Tag: artificial intelligence (page 1 of 5)

Dan Hannan Destroys The Growing Support For ‘Socialism’ In 100 Seconds

How is it that 100 years after The Bolshevik Revolution there are still people saying the idea of socialism wasn’t so bad?

British MEP Daniel Hannan exposes the ignorance of this line of thinking… in 100 seconds.

Still… what are historical facts worth when you have virtue to signal!?

http://WarMachines.com

Why People Will Happily Line Up To Be Microchipped Like Dogs

Authord by Daisy Luther via The Organic Prepper blog,

So…some people actually want to be microchipped like a dog. They’re lining up for it. They’re having parties to get it done. It if isn’t available to them, they’re totally bummed out.

I’m not even going to venture into the religious aspect of having a microchip inserted into a human being. Let’s just talk about the secular ramifications.

Certain folks won’t be happy until everyone has a computer chip implanted in them. Here’s how this could go.

  • Initially, it would be the sheep who blindly desire to be chipped for their own “convenience” leading the way.
  • Then, it would become remarkably inconvenient not to be chipped – sort of like it’s nearly impossible to not have a bank account these days.
  • Then, the last holdouts could be forcibly chipped by law.

Read on, because I could not make this stuff up.

Some employers are chipping workers.

Last summer, the internet was abuzz about a company in Wisconsin that wanted to microchip their employees. Workers at the technology company, Three Market Square, were given the option of having a chip implanted in their hands and 50 out of 80 eagerly lined up for the privilege.

Why? So they could buy food or swipe their way through building security with a wave of their hand. Software engineer Sam Bengtson explained why he was on board.

“It was pretty much 100 percent yes right from the get-go for me. In the next five to 10 years, this is going to be something that isn’t scoffed at so much, or is more normal. So I like to jump on the bandwagon with these kind of things early, just to say that I have it.” (source)

He wasn’t alone. In fact, they had a microchipping party and some people got chipped live on TV so the rest of us reluctant humans could all see how cool it was to get microchipped. Watch what fun they had!

It isn’t just this American company chipping workers. Here’s an example in Sweden.

What could pass for a dystopian vision of the workplace is almost routine at the Swedish start-up hub Epicenter. The company offers to implant its workers and start-up members with microchips the size of grains of rice that function as swipe cards: to open doors, operate printers or buy smoothies with a wave of the hand.

 

“The biggest benefit, I think, is convenience,” said Patrick Mesterton, co-founder and chief executive of Epicenter. As a demonstration, he unlocks a door merely by waving near it. “It basically replaces a lot of things you have, other communication devices, whether it be credit cards or keys.” (source)

Alessandro Acquisti, a professor of information technology and public policy at Carnegie Mellon University’s Heinz College, warns that this might not be a good idea. (Although it doesn’t take a Ph.D. to realize this.)

“Companies often claim that these chips are secure and encrypted…But “encrypted” is “a pretty vague term,” he said, “which could include anything from a truly secure product to something that is easily hackable.”

 

Another potential problem, Dr. Acquisti said, is that technology designed for one purpose may later be used for another. A microchip implanted today to allow for easy building access and payments could, in theory, be used later in more invasive ways: to track the length of employees’ bathroom or lunch breaks, for instance, without their consent or even their knowledge.

 

“Once they are implanted, it’s very hard to predict or stop a future widening of their usage,” Dr. Acquisti said. (source)

Pretty soon, experts say everyone will want to be microchipped.

Many sources say that it’s inevitable that we’re all going to get chipped. Noelle Chesley, an associate professor of sociology at the University of Wisconsin-Milwaukee, says it’s inevitable.

“It will happen to everybody. But not this year, and not in 2018. Maybe not my generation, but certainly that of my kids.” (source)

Another pro-chipping advocate, Gene Munster, an investor and analyst at Loup Ventures, says that we just have to get past that silly social stigma and then everyone will be doing it within 50 years. Why? Oh, the benefits.

The company, which sells corporate cafeteria kiosks designed to replace vending machines, would like the kiosks to handle cashless transactions.

 

This would go beyond paying with your smartphone. Instead, chipped customers would simply wave their hands in lieu of Apple Pay and other mobile-payment systems.

 

The benefits don’t stop there. In the future, consumers could zip through airport scanners sans passport or drivers license; open doors; start cars; and operate home automation systems. All of it, if the technology pans out, with the simple wave of a hand. (source)

There are other companies who are on board with chipping everyone.

At a recent tech conference, Hannes Sjöblad explained how a microchip implanted in his hand makes his life easier. It replaces all the keys and cards that used to clutter his pockets.

 

“I use this many times a day, for example, I use it to unlock my smart phone, to open the door to my office,” Sjöblad said.

 

Sjöblad calls himself a biohacker. He explained, “We biohackers, we think the human body is a good start but there is certainly room for improvement.”

 

The first step in that improvement is getting a microchip about size of a grain of rice slipped under the skin. Suddenly, the touch of a hand is enough to tell the office printer this is an authorized user.

 

The microchips are radio frequency identification tags. The same technology widely used in things like key cards. The chips have been implanted in animals for years to help identify lost pets and now the technology is moving to humans.

 

Tech start-up Dangerous Things has sold tens of thousands of implant kits for humans and some to tech companies in Europe.

Sjöblad said he even organizes implant parties where people bond over getting chipped together.  (source)

Will microchipping parties be the next generation of those outrageously expensive candle parties? Will folks be pimping microchips like they do those scented wax melts? Will it become some kind of MLM thing to make it even more socially acceptable?

A UK newspaper, the Sun, explains how awesome it is to be microchipped.

The woman sat next to you could be hiding an implant under the skin which slowly releases hormones to stop her from getting pregnant.

 

Nans and granddads across the nation come installed with cutting-edge technology installed just to boost their hearing and vision seeing or help them walk with comfort.

 

We’re preparing ourselves for the next form of evolution in which humans will merge with artificial intelligence, becoming one with computers.

 

At least that’s the belief of Dr. Patrick Kramer, chief cyborg officer at Digiwell, a company that claims to be dedicated to “upgrading humans”. (source)

Seriously, who wouldn’t want all that awesomeness in their lives?

There are some serious pitfalls

While the current chips being “installed” in humans are said not to have GPS tracking, don’t you figure it’s just a matter of time? And also, how do you KNOW that there is no GPS tracking technology in that teeny little chip? Just because they tell you so?
Then there is the issue of the chip in your body being hacked.

“This is serious stuff. We’re talking about a nonstop potential connection to my body and I can’t turn it off, I can’t put it away, it’s in me. That’s a big problem,” said Ian Sherr, an executive editor at CNET.

 

“It’s very easy to hack a chip implant, so my advice is don’t put your life secrets on an implant, Sjöblad said…

 

“It’s about educating the people and giving every person the tools…not only how to use the technology but, more importantly, when it’s being used against you,” Sjöblad warned.  (source)

And microchipping won’t stop with a payment chip in your hand.

The endgame is microchipping people’s brains. And folks are chomping at the bit to get them. Scientists are saying that they can fix mental health issues with brain chips, they can make people smarter, and help them “merge” with AI. A chipped person could, theoretically, think his thoughts right onto his computer.

Watch this video…

So, with these chips in our brains, we’ll actually be merging with computers to some degree. The robot overlords will have a pretty easy takeover if our brains can be accessed like this.

Microchips may not be optional one day.

This horror movie gets even scarier. There is already a law on the books that potentially allows human beings to be forcibly chipped.

Oh, it’s couched in warm, fuzzy language and they say it’s just to help keep track of folks with Alzheimer’s or other developmental disabilities, but remember that the most unpatriotic law ever passed was also called the Patriot Act.

H.R.4919 was passed in 2016.

It directs the Department of Justice’s (DOJ’s) Bureau of Justice Assistance (BJA) to award competitive grants to health care, law enforcement, or public safety agencies, and nonprofit organizations, to develop or operate locally based proactive programs to prevent wandering and locate missing individuals with dementia or children with developmental disabilities. The BJA must give preference to law enforcement or public safety agencies partnering with nonprofit organizations that use person-centered plans and are directly linked to individuals, and families of individuals, with dementia or developmental disabilities. (source)

Despite the fact that the bill requires everyone to use privacy “best practices,” it’s not that much of a stretch to see what a slippery slope this is. Who gets to decide whether a person “needs” to be chipped for their own good? Law enforcement. Scary.

Could this lead to a cashless society?

If “everyone” is getting microchipped like these experts predict, that could be the next step in the push toward a cashless society. Think about the lack of privacy then. If everything is purchased via a chip unique to you, then no purchases could be under the radar. Whether a person was stocking up on food, watching X-rated movies, reading books on revolution, or buying ammo, it would all be recorded in a database. Our purchases could be used in some kind of pre-crime technology, ala Minority Report, or they could be used to profile us in other ways.

If there is no way to make purchases but with a chip, many people will have to reluctantly comply. The same chips could be a requirement for medical care, driver’s licenses, jobs – you name it. No matter where you tried to hide, your GPS locator would mean that you would be found. It would be like everyone being forced to have one of those ankle bracelets that criminals wear, except it would be inside your body.

If you think the atmosphere of control is unnerving now, just wait. When everyone is microchipped, the net will be even tighter.

Between the pending robot apocalypse that I wrote about earlier this week and forcible microchipping, it seems like we won’t have to wait for “climate change” or a war of Mutually Assured Destruction to get us. Technology just might be the end of humanity.

 

http://WarMachines.com

Silicon Valley Exec Creates New Religion Worshipping A ‘Godhead’ Based On Artificial Intelligence

Authored by Michael Snyder via The Economic Collapse blog,

I know that the headline sounds absolutely crazy, but this is actually a true story. 

A Silicon Valley executive named Anthony Levandowski has already filed paperwork with the IRS for the nonprofit corporation that is going to run this new religion.  Officially, this new faith will be known as “Way Of The Future”, and you can visit the official website right here

Of course nutjobs are creating “new religions” all the time, but in this case Levandowski is a very highly respected tech executive, and his new religion is even getting coverage from Wired magazine

The new religion of artificial intelligence is called Way of the Future. It represents an unlikely next act for the Silicon Valley robotics wunderkind at the center of a high-stakes legal battle between Uber and Waymo, Alphabet’s autonomous-vehicle company. Papers filed with the Internal Revenue Service in May name Levandowski as the leader (or “Dean”) of the new religion, as well as CEO of the nonprofit corporation formed to run it.

So what will adherents of this new faith actually believe?

To me, it sounds like a weird mix of atheism and radical transhumanism.  The following comes from Way of the Future’s official website

We believe in science (the universe came into existence 13.7 billion years ago and if you can’t re-create/test something it doesn’t exist). There is no such thing as “supernatural” powers. Extraordinary claims require extraordinary evidence.

 

We believe in progress (once you have a working version of something, you can improve on it and keep making it better). Change is good, even if a bit scary sometimes. When we see something better, we just change to that. The bigger the change the bigger the justification needed.

 

We believe the creation of “super intelligence” is inevitable (mainly because after we re-create it, we will be able to tune it, manufacture it and scale it). We don’t think that there are ways to actually stop this from happening (nor should we want to) and that this feeling of we must stop this is rooted in 21st century anthropomorphism (similar to humans thinking the sun rotated around the earth in the “not so distant” past).

But even though Way of the Future does not embrace the “supernatural”, they do believe in a “God”.

In this new religion, the worship of a “Godhead” that will be created using artificial intelligence will be actively encouraged

The documents state that WOTF’s activities will focus on “the realization, acceptance, and worship of a Godhead based on Artificial Intelligence (AI) developed through computer hardware and software.”

 

That includes funding research to help create the divine AI itself.

 

The religion will seek to build working relationships with AI industry leaders and create a membership through community outreach, initially targeting AI professionals and “laypersons who are interested in the worship of a Godhead based on AI.”

 

The filings also say that the church “plans to conduct workshops and educational programs throughout the San Francisco/Bay Area beginning this year.”

So how “powerful” will this newly created “God” actually be?

Well, Levandowski says that he envisions creating an artificially intelligent being that will literally be “a billion times smarter than the smartest human”

“What is going to be created will effectively be a god,” he said. “It’s not a god in the sense that it makes lightning or causes hurricanes. But if there is something a billion times smarter than the smartest human, what else are you going to call it?”

 

He added, “I would love for the machine to see us as its beloved elders that it respects and takes care of. We would want this intelligence to say, ‘Humans should still have rights, even though I’m in charge.’”

But what if this “super-intelligence” gets outside of our control and turns on us?

What then?

I am not sure that Levandowski has an answer for that.

Other transhumanists also believe that artificial intelligence will grow at an exponential rate, but instead of AI ruling over us, they see a coming merger between humanity and this new super intelligence.  In fact, world famous transhumanist Ray Kurzeil believes that this will enable us to “become essentially god-like in our powers”

Kurzweil and his followers believe that a crucial turning point will be reached around the year 2030, when information technology achieves ‘genuine’ intelligence, at the same time as biotechnology enables a seamless union between us and this super-smart new technological environment.

 

Ultimately the human-machine mind will become free to roam a universe of its own creation, uploading itself at will on to a “suitably powerful computational substrate”. We will become essentially god-like in our powers.

And prominent transhumanist Mark Pesce takes things even further.  He in absolutely convinced that rapidly advancing technology will allow ordinary humans “to become as gods”

“Men die, planets die, even stars die. We know all this. Because we know it, we seek something more—a transcendence of transience, translation to incorruptible form.

 

An escape if you will, a stop to the wheel. We seek, therefore, to bless ourselves with perfect knowledge and perfect will; To become as gods, take the universe in hand, and transform it in our image—for our own delight. As it is on Earth, so it shall be in the heavens. The inevitable result of incredible improbability, the arrow of evolution is lipping us into the transhuman – an apotheosis to reason, salvation – attained by good works.”

Throughout human history, there has always been a desire to create our own gods or to become our own gods.

But no matter how hard these transhumanists try to run from death, it will eventually find them anyway, and at that point all of their questions about who God really is will be answered once and for all.

*  *  *

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

http://WarMachines.com

Finnish Fund Manager Launches ‘Buffett-In-A-Box’ A.I.-Based Fund… There’s Just One Thing

Amid the empty-vessel-driven "deep-learning", "artificial-intelligence", and "algorithmic" narratives-du-jour, more and more fund managers are jumping on the bandwagon. The latest is Finnish fund manager FIM, who is introducing the first investment fund in the Nordic region, where a self-learning algorithm gets to pick all the stocks.

As Bloomberg reports, targeting returns of 3 percentage points above the MSCI World Index, the FIM Artificial Intelligence fund seeks to tease out patterns even an experienced fund manager may not detect, according to Chief Investment Officer Eelis Hein, who oversees 5.6 billion euros ($6.6 billion) in investments at FIM Asset Management.

“This is the next revolution across society, including in investing,” Hein said in an interview in Helsinki.

 

“Investors are hugely interested.”

 

The “Warren in a box” technology, referring to famous value investor Warren Buffett, is a product of more than two years of work by Acatis Investment GmbH and NNaisense SA, a Lugano, Switzerland-based developer of artificial intelligence.

That all sounds very exciting and 'new' and 'tech' and awesome. There's just one thing

Johnny-5 sucks at stock-picking…

Remember what that AI Fund CEO said… “EquBot AI Technology with Watson has the ability to mimic an army of equity research analysts working around the clock, 365 days a year, while removing human error and bias from the process.”

But hey FIM is not giving up, they drop some more complex words to 'splain away any potential doubts an investor may have…

“AI may detect non-linear patterns that traditional quantitative analysis is not able to identify,” Hein at FIM said.

 

“It has no emotions: it hasn’t felt fear during a crash nor euphoria when markets are up.”

http://WarMachines.com

Fed Hints During Next Recession It Will Roll Out Income Targeting, NIRP

In a moment of rare insight, two weeks ago in response to a question “Why is establishment media romanticizing communism? Authoritarianism, poverty, starvation, secret police, murder, mass incarceration? WTF?”, we said that this was simply a “prelude to central bank funded universal income”, or in other words, Fed-funded and guaranteed cash for everyone.

On Thursday afternoon, in a stark warning of what’s to come, San Francisco Fed President John Williams confirmed our suspicions when he said that to fight the next recession, global central bankers will be forced to come up with a whole new toolkit of “solutions”, as simply cutting interest rates won’t well, cut it anymore, and in addition to more QE and forward guidance – both of which were used widely in the last recession – the Fed may have to use negative interest rates, as well as untried tools including so-called price-level targeting or nominal-income targeting.

The bolded is a tacit admission that as a result of the aging workforce and the dramatic slack which still remains in the labor force, the US central bank will have to take drastic steps to preserve social order and cohesion.

According to Williams’, Reuters reports, central bankers should take this moment of “relative economic calm” to rethink their approach to monetary policy. Others have echoed Williams’ implicit admission that as a result of 9 years of Fed attempts to stimulate the economy – yet merely ending up with the biggest asset bubble in history – the US finds itself in a dead economic end, such as Chicago Fed Bank President Charles Evans, who recently urged a strategy review at the Fed, but Williams’ call for a worldwide review is considerably more ambitious.

Among Williams’ other suggestions include not only negative interest rates but also raising the inflation target – to 3%, 4% or more, in an attempt to crush debt by making life unbearable for the majority of the population – as it considers new monetary policy frameworks. Still, even the most dovish Fed lunatic has to admit that such strategies would have costs, including those that diverge greatly from the Fed’s current approach. Or maybe not: “price-level targeting, he said, is advantageous because it fits “relatively easily” into the current framework.”

Considering that for the better part of a decade the Fed prescribed lower rates and ZIRP as the cure to the moribund US economy, only to flip and then propose higher rates as the solution to all problems, it is not surprising that even the most insane proposals are currently being contemplated because they fit “relatively easily” into the current framework.

Additionally, confirming that the Fed has learned nothing at all, during a Q&A in San Francisco, Williams said that “negative interest rates need to be on the list” of potential tools the Fed could use in a severe recession. He also said that QE remains more effective in terms of cost-benefit, but “would not exclude that as an option if the circumstances warranted it.”

“If all of us get stuck at the lower bound” then “policy spillovers are far more negative,” Williams said of global economic interconnectedness. “I’m not pushing for” some “United Nations of policy.”

And, touching on our post from mid-September, in which we pointed out that the BOC was preparing to revising its mandate, Williams also said that “the Fed and all central banks should have Canada-like practice of revisiting inflation target every 5 years.”

Meanwhile, the idea of Fed targeting, or funding, “income” is hardly new: back in July, Deutsche Bank was the first institution to admit that the Fed has created “universal basic income for the rich”:

The accommodation and QE have acted as a free insurance policy for the owners of risk, which, given the demographics of stock market participation, in effect has functioned as universal basic income for the rich. It is not difficult to see how disruptive unwind of stimulus could become. Clearly, in this context risk has become a binding constraint.

It is only “symmetric” that everyone else should also benefit from the Fed’s monetary generosity during the next recession. 

* * *

Finally, for those curious what will really happen after the next “great liquidity crisis”, JPM’s Marko Kolanovic laid out a comprehensive checklist one month ago. It predicted not only price targeting (i.e., stocks), but also negative income taxes, progressive corporate taxes, new taxes on tech companies, and, of course, hyperinflation. Here is the excerpt.

What will governments and central banks do in the scenario of a great liquidity crisis? If the standard rate cutting and bond purchases don’t suffice, central banks may more explicitly target asset prices (e.g., equities). This may be controversial in light of the potential impact of central bank actions in driving inequality between asset owners and labor. Other ‘out of the box’ solutions could include a negative income tax (one can call this ‘QE for labor’), progressive corporate tax, universal income and others. To address growing pressure on labor from AI, new taxes or settlements may be levied on Technology companies (for instance, they may be required to pick up the social tab for labor destruction brought by artificial intelligence, in an analogy to industrial companies addressing environmental impacts). While we think unlikely, a tail risk could be a backlash against central banks that prompts significant changes in the monetary system. In many possible outcomes, inflation is likely to pick up.

 

The next crisis is also likely to result in social tensions similar to those witnessed 50 years ago in 1968. In 1968, TV and investigative journalism provided a generation of baby boomers access to unfiltered information on social developments such as Vietnam and other proxy wars, Civil rights movements, income inequality, etc. Similar to 1968, the internet today (social media, leaked documents, etc.) provides millennials with unrestricted access to information on a surprisingly similar range of issues. In addition to information, the internet provides a platform for various social groups to become more self-aware, united and organized. Groups span various social dimensions based on differences in income/wealth, race, generation, political party affiliations, and independent stripes ranging from alt-left to alt-right movements. In fact, many recent developments such as the US presidential election, Brexit, independence movements in Europe, etc., already illustrate social tensions that are likely to be amplified in the next financial crisis. How did markets evolve in the aftermath of 1968? Monetary systems were completely revamped (Bretton Woods), inflation rapidly increased, and equities produced zero returns for a decade. The decade ended with a famously wrong Businessweek article ‘the death of equities’ in 1979.

Kolanovic’s warning may have sounded whimsical one month ago. Now, in light of Williams’ words, it appears that it may serve as a blueprint for what comes next.

http://WarMachines.com

Is Peter Thiel Trying To Break Up Google? This $300,000 Political Contribution Seems To Imply He Is…

Peter Thiel, the billionaire venture capitalist who backed President Trump (just before giving his presidency a “50% chance of ending in disaster“) and infamously helped Hulk Hogan bring down Gawker.com, has allegedly set his sights on a new target: Google.  According to The Mercury News, suspicions about Thiel’s next pet project were raised after he recently contributed $300,000 to Missouri Attorney General Josh Hawley just before he launched an antitrust lawsuit against the alleged search monopoly.

So far, high-profile Silicon Valley venture capitalist and PayPal co-founder Peter Thiel isn’t saying publicly why he gave hundreds of thousands of dollars to the campaign of a state attorney general who’s just launched an antitrust probe of Google.

 

But it’s not the first time Thiel has handed cash to an AG who went after Google over monopoly concerns.

 

Missouri Attorney General Josh Hawley announced Nov. 13 that his office was investigating Google to see if the Mountain View tech giant had violated the state’s antitrust and consumer-protection laws. The Missouri attorney general said he had issued an investigative subpoena to Google. He’s looking at the firm’s handling of users’ personal data, along with claims that it misappropriated content from rivals and pushed down competitors’ websites in search results.

Thiel

In a press release posted to his website, Missouri AG Josh Hawley confirmed that he had issued an “investigative subpoena to Internet giant Google, Inc.,” in an effort to determine whether the search giant had “violated the Missouri Merchandising Practices Act—Missouri’s principal consumer-protection statute—and Missouri’s antitrust laws.”

Missouri Attorney General Josh Hawley announced today that his Office has issued an investigative subpoena to Internet giant Google, Inc., in connection with an investigation into the company’s business practices. Specifically, the investigation will seek to determine if Google has violated the Missouri Merchandising Practices Act—Missouri’s principal consumer-protection statute—and Missouri’s antitrust laws.

 

The business practices in question are Google’s collection, use, and disclosure of information about Google users and their online activities; Google’s alleged misappropriation of online content from the websites of its competitors; and Google’s alleged manipulation of search results to preference websites owned by Google and to demote websites that compete with Google.

 

“There is strong reason to believe that Google has not been acting with the best interest of Missourians in mind,” Hawley said. “My Office will not stand by and let private consumer information be jeopardized by industry giants, especially to pad their profits.”

 

In addition to online users’ location, device information, cookie data, online queries, and website history, it is estimated that Google has access to 70 percent of all card transactions in the United States.

 

“When a company has access to as much consumer information as Google does, it’s my duty to ensure they are using it appropriately,” Hawley said. “I will not let Missouri consumers and businesses be exploited by industry giants.”

Meanwhile, as Mercury News notes, Hawley isn’t the only state attorney general to have received support from Thiel potentially related to their targeting of Google.  Thiel also contributed to former Texas AG Greg Abbott after his office began investigating Google back in 2010.

In Missouri, Thiel put his money behind Hawley in 2015, with $100,000 contributed during Hawley’s campaign for the state attorney general’s seat, then added two more $100,000 donations to the campaign in 2016, according to the National Institute on Money in State Politics. Hawley was sworn in on Jan. 9.

 

Hawley is not the only state attorney general to have probed Google over antitrust concerns. Former Texas Attorney General Greg Abbott began investigating Google in 2010. In 2013, Thiel donated $100,000 to Abbott, according to the National Institute on Money in State Politics.

 

In response to Abbott’s probe, Google in 2010 said in a blog post that it was sometimes asked about the fairness of its search engine.

 

“Why do some websites get higher rankings than others?” the post said.

 

“The important thing to remember is that we built Google to provide the most useful, relevant search results and ads for users. In other words, our focus is on users, not websites. Given that not every website can be at the top of the results, or even appear on the first page of our results, it’s unsurprising that some less relevant, lower quality websites will be unhappy with their ranking.”

So is Google about to get ‘Gawker’d’ or has Thiel bitten off a little more than he can chew with this latest crusade?

http://WarMachines.com

Is This The Tesla Killer?

We all know the story behind Fisker, it was one of the world’s first plug-in hybrid electric vehicles in 2008, and even had a legal spat between Tesla, but shortly after in 2012 the company crashed and burned in bankruptcy. Last year, Henrik Fisker decided to relaunch his brand. He thought that one failure wasn’t enough—-just like Elon Musk’s SpaceX rockets. During Fisker’s relaunch, he made a shocking comment that caught the attention of Musk and it was on the claims of a new breakthrough in battery technology using graphene-based hybrid material that would revolutionize battery storage and make Musk’s batteries appear obsolete.

Thirteen months passed, and Musk wrote off Fisker’s claims, as Musk decided to focus on other things like his Boring company. That might of been Musk’s fatal flaw, because Fisker just came out and dropped a bombshell on the electric vehicle (EV) industry: ‘New Fisker Batteries 2.5x Density, 500 Miles Per Charge & Charging in 1 Minute’..

Musk will shortly developed uncontrollable convulsions with the understanding his Gigafactory producing thin-film lithium batteries could be obsolete.

Autoblog reports the new breakthrough, calling it a solid-state battery revolution: 

It seems that we’re on the cusp of a solid-state battery revolution. The latest company to announce progress in developing the new type of battery is Fisker. It has filed patents for solid-state batteries and it expects the batteries to be produced on a mass scale around 2023.

In the game of electric vehicles it’s all about batteries. Musk’s technology would be considered legacy when compared to solid-state. Here is why: 

  • Greater energy density
  • Rapid charging times

Fisker claims the batteries underdevelopment have a density of 2.5x when compared to the standard EV batteries. This should give the range of a Fisker vehicle well over a 500-mile and recharging capabilities in as little as a minute.

Here’s what Dr. Fabio Albano, VP of battery systems at Fisker Inc. claims:

This breakthrough marks the beginning of a new era in solid-state materials and manufacturing technologies.

 

We are addressing all of the hurdles that solid-state batteries have encountered on the path to commercialization, such as performance in cold temperatures; the use of low cost and scalable manufacturing methods; and the ability to form bulk solid-state electrodes with significant thickness and high active material loadings. We are excited to build on this foundation and move the needle in energy storage.  

Here’s a representation of the 3-dimensional electrodes:

Easily Explained: The Solid State Battery Revolution

The current standards for Tesla Model S depending on the type of charge ranges from 10 minutes to 1:15 for a max distance up to 300 miles.

Fisker on the other hand, claims their battery will enable ranges of more than 500 miles and a charge as low as one minute. Fisker’s technology would increase distance by over 66% and drastically reduce charging time, along with no explosions something that Teslsa has a long history of.

 

Roberto Baldwin of Engadget asks one question: Can Tesla avoid becoming the BlackBerry of electric cars? 

The simple answer is no.

As we have highlighted the short thesis for Tesla in yesterday’s post titled: Jim Chanos Adds To Tesla Short, Sees Musk Stepping Down… We had to make one adjustment and add line 8, which now includes the understanding of Fisker’s solid-state battery technology and how it could disrupt the entire EV party.

1. Negative Cash Flows

“If you can’t make money selling a $100,000 car to rich people, how are you going to make money selling a $45,000 car to normal people?” Rocker told The Times. He was referring to the upcoming mass-market Model 3. “I’m saying they’re going to lose money on every Model 3 they build and sell,” Spiegel said. Based on Tesla’s Q4 2016 earnings report, he figured the combined average selling price for non-leased Model S and X is about $104,000 and the combined average cost of building them about $82,000.

2. Competition from the Big Guys

Electric vehicles are still only a tiny fraction of total new vehicle sales in the US. Tesla sold about half of them. In March, according to Autodata, Tesla sold 4,050 vehicles in the US, similar to Porsche. All automakers combined sold 1.56 million new vehicles. This gave Tesla a market share of 0.26%. “Tesla faces a formidable set of competitors, and they’re coming in with guns blazing,” Wahlman told The Times. “Once the market is flooded with electric vehicles from manufacturers who can cross-subsidize them with profits from their conventional cars, somewhere around 2020 or 2021, Tesla will be driven into bankruptcy,” Spiegel said.

3. Tesla’s vanishing tax credits

The federal tax credit of $7,500 that EV buyers currently get is limited to 200,000 vehicles for each automaker. Once that automaker hits that point, tax credits are reduced and then phased out. Of all automakers, Tesla is closest to the 200,000 mark. Under its current production goals, the tax credits for its cars could start declining in 2018. This would give competitors, whose customers still get the full tax credit, a major advantage. About 370,000 folks put down a refundable $1,000 deposit on Tesla’s Model 3, perhaps figuring they’d get the $7,500 tax credit. But as it stands, many won’t. Rocker thinks that this is going to be an issue. The refundable deposit “commits them to nothing,” he said. Those that don’t get the tax credit may just ask for their money back and buy an EV that is still eligible for the credit.

4. The Question of patent protection

Tesla has made its patents available to all comers, thus lowering its patent protections against competitors. Also, the key part of an EV, the battery, is produced by suppliers; they, and not Tesla, own the intellectual property. This is true for all automakers. But Tesla might still be closely guarding crucial trade secrets that are not patented.

5. Musk’s distractions from his day job

Musk has a lot of irons in the fire: Tesla, SpaceX (with which he wants to build a colony on Mars or something), solar-panel installer SolarCity which Tesla bailed out last year; projects ranging from artificial intelligence to tunnel digging; venture capital activities…. “He’s all over the map, from tunneling to flights to Mars to solar roof tiles,” Rocker said. These announcements have the effect of boosting Tesla’s stock: “It’s ‘Let’s get the acolytes excited. Implant in the brain! Let’s buy Tesla stock!’”

6. Execution risk

“Investing is all about possibility and probability,” Yusko said. “Is it possible that Tesla will produce 500,000 cars in the next two or three years? Yes. Is it probable? No.” Tesla has missed many deadlines and goals, and quality problems cropped up in early production models. As Tesla is trying to make the transition to a mass-market automaker, execution risk will grow since mass-market customers are less forgiving.

7. Investor fatigue

Having lost money in every one of its 10 years of existence, Tesla asks investors regularly for more money to fill the new holes. In March, it got $1.2 billion. In May last year, it got $1.5 billion. Tesla will need many more billions to scale up production and to digest the losses. Tesla has been ingenious in this department. But when will investors get tired of it? “We’re awfully close to the point where people wake up and realize these guys are seriously diluting our equity” with new stock and convertible bond issues, Yusko said. According to The Times, Yusko “is looking for the moment when the true believers begin to lose faith.”

*Update

8. Emerging solid-state battery technology 

Musk has invested a lot into his Gigafactory and technology producing lithium-ion batteries. The EV game is all about the best battery technology and a new threat has emerged using solid-state technology. If Tesla does not adopt to these new battery trends consumers would likely gravitate to EVs who posses such technology, because of the longer distance and shorter charge time.

http://WarMachines.com

AI Researcher Warns Skynet Killer-Robots “Easier To Achieve That Self-Driving Cars”

A group of the world’s leading AI researchers and humanitarian organizations are warning about lethal autonomous weapons systems, or killer robots, that select and kill targets without human control.

The group alleges killer robots now exist and the bulk of these technological developments are military funded in UK, China, Israel, Russia, and the United States. Although, fully autonomous weapons systems have not yet been deployed on the battlefield, the action by the group to ban lethal autonomous weapons is a preemptive ban before the technology falls into the wrong hands. The group calls on the citizens of the world to contact their representatives and for countries to work together to form international treaties, before it’s too late.

Member List of the Campaign to Stop Killer Robots:

  • Human Rights Watch
  • Article 36
  • International Committee for Robot Arms Control
  • PAX
  • Association for Aid and Relief Japan:
  • Mines Action Canada
  • Nobel Women’s Initiative
  • Pugwash Conferences on Science & World Affairs
  • Seguridad Humana en América Latina y el Caribe (SEHLAC)
  • Women’s International League for Peace and Freedom

Future of Life Institute released a video yesterday titled: Slaughterbots.

The video portrays not to far in the distant future of a military firm unveiling a drone with shaped explosives that can target and kill humans on its own. Further in, the video abruptly changes pace, when bad guys get ahold of the technology and unleash swarms of killer robots onto the streets of Washington, D.C. and various academic institutions.

The video is aggressive and graphic but outlines if the technology was misused it could have severe consequences – such as civilian mass causality events.

Stuart Russell, a world leading AI researcher at the University of California in Berkeley, showed the video above to the United Nations Convention on Conventional Weapons on Monday. He said, “the technology illustrated in the film is simply an integration of existing capabilities. It is not science fiction. In fact, it is easier to achieve than self-driving cars, which require far higher standards of performance.”

Russell wants a preemptive ban on the technology before it’s too late. He claims the window to halt such technologies is closing and warns that autonomous weapons, such as drones, tanks and automated machine guns are imminent.

The Guardian adds,

The military has been one of the largest funders and adopters of artificial intelligence technology.

 

The computing techniques help robots fly, navigate terrain, and patrol territories under the seas. Hooked up to a camera feed, image recognition algorithms can scan video footage for targets better than a human can.

 

An automated sentry that guards South Korea’s border with the North draws on the technology to spot and track targets up to 4km away.  

The International Committee for Robot Arms Control is calling upon the international community for a treaty against autonomous weapon systems.

Given the rapid pace of development of military robotics and the pressing dangers that these pose to peace and international security and to civilians in conflict, we call upon the international community for a legally binding treaty to prohibit the development, testing, production and use of autonomous weapon systems in all circumstances.  

Human Rights Watch is another organization calling for the preventive measures to stop the machines…

 The development of fully autonomous weapons—“killer robots”—that could select and engage targets without human intervention need to be stopped to prevent a future of warfare and policing outside of human control and responsibility.

 

Human Rights Watch investigates these and other problematic weapons systems and works to develop and monitor international standards to protect civilians from armed violence.  

Conclusion: The evolution of targeted killing practices have certainly evolved to something on the lines of the Terminator, a fantasy/science movie where Skynet an artificial intelligence system gained self- awareness, and decided to wage a war on humans. Will Stuart Russell and his team of AI researches be able to stop the trend in autonomous weapon systems before it’s too late?

http://WarMachines.com

Why Australia’s Economy Is A House Of Cards

Authored by Matt Barrie via Medium.com,

Co-authored with Craig Tindale.

I recently watched the federal treasurer, Scott Morrison, proudly proclaim that Australia was in “surprisingly good shape”. Indeed, Australia has just snatched the world record from the Netherlands, achieving its 104th quarter of growth without a recession, making this achievement the longest streak for any OECD country since 1970.

 

Australian GDP growth has been trending down for over forty years
Source:
Trading Economics, ABS

I was pretty shocked at the complacency, because after twenty six years of economic expansion, the country has very little to show for it.

For over a quarter of a century our economy mostly grew because of dumb luck. Luck because our country is relatively large and abundant in natural resources, resources that have been in huge demand from a close neighbour.

That neighbour is China.

Out of all OECD nations, Australia is the most dependent on China by a huge margin, according to the IMF. Over one third of all merchandise exports from this country go to China- where ‘merchandise exports’ includes all physical products, including the things we dig out of the ground.

Source: Austrade, IMF Director of Trade Statistics

Outside of the OECD, Australia ranks just after the Democratic Republic of the Congo, Gambia and the Lao People’s Democratic Republic and just before the Central African Republic, Iran and Liberia. Does anything sound a bit funny about that?

Source: Austrade, IMF Director of Trade Statistics

As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.

Unfortunately for Australia, that “lucky” free ride is just about to end.

Societe Generale’s China economist Wei Yao said recently, “Chinese banks are looking down the barrel of a staggering $1.7 trillion?—?worth of losses”. Hyaman Capital’s Kyle Bass calls China a “$34 trillion experiment” which is “exploding”, where Chinese bank losses “could exceed 400% of the U.S. banking losses incurred during the subprime crisis”.

A hard landing for China is a catastrophic landing for Australia, with horrific consequences to this country’s delusions of economic grandeur.

Delusions which are all unfolding right now as this quadruple leveraged bubble unwinds. What makes this especially dangerous is that it is unwinding in what increasingly looks like a global recession– perhaps even depression, in an environment where the U.S. Federal Reserve (1.25%), Bank of Canada (1.0%) and Bank of England (0.25%) interest rates are pretty much zero, and the European Central Bank (0.0%), Bank of Japan (-0.10%), and Central Banks of Sweden (-0.50%) and Switzerland (-0.75%) are at zero or negative interest rates.

Summary of Current Interest Rates from Central Banks (16th October 2017). Source: Global-rates.com

As a quick refresher of how we got here, after the Global Financial Crisis, and consequent recession hit in 2007 thanks to delinquencies on subprime mortgages, the U.S. Federal Reserve began cutting the short-term interest rate, known as the ‘Federal Funds Rate’ (or the rate at which depository institutions trade balances held at Federal Reserve Banks with each other overnight), from 5.25% to 0%, the lowest rate in history.

When that didn’t work to curb rising unemployment and stop growth stagnating, central banks across the globe started printing money which they used to buy up financial securities in an effort to drive up prices. This process was called “quantitative easing” (“QE”), to confuse the average person in the street into thinking it wasn’t anything more than conjuring trillions of dollars out of thin air and using that money to buy things in an effort to drive their prices up.

Systematic buying of treasuries and mortgage bonds by central banks caused the face value of on those bonds to increase, and since bond yields fall as their prices rise, this buying had the effect of also driving long-term interest rates down to near zero.

Both short and long term rates were driven to near zero by interest rate policy and QE. Source: Bloomberg, CME Group

In theory making money cheap to borrow stimulates investment in the economy; it encourages households and companies to borrow, employ more people and spend more money. An alternative theory for QE is that it encourages buying hard assets by making people freak out that the value of the currency they are holding is being counterfeited into oblivion.

In reality, the ability to borrow cheap money was mainly used by companies to buy back their own shares, and combined with QE being used to buy stock index funds (otherwise known as exchange traded funds or “ETFs”), this propelled stock markets to hit record high after record high even though this wasn’t justified the underlying corporate performance.

Almost all flows into the equity market have been in the form of buybacks. Source: BofA Merrill Lynch Global Investment Strategy, S&P Global, EPFR Global, Convexity Maven

In literally a “WTF Chart of the Day” on September 11, 2017, it was reported that the central bank of Japan now holds 75% of all ETFs. No, not ‘owns units in three out of four ETFs’?—?the Bank of Japan now owns three quarters of all assets by market value in all Japanese exchange traded funds.

In today’s world Hugo Chavez wouldn’t need to nationalise assets, he could have just printed money and bought them on the open market.

Bank of Japan now owns 75% of all Japanese ETFs. Source: Zerohedge

Europe and Asia were dragged into the crisis, as major European and Asian banks were found holding billions in toxic debt linked to U.S. subprime mortgages (more than 1 million U.S. homeowners faced foreclosure). One by one, nations began entering recession and repeated attempts to slash interest rates by central banks, along with bailouts of the banks and various stimulus packages could not stymie the unfolding crisis. After several failed attempts at instituting austerity measures across a number of European nations with mounting public debt, the European Central Bank began its own QE program that continues today and should remain in place well into 2018.

In China, QE was used to buy government bonds which were used to finance infrastructure projects such as overpriced apartment blocks, the construction of which has underpinned China’s “miracle” economy. Since nobody in China could actually afford these apartments, QE was lent to local government agencies to buy these empty flats. Of course this then led to a tsunami of Chinese hot money fleeing the country and blowing real estate bubbles from Vancouver to Auckland as it sought more affordable property in cities whose air, food and water didn’t kill you.

QE was only intended as a temporary emergency measure, but now a decade into printing and the central banks of the United States, Europe, Japan and China have now collectively purchased over US$19 trillion of assets. Despite the lowest interest rates in 5,000 years, the global economic growth in response to this money printing has continued to be anaemic. Instead, this stimulus has served to blow asset bubbles everywhere.

Total assets held by major central banks. Source: Haver Analytics, Yardeni Research

This money printing has lasted so long that the US economic cycle is imminently due for another downturn- the average length of each economic cycle in the U.S. is roughly 6 years. By the time the next crisis hits, there will be very few levers left for central banks to pull without getting into some really funny business.

It wasn’t until September 2017 that the U.S. Federal Reserve finally announced an end to the current program, with a plan to begin selling-off and reducing its own US$4.5 trillion portfolio beginning in October 2017.

How these central banks plan to sell these US$19 trillion in assets someday without completely blowing up the world economy is anyone’s guess. That’s about the same in value as trying to sell every single share in every single company listed on the stock markets of Australia, London, Shanghai, New Zealand, Hong Kong, Germany, Japan and Singapore. I would think a primary school student would be able to tell you that this is all going to end up going horribly wrong.

To put into perspective how perverted things are right now, in September 2017, Austria issued a 100 year euro denominated bond which yields a pathetic 2.1% per annum. That’s for one hundred years. The buyers of these bonds, who, on the balance of probability, were most likely in high school or university during the global financial crisis, think that earning a miniscule 2.1% per annum every year over 100 years is a better investment than well anything else that they could invest in- stocks, real estate, you name it, for one hundred years. They are also betting that inflation won’t be higher than 2.1% on average for one hundred years, because otherwise they would lose money. This is even though in 20 years time they’ll be holding a bond with 80 years left to go to be paid out in a currency that may no longer exist. The only way the value of these bonds will go up is if the world continues to fall apart, causing the European Central Bank to cut its interest rate further and keep it lower for 100 years. Since the ECB refinancing rate is currently zero percent, that would mean that if you wanted to borrow money from the European Central Bank, it would literally have to pay you for the pleasure of borrowing money from it. The other important thing to remember is that on maturity, everyone that bought that bond in September will be dead.

So if one naively were looking at markets, particularly the commodity and resource driven markets that traditionally drive the Australian economy, you might well have been tricked into thinking that the world was back in good times again as many have rallied over the last year or so.

The initial rally in commodities at the beginning of 2016 was caused by a bet that more economic stimulus and industrial reform in China would lead to a spike in demand for commodities used in construction. That bet rapidly turned into full blown mania as Chinese investors, starved of opportunity and restricted by government clamp downs in equities, piled into commodities markets.

This saw, in April of 2016, enough cotton trading in a single day to make a pair of jeans for everyone on the planet, and enough soybeans for 56 billion servings of tofu, according to Bloomberg in a report entitled “The World’s Most Extreme Speculative Mania Unravels in China”.

Market turnover on the three Chinese exchanges jumped from a daily average of about $78 billion in February to a peak of $261 billion on April 22, 2016?—?exceeding the GDP of Ireland. By comparison, Nasdaq’s daily turnover peaked in early 2000 at $150 billion.

While volume exploded, open interest didn’t. New contracts were not being created, volume instead was churning as the hot potato passed between speculators, most commonly in the night session, as consumers traded after work. So much so that sometimes analysts wondered whether the price of iron ore is set by the market tensions between iron ore miners and steel producers, or by Chinese taxi drivers trading on apps.

Average futures contract holding times for various commodities. Source: Bloomberg

In April 2016, the average holding period for steel rebar and iron ore contracts was less than 3 hours. The Chief Executive of the London Metal Exchange, said “Why should steel rebar be one of the world’s most actively-traded futures contracts? I don’t think most people who trade it know what it is”.

Steel, of course, is made from iron ore, Australia’s biggest export, and frequently the country’s main driver of a trade surplus and GDP growth.

Australia is the largest exporter of iron ore in the world, with a 29% global share in 2015–16 and 786Mt exported, and at $48 billion we’re responsible for over half of all global iron ore exports by value. Around 81% of our iron ore exports go to China.

Unfortunately, in 2017, China isn’t as desperate anymore for iron ore, where close to 50% of Chinese steel demand comes from property development, which is under stress as house prices temper and credit tightens.

In May 2017, stockpiles at Chinese ports were at an all time high, with enough to build 13,000 Eiffel Towers. Last January, China pledged “supply-side reforms” for its steel and coal sectors to reduce excessive production capacity. In 2016, capacity was cut by 6 percent for steel and and 8 percent for coal.

In the first half of 2017 alone, a further 120 million tonnes of low-grade steel capacity was ordered to close because of pollution. This represents 11 percent of the country’s steel capacity and 15 percent of annual output. While this will more heavily impact Chinese-mined ore than generally higher-grade Australian ore, Chinese demand for iron ore is nevertheless waning.

Over the last six years, the price of iron ore has fallen 60%.

Iron ore fines 62% Fe CFR Futures. Source: Investing.com

While the price of iron ore briefly rallied after the U.S. election in anticipation of increasingly less likely Trumponomics, DBS Bank expects that global demand for steel will remain stagnant for at least the next 10–15 years. The bank forecasts that prices are likely to be rangebound based on estimates that Chinese steel demand and production have peaked and are declining, that there are no economies to buffer this slowdown in China, and that major steel consuming industries are also facing overcapacity issues or are expected to see lower growth.

Australia’s second biggest export is coal, being the largest exporter in the world supplying about 38% of the world’s demand. Production has been on a tear, with exports increasing from 261Mt in 2008 to 388Mt in 2016.

Australian Coal Exports by Type 1990–2035 (IEA Core Scenario). Source: International Energy Agency, Minerals Council of Australia

While exports increased by 49% over that time period, the value of those exports has collapsed 38%, from $54.7 billion to $34 billion.

The only bright side for Australian coal in 2017 was that, unexpectedly, Cyclone Debbie wiped out several railroads and forced the closure of ports and mining operations, which has caused a temporary spike in coal prices.

Australian Thermal Coal Prices. (12,000- btu/pound, <1% sulfur, 14% ash, FOB Newcastle/Port Kembla, US$ / metric ton). Source: IMF, Quandl

Australian Premium Coking Coal FOB $/tonne. Source: Mining.com

There are two main types of coal- thermal coal, which is burnt as fuel, and coking coal, which is used in the manufacture of steel. The prospects for coking coal are obviously tied to the prospects of the steel market, which are not particularly good.

Thermal coal, on the other hand, is substantially on the nose, and while usage is still climbing in non-OECD nations, it is already in terminal decline in OECD nations. Recently, in April 2017, the United Kingdom experienced its first day without burning coal for electricity since the industrial revolution in the 1800s.

World Coal Consumption by Region 1980–2040 (forecast). Source: US Energy Information Administration

Australia’s main export markets for coal are Japan and China, two markets in which the use of coal is forecast to decline through 2040.

Australia’s top export market for coal is Japan, and the unfortunate news is that the ramp up in coal exports here is a short lived adaptation after power companies idled their nuclear reactors in the wake of the Fukushima disaster. Between a zombie economy and fertility levels far below the replacement rate, Japan’s population is shrinking and thus naturally net electricity generation has also been declining in Japan since 2010.

Japan net electricity generation by fuel 2009–15. Source: US Energy Information Administration

Coal consumption in China has dropped three years in a row, and in January 2017, 100 coal fired power plants were cancelled. China has announced that it is spending a whopping $360 billion on renewables through 2020, and this year is implementing the world’s biggest cap-and-trade carbon market to curb emissions.

Blind to the reality of this situation, Australia is ramping up coal production while China commits to ending coal imports in the very near future in what can only be described as a last-ditch “dig it up now, or never” situation.

Major Export Markets for Australian Coal (2014). Source: Wikipedia

Coal Consumption in China, the US and India 1990–2040. Source: US Energy Information Administration

Coal exports rely on substantial investment by investors who build significant infrastructure, like ports and rail, the cost of which is shared among users according to volume. If a coal company defaults then the remaining coal companies pay extra to collectively cover the loss. A single failure can significantly increase the cost to the other users and can in turn cause pressure on the remaining partners. As this happens, their bonds get downgraded causing balance sheet erosion that ultimately can impact project viability.

Moodys recently downgraded the ratings of several Australian coal ports including Adani’s Abbot Point- after U.S. coal miner Peabody Energy, which ships through these ports, defaulted on several of its bonds.

Despite all of this, some in government can’t get their head around why the Big Four banks and major investment banks including, Citigroup, JPMorgan, Goldman Sachs, Deutsche Bank, Royal Bank of Scotland, HSBC and Barclays are not keen to fund the gargantuan Carmichael coal project in Queensland’s Galilee Basin.

The now former deputy Prime Minister of Australia, Barnaby Joyce, a New Zealand-Australian politician who served unconstitutionally as the Deputy Prime Minister of Australia, wants Australian taxpayers to be the lenders of last resort to Adani, an Indian miner, for $900 million to build a rail line from their proposed Carmichael Thermal Coal Mine to the port at Abbot Point, where it would be shipped to India. Adani is looking for a handout because, unsurprisingly, the banks knocked them back because the project was too risky and the public backlash against the project has been overwhelming. If it does go ahead, it is likely to be a rail line to nowhere, because by the time it opens, there is a chance that the project will be unviable.

Unless the government steps in, it’s increasingly more likely that the project will go the way of the Wiggins Island coal export terminal, the fraught development originally conceived by Glencore and seven other project partners in 2008, at the literal top of the market for coal. Since conception, three of the project’s original proponents?—?Caledon Coal, Bandanna Energy and Cockatoo Coal?—?have gone into administration. Only one of the project’s three stages has been completed, at twice the estimated cost. The five remaining take-or-pay owners have been left with more than US$4 billion in debt to repay and hope is fading on any any chance of refinancing before it all falls due.

What makes the Adani project so absurd is that India has recently cancelled more than 500 gigawatts of planned coal projects and the Indian government has said, however realistic that may be, that it intends to phase out thermal coal imports- precisely the type of coal Carmichael produces- entirely by 2020.

It’s even more perplexing when you consider that 2016 was the year that solar became cheaper than coal, with some countries generating electricity from sunshine for less than 3 cents per kilowatt-hour (which is half the average global cost of coal power) and by October 2017, wind power is now cheaper than coal in India.

Furthermore, global policy to limit the rise in temperatures by 2% could result in a 40% drop in the trade of thermal coal, which would cut Australia’s exports of such by 35%, according to a study by Wood Mackenzie. In 2014, thermal coal was 51% of our coal exports by volume, and this is precisely the type of coal that will be mined by Adani at Carmichael.

Given that Baarnaby’s service was ruled invalid, one can only hope that his actions regarding Government funding for the Adani project might also be invalidated and we can put this flawed project to bed.

Recent events have given manifest life to Mark Carney’s landmark 2015 speech in which Carney, the Governor of the Bank of England, warned that if the world is to limit global warming to below 2 degrees, then the estimates for how much carbon the world can burn makes between 66% and 80% of global oil, gas and coal reserves unusable.

In an essay last year, David Fickling wrote “More than half the assets in the global coal industry are now held by companies that are either in bankruptcy proceedings or don’t earn enough money to pay their interest bills, according to data compiled by Bloomberg. In the U.S., only three of 12 large coal miners traded on public markets escape that ignominious club, separate data show”.

So while our politicians gaze wistfully in parliaments at a lump of coal, undoubtedly the days are clearly numbered for our second largest export.

Losing coal as an export will blow a $34 billion dollar per annum hole in the current account, and there’s been no foresight by successive governments to find or encourage modern industries to supplant it.

Australian Treasurer Scott Morrison gazes wistfully at a lump of coal. Source: AAP, Lukas Coch

What is more shocking is that despite the gargantuan amount of money that China has been pumping into the system since 2014, Australia’s entire mining industry- which is completely dependent on China- has struggled to make any money at all.

Across the entire industry revenue has dropped significantly while costs have continued to rise.

China credit impulse leads its manufacturing index (which in turn fuels commodities). Source: PIMCO

According to the Australian Bureau of Statistics, in 2015–16 the entire Australian mining industry which includes coal, oil & gas, iron ore, the mining of metallic & non-metallic minerals and exploration and support services made a grand total of $179 billion in revenue with $171 billion of costs, generating an operating profit before tax of $7 billion which representing a wafer thin 3.9% margin on an operating basis. In the year before it made a 8.4% margin.

Collectively, the entire Australian mining industry (ex-services) would be loss making in 2016–17 if revenue continued to drop and costs stayed the same. Yes, the entire Australian mining industry.

 

Collectively, the entire Australian mining industry (ex-services) would be loss making in 2016–17 if revenue continued to drop and costs stayed the same. Source: Australian Bureau of Statistics

Our “economic miracle” of 104 quarters of GDP growth without a recession today doesn’t come from digging rocks out of the ground, shipping the by-products of dead fossils and selling stuff we grow any more. Mining, which used to be 19% of GDP, is now 6.8% and falling. Mining has fallen to the sixth largest industry in the country. Even combined with agriculture the total is now only 10% of GDP.

Operating profit before tax by Australian Industry- the entire small and medium mining industry collectively has been loss making from 2014–16 on an operating basis. Source: Australian Bureau of Statistics

Mineral production in regional Western Australia, where 99% of Australia’s iron ore is mined, contributed only 6.5 percent to Australia’s GDP growth in 2016.

To make matters worse, in 2017 there has been a sharp downturn in Chinese credit impulse (rate of change), which is combined with a negative, and falling global credit impulse. According to PIMCO’s Gene Fried “the question now is not if China slows, but rather how fast”. This will cause even more problems for Australia’s flagging resources sector.

China’s contribution to the global credit impulse (market GDP weighted). Source: PIMCO

The “economic miracle” of GDP growth is also certainly not from manufacturing, which has collapsed in the last decade from 10.8% to 6.6% of Gross Value Add, and has grown by… negative 275,000 jobs since the 1990s.

Industry share of Gross Value Add 2005–6 versus 2015–6. Source: Australian Bureau of Statistics

This is even before the exit of Australia’s last two remaining car manufacturers, Toyota and Holden, who both shut up shop in 2017. Ford closed last year.

Australian Manufacturing Employment and Hours Worked. Source: AI Group

In the 1970s, Australia was ranked 10th in the world for motor vehicle manufacturing. No other industry has replaced it. Today, the entire output of manufacturing as a share of GDP in Australia is half of the levels where they called it “hollowed out” in the U.S. and U.K.

In Australia in 2017, manufacturing as a share of GDP is on par with a financial haven like Luxembourg. Australia doesn’t make anything anymore.

Manufacturing value add (% of GDP) for Australia. Source: World Bank & OECD

With an economy that is 68% services, as I believe John Hewson put it, the entire country is basically sitting around serving each other cups of coffee or, as the Chief Scientist of Australia would prefer, smashed avocado.

David Llewellyn-Smith recently wrote that this is unsurprising as “the Australian economy is now structurally uncompetitive as capital inflows persistently keep its currency too high, usually chasing land prices that ensure input costs are amazingly inflated as well.

Wider tradables sectors have been hit hard as well and Australian exports are now a lousy 20% of GDP despite the largest mining boom in history.

The other major economic casualty has been multifactor productivity (the measure of economic performance that compares the amount of goods and services produced to the amount of combined inputs used to produce those goods and services). It has been virtually zero for fifteen years as capital has been consistently and massively mis-allocated into unproductive assets. To grow at all today, the nation now runs chronic twin deficits with the current account (value of imports to exports) at -2.7% and a budget deficit of -2.4% of GDP.”

The Reserve Bank of Australia has cut interest rates by 325 basis points since the end of 2011, in order to stimulate the economy, but I can’t for the life of me see how that will affect the fundamental problem of gyrating commodity prices where we are a price taker, not a price maker, into an oversupplied market in China.

This leads me to my next question- where has this growth come from?

Successive Australian governments have achieved economic growth by blowing a property bubble on a scale like no other.

A bubble that has lasted for 55 years and seen prices increase 6556% since 1961, making this the longest running property bubble in the world (on average, “upswings” last 13 years).

In 2016, 67% of Australia’s GDP growth came from the cities of Sydney and Melbourne where both State and Federal governments have done everything they can to fuel a runaway housing market. The small area from the Sydney CBD to Macquarie Park is in the middle of an apartment building frenzy, alone contributing 24% of the country’s entire GDP growth for 2016, according to SGS Economics & Planning.

According to the Rider Levett Bucknall Crane Index, in Q4 2017 between Sydney, Melbourne and Brisbane, there are now 586 cranes in operation, with a total of 685 across all capital cities, 80% of which are focused on building apartments. There are 350 cranes in Sydney alone.

Crane Activity?—?Australia by Key Cities & Sector. Source: RLB

By comparison, there are currently 28 cranes in New York, 24 in San Francisco and 40 in Los Angeles. There are more cranes in Sydney than Los Angeles (40), Washington DC (29), New York (28), Chicago (26), San Francisco (24), Portland (22), Denver (21), Boston (14) and Honolulu (13) combined. Rider Levett Bucknall counts less than 175 cranes working on residential buildings across the 14 major North American markets that it tracked in 3Q17, which is half of the number of cranes in Sydney alone.

According to UBS, around one third of these cranes in Australian cities are in postcodes with ‘restricted lending’, because the inhabitants have bad credit ratings.

This can only be described as completely “insane”.

That was the exact word used by Jonathan Tepper, one of the world’s top experts in housing bubbles, to describe “one of the biggest housing bubbles in history”. “Australia”, he added, “is the only country we know of where middle-class houses are auctioned like paintings”.

An Auctioneer yells out bids in the middle class suburb of Cammeray. Source: Reuters

Our Federal government has worked really hard to get us to this point.

Many other parts of the world can thank the Global Financial Crisis for popping their real estate bubbles. From 2000 to 2008, driven in part by the First Home Buyer Grant, Australian house prices had already doubled. Rather than let the GFC take the heat out of the market, the Australian Government doubled the bonus. Treasury notes recorded at the time say that it wasn’t launched to make housing more affordable, but to prevent the collapse of the housing market.

Treasury Executive Minutes. Source: Treasury, The First Home Owner’s Boost

Already at the time of the GFC, Australian households were at 190% debt to net disposable income, 50% more indebted than American households, but then things really went crazy.

The government decided to further fuel the fire by “streamlining” the administrative requirements for the Foreign Investment Review Board so that temporary residents could purchase real estate in Australia without having to report or gain approval.

It may be a stretch, but one could possibly argue that this move was cunningly calculated, as what could possibly be wrong in selling overpriced Australian houses to the Chinese?

I am not sure who is getting the last laugh here, because as we subsequently found out, many of those Chinese borrowed the money to buy these houses from Australian banks, using fake statements of foreign income. Indeed, according to the AFR, this was not sophisticated documentation?—?Australian banks were being tricked with photoshopped bank statements that can be bought online for as little as $20.

UBS estimates that $500 billion worth of “not completely factually accurate” mortgages now sit on major bank balance sheets. How much of that will go sour is anyone’s guess.

Llewellyn-Smith writes, “Five prime ministers in [seven] years have come and gone as standards of living fall in part owing to massive immigration inappropriate to economic circumstances and other property-friendly policies. The most recent national election boiled down to a virtual referendum on real estate taxation subsidies. The victor, the conservative Coalition party, betrayed every market principle it possesses by mounting an extreme fear campaign against the Labor party’s proposal to remove negative gearing. This tax policy allows more than one million Australians to engage in a negative carry into property in the hope of capital gains. In a nation of just 24 million, 1.3 million Australians lose an average of $9,000 per annum on this strategy thanks to the tax break.”

The astronomical rise in house prices certainly isn’t supported by employment data. Wage growth is at a record low of just 1.9% year on year in 2Q17, the lowest figure since 1988. The average Australian weekly income has gone up $27 to $1,009 since 2008, that’s about $3 a year.

Private sector wage price index (annual percentage). Source: SMH, Australian Bureau of Statistics

Household income growth has collapsed since 2008 from over 11% to just 3% in 2015, 2016 and 2017. This is one sixth the rate that houses went up in Sydney in the last year.

Employment growth is at an anaemic 1% year on year in 4Q16, and the unemployment rate has been trending up over the last decade to 5.6%.

Unemployment rate and Employment growth. Source: ABS, RBA, UBS

Foreign buying driving up housing prices has been a major factor in Australian housing affordability, or rather unaffordability.

Urban planners say that a median house price to household income ratio of 3.0 or under is “affordable”, 3.1 to 4.0 is “moderately unaffordable”, 4.1 to 5.0 is “seriously unaffordable” and 5.1 or over “severely unaffordable”.

Demographia International Housing Affordability Survey. Source: Demographia

At the end of July 2017, according to Domain Group, the median house price in Sydney was $1,178,417 and the Australian Bureau of Statistics has the latest average pre-tax wage at $80,277.60 and average household income of $91,000 for this city. This makes the median house price to household income ratio for Sydney 13x, or over 2.6 times the threshold of “severely unaffordable”. Melbourne is 9.6x.

Sydney House values by Suburb. Source: Core Logic

This is before tax, and before any basic expenses. The average person takes home $61,034.60 per annum, and so to buy the average house they would have to save for 19.3 years- but only if they decided to forgo the basics such as, eating. This is neglecting any interest costs if one were to borrow the money, which at current rates would approximately double the total purchase cost and blow out the time to repay to around 40 years.

Ex-deputy Prime Minister Barnaby Joyce recently said to ABC Radio, “Houses will always be incredibly expensive if you can see the Opera House and the Sydney Harbour Bridge, just accept that. What people have got to realise is that houses are much cheaper in Tamworth, houses are much cheaper in Armidale, houses are much cheaper in Toowoomba”. Fairfax, the owner of Domain, or more accurately, Domain, the owner of Fairfax, also agrees that “There is no housing bubble, unless you are in Sydney or Melbourne”.

Now probably unbeknownst to Barnaby, who might be more familiar with the New Zealand housing market, in the Demographia International Housing Affordability survey for 2017 Tamworth ranked as the 78th most unaffordable housing marketing in the world. No, you’re not mistaken, this is Tamworth, New South Wales, a regional centre of 42,000 best known as the “Country Music Capital of Australia” and for the ‘Big Golden Guitar’.

According the Australian Bureau of Statistics, the average income in Tamworth is $42,900, the average household income $61,204 but the average house price is $375,000, giving a price to household income ratio of 6.1x, making housing in Tamworth less affordable than Tokyo, Singapore, Dublin or Chicago.

If you used the current Homesales.com.au data, which has the average house price at $394,212, or 6.6x, Tamworth would be in the top 40 most unaffordable housing markets in the world. Yes, Tamworth. Yes, in the world. Unfortunately for Barnaby, Armidale and Toowoomba don’t fare much better.

Tamworth, which at current prices would be in the top 40 most unaffordable housing markets tracked by Demographia in the world. Really? Source: GP Synergy

Out of a total of 406 housing markets tracked globally by Demographia, eight (or 40%) of the twenty least affordable housing markets in the world were in Australia, including in addition to Sydney and Melbourne such exotic places as Wingcaribbee, Tweed Heads, the Sunshine Coast, Port Macquarie, the Gold Coast, and Wollongong. Looking at all regional Australian housing markets, they found 33 of 54 markets “severely unaffordable”.

The 20 most unaffordable housing markets in the world. Source: Demographia, 13th Annual Demographic International Housing Affordability Survey:2017

If you borrowed the whole amount to buy a house in Sydney, with a Commonwealth Bank Standard Variable Rate Home Loan currently showing a 5.36% comparison rate (as of 7th October 2017), your repayments would be $6,486 a month, every month, for 30 years. The monthly post tax income for the average wage in Sydney ($80,277.60) is only $5,081.80 a month.

Commonwealth Bank Standard Variable Rate Home Loan for the average house. Source: CBA as of 7th October 2017

In fact, on this average Sydney salary of $80,277.60, the Commonwealth Bank’s “How much can I borrow?” calculator will only lend you $463,000, and this amount has been dropping in the last year I have been looking at it. So good luck to the average person buying anything anywhere near Sydney.

Federal MP Michael Sukkar, Assistant Minister to the Treasurer, says surprisingly that getting a “highly paid job” is the “first step” to owning a home. Perhaps Mr Sukkar is talking about his job, which pays a base salary of $199,040 a year. On this salary, the Commonwealth Bank would allow you to just borrow enough- $1,282,000 to be precise– to buy the average home, but only provided that you have no expenses on a regular basis, such as food. So the Assistant Minister to the Treasurer can’t really afford to buy the average house, unless he tells a porky on his loan application form.

The average Australian is much more likely to be employed as a tradesperson, school teacher, postman or policeman. According to the NSW Police Force’s recruitment website, the average starting salary for a Probationary Constable is $65,000 which rises to $73,651 over five years. On these salaries the Commonwealth Bank will lend you between $375,200 and $419,200 (again provided you don’t eat), which won’t let you buy a house really anywhere.

Unsurprisingly, the CEOs of the Big Four banks in Australia think that these prices are “justified by the fundamentals”. More likely because the Big Four, who issue over 80% of residential mortgages in the country, are more exposed as a percentage of loans than any other banks in the world, over double that of the U.S. and triple that of the U.K., and remarkably quadruple that of Hong Kong, which is the least affordable place in the world for real estate. Today, over 60% of the Australian banks’ loan books are residential mortgages. Houston, we have a problem.

Residential Mortgages as a percentage of total loans. Source: IMF (2015)

It’s actually worse in regional areas where Bendigo Bank and the Bank of Queensland are holding huge portfolios of mortgages between 700 to 900% of their market capitalisation, because there’s no other meaningful businesses to lend to.

Australian banks’ mortgage exposure as a percentage of market capitalisation. Source: Roger Montgomery, Company data

I’m not sure how the fundamentals can possibly be justified when the average person in Sydney can’t actually afford to buy the average house in Sydney, no matter how many decades they try to push the loan out.

Mortgage Stress Trends to Oct 2017. Source: Digital Finance Analytics

Indeed Digital Finance Analytics estimated in a October 2017 report that 910,000 households are now estimated to be in mortgage stress where net income does not covering ongoing costs. This has skyrocketed up 50% in less than a year and now represents 29.2% of all households in Australia. Things are about to get real.

Probability of default in 30, 90 days across Australian demographics in October 2017. Source: Digital Finance Analytics

It’s well known that high levels of household debt are negative for economic growth, in fact economists have found a strong link between high levels of household debt and economic crises.

This is not good debt, this is bad debt. It’s not debt being used by businesses to fund capital purchases and increase productivity. This is not debt that is being used to produce, it is debt being used to consume. If debt is being used to produce, there is a means to repay the loan. If a business borrows money to buy some equipment that increases the productivity of their workers, then the increased productivity leads to increased profits, which can be used to service the debt, and the borrower is better off. The lender is also better off, because they also get interest on their loan. This is a smart use of debt. Consumer debt generates very little income for the consumer themselves. If consumers borrow to buy a new TV or go on a holiday, that doesn’t create any cash flow. To repay the debt, the consumer generally has to consume less in the future. Further, it is well known that consumption is correlated to demographics, young people buy things to grow their families and old people consolidate, downsize and consume less over time. As the aging demographic wave unfolds across the next decade there will be significantly less consumers and significantly more savers. This is worsened as the new generations will carry the debt burden of student loans, further reducing consumption.

Parody of Sydney real estate, or is it?

So why are governments so keen to inflate housing prices?

The government loves Australians buying up houses, particularly new apartments, because in the short term it stimulates growth?—?in fact it’s the only thing really stimulating GDP growth.

Australia has around $2 trillion in unconsolidated household debt relative to $1.6 trillion in GDP, making this country in recent quarters the most indebted on this ratio in the world. According to Treasurer Scott Morrison 80% of all household debt is residential mortgage debt. This is up from 47% in 1990.

Australia Household Debt to GDP. Source: Bank for International Settlements, Macro Business

Australia’s household debt servicing ratio (DSR) ties with Norway as the second worst in the world. Despite record low interest rates, Australians are forking out more of their income to pay off interest than when we had record mortgage rates back in 1989–90 which are over double what they are now.

Everyone’s too busy watching Netflix and cash strapped paying off their mortgage to have much in the way of any discretionary spending. No wonder retail is collapsing in Australia.

Governments fan the flame of this rising unsustainable debt fuelled growth as both a source of tax revenue and as false proof to voters of their policies resulting in economic success. Rather than modernising the economy, they have us on a debt fuelled housing binge, a binge we can’t afford.

We are well past overtime, we are into injury time. We’re about to have our Minsky moment: “a sudden major collapse of asset values which is part of the credit cycle.”

Such moments occur because long periods of prosperity and rising valuations of investments lead to increasing speculation using borrowed money. The spiraling debt incurred in financing speculative investments leads to cash flow problems for investors. The cash generated by their assets is no longer sufficient to pay off the debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. This is likely to lead to a collapse of asset values. Meanwhile, the over-indebted investors are forced to sell even their less-speculative positions to make good on their loans. However, at this point no counterparty can be found to bid at the high asking prices previously quoted. This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.

The Minsky Cycle. Source: Economic Sociology and Political Economy

The Governor of the People’s Bank of China recently warned that extreme credit creation, asset speculation and property bubbles could pose a “systemic financial risk” in China. Zhou Xiaochuan said “If there is too much pro-cyclical stimulus in an economy, fluctuations will be hugely amplified. Too much exuberance when things are going well causes tensions to build up. That could lead to a sharp correction, and eventually lead to a so-called Minsky Moment. That’s what we must really guard against”. A Minsky moment in China would be an extreme event for the parasite on the vein of Chinese credit stimulus- the Australian economy.

Today 42% of all mortgages in Australia are interest only, because since the average person can’t afford to actually pay for the average house- they only pay off the interest. They’re hoping that value of their house will continue to rise and the only way they can profit is if they find some other mug to buy it at a higher price. In the case of Westpac, 50% of their entire residential mortgage book is interest only loans.

Percentage of interest only loans by bank. Source: JCP Investment Partners, AFR

And a staggering 64% of all investor loans are interest only.

Share of new loan approvals for Australian banks. Source: APRA, RBA, UBS

This is rapidly approaching ponzi financing.

This is the final stage of an asset bubble before it pops.

Today residential property as an asset class is four times larger than the sharemarket. It’s illiquid, and the $1.5 trillion of leverage is roughly equivalent in size to the entire market capitalisation of the ASX 200. Any time there is illiquidity and leverage, there is a recipe for disaster- when prices move south, equity is rapidly wiped out precipitating panic selling into a freefall market with no bids to hit.

The risks of illiquidity and leverage in the residential property market flow through the entire financial system because they are directly linked; today in Australia the Big Four banks plus Macquarie are roughly 30% of the ASX200 index weighting. Every month, 9.5% of the entire Australian wage bill goes into superannuation, where 14% directly goes into property and 23% into Australian equities– of which 30% of the main equity benchmark is the banks.

ASX200 by market capitalisation, Big 4 banks top and Macquarie on the left (arrows). Source: IRESS

You don’t read objective reporting on property in the Australian media, which Llewelyn-Smith from Macro Business calls “a duopoly between a conservative Murdoch press and liberal Fairfax press. But both are loss-making old media empires whose only major growth profit centres are the nation’s two largest real estate portals, realestate.com.au and Domain. Neither report real estate with any objective other than the further inflation of prices. In the event that the Australian bubble were to pop then Australians will certainly be the last to know and the propaganda is so thick that they may never find out until they actually try to sell.”

Take, for example, this recent headline from the Fairfax owned Sydney Morning Herald on March 1st 2017, “Meet Daniel Walsh, the 26-year-old train driver with $3 million worth of property”. It appeared in the property section, which for Fairfax today sits on the homepage of their masthead publications, such as the Sydney Morning Herald, immediately below the top headlines for the day and above State News, Global Politics, Business, Entertainment, Technology and the Arts. The article holds up 26 year old Daniel, who services five million dollars worth of property with a train driver’s salary and $2,000 a week of positive cash flow.

This is what the Australian press more commonly holds up as a role model to young people. Not a young engineer who has developed a revolutionary new product or breakthrough, but an over leveraged train driver with a property portfolio on mostly borrowed money where a 1% move in interest rates will wipe out the entirety of this cash flow.

Yet this young train driver isn’t an isolated case, there are literally hoards of these young folk parlaying one property debt onto another in the mistaken belief that property prices only ever go up. Jennifer Duke, an “audience-driven reporter, with a background in real estate and finance” from Domain, also promotes Robert, a 20 year old, who had managed to accumulate three properties in two years using an initial $60,000 gift from his mum. Jeremy, a 24 year old accountant, has 8 properties with a loan to value ratio of 70%, Edward, a 24 year old customer service representative, has 6 properties despite a debt level of 69% and a salary under $50,000, and Taku, the Uber driver, has 8 properties, with plans for 10 covered by a net equity position of only $1 million by November 2017.

How a train driver can service five million dollars of property on $2,000 a week of positive cash flow comes through the magic of cross-collateralised residential mortgages, where Australian banks allow the unrealised capital gain of one property to secure financing to purchase another property. This unrealised capital gain substitutes for what normally would be a cash deposit. This house of cards is described by LF Economics as a “classic mortgage ponzi finance model”. When the housing market moves south, this unrealised capital gain will rapidly become a loss, and the whole portfolio will become undone. The similarities to underestimation of the probability of default correlation in Collateralised Debt Obligations (CDOs), which led to the Global Financial Crisis, are striking.

Fairfax’s pre-IPO real estate website Domain runs these stories every week across the capital city main mastheads enticing young people into property flipping as a get rich quick scheme. All of them are young, with low incomes, leveraging one property purchase on to another.

At Fairfax?—?whose latest half year 2017 financial results had Domain Group EBITDA at $57.3 million and the entire Australian Metro Media which includes Australia’s premier mastheads Australian Financial Review, Sydney Morning Herald, the Age, Digital Ventures, Life and Events EBITDA at $27.7 million?—?property is clearly the most important section of all.

In between holding up this 26 year old train driving property tycoon as something to aspire to, Jennifer has penned other noteworthy articles, such as “No surprise the young support lock-out laws” which parroted incredulous propaganda claiming that young people supported laws designed to shut down places where young people go?—?Sydney’s major entertainment districts.

As if the Australian economy needed further headwinds, the developer-enamoured evangelical right have crucified NSW’s night time economy. Reactionary puritans and opportunists alike seized on some unfortunate incidents involving violence to simply close the economy at night. NSW State Government, City of Sydney, Casinos, NSW Police, public health nannies, property-crazy media and, of course, property developers had the collective interest to manufacture and blow up a fake health & safety issue to create lockout laws?—?and then instituted broad night time economic terraforming policies designed to herd patrons to large casinos so they could become permanent monopoly owners of the night time economy in Sydney and Brisbane, while conveniently damaging the balance sheets of small businesses located in competing entertainment areas, so the property could be demolished and turned into apartment blocks.

Property watching at Fairfax has become a fetish. Almost on a daily basis Lucy Macken, Domain’s Prestige Property Reporter, publishes a gossip column of who bought what house, complete with the full address and photos of the exterior and interior and any financial information she can glean about them. I know of one person whose house was robbed?—?completely cleaned out?—?shortly after Macken published their full address. Perhaps that was a coincidence, but I am utterly amazed that Fairfax senior management allows this column to exist given the risks it poses to the people whose houses and private details are splashed across its pages.

Fairfax, to be fair, is not without its fair share of great journalists, albeit a species rapidly becoming extinct, who are very well aware of what is really going on. Elizabeth Farrelly writes, “Just when you thought the government couldn’t get any madder or badder in its overarching Mission Destroy Sydney?—?when it seemed to have flogged every floggable asset, breached every democratic principle, whittled every beloved park, disempowered every significant municipality and betrayed every promise of decency, implicit or explicit?—?it now wants to remove council planning powers. The excuse, naturally, is ‘probity’. Somehow we’re meant to believe that locally elected people are inherently more corrupt than those elected at state level, and that this puts local decision-making into the greedy mitts of Big Developers”.

However, despite the picture Domain would like to paint, young people with jobs aren’t responsible for driving house prices up, in fact their ownership is at an all time low.

In 2015–16 there were 40,149 residential real estate applications from foreigners valued at over $72 billion in the latest data by FIRB. This is up 244% by count and 320% by value from just three years before.

To put this 40,149 in comparison, in the latest 12 months to the end of April 2017, according to the Australian Bureau of Statistics, a total of 57,446 new residential dwellings were approved in Greater Sydney, and 56,576 in Greater Melbourne.

Even more shocking, in the month of January 2017, the number of first home buyers in the whole of New South Wales was 1,029?—?the lowest level since mortgage rates peaked in the 1990s. Half of those first home buyers rely upon their parents for equity.

The 114,022 new residential dwellings in Sydney and Melbourne in 2015–16 should also be put in comparison to a net annual gain of 182,165 overseas immigrants to Australia of which around 75% go to New South Wales or Victoria.

This brings me onto Australia’s third largest export which is $22 billion in “education-related travel services”. Ask the average person in the street, and they would have no idea what that is and, at least in some part, it is an $18.8 billion dollar immigration industry dressed up as “education”. You now know what all these tinpot “english”, “IT” and “business colleges” that have popped up downtown are about. They’re not about providing quality education, they are about gaming the immigration system.

In 2014, 163,542 international students commenced English language programmes in Australia, almost doubling in the last 10 years. This is through the booming ELICOS (English Language Intensive Courses for Overseas Students) sector, the first step for further education and permanent residency.

This whole process doesn’t seem too hard when you take a look at what is on offer. While the federal government recently removed around 200 occupations from the Skilled Occupations List, including such gems as Amusement Centre Manager (149111), Betting Agency Manager (142113), Goat Farmer (121315), Dog or Horse Racing Official (452318), Pottery or Ceramic Artist (211412) and Parole Officer (411714)?—?you can still immigrate to Australia as a Naturopath (252213), Baker (351111), Cook (351411), Librarian (224611) or Dietician (251111).

Believe it or not, up until recently we were also importing Migration Agents (224913). You can’t make this up. I simply do not understand why we are importing people to work in relatively unskilled jobs such as kitchen hands in pubs or cooks in suburban curry houses.

At its peak in October 2016, before the summer holidays, there were 486,780 student visa holders in the country, or 1 in 50 people in the country held a student visa. The grant rate in 4Q16 for such student visa applications was 92.3%. The number one country for student visa applications by far was, you guessed it, China.

Number of Student Visa Applications by Country 2015–16. Source: Department of Immigration and Border Protection

While some of these students are studying technical degrees that are vitally needed to power the future of the economy, a cynic would say that the majority of this program is designed as a crutch to prop up housing prices and government revenue from taxation in a flagging economy. After all, it doesn’t look that hard to borrow 90% of a property’s value from Australian lenders on a 457 visa. Quoting directly from one mortgage lender, “you’re likely to be approved if you have at least a year on your visa, most of your savings already in Australia and you have a stable job in sought after profession”?—?presumably as sought after as an Amusement Centre Manager. How much the banks will be left to carry when the market turns and these students flee the burden of negative equity is anyone’s guess.

In a submission to a senate economics committee by Lindsay David from LF Economics, “We found 21 Australian lending institutions where there is evidence of people’s loan application forms being fudged”.

The ultimate cost to the Australian taxpayer is yet to be known. However the situation got so bad that the RBA had to tell the Big Four banks to cease and desist from all foreign mortgage lending without identified Australian sources of income.

Ken Sayer, Chief Executive of non-bank Mortgage House said “It is much bigger than everyone is making it out to be. The numbers could be astronomical”.

So we are building all these dwellings, but they are not for new Australian home owners. The Westpac-Melbourne Institute has overall consumer sentiment for housing at a 40 year low of 10.5%.

Instead we are building these dwellings to be the new Swiss Bank account for foreign investors.

Share of consumers saying ‘wisest place for saving’ is real estate. Source: ABS, RBA, Westpac, Melbourne Institute, UBS

Foreign investment can be great as long as it flows into the right sectors. Around $32 billion invested in real estate was from Chinese investors in 2015–16, making it the largest investment in an industry sector by a country by far. By comparison in the same year, China invested only $1.6 billion in our mining industry. Last year, twenty times more more money flowed into real estate from China than into our entire mineral exploration and development industry. Almost none of it flows into our technology sector.

Approvals by country of investor by industry sector in 2015–6. Source: FIRB

The total number of FIRB approvals from China was 30,611. By comparison. The United States had 481 approvals.

Foreign investment across all countries into real estate as a whole was the largest sector for foreign investment approval at $112 billion, accounting for around 50% of all FIRB approvals by value and 97% by count across all sectors?—?agriculture, forestry, manufacturing, tourism?—?you name it in 2015–16.

In fact it doesn’t seem that hard to get FIRB approval in Australia, for really anything at all. Of the 41,450 applications by foreigners to buy something in 2015–16, five were rejected. In the year before, out of 37,953 applications zero were rejected. Out of the 116,234 applications from 2012 to 2016, a total of eight were rejected.

Applications for FIRB consideration, approved versus rejected 2012–13 to 2015–6. Source: FIRB

According to Credit Suisse, foreigners are acquiring 25 percent of newly completed housing supply in NSW, worth a total of $39 billion.

Demand for Property from Foreign Buyers in NSW (% of total, unstacked). Source: NAB, SBS

In some circumstances, the numbers however could be much higher. Lend Lease, the Australian construction goliath with over $15 billion in revenue in 2016, stated in that year’s annual report that over 40% of Lend Lease’s apartment sales were to foreigners.

I wouldn’t have a problem with this if it weren’t for the fact that this is all a byproduct of central bank madness, not true supply and demand, and people vital for running the economy can’t afford to live here any more.

What is also remarkable about all of this is that technically, the Chinese are not allowed to send large sums of money overseas. Citizens of China can normally only convert US$50,000 a year in foreign currency and have long been barred from buying property overseas, but those rules have not been enforced. They’ve only started cracking down on this now.

Despite this, up until now, Australian property developers and the Australian Government have been more than happy to accommodate Chinese money laundering.

After the crackdown in capital controls, Lend Lease says there has been a big upswing with between 30 to 40% of foreign purchases now being cash settled. Other developers are reporting that some Chinese buyers are paying 100% cash. The laundering of Chinese cash into property isn’t unique to Australia, it’s just that Transparency International names Australia, in their March 2017 report as the worst money laundering property market in the world.

Australia is not alone, Chinese “hot money” is blowing gigantic property bubbles in many other safe havens around the world.

But combined with our lack of future proof industries and exports, our economy is complete stuffed. And it’s only going to get worse unless we make a major transformation of the Australian economy.

We can’t rely on property to provide for our future. In 1880, Melbourne was the richest city in the world, until it had a property crash in 1891 where house prices halved causing Australia’s real GDP to crash by 10 per cent in 1892 and 7 per cent the year after. The depression of the 1890s caused by this crash was substantially deeper and more prolonged than the great depression of the 1930s. Macro Business points out that if you bought a house at the top of the market in 1890s, it took seventy years for you to break even again.

Australia CQ Real Housing Price Index 1890–2016. Source: LF Economics, Macro Business

Instead of relying on a property bubble as pretense that our economy is strong, we need serious structural change to the composition of GDP that’s substantially more sophisticated in terms of the industries that contribute to it.

Australia’s GDP of $1.6 trillion is 69% services. Our “economic miracle” of GDP growth comes from digging rocks out of the ground, shipping the by-products of dead fossils, and stuff we grow. Mining, which used to be 19%, is now 7% and falling. Combined, the three industries now contribute just 12% of GDP thanks to the global collapse in commodities prices.

If you look at businesses as a whole, Company tax hasn’t moved from $68 billion in the last three years?—?our companies are not making more profits. This country is sick.

Indeed if you look at the budget, about the only thing going up in terms of revenue for the federal government are taxes on you having a good time- taxes on beer, wine, spirits, luxury cars, cigarettes and the like. It would probably shock the average person on the street to discover that the government collects more tax from cigarettes ($9.8 billion) than it collects from tax on superannuation ($6.8 billion), over double what it collects from Fringe Benefits Tax ($4.4 billion) and over thirteen times more tax than it does from our oil fields ($741 million).

Turnbull is increasing the tax on cigarettes by 12.5% a year for the next four years. In the latest federal budget, the government forecasts that by 2020 that it will collect $15.2 billion from taxes on tobacco per annum. This is four times the amount that the government collects from the entire coal industry per annum.

Just compare these numbers: $15 billion is over double what the government projects it will collect from petrol excise in that year ($7.15b), 21 times what it will collect from luxury car tax ($720m), 27 times what it will collect from taxes on imported cars ($560m) and 89 times what it will collect from customs duty on textile and footwear imports ($170m).

As a sign of how addicted to taxing you the government has become, look at the myriad of taxes on cars?—?high import duties, stamp duty and a luxury car tax?—?these were designed to protect a car manufacturing industry which doesn’t exist anymore. Yet the government is still increasing them. We closed the last factory this year. These taxes are not only blatant cash grabs but serve to stifle the deployment of electric cars, which have hit a dead end in Australia. Likewise, the taxes on textile and footwear imports were originally designed to protect our textiles, an industry that has now collapsed and that lost 30% of its manufacturing workers this year.

If you look through federal budget forecasts, taxes on cigarettes is the only thing practically floating the federal government’s finances other than wishful thinking in forward projections. Which is, of course, some other future administration’s problem.

How they think they can raise $15 billion in taxes per year on cigarettes?—?a product that costs a cent per stick to make and will retail for almost $2 a stick in 2020?—?without creating a thriving black market, another Pablo Escobar and throwing hundreds, perhaps thousands of people in jail, who will decide unwisely to participate in that black market, astounds me. But that’s how the government decides to plug the hole in its accounts instead of cutting spending.

Of course like so many things this all gets sold to you, the general population, under the banner of “health and safety”- and it’s easy to sell because all you need to do is parade out a few patronising doctors. The truth is that it’s really just for the health and safety of the government budget, because the economy is really, really sick.

If the government wants to fix the budget, I would have thought the most practical way to do it would be to find ways to grow the economy. You’ll never wean the government off wasteful spending no matter who is in power. The politicians, after all, need to keep that up in order to buy votes through profligate policies such as welfare for the middle class.

But instead of thinking of intelligent ways to grow the economy, the focus is purely on finding more ways to tax you. Just think of all the times over the last couple of years, all the random thought bubbles, that various politicians have proposed raising taxes on superannuation, high earners, banks, property, tripling fines for cyclists, tripling fines for companies, the GST to 15% or 20%, the GST on low value imports, the GST on digital goods, stamp duty, alcohol, sugar, red meat, it’s endless.

They are even proposing banning the $100 note, so that when the RBA drives interest rates negative, you won’t be able to withdraw your hard earned funds in cash so easily. You’ll either have to spend it or have the rude shock of the bank taking money out of your account each month rather than earning interest.

Here’s a crazy idea: the dominant government revenue line is income tax. Income tax is generated from wages. Education has always been the lubricant of upward mobility, so perhaps if we find ways to encourage our citizens to study in the right areas?—?for example science & engineering?—?then maybe they might get better jobs or create better jobs and ultimately earn higher wages and pay more tax.

Instead the government proposed the biggest cuts to university funding in 20 years with a new “efficiency dividend” cutting funding by $1.2 billion, increasing student fees by 7.5 percent and slashing the HECS repayment threshold from $55,874 to $42,000. These changes would make one year of postgraduate study in Electrical Engineering at the University of New South Wales cost about $34,000.

We should be encouraging more people into engineering, not discouraging them by making their degrees ridiculously expensive. In my books, the expected net present value of future income tax receipts alone from that person pursuing a career in technology would far outweigh the short sighted sugar hit from making such a degree more costly?—?let alone the expected net present value of wealth creation if that person decides to start a company. The technology industry is inherently entrepreneurial, because technology companies create new products and services.

Speaking of companies, how about as a country we start having a good think about what sorts of industries we want to have a meaningful contribution to GDP in the coming decades?

For a start, we need to elaborately transform the commodities we produce into higher end, higher margin products. Manufacturing contributes 5% to GDP. In the last ten years, we have lost 100,000 jobs in manufacturing. Part of the problem is that the manufacturing we do has largely become commoditised while our labour force remains one of the most expensive in the world. This cost is further exacerbated by our trade unions?—?in the case of the car industry, the government had to subsidise the cost of union work practices, which ultimately failed to keep the industry alive. So if our people are going to cost a lot, we better be manufacturing high end products or using advanced manufacturing techniques otherwise other countries will do it cheaper and naturally it’s all going to leave.

Last year, for example, 30.3% of all manufacturing jobs in the textile, leather, clothing & footwear industries were lost in this country. Yes, a third. People still need clothes, but you don’t need expensive Australians to make them, you can make them anywhere.

That’s why we need to seriously talk about technology, because technology is the great wealth and productivity multiplier.

However the thinking at the top of government is all wrong.

I recently heard a speech by the Chief Scientist of Australia where he held up a smashed avocado on toast as a prime example of Australian innovation. Yes, smashed avocado on toast. I am not sure which Australian company has the patent on smashed avocados on toast?—?it’s too surreal to even think about.

Australian Innovation according to the Chief Scientist of Australia. Source: ChiefScientist.gov.au

In the same speech, he said that an Australian iron ore mine is every bit as innovative as a semiconductor fabrication plant. My mind was seriously blown.

You can throw as much automation, AI and robotics at an iron ore mine as technologically possible, but it doesn’t change the fact that mines are, and always will be wasting assets that output a commodity for which we are a price taker, not a price maker, into what is currently an oversupplied global market. An iron ore mine, not matter how advanced, is not a long term scalable productivity multiplier; it is a resource to be extracted with finite supply. Once it’s gone, the robots will be dormant.

A semiconductor fabrication plant on the other hand, makes automation of the mine possible. It powers the robotics, the AI and the software?—?not just for the iron ore mine, but factories and businesses all over the world. It’s the real productivity and wealth multiplier. It’s a long term sustainable, competitive advantage. Smart and efficient resource extraction is just an application of this technology.

That’s why we shouldn’t get confused about what is a technology company, because there is no other industry that can create such immense wealth, with such capital efficiency and long term benefit to the world, as the technology industry.

Today, the largest public company in the world, Apple, is a technology company. Apple’s market capitalisation of $810 billion is bigger than the entire US retail market sector. Its revenue of over $215 billion generates over US$2 million dollars per employee per year. And that’s just the company directly. Think of all the business, jobs, wealth creation and benefits to society that have come indirectly from using the company’s computers, mobile devices, software, services and products.

The largest four companies by market capitalisation globally as of the end of Q2 2017 globally were Apple, Alphabet, Microsoft and Amazon. Facebook is eight. Together, these five companies generate over half a trillion dollars in revenue per annum. That’s equivalent to about half of Australia’s entire GDP. And many of these companies are still growing revenue at rates of 30% or more per annum.

These are exactly the sorts of companies that we need to be building.

With our population of 24 million and labour force of 12 million, there’s no other industry that can deliver long term productivity and wealth multipliers like technology. Today Australia’s economy is in the stone age. Literally.

By comparison, Australia’s top 10 companies are a bank, a bank, a bank, a mine, a bank, a biotechnology company (yay!), a conglomerate of mines and supermarkets, a monopoly telephone company, a supermarket and a bank.

We live in a monumental time in history where technology is remapping and reshaping industry after industry?—?as Marc Andreessen said “Software is eating the world!”?—?many people would be well aware we are in a technology gold rush.

And they would be also well aware that Australia is completely missing out.

Most worrying to me, the number of students studying information technology in Australia has fallen by between 40 and 60% in the last decade depending on whose numbers you look at. Likewise, enrollments in other hard sciences and STEM subjects such as maths, physics and chemistry are falling too. Enrolments in engineering have been rising, but way too slowly.

This is all while we have had a 40% increase in new undergraduate students as a whole.

Women once made up 25 percent of students commencing a technology degree, they are now closer to 10 percent.

All this in the middle of a historic boom in technology. This situation is an absolute crisis. If there is one thing, and one thing only that you do to fix this industry, it’s get more people into it. To me, the most important thing Australia absolutely has to do is build a world class science & technology curriculum in our K-12 system so that more kids go on to do engineering.

In terms of maths & science, the secondary school system has declined so far now that the top 10% of 15-year olds are on par with the 40–50% band of of students in Singapore, South Korea and Taiwan.

For technology, we lump a couple of horrendous subjects about technology in with woodwork and home economics. In 2017, I am not sure why teaching kids to make a wooden photo frame or bake a cake are considered by the department of education as being on par with software engineering. Yes there is a little bit of change coming, but it’s mostly lip service.

Meanwhile, in Estonia, 100% of publicly educated students will learn how to code starting at age 7 or 8 in first grade, and continue all the way to age 16 in their final year of school.

At my company, Freelancer.com, we’ll hire as many good software developers as we can get. We’re lucky to get one good applicant per day. On the contrary, when I put up a job for an Office Manager, I received 350 applicants in 2 days.

But unfortunately the curriculum in high school continues to slide, and it pays lip service to technology and while kids would love to design mobile apps, build self-driving cars or design the next Facebook, they come out of high school not knowing that you can actually do this as a career.

I’ve come to the conclusion that it’s actually all too hard to fix?—?and I came to this conclusion a while ago as I was writing some suggestions for the incoming Prime Minister on technology policy. I had a good think about why we are fundamentally held back in Australia from major structural change to our economy to drive innovation.

I kept coming back to the same points.

The problems we face in terraforming Australia to be innovative are systemic, and there is something seriously wrong with how we govern this country.

There are problems throughout the system, from how we choose the Prime Minister, how we govern ourselves, how we make decisions, all the way through.

For a start, we are chronically over governed in this country. This country has 24 million people. It is not a lot. By comparison my website has about 26 million registered users. However this country of 24 million people is governed at the State and Federal level by 17 parliaments with 840 members of parliament. My company has a board of three and a management team of a dozen.

Half of those parliaments are supposed to be representatives directly elected by the people. Frankly, you could probably replace them all with an iPhone app. If you really wanted to know what the people thought about an issue, technology allows you to poll everyone, everywhere, instantly. You’d also get the results basically for free. I’ve always said that if Mark Zuckerberg put a vote button inside Facebook, he’d win a Nobel Peace Prize. Instead we waste a colossal $122 million on a non-binding plebiscite to ask a yes/no question on same sex marriage that shouldn’t need to be asked in the first place, because those that it affects would almost certainly want it, and those that it doesn’t affect should really butt out and let others live their lives as they want to.

Instead these 840 MPs spend all day jeering at each other and thinking up new legislation to churn out.

In 1991, the late and great Kerry Packer said “I mean since I grew up as a boy, I would imagine, that through the parliaments of Australia since I was 18 or 19 years of age till now, there must be 10,000 new laws been passed, and I don’t really think it’s that much better place, and I would like to make a suggestion to you which I think would be far more useful. If you want to pass a new law, why don’t you only do it when you’ve repealed an old one. I mean this idea of just passing legislation, legislation, every time someone blinks is a nonsense. Nobody knows it, nobody understands it, you’ve got to be a lawyer, they’ve got books up to here. Purely and simply just to do the things we used to do. And every time you pass a law, you take somebody’s privileges away from them.”

Last year the Commonwealth parliament alone spewed out 6,482 pages of legislation, adding to over 100,000 pages already enacted. That’s not even looking at State Governments.

In Australia, the average person in the street might think that the way that you get into the Prime Minister’s office is by being elected by the people. Since 1966, this has only been true about 40% of the time.

In fact, of the 15 Prime Ministers since Menzies, only six have come into the office via being elected by the people. Yes, only six since 1966. They were Gough Whitlam in 1972, Bob Hawke in 1983, John Howard in 1996, Kevin Rudd in 2007 and Tony Abbott in 2013 and Malcolm Turnbull in 2016.

The typical way to get into the Prime Minister’s office in Australia is not by being voted in, but by stabbing the incumbent in your own party in the back. Or in the case of Malcolm Fraser, getting the Governor General to do your dirty work for you. That’s how 60% of our Prime Ministers have gotten into office since we stopped using pounds Sterling as currency. It’s crazy.

In the technology industry we had high hopes for number fifteen but it looks like we might be onto our sixteenth very shortly.

I say it looks like we might be onto number 16 shortly as the Australian government is currently in the grips of a major political crisis. A crisis for the absurd reason that a large number of our politicians do not know they were a dual citizen of another country (or worse, they tried to hide it)! In Australia this is not allowed under section 44 of the Constitution. On almost a daily basis, members of parliament across the political spectrum have been found to be dual citizens of other countries. This has happened to such an extent that the coalition government has now lost its majority and is teetering at the brink of collapse.

The level of incompetence from these politicians that spend all day dreaming up rules about how we all should live our lives and standards to that our businesses must submit to is astounding, not to mention their parties. I would have thought that the first page of the “So you want to be a politician?” checklist that each party handed out to bright young recruits would have said “Have you stolen any money? Are you a drug addict? Have you fiddled with any kids? Are you a citizen of another nation? Then the career of a politician probably isn’t for you!”.

It’s not like this hasn’t happened before, either.

Now how the sixteenth Prime Minister will pick their team is completely crazy. The problem is section 64 of the Constitution. This is the part that says that federal Ministers?—?members of the executive?—?must sit in Parliament. This is nuts.

Not so long ago the former Minister of Trade for Indonesia, Tom Lembong, visited my company. Tom’s entire career has been in private equity and banking. He’d never been in politics before- Jokowi simply asked him to be Minister of Trade. Similarly the Minister for Communications, Rudiantara, spent his entire career running telecommunications companies. In Indonesia they vote for the President & Vice President, and then separately for the legislature. The President can pick his own team for the executive. This is how you get good people in government, because you can pick people with real world domain expertise to run a portfolio. In Australia we end up with lawyers, evangelicals or career politicians. People who don’t have a clue about their portfolio. Imagine trying to run a company, but instead of of being able to pick the best engineer to be Vice President of Engineering, you have to pick it from a pool of lawyers, crazy people or card carrying political hacks. How can we have a science, technology and engineering focused agenda, which the country critically needs, when this is how cabinet gets chosen?

Then we have the problems that are a result of regulatory duplication, confusion and duplication of responsibilities or the mindless populism of absurd policies of the State Governments. Here I think we have some of the biggest problems.

I ended up doing Electrical Engineering completely by accident. I went to one of the best private schools in the country. When I graduated, at careers day, nobody talked about engineering. In fact, nobody even mentioned the word engineering throughout my entire schooling. I honestly thought it had something to do with driving a train.

I was disheartened to go back to that same school, Sydney Grammar, to talk at careers day. The students still thought that engineering had something to do with driving a train.

This is completely nuts, when I told the students that by working in engineering you get to design satellites, self driving cars, virtual reality helmets, design rockets like those SpaceX will one day send to Mars or build the next Facebook, many in the room got excited. Just they didn’t have a clue how to head towards a career in engineering because it wasn’t mentioned once to them in thirteen years of schooling. It’s not just my old school, almost all the schools are like this.

So how do you fix K-12 education in this country so that we can drive innovation in the future? It’s the remit of the bureaucracy of the State Governments.

Trying to get them to all agree to modernise the economy is an exercise in futility. Since taking power, the NSW Government has sold 384 Department of Education properties. That is despite leaked Department of Education documents that report NSW is facing an influx of 15,000 school students a year, and will require $10.8 billion in funding for 7,500 new classrooms and buildings over just 15 years.

If you look at their profit & loss statements you’ll see the bizarre way in which State Governments think.

The biggest revenue generator for NSW is payroll tax. In NSW companies pay $8.4 billion dollars as a result of this idiotic tax which is basically a penalty imposed on you for hiring a lot of people. $8.4 billion that could be better used employing more people. If I hire a lot of people, I should get a discount, not a penalty.

The second is stamp duty & land tax. NSW collects $7.8 billion of stamp duty. This is a tax that simply makes it expensive to transact. The stamp duty on an average house in Sydney is $42,000, or about 70% of the average NSW citizens’ post tax annual income. The average person has to work for most of year just to be able to transact in the housing market. The illiquidity this tax causes will be one of the biggest pain points behind a housing crash.

The State Government then tries to build a road between all these apartments, and because property and construction costs are too high, Westconnex, a 33 kilometer road, will cost between $20 and $40 billion. Trump’s wall, which is 1600 km long is costed at around $15 billion.

When the NSW government proposes to build a 14 kilometer tunnel to Manly, it’s costed at $14 billion dollars. That’s $1 million dollars per metre just to build. At $14 billion, that’s about the same price Gotthard tunnel cost, which is the deepest and longest tunnel in the world which goes for 57 kilometers under the Swiss Alps, 2.3 km below the surface of the mountains above and through 73 different kinds of rock at temperatures of up to 46 degrees. Yet a tunnel to Manly costs New South Wales the same price.

This is the absurdity of how State Governments think and operate.

Something is clearly very wrong.

New South Wales also collects $2.4 billion in fees for access to roads, and fines for actually using them. Fines which are erratically enforced through the strategic placement of cameras in areas of maximal revenue, random busts on jaywalkers, through to the ridiculous 350% increase in fines on cyclists for not wearing a helmet, when all the public health policy globally says it’s better to have your citizens ride bikes and get healthy.

It’s so absurd that in NSW a kid riding home on his bike without a helmet now gets fined more ($319) than the speeding driver doing almost 80kms/hr in a 60 zone that ran over him ($269).

Of course, this gets sold to you again under the banner of “health and safety”. But that’s all a load of crap. The only health and safety it’s ensuring is the health and safety of government finances.

This is why I wouldn’t hold your breath for the deployment of electric cars in Australia. State governments will get a rude shock when all of a sudden car ownership collapses and there are no more fines from speeding, red light cameras or poor driving, let alone a crash in fees from parking meters and parking levies. State governments simply won’t let it happen. They’ll also find an excuse to still stop and search your car even though driving under the influence won’t be an adequate excuse anymore.

Why is this important? Well if you are trying to attract young smart people to come back to Australia to join the technology industry, it’s a bit hard when the hashtag #nannystate is trending on Twitter.

After that, all you are left with of any size are gambling and betting taxes. In NSW this is $2.1 billion. The NSW Government is so addicted to gambling revenue that it has shut down most of Sydney’s nightlife in order to boost this line item by funneling people into the casino or pokies rooms, which has the added benefit that they can turn those entertainment areas into apartment blocks for more stamp duty & land tax.

Again, of course, the general public has all been taken for fools because once more it has been sold to you under the guise of “health and safety”. It’s a bit hard to enact structural change in the economy by building a technology industry when every second twenty year old wants to leave because you’ve turned the place into a derelict bumpkin country town.

A little while ago I was sent an essay by Paul Graham of YCombinator, the greatest technology incubator in the world entitled “How to make Pittsburgh into a Startup Hub”. The main thesis of this essay was to make it somewhere that 25–29 year olds want to live?—?build restaurants, cafes, bars and clubs- places that young people want to be.

About young people he said:

I’ve seen how powerful it is for a city to have those people. Five years ago they shifted the center of gravity of Silicon Valley from the peninsula to San Francisco. Google and Facebook are on the peninsula, but the next generation of big winners are all in SF. The reason the center of gravity shifted was the talent war, for programmers especially. Most 25 to 29 year olds want to live in the city, not down in the boring suburbs. So whether they like it or not, founders know they have to be in the city. I know multiple founders who would have preferred to live down in the Valley proper, but who made themselves move to SF because they knew otherwise they’d lose the talent war.

He then went on to say:

It seems like a city has to be very socially liberal to be a startup hub, and it’s pretty clear why. A city has to tolerate strangeness to be a home for startups, because startups are so strange. And you can’t choose to allow just the forms of strangeness that will turn into big startups, because they’re all intermingled. You have to tolerate all strangeness.

Sydney will never be a technology hub if all the young people want to flee overseas.

You’re kidding yourself if you think they are going to come back one day. In the last 18 years that I have been running technology companies in Australia, out of the scores that have left I’d estimate that less than 10 percent come back. They are at the time of their lives where when they go overseas they usually meet a boy or a girl and eventually settle down.

Not so long ago the topic of Innovation was discussed on ABC’s Q&A.

Stephen Merity asked: “I’m an Australian programmer working on machine learning and artificial intelligence in San Francisco after studying at Harvard. I want to return to Australia but I fear it won’t ever be the right choice. Research and educational funding has been slashed, the FTTP NBN has been abolished, and my most competent engineer friends have been left with the choice of leaving home for opportunities or stunting themselves by staying in Australia. Even if all that was fixed, it’s not enough to just prevent brain drain, we need to attract the world’s best talent to Australia. Does the Liberal government truly believe their lacklustre policies can start fixing this divide?”

 

The response from Labor’s Ed Husic was “Okay. So on the issue of the brain drain, you can take it two ways. Obviously you can, as Stephen was saying, there is some negative factors that drove him away and I’ve had a father email me of a son who said “I had to leave because I didn’t have opportunities, I had to go elsewhere to pursue”, in terms of his science career, you know, pursue opportunity elsewhere. I actually also see the positive in that, you know, a lot of the start-ups, a lot of people that are moving overseas are pursuing opportunity to grow and they’re going to gain experience and potentially come back and replenish our pool. The key for us is if people are leaving, what’s being done to backfill the places? What’s being done to replenish the talent pool?”

This is like a business saying well we have no customer retention because our product is crap, so let’s go find some new customers.

I taught Stephen Merity here at the University of Sydney. He also worked for me at Freelancer. He’s one of the top graduates in computer science that this University and country has ever produced. He’s never coming back.

What about trying to attract more senior people to Sydney?

I’ll tell you what my experience was like trying to attract senior technology talent from Silicon Valley.

I called the top recruiter for engineering in Silicon Valley not so long ago for Vice President role. We are talking a top role, very highly paid. The recruiter that placed the role would earn a hefty six figure commission. This recruiter had placed VPs at Twitter, Uber, Pinterest.

The call with their principal lasted less than a minute “Look, as much as I would like to help you, the answer is no. We just turned down [another billion dollar Australian technology company] for a similar role. We tried placing a split role, half time in Australia and half time in the US. Nobody wanted that. We’ve tried in the past looking, nobody from Silicon Valley wants to come to Australia for any role. We used to think maybe someone would move for a lifestyle thing, but they don’t want to do that anymore.

“It’s not just that they are being paid well, it’s that it’s a backwater and they consider it as two moves?—?they have to move once to get over there but more importantly when they finish they have to move back and it’s hard from them to break back in being out of the action.

 

“I’m really sorry but we won’t even look at taking a placement for Australia”.

We have serious problems in this country. And I think they are about to become very serious. We are on the wrong trajectory.

I’ll leave you now with one final thought.

Harvard University created something called the Economic Complexity Index. This measure ranks countries based upon their economic diversity- how many different products a country can produce- and economic ubiquity- how many countries are able to make those products.

Where does Australia rank on the global scale?

Worse than Mauritius, Macedonia, Oman, Moldova, Vietnam, Egypt and Botswana.

Worse than Georgia, Kuwait, Colombia, Saudi Arabia, Lebanon and El Salvador.

Sitting embarrassingly and awkwardly between Kazakhstan and Jamaica, and worse than the Dominican Republic at 74 and Guatemala at 75,

Australia ranks off the deep end of the scale at 77th place.

Australia’s ranking in the Harvard Economic Complexity Index 1995–2015. Source: Harvard

77th and falling. After Tajikistan, Australia had the fourth highest loss in Economic Complexity over the last decade, falling 18 places.

Australia keeps good company in the Harvard Economic Complexity Index at position #77. Source: Harvard

Thirty years ago, a time when our Economic Complexity ranked substantially higher, these words rocked the nation:

“We took the view in the 1970s?—?it’s the old cargo cult mentality of Australia that she’ll be right. This is the lucky country, we can dig up another mound of rock and someone will buy it from us, or we can sell a bit of wheat and bit of wool and we will just sort of muddle through … In the 1970s … we became a third world economy selling raw materials and food and we let the sophisticated industrial side fall apart … If in the final analysis Australia is so undisciplined, so disinterested in its salvation and its economic well being, that it doesn’t deal with these fundamental problems … Then you are gone. You are a banana republic.”

Looks like Paul Keating was right.

The national conversation needs to change, now.

http://WarMachines.com

Jim Chanos Adds To Tesla Short, Sees Musk Stepping Down

The ongoing vendetta between the scourge of Enron, Jim Chanos, and Elon Musk escalated when the Kynikos Associates founder said he has been adding to his Tesla short position throughout the year even as the company’s shares soared to record highs. Speaking at the Reuters Global Investment 2018 Outlook Summit, Chanos – who first disclosed his TSLA short last May – said that he expected Elon Musk to step down from his position by 2020 to focus on his private rocketship company SpaceX as competitors such as BMW and Porsche expand their lines of luxury electric vehicles.

“Obviously this is not being valued as a car company, it’s being valued on Musk … he’s the reason people own the stock,” Chanos said.

“Put it this way. If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.”

He said the company is burning more than $1 billion in cash each quarter and will have a harder time tapping the capital markets if and when Musk leaves

Still, while Chanos may have had a large enough balance sheet to avoid a short squeeze, others have been less fortunate, and as a result Tesla shares are up 44% for the year to date, briefly rising above General Motors in market cap, as countless shorts have been margined out despite Tesla’s chronic – and often shocking – cash burn, and despite increasingly louder concerns that Tesla will be unable to deliver on its aggressive Model 3 timetable. Just last week, Tesla reported its largest-ever quarterly loss, unveiled it had burned a record $16 million per day…

… and pushed back its target of volume production of its new Model 3 sedan by three months. The company said it now expects to build 5,000 Model 3s per week by late in the first quarter of 2018 from its original target date of December. And yet, despite the production delays or perhaps due to them, the company has been a veritable widowmaker for shorts, with losses among funds that bet on its decline totaling more than $4 billion this year, according to S3 Partners and Reuters.

To be sure, Chanos is not alone in shorting TSLA, and some other notable skeptics who have likewise bet on Tesla’s demise include:

  • Mark Yusko, founder and CIO at Morgan Creek Capital Management.
  • Mark Spiegel of Stanphyl Capital Management.
  • David Rocker, formerly of Rocker Partners.
  • Anton Wahlman, former stock analyst who now writes about the auto industry (he said he currently holds no position on Tesla)

Their short thesis is roughly captured by the following 7 points:

1. Negative Cash Flows

“If you can’t make money selling a $100,000 car to rich people, how are you going to make money selling a $45,000 car to normal people?” Rocker told The Times. He was referring to the upcoming mass-market Model 3. “I’m saying they’re going to lose money on every Model 3 they build and sell,” Spiegel said. Based on Tesla’s Q4 2016 earnings report, he figured the combined average selling price for non-leased Model S and X is about $104,000 and the combined average cost of building them about $82,000.

2. Competition from the Big Guys

Electric vehicles are still only a tiny fraction of total new vehicle sales in the US. Tesla sold about half of them. In March, according to Autodata, Tesla sold 4,050 vehicles in the US, similar to Porsche. All automakers combined sold 1.56 million new vehicles. This gave Tesla a market share of 0.26%. “Tesla faces a formidable set of competitors, and they’re coming in with guns blazing,” Wahlman told The Times. “Once the market is flooded with electric vehicles from manufacturers who can cross-subsidize them with profits from their conventional cars, somewhere around 2020 or 2021, Tesla will be driven into bankruptcy,” Spiegel said.

3. Tesla’s vanishing tax credits

The federal tax credit of $7,500 that EV buyers currently get is limited to 200,000 vehicles for each automaker. Once that automaker hits that point, tax credits are reduced and then phased out. Of all automakers, Tesla is closest to the 200,000 mark. Under its current production goals, the tax credits for its cars could start declining in 2018. This would give competitors, whose customers still get the full tax credit, a major advantage. About 370,000 folks put down a refundable $1,000 deposit on Tesla’s Model 3, perhaps figuring they’d get the $7,500 tax credit. But as it stands, many won’t. Rocker thinks that this is going to be an issue. The refundable deposit “commits them to nothing,” he said. Those that don’t get the tax credit may just ask for their money back and buy an EV that is still eligible for the credit.

4. The Question of patent protection

Tesla has made its patents available to all comers, thus lowering its patent protections against competitors. Also, the key part of an EV, the battery, is produced by suppliers; they, and not Tesla, own the intellectual property. This is true for all automakers. But Tesla might still be closely guarding crucial trade secrets that are not patented.

5. Musk’s distractions from his day job

Musk has a lot of irons in the fire: Tesla, SpaceX (with which he wants to build a colony on Mars or something), solar-panel installer SolarCity which Tesla bailed out last year; projects ranging from artificial intelligence to tunnel digging; venture capital activities…. “He’s all over the map, from tunneling to flights to Mars to solar roof tiles,” Rocker said. These announcements have the effect of boosting Tesla’s stock: “It’s ‘Let’s get the acolytes excited. Implant in the brain! Let’s buy Tesla stock!’”

6. Execution risk

“Investing is all about possibility and probability,” Yusko said. “Is it possible that Tesla will produce 500,000 cars in the next two or three years? Yes. Is it probable? No.” Tesla has missed many deadlines and goals, and quality problems cropped up in early production models. As Tesla is trying to make the transition to a mass-market automaker, execution risk will grow since mass-market customers are less forgiving.

7. Investor fatigue

Having lost money in every one of its 10 years of existence, Tesla asks investors regularly for more money to fill the new holes. In March, it got $1.2 billion. In May last year, it got $1.5 billion. Tesla will need many more billions to scale up production and to digest the losses. Tesla has been ingenious in this department. But when will investors get tired of it? “We’re awfully close to the point where people wake up and realize these guys are seriously diluting our equity” with new stock and convertible bond issues, Yusko said. According to The Times, Yusko “is looking for the moment when the true believers begin to lose faith.”

http://WarMachines.com

White House Considering Mohamed El-Erian For Fed Vice Chair

In what will come as a big surprise to many Fed watchers, moments ago the WSJ reported that among other candidates, Mohamed El-Erian, former deputy director of the IMF, former head of the Harvard Management Company, Bill Gross’ former partner at Pimco until the duo’s infamous falling out, and one of the few people who – together with John Taylor – actually deserve the nomination, is being considered for the Fed Vice Chairman role. DJ also added that Kansas banking regulator Michelle Bowman is also being considered. From the WSJ:

The White House is considering economist Mohamed El-Erian as one of several candidates to potentially serve as the Federal Reserve’s vice chairman, according to a person familiar with the matter.

The process of selecting the Fed’s No. 2 official began this month after President Donald Trump nominated Fed governor Jerome Powell to succeed Fed Chairwoman Janet Yellen when her term expires next February.

The WSJ adds that there is a broad range of candidates under consideration for post, and that the White House will focus on monetary policy experience for post.

Reportedly, the White House is also considering the nomination of a Kansas banking regulator for a seat on the Fed’s board of governors, according to two people familiar with the matter.

Michelle Bowman was confirmed as the Kansas bank commissioner in January and would be nominated to a spot reserved for a community banker or regulator of community banks. In 2014, Congress reserved one of seven seats on the Fed’s board for a community banker and the position has never been filled.

For those unfamilair, here are some recent perspectives on El-Erian’s recent thoughts:

And some recent notable quotables:

  • The Fed’s embarked on this beautiful normalization: It has stopped [quantitative easing], it has raised rates, it has declared a path to reduce its balance sheet without disrupting markets and without derailing the global recovery. And I don’t think anybody will want to mess with this beautiful normalization”
  • “We don’t understand very well why inflation is low. And therefore, should inflation be an over-determining factor in monetary policy? On the other hand, how concerned is the Fed about elevated asset prices?”
  • “I suspect the market is too sanguine when it comes to how much central bankers are thinking about the risk of financial instability down the road.”

http://WarMachines.com

Frontrunning: November 13

  • Trump, Duterte Strike Up a Friendship, Sidestep Thorny Issues (WSJ)
  • Strong earthquake hits Iraq and Iran, at least 332 killed (Reuters)
  • GE’s New CEO to Focus on Power, Aviation, Health (BBG)
  • GE Slashes Dividend Amid Restructuring (WSJ)
  • Uber board strikes agreement to pave way for SoftBank investment (Reuters)
  • World’s Top Tech Giants Amass $1.7 Trillion in Monster Year (BBG)
  • OPEC Boosts 2018 Demand Forecast, Signaling Faster Rebalancing (BBG)
  • The U.S. Yield Curve Is Flattening and Here’s Why It Matters  (BBG)
  • Without Humans, Artificial Intelligence Is Pretty Stupid (WSJ)
  • Surveillance Cameras Made by China Are Hanging All Over the U.S. (WSJ)
  • Think bitcoin’s getting expensive? Try Zimbabwe (Reuters)
  • Bitcoin Halts Decline That Wiped $38 Billion From Market Value (BBG)
  • Emirates Airline Orders $15.1 Billion in Boeing 787 Dreamliners (WSJ)
  • Fake News `Nearly Overwhelming,’ EU Says as It Weighs Fightback (BBG)
  • Where GOP Bills Make the Tax Code Simpler, and Where They Don’t (WSJ)
  • Citigroup’s Credit-Card Growth Plans Hit a Snag (WSJ)
  • Forget Vanguard, Insurers Now Have Their Own ETFs to Sell (BBG)
  • Russia Rues Trump-Putin Meeting That Got Away (BBG)
  • Why Millennials Crave Cold Coffee (WSJ)
  • Trump Is Shattering His Own Tweet Records (BBG)

Bulletin Headline Summary

WSJ

– General Electric Co’s new leader plans to unveil a road map for the conglomerate that will focus on three of its biggest business lines —aviation, power and healthcare — but stops short of a breakup. on.wsj.com/2zEKuBc

– Uber Technologies Inc cleared the way for a multibillion-dollar investment led by SoftBank Group Corp that would transform the corporate structure of the world’s most valuable startup and give the ride-hailing company a powerful ally in its battle against global rivals. on.wsj.com/2zFlgm8

– As Republicans move forward on their tax bills this week, part of their pitch is that 9 in 10 Americans would ultimately be able to file returns the size of postcards. While the plans don’t make tax filing quite that easy, they do mark a step toward a simpler system. on.wsj.com/2zFb1hA

– Philippines President Rodrigo Duterte meets Monday with U.S. President Donald Trump, carrying with him a longstanding animosity toward the United States that has been tempered by Trump’s implicit support of his war on drugs and by U.S. help in crushing Islamic State-backed fighters who occupied a southern city. on.wsj.com/2zFDHY4

– For the first time in four years, year-end bonuses for bankers in 2017 are set to grow over the prior year, according to consulting firm Johnson Associates Inc. Overall, incentive pay is expected to rise by 5 percent to 10 percent, Johnson’s survey found. on.wsj.com/2zELCVs

 

FT

* Emirates unveiled a preliminary order worth $15 billion for 40 Boeing Co jets on Sunday, but kept Europe’s Airbus SE waiting for a lifeline order for A380 superjumbos as the Dubai Airshow opened amid worries over tensions in the Middle East.

* Saad Hariri, who announced his resignation as Lebanon’s prime minister on November 4 while in Saudi Arabia, said on Sunday that he was “free” and would return to his country within days.

* Bristol-based start-up Graphcore, a maker of high-performance artificial intelligence computing, has raised $50 million from Silicon Valley venture capital giant Sequoia Capital.

 

NYT

– Uber Technologies Inc completed a deal on Sunday to sell a significant stake of itself to SoftBank Group Corp, a Japanese conglomerate, paving the way for the ride-hailing company to make sweeping governance changes and to go public by 2019. nyti.ms/2huFvOI

– A group of 11 countries, including Japan, Canada and Mexico, announced on Saturday that they had committed to resurrecting a sweeping multinational trade agreement, the Trans-Pacific Partnership, without the United States. nyti.ms/2hyqLyl

– Rodrigo Duterte, president of Philippines, seems to have warmed to the United States and President Trump, who also has a notably provocative style. But the longer-term game for Duterte has been his determination to court China. nyti.ms/2huC8HD

– The Obama administration used the authority of the Affordable Care Act to advance the idea of compensating doctors on the quality of their care, but the Trump administration is siding with doctors — making a series of regulatory changes that slow or shrink some initiatives and let many doctors delay adopting the new system. nyti.ms/2huDuCq

– An earthquake struck the border region of Iran and Iraq on Sunday, killing over 100 people in Iran, the country’s National Medical Emergency Service reported, according to the state English-language television news channel, Press TV. nyti.ms/2hyrz6l

 

Canada

THE GLOBE AND MAIL

** Candian Environment Minister Catherine McKenna and her British counterpart, Claire Perry, will launch an international alliance to phase out coal-fired electricity at the Bonn climate summit this week. tgam.ca/2zVGb7i

** A review of a controversial program that placed armed Toronto police officers in some schools is recommending that the practice be scrapped because too many students felt targeted for discrimination. tgam.ca/2ic85S4

** First Nations protesters at a salmon farm off the northern coast of Vancouver Island are vowing to stay, despite court action aimed at forcing them out. tgam.ca/2jlyNLB

NATIONAL POST

** Conflict of Interest and Ethics Commissioner Mary Dawson has opened a formal examination into whether Finance Minister Bill Morneau put himself into a conflict of interest by introducing pension legislation while holding a million shares in the human resources company his family started. bit.ly/2zMN2A6

 

Britain

The Times

* Questions have been raised over the proposed listing of Cabot Credit Management (IPO-CAB.L), Britain’s largest debt collector, with some investors saying that its equity could be valued at more than five times what they think it is worth amid concerns about a growing bubble in the credit market. bit.ly/2jiPVS2

* Britain must radically change its approach to research and development because the existing system of tax credits is a waste of money, according to a report by the Institute for Public Policy Research. bit.ly/2jkIxps

The Guardian

* Denise Coates, the billionaire founder and boss of gambling firm Bet365, paid herself 217 million pounds ($284.55 million) last year as her company made a 525 million pounds profit from a record 47 billion pounds of bets.bit.ly/2jlTh6M

* British finance minister Philip Hammond is to receive some crucial evidence about the health of the UK economy this week as he puts the finishing touches to one of the most difficult budgets in recent times. bit.ly/2jnihdP

The Telegraph

* Andy Clarke, the former Asda boss, is becoming non-executive chairman of Spoon Guru, a small technology start-up which allows consumers to search retailers’ produce ­according to their specific dietary need. bit.ly/2jneHAJ

* Airbus’s troubled A380 airliner will be thrown a lifeline when Gulf carrier Emirates places a multi-billion dollar order for the “superjumbo” jets. The deal will help keep production of the double-decker aircraft running for several years and assist in maintaining supply chains. bit.ly/2jniOMR

Sky News

* Lone Star Funds has hired bankers at Citi, JPMorgan and Numis Securities to oversee an initial public offering of MRH GB, according to Sky News. bit.ly/2jkfWAB

* A number of the London Stock Exchange Group’s non-executive directors have begun to privately acknowledge that their tenure will become untenable if Chairman Donald Brydon is forced out of the company in the next few weeks, according to Sky News. bit.ly/2jkptrl

The Independent

* The airline battle for big spenders has intensified, with Emirates launching what it claims to be “game-changing” First Class” – with design inspired by a car maker. ind.pn/2jm63ST

http://WarMachines.com

“Google & Facebook Are 1984” – Tax Them ‘Til They Bleed

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

An entire library of articles about Big Tech is coming out these days, and I find that much of it is written so well, and the ideas in them so well expressed, that I have little to add. Except, I think I may have the solution to the problems many people see. But I also have a concern that I don’t see addressed, and that may well prevent that solution from being adopted. If so, we’re very far away from any solution at all. And that’s seriously bad news.

Let’s start with a general -even ‘light’- critique of social media by Claire Wardle and Hossein Derakhshan for the Guardian:

How Did The News Go ‘Fake’? When The Media Went Social

Social media force us to live our lives in public, positioned centre-stage in our very own daily performances. Erving Goffman, the American sociologist, articulated the idea of “life as theatre” in his 1956 book The Presentation of Self in Everyday Life, and while the book was published more than half a century ago, the concept is even more relevant today. It is increasingly difficult to live a private life, in terms not just of keeping our personal data away from governments or corporations, but also of keeping our movements, interests and, most worryingly, information consumption habits from the wider world.

 

The social networks are engineered so that we are constantly assessing others – and being assessed ourselves. In fact our “selves” are scattered across different platforms, and our decisions, which are public or semi-public performances, are driven by our desire to make a good impression on our audiences, imagined and actual. We grudgingly accept these public performances when it comes to our travels, shopping, dating, and dining. We know the deal. The online tools that we use are free in return for us giving up our data, and we understand that they need us to publicly share our lifestyle decisions to encourage people in our network to join, connect and purchase.

 

But, critically, the same forces have impacted the way we consume news and information. Before our media became “social”, only our closest family or friends knew what we read or watched, and if we wanted to keep our guilty pleasures secret, we could. Now, for those of us who consume news via the social networks, what we “like” and what we follow is visible to many [..] Consumption of the news has become a performance that can’t be solely about seeking information or even entertainment. What we choose to “like” or follow is part of our identity, an indication of our social class and status, and most frequently our political persuasion.

That sets the scene. People sell their lives, their souls, to join a network that then sells these lives -and souls- to the highest bidder, for a profit the people themselves get nothing of. This is not some far-fetched idea. As noted further down, in terms of scale, Facebook is a present day Christianity. And these concerns are not only coming from ‘concerned citizens’, some of the early participants are speaking out as well. Like Facebook co-founder Sean Parker:

Facebook: God Only Knows What It’s Doing To Our Children’s Brains

Sean Parker, the founding president of Facebook, gave me a candid insider’s look at how social networks purposely hook and potentially hurt our brains. Be smart: Parker’s I-was-there account provides priceless perspective in the rising debate about the power and effects of the social networks, which now have scale and reach unknown in human history. [..]

 

“When Facebook was getting going, I had these people who would come up to me and they would say, ‘I’m not on social media.’ And I would say, ‘OK. You know, you will be.’ And then they would say, ‘No, no, no. I value my real-life interactions. I value the moment. I value presence. I value intimacy.’ And I would say, … ‘We’ll get you eventually.'”

 

“I don’t know if I really understood the consequences of what I was saying, because [of] the unintended consequences of a network when it grows to a billion or 2 billion people and … it literally changes your relationship with society, with each other … It probably interferes with productivity in weird ways. God only knows what it’s doing to our children’s brains.”

 

“The thought process that went into building these applications, Facebook being the first of them, … was all about: ‘How do we consume as much of your time and conscious attention as possible?'” “And that means that we need to sort of give you a little dopamine hit every once in a while, because someone liked or commented on a photo or a post or whatever. And that’s going to get you to contribute more content, and that’s going to get you … more likes and comments.”

 

“It’s a social-validation feedback loop … exactly the kind of thing that a hacker like myself would come up with, because you’re exploiting a vulnerability in human psychology.” “The inventors, creators — it’s me, it’s Mark [Zuckerberg], it’s Kevin Systrom on Instagram, it’s all of these people — understood this consciously. And we did it anyway.”

Early stage investor in Facebook, Roger McNamee, also has some words to add along the same lines as Parker. They make it sound like they’re Frankenstein and Facebook is their monster.

How Facebook and Google Threaten Public Health – and Democracy

The term “addiction” is no exaggeration. The average consumer checks his or her smartphone 150 times a day, making more than 2,000 swipes and touches. The applications they use most frequently are owned by Facebook and Alphabet, and the usage of those products is still increasing. In terms of scale, Facebook and YouTube are similar to Christianity and Islam respectively. More than 2 billion people use Facebook every month, 1.3 billion check in every day. More than 1.5 billion people use YouTube. Other services owned by these companies also have user populations of 1 billion or more.

 

Facebook and Alphabet are huge because users are willing to trade privacy and openness for “convenient and free.” Content creators resisted at first, but user demand forced them to surrender control and profits to Facebook and Alphabet. The sad truth is that Facebook and Alphabet have behaved irresponsibly in the pursuit of massive profits. They have consciously combined persuasive techniques developed by propagandists and the gambling industry with technology in ways that threaten public health and democracy.

 

The issue, however, is not social networking or search. It is advertising business models. Let me explain. From the earliest days of tabloid newspapers, publishers realized the power of exploiting human emotions. To win a battle for attention, publishers must give users “what they want,” content that appeals to emotions, rather than intellect. Substance cannot compete with sensation, which must be amplified constantly, lest consumers get distracted and move on. “If it bleeds, it leads” has guided editorial choices for more than 150 years, but has only become a threat to society in the past decade, since the introduction of smartphones.

Media delivery platforms like newspapers, television, books, and even computers are persuasive, but people only engage with them for a few hours each day and every person receives the same content. Today’s battle for attention is not a fair fight. Every competitor exploits the same techniques, but Facebook and Alphabet have prohibitive advantages: personalization and smartphones. Unlike older media, Facebook and Alphabet know essentially everything about their users, tracking them everywhere they go on the web and often beyond.

 

By making every experience free and easy, Facebook and Alphabet became gatekeepers on the internet, giving them levels of control and profitability previously unknown in media. They exploit data to customize each user’s experience and siphon profits from content creators. Thanks to smartphones, the battle for attention now takes place on a single platform that is available every waking moment. Competitors to Facebook and Alphabet do not have a prayer.

 

Facebook and Alphabet monetize content through advertising that is targeted more precisely than has ever been possible before. The platforms create “filter bubbles” around each user, confirming pre-existing beliefs and often creating the illusion that everyone shares the same views. Platforms do this because it is profitable. The downside of filter bubbles is that beliefs become more rigid and extreme. Users are less open to new ideas and even to facts.

 

Of the millions of pieces of content that Facebook can show each user at a given time, they choose the handful most likely to maximize profits. If it were not for the advertising business model, Facebook might choose content that informs, inspires, or enriches users. Instead, the user experience on Facebook is dominated by appeals to fear and anger. This would be bad enough, but reality is worse.

And in a Daily Mail article, McNamee’s ideas are taken a mile or so further. Goebbels, Bernays, fear, anger, personalization, civility.

Early Facebook Investor Compares The Social Network To Nazi Propaganda

Facebook officials have been compared to the Nazi propaganda chief Joseph Goebbels by a former investor. Roger McNamee also likened the company’s methods to those of Edward Bernays, the ‘father of public’ relations who promoted smoking for women. Mr McNamee, who made a fortune backing the social network in its infancy, has spoken out about his concern about the techniques the tech giants use to engage users and advertisers. [..] the former investor said everyone was now ‘in one degree or another addicted’ to the site while he feared the platform was causing people to swap real relationships for phoney ones.

 

And he likened the techniques of the company to Mr Bernays and Hitler’s public relations minister. ‘In order to maintain your attention they have taken all the techniques of Edward Bernays and Joseph Goebbels, and all of the other people from the world of persuasion, and all the big ad agencies, and they’ve mapped it onto an all day product with highly personalised information in order to addict you,’ Mr McNamee told The Telegraph. Mr McNamee said Facebook was creating a culture of ‘fear and anger’. ‘We have lowered the civil discourse, people have become less civil to each other..’

 

He said the tech giant had ‘weaponised’ the First Amendment to ‘essentially absolve themselves of responsibility’. He added: ‘I say this as somebody who was there at the beginning.’ Mr McNamee’s comments come as a further blow to Facebook as just last month former employee Justin Rosenstein spoke out about his concerns. Mr Rosenstein, the Facebook engineer who built a prototype of the network’s ‘like’ button, called the creation the ‘bright dings of pseudo-pleasure’. He said he was forced to limit his own use of the social network because he was worried about the impact it had on him.

As for the economic, not the societal or personal, effects of social media, Yanis Varoufakis had this to say a few weeks ago:

Capitalism Is Ending Because It Has Made Itself Obsolete – Varoufakis

Former Greek finance minister Yanis Varoufakis has claimed capitalism is coming to an end because it is making itself obsolete. The former economics professor told an audience at University College London that the rise of giant technology corporations and artificial intelligence will cause the current economic system to undermine itself. Mr Varoufakis said companies such as Google and Facebook, for the first time ever, are having their capital bought and produced by consumers.

 

“Firstly the technologies were funded by some government grant; secondly every time you search for something on Google, you contribute to Google’s capital,” he said. “And who gets the returns from capital? Google, not you. “So now there is no doubt capital is being socially produced, and the returns are being privatised. This with artificial intelligence is going to be the end of capitalism.”

Ergo, as people sell their lives and their souls to Facebook and Alphabet, they sell their economies along with them.

That’s what that means. And you were just checking what your friends were doing. Or, that’s what you thought you were doing.

The solution to all these pains is, likely unintentionally, provided by Umair Haque’s critique of economics. It’s interesting to see how the topics ‘blend’, ‘intertwine’.

How Economics Failed the Economy

When, in the 1930s, the great economist Simon Kuznets created GDP, he deliberately left two industries out of this then novel, revolutionary idea of a national income : finance and advertising. [..] Kuznets logic was simple, and it was not mere opinion, but analytical fact: finance and advertising don’t create new value, they only allocate, or distribute existing value in the same way that a loan to buy a television isn’t the television, or an ad for healthcare isn’t healthcare. They are only means to goods, not goods themselves. Now we come to two tragedies of history.

 

What happened next is that Congress laughed, as Congresses do, ignored Kuznets, and included advertising and finance anyways for political reasons -after all, bigger, to the politicians mind, has always been better, and therefore, a bigger national income must have been better. Right? Let’s think about it. Today, something very curious has taken place.

 

If we do what Kuznets originally suggested, and subtract finance and advertising from GDP, what does that picture -a picture of the economy as it actually is reveal? Well, since the lion’s share of growth, more than 50% every year, comes from finance and advertising -whether via Facebook or Google or Wall St and hedge funds and so on- we would immediately see that the economic growth that the US has chased so desperately, so furiously, never actually existed at all.

 

Growth itself has only been an illusion, a trick of numbers, generated by including what should have been left out in the first place. If we subtracted allocative industries from GDP, we’d see that economic growth is in fact below population growth, and has been for a very long time now, probably since the 1980s and in that way, the US economy has been stagnant, which is (surprise) what everyday life feels like. Feels like.

 

Economic indicators do not anymore tell us a realistic, worthwhile, and accurate story about the truth of the economy, and they never did -only, for a while, the trick convinced us that reality wasn’t. Today, that trick is over, and economies grow , but people’s lives, their well-being, incomes, and wealth, do not, and that, of course, is why extremism is sweeping the globe. Perhaps now you begin to see why the two have grown divorced from one another: economics failed the economy.

 

Now let us go one step, then two steps, further. Finance and advertising are no longer merely allocative industries today. They are now extractive industries. That is, they internalize value from society, and shift costs onto society, all the while creating no value themselves.

 

The story is easiest to understand via Facebook’s example: it makes its users sadder, lonelier, and unhappier, and also corrodes democracy in spectacular and catastrophic ways. There is not a single upside of any kind that is discernible -and yet, all the above is counted as a benefit, not a cost, in national income, so the economy can thus grow, even while a society of miserable people are being manipulated by foreign actors into destroying their own democracy. Pretty neat, huh?

 

It was BECAUSE finance and advertising were counted as creative, productive, when they were only allocative, distributive that they soon became extractive. After all, if we had said from the beginning that these industries do not count, perhaps they would not have needed to maximize profits (or for VCs to pour money into them, and so on) endlessly to count more. But we didn’t.

 

And so soon, they had no choice but to become extractive: chasing more and more profits, to juice up the illusion of growth, and soon enough, these industries began to eat the economy whole, because of course, as Kuznets observed, they allocate everything else in the economy, and therefore, they control it.

 

Thus, the truly creative, productive, life-giving parts of the economy shrank in relative, and even in absolute terms, as they were taken apart, strip-mined, and consumed in order to feed the predatory parts of the economy, which do not expand human potential. The economy did eat itself, just as Marx had supposed – only the reason was not something inherent in it, but a choice, a mistake, a tragedy.

 

[..] Life is not flourishing, growing, or developing in a single way that I or even you can readily identify or name. And yet, the economy appears to be growing, because purely allocative and distributive enterprises like Uber, Facebook, credit rating agencies, endless nameless hedge funds, shady personal info brokers, and so on, which fail to contribute positively to human life in any discernible way whatsoever, are all counted as beneficial. Do you see the absurdity of it?

 

[..] It’s not a coincidence that the good has failed to grow, nor is it an act of the gods. It was a choice. A simple cause-effect relationship, of a society tricking itself into desperately pretending it was growing, versus truly growing. Remember not subtracting finance and advertising from GDP, to create the illusion of growth? Had America not done that, then perhaps it might have had to work hard to find ways to genuinely, authentically, meaningfully grow, instead of taken the easy way out, only to end up stagnating today, and unable to really even figure out why yet.

Industries that are not productive, but instead only extract money from society, need to be taxed so heavily they have trouble surviving. If that doesn’t happen, your economy will never thrive, or even survive. The whole service economy fata morgana must be thrown as far away as we can throw it. Economies must produce real, tangible things, or they die.

For the finance industry this means: tax the sh*t out of any transactions they engage in. Want to make money on complex derivatives? We’ll take 75+%. Upfront. And no, you can’t take your company overseas. Don’t even try.

For Uber and Airbnb it means pay taxes up the wazoo, either as a company or as individual home slash car owners. Uber and Airbnb take huge amounts of money out of local economies, societies, communities, which is nonsense, unnecessary and detrimental. Every city can set up its own local car- or home rental schemes. Their profits should stay within the community, and be invested in it.

For Google and Facebook as the world’s new major -only?!- ad agencies: Tax the heebies out of them or forbid them from running any ads at all. Why? Because they extract enormous amounts of productive capital from society. Capital they, as Varoufakis says, do not even themselves create.

YOU are creating the capital, and YOU then must pay for access to the capital created.

Yeah, it feels like you can just hook up and look at what your friends are doing, but the price extracted from you, your friends, and your community is so high you would never volunteer to pay for it if you had any idea.

The one thing that I don’t see anyone address, and that might prevent these pretty straightforward ”tax-them-til they-bleed!” answers to the threat of New Big Tech, is that Facebook, Alphabet et al have built a very strong relationship with various intelligence communities. And then you have Goebbels and Bernays in the service of the CIA.

As Google, Facebook and the CIA are ever more entwined, these companies become so important to what ‘the spooks’ consider the interests of the nation that they will become mutually protective. And once CIA headquarters in Langley, VA, aka the aptly named “George Bush Center for Intelligence”, openly as well as secretly protects you, you’re pretty much set for life. A long life.

Next up: they’ll be taking over entire economies, societies. This is happening as we speak. I know, you were thinking it was ‘the Russians’ with a few as yet unproven bucks in Facebook ads that were threatening US and European democracies. Well, you’re really going to have to think again.

The world has never seen such technologies. It has never seen such intensity, depth of, or such dependence on, information. We are simply not prepared for any of this. But we need to learn fast, or become patsies and slaves in a full blown 1984 style piece of absurd theater. Our politicians are AWOL and MIA for all of it, they have no idea what to say or think, they don’t understand what Google or bitcoin or Uber really mean.

In the meantime, we know one thing we can do, and we can justify doing it through the concept of non-productive and extractive industries. That is, tax them till they bleed.

That we would hit the finance industry with that as well is a welcome bonus. Long overdue. We need productive economies or we’re done. And Facebook and Alphabet -and Goldman Sachs- don’t produce d*ck all.

When you think about it, the only growth that’s left in the US economy is that of companies spying on American citizens. Well, that and Europeans. China has banned Facebook and Google. Why do you think they have? Because Google and Facebook ARE 1984, that’s why. And if there’s going to be a Big Brother in the Middle Kingdom, it’s not going to be Silicon Valley.

http://WarMachines.com

When A.I. Rules…

Elon Musk unveiled his apocalytpic vision of the world a few weeks ago…

“Until people see robots going down the street killing people, they don’t know how to react because it seems so ethereal,” he said.

 

“AI is a rare case where I think we need to be proactive in regulation instead of reactive. Because I think by the time we are reactive in AI regulation, it’s too late.”

 

“Normally the way regulations are set up is a while bunch of bad things happen, there’s a public outcry, and after many years a regulatory agency is set up to regulate that industry,” he continued.

 

“It takes forever. That, in the past, has been bad but not something which represented a fundamental risk to the existence of civilization. AI is a fundamental risk to the existence of human civilization.”

And since then numerous futurists have prognosticated on whether is mankind's salvation or eventual downfall. Facebook's Mark Zuckerberg embraces it while Stephen Hawking considers this the most dangerous moment in history as AI and automation are set to decimate jobs and change the social contract.

However, as Mike Wehner via BGR.com,  writes, when AI rules, one rogue programmer could end the human race…

The idea of small groups of humans having control over some of the most powerful weapons ever to be built is scary, but it’s the reality we live in. In the not-so-distant future, that incredible power and responsibility could be handed over to AI and robotic systems, which are already in active development. In a pair of open letters to the prime ministers of bother Australia and Canada, hundreds of AI researchers and scientists are pleading for that not to happen.

The fear, they say, is that removing the human element from life and death decisions could usher in a destructive age that ultimately spells the end of mankind. The AI weapons systems are, as the researchers put it, “weapons of mass destruction” which must be banned outright before they can do any serious damage.

“Delegating life-or-death decisions to machines crosses a fundamental moral line – no matter which side builds or uses them,” the letter explains.

 

“Playing Russian roulette with the lives of others can never be justified merely on the basis of efficacy. This is not only a fundamental issue of human rights. The decision whether to ban or engage autonomous weapons goes to the core of our humanity.”

In a setting where computers have the ultimate say in whether or not to engage in hostile acts — even under the guise of defending their own territories or protecting the populations they are programmed to protect — conflicts could escalate much faster than humans have ever seen. Weeks, months, or even years of posturing and diplomacy could turn into mere minutes or even seconds, with missiles flying before humans can even begin to intervene. And then, of course, there’s the issue of the AI being manipulated in unforeseen ways.

“These will be weapons of mass destruction,” the scientists say.

 

“One programmer will be able to control a whole army. Every other weapon of mass destruction has been banned: chemical weapons, biological weapons, even nuclear weapons. We must add autonomous weapons to the list of weapons that are morally unacceptable to use.”

It’s a frightening thought, but it hasn’t stopped military contractors from exploring the possibility of AI-controlled weapons and defense systems. This could be yet another way mankind engineers its own destruction.

*  *  *

http://WarMachines.com

De-FANGed: Five Ways The Disrupters Could Be Disrupted

We highlighted the launch of the ICE FANG futures contract earlier this week (here) and what an auspicious moment it was for the launch.

The argument put forward by our guest author, Kevin Muir via The Macro Tourist blog, was that it is possible to be “bearish on the FANG stocks, but not be some perma-bear who thinks the world is about to collapse”. As Muir explained.

The reality of today’s limited alpha market is that when an investing theme gets some legs, it often becomes overdone and prone to disappointment. I have written about how, all too often, this results in a series of rolling mini-bubbles. There is nothing wrong with observing that the new era tech stocks are stupidly overbought, and that the risks are to the downside in the coming months. You can be bearish on FANG without thinking all stocks are going to zero…This new FANG contract offers some great opportunities to short the speculative names that have been the source of such over-exuberance, while maybe hedging it with a long position in the S&P 500 futures contract.

Muir commented wryly that now he would be able to get in as much trouble as high-profile bear, David Eeinhorn of Greenlight Capital by buying “old economy stocks and shorting the new tech darlings.” Another investor, with more than one gray hair of experience, has penned a thoughtful bearish piece on the FANGs in recent days, this time Neil Dwayne of Allianz Global Investors. Dwane’s piece is titled “De-FANGed: 5 Ways the Disrupters Could be Disrupted.” Dwane begins by noting that while consumers love the services they provide, the regulators are taking an increasingly close look at their anti-competitive practices.

Just as the growth, earnings and cash generation of these Big Tech names have soared, so has their impact on economies and consumers, who are wowed by the services, price transparency and convenience they provide. As a result, there has until recently been little public pressure to challenge the dominance of these firms, which some critics liken to near-monopoly status. Yet these powerful companies are attracting greater scrutiny from regulators:

 

  • In June 2017, European Union antitrust regulators fined Google EUR 2.4 billion for unfairly manipulating search results to benefit its own shopping platform.
  • In October 2017, the European Commission levied a EUR 250 million fine against Amazon for receiving illegal state aid from Luxembourg.
  • As the US government probes Russia’s alleged influence on US elections, it is asking hard questions about Facebook and Google’s roles in selling advertising and allowing “fake news” to proliferate.
  • In May 2018, the European Union will implement a robust set of requirements – the General Data Protection Regulation (GDPR) – aimed at guarding personal information and reshaping how organizations approach data privacy. This will affect not only the FANG stocks, but any company with a digital presence in the EU.

Pointing out that government regulators appear to be increasingly focused on reining back the dominance of these companies, Dwane asks whether these “masters of high-tech disruption” are about to find themselves disrupted. Dwane finds that it may not only be regulators which could reverse the seemingly never-ending rise in market capitalisation of these stocks. He outlines five ways in which the disrupters could be disrupted, beginning with the critical, for some of these companies, and potentially vulnerable issue of online advertising.

1. Digital advertising comes under pressure

“Bots” and automatic algorithms have completely transformed the realm of digital advertising and brought in billions of dollars in revenue for Facebook and Google. Yet an old adage still rings true today – “half the money I spend on advertising is wasted; the trouble is, I don't know which half”. If doubts about ad-sales effectiveness and practices grow, they could undermine social media business models and the profitability of the FANGs.

  • Some firms may be overstating the reach and effectiveness of their technologies. One mega-cap US consumer-goods company recently made headlines when it slashed its online ad spending, citing “largely ineffective” digital ads.
  • On the other hand, some of these ad-sales platforms may work too well, bringing into question the professed “platform neutrality” of some Big Tech companies. Amid growing concerns about Russia’s role in recent US elections, Facebook recently bought its own high-profile ads to detail how it is “protecting our community from election interference” – a clear response to calls for them to police their network.

 

2. “Free” content dilutes brand loyalty and bottom lines
Even though social media has become part of our daily lives, how much brand loyalty does it inspire? Surveys show that use of social media would drop if consumers had to pay for access – or they would migrate to other “free” services. This has implications for corporate longevity. Some may not endure in the same way as companies in more traditional industries once did with similar size and scale.

 

For its part, Google has recently announced it is dumping its “first-click-free” news policy, which had forced media companies to offer some free content or see their search-engine rankings plummet. This can be seen as a way of helping to support digital subscriptions – and therefore funding – for news providers. Google may also hope this heads off more onerous regulations by positioning them as good corporate citizens, and by reinforcing their stance that they are not a media company.

 

3. Unused cash grows costly
The FANGs remain extremely profitable, yet much of the cash they generate languishes on balance sheets. The result is billions of dollars left unused, un-returned to shareholders and unable to boost economic growth – and in many cases untaxed as well. This is growing increasingly frustrating for almost everyone but the cash-rich companies themselves. Unfortunately, there may not be much shareholders can do about it – the “founder’s stock” structure used at some firms does not always create an environment of good corporate governance – though active investors can try to effect change. Regulators have more power, however, and they are clearly looking for ways to claw back some of this cash.

 

4. Regulators crack down on data privacy
Big data, predictive algorithms and artificial intelligence all rely on one thing: collecting and analysing information. However, when the data in question come from the lives and habits of private citizens, shouldn’t they be able to influence how the data are used? Regulators in Europe agree. The EU’s new GDPR will give citizens more insight into and control of their digital information – and it will give regulators a potent new weapon against companies that don’t act in consumers’ best interest. While rules that are overly stringent could limit the benefits of technological innovations, the GDPR could also increase consumers’ trust in digital services and create a level playing field for companies that responsibly monetize consumers’ data.

 

5. Political pressure leads to new “duty of care” requirement
As a global producer of content that leverages it against advertising to drive growth, Facebook has effectively become a media company – yet critics suggest that it seeks to leverage its success as a global influencer without the responsibility that comes with it. This privilege may disappear if the US government imposes on Facebook and other social media platforms the kind of “duty of care” requirement that many old-world media companies have been facing for many years. This would force some Big Tech firms to engage in the kind of onerous editorial and legal responsibilities that already impair their current competitors – ironically disrupting their own disruption and potentially adding to their cost bases.

Dwane’s conclusion, which we lay out below, is that the growing regulation of these companies alone will bring their heyday – in stock market terms anyway – to an end. In contrast, he sees a better outlook for China’s version of the FANGs…the BATs (Baidu, Alibaba and Tencent).

Western governments have for the most part been happy to let Silicon Valley oversee itself, but it is clear that this grace period may be closing – especially in Europe. In addition to some of the new rules and pressures outlined above, we expect the playing field to be levelled further:

  • The EU has launched a growing assault against US tech companies to ensure they pay their fair share of tax to society; it will soon announce a new plan that addresses cross-border sales tax rules.
  • The US government has room to manoeuvre. Historically, concentrated power similar to that wielded by today’s Big Tech firms has led to government intervention – witness the breakup of the US telecom monopoly in the 1980s or US government actions against Microsoft in the 1990s.
  • As the US Congress continues to probe Facebook and Google’s role in allegedly helping Russia influence US elections, it could fuel a growing backlash about issues ranging from political advertising to online privacy.

It is growing increasingly possible that these regulatory pressures could soon begin to limit the almighty FANGs’ reach in the US and Europe – rich but small markets compared with the opportunities facing China’s BATs (Baidu, Alibaba and Tencent). These firms are in many ways the Chinese equivalents of the FANGs, yet as of now, the BATs aren’t facing the same level of increasing regulatory scrutiny as their FANG counterparts. With less-onerous oversight and a larger opportunity set in their own neighbourhoods – populations in Asia are exponentially bigger – one could make the case that the BATs may fly further than the FANGs.

Whether Dwane’s arguments will prove to be just another premature obituary in the performance of the awesome FANGs, time will tell. Left to their own devices, there seems to be no stopping them. The things is, there’s something that governments value above all else, control. Perhaps the real question is just how close to the deep state (s) are some of these companies already? For now, however, any dips in these stocks are reversing quickly…as we saw again yesterday.

 

http://WarMachines.com