Most people are using the wrong metaphor to think about themselves, and never achieve anything.

I am biased to action.

That is, I tend to avoid movies that don’t involve explosions.

No, I am biased to action. That is if ever given a choice between taking action and waiting for more information, other things equal, I’ll go for action every time.

This is something I’ve cultivated, and is something that you need to cultivate too.

Now obviously that’s not saying that education and strategy are not important. They are. They are vitally important.

But I think humans have a natural, instinctual tendency to freeze-up in the face of complexity and challenge.

When it’s not obvious which way to run, we freeze until it does become obvious.

I think that strategy probably worked well when the situations we faced where no more complex than having two sabre-toothed tigers coming at you from different directions.

But when we’re talking about the complexity of, say, navigating your way through paid employment into independent wealth, then I just don’t think this instinct is all that useful.

And so we need to train ourselves to be biased to action – to be looking to be active and engaged, even in the face of uncertainty.

The way I see it, most people think of themselves as arrows.

That is, you set your direction, take your mark, and then let fly.

And once in the air, there’s nothing more you can do to control your path. The destiny of an arrow is set from the time it leaves the bow.

And in that context, careful aim is vitally important. You want to be exactly sure that you’re pointed in the right direction before you set things in motion.

Take careful aim, then fire.

But this strategy just doesn’t work.

And I see people think of themselves as arrows. And they always hold themselves back, always searching for more information, trying to build more confidence, trying to make the perfect move…

… and they get stuck in this holding pattern for years.

But the reality is that they’re using the wrong metaphor.

You are not an arrow. You are more like a river.

That is, once you set out, you will make many twists and turns on your journey to the sea.

Your course is not set from the get-go, but emerges and evolves as you make your way.

If a river makes a wrong turn, even if it sets out in the wrong direction initially, it will be corrected and find it’s way eventually.

The only important thing is movement. Once water is moving, the terrain quickly gives it the feedback it needs, and guides it on its way.

So don’t think of yourself as an arrow. Don’t get too stressed about your initial direction.

Think of yourself as a river. Bias yourself to movement. Bias yourself to action.

And this will take you where you need to go.

JG

Tough times for tradies, but I’m in the money

Sometimes you find a piece of data that doesn’t really mean all that much on it’s own, but really is just the perfect way to tell a complex story.

And today, that data point is ute sales in Australia, which, as it happens, have tanked:

If you use ute sales as a marker of small business investment in Australia, you get the impression small business is terrified. Sales of light commercial vehicles collapsed in October 2019, down 11 per cent compared with October 2018.

At the start of the 2019, sales were much the same as last year. Some months a bit higher, some a bit lower. Around the middle of this year something changed. Sales of light commercial vehicles – which is mostly utes but includes vans and small buses – began to get worse and worse. In October, the fall was a whopping 11 per cent.

As the next graph shows, the “ute index” is in the red, with nearly 10,000 fewer light commercial vehicles sold compared with 2018.

“The ute index shows sales are in rapid decline.

Ok, so this isn’t great for ute manufacturers, but there’s a whole lot more to this story.

What we’re seeing here is the pointy end of a general downturn in the construction industry.

We’ve had pretty good run. Over the last half-decade or so, we had a construction boom. Detached housing construction was strong, while unit construction was off the charts.

But all good things come to an end. That natural cyclical end was also  hastened along by a bit of a credit freeze following the APRA restrictions.

And with stalling high-rise apartment prices creating a fair degree of settlement risk, high-rise construction rates are tanking.

And so, the construction boom is over.

And that means tradies across the sector are going to be looking at having to weather a tougher phase of the cycle.

We might also see a bit of a shake-out in construction employment. Construction jobs ads have clearly turned and suggest that the job numbers will probably struggle too.

Which means lower wages and generally tighter purse strings all round.

(And less money for new utes, obviously.)

And so the construction boom is over.

But this is the thing.

The construction boom is finishing… without having made all the much difference to the housing supply / demand balance.

According to CBA’s model of Housing Demand & Supply, we did have a short period of housing over-supply (although this was probably entirely located in the high-rise segment.)

However, with population growth remaining strong, driven by overseas migration, housing supply is already starting to wane.

The CBA estimate that the market is about in balance now, but with construction falling and population growth remaining strong, we’ll quickly return to a housing shortage in 2020.

And when the market goes back to a housing shortage, that will add further fuel to the rocket under house prices.

And so, as someone with a large property portfolio, the construction downturn is likely to increase the value of my property holdings.

That doesn’t mean that I’m cheering it along. I definitely don’t want to see large numbers of tradies laid off, but it’s one of the odd things about the property market that most people just don’t get.

The market can stay in balance, if and only if, we build houses at a phenomenal ‘off the charts’ rate. Anything less than phenomenal and demand starts outstripping supply, and prices rise.

And this is one of the reasons we’ve seen such sustained price increases over the past decade or so.

And that’s the story here.

Australia – land of the perpetual housing shortage.

JG

Their burn was more than their earn, but their problem was much deeper than that.

I was shocked to hear that for all the money the were earning now, they were saving no more than they had been in little old Australia.

I caught up recently with some friends who had just come back from Los Angeles. They were Aussies originally, but had been living in the USA for the better part of a decade now.

I asked them how they were tracking.

She said they were doing well. She had a successful food blog. He had a good job producing reality TV shows. They were earning good money.

But they were spending good money too. They lived in a good neighbourhood (in LA, there’s a very big difference between a ‘good’ and a ‘bad’ neighbourhood) but they were still renting. They drove a nice car (she was actually surprised at how ‘old’ all the cars in Australia looked) but it was on lease. Their kids were in good schools, and had super-packed social calendars.

They had a good life and a good life costs good money.

“You know, it’s funny,” she said with a faint twinge of an American accent, “we actually moved there for the money.”

“Matthew wanted to work in TV, and the best TV jobs in the world are in LA.”

“And he’s on a great salary. But life in LA is just expensive. And financially, I don’t think we’ve got ahead at all.”

“I mean, I don’t think we put any more away each year than we did when we lived in Australia.”

“It’s not that I regret it. LA is an exciting place to live. But it’s exciting because it’s crazy and all that craziness takes its toll on your nervous system. So that kinda just balances out.”

“And so I just think we made this massive life decision “for the money” and really, I think we just came out even.”

She wasn’t looking for financial advice, so I didn’t give her any, but I don’t think there’s anything in her story that’s surprising.

In part, she has a technical problem. Savings is the difference between your earn and your burn, and as because they were unable to contain their burn, they simply spent every extra cent they earned.

This is really common, because it is actually really hard to be disciplined with your burn. You want to be able to enjoy your money, and enjoy the same standard of living as everyone around you. That very easily translates into a burn that cannot be contained.

But that’s simply a technical problem that a number of good systems could solve.

The deeper problem is really around their ‘relationship’ to money.

They were too complacent about where the next pay-cheque was coming from, and too lazy to be bothered controlling where it went.

They had always been ‘comfortable’, and so no matter how much they earnt, they would be just that: ‘comfortable’.

Not too fazed by money. Just puddling along. Never giving money the time and attention it deserves because “we’re doing brunch at Janet’s house after soccer on Saturday, honey.”

Their life situation – how much wealth they had created for themselves – reflected their relationship with money.

It always does. So does yours. Your wealth reflects your relationship with money.

And it just doesn’t matter where you go, or how much you earn, you cannot recalibrate your wealth if you cannot recalibrate your relationship to money.

This is an iron law.

So, isn’t it time you gave your relationship to money some energy?

JG

This plan will juice the market, but there’s a catch

It’s pretty interesting watching the details of the so-called ‘First Home Buyer Deposit Scheme’ roll out.

For my money this is one of the most interesting housing policy announcements in recent years – and one that has the most potential to provide long-run support to property prices.

Remember, we’re talking about a scheme where buyers who can muster a 5% deposit can lean on the government for another 5%, to enable them to get a vanilla mortgage on a property.

It’s restricted to the low-end of the market (cheaper properties), but not the low-end of buyers (the means tests ensure that it’s available to pretty much everyone).

It’s starts with an initial roll-out of 10,000 places in the scheme, but there’s nothing to say it can’t grow or just keep rolling on forever.

So the government is throwing fuel on the entry-level property market. The results will be predictable.

But there’s a catch. There’s always a catch.

The banks want to be paid to participate in the scheme. That’s the word from the AFR:

Big banks are seeking the flexibility to charge higher interest rates under the Morrison government’s scheme to help first home buyers because of the increased risk of lending to first-time borrowers with as little as 5 per cent deposit.

The big banks also query whether the government’s promised first home loan deposit scheme can be up and running by its scheduled January 1 start date.

Bankers are concerned that home buyers with deposits as little as 5 per cent of a property’s value will be riskier than other first-time borrowers who usually are required to have saved a minimum deposit of at least 10 per cent, and sometimes as high as 20 per cent.

…Housing Minister Michael Sukkar is trying to boost competition in the scheme against the big banks, by permitting only two of the big four – ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac – to participate.

The government hasn’t announced which two of the big-four banks will be allowed to play in the scheme, but its not clear that any of them want to.

Banks (and more importantly, the people who invest in banks) are very concerned about “capital quality” – that is, of all the assets on the banks’ balance sheets, how risky are they.

So an injection of young buyers who haven’t scraped together a 10% deposit, on balance, is probably going to pull the banks capital quality down. Pretty much by definition, someone who can’t pull together a 10% deposit is a riskier proposition than someone who can.

And it’s the first rule of banking that higher risk demands higher reward. And so the banks want to be able to charge these people more.

And to be honest, it’s fair enough.

But this sets up an awkward situation. Imagine finding out you won the lottery and got a spot in the government’s scheme, only to find out the banks now want to charge you 100 bips above the prevailing mortgage rates.

Two-steps forward, one step back.

There’s always a catch.

JG

What? How does he know?

What black-magic was that?

The whole world’s waiting for the RBA to make its announcement, at 2.30pm on Tuesday, like they do every month.

And crazy Jon Giaan’s announcing the result to over 200,000 people on his database, 24hrs ahead of time.

How did he know?

Ok, I know I’m looking like some financial markets magician right now, but I wanted to do this as a teaching exercise.

It wasn’t magic. I didn’t have a mole on the inside. It wasn’t even about smarts (remember I flunked high-school, more than once.)

But there’s two reasons why I was able to predict this month’s rate cut, and it’s two rules I’ve used to make literally all of my money.

Curious? You should be.

1. The Game is Never What It Seems

In financial markets, like everything else, the game is never what it seems. There’s the version that the general public get, and there’s the insider version.

Take rate cuts. The public version of the story is that the RBA desperately wants to keep it’s rate cut decision secret, and every time it makes an announcement, it comes as a total surprise to everyone in the market. 

If you watch the evening news, that’s the version you get.

The truth of it is, that the RBA doesn’t want to freak markets out with totally random results. They don’t want to cause chaos in the markets.

And so they very carefully start ‘telegraphing’ (yep, it actually has a term) their decisions ahead of time. Not in a super explicit way, but if you’re an insider, and you’re watching the RBA closely, it becomes pretty obvious.

This rate cut was no different. Insiders knew it was coming. The general public, as always, are last to know.

2. Know Who To Trust

So what do you do if you’re not an insider?

Find someone who is and rip them off.

That’s what I did. I’ve researched this space. I know who’s good on this stuff. I know who’s at the end of the RBA’s telegraph line.

Once I figured that out, the hard work is done. All I have to do then is follow them, and they’ll tell me everything I need to know.

Almost all the money I’ve ever made has been made in this way. People look at my wealth and think that I must be creative and original – that I must have special insight.

The truth is exactly the opposite. I look for people who are getting the results I want, and then I get them to teach me how to do it.

It really is as simple as that.

To play the insider game, you don’t always have to be an insider. You just need access to one.

That’s it

And that’s it. That’s all there is to it. Ta-Daa.

That’s how this high-school drop out made his fortune and is now able to predict the RBA’s supposedly secret decisions.

It’s all about insider access – finding someone who can show you how the game really works, and how to play it well.

It’s a strategy for life.

JG

Hong Kong is getting hot. Where does it end?

I am genuinely worried for the people of Hong Kong.

Right now there is a movement happening. Millions took to the streets over the weekend. The protest is now in its third month and is showing no signs of slowing down.

This isn’t a flash in the pan. This is a sustained drive. This is the stuff that revolutions are made of.

But this doesn’t end in revolution.

When I think it through, I’m struggling to think of many scenarios that don’t end in a blood-bath of one description or another.

So far China is being restrained. They’re clearly not happy with what’s happening in Hong Kong, but so far the tanks have stayed home.

And people are saying that China will be unwilling to use force. That they don’t want the international condemnation that will bring – the potential sanctions, the diplomatic isolation.

And that’s true. But only to a point.

Because the Chinese Communist Party is being pushed into a corner where its very existence is threatened.

That’s the thing about one-party states. Rule is absolute or its not.

Protestors are pushing for democratic reform. Democratic reform and one-party states are just not compatible.

If China gives in to the protestors and allows even token concessions to democratic participation, where does that leave every other region under China’s control. Taiwan? Within the Chinese mainland?

And do you let people believe that collective protest actually works – that you can actually win democratic concessions from the government that way?

Where does that leave you? Over a billion people who are no longer happy with being subjects in a Big Brother state, who now feel that protest is a good way to get what they want?

Yeah, nah, that’s not happening.

And it sounds like China is controlling the narrative within its borders. State media portrays the protestors as a lawless rabble, spurred on by foreign forces and willing to resort to violence.

But Hong Kong isn’t some far-flung interior province that no-one cares about. Everyone knows about Hong Kong. If the shiz goes down in Hong Kong, it’s going to be hard to control that message for long.

And so this isn’t about who controls Hong Kong, or how much democratic freedom Hong Kong does or doesn’t have.

This is now about the survival of the Chinese Communist Party as we know it. This is about whether their rule remains absolute, or quickly begins to disintegrate.

And what happens if the CCP is forced to choose between becoming an international pariah for a generation, or ceasing to exist?

My bet is they chose the pariah option.

… as sad and as gruesome as that’s probably going to be.

And this will change everything.

For the past twenty years the rise of China has been one of the dominant investing themes. It drove the resources boom here in Australia. It’s driven wage and consumer price deflation around the world.

And it’s all about to change.

In time, this shifting of the global economic order will create opportunities. I’ll write more about that another time.

But not today. Today I’m worried for the people of Hong Kong.

And I’m just praying that it works itself out peacefully.

JG