Norakism

Do Not Escalate a Debate

2012-01-02T19:22:00.006+11:00

There is a Jehovas Witness woman named Kristie who keeps visiting me, oftentimes with her children. She came over yesterday with her daughter. I am happy to discuss religion with her, but the reality is that I had my whole family, including my wife, all in the house with me, and all of them I know are against Jehovas Witnesses, so I didn’t want to be seen as associating with the enemy by talking with a Jehovas Witness.

I tried to tell the Jehovas Witness this, saying that my family is against the religion and therefore I am not too comfortable exploring the faith. I said this mainly because I wanted them to go away. Kristie then sort of accused me of being passive and subservient, that I did not consider all the facts before making a decision on what faith to follow, instead just following whatever relgion I was told to follow. I could have escalated this and told her that my family don’t actually coerce me, that I just want to fit in or assimilate into the culture that I am in. But I decided against it. Instead I nodded my head and stayed silent. The silence became a little awkward, so Kristie changed the subject.

My wife then confronted me, telling me that Jehovas Witnesses were crazy people. I made the mistake of engaging in an argument with her about whether religion was good or bad for a society. That went on forever, like an arms war. I should have followed the principle I followed when I spoke with the Jehovas Witnesses and ceased the arms war before it escalated. For the sake of peace, do not escalate a debate.

Baillieu Government Cuts 3600 Public Service Jobs

2011-12-31T12:51:00.000+11:00

"In the midst of negotiations over an industrial agreement, the Victorian government of Premier Ted Baillieu announced on December 15 that it will eliminate 3,600 public sector jobs over the next two years. This amounts to a 10 percent reduction in the public service."

Source: http://www.wsws.org/articles/2011/dec2011/vicp-d28.shtml

I am very happy with Ted for cutting 3600 jobs (about 10 per cent) from the Victorian public service. The job cuts will be achieved through voluntary redundancy packages that will effective dangle money in front of public servants, which they can take on the condition that they leave the public service. Some argue that this will remove all the high quality public servants, but I believe this will filter out the greedy public servants who are only in there for the money and power. The public servants who are passionate about their jobs will stay, the ones who are willing to keep working as public servants even though it pays less than an equivalent role in the private sector.

There are some who argue that a desire by the Baillieu government to maintain a surplus is silly given that debt can be good and that most households in Australia have a lot of debt. But this is a poor argument. Just because most households have significant debt it doesn't mean the State of Victoria should have debt. Households have high debt mainly because they need to buy houses to live in. Does the State of Victoria need a house to live in? The State and the individual are completely different. You cannot take the situations of personal finance and apply it to public finance.

In the realms of public finance, the ongoing problems in Europe show that governments should not go into too much debt. The problem with debt is that it creates an additional expense, namely interest expense. Money that could have gone to building hospitals or building roads or funding education is instead wasted because it is channeled instead to paying interest expenses, which doesn't benefit the people.

The Benefits of Putting Everything on the Internet

2011-12-28T15:01:00.001+11:00

My desktop computer is ruined. It started to play up a few days ago but now it doesn’t even boot up. Whenever I turn it on it just has a black screen. Luckily I was able to backup everything while it was playing up, and most of my important files are either on my external hard drive or on the internet. I think at the end of the day it is much better to have stuff on the internet because then you don’t have to worry about your computer stuffing up and having your files lost. It is always possible for e.g. Google or Facebook to fail one day and all your files stored with these companies will be lost, but I would imagine that the likelihood of Google or Facebook failing is much lower than the likelihood of my own desktop computer failing. I can rely on my desktop computer failing every few years, based on history. Furthermore, if there are really important files that you want to preserve, simply make copies of it and upload it to multiple websites. Even though my desktop computer is stuffed, I am able to write this because I am using my laptop.

Superficiality is Happiness

2011-11-06T14:51:00.002+11:00

Being superficial is essential for happiness. The moment you penetrate the surface of superficiality, you plunge into areas of corruption, selfishness, pain, and violence. You don't want to be there, and if you are already there, keep it to yourself. That you have witnessed the worst of humanity should be concealed from the innocent, so as not to drag them down with you and pollute their virgin minds.

Live in the moment. Seek happiness in the present; be superficial and optimistic. When you turn your thoughts to your past, selectively dwell upon happy moments, and suppress traumatic memories. When you plan for the future, be risk-averse, so as to ensure that your future self does not stumble into grief while having fun.

Live on the surface, and try to rescue those who are up to their necks. Be wary of those who live within the depths, for they, like predators of the sea, will grab on to you, and you will drown in realism.

If the Rich Steal, We Should Too

2011-11-05T14:28:00.001+11:00

I spoke to an Occupy Wall Street protester in the city yesterday, who told me the following:

"If we don't steal from the rich, they will use government to steal from us just because they can. Who wouldn't steal a million dollars if he could get away with it?"

When I thought about his comment, it made sense. In America, the bailout of the banking sector shows how the rich steal from the poor due to their influence on government. The problem with capitalism is that once it is implemented, capitalists become socialists and use government to steal from taxpayers. Hence capitalism simply doesn't work in practice as it assumes that the capitalist class have the altruism and self-control to not loot the public purse when it would be so easy for them to do so (because they are by definition rich and powerful).

Macrolending - An Alternative to Microlending

2011-10-29T18:29:00.000+11:00

Above is a trailer for a documentary titled The Micro Debt, which seems to criticize microlending as a tool for alleviating poverty.

I've had a Kiva account for a while. Kiva allows any of us to lend money to entrepreneurs in developing countries. But I've always been unsure about how effective this is because when the money is lent to the entrepreneur in developing countries, it is at extremely high interest rates (around 30 to 40 per cent). Most businesses in developed countries struggle to even produce 10 per cent, so to expect people in the developing world to earn 30 or 40 per cent is highly optimistic.

The answer to poverty, in my opinion, can be found in Asia, especially in China. Institutions need to be in place to create labor-intensive low-skilled jobs. The products are then normally exported to developed countries.

Kiva must change. Instead of lending money to microfinance institutes at zero per cent interest who then relend that money to poor entrepreneur for 40 per cent interest, Kiva should take lenders' money and instead lend it at zero interest rate to large labor-intensive companies like Nike, Adidas, Foxxcon, or HTC on the condition that in return for receiving zero interest loans, these companies must hire people from poor countries. Kiva can then pay auditors like Ernst and Young or PricewaterhouseCoopers to audit these firms to provide to Kiva and microlenders assurance that a certain number of workers are being hired and paid a certain amount and that basic labor rights are maintained, e.g. the right for workers to go to the toilet.

If the venture does not work, the lenders lose money. If the venture works and profits are made, it can be split in half between Kiva and e.g. Nike (or any other proportion the two organizations negotiated). Either way, for labor-intensive companies there is a no-risk venture as all the risk is absorbed by the lenders and all the gains are for the company.

The Train Ride

2011-10-22T18:49:00.001+11:00

It was afternoon. The train moved quickly and smoothly along the tracks, but suddenly the carriage in which I sat shook and swayed. Perhaps the train had hit a rock left on the track by vandals. Nevertheless, none of the commuters on the crowded carriage seemed to care. Their heads were down as they read their novels or newspapers. Some even played colourful childish games on their smartphones, even adult men who daintily pressed their fingers on the phone touchscreen like finger-painting kindergarten children.

A man in smart casuals sitting opposite me tried to move his feet. His knees pressed against mine. We made eye contact with each other for a moment, and I noticed he had an angry look in his eyes, and he isn’t afraid to express it. I averted eye contact and justified to myself, in my mind, that it was not my fault. I cannot help having long legs. It was the train that was at fault as it was not big enough and there weren’t enough seats.

A woman who sat to the left of this angry man stared forward like a zombie. White headphones in her ears emitted soft beats. Looking at her was like looking at someone experiencing an intense moment of indulgence while on the toilet taking a dump. She wasn’t the only one enjoying the music. Every third commuter was wired up to his portable music device. Their eyes rolled up into their heads as the music poured into their ears. They were spaced out and out of this world. What are they trying to escape and why is it so scary?

My eyes performed a 180-degree scan of the commuters in front of me. I ignored the men and the old women, focusing instead on the young females. I look at one girl in particular, a blonde schoolgirl who wore dark blue uniform with a light blue ribbon in her hair. She too had white headphones dangling from her eyes. Her eyes stared out the window, and she had the look of a girl who wanted to be somewhere else.

The 99% Movement

2011-10-22T12:36:00.000+11:00

A growing number of people are protesting against corporate greed and the inequality of wealth. They seem to be calling themselves "The 99% Movement" in reference to the growing gap between the rich and the poor. To many of them, the government structures policies that benefit the top 1 per cent of society.

Are you a 99 percenter?

Do you earn less than US$506,553?

If the answer is yes to the question above, you are in the bottom 99 per cent. The New York Times' piece About That 99 Percent... has the following startling facts about the gap between rich and poor in America:

American households right at the 99th percentile (that is, the cut-off for the top 1 percent) will earn about $506,553 in cash income this year, according to a Tax Policy Center analysis. The income curve is very steep at the high end, meaning that people just a few tenths of a percentile point above that make much, much more. A family at the 99.5th percentile, for example, makes $815,868; its neighbor at the 99.9th percentile makes more than double that, at $2,075,574 a year.

Don't these lazy people just want money without having to work?

Many critics of the 99% movement claim that the protesters simply want to make money without working hard for it.

This statement suggests that if you earn less than half a million dollars a year, it is your own fault that you are not rich, and the top 1 per cent who earn more than half a million a year who expect no handout from the government are successful because of they are hardworking. This seems to be a major theme from the 53% movement.

However, a key part of the 99% movement is its focus on Wall Street bankers who on average earn more than half a million a year and are truly in the top 1 per cent. The problem is that the banking sector in America has very close ties with the government, to the point where it seems as if the government is controlled by the banking sector. The left versus right political spectrum is misleading. People on the left of politics blame rich bankers whereas people on the right of politics blame the government. No one seems to notice that rich bankers and the government are one and the same. Here is what the New York Times piece The Guys from "Government Sachs" says on the issue:

Indeed, Goldman’s presence in the department and around the federal response to the financial crisis is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.

The power and influence that Goldman wields at the nexus of politics and finance is no accident. Long regarded as the savviest and most admired firm among the ranks — now decimated — of Wall Street investment banks, it has a history and culture of encouraging its partners to take leadership roles in public service.

It is a widely held view within the bank that no matter how much money you pile up, you are not a true Goldman star until you make your mark in the political sphere.

In the aftermath of the GFC in 2009, the US government bailed out mainly the banking sector. As a result, the U.S. taxpayers now owes as much as $23.7 trillion to fund the bailouts. In other words, the bankers mismanaged their business, the government cleans up the mess, and you pay for it.

If you or I were to start up a business (e.g. a cafe or a restaurant) and we failed because the food was bad or the location was bad or whatever reason, do you think the government will save us? Hardly. The government will tell us that we live in a capitalist society and hence we should not expect any help from the government. But the bankers on the other hand -- if they fail, the government pours trillions of dollars of public money into their pockets.

It's not just the banking sector. After 9/11 (a tragic event) the Republicans led by George W. Bush used the crisis to siphon off public money for the benefit of their friends in not only the banking sector but also the defense sector. Bush then proceeded to cut taxes for the rich. As of 2011, Bush's tax cuts for the top 1 per cent of America have cost U.S. taxpayers more than US$700 billion.

Divide and conquer

If you visit the We Are the 53% site, you will notice that most of these people like to show off that they come from humble backgrounds, they work hard, expect no help from the government, and do not whine.

As I have already explained, the bankers and other members of the top 1 per cent have effectively stolen all the money. To use an analogy, the top 1 per cent have taken the entire cake and have thrown a few crumbs towards the other 99 per cent.

The 99 per cent then proceed to fight among themselves for the crumbs. Those who get the bigger crumbs accuse those who get the smaller crumbs of being lazy and stupid. Sexism, racism, left versus right, differences in religion--all this further divides the 99 per cent, leading to greater conflict and division.

Divide and conquer (or divide and rule) is an old military strategy that has been successful employed since ancient times. Here is what Wikipedia has to say:

In politics and sociology, divide and rule (derived from Latin: divide et impera) (also known as divide and conquer) is a combination of political, military and economic strategy of gaining and maintaining power by breaking up larger concentrations of power into chunks that individually have less power than the one implementing the strategy. The concept refers to a strategy that breaks up existing power structures and prevents smaller power groups from linking up....

In modern times, Traiano Boccalini cites "divide et impera" in La bilancia politica... as a common principle in politics. The use of this technique is meant to empower the sovereign to control subjects, populations, or factions of different interests, who collectively might be able to oppose his rule. Machiavelli identifies a similar application to military strategy, advising in Book VI of The Art of War (Dell'arte della guerra), that a Captain should endeavor with every art to divide the forces of the enemy, either by making him suspicious of his men in whom he trusted, or by giving him cause that he has to separate his forces, and, because of this, become weaker.

How do we lessen the gap between rich and poor?

The answer to this problem is to encourage unity (not conflict) among those who earn less than half a million a year and to use the democratic processes to redistribute wealth from rich to poor.

The rebellion by the Libyan people against their dictator Muammar Gaddafi shows how difficult it is for the people of a country to demand their fair share in a non-democratic country.

But many Americans are lucky to live in a democracy where they can use democratic processes to vote for their fair share of the cake by taxing the rich. The problem is that most Americans, as discussed, are too busy arguing about other issues like race, sexism, abortion, and gay marriage, that they are distracted and do not vote as a united unit for the redistribution of wealth.

We Are All to Blame for GFC

2011-09-25T13:27:00.001+10:00

There are some documentaries you watch that are so brilliant that you need to tell others about it. This is one of them. This documentary, part one of four, details the history of today's global financial crisis. The GFC hit in 2009 but was fixed with bailouts and other policy measures designed to provide fiscal stimulus to the economy. But now what we are witnessing is the reality that these policies have uncovered massive debt in the balance sheets of sovereign governments.

While many are quick to point their fingers to bankers, I would like to add that many of us are guilty. Many people I talk to hate bankers. They tell me over and over again how bankers are greedy and evil. However, these same people, although they talk bad about bankers, their actions reveal otherwise. These people invest their money into savings accounts with these bankers. These people borrow money from these bankers to buy houses and cars. If you don't like bankers, don't do business with them. As soon as your salary is deposited into your bank account, withdraw it and put it in under your mattress, or covert it into physical gold and bury it. But nobody does that. Modern banking has become mainstream and normal. The people who detach themselves from the banking system are seen as weird and crazy. Our actions suggest we love the banks, we trust the banks wholeheartedly, yet when things go wrong we want to blame someone else.

I do believe the major bankers are at fault for plundering the public purse when the GFC hit, but what else could the government do when so many people's money was tied up in these banks? People shouldn't have trusted these banks in the first place and shouldn't have put too much money in them.

Ultimately it was greed that led us to where we are now. It was greed from people who in partnership with banks and government tried to extract as much cash as possible from residential real estate. We had too much faith in real estate. This is a good old fashioned bubble just like the bubbles of the old days, such as tulip mania. It does not matter whether debt is transferred from banks to government to taxpayers. Regardless of where the debt goes, there are three options: (1) the debt needs to be paid off (2) the debt needs to be defaulted on, and (3) the debt needs to be inflated away with money printing. The prices of stocks and other assets will go up and down depending which the relative magnitudes of these actions. Because it is difficult to know what direction government will take with regards to how much money it will print, how much spending it will cut, etc, the best we can do to protect our wealth is to diversify.

Is Private School Worth It?

2011-08-28T10:22:00.000+10:00

There is an article in The Age Magazine (26/08/11, Page 37, by Lucinda Schmidt) about parents angry over their children's private school fees, which have increased significantly over the last ten years. Furthermore, these parents are demanding more transparency, claiming that they don't know how the money is spent.

While reading this article, I couldn't help thinking, "What do these parents expect?" It is no surprise that there are some very expensive private schools out there, some charging over $20,000 per year. If these parents were complaining about a government school, it would make sense. However, they have already signed on the bottom line and agreed to pay the fees. This is how things work in the private sector (i.e. the seller sets the prices and the buyer accepts it by entering into an agreement or rejects it by walking away). These are private schools that set their own prices. I would have thought that private enterprises have the right to set their own prices. If parents believes these fees are too high, they could demant that the government intervene to set prices. But if government sets prices, these private schools wouldn't really be private.

Would I send my children to a private school? The answer to that is yes. There is one private school that I consider to be a good school mainly because I spent eight years in there as a student. I then spent five years in a Catholic school and noticed a drop in quality. The quality of the first private school is not really in terms of good teachers or good methods of teaching. Rather, the original school had better facilities and students engaged in much more extra-curricular activities. Some people argue that it would be cheaper to bring your child to a government school and, with the savings, get the child to do these extra-curricular activities outside of school hours. This is not practical as there is limited time outside of school to do these activities and, secondly, the child would be performing these activities with his school colleagues, which is a missed opportunity in terms of building social skills.

But of course I don't have children yet and maybe I won't ever have children. The reasons why I would put my own child through a private school was because of positive experience that I myself had in the school. But I do believe that in terms of academic performance, much of it has to do with the talent of the child himself and furthermore how much support the parents give the child.

Equity Index Fund Investors Being Plundered

2011-08-27T14:46:00.002+10:00

A friend of mine told me that executives and directors in many publicly listed companies sell shares and accept money from index investors. Then they plunder this money by accepting bribes from unions to lift wages of workers. They also accept bribes from corrupt politicians to raise company taxes to help fund election campaigns to keep them in power. The union leaders are able to "negotiate" a higher wage and get performance pay bonuses. The politicians too raise tax revenue to use to help them stay in power. The executives take bribes and pay themselves large bonuses and salaries. Everyone wins except the shareholders (including index fund investors).

So why then do people keep investing? Why do shareholders keep plowing money into the company only to see it being plundered? Because they are sold a dream. By telling investors to invest for the long term, there is no accountability. Index fund investors keep plowing money into stocks like lottery players keep plowing money into tickets.

Buying and holding in equity index funds worked in the past because we were living in an era when the size of government was small. Today, the size of government is large and, let's face it, government is controlled by a network of executives and directors of big corporations whose objective is to create wealth for themselves. Hence they use the power of government to seize the revenue of corporations and distribute it among themselves. They are looting shareholders and selling them the opiate of the investor masses (i.e. "in the long run everything will be okay").

If you don't believe me, look at the statistics on the size of government. It has increased massively. Furthermore, the dividend yield on S&P500 companies used to be high but has fallen to almost nothing.

University Not Worth It?

2011-08-14T16:09:00.002+10:00

The video above questions the common wisdom that you will get ahead if you go to university. Going to university normally leaves the student will massive debts that need to be paid off upon graduation, and going ot university simply does not guarantee that your pay will even be much better than that of someone who never went to university.

I have spent a long time in university, completely believing the common wisdom that you must go to university and that only losers became construction workers, plumbers, or carpenters. My parents would look down upon these tradies, commenting that they are uneducated people who got where they are because they lack university education. But after graduation I found myself with a fairly average job that the typical university graduate would get, but look over at the tradies and they are earning big bucks (see cashed up bogans).

I don't see anything wrong with going to university to get knowledge for its own sake, but if that is what you want then going to an expensive and elite university is not necessary as you can effectively get the same knowledge in libraries or even online. The university degree not only gives you the knowledge but it also gives the piece of paper that brands you, and that piece of paper is used by the graduate to secure himself or herself a better job. University was and is mainly a snob tool.

Even if I were in high school again and thought about what I wanted to do for a living, I would probably still go to university mainly because I don't think I'd be a good plumber, but young people out there ought to think twice before going to university. It may not be worth it.

Why I Prefer to Rent

2011-08-14T10:59:00.000+10:00

There was a documentary on 60 Minutes this month called The Big Squeeze about families who made good incomes who borrowed incredibly large amounts of money from the bank to buy a lot of real estate. They then lived large and expected to come out ahead assuming that real estate prices always went up. Unfortunately, their dreams have now been crushed as rising prices of essentials, rising interest rates, and falling wages and even unemployment have squeezed them. The documentary asks whether it is better to rent rather than buy a home, as is the norm in Asia and Europe.

If you rent, you can live for cheaper and you can invest the difference in shares, managed funds, or property syndicates. If you buy the bank, you pay off the mortgage to the bank and hope the value of the family home rises steeply. The decision to buy or rent is quite an even match if you do the numbers, but the problem with making an economic forecast is that you are making massive assumptions over long period of time (the average mortgage lasts for about 30 years). After many of these buy vs rent calculations are done, renting and buying are normally about the same.

When you are buying a house, you are assuming many things working in your favour, namely that interest rates are low, house prices go up steeply, you keep your job and don't get a pay cut, and you live in the same place forever. This, in my opinion, is the deal breaker. Far from providing security and stability, buying a house actually locks you in and limits you. It denies you freedom to move to get a better job or to take a risk in your career. A home owership culture, in my opinion, does little in a country other than encourage wage slavery. When you get a mortgage, the bankers have you by the balls, and you stay quiet and work hard for them for the next thirty years of your life.

The benefit of renting is the flexibility. I spend about $10 per day to eat out at restaurants for lunch. If McDonald's offered to give you a $10 meal every single day for the rest of your life for a lump sum of $50,000, would you take it? I certainly wouldn't because I don't know if I will continue to like McDonald's for the rest of my life. Furthermore, if I give $50,000 to McDonald's then they have no incentive to work hard because they have all their money. They can produce poor quality food and it wouldn't matter because I have already paid the $50,000. This analogy is supposed to be similar to buying vs renting a house. If you buy a house, you lock yourself in because moving have immense costs (due to high stamp duty). Furthermore, if you buy a house, you are responsible for everything, for all the repairs and you even suffer is something goes wrong in the neighborhood that impacts the house price (e.g. if the council approves for a tip to be built next to your home). Buy renting allows you to shop around for the best product. Like the restaurants who fight over your money, lordlords will fight over your rent money.

Fame and Fortune by Horatio Alger

2011-08-14T00:46:00.000+10:00

Three years ago I read Horatio Alger's Ragged Dick, a story about a young bootblack who grows up to be a respectable young man. I have just finished reading the sequal to this story called Fame and Fortune.

This story continues on from the original story and sees Dick being blessed with a respectable job by the father of a boy whose life he saved. The generosity of this man as well as this new job of Dick's ensures that a number of people are jealous of him. As a result, those who are envious of Dick's success plot to frame him for a crime he did not commit.

This sequal is very much like the first story Ragged Dick (and probably like every other Horatio Alger story) in that this story is very much a fantasy and a moralistic story (some have described Horatio Alger fiction as male Cinderalla stories) about how even the poorest and disadvantaged man can gain riches and respectability through honesty and hard work. Nevertheless, I believe that the lessons taught in this book are very positive, and I would not hesitate to encourage young people (children and teenagers) to read it because of the lessons it is meant to teach.

Some of the negative points about this book and this idea that honesty and hard work will result in success is that it does not address the possibility that in some areas and in some instances hard work does not pay off. Although the rags to riches story is very popular in America, there is some evidence to suggest that there is not much social mobility in America, a country that is characterised by an immense gap between rich and poor.

Download Fame and Fortune at Project Gutenberg
Buy Fame and Fortune at Book Depository

The Virgin and the Gypsy

2011-08-14T00:27:00.001+10:00

I have recently purchased a second-hand HTC Desire, which I mainly purchased because I wanted a phone with a fairly large and high-resolution display for me to read ebooks on the train on the way to and from work. I downloaded D.H. Lawrence's book The Virgin and the Gypsy to read.

This is the story of a young virgin girl who is the daughter of a rector and her fascination with a big and masculine gypsy man. This story is short and intense, unlike the meandering and boring David Copperfield by Charles Dickens (a book I am also currently reading but struggling to finish).

I enjoyed Virgin and the Gypsy immensely and high recommend it. Read or download the ebook below for free:

The Virgin and the Gyspy, eBooks@Adelaide

UK Tenant Evicted over Son's Rioting

2011-08-13T11:39:00.000+10:00

According to Cameron Backs Eviction for London Rioters published in The Age today, "a London council became the first to begin evicting a tenant whose son faces unrest charges."

You can imagine a struggling family living in social housing. The son may be a rebellous teenager who spends his time rioting and looting. But then suddenly the whole family, including the mother and father, the daughter, the baby, the dog, etc are evicted from the house and left to fend for themselves on the streets simply because the son commits a crime.

This strikes me as grossly unjust.

Corruption Not Harmful?

2011-08-07T13:09:00.001+10:00

A Singaporean friend of mine who had just been on a month-long holiday to his home country, chatted with me a few days ago about what he perceives to be a high level of corruption in Singapore whereby the ruling party in that country silences opposition parties by passing through legislation that punishes those who publish opposing views. This came as a surprise to me because the highly regarded corruption perceptions index (CPI) by Transparency International declares Singapore to the least corrupt country in the world.

According to Transparency International, Singapore is not a corrupt country, but according to many Singaporeans I actually talk to, Singapore is a highly corrupt country.

From what I hear, the corruption perceptions index merely gives surveys out to people and asks them about their perceptions on how corrupt a country is. This is hardly a rigourous measure of corruption. Some have suggested that a measure of the amount of bribes you need to pay is a better measure, but the problem with this is that I don't think corruption can be measured by bribe payments alone. We first have to look at the definition of corruption. Most academics define it as follows: "The use of government power for private gain."

It is my opinion that most of the time people's perceptions of corruption is itself corrupted by snobbery. That is, most people believe that rich countries are not corrupt while poor countries are corrupt because rich people have integrity and are honest whereas poor people are dishonest and have no integrity.

Based on this definition of corruption (corruption is "the use of government power for private gain."), let's face it, virtually all politicians and public servants are corrupt, even politicians and public servants in rich countries. Most politicians and bureaucrats use their position as a career, and large companies make non-transparent political donations to parties to effectively bribe them. Even in developed democracies politicians are driven by private gain, trying as hard as possible to stay in power, whether it is by accepting political donations from large interest groups and lobbies but also by pandering to voters' demands. A politician giving to voter demand is, by the definition of corruption we agreed to above, is corrupt.

It is clear that in all countries government responds to the demand of whoever is most powerful. The only difference between a democracy and a dictatorship is that power is not concentrated. In most healthy democracies, the country is still ruled by an elite but a little bit of power is given up to the people as a compromise.

My point is that perhaps we should not worry too much about corruption. There are numerous stories about corruption in China and India, yet these two countries are growing rapidly, more rapidly than the growth of Western economies when they were developing.

A particular public official in a developing country may not approve of some development unless he receives a bribe from a company. This public official may hold out for the highest bribe so he can make the most money possible. Companies offer him cash in briefcases under the table and the public official accept a particular company. This may occur in many developing countries, but it also occurs in developed countries. It is no different to the government allowing projects based on auctions.

If a dispute occurs in a developing country between two parties, the richer party will pay off the public official. This is no different to developed countries whereby disputes between two parties are settled in courts whereby the richer party hires better lawyers and drags the case on for long periods to bankrupt the other party.

Corruption in the form of bribes is merely the replacement of "might makes right" with "wealth makes right." It provides a non-violent means of conflict resolution.

GFC2's Impact on Australia

2011-08-07T12:36:00.000+10:00

GFC2 is here. The US and Europe are piling on more and more debt and many investors are skeptical about whether they can pay it off. Here in Australia, many seems to be optimistic. In The Melbourne Age, this piece Forget US Woes, China Keeps Our Economy Strong claims that the Australian economy does not rely on the US economy anymore and that the Chinese demand for our resources will keep our economy strong. According to the article, "40 per cent of China's exports went to the US in 2001. Now that figure is down about 20 per cent and falling..." This means that even if US consumers were to become too poor to afford Chinese imports, China has other countries it can export to.

But one area that bothers me is how much US debt China holds: US$1.2 trillion worth (source: NPR, China Blasts US over Credit Rating Downgrade). If the US is unable to pay off this massive debt and defaults, the US$5 trillion Chinese economy will have a substantial amount of its wealth wiped out. This would have an enormous impact on the demand for Australian resources and hence the Australian economy. Even if the US were to avoid default by printing money, the outcome would be similar. The Americans would print money and hand these dollars to the Chinese. The printing of money will cause massive inflation thereby causing the American dollar to drop in value. Even though the Chinese hold US$1.2 trillion worth of US debt, if the US dollar is worthless then that will drop demand for Australian resources.

Many newspaper economists are going on about how China is now Australia's master and not the US. Be that as it may, these newspaper economists do not seem to give much description of the linkages between the US economy and the Chinese economy.

Just Default Already!

2011-07-30T14:29:00.000+10:00

I'm not exactly sure why the US would default if the debt ceiling were not increased. If the debt ceiling were not increased, the US would not legally be able to borrow but could still pay off interest with revenue from existing taxation. I am assuming of course that the US is not just borrowing money to pay off the interest on money they borrowed earlier.

Regardless, it is clear that the Americans need to both increase taxes and cut spending, especially on useless expenditure. That Republicans are not willing to allow increases in taxes is outrageous. In my opinion, the Democrats should just allow a default to occur and let the American people see just how horrible it will be. Th government can cut spending and not built roads, abandon hospitals, stop paying pensioners, and let banks gouge homeowners and businesses with high interest rates. The Democrats can then blame the Republicans for destroying the economy and in the next election should comfortably win.

APN AREIT Fund Yields 9%

2011-07-16T13:36:00.000+10:00

As of 16 July 2011, the APN AREIT Fund gives a distribution yield of 9.12 per cent, paid monthly. I have been invested in the APN AREIT Fund for a little over half a year now, and I am very happy with not only the high distribution yield but also the monthly income as well as the stability of the investment income. The payout from the APN AREIT Fund is so stable and predictable that I can make plans for various spending and can reasonably rely on future APN payouts to pay off the liabilities (e.g. if I use a credit card). This predictability, high performance, and stability created by what is seemingly highly compentent active management makes me question the value of unpreditable index funds that pay quarterly distributions that are highly variable.

My hope is that as the income from my APN fund increases, I can devote more of my salary income to investments and rely on the income produced by APN to fund all my living expenses. This means that ultimately I will be able to live without working, which for me is very appealing!

Vanguard Bond Fund Yields 15% for 2010-11

2011-07-16T13:21:00.000+10:00

According to Vanguard's website, the Vanguard Index Diversified Bond Fund paid distributions of 15.52 cents per unit in 2010-11. Given that the price of a unit now is $1.01, this equates to an annual distribution yield of around 15 per cent. This is significantly higher than the 5% distribution yield that I am used to, so I began to wonder why bonds did so well last financial year. I am not one to reinvest managed fund distributions and instead have spent the money on buying new running shoes (I will write a post about my shoes later).

It turns out that I am not the only person who noticed this massive distribution on the bond fund. Over at the Bogleheads forums, there is a forum post about the bond fund's massive distribution payout, as well as an associated massive drop in unit prices. The Bloomberg chart below shows the extent of this fall in unit prices.

A Bogleheads member named Tonens gives the following explanation for the anomoly, saying that the large distribution was the product of the strong Aussie dollar.

... [T]he Vanguard Diversified Bond fund is 60% International Bonds, with that proportion hedged to the Australian dollar. The hedging gains as the Aussie dollar appreciated over the last year rather than interest earned likely accounted for the majority of that large distribution.

The total distribution for the fund over the last 12 months its close to 16c (ie about 16%). If the currency goes the other way, it'll contract accordingly.

Another member named Asset Chaos explains why the unit price colapsed:

I think you'll find that the price of a unit of diversified bond is not constant. It fluctuates daily in line with the market prices of the bonds held in the fund. The reason that the unit price drops after a distribution is the fund gets paid some interest on its bonds on many days in between the dates on which the fund distributes this income to the unit holders. That accumulating interest is an asset of the fund and so is reflected in the unit price, which is just the total value of the fund divided by the total number of units outstanding. When the fund distributes the interest income, that money is no longer in the fund, so the fund's value drops suddenly on the distribution date. But you as a unit holder still have the same value: you've got a unit's worth of value still in the fund plus the value of the distribution, which you have in the form of cash in hand or in the form of additional units.

It worries me when an investment pays out large distributions accompanied by a fall in unit prices. This is because the fund may be paying for the distributions by eating up capital. However, the explanation that the massive distribution payout is the product of the strong Aussie dollar makes sense.

Carbon Tax Increases Income Tax Rates?

2011-07-10T19:12:00.001+10:00

Something doesn't add up with the carbon tax compensation scheme. Take this except from the West Australian article titled Tax cuts to compensate for higher living costs:

To deliver the tax cuts, the tax-free threshold will triple from $6000 to $18,200 when the carbon tax begins on July 1 next year.

A second round of tax cuts will occur in 2015, when the carbon tax switches to an emissions trading scheme, with the threshold lifted to $19,400.

Most taxpayers will enjoy a tax cut of at least $300.

The first an second points are easy to understand. But the third point about most taxpayers will get a tax cut of at least $300 doesn't make sense. The way the income tax system works currently is that you pay nothing for any income you earn up to $6000. Then from $6000 to $37000 you pay 15 per cent. If the tax-free threshold were to increase from $6000 to $18200 then this means that if you earn at least $18200 per year you will save (18200-6000)*0.15 = $1830, and everyone earning over $18200 per year will get this.

But news article talk about most people getting tax cuts of only $300 and that people earning below $80,000 will not benefit!

This makes no sense. Perhaps the government is trying to obfuscate what looks like a tax rise for people in higher tax brackets. My guess is that although the tax-free threshold will increase, to compensate for this the government will increase income taxes in other areas. For example, for every dollar you earn between $18200 to $37000 you may be required to pay 30 per cent rather than 15 per cent.

I wish the government were clearer on this. It does not look good when the government tries to hide detail. If anything it makes me suspicious.

Update 16 July 2011: I have finally worked it out! It's disappointing that the increase in income tax rates was not clearly highlighted in the mainstream media, but the changes are as follows:

Tax-free threshold will increase from $6000 to $18200
The 15% income tax rate will be lifted to 19%
The 30% income tax rate will be lifted to 32.5% in 2012 and then 33% at 2015.

The low income tax threshold will decrease, which, now that I think about it, makes sense because a change in the income tax rates is much more transparent. All in all, I think these tax rate changes comfort with the general principle of carbon tax compensation, which is to target poor people and not rich people. The increases in the income tax rates at the higher end will help make sure that the benefits of the carbon tax compensation only go to those who need it.

I have complained about the carbon tax because there are many problems with it. It doesn't address the problem of jobs moving overseas and it exempts petrol. Furthermore, carbon tax compensation doesn't all go to poor people. Much of it goes to industries. Nevertheless, I completely understand that the job of politician entails compromise. It is no point letting best get in the way of better, as the Greens would have found out when they opposed the CPRS. With a Parliament made up of independents and the Labor party being heavily influenced by trade unions and voters who struggle with rising petrol costs, it makes sense that Gillard make these compromises to ensure that at least something gets through Parliament. All in all, this is a step in the right direction. Taxing big business for their carbon emissions is a much better idea than paying big business to reduce emissions, which is what Tony Abbott plans to do. If Abbott had his way, the money necessary to pay off big business to reduce emissions would need to come from somewhere, and chances are he would introduce some form of carbon tax e.g. by increasing income taxes. Simply increasing income taxes would not punish people who use more electricity, it only punishes people who earn more. By increasing carbon tax you are punishing those people who commit the sin of emitting more carbon and with the proceeds of the carbon tax you can reduce income tax, which encourages single mothers and students to work.

Carbon Tax Released

2011-07-10T15:05:00.000+10:00

Finally the full details of Julia Gillard's carbon tax has been released, but as soon as I checked the Commonwealth Treasury website and was diverted to an Australian government website about the new policy, I became annoyed because it was just not clear how much I was going to get. Like the Budget that Labor introduced that cut little bits of spending on a thousand different things, thereby spreading out the pain, it seems as if the carbon tax follows the same philosophy whereby the compensation is spread out over a large number of people, not just low-income people but also pensioners, people with children, people with certain welfare cards, and so forth. It was really confusing.

One of the main features of the compensation is that the tax-free threshold would increase from $6000 to $18000. For someone earning over $18000 per year this is an extra $1800 per year in your pocket ((18000-6000)*0.15=$1800). In my opinion, this is not ideal because this $1800 would go to everyone earning over $18000 a year, including those who earn millions of dollars per year. I have stated in another blog post that I would have preferred to see an increase in the low income tax offset so that millionaires are not compensated.

In addition to this increase in the tax free threshold, there will also be, according to this Herald Sun article on the carbon tax, additional compensation that presumably will come from tax cuts that will be paid to singles earning below $50000: "Individuals will get all extra costs compensated up to an income of $50,000. The compensation means an individual now on $50,000 a year will get $303 in assistance, to cover a $304 rise in their cost of living."

This carbon tax compensation system is far too complicated. I have no idea how much I will get and when I will get it, and I suspect many other Australians will not bother to figure out what they will get because it seems to be dribs and drabs from all sorts of places. The government seems to have divided the benefits into a million different categories.

Furthermore, as I feared, the tax will be levied on only 500 emitters and will only apply if the material is burned. This I fear will mean that companies can dodge the tax by exporting it to countries that have lax environmental laws. What would have been better is a mining tax based on the energy content of what is dug out of the ground. Given that Labor caved in to the big miners and the mining tax discussion is now dead, we must live with what we have, which is the carbon tax and the future transition into an ETS. The system will also be linked in to the international carbon price, and this will hopefully coordinate carbon emission reduction objectives all around the world and hopefully cut off the loophole whereby companies export resources to other countries to dodge the carbon tax.

License to Steal

2011-06-26T20:08:00.002+10:00

"I learned too late that you need just as good a brain to make a crooked million as an honest million. These days you apply for a license to steal from the public."

~Lucky Luciano

Fitzroy Gardens

2011-06-26T01:20:00.001+10:00

During lunchtime of 24 May 2011, I decided to take a stroll through Fitzroy Gardens in Melbourne, Australia. Although it was somewhat cold, the sun was shining, and the leaves were falling.

Meerkats and Baboons at Melbourne Zoo

2011-06-26T01:13:00.000+10:00

I went to Melbourne Zoo on 15 June 2011 and saw meerkats, baboons, plus a number of other animals. The meerkats are cute and the baboons have hideous red bottoms.

How to Structure Carbon Tax Compensation using LITO

2011-06-25T11:28:00.000+10:00

The article Carbon Tax Relief to End at $150,000 in the Sydney Morning Herald gives us the following suggestions about what the carbon tax compensation scheme will look like:

petrol will not be included in the carbon tax
people earning over $150,000 will get no compensation
there will be cuts in income tax
there will be family payment increases
there will be increases in pensions

An ideal carbon tax compensation structure

Many of these points are very worrying. Firstly, let me tell you how I think carbon tax and carbon tax compensation should be structured. The carbon tax is designed to reduce our carbon emissions. To do this it will increase the price of carbon emissions, thereby punishing people for polluting. However, increasing the cost of living will hit poor people hard. Rich people can survive if cost of living increases but poor people may not be able to. To fix this problem, carbon tax compensation is necessary. The best way to structure carbon tax compensation, in my opinion, is via the low income tax offset (LITO). The LITO actually targets poor people. If you are poor (i.e. you earn less than $30,000 per annum) the government will hand you $1500 as of 2010-11. If you are middle-class (i.e. you earn between $30,000 and $67,500) the government will give you a portion of this $1500. If you are rich (i.e. you earn over $67,000 you get nothing). To target poor people, the government should think about increasing the amount paid to low-income individuals via LITO, i.e. increasing the amount paid from $1500 to, say, $3000 or more. The government can also increase the LITO threshold so that middle-income people who will become poorer because of the carbon tax will have the purchasing power of their money compensated for by getting higher net pay.

Someone on the internet made the argument that compensation for the poor will not work becuase rich people will compensate for a rise in cost of living by demanding higher pay. Companies will then give in to these demands and to compensate they will increase prices, which will further hurt poor people. This argument assumes that everyone has perfect ability to negotiate what they want without compromise to maintain their profits or standards of living. If this were true it would lead to prices increasing ad infinitum. If companies do increase prices of their goods as a result of rich people demanding higher pay, then all workers, seeing that prices are going up, will then demand higher pay, companies will give in and increase prices even more, which will see workers demanding even higher pay, and this continues on and on until prices and wages increase all the time. In the real world, when workers demand higher wages, they may get it but they may not because companies may reject the demand. When companies have a reduction in profit, they may increase the price of goods to compensate, but this might scare away customers to a rival company. When many companies and individuals face lower profits or standards of living, many of them take it because there is no other option.

What is wrong with the policies of the major parties?

A major worry is that petrol will not be included in the carbon tax. I assume that this will mean that coal companies and gas companies will be taxed but oil companies will not be taxed. The government may claim that this policy helps low-income people who need petrol to drive to work. However, if the government would just increase LITO, poor people would have more money to be able to take a rise in petrol prices. The problem with exempting petrol is that it doesn't discourage people from driving less and many companies that previously may have used natural gas or coal will simply switch to petrol. We will see petrol being use to power up a barbeque and petrol being used in power plants rather than coal. I am worried that people will see this as a loophole and pollute at the same rate by simply using petrol.

Another worry I have is with the way the tax is collected. The tax will alledgedly be levied on companies as they emit the carbon in Australia. For example, if a company burns coal, it has to pay. But what if this company exports that coal to, say, Indonesia, burns it there under a jurisdiction with no carbon tax? Companies will move overseas and coal, gas, and oil will simply be exported and emitted overseas to avoid the tax. To fix this problem, a carbon tax needs to be levied on the energy content of exports. This will counter the argument many people have that the carbon tax will have no impact because Australia makes up only 2 per cent of the world's economy. If a carbon tax is levied on energy content of exports, this will raise the world price of energy since Australia is a major resource exporter. A higher world price of energy will reduce carbon emissions all over the world, and it will send a signal to other major energy-exporting countries like Saudi Arabia, Russia, and Brazil that governments can collect good revenue from a carbon or energy tax. It is within the interests of those in power to have a carbon tax. Some argue that if China and India, the world's most populous countries, do not agree to reductions in emissions, there can be no progress on worldwide emission reduction. I disagree. China and India are not major energy exporters. They are net buyers of energy, and buyers do not set prices. Sellers set prices. What matters is that Russia, Saudi Arabia, Australia, Canada, and Brazil do with the price of energy. If the price of energy is increased with a carbon or energy tax, there is nothing India or China can do but accept it. An agreement to increase the price of energy worldwide does not need the consent of all countries. It only needs the consent of a few major energy exporters, and because these countries have a lot to gain from what is essentially price fixing and anti-competitive behaviour in order to increase government revenue, there is no reason why they wouldn't do it.

Tony Abbott said the following: ''At the next election, the Coalition will deliver tax cuts that are not just compensation. It will be a tax cut without a carbon tax. Our tax cuts will recognise the cost of living pressures that are hitting families and small business hard. Our tax cuts will be designed to restore people's hope, to reward harder work with higher pay.''

Essentially, the carbon tax is starting to look like a tax that takes money from the rich and give it to the poor. The Liberals, on the other hand, will simply cut taxes, and the rhetoric above that the tax will "reward harder work with higher pay" suggests that there will be greater tax cuts for the rich.

Roulette vs Lottery

2011-05-28T14:43:00.000+10:00

I was having a chat with a friend for dinner and was talking about a time when I was hanging out with friends at the casino where we played roulette. She criticised me and told me that roulette is a loser's game. However, I remember she told me that she always purchased around $20 worth of lottery tickets every week.

She justified herself, saying that that if you walked into a casino and played roulette, you don't win much and the odds are against you in the long run. However, she claimed that lottery games involve small sums spent ($20 per week) with the potential for winning massive amounts that can set you up for life.

Let me start with the qualitative arguments I put up to justify my playing roulette. I believe that in both the lottery and roulette, the odds are against you, but I played roulette not with the expectation of getting financial freedom but with the expectation of just having a good time. I played because I wanted to enjoy myself with friends. There is something very exciting about handing over money to someone and then having the fear, anxiety, and excitement of not knowing how much money you will get back. This is why roulette (or blackjack, baccarat, or any other casino card game) is fun. However, the lottery is a different beast. I used to play the lottery before I calculated the odds. When I played the lottery, I did not do so with the expectation of having fun with friends. I played the lottery because I felt trapped in a boring, low-paid job and saw the lottery as an escape. A lottery ticket in my hands was my way out. It provided me with hope that I could one day become a multimillionaire and with those millions all my problems with disappear. Although this is my experience with the lottery, I find that many people I speak to share the same sort of psychology when it comes to playing the lottery.

Let me move on to the quantitative argument. It is possible to walk into a casino with a small amount of money and walk out a multimillionaire. For example, if you put a $25 chip on one number on a roulette table and win four times in a row, since the payoff is $35 for each $1 you put on, then you will get 25*35^4= $37.5 million. The probability of your number showing up is 1/37 = 2.7 per cent. However, to win four times in a row, the probability of that happening is (1/37)^4 = 1/1874161 = odds of 1874160 to 1.

In other words, you can walk into a casino with $25 and walk out with $37

million but the odds of that happening are about 1.9 million to 1.

What about the lottery?

Every lottery is different depending on which country you look out and which game you look at. However, let us choose a standard lottery game, such as the standard Tattslotto game provided by Tatts Group Limited. The Tatts Group was kind enough to disclose on their website the odds of winning, the prices of tickets, and as well the payoffs given to winners in the last draw. The payoffs of winning Division 1 (the highest payoff) is about $4.3 million. The odds of this happening are 678755 to one for a standing 12-game ticket. The cost of a 12 game ticket is $7.85 as at May 2011.

How in the world does this compare to roulette? Well, let us assume that in roulette you can have a $7.85 chip and in order to win $4.3 million you will need to win a theoretical 3.71654 times in a row (7.85*35^K = $4.3m and solve for K to get K=3.7), and the odds of this happening are 673430 to one, which is better than the lottery but surprising not so much so.

What about betting limits?

Some argue that most casinos have betting limits that will prevent you from putting more than, say, $1000 on the table at once. But this does not matter. If you put $25 on one number on the roulette table and you get it right, you will win $875, and if you put $875 on one number and win again you will have over $30,000. Suppose you take that $30,000 and bet $1000 thirty times. The odds and payoffs are still the same. The house edge for roulette is a little higher than 5% but let's say it's 5 per cent for this example. Suppose I had $100 and I put it on the roulette table. I am expected to get back $95. However, suppose there was a betting limit of $50. I think divide by $100 into two $50 groups and then bet $50 twice. My payoff from the first bet is $47.50 (5% of $50) and my payoff from the second bet is also $47.50 as it is an identical bet. Therefore after two bets my expected payoff is 47.50*2 = $95, the same as if I had just put $100 on the table.

Conclusion

What this post should prove is that the lottery and the casino are similar in odds and payoffs. You are expected to lose in both games, and you will lose and win roughly the same amount. The problem is that many people view casinos are dirty places where criminals live whereas lottery tickets are often seen as family-friendly and harmless.

127 Hours

2011-05-28T13:29:00.000+10:00

I started watching the DVD of 127 Hours a few days ago but stopped watching after twenty minutes in because my family had returned home and the house was too noisy for me to watch a movie. My initial thoughts were that this film did not seem that appealing.

I have watched the next 25 minutes of the movie but have switched off because the movie seems to be getting into a very gruesome part.

This movie 127 Hours is the true story about a man who goes hiking in the canyons, falls, and then unluckily a large boulder crashes on his arm, trapping him. In order to save himself, he amputates his own arm and escapes.

I watched the movie up to the part when he looked like he was going to attempt to cut off his own arm, and when that looked like it was going to being, I switched off and decided not to watch. It just makes no sense for me to watch a movie that is essentially a torture movie.

Many critics love this movie, saying it is very realistic and painful to watch, but these reasons why the critics love the movie are the reasons why I hate to watch it.

Why Australia Needs Class Warfare

2011-05-15T11:10:00.000+10:00

With the release of the Federal Budget 2011-12 by Prime Minister Gillard, the opposition Liberal party led by Tony Abbott has accused Gillard of class warfare.

It is my opinion that class warfare in a country is a good and healthy thing, but first let me define what I mean by class warfare. Within any country there is a distribution of wealth and as a result there can be classified different classes of people based on wealth. Within most countries there are poor people, middle-class people, and rich or upper-class people.

Under authoritarian regimes, rich people tend to own slaves and oppress the poor, using them to run their businesses. The democratic system gives poor people a voice through the government, allowing the poor to push back at the rich so that they are not fully enslaved. This is class warfare. When the poor push back, they get benefits like public holidays, sick leave, maternity leave, recreation leave, and a host of other benefits that workers in authoritarian countries don't have.

To ensure that poor people get these benefits, they need to be constantly aware of class divisions and to vote for their own class interests in elections.

Unfortunately, in many democracies, while the majority of poor people are class conscious, a significant number of poor people actually vote for parties that implement policies that disadvantage them economically. In American following the 9/11 terrorist attacks, 80 per cent of Americans voted kept George Bush in power, allowing him to implement tax cuts to the rich. Under his presidency, public debt soared and the gap between rich and poor accelerated dramatically. In Australia, refugees tried to hop on a boat and come into Australia. The Prime Minister John Howard turned the boat back. His tough stance saw just about everyone, including the poor, vote for him. When he came in, he implemented policies that diverted public money to the rich e.g. by giving tax breaks through superannuation funds, family tax benefits that even high-income households were eligible for, and of course WorkChoices. In countries like Thailand and Cambodia, the leaders there clash in small-scale wars along the border, both leaders afraid of starting an all-out war but both still very willing to talk tough in an effort to appear nationalistic. This tough stance wins votes and distracts the voting population from the immense wealth held by the elite in both countries. The King of Thailand is the wealthiest royal in the world with a net worth of $30 billion, over sixty times higher than the net worth of the Queen of England (around $450 million).

For many centuries, history shows that the rich often use nationalism to win broad support in democratic systems. Once in power, they implement policies that benefit themselves at the expense of the poor. A poor working-class American will continue to be loyal to the rich as long as he views everyone in the world as being either American or non-American. He feels united to his employer, the one who is exploiting him.

Class warfare allows poor people to suddenly realise that there are indeed divisions within countries. Class warfare allows the poor to demand policies that work in their own interests.

Further reading: Rich and poor divide underestimated

The Federal Budget 2011-12

2011-05-14T17:33:00.000+10:00

The Federal Budget 2011-12 was released this week. Everyone else is giving opinions on it, so I may as well. All in all, I think it is a positive budget that would hopefully get Australian back into surplus by 2012-13. The growth in revenue seems optimistic and the spending cuts are probably in my opinion not deep enough, as much deeper cuts are needed in middle-class welfare. But all in all, it is a step in the right direction, that is, keeping taxes high and cutting spending. It follows the fundamental rule of personal finance, which is to spend less than you earn.

In the world of FBT, the budget gets rid of the loophole that allows tax benefits to be accrued if you drive your work car more than 25,000 kilometres per year. This horrendous loophool meant that many small businesses actually deliberately drove their company cars more than they needed to in order to get tax concessions.

A number of people complained that there were no increases in family tax benefits for those earning over $150,000, which I thought was incredibly surprising as those on $150,000 are definitely rich given that the average household earns around $70,000. For Australia to get back into surplus, spending cuts need to be made or taxes need to be raised, and cutting spending or increasing taxes on the poor is not only highly immoral but could actually kill them. Therefore, the rich need to be sacrificed. I am surprised that there was so much opposition to this idea, even among religious people and poor people.

The budget contianed no details about the coming carbon tax, which is disappointing. I am happy with the carbon tax as I think it is one of the best ways of cutting carbon emissions in Australia. It gives me great pleasure when I look at those people driving large SUVs and live in large McMansions and know that they will soon be punished for their behaviour. The carbon tax is understandable unpopular with many people believe most people don't like the idea of cost of living increase. This is why I believe that Prime Minister Gillard needs to give very generous compensation to low-income people. It is already disappointing to hear that only half of the revenue raised will actually go to compensating low-income people (it should ideally be 100 per cent). If I were Prime Minister Gillard or if I were her adviser, I would suggest that the way she go about compensating people is to made amendments to the low income tax offset (LITO). Specifically, she should increase the LITO payout and increase the threshold when you are no longer eligible for it. This will put money back into the hands of the poor and give a moderate amount to the middle-class. If the compensation is large enough, I am sure just about every single Labor supporter will be happy and a substantial number of Liberal voters will switch sides and vote Labor to secure for themselves the compensation, and Prime Minister Gillard will win the next election.

We'll see what she does.

Aid Workers Jailed for Fraud on USAID and World Vision

2011-05-01T18:17:00.000+10:00

Two aid workers were jailed for 12 years for defrauding USAID, an American aid agency. USAID contract World Vision to use $1.9 million to help poor Liberians. Under the initiative, the two aid workers were required to monitor World Vision workers as they distributed aid. But the two aid workers instead sold the food and pocketed the profits. The fraud was revealed by an internal audit by World Vision.

That the fraud was caught by World Vision's internal audit should give World Vision donors most confidence that the money they provide to the non-profit organisation is being used legitimately. If a humanitarian agency has no bad news, it is likely that the organisation has no internal or external audit function. World Vision has not only an internal audit function but is also externally audited by PwC.

Source: Aid workers get 12 years for US aid fraud in Liberia

Baillieu Cutting Stamp Duty by 50%

2011-04-30T17:34:00.000+10:00

The average house in Melbourne is around A$500,000, which is among the most expensive in the world. In a bid to help first home buyers, the Baillieu government plans cut stamp duty by 50 per cent (according to First Time Buyers Struggling to Keep Up). This is clearly a bad move as it will only increase the demand for houses which will in turn increase prices even more. Those buying houses at a time like this may think they are better off with a stamp duty discount, but with house prices and mortgage interest rates at record highs, it will likely put a lot of stress on home owners. Expect banks to make more money out of this.

My advice to first home buyers is to live with your parents for longer and to pay them rent. Usually parents are willing to charge lower rent to their children because they have been living with you for decades and know that you are trustworthy tenants. With the money you save from living with parents you could take advantage of the high Australian dollar and invest in overseas companies or you could buy shares in Australian banks.

If Australians continue to want to buy houses, this will only result in more bank profits as perpetual demand for housing will result in perpetually rising house prices, which will mean home buyers will need to go into more debt to fund their purchases. Greater demand for debt will mean that banks are able to charge higher prices for mortgages. They can increase interest rates or charge higher fees. This should lead to greater profits, all else equal, will lead to greater shareholder return.

If you want to invest in an Australian bank, I recommend one of the big four: Commonwealth Bank, Westpac, ANZ, or NAB.

Survivor Redemption Island Episode 11

2011-04-30T12:39:00.000+10:00

This blog post contains spoilers.

In this episode of Survivor, the former Ometepe tribe members (also known as the Mariano Crime Syndicate) continued to vote off former Zapatera tribe members. In this episode there was a double elimination at tribal council, and the Ometepes finished off the Zapatera tribe by voting off Steve and Ralph. I personally feel like this is justice as the Zapateras threw a challenge early on in the game in order to vote off Russell. Immediately after the merge, what is important in the game of Survivor is numbers, which makes throwing challenges a very dangerous move. That the Zapateras are punished for this very swiftly is very satisfying.

There are now six players left in the game: the three men (Rob, Grant, and Philip) and the three women (Andrea, Natalie, and Ashley). Rob is a former Survivor player who just about everyone looks up to. It would make sense for others to vote him out because he is such a threat. However, Rob has never won the million-dollar grand prize and in my opinion, if he gets to the top two or top three, like Russell, he will find it difficult to convince members of the jury to vote for him. The last time Rob made it to the final two the jury voted against him and instead decided to give the million dollars to his future wife Amber (this happen in Survivor All Stars). In my opinion, the jury voted against Rob because he so clearly backstabbed members of the jury. In Survivor Redemption Island, it is not clear whether the jury will blame him. Many may actually vote for him because they think he played well and deserves the money.

Rob has stated many times that he wants to take crazy Philip to the end because he believes there is no chance that Philip will receive any votes from the jury. Because Rob wants to protect Philip and because he is close to Grant, I believe that there is a good chance that the key alliance in the Ometepe tribe is among the three men. The person at the bottom is clearly Andrea. Once they vote off Andrea I believe then that the men will vote off the women simply because they are women. If you keep a woman till the end then there is a good chance that the jury members will vote for her simply because she is a woman. The men will want to vote off the women to get rid of this threat. From then who is voted off among the men will depend on the immunity challenge. I predict that either Rob or Grant will win the million dollars.

William and Kate Royal Wedding

2011-04-29T22:17:00.000+10:00

I am currently watching the royal wedding right now between William and Kate. It's fascinating to watch traditional ceremonies and rituals mainly because it is different. It is also fascinating to witness the practices of other cultures, which is one of the main reasons why I like to travel.

Even though I watched the wedding, many of my friends criticised me for watching, saying that monarchism is authoritarianism. My friends point to the cost of the wedding. Studies done by economists found that because the wedding is declared a public holiday, the impact of Britain taking the whole day off rather than working will cost the British economy about $50 billion and that this loss dwarfs the expected gains from increased tourism and merchandise sales, both of which are expected to result in a $2 billion gain.

I find that many of my female friends are interested in the wedding, many admitting that they wished that they were married to Prince William or at least married to royalty so that they can be princesses. It seems as if all females have a desire to marry high-status men. My observation is that it tends to be females who want to marry princes and not the other way around. Men tend to be happy if they can find a kind and pretty girl, regardless of her social status.

Baillieu, We Don't Want Debt

2011-04-25T16:06:00.000+10:00

In an article in the Age today titled State Told Not to Fear Debt with Big Projects, an Australian Industry Group spokesman urges Victorian premier Ted Baillieu to bring the government into debt in order to finance big infrastructure projects like roads and freeways. A member of the Property Council also said the following: "'Governments seem to be averse to borrowing to fund infrastructure, but the community can and would accept that."

An argument can be made for a country to go into debt to build infrastructure like roads and freeways. Infrastructure can attract business into the state, which increases economic growth and tax revenue. But the problem with funding infrastructure with debt rather than with surplus cash is you need to pay interest, and would it make much of a difference if we waited until the financial position of the state is healthier rather than spend now?

The Baillieu government has promised $100 million in surplus per year. It will be interesting to see if he is able to keep that promise.

Why Do Atheists Marry?

2011-04-23T14:38:00.002+10:00

It is the Easter long weekend and I am in a spiritual mood, so I will post something related to religion. The question I want to ask readers out there is the following: why in the world do atheists marry?

The idea of romantic love, that is, being in a monogomous intimate relationship with someone, and then marrying him or her and being committed to that person for eternity--it is a very spiritual concept based on supernatural ideas such as the belief in a one and only true love and the belief that each party to the partnership is meant to be together.

Atheists are not supposed to believe this. Atheists are non-religious and non-spiritual. They do not believe in anything that cannot be verified by scientific experiments. The view of science is that humans are mere animals. As animals we procreate to keep the species alive because evolution and natural selection select for traits in humans that allow us to perpetuate our genes. Hence we follow our natural instincts, which for a man is to find a woman, rape her, get tired of her, move on to another woman, and then rape her, and so on and so forth. As atheists believe in science and science cannot prove morality then it follows logically that atheists cannot believe in a woman's right to not be raped. Atheists have no morality, that is, they have no concept of what is right or wrong. True atheists will rape, pillage, and plunder.

But most atheists don't do this. Most atheists don't rape. Most atheists are not true atheists because even atheists want to believe in those concepts not proven by scientific experiment. They want to believe in human rights and justice. They want to believe in the sanctity of marriage and they want to believe that women deserve respect.

To be a proper atheists, to actually start from the premise that you cannot believe in anything that cannot be proven by science and then extend that to all areas of your life--you will live a very sad and lonely life. There will be no meaning, no purpose, and no hope. You may as well hide in the corner and cry, if not just quietly kill yourself. Some atheists may be at this final stage of despair (and if you are one of them I encourage you to seek out help from a therapist, preferably a theist) but most atheists are young and immature atheists, still simply rebelling against some easily-identifiable organised religion because they need to channel their anger at something. But at the end of the day these young atheists still hold onto many other spiritual concepts like justice, purpose, romantic love, and marriage.

Survivor Redemption Island Episode 10

2011-04-22T16:41:00.000+10:00

This blog post contains spoilers

I have not written about Survivor 22 (Redemption Island) in a long time mainly because I was on holidays. But now that I am back I have caught up with with the current Survivor season. In episode 10, Dave was eliminated from Redemption Island and Julie was voted off at tribal council into Redemption Island.

Basically the season started with two tribes, one tribe had Boston Rob on it and the other tribe has Russell on it. These two castaways are from previous Survivor episodes. Both these players are known for being very good players, although they have never actually won the million dollars. Rob got along well with his tribe but Russell did not get along well with his tribe. Russell's tribe actually threw a challenge just so they could vote him out, and then when they kept losing challenges thereafter, proceeded to vote off the women who had aligned themselves to him. As a result, Russell's tribe went into the merge with one man down and right now they are being picked off one after another by Rob's tribe.

With Russell gone, there really are no interesting players other than Rob and Phillip. Phillip is wacky former federal agent. His craziness and antagonism may actually help him because it provides an incentive for players to keep him till the end since nobody will vote for him. After Julie has been voted off and the tribe that was once Russell's tribe dwindles down to only two people, I think it is likely that these two will be voted off in the next two episodes and then Rob's alliance will start to cannibalise. It's difficult to know what will happen after that.

Charity Junk Mail

2011-04-22T13:53:00.001+10:00

I once gave a donations to Care International and Amnesty International over the internet, which involved giving credit card details as well as my address. These organisations then harrassed me, wanting to get more money from me. Care did so by sending me mail and Amnesty International actual got their telemarketers to ring me. I find it very rude that they do this. It would be much better if they just let people give when they feel like it. I am always very careful to read the privacy policy now and I have made decisions not to give money because of their policy. Why can't these charities just let people give money anonymously or if they collect your details (e.g. if they want to give you a tax receipt) then at least have a policy whereby you can actually opt out of junk mail?

The Benefits of Printing Money

2011-04-19T23:00:00.000+10:00

In the blog post Strong Aussie - Time to Buy Foreign ETFs? I talk about the strong Australian dollar and the weak US dollar. One of the commenters made an interesting point that I will reproduce below:

"[W]ho knows maybe the weak dollar will help pay off the US's debt and may even increase inflation and hence spur people to work more out of desperation."

This point about the benefits of a weak US dollar is an interesting point. Some economists claim that the US's welfare system and minimum wage make it uncompetitive against countries like China. If US dollars are printed to cause inflation, this will effectively reduce the size of the welfare state assuming that the food cheques do not rise with inflation. Furthermore, if inflation increases due to money printing then this effectively reduces the minimum wage, allowing Americans to compete against low-wage countries like China.

What American politicians should learn is that wealth is created through work. You cannot legislate wealth. That is, simply increasing minimum wage does not increase wealth as the wealth increase for those who are currently working is offset by the lost wages that result when companies hire fewer workers because they cost more.

China's intentional devaluation of its currency may seem illogical to some because it reduces the wealth of its citizens. But even though the devaluation of currency hurts workers, it tends to benefit businesses, especially those that are export goods. A weak currency allows businesses to keep paying its workers the same nominal wage but effectively reduce its real wage, and do all this with stealth. Even though it is not good for the welfare of workers, reducing real wages can have some beneficial impacts. For one, the reduction in wages can actually result in greater employment as lower cost of labor means businesses can hire more labor.

This seems to be China's strategy, that is, export-led growth via low-wage labor. The Chinese government seems to be in a rush to get as many people working as possible, perhaps believing that a citizen preoccupied with work is less likely to engage in dangerous activities such as political activism. On the downside, this current export-oriented strategy (a strategy used by many Asian countries when they were developing) is that citizens work and do not consume much, leading to a situation whereby the economy is dependent on a vast pool of consumers to whom they can sell their widgets. The consumeristic and hedonistic Americans currently fulfiled this role of the consumer very well, but after the GFC and the product of GFC (inflation) it is uncertain whether this export-oriented strategy is sustainable.

Vanguard Australian Shares High Yield Fund Now Pays Distributions Quarterley, not Monthly

2011-04-19T22:15:00.001+10:00

Vanguard has sent emails to its members notifying them to changes to one of their funds. According to an email I received on 18 April 2011, there have been two changes made to Vanguard's Australian Shares High Yield Fund:

The fund will now use the FTSE ASFA Australia High Dividend Yield Index rather that Vanguard's own custom index.
The fund will now pay distributions quarterly rather than monthly.

Change (1) is not a huge problem as allowing the index maker to be an independent organisation makes Vanguard more of an index tracker. If Vanguard is both the index maker and the index tracker then there is a risk of active management, whihc is not what you'd want in an organisation that preaches about the benefits of index tracking versus the problems with active management. With FTSE now managing the index I am hoping there is transparency with regards to the index holdings. Most ETFs on the Australian market now have full disclosure of holding, e.g. the iShares ETFs and the SPDR ETFs from State Street Australia. Unfortunately, Vanguard Australia's managed funds and ETFs both do not have the same level of transparency.

Change (2) is worrying as most investors would prefer more frequent distributions. Nevertheless, even though this fund's PDS claims to pay distributions monthly, in practice it only pays distributions quarterly or twice quarter anyway, so this recent change to its PDS won't change much.

Australians Must Pay for Carbon Tax

2011-04-01T22:37:00.000+11:00

Current Australian Prime Minister Julia Gillard has announced that there will be a carbon tax established. Treasury documents have speculated that the carbon tax may be in the order of $30 or $40 per tonne of carbon emitted. The estimates show that this will result in the cost of living to increase by around $800 to $1000 per year per household.

However, some claim that this is misleading as the Gillard government will use the revenue raised from the carbon tax to mitigate cost-of-living pressures. Some even say that nobody will be worse off and that all increases in cost of living will be compensated for.

The government taking money away from households via the carbon tax and then giving it back again makes no sense. The whole point of a carbon tax is to increase prices. That is what makes people drive less, buy less, and pollute less. If Australians want a carbon tax, they must pay for it.

I fully understand if low-income people are compensated as an increase in cost of living may result in death for these people, but middle-income and high-income people should not be compensated at all. A rise in cost of living for these people will result in a change of behaviour (e.g. taking the train to work rather than driving to work as a result of rising petrol costs) towards more environmentally friendly activities.

Gillard Announces Carbon Tax in Australia

2011-02-26T15:25:00.001+11:00

Australian Prime Minister Julia Gillard has announced that a carbon tax will be implemented by July 2012 in Australia. This carbon tax will be an interim measure that will eventually transition into a cap-and-trade system.

Assuming that humans burning fuels is what is causing climate change, then a carbon tax makes sense. I personally would prefer a carbon tax over a cap-and-trade system simply because of the simplicity, although a cap-and-trade system may be better in theory.

Gillard has not released any details of her carbon tax. The details will matter a lot. For example, will the tax be applied on companies that burn fuels with carbon in it or will it apply to the extraction of oil, coal, or natural gas from the ground (like a mining tax)? If it is the former then I worry that if companies will have to pay a tax on burning fossil fuels then they will simply export it to another country, burn it there, and possibly wire the electricity back to Australia. A mining tax based on the carbon content of what is dug from the ground is a much better idea.

Since a carbon tax will increase the cost for miners who dig up or sell energy, the costs will likely be passed on until it reaches the consume. The bottom line is that a carbon tax will increase the price of everything since just about everything involves the burning of fossil fuels. The carbon tax will effectively be similar to an increase in GST, and one of the potential problem is the impact this has on poor people who will face price rises when buying essentials like food and petrol. Gillard has claimed that most of the revenue from this carbon tax will be used to ease cost-of-living pressure. I sure hope that it does otherwise there will be massive public backlash, even from Labor voters. In my opinion the proceeds of the carbon tax should be used to increase the tax-free threshold. Currently anyone earning less than $6000 per year do not have to pay income taxes in Australia. With the revenue from the carbon tax, this can be increased, and this will help poor people buy necessities like groceries and petrol.

Some people believe that given that Australia's economy makes up only 2 per cent of world GDP, this carbon tax will have no impact on global warming. This is true, but it ignores the fact that Australia doing this will give other countries an incentive to start their own carbon tax. If the tax is applied to mining or the export of energy then it will have a much greater impact because Australia is a major energy and resource exporter. If the price of Australian resources is higher then this will increase the world prices of resources, which will have a massive impact on global energy consumption. If we are cynical and assume that governments only want to make as much money as possible, then we should expect to see governments around the world use the carbon tax as an opportunity to increase their own tax revenue. If we are very cynical and assume that the governments of the world are controlled by oil and mining companies, then oil and mining companies will be happy that Australia will apply a tax on its energy exports as this will push up the global price of energy and lead to greater profits for them. This will effectively be price fixing for energy. In the name of saving the environment, an OPEC-style multinational cartel of energy-rich countries can be established to artificially inflate the price of energy to both save the environment and to increase profits for oil and mining companies and to increase taxation revenue for government. Governments colluding among themselves and international oil, coal, and gas companies to artifically inflate the price of energy is not going to win public support. However, if it is done for the sake of the environment and if the poor are massively subsidized for the cost of necessities--e.g. by increasing the progressivity of income taxes--then I am sure that this plan will be popular and it will work.

Survivor Redemption Island Episode 2

2011-02-24T22:27:00.000+11:00

This blog post contains spoilers.

In this episode, Russells tribe once again win the immunity challenge early. Most of the action happens after the immunity challenge. In Russell's tribe, a castaway named Ralph who looks like a stereotypical redneck farmer finds the hidden immunity idol without any clues. Russell snatches the clue but because Ralph has already found the idol, it is pointless. To make matters worse for Russell, most of the men in his tribe (who outnumber the women) saw him snatching the clue and are eager to vote him off because he is not trustworthy. I am convinced that Russell will not survive in this game and will go out early. The only thing saving him at the moment is his team's ability to win immunity challenges. His reputation for being untrustworthy is only being confirmed when he continues to behave deviously.

Over at the other tribe, it is expected that Rob would orchestrate the ouster or the crazy man Phillip or Kristina. However, he notices that Matt and Andrea may be forming a strong romantic alliance, that Andrea is strong player, especially when she has control of Matt. To fix this problem he forms a four-player alliance to get rid of Matt, which weakens Andrea and makes her dependent on him. By also sparing Phillip he also controls him through fear. This looks good for Rob but I am worried that with a four versus three position with Phillip, Kristina, and Andrea in the minority in Rob's tribe, all it will take for this tribe to flip on him is if one person from his alliance defects. Keeping Phillip in the game may be a good move as he seems harmless to Rob and also seems very loyal.

Democracy is Communism

2011-02-20T15:38:00.002+11:00

Today I had a discussion with a family member about politics at a Thai restaurant. We were talking about a news article that talks about Hosni Mubarak's massive fortune. The discussion veered off into wealth inequality and communism.

The richest 2% of the world own 85% of the wealth, which is an incredibly unequal distirbution of wealth. Some people believe that this economic inequality is normal and that there is nothing wrong with it. Personally, I do not like the idea of the bulk of the wealth being in the hands of the few. Perhaps it is jealously, or perhaps I don't like the idea of the rich holding all the wealth and using it to work the rest of us like slaves. Either way, regardless of my feelings, I am confident that the majority of the world's population would want wealth to be spread rather evenly among everyone. A survey in America showed that just about everyone (even those earning very high incomes) believe that wealth should be spread more evenly. According to the survey, most Americans believe that the top 20% own only about 60% when in fact the top 20% own 80% of the wealth in America. However, most Americans believe that the top 20% should own 20% only.

If Americans (or every human in general) so overwhelmingly support wealth being in the hands of the people rather than the few, why don't they support communism? The theory of communism states that wealth in the form of income-producing assets (e.g. land, factories, businesses, etc) be owned by the people rather than the few.

What is clear from looking at the definition of communism is that it is almost exactly the same as the definition of democracy. The word democracy is made up of the word "demo" that means "people" and the word "cracy" that means "rule." Hence democracy literally translated means "rule by the people." In other words, the people are in control. Given that most people support equal distribution of wealth then it follows that democracy if properly implemented will inevitably lead to communism. If you speak to the average person on the street, he will likely support democracy and even support the distribution of wealth, but he will also likely oppose communism. I believe that popular opposition to communism is the product of most people not understanding what communism actually is. Most people seem to confuse communism with dictatorship, probably because many dictators use communism as an excuse to gain popular support before they sieze power for themselves. A dictator may be communist initially but as he gains power the temptation to sieze all power and wealth for himself is so great that he effectively renounces communism by his decision to sieze power and wealth for himself. Dictatorship is not communism as the dictator owns everything, not the people.

When you talk about communism, inevitably people will talk about how communism does not work in practice. I actually agree that pure communism is difficult, if not impossible to implement. The problem is that humans need leaders otherwise there is confusion about what to do. As leaders are formed, temptation is there for leaders to sieze power and wealth. Even if a system were set up that takes money from the rich and gives it to the poor, this would remove the incentive to work. When you go to work, you work hard for your boss because you hope that one day you may replace your boss and earn more money. But if the boss is paid the same amount as ordinary workers, why would an ordinary worker bother trying to work hard? Because there is no incentive to lead, nobody leads, nobody works, and nothing gets done. In practice this leads to empty shelves at supermarkets, as we saw on television as the Soviety Union collapsed.

I therefore do not think that pure communism is wise and some degree of income inequality is necessary to give people a reward for working. If nobody works, there will be no food grown and no shelter built, and we will all die.

The answer is to implement a system that tolerates wealth inequality but limits it to a degree with communist-style policies that take money from the rich and give it to the poor, e.g. progressive income taxes. In fact, most countries, e.g. America and Australia, already have progressive income taxes. Furthermore, Australia also has a generous universal public health insurance scheme called Medicare.

The main point of this blog is to illustrate that communism should not be a dirty word. Communism is merely the spreading of wealth into the hands of the people and the implentation of communist policy and law is normally the by-product of democracy and elections as most people want wealth to be spread evenly. Given that a country like China has no election and hence the people do not have any way of expressing themselves and given that the income inequality in China is so high (China's Gini coefficient is around 47, higher than Australia's 30) it would seem as if the wealth in China is in the hands of the few, which is hardly compatible with communist theory. I would argue that based on Australia's democratic system and high redistribution of wealth from the rich to the poor, that Australia is much more of a communist country than China is.

Survivor Redemption Island Episode 1

2011-02-19T14:50:00.000+11:00

This blog post contains spoilers.

Season 22 of Survivor will still be on Nicaragua, as was season 21, but this season will features two twists: Firstly, those who are voted out do not leave but rather go to Redemption Island (RI) where they will have to survive by themselves. When the next person is voted out, he or she also goes to RI where the two castaways will engage in a duel. The winner of the duel will continue to stay on RI while the loser is completely out of the competition. At some stage in the future the castaway on RI will re-enter the game. Survivor Pearl Island had a somewhat similar idea in that two people who were previously voted out went back into the game. When this happened, there was a lot of pressure on the returning castaways because those in the game make the argument that these people did not deserve to still be in the game. The second twist this season involves the return of former Survivor players Boston Rob and Russell Hantz. Boston Rob has played three times, went to the end once, but has never won. Russell, a self-proclaimed multi-millionaire who owns an oil company, has played in two seasons, has been to the end twice, but has also never won. Given these these two players have developed reputations as villainous and devious players, it is likely that other players will see them as a threat, which may see them voted off early. If this happens, the existence of RI should give Rob and Russell fans an incentive to continue to watch the season.

During the first episode, Rob and Russell were randomly assigned to separate tribes. Russell is in the more physical side whereas Rob is in the less physical side made up of younger and physically weaker people. Because Rob is the only strong player on his tribe, he is important. However, Russell is a strong player among many other seemingly strong players, so his position in the tribe is, in my opinion, not good, especially given his villainous reputation.

Rob's tribe lost the immunity challenge and went to tribal council. He teamed up with three young girls and two young guys to form a six-strong alliance versus a minority of three people: Francesca, Phil, and Kristina. Because Rob suspected that Kristina had an immunity idol, he instructed his alliance to split the vote between Kristina and Francesca. This plan resulted in Francesca being voted off.

One of the castaways, Phil, is probably one of the strangest contestants ever. He was a former Federal agent and likes to brag about this. When he talks, he uses secret agent jargon. He reminds me of a friend of mine who studied law in university and although he is not a lawyer but an accountant he loves to brag about how he had a sharp legal mind and that he knows how to think in a legal manner. While being a Federal agent or being a law may or may not be an impressive thing, the bottom line is that if you have to brag about it, surely you must be insecure.

Exploiting Cheap Labor

2011-02-13T16:46:00.002+11:00

"As for the rich in the present age.... They are to do good, to be rich in good works, to be generous and ready to share." ~ 1 Timothy 6:17, 18

I am still a twenty-something, but I am almost thirty, and many of my friends are younger than I am, which makes me feel old. When a man feels old, he goes through a mid-life crisis and starts to ask himself questions such as what will his legacy be once he dies. If you're going to die, you might as well do something worthwhile while you're on this earth. But what is worthwhile?

This is a question for each individual to find out for himself, but if a man wants to have a positive impact on the world, a good place for him to start is to help others, especially the poor. If you are reading this now, chances are you can afford internet connection, and chances are you are among the wealthiest people in the world.

Of all the people in the world who care about the poor, I approximate that most of them believe that although helping the poor is a virtuous goal, it is a futile effort. Most people I speak to say that they would like to live in a world without poverty, a world in which the rich shared money with the poor, but they believe that they don't have enough money and that there is too much greed among humans, which leads to theft, and theft in turn creates poverty.

But I respectfully disagree. I believe that in the last century we have witnessed in India and China the greatest escape from poverty in human history. China and India are the most populous countries and the world. Together these two countries make up 40 per cent of the world's population. Yet the rise in the living standards in these two countries is not primarily the result of sharing wealth. In my humble opinion, the explosion of wealth in these two countries over the last few decades is primarily the result of mass exploitation of cheap labor.

Charity is an unreliable source of income. If you beg someone for money, he may hand you a dollar today, but rarely is a person willing to give too much, and the desire for charity is as fickle and unpredictable as the desire for sex. If you made a living from begging for money in the streets, chances are you will not have enough and you will not be satisified. How then do you and I make money?

We make money by working.

A job gives a worker not only money but it also allows the worker to develop skills and to help customers receive some good or service that they need. A job therefore is not like charity in that it does not rely on the fickleness of altruism but rather it exists to fulfill consumer needs.

"If a man will not work, he shall not eat." ~ 2 Thessalonians 3:10

Millions of Indians and Chinese grew rich because jobs were created. It is true that many of those who benefited from the sales of goods made through the exploitation of cheap labor were already rich (e.g. the shareholders of Nike) but if it weren't for Nike existing in the first place, these jobs would not have existed. If jobs eradicate poverty then those who create jobs should be rewarded greatly. Nike executives have found a way to give millions of jobs to poor citizens in poor countries and create demand for this labor through ingenous marketing to induce consumer demand.

So what are we to do? What is all this writing about? By writing all this I am trying to tell everyone that we do indeed have a lot of power in our hands. As consumers, whenever we buy a t-shirt that is made in China we are supporting jobs in China that allows someone in China to live by earning something rather than nothing.

The main point of this essay I write is to encourage readers to exploit cheap labor. If we see cheap products made in poor countries, we should not feel guilty buying it. Furthermore, products that exploit cheap labor tend to be cheaper, which benefits the consumers who buy them. Hence exploiting cheap labor is a win-win situation. When we go on holiday or when we retire, we should travel to poor countries and try to buy products that exploit cheap labor. How do we know what goods and services exploit cheap labor? That is where your common sense comes in. If you go to a poor country and stay at an expensive Western-style hotel that pay high wages to rich workers, chances are you are not helping the poor as much as if you go to a cheap three-star hotel that hires and pays low wages to poor workers.

The Problems with High House Prices

2011-01-29T14:44:00.001+11:00

The average house in Australia is now around $500,000. It wasn't always this expensive. Back in the old days, houses were cheap, but since then an explosion in house prices has occured, driven by increasing willingness and ability by banks to lend money as well as great enthusiasm by bank customers about the wisdom of investing in real estate.

In Australia, investors who borrow money and then lose money if interest repayments are greater than rental income, can use this loss to reduce their taxable income, thereby reducing their tax burden. This tax advantage has increased demand from investors to borrow money to invest in real estate.

This tax advantage will be difficult to do away with as it is political suicide. An attempt by Labor to abolish negative gearing led to so much controversy that politicians nowadays are likely unwilling to try it again. I believe it is best to assume that negative gearing is here to stay and to find ways to deal with it.

The effect of higher house prices can be positive or negative depending on who you ask. For those who own residential real estate, it is brilliant. For those who do not have real estate and want real estate, it is very bad. I am in the bad group in that I do not own residential real estate. However, unlike many young people in my predicament, I do not have a desire to ever buy residential real estate in Australia. The reason why I don't want to buy real estate in Australia is because it is too expensive. The tax advantage has already been capitalized into prices by driving it up. Therefore, if you buy a house you overpay. Many believe paying a lot for a house is harmless but it is extremely harmful. If you borrow more to pay more for a house, you lose money via interest you pay to the bank. If you use cash to pay for a house that you live in, you lose money because of the opportunity cost since you could have used that money to earn interest. If you overpay for an investment home, overprices housing means that you lose money because the interest repayments you make are not compensated for adequated by rental income. Mainly due to tax advantage being capitalized into house prices, rental yields for the average house in Australia is around 4 per cent, and this does not take into consideration the costs of depreciation and repairs.

The bottom line is as follows: if you buy a house, you're being ripped off. The windfall from the housing boom has already been taken by the baby boomers. Generation Y should not try to mimick the baby boomers as the situation back then is nothing like the situation now. Back in the old days, houses were cheap and if you rented your house out you could collect high rents. Nowadays, houses are expensive and if you rent your house out you will not get much back.

Even if you agree that house prices are too high and refuse to buy a house, that does not stop you from being ripped off. High costs of real estate may even extend to commercial and industrial real estate, resulting in the prices of goods rising. This is particularly evident if you traval and notice that everything in Australia is much more expensive than it is in other countries, not just houses. Therefore, if you don't want to be ripped off, the best thing to do is to reduce your spending.

I recommend you keep your spending low, live with your parents (or rent but split the rent with many roommates), and save up money mainly using the highly tax-advantaged superannuation system as well as taking advantage of high private debt levels by investing in bank shares. I am strongly considering moving out of Australia once my savings are high enough. I will get a new job in a new country and live there instead.

Health, Wealth, and Wisdom

2011-01-16T20:06:00.001+11:00

How can a person be happy? Different people have different answers to this question, but for this post I would like to talk about myself and my journey in life to find happiness. I believe that for me to be happy I should focus on attaining adequate health, wealth, and wisdom.

Health refers to eating right, exercise adequately, and getting good sleep. It also involves seeing your doctor regularly to get checked, as well as avoiding risky activities like binge drinking or unsafe sex. Wealth refers to making money. Wisdom is knowledge about everything, from knowledge of health to knowledge of a spirtual nature.

Often people go overboard trying to get as much health, wealth, and wisdom as possible, and my casual observation leads me to believe that being obsessive about health, wealth, or wisdom can actually make you unhappy rather than happy. For example, some hypochondriacs read every health scare on the internet and go to the doctor thirty times a week; people obsessed with money earn $100,000 per year but believe it is insufficient because their friends are earning double that, so they work 80 hours per week to try to catch up. This is why I stress the word "adequate." I believe that, when it comes to health and wealth, you if you're doing enough, then you are doing enough.

Another way I find happiness is not to worry too much. Being content with your health and wealth is one way you can stop worrying. Instead of worrying about getting heart disease in the future, go out there and do your thirty-minutes-per-day exercise or start eating healthy food. In other words, get busy doing what you need to do and don't sit around and worry.

Avoid Processed Meat

2011-01-13T19:54:00.000+11:00

When you read health advice on the internet, it's difficult to arrive at the truth because, armed with Google, it is very easy to find studies that claim one thing and studies that claim the exact opposite. One way of discriminating between good health advice and bad health advice is to look at the quality of your source, and one way you can discriminate among research universities is to look at the latest university rankings (see Times Top 200 University Rankings 2010-11).

The American Cancer Council, in 2005, claimed that high consumption of red meat was linked to colon cancer. However, although they found a statistical link between consumption of red meat and incidence of colon cancer, they did not know what it was about red meat responsible for this result: "Researchers aren't certain what it is about red meat that might influence cancer risk. The iron and fat it contains may be culprits. For processed meat, the salt, smoke residue, and nitrates and nitrites used as preservatives may play a role." This may mean that although you can reduce statistically reduce your risk of getting colon cancer by avoiding red meat, it may not be the redness of the meat itself that is causing the increased risk of colon cancer but the likelihood that red meat is more likely to be processed and have more iron and fat.

The Harvard School of Public Health, in 2010, claimed that eating processed meats, but not unprocessed red meats, may raise risk of heart disease and diabetes. This is further evidence that processed meats, with added salt and preservatives, have serious adverse health effects.

Public Sector Pay in Australia

2010-12-30T15:04:00.000+11:00

Ted Baillieu, after defeating John Brumby in the 2010 Victorian State Election, has made it clear that he wants to get to work on fixing the state's problems inherited from the previous government by holding a parliamentary sitting day early on 21 December 2010. During this parliamentary sitting day, the new Treasurer of Victoria Kim Wells MP presented the Budget Update 2010-11.

One of the key messages of this budget update is that the size of the Victorian government has gotten too big and is unsustainable. Because of this, the Liberals will need to implement an austerity measure that will see a minimum $100 million net operating surplus achieved per year in addition to an election promise to find $1.6 billion in savings over the next four years.

Page 2 of the Budget Update states the following: "Growth in the size and cost of government threatens to reduce Victoria’s tax competitiveness, without generating any offsetting improvements in productivity."

Recent statistics show that public sector wages have increase by 6.3 per cent in the three months from May 2010 to Aug 2010, more than private sector wage increases of 4.3 per cent during the same period of time. (Source: Are We Paying the Public Sector Too Much?)

The biggest increases are found among those working in the public sector in finance roles (8.7 per cent increase) and public administration (5.5 per cent increase).

"On average, public sector employees earned just shy of $60K per year — $8k more if you work for the Commonwealth government. Those working in electricity, gas, water and waste averaged more than $82K per year (no wonder the bills keep going up), compared to those in education who managed $51K."

What if the Aussie Dollar Collapsed?

2010-12-29T23:55:00.002+11:00

One of my hobbies in life is to read financial porn, i.e. stories about how the economy will collapse in the future. One such scare story I have read is in the Contrarian Investors' Journal titled Will There Be an AUD Currency Crisis?

This piece explains that the Australian economy is highly leveraged to the mortgage debt market. Even though public debt in Australia is around 7 per cent of GDP, this masks the massive extent of private sector debt in the country, mainly held by invididuals in the form of mortgage debt.

Everything will be fine if Australians continue to be able to pay their mortgages, and signs so far seem to suggest that Australians are managing to pay their mortgages. Pay your mortgages like the obediant slaves you are!

However, if something bad happens, chances are the government will take over these banks and, as in America, private debt will be nationalized and public debt will skyrocket. Furthermore, foreigners will be less likely to lend to Australians (both Australian governments and Australian banks) and this will cause the Aussie dollar to collapse. Furthermore, the unwinding of the carry trade will also smash the Australian dollar.

A great deleveraging and unwinding of the carry trade occured in late 2009 at the height of the GFC. During this great period of deleveraging, the Australian dollar collapsed to the point where A$1 = US$0.65. However, there was a recovery in the stock market, the American government started to print money like crazy, and now the Australian dollar has soared against the US dollar where A$1 = US$1.01. I feel very superior to the Americans at the moment because this means that my salary in US dollars rises a lot and I admit a guilty pleasure of mine in my spare time is to browse through Wikipedia and check out the median incomes of people in certain states and counties in America and then compare my income to their income. Because the Australian dollar has soared so much, my income converted into US dollars is approaching the median incomes in many of the exclusive areas in America! This means I have become rich according to American standards! (I know I am not really rich and that this illusory wealth is just a product of American money becoming worthless.)

Given that everything is going so well at the moment, I often wonder how long it will last. If life has taught me any great lesson it is that you should always have a plan B. You should always have an exit strategy. What if the Aussie dollar collapsed? What do you do?

One thing we can look at is what happened in the last deleveraging when the Australian dollar. Some people suggest that buying American shares is a good idea if you want to protect yourself from a falling Aussie dollar. But the graph below shows that the American stock market--as measured by the S&P500 index--collapsed with the Australian dollar.

What can you do? The graph above suggests that gold is a good idea. Even the GFC struck, stocks fell, and the Aussie dollar plummeted, the price of gold in Australian dollars went up.

This analysis is purely technical and looks only at historical data. It does not look at any fundamental reasons why gold would be a good hedge against an Aussie dollar collapse. Personally I believe that those who are worried about an Aussie dollar collapse should convert Aussie dollars into both US dollars and gold (physical gold or gold ETFs). But I don't necessarily believe the Aussie dollar will necessarily crash. If Australians continue to pay their mortgages, then all should be fine. Even if they cannot afford to pay their mortgages, surely the Australian central bank will lower interest rates.

AREIT Funds - Vanguard vs APN

2010-12-02T23:20:00.000+11:00

It is my opinion that a great investing opportunity exists in AREITs, so I plan to start investing in AREITs.

I have just been looking at Lonsec's Australian Property Securities Funds Sector Review 2010, which interestingly is found on Vanguard's website and highly recommends Vanguard's AREIT fund, which predicatbly tracks the S&P/ASX 300 A-REIT Accumulation Index.

Strangely, Lonsec's study recommend's Vanguard's fund over the APN AREIT Fund, which is find startling given that my prima facie examination suggests that APN's fund seems superior.

One of the reasons for this, according to Lonsec, is that Vanguard, which employs passive management, offers low fees compared to those funds that employ active management: Page 7 of Lonsec's review states the following: "[A] majority of funds are still charging relatively high fees for low conviction 'active management'. This is disappointing, given that most managers hold over a third of their portfolios in the Westfield Group.... To this end, Vanguard has retained its 'Highly Recommended' rating. This rating reflects Lonsec‘s confidence in Vanguard, should advisers choose to invest in a low-cost, index fund in this asset class."

However, Vanguard's management fees that it charges for its managed fund (0.90% per annum for the first $50,000 invested) is much higher than the fees it charges for its AREIT ETF (0.34% per annum). Furthermore, APN AREIT Fund's management fees are even lower than Vanguard's (0.85% per annum where no adviser remuneration is paid) (Source, APN AREIT Fund PDS, p. 1). To top it off, Vanguard's fund pays distributions half yearly whereas the APN fund pays distributions monthly. As of 2 December 2010, the APN AREIT Fund's current yield is running at a phenomenal annualized rate of 9 per cent!

One of the supposes strengths of Vanguard's AREIT fund is the fact that it tracks an index. But as Lonsec pointed out in its report, this AREIT index is about 40 per cent made up of the Westfield Group. Why pay Vanguard 0.90% per year in management fees to essentially invest in Westfield? There is little diversification. APN, however, are "index unaware," which means they are not constrained by having to follow some index. This allows them to seek out value, maximize diversification, and minimize risk -- and they do all this with lower management fees.

I am not saying I don't like Vanguard. I believe they offer a good diversified bond fund. I am also invested in their high yield fund, although I am not satisfied with this investment as it claims to pay monthly distributions but in actual fact seems to pay zero distributions every third month. Quick calculations of the last few years of distributions received reveals that Vanguard's high yield fund only gives a running yield of about 4 or 5 per cent per annum, which is quite disappointing for a fund that is described as "high yield." This may not be the fault of the fund manager and can be blamed on market conditions, but nevertheless it certainly is disappointing for investors.

Helping Friends Spend Less - Don't Do It!

2010-11-28T22:15:00.001+11:00

I was having lunch with a friend of mine who I used to work with. His name is Harper. We went to Nando's and while there he started criticizing me for eating out all the time, saying that it is bad for my health. I told him that it is possible to buy food that is healthy, e.g. salads and sandwiches. He then claimed that I should not eat out because it is a waste of money.

When my friend tried to lecture me about how I should spend my money, it made me feel really wrong. I admit I used to do it in the past. I would tell people that they should not spend money on luxury items and that they should spend it instead on necessities so that they can save money. I even went so far as to criticize people for having children since I believed that children are expensive luxury goods. But since then I have learned that it is best to let people spend their own money on whatever they want to spend it on. Other people have different values and different goals in life, and unless you are walking in their shoes, you don't really understand and you are in no position to lecture.

I do admit I eat out whenever I am at work simply because I don't like to prepare food and I don't like to make my own food or have a family member make it for me (because it tastes bad). When you're busy dealing with the stress of work, the last thing you want is to have to deal with bad quality food that stinks up the office. In addition to eating out at work I also drink coffee. On some days I drink one cup and on other days I have two. All this eating out and coffee adds up to maybe $3000 to $4000 per year. It's a lot of money, I admit, but I kept records of how much I have spent for many years now and according to calculations that I did today I found that I only spend about 15 per cent of my gross income from work. Some people may be able to achieve better savings rates than that but this is what I am comfortable with. My friend Harper, on the other hand, had a girlfriend who he spends bucketloads of money on. I also remember him going on about a $1000 wristwatch he purchased. He wears fairly trendy clothing and even wears men's jewellery. Based on his history of spending on luxury goods, I am surprised he is lecturing me on the differences between needs and wants and how eating out and drinking coffee are expensive habits!

The lesson from this story is that in your interactions with people it is, in my opinion, a good idea to have a non-interventionist policy whereby you let other people decide for themselves what they want to do with their lives. This doesn't mean you should not help a friend in need, but there is a fine line between helping a friend and imposing your values on him.

Beyond Social Business and Microcredit

2010-11-21T14:20:00.002+11:00

The Problem with Microcredit

Wikipedia defines microcredit as follows: "Microcredit is the extension of very small loans (microloans) to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is the provision of a wider range of financial services to the very poor."

The problem with microcredit is that it is doubtful that it works. What microcredit does is allow poor people to get loans. Making poor people rich with microcredit is like trying to make a young university student rich by giving him a credit card. In theory the young university student, with his credit card, could buy computers and other equipment and then start up an IT business in a garage and then suddenly become a millionaire. This could happen. But it's unlikely. (Read From Uni Dropouts to Software Magnates.) Likewise, a poor entrepreneur could borrow money, start up a business, and become very successful, but it's unlikely.

How do young university students escape from poverty? They get jobs. Once a university student gets a job, he can pay off his credit card bills and start saving up for a house, car, marriage, children, or whatever.

Similarly, for a poor person to escape from poverty, he needs a job! We know this works because it has worked in China. The greatest escape from poverty in human history has already occured China, and it occured through massive employment of poor people in low-skilled manufacturing jobs. This is the answer to world poverty.

Social Business

Muhammad Yunus, who won the Nobel Prize for inspiring a global microfinance movement, seems to be growing skeptical about microcredit. According to Banker to the Poor Goes Beyond Microlending, Muhammad wants to encourage "social business" instead. Social businesses are businesses are designed for social purposes and not profit. They make money only to pay for operating costs.

I believe there are many problems with this idea. The main one being that if there is no profit then the incentives for starting a social business are non-existent. This means that there will not be many social businesses and hence there will be little employment. Because there is no profit to be made, a social business will not be as competitive compared to a for-profit business.

The Solution

Here is my solution. Currently we have the situation illustrated in the diagram below. A worker and a company come together. The worker gives labor to the company and the company gives a salary to the worker. Unemployment is created when the value of labor is less than the salary so that the company has no incentive to hire the worker.

My solution involves a philanthrophic investor stepping in and paying the worker's salary. This may sound like a major sacrifice if we look at wages in developed countries, but many of the world's population can live on about $1 per day, so it is not a big deal for a wealthy philanthropist to pay the salary of a worker. In fact, the philanthropist can set aside about $7300 worth of government bonds whose income will pay the worker's salary, assuming the government bond yields 5 per cent per annum.

The philanthropist will pay the worker's salary and in return the company will give the philanthropist shares in the company. If the worker is being paid $1 per day then the philanthropist can put aside $7300 worth of government bonds to fund this salary. The philanthropist can then demand $7300 worth of shares in the company.

The company should be happy with this because it gets free labor and companies want demand for their shares to be high. Labor for a company is a major obligation. Paying shareholders is optional. This means that the risks for a company is significantly reduced. It is more likely to want to hire more labor and this will reduce unemployment and aid in the reduction of poverty.

The worker is happy because he has a job that provides a stable income. The only damage that is being done is being done to the philanthropist who no longer has converted a stable income into an unstable income from dividends from shares. In other words, the philanthropist will be exposed to more risk.

However, the damage should be very little because wealthy people tend to want to increase risk on their investments anyway because more risk means more return. In the long run, history shows that the returns on the stock market are higher than the returns on safer assets like government bonds. Therefore, there is a reasonably good chance that the philanthropist will make even more money, and because his gains will be in the form of capital gains rather than income, he will get tax benefits as well.

This idea works because rich people are in more of a position to take risk than poor people. Rich people can take risk because they can afford to. If something goes wrong, they have a lot of money to bail them out. A poor person cannot take significant risks because he needs a steady income to buy essentials like food. The relationship between a poor worker and the philanthrophic investor in this scenario is similar to the relationship between an insurane company and a client. An insurance company has vast pools of money that can be paid out to clients to fund some expensive disaster (e.g. if you crash your car or if something is stolen from your house) but in return the client pays the insurance company a regular amount.

Avoid the Joneses. Otherwise, Talk Sport.

2010-11-21T12:52:00.002+11:00

One of the difficulties of being human (or perhaps any animal) is having to deal with status anxiety. Status anxiety is an obsession about how powerful other people are relative to you.

What I find is that among people who are obviously my superiors (e.g. my bosses) status anxiety is not a problem because it is clear what the relationship is. When I talk to my boss it is clear that he or she has more power over me and that he or she tells me what to do, and I dutifully follow these orders. I also try to learn from these people.

If I am among people who are obviously my inferiors then likewise I find that those at the bottom tend to show admiration towards me. When you are among your inferiors, you have a choice of either being cruel and belittling to them or alternatively you can be compassionate and try to guide, help, and develop these people. As Thomas Carlyle said, "A great man shows his greatness by the way he treats little men."

However, it is the relationship among people of more or less equal status that is difficult. The uncertainty about who is superior to whom spurs competition. Your colleague at work who is at the same pay level as you wants to think he is better than you by talking up how important his work is. Your neighbor across the road will want to impress you with hus expensive car.

The Avoid-the-Joneses Strategy

I get along well with my superiors and my inferiors, but not my equals. The mainstream solution to this problem is to tell yourself that buying status symbols and showing off is childish and silly, and not to be worried about it. In other words, when Jones shows off his new Ferrari and trophy wife, just forget about it.

The problem with this solution is that it ignores how much status anxiety affects us all. It is human nature that we feel jealous when our equals seem to be getting ahead. This is because we are losing control and losing power. When we see the neighbor showing off his luxury car and trophy wife, it will create pain. We must accept it. There is no point denying your own biological urges and trying to wish them away. These instincts will exist and will continue to exist.

The solution then is not to try to deny the problem or to try to forget about it. The solution is to simply not be friends with your equals and try to limit the amount of interaction you have with them. In other words, avoid your equals.

This strategy of trying to associate with people who are clearly your superiors or your inferiors, in my opinion, leads to peace and harmony because everyone knows his role and position. But how do you avoid your equals if these people are the people you work with, your neighbours, relatives, and so forth? Even if you try your hardest to spend little time with your equals, there is a good chance you will still have to be polite with them, to talk to them, and so forth.

Talk about Sports

If you are with your equals, try to limit the amount of time you spend with them, and try to talk about topics that do not create status anxiety, e.g. do not talk about personal finance, work, or money. It is better to talk about trivial topics like the weather, sports, film, or television. Many people already do this instinctively, which is why discussions about sport are very popular and why discussions about topics like wages are taboo.

The Implications of Class Mobility

People move around quite a bit. Your boss may lose his superior status because of a multitude of reasons. He may get fired or he may get divorced and lose all his money. But if your boss suddenly becomes less fortunate than you, this should not create too much anxiety for you. The real danger is if your inferiors suddenly become your equals or if your inferiors become your superiors.

Your inferiors may become your superiors in a very short period of time as they may advance more quickly than you. It is important then to estimate how likely it is that a particular inferior person you are talking to will advance in status to the point where he is equal to you. If it is reasonably likely, then try not to talk too much about topics that elicit status anxiety. Try instead to talk about trivial topics. The more risk averse you are, the more you should talk about trivial topics.

Image: Neither Fanboy

Differences Between Gold and Real Estate

2010-11-21T09:23:00.000+11:00

One of the benefits of investing in gold is that it protects against inflation. One cause of inflation is a rise in the money supply, which can be caused by money printing by the government. Money printing is very tempting for governments because it gives politicians more money to spend without actually increasing taxes. Even though printing money runs the risk of increasing prices, it's a more subtle way of raising revenue rather than directly taxing people. Printing money also devalues the currency, making exports more attractive.

Gold cannot be printed, so it is much more difficult for the supply of gold to increase. Gold can be mined from the ground, but obviously this is not as simple as printing money.

Some people suggest that real estate is a good investment that can keep up with inflation and has similar safe haven properties as gold. They argue that in times of hardship, you can grow food on your land. Furthermore, land cannot be printed. There is a finite supply.

It is true that you can grow food on land, but there being a finite supply is hardly helpful. The major problem with land is that governments have too much control over it. Physical gold is difficult to tax. It is almost pointless for government to tax gold because people tend to buy physical gold and trade among themselves, leaving no paper trail. Gold is portable and can be easily stored and hidden. Land, on the other hand, is not portable. It cannot be smuggled out of the country. You cannot hide it from the government. The result is massive taxation. The reason why banks are very happy to lend to home buyers is because they know that if they lend to you, they have you by the balls. You cannot run off to another country if you cannot pay your debt. The bank can easily sieze your land and sell it. Gold is different. If you borrow money from the bank to buy gold, you could easily run off to another country with the gold. Gold is freedom. Real estate is slavery.

If government were to slap a tax on gold, people would simply move it out of the country or just do informal transactions. If government were to slap a tax on land, people cannot do anything about it but to accept it. Just as government can print money, government can also print land. Not literally! For example, the government can control the amount of land released for residiential development by altering the urban growth boundary. If government wants to keep land prices higher to collect more land tax or land transfer duties, it can limit the supply of land. If government wants to help out property developers, it can increase the supply of land.

In an end-of-the-world scenario, when banks collapse and civilization as we know it is finished, land ownership will be worth nothing because the land you own is land you own thanks to a piece of paper enforced by the judiciary. If civilization breaks down, it is assumed that the judiciary has no power and hence your land is gone. Even though you may live on it, it's not really yours. Gold is different. Physical gold is held by you and hidden by you. Since you control it and since you own it by force or threat of force, then it is yours, regardless of what a Supreme Court judge says.

Aurora Property Buy-Write Income Trust

2010-11-14T10:00:00.001+11:00

The Aurora Property Buy-Write Income Trust (ASX: AUP) is currently yielding about 10% per annum, which is very high. It achieves this by buying listed Australian real estate trusts and then selling call options on these securities to earn extra income. A portion of the income it earns from selling these securities are then used to buy put options for protection against price falls. This is a strategy that I am definitely unfamiliar with. Regardless of the strategy, the fund pays very attractive dividends. This is something I will strongly consider, even though this fund seems to have very high fees. It may be worth it consider the attractive dividends. It's worth a try.

Aurora Funds Management has a number of other investments, such as funds that employ a technique of dividend stripping on Australian equities, a fund that employs the buy-write strategy to global infrastructure, and a hedge fund called Van Eyk Alternatives Plus whose performance has been underwhelming, and a brief skim of this hedge fund's PDS reveals things like commissions for financial advisors. Most impressive of all, Aurora Funds Management has a fund (ASX: ABW) that pays 8.4 per cent and has been able to track the ASX200. It is able to track the ASX200 by using future contracts and other derivatives. An investment that tracks the ASX200 and pays dividends of 8.4 per cent is very impressive. Given that the ASX200 has average about 8 per cent over the long run and given that this fund's yield is 8 per cent, you are looking at potentially 16 per cent total return for this fund.

Below are Aurora funds listed on the ASX with their estimated yield (estimated by CommSec).

ASX Ticker	Estimated Yield (%)
AOD	6.2
ABW	8.4
AUP	10.0
AIB	8.4
VBP	4.6

Like I said, I will consider these, but I do not like the high fees, and I'm not sure if I get any currency diversification. Aurora's funds, its investment strategy, and so forth have a Bernard Madoff feel to it, so some more reading would be necessary before I jump in. The great thing about these listed investments is that you can put a few thousand dollars in and if you are dissatisfied with the fund's performance (e.g. it pays low dividends) then you can simply stop putting more money in. If you feel like the performance is good you can put money in as you go. This control that I get from investing in listed securities is why I am pro-shares and anti-real estate. (When I talk about real estate I am talking about homes, not A-REITs.) If you buy a home, you are all in. The average house in Melbourne costs $500,000. If you decide to buy a house you borrow maybe $450,000 and then you are a slave to the bank for the rest of your life. You work like a slave to pay the mortgage and then when the banks raise interest rates you complain and complain. This is the typical behaviour of that breed of Australian known as the Aussie battler. As you can see I am passionately anti-debt, but that is not the main focus on this blog post, so I will hold my tongue. I have a tendency to drift to unrealted topics. The rant about the Aussie battler will have to wait until later.

Spend Less vs Earn More

2010-11-14T09:11:00.000+11:00

In this blog I speak a lot about investing and personal finance. Investing is not a precise science as there are so many market uncertainties. For example, it's hard to tell if the US dollar is going to keep going down or whether it will strenghten in the fiture. These uncertainties are what I love about investing.

I consider investing to be a hobby. I do it in my spare time and I find that it is a lot of fun. Someone once said to me, "Dude, why do you spend so much time studying investments. You should be spending time increasing your income instead." My friend, in my opinion, believed that work and investing is a trade-off. If you do more of one thing you must do less of another. I think this is wrong. My response to his comment is that I do spend time increasing my income. I do try to do the work I need to do at work to the best of my abilities. I don't study investing at work. Investing to me is leisure, so I do it at home after work or during the weekends. It does not interfere with work. If I weren't studying investments at home, I'd probably be doing some other leisure activity, e.g. watching reruns of Survivor or Shaytards.

Some people argue that saving money, investing and so forth is a waste of time because you should be focusing on improving your career, getting promotions, and so forth. Everyone has his own preferences but personally I find saving money and investing to be a lot of fun. The investing is certainly more fun than saving money, but saving money and investing as a whole is more fun and certainly more easy than working hard.

Working hard actually involves hard work! If you listen to all the career gurus, they will tell you that doing well in your career requires major analysis on office politics. You've got to do all sorts of difficult things like networking and watching what you say, making sure that give good impressions to others, and so forth. Some people are naturally good at this. I am not. You can call me old fashioned but I believe that you go ot work to simply do the work you're given. If you are given X then you do X to the best of your ability. There is no need to go beyond that. There is no need to stay back at the office just to show off to the boss. There is no need to set up coffee with every single person in your division to expand your network. There is no need to walk around the office and volunteer to do everything and find that with so much work to do you are overloaded and cannot cope. Like I said, for some increasing your income is easily, but for me it is difficult. Furthermore, because I work for the government, our pay structure does not include bonuses and other complex incentives structures that reward you for hard work--nor should it be because working in government is not really about hitting certain KPIs, as what is good for the organization is public welfare, not something measurable like profit or stock price appreciation.

Saving money and investing is simple. In fact, saving money is very simple because you don't do anything. If you want to advance in your career you usually have to do something, e.g. impress your boss. To save money you have to not do anything. The less you do, the more you save. If you spend your free time going to bars, pubs, casinos, movies, nightclubs, and so forth, then you will pay big. But if you don't do any of these things, you don't pay anything and you save money. Some people are what I call active savings in that they save money by aggressively trying to find hihg-value goods. These are the people who will not buy a coffee because $3 for a cup of coffee is not good value because you can make your own coffee for 50 cents. These are the people who are happy that they spent $5000 on their wedding because the average price for a wedding is $30,000. Active savers spend a lot but whenever they spend they save a lot of money. This is not me. I am a passive saver, which means that the way I end up saving money is simply by not buying things. The active saver will be happy if he spends $5000 on a wedding rather than $30,000. A passive saver will not get married and ends up paying nothing. I am not saying that I don't value marriage or leisure. I am just lazy, but this laziness has its benefits.

Estimated Yield of iShares S&P Global 100

2010-11-14T08:50:00.000+11:00

I am keen on producing high yields from my investments. Due to the strong Australian dollar, I have recently purchased on iShares S&P Global 100 ETFs (ASX: IOO). According to the iShares website, this ETF's distribution yield is estimated to be around 9.5 per cent, which seems very high. However, when I actually did the numbers myself using data on the ETF's actual distribution history, I noticed that the yield is more like 2 to 3 per cent. I am not saying iShares has misled anyone. On their site they clearly state that their figure is an estimate with various assumptions. Clearly iShares's assumptions were different to mine. I suspect that the main difference is that I took all the historical distributions from about three years back and then divided it by the current price. Perhaps iShares took the historical distributions and then divided it by a weighted average. Perhaps they also accounted for exchange rate fluctuations between the US dollar and the Australian dollar. It would make sense that this ETF would give low yields if you consider that currently the Australian dollar is strong and has been appreciating against the US dollar for a while now. If the Australian dollar were to suddenly pull back for whatever reason (e.g. American money printing actually turns out to be a valid plan that strengthens corporate America and and the US dollar with it) then I should expect yields on IOO to increase.

I am in a little bit of a dilemma because on one hand I want high yields but on the other hand I want to hedge against a collapse of the Australian dollar. I can hedge against a collapse of the Australian dollar if I buy US dollar denominated assets, but the problem is that as the US dollar weakens then my income from dividends gradually falls because the dividends are originally paid in US dollars and then is converted to Australian dollars. As the US dollar gets weaker, so too does the value of these dividends.

Arguments Against Rick Ferri’s Take on Gold

2010-11-12T23:19:00.001+11:00

The latest round of US money printing has pushed the price of gold above US$1400 per ounce. The attackers of gold have come out and criticized the metal, claiming it is a poor investment. Some blog gives Rick Ferri's Take on Gold, providing arguments against gold. After reading this article, I felt like I had to respond to the points made by Rick Ferri.

Argument 1: Gold ETFs will not protect you in the event of financial or economic catastrophe.

Response: Just because there is an economic catastrophe, it doesn't mean the banking system will collapse. It doesn't mean all ETFs will lose value. The GFC is an economic catastrophe, yet ETFs didn't all go to zero.

If you believe that there will be a total collapse of civilization such that banks will not functions, stock exchanges will be no more, airlines will not work, and so forth, then gold ETFs are not good. But this does not mean gold is not useful as an investment. In such an end-of-the-world situation, physical gold, which you can feel in your own hands, is preferable. Many people prefer physical gold rather than ETFs.

I am an ETF buyer. I agree that in an apocalyptic situation, I'll likely lose my money. If the banks collapse, I agree I will likely lose money. So what? That is a risk I understand and that is a risk I am willing to take. I happen to believe it is possible that there will be an economic catastophe that is extreme enough that it will cause enough fear and inflation (or even stagflation) to cause gold prices to skyrocket. All this can happen without all banks collapsing or the entire financial system completely being wiped out. Stagflation has occured during the '70s. It occured in the late '00s as well just right after the GFC when oil prices skyrocketed. Stocks will not protect you during stagflation. Gold usually does.

Argument 2: Investing in gold is like investing in bricks. Bricks produce no dividends. A brick will always remain a brick. One brick will not become two bricks.

Response: An investment does not have to produce dividends or cashflow to be good. Gold can go up in value as measured by particular paper currencies. Gold can also maintain purchasing power.

Here is what Rick says:

You can take a bunch of bricks and pile them in your backyard and look at them every day and say, ‘Go up in value, go up in value.’ But you can’t say, ‘What kind of dividends are my pile of bricks going to pay me this year?’ Because it’s zero. How much interest am I going to get from my pile of bricks? None. Is my pile of bricks going to become two piles of bricks over the next 10 years? No, it’s going to be one pile of bricks a year from now, 10 years from now, and a hundred years from now. You’re just hoping that someone comes along who thinks that pile of bricks is worth much more than you paid for it.

Dividends and cashflow are great. If you put money into a bank savings account, you get cashflow from the interest. Many other investments don't do this. Stocks pay dividends, yes, but the dividend yield on stocks is usually less than the income yield from cash investments, but people invest in stocks because they want capital growth. Not everyone cares about dividends. Some people want capital growth. Gold does not pretend to do pay dividends to create cash inflows. That is not the point of investing in gold. Gold can, does, and has gone up in value. In fact, gold has gone up in value more than any other investment in the last three decades.

Australian Economy Powers Ahead

2010-11-05T22:37:00.004+11:00

There is a guy on YouTube named George. In a video above, he talks about the difficulties of living in the United States as it stills suffers from the aftermath of the GFC.

The US dollar continues to fall, the Fed continues to print money, and official unemployment flirts the 10 per cent mark (while actual unemployment that includes discouraged jobseekers may actually be 20 per cent).

President Obama is facing a backlash as his promise of hope and change have not materialized and American citizens see nothing but the same old stuff. Many of the problems that led to the GFC in America were the result of a house price bubble that slowly grew during the presidency of George W. Bush, and when the bubble burst, Obama inherited the mess.

But here in Australia, all is good! It is true that the GFC hit Australia, but the country has rebounded back. Unemployment is around 5 per cent rather than 10 per cent. The Australian dollar is now at parity with the US dollar, which is unprecedented. Since Australia is a major exporter of natural resources and minerals, a combination of demand from emerging markets like China as well, as strong investor demands for safe-haven assets like gold, have seen mining profits explode, which increase the value of the Australian dollar. Australian house prices are one of the most expensive in the world and continue to increase.

Some executive in America who commented on malinvestments immediately prior to GFC said the following: "You cannot stop dancing while the music is playing."

Here in Australia, it seems like everyone is dancing and everyone expects the music to continue to play forever.

I am worried about the possibility of something going wrong with the Australian economy, which is why I am hoping for the best but starting to prepare for the worst. About 30 per cent of my wealth is in cash, ready to buy dirt-cheap shares if there is a post-1990 Nikkei-225-style double dip, which may lead to a full-blown depression, resulting in a lost decade or two. The Fed chairman seems willing to prevent deflation at all costs, so maybe worries of deflation are unfounded. If you believe the Americans will simply flood their economy with cash to jump-start it, then it is best that investor get out of cash and go into anything else, shares, gold, silver, platinum--anything but cash. Even the cash of countries other than America can be dangerous as a currency war may see multiple countries printing money to devalue their currencies and benefit their exporters even though it is means higher prices for everything.

The bottom line is you should be careful. I recommend being mostly in shares but keep a significant amount of cash ready just in case there is a deflationary collapse. Furthermore, for Australians, I believe now is a good time to start selling Australian dollars and going into foreign currency. Today I just purchased some ETFs that invest in global multinational corporations (see the iShares Global 100 ETF). In my opinion, now is not the time to buy real estate. Interest rates are so high that you will find the value of your assets being dwarfed by the value of your debts. There is no guarantee--and it is highly unlikely--that the Australian residential real estate market can sustain the kinds of growth rates needed for you to just break even considering the immensely high mortgage rates currently offered by Australian banks (around 7.5 per cent).

Banks Lifting Rates Over RBA Rate

2010-11-02T16:27:00.001+11:00

Today the RBA lifted the official cash rate by 25 basis points from 4.5 per cent to 4.75 per cent.

The Commonwealth Bank immediately lifted its standard variable mortgage rate by 45 basis points, almost double the increase in the official cash rate.

Many mortgage holders are up in arms, claiming that the banks have no right to lift interest rates over and above that of Australia's central bank.

But I think otherwise.

The cash rate and the mortgage rates are two completely different interest rates. The cash rate is the rate at which banks lend to each other overnight. The variable mortgage rate is the rate at which home buyers borrow from the bank to buy homes. They are two completely different products. To say that these two rates must be perfectly correlated is like saying that the price of oil and the price of coal must be the same. They are different products hence they have different prices.

One key factor that influences the rate at which banks lend money is risk. The higher the risk of the borrower, the higher the interest rate the banks need to charge in order to compensate for the risk. For example, if the bank were lending to the government (i.e. purchasing government treasury bonds) there is very low risk that the government will default and hence bond rates are usually low at around 4 to 5 per cent per annum depending on the country as well as other factors. However, if the bank is lending to people who are starting their own business, there is a fair chance that a significant number of them will default. The bank must therefore increase interest rates so that the increase in interest repayments the bank gets compensates for the expected loss because of these defaults.

The same concept applies to mortgage loans. When banks lend to people to buy homes, this is a fairly safe loan compared to business loans and credit card loans, but there are still risks. Many things can go wrong--house prices could go down and borrowers may lose their jobs. It therefore makes sense for banks to keep interest rates high to protect themselves against borrowers who do not pay what is owed to the banks.

The only argument against the lifting of interest rates by banks is the argument that thre is not enough competition in the banking sector in Australia. This argument may have some merit as the Australian banking sector seems to be dominated by four major players. However, there are other banks out there. Many people do not like being slugged with fees on their transaction accounts, but by switching to ME Bank (Members Equity Bank) they can avoid fees. Many don't like the interest rates that the big four banks charge, but there are dozens of building societies, credit unions, and other small players who provide cheaper loans. But I have spoken to many people and suggested they switch bank. None of them do. Either they are too lazy or they say they like their bank.

No Difference Between Gambling and Investing

2010-11-02T13:40:00.000+11:00

Today is the day of the Melbourne Cup, which means over 100,000 people will flock to Flemington to engage in betting on the outcomes of numerous horse races.

Due to personal reasons I will not engage in any betting during the Melbourne Cup as I believe horse racing is animal cruelty. In my opinion, racing a horse is similar to raping a horse. But that is not the main topic of this blog post.

I remember a long time ago I had a friendly argument with a friend over betting versus investing. I put to him the idea that betting and investing are the same thing. He disagreed and believed that betting is a losers game whereas investing is a winners game.

Most agree that conventional investing involves taking ownership of some company or some asset that will appreciate in value in the future thereby making you a profit.

But if you believe an asset will rise in value, is owning the asset the only way to take advantage of this? Why not bet? What is the difference? Usually betting does not involve taking ownership of the asset that will appreciate. For example, suppose I believe that UK house prices will go up in a month's time. My friend believes that if you think UK house prices will go up in a month's time then the way to win from this is to buy a house in the UK. Very simple. This is the conventional way of investing.

However, why not bet? Using IG Index's house price spread betting platform, you can wager that house prices will rise and make money from it. In fact, there are many arguments in favour of betting rather than investing in this case. By betting, you don't actually own the house and therefore you don't have to pay numerous taxes including stamp duty and land taxes. You avoid all sorts of other costs associated with buying houses such as real estate agent fees, lawyers fees, bank fees, and so forth. However, it is not costless to bet on house price increases. IG Index makes money through bid-ask spreads. But nevertheless, what's the difference? Both methods (investing and betting) involve costs. Both methods involve risk. Both methods involve you assessing the situation, taking a position, and making a bet.

There is no difference between gambling and investing.

But my friend believes otherwise. He says that gambling institutions never lose because if it were likely that house prices will rise then they will change the bid-ask spread so that they take a substantial amount of your winnings. But how is this any different to investing? If it were likely that UK house prices would go up, that would already be factored into prices. The high demand for houses would push up prices thereby increasing the costs of buying houses. This effectively increases the costs of betting that house prices will rise. Because house prices are higher, they are more likely to fall. Try this thought experiment. Imagine you have 100 people. Imagine every single one of those people believed house prices will go up. This means they all buy houses and house prices rise. Can house prices go up further? No, it cannot because there are no more buyers. Everyone who had faith in house prices rises has already purchases houses and there are no more buyers left in the market. There can only be selling, and selling reduces prices. Since there are no more buyers, prices cannot go up anymore.

Image: Waffler

Rising Private School Costs

2010-10-23T08:49:00.000+11:00

I went to private schools when I was a kid and from what I saw there did seem to be a correlation between how much parents paid and the quality of the education. That more expensive schools provide better education should not be surprising since schools that are driven by profit have more incentive to provide better education. However, even though the environment may be right for a kid to succeed in school, ultimately it depends on the determination and work ethic of the kid himself. I have heard many stories of kids going to expensive schools but failed because they were distracted by parties, alcohol, or sports.

A recent article in The Age states that private school fees are rising greater than the rate of inflation in Melbourne (See High Price of Staying Private).

The private schools are blaming this rise in private school fees on reducations in government funding and the rising costs of teachers (driven mainly by rising teacher salaries in public schools). Many parents I know who bring their children to private schools are up in arms about the price rising, claiming that the government should provide more funding to private schools. One particular parent said, "If I choose to send my child to a private school, why should I have to pay more?"

I personally don't see why these parents are complaining. A private school is a private school, and hence government ideally should not be interfering with it. A private school is allowed to set whatever fee it wants simply because it is private. If the government were to dictate prices, then it would hardly be a private school. Can you image if the government suddenly raided the boardroom of BHP and demanded that they change the price of their iron ore exports? Could you imagine if government took control of all private enterprise and ran them? It has happened before in many countries and it has not worked well. When government controls private enterprise, it is called communism.

Strong Aussie - Time to Buy Foreign ETFs?

2010-10-16T08:31:00.000+11:00

The Australian dollar has now reached parity with the US dollar, meaning that one Australian dollar equals one US dollar. This is the first time this has happened since the Australia dollar was floated way back in 1983.

Many Australians are taking advantage of the strong Australian dollar by going on holidays overseas. Perhaps one good idea is to take advantage of the strong Australian dollar by buying other countries' shares. Exposure to foreign shares can easily be achieved via iShares' range of foreign ETFs.

Looking purely at the dividend history of these foreign ETFs, the best is the iShares MSCI Singapore ETF, which has distribution rate of 5.22% so far. The Australian dollar has indeed been strengthening against the Singaporean dollar for the past year. The Singaporean economy has been the fasting growing in the world post-GFC. The country seems to be ruled by very competent people and the population seems to be highly educated, although my discussions with people suggest that the Singaporean education system does not foster critical thinking. This lack of criticial thinking is evident in the fact that even though most Singaporeans have a lot of faith in their country's economy they are mostly unaware that Singapore has one of the world's highest public debt. The size of the public debt is greater than the size of Singaporean GDP. In Singapore's defence, I was told that much of this debt is held by Singapore's pension funds. That is, most of the government debt is held by Singaporeans. In America and Greece, much of the government debt is held by foreigners. I am not entirely sure how this makes a difference. The problem with government debt is that it needs to be paid off in the future, which means higher taxes, which slows economic growth. However, Singapore has a very large sovereign wealth fund (Temasek Holdings), so rather than resorting to high taxation to fund their debt, they can use their investments. Singapore's level of taxation is currently phenomenally low, especially compared to countries like Australia and the US.

Even if Singapore's government debt may not be a problem, there are other risks with investing in Singapore. An investment in iShares MSCI Singapore ETF exposes you heavily to the finance sector. A browse of the holdings of this ETF reveals that many of Singapore's largest listed companies are holding companies, banks, and real estate trusts. Buy buying into Singapore you are not really getting that much diversity in terms of sectors. Singapore's focus on finance takes it heavily dependent on other economies and can even, in my opinion, make Singapore's economy rather correlated to Australia's economy. After the GFC, Australia's economy rebounded strongly and currently interest rates in Australia are very high, much like interest rates in Singapore. Australia and Singapore seem very similar in that both are trade-focused and heavily dominated by the finance sector. Both the countries have increasing real estate prices. The main difference is that Australia has a massive resources sector while Singapore does not.

Unlike Singapore and Australia, Europe and the US has been dropping its interest rates, and the US has resorted to printing money to stimulate its economy. This has led to a devaluation of the US dollar to other currencies. This is a great opportunity then for Australians to buy American shares. Currently corporate America is paying virtually nothing in terms of divdends, so a better alternative is to buy the iShares S&P Global 100, which invests in 100 large, multinational companies. The benefits of investing in this, in my opinion, is that you are investing in very high-quality, internationally recognized companies. Most of these companies are European and American, meaning you buy for cheap in the countries that are hardest hit by the GFC. This then allows you to truly diversify your portfolio if, like mine, it is overweight in the shares of high-risk, high-interest rate countries like Australia. The yield on the Global 100 ETF is around 3 or 4 per cent, which is not bad but not as good as Singapore or Australia. If the Australian dollar does take a hit, investment in this ETF should pay off.

The argument for investing in the US now is that all the money printing will eventually jump start the economy again and once that happens, the American dollar will regain its strength. This is the argument put forth by Peter Switzer, the permabull, who in an piece in Yahoo!7 Finance titled Ignore Bears, But Not History, says the following: "I'm an optimist and trade long only and so I search for confirmation that my investment strategy is right." Is this guy crazy or what? You don't choose to be an optimist and then collect evidence to prove you are right. You look at the evidence first and then based on the evidence make a decision about whether you want to be optimistic or pessimistic. That is how a proper investor should behave.

Chinese Currency Manipulation - What Can You Do?

2010-10-04T23:28:00.001+11:00

Many in America are angry about the Chinese government devaluing its currency to make its exports more attractive to buyers. Whether or not this is ethical, I cannot see what in the world the US can do about this.

One solution is to impose sanctions, e.g. the US government could put a tariff on Chinese goods. The major problem with this idea is that the price of goods will go up. Chinese people are willing to work for very little, resulting in goods prices that are very low. Americans have minimum wage laws. Unless the American people are willing to give up minimum wage laws and work for a few dollars a month, prices will rise, which will hurt American consumers, and voters will be outraged by price rises. Some argue that although prices will rise, this will be compensated for because Americans will have more jobs. But price rises destroy jobs as well. Every dollar you spend creates jobs. If all of a sudden I purchased a coffee every day, someone needs to make that, so someone is hired to make that coffee for me. However, if I suddenly had to pay more for t-shirts because Chinese goods were banned, then I would have less money left over to buy other others, and I will cut back on e.g. coffee and this reduces demand for coffee thereby resulting in job destruction.

Another solution is for the American government to continue devaluing its currency by printing more and more US dollars. The Chinese government, however, can easily respond by printing its own currency.

One way the Chinese government maintains its currency peg is to buy US Treasury bonds. One suggestion is to ban the Chinese government from buying US Treasury bonds. This could be a problem the US government because the Chinese government is a major consumer of US debt. If the Chinese do not lend to the US, the US will lose a major customer. Currently the US government relies on Chinese lending to fund its various stimuluses, so what the US needs to do then to depreciate its currency is to stop its stimuluses and replace lose Chinese demand for US sovereign debt by selling Treasury bonds to US citizens, which means US citizens will need to suddenly become thrifty savers. I will let the reader decide whether that is likely to ever happen.

Legal Tax Minimisation - Work Deductions, Negative Gearing, and Salary Sacrificing

2010-10-02T09:25:00.000+10:00

Many people are keen to reduce their taxes, which makes sense. However, in my own experience I find that many methods of reducing tax, although they allow you to reduce your tax, may have other questionable consequences.

I will talk about three methods to reduce tax in Australia, namely business expense deductions, negative gearing, and salary sacrificing.

Any business expense you have can be claimed as a deduction, thereby reducing your taxable income. For example, if you work as an accountant and you subscribe to an accounting-related magazine, you can claim the cost of this subscription and reduce your taxes. Many people subscribe to the magazine and then say, "I don't care about the costs because it's deductable." This is not a good attitude. Suppose the magazine subscription costs $100. Suppose your taxable income is $50,000 per year. Any additional dollar you earn is taxed at 30 per cent. By getting $100 deducted, your taxable income is $49,900, which means that you effectively pay $70 for your magazine and you save $30. Even though you paid less for your magazine, you are not getting it for free. You still have to pay $70 for it. You cannot therefore simply buy useless crap that you don't need to reduce your tax. The stuff you buy needs to actually be something you want or something you need. You will need to make an evaluation as to whether the benefits of subcribing to the accounting magazine is greater than $70 per year. If it is, buy the magazine. Claiming work expenses like crazy reminds me of people who always buys products if they are heavily discounted. If they see that some product is 50 per cent off at the mall, they are highly likely to buy it, even though the discounted product may still be expensive and maybe they didn't really want it in the first place.

Negative gearing is another tax dodge that people like to talk about, especially in Australia where it is very fashionable to invest in real estate. Negative gearing involves borrowing money from the bank to buy some income-producing asset (e.g. a house). If the repayments to the bank is greater than the income coming from the asset, then the difference can be used to reduce your taxable income. Many people think that by negative gearing they can simply borrow heaps of money, buy heaps of houses, and pay no taxes. But you should be very careful about doing this. To keep it simple, even though negative gearing allows you to reduce your tax per se, this reduction in tax is more than made up for by the increase in other expenses, most notably interest repayments. That is, even though you have reduced your tax debt to the government, you now have a loan debt to the bank. Even though you are paying less tax to the government, you are effectively paying a tax to the bank in the form of interest repayments. The government is happy to allow this tax dodge. Even though they lose money by allow citizens to pay less income tax, they make a lot of money simply by allowing bankers to make more money collecting interest and then taxing the profits of the banks to recoup their lost cash. There is nothing wrong with borrowing money to buy something for investment purposes. However, most people do not realize how difficult it is to come out ahead when borrowing to invest. Interest rates in Australia are very high. Mortgage interest rates are about 7 per cent now. If you borrow to invest, the banks will charge you more, probably 8 per cent or more. For you to break even, your investment will need to produce 8 per cent or more per year. This is highly unlikely. I do not know of any investment that gives 8 per cent per year with low risk. In fact, any investment that gives 8 per cent per year with low risk is probably a ponzi scheme or some other similar investment scam. Most people also underestimate just how much of a burden paying back a massive loan is. Einstein claimed that compounding interest is one of the major wonders of the world. It is definitely wonderful and pleasant if your savings or investment value went up in value exponentially due to compunding interest. However, compounding can work against you if you have debt because debt can compound over time.

Anohter tax minimisation strategy is salary sacrificing. You can salary sacrifice for many things, e.g. for a car or to put into your superannuation fund (retirement fund). I am a fan of this method as it delivers instant results and it is perfectly legal. It is also very simple as well. If you want to reduce the tax you pay, you can salary sacrifice into your super fund simply by talking to HR. A simple email can often do the job. Salary sacrificing into super works because the tax you pay in your super fund is 15 per cent. As of this year, if you earn over $37,000 per year, each additional dollar you earn is taxed by 30 per cent. If you salary sacrifice, say, $100 then that $100 will bypass income tax and go into your super fund where it will be taxed at 15 per cent rather than 30 per cent. You therefore save $15 for each $100 you salary sacrificing into your super fund. If you earn more money and each additional dollar you earn is taxed at the highest rate of income tax, which I think is 45 per cent, then paying 15 per cent instead is a massive saving.

There are three main problems with salary sacrificing into your super fund:

(1) Access to Money - The first and most obvious problem is that you will not be able to access your money until retirement. If you are in your mid-twenties (like I am) then retirement will be a long way off. You will have to wait another 40 years or thereabouts to get a hand on your money. However, super law dictates that if you are experiencing "hardship" then you allowed to access your money. When I save or invest money, much of the reason for why I do is to save for a rainy day, i.e. to save money so that I can use it if I am going through hardship. If money I earn normally is being used for that purpose (as insurance against hard times) and if it goes into super it will have tax benefits and I will still be able to use it for the same purpose, then I think it is worthwhile to put more money into super where it has a better chance of growing more with greater tax benefits.

(2) Limits on Super Salary Sacrifice - Salary sacrificing into your super fund was such a great way to reduce income tax that many people got into it. That is why the government eventually stepped in and put limits on the amount your can salary sacrifice into super. Young people can now only salary sacrifice a maximum of $25,000 per year into their super funds. Some people criticize this and say that this makes it not worth it. But I think that a little bit of a good thing is better than nothing at all.

(3) Government Risk - The biggest and most worrying risk with super is the performance. Many people are worried that super is an underperforming investment because much of super is invested in the stock market and after GFC, stock markts around the world tanked thereby destroying super wealth. However, I do not believe this is a major issue. Super funds allow you to switch your money from shares into other investments like cash. You can also start up a self-managed super fund (SMSF) and invest in anything you want, e.g. art, wine, antiques, gold, and real estate (rules may change regarding investment in exotic assets like wine). The biggest risk to performance, in my opinion, is government risk. Government may make superannuation a great investment today by giving it tax breaks, but government can also take away these benefits in the future. If the government is desperate for cash one year, who is to say it won't raid citizens' super funds? It would be politically unpopular, certainly, but it is definitely a risk. However, money outside your super fund in other investments, e.g. shares and real estate, is also subject to government risk as government can change capital gains tax, land tax, stamp duty, and so forth. Therefore, the only way you can get risk of government risk is to move your money outside of the country, which is most cases is illegal if you are doing so to dodge taxes.

Has Feminism Failed?

2010-09-19T10:06:00.000+10:00

I have been reading Are We There Yet? which is about feminism and whether it has made any progress today even though recent statistics reveale that women still earn about 20 per cent less than men. The study claims that women earn less mainly because they take time off work to have children.

Arguements can be made that companies should be more child friendly and have subsidized childcare. The Australian government has already started implementing paid parental leave. In my opinion, paid parental leave--to be paid for by increasing company tax rates--is a poor idea. Companies will likely pass on these cost increases by decreasing wages and increasing the prices of goods. Everyone who has made a lifestyle choice not to have chidlren are punished so that those who decide to have children are subsidized. But some argue that government should encourage higher population growth with subsidies. But this runs contrary to the planned reduction in immigration that both Labor and Liberal are planning. How can you on one hand reduce immigration citing too high a population and on the other hand maintain subsidies like the Baby Bonus?

Back to the topic of feminism. In my opinion, the best way to increase women's pay is to somehow encourage them not to have children or at least to get the husband to do the childrearing. But the reality I see is that women themselves want to have children. Women themselves are the ones who choose to take time off work, choose to take care of children, and choose to do the housework. It is something they like and enjoy and according to their actions they seem happy to forego money for it. If that is what they want, perhaps it is better to simply let them have what they want rather than try to push them to do something they don't want.

Women nowadays have it good. For those women who choose not to have children--or have children but get the husband to take care of them--they often do very well in their careers. I have seen very many successful women who are very focused on their careers.

The statistic that women earn less than men also hides the fact that many stay-at-home mothers get subsidized by their breadwinner husbands. The husband goes to work and earns money while the wife stays home and takes care of the children and does the housework. When the husband comes homes, he gives maybe 50 to 70 per cent of his income to the wife. The wife's earnings in this case does not show up in official income statistics but it is a legitimate source of income for the wife nevertheless.

The Parent Trap (1998)

2010-09-18T13:44:00.000+10:00

I have finished watching The Parent Trap, starring a young Lindsay Lohan.

The movie is about two twin sisters who meet at a summer camp. One girl has a mother who lives in England and the other sister has a father who lives in a vineyard in California. Both these people used to be together in an intimate relationship but then separated. Both little girls want their parents to get back together again, so they hatch a plan to switch places and persuade their parents to meet again.

As an obstacle to the two getting together again, the man who owns a vineyard is engaged to be married to a golddigger woman.

Lindsay Lohan who plays both the sisters Annie and Halle was adorable as a teenager. But unfortunately the the Parent Trap can be too cliched and sterotypical. The golddigger publicist who does not like camping is one such stereotype that went too far. But nevertheless, this was a very cute movie and I would recommend it to others.

Survivor Nicaragua Episode 1 - Young at Heart

2010-09-18T13:35:00.000+10:00

This blog post contains spoilers.

I've seen all seasons of Survivor. There have been 20 so far, and Nicaragua is the 21st. In this season, the two tribes are divided by the older players (over 40) and the younger players (under 30).

Let me just say early on that after watching last season's Survivor Heroes vs Villains, the first episode of Survivor Nicaragua was quite disappointing mainly because not much seemed to happen. It was great to watch Survivor again after waiting for a bit, but all in all this was an average episode.

During the immunity challenge, the young tribe won and the old tribe went to tribal council where they voted out a woman named Wendy who looked young but was actually about 48. My opinion was that the main problem with her is that she was not physically strong (it is normal in Survivor for weaker players to be voted out early) and because she did not bond well with the rest of her tribe. She knew that she was different and tried hard to bite her tongue and not say much. She spent much of her time working by herself rather than bonding with others players. It is important for players to not only try to work and to show that they are valuable and strong but to also put some effort into socializing with others. During the tribal council she came out strong and effectively blamed everyone else in her tribe for not being nice to her. After her outburst I was sure that she would go. You don't demand respect from others. You earn it.

The preview for the second episode sort of suggests that the younger tribe (called La Flor) will go to tribal council and there will be massive argumetns involving one of the younger blonde male players, pejoratively called Fabio.

Gold Does Not Produce Income

2010-09-18T09:50:00.000+10:00

Even though there have been fears of a double-dip, the stock market has gone up. The All Ords has moved from about 4500 last month to 4700 now. Surveys indicate that fears of a double dip are starting to go away. During this period of stock market growth, the price of gold continues to go up as the US dollar continues to deteriorate. Gold is reaching US$1270 per ounce now, citing some people to call it a bubble.

But if gold is a bubble, why would it be? Before we label any asset price increase a bubble we must ask ourselves first if there is a sensible reason for asset price going up. Gold is valuable because its chemical properties make it suitable for use as a currency (read Properties of Good Money for more information about this concept). Many currencies around the world are being devalued because of money printing by government, leading to the price of goods going up. Gold cannot be easily produced as it requires mining, which is difficult. This means that the rarity of gold, which affects its value, is out of the hands of government and therefore gold is free of corruption.

The ABC came out with an article claiming that gold is a bubble (read The Gold Rush is Fools' Gold). The reasons for this are uninspiring. The article mainly appeals to authority by citing Gearge Soros. It also claims that because gold produces no income (e.g. real estate produces rent, stocks produce dividends, etc) then gold therefore has no value and therefore it must be in a bubble.

"Gold will never generate cash flows, so for purist investors it has no value. From this point of view, gold itself is in a bubble driven by investor fear, implying that the price of gold will collapse when investors realise the world is not ending," Ms Howitt noted in a statement.

This is the worst argument I have ever heard. An investment doesn't need to produce cash flow to be valuable. An investment is any asset that holds or increases in value. Some assets produce income, which gives it value. However, there are many assets that do not produce income that can go up in value, e.g. gold, paintings, and wine.

If you invest in stocks at the moment in Australia, you'll get a dividend yield of about 3 per cent. If you invest in bank term deposits, you'll get about 6 per cent. If we went by the rule that an investment's income is the only indicator of the investment's value, then it would be wise to invest in bank term deposits. However, many people invest in shares because even though the dividend yield is relatively lower now, there is the potential for future capital growth as companies reinvest profits back in their businesses. The most successful investment in history--shares in Warren Buffett's Berkshire Hathaway--has never produced any income. However, term deposits, which give income yields of around 6 to 8 per cent on average, have zero capital growth. Measuring gains with both capital gains and dividends shows that the historical performance of stocks and gold have been better than than that of term deposits.

Bob Katter's Protectionist Demands

2010-09-12T00:11:00.000+10:00

The 2010 Federal Elections in Australia created a hung Parliament. In order for one of the two major parties to gain enough seats in the lower house of parliament to form government, a coalition needs to be formed with a bunch of independents. Most of these independents are either urban socialists (Greens politicians) or rural socialists (the ex-Nationals). One of these independents is Bob Katter.

On a recent episode of Q&A, Bob went off about how Australia should apply tariffs to protect its manufacturing and agriculatural sector. He claims that Australia should do this because so many other countries do it. The problem with tariffs on agricultural goods is that they will increase the costs of food. When you go to buy your groceries you will pay more. The costs of living are high enough and a tariff will only increase those costs. Why will food prices go up if there is a rise in tariffs? Tariffs discourage imports. If there are fewer imports, there is less competition. Australian farmers can raise prices of goods without worrying about foreign imports undercutting their products. That other governments protect their agricultural industries is no excuse for the Australian government doing so. That the American government or the European governments apply tariffs only benefits the farmers at the expense of everyone else who pays higher prices for food.

Saving Money by Collecting Coins

2010-09-04T17:14:00.000+10:00

There are many benefits of credit cards. There are credit cards out there that have no annual cost. You don't pay anything for them but when you buy things with them you get automatic insurance as well as other benefits, such as cheaper petrol. So long as you pay off any debt you have every month, you will not have to pay any interest. Examples of free credit cards that allow this include the Bankwest Zero credit cards and the Coles Group Source credit cards. I highly recommend both of these credit cards. In fact, I have both.

There is one major problem with credit cards and it is not really an economic argument but rather a psychological argument. The problem with credit cards is that is that they make it easy for you to spend money. It is so easy to be walking in the mall and all a sudden you see something you like. It is so easy for you to whip out your credit card and then buy it. Because it is so easy to use a credit card, most people (me included) tend to overuse it.

Debit Cards Don't Help

Many people think that they can replace their credit cards with a debit card and the problem is solved. It is believed that debit cards are better because you are spending your own money and therefore you will be careful with it. If you spend someone else's money, you won't be careful with it. I think this is illogical. In fact, I think debit cards are quite bad. The problem with debit cards is that it is linked to your transaction account and if your balance becomes zero, the bank will charge you a penalty (maybe $40 or so). It is much safer to simply fill up your credit card with lots of cash so that your credit card account is in surplus. Then you use your credit card as if it were a debit card. If for some reason you make a mistake an go under, it doesn't matter because you will just be using a credit card as if it were a normal credit card. It is true that the bank can slap a penalty on you if you go over the credit limit on a credit card, but having a debit card does not fix that problem.

Using Cash Helps

For small purchases, using cash is good. Cash is good because it allows you to spend a set amount and you cannot go under. With debit cards and credit cards you can spend more than you have. With cash, it is impossible to spend more than you have. If you have only $10 in cash in your hands, you cannot buy something worth $20 with cash.

However, there is a problem with cash. If you carry around a large amount of cash, it is too easy to spend it all. If you carry around $5000 worth of cash in a mall, apart from the fact that there exists the risk of theft (assume you keep your cash in the bank and take it out via the ATM) it is still very easy to spend the money. It is easy to spend using credit card, but it is almost as easy to spend cash. In practice, any cash you have in your wallet is as good as gone. It is so easy to spend that you will find yourself spending it on lattes or sandwiches. Using a credit card at a cafe is frowned upon because it slows things down, but every shop or restaurant loves receiving cash. It is so quick and easy to hand over cash and if you carry high denominations of cash, you could lose money very quickly.

The way to fix this problem is to leave in your transaction account or wallet only the amount you need for the week and then put aside the rest. E.g. if you are paid $1500 per fortnight, you can estimate that one meal will cost $10 and you will have one meal per day for 10 days, which comes to a total of $100. You leave $100 in your transaction account and put the remaining $1400 away where it is difficult to access it, e.g. a term deposit. This is a good idea because it ensures you will only spend $100 for the forthnight. Assuming you have no credit card and only use your ATM card to withdraw money before you spend it and don't withdraw more than you have, then you will only spend $100 per fortnight, which is quite little. The problem with this is that you may be in an emergency situation in which you need money. Suppose you only have $20 in your transaction account and you are in the city on a Friday night with your friends. You have a meal and then all of a sudden you have no money in your bank account. Suppose you are driving home and all of a sudden you need to fill up on petrol. If you have no money, you may be stranded. This is why so many people carry credit cards. A credit card is useful in case of an emergency, but like a double-edged sword although the credit card can help you during emergencies, it can hurt you because it is easy to spend money. I have found a solution to this problem. It involves collecting coins.

Collect Coins

I carry around credit cards, but during periods in my life when I want to save money, I keep my credit cards locked away in my bedroom. Whenever I buy something with cash, I put all the notes in my wallet and put all the coins in a special zip pockets on my jacket. When I get home, I put the coins into a jar. Once this jar has got enough coins, I put some of those coins inside my car--in the cigarette box, in the glove box, etc. I also put coins in drawers in my desk at work. There is a risk that the coins will be stolen, which is why I tend to only keep silver coins in my car and at work, and I only keep in total about $20 to $40 worth of silver coins both at work and in my car. This means that if some thief steals the money, they won't steal much and it simply won't be worth the hassle to carry all those silver coins just to steal a small amount. I keep the gold coins locked up in my house--but I don't have much.

Why is it a good idea to do this? If I wanted to save money, I could lock up my credit cards and then use cash all the time. If in the event I run out of cash, I can simply tap into my coin stash. For example, if I am driving and I have no paper money in my wallet and all of a sudden my car needs petrol, I can simply collect silver coins in my cigarette box in my car and use that to buy petrol at the petrol station. It is true that using silver coins to buy petrol is slow and embarrassing--but that is the point! Because it is so embarrasing and slow to use silver coins to buy something, you are less likely to spend money (unlike if you have a credit card or paper cash). However, although silver coins are slow and embarrasing to spend, in the event of an emergency, you can use it.

Peter Switzer - A Prophet of the Cult of Equity

2010-09-04T16:37:00.000+10:00

I've been reading Pep Talk Time on Yahoo!7 Finance. In this article, Peter Switzer claims that even though we are going through times of great uncertainty with many people fearing a double-dip recession, it is now that we should actually be starting to pile up into dividend-paying stocks. His analysis offers no reasons as to why things will improve in the future. The arguments for a double-dip recession are strong: massive public debt caused by massive stimulus, which will require either extreme money printing or massive taxation, which will retard future economic growth. This is black-and-white logical reasoning for why difficult economic conditions are ahead of us. But Switzer resorts to cheap tactics like name calling, calling those who are pessimistic about the economy "nervous Nellies." His reasons for why the good times are ahead are completely illogical:

The contrarian argument - Everyone thinks things are bad. Therefore things are good. According to Switzer, "The best piece of analysis of why it's unlikely that we will see another stock market crash, like the one of 2008, is because there are so many prophets of doom out there who are preparing lots of people for another stock market slump." This is a horrible argument. It is wrong to believe something is correct just because everyone else believes it, but it is also just as wrong to believe that somthing is wrong just because everyone else believes it.
Faith - The economy will do well in the future because it just will. According to Switzer, "I knew it would take time for the repair jobs and the stimulus to kick in but I knew or suspected on the strength of history, informed opinion and economics it would happen." I should add that nowhere in the article does Switzer actually explain what sort of "informed opinion" or "economics" he used to argue that we are in for good times ahead. His argument is simply based on faith, faith that things will be good in the future. Switzer goes on to say the following: "Eventually the global economy will turn from doubtful growth to definite growth and then stronger growth culminating in very strong growth. However, that will take a few years and the market will anticipate this gradual improvement but now is not the time." In other words, in the long run everything will be okay. But does he present actual reasons why this will happen? No. He just says it will for no reason. This is blind faith.
Speculation has been retarded - According to Switzer, there are no more asset price bubbles because all the bubbles that have been blown in the past have popped. People are now parking their wealth in cash. They money on the sidelines means that there is no more rampant speculation, which is what causes bubbles and leads to crashes. According to Switzer, "all of this caution and the enormous amount of cash that's on the sidelines in bonds and bank deposits as investors play it safe, actually stops the unbridled enthusiasm that creates excessive booms and then crashes." This may have been true after the GFC when asset price bubbles popped all over the world, leading to an economic disaster. But right after the GFC, the world's government implemented a massive stimulus program, which has reinflated the bubbles again. It used to be the case that keeping your money in cash is a safe option, but this is not the case anymore. The rising price of gold shows that investors are worried about the status of government currency as an actual currency. Rampant inflation (rising prices of goods) makes dollars a poor store of wealth, and so people are forced to beat inflation by investing, either in stocks, real estate, gold, or many other assets. Does this reduce speculation? Far from it. Speculation should increase as people seek assets that hold value.

This faith that the economy will always recover in the long run looks very much like a religion or a cult. Robert Buckland from Citigroup called this the "Cult of Equity" and argued that this faith-based cult is under attack. If buy-and-hold (a more apt term is buy-and-hope) is a cult then Peter Switzer is a prophet of the cult of equity. Prophets are those religious figures who believe they have communication with God. Cult of equity prophets believe that through supernatural faith they can forecast the future and infer that the the economy will grow strongly in the long run.

Right after GFC, when I heard on the news that governments would engage in massive stimulus of the economy, I made every effort I could to buy shares. The market rallied strongly by about 50 per cent. However, the stimulus does nothing. It creates jobs and income by inducing demand for products, but where the private sector gains due to the stimulus the government sector must suffer because stimulus money comes from the government. Government must somehow make up for their losses, which means they must increase taxes inthe future. The losses of yesterday's private sector is today's government sector loss, which is tomorrow's private sector loss. If we add interest costs if government borrows money to fund the stimulus, this means that in the long run the private sector ends up paying more to cover up the losses of the past. This is crazy. It is like a teenager paying off a credit card with another credit card. I am not necessarily saying that we are in for a double-dip recession, but I am now pessimistic, and I am no longer 100% in the stock market. I have sold off shares and am now starting to load up on cash, bonds, and gold.

Suspicious of Undercover Boss

2010-08-23T20:12:00.001+10:00

I have watched a few episodes of Undercover Boss and I am very suspicious of the show. The basic premise of the show is that the CEO goes undercover as an entry-level worker on the front lines of the job to see how it is run.

Some people have expressed skepticism over how genuine it is since the undercover CEO walks around with camera crew, which would make workers suspicious. However, the show explains this by claiming that the workers are all told that the cameras are there because they are recording for a show about an entry-level worker.

The main issue that I have with this show is that every single worker you see happens to be a saint and they always seem to work hard and then right on cue they always tell a sob story about how tough their life is. Then predictably at the end these poor workers are rewarded for their hard work by the kind CEO. Is it just a coincidence that just about every single worker the CEO comes into contact with has a sob story? I think that many of the workers who come into contact with the undercover CEO actually know that he or she is the CEO and they pitch their sob story with the hope of striking it rich. Another explanation is that the show is rigged and the undercover CEO is led towards workers who are filtered initially to make sure they have an interesting sob story.

Further Reading: Undercover Boss is the Most Rigged Reality Show I Have Ever Seen (WrestleZone Forums)

The Problem with Election Betting Market Predictions

2010-08-21T20:16:00.000+10:00

The betting markets predict a win for Julia Gillard in the 2010 Australian Federal Election (see Punters Back Gillard Victory). Some people believe that betting markets are very accurate predictors of elections, but I am skeptical.

I know of many people who have put large sums of money on Labor to win. These people are people who do not want Labor to win but bet for them so that their sorrows if Labor wins can be compensated for with cash.

The Labor Party may have certain policies that are unpopular for wealthy people, e.g. the mining tax. Wealthy miners who do not want Labor to win may hedge their bets by betting big for Labor. If Labor wins, they win big money from gambling. If Labor loses, they make big money from mining. This would then skew the betting market so that it predicts a Labor victory.

Australian Federal Election 2010

2010-08-21T14:20:00.000+10:00

This year's federal election is between Julia Gillard and Tony Abbott. Julia has a background in socialist politics and is a former union lawyer. This is typical of what you would expect from a Labor Party condidate. Tony Abbott is a devout Catholic and one of the chief architects of the controversial WorkChoices policy. Tony is pretty much the type of candidate you'd expect from the Liberal Party.

The major problem is that even though these candidates have very different backgrounds, their stated policies during this election campaign are virtually identical other than perhaps Labor's promise to build the National Broadband Network.

Julia Gillard's knifing of Kevin Rudd as well as her opposition to pension rises one minute and then support of it the next minute, clearly shows that she is a shady character who cannot be trusted. Unfortunately, she is running against Tony Abbott, who is just as bad. Tony was a rabid anti-woman religious radical who and, as mentioned, a chief architect of WorkChoice. All of a sudden, he portrays himself as a loving family man and has completely backflipped on WorkChoices.

When the candidates for prime minister are both quite poor, one can only look at the histories of the parties to make judgments. The left-wing Australian Labor Party (ALP) has traditionally been the party that represents the interest of workers and has its history in the trade unions. The ALP's opposition to WorkChoice therefore is very credible. The right-wing is a coalition between the Liberal Party and the National Party. The Liberal Party has traditionally been the party that represents the interests of business owners. It is the party of choice, flexibility, entrepreneurship, and so forth. The National Party represents the interests of farmers.

In terms of my economic self-interest, it makes sense for me to vote for Labor since I am neither a business owner nor a farmer. I am a worker just like most people. It would make no sense therefore for me to vote against my own economic self-interest. Of course, without business owners there would be no employment and hence no workers, so there needs to be a limit to how much you can tax businesses. Even those working in government need business since government exists because of taxes on business profits (or income or consumption, all of which are products of business profits). Business profits are essential for everyone, not just the business owners themselves but also the workers and governments that share in the profits.

But this labour versus capital view of the political parties may not be accurate because the major parties nowadays are starting to mix into each other. The Liberal Party is promising a massive paid parents leave scheme that will be funded by a massive increase in company tax rates. Labor is promising the same thing except under Labor's scheme the business will pay for it whereas for Liberals the government will pay for it. Either way the effect is the same since government profits come from business profits via taxation.

Mosque Near Ground Zero

2010-08-16T19:42:00.000+10:00

There are plans to build a mosque near the site where the World Trade Center collapsed during the Septermber 11 terrorist attacks.

According to the article Obama Denies Backing Ground Zero Mosque in The Age, President Obama one moment supported the idea but then toned down his support of the proposal.

I would have thought that the American Constitution supports freedom of religion and therefore building a mosque would not be a problem. However, the article claims that some Republicans have "described the plan as an affront to the families of victims of the September 2001 terror attacks." The article also says the following: "New York Republican Congressman Peter King accused Mr Obama of caving in to political correctness."

This comments about political correctness makes no sense. Political correctness refers to altering language or behavior in order to not offend others. In other words, it refers to politicians not being frank and honest but rather pandering to the norms and values of the public or the masses. Since about 70 per cent of Americans are against building this mosque, being for it is therefore politically incorrect, which I suspect is the reason why Obama toned down his support.

The terrorist attacks during September 11 were an attack on American values such as freedom of religion. To then ban the building of a mosque and therefore to deny freedom of religion is to go against American values. By banning the mosque you are effectively spitting on the American Constitution, behavior which would be very insensitive in light of the terrorist attacks.

Of course, this line of reasoning is what I would expect from a normal and reasonable person. But I am not naive and understand the political reality, which is that many people have prejudices and believe that the religion of Islam as a whole is responsible for the September 11 terrorist attacks. It is in my opinion unreasonable to hold this opinion. Within all large religions there are factions that are extreme and violent and there are factions that are moderate and humble. Among Jews there are the militant Jews (e.g. Jewish Defense League) and there are the moderate reform Jews. Among Christians there are the extremist Westboro Baptist Church (godhatesfags.org) versus the moderate Catholic church. The same applies with Islam. There is the extreme and violent terrorist organization that is Al-Queda and then there is mainstream Islam. Some argue that a quick reading of the Islamic sacred scripture (the Koran) reveals text that incite violence, mysoginy, and so forth. This may be true, but the sacred scriptures were written during different times when different values applied, so women were seen as subordinate. We see extreme elements in not only the Koran but also the Bible and even the Jewish sacred scriptures of the Torah and the Talmud. The Bible is homophobic, mysoginistic, and even calls for disobedient children to be stoned to death. But how many Christians actually do this?

Exchange Traded Residential Real Estate Fund

2010-08-04T22:54:00.001+10:00

According to the article Class Divide: Property vs Shares, in 2011 (next year) there will be a security that you can buy on the ASX that will allow you to track Sydney house prices.

"Whether people want to hedge their own exposure, or start their kids investing in an index that will keep up with property prices, it would work the same, " he says. Joye says this listed product should arrive on the ASX next year.

"We're working with the ASX to list a security that covers an index of Sydney housing, which will give investors exposure to the performance of residential real estate but, more importantly, will give them the low volatility of the index.

The Alpha Strategy

2010-08-04T21:54:00.000+10:00

I have just finished reading The Alpha Strategy, which is a book that I simply downloaded off the internet (see the link earlier) and put onto my mobile phone using a free software called EBookMe. In other words, I paid nothing to read this book. I think there is no need to pay money to buy a book because ebook programs like EBookMe are free and there are virtually infinite free books out there on the internet that you can easily find.

The Alpha Strategy is a good book. It is about the problem of inflation and what individuals can do to protect themselves from inflation. This books pretty much claims that a good way to protect wealth from inflation is to stock up on goods, e.g. toilet paper, wine, honey, and so forth. The ideal is that you stock up on goods that you will need anyway so that it won't matter if the price of these goods go up. If this is not possible e.g. because it is difficult to store wine, etc, then the next best move is to stock up on raw commodities like copper. There is a whole section near the end of this book that explains how to buy copper from the futures market. This book was probably written during a time when there was no exchange traded commodities (ETCs) for sale.

I think stockpiling goods is a great idea, but the main problem is that a lot of what the author is explaining is just too difficult. It is very unrealistic for me to start stockpiling because I still live with my parents. If I were to start piling up toilet paper in my bedroom, my parents would not be happy. Because most goods deteriorate (e.g. wine may go off if exposed to too much light) then you have to be very careful about the storage conditions and you have to make sure everything is stored securely because of the threat of theft. It is all very difficult. While reading the book I got the feeling that this investment strategy of the author was just an excuse he was using to justify his love of shopping, e.g. he describes in detail different types of wine.

I think the author's stockpiling strategy is good and I definitely will think about using it, but I won't put all my wealth in stockpiled goods. I think putting, say, 10 per cent of your wealth in stockpiled goods is a good idea, e.g. I might stock up on some soap or some breath mints or tic tacs.

Youtube Subscription Bar

2010-07-31T10:56:00.000+10:00

I do not like Youtube's new subscription bar that appears when you try to view your subscriptions. It gets in the way of all the other buttons you need to press. It's unfortunate that Youtube didn't give users the option to turn it off.

Benefits of Brumby's Expansion of Melbourne

2010-07-29T22:45:00.001+10:00

Today the Victorian parliament voted to extend Melbourne's urban growth boundaries (read Green Land Cut Back as Melbourne Grows Much Bigger). When I read this news, I thought to myseld, "Brilliant! Great idea. Houses are very expensive in Melbourne, and making Melbourne bigger would make it easier for first-home buyers to afford houses."

But reading the comments in the Age news article I linked to above, it would seem as if Premier Brumby had just been caught sexually abusing a child. Why are so many people whinging about an extention to the urban growth boundaries?

I don't pretend to know exactly what the Victorian government intends to do when implementing this policy, but based on what little I have read, everything seems positive.

Wouldn't it increase congestion because more people will have to travel to the city?

According to the news article, suburbs like Footscray, Broadmeadows, Frankston, and Dandenong will be "designated business districts." WIth the expansion of Melbourne's urban growth boundaries there will, I hope, be more commercial and industrial zones outside of Melbourne's CBD. Once many residents are established in the outer suburbs, many businesses that are headquartered in the CBD will feel great monetary pressure to relocate from the CBD to new business districts like Frankston and Dandenong where they will be close to many new outer-suburban citizens and where rent would be cheaper. Lower rent means higher profitability.

Suppose very many workers still travel to the city rather than outer-suburban business districts. If that is the case, the cost in terms of congestion, time, and petrol for workers to travel to work is high, and these workers will demand a higher wage from employers to compensate, which means businesses based on the CBD will need to increases wages. If these businesse move to Dandenong or Frankston, congestion would not a big issue.

Basically, work moves with the people. If people move away from the city, so too businesses will move away from the city to follow the source of labor.

A larger Melbourne will create social division because rich people will live near the city while poor people will live in the outer suburbs.

This is already happening. Rich people in Melbourne already live near the city while poor people live far from the city. Even if Melbourne does not grow geographically, it wouldn't fix this problem. In fact, it would make things worse. If Melbourne did not expand, and if we assume demand for housing remains high, house prices would be high everywhere, even in the outer suburbs. At least if we expand Melbourne we increase the number of houses in the market, which pushes house prices down, giving the poor an opportunity to afford to put a roof over their heads.

If the government expands Melbourne and also increases the amount of commercial and industrial zoning in the outer suburbs, this should make living in the outer suburbs more attractive since it those who work there can more easily travel to work.

What about the green wedges?

Most of the green wedges in Melbourne are actually just garbage tips and farms. It makes no sense to have these things in the city. An argument can be mounted that urban sprawl will harm the environment by clearing forest and increase carbon emissions, but both these problems can be fixed with either taxation or cap and trade. To prevent deforestation or carbon emissions, tax it heavily or sell off permits to individuals or companies to allow deforestation or carbon emissions. This way the government can set how much deforestation or carbon emissions it wants. If citizens or government decide that deforestation or carbon emission is a problem it can increase taxes on deforestation or sell off very few carbon pollution permits. This makes urban expansion very costly for property developers or individuals to buy new land, which makes high-rise apartments more economical.

What about the extra traffic?

Extending the urban growth boundary will allow for the construction not only of houses but also roads and train tracks. Because more roads are built, congestion should not really increase. If very many roads are built relative to houses and businesses, we should actually see a net reduction in traffic congestion.

Impressing Others

2010-07-24T23:13:00.000+10:00

I have been reading The Simple Dollar, and one blog post there is called Ten Big Mistakes #5: Worrying What Others Think of You.

The author is a frugal man who keeps a blog to teach others how to be frugal with money. He certainly has not been a saint for all his life. When he was younger he was a big spender. He spent money on luxury cars, fancy clothes, up-scale restaurants, and so forth.

Even though the author claims that you should not care what others think of you, I personally find that it's difficult to not care at all what others think of you. I try hard not to let other people's opinions of me matter, but I find that it does matter. This is especially the case with, say, the clothes I wear. I have a lot of old clothes in my wardrobe. In fact, I approximate that about 95 per cent of the clothes in my wardrobe is out-of-fashion. I find that I cannot wear really old clothes in public. It would be like wearing pajamas in public. People would stare at me and I would feel self-conscious.

The author says, "Spend money on what you value, not what other people value. I buy automobiles based on reliability and gas mileage and safety, not how they look in our driveway or whether the neighbor will be impressed." I would agree. I purchased a fairly cheap car about four years ago. However, because I am a male I am glad I purchased a sedan and not a small girls car like a Nissan Micra or a Ford Ka. It would be terribly embarrassing if I drove one of those. I think conforming to gender stereotypes makes people feel more comfortable, and this definitely applies to me. I have admitted this to my friends, but some of them tell me that I should just do what I please, e.g. if I wanted to wear a dress then I should just do it and not be worried. I quickly showed them that they too were influenced by fear of what others thought because I dared them to wear a dress in public or to come to work with blue hair. Many people seem to like to think they are immune from the opinions of others, but when you really test them it seems as if they are just acting rebellious to impress you.

Beware of Online Shopping! My Post Office Experience

2010-07-24T22:10:00.000+10:00

I like shopping online because generally prices can be cheap. Shopping online allows you to find prices of many suppliers, thereby increasing competition. The fact that these suppliers don't need to pay rent on a store means that they can pass the savings to the consumer in the form of cheap goods. However, there is a major problem with online shopping that I will share with you.

I like online shopping because I don't have to deal with people. I can order something online and have it delivered to my door. It is extremely convenient.

However, one day I ordered some mugs online. I waited about two weeks and the mugs never came to my house. I emailed the supplier and asked why my mugs were taking so long, and they replied by saying that their supplier came to my house but becaue no one was there the mugs went to my nearest post office. I just had to go to the nearest post office to pick up the mugs.

Because I work full-time, I am often not home, so apparently I needed to sign the courier's package to acknowledge that I received it.

I was annoyed that I had to go to the post office. I purchase things online because I want the convenience of not having to drive to an actual place, and now I have to drive to the post office! I went off the post office and told the woman there that I had a package for me. I told her approximately when it should have arrived. They asked me for some reference number. I didn't have any reference number. The supplier didn't give me one. After about five minutes, during which the woman rummaged around, I finally got the mugs. The woman at the post office was extremely rude as well! At least when I shop at a physical store the person there is very kind to you because being rude to a customer is not good business. When an online store sends a good to a post office, it is incredibly difficult because post office employees are government workers who cannot be fired regardless of how bad their customer service skills are.

This incident scarred me for a while, and for about a year now I have stayed clear of buying things online. How in the world can this problem be solved? I don't want to have to go to the post office again but I still want the cheapness and convenience of buying online. I don't know what to do!

Inflation Much Worse than Deflation

2010-07-24T12:30:00.000+10:00

According to The Alpha Strategy, which in my opinion is one of the greatest books on investing ever in the world, there are three things one can do to preserve purchasing power: lending, investing, and buying.

Lending includes keeping money in a bank account since you are lending it to the bank and the bank pays interest for this privilege. It also includes buying government bonds, which effectively is lending money to the government. Investing refers to owning a business and sharing in the profits of that business. Investing includes actually starting your own company or buying shares. Buying refers to buying actual tangible things like gold or land.

There are two major problems with lending: inflation and taxation. When you lend money, the money you receive back is taxed, which eats away into any profits you could make. Another problem is that inflation eats away at purchasing power. If you keep $100 in the bank and get $103 at the end of the year in interest, inflation running at 3 per cent per year means that you are no better off by putting your money in the bank.

Lending then is only good when there is deflation. The problem with investing for deflation is that deflation tends not to happen often, mainly because government is so scared of deflation that they will do what they can to prevent it, which means that they are willing to create inflation, even though inflation hurts people by reducing the purchasing power of their wealth.

Inflation can be seen as good because inflation motivates people to work hard and spend. With the price of everything going up due to inflation, people are forced to work even harder and harder in order to afford to live. If the state is seen as an apparatus of slavery then government-induced inflation is the way that the slave owners (the government) can whip (create inflation) his slaves (the citizens) in order to get them to work.

Assuming you are able to keep your job in a deflationary recession (not a realistic assumption for most jobs) then deflation is not a bad thing because the price of goods goes down. Because deflation is not a major disaster and because it is rare, I think that it pays to not devote so much of your wealth to preparing for deflation.

Many financial advisers talk about risk tolerance and asset allocation. Asset allocation refers to the percentages you devote to certain types of investments, mainly stocks and bonds/cash, i.e. how much you will invest and how much you will lend. If you are willing to take on more risk, you invest more in stocks and if you are more of a conservative investors, you invest more in bonds/cash. In my opinion, because inflation is so much worse than deflation (because prices of things go up), then it's better to devote a little more to assets that keep up with inflation (stocks, gold, and real estate) rather than assets that do well during periods of deflation (bonds and cash).

Based on my gut-feel analysis of the world economy at the moment--during this period of "unusual uncertainty," as Bernanke described it--I believe that you should hold about 60% in stocks, 30% bonds or cash, and 10% gold.

Image: Tao Zhyn

The Great Gatsby

2010-07-22T21:27:00.000+10:00

This blog post contains spoilers.

In an earlier blog post I spoke about how I have installed a free ebook application on my mobile phone. The program allows me to put text files from my computer onto my mobile phone. Since I can download free ebook text files from Project Gutenberg, I am able to now read plenty of books on my mobile phone for free. Project Gutenberg does not have text files for every single book. However, books published before a certain year (around 1940) are in the public domain and are therefore free. There really is no reason for anyone to buy a book because there are so many free books out there. The first book I read on this ebook reader is The Great Gatsby.

This novel is about a man named Gatsby who became wealthy through questionable means (organized crime) and then tries to attract a female named Daisy who is already married to a man named Tom Buchanan. Tom comes from a family that has always been rich whereas Gatsby is self-made. Gatsby attempts to attract Daisy fail and at the end Gatsby is killed. Hardly anyone attends his funeral and we learn that Gatsby really was a mysterious figure who misrepresented himself greatly.

I read this novel having heard the hype about how this was one of the greatest novels of human history. Many have called it the Great American Novel. In my opinion, The Great Gatsby was a bit of a disappointment because much of the book is quite boring. I do feel pity for Gatsby, the main character in this novel, and I do think that some of the themes in the novel do indeed play out in real life.

Gillard Pushes for Sustainable Immigration Policy

2010-07-18T21:29:00.000+10:00

Some some weird reason, Blogger won't allow me to post URLs on my blog posts!

Australia's Prime Minister Julia Gillard has now called for an election only having been in the job for a few months. One of her main advertised policies is that Australia's population growth should be slowed so that it is sustainable.

The Australian government already pays around $5000 for citizens to produce babies. This was seen as necessary because of Australia's ageing population. An ageing population would result in a massive public fiscal imbalance as government expenditure on hospitals to treat the old soars while tax revenue to fund these programs fall because working-age young people are retiring. It's questionable whether the baby bonus has much impact on birth rates because many of those who are paid to have babies were going to have babies anyway. Increasing immigration could help with the ageing population, but its impact is limited because immigration brings in not only young people but also old people. If the immigration program were tweaked so that it favors younger people (e.g. the older you are, the more you have to pay to get in) then immigration can help significantly with the ageing population.

However, both Labor and Liberal want to pull back immigration citing lack of infrastructure and yet the Baby Bonus policy exists simultaneously? That makes no sense.

It is true that sending more people in will crowd the country. I can see more and more crowding on the roads and trains already. But this problem is easily fixed. If more people come, simply build more. Where will the money come from to build these roads? It will come from taxes. It need not come from income taxes or value-added tax (called the GST in Australia) but infrastructure can easily be funded by applying an infrastructure levy whenever land is sold in an area that has no infrastructure. Suppose building infrastructure (roads, train lines, lighting, sewarage, and so forth) costs $10,000 per square kilometer. To make a city bigger to fit more people, the state government can simply extend the urban growth boundary and auction the extra land to property developers or even to individuals. When the government sells the land, it adds a $10,000 per square kilometer infrastructure levy that is used to fund infrastructure.

Some people argue that this continuous release of land at the urban fringes won't solve the overcrowding problem because people who live in the outer suburbs still need to commute to the city. Many people in Melbourne argue this because Melbourne city is marked by one central business district (CBD) with suburbs sprawling all around it. Many argue that if immigrants come to Melbourne and go to the city to go to work, they will clog up roads and trains. But this need not be the case. When government extends the urban growth boundary at the fringes, it releases not only residential-zoned land but also land that is designated for industrial and commerical use. Businesses can then take advantage of lower rent in these areas and move. This will divert traffic so that a significant amount travels from the central business district rather than towards the central business district.

Double-Dip is Here! Prepare for a Deflationary Depression

2010-07-17T17:15:00.001+10:00

It's not looking good for the world economy!

The American market has just tanked 3 per cent in a day and Nouriel Roubini is calling a double-dip recession. I am really worried because I have about 75% of my wealth exposed to the stock market and I just know the stock market will tank. I was close to 100% in stocks during the recovery after the GFC, hoping to take advantage of the stimulus-fueled recovery--and it worked out well!--but for the last seven months I've been worried about a double dip recession and have gone into cash and bonds, but unfortunately it seems like I could not buy cash and bonds fast enough. In desperation, I am thinking of selling stocks in my retirement fund, which should see my overall stock market exposure reduced to 60% which I think is reasonable. The only problem with this is that switching investments in your retirement fund is not a quick process and may take a fortnight. Between now and next fortnight, a lot can happen in the financial markets.

Defensive Socializing in the Workplace

2010-07-10T11:35:00.002+10:00

A friend of mine from work has just come back from a holiday from Thailand. I had lunch with him and the first thing he talks about are the brothels he has visited while on holidays and how beautiful and attractive the women in these brothels are. This man is engaged to be married.

Socializing in the workplace is difficult to avoid, but it is diffierent to socializing outside of work. If you meet someone in, say, a shopping centre and become friends with her, if the friendship turns sour, you can simply stop seeing her. However, in the workplace, you may not be able to avoid her because you may have to work with her. Furthermore, if she hates you a lot, she may try to sabotage your career.

Don't Badmouth Your Boss or Your Team

If you are socializing on a Friday night with work colleagues, don't criticize the boss. The boss is the one who hired you and has power over your career. If you are unhappy with your boss, do not complain to a co-worker because that co-worker may spread the gossip and before long your own boss will know just what you think of him.

The same applies to the team you work for. Suppose you work in HR and during a Christmas function you socialize with co-workers across the organization. You may be socializing with someone from the accounting team and while chatting you let it slip that you dislike the team you work in, that the people in HR are unfriendly and rude, the work is boring, and so forth. Your friend from accounting could spread this news around and before long everyone in HR will know what you think of them, and this will make it awkward for you and may negatively affect your career.

When talking about your boss or your team, it is best to tell everyone that you love your boss, you love your team, you love the work you do, that it is interesting, and so forth.

Don't Express Radical Views

It's rather easy to identify the difference between mainsteam or normal opinions (also known as politically correct opinion) versus radical opinions. For example, if you have been cheating on your wife, don't tell anyone about this because cheating as an activity does not fit in with socially appropriate behaviour. If you tell a co-worker that you have been cheating and he decides to spread the news to everyone, it is not going to be good for your career. Many women may hate you. They may try to sabotage your career, and female bosses will not promote you. If asked to express a view on a controversial matter, it is always important to express politically correct or conventional views.

A problem with expressing conventional views that fit with the social norm is that often conventional views are not really based on any hard logic. Rather, they are based on the emotional values of a mass of people. If you are expressing conventional views, it is easy for some radical person to argue against you and win. If someone argues against you and wins, it looks bad. Losing an argument makes you seem weak. The way to combat this is to threaten to expose the radical if he attacks you. For example, suppose at work a friend of yours tells you that over the weekend he had sex with a goat. This is not politically correct as it offends animal welfare groups and religious people. Following with the principle of always expressing views that conform to the social norm, you reply by saying, "Wow, did you tell me you had sex with a goat over the weekend? I personally believe that what you did is an abomination. You should not harm animals like that."

Suppose the radical employee escalates the issue by challenging you to an intellectual argument in front of a few workers, saying, "Do you eat meat? If you eat meat then you are hurting animals because animals need to be killed in order for the meat to be provided for you. If it's okay for you to eat meat and kill an animal for food, why not have sex with an animal for pleasure? At least when you have sex with an animal you keep it alive and there is a probability that the animal will enjoy engaging in sexual intercourse as opposed to being killed. You claim it is okay to eat animals so why not have sex with animals?"

Your radical friend is attacking you, claiming that you are a hypocrite. His argument seems logical, but that is beyond the point. The radical is attacking your honour by arguing a radical position. The way to defeat this is to threaten to spread this person's views. You should say something like this: "I acknowledge your views. I think it is very strange. What does your wife Mary think about your views on sex with goats?"

The radical will likely become scared. "My wife doesn't know! Don't tell anyone about my views. We must keep these views private."

With subtlety, you should threaten him. If his attacks get more persistent, you should make it less subtle and actually tell him that you will disclose the information if he keeps attacking your honour.

What happens if you accidentally express radical views? The best thing to do is to change your views immediately. It is natural to want to express your views to others, but in the workplace it is dangerous, so if for example you express to others that you had sex with goats and you are worried that your boss or your wife might hear about this, you must make a full 180-degree turn and be against bestiality. One way to do this is, for example, to tell everyone that you have suddenly turned religious and you believe in God. Whenever you have a chance, tell others that you have been reading the bible because you want to find meaning to your life and all of a sudden you are religious now. Tell others that according to the bible, having sex with animals is an abomination and that you are against it. Prevention is better than cure, of course, but this is better than doing nothing. It will mitigate any potential negative consequences if this information gets out. When you are trying to correct a mistake you have made, it is best to be aggressive and to try to express your new belief whenever you have the opportunity to do so.

What happens if some attacks your politically correct views and you don't have anything to threaten him with? Suppose for example your friend asks you what your views are on bestiality and you say that you are against it. He then says, "But you are eating meat now? How can you approve of killing animals for good but not approve of having sex with animals for pleasure?" You cannot threaten to tell others that your friend approves of bestiality because he hasn't stated that he approves of bestiality. Rather, he has just criticized your politically correct views. The way to combat this is to try to get him to express a politically incorrect view. For example, if your friend accuses you of hypocrisy because you harm animals by eating meat but disapprove of having sex with animals, you can say something like, "So are you pro-bestiality? Do you approve of humans having sex with animals?"

Some topics do not have a clear-cut answer in terms of what is socially acceptable. if someone asks you about abortion, either position you pick you are going to strongly offend a significant number of people. In this situation it is best to express no opinion at all. Say that you understand the views of both sides but you have no opinion on the matter.

Sometimes a conventional view you have will go against the view that your organization has. For example, most people dislike big banks. However, if you work for a big bank you don't want to express views that go against the bank you work for. In tricky situations like these it is best to play it safe and express no opinion at all. When asked, simply say you have no opinion because you have not considered the matter or that you understand both sides of the argument.

The recommendation to not express radical views does not mean you should express the exact opposite. Being a communist is radical but that does not mean you should express your love for capitalism because that too can become extreme and radical. It is best to stay in the middle, to be a moderate, and to sit on the fence.

Collect Dirt on Other People

Just before you have a chat to a work colleague, it is important to affirm in your mind the principles above. When you chat with work friends, try not to release too much information about yourself, especially your views on controversial matters or your views on your boss or your team. If you are asked about this, always say positive things about your boss and your team, and when asked about controversial matters, always express views that conform to the social norm.

If you are going to be expressing little about yourself, it is likely the other person will reveal a lot of about himself in order to compensate. It is natural for people to want to talk about themselves. Showing off your individual and unique values, your opinions, and so forth is a natural human desire. During these times when the person you are chatting to is expressing his own views and experiences, it is best to simply listen and ask questions. If your friend says something about their boss, their team, or if they give a radical opinion, file it away in your brain because it may come in handy in the future if you want to threaten this person if he decides to attack you.

It is best to be defensive and passive. Express little about yourself and only express your (fake) views if you are asked directly. Collect dirt on other people but don't release it unless you feel you need to in order to stop an attack from another person.

Conclusion or Summary

- Don't badmouth your boss or the people with whom you work.

- To minimize the risk of offending others, don't express any views on controversial matters, and if asked about your view on a controversial matter, express no view, acknowledge both views, or express a view that conforms to social norms.

- If you mistakenly express a view that is offensive to your boss, your team, or to society, take it back immediately and proactively express the opposite view to make up for expressing a view that goes against social norms.

- Listen to other people talk about collect information about their views on controversial matters, their boss, or their team.

Image: CR Artist

Be Skeptical of Long-Term Investing

2010-07-10T09:01:00.000+10:00

Many fund managers tell their clients not to worry about short-term volatility in the stock market and tell them that investing is a long-term activity. The cynic in me says that fund managers reduce their accountability and fatten their profits by saying this. This increase their profits because having clients investing in their funds increases the fund manager's opportunity to charge management fees. Furthermore, long-term investing reduces accountability because clients are not going to realize that their investments are poor-quality products until a long time into the future when it may be too late.

Suppose you purchased a load of bread from the bakery and the next day the bread goes mouldy. You bring it to the baker and demand your money back, but the baker says, "That mould is just short-term fluctuation in the quality of the bread. In the long-term the break will improve. Come back in 70 years and see what happens." So the customer keeps the bread for 70 years and after those 70 years the bread is still mouldy. He walks to the baker who by now has sold so much bread and is incredibly rich, and he says, "This bread is still mouldy! Give me my money back!" The baker could say something like, "Past performance of the bread is no indicator of future performance." This is exactly the deceptive behaviour that we see among fund managers nowadays.

I understand that bread tends to go mouldy over time and investments, say, in the stock market have historically gone up over time. However, over long periods of history I can find many things that have gone one way over a long period of time but it doesn't mean the trend will continue. I am worried that stock market increases over the last century may have just been a super bubble. We cannot discount the risk.

Gillard Tries to Distract Voters with Immigration Debate

2010-07-05T19:52:00.000+10:00

I am not happy with Julia Gillard. First she lets the miners walk all over her, exposing to the Australian people just how much control corporate Australia has over politicians. She and Labor know that the mining tax is a politically sensitive topic, so what does she do? Before voters have a chance to digest the implications of Gillard's sellout, she throws out the immigration issue from nowhere to whip voters into a frenzy and distract them. And it seems to be working. This style of politics is so cynical that it disgusts me.

Fundamental Rules of Investing

2010-07-04T13:04:00.003+10:00

I've been investing for maybe four years now and I have been moderately successful, although one could argue that my moderate success is due to luck rather than skill. I do believe that investing is about 50 per cent skill and 50 per cent gambling. Good investing can be achieved if you research a particular asset before investing in it, but there will always be things that affect your investments that are unpredictable and out of your hands.

Based on my experience, I think there are three important rules of investing:

diversify
research
think negative
keep costs low (but don't overdo it).

Diversification is obvious. It pretty much states that you should not put all your eggs in one basket. That is, if you are buying assets for investment, spread your money out around multiple assets. If one or a few investments fail, you won't be hurt as badly. Many people think that simply owning 15 stocks or putting money into an index fund gives enough diversification, but in my opinion it is always better to overdiversify. The aim really is to buy everything, not only stocks from your local stock exchange but also foreign stocks, bonds, and even precious metals. The virtues of diversification are even in the bible. Ecclesiastes 11:2 states, "Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." The world's richest man Warren Buffett states, "Diversification is a protection against ignorance." Since most of investing is done in ignorance (remember what I said about investing being 50% gambling) I recommend that you err on the side of caution and overdiversify rather than underdiversify.

Another important aspect of investing is research. When I quotes Warren Buffett earlier, I didn't quote him fully, so here is what Buffett said about diversification in full: "Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing." Warren Buffett recommends that your average small investors should diversify because they are ignorant. Warren Buffett does not diversify. His investments are highly concentrated among perhaps 20 or so companies. What makes Buffett such a great investor is his ability to research companies and forecast whether they are good or bad. This brings me to the next fundamental rule of investing, which is research. You must try to read about your investments as much as possible. You should try to keep up with business and political news to know the major trends and what is happening. In a Forbes interview, Warren Buffett spoke about how much emphasis he puts on reading and research: "I just read. I read all day. I mean, we put $500 million in PetroChina. All I did was read the annual report." To diversify our quotes, Ecclesiates 7:12 of the bible states the following: "Wisdom keeps a man from danger as much as money does." This rule is at odds with the first rule. If you research something and find that it is good, it is a good idea to invest more in it.

Another advice I recommend is to assume your investments are guilty until proven innocent, i.e. employ negative thinking. Many investors grow to love their investments and start to become very emotional about them. Many investors often talk about how great their investments are, how perfect it is, and so forth. If you find yourself having too much faith in a particular investment, it is necessary to attack it yourself in order to test it. For example, if you find yourself going very heavily into stocks, you need to ask yourself questions such as whether these stocks guaranteed to perform well in the long run or whether your investment really is safe or whether you are just gambling your money. It is human nature to have faith in something you have invested heavily in. A wife in love with her husband is naturally going to want to believe that he is faithful. The reason why we humans do this is because it is painful to think about the consequences of investment failure. But being blind to risk is extremely dangerous in investing. To conclude, it is best to diversify, but if after you research something you start to invest heavily in it, train your mind to critique the investment and only continue to invest in this asset if you are absolutely sure. Otherwise, diversify. When I recommended this rule of a friend at work, she told me that this rule violates a book she just read called The Secret. According to this book, in order to be successful you have to imagine that you are successful in your mind and then the law of attraction will make whatever you are thinking about happen in real life. This is absolutely stupid! Can you imagine a person in the late '90s borrowing millions of dollars from the bank and then investing all that money into Enron stocks and then visualising in her head Enron stocks going up. Enron stocks would collapse and she would lose all her money and have a mountain of debt that will enslave her for the rest of her life. Just because she visualised in her head that Enron stock prices went up does not make Enron stock prices go up. This is insane! Negative thinking is good risk management. All good companies do it. Donald Trump is also a negative thinker, having said the following: "It's been said that I believe in the power of positive thinking. In fact, I believe in the power of negative thinking. I happen to be very conservative in business. I always go into the deal anticipating the worst. If you plan for the worst--if you can live with the worst--the good will always take care of itself." In other words, negative thinking in business and invesment encourages prudent and conservative behavior whereas positive thinking encourages reckless cowboy behavior.

Another advice is to keep costs low. This means keeping an eye on investment fees. This rule is important but it's important not to overdo this because many expensive investments are expensive for a reason.

Julia Gillard is a Sell Out

2010-07-04T11:01:00.001+10:00

About a week ago, Australian Prime Minister Kevin Rudd was ousted in a coup by Julia Gillard. Kevin Rudd was doing particularly poorly with voters. Dumping the Emissions Trading Scheme (ETS), introducing the 40 per cent Resource Super Profits Tax (RSPT), and pouring taxpayer funds in government advertising--the reasons for Rudd's unpopularity are varied. As soon as Gillard politically assainated Kevin Rudd, she renegotiated with big three miners BHP Billiton, Rio Tinto, and XStrata, managing to settle a deal with them that will see the mining tax significantly emasculated.

I am not a fan of the RSPT because I think it unfairly singles out the resources sector while exempting the agriculatural sector and the banking sector. In my opinion, all taxes should be replaced by one or a few simple and broad taxes that apply to everyone, e.g. a 45% income tax on everyone or some sort of land tax.

Gillard's backflip with the RSPT shows that she really caves in when the pressure is on. She is even against gay marriage, which is surprising given her background. Everyone is talking about how Gillard is Australia's first female prime minister, how she lives in a simple house, and so forth, but all this is irrelevant because the characteristics of the prime minister does not matter. This bloodless coup illustrates that the prime minister is forced to conform to the party line under threat of political assassination. It therefore makes no difference whether Rudd or Gillard is in power because behind the figurehead leader are power brokers who control everything. When you're voting for a charasmatic female leader or a charasmatic black leader, you're not really getting what you're voting for.

Prince of Persia: The Sands of Time (2010)

2010-07-04T10:33:00.001+10:00

Yesterday I went to the cinemas with my mum to use up my Hoyts movie voucher, but unfortunately I forgot to bring the movie voucher with me and ended up having to spend cash on a movie. The movie, Prince of Persia: The Sands of Time, ended up being very good.

Because I went to the movies with my mum, I couldn't watch anything that was potentially embarrassing or inappropriate. Movies like Get Him to the Greek sounded too rude and I got the impression that it contained sex scenes. Prince of Persia turned out to be a perfect family movie. There was kissing and hugging but there were no outright sex scenes. The violence was clean, i.e. minimal blood and ungratuitous.

Downsides of Prince of Persia is that I think the editing seemed sloppy and there were just too many loud action scenes. Even something as simple as a person walking through a dungeon needs to have scenes involving ninja-like assasins jumping around and throwing knives. Often I felt like I needed a break from the loud action scenes and just listen to some simple dialogue.

The visual effects are stunning. Princess Tamina in the movie is incredibly beautiful, and we see a lot of her in the movie, so that's a thumbs up. When I was watching the movie, I had no idea who the actress was who played Princess Tamina--initially thinking it was Liv Tyler--but after googling the actress turned out to be Gemma Arterton.

Links:
Trailer - Prince of Persia: The Sands of Time

Inflation vs Deflation

2010-07-02T23:33:00.001+10:00

For a little less than a year now the stock market has been going sideways. That is, it has gone up and then down, but the net effect is sideways. The All Ords chart below from Yahoo! illustrates this. Since September 2009, the Australian stock market has been going up and down, bounching back and forth between a ceiling of 5000 and a floor of 4500.

However, recently we have seen the stock market start to plunge below the 4500 point floor, suggesting that a dreaded double-dip recession may be just around the corner. Chinese premier Wen Jiabao warned that a double-dip recession was likely, and billionaire investor George Soros claimed that the second phase of the GFC was imminent.

This may be it!

For the last few days of the 2009-10 financial year, stocks all over the world have been tumbling. On 1 July 2010, the price of gold collapsed from US$1250 per ounce to US$1200 per ounce, and at the same time long-term US Treasury bonds have gone up in price. All this points to investors expecting deflation in the future. That is, prices are going to fall. Some people who complain about high petrol and electricity prices may be happy with this, but deflation may result in falls in stock prices and real estate prices, and this will destroy wealth, especially since many people hold wealth in their houses and their retirement funds. Economic theory also states that falling prices encourage consumers to horde cash and delay purchases becuase they expect goods to be cheaper in the future. This hording of cash and lack of spending will reduce sales, reduce business profits, and in turn lead to higher unemployment or lower wages, which will reduce demand for goods even further as consumers who have their wages cut cannot afford to buy goods. This will lead to even more price cutting by businesses, which leads to a vicious cycle or a deflationary spiral. As people lose jobs and suffer from wage cuts, they cannot afford to buy houses and the many who already suffer from mortgage stress will default. This is a nightmare economic situation.

On the other hand, there are those who believe that deflation will not happen. They claim that because deflation is so nightmarish, the government will not allow it because the government wants to win votes. Rather, the government will continue to simulate the economy by giving away cash. Splashing cash into the economy will increase wages and increase stock prices and real estate prices. Inflation will especially increase gold prices. I have my doubts about this inflation story because splashing cash into the economy cannot last forever. Eventually the government will run out of money and will have to go into debt, which is what we are seeing in Greece. Voters surely will not support neverending increases in public debt, and lenders (i.e. bondholders) will not tolerate it. The demands of voters and lenders should force governments with high public debts to impliment austerity measures that cut spending and raise taxes. Tax increases will retard economy growth, which pushes down stock prices.

If you think inflation is likely, go into stocks and gold. If you think deflation is likely, go into cash and bonds. If you are unsure, equal amounts of all four is probably the best move.

Art is a Valid Investment

2010-06-18T13:47:00.001+10:00

A Cooper Review commissioned by the Commonwealth Government recommends that art investments in self-managed super funds (SMSF) be banned (read Artists fear super ban will destroy local industry). This, in my opinion, is a poor idea, and it makes no sense whatsoever. I am really starting to dislike the current Labor Government. They plan to slap a giant mining tax on the country and now they want to ban art investing.

Some people say that art (paintings) are not proper investments like stocks or real estate. But they are. An investment is defined as anything that can go up in value in the future. Since art can go up in value in the future, then it is therefore an investment.

Some people say that art is not a proper investment because it does not produce any income. Real estate investments produce income because you can rent the house out and get rental income. Stocks have income because companies distribute profits in the form of dividends. However, just because an asset does not produce income it does not mean it is not an investment. Arguably the world's greatest investment, i.e. shares in Berkshire Hathaway, the holding company of the world's richest man Warren Buffet, pays no dividends. All gains are in the form of capital gains. Another good investment is the safe haven asset gold, which produces no income at all, yet it has been used as an investment for millenia. If you store art in your house, it does not produce any income. However, it is possible for art fund managers to rent out the art to businesses. To see an example of this, read Smith and Hall - Why Rent Art?

Some argue that art has no real value and that people who are willing to pay millions for a painting are fools. Art has value because looking at it gives people pleasure. This is no different to, say, high-end real estate like mansions. It is also no different to stocks in companies that sell luxury goods. If people are willing to pay money to buy clothes, cars, and houses that look good, why wouldn't they also want to pay money to look at a good-looking painting?

Annoying Bee Noise During FIFA World Cup

2010-06-14T15:29:00.000+10:00

I usually don't get into sport much but many of my friends at work and outside of work are into sport, so I think it makes sense for me to at least read up about sport so that I can have a conversation with my friends and colleagues.

I have entered a FIFA World Cup 2010 tipping competition at work. I paid $10 to get into it and there are currently 40 people who are in it. The winner gets 65 per cent of all the money, so that's $260 for the winner. That's not bad. Second and third place people also get prizes.

I turned on the soccer and thre is an annoying noise at every game. It sounds like there is a bee buzzing around. After a while I notice that it is not my TV because the games played on the FIFA website also make this bee noise. I have realized that this bee noise is due to the fans blowing on plastic horns. It is extremely annoying and FIFA officials should consider banning it. Some people have told me that you cannot ban people from doing something just because it annoys you. My reply is, "Yes you can." Surely FIFA understands that this noise annoys viewers and if viewers are annoyed they are likely to switch off and this may have an effect on advertising revenue. Surely FIFA has the power to ban these horns. If they are indeed the ones who run the game and set the rules, they would be able to set up a rule banning these horns.

Personally I find soccer and even AFL football to be less entertaining than a competition like, say, Survivor. In the reality TV gameshow Survivor you can sort of predict what will happen. You do so by asking yourself who is in what alliance, what would each player do if he were acting in his best interest, and so forth. With soccer and football it is completely up in the air. There really is no way you can create a logical argument to back up whether you think a particular team will win a game because there are just so many variables.

Real Estate Spread Betting

2010-06-14T11:00:00.000+10:00

Now that the FIFA World Cup 2010 is underway, there are many betting ads, e.g. from Sportsbet. In the recent Germany vs Australia game, if you think that Germany will win you can put your money where your mouth is and bet on Germany to win.

Wouldn't it be a great idea if you can do the same thing with Australian house prices? Gambling company should allow punters to bet on whether they think house prices will go up or down.

As it turns out, house price spread betting already exists in the UK, as I have discovered in an article in the Times Online about spread betting: "So, is it possible to make money out of property without the boring necessity of actually buying a house, paying stamp duty or dealing with oleaginous estate agents? The answer is yes: by betting on the movements of the British housing market. Spread betting, as it is known, has proved fabulously lucrative for players such as Simon Smith, 33, who makes rather a good living by sitting in his office in Leeds working out what is going to happen to house prices — and placing his money accordingly."

According to the Times article, many home owners are using house price spread betting to hedge against a fall in house prices. On the other side of the equation, renters can use house price spread betting to hedge agaisnt a rise in house prices, so there is a market both ways.

Further Googling has revealed that you can engage in house price spread betting on UK house prices via IG Index. I am not sure whether this site allows Australians to sign up. I am also unsure about the taxation implications of spread betting.

Reading Ebooks on the Train with EBookME

2010-06-13T23:42:00.000+10:00

I face a thirty minutes commute to work in the morning and when I come back it is another thirty minutes. I had to commute to the city when I went to university as well, so I've been commuting to the city for about nine years now.

Most of the time when I'm on the train I love to just look out the window and space out. It's nice to just let your mind wander when you've just woken up or when you've just had a long and hard day at work or university. But sitting or standing in the train and doing nothing sometimes makes me wonder whether I'm wasting time. If I read a book or listen to something on an MP3 player, I might be able to use this idle time to learn something rather than do nothing.

Listening to MP3 players on the train can be useful, especially if you are trying to filter out the conversations of people around you. Sometimes other people say the most annoying and offensive things, and when they say these things it's not easy to denounce them because these people are strangers.

The problem with MP3 players is that the train is a noisy place. It is not just the noise of people talking that bothers me. Most trains in Melbourne are so old they make loud noises. To be able to hear your MP3 player amid all this noise, you have to turn the volume up, and by turning the volume up, there is a risk that you might go deaf.

Reading a book can prevent you from focusing on other people's conversations. You're so focused on your book that the conversations of others just becomes background noise. You can read not only books but also newspapers.

The problem with newspapers is that they take up space. Broadsheet newspapers like The Age are a nightmare to read on the train because they are simply too big. Even when you're sitting down they are difficult to read. Tabloid-size newspapers like Australian Financial Review and Herald Sun are readable if you're sitting down but during peak hour when you have to stand up, they are not easy to read because you need both your hand to hold the newspapers and if both your hands are busy holding the newspaper then you have no hand left to hold on to something for balance. Thus reading the newspaper can put you at risk of falling over if the train jerks around. With Melbourne's massive population growth, it seems likely that commuters on trains will have to stand up more and more. Reading newspapers just ain't easy anymore.

Reading books presents the same problems as does reading tabloid newspapers. You generally need two pages to read a book. Most books are small enough that you can hold them with one hand, but if you want to flick to the next page you generally need two hands.

The best move then is to read an ebook on your mobile phone. I have recently downloaded on my computer a very good program called EBookME. This is free software that allows me to convert a text file into a JAR file, which can be uploaded on my phone. A JAR file is a file that is used for phones that run Java apps. The great thing about this is that I can now download from the internet free books and then put them on my phone. There are plenty of free books from Project Gutenberg. These books are usually written before the 1950s, which means that copyright has expired and you are legally allowed to download them for free. I have just downloaded a text version of The Great Gatsby and I'll be reading it on the train.