Investment Biker Page 33

  Darwin’s population had tripled in the past fifteen years. The entire Northern Territory was booming. Almost the size of Alaska, the Territory had great weather along with abundant natural beauty and touring sights. Though it was not heavily populated, immigrants were pouring in.

  At this point Darwin wasn’t connected to the country’s railroad system, but this would certainly change in the future. The train came up from the south to Alice Springs and went down from Darwin a bit, but there was still a big gap. Once that was closed, Darwin would boom like crazy. From an economic point of view, it would be as important as the completion of the Trans-Continental Railroad had been for California.

  To add to all this, just north was Papua New Guinea and Indonesia, both of which were exploding and dynamic. After all, Indonesia was the fourth largest country in the world in population. Indonesians were excellent businessmen, thriving in an old and crowded country. Here was a vast, empty country a few hundred miles south.

  Australia is rich in natural resources. The world’s largest industrial diamond mine was opened here only fifteen years ago. The country possesses an abundance of nickel, copper, undeveloped land, and water, as well as huge farms, huge ranches, huge everything. Throughout the history of Australia, whenever they’ve put in a dam or irrigation system, the entire area around it has blossomed with prosperity.

  Here is another Siberia with abundant resources and another nearby China with abundant labor.

  Decades from now, if and when the Indonesians become aggressive and militant about expanding their commercial operations, the natural place to look will not be north to crowded India and other countries with large populations, but south to Australia, where there is little population and a small army, nothing to impede them.

  We set out south from Darwin toward Ayers Rock, which sits in the center of Australia.

  The earth we traveled across was red dirt, a deeper, duller red than even the red clay of my native Alabama. Given the distance, Tabitha suggested we skip Ayers Rock because it was “just a rock in the middle of the desert.”

  She still talks about what a great mistake that would have been. It was another of those sights so awesome that photographs ought not be allowed. As we approached it on our motorcycles, it was startling. First there was a vast, flat plain, and then without warning a huge red monster that seemed to come alive was looming over us.

  If not alive, Ayers Rock seemed to have a soul or be the home of spirits. Rising more than 1,100 feet from the flatness of the surrounding plain, the rock is the world’s largest monolith. Even though it is two miles long, scientists say two thirds of it is buried beneath the sand. The exterior looks like the hide of a gigantic prehistoric animal. Up close, large holes like pockmarks dig into its surface. We drove around it on our bikes, and it kept shifting and changing reds in a way as fascinating as its size.

  As the sun went down, the rock’s surface became a darker and deeper red and finally became a ghostly gray.

  At dawn the reverse happened. The rock’s gray changed to a deep red and then to a lighter rust color. It didn’t rain while we were there, but the pictures I’ve seen of it in the rain show it as a dark, almost black gray.

  I certainly understood why the aborigines regarded it as a holy place, one haunted by powerful spirits.

  Despite Australia’s excellent roads, we never traveled at night. Travel by motorcycle isn’t just the means to an end, but an end in itself. If we traveled at night, we wouldn’t get what we’d come for, the thrill of enjoying new places by motorcycle.

  Since safety is never a small issue on motorcycles, driving at night is far more hazardous than during the day. Seventy percent of motorcycle accidents are caused by cars. Over and over, car drivers say after they hit a motorcycle, “I never saw him.” If they don’t see you during the day, they certainly won’t see you at night. At night, of course, people drink more. Other nighttime dangers were kangaroos, cows, potholes, gravel—everything.

  Most important, if we were going to ride around the world once, we wanted to see it. Why go around the world on a motorcycle at night?

  We loved Sydney, putting it on our list of cities in which we would like to live. My top three are New York, Buenos Aires, and Tokyo, followed by Sydney, Bangkok, and Rome.

  Sydney was a dynamic capital, bursting with life and vitality, while Melbourne sported old money and old gentility, the difference between brassy New York and Boston’s reserved tony demeanor.

  When a traveler arrived in Perth, the joke went that people asked him, “Where are you from?” In Sydney they wanted to know how much money you made; in Brisbane, if you wanted a beer; and in Melbourne, what public (private) school you had attended.

  About 30 percent of the people who live in Australia weren’t born there. Huge waves of immigration have flowed over its shores, making it boom over the past twenty years. Yet it still had only 17 million people—a country the size of the United States with a population slightly larger than New York State’s!

  The Japanese had discovered Australia, too. We found Japanese clerks in every major store, hotel, and resort area. The marriage of Australia’s natural resources with Japan is a natural, as is Australia’s geographic location for tourists. You’ll see Australia and Japan becoming yet closer in future years, as their long-term interests with each other are greater than those either has with the U.S.

  Even with all this empty land, most people live in the cities. Twenty percent of Australians live in Sydney, and another 15 percent live in Melbourne. In nearby New Zealand, a third of the population live in Auckland. (If this percentage held true in the United States, New York City would have 85 million people.) The twentieth century’s revolution in agriculture made this possible. In the nineteenth century, the technology did not exist to support such large urban populations.

  We began to think now about our next hop, from Australia to South America.

  It made no sense to worry about these hops much before we were ready to jump. First of all, we might not make it through the particular continent we were on, and certainly not on any schedule that could be relied on. Why flail around in Zimbabwe and say, “Hey, how are we going to get from Australia to South America?” when there was no one in Zimbabwe who could answer the question?

  We would catch a flight on Aerolineas Argentinas. We would land in Río Gallegos and go from there to Tierra del Fuego, the tip of South America nearest the Antarctic, from which we would drive north.

  The flight went once a week. The travel agent said that if we wanted to, he could arrange for us to stop for a week in New Zealand, then pick up the same flight the following week.

  We jumped at the chance.

  New Zealand is basically two islands, North Island and South Island.

  If a traveler wants to drive in Australia and New Zealand but has time for only one, New Zealand is the country to choose because it is so compact and beautiful. For the sports-car driver, motorcyclist, or ordinary traveler with a yen for breathtaking scenery, snug New Zealand has sprawling Australia beat hands down. For a motorcyclist, New Zealand’s roads are better because they wind and twist through exciting vistas and constant change. In Australia we often drove a thousand miles without change, days and days of breathtaking sameness.

  New Zealand’s pleasant climate and geographical features are similar to and as varied as California’s. It’s not a big country, but for sheer variety it’s hard to beat. In addition to lush meadows and ominously smoking volcanoes, it has farmland, deserts, cities, bubbling-hot mud holes, geysers, icy glaciers, the ocean, sandy beaches, rugged coastline, and lots of mountains. The ancient South Pacific culture of the Maoris, who never developed writing, is expressed in elaborate carvings on war canoes and totem poles, which are on exhibit throughout the islands. Within a few hundred miles, visitors can fish, ski, and bungee-jump, as well as hike, scuba-dive, watch whales, and go white-water rafting. Planes and helicopters are plentiful, and visitors are offered “flightseeing” tours. Kiwi
s, as New Zealanders call themselves, love mazes, and construct gigantic ones out of hedges. They’ve even begun to export them, particularly to Japan, where the better New Zealand designers hire themselves out as consultants.

  Being here was a bit like being on a honeymoon. New Zealanders are friendly, easygoing, and helpful. Tabitha and I both fell in love with this fresh, upbeat country and wanted to stay longer than our allotted week, but winter blew at our backs. We would be traveling across the Andes and Tierra del Fuego, a few hundred miles from the Antarctic, in June and July, the seasonal equivalent of driving across the Canadian Rockies in January. Every week we lost might throw us into the January and February of the South American/Canadian-type winter and might cost us six weeks of delay.

  New Zealand is a country of 4 million people and 60 million sheep. After the lambs are born in the spring, the four-footed population often rises to 100 million. The country’s economic history is written in the story of its sheep and wool. In the seventies, the Russians bought wool with hard currency as part of their effort to keep up their standard of living. The price of wool went through the roof. With the prosperity of the Middle East resulting from the oil boom, the Arabs indulged themselves in their taste for lamb. The price of mutton went through the roof, too. This continued into the eighties. As always happens when there’s great demand, everybody piled into sheep. Shortly, there was too much mutton and too much wool.

  Demand slackened off as the Russians ran out of steam and the Arabs could no longer sell their oil at high prices. The New Zealand government, wanting to keep the boom going and its voters happy, came up with a bright idea. Obviously this was only a “temporary dip” in the ravenous world appetite for lamb and wool. Any year now things would turn around. In the meantime, why should its citizens suffer?

  The government set up a special board that said, “We’ll buy all the wool you farmers produce to keep the price up.”

  As De Beers had done with diamonds, this board subsidized and stabilized a high price. The farmers, no fools, raised more sheep, produced more wool, and put it to the government. Over the years the board bought and bought with borrowed money till it finally couldn’t take any more. Then the Russians ran out of money, and the Middle Eastern war killed its markets. Under a United Nations embargo, Iraq certainly wasn’t ordering any lamb. Occupied by the Iraqis, Kuwait was out of the market, too.

  It was unfortunate that the government had kept the price up for so long, because when this bear market came, prices had that much further to fall. Markets always go down much more than they should when someone has put a Band-Aid on the problem. That’s what’s happening in the United States now. The government has been putting Band-Aids on our financial situation for so many years that when the day of reckoning comes, it’s going to be horrible.

  In essence, the New Zealand government was borrowing money to buy sheep in order to finance its farmers’ lifestyle. In America we’ve borrowed money to build armaments and hand out transfer payments and entitlements. If we borrowed to invest in highways, railways, factories, and telephone systems, that would be one thing. But to borrow to keep up the price of wool so farmers can buy TVs, that is quite another.

  Of course, from the politicians’ point of view, what was being bought were votes. The merchants who sold the farmers their TVs didn’t have to suffer, either, nor did the fellows who sold them automobiles, repaired their TVs, or outfitted them in designer clothes. While it lasted, it was wonderful. Plato, Jefferson, and De Tocqueville, among other political writers, warned of this supreme danger of democracy, that politicians will sell the nation’s birthright for a mess of votes.

  Now some people might say, “Wait a minute, don’t we have warehouses full of wool? Isn’t the wool ultimately valuable?” But I say if you put the money into a road, when everything is said and done, you have the road, which can increase productivity. There’s a vast difference between creating a cartel to support the price of an expendable item and building up a country’s infrastructure. The economic history of the world is full of cartels that attempted to support a price and failed.

  Anyone who buys mammoth amounts of a product with the idea that he can keep up the price is doomed to fail. It’s one of the oldest and soundest rules in economics: You can control the price, you can control the supply, but you can never control both for long.

  As an example, think of OPEC. OPEC tried to control the price of oil, but after a time the entire mechanism collapsed under the weight of greater supply brought on by high prices. In another example, the Malaysians almost went bankrupt supporting the price of tin.

  Part of New Zealand’s problem was that in the seventies and eighties the socialists were running the country. They borrowed to keep the workers and farmers happy—doing what good socialists ought to do. Better to keep employment up than build for the future.

  New Zealand’s finances got so bad that the voters threw the socialists out and hired the conservatives again. What I mean by “bad” is very high inflation, very high interest rates, and very high unemployment, since nobody was buying anything because prices were so high. The currency had become so weak, nobody could afford to import the foreign goods a small, isolated country like New Zealand desperately needed, since no transistors or automobiles were made there. Voters came to realize loans were expensive, inflation was way up, and they couldn’t buy Sony TV sets or Japanese cars. Nobody could get a job, either. They became furious with the socialist government.

  Then came one of the more extraordinary stories of the relationship between a people and its central bank. At the beginning of the decade the new conservative government went to the bank and made a contract with it, a written contract which specified that it, the government, could not abrogate the contract. The government officials saw that if they simply passed a law or replaced the governor of the bank, such measures could be changed. They insisted on something more permanent.

  This contract said the central bank had to get the rate of inflation down to less than 2 percent and keep it there. “You central bank fellows do whatever you have to do. We government fellows will do our part, but in case we don’t, you still have to do your part because we’re politicians and can’t be trusted.”

  The Tories said this because they had the sense to know they were politicians. They were afraid the political will of the country would shift and they would be stuck back where they had started.

  Lo and behold, the central bank did its job and got the inflation rate down; and it has kept it under 2 percent ever since.

  As we rode through New Zealand, I couldn’t help noticing all the sheep. I got out commodity charts and checked the price of wool to scrutinize what had happened. Sure enough, here the big collapse was laid out in graphic form.

  At the same time, all around me I saw a hardworking labor force. They, like everybody else, were grateful for a handout, but they were far away from the centers of the world and knew nobody was going to take care of them. Even though they had been cradled in a welfare state for more than a decade, the basic New Zealand personality was rural and self-reliant.

  I took a look at the New Zealand stock market. I was aware it had been one of the worst, if not the worst, performing major stock market in the world during the past decade. Of course, I recalled the worldwide commodities boom of the seventies and eighties. New Zealand had absolutely nothing but natural resources: wool, sheep, and other agricultural products, so it had been one of the biggest beneficiaries of the boom. When it ended, however, it had gone in the tank first. Simple economics would tell you this had to be the worst-hit developed economy in the world because it had nothing else besides agriculture, and it was marginal in the first place. The smart money knew that the boom had come to an end and put its money somewhere else. So there were sound and understandable reasons why New Zealand had been the world’s worst performing stock market during the past ten to fifteen years.

  That whetted my appetite. First I saw a depressed area of investment, the
stock market. Then I saw a depressed country, because of the nature of its economy and bad public policies vis-à-vis wool, sheep, and other agriculture products. Then I saw a government that was doing all the right things to strengthen its currency and make its economy strong. The New Zealanders had come to know that they had to do the right things because they didn’t have any choice. Otherwise, their currency was going to disappear the way currency had in many African countries, and they were going to suffer as horribly.

  It was obvious that I had to invest in their stock market. I opened an account and put in some money.

  As usual, I worked through the country’s largest broker. I wasn’t too worried about the risk of bankruptcy with a company of this stature. If the broker looked as if he were about to go under, the government was likely to take the company over or force it into a merger.

  I opened a small account first to make sure there were no hitches. I worry about having the wrong account number on the paperwork or my money getting lost in the transoceanic netherworld through which international cables are laid. First of all, I want to see the system work properly.

  Outside of my normal reading of the world press, I had not done any special study of New Zealand, but being here told me a lot. In the broker’s office I looked through various books about the market, including its stock-market annual. I looked back to see what had happened in the country during the past ten or fifteen years, the basic facts, including the balance of payments and an overview of the country’s economic situation.

  I wanted to make a direct investment in wool in New Zealand, but if I bought wool futures, I’d have to worry they would expire sometime or that I might get a margin call. So I tried to buy a seat on the wool exchange. Whenever there’s a savage bear market, the seats on the exchange—whether for stocks, sugar, gold, or bonds—become seriously depressed. The best way to invest in a depressed market is to buy a seat on the exchange and forget it. Frequently there’s not even maintenance to pay.