Jon Giaan

NO B.S. FRIDAY: Cheating husband, cheating snake

April 10, 2015 by Jon Giaan

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We are experts at deceiving ourselves. But who’s deceiving who? I’ve got a wild theory, but I know we always need to be on our guard.

My friend Brad cheated on his wife.

It came as a shock to everyone. Brad and Bron were the perfect couple and Brad was a poster husband. They seemed throw-up-in-your-hat happy. No one saw it coming.

Least of all Brad.

When I caught up with him he was a bit shell-shocked – kind of staggered by his own stupidity.

It wasn’t a premeditated or ongoing thing. Just a single night of passion. And he’d come clean once he could see things in the ugly light of day.

But still. It was far and away the most stupid thing Brad had ever done.

For starters, the timing couldn’t be worse. It was a week shy of Bron’s 40th birthday, and she was just getting to the pointy end of a huge project at work. What’s more, her mother was about to come for the weekend and visit the grandkids!

There’s never a good time to cheat on your wife, but it’s hard to imagine one that’s worse.

“What got into you, man?” I said.

“I just don’t know. I mean, I really have no idea. It was really liked I just stopped thinking.”

“Obviously.”

“There were no thoughts going through my mind at all. I could blame the booze, but I wasn’t even that drunk.

“And the truth of it is that it actually felt like a really clear space. Like I had a moment of clarity. I even wondered if I was having some sort of spiritual awakening or something.

“It really just felt like the right thing to do. I even had a thought at one point that Bron would be happy for me.

“And now I look back and I just don’t know what I was thinking. It was me, but it wasn’t me, know what I mean.

“It’s like I’m not even sure who I am anymore.”

Poor bastard.

I could understand. The more I watch people the more I see how excellent we can be at deceiving ourselves.

And if we’re walking a path of commitment to anything, then we have to be constantly on the watch for the little lies and deceits we tell ourselves.

After dragons, we’re our own worst enemies.

Some people might say that Brad had the devil a-whisperin’ in his ear hole. But I think temptation always comes from within.

But where?

Lately I’ve been really interested in this idea that we actually have three brains. As we evolved, we never remodelled the architecture of our brains completely. We just added on extra rooms.

And so you can kind of think about our brain as having a reptilian core, with a mammalian brain overlayed over the top. Then when have the neo-cortex tacked on the front and that seems to manage the uniquely human functions we have.

In a way, it’s kind of efficient. Fight or flight is located in the reptilian brain, and you want that to be as close to the action as possible. You want it to be instinctive.

But managing social relationships is located in the neo-cortex, because it’s something that’s too complex to deal with on instinct. You need to think about it.

Anyway, if that’s true (and hey, who knows?) then maybe Brad got tripped up by his reptilian brain. His commitment to Bron, and to being the best husband and father he could be, lived in his neo-cortex. It was part of his ‘managing relationships’ function.

But his reptilian brain had never signed up to that. It doesn’t care about such things. All it cares about is making more little Brad’s and mating is the only way to do that.

It creates a constant tension in Brad’s life.

Generally though, Brad had it sorted. The neo-cortex rules the others, and being a successful human means learning how to manage our ‘lower’ urges.

Like, I know it will be socially awkward if I just relieve myself wherever I want, and so I find discrete places to go to the toilet. I’m a successful human.

But the snake is never sleeping.

And on that night, Brad’s neo-cortex was overthrown in a bloodless coup. It’s like it was disabled completely. The serpent took over.

And the scary thing for Brad is that it felt amazing to give it the reins, and slip out of the Commander’s chair.

Honesty and integrity is always an act of will. And will takes energy. Constant energy. Letting go of the reins feels like a release.

And the more disciplined you are, the more powerful the potential release will be.

It’s also kind of a case of build a better mousetrap and they’ll build a better mouse. Brad is an attractive guy and has had to deal with temptation in the past. It’s never been a problem.

He thought he had it sorted.

But the serpent had its will, and it just needed to find a way. Brad let his guard down for a moment, and the serpent struck. And the narratives that played out in his mind were things of evil genius.

It can happen to the best of us.

And it’s habit for the worst of us.

This may all be more metaphor than science, but I think it’s true that we are all possible of deep self-deception.

And it will test us in moments of crisis, but it also drives us during the day. What stories do you tell yourself to give yourself another ten minutes in bed, another cookie at morning tea time, another glass of wine?

Another glass of red please. I feel low in anti-oxidants.

And exactly why are you putting off doing your taxes, getting your finances in order, researching properties, reading back-issues of my blog?

Most of these stories slip under our radar.

But who’s really calling the shots?

I’m not winning any awards for research, but how does this stack up as a theory of self-deception?

What tricks do you have to stay honest with yourself?

Why the inner-city (not CBD) over performs…

April 8, 2015 by Jon Giaan

Today, I put on my thinking cap and try and explain why inner-suburban house prices always grow faster than fringe housing. It has a lot to do with transport infrastructure. Feel free to give me a grade.

Why does the inner city grow faster than the suburbs?

It’s not always true, but true enough to be a workable rule of thumb. House prices grow quicker in the inner-city than in the outer areas.

This is a bit surprising when you think about it, or it’s at least a bit of a puzzle.

You would expect prices to grow more in existing suburbs in absolute terms. If a million dollar home grows by ten percent, it’s value goes up $100K. 10% on a $500K house is only $50K.

But we’re not talking absolute levels. We’re talking percentage terms. We’re talking growth rates.

And it’s easier to get bigger growth rates off a smaller base.

And what that means is that the price gap between the inner and outer city is just getting wider.

Or another way of putting it, the premium people are willing to pay to live closer to the CBD is going up.

I never expected prices to equalise across the city, but I did think at some point, this premium would settle down somewhere.

So why hasn’t it?

To understand that we need to understand the key drivers of price in the outer suburbs.

First up, there’s the treatment of infrastructure expenses – roads, sewage etc.

In the past (around when the inner city was being built) governments used to foot the bill for these things, and then recoup the expenses from rate payers over a number of decades.

Now, these costs are pushed back to the developer, who, of course, just passes it on to the home-buyer.

So while infrastructure cost used to be deferred, they’re now an up-front expense, pushing the price of new land and homes higher.

Second, the price of new land has been jacked up by land-banking developers, and bumbling or corrupt planning authorities.

(Of course land banking only works when authorities keep supply on a short leash for you.)

New lot prices have spiked in recent years. According to HIA, the median vacant lot price is now up to a record $212,727 per lot.

Lot prices are up over 10% in the past year and a bit. But lot sales are actually down 20%!

And in Sydney, it’s gone to stupid town. Median lot prices increased 20% in 2014 alone, to $390,000.

Add the most basic of houses on top of that and you’re easily up around the $600K mark.

But hang on. Why are we talking about fringe inflation if we’re trying to explain why the inner suburbs are growing so quickly?

The reason for that is that inflation on the fringe pushes back to the inner city. If a basic fringe house costs $600K, this puts a floor under inner-city prices.

A very-expensive floor. Like, slate or something…

Everything in the inner suburbs is going to be north of that… unless the house is in really bad shape.

And that means that if outer suburbs are growing by 10%, then the inner suburbs will also be growing at 10%.

If you raise the floor a foot, you raise the whole house a foot.

(hey? Property analogies about property. I’m so meta.)

But there’s also a premium.

And where does that premium come from?

It comes from the relative attractiveness of the inner-city over the fringes.

And that attractiveness is built on location, location, location.

In part it’s about access to amenities – lifestyle and culture. In that sense, our cities are very centralised. Our central business districts also tend to be our central entertainment districts.

There are alternative entertainment ‘hubs’, but these tend to a long drunken walk from the CBD anyway.

Not to say there’s nothing going on out in the suburbs, but the further out you go, the more limited your options become.

That puts a premium on inner city living.

But probably the main factor is transport. No government has invested enough in transport infrastructure in recent years.

And if we took the kind of transport investments that supported the growth of the inner-suburbs 50 odd years ago, we are miles behind.

This is partly about public transport, particularly trains. But it’s also about roads.

And you could maybe get away with underinvesting in trains if you put the extra work into roads, but that hasn’t happened.

And so what that means is that commute times start to hurt. If you live in the outer suburbs, your daily commute could be long, difficult, or both.

Let’s put some numbers on it.

Let’s imagine that you live in the outer suburbs and travel an hour and twenty minutes more than you would if you were living closer in. That’s not hard to imagine.

Effectively you ‘work’ an extra day a week, just in commuting.

If you earnt the average wage, your commuting just cost you an extra $300 a week.

So effectively that means you’d be willing to pay an extra $300 a week on your mortgage to live closer in.

That starts to make a difference.

And so this is what explains the premium.

The question then is, is the premium getting bigger?

Well, it’s going to get bigger if the perceived inconvenience of the outer-fringes gets bigger.

And what’s happening there? Well, I don’t see anybody in government falling over themselves to fix it.

And with our cities growing rapidly, it seems that our ‘infrastructure deficit’ is only getting worse.

And if that’s true, then we should see the premium between the inner and outer suburbs continue to widen.

And that means that inner-subruban house prices will grow even faster than outer suburbs.

There. We solved that little puzzle.

What do you think?

Is there a growth premium on inner suburbs in your city?

Is it going to last?

NO B.S. FRIDAY: A Viking Easter

April 3, 2015 by Jon Giaan

I’ve been watching a lot of tv shows about Vikings and wizards. It reminds what Easter really represents, and how much we have to be grateful for.

So I’ve been getting into the tv series ‘Vikings’ lately. It kind of gets that part of me that loves, sword fights, and quests over dangerous mountain passes and all that – the way ‘Game of Thrones’ does.

But ‘Vikings’ has the advantage of produced by the History Channel, so it’s historically accurate. It gives me something for my history nerd to get off on.

Anyway, there’s this scene where the Vikings are ransacking a monastery, and they come across a wood carving of Christ on the cross for the first time. They stare at it for a while. It confuses them. And then they smash it to pieces with an axe.

Yeah. Vikings.

In that moment I could really get how strange the Christ figure would have been to them. They were a spiritual people as well, but the Gods they worshiped were heroes too – great warriors and conquerors. Thor was so mighty, Hollywood had to come to Australia to find someone tough enough to play him.

So who was this scrawny dude, miserably nailed to a cross? And why did the Saxons worship him?

I think it’s easy to forget just what an unusual age we’re living in. These are exceptionally peaceful times – on any measure.

Sure there are still wars and crime and murders on all sorts of horrible things, but these are at an all time low.

If you’re an adult male, the chances that you’ll die in your sleep of old age, and not some violent death at the hands of one of your enemies, is the best it’s ever been.

Same for women. Even though one murder or rape is one too many, these violence rates are also on the way down.

In medieval England, you could go to the theatre and watch a cat, tied to a stake, set on fire.

Not a dramatization of a burning cat. An actual cat, set on actual fire.

It was part of the programming. 7.00 -7.30, puppetry show for the kids. 7.30 – 8.00, kitty torture.

Today, it’s unthinkable. But it wasn’t really that long ago that we used to find amusement in acts of shameless cruelty – that we used to think that cruel was funny.

Sure, it still goes on. But it’s no longer ok. It’s no longer the norm.

And I kind of think that’s why shows like Vikings and Game of Thrones have become so popular.

We’ve had movies and shows about dragons and wizards and all that before. Everyone loves dragons.

But at the heart of these shows is darker. They show us worlds where the nastier sides of humanity are still untamed.

Life is cheap. Murder, rape and pillage is just part of the daily grind. Greed, ambition and lust go unchecked, and killing and torture is part of every go-getter’s tool kit.

And we see ourselves there. We know that our world is not so dis-similar. We know that our murderous and selfish natures have not be cast out – exorcized from the world. Rather, they’ve just been put in a box. A fragile box.

And it’s thrilling. It’s titillating. It’s like riding a roller coaster. We give ourselves a nice old scare.

It’s like we look down and realise how high and precariously placed we are.

Exactly what is it that’s holding us up? What is it that keeps civilisation elevated above the festy swamp of human viciousness?

Not much, I reckon.

There’s a phenomenon that follows revolutions – a bloodletting. In the early days of lawlessness – when the police have gone underground because they’re afraid of the people they’ve been oppressing – old scores are settled. Violently.

Peace is an act of consensus.

It only happens because we all agree to make it happen. Maybe someone is coercing us into that agreement with a big stick, but it’s still an agreement. And everyone (sometimes grudgingly) goes along with it. Violence doesn’t automatically erupt where no police can see it.

Peace is something humans have decided to engineer. It’s one of the great human inventions – like the wheel, or cheese in a tube.

And it’s interesting to think about how we managed to pull it off. Partly I think it came once we got stable institutions we could trust (more or less) with a monopoly on violence.

Even though our states and governments have been far from perfect, it seemed to chill things out once we could see that violence was being metred out according to at least some sort of rhyme and reason.

But at some point we also became peace-loving.

We stopped glorifying war and violence. It took millennia to achieve, but now if our leaders want to take us to war, they have to do it at least in the name of peace – ridding the world of weapons of mass destruction, and bombing them into freedom etc.

That’s a new thing. In past times they could have done it simply because war is awesome and conquering others was glorious.

We have come a long way.

And the image of Christ on the cross has a lot to do with it, I reckon.

Because for the first time in history, we had a lightning rod for the best aspects of humanity, and the necessary ingredients for peace.

It was not a figure that glorified power and strength and kicking holes in the sky. It was a figure that showed us the power of self-sacrifice and commitment.

Even though he was being nailed to a cross, he never turned his back on the sacrifice he was called to make.

This is a powerful idea. Selflessness in the face of hardship.

And it’s the foundation of compromise, charity, playing nicely…

… and peace.

And so this is what I’ll be remembering this Easter. We live in an amazing, peaceful age. But that peace is always and ever built on a commitment to something bigger than ourselves.

Have a peaceful and joyous Easter everyone.

What do other investors think?

March 31, 2015 by Jon Giaan

What are other investors doing? Surveys of other investors show they’re gearing up to purchase more property, and are very bullish about near-term capital growth, though slightly less excitable than a year ago.

I always find it interesting to hear what other investors are doing.

Not that I’m looking for tips. I’m just curious about where the market is at.

And over half the market in Sydney right now being driven by investors, it pays to know what’s driving investor psychology.

And if you know me, you know I’m a data guy. Vague stories about certain markets being hot, or certain segments getting active are great, but often they’re just stories. Show me some data.

Lately I’ve been tuning into Digital Finance Analytics. I like these guys because they’re not just rehashing the same old data with their own spin. They’re actually getting their hands dirty.

The conduct their own survey and build they’re own data set.

And it pays off. In many ways these guys broke the story about first time buyers in Sydney becoming first time investors. Now everyone is talking about it.

So just what do other investors think?

DFA break the investor segment down into ‘solo investors’ – investors who only have one IP; and portfolio investors, like me.

On their estimates, there are about 900,000 solo investor households in Australia, while there’s a little less than 200,000 portfolio investors.

This tells us that portfolio investing is still very much a niche activity.

Don’t believe the hype.

The average age of the first time property investor has been steadily falling over recent years, and now stands at just 38 years of age. In large part this has been driven by the rise of first time investors – investors skipping the PPR and going straight to the IP.

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However, this trend has really only taken off in the last couple of years, and at the moment, seems localised to Sydney. My bet though is that as this boom phase extends, we’ll see more and more first time investors, extending from Sydney to Melbourne.

It’s interesting to look at what’s driving solo investors. The main drivers motivating a purchase are “the continued potential for appreciating property values and the tax efficient nature of the investment.”

Capital gains and tax breaks.

No kidding.

However, capital gains are less and less of a motivator, reflecting the maturity of this phase of the boom cycle.

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Solo investors also think they’ll get better returns in property than in bank deposits. (Another no brainer), but low finance rates aren’t such a big motivator.

Nevertheless, from an investment perspective, many solo investors see property as the only game in town.

DFA also asks solo investors what might be a potential barrier to future property purchases. Current prices aren’t so much of a problem. The percentage of solo investors who think property prices are too high has been steadily falling, and is now less than 18%.

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The number of people citing potential unemployment or personal circumstances as a barrier has also been steadily falling, which can be taken as an economic positive.

There has been a rise in the percentage reporting problems with potential changes to regulation (reflecting media focus on potential LVR hurdles and APRA monitoring of interest only loans). That said, almost nobody said that access to finance was a problem (so much for tighter credit markets). Nearly half of all solo investors expect to get an interest only loan for their next purchase.

DFA estimate that about 3.5% of SMSFs have an investment property in their fund, and a further 3% are actively considering this investment route. Like investors they’re motivated by capital gains and tax breaks.

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Most SMSFs learning for themselves, with a fall in financial planner advice offset by a rise in ‘own knowledge’ and ‘internet forums’.

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Looking at portfolio investors, they’re also motivated by capital gains and tax breaks, though tax-breaks are relatively more important over all, and over the past year there’s been a strong switch away from capital gains in favour of tax breaks.

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DFA reports that the portfolio segment is growing strongly, with solo investors using the capital gains associated with the IP to leverage into further property purchases. Classic growth strategy.

DFA also report that the number of portfolio investors with 10 or more properties is steadily increasing, as is the number of people who report that property investing is their main source of income.

If you’re one of the lucky ones who have turned property investing into a job, congratulations. Hats off to you.

Overall, it looks like investors are going to be much more active than other home-buyer segments.

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Though, this also highlights the importance of down-traders in recent years. Many people have expected this segment to accelerate in coming years as baby boomers retire and move into properties that are smaller and easier to maintain.

For the moment, this effect is being offset by a combination of investor and up-trader buying, but will be something to watch.

This investor interest is reflected in the outlook for prices, with investors generally a little more bullish than other investment types:

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However, most segments are a little less bullish than a year ago.

Overall, all this seems consistent with a market that is a few years into a boom phase. Investors are still driving the market, but at a slightly less vigorous pace. Expectations around prices are also slightly less bullish, but very strong overall, particularly in the investor segment.

There also seems to be few serious impediments to purchasing property, with the employment outlook firm, and credit easy to come by.

What do you think? Does this data describe you?

Are you an average investor?

Where’s the difference?

No B.S. FRIDAY: Taming a fussy pussy cat

March 27, 2015 by Jon Giaan

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I’ve never done a cat story on the No B.S. Fridays. Considering how popular cats are on YouTube and Facebook, I should be ashamed of myself. Here’s my first (and last) cat story.

I lost a battle of wills with a cat, but it taught me something about human laziness.

We used to own a cat… Or should I say, my WIFE owned a cat?

I didn’t have a lot of love for this cat. It was this kind of fussy, primadona type thing.

And it lorded over us like a tyrant.

Man, the things we had to do for this cat. Especially around food. It would only eat one flavour, of one brand of cat food. Nothing else.

And so if you ran out and they had none at the shops, you were stuffed. You couldn’t just get her another brand of catfood – even a different freakin flavour. It was that one tin or nothing. I can still see that tin in my mind.

Anyway, so we tried to break her addiction one time. It just got ridiculous. And it was also one of the more expensive options.

And so I put a different tin out for her. I put it down, she looks at it, and then comes back over and starts meowing at me.

“Yeah, yeah. You’ve got food. It’s there.” And I go back over and tap her bowl. “See?

She comes over, takes a sniff, and then looks up and starts meowing again, and rubbing itself all over my legs.

Repeat.

I figured that she would give in at some point. Sooner or later it would get that this is her food for the day. She’d come around to my way of seeing things eventually.

But she didn’t.

The meowing goes on and on.

And so I think, I’ve got to take a stand here. If we cave now, the cat knows it’s got us. We’ll labour under its yoke for the rest of our days.

I need to show it who’s boss. And it just needs to accept that this is its food, and we, the humans, get to decide what that food is.

And it’s not like we’re not asking it to eat glass or anything. Just some perfectly good, middle of the range cat food. She doesn’t even have to catch it.

I thought my negotiating position was strong. The cat would come around.

But the cat kept at it. Constant meowing. Running beneath my feet as I was walking places. Trying and get up on the keyboard. It knew how to drive me crazy.

We go back to the bowl. Same story.

And now I start to doubt myself. Maybe she doesn’t actually realise it’s food. Or maybe she has a genuine reaction to something in it. Maybe the cat’s gluten intolerant? Wouldn’t surprise me with that cat. Probably doesn’t agree with her chakras.

Maybe this isn’t an ambit negotiating position after all. Maybe she not trying to psyche me out.

I take my doubts to bed. Leave the cat locked outside the bedroom.

When I get up in the morning, the food hasn’t been touched, and it’s the same game all over again.

Unbelievable.

I let it go on until well in the afternoon, and then I crack. I don’t want to be neglectful. I don’t want to end up on A Current Affair as the kitty-torturer guy. The cat needs to eat.

We go back to the old tin.

Happy cat.

I’m thinking about this, because we go out for dinner with an old friend the other night, who for years has been a committed vegetarian. She orders lamb.

Turns out, she had started eating meat again, because she just need the iron and B12. (I didn’t even realise there were 12 Bananas in Pyjamas.)

She said that no matter what she did, no matter how many iron supplements, or kale and spinach super smoothies she had, she just couldn’t absorb the iron.

She said it was like her body was passing on the broccoli, and holding out for the steak.

Just like my cat.

She’d eaten a lot of meat as a kid, and I guess her body had become conditioned.

Or it’s like my friend’s two year old who went through a phase of eating nothing but blueberries. Talk about an expensive habit.

It got me wondering. I hadn’t seen this side of human / animal nature before. There’s a part of ourselves that’s actively holding out for the easiest option – the most energy rich food, or the lowest energy path.

It’s not just that we have a preference for these things, but there’s part of us actively resisting other options.

Maybe this made sense for pre-civilised biology. Don’t go filling up too much on all those vegetables and bugs. Hold out for the mammoth steak. Go get yourself a mammoth steak.

And so if you’re trying to correct a bad habit, it’s not just that you end up somewhere bad through successive failures to exercise will power.

It’s that part of you actually seeks out the bad habit, and actively resists better habits.

Think sugar. It’s not just that you’ve developed a sweet tooth, because over time you’ve generally gone with the sweeter option. It’s that you’ve got a taste for the energy, and now not only do you crave it, you actively resist other options.

Sugar habits are hard to break.

To me, this changes how we should think about shaping our conditioning for success. Not only do you need to tame that part of you that prefers, but you also need to tame that part of you that resists.

So in the case of sugar, not only do you need to train yourself to be able to say no, or take the less-sweet option when it’s available, but you also need to train yourself out of actively resisting healthier diet choices – vegetables, mammoths etc.

To me, this is a bit of a revelation.

Maybe it’s all two sides of the same coin, but I feel like there’s something interesting here.

And that is, if we want to grow, we need to recognise that inertia is not our only obstacle. Part of us will always be resistant to growth…

… like a fussy cat, content in its power.

What do you think? Do we ‘actively resist’ the things that are good for us?

How do we train that side of our selves?

How do you tame a fussy cat?

Who is stealing your kid’s jobs?

March 24, 2015 by Jon Giaan

The labour market isn’t as zingy as the stats make out. And a lot of jobs growth is actually coming from the government. That’s a worry.

Where will the jobs of tomorrow come from?

Actually, forget that. Where are the jobs of yesterday?!?

I’ve checked the pants I was wearing and looked behind the couch. Can’t find them anywhere.

Maybe things aren’t as rosy as we’re being told?

On the face of it, the Australian economy is going great guns. Growth is modest, but in line with long run averages. Inflation is contained, the budget deficit (at least for the moment) is pretty small, and the unemployment rate might be drifting slowly higher, but is still about half the rate you’d normally expect in a recession.

Sure things could always be better, but there’s nothing in the headline data that’s ringing any alarm bells. And those headline numbers would be like some sort of wet dream to old-world European politicians.

On the face of it, the Australian economic miracle rolls on. 22 years without recession. Aussie, Aussie, Aussie. Everyday I paint an Australian flag on my little lamington belly and run around the block.

But maybe we’re missing something. Businesses aren’t investing like they should, and consumers are tighter than we’d usually expect at this stage of the cycle.

And the vibe on the street is hardly jubilant.

And if you scratch beneath the surface, there’s more than a few things that make you stop and wonder.

Like this chart here. This is the Australian employment to working age population ratio. Most employment data only considers you part of the workforce if you’re working, or actively looking for work.

That means a lot of people can get missed out. If you give up looking for work and take up study, you’re out. If you give up looking for work, and decide to be a stay-at-home dad, you’re out. Sometimes these things are lifestyle choices. Sometimes they’re partly driven by disappointment in the job market.

And so if you look at how many of our 15-64 years actually have jobs (and are making an economically quantifiable contribution to the economy), the ratio is still falling.

The GFC marked a turning point. There was some recovery around 2010, but since then, the trend decline has reasserted itself. That’s a picture of an economy that’s struggling for form since the GFC.

The fact is that the proportion of us with jobs has been falling for over 5 years.

Why is that?

The other thing to consider is that not all jobs are created equal. If you work for 4 hours a week, the ABS reckons you’re employed.

Good luck with supporting a family on 4 hours a week (unless you’re Tim Ferriss.)

There is a stat that tries to get round this. It’s called the under-utilisation rate. It takes the unemployment rate and adds in people who like to work more if they could. That’s in this chart here:

You can see there’s quite a gap between the unemployment rate and the under-utilisation rate. And Since 2012, under-ute’s been on a strong march upwards.

The other side of this coin is the split between full-time and part-time work. Check out this chart:

Part time working has been growing around trend since the end of the GFC – and this is where the bulk of employment growth has come from in recent years. But full-time work has barely done anything.

There’s only around 5% more full-time jobs than there were at the end of 2008. Given how strong the population’s been growing, that’s a pretty ordinary result.

And one more for you. Let’s look at where the jobs have come from… and where they’ve gone. This chart looks at the number of jobs created and lost in different industries:

Healthcare is the clear winner. Manufacturing a clear loser.

But what else do you notice about this. The thing that sticks out at me is that 4 of the top 5 are government-related: healthcare, science, education and the public service. But the three big losers are classic private-enterprise industries, manufacturing, wholesale trade and agriculture.

This troubles me. Basically it’s saying that the government is behind jobs growth at the moment. Private industry is in trouble.

Why is this a problem? Well, government’s don’t tend to be that good at, well, anything. Generally, I think healthy economies, tend to shift the balance of economic activity away from the public sector.

It also leaves us vulnerable. Imagine we actually did have some kind of budget emergency. Imagine we had to bail out the banks like Ireland did. If government budgets were under the pump, and they stopped hiring – or worse, started laying off more and more staff – where would jobs growth come from then?

We’ve put all our eggs in one basket case.

So this is what’s going on. A smaller percentage of us have jobs. Those that do have jobs, many are working part time, and many would like to be working more. And a large share of people who have found work in the past 6 years have found it in industries related to government.

This is not the picture of a dynamic and robust economy. This is not an economic miracle.

And this is probably why most people feel like they’re living in a recession, even if no one’s talking about it.

And so what happens from here?

Well, we need to give things a kick along. We need to somehow get private business inspired and motivated.

We could do this by supporting innovation, and creating supportive cultures around business, particularly small and medium businesses.

But this is hard.

The more likely outcome is that the government will just ask the RBA to throw more money at the problem. Let interest rates fall below 1%.

This might not work, but hey, it’s easy.

We’ve seen what happens when the rest of the world goes EZ money crazy. Imagine what happens when the money’s coming straight from the RBA.

If you’ve been enjoying a boom in property and asset prices so far, just hold on to you hat.

How does the economy feel to you? Business as usual or hidden recession?

Would most people you know “like to be working more”?

How do we inspire and support business to start hiring again?

NO B.S. FRIDAY: Losers, say g’day to Roy

March 20, 2015 by Jon Giaan

What’s your excuse? If Roy can do it anyone can.

What has happened to our belief that we’re the lucky country? The land of opportunity? A nation of ingenious self-starters?

Businesses aren’t investing. Their raiding their own futures to buy back shares and give their current leaders a bonus.

It’s like we don’t think about businesses as intergenerational institutions anymore. For most CEOs their business is just a comfy leather seat to park your arse for a while, while you suck as much value out of the company as possible, like Dracula on a smoothie.

It’s like they’ve just given up. We can’t compete with China. All the good ideas are taken. Times are too tough to build profitable visions for the future. We just want to curl up here in our heated, gold-plated bathroom in the executive suite, and enjoy the ride down as the company grinds into the ground.

Lending to business is tanking and business confidence is in the toilet.

What ever happened to the digital revolution? The brave new world of global integration?

Last time I checked these were still incredible times to be living in. There is an abundance of opportunities only limited by our imagination. There has never been a moment in history like this, and so the business models of the future must be new, never-heard-of-before revolutions.

We need leaders with vision. Leaders with self belief and the ability to take risks.

We need leaders like Roy.

Roy is the embodiment of the potential of Australia’s future. So all you corporate scaredy cats, you’re as weak as piss. Time to pull the finger our, roll up the sleeves and straighten your tie.

Losers, say g’day to Roy.

This is a photo of me and Roy (that’s him on the left.)

I met Roy a few weeks ago. It was the Labour day long week end and I was having coffee and breakfast in a café on Brunswick street.

I saw this kid standing on a street corner, with a bunch of people buzzing around him.

I thought he was a busker or something, so I stuck my nose over some shoulders to see what his trick was.

Peanut Butter.

He wasn’t busking at all. He was selling.

He was selling home-made peanut butter (he had actually made himself… on his parents nut butter press.)

He put it in some second hand jars, and slapped on a label he had made himself using InDesign on his parent’s computer.

Bloody brilliant.

He then had three home-made, handwritten posters which he stuck up behind him, and then put a tray of peanut butters on a stool.

And he’d made his first sale in the first 30 seconds.

‘How good’s this? I’ll go help the little fella out,’ I thought.

But I was lucky to get any at all. By the time I got to him he had moved 80% of his stock.

Within the hour he’d completely sold out. 25 jars at $4 a pop.

$100 bucks in an hour, easy money.

I was impressed. So impressed I asked if I get my photo taken with him. That’s not something I do that often. Not since the last One Direction concert at least.

I told how much I admired his drive and initiative. They’ll take you places, I said. Keep it up and you’ll be rich.

“That’s the plan,” he said!

That’s the plan? The kid is barely 12 and he’s already setting himself goals for the future. He’s already visioning the kind of life he wants to be living.

And he’s making it happen.

Now hang on Jon, no one’s going to get rich selling peanut butter.

Well sure. But this isn’t about peanut butter. This is about the entrepreneurial spirit that the young fella is embodying so well.

Being an entrepreneur isn’t about ideas. It’s about making stuff happen. Ideas are easy. Making stuff happen is hard.

And this kid is making stuff happen. And he’s probably already learned some powerful lessons about how to succeed in business and how to get ahead in life.

He identified a niche in the market and he figured out how to fill it. He probably also had to think about optimal pricing – a price high enough to make it worthwhile, but not too high to put customers off.

He also had to put some thought into branding and marketing. And he probably had to negotiate with stakeholders and investors (his parents).

And he had to take a risk. I think he was surprised as I was that he sold out so quickly. There was every chance that he could have wasted a whole day on that street corner and made nothing.

How many kids are wiling to risk wasting a good day off school?

And sure, the solutions he came up with to these problems reflect his experience and stage in life. Hand made posters as a marketing strategy won’t cut it in the real world.

But the point is he’s making a start. And we all have to start somewhere.

And few of us make a start when we’re 12 years old.

And I’d love to say this is some Current Affair fairytale, and that he’s parents were disabled chimney sweeps, struggling to get by.

But that’s not the case. His parents were both architects. By the sounds of it, they were doing pretty well.

But that kind of makes it all the more remarkable. He could have been at home, sucking on a silver spoon and playing x-box. He didn’t have to be doing this. He didn’t have to do anything at all.

But he did.

And his parents should be congratulated for raising such an enterprising young chap, and for supporting his dreams.

Not the dream of peanut butter. But the dream of making the most of all the opportunities life has to offer.

Thanks for the reminder, Roy.

Big (fat & lazy) Australia

March 17, 2015 by Jon Giaan

Saving to go to Australia

Immigration has been driving growth (and housing prices!) in Australia in recent years. But is it sustainable?

Is our political fascination with ‘Big Australia’ possibly coming to an end?

Joe Hockey was on the record last week saying that using population growth (which in Australia really means immigration) to grow your economy is a “lazy way to grow”.

This was a rare flash of sense and reason in the political discourse around immigration. But my feeling is he wasn’t singing of the bi-partisan hymn sheet here.

(Maybe it was a vice-captain’s call?)

Maybe he just slipped up. Because for the past couple of decades, politicians of all stripes have been using population growth to ‘grow’ us out of trouble.

It works like this. The headline economic figure in Australia, and around the world, is GDP. GDP is a measure of how much we produce.

Why do we care? Because the amount of stuff we produce is taken as a proxy for ‘quality of life’. There are a lot of leaps of mental gymnastics required to equate ‘stuff’ with ‘happiness’ – but that’s why we have economists.

The other side of it is that producing stuff requires people to produce it. GDP creates jobs, and we like jobs.

And so GDP is almost the only gauge on the economic dashboard that matters.

But all this comes from a time when immigration rates were pretty steady, and weren’t used proactively to balance the business cycle – which is the reality we have now.

And so now, the link between GDP and quality of life, which was already tenuous, has become even more frayed.

Think of it like this. Imagine you live in an isolated community of 2 people. Every year you produce 200 kilograms of food to share between you.

Then someone wanders out of the forest and joins your community. He’s not as productive as you two, so you only produce 250kg of food that year.

But the GDP of your village has increased from 200 to 250kgs. That’s a massive 25%! Your treasurer is patting himself on the back and getting his portrait done.

But what’s really happened? You now are sharing 250kgs between the three of you. That’s only a bit over 80kgs each.

You’ve had a 20% reduction in your living standards. Not to mention the queue for the bathroom in the morning now, the crowded path on the commute to work etc.

So even though there’s been a big gain in GDP, individual living standards have gotten worse in you little village.

It doesn’t have to be that way of course. Maybe the newbie to the village had skills and tools you never dreamed of. Maybe you produced 500kgs after he came.

The point is that if we only focus on GDP, we don’t actually know what’s happened to our quality of life. We need population data, and GDP per capita, to make it meaningful.

And what’s the story in Australia?

Well, if we add in the population story, it takes a lot of the gloss of the Australian economic miracle.

Screen Shot 2015-03-17 at 11.34.32 am

Or put another way, looking at rolling 10-year averages of GDP growth, GDP per capita is way below, and now at the lowest level in 20 years…

Screen Shot 2015-03-17 at 11.34.39 am

There’s a big difference. Per capita real GDP has risen by just 4.8% since September 2008, versus 15.9% growth in overall real GDP.

And that’s despite a massive mining boom.

Another way to put it is that two thirds of Australia’s growth since the GFC has been a result of population growth. You can see here net overseas migration has spiked in recent years:

So it’s population growth that’s driving the Australian economy. Not productivity, not technology, not digging up rocks, not Aussie ingenuity. Population.

(If you’re not feeling as rich as the politicians tell you you should be feeling, this might be why…)

And all that might be fine if we were investing in the infrastructure we needed to handle surging population. But it’s not clear that we are. Extra population puts further pressure on infrastructure – parks, roads, water etc.

Has anyone noticed these things getting better? Anyone noticed roads freeing up and moving smoothly on their morning commute?

No one?

So if population puts strains on our infrastructure, and actually reduces individual living standards, why do we do it? Who benefits?

Well, big business benefits. Tony Shepherd, former minister for propaganda at the Business Council of Australia, and now chair of the Audit commission was calling for a lift in immigration rates a few weeks ago.

If you own a big business, a growing consumer base is good news. And if there’s more workers there’s more competition for jobs, which puts downward pressure on wages. Win.

And if you catch a helicopter to work you don’t give a stuff about traffic jams.

The other winners are politicians. They get to point to misleading growth numbers, and there’s a short-term boost to revenues. Theoretically this should be fed straight into providing more infrastructure for our growing population – but this rarely happens. That’s a problem for tomorrow.

And the final winners are property owners. We already underproduce. Stronger immigration just exacerbates the housing shortage we currently have in the big cities. And so prices go up.

So as property investors the question is are we going to break our reliance on immigration to drive growth?

I’d argue we should. It’s a bleak, crowded future if we don’t. But for that to happen, a few things need to happen first.

Our politicians need to turn their back on the short-term, easy and lazy option.
(Stop laughing, this is serious.)
Our politicians need to find sources of growth that are about ‘better’ not ‘bigger’. It’s about innovation and vision.
(Ok, if you can’t stop laughing, at least get up off the floor.) and…
They need to put the needs of ordinary Australians over the demands of big-business.
(Oh no, what, have you wet yourself. Let me get a mop.)

And just for the record, don’t paint me as anti-immigration. I know very well the benefits that a well-managed immigration program can have (The Australian nation is built on it.)

But there’s a big difference between that, and using immigration to palm of our real problems to future generations.

What do you think?

Can politicians really stop the expansion of our population base?

Do they have any influence at all on the property market?

Is it more of a state-based issue rather than federal?
(I’m talking about supply and demand)

NO B.S. FRIDAY: How to not smash a wooden board with your head

March 13, 2015 by Jon Giaan

A cult of ‘self-belief’ seduces more and more victims everyday. Like this guy, trying to break a wooden board over his head. It’s good for a laugh, but there’s some lessons here too.

Some one sent me a link to this video the other today. When I watched it I laughed so hard I snorted cab merlot through my nose:

If you don’t have time to watch it, the short of it is this guy wants to inspire you by doing something amazing – breaking a piece of wood over his head. He wants to show you the power of ‘believing in yourself’.

Turns out there are limits to this idea.

Doesn’t stop him from giving it a red-hot go though.

Oh wow, where to start? This bloke obviously has a few challenges in life, but let’s look at where his methodology of self-empowerment falls over.

As he outlines it, there’s a 3-step program for success:

Believe in yourself
Formulate a plan of action
Follow through with it.

Anything wrong with that? You’ll hear the same thing on any 1800-GURU hotline. It seems reasonable. It’s the fashionable way to think.

But I think while it may be ‘a’ road to success, it’s not the only road. We put a lot of emphasis on self-belief and visualisation, but I think that’s often because we don’t understand where success actually comes from.

People ask successful people where their success came from all the time. I think most have no idea. They just got lucky.

Unless they were following a clear plan – and I think most aren’t, they’re just doing their thing – then they look back and point to vague concepts like ‘believing in yourself’ and ‘following your passion’.

And I think a lot of success actually comes ‘messy’ processes. Like the guy just tooling about in his shed. Penicillin growing on dirty petri dishes.

It’s driven by curiosity, and trial and error. Play. More by ‘what if’ than ‘I believe’.

So I think it’s easy to misdiagnose the ingredients of success. I think this is where this guy goes wrong.

I’m guessing that he must have tried this before at some point. And it must of worked, otherwise he wouldn’t have decided to do it in front of a camera. (Ok, I might be assuming too much intelligence there…)

But I think the thing about plywood (if my reading of the comments is correct) is that it has a grain. It breaks in one direction, but just bends in another.

So I’m guessing the first time he tried it, he went with the grain, and it worked.

But then he misdiagnosed his success. “I broke the wood over my head. It must have been because I believed in myself.”

We want to believe in self-belief. We want to believe that self-belief turns us into Gandalf staff-waving magicians who can do anything.

Why?

Because it’s easy.

Self-belief doesn’t take any energy. There’s nothing to it. It’s just a vague statement of fact we make with our inner monologue.

Visualisation at least takes effort. It requires some focusing of the mind – some energy put into concentration.

But self-belief doesn’t even take that much. It’s practically free.

So if we’re told that self-belief gives us the power to do anything – fly, manifest Ferraris, lose weight, smash wooden boards over our heads – it’s incredibly appealing.

All that power and I don’t have to do a thing to earn it? Where do I sign?

And so we want it to be true. Desperately. And so we push away the work we really need to do.

No, I’m not going to do any exercise. I have faith that self-belief will make me thin and give me a butt you can crack walnuts on.

If I actually invested in exercise, then I’d be saying that I don’t think self-belief alone can’t do it. It’s a blasphemy. A self-belief fairy dies.

I would be denying the magical power of self-belief, and I really want it to be true.

So we live as if it were true, even if we’ve had no evidence that it is. We sit on the couch, avoid investing in skills and experience, waiting for the self-belief fairy to come and save us.

But evidence keeps mounting that self-belief alone can’t do it. The world-view starts to crack but we rush to its defence. We deny and de-legitimise any evidence that contests the world view we’ve invested in. We refuse to see it.

And that leads us into worlds of pain. Like this guy. Pain should be a signal that something isn’t working. It’s a signal to pause, take stock, and re-evaluate our strategies.

But our man can’t do that. Because self-belief is the only necessary ingredient. So if it isn’t working, the only possible meaning he can accept is that he needs more self-belief.

Even as he approaches the point of crushing his own skull with a wooden board, his faith that it’s going to work if he can only muster a little more self-belief, is unshakeable.

Bong! Bong! Bong!

Oh, poor dear. Did you hurt yourself?

This is one of the great quirks of human nature. We reach for world views that are easy – low-energy holidays. But once we get there, we’ll go to incredible lengths to defend them – against evidence, reason, even pain and suffering.

And we laugh at this guy, but how many people are beating themselves up with self-belief? How many people are staying on the sidelines, not getting messy in the world of mistakes? Not taking risks, not learning, not growing?

How many people are not participating fully in life, because they want to believe in the power of self-belief?

My feeling is that it’s a lot, and the number is growing. 1800 GURUS, selling nothing but seductive easy-ways-out, add more and more people to the list of suckers every day.

But you’re not going to be one of them, are you now?

The American flip-flop is here

March 10, 2015 by Jon Giaan

The American flip-flop is here, our economic model is broken. Where are you going to hide your money?

Take a look at this chart here. This is what the ruins of the modern economic model looks like.

This compares the unemployment rate – a generally broad measure of how the Australian economy is tracking, with the ASX – the value of the share-market. Theoretically that should also be a pretty good indicator of how the economy’s doing.

But right now, the two are going in different directions. Unemployment is creeping up, leaving nervous beads of sweat of Joe Hockey’s forehead. But the ASX is close to posting record highs.

It’s a bit odd, isn’t it? So what do we believe?

a) A count of the number of people actually making things; or
b) A semi-fictional measure of company value that’s known for wild and erratic fluctuations.

(Answers at the end of the book.)

Something funny’s going on. I smell like a fish.

But hang on, haven’t we seen this before?

Well, yes, we have.

This is the ol’ American flip-flop – the bad news is good news inversion.

Take this chart here. This compares the American S&P 500 with “US Macro” – an index of positive or negative surprises in US data releases.

Same story there. Overall there’s a brighter tone to the US economy, but there have still been a number of downside surprises.

Has it stopped the share market? Oh no! It’s the running of the bulls in Wall Street right now.

There’s only one thing to blame for the flip flop – liquidity.

Through the Quantitative Easing era, the US Fed’s response was to leave the money taps on full-bore. Effectively printing money and throwing it around.

No one really knows exactly what QE did. Maybe it saved the economy. Maybe it didn’t.

But one thing for sure is that it gave share prices a boost.

Why? Because the Feds gave money to the banks. The banks gave money to companies. Companies bought back their own shares and gave their executives a bonus.

And that, seems to be about it.

In theory, companies should have invested the money – built a new factory, employed some more workers, refurbish the staff kitchen. That, theoretically, should have given output a boost.

But it didn’t work out that way. Companies didn’t expand production. They paid down debt, and bought back their own shares – driving up their share prices in the process.

And so the harder the Fed leant on the printing press– the higher share prices went.

And so if the economy posted some bad news – say a worse than expected unemployment rate – the markets knew that the Fed would likely send them some more money – and so share prices spiked.

Bad news was good news.

But if there was a positive surprise, markets worried that the Fed might take the punch bowl away – and share prices dropped.

Good news was bad news.

This is the American flip flop.

And economists don’t get it.

Because companies aren’t doing what they’re supposed to do. In the economists models, firms borrow to invest in productive capacity, not buy back their own shares.

(The government’s strategy seems to be to keep throwing money at them until they start behaving like the models say they should.)

IBM is a case in point. After WWII, IBM was an innovation powerhouse – it was behind such marvels as the credit card, the floppy disk, and the ATM. But things got tough in the nineties, and went on to shed 180,000 workers in the next ten years.

But did shareholders suffer? Oh no. IBM managed to find billions of dollars to pay shareholders – much of it funded by debt. It was a trend that started in the 90s, and went into over drive in the QE era.

Between 2003 and 2012, IBM spent more on shareholder rewards — $130 billion — than it earned in revenue. In 2012 alone, IBM issued $34 billion in debt. Its rewards to shareholders that year: $38 billion.

Like much of corporate America, IBM borrowed money to boost it’s own share prices. Why?

It may have something to do with business in the 21st Century. There is massive productive capacity, and business niches are much harder to defend than they once were. There’s a lot more churn in the S&P 500 than there used to be.

So maybe firms just don’t see as much value in investing in new capacity or new ideas.

It may also be that CEOs are just greedy bastards. Most have much of their pay in stock, so if the share price goes up, they benefit directly.

A totally misplaced incentive.

But whatever the case, until corporate America starts spending again, the US economy will struggle to get into its higher gears.

But should we be concerned that the flip-flop seems to have landed on our shores? That’s what the first chart shows. People think the RBA is going to cut rates and keep cutting rates, pumping liquidity into the system…

You beauty. Share prices spike.

This isn’t a good thing.

This is a break down in the basic economic model – the model that’s driven growth over the past 50 years. It’s also the tombstone on top of monetary policy as we know it.

So what do we do about it?

Well, as I’ve said before, if the government is pumping up asset prices – if money printing is about to cause a massive spike in asset inflation – the thing you want to do is obviously own assets.

Now you might get into the share market, but it’s probably going to be a much wilder ride.

I’ll be sticking with property. Liquidity from all over the globe is making its way into the Australian property market right now, and its only just getting started.

The RBA is about to throw trillions more at the Australian economy.

And my bet is it will be years (and long after a major boom in property prices) before they realise that their model is broken.