Investing on intellect and facts

Thursday, 31 May 2018
Melbourne, Australia
By Bernd Struben

  • One bad policy to solve another…
  • The thin edge of the wedge

Have you heard of Howard Morgan?

Among his many achievements, Howard cofounded venture capitalist firm First Round Capital. And through this firm he became one of the earliest investors in Uber.

According to Business Week, Howard, now 72, is ‘connected to 28 board members in 28 organizations across 31 different industries.

Lou Kerner, cofounder of CryptoMondays, offers further details of Howard’s remarkably insightful career. Such as:

In 1975, Howard had the 50th computer on the ARPANET, the precursor to the internet.’

I’m not sure what your level of technology was back then. But I can tell you that in 1975 my family bought our first calculator. It could fit in your pocket — if you had big pockets — and do all kinds of maths.

Amazing.

But it would be 12 more years before I got my first computer…Apple’s Macintosh 512K. And another decade beyond that before I plugged into the internet. Which may be one of the reasons Bloomberg has yet to interview me.

Not so Howard Morgan.

Here’s the headline from Bloomberg, ‘RenTec Vet Who Mastered Venture Talks Wealth and Why Quants Rule’. The article continues:

How do you invest your own money?

I’m so heavily in technology as a venture capitalist through First Round Capital and B Capital, I try not to do liquid tech stock investing. Because of my background at Renaissance, I do a lot of quantitative hedge funds and I’m trying to create a portfolio where they invest across different time horizons. Like Warren Buffett, I largely don’t believe in active managers. There are outliers but so few that it’s hard to find them.

What has you so down on active managers?

Well, there’s the fees. You have to overcome the fees and not many people can do that. With quant funds, you have to get over fees as well. They’re expensive. But the thing about quant funds is that they have no intuition and no emotion. By their nature they invest on intellect and facts and no emotion. That’s why I believe they can beat the averages.’

Investing on intellect and facts, and not emotion, to beat the averages. Our in-house quant trading guru, Jason McIntosh, would certainly agree.

He tells me that, only a few years ago, algorithmic trades made up less than 30% of the entire market.

According to JPMorgan, algorithmic trades now account for 90% of the market.

Here’s Jason’s take on successful trading in the modern financial world:

If you’re currently basing your investment decisions on company announcements…or balance sheet analysis…or what you read in The Australian Financial Review…I believe you are at a serious disadvantage.

It’s like turning up at Wimbledon with a wooden tennis racquet.

Or racing the Tour de France on a BMX.

These are, quite simply, the wrong tools for the job in the modern financial world.

Jason is convinced the algorithms he’s spent years perfecting for Quant Trader are the right tools for today’s trading environment.

And the results from the 2017 financial year certainly back him up.

His computer algorithm picked 16 of the 20 best performing stocks on the ASX 300 during FY17. The average gain on these picks was 61.5%, while the All Ords delivered only 8.2% over the same time frame.

If that’s not beating the averages, I don’t know what is.

If you want to begin receiving daily buy and sell signals from Jason McIntosh’s Quant Trader, or if you just want to learn more about algorithmic trading, simply click here.

Now to the decidedly emotional markets…

Markets

Most major exchanges around the world rebounded from heavy losses earlier this week. Losses that were driven by ‘the Italy jitters’.

Using markets as our gauge, investors now appear to believe the Italians just might be able to work things out. Meaning they’ll form a working government and remain in the Eurozone.

We’ll see…

Overnight the Dow Jones Industrial Average closed up 306.33 points, or 1.26%.

The S&P 500 gained 34.15 points, or 1.27%.

In Europe, the Euro Stoxx 50 index finished up 13.05 points, or 0.38%. Meanwhile, the FTSE 100 rose 0.75%, and Germany’s DAX climbed 117.25 points, or 0.93%.

In Asian markets, Japan’s Nikkei 225 is up 174.76 points, or 0.79%. China’s CSI 300 is up 1.56%.

In Australia, the S&P/ASX 200 is up 25.37 points, or 0.42%.

On the commodities markets, West Texas Intermediate crude oil is US$67.94 per barrel. Brent crude is US$77.25 per barrel. That’s still about 10% higher than where I expect oil prices to be towards the end of the northern summer, as US supply continues to ramp up alongside higher production levels from OPEC.

Gold is trading for US$1,303.18 (AU$1,721.96) per troy ounce. Silver is US$16.52 (AU$21.83) per troy ounce.

One bitcoin is worth US$7,353.12.

The Aussie dollar is worth 75.68 US cents.

One bad policy to solve another…

Speaking of the Aussie dollar, the war on your cash is alive and well.

You’ve probably heard that cash payments of over $10,000 are about to be criminalised.

From The Australian Financial Review:

Cash payments of more than $10,000 will be outlawed under a widespread crackdown on the cash economy expected to raise more than $7 billion and improve the budget bottom line by $5.3 billion.

Treasurer Scott Morrison said the crackdown on the “black economy” would be “bad news” for “criminals” and “terrorists”, with the lion’s share – more than $3.5 billion – expected to be raised from combating illicit tobacco.’

So, we’re banning cash payments of more than $10,000 to combat illicit tobacco?

The only reason there’s a booming multi-billion-dollar black market tobacco industry in Australia in the first place is because of the government. Namely the ridiculously high sin taxes slapped onto cigarettes. Aussie smokers now enjoy the most expensive cigarettes in the world.

Now the government plans to solve one bad policy with another. They appear to have given little thought to the fact that criminals are unlikely to be deterred by their new legislation. And that you could conceivably do an end run around it by making multiple payments of $9,999. (Not that we’d ever advocate bending the rules!)

And there’s been no talk of indexation. Meaning, as inflation does its job, today’s $10,000 will be worth a lot less over time unless the new cash limit is regularly increased.

If inflation over the next 50 years is similar to the past 50 years, $10,000 in 2067 will be worth about $813 in today’s dollars. And that’s assuming future governments don’t cut the cash limit further. To $1,000…or just $100.

The thin edge of the wedge

In a little-publicised move, Victoria’s government has upped the ante in the government’s war on cash by banning all cash payments for scrap metal. The new laws came into effect yesterday.

The first I heard of this pending move came from reader Richard. Here’s the letter he wrote to us at letters@portphillipinsider.com.au last Thursday:

Hi guys,

I thought you may be interested in the new scrap metal dealing laws. My brother is a scrap metal dealer, and whilst these laws won’t affect him overly (apart from all the extra paperwork) he’s dead certain it’s just the thin edge of the wedge.

Apart from the police powers, that are virtually the same as the anti-gang or gun laws – that’s one part of it.

But what about when they decide that say, fruit and veg dealers are a hotbed of crime, so they ban cash there too? Then bakeries, cafes, or any other business that you may care to name?

Strikes me as a pretty amazing thing that the government can just ban you from dealing in cash – just like that.

And of course, you’ll hardly see a huge number of scrap metal dealers protesting at parliament house… so it will just happen, quietly, with no fanfare, and so on it will go. With any reaction from the general public just as likely to be “oh, I guess if it stops crime, then good”.

Anyway, just thought you may like to know!

Thanks for writing in Richard. We do like to know. And I reckon your brother is spot on when he says this is just the thin edge of the wedge.

As with all such moves, it comes under the guise of fighting crime. But as Richard points out, banning cash payments in any sector is a tremendously slippery slope. It could indeed be bakeries that are up next. Or your local gold dealer.

Many in the government have made no secret they would like to see cash banned entirely.

Like Michael Andrew, who chairs Australia’s Black Economy Taskforce. Some of the Taskforce’s recommendations have included banning the $100 note…apparently a favourite for criminals. As well as putting a ‘use by date’ on cash, so it’s eventually worthless.

But one of the more disturbing parts of Victoria’s latest assault on your rights to transact in cash is that it follows a dangerous new trend in giving police — often very young men and women — new warrantless search powers.

From the AAP (emphasis added):

From Wednesday, scrap dealers who accept or make cash payments for metal face fines of more than $30,000, while police will have powers to enter a business or storage premises without a warrant if they believe cash dealing in scrap metal is taking place.’

As I noted in Port Phillip Insider last Tuesday, 22 May these warrantless search powers are growing rapidly.

One is the new powers that allow Australian Federal Police officers in our airports to demand identification without cause. Show us your papers!

The other is Victoria’s notorious new firearm prohibition orders. From The Age:

The order was issued to [Toby] Mitchell… and means he can now be searched at any time without a warrant until the order expires in 2028.

Police can also search his property and vehicle and even those in Mitchell’s company under the far-reaching powers introduced by the state government last September…

Police do not need to form a reasonable belief an offence is being committed…’

No reasonable belief? No warrants?

Something to keep in mind the next time you visit the airport. Or transact in scrap metal. Or, perhaps unknowingly, find yourself in the company of someone on a prohibition order.

Your person and property are fair game…without anyone needing to bother an overworked judge for a pesky warrant.

Remember to send your queries or feedback to letters@portphillipinsider.com.au. If we publish your letter we’ll only use your first name.

Finally, here’s the latest on the efforts to derail Brexit, from The Australian Tribune:

 ‘UK Lord Compares Brexit to “Nazi Appeasement”

Britain’s Remain campaign has sunk to new lows. The so called “Best for Britain” group continues to ignore the outcome of the 23 June 2016 referendum. A referendum that saw 51.9% of UK voters opting to leave the EU.

In a democracy that should be the end of it. But as The Australian Tribune has written before, dominant vested interests are doing everything in their considerable power to ensure Brexit never goes through.

In a new low…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd