Have you ever taken time to reflect on your life?
To be at peace with yourself and really reach in and peel all the layers back and honestly assess your level of happiness?
Will you take a moment and ponder the last moment you were truly overjoyed?
What was that moment, that segment of time? Who was there with you or were you on your own? What about that moment made you happy, made you glow and feel warmth?
Finally did that happy moment involve something you bought from a store or was it a personal moment with a person close to you?
I ask these questions because I think many of us have been plugged into a life we have accepted as normal conforming to what we should be doing, how we should be doing it and why we have to do it. You know the drill, you are born, you go to school, then when you graduate you go to work, get married, buy a home, have 2.3 kids yada yada yada.
We need the latest and greatest, we throw out and waste and replace instead of fix and reuse. I am not just talking about our phones, computers, couches. I am talking about relationships, marriages, family, human interaction and all the really good things in life that bring true happiness. The simple things in life are those that make you most happy and human beings are warm and nurturing creatures at heart. It is difficult to remain focused on what really matters when we are being distracted by a constant barrage of consumerism and marketing campaigns leading us to believe that happiness is achieved from materialism and monetary wealth.
My last visit to church I noted that the simple act of shaking a strangers hand and offering them "a sign of peace" had the whole congregation smiling. That smile is happiness, it comes from the exchange between two people that forms a human connection. When you really think about it, instant gratification in the form of buying, obtaining and owning can never give you what connecting with another person can.
It seems to me we fill our lives with good intentions and a bunch of clichés that we push out one after the other in support of the way we should live our lives. It really frustrates me when I hear them. Money cant buy you love, money doesn't make you happy, nothing really matters other than family, friends and your health. How many of you reading this have trotted out one of those lines recently then immediately went on living your life as if they only apply if they directly affect you? Answer honestly.
So why does it take something profound to happen to your life directly before you spring into action and do something? If it is not your family or a close friend many have a moment where they feel a sadness before pushing it aside and moving on with their own life not giving it another thought. What is it that is distracting us from what really matters in life? Why do we pay it lip service and nothing more? After all nothing matters more than YOUR health and YOUR family. You know that money can't by YOU love and you know that money doesn't make YOU happy right?
But perhaps we should try and replace the YOU and YOUR with OUR and US and those clichés take on a whole new meaning, a more wholesome one and I would think a happier one. See if Johnny was YOUR son that was born with a terminal insidious disease you would likely start a foundation to raise money and awareness to find a cure for the disease that is consuming your child that you love more than life itself. If he isn't then you would do what? ponder, think and move on?
So what if he was our Son? Would that change anything? Perhaps it would. It seems this is a matter of perception, just change the YOU and YOUR remember? If you do then think about where we would all be on wars and poverty. It would be impossible to send our kids to a war or support any of our family killing another. I certainly wouldn't want to see anyone of US hungry or ostracized, discriminated against or downtrodden.
Empathy is a powerful emotion the world must relearn because the ability to put yourselves truly in the position of another is to truly understand how to live life. It needs to form the backbone of how we build society and how we do economics. A social science should concentrate focus on qualitative outcomes. To be a social science it cannot ignore the "social" part or attempt to redefine "social" so that it can be measured numerically as if it were a weight or a quantitative number.
To me social is an emotive thing. A "social worker" is usually a counsellor that sits and listens as you pour your heart out as you come to see what is truly troubling you. They listen and try and help you so there is a human aspect to it, a care or perhaps a love or feeling of acceptance. How do you quantify that feeling? How do you put a number on it? How much does that metaphorical "weight" that gets lifted off a persons shoulders contribute to a GDP number and why the hell are we only using GDP to measure our quality of life or if indeed we are improving the living standards and conditions for all the people in everyday life?
Taken from Wikipedia GDP is provided below. I have taken the liberty of highlighting in bold the key parts. I would ask as you read them to consider if measuring these things really captures the essence of how you define your "quality of life" and then whether it truly captures the spirit for "improving living standards for all the people in everyday life"
Here it is:
Gross domestic product (GDP) is defined by the Organization for Economic Co-operation and Development (OECD) as "an aggregate measure of production equal to the sum of the gross values added of all resident, institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)."
GDP estimates are commonly used to measure the economic performance of a whole country or region, but can also measure the relative contribution of an industry sector. This is possible because GDP is a measure of 'value added' rather than sales; it adds each firm's value added (the value of its output minus the value of goods that are used up in producing it). For example, a firm buys steel and adds value to it by producing a car; double counting would occur if GDP added together the value of the steel and the value of the car.[3] Because it is based on value added, GDP also increases when an enterprise reduces its use of materials or other resources ('intermediate consumption') to produce the same output.
The more familiar use of GDP estimates is to calculate the growth of the economy from year to year (and recently from quarter to quarter). The pattern of GDP growth is held to indicate the success or failure of economic policy and to determine whether an economy is 'in recession'.
So the "social science" that is economics uses one of its indicators to determine success or failure of economic policy as the pattern of growth in GDP. Put simply we should all be happier and regard economic policy as a social success if (Wikipedia definition not mine) we are growing our "aggregate measure of production equal to the sum of the gross values added of all resident, institutional units" holy crap I cant be bothered with the rest because it is pure an unadulterated BS.
If we produce more we should be happier. If we have "more stuff" whatever that is, we will be more comfortable, have more leisure time, freedom and a rise in living standards for ALL the people in EVERYDAY life.
I guess its true on the surface. I mean just look at where we are now. Dishwashers, cell phones, laptops, email, microwaves, air conditioning, refrigerators, internet, navigators, food processors, electric tooth brushes vacuum cleaners, washing machines and dryers. Living standards have to be on the rise with all of those technology breakthroughs, imagine having to hand wash your clothes and put them on a line to dry and right after that go out and chop some wood for the fire oh don't forget the trip to the post office to send off your best friends birthday card!
I recall watching a speech Professor Michael Hudson made on this very topic, his explanation is simple yet brilliant. Paraphrasing the speech (to the best of my memory) he said "Imagine being able to travel in a time machine back to the 1930's and place yourself in a stereotypical household" setting the scene for his message.
"Imagine saying to the mom (who was often the home maker) you in 70 years time you won't need to hand wash your clothes, there will be a machine that does that for you"
"You won't need to buy blocks of ice to keep the ice box cold, a machine does it all on its own"
"You won't need to hang the clothes out on a clothes line, a mechanical dryer will take care of that"
"In the future you will not need the post office, you can send notes instantaneously from your home, oh and if you forgot you needed something you could call your husband on his way home from work on a portable phone and save him arriving home only to have to leave again to run the errand you needed run"
"There will be a machine built to keep your home at the desired temperature and no need to chop and gather wood for the fireplace or a need to be sweeping the floor when a machine just sucks up the dust you would normally have to sweep into piles to collect"
If you could go back in time and if you told that stereotypical family they would have all of this "stuff" that makes life easier, the "mod cons" as we call them. I wonder what the 1930's family would say? My guess is the stay at home Mom would say "so what does the mother of the future do with all of her spare time?" It is that question that makes you realize that "Mod Cons" short for modern conveniences are perhaps just "modern cons" because the conveniences they provide are paid for by a rapid rise in women in the workforce, increases in hours worked, stress on family and a lack of personal relationships.
Households are being forced to have both parents working, children go to day care, slowly the family unit and bond is being weakened. The pressure to keep up puts additional stress on marriages leading to higher rates of divorces and a dramatic increase in social dysfunction. These "Modern Cons" are distracting us from what it is to be happy and the drive to build more and better "stuff" is by all weights and measures the way economists determine GDP and apparently how well we are doing.
It doesn't make sense, at least not to me. The USA counts building bombs as part of their GDP, does that make you happy? It doesn't deduct the damages the bombs do when dropped on perfectly good buildings that need to be rebuilt or put a value on a precious life which is taken by the bomb. Just because it is one of "your" people it doesn't matter, until it affects "us" directly nothing changes, well it won't until we see things as a collective. Change can be slow especially when it comes to mindset and power so the point of this blog is to try and creatively raise awareness by asking you to start to "think" and stop learning.
Economics has turned into a sick joke of metrics and numbers in an attempt to quantify success or failure of economic policy. We use GDP to determine happiness, a production number, an output number, how much stuff we now have. That is not a social science. Social sciences should focus on real life happiness, do we care about each other, are we doing our best to find cures for diseases not building bombs because we do not trust our neighbor. GDP cannot measure love nor can it put a price on happiness, the obsession with numerical and quantification of data has dragged economics to a dark place away from the people and happiness. If you disagree then let me leave you with the same set of questions I posed in the beginning of this article with a supplementary one for you to ponder after your finished.
Have you ever taken time to reflect on your life?
To be at peace with yourself and really reach in and peel all the layers back and honestly assess your level of happiness?
Will you take a moment and ponder the last moment you were truly overjoyed?
What was that moment, that segment of time? Who was there with you or were you on your own? What about that moment made you happy, made you glow and feel warmth?
Finally did that happy moment involve something you bought from a store or was it a personal moment with a person close to you?
If your answer relates to a personal experience or interaction then it cannot be measured by GDP, you cannot measure love, put a price on someone's personal perception on the lyrics of a song or on a single act of kindness that doesn't cost money. If you understand this you should clearly see that the way we do economics is wrong and why it has failed miserably at being a worthy participant in the social science arena? We need a happiness index not GDP and when economics has that in its core I will consider it once again a true by the people for the people social science.
Tuesday, June 2, 2015
Sunday, May 3, 2015
GOVERNMENTS NEED ECONTREPRENEURS
I had the privilege a few weeks back to have lunch with a couple of guys that I think will become future leaders in policy discussion in Australia. The two men I refer to are Jordan Eliseo, the chief economist at ABC Bullion and Lindsay David author of "Australia Boom To Bust" and "Print: The Central Bankers Bubble". We engaged in a lively debate and although we did not agree on everything it was refreshing to discuss policy with creative minds that have a grounded education in economics and a wealth of entrepreneurial talent and experience.
Aside from the great policy ideas (leave that for another blog) the discussion got me thinking about my own personal journey of rethinking economics and how it applies to my business experiences. Listening to Jordan and Lindsay and opening up a lively discussion with economists with entrepreneurial flair was inspiring. It also provided a personal "light bulb" moment as the discussion provided clarity on policy to drag the economy out of what I see as a world wide debt deflationary recession. These guys understand economics but they are also acutely aware of what policy works and what doesn't because they have worked within existing policy framework and the rules and regulations that flow from this policy framework.
It seems that economists need to embrace entrepreneurs, entrepreneurs need to get a proper grounding in how an economy really works and politicians should build a team of advisors with an understanding, grounding and experience in both. Politicians don't need entrepreneurs or life long academic economist professors. Governments the world around need think tanks headed by individuals that boast a combination of skills. They need to be an economist that has been exposed to an entrepreneur, or an entrepreneur that has been exposed to the teachings of an economist (that understands how an economy works). This morphed skill set provides a new type of job category I like to call "econtrepreneurs". Governments need "econtrepreneurs".
The fact is the "econtrepreneur" understands that the functionality of a diverse, dynamic and complex global economy. They understand what it takes to run a business, spur growth, promote employment, bolster confidence and get the wheels turning again. How can a life long academic economist guide policy discussion on how to spur business investment when they have no experience in what drives investment decisions because they have never owned, managed or worked a business for themselves? How can an entrepreneur tell an economist what is wrong with the economy if they are only basing their decision wholly and solely on how policy is affecting their own business? Again the "econtrepreneurs" will see both points of view and I am discovering so many of them are now willing to speak up and lead debate. Jordan Eliseo and Lindsay David are two guys, Gerry Brady the man behind boomfinanceandeconomics.com is another name from the Australian brigade.
I am beginning to notice a growing number of "econtrepreneurs" speaking out, leading discussion, reaching into media and tabling some policy solutions in the USA also. Nick Hanauer is one of the big names that I believe fit into the "econtrepreneur" brand. Nick was the first non family investor in Amazon and now heads up his own venture capitalist company based out of Seattle. He has a proven history and a pedigree in getting a job done. It is no wonder that, in Washington state, where Nick has campaigned long and hard for a $15 minimum wage that it has now been adopted.
I have spent the last 2 years living in Seattle and I have seen the amazing resilience that Washington State and in particular the city of Seattle has had during this financial crisis. Thriving businesses, Amazon, Nintendo, Boeing, Microsoft all still there and thriving. Home prices in Seattle were recovering for the right reasons, real demand driven by the great job opportunities and a $15 minimum wage. Nick Hanauer campaigned hard, he was inspirational, aggressive and passionate. He wrote a blog and an article on income inequality but it was his TED talk that really made me take notice. Here is the link to the TED talk that echoes much of the discussion points I have covered in previous blogs from his vision for pitchforks and revolution to the economy being an ecosystem.
https://www.youtube.com/watch?v=q2gO4DKVpa8
I believe that "econtrepreneurs" will create the momentum for change. They won't let little failures discourage them from continuing to raise awareness for the changes they feel are necessary to have an economy that works for everyone. They are used to rejection and willing to forge ahead when many would give up, it is what defines them. The aim of this blog is to highlight the fact that there are good people in this world that have real solutions and brilliant suggestions that should be debated and discussed on policy and a way forward for the world.
We are fast approaching the need for an inclusive not divisive world solution and global financial system. If there is no change we will see a revolution. I concur with Nick Hanauer on the "pitchforks are coming" vision. in fact almost a year ago to this very day I warned the protestor movement would gain momentum in my piece here http://carneycapitalmanagement.blogspot.com/2014/03/tracy-chapman-was-right-just-20-years.html
Today we see global protests, Baltimore is taking is the focus in the USA at present where police brutality was the trigger for violent protests. The mainstream media are making this story one with a focus on race. It is so much more than that. Today it is Baltimore, a few months back it was Ferguson Missouri. Cities burned to the ground not just by African Americans but by people absolutely disgusted about a system that preaches fairness but delivers accelerating inequality. Baltimore and Ferguson have exploded into a firebrand protest, both are a symptom of Americas failure to address the explosive mix of race, police brutality and inequality.
We need policy changes and we need them now. We need them delivering the outcomes that most effectively and efficiently deal with the issues that have built this tsunami of angst, anger and dissent. We need policy makers to get serious about reform, we need leaders not career politicians, we need inclusion and open debate... we need econtrepreneurs with a passion for change and a compassionate disposition. We need people to rally for change, to believe that one voice CAN make a difference because one voice can be the change.
For those still not convinced I urge you to listen to the words in the song in the clip below, understand that you are lucky and take some time out to contemplate what it means to make a difference. The images along with the words are compelling.
https://www.youtube.com/watch?v=PivWY9wn5ps
Please feel free to comment and please share this blog if you enjoyed it. It was written to express a message so close to my heart. We need change, there are great people delivering solutions motivated to leave the world a better place than what it was when they found it.
Monday, March 16, 2015
ABBOTT GOVERNMENT NEED ENTREPRENEURS NOT ECONOMISTS
The global economy is now at breaking point. We have a complex system on the verge of collapse and the Central Banks around the world are now realising that they can do nothing to prevent the world from the inevitable debt deflationary collapse. The world has never seen a global set of central bank monetary policy settings quite like those in play now that include unprecedented levels of Central Bank asset purchases along with Zero and Negative Interest rate policies.
The currency wars are heating up with desperate central banks trying to import inflation and support the local employment environment by depreciating their nominated currency. This is having the opposite effect however with nearly all of the worlds economies suffering disinflation or deflation. A friend of mine that publishes boomfinanceandeconomics.com recently compiled a list of nations that have negative inflation rates. The negative inflation rate hall of fame includes:
Belgium, Belize, Benin, Bosnia & Herzegovina, Bulgaria, Burkino Faso, Cape Verde, Croatia, Cyprus, El Salvador, Estonia, Euro Area, European Union, Finland, France, Greece, Guinea-Bissau, Hungary, Iraq, Ireland, Israel, Italy, Kosova, Latvia, Lebanon, Lichtenstein, Lithuania, Luxemburg, Macedonia, Niger, Panama, Poland, Portugal, Senegal, Singapore, Slovenia, Slovakia, Somalia, South Sudan, Spain, Sweden, Switzerland, Syria, Taiwan, Thailand, United States, Zimbabwe. - taken from boomfinanceandeconomics.com
It is clear that the attempts to bolster competitiveness through currency devaluation are accelerating the deflationary spiral. The list of nations suffering negative inflation is growing because the central banks wrongly believe competitiveness and inflation are a function of relative currency valuation. This assumption has created a blind spot for the long term deflationary effects that a global race to the currency bottom of the ocean creates. Currency wars are a zero sum game meaning the net effect of importing inflation does little or nothing to improve or drive global GDP, drive wage growth or improve any of the economic metrics from a global aggregate perspective. Currency wars simply end up becoming one giant pass the deflationary parcel game as each country takes its "turn" to provide the cheap products.
The aggressive central bank approach to currency debasement/wars along with the biggest private debt levels in recorded history are the main drivers of deflation in the global economy of today. If trends are anything to go by the acceleration of negative inflation or disinflation to full blown deflation is setting the world economic system up for an asset deflationary collapse. It is clear that the unprecedented levels of private debt around the world was the key trigger for the financial crisis in 2007/08 and that currency wars were the tool of choice to ward off deflation. Currency devaluation is the wrong tool, it is a blunt instrument that doesn't address the core private debt issue. Central banks need to understand the disease is not a strong currency, it is the largest debt bubble in human history.
Instead of focusing on currency debasement, Central banks and policy makers need to focus on private debt because the easier path to achieving inflation is not just through an increase in the money supply, but with an acceleration in the velocity of money. Velocity comes with confidence, it is behavioural. In a recent post I was highly critical of the Abbott led Liberal Government in fact I had to force myself to show mercy to a government that has no idea on how to manage an economy. It is a circus!
The treasurer talking budget crisis, government spending cuts and no policy direction is stifling business investment. I find it hilarious that Joe Hockey says that businesses should take advantage of the low interest rates to invest in growth whilst he says the government wont take advantage of the same low rates! Is Joe talking with a forked tongue? I guess the upcoming budget he delivers will answer that question. It is a moot point however because interest rates don't spur confidence, a plan for the future and a steady government willing to invest in the economy spurs confidence.
Central banks and policy makers are asleep at the wheel. Austerity and comparing the public sector debt to that of a family or household is outrageous. I wonder how many households with a mortgage and car debt and credit cards are in surplus? We need government investment, good investment. We also need coordinated responses to economic conditions where governments with the central banks supporting them work to produce a macro prudential set of policies that will provide an environment for growth. After writing this post on the 25th of February http://carneycapitalmanagement.blogspot.com.au/2015/02/joe-hockey-has-no-idea-on-small.html the RBA Deputy Philip Lowe went as far as he could to express his dissatisfaction of the current Liberal Government in Australia. Approximately 2 weeks after my post the Sydney Morning Herald, one of Australia's leading newspapers published this article http://www.smh.com.au/business/the-economy/central-banks-cant-do-it-alone-says-rbas-philip-lowe-20150305-13vtja.html .
Governments the world around need to work with central banks and implement sweeping reforms and new policies aimed at driving confidence. The world economy needs structural reform and governments with a plan and willingness to invest in the future to boost their respective economies output or production. Quality government spending on infrastructure and other productivity gaining investment such as education and technology that will provide ongoing returns should be embraced not attacked.
Public debt is just a political football that gets kicked around and is a tool to mislead and confuse the average person into believing one political party are a pack of spend thrifts, a wasteful inconsiderate group "lumping debt on future generations" or "passing on a debt ball and chain to our children and grand children". Politicians play the "its not fair to leave our kids with the debt that our current generation is accruing". I ask though, having watched my father build businesses and drive innovation in the airconditioning industry, where would my family be if my dad did not borrow from his kids future would we be where we are today?
It is why I believe politicians and Central bankers need to listen to entrepreneurs and business owners because many of them have lived and worked through their own business life cycles which I believe are not to dissimilar to economic life cycles. Entrepreneurs and business owners/managers may also be more nimble and adaptive, skills that have been honed and refined with a drive to be the best, to be more efficient, to innovate and be creative. They have experience in understanding the way out of a dynamic and ever changing economic and business environment.
The Abbott government believes the cost of borrowing will drive business investment, it won't. I expect the future economic data to continue to surprise on the bad side. I think this government is destined to be a one term wonder if it does not switch course on investment and policy. It will begin with a poor consumer confidence report then they will be shocked at the unemployment number which I am tipping will be much weaker than many economists are predicting next month. The biggest shock is coming though with the next 6 months likely to see the unemployment rate rises accelerating.
The Abbott Government would be best served talking to an expert on business turnarounds or an experienced entrepreneur with flair that has a proven track record of taking a great performing business that was transitioning from post maturity to the decline stage of its business life cycle and rejuvenating and reinventing it. Looking at the messages coming out of this clueless Australian government one would think they were looking at the economy and are talking to a liquidator!
I am uniquely qualified to make the statements I have made both in this post and in my previous post. They are not politically motivated because I am a political atheist. I am qualified because I have experimented, albeit on a smaller scale but the relativity cannot be ignored and the lessons should be examined.
Let me explain...
I see striking similarities between my fathers entrepreneurial career and where he was at mentally when he retired and the current Australian economy and the policy direction the Abbott Government is pursuing. At the end of 25 years of a successful career he slipped into protection mode, save and don't spend, no exposure, no risk, no innovation, no belief. Tighten the belt, watch your overheads, control your costs, manage the budget. I am sure if you put some of his speeches side by side with those of the leading Liberal Government members the similarities would give you goose bumps.
He had made his money, put our family in a great position but he insisted on making his once thriving business a bomb proof, recession proof business in 2007. He could see the coming crisis and in preparing for it his company slowly moved from a sustained maturity stage to post maturity and decline. Things needed to change quickly and I recall butting heads with him on my investment strategy in much the same way that I am now butting heads with the policy agenda of Australian government on their crony Budget crisis mantra and investment cut backs.
I have had the privilege of inheriting a business structure that was sound and steady. The model was broken, but not to the point it could not be rescued. We needed a new direction, just as the Australian economy does as it transitions out of a mining boom that has been and is just about gone. I no investment, or innovation was restricting growth. In 2007 my father retired and in 2008 his models and strategies were retired with him. My fathers protection philosophy and investment stagnation was reversed. Investment in new innovation, plant and equipment, infrastructure. I vividly remember him being critical, apparently it was not the time to expand or invest in better production methods. It was not the time to invest in efficiency building and competitive accelerating assets and infrastructure. If that sounds strikingly similar to the Abbott and Hockey mantra it is because it IS THEIR MANTRA.
I am sorry to say that the philosophy is deeply flawed, the budget crisis is a fallacy and the political point scoring at the expense of the greater good of our great nation is a disgrace. My business investment success is proof. The investment and innovation path we persued in 2007 that rolled through the Global Financial Crisis has yielded exponential growth. The growth can be attributed to timely and targeted plan that was executed to produce a return sufficient enough to service the debt, improve efficiency, productivity and ultimately profitability.
The current government are clueless on investment, if they fail to move on policies for the future and continue to cut investment in our great country we will fade away into the background. I see it as an obvious choice but then again I have had the benefit of personal experience.
The Australian economy is in the process of transitioning from a mining boom growth phase to a rapid shift into post maturity and decline. Rejuvenation and prosperity will only come with a government that has a plan to invest big now in quality infrastructure and targeted future growth sectors. We need a confident government to steer Australia from the mining boom into the next big thing. A good government would be planning to steer the economy into what it believes will be the next big thing and prosecuting its case confidently in a pitch to the people they were elected to represent. A bad government, can't tell you, won't tell you and tosses out a plan for the future on a budget crisis fallacy and fear campaign, then wonders why business investment is plummeting and confidence is reaching the danger zone.
Perhaps this government is only capable of running a household budget, if that is the case they should get out of the way and let an entrepreneurial leader with experience engage in policy direction and the upcoming budget design. I guarantee a better outcome will be achieved because entrepreneurs are creative, positive and passionate people. They succeed because they believe in the vision and will sell it to their stakeholders. They will stir emotion and excitement and ultimately drive confidence. The Australian economy needs talking up and the investment dollars to back up the talk. Australia needs a plan for the future not an argument about the past or the now. It needs the Abbott Government to turn to entrepreneurs for advice on the upcoming federal budget and not just eclectic bunch of economists.
The currency wars are heating up with desperate central banks trying to import inflation and support the local employment environment by depreciating their nominated currency. This is having the opposite effect however with nearly all of the worlds economies suffering disinflation or deflation. A friend of mine that publishes boomfinanceandeconomics.com recently compiled a list of nations that have negative inflation rates. The negative inflation rate hall of fame includes:
Belgium, Belize, Benin, Bosnia & Herzegovina, Bulgaria, Burkino Faso, Cape Verde, Croatia, Cyprus, El Salvador, Estonia, Euro Area, European Union, Finland, France, Greece, Guinea-Bissau, Hungary, Iraq, Ireland, Israel, Italy, Kosova, Latvia, Lebanon, Lichtenstein, Lithuania, Luxemburg, Macedonia, Niger, Panama, Poland, Portugal, Senegal, Singapore, Slovenia, Slovakia, Somalia, South Sudan, Spain, Sweden, Switzerland, Syria, Taiwan, Thailand, United States, Zimbabwe. - taken from boomfinanceandeconomics.com
It is clear that the attempts to bolster competitiveness through currency devaluation are accelerating the deflationary spiral. The list of nations suffering negative inflation is growing because the central banks wrongly believe competitiveness and inflation are a function of relative currency valuation. This assumption has created a blind spot for the long term deflationary effects that a global race to the currency bottom of the ocean creates. Currency wars are a zero sum game meaning the net effect of importing inflation does little or nothing to improve or drive global GDP, drive wage growth or improve any of the economic metrics from a global aggregate perspective. Currency wars simply end up becoming one giant pass the deflationary parcel game as each country takes its "turn" to provide the cheap products.
The aggressive central bank approach to currency debasement/wars along with the biggest private debt levels in recorded history are the main drivers of deflation in the global economy of today. If trends are anything to go by the acceleration of negative inflation or disinflation to full blown deflation is setting the world economic system up for an asset deflationary collapse. It is clear that the unprecedented levels of private debt around the world was the key trigger for the financial crisis in 2007/08 and that currency wars were the tool of choice to ward off deflation. Currency devaluation is the wrong tool, it is a blunt instrument that doesn't address the core private debt issue. Central banks need to understand the disease is not a strong currency, it is the largest debt bubble in human history.
Instead of focusing on currency debasement, Central banks and policy makers need to focus on private debt because the easier path to achieving inflation is not just through an increase in the money supply, but with an acceleration in the velocity of money. Velocity comes with confidence, it is behavioural. In a recent post I was highly critical of the Abbott led Liberal Government in fact I had to force myself to show mercy to a government that has no idea on how to manage an economy. It is a circus!
The treasurer talking budget crisis, government spending cuts and no policy direction is stifling business investment. I find it hilarious that Joe Hockey says that businesses should take advantage of the low interest rates to invest in growth whilst he says the government wont take advantage of the same low rates! Is Joe talking with a forked tongue? I guess the upcoming budget he delivers will answer that question. It is a moot point however because interest rates don't spur confidence, a plan for the future and a steady government willing to invest in the economy spurs confidence.
Central banks and policy makers are asleep at the wheel. Austerity and comparing the public sector debt to that of a family or household is outrageous. I wonder how many households with a mortgage and car debt and credit cards are in surplus? We need government investment, good investment. We also need coordinated responses to economic conditions where governments with the central banks supporting them work to produce a macro prudential set of policies that will provide an environment for growth. After writing this post on the 25th of February http://carneycapitalmanagement.blogspot.com.au/2015/02/joe-hockey-has-no-idea-on-small.html the RBA Deputy Philip Lowe went as far as he could to express his dissatisfaction of the current Liberal Government in Australia. Approximately 2 weeks after my post the Sydney Morning Herald, one of Australia's leading newspapers published this article http://www.smh.com.au/business/the-economy/central-banks-cant-do-it-alone-says-rbas-philip-lowe-20150305-13vtja.html .
Governments the world around need to work with central banks and implement sweeping reforms and new policies aimed at driving confidence. The world economy needs structural reform and governments with a plan and willingness to invest in the future to boost their respective economies output or production. Quality government spending on infrastructure and other productivity gaining investment such as education and technology that will provide ongoing returns should be embraced not attacked.
Public debt is just a political football that gets kicked around and is a tool to mislead and confuse the average person into believing one political party are a pack of spend thrifts, a wasteful inconsiderate group "lumping debt on future generations" or "passing on a debt ball and chain to our children and grand children". Politicians play the "its not fair to leave our kids with the debt that our current generation is accruing". I ask though, having watched my father build businesses and drive innovation in the airconditioning industry, where would my family be if my dad did not borrow from his kids future would we be where we are today?
It is why I believe politicians and Central bankers need to listen to entrepreneurs and business owners because many of them have lived and worked through their own business life cycles which I believe are not to dissimilar to economic life cycles. Entrepreneurs and business owners/managers may also be more nimble and adaptive, skills that have been honed and refined with a drive to be the best, to be more efficient, to innovate and be creative. They have experience in understanding the way out of a dynamic and ever changing economic and business environment.
The Abbott government believes the cost of borrowing will drive business investment, it won't. I expect the future economic data to continue to surprise on the bad side. I think this government is destined to be a one term wonder if it does not switch course on investment and policy. It will begin with a poor consumer confidence report then they will be shocked at the unemployment number which I am tipping will be much weaker than many economists are predicting next month. The biggest shock is coming though with the next 6 months likely to see the unemployment rate rises accelerating.
The Abbott Government would be best served talking to an expert on business turnarounds or an experienced entrepreneur with flair that has a proven track record of taking a great performing business that was transitioning from post maturity to the decline stage of its business life cycle and rejuvenating and reinventing it. Looking at the messages coming out of this clueless Australian government one would think they were looking at the economy and are talking to a liquidator!
I am uniquely qualified to make the statements I have made both in this post and in my previous post. They are not politically motivated because I am a political atheist. I am qualified because I have experimented, albeit on a smaller scale but the relativity cannot be ignored and the lessons should be examined.
Let me explain...
I see striking similarities between my fathers entrepreneurial career and where he was at mentally when he retired and the current Australian economy and the policy direction the Abbott Government is pursuing. At the end of 25 years of a successful career he slipped into protection mode, save and don't spend, no exposure, no risk, no innovation, no belief. Tighten the belt, watch your overheads, control your costs, manage the budget. I am sure if you put some of his speeches side by side with those of the leading Liberal Government members the similarities would give you goose bumps.
He had made his money, put our family in a great position but he insisted on making his once thriving business a bomb proof, recession proof business in 2007. He could see the coming crisis and in preparing for it his company slowly moved from a sustained maturity stage to post maturity and decline. Things needed to change quickly and I recall butting heads with him on my investment strategy in much the same way that I am now butting heads with the policy agenda of Australian government on their crony Budget crisis mantra and investment cut backs.
I have had the privilege of inheriting a business structure that was sound and steady. The model was broken, but not to the point it could not be rescued. We needed a new direction, just as the Australian economy does as it transitions out of a mining boom that has been and is just about gone. I no investment, or innovation was restricting growth. In 2007 my father retired and in 2008 his models and strategies were retired with him. My fathers protection philosophy and investment stagnation was reversed. Investment in new innovation, plant and equipment, infrastructure. I vividly remember him being critical, apparently it was not the time to expand or invest in better production methods. It was not the time to invest in efficiency building and competitive accelerating assets and infrastructure. If that sounds strikingly similar to the Abbott and Hockey mantra it is because it IS THEIR MANTRA.
I am sorry to say that the philosophy is deeply flawed, the budget crisis is a fallacy and the political point scoring at the expense of the greater good of our great nation is a disgrace. My business investment success is proof. The investment and innovation path we persued in 2007 that rolled through the Global Financial Crisis has yielded exponential growth. The growth can be attributed to timely and targeted plan that was executed to produce a return sufficient enough to service the debt, improve efficiency, productivity and ultimately profitability.
The current government are clueless on investment, if they fail to move on policies for the future and continue to cut investment in our great country we will fade away into the background. I see it as an obvious choice but then again I have had the benefit of personal experience.
The Australian economy is in the process of transitioning from a mining boom growth phase to a rapid shift into post maturity and decline. Rejuvenation and prosperity will only come with a government that has a plan to invest big now in quality infrastructure and targeted future growth sectors. We need a confident government to steer Australia from the mining boom into the next big thing. A good government would be planning to steer the economy into what it believes will be the next big thing and prosecuting its case confidently in a pitch to the people they were elected to represent. A bad government, can't tell you, won't tell you and tosses out a plan for the future on a budget crisis fallacy and fear campaign, then wonders why business investment is plummeting and confidence is reaching the danger zone.
Perhaps this government is only capable of running a household budget, if that is the case they should get out of the way and let an entrepreneurial leader with experience engage in policy direction and the upcoming budget design. I guarantee a better outcome will be achieved because entrepreneurs are creative, positive and passionate people. They succeed because they believe in the vision and will sell it to their stakeholders. They will stir emotion and excitement and ultimately drive confidence. The Australian economy needs talking up and the investment dollars to back up the talk. Australia needs a plan for the future not an argument about the past or the now. It needs the Abbott Government to turn to entrepreneurs for advice on the upcoming federal budget and not just eclectic bunch of economists.
Sunday, March 1, 2015
"YES WE KANT" SAYS YANIS VAROUFAKIS
The world is transitioning from the mainstream to alternative, from genetically modified to organic and from cognitive dissonance to awareness. The signs are there if you just open your eyes. Declining audiences for media outlets like CNN, the shift from GMO foods to organic, real food and not fast food and an build up of collaborative protest movements.
Though I am an Australian citizen, my wife is American and my children are dual citizens. I have lived in the USA for periods of between 3 and 6 months at scattered intervals over the last 10 years. My stays have been long enough to notice the differences and changes that are occurring but not long enough to get caught up in the slow transition of the changes which blur the line of normality.
I get an uneasy feeling now, I feel the strain from the pressure the average family is under, I see it on their faces, I see it in my surroundings. It is difficult to be living in a country which has dominated the world scene as it embarked on its journey to becoming a powerful empire after WWII and achieved empire status as the soviet union crumbled and communism was replaced with democracy and capitalism.
Free trade, capitalism, the American dream, freedom of speech backed by thriving industry and the most powerful military on the planet. The story really was one out of a blockbuster movie, good triumphs over evil, voices for the voiceless, the war on poverty was being waged and their actually was a middle class.
But is the American empire about to collapse? I think it is. I also believe that when it happens it will be monumental, I think there will be a major shift in consciousness and this will drive new systems as we search for a better way. I ponder if the collapse of the American empire will also see an overhaul on how we do economics, how we measure success, I wonder how the financial system will be restructured and ultimately how the world will handle this transition?
I have written in past posts on this blog about my concerns for war and since those posts the turmoil and tension has amplified. We cannot afford a world war with the modern weaponry available to the nuclear superpowers but I am now increasingly concerned that this is the path we are tracking down.
To avoid the unthinkable world war we need to embrace change and look at a global set of macro economic policies that focus on ethics and fairness. Policies that have a focus on morality without it turning into a debate of extremes. It should not be a libertarian or socialist debate because polarisation will lead to unnecessary friction when most people will identify with the middle ground.
I have been working with some great minds in the area of economic reform. My observation is that many academics struggle with the concept of politics. One must arrive at the understanding that to affect change you need to provide a united front, to lead by example. Yanis Varoufakis is a shining light in this department, once a marginalised voice that now commands the microphone and when he talks, people listen, the markets move on his every word, and his popularity is on the rise.
It would be great to see the other great minds I have had the privilege of talking to and listening to get a voice. Steve Keen, Ann Pettifor, Richard Werner are some of the big thinkers that should be given their own Varoufakis moment. They could and would help if they were given the same opportunity, they are compassionate and fair, two key ingredients to a strong sense of morality. Immanuel Kant the great German philosopher covered the importance of morality in formulating policy with a universalizability (acceptance).
Yanis will change the world if he remains true to himself and his commitments. If he does, his growing popularity will trigger awareness and provide a pivot point for the reform movement by restoring faith in politics at a time where faith is at an all time low. I think he will hold and do the right thing, I am hopeful that this NY Times article from 2 weeks ago signals his intentions.
http://www.nytimes.com/2015/02/17/opinion/yanis-varoufakis-no-time-for-games-in-europe.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region®ion=c-column-top-span-region&WT.nav=c-column-top-span-region&_r=1
It is the way Yanis finishes his column that gives me hope. The most telling statement begins with the question How do we know that our modest policy agenda, which constitutes our red line, is right in Kant’s terms?
Then answers "We know by looking into the eyes of the hungry in the streets of our cities or contemplating our stressed middle class, or considering the interests of hard-working people in every European village and city within our monetary union. After all, Europe will only regain its soul when it regains the people’s trust by putting their interests center-stage"
In a world devoid of true leaders this message is powerful, it comes 5 years after a presidential hopeful proclaimed "yes we can" on the way to his presidency...but he didn't. It comes as a play on that slogan, ironically Yanis seems to be saying "yes we Kant" but he must, and if he does we will be a turning point on our way to real change and a better world.
Though I am an Australian citizen, my wife is American and my children are dual citizens. I have lived in the USA for periods of between 3 and 6 months at scattered intervals over the last 10 years. My stays have been long enough to notice the differences and changes that are occurring but not long enough to get caught up in the slow transition of the changes which blur the line of normality.
I get an uneasy feeling now, I feel the strain from the pressure the average family is under, I see it on their faces, I see it in my surroundings. It is difficult to be living in a country which has dominated the world scene as it embarked on its journey to becoming a powerful empire after WWII and achieved empire status as the soviet union crumbled and communism was replaced with democracy and capitalism.
Free trade, capitalism, the American dream, freedom of speech backed by thriving industry and the most powerful military on the planet. The story really was one out of a blockbuster movie, good triumphs over evil, voices for the voiceless, the war on poverty was being waged and their actually was a middle class.
But is the American empire about to collapse? I think it is. I also believe that when it happens it will be monumental, I think there will be a major shift in consciousness and this will drive new systems as we search for a better way. I ponder if the collapse of the American empire will also see an overhaul on how we do economics, how we measure success, I wonder how the financial system will be restructured and ultimately how the world will handle this transition?
I have written in past posts on this blog about my concerns for war and since those posts the turmoil and tension has amplified. We cannot afford a world war with the modern weaponry available to the nuclear superpowers but I am now increasingly concerned that this is the path we are tracking down.
To avoid the unthinkable world war we need to embrace change and look at a global set of macro economic policies that focus on ethics and fairness. Policies that have a focus on morality without it turning into a debate of extremes. It should not be a libertarian or socialist debate because polarisation will lead to unnecessary friction when most people will identify with the middle ground.
I have been working with some great minds in the area of economic reform. My observation is that many academics struggle with the concept of politics. One must arrive at the understanding that to affect change you need to provide a united front, to lead by example. Yanis Varoufakis is a shining light in this department, once a marginalised voice that now commands the microphone and when he talks, people listen, the markets move on his every word, and his popularity is on the rise.
It would be great to see the other great minds I have had the privilege of talking to and listening to get a voice. Steve Keen, Ann Pettifor, Richard Werner are some of the big thinkers that should be given their own Varoufakis moment. They could and would help if they were given the same opportunity, they are compassionate and fair, two key ingredients to a strong sense of morality. Immanuel Kant the great German philosopher covered the importance of morality in formulating policy with a universalizability (acceptance).
Yanis will change the world if he remains true to himself and his commitments. If he does, his growing popularity will trigger awareness and provide a pivot point for the reform movement by restoring faith in politics at a time where faith is at an all time low. I think he will hold and do the right thing, I am hopeful that this NY Times article from 2 weeks ago signals his intentions.
http://www.nytimes.com/2015/02/17/opinion/yanis-varoufakis-no-time-for-games-in-europe.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region®ion=c-column-top-span-region&WT.nav=c-column-top-span-region&_r=1
It is the way Yanis finishes his column that gives me hope. The most telling statement begins with the question How do we know that our modest policy agenda, which constitutes our red line, is right in Kant’s terms?
Then answers "We know by looking into the eyes of the hungry in the streets of our cities or contemplating our stressed middle class, or considering the interests of hard-working people in every European village and city within our monetary union. After all, Europe will only regain its soul when it regains the people’s trust by putting their interests center-stage"
In a world devoid of true leaders this message is powerful, it comes 5 years after a presidential hopeful proclaimed "yes we can" on the way to his presidency...but he didn't. It comes as a play on that slogan, ironically Yanis seems to be saying "yes we Kant" but he must, and if he does we will be a turning point on our way to real change and a better world.
Wednesday, February 25, 2015
JOE HOCKEY HAS NO IDEA ON SMALL BUSINESS - BELIEVES RBA CAN DO HIS JOB FOR HIM
Why is it so
difficult for people to see the reality of what is happening? Is it ignorance
or apathy or a combination of both? Perhaps it is an awareness issue or a willingness to
learn? Is it the mainstream media propaganda or simply a natural human instinct to be positive, if the world gives us
lemons we just make lemonade!
Time is
ticking and this clock is not broken yet! I have learned over this last 12-18
months that I see things early and this drives me crazy. I find it perplexing
that something that seems so obvious is being overlooked. I am confused by the
strength people have in their almost religious devotion to have a panglossian
view of the world and the economy or how dominant an ego can become in the
decision making process.
The ego is
powerful, just ask politicians and central bankers. Today I will take aim at
Joe Hockey the federal government of Australia’s treasurer who thinks Glen
Stevens and the Reserve Bank of Australia can do his job for him. There I said
it, Joe Hockey thinks the RBA cash rate determines business investment at these
record low levels and that his role is to pressure the RBA into cutting rates
in the hope of producing growth instead of suggesting real government
investment programs that will assist SME’s boost productivity. It seems Joe
Hockey is confused about what drives productivity, innovation, cost savings,
growth and ultimately in the end tax revenues.
Joe Hockey
says the Government has to cut spending on the one hand then expects SME’s to
boost investment after a 25 basis point rate cut. The government must cut
spending and investment because of a debt crisis it doesn’t have at the same
time he expects SME’s and their owners to take that as a positive signal for
the economy. Sorry Joe, I am a multiple small business owner and I am not
buying it, and looking at the Capex numbers out today I am not the only one. I won’t
invest if you won’t, how dare you try and tell me I should and you are way off
base thinking that I will.
I know I
know, I am a doomsayer, chicken little, negative nelly, party pooper, Debbie
Downer. Well that is what many think. I say I am a keen economics student, an
obsessive compulsive learn-a-holic and a realist. I am calculated, considerate,
analytical and a pragmatist. I have to be all of these things because I am a
business owner, if I do not possess these skills I risk making a poor business
decision, if I don’t think about the future I risk becoming a failure
statistic.
I am often
humbled by the mentors I have in my life at present and of course those that
have played a role in the past. It has been a melting pot of true pioneers and
wild and almost crazy entrepreneurs. My upbringing was definitely an unusual
one, Sunday lunches were often a front for business meetings between my father
and various business partners in whatever business needed attention at the
time. I was fortunate enough to get to learn from experiences they had as a
first hand observer to the debates over decisions, the decision itself, the
implementation of that decision and then ultimately the result of the
decisions. I am now a mongrel breed of all
those entrepreneurs, moulded and forged and educated by some unbelievably
loving and switched on mentors. I was blessed with the opportunity of gaining
business experience and knowledge without having to learn the painful lessons
on my own.
My
experiences with academics and my observation of politicians is that almost all
are clueless on how small businesses operate.
Many have little experience or understanding in what a successful
business owner really considers when it comes to making a major business
decision. When the RBA announced its recent rate cut I was amazed to hear the Australian
federal government treasurer Joe Hockey say that the cut should be a boost for
small business investment, like a 25 basis point rate cut was going to stir up
some business borrowing. My reaction was, really Joe? Are you serious?
Let me give
you a little bit of a lesson on SME’s Joe, read the bullet points below and you
will see an emerging trend and hopefully it will dawn on you why your “rate cut
will spur business investment” comment was… errr.. Stupid.
- I don’t look at interest rates when I am
considering employing someone, I look to see if I have a growing market to
sell to, what competition do I have, what are the work place relations
laws like, what red tape could I get tangled up in. I look at likely
economic conditions, does it look like it will be a tail wind or will I be
facing a headwind? The cost of borrowing is way down the list, not worth a
mention.
- I don’t look at interest rates when they are at
historical lows and I am considering a new investment in plant and
machinery. Again I look at if I have a growing market to sell to, or how
will I get a return on investment, does this machine save time, reduce
labour costs, increase safety and efficiency? Does it provide a
competitive advantage?
- I don’t look at interest rates when they are at
historical lows when considering a new product range. Again I look at, is
there a market, what are the competition risks, what does the risk/reward
multiple look like? Will this new product range help me boost existing
product sales to the new customers I attract? I don’t care about a 25
basis point rate cut when rates are these historical lows.
Need I go
on? Or are you seeing the emerging theme Joe Hockey? I won’t expand my
workforce if there appears to be
economic uncertainty. I won’t invest if I don’t see a market growth environment
and I am certainly not encouraged to innovate when I fear policy makers are
asleep at the wheel. If you think I am wrong Joe, look at the Capex numbers
released today. The fact is no matter which way you try and spin it the 25
basis point cut you pressed Glen Stevens into has been a flop. Sadly Joe your
biggest failure is coming and it will be a crisis not just for your political
career but for the liberal party at the next election.
The
infatuation, no obsession with a budget surplus will drive Australia into an
even deeper recession and will accelerate the timing on when it arrives. The
solution isn’t to cut interest rates, it is not in cutting back government
spending, it is about the opposite, we need real growth investment, a big
government stimulus program NOW.
Australia
needs a government committed to a targeted investment on infrastructure that
will boost Australia’s productivity. It is not about public debt, it is a
private debt issue. The only way out of this private debt issue is to help with
infrastructure, government spending that targets productivity gains. Joe Hockey
stop comparing the federal budget to a household budget and start comparing it
to a business budget. Give Australians a business plan for the borrowing, show
them that the investment will boost productivity, and that the return on the
investment will help us not to reduce not only public debt but the private debt
that is strangling our economy.
So quit peddling
the budget crisis line and start getting serious about targeting GDP boosting
productivity investment before debt deflationary recession swallows the
Australian economy whole. A national economy and public finances should not be
run like a household budget, it needs to be run like a business, with a plan
that targets return on investment. It requires a grown up government to focus
on policy not politics, maybe it requires a think tank of successful
entrepreneurs and business owners, not just academics and politicians… but what
would I know… oh other than I knew the Capex number was going to be a disaster
today and you thought the 25 basis point interest cut would spur SME investment.
If that came across as sarcastic, it’s because it was and if this whole blog
sounded like it was written by a frustrated person, it’s because I am.
Thursday, January 22, 2015
NO GENUINE MARKETS - JUST CAPITAL FLOWS
It seems that the Central Banks have an endless supply of coins to keep feeding the jukebox. The contestants are still walking the circle, jostling for positions as the tunes keep playing and the game of musical chairs continues. The longer the music plays the higher the stakes become for the players to avoid the disaster of being left without a spot to park their derriere when it the music finally stops.
It is an exciting game for those playing, but for the 99.9% of the population not playing it must feel like listening to an endless countdown of songs you love to hate. I thought it was over when I heard Billy Ray Cyrus puking out "Achy Breaky Heart" right after the Spice Girls "Wannabe" but sadly it wasn't.
It might be close though, closer than many think, you see we don't have markets any more, we have central bank manipulated capital flows. Capital flows is the game, especially at the zero lower bound where the miniscule cost to leverage up encourages speculation. This is driving volatility early in 2015, a trend I expect to continue when it becomes more and more evident that there is no real recovery in the USA because the real economy is laden with debt.
I expect 2015 to be a year where global financial markets could be hit with a crisis that could be much worse than the one seen in 2008. The scene is set and the mistakes have been made, private debt levels have not been reduced to the levels needed to spur demand and easy monetary policy has failed to generate real growth in anything other than asset bubbles.
We no longer have genuine markets, we really just have central bank manipulated capital flows. I cannot believe how much power a panel of unelected individuals have over the way all financial and capital markets move. The prime example of this was the foreign exchange markets frenzy last week when the Swiss National Bank announced that it would no longer maintain its Swiss Franc/Euro peg. Accompanying that announcement was the shock introduction of a negative 0.75% interest rates on all on sight cash deposits which are basically the cash type holdings big commercial banks have with the Swiss National Bank. The policy was supposed to reduce the capital flows out of the Euro and into the Franc but the negative rates were seen more as just a yield penalty that would be more than offset by the Franc/Euro cross rate appreciation.
The negative 0.75% rates are more akin to buying a membership at Costco, where you pay a fee to join but save money by getting more bang for your buck in the store. Same with the negative 0.75% cost of membership to the Franc. If you were an early membership taker in the Franc, well it cost you 0.75% to save 20% as the Franc/euro cross rate settled 20% higher than the previous days trade.
Currency wars, artificial pegs and a deeply flawed Euro currency design show how irrelevant reality is when it comes to Central Bank manipulated capital flows. Wealth preservation rather than chasing yield is the new game as the bets keep rolling in for a global debt deflationary bust. I expect the gold price to rally and see great investment opportunities for gold mining stocks around the world outside of the USA. I expect the trend in gold prices in other currencies to continue their upward trend as the gold market grapples with an appreciating dollar as capital flows out of emerging markets wash back into the USA economy.
This money flowing back has up to this point been pushed into the US treasury market and also the local US equities market. The yield on the 10 year UST is as low as it was in 2011 when gold hit its high of over US$1900/oz. With the equities markets trading at record highs, the yields on UST at all time lows, the gold contrarian argument that the yellow metal is a poor investment because it is a non yielding asset is rapidly weakening.
If the reaction to the Swiss National Bank ending the Euro peg and imposing a NEGATIVE yield on cash deposits didn't deter capital flows out of the Euro and into the Franc, perhaps the day is near that people will see that a 0% yield in gold, that is priced more than 50% off its all time high is a more attractive play than paying for the privilege to own another fiat currency. I think there are little other attractive options in a world where the dark macro clouds are building and where all other investment options that carry a perceived minimal risk have become overcrowded. The gold trade is the only unpopulated place right now but this may soon change as the artificial sea of liquidity searches for a place to weather the next global economic storm.
I have been wanting to write this blog for about a month now so have missed out on the recent gold price rally, I have commented on twitter engaging Barry Ritholtz on my reasons why I see a gold bull market emerging. At the time of this post gold is trading at $1301/oz and the ECB is set to make a huge announcement on their own launch/version of QE. So for now the music keeps playing, but get ready, stay alert and focus. Those that assume that the ECB paying for 5 more songs on the jukebox means the game goes on are ignoring the possibility that the musical chairs game may be stopped by a lightning strike from one of the dark macro clouds that are gathering on the horizon. Those playing and ignoring the random chance of a lightning strike power outage may be the very players without a spot to sit as the game comes to an uncontrollable end.
It is an exciting game for those playing, but for the 99.9% of the population not playing it must feel like listening to an endless countdown of songs you love to hate. I thought it was over when I heard Billy Ray Cyrus puking out "Achy Breaky Heart" right after the Spice Girls "Wannabe" but sadly it wasn't.
It might be close though, closer than many think, you see we don't have markets any more, we have central bank manipulated capital flows. Capital flows is the game, especially at the zero lower bound where the miniscule cost to leverage up encourages speculation. This is driving volatility early in 2015, a trend I expect to continue when it becomes more and more evident that there is no real recovery in the USA because the real economy is laden with debt.
I expect 2015 to be a year where global financial markets could be hit with a crisis that could be much worse than the one seen in 2008. The scene is set and the mistakes have been made, private debt levels have not been reduced to the levels needed to spur demand and easy monetary policy has failed to generate real growth in anything other than asset bubbles.
We no longer have genuine markets, we really just have central bank manipulated capital flows. I cannot believe how much power a panel of unelected individuals have over the way all financial and capital markets move. The prime example of this was the foreign exchange markets frenzy last week when the Swiss National Bank announced that it would no longer maintain its Swiss Franc/Euro peg. Accompanying that announcement was the shock introduction of a negative 0.75% interest rates on all on sight cash deposits which are basically the cash type holdings big commercial banks have with the Swiss National Bank. The policy was supposed to reduce the capital flows out of the Euro and into the Franc but the negative rates were seen more as just a yield penalty that would be more than offset by the Franc/Euro cross rate appreciation.
The negative 0.75% rates are more akin to buying a membership at Costco, where you pay a fee to join but save money by getting more bang for your buck in the store. Same with the negative 0.75% cost of membership to the Franc. If you were an early membership taker in the Franc, well it cost you 0.75% to save 20% as the Franc/euro cross rate settled 20% higher than the previous days trade.
Currency wars, artificial pegs and a deeply flawed Euro currency design show how irrelevant reality is when it comes to Central Bank manipulated capital flows. Wealth preservation rather than chasing yield is the new game as the bets keep rolling in for a global debt deflationary bust. I expect the gold price to rally and see great investment opportunities for gold mining stocks around the world outside of the USA. I expect the trend in gold prices in other currencies to continue their upward trend as the gold market grapples with an appreciating dollar as capital flows out of emerging markets wash back into the USA economy.
This money flowing back has up to this point been pushed into the US treasury market and also the local US equities market. The yield on the 10 year UST is as low as it was in 2011 when gold hit its high of over US$1900/oz. With the equities markets trading at record highs, the yields on UST at all time lows, the gold contrarian argument that the yellow metal is a poor investment because it is a non yielding asset is rapidly weakening.
If the reaction to the Swiss National Bank ending the Euro peg and imposing a NEGATIVE yield on cash deposits didn't deter capital flows out of the Euro and into the Franc, perhaps the day is near that people will see that a 0% yield in gold, that is priced more than 50% off its all time high is a more attractive play than paying for the privilege to own another fiat currency. I think there are little other attractive options in a world where the dark macro clouds are building and where all other investment options that carry a perceived minimal risk have become overcrowded. The gold trade is the only unpopulated place right now but this may soon change as the artificial sea of liquidity searches for a place to weather the next global economic storm.
I have been wanting to write this blog for about a month now so have missed out on the recent gold price rally, I have commented on twitter engaging Barry Ritholtz on my reasons why I see a gold bull market emerging. At the time of this post gold is trading at $1301/oz and the ECB is set to make a huge announcement on their own launch/version of QE. So for now the music keeps playing, but get ready, stay alert and focus. Those that assume that the ECB paying for 5 more songs on the jukebox means the game goes on are ignoring the possibility that the musical chairs game may be stopped by a lightning strike from one of the dark macro clouds that are gathering on the horizon. Those playing and ignoring the random chance of a lightning strike power outage may be the very players without a spot to sit as the game comes to an uncontrollable end.
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