Winning Streaks Always End

The State of Origin series is big news in rugby league mad Queensland.

The Qld Maroons versus the NSW Blues. We love the rivalry.

In the past 12 years, Queensland has won 11 series.

This year’s series is hanging in the balance.

On paper, NSW look the better team…stronger and faster.

The Queensland spirit — being able to conjure up a win against the odds — has been a factor in winning some of the past series. We are going to need that spirit this year.

But luck can only take you so far.

Queensland’s domination was due to a number of quality players who were fixtures in each series.

Every year they pulled on the Maroon jersey, our confidence levels would rise.

This year the big four — Cameron Smith, Johnathon Thurston, Cooper Cronk and Billy Slater — have either retired or are injured.

Win or lose this year, an era of Queensland domination is over.

The pendulum could swing back to the Blues and — as much as it pains me to say it — they could  be in the ascendency over the next few years.

Things change. Players get older. Players retire. Younger players take time to gain the experience. Game plans adapt. New coaches are employed.

Winning streaks always end.

The longest recorded winning streak in history is held by Pakistan’s Jahangir Khan.

The professional squash player had 555 consecutive wins from 1981 to 1986.

Then, in 1986, he lost to Ross Norman (a Kiwi) in the world championship in Toulouse.

And some winning streaks have turned out to be artificially created.

Lance Armstrong’s Tour de France winning record has been expunged from the history books.

The moral of the story is that every win — real or otherwise — brings us closer to the inevitable loss or revelation of the lie.

Why Australia’s Economic Winning Streak is a Bad Thing

On 6 June 2018, Reuters ran the headline…

 

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Source: Reuters
[Click to enlarge]

Our economic winning streak is in record breaking territory.

The last recorded recession in The Lucky Country ended in June 1991.

The Millennial generation (those born between 1981 and 1996) have never experienced an economic contraction…not even a minor one.

That’s not good. This is not how the system and, more importantly, life should work.

You need to experience hardship and difficulty. The pain of loss. It builds resilience. Develops resourcefulness.

Failure makes us appreciate the fruits of success.

Uninterrupted success can lead to complacency.

And its complacency that breeds contempt.

In last Friday’s Markets & Money, I produced a table on the debt and demographic drivers behind our economic success since the 2009 credit crisis.

Here are the numbers — sourced from RBA, ABS and Australian Debt Clock — going back to our last recession in 1991…

 

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Source: Debt Deflation
[Click to enlarge]

 

Our record breaking economy has increased fourfold over the past 27 years.

And so it should.

We’ve increased the nation’s population by over 40 percent, and look at our debt levels…an extra $6 trillion has been added to our — public, private and corporate — balance sheets.

While the population trend might continue, the debt trend cannot.

Why?

Australia’s Addiction to Debt

Debt has risen as rates have fallen. Wages are not growing like they did in the 1990s and early 2000s.

When you analyse the data, our economic winning streak is more Armstrong than it is Khan.

We’ve seen this systemic economic doping before.

This is an extract from an article I wrote 8 September 2017…

‘In late March 2017, the Australian Trade and Investment Commission published a report titled:

‘”Australia has experienced the longest period of economic growth in the developed world”

‘Here’s what the ATIC had to say about our ‘uninterrupted economic growth’…

‘”Australia’s economy grew a strong 1.1 per cent in the fourth quarter (Q4), lifting Australia’s annual economic growth to 2.5 per cent in 2016, according to the latest National Accounts figures released by the Australian Bureau of Statistics. The latest result is a positive sign that our economy has maintained the solid momentum that has already delivered Australia 26 years of uninterrupted economic growth. More dramatically, I estimate that Australia now holds the record for the longest period of recession—free growth for a developed country.”’

‘To support this view, the ATIC published this table…’

 

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Source: Australian Trade and Investment Commission
[Click to enlarge]

 

The report went on to extoll our ‘relative growth performance’

‘”My estimates for Australia’s relative growth performance are based on the growth accounts assembled by the OECD, which are available here. This data shows only two other economies come close to matching Australia’s recent economic record. The first is Japan, where the total number of positive quarterly consecutive growth rates was 63 from Q1 1975 to Q1 1993, according to the OECD…”’

‘With regards to duration, we’ve outperformed second place getter, Ireland.

“The Irish economy delivered uninterrupted economic growth from Q3 1986 to Q1 2007.

‘The Economic and Social Research Institute of Ireland released a journal article in February 2016, titled:

‘Economic Stress and the Great Recession in Ireland: Polarization, Individualization or “Middle Class Squeeze”?

‘Here’s an extract (emphasis is mine):

“’Following an unprecedented boom, since 2008 Ireland has experienced a severe economic and labour market crisis. Considerable debate persists as to where the heaviest burden of the recession has fallen. Conventional measures of relative income poverty and inequality have a limited capacity to capture the impact of the recession in terms of social exclusion. This is exacerbated by a dramatic increase in the scale of debt problems including significant negative equity issues.’”

‘Ireland’s economic miracle was nothing but a mirage. Economic expansion was simply a function of its citizens’ willingness to believe the BS and borrow like there was no tomorrow.

‘Well tomorrow did come with a dramatic increase in the scale of debt problems including significant negative equity issues.

‘All that debt funded growth came back to bite them hard.

‘”Negative equity issues” is a nice way of saying “people owe the bank more than what the asset is worth”.

‘And then the second place getter in relative growth performance is Japan — Q1 1975 to Q1 1993.

‘In 2009, The Business School, University of Huddersfield, released an economics paper on Japan:

‘”Japan has experienced a severe economic recession since the early 1990s, despite a short lived recovery in between, is one of the most significant developments in the recent history of capitalism.”’

‘Anyone else noticing a pattern here?

‘Remember Japan’s miracle economy of the 1980’s?

What We Can Learn From Japan’s Economy

‘This is a copy of the New York Times on 7 September 1988:

 

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Source: New York Times
[Click to enlarge]

 

‘An out of control real estate market.

‘Sounds eerily familiar.

‘There’s no secret as to what propelled Japan to ‘miracle economy’ status…rising private debt:

 

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Source: Debt Deflation
[Click to enlarge]

 

‘Note when Japan’s Private Sector debt hit its high…early 1993. Exactly when Japan’s record breaking period of relative growth performance ended.

‘Both Ireland and Japan have paid a very high price for their so-called economic success.’

Last week, the Australian Financial Review published an article that asked the question ‘Is an Australian financial crisis on the cards?’

Here’s an extract (emphasis is mine)…

‘….Australia is one of the few economies to have increased its debt burden since the global financial crisis. Household debt to GDP has tailed off a touch of late, but sits at record highs of around 120 per cent. The next nearest is Canada, at 100 per cent. We also have one of the highest household debt-to-income ratios in the world: 190 per cent. Five years ago it was 160 per cent.’

The Danger of Too Much Debt

What happens when a nation accrues too much debt?

According to Capital Economics chief Australia economist Paul Dales (quoted in the AFR article)…

‘Economic history shows that there is usually a consequence of a prolonged period of rapidly rising debt, the only question is: how bad will the consequence be.’

We know from the experiences of Japan and Ireland how bad that consequence is likely to be…a severe recession awaits nations with overly-indebted households.

Unfortunately, our economic winning streak has set us up for a massive failure.

What’s going to make this worse is that we do not have the skills to cope with failure.

Wholesale job losses. A sustained and severe downturn in our beloved property values. Foreclosures. Business closures. Bankruptcies.

The flipside of prolonged success is not going to be pretty.

Adjusting to changed conditions is not going to be easy.

Something Queensland fans may well be finding out this time next week.

Regards,

Vern Gowdie,
Editor, The Gowdie Letter


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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