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Wednesday, October 23, 2013

From Xero to mining investing - a leap of faith?

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In 2010, I recommended a stock listed on the NZ Stock Exchange called Xero Ltd (NZE:XRO). The NZX is a very small market so I'm not inclined to trade it. I do however like to assist people to trade markets. I wish I could say that I have a wide following of people for these recommendations, but sadly I think that's unlikely. There are two reasons:
1. Its a small market
2. People are cynical about anyone making claims
3. People are cynical about any 'conflict of interest', whether actual or implied.

For the record - I do have a conflict of interest. I am asking for a payment of $70 for a book on 'Global Mining Investing', which was in its first edition about 460 pages long. Its an eBook I am currently updating. Normally, I don't trade stocks like Xero, however it was a 'stand-out' buy at the time, and whilst I was not willing to set up an account, I obviously stand by the recommendation. I would however note that, the stock is now a technical sell. Being still a growth company, it probably has more upside, but I would argue that it also has a lot of downside in the short term. We originally recommended the stock around $1.60 (see Google Finance in 2010), and its now $28.61, at this date.

It is going to be rare that any person investing in a company like Xero will get a chance. Any IT company like Xero in future seeking to raise money will be compared to Xero, so professional insiders will get the opportunity, so they will not be listed until those 'insiders' want to take their profits from an illiquid market. Expect the founder of Xero to be backing these new market entrant companies. Investors like to go to executive billionaires like him because they want the 'investor profile' that these people bring. Its a sad reality of the capitalist system. Success sells to success and the little guy becomes cynical and marginalised. This not need be the case. The mining industry is a great industry for making money, and they need the money. There are plenty of small companies, and metal prices are volatile. We don't just tell you which stocks to buy, we help you identify them. We can hold your hand through your investment journey on Facebook and my personal page (because I love what I do - as a mining analyst), and we'll even appraise the companies readers like so that ever 'learned' investor improves their skills. Learning how to make money builds commercial acumen, and that means NZ has more business-savvy people to advance this country.

Global Mining Investing - table of contents

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Monday, October 7, 2013

Debate between Wanganui councillors - James Penn and Michael Laws

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Last night the people of Wanganui were treated to some rare entertainment – a match between ‘David and Goliath’. Ok, better still, David’s son and Goliath. Interestingly, recently Malcolm Gladwell has given new meaning to the tale of ‘David and Goliath’, and this tale is analogous in some respects. The combatants are candidates in the running for Wanganui District Council. James Penn, is a local 19yo graduate of Wanganui High School, and a NZ Debating Champion, who is a 1st year university student in Auckland, studying law and commerce. Michael Laws is a sitting councillor of Wanganui, a former mayor of the city, and a former National Party MP.
It was a match between ‘the old guard’ and ‘a young buck’. There were several interesting issues about this contest:
1. The disparity in values – It struck me as a contest between an old conservative and a young libertarian; though based on Penn’s policy, arguably a conservative with a preference for smaller government  (utilitarianist). Penn looked professional throughout the debate; his open-mindedness plausibly a redeeming appendage to his youthful ignorance.
2. The disparity in debating styles – Penn is strictly correct whilst Laws is intimidating and plays dirty, at times losing credibility and respect with the audience. His attacks were often straw arguments or red herrings, and on one occasion he conflated his discredited argument with Penn's rebuttal. So much for intellectual honesty. He'd on occasion had to temper his outrageousness.
3. The value proposition offered by both candidates – Old people are important because of their historical knowledge; but youth brings new ideas and methods. There is a role for both.

James Penn is a star pupil, so despite his tender years, you’d expect some ‘fight, both in terms of factual content and ‘worldly experience’. James is not without worldly experience. He comes from an upwardly mobile family, has travelled extensively, and lived abroad (UK). More poignant is the following. Ignorance or the lack of experience (as you’d expect in an 19yo) is not necessarily a bad thing. Earlier in the week I was talking to a sitting councilor Rangi Wills. A knowledgeable man whom we could all learn a lot from. You want that type of knowledge on council. The problem I have, conveyed by both Rangi Wills and Michael Laws, is their ‘presumption of knowledge’, whereas a ‘young buck’ like James is less likely to presume facts and arguments. Particularly a star pupil like James, who is less likely to defer to other people’s views. He is more likely to go off and research topics. You can make much of his need to focus on studies, particularly since law is an area of study that requires a great deal of reading. Unless he can make case studies of Wanganui, I wonder if he will be able to serve Wanganui effectively, particularly given the 'role' I see him filling. He will need reading in order to develop 'arguments' against the old guard. One of the reasons why star pupils are stars is because most people don’t develop aptitude in critical thinking. In many schools, its only taught to the best students, if at all. James would have developed these skills as a debater in school. It was evident last night against a formidable and intimidating opponent.
In the case of Rangi Wills early in the week, my topic was ‘waterworks’. I’d read in the Wanganui Chronicle that there was a requirement to spend $40 million-odd on flood mitigation to protect housing/urban areas in Wanganui East. I emailed my solution to Rangi over a year ago. I never got a reply. He said he gets 90 emails a day. I can’t believe its rate payers, so he must have an active social life, or perhaps he is a busy career man. In any respect, he wasn’t addressing my concerns. In our conversation, he played down my suggestion, arguing that there would be a lot of public opposition to a dam on the Upper Wanganui River, and that the area had been investigated in the 1970s, and the area found to be ‘geologically unsuited’ for a hydro storage. Currently there is an oversupply of electricity in NZ thanks to the imminent closure of the Rio Tinto smelter (which I actually foresaw), however irrespective of the market context, a producing/profitable asset is better than simply a flood mitigation scheme that 'protects' what already exists. You could argue a flood would only 'immerse' houses, and not write them off. I'm not in a position to know. They are issues that should be addressed. The fact is that new engineering solutions are being developed all of the time; and we need young people who are prepared to find them. Maybe its not an issue for a 'young prospective lawyer' so much as a 'young engineer'.

Now, this is the useful technical knowledge that you want on council. Local governments need good technical knowledge. It does not have to come from the inside; however outside consultants also have a tendency to offer 'safe' proven solutions. There needs to be a tender and project team to entertain alternative solutions. A mayor hydro scheme might actually win private-national government support; particularly if such a scheme could function as a load balancing reserve like the Snowy River Scheme in Australia. But I’d also be interested in knowing if any technological innovations have occurred in the last 30 years to challenge this ‘accepted wisdom’ because most things are ‘bad ideas’ until a new engineer comes along and proves otherwise.
In this particular debate, Michael Laws, older and more experienced, was telling James Penn that ‘innovation funds always fail’. A woman from the audience cited ‘her evidence’ that micro-finance worked in Africa. I too know that micro-finance has worked very well in third world countries. No idea should be dismissed out of hand, however it must be acknowledged that the context is different. Third world communities are 'low-skill' countries that can afford to work with low-cost capital. They struggle to buy a sewing machine. This is not the nature of the Western 'capital hurdle'. The greater concern is that Western kids, and rural kids particularly, are not as 'commercially astute' or savvy as they need to be. Financial literacy is at a low point. Its not just about 'backing winners'; its about ensuring that your 'youth capital' has the right values to actually want to succeed. As Michael indicated, its little point helping youths if they are inevitably going to leave, and they should leave. I went to Japan and the Philippines, and now in my 40s, I'm in Wanganui as Michael said.

The problem with old people is that they are accustomed to being right; that they can struggle with the possibility that they are wrong. They are always armed with more factual evidence to convince themselves that they are right. Pretty soon they are only reading materials that actually supports their view, if they read at all. Sometimes they'll read contrary views and find some rationalisation to reject it. Michael was adamant that ‘innovation funds never work’. The reality is that ‘government funded custodial funds’ usually do fail, and there is good reasons for this to be the case. The point being that Michael Laws never saw the ‘black swan’ to know that not all swans are white. This is not a justification for James Penn's innovation fund; its reason to look at its merits. This is where youth and critical thinking are useful. Now, you might question whether James is too young. Well, there is another issue and that is context. We live in an internet world now. There is so much knowledge online these days, that youths are exposed to such a diaspora of information, that they are far more knowledgeable than these old folk when they were of equivalent age. More importantly, they are more adept at researching in the modern era. James brings that dynamism as well as critical thinking to the table. He will however have his limits however because he is barely out of school. Don't expect him to be a Fullbright Scholar from the get-go; but does he offer something on Wanganui Council...I think so.

Not everything went well for both candidates. Both candidates failed to pick up on a flaws in their ‘economic policy’. Wanganui Council is struggling with high debt levels. The response of both candidates conveyed some ignorance of finance. Laws wants to ‘peg rates to inflation’ whilst Penn wants to index them to ‘inflation plus’. Penn did qualify that by saying that he would use more discretion. The reality however is that it should only be about ‘cost vs benefit’ to rate payers; most particularly when debt is so cheap. If you are going to use debt, now is the time. You would think debt is therefore an opportunity. The problem is that councils are 'democracies' and democracies are majoritive rather than rational, and the clowns are usually in the majority. We need more critical thinkers like James Penn, Michael Laws and Rory Smith, and fewer populists like Phillipa Baker-Hogan and Hamish McDouall.
You can argue that there is an assessment about ‘which ratepayers’ given some level of cross-subsidisation across the electorate, but inflation is not a good barometer, and it should never have been flagged as a benchmark of suffering because ‘inflation’ is not a benchmark of purchasing power. This is mythology. There is no correlation between inflation and cost of living. Consider:
1. Monetary policy changes need not pass through to ‘cost of living’ inflation; but rather through to ‘asset inflation’. Clearly people on a pension are most vulnerable to the latter; and that people in Wanganui are less exposed to ‘asset inflation’ because of depopulation.
2. There is an over-supply of labour and competition from Asian labour markets, so there is no growth in ‘unskilled’ wage costs. People living on benefits and pensions are therefore vulnerable; so that is probably a starting point for rates. Maybe the selling argument for Wanganui is a 'rates regime that is indexed to the pension', as opposed to inflation. Would that not give certainty to a lot of rate payers and lifetime pension collectors. Of course, these are not high-income recipients, but at least it would fill vacant housing stock and get the construction industry going.
So both candidates did poorly on this issue; and both candidates failed to address the ‘elephant in the room’, which is the poor perception of Wanganui – thanks to crime. Unless any candidate is prepared to address the social issues in the town, then people are simply going to avoid Wanganui. Laws unfortunately has a track record in this arena as former mayor. More problematic perhaps is the fact that he ‘still has a voice’. In fairness to Michael, he is a very articulate and good critical thinker; the problem is that he is not ‘self-critical’. His deference to his own ego is immeasurable. This is a problem for Wanganui because ‘as a leader in the community’ he becomes a ‘significant danger’ for the following reasons:
1. Andrew Wilson was not a threat to Wanganui. Media coverage had ‘exposed it’. Laws took the issue national, and made Wanganui a ‘pedophile haven’ when in a broader ‘weighted’ perspective, we ought to realize that 75-85% of pedophilia occurs within the family.
2. Laws, and others like Hamish McDouall, our local Labour Party candidate gave this a profile it did not need, in order to fight ‘a not-in-my-backyard’ (NIMBY) campaign. They were even prepared to take it to the High Court. This is one way council mayors and councillors have been wasting rate payer money. In James hands, Wilson would have been probably treated as any other paedophile….given that they are all around us. Laws created a false stereotype…but it gets worse.
3. Laws was engaging, along with other councillors, and they should all be identified by the Wanganui Chronicle, in fear-mongering for populist reasons. Philippa Hogan-Baker is out doing the same over illegal highs. Laws actually was critical of Hogan-Baker, and rightly so, but again, he simply lacks the ‘self-critical’ quality that has him ‘pinned as an autocrat’, yet he stands ready to identify Penn as so. Pot...Kettle from Laws. The problem with Laws fear-mongering is that people in the streets of Wanganui are now vulnerable to accusations of incest simply by talking to a child or walking along the street. He has created that much fear. Laws has precipitated a witch-hunt. I know of one case; it would be interesting to know from police if there had been an escalation in ‘reported incests’ since this issue became a national scandal. Awareness is great - but let it be cased on facts and understanding; not fear and loathing.

In terms of debating skills, James Penn was far more dignified and respectful to his counter-party, but Laws was able to land some ‘illegal punches’ so to speak, as well as some 'solid blows'. James did allow Laws to lampoon him on seemingly a simple issue of ‘h’ in Wanganui. He should have more strongly argued that Laws made the ‘h issue’ a national issue by holding a referendum on it. Moreover Penn allowed Laws to attack him as ‘undemocratic’ because he would not have funded the referendum on the ‘h word’. He needed to reiterate that it was a small issue that needed a decision from the council, not populist mandates from  a costly referendum. People don't know what they want until they are educated. Michael Laws rendered a 'straw argument', that its democracy or not. Not that simple Michael; its a question of the 'type' of people participation. So Michael peddling false dichotomies.

Laws did convey a better awareness of the dynamics which shape Wanganui. He correctly realizes, as in other rural cities worldwide, that youth tends to leave for the big cities, and likewise it can be argued that most immigrants tend to prefer cities for the greater support for their respective cultures. Laws therefore wants to target former residents when they have children. Which poses the question – why is he making Wanganui about Wilson? He might well argue that Wilson has a threat to that image. I would argue he blew the issue out of perspective. We are surrounded by paedophiles. Risk is managed; not avoided. Laws created unrealistic fears; precipitated scaremongering (along with other councillors) and failed to even observe the evidence related to paedophilia. He ditched the ‘selling point’ he had identified for Wanganui for populism. He was however right on another issue. Wanganui cannot match the cities for night-life; but by the same terms, Wanganui could do a lot better to cater for youths. Maybe it only requires an inter-city bus at opportune times. i.e. What if drunkards could be taken off the road at night by being given a ‘low-cost bus service’ to and from Palmerston, and vice versa, so that folk here would have a ‘cheap’ means of taking in other restaurants and pubs, and Palmerston can do vice versa. Even if it was a ‘pre-booked’ opportunity offered infrequently. This would partially see more people spending money in other cities, but at least it would mean ‘intra-regional’ opportunity and dynamism, and it might serve to keep people in the community. Maybe it might see people living in Wanganui, but working in Palmerston North. Likewise people in Palmerston North might welcome a trip to Wanganui and its beach. Such a means might even be a means of increasingly services from their respective airports. A one-hour bus to Wanganui airport for a flight to Auckland, or a one-hour bus to Palmerston North for a flight to Christchurch. It might be the better alternative to a poor transfer in Wellington en-route to Christchurch or Sydney for business people who these days don't need to live in these high-cost cities. These are the type of ‘flexible’ work-arounds that allow business and their families to locate in Wanganui. Being from Sydney myself, it is a very hard commute to East Coast Australia. If there were more flexible arrangements for business and regular commuters, Wanganui would attract more people. We already have pretty seemless arrangements to Australia, so better connections might be a precursor to more Australians, and for 'Big Oil' seeking oil & gas offshore NZ, better flight connectivity might actually pip Wanganui over New Plymouth as a regional office serving these offshore fields, given that Wanganui is closer to the centre of government.

I’d love to see James Penn on the council. More concerning however is that he is only one voice. We need 6 other James Penn’s, well perhaps somewhat older, in order to ensure a ‘reflective’ critical perspective of city issues. One of the huge problems for cities in NZ is keeping skilled persons, and Wanganui is more vulnerable than most communities because its small and depopulating.

You can view the entertaining debate at Wanganui Online.

Michael Laws for mayor?
One of the pressing issues with respect to Laws is the fact that he is also one of 3 candidates looking to become mayor. The problem is that he simply lacks credibility for a number of reasons – least of all his track record on mayoral issues. He has supplanted the prospect of a healthy image for Wanganui with a deference for his own ‘pseudo-ego’. On the issue of gang patches and Stuart Murray Wilson, he placed the image of Wanganui in the media for all the wrong reasons. Now, in fairness to him, Wanganui has social issues, but he made no progress resolving those. The greater issue is that no leader is making a difference on this issue. They simply don’t because there is little insight on this issue, inside and even outside the community. Wanganui needs to find its own innovative solutions. Laws acknowledges ‘the lack of leadership in social services’, but he did not deliver as councillor or mayor in this respect. Frankly, the city is without a capable leader, so I'd argue that it needs 'by default' Annette Main with a more capable CEO who can actually tackle those issues. Clearly that is not a person to be elected; its an appointment.
The other problem with Laws as leader is that he is simply an egomaniac who needs to be the centre of attention. Humorous until you receive your rates bill and wonder where does it go. He is a capable contributor as a councillor, but he’s utterly destructive as a community spokesperson. Even his role as a radio host is ominous. For this reason, I’d prefer to see Annette Main as mayor and both Michael Laws and James Penn as councillors. I think there are other capable people as councillors, but I’d like to see Penn elected most particularly for what he can become as a ‘future mayor’? He might instead be a future MP for Wanganui in a few years when Chester Burrows retires. Who knows.

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Friday, September 27, 2013

Finally media awareness of Auckland volcanic threat

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This is the third time we have written about the threat posed by a volcanic eruption in the Auckland Volcanic Field, that underpins much of Auckland City, New Zealand. We first wrote about it in March 2013, then again in April 2013, and again in this article. Finally, today, the NZ Herald has decided to write about the issue, which is critical, not just to alert people, but for government to actually take steps to avert castastrophe. What people need to consider is:
1. There is no reason not to expect another eruption. They have been so periodic that it gives high causal justification to expect another at some point.
2. Volcanic eruptions when they underlie or adjoin a city pose a huge disruptive force; far more catastrophic than earthquakes.

The reason why this is so is because:
1. The sonic blast from the volcano is going to shower the city, or parts of the city with rock debris, killing people, destroying a lot of popular. The impact would be akin to an earthquake. Less damage to the structural integrity of buildings, but more damage to their cladding/facade.
2. The volcaniclastic material and dust will blanket the city. The implication is that it will be a huge disruption to the city. Compared to an earthquake, where the people can get on with their lives within a week, i.e. Businesses can keep going, if they are psychologically prepared, and where there is relatively less disruption to transport, and only 'certain zones' are affected. Widespread dust will stop everything. Its akin to a snow storm; and even if you move the dust, it will wash back with rain. It will be redistributed by train. In contrast, an earthquake spreads no debris, aside from liquefaction (sand) along fault lines, and often it does not even rupture land/highways, so its simply undermining buildings/foundations in certain zones. It was rather unlucky that the central CBD of Christchurch was even hit. The other issue was the 'shallowness' and 'intensity' of the quake, and the fact that Christchurch was not designed for such events. i.e. It had many relict 'brittle' structures. In contrast, Japanese earthquakes are 80-100km deep, the earth 'rolls' and buildings sway accordingly.

Now, the good news is that it might not be central to Auckland, but rather on the fringes, so having less effect, and possibly not blocking major transport corridors. It might be a relatively small eruption with insubstantial dust. The win has a good chance of carrying the dust out to see, and strong wins will serve to disperse the dust further afield...though for a major eruption, that could actually be a problem. A greater problem is perhaps that there is no precedent for this event. It has no modern comparison. It will be not as severe as the Pompeii (Italy 11th Century?) or the Mt Pinotubo eruption in 1984 (with its 11 feet of ash). These are different styles of eruption. So, we are really in the dark as to the precise nature, however much can be garnered from exposed ash deposits. After all, that's how they are able to calculate the historical significance of these fields. NZ is one of the few countries to build a city on a volcanic field. I'm not aware of any other, aside from Iceland, where the entire island is a volcano. Even then, its not so much an explosive style of eruptive volcano, but generally a non-viscosity, fission-style type of eruption.

Now, in commercial terms, you generally build infrastructure with a 20-40 year life. So it might make sense to build a city on a volcanic field. Sadly, that concession only works if the eruption is after your 40 year project life. You might otherwise feel a bit jaded if you did not take a threat to your property seriously if you'd just made improvements to your property and then an eruption occurred weeks or a year later...even 5 years. The reality however that, its not so much a problem of infrastructure loss as:
1. Looting and vandalism in the wake of it, as you flee for safety
2. Destruction of gardens, external façade, windows
3. Damage to internal windows. Recognise that there will probably not be materials to board up your house windows, if that will even make a difference. It will depend on the size of the blast and your proximity to an unknown centre within the field, or close to it.

It becomes apparent that Auckland will be disrupted for several months. Food will need to be flown in until arteries are cleared. Rain will play havoc with that. It will be a different, even unique type of emergency.

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Thursday, July 4, 2013

Just one of the many great companies I have identified over the years - Xero Ltd (NZE:XRO)

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In Jan 2010 I recommended a NZ stock called Xero. Based on the Google Finance chart it was $1.64. Anyway, 3.5 years later its $17.64 and worth $2 billion dollars, and its NZ's largest listed company apparently...that's hard to believe. Normally its hard to find such stocks in a small market like NZ.
Anyway I wanted to convey the appeal of managing your own money, and dumping the 'dumbed down' investor belief that you should passively outsource your money to some fund manager who takes you for a commission. Here is the recommendation. There are few sectors which offer that scale of profits. Mining is one of them; online services is another, but that is generally a sector that does not need money. Mining needs money, and it pays nicely. Now is good timing for gold, and a good time to prepare for industrial minerals. Companies like MLX are good examples of the types of company, but you wait for the right time for these companies. Let me explain how to do it - start with Global Mining Investing.
At the time I was less than enthusiastic about NZ Windfarms (NZE:NWF), but thought that they might be worth a punt at 22c. Today they are 7.5c, though if I invested, I am sure I would have long abandoned that one. The reasons it was not a good option:
1. It was investing - always a less scalable option given the high capital cost
2. It had a major strategic partner who as a controlling shareholder could probably care less about capital optimisation
3. It was competing with China
4. Lack of local subsidies for wind
5. The problem with Resource Management Consent - I believe matters are improving in this respect
6. Not much growth in electricity demand - but then incremental capacity additions are well-suited to wind
7. The fact that grid stabilisation is currently not well-suited to a strong reliance on wind, particularly with the under-capitalised NZ grid, though I suspect that problem has since tipped in the other direction.

The reasons to like it were:
1. Prospects for technological innovation
2. Strong local support for wind
3. Appealing local market conditions for wind
4. The possibility of new wind subsidies

I note that Oceana Gold might be a stock to look at because its high cost, so has leverage to gold price incease, but I doubt it has a good resource base to interest me..so I'll steer away from it. I'll stick to the deeper 'Australian' fish bowl.

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Profit from mining with Global Mining Investing eBook

Sunday, June 2, 2013

New Economics Party - a new hope for NZ?

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New Zealand has the makings of a new political party. Well, its early days for this one because it seems to have no substantive backers. Its called the 'New Economics Party' but my evaluation will demonstrate that its not 'new' just 'ignorance of economics', and that's far from new. The problem with any new political party, or  group with such ambitions is that they inevitably convey a lack of understanding of economics and psychology.
Their idea is to tax 'resources' rather than 'production'. This is a rather silly idea because any tax on resources is passed through to work, so is there any distinction? A resource is nothing without preparation or reticulation/distribution, so its a moot point. Someone has to pay, and its not the resource. So 'resource rent' is not a magical escape from the cost of supporting a welfare state, if that is implied.

There is actually some value in this thinking, though I cannot sanction a collectivist notion like 'the Earth (or resources) are for sharing'. This is not substantive enough as an intellectual foundation, however I would argue or support the notion that people did not 'make' or create' resources. They were already there. So what are we to make of resources which are there, but someone makes them marketable. There is some value in their 'potential' value. The question is:
1. Should private persons be allowed to develop them at zero cost. This is not reasonable because resource assessment and exploitation entails impositions on competing land uses. Do people have a right to expect no impedence from competing land users. i.e. Does your lifestyle property have a right not to expect explosive vibration from a nearby development, even if its not on your land? Clearly, resource development is inextricably linked to other issues.
2. Should private persons be able to develop them after related costs. This makes the most sense simply because it recognises the value created by individuals who didn't create the value, say gold mineral, but they did identify it, spend money appraising it, carrying the risk of plant, capital and labour in order to extract it. The argument is that they are making 'super profits', but those profits arose only because of the boom-bust economy created by governments. A private 'unfettered' market would be more predictable, and more boring. Spculators love contemporary market uncertainty because they manage it full time. Fund managers love uncertainty too because they get to manage the funds of apprehensive salarymen. They get to buy out cheap those small resource companies small investors are scared to invest in.
3. Should a 'middle-man' government to able to act as a custodian and tax those resources or any resulting income for the benefit of others. The implication is that these resources are a 'public good' and that the government can impose high royalties upon these resources so that the miner only extracts a 'nominal' return. The implication of this would be that the governments of the world would effectively be planning resource development and production, and inevitably prices. Might the world benefit from resource planning? No question. Its in fact already there, though it could be argued that the information distribution is less than 'fair'. That is another question, insofar as markets need to appraise market information. What is the public's right to know? What is the implication of not knowing. Risk = ignorance. The implication of not knowing is higher cost of capital. This is not good for resource developers, and thus the justification why resource developers have a vested 'common' interest in disclosure. The flipside is that they might perceive themselves to have a vested interest in misleading information, i.e. Not disclosing or minimalising information about a project. This however does require an act of faith by the investor, and this should not be accepted even if corporate custodians are considered 'trustees', their interests are split between corporation and shareholders. Remember that they are employed by the corporation, which is considered a 'separate entity'. Individual shareholders are therefore collectivised in their interests. You might wonder about how to balance new versus existing shareholders.

The rationale for this 'new economics' is the cliche of resource overuse, resource depletion and climate change. This is reactionary populism. i.e. Politics chasing 'pseudo-science'. Resource depletion is nonsense; long ago discounted. There is no shortage of resources; their presence is essentially infinite. The rhetoric is that there is a fixed quantity of metal in the universe. The stupidity of this argument is that:
1. There is not a fixed number of humans
2. Its an incredibly large universe
3. Our per capita resource use is actually falling in the West whilst rates are still high in the third world, and their population growth rates are rapidly falling. The concerns of today will be the opposite in 30 years time. Then we will be complaining about lack of consumption. i.e. We might be compelled to stimulate people to consume. In fact I doubt this will be the case because I think we will have shifted to a new philosophical system.

This party suggests we need multiple currencies; but in fact this is precisely what we have. There is nothing wrong with that; the problem is that they are supported by the arbitrary power of the government to tax.
"Equality, according to research, makes everyone happier"
This is absolute nonsense for two reasons. The concept of happiness is a rather 'arbitrary' measure of well-being simply because it relies on people's honesty in being able to appraise their happiness. I'd argue that people are surprisingly successful in their capacity to delude themselves into thinking they are happy. I would challenge you to ask people 'who say they are happy' to actually tell you why. I think you might find it enlightening. Its often a wish rather than the true state of their apprehensions about their lives, and their suspicions and disdain of others. The other problem is the contemporary measure of 'equality'. This conception is very often a false dichotomy.

Inequality is actually a non-issue. People don't need to be concerned about 'inequality'; they need to be concerned about 'rights', and basic needs. The richest people are found in 'prosperous' societies; so what threat do they pose. They don't unless given an extortionary sanction by governments. So government is the threat. Money can be used for good or bad; its government which has a monopoly over the legitimatised use of force. The other issue is sustainability living to avoid destitution, and that generally requires some survival strategy and provisions for mishap. It does not require a great deal of wealth, simply a house and farm plot and a basic insurance scheme. We live in a world where people's living standards depend on other's capacity to avoid extortive taxation. This can only justify spurning civil society. They have been disincentivised to produce.

The notion of a state state economy is a nonsensical conception for a number of reasons:
1. There is no justification for renouncing success or security
2. Provisions for security are founded on 'forward-looking' provisions, not avoidance strategies

This political party posits as some defence against 'dog-eat-dog' capitalism, but is precisely the implication of its incoherent values. It simply assumes too much.

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Wednesday, April 17, 2013

NZ Greens Party and Labour Party discover an 'over the horizon' election losing strategy

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Wow!!!! This is huge news. Labour and Greens together have raised minority party extortion to a new level. As far as I'm concerned, its great news because it highlights the nature of our useless 'representative' democracy. At stake is the spectre of a non-governing party threatening to subvert the existing government.
The Labour Party and Greens are saying in the midst of a power privatisation that they are going to change the rules of the game. An 'asset' is a capitalised stream of earnings. If you change the government, change the rules, you are going to change the expected earnings, or investors sense of vulnerability. The market is already uncertain about 'drought' (least of their worries), the closure of the Rio Tinto smelter, and now Labour and Greens are saying they will thwart the sale - in effect!
This effective curtails any hope of investment in the country (in anything substantive) as well as any hope of getting a sale of assets. Its the cheapest form of populism. Worse that 'minimum wages' and capital gains taxes by a country mile. Mind you, the policy was unpopular for National, and they were too arrogant to even deal with the broad-based apprehensions. This is of course just another reason for spurning 'representative' democracy. see and like us at www.meritocracy.org.nz. Join our mailing list.

This is actually worse that Julia Gillard's Mineral Resource Rent Tax (MRRT) because:
1. NZ needs the jobs and industry
2. Australia is a strategic and prized supplier of minerals
3. People kind of expect minerals to incur some rent
4. The mining industry was always very powerful, and thus a backflip was to be expected
5. The Australian Labor Party is just about to be dropped
The twisted aspect of this is that Labour and Greens just placed themselves in the wilderness....and ACT are looking more credible than ever. We have the socialists to thank for it....they really showed their true colours. Giving people sugar does not always work; most particularly when the market/media show you the implication of your decision-making. Shearer just retired permanently.
I guess we have to respect the 'honesty' (if not blatant stupidity) of the NZ Labour Party and the Greens Party. I guess they have locked in the support of the party faithful. But they might have just jettisoned any member or supporter with any sympathy or brain stem. To those people, I say welcome to ACT Party. John Banks, its leader is probably the only person with half a brain stem, and its a semi-impervious connection to God. So we live in hope. But you know; that's the price you pay for moral relativism. Get rid of representative democracy! Its not really 'democracy' in any meaningful sense. It does not give you 'real representative'. It takes from you power of attorney, vested in a person you will probably never meet or really know, who runs agendas you will scarcely understand because he is thinking full-time about thwarting your better judgement, and you are scarcely 'participating' to bearer scratch together a few brain cells. We need a meritocracy with a rational framework for political discourse. This is the only way that anyone can participate in a legislature. Visit us at www.meritocracy.org.nz. You want respect for your legitimate interests and rights - become a libertarian - we are not all Christians.

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Thursday, April 11, 2013

Auckland - living on the edge of a volcano - they didn't see it coming

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On the 17th March 2013 I wrote about the risks posed by a volcanic eruption in the Auckland Volcanic Field. I posed a number of questions as much as anything, since as a geologist, I go on evidence, and frankly, I was at a loss to find any. I don’t live in Auckland, so I don’t have any particular interest beyond an odd-hours research, but since writing this story, I’ve seen an escalation in interest in the issue. Might it be that there is more evidence than originally reported? Well there is a follow-up story in the NZ Herald today which raises several more issues which I want to address:
1. Focus of activity – The story probably creates unnecessary fear because it suggests that each of the old active volcanic craters in the Auckland Volcanic Field is active. This is unlikely. More probably an eruption is going to be in the Rangitoto Island area, if not the existing cone.
2. Eruption history – It suggests that Rangitoto has a sporadic eruption history of up to 1000 years. This is less important than the nature of the eruption. Really the threat posed is from an early blast rather than a later flows of liquid, highly fluid magma. Since the eruption is probably going to be offshore, I suggest the greater threat is a mini-tsunami in the bay, as well as a volcanoclastic surge blasting your windows to smithereens. You might want to rethink that bay-side waterfront apartment acquisition; if only for the high rents and the surge risk.
3. Eruption activity – The evidence suggests that volcanic activity has increased in intensity, i.e. the latest eruption some 500 years ago from Rangitoto Island was the most activity in terms of lava flow and ash.  Where does that leave us? Maybe more explosive coming? Maybe simmer or subside.

It goes without saying that Auckland is unique in the world. It is not unknown for cities to be built adjoining volcanoes. The problem for Auckland is that it is probably the only place that I know which is actually built on top of a volcanic field. Having said that; the next eruption is probably going to be offshore. Let’s not forget how ‘recent’ human arrival was; and I’m including the Maoris.

Does it make sense to rethink the focal of NZ development? Does it make sense to keep developing Auckland? Well, given the characteristic of these types of volcanoes, I think it does make sense to keep developing Auckland. Does it make sense to retain it as the centre or focal point for NZ development? Perhaps not; but then expensive housing prices are probably destined to drive people out. Who wants a bird’s eye view of a volcaniclastic surge? Not me.

The reality is that there is a great deal to question about the nature of this volcanic phenomenon. Does one lead one’s future in the hands of academic volcanologists with a limited understanding of geological events? Such volcanologists are really learning as they go, largely on the basis of empirical evidence. They have not even observed an eruption from any field with this style of eruption; let alone from this volcanic field. Reason for caution? Not really perhaps until the evidence trail grows.
Associate Professor Phil Shane said: “Future planning would have to consider living with active volcanism for a long period of time….It is not as bizarre as it sounds, if you think about Iceland and Hawaii - societies have gotten used to living with volcanic activity for generations”.
I have a problem with this statement insofar as Hawaii and Iceland are a completely different type of eruption centre; both in terms of style and character. I doubt there is even the evidence to suggest that Auckland is even a ‘hot spot’ in the conventional sense. Certainly not like Hawaii with its flood basalts, or Iceland for that matter. I suspect its origins are more tectonic than is appreciated, with activity arising from a fractures opening up offshore of Auckland. The evidence is simply not there. There is a major kink in the tectonic plate at Wellington, and you can bet no work has been done interpreting earthquake activity offshore from Auckland.
The problem too often with ‘empirically-driven’ scientists is that they only start questioning convention when some event jumps up in front of them to tell them how little they know about the world (having an incomplete geological account due to erosion and limited observation) and not a great deal of knowledge about the cause of the Auckland Volcanic Field. In this last respect, these empiricists are largely ‘talking blind’. There are not too many geologists around who say ‘I don’t know’. Neither are there many people who define themselves as ‘critical geologists’. Everyone wants to fall back on convention to convey how much they know. The flipside is that unpopular academics seems to be a contradiction in terms, hence you cannot always expect volcanologists (indeed any scientist with unconventional ideas to get taken seriously). Can you imagine how safe one must get with life-time tenure? Can you imagine how annoying a person could become if you worked opposite a professor you did not like for a lifetime? My sense is that they grow to get along; much like the Japanese, defined by their own sense of safety.

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Monday, April 1, 2013

Focus NZ Party: A struggle for identity

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The prospect of yet another libertarian party in NZ. I don't know whether to laugh or cry? I do know that I'm leaving the country, so what's the difference. Well, its nice to think that there is some hope of a libertarian sovereign state somewhere; but given the values conveyed by these 'hicks', I do believe I will be crying. So what's up with them. Well, here is the problem as I see it....the list is a little long.

1. The prospect of a a new (Focus NZ) party is probably only going to increase the chance of a Labor-Green victory because it will mean no list seats for a libertarian party. This will of course spell the death of all libertarian parties. 'Divide and rule'....that depends on how you divide. Three libertarian parties is ridiculously too many, particularly since you make no point of differentiation. If they merge with Daniel Craig's Conservative Party (yeh that was a joke) or ACT, that would be better.
2. The other big problem is that they have pursued the wrong approach to credibility. ACT's strategy of digging up former National Party leaders is ridiculous for a party that should be trying to differentiate themselves. Find credibility within the business community and appeal to high profile people across the country to back you, not just business people....otherwise you look like a pack of hicks or vested interests. But don't just create the perception of being broad-based, actually change your mind-set from concrete 'vested interest' 'exporter of the year' myopia, to all issues. Not just fiscal, monetary and industry policy, but welfare, treaty, energy policies and besides.
2. Another big problem for libertarian parties is that they have no clear identity. This is perhaps the hardest pill to swallow, but 'libertarianism' as a concept is rife with problems. You have to pick a winner. If you accept to 'pick the package' then you diminish your credibility. You are positing yourself as the 'honest party', but you can't be if you are contemporary libertarian, which means, only caring about advancing 'small government' agendas, but being indifferent to the divided philosophical values that divide people. This 'packaged' attempt to be all things to all people works for the 2 major parties; but it won't work for ACT or Focus NZ. The reason is clear I hope - the 2 major parties are 'extortion' based parties - both peddling fear. Labour is peddling concessions based on extorting wealth from the rich; and Conservative-Centre National Party, is peddling a defensive 'we'll protect you strategy', or 'we'll allow you to grow' on a good day. They are entrenched in this extortion-based two-party model. Trying to be the balance of power is not going to work given that the Maori Party is already doing that. This means the libertarians need to differentiate themselves, and that means 'growing market share', and that means being something the other parties are not. But since its different, you need to convey integrity. It does not matter if you have to divide your market share; at least you will convey a coherent system of values the people can trust.
3. Identity - The problem with 3 parties is that there is no point of difference. Libertarianism is a political philosophy that advances 'small government'. Your problem is that people support small government for basically 3 different reasons (i) Indulgent, reactionary, subjective anarchistic reasons, (ii) intellectual Randian objective 'natural law' type reasons, (iii) intellectual utilitarian reasons, (iv) divine/Conservative party reasons.
The implication is that its very hard to integrate that set and preserve integrity because at the end of the day, the Labor Party, and National Party and even Greens, have a fair claim on these people.
4. Broad based policy is needed. Just looking at your website, and that's where journalists will look, one observes the following errors, aside from the pitiful website....
(a) Right wing is not a good term to adopt...its meaningless...better individualism, prosperity,
(b) Focus on 'producers and exporters' - its a mistake. You may as well call yourself an irrelevant farmers party. Farmers are the 'backbone of the country''. Perhaps, but the problem is they are 3% and you have not found a way to teach sheep to vote. Labour has. 

(c) Talk of 'foreign exchange rate' controls is the wrong way to go about policy for a party that purports to be 'free market'. You need to ask yourself why the currency is high and deal with the problem from that respect. All commodity currencies are high...to give you a hint.
5. Criticising the outsourcing of jobs. There is already a 'nationalist party', why are you going that path. That's not 'broad-based', that's just idiotic. Winston Peters already panders to the ignorant. Jobs are going offshore because its cheap to make things in China. If you increase the costs of living in NZ, then you have inflation. You will diminish jobs in NZ...the exact opposite of your intention. The cost of living will rise. It is true that there is a false economy in outsourcing jobs which will come back in 20 years, but the solution is not simply protectionism. The solution is not to identify the problem and not have a solution either.

The policy position of Focus NZ is actually not bad, at least from their opening page; the issue is more on the strategic positioning of the party. Of course there will be a need to see the detail. The problem with such small parties is that they tend to lack the lack of analytical skills to make a credible effort, and then they tend to fail on public presentation, which the major parties handle convincingly. Most voters are not analytical; but journalists will be voracious, so party speakers need to be. Going after list seats makes sense as a policy strategy until they identify credible public speakers.

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John Key on asset sales: Three Strikes And Your Out!!

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In both October 2011 and January 2012 ( a year ago) I alluded to the threat of a closure of the Rio Tinto alumina smelter, and the prospect of the smelter closure impacting on the electricity market, and the forthcoming power industry privatisation. It loomed at as a compelling reason for the NZ government not selling the power assets - probably the only reason. But given the market outlook its a big one. On the 23rd March 2013, I gave John Key a third warning. Now, I know this guy reads my blog posts because he seems to respond to everything I say. On this occasion however he showed utter contempt for my advice. So what's the problem? Aside from the adage "Three strikes and your out", the problem is that:

The spectre of the Rio Tinto aluminium smelter closing means that 11% of the nation's electricity consumption is handing over the market. That is a big problem for several reasons:
1. The nation's population growth is flat
2. We are in the midst of a recession

The fundamentals for asset sale otherwise look pretty good; but this disposition will remain the case for the foreseeable future. In fact, there is good reason for expecting a future government to increase immigration, and to perhaps expect more Kiwis to return home. There is also the prospect in 5-10 years to expect some offshore resource development, with all the onshore developments that are associated with energy processing. But that's a long way off. In the near-term, we are looking at 10 years of subdued energy demand. More worrisome for Key is the push for reform of the Resource Management Act, which would reduce the cost of installing new generating capacity. This is less of a concern for large capacity additions; but there might be perceived to be a 'pent-up demand' for mini-generators like private wind farms, solar concentrators, mini- and run-of-river hydro schemes. The wind farms are particularly appealing in NZ, given the falling costs of installation, and growing acceptance.

The implication is that Rio Tinto is effectively using the power privatisation issue to "extort" a concession. The deal looks like this:
1. The government subsidies Rio Tinto in the long term to stay
2. The government takes a hit on the asset sale price

Ultimately, it might not even be the government who pays. The government might be setting up a lot of voters for failure; or will it be its reputation. I suspect the pain will be less if it just accepted the lower return because at least it can say, Kiwis had the opportunity to buy the asset. He can also argue that 'they got the price it was worth'. Well, true 'today'. But who knows what a bit of policy could do in the future?

Notwithstanding the benefits of selling the asset, it makes more sense to retain it for the time being. It would not do Key's reputation any arm by delaying the sale for 5 years. Interest rates will stay low, so whilst the government is getting a 10-12% return on investment, they are only paying 4-5% interest on the public sector debt. In the meantime, they might be able to raise economic activity. In fact, the global economy should start looking a lot more positive by that time.

John, you need to listen more. If I've told you once, I've told you three time. False pride go'eth before a fall. Your prospects for a third term looks pretty bad. Thanks for the legacy! Defer the privatisation. Great ideas have their time. Your timing is wrong.

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Saturday, March 23, 2013

What NZ should do with its privatisation proceeds

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It seems inevitable that National Party is going to sell off some more power company assets - the prestigious hydro assets. Probably not the best timing since we are currently in a drought. Buyers will be thinking; oh dear, we better mark down the price for potential adverse climate change response. Maybe NZ is going to be a drier place? This on top of the possibility of Rio Tinto closing its Aluminium smelter.

The NZ government government is saying its going to pay down the state's debt. This makes a lot of sense for several reasons:
1. The debt levels of NZ are rather high
2. The terms of trade of NZ are rather favourable; and they can be expected to deteriorate as more food is grown offshore
3. Its actually a reasonably good time to sell off assets - particularly if the process can be used to encourage NZ savings. This is good because there are too few opportunities for NZ'ers to invest, and these are high-yielding assets.

NZ needs to take a look at Norway's approach to prosperity. It does not perform all the exploration work, and then give it away to the private sector. It places some value on its national assets; giving its people a 'windfall' and not the private, commercially-motivated operator who has the capacity to delimit its risk. The NZ has have to set the right 'terms and incentives', as otherwise no one will want to perform any work, and you don't want to be expropriating profits or changing terms down the track; that's just not fair to them.

The focus seems to be upon conventional oil & gas development in NZ - whether onshore or offshore. The much under-appreciated asset is methane hydrates - that sit on the seabed. Japan has been developing the engineering to extract these resources around Japan, and NZ could take a leap from its book in terms of developing an offshore gas hydrates market. There are several compelling reasons:
1. They are lucrative resources - large in size
2. Its easy extraction - a glorified form of dredging
3. The gas can be channelled into NZ's gas pipe infrastructure
4. NZ has a shortage of gas - which is contributing to the very high prices of it. More gas means the country can decommission its high cost Huntley coal-fired power station.
5. It can potentially displace a large import bill for petroleum into NZ

There is actually no better time to develop such energy resources because:
1. Interest rates are very low and set to stay low; so if you can make lucrative returns; this is a good time in use debt
2. The emerging markets are energy-poor in Asia so there is a great opportunity for those countries who get their political terms (i.e. sovereign rating) right; and keep them consistent.

There is a particular shortage of expertise and capital accumulation in small, consumption-driven countries like NZ. This can make the country vulnerable. This is not a deficiency in capitalism; its actually caused by socialism driving the value of emerging market labour down because of the distortive impacts of surplus Asian labour suddenly released onto global markets. This means governments are destined to need to finance  efforts at the margin to keep the economy secure. I don't like it; but its better to protect your labour than sabotage their preparedness to live; because ultimately dogmatic retention of ideas is a betrayal of those ideas because principles need to be held in context. Capitalism did not create the problem; and it will inevitably solve the problem quickest; but it requires the discretion and empathy of capitalists to 'cover' the threat posed by distortions to our values. This support will be required for at most 20 years; and if we upskill our labour, for much less time. This is why many of these European nations like Germany and Switzerland, Holland etc have been able to sustain their economic strength despite their high cost of living. They upskilled everyone rather than simply laying them off in the United States. In the US, you have this bitter intractable debate about who is responsible for the 'poor & destitute'. There is no discussion about what's causing it. One side says 'not my problem, work harder, get a job, get skilled' and the other side says 'can't live, can't get a job, need your money'. Its a false dichotomy because two parties - Conservatives and Democrats, and even some anti-intellectual libertarians, which is not going to be resolved unless these people learn some epistemology (a branch of philosophy). The problem is causeless assertions, i.e. Having unreasonable expectations, whether its the cause of other people's malaise, or a question of empathy (conceptual value judgement). Either way, it sux when these people drive the political debate.

Of course its the same issue in NZ - except there is less money; more reliance on foreign investment. This is why energy is critical, or why business and labour need to develop a greater respect and understanding for each other's position. Wealth holders deserve rights and recognition for their interests; and without the 'discretion' to retain it, to do as they please with it, there is not going to be a solution to this intractable problem. It starts with principles people - and it starts with your constitution - its starts with not having one...because they are a piece of dogma destined to undermine principled, contextual understanding of ideas.  Simple prescriptions don't work; they are too easily misappropriated by vested interests. That means no arbitrary 'representative democracy' because its not a rational process.

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Tuesday, March 19, 2013

NZ Constitutional Consultancy a charade

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Anyone who takes the time to participate in political discourse will realise that the process is designed to defeat change - whether the exponents or stewards of such 'purported change' realise it or not. There are a number of reasons why its a charade:
1. The representatives appointed to the panels which preside over the issues in these affairs are selected by the government. i.e. The government is destined to select an appropriate number, ratio and spread of people to make the process look 'broad based', but at the same time, it is destined to avoid giving any consideration to people who are destined to radicalise the agenda by offering ideas too controversial to entertain. In the case of the Constitution Reform issue, you can see that this panel is stacked with liberals, lawyers and Maoris. No one who will make a difference.
2. The terms of reference is the outline establishing what a 'so-called' independent commission or inquiry is supposed to cover in its inquiry. The problem is that such terms are destined to curtail or delimit the scope of the program or inquiry, to the extent of actually directing its outcomes. For instance, this is the terms of reference for an inquiry into Constitutional issues in NZ. It purports to offer direction, but the Terms of Reference are so explicit that they prevent any consideration of political reform. This panel is all about getting a few Maori to sanction the process and the outcome; irrespective of how 'staged' the result. In effect, these people are being paid to give a good show.
3. The person to head the inquiry is very important. In this case the head is a government minister; and that's about as safe as you can go. Sometimes a government will want to appear more detached from the process. When the Australian PM Kevin Rudd pursued an inquiry into human rights; he got a Church clergy to head it. This was another political process. The inquiry went nowhere. It was simply forgotten.
4.  The findings will be confidential or only advice to the government. There will be no requirement for the government to act on the advice; in fact it by shear incompetence in their selection process, that some radical agenda was offered, they could easily bury or publicly castigate the panelists, and never employ them again for such duties. In the case of this NZ Constitutional Inquiry, its clear who is controlling the process - a Catholic Deputy PM Bill English:
"The Deputy Prime Minister and the Minister of Māori Affairs will jointly lead a Consideration of Constitutional Issues. They will consult with a Cross-party Reference Group of Members of Parliament on major findings and reports before reports are made to Cabinet".
Even a hundred years ago there was less government control over the process. In this case, the government cites the fact that it will 'consult widely', however it is far from the most accessible process, and the process by which the report will be tabled is just as flawed. This is a process merely intended to give the greatest reformers 'hope' or 'faith' in a better life. They are dreaming. This is governance which is intended to keep people in their place. It is not about intellectually engaging with people. Its rhetoric which says people are important but fails to treat them as human beings. Consider that even the framework describes its over-arching philosophy, which is to subjugate:

One need only consider how this constitutional issue arose in the first place:
The Relationship and Confidence and Supply Agreement between the National Party and the Māori Party (16 November 2008) agreed to establish a group to consider constitutional issues, including Māori representation.
The National Party had no interest in constitutional reform. It is merely going through the issue because membership of the National Coalition would mean Labour would be forced to give greater consideration to Maoris, and not take them for granted. i.e. Labour had to learn respect because Maori hold a very powerful role - the balance of power - in our extortion based system of representative government. It is this very reason for the Western world to drop the facade and lambast this hopeless system of tyranny for the inefficient and deceptive piece of nonsense it is. This process is not a source of hope; its a deceptive effort to have representatives of Maori sanction the process and to keep the general Maori population waiting....losing faith, until they are so disenfranchised they just die. The government is trying to outlast Maori.
I hope that Pakehe don't view the process this way because white Europeans have more to gain from the process than Maori - precisely because they have less. By way of their good fortune, Pakehe have long believed they already had political rights. Its only when viewed alongside the token respect for Maori sovereignty that you realise how little regard politicians have for 'white fellows'. Pakehe have no voodoo. They are downtrodden after centuries of Western subjugation. Maoris are in contrast empowered by:
1. A sense of pride in their culture and sovereignty
2. A sense of victimisation
3. Liberal sympathies
4. Formal recognition of sovereign claims

Paheke have none of that because they were born subjugated by parents, an education system, a parliament. Look back long enough, they were subjugated by monarchs as well. People are accustomed to thinking so little of themselves, that they just obey and accept the law, irrespective of how irrational or immoral it is. It does not have to be internally consistent, i.e. You can have one standard for politicians, one for others. You can treat low-life one way, business leaders another. You can have statutory laws which breach common law. This is the politicians discretion to keep you in your place. Oh well, when will it end. It won't end with this process. Will it take a new type of leader? This process seems to be above any particular leader? Does it lie in the party machine? This process is intended to keep people subjugated to the entrenched party interests, and that means the people who have fought to get to the top, and who want to preserve the motivation that made the fight worth having, and the legacy, so there is no question of them deserving the spoils of high office.
You want to learn more about this constitutional process - see their website or download this booklet.

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Sunday, March 17, 2013

Auckland - live in fear - Rangitoto volcanic eruption

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Popular wisdom is that the two recent volcanic eruptions that struck Auckland, NZ's largest city are nothing to fear. I would care to differ for two reasons:
1. You cannot trust governments to tell you anything or to identify and act on any substantive evidence. Recent examples include the Christchurch earthquake, where a city engineer who warned about the risks of an earthquake was ignored.
2. The other example being the Tohoku tsunami where the people were lied to about the details of the risks posed by nuclear meltdown.

There are some 49 volcanic centres in close proximity to Greater Auckland City. If you want to get a sense of just how close those volcanoes are - you need only look at the maps in the following city report. Remember however subsequent eruptions will unlikely be associated with prior structures. They do however occur in clusters, and Greater Auckland City is a 'cluster'.

The fact that there were two earthquakes in Auckland is not important. They were closely related spatially and chronologically, so they could be considered as giving stress relief to different parts of the lithologic units. What is important is the shallow depth; the lack of alternate explanation, and the nature of Auckland's style of volcanism. By no means is Auckland's style of volcanism particularly severe, but consider that:
1. Volcanism is a threat under-estimated by people. Even a small eruption in the vicinity of a major city is going to be very serious. Far more serious than the Christchurch earthquake.
2. This style of volcanism occurs without warning - hourse compared to months for a volcanic arc eruption

Maori folk stories spoke of historic volcanic eruptions. The difference is that Maoris had no infrastructure to be destroyed, nor did they themselves have much exposure to these events, as they themselves have been in NZ for just a short time, so the land was relatively unpopulated. So what do we need to know about this form of volcanism:
1. Earthquakes can result from tensional release, i.e. Redistribution of lateral stresses
2. Inflation of volcanic plume or their deflation, i.e. Vertical stresses
3. Hydrostatic loading or unloading, i.e. The filling of a dam or its water loss in drought

Auckland is not on a major global fault. It is possible that residual stresses from movements on those faults is causing secondary earthquakes around local volcanies. There is the possibility that the drought has reduced vertical hydrostatic loading around Auckland, and this has caused earthquakes. My personal opinion is that this is not likely the case because there don't appear to be any large water storages around Auckland. I went looking but the information is not readily available.

This style of volcanism is well-documented for Auckland by GNS (Geological NZ Survey). These eruptions start with melting in the upper crust as a result of hot spot magma intrusion. Partial melting in the upper crust will result in the creation of a plume at depths. The heat from the plume will effectively drill its way through the crust until such a time as the plume is able to take advantage of its inherent force, i.e. when the magmatic pressure equals the load pressure. i.e. The plume will reach a level in the crust where it will be able to intrude a long structural weaknesses. GNS says that once a line of weakness is developed, these fluid magmas can rise at a rate of 5kms per hour. This seems hard to believe (even for me), but don't under-estimate the explosivity of these eruptions. The other problem is just how undocumented these eruptions are. You might expect some type of sonic blast when they occur, and the formation of a crater. As the blast pressure wave reaches the surface there will be a lateral blast as the force blows out material. This is because from about 300-500 metres depth the confining pressure will drop off immensely, so any near-surface planes of weakness will be exploited. This makes the earthquake more dangerous to you. This is particular so if you live in a house with a lot of glass windows. Expect them to be shattered.

What are the risks according to the government?
They list them as "ash falls, ballistic rock falls, cone-sector collapse, pyroclastic flows and surges, debris flows, lava flows and domes, lahars, volcanic gases, volcanic earthquakes, tsunami and seiches, hydrothermal blasts, and atmospheric effects. Many of these phenomena will only affect an area on the volcano or a few kilometres from the volcano. However, volcanic ash fall can be deposited hundreds to thousands of kilometres from its source, making it the product most likely to affect the largest area and greatest number of people. Volcanic ash can seriously affect aircraft that may fly unintentionally through the ash cloud, often many kilometres from the volcano".
The good news is that these earthquakes might not be signalling an eruption. i.e. The earthquakes might in fact be signalling a deflation of the volcanic hot spot. There is however no reason to expect this, and more reason to expect any waning of activity to be associated with stress release. Where was that release? Only unloading from surface reservoirs. This seems unlikely. Another big issue for Auckland is the location of these earthquakes. The last recorded earthquake in NZ was 600 years ago. This centre actually erupted twice - its on Rangitoto Island, offshore from Auckland City. That is scary because it establishes a geospatial link to past volcanism. If you look at the ages of volcanic activity on Figure 2 its apparent that these earthquakes are associated with the general area of the last eruption. We need to consider that Waitemata Harbour might be concealing a history of volcanism that we don't know about. Importantly, the proximity of the harbour poses the risk of a mini-tsunami for Auckland's North Shore and city coastline.

I went looking for heat flow data which might suggest that there is no 'immediate' heat event. But actually there is compelling evidence that the intensity of volcanic activity is increasing - read the quote below. This might relate to the fact that volcanism is offshore, in the process resulting in sub-surface mixing of seawater and magma, resulting in greater eruption explosivity.
"The area covered by each volcanic centre is generally localised (less than a kilometre across) and the total volume of erupted material is small. However, five of the volcanoes (Mt Mangere, One Tree Hill, Three Kings, Mt Eden and Mt Wellington) are of medium size. The largest, Rangitoto, is an exceptionally large volcano for the field, representing 59% of the total volume of erupted material. It is significant that the five medium-sized eruptions occurred between 20,000 to 10,000 years ago and that the largest eruption was only about 600 years ago". 
So the latest recorded volcanic eruption from NZ was the most explosive. I suggest because it was offshore, but it might also point to an escalation of heat. This is not to say that the eruption is imminent but that it is probably a risky decision to live in Auckland; most particularly the North Shore and Waitamata Harbour side. A cluster of volcanic earthquakes is clearly a sign of greater volcanic intensity given the relatively active nature of the Auckland field. I say people - be careful. Governments will minimalise the risk because they will want to preserve economic activity. They will not want to displace a million people. Personally, I'd be crying out for heat flow data which I can't find online, and I'd be really keen to watch future earthquake activity around Auckland City...particularly I'd be interested in the location of that activity, whether it was around Rangitoto Island, or whether its associated with faults in that area. The drought might actually be accentuating  the risk by 'unloading' confining pressure, but I'm inclined to think not given the high rainfall of Auckland, the small size of the city, and the fact that I can not locate the reservoirs. Surface storages and even the confining pressure of the crust are relatively weak counterforces in geology. I remind you to not under-estimate the force of the earth's mantle. The thickness of the crust is just 30km; the interior is 6400 kms in radius. That thin crust gets a bit precarious when molten magma 1300 deg C has already reached 5km depth and is seeking structural weaknesses to make its way to the surface.

There might be a reason there is no 'oral record' left by Maori. It might be because they were all killed by these eruptions. No written records is another explanation, and possibly the low population of the region. In any respect, you have the good fortune of more forewarning....but I caution you...more information is required on heat flow...and if you don't have the discretion to leave Auckland, then you might want more seismic/earthquake evidence. Read the following report to better understand what you are dealing with. Don't trust your government!! Well, you might watch to see if your local MP is spending less time in your (Auckland) electorate. Actually, no, just don't trust their faith. Follow the evidence...like the people of Christchurch didn't. Remember volcanoes can be more dangerous in many respects than earthquakes. They are different. Read this report to better understand the nature of what you are dealing with. Australia just started looking a little better. Here is a little history on Rangitoto Island - but no heat flow data!!!!!! Here is another warning from 'volcano watchers':
"Future vent forming eruptions will very likely occur within the city limits or its outskirts, allowing few mitigation or preparation options. Scientists agreed that residents of Auckland may get only a day or two warning of a volcanic eruption and will only know hours before where it will explode on the surface".
Was yesterday's earthquake a warning? Yes and no. We are looking for a pattern of earthquake activity. We already have a geospatial point of correlation. The question is what is the cause? Inflation or deflation. Heat flow will tell us. Is government keeping this information from us? Interestingly, if you look at this map of NZ, it is evident that NZ has a 'dog leg' in its stress relief. This is an interesting issue which might foretell future tectonism. Tension 'gashes' or faults might be opening up which are facilitating the higher degree of volcanism we are seeing. Remember that the subduction to the east is already creating an area of high heat flow (resulting from deep-seated melting) and lithospheric bending (brittle fracture) along this purple line of weakness. Is there going to be a change in regional tectonism. These developments will take millions of years. But the opening up of tectonic 'gashes' might well be imminent.

Here is a very realistic description of the threat posed by a volcano eruption in Auckland. It gives you a clue as to what you can do in the case of an earthquake. The threat is broadly greater if you are detached from your kids because they are subject to others guardianship at school. Yes, bureaucrats who need to follow government rules. So what do you do:
1. Get to a concrete building (preferably having already identified a 'sponsor' or a few in case of non-availability). Avoid any room where there is windows as there is going to be a 'sonic' or basal blast of volcaniclastic material.
2. Avoid near-shore environments. If near Waitamata Harbour, a likely epicentre, ensure you rise to a 3-4th floor in the concrete apartment so that you will not be swamped in any mini-tsunami.
You will want these places to be within a few blocks of your home. Identify them at home and at work. Toilets are great because they are small rooms with small windows. If in glazed rooms, you will need to wrap yourself in towels, or hang towels over the window might help.
How will you know to do this? Personally; I have no idea. Good to do around the time of an earthquake, but you might not even feel it. Worst still you might not see anything (at night) until the incident has passed. You are most likely going to be killed by the basal surge shattering all the glass windows in your building. You might want to pre-order your glazing and store the glass in the basement. There might be a supply shortage in future. The other problem is food & water, but these are lesser problems because the dust is readily cleared and the infrastructure is hardly going to be damaged. Its a risk of people losing lots of blood from being punctuated by a lot of glass.

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Sunday, February 17, 2013

Minimum wage levels - capitalism is not the problem

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There are increasing pressures around the world for a rise in wage levels - namely in the United States and New Zealand. These claims are of course greatest in the the Western labour markets, where stagnant wages for unskilled workers have been a drain on private consumption, given the spectre of high indebtedness. The interesting aspect about these campaigns is just how little understanding there is about the issue. People simply don't understand, or don't care to acknowledge the reason why wages are down. Here are some critical facts to acknowledge:
1. Wage levels are not all stagnant: People will skills such as professionals have seen substantial increases in their wage/salary levels. It is the unskilled wage earners who have seen their wage levels go sideways because they are effectively competing with China. In 10 years they will be competing with Bangladesh and Africa. Even in the third world, the disparities are even greater, depending on whether you are providing a service to 'locals' or foreign enterprises. i.e. Software programmers in Asia are making a killing and you might think they are pocketing the 'wealth', but the trickle down is evident because these people want to distinguish themselves by eating at nice restaurants, living in upmarket apartments and buying brand-name clothes. The attitude is that, my parents suffered without these things for so long, so they want to have, and they want their parents to have, that which they went without. Some of these cultures are more savings/education-orientated than others, but most allocate cash for luxuries.
2. Capitalism is not to blame: The lack of wage growth among unskilled workers is the result of statism; that is government intervention into what were regarded as 'third world markets'. Under the guidance of the IMF and WB, most of these countries have since adopted austerity measures and liberalised their labour markets. Having conveyed a great deal of discipline, these countries are being rewarded with investment. Africa and central Asia are attracting the bulk of mining investment, SE and China, the bulk of the factory jobs. Now, its important to realise that this sudden rush of third world labour onto the global market has transformed these economies into tiger economies.

So its 2013, and there are various appeals being made for increases in the minimum wage. Is it justified? Well, you might be surprised to here me argue that it depends on the context. Generally, I would argue against minimum wages, however if one acknowledges that there is already distortion in the economy, then you might find that it actually makes more sense to adopt counter-distortive measures. The question is 'how you do it', because the wrong distortion can actually make matters worse. So what is the distortion we are talking about, and what are the impacts:
a. Immigration restrictions - There is little mobility between labour markets, and for good reason, this would be incredibly destabilising. It would be nice to expect a perfectly integrated labour market in future. But first the disparities in labour pricing have to be absorbed, and that could take another 2 decades if you think about all those workers who are still to be released from low-productivity jobs in Asia, Africa, etc. There must be 0.5-1 billion people to be absorbed into higher-pay jobs. That takes time; but rest assured no system will do it faster than the capitalist 'market system'. Are you worried about kids working in factories? As sad as this might sound; many actually welcome it. Of course there is the spectre of parents mistreating their kids, by forcing them to work long hours for the sake of personal luxuries, but this is a 'parenting' and regulation issue, not a problem with capitalism. i.e. Capitalism is trade between consenting adults (i.e. moral agents). It does not recognise a child as a moral agent, so any abuse of a child is a regulation issue.
b. Eventual absorption of excess labour - The excess of labour in third-world makets is really an issue of under-utilised labour that needs redeployment. Once that occurs, say in 20 years time, then a great many jobs will flow back to the West, if not before. The reason for the jobs flowing back earlier is that the third world, or at least some of these countries will be slow to reform their labour markets, to educate their kids, and otherwise slow to raise productivity, and curtail corruption.

So is the solution a higher minimum wage? And should there be a minimum wage at all? I will argue that there should not be a minimum wage because its a distortion upon the uptake of labour. NZ needs to price its labour competitively against other Western countries so that it can avail of niche manufacturing jobs as well as telecommunication, technical service jobs that could well be outsourced to a skilled NZ. There is always going to be a struggle for NZ to be economically relevant. The greater danger for NZ is perhaps the prospect of a resources boom - namely in energy production. If NZ became the oil sheikdom of the South Pacific, one could expect a huge gain in the currency, given its an economy of just 4.3 million people. This is a compelling point of vulnerability for any manufacturer; as well as being a point of vulnerability for a call centre. The good news is that this 'vulnerability' for manufacturers is likely to take 10 years to arise. Almost enough to make it a non-issue.

You have to ask yourself whether a minimum wage set at a sufficiently high level to make a difference would actually make a positive difference. The reality is that it makes it impossible for under-skilled people to get a job; whilst raising the wage value of people who are worth more. But it does this at the expense of others. The appeal of higher wages is that it might be construed as resulting in more money being spent in the economy, salary earners paying more tax. This is true for those who retain their job. But the problem is those who are marginalised by their lost competitiveness. Worse still is that higher wages at the top of the skill chain will merely boost spending, raising imports. We want more people employed for less, as opposed to fewer people for more. You'd expect unions to welcome this; but it appears they are only interested in the perceived gains extorted for members. They don't actually care whether their policies are effective or not. i.e. Unions will send members broke in order to retain their relevance. Kind of like the political parties who don't reveal this false dichotomy between arbitrary wages and distorted labour markets.

You might wonder whether Asian or 'emerging' markets could be enticed to raise their labour costs in order to make the West more productive. i.e. Might they welcome higher taxes on labour? The answer is that Asian countries are very poor and the culture is non-compliance for tax collection. They only tax imports, and the wealthy, because no one else has enough money, or would pay taxes. Most local governments have a litany of landowners who don't pay rates. Income taxes on the poor would be even harder. It is also not a desirable policy to tax that process of wealth creation that is creating jobs. This is what the West killed with its high-cost impositions. Asian countries are forcing the West to economise: expect more of it. If wealthier Asian countries were able to adopt a labour (say payroll tax), they would loose jobs to the informal economy, or offshore. They don't want to kill the goose that lays the golden egg. Why would you stop a process which is correcting the distortions created by governments in the first place.

If this is so simple; why are academics so confounded by the problem. Why can't economists agree? The reason they can't agree is because economists are parasites who are living off taxpayers. They are so privileged with easy money, they have become detached from the real world. They are actually not obliged to find answers. Instead they bed themselves down into 'schools of thought' and spend the rest of their tenure   fighting it out with other schools, without ever reconciling their ideas. To what end? They live in the vain hope that some bureaucrat in the PM/President's Office will proclaim them an economics genius, and henceforth they will be celebrated as the 'anointed king' of economics. They will not even care if, as was the case with John Maynard Keynes, whether the government misappropriates their ideas. This is after all why bureaucrats and academics exist - to justify government policy. Political leaders simply pick the ideas that appeal to them; that offer them a rationalisation for placing them at the centre of economic activity.

Rest assured I will never be a celebrated economist expounding like these. You have to suck up to government or business leaders to get that gravy. Nobel Prize! You must be dreaming! I'd be stoked it you'd just mention me to your kids in your next bed-time story. Yep, its a horror!

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