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Finance & Fury Podcast

There is zero formal financial education through the standard schooling system. Your formal education prepares you for your career and making money! ...but after graduation you're on your own trying to figure out what to do. This leads to a lot of frustrated, furious people! Finance and Fury picks up where your formal education left off, providing a unique insight into the world of economics, personal finance and building wealth with three different episodes each week.To start the week, in Mondays' episodes we look directly at personal finance, so you can act independently and make your own financial decisions - not follow the crowds. Let's be real here, how well is that working out for the ‘average’?Say What Wednesdays – Each Wednesday we give you the answers you are looking for and respond to questions from our listeners (that's you!)Furious Fridays – Each Friday we explore often misunderstood topics about finance and the economy, shedding some light in dark places, and challenging some common misconceptions.

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What will the Paris Climate Change Agreement do?

Welcome to Finance and Fury the Say What Wednesday edition. Today we are continuing on from last week’s episode about climate change, so if you haven’t heard it, check out last week’s episode here. Today I will run through the Paris Climate Agreement, and their proposed solutions. How is policy made? What are second-order effects? An example is capping electricity prices – what’s the first consequence? The second? The third? It sounds a bit far-fetched, but it happens a lot when prices are capped The outcome was the opposite of the original intended policy This is what is dangerous about government policy – check out the episode on positive rights here Making changes in a complex system: What you get may be the opposite of what you want What are the aims of the UNFCCC Paris Climate change agreement? Reducing the increase in temperature Link to the UNFCCC Paris Climate Change agreement Lots of bazaar language What is a climate fund? What is the financial target? What is the Green Climate Fund? What are the accredited entities? This sounds innocent, but what is it really doing? Who are in the committees? What is it at the core? How will countries manage their CO2 reduction? What are the solutions for developing nations? There are so many first-order consequences Finance transfers – might lead to more CO2 France is the model country – one of the few developed countries with reliance on renewable energy Why is their electricity price so expensive? Why is there so much civil dispute in France? How are countries going to afford the Paris Climate Agreement? What is greenwashing? What happens with this? Australian Emission reduction target 50% reduction per person This target doesn’t penalise heavy polluters What is the impact on the average Australian worker? Solutions shouldn’t be to put a financial strain on the population How can thorium reactor technology help? What is cleaner than nuclear power? How does it compare to solar panels? We need more power capacity Thanks for listening. If you want to get in contact you can do so here. Resources: Climate accord - https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_english_.pdf Workbooks - https://financeandfury.com.au/resources/

36mins

3 Apr 2019

Rank #1

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Assets that will survive a financial correction

Welcome to Finance and Fury. Today’s we’ll be talking about what assets will survive a financial correction. The assets that that people still have confidence in. Confidence is key! In any asset, confidence is what is required.     Why is confidence important? If a lack of confidence/panic is what causes prices on assets to drop heavily then the solution is in assets that, while their prices may be impacted (short term volatility) they will not go to zero.   Human behaviours/emotions pay a significant role Bubbles (and FOMO) – you see the price going up, you jump in because you fear missing out. This can create overpricing. Works in both directions – Crash – when people fear a share crash, they sell their shares in a panic, and the crowd follows dropping the price quickly The fundamentals/intrinsic values of things don’t matter in a financial collapse. People aren’t looking at Fair Value when all they can focus on is 40% losses – they only see the losses Subjective values – do people value it regardless of intrinsic values   Never sell after the fact Hubris to think you can sell out before the market crashes – ‘timing the market’ You have to own assets that will survive or become more valuable   Asset goes down in value – so what? Depends on type of asset and what you do, and what those investments are to you I think of TLS, bank shares are volatile term deposits – not expecting great growth off them, the valuations are almost like a Utility company – but decent dividends   When shares do go down in value   If you sell, you crystallise or realise the loss They keep going to zero   The Solution Avoid selling early and crystallising losses or losing 100% of the investments that you have Step 1 - Buy good companies, diverse business models, diverse markets and lot of different companies, across asset classes (Diversification) Step 2 - Don’t panic sell   Buy alternative asset classes Gold/Silver/Palladium/Platinum Not on futures contracts or derivatives, but one that holds the underlying asset Not enough gold/silver etc. in world to cover size of ETFs/funds with positions in gold Water I’m looking into this one, I just find it interesting 1lr of petrol is cheaper than buying a bottle of water from the gas station Don’t collect too much – The Government might tax you   The Worst Case – you are in a position that you have to sell Most common cause is leverage /debt – this applies across asset classes Two-fold The lender wants their money back – they may have someone else to pay, or have lost confidence themselves in getting money back Cashflows – The cost of the debt is too great compared to what you can cover   Types of assets to watch out for Shares with Margin Loans LVR levels Run up of leverage causes a lot of bubbles, then corrections Property that is highly leveraged Not PPR – not forced to sell that hopefully But if people are losing jobs, rents may come down or be non-existent Mortgages – MBS, Managed funds marketed as ‘Income Funds’ Other ‘debt instruments’ Corporate notes/hybrid securities Credit – short term 90-day bank bills – used for short term funding Derivative exposure Warrants (do play some part)   Summary – There are assets that, while not retaining the value like you might want (drop in price), if you hold them you can survive Have a range of investments (not just bank shares) Some physical assets – Gold Shares in companies that people will still use – not fad companies or ones built on people’s discretionary spending Property – ensure that you can hold this long term and not need to sell Make sure they are quality assets Don’t sell It sounds easy – though it’s not easy seeing the value of your assets drop – but it is better than selling out and missing the rebounds due to emotions

19mins

8 Jul 2019

Rank #2

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Is progressivism the destroyer of equal opportunity?

Welcome everyone to Finance and Fury, the Furious Friday edition. Today’s episode is part 5 of the miniseries. The last part looked at the ‘fair go’, what is fair for some, isn’t for others. Nearing end of series, I want to put forward a case. The constant need to make things ‘fair’ i.e. have an equal distribution of goods = destroys equality of opportunity for a nation. It destroys what makes nations great (no opportunity from authoritarian governments, we covered this in episode 2), and starts to reduce the freedoms of the nation which is the equality of opportunity. Where does this ‘fairness’ mandate come from? Because it’s a relatively new concept in society. The cause is our progressive nature. Progressivism is the support for the improvement of society by reform A philosophy based on the idea of progress, which asserts that advancements in science, technology, economic development, and social organisation are vital to the improvement of the human condition Progress is what separates us from other animals, which is why we are the ‘king of the jungle’ Our desire for never-ending improvement is great! Allows us to better our positions. We are hardwired to do it. However, there are not many inventions from those being coerced into creating verse those people who are passionate This is where reform comes into it, and I have an issue with it. The reform is a type of social movement that aims to bring a political system (in Democracy) closer to the community's ideal Reforms are mandated changes by the government. Reform in a democracy, politicians will pander to the crowd. This is seen across civilisations, like in Rome with Caesar and the mob rule At the core of progressive philosophy is the improvement of the human condition As the human condition is measured on the individual level, progress is great. But when you measure it in collectives (groups), that’s where you can find issues Measure progress: All individuals doing relatively better, but some groups did better than others This is when progressivisms will make any country socialist if left unchecked/or goes unnoticed. This is the focus of today’s episode. Swapping the focus of individual conditions to group conditions, in the nature of progress, seems to lead a nation to become socialist   Progress itself: Humans always change, nature is always progressing. Progress is fantastic, only when it benefits everyone Technology throughout history, with fire, the wheel, and the printing press, the internet, and telephones During the age of enlightenment during the 18th + 19th century lead to an explosion in knowledge sharing and technology, and wealth (free market) First adopters got very wealthy through the new industries like banking, oil, and railroads. These are all relatively new technologies and they built empires for the individuals who managed to corner the market In society, up until about the 1600s most western countries were ruled under a monarchy, which people genuinely accepted. It was understood as the monarchy having the divine right to rule. But then, people were given the freedom to do what they want. The feudal system then shifted to more free markets. The wealth of monarchs never helped anyone, whereas, the wealth of robber barons helped millions of individuals Got wealth through providing cheaper oil, heating, steel, and general goods that people use These resources, now available at the turn of the age of enlightenment, helped many people, but also generated a lot of wealth for the owners What happens when equality is now a mandate of the government? Now progressivism is about equalising economic and social conditions The problem? Some people have more money than others. The solution under this mandate? Something is wrong with the system, and you just need to redistribute the wealth Do you want to help those at the bottom? What is help? Give a man a fish to eat, or teach him how to fish? Which is the better solution? Enter in new economic theories for new inequality and how to equalise the wealth distribution. Not let anyone own anything in the first place. 1900’s progressives originally thought the problems society faced could best be addressed by providing good education, a safe environment, and an efficient workplace. This all sounds brilliant, but slowly changed the focus on solutions In the early 20th Century, theories were put into action with ‘reform’ like communist/socialist movements (economic/eugenic) Socialism upbringing across a lot of nations lead to the starvation, from reform, 110 million dead The reforms themselves come from the legislate for compliance in society. That’s with the governmental power over the population. Increased when some of the population want it (Social organisation – One of four Core Components of Progressivism) This all comes back to activism: with groups campaigning for laws as votes equal change Question: Is it better to let people choose to adopt something for themselves, or is it better to force them into adopting it? Well, I guess it depends on the thing Small groups campaign for laws based around the common views, and it is what most of the population (in areas) wanted Plenty of examples in history, like the Jim Crow laws in the USA as racial segregation laws. These laws are why Rosa Parks was arrested for, which is where the Civil Rights movement came out of Put into place by Democrats, they really wanted racial segregation laws in the South. It got removed by LBJ (D) – ‘ill have those N voting democrat for 200 years’ KKK used as the militant wing of Democratic Party. They are both on the left, the KKK, racist socialists like neo-Nazi’s, and the democratic party all have the collective ideologies. It’s just the KKK are far more vocal about their racist views Wanted to improve genetic breeding through extermination of blacks, which is horrible, they used reform for them to achieve this Question: when ‘intellectuals/experts’ do studies, and prove that they can improve the human race and that the government are the only ones who can help A lot of the population get behind it, the active ones anyway, wouldn’t it be great to have the government make these reforms? Worse example: Eugenics was a big movement pushed by intellectuals and put into place by the government – Strap yourselves in, as this is an extreme example of why the government shouldn’t have power over these reform decisions The project of improving the human population through a statistical understanding of heredity  Developed by Francis Galton, closely linked to Darwinism and his theory of natural selection (cousins) Galton was a polymath came up with a multitude of concepts in multiple fields, like meteorology (weather maps), statistics (regression and correlation), psychology, biology (heredity), and criminology (fingerprints). He also came up with the concept of eugenics. Picked up interest with the progressive era in the US around the 1900s through to the 1920s or so. This is where it took a dark turn, as 60,000 (1/3 in California) people were sterilized in the United States based on eugenic laws. 32 U.S. states passed sterilization laws between 1907 and 1937 Surgeries reached their highest numbers in the late 1930s and early 1940s. Designed to remove weak genetics from the gene pool against criteria on individuals Things were more direct with surgeries without consent or a person's knowledge Still happens today, from 2006 to 2010 in California 146 female inmates were sterilized Why don’t we hear of Eugenics much today? Hitler was a big fan, in Mein Kampf (My Struggle), Hitler credits American Eugenics as the inspiration for his final solution. ‘Aryan’ comes from Galton and Eugenics, Nazi’s just used the term Progress on the scale, the Nazi’s prefer to commit genocide. It’s horrible, but it was the German efficiency way Joseph Mengele (Rockefeller Foundation funded), before going to Auschwitz, he was conducting more experiments in conjunction with Californian scientists Word got out late in the war. These US scientists had to change marketing strategies now that Hitler had ruined the party Mobilisation and Destruction has also progressed, as seen in Wars WW1: Nobody had seen war in the ‘modern’ era. With machine guns, artillery, UBoats, basic planes, and tanks at the end Biggest in 100 years in EU since the Napoleonic war, where 5m people died (one other war in this period in China with more casualties), the type of fighting was trench warfare WW1 13-14m died in just over 4 years. There have been wars in past that killed as many, but took decades Everyone said ‘never again’ to world wars, until WW2 broke out WW2: War fought over ‘progressive’ ideas at the time, and left 84m dead in 6 years (horrible thing was mostly civilians) Mongols had the gold medal until this with 50m deaths but took 163 years (1206). Comparing the two, we have 200k vs 14m per year (68 times more). Hence, we have come a long way in 700 years in progressive natures of the wars. The countries with most death as a % were by authoritarian governments Russia (32% of war causalities translates to 13.7% of their population), Germany, (8.7% of war causalities and barely a percent of the population) Manhattan Project gave the ability to decimate an empire with nuke bombs End of the war with Operation Paperclip took in 1,600 Nazi Scientists, they started working on NASA with rocket technology Cold war (war of progress and race for more power) Russia made the Tsar bomb in 1961 which was a 50 megaton bomb (of TNT) Little Boy dropped on Hiroshima was 15 kilotons (of TNT) – the Tsar bomb is 3,333 bigger and was meant to be 100 megatons The Tsar bomb created a fireball 8km wide, mushroom cloud 65km up (planes 10.5km), and 95km wide at the top Village 55km away destroyed, wooden hundreds of kms, windows 900km shattered, and a shock wave 3 times around the earth’s circumference Imagine setting a bomb off in Brisbane and shattering windows in Sydney Thankfully, it was decided to be mutually assured destruction. This has kept world powers from another WW but has sparked a conflict by trying to keep them away from some countries. Still hasn’t helped stop smaller wars though What happened? Progress had been going well up until the turn of 20th The focus changed Enlightenment had been about progress for the betterment of the individual. Also, for individuals to have equal opportunity Classical Liberalism from the 1600s. The 10 values are: 1) Liberty as the primary political value; 2) Individualism; 3) Scepticism about power; 4) Rule of Law; 5) Civil Society; 6) Spontaneous Order; 7) Free Markets; 8) Toleration; 9) Peace; 10) Limited Government. This is where the government is needed though, for the law, creating peaceful environments and building infrastructure J Locke, wrote a lot on classical liberalism and is one of the major influencers for the American constitution. From 1680 – 1950: an explosion of wealth from these concepts End of True Monarchy (now Constitutional), this increased freedom of choices. Created a prosperous society. Morphed at the end of the 19th century (1860). Modern/Social Liberalism, the role of the government includes addressing economic and social issues such as poverty, health care, and education. Increasing government size and responsibility, no longer a limited government Changed during the 20th century as influenced by socialism: Social democracy as a progressive modification of capitalism Broadly defined as a project that aims to correct what it regards as the intrinsic defects of capitalism Reducing inequalities through government reform Characterised by a commitment to policies aimed at curbing inequality, oppression of underprivileged groups and poverty. The focus is on groups View of who holds the solution changed. Used to be individuals and small communities to now it being governments (Biggest community of all) When you get everything you want and the problem still isn’t solved, what then? Keep pushing for the government to make it fair, rather than the people. When people are the solution, people build their own wealth and the government helps to facilitate an environment that allows us to be wealthy. But, if the government is the solution, all it has to do is take and then redistribute Socialism: The power of governments is embraced and expanded, we lose the free market as it’s now controlled, collectivist rule. This is the polar opposite of civil society because we lose spontaneous order. Which is the matter of individuals being able to organise themselves properly, rather than being forced to by a government. You also lose toleration, because now society is intolerant of those with wealth. You lose all the foundations, except maybe the rule of law. Now you have entered into reducing equality of opportunity for increased equality of outcome As soon as the government is seen as the solution, society is doomed They paint themselves as the solution. Every campaign is on what they can do for you, they need your vote so they need to sell you what they can do for you What do politicians have? They have power, large groups of them have a lot of power. A recent example is the Anti-Encryption Act that was recently passed Power is addictive, politicians tend to behave like addicts. Do and say anything short term to get what they want With ever-increasing demands from the population, ever-increasing power given to the government We went through examples of importance to limit government powers/involvement with ‘progress’ Authority/Power of governments increased again after monarchy at the turn of the century Governments had conscription and Central Banks. The Fed in 1914 provided almost unlimited funding WW1 should have been the 1000th Balkan war. Austria and Hungary annexed land from Serbia, and the Black Hand shooting Franz Ferdinand. But, thanks to treaties between Russia, France, and the UK they created this global extent of death and destruction. WW2 (less avoidable, however, WW1 set it up) Hitler 1933-1939 he ruled fairly peacefully, but he was seen as the solution for German problems. Because Germany wasn’t doing so well in the 1930s, he even one times person of the year in 1938. All of a sudden, he invaded Poland 6 years later, Stalin and Hitler were to split it 50/50. Once again, all large governments (Communists were seen as the solution there) because they promised people everything. But skip forward, they don’t turn out too good, as they end with a lot of death and destruction.   The whole point of ep? That government with too much power end up destroying freedoms. We are what makes it happen I hope that I have been able to explain it properly: Solution = Government, going to lead to the population voting for more government Population driven shift on the political spectrum to authoritarian regimes It’s a cycle: more power (to do) they have, then they start to become the solution for more things = authoritarian May be a secondary consequence of the belief in government solutions for problems. Say for instance you have 2 scenarios: Grow up in a world where the government can’t help you, there’s no social support, or housing. It’s a harder world Government provides social support, the government provides solutions to your problems What scenario would you be more likely to make sure you don’t fail? I think that the more someone else says they will solve your problems, the less you will look for your own solution The world is a scary place, but only if you don’t learn how to prosper in it. Like when the solution is the government. Makes a very easily controlled population, when everyone is reliant on the government Why it is important to have balance, like different policies and what the government should be involved in You either want the government to have more, or less interference in your life. And right now there is nothing that the government isn’t involved with. For e.g. Rego (car), bike (gst, helmet), Owning an animal (getting it registered) The current speed on reforms, takes a lot of time to see how reforms will impact society. If too many changes are done at once, it can be the downfall of freedoms for the individual   What is another option? If the government can’t give it to you, then you won’t ask for it. Now, imagine how scary the world would be if the government wasn’t there to help? This is what the final episode will look at, and how would a world like that look What the core classical liberalism models are based on If you want to get into contact with us, you can do so on the contact page here.

38mins

4 Jan 2019

Rank #3

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What has created a system where the share market can go down so quickly?

Welcome to Finance and Fury, The Furious Friday edition What has created a system where the share market can go down so quickly? The perfect storm – Panic, OPEC agreement breaking down – computer algorithms kicking in, mass sell-offs of index funds The recent collapse in the stock market – speculation is rampart with discussion of a new crash looming on the horizon – even with Monday’s record breaking drop – market into retreat Important context – that a chain reaction collapse was only kept at bay due to massive liquidity injections by the Federal Reserve’s overnight repo loans should not be ignored Began in September 2019 - has grown to over $100 billion per night… all that to support the largest financial bubble in human history with global derivatives estimated at $1.2 quadrillion – or 20 times the global GDP Thanks to media – and not to be offensive – but general financially illiteracy – the underlying reasons as to why the economic system is so fragile and crash has been misdiagnosed as the coronavirus Today – want to give a bit of context around the structural issues to a financial collapse – if it does manifest into one Similar to a virus spreading – and killing people – depends on the hosts health – healthy wont die the nature of the modern financial system with panic and collapses is very similar – the US economy catches a cold – the world markets collapse   Big topic – so where to start – first with some background In some previous episodes – Quoted Franklin Delano Roosevelt in his Inaugural Address of 1933 - “The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.” This was in reference to the ‘money changers’ only being able to create the bubble of the 1920s (roaring 20s) via access to the commercial deposits of banks – leveraging these using margin loans and debt instruments for profit over investing into productive side of economy Roosevelt – for all his faults in socialising the US system – wanted to take on Wall Street – Didn’t have the publics best interest in mind – but rather nationalising (taking over) the banking system – wasn’t able to so instead created the banking Act of 1933 – especially the “Glass-Steagall” section of the act - forced the absolute separation of productive from speculative banking, guaranteeing via the Federal Deposit Insurance Corporation (FDIC) only those commercial banking assets associated with the productive economy, but forcing any speculative losses arising from investment banking to be suffered by the gambler This focus on the now rather than later ushered in the system of “post-industrial monetarism”.  This would be a system ushered in by Richard Nixon’s announcement of the destruction of the fixed-exchange-rate Bretton Woods system and its replacement by the “floating rate” system of post 1971 fame. During that same fateful year of 1971, another ominous event took place: the formation of the Rothschild Inter-Alpha Group of banks under the umbrella of the Royal Bank of Scotland, which today controls upwards of 70% of the global financial system The intentions of this group were well laid out in the 1983 speech by Lord Jacob Rothschild: “two broad types of giant institutions, the worldwide financial service company and the international commercial bank with a global trading competence, may converge to form the ultimate, all-powerful, many-headed financial conglomerate.” Wanted to get commercial and investment banks back into bed with each other – to use debt and financial instruments to make themselves filthy rich This policy demanded the destruction of the sovereign nation-state financial system – nothing really new – the age-old scheme of controlling the money system – but this time it would be on a global level At around the same time - had Milton Freedman’s economic theories – around shareholder theory – argues that a company has no "social responsibility" to the public or society; its only responsibility is to its shareholders - revolutionised wall street to focus on maximising profits in the short term – long gone is the long term focus of companies with what is best in 10 years – now it is quarterly based – hence why share buybacks are so prevalent – what can be done now to boost prices – even at the detriment of the long term A record number of CEOs resigned right before the crash – around 220 in total I believe – but major companies Due to the Interconnection of the financial system and share markets – Deregulation of the Financial system – whilst regulation of every other business increased Deregulations – Two major financial centres of London (UK) and New York (USA) London - 1986, the City of London announced the beginning of a new era of economic irrationalism – known as the “Big Bang” deregulation - swept aside the separation of commercial deposit taking and investment banking The “Big Bang” set a precedent for similar financial de-regulation into the “Universal Banking” model in other parts of the western world USA – In September 1987 – the 20-year market gain through speculation resulted in a 23% collapse of the Dow Jones Within hours of this crash, international emergency meetings had been convened with former JP Morgan tool Alan Greenspan introducing a “solution” which would have the future echoes of hyperinflation and fascism written all over it. The creation of a new instrument - “Creative financial instruments” was the Orwellian name given to the new financial asset popularized by Greenspan, but otherwise known as “derivatives” - Came up with the derivative instruments as a concept and the time bomb is set - Still had the problem of separation of commercial and investment banks – but by 1999 a politically castrated Bill Clinton found himself signing into law a treaty authored by then Treasury Secretary Larry Summers known as the Gramm-Leach-Bliley Act, which would be the final nail in the coffin for the Glass-Steagall separation of commercial and investment banking in the United States. The new age of unregulated trading and creation of over-the-counter derivatives caused these strange financial instruments to grow from $60 trillion in 2000 to $600 trillion by 2008 – But around $1.2 quadrillion today New problems of supercomputing and algorithm trading - creation of new complex formulas which could associate values to price differentials on securities and insured debts that could then be “hedged” on those very spot and futures markets made possible via the destruction of the Bretton Woods system in 1971. So while an exponentially self-generating monster was created that could end nowhere but in a meltdown, “market confidence” rallied back in force with the new flux of easy money – under the new Fiat system Interconnect nature – Globalism, trade and reliance on other countries for production - Nafta, the euro and the end of history During this same period of Clintons administration - another change to legislation occurred - was passed called the North American Free Trade Agreement (NAFTA). With this Agreement made law, protective programs that had kept North American factories in the U.S and Canada were struck down, allowing for the export of the lifeblood of highly skilled industrial workforce to Mexico where skills were low, technologies lower, and salaries lower still. With a stripping of its productive assets, North America became increasingly reliant on exporting cheap resources and services for its means of existence. Again, the physically productive sector of society would collapse, yet monetary profits in financial sector boomed Replicated in Europe with the creation of the Maastricht Treaty in 1992 establishing the Euro by 1994 Universal Banking, NAFTA, Euro integration and the creation of the derivative economy in a space of just several years would induce a cartel of finance through newly legalized mergers and acquisitions at a rate never before seen Created mass monopolies over the economy – companies from the 1980s were absorbed into each other at great speed through the 1990s in true “survival of the fittest” fashion as regulations on domestic companies in the productive sector were introduced But counter parts in non-western countries didn’t have to abide by same regulations – so with companies working under the Freidman method of profit maximisation – production and jobs and contribution towards GDP left western nations – Free trade = factors of production like labour shift By the 2000s – the fundamental health of productive companies was diminished – whist the speculative side to the economy – investment banking and derivatives were let out of the box   When the first signs really all kicked off – THE 2000-2008 FRENZY With Glass-Steagall now removed, legitimate capital turned into speculation – nothing productive to invest in anymore in the economy – so looked for profits elsewhere. Billions were now poured into mortgage-backed securities (MBS), a market which had been artificially plunged to record-breaking interest rate lows of 1-2% for over a year by the US Federal Reserve - so borrowing was easy, and the returns on the investments into the MBSs massive in comparison The speculation also swelled as the values of the houses skyrocketed far beyond the real values to the tune of one hundred thousand dollar homes selling for 5-6 times that price within the span of several years – due to borrowing capacities increasing and the loss lending regulations As long as no one assumed this growth was ab-normal, and the unpayable nature of loans given – creating a leveraged rise in assets - then profits were supposed to just continue infinitely The stunning “success” of securitizing housing debts immediately induced a wave of sovereign wealth funds to come into prominence applying the same model that had been used in the case of mortgage-backed securities (MBS) and collateralized debt obligations (CDO) to the debts of entire nations – Australia is no different The securitizing of bundled packages of sovereign debts that could then be infinitely leveraged on the de-regulated world markets would no longer be considered an act of national treason, but the key to easy money. Regulators and politicians said they fixed the problems from 2008 – but Nothing changed though For all the talk of an “FDR revival” under Obama, speculation wasn’t actually regulated under the Dodd-Frank Act or the Volker Rule of 2010. No productive credit was created to grow the real economy under a national mission as was the case in 1933-1938. Banks were not broken up while derivatives GREW by 40% with the new bubble concentrated in the corporate/household debt sector now collapsing. During this time, nation states continued to be stripped, as austerity was rammed down the throats of nations. Western economies – Like Australia and USA started to struggle further – talking about the underlying health of countries and their productive output – speculative assets or hard assets like shares and property did well – but now suffer through large gains and large losses – most recently is a good example- ASX lost 27% in 3 weeks GFC from October 07 to March 09 – around 18 months for 50% loss – from Aug 08 to March 09 – 34% loss in 7 months – we are almost there in 3 weeks The ruling class, the media and many others were surprised by the 2016 Brexit and election of President Trump But when viewed from the point of those who were affected by these global focused policies and speculation over productivity – shouldn’t come as a surprise – why a lot of countries are seeing a new wave of nationalist spirit has become a fire which the technocrats have lost their capacity to snuff out. Summary  Economy and by extension the markets are fragile - No longer is the focus for the board members of companies to be productive – or for institutional investors to invest into companies long term that are productive in the economy – core of the post-industrial monetarism model Focus is in profit maximisation at any cost through speculation – The cost though is increased volatility in markets Nature of the new beast – have to ride it out – but thanks to the speculative nature – cheap shares are available every few years Thank you for listening to today's episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

22mins

13 Mar 2020

Rank #4

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How to decide if you want to change careers?

Hi Guys, and Welcome to Finance and Fury. Today we continue to talk about investing in yourself. Think about investing in anything, you’re doing something with the aim of gaining something out of it. This is why we went through the purpose and vision statement in the last episode.   How to invest in yourself? And, how can you love your current job more? My experience: What did I start out with? How did I find what I enjoyed? How to learn on the job? How to narrow down what you care about? How to design your ideal career? What is reasonable when planning your future? Don’t confuse a job with a career.  Your career: What can you do to get more out of your job? Treat your education as an investment in human capital Using upward mobility factors Making yourself more valuable to employers Do you need to go back to university to improve your income potential? Have you considered informal education pathways? The more you learn the more you can earn Looking to change career? Thinking and knowing are different things Using your purpose to find the right career Narrow it down The financial setbacks: What are the opportunity costs? What are the total costs? How to deal with income changes? How long does it take? Is it financially viable? Ask yourself: What are your options at this point? What are the ways of achieving this? How bad will it set you back financially? Next episode we will be covering how to start your own business. Thank you for listening and if you have any questions let us know at the contact page here. Resources: AMP Education and innovation in Australia - https://www.natsem.canberra.edu.au/storage/AMP.NATSEM%2032%20Income%20and%20Wealth%20Report%20-%20Smart%20Australians.pdf

35mins

4 Feb 2019

Rank #5

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What is the real danger behind Climate Change?

Welcome to Finance and Fury, the Say What Wednesday edition. Today we are going to cover off on Climate Change. This may be a bit weird. But, the majority of proposed solutions are political/economic. Firstly, the taxation on CO2 emissions. What is this going to do to the economy overall, with additional costs of business? Furthermore, capping of production of emissions. In this episode, we will discuss climate change in terms of the narrative that it is presented as. This is around rising temperatures and the world being doomed in a few years’ time. I won’t be talking about environmental destruction. Is global warming man made? How will the solutions help? The common theme of Fear: Different predictions over the last few decades A similar theme is fear Most people fear catastrophic events Predictions by experts on climate change keeps turning out to be incorrect From predictions, there was supposed to be a lot of misery in the world due to climate change caused events Policy changes due to global hysteria The climate change direction changed We look at an overview of predictions and temperature claims. We should be fearful of these events, right? The issue with acting out of Fear: Opt for any solution we think will work Even if it is against our own self-interest How does this affect the brain? Social learning and context can be tools to help fears or make fears worse There is a potential to influence the way we experience fear Social isolation is another thing people are afraid of Climate change has religious elements to it This comes down to ideological subversion The message is in our face every day: 97 movies since 2010 depicting the end of the world The irony of Hollywood around actions towards fighting climate change The hypocrisy of politicians surrounding climate change Paid to pretend to be someone else for a living Our climate does change, it’s the only consistent thing about it The climate definitely changes, there is no clear consensus on why or how: 97% of climate scientists agree that humans are the leading cause of climate change Do they really? Christopher Monckton criticised John Cook’s findings These are unscientific findings UQ is now proving a free climate change course These claims can be broken down in the resources below Why don’t other scientists speak out about it? How well can weathermen predict the temperatures? Saying that it is human-induced through CO2 emissions is why I have an issue with this The mathematical modelling and their numeric assumptions What is the relationship between CO2 and temperatures? When do the records of temperature begin? What are the mathematical models and how do scientists come to their conclusions? Joseph Postma wrote A Climate of Sophistry, which covers the modelling and math involved The same modelling shows the increases in CO2 help boost plant life Milankovitch cycles describe Earth’s movements and the climate changes The debunking always goes in both directions Financially, who has the most to gain? Politicians, climate scientists, and the media. Summary: I am not denying that the climate does not change There is no measurable increase in temperature anomaly in 18 years Focusing on clean energy is a good idea, but following advice on voting for policy change doesn’t help long term How does the Paris Climate agreement help? Let's come up with some long term plans to help produce cleaner energy Thanks for listening today. If you want to get in contact you can at the contact page here. Resources: Models - https://www.climatechangeinaustralia.gov.au/en/climate-projections/explore-data/threshold-calculator/  ‘climategate’ email scandal. If you want some light reading (180 pages or so), here is the publication on this: https://www.lavoisier.com.au/articles/greenhouse-science/climate-change/climategate-emails.pdf Milankovitch Cycles - https://en.wikipedia.org/wiki/Milankovitch_cycles Climate Conscious – UQ Emails - UQ Emails -  http://www.galileomovement.com.au/docs/UQcorrespondence.pdf

46mins

27 Mar 2019

Rank #6

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Do you need a family trust? When it's beneficial, when it isn't, and what you need to know about how it all works

This week’s question is, ‘do I need a family trust?’. I have had a few questions about this over the past weeks, however in order to avoid making this ‘personal advice’, I thought I’d just talk about it in more general terms. What is a family trust? Family Trust refers to a Discretionary Trust set up to hold a family's assets or to conduct a family business Established by a family member for the benefit of members of the 'family group' Established to hold assets for mainly two reasons: asset protection or tax purposes (will come back to this) The Trust Settlor - settlor executes the trust deed and then, generally, has no further involvement in the trust Appointor – Has the power to add or remove trustees (controlling power) Trustee Role – the trustee is responsible for the trust and its assets broad powers to conduct the trust and manage its assets Types Individual – Can be mum and dad for instance, in a family situation Corporate – Company acting as trustee – Directors Additional layer of protection and flexibility Beneficiaries Named (Primary) – receives the benefits Secondary – Spouse, de facto, children (generally family members) Company – Corporate beneficiary How a trust works Assets are owned by the trustees, held in the trust A separate environment, even if transferring from individual to same individual as a trustee, it’s still a transfer of ownership Types of assets Shares Franking credits received by beneficiaries Property in trusts Loss of negative gearing, unless income can fully offset Property taxes Trust income - Distributions All distributions must be made only to people who qualify under the terms of the trust deed to be beneficiaries of the trust. Distributions are not payments! - completed on tax returns but don’t actually have to be physically paid out Forms part of a beneficiary's assessable income - taxed at personal marginal tax rate Trust does not have to pay income tax on income that is distributed to the beneficiaries Trust pays tax on undistributed income Where distributions go wrong If a family trust makes a family trust election and then pays out to someone not a member of the family group, they will be taxed at the maximum rate possible Undistributed income is taxed in the hands of the trustee at the top marginal tax rate of 45% Penalty tax rates can apply to distributions made to minors Benefits  Flexibility – Tax planning favourable taxation treatment by ensuring all family members use their income tax "tax-free thresholds’ Capital gains tax can be distributed – split between beneficiaries Asset protection protecting the family group's assets from the liabilities of one or more of the family members (for instance, in the event of a family member's bankruptcy or insolvency) Estate planning provides a mechanism to pass family assets to future generations Trust life of 80 years Helps avoid challenges to the will following a death of a senior member of the family  Situations where it will work Wanting to invest and accumulate wealth OR, own a business Asset protection – Are you in a situation you will be sued Taxation planning – Will you have people to distribute to? What is important for a trust – Long term Planning! Transferring owned assets in has problems CGT – The transfer of assets from your own name into a trust is a sale Stamp Duty (For property) – The trust would need to technically buy the property off you Thanks for listening…if you have a question or want to provide any feedback, go to https://financeandfury.com.au/contact/

15mins

11 Jul 2018

Rank #7

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How do I make an Investment Strategy?

Welcome to Finance and Fury, today’s episode is a flow on from last Monday’s Investment philosophy episode and narrow down into an Investment Strategy. To invest properly, your investment beliefs need to expand into a strategy, an implementation plan. So Today: Expand on building an investment strategy from the investment philosophy – check out the worksheet Look at goals and timeframes The types of investments you will use How much additional risk you can take on Next Week: Investment plans and specifics of putting the strategy in place Implementation of said plan The workbook will be available What to actually do? And what habits you will make a part of your life? Workbook for this: Spent time putting together a work book for listeners Questions to hep run through this exercise Includes a checklist Investment strategy: Summary of what you will do Behaviours that are necessary Based off of the investment philosophy Making it into an actionable plan How to come up with it? Be honest and ask yourself, how you will achieve your goals? Has to be in line with the investment philosophy The strategy helps you keep to your philosophy How do you view your investments? What do they mean to you? The strategy is how you articulate your strategy throughout your life Categories of investment strategy questions: Goals and timelines How much risk can you withstand? Strategy to use Outline: Goals and timelines. We have talked about financial goals before. Your attitude towards risk – are you a lover or hater? Identifying a risky strategy when you see one – crystalising losses or not, will you be better off? Avoid emotions and hard sells with the fear of missing out Behaviours and emotions – knowing how you will react ahead of time helps avoid the worst case scenario Mental exercises – not as good as the real thing but they help Strategy specific – how will you look at achieving the goal? Look at the types of investments that will help you achieve you goal An example of mine: listen to find out details Investment philosophy are these 2 simple statements Investment strategy is 3 statements – how I implement my philosophy Next episode: Work through some options to build wealth The basic building blocks to pursue financial independence Investment plans and specifics of putting the strategy in place Implementation of said plan What to actually do? and what habits you will make a part of your life? Get ready for the workbook next week. It will be available on the website. Thank you for listening. If you have any questions or want to get in touch you can do so here.   Resources: Last week’s episode - https://financeandfury.com.au/how-do-i-make-an-investment-philosophy/ My financial goals - https://financeandfury.com.au/goals-for-the-new-year/ Setting your goals, with workbook - https://financeandfury.com.au/one-of-the-best-places-to-invest-in-2019-is-to-invest-in-yourself/ Overview of risk - https://financeandfury.com.au/risky-business/ Investing in 2019 - https://financeandfury.com.au/investing-in-the-share-market-in-2019/

31mins

4 Mar 2019

Rank #8

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Never let a good crisis go to waste - the new evolutionary phase of the economic system

Welcome to Finance and Fury – Last year through September, October and November – was running through the future of the economy – was looking at this through a few episodes – interesting to see a lot of what was discussed playing out now In those episodes – went through a Big disclaimer - transformational markets are something that cannot be 100% predicted – no way to know where it will end up But did look at possible outcomes proposed based upon what the economists and monetary officials were saying – they are who influence policy decisions after all- are recommending to implement What we went through is a new evolutionary phase of the monetary system - combining QE, government deficit spending, and ‘helicopter money’ - the nuclear fusion of monetary and fiscal policies – aimed to be the life line to the economy – regardless of the economies economic output – Also went through what would be needed to implement this – basics economic behind the policies – e.g. trying to stimulate inflation and avoid deflation (real increase in debts) at all costs, also greater control over the monetary supply – avoiding people using or hoarding cash, Major proposals were permanent QE implementation, lowing of interest rates and the introduction of the cashless economy: To get that – the main components of the market economy going forward were 5 major policy steps - Permanent QE Lowering rates and moving towards cashless economy to avoid BOJ bank run situation Fiscal expansion – Government spending – redistribution Helicopter money – additional government payments to the population or lowering taxes Abandon the dollar – IMF SDR – new reserve digital currency – or Central bank/national government crypto Episode names – if you haven’t heard them or cant remember them – and want a refresher Ep 1 - We are entering new economic and investment territory – An introduction to QE, what does it look like and what does it mean for investments? Ep 2 - What will be the next market interventions from Central Banks to achieve inflation targets? Ep 3 - How Government spending through fiscal expansion aims to help the economy today, for future generations to worry about repaying. Where are we at now – Seeing a lot of these policies being rolled out fiscal expansion through abolished government debt ceilings and increase government spending, lowering of interest rates and the de facto implementation of the cashless economy, now the proposals of helicopter money policies (‘stimulus’ bonuses to people, cutting to taxes, universal basic income, and their like, all funded through the expanded fiscal spending) i.e. – giving money to the population as part of demand side economics What was missing – a reason – there needed to be some form of economic panic and collapse to justify massive efforts – economic shutdown to government controls The Fed had no reason to cut rates – Places like the RBA were expected to in 6 months, but not cutting 0.5% in a matter of weeks announced extraordinary measures to help prevent a recession - The RBA said it would also provide at least $90 billion at 0.25 per cent over three years to banks if they lend that cash to small and medium-sized businesses Central banks had no reason to increase liquidity – QE - RBA will buy Australian government bonds as part of its first-ever quantitative easing program Governments had no justifiable reason to blow up debt ceilings and expand fiscal spending – especially in a time of asset price growth and reasonably predictable low economic growth rates – it is okay if numbers are low as long as they are expected Today want to go through Reserve bank and government responses – Monetary and fiscal side implementation of the sort of policies covered in October last year – 5-6 months ago Central banking side of things – Monetary policies Lowering interest rates – cost of money goes down – interest repayments go down – QE and repo markets – Quantitative easing – provides Yield curve control to keep the 3-year bond rate at 0.25%: we would have thought they would have gone out for 5 years, given banks need to issue debt with this duration to fill lending books. This will be achieved by purchases of Australian Government bonds in the secondary market, starting today, but the size and duration were not detailed; and QE - provide a three-year funding facility to provide cheap loans for Australian banks - A Term-funding Facility: allows banks to borrow 3% of their outstanding funding from the RBA at 0.25% for three years and given current outstanding credit of around AUD2.7 trillion, this provides around AUD90 billion in ultra cheap funding Facility that allows a better pass through of the rate cut for mortgages – but banks could keep it for themselves. They will be able to get even more funding from this facility if they lend more to small and medium-sized businesses purchases of Australian government and semi-government bonds Done directly to provide state governments with the ability to fund larger stimulus programs. However, the Central Bank and government bonds are supposed to be risk free and by lending to corporates, they no longer are – it’s a side point, but they are now exposing themselves to currency and credit risk. The key questions are not only what triggers an event, but also how do they decide where the line of going to far is? The key unknown is how impaired the transmission mechanism of monetary policy is with COVID-19 and ultra low rates, i.e. will cheaper funding be passed through to the real economy? Based around what occurred in the USA – No – just stays within the financial system - That said, if the supply side of the economy survives (rather than being bankrupt), there will be an initial bout of disinflation as supply is greater than demand (bad for equities in an earnings sense). Overall, we suspect the package reduces severe tail risks, but not recession risks, although they are doing what they can to minimise the economic dislocation of COVID-19. That is why more is needed – Fiscal side as well as a flow through of expanded spending and helicopter money Before this - Governments had no justifiable reason to glow up debt ceilings and expand fiscal spending – especially in a time of asset price growth and reasonably predictable low economic growth rates – it is okay if numbers are low as long as they are expected – had no reason to increase payments to the population Fiscal side of things – Package announcement - $17.6 billion across the forward estimates, representing 0.9 per cent of annual GDP. This package will protect the economy by maintaining confidence, supporting investment and keeping people in jobs. Additional household income and business support will flow through to strengthen the wider economy Also – announcement of around $66bn in total Increased government intervention – what are the proposals - Delivering support for business investment - The Government is backing businesses to invest to help the economy withstand and recover from the economic impact of the Coronavirus two business investment measures in this package are designed to assist Australian businesses and economic growth in the short term Increasing the instant asset write-off - the Government is increasing the instant asset write-off threshold from $30,000 to $150,000 and expanding access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020 Backing business investment - The Government is introducing a time limited 15-month investment incentive (through to 30 June 2021) to support business investment and economic growth over the short term, by accelerating depreciation deductions. Businesses with a turnover of less than $500 million will be able to deduct 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost. Cash flow assistance for businesses - This assistance will support businesses to manage cash flow challenges resulting from the economic shutdowns – aims to help businesses retain their employees if incomes drop – two measures are designed to support employing small and medium enterprises and to improve business confidence Boosting cash flow for employers - The Boosting Cash Flow for Employers measure will provide up to $25,000 back to small and medium-sized businesses, with a minimum payment of $2,000 for eligible businesses. The payment will provide cash flow support to businesses with a turnover of less than $50 million that employ staff. Go to around 690,000 businesses employing around 7.8 million people. Supporting apprentices and trainees - The Government is supporting small business to retain their apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for up to 9 months Stimulus payments to households to support growth This measure will assist around 6.5 million lower income Australians, which will support confidence and domestic demand in the economy Stimulus payments The Government will provide a one-off $750 payment to social security, veteran and other income support recipients and eligible concession card holders Around half of those that will benefit are pensioners. Assistance for severely affected regions - This measure provides $1 billion to support regions most significantly affected by the Coronavirus outbreak Support for affected regions and communities - The Government has set aside $1 billion to support those regions and communities that have been disproportionately affected by the economic impacts of the governmental control - including those heavily reliant on industries such as tourism, agriculture and education. Targeted measures will also be developed to further promote domestic tourism. The Australian Tax Office (ATO) is also providing administrative relief for some tax obligations for people affected by the Coronavirus outbreak, on a case-by-case basis. Additional measures include: Temporarily doubling the Jobseeker Payment, previously called Newstart Allowing people to access $10,000 from their superannuation in 2019-20 and 2020-21 Guaranteeing unsecured small business loans up to $250,000 Reducing deeming rates by a further 0.25 per cent for Centrelink The total economic assistance package is worth $189 billion, according to the Government, equivalent to 9.7 per cent of Australia's gross domestic product Central banks alone have a large challenge - this is something way beyond their control – Governments are driving the shut downs Economic quarantines can’t be fought with interest rates and liquidity injections - this is a matter of confidence – look at how the markets initially responded the emergency measures – went down in price – market lost value –may have some thing to do with lack of initial confidence – things must be had if Central banks are doing this – so loss aversion kicks in Central banks have found that they have run out of ammo – especially USA – become evident over the past 12 years Governments as well set the public responses – so they are expanding their fiscal responsibilities as part of helicopter money under modern monetary theory Interesting to see how things play out from her Thank you for listening to today's episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/”

18mins

23 Mar 2020

Rank #9

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One of the best places to invest in 2019, is to invest in yourself

Welcome to Finance and Fury! Today’s episode we continue our miniseries which looks at the best places to invest in 2019… Turns out, one of the best places to invest in 2019 might actually be in, Yourself. Today’s episode is the first building block for the next two episodes where we will cover off on the two routes of building wealth throughout your life; your career and starting your own business/side hustle Either way, it all starts the same. And this is what we will be covering today; what you need to do in your own life to work out whether starting a business or developing your career is the best thing to do. It all comes back to what your purpose is and what your personal goals look like. It’s not just about making money, but also about being happy along the way. Today’s episode will actually be somewhat of a summary of a previously archived “Steps to Success” episode. We talk about the importance of accepting responsibility, finding your purpose, building the vision of your life and then making it happen. I’ve put together a workbook too, which you can download for free to help you plot out your own purpose and goals, and start putting your action plan in place. It’s super handy. Print it out and follow along with the episode. Take 100% responsibility: To be successful you need to be 100% responsible for your own life. Give up all excuses and stop playing the victim. Taking 100% responsibility makes life simpler. If you accept that you have 100% responsibility, therefore control you can become the master of your own success - the world doesn’t owe you anything, you have to create it! Find your purpose: This is the path that will guide you along the way. This is where the workbook really comes in handy. Creating a vision: Get the vision right and start achieving it! Having a vision, allows you to complete a picture of your ideal life. Your vision should show you where you want to head and provide some motivation and focus to help achieve this. Life happens, there will always be setbacks but the best way of overcoming setbacks is keeping your long-term vision in mind and working towards this. Set your Goals: Goals are the ‘building blocks’ of your vision. Hone your Inner GPS – help fill in the gaps and reverse engineer some steps to build your ideal life In the next episode we’ll be putting this in place through investing in your career or starting a business…but, the first step is to know you are on the right path.

35mins

28 Jan 2019

Rank #10

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Tax and Estonian e-Residency; Anyone can become an e-resident in Estonia, create a company and operate it in the EU

Welcome! This week we will be talking about Estonia, which sits right on the Russian border, just below Finland. Anyone can become an e-resident in Estonia, create a company and operate it in the EU. Digital identity is probably the most significant legal and commercial and political concept we have in today's world Estonia is a very Digital Society - government services are provided online, including e-health, e-school, e-tax and e-voting. We will be focusing on Estonian e-Residency – As anyone in the world can become one Estonian e-Residency You receive a government-issued smart ID card that provides digital identification and authorisation. you can digitally sign important documents, access secure services, and make secure transactions - even if you don't live in Estonia. E-residency does not grant citizenship rights or function as a travel document, but: as an e-Resident, you'll be able to Establish and run a company online Conduct your banking online e.g. make electronic bank transfers Have access to international payment service providers Digitally sign documents (annual reports, contracts) within the company as well as with external partners Verify the authenticity of signed documents Encrypt and transmit documents securely Declare taxes online The purpose e-Residency program makes life and business significantly easier for freelancers, digital nomads, business owners, international partners, and any other non-resident who has a relation to Estonia. Great if you want to start a business, expand your business, make investments, or study in the European Union For e-Residents who have established Estonian companies, it is important to note that there is a difference between personal tax obligations and corporate tax obligations. Tax system You need to pay tax in accordance with tax legislation in Estonia (and Australia sadly) Individual – Property, income, benefits are all taxable at different rules, but there is a flat 20% tax on individual income. Double Taxation Agreement – Avoids paying tax in both, only pay in one – We don’t have one with Estonia so there would be double taxation Only bad part is that we don’t have a DTA with Estonia otherwise we would be able to keep funds invested in the company there and pay no tax on the profits. Companies are taxed at the same rates depending on types of income An Estonian company entered into the commercial register is regarded to be Estonian tax resident. Salary are different to dividends Types of tax Corporate Income tax – Not assessed by profits, but only when profits are distributed (as dividends) Dividends: 20% tax rate on assessable payments Different rules apply for the avoidance of double taxation with regards to wages as compared to dividends. if a company is active in a foreign country (not Estonia), the other country may tax income received from there, in accordance with the rules applicable in the tax treaty instead (remember we don’t have one)  Possible double taxation is avoided in Estonia when distributing profits as dividends. We don’t have a DTA so from what I can see it may probably be double taxed Value added tax - the supply of the goods and services which shall be taxed in Estonia and which VAT rate is 20%, 9% or 0% Social tax – Tax for social security payments Others (customs, duties, unemployment insurances, etc.) Determining the tax residency – It is murky An Estonian company registered through e-Residency is automatically tax resident in Estonia as according to the Income Tax Act a legal person is a tax resident if it is established pursuant to Estonian law. If a natural or legal person is regarded to be Estonian tax resident, it should also be taken into account whether the same person is tax resident of any other country under the law of the foreign country. In such case the tax residency in Estonia will depend upon the tax treaty between Estonia and the foreign country. Business operated online - you receive income from around the globe, your Estonian OÜ would be tax resident in Estonia. e-resident company can generally avoid double taxation if business activity is conducted abroad. If profits that are taxable abroad are paid out as dividends in Estonia, these profits might not be subject to tax in Estonia. Business operated physically in another country - your company is likely to be taxed there too. I’d strongly advise e-residents to consult a qualified tax professional in order to determine their tax obligations. Example If you work in another country and create a company in Estonia Tax rules apply to your company profits in you local country IF the company is managed by a tax resident of the home country, the company would be treated as a tax resident company in the home country Summary This is a promising sign for the future – Ease of business and ability to access lower taxable environments I see it as a competitive market of taxation If you have a monopoly operating then there is no optimal solution for consumers With tax – Gov is monopoly and we are forced consumers When it is opened up for countries to compete, you start to see shifts in the places companies do business which is a sign of consumer demand Hope you found this episode interesting...but again, if you are interested, speak to a tax expert before doing anything!

16mins

24 Jun 2018

Rank #11

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What is financial independence?

Welcome to the first part of this intro series to “Finance and Fury”. This series is brought to you by THINKING, as thinking is where this all started! Thinking about the easiest solutions to reaching financial independence.  And, in doing so, helping to give you greater value in the time you spend listening to us. But trying to solve a problem where we would need a lot information and different perspectives to actually get to the root cause, we needed to start asking listeners and people that we deal with day to day what are the common set of problems that they face are. Because if there’s a common set that everyone has, then that would be a pretty easy thing to focus on first to try to solve.   But like most people, most of their goals and the problems they faced to meet these were all different, and not only that, they had different ones over different time periods. One thing though that they had in common was being frustrated that these were all still problems. So, frustration seemed like a pretty good place for us to start then because, just like a runny nose it is a symptom of an underlying cause. Frustration is a good sign that something’s wrong. At lot of our frustrations come from knowing what can be, versus what is. Getting frustrated that we aren’t in the position of what we know can be. I get pretty frustrated with my headphones when I get them out of my gym bag after they have been rolling around in there for a week or so, they tend to resemble a rubber band ball, and I get frustrated trying to untangling them because, I know what their functional state looks like and the longer it takes to untangle them, the more frustrating the situation becomes. But hey, if I didn’t want tangled headphones, I probably shouldn’t leave them in a gym bag.   Seeing stories of those who appear to have reached financial independence so easily has really shown a lot of society what can be. But it’s also really disheartening because for us, it’s not what is. Especially with the majority of people that we are exposed to on TV, movies or music and just the entertainment industry, generally have little to worry about financially, and subconsciously I think we know it. So, with these frustrations we had something to work with, and it’s a pretty good starting place to look for a common cause across all.   To kick the process off, we wanted to take a step back to look at maybe if the cause could be a macro issue, something that’s inbuilt into society affecting everyone. Because, if that is the root cause it’s going to be pretty hard to come up with a solution to it In today’s society when we have greater access to investments, and the systems that allow us to actually accumulate wealth we have greater access than ever to laws to protect us, property rights to keep what we have, banks to save money, online access to buy a share just with the click of a button. So, if we have the ability to purchase investments, be protected to keep what we have under the law, have places to deposit that and hold it securely, then society has the underpinnings of what it takes to actually be able to maintain and keep wealth. Obviously, this doesn’t hurt trying to reach financial independence, and especially with the fact that the world is actually becoming wealthier off the back of this. And the proof of this comes from a study by the world bank where it shows that poverty’s been cut in half over the past 30 to 15 years depending on how they measure the time period. So, in most of our lifetimes at this point, more people have been lifted from poverty than during the whole of human history. In the last 15 years alone more than half of the world’s population has been lifted out of the standard definition of poverty so there’s more wealth being generated across the board for everyone. But is there someone who is taking the majority of this, or getting in our way? For these people in society, we might look at the notorious 1%  But… you may know some of the people in this shadowy group. Because the latest figures for Australia show that to make it, all you need to do (beyond learning the secret handshake) is earn above $237,000 a year. So, if you’re earning $237,000 per year, your take home pay after you pay tax is about $152,000. It’s a pretty decent income after tax. But does it really give you the wealth you need to have private jets and yachts and be this elite 1%? And are they actually sucking up all of the wealth, as a lot of studies and publications are actually claiming? To look at this we really need to break it down because I see two answers to the question, depending on how you view wealth is created, and more importantly, who should receive it. Say for instance, every year a pre-set amount of money was just gifted to the population – cargo jets come in during the middle of the night and just drop trillions of dollars onto the population and the fat cat 1% dip their hands in, grab it all, grab as much as they can and by the time they’re done, we get the scraps. If that how it works, then it’s completely unfair. But, I haven’t figured out who this donor would be, or who’s piloting these big jumbo jets… because whoever is actually distributing this wealth in this system would need to generate it. Otherwise it would simply be that they’re borrowing the money to give out or they’re taking it from others to give out. Neither of those actually generates any wealth in society. However, what if wealth is something that is created, by individuals through voluntary transactions with other willing participants for their goods or services, then that’s a different story. Imagine that someone creates something that we all really want. Maybe an iphone, and people wanting this iphone purchase it. This individual then is selling their product and collecting money from people buying it. The person that creates the best product and has the most amount of people buy it (giving them therefore the most amount of money) accumulates the greatest level of wealth. How good their product is compared to everyone else’s determines the level of wealth they are able to accumulate. To look at these people, we need to go to the top 1% of the 1%, or the Billionaires.  Is it these guys who are keeping us down? From 1870-1890, John Rockefeller; one of the wealthiest individuals in history (you might have heard of him, if you haven’t just think about Rockefeller Square in New York – same dude). In this time period he was in charge of Standard Oil, and what he did was create oil (or petroleum) that was actually mass produced and accessible to people to a point where it was extremely affordable. So, they could now purchase oil for power for far less and they could spend their money on other things. If you have money to spend on other things, while your total level of income hasn’t gone up, your total level of technical wealth has gone up because you can now have more money to spend elsewhere. And, here’s an example of one of the wealthiest men in history making everyone else a bit wealthier because they dropped the price of something that was an essential good for everyone. What’s also been theorized about that is now people could actually afford to light their houses for a longer period after dark especially, literacy rates rose drastically over this time. Even for those of you environmentally concerned, because oil might not be seen as the best thing, it actually took over Kerosene as the primary fuel source for lamps. Remember, 1870 or so, cars weren’t really being mass produced yet so oil wasn’t really going towards the petrol side of the story, but instead for people to use as energy in lighting their houses. This drop in Kerosene as the primary use created a drop in the price from the 30c to 6c a gallon. The primary source of kerosene back in the day, was whales. This price drop reduced the US whaling fleet from 732 to 200 over the same 20 year period, after which it still continued to decline. Whaling is fairly expensive, fairly risky - not worth it compared to oil. So hey probably single handedly managed to save more whales than anyone in history.  And even in modern times, Bill Gates has made PCs affordable and accessible for everyone so not only can we all afford more than one computer in most Australian households, you now have more money to spend elsewhere thanks to that. And you’re more efficient because you can email, research things online…and think about Henry Ford and the mass production of automobiles – the amount of time he has saved us getting to places through making cars publicly available to everyone at relatively affordable prices has improved everyone’s lives. I think that Billionaires do really improve our lives overall. We probably wouldn’t have Facebook, the iPhone, Computers or name any other thing that we use every day without most of them. These inventions have come from individuals who want to accumulate wealth (and even if they don’t want to they end up accumulating wealth) off the back of creating something so good that people want to buy it. Without them, as well, someone else would need to employ all the people they do from these companies that produce these goods and services. The people they employ, most of them are receiving a salary from their employment – and this is the key component in wealth accumulation for a lot of individuals.   While society portrays these billionaires as greedy hoarders, they provide massive benefits through flow on effects to everyone. It is just very, very hard to quantify and much easier to say they’re the single problem to today’s wealth inequality issue. Sure, some may be corrupt, but that is because they are people. People can be corrupt, greedy, violent across the board regardless of wealth. This is human behaviour.   Sure, having money can bring worse traits out in people, but it’s not the money’s fault – it’s the underlying traits of the individuals’ nature. Money just might give them the ability to start acting like a d**k.   But even though some people have become wealthy from committing crimes and ripping people off they often don’t keep it for long. They go to jail, they get caught, and that’s why we have the laws in place to protect individuals from these people stealing money and accumulating wealth from ripping other’s off. Okay, so our access to goods and services is better than ever, there is more wealth in the economy than ever, survival has never been easier, our ability to keep what we earn has never been better...so...why hasn’t financial independence solved itself? It’s simple – escaping poverty or becoming a billionaire are completely different to financial independence. What the hell is financial independence anyway? And, how do you get it? The news and entertainment shows that we see if they ever cover anything financial, it is a problem someone is facing; they’re defaulting, someone’s repossessing their house, or other ways that they show you is just saving up on your electricity bills or the best way to your water output. And, learning to save on anything is awesome but it’s only great if the money that you saved isn’t wasted on spending elsewhere. I get it! It’s hard to really educate properly when you are trying to entertain through a show – and that in itself determines what you see on TV more than anything; just the number of eyes that the program will draw will give you the content. That’s more entertainment value than giving someone a valuable piece of education    Instead, the complete opposite to the message of financial independence is more common to be broadcast - that equality of outcome is more important. And that’s actually the complete opposite to financial independence.   People should be really, really careful what they wish for, and when asking for the same outcome for all because even if everyone is on the same income today – everyone earns $50,000 regardless of what they do, it wouldn’t take long for some to start earning more. Because, say if you’re earning $50,000, your living costs are only $20,000; you’re living on a bag of rice a day, you live very, very, very, very minimally, you’ll save a lot of money and you’ll be able to invest that to earn more and more income over time If you’re spending $60,000 a year, you’ll be getting into debt and your disposable income will be going down over time. And therefore, you’ll have less than $50,000 because you’ll be repaying debt. So, the level of tyrannical government control that actually would be needed to enforce a system to make sure that everyone is on the same equal playing field to make sure everyone’s financially independent, universal basic income, we give you all $50,000, no worries. That system has been tried. And it doesn’t work. There’s a lot of evidence even over the past 100 years. If you want to look at how well it works just try to ask the hundred million people who have died under that system in the past hundred years – of state-controlled regimes that try to solve inequality and give the people the message of financial independence if only they just give the power to the state they’ll look after them and give them all the money that they want. The outcome of this is actually having no independence because everyone is dependent on a totally equal society where no one can get anything – not even food. People starve under these regimes. If you don’t believe me, its currently going on right now. The Venezuelan President at the end of last year came up with a genius "rabbit plan" and it was actually to encourage the population to breed rabbits to eat as a source of animal protein. Children’s mortality rates had spiked 30% due to starvation related diseases and some blamed the oil collapse for prices and it certainly hasn’t helped because their socialist society was built on an oil-based economy, having the largest oil reserves in the world. However, why has no other oil producing country gone through the same thing? And when you have the largest oil reserves in the world but yet you’re importing oil maybe that’s not a good sign that you’re running things efficiently. And if you’re not running things efficiently it’s very, very, hard to get any profit in society to give people growth and economic wealth I spent a lot of time thinking about this. Why have other countries gone through a similar thing and why have others not? I have spent so much time we’re going to cover it in episode no.7 to save time here, but it’s essentially a system from a stable economy into a death trap within a few years. So, by this point if we’re not in a similar system currently it looked like the macro or society level was actually set up to help us gain financial independence. And that comes back to the micro level or individual level where the first steps is just defining financial independence because it’s something that everyone mentions, everyone talks about but when you ask someone what it is what that looks like, it’s more or less a different answer every single time.  This is just my definition, and what I think it really means at the core – financial independence is really reached once you have the ability to choose how you spend 100% of your time while maintaining the life that you want to live. So this is just my definition, as I said before everyone has a different idea of what the concept is and what financial independence actually looks like. This is why turning to a collective power to give us financial independence has never worked because everyone’s different everyone’s got different needs and you cannot be financially independent through relying on a system of dependence So if we are totally self-reliant and can afford whatever we want and have the freedom to travel to wherever we want does that actually mean you’re still independent and do the billionaires who use the same phones, laptops and have the same life expectancies almost as we do as well. And isn’t the feeling of independence the underpinning of the whole concept that we’re striving for. So independence is really the thing that people are wanting but the focus is so much on wanting the finance which is just a tool you use to support that independence The great thing about society, and reality, is you can actually negotiate with the future …so you can control the future if you just work it out with the present – you negotiate with the present now, you set some stuff up and you can determine a better outcome for the future. So you can negotiate your future saying hey, we want to have financial independence in a certain amount of time, here’s what we’re going to do now to achieve it. And the future will reward you for that. Or you can just ignore it and see where you end up in the future. So, helping people to find this in their own lives and provide a system to really make it happen was something we wanted to put into place. And along the way we want to hear from you as well because, by the end of the series if you think we’ve left any causes, or anything, unaddressed please let us know because the more feedback we get the greater value that we can actually provide. And it’s not very wise to build a house and ignore someone telling you there’s a hole in the roof when there evidently is and the water’s leaking through So now that we’ve got the macro out of the way, we’ll start going through the micro and the individual levels in the next episode where we start building the house I hope you enjoyed it, and I’ll see you in the next one

20mins

2 Mar 2018

Rank #12

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Trusting yourself and learning the basics

To start off, do you think that having a map to financial independence would be the ideal solution? Compared to a puzzle it actually would be far better than trying to pieces together something, if you could just have a map to take you to where you needed to go. We’ve all used maps before. We’ve probably even used those old maps that are a few hundred pages long and you’ve to look up “G3 to E6” and compared that to the iPhone today where you’ve got a GPS – all you need to do is jump on the phone as long as you know the address, enter that in, and you can get there fairly easily And even if you’re in a car that has blue tooth the car will talk to you and tell you where you need to go But unfortunately, that still runs into a few issues - the phone not have updated with the new internet location, it tells you to go down the wrong street or even a street that’s a dead end or a no right turn that you have to make... so eventually you have to pull over, stop, and figure out where you need to get to from where you are. And that can be fairly distressing if you’re in the middle of the highway, you have no idea where the next turn is. That is a fairly bad situation to find yourself in but if you’re in a residential street you can pull over and generally the internet will come back on fairly soon and most people have been in this situation however if you’re in say, another country, and you don’t have internet and no body speaks the language either it can be much more difficult to deal with a situation like that and it’s because there are too many decisions involved. If you’re fairly familiar with being in the city, being in your car, the only things you need to wait for is the internet to kick back in and readjust and look at the new direction that the car will tell you to go. Then that’s not really much of a burden as far as making a decision, however in the previous example in another country, you’ll have to think about new ways of actually achieving what you need to do - and that’s figuring out where you are and where you need to be! With more decisions comes a thing called “Decision Fatigue”, and decision fatigue actually occurs to us all the time. Every single day you’re going to need to make decisions. The more you need to make the more fatigue you’ll have. So, think about just going to the gym. If you do 100 push ups you might not be able to do many more after that, and that’s because your muscles are fatigued. And, it can be very costly to make the wrong decision when you’re too fatigued to do anything more. So, if you’re in the gym and all of a sudden someone needs help to lift something and you’ve already exhausted yourself you might not be able to help so well. With decision fatigue the best thing that you can do is try to hone in on what your goal is first. Because, when you have a clear idea of what financial independence really looks like, your choices are much narrower. However… now you have to choose which one is the correct one. And unfortunately, a lot of the strategies that are online or that are taught, they generally teach [that] all financial independence can be gained by this strategy, or dream to financial independence. And it’s a bit confusing because if every single strategy will get to financial independence then there’s almost no wrong strategy. It still fails to meet a lot of individuals’ goals. So, by that logic, if every strategy meets your goals it doesn’t matter which one you choose. You’ll likely see one that’s popular amongst friends or family and pick that. Or if you don’t have any guidance in that direction, and you’re not sure still, and everything looks like it’s a good option, then you might actually not make one… and have “Decision Paralysis”. It actually becomes tomorrows task then. So, the more information that you actually get (and the longer that goes on for) your brain’s building up many, many, many, many stockpiles of different choices, different decisions, and it can cause people to freeze and not actually ever make a decision. There’s a pretty interesting study that was done on farmers markets where they set up stalls with 3 options compared to 20. And the ones with the 3 options basically sold out their stock every single time because it was very easy for people to go up and actually just select the one that they wanted. However, if you’ve got 20 different options it’s going to be hard to stand there and puzzle at which one’s actually the best. I’m sure everyone’s experienced a similar thing if you’ve had to go to say, the supermarket, and pick out a dip for someone. And they just asked you to get “dip”. If you don’t know what type of dip they want it might be a bit of a risk to not call them first and ask. And say you do just make a decision. Upon searching, all of a sudden, there’s many, many, many, options and you see all the negatives about them. And that’s what you see most in the news. Every time you google something it’s more likely to be something negative or something casting a bad light on it than anything on the positive. And that’s because fear sells. So, it actually creates a real pain in people seeing the stories of others losing, because we emotionally resonate with one another. We see a bad story and then we feel not as much pain as that individual, but we do feel something about it as well. And that’s just more negative feedback! So, the more you actually search and look it’s actually more of a detriment to you. How do you trust what you read on google? Someone at the end of another computer who’s saying something. It could be the wrong strategy and it also could be just the over information out there that’s leading to decision fatigue and therefore picking some sub-optimal choice At the fear of choosing incorrectly though why even step outside of our realms? What we’re doing right now - our lives are fine, “everything will be fine”, because why take the risk? If you trust your friends and family you’re more likely to turn to them and obviously they’re going to try to give you the best advice because they love and care for you. However, if what they say is in the best intention (but not the best outcome) for you, you’ll still believe that it’s the correct [information] because you trust them and you believe what they’re telling you will actually help you in the long run. So, there’s a big different between trusting something and knowing it’s the actual truth. And when I say truth I’m talking about more an objective truth. So, what’s the outcome that you’re after? To explain that think about gravity. Gravity it’s almost like a “universal truth”, and it’s actually one we have to live by every day. So, the more you believe gravity exists, the more likely you are to trust that your information about the world is accurate, and you’ll actually trust. And that gives you confidence - in knowing that if you fall from a very high building it’s not going to end well. And that trust actually comes in two parts; first is actually knowing that gravity exists and that you will hurt yourself if you fall off a high place. However, trusting that you know what to do with that information though, well that’s another separate thing. Because for instance, say you had to make a decision around how much speed you’d need at a certain angle to ‘Evel Knievel’ over a canyon - that is a complex thing - and it involves gravity. So, you can trust that gravity exists but you might not trust yourself to apply it to a physics problem where the outcome is very, very, life-ending if you get it wrong. So, the difference [is] between trusting yourself and making the right choices about applying that knowledge. It actually goes a long way to start building and learning the basics because a lot of it comes back to the basics, when trusting yourself is the most important thing in what you to do. You need to gain that trust. And the basics is where to start. I know this perfectly well first hand where, the first time I invested, it was fairly nerve wracking. And anyone who’s bought shares for the very first time probably knows that little heart beat going on, the elevation, the excitement almost, of buying that share. And I was 16 at the time, all life savings at that point (and for a 16-year-old it was quite a bit). I was starting to look at buying shares and I bought a few - and this was 2004 so it was a pretty good time. I thought I was a genius for years and years and years and years. I kept buying more shares and up until 2007/2008 I hadn’t had any negative experiences. And all of a sudden GFC hits… and the value goes down, quite a bit! But that is, again, just learning how that market works. When that happened, it was fantastic - it wasn’t a time to sell, it was a time to buy. And that just comes with knowing the basics. So, trusting to learn the basics and to actually be able to achieve what you want to achieve is baby steps. And the other truth is that it won’t be smooth sailing. With the GFC and that example, that could have been disastrous if I’d sold all my shares at that point in time and put it into cash. It would’ve been a much worse outcome. It’s about learning that there will be tough times as well. There will be financial corrections along the way and it’s about having the correct structures in place built on the basics, to survive them (and actually take advantage of them). And everything can be really, really, amplified with fear. And fear comes from the unknown. If you don’t know the basics about a lot of finances then it’s very stressful and fearful. Shares don’t have to be scary. All it is, is an ownership in a company. And it can be scary if you’ve bought a very small company that might not be earning an income and is in a very “start-up” phase. It might have gone up in value because people think it’s going to be the next best thing. But if it doesn’t turn out to be that way it’s a very, very expensive (but valuable lesson) …and I’ve made plenty of those. I started out investing with one rule – it was, “never invest more into one asset than I could afford to lose”.  So, with my “life savings” I put it amongst about 7 or 8 shares. But then I actually learnt the best lesson from there (where it’s my second rule now) of never investing in something out of hope. A few of those companies were solid with the banks, but I took what I thought was an educated guess as a 16-year-old (and how much do they know about the world when looking back at it). I was investing out of hope. Thought that these companies were the next best thing. It’s great to see them go up by 150-200% in a very short period …but eventually they went down 95-96% …all the way to zero. So, it’s those sorts of lessons in life that you do learn over time, but it’s about structuring the basics and doing it all well. And that’s what this whole series is trying to lead into – how to teach yourself. Eventually to trust yourself. And be comfortable to make the correct choices. Because human behaviours and actions are really the “make it or break it” moment for financial independence. ‘Responsibility’ and ‘trust in yourself’ - they’re the two biggest factors because you need to really realise that the only person who can make you financially independent …is you! And that comes back to choices – making the choice to be financial independent – I know it sounds very cliché – but unless you actually put that first step in place and put that first investment in and start building, then who will do it for you? And it can be scary to realise that. No-one’s going to do it for us, but ourselves. But, it also should be very liberating, as when you can be in charge and be responsible you’re 100% in control of your journey. So, believing that a politician or another person out there is going to help you succeed in your financial independence without actually taking the first step, well, they’re selling dreams. And it comes back to what ought-to-be isn’t, so people put a big weight into what ought-to-be rather than looking at what they have to work with, and build up to what ought-to-be. So of course, I believe in rights, say, what ought-to-be is a right for everyone. But there’s a level of tyranny that I don’t think people realise, that to have the same level of equal rights for everyone and it doesn’t lead to a better outcome for any individual. Because any individual can only better their outcome by doing the basics but if no one can than why bother? And if there’s things that are determined as rights (or just called rights) unfortunately it’s not guaranteed that they’ll actually ever eventuate. Because I’ve checked a few countries (I haven’t been able to check them all) but the bill of rights of every single one says that the population has the right to housing. Unfortunately, Zimbabwe’s in this mix and it doesn’t mean that declaring something as a right makes it happen. So, if it’s a right for us to be financially independent then we need to do something to make that ought into an IS. And that comes back to choices and the basics. Michael Jordan said that doing all the basic stuff is all it took for him to play the game so well. So, once he had the fundamentals, he was one of the best with the fundamentals and could build on that. So, with a map you can go a long way with following the route but you need to make the choice of, if the GPS kicks out, what do you do? And if you just wait for a bit and then decide what the decision is, probably a good idea but if you keep driving down the road saying that “we’ll get there eventually”, you might end up on the other side of the city. So, it’s about learning to reduce fear, becoming comfortable and taking control and just not waiting…and starting! And unfortunately, it still doesn’t do much for the long term at this point. This will help you start - but what keeps you moving forward? And it’s all about why you are going. So, in any journey why are you entering that address into the phone? If you’re going to a friend’s house to catch up (depending on how bad the journey is) you might just turn around and just come back. But if it’s going to a very important event, like a job interview or something, you would probably do whatever you can to get there. So, we’ll finish off this point in the next episode.  

16mins

12 Mar 2018

Rank #13

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We're addicted to easy hits of dopamine, and it's impacting our ability to build wealth

Today we will talk about the fundamental principle of being wealthy. It’s very basic, and, if you get it right, you will start to accumulate wealth…which is the whole concept behind actually being wealthy. You don’t get dumped with a truckload of cash and all of a sudden find yourself wealthy – those who are wealthy tend to have accumulated their wealth over their lifetimes. It’s about keeping more of your money, and investing it to grow over time. The big dream: Have millions of dollars and being able to purchase anything. This revolves around spending money You need the money in the first place to do this though I want to talk about the allure of getting everything that we want in one go – the get rich quick schemes Lottery winners, or massive inheritances – do they never have money worries again? Well, it’s been shown that they do. And this goes back to the fundamental principle of spending more than is sustainable. The money is going to run out pretty quickly if you don’t have any discipline. People develop bad spending behaviours, so it doesn’t take long to go through $100m This extreme example is important – the mobility of wealth is massive – the “1%” is a very mobile group, people move in and out of it throughout their lives – Generational wealth All have the same sort of decline – 3 generations on average to spend through wealth We all spend money and it goes hand in hand with modern life Basic needs (housing, food, transportation, etc.) Modern day – Easier to spend money than ever before. There is additional choice. Credit availability – CCs, Loans, cashless Online shopping – Amazon, delivery with minimal effort Advertising – constant stimulus, triggering of dopamine Why we spend money? For things we need For things that we want! Gives us some other gain – there’s a dopamine release The hedonic treadmill, and always needing to increase how much you’re spending to get the same feeling What we could be doing with our money – Opportunity cost Short term – What could you have done with the money spent? Long term – Is it the best thing now, or could I buy something bigger later How we grew up – Dopamine addicts Neuropathways are developing under constant dopamine stimulation Phones, Internet, Facebook, TV on demand It’s then very hard to find something to fill the dopamine gap when a lot of effort hasn’t previously been put in to doing this – Spending money easily fills this How we decide – For financial spending It’s usually not cold and calculated It’s really, “Pain versus gain” – ‘cost v benefit’ mental accounting – use pain and gain constructs Pain – Will spending this money hurt in a certain period of time If you focus on the pain of not having the money, less likely to spend Gain – Good feeling and anticipated future benefit Anticipation – excitement for imagined future benefit Unpredictability – When we work for something and there is no guarantee of reward It is hard to qualify spending money as a ‘pain’ The pain is not realised now – for example with a Credit card with a bill which is delayed for 60 days. The pain is in the opportunity cost, which is hard to qualify. You don’t conceptualise the pain of opportunity cost with any immediacy Hyperbolic discounting Time – the longer the time delay, the less we tend to value the gains Would you rather receive: $100 today, or $110 in a week? $100 in a year, or $110 in a year and one week? In the world of instant gratification there is easy reward with no anticipation or uncertainty – it’s important to find meaning in delaying spending, but it gets harder and harder Spending money wont help in the long term – hedonic treadmill The Imagined Future Benefit problem – The Gain has been experienced before you finish Dopamine’s release changes based on two factors – Many people think that dopamine is released when the brain receives a reward, but dopamine is actually released in anticipation of a reward.  It’s done to keep motivating us to work towards what we are trying to achieve. You don’t actually get much of a release when you finish working on the project – not sustainable long term to only have one goal, or none. That makes it release while we are doing the activity Anticipation – excitement for imagined future benefit Unpredictability – When we work for something and there is no guarantee of reward Human behaviour – How do we act when we have something we didn’t work for (or earn?) It won’t make you happy – without the ongoing work for something, dopamine release isn’t going to be as great Working on the goal is what provides longer sustained releases of dopamine My experience – Sanding a deck – if I had paid someone to do it then there wouldn’t be that feeling of achievement Beyond dopamine Serotonin Status – our position in a hierarchy - spending money on nicer cars, suits, watches – Trying to live up to an ideal image. This doesn’t actually increase serotonin Fake it till you make it doesn’t work here if your brain knows that you are just flashy/showy with no substance The belief (anticipation) that spending money will give dopamine and serotonin becomes a dangerous cycle Without fulfilment – Just have to keep spending to keep up these feelings Also – Turning to easy releases of dopamine - The wrong way to do it – Easy releases of dopamine Gambling – The thrill – Uncertainty and anticipation are strong here. But it’s not sustainable. You’re only losing money to get dopamine. Risky investment – Get rich quick schemes – Often just lose money The right way to do it - Best way to get rich slow Simply, spend less than what you earn. You spend money on things to get the same feeling that saving money can actually achieve and that working towards a goal can give you. This has a lot to do with investing as well, if your goal is to accumulate wealth to do something meaningful, why can’t this give the same dopamine release? Money is a tool – spending can give you a dopamine release and so can saving towards a target – but difference is that it is delayed Stable and slow – More meaningful Sounds cliché and has been repeated 100 times (which maybe means it’s important then?) Remember what the end game is – Being self-reliant and having meaning in your life Dream, vision, purpose Nietzsche – ‘To live is to suffer, to survive is to find some meaning in the suffering’ If you hit your goal too soon, you lose purpose. This is why big goals can be good…as long as they don’t dishearten you, they always give you something to work on. If the goal is superficial (e.g. spending) then you end up resenting work as while it provides the ability to spend – it gets in the way of what you want to spend money on The take away It’s all about choice – and this is why I like free markets. We have the choice to save and invest – Or chose to spend   This is why I don’t by the BS that it is too hard so you should never try Anything that is worthwhile is hard – and that’s good – working to get something that is easy won’t give the same level of satisfaction as something that’s difficult. Even the complaints we have really aren’t bad – I can’t afford a house – At least you can buy one in the future. You get to choose. And it’s all these choices that you make in life which lead into how well you actually achieve the things you want – job v career v purpose Most of the world isn’t so lucky, though there are some people in Australia are doing it tough Those who are ‘privileged’ are simply those that understand the concept of money Thanks for listening!

26mins

13 Aug 2018

Rank #14

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What are the 4 Cons for Supply-side Economics?

Welcome to Finance and Fury, the Furious Friday edition. We are continuing the series on supply-side economics. Today we will focus on the down-side of supply-side economics. Remember, supply-side economics believes that governments should remove barriers to production. How is this done? Lowering taxation and decreasing regulation The aims of the policies? What are the 4 major downsides? Income Inequality: Those that supply more also accumulate more wealth Results in a disproportionate amount of the tax savings going to those on the highest incomes More wealthy people is a good thing More supply means lower inflation and cheaper goods The billionaires of Australia own companies that supply jobs, they don’t sit on piles of cash Countries with more billionaires have lower rates of poverty We are very well off despite what you might think   Deregulation will Destroy the Environment and Public Safety Experts do agree, lower regulation leads to increases in profits and increased GDP Deregulating coal mining will lead to more destruction of the environment? Really? Cheaper and cleaner power isn’t appealing to you? It's about opening the door to new ideas and new creation of those ideas Using the private sector to achieve the creation of new ideas, the government never innovates, just adopt it Deregulation can lead to more competition within free markets for better ideas to replace old ideas Who have higher safety rules? The government or companies internally? Deregulation from the US about the railroad industry There will be mistakes in deregulation, but compare that to mistakes in increased regulation These first two strawman arguments highlight misconceptions, the next two arguments are real potential downsides   Budget Deficits This comes from a reduction in tax revenue but maintained levels of spending Lowering the tax rate increases wealth, so the pie to take taxes from is larger Critics say under president Reagan, there were decreased tax revenues. However, there was a recession just before this. Demand side economics increases deficits   Volatile Economy Deregulation can make the economy more volatile Like investments, volatility is your friend The slow down in GDP growth is from the increased size of government, spending, debts, regulation increase, and increased taxes or introducing new taxes When you look at a lassie-faire economy, it can be more volatile than a centrally planned one When you look at the regulation of the taxi industry, it created an industry that needed protection from Uber. Because the regulation of taxies was inefficient. Recessions occur when there are 2 or more consecutive quarters of negative gross domestic product growth. We are in a per capita recession as of this week. Creative destruction – innovation is destructive No government bailouts – recessions can be a forest fire, and bailouts incentivise moral hazardous behaviour Deregulations and lending guarantees leads to the banks taking on additional risks if it is backed by the governments No government stimulus, if there was a stimulus from the government – where did it come from? Do people actually spend it? Australia had a slow rebound from the GFC Industries that require protection from the government lead to inefficient workforces. Look at the prior example of railroads and inefficient rail tracks. Flying industries, the airline deregulation act of 1978 eased controls on fares We will run through the policies of Thatcher in a few weeks. Lead to a massive loss of jobs in manufacturing. Creative destruction does happen – this is what the government should focus on In Summary: We have explored the 4 criticisms of supply-side economics It leads to inequality, deregulation causing a destruction of the environment and worker safety, deficits and recessions Next episode: We will look more into recessions and some real-world examples of recessions. And we will break down supply side theory and a demand side theory for dealing with recessions. Thanks for listening, if you enjoyed the episode please leave it a review on iTunes. If you want to get in contact, you can do so here.

48mins

8 Mar 2019

Rank #15

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5 property investing myths you have to stop believing immediately.

Welcome to Finance & Fury! Today we’re talking about five property investing myths you have to stop believing. At the moment property has gone from being the most talked about, exciting thing… to the most talked about, negative thing. Since 1994 there has been considerably accelerated growth in the property market. Generations have seen this, leading everyone to believe that “property always goes up”. Everyone knows someone who lost someone in the stock market especially around the time of the GFC but made money on property. Myth one: Negative gearing is a great investment strategy (especially for the tax benefits) Negative gearing relies on you making a loss on an investment property while speculating the capital values will increase enough over the longer term to make a profit. While it can be good for some investors, it isn’t going to be perfect for everyone, so you should consider looking at positively geared properties or reducing your overall debt position.  Chalk this myth up to property spruikers and investment marketers who have a vested financial interest in getting you to overpay for property.  People have made money from negative gearing in Australia, but there are better investment strategies out there than relying on negative gearings’ tax benefits.  What’s a quick example of negative gearing? Simon buys an investment property, and the expenses for this property are more than the rental income he earns, resulting in a $15,000 annual loss. In other words, Simon has to contribute $1,250 each month from his cashflow to hold the property. As a result, Simon can use this $15,000 annual loss to reduce his taxable income from $110,000 to $95,000 resulting in a $5,850 tax subsidy to Simon. The property still costs Simon $9,150 per year.  Negative gearing is a bad investment strategy for a number of reasons. It robs your cash flow. In Simon’s case, he needs to pay $1,250 of his income every month to hold the property. You can only make money by selling the property. But remember, each year Simon holds the property it costs him $9,150 after tax. It generally relies on you being heavily indebted and can limit the number of investments you can hold. It costs Simon $1,250 every month to hold the property which limits his borrowing capacity. Depreciation tax benefits reduce over time. It is reliant on a tax strategy that could be removed after the next federal election. Although it should be grandfathered, meaning no retrospective tax changes, so Simon may not be affected. Myth two: The Australian property market is going to drop 40%  The media had been suggesting properties in Sydney and Melbourne were set to fall by 40%. This is VERY wrong. Need convincing? In the same 60 Minutes episode that Martin North made this statement, 60 Minutes’ reporter Tom Steinfort incorrectly reported Australian property prices have only ever gone up. Australia’s property market moves in cycles, and Australia’s largest housing market Sydney has seen values fall 5.6% since their peak in July 2017. But this is nothing new.  In the GFC we saw Sydney dwelling values fall 7% over 12 months, After the Sydney Olympics (downturn in 2003-2006) we saw a reduction in values of 7.1% So, what about that 40% fall in property prices? The forecaster Martin North suggested the 40% drop in house prices was not his central scenario. Australia’s unemployment rates would have to hit 9.5%, mortgage stress levels would need to increase above 40% and bank losses would need to increase fourfold. It’s important not to think of Australia as one single property market. Each individual state and city is in its own stage, within the property cycle.  You are buying a property, you are doing just that: buying the individual property and not the market. So individual property research is key. The positive factors underpinning our property market include:  Strong population growth and net migration up 27.3% year-on-year; Urbanisation in limited supply areas Low unemployment and good employment growth, with ABS reporting “trend employment increased by 303,100 persons (or 2.5 per cent), which was above the average annual growth rate over the past 20 years of 2.0 per cent”; and Inflation is under control, at the lower end of the RBA’s target band of 2-3%. Myth three: Rent money is dead money You should buy where you live, get a massive mortgage, and spend the rest of your life paying it off right?  Rentvesting allows you to live where you want, and invest where you can afford.  With Sydney and Melbourne median house prices nudging towards $1 million, saving a deposit seems to be getting harder for most home buyers. So rather than buy on the outskirts, why not rent where you want to live and invest where you can afford?  Pros: For the lifestyle. You can live close to your work or in the city, and live the lifestyle you want to live.  Get into the market quicker. In Sydney, the average place will set you back $1 million. You can choose where you want to invest. With rentvesting, you don’t need to buy where you want to live. You can invest in outer suburbs or different areas to give you more choice. If you own the house you’re living in and decide that you want to travel or move to a new city, you need to sell it. When renting, you can just wait until your lease runs out, instead of having mortgage worries. Instead, with rentvesting, you’ll have a property manager who will take care of it, so you have complete flexibility. Ability to diversify. If you’ve got a home, you want to try and pay it off as quick as you can. But if you’ve got an investment property you can make a minimum payment on your loan and focus on other things. You will be able to diversify your investments — for example in different geographical locations, different asset classes (houses, units or townhouses) or different classifications (shares or property). Myth four: Renovations always add value to property I’ve done my fair share of renovations but I’m sorry to say it’s not true that renovations always add value to a property. Might seem fairly logical spending $40,000 on a new bathroom and kitchen should add $40,000 value to your property, this might not actually be the case. Michael Matusik using Underwood in Brisbane as an example – two thirds of the detached houses resold across South East Queensland over the last decade have had a renovation between sales.  One out of four cases, the renovation costs were close to half of the previous purchase price. And in 10% of cases, the cost of this renovation actually exceeded the cost of the previous total purchase price. So, while these property owners may have spent more than the previous purchase price on their renovations, they may not have added the same amount to the value of their property.  Now I’ll admit, there is no broad-brush approach to property renovations that will work across Australia. But, before you consider any renovation work, it’s worth taking the time to research the local area and speak with local real estate agents. Understand what appeals to local buyers — and how you can maximise the bang for your renovation buck. Myth five: The banks aren’t approving investment loans In August, the ABS reported investment housing commitments fell by 1.20% and the total value of dwelling financing commitments fell 2.1%. So, have the banks stopped lending?  What about the reports from earlier in the year that up to 40% of loan applications were being rejected? Is the sky on investment lending falling? - No.  Yes, the financial services royal commission has had an impact on the way the banks are assessing home loan applications. But in the last six months, we have found while the banks are requesting more information on 57% of applications (compared to 36% last year), the total number of home loans submitted to settled are in line with previous years. In other words, the banks are asking for more information and taking more time to assess, but still approving the right loan applications.  So, what is the secret to getting investment loans approved? Look at other banks  Different lenders have different policies. Where this impacts lenders today is with the banks’ serviceability benchmark rates meaning some banks will assess the loans you hold them at a higher interest rate than those held with another bank.  Put another way, say you have an existing loan of $500,000 with bank A, and you’re looking at applying for a new loan of $250,000. Applying with that same bank will mean they assess your existing loan at 7.25% based on P&I repayments. If that $500,000 loan was held with another bank, and you were applying with Bank A for a new loan of $250,000 they would take the repayments of the $500,000 loan at the actual amount being closer to 4% increasing your borrowing capacity.  Principal and interest repayments  What would have been considered insanity a few years ago is now a reality. After APRA’s speed limits put in place last year, investment interest-only loans attract a higher interest rate. Look at principal and interest options, it might actually work out better for you. According to Macquarie Bank, “using a 0.5 percentage point [interest rate] differential, Macquarie found that a bank customer in the top tax bracket with a $500,000 loan would be $6,000 better off after five years, and $12,000 better off after 10 years switching to P&I.” Lender, lender, lender It used to be location, location, location but now its lender, lender, lender. Another policy we are finding can trip up investors is how rental income on apartments is treated. There are some lenders who will reduce rental income by 50% depending on the specific complex (presumably determined by the lenders total exposure to that apartment complex). Ask your mortgage broker to check ahead to make sure you don’t get caught out.  Sheesh, Jayden gets around...here is a link to where these myths appeared on the Smart Company website

18mins

17 Dec 2018

Rank #16

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Financial Advice - The process, the costs, and if seeking advice is for you

Welcome to Finance and Fury, the Say What Wednesday Episode, where every we answer questions from you guys! This week’s question comes from Nelson, “Hi mate, Love the podcast. Admittedly don't agree with some of your more conservative political opinions but that aside I think the financial education you are providing to many people including myself is amazing. I have a question for Say What Wednesdays, something probably quite close to your heart. Can you please elaborate on the role of a financial advisor/planner. What do they do? Do you have to pay them up front? And, as a 24-year-old would it be suitable to go see a financial planner from the beginning of my journey or are they more targeted towards older people?” Awesome questions! And thanks also for sticking with the podcast even though we may have different political points of view. It’s really nice to see, because there seems to be a lot of people bail on others, just because there’s one thing they don’t agree with. For anyone else – if there’s anything you disagree with please let me know! I really like to hear other points of view as I might be missing something or haven’t thought about, so any feedback would be greatly appreciated. To the Questions: The term Financial Adviser/Planner can be fairly broad which is why there is a bit of confusion about our roles. Each firm does have different methods of providing advice, and different ways of charging fees which further complicates things. The Focus of Advice; What Advisers Should Do Advisers SHOULD focus on helping individuals achieve their individual financial goals How well this is done does vary - giving the industry a pretty well-deserved bad reputation. Reports of ‘self-interested’ advisers. This might be inappropriate advice for customer given just so the adviser can benefit. The main focus should always be on how to achieve each client’s objectives The advice provided to younger individuals should focus on setting up some foundations for building wealth over time, and achieving lifestyle goals such as buying a house. For someone who is 60 and looking to retire, the advice should be around strategies for funding income passively after they finish work. Cookie cutter advice for everyone, regardless of their situation, has landed some advisers in trouble with ASIC as the advice is not always the most appropriate for the individual’s situation. The Process The process and the type of advice varies between advisers Advisers’ process can vary but it generally involves at least 2 meetings, where one is a “Fact find” meeting, and the second is a presentation and explanation of the financial plan (called a “Statement of Advice”). My initial process involves meeting with clients (either in person or online) to complete a fact find, where we work out what people want to achieve financially (short and long term), looking at what they have to work with now, and then ways of achieving this. Research and prepare strategies that will help to achieve these goals. These strategies are discussed with the client in a second meeting. The advice is then finalised and presented again with the chosen strategy in a third meeting. Advice is then implemented and reviewed regularly – I prefer to think of it as an ongoing relationship This is why it is important to get along with and trust the person, which is a difficult initial step to take. Costs In most cases, initial consultations are at no cost. Advisers will either charge a fixed dollar amount or a percentage of the funds invested / under management. Upfront initial advice costs, and then ongoing annual costs (“Upfront” and “Ongoing” Fees) Percentages – these advisers don’t normally want to see younger/low balance individuals It isn’t very profitable when there is a low or no balance to charge a percent against. This is how all of the industry used to charge, up until the past decade - plus product providers used to pay percentage commissions on the balance of funds invested to the adviser (up until 2014). This is also where the reputation came from that advisers only want to see older clients, as older clients tend to have the largest balance out of the demographics to target. Savvy tip: If an adviser is charging a percentage of funds invested as their upfront fee, invest a lower amount upfront and then contribute funds later - $1m to $50k, at 3% ($33k to $1,650) Flat Fees – Typically charge based on the level of services provided Strategy, product, meetings – this all depends on the specific firm as to what is charged Percentages are slowly dying off Fee Disclosure Statements (FDS) and Opt in regulations This is what sparked a lot of the Royal Commissions – Advice business provide letter with $ and clients have to opt in every 2 years People were getting a letter in the mail showing they had paid a few hundred (or thousands!) to someone you don’t know was charging you. When to see an Adviser In my opinion, it is always better to start thinking about setting your finances up sooner, rather than later. At 24, you have around 36 years to work towards your retirement (assuming you want to work till 60). Knowing what you need and what you are on track to achieve is the first step, as it gives a long time to close any gaps. The longer the time, the easier it will be to achieve. Example: $80,000 of passive income needed = $1.6m invested earning 5% (assuming no tax, just for simplicity) 36 years’ time = $194,602 (future value) needed = $3.9m invested Projections Perhaps you see you’re on track to get to $2.5m by 60: you’d prefer to know now, so you can start to invest the $545 p.m. now to begin closing the gap of $1.4m Opposed to being 55 years old with $2m and needing to invest $18,600 p.m. to close the gap in 5 years 7 times longer requires 5 times less in contributions due to growth Is advice for you? – Knowing what you are trying to achieve is better Depends on how committed you are Depends on how time poor you are – Some people love to DIY which is great, but sometimes life takes over Thanks again for the questions!

14mins

19 Dec 2018

Rank #17

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Why would Central bankers want to crash economies, create political division and start wars?

Welcome to Finance and Fury, The Furious Friday Edition. Today – continue talking about wars – the banker's wars – this time on us and financial markets– Gone through how bankers fund wars, central banks carry out monetary policy that leads to Hot wars Start a miniseries - How To Crush A Bankers' Dictatorship – likely be three eps over next Fridays – lots to unpack - Look at central banks – London, German and US connection - A Lesson From 1918, 1929, 1933 – look at how to break the trend -   To start this – the question of why often comes up – why would bankers influence politics, crash economies, control the economy and start wars  Well, hear why from the horse’s mouth – Lord Montagu Norman, Governor of The Bank Of England, addressing the United States Bankers’ Association, NYC 1924- Quote: “Capital must protect itself in every possible way, both by combination and legislation. Debts must be collected, mortgages foreclosed as rapidly as possible. When, through the process of law, the common people lose their homes, they will become more docile and more easily governed through the strong arm of the government applied by a central power of wealth under leading financiers. These truths are well known among our principal men, who are now engaged in forming an imperialism to govern the world. By dividing the voter through the political party system, we can get them to expend their energies in fighting for questions of no importance.” Lord Montagu Norman was Governor of the Bank of England from 1916 to 1944. During this period, he participated in the central bank conferences which set up the Crash of 1929 and a worldwide depression. The quotation by Norman is a shorter version of the Bankers’ Manifesto of 1892: This adds a bit of additional context – Read another passage – “People without homes will not quarrel with their leaders. History repeats itself in regular cycles. This truth is well known among our principal men who are engaged in forming an imperialism of the world. While they are doing this, the people must be kept in a state of political antagonism. The question of tariff reform must be urged through the organization known as the Democratic Party, and the question of protection with the reciprocity must be forced to view through the Republican Party. By thus dividing voters, we can get them to expend their energies in fighting over questions of no importance to us, except as teachers to the common herd. Thus, by discrete action, we can secure all that has been so generously planned and successfully accomplished.” Why they do this – to retain control and to distract Only a few of them – lots of us – in reality – their positions are very fragile – while they have a lot of control – they have seen in the past what a pissed off population can do to them If you spend all your time fighting between left v right, men v woman, black v white – too busy distracted on newly created constructs Example – Germany population rising post WW1 – and how they were desperate to find a Fuhrer   First - What created the second world war? – conditions left after the first – all done at the treaty of Versailles Versailles and the Destruction of Germany - Britain had been the leading hand behind the orchestration of WWI and the destruction Germany – Germans knew it Kaiser Wilhelm realised this too late when he said: “the world will be engulfed in the most terrible of wars, the ultimate aim of which is the ruin of Germany. England, France, and Russia have conspired for our annihilation… that is the naked truth of the situation which was slowly but surely created by Edward VII” Who was his uncle – Nicholas II of Russia and George V who took over in 1910 were all first cousins Britain also organized the reparations conference in France - imposed impossible debt repayments upon Germany and created the League of Nations Lloyd George (politician) led the British delegation alongside his assistant Lord Lothian (secretary to the PM), Leo Amery, Lord Robert Cecil, and Lord John Maynard Keynes - all of these figures were members of the Round Table Movement that took full control of Britain by ousting PM Asquith in 1916 After the 1918 Armistice – Treaty of Versailles saw to the dismantling of Germany’s army and navy Forced to pay the impossible sum of 132 billion gold marks, give up territories representing 15% of arable land, 10% of its population, 12% of its livestock, 74% of its iron ore, 63% of its zinc production, and 26% of its coal. Germany also had to give up 8000 locomotives, 225 000 railcars and all of its colonies across Africa, South America, etc. People often forget that those 10% of Germans were ruled by Polish, French and other nations – who were not kind to them – attacked and killed regularly Germany gave up half of its gold supply and still barely a dent was made in the debt payments In June 1920 – Bankers made the decision to use the printing press. Rather than the “miracle cure” which monetarists promised = resulted in an asymptotic devaluation of the currency into hyperinflation June 1922, 300 marks exchanged $1 US and in November 1923, it took 42 trillion marks to get $1 US 1Kg of Bread sold for $428 billion marks in 1923 Further Results - industrial output fell by 50%, unemployment rose to over 30% - food intake reduced by over half of pre-war levels – Then to make it worse - a form of shorting the currency occurred by the bankers – making the situation worse = hyperinflationary blowout of Germany resulted in total un-governability of the state – Remember – Central Banking authorities did this – not the German people – who had no say Population under control of the Weimar republic at this time – imposed from 1918 - which was very ineffective – ended in 1933 with the Nationalsozialistische Deutsche Arbeiterpartei - Nazi Party The original solution was from the Wall Streets “Dawes Plan” – installed the London-trained banker by the name of Hjalmar Schacht. First introduced as Currency Commissioner in November 1923 and soon President of the Reichsbank Schacht’s first act was to visit Bank of England’s governor Montagu Norman in London Schacht was provided a blueprint for proceeding with Germany’s restructuring – Policy given from BoE Governor. Policy-create new currency called the “rentenmark” at a fixed value exchanging 1 trillion reichsmarks for 1 new rentenmark The Reichsmark was the currency in Germany from 1924 until 20 June 1948 But hidden in the fine print allowed the germans to be robbed again - new currency would operate under “new rules” requiring austerity measures – i.e. Mass privatizations from Anglo-American companies purchasing state enterprises Industrial interests - IG Farben, Thyssen Mining and resources - Standard Oil Finances - Union Banking, Brown Brothers Harriman, JP Morgan Under the supervision of John Foster Dulles, Montagu Norman, Averill Harriman Ask yourself – what would you do if you were in that position? Almost starving to death again after almost dying by a bullet or losing your home, being left on the street, or sharing 1 room (studio) between 6 people, or worse, starving to death? All due to the games of some monarchs and central bankers? In Germany - civil unrest began to boil over - the London-Wall Street bankers couldn’t control   England wasn’t in great shape either Well before American entered WW1 - enormous amounts of money lent from American banks to England to purchase weapons - from American manufacturers – racked up a big debt – once the war was over - debts needed to be repaid But English economy was in ruins – bombed, broke, killed or mentally scared millions of men – no longer working – Also - borrowed money used to buy weapons – not increase economic output domestically Essentially no way for England to repay its enormous war-debts – again, bankers are smart so made them owe the debts in USD Bankers knew that England had greatly increased its money supply as well without increasing its productive capacity – England also printed funds to buy weapons – Result = pound plummeted in value - Start of 1920 - pound dropped to a low of $3.18. - pre-war $4.87 At this time - Benjamin Strong - Governor of the Federal Reserve Bank of New York for 14 years until his death What we have here is that Montagu Norman (BoE), Hjalmar Schacht (who went on to run the BIS) and Strong all good friends Strong and his counterpart at the Bank of England -Montagu Norman –conspired to return the pound to its pre-war parity with the dollar. The Politics of Money by Brian Johnson - Quote “Strong and Norman, intimate friends, spent their holidays together at Bar Harbour and in the South of France.” How – Bank of England and FED leaders came up with a plan - Impossible to make pound stronger – easier to make the dollar weaker – reasoned that if the dollar was made weaker, the pound would become stronger as a result – teamed up Proof - May 1924 - Strong said he was pursuing a “readjustment” to benefit England - “readjustment” was to pursue a policy of inflation in the US - keeping Britain from having to raise interest rates Strong in his own words – “the burden of this readjustment must fall more largely upon us than upon them (Great Britain). It will be difficult politically and socially for the British Government and the Bank of England to face a price liquidation in England… in face of the fact that their trade is poor and they have over a million unemployed people receiving government aid.”  Confirmed in October of 1924 - Norman asked Strong to continue with this policy of low interest rates, or ‘easy money.’ Strong/FED implemented easy money policies from 1925-28 – based on agreement with Norman to keep US interest rates below those of London However, even all this was not enough to keep England solvent. As a result of her massive war debts – denominated as they were in dollars, not pounds – England’s position was hopeless. This hopeless position was further exacerbated by a national strike in May 1926. The strike began in Britain’s most important industry – coal – There were socialist/Communist/Fascist uprisings in England at this time Anyway - Strong withheld increasing interest rates for the US was too late – today we call this easy money policy Encouraged the surging American boom of the late 1920s – massively increased speculation This is How the 1929 Crash was Manufactured – low cost of money creating speculation, increased leverage, and financial deregulation 1923 - President Coolidge and financier Andrew Mellon (Treasury Secretary) de-regulated the banks Introduced a Broker loans scheme (Margin loans) - speculators allowed to borrow 90% on their shares investments into the real economy were halted during the 1920s speculation was the norm 1925 broker loans totalled $1.5 billion, 1926 = $2.6 billion, 1926 = $5.7 billion - stock market was overvalued fourfold When the bubble was sufficiently inflated, a moment was decided upon to coordinate a mass “calling in” of the broker loans- no one could pay them resulting in a collapse of the markets Then banks like JP Morgan had already sold out before the crash - then bought up the physical assets for cents on the dollar Prescott Bush of Brown Brothers Harriman (bank involved with German takeover) made his fortune in this manner He then went onto bailout a bankrupt Nazi party in 1932 Market crash unleashed four years of hell in America, EU, Australia- leading to the great depression   Recently - The media has started reporting of “financial Armageddon” potentials – I have as well – but their solution is more of what has created this environment - global hegemonic synthetic currency – the SDR – which will replace the collapsing US dollar under a new system of “green finance’’ Reporting of the media can create fear – I apologise if I have contributed to this – I want to help people not get caught by surprise – and to provide actual reasoning and some individual solutions – Media reporting is designed for a Trauma-based society control – create an event that causes trauma – people cant rationally think through the solutions shoved in their face – we all need to believe in something - But it shouldn’t be ignored that financial markets are sitting on the largest financial bubble in human history Very reminiscent of the 1929 bubble that was triggered on black Friday in the USA which unleashed a great depression Currently, Western economies are not in too a dissimilar position as post WW1 – in the 1927 or 1928 period Most Governments have unpayable levels of debt – similar to the Versailles debts on Germany 10 years of easy money policies (low rates) unleashed unbounded speculation - similar to the “roaring 1920s” Populations suffering levels of depressions, PTSD and disenfranchisement – vastly different reasons – some from watching their friends decompose in no-man’s land for months, some from overuse of social media or climate change fears Also - the solutions proposed o solve the situation is put forward by the same groups who created the issues - identical to what the world faced in 1933 as “central bankers” became the solution for the world depression. Start to look at next next episode – Look at the great depression – and the Bankers plan to overthrow FDR and put in their own leader Thanks for listening! If you want to get in contact you can do so here: http://financeandfury.com.au/contact/ 

20mins

22 Nov 2019

Rank #18

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The Economics of War - conducted for the benefit for the very few, at the expense of millions

Welcome to Finance and Fury, The Furious Friday Edition. War is a racket – Something that always catches my attention is when politicians get on What is one thing they seem to get on about? Police enforcement, regulations on industries On a more global scale - Going to war – see it in the USA right now, after 9/11, more often than not in history Pushed by media for Views, companies who stand to make a profit Pushed by Politicians – higher budgets and to keep their donors (Raytheon, Halliburton, etc. happy) Just finished getting through War is a Racket – book from 1935 – Very quick read/listen – got me thinking Today – and probably a few more episodes – War and the Economics of it - How it all works The Futility of War – why it is important – as I hope to illustrate – fought on behalf of the few at the expense of the many One of the oldest and most profitable rackets in history - Racket – not what it seems to the majority of people – conducted for the benefit for the very few, at the expense of millions First - History of war – Medieval to modern Wars are fought for a reason – to get something out of it – but this changes - helps to give context over time   Stages of war - Brief history of economy and wars Tribal Warfare – total war – a direct conflict between small bands of people – normally hunter-gatherer Very minimal trading between tribes – wars often territorial and either in constant warfare (constant raiding for resources off the other) or had treaties to at least not go on the others land (killing on sight) Warfare among primitive tribes did not create much economic loss or gain - because the warring parties had not been engaged in trade before the hostilities – instead of trading, theft in raids They engaged in total war – constant state of war – as it was a way of building your tribe Moving into early Medieval times - Wars were generally waged by small armies of professional soldiers on behalf of lords But wars, here again, were fought for territory – physical resources of gold, land, food, people War was profitable for the victor – but only if the war was short – go to war and have one or two battles Kings/rulers couldn’t afford to go to war for extended periods – run out of money and make the war pointless as cant recoup the losses Tax network wasn’t sophisticated – tax collectors had a harder time and were much slower collecting off the people – hence why the crown's resources were used – and the kings kept the loot – but so did soldiers ‘The spoils of war’ mean that the people fighting would also become enriched – through looting – especially in cultures like the Hun/Mongols/tribes of Gaul, Germania etc. Generally did not involve non-combatants or their property – were some exemptions in the Viking age We would call them minor skirmishes – picked up in the late medieval period Late medieval period – the 30 years war – 1618 to 1648 - this is where the scale started to increase – civilian casualties Things were different in Europe (before the French Revolution) when military, financial, and political circumstances produced limited warfare – few neighbours to fight or limited ability in resources This is around the time when civilians really did start to suffer under war – creating famine and states with no money left to fix the problems – so created civil unrest - Revolution – 1790s – and Napoleonic Wars – 1803 – 1815 Napoleon seized power in 1799, creating a de facto military dictatorship Here wars were still fought over territory – but the economic landscape was changing slowly The cost of the war in lives and coin – which could now be funded through debt and bonds from the Rothschild banking system – so the scale increased But due to the scale increasing – so did the destruction of the resources being fought over – fertile lands and people to work on them – plus you end the war massively in debt to the banks rather than in a positive position like medieval periods Rise of self-sufficient Monarchy – entering WW1 period – War and Autarky - Autarky is the characteristic of self-sufficiency for political states or their economic systems. Exists whenever an entity can survive or continue its activities without external assistance or international trade Germany was an example of this – scare the major powers of Russia, Brittan, and French The German militarists were aware of their vulnerability and so stressed the need for centrally planned autarky. The three cousins ended up going to war due to treaties In this context, philosophers concluded that, because the citizens only suffered from warfare, the way to eliminate war was to dethrone the despots. The spread of democracy, many thoughts, would coincide with everlasting peace. But the rise of democratically elected individuals – Churchill, Hitler – didn’t put an end to the war Thanks to central banks, war bonds, charging citizens Income Tax for the first time – war could rage on Nationalism of late 19th century has been blamed for WW1, and subsequent wars - Back then - War shifted the Market Economy – or Centrally planned economy – Capitalist - Entrepreneurs can most efficiently effect this switch if they are allowed to earn profits and cater to the new demand, emanating from the government as it spends funds on military items. Whether the government raises its revenues from higher taxes, increased borrowing, or even inflation, in the end the citizens will have less purchasing power, and their reduced consumption frees up the real resources to produce items for the war effort Gov did further intervene in the market though, by imposing rationing schemes and other controls, designed to ensure an adequate flow of resources into the war industries – but compensated with tax funds Not like Socialist — the government seize control of production. During war, resources that normally go into consumer goods must be diverted into products for the military; private consumption must fall Modern wars are won with who has the greatest access to resources – like all of history – so Capitalist countries defeat socialist countries – look at the cold war – markets produce entrepreneurs who are more efficient in churning out products and the economy having the money to buy it off them at a profit Better weapons - Entrepreneurs are more efficient than central planners in the production of tanks as well as the production of television sets Populations to tax – war is an excuse to charge you more tax – History of Income Tax Pre-WW1 – Taxes were state by state - 1884 a general tax on income was introduced in South Australia, 1895 income tax was introduced in NSW at 2.5% Federal income tax was first introduced in 1915, in order to help fund Australia’s war effort in the First World War. Company taxes – 1915 issued at 7.4% - The Second World War saw fundamental changes to Australia’s taxation system.  Increased its income taxation in the early years of the Second World War to meet the costs of the war effort. The federal government introduced payroll tax in 1941 – 2.5% Company tax also increased from 7.4% to 45% In 1942 the federal government introduced legislation that increased the federal government income tax rates to raise more revenue. The Pay-As-You-Earn (PAYE) system, where employers deduct tax from employees’ pay in 1942 Between 1938-39 and 1941-42, federal government income tax revenue grew from 16percent to 44per cent of total federal revenue. Post War - Land taxes were first introduced by state administrations Then by 1950s – Top marginal tax rate was 75% to pay back 5. At the time of Federation, Australia’s tax to GDP ratio was around 5 per cent. This ratio remained reasonably constant until the introduction of the federal income tax in 1915, which was used to fund Australia’s war effort. Between the two World Wars, government expenditure and tax revenues grew significantly and by the beginning of the Second World War, Australia’s tax take was over 11per cent of GDP – today the totals at 30% of GDP So these taxes were introduced for funding the war – but did they go away once the war debts were paid off? How economies grow today - market economy involves peaceful cooperation Globalisation creates a division of tasks - therefore cannot function effectively amidst a war – trading ceases – in a world reliant on one another finds it hard to go to war War evolved – like most things it changes based around the incentives and options at the time Evolved back to total war – but by proxy - Went through this in Neo-Con episodes – why conservatives aren’t conserving anything War in Afghanistan, code named Operation Enduring Freedom – started 2001 – going on to this day – Estimated costs (depending on what is included) - $2.4trn - Then Iraq war – since 2003 – Estimated cost of around $1trn as well – Where the money goes 2017, weapons sales from the top 100 companies totalled $398.2 billion, Lockheed Martin - $45bn p.a. USA, Boeing - $27bn p.a. USA, Raytheon - $24bn USA, BAE Systems - $23bn UK, Northrop Grumman - $22bn USA, General Dynamics - $20bn USA = 5 out of the top 6 – USA The USA is dominant in weapons – same in political parties – Note that these organization itself did not donate, rather the money came from the organization's PACs (Political Action Committees) but money flows from subsidiaries and affiliates Combined top 5 stats – Combined Lobbyist employees – 421 – 352 or 84% are ex-politicians – Spent $122m in 2015-16 in lobbying activities – Clinton for $620k in donations from individuals in the company, Sanders $227k, Trump $182k Donations to both sides – as you need all of congress to support military spending Lots of money in it - 2019, the United States federal government has spent or obligated $5.9 trillion dollars on the wars in Afghanistan, Pakistan, and Iraq Things like the Pentagon base budget; veterans care and disability; increases in the homeland security budget; interest payments on direct war borrowing; foreign assistance spending – or purchase of weapons The current wars have been paid for almost entirely by borrowing. This borrowing has raised the US budget deficit, increased the national debt, and had other macroeconomic effects, such as raising consumer interest rates. Unless the US immediately repays the money borrowed for war, there will also be future interest payments - estimate that interest payments could total over $8 trillion by the 2050s. Doesn’t account for other costs - macroeconomic costs to the US economy; the opportunity costs of not investing war dollars in alternative sectors; future interest on war borrowing; and local government and private war costs More importantly – the cost to the local population - in lives and economic output – can’t start a business if someone with a gun might take it from you Interventionism generates economic nationalism, which in turn generates bellicosity. This tendency is internally consistent; only laissez-faire policies are consistent with durable peace.   The modern market economy relies on Globalisation - which requires peaceful cooperation – The rise of total war in the modern age is due to the rise of "statolatry" and interventionism – Have the previous eps in notes War evolved – like most things it changes based around the incentives and options at the time Only person against war are one individual from each side – Tulsi Gabbard and Donald Trump – Russian agents/assets If you don’t want to go to war – you must be an inside agent - Like him or not – kept the USA out of three wars so far – 2016 with Syria and NK, now in Turkey War is a justification of taking more off the people – higher taxes and getting into debts Next part – run through the modern war era - explain how direct all out world wars and now proxy wars work and who it benefits - Thanks for listening, if you want to get in contact you can here: https://financeandfury.com.au/contact/ Links http://www.daviddfriedman.com/Academic/economic_of_war/the_economics_of_war.htm https://en.wikipedia.org/wiki/War_Is_a_Racket https://mises.org/library/economics-war https://en.wikipedia.org/wiki/Smedley_Butler#Death https://watson.brown.edu/costsofwar/costs/economic https://www.opensecrets.org/orgs/summary.php?id=d000000104&cycle=2020 https://treasury.gov.au/publication/economic-roundup-winter-2006/a-brief-history-of-australias-tax-system

25mins

25 Oct 2019

Rank #19

Podcast cover

Stop procrastinating and start investing!

Welcome to Finance & Fury, today we’re going to be looking at what stops people from investing. The common reasons I see; Fear and misconceptions Not knowing what to invest in Not knowing how to invest Not knowing the benefit Not having enough to invest The last one is a self-determinant from the previous 4 reasons. A form of financial procrastination creeps in; If you fear, don’t know, what, how or why, then you won’t allocate any resources (money) to it If you don’t know what to do, or how to do it, then you aren’t likely to bother If you don’t know the benefit – of realising that at some point – you will need to give up working Or – if you think something is a long time period off, or too large a value, you may procrastinate as well Why invest for retirement in 30 years? What is the point of trying to save a $110k deposit for a home? Most things that become larger (time periods, or their size in monetary terms) also become harder for us to achieve - $110k seems like a lot but $70 per day for 4 years Procrastinating is a part of being human, and creeps into our lives without really consciously thinking about it. One of the worst parts about procrastinating is that we justify this behaviour, using some very clever tricks: Avoidance and distractions – Looking for other tasks to do instead of taking action on what we need to. Blaming – We blame external events for why we delayed doing a task. Denial – We can tell ourselves that what we are doing now is more important than what we need to do tomorrow. Comparisons – Other people haven’t gotten around to do this, so why should we? Sadly, while these may make us feel better in the short term, all that they do is delay the inevitable pain we will feel We end up beating ourselves up mentally because we didn’t get to where we wanted We retire with very limited options regarding income, wealth and essentially our financial independence What is investment procrastination? Same as any normal procrastination and it has been around for as long as humans have been alive, and can be in relation to everything we have ever needed to do; Socrates and Aristotle wrote about this in Ancient Greece, describing it as a state of acting against your better judgement. Put a little simpler, it is delaying doing important tasks for less important ones. It is much easier for us to still feel productive by getting through easy non-urgent tasks in preference of doing demanding ones. Also, it is much easier to do something fun compared to something hard. Therefore, if we are given a choice, we will often choose the fun thing over the hard thing, even if the hard thing will benefit us. With long term investments we don’t see any immediate benefit - your future self (once retired, or in a few years) is not you today so it’s hard to stay motivated and benefit your future self Why do we procrastinate? Behavioural psychologists have a term called ‘time inconsistency’ which helps to explain why we procrastinate. This refers to us as individuals valuing short term rewards more highly than future rewards, even if these may be greater in the future. All goals and plans are for your future self. So, based on this, you sabotage your future self by seeking rewards for your present self, even if it is not really that great a reward. This internal battle between your future self and present self can be said to be the key cause for procrastinating. The fact that your present self is the one that needs to take action and it can be hard to make your present ‘self’ take action. As you cannot rely on long term rewards or consequences to provide motivation, you need to implement strategies to either provide some immediate reward or consequence for procrastinating. Achieving any tasks comes in two phases as well. The first is procrastinating and the second is taking action. Acting first saves pain – this is why an action plan is important. Create an action plan today (go to the Members’ Area on the Finance & Fury website, we have a lot of free resources, workbooks, calculators that will help) The longer we delay, the greater the pain we feel from procrastinating. However, the longer the time is away until we absolutely must take action, the less pain we feel delaying. It is funny however, as generally as soon as you go over the break even point you will see that taking action isn’t that painful at all. Have you ever had a small task to complete, delayed it for a few weeks and then, when you actually got around to doing it, it only took you 10 minutes? The act of delaying causes more mental pain in most cases than just taking action. How to get over any hurdle for investing? Fear and misconceptions. Are you afraid of making a bad investment, like it’s a ‘double or nothing’ investment? That’s gambling, not investing. If you have been listening to this podcast long enough, or been doing your own research this hopefully isn’t an issue. You know the real difference between what is an investment and what is not, and you have few misconceptions. Not seeing the benefit of investing – well, this is pretty easy to overcome. Imagine if you had to retire today. Not knowing how to invest, or what to invest in? Have someone help you or ask someone who has done it… or check out the resources on Finance and Fury (what to invest in) – or even check out youtube Not having enough to invest This is normally due to having a large target to hit, or it being too far off Option 1 – Follow your action plan without thinking or delaying – plus reward your action immediately through ‘temptation bundling’. Sounds fairly easy to just ‘follow the plan’ however it takes some habits to form around this Give yourself an instant reward – something to build a habit loop. The concept behind this option is to only do what you love while doing what you are procrastinating about. The reason this has been proven to be so effective is that you are rewarding your present self for taking action to benefit your future self. This reward can also be something more tangible, such as giving yourself a treat for completing a task Opportunity cost – what would have you done with the money saved? Bought clothing? Gone out? Reward yourself with this once your target is met Option 2 – Make the consequences of procrastination more immediate. This helps to keep you on track. This relies on having a system in place where there are real consequences for not taking action for your present self. This is similar to following through with goals, where having someone or something to keep you accountable drastically increases your chances of succeeding. You can either have a ‘bet’ with someone or with yourself where if you don’t complete what you need to by a certain time, some negative consequence comes into play. This may be in the form of money or not allowing yourself to do something else you really enjoy. Make it a competition How to make this stick? Make an action plan – Again, check out the Members’ Area of the website where you’ll find workbooks, and calculators to help Once you have your action plan in place, see what works for you - implementing either rewards or consequences. From there, habits need to be formed around this as part of your daily routine. Habits are formed because your brain has a lot to think about, so if we do an activity for a little while, our brain wires it to become a habit so we don’t think about it anymore. However bad things creep in, like procrastination over time.

14mins

10 Jun 2019

Rank #20