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NO B.S. FRIDAY: Revolution delayed until further notice

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The dream of a golden crypto-currency future copped a serious blow this week.

Around 2004 I was presented with an opportunity.

It was a special ‘insider’ offering into a plucky American start up. They had a radical idea – to create a site where people could upload and share videos with each other, over the internet.

I turned it down.

I don’t really remember why. It all seemed a bit risky. The technology was new. They didn’t have a clear direction for how they were going to monetise the service. So I knocked it back.

Was it a mistake?

Hardly. The company went belly up after about 18 months. I would have lost everything.

This company wasn’t YouTube. It was one of about a hundred companies aspiring to be YouTube at the time.

YouTube just won the race. I don’t even think they were the first to get their product to market. But with three of PayPal’s exec’s at the helm, they were able to scale rapidly, until they became the dominant player in an ecosystem that was only ever going to support one player.

It’s one thing to have a million dollar idea. It’s another to have a million dollar business.

And so when I was presented with that investment opportunity back in 2004 or whatever it was, I had no way of knowing if they had a good business. They had a good idea, sure, but beyond that, I just didn’t have enough info to tell.

And I don’t like to take risks with my money. So I knocked it back.

It’s the same story with all the crypto-currency stuff.

Someone asked me my opinion about it the other day. Sure, I get the power of block-chain. I get the revolution it has the potential capacity to deliver. It could be a whole new ball game.

But what is it going to be? Which “coins” are going to dominate the market? We hear a lot about Bitcoin and Ethereum, but there are hundreds of crypto-currencies out there.

Like, did you know there’s a thing called ‘Potato Coin’? This one aims to become a unit of currency for poor African farmers (a noble aim).

Or what about ‘Wankcoin’? (Seriously, I’m not making this up.) This is designed to help porn-enthusiasts support their industry.

Someone has even launched ‘Ponzicoin’ – and people are actually buying it.

The whole alt-currency world is very weird. And as far as I can tell there isn’t a way to buy an exposure to block-chain currencies at a concept – you have to invest in individual coins.

It’s like in back in 2004 – if I could have invested in the concept of video-sharing over the internet, it would have been a no brainer. The need was obvious, and technology was certainly heading that way.

And you would have made a motza.

But you can’t invest in concepts. You can only invest in companies.

And that introduces a whole lot of complexity and uncertainty.

And they’re concepts I just don’t like to see attached to my investments. I’m a simple guy at heart.

Anyway, there was some other news this week that has made me rethink the whole crypto currency proposition.

What news?

Yep, one of the largest investment banks in the world, and depending on what conspiracy theory blog you subscribe to, is responsible for AIDS and faking the moon-landing. They’ve just brought out their own currency.

They’re calling it SETLcoin, and it aims to help parties settle share transactions. There’s a niche here. Currently it can take up to three days to settle a share trade. SETLcoin will make it instantaneous.

I was excited about crypto-currencies when I thought they were being built by 14-year old Japanese boys in their bedroom on retro-fitted Sega-64. But if we’re talking about one of the wealthies banks in the world?!?

That’s an entirely different story.

But I guess when you step back and look at it, it was always going to go this way wasn’t it? Money is power, and the powerful aren’t just about to let money get ‘democratised’ out of their control are they?

To be honest, I’m feeling a little deflated today.

I feel like it’s similar the revolution going on in the media. Traditional newspapers are dying. Their readership is too broad, their business models obsolete.

But rather than getting agenda and vested-interest free micro media – media created by the people for the people – we’re getting fake news. We’re just getting BS.

Apparently a bunch of those fake news sites in the last US election were just built by bored kids in Serbia, just looking to make a buck.

And crypto-currency, rather than democratising money, could just be about to concentrate it in hands even less accountable than our governments (low bar I know).

That’s not going to be an improvement.

And as strange as it is to say, I think I prefer a government controlled money to money controlled by Goldman-Sachs, or whatever global financial powerhouse it ends up being.

Suddenly, I’m pro-government?!?

Oh dear, oh dear.

Turns out that revolution I was waiting for… well, looks like it’s going to be a little further off than I thought.

It’s enough to drive a man to drink.

What does the crypto-currency future look like to you?

The true source of inequality in one surprising chart

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Growing wealth inequality is driven by one of three things – business income, labour income or housing income. Guess which one it is.

Okay, I know we’ve been spinning round the outer-reaches of the academic universe these last few weeks, but do you want an edge or not?

Do you want to see the trends that the big players see? Or do you want to keep taking your financial play book from the Sun Herald? See how far that gets you.

The whole point of these blogs is about helping you see a bigger picture. The higher up the mountain you go, the more you can see.

If you want gags and ramblings… well, that’s what Friday’s for.

So bear with me a little longer here. I’m building to something. I need more than a few blogs to do it. Nothing worth having is easy. But trust me, it will all come together soon and you’re going to be amaa-aazed.

Ok, so last week, I showed you how falling wages are driving property prices higher. You never thought that sentence could even make sense, but I think you got the point I’m making.

The economy is a bunch of relativities. Everything in relation to everything else. The usefulness of labour is falling, so the relative price of labour must fall. That’s another way of saying that the price of housing, relative to labour must rise.

And that’s what we’re seeing.

But let’s slap a little more nuance on this picture. Let me pop a little swan made of meringue on top here.

Ok, so typically economist divide the factors of production – the stuff that makes stuff – into three groups – Land, labour and capital (machinery, factories etc).

Since land is fixed, economists just tend to put it to one side and focus on labour and capital.

(I know, you’ve got to wonder what they’re thinking.)

And so Marx said all history is the history of class struggle, between labour and capital.

A few years ago, Thomas Picketty, that French economist wrote “Capital” – which argued that wealth inequality was getting worse because capital owners were able to capture more of the surplus, at the expense of their workers.

And in all of this, land is just the place where they grow cheese.

And you can kind of get why. Land is just dirt to most people. It kind of has no character, no personality. It’s not able to rise up against its oppressive overlords.

The battle between labour and capital on the other hand – oh boy is that a story. It’s a theatre for all the hopes and dreams of the working class, all the aspirations of our entrepreneurs and captains of industry.

Land just doesn’t care about any of that. And it will still be there once all the workers and managers and capital owners are dead.

So it gets written out of the story.

And so then you see charts like this one:

This is the share of total income going to workers and to capital owners (in the way of profits).

The argument that people make – people like Picketty – is that labour’s share is falling and that’s a bad thing. That means workers have less power. Businesses have more. And that’s one of the factors driving inequality.

And that might all be true, but it is missing a huge piece of the puzzle.

Land.

Recently I did come across one economist who tried to put land back in the picture. This chart comes from a young grad student at MIT. It breaks capital income (from the chart above) into capital AND land (rather than just lumping profits and land income in together.

Look at what happens:

This is for the developed world since 1948. You can see that since 1980 in particular, capital’s total income share has been growing. That’s Picketty’s story.

But look at why. It’s not that regular business profits have been growing – the non-housing share of capital income has been pretty much flat.

All of the growth since 1980 can be explained by the increase in housing income.

Let that sink in for a second. If the rich are getting richer, if income and wealth inequality are getting worse then it’s got nothing to do with businesses, it’s got everything to with housing, and the way the rich uses property as the number one way, to build, protect and transfer wealth across generations.

I know as a business owner it may sound like I’m talking my own book here, but a careful and measured analysis of the above, highlights that the balance of evidence suggests that, taken together, all you pinko-lefties should take your redistributive business taxes and shove them up your bum!

(Nah, just kidding. You’re great. I love ya.)

But the central idea is that this hasn’t been a golden age for capital. Technology hasn’t made it easier to exploit workers and earn super profits.

If anything, technology has made the game harder. Technology depreciates in value and usefulness incredibly quickly (anyone want to by my Iphone3?), and the digital market place has meant that disruption is coming at you from every which way.

No sooner do you have a great idea, than a dozen firms in China are ripping you off.

Think about what AirBnB did to the hotel industry, what Uber did to taxis, what Amazon is doing to retail.

This is no capitalist utopia.

So labour income is falling. Capital income is falling, or it’s on the way down. The relative price of these two must decline.

Relative to what?

Land.

(Gee, it’s like you’re not even listening sometimes.)

As I’ve said before, in an economy where everything is getting less and less real, where more and more activity is moving into the unlimited infinity of unrealness, the relative scarcity of real things, commodities and real estate, increases.

As their relative scarcity increases, so does their price.

We’re still in the middle of a commodity boom that continues to surprise, and the real estate boom…

Well, we’ve put some great runs on the board…

But the game is nowhere near over.

Will capital’s share of income start to fall?

NO B.S. FRIDAY: A totally legit way to bribe the PM

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I show you a totally above-board way of bribing the Prime Minister, not that anyone seems to care…

Ok, imagine this. The secret order of Templar Space Lizards has gathered together. They drinking brandy (or virginal blood) from fine crystal glasses, deep in their velvet and chestnut wood lined lair.

One of them has just become the leader of a small, supposedly free, nation.

He’s hitting up the other Templar Space Lizard Knights for more money to carry out his evil plans.

The other Knights say no. What have you done for us lately, they say. We need to see more out of you, young knight. Give us something to invest in.

But then, a journalist manages to escape with a transcript of the meeting, and he publishes it in his paper.

The public see that their supposed democracy is a sham, and they rise up in an orgy of violence and revenge and witty social media memes.

Finally, the Templar Space Lizard Knights are cast out, and democracy is saved.

An American President, on a war boat safely anchored in Hawaii, claims the credit.

Sounds far fetched, right? You could never sell it to Hollywood.

But then read this article from the AFR..

The Turnbull government’s strained relationship with corporate Australia has come under more duress following some heated exchanges between the Prime Minister and the nation’s leading chief executives at a private dinner in Sydney on Monday night.

…The dinner was attended by board members of the Business Council of Australia – president Grant King, chief executive Jennifer Westacott, Richard Goyder, Ian Narev and Catherine Tanna. Other CEOs and BCA members included the ANZ’s Shayne Elliott and BHP’s Andrew Mackenzie. The dinner was held in the board room of Sydney law firm King & Wood Mallesons.

One source said Mr Turnbull, who handed over $1.8 million of his own money to help the cash-strapped Liberal Party get through the 2016 election campaign, prevailed upon corporate Australia to help out more.

…Another source said… “There hasn’t been support for big business why would we support the government on anything?”

There was universal support for the company tax cuts and a reaffirmation from business that the government must persist with trying to legislate the reminder of its plan which, by 2026-27, would deliver a company tax rate of 25 per cent for all corporations.

As a former treasurer of the Liberal Party, Mr Turnbull knows how hard it is to get money out of donors, he said.

“They have got to have something to invest in. It’s not like here’s our money and we’re going to back you.”

Um… That’s pretty much the first part of my story.

And the second? Well, I ran some social media analytics on “Violent Uprising”, and there’s barely a murmur.

For some reason, and it still baffles me why, we think this is normal.

The Prime Minister is sitting down to a private dinner with the richest and most powerful people in the country.

He asks them for more money.

They say, well, you haven’t done much for us lately. You’ve got to give us something to ‘invest’ in. It’s not like our political donations are just charity, you know.

Except that they are “charity”. That’s what we’re asked to believe whenever anyone wonders whether it’s a good idea to let billionaires buy politicians.

“Oh no, political donations are not about buying influence. We’re just happy to support Australia’s glorious democracy.”

It’s a lie so ridiculous it’s breath-taking when you stop and think about it. And yet somehow we’re expected to believe that politicians can govern in the public interest when private money is paying the bills.

What’s worse, it feels like politicians are getting more brazen about it. Like, they’ve just stopped pretending that a career in politics isn’t mostly about setting yourself up for a cruisy and well paid appointment, post-politics.

Remember when Ian MacFarlane resigned from parliament. He was the resources minister in the Abbott government, and oversaw the knifing of the resource tax.

Abbott got up in parliament and said on the day of his retirement:

“(Killing the MRRT) was a magnificent achievement by the member for Groom in his time as minister … and I hope the sector will acknowledge and demonstrate their gratitude to him in his years of retirement from this place.”

He actually said that. In public.

And what do you think he meant by “demonstrate their gratitude”? That maybe they would send him some flowers once a year on his birthday? Or that they would “look after him” financially?

As it turns out, and I’m sure its just coincidence, within months, MacFarlane was appointed to the highly paid role of CEO of the Queensland Resources Council.

There was also some talk of some flowers.

Now the Coalition does have a policy that politicians should wait at least 18 months before taking up positions like this, for modesty. But MacFarlane argued that the QRC was a state body, and he was a federal minister, so there was no conflict.

Yup.

Politicians are paid generous pensions so they don’t get lured into conflicts like this.

Now you might say, what’s the problem? MacFarlane’s left politics.

But it’s all about signalling.

You want to know how to bribe the Prime Minister and be totally above board about it?

Find a previous Prime Minister – I’m sure Kevin Rudd would be up for it – and pay them a ridiculous amount for something ridiculous. I’m thinking the $500K Hilary Clinton was paid to go and do balloon animals at the Goldman Sachs Christmas party.

Then you call up the current Prime Minister and say, “Oh, did you hear I paid Kevin Rudd $5 million to do a nudie run at my mates bucks party? Anyway, on a completely unrelated note, I’d like to talk to you about these annoying anti-slavery regulations.”

The message is very, very clear. Look after us, and we’ll look after you. Give us something to ‘invest in’ and we’ll invest in you.

And democracy, as we like to imagine it is when we’re bombing other countries in the name of freedom, is a joke.

This is where we’re at.

And yup, still nothing on those social media analytics.

At least give me a meme people.

How else could you bribe the PM in the current system?

How falling wages are driving property prices higher

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Part three in ‘Ten Reasons Why the Boom has Ten Years to Run’ is something I don’t see anyone else talking about – how property became the new gold.

I don’t know if you caught this article a couple of weeks ago. The new Governor of the RBA, Phil Lowe, was urging workers to rise up and seize the factors of production.

Well, not quite. But he was urging them to demand higher wages.

The governor of the Reserve Bank has called on workers to start demanding large pay rises from their bosses. 

In a remarkable statement for a central bank chief, Philip Lowe said Australia’s economy was suffering a “crisis” in wage growth, and workers ought to realise the relatively low unemployment rate meant they could start asking for a larger share of the nation’s economic pie.

Lowe told a conference at the Australian National University on Monday the labour market was in better shape than some critics were suggesting.

 “The crisis is really in real wage growth,” he said.

He said despite the relative strength in the labour market, too many workers were putting job security ahead of pay rises, partly because they were worried about competition from “robots” and “foreigners”.

I don’t know if all of my readers are old enough to understand what a seismic shift this is.

Not that long ago, when central bankers used to worry about inflation, they would warn us about the dangers of a “wage-price spiral”. Where higher wages pushed up costs, which pushed up prices, which saw workers demand even more pay, and on and on it would go.

It used to happen.

But the last time it did Phil Lowe was in grad school.

And these day, central bankers aren’t worried about inflation. They’re worried about deflation. A lot.

As Phil points out, wages growth is now the lowest on record (which isn’t entirely as bad as it sounds since inflation is also around record lows).

And it is really hard to believe that this is because workers just don’t have enough balls these days.

This really feels like wishful thinking on Lowe’s part. It’s a central banker hoping for something, anything, to save the country from the horrors of deflation.

But this isn’t about the mental state of Australia’s workers.

This is about seismic shifts in the structure of the modern economy.

The de-physicalisation of the economy – where we spend more on apps than we do on furniture – has given us true globalisation. Our app developers can be living in any country on earth.

And the labour pool with access to a device and an internet connection is staggeringly huge, and expanding rapidly.

The price of labour is falling simply because the effective supply of labour is exploding. Every graphic designer in Australia is now competing with millions of other designers from every corner on earth.

That’s one.

Two is that technology has slipped the chain. At some point in the past 10 years we went from labour-augmenting technology (where technology helps workers be more productive, e.g a book-keeper using a lap-top to manage the company’s books), to labour replacing technology (We don’t need a book-keeper any more. There’s an app for that.)

This dynamic is churning through jobs faster than they can be replaced.

Humans are being made redundant. And so the price of humans is falling.

Lowe is wrong to suggest that people are irrational for “fearing jobs and robots”. It’s happening.

And this, is big new for property. It means property prices will go up.

But hang on Giaan. The conventional wisdom is that when people have more money, they can spend more on houses, and so prices go up.

And that’s true. Normally. But these aren’t normal times.

There are intense downward pressures mounting on wages.

But wages are sticky. They very rarely fall. Labour contracts, no disadvantage tests, unions and the public sector all help put a floor under wages.

We very very rarely see wages fall, even an incy bit.

Even at current growth rates – the lowest on record – they’re still growing.

But the economic adjustment must happen somewhere. The price of labour must adjust. It has to.

But where?

Well, the thing to remember is that prices are a relative concept. Prices help us understand the worth of one thing relative to another. Prices are meaningless in isolation. They only make sense in relativity.

Say, what if I told you that a widget is worth 4 wodgets (a currency I just made up.) What does that tell you? Nothing.

What if I said, a widget is worth 4 wodgets, and an apple is worth 2 wodgets.

Now you understand, roughly, what a widget is worth.

So if we understand that prices are a relative concept, and we know that the price of labour needs to fall, then we understand the price of labour, relative to other things, needs to fall.

Now, we can see that this can happen two ways. The nominal price of labour can fall, OR the nominal price of other things can go up, relative to labour.

And since the nominal price of labour is not allowed to fall, that means the adjustment is forced on to the price of other things.

What other things?

Well, theoretically, everything. But since globalisation is suppressing prices in the digital economy, expect to see the adjustment in the price of real things.

What real things?

Did some one say real estate?

So far, no one has created an app that manifests land and builds houses on it. Property is untouched by the digital revolution.

And so in a world where everything else is being swamped by gluts, the relative price of property must increase.

If it doesn’t happen through falling nominal prices – ie. Deflation, which central bankers will spend billions avoiding, then it will happen in nominal gains in property value.

And this, is what we’re seeing right now.

And this is what we’re going to keep on seeing, until the robots overthrow us and make us their slaves.

No, I don’t know what the end game is. But this dynamic is in full-effect right now, and it could take decades to play out.

So you want the big, big picture? You want the long, long-term view?

Property is the new store of value. Property is the new gold.

The sellers of labour (workers) will get poorer. The owners of property will get richer.

Which side are you going to be on?

Is it that bad? Are wage earners doomed?

NO B.S. FRIDAY: Change your difficulty setting

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How a computer nerd hacked the universe

So I went around to my friend’s house to talk about a development we were doing together.

We go into his home office – kind of a man-den. It was obvious that this was where he did his work and his whiskey drinking.

I’d been to their place to dinner a few times but I’d never been given access to the den. It felt like I should have learnt a secret handshake or something.

Anyway, after a while hanging out and looking over some designs I notice he’s got this little wooden sign on his desk.

It was an unusual thing.  On the top part it had “Difficulty Setting:” embossed into the wood. Below that it had EASY, NORMAL and HARD. There was also this kind of pointer thing – like those score counters in pool.

It was set to EASY.

I point to it and ask him about it. He laughs and looks a little bashful. He knows what I get up to and says, “If I tell you it’s not going to end up in one of your blogs, is it?”

I’m like, “nah mate.”

Anyway, he says that he first came up with this thing about 10 years ago. He was going through a rough trot. Things weren’t flowing his way. He had no money in the bank, he was in debt, someone stole his car, and then his dad died.

Life had hit him with a sledge hammer.

He thought about throwing in the towel.

And he said he was joking to his friend one day that it felt like the difficulty level on his life had jumped up to HARD while he wasn’t looking.

I got what he was talking about, but I wonder if everyone does. He says he played a lot of computer games in his teenage years – kind of when they were first coming out. A lot of those games let you choose the difficulty setting.

Easy meant there weren’t many enemies about, and they were terrible shots. It was a walk in the park.

Difficult was when you got swarmed by bad guys and they were all crack shots.

Normal was kind of how the game makers intended it to be played.

He said that back when he was a teenager, and back when games were super expensive, he couldn’t buy a new game every time he’d finish one.

So he’d go through and ‘clock’ the game on the normal setting. After that, he’d go back and set the difficulty to HARD and clock it again.

So that’s what he meant. It felt like his life had been set to HARD and everything was getting the better of him.

“You should set your life to EASY,” his mate joked.

And so as a joke he went back and stuck a sign, scrawled on some paper, to his desk: Difficulty Setting: EASY.

He meant it as a joke but something happened.

Because he had that experience with computer games – when the EASY setting was often so easy it was comical – enemy robots would practically blow themselves up – his sign evoked a really strong feeling.

And that feeling was that things were easy. All challenges were a matter of course. It was all about fun. You had unlimited ammo and infinite lives. There was no doubt that you might lose.

And so every time he looked at that sign, it brought back that feeling. It’s fun. It’s easy. All the odds are stacked in my favour.

I’m sure people stick motivational posters to their walls – pictures of dolphins with “The cosmos wants you to succeed you gorgeous snowflake” written on it.

But for him. This is what worked. This is what spoke to him.

And after a while, it started to work. After a while, life did feel easy. His challenges weren’t as hard to get through. He received help from unlikely places. His enemies blew themselves up.

And after a few years, he’d become so impressed with it, that he got his friend to make him up the sign that is still on his desk.

He confided to me that it really felt like he had “hacked” the universe. That something happened when he wrote out that sign that sent a very clear signal to the universe – “I’d like life to be a bit easier please.”

And the universe was only too happy to agree.

(Note two of the keys to manifestation here: write it down, and focus on the feeling first.)

And he reckons that since then, life has just been one success after another.

Nice. I’ll have one of your top shelf whiskeys then, thanks.

I asked him if he ever thought about setting the difficulty to hard.

And he said, “You know what. Sometimes I do. It’s like the computer games. There’s the thrill of the challenge. It’s exciting to overcome incredible odds.

And I used to worry that I was making myself soft – by choosing the EASY setting I was missing opportunities for growth.

But I’ve decided that I’m happy with the difficulty setting on EASY. I’m just going to focus on progressing through more levels.

I mean, even on the easiest difficulty setting, the journey to Prime Minister of Australia would be incredibly difficult and challenging.

So I’m just going to let everything come easy. I’m just going to go deeper and further than I ever thought I could. That’s my plan.

And at the end of the day, it might just all be in my head, but I just enjoy life more this way.

I’m playing for fun.”

This was too good. I said he had to let me write about it.

Ok. Just don’t use my name.

No worries Garry.

Now, I’m not sure if he really did hack the universe, but I am sure that if you approach life like a walk in the park with unlimited ammo, you are putting yourself in a very powerful state of mind.

And that state of mind will get results.

Where’s your difficulty setting at?