Ah yes, good old-fashioned humility

Dear Reader,

‘It’s never easy being so certain of something. Whenever your conviction is high, and if it comes with a lack of humility, the market will teach you a lesson about it.’

Greg Canavan, The Rum Rebellion (Wednesday 12 February)

My old mate, Greg Canavan, penned these words on these same pages less than a week ago. And believe me, ne’er a truer word was said.

Whatever copper coin my opinion is worth, this extract doesn’t just apply to the markets.

The same applies to any activity — predictions or otherwise. Whether that be which horse will win this year’s Melbourne Cup, or how much the Earth will heat up a century from now...or where the index will be a week, a month or decade away.

Best to leave those sort of predictions to others. I can’t even predict what I’m going to have for dinner.

Let others squabble. To be able to say they were right when everyone else is wrong. No matter how many times they have to ‘adjust’ their prediction or timeline.

That’s why the doomsayers blew the climate debate. For a decade and a half, so hopeless and hapless have been their predictions, they became laughable. And worse for them…ignorable.

If you’re going to tell everyone that the world is going to end next Tuesday, then you better be right. Come Wednesday, whatever you have to say, you can be sure no one will be listening.

I guess there ain’t no winning an argument when folks have stopped listening to you.

Only a season of tumultuous fire devastation has even remotely created a window of reasoned conversation about the climate.

But then, give it time. Come a year from now, there is every chance that bushfire has long gone from the public discussion.

Public debate might be back to where it was a year ago. Discussing the correct use of pronouns, or how we should label public toilets. But that too is just another prediction.

As Greg writes, it’s never easy being 100% sure about anything. For me, though, the overriding key word here is humility.

Humility makes you a better surgeon, barrister, truck driver or bricklayer.

Humility triggers a warning light in your head when you step outside the bounds.

Haven’t been a trader? Then don’t write about it…what could you possibly know?

Don’t know what it’s like having a cricket ball whizz past your nose at 150km/hr? No problems…you can join me with all the other clowns tooling about in the nets. Just don’t tell someone else how to bat.

Or the pressure of making a putt to win a golf masters. Did the guy/gal on TV choke? Would you choke? How would you know if you can’t even make the green in three shots or under on a par five?

Who knows, you might be able to read an annual report as well as Warren Buffett. Or read a chart better than the best technical analysts.

Maybe you think you can see what everyone else is missing.

You might survive for a while being cocky, complacent, arrogant, smug, condescending…even superior. But be sure of one thing, though, you will come unstuck.

It’s humility that ultimately keeps you alive as a trader.

Last week I wrote my regular piece about the markets. I wrote how for the moment, the way I see it, shares remain the only game in town.

With interest rates so low — still negative in many countries — and anaemic inflation, income is simply becoming harder and harder to come by.

If inflation is 1.8%, as it is in Australia, and a ‘special’ term deposit rate is 1.5%, an income investor is basically stuffed. What are they supposed to do?

And mind you, to get that 1.5% you have to lock your money up for eight months! It is just totally ridiculous things have come this far.

It’s a bugbear of mine that many investors just don’t seem to appreciate what really drives the market over the long run. I’m sure we miss that here sometimes at Port Phillip Publishing.

However, any long-term study I have come across tells me the primary catalyst is income. But at least I have the platform to write about it. My job is to convey that better.

However, a much bigger bugbear goes way beyond the markets. It goes to anything where some random talking head is prophesying about the future.

Again, whether that be the markets, the climate, or what fashions on the field will be like at the Spring Racing Carnival this November.

Mind you, out of those three, I’d bet the fashionista has the highest chance of success!

Our focus here, however, is the markets.

It is so easy to get bogged down in your own view. To only see what you want to see…to only read what you want to read. To seek out the person who best agrees with your own opinion.

But this morning, I did something different. I actively chose to read something that decidedly conflicts with my own views. And I openly encourage you to do the same as me.

Vern has stuck to his guns ever since I started at Port Phillip Publishing, more than five years ago. For all that time, he has been writing about what he believes will bring this market down.

And fair play, you certainly can’t doubt his belief. He’s as sure, if not more sure, than he was five years ago.

In my three decades in the markets, I have learned many things. I’m sure I’ve forgotten more than I have remembered.

But the overarching thing that has always stuck with me is that word…humility. For in the end, that is all the markets teach us.

If we do nothing else this year, then let’s aspire to humility. You can commence that journey with me by clicking here.

All the best,

We’re in an Age of Technological Stupidity
By Bill Bonner

We’re down here on the Pacific coast. Lovers in one another’s arms. Birds in the trees. And even the old men like it.

Here’s our little cottage:

And the view from the porch:

But even down here in the tropics, our Dear Readers’ comments reach us. Here’s one: ‘Our economy is the best it has been maybe ever.’

Everyone thinks the economy is strong. Regularly, you hear the political prognosticators tell us that Trump will win if it stays that way.

Alas, it isn’t so.

We’ve been looking at the great disappointments of the 21st century. And the economy is perhaps the biggest one of all.

But let’s leave that for last…

21st century blunders

George W Bush started off the century by promising a ‘humble’ foreign policy. By then, the internet — with all the world’s accumulated knowledge, data, and information at the ready — was available to everyone.

But apparently, no one on the Bush team read the classics…and it didn’t take them long to make one of the most arrogant blunders in US history.

A reading of Roman history, for example, shows that large, sophisticated, and disciplined armies can beat other large armies and conquer cities and organised communities. But

put them in the forest, the jungle, or the mountains, up against dispersed, mobile fighters — such as the Afghan tribes — and they are useless. They can win every battle and still lose the war.

The only ‘solution’, the Romans discovered, was extermination. That is what Emperor Domitian did in his campaign against the Nasamones of North Africa. He reported to the Senate that he had not subdued the tribesmen, but that they had ‘ceased to exist’.

By 2003, the US was engaged in what would become its longest and most expensive war ever…against a phantom enemy that no one could even define, let alone vanquish. What was a ‘terrorist’, after all? The cost of Bush’s wars is now said to be around $7 trillion, or a third of annual US GDP.

And as the first decade of the 21st century came to a close, it was already obvious that the Information Revolution, too, was a failure.

People had far more information than ever before…but there was no way to tell what was real and what was fake…what was gold and what was dross. And where were those weapons of mass destruction?

They could get a lot of practical tips from the internet. They could get directions to the nearest liquor store from GPS-enhanced interactive maps. But the internet could also send them in the wrong direction.

Every crank with a conspiracy theory…every yahoo with an investment secret…every jackass with a plan to improve the world — all had millions of potential disciples.

Where’s the progress?

It was said that deliverance was near. The ‘singularity’ would propel us into a new era of extra-smart machines. AI (artificial intelligence)-enabled computers would have some way of knowing what was true and what was false.

No more buying houses at the top of a mortgage finance bubble! Now, we’d be able to avoid mistakes and make more progress than we could even imagine.

But there is still no sign of it. Day by day, there are more annoying apps and time-sinking gizmos. Computers grow faster and better, but what are they actually doing? They shuffle more and more information…and yield even more information!

Then, in 2009, along came bitcoin. Not only did the new money promise to disrupt the whole world’s money systems…it also offered a key to verifying information — the blockchain.

Though few people actually understood what a blockchain was, everyone had an idea about how to use it to make money.

And what happened? Our son Henry reports:

‘In particular, “intelligent contracts,” [based on blockchain technology] that were supposed to replace computer programs, and provide a new way to [protect the integrity of information systems] did not bear much fruit. Despite ambitious projects and tens of millions of dollars devoted to various blockchain applications, the only place it worked was the one in which it began.

‘The blockchain technology still only serves one purpose, to keep track of cryptocurrency transactions. All other applications seem to have been more or less abandoned, including the initiatives made by Facebook on its “Libra” project. The blockchain can do some things, but its range is more limited than many had thought.’

Another disappointment, in other words.

Then came the ‘unicorns’ — companies with new ways to use the new technology. Though their business models were unproven, they still were bid up to a billion dollars, and more.

They believed that the route to success was not focusing on profitability (there wasn’t much of that), but what they called ‘blitzscaling’ — spending as much money as fast as possible in order to dominate a new industry so completely it would scare off or cripple later competitors.

It was like dumping Miracle-Gro on the roots of a tree, so that it would grow quickly and shade out rivals.

Wall Street casino

One of the leading lights of this unicorn trend was the Japanese conglomerate Softbank. It saw that Wall Street had become a casino. Place the right bet and you got rich, like the early investors in Apple, Amazon, or Google.

This insight, such as it was, led Softbank to make big bets…and a lot of them. It invested in Alibaba (the big Chinese e-commerce business), in robotics company Boston Dynamics, and many other up-and-comers.

They were ‘geniuses’, said the financial press, betting on other ‘geniuses’ — such as WeWork’s founder, Adam Neumann.

The trouble, as we’ve seen in these pages, was that many of these companies were not, in fact, scalable in the way Softbank thought. Often — like the failed shared-office startup, WeWork — they were just old-fashioned businesses pretending to have disruptive new technologies.

Suddenly, just last year, the truth began to sink in about WeWork. Softbank reportedly agreed to pay Mr Neumann as much as $1.7 billion so that he would go away.

Another big disappointment. And now investors are beginning to wonder about the whole tech complex…and the geniuses behind it. Henry Bonner again:

‘The gross value of all Softbank’s holdings is around $260 billion. But the stock market valuation of Softbank itself is only $98 billion. The group has a debt on the order of $50 billion.

‘So, the market is discounting the value of its assets by nearly $100 billion because it has a bad opinion of Softbank’s management.’

A company that fails to make a profit is destroying wealth, not creating it. And today, 45% of the companies listed on the NASDAQ — including some of the biggest names in the tech sector — are loss-making, not profit-making.

And the wealth they are destroying is real. It’s the wealth of the shareholders and the economy itself.

Tune in on Monday for more disappointments!

Regards,