Never Smile at a Crocodile

Publisher’s Note: Tomorrow marks the opening of the Port Phillip Publishing investment conference, the Great Repression. In a world first for Port Phillip Publishing, we will livestream publisher Kris Sayce’s opening remarks on Facebook. To follow the event live, go to Markets and Money Facebook page at 8:45am AEDT tomorrow morning. You’ll find Markets and Money Facebook page here.


The Great Repression conference starts tomorrow in Port Douglas. Tropical North Queensland is as close to paradise as you can get.

When you’re here, amid the peace and tranquillity of nature, you can easily forget the financial woes besetting the world. You are hypnotised by the beauty — where the rainforest meets the reef.

Who wouldn’t want to be under-employed in paradise? Who needs a lot of income when mangoes, bananas and an abundance of tropical fruits are available for the picking?

A conference on financial repression in a tropical paradise is as contrasting as Donald Trump and humility, or Hillary Clinton and honesty.

While paradise appears idyllic and alluring, there are always unseen dangers. Crocodiles. King Brown snakes. Deadly stingers.

And so it is in the Neverland that central bankers inhabit.

Neverland… It is an imaginary faraway place, where Peter Pan, Tinker Bell, the Lost Boys and other creatures and beings live. Although not all people who come to Neverland cease to age, its best known resident famously refused to grow up, and it is often used as a metaphor for eternal childhood (and childishness), immortality and escapism.

— Wikipedia

In economic Neverland, its best known resident — the central banker — also refuses to grow up. They act like children. They want immortality. And they do everything in their power to escape reality.

Pretending a problem does not exist won’t make the problem go away…no matter how much you wish upon a printing press.

In a land not that long ago, Alan ‘Greens Pan’ (a distant relative of Peter Pan) discovered a magic spell for growth without effort. In this Neverland, you no longer needed to work to enjoy a better lifestyle. Alan summoned his banking pixies and told them to sprinkle his newly-created ‘lending dust’ on the community. It worked a treat.

Debt levels rose. Interest rates fell. Growth was generated. Inflation remained low. Neverland was a Western consumers’ paradise.

It didn’t matter whether your income stagnated; you simply had the banking pixie shower you with the magic dust, and money appeared to fill the void.

The magic spell worked so well that Alan ‘Greens Pan’ flew even higher than Peter Pan.

If you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: it will be what [Alan] Greenspan wants it to be, plus or minus a random error reflecting the fact that he is not quite God.

— Paul Krugman (Nobel Prize winning economist) in 1997

Forget Neverland, we were ascending to Heaven.

A couple of the Lost Boys — firstly Bill Clinton (who besides being lost was also a very naughty boy), and then George Bush (who got lost while looking to rid Neverland of weapons of mass destruction) called Alan aside and laid out a grand vision for Neverland. It was called the ‘National Homeownership Strategy’. Everyone in Neverland should own a home…even if they can’t afford one.

Could Neverland get any better?

After Neverland’s dotcom bubble popped on Captain Hook’s hook, Alan knew that, to keep the Neverland dream alive, he needed more ‘lending dust’ to be spread around.

Instead of the banker pixies selectively sprinkling the dust on those with a credit rating and a job, Alan encouraged the banker pixies to crop-dust the entire nation. Anyone with a heartbeat was going to be a homeowner. An overly generous dose of low interest rates and adjustable rate mortgages did the trick. Some inhabitants of Neverland did what they thought they could never do (which is why it was called Never…land). They bought not one but several homes, with the help of their commission-based banker pixie.

No income. No job. No worries. This is Neverland…where you never have to worry about pesky details like how you’re going to pay back a loan.

Neverland never had it so good. Property prices up. Share prices up. Inflation down. Economic growth up. China booming.

Australia was on such a high…we must have been real high…we elected Kevin Rudd and Wayne Swan to be the Lost Boys of our Neverland economy. And boy were these two lost… We should never have put these economic illiterates in charge…they really were lost, little boys. We needed people of genuine ability to tell us Neverland was nothing more than a figment of Disney’s imagination. But it’s time we faced reality.

When the subprime bubble was impaled on Captain Hook’s cutlass, it was time to face the facts. Neverland was fun while it lasted, but we now had to grow up and face the reality of the adult world.

Unfortunately, those with a vested interest in maintaining the illusion of Neverland saw things differently.

Central bankers have done all in their power to recreate Alan’s magic dust — more money and the lowest of low interest rates. But the magic’s gone.

Neverland is a fantasy world. One where you borrow your way to prosperity. Grow up…it doesn’t work that way.

The Peter Pan central bankers and Lost Boy politicians are desperately trying to keep the dream alive…but the magic dust has turned toxic.

People have come to realise debt is like any other drug…too much leads to substance abuse. The continual high comes at a cost.

Debt needs to be repaid, restructured, or defaulted on. Each of these debt minimisation strategies detract from economic growth.

The creators of Neverland are never giving up on the dream…that’s why even more financial repression is what awaits us.

In addition to creating trillions out of thin air and punishing those in the adult world who saved (and didn’t buy into the Neverland story), they spread misinformation to trick the remaining inhabitants of Neverland into believing the illusion is real.

Last week we were told the Chinese economy — a critical contributor to Neverland — grew at…wait for it…6.7%. Wow, smack bang in the middle of the targeted 6.5–7% set at the National People’s Congress earlier this year. How lucky was that?

The reliability in these numbers would make Bernie Madoff blush. By the way, Bernie is in a Neverland of his own…he is never leaving prison.

Chinese economic data
Source: ABC News
[Click to enlarge]

Australia’s latest unemployment numbers are part of the whole charade being played out in Neverland. Unemployment numbers are falling, but only because a) more people are opting out of the workforce, and b) more part-time and less full-time jobs are being created.

The latest data shows the participation rate has fallen to 64.5% — it was 66% in 2011.

It’s estimated in the last quarter that around 53,000 full-time jobs were lost and 43,200 part-time jobs were added.

Since December 2015, there are 130,000 more people working part-time, and 54,100 fewer people in full-time employment.

This is not the trend Neverland is looking for. Part-timers do not borrow anywhere near to the extent of full-time workers.

Those in generous taxpayer funded positions in Neverland appear to think all that’s needed to restore their mythical land to its former glory is more and more (toxic) magic dust.

In Neverland, there’s a crocodile named Tick-Tock.

Ironically, this is the same sound being made by the debt bomb upon which the whole world is sitting.

In the meantime, we’ll enjoy our few days in paradise and look forward to providing delegates with actionable strategies on how best to ensure they ‘never land’ in a situation where their capital is at risk from being devoured by Tick-Tock.


Vern Gowdie,
For Markets and Money

PS: As part of Port Phillip Publishing’s Great Repression conference taking place this week, we’re giving three lucky people the chance to win a genuine three 1oz Silver Coin. To find out more, click here.

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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