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Paul Hanly  

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  • Is Residential PV Solar More Trouble Than It's Worth? [View article]
    In areas where there are summer daytime peaks in network transmission demand, solar PV installed at point of use can save millions in grid investment to meet what is often only a few hours demand on 10 or 20 days a year.

    Transmission losses from point of generation to point of use are also a relevant factor for determining the benefit of solar. Reducing transmission losses has a significant benefit where transmission distances are long.

    The matrix of determing the net benefit of solar PV is much more compex than people imagine.

    In Australia each $2,000 air conditioner requires about $5,000 of grid investment to meet the increased peak demand. Effectively the poor subsidise the airconditioning of the homes of the well off. REquiring solar pv for homes with airconditioning would significanty reduce the grid investment requuired to meet increasing peak demand on transmission.
    Aug 28, 2014. 08:51 PM | 2 Likes Like |Link to Comment
  • An Epic Australian Bust [View article]
    The key to GDP is probably mining ore and coal because these are major exports, predominantly to China.

    The key to changes in unemployment is more complex because it depends so much on consumer confidence and spending capacity. Employment and wages have been supported by an immense investment in resource related projects (mines, transport, gas processing, ports) but is about to run off dramatically over 3 to 5 years.

    The operations phase may be good for GDP (with higher volumes hopefully offsetting falling prices as projects come on stream around the world.) On the employment side things are more sanguine as the operations phase requires only about 10% of the labour that the construction phase required.

    But even the operation phase is very dependent on Chinese fixed asset investment which has been higher and longer than most other countries which went through a rapid and sustained development. Based on Wikipedia article on Chinese urbanisation many suggest that Chinese fixed asset investment will fall significantly by 2020. This will likely cause adjustment both in China and Australia as demand for coal and iron ore falls as fixed asset investment falls.

    Australia is also shuttering its car manufacturing industry in about 2015/6 and therefore likely its component manufacturing industry.

    The federal and state governments and Reserve Bank are all aware of the likely problems that the run-off of in mining investment will have on employment and housing construction and infrastructure investment are being touted as the solution both to employment concerns and an infrastructure deficit in major cities which have had large growth in population through immigration and compact cities policies.

    The federal government has also brought down a budget with some near term but mainly longer term fiscal consolidation born mainly by lower income families (by proportion) and middle income families (in dollars lost) but much less by upper income families after 2016. This has caused a massive fall in consumer confidence and hours worked (only one months data, could be noise or statistical error).

    Australian real estate has enjoyed significant gains over the past 12 months as the RBA has held rates at "emergency lows" and is among the highest priced in the world based on median prices and incomes and rental yields, supported mainly by investors and negative gearing (net rental income less than mortgage repayments which are supported by other income eg from wages). While a significant correction could hurt banks, Australian banks are highly profitable, an oligopoly and well capitalised so while shareholders would suffer depositors should be safe.

    In summary, Australia faces a difficult period but it is likely over 3 to 5 years unless there is a very hard landing from a crisis in China.
    Jul 2, 2014. 05:48 PM | 1 Like Like |Link to Comment
  • An Epic Australian Bust [View article]
    Funding composition of Australian banks is about 57% local deposits in May 2014. Since 2004 it has not been below 40%.

    Australian savings rate went from 0% in 2007 to 12% in 2009 and is now at 10% and a downtrend seems to be developing as stability continues and fear recedes.
    Jul 2, 2014. 05:15 PM | 1 Like Like |Link to Comment
  • Amazing Demographic Trends In The 50 And Older Work Force: Monthly Update [View article]
    Is this overstated by part time work which puts you in the labour force when previously there was not the part time work available to these cohorts.

    What is the full time equivalent participation rate?
    Dec 12, 2013. 10:09 PM | Likes Like |Link to Comment
  • Amazing Demographic Trends In The 50 And Older Work Force: Monthly Update [View article]
    You can cash out the whole house, invest in a balanced portfolio and rent a smaller place in a nearby but cheaper neighbourhood.
    You don't actually have to buy a replacement house. And if you don't have a house you can travel with less worry between leases and you don't have to rent out your home to get income, it's coming from your alternate investments.

    This isn't the alternative I would personally adopt, but it is a viable choice for many.

    The people in real difficulty are those who can't work and don't have a house or equivalent invested.
    Dec 12, 2013. 10:07 PM | Likes Like |Link to Comment
  • Australian Treasury Warns of Housing Bubble [View article]
    Well it's now November 2012, almost 2 years after the article and many comments were written.

    What happened to house prices in each capital city over the last 2 years?

    There have been falls in 2012 which might just cover your transaction costs of a sell and a buy. In Melbourne you might have made 1 or 2 % which wouldn't cover your time. In Brisbane you would be up a couple of per cent after transaction costs.

    If you didn't own a house and deferred buying one 12 months ago in any state capital other than Perth, congratulations, you are ahead. If you deferred in Darwin and buy now you will pay 12% more.

    Now let's look at 2 Years, June 2010 to June 2012 from the source above, the Australian Bureau of Statistics.

    Sydney -1.53%
    Melbourne -7.45%
    Brisbane -6.87%
    Adelaide -4.79%
    Perth -5.57%
    Hobart -3.91%
    Darwin 7.07%
    Canberra -1.84%
    Weighted Average -4.67%

    Existing owners who sold back in June 2010 and bought again in June 2012 would be down after transaction costs, but depending on level of gearing maybe slightly up after financing costs in all state capitals other than Melbourne and Brisbane and on a weighted average basis.

    In Darwin, you would now be about 10% behind people who just continued holding.

    For people who genuinely made a decision to not buy in spite of wanting and being able to, congratulations unless you were in Darwin. You are likely ahead a few percent and your wasted rent money is likely more than offset by not having wasted interest.

    Summary. Selling from fear of a crash was probably not a good decision especially in Darwin, deferring was a good decision economically in Melbourne and Brisbane, line ball elsewhere and very bad in Darwin. Maybe next year will make a difference.

    Now overlay
    1. your financing situation and rental alternative and costs of movers, and capital gains tax if it were an investment (unless held for an extremely long time)
    2. the intangibles like family disruption and work involved in moving, making new networks, losing good neighbours for bad (or vice versa)
    and tell me whether it was/would have been a good decision to sell on the basis of this article.

    I'll try to remember to come back in another year!

    Nov 1, 2012. 07:43 PM | 1 Like Like |Link to Comment
  • An Epic Australian Bust [View article]
    Thanks for the article, most of which I would support.

    The conclusions are I think another matter.

    I am in the slow melt camp on real estate. Building approvals are very low and this will flow to employment in building in due course. but unless there is widespread unemployment there will only be a slow melt as RBA will cut rates making it easier for recent highly geared purchasers, some of whom can move home and rent out the place to further ease their cash flow.

    A China slow down is half way through and seems to be avoiding a hard landing.

    If China has a hard landing Australia can deficit fund spending because it is a sovereign issuer of its own fiat currency. It will cause a change in the exchange rate that will help manufacturing and tourism over time and they would have to manage it to avoid above target inflation, but the doom scenario is only about a 10% chance other than loss of capitall in FX terms by a fall in the value of the currency.

    Good luck with your short of EWA, but I suspect it might win because of currency, not share prices, and timing is everything.
    Apr 9, 2012. 08:31 PM | Likes Like |Link to Comment
  • An Epic Australian Bust [View article]
    I also like Steve Keen's work with one reservation.

    That reservation is about how his work fits with Modern Monetary Theory/Realism and the work of Bill Mitchell. The original article above (wrongly in my view) asserted that Australia couldn't "print" because it was not a reserve currency. I believe this is incorrect for a sovereign freely floated fiat currency so long as foreign borrowings denominated in foreign currency (after taking hedging into account) are not a high proportion of total foreign borrowings.

    The Australian government has most of the same options as the US and UK. Euro users like the PIIGS have none of those options without agreemtn of their other Euro members and the ECB.
    Apr 9, 2012. 08:19 PM | Likes Like |Link to Comment
  • An Epic Australian Bust [View article]
    Some respected commentators put the life of the Pilbara iron resource at about 50 more years.

    Could I suggest you do a little research on estimated resource lives in Australia and also on the exponential function, doubling times and that over the doubling time you use more than has ever been used before, and that the resource life gets approximately halved over each doubling time. 72 divided by annual growth rate in percentage terms gives the doubling time.

    Google: Albert Bartlett exponential function
    Apr 9, 2012. 08:12 PM | Likes Like |Link to Comment
  • A Short Summary Of Australia: A Comforting Position In A Turbulent World [View article]
    You have focussed on government debt which is very small compared to private debt and household debt in praticular. While focussing on the recent growth in government debt thanks to "automatic stabilisers" as well as stimulus that prevented and unemployment blow out. More focus on the rapid unconstrained growth in household debt over the period of the former Howard/Costello conservative (named Liberal) government is required to understand the position in which Australia finds itself.

    You also have to understand that Australia is highly dependent on foreign savings and capital with a Net International Equity Position that is very poor among developed countries.

    Further, much of the ultimately foreign sourced (raised by Australian banks from overseas and on lent to the household sector) was invested in bidding up the price of houses and Commercial Real Estate.

    Australia's currency has recently been more than 2 standard deviations above the long term average of its rate against the USD, although that reflects the recent performance of both countries. The Trade weighted index has also been near historical highs.

    While having come off their highs commodity prices and price x volume remain elevated as China in particular goes through its infrastructure intensive development phase moving now into the interior China cannot maintain the infrastructure intensive stage of its development for more than another 5 to 10 years, particularly given the demographics it faces as a result of the 1 child policy of earlier years.

    While Chindian driven commodity boom remains, the rest of the tradeables economy is gradually being hollowed out because of Dutch Disease. Manufacturing is being reduced through currency driven adjustment.

    The states with high resource development (Western Australia and Queensland) are enjoying relatively greater strength, while the larger by population states that are more involved in manufacturing (NSW and Victoria) are facing more trying conditions.

    There are resource life and intergenerational equity issues arising from the rapid growth in resource and processing development. A Resources Rent Tax based on super profits of Iron and Coal was intended to spread the benefits of the resource boom, but was emasculated after a political campaign by the mining industry.

    These two related factors make managing monetary policy (with its implications for currency value) difficult. Interest rate cuts hurt retirees and near retirees and might re-ignite fully if not over valued housing sector growth, but might assist manufacturing industries which are perceived as being in recession like conditions.

    The retail industry is suffering largely from a move back to the long term savings ratio after the dramatic under-saving of the 5 years to end 2007, but also because of structural moves toward on line shopping and also a move away from full service department stores.

    Australia also faces a carbon tax that at best will cause implementation costs and uncertainties and move demand from brown coal to gas and renewables. The real costs rising electricity prices are gross overinvestment in electricity infrastructure to meet the last say 100 hours of peak demand. The introduction of peak demand pricing exacerbates these costs in the short term and the withdrawal of subsidies for renewables has slowed the pace of installation of distributed power generation like rooftop PV. The coalition opposition (Liberals and Nationals) have failed to rail against the inefficiency of this network spending.

    Australia is also investing in a largely cable to the home broadband network at a cost of AUD 50 billion. The efficacy of being to the home rather than to the node and of the investment needed to reach the last 10% of 98% of the population (by satellite and wireless in the main) are also questioned both in efficiency and opportunity cost.

    Australia has different problems to most countries, but they are significant and challenging problems none the less. The impacts are more likely to have intergenerational effects, whereas the problems in US and Europe are seeing the main impacts on the current generations, particulalry in youth unemployment.

    The Labor government is striving for a surplus in 2012/13 but it is partly to be achieved by bringing forward or deferring expenditure so is partly smoke and mirrors, but will result in a major fall in contribution by the Government sector to GDP, such that very low to zero growth ought be expected in that fiscal year.
    Apr 9, 2012. 07:37 PM | Likes Like |Link to Comment
  • Annual Update Of 22 Oil URR/EUR Estimates & LInearizations [View instapost]
    Freddy, you say "Based on these linearizations, the world won't run out of light sweet crude (RCO) until Year 2076 and there's enuf of the other stuff to take us to Year 2117."

    What assumptions of growth in usage do you make in that calculation?

    At 2% real growth pa doubling time based on Rule of 72 and exponential function is 36 years. Between now and 2048 we would use more than has ever been used in the recorded history to 2012. The resource life would be more than halved by 2048.

    And what assumptions do you make in cost per gallon of gas equivalent in terms of a percentage of estimated income as we approach the period of increasing scarcity?

    (I am concerned that we all need alternative sources of energy being developed as we go rather than leaving our future and foreign energy dependency as a problem for the next generation.)
    Apr 7, 2012. 10:27 PM | Likes Like |Link to Comment
  • Annual Update Of 22 Oil URR/EUR Estimates & LInearizations [View instapost]
    Thanks for making your analysis freely available on a delayed basis.

    Assuming your estimates of resources and usage are correct, have you done any analysis of cost of production of new sources in energy terms to the refinery door to enable comparison to existing cost of energy?

    An alternative hypothesis to Peak Oil about now is Peak Cheap Oil.

    The likely impact on price may well be the same if the net energy reclaimed per unit of reserves is far less for extreme (by today's standards) deep water drilling or for more expensive to develop or process resources like tar sands or oil from shale or coal.

    If price increases significantly because of costs of discovery, extraction and processing, the impact on marginal users and industries competing for consumer income will be significant.

    What are your thoughts on average net energy yields from newly discovered and alternative style sources and changes in blended prices?
    Apr 7, 2012. 10:13 PM | Likes Like |Link to Comment
  • 10 Reasons Why Electric Drive Is Stranded On The Bleeding Edge Of Transportation Technology [View article]
    The solution for those couple of long trips is bleedingly obvious.

    You hire a car for the trip. Try something new. Use a bigger car to transport your luggage and have more comfort for the trip. Use it as an opportunity to drive a sports car if your normal ride is a saloon. Try a convertible.

    The long trips are such a non event in total cost of transport.

    Similarly is the second car for many people who only want a car occasionally. In Australia GoGet provide cars for members in conjunction with local councils/city governments. The council provides dedicated parking and the members pick up the cars locally with no overheads of rental staff after booking on line. Great for inner city people where parking is very difficult.
    Apr 6, 2012. 09:45 PM | 2 Likes Like |Link to Comment
  • Australia - The Last Epic Bubble: Formulating a Coherent Investment Strategy [View article]
    Australia has no deduction for mortgage interest on owner occupied family homes, but the US does.

    Australia has most people on variable mortgage rates so as the economy gets tough and unemployment starts to rise rates are cut, mortgage payments fall, houses become more affordable and people can spend more on housing or consumption. The flow through starts within about 45 days of the official rate cut and teh home owner doesn't have to do anything to get it, no refinancing costs or paperwork.

    While some markets have fallen I don't see a rout in the major cities, but more likely a fall in real terms and stagnant nominal prices.

    If China has a hard landing or the RBA gets too far behind the curve then we could have increased unemployment among homeowners and that would be more of a problem as people don't have large savings to buffer against unemployment.
    Feb 14, 2012. 09:17 AM | Likes Like |Link to Comment
  • The Cash Conundrum Revisited [View article]
    In Australia the best investment ordinary people can make with little or no financial knowledge is to pay off credit card debt.

    Anyone who pays interest on credit card debt but has other savings (other than say 3 months living expenses for a buffer that can't be withdrawn like a credit card limit) is financially foolish.

    Paying down non deductible debt in order of highest interest rate first is generally speaking the most certain good investment you can make.
    Feb 13, 2012. 06:12 PM | 2 Likes Like |Link to Comment