Archive for December, 2010

How the government rip you off with hidden taxes when you go shopping

Sunday, December 19th, 2010

In Australia, one of the major secular trends that is happening is the growth of online shopping. More and more consumers are discovering the joys of bargain hunting through the Internet, thereby bypassing the traditional bricks-and-mortars retailers in the local shopping malls.

One of the pet complaints by Australian retail businesses is that they are unfairly burdened by the need to pay GST. Australian consumers avoid GST by buying from overseas web site. Worse still, the strong Australian dollar makes overseas products even cheaper.

So, is GST really the root of the problem for Australian retailers who find themselves increasingly unable to compete with foreign web sites?

Well, let’s hold a thought experiment. Imagine that all the goods at your local retailers are reduced by 10% (which is the GST amount). Will that make your local retailers more competitive than their overseas online competitors? Will that make you switch from buying from overseas web site to your local retailer? If the answer is “No,” then it means that we have a structural problem in Australia.

For one, consumers are complaining that the range of products sold by our local retailers are too small. In other words, they can’t get what they want locally and therefore, have to shop in foreign web sites to get them.

More importantly, many goods sold by foreign web sites are very much cheaper than identical ones sold at your local shopping mall, even after you include shipping costs. For example, when you compare the prices at your local Dymocks bookshop and Book Depository, you will find that the latter is much cheaper (by the way, if you shop at Book Depository through our link, you will help us and help yourself financially). That means that even if the government can somehow enforce GST on foreign online retailers, our local retailers will still bleed.

So, if you accept the theory that this is a structural problem, what could it be? Recently, we found this very interesting comment that may possibly answer this question,

How can local retailers compete with overseas retailers when their operating cost here are significantly higher than overseas. The biggest single cost, after labour, is commercial and retail rents, which are at least 50% higher here than overseas … this is reflected in the price of the goods.

The enquiry should centre around why retail rents have skyrocketed in Australia, and why the institutional property owners force retailers and small business to pay extremely high rents. Try starting a small business here when you have to pay $200- $400 per sq metre in suburban Sydney, yet in the US, the same premises rent out for $50 – $150 per sq metre.

The Government is complicit in that it has a vested interest for property values to be as high as possible to ensure the land tax revenues keep coming in … Australians are being taxes artificially at all levels in the community .. from the goods they buy to the cost of electricity .. behind all of these costs are hidden government fees.

So, this is another example of unintended consequences of the property bubble in Australia.

Something fishy happening in the physical gold and silver market

Thursday, December 9th, 2010

Have you noticed something fishy going on in the silver market? Take a look at this chart:


This chart shows the ratio of gold to silver prices over a period of a year. As you can see from the trend, silver is getting more and more expensive relative to gold since before September. If you extend the period to 36 years, you will see this:


The latest move is pretty major, even when you see it from a time-frame of 36 years.

So, what is the story behind this major move? Remember what we wrote in page 59 of our book, How to buy and invest in physical gold and silver bullion? There, we wrote about the possible fuses that can ignite silver prices. In that section of our book, we mentioned the colossal short silver positions of JP Morgan.

Well, according to J.P. Morgan and the Great Silver Caper,

?A viral campaign (Crash JP Morgue Video [below]) to buy a physical silver and ?crash? the bank is now spreading like wildfire on the Internet,? SFGate reports

Even more fishy is that the futures market for gold and silver are in backwardation (see Investors to Silver: ?Let?s Get Physical?). In case you do not know what "backwardation" means, you may want to take a read at How futures price affect market price. What does this mean?

Well, in theory, backwardation is not supposed to happen. But if it happens in reality (as it is happening right now, which is rare), it is a sign of distrust in the paper gold/silver markets as traders/investors are queuing up to take physical delivery of the precious metals.

Another interesting observation: as you know, we are an affiliate partner of We noticed that all the customers that we referred to them are buying silver. We have yet to see a gold purchase.

Note: This article is not financial advice. Take it as a piece of juicy ‘gossip’ from the financial markets that we are passing to you.

Dumb politicians trying to push interest rates down

Thursday, December 2nd, 2010

In Australia, banks are very unpopular. They are seen by the public as greedy blood-suckers who are out there to rip the people off with fees and oppress them with debt repayments. Thus, when the Big 4 oligopolistic banks raised mortgage rates by up to twice the increase in rates by the Reserve Bank, there was an outcry by the heavily indebted majority.

As a result, politicians have to be seen to be doing ‘something’ to rein in the ‘greedy’ bankers. They have to engage in populism by coming up with policies to improve ‘competition’ in the banking sector in order to put downward ‘pressure’ on interest rates. But as we wrote two years ago in Support mortgage lenders to keep borrowers in indentured servitude?,

These economists do not understand the concept of competition. In the real economy, competition means utilising scarce resources in a more efficient way to produce more, create new products or make better products. But for the mortgage industry where the product is credit, how can the idea of ?competition? be applied when the product (money and credit) can be created limitlessly out of thin air by the government (central bank) and financial system?

If higher interest rates are that evil, why bother with difficult policies to put downward ‘pressure’ on interest rates? Why not legislate interest rates to zero? As we wrote in Why does the central bank (RBA) need to punish the Australian economy with rising interest rates?,

Think about this: if raising interest rates is ?bad? and cutting interest rates is ?good,? then why don?t the RBA set interest rates to zero, thereby putting the economy into a path of eternal boom (plus runaway inflation)? For those who think this is a good idea, then this article will set to let you understand why this is a bad idea.

Politicians are toying with the idea of introducing a fifth pillar to the banking system (in addition to the current Big 4) to increase ‘competition.’ But the fact that they are thinking about this shows that they are either dumb or extremely short-sighted. For example, as this article reported,

CREATING a ”fifth pillar” of banking through building societies and credit unions would require small players to almost triple their lending levels within four years, analysts say, raising questions over its impact on financial stability.

Australia’s housing debt is already equal to 82 per cent of gross domestic product, one of the highest proportions in the world. He said competition and financial stability had an ”inverse relationship,” a point demonstrated in recent years.

”There was no shortage of mortgage competition in the US and [Britain] between 2000 and 2007,” Mr Mott wrote.

Oh dear! Do we need to teach our politicians how to spell “SUB-PRIME?”

Furthermore, our Reserve Bank (RBA) had already explicitly said that they take into consideration the banks’ interest rates when they set their monetary policy. So, it follows that any downward pressure on mortgage rates will mean that the RBA has to increase interest rates even more.

If the idea of fifth pillar is not harmful enough, both side of politics are considering an even more insidious idea in to put downward ‘pressure’ on mortgage rates- they are considering allowing banks to issue covered bonds to make credit cheaper and more available.

Just what are covered bonds? Take a read at this news article,

Historically, regulators have banned banks from issuing [covered bonds] as they are at odds with legal requirements that depositors rank first in claiming bank assets if a bank fails – a cornerstone of the Australian banking system.

In other words, covered bond investors have a higher claim to the bank’s asset than depositors! Someone wrote of this idea as

The reason covered bonds are cheaper to issue is because they are stealing from the security enjoyed by depositors under existing banking laws. No complicated financial structuring… just straight-up queue jumping.

If the ban on covered bonds are lifted in Australia, how secure will depositors be when the government guarantee on deposits expires next year?

Now, with dumb politicians coming up with dumber and dumber populist policies, Australian investors should now be planning exit strategies for their risky cash at bank!