Finance & Fury Podcast

Welcome to Finance and Fury, The Say What Wednesday Edition. Today's question is from Mario Thanks so much for continuing to put together your insightful and informative podcasts. I have a question about investment strategies that last the test of time and can survive and continue into generations and generations to come. I have often heard about investment strategies that have survived through generations where the principle continues to be managed through conservative investment where capital preservation is key and the proceeds either continue to be reinvested or passed on to family. My question is what are your views about an ongoing investment allocation that can in fact last the test of time and How is such a structure set up and continually managed so that the investment isn't destroyed when it passes to the next generation of family members or through turbulent times like war or global financial crisis? There are many questions that come to mind about appropriate asset allocation and who decides this, who makes decisions within the family, protection against rouge family members or decisions that could destroy everything. As always love to hear your views and opinions? No easy solution here – custodial risks is present in a lot of things Did an episode on how the wealthy preserve wealth through investments a little while back – Summary – go check it out – was called: Title: How to protect an investment portfolio? And is it worth using hedging instruments or changing the assets mix? – Quick Recap https://financeandfury.com.au/how-to-protect-an-investment-portfolio-and-is-it-worth-using-hedging-instruments-or-changing-the-assets-mix/ Old money families - what it takes to preserve wealth over centuries and not just short-term cycles - the frequent reply is "a third, a third, and a third." Stands for dividing one's wealth into one-third land, one-third gold, and one-third fine art Obviously some liquidity (cash) is needed for day-to-day expenses – along with allocations to speculative portfolios This isn't an investment strategy for capital growth as much as capital preservation – i.e. will the investment be around in 100, 200, or 1000 years – Looking at centuries timeframes for investments - land, gold, and art outperform riskier assets such as shares, bonds, and cash - sound weird but a viewed from the perspective of centuries and not just years or decades Why? These don't typically custodial risk and have intrinsic value (usable by people) Objections/issues – Share and bonds can perform well for long periods – but they and also cash all involve some claim on a third party Contain credit risk in addition, the underlying market risk – volatility Credit risk is what ruins a lot of investments - the investor is always at the mercy of the issuer Shares – Company go bankrupt and Bonds can default (no money to return for your loan) Paper currency in the history of the world has eventually proved worthless eventually – so why is it different this time? No income or yield - Warren Buffett disparages gold because it has no yield. The reason it has no yield is that has no risk when bought and stored by you personally (beyond someone stealing it). Yield is what you earn when you take risk. Gold has no credit risk, no currency risk, no maturity risk, indeed no risk of any kind. It is just gold. In contrast, Buffett's Berkshire Hathaway stock when priced not in dollars but in ounces of gold has declined in value by about 75 percent since 2000 from 280 ounces per share to 70 ounces per share. Someone who bought gold rather than Berkshire in 2000 could today buy four times as much Berkshire stock using the same gold. There has been a similar appreciation in the value of fine art. Admittedly this is a selective example. Yet it is true that over centuries it is the hard assets, not the paper assets, that retain value through collapse and catastrophe. The old money knows this—they have seen it all before. Alternatives - value of land, gold, and art is intrinsic – beyond valuations - If you own it, you own it No issuer who can suddenly make your land disappear or turn your physical gold into confetti Possible that a totalitarian regime or an invading army might confiscate tangible wealth – why I don't like legislation Gold can also be confiscated if in bank institutions – held personally stuffed in a saddlebag or sewn into the lining of a coat and moved. Art can be removed from frames, rolled up, and carried in one's luggage – Admittedly land cannot be moved, but with good title and patience a family can reassert its claim even generations later once interlopers have been ousted No portfolio is perfect or without risk - too often we think of risk narrowly and ignore the greatest risks of all Due to short term focus – normally only happen once in a lifetime, if that – but looking through history – do happen In the form of monetary collapse, social disorder, regime change, and emergency edicts Structures – Done similar ep

Welcome to Finance and Fury On the last episode – looked at signs property prices will be high Today – continue and look at based on these factors - Will property prices keep going up? First – recap of the Tell-tale characteristic to be able to tell if property prices are high – Urbanisation levels versus available credit (cash people have access to from savings or lending/mortgages of population) Concentration of people (higher demand with population levels) and the limited supply available when people are concentrated in living space Access to credit – it is the Borrowed funds by the population – household debt to GDP in Australia has grown massively until 2017 – stabilised/dropped slightly since – and property prices with it – One of the most privately indebted countries in the world - behind Switzerland In conjunction with the urbanised population – higher the amount people can borrow or put towards property – higher the prices will be Regulations – that have aims to increases the incentive for higher urbanisation How - Town planning – the restriction of supply of available developments Come back to Why next Monday This episode – Looks at the factors controlling prices Supply and demand – many individual characteristics involved - Supply – focus on limitations and restrictions in supply – A lot of major cities/urban areas versus viable rural areas– what to look for – Legislations – where are the most restrictive councils/states on land developments How much available land that is in demand is around – Available is important – Aus has 99.8% left available land Might be a lot of land that is vacant – but is it usable or available or demanded? Useable – most is, available – a lot isn't – already held by developers or limited through state legislation (national forests or environmental regulations) – such as the CO2 sink laws that don't allow you to cut down trees on your own property – one person made a firebreak on their property and got fined $100k by the state – but their house was the only one in the area to survive the recent fires Demanded – bigger one – where is? Available land – Look at Australia – 99.8% of the country isn't urbanised – but we have very high property prices Why this alone isn't a good measurement – but what is the population likely to do They are likely to want to live near a city due to employment or cultural/entertainment reasons Concentrates the supply and forces the demand into one of a few major areas Regulations and governments Whilst in USA – saw news that Democratic run districts prices went up $12k (extreme outliers – Detroit, San Fran), while Republican by $9k Looking at San Fran – seen a massive increase for prices – but thanks to feudal system San Fran has become – rich areas pay for their own private police, cleaners/sanitation – the city doesn't provide it Increases built on increased costs and not fundamental tend to pop - they are bubbles = middle class in those cities are leaving – stealing less than $950 isn't a crime but a citation – so property crime is highest in country – so people leave – reducing the demand and prices start to crash Use NYC as an example – limited development in a lot of Manhattan – when you look midtown or Tribeca regions you see massive high-rises – but you can buy airspace to avoid your view being bought out - so limits the supply of more high rises Demand – leading into what the population might do Demographics – where the population is living and where immigration occurs – urbanisation factors Trends of urbanisation and immigration – the flow of people both internally and externally – Urbanisation – internal - are more people moving into cities from the country? Immigration - Say 200,000 people are coming into a country each year – and they have 20 or 30 viable cities to choose from – can get pretty evenly spread out – but with 3 to 5 – not so much Concentration combined with high levels of urbanisation = prices go up Sometimes – if population urbanisation is large enough – can have 30 viable cities and see prices go up massively Look at China – average income of china (very skew data – rural to city incomes) Price to income ratios – Shenzhen – 45, Beijing – 44.2, Shanghai – 40.91, Guangzhou – 33. China is playing catch up – rural and a lot of them = lower average incomes How much money people have access to also comes into play – you could have 1m people bidding on a property – but if they only have $20 on average, but the one at the top has $1,000 = property goes for $1,000 Equity/money access to = property price you can 'afford' – a term used – but more accurate to say purchase based around your access to money - Borrowing capacity and loan affordability – banks work out how much you can borrow – then allow you to borrow it – doesn't mean it is affordable – Regulations affecting the access to credit – the two regulators who control credit – ASIC v APRA – alphabet soup organisations - APRA – regulates the banks – lending requirements

Welcome to Finance and Fury, the Furious Friday Edition Welcome to FF FF – Hasn't been a FF in a while – but last was running through Crypto markets in relation to the BIS and powers that be Today – Want to cover the potential of what central banks using crypto and by extension, all of us looks like This is a potential scenario for us – when – who knows? Maybe 2 years – 5 years – 15 or never happen – but Recent examples in the news - The Bank of England-authored Green New Deal (in 2008) and Synthetic Hegemonic Currency (takeover of Central Banking Crypto) In this, they outline what the Bank of England's Crypto might look like Another example - in BVI - Blockchain startup LifeLabs announced that it is developing a digital currency dubbed BVI~LIFE in partnership with the British Virgin Islands (BVI). The coin will be a stablecoin pegged 1:1 to the U.S. dollar — which the BVI have used since 1959 – pegging their fiat currency against the USD — and its use is expected to reduce transactional fees, increase transaction speed and be accessible to outsiders such as tourists What is a stablecoin? Stablecoins are cryptocurrencies designed to minimise the volatility of the price compared to non-backed cryptos – like BTC How? - relative to some "stable" asset or basket of assets. A stablecoin can be pegged to a number of different things – can be cryptocurrency, fiat money, or to exchange-traded commodities (such as precious metals or industrial metals – like gold Similar to countries pegging their own currency to another – increase or decrease supply of your money base in response to maintain a peg – Compared to say BTC - perceived Advantages of asset-backed cryptocurrencies are that coins are stabilised by assets that fluctuate outside of the cryptocurrency space (unless pegged to another crypto) – reduces correlation risks – Bitcoin and altcoins are highly correlated - But even Backed stablecoins are subject to the same volatility and risk associated with the backing asset. A "stablecoin" which is neither stable or a coin - it is exactly a fiat derivative in the hands of Governments or Central Banks - a fiat derivative, it is not a move away from the dollar rather an extension of the dollar carried over crypto blockchains. Why not BTC? – Stable coin will be required by the financial system – along with ability to regulate and control the backing of the currency (Gold or Fiat) – can't allow other currencies to continue if not backed by something that can be controlled – options to legislate to destroy confidence in any competing cryptocurrency – Will attack the Practicality of BTC first – Situation one – BTC is accepted by vendors using fiat currency – like currently – It can't have a base – to be accepted as a new type of financial system – just a derivative of the current through the pricing mechanics – we value it in AUD, USD or whatever you use day today Another currency could replace Businesses do currently accept BTC in exchange for AUD – But companies don't want to get screwed through the floating exchange system – prices still in Fiat currency and the exchange is made for the equivalent value of BTC almost straight away Situation two – BTC is the valuation and companies have fixed exchange of goods to for BTC A basic car would cost 2 BTC – Would it be more profitable/secure to switch to accepting another currency? Also - BTC has a capped supply – So, alternative currencies would be adopted by people seeking the demand and profit from being early adopters - Currently thousands of coins – Viability – Unregulated and easily manipulated - Security in a cryptocurrency is everything – but the control by the monetary authorities is essential – excuse here will be that crypto like BTC is too risky for consumers due to the hacking/theft in the system – so will be banned as it is too risky to use Breaches have always been against currency exchanges and other 'services' that have grown up around Bitcoin – not the distributed ledger – so Gov's/CB's can ensure the security of their own coins as the weak link of the wallets won't exist What do the options look like? – two viable options - between Fiat and Crypto Fiat-backed – issued and controlled by the state – the promise will be to secure and guarantee the distributed ledger Cryptocurrencies backed by fiat money are the most common and were the first type of stablecoins on the market. Their characteristics are: Their value is pegged to one or more currencies (most commonly the US dollar, also the Euro and the Swiss franc) in a fixed ratio, The tether is realised off-chain, through banks or other types of regulated financial institutions which serve as depositaries of the currency used to back the stablecoin, The amount of the currency used for backing of the stablecoin has to reflect the circulating supply of the stablecoin - Examples: TrueUSD (TUSD) USD Tether (USDT) Libra. Fiat-backed stablecoins can be traded on exchanges and are redeemable from the issuer. The cost

Welcome to Finance and Fury, the Say What Wednesday Edition, Where we answer your questions, today's question is from Sol Tau Thanks for the Podcast and all the great info it provides. Could you explain what leads to hyperinflation and if there is any possibility of seeing that sort of scenario in Australia? This is a great question – and one topic I was going to tackle in a few weeks in relation to the monetary reset to crypto – so I'll jump the gun and cover potential hyperinflation First – What is hyperinflation? In economic terms - hyperinflation is very high or highly accelerating inflation rates Inflation is the measurement of the increase in prices of goods = CPI in measurement terms – basket of goods and how the costs to purchase them changes Central bankers try to use inflation to reduce the real value of the debt to give debtors some relief in the hope that they might spend more and help the economy get moving again Therefore – hyperinflation quickly erodes the real value of a currency – due to prices of a good increasing – reducing your purchase power unless wages increase at same or greater rate – Technically - Hyperinflation is when the prices of goods and services rise more than 50% a month. If you have $100 bill in your wallet – which could buy you 20 cage-free 12 pack of eggs at $5 each today You have another $100 bill and take it to buy eggs a month later – but the prices go up by 50% - now can only get 13 and 1/3rd egg cartons – reduction of about 33% of your purchase power If a good or service could cost one amount in the morning but be more expensive by the afternoon – how would you respond? You would buy more now? Or wait? Buy now – this creates shortages in stockpiles – leads to undersupply which further spikes price rises Hyperinflation massively increases uncertainty due to a rational behavioural response people make - but not accounted for in economic models – therefore – spending now rather than saving for the future is an 'irrational behaviour' Causes – number of different causes – but demand and supply come into it – but with some stress to the government budget, such as wars or their aftermath, socio-political upheavals (changes in governments – mostly socialism/communism), a collapse in aggregate supply or one in export prices, or other crises that make it difficult for the government to collect tax revenue – many different reasons – as it isn't just one trigger that creates hyperinflation – requires a perfect storm of situations Starts for a combination of reasons – but in most cases - step is when a country's government begins printing money to pay for its spending – increasing supply of money – decreases real value It is all about perception – well known example - Germany – Weimar Republic in Germany in the 1920s printed to pay off war debts – along with losing backing for supply of money in the form of gold in the WWI treaty But number of Deutschmarks in circulation went from 13 billion to 60 billion from 1913 to 1914 First time printed money to pay for WW1 – economy was strong and prepared before war But German government also printed government bonds - same effect as printing cash - so Germany's sovereign debt went from 5BN to 156BN DMs But from WW1 - 132 billion marks in war reparations – from taking away production capacity - lead to a shortage of goods, especially food. Because there was excess cash in circulation, and few goods, the price of everyday items doubled every 3.7 days. The inflation rate was 20.9% per day. Farmers and others who produced goods did well, but most people either lived in abject poverty or left the country. But today - Every government does this still - not to pay off war debts but fund spending – budget deficit is the term for the indirect way of funding this through bonds – which are purchased off the financial system which received an increase in their money supply from the Central Bank Modern day – I believe that once a country is cut off from the modern financial system – cant borrow/issue bonds for spending funding – so start printing as a response – not the only response they have though – they could always cut spending Theoretically - An increase in the money supply is one of the two causes of inflation – Monetarist theory – but after too much inflation - instead of tightening the money supply to stop inflation, the government keeps printing more – often out of perceived necessity Milton Friedman – "inflation is always and everywhere a monetary phenomenon" – may have been true back in his day – but not true today – pre-70s money was user demand-responsive = only grew through trade – more a country produced, more it could export – leading to monetary influx of funds – leading to companies being able to charge more – so prices went up creating inflation – with it – growth of the economy but only between a bandwidth of inflation Today – with Inflation being targeted and therefore manipulated from Central banks – it has become a function of

Welcome to Finance and Fury, Back from Holidays – spent some time in the USA - Got me thinking about differences in property and their pricing – seeing property prices vary differently state to state – city to city – want to do a Series on property and its prices – Today - How can you tell that property prices will be high in a city? What are the measurements/characteristics on a country/city can be used to determine if property prices in cities are going to be high? This topic will take a few episodes to tackle properly – but in a quick summary Tell tale characteristic to be able to tell if property prices are high – Urbanisation levels versus available credit (cash people have access to from savings or lending/mortgages of the population) – Concentration of people (higher demand with population levels) and the limited supply available when people are concentrated in living space In Aus – we will go state by state – state pop, compared to largest city – we are fairly urbanised But more importantly – it is the Borrowed funds by the population – household debt to GDP In conjunction with the urbanised population – higher the amount people can borrow or put towards property – higher the prices will be Regulations – aims which increases the incentive for higher urbanisation How - Town planning – the restriction of supply of available developments Another Monday ep - Why - the wealth effect and easy to enforce regulations – why planners like concentration of property – for higher price growth over time as population grows and supply doesn't meet it What is urbanisation – method of measurement? Urbanisation – Could also say demographic trends of living Urbanisation is the increase in the proportion of people living in cities Historically – come from rural migration Urbanisation occurs because people move from rural areas (countryside) to urban areas (towns and cities) – Often a stage/occurrence of a country that is still developing However – in developed countries, it is reflected in the breakdown of population living in cities versus rural growing Urbanisation rapidly spread across the Western world from the turn of the century – peaked in the 1950s and hasn't gone back – But now it has begun to take hold in the developing world as well turn of the 20th century, just 15% of the world population lived in cities – But in 2007 - was the turning point when more than 50% of the world population were living in cities the first time in human history this has occurred – and with-it growing property prices Australia – in the early 1900s – around 40% lived in cities – Today – about 75% - almost doubled Causes – Cover further in next episode Urbanisation occurs either organically or planned as a result of individual, collective and state action. Living in a city can be culturally and economically beneficial since it can provide greater opportunities for access to the labour market, better education, housing, and safety conditions, and reduce the time and expense of commuting and transportation. However, there are also negative social phenomena that arise, alienation, stress, increased cost of living, and mass marginalization that are connected to an urban way of living. Global Trend – Where available housing is allowed Where available work is Specifically – Developed Nations - Where immigration occurs from Overseas Sydney, California, Vancouver – high levels of demand Thanks to regulations and town planning – limits infrastructure and sprawl of the population No incentive for companies to go to rural areas – no incentive for developers to develop rurally For property prices – number of cities available to live in – the demand versus populations ability to borrow funds to throw more money at a property – these two factors then increase the competition and with it, property price growth Measurements of Urbanisation – Number of people living in cities versus rural areas Shift over time – more people moving into the cities for opportunities Australian cities and states – Urbanisation levels of just the major cities versus the whole state NSW to Sydney – 7.5m to Syd is 5.23m – 70% VIC to Melb – 6.4m to Melb 5m – 78% QLD to Bris – 5m to Bris 2.3m – 46% WA to Perth – 2.6m to Perth 2m – 77% Tas to Hobart – 550k to 200k – 36% NT and Darwin – 210k to 130k – 61% Whist Travelling in the USA Was in NY – Colorado (Denver and Steamboat) – San Fran/California LA County – 10.2m, San Fran bay area – 7.5m – the whole CA pop is about 40m people – 45% of whole state lives in two cities – LA county is 12,305km2 – Sydney is the same area size but accounts for 70% of the state's population – Average price is about $630k USD - Convert to AUD and it is $920k – pretty much exactly what Sydney's prices are New York Steamboat – shows a good example of legislation Small ski town – 12,000 people in around 30km squared The median price of homes currently listed in Steamboat Springs is $749,750 Costs of living scale – Aspen, Vail, then Steamboat – all sma

Welcome to Finance and Fury Looking around in Australia - increasing disparity in wealth, and social fragmentation That social fragmentation means Australians are become "more self-interested, more materialistic, more competitive". Our largest challenge as a society is the challenge of preserving social cohesion – where we are all working towards the same goals as a society – It is an Us Verse them – some want the 1% to pay for their homes, uni education, others want everyone to live in the dark by removing all CO2 use There's no perfect society - We have the inevitable consequence of living in bigger, faster cities and working in more competitive workplaces. Our bodies respond to stressful events with a surge of adrenaline, which increases our reaction speed and helps ensure our survival - Trouble is, our bodies aren't designed to cope with repeated stressful events and adrenaline rushes. If more "jobs and growth" and the higher incomes they bring are intended to make us happier, maybe governments would do better by us if they switched their objective from increasing happiness to reducing unhappiness. But Governments aren't responsible for this – they are the reason why we are in a lot of messes It is up to you – Today looking back at the basics Human behaviour – How do we act when we have something we didn't work for (or earn?) like UBI or government incomes 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 – Serotonin – from our position in a hierarchy - Spending money for nicer cars, suits, watches – Try to live up to an ideal image. Doesn't actually increase serotonin – Fake it till you make it doesn't work here if – Your brain knows that you are just flashy/show 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 not sustainable – Only lose money to get dopamine Risky investment – Get rich quick schemes – Often just lose money Hedonic Treadmill - The tendency to revert back to a standard level of happiness Money/goals - despite a change in fortune or the achievement of major goals. As a person makes more money, expectations and desires rise in tandem, which results in no permanent gain in happiness. But – to feel happier we need to then spend more once you are hooked on this loop - MC hammer – paid his entourage first………didn't work so well. The economists' basic model views us as individuals, motivated by self-interest, and the goal of faster growth in the economy is aimed at raising our materialstandard of living And if some of our problems stem from changing technology– pursuing friendship via screens, for instance Economists assume that economic growth will leave us all better off. Most take little interest in how our social wellbeing is Our real incomes have grown considerably over the years – even for people at the bottom – and economic reform can take a fair bit of the credit. It can take most of the credit for the remarkable truth that, unlike all the other rich countries, we've gone for 27 years without our least fortunate experiencing the great economic and social pain of recession and mass job loss. But though most of us are earning and spending more than ever, there's evidence we're enjoying it less. Our higher material living standards have come at the cost of increasing social and health problems. Australians are wealthier than ever - but also more sleep-deprived, overweight, overmedicated and anxious and unhappy – taking these feelings out of society and pushing the blame onto things like Climate Change – form of projection of individual problems against a common enemy But not helpful and won't solve the real reasons - Economists generally take little interest in social and health problems, regarding them as outside their field. But though problems such as loneliness, stress, anxiety, depression and obesity were with us long before the arrival of consumeristic cultures – but have got worse since the mid-1980s As our material problems have disappeared – you make up our own problems - social media and relative lifestyle of others that can be seen at a level never been seen in human history We can blame any Economic theory you want but the truth is when you watch what is happening around the world it is quite evident that we are an extremely lucky society – but when we live unhealthy lifestyles, our unhappiness, our huge suicide rates shows material focus isn't making us happier or really wealthier beyond l

Why? – nobody else will help to confer information and thus Teach them about value of money – Kids don't understand value of not just money as a medium of exchange – but that their time has valued attached to it – I don't think some adults know that either At the very basis level – Doesn't matter on which child psychology you read (Piaget, Freud, Erikson) – all have the understanding that children are egocentric – the world revolves around them – dues to brain development and availability heuristics What about me? Constant question from kids – or variation – when are we going to be there, or the why game Isn't a bad thing – shows curiosity that can be lost if no nurtured But when it comes to money and value of items, monetary system – Prime directive (StarTrack) shouldn't be to worship money – but to understand value of what it can be exchanged for This doesn't just apply to kids – value is very important – not the price Value is the very basis of every investment as well – would you pay $100 for something wroth $10? Through branding and marketing, some people do? But yet, put that money into something growing by 8% p.a. rather than being thrown out in 3 years, better one option than the other. The need to understand Money – Not to instil a sense of greed – the opposite- but that things aren't free and that time is used as a medium of exchange – look at current state of society – lack of self awareness from protestors or disruptors - If You work – you spend time – let's say 40 hours a week doing something – you get money in return – the Gov takes some away – then you have money left – Teaching value is important – transaction – free pocket money isn't good – entitlements of receipt – If they need $100 for splendour for schoolies - say no – pre-plan requirement Helps to avoid getting burdened with debt at a young age as well – if you don't value money, you wont value debt – Or understand the negative value of debt and how it depletes future wealth What to talk about Is hard to talk about money with kids – Generational divides - Baby boomer generation – didn't like to talk about it – culturally spread to the next generation and so on – generalisation of course – but Created taboo with money – created inept children Also – education – about basic economics and financial system is lacking – where do kids get a lot of economic education – board games like monopoly Unfortunately – where do a lot of people get their financial education – word of mouth from friends or family – or Monopoly - Mentality of a zero sum game – Monopoly is the best example due to the mass familiarity and use of a bad financial mentality Does Monopoly provide any benefit to certain players? We all start with the same amount of money in the bank, and two dice to roll each turn. Unless Ms Monopoly where gender helps outcome – either way - going first is best: Head start – reduce chance of landing on taken properties. Over time this advantage diminishes Example - You roll 5, buy the railroad. then 2nd - 4, 3rd - 6, 4th - 8. Other players have rolled a sum of 9, 15 and 23 (which is rather likely) in order from your second turn If you play Monopoly a lot like myself – start to pick up the Basics in monopoly game economics; Don't allow other players the ability to build houses, if you can. Build houses strategically on the most profitable for the costs - the orange set Manage your cash flow and reserves Avoid mortgaging properties, and with it your ability to win the game. Other tactics paying to get out of jail early on. Once all the board is fully owned, it can pay to have a few turns rest. How to win? The number of 'wins' to 'losses' each turn ends up compounding over time. The more of the board you control, the more wins you will have. The more each property is developed, the greater your wins are going to be. Increase the chance of a win each turn, plus the size of each at a greater rate than other players, you will likely win. But the most annoying part of Monopoly Is chance - How much is chance? Everyone playing knows what works in the game Difference in outcome is likely to come from how the roll of the dice works in the first 8 turns. The rest is up to us, but how much of the game's ultimate outcome comes from the luck of the dice? So when it comes to kids -0 so much of materialist consumer communications are spreading some bad psychological messaging – similar to how monopoly has installed a lot of people's psychological monetary beliefs. I'll be honest, I don't like monopoly! The outcome is too reliant on randomly generated chance Waiting and waiting for others to finish their turns = EG 8 people, then this may be around 88% of time played, Who wins? Shift in the direction - clear who the winner is going to be We can just walk away from the table. But who likes to be robbed of victory? It is lose-lose, Competition - which is why I am not a fan. If the real world was a zero-sum lose-lose game, then the outcome of life would likely take

Welcome to Finance and Fury Traditional asset class allocation Diversification getting harder Diversification in a world where most asset classes are becoming correlated Diversification: what it is and isn't Diversification across asset classes is one of the most fundamental principles of investment portfolio construction Reason - different types of assets perform differently at different stages of the economic cycle When done properly - diversification across asset classes results in stable returns at less risk - An appropriately allocated portfolio helps smooth out the ups and downs of the markets so investors can enjoy the positive compounding of returns over time About downside risks – whole portfolio shouldn't fall as much in the face of a market correction – allows a portfolio to retain its value A loss of 10% = 11% to reverse the loss A loss of 25% = 33% to reverse the loss A loss of 50% = 100% to reverse the loss – 90% loss = 900% gain Asset allocation and Diversification - asset allocation is not the same as asset class-based diversification Diversification means getting a better return for the same level of risk Contrasts with just adding bonds to an equity portfolio to reduce its volatility, as doing so would also reduce long-run returns because bonds tend to return less over time than equities. Table 1 illustrates the power of asset class-based diversification Example – $1,000 invested in the 1970s – 20% more from 50/50 with lower risk While shares and commodities are both deemed relatively risky investments, combining them helps mitigate the risk of the portfolio – due to low correlation Diversification has changed Initially - 1952 - economist Harry Markowitz's released 'Portfolio Selection' in the Journal of Finance - demonstrated that building a portfolio of imperfectly correlated assets could result in reduced portfolio risk for a given level of expected return 1964 – in the same journal - Sharpe's Capital Asset Pricing Model (CAPM) described the relationship between risk and expected return - introduced "beta" as a measure of sensitivity to market risk and the risk return relationship 1986 - Financial Analysts Journal- examined the allocations of 91 pension funds - findings that on average, asset allocation decisions explained more than 90% of pension fund risk, as measured by the volatility of returns over time. 2000 - Roger Ibbotson and Paul Kaplan argued that asset allocation policy actually explained 100% of the typical individual investor's return Then traditional Diversification died - The extremely negative impact that the GFC of 2007–2009 had on investment portfolios caused many people to question the value of asset class-based diversification. The major reason is the correlations between asset classes - such as international and Australian equities Large Negative economic shocks that affect the whole global economy (like the GFC) can cause all equities to fall In other words - it has been observed that diversification disappears when it is most needed – but diversification never promised to ensure gains or prevent losses – but just showed the pattern based on different annual returns per asset class Various asset classes are becoming increasingly correlated, therefore making it more difficult to build a truly diversified portfolio. International markets use to be the staple of diversification – there has been an increase in correlation between the global equity markets - European markets Due to the EU Emerging markets are also becoming more closely correlated with US and UK markets Increase in unseen correlation between the fixed income and equities markets PIMCO Australia also says long-term trends such as globalisation are driving correlations higher Correlations have been rising due to greater inter-connectivity between global markets. Multinational corporations have proliferated to such an extent that what happens in Europe and Asia impacts the US markets and vice versa. Many Fortune 500 companies in the US depend on emerging markets for growth Today's world of globalisation - greater connectivity of economies and of financial markets Means traditional asset classes are subject to more common shocks than in the past Equity correlations since 1995 – Between USLC, USSC, Int LC, EM 1995 to 2000 – USSC, Int LC, EM – showed low to mod correlation to USLC (0.3-0.7) 2001 to 2007 – USSC, Int LC, EM – showed medium correlation to USLC (0.7-0.9) 2008 to 2015 – Mod to high correlation – EM especially – Reasons – due to markets becoming more globalised and more integrated and monetary policy Also - passive investing and exchange-traded funds (ETFs) or index hugging long managers There is a positive correlation between equities and bonds - both go up or down at the same time For a long time - correlation between the asset classes has been negative Depended on the stage of the economic cycle and whether the shocks affecting the economy are demand-driven or supply-driven. Is asset class-based

Welcome to Finance and Fury, Are we in a property bubble? There is no question that the Australian property market has become significantly overpriced – but is it a bubble and due for a significant downturn? – For this – only talking about capital cities – most of the land isn't in a bubble First - A property bubble is a form of "economic bubble normally characterised by a rapid increase in market prices of real property until they reach unsustainable levels relative to incomes and rents" – then like most bubbles – prices at some point decline History - Australian house prices rose in correlation relative to average wage-earning – up until 1996 June 2014 - IMF reported that house prices in several developed countries are "well above the historical averages" and that Australia had the third-highest house price-to-income ratio in the world. 2016 – OECD - reported that Australia's housing boom could end in 'dramatic and destabilising' real estate hard landing In past 12 months - Sydney and Melbourne have experienced price declines of up to 10% with potential of a further 10-20% loss in the near future – But the upturn in Australia's markets over October 2019 has been remarkable, with the rebound in prices considerably stronger than many expected (Melbourne's strongest property price recovery ever and Sydney's in decades) Driven by the combination of lower interest rates, easier access to credit Initial declines were largely triggered by the significant tightening of lending standards (removal of HEM benchmark) and the revealed mortgage fraud aka subprime 'liar loans' and widespread irresponsible lending practices What has created our bubble? A number of factors - The Australian property market saw an average real price increase of around 0.5% per annum from 1890 to 1990, approximately matching CPI – 100 years From 1990s - prices have risen faster resulting in an elevated price to income ratio - all capital cities strong increases in property prices - Sydney and Melbourne been the largest - rising 105% and 93.5% respectively since 2009 Coincide with record low wage growth, record low interest rates and record household debt equal to 130% of GDP - clearly shows unsustainable growth in property - driven by ever higher debt levels fuelled by the RBA - cutting rates beginning in 2011 Today – property prices 7 to 10 times equivalent of average full time earnings - up from three in the 1990-90s Demand side – Greater availability of credit due to financial deregulation and lower rates Debt growth averaged 15% per annum compounding (1998–2009). During the same period national economic growth was less than 3% with debt stripped out - low interest rates since 2008 allowed for the increasing borrowing capacity fuelling growth The influence of interest rates and banking policy on property prices is evident – Coupled with financial deregulation - led to greater availability of credit and a variety of financial products and options RBA has maintained a low cash interest rate policy - reduced the cost of financing property purchase Easy availability of interest-only loans has made investment borrowing more profitable – increasing incentive Allowed for expansion of bigger properties and became easier and cheaper to borrow more money – bidding war backed from unowned assets Now that rates are 3% - $600k loan is $2,530 pm – at 6% is almost $3,600pm – or $12k p.a. more At 6% would be cashflow equivalent of $425k borrowing – or about a 30% drop since 2008 Between 1998 and 2008 inflation was about 36% and property prices increased by more than 300% on average in all capital cities except Sydney (up 180%) – Continued this trend – with property growth matching credit growth but no longer inflation or wage growth like it did before 1990 Interest rates - Major increase in property price comes back to lending capacity 50s to 70s – 5% or so- Very consistent in the gold standard, Brenton woods era – pounds 70s – 80s – went to 7, 8, 9, 10%, then in the late 80s – early 90s 10 -17%, by 92 – within 2 years dropped back to 10% - then went to about 7%, by 2000s – range of 7 – 9% (dropped to 5% in 2009) – Back to 7% after – but since Last 8 years been dropping - Now looking at rates below 3% High population growth, concentration and overseas investment/property purchases – Population size and growth - Great place to live – High levels of immigration -makes up over 60% of our population growth - One of the Highest growth in the world – Behind Saudi and NZ 1901 at Federation – population of 4 million - Population now – over 25m - Growth of – 6 ¼ times in 100 years America – 77m to 326m – growth of around 4 times Why has our population grown by so much? – Lots of factors - We are living longer – 100 years ago the median age was 22 years and 4% of the population was aged 65 or over – Today - 37 years, and 14% of the population were aged 65 and over – but due to lowering birth rates – most comes from immigration Immigration/Overseas purchases – When

Welcome to Finance and Fury, The Furious Friday Edition Monday ep this week went through BTC – Went through a monetary reset towards a crypto-fiat system – Today – talk more The BIS and central banks versus BTC and the crypto markets – how are they planning to get there. There are two side to crypo - especially Bitcoin – BTC is a divisive topic – garners strong passions in the population One side are the proponents - hail it as the future currency - is immune to the manipulation of politicians and central banks – Suggestions of Bitcoin being the basis for restoring world currencies to a new monetary standard or Bitcoin standard. On the other side - Bitcoin is seen as an electronic version of snake oil, tulipmania and Ponzi schemes While admitting to the underlying blockchain technology being useful and a great idea - not in the context of a currency If you remove BTC and just said crypto currency - I think both sides are right mostly Fiat system – is a bubble in its size – far surpasses tulipmania - isnt this a ponzi scheme? Why not adopt that same model but in derivative form of some digital credit – stable coins – crypto pegged to a fiat currency valuation So how will the takeover occur – through indirect methods – the back door into the crypto markets To start with – look at the basis of all digital transactions – You need some form of 3rd party verification process – Not needed with physical currency – I go to the shops and exchange my $20 AUD for food, tell checks and takes cash An early theory of digital coins was to allow the same peer-to-peer transaction where the third party would be involved But with all digital transaction, there must be a 3rd party verifier – why coin theory evolved Everyday use of electronic money - this is the bank which holds the payer's account In BTC - the distributed ledger built on blockchain technology does this - provides a trustworthy system in an environment where no particular party is trustworthy – verifies each party from the coin/tokes code The BIS has focused on the very functionality of cryptos – In their Annual Economic Report 2018, Chapter V is entitled 'Cryptocurrencies: looking beyond the hype' While it says crypto in title - analysis and criticism is only focused on Bitcoin – but this does use blockchain technology They find that there may be times where blockchains provide the answer to a lack of trust, but the payment system is not one of them – Their arguments lie in two parts: Viable money systems have some essential characteristics; and Bitcoin fails to fulfil these requirements – pretty basic - Overview of Chapter V BIS V begins with a historical review of money, noting that history is a graveyard of failed currencies - they derive the proposition that 'money' must meet the definitions of money: A unit of account, providing a common measure of value across goods and services that are not otherwise comparable; A medium of exchange - accepted token which can be exchanged for goods and services – under Fiat by decree – Gov only allowing AUD in our stores A store of value that enables a holder to transfer purchasing power over time. The BIS states that trust is central to the success of a currency - without trust in 'the system' a currency will soon cease to fulfil one or more of the essential characteristics of money – but which one? store of value, unit of account or medium of exchange? I would go one further and say it isn't trust but confidence – trust is a part of this – but Trust and Confidence do appear almost similar in meaning – but there is a slight difference Trust refers to the firm belief that one has on another individual or thing – you trust your breaks will work even though you haven't had a service in 10 years Confidence refers to the assurance that we have on someone or something – you have confidence your breaks will work as your car was serviced last month When confidence is lost it is almost impossible to get back Trust in bank deposits is generated through a variety of means - regulation, supervision and deposit insurance schemes, All come from the central authority of the state – trust money in your bank account is safe, but do you have the confidence in the bank not taking your money in a bail out? Trust covers medium of exchange and unit of account – you trust that it will be useful in the future – same with store the value – why? Central banks have promised a rate of loss of value – inflation loss of money in real terms What drives the ship (so to speak is confidence) – which comes an inward view of the financial system – Those at the tops – group of 30, central bank Governors, etc – their actions show confidence they have in the system – why they are looking at alternatives out now – and turning to an option readily adopted by a large chunk of the population voluntarily Well – because the type of currency is being accepted b the population – but the BIS is looking at banks being the controller of the currency – why? To create tr

Welcome to Finance and Fury, The Say What Wednesday Edition Question from Mark part 2: Can you explain the repo markets that are going on at the moment? Apparently the banks are loaning money from the Feds at 10% so they have enough liquidity to survive the night/Bank run? Announcement – Last SWW ep for the year – Taking a break – Monday eps still going but no Wednesday or Friday episodes Repo market – Or repurchase market – What is it? And why are they done? What this says about the state of the economy A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities Agreement where one party sells Gov Bond they own for cash to another party – and promise to buy it back at a higher price in the near future – the inflated value is the repo rate Active participants in the domestic repo markets are those who deal in Gov Securities – include commercial banks, Central Banks, securities dealers Securities dealers - typically large domestic and international banks/investment managers that are market makers in domestic government securities – Investment funds and other non-dealer institutions are also providers of high-quality assets to dealers. These institutions typically use repos to manage their short-term funding while maintaining their exposure to these assets, and in some cases to enhance portfolio returns. Repo agreements are classified as a money-market instrument – as it functions the same as a short-term, collateral-backed, interest-bearing loan Buyer acts as a short-term lender, while the seller acts as a short-term borrower One party needs money – other party wants to make money It is a sale for cash – a sale of a certain type of fixed interest security The securities being sold are the collateral – Repurchase agreements are generally considered safe investments – but it does depend on the type of security sold Most agreements involve U.S. Treasury bonds – also Government Bonds - Central demand used to mainly be safe assets like these More recently – MBS, CDOs – assets that aren't so safe In the case of bankruptcy, in most cases repo investors can sell their collateral – but not when the assets tank like 2008 Repurchase agreements have a maturity period called the "term" or the "tenor." - Repos with longer tenors are usually considered higher risk – due to the fact that the longer the tenor - the more factors can affect repurchaser creditworthiness, and interest rate fluctuations are more likely to have an impact on the value of the repurchased asset. It's similar to the factors that affect bond interest rates – went through last Weds The Significance of the Tenor - counterparty credit risk is the primary risk involved in repos i.e. creditor bears the risk that the debtor will be unable to repay the principal – securities as collateralized reduces the total risk – but not by 100% Specified maturity date (usually the following day or week) are term repurchase agreements - A dealer sells securities to a counterparty with the agreement that he will buy them back at a higher price on a specific date. The counterparty gets the use of the securities for the term of the transaction, and will earn interest stated as the difference between the initial sale price and the buyback price An open repurchase agreement (also known as on-demand repo) works the same way as a term repo except that the dealer and the counterparty agree to the transaction without setting the maturity date The trade can be terminated by either party by giving notice to the other party prior to an agreed-upon daily deadline - automatically rolls over each day and Interest is paid monthly Nearly all open agreements conclude within one or two years Repurchase agreements can take place between a variety of parties and reasons Example - The FED enters into repurchase agreements to regulate the money supply and bank for their reserves. The most common type is a third-party repo (also known as a tri-party repo) Repo Arrangement with a middle man - a clearing agent or bank conducts the transactions between the buyer and seller - constitute more than 90% of the repurchase agreement market Holds the securities and ensures that the seller receives cash at the onset of the agreement and that the buyer transfers funds and delivers the securities at maturation Two major clearing banks for tri-party repo - JPMorgan Chase and Bank of New York Mellon Facilitate the goals of both parties - secured funding and liquidity while the other makes a profit Example - a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price. That small difference in price is the implicit overnight interest rate. Repos are typically used to raise short-term capital. They are also a common tool of central bank open market operations. In your everyday life – say you don't have any cash – you job is a delivery driver – but you are out of cash - need money

Welcome to Finance and Fury, Last Friday – new monetary reset might be going digital Today – Dive into Cyrpto/BTC potential traps of the future – The potential regulation and eventual centralisation of Cryptocurrency at the nation-state level – i.e. domestically in any country Something always has puzzled me – Who invented BTC – I know the anonym's name and we all know the story – In 2008 - Bitcoin was proposed by unknown author or authors - pseudonym of Satoshi Nakamoto At the heart of blockchain is the distributed ledger - or a distributed network is a shared database So rather than one central entity holding the information, it's spread through a network of millions of sites or nodes – in the early days decentralization offered many benefits over traditional, centralized systems: increased security and transparency As it uses a trustless, fungible and tamper-resistant distributed ledger called a blockchain Ironic it is called a decentralised currency, when you need power and the internet to access – and turns out – potentially Government permission Take a step back – bit of conjecture in this episode – but think this through with me Blockchain is a revolutionary invention – another extension of the internet – I liked it initially as well But remembered one key factor - Where did the internet come from? Technology for GPS, almost the foundation for most of the stuff we use day to day? Governments or their funding arms – Like the CIA's DARPA – funding almost all tech since the 70s Examples – Internet and emails, Windows, WWW, and Videoconferencing, google maps, Siri, Unix, and cloud technology, GPS, VR Essentially – the foundation for most technologies – but bitcoin just came to be from an unknown source – in this day and age? There are plenty of narratives through history – Benjamin Franklin and the invention of electricity – Total BS – how? Step 1, fly a kite in a storm, step 2, attach a skeleton key to it – weighs a good 50grams – then he is shocked by lightning – is a narrative of history that falls apart with some scrutiny But Given the inventor of BTC is unknown – we don't know where it came from – but following the trend – just as likely (if not more) a government as some lone programmer/group – especially when you look at the current Especially if it serves their needs in the end game – How do you get someone to adopt something – Willingly – Edward Bernays the founder of PR- Spin and book of Crystallising public opinion Examples = Smoking freedom torches for women, or selling American Aluminium's waste products – fluoride By force is hard – resistance when told what to do – much easier to have people adopt by choice New cool technology, antiestablishment, untraceable, profitable! Who wouldn't want to get in? But What if that is what Central banks and the banks of Central Banks (BIS and IMF) want? They know fiat is going to collapse at some point – too much debt – never be repaid Central Banks – BOE's Carney Floats Idea of New, Virtual Reserve Currency Statement: "Such a synthetic currency potentially could damp dollar dominance, ease burden of greenback's moves on smaller economies" Banks of banks - It is well within regulations of banks - Rhetoric regarding cryptocurrencies is somewhat more moderate in a recent report from the BIS - finds that cryptocurrencies in fact, "rely on regulated financial institutions to operate, bringing cryptocurrencies within reach of national regulation." This isn't to be taken lightly - The BIS regulates and holds capital on behalf of 60 central banks across the globe Though the BIS has expressed moderate conclusions about cryptocurrencies in the past Statements made by BIS Head of Research Hyun Song Shin in June and recently the BIS president - called cryptocurrencies "psuedocurrencies" and Bitcoin, "a combination of a bubble, a Ponzi scheme, and an environmental disaster." But the new report from the BIS says that a close correlation of trading behaviour with regulatory news suggests the crypto sector responds like any other market to news about legality: "Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions…(E)vents related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism…News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains." BIS views the crypto sector being orientated towards lawfulness – as they see an increased dependence on regulated interfaces (exchanges and banks) and by "market segmentation," i.e. – BIS statements: "These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdic

Welcome to Finance and Fury, The Furious Friday Edition Today – want to explain why to watch out for proposed solutions to economic or societal issues Last ep – talked about the battleground between the Bankers and Governments back in the early 30s – Was a wild political time - Communist parties, Nazi party – mass protests, rioting, damaging buildings and assaulting people Since then – nothing much has changed – except where civil unrest is occurring and the degree - Today Sub-Saharan Africa – South Africa, Zimbabwe protests – over fuel costs, power and water, food costs and shortages South America – Chilean, Ecuadorian, Bolivia, Venezuela – over costs of living, like healthcare, education, The Middle East/Northern Africa - Algeria, Egypt, Iran, Libya – Food costs and shortages In the UK and Australia and America - Climate activist demonstrations today are acting out their perceived disenfranchisement – in the 30s it was real (living through the great depression) – while one is manufactured (world ending in 12 years) - Climate activism – pushing for social unrest Hong Kong massive protests – Trying to separate from China – very similar to another event – The Hong Kong 1967 riots were large-scale riots between pro-Beijing/communists and with the HK government and HK Police Force – Britain took HK as part of 1st opium war in 1841, then 2nd took Kowloon in 1860 – then 1898 99y lease Instigated by pro-People's Republic of China (PRC) parties - massive strikes and organised demonstrations - police stormed many of the leftists' strongholds and placed their active leaders under arrest. The colonial government banned leftist publications and closed leftist schools - retaliated by planting decoy and real bombs in the city. Several pro-Beijing protesters were beaten to death by police, and leftists murdered some members of the press Now the protests are reversed to leave China rather than join it But With civil unrest came the atmosphere of change – not in a good direction – From unrest - Economic solutions are proposed that are also similar – Comes from two sides of Monetary and Fiscal - Fiscal - Increase in Government spending, lots of Large infrastructure spending with some additional services provided and Gov jobs along with the new positions – What are the remedies being proposed? Monetary – Central banking responses in lower rates, more money distributed Battle between central banks and governments - Price distributions and The government and banks' regulations Out to destroy Trump out of fear that a new FDR impulse is beginning to be revived in America which may align with the 21st Century international New Deal emerging from China's Belt and Road Initiative and Eurasian alliance – Monetary – V Fiscal – Banks Destroyed FDR's Post-War Vision - While FDR's struggle did change the course of history FDR's allies were ousted from power over his dead body, and they were recaptured by the same forces who attempted to steer the world towards a Central Banking Dictatorship in 1933 IMF, World Bank or UN used as instruments for the internationalisation of the New Deal principles to promote long term, low interest loans for the industrial development of former colonies – like HK Why does this cycle repeat itself? Well - As it can be controlled – How? the population has something happen to them – a traumatic event – like a massive loss in wealth from collapse, loss of job, protests and civil unrest, or thinking world will end In a traumatic state – you are more likely to be susceptible to ideas given to you by others – especially if that idea will help to alleviate that stress – even if it really won't help the cause – The behaviour or action becomes the only goal for these groups – doesn't matter if everything else is destroyed in the process Creates an easy environment to seize more control - Trauma based control – doesn't have to be to the level of MKUltra or Project Monarch – but trauma in the form of stress, anxiety or worry – makes people susceptible to suggestions Authority figures – either Create or use an event – provide the response = get the outcome you want The danger of authority figures – Milgram experiments - The Milgram experiment on obedience to authority figures Series of social psychology experiments conducted at Yale by Stanley Milgram Measured the willingness of study participants from a diverse range of occupations with varying levels of education, to obey an authority figure who instructed them to perform acts conflicting with their personal conscience - they were led to believe that they were assisting an unrelated experiment, in which they had to administer electric shocks to a "learner." These fake electric shocks gradually increased to levels that would have been fatal had they been real First set of experiments - 65% (26 of 40) of experiment participants administered the experiment's final massive 450-volt shock, and all administered shocks of at least 300 volts. Milgram summarised the experimen

Welcome to Finance and Fury, The Say What Wednesday Edition This week Question from Mark – two-part episode (over this week and next) Hi Louis I have 2 questions, can you explain how negative yielding bonds work, they are saying a third of the global bond market is in negative yielding debt and it is going parabolic. How do people make money from negative yielding debt? It doesn't make sense. Also, can you explain the repo markets that are going on at the moment? Apparently the banks are loaning money from the Feds at 10% so they have enough liquidity to survive the night # Bank run? How can a bond have a negative yield? Negative-yielding bonds are bonds that cause bondholders to lose money when they mature. This happens when holders of such bonds will end up with less money than what they used to purchase them Negative Yield works through the mechanics of bonds – when the prices go up to where the yield is close to zero – and they are based in a nominal real value $100 – in 10 years' time inflation eats away at the value First - Explanation of Fixed Interest (bonds) - terminology – You don't get interest payments - you get coupons = The periodic interest payments promised to bond holders are computed as a fixed percentage of the bond's face value; this percentage is known as the coupon rate. The face value (also known as the par value) of a bond is the price at which the bond is sold to investors when first issued; it is also the price at which the bond is redeemed at maturity. In the U.S., the face value is usually $1,000 - Face Value is the amount of money you get back in at maturity of the bond Note that the face value is not the price – the price is what someone wants to pay for a bond You cannot receive any coupons and the yield on the bond may be positive – if the nominal value of the bond will rise to give you a return – or yield The maturity is the date at which you get your money back – Bonds are debt instruments – but what they really function as is a way of borrowing funds – funding projects/capital requirements for banks through selling a newly created asset and selling it to investors – in exchange for money – it is a loan that is in the form of an investment which can be traded – In Current Markets - A yield decline will start to occur if investors are buying a bond for more than its face value How do Negative-Yielding Bonds Work? - To understand negative-yielding bonds, let's first examine how regular bonds work to see how money can be lost on them at maturity - then how it differs from bonds that lose money. Two main categories for regular bonds: coupon and non-coupon paying bonds Normally - an investor should ordinarily end up with more than what they paid for the bond If there is no income (coupons) – price of bond should be at a large discount to maturity FV I.e. – Bond matures in 3 years for $100 – buy today at $90 – YTM = 3.5% p.a. even without coupons Very simple to calculate the Price of a Bond – literally a formula to get the exact price based around a few variables – A bonds price is that of the present value of all coupon payments plus the face value paid at maturity. F = face value, C = coupon payment, N = number of payments, i = market interest rate, or required yield, M = value at maturity, usually equals F This formula shows that the price of a bond is the present value of its promised cash flows. As an example, suppose that a bond has a face value of $1,000, a coupon rate of 4% and a maturity of 30 years. The bond makes annual coupon payments every year – 30 payments - If the interest rate is 4% Price = $1000 = same as FV – interest rates and coupons same – so no discount in price or premium of price What happens if the interest rate drops? Same bond – but interest rates now drop to -1% - price is now $2,760 – paying Each year the investor receives $40 in coupon payments and when the bond matures, they receive $1000 at maturity - though the investor paid more - yearly coupon payments made up for the difference of holding in cash with negative interest rates - But now let's say that the same bond sold for the same amount – but wasn't paying coupons? They get a negative yield (return) on their bond Prices and Yield to maturity – Can lead to negative yields – another simple example - Maturity: 3 years, FV: $1,000, Coupon: 0% Price: $1,050 During the three years, you get no income payments and when the bond matures you only get $1,000 back – Loss of $50 over the 3 years works out to be about a negative yield of 1.6% Therefore - If the total amount of income the bond pays over its remaining lifetime is less than the premium the investor paid for the bond, the investor loses money and the bond is considered to have a negative yield. With QE going on 10 years now – there are a lot of bonds being purchased in the secondary market – demand for bonds is high – the price can go up State of bonds: Who Issues and Buys Negative-Yielding Bonds? Negative-yielding debt is not new in Europe an

Welcome to Finance and Fury Today – want to explore the chances of the ASX booming next year Have been talking about complexity theory for the past few Monday episodes – Focusing on collapses – but what if positive feedback loops kick in further – in the form of potential QE from the RBA Want to cover this as a few developments have happened recently – pointing towards this possibility in 2020 Speculation from Banks – the RBA balance sheets show this First – the process of QE – covered what it is in the past and why it doesn't help the population – just raise prices Why? there is a concept of what is called the Cantillon effect - Cantillon effects – Under the assumption that all resources are fully utilised in equilibrium, a credit expansion implies that producers of capital goods in the 'new' processes of production bid away resources from 'older' processes. This is where the Cantillon Effect begins to work. The injection of additional money increases the purchasing power in the part of the economy it arrives first – in other words – it changes the price structure through the reallocation of resources and income This comes from Hayek – you could call him Keynes adversary in economics back in the 30s Inflation in the Hayekian sense is thus strictly defined as a rise in the quantity of money, not in the price level Inflation is not uniquely reflected movements of the price level, and the monetary cause of change the price structure will hardly be perceived as such. What Hayek was missing is the amount of money that flows through to the people – main street When Wall Street – i.e. the Bank and financial system get this – you actually won't see inflation See price increases in property and share market, and bond market with QE But won't see it in the population – the majority of loans to consumers are non-productive –i.e. – they don't yield economic output – like loans for businesses or growth of economy goes Housing prices rising doesn't create real growth – thanks to the debt backing it – long term the interest and massive principal repayments take away from economic investment or spending in economy In modern Banking system – printed money flows into banks first – redistribution of resources and prices – printing money doesn't increase inflation if it never hits main street - Money flowing into Aus share market from Australia QE – Market collapse occurs – the RBA buys up shares ETFs using QE, i.e. printed money to reduce the effects RBA one of the last to do this – seen the BoJ get in, Fed, Bank of England – we look to be next But who benefits? How does the printing of money to buy assets (shares and bonds) help? If you are invested it raises the prices – if you aren't – it just makes costs of living higher through property purchase, rates, and rental increases Wealth effect – not observed in economy though – theory only Also Governments - It is massively valuable for the state/local governments to have higher prices on land – more ongoing rates/taxes and lump sum - stamp duty/transfer costs Also beneficial to Fed Government – GST and CGT incomes- pump the prices up and make profit off the sale With the theory out of the way – where do we stand? The RBA and banking system seems to be increasing their balance sheets – based around the released data Look at the issuance of capital by the banks – equity and debt – share purchases and subordinated notes issuances Big 4 banks been on a frenzy of both – public issuances of notes, SPPs, capital raisings, warrant issuances Where it becomes even more interesting is the RBA data releases – First some terminology - The RBA defines the monetary aggregates as: M1: currency in circulation plus bank current deposits from the private non-bank sector - $1.04 trillion M3: M1 + all other bank deposits from the private non-bank sector, plus bank certificate of deposits, less inter-bank deposits - $2.14 trillion These stagnant numbers don't tell the whole story - M1 – has seen a massive money increase – June 19 was $360bn – July $1.014 trillion – then till sept last figures – this crept up slightly to $1.033 bn by $19bn – in one month almost doubled – 185% Note that M3 decreased from June to July - $2.157 to $2.128 trillion - $29bn drop There has been a massive increase in M1- But Back in 2009 – was $220bn – past 10 years grown by 370% - M3 – Total money has gone from $1.200 Trn to $2.128 Trn – about a 77% growth – but nothing compared to M1 What does this mean – look at the US fed and it tells a story that helps – When M1 increased in 2009 and 2011 – but M3 didn't – what periods were those – During QE1 and QE2 In which the Federal Reserve expanded its balance sheet through large-scale purchases of Treasuries and other securities M1 growth was highly positively correlated with the growth in reserves generated by Fed asset purchases Reason - reserves held with the central bank are assets for banks When central banks expand reserves – commercial banks must either sell other asset

Welcome to Finance and Fury, The Furious Friday Edition Last ep – lead up to the market crash of 1929 - and how thanks to central bank leveraging once removed – the market crashed Today – want to run through the internal political wars that were created – similar landscape to today Corporatism versus fascism – Private central banks versus the merging of the Government with Markets Has similarities to the modern era – with The New Silk Road and the Green New Deal Start - The Living Hell that was the Great Depression Throughout the Great depression - unemployment skyrocketed to 25%, industrial capacity collapsed by 70%, and agricultural prices collapsed far below the cost of production accelerating foreclosures and suicide. Life savings were lost as 4000 banks failed. This despair was replicated across USA, Canada, Europe and Britain - the population was pushed to its limits making western countries highly susceptible to fascism and socialism/ communism ideals England saw the rise of Sir Oswald Mosley's British Union of Fascists in 1932 Britain, Australia and Canada had its own fascist/socialist solution with the Rhodes Scholar "Fabian Society" and League of Social Reconstruction (which later took over the Liberal Party in Canada and Labour part in Aus) calling for the "scientific management of society" Mosley Fascists were more smash and grab power while Fabians were slow and steady In America as well - Time magazine was telling people that corporate fascism was the economic solution to all of America's economic woes – 6 times in 1932 Was a wild political time - Communist parties, Nazi party – mass protests, rioting, damaging buildings and assaulting people – while not on the same scale - climate activist demonstrations today are acting out their perceived disenfranchisement – in the 30s it was real (living through the great depression) – while one is manufactured (world ending in 12 years) But With civil unrest came the atmosphere that one of the least understood battles unfolded in 1933. Brings us to a political movement that isn't really ever talked about - is another entity in the control sphere – never really gets talked about – could and have talked about commies, nazis, socialists, etc. – go check those eps out – but today want to narrow in on one type and its variants https://financeandfury.com.au/give-the-people-what-they-want-socialism-for-the-masses-the-human-economy/ https://financeandfury.com.au/cannibalism-nazism-and-property-rights/ https://financeandfury.com.au/furious-fridays-evil-capitalism-efficiencies-incentives-equal-opportunities-and-reducing-poverty/ Fascist/Corporatocracy versus the fascist/socialist – in this case – Central banks versus Roosevelt Corporatocracy is used to refer to an economic and political system controlled by corporations or corporate interests – an ideology which advocates the organisation of society by corporate groups In this case – the type of Corporatocracy is that of the financial system in the form of Central Banks and BIS (IMF in 1944 to try and solve this mess by more of what created it in the first place – very similar to today) But if you think about it – they both essentially want the same thing – complete control over individuals - just who is in charge is different Let's look at 1932 and how the Bankers' Dictatorship Attempt went down – plans to overthrow FDR Franklin Roosevelt (FDR) won the presidency in America – He was described by many as a fascist – he was an authoritarian – but I would say he was more socialist – using the Government as his tool to implement his 'New Deal' Ideas were based off John Maynard Keynes – One of the engineers of the Versailles treaty talked about last Friday Keynes advocated the planning of a nation's economic life, political supervision of private industry, and manipulation of the currency – all of which required a massive increase in the size and scope of government at the time – today is a given but wasn't back then Every Authoritarian loved this idea though – in Britain - first enthusiastic review by economist, Marxist and a founding member of the Fabian Society - G. Cole In America were government officials in Franklin D. Roosevelt's administration - The greatest strides in American socialism occurred under Franklin D. Roosevelt or arguably Presidents Woodrow Wilson, Lyndon Johnson But to pull these ideas off Roosevelt - threatened to regulate the private banks and assert national sovereignty over finance This would have been bad for the FED and the private owners of the central banks – would destroy their plans for global fascism – control of the monetary supply So the City of London Corporation needed a new global system controlled by their Central Banks Don't let a good crisis go to waste - their objective was to use the Great Depression as an excuse to remove nation-states from any power over monetary policy – putting it in their hands and not national governments December 1932 - economic conference "to stabili

Welcome to Finance and Fury, The Say What Wednesday edition. Today's question comes from David Hi Louis, I must commend you on your contribution to the finance community. If you have thought me one thing, it's that the more you learn the more you realise how little you know. So, one thing that does perplex me is the Australian made product of the offset account. Whilst I understand how they work and the power they have when used correctly, I can't figure out why the banks have them. I mean it's the modus operandi of the banks to extract money from lenders via the mechanism of interest. Call me a cynic but I feel the banks must have an ulterior motive to this play. I would love to know your thoughts. - David That is a great question – made me think as well and do some further digging – today - Offset accounts and Why banks allow them? First – the basic = Offset accounts are a type of deposit account that is directly linked to a loan – like a mortgage Money deposited into offset accounts effectively reduce the loans net position and the interest payable Means where a borrower has a deposit account and a loan (usually a housing loan) with the same institution. Instead of receiving interest on the deposit account, the interest payment due on the loan is calculated on the net balance of the loan As they act as deposit accounts – only ADI can offer true offset accounts – non-banks will offer redraw facility instead – which means the money is on the loan – different In Aus - Offset account balances currently total around $90 billion – almost over 6% of housing loans outstanding Annual growth in total housing debt of around 7-8% - Offset account balances grown by 30% - annual growth in net housing debt is still growing by 6-7% due to new loans - Why banks allow them? – number of reasons Simple one - Better with them than another bank - Incentive to have your money with them and not the competition Also – repayments come from the offset accounts – easy for banks to have their funds – but minor But one of the major reasons – they Allow for the further growth of credit – remember – they are deposit accounts Because Offset accounts are deposit accounts – banks can use them as part of reserves in fractional lending for the creation of money RBA - Offset account balances have also been making a significant contribution to household deposit growth If offset balances weren't in deposits but had paid the loan back – would reduce growth in household deposits by around 1% (from around 7-8%) -12-14% or so reduction Mortgage payments reduce the 'stock of outstanding credit' – i.e. total amount of loans and are a negative growth factor on total credit - if everyone makes additional repayments the credit growth shrinks – the credit growth can be negative = no new lending and only repayments is negative credit growth Offset accounts are an alternative form of mortgage prepayment that like an at-call deposit account – Because it acts like an at-call deposit account, any accumulated funds are easily available for withdrawal or for purchasing goods and services - They are treated as such – can be used as any other deposit for lending by the bank Also - while funds in the account are reducing your outstanding debt for the interest on the loan – you still have the same loan For the individual with a mortgage and uses an offset account or redraw - similar household economic effects - net housing debt and interest payable are reduced But for a bank - loans and deposits are higher than they otherwise would be – offset provides deposit funds and doesn't give a negative credit growth effect – like redraw facilities do If that $90bn was sitting in the loan (i.e. paid off) – less lending due to fewer depositor funds Therefore – offset accounts Can increase banks lending income – not decrease it- Say loans are 4% - you can save 4% or banks can charge it – $100k in an offset – you save $4,000 Banks use it to lend $800k (12.5% deposit ratio) – they make $32,000 – net $28k better off Also – Other factors like bail-ins and deposit schemes Bail in-laws – We'll leave a link on the website to the episodes covering the bail-in regulations and pitfall of this In short – as it is a deposit account – can be used as bail-in provision – Most people with loans would have much more in offsets than savings – or should at least – But the catch is that all your deposits will likely to be with one ADI – and potentially above the $250k Government Guarantees – May not actually help - You have a few problems there: A guarantee only applies to a bank going insolvent and collapsing— with not enough money left over for depositors. Bail-ins (if they are in fact legal) will just take your money to prevent that from happening. That is, the government guarantee won't cover a bail-in. Guarantees are capped at $20B per ADI – stated in Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Bill 2008 Activation of the EAFD 1.20 - A declaration out

Welcome to Finance and Fury, For the past few Monday episodes been talking about complexity theory and markets – check out Last two eps – went through phase transition, feedback loops and how markets become fragile and some signs this is happening Most recent episode: https://financeandfury.com.au/how-do-you-know-that-the-share-markets-are-likely-to-be-in-for-a-collapse/ Previous episode: https://financeandfury.com.au/how-to-analyse-share-markets-by-treating-them-as-a-complex-system/ When applying complexity theory to current state of financial markets – exhibit characteristic of the point of criticality Lack of resilience (fragility – glass v plastic vase), flipping feedback loops = critical tipping points where markets are unstable In any system - the interaction between chaos and order builds resilience - The criticality of the balance between order and deterministic chaos is an optimal evolutionary solution for systems – too many feedback loops create a loss of resilience Making it dangerous – likely to enter chaos and then an alternative stable state – think of the gym – overtraining Know first hand – used to do 10-12 hard workouts a week – after almost 2 years body would shut down Today's ep – looking at the things that have created a lack of resilience and what might shatter the vase Transitions are not inheritably negative – some may trend to order, not disorder Important point it the identification and the awareness of criticality – and the direction of the transition And the sensitivity of a complex system to parameters – i.e. 'deterministic chaotic behaviour' - 'chaos is when the present determines the future, but the approximate present does not approximately determine the future' Butterfly effect - a small change in one state of a deterministic nonlinear system can result in large differences in a later state First – visualisation or measurement tool - basin of attraction – what is the pull to an unstable state – Imagine a normal distribution – dome shape – bottom – 0 – 100 – goes up – peak at 50 – basin of attraction is spread out equally over the whole 0-100 - Now say some point of attraction occurs – the basin of attraction narrows something pulls of the peak down the peak An attractor's basin of attraction is the region of the phase space, over which iterations are defined, such that any point (any initial condition) in that region will eventually be iterated into the attractor. Characteristics and current states of the market – what feedbacks reduced resilience Extreme indebtedness – i.e. debt saturation – think of the economy like a cloth – it has a limit on absorption – ShamWow can absorb a lot – but a small pond or swimming pool? Think of money as the water and the economy as the cloth - has debt tolerance limits Despite the record-low interest rates available to service such debt - The falling productivity of new credit lending is visibly at play. (decreasing marginal effectiveness of lending) – Bank policies are for low-risk high collateral lending – where does it go? Housing Over last half-decade or so – flipped 20/80 to 80/20 residential to business lending Rephrased in the context of complexity theory, the basin of attraction is not as steep as before. Extreme leverage to buy financial assets - NYSE leverage is at all-time highs. A long trip up the basin of attraction. Extreme monetary policymaking brought the cost of capital close to zero, depriving the system from resilience through preservation of so-called 'zombie companies' and other mis-allocation of resources – misallocation of resources The market is no longer a marketplace where buyers and sellers meet for exchanges - rather a buyers frenzy Negative feedback loops flipped into positive feedback loops - creating a singularity between public and private flows in hovering up assets price-insensitively - one-sided regular flows Extreme valuations - markets have reached bubble valuations - disconnected to fundamentals Using most valuation metrics - the corporate debt to GDP, the price to book, enterprise value on sales and EBITDA US equity valuations at all-time highs when compared to trend growth - Extreme valuations for bonds and equities simultaneously, now unable to hedge one another. Patterns of correlation between major asset classes. Bonds and equities have been negatively correlated in last few decades – recently have been positively correlated – worth watching – bonds might not be the hedge Inability for valuations on Bonds to progress from here – mathematically - due to zero-bound on interest rates and pricing mechanics on bonds – prices are capped out Other anomalies like European bonds trading at negative yields Changing the structure of markets - the rise of passive strategies / ETFs - creates price-insensitivity of share markets Current investments - one-sided risk of the investor community, long-only, fully invested, short volatility The shift from active managers to passive managed ETFs in past years (for almost

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

Welcome to Finance and Fury, The Say What Wednesday edition. Today's question comes from Gab. Hi Louis, thank you (as always) for the great content. I've got another question that I've struggled with recently, and I'm hoping you can shed some light on the topic. I've setup a family trust for our investments, but, as you know, they have a limited shelf life of 80 years. What happens when a family trust comes to the end of its life? What happens with the assets and are there CGT or stamp duty liabilities? Is there a way to minimize costs and maintain the trust structure? Thanks, Gab Hi Gab, no worries at all! Glad to hear you are enjoying it. Great question – Preface – not a tax expert – important to get legal advice - but this is what I know Family Trusts have an 80-year lifespan – when a trust is set up the time it is active can be set for before this, but the max is 80 years and is generally the default to maximise the benefits Known as The 'vesting' date – i.e. the point in time which a trust has to be wound up – in the trust deed May want to trust to wind up earlier – so change the vesting date earlier If this isn't specified, it defaults back to 80 years. At the point of vesting, this doesn't automatically trigger a CGT event, it is what happens after that does sadly. What happens at vesting time -There are normally two options at the point of vesting. Either a new trust is created which takes over the ownership of the assets held (triggering a CGT event) No new trust is created and the beneficiaries receive the assets directly (again another CGT event) – Official wording: On the vesting of a trust the relevant beneficiaries (who are entitled under the terms of the trust deed) become absolutely entitled to the property of the trust: that is, the interests in the trust property become fixed and vested in the relevant beneficiaries. Either way - Vesting of a trust may create capital gains tax (CGT) and income tax obligations Depending on which – different types of CGT events that may occur and income tax implications that may arise, these include: If the trustee and the relevant beneficiaries (who on vesting have a fixed interest) agree that the trust assets will be managed as if the trust has not vested, then this may amount to CGT event E1, whereby a new trust is created over the trust assets starting from the vesting date; and If the assets vest in a single beneficiary on the vesting date, then CGT event E5 happens when the beneficiary becomes absolutely entitled to the trust asset as against the trustee. Stamp Duty – On property (not shares/Managed Funds) – Property has double-take = CGT + transfer stamp duty – similar trigger to CGT = event triggering the absolute entitlement or a new trust is established over the property Look at the CGT consequences of Trust Vesting Determining whether or not a CGT event happens on vesting requires a close consideration of the effect of vesting as specified in the deed. This will include consideration of the effect of vesting on the nature of beneficial interests in the trust and the nature of the property held on trust. It may be the case that no CGT event happens by reason alone of the trust's vesting. But events occurring post-vesting may cause a CGT event to happen. CGT event E1: the creation of a new trust - A trust vesting of itself does not ordinarily cause the trust to come to an end and settle property on the terms of a new trust. As such CGT event E1 need not happen merely because a trust has vested. Circumstances might, however, occur in which the parties to a trust relationship subsequently act in a manner that results in a new trust being created by declaration or settlement so as to cause CGT event E1 to happen. CGT event E1 happens if you create a trust over a * CGT asset by declaration or settlement. Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). ... (2) The time of the event is when the trust over the asset is created. If CGT event E1 happens and a trust is created over the assets, the trustee of the new trust is taken to acquire each asset when the trust is created and the first element of each asset's cost base is its market value – rollover event – roll from one trust to another Exceptions - CGT event E1 does not happen if you are the sole beneficiary of the trust and: You are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and the trust is not a unit trust CGT event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust against the trustee despite any legal disability of the beneficiary. This CGT event does not happen if the trust is a unit trust – subsection 104-75(1) of the ITAA 1997 CGT event E5: beneficiary becoming absolutely entitled The vesting of a trust may result in the takers on vesting becoming absolutely entitled as against the trustee to CGT assets of the trust,

Welcome to Finance and Fury Last week - The lead up of markets in relation to complexity theory – phase transitions and feedback loops in markets https://financeandfury.com.au/how-to-analyse-share-markets-by-treating-them-as-a-complex-system/ Today – look at the question - How do we know that we are in for a collapse – or better - what are the early warning signs in of a change in feedback loops triggering a phase transition a complex system There are signals – complexity can pick up on but equilibrium can't – Uber listing on the market with $1.5bn loss – signal Today's episode is a conceptual framework expanding on the previous episode – particularly focus on market fragility and what signals point to it increasing The last episode talked about how after a while the same positive feedback loop can create an increased instability in financial markets – this can occur between public and private investors – but after enough of the same feedback – exposes markets to the risk of a systemic risk escalation. But what sort of events act as generic early warning signals for chaos? – i.e. phase transition in the markets To start – how is the probability of critical transformations assessed? What acts as early warning signals? Preface this – nobody can ever predict the exact point at which the system transforms – going through a phase transition of stable to collapse – financial markets are stochastic system - having a random probability distribution or pattern that may be analysed statistically but may not be predicted precisely Events that push the market out of equilibrium happen randomly – at any time – but the probability of one event triggering a collapse is low if the markets around a long term equilibrium between buyers and sellers – No net money entering or leaving the market But when more net money enters or leaves markets - what we can see is when the system (share market) has become inherently unstable, fragile, vulnerable – see bigger chances of large gains or losses Lots of money entering markets – through feedback loops - starts to exponentially increase the chances of anyone small perturbed event being the trigger for critical phase transition – right now All about probability – increasing with the nature of markets and the early warning signs Another preface – expansion of similar policies that have created a bubble are currently continuing – QE4, printing press with cheap money – may create more of a bull run in the markets over the next 12 months But these events create more of a fragile market – so while the markets may run for the next few months to years, the collapse will be of a bigger magnitude when it occurs When markets collapse – it is chaos – thankfully a school of complexity theory helps with this – that is chaos theory Jeff Goldblum – his character from Jurassic Park is a mathematician who specialises in chaos theory Chaos theory is very useful when the apparent randomness of chaotic complex systems (such as a share market) has an underlying pattern, along with feedback loops creating repetition and self-similarity and self-organization The metaphor for this behaviour is that a butterfly flapping its wings in China can cause a hurricane in Texas – The butterfly effect describes how a small change in one state of a deterministic nonlinear system can result in large differences in a later state, meaning there is sensitive dependence on initial conditions. What is chaos theory a branch of mathematics focusing on the behaviour of dynamical systems that are highly sensitive to initial conditions – looking at the theoretical probability of chances happening in non-linear models Initial conditions - called a seed value, is a value of an evolving variable at some point in time designated as the initial time – in financial markets – the variables change every second the market is open – number of buyers, sellers, currency exchange, employment, costs – many variables – at any given point – say now is time t – where do each of these lie? – then aims to look at the probability of something happening from here Chaos relates to the Sensitivity to initial conditions – this is a key characteristic of complex deterministic systems But due to the nature of complex systems – the system may change dramatically without a change to initial conditions, but rather as the result of moving beyond critical tipping points, or points of no return Why is it almost impossible to time market? Small differences in initial conditions- even due to rounding errors in numerical computation – so each calculation based around the assumptions can yield widely diverging outcomes - renders long-term prediction of market behaviour impossible - behaviour is known as chaos: Chaos: When the present determines the future, but the approximate present does not approximately determine the future. All this means is that markets may collapse at any time for any number of reasons – hence chaotic - Collapses are well explained by the natur

Economic Warfare through currency, trade, and sanctions – tools that can be used to crush a nation without firing a shot – but have historically been a pre-curser to war – also – the war on all of us financially – conducted by Central banks/Fed James Rickards – got through his 4 books this year and he has an interesting theory on financial wars turning into real wars - Stages – where financial crisis lead to – transition from economic wars to hot wars Build up – Trade imbalances – starts when people living beyond their means begin taking on debt. Wages become distorted, production costs escalate and industries move offshore – results in trade deficits and unsustainable national debts Financial Crisis occurs – Debt levels reach tipping point and the financial system suddenly destabilises – economy crumbles and borrowing stops, bankruptcies rise and unemployment increases – leaves the country in a bad state Initial outbreak – Currency wars – political leaders/bankers cheat the rules of the game – economic laws of floating currencies – Governments print money to pay debts and devalue their currency – promotes more competition on exports and discourages imports Those who move first in devaluation gain the most Trade wars – As countries steal trade from one another – governments impose tariffs – global trade slows having the ability to make the financial crisis worse, or make it contagious – Politicians again devalue currencies and become populist Can then go to Sanctions – or cutting off a country completely from trade through blocking international transactions – like NK or counties in middle east Hot wars break out – when everything else fails – invade – but assured mutual destruction is too great a chance with nukes Looking into it – has a very good point based on a few examples - First – taking a step back and explaining what these are individually – Nothing new about the first two on this podcast – so skip as covered this in previous episodes Have also touched on Currency wars – A currency war refers to a situation where a country seek to deliberately depreciate the value of their currency – purpose is to help stimulate their economies Currency wars begin in a condition of too much debt and not enough growth. Countries steal growth from their trading partners by cheapening their currencies to promote exports and import inflation. A currency war is a tit-for-tat escalation of currency devaluation aimed at improving one's economic position on the global stage at the expense of another. Currency devaluation involves taking measures to strategically lower the purchasing power of a nation's own currency Devaluation, however, can have unintended consequences that become self-defeating – those are trade wars Trade wars – introduction of taxes (tariffs) on other countries imports – helps make domestic production more competitive Other side of direct subsidies – Holden – Say they get $100m p.a. in assistance from gov, but also benefit from Why Germany has economically conquered EU – benefit from devaluation on what the Deutsche mark would be along with free trade across the rest of EU The present currency war started in January 2010. The problem with currency wars is that all advantage is temporary and is quickly erased by retaliation. Trading partners retaliate with their own devaluations. Currency cross-rates end up back where they started, with costs imposed due to the uncertainties. Not only is the world not better off but it is worse off because of the costs and uncertainty resulting from the currency manipulations. Eventually, the world wakes up to this reality and moves to the trade war stage. Once countries realize that currency wars don't work, they turn quickly to trade wars through tariffs and other trade barriers. The problem is that trade wars don't work either, for the same reason currency wars don't work — retaliation or tit-for-tat tariffs soon puts everyone back where they started. The new trade war started in January 2018 with the announcement of tariffs, and those tariffs actually began to take effect last week. Just because trade wars have started does not mean the currency wars are over. Not at all. The currency wars and trade wars continue side by side - they become related and also self-defeating If the U.S. puts tariffs on China, which we have, then China can fight back two ways. The first is to impose their own tariffs on U.S. exports, which they have. The second is to cheapen their currency to offset the impact of the tariffs. If the U.S. imposes a 25% tariff on China but China cheapens its currency by 25%, then everyone is back where they started in terms of the costs of Chinese goods to U.S. consumers. This would be a potentially devastating development for markets – due to currency devaluations = capital flight If you are a US investor – If you invest $100 in China but going to lose 25% of value through currency what are you going to do? Keep it in china and potentially lose 25% of the

Welcome to Finance and Fury, The Say What Wednesday Edition. Where each week we answer a question from you. Hi Louis, I have a questions about portfolio construction and asset allocation. I am 36 years old and am trying to understand what is the most appropriate asset allocation to have. There is so much material out by I am looking to build a portfolio that is skewed towards reliable income paying stocks through dividends even in down times and hence have favoured the larger Aussies LICs and ETFs. I am 100% in equities with 80% Aussies Shares (LICs and ETFs) and 20% international (ETFs US and Non US) however trying to understand what does a good portfolio and asset class look like and what are the things I should be further considering. I am looking to maybe add Gold (direct through direct ownership and Gold ETFs) and Bonds as I keep hearing these are good to have for assist in downtime but the income on these are very poor but then also thinking should I be having more international exposure / alternative asset classes like A-REITS/ emerging markets etc however as mentioned I am more focused on ongoing incoming paying stocks. Would love to hear your overall high-level thoughts and views. Thanks, Mario Three steps – Investing between asset classes - Investing within an asset class Finding the right investments to fill them Asset classes and correlation – Few things to cover off here The ideal weighting of Asset allocations is important – Three questions to help determine this: It depends on the purpose of the investment portfolio. What do you need to achieve? Long term growth – Trying to maximise the balance Short term stability – Well diversified portfolio with low exposure to growth Drawing an income or reinvesting – Type of investment held How much time you have? Longer timeframes allow for more planning and take advantage of the long term growth Being 36 and assuming you won't need this for 20+ years, the volatility And how much risk you need? Returns come in two parts = Income + Growth If there is growth to the equation, it can lose value – Enter risk – But it can help long term Bonds – do provide some incomes but yields are low due to higher prices - Portfolio construction – What you need to know for achieving needs – Three more questions from this What asset classes you need and how much of each you will need? What investments within each will you need? First) Asset Classes – Selecting the correct mix of Income and Growth Go through five big ones – Core to most portfolios (Doesn't include direct property) They can be broken down to their purpose - Example – If you need to draw a consistent income, you won't want much volatility Asset classes - No growth – Low chance of capital loss (Defensive) Cash – Interest Fixed Interest – Coupon payments (FV back at the maturity) Debt instruments – not all bonds – higher-yielding such as notes but the higher yield is paid due to risks Asset Classes - Growth – Has a chance of capital loss (Growth) Australian Shares – Dividends and Price gains (Generally higher Dividends than International shares) International Shares – smaller dividends and Price gains Listed Property and Infrastructure – Dividends and Price gains – but more volatility and leveraging risks Second) How to determine the allocation to each class? The traditional way - Risk Profiles (Outlines but remember, not perfect) – But if income is the goal – focus on asset classes which have more income – Australian Shares High Growth – 100% to Growth – Longer-term 8+ years Growth – 80% to growth – Longer-Term – 7+ years Cash, FI of 20% Third) Selecting the allocation to each asset class Even though something is defensive it can be income focused. Defensive – Generally for either income or capital protection Cash – How much income do you need? Need for reserves? Fixed Interest – Australian or International. Credit, alternatives or Bonds Higher risk (Corporate debt) – higher yields Growth Australian Shares – Market caps – Selecting a good weighting between asset classes – focus on higher Div paying shares ASX50 – Large Cap allocation Small-cap ETFs – Issue is when they are passive Income paying investments – can focus on higher Div paying/high yield ETFs ETFs – VAS = 4.1%, VHY = 5.3% but 7.3% grossed up International Shares – Countries and Market Cap of countries – some countries don't pay dividends like Aus Van USA = 1.8% yield – Int Index = 2.4% yield – Average fixed interest index pays higher – Aus FI 3.8% The aim of each asset allocation: Trying to do a balancing act to determine your risk tolerance Risk – Volatility – Potential movements in price around a mean average High potential for movements, considered higher risk Speculative risk – Can become absolute risk (i.e. losing everything) but can be avoided (Diversification – the whole point of asset allocation) – could buy a few shares that payout 7% Dividend, but volatility may be a killer of returns Income Focus of returns – want more Div paying companie

Welcome to Finance and Fury - Listen to last Monday episode on Share as a complex system – today diving in to discuss the application of a complex system and a financial collapse – or pre collapse – talk about phase transitions – build up and slowdown – pre-collapse Last ep - Complex is non-linear - more in the relationship of inputs and outputs than direct relationships of cause and effect Also Adaptive – so markets are evolving, dynamical as people will change their behaviour Shares have three characteristics of complex dynamical systems highly unpredictable - due to their non-linear relationships / interactions contagion effects – panic or bubbles are things that spread very quickly – through being interconnected modularity – while the whole system is well connected parts of the system are more connected within than between, which may help its resilience, or the ability for the system to return to equilibrium after turbulence broad inter-connectedness of global markets - only increased with globalization, the vast network of factors at play, the flipping correlation between assets over time External crises create a sudden shock experienced by financial markets over history – creates a far-from-equilibrium phenomena which is common in complex systems. financial markets are typical VUCA - Volatility, Uncertainty, Complexity, Ambiguity they are interconnected, interdependent, non-linear and a structurally volatile complex system Metaphor - Avalanche – an avalanche is a complex system – Snowflakes and avalanches – avalanche is a good metaphor for financial collapse – systems analysis for avalanche is the exact analysis for the collapse of one bank, collapsing into another – As an example – say one Snowflake is one mortgage, or derivative position within a bank collapsing – how many does it take before one bank collapses – triggering more collapses in the system- both avalanche and bank collapse are complex systems – going through phase transition – something used in physics Phase is a state of being – steady, collapse, rebounding – so a transition is going from Steady to collapse to new paradigm – Helps o study collapse of avalanche – complexity offers insights into how financial markets behave – Important to distinguish between something that is complex and complexity – Something complex is linear – like a clock – or motor – constrained, but not complex – Complexity is different – parts are interactive and adaptive – which branch into infinity of outcomes You might know what may occur – but not why or truly how – has a massive computation problem – limits risk management Example - back to the Avalanche – people at risk never really know when it will happen – but know that conditions are different and likely to affect chances – snow pack sides – systemic scale – larger = larger avalanche on expotential scale – Locate villages away =or stay above ridge line – or explode/descale and incur avalanche – cant predict but can try to stay safe Regulators help increase danger – allow Banks and derivatives are like snow packing up JP morgan to grow larger in size -like telling villages to build in path of avalanche Allowing value at risk as a regulation tool is like – building ski lift in path of avalanche WS execs know models unsound – but like it due to higher leverage – use anyway – bigger profits and higher buonus Regulations know as much as they want to land a job In the banks after The everyday man is in the path of the avalanche while bankers higher on the ridge A tipping point and subsequent inflection in any of those endogenous or exogenous subsets would clearly impact other subsets, and their own tipping points. Phase transitions - There is a space between order and chaos – this is called a phase transition zone where a system reaches criticality criticality – part of the self-organisation (characteristic in the last episode) – where investors have what's called a critical point as an attractor – in English: how many people need to sell shares versus buy for the market point Example – Say sellers are represented by S – and there are 100 people in a market – S=1 – little change – if B = 99 – market likely to go up further – but this isn't linear There is a threshold of S when reached that triggers more sellers Say S=10, this might trigger the next 20 to sell based around adaption and self organisation Now S=30, which might trigger the next 40 to sell = S=70 – now the market is in panic There is a threshold once reached triggers a phase transition – until the adaption and self organisation occurs to reverse the trend Probability of a collapse increases when the resilience of a system gets weaker Resilience in a system is the ability to absorb shocks and to retain the same structure functions and feedback as before. It implies persistence, adaptability, transformability of the system. It requires a wide basin of attraction, a good balance between order and disorder. Essential to resilience is the presence of ne

Welcome to Finance and Fury, The Furious Friday Edition. Today is an interesting episode - Central Banks and Wars – Often wouldn't think of these two together – What is the purpose of a central bank? Financial stability, a lender of last resort, to smooth out the cycle of boom and bust? Not their original purpose – Why did nations first start central banks? To finance the material needs of the nation-state in times of war Central banks ramped up the funding capacity of wars – the long-term costs could be covered Britain had shown that its central bank chartered in the 1690s was necessary to finance a crown bent on war France too, under the revolutionaries and Napoleon, had set up their institution to ease the way for aggressive war credits. Central banks came into force early – Older nations like Germany - 1872, France – 1800, England – 1690 – ramped up after 1900s many more coming online USA – Federal reserve 1913 in USA, Swiss – Swiss National Bank 1906, Russian – 1922 – The Gosbank First – In society, we carry a conviction that a central bank must be separated from Governments - Removed the chances of moral hazard – The reasoning is that you don't want a Government given the ability to have an open printing press when a populations demands are endless – why greater levels of socialist spending can and has bankrupted countries But what difference does it make when Governments are the owner of most Central Banks? Leaders of Governments have control who works there – Reasoning is clear - can a Government manage its affairs in the country without having control of its own money? Not well – Society would still function – but Governments would lose the ability to tax and then exist – If we were allowed to use anything for trade, no tax would be paid – so it is illegal to conduct any business in another currency, unless you do BTC but still pay tax when converted into AUS/currency – the control over the currency is the catch all But some Central Banks are privately owned – not by Governments – nobody really knows who owns them – Done big series on FED but this, as well as Italy – have private ownership - To be clear – In a lot of countries Governments and central banks are separated by decree, and are either owned by the Governments themselves Or by unknown private group of companies/groups/individuals He who controls the money controls a nation – Structure of the FED – shares of the New York FED, the primary bank, are owned by the regional FED banks Nobody is permitted to know the true beneficial owners of the regional FEDs The FED is free of necessity to publish accounts or to reveal the many trillions in profits it has collected from the public purse Going back to the founding of the FED does give clues to who the owners are - First- it was created by illegal legislation in 1913 - giving full control of the US money supply and credit = entire economy is a violation of the very Constitution of the United States Made The US government cannot subservient to a group of private bankers - if the government needs money – has to borrow from the FED and repay it with interest Ultimate beneficial owners of the US Federal Reserve Central Banks have been reliably documented as follows: Rothschild Banks of London and Berlin, Warburg Banks of Hamburg and Amsterdam, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Banks of Italy, Goldman Sachs and the Chase Manhattan Bank. With Private Central Banks – impossible to have a free market – or with any Central Bank controlling the price of money It was a group of bankers at Jekyll Island who concocted the plan for the FED system – passed by Congress while most members were away on Christmas vacation – Signed in by Woodrow Wilson – he turned over control of both the US currency and the economy to banking interests - an act which even Wilson recognised: "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. The growth of the nation and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world… by the opinion and duress of a small group of dominant men." Others like Congressman Charles Lindbergh - "When the President signs this Bill, the invisible government of the monetary power will be legalized. The greatest crime of the ages is perpetrated by this banking and currency bill" But this wasn't really anything new – just on a more massive scale – FDR - "The real truth … is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson" Rothschilds and other European bankers listed previously been very involved in the US financial system since the formation of the Republic – and aligns up with each onset of economic turmoil and wars – run through turmoils in another ep – But back to war - A lot of thes

Welcome to Finance and Fury, The Say What Wednesday Edition. Where each week we tackle questions from you – This week's question is from Gab Hi Louis, I have a question I've been pondering lately, around small-cap ETFs or LICs. It seems like the whole reason for investing in small caps (the fact that you can get high capital growth) is negated by the construct of such instruments. As an example, let's say we have 40 small caps in one of these funds, statistically, only a handful of them will succeed, but the moment they grow, they would automatically be removed from the fund (at a profit, of course). This means you don't get the opportunity to see 100x or 1000x benefit from a future Amazon or Facebook, because they got sold at 10x, while the poor performing ones still bring down the overall performance of the fund. What do you think? Is this a reason to avoid small-cap ETFs or LICs? Thanks, Gab Great questions and points! First - What is small-cap? - The index, the S&P/ASX Small Ordinaries Accumulation Index, is comprised of companies included in the S&P/ASX 300 index, but not in the S&P/ASX 100 index – Normally the bottom 200 companies - Accounts for approximately 7% of the market capitalisation of ASX listed equities. The Small Ords is well diversified with all 11 Sectors represented Not as top-heavy as the ASX300 – CBA makes up 7%, or top 10 making up 45% Between the 200 companies - largest allocation is about 1.5% - give more equal weightings As Gab Mentioned – the whole point of smaller companies in the future growth potential – Small companies offer opportunity - most of today's large and successful companies started small In their youth, companies often experience their greatest growth – and that's often when returns can be greatest. Small-caps, therefore, are important portfolio growth assets, although they can be riskier and tend to exhibit higher volatility than established large-caps But once it cracks the top 100 index, it is no longer in the small-cap – so it is replaced and picked up by the ASX100 index Look at the net effects of a handful of these gaining AUD 1,000% Example - SARACEN MINERAL HOLDINGS LTD is share 101 in the index – market cap of $1.55bn (1.5% of index) – if it moves up a bit it will be out Number 300 is Sundance Energy – Market cap of about $50m – makes up 0.05% of index Invest $10k in the index – SEA would make up $5 of your holdings Say SEA rockets from 300 to 101 – 3,220% gain in the share = $5 into $166, which is good, but is a rare/extreme example Brings on the issues with Index investing in the smaller cap - Not a massive fan of Index ETFs in the small-cap sector – the exclusion of the shares Shares get replaced - That is correct for small-cap Index ETFs/passive investments. Lots of underperforming companies – take the good in the bad in the index The smaller cap has more bad than good – hence why they are large well-known companies Very diluted holdings which minimise growth potentials – Similar to the SEA example – the largest gains don't make much due to the nature of the index – diluted and the smallest companies now have the lowest initial allocation Direct, Index v Active - Smaller stocks are often considered a 'stockpicker's market' The index exposure via Exchange Traded Funds are growing – and has been replacing active Small-caps opportunities can be easily missed - nature of small-cap means there is a lack of research coverage = many small-caps are ignored by analysts Small companies are often mispriced due to limited coverage Some are illiquid (low share turnover) because of a lack of popularity Index selection - How are they selected Constituents are selected by their place on the Australian Securities Exchange (ASX). Easy cheap way of gaining exposure to small-cap - For this reason, investors looking for more reliable investment opportunities are turning to ETFs, which give the ability to access markets in a low-cost, efficient way – via a single trade on ASX. Direct investing in small-cap – buying a handful of shares directly - This can make direct investments in small-caps a riskier game compared to investing in well-established large-cap stocks, for which there is ample research and analysis Fund managers have inside information as they go to these companies to do an analysis on the shares But active fund managers have trouble mastering the small-cap sector. Over five years, 52 per cent outperformed - Finding reliable opportunities can be hard, but good managers do their jobs well However, when comparing active managers in this space, the majority tend to outperform the Small Cap index over the longer term Long term performance of these managers does depend on the expertise of the analysts and the mandate. Investment mandates are important – what a fund is allowed to do and what does it target? – value v growth The funds that I look at are typically considered 'Future Leaders' which allows them to continue to hold onto these companies even if they become

Welcome to Finance and Fury Series on Share markets as complex systems – a different way of thinking about them – This episode, discuss some basics of shares and introduce complexity theory – Nonlinear, Emergence, Spontaneous order, Adaption, Feedback loops Shares - What are they? Ownership in a company – private or public company – shares are the legal title to your ownership in a company As an owner of a company – you entitled to profits – that is what dividends are – decided by boards of public companies You also get price gains or losses based around how much people want the shares – Linked to performance but also irrational exuberance – future expectations Share market – is the collective representation of all the companies listed on an exchange ASX – Publicly available companies to purchase - Share Markets are Complex Systems I Used to break shares down to supply and demand – the equilibrium models – does work as an educational example (what and how) Failure in explanation of why – shows the after the fact obvious points - people demand less, then prices drop – or never dilute supply and shares go to $320k like Berkshire Hathaway Great explanatory tool for the mechanics – but essentially useless in practical terms A complex system is a system composed of many components which may interact with each other. What does this have to do with share markets? – Share market is the collective behaviours in decisions to buy or sell a company – Financial institutions, individuals, professional advisers like myself, every decision to buy or sell a holding in a share, bond, gold, etc. has characteristics of each – thanks to us and out human behaviours What are Complex systems - chiefly focuses on the behaviours and properties of systems. A system, broadly defined, is a set of entities that, through their interactions, relationships, or dependencies, form a unified whole - Systems exhibit complexity means that their behaviours cannot be easily implied from the very properties that make them difficult to model Any modelling approach that ignores such difficulties or characterises them as noise won't be accurate or useful. Complex systems are always defined in terms of its boundary, which determines the entities that are or are not part of the system. Entities lying outside the system then become part of the system's environment. Share market entities – shares and buyers/sellers are part of the system directly Most other factors exist outside of the system (share market) – but they do have an effect – GDP, wages, confidence, individual preferences, regulations (SG conts), weather, etc. – probably hundreds of thousand things that can affect the environment of the share market System-wide or global properties are all characteristics of how the system (share market) interacts with its environment (all factors that influence individual behaviours) Behaviour of the system (share market) – does it go up or down tomorrow? Depends on the behaviour of those buying and selling shares – which in turn is affected by the environment of each individual doing the buying and selling Systems that are "complex" have certain distinct properties – due to the relationship of the system – five of the most important – in no particular order Nonlinearity - nonlinear system is a system in which the change of the output is not proportional to the change of the input – Something linear = add $100 to your bank account, have $100 in your account = then earn 2% interest = $2 return Nonlinear = put $100 into the share market = shares might be worth $60, or $160 plus earning 0% to 7% in income – changes all the time which is not dependent on the inputs Nonlinear systems may also respond in different ways to the same input depending on their state News or purchases of shares may yield significantly greater than or less than proportional changes in output of the price changes Most systems are inherently nonlinear in nature – a change in one variable over time, may appear chaotic, unpredictable, or counterintuitive, contrasting with much simpler linear systems Think about human behaviours – not linear – so why should share markets perform in the same way Why share forecasting is difficult to solve – but while chaotic behaviour may resemble random behaviour, it is in fact not random Example is the weather – can be chaotic, where simple changes in one part of the system produce complex effects throughout – high - and low-pressure systems meeting Emergence - occurs when an entity is observed to have properties its parts do not have on their own – therefore the behaviours only emerge when the parts interact in a wider whole Share markets – the parts are the shares themselves and the people buying and selling A share on its own won't move in price – look at shares that have no buy/sell orders in a day – the price doesn't move Someone then comes along and either sells or buys a lot of the shares – this moves the price This is the emergence of a price movemen

Pre WW2 – Money and the incentive for war History is written by the victor – the focus is often the war itself – but not what happens behind the scene - How has war shaped the economy? – Last week went through tax changes to economy This week – want to talk about the behind scene to war – financial interests and those who carry them out Governments wage wars – the citizen fight them It is Governments which wage war with each other – Nation states, or NATO – Used to be directly – Nation v Nation– Now also indirectly – pre-cold war – nations went to war with one another – now, nations fund other countries to do it on their behalf But who else is funding the wars? Used to be the Monarchs (Governments) directly – not much in the way of banks/interconnected financial system in medieval periods – borrowed from other lords and money was gold/resources With the expansion of credit and fractal banking methods from Napoleonic period – bankers started gaining the ability to carry the monarchs (nations) through wars Two big changes here – 1) funding could come from other nations and banks 2) funding could come from money you don't have - Source from Bankers and eventually central bankers (which fund governments war budgets) Two stages – Before central banks – Governments relied on private bankers - One prominent family which made their fortune from war – Rothschilds – there were others – but only one made a movie about themselves due to the public hating them – PR spin Patriarch – Mayer made his fortune through facilitating payments between the royals and mercenaries – Prussians in Frankfurt – Famously said: Permit me to issue and control the money of a nation, and I care not who makes its laws! Movie - House of Rothschild movie from 1934 – 20th Century Pictures (now fox) – 3 producers funded by Rothschild made this movie – academy awards – can go watch it – few inaccuracies – but the major one is the ending True parts – that in the European wars transferring the balance of payments was dangerous – can be taken away So sent 5 sons to major financial hubs – Paris, Frankfurt, Vienna, Milan, London – payments could be made in IOUs – someone in London needs money – can issue it in that country and not have to transport from Germany Ending of the movie - Panic at waterloo – Lord wellington v napoleon after getting free from Elba – British Bonds dumped by Nathan Rothschild – create panic – bought back on the penny – movie just had the second part – him being the saviour and fighting the war with money – either way – became the richest man on earth overnight -owning most of the British Governments debtor obligations Along with Global Central Banks – Monetary institutions like the BIS and IMF – created out of necessity due to wars BIS - Swiss based Bank for International Settlements - creation in 1930 was, according to the BIS, primarily to settle reparation payments – payments imposed on Germany following the First World War without WWI – a major crisis event – there would have been no mandate for the BIS to exist. As well as settling German reparation payments, the BIS was also recognised from the outset as a forum for central bankers – the first of its kind – where they could speak candidly and direct the course of global monetary policy. Hjalmar Schacht - was Reichsbank President from 1933 to 1939 and Hitler's finance minister, was a BIS director. tried and acquitted of war crimes following WWII. Walther Funk, a former Nazi economics minister and Reichsbank President from 1939 to 1945, was also a BIS director. Funk worked closely with Heinrich Himmler, who was chief of the SS - also pioneer of a 1940 paper called, 'Economic Reorganisation of Europe', which was endorsed by the Nazi leadership and is stored in the BIS archive. the parallels between the plans of the Nazi leadership for a post-war European economy and the subsequent process of European monetary and economic integration were real'. In other words, the objectives of post WWII internationalists mirrored those of the Nazi regime – BIS was involved in both IMF - would have been no mandate for the IMF to exist were it not for WWII - Fund was founded in 1944 (off the back of World War Two) at Brenton Woods conference - became part of what internationalists call the 'rules based global order'. All have expansion capacity for the lending capacity to fund ever lasting wars The thinkers of the day gave unification and one global system as a way to avoid conflicts like world wars - What these thinkers overlooked was that democratic societies have little say in wars by proxy and what the financial system wants – which is undemocratic Banks now have incentives – so democracy doesn't do anything as banks aren't democratic Politicians also act on the behalf of those who back them – central bankers or general bankers War Bonds – Issued by banks to fund the wars of nations – massive profits made out of these - Example of political leaders carrying out the bidding of the bankers

Welcome to Finance and Fury, The Say What Wednesday Edition This week question comes from Matt - Not so sure if this is your area of expertise or have come across this at all, although I have a question regarding insurance and identification of gender. People know that gender affects the price of insurance premiums paid and can save a significant amount if one were to identify as a female for insurance to pay less, would this be legal or do insurance companies have a way around this. Cheers – from Matt, Thanks for getting in touch. That is an awesome question! Actually, laughed out loud when this came through – very interesting point – Especially if someone does identify as another gender Today's episode - Talk about disclosure requirements and pricing between male and females – Different genders pay different amounts for the types of covers Disclosure requirements - Under current insurance legislation – non-disclosure Insurance companies only offer the options of male or female for the applications, which often is confirmed in the medical underwriting process No other when looking at actuary - a professional who deals with the measurement and management of risk and uncertainty Statistics are what insurance companies work with – based in reality and stats on claim history Interesting issue – people identifying as new genders Contacted underwires – will look at covers – but assess as biological – not what is identified as The underwriters would need medical assessments -makes it much harder to get If the incorrect gender does slip through the application process, Insurance companies would likely be able to get out of paying a claim due to 'non-disclosure'. I.e. saying you are a female when actually you are a male would give the insurance companies an out from making any payment. Premiums for genders – Premiums differ for a number of reasons – but all comes down to chance to claim Ages – really young – slightly higher, about 25-35 cheaper – then after 35 goes up more Occupations – low-risk office jobs, versus underground mining Health factors – smoking, pre-existing conditions – Smoking likely 50% more in most cases Genders – different genders claim on different covers The Income protection premiums are higher for females while Life cover premiums are higher for males, There is no clear winner in gender when it comes to overall, who pays the least amount – depends on the level of covers and types of covers Run quotes – two people Aged 40 – working in office admin job – same incomes $80k Life - $500k – More expensive for males = 32% more Male – $254 Female - $192 TPD - $500k – About the same Female - $192 Male - $192 Income Protection - $5,000 per month – more expensive for females = 56% more Male – $1,164 + 111 = $1,275 Female - $1,816 +170 = $1,986 Trauma - $200k – More expensive for females = 12% more Male – $610 Female - $684 Totals - $2,475 p.a. for male and $3,206 p.a. for females – due to claims history and likelihood to claim Depending on if you need more Life – the female is cheaper, if you are male, IP is cheaper – but have to disclosure biological gender – assessment is based around this and underwriters would write off to doctors If you don't give real gender – it will likely create a reason for insurance companies to get out of paying out Thanks again for the great question. If you want to have a question answered visit https://financeandfury.com.au/contact/

Welcome to Finance and Fury Today's episode is a thought experiment – Investing in the potential future for the economy, Gov expansion and increased money supply – inevitably with The replacement of the Dollar – who knows when - over the next few years, decade, or never But it is an option – know that because the IMF is looking at it – and politicians are promoting these policies Permanent QE – will start to become a way to keep markets dropping – soak out additional supply Lowering rates and moving towards cashless economy to avoid BOJ situation Fiscal expansion – Government spending – and redistribution in the form of Helicopter money Abandon the dollar – IMF SDR – new reserve digital currency To start looking at investments – look at the desired effects On the Economy - What this will all do if the policy works as intended Boost Nominal GDP – sign of economic growth and to increase confidence, spending/consumption even further - Aim is to increase consumption – increased spending, increasing the inflation on money through velocity Nominal GDP is helped by inflation and these policy options – even if real changes don't occur C – increased spending on consumption – doesn't even have to be real if you create inflation – consumption stays the same but G – spending by gov goes up – so the infrastructure spending will be reflected in GDP I – If the economy is seen as to be growing – businesses might consider investing more, hiring more people, etc. Net Exports – through printing money in Western Economies – you pass on inflation to other nations USA expanding money supply through QE – China saw inflation – so had to devalue its currency to remain competitive – but this can be costly and emerging markets will see problems with their currency – exactly like Asian currency crisis in the late 90s – one of the root causes started with massive monetary expansion from nations like the USA from early 80s If it works great – it may work for a while – but I think that it will probably have a little real positive impact on the real economy First – these policies are concocted by economists about studies and theories to trial out Make up companies, medical companies – tested out products in trials before selling it to the public Economists and policy makers skip the testing and the option of you buying or not – choice Mass policies and increase Gov involvement – or central planning – impossible to properly forecast individual adaption and choice Secondly – The average person doesn't look at the GDP when deciding to buy a new car, or even understand what GDP is – the disconnect with the average Joe is large between policy makers who fly in private jets to Davos and are driven around and given 6 Star treatment Don't know how or why – can be a million different individual reasons it will come unstuck – Only know why after the fact – hindsight is 20/20 – but this underlying concept of disconnect with central planning and individual decisions (especially in the billions) is why nothing to date central bankers have tried has helped in the long term – often made it worse If this doesn't work - Down the line - Create two things - mass uncertainty and liquidity issues When something promised to work doesn't work – how confident are you the next thing tried will work? Eventually, the uncertainty of Gov/Central Bank involvement will increase – ceasing spending and investment As uncertainty grows it can turn to fear – market panics - Human behaviours/emotions play a roll – Why Complexity theory is starting to be a better metric in financial markets – Market Crash = Phase transition Will probably do a whole series on this – fascinating way of looking at markets Follows human behaviours and accounts better for adaptive changes in choice when compared to ridged equilibrium model Uncertainty and Risk Risk and uncertainty are related but different Risk = speculative/volatility Uncertainty = Unknown risks – generally creates a freeze response initially – just don't do anything – spend or invest Uncertainty creates an environment where people avoid risks but then once they become afraid exit from existing risks In shares – creates selling – not sure what is going to happen – we are loss averse = sell to avoid losses Talked about this in a previous ep - What assets will survive a financial correction – it will be those that people still have confidence in Confidence is key – Confidence in any asset is what is needed Why is confidence important? If a lack of confidence/panic is what causes prices on assets to drop heavily – Then the solution is to be in assets that while may be impacted in prices (short term volatility) – will not go to zero Asset goes down in value – so what? - Depends on the type of asset and what you do, and what those investments are to you Types of Assets Shares – Share will be volatile - probably go down in value – Your options - You sell – crystallise losses They keep going to zero Solution – Step 1 - Buy good companie

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 subsequen

Welcome to Finance and Fury, The Say What Wednesday Edition I would like to start by saying a big thank you for the knowledge you have passed onto myself and the community. My question lies around equity, if you have a considerable amount of money in shares, say 200k, and you are wanting to buy a house at 400k are you able to use this as leverage? Also, with negative interest rates possibly coming, keeping money in an offset account and lowering the interest for the mortgage of a property is not going to be the best, so placing them into shares is possibly a safer place to keep capital? Thanks for getting in touch and great question! You are more than welcome, glad to hear you are getting value out of the podcast! Two parts – Go through shares as genuine savings in application process and deposit at time of loan Go through negative rates and offset accounts – thought experiment on this and hasn't been seen Application time – Assessment and Genuine savings Just to clarify - shares as collateral – if meaning "Genuine savings" yes - the funds that a home loan applicant has saved themselves gradually over time During the home loan application process, lenders will assess your income, debt and assets, and how they affect your ability to service the loan. What is classified as genuine savings? - each lender has their own genuine savings policies! Savings/Term Deposits held or accumulated over 3 months. Shares or managed funds held for 3 months - Equity in real estate (varies depending on the lender). Many people receive a gift or have a deposit that would normally be considered as "non genuine savings". However, if it is held in a bank account for more than three months, it may be considered as genuine savings. There are still some banks that do not consider this as genuine savings, unless you have actually saved money on your own. What isn't genuine savings? The banks want to see that you've planned and saved a deposit yourself because this shows to them that you're likely to be a good borrower. Gifts, Inheritance, Tax refund, Lump sum deposits (proceeds from sale of property is an exception to this), Bonuses, Selling your car or other assets, First Home Owners Grant (FHOG) There are actually many exceptions to the above, particularly if you're renting. Share portfolios as a source of income – Lenders won't look at the total value of your share portfolio when assessing your serviceability -Part of assessing your ability to repay your home loan Because shares fluctuate in value - most lenders will only accept part of investment incomes Some banks up to 80% while others will go much lower Can't leverage shares as part of a deposit - Why won't shares be accepted as part of my deposit? The deposit for a home loan needs to be in cash - limit lenders exposure to risk Example - say you need $120,000 for a home loan deposit – have $20k in cash and $100k in shares - bank won't accept the shares you own as a deposit – would need to sell them to fund the deposit in cash Shares are volatile and can lose values – something banks don't like - if you defaulted on your loan repayments, the lender would need to not only sell the property in question but also go after your shares in order to recoup its losses Strategy to leverage using shares – There is the strategy of selling the shares and using that to pay down the loan, then reborrowing those funds to repurchase the shares (hence turning interest repayments into deductible expenses). The issue with this is if there are capital gains on the shares in the sale along with the low-interest rate environment reducing the benefit of this strategy. Benefit to strategy is lowered with lower interest rates – risks also go up with share overvaluation Offset accounts in a negative interest rate environment Current offset accounts – they don't pay you interest but just reduce it – so if rates go negative then likely just reduce the effective interest reductions – Look at a $400k 30 year loan Example – Current positive rates at 3% = Repayment of $1,688 p.m. = $206k interest paid over 30 years Example – Negative rates at -1% = Repayment of $954 p.m. = -$57k of less interest Now with an offset account - $60k in an offset on the $400k loan - $340k effective loan Current positive rates = $73k lower interest payable over 30 years Negative rates = -$42k – so punishment of banks paying $14.5k less off of interest While you might not pay more interest, the bank will pay less on your behalf if you reduce your principal amount. Keeping payments the same will reduce the life of the loan though The issue with taking cash to put into shares if rates become negative is that this creates a further bubble in shares. So while investing funds at that point is meant to provide additional returns, it statistically means that you may suffer large losses for the funds invested in shares But keeping funds in offset would be a negative in negative rates Thanks again for the question. If you want to get in contact

Welcome to Finance and Fury, Last week – talked about Goodhart's law - "When a measure becomes a target, it ceases to be a good measure." – yet central banks have made inflation the policy target – Went through permanent QE and lowering rates and cashless economy Today – talk about fiscal expansion from govs and the need for deficit monetisation (helicopter money) and final step of abandoning dollar as reserve currency – effects on economy To start - Step 3: Fiscal Expansion and Deficit monetisation The QE and lowering interests will flood banks with 'liquidity' = lots of money to lend out – to themselves (wall street) or main street - If this doesn't work - government may eventually assume the role of resource allocator, through public spending financed by a permanent increase in the money stock If government spending does not help either, then helicopter money might, which is to allocate resources directly into the pockets of households – either cutting taxes or UBI Fiscal expansion – The government spending more Fiscal expansion may help, when coupled with monetary printing. Public spending in infrastructure, clean energy to cope with global warming, technologies, and education are obvious candidates. China example – GDP Consumption is lower than west – USA 71%, Aus think in the high 60% - China sits in lower 30% Net exports only about 4-8%, large portion is Government spending and investment Deficit monetisation - Monetizing debt is thus a two-step process initially The government issues debt (Government bonds) to cover its spending The central bank purchases the debt from secondary markets Then perpetually rolls it over – issue more money to continually buy it back Gov issues $1bn bond today to the market – 10y maturity – someone buys it (banks or super funds) – then central bank buys these off banks or super funds - it injecting money to be reinvested or lent So Govs know that they can raise easy quick cash from issuing a bond – as Bank, investment manager or super fund will buy it off them and exchange the cash – and the buyer knows that the central banks will buy them back off them – sometimes at inflated values as issuing more money decreases interest rates = increase the price of the bonds above face value So the middle men make profits, gov gets its cash for spending, then central bankers get to carry out monetary policy unopposed to all 3 parties benefit – as the central bank makes income from the cash rate they issue funds at It turns out that Both Quantitative Easing and negative interest rates policies (NIRP) alone have turned out to be deflationary. QE led to banks hoarding cash - resulting in a reduced impact on money supply = destructive at negative rates Negative rates lead to banknotes hoarding (it just started in Japan, Switzerland) - contracts the money supply further: a smaller propensity to invest as uncertainties about the future growth, with fears of expropriation/bail-in/wealth tax, right at a time of lower inflation expectations and prospective returns. Central banks and Governments will need to go further – Helicopter Money The concept of helicopter money refers to Milton Friedman's thought experiment of 1969 - If there are negative rates why cannot there be negative taxes? In economics, a negative income tax (NIT) is a welfare system within an income tax where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Aus Gov – low-income tax offsets, franking credits = exactly this – I think it has benefited us – but debt has finally caught up and the ever-increasing regulations hasn't helped So far in this list of policy tools, negative rates are synonyms of wealth tax, and bail-ins in disguise. As such, intrinsically deflationary. Which means self-defeating, as the whole point is to resurrect inflation in a moribund economy overloaded with too much nominal debt. But negative rates may become pure incentive to spending, and boost the velocity of money, if and when coupled with various forms of tax cuts, both temporary and permanent ones: raising minimum salaries, temporary / depletable spending coupons. Some of the traits of this form of fiscal expansion may be inspired by Roosevelt's New Deal, a series of government programs implemented between 1933 and 1938 to provide relief to people suffering during the Great Depression. - may lead to a temporary suspension of laissez-faire capitalism. Crisis policymaking should then target two objectives: Currency debasement: to reduce the value of debt vis-à-vis productive economy / income stream, to decrease debt ratios overhang Velocity of Money and Money Multiplier: to boost private sector spending, for both businesses and households, and its impact on output I hope this is starting to make sense – that this is a bought and sold system that is promising ever increasing spending for vote – who doesn't like free stuff? Like $10k p.a. no questions asked – if politicians

Welcome to Finance and Fury, the Furious Friday edition Today is a Bonus episode on most recent series – Current events unfolding – Extinction Rebellion – Today focus more on the economy - Talk about How eco-warriors will collapse the economy – a self-fulfilling prophecy If you have friends who are protesting – share this episode - don't mean to be offensive but they are being used as pawns – being manipulated by the industries/corporates who are going to profit from their activity Ironically - Serving the very people the same people were protesting against in the occupy movement – the elite banking groups - they are going to benefit from their eco-activism – while the overall economy struggles Art of War – Controlled opposition – gone through it but Environmental activism/societies originally funded by the Dutch Royals (Shell Oil), British Royals (BP), M Strong (Canadian Oil Billionaire), backed by Standard Oil (Rockefellers) – why would the oligarch's band together to put themselves out of business? Control your opposition – you create a paper tiger to push the narrative in your direction Most have divested from oil and are in solar/wind and making a killing of tax-funded subsidies Sciences used for their purposes – like peak oil predictions in the late 50s – Marion Hubbert was a geologist paid by shell - world was running out of oil and would be empty – more oil now than ever – but created artificial scarcity at the time – prices for oil went up Extinction rebellion – doesn't have anything to do with climate change – not my words - Co-founder – Extinction rebellion is not about the climate – it is about dismantling White European civilisations, ending the patriarchy and demolishing the heteronormativity (that heterosexual relationships are normal) What is it all about? The Founder – "we are going to force the Governments to act, and is they don't, we will bring them down and create a democracy fit for purpose, and yes, some may die in the process" The thing is – the demands are so extreme that we can't achieve them – no more plane flights, be 100% renewable with 0 CO2 emissions by 2050 – well, we exhale out CO2 greater than the intake of breath – over 3bn tons of CO2 a year – estimate for us breathing Can't be achieved – so it comes down to overthrowing governments and western civilisation Phycological effect from bombardment of the 'day after tomorrow' event predictions – Eco-anxiety – yet 100 years ago 500k people killed by weather-related events each year, today 20k p.a. = 96% reduction – yet more anxiety due to availability heuristics – more something is mentioned, we think that they are very common It is sad to see – people being be petrified by the fear of the end of the world – why have kids or do anything productive then? You put all energy into protesting for climate rather than building something yourself But the Science is settled – need 0 emissions by 2050 to avoid climate catastrophe - even though climate gate scandal shows that scientists are changing the data to hide cooling temperatures – let's say the science is settled – then no need to fund climate scientists anymore? Would there be any disagreement at that suggestion – why is more money is needed – even though the science is settled People protesting – Disrupting economic activity – putting the working class people out of work and business France and Holland are having protests for climate taxes and environmental regulation on agriculture Yet we have people protesting for the opposite – more taxes and regulations Hypocrisy – we are all hypocrites – but blocking roads to save people is killing people – making doctors late to work to save lives – few friends working in hospitals telling me about being understaffed and surgeons being late to perform emergency procedures When you see them with yoga mats next time – remember they are petroleum-based – like most plastics Economically – makes people late to work – blocks services, actually has the potential to kill people – emergency services Yet police are not allowed to just lay a few riot hoses/dogs onto them – so they have to stand by and protect the rights of those breaking the law – infringing on the rights of those paying the Newstart allowances of those protesting Also – major economic effects of having a criminal record – employer sees you have gone to court 11 times - remove their ability to earn income UBI is the only way they can make a living then – hence the calls for more Government – to solve their created problems Beyond UBI – More Gov and Carbon policy creates another indirect method of extraction on the population – higher taxes via price increases of energy and goods/services Tax on carbon = higher prices to you and businesses, which is a higher price needed to be charged on goods and services due to pass on costs of higher input costs – has a flow-on effect, while a marginal increase at one level, has its own form of multiplier effect Massive financial scam – also being

Welcome to Finance and Fury, The Say What Wednesday Edition This week the question is from Dan I am 21 and have about 70k in a term deposit and 5k in VHY and VGS ETFs. I am wondering whether over a period of 20~50 years I would be better diversifying into VAE or VGE and VAP or whether you'd stick to VAS and ETFs which have a franked dividend and not just potential capital gains. You have mentioned in previous podcasts bubbles, though these ETFs have much larger market caps and therefore are less likely to default. Thanks for the great question – Break down investing in ETFs, diversification issues with ETFs – Feedback loops and self-fulfilling prophecy – Global asset managers, Vanguard and iShares continue to dominate the ETF market in Australia. Account about 56% of all money invested in ETFs - BetaShares is the third-largest Low-cost passive vehicles have gained popularity on Main Street. Passive investments have now taken over nearly half of the stock market as more investors shun stock pickers and flock to index funds, according to Bank of America Merrill Lynch. Equity passive funds alone have ballooned to a more than $3 trillion market in less than 10 years, according to Morningstar Aus – largest is Vanguard – can't tell you what to invest in – but can give a breakdown and comments on them Vanguard ETFs – six mentioned in the email and Start date for each: VHY - Vanguard Australian Shares High Yield Fund – 62 shares – May 2011 - Higher FF divs VAS - Vanguard Australian Shares Index Fund – 296 shares – May 2009 – ASX300 whole index, good FF shares VGS - Vanguard International Shares Index Fund – 1,590 shares – Nov 2014 – International market access – 14% top 10 VAE - Vanguard FTSE Asia ex Japan Shares Index – 1,176 shares – Dec 2015 – 28% top 10 VGE - Vanguard Emerging Markets Shares Index Fund – 4,729 shares – Nov 2013 – still has 24% top 10 VAP – Vanguard Australian Property Securities Index Fund – 28 shares - October 2010 – 84% in top 10, large loss potential All very new investment vehicles VAS won't provide much additional diversification if you are already invested in VHY: VAP – Doesn't provide much diversification - 10 companies make up over 80% of the index - in it and the index lost over 70% in 2009 – VAE and VGE – almost the same investments as well except one has 3000 more companies which make up a tiny allocation Some of the largest holdings are in Communist Party run banks – China Construction Bank, industrial & commercial bank of china, etc. If you are looking for the most diversified version of Vanguard funds, they have the multi-asset ETFs available now such as the following: Vanguard Diversified Growth Index ETF (VDGR) – or Vanguard Diversified High Growth Index ETF (VDHG) - The bubble topic is about the nature of buying ETFs and how Central Banks are buying these, as they are price taking and not price making. Index Funds and Price Discovery Firstly - Central banks and Basel III have more or less removed price discovery from the credit markets Risk does not have an accurate pricing mechanism in interest rates anymore On top of this - now passive investing has removed price discovery from the equity markets If it is in the index – it is purchased – bubble in markets - due to the rise of inflows into ETFs – pushing the shares at the top in the index up further regardless of the performance of companies – Example - the bubble in synthetic asset-backed CDOs before the GFC Price-setting in that market was not done by fundamental security-level analysis - but massive capital flows based on Nobel-approved models of risk created a similar 'if everyone is doing it' mentality The Rise of ETFs and Market Distortion Index funds are only relatively new – 2009 to 2017 created - growth in index funds is creating a valuation distortion in the market. In one of the longest bull markets – I think a lot due to the technology platforms and apps making index investing easier and cheaper than ever - Passive phenomena is being viewed by rating agencies like Moody's as the adoption of a new technology Investor adoption of passive low-cost investment products will continue irrespective of market environments The ETF industry has attracted almost US$3trn in new business since the start of 2009 - coinciding with one of the longest bull markets in US history Among Professional investors - Record surge into ETFs fuels fears of stock price bubble - Michael Burry, one of the first investors to call and profit from the subprime mortgage crisis started talking about this just last month Personal Example – NWH – saw the price go up by about 12% - checked the news and it was a 3.8m share purchase by vanguard as it made the ASX200 index – no other news Liquidity Risk – Further Explanation Needed The dirty secret of passive index funds -- whether open-end, closed-end or ETF -- is the distribution of daily dollar value traded among the securities within the indexes they mimic Daily Turnover and volumes In the US - Russell

Welcome to Finance and Fury Talked about the inflation targets, interest rates and monetary policy over the past few weeks – Today – go further into looking at a completely controlled economy by Central Banks – To start – look back to an RBA paper from 1975 – this was where a thing called Goodhart's law originated – from economist Charles Goodhart – Phrased as "When a measure becomes a target, it ceases to be a good measure." Applied in economics – based on the economic idea of rational expectations Entities who are aware of a system - rewards and punishments - will aim to optimise their actions to achieve their desired results E.g. employees whose performance in a company is measured by some known quantitative measure (cars sold in a month etc.) will attempt to optimise with respect to that measure regardless of whether or not their behaviour is profit-maximising – Sell all the cars at $100 – looks good for your performance but sends the company bankrupt – now your performance doesn't matter as you don't have a job Example of central planning (top down) policy – similar to socialism where measurement by weight in output leads to massive unusable nails – like the Soviet Union Example – signals from banks to lower interest – may increase prices of assets or be a bad sign for the economy = People may invest or start saving = less spending to policy to control inflation results in opposite direction – Individuals adapt – homoecnomicus doesn't exist – the rational man that economic modelling relies upon Goodhart's law explains - when a feature of the economy is picked as an indicator of the economy, then it inexorably ceases to function as that indicator because people start to game it – but relies on everyone being rational Rational – depends on knowing how to act in response – most people don't except those who know how to Big part of the widening wealth gaps (not income inequality) – I think it is between those in the past 25 years – or at least benefited through rising house prices and markets For central banks – also occurs when individuals and investors know the policy decisions and then take actions that that can result in different outcomes on the target When the target is set – central banks aim to achieve the inflation rates regardless of consequences – They are set on their path to get back to 2.5% inflation while keeping economic stability – No secrets when it comes to how central banks are likely to respond – look at the trend – they ever increase their intervention into the economy to control it – all in an effort to hit their precious inflation target – to keep banks (central and commercial) and governments both happy – last Wednesday's episode https://financeandfury.com.au/why-do-central-banks-target-2-3-inflation-and-what-are-they-trying-to-accomplish-by-having-it-in-that-range/ What will they do to achieve it – requires total control and increased monetary control and intervention into markets – following the trend – but it wont work long term – so more control and intervention is needed – central banks think of themselves as all powerful – to admit they don't know what they are doing and have at ever step done more damage than good since 1913 – that isn't what something all powerful would admit to – shows they aren't all powerful and not needed in their current function While original statement of Goodhart's law fast saw light when Charles delivered it to a conference in July 1975 to the RBA General phrase - "When a measure becomes a target, it ceases to be a good measure." But the original formulation was: Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes has profound implications for the selection of high-level targets in organizations – across both risk and reward. Jón Danı́elsson quotes the law as "Any statistical relationship will break down when used for policy purposes" In financial risk modelling - "A risk model breaks down when used for regulatory purposes." All metrics of scientific evaluation are bound to be abused – even those of citations in scientific papers – or Wikipedia Where to from here? – what will central banks start doing? – then what will they continue to try and do? 4 steps Permanent QE – will start to become a way to keep markets dropping – soak out additional supply Lowering rates and moving towards cashless economy to avoid BOJ situation Fiscal expansion – Government spending – and redistribution in the form of Helicopter money Abandon the dollar – IMF SDR – new reserve digital currency GO through one and two now – next Monday go through last 2 stages - Policy 1: Permanent Quantitative Easing Gone through QE – printing money to buy assets – bonds, ETFs – aim to create inflation through the wealth effect Since 2009 - Monetary printing failed to inflate away our debts – there is diminishing marginal effectiveness the more is printed Doesn't mean that it will likely be discontinued anytime soon –announcement

Welcome to Finance and Fury, The Furious Friday Edition. The final episode in the mini-series for the SDGs - Covered a lot – today - Summary wrap up and piece together next step One sentence – UN's Agenda 2030 wants us giving up sovereignty to a global unelected socialist government – Went through the 3 Founders – Roosevelt praised fascism, thought it was the best kind of Gov and acted like it in USA, Stalin - loves him some communism and mass genocide, then Churchill – Not a fan of Indian's 'beastly people' – 1943 Bengali Famine for 3m people starved to death thanks to his policies to take all the food out of the area This sort of thing can't happen today unless we want this – hard to hide true crimes like the past The founders of the UN weren't good leaders, they loved Authoritarian rule – Why would anyone want to live under a Nazi, Communist or Fascist? What if it is done in the name of climate change? That is the propaganda - SDG4 -method of building international socialism – the aim has always started by targeting the next generation - now with global-socialist propaganda All of SDG4 is devoted to ensuring that all children, everywhere, are transformed into what the UN calls "agents of change," – pushing what the UN wants – Agenda 2030 agreement states the aim is to do this - "Children and young women and men are critical agents of change and will find in the new Goals a platform to channel their infinite capacities for activism into the creation of a better world," – all the protests been concocted up as part of Agenda 2030 – through the UN 'Extinction Rebellion' protests – bringing cities to a standstill as protestors demand government officials take immediate action to combat climate change. 60 major cities across the world through late October – two days in a row – clients/staff late from protests These protestors have already taken over streets, blocked roadways, and disrupted public transportation in London, Sydney, Paris, and Berlin. Their message is that climate change is an emergency that requires drastic and immediate action Looking to force significant policy change is to shut down parts of major infrastructure, like roads, bridges, highways, rail, airports, and ports – basically acting like fascists or Stalin's useful idiots From what I see it is about crashing the global economy to install a new economic model - Modern Money Theory (MMT) Agenda 2030 is a pretty clear roadmap to global socialism and corporatism/fascism – using activists as the new Brown shirts And what's the reason behind climate change protestors shutting down cities and causing economic shocks across the world? U.N. Secretary General Ban Ki-Moon spoke of 'a dream of a world of peace and dignity for all' this is no different than when the Communists promised the people a 'worker's paradise.'" – to give them mass starvation and Gulag prison camps History is littered with examples - in a similar manner – Mussolini – Fascism: Doctrines and Institutions - 1923 "State intervention in economic production arises when private initiative is insufficient or when the interests of the state are involved. This intervention may take the form of control." – Take control of the economy to serve the state, not the people Speech in 1933 – "Fascism establishes the real equality of individuals before the nations. The object of the regime in the economic field is to ensure higher social justice for the whole of the Italian people. What does social justice mean? It means work guaranteed, fair wages, decent homes, it means the possibility of continuous evolution and improvement." – almost impossible to tell the people history calls evil to the rulers of the UN today Another example - Nazis – National Socialists – Hitler's party mandate: "We demand the nationalisation of all trusts and demand profit-sharing in large industries. The first duty of every citizen must be to work mentally or physically. No individual shall do any work that offends against the interest of the community to the benefit of all." – UN has the circular economy to get to the same outcome – all what is in the state's interest Governments deciding what to be produced/consumed, what the price is and who is employed never ended well – but yet people are keen to repeat? The similarities between what the UN wants and what the Nazi's wanted keeps going on Nazis - First political party in the world to pass laws protecting the environment in 1935 two years after the Nazis rose to power - passed a Reich law for the protection of the natural environment scope was unprecedented at the time and while the stated goal was to protect and care for the environment – saving the planet not high on the list Think about Wars and the CO2 emissions form bombs – Obama dropped 26k bombs in 2016 alone – lots of environmental destruction and waste emission there – but meets with Greta for a photo op UN acts like fascists - That is why the 2030 Agenda is universal, applying to all countries and actors –

Welcome to Finance and Fury, The Say What Wednesday edition – Every week answering your questions – Hi Louis, thank you for the great content and the research you put in! I have another question you might be able to tackle: why do central banks target 2-3% inflation? what are they trying to accomplish by having it in that range? And in a world where inflation is less than 2% and interest rates are around 0%, what happens to people who rely on defensive assets (fixed income) like retirees? It seems like this would be a world where UBI (universal basic income) would have a place. What are your thoughts on this? Thanks, Gab Great question – break this down into two parts Why does the RBA have an inflation target, why it is set the target to 2-3% p.a. Looking at retirees/savers RBA - The Reserve Bank of Australia's – RBA - central bank that conducts monetary policy Purpose is providing stability in the financial system and promoting efficiency and competition in the payments system – indirect functions through having an inflation target Direct functions: issues Australia's banknotes and provides banking services to the Australian Government. What Is the Inflation Target? Officially: "keep annual consumer price inflation between 2-3% on average, over time". The measure of inflation is the percentage change in the Consumer Price Index (CPI) Run through this in a previous ep – ABS gathers data on the price change between a basket of goods – fuel, eggs, building materials, etc. – aims to capture goods and services that households buy Why they need this - An inflation target provides the framework to monetary policy decisions – guides a central bank's in its management of the economy The Reserve Bank uses an inflation target to help achieve its goals of price stability, full employment, and prosperity and welfare of the Australian people. This is because price stability – which means low and stable inflation – contributes to sustainable economic growth. RBA adopted the inflation target in the early 1990s - round 1993 – did this independently to the Government - 1996 the Government agreed on the importance of the inflation target and formalised this agreement in the Statement on the Conduct of Monetary Policy This is updated following a change of government or Reserve Bank Governor – adjust the agreements internally Why between 2-3% - official justification: Avoids the many costs to the economy from inflation that is too high or too low – Goldie locks ratios Based around an equilibrium model – When has the economy performed well, and how people respond? Looked at the data and worked out that around 2.5% was a good level – but the causes of inflation are not made equally One can be created by economic boom – free trade and increase in supply and consumption of goods – leads to a lot of inflation One can be created through pushing money into the economy with debt backing it 2 to 3% is determined to be low enough to not significantly influence people's economic decisions Based on the target range set in the early 1990s when inflation of around 2 to 3 percent had already been achieved. It was decided that inflation should be kept at around that rate, given the fact that the lowest average inflation rate experienced by other countries had, over many years, been a little over 2 percent. At these levels of inflation, an economy can achieve sustainable growth in output and employment. A higher inflation target could increase uncertainty and costs in the economy. A lower inflation target, on the other hand, is costly to achieve - lower output growth and increase unemployment Limit Monetary Policy options to stimulate demand Economic theory also backing this: If inflation is too high Consumers' purchasing power – the real value of money – is reduced. If prices are increasing faster than people's nominal incomes, they will be able to afford fewer goods and services than before. Workers may seek wage increases to compensate for the effects of higher inflation = raises firms' costs, which may lead firms to raise prices further and/or reduce the number of workers they employ. Spending and investment decisions may be distorted - expect higher inflation, they may make purchases sooner Returns on investment may be lower – real returns lower if inflation higher real interest paid by borrowers to lenders – inflation goes high - the lender will get less Menu Pricing - Businesses need to update their prices more frequently and consumers spend more time comparing prices – other reasons like loss of competitiveness internationally If inflation is too low: Consumers may delay purchases if they expect prices to fall. As a result, falling prices – a situation called 'deflation' – can lead to lower spending. Businesses could respond by laying off workers or reducing wages which, in turn, places further downward pressure on demand and prices. The worst thing for an economy which has a lot of debt (like Aus in the housing market or USA and Japan

Welcome to Finance and Fury We live through transformational times – new environment for finance and investing We are fast reaching the limits of monetary printing - markets are still trying to work out how to price that in Past model – print money Get GDP growth through aggregate demand increase – mainly consumption Therefore – due to velocity of money (turnover) – get multiplier effect – more times money changes hands the bigger the effect = $1 might lead to $3.2 Trouble is that turns out inflation is mostly driven by behaviours/psychological phenomenon GDP growth, inflation, productivity are all missing in action despite 9 years of declining rates and 6 years of monetary doping and financial engineering the world over. If you increase money supply – money needs to go somewhere – sometimes through existing off investment managers or pension funds or new bonds issued from the bank RBA will give CBA $1bn of newly printed money – in return gets CBA Bond to the value of $1bn with a coupon Bank uses new money as deposits to fund further lending – leading to more economic growth through increased consumption – then we are meant to get inflation – Found to be very ineffective – UK QE = £375 billion of new money just to create £23-28bn billion of extra spending in the real economy Over time reduces growth if money went into mortgages – lowers spending due to larger loans to repay as borrowing capacities rise as rates drop due to this policy No positive outcomes have led to falling credibility of Central Bankers, as they ran out of policy space Falling credibility is typical precursor to imbalances compounding (including bubbles) Creates a lack of confidence – and becomes its own tipping point for a financial crisis. Yet - Australia – Lowering rates – calls for QE – Quantitative easing – printing money for liquidity Officially - known as large-scale asset purchases through using newly created money Type of monetary policy– an extreme one – where a central bank creates a policy to buy predetermined amounts of government bonds or other financial assets in order to inject liquidity directly into the economy Purchase of bonds and assets (life ETFs) – To inject liquidity – money to be spent – money terminology very similar to maritime/water – Trouble is that there is a lot of evidence that this policy type won't work – just leave with money to pay back What this means for the market Without growth and inflation from here - future for market economies looks very different – want to spend a few episodes to run through Looking at the past – economic change has occurred a lot – financial system has had its resets 1920's - structural deflation led to Keynes revolution in economics 1940's –world fully abandon gold standard to a semi- gold backed system 1970's - chronic inflation led to Milton Friedman counter-revolution, and governments like Thatcher or Reagan Market-based economies survived these – what has changed – we are in a new form of global capitalism Entangled things – Financial System is Global – no longer is it nationally important – look at GFC (US banks) = 68% loss on the big 4 here Accelerated things - the industrial revolution took years to equate to growing productivity and wealth, while it went through its implementation phase. Industrial and aggregate productivity growth slowed down markedly in the years 1890 to 1913, as we moved towards the second industrial revolution What has been true in every case - Deflation is like a death penalty for debt-laden economies Low rates decrease service costs on debt, but negative inflation rates increase its real burden, leading into more debt-deflation. Now that interest rates and inflation are below zero, the economy is cornered and time is running out. From here – Central banks hope to see GDP reverting to the mean, inflation to spring back up – wishful thinking Debt overhangs, bad demographics, chronic oversupply, technological disruption all conspire to the deficient aggregate demand, the structural deflation and the liquidity trap we see the world over. If inflation and nominal GDP cannot be resurrected soon enough - the bubble in markets will eventually bust Asset prices drop, economy stagnates, and discontent will trigger a change of regime into populists' parties, for them to try what current politics could not. Major issue in a lot of countries – France and yellow vests, china/HK, India people protesting over banks Existing examples for an economy with years of QE Japan: living laboratory for the Great Policy Experiment - One such place where experimental policymaking may be tested is Japan. Japan is likely to be the laboratory where new forms of crisis policymaking are implemented. Japan is likely to lead the way. It is the pinnacle of desperation after 26-year long unfruitful attempts at re-igniting growth and inflation. There are a few reasons why Japan is desperate enough to be forced into pioneering innovative policymaking: Exhausted effectiveness of monet

Welcome to Finance and Fury, The Furious Friday edition Today – cover Resource control over an economy/society – Energy, food, water – Many SDGs – 7, 13, 15, 16 – Mainly focus on 7 and 13 – this is the core of most SDGs – justifications for them anyway Goal 13: Climate action - "Take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in renewable energy." Started in 2015 - climate deal Paris Agreement – tool used for countries to meet the sustainable development goals UN states that tackling climate change will only be possible if all SDGs are met = climate action needed – SDGs plan Official "economic development and climate change are inextricably linked, particularly around poverty, gender equality, and energy" – Okay? Economic climate change and Gender equality just thrown in there The UN encourages the public sector to take initiative in this effort – Government policy 2018 - International Panel of Climate Change (IPCC) - UN body for assessing climate change published a special report "Global Warming of 1.5°C" - outlined the impacts of a 1.5°C temperature rise require global net human-caused emissions of carbon dioxide (CO2) to fall by about 45% by 2030 to 0% in 2050 Climate is the most misunderstood topic – listen to honest scientist – they say they don't know what is happening – listen to UN – 1.5 degree so give all the energy regulation and money to them Changing CO2 in atmosphere and controlling the temperature is actually laughable - Why? Greenhouse effect – idea is more CO2 and then more energy flow and warm climate Greenhouse effect rose from 1980 to 1993 – flat from 1994 to 2015 – but the co2 has been going up – which is true – but illustrates that what we are told – co2 up greenhouse effect goes up doesn't add up based around the science from all sources and not just one outlier – CO2 – do you think the most greenhouse gas in the climate is Co2? Answer - H2O -it is water vapour in all forms – ice, snow, water – vapour coming out of power plants is water vapor – like a cloud – what we can see – we cant see co2 – why does water come out of power? Power is produced by turbines – boiling water – evaporation of water Easy example – where is it hottest – humid areas – makes it feel hotter – Global energy balance diagrams – but in every element from absorbed sunlight, temperature, outgoing radiation, latent heat flux and potential energy flux – most important element is H20 – biggest impact on all – CO2 only relates to atmospheric composition – as it is a small part, one of thousands of elements – If you want to fully understand – put up a 1.5-hour lecture to explain how it works from independent institute Also – good scientists are happy when people critic their work – 'how am I wrong' – scientific question – but if you question the theories of climate scientists with the IPCC – they have 'deniers' removed from the conversation – If you are an engineer and designing a bridge – someone says it is off and will fall down – that is helpful – instead if they worked in the IPCC they would fire the person pointing out the design flaws So why CO2 used? Why? And Why silence the counter view and put the blame at CO2 – fits the mould of authoritarians All for Energy and resource control – helps as well to siphon trillions of dollars out of people into the UNs pockets as well – Control of money, control over our lives – Finances – Paris Agreement - Article 9 – Deals with the Finance Transfer – projects towards low greenhouse gas emissions and development P1- Developed countries shall provide financial resources to assist developing countries P3 - mobilizing climate finance from a wide variety of sources, instruments and channels, noting the significant role of public funds The agreement builds on the financial commitments of the 2009 Copenhagen Accord, which aimed to scale up public and private climate finance for developing nations to $100 billion a year by 2020 The Copenhagen pact also created the Green Climate Fund to help mobilize finance using targeted public dollars. The Paris Agreement established the expectation for a higher annual goal by 2025 - put mechanisms in place to achieve that scaling up from $100bn. Green Climate Fund – Collects money (Country taxes) – Give it to accredited entitles – they spend on projects Entities – HSBC Holdings, Africa Finance Corp, European Central Bank, mainly gov or private banks Also - Energy is a big business – Lots of money – billions – not only does oil back the USD under the petro dollar system – makes a lot of money – OPEC nations – when managed well – countries boom – like Saudi – when centralised Government control comes in – goes poorly – Venezuela – took a very profitable oil companies – one of the largest in world – socialised it – started hiring people to work in Government run businesses – was run like a government - now complete shadow and can't even keep up with domestic demands let alone a major expor

Welcome to Finance and Fury, the Say What Wednesday Edition Back to answering individual questions - Two questions this week – follow up to recent eps on gold and economy First from Mario – just a quick one - I listened to a recent podcast you made about gold and wanted to understand why people would own gold outright and keep in their possession? Is it purely because they don't trust keeping in a vault? Also with Gold ETFs in the case of a crisis gold ETF doesn't really mean much do they. Why hold gold personally over a vault? The major reason to hold gold personally would come down to personal preferences and insurability, rather than not trusting a physical storage vault. The gold can be hard to personally insure and requires special additions to a standard home contents policy. The issue can come back to the valuation of gold, as the insurance policy might value up to $10,000 but the price of gold changes and might be higher than the insured value. people would need to constantly be updating their policy and paying additional premiums. When purchasing through a vault, this along with the storage is taken care of by the company (at a cost). The thing to watch out for is purchasing physical gold through a financial institution, as this can be expropriated (such as the FDR gold buy backs in the USA). That is why most gold companies as non-banks. Gold ETFs viability all depends on how bad a crisis gets. A market collapse like in the GFC is okay for a Gold ETF, as the price fluctuations/volatility are where losses can occur (or gains historically when looking at a share correction). If the financial system was to collapse and the financial institutions (such as HSBC) were to default and become bankrupt, then the risk of the gold held on your behalf may be at risk. This is known as counterparty risk - Second part – Adam's question - I was listening to your episode about gold and precious metals just recently and it got me researching. Like you and many others have indicated there will be a correction soon and I am considering changing my super from high growth to conservative for a few years, so it's mainly in cash and bonds as well as selling half my ETFs to keep in cash. Not asking personal advice but general advice is it a bit drastic to protect my super for a few years while the market is overheating at the moment? It depends on what allocation is considered conservative – Balanced portfolios have overvaluations (Twin peaks) Cash and Bonds, in my opinion, won't be the best assets, mainly due to lowering interest rates and the potential risks now associated with 'Bonds'. Cash – Obvious – real returns aren't good – mostly negative once inflation or tax is taken out Bonds - A lot of Industry super funds have a bit of a disingenuous description when it comes to their 'Bond' Allocations. These Bonds are actually invested throughout fixed interest investments that contain assets that are not considered bonds or, that conservative. Example - QSuper have the following descriptions for what their Bond fund invests in, as this investment is managed by QIC and invested in the QIC Diversified Fixed Interest Fund: Fixed interest is defined as any interest-bearing security or equivalent derivative instrument – Not just bonds Lack of transparency to where they actually invest the funds (outside of 44% to Corporate Fixed Interest), I believe that a lot of the fixed interest allocations are in Corporate Capital notes, the same ones covered in the 'Where not to Invest' episodes covering the bail-in legislations. There is also the increased risks of default on Semi-Government Bonds Think about the size of Debt – 315% to global GDP – US will never be able to pay back $20trn debt Options for debt – default! So bonds are worthless Share allocations in indexes - Personally, I am sticking clear of ETFs, do have smaller allocations to MF index – Aus index issue is allocation of shares in the Banks/Financials - assets that I think may not survive another large correction too well Think about GFC – USA banks ran into issues – narrative our banks were solid thanks to Basel 3 – but still lost 68% NAB $41 to $17, CBA $61 to $26 – Back when banks could make money on major assets = loans – now lowering rates doesn't help that at all Compare to WOW - $33 to $24 = 27% loss, CSL $41 to $38 = 7% loss = much lower – our index dropped due to banks Also - Now Central banks have little printing power left to Bail Out of banks – hence Bail Ins This all being said, there is no way to really time the market and if Australia enters QE territory, our share market may rally to 7,000 in which case you would miss out on gains if you held all your assets in cash. I always have some allocation of surplus cash inside my super to dump into the markets if they go down, while being allocated to shares and funds which invest in business that should remain in business if a crisis were to hit. Higher Growth investments will experience volatility but the major c

Welcome to Finance and Fury Passive Investing is the Flavour of the day – Central banks entered the markets to provide a feedback loop Central banks Trying to create the wealth effect - Bernanke's easy money policy was intended to boost economic growth by boosting shares as well - November 2010 he argued: "Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." Think of a financial market as a forest – Aus seen some fires recently – arson can be a cause – but if the Greens won't let burn offs, then throw fertilizers around and forests grow out of control – enter a dry period – small spark leads to massive fire that can destroy everything in its path – Tell-tale sign - lower volatility and the unprecedented magnitude of Central Banks' interference in markets Peak Quantitative Easing - never before this high: $300bn+ monthly asset purchases, or annualized passive flows for $3.7trn globally - the ensuing rising mania for passive investment vehicles: the tulips of ETFs and passive Where has a lot of the money has been going? Index funds, Risk Parity funds - two-thirds of which are trend-chasing - close to $8trn globally the ensuing capitulation of active investors who default to chase passive ones, as they fall prey to mental loops like 'recency bias' and 'induction trap' The Positive Feedback Loop between Fake Markets and investors creates System Instability, and Divergence from Equilibrium Many fashionable investment strategies these days are based on the easiest option – ETFs Creates a feedback loop - they successfully profit from an artificial set of variables – people buying ETFs pushes the market up - derives an artificial signal of future prices movements - In circular reference, artificial markets feed, and are fed, by a crowding effect in high-beta long-bias in disguise. However - a downturn, they may likely play as hot money or weak-hands, exacerbating a down-move 90% of inflows are passive strategies – creating a bubble in some companies over others – if it is in the index, it is bought regardless of if it should be or not Weak hands are investors who are brought to like an investments by certain characteristics which are uncommon to the specific investment itself, such as its featuring a low volatility, diversification, and liquidity ETFs - their meteoritic rise - ETFs oftentimes oversell liquidity and diversification, attracting swathes of unaware, unfitting investors in the process. Investors who are unlikely to stomach bouts of volatility, and who will likely exit prematurely upon them, thus exacerbating volatility. Furthermore, a growing body of research blames ETFs for reducing markets efficiency, creating stock markets that are both 'mindless' and too expensive. ETFs themselves represent a great financial innovation – became popular after 2009 in AUs - What one must consider though, is their implications for price discovery (do they make bubble/bust cycles more extreme?), liquidity (is liquidity overstated?), market responsiveness (is volatility depressed but tail risks – extreme drops - bigger?). Specifically to this market cycle, it is also worth asking what happens when the liquidity tide turns on QE ending, or when markets dive. Until then, the positive feedback loop implies that markets are helped rising by ETFs themselves, who are then rewarded with further inflows with which they can buy more. The more expensive valuations get, the more they disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become. To protect fees and in a bid for survival, many active investors capitulated and started pricing risk out of portfolios. A higher-beta, longer-bias ensued. As they are still rationally sensitive to valuations and risks in the macro outlook, they stand ready to switch when the moment comes. The current state of markets - Twin Bubble – thanks to Quantitative Easing – The major risk is central bank tightening Twin Bubble - Bonds and Shares simultaneously- Markets have forgotten how much of current valuation is due to Quantitative Easing – around a time over the next few years QE in the US may be phased out The episode on bonds v shares - https://financeandfury.com.au/bullish-shares-versus-bearish-bonds-which-one-is-correct/ The 'wealth effect' failed – Printing money – making people feel rich and spend more - QE did not spur consumer spending, corporate profits, real wages, and inflation But did for financial assets – hard asset pricing in house and shares QE for risky assets: the liquidity tsunami that lifts all boats Central Banks, differently than in the past, may be less keen to save the day for financial markets, or less keen to do so for mild sell-offs (within -20%). They may even use a weaker stock market as a top-down rebalancing act. Market participants believ

Welcome to Finance and Fury, the Furious Friday edition Last week - went over partnership programs and potentials for coercive monopolies – today – implementation of policies in the circular economy – SDG12 Today's ep – go through google and the largest companies on earth will determine how we produce and consume – or how they want us to produce and consume – all to benefit their own pockets and the global government they back – under the climate change guise These companies are the ones in charge of providing the recommendations for pilot programs for the 'circular economy' Circular economy will destroy the modern economy – it is built on consumption – Economists like Krugman can't have it both ways – they say consumption is the key driver – I say it is innovation and supply-side They say this will create growth – but this will do the opposite – reduce innovation Stop and pause for a minute – want to ask if hypocrisy exists in climate strikes and proponents of warming Honest question- are you terrified of the future? If so, why? I am super hopeful – never been a better time to be alive – but listen to the media or Gretta with the UN and you will think that you will die in 10 years. If you think that – what is the point to anything? You might happily let google take over your life and dictate to you how to live – or not save or invest for your future, have kids, look after your own lives As I am hopeful – I do these episodes as a warning about the other angle that Google won't tell you – that these prophecies are what google is wanting for your future – the fear of it becomes a self-fulfilling prophecy – why? You are afraid – want security - the same people who made you afraid come along and say 'we can protect you' and give you the easy way out – the Faustian deal – that is why I do these eps – not to pile on to the fear - but show how the so-called solutions are the Faustian deal that will guarantee us the future that everyone is so afraid of – don't fall for the fear trap If you are newer to the podcast – covered climate ad nauseam – links to episodes where the science is covered and arguments in the show notes on the website This is a socialist political movement – like all watermelons – wrapped in green but red on the inside – control of the economy under any guise has been the MO – the climate is the new angle Greta's parents – Swedish singer and author – out wearing antifa shirts – where the self-labelled anti-fascists act like the brown shirt fascists of the 20th century – Dad wrote two books about climate change – parents profiting and using kids Greta filed a legal complaint accusing five countries of inaction on global warming in violation of the 30-year-old UN Convention on the Rights of a Child. Germany, France, Brazil, Argentina and Turkey - Suing France and Western nations (for climate change, but not China or India?) Why? It is politically motivated Today's kids – one's protesting – first ones with constant screen time as entertainment – don't ride bikes or get bus to school, but are dropped off in cars (making traffic worse), every classroom has to have aircon and computers, wanting the new iPhone every year or laptops in every class to stay trendy For the protests - making signs using cardboard and wood, using toxic paints and markers that when disposed are damaging to the environment, look at the photos of the aftermaths of the protests – litter and rubbish everywhere – they can't even clean up after themselves – given away agency to a higher power – daddy Gov and companies Anti-antiestablishment – the counter-counter-revolutionaries wanting bigger governments and socialism Rather than striking, I remember as a kid going out and planting trees and doing world rubbish pickup days every year – actually doing something rather than just yelling at others to do it for me while sitting in aircon, eating processed fast food and watching a movie with all the lights on in the house These same kids under the circular economy – monopolistic competition - won't be so happy – level of conspicuous consumption will go down – costs go up, so either parent's cop it putting further strain on family budgets, or kids go without – either unacceptable for the screechers – like in NSW – one of the child organisers is the kids of labours head speechwriters – ABC didn't report that What is it? - A circular economy is an economic system aimed at minimizing waste and making the most of resources Sounds awesome – how? An economy that feeds the top companies and makes any new entrant impossible – you have to be in the club to produce and sell – called a closed-loop system – completely demand-side driven 2019 World Economic Forum Annual Meeting in Davos estimates that only 9% of the global economy is circular today They admit that the problem is they cannot know in advance what will work and what will not for the circular economy At least they admit it – unlike central banks working off models back when gold-backed mo

Welcome to Finance and Fury, the Say What Wednesday Edition Today's episode is about building wealth and getting ready for retirement Keeping with the Theme – Solving the economic problems Using the resources you have (income, savings, equity, etc.) to get what you want Today – run through considerations to take when looking at accumulating wealth for retirement Like last few episodes – doesn't have to deal so much with age – but you own situation Some want to retire at 50, others 70 if ever First step – What are your retirement lifestyle costs like? Types of expenses to account for Essential costs – Food, bills, - what your basic budget looks like Discretionary costs – Holidays, dinners out – enjoying the good life What will this cost you? Asic money smart – has benchmarks – But work it out for yourself What do you spend today on the essentials and what would you like to spend? By the time you become FI – probably won't have a mortgage – so can neglect this cashflow requirement if paying it off can be managed How much will you need invested to fund this? Asset levels and types are Income-based – work off 4 to 5% p.a. income yields as a rule of thumb Rule of 20 to 25 – What is the income that you need times by 20 or 25 – depends on the yields of the investment 4% = 25 times or 5% = 20 times – This is for the ability to not deplete capital in retirement $100k income = $2m in today's funds at 5% p.a. or $2.5m at 4% p.a. Might see figures of $300k in super – but that is assuming you draw it down to $0 and die exactly when you forecast – better to have an income source in perpetuity to avoid longevity risk Types of investments Yields and amounts Depends on what assets are held and the net incomes after tax Super – After 60 = Tax free income – no need to account for tax Accounts do have costs – may be a fraction of a % though Also – Min income drawdowns – 55-64 4%, 65-74 5%, 6%, etc Property – Net incomes need to be taken – after agents fees If personally held or in a trust – Tax may be payable as well Assuming all debts have been repaid as well – otherwise interest expenses Shares – Aussie shares – Franking credits can offset Earn about $100k of Dividends FF and with the FF of $42k on that – offset your $42k of tax Example - $1m of Aussie shares in Super – Paying a 5% FF div versus 2 properties for $500k each - renting at $450per week - Super - $71,428 versus Property – $34k p.a. = More than double income Monday Ep this week – GBI – Rather than traditional assets, will your investments generate enough income to maintain your expenses Property may be a good way to generate equity/value through leverage – but do the calculations to see if you can repay the debts and the gross incomes are enough – same with super – need income paying assets – not just $1m sitting in cash paying 1% When will you need it by? Working out when you need it by determines future values Example – Inflation of 2.5% p.a. in 20 years turns that $1m into $1.64m (1.025^20) Also important – how much you need to put away to hit this future value? Monthly investing – put some away each month – either SS or personal investing Need a help? Calculators on members section available – rough guide to how much to invest each month to hit the goals – doesn't take into account super/tax/etc – just rough guideline If you want to retire before super preservation – Better to focus on personal investing Other considerations Debts – paying those down in time to alleviate cashflows – Personal debts/mortgages or investment debt – One will be deductible, but both eat into cashflow Personal should be the main focus – at least tax reduction is MTR for every $1 spent – but still spend $1 for cents back Supers – Are you already on track with your super? Do you need to adjust the asset allocations Higher growth – long timeframes Close to retirement – want the right asset mix in super – ability to have cash accounts to fund incomes/lump sums Lump Sums at retirement – either renovation costs, buying a new home Comes back to lifestyle – become a grey nomad – need a lump sum to buy the caravan – don't want to borrow for this ideally – so have additional savings targets to meet goals/needs Investments – where they are held and are they providing enough income? Property/investment debts – No point having 20 properties if your net cashflow if $30k p.a. due to debt repayments – just need to work longer to pay back the debt then – can ruin retirement plans Shares or managed funds – Again – depends on your goals and level of income needed to if you need emergency cash funds if markets crash – share incomes can go down – same with MF distributions Other investments – business etc. – Strategies to take such as small business concessions Leading into Retirement – while you might be physically decaying, your finances don't have to – threshold on funds needed is important to know - whole part of the journey Calculators and resources available in the members section on the website he

Welcome to Finance and Fury Today – Talk about goals based investment – setting up buckets of investment allocations to meet needs Approaches to portfolio construction three common approaches in building the framework of a client's investment solution: traditional (asset-only) or liability approach, Today - goals-based investment (GBI) approach. The traditional, asset-only approach to investing is based on the seminal work of modern portfolio theory (MPT) - 1952 most common approach - build optimal asset allocations for investors based on their aversion to risk (as measured by investment return volatility). Liability driven – Governments or Insurance companies – meet large payment obligations – need immunised investments for short term funding cash inflows are likely to match and cover their obligated cash out flows Goals-based 'bucket' approach People have many complex and competing funding needs (e.g. living expenses, children's education, health costs, holidays) To aim to achieve these - GBI shares traits with both LDI and MPT LDI, which seeks to 'match' the characteristics of liabilities (e.g. interest and principal repayments, inflation-linked payments) with a portfolio of investments with similar cash flows, goals-based buckets are established to 'match' the characteristics of particular lifestyle objectives with suitable portfolios of investments. These investments might have similar cash flows as that of the investor's goals, or they might have correlated risks. As with a traditional approach, which is focused on optimising the risk/return characteristics of a portfolio, the GBI approach can also incorporate mean-variance efficiency at the bucket level. Behavioural factors affecting investors Traditional investing relies a lot on the rationality of investors – People want to maximise gain while minimising pain But short-term market corrections can erase all memory of long-term gains = panic sell regret aversion can lead to pain from not investing more in outperforming asset classes = afraid to invest GBI lies in trying to account for the non-rationality that occurs as a result of emotional biases and cognitive limitations. In particular, GBI addresses two types of behaviours: (1) loss aversion (emotional) and (2) mental accounting (cognitive). Loss aversion is the behavioural issue that reveals itself in the risk taking of investors Mental accounting - investors will create cognitive shortcuts to assist in investing decisions investor separates and connects different assets with different criteria (e.g. term deposit = emergency fund; CBA shares = child's university funding), which can lead to irrational decision making Goal tolerance versus investment risk tolerance Traditional investment theory sets the volatility of investment returns as the key measure of risk willingness and ability to take on investment risk (or risk aversion) with the expected volatility of diversified portfolios – High vs Low volatility Goal-based investing – the risk tolerance measures are linked to goal characteristics – this is your willingness and ability to take on risk Tolerance levels are the risk of failing to achieve each of your goals – not the volatility of the investments Aim of GBI is to maximise your ability to reach your goal – all about having maximum allowable probability meeting goals volatility of returns is still an important component of portfolio construction, as the risk of not achieving a goal is likely to increase with more volatile investments – but mismatches often occur Examples – see this in risk profiling with clients – some say they are defensive – don't want loss – but then need to get 8% p.a. plus to get to end FI targets – what is more important? Reaching goals or not seeing short term losses? The investment process – Setting up Buckets Setting goals – have clear outline of needs for investments Articulate goals: What is it you want to achieve? Characterise goals: Clarify the factors - SMART goals – what, when, amounts, etc. Quantify goals: One you know amounts and timeframes – use characteristics of risk probabilities (e.g. financial security success = 100%) when looking at timeframes Cash v Shares – Fund renos with shares? Prioritise goals: Understanding the importance of each goal – rank each in order of importance – don't take too much risk with short term if it is important Moderate goals: Solving the economic problems - Limited resources compared to goals can make it impossible to achieve any – look at what you have to work with and where it should go Set goal tolerances and amounts: Once you know the amounts and the timeframes and resources Set tolerance to loss/risks for each – look at regular commitments or a future one-off funding requirement The tolerance level might best be expressed as an acceptable level of failure – what is the chance of not achieving goal over the timeframe – Short term – e.g. Deposit – trying to fund from a few ASX shares to get quick short term gains not a g

Welcome to Finance and Fury, The Furious Friday Edition Today – Run through SDG Goal 17 – Sneaky side to the SDGs along with the method of creating global monopolies – part 1 of two – today 17, next week 12 – they go hand in hand SDG17: "seeks to strengthen global partnerships to support and achieve the targets of the 2030 Agenda - bringing together national governments, the international community, civil society and the private sector" The partnership programs for the UN – Who are these actors? National Governments – self-explanatory – The bringing together of Aus, China, Belgium, etc – every nation The international community – used in geopolitical terms to refer to everyone in the world – global citizens is another term Civil Society – NGOs and activist groups Private Sector - Companies – but only the giant multinationals this will benefit – I know I didn't get an invite I originally thought that the private sector would say no to these policies – they are meant to make profits But a lot of the largest are enthusiastically backed the new goals Example - mega-corporations backing the scheme are the world's top three search engines: Google, Microsoft's Bing, and Yahoo – If you look it up online – everything positive – how it can restore trust in companies, how it can harness growth in the modern economy – all to preserve global resources If these corporations' support for the UN agenda, do you think this may affect the supposed impartiality of search results? If you are interested, try duckduckgo compared to the same google searches Have a question: Ask myself this - Do we live in a plutocracy? – billionaires, multinational companies and unelected global governments telling us how to live – They fly in private jets and consume far more than the average joe = produce more CO2 than us – but there are only a few of them – so okay, right? They can act as hypocrites – Part of the UN strategy - Recs have to come from others – if the UN says to do it, people may be sceptical But what If google says to do it? Or CEOs like Bill Gates say to do it? They have good public images Why should we trust Someone who was giving millions for research to the recently suicided Jeffrey Epstein, like Gates? Michael Cannon-Brookes – company partaking – but didn't he just fork out over $100m for property at Point Piper? Don't know about you – I find this Interesting– why if we are going to be underwater in 10 years? Look around - Billionaire property developers putting up massive projects on coast lines around the world – Florida Would banks lend to finance these projects on the coast? 30-year mortgage for a costal property? No – banks don't want to lose money – Developments on the coast wouldn't be lent to as they would be 5m underwater Use logic – ignore the science that is funded to look for climate change (p.s. if cant find no more money) – if the financial system and 'ultra-wealthy' are either lending or buying property on the beaches – while also telling us to change behaviours in the name of climate, along with taxing future generations more to save the planet – is it real or just a scare tactic to control people choices and extract more resources? What if we don't want these SDGs? Do we get a vote? No - When you pay close attention – becomes one rule for me and one rule for thee Reading the UN literature on this, as well as from the horse's mouth – UN Economic Commission secretary said that these policies (especially circular economy – details more in next week) – "compulsory choice for a sustainable world" A lot of politicians pretend that the SDGs are binding – they aren't so these agreements should have no force But as UN Agenda 21 previously showed - the people must demand these changes through their elected representatives – that is where the power of the UN comes from – Companies, activist groups acting on behalf of UN UN. Agenda 21 was heavily pushed by an NGO called ICLEI - none of us had been informed about it or have voted for it in any way; it basically leads to the loss of personal freedom and sovereignty worldwide That is why the 2030 Agenda is universal – 'applying to all countries and actors' - nations to take climate action – but the social pressure has to come from everywhere – Companies, activist groups like getup, Even schooling with global citizenship programs The day this is released – climate strikes occurring across the world – taking the afternoon off to glue yourself to a road will really tell the earth to stop rotating on its axis leading to changes in climate The focus has been pushed on CO2 emissions – said a while back that this – I wish this was an onion article – but is the sort of thing that creating Co2 as the enemy leads to after CO2 gas was rebranded as 'carbon' – we are carbon based lifeforms – why not eat our ways out of the problems? Global warming – Sweden – scientist introduced eco-cannibalism – eating people – I don't want to do this – but if UN gets its way – legislate that we have

Welcome to Finance and Fury, The Say What Wednesday Edition special series – running through the catalogue of questions and concerns The series is broken down into three stages – 50 years or so timeline – last week was basics and the first stage https://financeandfury.com.au/how-do-i-start-my-journey-to-financial-independence/ Teenage to young adults (16-25): 10y - The focus of these years is to learn the basics of money finish schooling/education - next step is setting up the basics in last weeks ep Family and home (25-45): 20y - Whether your goals are to buy a house, start a family, education costs or anything else - the biggest part of this stage is preparing for the financial responsibility that comes along with each goal – this week Accumulating to Retire (45-65): 20y – Normally have larger disposable incomes – set sights on accumulating more to fund rest of life – next week What is life normally like before the 20s? Up until this point – have been a consumer – younger people are naturally socialist Rely on family – living at home, parents provide for you, go through school – have been told what to do mostly up until early adulthood After this – time to take charge – Finish school and likely have first income – going forward in life Ages differ – but principles stay the same The last ep – went through some of the basics – principles of solving the economic problem Prioritise around the economic problem – Finite resources (money) – so where is it best put? Setting out your own goals/needs – building a plan based around where to put each dollar to meet goals Make your own target ratio – budgeting to pay yourself first – why prioritising helps – sets clear goals Invest in yourself – continue to gain experience and knowledge – this doesn't change What are the economic problems at this stage? – Today – Start looking at events that tend to occur over time - First home, mortgage, starting a family – all about balancing finite resources to maximise your gains (utility) This stage is mostly defined by debt or expenses – can mean limited room for wealth accumulation which is why these first stages are important – covered in the last episode – Firstly - Likely in debt or about to get into debt – personal, mortgage or education debt – there are also two stages of either preparing for upcoming events (family, home, etc.) or already gone through them Defining stages – Preparation – Preparation for buying a home, getting a mortgage, starting a family Considerations that need to be accounted for Debt and expenses normally take charge over wealth accumulation Wealth protection strategies – insurances to cover debts and family Or – you are currently in that position of having a mortgage and having a young family For each one of these things – we have done plenty of eps on each individual thing – so we put links to each in the show notes Everything here is about asking yourself the important questions – you are your own boss in personal finances – look to your own situation to answer these Preparation for events – does require sacrifice First home, mortgage Deposits and getting financing – tools to use to solve the economic problems How much will you need? Look at the type of property you want to buy? Can you afford it? Wants v needs Tools to use FHSSS - personal savings – aim these to be enough of hitting your targets for deposits Hint - Avoiding LMI if you can – over leverage can be a killer of personal finances Kids Education costs – probably not a while off if you haven't had your first kid – cover in a second More important – Budgetary issues - Single income/maternity leave This is why the basics of having your budget in place is important What will your finances look like on a single income or mat leave income? Starting a family - Protection – Getting into debts – make sure protected and have adequate covers to make sure if something happens to income-producing ability – Different levels of lump sums – the level of debts, or sole income provider leaving leftover life covers Ongoing income replacement – is it needed? In most cases it is likely - All about having your goals written down – working out how to solve the economic problem – no single correct way – Figures, strategies, timelines – all depends on your personal situation Now – if you have already bought a home, had kids, etc. – not preparing for these events but in the middle of it First home and got a mortgage – do you know what your rate it? Know how long until paid off? Know how much interest over life of loan? Deposits and getting financing – aren't the issue here The repayments of debt have to be balanced with lifestyle costs – Economic problem – Cost benefit analysis Where compounding comes into it again – compounding of interest on your mortgage debt versus investing into growth investment for long term or education costsThe low interest rate environment make it easier to answer that question – but the size of mortgages is forgotten about - $680k toda

Welcome to Finance and Fury, Today – next gold rush – Final part of capital preservation – Allocation as a hedge for a financial meltdown - should preserve capital, withstand market volatility, and provide diversification across a portfolio Gold – an asset which is virtually permanent, with no significant erosion of quality over time, could arguably be considered a safe haven – good evidence that Gold has provided a hedge against collapse – limited supply at about 1.5% p.a. increase What is Gold's true role? – Capital preservation – but also Money – Base money for most of history - 1912 when J.P. Morgan was called to testify before Congress. Congressman - I want to ask you a few questions bearing on the subject that you have touched upon this morning, as to the control of money. The control of credit involves a control of money, does it not? JP - A control of credit? No. – Congressman: But the basis of banking is credit, is it not? JP - Not always. That [credit] is an evidence of banking, but it [credit] is not the money itself. Money is gold, and nothing else. This is very interesting – our money now is credit – Fiat – not backed by gold This is why people buy Gold – protect from these outcomes There are many uses including jewellery, electronics, dentistry, medical and other industrial use – and of course investment. Jewellery is the single-largest individual source of demand – 40% is investment purposes – bars, central bank reserves, ETFs Reasons for buying gold – Seen as safe haven when economy tanks Fear of an economic crisis or inflation outbreak fuelling public demand; Gold has historically served as a hedge against a declining US dollar and rising inflation Price of gold often moves in the opposite direction to the US dollar - reflecting the fact that many regard the yellow metal as an alternative currency A change in the sovereign wealth funds asset composition, such as demand from China, to diversify their holdings; and Negative bond yields losing their appeal as an effective hedge against equities. If Aus starts QE – gold goes well Financial System - "Race to the bottom" fuels global demand for gold Several fundamental drivers that enabled gold to break out - The gold price broke through the significant US$1,400 per ounce in June with several fundamental drivers: Continued tension between the US and China; US Federal Reserve (Fed) officials voicing concerns over the economy; and The weaker outlook globally – looks to be entering into another bull market A steady stream of weakening manufacturing data, beginning with falls in the Institute for Supply Management (ISM) Purchasing Managers' Index (PMI) in the US and German industrial production sectors. Chinese authorities were also reported to be trying to contain the fallout from the failure of Baoshang Bank, as brokerages and asset managers were looking to restrict trading due to possible counterparty risks. Then the European Central Bank (ECB) indicated rate cuts are likely in the absence of any improvement in the economy The economy can have a sort of Hard landing Heading into 2020, we see one of two scenarios playing out across the markets: Soft landing – Manufacturing has been weak and on the verge of recession in China, Europe and now the US. A soft landing would occur if the global stimulus widely expected from central banks is able to keep a manufacturing recession from morphing into a broader recession across the entire economy. Averting a recession would be bullish for the stock market, interest rates would find a bottom, and the dollar would likely stabilise or strengthen. This might limit the upside for gold. In this scenario, we might see gold establish a new price range, supported by geopolitical risks and central bank demand. Hard landing – A hard landing occurs if the current manufacturing recession transitions into a broader economic recession, causing central banks to suffer a loss of confidence. US rates would likely fall to zero or less, and the stock market might enter a correction, while financial risks escalate. Central banks may restart quantitative easing (QE) or initiate other more radical policies. In this scenario, gold would probably form a positive price trend as a safe haven investment. Gold could gain from dangerous debt levels - Debt or overleverage is usually the culprit, as was seen with subprime mortgages in 2008. Global Gov debt surged following the financial crisis – Global gov funding is at Trillion-dollar shortfalls Expected next year and beyond – plus if a recession hits - tax receipts decline and expenses increase So the shortfall grows further with no way out - investors would no longer buy Treasuries = rates rise, credit may get downgraded and the US dollar may collapse. The second potential debt problem is corporate - As a percentage of GDP - corporate debt has now surpassed the peak of the last cycle in 2009 Major risk in this cycle is lower credit standards - the amount of BBB rated corporate debt – th

Welcome to Finance and Fury, The Furious Friday Edition Today – SDG9 - How infrastructure spending helps an economy - Anyone who knows basic economic and GDP has learnt that Infrastructure spending leads to GDP growth – so the theory says – Very hard to measure benefits/gains – Direct through spending in GDP equation – flow on effects Go through Economic theory backing this – stimulus spending for GDP growth – First – estimates Research provided from McKinsey and UN – MK established the Global Infrastructure Initiative (GII) in 2012 MK Two reports – 2015 to 2016 – World spent $9.5trn (14% GDP) $9.6trn follow year Transport, power, water, telcom – $2.5trn, Social infrastructure, oil and gas, mining – $2.4trn, Real estate - $4.65trn Spending trajectory points to a shortfall of about $350 billion a year to what we are told we need – but triples when including funds needed to meet the UN Sustainable Development Goals Report states – meeting is critical for the future of undersupplied regions such as Africa – remember Africa Emerging economies account for some 60% of that need Projects – no idea – broken into categories – power, water, etc – but on what, who knows – Have programs going – but go to each and it is just another rabbit hole trying to find each individual thing This ep - Focus of policy and recommendations to provide grease to the wheels of bureaucracy: Helping Financial System out through Governments Talk about the theory as justification and also the Governments hand in this - Regulations/Legislation - Basel III, Solvency II, pension fund allocation rules Basel III and Solvency II mandate classifying infrastructure as high-risk capital allocations Also - pension funds have allocation rules that specifically limit their exposure to asset classes and countries Recognizing infrastructure as an asset class with a lower risk profile – Infrastructure can be low or high risk Low upon completion and proof of profitability – In developing – high risk – many infrastructure projects don't meet forecasts – known as 'white elephants' To avoid low return investments – governments need more oversight and analysis before a decision in made – More regulations for infrastructure works – Question: If there was a special equation to perfectly predict profitability – Gov wouldn't be ones who have it Sadly – no tool exists – only outcome from involvement in assessment is higher costs and more delays due to layers of legislation and checklists before approval Governments will also take an active role beyond changing the laws – Want to make money back off it Road pricing and other fees toll roads, bridges, and tunnels are increasingly common around the world. Taxes and fees - Cities including London have introduced congestion pricing on urban roads. Property value capture - Governments acquire land around an infrastructure project - profit once the project is completed through lease or sale - using the resulting funds for new infrastructure investment - Spain added this to its constitution. Other methods – more traditional – increase general or specific property taxes and fees from owners/developers Changes in public accounting and budgeting frameworks Treating infrastructure as an asset on a public balance sheet and depreciating it over time rather than adding the entire cost of a project to the fiscal deficit up front mirrors corporate accounting practice - helpful to Gov – gets around limits on deficits and debt. Example – 3y $6bn project is being constructed and will take 6 years – one payment upfront now and one in 3 years Current – Adds $6bn onto deficit now - although the government is actually paying money only in years one and three, it books spending of $2 billion in each of the three years. However, the roads will be operational for the next 20 years. It would make just as much sense for the government to book an expense of $300 million every year for 20 years as the public asset is consumed. But many public assets, unlike private assets, do not have corresponding revenue streams attached to them – no accountability – as a new office block will have a life of who knows – 40, 50 y – hides real spending onto future books Socioeconomic rates of return on public investment is meant to exceed the government's cost of capital—and substantially increase the future tax base in a way that makes the project self-funding over the long run important caveat is that this accounting approach could undermine the productivity of public investment Report notes - risk that government leaders, freed from the responsibility of having projects appear in their fiscal expenses during their tenure, might decide to spend ineffectually – Very politically useful in the short term – spend away on your voting demographic — boosting particular constituencies such as construction workers and the unemployed—costs passed to future generations. Why they want to introduce a powerful oversight body – Issue is that a Government doesn't run itself l

Welcome to Finance and Fury, The Say What Wednesday Edition Series to cover a number of questions asked – FAQ on stages of life Hard to get through all questions – from questions compiled – put together run through of steps Go through 3 or 4 – stages of life – cover the process from start to finish – considerations to take, give an outline Process – Stage, typical situation, goals, focus, and tips – priorities and strategies – pros and cons Get the planning books – access through the member's section - https://financeandfury.com.au/member/ Investing in yourself episodes at the start of the year as well – purpose careers Today – First part - Starting out – run through the basic stage of setting the foundations – The first part is very important – even if feel like you have gone through it, know someone who this can benefit – please share to help them This part, not really age/situation-specific - regardless of ages/circumstances finances can be difference from decisions What does the Starting stage look like? - either before full-time job (at uni/working part-time) or stating your first job, or well into your work life but want to better financial position Different for everyone – different ages, amounts, etc – don't want to beat around the bush – earlier the better But never too late – more effort can be needed to catch up – where is the fun in something not challenging? Generally – to build something start with base/foundation – most foundations work off a basic framework – weight/loads Engineering – square-cube law – as you double the size the volumes/mass cubed Example – cube with 1 mass – double the size and mass 8 – double again (4x4x4) and mass 64 Limits all design – planes with wing sizes, tall buildings (taper in) – Limits nature – trees, animals – reason blue whale biggest creature – max under this law of what No different in personal finances and becoming financially independent – design a foundation around governing principles Example – Winning $200m – make you FI – but what if financially illiterate with a gambling habit? Remain FI? What makes a good gambler? They aren't technically gambling – not slot machines, but poker – Game of probability – beyond counting cards (chance of cards being in play) – chip stack management – a line of the song 'when to hold 'em and fold em' Just like a professional poker player – playing smart in life with your finances are the core – Some Principles of personal finances – probably 100 more – but good starting place Prioritise around the economic problem – Finite resources (money) – so where is it best put? Setting out your own goals/needs – building a plan based around where to put each dollar to meet goals Make your own target ratio – budgeting to pay yourself first – why prioritising helps – sets clear goals Compounding – the rule of 72 – Invest in yourself – continue to gain experience and knowledge - Prioritise - While each individual will have different needs, situations, etc – initial stage of financial journey is the clean-up phase - before transition into working on the foundations – like going for a road trip and forgetting your mix tape and to fuel up the car Goals - Planning with the End Goal in mind – Never too early to start Where to invest? What to invest in? How to access? Something that is well-diversified for lower investment funds and doesn't cost you a lot in transaction costs Budgeting – Cashflow is king – method of accumulating wealth – a common practice – work, get the deposit (minus tax) into account, transfer to pay other people (or companies/online) - First step – How much do you earn and what are you spending money on? Next – Categorise – musts (essentials), nice things (discretionary), and surplus (savings) Are you happy with how it looks? How much do you need? Compounding – pretty self-explanatory – Investing into growth and reinvesting income compounds over time Rule of 72 – rule of thumb – 10% doubles every 7.2 y, or 7.2% every 10 years doubles – $10k at 10% p.a. - $20, $40, $80, $160, $320, $640 – 43.2y – but $320k less than 36y – Make it to 50y – just under $1.3m Golden ratios – Works in conjunction really with goals and compounding (next) – but having a plan/outline and goals around Planning and setting targets of how much you need to have invested and by when – times in life you won't be able to invest – cash flow being used for debt, family, life Important not to forget about is super – hidden beneficiary of compounding - as cant access till 60 – Example - 4 super accounts with $2k each – admin $78 + 0.1% p.a. insurance of $2.9p.w.– Returns 8% p.a. = $0 in 16y Gets rolled into lost super now before this happens – but still, suffer in performances – 10y 5.7% for ones like Ausfund Roll all into one account - $8k with same admin and returns = 40 years is just under $110k If you are around 20 now and have a number of accounts – might be worthwhile to look into if consolidating is an option – not advice – a general statement of obvi