I've always thought that our modern economy has gamed property into an growth strategy, and largely ignores the utility in its use. That is, the asset's capital cannot be returned through rent alone. The investment focus is on long term asset appreciation and capital gain. Think how the taxation system must subsidise property investors so they can offset operational expenses against other taxable income, just to help make being a landlord more attractive. At least in the present property market here in Australia, being a landlord does not make economic sense, unless you are a top tier income earner AND you can flip that house for profit, to the greater fool.
Much inflation in property has been because the tax system has allowed property investors to offset top tier income as a tax free sink into the costs of being a landlord. I've been involved in an auction or two in my life, against a property investor with deeper pockets and more to gain from the old homes we like to live in.
Take how the taxation system is focused being a drag on enterprising activity. Consumption tax, payroll tax, income tax. What are the taxation expenses on empty plots of land, or homes? Just a fraction of a percent a year for council rates. Nothing to stop an investor sitting on ill-used property for a year or three, in the hope, they can make better capital gain on its eventual sale.
Little hiccups in property values can shudder a market significantly. If there is anything that shakes this unquestioned axiom of capital gain. Money will seek enterprises that use land to better effect.
I maintain that if current sources of taxation start to dwindle. Like say slowing retail activity, growing unemployment. Government will need to shift to sourcing its income more directly from land owners.
The following video puts my above notes into sharp focus.
Real Estate 4 Ransom from Real Estate 4 Ransom on Vimeo.
http://player.vimeo.com/video/38500767?title=0&byline=0&portrait=0
Wednesday, 4 April 2012
Wednesday, 22 February 2012
Trust is hard to gain, and is easily lost
Early on in my professional career, an accountant told me that money is symbolic of a deeper relationship between two parties. For before any monetary transaction, each party must have trust. Trust that each will follow through on their end of an agreement.
Today I see this as important at it was twenty years ago. In fact with electronic transactions, even more trust is required.
Take for example an online auction. You, the purchaser must trust that the item you bid for is described correctly by the seller, you can't touch the item yourself. Then you must trust that the seller will get the item to you AFTER you have paid for it. You even have to trust the payment mechanism you use, gets the funds to the seller.
I do have to say, after this week, some of my trust for the markets have been shaken.
First I heard of it, was when Alan Kohler told us that on 20th February this week the ASX experienced a "flash crash". Last I heard of this phenomena was 2010 when the DOW spiralled down 9% in a matter of minutes, then bounced back. The ASX experience was much milder, but just as devastating in my levels of trust for a system that should be, above all trustworthy.
The post-mortem over the May 6 2010 DOW flash crash was put down to High Frequency Trading Algorithm (HFT) being executed with an agressive set of sell parameters. Then competing HFT systems began buying, then on-selling those positions. This became a perfect storm to crash an already volatile trading day.
I see no reason why the ASX experience could be put down to anything other than HFT systems creating a perfect storm. My understanding is that the HFT systems shovel thousands buy and sell orders into a target exchange with the vast majority never ever being executed. These orders are wildly askew in their pricing requests to ever get traded on the day.
Most online brokering systems allow us end users to execute an order just like this, but that single order can last up to a month.
But my question is: Why are exchanges allowing their markets to be manipulated in this obvious way. These examples of the ASX and the DOW degrade our trust in a system to accurately price stocks at a given time. Moreover why is the exchange even accepting millions of bogus orders from supercomputers stationed physically next door to the exchanges themselves.
As a value investor I'm beginning to distrust speculative trading systems conspiring to upset the pricing of stocks I invest in.
And its the exchanges that need to reign in this activity. Lest us small investors walk away, and find more trustworthy mechanisms to invest our money.
Today I see this as important at it was twenty years ago. In fact with electronic transactions, even more trust is required.
Take for example an online auction. You, the purchaser must trust that the item you bid for is described correctly by the seller, you can't touch the item yourself. Then you must trust that the seller will get the item to you AFTER you have paid for it. You even have to trust the payment mechanism you use, gets the funds to the seller.
I do have to say, after this week, some of my trust for the markets have been shaken.
First I heard of it, was when Alan Kohler told us that on 20th February this week the ASX experienced a "flash crash". Last I heard of this phenomena was 2010 when the DOW spiralled down 9% in a matter of minutes, then bounced back. The ASX experience was much milder, but just as devastating in my levels of trust for a system that should be, above all trustworthy.
 |
| ASX Mini Flash Crash, 20 February 2012 |
I see no reason why the ASX experience could be put down to anything other than HFT systems creating a perfect storm. My understanding is that the HFT systems shovel thousands buy and sell orders into a target exchange with the vast majority never ever being executed. These orders are wildly askew in their pricing requests to ever get traded on the day.
Most online brokering systems allow us end users to execute an order just like this, but that single order can last up to a month.
But my question is: Why are exchanges allowing their markets to be manipulated in this obvious way. These examples of the ASX and the DOW degrade our trust in a system to accurately price stocks at a given time. Moreover why is the exchange even accepting millions of bogus orders from supercomputers stationed physically next door to the exchanges themselves.
As a value investor I'm beginning to distrust speculative trading systems conspiring to upset the pricing of stocks I invest in.
And its the exchanges that need to reign in this activity. Lest us small investors walk away, and find more trustworthy mechanisms to invest our money.
Saturday, 18 February 2012
Sunday, 8 January 2012
Meaningful Gift Culture
I struggle every year when it comes to gift giving. I spend a lot of time thinking and searching for what I think is the right gift. And in most cases its a waste of time. From one of my recipients this year comes this quote:
"OK now where is my REAL present!" Dave that WAS your real present, I thought it was just perfect for you. Alas...
Multiply my experience, by the hundreds of millions that bought gifts for others' last year, and you probably see that this is just another tragedy of modern times. Economic inefficiency in wealth transfer.
I'm reminded of Milton Friedman's 4 ways to spend money. Which articulates a home truth about the worth of money to the individual spending it. This has been the Libertarian's central tenant. That money can't be spent efficiently by government (red box below), and a smaller government is better for all of us. But I'm still yet to be convinced on that wholesale dismantling of government thing.
The Gift Economy was something that our pre-industrial forebears engaged in as common practice. That was to share in surplus production. Staples like meat and crops spoiled quickly without refrigeration. Plus the goodwill you could generate from your neighbor was something you could bank on. Co-dependence is a buzz-word that modern society has long done away with, because of the earning and hoarding of money as a store of wealth.
Nowadays barter exists but look at how Australian Tax office deals with this activity here:
ie; for tax purposes, one must equate a barter transaction into a fair monetary equivalent for tax purposes. Oh and you can't use a pork belly to pay your taxes. This kind of tax law aims to keep us always with one foot in the money-go-round.
But not in a gift economy. Minimal exemptions apply in cases where gifts are sent across boarders. Look at the Canadian law here. Import of gifts of up to $60 are tax exempt, just as long as you opted that the mail-order purchase to yourself was bow tied.
In short, I believe that a sense of community is gone from our modern society, simply because we are fixated on acquiring monetary wealth, and then using it for individualistic purposes. A gift economy is not about money, barter or an expectation of exchange. Its sharing your surplus with the community for whom you depend on for things that are more important than money.
"OK now where is my REAL present!" Dave that WAS your real present, I thought it was just perfect for you. Alas...
Multiply my experience, by the hundreds of millions that bought gifts for others' last year, and you probably see that this is just another tragedy of modern times. Economic inefficiency in wealth transfer.
I'm reminded of Milton Friedman's 4 ways to spend money. Which articulates a home truth about the worth of money to the individual spending it. This has been the Libertarian's central tenant. That money can't be spent efficiently by government (red box below), and a smaller government is better for all of us. But I'm still yet to be convinced on that wholesale dismantling of government thing.
 |
| Freedman's value proposition: Money spent on yourself (best) vs other peoples' money spent to benefit others (worst) |
The Gift Economy was something that our pre-industrial forebears engaged in as common practice. That was to share in surplus production. Staples like meat and crops spoiled quickly without refrigeration. Plus the goodwill you could generate from your neighbor was something you could bank on. Co-dependence is a buzz-word that modern society has long done away with, because of the earning and hoarding of money as a store of wealth.
Nowadays barter exists but look at how Australian Tax office deals with this activity here:
As a general rule, when valuing the payment arising
from barter or countertrade transactions, we will
accept a fair market value as adequately reflecting
the money value or arm's length value, as applicable.
For the purposes of the tax laws, payments such as
GST, income tax and the super guarantee levy must
be remitted to us in Australian currency.ie; for tax purposes, one must equate a barter transaction into a fair monetary equivalent for tax purposes. Oh and you can't use a pork belly to pay your taxes. This kind of tax law aims to keep us always with one foot in the money-go-round.
But not in a gift economy. Minimal exemptions apply in cases where gifts are sent across boarders. Look at the Canadian law here. Import of gifts of up to $60 are tax exempt, just as long as you opted that the mail-order purchase to yourself was bow tied.
In short, I believe that a sense of community is gone from our modern society, simply because we are fixated on acquiring monetary wealth, and then using it for individualistic purposes. A gift economy is not about money, barter or an expectation of exchange. Its sharing your surplus with the community for whom you depend on for things that are more important than money.
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