Price wars
Gateway operates within a capitalist economy. A capitalist economy is where people are free, within the bounds of the law, to engage in commerce at their will and their peril. Free markets are characterized by open competition and survival of the fittest. As in the natural world, grow or die is a constant imperative in the business world.
As any economics text book will tell you, smaller participants face an uphill battle when competing against established giants in an open market. Smaller firms seeking to enter or expand will invariably face price-cutting by larger firms. The latter use their superior financial power to drive rivals from the field and then raise prices to recoup their losses.
This is exactly what happened to the fledging Compass Airlines when it tried to break the Australian Airlines/Ansett Airlines aviation duopoly. The drastic cutting of prices by the dominant incumbents at the time led to the extinction of the new entrant. Compass was declared bankrupt and thousands of passengers were left with worthless airline tickets.
Over the past year we have experienced a similar price war in banking, albeit with a slight twist. Each of the Big Four banks has tried to capture market share from the others and smaller players have been caught in the cross-fire of this mortgage war. The scramble is on to write more home loans and poaching customers is the name of the game.
The banking sector is not the only industry to be racked by price wars. Grocery retailers have been stuck in a price war for years. Tele-communications companies have also experienced a drop in prices. The automotive industry has been offering incentives to drive up sales. And gas and electricity providers have started to offer energy plans.
The $64 question is this: Do consumers really benefit from price wars? Angela Paladino, an associate professor in marketing at the University of Melbourne, answered this question from the standpoint of shoppers and the benefit or otherwise they derive from supermarket price wars. She writes:
Price wars squeeze out marginal players and change the composition of the market. Here fewer competitors seek to enter an unattractive market that is dependent on low price for success, and smaller competitors exit the market as a result of the inability to make a profit. Others may be taken over....This has a long-term impact on consumer choice, with shoppers left in a market comprised of fewer players with greater power.
This is indeed the case for supermarkets and I would argue other industry sectors as well. There are rarely real winners in a price war, only bruised survivors. Everyone can participate in a race to the bottom - price is not a competitive advantage as it can be copied easily by the competition. There is always someone with deeper pockets willing to undercut you.
The most common driver of price wars is the desire to increase market share. By reducing your price more people will choose your offering. However, your competitors are unlikely to sit back and let you take their market share so they also lower their price. The end result is that both companies have the same market share as before, only at lower prices and reduced profitability.
We all like a bargain and Australians are adept at voting with their feet to get a better deal. There’s no doubt that the average consumer does benefit from price wars in the short-term, but what about the long-term consequences? The decision last year by Coles and Woolworths to slash milk prices to $1 a litre didn’t increase consumer demand for milk. But it did take customers away from smaller independent retailers.
The corner store is fighting for survival and may go the way of the local hardware store. I still pine for my local, family-owned hardware store which provided a level of personal service that today’s industry giants with their mega-barn outlets can’t match. I, for one, am always happy to go to a smaller provider and pay a bit more for personal service. Big is not beautiful!
Regards
Paul J. Thomas
Podcast is available here 
Posted Monday, May 14, 2012 
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The ebook revolution
One of my favourite pastimes is reading. There’s nothing more relaxing than curling up with a good book. I never read science fiction and I don’t read horror stories (with the exception of some annual reports!). My home bookcase is stacked with books ranging in subject from management to history and science to philosophy.
Every now and then I deliberately read a book by an author who has an opposing view to mine. Being exposed to new ideas or perspectives from leading writers expands your horizons and challenges your thinking. We see the world not as it is but how we have been conditioned to see it. So, it’s exciting to see the world anew.
Oddly enough, I was not an avid reader as a child. Nowadays, I find it difficult to walk past a bookstore without going in for a browse. Time does not allow me to devour as many books as I would like, but that does not stop me buying them. At any one time I have a small pile of books on the shelf waiting to be read.
If I were not so “old fashioned” I could store all the books on my reading list on one e-reader. I explained how e-readers work in a blog I posted two years ago titled, A library without books. That post received a record number of comments and touched a chord with many of my readers. So, I thought I would re-visit the digital revolution which is reshaping the publishing industry.
In just a few short years, e-books have gone from fringe product to mainstay of the publishing industry. While I personally prefer turning the pages of a real book, I’m starting to reluctantly accept that they may go the way of vinyl records. In the not-too-distant future we may be forced to read the works of Shakespeare on a Kindle!
Kindle is the name of Amazon’s e-reader and it is transforming the way we read. The great publishing houses - like Macmillian, Penguin, HarperCollins and Random House - are fighting for survival against the online giant which is Amazon. Amazon wants to cut out the middleman ie, traditional publishers, by publishing e-books directly.
It’s said that Amazon is doing to publishers what Apple did to record labels. By providing the market with bargain priced e-books, Amazon has become the 800 pound gorilla in the digital book market. As the marginal cost of selling an e-book is basically zero, it is pricing traditional booksellers and publishers out of the market.
Another technology titan, Apple, is also involved in reshaping the book market. Apple’s iPad is battling for supremacy against Amazon’s Kindle. Things got ugly recently with the US government accusing Apple and five publishers of colluding to fix the prices of e-books. The alleged price-fixing was in response to Amazon’s business practice of selling e-books for just $9.99.
Everyone loves a good fight and the e-reader saga is turning into its own business thriller. Not since Gutenberg invented the printing press have we witnessed such disruption in the book market. The evolution of publishing from print to digital has already contributed to the demise of the major bricks-and-mortar bookseller, Borders, and more casualties are expected.
In moving us from the paper mill to the hard drive, Amazon (the world’s largest internet retailer) and Apple (the world’s largest technology company), are shaking the book world to its spine. I still love printed books but sense that one day I will be mourning their passing. Perhaps it’s time I turned on the Kindle my wife gave me for Christmas?
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 07, 2012 3 Comments Make a comment
Budget surplus not imperative
Next Tuesday Wayne Swan will hand down the federal budget for 2012-13. The government is committed to bringing the budget back to surplus. The Treasurer wants to move from an expected $40 billion deficit this financial year to a forecast $1.5 billion surplus in fiscal 2013 by reducing expenditure. Some commentators believe the size of this turnaround is more than the economy can bear.
The Treasurer has promised that cuts to government programs won’t be “slash and burn” but “responsible additional savings”. Moreover, he has dismissed claims the government’s commitment to a surplus is a political and not an economic objective. “Returning to surplus provides more flexibility for the Reserve Bank to respond to any further developments in the global economy,” Swan said.
By reducing expenditure, the government hopes to dampen inflationary pressure, making it easier for the RBA to cut rates. The central bank, so the argument goes, will have more room to reduce interest rates without boosting inflation if there is less growth impetus coming from the public sector. Lower rates, the government also argues, could help push down the Australian dollar, thereby providing relief to exporters.
In response to the government’s claims, three Australian economists were recently asked whether there is a direct link between surpluses and lower interest rates. All three believe there is no empirical or conceptual basis on which one can claim a hard and fast connection between deficits or surpluses on the one hand and higher or lower interest rates on the other.
With echoes of Paul Keating’s “the recession we had to have”, this is Wayne Swan’s “surplus we have to have”. The Labor Party is staking its economic credentials on achieving a surplus. But is it really necessary to move the budget out of the red? The answer is a clear no according to former RBA board member, Warwick McKibbin.
Many other economists also believe that putting the foot on the fiscal brake risks provoking an economic slowdown. This view is shared by the Australian Institute of Company Directors and the ACTU. Both organisations have warned against the budget-surplus push with the union movement arguing the government should focus on creating and protecting jobs.
The notion that a budget surplus is always preferable to a budget deficit has been accepted uncritically for too long. In reality, there are bad surpluses and good deficits. A bad surplus runs down services to the public by reining in public finances too hard. A good deficit, on the other hand, borrows to fund investments in productive infrastructure or education.
It’s a dangerous time to be cutting back on government spending. Growth is just 2.5 per cent and the net effect of getting the budget into surplus is to cut GDP by 2.6 per cent. This fiscal contraction is 2½ times that imposed by the Hawke government in fiscal ‘87 or the Howard government in fiscal ‘97. The Gillard government has no need to undertake such radical austerity measures.
As outlined in my post, In defence of deficits, it’s a sweeping generalization to say that debt is inherently bad. Economies are credit-driven which means nations and households invariably have to go into debt in order to grow. As I recently argued in Education and national prosperity, one way to support long-term productivity growth is by investing in education and training.
The government could use this budget cycle to find the extra education funding recommended in the Gonski Report. Now that would be a great example of good debt!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 30, 2012 0 Comments Make a comment
Aussie housing data
The Australian housing sector is the nation’s largest and arguably most important asset class. According to a recent RP Data Property Report, the total value of homes across the country as at December 2011 was $4.54 trillion. Australian equities, by way of comparison, had a total market capitalisation at the same time of $1.17 trillion.
Australia’s love affair with property is well known. More than 60 per cent of all Australians own a home – one of the highest rates of home ownership in the world. The Reserve Bank of Australia estimates that around 6 per cent of the housing stock, or 500,000 dwellings, changes ownership each year.
While home ownership remains the great Australian dream, over the past decade there has been a decline in the number of first home buyers climbing on the property ladder. Australian Bureau of Statistics data shows that young adults are remaining in the parental home for longer periods. Some claim that Generation Y may never own a home due to declining affordability.
In the eighth International Housing Affordability Survey released in January it was noted that “Australia exhibited the worst housing affordability of any national market outside Hong Kong”. The unaffordability ratio is derived by dividing the median house price by the median household income.
The Survey considers a median multiple rating of three times or under to be “affordable”. Housing markets with a median multiple of 3.1 to 4 times are labelled “moderately unaffordable”. The ratio of 4.1 to 5 times is “seriously unaffordable” while “severely unaffordable” markets have ratios of 5.1 times or above.
The median-priced house in Australia’s major cities was an average of 6.7 times the median household income. Within Australia, Sydney easily retained first place as the most unaffordable city, with the median house price 9.2 times median household income.
The fall in home ownership among Australians less than 35 years is typically attributed to diminishing affordability and delays in family formation. If current home ownership trends continue, Australia’s largest industry superannuation fund claims that one in four Australian retirees will be renters rather than home owners by 2040.
Finally, no discussion about housing would be complete without mention of the old chestnut – whether housing is a productive or unproductive investment. Some economists regard housing as an unproductive form of investment relative to industrial investment. The broad arguments go something like this.
Putting capital at risk for a future return lies at the heart of capitalism. So, investing in machines in a factory which creates jobs and pays taxes is an example of productive capital at work. Conversely, assets that sit idle are unproductive. Ergo, an investment in real estate which merely changes ownership of existing wealth and does not produce new wealth is an unproductive asset class.
There’s no doubt that investments in new factories and basic infrastructure like roads benefit society. But investment in property also contributes to the economy by creating an array of jobs directly and indirectly associated with constructing, renovating and maintaining homes. This workforce also pays truckloads of taxes.
Housing is a macroeconomic issue. The housing sector accounts for a significant proportion of national economic activity/investment and exerts an important influence on other economic factors including national capital, household wealth and household debt.
As noted by Australian economist, Christopher Joye, shelter - along with food and security - is among the most basic of human needs. Secure and affordable housing is central to our standard of living and way of life. A place to call home - how does one put an economic value on that?
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 23, 2012 0 Comments Make a comment
Interest rates: why is it so?
Why is the sky blue? Why does hair turn grey? Why do boomerangs come back? Sometimes simple questions are hard to answer and so it is with money matters. Why does the world have debt? Why is there economic inequality? Why do interest rates rise and fall? Today, let’s have a go at answering that final question.
It helps to think of money as a product with interest rates being the cost of that product. Like all products, the price of money is determined by the economic “law” of supply and demand. Rising interest rates are a function of a high demand for money against a low supply of currency. Conversely, falling interest rates are a signal of weak loan demand alongside high money supply.
When the economy performs well and confidence is high, people are more likely to take out loans and this can push interest rates higher. Alternatively, when the economy is in recession and confidence is low, loan demand is weak and banks lower interest rates in order to compete for limited business.
It can be seen that the performance of the Australian economy affects the demand for money and this is where the Reserve Bank of Australia (RBA) steps in. The RBA influences the amount of money flowing into the nation’s financial system by raising and lowering interest rates, similar to turning water on and off like a faucet - hence the term liquidity.
There are a range of factors that affect interest rates such as inflation, the strength of the dollar and the pace of economic growth. The central bank in each country can cause the interest rate for their currency to rise and fall. Inflation is probably the main reason why interest rates move up and down.
When people spend strongly, prices increase which causes inflation to rise. Conversely, when consumers don’t have money to spend, prices and inflation ease or stay steady. In techo speak, spending by households (consumption) contributes significantly to aggregate demand which, in turn, fuels inflation.*
That’s why households get caught in the crossfire in the war against inflation. Whenever the RBA tightens monetary policy to dampen demand (restrain expenditure) interest rates rise. Such rises do not discriminate between rich and poor households which is why monetary policy is referred to as a blunt instrument.
Each month the RBA meets to consider whether it should change the official overnight Cash Target Rate (CTR). The CTR is the rate at which the RBA lends to financial institutions. This interest rate then affects the whole range of interest rates set by banks, building societies and credit unions for their own savers and borrowers.
The RBA sets the official cash rate with the goal of controlling inflation, while banks and other financial institutions set interest rates to make a profit. As outlined above, households also influence interest rates through their spending and savings habits. Interest rates are increased to moderate consumer demand and inflation and reduced to stimulate demand.
Discussing the link between consumer demand and inflation is like wondering which came first, the chicken or the egg. They are cause and effect - all part of a cycle that is monitored by the RBA. Indeed, changes in consumer spending have an important effect on the path of the economic cycle.
The bottom line is that you are not a passive observer to interest rate movements. What your household does at a micro level impacts interest rates at a macro level through aggregate demand.
*NOTE: This is “demand pull” inflation. The other type of inflation is “cost push” where rising costs of production such as wages are recouped by increased price of products and services offered to consumers.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 16, 2012 0 Comments Make a comment
Preventing cyber-crime
With all the economic gloom and doom around at the moment, consumer confidence has fallen and many industry sectors are in decline. However, one “industry” that remains in growth mode is fraud. Crooks never take holidays and the bad guys are becoming more ingenious by the day.
With identity fraud and internet scams on the rise, financial institutions and their customers need to be on their toes to keep one step ahead of the fraudsters. Threats against banks and their customers are as old as money itself but criminals are using technology to commit fraud in new and more innovative ways.
An increasing number of scam artists have acquired the ability to infiltrate IT systems with new penetration techniques. These computer hackers try to gain undetected access to data. As mobile device functionality converges with computers, cyber criminals will increasingly target iPhones and iPads with malware (short for malicious software).
Malware includes viruses, worms, Trojan horses, spyware or any other form of unwanted software and can impact your computer’s performance and stability. Malware can manifest as a simple annoyance to a serious security threat by slowing your computer to a crawl or causing it to crash totally.
It should be self-evident that in our online world your personal details are your most valuable currency. The internet is now an integral part of the lives of most Australians, so protecting your personal information from the cyber underworld is vital.
Anti-virus software is your first line of defence against malware. You must ensure your anti-virus software is kept up-to-date. Many people let their anti-virus software expire thereby allowing their computer to become infected with malware. Remember, anti-virus software is only as good as the last update.
The next line of defence is to delete emails from unknown sources. Millions of email users around the world regularly receive spam – unsolicited electronic junk email. While spam from legitimate e-marketers is usually harmless, deceitful scammers prey on unsuspecting recipients.
A popular technique used by these online robbers is called phishing. Phishing enables a scammer to obtain confidential information from an internet user by posing as a trusted authority. Users treat the spam email as legitimate and are then tricked into revealing personal information such as credit card numbers, account data, usernames and passwords.
With the help of an authentic looking but deceptive email, the attacker typically redirects the victim to a hoax or mirror website. The bogus web site looks like those of a legitimate retailer or bank. The spam message typically requests the user to “update” or “validate” their account information. When clicked, the email link takes you to a copy-cat website where your personal details are illegally captured.
So another line of defence is to “click with caution”. Never click on a link in a spam message or an email from someone you do not know and be wary of opening random attachments.
Given the pervasive nature of spam, it’s best to install spam blocking programs. Anti-spam software examines all incoming email and separates spam from legitimate messages. This filtering software automatically identifies and detects spam and prevents those messages from reaching your inbox.
A final safeguard when using the internet is to ascertain whether the web page you are using utilises encryption. A quick look at the address bar will reveal this. All web addresses start with the letters “http://” which stand for Hypertext Transfer Protocol. In simple terms, “http” can be thought of as a language for transmitting and receiving information across the internet.
Some web address start with “https://”. The “s” at the end stands for “secure”. Secure means that any information you enter is encrypted ie, it cannot be read in free text. Your browser will also indicate whether you are transmitting over a secured https page by the indication of a lock icon. Never enter your credit card details in an http website!
While cyber crime represents a clear and present danger, surfing the internet should not be a terrifying experience. You can’t roll back the digital revolution but you can take routine IT hygiene steps to protect yourself online. So enjoy the benefits of our digital world while exercising common sense precautions.
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, April 10, 2012 0 Comments Make a comment
Values and ethics
Many of you will have seen the Academy Award-winning film, A Beautiful Mind, starring Russell Crowe. The movie is based on the life of mathematics genius, Dr. John Nash. Nash won the Nobel Prize in Economics in 1994 for his pioneering work on game theory.
Game theory is a special branch of mathematics used to study decision-making in complex situations. It examines how our choices affect others and how the choices others make affect us (so-called “games”). The “games” involve two opposing parties pursuing actions in their own best interest resulting in an outcome for each that is worse than if they had cooperated.
The most widely known example of game theory is the Prisoner’s Dilemma – a scenario where two people are apprehended as suspects in a major crime. The two men are taken prisoner, placed in separate cells and then interrogated. Each prisoner is subsequently made an offer by his captor: Betray the other prisoner and receive a lighter punishment.
Unable to communicate with one another, each prisoner suspects the other will spill the beans. So they both confess in order to receive a shorter sentence, even though they would both be better off by remaining silent. The prisoner’s dilemma helps us understand what drives the balance between cooperation and competition in business, politics and social settings.
A good example can be found in the arms race between two superpowers. Both countries are clearly better off when they cooperate and avoid an arms race. Yet the dominant strategy is for each to arm itself heavily. If a new weapon is invented that is more destructive than any in existence, acquisition of this weapon is seen as enhancing the security of one’s country. But if both act accordingly, everyone’s security is jeopardised rather than improved.
Drug taking by athletes is another striking illustration of the prisoner’s dilemma. The optimum solution for all competitors is that no one takes performance-enhancing drugs. The worst result for an individual athlete is he/she doesn’t use drugs and everyone else does. The best result for an individual is that he/she is the only athlete taking drugs.
The consequence is that once drug-taking starts, everyone does it. Yet if drug taking leads to an identical improvement in the performance of each competitor, the result will be just the same as if no one had taken them in the first place. So, everyone loses.
So, why I have told you about game theory and the prisoner’s dilemma? Well, firstly because it’s interesting and educational (and, in truth, I couldn’t think of anything else to talk about this week!) and secondly it has relevance to business.
The golden rule of business competition, as taught by the prisoner’s dilemma, is that acting in one’s self-interest does not always serve one’s self-interest. Greed and ego often get the better of us. Just take a look at the corporate crashes of recent years.
Business executives can also find themselves in a dilemma. If one’s competitors are playing by unethical rules, then playing by ethical rules could mean financial failure, even bankruptcy.
At Gateway, we operate to the highest ethical standards. In our attempts to grow the business, we will not lower our standards, be they credit assessment criteria or other codes of conduct. While our fundamental strategic objective is to grow the business, we will not pursue growth for growth sake at any cost.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 02, 2012 0 Comments Make a comment
Exciting year ahead
As a kid, I loved playing monopoly. It was a wonderful family activity that amused us for hours. My father typically acted as banker, my twin brother and I fought over the playing tokens while my elder sister focused on buying all the utilities and railway stations. I disliked going to jail, cheered at collecting $200 when I passed go and frowned when I had to pay rent.
While the landscape on a monopoly board never changes, the same cannot be said of the real world. The environment in which Gateway operates is constantly changing and we can’t run the credit union on the throw of a dice. If an investment we make goes bad, we can’t ask our “banker” for more play money. Our decisions must be measured and considered, particularly strategic decisions.
During this past weekend, Gateway held its 2012 Strategic Planning Conference. The board and senior management met to review the credit union’s performance over the past year and to chart our course for the next twelve months. This year’s planning conference was held against a backdrop of economic uncertainty with most advanced economies forecast to experience tough conditions in 2011/12.
While there are lots of dark clouds abroad, here in Australia we are doing better than most. Australia continues to safely navigate the prevailing economic conditions. We’ve managed to largely sidestep the woes plaguing many other nations and have one of the lowest public debt levels in the world. Additionally, we have a strong currency, a booming commodities sector and low interest rates.
But our economic scorecard is not perfect. Retailers are struggling, the building sector is in a slump, financial markets are turbulent and households are not spending. Over recent times Australia has witnessed a national stampede to build savings and repay debt. The household sector has cut back sharply on expenditure resulting in personal saving in Australia being at a two-decade high.
Australians are currently saving between 9 per cent and 10 per cent of household income. Like many Western nations, one of the biggest challenges to Australia’s economic outlook is weak consumer demand. Australians are borrowing less as house prices ease, further entrenching the culture of reducing debt as set in train by the GFC.
After 15 years of double-digit credit growth in Australia, we are now down to single digits for the foreseeable future. Some commentators have labelled the prevailing period of austerity as the “new normal”. Against this sobering backdrop, Gateway is doing very well. However, we must proceed carefully as our operating environment is challenging.
This doesn’t mean we will be throwing our hands in the air and giving up. As they say, when the going gets tough, the tough get going. Throughout the GFC - when others battened down the hatches - we continued to invest in the business and this has paid handsome dividends in terms of growth.
Downturns don’t last forever and smart companies always look beyond the prevailing turmoil. Darkness is always followed by a new dawn and we want to be in a position to take advantage of opportunities which may arise. So, we will continue to behave in a counter-cyclical way and deliberately but sensibly push ahead with our plans to continually improve what we do for members.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 26, 2012 0 Comments Make a comment
Gateway to the future
This Saturday, Gateway is holding its strategic planning conference in Sydney. This annual event gives the board and senior management an opportunity to step back from the hustle-and-bustle of daily operations and think long-term about where we want to take the credit union.
In all organisations, planning can seem a distant priority when pressure is mounting to produce immediate results. That’s why I’m excited at the chance to spend some quality time with the Board and my executive colleagues thinking strategically about our future. Strategic planning is the most effective way for a credit union to take control of its destiny to ensure its survival and ability to continue serving its members.
It may surprise you to know that few organisations live even half as long as the average person. Most die before they reach the age of 40. While there are many reasons for this, a common cause of corporate demise is the inability of organisations to adapt to change. Indeed, maladaptation to gradually building threats is so prevalent in studies of corporate failure that it has given rise to the parable of the boiled frog*.
Frogs are amphibious creatures. They can live on the land and in the water. They are cold-blooded and can adapt to almost any temperature. Whether the climate is hot and arid or cold and humid, frogs can adapt. This remarkable ability to adapt to the environment has ensured the survival of the frog throughout the ages. Yet in a laboratory experiment with frogs, something very interesting happened.
A frog was placed in a shallow pan of room temperature water. A Bunsen burner was placed under the pan and the water was heated very gradually. The frog was free to jump out of the pan at any time. As the temperature rose, degree-by-degree, the frog adapted to the new temperature. In fact, it showed every sign of enjoying itself. Unfortunately, regardless of how hot the water became the frog never became uncomfortable enough to jump out of the pan. Eventually, it boiled to death.
Why? Because the frog’s internal apparatus for sensing threats to survival is geared to sudden changes in its environment, not slow gradual change. And so it is with many businesses. Organisations tend to respond more effectively to sudden change rather than gradual. Yet attention must be paid to the subtle as well as the dramatic if organisations are to survive.
Unlike the frog, organisations must develop the ability to realise that at some point they need to stop adapting and jump out of the pan - into the unknown - and move in another direction. In a nutshell, that is what strategic planning is all about - examining change, predicting change and setting new directions to survive in an ever changing world.
Gateway has no intention of becoming a boiled frog. We understand the need to change and will continue to respond accordingly. But in changing we will not throw the baby out with the bathwater. This is in line with our overarching operating philosophy – ‘we will constantly change while forever staying the same’. It will be a case of all hands on deck this weekend as we steer Gateway to bigger and better things over the next twelve months.
* Adapted from Shaping Strategic Planning by Pfeiffer et al.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 19, 2012 0 Comments Make a comment
Education and national prosperity
Education is one of the most important investments an individual can make. It is also critical for the long-term prosperity of a nation. Levels of education and training are directly related to workforce productivity. The key to a skilled workforce is a high-quality education system. Our prosperity as a nation, therefore, rests on having schools that can compete with the best in the world.
The Federal Government’s recently released review of education funding - the Gonski report – underscores that Australia’s economy, its future and its prosperity are intrinsically tied to educating our young people. The report goes to the heart of the productivity debate with the Business Council of Australia noting that “a high-performing education system is fundamental to Australia’s competitiveness and supporting long-term productivity growth”.
Gonski wants an extra $5 billion a year for school education to reverse the decline in Australia’s school performance. In the past 10 years, Australian children have slipped from being equal second in reading among OECD countries to being equal seventh. They have also fallen from equal fifth to equal thirteenth in maths. The report warns that Australian students are falling behind their counterparts in Asia.
Prime Minister Gillard said it was impossible to achieve “the economy we will need tomorrow if we lose the education race today”. However, she refused to commit to specific budgetary measures to improve education outcomes. The government remains cautious about any spending which could derail its chances of a 2012-13 budget surplus.
The report argues that parents’ capacity to contribute financially should be taken into account when determining the level of government support to non-government schools. It is estimated that one-third of Australian parents will still pay school fees. The government cannot guarantee that private school fees won’t rise as a result of the new funding model proposed by Gonski.
Figures from the Australian Scholarships Group show the cost of putting a child through 13 years of private schooling could reach almost $500,000. Parents who choose government schooling for a child born in 2011 can expect to pay over $75,000 for their education. Notwithstanding whether the 41 recommendations in the Gonski report are eventually taken up in whole or part by the Government, education will remain costly for Australian families.
Despite the cost, an increasing number of families are committed to helping their children get a better and higher education. Today, education beyond high school is practically a necessity to build a better life. Tertiary education invariably leads to a higher paying career, more secure employment and a greater choice of jobs.
While a tertiary qualification is regarded as the pathway to success, it comes at a significant price. Australia has the third highest university fees out of all OECD countries, after the United States and Japan. Not surprisingly, one-third of Australian university students live with their parents and finish university with a HECS debt. However, this initial financial burden is more than made up by the financial gains that follow over a lifetime.
Australia’s ambition to become the “clever country” will not become a reality unless we spend more on education. Given the Federal Government's strident mantra of education as one of its highest priorities, it should move expeditiously to inject the extra funding, indentified by Gonski, into the education system.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 12, 2012 1 Comments Make a comment
Healthy retirement
A sound financial plan is essential to a happy retirement. But quality of life in retirement takes more than money. You must also focus on your cognitive and physical needs. These areas of your life are just as important as managing your finances.
I’ve never met a person who does not want to be physically active in retirement. After leaving the rat race of working life, retirees want to be well enough to pursue hobbies and interests. Yet many of us lead lifestyles which will sabotage that goal.
A healthy lifestyle today will help protect your financial well-being when you retire. Given the rising cost of health care, good health is one of the most important investments for a secure retirement. To achieve this, some rely on good genes and others good luck, whereas for the astute it’s about good planning.
There’s no shortage of experts out there who can offer you health planning advice to make the most of your retirement years. Feel free to surf the web and garner some healthy living tips from the myriad on-line self-help sites. Alternatively, you can find some good books on health and retirement.
Recently, I read such a book, albeit you may be frightened by the title. Maintain Your Brain: What you can do to improve your brain’s health and avoid dementia, reveals that lifestyle factors play a significant role in protecting your brain as you age.
According to the book’s author, Dr Michael Valenzuela, dementia is set to overtake heart disease as the number one cause of death in Australia within 30 years. Yet the main forms of dementia affecting people today are not genetic.
The good news is that there are practical steps you can take right now to help prevent dementia. The foundation stones of a brain-healthy lifestyle are physical exercise, mental stimulation and social interaction. The sooner you start incorporating these disciplines into your life the better.
“What is the point of retiring with a healthy superannuation package at age 65, say, if we’ll have become demented within five years or so?”, asks Dr Valenzuela. He goes on to say that “an ounce of prevention is better than a pound of treatment”.
His practical advice is based on years of first-hand research and experience. “Those older individuals who partake in activities with a social, physical and cognitive component tend to avoid dementia, compared to those involved in less complex or intense activity.”
With regard to physical activity, the good doctor recommends a combination of aerobic exercise (sustained activity that raises your heart rate) and resistance exercise (exerting your muscles over a short intense period of time). Physical activity that raises the heart rate and increases the body's need for oxygen has been shown to reduce the risk of dementia.
Your brain also needs a variety of activities to exercise its different parts, so intellectual pursuits like reading, brain teasers and puzzles are encouraged. Interestingly, individuals with higher levels of lifetime mental activity (via tertiary education and/or occupational complexity) have a 46 per cent lower chance of developing dementia.
Finally, participating in social activities, having a large network of friends and therefore feeling less lonely have all been associated with a lower risk of developing dementia. “The art of socialising”, writes Valenzuela, “requires a lot of thinking, planning, reacting, predicting, and so on ... that is, cognition!”.
Currently, there is no cure for dementia. However, the choices you make in midlife can help keep your brain healthy as you age. So, adopt a brain healthy lifestyle and reduce your risk of dementia in later life.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 05, 2012 1 Comments Make a comment
Memory lane and social media
In my youth I had a Malvern Star pushbike with chopper handlebars, banana seat and sissy bar shocks. Back in the 60s and 70s virtually every Sydney suburb had a hamburger shop that was run by a Greek family while the Italians invariably owned the local fruit shop. Life was great, optimism filled the air, my favourite vinyl (LP) record was Hot August Night and I used a Kodak camera.
How times have changed. Kids now ride designer bikes, McDonalds virtually wiped out the corner fish and chip shop, Neil Diamond has passed retirement age, Kodak has gone broke and Generation Y walk around with MP3 players and iPods. To quote the lyrics of 60s singer-songwriter, Bob Dylan, “The times they are a-changin”. Nowhere is this change more pronounced than in social media.
Social media is a phrase that is being tossed around a lot these days. But like leadership, there is no one universally accepted definition of social media. The omnipresence of social media is undisputed and Australia leads the world for time spent each month on social media websites. Some businesses are using social media tools to engage with their customers and to “build buzz” in a connected world. So what is social media?
Whereas traditional print media (newspapers, magazines) and electronic media (TV & radio) are a one-way broadcast of information, social media is a two-way “conversation”. The conversation occurs online and allows people to communicate, collaborate, debate and share ideas. Think of social media as a virtual coffee shop or pub where you “meet” friends for a chat.
Social media allows online communities to form quickly and people are increasingly seeking the companionship of others via these digital neighbourhoods. For example, Facebook has almost 700 million users. If Facebook were a country, it would occupy the third position after China and India in terms of population. One-third of Australians are Facebook members.
There are six broad categories of social media: blogs, podcasts, wikis, social networks (eg, Facebook), content communities (eg, YouTube) and Microblogging (eg, Twitter). These social media tools are becoming part of the marketing toolbox of businesses. Gateway was an early adopter of blogs and podcasts and these have enabled us to get more personal with members and show a more human side to financial services.
Anyone who doubts the power of social media has only to remember the strikes and protests which spread around the world last year. Using Twitter, Facebook, YouTube and other communication platforms, protest organisers quickly mobilised “flash mobs” to engage in civil disobedience. The real-time nature of social media has revolutionised popular political dissent.
Another example is a social media campaign in the US called Bank Transfer Day. It was started by a Californian woman urging consumers to take their money out of big banks and put it into credit unions by 5 November 2011 – Bank Transfer Day. According to the Credit Union National Association, the Bank Transfer Day promotion resulted in 650,000 new credit union members and $4.5 billion in new savings accounts.
Australia’s big banks may also have to brace themselves for a social media led exodus of customers. A website called One Big Switch is urging disgruntled bank customers to leave in search of a better deal. One Big Switch uses people power to force companies to lower their prices and claims that over 40,000 people have registered for its “Big Bank Switch Campaign”. (NOTE: This campaign is not without its critics.)
The power of social media is undeniable and it’s here to stay. Social media platforms are redefining human communication. We are using new tools for doing old things. The world has changed and you can’t pedal a Malvern Star down the information super-highway.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 27, 2012 0 Comments Make a comment
Interest rates: A double-edged sword
We live in a society where we have to mind our Ps and Qs. Many are now too timid to put forth and defend their viewpoints and ideas for fear of offending. Political correctness has stifled debate to the point where we are walking on eggshells and cannot honestly express how we feel. Censorship has become a restriction on freedom of speech.
British essayist, Professor Stefan Collini, believes that criticism without censorship is the most genuine form of respect. In That’s Offensive: Criticism, Identity, Respect Collini argues that one of the most profound ways to show respect for other people is by treating them as capable of engaging in reasoned argument and thus as equals in intellect and humanity.
I’d like to take a leaf out of Collini’s book and lead an open debate regarding whether we care enough about self-funded retirees. I’ve written on this subject before but it bears repeating. When interest rates rise, we lament the plight of borrowers who have to pay more. But when rates fall, we are silent about the decline in income suffered by investors.
Mortgage rates are a political hot potato, so mortgage holders receive lots of attention and sympathy when they go up. A hike in the cost of mortgages sours feelings towards the government of the day. Retailers, builders and other interest groups add fuel to the fire by blaming the Reserve Bank for their woes. And the media goes into overdrive, whipping the mortgage belt into a frenzy as part of the interest rate blame game.
Contrast the above anger with the calm which greets an easing in rates. The tabloid press does not campaign on behalf of self-funded retirees for better term deposit rates. No powerful lobby group complains about the drop in the standard of living for older Australians. And the government is not moved to encourage banks to pass through, in full, rate rises on deposits to ease the cost of living pressures on seniors.
Around 1.6 million Australians live off investments and interest income. As more baby boomers retire over the next decade, a greater portion of society will become self-funded retirees and will welcome higher rates. Self-funded retirees were hit hard by the Global Financial Crisis. This group saw their superannuation capital plummet in the stock market downturn, yet they receive little support from government.
Many older Australians have worked hard and saved prudently to achieve self-sufficiency in retirement. They are responsible citizens who are to be applauded for standing on their own two feet. They are not a burden on the social security system as they reside outside the community of aged-pensioners requiring government assistance.
So, next time interest rates fall, spare a thought for the hardship this creates for the senior members of our society. It’s true that housing affordability and mortgage stress are real issues for younger Australians. But it’s equally true that older Australians suffer in a low interest rate environment due to falling income streams.
Finally, it’s important to remember that interest rates go down when times are tough and rise when the economy is going well. Who wants to continually live in tough economic conditions? Let the good times roll!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 20, 2012 2 Comments Make a comment
What fuels petrol prices?
Some things in life are a mystery. Petrol prices fall into that category. Many find it difficult to explain why the price we pay at the bowser fluctuates daily. While most motorists know there is a price cycle, many question why petrol prices shoot-up just before long weekends and holidays.
To understand how the local pump price for petrol is calculated, we firstly need to look at global forces. Three international factors drive the wholesale price of petrol in Australia - the world price of crude oil, the petrol price in Singapore and the value of the Australian dollar. Let me explain each in turn.
The single greatest factor influencing Australia’s petroleum prices is the cost of crude oil which is measured in barrels. The international price of crude oil accounts for around 50 per cent of the domestic price we pay per litre at the service station. As the cost of a barrel of crude oil has risen dramatically over recent years, so have retail prices.
But crude oil is not the product you buy at the pump - it’s simply an ingredient in the petrol production process. Just as a paper mill turns timber into paper, a refinery takes crude oil and earns a “refiner margin” for turning it into petrol. Ninety-eight per cent of Australia’s total fuel requirements are controlled by four refiners - Shell, Mobil, Caltex and BP.
The petrol they refine is an internationally traded commodity whose price is largely determined by movements in global markets. Petrol prices in most countries are established with reference to the relevant refined petrol benchmark price. Australian retail petrol prices closely follow the Singapore Mogas 95 Unleaded benchmark, which is the price of refined petrol in Singapore.
The international benchmark prices of crude oil and refined petroleum are typically traded in US dollars. Thus, the value of the exchange rate between the USD and the local currency influences the retail petrol price. The recent strength of the Australian dollar has protected consumers from the effects of higher international petrol prices.
The next factor to be added to our wholesale fuel price breakdown is government taxes. There are two components to petrol taxes - a fuel excise and GST. All petroleum fuels in Australia attract an excise tax of 38.143 cents per litre and this represents the second-largest component (25-30 per cent) of the price of petrol in Australia. GST is also applied to the total price, at 10 per cent.
When all of the above components are added together, the price is referred to as the Terminal Gate Price (TGP). The TGP is the wholesale price for petrol in each Australian capital city but does not include distribution costs and retail margins.
With regard to distribution, once fuel leaves capital city ports it’s sent to rural and metropolitan areas. A large part of the increase between retail and wholesale prices is the transport cost of getting the fuel to the bowser which is why fuel prices are generally higher in rural and remote areas.
Finally, competition also accounts for variances in retail prices and this is what drives the daily fluctuations you see at the bowser. Petrol retailers discount prices to gain additional sales volume. Competitors respond and prices spiral down until they reach unprofitable levels. The market then corrects itself by ceasing or reducing the discounts.
This “normal pricing” holds only for a short while until someone starts the discount price cycle again. The big retailers, Coles and Woolworths, are key players in these price wars and it is claimed they are killing independent service stations.
With 90 per cent of Australian households keeping at least one registered vehicle in their garage or dwelling, petrol prices directly impact most Australians.
I trust I have given you an insight into the dynamics of the petroleum industry and the fuel price cycle. Good luck in your search for “cheap” petrol.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 13, 2012 0 Comments Make a comment
The Power of Nice
Have you ever attempted to change lanes and another driver deliberately speeds up to block your path? Conversely, have you tried to merge and had a driver slow down and wave you in? The first driver’s selfishness will make you grimace while the second driver’s kindness will bring a smile to your face.
In all walks of life, seemingly trivial acts have a marked impact on those around us. Yet, in the hustle and bustle of everyday life we sometimes forget the common courtesies like saying “please” and “thank you”. Being nice to other people makes you a better person and it’s also good for business.
At Gateway, we understand that small courtesies can make a big difference. Kind gestures create satisfied members and result in repeat business and long-term sustainability. Our business etiquette is based on turning common sense into common practice because it’s the little things that matter.
I always return ‘phone calls and honour commitments I make and have instilled these disciplines into the entire Gateway team. Respect for others starts at the top which is why I treat employees with respect so that they, in turn, will emulate this behaviour to members.
Of course, we are not the only organisation to work out that manners are the foundation stone in building relationships with employees, customers and other key stakeholders. All organisations intuitively know that bad manners can be deadly to their reputation and bottom line.
Over the recent holiday period I read a book that proves a little kindness goes a long way. The Power of Nice: How to Conquer the World with Kindness debunks the myth that nice guys finish last. Co-authors Linda Kaplan Thaler and Robin Koval offer their success in the cut-throat world of advertising as evidence that nice gals can finish first.
Thaler and Koval believe that being nice has made their company one of America’s fastest-growing advertising agencies. “Our success was won not with pitchforks and spears, but with flowers and chocolates. Our growth is the result not of fear and intimidation, but of smiles and compliments.”
In our dog-eat-dog world, we are taught that the best way to succeed is to take as much as we can for ourselves. The authors, however, argue that life is not a zero-sum game. “There’s no need to squabble over who gets the biggest piece of pie - we just have to bake a bigger pie.”
The authors note that behaviour in the business world is often ruled by the law of the jungle. “But cooperation is as much a successful strategy for the boardroom as it is for hunting down prey”, Thaler and Koval contend. They go on to write that “helping your opponent can be one of the most valuable things you can do for yourself”.
Something I have long believed is that the workplace should be light-hearted. To this end, one of our corporate values at Gateway it to “have fun”. The authors cite research on the beneficial effects of humour and reveal that “…workplace jokes and laughter help to stimulate employee creativity and improve communication and trust”.
The book is packed with great examples of how being nice literally pays off. The authors challenge the mean-spirited “me or you” mentality, showing with real-life examples that “nice” companies have lower employee turnover, lower recruitment costs and higher productivity.
Being nice has helped propel The Kaplan Thaler Group to the top of its profession and is central to our success at Gateway. We know the golden rule in successfully dealing with people is to treat others as you want to be treated. With a sector-leading 95 per cent member satisfaction rating, “being nice” has certainly paid off for Gateway.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 06, 2012 1 Comments Make a comment
See the world anew
How tall are you? If you are a baby boomer like me there’s a good chance your answer will be in imperial measures. Even though Australia introduced metric weights and measures in 1970, I still refer to my height as 5 feet 8 inches. This is a tangible demonstration of the concept of “first in stays in”.
Once we get something in our minds, it’s hard to change. This is constantly borne out in research we do with members. On an annual basis Gateway conducts a survey to track how it’s going in meeting members’ needs. We also conduct ad-hoc research to ascertain the attitude of members to various product and service initiatives.
Regardless of the type of research we do, one thing never changes: Many members believe that membership of Gateway is available only to employees of the Commonwealth Bank or Reserve Bank. This was true in the distant past when we had what was called a closed or restrictive bond of membership. But that has not been the case for many years.
Anyone can join a credit union and everyone should, particularly this year. Credit unions are financial co-operatives and the United Nations has designated 2012 as the International Year of Co-operatives in recognition of the important contribution of co-operatives worldwide to social and economic development.
A co-operative is a democratic organisation owned and controlled by the people it serves who voluntarily join together for a common and mutual benefit. Co-operatives are not motivated by profit but exist solely to serve the needs of their members who believe in the ethical values of honesty, openness, social responsibility and caring for others.
All members of a co-operative have an equal say in the running of the enterprise which employs a one-member, one-vote process of decision making. There are many types of co-operatives including agricultural co-ops, credit co-ops, housing co-ops and education co-ops. Together, they act to build a better world.
The UN acknowledges that co-operatives drive the economy, respond to social change and are successful businesses creating jobs in all sectors. UN Secretary General, Ban Ki-moon, believes that “co-operatives are a reminder to the international community that it is possible to pursue both economic viability and social responsibility”.
The global co-operative movement brings together over one billion people as members around the world and provides over 100 million jobs. The UN estimates that the livelihood of nearly three billion people is made secure by co-operative enterprises. If co-ops were a country, they would be ranked tenth in the world for GDP - just behind Spain.
In Australia, there are two million more member-owners of co-operatives and mutual businesses than there are private retail investors. Australia’s 2,000 co-operatives and 108 mutual banking institutions are owned by more than ten million Australians. Australia’s mutual banking sector (ie, credit unions and building societies) is the third largest in the world after the US and Canada.
Gateway is delighted to join the global co-operative movement in celebrating the International Year of Co-operatives.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, January 30, 2012 0 Comments Make a comment
Happy New Year 2012
WELCOME to my first blog post for 2012. It’s great to be back on-line. I trust you had an enjoyable festive season. It was a busy time for my family. Bev and I have six (adult) children between us and five of them returned to the nest for Christmas. The remaining sibling had commitments in London, where she now lives and works.
This time of year sees many of us setting worthy goals for ourselves. It’s a time to reflect on the changes we want to make in our lives. Many people make bold New Year promises but do not stick to them. According to Time Magazine, losing weight and getting out of debt are two of the most commonly broken New Year’s resolutions.
We all know it’s easy to set goals but much harder to achieve them. Rome wasn’t built in a day, so don’t try to cure all your faults and bad habits in one year. If you want to turn over a new leaf, pick one area of change and put in place a sensible plan to achieve that goal.
When it comes to financial matters, it invariably takes time and discipline to achieve your dreams. If you want to buy a home, start a regular savings plan and stay focussed on the end goal. Similarly, if you want to avoid impulse buying, prepare a budget and stick to it.
One goal worth pursuing is to live free of credit card debt. Many Australians are reliant on “plastic money” to supplement their income. But credit cards provide only temporary relief. At some stage, the piper has to be paid. You can’t live beyond your means forever.
Credit cards cause many people to overspend. Once you get hooked on credit, it’s hard to break the habit. Only making the minimum monthly payment is a classic credit card trap. If you can’t pay off (or significantly reduce) your credit card debt, you can’t afford your current lifestyle and may need to change your spending habits.
If you’re feeling the pinch, there are things you can do. Take your lunch to work every day. Don’t eat out more than once a month. Save coins in a jar. Switch financial institutions. Turn off the lights. Reduce your soaring mobile phone bill. In short, purchase needs not wants and learn how to stretch a dollar until it screams.
You’ll enjoy the New Year more if you are free of money worries. So, keep an eye on your credit throughout the year. Lower the limit on your credit card. Don’t carry multiple credit cards. Where possible, pay cash and/or use a debit card. And if you’re having trouble paying your bills, contact your creditors straight away.
Wishing you a prosperous 2012.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, January 23, 2012 0 Comments Make a comment
The Night Before Christmas 2011 - parody
‘Twas the week before Christmas and all through the press,
Commentators were opining, Europe’s still a mess.
As the year draws to a close, economic problems remain,
So how do we really help Greece, Italy and Spain?
The ancient city of Athens, once a thriving metropolis,
If it gets any worse, they’ll have to sell the Acropolis.
It’s the season of giving, beware of Greeks bearing a gift,
The lesson is tough, they must learn habits of thrift.
Italy’s also in trouble, Berlusconi left in a pickle,
Due to poor fiscal restraint and some slap and tickle.
Dogged by controversy, Italians tolerated Berlusconi’s behaviour,
However he turned out to be, not their deficit-reduction saviour.
Now a nightmare before Christmas befalls many a European nation,
As they ponder the possibility of a Eurozone separation.
If the Euro-family stays together, that would be jolly,
But as the squabbling continues, wishing for peace seems a folly.
Meanwhile Australians rejoice ‘cause our economy’s safe and strong,
We’re ahead of the pack, by a confident and clear furlong.
While the rest of the world grapples with unsustainable debt,
We’re really powering ahead, so there’s no need to fret.
A coveted and prestigious title was bestowed on Wayne Swan,
Voted world’s best treasurer for stewardship deemed spot-on.
Australia dodged a recession and kept the wolves away,
Sound economic management, from this path we must not stray.
For Gateway the year has been one to remember,
Winning awards and accolades through to December.
We set the bar high, punching above our weight,
Due to determination and teamwork, the results are great.
To the extended Gateway family, the Yellow Brick Road team,
Thanks for your efforts, which were really supreme.
By working together we’ve challenged the big banks,
They now know there’s competition among their ranks.
Now management, now staff and readers of this blog,
Santa’s arrival is imminent, so I will leave you agog.
At this time of year, the child in all of us starts to wonder,
The magic of Christmas, peace and goodwill down-under.
As I sign off for Christmas I thank each and every Member,
It’s been a pleasure to serve you, right through to December.
May the joy of the season fill your home on Christmas Day,
As we smile and gently whisper “Merry Christmas” from Gateway.
FOOTNOTE: This is my final post for the year. I hope I have kept you informed and entertained during 2011. I’m taking a short break from my blogging duties and will be back online on Monday 23 January 2012. Have a great New Year.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 19, 2011 6 Comments Make a comment
Year in review
Next Monday, I will publish my final blog post for 2011 and it will follow an established seasonal format. In what has quickly become an end-of-year tradition, next week’s post will be the latest instalment in my annual Night Before Christmas parody series. I wrote my first Christmas parody in 2008 and followed that up with further parodies in 2009 and 2010.
It’s good to finish the year on a light note, particularly as the past twelve month period has been challenging on many fronts. Mother Nature wrecked havoc in the form of tsunamis, earthquakes and floods. Human nature was just as unsettled, driving a wave of civil unrest around the world which turned city streets into unruly places.
We witnessed protests in Greece, revolts in Spain, strikes in Portugal, riots in London, rebellions in North Africa and a revolution in Egypt. On top of this, the Occupy Wall Street Movement spread rapidly across the world like wildfire. From Seattle to Sydney, demonstrators took to the streets to voice their anger at what they see as financial and social inequality.
History teaches us that when revolutions take place, they are often hijacked by militant and extremist elements. This is what happened with the leaderless Occupy Wall Street Movement which offered no official set of demands. As far as I can work out, the Movement is against corporate greed and for economic justice.
In a year in which uprisings have gone global, the $64 question is “why”? While each demonstration stems from divergent causes, I believe one common thread is a lack of economic growth. Younger people, in particular, have rallied against austerity measures and used social media networks to effectively organise themselves against authorities.
In good times - when people have jobs and can get ahead – the populace will tolerate inept governments and corporate excesses. But when the masses are suffering economic misery – limited job opportunities, bleak prospects and welfare cuts – they need to hold someone accountable for their pain. Social tension and unrest is now palpable throughout the world.
It is difficult to say how long this global discontent will continue, but what is clear is that individual protests feed off each other. A successful protest in one area spreads confidence that similar mass action will work elsewhere – even across national borders. This ripple effect was evident in the riots that started in London and spread quickly to other British cities.
Another root cause of the social upheavals is globalisation. The globalisation of information enables “protest fever” to spread rapidly across continents. Using Twitter, Facebook, YouTube and other technology platforms, protest organisers can quickly mobilise “flash mobs” to engage in civil disobedience. The real-time nature of social media has revolutionised popular political dissent.
A further impact of globalisation is interdependence. We now live in an interconnected world where nation-states are sensitive and vulnerable to events in far-away places. No country is insulated from what is happening elsewhere. We saw this during the Global Financial Crisis (GFC) where problems in the US sub-prime mortgage market created a global ripple effect.
A similar domino effect occurred with the Greek Sovereign Debt Crisis, which has degenerated into a systemic crisis of the Eurozone. The Greek contagion has spread to Italy and other European nations may well fall victim. Deep divisions have emerged between the Eurozone’s 17 member countries. Germany’s stance has fuelled anger among citizens in Greece and Spain who are unhappy with the austerity measures demanded by Berlin.
It’s clear we are living through very challenging economic times and have entered a new era of civil unrest. The middle class has become revolutionary. Workers are outraged at the lack of economic opportunity. Citizens feel betrayed by their political representatives. World financial markets are alarmed and European unity is under threat.
With the European Union recently warning that the Eurozone could slip back into recession, 2012 is going to present further social and economic challenges. On-going austerity will likely fuel a fresh wave of mass rallies. In many parts of the world, peace and prosperity in the New Year will be elusive. It’s a shame that the upcoming season of goodwill will be so short-lived.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 12, 2011 0 Comments Make a comment
Economic leadership challenge
There have been more books written about leadership than any other management topic. Yet there is no universally accepted definition of leadership. Leadership means different things to different people - no one can quite get a precise handle on it. And, of course, there’s the age-old question: Are successful leaders born or made?
Clearly, leadership is not an exact science but it’s applicable to all facets of life. All of us are leaders as parents, teachers, citizens, employees and so on. One of the traits of leadership is the capacity to make things better and to influence outcomes. To this end, I believe everyone should feel empowered to drive change and improve what they do.
I have two fundamental beliefs about leadership. First, leadership is not a popularity contest. Effective and decisive leadership means making unpopular decisions at times. I’ve had to make a few here at Gateway but people respect you in the end for making the right choice. Leadership is about getting results and every decision I make is based on what I genuinely believe is right for the business and our long-term success. My job requires me to champion and lead change and this sometimes takes people outside their comfort zones.
Second, leadership is about role modelling. As a leader you must set an example and practise what you preach. You will never earn the respect of people if you say one thing and do another. Leaders have a primary role for developing, communicating and living the values and ethics that define an organisation or indeed a nation. My personal conduct as CEO establishes expectations and standards that shape the culture at Gateway.
Now that you know my thoughts on leadership, please allow me to share another observation with you - leadership is non-hierarchical. The focus of the leadership literature is invariably on those who reach the top of the tree and this has blinded us to the true nature of leadership. An organisational title, such as team leader or manager, may confer some hierarchical authority but it does not of itself make you a leader.
The core competency of leadership is character and this largely relates to honesty and integrity. Your character says more about your leadership qualities than a title ever will. Good leaders are also humble – they develop strong relationships, they help others succeed and they serve rather than rule. For this reason, I believe one of the best books ever written on leadership is Servant Leadership by Robert Greenleaf.
Servant Leadership puts serving the greater needs of others as the primary goal of leadership. Servant leaders serve others by investing in their personal and professional development, which is why we have a heavy focus at Gateway on training and learning. Within a servant leadership framework everyone is part of a team working to the same end.
At the end of the day, you don’t need to be a larger-than-life individual to be a leader. But you do have to be authentic and trustworthy and this is where many leaders fall short. The Global Financial Crisis discredited the leadership and management practices of many financial institutions around the world and the current Sovereign Debt Crisis has exposed a large deficit in political leadership.
Politicians and regulators, driven by the maxim - never waste a good crisis – have moved swiftly to bring in new rules and regulations to prevent further economic crises. But as I argued in a previous post, Corporate governance and the credit crisis, the real issue is one of leadership and that is a far more difficult problem to solve.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 05, 2011 0 Comments Make a comment
Tough at the top
My daily trawl of business news often throws up topics which I subsequently blog about. If current events fail to provide me with interesting blog content, I turn to writing an on-line book review. Finally, if I’m still stumped for content I rummage through my home library for potential ideas. This tried and proven formula has enabled me to write a blog post each week for the past three-and-a-half years.
Last week, however, as I sat in front of my computer to write this, my 171st post, I found myself staring at a blank screen. Despite my best efforts to force ideas to start the creative juices flowing, nothing came to mind. Just as I was beginning to become frustrated at my lack of progress my PA, Marisa, walked into my office. Marisa was doing a clean-up of some old business magazines and cut out a story she believed might be of interest to my readers.
Marisa handed me a feature article titled, The big cheese: Everyone knows it’s no fun becoming the boss. I eagerly accepted the cut-out from Marisa as I was keen to learn about life at the top. The article’s opening sentence brought a smile to my face - “A good manager is confident and communicative”. Well thanks for the compliment, Marisa, I thought to myself. A couple of paragraphs on, however, my smile turned to a frown when I read that “staff are not laughing at your jokes, they’re laughing at you”.
Boy, this took me by surprise and I immediately started reflecting on all the corny jokes I’ve told while at Gateway. Was Marisa trying to give me a message? I thought things could not get worse until I read about the spate of very public executive shamings. “It does beg the question”, the article said, “what kind of person wants to become a manager”. At this stage, I thought perhaps I should rethink my career path.
Like a wounded general, I kept marching through the word mind-field bracing myself for the next explosive revelation. But no more hand grenades were lobbed my way. In fact, the brickbats about bad bosses were replaced by bouquets about good leaders. I learnt that 60 per cent of employees believe the most respectable quality in a boss is the ability to help others succeed. “A range of qualities contribute to successful leadership, but one of the most important is the ability to bring out the best in others,” according to a quoted recruitment expert.
The article ended with words of wisdom from another HR expert. “Great managers know they have to tap into employees’ self-interests. You need to show them how the business goals align with their personal goals and how their contribution benefits them and the organisation.”
Thanks for the article, Marisa, - much appreciated. Hopefully, I’m doing more things right than wrong. For my blog post next week, I intend to share with you my own views about leadership. Meantime, I promise to ease up on the corny jokes!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 28, 2011 0 Comments Make a comment
Can't change the past
Call me a Luddite, but I still shop for books in person at bookstores. Yes, I know I could go online and buy over the Internet. But as I explained in a previous post, A library without books, I love the smell and feel of books. Moreover, one of the benefits of visiting a bookstore is that you are exposed to titles outside your normal reading genre.
I know from experience that walking the aisles of a bookstore invariably means I’ll discover something new or different. This occurred a few years ago when I was passing the popular science section and the protruding spine of a book with the provocative title, How to Build a Time Machine, piqued my interest. After thumbing the pages, I tentatively decided to buy a copy.
Written by internationally acclaimed Australian physicist, Paul Davies, How to Build a Time Machine is a light-hearted, tongue-in-cheek look at whether it’s truly possible to build a machine that could transport a human to a different time. In theory, it can be done as long as you can construct a spaceship that can travel very close to the speed of light.
Davies explains that in an obvious sense we are all time travellers. “Do nothing”, he writes, “and you will be conveyed inexorably into the future at the stately pace of one second per second”. But to leap forward dramatically in time to reach the future sooner “you need an effective time machine”. So, according to Davies, we can travel forward but what about backwards?
Davies believes that “travel into the past takes on an air of absurdity” as it would create “time travel paradoxes”. He cites the example of a time traveller who goes back in time and murders his mother. “If (the) mother dies before giving birth, then the time traveller would never have existed. But in that case he would not be able to carry out the murder.”
Even though we can’t change the past, we humans have a tendency to “live” in the past. All of us have done things we wish we could do over. We have experienced embarrassing moments and made mistakes. How many times do we ask ourselves “If only I’d...” or “I should have...”. Alas, all the “what ifs” in the world can’t undo the choices we made yesterday.
George Washington wrote: “To rectify past blunders is impossible, but we might profit by the experience of them.” In the same vein, I’ve often heard it said that there are no mistakes in life, only lessons. My own view is that everyone has the opportunity to start fresh every single day and this certainly applies to one’s finances.
Bad financial decisions can ruin your life and hurt those around you. In our must-have, consumer orientated world it’s easy to get caught in a web of unnecessary borrowing. Taking out a second credit card, buying the latest electronic gadgets, upgrading to the newest model vehicle and going on unaffordable holidays are common traps that in some cases lead to bankruptcy.
There’s no doubt that poor financial decisions can come back to haunt you. In hindsight, you might regret some of the choices you made. The trick is not to repeat imprudent practices. As prevention is better than cure, here are some simple dos and don’ts to effective money management.
• DO maintain a household budget to track your spending, pay down debts and cut out wasteful discretionary expenditure.
• DO save for a rainy day and put away at least three months worth of living expenses in case of emergency.
• DO take out appropriate insurances to cover unforeseen events like loss of income or damage to property.
• DON’T take on “bad” debt to finance day-to-day lifestyle purchases or impulse buying on credit cards.
• DON’T put all your eggs in one basket but reduce risk by investing in a variety of assets.
• DON’T invest in things you know nothing about and be wary of get-rich-quick schemes which offer too-good-to-be-true returns.
Here’s to a bright financial future.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 21, 2011 1 Comments Make a comment
Europe’s turmoil: Greece is the word
Many English words in common use today derive directly from the Greek language. The English language is figuratively indebted to the Greek. How ironic then that Greece is now literally indebted to much of the English speaking world. Using words whose etymology is from ancient Greece, we can describe what is happening in modern day Greece.
When the ancient Greeks invented the word “crisis” they had in mind a short period of acute stress. The current sovereign debt crisis has been dragging on for over a year and there’s no end in sight. The problems facing Greece are “colossal” (from the Greek word colossus meaning giant human statue) and solving them will require a “herculean” effort (from the Greek mythic hero, Hercules, son of Zeus).
The Greek government is in “chaos” (meaning state of confusion, opposite of cosmos) and one cannot rule out the possibility of Greece’s exit or explosion from the Eurozone. In ancient Greek mythology, Europa was a maiden princess seduced by the king of the gods, Zeus. This saga, known as the Rape of Europa, mirrors the turbulent relationship between Greece and the rest of Europe.
Anti-Greek sentiment has spread throughout Europe with the Germans particularly angry they are being forced to pay for a nation they believe has over indulged. For their part, the Greeks are unrepentant for living beyond their means (spending and borrowing too much) and have taken to the streets in anti-austerity protests and rolling mass strikes.
“Marathon” talks (another Greek word) among Euro leaders at the recent G20 meeting in Cannes failed to come up with an acceptable rescue plan. There have been three “comprehensive solutions” so far this year. To paraphrase The Economist magazine, European leaders have been using an “inadequate financial slingshot” and not a “big bazooka” in trying to save the Euro.
Greek Prime Minister, George Papandreau, lobbed a diplomatic hand grenade into the G20 conference. He threatened to submit the European rescue deal to a referendum, but in the face of huge opposition withdrew the call to put it to a popular vote. Meanwhile, the European press is running stories about Greece’s exit from the Euro and plans for printing the new drachma.
Greece is now virtually an economic corpse. Ireland has received a bailout. Portugal, Italy and Spain are also drowning in an ocean of unsustainable debt. The European sovereign debt crisis threatens global economic stability. The head of the Bank of England referred to it as “the most serious financial crisis at least since the 1930s, if not ever”.
Australia is not immune from what is happening in Europe with the Reserve Bank of Australia warning last week that our economy could be dragged down by Europe’s sovereign debt crisis. We are seeing signs of weaker household and business confidence and the crisis is expected to push up the cost of funding for banks and other financial institutions.
While many have tried over the past year or so to find a solution, no one can be given “kudos” (yet another Greek word) for solving this mess. Many are saying it is a failure of leadership. Aristotle believed that great leaders use logos (logic), pathos (emotions) and ethos (values) to communicate effectively and persuasively. Perhaps our modern day leaders require lessons in how to employ all three of Aristotle’s rhetorical elements.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 14, 2011 1 Comments Make a comment
Money Plus or Minus Happiness Equals Life
Most scientific laws can be expressed in concise mathematical equations such as Einstein’s E=mc2. These equations underpin universal laws which describe how the physical universe functions in a predictable and repeatable way. The speed of light is constant. The planets circle the sun in stable orbits. Magnetic needles always point north. Energy is never lost.
Outside the realms of science, I am unaware of any “laws” which are absolute, definitive truths. Yet many self-appointed experts claim there are universal laws for success and achievement. These so-called laws or theories are based on words which, unlike numbers, cannot be precisely tested. Numbers and formulae distinguish true science from hocus-pocus.
When it comes to money, there’s a gaggle of gurus who postulate some magic formula for building wealth. The harsh reality is there’s no off-the-shelf, mathematical recipe for financial success. Unlike Newton’s Laws of Motion or Einstein’s Theory of Relativity, money management is not an exact science. In fact, it’s a very personal thing which mirrors the way we live our lives.
Some people are defined by money and do everything within their power to increase their net worth. Others see money as merely a means to an end and seek a deeper form of wealth in life. Aiming to be the richest person on the block or the happiest is clearly an individual choice.
Regardless, you need a financial plan to turn your goals into reality - you just can’t leave it to fate. You must have two hands firmly on the driver’s wheel of life and steer in the direction you want. All of us must take responsibility for being in control of our lives.
The business maxim – “If you fail to plan, you plan to fail” – is equally true when it comes to personal money matters. Financial plans differ depending on where you are on life’s journey. Those just starting their working years will have big picture dreams while those approaching retirement will likely have more modest aspirations.
At the end of the day, everyone wants to be happy. We all know there is some connection between money and happiness. But research shows that once you have enough money to meet your basic needs – food, clothing, shelter and maybe even an annual holiday - incremental increases in income have little effect on your happiness.
Recently, I read an interesting article which suggested that money used to buy memories rather than things, creates the greatest happiness. Apparently, splurging on a vacation makes us happier than indulging on a car. Equally, taking a friend to lunch will make us happier than buying a new outfit. Now there’s some food for thought!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 07, 2011 0 Comments Make a comment
Big fat savings tax
As expected, the recent two-day Tax Forum in Canberra delivered little. The Government promoted the Forum as “...an opportunity to hear from all parts of the Australian community about the future of our tax and transfer system.” In line with this, the Forum was largely a talkfest with the welfare sector, business groups, tax experts, union representatives and other interest groups using it to promote their ideas.
Predictably, the government was pulled in a dozen different directions with delegates pushing their own agendas. In acknowledging that changing the tax system is very difficult, Queensland Treasurer, Andrew Fraser, told reporters: “I think tax reform is a bit like world peace - everyone agrees with it, but the prospects (of it happening) are actually fairly remote”.
While no policy will flow from the Forum, the Treasurer announced there would be more inquiries into issues raised by participants. One of these was championed by Abacus - the industry association for credit unions and building societies - and relates to the easing of the tax burden on savings deposits. Deposits with banks, building societies and credit unions are the simplest and safest savings vehicle for all Australians yet they are the most heavily-taxed.
The Henry Review into Australia’s taxation system found that a taxpayer on the 46.5 per cent marginal tax rate pays an effective tax of 80 per cent on deposits. Australians don’t like being taxed twice - once on their income and then again on the savings interest they earn. Little wonder, then, the Henry Review found that less than 4 per cent of household wealth is held in accounts with banks, building societies and credit unions.
As for my own self-interested position, I would like to see tax breaks for household savings. The current system doesn’t give enough incentives for workers to put money in savings accounts. A bigger pool of deposits would mean a more competitive banking market as deposits are one of the main sources of funding for competitors to the major banks. Heavy taxation discourages domestic savings and pushes up the cost of funding for home lenders.
Recommendation 14 of the Henry Review proposed a 40 per cent savings income discount to individuals for non-business related net interest income. Thus, a taxpayer who earns $100 in interest would only see $60 of that taxed. The remaining $40 would be tax-free. If implemented, this tax concession could potentially generate billions of dollars in additional deposits, thereby reducing the need for lenders to borrow overseas to fund local home purchases.
Now, I would have thought that a recommendation to reduce marginal tax rates on savings to help fix a structural issue with the funding base of banks and other financial institutions (ie, they lend out more than they generate through deposits) would be keenly embraced by government. Alas, this was not the case. As it turns out, the issue which did capture some headlines was a suggestion to introduce a “fat tax”.
Green’s leader, Bob Brown, said Australia, like Denmark, should tax foods which are high in saturated fats to curb the nation’s growing obesity problem. Hmm…just let me munch on that weighty idea for a while. Ok, well I’m not sure I can sink my teeth into that one! My suspicion is that a fat tax has a fat chance of curbing the growing waistlines of Australians.
When it comes to obesity, food is only half the problem - the other is lack of exercise. Kids are stuck to their computers in lieu of running around the backyard and we adults drive our cars around the block instead of walking. I know there’s a trend towards using tax systems to change behaviours (eg, poker machine tax, carbon tax, road congestion tax), but I’m not convinced a fat tax will get us off our backsides.
Obesity is a complex issue that requires a comprehensive approach. It seems to me that an “economic incentive” to reduce obesity is a piecemeal initiative (excuse the pun). Helping make citizens healthier must also involve better education, improved labelling and changes in food marketing. It will be interesting to see the results of the Danish fat tax experiment.
Meanwhile, I remain more concerned about our economic figures and the wellbeing of our economy. The Henry Review provided the government with a wealth of good ideas for tax reform to facilitate a more productive economy. Making four out of every ten dollars earned in interest tax-free will help improve our economic pulse and that’s got to be good for the health of the nation.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 31, 2011 1 Comments Make a comment
Changes in work and service
My 60s childhood brought me into contact with a raft of people whose jobs no longer exist. It’s been a very long time since I last saw an advertisement for a milkman, paper boy, petrol pump attendant, typewriter repairer, bus conductor, switchboard operator, toll collector or elevator operator. These jobs of yesteryear largely became obsolete due to technology.
In contrast, today’s school leavers have an exciting array of occupations to consider including web designer, computer engineer, social media manager, internet cafe attendant, biomass plant technician and molecular biologist. We already have self-driving trains and factories that almost need no human hands. In the future, we might have space pilots, robot mechanics, gene screeners, human organ developers and hydrogen fuel station managers.
Due to technology nothing is forever anymore and the nature of work will continue to change. Yet work will remain central to our lives. Work provides us with an income to meet our material needs as well as giving us a sense of purpose and identity. Which is why we are invariably asked, “What do you do?” when we meet someone for the first time.
The shift to automation has reduced the nostalgic human touch and the service industry, in particular, is under fire for its heavy reliance on self-serve delivery systems. From banks encouraging us to use ATMs to petroleum companies forcing us to pump our own petrol, consumers are now part of the production process.
The key to success in this brave new world is for businesses to combine “high-tech” with “high-touch”. In the financial services sector we bank on technology (excuse the pun!) to provide customers with 24/7 access to their money. But clever institutions combine Internet and online wizardry with personalised service to stand out from the crowd.
At Gateway, we use high-tech processes to let Members lodge a loan application over the web with little fuss or bother. But we follow up with a friendly call to acknowledge receipt of the application. While some companies use technology - like automated ‘phone systems - to shield themselves from customer conversations, we actually encourage them.
This blog is another example of high-tech/high-touch and proves that social media is no longer just for teenagers. I use this blog to engage directly with Members and potential Members and to make a human connection. As an aside, my blog posts are uploaded weekly by my Online Content Manager - a job that did not exist a decade ago!
We live in a world where the Internet never closes and customers expect to find what they want online. With most websites offering faceless information, Gateway is trying to differentiate itself. Blogs add personality to a website and we want to use our online voice to engage and educate Members and become recognised as a thought leader.
I acknowledge that many people lament the passing of “old fashioned” service. However, as a CEO, I understand why businesses have introduced efficient, quick and almost clinically streamlined service. The challenge for business is to automate with a personal touch and that’s our goal at Gateway.
Our aim is to provide personal service in an impersonal world and this starts with me. In any organisation the CEO sets the tone, articulates the service philosophy and demonstrates commitment to customers. In short, leaders must be examples of excellent service and I do this through a combination of high-tech and high-touch.
Any Gateway Member can email me directly. A “Contact Paul Thomas” button is prominently displayed on our website. People use it to send me feedback and/or make inquiries and they always receive a prompt response. This email brings the voice of the customer into the organisation and assists us in better understanding the needs of members.
For those longing for a return to bygone days, do not despair. I believe it’s still possible to have an interaction between two people that creates a meaningful experience. Customer service remains number one at Gateway and we have no intention of throwing out the baby with the technology bathwater.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 24, 2011 0 Comments Make a comment
Happy Credit Union Day
Since 1948, credit unions around the world have set aside the third Thursday in October to celebrate International Credit Union Day. This international day of observance brings people together to reflect upon their cooperative history, their credit union achievements and to promote the credit union idea across the world. The theme for International Credit Union Day 2011 is “Credit Unions Build a Better World”.
With over 45,000 credit unions in 97 countries, International Credit Union Day is an open invitation to more than 184 million members to share the credit union experience. Celebrations in different countries take place in many forms. In Australia, International Credit Union Day will be celebrated as part of Credit Union Week.
The worldwide credit union movement traces its origins back to nineteenth century Germany and a man named Friedrich Wilhelm Raiffeisen. During a famine in 1846/47 Raiffeisen, the mayor of a rural village, was appalled by the activities of moneylenders and their treatment of peasant farmers. The farmers were facing financial ruin as a result of a severe drought. The exorbitant financing rates required by opportunistic lenders prevented the farmers from borrowing money to help them survive the crisis.
In response, a group of landowners under the guidance of Mayor Raiffeisen banded together, pooling their money to provide low-cost loans to their fellow farmers in need. The interest on the loans provided a dividend for the savers’ investment. Thus, the first credit cooperative was born. After a slow start, other Raiffeisen credit societies or “village banks” began to spring up all over Germany.
The concept of people helping people found universal appeal and credit unions took roots in other lands. The first American credit union was established by Alphonse Desjardins, a Canadian journalist, who in 1900 founded a caisse populaire (people’s cooperative bank) in Quebec. In 1909 Desjardins formed the first credit union in the United States. This attracted the attention of American businessman, Edward Filene, who was first introduced to financial cooperatives in India in 1907.
A wealthy retailer, Filene was also an innovative man who looked for long-term solutions to widespread problems. He became convinced of the value of credit unions and personally donated more than $1m to help organise credit unions throughout the US. In 1920 Filene hired a charismatic lawyer, Roy Bergengren, to be the managing director of the Massachusetts Credit Union Association and he worked tirelessly to open new credit unions.
It wasn’t until after the Second World War that the credit union movement reached Australia. Kevin Yates had observed credit unions during his military service in Canada and what he saw inspired him to pioneer a similar set of social reform principles in Australia. In 1946 Yates established the Catholic Thrift and Loan Co-operative Limited in Sydney, which later became know as Universal Credit Union. “Not for profit, not for charity but for service” was the slogan as credit unions began to appear across all states of Australia.
Like their credit union counterparts in other parts of the world, Australia’s early credit unions were organised around a “common bond”. This bond between members was usually occupational, social or determined by neighbourhood. Within the bond, membership was open to all regardless of race, religion, economic or social status. Each member had one vote regardless of the amount of his/her savings. The members, who elected a board of directors, held control of the credit union.
Working people, to defeat usury, formed Australian credit unions. These “backyard bankers” enjoyed phenomenal growth in the 60s. In the 70s they became one of Australia’s biggest providers of personal loans. And in the 80s Australian credit unions collectively pioneered many innovations in financial services including the first to operate ATMs in Australia and the first to pay interest monthly on term deposits.
Today over 3.5 million Australians are credit union members. Australia’s 96 credit unions form an important part of the member owned banking sector with assets of more than $80bn. Credit unions also manage the fifth largest holding of deposits for Australian households with balances close to $70bn.
I hope you enjoyed this brief credit union history. Have a great International Credit Union Day this Thursday. And remember, anyone can join a credit union and everyone should.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 17, 2011 0 Comments Make a comment
In defence of deficits
It’s a sweeping generalisation to say that debt is inherently bad. Most households have some debt and this is perfectly normal. Without debt, the majority of Australians would not be able to buy a home or purchase a car. We use “good debt” to invest in the things which create wealth and help us get ahead in life. However, as I have opined before, we should avoid “bad debt”, like impulse spending on credit cards, as this detracts from our finances.
Just as households go into debt to buy the things they can’t swallow in one gulp, so do governments. Building essential public infrastructure like roads, airports, sewerage plants, hospitals and schools is very costly. The revenue governments receive from taxation is often insufficient to cover the expenditure required to fund necessary infrastructure projects.
Of course, governments can increase personal and business taxes to cover any shortfall. But raising taxes is politically unpopular, plus it leaves taxpayers with less disposable income. It follows that if we have less to spend on goods and services, businesses will suffer. If sales fall sufficiently, firms might even reduce their workforce. Those without jobs will, in turn, have reduced spending power and so a vicious cycle begins.
A preferred way for governments to raise money is to issue bonds. I explained how bonds work in a previous post titled, Beginner’s guide to bonds. Bonds allow governments to borrow money today and pay it back in the future with interest. Some believe this is wrong as it leaves a debt for our children as future taxpayers. But if this debt is used to leave a better world for our kids to live in, is it such a bad thing?
The real problem is that it’s often difficult to know - unless a government is issuing specific purpose bonds - whether the bonds will be used to fund productive investment or non-productive expenditures. Issuing bonds to improve a nation’s transportation infrastructure which generates economic growth and leads to job creation is an example of “good” (productive) government debt. Infrastructure is the backbone of future economic growth.
Conversely, raising debt to pay for public welfare schemes is “bad” (unproductive) debt as it imposes a burden on the economy. Paying pensions and health care to an ageing population does not facilitate economic growth or higher tax revenues, but is an important social safety net provided by governments. One of the reasons Greece is in a mess is because it has used debt to fund a benevolent welfare state where pensions are ridiculously generous, tax avoidance is endemic and prospects for economic growth are bleak.
Governments have been borrowing for centuries and this will not change. There are two measures of sovereign debt: current budget deficit and national public debt. When a government spends more than it collects in any one year, a budget deficit exists. The accumulation of deficits over many years creates the national public debt. A crisis typically emerges when both of these are out of control at the same time.
Increasing national public debt can be an effective way to deal with economic shocks such as recessions, financial crises and wars. During World War II, the national debt of the UK and US reached very high levels - up to 150 per cent of GDP, but that money was eventually paid back. Similarly, the GFC led to a dramatic increase in the public debt of many advanced economies which implemented huge Keynesian-style stimulus packages.
Many economists agree that the actual amount of national public debt is less important than the percentage of debt to GDP. Public debt as a percentage of GDP in OECD countries as a whole went from around 70 per cent throughout the 1990s to more than 90 per cent in 2009 and is now approaching 100 per cent of GDP.
On an individual basis, Japan’s debt-to-GDP ratio is 197.5, Greece is 142.8, Ireland 96.7, France 82.4, UK 76.1 and the USA 62.3. Australia is not heavily indebted (26.6) and in fact has the second lowest debt of any developed nation. In contrast, Greece, Ireland and Portugal are overloaded with debt and can’t just keep borrowing and spending in an effort to prop up demand. As they are now discovering, at some point the piper has to be paid.
The continuing growth of public debt worries many people and this is understandable. However, economies are credit-driven which means nations and households invariably have to go into debt in order to grow. Used wisely and prudently, debt at both a household and sovereign level should not evoke feelings of gloom and doom.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 10, 2011 0 Comments Make a comment
Games people play
Human behaviour fascinates me. I’ve long wondered why we do the things we do. How we act is a reflection of the choices we make. When it comes to money, we can choose to be a prudent saver or a reckless spender. In the same vein, we can be a cautious investor with a low appetite for risk or an aggressive investor with a high appetite for risk.
Just as psychology plays a major part in the decisions we make about saving and investing, the same holds true on the road. I’ve just read Traffic: Why we drive the way we do. It’s a really interesting book about the psychology of human beings behind the steering wheel.
The author, Tom Vanderbilt, does far more than describe how our roads work. Rather, he looks under the bonnet of human behaviour and reveals why people inside their cars are so different from how they are outside them. Vanderbilt chauffeurs his readers through the physical, psychological and technical factors that explain how traffic works.
He makes the point that traffic is really about motorists who, as collective users of roads, are interested only in their own destinations. “The road … is a place where millions of us … are thrown together daily in a kind of massive petri dish,” writes Vanderbilt. Which is why traffic problems are really people problems.
The road is a place where “little-understood dynamics are at work”. Vanderbilt explains these dynamics by answering a series of questions including:
• Why does the other lane always seem to move faster?
• Why does a tiny incident create a huge gridlock?
• Why is it hard to slow down after driving at high speed for some time?
• Why do we lapse into “highway hypnosis” and suddenly find ourselves awake at the wheel?
• Why do people seem to take longer to vacate a parking spot when someone is waiting? and ... wait for it!
• Why do women create more congestion than men?
After reading Traffic I found it difficult to disagree with Vanderbilt’s view that drivers have become progressively less civil over the years. I also concur that driving is a classic example of game theory. Game theory is a branch of economics that deals with the decisions people make when confronted with competitive situations.
Game theory examines how individuals react given the actions of someone else. According to game theory, an individual tries to predict what his opponents will do and then chooses strategies that will provide him with the best payoff. Put frankly, it’s about the way we manipulate situations to our own advantage.
As I stated in a previous blog post, we humans tend to focus on narrow self-interests in lieu of the best outcome for all parties. We see this “every man for himself” attitude in all walks of life, not just on the road. We saw it during the sub-prime mortgage fiasco where the self-interests of sub-prime lenders, hedge fund managers and investment bankers led to a global financial crisis.
More recently, we saw game theory in action in the debt ceiling debacle in America. The country’s leaders engaged in an irresponsible bout of fiscal brinkmanship. At the end of the leaders’ self-defeating political game of chicken - which placed a struggling US economy at risk of catastrophic default – Standard and Poor’s stripped America of its triple-A rating.
S&P’s justification for the downgrading was to quite rightly blame the dysfunctional US political system. Congress and the White House failed to come up with a credible plan to get the national debt under control. The political grandstanding saw both parties careening towards a cliff, taking the entire world along for an unnecessary and reckless ride.
When will we learn that life does not have to be a win-lose zero sum game?
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, October 04, 2011 0 Comments Make a comment
Fear of demographic time bomb
Humans are driven by fear. Some fears turn into phobias. My wife is petrified of spiders (arachnophobia). A family friend is scared of flying insects (entomophobia). The young girl down the street is terrified of thunder (brontophobia). A former colleague is afraid of clowns (coulrophobia).
Fear is a normal human reaction to danger, evil or pain. Fear helps protect us by making us alert to threats and prepares us to deal with them. Indeed, responding to fear is programmed into our nervous system and causes a fight or flight syndrome.
However, when fear is not justified by the presence of real danger or a genuine threat, it’s classified as a phobia. A phobia can be defined as an intense anxiety reaction caused by our response to a specific stimuli or situation. Many in the populace suffer from some sort of phobia.
From cowering under the sheets in fear of darkness (achluophobia) to shrieking at the sight of a mouse (musophobia) or becoming woozy at high altitudes (acrophobia), there are many things which makes us freak out. Phobias affect people of all ages and all walks of life.
In Who’s Afraid of Butterflies? Our Fears and Phobias Named and Explained, Dr Steve Juan explores the fascinating world of our deepest fears and lists hundreds of phobias from A (abandonment) to Z (zombies). Included in the list, believe it or not, is fear of money and wealth (chrematophobia).
Juan views phobias as “irrational” whereas he labels fears as “rational” and identifies a number of understandable fears including concern for one’s economic well-being. “We fear for our ... economy (the high cost of living, unemployment, interest rates, ...)” he writes.
While fear of poverty (peniaphobia) is certainly a great motivator, my personal economic fear is the impact of an aging population. Now let’s be clear – I’m not scared of the elderly (gerontophobia) but rather the affect aging will have on the size and composition of our labour force and therefore economic growth.
Economic growth, according to the Federal Government’s Intergenerational Report, is a function of population, participation and productivity - the so called 3Ps. Population refers to the number of people of working age, participation identifies how many of those people actually work while productivity measures each worker’s level of output.
Australia’s aging population will drive down our labour force participation rate. An older population works less in aggregate and will result (unless corrective action is taken) in a decline in productivity or GDP growth per person. Which is why the Productivity Commission views the aging of our population as one of the biggest policy challenges facing Australia.
The far-reaching effects of this demographic change include a reduction in private savings as individuals draw on their savings to fund their retirement, a commensurate fall in the availability of investment finance due to the attrition of savings, a reduction in taxation revenue from wages and subsequent pressure on federal budgets at a time when there will be a substantial increase in demand for health and aged care services.
These predictions are grim and efforts must be made to mitigate them. Defusing the aging time bomb will require us to dramatically raise productivity. As I outlined in a recent post, The productivity paradox, we must improve productivity to fund the burden of an aging population otherwise our living standards will fall.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 26, 2011 0 Comments Make a comment
Marrying finances
The statistics are sobering: One in three Australian marriages ends in divorce. Splitting assets after a relationship breakdown can be a long, winding and painful road. Carving up the family home, disentangling bank accounts and determining superannuation entitlements are all part of the “financial separation”.
In short, love hurts - just ask Paul McCartney. His parting of the ways with Heather Mills cost him $48.7m. The financial impact of a divorce for an average couple, in relative terms, can be even more devastating. Divorce often results in a marked fall in lifestyle as the assets of one household (a single financial entity) are divided into two.
Divorce is the most effective divestment strategy known to humanity! There’s arguably no quicker or more brutal way to lose wealth. Not surprisingly, when mature couples tie the knot again, many choose not to merge their possessions. It’s often a case of once bitten, twice shy as parties who have been burnt before live together but keep their finances separate.
To have and to hold clearly takes on a different meaning the second time around. The scars from a previous division of marital assets sometimes never heal. The understandable desire to protect oneself leads to precautions such as prenuptial agreements. Second-time couples are a little older and a lot wiser and therefore more cautious.
Money is often a major source of friction in marriages and can bring out intense emotions. But for those who remarry, love’s even more financially complicated. Older couples are more set in their ways and have boundaries around how far they’re prepared to compromise. They also display a general wariness about combining finances driven by a desire not to muddy the waters.
For those who don’t join finances, it’s a case of “His” account, “Her” account, and not “Our” account. Saying “I do” to his-and-her banking is one of the many financial matters that should be discussed prior to walking down the aisle. Couples must also decide how household expenses are going to be divided. Further, there needs to be agreement as to who is going to pay the mortgage or rent.
On top of this, each partner will bring financial baggage into the relationship. You may have the complication of child support, existing debts and differing credit histories. Moreover, you may have divergent spending and savings habits and perhaps even dissimilar financial goals for the future.
Love can conquer many things but disagreements over money can create a rocky road for the best of relationships. There’s no one right way to blend finances but avoiding an open and honest discussion about how finances will be managed is a recipe for disaster. Getting your financial household in order is a necessary prerequisite to living happily ever after.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 19, 2011 0 Comments Make a comment
Global banking laws
While on holidays in August I saw many things which are legal in Europe but illegal under Australian law. In London, I saw crowds of people drinking on footpaths outside pubs. In Dubrovnik, I saw dogs being walked in the lobby of a five-star hotel. In Zurich, I saw scores of cyclists riding on roads without a bicycle helmet. And in Frankfurt, I saw smokers light-up in sidewalk bars, cafés and restaurants.
What’s right and what’s wrong depends on where you are in the world. From how much income tax you pay to which side of the road you drive on, nation-states determine their own sovereign laws. But this is changing. While elected governments still make national laws which are binding (“hard law”), un-elected experts are increasingly making non-binding international rules (“soft law”) which countries are adopting.
In a globalised world with cross-border trading, the emergence of “soft” international law invariably results from the inadequacy of “hard” national laws. A good example of this is banking regulation. Until the early 1970s banking regulation was considered the exclusive preserve of national policy makers. However, the collapse of a German bank and a US bank in 1974 showed that financial crises were no longer confined to one country.
It became clear that co-ordinated international action was needed to prevent shock waves from one nation’s problems reverberating worldwide. So, the central bank governors from the G-10 countries began meeting at the offices of the Bank for International Settlements in Basel, Switzerland. Their aim was to develop uniform international safety standards for banks. The Committee became known as the Basel Committee on Banking Supervision.
The Committee – which has since been expanded - acts as an advisory body and produces Accords (banking regulation recommendations) rather than laws. Even though it has no legislative power, the Committee’s members are senior representatives of bank supervisory authorities from around the world and its views hold great sway. The Basel Accords have become the regulatory standards for virtually all nations with international banking activities.
Among other things, the Accords specify the amount of capital that banks and other financial institutions (like credit unions) must hold. The original Basel Capital Accord (now called Basel I) was reached in 1988. This had some shortcomings so a New Capital Accord (Basel II) was released in 2004. Neither Basel I nor Basel II prevented the Global Financial Crisis. So, a third Accord - Basel III – was endorsed by the G20 Leaders in 2010.
Few see the new set of Basel III regulatory requirements, which will be phased in globally from 2013, as a panacea. Notably, Mervyn King, governor of the Bank of England, believes “Basel III on its own will not prevent another crisis” and that the new levels of capital are insufficient to avoid a further disaster. The harsh reality is that no set of rules can ensure the solvency of the banking system or its resilience in a crisis. Like driving a car, banking involves risks which can’t be totally eliminated.
So, banking regulation will continue to evolve, punctuated by bursts of activity every time there is a serious crisis to manage. In broad strokes, my contention is that the likelihood of future crises can be reduced through better risk management systems and strengthened governance processes – two things which are continually under the spotlight at Gateway.
I’m conscious the Basel Accords seem obscure and irrelevant to people outside banking. Yet they are the backbone of the financial system and are designed to protect depositors’ and taxpayers’ money. In Australia, we are fortunate that our banks, building societies and credit unions are well-managed and well-regulated. Australian depositors have good reason to be confident in their financial institutions.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 12, 2011 0 Comments Make a comment
The productivity paradox
Some topics are conversation killers and productivity falls into that category. Most people don’t like to be told they have to work harder and/or be more efficient. But improving productivity has become a major goal in virtually every organisation in the world.
Whether we like it or not, we are now part of a global economy and better productivity is the key to global competitiveness. Increased productivity lowers cost and allows firms to offer more competitive prices in the hope of capturing greater market share.
But improving productivity is not just important for businesses - it’s also linked to higher standards of living for us as citizens. Renowned Harvard Professor, Michael E. Porter, succinctly sums up the importance of productivity in his book, The Competitive Advantage of Nations.
| Productivity is the prime determinant in the long run of a nation’s standard of living, for it is the root cause of per capita national income. High productivity not only supports high levels of income but allows citizens the option of choosing more leisure instead of longer working hours. It also creates the national income that is taxed to pay for public services which again boosts the standard of living. |
So, what is productivity and does it mean we have to work longer hours? Well, contrary to popular opinion, working longer does not necessarily lead to higher output. Indeed, studies show that longer hours can result in worker fatigue which actually lowers productivity.
The good news is that workplace productivity can be increased by working smarter not harder. This requires (i) workers to be more efficient, (ii) organisations to do more with less and (iii) managers to motivate teams to achieve optimal output through continuous improvement. Also, governments need to address industry regulatory and compliance burdens.
Productivity is defined by economists as a measure of output from a production process, per unit of input. Rising productivity implies either more output (goods and services) is produced with the same amount of inputs (resources) or less inputs are required to produce the same level of output.
Productivity measures vary from industry to industry. Generic examples include tonnes of grain per hectare, motor vehicles produced per worker per day and incoming calls answered per hour. Looking at the economy as a whole, a classic measure is GDP/per capita (or per capita income).
In Australia, we put in more hours at work than most other developed nations. But we’re not the most productive nation in the world – that title belongs to France. The French know that winning is not about working harder - as they work less than we do – but smarter.
Improving Australia’s long-term prosperity and living standards requires increased national productivity. But our aging population threatens to diminish our workforce and therefore productivity. So, we need policies to offset the negative effects of an aging population and deliver improved workforce participation.
For Gateway, improved productivity is integral to its long-term sustainability. Every day, our competitors are extracting efficiencies to improve productivity in order to sharpen prices (ie, interest rates). Australians are now far more interest rate sensitive and increasingly shop around for the best rate.
As I outlined in a recent blog post, investors want to be paid the highest rate possible on their deposits while borrowers want to be charged the lowest rate possible on their loans. Only through improved productivity can we continue to meet the mutually exclusive needs of borrowers and investors.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 05, 2011 0 Comments Make a comment
Postcard from Europe 2011
It’s never easy coming back to work after a month away, but I’ve reluctantly accepted the holiday is over. While I enjoy Gateway, I enjoy holidays more! Escaping the routine of everyday life is fabulous. The freedom to come and go as the mood takes you is wonderful. While overseas, Bev and I “roam” around at a fast pace as there’s always lots we want to see and do.
Our sightseeing started in Hong Kong. We were captivated by the sights and sounds of this vibrant metropolis of seven million people. Its towering skyscrapers are nestled between the rugged mountains of Kowloon and the picturesque Victoria harbour. At night, the skyline glimmers with dazzling neon lights. By day, you can catch a panoramic view of the city from Victoria Peak lookout - 396 metres above sea level.
While in Hong Kong we caught the ferry across the South China Sea to Macau. Like Hong Kong, Macau is a special administrative region (SAR) of China and benefits from the principle of “one country, two systems”. Over recent years Macau has been transformed into the Vegas of the East with ritzy hotels, spectacular casinos and high-end shops. We stayed overnight in Macau to catch one of the stunning stage shows.
Next stop was London and a wonderful reunion with my daughter and her partner who live and work in this huge cosmopolitan city. We did lots of walking and visited many of the 22 streets on the famous Monopoly board game including Trafalgar Square, Piccadilly Circus, Fleet Street and Pall Mall. We also toured Buckingham Palace, rode the London Eye, crossed London Bridge, saw Big Ben and took a day trip to Wales.
After a sad farewell to Leanne and Sean, we took the road less travelled to Dubrovnik – the “tourist capital” of Croatia. We were lured to this coastal city by the promise of clear blue waters and the fresh scent of the Adriatic Sea. The city, which is known as the Pearl of the Adriatic, boasts natural beauty together with an historic Old Town whose cobbled streets and alleyways offer many surprises. Walking Dubrovnik’s ancient city walls is a must do for tourists.
Leaving Dubrovnik we then headed north to Zurich. A relaxed stroll through the Swiss capital reveals something interesting at virtually every corner. Our hotel was located on the Bahnhofstrasse, Zurich’s most famous pedestrian street. The city boasts medieval architecture, the tranquil beauty of Lake Zurich plus museums galore. The shops are replete with interesting merchandise from traditional Swiss clocks to exquisite chocolates.
Following more bag packing and another plane trip we landed in Frankfurt – the financial heart of Germany. I’m not sure what Frankfurt’s most famous son, Johann Wolfgang Goethe, would make of the city’s Manhattan-like skyline, but I liked it. By way of contrast, the city also boasts over 30 museums with many located along both sides of the river Main. A great way to see the sites is by catching the hop-on, hop-off tour bus.
Our final port of call was Singapore and another great family re-union – this time with my son and daughter-in-law. As we have toured Singapore before, this was a less hectic stop. Quality time with family was the priority albeit Bev did find time to shop! Singapore is such a humid place that the air conditioned stores provide a welcome relief. After saying goodbye to Paul (Jnr) and Manal, we boarded our Qantas Airbus back to Sydney.
Now that I’m back at work, I’d like to thank the Gateway team for looking after things in my absence. It looks like Gateway did not miss a beat, so full marks to Gary English (COO) and Peter Gilmore (CFO). My appreciation also to our senior managers - Phillip Horder, Caroline Bessemer, Paul Lee and Allyson Bailie - who acted as guest bloggers in my absence. I enjoyed reading their posts while travelling through Europe and hope you did too.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, August 29, 2011 0 Comments Make a comment
Service you can bank on
Guest blogger – Allyson Bailie, Senior Manager Service
With three small kids in tow my life currently feels like a physical challenge that just never lets up. No matter how early I start my day, I am invariably running late. And unfortunately I am one of those Mum’s that have made the fatal mistake of sending my kids to school in the wrong clothes, only because I haven’t had the time to read the mountain of notes that come home on a weekly basis. Needless to say there never seems to be enough hours in my day to finish everything that I need to get done. I am always on the lookout for anything that will make my life simpler. I recently stumbled over the Woolworths Smartphone App that allows me to add products directly to my shopping list using my iPhone as a barcode scanner. It even puts my shopping list into aisle order for my local store. Fabulous, thank you Woolworths, you have given me 20 minutes back in my week!! Now if only I could find an App that can cook the food and clean up afterwards…..?
It got me thinking about all the service providers I regularly deal with, and how many of these actually try to make it easy for me to interact with them? The answer came to me quickly – not many! It’s not that often that a service experience leaves me with a lasting positive impression. I don’t think I have high expectations; I just want what has been promised to me. If I get this then I will be a loyal customer forever and I’ll even go the extra mile and tell others about how great my experience has been. Unfortunately day in day out we all have experiences as customers that are less than what we expected, or what we paid for. As a regular train commuter I have come to expect poor service. But unfortunately I can’t simply switch to another train service to see if their trains run on time or even have enough seats for every paying passenger!
Conversely the financial services industry is very different, there is a lot of choice and it is now much easier for customers to research and compare other Banks offerings using websites like ratecity.com.au. In general Australians are becoming very savvy in searching for the best deal to achieve their banking needs. As the Service Manager at Gateway I notice that it is not always the price that makes the customer chose our organisation’s products or services. As long as we have a competitive price combined with a simple fulfillment process we will more often than not win the customer’s business. Clearly having great products and prices are important factors in being noticed in an over supplied marketplace. However the final hook in sealing the deal is having the service-focused staff, who are adequately empowered and supported by clear and simple processes.
At Gateway we may not have the sexy Smartphone App, but trust me we are working on it!! Ultimately Gateway believes our customers are just like me – time poor and desperately looking for someone/something that will make life, including achieving their banking needs, that little bit easier. This is the approach Gateway has taken in establishing our service standards and supporting processes.
Why not tell us what you think about Gateway’s service. Our annual Member Survey is due to be released on our website on 5th October, 2011.
Regards
Allyson Bailie
Podcast is available here
Posted Monday, August 22, 2011 0 Comments Make a comment
STS - 1
Guest blogger – Paul Lee, Senior Manager Business Systems
As this week’s guest blogger, I thought I would share with you some thoughts on the use of technology in 2011.
This year represents 30 years since the first space shuttle mission (Columbia, STS-1) and 50 years since Yuri Gagarin went into space. In the intervening years, the use of technology and the perceptions of those who create and support it have changed profoundly.
As a child I watched the first shuttle launch on TV at school, with the rest of my classmates. Our teachers delayed lessons so we could share in this technological milestone. It’s true there was a cold war and it was an American shuttle but I’m sure Russians had a grudging respect for the achievement of their adversaries just as the West had for Sputnik and Gagarin.
In the years that followed technology use became ubiquitous. Scientists and technologists succeeded in simplifying and miniaturising it for use by everyone. So simple, that anyone can perform an amazing technological feat as quickly as they can open maps.google.com on their iPhone.
iPhones and iPads are great and no one wants to return to 1981 but somewhere along the way scientific and human discovery, of the sort exemplified by the shuttle, seemed to stop being viewed as quite so desirable and worthwhile an end in itself. Scientific achievement has lost its prestige and there’s scepticism about experts in general.
In 2011 probably the only people watching the last shuttle (Atlantis, STS-135) were those that recall that first flight 30 years previously.
The increasing ubiquity and ease of use of technology can be felt at work too; from business models that are fast disappearing to the shifting control of technology within organisations. Similarly, obsolete IT functions continue to disappear and, one day, maybe ever our IT departments too. Technology is now everyone’s domain and not the preserve of a few technologists, jealously guarding their servers and software. Ultimately, this will produce better, cheaper and faster outcomes for all.
So while it is easier to use technology, at home and at work, do we put it to good use? 2011 is unambiguously a pleasanter place than 1981. However, I can’t help looking back fondly to an era when, in the midst of a cold war and general 1970’s strife, both the USA and USSR pushed the limits of technology and human ingenuity in space carrying computers less powerful than todays iPhones.
Regards, Paul Lee
Senior Manager Business Systems
Podcast is available here
Posted Monday, August 15, 2011 0 Comments Make a comment
Hands off my towel!
Guest blogger - Caroline Bessemer, Senior Manager People & Performance
As regular readers of this blog will know, Paul’s annual trips often give him some insights and reminders of what contributes to achieving great service. In my guest blog this week, I thought it apt to share with you some of my insights, from an HR perspective, that came about during my recent travels in France.
Most hotels these days have a policy specifying their commitment to the environment. This will be visible to the guest as a card stating that the hotel will only replace used towels with fresh towels if requested. So if you don’t want your towel to be replaced, you simply hang it up in the bathroom. If you do, then you throw the used towel into the bathtub and a fresh one will be provided.
Nice in theory - despite hanging my towel up every day, in every hotel, without fail I would return to my room to find that the towel had been replaced with a fresh towel. And of course, the environmental policy card would be set out again as before.
In one hotel this happened not once, but twice a day – for all four nights of my stay! On one occasion I found that they had replaced all of the towels, when only one had been used, and replaced them with a completely new set in a different colour. Heaven forbid that one towel should be a different colour… (By the way - in this hotel they also kept removing the hand soap which had been used only a couple of times and would replace it with a brand new, unwrapped bar. My travelling companions had the same experience and also found it strange. It makes you wonder where all those slightly used soap bars taken from every room, every day were going??) Sorry, I digress, back to the towels…
As an HR practitioner, it does make me wonder what has gone wrong when such an openly stated policy has not been effectively integrated into day to day practice. So often people look at the final person in the sequence and assume that it is a performance issue, but in truth there could be any number of causes at any point in the chain:
• Does the environmental policy set out a procedure which is in conflict with the procedures set for housekeeping? There may be specific standards as to what the room must look like at the end of cleaning and this may be taken as the overriding consideration.
• Is there a clear distinction between the standard expected for a new guest as opposed to an ongoing guest? (This may explain the disappearing soap!).
• Have the requirements of the environmental policy been effectively integrated into ongoing training for the role?
• Have the policy and procedures been communicated in a language or manner that is understood by all the housekeeping attendants and which takes their literacy into account? This would explain how they could come into contact many times a day with a card written in French and English without understanding the message themselves.
There may also be some practical concerns with the environmental policy:
• Perhaps it takes slightly longer to clean around the used towels on the rack, which makes it too time-consuming to clean the number of rooms required.
• There may simply be nowhere appropriate to put the used towels while the cleaning takes place – let’s face it, as the guest you wouldn’t want them to be laid on the floor during cleaning and then re-hung afterwards.
• Or finally, it may be that employee performance is the issue. It may just be easier for an attendant to clean the room with the towels out of the way. So they take a shortcut by tossing the used towels in the laundry hamper, cleaning and then setting out fresh towels (an approach which effectively passes on the load to the laundry staff).
This type of visible contradiction of an openly stated policy may generally just leave most guests bemused. However to me this highlights what people managers (and HR practitioners) have known for decades, that writing the policy really is the easy part, actually making it happen can have more obstacles than you realise…
So what are my recommendations for addressing this type of issue? Tune in again same time next year when Paul takes his annual leave and I may well have the opportunity to tell you!
Regards
Caroline Bessemer
Podcast is available here
Posted Monday, August 08, 2011 2 Comments Make a comment
What's your passion?
Guest blogger - Phillip Horder, Senior Manager Product & Marketing
Paul Thomas has asked (well, instructed really!) a number of us in the Gateway family to write a guest blog during his absence in August. As you may have guessed, Paul takes his blogging seriously and has covered MANY interesting topics over the last few years.
Conversely, despite being a “marketing guy” and knowing a thing or two about the whole social media thingamajig, I’ve never written a blog. Not once.
Paul tells me that everyone has at least one blog in them. I’m not so sure but let’s face facts, it’s a career limiting move to go against the CEO, right?
I think it’s good to write about things you’re interested in and write with passion, sharing some of yourself in the process. So here goes...
I really like my job. You’ve got to right? Many hours are spent in the office so better you like it than loathe it. That said, I think we all need some escape in life, something that gives you balance, some other passion that lets you dream. Like many guys, I favour a physical outlet; I’ve tried many different pastimes from motorcycling to touch football, running and the gym but one sticks with me and resonates through my core. It’s surfing.
It’s hard to give an answer on why I love it so much. One of the surfwear labels had a tag line I remember from the ‘80s, “Only a surfer knows the feeling”. This sums it up perfectly. I’m not a great surfer, barely average in fact but it doesn’t matter one bit. Being surrounded the serenity and power of the ocean gives you a grounded, connected feeling, a feeling that you are part of some bigger force – the living Earth.
It’s about being in the moment, nothing else matters. Seeing the wave, paddling into position, feeling the wave start to carry you then... whoosh, you’re away. What you do from there is up to you. There’s no right or wrong way to ride the wave, just do what makes you happy. Make a big one and you paddle back out with a grin from ear-to-ear, you feel like you’re 10 years old again. Just a grommet! It is so utterly counter to everything else I do in life and work – plan, prepare, analyse. There’s no time to do much of that when surfing, perhaps a very brief risk assessment of the oncoming wave, which I often ignore at my peril anyway.
Big and stormy or small and calm, and everything in between, if a wave can be ridden it will reward me with that feeling.
Being a surfer can become all consuming. And I thank my lovely wife for her tolerance: from making real estate purchase decisions solely on the basis of travel time to my local surf break, on filling said house with an ever growing quiver of boards (different boards for different conditions, and I couldn’t chuck an old one out, right?), to planning most holidays, domestic or international with a copy of the surfer’s atlas on hand.
There’s a stereotype of what a surfer is. It’s partly wrong and partly right. The young surfer is often unburdened with responsibilities in life (for a while anyway) but many of us are also professionals, bankers, lawyers, doctors, tradesmen. We may all have different day jobs and wear different masks, but when everyone is sitting in the line up and dolphins swim past or a big set rolls through, not much needs to be said about the collective look of content and shared appreciation for what we are fortunate to be a part of.
The ocean is my passion. What’s yours?
Regards, Phillip Horder
Senior Manager, Product and Marketing
Podcast is available here
Posted Tuesday, August 02, 2011 2 Comments Make a comment
Travel tips
This Friday, my wife and I start a month’s annual leave. After a brief stay in Hong Kong, we’re off to London to see my daughter who is a lawyer. Following that, we’ll take the road less travelled and visit Dubrovnik. Finally, we’ll head back home via Zurich, Frankfurt and Singapore. My son and his wife are both expatriate Australian bankers working in Singapore.
As seasoned travellers, Bev and I are aware of the tourist scams in Europe and the tricks used by con artists and petty thieves. For protection, we keep a copy of our respective card issuer’s 24 hour global customer assist number. Plus, we store the emergency contact numbers in our phones.
We also keep a sharp lookout for unscrupulous taxi drivers. Wherever possible, we catch a cab from a non-tourist spot as cabbies pounce on unsuspecting foreigners and tourists outside popular attractions. While it’s easier said than done, we try to be as un-tourist-like as possible (put away the cameras and maps!).
Before embarking on an overseas holiday, we register the details of our trip on the Australian Government’s Smartraveller website. This enables the Department of Foreign Affairs to locate us in an emergency such as a natural disaster, civil disturbance or family crisis. And, of course, we leave a copy of our itinerary behind in Australia with our family.
Many countries in Europe recently introduced a chip and pin payment system that utilizes cards embedded with a chip and protected through the use of a personal identification number (PIN). Some merchants in these countries now refuse to allow customers to sign for purchases (a PIN must be used). So, Bev and I both have Visa Cards with an embedded chip that can be read at the point of sale.
While I’m away, Gateway will be in the capable hands of my Chief Operating Officer, Gary English. Gary will be assisted in his role as Acting CEO by my Chief Financial Officer, Peter Gilmore. With regard to my CEO blog, there will be four guest bloggers in my absence, as follows:
Phillip Horder, Senior Manager, Product and Marketing;
Caroline Bessemer, Senior Manager, People and Performance;
Paul Lee, Senior Manager, Business Systems; and
Allyson Bailie, Senior Manager, Service.
Failing any delays or disasters, I’ll be back on Monday, 29 August. Bon voyage.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, July 25, 2011 0 Comments Make a comment
Nature knows best
By far the smartest “person” I know is Mother Nature. We humans can learn much from her. She’s been giving lessons in design for billions of years, but only in recent times have we started “enrolling” in her classes. The early students have looked to Mother Nature for advice in solving many of the problems we are grappling with as she’s already worked them out.
Using nature as a mentor, professionals from a range of fields are now studying biomimicry. Biomimicry is the art and science of emulating nature’s best biological ideas and applying these solutions to product design, architecture, engineering and even community design. Analysing a forest floor to invent a better carpet tile is an example of biomimicry.
Velcro is probably the best known example of innovation inspired by nature. The product’s inventor, George de Mestral, stumbled upon the idea by examining how burrs stuck to the hair of his dog. By mimicking the strong attachment forces of the burrs’ small hooks, he was able to develop Velcro straps and fasteners.
Nowadays, pioneering companies are capturing the ingenuity of nature and adapting it to solve and overcome challenges. For instance, in designing its new Fastskin biometric swimsuit, Speedo copied the hydrodynamic efficiency of the skin on nature’s fastest aquatic creature - the shark - to reduce the resistive drag on swimmers’ bodies.
Similarly, Airbus observed how sea birds sense gust loads in the air with their beaks and adjust the shape of their wing feathers to suppress lift. As a result, Airbus installed probes on its A350 aircraft which detect gusts ahead of the wing and deploy moveable surfaces for more efficient flight.
Biomimicry is set to usher in a new wave of energy efficiency. Indeed, some believe that biomimicry holds the key to our planet’s energy future. Possible next generation energy sources include wind-turbines inspired by bees, solar panels inspired by moth eyes and electricity generation inspired by ocean currents.
From building an efficient waste treatment plant modelled on the way human kidneys process waste to constructing a high-rise building that imitates a termite mound for passive air conditioning, copying ideas from nature for the way we make or do things is gathering pace. But unlocking nature’s secrets is not always an easy task.
For some years scientists have been trying to synthetically manufacture spider silk. Spider silk is one of the strongest materials on Earth and is a whopping five times stronger by weight than steel. If we can decipher the architecture of silk fibres and replicate its properties, we will discover an exciting new material which will have applications from medicine to engineering.
Businesses are increasingly turning to nature with some amazing breakthroughs in design. The science of biomimicry now has some very creative practitioners, but it does not have to be a solo effort. Organisations such as Ask Nature.org can help with the task of finding a solution in nature to a given human problem.
In the coming decades you will see more biomimicry as nature helps us do more with less by showing us how to tap a seemingly endless wellspring of solutions. For now, I’ll leave the final word to Janine Benyus, author of Biomimicry: Innovation Inspired by Nature. “Biomimicry introduces an era based not on what we can extract from the natural world, but what we can learn from it.”
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, July 18, 2011 0 Comments Make a comment
Banned aid solution to poverty
Humans love to debate and argue their point. Some high profile debates I have covered in this blog include the Population Debate, the Climate Debate, the Welfare Debate and the Privatisation Debate. Recently, I came across another debate which, I must confess, I had been oblivious to - the Aid to Africa Debate.
The leading combatants in this debate are two academic heavyweights – Jeffrey Sachs, Professor of Sustainable Development at Columbia University and William Easterly, a Professor of Economics at New York University. Both of these thought leaders want to eradicate poverty in Africa but bitterly disagree on how to go about it.
The vitriol between Sachs and Easterly is palpable and they colour their criticism of the other’s position with personal attacks. Their rival opinions are expressed in their respective books in which both mount persuasive arguments. Sachs is the author of The End of Poverty while Easterly is the writer of The White Man’s Burden.
Sachs is pro-aid while Easterly does not believe in development aid. Sachs contends that rich countries should inject massive flows of aid into Africa. Easterly, on the other hand, asserts that the billions spent on African aid have produced meagre results.
After reading The End of Poverty I came away with a nagging sense that the effectiveness of foreign aid has been exaggerated. This troubled me to the point of seeking out a third view. So I turned to a book by another international economist, Dr Dambisa Moyo. Like Easterly, Moyo believes that aid is more bad than good.
What makes Moyo different from Sachs and Easterly is that – as a black African woman – finding a solution to Africa’s woes is “a personal quest”. Born and raised in Zambia and educated at Harvard and Oxford, she worked for the World Bank as a consultant and then moved to Goldman Sachs. With such credentials, it is difficult to ignore Moyo’s views on Africa.
In Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, Moyo argues that aid has compounded Africa’s problems. “Millions in Africa are poorer today because of aid; misery and poverty have not ended but have increased. Aid has been, and continues to be, an unmitigated political, economic, and humanitarian disaster.”
Moyo cites political corruption as one of the reasons for aid’s troubled history. “The list of corrupt practices in Africa is almost endless”, writes Moyo. “But the point about corruption in Africa is not that it exists: the point is that aid is one of its greatest aides. … Foreign aid props up corrupt governments – providing them with freely usable cash.”
Moyo proposes aid-free, market-based solutions to development. She encourages African countries to look to international bond markets to finance major public sector investments, to foreign direct investment to finance large scale private sector growth and to micro-financing for local entrepreneurial development.
In February 2010 I wrote a blog post about the wonders of micro-financing. Micro-financing aligns with my long-held view that lasting solutions to human problems only occur when we move from institutional help to self-help. This principle is encapsulated in the Chinese proverb - Give a man a fish and he will eat for a day; teach a man to fish and he will eat for a lifetime.
Gateway is a supporter of the micro-financing initiatives in Cambodia. We are doing our part to break the vicious cycle of poverty and we’re making a difference. So, I know from first-hand experience that Moyo is on the right track. We’re quietly getting on with the job of helping the Cambodians become self-sufficient.
Moyo also believes that aid should be undertaken with less fuss and fanfare. She is concerned that rock star campaigners, such as Bono, have dominated the public discussion of aid to the exclusion of Africans with experience and expertise. While celebrity shots with impoverished children make for great television, they don’t actually solve the problem.
Regards
Paul J. Thomas
PS. In my 27 June post I stated that Gateway’s mortgage book would grow in excess of 16%. Now that we have closed the books on fiscal 2011, I can inform you that our mortgage book actually grew by an outstanding 19% for the full year - 2.5 times system growth!
Podcast is available here
Posted Monday, July 11, 2011 1 Comments Make a comment
Modern day Greek tragedy
Is it a case of life imitating art? We’ve had the Big Fat Greek Wedding, now we’ve got the Big Fat Greek Debt. Unlike the light-hearted movie, the drama that’s unfolding in Greece is a sobering tale of the crippling impact of government largesse and corruption.
This sorry saga - let’s call it The Art of Political Deception – started long ago. While Greece’s economic mismanagement does not date back to the time of her famous sons, Socrates and Plato, it can be traced to the establishment of the Modern Greek state in the early nineteenth century.
A welfare state mentality emerged and so began a marathon of fiscal trouble that continues to run its course today. The benevolent Greek government introduced automatic indexed salary increases rather than base annual pay rises on market indicators such as productivity.
The resultant lack of economic growth created few opportunities and caused the large-scale emigration of Greeks to Australia and the US after World War II. With one of the highest rates of emigration in the world, remittances soon became the largest component of Greece’s GDP.
Meanwhile back in the homeland, economically incompetent Greek governments continued to build an oversized and pointless civil service. Nowadays, the average government job pays almost three times the average private-sector job. Plus, civil servants are protected by law from being fired and retire with bloated pensions creating the best working conditions in Europe.
The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. According to a Vanity Fair article, more than 600 Greek professions have managed to get themselves classified as arduous including hairdressers, radio announcers, waiters and musicians and all receive generous state-funded pensions.
So, the spendthrift attitude of successive Greek governments is one of the root causes of Greece’s current sovereign debt crisis. But the government is not solely to blame. The Greek people themselves must also accept some responsibility for the country’s economic mess as tax evasion is rampant.
Greece’s deep rooted culture of tax evasion costs the country about 30 billion Euros annually in lost revenue. Tax dodgers can be found everywhere. Plumbers, electricians and taxi drivers are notorious for not giving receipts. Doctors grossly understate their income while wealthy home owners deliberately lie about owning a pool to avoid a luxury tax.
And so ends Act I of our human tragedy. With a short interlude to reflect on the fact that Greece – at both a sovereign and personal level – has been living beyond its means for decades – we move to Part II and meet the third “villain” (metaphorically speaking) in our plot – the Euro currency.
The Greek crisis became a European crisis due to the common use of the euro. A single currency is only as strong as its weakest link, as the 16 other euro nations have discovered. Tiny Greece has been dominating the headlines with speculation it could bring down the Euro if it defaults on its debts.
If Greece still had its own currency it could employ the standard policy of devaluing its drachma to become more competitive and restart growth. Devaluation makes a country’s exports less expensive for foreigners and makes foreign products more expensive for domestic consumers. This helps increase exports and decrease imports thereby reducing the current account deficit.
However, Greece’s monetary union with the Eurozone means it cannot follow the devaluation path. So just over a year ago the European Union put together a €110 billion bailout package for Greece that briefly calmed markets. The IMF recently warned that a second bailout package is necessary to prevent the world’s second global financial meltdown in three years.
The crumbling ruins of the Parthenon are testament to the fact that the Greeks have failed once before. This latest tragedy could again leave the country in ruins. How this tragedy ends is still to play out but the cradle of Western civilisation and birthplace of democracy is fighting for economic survival.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, July 04, 2011 0 Comments Make a comment
Stability in a changing world
This Thursday marks the end of another financial year and what a year it’s been. For the environment, it was a period punctuated by a string of natural disasters – a devastating tsunami in Japan, a ferocious earthquake in New Zealand and horrific floods in Australia.
The world also witnessed uprisings on the political front. A new wave of political movements swept the Middle East and North Africa. The protests began in Tunisia - prompted by anger at rising living costs - and fuelled anti-government revolutions in Egypt and Libya.
Beyond these geological and political shocks, a more subtle but just as powerful seismic shift gathered pace – the transfer of economic power from West to East. China looks set to overtake America as the world’s biggest economy circa 2020 only to be overtaken, in turn, by India around 2050.
In Australia, our two-speed economy was driven by the voracious raw material appetites of China and, to a lesser degree, India. Both nations are going through a period of massive industrial expansion and this has propelled the spectacular demand for our aluminium, copper and steel.
Over the past year we continued to ride the biggest resources boom in our nation’s history and watched as commodity prices rose strongly. We also witnessed our currency soar to new heights. The Aussie dollar reached and then passed parity with the greenback.
One reason our dollar is doing so well is because our interest rates are higher than other developed nations and this is attracting overseas money. International investors drive up the demand for the local currency. The Australian dollar is now one of the best performing currencies in the world.
Of course, the flip side of higher interest rates is subdued demand for home loans. Australian households have a more cautious approach to debt post the GFC. During fiscal 2011, lending for homes in Australia slumped to its lowest level in 35 years.
Housing credit growth in Australia for the full year to 30 June will likely be less than 7 per cent, the weakest since records began in 1976. In stark contrast, and in the face of a flagging property market, Gateway achieved its strongest mortgage lending growth in over a decade - in excess of 16 per cent*.
Significantly outperforming system growth is one of the reasons why we were again a finalist in the Credit Union of the Year awards. Gateway is a standout performer among Australian credit unions and indeed the broader financial services industry.
While others have struggled to grow their business and gain market share, we are set to record our strongest balance sheet growth since 2000. My thanks to the wonderful Gateway team for their sterling efforts over the past year. A big thank you also to our loyal members for their continuing support.
*We won’t know the exact figure until late next week.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 27, 2011 0 Comments Make a comment
Democracy in danger
In a recent post (Stop the pandering) I expressed concern that politics is degenerating into a farce, with short-term popular sentiment increasingly impacting long-term policy formulation. Hopefully, I left readers with a clear sense of the dangers of the don’t-offend-anyone politics which now characterises Australian political life.
What I did not focus on was the role of the media in whipping up emotive opposition to sensible social and economic reform. The media, according to Lindsay Tanner, a former minister for finance in the Labor Government, is turning political reporting into a “carnival sideshow” driven by entertainment imperatives.
In his recently released book, Sideshow: dumbing down democracy, Tanner tracks the relentless decline of political reporting in Australia and abroad. He describes in great detail how the media manipulates the discussion of substantive issues in ways that entertain rather than inform. “Policy initiatives are measured by their media impact, not by their effect”, laments Tanner.
Tanner, quite rightly, asserts that “genuine democracy requires an informed electorate” but bemoans the fact that the media controls access to the electorate. “The media publishes what people want to read or watch and the public demand for serious news is in decline”. Consequently, politicians have been pushed into a self-defeating game of feeding the news cycle with stunts.
Tanner notes that as political coverage gets sillier, politicians are forced to get sillier to get coverage. “As politicians need to be interesting to compete in a world governed by the rules of entertainment, they happily collaborate”. Yet he believes Australians deserves much better than the carefully scripted play-acting that now dominates our nation's politics.
Journalists are always looking for quirky and amusing items that divert or titillate the audience. Tanner cites the 2008 presidential primaries where Hillary Clinton attracted saturation coverage for allegedly revealing some cleavage on the campaign trail. “The amount of flesh on display would have barely troubled a middle-class maiden aunt in Victorian England. Yet it was enough for the media to make it the lead news story across the country”, writes Tanner.
Tanner contends that the hyperbole which characterises media reporting is blatantly designed to manipulate the public’s emotions. He cites a number of examples where the media created unnecessary panic including the Global Financial Crisis, the Year 2K computer bug and the swine flu epidemic. The media reporting of these events produced a public response out of proportion to the threat.
A popular tool used by the media to distort impressions of politics and current events is “selective coverage” says Tanner. “When petrol prices spike, the media go into overdrive. When they fall, coverage is much more low-key.” Equally, every time interest rates rise, we see stories featuring struggling families. Yet when rates fall, little is said about the plight of self-funded retirees.
I think that Sideshow: dumbing down democracy should be compulsory reading for all journalists and reporters. Some reviewers have rated Tanner’s book as “refreshingly frank”. Others have labelled it a “scathing critique” of contemporary political journalism. Personally, I’d go one step further and categorise Tanner’s description of the media as “alarming”.
Finally, and in fairness, I must acknowledge the media’s claim that they simply produce what consumers want. As a society, we would rather read about the sordid private lives of celebrities than have a serious debate about the long-term benefits of public policy. So, just as we get the politicians we deserve, we also get the media we deserve. As citizens, we are complicit with falling standards.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 20, 2011 3 Comments Make a comment
Peak performance
Business leaders are often keen observers of elite sports. This is not surprising as corporate executives and top athletes share much in common. Being the best of the best in each arena requires commitment, determination and mental toughness.
Climbing the corporate ladder or becoming a world record holder is not for the faint-hearted. Both executive “athletes” and elite athletes must have the ability to stay focussed under pressure, recover from setbacks and ultimately triumph over the competition.
Business and sporting success is also dependent on the ability to continually move performance to a higher level. At Gateway, we have a culture of continuous improvement which is designed to give us an edge on the competition. Every day, we work hard to reduce process cycle times to provide even more efficient service.
In business, continuous improvement is a never-ending journey. But can the same be said of sport? Are some records just unbreakable? Will there ever come a time when Olympic competitors cannot run any faster, jump any higher or lift any more?
Sports Science host, John Brenkus, sets out to answer these questions in The Perfection Point: How Fast, How Far and How High. Brenkus’ book is a fascinating exploration of the extremes of athletic ability and is sure to spark debate in sporting and scientific circles.
Combining cutting-edge science with the fundamentals of each sport, Brenkus seeks to find the limits of human ability to pinpoint “…the perfection point – a speed, a height, a distance that humans can get closer and closer to but never exceed”.
Until 1954, a sub four-minute mile was considered an impossible feat for a human. Roger Bannister broke that barrier, followed quickly by a host of other athletes. Today, the world record stands at 3 minutes, 43 seconds. Can this number be lowered even further? The answer lies in The Perfection Point.
Brenkus predicts the following “ultimate world records”. [Note: The current world record (WR) is shown in brackets.]
- The fastest possible 100 metres run - 9.01 seconds (WR 9.58).
- The quickest possible 50 metres swim - 18.15 seconds (WR 20.91).
- The heaviest possible “raw” bench press - 417.8 kilograms (WR 324.3).
- The fastest possible mile run - 3:19:27 (WR 3:43:13).
- The swiftest possible marathon - 1:57:58 (WR 2:03:02).
While Gateway is unlikely to set any world records, we also want to stay at the top of our game. Being a finalist (for the tenth consecutive year!) at last week’s Australian Banking and Finance Awards is testament to our staying power and “athletic” ability.
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, June 14, 2011 0 Comments Make a comment
Psst ... secret men’s business
This blog post may only be read by those in the brotherhood. Sorry, ladies, but you must immediately cease-and-desist lest you be embarrassed. We blokes need some private time. It’s not often that the male of the species huddles in such a clandestine way, but this is important.
Now listen fellas, we need to talk about men’s health. I know we big boys think we’re invincible, but we’re not. We tend to ignore the symptoms of ill-health until it’s too late. We’re as susceptible to disease as the women folk but, as a gender, we’re poor at scheduling regular preventative health checks.
Most men believe that what’s good for the goose isn’t necessarily good for the gander. This is borne out by research which shows that men engage in less health-promoting behaviours than women. Perhaps that’s why just as many men die from prostate cancer each year as women die from breast cancer.
Men are reluctant to seek medical related help. Like ostriches, we tend to stick our heads in the sand and overlook aches and pains. Indeed, we’re more likely to take the car for a service than visit a GP. Changing this stereotypical masculine attitude is not easy, but health care professionals are batting on.
Next week (June 13-19) is International Men’s Health Week. It’s designed to raise awareness about the need for men to seek regular medical advice and early detection and treatment for health problems. I thought I’d give you early notice so that you can arrange a check-up for next week.
I have an annual physical examination and so should all men over 40. As I have said to many a man, it’s pointless having fiscal wealth without physical health. Your greatest asset is your ability to earn an income and you can’t do this if you are incapacitated.
Two years ago I took up ocean swimming. I’d like to tell you that I did this of my own accord, but that would be a lie. I had some encouragement from my family doctor. Michael told me that, like other males in my family, there was a possibility (however slight) that I might develop diabetes later in life.
Well, I didn’t like the sound of that so I asked my doctor what I could do and he told me to exercise more. While I now run the risk of being taken by a shark, I’ve never felt better. Maybe next year you can join me in the Bondi to Bronte swim, the Shelly Beach to Manly Beach swim or the Coogee Beach Island Challenge – it’s invigorating!
Finally, for the ladies who have read this through to the end even though I asked you not to, may I say “thank you”. Feel free to nag your husband/partner/lover about his health. You can blame me. And don’t forget to tell him that you and the kids want him around for a long time.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 06, 2011 1 Comments Make a comment
Handling customer feedback
Let’s face it - no company is perfect. It’s impossible for an organisation to deliver 100 per cent customer satisfaction all the time. Mistakes do happen, customers do complain and this direct feedback is a great way of finding out what your customers really think about you.
Organisations should welcome customer complaints as they provide an opportunity to improve. How an organisation handles mistakes is indicative of its service status. Indeed, what an organisation does to fix a problem (called service recovery) makes or breaks its reputation as a high quality service provider.
Research shows that fast and effective service recovery enhances a customer’s perception of the quality of products and services they have already purchased. Moreover, it improves the perceived quality and value of other products and services the organisation offers.
The impact of poor service recovery goes far beyond the loss of a single customer. The average business never hears from 96 per cent of its unhappy customers. Of the customers who register a complaint, 95 per cent will do business again with the organisation if their complaint is satisfactorily resolved.
The average customer who has a problem with an organisation tells nine or ten people about it. Customers who have complained and had their complaint satisfactorily resolved tell an average of five people about the treatment they received.
At Gateway, when a member takes the time to tell us we’re not doing something right, we cherish that feedback. I think the real skill is not to view a member complaint as a negative experience but as a learning tool. Complaints represent free and spontaneous feedback and in my experience they are often more valuable than expensive focus groups.
Many people (and I’m one of them!) rarely complain – they just take their bat and ball and go elsewhere. They vote with their feet and you never see them again. I’ve told Gateway staff we should thank members who take the time to tell us their gripes as they are essentially giving us a second chance.
Thanks to the dedication and commitment of the Gateway team, we receive very few complaints. Nonetheless, we have developed a Service Recovery Charter as a what-to-do guide for Gateway staff when dealing with member feedback.
All organisations claim they are customer focused, yet few consistently deliver exceptional customer service. That’s why I have long believed that the ability to provide first-class service is the greatest innovation. At Gateway, we are committed to always putting our members’ first.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 30, 2011 0 Comments Make a comment
Changing business models
On a number of occasions I have used this blog to conduct book reviews. I mainly critique business and finance literature but have appraised tomes from other genres including health and well-being. I cast a broad, non-fiction reading net as the writings which impact the business world do not fit neatly into one discipline.
For each book I review, I outline its major underlying themes or concepts. My blog word count limit does not allow me to conduct an in-depth description and evaluation of the author’s thesis. Given this, I invariably omit facets that could be the subject of another blog post or three.
Well this week, for the very first time, I’d like to write a second post about a book I’ve already assessed – The Sixth Wave. The book contains a very interesting chapter on changing business models which I didn’t mention in my original review. So let me do that now – but first, a quick reminder of what The Sixth Wave is about.
The book’s premise is that we have been through five waves of change since the Industrial Revolution and are about to experience a sixth wave of innovation. Resource efficiency is at the heart of this sixth wave and will see companies eliminate waste by selling services, not products. The authors predict the shift from product to service “...will change the face of commerce”.
The mobile phone is a good example of a product that is now marketed as a service, making it far more profitable. Mobile phones are very expensive. When phone companies realised the real value was not in the hardware but in the service – the actual phone call – they started giving away the handset.
Other industries are now joining the shift from a product to a service focus as they increasingly understand that (i) the things we consume are different to the things we use and (ii) waste equals opportunity. The authors provide some mind-expanding examples and reveal a new economic model that rewards sustainability.
For instance, the authors view a car as an “incredibly costly resource (that) spends most of its life sitting idle .... A more sensible approach would be to have a car (only) when you need it”. They foresee an increasing number of drivers using car sharing services like GoGet.
With GoGet you pay for the service the car provides – transportation and mobility – rather than for the car itself (i.e. the product). GoGet benefits not only members but also the environment. It’s claimed that one shared car can take seven privately owned vehicles off the road thereby reducing congestion and pollution.
Another example of a company trying to reduce its ecological footprint is carpet manufacturer, Interface, which now rents carpet. Clients like it because it’s easier on their cashflow. Interface profits from pricing its rented carpet tiles to reflect true value to the consumer. And the environment benefits as Interface ensures proper recycling - so much less carpet ends up in landfill.
In the same vein, the authors argue that less car tyres would end up in landfill if they were also rented. “Selling tyre services”, they say, “...would create an incentive for manufacturers to develop a tyre that would last for 200,000 kilometres rather than 50,000 kilometres”.
The boundaries between products and services are also blurring with regard to energy which too can be viewed as a service. People do not want to “...own litres of oil, tonnes of coal or megawatts of electricity”. Rather, they seek the services that fuel enables – heat, light and mobility. UK energy-services company, Thameswey, has designed its business models around selling energy services rather than energy.
It really is a brave new world!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 23, 2011 1 Comments Make a comment
Stop the pandering
Everyone has theories. We all have our own explanation for why things work the way they do. We hold beliefs that if X happens, Y will result. Our theories may not always be correct but we use them to understand and make sense of the world.
Well, I’ve had a theory for as long as I can remember and it relates to short-term thinking. Whenever we make decisions based on quick fixes, instant gratification and populism, we suffer long-term consequences. We see this time and time again in politics, business and even our homes.
We all intuitively know that true leadership is not a popularity contest which is why prime ministers, CEOs and parents must be capable of making unpopular decisions at times. The good news is that most constituents, employees and children will respect you in the end for making the right choice.
To do and say what is right – as distinct from popular – means you sometimes have to stand alone and this takes strength of character. But if you have a clear vision of the future and how it ought to be, then you can drive change in the face of opposition through the courage of your convictions.
Regrettably, such bold leadership is increasingly difficult to find in politics as politicians have become scared of upsetting the electorate. Nowadays, opinion polls and minority groups unduly influence policy formulation resulting in long-term economic credibility being sacrificed for short-term populist reforms.
Paradoxically, when political leaders make decisions based on opinion polls they end up being followers, not leaders. They also become reactive rather than proactive. Moreover, inspired leadership gives way to emotive and ill-informed slanging matches.
The end result is the public gets policies that are against their own best interests, particularly those that threaten business. There are many examples of this in Australia. The Australian Retailers Association branded the Government’s push to ban plastic bags as populist politics.
The Business Council of Australia believes the immigration debate has descended into populist rhetoric, noting that we need continued, sustainable growth to ensure our children inherit a strong economy. And recently, the ANZ Bank boss warned that populist policies were spooking foreign investors.
For my money, former Western Australian Premier, Geoff Gallop, got it right in a recent article, When populism raises its ugly head, wherein he stated that populism:
...prefers nationalism to internationalism, protectionism to free trade and fundamentalism to multiculturalism. Populists want politicians to support “us” as against “them”....They distrust business and support local environmental activism but don’t like...the philosophy of economic rationalism.
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Okay, here comes the sting in the tail. Brace yourself – it’s largely our fault if we end up with poor political leadership. As French political philosopher, Alexis de Tocqueville, said: In democracy, we get the government we deserve.
We all “have a say” in voting governments in and politicians should be worthy of the people they serve. Equally, we have an obligation to behave responsibly and avoid short-term community hysteria just because we don’t get our way on a particular issue.
For example, when it comes to rising interest rates, I know, (intelligent) politicians know and every first-year economics student knows they are a sign of economic growth and prosperity. Yet many in the electorate expect the government to say the opposite - and it does - as it knows mortgage rates are a political hot potato. Boy, I’m glad I can speak the truth.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 16, 2011 0 Comments Make a comment
We are not equal
Imagine if we held award ceremonies where no gold medals, blue ribbons or 1st place trophies were given out. Instead all award attendees were given an identical certificate of participation. With no recognition of exceptional performance everyone - in theory - would be equal.
In practice, however, talent and ability together with drive and determination create inequality. In any group of people there will be those who strive for excellence. As a nation, we quite rightly acknowledge and applaud our high achievers in sport, academia, business and the arts.
While high-achievers become role models for others to emulate, they also create income inequality. People who work harder and smarter tend to be rewarded more. This contributes to the ever expanding gap between the rich and poor and the resultant call from some for a more egalitarian society.
The general premise of egalitarism is that people should be treated as equals on a range of dimensions such as race, religion, ethnicity, political affiliation and social status. In broad terms, egalitarians argue that no one should be treated as a second-class citizen and I absolutely subscribe to that view.
I do not, however, believe that in an open-market, capitalist economy we can or should have equal economic status. People deserve varying financial rewards for the jobs they do and the contribution they make to society.
Even if we somehow managed to redistribute wealth so that every adult in Australia had exactly the same amount of money, it would be fleeting. The smart, the strong and the devious would quickly acquire the wealth of the slow, the weak and the gullible.
Also, people would use their money in different ways. The prudent would save and invest their money while the irresponsible would squander it. Some might gamble theirs away as soon as they got it while others still might simply give it away for altruistic reasons.
In my role at Gateway, I see on a daily basis the different attitudes that people have to money and wealth. Some people are driven to increase their wealth and material possessions and borrow to buy multiple properties. Others just borrow to purchase the family home and are content with achieving that goal.
Given our diverse mind-sets to money, the equal distribution of wealth is clearly an unattainable goal. Nonetheless, I believe that the widening gulf between workers and executives has become excessive. I find it hard to accept that any one individual is worth an annual salary of, say, $10 million.
Equally, I don’t believe that sports stars and rock-‘n’-roll artists are worth the millions they are paid. However, I accept that in a free-market economy based on supply and demand, captains of industry, the sporting elite and entertainment celebrities can command multi-million dollar incomes.
Excessive greed benefits no one, but trying to make all of us financially equal is a recipe for disaster. Capitalism, quite rightly, rewards productive achievement and provides the necessary incentive for entrepreneurs to take risks and innovate and this benefits society overall.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 09, 2011 2 Comments Make a comment
Hurry up and slow down
Are you always rushing from one thing to the next? Does your to-do list run your life? Do you have a chronic feeling of being short of time? Is your body sending you signals that things are out of balance? Would you like more time to smell the roses? Do you yearn for a lazy Sunday?
For many people life is chaotic. As a society, we’re living on the edge of exhaustion. Life has become a never-ending busy season. The cult of speed is manifesting itself everywhere. We have speed dialling, speed walking, speed reading and even speed dating.
We’re always in a rush as our modern way of living assumes faster is better. The world has become stuck in fast-forward and according to Carl Honoré, author of In Praise of Slow: How a Worldwide Movement is Challenging the Cult of Speed, we need to slow down and rebel against a hectic lifestyle.
Honoré is a London-based Canadian – he’s also a recovering “speedaholic”. His personal wake-up call came when he began reading one-minute bedtime stories to his two-year-old son in order to save time. Honoré confesses that he was a “…Scrooge with a stopwatch, obsessed with saving every last scrap of time”.
His book provides a self-deprecating account of his personal journey in search of a cure to slow down. After his “bedtime-story epiphany”, he decided to investigate how to change his “full throttle” lifestyle and discovered the slow movement.
The slow movement is not a call to overthrow technology and travel back to some pre-industrial utopia. Nor is it about doing everything at a snail’s pace. Rather, the slow philosophy can be summed up in a single word – balance.
“The (slow) movement”, writes Honoré “is made up of people ... who want to live better in a fast-paced, modern world”. Being slow means controlling the rhythms of your own life. “Be fast when it makes sense to be fast”, advises Honoré, “and be slow when slowness is called for”.
He warns that “turbo-capitalism offers a one-way ticket to burnout”. He views the clock as “the operating system of modern capitalism” and the thing that makes everything else possible – meetings, deadlines, processes, schedules, transport and working shifts.
Long working hours and living in the fast lane inflicts a toll on family life. “With everyone coming and going, Post-it stickers on the fridge door are now the main form of communication in many homes,” laments Honoré. Not even technology can buy more time. Indeed, he sees technology as “a false friend”.
Well, I should s-l-o-w-l-y sign off for this week lest I be accused of suffering from hurry up sickness. I encourage you to savour In Praise of Slow - at your own pace, of course. Meanwhile, I’ll try and speed up Gateway’s already fast web site as I’ve just learnt that Gen Yers are not happy if a web page does not download in less than four seconds. Whatever happened to patience being a virtue?
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 02, 2011 0 Comments Make a comment
See the world through our eyes
Perceptions rule our lives and create our reality. They are the lenses through which we “see” the world. But we see only what we are conditioned to see and this limits our horizons. We don’t see with our eyes but with our brains. So, if we want to change everything, we have to change our perception.
Just as the northern hemisphere’s summer is our winter, financial institutions also see the world upside down to those on the outside looking in. When it comes to banking, the view differs depending on whether you are on the customer’s side of the counter or the financial institution’s side.
When you take out a loan, you (“the borrower”) acquire a debt which is a liability you must repay. However, to the institution that advanced you the funds (“the lender”), your loan is an asset or investment on which it expects a return. The return comes in the form of the interest you pay on your loan which is an expense to you but income to your lender.
The same logic applies when you invest money with a financial institution. Your savings are an asset to you but a liability to your financial institution. As an investor, you lend money to a financial institution which, in turn, pays you interest on the funds it has borrowed from you.
What I have just described is financial intermediation and it is a pervasive feature of all of the world’s economies. Gateway is in the business of financial intermediation. In simple terms, this means we act as an intermediary (go between) in moving money between investors and borrowers.
We pay interest to investors on the deposits they keep with us and we receive interest on the loans borrowers take out with us. The difference between the interest we receive on loans and the interest we pay on deposits is referred to as our margin or spread.
The size of this spread is a major determinant of the profit generated by a financial institution. With borrowers understandably wanting the lowest interest rate possible and savers naturally wanting the highest rate they can get, margins are constantly being squeezed.
Whether this is a good thing again depends on one’s perspective. If you view margin squeeze through the eyes of a customer, it means more competitive rates. If, however, your view is through the eyes of a shareholder, it potentially means lower share prices.
Interest rate wars between financial institutions exacerbate margin squeeze. The current retail deposit price war has winners and losers. In Gateway’s case, our members are also our shareholders. We serve only one master, so it’s a win-win for us. Which goes to prove that a not-for-profit business model does have its advantages!
Regards
Paul J. Thomas
Podcast is available here
Posted Wednesday, April 27, 2011 1 Comments Make a comment
The next big thing
Regular readers of this blog know I’m not a fan of forecasters. As I stated in a recent post, The certainty of uncertainty, predictions are rarely accurate. Time and time again purported “experts” look into their crystal balls and make proclamations about the future that turn out to be completely wrong.
Life has taught me that tomorrow is full of surprises. At best, the future is very uncertain and, at worst, it’s absolutely chaotic. But that has not stopped modern day prophets publishing their predictions. I see them on the book-shelves during my trips to the bookshop and normally ignore them.
Recently, while wandering the aisles, the spine of a book caught my eye. I plucked it from the shelf, flipped it over and read the back cover promotional blurb. The sales pitch claimed that the book, The Sixth Wave: How to succeed in a resource-limited world, was “...a bold prediction and roadmap to the future”.
My initial inclination was to put it back on the shelf, but for some reason I didn’t. Curiosity got the better of me and, not wanting to proverbially judge a book by its cover, I quickly leafed through to the introduction. To my surprise, the authors openly admitted that “prediction is a dangerous game...(and)...carries the possibility that you’ll be completely and utterly wrong”.
Given this refreshing honesty, I bought the book and breezed through it in a few sittings. Its premise is that we have been through five waves of change since the beginning of the Industrial Revolution. We are allegedly about to experience the sixth wave of innovation and it has the “potential to save the planet”.
If the authors are correct, the sixth wave “…is a revolution that will see our world transformed from one heavily addicted to the consumption of resources, to a world in which resource-efficiency is the name of the game”. In this brave new world, “…resource scarcity and massive inefficiencies will be the big market opportunities”.
The authors see a “spectacular boom in technologies” and believe that waste elimination will be the source of this opportunity. In a nutshell, it’s about doing more with less – less resources and less waste – for a greener future. The next wave of technology will take sustainability into account.
Take the combustion engine in your car, for example. Apparently, just 15 per cent of the energy in the petrol actually goes into moving your car forward – 85 per cent is lost as waste heat, pressure and noise. The authors see this as “extraordinarily inefficient” which is why they favour sustainable transportation like the electric car.
They see a time in the not-too-distant future when electric car battery-swapping stations will “dot the landscape” just like petrol stations currently do. Supposedly, you will pull into a battery station and “…an automated system will remove your old battery and replace it…without you even having to get out of the car”. Hmm?
You’ll have to catch (read) The Sixth Wave if you want to learn more. For me, from both a personal and professional perspective, it was a thought-provoking read. I have no doubt that scarcity will drive some innovation in sustainable products and services and that these will impact Gateway. Beyond that, I don’t think it helps to be too specific, lest you be proven wrong.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 18, 2011 1 Comments Make a comment
Risky business
We all face a multitude of risks in our daily lives. Each of us is exposed to personal risk (eg, injury) and collective risk (eg, terrorism). Some risks are forced upon us (emergency surgery) while others are undertaken by choice (air travel).
We can take legal risks (gambling), health risks (smoking), sporting risks (parachuting) and hygiene risks (shaving). Some risks are predictable (drugs) while others are unforeseeable (tsunami).
Given all the risks around us you might be forgiven for not wanting to get out of bed – but that poses its own set of risks! Just as risk is an inescapable part of life, it’s also inherent in everything a business does or does not do.
It’s impossible to run a business without taking risks. Indeed, it’s unhealthy to even try as you’ll risk stagnation. Companies which can see beyond risks to the opportunities they present are much more likely to prosper.
The process of identifying, assessing and managing risks is known as risk management. Following the GFC, banking regulators around the world have understandably put the spotlight on risk management and this is a good thing.
Organisations which are effective at managing risk have developed risk-based organisational cultures where staff and managers instinctively look for risks. The same broad principles apply to households which should also put in place strategies to mitigate risks.
For most Australians their home is their biggest asset and needs to be protected against the risk of damage. But our greatest asset – particularly for younger people - is the ability to generate an income.
Income risk arising from the loss of a job or inability to work due to disability is real. Yet only 35 per cent of Australians have insurance to protect against the severe financial distress caused by a loss of income.
On the other side of the ledger, we also face expense risk. Life has a way of throwing up unexpected bills and this risk can be mitigated by having an emergency fund to cover sudden expenses.
Another risk that all of us will face at some time is retirement risk. If you don’t put away sufficient money into superannuation, you’ll run the real risk of outliving your retirement savings.
From time-to-time it’s important to step back and reassess the risks in our lives. This risk assessment forms part of life planning. Remember, while no one plans to fail, many just fail to plan.
Regards
Paul J. Thomas
Podcast is available here
PS Gateway's CEO Blog was nominated last Friday (9/4/11) in the Sydney Writers' Centre Best Australian Blogs 2011
Posted Monday, April 11, 2011 0 Comments Make a comment
Explaining inertia
Ever wondered why things are the way they are? In organisations, you often hear people say “we’ve always done things that way around here”. Well, it’s not just in organisations that humans are locked into behavioural patterns. Much of what does or does not happen in the world is governed by a phenomenon called path dependence.
Path dependence exists when the outcome of a process depends on its past history. The most famous and oft quoted example of this is the QWERTY keyboard. The name QWERTY comes from the first six letters in the top alphabet row of all typewriter keyboards.
This universal keyboard configuration makes no sense, is awkward and confusing. Experts have been saying that for over 100 years - but it remains! The QWERTY keyboard arrangement made its first appearance on a rickety typewriter in 1872 to solve a temporary mechanical problem. Due to path dependence it has become entrenched as the standard for today’s advanced and sophisticated computers and word processors even though it’s inefficient.
Path dependence extends beyond technology and into all areas of our lives. For example, many industries were established in locations by default rather than design. Now that they have become entrenched by geographic path dependency it’s hard to relocate them. So, movies continue to be made in Hollywood, cars in Detroit and airplanes in Seattle.
Path dependence exists when past decisions constrain current options. It’s a natural by-product of routines and standard operating procedures. In organisations, it is reinforced by culture and acquired knowledge. Some believe that path dependence is a fancy label for institutional inertia and resistance to change.
While it’s easy to simply continue in the same direction and remain locked into old formats, organisations and society at large would not progress if the status quo was maintained. Having said that, it’s equally important that historical experiences not be discarded wantonly in our quest for a better future.
At Gateway, we respect the past while embracing the future and have captured this paradox in the operating statement - constantly changing while forever staying the same. Over the past five years we have radically altered what we do and how we do it but our underlying focus on member service remains untouched.
We have remained true to the dreams of our founding fathers while simultaneously stimulating progress in everything that is not part of our core ideology. We have proved we understand the difference between what should never change and what should be open to change, between what is truly sacred and what is not. We’re committed to change but have no intention of throwing out the baby with the bathwater.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 04, 2011 0 Comments Make a comment
The certainty of uncertainty
Predictions are rarely accurate. While people want to know what will happen in the future, the truth is that no one really knows. But that has not stopped “experts” in a range of fields offering bold yet incorrect pontifications. For example, the history of predicting business trends is a tale of misjudgments. Just look at the track record of foretelling the future of computing.
In 1943 Thomas Watson (IBM) declared “the world only needs five computers”. In 1977 Ken Olson (Digital) proclaimed “there is no reason anyone would want a computer in their home”. Not to be outdone in the I-got-it-terribly-wrong category, Bill Gates told us in 1983 that Microsoft “will never make a 32 bit operating system”.
I’ve always had a healthy scepticism of crystal ball gazers and so was drawn like a magnet to a book by investigative journalist, Dan Gardner. Future Babble: Why Expert Predictions Fail - and Why We Believe Them Anyway, is a fast and informative tome which reveals the repeated and sometimes monumental failure of expert predictions in every field.
Gardner reveals that he’s “...always been fascinated in the way that experts are held up as gurus and taken so terribly seriously and when their predictions fail, people just shrug and walk away.” He argues that the average pundit is about as reliable as flipping a coin.
To support this view, Gardner draws on the work of Philip Tetlock, a professor of psychology at the University of California at Berkeley. Following extensive research, Tetlock discovered that experts’ predictions were no more precise than random guesses. Tetlock concluded that “…experts are about as accurate as dart-throwing monkeys”.
Gardner surveyed the history of predictions and found a legion of oracles who got it wrong. H.G. Wells famously declared that World War I would be the “war to end all wars”. Albert Einstein argued that “only the creation of a world government can prevent the impending self-destruction of mankind”. Biologist, Paul Ehrlich, declared in his 1968 book, The Population Explosion, that “the battle to feed all of humanity is over”.
On the other side of the coin, soothsayers failed to predict events that did occur. No one foresaw the fall of the Berlin Wall. No one forecast the rise in fertility rates after World War II. No one envisaged the phenomenal rise in Internet usage. No one factored the 9/11 disaster into scenario planning. And very few economists predicted the Global Financial Crisis.
From the Y2K hysteria to the fervent belief that the Japanese economy would permanently overtake the American economy in the 1990s, history is littered with examples of seers who got it wrong. Yet, as Gardner notes, the general public continues to put great faith in experts who never lose their widespread appeal.
I’m with Gardner when he says that “the future will forever be shrouded in darkness”. Expert predictions fail because the world is complicated, yet our flawed quest for certainty continues. Only fools or geniuses try to predict the future - and I’m neither! By the way, I’m still waiting on my flying car, robot maid and paperless office.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 28, 2011 2 Comments Make a comment
The rise and rise of technology
Technological development is occurring at an exponential rate. We are being swept up in a global information revolution which shows no signs of abating. As each year passes we witness rapid changes in the way we communicate, learn, work and play. The common thread is our need to be connected.
Mobile phones have become ubiquitous, going from “yuppie-toy” to “must-have” in a relatively short period of time. Today, more humans own a mobile phone than do not. Mobiles have become the most common consumer electronics devices on Earth.
Text messaging has enhanced the utility of mobiles since the first text message was sent in 1992. There are now more text messages sent and received every day than the number of people on the planet. It’s estimated that over 200,000 text messages are sent every second.
In addition to phoning and texting, we also like to e-mail. During 2010, an estimated 294 billion e-mails were sent every day among the world’s 1.4 billion e-mail users. The average office worker is estimated to spend around 40 per cent of their working day sending and receiving e-mails.
We also like to keep in contact via facebook. Facebook’s user population exceeds a staggering 500 million people. If facebook were a country, it would occupy the third position after China and India in terms of population. One-third of Australians are facebook members.
But wait - there’s more! We love to Google the cyber universe. In 2006, Google received 2.7 billion search requests every month. Today, that figure is 31 billion and climbing. Facebook is Australia’s number one Google search request.
Technology is clearly fulfilling a basic human need for togetherness and belonging. Perhaps that explains the phenomenonal growth in online dating with singles looking for love over the internet. One in eight couples in the US who married in 2007 met via social media.
Every part of our daily lives, from transactional banking to grocery shopping, is affected by technology. Some find it hard to remember how things were in the “good old days”. The world we see today would not be recognisable to people of a few generations ago.
My grandfather thought it was amazing that a remote control could change the channels on a TV. Given the way technology is heading, my grandchildren may have a remote device to control their entire life - both real and virtual!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 21, 2011 2 Comments Make a comment
Should governments privatise?
Margaret Thatcher started doing it in the late 1970s. Ronald Regan jumped on the bandwagon in the early 1980s. The Japanese followed suit in the mid-1980s. Now everyone’s doing it – privatisation is sweeping the world. Both developed and developing nations are divesting themselves of government owned enterprises including railroads, airlines and telecommunications.
The motivation to privatise is typically driven by a combination of three factors: (a) the desire to raise cash to retire government debt (b) the need to reduce subsidies to profit-losing state enterprises and (c) the hope that private investors will bring managerial practices and technology to upgrade utilities.
In the extreme, privatisation results in the transfer of ownership and control of state services and enterprises to private ownership. But more common are public-private partnerships in which the facilities are still owned by the government but managed privately.
Supporters of privatisation claim that governments are bureaucratic, inefficient and incompetent at providing services. Public sector defenders, on the other hand, label the private sector as greedy, unethical and prone to corporate failure. While neither sector has a perfect track record, it’s unhelpful to tarnish either with sweeping generalizations.
For my part, I do not see privatisation as inherently good or bad. My contention is that it has to be done right. Privatisation works best when there is vigorous competition among alternative service providers. Also, there needs to be a clear understanding of which enterprises are best suited for a public-private partnership approach.
Privatisation in Australia started in earnest with the sale of the first tranche of the Commonwealth Bank in 1991. It continued with the privatisation of Qantas (which began in 1992) and has gained momentum since to include the partial sale of Telstra and the sale of Sydney Airports.
Australian governments, both Commonwealth and State, have now privatised a significant portion of the public sector. This includes electricity and gas in Victoria and electricity in South Australia. Plus, we’ve also witnessed the sale of the State Bank of NSW, the State Bank of Victoria, GIO in NSW and SGIO in WA.
Privatisation is not a panacea to public sector woes nor is it a licence to print money for the private sector. While many people worry about the government selling off the family silver, privatisation is an important element of microeconomic reform which is designed to improve market efficiency by limiting government interference in the economy.
Like all public policy debates, the privatisation debate is an emotive battlefield. Politicians, interest groups and the general populace treat privatisation arguments like warfare. Once you pick a side, you’re expected to support all of your side’s arguments and attack every argument mounted by the enemy side, lest you be accused of being a traitor.
I think we need to be a bit more pragmatic. A case-by-case approach to privatisation is essential - as is an open mind - to the potential social and economic benefits of any asset sale. Transparency is also crucial as taxpayers understandably want to know that asset valuations are realistic and that procedures for calling for bids and evaluating offers are fair.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 14, 2011 0 Comments Make a comment
Science meets art
Arguably, the most famous drawing in the world is Leonardo da Vinci’s Vitruvian Man. This iconic illustration depicts a male figure in two superimposed positions with his arms and legs apart and simultaneously inscribed in a circle and square. The drawing is a representation of the ideal human proportions as described in geometrical terms by the Roman architect, Marcus Vitruvius.
Da Vinci was both an artist and a scientist and his drawing beautifully blends both disciplines. It also sparked an on-going debate that rivals the nature-versus-nurture debate. I first encountered the art-versus-science debate many years ago when l had to write an essay arguing whether management is an art or a science.
If you search the web you’ll find the art/science debate is still alive and well. There’s seemingly no end of websites asking whether a certain activity, such as marketing, photography, medicine, money management or even the application of make-up, is an art or a science.
To answer this question, you need to firstly define the term art and the term science. For me, it’s as simple as saying that art means practice while science means knowledge. So, it’s the difference between being able to actually do something versus understanding the theory behind something.
Let me anchor this to a real world example – swimming. In my youth, I was a reasonable swimmer. You might say I was good at the art of swimming. Yet I knew swim coaches who could not swim a stroke but were competent at imparting the science of swimming to their squads.
Similarly, I’ve met executives with no formal business qualifications who are great managers. Conversely, I’ve met academically qualified managers who are poor management practitioners. Generally speaking, the better managers blend theory and practice and that’s what we try and do at Gateway.
Our lending operation combines the science of obtaining and analysing the facts about a loan applicant with the art of making judgements about that information. We also work hard to find the right combination of science and art in creating our award-winning product and service offerings.
Having the right products, at the right price, for the right segments, requires an on-going analysis of member needs. Delivering those products in a friendly, personal manner requires us to do the basics brilliantly. Believe me, there’s a real art in listening, empathising and handling objections.
Art and science should be partners, not enemies. To every art there is at least one branch of science and to every branch of science there is at least one branch of art. While it’s true that there is no substitute for experience, great things can happen when art and science meet.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 07, 2011 1 Comments Make a comment
Carbon pollution reduction policy
Governments around the world are taking political action to address global warming. Policy makers accept the planet is heating up and believe human activity - like burning oil and coal - is the cause. Governments want to cool things down by reducing their nation’s carbon footprint.
Almost everything we do – from driving a car to flicking a light switch – produces carbon dioxide (CO2) which leaves a carbon footprint. I deliberately use these examples because for most people electricity and modes of transport are the greatest contributors to personal carbon emissions.
Industry also contributes to carbon emissions. Since the industrial revolution, the concentration of CO2 in the atmosphere has risen by more than 30 per cent. A significant part of these emissions come from energy production, industrial processes and transport.
In Australia, the federal government is investing in helping Australians reduce their carbon pollution via the Renewable Energy Bonus Scheme. The government also wants businesses to become more energy efficient and launched the Clean Business Australia program.
But these voluntary programs to combat greenhouse gas emissions are not enough to meet the federal government’s emissions reduction target. So, the Australian government, like all governments, has two main policy options to “force” down emissions – a cap-and-trade scheme and a carbon tax.
Under a cap-and-trade scheme each large-scale emitter is given a cap on the amount of greenhouse gas it can emit. If a company can reduce its pollution below its cap (of carbon credits) it can trade (sell) those credits to another company that's not doing so well in reducing its emissions.
A carbon tax, on the other hand, is a form of pollution tax. It works by adding a tax on the price of coal, gas and oil, based on the carbon intensity of the fuel. For example, the carbon tax on electricity generated from burning natural gas would be half that levied from burning black coal, because burning gas produces only half the emissions.
Kevin Rudd favoured a cap-and-trade scheme and this was the centerpiece of his proposed Carbon Pollution Reduction Scheme. In contrast, Julia Gillard favours a carbon tax. Some believe that a hybrid scheme offers the best of both worlds.
Last week the Gillard government announced a fixed price on carbon and this will add to the escalating cost of electricity. The only way to contain these rises is to use less electricity or, in economic speak, demand less. A carbon tax will confirm whether the price of electricity is what economists call “elastic” – ie, demand decreases when the price increases.
For climate change believers, a carbon tax is where the rubber hits the road in testing their conviction. For climate change skeptics, increased energy costs from a carbon tax will be a bitter pill to swallow. With business also divided (BHP Billiton backs the plan), it’s clear that selling the carbon tax will be a tough job.
May I end with a request for calm and reason? Regardless of which side of the climate debate you’re on, we should avoid using divisive stereotypes. Remember, a skeptic is someone who doubts that something is true. That’s not the same as being completely convinced that the thing is not true. A subtle but important distinction!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 28, 2011 2 Comments Make a comment
Ease your money worries
It’s human to worry. Worry is a state of mind based on fear. We fear all sorts of things including rejection, failure and what may or may not occur in the future. But worrying can’t change the weather or alter our height. Indeed, worrying never fixes a thing. Yet many of us spend our life in morbid anticipation of events which never actually happen.
One way to control our fears is to categorise them as either possible or probable. In theory, just about anything is possible but, in reality, not everything is probable. Sure, it’s possible to die in a plane crash but it’s more likely you’ll suffer a fatal injury in a car accident. Equally, it’s possible to be eaten by a shark but more likely you’ll drown in the ocean.
Some worries, of course, are very real and very understandable and not the result of phobia. An example is money worries. An increasing number of households worry about their ability to pay the bills and make ends meet. Financial angst is one of the biggest causes of stress for Australian adults.
The GFC has taken its toll on relationships and last year in Australia divorces rose for the first time in almost a decade. Arguments about money put added stress on relationships. Which is why investing in family relationships during tough times is critical otherwise financial stress may destroy your family.
Paradoxically, money woes can actually increase spending habits. Some individuals go on shopping sprees to cheer themselves up even though they may be in financial crisis. But emotional spending, like emotional eating, only makes things worse. According to a recent Oxford University study, obesity is linked to money insecurity in affluent nations like Australia.
When finances are tight, other areas of life may be neglected. So, during times of financial stress it’s important to eat healthy foods and get regular exercise. Physical activity stimulates the production of endorphins, the body's natural anti-depressants, which make you feel energised and positive.
Money can’t buy happiness but a lack of it can set off a raft of emotional and physical problems. Let’s face it, a dwindling savings account and rising debt can make the best of us sick and tired. But financial stress does not have to rule your life. Take control of your finances by preparing and sticking to a household budget.
Finally, be prepared (if necessary) to bring a little austerity into your life, no matter how hard that can be on your ego and lifestyle. Reducing debt is like losing weight – it’s hard and it takes time. But financial freedom is worth the effort. And remember, don’t worry, be happy.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 21, 2011 1 Comments Make a comment
Beginner's guide to bonds
Virtually everyone borrows money at some stage of their life and the same holds true for businesses and governments. Just as households utilise finance to buy houses and pay for consumer durables, companies need funds to expand their operations and enter new markets while governments require money to provide infrastructure and other essential services.
Each sector of the economy taps different funding sources. Consumers can borrow money by taking out a personal loan, home loan or credit card. Corporations can raise working capital by using a combination of debt financing (bank loans and corporate bonds) and equity financing (issuing shares). Governments can raise money through taxes or by issuing bonds.
Every year, corporations and governments around the world issue trillions of dollars of bonds. Most bonds are known as fixed-income debt securities because the amount of income the bond generates annually is fixed when the bond is sold. The corporation or government entity promises to return the principal - the face value of the bond - on the specified maturity date.
Bonds are essentially interest only loans and when you purchase a bond you become a “mini-banker”, lending to a large corporate or government borrower. Bonds are also said to be similar to an I.O.U. - the issuer (eg, corporation) must pay the interest due on the bonds whether or not it makes a profit. This is in contrast to dividends which are paid on shares at the directors’ discretion.
Governments have historically issued specific-purpose bonds for the investing public. The vast highway system in the USA, the sewer networks of Paris and the World War II efforts of Britain were all financed by bonds. Fast forward to modern day Australia and the federal government will be using infrastructure bonds to fund the bulk of the $43 billion National Broadband Network.
Corporate bonds, on the other hand, are debts issued by industrial, financial and service companies to finance capital investment. A debenture is an example of a corporate bond. In Australia, bonds can be bought and sold on the share market via the ASX Interest Rate Market. Both the federal government and the opposition have signalled their intentions to expand and deepen the corporate bond market.
Although considered less exciting than shares, bonds play a critical role in our economy. Bondholders drive our economy and society to new heights. So, the next time you see a bridge being built or a production plant under construction, remember the vital role of bondholders and how their idle money is put to productive use.
PS. If you want to learn more about bonds, here’s a link to an earlier blog I wrote.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 14, 2011 0 Comments Make a comment
The truth on population
We find it difficult to have a rational debate in Australia about population. The arguments for and against a larger population are often ill-informed. On both sides, emotionally charged claims and counter-claims unnecessarily polarise the community. The debate needs to be reframed to find solutions to the real problem - an aging population.
The proportion of Australians over 65 will grow to 25 per cent of the population by 2050, up from 13 per cent. This prediction was made in the Government’s third Intergenerational Report, released early last year. Unfortunately, the report captured the public’s attention for another reason - its prediction that Australia’s population will grow to 36 million by 2050.
This headline grabbing figure has overshadowed the more important debate about the fall in the labour force participation rate. Whereas in 2010 we had five people of working age to every person 65 and over, this ratio is expected to fall to just 2.7 workers in 2050 to every retiree. This is a scary number as proportionally there will be fewer taxpayers working to support older Australians.
In any country, the key drivers of economic growth are population size, workplace participation rates and productivity levels (the three P’s). An increase in any one or more of these factors leads to economic growth and improved economic prosperity. A well-managed immigration program contributes to all three of these factors.
Immigration accounts for two-thirds of Australia’s population growth and migrants to our shores are mostly of prime working age. As noted by the Department of Immigration, migrants add to the labour force, lower the age profile of the population, increase workplace participation rates and add to productivity.
Of course, there are many who reject the economic need argument for immigration and say we just can’t sustain a bigger population. These individuals are understandably concerned that governments might not be up to the task of providing energy, water and transport infrastructure for rapidly growing cities (see earlier blog).
But a leading academic, Professor Peter McDonald, says that migrants should not be used as scapegoats for the failures of public planning. Successive waves of post-war migration have expanded our capacity as a nation and created the prosperity we now enjoy. If we had waited for governments to firstly put in the necessary infrastructure, we would be a backwater today.
At the end of the day, it may well be that politicians can do very little about population growth. According to a recently released report, a bigger Australia is as certain as death and taxes. “It is wrong to think we can control Australia's population size by simply cutting migration,” the report says.
Japan has the world’s oldest population and its on-going economic woes provide a sobering lesson. Japan’s aging and declining population is severely impacting domestic demand. Worse still, Japan is heading for a permanent state of economic malaise with its population expected to shrink from 128 million to 90 million by 2050.
Just as no company can massively scale back its investment in people and simply let its workforce age, the same holds true for nations. Size does matter, which is why I’m a fan of a big Australia and want to avoid what one academic has called The Small Australia Nightmare. A smaller Australia means bigger taxes and higher interest rates. I certainly don’t want that - do you?
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 07, 2011 3 Comments Make a comment
Home truths on property prices
Over the past couple of years house prices in many countries have fallen sharply. The sizeable drop in residential property values has created negative equity for millions of home owners. Moreover, the declines have destabilised the economies of many developed nations.
In contrast, the strength of Australia’s housing market has amazed observers. Despite predictions to the contrary, Australia has not suffered a property market crash. Indeed, around the nation, residential property prices have held their own or declined only marginally.
Yet property bears, like the International Monetary Fund (IMF), have been arguing that Australian house prices are overvalued. Property bulls, on the other hand, believe that Australian house prices are not out of whack and facing a major correction.
The property market doomsayers use a mathematical equation – the house price-to-income ratio - as proof of an imminent house price bubble. This formula is used to calculate the ratio of median house prices to median disposable income in a given geographical area.
Property analysts use the house price-to-income ratio to compare housing affordability across countries. A ratio of 5 is considered severely unaffordable. Some economists have incorrectly claimed that Australian residential property prices are 7-8 times the average household’s annual disposable income.
Were this claim true then, yes, Australian housing would be very expensive by international standards. But it’s an erroneous claim that is recycled on a regular basis. The reality is quite different and is confirmed in a report released recently by the Housing Industry Association (HIA).
Based on the HIA’s research, the nation’s house price to household income ratio was 4.1 during the September quarter. In capital cities, the ratio was 4.2 while in regional centres it was 4.1. So our price-to-income ratio – the proportion of income spent on housing costs – is not out of kilter with the rest of the world.
In June last year, RBA deputy governor, Ric Battellino, made the same observation. In response to a question at a business lunch he said:
| People feel that house prices in Australia are quite high, and that’s quite often because the ratio of house prices to income that are published for Australia tend to focus mainly on prices in the cities, and they are quite elevated. But, if you look across the whole country, the ratio of house prices to income is not that different from most other countries. |
ANZ’s property head, Paul Braddick, also has some unambiguous views on housing affordability. He sees the price-to-income ratio analysis as “fundamentally flawed” and “dangerously simplistic” as it ignores a key component of the housing affordability equation – interest rates.
Australia experienced one of the strongest housing markets in the world during 2010. According to a raft of experts, the residential property market has cooled but there is no bubble waiting to burst. So, the bottom is not going to fall out of the Australian housing market in 2011. Let’s hope the property bears are listening!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, January 31, 2011 0 Comments Make a comment
Australia’s energy challenges
The world’s appetite for electricity is projected to more than double between 2008 and 2035. The energy-hungry nations of China and India are fuelling much of this growth. Moreover, the Internet’s energy footprint, generated by over 1.5 billion online users, is growing at a rate of 10 per cent per annum.
The supply of electricity is not keeping pace with demand. Many parts of the world live with daily rolling blackouts. More electricity needs to be produced but it can’t be pumped directly out of the ground like oil or captured from moving air like wind.
Electricity is a secondary energy source - it’s obtained from the conversion of primary energy sources such as coal, gas, oil, solar power, hydro power and nuclear energy. These energy sources can be classified as either renewable or non-renewable, but electricity itself is neither renewable nor non-renewable.
Australia has an abundant supply of renewable energy resources including solar, wind and water. Yet we rely on non-renewable energy (fossil fuels) for 95 per cent of our energy needs. Of this, coal provides 40 per cent, oil 33 per cent and gas 22 per cent.
Following the Copenhagen Climate Change Summit, many nations - including Australia - pledged to reduce carbon emissions. Coal accounts for about 37 per cent of Australia’s greenhouse gas emissions which is why the Gillard Government wants a tax on carbon emissions from “dirty” coal-fired generators.
Presently, coal-fired power is cheaper than using non-polluting energy supplies such as nuclear power. Energy producers, therefore, are unlikely to voluntarily choose environmentally friendly forms of energy as they are more expensive and less efficient compared to coal-fired electricity.
Ergo, the government’s decision to force a mandatory change in the mix of energy production via a carbon tax to facilitate effective greenhouse gas mitigation. Westpac is supporting the government’s efforts and will not finance any new high carbon emitting assets. Westpac will focus on the development of clean energy solutions.
Over the past year, electricity prices in Australia have risen by more than 20 per cent. A carbon tax will push up prices further. Higher prices, it is argued, will cause consumers to modify their demand and become more responsible users of electricity. But is this really the case?
The tax on alcopops increased the price of pre-mixed alcoholic beverages but didn’t dampen demand among teenagers. So, do we really believe that demand for electricity, which is predicted to more than double by 2050 in Australia, will fall due to a carbon tax?
I can’t see “plugged-in” Australian households turning off their air conditioners or buying less power-hungry TVs due to higher electricity prices. My sense is that electricity consumption per capita will continue to increase. A prosperous society like Australia uses lots of modern, energy-consuming appliances.
So, my advice - unless you are one of those rare and precious individuals who is truly into energy efficiency - is to budget for higher power bills. Supplying power to the people is a costly exercise. As long as we continue to flick the switch, we’ll continue to pay the price.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, January 24, 2011 1 Comments Make a comment
Happy New Year 2011
WELCOME to my first post for 2011. It’s good to be back after a short break. Bev and I greeted the New Year in Singapore while watching the fireworks display over Marina Bay. My son and daughter-in-law are both Aussie expat bankers living in Singapore and it was great to catch up with them.
It’s customary as we enter a New Year to reflect on the changes we would like to make and resolve to carry out those changes. This practice began in ancient Babylon about 4,000 years ago. Back then, the most common resolution among Babylonians was to return borrowed farm equipment!
Nowadays, the most popular New Year’s resolutions relate to health and money. It seems that almost everyone wants to get into shape - both physically and fiscally – by shedding excess weight and excess debt. While I can’t assist with the weight problem, I have some money tips to help control and/or reduce debt.
As a first step, it’s important to understand the difference between good debt and bad debt. Good debt creates wealth while bad debt detracts from your finances. It makes sense, therefore, to go into debt to buy a home as it’s an asset which invariably rises in value over time. Conversely, it’s financial suicide to finance day-to-day living expenses using credit to fuel a continuous debt cycle.
The key to smart money management is to reduce bad debt. Typically, bad debt (credit card) carries a high interest rate whereas good debt (home loan) attracts a much lower interest rate. Given this, a classic bad debt reduction strategy for many people is to cut up their credit cards. However, if used prudently, credit cards are not inherently bad.
Indeed, a credit card can be quite handy if you’re out and about and want to pick up a genuine bargain on something you truly need. The danger, of course, is that you may use your credit card to fund impulse purchases leading to overspending on goods which aren’t really necessary.
So, if you can’t control your discretionary expenditure and/or don’t spend wisely, then perhaps you should destroy your plastic. If, on the other hand, you’re a smart shopper who can stick to a budget, then go ahead and use a credit card. But try to pay the balance in full each month to avoid interest charges.
While debt is a four letter word, it’s not necessarily a profanity. Used wisely, as part of a wealth accumulation strategy, it can boost your financial position and provide economic freedom. Used recklessly, as part of a buy-now, pay-later mentality, it can literally send you bankrupt and cause economic bondage.
Have a prosperous 2011 and make sure you budget for higher energy bills. I’ll have more to say about the rising cost of electricity next week.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, January 17, 2011 1 Comments Make a comment
The Night Before Christmas 2010 - parody
‘Twas the week before Christmas and Gateway was loud,
We’ve had a big year and the team is proud.
From winning awards to just doing it right,
We’ve come out of the shadows and into the light.
In a year that started with great expectations,
We’ve achieved all we said winning many citations.
But our greatest triumph is not measured by fame,
It’s sticking to our mantra of staying the same.
We’re proud to be a mutual and remain true blue,
Our focus on Members drives all that we do.
Whether it’s to borrow, invest or save for a goal,
We’re here to help because that’s our role.
We took our first steps down the Yellow Brick Road,
And found a strategic partner who lightened our load.
Mark Bouris and his team deserve special mention,
They set the bar high and grabbed lots of attention.
The big banks too were caught in the spotlight,
Their interest rate rises caused a media dogfight.
Banks were vilified, berated and called Uncle Scrooge,
The people lamented, they must think we’re a stooge.
Now Julia, now Wayne, now Tony and Joe,
Credit unions and building societies just want a fair go.
As political leaders you’ve made lots of promises,
It’s time to deliver, lest we become Doubting Thomases.
It’s been a tough year for all, especially bank bosses,
They received little praise, yet produced no losses.
Each made a contribution in their own special way,
And were handsomely recognised with a multi-million pay.
Interest rates are rising, but the outlook is fair,
Santa is coming, so there’s no need to despair.
With tinsel and presents under the tree,
Please enjoy Christmas, even if it’s not debt free.
As I sign off for the year I thank each and every Member,
It’s been a pleasure to serve you, right through to December.
May the joy of the season fill your home on Christmas Day,
As we smile and gently whisper “Merry Christmas” from Gateway.
FOOTNOTE: On behalf of the Gateway team, I extend to you the compliments of the season. My first blog posting for 2011 will be on Monday, 17 January. Have a great New Year!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 20, 2010 3 Comments Make a comment
Financial know-how
One of my greatest frustrations is not having enough time to read. At any one time I have a number of books waiting to be read. The more I read, the more I learn and the more I learn, the more I realize how little I know. Many others, of course, have discovered this paradox in their search for knowledge.
Each new thing you learn leads you to another new thing, and another, and so on. And that causes you to buy more and more books. It’s the same with saving, investing and borrowing - the more you learn about personal finance, the more questions you develop and the more your curiosity grows.
During the past year, I’ve tried to feed this thirst for knowledge about banking and finance and related topics through my weekly blog posts. In any market, informed and educated consumers make better decisions and I hope in some small way I have done my bit to help improve financial literacy.
Along the way, you’ve had to put up with my mini-rants about the need for greater competition and other issues which are dear to my heart. But on the other side of the coin, my explanations of obscure topics like quantitative easing may have provided some readers with “a-ha” moments.
When I’ve tackled technical issues such as interest rates, short selling, and money supply, I’ve done my best to distil them into a cogent narrative that is comprehensible to the non-technical reader. Learning should be a joy, not a chore, and there’s nothing quite like curiosity to expand the mind.
In this, my penultimate blog posting for 2010, I encourage all my readers to continually explore and learn. An open mind finds the wonder in the world and can facilitate change within us. The experts call this phenomenon “growth”.
Where we do require growth and maturity is in the level of political and economic debate in Australia. I made this plea in my first posting for 2010. Given the hullabaloo that has occurred during the year across a range of “hot-button” issues (eg, interest rates, carbon tax, asylum seekers), I’d like to repeat what I said in January when talking about topical issues.
It is my hope that my debate trilogy will inform and not offend. Population, climate and welfare are important issues for all Australians and genuine discourse invariably produces the best policies. Indeed, the openness and extent of civil participation in public debate is central to the quality of democratic governance.
While we don’t have to agree with each other, we must respect everyone’s right to freedom of expression. This is our most cherished right in Australia and I hope that in raising these urgent questions I can facilitate reasoned discussion about issues which are of critical importance to all of us.
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Here’s hoping for more reasoned debate in 2011 and less sound-bite vandalism.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 13, 2010 2 Comments Make a comment
The joys of blogging
Each week I ponder what I should write in my blog. Sometimes I have a particular topic in mind and just start pounding the keyboard. On other occasions nothing immediately springs into my head.
As I sat down to “pen” this posting, I had deadlines on my mind and was trying to force ideas to start the creative juices flowing. Just as I was beginning to become frustrated at my lack of progress, I had a flash of inspiration - why not write a blog about blogging?
I’m often asked how I go about finding blog topics and have also been requested to reveal the dos and don’ts of blogging. My long-term readers may recall that I answered these questions over a year ago in a posting titled, Life of a blogger. So this time, I thought I’d take a different approach and talk about the benefits of blogging to organisations.
Australian companies are still cautious about embracing social media tools like blogs. Gateway was a relatively early adopter of blogging and maintains “one of Australia’s few business blogs”. I have been putting a human face to Gateway via my blog since March 2008. Having a corporate blog enables me to converse directly with members and potential members and to speak openly and frankly on a range of topics.
My weekly posts are a combination of economic commentary, thought leadership and helpful hints. I’m passionate about people and human behaviour and that’s been the common theme of my postings. Economics is the study of human behaviour as it applies to money and I’m delighted that my musings on money and life have touched a chord with a growing readership.
The golden rule of blogging is that you have to be authentic, so I’ve tried to make my blog an online extension of my personality. I’m a bit of a joker who believes that work should be fun, so I try to inject some humour into everything I do. My overarching aim is to be an honest and transparent blogger who doesn’t sell but rather tries to inform and debate in an entertaining way.
Each week I record my blog posting via a podcast and our podcast has been recognised as an example of best practice in the application of Web 2.0 technology. Blogging and podcasting have now become an integral part of my professional existence and I strongly recommend it to others. Penning your thoughts on a corporate blog forces you to think even harder about your industry and the broader macro environment.
You must be prepared, however, to make the commitment to keep your blog current. The worst thing you can do is neglect your blog and not keep it up-to-date with regular postings. So, have a go, it might not be as hard as you think. And remember, let your personality shine through.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 06, 2010 0 Comments Make a comment
Ask the right questions
Some years ago I watched a TV program, (Finding) Australia’s Most Identical Twins. The program started on a sound footing by testing a number of sets of twins on a range of scientific dimensions. It then quickly developed into a farce when reality-show scenarios were introduced to test how identical the twins really were.
In one of the scenarios the twins were taken separately to the same restaurant at different times and asked to select something to eat and drink. The flawed hypothesis being tested was that if they chose the same meal and ordered the same beverage that would be an indicator of the closeness of their shared genetics. What rubbish!
Contrary to popular belief, twins are not exact clones and do not necessarily exhibit the same likes and dislikes. I know because I’m an identical twin! What my twin brother or I would order at a restaurant on any given day would depend, just like you, on how we felt at the time. However, it’s what we would not eat or drink which is the key.
Part of my genetic makeup, and my twin brother’s, is that we are both allergic to hops and certain types of seafood. Due to our DNA, neither of us would ever order a beer or shellfish. Ergo, the TV program should not have asked the twins what they WOULD order but rather what they WOULD NOT order.
In short, they asked the wrong questions and so it is in other areas of life. When it comes to financial services, the devil’s often in the detail and you need to speak up. Always delve deeper if you don’t understand something or if you think the wool is being pulled over your eyes.
For example, when taking out a loan you’ll be told what your repayments will be but may not be informed if you can make extra payments without penalty or if there is a monthly account fee. Many home loans look cheap but may end up costing more than you bargained for. So, when applying for a loan, ask the right questions!
Also, as tedious and boring as it is, make sure you read the fine print on your mortgage and understand the terms and conditions before you sign on the dotted line. All loans are not identical, so it’s better to be safe than sorry. Remember, the goal is to find solutions that are right for you, not your financial institution.
PS. Just in case you’re wondering, I’m the better looking twin!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 29, 2010 2 Comments Make a comment
Protect your heirs
Michael was always going to get around to preparing a Will. Unfortunately, he didn’t. He died unexpectedly and if the shock of his death wasn’t enough for his de-facto wife, Cheryl, and their son, the bigger shock came when Michael’s ex-wife made a claim on the estate on behalf of the children of his first marriage.
As Michael died without a Will, he is said to have died intestate. If you die intestate your estate is administered according to the relevant state’s Succession Act covering “intestate succession”. Even though Cheryl knew what Michael wanted to do with his money, the legislation did not give effect to his intentions.
Cheryl knew that as a de-facto partner she had inheritance rights under the Succession Act but discovered that a spouse doesn't automatically “get it all” if children are involved. As Michael did not have a Will identifying those who were to inherit and what each would inherit, certain of his relatives became beneficiaries in the proportions set out by the Act.
To make matters worse, there was an argument over the funeral arrangements and another over whether Michael did or did not want to donate his organs. Also, a dispute arose over a charitable gift to one of Michael’s favourite aid agencies. These conflicts could have been avoided if Michael had a Will specifying his funeral wishes and the bequests he wanted to make.
He could also have appointed an enduring guardian to make medical decisions on his behalf and instructed that person that his usable organs were to be donated following his death.
It can be seen that dying without a Will is rife with problems. An intestate death invariably causes unnecessary hardship and extra work for family and dependants. It also means the government may become the default administrator of your affairs. Which is why you should safeguard the interests of your family, friends and dependants and make a Will.
Death is a morbid subject and most people don’t want to talk about it let alone plan for it. But like taxes, death is inevitable and that’s why estate planning is a must for everyone. More than just a Will, an estate plan takes into account your superannuation, powers of attorney and the appointment of an enduring guardian.
Contrary to popular opinion, Wills and estate planning are not the exclusive domain of the rich. Making a Will is the best way to make sure your estate is passed on to family and friends exactly as you wish. So, don’t leave your estate to chance. If you don’t have a Will, you’re making a deadly mistake.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 22, 2010 1 Comments Make a comment
Driving change through people
The inside of my home is decorated in black and white. Bev and I deliberately chose neutral colours to create a contemporary look and feel. We also knew the use of black and white would produce a clean and elegant finish. We have resisted the temptation to add a touch of colour.
Bev has developed a knack for selecting the right furniture and accessories so that everything seamlessly blends together. Visitors (“outsiders”) to our home tell us that the end result is dramatic and bold. Yet, as residents (“insiders”), Bev and I have become somewhat oblivious to the colour scheme which surrounds us.
After a period of time we all have a tendency to become too comfortable with our environment and everything just blends into the woodwork. We don’t see what needs to be changed or fixed. We become complacent and the same holds true for organisations.
Which is why new employees are best placed to facilitate change. They are not part of the establishment and are more inclined to challenge the status quo. They can see the forest for the trees and have no emotional investment in maintaining legacy systems and processes.
While you will often hear long-term employees (“insiders”) say ‘that’s the way we do things around here’, new employees (“outsiders”) often want to find new and better ways of doing things. But eventually new employees become “old” employees and they too fall into line with organisational norms.
The challenge faced by all organisations is to keep fresh eyes among long-term employees. One way to do this is to encourage a cadre of employees within an organisation to think like outsiders.
According to Janice Klein, author of True Change: How Outsiders On The Inside Get Things Done In Organizations, transformation is driven by insiders who are able to see problems from an outsider’s perspective and pull change from within.
Outsiders on the inside are the key to driving innovation, adaptation and real change. Klein argues that organisations must create an environment that nurtures outsiders on the inside who are aligned at all organisational levels.
At Gateway, we are trying to get every employee to think like an outsider on the inside. My (idealistic?) aim is for all employees to retain the inquisitive mindset they had in their first 100 days with Gateway and to constantly come up with new and better ways to serve our members.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 15, 2010 3 Comments Make a comment
How to resurrect competition
When the global financial crisis hit Australia, our financial system withstood the force better than most. Nonetheless, there were casualties as the unprecedented market conditions sorted out the weak from the strong. In what was a brutal, survival-of-the-fittest environment, the Big Four banks dramatically and significantly increased their market share.
The turmoil in global credit markets severely impacted regional banks and non-bank lenders and the financial services landscape in Australia rapidly changed. With breathtaking speed, we witnessed the acquisition of Aussie by CBA (part only), RAMS by Westpac, Challenger by NAB, St George by Westpac and Bankwest by CBA.
When the dust settled on this feeding frenzy, virtually every politician in the land decried the unacceptable concentration of power in the hands of the Big Four banks. The perceived “flight to quality” had all but killed competition - the engine room of capitalism. Fewer competitors meant less competition with an unacceptable reduction in choice for consumers.
While no one can doubt the resultant dominance of the Big Four banks, all is not lost. The mutual sector (ie, credit unions and building societies) is a credible rival to the majors. Over 4.5 million Australians belong to a credit union or mutual building society and the prevailing banking landscape has created a space for mutuals to be an alternate player to the four oligarchs.
Credit unions and building societies want to fill this space but need help. In allowing the St George and Bankwest takeovers, the government (via the ACCC) handed power to two of the major banks. It’s now time for the government to hand some power to the mutual sector. To this end, the government can help restore competition by doing three things.
Firstly, mutuals should be allowed to call themselves “approved banking institutions”. I argued this case in my blog posting, What’s in a name? Currently banks, building societies and credit unions are referred to as “approved deposit-taking institutions” (ADI’s). This term is not well understood and a name change is required to achieve genuine regulatory neutrality for all ADI’s.
Secondly, the current government guarantee on retail deposits up to $1m should be maintained. As I explained in my blog posting, Depositor protection not a moral hazard, the guarantee scheme does not cost the taxpayer a cent and helps create a level playing field. Importantly, the scheme reduces the risk of a “run” on a banking institution as depositors do not have to fear losing their funds. Australians deserve this certainty.
Thirdly, further action is necessary to ease the disproportionately high taxation burden on deposits. For the reasons I outlined in my posting, The savings crisis, the government should do all it can to promote household savings. This will increase the pool of funding available to credit unions and building societies to provide competitive home loans.
Credit unions and building societies have a long and proud record of prudent and responsible conduct. We’re well-run and well-regulated just like the banks. All we ask for is a fair go. If the government is serious about promoting competition in banking, rhetoric must give way to action. Implementing the three recommendations above would be a good starting point.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 08, 2010 1 Comments Make a comment
Beyond GDP measurement
French President, Nicolas Sarkozy, believes it’s an inadequate reflection of our true well-being. Nobel prize-winning economist, Joseph Stiglitz, argues it needs to include broader indicators of prosperity. Humanitarian, Professor Muhammad Yunus, contends it doesn’t measure the things which are important to society.
A growing chorus of economists, sociologists and politicians is saying that GDP – Gross Domestic Product - is an imprecise measurement of economic performance. Even the UN agrees and has developed an alternative measure, the Human Development Index, which considers life expectancy and literacy as well as standards of living as determined by GDP.
GDP became the prime economic indicator during the Second World War to monitor war production and subsequently became a universal measure for economic welfare. But it has long been criticised because it does not measure improvements in the quality of our lives.
A country’s GDP is the market value of goods and services it produces in one year – its domestic production. Most goods and services are produced for sale, so the money spent buying these outputs can be used to measure production. This method of calculating GDP includes expenditure in three categories – personal consumption, business investment and government spending.
But GDP only recognises goods and services that pass through markets. Production that is not bought or sold (eg, peer production) does not get counted. Such non-market activities include household production – tasks performed by homemakers within their households for which they are not paid through the marketplace.
If you knit a jumper, this “production” does not get counted in GDP as it’s never sold. The same applies to child rearing which is unpaid production. Yet most would agree that family caretaking is of enormous value to society and should be included in GDP calculations.
Volunteer work in the community does not count as part of GDP because there is no payment. Money spent on cleaning up an oil spill is included in GDP but the environmental impact is not measured. The sale of a new home is included in GDP calculations whereas the sale of existing stock is not.
Another problem with GDP is the underground economy. Some production goes unreported in an attempt to avoid tax. Examples include the waitress who takes tips she does not declare and the mechanic who offers to work for less if he is paid in cash.
My sense is that there’s a growing disconnect between people’s perceptions of their economic well-being and the official GDP performance statistics. That’s not surprising when you consider, for example, the rising cost of health care. It’s tough on families but boosts the GDP.
I could go on but I think the message is clear: The current GDP measurement has shortcomings. I think it’s high time that economists searched for a new definition of economic well-being. Maybe we should follow the lead of the Kingdom of Bhutan which measures Gross National Happiness. The King of Bhutan understands that good leaders value and measure the intangible!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 01, 2010 2 Comments Make a comment
New model of economic production
The traditional roles of consumers and producers are intersecting. Consumers are increasingly performing tasks historically undertaken by companies. The Internet is driving a new business model called peer production (ie, collaboration among a large group of individuals). Before examining the dramatic impact of this rapidly evolving socio-economic model, let’s begin with a brief history lesson.
A hundred years ago, merchants manufactured products and services with no input from the end consumer. Consumers had to accept whatever was available with the classic example being Henry Ford offering his customers any colour Model T vehicle as long as it was black. Mass marketing went hand-in-hand with passive consumption and gave consumers little choice.
After World War II, mass marketing gave way to market segmentation and greater choice. Customers became part of the production process and were encouraged to use technology to do more of the work themselves. Thus, furniture makers persuaded us to assemble our own cupboards, banks encouraged us to use ATM’s and petroleum companies trained us to pump our own petrol.
Nowadays, technology is empowering consumers to shape organisational processes and customise products to their specific needs. BMW now allows car buyers to order custom built vehicles. Adidas enables runners to design their own shoes. And a Sydney surfboard manufacturer, Haydenshapes, offers surfers the ability to specify the size, shape and colour of their board.
But it’s in the area of information-based goods where peer production is a real game changer. Today, “digital goods” are created freely via donated labour rather than through labour that's hired and controlled by corporations. Examples include Amazon’s customers donating book reviews, Wikipedia’s readers writing entries for free and YouTube’s users sharing their videos at no cost.
Internet companies which rely heavily on peer production (ie, volunteer labour) are able to operate with a small, paid workforce. The global classified ad site, Craigslist, is one of the most popular sites on the web yet has only 28 staff. Likewise, PlentyOfFish, one of the largest dating sites in the world, has just three employees. And Wikipedia has only five full-time employees even though it’s 42 times bigger than Encyclopaedia Britannica.
MySpacers, YouTubers and Wiki-users are at the vanguard of a movement that's redefining how we do business. It’s all explained in a book aptly titled, Wikinomics: How Mass Collaboration Changes Everything. For those organisations still wedded to the traditional top-down command and control structures, beware, your days are numbered.
The Internet is enabling people to give their time and knowledge to non-monetary and non-market activities. People power is upon us. I’m just waiting for the day when borrowers and investors can go online and design financial products and services with options and features tailored to their specific needs. Yep, it’s a brave new world!
NOTE: Non-market production plays a bigger role in our economy than often realized and I’ll touch on that next week when discussing the efficacy of GDP as an economic measure.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 25, 2010 2 Comments Make a comment
The Future of Computing
If you believe the IT industry, there’s a seismic shift going on at the moment. It’s undetectable to the masses, but computer geeks know it’s real. It’s poised to radically alter the way we access information technology and it’s called cloud computing.
The word “cloud” is a metaphor for the Internet and cloud computing refers to Internet based computing. It enables you to “rent” software instead of buying it and means your computing resources reside outside of your computer or physical premises.
With cloud computing others take care of your computing needs. You no longer need to purchase applications, back up disks, upgrade software or maintain security. You simply run your applications in the cloud and access them via the web. All of your data and files are stored in the cloud.
Cloud computing - outsourcing hardware and software to Internet service providers – is an example of “disruptive technology”. Such technology is ground breaking, dislocates the normal flow, creates a true paradigm shift and replaces the market leader (goodbye Microsoft?).
Electricity is an example of disruptive technology and cloud computing is set to join its ranks in revolutionising our lives. Just as we plug-in to the ubiquitous electricity outlet to get our electricity, we are increasingly plugging-in to the Internet’s global computing grid to power our IT needs.
“Computing is turning into a utility,” writes Nicholas Carr in The Big Switch: Rewiring The World, From Edison To Google. A hundred years ago companies stopped generating their own power and plugged into the newly built electric grid. “Today,” says Carr, “we’re in the midst of another epochal transformation, and it’s following a similar course”.
“In the years ahead,” argues Carr, “more and more of the information-processing tasks that we rely on, at home and at work, will be handled by big data centres located out on the Internet”. These data centres are referred to as server farms and Google has built the world’s largest facility in Oregon. Locally, Telstra has just announced its intention to offer cloud computing services. And Westpac has built its own private cloud computing facility.
Web-based e-mail services like Hotmail, Yahoo! and Gmail are examples of cloud computing. Users log into a remote, e-mail account. The software and storage for the account doesn't exist on the user’s computer but resides on the e-mail provider’s computer cloud.
Social networking sites, like Facebook, are another example of cloud services. The cloud also hosts a free web-based personal financial management service called Mint.
It’s predicted that by 2020, most consumers will access software applications through the use of remote server networks. And with claims that server farms can carry out a computer task for one-tenth of the cost incurred by the average IT department, I have no doubt that the corporate world will increasingly jump on the cloud bandwagon.
NOTE: Cloud computing is giving rise to a revolutionary new business model called peer production. I’ll explain peer production next week.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 18, 2010 1 Comments Make a comment
Dynamic duos change the world
Throughout history great double acts have left their mark on society. Black and Decker equipped the home handy man. Mills and Boon brought romance to the suburbs. Marks and Spencer revolutionised shopping. Gilbert and Sullivan reinvented musical theatre. And Watson and Crick unravelled the mysteries of DNA.
Perhaps no industry has given us more creative partnerships than the IT sector. Bill Hewlett and Dave Packard formed Hewlett-Packard. Bill Gates and Paul Allen started Microsoft. Steve Jobs and Steve Wozniak launched Apple. Jerry Yang and David Filo created Yahoo! And Sergey Brin and Larry Page established Google.
The unlikely pairing of the Google founders is now the subject of a book and it makes fascinating reading. Google Speaks: Secrets of the World’s Greatest Billionaire Entrepreneurs, Sergey Brin and Larry Page, is a page turner from start to finish. I devoured it on my recent flight back from Europe. Google Speaks is an engaging account of how two Stanford University students turned a technology research project into a multi-billion dollar corporation.
Among the many interesting tidbits about Google and its founders is the fact that both Brin and Page are sons of academics and both are also mathematicians. Perhaps it’s no surprise, then, that the word “Google” is a misspelling of the mathematical term “googol”, which means a number represented by 1 followed by 100 zeros.
Brin and Page created a proprietary algorithm for a search engine to organise the vast amount of information available on the World Wide Web. It’s estimated that Google receives several hundred million queries each day. “Google's ubiquity”, according to one media writer, “has earned it the status of a verb. You don't just search for information about a person or a subject on the Web, you google it.”
From its humble beginnings, Google has morphed into something much more than a search engine. Today, it’s the biggest advertising platform in the world. Google offers the world's information for free but sells advertising at a hefty profit. Advertising generates 98 per cent of the company’s revenues and it’s now so powerful it threatens to swallow up all other media.
Savvy consumers are increasingly using the Internet to find products, investigate alternatives and compare prices. Gateway uses Google Adwords to attract potential customers and we pay a handsome sum for each click-through. It’s the cost of doing business in an online world and this year we will contribute to Google’s estimated $20 billion in annual advertising revenue.
There’s no doubt that Google has achieved its mission “to organise the world’s content and make it universally accessible”. In the process, it has redefined how business is done in a digital world. For those of you who cannot get through the day without using Google to search the Internet, Google Speaks is a must read.
NOTE: Next week I’ll talk to you about “cloud computing” – hailed as the next logical step in the evolution of the Internet - and the leading role Google is playing in this emerging technology.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 11, 2010 1 Comments Make a comment
Mirror, mirror … where are rates headed?
Just when you thought it was safe to go back into the water, interest rates are rising on a tide of solid economic data. But how far north will rates go? While I don’t have a precise answer to that, I can tell you that the 90-day Bank Bill Swap Rate (BBSW) is a good indicator of what the market thinks the Reserve Bank of Australia (RBA) is going to do. Please let me explain.
The cash rate and 90-day BBSW are two key short-term interest rate measures. The cash rate is set by the RBA and is the main driver of rates charged on wholesale overnight loans while the 90-day BBSW is the main driver of rates that banks charge each other for 90-day loans.
The level of official interest rates largely determines variable mortgage rates. In contrast, fixed home loan rates are determined by what's happening in the swap market. Thus, variable and fixed rate home loan rates march to the beat of different drums.
Notwithstanding this, the 90-day BBSW is an indicator of the future direction of the cash rate - it’s a signpost for where the cash rate is heading in the very short term. The current BBSW shows the market is factoring in increases in the official cash rate. In other words, there is a market expectation that the cash rate is going to be higher in 90 days than it is now.
The gap between the cash rate and the 90-day BBSW rate is known as a spread or margin. The current widening of this spread is caused by the “pricing-in” of an expected cash rate rise. The mere expectation of a 25 basis points RBA tightening has caused the 90-day BBSW to rise even though the cash rate has not yet changed.
Under normal circumstances, market interest rate changes are linked to cash rate changes. Over the past eighteen months, however, global events have had a greater influence than cash rates. The end result is that the RBA’s cash rate has not provided an accurate indicator of changes in funding costs which is why there have been mortgage rate increases in excess of the RBA hikes.
Not surprisingly, these out-of-cycle rate increases have not been popular with mortgage holders. I believe it’s high time that home owners were given a reprieve on mortgage increases. Which is why Gateway has undertaken not to implement any interest rate rises independent of the RBA until 31 December 2010.
While Gateway has no control over RBA rate hikes (and another may be announced this afternoon) it can do something to cushion its members from out-of-cycle increases. As a not-for-profit financial co-operative we are not focussed on external shareholders. The dividends we return to members are in the form of better services and improved pricing and our pricing stance is a tangible example of our philosophy in action.
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, October 05, 2010 0 Comments Make a comment
Robbing Peter to pay Paul
Most of our unhappiness in life is the result of comparisons we make with others. We often believe the grass is greener on the other side. Many of us covet thy neighbour’s flat screen TV and other goods. We want the latest and best possessions even if it puts us on a hedonic treadmill, causing us to live beyond our means.
Deep down we all know that money can’t buy happiness. Yet each of us harbors secret financial desires and discontents. “We construct a fantasy world around those who have more money and glorify their lives,” says Shira Boss, author of Green with Envy: Why Keeping Up with the Joneses is Keeping Us in Debt.
Boss provides an illuminating reality check on how people are really making ends meet – or how they’re not. She takes an unconventional approach in revealing the gap between personal finance and public image. In Green with Envy, Boss undertakes in-depth interviews with the mythical “Joneses” - from suburban families to a billionaire – to understand what puts consumers in debt.
“Since the days of Cain and Abel,” writes Boss, “we have been bickering and jostling over who has the better lot … It would seem logical that the people we envy the most … (are) the rich and famous … (yet) we don’t really expect to … end up with millions in the bank and our whereabouts splashed across the cover of People magazine. Who we truly envy are our closest peers.”
Breaking the cycle of envy-and-spend and slaying the green-eyed monster is easier said than done. In an interesting study of how money motivates, researchers at the University of Bonn discovered that humans don’t just want “more” - they want more in comparison to others. Yet to gain financial freedom, we must stop chasing others into debt.
One way people try to keep up with their neighbours is via a home equity loan. Boss views these loans as financial death traps whereas I see them as a two-edged sword. When used wisely, they enable homeowners to prudently leverage the equity in their home to build wealth. However, when used recklessly to generate cash to fund living expenses, they are a financial time-bomb.
Relying on debt to live a high-end lifestyle is clearly a recipe for disaster. If you’re always in hock, a good starting point to reverse your fortunes is to read Green with Envy. It’s a cautionary tale of what can happen when our lust for money and our uncontrollable desire to show off pushes us into the zero-sum game of one-upmanship.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 27, 2010 0 Comments Make a comment
What’s in a name?
Recently I was rummaging through a bookcase at home when my eyes fell upon a book I bought some years ago - Australian Place Names. After leafing through the book, I learnt that Australia has over four million place names with nearly three-quarters being of Aboriginal origin. Examples include Wagga Wagga (place of crows) and Indooroopilly (gully of leeches).
The early European sea explorers - like the Dutch sailor, Dirk Hartog, the English cartographer, James Cook, and the French navigator, Jean La Perouse - are immortalised in Australian place names. Fast forward to modern times and you’ll see that most of Canberra's suburbs are named after famous Australians.
What we call something can be very important and not just for sentimental reasons. I run a financial institution and it bears the name “credit union”. Even though it pains me to admit this, many Australians know little about credit unions. Yet the basic idea of a bank is understood by anyone over the age of seven.
When you decipher the term “credit union” you come up with something that’s about debt and organised labour. No wonder the populace is confused! Many credit unions around the world – particularly the larger ones in Canada - have dropped the words “credit union” from their name. Others have put the words “credit union” in fine print.
In Australia, I think we should consider a different approach. We’re proud of our heritage but would like to see the removal of the constraint on credit unions and building societies (ie, mutuals) using the term “bank”. Our industry association, Abacus, has argued in a submission to government that the prevailing naming restriction places mutuals at a competitive disadvantage.
Currently banks, credit unions and building societies are referred to under law as Approved Deposit-taking Institutions (ADIs). But this term is not well understood in the community which is why Abacus has recommended that it be replaced with the term “Authorised Banking Institution”. This would enable Abacus members to exercise the choice of calling themselves a “mutual bank” or a “cooperative bank”.
The restricted use of the terms “bank” and “banking” is to protect potential customers from being misled about the strength of the institutions they are dealing with. Yet all ADIs’ (banks, building societies and credit unions) are governed by, and required to meet, the same prudential standards.
While it’s true that “bigger” banks are perceived to offer a greater level of security than “smaller” mutuals, the reality is that the larger mutuals in Australia are bigger than the smaller banks. So, if the government is serious about wanting to encourage competition in financial services, it must move to create a level playing field for all ADIs.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 20, 2010 0 Comments Make a comment
On the move
This is the last blog I will post from 60 Castlereagh Street. Next Monday we move into our new digs at 2 Market Street. I will do my best to have next week’s blog uploaded on time by my Online Marketing Manager, Rachael, but if it’s a tad late please forgive me. We’ll be unpacking boxes and trying to locate things and if I harass Rachael to meet the 10am deadline she might throw something at me!
In between ducking flying missiles, I’ll be making sure that we settle into our premises as quickly as possible. Let me assure you that moving office isn’t as straightforward as moving house but everything has run smoothly so far. The office design started with a blank sheet of paper and - with the help of a fabulous interior designer and a very capable project manager - we have seamlessly achieved every milestone.
Our new office will help streamline our business and facilitate enhanced member service. It will feature a modern member reception area, private meeting rooms, Internet banking terminals and a state-of-the-art call centre. From a staff perspective, the new premises will dramatically improve the working environment and provide a real boost to everyone.
The internal layout has been kept open to bring in as much natural light as possible. However, for some reason, the move committee insisted that the CEO be given an office. I reluctantly accepted and so from next week I will write to you from the big corner office overlooking Darling Harbour. Yep, it’s really, really tough at the top!
Our new street address will be Level 16, 2 Market Street and there’ll be some other changes to contact information. We’ll be retaining our 1300 302 474 phone number and e-mail addresses, but our fax number and individual direct dial numbers will change.
Our new home represents another huge leap forward for Gateway. We’re at a very exciting stage in the credit union’s development and evolution. The investment in new purpose-built premises underscores our optimism for the future.
If you’re passing by, just pop in – we look forward to welcoming you.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 13, 2010 4 Comments Make a comment
Depositor protection not a moral hazard
We all know you can’t insure a car for more than it’s worth. This is because insurance companies understand something called moral hazard. Moral hazard is a concept saying that people will take risks if they have an incentive to do so. Ergo, if my car is only worth $10,000 but it’s insured for $20,000, then I might be tempted to torch it.
Moral hazard can entice individuals insulated from risk to behave differently than they would if fully exposed to the risk. Examples include tenured professors becoming indifferent lecturers, insured drivers being less vigilant about car theft, protected managers making poor decisions and unemployed workers being less inclined to look for a job while on government benefits.
The subprime crisis is another example of moral hazard. Many US financial institutions recklessly lent money to people with poor credit histories to buy overpriced houses. They deliberately lowered their credit assessment standards knowing they could package dodgy loans into mortgaged backed securities and pass off the risk of default to unsuspecting investors.
Moral hazard is commonly associated with any type of safety net including deposit insurance. At the height of the GFC, governments around the world guaranteed the deposits of citizens in banks and other financial institutions. Most commentators believe this unprecedented intervention was necessary to protect the global financial system from meltdown (see earlier blog).
As the crisis passes, the OECD is urging Australia to fulfil its promise to remove its deposit guarantee which, it argues, is a moral hazard. Notwithstanding this, the OECD acknowledges that both depositors and banks now believe the Federal Government will always come to their rescue in times of trouble.
The belief that a bank is too big to fail represents a classic moral hazard. If the public and the management of a financial institution believe it will receive a financial bailout to keep it going, management - in theory - may take more risks in pursuit of profits. Yet, there’s no evidence that the deposit guarantee has actually encouraged Australia’s Approved Deposit-taking Institutions (ie, banks, building societies and credit unions) to behave recklessly.
We have a strong prudential regulatory system governing Approved Deposit-taking Institutions (ADIs) in Australia. While there’s no doubt that moral hazard in financial services is real, our robust regulation and good practices prove that this risk can be mitigated.
The GFC shows that governments will act to save banks which are too big to fail. This gives our Big Four banks an implicit guarantee and an unfair advantage over smaller credit unions. That’s why I believe the current retail deposit guarantee scheme (known as the Financial Claims Scheme) should be maintained after its proposed review date in October 2011.
As someone who is a staunch believer in free markets and survival of the fittest, I can fully understand why the RBA opposes the extension of the deposit guarantee. I too accept that governments should not be the first port of call in times of crisis. However, some form of depositor safety net for all ADIs is essential to provide a more level playing field for Australian credit unions and building societies.
The deposit guarantee scheme provides protection for ordinary depositors, fosters competition in banking and doesn’t cost the taxpayer a cent. In short, it’s a necessary evil if we are serious about the mutual sector being a viable alternative to the Big Four banks.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 06, 2010 0 Comments Make a comment
Postcard from Europe 2010
After a month away, I’m back and raring to go. Bev and I had a wonderful vacation, but there’s no place like home. I thank my colleague, Gary English, for keeping an eye on things at Gateway during my absence and to Gary and Peter Gilmore for being guest bloggers.
Tourism is one of Ireland's most important industries and the Emerald Isle was the first stop on our European holiday. Ireland has been severely hit by the GFC and the former “Celtic Tiger” is in recession. As the first country in the world to guarantee bank deposits as a result of the GFC, Ireland is still trying to work through the aftershocks of its sovereign debt mess.
I’m not sure whether the locals Bev and I met in Dublin suppress their economic sorrows with a pint of Guinness, but they sure are a friendly lot. The Gaelic language, Celtic music and Irish riverdance certainly lifted our spirits and made for a pleasant stay in what was originally a Viking settlement.
Next stop on our vacation was Amsterdam, headquarters of the Netherlands-based Rabobank. Rabobank is a co-operative bank which is owned by a federation of local credit unions. The bank is rooted in the ideas of Friedrich Wilhelm Raiffeisen, the father of the global credit union movement.
In the Netherlands, the bank is known as the Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. Rabobank has clung steadfastly to its status as a private co-operative and, impressively, maintained its Triple-A rating throughout the GFC. It’s a very safe bank, just like the Dutch capital, which is a safe place to house the world’s largest collection of Vincent van Gogh’s paintings.
Leaving the canals and windmills of Amsterdam, we then headed for the ancient cobblestone streets of Copenhagen. The Danish royal capital is delightful and, contrary to what Shakespeare wrote, there is nothing rotten in the state of Denmark. Indeed, Denmark ranks as the world’s least corrupt country and is also the birthplace of one of the world's most popular toys, Lego.
Copenhagen’s most famous son, Hans Christian Andersen, would be proud of how cosmopolitan his city has become. However, he probably couldn’t afford to live there today. Copenhagen is an expensive place and I suspect the local McDonalds is a popular eatery for tourists on a budget.
Just across the bay from Copenhagen is Sweden but we didn’t stop at the capital, Stockholm. Rather, we stayed in a city called Gothenburg. Bev’s cousin, Anne, lives there with her Swedish husband, Lars. I told Lars I would mention him in this blog in return for the complimentary accommodation they gave us.
Anne and Lars were delightful hosts (now we’re even, Lars, as I’ve made you “globally” famous!) and I’m looking forward to my next “free” holiday in Sweden. But please don’t be upset, Lars, ‘cause I’ve already exceeded my blog word count limit, so I can’t tell my readers about your wonderful home town.
From Gothenburg we flew to Munich, the capital of the state of Bavaria and home of the Bavarian Motor Works (BMW). Each morning, we had a hearty Bavarian breakfast before setting off to see the sites. We were too early for Oktoberfest, which this year celebrates its 200th anniversary, but we did get to see the Oktoberfest 1810-2010 exhibition.
Well, that’s it folks. Hope my postcard has not made you too jealous. Now please stop frothing at the mouth and go back to work!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, August 30, 2010 2 Comments Make a comment
Magic
(By Guest Blogger Peter Gilmore, CFO)
I’ve never been a big Science Fiction fan. I find reality much more interesting than fiction. As a child I laughed at some of the gadgets that appeared in Science Fiction TV shows. I recall there were jet packs for flying over rough terrain, laser beams to zap aliens, communication systems inside space helmets, video phones to conduct remote teleconferences, and time machines to escape the present. Back then I believed none of these implausible gizmos would ever become a practical day-to-day reality.
Fast forward forty years and most of these imaginary technologies are now part of everyday life. Lasers are used everywhere from our hospitals to our DVD players. Police, soldiers and cyclists have built-in headset communications. Jet packs have been built and tested in space. But for me the most amazing development is the widespread use of cheap internet video conferencing. My young daughters use internet video conferencing to stay in touch with their friends – they find it a particularly useful medium for school group assignments. The sound of my daughters laughing and chatting to their friends online is a pleasant background sound … one that I will miss when they grow up and move away. The new technology has allowed my eldest daughter to stay in touch with her primary school friends, despite them all moving to different high schools. In my day you simply lost touch. My wife now uses internet video conferencing to chat to her parents in a remote town in India. Twenty years ago there wasn’t even a reliable telephone connection. Forty years before, I recall my mother would call home to Germany once a year - at a prohibitive cost. Before that there were only letters, and maybe telexes for urgent news.
All over the world people are benefiting from these new communication technologies, staying close to those they care about. Business is easier, and cheaper. Even the most severe Neo-Luddite would find it hard not to recognize the great good these technologies are bringing to the average person. When my wife first connected via internet video conferencing to her family in India, I’ll never forget the mixed expression of both disbelief and happiness on my mother-in-law’s face as her daughter and granddaughters appeared on the screen from far away Australia. “Magic” she said. Yes indeed.
Regards
Peter Gilmore
p.s. By the way, I can’t wait for the time machines!
Podcast is available here
Posted Monday, August 23, 2010 0 Comments Make a comment
Teenagers stealing mankind’s thunder
(By Guest Blogger Peter Gilmore, CFO)
Pride of place in my bookshelf is occupied by my 1st edition copy of W.E. Bowman’s classic The Ascent of Rum Doodle, a parody of the writing genre that glorifies the exploits of mountaineering expeditions. Written in the mid-1950s, when European nations were racing each other to conquer the highest Himalayan peaks, Bowman’s tale recounts a British expedition to Mt Rum Doodle - the world’s highest fictional peak - which rises an imposing 40,000½ ft against Mt Everest’s paltry 29,029 ft. In Rum Doodle the expedition’s treacherous approach march is made even more treacherous by the appalling food served by the cook, a local man named Pong. Incompetent navigation then results in the expedition climbing the wrong mountain, the mistake only being realized when the altimeter registers 35,000 ft on the summit … and parting cloud reveals the real Rum Doodle towering 5,000½ ft above.
I find Rum Doodle provides hilarious yet sobering irony during the annual climbing season on Everest. This year there was one climbing day when a queue of ninety-two climbers waited patiently in line for their individual moments of triumph on Everest’s summit. Reports then followed that a thirteen-year-old American boy had become the youngest ever Everest summiteer. Cynics have since concluded that Everest can’t be all that hard if it can be climbed by someone so young. With Sherpa guides increasingly having to pull and push paying clients to the summit, the exploits on Everest seem ever more absurdly Rum Doodle-like with each passing year. As a consequence Everest is waning as the symbolic pinnacle of mankind’s aspirations.
Not to be outdone, teenage girls have been busy solo-sailing around the world. To me this looks much more impressive than climbing Everest, but I can’t help but wonder how young is too young and what tragedies might result from this rush to be the youngest ever? Will we now see these youngsters displace mankind’s Everest summiteers on the lucrative corporate motivational speaking circuit, seeking to inspire us to enthusiastically tackle our personal “summits” and “capsizes”?
I’d suggest such hype is not really relevant to us mere mortals fully occupied by life’s more mundane challenges: balancing work and family, traffic jams and deadlines, Tim Tams and rice crackers …
May you successfully climb your own Rum Doodle, and above all, let sanity prevail with this youngest-ever nonsense!
Regards
Peter Gilmore
Podcast is available here
Posted Monday, August 16, 2010 1 Comments Make a comment
The streamline express
(By Guest Blogger Gary English, COO)
Among the challenges we face in our daily dealings with members across the country is the many disparities in process originating from differing legislation imposed by the States and Territories. For example, every State has its own State Revenue Office, Land Titles system, consumer legislation variations and countless other points of difference.
Clearly this originates from pre-Federation times and has been seen in many forms. Most people would be aware of famous examples such as the insular approach to railway gauge standards that started in the mid 1800’s and took over 100 years to effectively resolve!
Fortunately there seems to be some progress in resolving more contemporary issues by adopting a national approach - some may remember previous ‘initiatives’ such as the suitably named BAD tax & FID applied differently by all state governments before the advent of a national GST. The recent implementation of a National Credit Code is another example.
However, given the enormity of the task of achieving consensus amongst the various levels of government across common issues facing all Australians there does not appear to be a realistic quick fix for this problem. Certainly there are strong opinions within the community that we are significantly over-governed and something needs to be done. But what?
Should we replace State Governments completely with area administrators applying common standards across the country? Should we eliminate Local Councils – certainly anyone who has had the joy of lodging applications for anything with a council would seriously consider this option (yes, I am speaking from current experience!).
Personal issues aside, speaking as a business manager trying to achieve the best outcome for customers (members in our case), can government at all levels continue to ignore the commercial benefits of dealing with common standards, agencies or legislation. In the business world, inefficient managers are assessed on performance and if necessary, replaced. Operating structures are constantly reviewed to reflect the changing dynamics of markets. So why do we cling to a structure within government that originates from the days when you had to change trains six times to cross the country?
Wouldn’t it be interesting during an election campaign (federal, state, local – anything would be a start) if at least one side admitted that maybe the best option would be to simply call it off and put someone else in charge? I won’t be holding my breath for that one!
Regards
Gary English
Podcast is available here
Posted Monday, August 09, 2010 0 Comments Make a comment
Stay out the bubble – keep it simple!
(By Guest Blogger Gary English, COO)
Much has been written over the last few years about the fluctuating fortunes of so called developed economies during the Global Financial Crisis (GFC). Recently, the United States government legislated to bolster regulatory controls over their banking system and no doubt some other governments will follow suit. The logic behind this seems to be that if stringent rules are established to manage natural human characteristics such as opportunism (a.k.a. greed), the likelihood of a recurrence of the problems that led to the crisis of confidence in the first place will be eliminated.
Unfortunately, history does not necessarily support this view. Despite famous precedents such as the Dutch Tulip Mania of the early 1600’s, the South Sea Bubble of the 1700’s or more recently the Tech Wreck of 2000, has it been proven that by simply applying some arbitrary rules to a market, irrational thoughts and actions can really be contained? And further, the question remains as to why if everyone knows the market will eventually ‘find a way’, should the more realistic approach be to simply limit the damage that will inevitably occur.
Some may argue Australia’s relatively (compared to some) benign passage through the GFC would suggest that our tendency to learn from previous experiences is a little stronger than many of our current trade partners. Certainly there was no shortage of agencies in Australia quite willing to assume credit for ‘protecting us’ from the market meltdown. In reality it is difficult to quantify the true value these ‘protectors’ actually provided and as such, is there a danger that when the next wave hits we may place undue reliance on defences that did not really contribute much this time around?
So maybe the message is that it’s OK to expect some financial protection for your investments but don’t get complacent. If you want to enter the bubble that’s your choice – just understand the downside. In my experience, dealing with an organisation aligned to your cultural values or goals is a good option and at the end of the day the best choices are usually simple.
Regards
Gary English
Podcast is available here
Posted Tuesday, August 03, 2010 1 Comments Make a comment
Bon voyage
Shakespeare wrote that “parting is such sweet sorrow” but I’m actually feeling quite happy. This weekend Bev and I jet off to Europe and we’re very excited. We’ve been planning our vacation for some months and all that remains is to pack our bags and give the house sitters some final instructions. But before I leave, I thought I’d share some (money) travel tips.
My first recommendation may upset some readers so brace yourself … never borrow to finance your holiday! Paying interest on discretionary expenditure is “bad debt”, which is why you should save enough to pay cash for your getaway. After the suntan has faded and your escape is a distant memory, you’ll have nothing to show but an unpaid loan.
Given the joys of long distance air travel from the antipodes, you often arrive at your northern hemisphere destination in the wee hours of the morning or very late at night when banks and money exchanges may be closed. So, always bring a small amount of local currency for cabs, a snack or tipping the hotel porter.
Personally, I’m not a fan of carrying lots of foreign currency so I have bought a small amount of Euros to take with me. No doubt, I’ll need to top-up our cash holdings while away and I’ll try to avoid doing this at hotels or airport exchanges due to the high transaction charges.
But don’t get too stressed at currency exchange rates as they vary from day-to-day and place-to-place. ATMs are a convenient way to obtain local currency at a reasonable exchange rate. Keep in mind that your withdrawal may be subject to a fee, so check with your financial institution before leaving home.
My personal preference is to pay for goods and services using my Visa debit card and I take two cards with me (linked to different accounts with different institutions) in case one is lost or stolen. Bev does the same with her Mastercard and we both keep a copy of the respective card issuer’s 24 hour global customer assist number. Plus, I also store the emergency contact numbers in my phone.
Visa and Mastercard generally offer the most favourable exchange rates as these global giants have access to better rates than individuals. But take care as your Australian card issuing institution might hit you with a currency conversion fee on the value of each transaction you make while overseas (mine doesn’t, but I’d expect no less from Gateway!).
While I’m away, Gateway will be in the capable hands of my Chief Operating Officer, Gary English, who will be the acting CEO. Gary will be ably assisted by my Chief Financial Officer, Peter Gilmore. Gary and Peter will share the blog writing workload in my absence. The blogs for the 2nd and 9th of August will be posted by Gary while Peter will post on the 16th and 23rd August.
I’ll be back on Monday, 30 August. Bon voyage.
Regards
Paul J. Thomas
Podcast is available here
Posted Friday, July 30, 2010 1 Comments Make a comment
Secrets of success
A regular section in one of the business magazines I read features an interview with a high profile individual – typically a business person, academic or community leader. The celebrity being profiled is asked a series of standard questions. One of the questions is the classic: What’s the best advice you’ve ever received?
The respondent invariably shares a clever one-liner which sums up some words of wisdom he/she has received from another. Readers are encouraged to learn from these nuggets of wisdom. Some of the more pithy advice proffered by these luminaries include:
- Think big, start small;
- Hire slowly, fire quickly;
- Ethics first, profits second; and
- Talk’s cheap, results matter.
None of us needs to be told that “there’s no such thing as a free lunch” or that we should avoid being “penny wise and pound foolish”. But true sage advice never goes astray. My father repeatedly told me to “always pay cash, never credit” and to “always do the right thing”.
The adamant instruction I instilled in my children is “never lower your standards”. My personal mantra is “never stop learning”. My financial advice for anyone who cares to listen is to “always save a little” and “beware of paying interest on things that lose value”.
When it comes to money matters, I also think it’s useful to understand the difference between wants and needs. It’s understandable that we want a roof over our heads but do we Australians really need to build the biggest homes in the world?
Perhaps we should “put our money where our mouth is” and build smaller, more environmentally friendly homes. While “money makes the world go round” I’m a believer in the get-rich-slow philosophy. If you want to feel rich, simply count the things you have that money can't buy.
To varying degrees, I suspect most of us fall into the trap of “not seeing the forest for the trees”. That’s why I’m a fan of the KISS formula - keep it simple stupid! Finally, allow me to reveal my most prized wealth-accumulation secret - “there’s no secret formula for making money”. How’s that for priceless wisdom!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, July 19, 2010 0 Comments Make a comment
Invest with your head, not your heart
Decision making is central to human activity. We are all decision makers in both our private and professional lives. Many of the decisions we make as individuals are simple and routine (what should I wear?). Other decisions are complex and not run-of-the-mill (how should I lead my life?).
Most people don't spend a lot of time thinking about how they make decisions but there is a science to making optimal choices and judgments. It’s okay to base frivolous decisions on feelings and preferences (emotion) but important decisions should be informed by data and facts (logic).
The decisions we make about money are important and economics (rational choice theory) is anchored to the notion that individuals act rationally and consider all available information in the decision making process. Yet, in reality, many of us behave irrationally as investors.
Investor biases can distort our thinking and cause us to make bad judgments. The field of behavioural finance has evolved to explain why people make financial decisions which are contrary to their own interests. Here’s a sample of the self-destructive cognitive errors made by investors.
Confirmation Bias - This is a type of selective thinking where an investor seeks information/opinions which align with his/her views about an investment and ignores anything which contradicts this belief.
Hindsight Bias - This causes investors to claim that a past event (eg, sub-prime crisis) was totally predictable, thereby implying their ability to time markets to always buy low and sell high resulting in an inflated view of their predictive skills leading to overconfidence.
Overconfidence Bias - Most investors have an overly optimistic assessment of their knowledge, particularly in bullish markets, believing that good market returns are directly attributable to their own personal skills while blaming external factors when returns decline.
Herding - Many investors simply follow the crowd and are led astray (as in the dot-com bubble) as they mould their thinking to the prevailing opinion and make the same investment choices as others on the basis that if it’s good for others it must be good for them (for more examples, click here).
It can be seen that people are not hard-wired to be good investors as their emotions can overtake their ability to reason rationally. So the message is clear: When investing, do not underestimate the impact of psychology. Your personality does affect your investment decisions. So tread carefully when investing and beware of human behavioural flaws.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, July 12, 2010 0 Comments Make a comment
Make work fun
Laughter is a defining characteristic of the human species. Children laugh 300-400 times a day whereas adults laugh only 15-17 times. One of the reasons for this difference is the workplace. We spend a third of our waking hours at work and, sadly, many of us do not find it an enjoyable environment.
I have long recognized the contagious power of laughter and have never accepted that being in “corporate mode” means you have to wear a serious face. On the contrary, I actually encourage people to laugh, chuckle and joke. Consistent with this, one of our corporate values at Gateway is to “have fun”.
While I’m not Gateway’s official court jester, I do my best each day to inject some infectious humour into the office. My PA, Marisa, wears the brunt of my corny jokes and antics. I play the comic as I know from personal experience that employees are much happier, less stressed and more productive in workplaces where humour is encouraged.
“Laughter above all is a social thing,” says Dr Robert R. Provine, a behavioural neuroscientist at the University of Maryland and author of Laughter: A Scientific Investigation. Laughter is about relationships which is why “the requirement for laughter is another person,’’ writes Provine.
Provine spent a decade studying laughter and is considered the world’s leading scientific expert on the science of “Ha-Ha-Ha”. He views laughter as a “vocal signal” which “almost disappears” when there is no audience. By studying “laugh episodes”, Provine discovered that people who are by themselves are 30 times less likely to laugh than if they were in a social situation.
I didn’t need to read Provine’s book to know that laughter is one of the best ways to warm up a relationship. My wife tells everyone she married me because I made (and still make!) her laugh. Laughter creates a positive emotional climate at home and in the workplace and there should be more of it.
Regrettably, many bosses believe it’s unbecoming of a leader to be funny. Now that’s a bad joke! As Provine notes: “John F. Kennedy was unusual among U.S. presidents in having both a presence of command and an excellent sense of humour.” Good one, Mr President!
Stern-faced and tough-minded leaders don’t necessarily get the best out of people. In my opinion, work does not need to be serious business. Good humour and high productivity are not mutually exclusive. Employers should see the lighter side of things and strive to make their organisation a great place to work.
Creating a fun work environment improves staff satisfaction. And happy employees provide better customer service - that’s certainly been our experience at Gateway. So, have a nice day. And don’t worry, be happy.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, July 05, 2010 0 Comments Make a comment
Goodbye to fiscal 2010
This Wednesday marks the end of the financial year. From Thursday we start closing the books on fiscal 2010 and that will trigger a flurry of activity. We need to send quarterly statements to members, issue annual group certificates to staff, submit year-end returns to regulatory bodies, prepare working papers for the auditor and that’s just the tip of the iceberg.
Before getting too consumed with the processes that precede the publishing of our full year results, it’s appropriate to look back on the financial year that was. You don’t need me to tell you that the past 12 months have been anything but business-as-usual. Fiscal ‘10 started under the shadow of the GFC and ended with Australia being hailed as the miracle economy.
While Australia appears to be out of the woods, many other countries are still in the eye of a storm. An uncertain future faces much of Europe with Portugal, Ireland, Greece and Spain (the so called “PIGS”) struggling to revive their economies in the face of deflation and recession. The near term prospects for the world’s biggest economy, America, are encouraging albeit the recovery is slow.
It has certainly been a (financial) year of challenges but out of the chaos caused by too much debt and too much leverage came opportunities for Gateway. Just look at our list of achievements:
In early December we announced a strategic alliance with Mark Bouris and his team at Yellow Brick Road;
In late December we picked up two awards in the 2010 Best of the Best Money Magazine awards;
In March, Frankfurt University identified the podcast of this blog as an example of world’s best practice in the application of web 2.0 technologies;
In April, we received a 5 star rating from Cannex for our Everyday Savings account and a 4 star rating for our eMax saver;
In May, Channel Nine’s A Current Affair cited our 1 year fixed rate home loan as the second best in Australia; and
Earlier this month, we were a finalist in the Credit Union of the Year category at the 20th annual Australian Banking and Finance Awards.
Staring down the lens of fiscal 2011 we have even bigger goals and these are encapsulated in our just completed five-year strategic plan called Creating the Future. We have deliberately set the most ambitious and challenging agenda in our existence. As the dust settles on the GFC, we must and will forge a sustainable future for Gateway. Our Members expect and deserve this.
Regards
Paul J.Thomas
Podcast is available here
Posted Monday, June 28, 2010 1 Comments Make a comment
Warning: Management speak & clichés ahead
This week I’d like to touch base and give you a heads-up on the jargon used in the modern workplace. Corporate lingo is not rocket science so there’s no need for us to push the envelope or form a self-managed team to understand the buzzwords used by managers. At the end of the day, synergistic communication can be viewed as a core competency which represents best practice and produces win-win outcomes.
As part of continuous improvement in staff engagement, some employers run brainstorming sessions to encourage blue sky thinking and uncover any elephants in the room. Of course, there are times when issues need to be taken off-line as individuals don’t have the bandwidth to tackle things head on. However, this is not best-of-breed behaviour and undermines the employee value proposition.
Moving forward, organisations need to clearly articulate their Vision and Mission so that everyone is in-the-loop and singing from the same song book. This might require a paradigm shift driven by transformational leadership to ensure the team stays in front of the curve and hits the ground running. Any quick wins through low hanging fruit will buy some time until the rubber hits the road and there is no longer a need to fly under the corporate radar.
If you think this gobbledygook makes the corporate world look silly then you’re not alone. A recent poll of 450 people by Sydney author, James Adonis, identified a number of management phrases which get on people’s nerves. Some of the most annoying mottos include walk the talk, think outside the square, let's give it 110 per cent, there's no “I” in team, together everyone achieves more, what gets measured gets done and work smarter, not harder.
In my experience, business words are like fashion – they come and go. During the 1990s it was popular to talk about downsizing and rightsizing. Today, everyone waxes lyrically about toxic assets and institutions being too big to fail.
While I accept that effective communicators don’t speak in pretentious imagery, every manager drops one of these gems occasionally. I use the phrases “there’s no silver bullet” and “customer centric” so does that mean I’m also guilty of meaningless gibberish?
The call to make the workplace a jargon-free zone is understandable, but some jargon serves a purpose. Defenders of jargon say it acts as necessary professional shorthand as it conveys complicated ideas succinctly. As far as I can tell, every group on this earth has jargon.
So, that’s my “download” for this week. Should you wish to “push back” and “raise a red flag” if my attitude to management catch phrases doesn’t “dovetail” with yours, feel free to leave a comment on my blog.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 21, 2010 0 Comments Make a comment
GFC book fair
In the aftermath of the global financial crisis (GFC) bookstores have made space for a new genre of books which seek to illuminate the dark underbelly of capitalism. The world’s most calamitous financial crisis since the Great Depression has publishers rushing to capitalize on the current flood of consumer interest.
One of the latest offerings to hit the shelves is a scathing critique of Wall Street by financial journalist, Michael Lewis. In The Big Short: Inside The Doomsday Machine Lewis puts a very human face on the sub-prime fiasco and exposes the financial shenanigans, stupidity and malfeasance which brought the free market to the precipice.
Lewis’ analysis of the mortgage meltdown is done through the eyes of three hedge fund managers who picked the looming crisis in financial markets years before others. Michael Burry (Scion Capital), Steve Eisman (FrontPoint Partners) and Charlie Ledley (Cornwall Capital) all saw the real estate market for the black hole it would become and made a killing by “shorting” mortgage-backed securities. (As I explained in a previous blog, going “short” means betting that stocks or any other financial instrument will fall.)
All three were connected to another interesting character, Greg Lippmann, a bond salesman with Deutsche Bank. Lippmann was one of the few bankers to realise that mortgage-backed collateralized debt obligations (CDOs) were garbage. As the true life drama unfolds, our savvy cast of Wall Street characters refuse to be fooled by soaring house prices and bet money on the boom going bust using credit default swaps (CDSs) – the so called “big short”.
Short-sellers are usually cast as villains but in Lewis’ book, which reads like a novel, they are painted as financial swashbucklers who set out to prove that house prices don’t always go north. In the process, Wall Street destroyed Main Street, sparking the worst financial crisis since the 1930s. If there’s one group to blame, Lewis says, it’s the “people who designed synthetic CDOs at Goldman Sachs.
In hindsight, packaging loans - made to credit unworthy borrowers - into bonds for sale to investors was a disaster waiting to happen. So why was it allowed to occur? Well, as Lewis describes it, Wall Street firms were able to hide the risk by complicating it and getting the rating agencies to give triple-A ratings to bonds that were far lower in quality.
Now I’m conscious that the workings of bond traders are a mystery to most people. The Times newspaper has prepared a helpful review of Lewis’ book which explains how Wall Street turned crappy sub-prime loans into exotic and toxic financial products. If, after reading this review, you are still confused, you must, must, must READ THIS satirical explanation of how traders can manipulate the derivatives market. Then you will understand what happened!
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, June 15, 2010 0 Comments Make a comment
Pandora’s inbox
During 2009, 90 trillion e-mails were sent among the world’s 1.4 billion e-mail users. The average office worker is estimated to spend around 40 per cent of their working day sending and receiving e-mails. The flood of messages is ceaseless and e-mail has irrevocably changed our world.
We need to “shut down, switch off and reconnect” with real people according to John Freeman, author of Shrinking the world: The 4000-year story of how email came to rule our lives. He proposes we try and separate ourselves from the inbox which for many has become an “electronic fidget”.
The compulsion to check our inboxes is akin to poker machine addiction. “Email is addictive in the same way that slot machines are addictive,” says Freeman. The upshot, he warns, is that “we spend less time dealing face-to-face with other human beings and more time before a machine playing e-mail ping-pong” (italics mine).
Citing a survey conducted in England, Freeman reveals that “77 percent of office workers and company owners agree that email downtime causes major stress at work”. Some psychologists are pushing to have “Internet Addiction” classified as a clinical disorder.
According to Freeman, 65 per cent of North Americans spend more time with their computer than their spouse. “The computer and email were sold to us as tools of liberation, but they have actually inhibited our ability to conduct our lives mindfully,” he laments.
He goes on to say that cafés used to be filled with people talking to one another or reading books or newspapers. Nowadays, you will find people sitting alone before the glowing screen of their laptop, typing e-mails, working on documents and chatting with friends online.
Freeman sees electronic messages as “completely devoid of sensuality,” noting that we misunderstand the tone of e-mails 50 per cent of the time. This is not a surprise, says Freeman, as “there is no face on the other end to … indicate that what we are in the process of saying is rude, not comprehended or cruel”.
The growing absence of face-to-face communication has given rise to cyber crime. Freeman identifies phishing, spam, cyber-bullying and ID theft as examples of miscreant activities. He also identifies a new form of narcissism, egosurfing, in which “one searches the Internet for information about oneself”.
Like Freeman, I believe that between the carrier pigeon and the inbox, communication lost its personality. While I’m not suggesting we go back to smoke signals, there’s still a place for phone and face-to-face communication. The tone and inflection of your voice and the smile on your face means it’s less likely the receiver will misinterpret your message. Try it!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 07, 2010 4 Comments Make a comment
My savings goal
Sue Wood is the winner of our 100th blog competition. For her efforts, Sue has received $1,000 in a Gateway savings account plus her winning entry is published below.
The competition required entrants to write a blog telling us what special thing they are saving for and how they will achieve that savings goal.
Congratulations to Sue and thanks to everyone who entered. A special mention goes to Brooke Isbel (Aged 11 turning 12) for making it to the finalist list.
My savings goal
(by Sue Wood)
What could be more special than a Plan for the Future! (Retirement Plan conjures up images of Nanna and Pop, knee rugs and incontinence pads.) I’m definitely a ‘glass-half-full’ girl but our ‘financial security glass’ is unfortunately very small!
Eventually, we hope to finish paid employment, take on volunteering, learn new skills and travel to places we postponed visiting “until the kids left home”. Who wants a bleak existence on “The Pension”? We want to take control of our future. We have A PLAN!
Surviving life’s dramas have definitely left us stronger, wiser but much, much poorer. The assets have been severely depleted and our combined income is under the average wage. My employment in Aged Care is rewarding, emotionally and spiritually, but… face it! The money stinks. I love my job but, as I was told as a teenager, you can’t live on love!
Educating ourselves about money management and becoming financially aware was essential. (Ah, the motivating blogs of Paul Thomas!) If only we had known before what we now know…….
Our first strategy is to take full advantage of the Government Co-Contribution scheme. Annually we deposit $1,000 to my superannuation and the government very generously rewards me for my pitiful earnings by matching the amount. Money for nothing is so sweet!
Next, we have become very good savers since the departure of our combined brood of seven offspring. Both of us have always budgeted. I can proudly boast that our budgeting skills have improved dramatically. Thrift is now our middle name. Practice does make perfect!
I’m a lifetime fan of Oprah Winfrey since she enlightened me with the concept of “pay yourself first”. It works! Each week, my eMax “Nest Egg” is replenished first, followed by what remains to bills etcetera. For the first time in years, I am building savings! Hallelujah!
Lastly, reliable financial advice is essential. We’ll need help negotiating the minefield of old age; not just surviving it, but comfortably, purposefully, actively living it.
GCU has a philosophy of “People Helping People”. Our philosophy will be “Help Ourselves!”
I wish you all the best in reaching your savings goal!
Sue
Posted Monday, May 31, 2010 1 Comments Make a comment
Small things create big effects
Believe it or not, there’s a scientific theory (chaos theory) which posits that when a butterfly flaps its wings in Brazil it can set off a tornado in Texas. This is known as the butterfly effect – a term attributed to Edward Lorenz - and it’s become a popular metaphor to describe how tiny and seemingly insignificant events can have large and far-reaching consequences.
The “flapping wing” can be just one driver whose careless actions cause a traffic jam for thousands of other motorists. It can be a mutating virus in African monkeys which creates a thunderstorm for humanity in the form of AIDS. Or it can be a decline in the number of pollinating honey bees resulting in a multi-billion dollar impact on the fruit and vegetable industries.
Nature has always been global and now the globalisation of trade and finance means the butterfly effect is everywhere at work. In an interdependent world, a drought in Australia can cause a shortage of rice in Haiti, a financial debacle in Greece can threaten Swiss banks and toxic US sub-prime mortgages can unleash a global financial crisis.
Small mistakes can also cause big problems in organizations. One bad customer experience can result in a consumer avoiding your product for life. One disgruntled team member can poison an entire culture. In business, every action affects another as everything is connected.
The corollary of the butterfly effect is that you can achieve big results through small actions. Individual households recycling waste help create a better world. A random act of kindness has a ripple effect on those around you. One employee can spark a conversation that fuels a thought, which changes how an organization is run.
The butterfly effect found mass appeal with the publication in 1988 of James Gleick's bestseller, Chaos: Making a New Science. I have a copy at home but you can buy a 20th anniversary edition at most good bookstores.
We live in a world which is focussed on big events. Yet small, wing-flapping events in our personal and professional lives can create a true hurricane-sized change. Big might be beautiful but small is mighty. It’s the power of one and we can all make a difference.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 24, 2010 0 Comments Make a comment
Promoting the mutual brand
There’s no escaping the fact that we’re surrounded by brands – they’re part and parcel of everyday life. Maybe you start your day with some Kellogg’s Cornflakes. Then you drive your Ford Falcon to the railway car park. On arrival at work you have a Nescafe coffee. During the day, you pound away on an IBM Computer. After work, you wear Nike shoes to the gym.
Organizations like Coca-Cola, Mercedes-Benz, McDonalds, Nokia and Gillette spend literally millions of dollars annually on positioning and promoting their brand. The discipline of brand management was started at Procter & Gamble and is now embraced by corporations around the world.
It’s said that, like people, brands have personalities which evoke feelings. Volvo offers feelings of safety while Mustang offers feelings of excitement. Brand-aroused feelings also apply in financial services. Mention the Big Four Australian banks and feelings of “big and impersonal” come to the fore while credit unions are typically viewed as “small and friendly”.
Credit unions and building societies are jointly referred to as mutuals and they have joined forces in a new marketing campaign to promote the mutual brand. The TV campaign began last night and will be screened in all states and territories. The fundamental aim of the campaign is to position mutuals as viable alternatives to the banks.
A challenge for every brand is to connect with target customers and this is often done with the help of a branding device or logo. We are all familiar with
McDonald’s golden arches,
Nike’s swoosh,
Mercedes’ three-pointed star and
Coca-Cola’s cursive script. The mutual banking campaign will be branded with a distinctive green circular logo with the words “It all comes back to our members”.
This positioning statement conveys how mutuals differ from traditional financial institutions. All profits go back to members in the form of better rates and improved services. While the campaign will not have a Toyota sized marketing budget, the placement of commercials is designed to give us maximum exposure for a powerful and consistent message about the benefits of credit union and building society membership.
Many Australians are unaware of the mutual banking option. With interest rates on the rise, banks under fire and consumers frustrated by a lack of choice, credit unions and building societies see a chance to boost their market share. We want to become the preferred choice of consumers.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 17, 2010 2 Comments Make a comment
Moral compass for bankers
It’s not often you get an insight into the soul of one of the world’s top bankers. The banker in question, Stephen Green, is global Chairman of HSBC - he’s also an ordained Anglican priest. Given this pedigree, Green is in a unique position to reflect on the human failings behind the global financial crisis (GFC).
As the boss of a bank which was one of the least toxic of the major banking groups, Green can legitimately take the high moral ground. He laments the massive breakdown in trust of the financial system and commented during the GFC that “banks have chased short-term profits by introducing complex products of no real use to humanity”.
Green is a passionate Christian and has been described as the banker with God on his side. He is critical of the banking industry’s “inflated” bonus culture but believes capitalism is “not intrinsically evil”. He also argues that much of what investment banks do is “socially useless”.
In the wake of the GFC, Green has written a book, Good Value: Reflections on Money, Morality and an Uncertain World. While one journalist described it as a “200 page sermon”, I certainly didn’t find it didactic. In fact, I’m disappointed the Rev. Green did not pen a more fire and brimstone warning about human excesses and mammon.
Despite the book’s title, what Green has produced is essentially a brief history and defence of globalization. He examines how the human impulse to explore and trade has shaped our world. The resultant interconnectedness has created what Green calls a “global bazaar”.
Green draws on the work of philosopher and Jesuit priest, Pierre Teilhard de Chardin. Green notes that Teilhard saw globalisation as “…something far deeper than economics, commerce and politics. It is an evolution of the human spirit”.
In his book, Green proposes a “new capitalism” that brings good business and good ethics together. He says moral and spiritual values should take precedence over immediate profit and that we have the opportunity to remake capitalism while also helping the less fortunate.
He sings the praises of microfinance in helping the poor break the cycle of poverty. As I pointed out in a previous blog, Lend a Helping Hand, Gateway is also a disciple of microfinance. Something else that Gateway has in common with Green is Servant Leadership. Green claims to be a practitioner of this leadership style and so is yours truly.
It seems to me that Stephen Green would be a good recruit for the not-for-profit credit union sector. We’re also high on ethics and values. I thought about offering Green a job at Gateway - but I don’t think I can afford his multi-million dollar salary!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 10, 2010 2 Comments Make a comment
Dear Earthlings
Allow me to introduce myself. My name is Zork and I’ve just arrived from planet Mars. Due to a navigational error I landed in Paul Thomas’ backyard and he has been proudly educating me about life on earth.
Given what Paul has told me, I find it hard to believe you are the most intelligent life form on this planet. As a well-travelled alien explorer, I believe your behaviour is light years from how a civilised society should act.
You inhabit an extraordinarily beautiful planet. Yet you have artificially divided it into 194 sovereign nations and this is the root cause of many of your world’s problems.
You act selfishly as citizens of independent nation-states instead of behaving selflessly as one united global family. By viewing the world through national-interest glasses, you fail to clearly see and deal with global issues.
Your planet’s Great Depression is an example of this parochial thinking. After the 1929 stock market crash, nation-states sheltered their domestic industries from international competition and this led to a collapse in global demand.
Your recent global financial crisis again showed you live in a borderless world. No country was immune from its effects even though some threatened to escape behind protectionist trade barriers – history repeating itself!
Just as the great oceans you navigate and the air you breathe know no national boundaries, so it is in a global economy. The challenge humanity faces is to better manage an interdependent world.
You must evolve beyond a world order built around the sovereign state system. Rest assured, however, that successful global governance does not require a monolithic global government.
What is needed is a change in mindset to facilitate true global co-operation and consensus. To paraphrase your great leader, John F. Kennedy, you should ask not what the world can do for you but what you can do for the world.
Let me conclude with a general observation. In the cosmic scheme of things, the earth is just a baby in size and age, yet you Homo sapiens act as if you are the centre of the universe.
If the 4.5 billion years of your planet’s existence was compressed into a single year, modern humans would make an appearance on earth at three seconds to midnight on 31 December.
You haven’t even roamed the earth for as long as the dinosaurs – you still have much to learn. So, be nice to each other and be kind to your environment. I have enormous faith in your ability to become a great people and to live in peace and harmony. Best wishes from Zork.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 03, 2010 0 Comments Make a comment
A milestone blog!
This is my 100th blog posting - yippee! When I posted my first blog on 25 March 2008 I was nervous for two reasons. Firstly, I thought that posting a blog each week would be a Herculean effort given my work commitments. Secondly, I wondered whether my musings on money and life would be of interest to anyone.
Two years on, I think I can safely say both concerns were unfounded. I took to blogging like a duck to water and have never missed a weekly posting (even though I still lose sleep worrying about the content of next week’s blog!). Also, my readership continues to grow and I receive lots of positive “offline” feedback about the blog.
As part of my initial crash course in blogging I was told that blogging should come from the heart. I was encouraged to write about my passions as “passion ignites interest”. Well, I’m passionate about people and human behaviour and that’s been the common theme of my 100 postings. [Remember, economics is the study of human behaviour (Homo economicus) as it applies to money.]
It’s customary on scoring a century to celebrate and that’s why we’re giving you the chance to win a $1,000 prize. Simply click here for details of this exciting competition. I’d also like to be rewarded for all my hard work. So I’d really appreciate some feedback on my blog. Feel free to use the “Make a comment” button below.
To ensure my blogging skills remain up-to-date, I recently read an article on the dos and don’ts of corporate blogging. The article said:
Selecting the individual who will write your blog is doubtless the
most important decision. An ideal corporate blogger is one who
is an expert in his field…(and)…writes with passion and sincerity.
(So)…choose someone who writes well, with a conversational,
authentic, yet authoritative tone.
|
Great advice I thought - as I expanded my chest with pride - until I read the sobering conclusion; “Most likely, this person is not your CEO”. Huh? What? Ouch! Must go now and stroke my bruised corporate ego. I may or may not be back next week! On second thoughts, I will be back and I intend to do something outside the box.
P.S. For Blog Compeition details and how to enter click here!
Please do not submit your entries in the comments tab below.
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, April 27, 2010 6 Comments Make a comment
Better CPI shopping data
Like most males, I detest supermarket shopping. Pushing a trolley up and down the aisles is a mind-numbing experience. My fundamental aim is to get in and out of the store as quickly as I can. My poor behaviour annoys my wife who assures me that she also finds little joy in grocery shopping.
Whereas I rapidly “hunt” down items, Bev slowly “gathers” what we need. Thus, we follow the traditional evolutionary roles developed in the African Savannah. Our classic Caveman/Cavewoman behaviour mirrors the Hunter-Gatherer Theory of Markets and Shopping.
Outside the supermarket “jungle”, there is a basket of goods which genuinely interests me - the items which make up the Consumer Price Index (CPI). The CPI measures the change in the cost of a fixed basket of goods and services bought by Australian households.
In essence, the CPI tracks changes in the cost of living and provides a robust measure of price inflation for the household sector. Given this, the CPI is a widely-quoted and well-known economic indicator and for good reason. Trends in the CPI are a major driver of the Reserve Bank’s interest rate decisions.
The principal objective of monetary policy is to control inflation. Australia’s inflation target is expressed in terms of the CPI. The RBA has adopted a 2-3 per cent inflation target and does not like to see inflation run above this comfort zone.
But the RBA is unhappy that it only receives CPI data from the Australian Bureau of Statistics (ABS) on a quarterly basis. It wants the CPI published monthly and notes that Australia and New Zealand are the only developed countries not to do so.
“The Bank is strongly of the view that a monthly CPI constitutes best practice, and that more frequent data on prices would assist in the assessment of inflation trends in the economy,” the RBA said in its submission to the 16th Series Review of the CPI.
There’s no doubt that a monthly rather than a quarterly CPI publication schedule will help improve Australia's monetary policy framework. Timely information is crucial to the conduct of monetary policy and monthly data will eliminate the current backward-looking bias of monetary policy.
Speaking of looking backward, I forgot to mention that I enjoy shopping for gadgets. So, I must go now as I’m off to my local mega hardware store which has aisles and aisles of big-boy’s toys and other “hunting tools”. Strange how Bev hates hardware shopping - go figure?
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 19, 2010 0 Comments Make a comment
Pitfalls of performance measures
Distinguished economists typically have their name associated with some economic theory, concept or tool. Some examples include Giffen goods, the Nash equilibrium and the Phillips curve.
Today, I’d like to introduce you to another economic concept - Goodhart’s law. This “law” testifies that social or economic performance indicators lose their usefulness when adopted as policy targets.
Put simply, when a measure becomes a target, it ceases to be a good measure. Moreover, as Goodhart’s law states, people change their behaviour when they are aware of their targets. The average person is skilful enough to make targets work for them rather than against them.
Some examples include the train driver who sets off without his passengers to avoid being late, the teacher who channels her students towards easier subjects in the pursuit of better average grades or the hospital administrator who orders patients to stay in ambulances as waiting times are measured from when the patient comes through the door.
Setting performance metrics for one part of a system often leads to sub-optimal performance in the overall system. Thus, if police focus on reducing one crime measure (eg, shoplifting), other crimes increase. So, the shoplifting rate becomes a useless measure of the overall crime rate.
Goodhart’s law is also true in business. When you set up a metric by which employees are rewarded or punished, they will act to optimize that measure. The classic example here is the call centre manager who put a time limit on customer inquiries. After one question, some of his operators told customers they had to call back to get a second question answered!
The most powerful metrics are those that directly measure desired business outcomes. In my experience the best metrics are often subjective measures rather than numeric values. Which is why I’m inclined to hire someone who I (subjectively) believe will be a good cultural fit rather than someone who has straight A’s.
Now imagine if financial institutions around the world had metrics that encouraged behaviours which benefited the organization as a whole. Regrettably, many Wall Street executives were remunerated largely against numeric targets (like profitability) and this monetary stimulus contributed to the destructive behaviours that led to the Global Financial Crisis.
The cliché, “Tell me how I’ll be measured and I’ll tell you how I’ll behave”, accurately describes human motivation. As I stated in a previous blog (Corporate Governance), financial institutions need to find ways to measure greed, ambition and ethics as traditional numeric targets encourage and amplify unhealthy behaviours.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 12, 2010 2 Comments Make a comment
Knee deep in debt
Last financial year there were 27,483 new bankruptcies in Australia. The overwhelming majority of these (92%) originated from voluntary debtor’s petitions while only 8% were forced creditor’s petitions. I think it’s high time we started talking about the increasing incidence of personal bankruptcy. Let’s begin the discussion with an etymology lesson.
The word ‘bankrupt’ comes from the Italian, banca rotta, meaning ‘broken bench’. In the sixteenth century money lenders in Florence conducted their business on benches in outdoor markets where they exchanged money and bills. When a banker failed, his bench (aka “bank”) was broken by the people as a mark of infamy and he was called a bankrupt.
While the practice of publicly humiliating debtors no longer occurs, the propensity of people to get in over their heads has not changed. The mantra of many consumers nowadays is: “I want it, I want it now and I’ll borrow rather than save for the things I want”. As I have previously opined, we have become a society of credit junkies. For many, unsustainable expenditure is the drug of choice.
Of course, there are those who would point the finger for rising personal indebtedness at over-eager banks and other lenders. But as I explained in my posting, Household debt out of control, this is too simplistic. Despite advice to the contrary, many people deliberately pile on debt, typically wracked up on several credit cards. These individuals often see bankruptcy as an easy and attractive option.
In fairness, I know that some bankruptcies are caused by serious illness, divorce, a death in the family or redundancy. These largely uncontrollable events – “life’s accidents” – should be viewed with compassion. Beyond that, bankruptcy should be an absolute last resort as the results are long lasting and far reaching. It can destroy an individual’s credit rating and make it difficult for the person concerned to borrow again for many years.
Bankruptcy laws have evolved over thousands of years and now protect debtors as well as creditors. But I believe the pendulum has swung too far. Debtors are using bankruptcy as a modern day “get-out-of-jail-free” card. For my money, it’s far too easy for Australians to declare bankruptcy.
It seems to me that both borrowers and lenders have a role to play in addressing the rising incidence of bankruptcy. Financial institutions need to do more to improve financial literacy skills and consumers need to become better money managers and live within their means.
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, April 06, 2010 1 Comments Make a comment
Pull the other leg
Contrary to what you may think, I don’t have a big mouth. I use a compact toothbrush with a small head as I can’t fit the new-fangled, oversized toothbrushes in my gob without gagging.
There’s no proof that fancy toothbrushes work any better than a conventional flat toothbrush. Yet trying to find a toothbrush without ergonomic grips, multi-layered bristles and angled head is near impossible.
An article in a recent weekend edition of the Australian Financial Review, The Great Toothbrush Conspiracy, caused my jaw to drop. The exposé opened with the question - Why does your toothbrush look like a sports shoe? - and went on to quote dental experts who opined that the bells-and-whistles variety of toothbrushes have done little to advance oral hygiene.
It seems that razor blades have also gone the way of the humble toothbrush. I was recently “forced” to buy a three-head razor as my trusted and reliable two-head razor has been withdrawn from sale after 20 years. I’m still waiting for my much hyped “closer, smoother, shaving experience” from my new turbo designed razor.
Personally, I was quite happy with my old fashioned toothbrush and loyal razor, but they were phased out under a marketing strategy called planned product obsolescence. Not to worry, I still have lots of choices (but not my preferred choice!) as manufacturers over cater to our needs.
Whether it’s toothbrushes, razor blades, sports shoes, bottled water or diet products, I think consumers are having the wool pulled over their eyes. We have become overwhelmed by choice to the point where day-to-day decisions - such as which shampoo to use - are causing unnecessary stress.
I believe that simplicity should be favoured over complexity and the same holds true in financial services. As a result of the GFC, many investors had a close shave as they bought financial products they did not truly understand. Financial engineering gave us toxic subprime loans and other hard-to-get-your-mind-around products.
The financial services sector needs to be careful it does not fall into the trap of overcomplicating the product mix. If the GFC has taught us anything, it’s the value of keeping things simple. Of course, those addicted to making a fast buck are always going to be tempted with the latest financial innovation.
My advice is to be wary of fancy packaging and stick to “twin-head” loan and investment products. You’ll be happier and it will show when you flash your pearly whites.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 29, 2010 1 Comments Make a comment
Money supply 101
One of my biggest frustrations throughout the GFC was the ill-informed commentary from some sections of the media. An example is the erroneous claim that governments around the world were printing stacks of paper currency - absolute rubbish!
As I explained in a previous post, governments increased the money supply through electronic means, not by increasing the amount of banknotes in circulation. The money supply of a country consists of tangible money (physical notes and coins) and intangible money (balances in bank accounts).
Physical currency accounts for a very small percentage of the money supply and it’s getting smaller. The motorway I drive on each day is cashless, my salary is directly credited to my account and I pay bills electronically.
Nowadays there is simply less need for cash (fiat money) and one day banknotes may even become obsolete like the old barter system (commodity money). Today, money largely exists in electronic format (electronic money) as records in a data base of a financial institution.
Banks and other financial institutions are electronic rivers of money which flows in and out on a tide of transactions. They are also the creators of the majority of new money. Today, printing money means creating credit.
When a bank makes a loan to a customer and deposits the proceeds into a bank account, new credit money is created. Thus, money borrowed from a financial institution increases the money supply. But this new money also has a multiplier effect.
For example, Bill borrows $1,000 from his friendly credit union. He uses the money to buy his wife a new ring. The jeweller takes the $1,000 and uses it to pay for major repairs to her car. The car dealer, in turn, uses the money to help pay the wages of his mechanics and so it goes on and on.
It can be seen that the same $1,000 gets circulated throughout the economy. The higher the velocity of money, the stronger the economy as the same fixed unit of money flows freely throughout the system.
So, the next time someone tells you the printing presses are working overtime churning out more currency, tell them the value of notes and coins manufactured by governments pales into insignificance compared to the money created out of thin air by financial institutions.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 22, 2010 0 Comments Make a comment
This is your captain speaking, welcome to no-frills banking
There are few places where human emotions are more openly on display than at an airport. Stand in the arrivals hall and departures lounge and watch the parade of sentiments - from the overwhelming joy of greeting a loved one to the sheer sadness of saying farewell.
I’ve spent many hours in airport terminals around the world and have felt relief at surviving officious security personnel, delight at finding my baggage in a river of luggage and frustration at the never-ending customs queues. No wonder the end-to-end passenger experience is characterised by anxiety.
Alain de Botton’s new book, A Week at the Airport: A Heathrow Diary finds food for thought among the fears and frustrations inherent in air travel. De Botton is a philosopher and author and in August 2009 spent a week at Britain’s largest airport as writer-in-residence.
In contrast to most other passengers, de Botton admits he loves airports. In fact, he longs for his plane to be delayed “…so that I might be forced to spend a bit more time at the airport”. Perhaps that’s why one reviewer rated de Botton’s airport diary “as perky as an air stewardess”.
What struck me after reading A Week at the Airport is the similarity between the airline industry and the banking industry. Both industries manage systemic risk on a daily basis, both have yet to perfect the total customer experience and both are engaged in price wars.
Airlines are slashing fares to fill seats and financial institutions are discounting loans to attract borrowers. Low-cost carriers and no-frills mortgage providers now compete head-to-head with established giants. Consumers appear to be paying less but are they really getting value for money? While the headline cost of a flight or a loan can appear cheap, are the add-ons a killer?
In both industries, explicit fees and charges have become the norm as airlines and banks attempt to recoup costs and mitigate the squeeze on operating margins. The airline industry has parking fees, trolley fees, credit card booking fees, excess baggage fees, rewards redemption fees, a fuel surcharge and an obesity fee. And that’s before you even board the plane and then have to pay for headphones and a drink!
So the message is clear: When booking a flight or applying for a loan, look before you leap on board. Planning ahead will help you avoid “fee turbulence” and ensure a smoother ride.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 15, 2010 0 Comments Make a comment
A library without books
One of my favorite pastimes is roaming through bookstores. I’m a book lover and enjoy browsing the shelves and leafing through whatever catches my eye. I like the intimacy of smaller book shops, particularly those with floor-to-ceiling bookstands, but also appreciate larger stores with plenty of titles.
If technology has its way, strolling through bookstore aisles may become a thing of the past. With the advent of electronic books (e-books) the days of ink-and-paper books are supposedly numbered. While our ancestors read from clay tablets, the next generation will apparently view texts and novels on a battery powered device called an e-reader.
Welcome to the age of digital information where a hand-held e-reader can literally store hundreds of books. The first e-reader on the market, the Amazon Kindle, arrived in Australia late last year. Its makers claim it will revolutionise the way we read in the same way the iPod changed the way we listen to music.
Like all technological breakthroughs, e-readers come with pros and cons. On the upside, they are lightweight and portable and can fit snugly into a small bag. School kids will be able to carry one e-reader instead of a backpack full of text books. E-readers also provide privacy - no one knows what you’re reading as there’s no tell tale book cover.
But on the other side of the coin, I can’t imagine curling up on the lounge with an e-reader. Nor will I be able to get the author to autograph my e-book. Unlike hardcover books, e-readers may break if dropped and they need power which may not always be available. Also, the look, feel and smell of a new book provide an important tactile experience which e-readers can’t replicate.
While the debate rages between e-reading evangelists and hardcover traditionalists, the jury is still out for me. I’m sure gadget lovers will readily embrace the e-reader but I’m yet to be convinced it will overtake paper books. At the end of the day, books are symbols and many of us like to display great works on shelves in our homes and offices.
Despite predictions to the contrary, DVDs have not led to the demise of movie theatres, the Internet has not wiped out shopping malls, home banking has not eliminated branches and I can’t envision e-readers replacing paper books. Many people will continue to read cover-to-cover rather than “disc-to-disc”. Personally, I’d much rather turn the page of a book than fine-tune the pixels on an e-reader.
Regards
Paul J Thomas
Podcast is available here
Posted Monday, March 08, 2010 6 Comments Make a comment
Money doesn’t fall from autumn trees
WELCOME to a new month and a new season. What a marvellous time of year - the days are getting shorter, the leaves are turning colour and the air is fresher. The arrival of autumn signals a change in our routines and activities. With shorter days and longer nights we’ll socialise less and hibernate more over the coming months.
As the temperature drops, it’s a great time to curl up indoors with a good book. I did just that recently with a copy of Dr Aric Sigman’s tome, The Spoilt Generation: Why restoring authority will make our children and society happier.
One of the most resonant moments in Dr Sigman’s book comes early in his introductory remarks. He argues we have a duty to bring up socially viable children saying “…child-rearing is not merely a question of personal style. We have an overriding responsibility not just to rear our children to our own satisfaction, but to the satisfaction of others as well”.
I have long believed there is a relationship between how we parent and how our kids turn out and it appears the good doctor does as well. Ask any school teacher (I have!) and they’ll tell you that, with rare exception, kids are a product of their home environment.
The crux of Dr Sigman’s thesis is that we need to return to old fashioned parenting. In the same vein, I’m an advocate for a return to old fashioned habits of thrift (savings). These habits should start at an early age so that children learn the value of money and understand that it doesn’t come from the Tooth Fairy.
You can open a savings account and encourage your children to save a percentage of their pocket money. Or you can get your kids to put money aside in a piggy bank. Either way, you are teaching them the importance of saving for the things they want and to shun impulse buying – the bane of our adult society!
As an incentive, you can offer to pay your kids “interest” on their money when they reach a pre-agreed savings goal. As to the amount of pocket money, there are no hard and fast rules. Some parents give their children pocket money in return for doing household chores while other kids simply receive a weekly allowance.
Of course, the most important lesson we can teach our kids is that money is not everything - it still can’t buy happiness. Perhaps that’s why the world is full of people who are materially rich but spiritually poor.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, March 01, 2010 1 Comments Make a comment
The savings crisis
Many Australians find it difficult to save. As a nation, we are among the worst savers in the developed world. Nearly forty per cent of working Australians do not have enough savings to last them more than one month if they lost their job.
Banks and other authorised deposit-taking institutions (ADIs) convert household savings into loans for other households wishing to finance the purchase of a home. Demand for home finance, however, exceeds the supply of deposits as Australians borrow more than they save.
To fund this imbalance, our banks and other lenders borrow money offshore to lend for domestic purposes. This creates a reliance on global capital markets and a resultant exposure to credit market price changes as occurred during the GFC.
Our household saving - the difference between household disposable income and household consumption - has declined over the last three decades. In fiscal 2003 it became negative and remains so. Due to easy access to consumer credit (eg, credit cards, home equity loans) households have seen less reason to save for emergencies.
Also, Australia is currently in her 19th year of uninterrupted economic expansion and households tend to save less in the good times and put more away when the outlook is less promising. Which is why the saving ratio is viewed as a barometer of the overall state of the economy.
But higher saving ratios are not of unlimited benefit as they come at the cost of lower consumption ratios. Too much saving translates directly into too little consumer demand. This is what occurred during the GFC when many households stopped spending, creating a paradox of thrift.
To an economist, saving is the decision to defer consumption and to store this deferred consumption in some form of asset. Savings are one of the most heavily taxed forms of assets under the current tax system and this discourages savings. Maybe the yet-to-be-released Henry Review will address this?
One of the concerns behind the introduction of compulsory superannuation in 1986 was the decline of the household saving rate in Australia. Superannuation has forced us to save for retirement but has not changed the “voluntary” saving ratio.
The end result is that we are generating insufficient savings to fund the investment needed to build our great nation. We have become dependent on foreign savings making us a debtor nation. A large part of our current account deficit comprises the interest on the money we borrow from abroad.
Australian households need to move from conspicuous consumption to inconspicuous saving. You can do your bit by tucking away some money each pay day for a rainy day. Next week I’ll give you some tips on helping your kids develop good savings habits.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 22, 2010 1 Comments Make a comment
Lend a helping hand
Credit unions evolved from a simple idea - that people could pool their money and make loans to each other. That was over 160 years ago. Today the credit union philosophy of people helping people has spread to 97 countries with 46,000 credit unions serving 186 million people worldwide.
Member owned financial co-operatives have improved the lives of millions of people and have the potential to serve millions more. Australian credit unions are bringing credit union solutions to communities in need and Gateway is lending a hand.
We want to play our part in the global fight to end poverty and are doing this in partnership with the Credit Union Foundation of Australia (CUFA). CUFA is the development agency for the Australian credit union movement and supports people in the Asia Pacific region establish credit unions.
One of CUFA’s aid programs is the restructuring of the microfinance system in Cambodia to give the working class access to high-quality financial services through local credit unions. The term microfinance encompasses the delivery of financial services to poor families and entrepreneurs and includes small loans, usually less than $200, in the form of microcredit.
Microfinance gives poor people access to credit to build their assets/incomes or establish a small, self-sustaining business. For example, a peasant farmer may borrow $50 to buy chickens so he can sell eggs. As the chickens multiply, he will have more eggs to sell. Soon he can sell the chicks and each expansion pulls him further from the devastation of poverty.
Another example is of a woman in a remote village in Uganda who borrowed $25 which she used to buy a cow. The proceeds from the milk it produced enabled her to pay school fees for each of her children.
The Cambodian financial system was wiped out during the era of the Killing Fields. Recent bank failures again ruined people’s trust in the financial sector and has limited the amount they are willing to deposit. To counter this, local credit unions - supported by CUFA - are improving their image and strengthening their operations leading to increased savings levels by members.
Nobel Peace Laureate, Muhammad Yunus, is the father of micro financing. If you want to learn more about the wonders of microfinance, pick up a copy of Yunus’ book, Banker to the Poor - it’s well worth a read.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 15, 2010 1 Comments Make a comment
The welfare debate
Let me proceed cautiously. I don’t want to step on any toes but I think there’s an elephant in the room. I know it’s not politically correct to raise taboo topics publicly but…here goes. Has the helping hand pendulum swung too far? Do government support programs really get people back on their feet?
Now before you beat me up for having the audacity to raise these questions, let’s look at this dispassionately. I truly believe a civilised society should support those who are less fortunate. We have a fundamental responsibility to provide a safety net for those who need assistance. The government has a moral obligation to help the neediest members of society.
However, an increasing number of Australians rely on government assistance and some believe that passive welfare is cruel. Over 42% of families receive more from the federal Government than they pay in income tax. It’s also argued that welfare saps the will to save.
Those who do not receive welfare are often criticised for being well off. Yet the “well off” pay the taxes that are re-directed by the government to pay the benefits to those in need. This paradox is satirically explained in a modernized version of Aesop’s classic tale of The Ant and The Grasshopper.
Personally, I have always subscribed to the Chinese proverb: Give a man a fish and he will eat for a day; teach a man to fish and he will eat for a lifetime. That’s why Gateway is supporting the self help efforts of the peasant farmers in Cambodia to break the cycle of poverty through micro-financing. The Cambodians do not want to be dependent on foreign aid but seek self-sufficiency.
Credit unions around the world help people get ahead and maintain their independence by encouraging old fashion habits of thrift. Without savings people can easily fall into the trap of using payday lenders and this can trigger a debt spiral. I believe that self-help is better than institutional help. I’ll have more to say about micro-financing next week.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 08, 2010 3 Comments Make a comment
The climate debate
When did you last conduct a science experiment? I’d like you to go home tonight and play scientist. Find a white coat, go into your kitchen, put some ice in a glass and then fill the glass to the brim with water. Watch what happens as the ice melts – nothing!
The water line in the glass does not change when the ice melts as it’s already displacing its own weight and the same holds true for floating polar ice packs. As the floating ice melts it becomes its weight of water, which is exactly the same volume as it displaces. Therefore, it’s impossible for melting Arctic ice packs to raise the sea level.
This rational explanation is not evident in some of the claims made about the consequences of anthropogenic global warming. It is this inaccuracy that prompted Professor Bjørn Lomborg to write his bestselling book: Cool It: The Skeptical Environmentalists Guide To Global Warming.
Lest there be any confusion, Lomborg categorically states that global warming is real and that we humans have undoubtedly contributed to rising temperatures. This, he says, is “beyond debate”. He challenges, however, whether the elaborate and expensive actions now being considered to stop global warming will be effective.
Lomborg argues that “extravagant CO2 cutting programs” will have little impact on the world’s temperature for hundreds of years. He views Al Gore and many prominent scientists as alarmists. Equally, Lomborg is viewed by many as a controversial figure whose claims are to be challenged. The details of attack and counter-attack are complex and I will continue to listen to both sides of the argument.
To state the blindingly obvious, I’m not a scientist and therefore it’s impossible for me to know who is right and who is wrong. The recent controversy surrounding the credibility of the UN’s Intergovernmental Panel on Climate Change (IPCC) adds to people’s uncertainty. This means that as a private citizen and the CEO of Gateway I will keep an open mind and not take extreme positions.
Of course, the debate surrounding climate change does have beneficial effects. Gore’s campaign has put global warming on the international agenda and is causing many individuals and organisations to change their ways.
At the end of the day I respect everyone’s right to have a view on this and other important issues. I’m with Bjørn Lomborg who believes we should do something about climate change and a lot more about other problems, such as hunger, which he regards as more important and urgent.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, February 01, 2010 3 Comments Make a comment
The population debate
In 1935 Prime Minister, Billy Hughes, admonished Australians to “populate or perish”. Seventy-five years later our population has risen to 22 million and is predicted to reach 35 million by 2050. Meanwhile, global population is set to hit 7 billion early in 2012 and 9.1 billion in 2050.
Every year mother earth welcomes over 80 million more babies and there is fierce debate about the pros and cons of this level of growth. As a general rule, environmental groups want little growth while economists argue for rapid growth. The population debate intersects with many others and is not a simple, one-dimensional issue.
In Australia, the former coalition government introduced a baby bonus to encourage parents to have THREE kids. As Peter Costello put it: “one for mum, one for dad and one for the country”. Australia is currently in the midst of a mini-baby boom. The ABS estimates Australia's population is bolstered by one birth every one minute and 44 seconds.
In contrast, the British based think-tank, Optimum Population Trust (OPT), is encouraging Britains to stop at TWO children. The OPT has warned of the dire consequences of human proliferation. On his appointment as a patron of the OPT, Sir David Attenborough said the growth in global population was “frightening”.
Meanwhile in China, the government introduced its ONE child policy in 1979. It is estimated that had China not introduced her policy limiting couples to one child, there would be 400 million more Chinese than there are today. The unintended consequence of this policy, however, is that China’s population is getting too old, too fast.
The real population explosion is occurring in third world countries. Population grows fastest in poorest countries as high fertility rates are strongly correlated with poverty. However, according to a recent report third world population growth does not contribute significantly to rising greenhouse gas emissions as poor countries have low emissions.
Paul Ehrlich’s predictions of mass starvation did not come true in his 1968 book, The Population Bomb. Nonetheless, modern day doomsayers are warning it’s a case of populate and perish. Overpopulation is cited as the root cause of climate change and is said to be testing the limits of social, economic and environmental sustainability.
Clearly, population growth is a big topic and I can only provide a brief treatment of it here. The issues are complex and have multiple variables. For those readers interested in learning more, you might find this article of benefit.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, January 25, 2010 0 Comments Make a comment
Happy New Year!
Welcome to my first blog posting for 2010. I’ve now entered my third calendar year as a blogger. For me, the GFC was a rich source of blog topics. As the GFC is now largely past tense, I need to cast a broader net to find some interesting topics for this year. That search started while I was on Christmas vacation.
Beverley and I travelled to New Zealand and spent a week in Queenstown. As always, I took a few good books away with me. One of the most interesting was Australia’s Population Challenge. The book is an anthology of the presentations made at the National Population Summit in Melbourne in 2002. For some time, I have wanted to post a blog on THE POPULATION DEBATE and will do so next week.
The population debate is closely linked to THE CLIMATE DEBATE and I will post a blog about climate change on Monday week. As with the population debate, the climate debate is replete with mixed messages and contradictions overlaid by vested interests and claims of disingenuous statements. A good book on the subject is Poles Apart: Beyond the Shouting, Who’s Right About Climate Change?
Along with climate change and population, another contentious issue in public policy is welfare. There is concern that an increasing number of people are seeking a hand-out rather than a hand-up creating a welfare state. On Monday, 1 February I will publish a blog titled THE WELFARE DEBATE. Meanwhile a useful paper to read is Money for nothing? Australia in the global middle class welfare debate.
It is my hope that my debate trilogy will inform and not offend. Population, climate and welfare are important issues for all Australians and genuine discourse invariably produces the best policies. Indeed, the openness and extent of civil participation in public debate is central to the quality of democratic governance.
While we don’t have to agree with each other, we must respect everyone’s right to freedom of expression. This is our most cherished right in Australia and I hope that in raising these urgent questions I can facilitate reasoned discussion about issues which are of critical importance to all of us.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, January 18, 2010 2 Comments Make a comment
The Night Before Christmas 2009 - parody
‘Twas the week before Christmas, when all through the nation,
Australians were preparing for a quiet vacation.
It’s been a year to remember, but we’d rather forget,
The tales of horror from a calamitous threat.
While brokers sat watching their stocks by night,
Investors moved faster than Rudolf in flight.
They didn’t dilly or dally or pause as they sold,
Shares tumbled far, unless they were gold.
Caused by market traders who some now despise,
The global crisis took most by surprise.
But like all sordid tales of excess and greed,
We love blaming others, it fulfils a need.
We’ve all learnt lessons, experience is the teacher,
Let’s hope we’re now wiser than a Sunday school preacher.
But don’t be surprised if it all happens again,
The next generation’s exuberance will be hard to contain.
Now Rudd, now Swan, now Turnbull and Hockey,
You’ve squabbled all year, fighting harder than Rocky.
When St Nick asks if you’ve been naughty or nice,
Tell him politicians aren’t made of sugar and spice.
Bailouts and bankruptcies, the future looks bad,
But Santa is coming, so don’t be too sad.
With tinsel and presents under the tree,
Please enjoy Christmas, even if it’s not debt free.
As I sign off for Christmas I thank each and every member,
It’s been a pleasure to serve you, right through to December.
May the joy of the season fill your home on Christmas Day,
As we smile and gently whisper “Merry Christmas” from Gateway.
FOOTNOTE: It’s been a tough year for many and we look forward to better times in 2010. On behalf of the Gateway team, I extend to you the compliments of the season. My first blog posting for 2010 will be on Monday 18 January.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 21, 2009 1 Comments Make a comment
Ancient wisdom for modern problems
Many consider that Socrates’ most important contribution to Western thought is his dialectic method of inquiry, known as the Socratic method. This Classical Greek philosopher found that his students learnt more when he asked them a series of questions in lieu of just giving them the answer.
By challenging his students’ beliefs through questioning, Socrates enabled them to think through issues by themselves. The influence of this approach is evident today throughout society. Significantly, it is used to develop scientific theories in which hypothesis is the first stage.
To solve a problem using the Socratic method, one need only pose a series of questions and the answer, so they say, will filter out. Socrates applied his problem solving method to the examination of key moral concepts such as good and justice.
The global financial crisis and the subsequent economic downturn raised a range of important and fundamental questions. In the Socratic tradition of nurturing debate, a number of my blog postings over the past year deliberately challenged readers to think critically about the social and economic implications of the global financial crisis.
I hope my Socratic questions about globalism, capitalism, socialism, ethics, greed and human behaviour have helped us emerge from the financial crisis with a better understanding and defence of our beliefs. In the process, I trust I have added to the richness of the economic debate.
George Bernard Shaw wrote: You see things and you say, “Why?” But I dream things that never were and I say, “Why not?” My (utopian) dream is for a wisdom-based global economy characterised by humanity thinking and acting as one global community. To achieve this dream, world leaders must facilitate and actively support more Socratic dialogue on global threats and opportunities.
The future of sovereign nations has already become the focus of debate (see blog - A glimpse at the future). This is because the growing interdependence of a global economy is increasingly undermining the independence of nation-states in setting social and economic policies.
The time to act is now. The age of ignorance must come to an end. The key Socratic question is: Can humanity change its ways? I believe we can. As we enter the period of peace and goodwill to all, my Christmas wish, in this my penultimate blog for 2009, is for this rhetoric to be turned into an agenda for action.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 14, 2009 1 Comments Make a comment
Use the present to change past behaviour for a better future
People often ask how I have the time to write a weekly blog. Well, I make the time. How we spend our time is a reflection of our priorities. And it’s important I spend time communicating with members. But what is “time”? We can’t literally see or touch time but we can observe its effects.
We are surrounded by time. Some say we are slaves of time. Time is all we have, yet we are starved for time. Many of us have insufficient time to think or smell the roses. We try to balance work time and family time. We have up-time and downtime. Then there’s lunch time, dinner time and holiday time.
Some of us waste time. Others just let it pass by. The clever cherish every moment. And everyone has a view on time. Economists tell us that time is money. Spiritualists claim that time heals. Business gurus encourage us to manage time. Scientists dream of time travel.
The world economy has just been through some turbulent times. But the good times will return. Just as night follows day, booms follow busts. So it’s time to cheer up. But is it also time to re-examine our priorities? When prosperous times return, will we quickly forget what got us into this mess in the first place?
We know that those who do not learn from the past are destined to repeat it. This current crisis, like past crises, was caused by the human tendency to excess and hubris. These human foibles drive the self-interest which is evident throughout the human herd.
As I pointed out in a previous blog, economics is a social science. It is the study of human nature as it applies to money. But when it comes to money, we often act irrationally and that’s why humans are the X factor in economic theory.
So, can we change our ways? Will we see more responsible behaviour and less unrestrained greed in future? Will humanity take the opportunity to transform and operate at a different paradigm? Only time will tell.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, December 07, 2009 0 Comments Make a comment
In search of simplicity
Following on from a blog I wrote recently about myths, there’s a legend that relates to the space race. So the story goes, NASA spent millions of dollars developing a pen that would write in zero gravity while the Russians simply gave their cosmonauts a pencil.
Most organisations have a tendency to over engineer things instead of following the KISS formula – keep it simple, stupid! In a world of overwhelming choice and technical complexity, it’s incumbent on business to make life easy. Variety isn’t always the spice of life which is why consumers have become confused by the array of product options.
I believe that businesses should eliminate complexity and avoid management fads. Yet many organisations fall into the trap of eagerly embracing the latest management thinking. But management fads move quickly from being obligatory to obsolete.
The propensity for organisations to jump onto the latest “miracle” breakthrough technique gave rise to the 1990s book: Fad Surfing in the Boardroom. I have not read the book but understand that its primary purpose is to help companies “…catch the right wave - instead of getting drowned by the ebb and flow of contradictory managerial fads”.
Organisations which are seduced by the various management fads that sweep the business world invariably discover that no management technique is a silver bullet. In my experience, the essence of good management - respect staff, delight customers, control costs, improve processes - is unglamorous common sense.
Common sense is what we know while common practice is what we do and there’s often a gap between the two. The best way to fight complexity is to adopt the common sense mantra of simplicity. At Gateway, we offer simple and transparent products. If we can’t explain a product in 30 seconds then it’s too complex.
Research shows that consumers buy less when faced with too many options (the paradox of choice). A simple product line has been integral to Apple’s success and the same holds true for credit unions. You don’t have to be the biggest to be the best.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 30, 2009 0 Comments Make a comment
MBA deans & alumni blamed for financial crisis
Come with me on a journey. The year is 1959. We are walking through the hallowed Main Quadrangle at Sydney University. Try as we might we cannot locate the faculty of business. We ask for directions from a passing academic who gives us a blank look. The professor is able to point to the faculty of arts, law, medicine and science but no business faculty can be found.
Fifty years ago you could have taken a similar stroll through most universities in the world and it would have resulted in an identical outcome. Management is a relatively new “science” and a very inexact one. It only became a recognised body of knowledge in the mid 20th century.
In the shadow of the global financial crisis (GFC) some critics believe the fledging science of management has been discredited. Others have re-labelled the much vaunted management degree, the Master of Business Administration, as the “Master of Disaster”. Many are now asking whether business schools are to blame for the crisis.
There’s no doubt in my mind that business schools need to do some soul searching. It’s also clear to me that management educators need to shake up their curriculums. But to lay the blame for the GFC at the feet of academics and their “Masters of the Universe” graduands is too simplistic.
MBA schools need to retool and Harvard University has already started this process. Earlier this year Harvard facilitated an on-line debate titled: How to Fix Business Schools. Thousands of people worldwide posted blogs on this issue. One suggestion was for the adoption of a Hippocratic Oath of Business which defines management obligations towards society in order to avoid “financial malpractice”.
Having survived near global financial calamity we must do all we can to ensure that history does not repeat itself and universities have a key role to play here. Which is why I support the recent initiative by the United Nations in establishing the Principles for Responsible Management Education. These principles call for universal values to be incorporated into curricula and research.
Universities which embrace the UN Principles in their teaching should turn out students who do not suffer ethical lapses but always make principled decisions. Educators may have been part of the problem, but they can also be an important part of the solution.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 23, 2009 2 Comments Make a comment
What drives property prices?
For most Australians their home is their biggest asset, which is why tracking house prices runs deep in our national psyche. We all know our home is worth what someone is prepared to pay for it. Beyond that, the law of supply and demand explains how buyers and sellers interact to determine property prices.
The main determinants of the demand for housing are demographic/economic factors such as income level, employment rate, consumer confidence, population growth, net migration and household formation. Housing supply, on the other hand, is the stock of houses available for sale and includes both new homes and existing dwellings.
The supply and demand equation for housing see-saws and there is invariably a gap between the two. Sometimes it’s a seller’s market (demand exceeds supply) while at other times it’s a buyer’s market (supply exceeds demand). Over and above this, house prices go in cycles creating booms and busts.
There is much debate about who is to blame for housing booms. Some cite monetary policy (rates too low), others point the finger at government ineptness (inadequate land supply) while others still vent at real estate agents (talk market up). Not to be forgotten as a contributing factor is the “irrational exuberance” of borrowers.
In Australia, we don’t have enough houses to cater for our immigration fuelled population growth. Over the past five years migration has been very high with over 300,000 people arriving each year. Yet Australia builds no more dwellings today than it did 40 years ago. Estimates put the annual shortfall in housing supply at around 30,000 dwellings. And that’s one of the reasons why Australian house prices are on the way up.
Australian house prices are the most expensive in the world. Relative to our incomes, we Aussies have to fork out more than any other nationality to buy a home - 6.6 times the average annual salary. When compared to the United States, using medium household income as a measure, Australian property is more than twice as expensive as property in the US.
The problem of home affordability in Australia is a function of strong demand and limited supply . Standard affordability measures reflect the interaction of two factors: the mortgage interest rate and the ratio of housing prices to household incomes.
Australian borrowers now require 33 per cent of their family income to cover mortgage repayments. For we baby boomers, home ownership was the great Australian dream. For our kids (Gen Y), gaining a foothold in the property market may prove to be a nightmare. A serious social problem indeed and one that is likely to get worse with Australia’s population predicted to reach 35 million by 2050.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 16, 2009 0 Comments Make a comment
Too many rules, not enough common sense
It’s said that the true mark of a civilised society can be measured by how few rules it has. Well, we humans can’t be all that civilised as we have a quagmire of rules and regulations covering just about everything. And every year, parliaments around the world pass a raft of new laws.
When I was a kid you respected your parents whereas today the law allows you to divorce them. You paid attention at school lest you were disciplined while today teachers fear lawsuits from students. If you caused trouble in the street, a big burly copper gave you a clip behind the ear and, unlike today, it wasn’t considered assault.
Yep, we’ve made lots of social progress over recent decades (he says tongue firmly planted in cheek) and the same holds true in business. When I started my banking career over thirty years ago you drew up a simple loan contract which everyone understood. Nowadays the Consumer Credit Code requires you to issue forty pages of loan documentation which few read and fewer still understand.
The global financial crisis (GFC) has fuelled calls for greater regulation of banking and finance. Yet no sector of the business world is more heavily regulated than financial services. My fear is that the populist framing of the problems arising from the GFC will lead to the wrong policy responses.
My concern echoes the sentiments expressed by Jane Albrechtsen, columnist for The Australian newspaper in her article, Don’t overlook the greed on Main St. Albrechtsen concludes her piece with this sobering advice: “So don’t buy imported arguments that our system is broken and needs overhaul. And don’t be duped by the concomitant hysteria that capitalism has failed Australians. In Australia at least, a tweak here and there will do fine.”
As I stated in a recent blog (Corporate Governance) the GFC was not caused by a shortage of regulation. It was brought about by having the wrong people wedded to the wrong philosophy. Care should be taken, therefore, in introducing hastily drafted new laws which will do more harm than good.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 09, 2009 0 Comments Make a comment
Stretch your dollar further
For many Australian families, the preparation of a household budget is accompanied by much wailing and gnashing of teeth. Times are tough in suburbia and many are finding it challenging to make ends meet. However, in trying to balance the household budget, it’s important not to be penny wise and pound foolish.
Skipping an oil change might save you fifty bucks today but a seized engine down the track will cost thousands of dollars. Equally, driving ten suburbs to save a few cents on a supermarket item is hardly economical when the cost of petrol is included.
Every family has those little extras that add up quickly. The trick is to find painless ways to cut expenses and save money. For example, did you know the average Australian wastes $1,000 worth of food each year? Or that bad habits with electrical appliances unnecessarily push up the cost of electricity bills?
Preparing a household budget is often a choice between needs (food, clothing, shelter) and wants (sports car, overseas holiday). Wants and needs differ from person to person. Whereas I spend just $5 for admission to the local swimming pool, my eldest daughter spends $$$s on gym membership. In this area of our lives, she thinks I’m tight-fisted and I think she’s extravagant!
I can’t tell you whether a take-away cappuccino is an essential need or a luxury want, but what I do know is that at $3 per cup, you will spend $1,095 per year on coffee. Only you can decide whether the $1,095 could have been put to better use such as deposited into a Christmas Club Account or paid off your mortgage.
Regardless of your personal situation, everyone should have a budget planner to help organise money inflows and outflows. If you haven’t got one, feel free to use Gateway’s on-line budget planner calculator. And at no extra cost, I’ll throw in this helpful guide – 22 simple ways to make ends meet. Happy budgeting.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, November 02, 2009 0 Comments Make a comment
Understanding generation why?
Later this week I’ll be speaking at a conference in Melbourne. My topic is Marketing Financial Services to Generation Y. Please don’t tell the conference organisers I’m not an expert in Gen Y. In fact, I’m not an expert in Gen X or Gen Z for that matter.
I recall learning about X and Y chromosomes during science lessons at school but must have missed the class about the marketers’ X-Y-Z alphabet soup. Not to worry, I’ve undertaken a crash course in Gen Y and I’m now ready to join the speakers’ circuit.
To warm up the audience, I think I’ll start with the obligatory joke. Gen Y-ers are said to be impatient so maybe I’ll use the one about Gen Y thinking that two minute noodles take two minutes too long to cook!
Now if that flops, I’ll move straight into recovery mode and tell them (untruthfully) that I’m a big fan of Paris Hilton - the quintessential Gen Y-er. Like Miss Hilton, Gen Y-ers love social networks such as facebook and myspace but have not embraced twitter.
Gen Y-ers are also huge users of SMS and have developed their own text message shorthand. They luv 2 cre8 & xpress themselves coz it’s cool. But they can spot street language impostors a mile (sorry, kilometre) away.
So financial institutions need to take care in embracing hip SMS jargon in their advertising as they battle for the fussy youth dollar. They must also create Gen Y friendly websites. Gen Y is the most internet-savvy group, spending more time on-line than they do watching television.
When it comes to banking products, Gen Y want value for money, open disclosure and honesty but they are not good money managers. Apparently you get brownie points for admitting mistakes with this 15-30 year age group. So let me apologise for being professionally associated with the greedy US schmucks who created the sub-prime debacle.
There are a number of stereotypes about Gen Y which I believe are sweeping generalisations. Certainly, the labels “slackers at work” and “impatient spoilt brats” do not apply to the talented and hardworking Gen Y-ers we have here at Gateway.
Let me end by nailing my colours to the mast and declaring that I like Gen Y-ers. As a group, they are no worse than the generations which preceded them. If they are problem children, maybe it’s because of the way we Baby Boomers raised them. But that’s a discussion for another day.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 26, 2009 0 Comments Make a comment
Picking the direction of interest rates
Some people claim to be able to predict movements in interest rates. I’m not one of them. I’m part of the school which believes that interest rates are as difficult to forecast as the weather. Sure, I have a general sense for where rates are headed in the immediate term. But no one can accurately forecast rates too far in advance.
Interest rate movements are the result of many complex factors, not the least being human behaviour - a common theme of my blog! Rates are also subject to the law of supply and demand – another recurring theme of my blog! By combining these two themes we can broadly say, ceteris paribus, that when demand for credit increases, rates rise. Conversely, if demand for credit reduces, then rates fall.
There are many types of interest rates – short-term, long-term, private, government, etc. The most well known is the short-term interbank rate which is set by the Reserve Bank – commonly referred to as the cash rate. The cash rate is the rate charged on overnight loans between financial intermediaries. It’s also the main driver of mortgage rates in Australia.
The official cash rate is used as a tool by the RBA to keep the economy ticking along at a steady pace. The RBA moves the cash rate up to cool the economy and ease inflationary pressure. It moves the cash rate down to stimulate economic activity and boost confidence.
Since 1993 the key driver of interest rate changes has been inflation. The RBA aims to keep inflation within a 2 to 3 percent target band. Spending by households impacts aggregate demand, and therefore inflation, which is why the RBA tightens or eases monetary policy to dampen or encourage expenditure.
Prior to making monetary policy decisions the RBA consults detailed information on retail sales, building approvals, consumer confidence, unemployment rates and the performance of the Aussie dollar. It also keeps an eye on property prices as holding interest rates too low for too long can cause a housing bubble.
I suspect this is one of the reasons behind the RBA’s recent decision to lift the cash rate by 25 basis points. It wants to stop a residential housing bubble before it starts. Only time will tell if this pre-emptive monetary policy strike was necessary.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 19, 2009 1 Comments Make a comment
Let the games begin
The global financial crisis has been blamed for the downturn in global travel. But it has not put a damper on the plans of the 28,000 competitors attending the World Masters Games in Sydney.
The games officially opened yesterday and I was among the thousands of athletes who marched into the former Olympic stadium at Homebush Bay. I have registered as a swimming competitor and will be competing at the Sydney Olympic Aquatic Centre this Friday.
While I have been unable to confirm this, I believe that a number of crusty old bankers and Wall Street dynamos will be competing. Perhaps they should rename the event, Masters of the Universe!
According to an unsubstantiated rumour (which I am starting), bankers and other financial services executives traumatised by the share market tumble will be doing their own tumble turns in the pool. With the world awash with losses, these competitors will be hoping they don’t suffer a similar meltdown in the water.
As punishment, bankers are barred from participating in any breast-stroking events during the games and must stick to freestyle. But their style cannot be as free as the one which caused the world to gulp as it swallowed massive losses caused by their steroid-induced risk taking.
Financial services swimmers have also been warned that if they suffer a cramp they should immediately bailout as no one is going to throw them a life line. Apparently, a dozen investment bankers at the bottom of the pool is called “a good start”.
I suspect that if any local big-four bankers are lined up in my heat, they’ll be wearing the new high tech bodysuits (see my blog Unfair Competition). The extra buoyancy from their polyurethane suits will give them an unfair advantage but, hey, I won’t cry foul. I’ll just stick with my Speedo briefs which will be propelled only by bilateral breathing and a two-beat kick.
While the fall in commodity prices has devalued gold, silver and bronze, medal winners will still be able to hold their heads high. Wall Street executives were awarded riches when they lost so why shouldn’t athletes celebrate when they actually win?
As I dive into the pool this Friday, I know I will be carrying the weight of all credit unions on my shoulders. I will do my best to admirably represent the mutual sector. But please don’t look for my name on the list of medal winners - it definitely won’t be there. Aussie, Aussie, Aussie, Oi, Oi, Oi.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, October 12, 2009 0 Comments Make a comment
Alphabet soup of economic recovery
Even though economists can’t forecast (see my recent blog) this hasn’t stopped the economic Nostradamuses trying to predict the shape of the world’s growth trajectory. Having survived the worst financial crisis since the Great Depression, investors around the world are now being bombarded with commentary about the form the economic recovery will take.
It’s clear the economies of developed nations will bounce back at different rates. But what is unclear is whether the various economic upswings will be “U”, “V” or “W” shaped. These alphabetical economic theories were developed by economists to explain how an economy responds during and after a recession.
A “V” shape reflects a strong and quick recovery with the economy growing as dramatically as it slumped. A “U” shaped recession involves a longer trough and is followed by a slower and more gradual uptrend. Finally, in a double-dip “W” the economy relapses into negative territory after a temporary recovery. (A more detailed explanation of these theories is contained in this article.)
There’s no doubt the Australian economy is bouncing back, but which alphabetical metaphor will best describe our recovery? Will it be a powerful and bullish V shaped upswing, a more subdued U shape or even a “Wecovery” where growth will return for a few quarters and then peter out once more? As always, opinions are divided.
Australia has experienced eight recessions since the Great Depression but each one is different. Consumers adjust their behaviour from recession-to-recession. Around 70 per cent of Australia’s GDP comes from consumer spending. When economists talk about a recovery, they are referring to growth in GDP. So, consumers are a central point of any analysis.
If you’ve kept up with me so far then the $64 question is this: Will Australian households spend us out of this recession (even though we’re not technically in a recession)? There has been much talk of “green shoots” but my sense is that Australians have entered a new period of austerity.
So, my humble opinion is that…pause for effect…the only way to truly know the shape of any recovery is when it’s finished. Beyond that, I’ll stick my neck out and say I’d like to believe we’re in for a swift V recovery, but a slower U recovery can’t be ruled out.
How’s that for an each-way bet! “G”, I think I’m now qualified to join the society of economic forecasters.
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, October 06, 2009 1 Comments Make a comment
Separating fact from fiction
Recently I read a quirky little book called Don’t Swallow Your Gum. While the title of the book gives little away, the sub-title says it all: Myths, Half Truths, And Outright Lies About Your Body And Health. Between the covers of this entertaining tome the authors debunk a raft of medical fallacies.
You don’t need eight glasses of water a day. A man’s you-know-what is not related to the size of his feet. The sex of a baby cannot be determined by the shape of a mother’s belly. Reading in the dark won’t ruin your eyes. Twins don’t skip a generation. Sugar doesn’t make kids hyper. And milk doesn’t make you phlegmy.
Just as some beliefs related to our health and wellbeing are fundamentally false, the same holds true for some sacred cows in banking and finance. Investors today are better informed than their forebears but ignorance is still bliss. So, let me correct some of the misconceptions among investors.
- You don’t have plenty of time to save for retirement – so start planning now.
- Estate planning is not exclusively for the rich - everyone should have a will.
- There’s no magic formula for investing - you can’t eliminate risk.
The global financial crisis has also exploded a number of long standing financial myths. Around the world, economic dreams have turned to economic nightmares. Here are some claims that have proven false.
- Real estate is a safe haven. FACT - it rises and falls like everything else.
- Borrowing to invest is a sensible strategy. FACT – many investors have been hurt by margin loans.
- The more sophisticated the investment the better. FACT – financial engineering gave us toxic, sub-prime loans.
- Brokers and advisers are better able to pick stocks. FACT – no one has a monopoly on wisdom.
The good news is that free market capitalism is not dead and financial markets will not take a decade to recover. However, investors are hurting with most taking a financial haircut (shave) over the past 18 months. Legend has it that when you shave, your hair grows back faster and thicker. The bad news is that’s also a myth.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 28, 2009 1 Comments Make a comment
Life of a blogger: Time for reflection
Every now and then it’s good to come up for air and that’s what I’d like to do this week. Instead of pounding out another topical blog, I thought I’d pause and give you a peek into the clicks behind blogging.
Let me firstly say that I find blogging extremely rewarding. It’s a great way for me to communicate with Gateway members and to share my views with a broader Bloggersphere audience.
My biggest frustration is having only 350 words to get my message across, albeit I often exceed this self-imposed threshold. I overcome the word count limitation by having lots of links in each blog post (except this one!).
Behind the scenes, I’m always on the lookout for news stories that will have relevance to my readers. My posts are a combination of economic commentary, thought leadership and helpful hints.
When I started blogging I worried that I would run out of topics to write about. Well, thanks to the global financial crisis that’s not been a problem - I’ve had a rich source of developing and unfolding events to comment upon.
I’ve been spectacularly unsuccessful in facilitating two-way conversations. I rarely receive comments even though my audience continues to build. A former colleague told me it’s because my blogs are too logical to generate feedback. Hmm?
So I haven’t had to worry about un-publishable reader comments but have occasionally wrestled with editorial content. I’ve had one blog “on-the-shelf” for almost twelve months as I’ve ummed and arred whether it’s too controversial for me to publish a blog about welfare reform.
Gateway’s foray into blogging was driven by a desire to get more personal with its members (or potential ones) and to show a more human side to banking. Of course, if it builds our reputation and creates awareness around what we do, then that’s a bonus.
I hope this insight into blogging answers the inquiries I occasionally receive about the pros and cons of blogging. Finally, if you’re thinking about becoming a corporate blogger, don’t let the experts fool you into believing it takes only 20 minutes to draft a blog - it doesn’t!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 21, 2009 4 Comments Make a comment
A glimpse at the future
Unless your name is Nostradamus, anytime you make predictions you run the risk of looking foolish. This hasn’t stopped Frenchman, Jacques Attali, offering a raft of brave and controversial predictions for the 21st century in his book, A Brief History of the Future.
While Attali’s book is a good read, I challenge its accuracy. This modern day soothsayer is trying to predict a whopping 100 years into the future and I don’t think that’s possible.
In 1966 TIME magazine published an essay, Looking Toward A.D. 2000, which utterly failed to predict what our world would be like at the start of the new millennium. Just as there are no freeways in the sky today (another false prediction!) I struggle to believe there will be no governments in 2100 – but that’s Attali’s view.
He argues that “money will finally rid itself of everything that threatens it - including nation-states”. Attali foresees a borderless world governed by ultra-liberal market forces. Even as a proud capitalist, the idea of sovereign states giving way to a “super empire” co-ordinated by huge corporations frightens me.
The global financial crisis has shown that governments have an important role to play in markets. The world would have suffered financial calamity had it not been for the speed and united interventions of policy makers.
Attali’s prospective look at the next 50 years includes the decline of the American Empire (he predicts by 2035). But it’s his retrospective assessment of human history I find instructive.
As someone with a keen interest in human history, I know it’s based on three interlocking stories: religion, war and commerce. In the same vein, Attali argues that since the dawn of time “three powers have always coexisted: the religious…the military…and the mercantile”.
He goes on to say that each of these three dominant powers has controlled wealth. “Turn by turn, the master becomes the slave, the soldier replaces the priest, the merchant replaces the soldier”.
In terms of political orders, humanity started with the ritual order, progressed to the imperial order and has moved to the mercantile order. It is this mercantile order which Attali predicts will be replaced by a unified and stateless global market – a “super empire”.
Apparently, the super empire will be controlled by an elite class of selfish people called “hyper-nomads”. It is the “nomadisation” process - caused by the decentralising power of the Internet and the mobility of high-tech nomadic workers – which will make nation-states irrelevant.
For my money, I hope I’m not around when the hyper-nomads rule the earth. I’ll leave it to you to decide whether Attali’s views are science fact or science fiction.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 14, 2009 0 Comments Make a comment
Financial literacy crisis
Like many people, I lament falling education standards. I don’t expect today’s students to recite from one of Shakespeare’s plays or have an in-depth knowledge of the Treaty of Versailles. But I do expect school leavers to have better literacy and numeracy skills.
While students graduate with some understanding of Reading, wRriting and aRithmetic, they have virtually no understanding of the three Rs of investing – Risk, Return and Relativity. Indeed, most students lack even rudimentary skills in personal financial management. Yet they face a world where easy access to credit could see them accumulate unmanageable debt before they turn 21.
With personal financial decisions becoming increasingly complicated, students and young adults must be taught how to take control of their finances to improve their lives. Schools should start with the basics by showing students how to prepare a budget, compare loan and deposit accounts and prevent identity theft.
Research shows that individuals who learn about money management invariably fare better than those who don’t. Which is why there’s a correlation between financial literacy and socio-economic status. (Note: I’d argue that poor financial literacy contributed to low-income and ill-informed borrowers taking out toxic sub-prime loans.) So, it’s incumbent on all of us to stop poor money habits before they start.
Financial institutions have a role to play here and credit unions are stepping up to the plate. Financial education is one way that credit unions can fulfil their mission and help enrich the lives of their members and the broader community.
In conjunction with the Credit Union Foundation of Australia (CUFA), Gateway is helping its junior members (and even some older members!) to improve their money management skills via an on-line financial literacy tool. CUFA developed the tool and it’s freely available on the Gateway website (click here to access).
Gateway is also working with CUFA in Cambodia as one of the sponsors of the Cambodian Children's Financial Literacy Program. We are helping teach a new generation of Cambodians the importance of thrift and the wise use of credit in an attempt to break the vicious cycle of poverty.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, September 07, 2009 0 Comments Make a comment
Technology alone does not win the day
In the original Star Wars movie Luke Skywalker (good guy) is pitted against Darth Vader (bad guy) in a high-tech space battle. As Luke manoeuvres his small strike fighter into position to attack Vader’s giant command station - the Death Star - he switches off his futuristic targeting computer. Relying solely on instinct, Luke fires his torpedo and annihilates the Death Star.
Star Wars was first developed by George Lucas in the early post Vietnam War era and is a classic example of art imitating life. America believed she would win the war against the Viet Cong because of her vastly superior technology and this created a false sense of invincibility.
The might of American technology – jet fighters, advanced weapons and sophisticated communications - was not able to defeat the cunning of the smaller Viet Cong. The technologically inferior South Vietnamese forces used a far more effective weapon - guerrilla warfare.
Fast forward to today and despite electronic intercepts and billion dollar spy satellites, the US can’t find any trace of the cagey Osama bin Laden. When it comes to warfare, history teaches us that technology alone is not the key to success and the same holds true in business.
Despite using advanced computer technology to identify and mitigate risk, the risk management systems in many financial institutions failed to pick up the brewing global financial crisis (GFC). Banks around the world believed they were invincible and didn’t realise the enemy was within their organisations.
The real adversary in the GFC was not a hostile invader but a far greater internal threat – poor corporate governance. Banks relied too heavily on mechanical models which did not generate red flags. As I argued in a recent blog, many organisations did not have the right moral tone and this fostered a cavalier attitude to risk management.
The GFC was not a natural disaster – it was created by greed and lax supervision. In hindsight, the relentless pursuit of revenue growth in a world of easy credit should have rung alarm bells. Also, the real possibility of a housing downturn should have been included in risk assessments.
What is needed now is new thinking, not new technology. We need to take a hard look at risk appetites and risk management practices. Unless financial institutions implement better risk management controls and processes, one day we’ll all have front row seats watching another slow train wreck unfold.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, August 31, 2009 0 Comments Make a comment
Short-term gain, long-term loss
Last year I planted some hedges in my backyard. No matter how much I water, fertilise or even sing to them, I know the hedges will grow at a pace largely determined by nature, not by me. While the systems in nature can’t be rushed, we humans think we know better when it comes to the systems we build.
Take the world of business - it’s built on the notion of fast, faster, fastest. We want instant sales, instant profits and instant growth. We want it now and we’re not prepared to wait. Investors and analysts demand quick returns and this drives corporations to manage to quarterly outcomes.
The constant pressure to deliver instant results has created a business cancer - short-termism. The effect of short-termism on capitalism is well documented. It has led to misplaced priorities which are not in the best interests of shareholders or society at large.
The dangers of short-term thinking are also evident in the global financial crisis. The manic pursuit of quick profits drove the speculative housing bubble in the US. Both borrowers and lenders saw real estate as a get-rich-quick scheme.
In a world of sound-bite journalism, the media fuels short-term thinking by lauding or disparaging companies based on the achievement of current earnings targets. Asset managers add to the problem by not providing better incentives to encourage long-term growth. And short-term investors like hedge funds perpetuate the here-and-now mentality.
Short-termism has become endemic in society. We want QUICK fix surgery to rectify imperfections. We crave crash diets to lose weight FAST. We consume energy drinks to heighten alertness NOW. We expect politicians to respond to tracking polls TODAY.
Well guess what? Magic pills don’t make us lose weight and caffeine’s not a remedy for sleep deprivation. There are no miracle cures - all good things take time. It takes TIME to build personal wellness. It takes TIME to build trust. And it takes TIME to build wealth. So be aware of the pitfalls of investing in a short-term world.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, August 24, 2009 0 Comments Make a comment
Unfair competition – banks win medal haul
A staggering 43 world records were set at the recent world swimming championships in Rome. Most experts “blame” the use of high-tech polyurethane bodysuits for the flood of world records. The new suits increase buoyancy and gave those who wore them an unfair advantage.
As a result of the global financial crisis, banks also have an unfair advantage. The big four banks were given “polyurethane” assistance from the federal government in the form of access to cheaper wholesale funding and have left the competition in their wake.
The big four banks now stand alone on the winner’s dais while regional banks and non-bank lenders wallow. There has been a brutal reshaping of the field with middle tier competitors like RAMS, St George, BankWest and Wizard swallowed up.
As I stated in a previous blog, I’m all for survival of the fittest but it has to be on a level playing field. Just as I believe the best and most talented athlete should win - not the one with the latest swimsuit - the same holds true in business.
To be fair, the banks are formidable competitors and have put in world class performances to survive the credit crisis relatively unscathed. Failure to acknowledge this would be bad sportsmanship. However, they have been favoured by government policy and a growing chorus of spectators is now crying foul.
The call to ease the stranglehold of the big four is coming from a number of quarters. Consumer group, Choice, opposed the takeover of BankWest by the Commonwealth Bank. Competition Commissioner, Graeme Samuel, has expressed concern at the reduction in competition. And the Reserve Bank believes the banks need to reduce their reliance on the government guarantee.
Even the former Competition Commissioner, Allan Fels, has weighed into the debate labelling the relationship between the Rudd Government and the banks as “crony capitalism”.
The pressure is on from some circles to axe the bank guarantee in order to restore fair competition. However, a more equitable solution may be to revise the anti-competitive pricing on the wholesale funding guarantee to provide a more level playing field for all lenders to access wholesale funds.
Close to one in five Australians belongs to a credit union or mutual building society. Financial co-operatives are a silent giant in the economy and a force for good. We’ve also come through the crisis in pretty good shape. All we ask is for a fair go. Australians deserve choice and mutuals are a viable alternative to the big banks. We are the “People’s Bank”.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, August 17, 2009 0 Comments Make a comment
Baby boomers delay retirement
Over 40 per cent of Australians expect to put their retirement plans on hold as a consequence of the global financial crisis. Many older workers have witnessed the destruction of their wealth and need to rebuild their shattered savings.
Fallen stock prices, diminished home values and negative superannuation returns have wreaked havoc on retirement nest eggs. This triple whammy has serious repercussions for the 6.5 million Australians who are over 50 and approaching retirement.
Many baby boomers will now have to stay in the workforce longer to shore up their finances. Last year $680 billion was wiped off the value of Australian shares and this has impacted the retirement income goals of many Australians.
The Federal Government believes Australians need 65 per cent of their gross pre-retirement annual income to maintain an adequate standard of living when they quit work. This target should be higher for those on less than average weekly earnings and lower for those on higher incomes.
No retiree, of course, can accurately predict their lifespan or the future cost of living and so face the challenge of funding an unknown liability. With increased life expectancy comes the need to manage what actuaries refer to as “longevity risk” – the risk of outliving your money.
Running out of money before you run out of life is a frightening and real prospect. According to a Risk in Retirement Report, one in three Australian men retiring at age 65 will live to 90 with women living three years longer on average.
You can guard against longevity risk by saving more than you think you will need in retirement. Alternatively, you can convert part of your savings into a life-long income stream by purchasing an annuity. If neither of these strategies appeals to you, there is always the option of accessing the equity in your home via a reverse mortgage.
The choice is yours but the message is clear: Never rely on just one investment strategy - always have a plan B. And do consult a financial planner. Retirement planning is a specialised area and you deserve the best advice.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, August 10, 2009 0 Comments Make a comment
Credit crisis a mid-life crisis for economists
In the sixteenth century Nicolaus Copernicus led astronomy out of its Dark Age with his sun-centred (heliocentric) theory of the universe. Just as Copernicus started a revolution in scientific thinking, leading economist, Anatole Kaletsky, believes it’s time for a revolution in economic thought.
In a recent magazine article Kaletsky argued that “Economic forecasters cannot predict the future for the same reason that weather forecasters cannot predict the weather - the world economy is too complex and too susceptible to random shocks for precise numerical forecasts to have any real meaning”.
Economists not only failed to spot the financial crisis, they cannot agree how to solve it, so the profession is under the spotlight. In the words of one commentator: “An entire field of experts dedicated to studying the behavior of markets failed to anticipate what may prove to be the biggest economic collapse of our lifetime”.
There’s no doubt the past 18 months has been a humbling experience for economic forecasters. Their “macro” models churned out predictions of “micro” accuracy. People are now asking whether economists really know any more than the rest of us. Just as (some) bankers needed a financial bailout, there is a growing chorus of people calling for economists to receive an intellectual bailout.
In fairness, economics is not an exact science like mathematics - it’s a human science. The central goal of science is to describe and predict. But as we all know, it’s impossible to accurately predict human behaviour and therein lies the problem. The economy is the product of human action and economists have been unable to build models which reliably describe the reason and logic of humans.
As economists go back to the drawing board, perhaps economics should be reclassified as a branch of psychology. Modern day economics has been variously labelled a flawed science, a dismal science and the science of ignorance.
While there needs to be a major rethink of economic tools and techniques, it’s unreasonable to expect economists to be fortune tellers. In the words of celebrated economist, John Kenneth Galbraith, “There are two kinds of economists - those who don't know the future and those who don't know they don't know.”
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, August 04, 2009 0 Comments Make a comment
Modern day bank robbers
Last year 600,000 Australians became victims of identity theft. This 21st century nightmare strikes without warning and can have devastating consequences. Imagine the shock of receiving a call from a collections agency demanding immediate payment of a debt you know nothing about.
ID thieves are not visible robbers who break into your home - they are invisible hackers who maliciously attack your data. You need to make it difficult for cyberspace criminals to impersonate you as ID theft is just one mouse click away.
There’s lots of useful advice on the precautions you can take to minimise identity theft. The Federal Attorney-General’s Department has put together an ID preventative kit. Also, ASIC has established a SCAMwatch site to assist consumers recognise and avoid internet scams. There’s even a book on identity theft – Your Evil Twin. Plus, you can subscribe to the government’s Stay Smart Online Alert Service.
Gateway has and will continue to take all reasonable measures to protect the integrity of member data including firewalls, encryption, automatic time-outs, factor 2 icons, incorrect password access lock and last login time check. On top of this, we need your help to beat the crooks.
You should shred sensitive information rather than disposing of it in the garbage bin. You should be conscious of shoulder surfers when using ATMs to protect yourself from peering eyes. You should change your password often and use longer passwords that combine numbers, letters and punctuation. You should ensure your anti-virus software is up-to-date and cleared for online transactions before logging onto any internet banking site.
These simple but essential steps, as well as other handy tips, are outlined in the fraud awareness section of our website. While early detection and fast action are the keys to limiting damage, victims can take months to discover identity theft. So, prevention is better than cure. Don’t be a victim of mistaken identity - act now and help us to help you.
Regards
Paul J. Thomas
Podcast is available here
Posted Friday, July 24, 2009 1 Comments Make a comment
Islamic Banking 101
We all have regrets and one of mine is not undertaking an optional unit of study in Islamic banking as part of my MBA. No society can claim a monopoly on wisdom and humanity would benefit from a sharing of ideas across borders and cultures.
The credit crisis has shown that the West’s capitalist system is not perfect. The $64 question is: Can we learn anything from the East’s Islamic system of banking? Over the past year I have read a few articles suggesting we can and that’s what I’d like to briefly explore this week.
While I’m no expert in Islamic banking I know the rules and conventions are different to Western finance. Islamic law (Sharia) prohibits usury – the charging or paying of interest (Riba). As lending and investment products cannot be interest based, they are offered on a profit-and-loss sharing basis (Mudharabah).
Loans (Murabaha) involve the bank purchasing a commodity at market value and then selling it to the customer at a higher price with the difference being the bank’s profit. Similarly, interest is not paid on deposit accounts (Mudaraba) but investors share in the profit of the bank.
Loans must be used to finance tangible assets (car, home, equipment, etc.) and cannot be used to fund the purchase of intangible assets (like sub-prime collateralised debt obligations). This requirement to back every transaction with real, physical assets has seen Islamic banks unhurt by sub-prime toxic assets.
Sharia law also prohibits investments in businesses that are unlawful in Islam (haram) such as alcohol, pork, gambling and pornography. The concept of “principled investing” extends to short selling which is also haram.
The popularity of Islamic banking has spread to the West with London the headquarters for the new Islamic Bank of Britain. Locally, the ANZ Bank will become involved in Shariah compliant Islamic banking in Pakistan as part of its bid for the Royal Bank of Scotland’s Asian network. And the National Australia Bank recently announced plans to trial Muslim-friendly loans.
Islamic finance is an ethical and equitable mode of community banking and, in this regard, not dissimilar to credit unions. Islamic banking is rooted in the principle of justice with financial transactions required to be fair and equitable to all parties.
Want to learn more? Then grab a copy of Brian Kettell’s book, Introduction to Islamic Banking and Finance.
Regards
Paul J. Thomas
Podcast is available here
Posted Thursday, July 16, 2009 0 Comments Make a comment
Aussie dollar no battler
A big surprise over the past eighteen months has been the strength of the $A. In July last year the Aussie dollar hit a 25 year high of 98.49 US cents. While the activities of governments and corporations impact currency prices, you and I also influence exchange rates as domestic consumers, international travellers and global investors.
When you buy an imported car from Japan, convert dollars to Euros while travelling through Europe or invest superannuation savings in US equities, you settle these transactions by supplying Australian dollars. The demand for our currency, on the other hand, is driven by those who have foreign currency and want to buy Australian dollars such as in-bound tourists and foreigners purchasing our exports.
Currencies, like any commodity, are subject to the free market forces of supply and demand. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It follows, therefore, that when a country imports goods, it decreases the value of its domestic currency while exports increase a currency’s value.
The Aussie dollar is one of the most traded currencies in the world. As our exports largely comprise raw materials (eg, gold, wool), the Aussie dollar is referred to as a commodity currency. The direction of our currency depends on Australia’s conditions/prospects and includes demand factors such as economic outlook, political stability, interest rates and the level of inflation.
Australia enjoys significant foreign investment as overseas investors have confidence in our local economy. An important consideration for investors is the level of real interest rates relative to those in other countries. Australia currently has the highest interest rates in the developed world.
The perceived risk of investing here is low and this influences the volume of capital inflow. A rise in our capital inflow increases the demand for Australian dollars leading to a currency appreciation, while a decrease results in depreciation. However, when the dollar rises sharply it hurts our manufacturing and tourism sectors.
This is one of the reasons why the RBA sold almost $2 billion of Australian dollars in May. This sell-side intervention reduced the strain on Australia’s exporters who were seeing the competitiveness of their goods plummet.
Opinion is divided on the outlook for the Aussie dollar as currency markets are difficult to predict. Haven’t got an opinion on currency movements but want to know more about foreign exchange trading? Then log onto the website, babypips, for a beginner’s guide to forex trading.
Regards
Paul J. Thomas
Podcast is available here
Posted Friday, July 10, 2009 0 Comments Make a comment
The new economic order
When historians talk about turning points in history there is always debate about which events should be included. Major wars, natural disasters, scientific revolutions and social upheavals always feature in the list of decisive moments that have changed our world. However, single events - even the most dramatic - often prove less important in the long run in shaping history.
The true watersheds in human history often go unnoticed initially. Unlike the dropping of an atomic bomb or the landing of a man on the moon, major transformational changes occur subtly and their effects emerge slowly. Such is the case with economic change.
In 1889 John Hay, the (then) US Secretary of State, said “the Mediterranean is the ocean of the past, the Atlantic the ocean of the present and the Pacific the ocean of the future”. In the early 1990s futurist, John Naisbitt, identified “The Rise of the (Asia) Pacific Rim” as one of 10 MegaTrends for the new millennium. Both of these prophecies are now reality.
The rise of the Asian Tigers, the emergence of China as an economic powerhouse, the restoration of Japan’s growth and the momentum of India will see Asia become the dominant economic region in the world. The growing influence of Asia as a world economic power is undeniable as this article, Ringing in the Asian Century, shows.
Most commentators agree that the 21st century will see Asian countries take over as market leaders. While no one is suggesting the total demise of the West or that Asian nations will become absolute masters of the universe, a power shift is occurring.
A detailed explanation of this shift can be found in the book - The New Asian Hemisphere: The Irresistible Shift of Global Power to the East. For those wanting a brief synopsis of what is occurring, you might care to read the Australian Financial Review article, Power shifts: The poor rise up, rich bow down.
It’s about time world leaders started embracing this new reality. Perhaps the next G20 meeting should be held in Jakarta or Seoul and not Washington.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, July 06, 2009 0 Comments Make a comment
The genesis and evolution of money
One way to make sense of the present financial crisis is to look back at the past. That’s exactly what Harvard University professor, Niall Ferguson, does in his book, The Ascent of Money: A Financial History of the World.
I recently read Ferguson’s tome and enjoyed it. While the book has received mixed reviews (see Times Online critique) I believe it’s well worth a read. Ferguson charts the rise of money over the past 5,000 years - from the clay tokens of ancient Mesopotamia to the bits and bytes of today’s electronic money.
The core lesson which arises from the history of money and finance is that every bubble bursts. As Ferguson notes, “Sooner or later the bearish sellers outnumber the bullish buyers. Sooner or later greed turns to fear.” The Ascent of Money shows the current financial dislocation is just another crisis among the many that have struck the financial world throughout its history.
“Money,” according to Ferguson, “amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility”.
Ferguson argues that money has fuelled human progress and that the finance industry is the essential backdrop behind all history. “The ascent of money has been essential to the ascent of man.” Ferguson also believes that “The evolution of credit and debit was as important as any technological innovation in the rise of civilization”.
He goes on to say that behind each great historical phenomenon lies a financial secret. For example, “It was Nathan Rothschild as much as the Duke of Wellington who defeated Napoleon at Waterloo”. Ferguson reveals why English speaking people developed their obsession with buying and selling homes and explains how finance evolves through natural selection.
He also documents how a new financial revolution is propelling China from poverty to wealth in the space of a single generation - an economic transformation unprecedented in human history. I’ll have more to say about that in my blog next Monday.
Regards
Paul J Thomas
Podcast is available here
Posted Friday, June 26, 2009 0 Comments Make a comment
Savers, not borrowers, main victims of credit crisis
Isn’t it strange how society often focuses on the plight of one group of people to the detriment of another? This phenomenon happens in all walks of life. Take health care for example. Prostate cancer kills more men in Australia each year than breast cancer kills women. Yet breast cancer receives more funding and more publicity than prostate cancer.
The disproportionate amount of time and money put into breast cancer research versus prostate cancer mirrors the disparity in media coverage and political sentiment towards borrowers and investors. When interest rates rise, every man and his dog laments the plight of those with a mortgage. Yet when rates fall, there is deafening silence regarding the resultant misery for self-funded retirees and savers.
Falling rates may be a godsend to home owners but they are not greeted with joy by those who rely on interest income. Over the past year savers have experienced a cycle of “pay cuts” as the Reserve Bank has repeatedly slashed official interest rates. But there has been little outpouring of pity for pensioners and savers reliant on cash to generate income.
It is instructive to note that two-thirds of Australians don’t have a mortgage. So, falling rates benefit only a small percentage of the population. On the other side of the coin, there are more savers than borrowers. So, rising rates are a boon for a greater percentage of the population.
People on fixed incomes are not just feeling the pinch due to derisory interest rates but also because of inflation and taxation. This triple whammy means innocent savers are now struggling to find accounts that, after the taxman and inflation, offer a real rate of return. Slim pickings indeed and a bitter blow for savers who are understandably up in arms over their reduced spending power.
With concerns that the various stimulus packages will cause inflation to rise further, the outlook for savers is glum. Right now, cash might not be king but the tide is turning as the yield curve steepens (see recent blog). It would also be beneficial to see the tide change to a more balanced media reporting of the impact of rates decreases.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 22, 2009 2 Comments Make a comment
Quantitative easing 101
If you’re a baby boomer or older, you’ll recall the TV ads from the 1970s for the non-alcoholic drink, Claytons. It was marketed as “the drink you have when you’re not having a drink”. Quantitative easing (QE) is like Claytons’ money – the money you manufacture without actually printing it.
QE enables a country to create new sums of money out of thin air. Central banks have the power to wave a magic QE wand and produce money electronically. So there’s no need to crank up the printing presses and put crisp new bills into circulation.
The conjuring-money-out-of-thin-air trick is quite easy. The magician must be a central bank (eg, Bank of England) and it simply uses a computer to transfer funds to itself. It doesn’t even have to say “abracadabra”!
If you look under the magician’s cape, you’ll see that QE is a monetary policy weapon. In the war against recession, central banks have been cutting rates (ie, easing monetary policy) to revive ailing economies by making it cheaper for people to borrow.
But having reduced official interest rates to close to zero, the US and the UK central banks have effectively run out of ammunition. While they can’t make money cheaper, they can make it more plentiful. So they’ve decided to directly inject more money into the economy via a non-traditional weapon – QE.
QE involves a central bank buying up assets - government and corporate bonds - with money it electronically creates from new central bank reserves. The financial institutions selling the assets have the “new” money deposited into their accounts which boosts the money supply.
The theory is that banks will use the additional funds to lend to customers thereby stimulating demand and improving the health of the economy. There is debate among economists as to whether QE will work. The pros and cons of the debate can be technical, so here’s an easy guide to quantitative easing.
While there’s no guarantee that QE will work, many economists are optimistic it will do the trick. As AMP Chief Economist, Shane Oliver, pointed out in a recent market update, Australia has no need to engage in QE. So, for now, we’ll just sit on the sideline and watch the magic show.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 15, 2009 0 Comments Make a comment
Bankspeak: Stop the jargon
My wife is a nurse by training. She can tell you that gluteus maximus is the medical term used to describe the muscles in your buttocks whereas I thought it was somehow related to the Roman General, Maximus Meridius, played by Russell Crowe in the movie, Gladiator. (Yep, I’m a butt head!)
Just as my wife is comfortable with medical lingo, I’m used to financial terminology. However, it can be very confusing when you are an outsider to an industry that has its own lexicon. It’s no surprise, therefore, that the average punter is struggling to understand the credit crisis – it has challenged the financial literacy of even astute investors!
Be honest, had you heard of quantitative easing twelve months ago? How about short selling? What about exotically named instruments like Collateralized Debt Obligations, Credit Default Swaps and Floating Rate Notes? Do your eyes glaze over when you see terms like toxic assets and margin loans? And what do you make of the comical names of Freddie Mac and Fannie Mae?
This doubletalk is hard to swallow and causes the best of us to experience a system meltdown. We all deserve a fiscal stimulus to ease our household budget deficits caused by falling aggregate demand. Little wonder consumer confidence has plummeted.
We also need to be shielded from the bears and bulls which roam the markets. And what about all the “isms” we have to put up with? These describe the various schools of economic thought and include socialism, capitalism, monetarism and protectionism.
If you haven’t fallen into a trance yet you could turn to a friend to help you decipher this economic jargon. But don’t ask Milton Friedman, John Maynard Keynes or Adam Smith. Firstly, they’re all dead and secondly their modern day followers will give you differing explanations of the current crisis.
Well, I should wind up now and bailout before the AAA rating on my blue chip blog is downgraded and I’m unable to hedge against a dead cat bounce in readership which will yield a sub prime outcome.
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, June 09, 2009 0 Comments Make a comment
Will the budget deficit lift term rates?
Governments around the world are currently running large budget deficits as a result of massive spending sprees. Governments have been funding financial bailouts and stimulus packages to avoid a global economic meltdown and many are now in the red.
Governments typically finance budget deficits by borrowing money. This is usually done by selling government bonds and that’s exactly what the Rudd Government is doing and intends to do more of over the next four years. The budget papers forecast there will be $300 billion of commonwealth government securities on issue by mid-2013.
The good news is that bond hungry investors should snap them up. The flipside is that in selling its bonds the government will be competing with the private sector for investors creating what is referred to by economists as a crowding out effect.
When the government offers its planned $60 billion of bonds next financial year, it will divert money from bonds being sold by private companies. Some private borrowers will be “crowded out” of the financial markets as the government’s sovereign rated bonds attract an increasing share of the economy's total saving.
In order for the government to take investment funds away from the private sector, it must offer its bonds at an interest rate* that is attractive to investors. That’s why some economists argue that increased government borrowing pushes up market interest rates.
But not all economists agree with this supply and demand argument. AMP economist, Shane Oliver, believes the increased supply of bonds will not boost bond yields. My own view is that there will be a lift in long term rates and this trend has already started.
As the price of fixed rate mortgages is determined by what’s happening on the bond market (see my recent blog), it follows that lenders will raise their fixed rate mortgages accordingly. This upward movement commenced in April when the big four banks announced increases in their fixed rate loans.
Fixed rate loans fell out of favour over the past year but the tide is turning. Make sure you keep abreast of what’s happening so that you can make informed decisions on both sides of the ledger.
*NOTE: The mix of interest and capital gain/loss produces a bond’s yield. Bond yields move inversely to price, so as bond prices rise yields fall and vice versa.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, June 01, 2009 1 Comments Make a comment
Time to trim the hedge funds
Every good drama needs at least one villain and the global financial crisis has many. In the hierarchy of blame, some commentators put hedge funds near the top of the tree.
Hedge funds are not your common or garden variety investment vehicle and their operations are sometimes clouded in secrecy. Operating in the shadow of investment markets, hedge funds are essentially unregulated and specialize in sophisticated trading strategies including short selling.
As I explained in a recent blog, short selling is a (bearish) bet that the price of a stock will go down. It involves selling a security you currently don’t own in the hope that you can buy it back at a cheaper price and thereby make a profit.
Betting on falling share prices is one way hedge funds generate profits – so they tend to do well when stocks perform poorly. This has led to accusations of stock price manipulation by some hedge funds, particularly where they are suspected of “bear raids”.
In a typical bear raid, a trader “shorts” a target stock and then spreads bad news and/or false rumours about the target company to deliberately drive down the price. The trader profits between the original share price and the lower price that the share has been dragged down to.
While bear raids are illegal they are a fact of market life and this has led a raft of people, including the Archbishops of Canterbury and York, to label short sellers as a renegade class of investors.
In response to a public outcry over short selling, the practice was temporarily banned or restricted in 17 countries. The ban in Australia has been extended twice and is due to be lifted later this week. This will be welcomed by hedge funds who say they have been unfairly treated as scapegoats for allegedly triggering the credit crisis.
It is clear following the recent G20 meeting that hedge funds will come under closer scrutiny. Given the public’s heightened and understandable demand for greater transparency, closer regulatory control will be a good thing.
STOP PRESS: The short selling ban was lifted this morning (25/5/09).
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 25, 2009 0 Comments Make a comment
Money makes the world go ‘round
The underlying message in the blogs I’ve written over the past year is this: Economics is a social science. It is the study of human nature as it applies to money. When the history of the Great Credit Crisis of 2008/09 is written, it will focus on the behaviour of people.
One of the idiosyncrasies of the human species which will come under the historian’s microscope is a phenomenon called the Paradox of Thrift. First articulated by John Maynard Keynes, this paradox describes the dilemma we face when times are tight.
During a recession we are encouraged to spend to keep the economy going. But our natural and understandable tendency is to save and this triggers a cause and effect spiral to decreased economic activity. Here’s how the slippery slope unfolds.
The ride to recession begins when we all start saving our money and this reduces consumer spending. This, in turn, causes aggregate demand to fall and this, in turn again, results in a decline in total income. And when income falls, people have less to save.
So, as counter-intuitive as it sounds, individual savings makes us collectively poor! This paradox of thrift represents a form of prisoner’s dilemma as saving might appear beneficial at an individual level but it’s actually detrimental to the population overall. One person’s spending is another person’s income!
We humans never seem to get the balance right. We spent too much in the good times and are spending too little in the bad times. We’ve rediscovered thrift at the worst possible time. Debt fuelled spending got us into this mess, but paying down that debt too quickly has made the situation worse.
That’s why governments are encouraging people to borrow and spend again by lowering interest rates. As I explained in a recent blog, the money supply is primarily driven by banks and other financial institutions extending credit.
But people have become debt averse and this has contributed to the dramatic contraction in the money supply. So, the wheels on the bus go round and round as governments and central banks continue their efforts to resolve the paradox of thrift.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 18, 2009 1 Comments Make a comment
Executive salaries: How much is too much?
It is generally accepted that one of the root causes of the sub-prime crisis was the remuneration structures which rewarded excessive risk taking. The popular outcry over corporate largesse is understandable and shareholders have every right to feel cheated as bonuses rocketed while share prices plummeted.
Meanwhile, workers on Main Street are angry that the Titans of Wall Street walked away with bucket loads of money while the taxpayer foots the bill for corporate bailouts. But does that make every CEO a villain? I think not. Care needs to be taken, therefore, not to turn this into a class war.
In a recent blog posting I spoke of the ideological divisions which have been fuelled by the credit crisis. Janet Albrechtsen, a blogger for The Australian newspaper, picks up this theme in her post, Right’s crazy class war on CEOs.
Albrechtsen, quite rightly in my view, argues that setting remuneration is an operational matter for boards of directors. Of course, there are many who would disagree with this position and one of those is The Age columnist, Shaun Carney. In his article, Greed without end, Carney argues that “there is a lack of morality at the heart of executive salaries”.
Executive remuneration is a classic debate for the ages. It’s unlikely the antagonists will ever agree as compensation fairness is like beauty - it’s in the eye of the beholder. For my money, the answer lies in the supply and demand equation for labour – top executives don’t come cheap.
When it comes to executive salaries, politicians are playing the populist card. But populist rhetoric and populist solutions rarely work. Governments have a tendency to over regulate and this invariably leads to unintended consequences.
I’ll give the penultimate say on this emotive topic to BusinessWeek and its article CEO Pay: No Easy Answer. And just for good measure, I’ll conclude with an opinion by Sydney Morning Herald columnist Ross Gittins, Dirty deeds…done by chiefs.
(Disclosure: The author is a CEO and cannot possibly claim to be unbiased on the subject of executive salaries!)
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 11, 2009 2 Comments Make a comment
Corporate governance and the credit crisis
Some things are great in theory but difficult to implement in practice. Take, for example, the law in Australia and other parts of the world which requires directors and executives of financial institutions to be “fit and proper” persons. No argument with that – extreme care should be taken to ensure that those who manage other people’s money are up to the task.
But how, in a practical sense, do you assess an individual’s fitness and propriety to hold an executive position? One criterion is education and training. A university degree in some business discipline is always well regarded. On top of this, you need some practical experience in the University of Hard Knocks. And it’s really handy if you have a clean credit history and have never spent time in jail for fraud.
Well guess what? I suspect that every financial executive who wrote a sub-prime loan could tick all the boxes on the fit and proper test. And therein lies the problem - it doesn’t measure greed and ambition! The executives on Wall Street and the organisations for which they worked did not have the right moral tone. Which is why the root cause of the credit crisis is not a failure of markets but a failure in corporate governance.
Greed is innate in human nature and Western society, in particular, places a high value on the pursuit of wealth. Should we be surprised, then, that a culture of greed pervaded financial markets? The lust for success which drove the growth-for-growth sake mentality of the chiefs in the big corner offices created a moral crisis which, in turn, led to a financial one.
I find it ironic that the best and brightest caused the sub-prime crisis as they were too clever by half! Their hubris has made them sorry symbols of greed. At the end of the day, banking is an industry built on trust and the challenge facing regulators and boards is to devise a way of identifying and weeding out megalomaniacs with delusions of global domination – good luck!
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, May 04, 2009 2 Comments Make a comment
How to make the world a better place
Ever watched two cars playing head-to-head chicken? The first to swerve loses the game. Let’s suppose that neither driver chickens out and both stay on a straight-line course. They both “win” by crashing into each other.
Consider two swimmers who are ferocious competitors. One starts taking drugs and the other follows. The drug taking leads to an identical improvement in performance. So, both lose as the end result is the same as when they were “clean” swimmers.
Let’s up the ante and talk about warfare. Two superpowers are in an arms race. One develops a more destructive weapon and the other increases its arsenal accordingly. Yet if both countries co-operated they could avoid a military build up by signing an arms limitation agreement so everyone wins.
I could go on but I think you get the gist of the win-lose mentality (zero sum game) of humans. The tendency of people to focus on narrow self-interests in lieu of the best outcome for all parties led to the development of game theory.
The best known example of game theory is the Prisoner’s Dilemma where two criminals are enticed by police to betray each other. The prisoner’s dilemma – to confess or not to confess - underscores how our choices affect others and how the choices others make affect us.
The credit crisis is a modern day prisoner’s dilemma (or Tragedy of the Commons) where the “every-man-for-himself” attitude saw markets crash as everyone tried to get to the exit door first. All the efficiencies of the free market flew out the window as institutions hid their bad loans causing credit markets to freeze as players did not trust each other.
We humans must learn to modify our self-defeating behaviour. Which is why game theory should be a compulsory element of the core curriculum of educational institutions.
School children and management graduates alike should be taught the benefits of co-operation over conflict and this training should begin in the home. After all, parents are the world’s first and foremost teachers. We can all play a part in making our planet a better place.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 27, 2009 1 Comments Make a comment
As stocks fall, people power rises
History shows that economic hardship and rising unemployment drive civil unrest. Whenever the populace feels sufficiently downtrodden, violent protests erupt. Which is why the global financial crisis has sparked a wave of demonstrations around the world.
People are angry and scared and venting their anxiety over an uncertain future. Riots have rocked China and the IMF chief has issued a warning about on-going protests. Global capitalism is increasingly seen as the enemy of the people and this is fuelling social discontent.
Policymakers need to be careful that this unrest does not lead to war. World stability hangs by a thread and tensions are running high. Politicians are trying to avert a disaster but the class warfare between the rich and the poor shows no signs of abating.
Many ideological battle lines have been drawn in this social politics of rage. Bailing out Wall Street is seen as a cop out by Main Street. The new deal is viewed as a raw deal. The left is challenging the right. Poor workers are bitter at their rich bosses. Democrats are facing off against republicans while labour versus the liberals.
Waleed Aly, a lecturer in politics at Monash University, has written an instructive piece on the social and political consequences of the credit crisis. In his article, “Beneath the financial crisis waits a nastier beast”, he makes a number of compelling observations about how people behave in times of great insecurity – worth a read.
With worldwide jobs losses predicted to be in the tens of millions, living standards for many on this planet will plummet. Poverty will rise, social disturbances will continue and leading economist, Nouriel Roubini, is even warning of food riots in America. (Note: Roubini is one of the few economists who actually predicted the credit crisis.)
This Saturday our nation will pause to commemorate the Anzac spirit. Lest we forget that the Great Depression fuelled the rise of radical political movements in the run up to World War II. Let’s hope that history does not repeat itself and that extremist groups are not successful in pursuing their political agendas on the back of the current social discontent.
Regards
Paul J. Thomas
Podcast is available here
Posted Monday, April 20, 2009 0 Comments Make a comment
Interest rates - what goes down must go up
William Shakespeare’s tragedy, Hamlet, contains the famous soliloquy: To be or not to be. While contemporary borrowers don’t face the same life or death question, they do ponder whether to fix or not to fix the interest rate on their home loans.
The fixed/floating debate is not as old as Shakespeare, but the pros and cons are classic. Fixed gives certainty against future rises while floating (variable) enables you to take advantage of falling rates. With home loan interest rates at a 45 year low, borrowers are again toying with the idea of “locking in”.
Obviously, the best time to fix is before interest rates start rising, so you haven’t missed the boat - yet! However, not even the “experts” can accurately predict the top and bottom of interest rate cycles. A good indicator of the direction of fixed rates is the movement of the three year interbank swap rate.
Fixed home loan rates are determined by what's happening in the swap market because that's where the major lenders manage their fixed rate exposure. In contrast, the level of official interest rates set by the RBA determines variable mortgage rates. Thus, fixed and variable home loan rates march to the beat of different drums.
As with all financial decisions, no one size fits all. So do your research before deciding on a fixed, variable or split rate loan option. This time last year, one in four Australians fixed the interest rate on their home loan. Since then, sales of fixed rate loans have plummeted as the RBA has aggressively cut the official cash rate.
The tide is again changing on the attractiveness of fixed rates. At the end of the day, it’s your choice whether you fix the interest rate on your loan. However, make sure you appreciate the risk associated with mortgage exit fees (or break costs).
Finally, don’t take Shakespeare’s advice, “neither a borrower nor a lender be”, literally. Four hundred years later, it’s a bit outdated!
Regards
Paul J. Thomas
Podcast is available here
Posted Tuesday, April 14, 2009 4 Comments Make a comment
We’re all to blame
We humans sit at the apex of the evolutionary tree. But this does not make us the smartest animals on earth. In fact, I’d argue that evolution has not equipped Homo sapiens with truly rational minds. Yet contemporary economic theory is premised on the assumption that human beings are rational agents or Homo economicus.
The harsh reality is that humans do not obey the efficient, orderly principals espoused by free-market thinkers. When it comes to money, we often act irrationally and that’s why humans are the X factor in economic theory.
Homo economicus was not supposed to buy a house at a grossly inflated price and expect its value to keep rising. But that’s exactly what happened in the US where consumers behaved like Homo sillyus. Which is why Yale University economist, Robert Shiller, believes the ultimate cause of the global financial crisis is the psychology of the real estate bubble.
In the 2005 edition of his book, Irrational Exuberance, Shiller predicted the housing bubble burst. Shiller recently released another book, The Subprime Solution: How Today’s Global Financial Crisis Happened, wherein he outlines how borrowers, bankers and brokers were united in the delusional belief that house prices never go south.
There are a number of reasons why economists missed the warning signs of the crisis but chief among them, in my view, is that neoclassical economic theory is unable to account for flawed human psychology. Put simply, economists have unrealistic expectations of rational behaviour.
With regard to the US housing surge, consumer optimism led to “bubble blindness” and all logic flew out the window. When the bubble burst, markets tanked, people panicked and emotions took over. And as we have seen, fear drives extreme and unpredictable behaviour.
Deep down, I suspect most economists acknowledge the limitations of economic theory in explaining and predicting social behaviour. Throughout the ages, we humans have shown we’re not rational and effective in making choices.
The credit crisis has merely confirmed what evolution has created – an emotive hunter-gatherer who can’t buy happiness. Maybe buying some Easter eggs this week will bring a smile to your face!
Regards
Paul J. Thomas
Posted Monday, April 06, 2009 0 Comments Make a comment
Does a global economy require a global currency?
When my wife and I travelled to Europe in 2001 we carried a number of currencies including Italian liras, Greek drachmas and French francs. A year later we returned to see more of Europe and carried only one currency - the euro. The introduction of the euro simplified life for travellers and increased trade within Europe.
The euro’s success also awakened the long held idea of a universal currency. The credit crisis has again sparked interest in uniting the whole world under a single currency. Many respected economists believe a universal currency could hold the key to stability and growth.
One advocate of a single currency is Nobel Prize winner, Robert Mundell. Professor Mundell laid the theoretical groundwork for the euro and his website states that “the benefits from a world currency would be enormous”.
Another Nobel laureate who is also a proponent of a one world currency is economist, Joseph Stiglitz. Stiglitz believes it’s time for another Bretton Woods meeting to restructure the global financial framework. It was the 1944 Bretton Woods meeting that established fixed exchange rates based on a global gold standard.
If the whole world adopted “common cents” there would be a considerable increase in trade, productivity and financial integration. But I think the chances of a one world currency becoming a reality are about as good as Australia eliminating state governments (see my blog: Have state governments passed their used by date?).
No government likes to see a diminishment of political sovereignty and no government could be forced to replace their own domestic currency. The introduction of a global currency will not be an agenda item at this week’s G20 Summit in London, albeit the Chinese are pushing for a new international reserve currency.
A good summation of the driving and restraining forces to one currency are outlined in the article, “A Universal Currency”. A further restraining force would be currency traders as currency trading represents the biggest financial market in the world.
Regards
Paul J. Thomas
Posted Monday, March 30, 2009 1 Comments Make a comment
The lost art of oratory
Friends, Romans, countrymen and readers of this blog, lend me your ears. I come to lament the passing of great oratory. Throughout the ages, persuasive speeches hath motivated people to fight injustice, throw off tyranny and lay down their life for a worthy cause. But apparently, words alone can’t solve a credit crisis as the Ancient Romans discovered. The great Roman orator, Cicero gave his people the following advice:
| The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt. People must again learn to work, instead of living on public assistance. |
Hmm...smart dude! Problem is the Romans didn’t listen to Cicero. Ironically, the Roman Empire eventually collapsed due to out-of-control government spending and over regulation of the economy – it abandoned free market capitalism and became a socialist state. Some are now saying that America’s decline mirrors Rome’s last days.
Back to our current day crisis and there is a war of words going on. Kevin Rudd has put a 7,700 word ideological spin on the global financial crisis and is arguing that greater government intervention can save capitalism. In contrast, Russian Prime Minister, Vladimir Putin, has launched a stinging attack on the West’s handling of the credit crisis and warned of the dangers of “interference of the state”.
Meanwhile, Barack Obama acknowledged in his inauguration address “that we are in the midst of a crisis is well understood”. I believe that President Obama is a superb and captivating orator. But can the greatest orator of our time solve the greatest financial crisis of our time? I don’t know the answer to that but it’s going to be enjoyable hearing his rallying cries.
The President uses a number of well known speech writing techniques including anaphora, epiphora and tricolon. You can learn more about these techniques by reading “Obama’s Secret for Stirring a Crowd” and “How to Inspire People Like Obama Does”. Hail our modern day Cicero!
Regards
Paul J. Thomas
Posted Monday, March 23, 2009 1 Comments Make a comment
In defence of globalisation
Free trade isn't widely accepted as completely beneficial to all parties. But history shows we all suffer when we revert to protectionism. One of the greatest lessons from the Great Depression is the catastrophic dangers of erecting trade tariffs. Back then, countries retaliated against each other with trade barriers and this sent the world economy into a nosedive and helped cause a world war.
Fast forward to today and the words of philosopher, George Santayana, are potent: “Those who cannot remember the past are condemned to repeat it”. To the shock and dismay of economists, nation states are again threatening to introduce import quotas in the hope of protecting domestic industry from foreign competition.
Yet protectionism will harm the citizens of the world by causing a trade war which will bring global commerce to a halt. This assault on free trade represents a grave political risk - it will actually cost jobs at a time when politicians face intense pressure to save domestic jobs.
In January, world leaders flocked to Davo, Switzerland for the World Economic Forum and pledged to reject protectionism. This promise flies in the face of a series of increased duties, re-imposed subsidies and a “Buy America” campaign by President Obama. Australian unions are also pushing for a ‘buy local’ campaign. No wonder world trade ministers are worried.
The director-general of the World Trade Organisation has warned now is not the time for trade protectionism. British PM, Gordon Brown, has raised a similar concern about financial protectionism. Appealing to nationalist interests is destructive and all eyes will soon turn to the G20 Summit in London as governments again discuss how to ease the pain of the crisis. Perhaps the summit on April 2 should be billed as Bretton Woods Mark II as the rules which currently regulate the global economy need updating.
Eight decades ago, trade barriers helped turned a cyclical downturn into a Great Depression. History does not have to repeat itself. We are all part of one global village, so let’s start behaving that way!
Regards
Paul J. Thomas
Posted Monday, March 16, 2009 2 Comments Make a comment
The Gateway to the future
This coming weekend Gateway is holding its 2009 Strategic Planning Conference. The conference will be held under the theme: Preparing for the Upturn: Steaming out of the Crisis. We refuse to let the prevailing economic climate stop us from taking a positive approach to the future. Downturns don’t last forever and smart companies will look beyond the slump.
However, as your blogger has previously pointed out, business forecasting is fraught with danger - just look at the past 12 months. The credit crisis took (virtually) everyone by surprise and was greeted with the now familiar cry of “we-didn’t-see-it-coming”!
Predicting the future has always been a notoriously risky business. Right now, the degree of uncertainty in the business world is immense. The financial services sector is still reeling from a loud wake-up call that brutally reminded us that banking, at its core, is about managing risk.
As I dust off my crystal ball it’s clear to me that when the credit crisis smoke clears, the financial services landscape will be different. Some familiar players will have disappeared, the middle ground will have thinned and market power will have swung back in favour of the big four banks.
I think that will be a good playing field for credit unions. I’m someone who is not scared of competition and welcomes David and Goliath battles. As I explained in my blog, Competition - let the fittest survive, it’s consumers not governments who determine winners and losers.
The credit union business model has survived the market tumult of the past year. Moreover, the financial probity displayed by credit unions is in stark contrast to the corporate largesse of traders and investment bankers.
The immediate future will bring more regulation, tighter credit standards, debt aversion among consumers, higher write-downs and a reassessment of the role of rating agencies. But there will be life after the credit crisis and Gateway intends to be a survivor.
Regards
Paul J. Thomas
Posted Monday, March 09, 2009 0 Comments Make a comment
The long and short of stock trading
Imagine you are after a CD by your favourite band. A friend has the CD and agrees to lend it to you. You take the CD home and sell it on eBay for $30. You then buy another copy of the CD at a discount music outlet for $25. You give the replacement CD “back” to your friend and pocket the difference. You have just made $5 profit from what is known as short selling.
Selling something you don’t own is counter-intuitive to most people but it happens everyday on securities markets. When you sell short you are betting the price of a stock will go down. It’s the opposite of a long (normal) position, where you hope the value of a stock will go up. People sell stocks short when they think a stock is overvalued – here’s an example.
When an investor goes short, he must borrow stock from a broker and then sell those shares on the open market to a second investor. At some time the investor must buy back the stock to cover his position as he originally sold borrowed stock and must return it to the owner.
Short selling is a perfectly legitimate means of hedging a portfolio. Indeed, it’s seen by many as a valuable weapon in the day-to-day trading arsenal. But as this article points out, short selling is also a risky business.
Last September ASIC banned short selling because it feared that short sellers were destabilising markets. There is now debate about the merits of short selling - some see it as an unscrupulous way of making money. For a good analysis of the various views on short selling, you might care to read: Is the shorting ban helping?
The Australian ban on (covered) short selling of financial securities expires this Friday, March 6. Any bets on whether this will result in local banking stocks being hammered when trading resumes next week?
Regards
Paul J. Thomas
Posted Monday, March 02, 2009 2 Comments Make a comment
Drowning in margin loans
The rising tide of margin lending has swept many Australians off their feet. Prior to the credit crisis, using debt to fund share market investments seemed a good idea. But the worst bear market in Australia’s history has delivered a tough lesson - margin loans don’t cope with a sudden downturn in stock markets.
Dipping one’s toe in the water before diving in head first is always good advice for any novice. Yet many investors failed to follow the maxim: look before you leap. Worse still, some of those who did rely on expert advice were ill-informed of the pitfalls associated with margin lending.
It’s now clear that the general populace was not ready for a product that was previously the domain of high-net-worth, sophisticated investors. Leveraged trading is not for everyone as clients of Storm Financial Services have painfully discovered. Even some bull market high flyers have been severely hurt by margin loans.
Australian investors are now showing understandable caution to margin loans, but used sensibly they remain a useful investment strategy. The Federal Government recently foreshadowed the introduction of new regulatory measures for margin lending to protect investors.
While gearing to invest can ramp up your returns, make sure you understand the risks. The Sydney Morning Herald has put together an easy-to-follow guide to margin lending that provides a balanced explanation of the pros and cons.
Speculators forced to stump up money to meet a margin call have learnt a costly lesson - always leave an adequate margin of safety otherwise your nervous bank may call in your loan. If you can’t raise enough cash to top up the security on your margin loan, your lender will simply sell your stock.
So, it pays to take a more conservative approach and borrow less than the maximum loan-to-value ratio (LVR). A lower gearing level gives you a buffer if the value of your investment falls. And never forget the golden rule – caveat emptor!
Regards
Paul J. Thomas
Posted Monday, February 23, 2009 0 Comments Make a comment
Back to the future in lending
Remember the days when you had to save a deposit before obtaining a home loan? A quaint practice, I know, but it was one of the foundation stones of something from the dim, dark past called “prudent lending”.
There was no such thing as easy credit when I started my banking career over 30 years ago. As a young credit assessor I had the three C’s of credit – capacity, character and collateral - drilled into me. As a responsible lender you did not deviate from these tried and tested standards.
Fast forward to today and we are reaping the rewards of what we have sown over the past decade. Dubious and risky lending practices have created a Devil’s kitchen where institutions have gorged on a diet of toxic loans. The global financial system is still trying to digest a poisonous broth of sub-prime mortgages and is now starting to swallow a rising number of personal bankruptcies caused by credit card debt. No wonder the system is choking!
For many years I watched with dismay as personal “wealth” was increasingly born of leverage. It seemed as if virtually everyone wanted to “super size” their debt. That’s why I have repeatedly said (see Household debt out of control) that borrowers are not blameless spectators to this financial crisis. Many consumers who binged on debt are now suffering a self-inflicted hangover.
Now I know it’s easy to be wise in hindsight, but greater risk assessment should have been undertaken before sub-prime loans, 100 per cent loans and low doc loans were put on the financial menu. Gateway has never offered such products. Yet many credit providers have promoted this all-you-can-eat smorgasbord to their detriment.
Lenders need to go back to school and re-learn their trade and borrowers should modify their behaviour and live within their means. A refresher course right now in Banking 101 is just what the doctor ordered. Less spicy loans and a return to bread-and-butter lending standards will provide a boost to everyone’s fiscal health.
Regards
Paul J. Thomas
Posted Monday, February 16, 2009 3 Comments Make a comment
Don’t amputate the invisible hand
Just as the Chernobyl meltdown did not put an end to nuclear reactors, the Wall Street meltdown is not the death knell of free markets. Financial markets are going through a life changing experience and, like the nuclear industry following the Chernobyl disaster, the financial services sector needs to learn from its mistakes. But capitalism and its alter ego, the invisible hand, will survive the current market dislocation.
The metaphor, invisible hand, was coined by the father of modern economics, Adam Smith. Smith asserted that economic behaviour is driven by self-interest and that purely selfish individuals are guided by an invisible hand to produce the greatest good for all. The credit crisis, however, painfully shows that the pursuit of self-interest does not always lead to outcomes that benefit society overall.
Many consumers understandably feel they have been slapped by the invisible hand and that it, in turn, should be clobbered by the visible fist of government. But it would be a mistake to substitute the invisible hand of capitalism for the dead hand of socialism. Right now, the invisible hand needs a helping hand in the form of government assistance. Which is why taxpayers around the world have become bankers, albeit this is not a sustainable or desirable position in the long term.
When the dust settles on this saga, governments must revert to being market spectators and not players. On going, the private sector will undoubtedly be subjected to closer scrutiny from the public sector. All markets have rules (the term “free market” is an oxymoron) and governments play an important role in setting industry standards. Care must be taken, however, not to over regulate (see my blog Time to cull misguided regulation).
Finally, to lay the blame for the credit crisis exclusively at the feet of the free market is too simplistic. Governments must also shoulder some responsibility, as outlined by a leading US economist in her blog, Capitalism is not dead.
Regards
Paul J. Thomas
Posted Monday, February 09, 2009 0 Comments Make a comment
What property crash?
Regular readers of this blog will know I’m not a fan of gloom and doom merchants. While I accept it’s human nature to extrapolate the worst scenario, I prefer to see the glass as half-full. This does not mean I bury my head in the sand and avoid reality. Rather I hold the view that there’s little to be gained in deliberately generating panic (see article “No good reason to feel depression”).
When it comes to the state of the housing market in Australia, there have been some alarming claims. Perhaps the most prominent property sector naysayer is Steve Keen, an Associate Professor at the University of Western Sydney. Keen has been arguing for some time that Australia’s debt fuelled housing bubble will burst and this will send house prices plummeting by up to 40 per cent over five years. Hmm?
Well, I’m just a simple guy who continues to believe that markets – including the housing market – work on the basis of good old supply and demand. And the demand for housing in Australia continues to outstrip supply. Keen’s rebuttal to this is that demand is fuelled by people’s willingness to borrow for housing and as this wanes (because borrowers no longer expect property values to rise) so will house prices. But there is a raft of experts who hold an alternative view.
Channel 7s business commentator, Michael Pascoe, pulled no punches in a recent blog title Steve Keen is Wrong. Pascoe’s view is confirmed by a property value index report, released by RP Data-Rismark, which proves that the property market did not experience a major downturn in 2008.
A more probing analysis of what’s been happening in the housing market is provided by leading property expert, Christopher Joye, in his article The Great House Price Myth. Joye does an excellent job of taking the emotion out of the debate and provides a rational and coherent assessment of what’s really going on. Certainly worth a read.
STOP PRESS: Latest data confirms only modest fall in home prices.
Regards
Paul J. Thomas
Posted Monday, February 02, 2009 0 Comments Make a comment
Credit crisis solution not monopoly play money
The currency you have in your wallet or purse has no intrinsic value in and of itself. Bank notes are just colourful pieces of paper with ink patterns used to represent different denominations. But paper money has implicit monetary value as it can be exchanged by the bearer for goods and services, thereby stimulating aggregate demand.
Some people believe that governments should print more money to solve the current financial crisis. However, only a small percentage of the money supply (3.5 per cent in Australia) consists of physical notes and coins. The “real” money supply can be expanded in a number of ways including electronically with a few mouse clicks as the Rudd Government did with its $10.4 billion stimulus package. On top of this, the Reserve Bank has injected massive amounts of money (liquidity) into the financial system.
When central banks create (rather than print) money, this is referred to as credit money. Every time a financial institution makes a loan, new credit (money) is created. While it’s true that consumers are presently reluctant to borrow and spend to help expand the money supply, the prevailing economic situation is not a money crisis, it’s a credit crisis. Banks have been unwilling to lend to each other due to concerns that these loans may not be repaid.
Which is why governments and central banks are supplementing the borrowing and spending efforts of millions of people and propping up a range of business sectors, including banks. The US leads the bailout package stakes and has now spent more in financial assistance than it cost Uncle Sam to fund its involvement in World War II.
You’d have to cut down a forest of trees to print the currency necessary to pay for the greatest outlay of money in US history! Or you could print $200 million notes like Zimbabwe which now suffers hyperinflation as the massive and rapid increase in the amount of her currency has not been supported by growth in the output of goods and services. (Note: Zimbabwe recently released a $10 billion note).
Noted English economist, Tim Harford, believes the board game, Monopoly, is the perfect symbol of the financial crisis. Pity we can’t print our way out of this mess with play money!
Paul J. Thomas
Posted Tuesday, January 27, 2009 1 Comments Make a comment
Happy New Year Predictions
WELCOME to my first blog posting for 2009. It’s a new day, a new month and a New Year. It’s great to be back “on air” broadcasting views and opinions from Gateway. 2008 was my rookie year as a blogger and I hope to improve during 2009.
I don’t want to get on my soapbox so early in the year, but my hope for 2009 is that we have more true profits and less false prophets. Predicting the future is fraught with danger. Sages often get it wrong as Financial Times writer, Philip Stephens, points out in his article, Put away the crystal ball.
As far as I can work out the only true prophet in the credit crisis saga is the economics professor, Nouriel Roubini, of New York University. During a presentation to the IMF on 7 September 2006, Roubini predicted the credit crisis. While he was previously dubbed “Dr Gloom” for his pessimistic views, he is now a sought after speaker. He fears the worst is yet to come but his critics worry that his celebrity status may be a bad thing in such troubled times.
Certainly, calling the bottom of a market fall is notoriously risky - not even behavioural economists can do that with accuracy. But that does not mean economics has no application to daily life. Tim Harford proves this in his best selling book, The Logic of Life: Uncovering the New Economics of Everything. I read Harford’s tome over the holiday period - here’s a synopsis.
Finally, while on the subject of predictions, climate change experts have been warning of dire consequences for some time. As Herald Sun writer, Andrew Bolt, explains in his blog, The 10 worst warming predictions, we have now reached the stage where we can check whether the experts past forecasts have become a reality.
As for me, I predict another year of false predictions!
Paul J. Thomas
Posted Monday, January 19, 2009 2 Comments Make a comment
The Night Before Christmas 2008 - parody
‘Twas the week before Christmas and Gateway was well,
The staff were excited, it wasn’t hard to tell.
St Nick is coming, there’s little time to spare,
A flurry of activity fills the credit union air.
I’m busy blogging with mouse and worn keyboard,
I try to ensure each blog strikes an interesting chord.
One last message before the year comes to a close,
But keep it simple and don’t overdo the prose.
I reflect on a year that was filled with gloom,
And wonder why we humans focus on doom.
The year will go down as our annus horribilis,
Our wealth tumbled far and this did not thrill us.
The credit crisis was challenging, we all looked for an answer,
But for now our thoughts focus on Dancer and Prancer.
We’ll let the year pass, because another is coming,
Let’s hope a new dawn sees the economy humming.
Now Gary, now Loyce, now Peter and Paul,
You’ve worked hard all year, so dash away all.
Don’t dilly, don’t dally, move merrily as you now flee,
Go home to families and presents beneath the sparkling tree.
So as I sign off for Christmas I thank each and every member,
It’s been a pleasure to serve you all, right through to December.
May the joy of the season fill your home with festive glee,
As I smile and gently whisper “Merry Christmas” from me.
Footnote: This is my final blog posting for 2008. My first blog for 2009 will be posted on Monday, 19 January. Thank you to all my loyal readers. My Christmas wish is for peace and goodwill throughout the lands. Have a great New Year.
Paul J. Thomas
Posted Monday, December 22, 2008 4 Comments Make a comment
Four wheel Christmas present
While Santa dashes through the snow on a one-horse open sleigh, you could be laughing all the way to your local motor dealer. It’s not too late to bag yourself a new set of wheels. Just like Santa’s workshop, car yards are currently full of big boys’ (and girls’) toys. Car sales have stalled and the experts are saying there’s never been a better time to shop for a bargain.
Car dealers will be nice (as distinct from naughty) as they need to turn over the stock on their showroom floors. Pressure on dealers to unload inventory is high and prospective tyre kickers should benefit from what one media report described as the "sale of the century as car prices crash".
Part of the reason for the vehicle fire sales relates to the credit crisis. Motor dealerships are typically highly leveraged businesses that use floorplan financing to pay for the cars on their lots. In Australia, GE Finance and GMAC (the finance arm of GM) have been big providers of floorplan funding and their recent decision to pull out of car dealer finance has sent shockwaves through the local car industry.
As financiers hit the brakes on funding, dealers are gearing up for hard times. Vehicle financing is integral to car sales and there is understandable concern that some car dealers may be in peril. Respected business commentator, Robert Gottliebsen, believes the “car industry (is) heading for a pile up” and his assessment is well worth a read.
For those who have some discretionary spending power now is the time to drive a hard bargain, with car sales the worst in 22 years. It’s a buyer’s market with incentives, discounts and extended warranties on offer. So turn heads this Christmas by driving the newest toy on the block. And if you need finance, Gateway can help.
Paul J. Thomas
Posted Monday, December 15, 2008 0 Comments Make a comment
Whack-a-mole market
A popular side show alley game is the one where you use a rubber mallet to hit as many critters on the head within a short period of time. The critters pop up out of holes and then drop back down again if you don’t clobber them in time.
The continuing credit crisis is like the smack-the-rodent game. As soon as a problem is smashed down another rears its ugly head. Bad news after bad news keeps popping up and governments around the world keep whacking them down with a fistful of dollars.
The ongoing saga with its unimaginable collapses and unintended consequences has led to some unhelpful media coverage. Is it time we thumped the sensational media reporting on its head?
It would be absurd to ascribe to the view that the media caused the credit crisis. However, it is not unreasonable to suggest that some newspapers have sensationalised the crisis. Worse still, we have witnessed gutter journalism with the inexcusable character assassination of a public official.
The credit crisis reporting reminds me of the doomsday predictions surrounding the Year 2000 Computer Bug (Y2K). Y2K captured the imagination of the popular press and lost all sense of proportion with catastrophic forecasts of jumbo jets falling from the sky and nuclear missiles self-launching.
The world survived the Y2K bug and it will survive the credit crisis. Market falls are a natural part of the economic cycle and understandably attract media commentary, but comparisons with the Great Depression are exaggerated as economics writer, Ross Gittins, points out in this article.
I’m all for freedom of speech as long as it is balanced and responsible. Alarmist and emotive headlines incite panic and breed unnecessary fear. Surely, the media has a responsibility not to make a bad situation worse with a constant barrage of overwhelmingly downbeat stories?
What do you think?
Paul J. Thomas
Posted Monday, December 08, 2008 2 Comments Make a comment
Your deposits are guaranteed…shhh!
Here’s a marketing challenge: Promote a product feature that you are not normally allowed to talk about. The feature is security (of deposits) and for the 30 plus years I have worked in the financial services sector it has been taboo to publicly mention depositor safety.
The safety of deposits in Authorised Deposit-taking Institutions (ADIs) has, quite rightly, always been taken as a given and to promote this feature would have called into question the stability of the financial institution concerned.
Well, how the world has changed. It started with the Irish Government guaranteeing deposits and then it was a case of one in, all in. Now all depositors around the world expect an iron clad guarantee from their government to protect their hard earned savings.
The Rudd Government’s decision to guarantee funds held with ADIs has undoubtedly engendered confidence among Australians. Hopefully, it might even stop some of the unnecessary panic we have seen in recent months.
Some Australians have been literally hoarding their cash as there is a shortage of $100 notes in circulation. Of those hoarders who have bunkered down, some have put their money under the proverbial mattress while others, displaying “rational panic” (excuse the oxymoron!), have at least put their cash in safes.
While I believe the guarantee is subversive to sound economics, I also accept our government had no choice but to follow other governments. So, yes, Gateway is subject to the government guarantee and, like everybody else, we are now promoting our strength and stability. So sleep peacefully.
By the way, if you know someone who has stashed their money in a safety deposit box, politely suggest they put it back into circulation. Spend it or invest it … but don’t hide it!
Paul J. Thomas
Posted Monday, December 01, 2008 0 Comments Make a comment
Ready, set, spend!
On December 8 the Rudd Government will pump $10.4 billion into the pockets of Australian consumers. The cash transfer to low and middle income earners as well as pensioners and first home buyers should reduce the risk of a recession – assuming the recipients don’t hoard it!
The fiscal stimulus package represents a modern day New Deal and is based on Keynesian economics. The British Economist, John Maynard Keynes, believed that in a downturn, fiscal policy should be used to stimulate the economy.
As a result of the credit crisis governments around the world are moving to shore up confidence but this does not mean that, longer term, free markets are out and governments are back in business. The health of our economy (and others) is declining and, in Australia’s case, I believe a pre Christmas injection of cash is just what the doctor ordered.
What the academic heavyweight of laissez-fair capitalism, Professor Milton Friedman, would make of this is probably not hard to guess. Friedman was a staunch advocate of monetarism and argued that government action was at the root of inflation.
In line with the underlying sentiment I espoused in my blog last week, I am of the school which believes that, right now, we need a Keynesian recession buster. I believe the government’s economic stimulus package will help the economy stay alive in the short term and that a hit of Keynes will do us good.
Lest there be any confusion, I am neither a Keynesian purist nor a monetarist purist. One has to be pragmatic and Keynes is undergoing an understandable revival in the face of unprecedented market conditions. In normal times (see my blog Let the Fittest Survive), I believe that governments should play a much smaller role in the economy and that we need to be cautious of over regulation.
What do you think?
Paul J. Thomas
Posted Monday, November 24, 2008 0 Comments Make a comment
History lesson 101: Stop self fulfilling prophecies
“We have nothing to fear but fear itself” said Franklin D. Roosevelt in his 1933 inaugural address, delivered at the height of the Great Depression. History teaches us that while stock market collapses are painful, they do not of themselves cause recessions. As I explained in a recent blog, human behaviour causes economic downturns.
Our economy, like all economies, is based on consumer confidence. The sub prime crisis has weakened consumer confidence and spending. Markets have been running on emotion. Economic fundamentals have been thrown out the window. The threat of recession is causing many of us to experience a “psychological recession”. We think things will get worse, so we adopt a gloom and doom mentality.
The problem with this is that a capitalist economy runs on the simple notion of supply and demand. When consumers get spooked they stop spending and when this occurs, companies produce less and eventually must downsize their workforce. And so begins a vicious cycle in which everyone loses. That’s why we need to re-learn an old lesson: united we stand, divided we fall.
Yep, it’s distressing watching your superannuation nest egg decline in value. And it’s no fun seeing your house price fall. But the worst thing we can do right now is hoard our money. I’m not suggesting we throw our money around recklessly and become materialistic spendthrifts (see my blog posting of 19 May 08). But if we apply the brakes too hard, the economy will grind to a halt and we will officially be in a recession.
Remember, the entire economy is built on trust and panic is not a sensible investment strategy. It’s understandable that consumers are concerned but there will be light at the end of the tunnel. Meantime, we just have to be careful not to cut our collective noses to spite our faces, otherwise the slowdown will take everyone to the cleaners.
Paul J. Thomas
Posted Monday, November 17, 2008 1 Comments Make a comment
Have state governments passed their use by date?
It’s strange the things you remember. I can vividly recall the launch of the Indian-Pacific train service. I was just 12 years old when my father told me that train gauges in three Australian states had been standardised to enable non-stop travel between Sydney and Perth. Even as a kid, I was surprised that each state had different rules about something as simple as the width of train tracks.
As an adult my frustration with inconsistencies between the states has not abated. In a former life I worked for an organisation that spent over a decade lobbying government for uniform credit legislation throughout Australia. I watched with anticipation John Howard’s efforts to secure uniform gun legislation following the Port Arthur Massacre (in which my wife’s friend was shot dead). And I’ve listened to upwardly mobile Australian executives with children complain about differences in school curricula around the country.
Let’s be honest - the only reason we have three levels of government is due to the burden of history (or path dependency). Australia started out as six independent colonies. The joining of these colonies into a federation of six states to form the Commonwealth of Australia was a good idea in 1901. Today, I humbly submit, the Federal/State structure of government is obsolete.
I don’t think the founding fathers of our great nation envisaged the buck passing, endless bickering and unnecessary duplication that have come to characterise Federal/State relations. My sense is that Australians are sick of politicians playing the blame game. No system of democracy is perfect - but surely we can do better than what we currently have in place.
While I’m on my hobby horse, can I also suggest that the entire world is over governed? The tiny rock that we call home – planet Earth – is divided into no less than 192 sovereign nations. Try solving a global credit crisis with that many governments!
Paul J. Thomas
Posted Monday, November 10, 2008 0 Comments Make a comment
Who caused the financial meltdown?
When something goes wrong, humans need a scapegoat. It’s perverse, I know, but we feel better when we blame someone else for our woes. Finger pointing takes the focus off our own behaviour and turns the heat on the “real” culprits. Plus, it feels good to play the innocent victim and exclaim: ‘It’s not my fault!’
The good news is there’s plenty of blame to go around when it comes to the credit crisis. Responsibility for the mounting contagion does not reside with any particular group. No one can claim a monopoly on greed and stupidity, so many in the populace and media are demonizing everyone and anyone.
Chief among the villains are the fat cat CEOs who pocketed huge pay packets while presiding over lax lending. Others blame US regulators for turning a blind eye to an unsustainable mortgage market. Not to be forgotten are the financial wiz kids who invented the newfangled securities that turned toxic.
But what about us? Do we need to temper our righteous indignation in the knowledge that, as a society, we have become credit junkies? In my blog posting of 19 May 2008 title Household debt out of control I argued we are living beyond our means. For many, unsustainable expenditure has become the drug of choice.
I think as a society we need to take a long hard look at ourselves. Collectively, we need to take some ownership for the prevailing economic climate. We need to understand that debt is not risk free. We need to save more and encourage habits of thrift among our children.
But most of all we need to stay calm. Markets are driven by sentiment. So, the most important virtue right now is not to panic. Let’s all work together to rebuild trust and confidence and prove we are not morally bankrupt.
Paul J. Thomas
Posted Monday, November 03, 2008 0 Comments Make a comment
Extra! Extra! Read all about it!
It’s one of life’s contradictions: bad news is good news for the media. Calamities sell newspapers and give TV networks a ratings lift. The journalists’ mantra, if-it-bleeds-it-leads, results in crime and violence dominating the front pages of our tabloids and heading the lead stories on the evening news.
Over the past year, however, the lurid stories which typically grab the headlines have given way to the normally sedate world of business - thanks to the credit crisis. Financial news has been pushed to the front pages with talk of market meltdowns, bank bailouts and plummeting confidence creating fear and panic in the streets.
To be sure, the credit crisis is a severe and protracted issue and a financial tragedy for many. Gateway, thankfully, is not in this category. We have survived the turmoil relatively unscathed and in the catch-cry of the street newspaper seller you can “read all about it” in Gateway’s 2008 Annual Report.
I should warn you that our annual report contains no shrill breaking news or fear mongering. It is not a bleak and nail biting drama, nor is it full of adrenalin-pumping headlines. Nonetheless it’s a pretty good read. The annual report documents how we navigated the credit crisis and conveys the optimism we have for Gateway’s future.
I’m sorry we could not be more alarmist, but when you run an institution that has maintained prudent practices and resisted the temptation to lower standards then life, relatively speaking, is pretty boring. On a serious note, I do hope you enjoy the report.
Finally, it would be remiss of me not to recognise the professional Gateway team and our Board of Directors for their efforts over the past 12 months. I would also like to acknowledge our loyal members for their on going support.
Paul J. Thomas
Posted Monday, October 27, 2008 0 Comments Make a comment
Protect your income
We all know that life is not a spectator sport. Each of us has the capacity to determine our own destiny. Some people seemingly have their life mapped out while others just watch their future unfold. We are constantly told that successful people find direction by setting goals and then living the life they want.
Life, however, inevitably takes unexpected twists and turns. Some of the most significant things that happen to us are unplanned. I’ve yet to meet a person who planned to fall ill, or get divorced, lose a job, or suffer a serious injury. Unforeseen events can derail the best life plan and all can cause financial hardship.
Believe it or not, the main reason borrowers are unable to meet home loan repayments is not over commitment but unexpected “catastrophes” such as illness or injury. This fact was confirmed in a report released in May by Mortgage Insurer, Genworth Financial, which showed that interest rates are not the biggest cause of mortgage stress.
Only 2 per cent of defaults are caused by being too deep in debt. In contrast, a whopping 38 per cent of mortgage delinquencies are caused by injury and illness. This is something that can be managed by having income protection insurance in place. It makes sense to protect your income from the unexpected.
If you’ve experienced a change in your personal circumstances and are struggling to keep up your mortgage payments, don’t stick your head in the sand. Contact your lender and negotiate an affordable repayment arrangement. Don’t wait until you are on a slippery slide to foreclosure or bankruptcy. All prudent lenders would rather put in place a payment plan than repossess a property.
Paul J. Thomas
Posted Monday, October 20, 2008 1 Comments Make a comment
Time for a pep talk
Psst…wanna know a secret? The best way to ride out the current crisis in financial markets is to stay calm. Want another tip? Don’t believe all the gloom and doom of the popular press. Like more helpful advice? Ignore the ill-informed comments of radio shock jocks who have become instant “experts” in economic policy making.
It’s understandable that investors are nervous. We humans don’t like uncertainty and we become unsettled when markets wobble. Fear is stalking Wall Street and the rest of the world is experiencing a historic shake up. But stability will return - just as it has before. Meantime, we need to keep a level head and not make irrational decisions.
Let me tell you what I rationally know. Cash is king in times of turmoil and this is good news for Australian savers. While our retirement funds have fallen, interest rates on savings accounts are providing attractive returns (close to a seven year high prior to the recent RBA easing). And our banks, building societies and credit unions - collectively know as Approved Deposit-taking Institutions (ADIs) are strong.
Australia’s ADIs continue to be safe havens for savers and investors. Over recent weeks the Federal Government has been reassuring Australians about the robustness of our financial system. Yesterday, the Rudd Government went one step further and announced it will guarantee all deposits held by banks, building societies and credit unions for a period of three years. The move follows similar blanket guarantees offered in other countries amid the world financial crisis and is welcome news for investors.
Gateway has been helping members with their savings and investment needs for over 50 years. And we intend to continue doing that for many years to come thanks to our strong balance sheet and prudent management. You can confidently deal with us.
Paul J. Thomas
Posted Monday, October 13, 2008 0 Comments Make a comment
Credit Crisis: A financial 911
Remember Rudy Giuliani? He was the mayor of New York who displayed courageous leadership following the unprecedented acts of terrorism on September 11, 2001. New York (specifically, Wall Street) is again under attack but who is rising to the challenge of leadership this time?
Just as American intelligence did not predict the terrorists’ attacks, American regulators did not see the sub-prime financial time bomb ticking away. As with 9/11, national turmoil in the US has quickly escalated into international calamity.
In America, the finger of blame is pointed squarely at the government, the press is having a field day and the attacks are coming from all quarters. One headline proclaimed “The bigger credit crisis is with the government” while another labeled the ongoing saga as “A failure of US political leadership”.
Surviving any crisis requires strong leadership. In times of uncertainty, people look for guidance and clear communication. The Bush administration has failed to project any sense of authority over the dislocation in financial markets. The credit crisis has turned into a credibility crisis.
Meanwhile, Australians can be proud that our banking system remains sound. Our world class regulators and central bank are working with world financial authorities to prevent this happening again.
Australia leads the world in many areas and we have a level of checks and balances in our financial system which is arguably second to none. As the RBA Governor recently stated, we are “light years away from what is happening in other banking systems around the world”.
The integrity of our financial system remains intact. The government has, quite rightly, said that Australia will beat the turmoil. Perhaps we antipodeans should be more concerned about global warming than market meltdowns?
Paul J. Thomas
Posted Tuesday, October 07, 2008 0 Comments Make a comment
Financial crisis defies logic
The academic world of economics may fit neatly into mathematical equations, but does it describe the real world? I think we humans are far too emotive for rational economic models to accurately predict our behaviour. The credit crisis is proof positive of that.
The dislocation in financial markets was caused by irrational lending practices - saddling borrowers with dodgy (subprime) loans they could not afford. As the loans went sour, markets overreacted and then fear and panic set in. Investor confidence plummeted and everyone rushed to the (stockmarket) exit door.
The human species was convinced it faced a financial Armageddon and this supposedly intelligent herd animal behaved like one of Pavlov’s dogs – the market rings the bell and hysteria starts. The great panic was fuelled by apocalyptic reporting from the media which whipped us into a frenzy.
The white knuckle ride has been made even more exciting by market rumours. Nothing like wagging tongues to propel gloom and doom! But if we had acted more rationally, could we have avoided or mitigated the financial system death spiral? As economics commentator Ross Gittins pointed out last week, humans are too smart by half.
Conditions on financial and equity markets remain jittery. When the dust eventually settles on this damaging saga, teachers of media and political studies will try to make sense of what happened. Hopefully, economists will learn that markets are not populated by rational decision makers.
They might also learn that the really big events in world history, as outlined in the bestselling book, The Black Swan: The Impact of the Highly Improbable, are rare and unpredictable. The author argues that economists live in a fantasy world where they believe the future can be controlled by sophisticated mathematical models.
To those who still struggle to understand what has happened, you might care to read the article, Can’t Grasp Credit Crisis? Join the Club.
Paul J. Thomas
Posted Monday, September 29, 2008 3 Comments Make a comment
What do you really know?
Spaghetti originated in China, not Italy. Tulips are native to Turkey, not Holland. Nikola Tesla invented the radio, not Marconi. The sun is actually white, not yellow. The moral of this quick quiz should be self-evident: Do we really know what we think we know?
The average Joe “knows” that economics deals with the production and consumption of goods and services. However, economics is really about how we make decisions. It’s a body of knowledge that explains how we make choices. Given our limited resources and unlimited wants (referred to by economists as scarcity) how do we make trade offs between alternatives?
As consumers we make choices every day. Should I buy that new car? Or should I extend my house instead? Maybe I should just take the family for a holiday? Or how about I put the money aside for a rainy day?
Our collective decisions contribute to the economic trends we read about in the media. We help create the recessions and expansions that occur in the economy. The latest economic statistics tell us that we are not a happy lot. Australia now has the second lowest level of consumer confidence in the OECD but the RBA says the fall is not disastrous.
What is not debatable is that we have tightened our belts. We are spending less on eating out. We are buying fewer magazines. We are purchasing fewer new cars. And we are building fewer homes. In America, changed consumer spending patterns has caused leading economist, David Rosenberg, to suggest that “frugality is now replacing frivolity”.
With restaurant meals off the menu, big ticket expenditure on hold and petrol prices rising, people are understandably worried. But history shows that things will get better. Consumer sentiment will bounce back. The good times will return. It’s all part of the (financial) circle of life.
How do you think we can start a wave of optimism?
Paul J. Thomas
Posted Monday, September 22, 2008 0 Comments Make a comment
The Credit Union Difference
James Cook and Neil Armstrong were explorers who blazed new trails. Both were commanders of dangerous missions of discovery. Both travelled great distances and opened up new possibilities. Despite their similarities, Cook and Armstrong were also quite different. One was a navigator, the other an aviator. One made his name in the sea, the other in the air. One captained a sailing ship, the other a rocket ship.
In many areas of life, two things can be similar yet quite different. Just look at credit unions and banks. Both are regulated financial institutions. Both are prudentially managed. Both provide savings and loans products. But that’s where the similarities end. Credit unions and banks have distinct differences with regard to purpose, ownership and governance.
Credit unions are not-for-profit, member-owned, democratically controlled financial co-operatives. Banks, on the other hand, are for-profit, shareholder owned and controlled entities. Unlike banks, credit unions exist solely to serve their members, not to pay high dividends to an outside group of stockholders.
Credit unions are better for you and your wallet. According to Roy Morgan Research, credit unions have higher customer satisfaction levels than the major banks. Credit unions are focussed on people and service - both members and staff. In Gateway’s case, we have an 88% staff satisfaction rating and a 94% member satisfaction rating.
Here is a brochure which outlines ten good reasons to join a credit union. If you don’t have time to read, then listen to this 46 second YouTube video and discover why credit unions are really different. If you have a few more seconds, then listen to this second 1:47 minute YouTube video for a fuller explanation of the credit union difference. Or scan this short but informative article, “Banking on credit unions”.
What do you like about YOUR credit union?
Paul J. Thomas
Posted Monday, September 15, 2008 1 Comments Make a comment
Climate change a hot topic
Heard of global warming? Want to do your part to save the planet? Then be prepared to change your ways. All of us have contributed to the increase of greenhouse gases so each of us has a role to play in reducing our ecological footprint.
In 1997, thirty-seven industrialised countries plus the EU committed to reduce their pollution through an international agreement - the Kyoto Protocol. Last December, the Rudd Government ratified Kyoto – the much touted global solution to climate change.
More recently, the federal government released details of its Emissions Trading Scheme. While not obvious from reading the scheme’s guiding principles, Australian consumers will not be immune from the impact of the brave new world of carbon trading.
In my blog posting of 7 July 2008 titled, Petrol prices a crude awakening, I spoke about the impact of supply and demand on petrol prices. The same economic equation holds true for energy prices – electricity supply will become dearer to encourage households to reduce their demand of this emissions-intensive energy source.
So, are you prepared to throw away your power hungry plasma TV? How about converting to solar heating? What about buying a more energy efficient car? Gateway is trying to reduce its environmental footprint and has introduced green business initiatives.
I suspect it’s going to be a stormy path to a cooler world with leading global economist, Professor Jeffrey Sachs, sounding alarm bells about Australia’s carbon trading scheme. No doubt “human temperatures” will also rise as individuals let off steam while arguing their preferred solution to a hot topic.
To help you make sense of this debate, you might care to read: Cool It: The Sceptical Environmentalist’s Guide to Global Warming. The author challenges the effectiveness of Kyoto and debunks the apocalyptic scenarios linked to climate change – a compelling read.
Paul J. Thomas
Posted Monday, September 08, 2008 2 Comments Make a comment
There’s no place like home
After a month’s annual leave, this my first day back at work. For those who thought I had vanished forever, let me recall the words of Mark Twain: The news of my demise has been greatly exaggerated. I’m alive and well and raring to go. I thank my colleague, Gary English, for his four blog postings during my absence.
Beverley and I had a wonderful holiday in Europe. We travelled via Dubai where everything is big and brash. What a contrast that made to our visit to Gallipoli which was a very serene and moving experience. The Anzac Commemorative Site includes 10 large panels that tell the story of Gallipoli in 1915.
The Gallipoli campaign is regarded as one of the most spectacular failures of World War I. The allied naval assault was the product of poor military strategy and the offensive ended in disaster due to poor leadership. Almost 9,000 young Australian soldiers lost their lives at Gallipoli and thousands of Australians gather at Anzac Cove each year for the commemorative service.
It always weighs heavily on my mind that the defeat at Gallipoli was not due to the courageous soldiers but to the incompetent battle commanders who developed a flawed plan of attack. I take my leadership role here very seriously and will always do my best to steer Gateway to victory.
It’s good to be back in the Land of Oz. We truly are the lucky country. I’m pleased that credit unions are an important part of the fabric of this nation. Gateway will continue to do its bit to Advance Australia Fair.
In closing, my only regret is that I missed the Australian coverage of the Olympics while I was away. I understand we did well. Aussie, Aussie, Aussie, Oi Oi Oi.
Regards
Paul J. Thomas
Posted Monday, September 01, 2008 0 Comments Make a comment
Space Mahjong at The Institute
I recently read an article that described how one of the major Telcos had introduced a service to help their mobile phone customers come to grips with all the amazing features that their mobile phones provided. Apparently, the majority of users understand no more than 40% of the capability of their phones and therefore, would benefit greatly from a ‘personal trainer’. Interestingly, the article was not too specific around the take up rate for this service. One could argue that it is simply the case that most people have neither the time nor inclination to spend hours brushing up their skills on Space Mahjong (one of the ‘features’ that came with my phone!)
It is a common theme in marketing to add ‘extras’ to what is often a fairly standard product in a bid to entice consumers into a purchase decision. Cosmetic companies are well known for highlighting breakthrough ingredients often developed at ‘The Institute’ (one day I would like to visit ‘The Institute’).
It is interesting to think that whilst in most cases, we know we don’t really need these bells and whistles and generally have some reservations about what really happens at ‘The Institute’, we will still opt for the product with extra zing, even if it costs more than the zing free option.
Have you recently bought something based on the accompanying features that you don’t really need (or understand) but you’re fairly certain your friends don’t have?
Do you opt for the ‘no frills’ option and simply purchase what you actually need?
Time for me to go – I think I need a new phone and I have a lot of research to do!
Regards
Gary English
Posted Monday, August 25, 2008 0 Comments Make a comment
Managing the Niche
It is common practice for supermarkets to charge their suppliers a premium for the right to display their products in optimal locations within a store – those bottles of soft drink and gossip magazines aren’t situated next to the checkout by chance!
Occasionally I venture out to one of those giant warehouse stores (usually owned by a supermarket chain) that sell wine, spirits and other conversation starters. I may look for a wine from a small producer that has received a good review - many times it is either nowhere to be found or buried in an inconspicuous location amongst a myriad of competing brands. How can producers not willing or able to pay shelf premiums survive in a market like this?
They can’t really differentiate on price - how many of us would actually buy a 'cheap' brand of wine that we weren't familiar with?
They can’t afford expensive advertising campaigns or an army of sales reps storming around the country?
Often the key to success for these businesses is identifying a cost effective distribution model able to reach and create value for a niche group of customers. Mail order and e-commerce are common methods. If they do it well, their customers become advocates of the brand and a low cost sales force is created.
But sometimes success has its price. Businesses grow and often find it difficult to maintain the personalised touch that created their success – customers know this!
- When you come across a niche provider that creates value, do you tell others or keep it a secret?
- Are you torn between the benefits of preserving the experience and the risk that if too many others join in, things will never be the same?
Our members often tell us that we need to change – but not too much!
Regards
Gary English
Posted Monday, August 18, 2008 0 Comments Make a comment
Great Expectations (What is Good Service?)
Over the years I have had many service experiences both as provider and recipient. If I have learnt one thing during that time it is that nearly every customer has a preconceived expectation during a service transaction. As an example, the cornerstone of successful franchise businesses for many years has been the standardisation of service offerings – nowhere has this been more prominent than the fast food sector where companies such as McDonald’s replicate their processes globally. Customers of these businesses know what to expect and will also generally accept the limitations on varying these expectations because they have been educated by previous experiences.
But is this good service or merely consistent delivery of an expectation?
In recent times, many of these business models have become less effective i.e. if you want beetroot on your hamburger, then maybe we should let you have it because if we don’t, you’ll go next door to get it! Who is setting the expectations now?
A challenge for any business (including Gateway) is to understand and where possible exceed the needs, aspirations and expectations of their customers. Many services providers champion their service offering and ‘commitment to quality’. The intent may be genuine but in my experience, there is often a shortfall in delivery. Certainly my recent experiences with a variety of tradesmen have been inconsistent at best and as a result my expectations have shifted. Simply turning up to an appointment on time is now exceeding my expectations but could hardly be considered great service.
This reinforces the notion that a customer’s reaction to a service experience is not always relative to the quality of service provided. Sooner or later the customer will react - those who don’t adapt will not survive.
When was the last time you received truly great service?
Regards
Gary English
Posted Monday, August 11, 2008 0 Comments Make a comment
Bulls or Bears - who will you listen to?
Recently I was talking to a nephew contemplating the purchase of his first property. I was pleased to see him looking at opportunities to develop his financial position and importantly, recognising the value of some advice. Understandably his perception of the transaction and mine differed in a few areas, mainly affordability. However, when I explained the criteria mainstream lenders generally adopt in assessing loan applications, he could understand my logic.
Financial markets around the world are presently in a state of flux - the common theory as to the root cause of the problem is inappropriate lending practices creating a spate of mortgage defaults. In the current climate, it is unlikely that my nephew’s original proposal would be entertained by many, if any, lenders. Unfortunately, in the not too distant past the chances of such a transaction proceeding would have been significantly greater. In the case of the latter, whilst the emotions driving the request may have been satisfied and a lender may have made a short term gain, the potential for subsequent problems would have remained high.
In the lending business we are constantly balancing elements of risk and return. Often, the driving emotional influences of a transaction may cloud financial logic and the ‘middle ground’ needed is not explored. Behaviours driven by periods of conservatism (bear market) or optimism (bull market) inevitably end and memories can be selective, particularly at the start of a new cycle. Many institutions are now thinking about the shape of the lending landscape once the dust settles on the credit crisis.
Will the ‘bulls’ return with little recollection or regard for recent history and a drive to recover lost ground?
Will the ‘bears’ ensure a more measured approach utilising lessons learned to seek long term stability?
Who will you listen to?
Regards
Gary English
Posted Tuesday, August 05, 2008 0 Comments Make a comment
Time for holidays
We are creatures of habit. We settle into patterns of behaviour and create routines around those behaviours. We find comfort in predictability. The fabric of life here at Gateway includes my weekly blog. Every Monday at 10am my blog is updated with a new posting for your reading pleasure.
Well from next Monday there will be a slightly different routine. The CEO blog will be updated weekly but not by me - I’m off on annual leave at the end of this week. My Head of Sales and Operations, Gary English, will be acting CEO in my absence. Gary’s mug shot will be on the website in lieu of mine but please don’t be frightened; he’s actually a great guy!
Gary will have the pleasure over the next month of coming up with an interesting blog topic each week using less than 300 words (good luck!). Now to help and encourage Gary, please feel free to comment on his blogs - it’s lonely when no one talks to you. I’ve discovered that blogs are like talk back radio - you can have lots of readers (listeners) but only a few post comments (phone in).
While I don’t see myself as a “shock jock”, I have tried to make my blogs somewhat provocative. Am I hitting the mark? Would you like me to cover different and/or broader topics? But please don’t get me started on how our education system is churning out graduates who can’t spell or compose a letter. And certainly don’t mention the absurdity of having three levels of government in a country of only 21 million people!
Okay, I’ll calm down now. You’ll hear from me again on Monday, September 1. Phew - I must need a holiday. Bon Voyage!
Paul J. Thomas
Posted Monday, July 28, 2008 1 Comments Make a comment
Less is more
Life as a consumer was less complicated when I was a kid. We had fewer choices but what was available satisfied our needs. Today we have a proliferation of alternatives which can leave us with “consumer vertigo”. Walk into any supermarket and you’ll find 40 flavours of ice cream, 20 kinds of coffee, a dozen varieties of cereal and a smorgasbord of cheeses.
Try buying a simple ham sandwich. Would you like that on white, brown, wholemeal, wholegrain, rye or focaccia? Would you prefer leg ham, pressed ham, smoked ham or shaved ham? How about coffee? Do you prefer skim, full cream, soy or low fat milk?
Now I’m not advocating we go back to the bad old days of Henry Ford. Ford famously wrote in his autobiography: “Any customer can have a car painted any colour that he wants so long as it is black”. What I am suggesting is that we heed the sobering observation of Edward de Bono in his book Simplicity. De Bono notes that 95 per cent of people do not use 90 per cent of the features on their video-recorders - because they are too complicated.
I believe that simplicity is also required in retail banking. Financial service customers are confused by the explosion of products and services. At Gateway, we have no desire to offer a full suite of products with umpteen variations. Convenience with simplicity is our mantra and we believe this will ultimately separate the winners from the losers. So, we’ll continue to follow the KISS formula – keep it simple stupid!
By the way, does anyone know the difference between reduced fat and low fat?
Paul J. Thomas
Posted Monday, July 21, 2008 0 Comments Make a comment
Work until you drop
A baby born in Australia in 1908 had a life expectancy of 57 years. Today, the life expectancy of Australians has hit an average of 81.4 years, second only to Japan. Having survived to age 65, life expectancy is higher than at birth - men can expect to live another 18.3 years and women another 21.5 years. Based on these figures, retirement for many baby boomers will not be a five year sprint but a 20 plus year marathon.
A life of leisure might sound appealing but what about purpose and meaning? Happiness in retirement is about being active and for some this purposeful activity will take the form of work. The authors of Avoid Retirement and Stay Alive believe that the longer you work the longer you live. Research shows that almost 20 per cent of baby boomers plan never to retire.
While success in retirement is about much more than the money, it does not mean you can ignore the question: How much do I need to retire? The answer to this will be influenced by your choice of retirement age. I’m 51 years of age and started my retirement planning six years ago.
Like 50 per cent of full time workers in their 50s, I plan never to retire. When the corporate world tells me my time is up, I’ll finish writing the book I’ve been (slowly) working on, possibly do a PhD and then maybe lecture. My dad is in his mid 70s and still works, albeit part time, just to keep himself active.
I have absolutely no intention of sitting in a rocking chair on the porch. I don’t want to be part of a granny state but an active state of mind. What do you want to do?
Paul J. Thomas
Posted Monday, July 14, 2008 1 Comments Make a comment
Petrol prices a crude awakening
When Isaac Newton said that “what goes up must come down” he was referring to gravity and not petrol prices. My suspicion is that higher oil prices are going to defy the law of gravity and stay high. The world’s appetite for oil is growing, refineries are struggling to keep up with demand and this is driving up the cost of a barrel of “black gold”.
Now I know this is going to sound counter-intuitive, but the best protection against rising petrol prices is for the government not to lower the price. The law of supply and demand states that as the price of a good rises, less will be purchased. Thus, lower fuel prices will only increase demand leading to higher prices. That’s why a leading researcher has noted that the solution to higher petrol prices is to keep the price high.
With bowser prices above $1.60 a litre, motorists understandably feel they are being pumped dry. Drivers are forking out over $100 to fill the family car and day trips/weekends away are being cancelled. The petrol pump is the new one armed bandit and more price hikes are on the way. Not surprisingly, the cost of petrol ranked as the top concern of Australians surveyed for the March 2008 Sensis Consumer Report.
Kevin Rudd was right when he said there’s “no silver bullet to bring down the price of petrol”. So what’s the solution to the oil shock? The environmental website, Low Impact, argues we have to reduce our reliance on petrol. This means changing our behaviour and our love affair with the car. You might even choose to walk more and this will have the added benefit of reducing the western world’s obesity problem.
How do you think we can reduce our dependence on petrol?
Paul J. Thomas
Posted Monday, July 07, 2008 2 Comments Make a comment
Does the early bird catch the worm?
After Neil Armstrong took “one giant leap for mankind” the now defunct airline, Pan Am, established a waiting list for round trips between the Earth and Moon. While you have to admire the airline’s enthusiasm, it was ill-founded. With the best of intentions, Pan Am rushed in at break neck speed thinking it would gain a first mover advantage.
I’ve never been convinced that being first to market provides a company with a sustainable competitive advantage and that’s why I’m positioning Gateway to be a fast follower. As noted in the best selling book, Good to Great, De Havilland pioneered the commercial jetliner but was overtaken by Boeing. IBM was initially a laggard in computers behind Remington Rand. Lotus 1-2-3 lost out to Excel. GE was not the first to market with the AC electrical system, Westinghouse was. In a true embodiment of Aesop’s Fable of The Hare and Tortoise, these market followers prove that slow and steady wins the race.
Today marks the end of the financial year and Gateway’s greatest achievement during fiscal ‘08 has been to move closer to being a fast follower. Frankly, over the past decade we have been a laggard in product development and have spent the past three years playing catch up. We now have a more comprehensive line up of savings and loan products and when we introduce our Visa Debit card early next year we will close the gap in our product range (for the time being!).
Thank you for your patience as we brought these new products on stream. We’re committed to keeping up with developments which occur in the retail banking space. Are there other products we should be considering?
Happy New (financial) Year!
Paul J. Thomas
Posted Monday, June 30, 2008 0 Comments Make a comment
Competition – let the fittest survive
Survival of the fittest determines winners and losers in the natural world so why can’t Darwinian selection determine survivors in the corporate world? As a general rule, I believe that markets should be allowed to operate free from government imposed restrictions. But this is not the case in the Australian financial services sector where the landscape is not being allowed to evolve naturally.
Change is being stifled by the four pillars policy which does not allow mergers between Australia’s big four banks. This policy is based on fear of reduced competition but as this article shows the policy has not led to a better deal for consumers.
Now it may seem strange that a small credit union is calling for greater freedom for bigger competitors. However, at the end of the day, it’s consumers and not governments who really determine business survival. And consumers don’t necessarily want big, tough, macho organisations dominating the corporate jungle.
Darwin never spoke about survival of the biggest (remember the dinosaurs?) nor did he mention survival of the toughest. Darwin’s theory was based on change and adaptability and that’s where credit unions come to the fore. Remember also that giants may form but this does not stop more nimble species evolving and proliferating.
To be sure, I don’t believe in unrestrained competition where one wins at any cost. Governments have a role to play in defining the rules of competition so that it’s not survival of the most ruthless or the most deceptive. Beyond that, it’s up to each market participant to avoid extinction.
So, I’m happy to do battle with the big four or big three or big two. And guess what, I’m prepared to bet it won’t lead to a financial ice age. At Gateway, we’re not hibernating…so let the games begin!
Paul J. Thomas
Posted Monday, June 23, 2008 0 Comments Make a comment
Help for first home buyers
Australia is in the grip of a housing affordability crisis. First home buyers are being priced out of the market and we risk creating an under class of renters. Some say that Generation Y will never own property. Those low to middle income earners who have entered the property market are doing it tough.
Over one million Australian households now spend more than 30 percent of their gross income on either mortgage or rent - the measure of housing stress. In many of these homes mum and dad both work, the kids are in day care and the fabric of family life is being stretched to breaking point.
I agree with the Reserve Bank that Australians generally do not benefit from increases in housing prices. So, how do we ensure that first home buyers do not become extinct? ANZ economist, Saul Eslake, believes interest payments made by first home buyers should be tax deductible as long as they pay capital gains later. Meriton boss, Harry Triguboff, argues that young people should be allowed to delay compulsory superannuation contributions to save a deposit.
For my money these ideas are too simplistic. Life has taught me that all complex questions have several layers of possible answers as this article by two academic urbanists points out. Rather than stabbing at solution, a co-ordinated approach by all levels of government is required. While the Rudd government’s recently announced First Home Saver Account is not a panacea, it’s a step in the right direction.
Gateway does not want to see young people squeezed out of the property market and will be offering a low tax, First Home Saver Account later in the year. What else should we be doing?
Paul J. Thomas
Posted Monday, June 16, 2008 0 Comments Make a comment
Has political correctness gone mad?
Some years ago I attended a residential university program. When I asked the course co-ordinator for the location of the campus library she politely corrected me and said, “You mean the Information Resource Centre!” Eh?? It’s clear we no longer call a spade a spade. Just how comical things have become can be seen in this article.
My bald uncle is now referred to as “follically deprived”. The drug addict down the road is “chemically dependent”. The blind man on the bus is “visually impaired”. The woman in the wheel chair is “physically challenged”. Slow students are “developmentally delayed”, bed wetters are “nocturnally compromised” and the list goes on.
The corporate world is not immune to euphemisms. Most people now know that “sub prime lending” is a fancy term for high-interest loans to people who would otherwise be considered too risky for a conventional loan due to their poor credit history. Avoiding potentially offensive terminology has contributed to the worst global financial crisis since the great depression.
Hopefully, the hapless sub prime borrowers and the opportunistic lenders have learnt a hard lesson - all that glitters is not gold. My heart goes out to the thousands of people who have lost their homes. I have little sympathy for the investment banks that packaged and bought the mortgaged backed securities (bonds).
Attempts to mask the truth or hide unpleasantries bring into sharp focus the pitfalls of political correctness. With regard to the sub prime crisis, dressing up questionable lending practices doesn’t make them respectable. That’s why Gateway has never offered loans to borrowers who clearly cannot demonstrate a capacity to repay. Surely, honesty is still the best policy?
Paul J. Thomas
Posted Tuesday, June 10, 2008 1 Comments Make a comment
Truth about rate hikes
We humans are a cynical lot. And why shouldn’t we be Doubting Thomas’ (excuse the pun)? Everyday we are exposed to corporate and political “spin” and it’s hard to distil fact from fiction. As in Hans Christian Andersen’s fairy tale, The Emperor’s New Clothes, consumers are often presented with a deliberate distortion of reality.
It often takes the voice of innocence to reveal the naked truth, but in this dog-eat-dog world, who can claim to be unblemished? At the risk of sounding like another spin doctor, I’d like to explain why mortgage rates have risen by more than the RBA rises. In doing so, I hope to be the voice of reason on an emotive topic.
Every business needs raw materials to produce a finished product. A baker needs flour to produce bread, a carpenter needs wood to make furniture and a financial institution needs money to fund loans. When the cost of flour and wood rises, the end price to the consumer needs to increase too, otherwise profit margins fall, leading to business instability over the longer term.
The same basic economics holds true for financial institutions. The continuing turmoil in financial markets has driven up the cost of funds (the price paid for deposits) by more than the RBA increases. This has resulted in a fall in the margin (spread) between the rates lenders charge borrowers and the rates they pay investors.
I don’t believe financial institutions are gorging themselves on fat margins but merely trying to recoup some extra costs. But how far should financial institutions go in shielding families from the rising cost of funding? Should they absorb more of the increased funding costs? Is Gateway doing enough to ensure the economic well-being of its members?
Paul J. Thomas
Posted Monday, June 02, 2008 7 Comments Make a comment
Time to cull misguided regulation
Politicians have made an art form of over engineering things. Governments often rush through knee jerk legislation in response to consumer or media pressure. Yet sometimes the best response to an event or crisis is to take a collective deep breath and wait until the dust settles instead of making policy on the run.
In the era of the 30 second TV grab, our political leaders are quick to jump onto the bandwagon of consumer sentiment and pander to voters and the popular press. However, in their bid to act decisively, governments often behave impulsively and fail to address or solve the underlying issue. The end result is unnecessary regulation on business, the cost of which is invariably passed onto the consumer.
The Rudd government wants to relieve the burden of red tape on business. To this end, the Council of Australian Governments (COAG) has developed a regulatory reform agenda which is designed to reduce the regulatory burden on business. Currently, business must comply with an extensive array of corporate regulation with the total cost of federal, state, territory and local government regulation estimated to be $40 billion per year.
The financial services sector picks up its fair share of this cost and you, as consumers, pay. Gateway believes that Product Disclosure Statements should be more simple and concise. Also, we believe that the current system of uniform state based consumer credit legislation should be taken away from the states and into federal jurisdiction (under ASIC’s watchful eye).
Can you think of anything else that needs to be streamlined to make your banking easier?
Paul J. Thomas
Posted Monday, May 26, 2008 2 Comments Make a comment
Household debt out of control
Who is to blame for our rapidly growing household debt? Does the fault lie with those consumers who behave like materialistic spendthrifts? Or should the finger be pointed at lenders who send out unsolicited offers of endless credit? If I was to suggest that both sides equally contribute to the problem, then I would be out-of-step with prevailing consumer sentiment.
According to a recent survey three-quarters of Australians believe that financial institutions are to blame for the debt crisis as lenders are too willing to advance credit to those who can’t afford it. There’s no doubt that deregulation and increased competition have given consumers greater access to household credit. But can everyone claim to be a victim of predatory lending?
What is not in dispute is that household debt is burgeoning. Australian families are straining under a record $1,085 billion of debt - an average of $137,000 for every household. The average family owes $160 for every $100 of disposable income, compared with $125 three years ago. Not surprisingly many Australians, according to an independent study, are worried about their ability to pay their debts.
Does this heavier debt burden reflect rising affluence? Or do we just crave for bigger and more expensive homes and household items like plasma TVs? Is there a contradiction in the fact that our homes are getting bigger while our families are getting smaller?
Gateway is concerned about the growing debt burden on families and has prudent lending practices to guard against over commitment. Ironically, our cautious approach does raise the ire of individuals whose loan applications we decline. But when it comes to extending credit we believe it’s best to be safe rather than sorry. Do you agree with our conservative lending approach?
Paul J. Thomas
Posted Monday, May 19, 2008 2 Comments Make a comment
The merits of special offers and discounts
It's said that journalism is the “first rough draft of history” as it sets the tone for how things are later recorded. If that’s true, then history will record the past nine months as one of the most challenging periods ever for financial markets. Since August, mainstream and on-line media have featured dramatic headlines about the credit crisis.
Each day the press reveals another casualty of the protracted downturn with the narrative leaving readers in no doubt about the severity of the situation. One article poetically labelled the credit crisis as “the perfect storm”, another used the metaphor “tsunami” to describe Australia’s vulnerability while another still declared it the most severe crisis “since (the) great depression”.
While Gateway is not directly exposed to the subprime meltdown, the price (interest rate) we pay for term deposits has risen sharply. The global credit crisis has forced the major banks to fund more of their operations from the retail market and this pond is being “over fished”. The end result is our continuing difficulty in reeling in new depositors.
To overcome this we recently released a limited offer term deposit to attract new money at a slightly higher rate than our standard rate. Some long term members cried foul that we were paying more to new investors. So, the $64,000 question is: Did we do the wrong thing?
I reasoned that other financial institutions have differential pricing, so why not Gateway? Our honourable aim was to merely raise additional deposits to fund our on-going loan demand. In no way was our intent to disadvantage existing members. I suspect that whether the glass is half-full or half-empty in the matter of special offers depends on your perspective. What do you think?
Paul J. Thomas
Posted Monday, May 12, 2008 3 Comments Make a comment
The morality of money lending
Moneylenders have always had an image problem. In biblical times usury was viewed as an inherently evil activity and Thomas Aquinas condemned it. Dante’s Inferno relegated moneylenders to the seventh circle of Hell with blasphemers and perverts. And both Luther and Calvin expressed reservations about the practice of usury.
Sure, there have been disreputable lending practices since antiquity. But credit unions have always been the good guys of finance in line with their people helping people philosophy. At the heart of this philosophy is the concept of human development expressed through people working together to achieve a better life for themselves and their children.
Gateway wants to play its part in the global fight to end poverty by helping build vibrant credit unions in developing nations and will do this in partnership with the Credit Union Foundation of Australia (CUFA). CUFA runs a number of aid programs and one that has caught our attention is the restructuring of the microfinance system in Cambodia to give the working class access to financial services through local credit unions.
In September we will be sending one of our employees, James Tanios, to Cambodia for 12 days to educate the local villagers about the importance of savings. James will also assist in the training of local credit union leaders. A full overview of James’ trip is available here.
Gateway is paying for James’ travel and accommodation. But he is required to personally raise $3,000 prior to his departure. You can support James with his fundraising efforts by completing this authorisation form.
Do you think Gateway should be involved in such charitable pursuits? Should we do more of this outreach work? Is supporting developing nations part of our Corporate Social Responsibility?
Paul J. Thomas
Posted Monday, May 05, 2008 1 Comments Make a comment
Visa debit - just what the doctor ordered?
Each year I have a medical check up. During my annual physical the doctor checks my vital signs (pulse, temperature, blood pressure) and then politely reads the riot act about the importance of exercise and diet (not too many chocolate cakes!). What he tells me is common sense but, in my case, it’s not always common practice.
In the same way, organisations should undergo periodic health checks to make sure they are not getting out-of-shape. Like humans, organisations often ignore the symptoms of illness and by the time they act, it’s too late and the business is in decline.
The real judge of an organisation’s health is the customer. That’s why we regularly ask a cross-section of members what they think of us. A recurring theme from these surveys is that we are difficult to access. Gateway does not have branches nor do we have plastic cards. Most members never set foot in our Sydney office and transact with us on-line or over the phone.
Nonetheless, it’s clear that a growing number of members would like ATM and EFTPOS access to their funds. That’s why the Gateway board resolved last month to add a Visa debit card to our product line up. We are still working out the product construct and hope to be in a position to start offering Visa debit in the first quarter of 2009.
There would be a cost attached to the Visa card but our no fees policy on other services would still apply. I’m keen to find out your attitude to this product initiative and would welcome any feedback.
Paul J. Thomas
Posted Monday, April 28, 2008 12 Comments Make a comment
Growing importance of eco friendly practices
Many people are fashion conscious and actively keep up with the latest trends. Trends, of course, come and go and this year’s “must have” is next year’s “passing fashion”. Many organisations also want to be trendy and eagerly embrace the latest management thinking. But management fads also move quickly from being obligatory to obsolete.
Given this, I’ve been deliberately slow to embrace a management technique that was released a few years ago called triple bottom line reporting. I’m now convinced that triple bottom line is not simply the latest in a long line of management fads but rather the tip of an iceberg. Beneath the calls for triple bottom line reporting is the larger idea of sustainability i.e., strategies for sustainable growth.
Triple bottom line holds organisations accountable for their impact on the communities in which they operate and the broader environment and that’s why it’s sometimes referred to as triple P - people, planet, profit. I’m committed to making Gateway a leading socially responsible organisation.
Credit unions have always known there’s more to business than profits alone and that’s why the triple bottom line is a natural fit for Gateway. Our recent eTree initiative is one example of this. As a first step, we are currently putting together a list of potential green initiatives and other positive contributions Gateway can make to society and the environment.
I would welcome your feedback on how Gateway can reduce its ecological footprint.
Paul J. Thomas
Posted Monday, April 21, 2008 3 Comments Make a comment
Credit Union of the Year
Each of us wants to be remembered for something. We all yearn to believe our lives will make a difference. While most of us will not win a Nobel Prize, we nonetheless want to leave a positive legacy. I don’t spend my days wondering what they will carve on my headstone. I do, however, think about the legacy I will leave at Gateway.
I take my leadership role here very seriously and am a true believer in the credit union people helping people philosophy. I love the fact that everyday the credit union helps people achieve their dreams. There is no greater reward than seeing the smile on a Member’s face when we have financed a new home or the gratitude we receive from a struggling family to whom we have provided relief through debt consolidation.
When I started at Gateway I promised myself that my legacy would be a reinvented credit union with new products and old fashioned service. As cream on the cake, I also quietly wished that Gateway would be recognised as the best credit union in Australia. Well, that wish is closer to becoming a reality with our nomination in the best credit union category as part of the 2008 Australian Banking & Finance Awards.
Thanks to the outstanding efforts of the Gateway staff and the wonderful support of our Members, Gateway Credit Union has been short listed as a banking awards finalist. The winning credit union will be determined by popular vote and you can vote for Gateway today. We can’t win without your help.
Of course, our greatest reward is your continuing custom. So, I’m interested to know how we can serve you better and would appreciate your thoughts.
Paul J. Thomas
Posted Friday, April 11, 2008 3 Comments Make a comment
Business forecasting is fraught with danger
Predicting the future is notoriously risky. Yet CEOs and boards are supposed to be modern day soothsayers. Well let me assure you that I’m no futurist. My job does not come with a crystal ball and I don’t claim to have special forecasting powers.
Even though predicting the future is perilous, it’s a necessary evil in business. So, what does the future hold for Gateway Credit Union? Well most of the innovations in retail banking in the past three decades have been driven by technology. But it’s the technology gurus who most often have to eat their words after gazing into the future.
What the technocrats fail to recognise is that the social consequences of technology are always hard to predict - just look at the phenomenal success of the internet. Australians have embraced internet banking like ducks to water. Online banking has become the norm for customers and a key distribution channel for financial institutions.
I constantly read that customers know even less about the future than business executives. But I’m not convinced that’s the case. So, what other changes do you think technology will usher in for retail banking over the next decade? Or better still, how would you like to be doing your personal banking?
Paul J. Thomas
Posted Monday, April 07, 2008 7 Comments Make a comment
Interest Rate Blame Game
Whenever interest rates rise, people look for a villain. We want to hold someone accountable for our pain and ensure they incur our wrath. Yet the reality is that spending by households (consumption) contributes significantly to aggregate demand which, in turn, fuels inflation. That’s why households get caught in the crossfire in the war against inflation.
Whenever the Reserve Bank tightens monetary policy to dampen demand (restrain expenditure) interest rates rise. Such rises do not discriminate between rich and poor households which is why monetary policy is referred to as a blunt instrument. Those households with no debt escape relatively unscathed while the 38% of those with mortgages bear the brunt.
With 12 interest rate hikes since May 2002, households are understandably livid at the repeated body blows to the family budget. But should they be venting their anger at banks and other financial institutions? Mortgage interest rates will always be a political hot potato as they affect the living standards of ordinary Australians.
As every man and his dog plays the interest rate blame game, it’s worth remembering there are always two sides to every story. No prudent lender wants to see their borrowers in financial distress. Nor do they enjoy putting up rates. Given the choice, I’d much rather notify members of a rate fall than deliver the bitter pill of another rate increase.
So, is monetary policy the only instrument we can use to curb spending? Is there a better way? I’m not the only one raising these questions. Check out this blog.
Paul J. Thomas
Posted Monday, March 31, 2008 2 Comments Make a comment
Welcome to my first blog
I must confess to feeling a tad nervous. I’d never heard of a blog 12 months ago. Yet here I am today sharing my thoughts publicly. I’ve always considered myself a frustrated writer, so I’m happy to accede to the wishes of my executive colleagues and give blogging a go.
I’ve had a crash course in blogging and think I understand the rules of the game. It’s been drilled into me that CEO blogs are not for corporate spin but for honest opinions. My aim is to write my blogs in a conversational style to facilitate open, two–way communication.
The danger that all leaders face is receiving only filtered feedback. With the best of intentions, sometimes the bad news does not get to the CEO. Of course, the real boss in any organisation is the customer and I’m keen to hear from our Members and potential Members.
So, please use this new communication medium to tell me what you think. I have broad shoulders, so you can be frank. If we’ve made a mistake or fallen short in our service delivery, I’ll unreservedly apologise. However, I’ll draw the line at feedback which is unnecessarily rude or profane.
I look forward to hearing from you.
Paul J. Thomas
Posted Tuesday, March 25, 2008 7 Comments Make a comment