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.

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.

"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&region=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.

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.  

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.

OLD ECONOMICS NEEDS TO BE REPLACED BY STONE SOUP

 

What year do you want to go back to Phil? That is the question you get when you try and explain that the current global financial system framework is fractured and about to break. That level of cognitive dissonance is a hard to overcome, it truly grinds at me.

How can so many fight so hard believing things are good when clearly they are not? How can so many still be viewing the world through a panglossian set of spectacles or contact lenses?

That question really intrigues me but more importantly it bothers and saddens me. It was the catalyst that pushed me to take time out of an impossible schedule to write this blog. This is a social justice piece of writing that will be my personal flipside reaction to those that have the rosy view. I hope to describe my own version of cognitive dissonance, the type that is conjured up when I am attacked for thinking there actually was a better time to live on this planet than now.

To the people that have called me every name from Mr Downer to Doomsday Prepper. Read this.

To those that have questioned my sanity for making the suggestion that perhaps there was a better time to be living on this planet. Read this.

To the people that are distracted by the mindless dribble of the media and the Kardashians, the news and the NFL, the fear and the football…Please Read this and at the end ask yourself truly how you feel about my thoughts and feelings.

Perhaps I am crazy? Maybe I am not? If you could find time at the end please comment, share your thoughts because as I said earlier I am truly bothered and saddened by the direction of humanity and the apathy and acceptance of the status quo.

Here is my own version of cognitive dissonance – It comes from those that think they cannot make a difference, to those that allow themselves to become slaves to a system that is rigged against them.

I am not a capitalist turned communist, nor am I chasing a time machine so that I can go back to 1991 when Michael Jackson and a band of elite performers released “heal the world”. My answer isn’t that we need to go back in time, nor abandon capitalism for communism but humanity needs an awakening and awareness. It’s not a month or a year but a mindset, it’s not just about economics and finance, it’s about social justice and capturing the spirit of what it is to be warm and caring again.

We now live in a world that celebrates extreme greed. Hollywood even glorifies it by pushing films out like “The wolf of Wall St”. The media and advertising companies promote consumerism at the same time that big multinational manufacturers exploit planned obsolescence. We are a throw- away society, we have our minds focused on today where selfishness is now the norm and not the exception to the rule.

It seems the world is devoid of true leaders, the type that hold a true moral compass and possess a voice that can set the masses back on a more sustainable and healthy path. As I cast my mind over world leaders I struggled to think of a political leader in the world that I feel is truly looking to leave the world in a better place than it was when they found it.

It is truly disturbing when you really think about it. I don’t see any leadership coming from anyone outside of religious leaders such as Pope Francis and The Dalai Lama. Setting those aside I ask myself, where is the Martin Luther King “I Have a dream” or the JFK “Ask not what your country can do for you, but what you can do for your country”.

Where is the next Nelson Mandela? Or the Mother Theresa?

Don’t you dare bring up Bono, or the Nobel Peace Prize winner President “I Killed Osama Bin Laden” Obama who also was elected to end wars rather than start them. It is truly puke worthy watching the celebrities of today producing acts of disingenuous “giving” looking for praise just for helping the very people that support them and their careers.

The celebrity disconnect soared to new levels of ridiculousness recently when  a group of leftover B grade musicians were rustled up to form a band to raise money to aid the fight against the ebola outbreak and the scourge of poverty that exists in many African nations.

The usual hypocritical martyr types were involved again and with Sir Bobby Geldof heading up the army of “look at me helping the poor, where is the media” charity types and of course there was the rusted on Bono sun glasses on, changing the world. What could possibly go wrong? Ok so the name of the group “Band-Aid” is a little, could we say, ermmm.. cringe worthy?

Ok OK I know Bono and Geldof have been accused of tax minimisation, but what does that matter given the fact that they are taking a few hours out of a day to help record a song for charity? Can we not get over that and focus on their righteous and selfless act of giving, we are approaching Christmas in case you have forgotten… or maybe you didn’t know.. or don’t know..

Moving on we have the governments focusing on dealing with poverty the only way they know how, REGULATIONS AND LAWS. In the USA they have threatened a 90 year old man with a jail sentence for feeding the homeless and hungry, the poorest of the poor. If only Bono was there things would have been different…

WAKE UP PEOPLE – IF YOU WANT CHANGE YOU HAVE TO MAKE THE CHANGE.

I say we should all start by tossing out economics, slashing the financial sector and replace it with a real spirit and determination to make a difference. The winds of change are gathering momentum, the protest movement is becoming a world-wide phenomenon.

 

People are angry, but they cannot put their  finger on why. A stolen car space triggers a “red mist” road rage incident, the black Friday store sales looked more like a rugby union maul coupled with a UFC grudge fight. Punch ups, wrestling matches, arguments and black eyes are par for the course in the quest for a cheap TV. It is a sign of the times, the worst traits of humanity laid bare for all to see.

The economic and political system is slowly turning human beings away from compassion and into pack animals. This has me wondering whether we need to relearn compassion and sharing first, then build an economic and political system around those new values second.

We need to all learn the recipe for stone soup before we can move on to thinking of becoming Iron Chefs in economics or master chefs of politics. I have added the recipe taken from Wikipedia that comes in the form of a fable or story. I am hoping that when you have read it you will agree with me that it has the ingredients needed for the framework for building a better system and a better society. If you agree, make a contribution yourself to the change and toss in some carrots, or celery… you will understand what I mean!

The story of Stone Soup described by (Wikipedia):

 “Some travellers come to a village, carrying nothing more than an empty cooking pot. Upon their arrival, the villagers are unwilling to share any of their food stores with the hungry travellers. Then the travellers go to a stream and fill the pot with water, drop a large stone in it, and place it over a fire. One of the villagers becomes curious and asks what they are doing. The travellers answer that they are making "stone soup", which tastes wonderful, although it still needs a little bit of garnish to improve the flavour, which they are missing. The villager does not mind parting with a few carrots to help them out, so that gets added to the soup. Another villager walks by, inquiring about the pot, and the travellers again mention their stone soup which has not reached its full potential yet. The villager hands them a little bit of seasoning to help them out. More and more villagers walk by, each adding another ingredient. Finally, a delicious and nourishing pot of soup is enjoyed by all.”

Please share your thoughts – this is a vital ingredient for the soup and if you enjoyed this piece, share it. If you wish to read more you can follow me @carneycapital on twitter.

 

WHY I JOINED PROFESSOR KEEN AT IDEA ECONOMICS

Economists are a quirky and somewhat religious bunch are they not? Some may say they fit into the nutty professor category and that their body serves no real purpose but to transport their head around the planet. They live in this mental space that is hard to define and because of this are perhaps seen as not living in the real world.

I recently joined the Institute For Dynamic Economic Analysis (IDEA) which is a Not For Profit Organisation that has a huge agenda to reform and transform the way we view economics. There is no doubt the social science of economics needs a total overhaul. It requires a rebranding and relaunch and IDEA has the “A” team get this job done because we know where things have to start, we need to go back to the beginning and unlearn the wrong way we do economics and relearn the right way.

The global economy has transformed into one giant ecosystem, integrated and linked. The ecosystem is delicate and the job of economists is to nurture and protect the ecosystem in its entirety for risking the extinction of one part will surely cause a shift in the balance of the remaining parts.

It is for this reason that I believe that the Federal Reserve and all their support team should have concentrated on reading and covering the work of Hyman Minsky Professor Steve Keen and the work done by the Queensland Department of Agriculture back in the 1930’s before the introduction of the “cane toad”.

I am guessing now that many of you are likely thinking how and what does the Queensland Department of Agriculture have in common with the modern day economic and financial system. If you are thinking that, indulge me by reading on and allowing me to provide clarification. This blog will be a journey for the layperson, a simple explanation that will toss out economics technical jargon and mumbo jumbo.

I hope by the end of this piece you will all see how directly and precisely a comparison can be made between the future impact of the current US Federal Reserve Policy and the disastrous results the cane toad ecological blunder produced in my home country of Australia.

The journey begins  with the US Federal Reserve response to the last Global Financial Crisis. With the beginnings of an exposed flaw in the economic system, the natural forces that had built the economic ecosystem saw need to recalibrate. The global Financial Crisis was upon us. The disproportionate growth in the financial sector vs the real productive economy had upset the natural balanced state of the global economic ecosystem.

The global economic ecosystem was faced with its own version of the “frenchi” and “greyback” beetles that were damaging and eating away at the real producing economy. The Financial sector was hurting production and output the same way those pesky beetles were affecting the output of Australian Cane sugar.

In many ways the Federal Reserve and other Central banks were confronted with similar issues to the Queensland Department of Agriculture. I understand one is about an economics and finance ecosystem and another is a nature based environmental ecosystem however once stripped back to its basic form an ecosystem is an ecosystem is an ecosystem is an ecosystem.

Faced with the mounting damage the beetles were doing to the cane crops the Queensland Department of Agriculture decided to unleash a foreign toad, now affectionately known as the “cane toad”. It was introduced to eradicate those pesky beetles once and for all and return our wonderful natural, even stevens, recalibrated and rebalanced ecosystem to a more productive and sustainable path.

Approximately  80 years have passed since the first  “cane toad” set foot on Australian soil and it is abundantly obvious that is has produced little more than disastrous results. Cane toads have continued to do what they do best “eat and procreate”. They are now an epidemic costing the Australian economy much more than the pesky beetles would/could have. Their population has spread and so has the immeasurable damage they have done too much of Australia’s native flora , fauna and wildlife.

I would say that Quantitative Easing and Federal Reserve interference through its “bond buying” program, is in essence, introducing a foreign species into the global financial ecosystem. There were bank bailouts and a Federal Reserve risk reduction backstop. The “bond buying” program was introduced to keep long term interest rates low to enable a recovery in a similar way the Cane toad was introduced to keep beetle population low to enable a recovery of cane crop production.

Are you following?

So as the Cane Toad population grew so did the systemic damage it was doing, at first slow before accelerating aggressively. So this brings me to my next direct link. QE has had the effect of providing liquidity to emerging markets, facilitated a “carry trade” bonanza as investors borrow at low supressed interest rates in the USA and invest in higher yielding emerging market bonds and equities markets etc.

The Thailand Stock Exchange (SET) has more than doubled since 2010 as have many other emerging economies equity markets. QE has also produced a wave of analysts examining international markets in a different way than ever before. It seems that analysts want to chart the sea of carry trade liquidity as it finds a new home much like a toad would a new river or creek.

Are you following now?

The Shiller index has been touted as a great way of picking up opportunities in emerging markets by identifying value by comparing P/E ratios amongst international equities markets indexes. I admire the work that Professor Robert Shiller has done and the contributions he has made. He thoroughly deserved his Nobel Prize.

In saying that I admire Shillers work,  I do have my doubts that his index can be relied upon to pick up major trading opportunities in emerging markets in much the same way that the path of least resistance my not be the first direction the toads go as their population expands.

Though I take issue in certain ways of calculating opportunity to exploit the effects of QE, I maintain my position that QE is to the global economic ecosystem, what the Cane toad was to the unique Australian natural ecosystem. If the lessons learned by the Department of Agriculture in QLD were examined and applied along with the teachings of Minsky, Keen and co to the decisions made by Central Banks then perhaps the ecological disaster about to strike the global economy could have been avoided.

It seems that for the global economy only time will vindicate the warnings of the maverick band of economists that include Professor Steve Keen, Dr Anne Pettifor, and  Professor Michael Hudson. Though I was originally apathetic, convinced I could not make a difference, my position changed when I met Professor Keen back in Sydney at my most recent visit. He expressed the importance of reform, and though he is softly spoken, I could see what it meant.

I joined IDEA because this is as much a humanitarian plight as it is a fight to change how we do economics and although they are not one and the same fight, they can both make a difference in making the world a better place to live.

So my journey begins at team IDEA economics to make a difference the only way I know how. To give IDEA economics a voice, to bring the message and draw a link between economics and something that real people understand in the hope that 80 years from now my QE and the Cane Toad story will not spread and will be just a chapter in a book that went unpublished.