Don’t delay, protect your wealth now!

Thursday, 7 September 2023 — South Melbourne

[7 min read]

Dear Reader,

King Solomon wrote the Book of Proverbs containing many pearls of wisdom that are still relevant to this day. I want to highlight this saying from him:

‘Yet a little sleep, a little slumber,

‘a little folding of the hands to sleep,

‘so your poverty will come like a stalker,

‘and your need as an armed man.’

The Book of Proverbs 24:33–34, Modern English Translation

Australia has been a lucky country. Those who lived in the 1980s and 1990s experienced prosperity like we’ve never seen before.

As the world copped it hard with the subprime crisis, Australia managed to sail through that without too much damage. This is thanks to the resources boom and China’s growth engine cranking up off the back of our mineral exports.

That stroke of luck may’ve been a curse for you and me.

Our country is in a fine mess with soaring household debt to GDP (111.8% in December 2022), high inflation (6% year on year in the June 2023 quarter), falling living standards, and a significant proportion of the working-age population who’s unemployed (6.4%).

How did we get to this?

The answer is that we’ve been asleep at the wheel.

It’s well known that adversity builds character, while ignorance and comfort breed complacency. And we’ve had our lion’s share of ignorance and comfort.

That’s about to change since our government is tapped out with record debt. Plus, our leaders are pursuing shiny dongles such as ‘The Voice’ and the Net Zero agenda, both of which seek to redistribute our resources and wealth in less than productive ways.

Let me warn you that when the global economy slams into recession mode due to the sheer weight of debt, we’re on our own. So, you better get your houses in order!

Fooled by an optical illusion

We earn and spend dollars every day. So, it’s natural that we look at our wealth in dollar terms.

Let’s measure how our income has fared over the last three decades or so:

It’s been steadily rising at a rate of around 3.5%.

How about property prices? The Great Australian Dream has been to own your own home. Indeed, there’s a fascination with buying, renovating and watching prices rise, hoping that we can become rich owning bricks and mortar.

Here’s a figure showing how the median property prices in Sydney grew over the same period:

The phenomenal rise in property prices occurred after 2008 and it coincides with central banks worldwide cutting rates to almost 0%. The RBA was late to the party, cutting rates in 2019, which gave the already sky-high prices that extra boost.

And it’s because of property prices rising faster than income that household debt ballooned.

But all this is an optical illusion…

Waking up to a silent robbery

Looking at things in dollar terms wouldn’t bring you to the realisation that your wealth was stealthily slipping away since the late 1990s.

But it’s clear when you look at it in terms of gold.

Yes, gold — the very thing that many scoffed at, saying that it’s outdated and you can’t eat it.

But the difference between gold and the Australian dollar is that the former is constant, while the latter is a moving target.

Just think how many dollars are needed now to buy the same amount of gold compared to the year 2000. Let’s have a look at this figure:

In a way, the price of gold rose in a similar fashion as median Sydney property prices — more on that later.

The key is that the Australian dollar is buying less gold over time.

With that in mind, let’s have a look at how much gold an average Sydney worker could buy each week in the figure below:

Now let’s see how the median Sydney property price moved relative to gold terms in the past 28 years:

The price of property may have risen quickly since 2008 and even more so in 2019. But in gold terms, properties didn’t become out of reach.

Clearly gold retained value and would’ve protected one’s wealth.

What’s sad is that Australians experienced peak prosperity in 1998–2004. We don’t know whether we can reclaim that back.

Yes, part of that arose from the RBA cutting rates and keeping it low for so long. Now that it’s raised rates quickly, many businesses and households are struggling.

But it’s our ignorance that has cost us much. And poverty is catching up on many without them realising it.

Never too late to change tack

I started to wise up on this just over a decade ago and changed my mindset to try to make up for lost time.

I believe that you can do the same. Focus on what’s ahead of you.

Gold has just surpassed AU$3,000 an ounce in the past week, just as the Australian dollar dropped below 65 US cents. This could well be a signal for you to act now.

You may even try to make up for some lost ground by investing in gold mining companies. It does come with increased risks and the dynamics driving its value is different to gold…but these dynamics could lead to greater rewards.

If you want to make this change now, you don’t have to do this alone. Let me take you on this journey with you. Learn how to get access to my ‘Ultimate Gold Gameplan’ here.

Regards,

Brian Chu,
Editor, The Daily Reckoning Australia

Dear Reader,

Labour Day came and went…as it always does.

But nowhere did we see anyone ask the question: which way is labour going? Up or down?

How much does the working stiff earn today? How much did he earn 10, 20…50 years ago? Is he really making progress? And if not now — with the genius of the Fed and Wall Street at his back, enlightened politicians and activists to lead him forward, and the bright sun of US capitalism overhead — when?

I have looked at ‘time prices’ purporting to show that the average fellow now earns five times as much per hour as he did before 1980.

Simple enough. You take a basket of key commodities — wheat, corn, iron ore — and you track the prices alongside wages.

The conclusion, however, leaves us unsettled. It is out-of-tune with what we think we know…and what we think we see.

Capitalism’s finest hour

Adjusting for inflation is not as easy as it sounds, but according to a 2018 Pew Research Centre report, ‘today’s real average wage [that is, the wage after accounting for inflation] has about the same purchasing power it did 40 years ago.’

And yesterday came a new accounting, showing that ‘real wages have not risen since 1965’. Uh oh. That’s almost 60 years without a raise, during the period we thought was US capitalism’s finest hour.

Which is it? Is the 40-year-old worker five times richer than his dad? Or dead even with him?

Or worse?

One of the problems with the ‘time price’ theory is that it is pure theory. It is just an idea. In practice, people don’t buy baskets of their favourite commodities. They buy dinner, a house…a car. So, how much does it cost to buy these things?

According to the Bureau of Labor Statistics, the cost of food has risen by more than 3,000% over the last 100 years. And wages? The average hourly wage in 1923 was about 40 US cents an hour. Today, it is US$11 an hour, or about 2,600% more than it was. By this measure, the working man is poorer. What used to take him an hour to buy now takes about an hour and 10 minutes.

And his wheels? The Ford F series has served as the working man’s workhorse since it was first introduced in 1948. Brand, spanking new, the truck sold for US$1,279 back then, which the Bureau of Labor Statistics tells us is the equivalent of US$13,836 today.

But where can you buy a new F-series Ford truck for US$14,000 today? Nowhere. According to Edmonds, the base price is now over US$47,000. In terms of hours worked, it will take the buyer three times as long to afford the new truck.

Time and money

In practice, the average man can only afford it by going into debt. Trucks are scarce; but thanks to the aforementioned genius, credit is abundant. Now, the working man may never actually own a pickup truck. He merely rents it from Wall Street.

Here’s Autoweek from 2020:

‘…an increasing percentage of trucks are being purchased by buyers taking advantage of loans as long as 84 months; incentives like deferred payments and 0% financing, meant to keep sales from completely collapsing, seem to be working even as unemployment skyrockets. Meanwhile, monthly payments and amounts financed for new vehicle purchases are increasing.’

The ‘time-price’ economists would say, ‘yes…but it’s a better truck.’ And so it is. Technology advances. The components improve. ‘Extras’ become necessities. But it is still just a truck. And the same tech improvements that make it a better truck, logically, ought to have made it cheaper to produce.

Instead, it is more expensive. In time as well as money.

And now, let’s look at housing. Here, the picture is less fogged by technological improvements. Today, you can buy a house built in 2023…or one built in 1923.

100 years ago, a house would have cost you US$3,200, according to US News. Statista puts the average house price today at US$392,000. But what about the 1923 house with few of the tech advances of the last 100 years? Progress continued. Wages advanced. The house remained more or less the same. It should be much cheaper, right?

John Q Guarantor

New materials and new tools — plastic pipes, nail guns, fake wood — should have made new houses cheaper to build, too. But both — old and new — are much more expensive.

Let’s see. We go to a website listing ‘old houses for sale’. We check the listings for Maryland, which we know fairly well. We eliminate any historic mansions or other outliers. We add up all those available…we divide by the number of those for sale to get an average, and we get US$571,000. Hmmm. More expensive, not less.

Old houses are supposed to be generally cheaper. They are out of style. And they usually have problems that need to be fixed. Faulty water heaters. Rotten fascia board. Bad wiring. Whatever. But with upgrades — new granite countertops, remodelled kitchen and bathrooms, refinished woodwork — let us assume that the cost of an old house is about the same as a new one. How do they compare to a house bought 100 years ago?

At 40 US cents an hour, a house in 1923 would have taken 8,000 hours of labour to acquire. The house today — assuming it is around US$390,000, updates included — will cost 35,000 hours of work, or nearly five times as much.

By these measures, labour had nothing to celebrate this year…nor almost any year since 1923. Real wages have not even begun to keep up with real costs.

What kind of economy is this…that presses a crown of inflation down on the working man’s head…and crucifies him on a cross of claptrap? What kind of government is it that leaves him poorer…year after year…and runs up a US$33 trillion debt with his name as the guarantor?

There must be more to the story. But what?

Regards,

Bill Bonner,
For The Daily Reckoning Australia