A Meaningful Life

At the moment the emu is exactly the write emblem for Australia, I just wish the kangaroo would kick it’s head out of the sand.

There wasn’t any substantial attention to tech in the 2020 summit from what I can tell/read (someone please give me hope for our country and tell me I’m wrong).

Australia’s economy is based on mining, farming, real estate and education. This list should include technology. Australia’s risk is that a multi-country global recession (or depression) could kill the mining sector for about 10 years. Another risk is that farming becomes less and less viable over time. The real estate sector is mostly about one Australian taking money from another so it’s not a great contributor in a real way. Yep foreign money comes in via this segment but it’s investor dollars. Migration property demand doesn’t count because we need to build infrastructure to cope with growth.

So we get a bunch of minority groups together (such as elite sports people) to help work out what our vision for the future is. Australia 2020 = Fail.

The time would have been much better spent visiting other countries and seeing what is working successfully overseas. A trip to a Korean ship yard or better still a Korean Telco exchange. I would have gone to China visited manufacturing plants and at least a couple of their universities. Then off to Japan to find out why technology and discipline can sustain an economy who has a near zero resource base. From this we might learn how to stop riding the sheep’s back and instead jump on the backbone of a fibre optic network.

Technology has to be a part of any modern economies vision. Only a fool thinks otherwise. Technology is dominating work and lifestyle more and more.

Stil sums it up well in this post and also Stephens Collins on this acidlabs.org post.

Not to let the Liberal opposition of the hook. The Rudd Labour government should have taken this 2020 opportunity to address the Liberal Government credit bubble. Rampant asset inflation caused by extremely low interest rates has lead to burgeoning household debt which is now a major social issue and RISK heading off the back of a 10 year global boom.

Mining and rural sectors won’t provide for the future. That’s short-term-ism. If Australia is riding the sheep’s back now we will be hanging onto it’s stump of a tail in the future. New Zealand knows this all to well. We’ve been lucky to have a nice mining kicker to help us ignore the issue.

Eventually the big global economies will have enough money to buy the businesses that supply the resources they need so be prepared (they already have big shareholdings in some). Who’s addressing what we need to reduce our risk exposure to this sector not growing forever? Not the 2020 summit, that’s for certain.

Donkey prices are going through the roof. A good mate on the trading desk at Deutsche Bank I worked with sent me a hilarious news snippet (in a nervous laughter kind of way).

For those who are wondering if there is inflation: the Turkish newspaper Zaman reported the price of donkeys in Yozgat district in central Turkey has increased 7 fold as local people give up the use of tractors over high fuel prices. Because of increased demand, the price of one donkey grew from EUR 26 to about EUR 180.

Equally funny is Pete our CEO was telling me about a guy who buys Ass’s and sells them as Donkeys. They are the same beast. So the Ass fraternity needs to work on their personal brand a little.

It’s good to see some financial respect for the noble steeds.

Twitter the nuclear option
Stilgherrian points to a great read. I particularly loved this quote describing the potency of Twitter….”This newest of new things has only just started to rise up and flex its muscles. The street, ever watchful, will find new uses for it, uses that corporations, governments and institutions of every stripe will find incredibly distasteful, chaotic, and impossible to manage.”

Frasers Broadway
Grant Young points to this amazing (looking) bit of Green architecture. I have to agree with Grant that the various artists impressions always leave me a little skeptical. I’ll track the detail on their website with interest. Draping plants over balconies never seem to last long. Why? Because humans let them die. Let’s hope the building has systems for managing humans lack of plant care.

Microsoft Live Labs Photosynth
Photosynth is getting a run in CSI NY episode “Behold the Future”. CBS’s trailer is out but I don’t think the episode has aired yet. I first checked out the Photosynth technology mid last year when it was soft launched via the Microsoft labs blog. It’s worth a look through the tech preview on the Photosynth website - stuff of the future.

Interesting call by Bernard Hickey of Interest.co.nz (thanks Diversity for the pointer). He suggests we won’t see the highs in NZ house prices seen last year until 2018 at the earliest.

I have quite a different view on this. A big chunk of the NZ price rally in recent years was correcting a real estate arbitrage.

Currency, global wages, proximity of external money (Australia as an example) are just some of the other big factors. Real estate valuations are no-longer just about local economic factors. I have several colleagues in Australia who got involved in NZ property in the last few years. Higher Australian wages, favourable currency exchange and low airfares really changed the spread (difference in value) between buying in some Australia cities versus some beautiful places like Queenstown in New Zealand.

Good beer over some rugby chat is the icing on the NZ cake and I’ve never met a New Zealander I don’t like.

Interest.co.nz have some good viewing and reading. I really respect that they take a view. Sitting on the fence is damn boring and it hurts. That’s why markets never sit there.

Inflation is bullish for stock markets longer term. Yep, those of you who remember inflation spikes of decades past might recall doubling of prices across decade periods. Stock markets doubled also, they had to, the math required it.

Stock markets aren’t alone. Your home is the biggest asset you’ll probably ever buy but for some reason incumbent conservative governments and their Fed Reserves don’t care much for affordability. While the “consumption inflation numbers” hang around 2-3% they are doing their job. Well that’s like telling a kid “don’t worry, the mixed bag of lollies are only going up 2% this year”. Meanwhile you neglect to mention that the bike (his big asset not yet purchased) is going up 10-20%. All the time you know his McDonald’s wages will never catch up to that kind of asset inflation.

Governments shrug of asset inflation as good economic management that makes people rich. That’s all well and good if you are already on board and own assets that ride the liquidity wave.

There was a saying in markets. You own two houses, you’re long. Own one, you’re square. Own none, you’re short the property market.

How many liquidity booms, housing booms, commodity booms do governments need to see before realising it ends up wrecking many lives, spoiling many dreams and leading to parents working many more hours than they spend with their kids.

Sure governments and federal reserves will testify their concerns, but at the end of the day they let these assets booms go on unabated until the next collapse proves them wrong. By then it’s the next guys problem, or some other countries fault. They just hope the history books note them down as boomtime public servant success stories.

The bulk of your spend these days is twice as much as it was in the 90’s. Sure your PC and food bills might not have grown much but look at your big spends, your home and your vehicle. The big ticket items that lead to a fat mortgage and a 60 hr work week is a lot more expensive.

Here’s the drum

Inflation is (generally speaking) very bad for socially equality

When asset inflation goes up the wealth divide grows. When consumption inflation goes up the wealthy don’t feel it but the masses do.

Inflation is good for stock markets longer term

If it costs us twice as much to get things done then it costs a business twice as much also. If you want to build a business you will be paying asset plus consumption inflation prices. Thus, a built business must go up in value (risk adjusted) to create parity with starting one from scratch. Yes, this is way too simplistic (leaving sectors etc aside) but it highlights this historic market fact. Just ask Buffet if you don’t believe me.

I thought I’d write this because there are a lot of bears around and I realised many of them have never seen a recession. Sure stocks will and can remain depressed for some time but inflation will at some point drag them substantially higher, beyond what you would expect, crazy prices.

1. Beijing Olympics opens on the auspicious 08/08/08.
2. 162 million internet users.
3. China’s average income is US$2k p/a.
4. 2/3 rds of its power is from coal.
5. You can’t resell Skype in china.
6. China is half of the global demand growth in metals.
7. Is a single party planned economy.
8. They invented ice cream in 2000BC. A milk and rice mixture packed in snow.

Scott Rossenberg points to a very interesting article in The Antlantic.  In a nutshell China has a huge trade surplus undistributed to its people. A lot of it sits in US, UK and Australian government bonds. China is very sensible doing this for their economy in order to prevent inflation. It is an onerous balancing game not unlike controlling the flow of money to your children. Too much and kids don’t value it highly. Too little and they feel deprived relative to their friends. It’s a tough job being a parent, imagine doing that for billions of people.

This is funny in a nervous laughter kind of way. Here Comes Another Bubble - The Richter Scales

If you are in a room with 100 people representing the buying power of the global economy only 1 or 2 of them are Australians. I realised how small we were when I stood in a Tokyo train station. This photo isn’t in rush hour - it was too hard to take. Humanity in your face as I remember it.

If you believe our politicians control our interest rates and economy then you are a victim of political propaganda. They might have a pinky on the gear stick but be sure that China, USA and Japan are driving the truck with big old Doc Martin boots.

I always laugh when politicians sledge each other on interest rates. As though they are somehow responsible for what’s happening in our economy. The self importance of their posture, the blanket statements sweeping over their “constituents” (even their use of this word feels demeaning).

Get real! The game is about liquidity, who’s got it and where they are spending it. Everything else is secondary. Few hands have it, and many hands don’t. Liquidity buys resources to build assets, or it skips a step, and just buys the assets.

Our favourite truck driver at present is China. She will change gears up and down for us Aussies based upon the speed for which her purchase orders come. At present, the cup runneth over. They come thick and fast and the speed burn hurts. Higher interest rates for all.

Apparently the politicians think the financial indicators tell the Reserve Bank of Australia what interest rate gear to sit in. Yep, that is true but that’s the speedometer not the truck driver! While the truck driver needs us she will keep us on the truck. When she doesn’t were off and look out for the gutter on your way out. Pray for a soft landing. (Note that she’s not a mean truck driver, she just doesn’t need us when her truck is full of inventory that she can’t move because the global economy is slowing down)

The governments role in this is a third order magnitude effect plain and simple. The arguable and very rough order:

1. Global liquidity - e.g. asset valuations, flow/velocity of money
2. Global macro - e.g. economic well being, wars, trade policy
3. Local macro - e.g. GST, superannuation, income tax decisions

Don’t bother making a voting decision based on interest rates. Make a decision based on anything else but this if you want your watered down democratic vote well represented.

Before you jump on me. Let’s remind ourselves that democracy in history was about voting on projects and their proposers as they came along. Wow, that would be cool! I’d love to vote on a fibre optic network or whether to build a desalination plant. That would be democracy, old fashioned style.

Somehow we changed this to a 4 yearly farce which wastes part of my weekend. Politicians argue this is often enough because people need to be governed, let’s face it they say, because we don’t know the issues well enough. Please, Mr Politic save me the “constituents aren’t smart enough to vote often and on detailed matters” speech.