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Whoa! Look at what the banks models say!

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Secret bank modelling points to a boom for the ages.

I get a bit of access to some insider info every now and then. Not that I’m an insider. I have a mole.

But that mole turns up some gold from time to time.

So let’s have a look at what CBA’s internal model says about the outlook for prices.

The model says, “I’m so hungry. But I look good in jeans. And property is going to boom!”

No, it’s a mathematical model. And it charts out like this.

So the model is telling us that prices are very quickly going to go double-digit, and stay there through 2021.

That’s a boom.

It’s the biggest boom since just before the GFC. It even leaves the 13/14 mining-boom driven boom for dead. (Did I mention there’s a mining boom this time too?)

There’s actually not even much speculation here. CBA’s model does a very good job of predicting the near future, because it’s based on things that are pretty reliable indicators – finance, auction clearance rates, things like that.

So they reckon there’s a boom coming. A major boom.

(Not that that’s news to anyone reading my blogs.)

What’s interesting though is that CBA reckon that there’s even some upside risk to this scenario.

The boom could be even bigger:

The key upside risk to our forecasts is sustained exuberance combined with FOMO (’fear of missing out’) which could generate a turbo-charged rise in prices. Indeed we consider this to be the biggest risk to our forecasts given the demand impulse from interest rate cuts, the level of interest rates relative to the rental yield and the recent spike in momentum indicators. History shows that prices can rise very quickly when the housing market is on a roll.

Indeed it may turn out to be the case that the growth profile for price outcomes over the next two years ends up more front loaded than our current projections.

A second upside risk is any further policy changes to boost housing demand such as first-home-owner grants or lower stamp duty (to domestic or foreign buyers). This looks unlikely, however, given the current state of the market.

Finally, if the RBA do not remove or increase the target yield on the 3yr Australian Government bond that would mean that fixed rates are unlikely to drift higher in H2 2021 and 2022 as we expect. However, the risk overall of interest rates being lower than we expect is small given the cash rate is at the effective lower bound, the economy is on an entrenched recovery path and negative interest rates remain, “extraordinary unlikely”.

And their concluding thoughts are something every investor should print out and stick to the fridge right now.

Monetary policy and more specifically the cost of money impacts all asset markets, including housing. The reason that asset prices, including dwelling prices, can seemingly decouple from the economy comes down to largely one thing – central bank policy and changes in the cost of money.

Yup.

And in case you forgot, this chart shows us the pace of money growth speeding up, all thanks to the RBA’s printing press:

Forget what you know.

This boom will be one for the ages.

JG

No BS: how to turn mood to energy

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No B.S Friday: Sometimes emotions are just energy stories.

Are you depressed, or just resting?

Serious question.

Think about it.

Why do we describe moods as ‘buoyant’? Why do we say things like “her smile always lifts me up” or “I’m feeling down”?

Why do we think like that – like there’s some vertical scale with negative emotions down the bottom, and positive emotions at the top.

Why do we talk about getting ‘high’? (I mean, not me personally, but you know what I mean.)

Why do we give emotions this ‘direction’.

Emotions aren’t directional. They’re not going anywhere right? They’re not traffic.

But this is how we talk about them, and this is sort of how it feels.

My theory, and I’ve talked about this before, is that often when we talk about emotions, what we’re actually talking about is energy.

When we’re “lifted up”, we are given more energy. We become more energized.

If someone brings us down, then we’ve lost energy. We become de-energized.

Emotions – and maybe not always but definitely sometimes – are just the stories we tell to explain our energetic state to ourselves.

Coffee is the classic example. If I have a coffee, I start enjoying anything I’m doing. Suddenly going through the quarterly accounts is awesome. So much fun.

I tell myself a story about being happy. I like these numbers. I like doing this task. It’s nice to be working in the office.

I’m happy.

But I’m not happy. I’m energized. My adrenals are firing up to deal with the caffeine and my energy levels spike.

I’m not happy, I’m energised.

So back to my original question. How do you know the difference between being sad and being tired?

Are you depressed or just resting?

I do think these are distinct things – that they are qualitatively different states of being.

However, I think often when we’re feeling sad and down, what we’re actually feeling is tired and depleted.

And we live in a world that keeps us constantly chugging on the treadmill. We’re all burnt out.

And depression is epidemic.

I think there’s a connection there.

And I think it is useful to remember that what we really want isn’t necessarily to be happy – it’s to be energised.

A happy life is an energized life.

And if you think about it like that, then you start to get much more protective of your energies – you become much more careful about where your time is going

And you become less interested in what makes you happy, and more interested in what energizes you.

Food, nutrition and exercise is obviously important here, but so is living with purpose, having autonomy over your time, and having exposure to people and things that stimulate your soul. Things like that.

Maybe it’s not about ‘managing emotions’. Maybe it’s about cultivating energy.

So remember this. Sometimes emotions are just stories we tell ourselves to help us understand our energetic state.

But they can just be stories.

Energy has to be one of the central focuses of our lives.

JG.

My guru’s thoughts on Crypto

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Ray Dalio has runs on the board. This is what he thinks about Bitcoin.

So, crypto hey? Here we go again.

Fascinating times.

It does feel like a rehash of 2017 to me – an amazing new tech, smothered in a stinking pile of hype and crap coins.

Don’t get me wrong. There’s some gold here. There’s also money to be made. But it’s still the wild west. Play it safe peeps.

Anyway, I thought it’d be interesting to look at what Ray Dalio has to say about Bitcoin.

You know I have a boy crush on Ray Dalio – one of the most successful fund managers of all time, entering his statemanly years, with all the time and resources he wants to ponder the big questions.

So when he ponders Bitcoin, I pay attention. He’s got the experience to understand asset markets as deeply as anyone. He also has a large team of highly trained people to do some of the pondering for him.

That helps.

Anyway, TLDR: he’s impressed with Bitcoin, but cautious.

I like how he places Bitcoin in the right historical context:

Bitcoin… like the creation of the existing credit-based monetary system, is of course a type of alchemy—i.e., making money out of little or nothing. It, like the making of credit that made bankers rich starting with the Medicis around 1350, is making its inventors and those who got in on it early very rich and has the potential to make many more people very rich and to disrupt the existing monetary system.

But more than as a currency, it’s proving its use as “an alternative gold-like asset.”

There aren’t many alternative gold-like assets at this time of rising need for them (because of all the debt and money creations that are underway and will happen in the future). Because of what is going on in the world, besides there being a growing need for money or storehold of wealth assets that are limited in supply, there is also a growing need for assets that can be privately held. Because there aren’t many of these gold-like storehold of wealth assets that can be held in privacy and because the sizes of their markets are relatively small, there exists the possibility that Bitcoin and its competitors can fill that growing need.

This is the money quote for me.

The key here is the huge amount of money currently in the pipes heading towards the economy. It’s massive. We’ve never seen anything like it. Even in the GFC.

That means we’re going to get a devaluation of the world’s currencies. Which is another way of saying we’re going to get an upward valuation of the things money buys.

That means everything, but assets in short supply in particular.

(Hey, know what else is in short supply? Property.)

Anyway, Bitcoin has shown that it’s got legs.

It seems to me that Bitcoin has succeeded in crossing the line from being a highly speculative idea that could well not be around in short order to probably being around and probably having some value in the future.

However, ‘some value’ is not the same as a particular valuation, and he’s sceptical that governments will just hand the reins of money over to Bitcoin, and would likely move to curtail or shut it down.

… it seems to me that the more successful Bitcoin is the more likely these possibilities would be. Starting with the formation of the first central bank (the Bank of England in 1694), for good logical reasons governments wanted control over money and they protected their abilities to have the only monies and credit within their borders. When I a) put myself in the shoes of government officials, b) see their actions, and c) hear what they say, it is hard for me to imagine that they would allow Bitcoin (or gold) to be an obviously better choice than the money and credit that they are producing. I suspect that Bitcoin’s biggest risk is being successful, because if it’s successful, the government will try to kill it and they have a lot of power to succeed.

Yeah. I think that’s fair enough. A world where Bitcoin replaces fiat is a radically different world to the one we live in now – and different in ways that are hard to imagine. But I wouldn’t expect the tables of finance to be turned without a fight.

And is Dalio happy to take a punt on Bitcoin? He is, but only with his play money.

That is why to me Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of.  

Ever heard of anyone losing 80% on a house?

JG

Best business conditions… ever?

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Everything is lining up for the biggest economic boom in a generation.

So, I’m picking up on something.

The talk in the economic commentary I follow (which is a lot) has shifted. We used to be talking about whether we would recover, or whether we could keep the recovery on track.

Now, it’s about how big the coming boom is going to be.

This is almost across the board. The only dissenting voices are the ones saying that things are too hot, and some asset markets are too bubbly, and they’re at the point of breaking.

But there isn’t anyone I’m reading who doesn’t think economic conditions are hot.

But pictures paint a thousand words, so here’s a ten-thousand word essay of why Australia might be on the cusp of the most incredible economic boom in a generation.

Let me lay it out.

1. The Recovery is V-shaped

It’s now pretty clear that the economy is bouncing back quickly, and the Covid downturn will be deep but brief:

2. Unemployment is Contained

Unemployment never got anywhere near what was feared, and is already trending downwards.

3. Jobs market is heating up

With unemployment contained, the jobs market is picking up. Job ads are now higher than they were pre-Covid…

… and the number of people on Jobseeker has already fallen by 7%.

4. Household Income is Up

With employment income holding up, and with the surge in government benefit payments through 2020, household incomes are up 14% year on year.

5. Expenses are Down

At the same time, with the interest rate cuts, expenses are down, and household disposable income is booming.

6. Households are Flush

With disposable income booming, households are saving at a strong pace, and have got a stash of cash at the bank:

7. Consumer Confidence is High

With all that money in the bank, and having held on to their jobs, consumer confidence is booming:

All that gives the Australian consumer plenty of capacity to support economic growth in the years ahead.

8. The RBA will Run the Printing Press Hot

Despite improving economic conditions, the RBA will continue to run the printing presses hot, maintaining their current $5bn a week pace right through the year. (They’ve already committed to September, and I expect it to be extended.)

They don’t really have a choice. Out money printing program is small compared to the rest of the world, and if we don’t print as well, the Aussie dollar will go to the moon.

8. Businesses are Flush…

Coming into this ‘recovery on steroids’, thanks to the RBA, business conditions are already solid. Businesses are reporting the best cashflow conditions in years:

9. … and Bullish

Business confidence is also already at some of the highest levels in recent memory:

So you put all that together, you have a fantastic outlook for profits and share prices, and a fantastic outlook for the economy in general.

10. Rebounding Trading Partners

You can probably add to that the impact a rebounding global economy could have on the Australian outlook as well.

Many countries, particularly the US, haven’t had the easiest run of things when it comes to Covid.

If the vaccine roll out goes well, and their recoveries gather pace, that just adds further upside to the Australian outlook.

BOOM

It’s actually hard to see much downside risk from where we stand right now. The economic conditions are stacking up favourably, and the Australian economy is set to boom.

It’s not a question of if.

Now it’s a question of how big.

JG

No BS: Why this salesperson FAILED

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Shaking hands flat design. Handshake, business agreement. partnership concepts. motion graphic flat animation footage.

No B.S Friday: People just like different things. This is how you weaponise it.

This one is just because it’s fun to think about how humans work.

You might be able to apply some of this to your wealth journey. I’m sure it will come in useful at some point. But really, I just find this interesting.

So, there are different ways of selling to someone.

I remembered this because once someone was trying to sell me some resources for my business. At the end of their pitch they said, “And look. It comes wrapped in this black leather case with gold embossed writing. When you come in and lay it on the desk, people are going to be impressed.”

I’m like, “What? I couldn’t give a stuff about what the box looks like. It could come wrapped in camel intestines for all I care, as long as it gets the job done.”

He had misread what I was about, and what was going to appeal to me.

I’m more of an outcomes guy. I don’t really care what it looks like, or how popular it is. I’ve got no interest how many pixels or pistons it’s got. All I want to know is it going to get the job done.

There are (at least) three other types.

Some people are technical people. They want it to be the best and the best value for money. They want to know how much ram it’s got or how many thrashing turbines. They want to know how many turbines competitor models have, and whether it’s worth sacrificing a few gig of ram to pick up another turbine.

They’re into the details of the product.

Other people again are people people. They want to know how this product is going to make everyone feel. Will everyone like it? How many people prefer the old version? How can bring the dis-beleivers round to the party? Will it make people happy to use it?

And finally, there’s image-people. They care what it looks like, and how it looks when the slap it down on a desk, step out of it at a restaurant, or slap it on their wrist after a session at the pool. They care whether it helps them project strength or power or whatever it is they’re trying to present.

And they’re your four types.

If you know what your prospect cares about, you know how to sell them.

So that sales guy misdiagnosed me. I’m not an image person. I’m an outcome person.

And that’s why he didn’t get the sale.

Anyway, keep this in mind. It’s obviously not totally clear cut in the real world, and there might be more types of people out there.

But you’ll go a long way if you can remember that some people just like different things.

People are funny like that.

JG.