One of the things I get to do on trips is think about decisions I need to make. It’s easiest away from home. Having four kids and a busy life causes a huge amount of unclear head chatter in my thinking. Some quiet time to think is scarce.

Thinking results in good choices, and that is the key to business. A friend reminded me of this recently, and as he said it I new it but like many things, even the important stuff, it was tucked way under a sheet in the back of my mental attic of ideas.

In business it’s not funding, team size, location, or any of these factors. They are influencers but not the dominent cause of success. It’s about making the right choices. Understanding that choices are options in the literal financial market sense of the word is an important distinction you can make. A choice is a “right” that you own. So making a choice is “exercising” an option you own and it will have a payoff good or bad, just like options do. Good choices ends with good results, so investing time in thinking before making them is worthwhile.

What’s really interesting is how Apple is promoting these pre-release HD trailers. The content is rich and attracts traffic. Very smart Apple. Is the strategy is to get conversion to Quicktime format? Or, is to get high end CGI work to be associated with their brand which is also very strong in device and web design.

They are also pushing the new fantasy scifi called Avatar which is definitely worth a look even just for the pure CGI talent.

We think of traditional monopolies as being about a business having some unique advantage or forming some sort of cartel to dominate a market. While most economies have mechanisms to prevent this they equally create what I call systemic monopolies through their solutions and also by the academically simplistic view on what sets prices of products and services in a capitalist system.

I believe Systemic Monopolies tend to exist where there are only a few key players and many very small players (the residual having near zero influence). They also exist where it seems they have competition but when you look at barriers consumers face to buying products from their competitors they are actually in a situational or localised monopoly.

So what are some examples and what trait(s) lead to the effect of a monopoly even though in the strict sense of the definition there isn’t one. Let’s call them Systemic Monopolies:

Mega Shopping Centres

Suburban locations can’t usually support multiple large shopping centers for consumers to choose between. You can only have one large Westfield or Centro shopping center as an example. Accordingly you get a localized monopoly situation where the time and financial cost of travel introduces a barrier sufficient to cause only shopping at one major location or center to be viable. As you get lower down the socioeconomic curve this barrier gets even larger on a relative basis.

Local councils enhance this effect, possibly not intentionally, by dis-allowing the development of alternatives due to their ability to deny projects and business ideas on the grounds of ensuring local economic stability. An example might be disallowing approval to build too many child care centres in a suburb.

Banks

Pre-agreed or regulated transfer pricing fees between banks exist to compensate banks when customers use services such as ATM’s that belong to the other bank. When you use another banks ATM, your bank gets charged a fee. They then charge you. The result is the system tends toward a price equilibrium for the product. Quite standard ATM fees in this case. So the effect is you have no choice, just one choice in fact, "the fee system". Each banks prices tend to replicate each other over time or the differences are so small that the cost of changing bank doesn’t allow for any choice or opportunistic consumer behavior around price.

There is also tendency for new bank entrants not to compete on price because equity markets will punish their stock price accordingly. This syndrome is about conformity to peer group pricing levels. Not in a cartel manner, but more in a "I don’t dare to be different" kind of way. Much like how a school girl won’t wear anything to different to her friends at a party. Consistent bank pricing and product behavior relative to their competitors equates to a stable stock price. As a bank you are encouraged by the market not to compete aggressively on price.

None of this is good for consumers

I think the systems of government, regulation and markets cause these Systemic Monopolies to occur. Governments at all levels need to pull themselves out of the monopoly dark ages and look more closely at Systemic Monopoly situations and attempt to prevent them. Councils should reinvigorate the "High Street" shopping strip, farmers markets and other choices to compete with the Westfields, AMP’s and Centro’s of the world.

There just doesn’t seem to be enough choice in some situations.

Photo: NatalieMaynor

The Death of Capitalism (as we know it)

A defining year in financial markets with the emergence of a new species of company that will cause the re-writing of so many economic text books. The “too big to fail” organisation will re-shape the way people invest, the presence of government in corporate share registries and the social and taxation equilibrium of the USA. It’s a new age of taxpayers funding the big end of town’s failures. Will history write it up as another peasants versus kings story? It feels like the tip of the iceberg to me and I’m confident that 2009 will herald an even bigger story than this one.

Heath Ledger

The tragedy of dying young and the elusiveness of truth were both present in the tragedy of Heath Ledgers death. Life shouldn’t be so short and the truth should be told as to why things happen so people can learn from it. However Heaths death just highlights for me that the story told can never be taken as the truth, it’s just someone’s version of the truth and quite often the version of truth that suits their agenda. If it bleeds it reads is the saying. It reminded me that science is nearly always the best reporter despite not being the most exciting one to read. The autopsy results said “We have concluded that the manner of death is accident, resulting from the abuse of prescription medications”. I couldn’t be help feel that society still over medicates to fix it’s problems. Society continually underestimates the loneliness and trapped state people of fame can exist in. To me this was a pure tragedy and I won’t judge Heath Ledger.

Mumbai

This was a critical event in so many ways. Not even the optimism of potential change in the way the US positions itself globally could stop those still wanting to have a fight. Even with a relatively passive US president elect and the potential for a reduced assertive nature in US foreign policy, it seems terrorists never be happy until their whole region is engulfed in warfare. This is probably the first event that blogging and micro-blogging outperformed traditional media in the time-to-market of live events as they unfolded. Notably Twitter and Flickr furnished the news hungry online consumers with content. Interestingly traditional media seemed to attack these same organisations for exacerbating the problem as terrorist were claimed to be holding twitter accounts along with guns. I’m not sure how they worked this out so quickly and how the terrorist were able to tweet’n'shoot at the same time but the whole blame game seemed to me to smack of Twitter campaign by parties outside of Twitter seemed vindictive fear of this new social journalism than about the truth.

One party who needs to be held more accountable are the Federal Reserves. For at least a decade Federal Reserves have been finessing a stable inflation rate while allowing asset prices (many are not captured in inflation numbers) to dramatically outstrip wages. This makes the average person poorer in an affordability sense and sends them of to the predatory lenders to get some money to buy what they want – stuff to make them happy.

They have also allowed cheap money to build up in the economy by keeping unrealistically low interest rates for very long periods of time. When what they should have been doing is managing interest rates on a more realistic inflation measure that included assets prices.

The result of consumer-itis (the disease of getting lots of stuff in the hope of getting happiness) coupled with the capacity to buy it (lots of cheap money) has resulted in heavily indebted families with crappy home ownership affordability.

Here’s the rough maths.

When you earn 50k. All your money will go on rent, food and service. Probably 100%. You will probably fund excess using debt.

When you earn 500k. You will struggle to spend what you earn and it will in all likelihood end up in assets. Those assets generally get geared because you are told that is tax effective and gears up those returns. Rising prices (higher percentage of equity you own in the assets) lets you go and get more debt to buy more assets. The whole thing just fuels itself and creates a liquidity bubble. In the end you make stacks of money and end up with a huge gap between the low and high socioeconomic classes.

This crisis unwinds this. The reverse happens, asset prices plummet as assets need to be sold to pay of debt. Unfortunately everyone is rushing for the door at once because someone shouted fire. Those same people arrived at the party gradually. This is why prices go crazy when you see many people unwinding their geared assets all at once.

Some of you are thinking this is about risky investments. Well yes you’re right except that they don’t get created without a market and there has been a strong market of wealthy buyers for many years. The people whinging about those risky investments are the same ones slapping high fives at dinner parties when their geared risky investments paid them nice 25% p.a. returns.

As I saw in a Ted talk recently. It’s a little like blaming America for the war in Iraq. I might think it’s a mistake them being there but common sense tells us that had there been no 9/11 there would have been no war. “No 9/11, No War”. So the witch hunt should turn on itself if it is to be fair. The government is just as much to blame as the bankers who are just as much to blame as the debt binging consumers and return hungry superannuation investors.

Everyone has a choice to put their dollars in nearly risk free government bonds or low risk bank deposits. I think if you were that risk adverse and you lost your money you are quite justified in complaining. Everyone else needs to take it on the chin.

The witch hunt never seems to get it right because there isn’t such a thing as a right choice in the blame game.

Stop feeding the bears cry the Zookeepers!!!

When regulators ban short selling do they have a legal liability to the mum’s and dad’s, fund managers and traders who lose money from this almost instant change in regulated markets? I’d love to see what some of the big legal firms think on this.

(Update: Just read Sean’s Stubborn Mule blog which has has a good post on short selling.)

It is in effect the banning of an instrument used to hedge, used to remove risk. A reasonable person could argue they wouldn’t expect a regulator to do this surely?

I’m not saying this out of anger as I haven’t had shorts in the market for a long time. We closed all our trading book positions back in April. However I am angry that free trade and capitalism is at risk here of being hurt by short-term decision making by people in a panic to cover themselves in their regulatory roles. The same people who actively encourage openness in markets, hedging to create stability and improved liquidity.

In addition you could argue that a reasonable person expects regulators to announce major reforms well ahead of time so that organisations can adjust their business models and risks. Imagine if a government made sweeping company tax changes today and implemented them tomorrow. Why are rules around the trading of equity via stock and futures markets any different?

Mum’s, dad’s, traders, and fund managers all engage in short selling. Many trade CFD’s to achieve the shorting effect. The larger players borrow the stocks they are going to sell short.

These market participants were busily operating in the market on the premise that short selling is a part of market operations and provides liquidity to markets. In many cases shorting is a hedge against illiquid assets they own and can’t sell because liquidity has dried up.

Below is my Macquarie Bank Prime Trading Platform account rules received as a result of the change. It highlights how little I can now do when I do go back into the market. I can only buy companies. That doesn’t feel liquid to me and it feels very inflationary. Neither is good for markets.

Share Positions
Opening New Positions
- Short Prohibited
- Long As Usual
Closing Existing Positions
- Short As Usual
- Long As Usual

CFD Positions
Opening New Positions
- Short Prohibited
- Long Prohibited
Closing Existing Positions
- Short As Usual
- Long Phone Trades Only

Photo: Wili Hybrid

I have been more than amazed by the events in the US in recent weeks during the financial crisis. Creating a pseudo guarantee structure for big American companies like AIG is just pure protectionism. This is capitalism gone wrong and it feels like it is just the start of placing losing bets into the hands of taxpayers who never participated in the upside of those companies during the boom. What do you call that? What kind of social justice is that?

By doing this the US government is sending a signal to stock holders that their bets have an implied guarantee to some degree.  Last nights massive stock market rally was just that. It was the market starting to price in protectionism into US banking and insurance equity valuations. If you can buy into a big insurer like AIG and have some certainty that they might be bailed out then it’s a damn good bet.

America’s corporate obese won’t be helped by feeding them more liquidity biscuits.

There wasn’t any substantial attention to tech in the 2020 summit from what I can tell/read (someone please give me hope for our country and tell me I’m wrong).

Australia’s economy is based on mining, farming, real estate and education. This list should include technology. Australia’s risk is that a multi-country global recession (or depression) could kill the mining sector for about 10 years. Another risk is that farming becomes less and less viable over time. The real estate sector is mostly about one Australian taking money from another so it’s not a great contributor in a real way. Yep foreign money comes in via this segment but it’s investor dollars. Migration property demand doesn’t count because we need to build infrastructure to cope with growth.

So we get a bunch of minority groups together (such as elite sports people) to help work out what our vision for the future is. Australia 2020 = Fail.

The time would have been much better spent visiting other countries and seeing what is working successfully overseas. A trip to a Korean ship yard or better still a Korean Telco exchange. I would have gone to China visited manufacturing plants and at least a couple of their universities. Then off to Japan to find out why technology and discipline can sustain an economy who has a near zero resource base. From this we might learn how to stop riding the sheep’s back and instead jump on the backbone of a fibre optic network.

Technology has to be a part of any modern economies vision. Only a fool thinks otherwise. Technology is dominating work and lifestyle more and more.

Stil sums it up well in this post and also Stephens Collins on this acidlabs.org post.

Not to let the Liberal opposition of the hook. The Rudd Labour government should have taken this 2020 opportunity to address the Liberal Government credit bubble. Rampant asset inflation caused by extremely low interest rates has lead to burgeoning household debt which is now a major social issue and RISK heading off the back of a 10 year global boom.

Mining and rural sectors won’t provide for the future. That’s short-term-ism. If Australia is riding the sheep’s back now we will be hanging onto it’s stump of a tail in the future. New Zealand knows this all to well. We’ve been lucky to have a nice mining kicker to help us ignore the issue.

Eventually the big global economies will have enough money to buy the businesses that supply the resources they need so be prepared (they already have big shareholdings in some). Who’s addressing what we need to reduce our risk exposure to this sector not growing forever? Not the 2020 summit, that’s for certain.

For those who are wondering if there is inflation: the Turkish newspaper Zaman reported the price of donkeys in Yozgat district in central Turkey has increased 7 fold as local people give up the use of tractors over high fuel prices. Because of increased demand, the price of one donkey grew from EUR 26 to about EUR 180.

Equally funny is Pete our CEO was telling me about a guy who buys Ass’s and sells them as Donkeys. They are the same beast. So the Ass fraternity needs to work on their personal brand a little.

It’s good to see some financial respect for the noble steeds.

Frasers Broadway
Grant Young points to this amazing (looking) bit of Green architecture. I have to agree with Grant that the various artists impressions always leave me a little skeptical. I’ll track the detail on their website with interest. Draping plants over balconies never seem to last long. Why? Because humans let them die. Let’s hope the building has systems for managing humans lack of plant care.

Microsoft Live Labs Photosynth
Photosynth is getting a run in CSI NY episode “Behold the Future”. CBS’s trailer is out but I don’t think the episode has aired yet. I first checked out the Photosynth technology mid last year when it was soft launched via the Microsoft labs blog. It’s worth a look through the tech preview on the Photosynth website – stuff of the future.