The Next Golden State

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Two years ago, the Economist featured a cover story touting Australia as The Next Golden State. Perfect weather, beautiful beaches, and prolific government investments in higher education in hopes of building a technology hotbed to rival the one in the original Golden State.

Things were looking great. The commodities supercycle was going to drive economic growth FOREVER. Lucrative mining jobs brought an influx of immigrants – today, over a quarter of the population were born abroad.

Wages increased. Well, some did. Those employed in mining could earn salaries of over $200k with little training or education. For those outside the mining sector, wages were shit. People flocked to mining-related jobs.

The rapid population growth led to a housing shortage. Australia’s major cities did not have the infrastructure to support such quick expansion. By 2011, the rate of homelessness increased to 1 in 200, more than double the rate in the US. Many of the homeless were employed full time.

Good thing they were saving money by forgoing rent. The massive immigration fueled high income elasticity. The cost of living exploded. Sydney is now the third-most expensive city in the world.

Between 2009 and 2011, the Aussie dollar appreciated 43% against the USD. Tourism suffered. Manufacturers couldn’t find markets for their exports. Plants shut down, and their employees moved to support the mining industry. It was a classic case of Dutch disease.

Australia GDP contributions

Now the commodities boom is over. The mining industry will shrink, and unemployment will rise. The country will need to rebuild its non-mining sectors. The AUD will fall, whether by tracking gold prices or through RBA monetary policies.

Dreams of building a Silicon Valley down under may be dashed. Much of the research funding provided to academic institutions came from the mining industry, whether directly or indirectly through tax revenue.

Australia may not become the next Golden State, but at least it can finally go back to being a cheap holiday destination for the rest of us.

Australia Gold Coast

A Half-Second of Trading Activity

I think this is really cool.

The bottom box (SIP) shows the National Best Bid and Offer. The shapes represent quote changes which are the result of a change to the top of the book at each exchange.

[youtube http://www.youtube.com/watch?v=rB5jJuMP84E&w=560&h=315]

From Nanex:

Watch High Frequency Traders (HFT) at the millisecond level jam thousands of quotes in the stock of Johnson and Johnson (JNJ) through our financial networks on May 2, 2013. Video shows 1/2 second of time. If any of the connections are not running perfectly, High Frequency Traders can profit from the price discrepancies that result. There is no economic justification for this abusive behavior.

Now now, I don’t think that last sentence is quite fair. First of all, this abusive behavior serves as gainful employment for thousands of parasites who might otherwise become debt collectors or personal injury attorneys or used car salesmen. At least this way nobody has to look at them.

Second, I have a soft spot in my heart for high-frequency traders because the very first research funding I secured while teaching at the University of Sydney was from an HFT firm. I wrote a grant proposal to build machine-learning algorithms in reconfigurable hardware and spent weeks kissing ass and turning tricks all over town. The shop finally threw me a few drops of funding to hire two graduate students.

That’s how a trickle-down economy works!

You Are Not Your Mistakes

Warren Buffett spinning a basketball

At Berkshire Hathaway Inc’s annual meeting this past weekend, Warren Buffett invited short-seller Doug Kass* of SeaBreeze Partners to join his panel in a Q&A session. Kass is rooting for Berkshire to go under, and Buffett wanted Kass to query the company in front of all its shareholders.

What kind of CEO does that?? That’s like Obama inviting Rand Paul to give a response at the State of the Union address.

Jason Zweig calls it inviting doubt [1], but Buffett does not doubt himself. Buffett knows his process inside and out. It’s his investment decisions that he wants to doubt.

It is important to separate yourself from your decisions.

While it is possible to fully know yourself and your process, it is impossible to know everything about an investment, as that would require knowing the future. Even if you have a perfect system, errors will still happen due to the fact that the system is operating on incomplete information. Minimize the incompleteness of the information by encouraging criticism.

This encompasses Ray Dalio’s Fundamental Principle of Truth: An accurate understanding of reality is the essential foundation for producing good outcomes [2].

It also leads to another key Principle – Do not feel bad about your mistakes. Mistakes happen as a result of incomplete information. You are not your mistakes. Feeling bad about mistakes prevents you from learning from them.

Even Doug Kass knows this – he worships Buffett (It’s actually Berkshire’s investors that he doubts [3]).

*Interesting fact: Long-Term Capital Management was also short Berkshire. Kass is in good company.


1. A Lesson From Buffett: Doubt Yourself –wsj.com

2. Principles, by Ray Dalio — written as a management handbook, but the lessons apply to everything in life.

3. Kass Katch: 11 Reasons to Short Berkshire –TheStreet, from 2008, but not much has changed.

I am Fond of Pigs

by Winston S. Churchill

Dogs look up to us. Cats look down on us. Pigs treat us as equals.

pig

In America we succeeded in eliminating hereditary power, in obtaining a large measure of political liberty, only to see the rise of an economic power, and the consequent loss of economic liberty. The industrial development of the United States was of course a necessary and desirable thing, but the economic doctrine which formed the basis of American institutions proved to be unsuited to industrialism, and introduced unforeseen evils that were a serious menace to the Republic. An individualistic economic philosophy worked admirably while there was ample land for the pioneer, equality of opportunity to satisfy the individual initiative of the enterprising. But what is known as industrialism brought in its train fear and favour, privilege and poverty, slums, disease, and municipal vice, fostered a too rapid immigration, established in America a tenant system alien to our traditions.

Before the advent of industrialism, poverty was negligible, there was no great contrast between rich and poor; the artisan, the farmer, the well-to-do merchant met on terms of mutual self-respect, as man to man; economic class consciousness was non-existent; education was so widespread that European travellers wonderingly commented on the fact that we had no “peasantry”; and with few exceptions every citizen owned a piece of land and a home.

Property, a refuge a man may call his own, and on which he may express his individuality, is essential to happiness and self-respect. Today, less than two thirds of our farmers own their land, while vast numbers of our working men and women possess nothing but the labour of their hands. The designation of labour as “property” by our courts only served to tighten the bonds, by obstructing for a time the movement to decrease the tedious and debilitating hours of contact of the human organism with the machine,—a menace to the future of the race, especially in the case of women and children. If labour is “property,” wretches driven by economic necessity have indeed only the choice of a change of masters. In addition to the manual workers, an army of clerical workers of both sexes likewise became tenants, and dependents who knew not the satisfaction of a real home.

Such conditions gradually brought about a profound discontent, a grouping of classes. Among the comparatively prosperous there was set up a social competition in luxury that was the bane of large and small communities. Skilled labour banded itself into unions, employers organized to oppose them, and the result was a class conflict never contemplated by the founders of the Republic, repugnant to democracy which by its very nature depends for its existence on the elimination of classes. In addition to this, owing to the unprecedented immigration of ignorant Europeans to supply the labour demand, we acquired a sinister proletariat of unskilled economic slaves. Before the war labour discovered its strength; since the war began, especially in the allied nations with quasi-democratic institutions, it is aware of its power to exert a leverage capable of paralyzing industry for a period sufficient to destroy the chances of victory. The probability of the occurrence of such a calamity depends wholly on whether or not the workman can be convinced that it is his war, for he will not exert himself to perpetuate a social order in which he has lost faith, even though he now obtains a considerable increase in wages. Agreements entered into with the government by union leaders will not hold him if at any time he fails to be satisfied that the present world conflict will not result in a greater social justice. This fact has been demonstrated by what is known as the “shop steward” movement in England, where the workers repudiated the leaders’ agreements and everywhere organized local strikes. And in America, the unskilled workers are largely outside of the unions.

The workman has a natural and laudable desire to share more fully in the good things of life. And it is coming to be recognized that material prosperity, up to a certain point, is the foundation of mental and spiritual welfare: clean and comfortable surroundings, beauty, rational amusements, opportunity for a rational satisfaction of, the human. instincts are essential to contentment and progress. The individual, of course, must be enlightened; and local labour unions, recognizing this, are spending considerable sums all over the country on schools to educate their members. If a workman is a profiteer, he is more to be excused than the business profiteer, against whom his anger is directed; if he is a spendthrift, prodigality is a natural consequence of rapid acquisition. We have been a nation of spendthrifts.

A failure to grasp the psychology of the worker involves disastrous consequences. A discussion as to whether or not his attitude is unpatriotic and selfish is futile. No more profound mistake could be made than to attribute to any element of the population motives wholly base. Human nature is neither all black nor all white, yet is capable of supreme sacrifices when adequately appealed to. What we must get into our minds is the fact that a social order that insured a large measure of democracy in the early days of the Republic is inadequate to meet modern industrial conditions. Higher wages, material prosperity alone will not suffice to satisfy aspirations for a fuller self-realization, once the method by which these aspirations can be gained is glimpsed. For it cannot be too often repeated that the unquenchable conflicts are those waged for ideas and not dollars.

No one is going to buy Google Glass

After the iPhone came out, pictures like this started popping up all over the internet:

girl holding iphone

The message that this conveys: Wow, that’s hot. If I own an iPhone, I will surely be perceived as a nubile young female, or at least be able to fornicate with one.

Now that Google Glass is trickling out, we’re starting to see pictures like this:

Robert Scoble rockin' his Google Glass
Robert Scoble rockin’ his Google Glass

And that is why no one will ever pay money for Google Glass.

Guys Like This Could Kill Google Glass Before It Ever Gets Off the Ground –wired.com