Knowledge Source

Your freedom to create wealth...

You are here: Home / Archives for General

NO B.S. FRIDAY: What you should really do with your talents

by

I don’t think our great spiritual teachers really want you to disappear up your own clacker.

Some one sent me this charismatic young man’s interpretation of The Parable of Talents.

In case you weren’t perfecting spit-balls in Sunday school like I was, the Parable of Talents is one of Jesus’ more mysterious stories.

In short, a nobleman is going on a long journey. Before he leaves he gives three talents to one servant, two talents to another, and one talent to a third, “each according to their ability.”

A talent was the common term for a shi!tcan of money. Like 4 years wages. So it was serious coin.

(The modern word talent meaning “special skill set”, seems to derive from this parable!)

When the nobleman comes back he asks the servants what they did with the money. The first two traded and invested their money, and doubled what they were given.

The master is pleased.

The third however buried his talent in the backyard, and so only has the original talent that was given to him.

The master is pissed. You could have at least stuck it in the bank and earnt interest. (He actually says that.) He then takes his one talent and gives it to the one who already has the most.

There’s nuance I’m glossing over here, but this is the idea. The third servant wasted his talents, and wasted his life. God’s rewards go to those who make the most of their “God-given talents”.

This story struck me in Sunday school. I wanted to know what the first servant had invested in. How long was the master gone? What was the annualised rate of return? But it also stuck out from the other parables. It just felt different.

So coming back to our charismatic young friend. I’ve heard this one before. Not this one specifically, but this kind of new-agey interpretation.

In this version, the talents are a metaphor for what we currently call “talents”, and God wants you to take your talents and share them with the world. Don’t bury them inside you. If you can sing, then sing. If you can paint, then paint. If you can knit clothes for small dogs, go and take that sh!t to the Flemington flea market.

And shine, star bird shine.

This interpretation is getting a bit of play these day. It resonates with the times. But the fact that the word talents transitioned from a word meaning, “weight, unit of currency” in Jesus’s time, to the current meaning of “skills and abilities”, probably means that you could say this is, more or less, the standard interpretation.

I guess I used to run with that line as well.

(No, I will not come inside! God wants me to play soccer, mother!)

But these days, something doesn’t ring right.

I mean, why does Jesus place the whole story in a commercial context? The whole trading story just complicates the picture.

I mean, why not say the master gave his three servants a trombone. Two of them played, but the other did not. “Wicked and slothly servant. Why hast thou not made use of the trombone given unto thee?!?”

That’d be cleaner if that was really Jesus’ point. But no, he made it about trade and investment.

Of course I have seen people put a free-market spin on this as well, but I’m not sure I buy that either.

Historians are divided as to whether the Lord Christ ever said, “You’ve got to risk it to get the biscuit,” but I tend to side with those who don’t think the bible was meant to be a substitute for a Cert IV in financial planning.

And remember this was a man who lost his nanna and started whipping the merchants and money-changers who had set up shop in the temple.

So it’s really interesting that he chose to make this story about money.

I don’t pretend to know why, but as someone who knows money on a first name basis, I have some thoughts.

First I think that money, trade, finance, commerce, all that – that’s the human world. We’re not about ethereal dimensions here. We’re not talking divine qualities like justice and grace. We’re talking the nitty-gritty of messy humans living in a messy society, playing out their greed and selfishness and selling animals for sacrifice in the temple and all that.

But this is where our work is. This is where we should be engaging.

We could just say, nah, I don’t want to get involved in that. I’m just going to stay here and cultivate my righteousness. Or I’m just going to devote myself to my singing and macramé doggy vests.

But that is not what the gift of life is for.

We’re here to play the game. We’re here to fully engage with this messy, painful and constantly disappointing world.

And as much as we can, we should bring the talents that we were born with to the table.

But the other point I’d make is that when we’re talking about talents here, we’re not talking about the genetic dispositions we are born with. In the context of this parable, our talents are not ours. They don’t belong to us.

They are the things that are bigger than us – those higher ideals. They are our generosity, our grace, our charity, our faith, our giving people a second chance, our love.

The things that seem to come from beyond.

And so I actually wonder if this means exactly the opposite of what young mate is talking about. Jesus isn’t saying, go and invest in and cultivate the things that make you ‘special’.

Rather, it is a warning against disappearing up your own clacker. It’s not about you.  Don’t make it about what you’ve got. And don’t withdraw from the world either. Don’t think you’ll win any browny points for keeping the browny taint of the material world off your talents.

Get out there and get messy.

That’s your job.

But I don’t know. Maybe I’m just getting grumpier and more conservative in my old age.

What do you reckon?

NO B.S. FRIDAY: Achievement is a trap and its instinct’s fault

by

We’re hard wired not to care what’s on the other side of our goals.

I should never have kissed her.

I shouldn’t have got her number. I shouldn’t have asked her out to dinner. I shouldn’t have brought flowers.

And I definitely shouldn’t have put on that firefighter costume.

In hindsight, it was all a mistake. In foresight, it was a mistake too. I knew that it would cause nothing but trouble. But somehow it just seemed like a mistake worth making.

And it taught me a really interesting lesson: sometimes “achievement” is a seductive lie.

It’s like the other day I was talking to a friend of mine. We played soccer together. We were talking about our golden days, and about how he got selected in the Australian Under 17 side to tour Asia.

He was reflecting on how he was never such a talented player. He didn’t work all that hard either.

But he said he wanted that Australian jersey so bad it would keep him up at night.

He would imagine how it would feel to put on that green and gold tracksuit with the kangaroo on it. How it would wear it to the shops and how people would be impressed by it.

“To be honest, that’s what I was focused on. I was focused on selection. On the honour that would come with that. I actually never thought past it – to what it would be like to actually play for Australia.

“I would just go over and over it in my mind. What it would be like to hear my name called out at the end of the state titles. Calling my family back home to let them know I was in. Getting my tracksuit and ticket to the AIS in the mail.

I wanted it so bad I could literally taste it.”

And in the end, at the state titles, which was where much of the selection took place, he just had a blinder of a carnival. Everything fell into place for him. He surprised everyone, including himself.

And he got selected.

The dream came true.

And what was it like to play for Australia? Well, he never went. He did his knee in Canberra and stayed home.

“I wasn’t as disappointed as you’d think. I’d got what I wanted, truth be told. The cosmos had delivered. It had given me everything I had called in. I’d just forgotten to ask for anything beyond the tracksuit!”

Good that he can laugh about it now. Getting old is good like that.

I feel like a see this a bit with people’s success journeys. When you dig into the kinds of things they’re striving for, often it’s the moment of the achievement itself, not the fruits of that achievement.

Take a simple example. Say someone wants a flashy new car. Now, do they really want a shiny merc? Or do they want that moment when their neighbours see their car in the driveway for the first time? Do they want bragging rights to their friends? Do they just want to be able to tell themselves, “It’s ok. Life’s going all right. We’ve got a merc…”

What’s the problem with this?

Well, one, you’ll never be satisfied. If the problem is the stories you’re telling about yourself, those stories will always reassert themselves, no matter how many cars or boats and vintage fighter planes you throw at them.

You’re chasing your tale.

(My entry in International Pun of the Year.)

Two, it’s a total waste of energy. If you want a new story about who you are and how you’re going in the world, just tell the story. You have that power and it is as easy as that.

I’ve covered this stuff before.

But the point I wanted to make today is don’t beat yourself up about it. Recognise that humans are hard-wired to focus on achievement, not the fruits of that achievement.

Our instincts drive us in this way. It’d be too much work and energy if your instincts had to convince you of the benefits associated with every motivation.

For example, our don’t instincts don’t say, “you should eat apples because they’re healthy and nutritious and they will give us the energy we need to sustain our endeavours.”

No. They say, “Get shiny sweet things and put them in your mouth.”

And that is literally where it ends. By design.

In fact, they deliberately create a blind spot around everything else that happens after that. From the instinct’s perspective, it’s just a distraction.

So take my friend with a thing for firemen. I knew that it was all a bad idea. But I just found it really hard to care.

My instincts had me focused on my attraction to her. Nothing else. They made it seem like the whole human story had only existed so that we could be together, and some great cosmic alignment would take place the moment we kissed.

Of course, that was never the case. And after the fact, when I looked to the instincts that had now gotten me into all that trouble, they were nowhere to be found.

You’re on your own now buddy.

Just another one of the joys of being human.

So my advice is this – be aware that we have a tendency to get fixated on the moment of achievement – the moment a goal is realised or a task is completed.

Be aware that while that feeling of achievement is awesome, it’s fleeting, and if your happiness is tied up with achievement, rather than the fruits of achievement, you’re on a treadmill to nowhere.

Take stock of your goals. Do you actually want what comes with them, or do you just want the satisfaction of achievement? Feel it out. What does it feel like once you’ve had that new car for a while?

Do you even care?

If not, your energies are better placed elsewhere (probably on the stories you’re telling.)

And finally, the tram to St Kilda is no place to be caught impersonating a member of the emergency services.

How do you keep yourself focused on the other side of achievement?

Whispers of the next boom

by

Warning – the economy might actually be a whole lot stronger than we thought.

Okay, little bit of a news flash.

You know that “moderation” in house prices we’ve been waiting for? That little bit of a pause we were expecting to let reality catch up? That softening, that slow-down, that plateauing?

Might not be coming.

In fact, in as much as there was a slow down / pause / time-out in the naughty corner, it might already be behind us.

And the next boom might only be a few months away.

How do I know this?

Well, I don’t. Not for sure. Some economists will tell you they have a crystal ball, but sooner or later the market comes along and gives them a swift kick to the crystal balls and their reputations shatter.

But, you’re always operating with less than perfect information.

And the thing that really jumped out at me was this report from the economists at CBA.

They were taking a look at the labour market data, and I was shocked at how strong recent months had been.

In my mind I’m still assuming that the labour market is still softening, wages growth is weak, and there’s little fire coming from that sector of the economy.

But that’s not what the data says at all.

In fact, if you believe the last four months, the economy is gearing up for another bull run.

And I know a lot of my readers are a canny bunch, and don’t put too much stock in the “official” numbers. And they’re right to be sceptical. So when they say the unemployment rate is 6%, you have to take that with a large grain of salt.

That said, the trends are useful. If the unemployment rate is going down, from whatever number it is, then house prices are normally growing.

So even if I don’t believe (or care about) the exact levels, I am watching trends.

And as I said, right now, the trends are actually pretty promising.

The take home chart from the CBA report is this one. It compares employment growth with GDP:

You can see that they tend to move together – which makes sense: you need to employ people to make stuff.

But right now a gap has opened up. Employment growth is heading north. We’ll have to wait and see what GDP does.

So the gap will probably close pretty soon, based on past experience. But which way? Will employment correct, or will the economy bounce?

Again, hard to say for sure, but the employment data is looking pretty solid.

Because when you break it down, all the signs are good.

Like the split between part time and full-time employment growth. We’ve actually seen a switch-out, with full-time employment growth picking up, at the expense of part time employment growth.

That’s a good thing. Firms tend to employ people part time when things are tentatively picking up, and when the future seems more certain, start employing people on a full time basis.

And when you break it down by state, it’s also looking strong across the board.

Victoria continues to lead the way (“spectacular” was the word CBA used), but growth is also holding up in NSW, and there’s been a quick bounce back in Queensland.

And even in the smaller states, and even in WA, we’ve seen employment growth pick up strongly in the past four months.

This is especially good news for WA. I can hear the pollies across the Nullarbor breathing a huge sigh of relief. Employment growth has picked up, and the unemployment rate has dropped significantly.

Perhaps WA has turned the corner?

So it’s all looking pretty solid.

Surprisingly solid even.

But look, I don’t want to lay my crystal balls on the line here. These are early days, and you can’t be too certain about which way trends are going until they’ve had time to properly establish themselves.

But by then, everyone knows about them.

So the scenario I want to flag is that the economy has actually got more traction than we thought. That’s going to keep feeding through to employment growth, and that in turn will help drive property demand and property prices.

Property price growth moderated over the first half of this year (though Sydney and Melbourne are still pushing at double digits), but maybe that’s all we get. Maybe once the rubber hits the road and the economy really gets going, we’ll start pushing back towards 10, 12 percent growth.

And when you look at the population growth data, that’s not so far fetched.

Of course, it could all still get derailed by something. Trump could bomb someone or China could get the wobbles. But in the absence of any sort of shock, you’d have to think that the most likely scenario is continued growth from here.

Economies do move in cycles after all.

We might not be quite ready to lock it in, but we need to start thinking and planning for it.

So watch out! Good times ahead.

What’s the feeling in your crystal balls?

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

by

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

by

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

by

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

by

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

by

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?

The boom hidden within a boom

by

The second instalment in ‘Ten Reasons Why the Boom has Ten Years to Run’ is something I call “The Densification Dividend”.

Think about this for a sec.

Imagine a suburb with one house. The house is valued at $1m. The median house price for that suburb is, obviously, $1m.

Now imagine some one comes along, subdivides the house and builds another house on the back block. Both houses are now valued at $600,000.

But now what’s the new median price of this suburb?

$600,000.

So the suburb has seen the median price fall from $1m to $600K. That’s a 40% fall. (Steve Keen is finally right. I had to construct a theoretical universe for it to happen, but a win’s a win.)

But do you see what’s happened here? Home-owners (only one of them) have seen the value of their property holdings increase 20%. But the median house price has actually fallen 40%.

Whooo-oooo.

Prices are down. Equity’s up. This is the Twilight Zone.

Someone once said that statistics are like a bikini. What they reveal is exciting, but what they conceal is vital.

We never hear the footnotes that go with property statics when people are talking about them in the papers or on the news. But no statistic is perfect. They’re an abstraction of reality. They’re not reality itself.

And that’s definitely true of median house prices. They’re good for giving you an indication of trends, particularly over short to medium time frames.

But they’re no good at capturing structural changes in the market – in this case, a move to higher-density living.

Now, what does this mean for us?

Well, pretty much across all the capital cities, there is a relentless drive right now towards higher density housing. Housing is being structurally reconstituted.

For a long time we’ve had a reputation in Australia for large homes on sprawling quarter acre blocks. We built as if we had an abundance of land and endless plains to share. (Where did they get that idea?)

However, the size of new homes actually peaked in 2009 at an average of 222sq metres.

And since the GFC it’s been falling. The average new home now stands at 192sqm, making it smaller than in 2001.

Partly that’s about the wave of apartment building we’ve seen in recent years, but detached house sizes are falling too – from 249sqm in 2009 to 223sqm today.

And our sprawling back yards are going the way of the Hills Hoist. The average lot size of vacant lots in the capitals has fallen from around 700 sqm in 1996, to about 450sqm today.

But none of this will be any news to investors.

Sub-division deals or townhouse developments can be some of most profitable deals going. They’re some of the sweetest fruit on the property tree, and the easy ones do seem like they’re getting harder to come by.

And the trend towards smaller houses and smaller lots seems locked in. It’s not going anywhere. For land in particular, it’s One Direction only.

(That was for you Niall. If you’re reading.)

And then there were some really interesting stats in the latest census results. The one that really jumped out at me was the surge in townhouse developments.

We here are lot about apartments but really, the biggest news in property is the emergence of the townhouse.

Between 2006 and 2016, the number of townhouses in Australia increased a massive 61%! Compare that with 14% for high-rises, and 11% for detached houses.

Now think about what that means.

Statistically speaking, higher density housing is putting downward pressure on median prices. Townhouses are cheaper than the houses they replace, even though there’s more of them per block.

So if we imagine an inner-city suburb where prices are growing at say 10% a year, those equity gains aren’t equally distributed.

Recent generations of home buyers – say someone who bought a new townhouse – they’re seeing house prices increase by 10%.

But older generations of buyers, say those who bought the original quarter acre blocks, they’re seeing that 10%, plus a whole lot more – the value of being potentially able to subdivide and develop.

And so there’s a boom within a boom – the older generations of buyers get two booms for their buck.

And the longer you’ve been in the market, the bigger you “densification dividend” tends to be.

But that’s the thing. Time makes “old buyers” of everyone eventually. As the relentless densification of our suburbs marches on, eventually everyone finds themselves the beneficiaries of a densification dividend.

I mean, Brisbane is a classic example. There’s a whole bunch of high-rises going up, but mostly they’re not replacing detached houses. Mostly they’re replacing those old 6-packs you see about the place.

So even if you bought a unit in one of those 6-packs 20 years ago – even if you bought something that you thought never would be – you’re still eligible for the densification dividend today.

But it isn’t something that is captured by statistics about median prices.

And if you look at the planning strategies for all the capitals cities, increasing densification is a cornerstone of all of them.

That means that any buyer in the next 10-20 years is going to be eligible for a densification dividend eventually.

Even if it doesn’t show up in the suburb-level stats.

This is what I mean when I say its the hidden boom within a boom.

It’s also one of the reasons why I’m more interested in land prices than house prices, but everyone talks about house prices so what are you going to do.

And it’s one more reason why this current boom has at least 10 years to run. This is number two. If you missed number 1, you can read it here.

So remember it. Densification dividend. I just made the term up, but I reckon you’ll be hearing more about it soon.

Have you see a densification dividend on any of your properties?

NO B.S. FRIDAY: Newspapers will be dead within the year

by

I give the print papers one more year… tops.

So things took a horrible turn for the print media this week.

Fairfax media held an auction…

… and no one showed up.

Fairfax media (The Age, SMH etc) put themselves up for sale. Two parties were sniffing around, coming to the open inspections, getting their finance sorted. But then come auction day, they just never showed up.

That’s a tad embarrassing for Fairfax, but I don’t think people realise what a huge cultural turning point this is – or that we’re in the middle of right now.

For me, there were some really interesting things about this auction.

First, pretty much everyone agrees that the print media divisions are practically worthless, and pretty much the only thing of value in the whole enterprise is Domain.

Hooray for property. Saving the day again.

If they were trying to sell Domain by itself, they would have done it easy. But add the print papers into the mix, and the deal quickly starts to stink.

And it’s not that the papers are just inconvenient. It’s that right now, they’re a ball and chain around Fairfax’s neck.

Take this sum-of-the-parts valuation from Goldman Sachs.

They figure that at a fair share price of 96c per share, The Metro Media division is worth 2c, while Domain is worth 89c.

That’s nuts right? What kind of business is that?

The Age and the Sydney Morning Herald – all those journo’s and ad space and glossy liftouts – that’s all worth 2% of the total business.

Domain, the real-estate portal, is worth 90%!

It’s not a media empire with an interest in property. Fairfax is a property empire that dabbles in news.

To make matters worse, things are just going from bad to worse for Metro Media. Fairfax project Metro Media revenues to be down a further 12% this year.

Why?

Let me give you a number. $2,988,564.

That was our total marketing spend for the last financial year.

And how much of it went on print advertising?

Precisely zero.

Our marketing budget consistently runs into the millions – it’s one of our key activities – and we just don’t touch print.

Actually, all of it was spent with Facebook. They’re just that effective. And over the past 5 years, Facebook, with no local offices or journalists or anything, has gobbled up most of the Australian marketing spend.

The writing is on the wall for print.

So Fairfax obviously has some problems. But we don’t even know the half of it.

The Fairfax board were being courted by two private equity parties – TPG and H&F. They decided to open up the kimono and give both parties a confidential look at the books.

What happened next?

Well those parties took a look at the books, and said, actually, you know what, I don’t think we’re going to bid.

It’s like a buyer getting a building inspection before auction and deciding not to bother showing up.

It’s suggests that things inside the business are actually much worse than they seem. (And they don’t seem that great.)

There’s no good news here for Fairfax. Seriously, it’s looking dead in the water. I wouldn’t be surprised if The Age was off the shelves by the end of the year.

But this is huge right? I’ve grown up with The Age. I haven’t always loved it, but I did think that it would always be there.

It’s hard to imagine it disappearing from the cultural landscape.

That’s what I mean there’s some huge changes underway.

And this isn’t just a Fairfax story.

Over at Murdoch, they’re jettisoning any illusions to impartiality, and bringing back the “Australia needs Tony” propaganda.

Light on detail, heavy on scare-mongering, The Telegraph has been condemned for ‘taking sides’, and Rupert is being attacked for trying to shape Australia to his liking.

But this misses the point.

This isn’t propaganda. This isn’t what Rupert wants. This is what sells with Telegraph readers.

Over the last few years, print media have been forced to find their niche. People didn’t want balanced news. They wanted stuff that confirmed the stuff they already believed. If the papers weren’t going to give it to them, then there were niche, online publications that would.

And so you saw the media landscape split up almost exactly along party lines. Rupert went centre right and the Coalition. Fairfax went centre left and Labor. The Guardian went far left into the Territory where the Greens were hanging out. So far we haven’t seen anything set up in the far right where One Nation is, but there’s a business opportunity there.

Print media figured out what their niche wanted, and served it up.

The thing is though, no niche is big enough for a broadsheet.

This is the custom economy. This is an age where my iphone can be practically any colour I want it to be. I expect everything I touch to be finely calibrated to my own personal tastes. That’s just how the economy works now.

But media hasn’t caught up. They are still “broad”casting, even though people want the media they consume to be exactly what they expect and want.

Mass publications just aren’t nimble enough to do this.

Last weekend, we saw Fairfax’s last gasp. The last hand in the air before she sinks below the surface.

She was waving, but no one came to save her.

So now she’ll take care of the messy business herself. Fairfax will sell off Domain and close down print. The Murdoch press will follow soon.

This isn’t just about a revolution in business models. This is a revolution in the way we engage with the world. This is about the way receive information, and the customised, algorithmically-personalised, narrow-casting that we now expect.

And what does politics look like in this brand new world?

Well, the major parties are facing the exact same problem as the papers. People want the parties to represent their interests exactly. Fringe parties are popping up all over the place because broad-base political parties aren’t nimble enough to meet everyone’s needs.

And the fact they will soon no longer have the tools to broadcast popular messaging doesn’t help.

Soon, major parties will go the way of the major papers.

This is the custom economy.

I’ll miss The Age, but bring it on I say.

What do you think? Can Fairfax survive?