Sunday, October 30, 2022

My Reading and Thinking This Week 30 October 2022


Inflation Primer
by Greg Jericho

This, along with the BIS annual report below are must read for business executive and strategists. 

Last week at a business conference for the industry I work in, I heard a stock market analyst describe the Reserve Bank of Australia policy of interest rate increases to stop inflation.  It was remarked that interest rate increases would produce higher unemployment which would address the labour shortage we have seen in our industry.  Every time Philip Lowe lectures business and workers on the perils of wage growth, I ask myself, "Why does he keep saying that?"

He does this because the BIS low inflation regime was knocked off balance.  Government power grabbing during Covid is positively correlated to business profit taking in the reopening period.  Working families have paid the price on both counts.  

I began tying the clues together while sitting up in Noosa listening to the very good analysis.    

Having just led the operations and sales of a substantial company through a pandemic event which was very likely far overblown by power and profit takers, I have been focusing my reading and thinking on RBA policy and the pain it is causing hard working families in Australia. I need to understand RBA policy as a business leader and academic.  Many articles I am reading this week are the root causes of the current economic situation in Australia (and America).  They have nothing to do with the narrative I have been seeing in the business press and trade association economic outlooks.  We need to exit the echo chamber and think afresh.   

Greg Jericho says:

There is no evidence at all that a tight labour market, rising wages, or labour costs more generally have anything to do with the surge in inflation since the COVID pandemic. To the contrary, the evidence is clear that wages have had a dampening impact on inflation in this period. Recent inflation is clearly associated with a further expansion of business profits in Australia, to their highest share ever. Attacking inflation by aiming deliberately to increase unemployment and restrain wage growth even further, is a “blame-the-victim” policy that will only make workers pay even more for a problem they clearly did not create.

The current surge of inflation reflects a “perfect storm” of unique factors (mostly global in nature) sparked by the COVID pandemic: which has been, after all, the most dramatic and painful event in the world economy since WWII. It should hardly be surprising that after-shocks from those events will be felt for some time, and the surge in global inflation is clearly one of them. Responding to this unique and unprecedented challenge by simply reciting a monetary playbook formulated in a fundamentally different era (the inflation of the 1970s) is not just inappropriate. It will, if pursued, lead to a painful and unnecessary global recession that will almost certainly engulf Australia, too.

For all these reasons, the Reserve Bank and the Commonwealth government need to take a more careful, balanced look at the nature, causes, and consequences of the upsurge in inflation since the pandemic, before leaping to conclusions that are unjustified – and imposing policy responses that do more harm than good.

Bank for International Settlements Annual Report

Read what the central bank to the world's central banks has to say about inflation.  It is not the narrative the business media is peddling.  The BIS, writing from the central bankers point of view, clearly prefers a situation that is more manageable, in other words a low-inflation regime in which labour (along with other price-setters) is disempowered. 

A low-inflation regime has significant self-stabilising properties. What is measured as inflation is, in large part, the reflection of relative or sector-specific price changes that tend to have a transitory impact on the inflation level. In such an environment, inflation has little effect on the wage and price formation as it loses significance as a factor influencing behaviour. Central bank credibility is instrumental in hardwiring the regime and increasing its robustness.

High-inflation regimes do not have such self-stabilising properties. Inflation becomes a focal point for agents’ behaviour and wage-price formation becomes more sensitive to relative price shocks. Higher inflation, in turn, induces changes in more structural features of wage formation, such as indexation and centralised wage bargaining, which help entrench the regime. It also undermines central bank credibility, further unmooring the inflation process. The experience with the oil price shocks of the 1970s illustrates the mechanisms at work.

Because of the sensitivity of agents’ behaviour to the level of inflation, transitions are self-reinforcing and hence challenging. They are challenging for the models typically used to explain and forecast inflation, which are ill-suited to capturing such behavioural changes. And they are especially challenging for policymakers, because of endemic uncertainty and the possibility of tipping points.

The under the hood perspective sheds light on how monetary policy can best secure a low-inflation regime. The perspective underscores the importance of navigating the transitions and the associated difficulties. Transitioning back from a high-inflation regime can be very costly once it becomes entrenched. All this puts a premium on a timely and firm response. Central banks fully understand that the long-term benefits far outweigh any short-term costs. And that credibility is too precious an asset to be put at risk. 

The highlighted portion explains the actions of the Reserve Bank of Australia.  I recommend that business leaders should start with the big economic picture to interpret their industry and local situation.  This means start with the BIS view above.  Next, you can work your way down to your country reserve bank monetary policy.  Then, understand geopolitical and government fiscal policy.  Commercial banking is driven by monetary and fiscal policy.  Businesses that understand their position through the lens of all these economic drivers will be best situated to devise the right strategies to chart their course.  This is how a true external SWOT analysis works, finally ending up with understanding your local competitors.  If they do not understand the larger economic forces at work, their strategies will not be as profitable as those that do. 

There are some real head fakes going on right now.  Page 77 is a do not miss chart!  

Under the Hood of the Power Dynamics of Inflation 
by Adam Tooze. 

This article ties together BIS views to reserve banking messaging. This is where to learn about the low inflation regime objectives.  Bankers have discouraged wage growth to keep inflation managed since 1993. The decrease of worker collective bargaining power is well known.  Inflation rising causes collective bargaining resurgence. 

As the money supply was astronomically increased during Covid, we saw inflation begin.  Price setters (corporate capital) started raising prices because consumers had money to spend.  Now, the RBA is concerned workers will want wage increases knowing they are paying more for gods and services, and their employers are making larger profits.  What we have right now is a first round price shock.  The central financial and social planners do not want a second-round reaction.  This will lead to companies further raising prices.  

Sunday, October 23, 2022

Grow Wealthy By Investing in Assets

Click here to listen to my latest "Peak of Potential" podcast.  

I have discovered that those who have been building their income by working for others often do not stop to consider that the owners of assets, those who they work for, are actually getting wealthy while they are not.  This podcast helps people stop and think how wealth is produced, and calls for a change on mindset to start thinking about growing wealth, not being the means to another person growing wealthy. 

 Summary:  Today we discuss how to grow wealthy by investing in assets.  Kevin Baker leads the Peak of Potential Nation on the path to wealth, freedom, and living the life you desire.  It starts with changing your mindset from being a wage earnng empliyee to being an investor in assets.  This episode equips the everyday income earner with knowledge how to build assets and wealth.  

Please review us on iTunes so others can find us! Visit the website to learn more. Thank you for sharing the podcast with others.

In this episode you will learn about wisdom and wealth in 2022:

1. Grow wealthy--Why do you need money?
2. Grow wealthy by investing in assets. Three properties and classifications of assets.
3. Grow wealthy by investing in assets. The difference between income from a job and alternative income.
4. Grow wealthy by investing in assets. 

Our expert, Kevin Baker, defines an asset as something that, in the future, can generate cash flow for you. Assets make money. Anything that takes money out of your pocket is a liability.  Kevin is a former CFO who managed the investments of a 900 yearol non-profit.  He has studied the masters of value investing inlcuding Warren Buffet, Seth Klarman's "Margin of Safety" (which he owns), Bruce Greenwald, Christoper Brown, and others.

Wealth Scale

  • Novice/Poor – You’re poor if you have a lot of liabilities and need to keep working to maintain your lifestyle. People can be poor even if they have great income. Unfortunately, most Americans are stuck here most of their lives.
  • Amateur  – You have been investing for a while and own some good assets. If the value of your good assets is more than 50% of your net worth, then you’re firmly in this class.
  • Financial Independence – This should be the goal for everyone. Once the income from good assets, aka passive income, surpasses your expense, you can retire and live life the way you want.
  • Generational Wealth – This is beyond financial independence. You have plenty of income from your investment to keep reinvesting. This way your wealth will keep growing and you can pass it on to the kids. That’s generational wealth.

Connect to Kevin Baker at
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The Peak of Potential Podcast is a media publication of Kevin Baker Consulting, an Australian media and consulting group with offices in Sydney.

Saturday, October 22, 2022

Business Speakers in Australia Last Week

I had the opportunity to spend a few days in Melbourne, Victoria--Australia last week.  Where I work by day, we are members of several buying groups.  This trip was to Plumbing Plus University.  A time each year for plumbing and bathroom supply companies to gather together for professional development and networking.  

All the speakers this year were very good.  First was Simon Kuestenmacher.  His talk was on the present and future of Australia by the numbers.  As a Gen Xer, I was interested in learning the outlook on my demographic X, my wife's Y, and my younger children as Z and α .  Simon, co-founder of The Demographic Group with partner Bernard Salt, was dynamic, well researched, and interesting.  

Next up was Steve Simpson dealing with workplace culture.  His presentation focused on UGRs--unwritten ground rules.  Simpson says:

Most of us have been to a meeting where, upon conclusion, the real meetings begin. Typically, people reconvene in smaller groups to canvass a range of issues that can include displeasure at a decision that has been made, lamenting the attitudes of one or more people who were at the meeting, or planning a strategy to work around a particular outcome.

It’s often the case that those most vocal after the meeting are least likely to have spoken up during the meeting.

So what’s causing this?

We propose that it is the UGRs – or unwritten ground rules – that drive people’s behaviour in organisations. UGRs are defined as people’s perceptions of ‘this is the way we do things around here’.

Read more about UGRs here.  

Last up was Colin James, of The Colin James Method. His talk on performance and engagement was contwent rich, well presented, and one every company needs to hear.  This is a man whose message resonates with a person like me.  I have been in business leadership for 30 years now.  I am a lifelong learner, driven by a passion to transform every business I am affiliated with into the high performing championship team.  

Sample Colin's work here.  He is great.  

Monday, October 3, 2022

Monday Reading and Thinking

What I have been reading and thinking about today...

How Many More Times Will You See Your Parents Before They Die?  #Idea  Americans place a very high value on family.  When travel the world like me, you realise other countries do not value family in the same way.  Everywhere, though, we think our parents will always be there.  Then one day, they are gone.  My father passed away from cancer at just 51 years young.  As I kissed his forehead in Buffalo General Hospital that cold February afternoon, shockwaves of grief began to pour over me. I had never kissed my Dad as an adult.  I cried for three days.  Twelve years later, on the anniversary of his death, I was telling a Catholic monk at a monastery "today is the anniversary of my father dying."  The grief and sadness hit me again.  I told him I regretted not seeing him more before he died.  I was so busy at 31 raising my own four children. 

Recently, I was playing kiss monster with my three middle age children. Yes, I had children again later in life.   I chase then around the house making monster noises, then catch them and instead of eating them, I kiss them ten times.  I turned to my wife and said I could not recall my father ever kissing me or telling me he loved me.  I am sure he did when I was a baby, but after four, I cannot recall one instance of love or affection.  As I said that, I felt that old wave of regret that I did not take more time to be with my dad when he was well, and especially when he was sick. This article is about the few days we actually spend with our parents as adults (Big Think).  < Click

Wy We Must Fight Back Against The Forces of Woke.   #society   At work, I park in the Council car park at the oval (stadium) where the Manly Sea Eagles play footy (rugby). When seven players did not want to be forced to endorse a particular ideology, the were excluded from playing. What happens when "diversity" means uniformity, and "inclusive" means exclusion.  How can a multicultural society like Australia have uniformity on the big issues of life and justice?  (John Anderson). < Click

The Chatter Toolbox. #Productivity   Chatter is a common problem that many people experience: We try to think through our problems logically but our minds run amok instead. We focus our attention inward, hoping to tap into our inner coach, but find our inner critic.  (Ethan Kross, The Chatter Toolbox). < Click

Be sure to check out Kevin's podcast, "The Peak of Potential."  Kevin Baker is an Australian-American business executive in Sydney.  His side gigs are media publishing as an author and producer of an internet TV show, and consulting as a futurist and strategist.   He specialises in family business, and advises executives on business growth and reinvention strategies.