Blockchain. What’s blockchain? Here’s an introduction

Monday, 6 February, 2017

Blockchain technology could drastically change the way we conduct many financial transactions. If you’re like me, and have heard the word bandied about, but have little idea what it’s all about, this article by Lisa Fedorenko, an analyst at Sydney based Montgomery Investment Management, offers a straightforward explanation.

What blockchain does is create a unique identity for digital assets. When I have a physical pen – it is easy to trace who is holding that particular pen. It is obvious if I am holding the pen, or I pass it to you. This is a bit trickier when I have a digital pen. If I forward you a pen – how can you tell I haven’t also forwarded it to my friend Alex? Blockchain gives pens (or blocks) a history of ownership (a chain) so you can tell where each pen is (there are a finite number of pens). Each pen can only be in one place at a time and has had its own path there – if I gave you my pen, I no longer have one to forward to Alex.

Check the comments following the article as well, for additional insights.

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Are the great systems, and order of the world, breaking down?

Friday, 8 July, 2016

Maybe I’m just projecting personal concerns, but the world feels like a gloomier place today, compared to say ten years ago. Look at the headlines though. The rise of Donald Trump. Brexit. Financial and economic systems that are still struggling to get back on their feet after the GFC. Even an inconclusive election in Australia.

Are the great systems of the world collapsing, asks Umair Haque? If so, what must we do to restore balance, and some degree of harmony?

The great systems of the world are breaking down. And in that breakdown, they are taking prosperity, stability, and social progress with them. That is why yesterday’s sense of easy security, comfort, and optimism is being replaced by anxiety, hate, fear, anger, and pessimism. Hence, today, nothing less than the great systems of the world must be reimagined and remade.

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The Big Short, and a short intro to shorting

Wednesday, 13 January, 2016

In financial parlance an investment referred to as a short is a bet that an asset, such as shares, or commodities, oil, gold, etc, will fall in value. For instance, I might borrow, from a share broker, one hundred shares in a certain company that are currently valued at, say, ten dollars apiece. I have to return these one hundred shares by an agreed date.

I sell the shares onto the market, and collect one thousand dollars, less brokerage fees. I then hope the price of the shares in the company will decline significantly in value before I have to return them. They duly fall to say seven dollars each, and I buy one hundred shares at a cost of seven hundred dollars, plus fees, and hand them back to my broker.

That makes for a gain of maybe two hundred and fifty dollars, by the time I’ve paid all associated costs, but most importantly, I’ve profited from a fall, rather than a rise, in the value of the company’s shares. That’s shorting for you. It’s not a method of “investing” for the faint-hearted, or the uninitiated though, as the process can be fraught with peril.

US filmmaker Adam McKay’s new film, The Big Short, trailer, about a group of US fund managers who foresaw, and profited from, the collapse of the US housing market in 2007, may give those unfamiliar with the practice, an insight into how some people can make large sums of money from short investments.

The Big Short opens in Australian cinemas tomorrow, Thursday, 14 January.

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Living on, or below, the poverty line, more expensive than you think

Thursday, 22 October, 2015

Owning assets with a nett worth of US$68,800 places you amongst the wealthiest ten percent of the global population. Depending where you live though, that amount of money may not in fact leave you all that well off, especially when compared to your peers.

And while not having much means having to be extra thrifty, cut corners, and tighten belts, getting by on a very low income can be quite expensive:

When you’re poor, you can’t buy your food in bulk, buy high quality stuff that will last, or own your own tech instead of renting. It costs money up front to save money over the long run. Worse yet, being poor often comes with hidden, intangible costs that make digging yourself out of poverty even harder.

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What’s your credit score, my love? The US Federal Reserve said to ask

Tuesday, 13 October, 2015

The US Federal Reserve, being the central bank of the United States, may not be able to decide when to start raising interest rates, but their research can tell you whether or not you and your romantic partner are marriage material. I’m actually rather surprised at what can deduced from someone’s credit score, even if it somehow seems like common sense:

  • People with higher credit scores are more likely to be in a committed relationship and stay together
  • People tend to form relationships with others who have a similar credit score as them
  • Credit scores are indicative of trustworthiness in general, and couples with a mismatch in credit scores are more likely to see their relationships end for reasons not directly related to their use of credit

There’s much that the unattached can also take from this data as well, especially when it comes to avoiding relationship related financial problems in the first place. Modifying that pick-up line would be a good start, I think. And here’s a suggestion. “So, what’s your credit score?” How do you think something like that would work?

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Do you remember the time interest rates were at forty percent?

Wednesday, 30 September, 2015

The topic of interest rates, particularly those set by central banks, isn’t far from the headlines at the moment. Will the US Federal Reserve increase rates? Will the Reserve Bank of Australia cut rates? And so on. Whatever the case though, interest rates across much of the world are very low, or near zero in some places, and may be for some time.

But low, or near zero, interest rates have not always been the case. A couple of decades ago, short term rates were in the order of sixteen percent. I can’t even begin to imagine to having money in a savings account earning that sort of a return. And as for paying off a mortgage at levels like that… yes, well, let’s not go there, shall we?

Yet there have been plenty of instances in the more distant past, when interest rates were at similar, or even higher levels. Venice in the early fifteenth century. Italy in the twelfth century. The Roman Empire at the beginning of the fourth century. And then, wait for it, forty percent at the time of the Persian conquest in 539 BC. Now that would be something to talk about…

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Why are interest rates generally so low at the moment?

Tuesday, 7 April, 2015

The message is pretty clear, even if you only occasionally take in the finance news, interest rates, in the West at least, are generally pretty low right now. In the US and Europe for instance, central banks rates are pretty close to zero, if not lower.

Interest rates in Australia are trending down as well, fueling concerns of a property bubble in some areas, so cheap has housing finance become in recent years. So why are they so low in the first place? And I guess if Ben Bernanke, former chairman of the US Federal Reserve, cannot answer the question, who can?

In recent years, several major central banks have prematurely raised interest rates, only to be forced by a worsening economy to backpedal and retract the increases. Ultimately, the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low (closer to the low equilibrium rate), so that the economy could recover and more quickly reach the point of producing healthier investment returns.

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Investing, it’s really all a gamble though isn’t it?

Friday, 27 February, 2015

News headlines tell that stock markets across the world are, for the most part, doing well at the moment. That’s good for those who bought low I guess. Investing though, particularly in risk assets such as shares, doesn’t always appear to be as analytical, or calculated, as your financial advisor might have you believe though

The betting market in Las Vegas isn’t much different from Wall Street. Fed by rumor, speculation and greed, teams, like investments, can grow hot or cold for no good reason. Moving lines is remarkably similar to market bubbles. Walters insists that “[b]etting on a ball game is identical to betting on Wall Street.” Walters even claims that he has lost a lot of money in the markets and thinks the Wall Street “hustle” is far more dangerous than that in Las Vegas.

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Not all streets are equal when it comes the value of a property

Thursday, 12 February, 2015

This is interesting. When it comes to the monetary value of your house, it doesn’t only come down to neighbourhood, or location. Street suffixes, it seems, can hold sway over a property’s value, and homes located on a “street”, for example “Main Street”, may not be as valuable as one found on a “way”, or a “place”.

Street suffixes also offer clues about the size of their neighborhood. Boulevards and avenues include the most homes on average, while courts and lanes include the fewest. Most significant, suffixes have a lot to say about home prices. Homes on “streets” are almost always among the least valuable. If you’re looking for a higher-value home, you’re much more likely to find it on a “way” or a “place.”

Might we now see residents partitioning municipal authorities, requesting a change in their street suffix, if it is not of sufficient… quality?

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Low prices sure, but constantly falling prices, that’s not so good

Thursday, 29 January, 2015

If you follow the business/finance news, you’ll have heard about the massive bond buying initiative that the European Central Bank, or ECB, recently committed to.

Long story short, and it’s not as if you’ll find me offering in-depth, expert, analysis of the move, but it’s all in a bid to stave off deflation, or falling prices. Now you’d think that lower prices would be a good thing, but that’s not always the case. In fact constantly falling prices can cause all sorts of problems:

When shoppers see persistent price declines, they hold out on buying things. They ask, will I get a better deal next week, next month, next year? As a result, consumer spending flails. For most nations, that’s a big chunk of their economy, and any slowdown in consumption threatens growth.

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