Sunday, June 28, 2015

The Joe Hockey Real Estate Primer Part 3

Lemmings have had really rotten press for a long time and it's all Walt  Disney's fault.  It seems like forever that  his name has been synonymous with clean and cutesy family entertainment, but in hard times he was just one more moneyed sociopath out of a number of power and nubile- obsessed swine who could make and break careers at a whim and in the McCarthy era it became deadly serious.  Between Disney,Tail Gunner Joe, Richard Nixon and the president of the screen actor's guild Ronald Reagan, dozens of supposed communist sympathizers in Hollywood and elsewhere were blacklisted including Charlie Chaplain.  So no-one was too big except Allen Ginsberg who didn't give a damn and taunted them at the hearings.  "You should have seen me reading Marx!"
But as for lemmings as a metaphor for mindless public hysteria -  that well- known clip on Disney Studio's nature series where the lemmings; desperately trying to escape the Malthusian horror of close  contact with their fellows, arrive finally at an oceanside cliff and throw themselves over into the icy water.  This was later admitted to have been fabricated.  In fact they are a timid and conservative creature except where mating is concerned and they were trapped, corralled and pushed off the cliff with a low scraper.  Likewise the little black bear; tumbling endlessly down the hill had been thrown over for our amusement.

If the social  and financial ruin of human beings isn't enough to damn someone, the lemmings and bear cub ought to suffice.  Walt is presently in cryogenic storage awaiting the scientific advances that will see him thawed and returned to wealth and influence in some time and place where posterity requires another narrow, nefarious and self-serving jerk.  In the meantime it's colder than hell.

I had planned to argue that lemmings were not an appropriate metaphor for the pursuit of home ownership in the face of an increasing disconnect between renting and ownership cost.  But the housing bubble has been going on forever here and expectations of capital gains have become part of our birthright.  So with an ever- increasing majority willing to take on magnified risks and the subset of smug investors willing to subsidize rentals; prices have reached nosebleed levels in the major cities and only a highly- skewed conventional wisdom and record low interest rates could possibly lever those whining and envious Gen Ys onto the merciless 'home ownership ladder;' with an average mortgage of three hundred thousand dollars for any low- grade biscuit box in the city.   But Disney changes all that.  They and all of us are victims of a pyramid of invisible context; the basis of which is the necessary death of money.

Why did something so desirable and convenient have to die?  Many books have and will be written on the subject.  But for those of us with a long-term memory it started with personal experience in childhood; faced with those difficult decisions about immediate or delayed gratification.  Did you save a dime for college or spend it on an ice cream bar?  At the time college was presented as the virtuous alternative but by the time we got there, 10 cents didn't come close to buying an ice cream bar anymore even if it had been gathering compound interest for ten years.  We would have been ahead if only we had bought blue chip shares, houses, art or antique motorcycles, and so our indoctrination was begun at least fifty years ago.  Only a schmuck saved money; in half a century that  10 cent ice cream bar became a $3 ice cream bar which is a 97% capital loss on your piggy bank's contents whatever the cant about 'hedonic deflators' which is the dubious proposition that today's ice cream bar isn't 30 times the price because you are purchasing a BETTER bar with waffle cone and crushed peanuts.   Money is dying faster than we ourselves, but however fast it is NEVER enough. 

It's Economics 100!  Supply and demand!  If you satisfy demand via increased capacity and inventories especially for capital goods and enduring, worthwhile things beyond food, Catherine wheels and MIRVed warheads, you can't keep those factories humming, workers employed and paying rent and taxes and spending, spending, spending, driving money velocity and borrowing to drive money supply ever upwards; motivating everyone to dump this crap from your wallet while you can still  find a taker at the old price.   And so demand is raised and consumption of all things is brought forward because everyone knows it will cost ever more in the future.  One consequence however is the boom and bust cycle and in the slowdown the eventual failure of neo-Keynesian theory when no-one in the real world who needs to borrow can borrow; nor does anyone who can borrow have  a reason to.

And beneath all that glisters and froths in the sunlight come the low growls and squeals of the contextual machinery driving the juggernaut:  the corporatization of the world of business where those magical market mechanisms ideologues pray to also happen to include the market for power and influence by which competition is for little people only, who still by some odd mental gymnastics identify themselves and their grocery or stationery shops with the titans; Henry Ford, Warren Buffet; ubermenschen even unto the fictional John Galts of the world.  All our cabinet ministers too have cut their teeth on Ayn Rand, a sociopathic little jezebel who never invented anything beyond her characters and some variations on pole dancing.  She was fascinated by psychopathic criminals and Allen Greenspan studied at her feet.  Maybe he was one of her lovers, whichever he found the inspiration to do whatever it took to transform himself from an unknown little Jewish saxophonist and hard money theorist to the financial genius 'Easy Al' who presided over the Federal Reserve, strutting the world stage during those golden years when clueless school kids and starlets made share market fortunes-they were better at it  than anybody - and the ultimate end of American financial primacy was written in the bedrock.

The bubble economy was engineered via liberalisation of the banking system; including the repeal of the Glass Steagal  act which then allowed bankers to leverage themselves and profitability to new heights without the old prudential regulations that protected their capitalisation and customer's deposits.   It was as if you couldn't write loans if you had to actually determine your customer's creditworthiness and this has been taken to the final extreme in the Over The Counter derivative business where esoteric financial agreements are constructed, bought and sold with incredible leverages and liabilities to ultimately god knows who.  And when still- existent laws are purposefully or inadvertently broken, token fines are agreed upon that inevitably fail to match the magnitudes of the resultant profits and become simply a cost of business.  And should all this ever have to be unwound it will take 20 years of legal wrangling between non-existent entities and money and the world as we know it shall come to an end.  Or maybe we do know kind of; via George Orwell and Robert Mugabe.

Next The Mathematics of the Fall

Thursday, June 18, 2015

The Joe Hockey Real Estate Primer Part 2

"So it has come to this."  (Last words or something similar of just about everyone from Ned Kelly to Homer Simpson)

Or note the item about real estate in China in the following - all Australian markets are especially vulnerable to downturns in our #1 trading partner although they and a more muted mortgage availability saved our own housing market in 2008 from the US experience of the 'jingle mail.'

It starts with unease, something has been too good to be true and it falls over.  But there are millions of believers waiting anxiously in the wings; fretting that there would never be a pullback to let them in.  It happens and their capital emerges to put a floor in the market and a new burst of momentum drives it to new heights.   But sellers flush with paper profits have been rattled and  re-emerge and a fresh new panic begins but is halted (whew!) at the previously defined floor that proved ironclad last time.   More capital emerges from the last emboldened hold-outs and again it levitates but barely makes that first turning point.  And by now  there are no more savings or untapped creditworthiness out there.  Again it turns and if it's the share market, governors rush in with legislative packages like the outlawing of shortselling to stem the losses in the near term even as it removes the last floor, which would be those same sellers ultimately covering their short sales.   Central banks drop interest rates to institutions again but where can you go from zero?  And from there on the poison gas of leverage finds it way into every crack and crevice and boardroom and bedroom on the marketing planet and the virtuous and profitable wall of worry gives way to the downward ladder of hope wherein the exit opportunity of each small respite is ignored in case it is the start of a new bull, and promptly regretted as a lost opportunity to get the hell out as it all grinds lower.  Desperate bankers call in margin loans before they are themselves forced to the wall, home owners watch plunging valuations and it becomes obvious that their own equity has evaporated leaving only the mortgage which they were already paying with their credit card anyway.
They called it the 'jingle mail' in 2008 when distressed homeowners left their keys in the mailbox and drove away into the sunset; mattresses tied to the roof like the westward flight of the Okies in the dustbowl days or the Jap attack on Santa Barbara a couple decades later when they fled inland to the Mojave desert.

It having come to this, Chart Reading 100 shows a perfect 'head and shoulders' formation that is the signature of life and then death.  Or it can be a slow upward churning within an ever narrowing bound that eats up all the supportive capital until the shoeshine boy gives Rockefeller the heads up, he gets cold feet and cashes out.  It's a formation suspiciously like todays' S and P 500 share market index.  Whichever, a drop below the trendline is the signature of doom; there is no more easily available personal savings out there and even if the Fed buys their own bonds and lends to JP Morgan at zero percent -  no-one dares or wants to borrow it, or at least no-one with a credit rating.  But life goes on for a while; Morgan's is a playground of Gen Y or Z in-house trading monkeys at their screens, as yet unblooded and busting for the bonuses they will gain for putting the bank's free money to work at 90 to 1 leverage; playing for pennies front-running retail share investors, churning out 'credit default swaps' or interest rate hedges that take for granted a future of seamless ZIRP (zero interest rate policy) from the Fed.  They are backstopped by iron-clad warp-speed computer programs, the fact it is not their personal fortunes being gambled, and the only real known amongst unknowns; that the government will step in with a rescue plan if they inadvertently break the bank when everyone tries to get out the same exit in the same microsecond. 

That's called a 'Black Swan' these days.  Once it referred to a San Francisco earthquake or the Yellowstone volcano - the pending thirty thousand  year on average global disaster that FBI-infiltrated- and- encouraged jihadist groups plot to trigger with Federally- supplied bundles of dynamite so they can be arrested with appropriate fanfare.  The last swan  can be blamed on the Swiss for reneging without notice on their commitment to peg to the Euro; without notice to all those leveraged hedge funds who had been bleeding them so mercilessly.   So the hedgies didn't get bailed nor have time to find  the bigger fool and can be forgiven for feeling betrayed.  But that was chicken feed, the quadrillion nominal dollars of OTC derivative 'value' worldwide hasn't been closed out or in any way reduced; just re- estimated to a mere $750 trillion.   So you don't need a really black swan; it just goes to show that with enough risk on the books anything with webbed feet can toddle out of the pondscum to shake the world.

Holy Mary, Mother of God, pray for us sinners now and in the hour of our death.  Amen.

The trouble began a long time ago with modern banking - speculative booms and busts have always been with us but it was only in the last century with fractional reserve banking that interest rates began to be set by governments rather than markets.  Previously they had to make do with coin clipping and other confidence games and thereby exploit a time lag in market smarts.  But now we have easy money; it's  always a crowd pleaser and boosted GDP by twice the amount thrown onto the bonfireway back when but was kind of like drug addiction - it stopped being productive or pleasurable and became a necessity.  The world was hooked and we need free money now just to keep our heads above the water, puddling around as we do in our oceans of debt.   So with exponentially growing populations needing employment to pay for exponentially growing consumption while money supply  and velocity and credit facilities have to grow similarly; eventually consumer and national debt; bloated inventories and productive capacity can be pushed no further and there has to be a breather.  Normally this is recession and bankruptcies but that is politically intolerable and so we  have to dance with the protracted death of money.  Fed Chairman Bernanke famously promised to throw bundles of it from helicopters if necessary.  But that doesn't mean the lucky finders can use it to buy anything.

Hard money theorists have a smug answer that gold and free markets will solve the problem of inflation and the boom/bust cycle.  Maybe it did once outside of the Spanish anomaly when they plundered the new Americas and forged their own social ruination in the process.  Maybe it could do now with a limited  human population  in an infinite world of resources but even gold has hit the wall - we are now mining half a gram per tonne of the stuff where once mines needed grades 20 times better than that.  And as before, its scarcity is a function of depleting mines and rising mining costs  For those low grades costs and profitability is increasingly being defined by the rising cost of energy.  There has to be a better safe harbour  for our diminishing fortunes.

Next to come on the Joe Hockey series: "Safe as Houses."

Saturday, June 13, 2015

Buy! Buy! Buy! The Joe Hockey Real Estate Primer Part One

Normally you think of shills and touts as those shifty, hard- living sociopaths in the movies; drinking their  endless cups of coffee in some sleazy boiler room, shouting into phones; living their hard, hedonistic amphetamine-fueled, licentious  lives.  And on the other end of the line you and I; decent and honest joes with no more than the usual streak of larceny in our hearts.  It is usually dormant except when you are surprised in your home or workplace with a great script and you don't get a chance to get a word or thought in edgewise and it rises up; the brain is put on hold and you are only a schmuck who is going to get lumbered with a time-share in Oklahoma; a ridiculous piece of mining moose pasture or an IPO of some revolutionary piece of crap like Twitter or

Who were going to make billions selling dog food and cat scratchers on line, and you could get in right at the bottom!  And after you have been taken down once or twice you come to understand that these people rank well below pimps, who will at least see you get your money's worth.

Maybe you even heard those three little words from familiar, eminently- respectable and besuited characters on TV in your home -or in a home belonging to some other schmuck who is working two jobs to make it his one day and who DIDN'T get in at the bottom and your rent isn't a patch on his mortgage.

From the treasurer Joe Hockey: "Real Estate is not a bubble!"
"It's supply and demand; It's Economics 100! Get out and build. build, build.  Interest rates are at record lows!  There's never been a better time to buy!  Get a good job and buy a good home!

The last is especially poignant as he not only has a good job, his special parliamentary living-away-from -home allowance is going as rent to his wife in HER home where he stays when he is in Canberra, and no doubt that goes a long way to paying the mortgage, and perhaps that means there is a 2nd capital gains tax- free residence for the Hockeys, with each having a different 'principle residence.'   And some of us remember how Joe's Liberal predecessor Peter Costello taunted Senator Nick Sherry for claiming his allowance when he stayed with his mother in Opossum Bay back in Tasmania.

"What does mum say when Nick walks in the door?  Oh, Possum!"

And Sherry, even though he is/was a politician had some residue of conscience and shame and had the human decency to go and cut his wrists.  Joe just shrugs it off, all these guys do it or some permutation - it's allowed by the fully independent Remuneration Tribunal and not covered by the criminal code so its not his problem.  But is the tribunal really independent, like say Gillian Triggs, the Human Rights Commissioner who has been mercilessly hounded by cabinet heavyweights for her own independent moral stand on conditions for asylum seekers in our own little Guantanamo.  I wouldn't even ask why a prison corporation can be paid more to brutalize people behind barb wire than I would need to make a profitable business out of it by giving someone a house of their own, living allowance, car and a college education.  Maybe this has implications for future conflicts; if we could have corporatized the Japanese Imperial Army, they would have met their Waterloo years earlier, broken and bankrupted at Changi and the 'co-prosperity sphere' laughed right off the world stage.

But back to housing prices and bubbles.  Firstly it is self-evident that since real estate prices are at record highs there have been better times to have bought, ANY other time would have been better. I have seen a few bubbles over my lifetime and have done very well by doing precisely the opposite of the tactics touted by our esteemed treasurer.  It's Economics 200!  You buy low and sell high!  And when mortgage rates are at their highest that's when houses are cheapest!  But you have to have some capital because nobody wants to lend!  So maybe you rented for a while in the boom and saved while  the other schmuck paid out the vast difference between the capital value and enterprise value of the house.  So you have money when the time comes and its harder to borrow BUT you don't need a big mortgage and no matter what happens you aren't going to lose your butt!  And it's stress-free after you have completed the contract it feels comfortable and you don't need to work two jobs!  And with "animal spirits" at their lowest ebb you don't expect to make a killing but you probably will! And you can easily hedge against falling rates in the face of your fixed rate mortgage by insisting on a clause by which you can pay more off at any time without a penalty.  If it starts looking too uncompetitive just pay it out or refinance with someone else!

Even Economics 100 dopes know that markets tend to revert to a mean so if interest rates are at record lows they will probably go higher.  Even if inflation draws a line under the book value it might still see you s****ed.  So let's go from Economics 200 to some really basic accountancy to glaze over your eyes and tickle your funnybone when you look at the real, enterprise value of a house as a business venture which is a wake-up call if you have been counting capital appreciation chickens on your fingers.  Strings of words with capitals denote a popular acronym.

Generally Accepted Accounting Practice defines earnings as  Earnings  Before Interest Taxes Depreciation and Amortization, all of which have to be paid off from the rent except for the 'negative gearing' tax loophole for investors by which they can apply the generally negative earnings figure after expenses to their other income, like those his and hers night cleaning jobs where you roam the CBD office buildings with your backpack vacuum cleaner while the kids are asleep.  You only  get to use negative gearing if it ISN"T your actual primary residence and  you sacrifice the tax free capital gain status.  But that's no problem, there is unlikely to be anything to worry about when it's all added up at the end.  Save your dockets.
 Firstly interest on your mortgage: there is a set-up fee after which you have to pay say 4% every year on an average $300 thousand dollar housing loan which is $12000 per year after-tax money for the non-investor  which is eating up your ultimate capital gain.  And you still have to pay off the whole 300 thousand dollars of the loan on top of that over the period of the mortgage or when you sell the thing.  That's the amortization and they generally structure it so you pay the same money every month from start to finish.  There are tables you can access.  And there are council rates, land taxes, stamp duties in the 'taxes' bracket and depreciation too which means houses and fixtures have a lifetime just like human beings; the house is growing old and frail and slowly falling down around your ears (deep-sixing capital gain) and if you don't do something expensive about it on a regular basis, renters will dodge their responsibilities and it will eventually be condemned as 'unfit for human habitation' and serve only as shelter for itinerants and drug addicts while waiting to be demolished despite your protests.

In the lead-up to the 2000 Olympics I did like a lot of Tasmanian tradies and after a marital tiff loaded my tools in a van and drove up to Sydney.  On arrival it took about 4 hours to get work, firstly doing fit-out out  above Grace Brothers at Centrepoint for Fairbrother and when that was finished I was everywhere; working for subcontractors on projects run by most of the big general contractors like Multiplex and Horniblow and even some residential work, pubs, the Leichardt Cathedral, Kell and Rigby, shop fitting, you name it.  So I was  there putting some of the biggest and smallest Sydney real estate projects together in the biggest boomtime ever, and in spite of that every subcontractor I worked for was going out backwards.  The big guys would get eight or a dozen quotes for every aspect of a job and some newbie or fool or general optimist could always be counted on to make some glaring mistake or cut it too fine in the competitive catfight.  And it is then that you come to realize a fundamental law of business: whatever you have to sell from your own labour to boiled lollies-unless you enjoy some kind of protected position - that the return on   all endeavours subject to market forces has only one direction which is downwards towards the fine line between life and death.  A month after the races were run I was given a day's notice at Kell and Rigby (I was first to go being a subbie with my own tools on $10 an hour more than everyone else) despite being very well thought of, having had the drive and imagination to be seen always beavering away flat out at the German Club; the foreman and I; getting double pay knocking out 'foreigners' when there had been delays at the factory.  Of course the clueless occasional supervisor had no idea or maybe there are times when  everybody looks so much better if they know when to keep their mouths shut.

But I could see the writing on the wall and went home for good.   Kell and Rigby, the oldest joinery firm in Sydney, lasted another five years or so.  In other words there are NO intrinsically good jobs or businesses that someone else who is hungrier or younger or more or less indebted than you cannot do as well in the fullness of time in the hard light of Struggle Street as touted by our political geniuses.   Economic rationalism is best born by some other guy.  So we seek safe harbour, be it bad ones like the CFMEU or good ones like the AMA, a Macdonald's franchise or the 'independent' Remuneration Tribunal.  And if you do too well selling Big Macs they squeeze your territory and sell a closer franchise to another hopeful.   Or used to, things have not been going so well as tastes and styles change and that ugly word competition comes ever closer.

Every time I went home I would move out of some shared accommodation and find another on my return, mostly in the inner west.  On the job or in accommodation: wherever; I always took note of the particulars of the real estate market.  Retirees were selling multi-million dollar north shore homes to vie with Chinese investors and move into something like our Anzac Bridge faux Italianate waterfront units which were essentially stacked two and three bedroom frame or cement block white-trash small town ranch-style pieces of crap or Renzo Piano's supposed masterpiece on Macquarie Street which has top end beautiful apartments but they were very expensive including an extra $10 thou for every layer of persons below. 

I stayed in Marrickville with an extended family of kiwis for a while in a four bedroom federation brick terrace which cost $100 per week per person.  Somebody I never met was gearing it.  He received $400 per week and this place needed $30-50 thousand worth of work which was typical for that vintage.   The market value would have been $600 thousand, now around 1 million 15 years later.  If he owed 400 thousand then interest at 5% was $20,000 per annum and he received that but with no return for his 200 thou equity except a leveraged capital gain potential and nothing for depreciation, repairs, rates or amortizing the 400 thou.  There is a rule of thumb for enterprise value of a rental property.  Purchase price equals 100 monthly rental payments which gives you a few percent on your invested funds and enough left to cover all the rest of the taxes, repairs, depreciation etc.attached to your investment.  For the Marrickville home that would have been $160 thousand.   So supply and demand has engendered this crazy disconnect with reality.  The why has to do with old simple-stupid Economics 400!  Interest rates define the value and future of ALL OTHER investments whether you like it or not!  It's all about rational markets as a price discovery mechanism.   If  you could get a low risk return of 8% (a real 5% after inflation) on your government bonds or bank account;  mortgage rates in a real world would be correspondingly higher and NOBODY would be sticking their necks out to pay more than enterprise value for some decaying little working-class rabbit hutch.

So is there a bubble?  The maestro Allan Greenspan said you can't tell until it pops.  Which allowed him some margin for error and public approbation all those years until it or they did.  Similarly the man who in retrospect won't have been up to turning back used-car odometers much less Treasurer of Munchkinland will do all he can to hold the day of reckoning beyond another election or better yet his retirement to that great inflation-indexed Pollie's Paradise in the Sky.  He might stay lucky for a time so go for it kiddies.

Monday, June 8, 2015

Mining the Tarkine Part 3 Extra. Stop the Presses!

These things happen; your story has just gone to the press and something earth-shakingly relevant comes on the screen.  This time it's ex Tasmanian Premier Paul Lennon appearing on the Queen's Birthday Honours list.

 My father had an old army saying that I heard many times in my childhood, more rarely as I grew older and  had come to understand that stamping a foot and yelling how I damn well knew something didn't make a good argument.   His stock riposte was always; "You wouldn't know if your arse was punched, bored, tapped or reamed out with a big stick."
He had me there and got the last word in every time; something so simple and yet I could never figure out an  answer.  But it wasn't a bad antidote to intellectual vanity.  Maybe it might help sort out the queen.

Paul's ten second sound-grab was that his reign had been controversial "but I gave people hope." 

Hope along with faith is something we all need, especially if we are determined to be taken down by persons of low character.  But as for making any real improvement to a community's prospects there are those laws of unintended consequences by which hope will most certainly put us ever deeper in the sh*t.  If the previous story of the little town of Stewart, B.C. and its top-notch mining experience that generated so much development; new homes, expanding businesses and private indebtedness to bankers and the cruelly drawn-out and painful crash that took them back to square one has been unconvincing perhaps we might look closer at the Lennon era.

There was such a swag of memorable plans!  An oceanside residential canal development, the doomed-from- the-beginning Dismal Swamp, and of course there was the Tamar Pulp Mill, wherein  he in concert with that fearsome little hillbilly John Gay (from whom a tongue-lashing was rumoured to bring grown men to tears) were going to leverage themselves into our hearts and the boardroom of a world-class industrial behemoth with billions of borrowed, kamikaze investor and public dollars and the rest of us gratefully tagging along for the ride.  But the one I liked best was a mining story in my own backyard and so over-the-top you could sit back and chortle if you had no pity for a gaggle of local hopefuls; investors and the usual legion of the damned that naturally included most of our bright-eyed, born-and-bred small-business local government officials at the time.

Golden Triangle Mining was going to transform the magnesite karst at Takone into a giant open-pit with hundreds of jobs and a river of cash, and there would be another huge Comalco- type electric smelter in our own little Burnie and somehow it all came together almost overnight (it seems in retrospect) in a major fireworks display where everything was happening at once.  Time was of the essence- I knew that because as a Normandy shareholder I had received a prospectus for Australian Magnesium, in which a star consortium that included Ford Australia, Normandy, and the Queensland government were colluding to put together a similar package at Gladstone, and it was similarly big enough to supply all the magnesium for the Asia Pacific at least.  So there could only be one or none, and the credit worthiness, expertise, resource and government backing were already in place but somewhere else.  The Queensland government was going to do much more than facilitate; they guaranteed a dividend to all investors for the first three years.  Which they gamely paid out in full even though the project failed upon which the share price fell to reflect the remaining dividends owed.  But back to Tasmania.

The climax here happened with the drillers; uncertain whether to laugh or cry as their rods punched into the mud-filled voids that would let the Flowerdale River straight into proposed pit while mining industry people who actually knew how things are done looked on at the roadshow in horror.  Paul Lennon took a helicopter ride over the  proposed railway route which surveyors were busily marking out through Colleen Dibley's chestnut orchard.  The CEO Peter Salter was off on a whirlwind tour of the world at investor expense to line up the billions of dollars that  would be required; giant financial corporations were thought to be out there somewhere just waiting for people like him to knock on their doors and put all that unwanted cash to work.  It was at this time that the share price peaked and this is also the time when clairvoyant friends, touts, children, wives, relatives and associates of company directors dump their cheaply- acquired shareholdings on the market; and didn't he return empty- handed.  Years later there was a small item about him in a mining newsletter, some purported misdeeds had seen him thrown off the board of some gold explorer but where he is concerned all seems quiet now on the western front; where all you need is a Perth shop-front, chutzpah, a dog and a pick-up truck.

So how do these ridiculous loss-making machines actually benefit political people?  It pertains to something called 'moral hazard'.  They don't put their own money on the line - that would be corrupt and a violation of their oath of office if not the criminal code.  Rather it is YOUR money that gets thrown down ratholes and there is an unintended consequence here; a conflict of interest by which a rational market analysis and studied economics of a project are not a necessary consideration of the person doing the investing.  His being seen to be battling for your future prosperity, however hopeless the odds and unlikely the prize; confers electoral advantage.  If he simply banged your money straight into his own account it would be fraudulent, but it would be a bargain against the squandered millions that it takes to be re-elected and don't you know it comes right back as the pay and perks of public office; all perfectly legal and in order.

So he gave a lot of people hope, and took it away from a lot of others.  I hoped that democracy and education might occasionally deliver enlightened leadership.  That maybe our species can cut a balance with the world and survive with everything else for the long term, possibly even as a civilization.  Or are we just an insensate cancer or unschooled tribe of Polynesians,  setting out in the dim hope of making one more killing; another breast or liver or bejeweled string of tiki-scattered islands in the sun where naive birds and fish will fatten another aristocracy and feed another vulgate for a few more generations before they have to eat each other or move on.

Saturday, June 6, 2015

Mining the Tarkine Part 3

                                        Hope springs eternal within the human beast
                                        Don't mind much if it makes no sense
                                        If I grab some crumbs at least.
                                                                           Apologies to Alexander Pope
Anyone stupid enough to invest in mining the Tarkine or anywhere else in Tasmania is going to have their heads handed to them on a platter.  That is one of the laws of nature around here.  Basically there are three kinds of people in the industry.   There are working people who get their hands dirty making a basic living for a time.  There are the experts - geologists, mining engineers, consultants and  accountants who do the smarter tasks which are absolutely necessary to gather the body of information that will progressively de-risk a project so as to allow serious investments by sophisticated investors.  And if you are in the mining business and fit in neither of these, there is only one category left which is that you are a filthy little tout.  As I have previously explained 99% of these projects fall flat and people fail to realize the multitudinous ways they can and will take you down with them.  Shareholdings for yourself, the wife and kids, and your mum are only the most obvious and most likely to generate life-long family splits and recriminations.

Back in the late sixties I spent my summers working at mining exploration in northern Canada.  We were looking for base metals and our company was doing contract work for very big corporate names.  We went through the motions of minefinding, but what we were really doing was eliminating hundreds of small prospects over huge areas.  Copper stains were here or there on rocks, lumps of galena in glacial float, whatever and the first stage was to take sediment samples from lakes and streams throughout the watersheds which were first tested by colourimetric means then chemical analysis in Vancouver.  Anomalies were plotted on maps and if they were significant then gravitational, magnetic or electromagnetic surveys were done accordingly from the air or on the ground over lines which I and a couple others would have cut or at least marked; up hill and down dale over our staked claims.  And then we did the right thing which was to disappear because we had already spent large sums of money and the probability of doing better by tearing the place up was negligible.  Or at least Newmont Mining thought so.  All our efforts only generated one drill program in three years as far as I know.  They plopped a rig in by helicopter, we put the crew up in our camp, they drilled a few holes up in a cirque and we pulled out in the autumn never to return.  Especially the cook who went early; he was supposed to be a reformed drunk but he had taken it into his head to poison the drillers; none of whom were as punctual, clean or nice as us college boys.   Whatever demons had taken temporary or otherwise possession of the man, the drillers were unwilling to test his veracity and a plane was sent in especially for him.

Someone else found a mine nearby that we had walked over.  We had spent a couple of our days off  working an old placer deposit for gold with a sluice box we had banged together.  The mine-to-be was the Golden Bear, further up above the creek where the placer gold had originated and it was one of the first successful low-grade heap-leach operations in the world.  But Newmont or whoever hadn't been seriously looking for precious metals so neither did we.  And it was there I met the geophysics boffin who had found the huge lead- zinc deposit at Pine Point.  He was flying an EM survey for us and he had seen the numbers coming up as they flew over the thing and he put everything he could get his hands on into it on the share market and had made over a hundred thousand dollars.  After such an easy score he decided to snowball it into a million and put it all back and more into the share market.  By the time I met him he had nothing left.

At the end of my third summer up there I was finished with school for a time and of course I wanted a job in Vancouver with girls and a social life but there wasn't much employment around, and I found myself going FIFO for the winter with thousands of others to remote projects in the north.  The FO part of it didn't exist in those days and I spent 12 months mill operating in a brand -new copper mine.  It was quite well known; no-one else had yet attempted such an audacious project is so inhospitable a country.   The mill was situated between a couple glaciers a twenty mile bus ride up from the coast, the mine was another 10 kilometres away and accessed by an underground railway that went right through the mountain, underneath one or more glaciers.  It had been a very expensive proposition.  We were processing about 1500 tonnes per day of 1.5% copper on two grinding circuits and after a few months I was running the mill from a control room on my shift; earning $5 per hour plus one flight in and board and I knew the sound of every mill and pump and bearing and destination of every pipe and conveyor in the place which had cost 120 million dollars for the mill alone.  That would have to be over half a billion now; god knows how many died; me almost once or twice or what the whole shebang was worth and world copper demand was booming.    

So it was nothing like Tasmania.  Without the aforementioned de-risking and slow process of delineating reserves and expertly engineering the development it could never have happened.  If a government has some expertise or integrity they don't grant a mining lease, talk up some future financial disaster to squeeze money and indignation from the locals and let some dipshit in with little more than a Perth shopfront, a dog and a rented bulldozer.  Tasmania is so much older and worn down than the Canadian west.  Everything worthwhile has even bigger exposure and geochemical signatures and has been discovered a long time ago.
But yes I have (stupidly) put small amounts of money in mining investments here.  Western Metals was interesting; they wanted to reprocess the Hellyer Mine tailings which supposedly contains over a million ounces of gold..  But I had a job at a local engineering firm and we built the tanks and stairs for Intec, who were the brains behind the pilot plant that was going to make it all happen.  I was in there one day to install something and I noticed a row of pumps like nothing I had seen before - the workings were behind glass and they were beautiful peristaltic things like our own guts with rubber tubes that were compressed by moving rollers.  A light came on in that  instant - obviously they were using powerful reagents you wouldn't want touching the inside of a normal pump -they were cracking walnuts with a sledgehammer.  That meant the gold would stay in the tailings because it wasn't worth the cost of getting it out , just like millions of tonnes stays in the ocean where it will also stay forever.  A lot of people I know had money in it, but there is nothing you can say.

But up in northern Canada I just saved my pay and then I was gone but a lot of my workmates married a local or office girl and did things like buy a house or small supermarket on the coast like it was going to last forever or ten years according to the inventory of mineable ore.  Two years later the price of copper collapsed and the mine and mill were put on care and maintenance and everyone tried to get out.  But it was too late and many spent another three or four years up there with mortgages and milk bars or supermarkets or homes that couldn't be sold in a ghost town.  And then the price of copper went up again and it was all restarted but that didn't last and a year later it closed again and this time everything went for scrap.  And so it can all go wrong with the best of procedures and intentions: the only certainty is that nothing is certain and if you come in at the top of anything you are going to get burned; big time; Shree Minerals being a local case in point.  I wish I had bought one of those T-shirts.   Back in the sixties after the summer of love and its ugly aftermath you could get 'Free Manson' bumper stickers and T-shirts.  They would have to be worth a fortune now in the original packaging.