Knowledge Source

Your freedom to create wealth...

You are here: Home / Archives for General

Why long-term Melbourne property prices will rise…

by Leave a Comment

The Victorian Government is on a hiding to nothing – there is just nothing they can do to bring house prices down.

How desperately chronic is the housing shortage in Australia?

This chronic – chronic enough that this fluff from the Victorian government about streamlining the energy connection process can get passed off as an ‘affordability solution’:

Power companies AusNet Services, Jemena and CitiPower, Powercor and United Energy have agreed to a series of commitments to speed up the rollout of power in the areas where they provide electricity, state Treasurer Tim Pallas said on Tuesday.

“We’re acting to make sure new homes are connected to electricity faster, cutting costs, and making it easier for Victorians to access new housing,” Mr Pallas told an Urban Development Institute of Australia audience…

UDIA Victorian executive director Danni Addison said the changes would help speed up housing production.

“The urban development industry is working hard to meet the demands of population growth, but people can’t live in a home without power,” Ms Addison said.

How is this about helping boost “affordable supply”? I mean sure, it helps at the margin, and it’s definitely better than not doing it, but still I can’t see millennials priced out of a home organising a ticker-tape parade over this one.

“Yay, this will shave at least $1500 off the purchase price. Finally the dream of owning my home is within reach. Honey, pack your bags.”

But seriously, this probably is the best that any government can muster.

Because, meanwhile, prices in Victoria continue to march onwards to all sorts of crazy.

Land prices are the real flash point. HIA-Corelogic reckon that Melbourne’s median lot price per square metre surged a massive 30% in the past year. That takes the typical median lot price per square metre to $359,000.

Remember, these are Greenfield sites, many of them located so far from the CBD of Melbourne that they have West Australian post codes.

And even then, it’s going to cost you $360K for the land, even before you start looking at landing a caravan on it, or whatever you can still afford.

And this is all despite the fact that median lot sizes in Victoria are actually shrinking!

A few weeks ago, Satterly Property Group announced they would start offering lots in Melbourne as small as 80sqm – less than a fifth of the size of a traditional lot – in an attempt to boost profits.

Sorry, I mean, in an attempt to offer anything that could reasonably be considered ‘affordable’.

And so in Melbourne, if you don’t have at least half a million, there’s no chance of securing a new house and land package, no matter how far you are willing to commute.

How has this happened? How is it still happening?

This is the chronic undersupply in action. When there’s too many people and not enough homes, then prices will rise. It really is as simple as that.

And while supply has continued to come on-line at its usual dribble in Victoria, the population has actually boomed.

Melbourne is now adding a full MCG worth of people every year.

That’s a million people every ten years:

There is just no planning response that the Victorian government can come up with that can deliver the housing that is needed to stop the market getting tighter and tighter and tighter.

Which in turn means, prices will just go higher and higher and higher.

You know, except streamlining power-supply regulations…

That’s going to have a big impact.

JG

Morrison wants to do what?? He’s dreaming.

by

Political pipe dreams, but they could actually drive up unemployment in the bush.

With all eyes on Scott Morrison, The Australian reckons it knows what one of his first big plays will be – populating the bush.

The Morrison government is due to consider a plan that would require some new immigrants to settle for up to five years outside Sydney or Melbourne, as part of a yet-to-be-released landmark population policy to ease congestion in the two largest capital cities.

The Australian understands a decision on a time period for mandatory regional settlement — as part of a new migration program — had been due to go to the Turnbull cabinet last week. It has yet to be put to the new cabinet under Scott Morrison.

Two government sources have confirmed that a period of regional settlement, of up to five years, was a key plank of the population package put before the government. It came with a requirement to locate in regional areas or capital cities other than Sydney or Melbourne, where the rate of ­migrant settlement has reached almost 90 per cent of new arrivals.

Hmmm. Ok. So is it time to load up on regional property?

I think the idea of decentralising Australia – shifting the focus away from our big cities and spreading it all around a bit, is generally a great idea.

But it’s going to take some fairly coordinated action across state, federal and even local government lines.

Simply demanding that new migrants spend time in the bush is not going to cut it.

I mean, how do you even police that? Electronic tagging? Zapper collars?

But even assuming there was some feasibly and morally acceptable way to enforce it, sending migrants out to the bush is putting the cart before the horse.

I’m seeing it first hand in Greece right now. Greece has a population problem.

The Greek crisis drove hundreds of thousands of Greece’s best and brightest off-shore, in search of work and a better future.

Pretty much the only good thing that came from integration with Europe, in my mind, was the ability to relocate around Europe.

And so those with transportable skills, those who spoke other languages, just left.

And that might have been temporary if the crisis had been temporary. But after ten years, people started putting down roots. They started having families. They joined school committees.

So it’s going to take a lot to entice these people back. And with unemployment still running at 19%, we’re not there yet. Not by a long way.

There just isn’t the jobs.

So this is the simple economic truth of population flows. People go where the jobs are.

And so this decentralisation pipe-dream seems to be missing a key element. Where are the jobs?

What’s the point of leaving migrants stranded in the bush, stuck on unemployment benefits for 5 years?

Like, the whole drive of our immigration policy is to bring people who can make a contribution.

Why select on skills and then leave them on benefits in the bush, doing nothing?

And rural towns might like the idea now, but what happens when a wave of cheap migrant labour washes up on their shores?

If there’s a scarcity of good-paying jobs already, more labour simply drives down wages further.

And we know what’s at the end of the whole ‘migrants took my jobs’ meme.

It’s a disaster waiting to happen.

So I know this whole decentralisation thing is a political fad that gets resurrected time and time again, but it’s just sounds like a dream to me.

And I’ll take it seriously when politicians start worrying about regional economies first, and leave the population question to later.

As per the natural economic order of things.

I freaked out, then I saw this!!!

by

Could the Turkish crisis derail the whole global economy? This one chart says no.

Flying back in to Greece, I’m thinking, “Great. Wouldn’t you know it. The wheels are coming off in Turkey, the whole region is about to go up in flames, all before I’ve even had my first glass of ouzo.”

If you failed geography, Turkey and Greece are neighbours. And Turkey is going down in a flaming ball of debt and bad life choices.

The world is panicking about it. That’s the thing about the global economy these days. It’s all inter-connected. It’s like a giant Jenga set. Some pieces are more important than others, but you never know which one is going to bring the whole tower tumbling down on top of you.

So could it be Turkey?

I was plugging in to the global sense of panic. I was losing sleep. But then I found one chart that put everything back in perspective.

But let’s back up a bit first.

In case you missed it, Turkey’s currency, the Lira, is going to crap. It’s dropped off a cliff and is now down a gut-wrenching 45% since the start of the year.

To put that in perspective, the Argentinian Peso – that perma-cluster-fuk of a currency is only down 38%, so things are bad.

Now, a collapsing currency isn’t necessarily bad news. It makes your exports cheaper and when the Aussie dollar falls, we actually get an economic boost most of the time.

The exception though is when you’ve borrowed lots of money and it’s denominated in other currencies.

So imagine I owed someone US$100. Right now that means I owe them about AUD$130. But then let’s say the Aussie dollar falls off a cliff, down to about US50c.

I still owe them US$100, but suddenly that’s now worth AUD$200. So my debts have ballooned, even though nothing has changed except the exchange rate.

And this is what is happening in Turkey.

This chart here is a little hard to make out, but it shows foreign-currency denominated debt as a percent of GDP. Turkey is streaks ahead at around 70% of GDP. Ouch.

What’s worse, they don’t have much foreign currency reserves to tide them over or prop up the currency. It’s worse than in Argentina.

On top of all that, you’ve then got a political situation that doesn’t inspire much confidence. President Recep Erdogan reckons it’s all a ‘foreign plot’ to destabilise Turkey. There may be some truth to it, since it was Trump’s tariffs that sparked the whole mess for Turkey. But still, it doesn’t sound like a politician ready to take responsibility for the mess he’s in.

(I know! How unusual.)

And he does have to front up to some of the blame. His economic agenda has been to pump heaps of money into real estate development, mostly funded by off-shore borrowing. He has also eroded the integrity of Turkey’s economic institutions. After the last election, he appointed his son-in-law as the head of the finance ministry, and took personal responsibility for appointing the central bank’s governing council.

So Turkey is in a mess and nobody thinks they can get out of it.

What a disaster!

And so as Turkey goes over a cliff, everyone is wondering where the next domino to fall will be. Italy, Spain, Germany, Europe???

This could be the ruin of the global economy.

I was certainly working myself in to a state over it. I could barely get through my second plate of prawns.

But then I saw this chart.

This tracks foreign bank exposure to Turkish debt.

So the story here is that it’s Spanish banks that are going to bare the brunt of it. Most other banks are fine.

Spain is alarming. That charts saying that 25% of Spanish bank capital is exposed to Turkey, which does seem staggering.

But then France and Italy have little more than 5%, and when you get to the US, it’s sweet FA.

So most nations can roll with it without major dramas.

Spain however, does seem to be in trouble.

But I’m also relaxed about that too. Spain has been in trouble for a while. There’s not going to be any surprises there. All of Spain’s creditors knew they were taking on risk, and so should (I hope!) have been planning accordingly.

So the worse case scenario is that Turkey goes up in flames, Spain goes into recession, and the rest of the world muddles on.

The best case scenario is that Turkey somehow fudges its way through.

And the most likely scenario is somewhere in between.

So, I think we can all breathe a little easier.

Maybe even order another side of prawns.

US declares war on China. For reals?

by

I’m not sure the US is mucking around with their war on China

The US has started a war with China.

But the question is, what kind of war?

Is it a trade war, where the US is simply trying to rebalance the global flow of trade (a little more in its favour)?

Or is it an economic war, where the US aims to give the Chinese economy a good thump on the head?

So far, the official story is that it’s a trade war, and the US is just protesting China’s unfair trade advantages.

But more and more it looks like an economic war, designed to squash the ambitions of a rival super-power.

That’s what Steve Bannon reckons. It’s also what China expert Richard Duncan reckons:

Bangkok-based Duncan believes the US$50 billion of Chinese products designated for 25 per cent tariffs by the Trump administration – in addition to a proposed 10 per cent tariff on an additional US$200 billion in Chinese goods – may represent the first steps in a policy shift by Washington that goes far beyond what many observers expect.

“I am becoming concerned that they really do intend to put up trade tariffs on a very large scale against China and that perhaps there’s more to this strategy than just balancing trade. They may be intent on stopping China’s economic growth altogether, now that China has become so large they are becoming not only an economic competitor, but potentially a military threat to US global dominance. If that’s the case, this could be a turning point in history,” Duncan said in a new South China Morning Post business podcast.

While it is too early to say how the trade talks between the two sides will play out, one concern is that escalating tariffs, beginning with the US$34 billion of Chinese products which went into effect on July 6, are about to become the norm, rather than the exception.

Another is whether the trade policies are really designed to reverse the deindustrialisation of the US economy – a theme made prominent during Donald Trump’s presidential campaign.

“Over the last 30 years the rapid economic rise of China has really transformed the world, but if the US starts putting tariffs on US$200 billion and US$500 billion of Chinese exports, then China’s economy could go into a very serious crisis,” Duncan said.

“The impact would be global and we would see a drop in metal prices and that would be a blow to metal and mining companies. Also as commodity prices fell, the economies of the commodity-producing economies would go into recession,” he said.

This isn’t just a theoretical exercise – a curiosity of modern history. This will have serious impact on the Australian economy.

China has been central to Australia’s economic miracle.

Just as the rest of the world took a hammering thanks to the GFC, and rising China insulated Australia from the worst of it.

The price though was a growing economic reliance on China. As a commodity exporter, we have let China become far and away our biggest customer.

And I’m not just talking about iron ore. Take a look at wool for example:

So if the US decides to launch an economic war on China, and they succeed in crashing the Chinese economy – which might not be all that hard given China’s reliance on exports and some pretty mind-blowing debt numbers – then Australia could find itself in the fall-out zone.

I think we all just assumed that the trend towards the global free-flow of goods and trade was a one way street. We bet the house on a perpetually strong China.

We’re not ready for things to be reversing.

I’m not sure really how to play this. The US’s intent is still not clear, and then a lot still depends on how well they execute, and how China responds.

But it’s looming as a risk for Australia.

Maybe it calls for more of a hedge in defensive assets.

In that sense, I still like property. The high-rise sector could be shaky if all those Chinese developers go bust.

But if an economic war unleashes a global recession, then time and again, property has proved to be a solid preserver of value. I wouldn’t think this time would be any different.

We might even see more foreign money from other nations coming to Australia looking for a safe-haven.

But this is something to watch out for. I’ll be watching the Chinese economy a little more closely from here on.

Which property segment is booming?

by

Headline numbers are hiding a big secret. Some markets are booming.

I’m going to show you what segments are actually booming in Australia right now, but first I’m going to show you a scary picture.

This is every property price decline in modern Australian history:

Whoo-oooh.

Ok, let’s pull a few things out of this. The first is that declines are common. We’ve had seven in the past 30 years – so like one every four years or so.

The property market moves in cycles. I think a lot of investors might not be aware of this – they might never have lived through a serious turn in the cycle before.

And so Sydney starts hitting the brakes and they start wetting themselves. At the risk of sounding like a grizzled old investor, get over it. It’s what markets do.

If you can’t tough it out for a soft-patch that might last a year or two, this game isn’t for you.

(Not that I know what game is. Bond trading?)

Anyway, the other point is have a look at where the current cycle sits in historical perspective.

On this chart, the peaks of each cycle have been lined up, so you can track each one from its peak.

And what you can see is that the current cycle – the red line – is actually the tamest cyclical downturn in history.

Let me say that again unless pants-wetters are still reading my blog. This is the tamest correction in history.

It’s still early days, sure, but let’s just remember that. Nothing to flip your lid over here.

But here’s what I actually wanted to share with you. This is the current property market broken up into segments. The top 25% most expensive houses. The middle 50% and the bottom 25%.

So look at what’s happening here. The top end of town – the top 25% – is falling, coming off some pretty heady peaks.

However the middle 50% – the majority of the market – is still growing, although it does look like the pace of growth is slowing.

And then there’s the bottom 25% of the market, which is going gang-busters.

And so only the top 25% of houses are falling, but they’re falling far enough fast enough that they’re able to pull down the aggregate numbers.

And enough to put a bit of doom and gloom on the paper headlines.

And so what’s the real story here?

Yes, the property market has peaked, and we’ve entered an historically common cyclical downturn, which, in fact, is the most benign downturn in modern history.

BUT – when you pull it apart, that downturn is entirely due to the top end of town. Without the falls there, the overall market would be growing strongly.

And some segments – your cheapies and your entry-level homes – they’re actually booming.

So tell me again what kind of market we’re in?

And tell me again what I’ve got to be afraid of?

JG

PurpleBricks goes plop. What does it mean?

by

Maybe real estate agents aren’t ready to be disrupted? Or is it just where the market is at?

I’ve been following the PurpleBricks story with some interest.

Basically, PurpleBricks wants to disrupt the real estate agent business. So far it’s done pretty well in the UK, but its foray into Australia isn’t faring too well, at least according to the Australian Financial Review:

(with the disclaimer that bad news could always be about PurpleBricks failing to grease the palm of their media suppliers – I’m always open to that idea.) Anyway:

“Broke” real estate agents are quitting British disrupter Purplebricks in droves as the fixed-fee agency’s low-margin, high-turnover business struggles to achieve enough sales amid a slowing Australian housing market.

Research by The Australian Financial Review found at least 27 agents had quit Purplebricks Australia since March with overall agent numbers now down to 88 from 105 reported by the company in October when it filed its British interim results.

Purplebricks territory owners (franchisees) and agents, who spoke to the Financial Review, said they were struggling to make a living and were preparing exit paths after the $100,000 to $180,000-a-year salaries they were told they could earn failed to materialise.

… Internal sales documents obtained by The Australian Financial Review covering the first two weeks of June highlighted underperformance by its NSW agents.

The documents indicated that 27 NSW Purplebricks agents secured a combined 26 listings.

… Agents who earn $1000 per instruction – with the remaining near $5000 of the upfront fee going to Purplebricks – require a high volume of listings to make a living.

Interesting.

I don’t think PurpleBricks is the disruptor it paints itself out to be. It’s not fundamentally changing the business model. Rather, it’s simply restructuring the back end – leaving the front-end – the real estate agent – in place.

And that structuring seems to be selling itself on sort of economies of scale (a large RE company with no physical offices), and apparently using its muscle to squeeze real estate agents on their cut.

It’s not all that disruptive. It’s not Uber.

And just like real estate agents, it’s a volumes business. Success depends more on the number of properties you sell rather than the price you get for them. And being flat-fee, then it all depends on volume.

It’s just that right now, market conditions are making it tough for volumes businesses. There’s a lot of doubt in the market, buyers are cautious, and vendors are preferring to hold.

And so sales volumes are now tracking below their ten-year average:

The sleepiness of the market is showing up in New Home Sales as well, with a pronounced downturn continuing:


So with volumes approaching some of the lowest levels in years, this is a crappy time to be trying to launch a volumes business, no matter how disruptive you are.

That, and ‘PurpleBricks’ as a name sucks. It makes you think of toy lego or something (the only purple brick I think I’ve ever seen), and that opens you up for existing agents to attack you on your professionalism, which they’ve done.

That, and I’ve pronounced it BurplePricks on at least three separate occasions.

And so for now, looks like your real estate agent is safe.

I still think the market is ripe for disruption.

But it won’t be today.

NO B.S. FRIDAY: Longer days, happy body

by

The solstice teaches me a lot about that part of me that feels fear.

So we’re over the hump of the year. Thank fudge.

Last week the year turned, and from here on, the days start getting longer again.

There’s something about this idea that gives me a deep, full-bodied sense of relief.

But when I think about it, I realise that it’s a bit strange. Because I know the coldest days are still ahead of us.

So in terms of what has the most impact on my lived reality, surely I’d care more about heat than light, right? I’ve got Mediterranean blood in my veins. The cold freaks me out.

But we don’t celebrate the end of the cold months the way that we celebrate the solstice.

And throughout history and across cultures, the solstices are the key marker points of the year.

I think at a primal level it’s a real test of faith – to watch the days get shorter and shorter and just trust that the trajectory is going to change. That it will bottom out at some point and turn the corner.

In my rational mind, I’m like, of course the days will start getting longer again. That’s how it’s rolled for millions of years. This year’s not going to be any different.

But that’s a logical process. At a sub-logical level, at a primal body level, I think I’m watching the days get shorter and colder and I’m freaking out.

What if it doesn’t stop? What if it just keeps going like this? What if the sun disappears completely and we all just freeze?

And then the days turn and my body is like, Oh thank fudge for that. Whoa. We really dodged a bullet there.

And my rational mind is like, ‘what are you talking about? That’s what happens every year.’

And my primal body is like,

“I have no idea what you’re talking about. I’m a child of the moment. I don’t even know what you mean when you go on about abstract concepts like ‘year’ or ‘cycle’.”

“I really don’t get why you have to be so difficult. The seasons move in cycles. It’s not that hard.”

“Whatever. Hey, are you hungry. Let’s go get some souvlaki.”

“You know we’re on a diet.”

“Oh, again with these abstract concepts!”

Do you get what I mean when I rave on about these inner conversations? What I’m saying is that the primal body, the emotional body, lives in the moment. It only knows what the senses tell it, and it operates on the patterns it has learnt.

As the days get shorter, it’s going to start to feel fear.

So how do you teach the primal body?

It has to move in it. It has to embody the lesson, over and over, until it becomes part of its patterning.

And what does this embodying class-room look like?

Ritual.

Rituals are embodied practices that seek to make a habit of a desired state.

And so I think the ancient rituals celebrating the solstice were our ancestors way of training their bodies to understand the seasons and cycles of the earth.

You do this movement at this time of year. Climb Mt. Olympus. Make an offering. Light a lamp. Do this dance. Walk back down.

Repeat, year after year.

In this way, the physical, emotional body is brought into alignment with the seasons. It comes to understand them in a way that the rational mind finds so easy that it doesn’t even have to think about it, but does in a much shallower way.

I think you’ll understand what I’m saying if you’ve ever had to talk a child out of their fears.

“No, there’s no monster under the bed. There’s no such thing as monsters. There’s so much crap under your bed that unless that monster’s the size of a hamster, it couldn’t even fit.”

“Stop with these abstract concepts, Dad. It’s not helping. My body feels afraid.”

This is something to pay attention to if you want to get the most out of your self. If you want to take your self on grand missions, dive into epic projects, take daring gambles.

There is part of you that will feel afraid, and you won’t be able to talk it down.

But that part of you is a child of the moment. Wrap it in a cuddle, let it take a few deep, long breaths, give it mental space to think about peaceful thoughts or nothing at all…

… and it will come round.

JG

OPE – Manipulation vs Persuasion

by

Leveraging OPE (other people’s energy) for fame and fortune – are you manipulative?

What’s the difference between manipulation and persuasion?

Someone was asking me this the other day. And I had to pause and take stock.

It’s true a lot of the techniques are the same. And the game is the same – take a meat-bag of emotions and bring it around to a particular idea.

So did I just persuade you to go into a joint-venture with me? Or did I manipulate you?

The line’s not clear.

Like a lot of things in life, I think you know manipulation when you see it. Like what’s the difference between porn and erotica? You know it when you see it.

That’s not entirely satisfying. It still leaves a lot up to subjective interpretation. One man’s porn is another man’s room full of Roman cos-play enthusiasts enjoying their birth-right to embodied joy and bliss.

So I think it comes back to intention.

When you engage the techniques of persuasion, what are you trying to do?

Are you trying to convince someone to do something that you believe is against their own interests? That’s manipulation.

Are you helping them to see how the outcome you’re presenting is actually awesome for them too? Then that’s persuasion.

So if you’re trying to get someone to shell out a small fortune for a lemon of a car – that’s manipulation. Trying to convince them to buy your product, rather than your competitors, because you genuinely believe its superior value-for-money? Persuasion.

This is one area where sales theory is actually pretty well advanced.

I think good businesses know that their product isn’t for everyone. They’re upfront about it, and they actually invest a good chunk of their marketing to find the ‘right’ customers, not just ‘any’ customers.

And from there, their sales techniques come from a place where you genuinely believe your product is a great product and a great fit for your client's needs.

You’re not trying to ‘con’ them into a sale. You just trying to help them see the situation the same way you do.

Call it the difference between manipulative sales and persuasive sales.

The interesting thing is that persuasive sales is so much easier. You’re just speaking your truth. You’re genuinely interested in finding common ground, and you have a genuine interest in your client’s success.

Anyone can be trained up in this kind of sales technique.

Manipulative sales on the other hand is a real art. It takes a lot of skill to engage with someone for a decent length of time, and not set off their BS trip-wires.

You’ve got to hide what you really think from them. That involves creating a façade – a construct.

(The best I’ve seen do a process of self-deception first – where they convince themselves that its good for the client, and then let themselves sell from there.)

But it’s hard. It’s not for everybody. It’s not something you can teach anyone.

And so look, if you can, be persuasive, not manipulative.

You get a better outcome and it’s just so much easier.

JG

You don’t spend $1.7bn on nothing

by

Some people worry that no one is really taking crypto seriously – that’s it’s just a bunch of tech-geeks who don’t understand economics, getting all juiced on theoretical game theory problems.

And look, there are a lot of those guys. I’ve got some of them on my team. But we are well and truly past the point of this being a fire-drill.

This is the real deal people. This is happening.

Take this recent report from researchers Greenwich Associates. They reckon that right now, the financial sector is spending $1.7 billion dollars every year on distributed ledger technology.

That’s $1.7 BILLION.

EVERY YEAR.

That’s huge.

They’re not just having a dabble and they’re not happy to sit at the back of the pack. When banks get involved they want to be on the cutting edge.

Greenwich reckon that bank and other large financial sector players are moving beyond the proof-of-concept stage to commercial distributed ledger technology, or DLT products.

The study shows the budgets spent on blockchain increased 67 percent last year, with one in 10 banks and other firms reporting spending in excess of $10 million.

At the same time, the number of employees working on blockchain initiatives doubled last year.

These guys are taking it seriously.

Of course there’s still a learning curve. Greenwich’s Richard Johnson said that, “More than half the executives we interviewed told us that implementing DLT was harder than they expected.”

Ha! You’re not kidding.

Still, despite the challenges, despite the fact the world is still coming to grips with what DLT means for business, the financial sector is pushing ahead at break-neck speed.

Johnson reckons that more than three-quarters of projects that are currently under development are expected to go live within two years.

That’s right. A revolutionary block-chain investment of $1.7bn is going to come on line in just a few years.

This is a revolution folks. It will be big and it will be fast.

That’s the sound of the engineer firing up the train.

Time to get on it.

JG

Donald and Kim – The Movie

by

Did you see the spoof movie Trump showed Kim? Genius.

I don’t know if you caught this the other day – I’m not sure how much press it got here.

Basically, Trump played a video to Kim Jong Un during his negotiations with him.

This is it here:
https://www.facebook.com/WhiteHouse/videos/1710505219037204/

Basically, it’s a sort of mock movie trailer, casting the Donald and the Kim as the lead characters, on the verge of destiny, complete with husky-throated voice over and everything.

Yep. People were shocked. Shocked!

Who the hell plays people spoof movie trailers they made in a nuclear disarmament negotiation? Who does that?

Trump does that, and there is just so much to learn here.

I kind of don’t know where to start.

First up, the idea of playing a video during a negotiation is awesome – especially one that it naturally tense.

You see this sort of promo-video thing with big developments. It’s the kind of thing Trump would have played to investors when he was raising capital for a golf course or a hotel or something.

It’s selling the feeling – the felt experience of the offer – before you get into the nitty-gritty.

Key Lesson 1: Humans are fundamentally emotional creatures. A good vibe can save an ordinary set of numbers. A great set of numbers can’t save an ordinary vibe.

Of course, people freaked out that Trump was treating a nuclear disarmament negotiation like an investor road-show. You just don’t do that.

But one thing we know for sure about Trump is that he doesn’t listen to “you just don’t do that.” His natural instinct was to go to a negotiation technique that worked, and when his staff freaked out, he probably said, “why not?” And without a good reason, he just went ahead and did it.

Key Lesson 2: People will tell you ‘you just don’t do that’ a lot in life. Always question it.

Then the video itself is gold. It’s full of powerful visual imagery, and it’s tailored specifically for Kim. We know he loves movies and he loves basketball, so there’s rich references to those.

Key Lesson 3: Know who you’re working with. What are their pain-points? What turns them on?

The video then tosses out the old adversarial framing to replace it with a collaborative vision – the two leaders walking hand in hand into a glorious future. There’s no longer a winner and a loser anymore. It’s no longer Trump vs “little Rocket man”. There’s two winners or two losers. This is powerful.

Key Lesson 4: Build trust by selling win-win.

The video also seems squarely focused on Kim’s legacy. It’s about how he will be remembered – about the future he will deliver for his people. It’s great for the people of North Korea, but this is also Kim’s chance to be a hero.

Key Lesson 5: Sell the benefits, make them personal.

The more I think about this the more I love it.

So how would Trump have used this?

I imagine he would have sat down at the start of his meeting with Kim, and said, “We have the potential to do some great things today. Here, take a look at this little video we made – it’s just a bit of fun – but this is where we’re coming from.”

He wouldn’t have over-sold it. He would have kept it light. Kim would of seen it for the persuasive play that it was.

But that’s the thing about persuasion. It still works, even when you’re flagging all your moves in advance.

But it would have worked. It would have softened the tone of the meeting. It was a friendly gesture. I imagine it would have been a productive meeting.

And all the professors of Diplomacy are left scratching their heads wondering what the hell just happened.

Love it.