Thursday, March 1, 2012

Is This Why Whitlam "Had To Go"?

Maybe it was a backlash against rapid social change, maybe it was a reaction to some very poor/naive ministerial thinking like the Khemlani Loans Affair, maybe it was because of the proposed "buying back the farm" (well mining projects actually) by RFX Connor, maybe it was because of the destabilising effects of inflation, or maybe it was because the owners of businesses could see themselves going backwards compared to nominal GDP growth.

Since about 1960 to now the Australian All Ords has grown at just over twice the rate of GDP. But it grew far slower than that during the Whitlam years. In fact GDP went up by 95% from September 1959 to September 1974 and the Stock market was back at it's 1959 level.

From June 1972 to September 1974 the All Ords fell from 414 to 194 (over 50%) while GDP grew by 6%.

It looked terrible for owners of shares. But from 1975 to 1987 were the golden years for shareholders as PE ratios were rerated from 5.4 to 20.1. Since 1987 PE's have fallen back to about 15 but that has been offset by GDP growth over the period.

The Whitlam years coincided with some of the worst years ever for shareholders in terms of shareprice growth compared to GDP growth. Look at the increase in cumulative under performance from late '72 to '75. December 75 was -100 on the chart. It didn't get much worse than during the Whitlam years. (I am not arguing causation, as that must be considered in light of the first oil shock.)

(When the edge of the purple area is sloping down to the right shares are getting a lesser share of GDP growth over the last 10 quarters, when the edge of the purple area is sloping up to the right shares are growing much faster than GDP over the last 10 quarters).

The chart also provokes the question, "In a just and equitable society should", or alternatively "Does efficient capitalism really demand that" equity holders get a return that grows at twice the rate of GDP?"

"In a self centred society are workers entitled to use whatever means they can to maximise their share of production, income and wealth in the same way owners of capital are so entitled?"

Or as Ayn Rand might say the proper moral purpose of a one (worker)'s life is the pursuit of one's own happiness (or rational self-interest), ......even if it means forming unions and demanding an unsustainable share of the fruits of production and service.

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