The Dreamtime Phoney War

On the June 1st episode of the podcast, TRIGGERnometry, Peter Hitchens made an interesting observation on the the current attitude of many people in the UK (but it applies equally to any other country undergoing government Kung Flu largesse):

He describes many people as living in a happy dreamtime where most, if not all, of their wages are being paid for by government relief schemes, the weather is pleasant and the consequences of incurring the biggest peacetime national debt have not yet been felt.

His opinion is this cannot continue and, when the plug is pulled on these various furlough schemes, there will be a difficult and tragic reckoning to be had.

The likely timeline for this mean reversion differs by jurisdiction but the 3rd and 4th quarters of 2020 is generally when these government cash drops are due to either finish or begin to taper off.

I say this without any hint of glee, but there are individuals and entire industries that are going to experience the financial equivalent of cold turkey.

What’s cold turkey feel like? Let’s ask a professional:

I can’t imagine what other people think cold turkey is like. It is fucking awful. On the scale of things, it’s better than having your leg blown off in the trenches. It’s better than starving to death.

But you don’t want to go there. The whole body just sort of turns itself inside out and rejects itself for three days. You know in three days it’s going to calm down. It’s going to be the longest three days you’ve spent in your life, and you wonder why you’re doing this to yourself when you could be living a perfectly normal fucking rich rock star life.

And there you are puking and climbing walls. Why do you do that to yourself? I don’t know. I still don’t know. Your skin crawling, your guts churning, you can’t stop your limbs from jerking and moving about, and you’re throwing up and shitting at the same time, and shit’s coming out your nose and your eyes, and the first time that happens for real, that’s when a reasonable man says, “I’m hooked.” But even that doesn’t stop a reasonable man from going back on it.

Keith Richards

Bill’s Opinion

Governments and central banks are about to discover restarting an economy is a significantly different prospect to stopping one.

I have no doubt our money, our children’s money and our grandchildren’s money will be generously thrown at the problem.

Some of it may even stick.

In fact, the Australian Government is mooting plans to throw figures like $20,000 at new home builds or to renovate existing homes. Obviously, this will have the effect of increasing the price of everything by a leveraged ratio of $20,000.

I understand the Keynsian theory is it doesn’t matter what the money is spent on but, now we’ve just run the biggest experiment to prove most people don’t need to live 8km from the CBD to be productive, why are we installing granite kitchen worktops in Mosman rather than building high speed rail links to an open plain in the middle of nowhere for developers to build around?

In the meantime, this organ has been sadly missing a previous regular commentator from Brisbane who frequented this place with gleeful tales of his investing prowess and acumen.

If he were to return, we might ask him to review this updated chart and answer the question, “what happens next?“.

Don’t ya know that it Hertz so good

… to paraphrase Susan Cadogan.

One of the first corporate dominoes fell this week as the car rental company, Hertz, commenced the bankruptcy process in the USA.

That a car rental company might file for Chapter 11 after 6 weeks of almost total cessation of global and domestic travel might not be so surprising, perhaps.

There’s an analogy to be had here though, which can be summarised by one question.

Before I pose that question, I will explain that this is the second time I posed it. The first was last night when we finally managed to visit friends for dinner. One of the couple was very much of the “one death is too many, regardless of the economic and long term social costs” attitude, so prevalent in all of the media class and nearly every national government.

She was also absolutely certain the published figures for fatalities from around the world were 100% accurate, despite also conceding the data collection methodologies varied by country and local jurisdiction.

Her reaction when I asked the following question was visceral; she physically moved and paused in her conversation. Depending on which psychology source you read, this can sometimes be an indication of a moment of cognitive dissonance. The question was this:

“Over recent years, Hertz has taken on $19bn of debt, so do you think Hertz died of the virus or simply with it?”.

Bill’s Opinion

The virus might have hurried Hertz and Virgin along to an early grave, but the debt level both companies had taken on was unsustainable by any objective measure.

What do we think will the Receiver will write as the cause of death on their death certificates?

Unintended consequences are governments’ only consequences

Anyone who has previously met a human might be forgiven for reading the following quote and laughing like a drain:

There is no better time to rid the states of inefficient taxes that hold back economic growth and I am talking stamp duty and payroll taxes,” Mr Perrottet said.

“We are not going to tax our way back into prosperity. Increasing or decreasing taxes is not tax reform.”

When asked which state tax was at the top of his reform agenda Mr Perrottet replied: “Stamp duty. I’ve raised it before, I think we need to get rid of inefficient taxes.”

Stamp duty, also known as transfer duty, taxes the sale of all properties in NSW and last year raised $7.5 billion for the state’s coffers. After payroll tax, stamp duty is the biggest source of taxation revenue for the states.

If you listen very carefully, you can hear the sound of a thousand Estate Agents each unwrapping a shiny new razor blade and settling into a final warm bath, whilst cradling a single malt.

Bill’s Opinion

I can’t read Dominic Perrottet’s mind, but I’m assuming his motivation for foreshadowing the idea of a replacement of Stamp Duty was to show the public the government was actively pursuing ways to get the economy moving. After all, “something must be done” is all the encouragement politicians need to hear to get on with fiddling with complex systems they don’t fully comprehend.

A quick dekko at the CV of the NSW Treasurer, Dominic Perrottet, tells you everything you need to know; his last “real” job was when he was 28 years old. Saying that, the profession was lawyer, so one assumes he’d only managed to gain three of four years post graduation and law school before he was dropped into a safe seat.

Let’s face it, he’s a career politician with practically zero experience in the real world.

If he had even the mildest understanding of how humans make important life decisions such as buying property, he’d have kept his mouth firmly shut until the legislation had been drafted, agreed and had a good chance of being passed into law.

Instead, he’s just told everyone who was considering buying or selling property in NSW that a very expensive tax might be replaced or even removed at some point in the near future, so it might be regrettable to go ahead with the transaction until clarity has been provided.

In related news, the chart has been updated.

Does anyone want to make a prediction on what the next 6 months might look like?

Orange line down, flat or up?

The blue line has never dropped below 0.2% since the 1970s, by the way.

Casually sinister, Prime Minister

Headlines are often misleading, usually written by someone other than the article’s author.

Regardless of that, the casual manner in which this is written, seemingly without considering the alternate ways it might be read and received, is truly frightening:

Earn“. As in, “earn” your freedom.

…more app downloads are needed“. All that’s needed to complete the sentence is, “or else“.

Perhaps the headline doesn’t reflect the facts contained within the story. After all, the Sydney Morning Herald had hundreds of headlines about Russian hacking of various elections without providing any evidence within those articles.

Sadly, no; The Prime Minister really went there:

About 3.6 million people, or 15 per cent of the population, have downloaded the CovidSafe app, used to determine who has had contact with an individual carrying the virus, since its release last Sunday. This is far short of the government’s target for 40 per cent adoption, with a focus on those over the age of 16.

“That is the ticket to opening up our economy – to getting people back into jobs and getting businesses open again,” Mr Morrison said.

Great. Suddenly that “voluntary” app (that still hasn’t had the associated privacy legislation passed, by the way) is starting to feel a little less of a free choice with no negative consequences for conscientious objectors.

In fact, who else wonders whether, if 80% of the population vote “nien danke” to the app, there won’t be further legislation defining what public services and spaces one is unable to use without showing it running on your device?

Bill’s Opinion

The opinions about this app are polarised. It’s yet again another Brexit/Trump/gay marriage type issue; if you’re on one side of the conversation, you are able to loudly express your opinion without fear of censure. The other side, however, sit quietly seething in the knowledge they will be shouted down for even suggesting there may be a microscopic smidgen of merit to the suggestion the app is government overreach.

Personally, I’m not downloading the app voluntarily. If I find myself restricted in society as a consequence, I’d reconsider that for precisely as long as it takes me to emigrate.

The question would be at that point, to where? The entire globe seems to have pivoted overnight to a socialist, Keynesian, semi-authoritarian dystopia.

Appy clappy people of faith

Whenever there were skirmishes in satellite states during the Cold War, some wag would always crack the joke that, to compensate for being late for the first and second world wars, America was determined to be early for the third.

Now that the data starts to arrive from many locations around the world suggesting the infection fatality rate of the Kung Flu is a fraction of the first estimates, governments are demonstrating the sunk cost fallacy to compensate for their previous tardiness.

One example is the multiple “tracing” apps developed for mobile phones, ostensibly to enable the tracking of contacts once an individual has been diagnosed with the virus.

Both the UK and Australia have launched their versions of this, despite the now obvious fact that the health systems have not been overwhelmed and the less obvious but increasingly likely calculation that the death rate is only a little higher than seasonal ‘flu, a risk we have long since accepted as part of daily life.

This is a classic sunk cost fallacy – spending money on this development was possibly the right decision at the time given the contemporaneous information, but events have overtaken us in the meantime, yet we are still pressing ahead with the roll out.

The Australian app is particularly pointless; new cases have decreased to a trickle and happily, new deaths are in the single digits. An Australian resident currently has more chance of winning the lottery jackpot than meeting an infected person.

Yet, the app was launched yesterday to much fanfare and, frankly, virtue signalling by our media-political class. “Download this app and save lives“, is our generation’s “Dig for victory“, it would seem.

What is most remarkable is the cognitive dissonance required to accept the triple proposition that this app will, 1) be effective, 2), won’t be used maliciously or for a new purpose and 3) won’t be subject to the usual data leaks, cyber weaknesses and failures of every government IT project.

Some of us are old enough to remember when the Australian Federal government and all of its security and intelligence departments couldn’t prevent “a sophisticated state actor” from hacking the parliamentary email system.

Ah, those naive and simpler days back in, erm, February last year.

What is most remarkable though, are the loudest voices proclaiming their virtue regarding the questionable app.

The same people who recently were ascribing mendacity and duplicity as motives to the current governing political party with regards their actions on refugees, climate change, bush fires, Julian Assange, same sex marriage, etc. are now the loudest voices calling for absolute trust in both the motives and competency of the current administration.

You can find your own celebrity examples of this, I’m sure, but even the most cursory wander in the sewers of social media will provide evidence of this miraculous volte face by the government’s previously most vociferous critics.

Bill’s Opinion

I would like to offer a pertinent and relevant axiom;

Anyone who believes the government is benign and/or competent has either never met a politician or civil servant or has achieved an almost Jedi level of cognitive dissonance.

Risky business

Over the last few decades, there has been a proliferation and expansion of career categories and roles within large organisations, many of which add dubious value to their stakeholders.

Examples might include the exponential growth of the previously named “Personnel” department; the size of the Human Resources’ departments as a ratio of the entire company has generally expanded exponentially since, say, the 1980s.

This spawned the utterly pointless diversity military industrial complex, based mainly on a ridiculous 1989 essay by Peggy McIntosh.

Another example, perhaps less obvious, is the Risk department.

Financial institutions in particular, have an increasing footprint of staff with “Risk” in their job title. For those who have been lucky enough to not work with these people, “risk” is a code for “no responsibilities“.

Being a “risk professional” means never having to be accountable for anything.

That might sound like an inflammatory statement but it’s easily empirically-checked; there have been plenty of documented failure in organisations’ risk management over the last few years. Examples include Wokepac’s Paedophile Enablement Programme, CBA’s Mafia Laundry Scheme, and dozens of leaks of personal data by private and public sector organisations.

How many of those resulted in the resignation or firing of the most senior risk officer? Perhaps you could let us know in the comments if any “risk professional” lost their job as a consequence.

The Audit team, at least, serve a useful purpose of checking compliance occurred as required for critical activities. By contrast, the Risk team are generally worse than useless as they advise on avoiding things that might happen. Proving they have helped is an impossible task as it is like proving a negative; the car didn’t crash because we took the keys from you.

Risk is one of those departments capable of parthenogenesis. Decades ago, risk was mainly a safety or financial function; what can we do to not kill workers or how do we hedge against this financial transaction going to shit?

These days though, all sorts of risks are documented in Excel spreadsheets or expensive software products that are just glorified versions of spreadsheets. Risk “professionals” in a crappy mediocre retail bank pretend they can somehow quantity geopolitical risks or mitigate for earthquakes in Indonesia by facilititing post-it note workshops and acting like over-promoted junior police officers bullying and pestering those people whose job it is to actually generate revenue.

The science behind risk management is complete bollocks. Depending on which source you select, you’ll be shown a complicated methodology which pretends it can somehow grade probability and impact to provide a credibility-lite relative score of the risks to the organisation.

Of course, with all models, the input parameters and assumptions behind the calculations are critical to the likely accuracy of the result they give. GIGO – garbage in, garbage out.

The people in these risk roles are never impressive individuals either. As with any kind of critic, they are most likely providing feedback on people whose job they simply couldn’t do themselves.

Those who can, do.

Those who can’t, teach.

Those who can’t even teach, measure risk”.

An classic example comes to mind from my recent experience in an Australian bank. My interlocutor was a chap who seemingly had made a career out of being deeply unpleasant.

In one of those frequent coincidences with ugly personalities, he was also physically repulsive; no chin, terrible dentistry, a lopsided face (think Thom York without the talent). Better still, he suffered from extreme rhoticism; he pronounced “th” as “f” or “v” and “r” as “w”.

Hi, I’m ve genewal manager of wisk and I fink we must gwade vese wisks“.

We once had an illuminating conversation over a corporate slide deck; there was wholesome picture of a young child on scooter. The kid was wearing a helmet and open-toed shoes. We had an argument about which was the greater problem.

My view; it’s almost certain the kid will rip her foot whilst scooting.

His view; if she bangs her head she might suffer a brain injury.

He seemed somewhat offended when I asked him how many children he had (spoiler alert; none, and little chance of that changing).

So how did it go for us, corporately and in government, with this massive army of risk managers keeping us safe?

Bill’s Opinion

Just as the lawyers of the world mainly missed writing the word “pandemic” in their definition of Force Majeure, the Risk team in most organisations have completely failed to do their job.

Of course, the most likely response to this will be to hire more, not fewer/better risk managers.

Wince and wepeat.

Freedom ‘20

1993

Many lifetimes ago, a young worker in the City of London watched as, in response to a large IRA bomb attack, armed police officers were deployed to patrol the streets and the road entrances to the area had permanent checkpoints installed and manned around the clock.

That young worker watched in horror as his fellow citizens happily accepted this radical change to the method of policing in response to a single event which, arguably, was a result of a multiple failures of policing and intelligence-gathering (for example; how did a purchase of 1 tonne of ammonia nitrate go unrecorded?).

2001, 2005, 2006

Eight years later, further radical changes were made to anti-terror legislation following the 911 terror attacks in New York and Washington DC. A further increase in powers was implemented in 2005 and yet again the following year as a reaction to the London attacks in 2005, including the ability to hold suspects without charge for 28 days and impose house arrest without a conviction.

Similar legislation was passed in other countries throughout this period.

Australia, for example, has passed 82 anti-terrorism laws since 2001. It might be argued that, given the comparative low level of attacks since 2001 (12 deaths, including the perpetrators) in Australia, this legislation has been incredibly successful. An alternate opinion might be that there’s been significant overreach relative to the low level of domestic threat.

2018

A decade following the financial crisis of 2008, Australia passed the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 creating further powers to handle future financial crises.

The media scrutiny of this legislation was woefully shallow, otherwise you might have read somewhere, anywhere, that the legislation allows for “bail-ins”. That is, the funds in your bank account can be accessed by the Reserve Bank of Australia to bail out the retail banks.

2020

In response to the unclear threat of the China virus, legislative and policing precedents were overturned in a matter of days by governments around the world. In the largest abuse of Eminent Domain since 1066, businesses were ordered to cease trading, police were given powers to fine and arrest those who were not complying with highly dubious and contradictory guidelines for social distancing.

Social and tradition media has plenty of examples of police overreach as a consequence, from police drones buzzing hikers in the Derbyshire Peak District, to Yorkshire police threatening, “to make something up, who they gonna believe, me or you?”, and a lone swimmer manhandled and arrested in Bondi for the crime of exercising alone.

The Australian Prime Minister expressed a desire for a social tracking app to be made compulsory for all citizens (and then changed his mind after some horror was expressed by anyone with the IQ above a gnat).

Many of these emergency measures will eventually be challenged in the courts and will be overturned or reduced in severity. The precedent suggested by the chronology described above is the legislation will then be amended to a form less likely to fail in the courts. i.e. the powers will remain, just with tighter legal wording.

Bill’s Opinion

As far as I’m aware, none of this legislation has ever been wound back. For example, the UK’s prevention of terrorism acts were initially designed to be temporary and had to be frequently renewed by Parliament. These measures are now permanent.

Similarly, financial and taxation legislation has only moved in one direction since, well, since the creation of the concept of income tax to pay for the Napoleonic Wars.

It is looking increasingly likely the fatality rate of this virus is nowhere near that predicted by the experts (who’d have thought that multi-variable computer models might not give accurate results?). Potentially, the final fatality rate is going to fall within the range of 0.1 – 0.6%, or about as bad as strong version of the seasonal ‘flu.

In which case, the global governmental response is disproportionate and should be wound back immediately.

But that’s not the point. Even if this virus was as dangerous or worse than, say, the Spanish Flu (2.5% fatality rate), there’s a bigger question you need to ask yourself:

“Am I OK with all of this?”.

Well punk, are ya?

Bird? Plane? No, Superhubris!

Pension funds in Australia (or “Super”, in the vernacular) are, obviously, a big deal.

To a large degree, they are a captured market as legislation requires all employers to contribute 9.5% of salary into an employee’s chosen fund.

Typically, there isn’t much movement between funds, you are offered one when you start work and many people don’t pay attention to which is good, bad or mediocre.

Similarly, and like passive investors the world over, people don’t tend to pay much attention to what investment choices their Super fund is making on their behalf. One occasionally hears horror stories about people close to retirement in 2008 suddenly discovering they were all in on USA CDOs.

One such Super fund is Hostplus, the “industry” fund for people working in hospitality. Obviously, one doesn’t have to sign up to Hostplus, but I assume it’s one of the main options offered when you start a job.

Hostplus’ members are worst hit by this virus-induced recession and presumably most likely to want to take advantage of the changed rules allowing early access to $20,000 of their money.

Hostplus have a problem though;

They’ve slipped a clause into their product disclosure statement preventing members from withdrawing funds. It’s not clear whether this is even allowed under legislation such as the Corporations Act, but regardless, it’s a bad precedent and one that won’t give people much comfort in the security of their pensions.

There is a some mild amusement to be had at the directors’ expense (well, ultimately the members’ expense, poor bastards);

This from those heady days of January 2020;

Bill’s Opinion

What follows is not financial advice, and you should never seek financial advice from pseudonymous bloggers on the internet.

However if you are young enough for this current crisis to not completely destroy your imminent retirement plans, may I suggest taking a far more active interest in the following elements of your finances;

  1. Is a single managed fund really the best option for you, or should you consider diversifying across funds (e.g. via a self-managed fund)?
  2. If you are staying in a managed fund, are you really invested in diverse (asset class and geography) assets?
  3. Are the management fees fair value?
  4. How quickly can you pivot your investments if required?
  5. How is your financial advisor paid and by whom?

Feed the birds, tuppence a bag“.

Awkward silences by the barbecue

There are some axioms of Australian life that are best observed from an outsider’s aspect.

They can be witnessed in action at suburban social gatherings, such as barbecues or kids’ sport.

The rule is, when a group of middle aged Australian parents (and this is particularly true for Sydney and Melbourne) gather socially, there must be sufficient time allocated for conversations on the following subjects:

  1. Which high schools will little Atticus and Chlamydia be attending? The sub-rule to this is that the discussion must be started by the parent who believes they have the best bragging rights in this regard. As in, “So, we’re sending Tarquinus to Shore, where are you sending Shane? Oh, local public school? I’m so sorry.”.
  2. How many foreign holidays will you be taking this year? To European readers, this might seem strange but bear in mind a return overseas flight from Australian in cattle class is about a thousand dollars, the total cost of even a budget holiday soon racks up. One annual trip is good, two is impressive, three is multi-millionaire status.
  3. How much has your house risen in value and how many additional investment properties do you own? Everyone wants to open the conversation with this but allow the previous two discussions to play out first to avoid appearing gauche.

However, we’re not in Kansas anymore, Toto….

Our chart has been updated with the last data points before the China Flu lockdowns commenced.

Some context might be useful; the RBA has been publishing the lending data since the 1970s and, from that time until 2017, the monthly increase in lending for domestic property has fallen to 0.3% or lower only three times.

Bill’s Opinion

The chart is already suggesting a further leg down was on its way in the winter of 2020, before the impact of the pandemic hit the data.

What happens from here is anyone’s guess; there will be competing factors of bank forbearance, historically low interest rates, removal of lender’s insurance, a sharp increase in unemployment, economic slowdown due to isolation policies, etc.

My view is there will be a sharp and relatively deep fall in property values, realised only by those unfortunate enough to be forced to sell (by the three Ds; death, divorce or dole).

Let’s say about 30% from the peak. Perhaps that’s wrong by a large factor, but if you agree there will be further falls, there is only one question left to answer;

What will the people talk about at barbecues when they don’t want to talk about property prices and the major sports leagues haven’t restarted?

There’s going to be some awkward silences…..

Morality in the time of Coronavirus

Imagine yourself in the following scenario:

You are working as a relatively well-paid consultant, on a precarious day rate contract. Your client is a large government agency. You’ve been hired to bring commercial acumen to a project that, by any reasonable measure, has been an abject failure (a year overdue on an 18 month timeline, tens of millions in overspend).

The supplier has a global track record of sharp practice and, a few years ago, was found guilty of bribing public officials.

In your work, you find two major errors or omissions in the supplier’s work and recommend these are used as commercial leverage to improve the outcomes for the taxpayer.

A peer actively works against this advice and commences a campaign of attacking you personally.

In your experience, this behaviour is highly suspicious. The best explanation is incompetence and commercial naivety, but there is also a not insignificant chance of corruption.

A cursory background search of the individual reveals almost a decade working at an organisation that was shut down due to deep and systemic corruption. The individual also has an active Ltd company, despite being a salaried public servant, with a contractual restriction against “moonlighting”.

What do you do?

Bill’s Opinion

At any other time of my career, I would be gunning for this person using the auditors and whistleblower legislation.

In this time of COVID19 shutdowns and imminent recession, I’m less keen to put my family’s financial well-being at risk however.

Any suggestions on how I can manage my way through this without utterly compromising my personal values?