# Australia faces worse crisis than America



## wayneL (30 July 2008)

While Aussies have been soothing themselves that it will not be as bad in Oz as elsewhere, folks looking from the outside have a different view:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/30/cnoz130.xml



> SNIP:
> 
> It is now clear that the Antipodes are tipping into a serious downturn. Australia's NAB business confidence index fell to its lowest level in seventeen years in June. New Zealand's central bank began to cut interest rates last week on fears that the economy may have contracted in the second quarter, and is now entering recession. Housing starts slumped 20pc in June to the lowest since 1986.
> advertisement
> ...


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## Sean K (30 July 2008)

We better start lowering interest rates FAST! 

More baby bonusses and first home buyer grants too!!

And more no interest free loans from Harvey Norman so I can get that second plazma!


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## prawn_86 (30 July 2008)

I have to agree. Im no economist, and i dont know much about govermental finance, current accounts, GDP and the like, but if we cant turn a 'profit' in the last 5 years, what hope do we have if commodity prices fall (which some already have).

Once again, absolutely useless governments, lacking a long term vision.

I just hope that i will be able to earn/make enough money to ensure that i and my family are shielded from pathetic politicians and their short term decisons...


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## doogie_goes_off (30 July 2008)

Yes true, however the chances are low due to inflation staying in the higher end of the reserve bank 'preferred operatring band'. I'd say a .25% cut in October at earliest. Will be interesting to see car sales etc for the previous quarter, I'M GUESSING that it will be down as peoples belts tighten. I have noticed a blitz in car advertising - I reckon sales are slipping.


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## nioka (30 July 2008)

This article echoes my thoughts and worries 100%. I have just copied the article and will post it to my local (Labor) member.


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## wayneL (30 July 2008)

nioka said:


> This article echoes my thoughts and worries 100%. I have just copied the article and will post it to my local (Labor) member.



Ambrose is never far off the mark, one of the very few economic journalists worth reading; a paragon in a sea of sh!te!


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## Uncle Festivus (30 July 2008)

> Australia's Reserve Bank has had to grapple with vast inflows of Asian capital, especially Japanese money fleeing near zero rates at home. Short of imposing currency controls, it would have been almost impossible to stop the inflows.



The dreaded Yen carry trade rears it's ugly head a bit closer to home this time - importing another countries product of mismanagement to compound our own! Are we any better off with the so called commodity boom? Should our living standards get lowered so that Chinese can live like us, or are we all denegrating to the lowest cost provider while the rich get richer?

If the Aussie dollar can't make it to parity with the US dollar under these conditions it never will; in fact a dramatic downward re-rating is not far off I think?


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## Sean K (30 July 2008)

Wayne, while we're in for a downturn, do the stats above add up to 'worse crisis than America'. ??


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## wayneL (30 July 2008)

kennas said:


> Wayne, while we're in for a downturn, do the stats above add up to 'worse crisis than America'. ??




I think for the middle classes it does. Oz's battlers will do better than Yankee or Pommie battlers, but the middle classes worse. The well healed I'm not too sure about at this stage.


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## It's Snake Pliskin (30 July 2008)

wayneL said:


> I think for the middle classes it does. Oz's battlers will do better than Yankee or Pommie battlers, but the middle classes worse. The well healed I'm not too sure about at this stage.




Why do you say that Wayne? What sets us apart from the Poms or Yanks?


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## Bushman (30 July 2008)

Australia has chronically under supplied on its infrastructure requirements over the last twenty years. While a current high inflationary environment means that infrastructure projects are on hold, Qld and WA state governments are cashed up and waiting on the sidelines. Could this be a rainy day industry to tide us over any commodity bubble bursting?  

Housing definitely does not have the same speculative pressure as America. We are also only now catching up to the under supply of commercial buildings in Australia. The credit crunch will just delay that process as well, meaning that the next property cycle will be stronger, for longer.  

I don't see it I'm afraid. To me we are on for +10 years of nation building as we decouple from the US and become the resource/service providers of choice for Asia. 

Now if someone could just figure out a feasible value adding industry for our resources then imagine the profits - LNG, ore benefication, green diesel, fertilizer etc. That is where we fail IMO- we dig it up and ship it out with value adding anywhere along the chain. High dollar is the major impediment at the moment which is quite the irony.   

Let fly. I know that negative sentiment is di rigueur at the moment.


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## prawn_86 (30 July 2008)

While i agree with you in theory Bushman, why is it that the nation/government has not been able to post a surplus/profit and keeps racking up debt?

Now should be the time to be paying off debt, not increasing it...


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## Bushman (30 July 2008)

prawn_86 said:


> While i agree with you in theory Bushman, why is it that the nation/government has not been able to post a surplus/profit and keeps racking up debt?
> 
> Now should be the time to be paying off debt, not increasing it...




The royalties are all at the state government level. Should be at a Federal level IMO. That would help with debt reduction. Liberals also loved tax cuts and big spending programs (Collins Class submarines anyone) and the like. Plus border protection, Iraq, baby bonus, first home owners grant and other such soma for the indebted classes.  

If Kevin07 does prove to be a real inflation fighter then maybe debt can be reduced? Who knows. 

I think we should adopt Federalism, get rid of the cash hoarding states and thus truely build up our nation to profit from our unique assets base and geographic location. Sydney/Melbourne should be the conduits of finance between east and west. Qld/WA should set up real industries rather than just open pit mining. Keep immigration flowing (even though it will be inflationary in the short to medium term). Get rid of all the bullsh*t tax cuts.  My 2c


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## son of baglimit (30 July 2008)

hasnt it been said many times that the high commodity prices are due to shortages, part caused by the inability of australian ports to get the ore etc onto the waiting ships quick enough. plenty of stories of bottlenecks, and only recently those problems being fixed with expansion of those ports.


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## chops_a_must (30 July 2008)

Bushman said:


> The royalties are all at the state government level.



That's crap.

Many a project has been canned here because the feds have made it not worth the cost.

You only have to look at the Northbridge link plan being held over for another 10 years because there isn't the money to put into it. Reinvestment isn't possible when royalties are going straight to parasites like SA.


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## aleckara (30 July 2008)

Bushman said:


> The royalties are all at the state government level. Should be at a Federal level IMO. That would help with debt reduction. Liberals also loved tax cuts and big spending programs (Collins Class submarines anyone) and the like. Plus border protection, Iraq, baby bonus, first home owners grant and other such soma for the indebted classes.
> 
> If Kevin07 does prove to be a real inflation fighter then maybe debt can be reduced? Who knows.
> 
> I think we should adopt Federalism, get rid of the cash hoarding states and thus truely build up our nation to profit from our unique assets base and geographic location. Sydney/Melbourne should be the conduits of finance between east and west. Qld/WA should set up real industries rather than just open pit mining. Keep immigration flowing (even though it will be inflationary in the short to medium term). Get rid of all the bullsh*t tax cuts.  My 2c




I actually think the opposite. Everything I see the government doing for me I see the states provide. The train services, the hospitals, the roads, police, bascially any government service that costs money.

Now I live in NSW where they are talking about 'borrowing' money to fund transport projects. I would state that most of the tax that people in NSW pay goes to the Federal Government. Why is my tax going there and they have a surplus while the state government have to borrow money and pay interest. That interest seems like a very large bureaucratic cost to me.

I agree with the article. Australia is like a mini America living past its means.


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## gfresh (30 July 2008)

Not like the poms to pay us out is it ?  touch of jealousy perhaps?


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## nioka (30 July 2008)

aleckara said:


> I actually think the opposite. Everything I see the government doing for me I see the states provide. The train services, the hospitals, the roads, police, bascially any government service that costs money.
> 
> Now I live in NSW where they are talking about 'borrowing' money to fund transport projects. I would state that most of the tax that people in NSW pay goes to the Federal Government. Why is my tax going there and they have a surplus while the state government have to borrow money and pay interest. That interest seems like a very large bureaucratic cost to me.
> 
> I agree with the article. Australia is like a mini America living past its means.




 As another new south welshman I agree with you and would like to add "and they are selling OUR electricity, claiming that they need the money".


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## doogie_goes_off (30 July 2008)

They have every right to pay out on us after the liberals current accout deficit has been up the kyber for 10+ years. Our value adding industries are few and far between and every time a project is put up some nay-sayer NIMBY knob says no way, when all that is really required is for governments to facilitate the environmental and social considerations necessary to make capital projects fit into misguided self serving welfare sucking communities.


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## pepperoni (30 July 2008)

aleckara said:


> I agree with the article. Australia is like a mini America living past its means.




We are carrying on like a mini america, but we dont have the industry or critical mass of the US to back it up.  

When it comes to the crunch we will go down harder and faster than most unless the forever commodities boom eventuates.

Howard came in at an opportune time and fooled everyone ... including himself toward the end.


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## nomore4s (30 July 2008)

Surely there will come a time when our huge household debt levels will come back to haunt us?


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## white_goodman (30 July 2008)

why not get therese rein to pay the void


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## aleckara (30 July 2008)

pepperoni said:


> We are carrying on like a mini america, but we dont have the industry or critical mass of the US to back it up.
> 
> When it comes to the crunch we will go down harder and faster than most unless the forever commodities boom eventuates.
> 
> Howard came in at an opportune time and fooled everyone ... including himself toward the end.




Do you think that it may be a possibility that Australia will have to eventually when a recession hits and we cant service the mortgage sell some assets (possibly a lot of our real estate) like some of the companies have been doing in the wake of the subprime crisis? i.e if all the easy money went into real estate what happens when we can't afford to pay the interest anymore? do we have to let that money flow back out of our real estate assets? and the house price depreciation that goes with it? interesting to note that house prices are falling in the US as people are not willing to service their loans anymore (although they get a choice to walk away from the house unlike here, where you have to pitch in more assets until the bank recovers the debt I think).

It's hard to say if this will happen soon though, or at all.


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## juw177 (30 July 2008)

aleckara said:


> i.e if all the easy money went into real estate what happens when we can't afford to pay the interest anymore?




Bank failures / consolidation. AUD goes down with USD. Stock market crashes because it cannot find another bubble to blow. Banks, home builders, luxury goods / services will go bankrupt. House prices keep falling until they become affordable for average income earners.

That is just the start before we follow USA into a depression.


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## GREENS (30 July 2008)

From my point of view we are starting to see a lot of business’s being squeezed at the present time in OZ. As a result, firms are currently laying off workers in dribs and drabs, however while the cuts are relatively small at the moment, I think over the coming quarters we will see even more firms  having to cut huge amounts of labour from the workforce, especially in the non resource states. This is when the real problems start to arise. 

Firstly, those people who took out loans or mortgages when interest rates were low a few years ago and locked into a fixed honey moon rate, who I might add could barely afford it at the time, will have to face the problems of significantly higher interest rates along with the increased chance of losing their job. Not a good mix. Although probably only a small proportion of people, but regardless of whether there mortgage was fixed or not those on lower incomes feel the pain of even small rises in interest rates. Given banks margins are being squeezed as a result of difficulties in accessing cheap funding, the rise in interest rates not only resides with the RBA. 

Secondly, considering banks have been known to lend up to >95% the value of a property over the past few years in a rising asset price environment and still have not changed their ways as asset prices start to head into reverse means that a lot of households are highly leveraged and any further rises in interest rates or widespread increase in unemployment will have severe ramifications to the broader economy. 

Although the argument of: “most debt lies with more wealthy individuals and hence there are in turn little problems in servicing this debt”, is a valid point to some degree. I think people seem to forget that a proportion of these wealthier individuals have complex webs of debt, using various assets as backing for other loans. Don’t forget that asset prices have taken a fairly significant hit and if economist are to be believed there is a general consensus that Australia property prices have a fair way to fall if they are to come back into line with property value in the rest of the world. Added to this is the fact that company profits are softening, which again flows onto wages & bonuses in general.  

The end result for our banks could be fairly ugly. I know a friend of mine the other day was dealing with a commercial client and had to reject his application for a loan because of the dire state the business was in. He then went on to learn that another big bank picked up this client with no questions asked. Just a bit of food for thought. Personally I don’t see the Australian banks and economy in general getting hit anywhere near as hard as the US, but I still think we have a fair way to go in this debacle, until the cheap debt web unfolds fully back home. I expect more and more write downs and provisions for bad debts from the banks. 

In the end I suppose the state of the Australian economy is in the hands of the BRIC economies. If demand for Australian resources remains strong then we will be insulated to some extent from the problems affecting other developed economies.


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## theasxgorilla (30 July 2008)

GREENS said:


> In the end I suppose the state of the Australian economy is in the hands of the BRIC economies. *If demand for Australian resources remains strong then we will be insulated to some extent from the problems affecting other developed economies.*




Not to mention being insulated from both the long standing and new problems specific to the Australian economy.


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## GREENS (30 July 2008)

theasxgorilla said:


> Not to mention being insulated from both the long standing and new problems specific to the Australian economy.




Yep most defintately.


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## BSD (30 July 2008)

"The Aussie is going down, big time," said Mr Redeker.

-----

Not against the the Pound it isn't Hans. 

More comments later on this interesting topic - but for now I shall continue to bet against the silly valuation of the pound against the Aussie battler.


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## noirua (30 July 2008)

"Australia faces worse crisis than America" - WHAT A LOAD OF ...

Every State and Territory is now reaping the benefits of vastly increased royalties from sales of iron ore and coal. For instance: QLD receives 7% royalty on coal up to US$100 per tonne and 10% over that figure. Average coal price was around $56 per tonne for thermal coal last year and now set at US$125 per tonne and far greater figures on the spot market. These States and Territories, quite rightly so, are raking it in.

Fair enough, some sectors have it tough but overall things are great for Australia.  AUSTRALIA are no America, that's for sure.


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## BSD (30 July 2008)

_"The decision by National Australia Bank to make drastic provisions on its US mortgage debt could have ramifications in the US itself. It opted for a 100pc write-off on a clutch of "senior strips" of collateralized debt obligations (CDO) worth £450m - even though they were all rated AAA. No US bank has admitted to such fearsome loss rates."_

This isn't exactly true either if you believe this:

http://www.crikey.com.au/Business/20080729-How-Merrills-dragged-NAB-into-an-830m-writedown.html

And I dont even think NAB have reported well to the market where in the CDO they sat and the rating of that particular tranche.

But hey, what a great headline!

*Australia faces worse crisis than America*

Oh please...


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## wayneL (30 July 2008)

BSD said:


> _
> But hey, what a great headline!
> 
> *Australia faces worse crisis than America*
> ...



_



noirua said:



			"Australia faces worse crisis than America" - WHAT A LOAD OF ...
		
Click to expand...



Jeez it must be bearish down there!!! It took 29 posts before these sorts of comments turned up.

It was only a few short month ago when I was still in oz, I would have been run out of town for even suggesting something like this and Ambrose Evans-Pritchard would have had his entry visa cancelled forever.

Things change quickly eh?_


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## BSD (30 July 2008)

Would you like to take the other side of my long AUD short GBP trade Wayne?


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## wayneL (30 July 2008)

BSD said:


> Would you like to take the other side of my long AUD short GBP trade Wayne?



Irrelevant.

...and I'm on the same trade.


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## BSD (30 July 2008)

I know mate.

I just wanted to bet another $1 !


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## Aurum (30 July 2008)

I went long the AUD with every penny I had about 5 years ago.

Aurum.


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## wayneL (30 July 2008)

Aurum said:


> I went long the AUD with every penny I had about 5 years ago.
> 
> Aurum.




My whole family did that in 1972 when it was ~$1.40... bad trade that.


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## It's Snake Pliskin (31 July 2008)

It's Snake Pliskin said:


> Why do you say that Wayne? What sets us apart from the Poms or Yanks?




No? Gone shy?


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## wayneL (31 July 2008)

It's Snake Pliskin said:


> No? Gone shy?



The Aussie middle class is a lot more geared up and is not taking world conditions seriously.

Aussie battler are much better paid than yankee or pommie battlers and it's much easier being broke in Oz than either UK or USA.

That's the short answer, for the long answer DYOR.


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## It's Snake Pliskin (31 July 2008)

wayneL said:


> The Aussie middle class is a lot more geared up and is not taking world conditions seriously.
> 
> Aussie battler are much better paid than yankee or pommie battlers and it's much easier being broke in Oz than either UK or USA.
> 
> That's the short answer, for the long answer DYOR.




Thanks for that. I was just a bit curious as to why. 

Have a nice day.


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## MRC & Co (1 August 2008)

But what is happening to the capital and financial accounts and what are their long-term implications?

Higher CAD will put pressure on AUD, ultimately this will increase debt as a value, but will cause a decline in the CAD.  

Not a good scenario, but nothing not known before.


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## Buster (1 August 2008)

Hey Bushman,



Bushman said:


> The royalties are all at the state government level. Should be at a Federal level IMO. That would help with debt reduction.




For’s and against.. but I think it’s probably best the way it is.. otherwise you will find that the 'spoils' generated by one state would be squandered on the states that happen to be of the current Federal political flavour.. ie Liberal states at the moment would get naff all..  I don't believe it would help with debt reduction though..



Bushman said:


> Liberals also loved tax cuts and big spending programs (Collins Class submarines anyone) and the like.




Hmmm.. I seem to remember big Kimmy B signing the Collins Class contracts, and I don't recall him being part of the Liberal line up..  



Bushman said:


> Plus border protection, Iraq, baby bonus, first home owners grant and other such soma for the indebted classes.




Personally, I thought stopping the 'Boat people' was a good thing.. Can't imagine that it cost us much either as it was largely the Defence force employed to enforce the plan (myself included).. Certainly better to be doing something pro active rather than playing wargames with endless circles in the ocean.. Consider how much we have probably saved in building detention centers and additional welfare payments etc etc..

Iraq was a monumental c*ck up right from the word go.. but you get that..

Baby bonus, hmmm, paying for trailer trash to bang out sprogs for cash has always seemed to be flawed to my way of thinking.. I'd like to see a caveat for the bonus that you must have been employed for 24 months to be eligible.. May well 'raise' a better class of young ones, vice a generation that were 'had' purely for monetary gain.  But I don't carry much weight in the political arena.. 

Home Owners grant, I think you'll find it was available well before Johnny got to play in the sandbox.. Not the same sort of cash, but seem to recall around the $3K mark..     



Bushman said:


> If Kevin07 does prove to be a real inflation fighter then maybe debt can be reduced? Who knows.




Can't see that there is really any credibility here either, just the past week we've had 3 or 4 groups lobbying for pay rises of around 21%.. one of the groups was Unskilled Labourers.. 21%.. Of course that’s after the teachers just got their increase approved, and has spurred them all on.. That’s how it all starts, wage inflation will lead the way, and he (Kev) does not appear inclined to dampen anybody’s spirits.. 



Bushman said:


> Australia has chronically under supplied on its infrastructure requirements over the last twenty years. While a current high inflationary environment means that infrastructure projects are on hold, Qld and WA state governments are cashed up and waiting on the sidelines. Could this be a rainy day industry to tide us over any commodity bubble bursting?




Agreed, but you can only do so much with what is available, and we have quite a small population.. don’t forget that in order to continue growth we need to buy the tools to enable the industries.. unfortunately we don't manufacture many of these tools ourselves, hence the (short term) deficit, then you have military assets etc.. 

I doubt anyone would argue that we need these assets, but you never know..

I think that QLD and WA don't currently have the 'personnel' resources to cope with building the expanding infrastructure needed as the personnel required are getting the big bucks in the mines, and they are simply unable to compete.  If (and when) the commodity boom slows down then those personnel will be shifted into infrastructure, and at a lower cost to the local governments.. 

You don't buy stock at the top of the market, so why not let the local government get the most bang for their buck??

As you say this will alleviate any slowdown caused by the commodities coming off the boil..  I for one think that all this doom and gloom is a load of bunk.. I also think that we've got quite a lot to look forward too.. unlike some other countries..

Regards,

Buster


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## wayneL (4 August 2008)

Just a bit of trivia - This article is still the 3rd most viewed article on www.telegraph.co.uk all these days later.


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## disarray (4 August 2008)

probably because so many poms want to flee england. this might be putting them off.


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## wayneL (4 August 2008)

disarray said:


> probably because so many poms want to flee england. this might be putting them off.




Strange phenomenon that. Everywhere I turn there is a flamin' Aussie that has fled Oz.  At any one time there are around 400,000 Aussies in the UK. add to that the EU citizens who are flooding here and you scarcely hear a pommie accent. Immigration TO UK is rampant... and not just from 3rd world hellholes.

The primary reason Poms want to leave.... the weather. LOL

I like it... hardly any hot days, I can go for a 50km ride and never raise a sweat... brilliant. Many Poms aren't happy unless it's 35 degrees and ignore all other factors.

For instance, here we are in high summer and it's chilly and overcast, but it was warm on the weekend. I like that and so do many, but heaps grizzle about it. 

The other factor is that the press is incredibly negative here. There is a huge thing on at the moment about knife crime and folks believe they are going to get stabbed every time they go to the shop to pick up The Sun. Yet in reality, there are more stabbings in Naples than in the whole of the UK. Outside a certain demographic, your chances of getting stabbed are almost zero.

Another thing, some towns are truly dire and blighted... sh!tholes to be frank. I'd want to get the hell out too. But the nice towns are brilliant. Where I live is fantastic; happy as a pig in mud.

http://www.cheltenham4u.co.uk/cheltenham.asp


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## theasxgorilla (4 August 2008)

wayneL said:


> I like it... hardly any hot days, I can go for a 50km ride and never raise a sweat... brilliant. Many Poms aren't happy unless it's 35 degrees and ignore all other factors.
> 
> For instance, here we are in high summer and it's chilly and overcast, but it was warm on the weekend. I like that and so do many, but heaps grizzle about it.




Ditto.  Just got back from southern Germany where it's been hot, hot, hot.  Glad to be back in cool Scandinavia.  Now off to the gym to try and induce a sweat  (seriously).


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## wayneL (5 August 2008)

theasxgorilla said:


> Just got back from southern Germany w



Another nice spot I must visit again soon... maybe around Oktober.


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## theasxgorilla (5 August 2008)

wayneL said:


> Another nice spot I must visit again soon... maybe around Oktober.




Actually I was in the Mosel and Rhine valley, so not the southern Germany you are thinking of.  Would love to visit that part too though, I've heard it's perhaps the nicest.  Off to Berlin in November...that promises to be interesting.


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## Pommiegranite (5 August 2008)

wayneL said:


> .
> 
> Another thing, some towns are truly dire and blighted... sh!tholes to be frank. I'd want to get the hell out too. But the nice towns are brilliant. Where I live is fantastic; happy as a pig in mud.
> 
> http://www.cheltenham4u.co.uk/cheltenham.asp




How about mentioning the nasty wart which is attached to Cheltenham i.e Gloucester?


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## wayneL (5 August 2008)

Pommiegranite said:


> How about mentioning the nasty wart which is attached to Cheltenham i.e Gloucester?




Exactly!! eeeewwwww!


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