Productive Investments
A few Melbourne Victory football supporters made it to the MCG last night. The rest of the 95,000 were all raving Scousers for a night. They even tried to sing 'You'll Never Walk Alone' in a Liverpudlian accent.
Just when Victory were on top in the 31st minute, Liverpool captain Steven Gerrard let a ball roll straight past him onto fellow midfielder Joe Allen. And Joe Allen showed his appreciation by pinpointing Gerrard in the box where he couldn't miss.
Next thing Victory knew, they were playing against a completely different team. Literally. Most, if not the entire Liverpool team, was substituted off in one go with just twenty minutes remaining. Victory probably doesn't have enough money to hire that many players.
But the big story of the night was Luis Suarez. The footballing world's bad boy is rumoured to be leaving Liverpool and this may have been his last match in 'the red'. Rival Arsenal, which also wears red, is bidding £40 million pounds for the striker. Liverpool made a £40 million loss this year. But qualifying for the Champions League competition, which will require having a Suarez, could bring in...£40 million. It's tough being a football manager. Especially when Suarez set up the second Liverpool goal with the second last touch of the ball on the night.
In contrast to the Uruguayan gun for hire, Gerrard is a one club man. He's been at Liverpool for fifteen years, two FA Cups, three League Cups, two Community Shields, one Champions League, one UEFA Cup, and two Super Cups. Not to mention it's his birthplace. Zinedine Zidane, the best footballer in the world, once said he considered Gerrard to be the best footballer in the world. But he started out terribly with a fit of nerves and earning himself a red card (send off) in 1998 and 1999. Today he gets paid ten million Euros a year. We couldn't find his starting salary, but the return on investment for Stevie G and Liverpool must be frightening.
But by far the best value for money as far as entertainers go are the British Royal Family. We can't bear to open any newspapers today because the royal baby's name was revealed last night. The British royal family is like the conservative's version of the Kardashians. They're worth £44.5 billion and add £26.4 billion to the British economy each year. That's more than the value of Australia's entire tourism industry! And they cost just £33.3 million a year. That's an 80,000% ROI.
Unfortunately, lifetime membership in the royal family is strictly limited. Unless you're willing to live in Scotland for a few years and strut your stuff in skimpy clothes on a catwalk. You know what goes for a productive long term investment that's within your reach these days? Silver on the ocean floor off the coast of Galway, Ireland - much more preferable than St Andrews.
Publicly listed Odyssey Marine Exploration, which featured in a documentary of our parent publisher in the US, made a deal with the British government. If it could find the SS Gairsoppa wreck and recover the precious metal it had aboard, it could keep 80% of the loot. The ingots returned around 9.1% per year since they were sent to the bottom by a German U-Boat in the Second World War. They're now worth more than $200 million. That's more than Gerrard and Suarez put together.
Unfortunately, the world these days isn't about productive investments like soccer players and entertainers. It's all about unproductive investments. And trying to find which ones will blow up which of the world's economies when and how. Luckily, they're not hard to find. You just have to look up.
As far as unproductive investments go, skyscrapers are every financial newsletter writer's favourite. In 1999 financial researcher Andrew Lawrence pointed out that the world's tallest buildings tend to be crowned at the onset of economic downturns. He called his paper 'The Skyscraper Index: Faulty Towers'. Dubai's financial crisis coincided nicely with the current world's tallest building, the Burj Khalifa. And Kuala Lumpur's Petronas Towers coincided with the Asian Financial Crisis. We visited both last year.
According to the source of all knowledge, Wikipedia, the Skyscraper Index Model flashed red in 2000 and 2007. In case you're interested, it fits nicely into Austrian economic theory. Skyscrapers are symptoms of mispriced capital. When it's too cheap to build big, you end up with excess capacity in all the wrong places. Something you might know as a bubble. Did you know it took the Empire State Building decades to begin running at a profit? It was known as the Empty State Building and much of it is empty even now. That's what happens when you build the tallest building during a Great Depression.
China's taken all this to a whole new level. Its world's tallest building, Sky City, is set for completion in 2014. But, struck by delays, it might not even be finished before an economic crisis hits. HSBC's China PMI took a fresh tumble to 47.7 yesterday. That tells you the Chinese manufacturing sector is struggling badly. If you're impatient about a China crisis, the world's biggest building, New Century Global Centre in Chengdu, was recently finished.
The controversies about China's fragile situation continue to bubble below the surface. Chinese Premier Li Keqiang recently said that growth below 7% won't be tolerated. As we see it, he has three choices. He can execute reporters reporting on growth below 7%, manipulate growth statistics, or just stop publishing them. He's chosen the third option so far, with a suspicious amount of economic data missing from the official Chinese PMI. HSBC publishes an alternative for a reason.
It's not all bad news for the aspiring economies of Asia though. North Korea has unofficially begun opening up its farming sector to private ownership...sort of. Peasants can now keep 30% of their produce for themselves. Quite frankly, this is the most exciting piece of news we've heard since Lehman Brothers failed.
Starvation is the mother of political reform. History buffs might know the Soviets had to abandon collectivised farming back when the communists were in charge. It just didn't work. Believe it or not, without an incentive to work hard, people don't work hard. Even the puritans who landed in America had to learn that the hard way. Old habits die hard though. Some say they resorted to cannibalism before capitalism. Makes North Korea look civilised, doesn't it?
Why do you care about North Korea's farmers? Each time agriculture is privatised in a collectivised economy, it's like a signal of a coming economic revolution. If the farmers get to keep the fruits of their labour, why don't the butchers, bakers and candlestick makers? Pretty soon the invisible hand will be clipping North Korean officials around the ears.
We're working on a way for you to invest in the coming economic boom set to sweep North Korea in the Money for Life Letter. Dan Denning reckons, 'It's so crazy it just might work.'
Regards,
Nick Hubble+
for The Daily Reckoning Australia