Overnight, the Badminton World Federation (BWF) threw out eight athletes from the London Olympic Games.
The reason?
The players had tried to lose their respective doubles matches.
The pair of Chinese players knew that if they lost they wouldn’t meet the South Koreans again until the final (it was a round-robin format). And the other pair from South Korea, and an Indonesian pair, also tried to lose because they wanted to avoid playing against the Chinese before the final.
With everyone trying to lose and no-one trying to win, the result was a farce.
You could say these shuttlecock shenanigans are an allegory against socialism. When there’s no incentive to win, everyone loses…none more so than the spectators.
In the case of a socialist economy, when no-one tries to win, it’s the consumers and investors who lose the most…
You may have noticed that stock markets worldwide have treaded water for most of this year:
The US S&P 500 is up 7.69%. The UK FTSE 100 is up 0.23%. And the Aussie S&P/ASX 200 is up 3.81%.
It’s not what you’d call exciting gains.
But that happens when no-one is trying to win. And by winning, we mean businesses, investors, and consumers getting on with things. For instance, businesses and entrepreneurs investing in a new product or service, and consumers buying things or investing in things to meet their wants and needs.
Yes, in many respects, life goes on regardless of a crappy economy. That’s one of the positive things we’re always looking out for when selecting stocks for Australian Small-Cap Investigator.
Trouble is, with so many roadblocks in the way of Aussie businesses, most firms don’t know which way to turn. Should they invest now, or wait on the off-chance the lobbying by their industry group does or doesn’t work?
Should they employ an extra person now or wait until the passing of the next bunch of industrial relations? Or if they read the front page of today’s Australian Financial Review, they’ll probably not bother hiring at all: ‘IR review gives unions upper hand’.
Australia Beats Germany
This news comes on the back of an amazing chart we saw in the AFR yesterday:
Aussie manufacturing has higher labour costs than Germany. It’s no wonder Aussie firms are closing down left, right and centre. It’s no wonder that Ford Australia seems certain to close its local car-making plant by 2020.
No offence to Aussie manufacturers, but let’s be honest, if you took a straw poll of people, and asked who they’d rather have manufacture goods, Aussies or Germans, we’re pretty sure we know the answer.
So how can Germany get away with higher labour costs? Simply because Germany’s comparative advantage is the perception (and reality) of precision engineering and high quality, finished goods.
It’s why Germany has a thriving luxury car industry — Porsche, BMW, Mercedes, Audi, and Volkswagen. And why its engineering firms such as Siemens and Bosch are world class.
But we’ve strayed from the point. The point is, rather than actually getting on and doing things, businesses and investors are doing what they’re used to doing — hanging on every word that comes from US Federal Reserve chairman, Dr. Ben S. Bernanke.
So it wasn’t a surprise to see the following headline from Bloomberg News this morning: ‘U.S. Stocks Decline As Fed Fails To Bolster Confidence’.
No Profits in an Economy, Means No Progress
The market has become addicted to the Fed and to money printing. So much so that the market is upset if the economy shows signs of improvement. Because if it improves businesses and investors will actually have to work for their money rather than getting a free dose of freshly printed cash.
Without stimulus, businesses need to come up with new products, new services, and new advertising campaigns. That takes time and capital.
But with stimulus, businesses have learned the impact is short-lived. There’s no time to invest for the long-term. It’s important to just flog what they’ve got as quick as they can.
But that short-term fix doesn’t only hurt businesses, it hurts investors too. If no-one innovates, where’s the incentive for investors to invest? If no-one develops a breakthrough technology to outwit the competition, why bother investing at all?
So investors don’t invest. They sit on the sidelines and wait. They wait for the next stimulus signal and rather than investing in individual stocks, or individual ideas, they throw their money into futures contracts and other derivatives to give them the broadest exposure to the whole market.
After all, they’ve learnt too. They’ve learned that with Fed stimulus, the whole market goes up…so they leverage as much as they can into the whole market, and then take it out again before the effect wears off.
In short, central bank stimulus and government interference stops innovation. And that stops progress.
But that’s what you get when central planners poison the market with artificial stimulus. That’s not to say individual stocks can’t and won’t go up, because they will. It’s just a whole lot harder to find them.
The fact is the economy needs winners. And it needs businesses and investors who have the urge to win.
Unfortunately, the socialisation of profits (taxes) and losses (bailouts) by central planners leaves little incentive for anyone to try and win. And thanks to the bailout culture, there’s almost an incentive to lose.
We often hear the phrase that you shouldn’t put profits before people. But that’s nonsense. Without profits, people would starve and the world population would be one-twentieth its current size.
It’s thanks to profits, innovation and the Industrial Revolution that the world is so prosperous and populous today.
If central planners, not individuals, run the economy instead of individuals, it’s a sure-fire way of stopping progress, and seeing a return to the poverty of the world before the Industrial Revolution.
And believe us, that won’t be good for investors, and it certainly wouldn’t be good news for the continued progress of the human race.
Bottom line: central planners out, entrepreneurs in.
Cheers,
Kris
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