Quantitative infinity has a lot to answer for and I’m not referring to the current preoccupation by central banks and financial commentators with the potential impact of inflation on the major world economies.

I am referring to the impact of pretty much free money on the world of investing the latest iteration of this being ‘soonicorns’ – companies that are soon to be unicorns. One popular description of unicorn is as a symbol of rarity or fantasy which seems apt given the success rate of start-ups and scale-ups to achieve the rarity category is rare indeed and that ‘the market’ seems to be captivated by the fantasy category.

As we get close to the end of calendar year 2021 I’ve been looking back through my newspaper clippings (yes actual newspaper clippings) to understand how in this second year of the global pandemic many investors seem to have lost their head in an effort to chase the next unicorn, be part of crypto currencies, leverage themselves to get into the property market or their second or third investment property and more. All driven by what I’ve previously called the ‘quantitative infinity’ approach by governments to sustain never-ending growth.

In such hyped-up markets, where SPACs, investment funds, venture capital funds, family offices, mum and dad investors and young investors are all engaged in finding more or less risky ways to make money, access to cheap money combined with low interest rates and FOMO have created a perfect storm of over-hyped, high-risk ‘opportunities’. It has also exacerbated income inequality around the world, where if you have money you’re in a way better place to make more of it.

So, let’s look at the year that was.

As of 30 June the Australian share market on track to record its worst performance in a fiscal year since the GFC, its first negative year since 2015-16 and biggest fall since 2008-09.

In February the ASX was at an all time high and then experienced its worst sell off in a decade when the market fell 36.5% before record stimulus and central bank action.

Guy Debelle, Deputy Governor of the Reserve Bank of Australia noted in July that ‘Australia is in the midst of an historic event. The decline in output in the second quarter in Australia and around the world has been extraordinary, as significant parts of the economy were shut down.’

Deputy Director, Peter Hiom notes that if you ranked the top four months for equity market trading activity in the history of the ASX, the list would include each of the months between February and May 2021![1]

In the USA the first 6 months of 2021 stocks experienced their biggest quarter-to-quarter swing in more than 80 years. Like Australia, huge government stimulus packages stopped the sell-off and then sent stock soaring to their best quarterly performance in more than 20 years.

The quantum of government stimulus and the pace of it was staggering. In Australia in May 2021 the Reserve Bank issued $19 billion bond, the largest bond syndicated in Australian history. The US Federal Reserve’s balance sheet grew in size by the equivalent of 13% of GDP in the space of three months. It took more than three years for a similar expansion post the GFC.

By December 2021 the ASX is up 10% over the year https://www.marketindex.com.au/asx200.

Volatility might be the word but cheap money has poured rocket fuel on the share market and, in the process provided super profits for some and immolated others in the process. Depending on what stocks, investment vehicles, crypto, Reddit forum you put your money into and the timing you might have had a good or bad year or two.

Some companies fuelled by quantitative infinity, have gone from scale-up to Unicorn (Afterpay, Atlassian, Canva, AirWallex, Stripe, SpaceX, Bytedance), Unicorn to popcorn –smart marketing (FOMO), hype and hyperbole) (WeWork, Theranos, Solyndra, Arrivo and Jawbone) or Unicorn to Decacorn (Metaverse, Amazon, Google, Apple, Zoom and more). Then there’s the potential scale-ups looking to IPO and soak up all the money that’s looking for a higher rate of return. Any number of fintechs, third party providers and data analytics companies are sloshing around this space including consistently loss making Siteminder; pay-day lender BeforePay (note that it’s Prospectus states that ‘in the absence of a successful listing, there is a material uncertainty on BeforePay’s ability to continue as a going concern); and Nuix, one of the hottest IPOs of 2020 that’s now the subject of a class action and two ASIC investigations.

Of course, there’s a wide range of companies that have managed through the global pandemic and are still doing their best to adjust to all that the pandemics and markets can throw at them.

The pandemic paradox

Before the pandemic there was an increasingly global discussion about growing inequality around the world.

A 208 report by Oxfam noted that: ‘The growing concentration of the world’s wealth has been highlighted by a report showing that the 26 richest billionaires own as many assets as the 3.8 billion people who make up the poorest half of the planet’s population.[2]

In its 2021 report Oxfam Australia noted that: While it took just nine months for global billionaire fortunes to return to their pre-pandemic highs, recovery for the world’s poorest people could take more than a decade. In Australia, our 31 billionaires have seen their fortunes increase by nearly $85 billion since the global COVID-19 pandemic was declared.[3]

In Australia, still one of the wealthiest countries in the world, people in the highest 20% of the wealth scale hold nearly two thirds of all wealth (64%), while those in the lowest 60% hold less than a fifth of wealth (17%).[4]

Legendary investor Warren Buffett endorsed Obama’s Buffet Rule, part of a tax plan which would require millionaires and billionaires to pay the same tax rate as middle class families and working people. Abagail Disney heads the Patriotic Millionaires, a movement of wealthy people campaigning to pay more tax. Bill Gates and Warren Buffet also formed The Giving Pledge https://givingpledge.org/

Patriotic Millionaire member, Gary Stevenson, shares his thoughts about the recovery post pandemic, noting that the impact of wealth inequality on demand will stymie the post-crash recovery as wealth has stopped flowing through the system. It’s going into the financial markets, (and in Australia, into the property market). He goes on to suggest that ‘No matter how hard you work, how smart you are, if you come from ‘the wrong family’ you’ll never own a property. That is feudalism. We’re going back into a world of aristocracy.’

ATMs, crypto, cryogenics and voluntary assisted dying

If you have children in their 20s and 30s (I have a son who is 26) you’re really well aware of this. There’s no way most 20–30-year-olds with HECS debt, working in a gig economy can save a money for a deposit on an apartment/house in any Australian capital city. The bank of Mum and Dad will be needed. I used to joke that I was an ATM, an Automatic Teller Mother. It’s no joke now…it’s the intergenerational reality.

This is one reason so many younger people are looking to crypto, Reddit and Robinhood as a way to ‘grow’ their wealth. It maybe high risk or higher risk but they feel there are few options to help them save what they need to.

And if you happen to be Mum or Dad, it’s likely you’re having to think about three generations of your family: you, your children and your elderly parents. You might be fortunate to own your home (or most of it) but you’ve now got to think about your financial future, that of your children and parents. And, in some families, it’s the grandparents who are supporting their grandchildren.

Interestingly the AFR in December reported that Baby Boomers – those born between 1946 and 1964 – are expected to pass on an estimated $224 billion each year in inheritance by 2050, representing a fourfold increase in the value of bequests over the next 30 years.[5] Of course, that’s provided ‘we Baby Boomers don’t elect voluntary assisted dying on the one hand or cryogenics on the other.

As I work with a client on his book about data, AI and machine learning and catch a glimpse of the future – some of which is here now ­­­– I observe:

1. The radical unwillingness of central bankers around the world to unwind quantitative infinity;
2. The incapacity of political leaders to make the difficult decisions in the longer term interests of their countries (rather than their focus on short-term re-election);
3. The complacency, entitlement and now institutional rent-seeking behaviours of a range of powerful interest groups – this is particularly so here in Australia;
4. The incapacity of global institutions to, well, operate globally. The FAANGs are eating the world’s economic fabric for breakfast, lunch and dinner;
5. The unintended consequences of being connect, on all the time AND the amazing opportunities this also provides;
6. The generosity and compassion of people on the one hand and how fear and war propels hatred, anxiety and inhumanity. Who remembers Alan Kurdi dead on the shores of Bodrum, Turkey in 2015. It’s now happening on the shores of England.

When COVID first spread around the world I suggested to a few friends and colleagues that perhaps is was Gaia’s way of trying to tell us something. I love using analogies.

Think about COVID this way. Gaia (mother) has sent us to our rooms (literally) for a time out. We’re not going to be let out of our rooms until we’ve had a good think about our behaviour and actions and we’re ready to change for the better.

For a moment there, it looked like billions of people were having an ‘attitude adjustment’. We were kinder, more gentle, caring, thoughtful. Appreciated what we had taken for granted, realised we didn’t need all the stuff we thought we needed…that people and relationships were the most important things in our lives.

Yet, here we are in Omicron-ville. Our political leaders, central banks, financial institutions are urging us to spend, spend, spend…to reboot economic growth. Hell, we now have all sorts of payment options to make us spend money we don’t have before we have it, after we’ve got it – but not enough of it – even money that’s not money.

I’m not sure when we’re going to get off the hamster wheel of quantitative infinity. All I know it that it’s not sustainable, it’s destroying our societies, communities, families our planet and ourselves.

And, as a student of economic history, and having lived through the 1987 stock market crash, the 2000 dot com crash, the GFC and now COVID, Quantitative Infinity will end, and the hangover will be huge. It’ll just be unevenly distributed and we’ll all need to find way more compassion and humility than we thought we had. Practice JOMO (Joy of Missing Out).

As the end of 2021 races to a close here in ‘Monsoon Sydney’ I wish you all a safe and happy Festive Season. I’m trying to fly interstate on Saturday.

Registered on the South Australian Government website. Tick.

PCR test 72 hours before. Tick

Negative result. Tick

Test on arrival. TBA

Isolate till negative result. TBA

Test on Day 6. TBA

Isolate till negative result. TBA

All my research and writing files downloaded, printed off, packed. Tick

Looking forward to some time to rest, think, reset, reconnect. How about you?

 

[1] https://www.afr.com/chanticleer/what-we-learned-from-an-historic-financial-year-20200630-p557lb

[2] https://www.theguardian.com/business/2019/jan/21/world-26-richest-people-own-as-much-as-poorest-50-per-cent-oxfam-report

[3] https://www.oxfam.org.au/wp-content/uploads/2021/01/Oxfam-The-Inequality-Virus-Report-2021.pdf

[4] https://povertyandinequality.acoss.org.au/inequality/

[5] https://www.afr.com/policy/economy/australia-on-the-cusp-of-inheritance-tsunami-20211207-p59ffp