Sunday, October 28, 2012

Done Dirt Cheap

Dirty deeds are suggested by the Sydney Morning Herald on property deals for cheap Cairns units:
IN SEPTEMBER last year Luke Bellamy was forwarded an email from a real estate agent who had looked around the outside of his investment property in Cairns. ''I have to say if I was an owner … I would not be happy … the complex looked and smelt like something in a Third World country,'' Tammy Salvestro wrote.
Salvestro was desperately trying to find tenants for one of the apartments in Maroubra Lodge, a former motel turned unit block marketed in 2007 to Bellamy and other interstate investors.
Not really a surprise for anyone aware of these units which are old former motel accommodation along Sheridan St. More surprising may be that when they were flogged at the top of the market back in 2007 they were described as "deluxe abodes".

The SMH backed up with another horror story for a similar Cairns investor: Dream of a new life turns into a nightmare! The description of this building may be confused and I believe it to be similar older converted motel style units on the same stretch of Sheridan St.

With strata costs topical the reports of investors being milked through excessive body corporate fees  is also interesting. Something to watch and I wonder if it will even make a paragraph in the Cairns Post?

Update: The SMH is still running on this with another featured today: Buried in debt;  &Loans in breach of super rules



A treatise on clocks!


Clocks! If there is anything financial that attracts more ire than multipliers here at Loose Change it is investment clocks. KS has been previously employed in 'financial services' where such clocks are features of the sales pitch.

So it was interesting to see the Parrot for Cairns facebook this week on the fabulous clock presented by the new CEO at the Cairns Chamber:

Photo: I really like this "Cairns economic clock", created by new Cairns Chamber of Commerce CEO Deb Hancock.
It shows where Deb believes our great city is sitting on the boom-bust cycle and reflects exactly what the sentiments I hear around Cairns.
We've still got a long way to go, but continuing the momentum and building business confidence is the key to our rebound.
I'm really excited about Deb's passion and vision for Cairns and look forward to working with her and the Chamber exec.

It was interpreted thus by the King Parrot:  "I really like this "Cairns economic clock", created by new Cairns Chamber of Commerce CEO Deb Hancock.  It shows where Deb believes our great city is sitting on the boom-bust cycle and reflects exactly what the sentiments I hear around Cairns." (sic)

Yes! This man was indeed a professional (sic) journalist in a past life! The clock "created" by Deb is remarkably similar to dozens of such clock versions used in the financial sales spruiking profession:
 


Same clock really repeated tirelessly on the web and almost the same time on the clock?!?  You may note that there are also a couple of 'creative' additional comments on rental vacancy rates at the bottom on Deb's version to calibrate the clock to Cairns.

Such clock has been originally attributed to the Evening Standard newspaper in London in 1937. An interesting year for anyone familiar with economic history when Roosevelt turned his clock back before going to bed and reversed the US recovery from depression!

The original Evening Standard version did replace 'recession' at the bottom of the cycle bottom with 'depression'. Indeed, 1937 was preceded by an interesting depression period in the economic history of the UK following the return to the gold standard in 1925. The consequences of that decision (Keynes: 'The Economic Consequences of Mr Churchill') are not dissimilar to some of the internal devaluations currently proving so successful in Greece and Spain!

Funnily enough Churchill is the political hero of the King Parrot! May we not repeat the same mistakes in the Banana Republic of Cairns! In our two-speed economy only half the nation is currently on summer time! Clearly we will need our own Far North central bank and currency to drive our clock around (Brett Moller for Guvnor?).

The clock gained most credence in the Post WW2 era of cycles driven by inflation and responsive monetary policy. This clock appears broken by GFC events around 2008. Japan broke their clock a few decades ago and replaced it with  a digital version that just blinks on and off while going backward and forward at random intervals of an hour or two.

Matty Yglesias at Slate recently noted the outstanding economic performance of Australia: RBA shows again that it's the best central bank in the world. So following the last clock cycle and 'recession we had to have' the RBA decided to lock the clock away in the safe, and Australia has managed consistent economic growth for 20 years since. In regional context it has recently been noted by the RBA Guvnor that if anything regional disparity in unemployment may have declined.

This is not to deny the subdued Far North economy in recent years, and Loose Change has in the past always suggested that the views of the Cairns catastrophists were misplaced. Cairns has a positive future and always did even when the catastrophists were crying ruin! However, the clock here doesn't really help understanding our regional economy and may in fact distort perceptions and policy.

The best clock comment I found: "Unfortunately, there's no rule that says the Investment Clock has to go clockwise." Fidelity Investments have developed a stylishly modern square clock where they plot their monthly tea-leaf  readings. As we can see this appears to have turned counter-clockwise in recent months!

 

However, my  favourite and most useful clock may be the Armageddon Clock from Mr Firstdogonthemoon. At just $50 this may prove a more useful investment than the investment clock:

This 25cm actual clock will happily remind you that the world is ending. At least you will know what time it happens.
 Armageddon clock



Friday, October 26, 2012

Preliminary Post: Insurance Tropicali Graph

Square eyes today were a consequence of some time wrestling with numbers on the Southern Oscillation Index. So here is a preliminary graph on the effort subsequent to a more comprehensive post:



The red line here is an historical six year moving average, and the timeframe here is from 1860 until now. The volatile black line is a moving annual average.

This is no doubt metereologically unsound methodology but was selected because six years is the same timeframe the insurers and Guvmint Actary have used to validate historical underpricing in the last six years!

As can be seen the 'historically underpriced' period of the last six years is one of only four similar extreme La Nina events in the 150 years on the record.

Selective data is usually to be expected but how disappointing to see it unprofessionally supported by the Australian Government Actuary in a formal report?

Thursday, October 25, 2012

Cairns: tourism zone prostitution free?

Loose Change did briefly note the crime statistics last year and notes that this years stats have driven much commentary in Queensland. Following a decade of decline crime has GONE UP this year begads!

The Far North is typically at the top of the crime stats and again scored badly, particularly on crimes against the person. However, when it comes to crimes against property we still have work to do to match the Gold Coast!

I wont even bother to link to Cairns Post reports! There was some interesting twitterchange from Possum Comitatus however:

robbery and unemployment

seasonality of unlawful entry

Regardless, it is noted at Loose Change that Far North may even be the frst ever zone for zero prostitution offences in Queensland?  There were none, which made this the only crime zone category where FNQ was way ahead of the pack? The runner-up was Central Region with 11 offences. Prostitution as an offence continues to decline with less than 200 offences for the year in Queensland.

We also did quite well and were very well behaved for the year when it came to public urination!

P.S. When it comes to crime stats also noted is the recent debate at Freakonomics on the generational correlation of abortion with crime!






Wednesday, October 24, 2012

Journalism lives!

The standards and decline of MSM journalism has been topical of late. Loose Change has in the past frequently been critical, and cynical, when it comes to the contribution of the Cairns Post to the region, and particularly some of its business commentary.

Radio is a medium which produces possibly the worst as exhibited by Alan Jones, and our very own provincial hillbilly FNQ version John Mackenzie, as well as some of the best. Enclaves such as ABC Rural often provide perspectives missed by the populist press provide worthwhile monitoring particularly given the increasing emphasis on agriculture recently referred to here at Loose Change. Those still in bed at rural report time can monitor that website link!

So it was pleasing to see our Far North rural correspondent Charlie McKillop rewarded with the inaugural Bean Lockyer Ticehurst award for rural journalism. The award related to a report on the proposed Coral Sea marine park:  Fishing to be allowed in parts of proposed Coral Sea marine reserve

Note: Notice has been forwarded that given the $15K award Moet is expected for Christmas drinks this year or at least only the finest Polish vodka! And gulf prawns!!

Tuesday, October 23, 2012

We'll all be rooned by debt ..... again?

The retiring LGAQ President Paul Bell has warned on the rising dangers of local government debt which he claims could result in large rate increases: Council rates could balloon due to debt.
He said aggregated council expenditure has been rising by $8 billion a year, with the cost of providing water, sewerage and drains increasing.

The impact of decisions by the former Bligh state government also robbed councils of about $900 million in revenue and council debt had trebled over the past four years from $1.8 billion to $5.3 billion.

"If we stick to our current path, council debt will increase by around a billion dollars a year to an entirely unsustainable $23 billion by 2031," he said.
Council debts are listed in the QTC Annual Report 2012 (page 69). Most of the debt increase in the past year can be attributed to Brisbane, presumably related mostly to their infrastructure spending and floods, and now accounts for about a third of total council debt in queensland. Cairns has maintained modest debt compared with other centres:

Brisbane:  $1,828 million
Gold Coast:  $812 million
Townsville: $419 million
Ipswich:  $415 million
Sunshine Coast: $254 million
Rockhampton: $236 million
Mackay:  $229 million
Toowoomba: $163 million
Gladstone: $159 million  
Cairns: $105 million

Bell's suggested cost efficiences included joint tendering, where local preferencing often becomes a media issue causing councillors unease, such as with the imported bridge from Germany. I'm far from convinced also on the wisdom on reversing council amalgamations.



Sunday, October 21, 2012

Agriculture smelling sweet

Interest this week in a report from ANZ reported at the Financial Review: Greener soft investment Pastures: the global soft commodity opportunity for Australia and New Zealand.

This report follows the positive outlook for agriculture presented by Treasury Secretary Martin Parkinson earlier this month, as posted at  Queenslnd Economy Watch: Treasury forecasts agricultural boom.

The most controversial aspect will surely be the call for foreign capital to reap the opportunities:
Australia's farming sector could generate an additional $1.7 trillion for the economy by 2050 if the capital is invested, the report added, but the lack of capital in Australia makes it difficult for Australia's farmers to compete with those in New Zealand and South America.
On the same day Australia's largest listed agribusiness Graincorp went into a trading halt following a large transaction with a takeover offer imminent. Also noted was that Australian Agricultural announced it would proceed with an abattoir near Darwin while still in negotiations with potential investors in the project.

Anyone who happens to be in Sydney on November 14 (eclipse day) can catch what could be an interesting debate on foreign investment is out of control. Bob Katter, Alan Jones and Frank Stilwell will line up for the affirmative against Peter Costello, Tim Wilson and Steve Kates.

Wilson is from the IPA which has been actively pushing economic zones in the north to foster development, which I have always thought a somewhat curious policy coming from the IPA. The combination of Stilwell (Sydney University) with Jones and Katter is also somewhat eclectic.

The inclusion of Catallaxy ranter Steve Kates (RMIT) for the opposition balances things with a moon-bat academic economist from both the left and right on opposing sides. 


 

Saturday, October 20, 2012

Weekend Quiz

This week Conus Consulting posted a hypothetical on what it would mean for the unemployment rate in FNQ if the participation rate fell to the Queensland rate:
Were we to see the participation rate fall to the average level of QLD (66.5) then the unemployment rate in FNQ would currently stand at just 5.1%!
The other region in Queensland which stands out with a high unemployment rate is Wide Bay - Burnett. The participation rate in Wide Bay is a rather dismal 56.3%.

So, what would the unemployment rate be in Wide Bay if the participation rate was the same as FNQ?  

http://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.001?OpenDocument

Answer = 35%

Friday, October 19, 2012

Stop Press: Strata Whitewash!

The report by the Australian Governement Actuary on strata insurance in North Queensland was released today: REPORT ON INVESTIGATION INTO STRATA TITLE INSURANCE PRICE RISES IN NORTH QUEENSLAND

This report has found no basis for any  intervention and a negative reaction should be expected in North Queensland. There are profound consequences for the viability of strata units and development. Cost structures of units relative to houses do not appear to stack up. A quick email response already from a prominent Cairns property and economic identity:  "Yeah what a whitewash. Pay up and shut up....."

Fridays afternoon drinks time so this Stop Press will be expanded when further analysis allows but a quick look has thrown up potential queries such as: The short time scale of the analysis which only includes the five years since 2007? Why there are no comparisons with housing insurance in the same regions? Why no data from TIO was included, as an unstated outcome of this report would appear to be that risk in Darwin is being seriously underpriced?

Based on the parliamentary inquiry I have previously commented that I didn't have much confidence in the quality of information from the insurers or the outcome of this report. A particular comment in the media release from Minister Bill Shorten drew my attention:
"The Insurance Council of Australia has raised the option of whether strata complexes could potentially reduce their insurance premiums via discussing a higher excess with their insurer, and options like this are worth examining in more detail," Minister Shorten said.
Hello Billy! Earth to Billy! What the do you think has been happening mate? Those premium increases have also included big new increases in excesses from insurers already. At my own building the increase in the past two years has included big excesses for water and cyclone damage which are now standard from the insurer. This does not appear to  have been factored into the AGA analysis as current premiums analysed can be for significantly lesser coverage.

At the most recent renewal the ONLY other insurer to quote was a higher premium but without the big excesses. I specifically queried whether they would consider higher excesses for a reduced premium and was told NO! 

So, no thanks for the gratuitous advice from Billy-for-Shorten and the Insurance Council. From the performance of the Insurance Council representative at the parliamentary inquiry it doesn't surprise me that they don't know what is going on either!






Thursday, October 18, 2012

I spy with my little eye

A media statement today  from the Queensland tourism minister has extolled the results of the 'I Spy' campaign for TNQ tourism:
Tourism Queensland’s ‘I Spy’ campaign has reignited Aussies’ love of Tropical North Queensland with partner Wotif.com recording a big increase in room bookings for participating local operators.
Minister for Tourism, Major Events, Small Business and the Commonwealth Games Jann Stuckey said results for the campaign, promoted between 23 September and 8 October, indicated sales in room nights for participating operators had increased by 29 per cent compared to the same period last year.
“For the 54 Tropical North Queensland tourism operators involved in the ‘I Spy’ campaign, these results are a fantastic boost as they head into the traditionally slower pre-Christmas shoulder season, Ms Stuckey said.” 
It sounds very impressive until compared with a similar media statement a week ago on the campaign results for all Queensland:
Tourism Queensland’s two-week “I Spy” campaign has reignited Aussies’ love of the home-grown holiday with partner Wotif.com recording a big increase in room bookings for participating Queensland operators during the campaign period.
Minister for Tourism, Major Events, Small Business and the Commonwealth Games Jann Stuckey, said initial results for the campaign, which was promoted between September 23 and October 8, indicated sales in room nights increased by 52 per cent compared to the same two weeks last year.
“For the 370 Queensland tourism operators involved in the ‘I Spy’ campaign, these results are a real boost as they head into the traditionally slower pre-Christmas shoulder season,” Ms Stuckey said.
It certainly doesn't make TNQ look quite so good in comparison although given it was targeted at the school holiday market the stronger comparable results would be expected at such as the Gold and Sunshine Coasts I would think.

However I wasn't aware until a recent comment here this holiday period is now aligned in the key states of Qld, NSW & Vic over the same two weeks. In previous years they have overlapped by a week so extending over a three week period. Additionally this year for the first time a public holiday was moved from earlier in the year so there was a Qld long weekend smack in the middle.

Consequently it isn't really clear how valid a comparison between the same two week period last  year could be? A comparison of the Wotif performance with others would also be of interest. Anecdotal observations have been of stronger tourism for some months now in the Far North. It would be a surprise if there had not  been a substantial increase on the previous period.

FNQ Unemployment

The FNQ labour force stats for September, released today by ABS, have been relatively stable with the unemployment rate ticking down from 10.3% to a still elevated 9.7%. However, as posted at Conus Consulting some of the positive trends of last month have been maintained and Conus also discusses the the participation rate and unemployment in FNQ:
Sept saw the participation rate drop back to 69.8 (from 70.3) and while this is still high for recent times is actually now close to the 5 year historical average for the Region. Were we to see the participation rate fall to the average level of QLD (66.5) then the unemployment rate in FNQ would currently stand at just 5.1%! I'm not saying this is likely, but it is interesting to see the impact our high participation rate has on the unemployment rate.
As always we need to treat these un-adjusted figures with a good deal of caution. Our own Conus Trend series has the unemployment rate for Sept at 10.2% (from an upwardly revised 10.0%) and has increased for 11 consecutive months.
As always at Loose Change we take a keen interest in any divergences between the female and male employment data. Recent months have indicated a promising bounce in female employment following what had been a consistent deterioration. Again, caution must be taken with the data not seasonally adjusted and dubious sample size.




There is an interesting trend because the weak female employment numbers for Queensland have drawn some attention this week. Greg Jericho (@GrogsGamut) has posted on this at The Drum: Queensland's unemployment (and women) problem.

While both the male and female unemployment rates for Queensland have deteriorated in recent months, the female rate has detached from the national trend as illustrated in a Twitpic from Possum Comitatus.