Category: future

Australia welcomes the multi generational mortgage

Australia starts to repeat Japan’s experience with multi generational mortgages. With a twist that might be more debilitating than the Japanese lost decades.

At the height of the Japanese property boom in the 1980s, the hundred year mortgage came into being.

Pushing payments onto children and grand-children was the only way home prices could continue to rise once they hit levels which the average Japanese worker could ever afford with a more traditional twenty or thirty year mortgage.

Twenty five years later Australia finds itself in a similar position as parents guarantee their childrens’ mortgages.

Repeating the Japanese mistake

While the Japanese looked to sticking their mortgages onto their kids and grandkids, Down Under the kids are fighting back and getting mum and dad to underwrite their unaffordable loans.

This weekend’s Sydney Morning Herald features in its property section the story of how Sharon and Graeme Bruce guaranteed their son’s and his fiance’s mortgage in Sydney’s inner suburbs.

While the story isn’t clear on the size of the deposit (which isn’t surprising given the SMH’s shoddy editing), it appears the Bruces’ have guaranteed around $300,000 so his son and future daughter-in-law can grab a five bedroom, 1.45 million dollar mansion.

One wonders what great businesses Matt and Hannah could build if mum and dad were prepared to stump up a similar amount to invest in a start up?

Australia’s property obsession

Sadly we’ll never know – in Australia, the smart money gets a job, pays off a mortgage and accumulates wealth through investment properties. What cows are to African tribesmen, negatively geared units are to the Australian middle class.

The hundred year strategy hasn’t worked too well for Japan, with a declining population those mortgages entered into a boom level 1980s values now don’t look so attractive and are one large reason for the nation’s lost decades.

In Australia, things aren’t likely to work so well either. The Baby Boomers and Lucky Generationals – those born from 1930 to 1945 – guaranteeing their kids’ and grandkids’ mortgages are relying on ever increasing property prices.

This is understandable given that few of them have any experience of long term stagnation, let alone decline, of property values but it leaves them incredibly exposed should the Aussie housing market slump.

Can an Aussie property decline happen?

Many Australians, particularly those with vested interests, maintain such a decline can’t happen but the prospects aren’t good as the SMH story shows;

The couple had attempted to buy a small terrace in Newtown but kept getting pipped at the post by other young professional couples. At a higher price point they had no competition.

Despite his parents’ generosity he said he would still need to rent out a few of the rooms to help pay for the mortgage.

So Matt can’t afford the mortgage. That’s not good starting point and one that could cost his parents dearly, which they don’t seem to care about much.

”Obviously my dad guaranteeing the loan was the only way we were going to purchase this,” Mr Bruce said. ”You need to have a 20 per cent deposit otherwise the banks want you to pay insurance … it’s a bit of a rort really.”

It’s fair to call mortgage insurance a rort – as it certainly is – but its purpose is to protect the banks should a mortgagee default and the financiers find themselves out of pocket.

With Matt’s parents getting him out of paying that insurance his bank has much better default protection, equity in his parents’ property.

Guaranteeing risk and misery

I’m not privy to the finances of Sharon and Bruce, but most of their contemporaries can ill afford to lose several hundred thousand dollars in home equity in their later years.

That is where Australia’s multi-generational mortgages could turn very nasty, very quickly as older Australians find themselves having to deliver on the guarantees they gave on behalf of their over committed offspring.

In Japan, it’s taken a long time for the population to realise their national wealth has been squandered on twenty years of propping up unsustainable property prices and economic policies.

One wonders how long it will takes Australians to realise the same has happened to them and what the political reaction will be.

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Graphs, damn lies and the middle class

Graphs can give us a misleading picture of our society, particularly when we’re looking at the middle classes

Graphs are great for illustrating a story, and also excellent at misleading people.

A good example of where a graph can give an incorrect impression is the Sydney Morning Herald’s story Whatever Happened to the Middle Class.

The story is a very good explanation of the predicament Australia’s political classes have put themselves into – exacerbated by their 1950s view of dividing the workforce into poorly paid ‘blue collar’ workers and affluent ‘white collar’ office staff – but it suffers from the selective use of headline graphs.

Viewing the big picture

The first graph shows how Australians are identifying themselves as middle class and the trend looks staggering,

Graph of How Australians see themselves as middle class

Now if we add those who identify themselves as working class, the picture looks even more dramatic with some pretty volatile swings,

A graph showing How Australians see themselves as middle or working class

However if we now add in those who identify themselves as rich, or upper class, we get a better perspective as the entire range is now shown,

Graph showing How Australians see themselves as upper middle or working class

Selective choosing the Y, or vertical, axis will always give an exaggerated view of a trend or proportion. Once we take the full range in we see the real extent of things. It also has the benefit of showing the trends aren’t as volatile as first appear.

Middle class perceptions

When we look at the graph showing the full picture there’s a number of interesting trends and characteristics about Australian society that come out of it which are worthy of some future blog posts.

Most notably is the identification of Australians being middle class as their property values increased.

On this point, it’s worthwhile contrasting the Australian experience with the US, here’s a Gallup poll from last year on how Americans see themselves,

A graph showing how Americans see themselves as upper middle or working class

While the definitions are different – that Americans differentiate ‘working class’ and ‘lower class’ is interesting in itself – it’s clear that the same trend happened in the US with more people identifying themselves as being members of middle class when their property values were increasing.

In 2008 and 9 there’s suddenly a sharp increase in Americans identifying themselves as working class as the property downturn bites. The steady increase in those claiming to be ‘lower class’ from 2006 onwards is worth closer examination.

What this means for Australia

The implications of the US trends is that any Australian politician intending to dismantle John Howard’s middle class welfare state will have to wait until the property market falls before trying to win any popular support.

For this year’s Australian election though, what’s clear is that any attempt to stoke the fires of class warfare is going to fail dismally in the outer suburban marginal seats so coveted by both parties.

We’re going to see a lot more selective graphs during the course of this year, it’s worthwhile taking time to look at them closely. The stories may be different, and a lot more nuanced, than the headlines tell us.

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It’s too late, baby – when digital reality bites

Sensis decide to move on from a print based model to digital advertising – a decade too late.

Yesterday Sensis announced it would restructure for digital growth by sacking staff, offshoring and “accelerate its transition to a digital media business”.

The directory division of Telstra has been in decline for years, a process that wasn’t helped by then CEO Sol Trujillo embarking on his expensive “Google Schmoogle” diversion.

A decade later, Managing Director John Allen has announced another 650 jobs to go from the remaining 3,500 workforce.

John’s comments are worth noting.

Until now we have been operating with an outdated print-based model – this is no longer sustainable for us. As we have made clear in the past, we will continue to produce Yellow and White Pages books to meet the needs of customers and advertisers who rely on the printed directories, but our future is online and mobile where the vast majority of search and directory business takes place.

Carol King put it best – it’s too late, Baby. These are words that should have been said a decade ago.

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Have we come to the end of the middle class era?

Was the middle classes’ growth during the Twentieth Century an aberration?

Technology has transformed workplaces over the last century, drove huge income growth and moved many into the middle classes. Are we now seeing computers and robots displacing those middle class jobs?

At Tech Crunch Jon Evans warns Get Ready To Lose Your Job  as “this time it’s different” – unlike earlier periods of industrialisation where jobs shifted to the new technologies such coach builders became car makers – robots and computers are making humans redundant.

So I see no mystical Singularity on the horizon. Instead I see decades of drastic nonlinear changes, upheaval, transformation, and mass unemployment. Which, remember, is ultimately a good thing. But not in the short term.

In The Observer John Naughton, professor of the public understanding of technology at the Open University, says Digital Capitalism Produces Few Winners.

Professor Naughton’s view is that high volume, low margin businesses like Amazon mean there’s fewer well paid jobs available and many of the lower positions will be soon replaced by robots.

At the other end of the digital marketplace, the high margin businesses like Apple, Google and Salesforce don’t need many staff to generate their profits, so wealth is concentrated among a small group of managers and owners.

While the low paid and manufacturing workers have been squeezed for decades in the West, it’s now the turn of the middle classes to feel the pain of automation, outsourcing and restructuring.

There’s two ways we can look at these changes, the optimistic is that our economy is going through a transition to a different structure; those out of work coachbuilders a hundred years ago didn’t immediately get jobs building cars and the same adjustments are happening again.

A more pessimistic view is that the Twentieth Century was an aberration.

It may be that Western world’s steady climb into middle class prosperity was itself a transition effect and we’re returning to the economic structures of the pre-industrialised age where the vast majority of people have a precarious income and only the fortunate few can afford middle class luxuries.

The next decade will give us some clues, but the portents aren’t good for the optimistic case, the Pew Research Centre shows America’s middle classes has been shrinking for forty years.

For those Americans still in the middle class, the Pew research shows their incomes have been falling for a decade.

Regardless of which scenario is true, the dislocation is with us. As individuals we have to be prepared for changes to our jobs, however safe they look today. As a society we have to accept we are going through a period of economic and social upheaval with uncertain long term consequences.

What’s particularly notable is how today’s political and business leaders seem oblivious to these changes and are locked in the ‘old normal’ of thirty or fifty years ago.

One wonders what it will take to wake them up to the changes happening around them and what will happen when reality does bite them.

Picture of a nice, middle class house by Strev via sxc.hu

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Our evolving view of robots

It’s interesting how our perceptions of robots have changed over the decades

Ahead the Ovations Speaker Showcase on Tuesday, I’ve been looking at robots as one of this decade’s trends.

What’s interesting is how our perception of robots has evolved over the last half century.

The idea of Robots in the 1950s and  60s were ones with human shapes – four legs, a torso, two arms, shoulders and a head – otherwise known as anthropomorphic. Lost in Space and the Day the Earth Stood Still are two good examples of those human like machines.

How robots looked in the 1950s
1950s robot chic – the day the Earth stood still

Today’s robots have much more utilitarian shapes, like the Winbot window cleaner pictured at the beginning of this post.

Many of the robots look like the machines we use today, mainly because they are today’s technology with the driver or operator replaced. A good example being the Google self driving cars.

google self driving car

The idea of a robotic car isn’t completely new though; the 1980s action series Knight Rider featured KITT, a robot car with an almost equally mechanical David Hasslehof as its sidekick.

The Hoff and KITT

More interesting still are the tiny robots who look, and act, like insects. Wait until these guys infest your internet fridge.

All of these technologies had to wait until computers became small and cheap enough to fit into the systems. In the 1980s a computer with the capabilities to run KITT or a Google Car would be the size of a large warehouse, today it can fit inside a cigarette packet.

Of course the real power for robots comes when computers talk to each other and form a collective intelligence. This is the Internet of machines.

The terminator
Skynet has told The Terminator to destroy us all.

Which brings us to Arthur C. Clarke’s and Stanley Kubrick’s 2001: A Space Odyssey and the 1980s vision of Skynet which gave birth to the Terminator.

Hopefully those visions of the future of network connected robot are just as misguided as those of 1950s movies.

If they aren’t, we’re in a lot of trouble.

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Twenty trends for 2020

What trends will define the rest of this decade?

I’m speaking at the Ovations Speaker Showcase next week on the Twenty Trends for 2020. A big ask for twenty minutes.

Despite the time limits, it’s doable. Here’s the list of trends I think are going to define the rest of this decade, along with some  related links.

  1. Accelerated rate of business
  2. China moving up the value chain
  3. Dealing with a society at retirement age
  4. Rising incomes in South Asia and Africa
  5. Robotics and Automation
  6. The internet of machines
  7. Reinventing entertainment
  8. The fall and rise of social media
  9. The continued rise of the DIY economy
  10. Newspapers cease to exist
  11. 3D printing
  12. nano-technology
  13. The new education revolution
  14. Reskilling the workforce
  15. Older workers re-entering the workforce
  16. The fight for control of the mobile payments system
  17. Mobile apps redefining service industries
  18. Taming the Big Data tsunami
  19. The fight for data rights
  20. Flatter organisations
  21. The great deleveraging

Apart from the fact there’s 21, the twenty minutes I have allocated isn’t going to be enough to cover these. So which topics do I skate over?

Of course there might be more topics that I’ve missed. I’m open to suggestions.

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Silicon Valley and the virtues of going private

Is the technology industry swinging back to investing in private businesses with solid cash flows?

Last week there were a pair of interesting stories about the tech industry’s investment models.

The biggest story was the rumours that PC manufacturer Dell may go back to being a private company and the other was Survey Monkey’s raising of $800 million through debt and private capital.

Not your usual VC play

Polling company Survey Monkey’s capital raising is notable because it’s very different to the standard VC equity models used by Silicon Valley companies of this size.

Adding to the unusual nature of Survey Monkey’s behaviour is the declaration that they have no intention of becoming a public company. By ruling out an obvious way for investors to cash out of the business, they are making a clear statement that those putting money into the venture are doing so for the long term.

That Survey Monkey is also taking on debt indicates management believe they are going to have the cash flow to service payments. Not playing to the Greater Fool business model makes the online polling company very different to most of its contemporaries in Silicon Valley.

Dell going private

Survey Monkey’s $800 million is dwarfed by Dell’s market cap of 22 billion dollars so the talk of the PC manufacturer buying out its stock market shareholders and becoming a private company is big news indeed.

The New York Times Dealbook has a close look at the of the idea of taking Dell private and comes to the conclusion it’s not likely to happen.

While there are challenges, there is merit to the idea. Richard Branson delisted Virgin from the London Stock Market in 1988 after becoming frustrated with the short term objectives of his shareholders and there’s a possibility of Michael Dell may feel the same way.

For Dell, the challenge lies in moving away from the commodity PC sector. The Dell Hell debacle showed the company’s management has struggled with the realities of the low margin computer market and things aren’t getting better.

Dell themselves are steadily moving away from PCs with bigger investments in services and other computer hardware sectors.

Project Ophelia, a USB stick sized computer running Google’s Android operating system was one of Dell’s announcements at the Consumer Electronics Show and could mark where the company is going in the post-PC environment.

Given portable and desktop PCs represent over half of Dell’s income moving away from those markets is going to be a major change in direction for the company.

A change is though what the company needs with revenues down 11% on last year which saw profits nearly halved.

Whether going private or staying public will allow Dell to recover its profitability remains to been seen, but management could probably do without the distraction of answering to stock markets while dealing with a complex, challenging task.

Both Dell and Survey Monkey are showing that there isn’t one path to raising funds for technology companies, in fact there’s plenty of businesses raising money privately without the razzamatazz of high profile venture capital investments.

It may well be though that we’re seeing private companies coming back into fashion as individual investors see the advantages in businesses with good cash flows rather then the hyped loss leaders which have dominated Silicon Valley’s headlines.

Image of Wall Street courtesy of Linder6580 on SXC.HU

 

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