Youtube Subscription Bar

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

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

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

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

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

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

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

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

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Be Skeptical of Long-Term Investing

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

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

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:

1. diversify
2. research
3. think negative
4. 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

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)

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

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.