning out without any lingering sense of injustice until 200 years later.
By the time European settlement was putting down its first tentative footprint, except for small isolated pockets, the first Australians way of life was already irretrievably in rapid decline.

Whilst Archeologists have more recently uncovered extensive stone buildings in Victoria used during seasonal eel faming and found evidence of agriculture (grasses similar to maize were seasonally planted and harvested) this has all come too late to counter prior notions of inferiority. This ubiquitous feeling (except for a few who fought for their rights and culture)of inferiority underpinned a nihilistic governmental attitude for assimilating aborigines into a European culture although it must be noted there was not an intention to cause all of the subsequent pain and suffering.

Under both Federal and State government administered programs Aboriginal children were forcibly removed from families to white families or church-run institutions under a cultural reprogram aimed at assimilation that only ended in the 1970s. It has been reported almost all Indigenous families had at least one child taken away. If you view the old newsreels there was no room for self doubt- smiling young aboriginal children are introduced to the cameras as delighted youngsters who now have a much brighter future.

Theses injustices remain as an ugly scar but were at least acknowledged finally in 2007- to the nation’s collective sigh of relief – when the government of the day simply said it was sorry.

Today encouraging signs are emerging - particularly from large scale mining companies who include traditional owners to serve on sustainable development advisory panels. Hence we are beginning to realize the importance of environmental performance, social investment and community development including the need for more employment for indigenous workers and contractors.
An example of some of the postive work now being undertaken is from Woodside who, under their Reconciliation Action Plan, engage indigenous populations over issues relating to employment, business participation, social investment and heritage to foster long lasting positive relationships.
Key achievements last year were: 45% increase in the indigenous work force, cultural awareness training for employees, cultural competency program for senior managers, leadership programs to better equip the companies commitment in relation indigenous participation, training programs for supervisors of indigenous employees, indigenous employees mentoring programs, encouragement to staff to promote membership in the Reconciliation Interest Group.

Other groups such as Fortescue have been particularly active in increasing employment facilitated by a partnership with the Department of Education and Workplace Relations and Pilberra TAFE. Fortescue employed an additional 300 indigenous workers last year.

The Fortescue approach is based on community engagement, the guaranteeing of a job after successfully completing training and ongoing development support with tailored literacy and number programs for employees or contractors


From Colony to nationhood

The first settlement in 1788 in Sydney was beset with problems founded principally on unwilling convict labour with those few settlers ill prepared for the harsh Australian landscape which was unsuited to their English farming methods. Little wonder the colony soon teetered on the brink of starvation before food rationing and provisions from abroad saved the day. A tentative foothold was finally achieved to brutally power ahead and the colony gave birth to the first newspaper in 1803 which was named the Sydney Gazette and NSW Advertiser.

The paper was dominated by Official Notices and Orders. Its masthead proudly proclaimed that which was replicated on papers from the motherland: Published by Authority.
Nevertheless those attempting to eke out an existence must have experienced hard times judging by a notice of intended land seizure for unpaid government debts representing over 50% of settlers who were either unable or unwilling to pay their quit rents. There were further stern admonishments advising that slops would no longer be provided to the working convicts unless overdues for suits supplied were promptly settled with the authorities.

Beneath this veneer of civility the Sydney gazette was a mouthpiece for an administration with a disposition to brutality and which made no allowance for clemency. Around that time successive Irish immigrants fuelled numerous rebellions which were all put down although one in 1804 very nearly succeeded as widespread looting, seizures of guns and ammunitions gave rise to a sizeable armory. Retribution was always swift and brutal with public hangings.

Mostly migration in the early days was of convicts transported from Britain, Ireland and British colonies but by 1830’s a growing number from those same countries came under their own steam or by means of support from the various schemes available.

Under these increasing waves of new settlers and aided by exploration which made available large tracts of land in other states full scale agriculture evolved. The colony was exposed to the boom and bust of primary produce prices fluctuations but rescued to a large extent by the discovery of gold. Remarkably as farming became much more productive from new harvesting inventions combined with labour saving devices by the time Australia became a Federation in 1901, it's standard of living exceeded anywhere else in the world.

Despite a growing number of Chinese residents living in Australia then, the first step for the newly convened Federal parliament was to legislate the so called ‘White Australia policy’ to effectively ban Asian migration for the next fifty years.

It was not until the 1950's; Australia began to relax this policy until finally in 1973 – under a change in administration, Australia adopted a ‘multicultural’ immigration selection based on merit which later evolved to one predicated on skill and business experience.

Letters to the editor

These letters were published in the Australian Financial Review which is Australia’s leading national business paper with a weekday circulation of around 237, 000 and 153, 000 for the weekend edition.

All the letters with a link to the original article can be read " on line " by clicking on the heading to this post. Some were chosen to have cartoons attached created by their resident cartoonist.

A sample of some is reproduced below :

Security risk overdone

Local Huawei chairmen John Lord is justified in rejecting the assertion that a security risk justifies exclusion of the local arm of the telco giant, the second-largest supplier of telecom infrastructure in the world, in the building of the $36 billion national broadband network (“Huawei: “We’re no risk”, March 27).

Huawei has more than 100,000 employees with nearly half employed in research and development in Germany, India, Russia, Sweden and the United States. Their network extends to over 100 countries including most of the world’s 50 largest telecoms.

ASIO, of course, doesn’t have to justify its position to the public nor has our Prime Minister in her muted response “it’s prudent”. But with a project of this size one might reasonably ask why security safeguards and undertakings for all contractors aren’t already sufficiently robust to afford security protection.

Perhaps we should also ban US companies on the basis that more US military involvement here poses a national security risk bearing in mind the ease with which their own top secrets were posted for all to see on the Wikileaks website.

It doesn’t seem as if we have travelled too far forward from the time when the headlines screamed “Reds under the bed”.


Harvey’s groans still make a case

In “Please stop whingeing, Gerry Harvey’’ (Letters. January 12) I note Kieran Kelly avoids mentioning the one salient point that Gerry Harvey and Dick Smith attempt to make.

Simply put, overseas purchases by Australian consumers from internet sites owned and operated outside Australia avoid paying GST on purchases under $1000.

The growth in on line sales from these sites enjoying this cost advantage has nothing to do with innovation or changing modes of business or anything else but is due to this tax cost advantage.

Australians will and do purchase electronic goods, or any for that matter, when they are cheaper offshore. This year the government will collect hundreds of millions of dollars less in GST as a result of consumers sourcing goods from overseas which are not subject to GST. This means less tax is available for schools roads and heath. Retailers can, of course, set up their own on line shopping, but will be uncompetitive as they are subject to GST and import levies.

Baillieu’s Work Cover grab

James McKenzie’, chairmen of the Transport Accident Commission and Victorian Work Cover Authority, reaches the inescapable conclusion that a state government’s decision to impose a dividend on the workers compensation and work safe authorities is akin to simply another tax on employers. (“Baillieu raid threatens Work Safe’s full funding", Opinion. February 28).

The Baillieu government has taken just this course in its move to take $471 million in additional diviends from the WorkCover Authority.
I can remember the previous mess for workers compensation in the state several decades earlier prior to the present reform when employers faced crippling premium rates as high as 8% of wages as a consequence of large payouts under common law underwritten by a number of private insurers. Fortunately today after much needed reform we now benefit from the lowest rates in Australia.

But as McKenzie correctly points out, these are now at risk if the government decides on a policy of dividend imposition which can only be recovered in increased premiums from employers.
Hiding behind this ideological bent to pay a dividend should be seen for what it is – an additional premium hike on employers for no reason other than to boost the Treasury coffers and give the appearance of good economic management.

Asia resilient on Indian demand

Stephen Wyatt’s gloomy assessment on commodities (“China props up shaky demand” (January 30) notes that while China remains the elelephant in the room, it is not the only game in town.

Wyatt fails to mention some of the supply restraints emerging or that other resilient markets such as India and those in our Asian region which can and are leading the way in a revival in construction projects whose increased demand for steel will lead to an increase, for instance, in iron ore consumption.

In fact India’s consumption of iron ore is rising at a time as it reverses its position from self sufficiency to one that is a major importer since the government took action against illegal miners.

Further supply constraints are arising from Brazil whose mines were recently affected by the very heavy rains.

Depressed levels in the Euro zone and the USA are unlikely to get much worse so that overall even if there was curtailment in China’s appetite, the slack may be offset by demand elsewhere combined with emerging supply restraints.

Resources Future Assured

Stephen Wyatt’s “Boom glory days drawing to a close” (Commodities observed February 23) continues his theme commodity prices beginning in 2013 will suffer severe falls and put pressure on the share prices of BHP Billiton, Rio Tinto and Fortescue Metals.

Forecasting one year ahead is difficult enough, but predicting a 50% reduction in iron ore price over the next three years, as Wyatt does , even when quoting commodity analysts, is implausible.

Wyatt fails to acknowledge that in India and China softer future steel making demand for construction (and hence iron ore demand) may be more than offset by robust growth in the consumption-related sectors such as machinery and transportation.

This is a natural progression for these developing economies fuelled by demand from a burgeoning middle class and echoes China’s latest five year plan.

China is aiming at reducing its reliance on exports and investment to be more reliant on local consumption to sustain its economy.

If there is going to be any slowing in demand in commodities than a more likely scenario is a gradual decline but anyone predicting further massive falls is foolhardy. The dynamism of developing economies and their ability to sustain demand for resources over the next several decades should not be underestimated.

Hewson’s bank bashing unfair

John Hewson’s “Greedy banks cry foul” (Opinion, February 3) is another example of bank bashing lacking substance. I am intrigued by his idea that banks operate in a privileged position as a virtual oligopoly and are greedy.

Bank returns for the four majors vary from around 13 % to 17 % on shareholders’ funds with the top notch going to the Commonwealth and each has a very distinctive customer base.

Many listed Australian icons easily exceed this return such as Telstra at 26%, Woolworths 28% and BHP 38%. Given the cost of Capital is 12% the banks average returns of 15% can hardly be viewed as excessive. In fact the Australian banking industry is extremely competitive as evidenced by the string of foreign banks that closed their local operations unable to realise commercial returns.

Thankfully we have a strong banking industry which did not succumb to the overtures by foreign banks to become engaged in the sub-prime securities and derivatives market which caused those banking giants in the USA and Europe to need huge publically funded bailouts to remain solvent.

The only reason banks have to seek wholesale funding overseas at higher interest rates is because their local depositor base here is insufficient. Hewson and the flurry of bank bashes only serve to undermine what is needed: a continuing strong healthy profitable competitive banking sector which is critical at a time when overseas credit markets remain constrained.

A Faraway Place

‘A Faraway Place’ is a poem by my wife and I quickly penned this poetic afterthought

Princess
Only a memory; not history- just thoughts
Latticed green landscape of her endless estate
The old genes return to inspire a memory
Needlework of her boundless homeland
What mastery does this poem reveal?
Echoes of a past princess in nature’s royal estate?
For although we as mere mortals must be
Can we not imagine a finer dust that lays dormant ?
To emerge in words and song

A Faraway Place
For years I’d longed to visit
Where Winston Graham wrote
In Poldark of Cornwall:
Bodmin, St Ives and Penzance.

A tale of smugglers, tin miners, gentry,
Intrigue, romance and greed
Where raging seas sculpt craggy cliffs
And Cornish Heath abounds.

There at last; much to explore
Where other feet have trod.
I’ll do my best to recount
Of happy times spent then.

First, L....r Farm; a dairy.
Bed and breakfast offered too.
It settled in a verdant vale
Quite difficult to locate.

Through blossoming, hedged lanes we drove
At last found the estate.
That picture postcard property
Was all that we had hoped.
The hostess was a little strange
When I asked her for an iron
She brought it, but not a board.
When asked about a place to dine,
“Don’t ask me”, was her shrugged reply.

The locals about were friendly.
One stopped to show the way
To the famous bronze age ‘Hurlers’,
High up upon the moor.

There, golden, gorse girt granite stones
Placed so long before
When ancients worshiped many Gods;
A picture perfect; Bodmin Moor.

Lazy days; see mare and foal
Share grazing ground with
Ewe and lamb and tourists who
Delight in nature’s spectacle on Bodmin Moor.

Beware the marshes and the bogs,
Beware large cats that roam;
A Puma? That was hard to cop!
Sightings listed at the Minions Village Shop.
Glimpsed a skeleton on the landscape
With a Tamer Valley view.
A monument or gravestone?
To wealth or exploitation?
To Tin!!

St Ives was such a busy place
The day that we were there.
Just couldn’t find a parking spot
By harbour or by sea.

It was a public holiday and the beach was crowded.
Traffic crawled through narrow streets
Past cottages so small and quaint
Once fishermen’s accommodation.

To visit the Tate Gallery;
One reason we had come.
But time grew short while tempers frayed.
Thought we’d come back another day.

Penzance though picturesque
Did little to impress me
But the nearby Minack Theatre;
An astonishing place to be.

The stage below, the sea beyond
The cliffside terraced to seat a crowd.
I’d have loved to sit beneath the stars
That night while the actors performed.

Alas the seats were all sold out
And the rain had begun to fall.
Though disappointed I was content
To rest and enjoy the view.

Moved on from Penzance to further climes
So much more to see
But Cornwall; it will always be
A beautiful memory.

River Walk

Crunch of gravel underfoot
Dust baked on a river’s track
Yellow tree spray on display
Shimmer in the river’s eddies

The wind brings a haunting rhyme
Resounding chords of a lost dreaming
When sky turned black, when rains came
it washed away the old bush track

Camped by the river, on the plain or in the scrub
Tribes still remember a great flood
As their mother earth rebounds.
Game is plentiful-they dance again
To the tune of the great hunt

Gone now like the first spring floods
Gone the nulla, the sling and the spear
Replaced by the gun
No longer,
No more.

A slower boat to China

It is only recently become apparent Chinese credit growth has far exceeded western economies during the past 3 years of the current global financial crisis.
China initially injected about $750 billion into municipal councils to thwart the effects of an initial savage downturn in exports which literally fell off a cliff in terms of reduced volume as a conseqence of the GFC.
This stimulus was earmarked for investment spending by municipal councils who augmented these funds with massive loans to invest in infrastructure projects and real estate development to the tune of trillions of dollars in additional credit.

This meant that 60% of the economy was being underwritten by unsustainable investment spending leading to both house prices and buildings ratcheting up in a huge bubble accompanied by marked increases in inflation.

The magnitude of this spending dwarfs the stimulus measures in the west and resulted in a huge buildup in government debt- that is rather a massive increase in municipal debt added to the much more modest 20% to GDP of the central bank indebtedness to total near 100% of GDP- similar to the central government debt in the USA. Victor Shih, a professor at Northwestern University who specializes in China warns that the country has only achieved its blistering GDP growth through massive leverage on a scale nobody currently appreciates. Here's what he wrote in an op-ed in WSJ Asia in regards to figure out the true level of provincial, local debt: To obtain an independent estimate, I collected data from thousands of sources, including regulatory filings, bond-rating reports and press releases of government-bank cooperative agreements. I estimate local investment entities' borrowing between 2004 and the end of 2009 totals some $1.6 trillion. The data are far from perfect because borrowing by low-level government entities and lending by small banks are difficult to track. Nonetheless, my evidence suggests that the scale of the problem is much larger than previous government estimates. At $1.6 trillion, the size of local debt is roughly one-third of China's 2009 GDP and 70% of its foreign-exchange reserves, To read the full article click here

The measures introduced by authorities to curtail the unsustainable bubble and curb inflation gave rise to fears of a crash or hard landing which was initially evidenced by a significant slowdown in imports (halving) and house prices falling 50%. Unsurprisingly this has given rise to pockets of social unrest and corruption out of this boom and bust cycle. Oddly enough as each piece of bad news filtered through to the west (as evidenced by falling prices and reduced demand) confidence grew that authorities would take action to avoid what otherwise might be a very hard nasty landing.

Hence the big questions remains will China be able to curtail this unsustainable investment growth as authorities aim for a soft landing to revert to a sustainable rate of growth or do we need to brace ourselves for a significant slowdown which will affect exporting countries such as Australia?

Anyone who thought that China was immune from the GFC or thought that authorities had a iron clad grip on what was going on need to think again. So we are bound now to see a future slower China with exports curtailed by a struggling Europe, by weak global demand and constrained by less capacity for internally based stimulus measures. Howewver, on a brighter note, once EU countries finally commit to improved budgeting to live within their means possibly in March this year the European Central Bank is likely to loosen the money supply and provide some respite to a recession for the region. This could not come too soon as European leaders have so far shown a marked reluctance to do anthing other tham tinker around the edges as their economies inevitably slide ionto recesion. The degree to which the recession bites, of course, the greater the impact on China as Europe is its biggest customer.

However in China the response by authorities recently has been to loosen the banking ratio reserve( funds banks must keep in reserve)and reduce official interest rates which were cut for the first time in 3-years, by 50 basis points ( Eg .50% ). A much more accommodating monetary policy was made possible by inflation reducing from 6.50% to just over 4% and further easing will no doubt continue this year.

The People's Bank of China, the country's central bank, said on Wednesday that it will lower banks' reserve requirement ratio (RRR) by 50 basis points for the first time in three years in order to replenish liquidity in the country's banking system as inflation eases.
The latest cut, effective on Dec. 5, drops the RRR to 21 percent for large commercial banks and 17.5 percent for mid- and small-sized banks. An estimated 396 billion yuan (62.38 billion U.S. dollars) in capital will be released into the market. Click here for the full article


Hence it will be a slower boat to China this year. But given the easing in monetary policy and with more to come I think it may still revert to a fair rate of knots- maybe in the order of a growth rate of 7.5- 8% compared to the unsustinable double digits of the past.

The reality is however that because of the buildup in debt China does not have the capacity to further stimulate the economy as it did just a few short years ago. It is not all plain sailing and the policy options remain constrained.

PS China’s economy probably grew the least in 10 quarters in the last three months of 2011 and may cool further as export demand slumps and officials prolong a campaign against property bubbles.

Gross domestic product, the value of all goods and services produced, rose 8.7 percent from a year earlier, the slowest pace since the second quarter of 2009, according to the median forecast of 26 economists surveyed by Bloomberg News. The data, and indicators for investment, retail sales and industrial production, are scheduled for release tomorrow in Beijing.

The fourth straight quarterly slowdown in the world’s second-largest economy adds to concerns that global expansion is faltering, with the International Monetary Fund warning of near- zero growth in Europe and a “substantial” cut to its global forecast. China’s exports rose the least in two years in December and inflation eased to a 15-month low, bolstering the case for Premier Wen Jiabao to loosen policies.

“The worst is yet to come and more easing measures will be in the pipeline in coming months,” said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., who previously worked at the IMF. “Increasing downside risks in China will hurt the outlook for other economies especially commodities exporters such as Australia and Brazil.”

Growth may “trough” at 7.5 percent in the three months through March and 7.6 percent in the second quarter, Zhang said. That may prompt the central bank to “front-load” policy easing into the first half, with one interest-rate cut in March and three reductions to banks’ reserve requirement ratios, he said. Read more by clicking here

What I believe but can’t really prove:

Just for interests sake I thought I would list what I believe but can’t really prove:
1. Natural selection governs the evolutionary nature of all things to determine their existential status subject to continual and repeated creations.
2. Within this creation exists awareness which acknowledges a superior force or energy which must, by logical necessity, exceed what could be imagined as separate to self. This is the root of all religions and their beliefs.
3. The perceived order of the known universe gives rise to universal laws that mimic grand design even though at the smallest level particles defy these laws and at the outer extremities they break down. So that one can say at the most basic level life remains an ever deepening mystery.
4. All things are dependant and co exist with another and the environment and universe is a product of those entities that inhabit that space.
5. A void is only a void to the extent we are not aware of what makes up that space.
6. Freewill only exists as causality in decisions at the time as opposed to our unknown future about which we might say is more to do with our fate than our choice.
7. Ultimately all that exists can reduce to pure energy of one kind or another.
8. When we die or body dies but we pass on to another form of energy.

Your money or your life; your life or Australia?

Patrick Byrnes- highway robber, convict & cedar getter
Guest blog post by Rachael Byrnes.

“They were a strange and wild set... of desperate ruffians .They are certainly the most improvident men of the world” (John Henderson, Pastoralist, 1840s).

As I read the above quote about the cedar cutters of the Nambucca region in the 1840s, I can’t help but think that it could easily be a description of me: a wild ruffian living hand to mouth!! Perhaps that’s going a little too far, but knowing that this small community was home to my great, great, great grandfather, I can’t help but wonder... is there a little bit of Patrick Byrnes in me?

My name is Rachael Byrnes, my father, your usual blogger here, is Lindsay Byrnes and his great, great grandfather was a Patrick Byrnes; a highway robber, convict, cedar getter and tavern owner. Boy! Is that a tough infamous bill to live up too!? I can’t claim to be a cunning thief or frontier opportunist but as I read Norma Townsend’s book Valley of the Crooked River, I am amused by little clues that provide some insight into who I am and why.

Patrick Byrnes, a brief background
Patrick Byrnes was born in Tipperary, Ireland in 1816. He was convicted of highway robbery in 1836 and sentenced to death, a sentence then revoked in exchange for transportation to Australia. Patrick was just 20 years old when he was convicted of highway robbery. It is likely that he resorted to crime to survive as many poor and oppressed Irish of that era did.

Patrick was transported on the Captain Cook, and sailed for 187 days to reach Australian shores. After several years of convict labour he was granted a ticket of leave. There is no information about Patrick’s time as a convict but there is no doubt that it would have been a gruelling and unforgiving period of tough labour.

In 1848 Patrick married Emma Howell in Sydney before moving to the Nambucca region in northern NSW, an area rich in unexploited cedar wood. It is suggested in Norma Townsend’s book that Patrick and a friend by the name of James Cook moved to Nambucca, as part of a joint cedar getting plan. Howell’s family were also cedar cutters which may have provided extra incentive to move to this remote area.

Cedar wood was known as Red Gold as it was one of the most important Australian exports of the time. A dramatic rise in price in the 1850s made cedar getting, even in treacherous frontier areas like the Nambucca, more attractive.

Life on the Nambucca in the 1850s

Patrick, Emma and James were part of a third wave of cedar getters to the area. The early getters had left much of the cedar trees untouched and had not settled in the area. Poor access and laws preventing land selection left early cutters with no incentive to build communities along the Nambucca.

Even when Patrick, Emma and James arrived in the area, crown land was not available for sale and at best could only be held under pastoral lease. A timber licence permitted occupation of Crown land but none was held on the Nambucca until 1864. In the 1850’s economic development in the Nambucca was somewhat crippled. Sawyers lived from hand to mouth and dealers spent much of their profits outside of the valley. Most settlers, like Byrnes and Cook, eked out a precarious existence initially and struggled in the most primate conditions. There was little point, for example, in putting up but the most flimsy shelters or making any improvements without title to the land.

The history of European settlement during this period is somewhat lost in the mists of time but we can only imagine the struggles and hardships that men like Patrick would have endured deep in these wild subtropical rainforests.

“The scenes surpass all description. Men and women lying day and night on the bare grass in a state of intoxication and only recovering to renew their orgies” (Clement Hodgekinson, Pastoralist, 1840s)

Although the above quote, from a middle class pastoralist refers to a period just before Patricks arrival, growth in the area was very slow at first and so the culture would have remained much the same until the late 60s. Perhaps this is a biased and derogatory observation, yet we still muse over the wild drinking sessions that might have taken place.

Selecting and settling

In 1861 the Robertson Land Acts established in NSW allowed those with limited means to acquire land, with the stated intention of encouraging closer settlement and fairer allocation of land by allowing 'free selection before survey'.

Initially Patrick established his family at Boat Harbour, an isolated spot on Taylors Arm with its cedar untouched. In about 1864 he moved downstream and selected land near a ford on a sweeping bend of the river. He shrewdly chose his site; well watered, flat but not marshy, suitable for farming if cleared and ideally located close to established tracks and river transport. Patrick named his house and land “Congarena”. It was probably corrupted into, or was a corruption of “Congarinni”, said to be Aboriginal for “bog.” It’s strange then that his property was one of the least marshy of the area! Perhaps Patrick had a sense of humour or else the word did in fact mean something to him or the local aboriginal population.

After selecting his property, Patrick quickly established a successful store and pub called “The Shamrock Tavern” and ran a punt at the crossing. Not much is known about the pub or the small community that would have frequented it. Certainly, selection and growth in the area was slow with only seven selections in 1865, 20 in 1866 and 45 in 1867. Still this was enough to enable Patrick Byrnes to carve out a living and raise 12 children!

Personality and values – a peppery opportunist, protestant and catholic?

There are only small clues available about what Patrick Byrnes’ personality and values might have been like. We could easily “jump the gun” and suggest Patrick was an immoral man, committing crimes of terror against innocent highway travelers. However, if we consider the poverty and oppression that existed in Ireland the 1830s and how a large majority of the convicts sent to Australia were poor and illiterate, we can suggest that Patrick was simply a victim of circumstance. More than likely, he was part of a highway robbery gang that stole for survival or to access a lifestyle beyond backbreaking farm work and the common diet of potatoes and milk. Also, from the 17th through to the early 19th-century acts of robbery in Ireland were often part of a tradition of popular resistance to British colonial rule and settlement and protestant domination.

Perhaps Patrick was part of the last wave of resistance robbers, claiming loot as revenge. With a name like Patrick and the Gaelic surname Byrnes, Patrick was almost certainly born Catholic and the fierce tensions between Protestants and Catholics are well documented.

It’s interesting though that he then denied his Irish roots later in life. In Townsend’s book it’s noted that Patrick was “known as a peppery Irishman, he claimed to have been born in Rochdale Lancashire in 1820.” Perhaps it was religious tensions between his wife Emma Howell, who he married in the Church of England that led to this false claim. It’s interesting that Patrick and Emma were married protestant but some of their children baptized catholic. Were there ongoing religious tensions they could never fully resolve. Whilst Emma’s Protestantism prevailed for the marriage Patrick was buried a catholic in 1883. Perhaps religion wasn’t greatly important to them at all, happy to switch between denominations at their whims.

My bet is that Patrick lied about his origins for cultural and business advantages; to appeal to the sensibilities and judgmental middle class cedar buyers. In Townsend’s book it is noted that middle class observers thought poorly of ticket of leavers and the working class. Cedar cutters received the harshest of commentaries such as the extracts below from the Sydney Morning Herald

“The cedar grounds are the resort of the runaways and other bad characters who flock to these places where they are almost beyond the pale of the law...the scenes of infamy and vice that are to be witnessed there are ...horrible to contemplate” (Sydney Morning Herald, 1837)

Patrick may have concocted all kinds of embellishments for monetary gain or may have simply been embarrassed by his past. It’s interesting to note that most convicts granted a ticket of leave were still under legal observation and could have their ticket revoked if bad behavior was conducted. Perhaps this explains the incentive to move to such far off places as the Nambucca. Did Patrick want to be “beyond the pale of the law” ... simply to be free, to have a chance at making a better life for himself or did he find himself at home amongst the scenes of infamy. One can only guess!

There’s no doubt that Patrick was an opportunist willing to do what it took to carve out a lifestyle that was a step above wretched! Perhaps that meant lying, embellishing the truth, moving to remote places, dancing between catholic and protestant, making shrewd business decisions and being “peppery” if it got the job done.

It has been noted in Townsend’s book that Patrick Byrnes was perhaps a more ambitious and a more successful entrepreneur than his contemporaries. Emma and Patrick raised  7 children which were still considered a large family even for that era. Certainly it mustn’t have been easy both practically and financially to raise that number of children. He must have had his wits about him or else that Shamrock did bring him good fortune. Perhaps it was a little bit of both.

Patrick Byrnes lives

Without Patrick Byrnes, his highway robbery and cedar business, I myself would never have come to exist. Whilst it’s only one ancestor of many that make up my genetic code, I still wonder what pieces of Patrick Byrnes are in my genes today? Did I get my peppery tendencies from him? A keen interest in building my own business; of being self made? A desire to live in the middle of nowhere and try something new? Or did I simply inherit a few physical genes like dark hair and small features. As I write this I notice one of my recent gig posters. Rachael Byrnes with cedar wood guitar and shamrock emblem at the bottom for good luck. I can’t help but see the coincidence and wonder is the ghost of Patrick Byrnes leaving its mark?

Thanks Racheal - Here is poem I composed about him :The Inn was located on the bend of the river - what historian  Norma Townsend gave as a title to her book 'The  Crooked River'.

In Ireland, in 1836, before the dock, in mortal fear he trembled,
But the judge he ruled in clemency, to the colonies  transported,
Go forth as a convict, these shores now be departed.

And so below in a filthy hold, as he was so tethered,
To scheme all day, to dream,  his liberty was granted ,
For upon the shores to work for slops and bread,
Until that pardon came, then to the crooked river,
To build tan inn, to farm the land, to raise a family,
Along the crooked river there was no better man.             

To the Bullock trains passing by it was the favourite spot,
For witty tales, for tasty ales, but not your only lot.
For gentlemen seeking tweeds. he sold none better,
And so in fame his fortune spread, along the crooked river.

To the cedar kings of high country, where rivers just a speck,
To the rivers mouth, a graveyard  for all the dreaded wrecks,
He was the grand innkeeper, the one where all would stay.

This is the story of an Irish lad, who just stole for bread and butter,
A pioneer, whose fortune was told along the crooked river.