Enjoy Wry & Dry: a cynical and irreverent blend of politics, economics and life.
Seven stories you may have missed
- Nuclear batteries: Albo’s amazing solution
- Germany: Just 50 years to upgrade the military
- GST carve-up: Never about marginal seats
- Bank woes: But it’s okay
- Macron: Napoleon is the new noir
- Priestly celibacy: the beginning of the end?
- Chairman Dan’s Catch-22
Nuclear batteries: Albo’s amazing solution
Hats off to Albo!
Y’see, all this talk about nuclear powered submarines to defend Readers against that nasty Emperor Xi is a giant hoax. The real aim is to plug Australia’s electricity grid into these nuclear-powered subs.
Nuclear energy is considered a renewable resource. So, the Greens will be happy. And no-one has to build ugly wind farms or serried ranks of Chinese-slave-labour-made solar panels. Or invest squillions in making Snowy 2.0 work.
The PM has done what two generations of Australian governments failed to do. Bring nuclear power generation directly to Readers’ homes.
But wait! There’s more. There are other side benefits of this massive submarine deal.
Firstly, if Emperor Xi decides to undertake a Tsar Vlad-like ‘special military operation’, then the submarines will readily unplug from the grid and sail up north to defend our sea-girted shores.
Secondly, Albo has successfully driven former PM and current Chinese apologist Paul Keating nutzo.
Mr. Keating erupted with predictable bile on Wednesday, clearly turning a bad case of RDS1 into a chance to knife former enemies. No longer in full control of his marbles, he lashed out like a drunken sub-mariner on shore-leave.
Example #1: of Foreign Minister Penny Wong; “running around the Pacific Islands with a lei around your neck handing out money, which is what Penny does, is not foreign policy.”
Example #2: of a (female) journalist who asked a probing question; “That question is so dumb it’s hardly worth an answer.”
Rude, offensive? Yes. Witty? No. Where are the men in white coats to take him away?
1 Relevance Deprivation Syndrome, a phrase adopted in today’s media by former PM The Abbott, but without due acknowledgement.
Germany: just 50 years to upgrade the military
Tsar Vlad must be ruing the day he decided to invade Ukraine rather than Germany.
Wry & Dry notes two updates on the 100-billion-euro special fund to upgrade Germany’s armed forces promised in March last year by Olaf Scholz, its new Chancellor.
Firstly, in the balance of 2022, not “a single cent had arrived from the special fund.”
Secondly, the upgrade “will take 50 years to complete if it continues at its current sluggish pace.”
So, it’s okay after all. Tsar Vlad has 50 years left to undertake Plan B.
The comments about Germany’s military are found in the annual report of the Bundeswehr.2
It seems that, for years, Germany has been pretending: the government pretending to invest in its military kit and the people pretending to believe it. Germany is required by NATO to spend 2% of its GDP each year on defence. In 2022, it spent just 1.4%, a massive gap. And it seems that much of those funds were spent on things other than guns and tanks.
But, it’s okay. Help is at hand. Australia will soon have some second hand, diesel-driven submarines for sale.
2 The Bundeswehr, meaning literally: Federal Defence, is the armed forces of the Federal Republic of Germany.
GST carve-up: never about marginal seats
Work with Wry & Dry on this. There is a federal government body called the Grants Commission, which tries to balance federal government allocations of dosh between the states. This effectively means that the wealthier states (i.e. Victora and New South Wales) subsidise other states. The method is via ‘equalisation payments’ with the objective of offsetting differences in available revenue or in the cost of providing services.
Then along came the GST. And WA found that its share of GST revenue sank, as it started making squillions from iron ore royalties (royalties are, essentially, state taxes). It was getting just 30 cents in the dollar back for every dollar of GST collected in WA.
The Premier of WA started whingeing very loudly. And Treasurer at the time, Scott Morrison, devised a scheme to guarantee WA at least 70 cents in every dollar of GST spent in WA. To suggest that this was done to protect marginal government seats in WA would be, err, speculative.
But since this deal would be at the expense of GST funds to other states, there was a mechanism that ‘no state would be worse off’. But only until 2027.
Its technical, but now that iron ore prices have surged, the no-state-worse-off arrangement has meant an increasing cost to the budget. What started as costing $2.3 billion p.a. has ballooned such that Victoria alone will get $1.5 billion extra next year. Chairman Dan loves it. And his treasurer, the well-upholstered Tim Pallas wants to ensure that the status quo stays.
Here’s the problem. The temporary no-worse-off payments deal, expected to cost $5.6 billion in 2024, is scheduled to expire on 2027, leaving them vulnerable to losing GST revenue to pay for WA instead of the federal government.
Apprentice Jim Chalmers has not committed to extending these arrangements in 2027.
Y’see, the now federal Labor government has four marginal seats in WA.
Just when Readers thought it was safe… a US bank goes bust. And then the venerable Credit Suisse has to go ‘pon bended knee to the Swiss central bank to borrow $54 billion to stem a liquidity crisis. And then US banks toss $30 billion to prop up another.
$54 billion and then $30 billion is a lot of dosh. Enough to buy a couple few nuclear powered submarines.
What’s going on?
Well, in Silicon Valley, Silicon Valley Bank, a bank for those rich tech kids, found that it needed to pay more for deposits as interest rates rose. But its asset base was badly balanced, with lots of US government Treasuries (i.e. bonds). The trouble is that rising interest rates means bond prices fall. So, when it came to the need to sell its bonds to raise capital, it lost over $1.5 billion on its bond portfolio. (Yes, investors can lose money investing in government bonds.)
This at the same time as it was trying to raise equity capital. Oops, word got out and an old-fashioned run began. Over the weekend, the Fed stepped in, shut the bank’s doors and bailed all depositors (not just the first $250,000 for each depositor). But the unease began.
Then in Zurich, the chronically troubled Credit Suisse announced what might have in normal times been a messy tidying up of some accounting problems. This delayed the publication of its annual report. When the report came on Tuesday, it revealed its fifth consecutive quarterly loss.
The bank’s share price collapsed by 30%. But it meets all capital and regulatory requirements. And has what is known as Tier 1 capital of 14.1%, well above requirements.
And last night, the coffers of First Republic bank, also in California, were refilled by friendly competitors.
It’s all about confidence, and there’s increasingly less of that around these days.
Australian banks are not at risk, Albo tells us. But Wry & Dry’s bet is that these overseas banking problems may give the Chief Teller of the RBA the excuse that he needs to stop raising interest rates.
Macron: Napoleon is the new noir
In a move reminiscent of Napoleon’s despotism, M Macron has, by a sort-of-presidential decree, enacted a law to raise France’s pension age from 62 to 64.3
Nearly 75% of French folk are opposed to such a change. Of course, who wants to wait another two more years for generous pension benefits? Few. But M Macron is showing much spine. The French coffers are draining rapidly for many reasons.
The two-year deferral is a government win-win. It gets two more years of income taxes and two years less of pension payments.
The French reacted in a most predictable manner: rioting.
3This he can do under clause 49.2 of France’s constitution, that allows the pensions bill to pass without a vote, unless opposition parties unite to overturn the government in a no-confidence motion in the coming days.
The end of priestly celibacy?
It was at the end of the fourth century that the tradition in the Catholic Church of priests being celibate began. And it has been that way for the last 16 centuries. Although the period of the Borgias in the late 15th century produced some notable exceptions4.
But now the incumbent pope, Francis, has hinted that the church’s rules on celibacy may be reviewed. “There is no contradiction for a priest to marry, ” he said. “Celibacy in the Western church is a temporary prescription.”
Good grief! Temporary, it’s been that way for 1,600 years.
He wasn’t speaking ex-cathedra5, so there is a long way to go. Perhaps another 1,600 years.
4 The Borgia family became prominent in ecclesiastical and political affairs in the 15th and 16th centuries, producing two popes: Pope Callixtus III and Pope Alexander VI. Especially during the reign of the latter, they were suspected of many crimes, including adultery, incest, simony, theft, bribery and murder most foul.
5 “From the chair” i.e. with the full authority of office, especially that of the Pope, implying infallibility as defined in Roman Catholic doctrine.
Chairman Dan’s Catch-22
According to three transport and urban planning experts6, the only way Chairman Dan’s $125 billion Suburban Rail Loop will work, is if massive high-rise towers are built over the 15 new railway stations to attract one million people to use the rail line.
This is a Catch-227. You need to build the high-rise towers to house people who will use the rail line, but you can only build the railway line (profitably) if there are high rise towers.
Err, so why build the rail line in the first place?
6 Lecture to the Institute of Transportation Engineers by Michael Buxton, Graham Currie and John Stanley.
7 Catch-22: a paradoxical situation from which an individual cannot escape because of contradictory rules or limitations. The term, coined by author Joseph Heller in his book of the same name, is based on the army’s regulatory requirement that to get discharged a person needed to be crazy. But if you wanted to be discharged you couldn’t be crazy.
…back in the counting house, it seems that these flash new submarines are going to cost plenty: $368 billion, if you don’t mind. And that’s before the usual unplanned price increases; if Readers thought that the French were costs’ gougers, just wait until the Brits and the Americans warm up.
It’s not too far away that the first Xero invoice will hit the desk of Apprentice Jim Chalmers. Trouble is, there are still invoices to pay for the broken contract that Croesus Turnbull negotiated with his French pals.
So, from where will the dosh come? Well, there are the legislated ‘phase 3’ tax cuts, that will cost plenty if not overturned. Wry & Dry suggests that these will go the way of the dodo.
Apprentice Jim will consider an excess profits tax on, well, excess profits. Banks and mining companies look out.
Next will be an extension of the tax on unrealised capital gains in all superannuation funds, not just those on accounts with more than $3m.
The canoe (built in Adelaide) has just been pushed into the river.
Snippets from all over
1. Tories abolish pension lifetime cap
Jeremy Hunt, the UK Chancellor (i.e. Treasurer), announced in the budget on Wednesday that he was scrapping the £1.07 million (A$1.8m) tax-free pensions lifetime allowance. (The Times).
Wry & Dry comments: Going the other way to Apprentice Jim Chalmers.
2. Not quite the Manchurian candidate
Canadian media have alleged Beijing attempted to influence the 2019 and 2021 elections, benefiting the Trudeau government, which was slow to take preventative measures. (Le Monde)
Wry & Dry comments: So non-woke to investigate claims of foreign interference in domestic elections.
3. Oil prices drop
Oil prices have tumbled to their lowest levels in more than a year as crises in the banking sector unsettled financial markets and stoked fears for the broader economy. (Financial Times)
Wry & Dry comments: That is, to $73.69 per barrel.
4. MiGs to Ukraine
Poland’s president said on Thursday that his country would transfer four Soviet-designed MiG fighters to Ukraine “literally in the next few days,” potentially pushing Western military aid to the embattled country over a significant threshold. (New York Times)
Wry & Dry comments: Just need to find something a little more modern…
5. Wannabe President wants to defund Ukraine
Florida governor and likely presidential candidate Ron DeSantis said that the war in Ukraine is a territorial dispute that isn’t a vital national interest. (Wall Street Journal)
Wry & Dry comments: Sigh, another possible president who thinks that Yoo-Crane is a type of bird. Wry & Dry might vote Democrat…
6. Oils are oils
Saudi oil giant Aramco has announced a record profit of $161.1bn (£134bn) for 2022, helped by soaring energy prices and bigger volumes. (BBC)
Wry & Dry comments: Aramco dwarfed the #2 company, ExxonMobil, which made $55.7 billion, and Shell at $40 billion.
- Australia’s unemployment rate dropped to 3.5% in February, from 3.7%.
- The New Zealand economy contracted by 0.6% in the December quarter.
- US year-on-year inflation fell to 6% in February, down from 6.4% in January.
And, to soothe your troubled mind…
“This deal stinks.”
- Peter Garrett, former Environment Minister in Kevin Rudd’s government, speaking of the purchase of nuclear-powered submarines.
Such an intellectual and well thought-out position to take.
PS The comments in Wry & Dry do not necessarily reflect those of First Samuel, its Directors or Associates.
PPS Wry & Dry is taking long-service leave for five weeks after today, 17 March. Investment Matters will continue to be published. Our resident cartoonist Patrick Cook will continue his work in Investment Matters.