If you can’t beat ‘em…

  • Bad economics
  • No stimulus
  • One way to profit from gas
  • Mark your diary
  • Trending video
  • Old friend
  • In the mailbag

If you can’t beat ‘em, join ‘em.

That has become our view of the rort that is the private health-insurance industry.

It’s a crony-capitalist business, to be sure. In effect, the government forces folks who earn above a certain amount to take out private health insurance.

The alternative of not doing so is to pay the Medicare Levy Surcharge.

But that’s not the only rort. Each year, private health insurers submit to the government proposals for premium increases. The government then decides whether to approve the increase, or whether to increase premiums by a lower amount.

Regardless of the decision, premiums rise. The result is price control in the private health-insurance industry, which means prices only ever go in one direction — up.

Our solution to combat this? As we say, if you can’t beat ‘em, join ‘em. Via our family super fund, we’ve bought shares in private health-insurance companies.

The dividends we receive by no means cover the thousands of dollars we pay in insurance premiums each year. But, at least, when we read how the government has approved a 5% increase in premiums, we’re slightly less angry than we otherwise would be.

On with the show…

Market

Overnight, US markets were closed in observance of the Presidents’ Day holiday.

In Europe, the Euro Stoxx 50 index gained 3.58 points, or 0.11%. Meanwhile, the FTSE 100 closed with no percentage change, and Germany’s DAX index added 0.6%.

In Asian markets, Japan’s Nikkei 225 index is up 128.31 points, or 0.67%. China’s CSI 300 index is up 0.25%.

In Australia, the S&P/ASX 200 is down 9.2 points, or 0.16%.

On the commodities markets, West Texas Intermediate crude oil is US$53.63 per barrel. Brent crude is US$56.18 per barrel.

Gold is trading for US$1,235.19 (AU$1,608.03) per troy ounce. Silver is US$18.02 (AU$23.47) per troy ounce.

The Aussie dollar is worth 76.8 US cents.

Bad economics

Bloomberg reports:

Australian Prime Minister Malcolm Turnbull agreed with the International Monetary Fund’s call for more spending on infrastructure, while recommitting his government to eradicate a budget deficit.

The words ‘cake’ and ‘eat it’ spring to mind.

The folly of infrastructure spending. It is, according to the mainstream dimwits, the answer to all the world’s ills.

If only governments and the private sector would spend more on bridges, roads, dams, airports and very fast trains…

The reality is different.

Contrary to popular belief, infrastructure spending doesn’t drive or stimulate economic growth. Infrastructure spending is a cost to the economy.

To prove our point, we shall analogise an example.

Imagine you are unemployed.

How can you achieve personal economic growth? The simple answer is to look for a job and be productive to an employer. Or you could start your own business.

That makes sense.

But if we take a lead from the mainstream, they would say that the best way for you to achieve economic growth would be to buy a car or rent an office.

You have invested in ‘personal infrastructure’. Yet the car and the office are costs. On their own, they don’t provide you with economic growth.

Now, the mainstream would say, ‘Aha, but if you buy a car, you will be better placed to get a job.’

That may be true…but not necessarily so. We’re sure there are plenty of car owners who are unemployed. A car doesn’t provide the growth on its own. The car may help to facilitate growth, but only when you become gainfully employed.

Do you see our point? Infrastructure spending for the sake of it doesn’t guarantee any growth at all. In fact, it may detract from genuine growth, especially if the infrastructure spending uses up important resources that could be better used elsewhere in an economy.

But try telling that to the PM or the IMF.

They won’t have a bar of it. As far as they’re concerned, infrastructure spending is the golden goose of the economy. The reality is that, in many cases, it’s a fat goose, rather than a gilded one.

No stimulus

We see the same junk about building schools and hospitals. As if somehow building either stimulates an economy.

They don’t. Like other infrastructure spending, schools and hospitals are an economic cost. They are the reward for a productive society; they don’t drive the economy.

Again, if you think about it logically, the only reason the government or the private sector can afford to build hospitals and schools is because another business somewhere has made a productive profit.

The government taxes the profitable business (or individual) and uses the money to build a school.

What would happen if businesses didn’t make a profit? That’s right, the government would face lower tax revenues, and would have to borrow to pay for the school…or not build a school at all.

Don’t fall for it. Infrastructure spending is not responsible for true economic growth. Infrastructure spending is a cost.

One way to profit from gas

A great example of the limited economic benefit of pure infrastructure spending has taken place in Queensland.

Take the recent financial results from energy company Santos Ltd [ASX:STO]. As Bloomberg reported last week:

The company in August took a $1.05 billion writedown on GLNG due to rising prices for third-party gas and a slower-than-expected increase of its equity output.

Understand what a ‘writedown’ means. It means that Santos spent X amount on building infrastructure, with the expectation that revenues and profits would justify that cost. But, based on a reassessment of that asset’s value, the company now believes it’s worth less…much less…$1.05 billion less than before.

If that infrastructure spending really was valuable to the economy, Santos could have revalued the asset higher.

Of course, that doesn’t mean all asset prices are being written down in the natural-gas industry. Colleague, and Port Phillip Publishing’s Head of Research, Greg Canavan knows of one example where asset prices could head much higher. Details here.

Mark your diary

If you missed our Great Repression investment conference in Port Douglas last October, I’ll soon have some good news for you.

No, it’s not about the recording of every session. You can grab those videos here and start watching straight away.

I’m talking about something else. All I’ll say is this: Mark 9 May in your diary — especially if you’re in Melbourne.

I can’t say anything else just yet, but stay tuned for details soon.

Trending video

More than 3,000 people have already watched a special video we’ve produced. If we put it on YouTube, I’m certain the viewing numbers would be in the tens of thousands, if not hundreds of thousands.

But we’re not going to put it on YouTube. This video is exclusively for loyal Port Phillip Publishing subscribers. The video reveals how one Sydney man was able to retire at 37 after building a personal fortune.

Now he’s sharing his methods with our subscribers. It’s not to be missed. To find out how to get hold of the video, go here.

[Editor’s Note: Please don’t redistribute the video. It’s for Port Phillip Publishing subscribers only.]

Old friend

Look out for the latest episode of the Financial Anarchists podcast, due out this Saturday morning. We’re interviewing an old friend who will be familiar to many long-term subscribers.

Look out for it.

In the mailbag

Continuing our recent climate change theme, subscriber Ross writes:

It may be worthwhile for Climate Change advocates and sceptics, to read Dorothea Mackella’s “My Country”, written between 1904 and 1908, especially the lines “I love a sunburnt country, a land of sweeping plains, with ragged mountain ranges, of droughts and flooding rains.

This says it all.

And this from subscriber Ted:

I’m in your camp regarding the climate change hysteria. I find it mind boggling of how fervently the young people in particular, including all the other do gooders believe the so called “science is in”. You said it before, our climate is warming since the last “Ice Age”. I’m 80 Years young and had no formal schooling at all, but I do read a lot of history.

You didn’t miss much, Ted. Formal, government-run schooling is severely overrated.

By the way, we haven’t revisited this chart from the Danish Meteorological Institute in a while:



chart image

Source: Danish Meteorological Institute
Click to enlarge


If you recall, last year, the Washington Post ‘had a cow’ about the daily temperature being 20 degrees or so above the 1958–2002 mean (we won’t comment about the cherry-picked reference period).

Well, check out the red line now. Shock horror, despite the ‘settled’ onset of climate change that will kill us all, the temperature is about to revert to…the 1958–2002 mean.

We wait with bated breath for the Washington Post to tell its readers they need not panic after all.

Cheers,
Kris