Stock Exchange, Gambling House or World Rule

Stock Exchanges opens doors to many possibilities, some may not be to our benefit.

Introduction:

This article is an exploration. I am far from being an economist or a political scientist. I am a deeply curious human being who likes to explore things as I seek to understand. I’m interested in the forces and tendencies that create things. Why is that happening? And why is this happening? How are those two things related? What will happen if we keep doing that?

I seek to make sense of the world to discover where I can be of service and lend my skills to the betterment of life. As you know, vast change has enveloped the world over the past 15 years, perhaps since the iPhone arrived. But it too was probably a natural consequence of the Internet, which in turn was probably a natural consequence of the silicon chip. Do you see where this goes?

My Dad and his Pub

My Dad had a year 8 education. He did many things in his life from working in Fruit Markets, driving Petrol Tankers, managing a 20,000 plus acre Cattle Station, to successfully owning and running several pubs.

Growing up in the pub, I watched as he created success. He knew how to care for his customers. He served brilliant beer from meticulously cleaned beer lines, delicious food, and tasty snacks, and he created a family atmosphere where everyone felt safe and welcome.

He didn’t create great wealth, but he put his kids through private schools, bought us all cars, purchased a home, and saved enough for retirement. Never once did he seek to take a short cut to create more profit. All his money was earned with effort, with dedication to serve with genuine integrity.

He knew what his business could earn, and he strived to achieve that. And as he did his job well, he felt good about himself as a contributing member of society. He slept well at night. He was far from a saint, but he contributed heartily to his community.

Imagine what might have happened if he became obsessed with increasing his real net profit by 4% every year. It may have required some short cuts.

4% Annual Growth

When an economy is starting out, it is important for it to grow until all people’s basic needs are met. Need is a powerful motivator. You do not need to run an advertising campaign to tell people they need food or that they should stay warm in winter. But what happens when everyone’s needs are met. What drives the growth.

Another question is, “What happens if the population begins to decline?

Capital expenditure is a major catalyst for economic growth. Governments decide that a new highway is required, or perhaps a new sewerage plant or a stadium. Contracts are handed to companies with the capacity to complete the project and money flows into the economy in the form of wages, materials purchases, and all manner of services.

A developing country needs infrastructure. A growing city also needs infrastructure. But what happens when all the required infrastructure is in place and nothing else is really needed? Where will the big projects emerge where companies can make significant profits, or generate usable cashflow?

One of the challenges with the third world is helping them to find ways they can fund infrastructure projects. Often, they have mineral resources, but money paid for mining leases disappears through corruption and the country remains stagnant.

What is a profitable business?

A profitable business is one that can pay all its bills and have some money in savings that might be used for distribution to owners or to re-invest in capital growth.

If I owned a business that turned over $10m per annum and it made a profit of $1m, I would be happy with that? If I like it as it is, why should I grow it? It may be quite legitimate to keep it at that level and service my market very well.

Why do we need businesses to grow?

This is a great question. As a speaker, if I set myself to deliver 150 presentations per year at an average price, I can predict what my profit will be. If I am satisfied with that profit, then I can happily maintain my business at that level.

But perhaps I might wish to start a charitable foundation to deliver some projects in the community and wish to generate additional income to fund that charity. Then I will need to find ways to scale my business and increase revenues.

On the other hand, my ego might become a little addicted to money and I might want to begin displaying wealth to attract attention. Now I might need more money for a bigger house and an impressive car. If I do not reign in my competitiveness and my need for attention, this attitude may create a need for ongoing, significant growth, growth that the business may not be able to sustain.

Turning a Want into a Need

Everyone wants a smart phone. But do we need a smart phone. The answer is probably no. But what happens if you feel “left out” or that we are “missing out” or lack status if we do not have a smart phone? Then, we probably begin feeling like we need one.

The same goes for cars, homes, fashion, travel, and a plethora of other things.

The Entire Platform is built on continuous growth.

Every year we hear the economic commentators talking about growth and how a lack of growth can create recessions. The words land heavily on the ears of those who do not understand. Businesses experience downturns and blame it on the economy. I’ve done it.

But, in wealthy countries where infrastructure has grown to meet the needs of the population, why is growth so important? I would argue that without the major projects, growth is difficult to maintain.

The World’s population will top out at about 9 billion and begin to decline. Infrastructure Growth is driven by population growth.  The United Nations Department of Economic and Social Affairs Population Division predicts a global population decline sometime in the next 50 years.

Factors that influence this include the burgeoning aging population in China resulting from the strict one child policy and the preference for male children. Some are predicting that over the next 40 years, China’s population will drop by nearly 40% to below 1 billion.

How will the world’s economies thrive if there are no factors, like the need for infrastructure, driving growth? There are only so many luxuries people can consume.

The Difficulty around Growth when Everything is good (needs vs wants)

It seems that, over time, a country growing at a rate of 4% or more, was a healthy economy and needed projects were being attended to. But once a country hits a level where all needs are met, services are in place and population growth has slowed or even slipped into the negative, why is 4% growth still required?

Beyond all the arguments presented so far, I could find no compelling argument as to why continued economic growth is so necessary. Once we all have a home, adequate clothing, perhaps a car, ample food, enough to cover emergencies, savings for retirement, and a bit of money to spend on recreation, what else do we need?

The Stock Exchange and Public Companies

I have witnessed many brilliant companies change and lose their soul once floated on the Stock Exchange. Owners seeking to extract themselves to retire, hire brokers to prepare the company for a float then begin to step back as their shares are snapped up by individuals and institutional investors.

Prior to the float, the business may have been very successful, creating handsome profits for the owners, but also creating a nurturing culture where the buck stopped with the owner(s). Whilst good cashflow and profit were important, growing profits may not have been. Often the drive was to improve the business, its systems and functionality, to be able to serve customers more effectively. This often brings new customers and increased revenues. But the motivation remained the serving of customers, whilst caring for the workforce.

Once the ownership changes to share market investors, much of that care goes out the window as the market begins to demand profits. Any drop in performance can lead to a selling of stocks and a devaluing of the share price. This places the business in a precarious position where reactive selling by investors could destroy the entire company. Boards and Executives become beholden to the investors, more so than to the customer.

The History of Stock Markets

The issue of shares started out in the 1600’s with the East India Companies in the UK, France, and Holland. To minimize the risks of ships being lost enroute too or from the East, ship owners would sell shares in the venture in return for a share of the profits.

Investors, seeking to minimize risk, would invest in several voyages in case one failed to return.

Over time this turned into companies being formed with more and more ships. Investors, instead of needing to deal with several small businesses, could invest in one large business running multiple ships.

Investors could sell their shares through brokers to other investors if desired. It was a straight trade of ownership based on the price paid for the share. The reason for holding a share was to earn a percentage of the company’s profits. The profits were a reward for the risk taken.

The London Stock Exchange (LSE) was formed in 1773. The New York stock Exchange (NYSE) arrived 19 years later. Whilst the LSE had tight statutory restrictions around the trading of stocks, no such restrictions existed in the NYSE. Trading stocks became a feature of the exchange.

With the evolution of computerized trading, share trading has become a powerful element of stock markets with huge fortunes being created simply by the strategic buying and selling of shares.

When you look at it, there is no doubt that it is a form of government sanctioned gambling where people can legally gamble with other people’s money. Often, the stability of a company can be impacted by the gambling whilst it’s operational success is stable.

We have all witnessed what can happen when a selling panic turns into a major market crash.

What is Inflation?

Many believe that inflation is a situation where prices begin to rise quickly. Whilst this is partly true, it is not really accurate.

Example: if I have a room with 100 Gold bars and $10m cash. The gold bars are the only asset, and the cash is the limit of my bills of exchange. If we match them up, then each gold bar can be valued at $100,000 each. $1 dollar has a value against the gold bars. However, if I were to print an additional $2m cash, now the gold has not changed in value, but the dollar has. Each dollar is now only worth 83 cents. So, if the gold is to be sold, its price will go up to $120,000 per bar to recoup its true value.

When governments print too much money, inflation is almost a natural progression. During the pandemic, governments across the world began printing money at a frenetic rate, flooding markets with new cash and handing it out to people and stalled businesses in lockdown.

Monetary Policy and Political Perspectives

Monetary Policy is powerful. Conservative Governments tend to like balanced budgets whereas liberal governments tend to like to spend. They embark on rescue missions for the perceived needy. They expand Government services and eventually grow huge government agencies.

Conservative Governments tend to opt for smaller governments, allowing business to carry on with minimal interference. One can argue in this case that unscrupulous business owners may take advantage of vulnerable employees.

It is a fine line. Any pure market economy can work well if everyone is completely honest. However, Government needs to stand by to police bad behavior.

Liberal, or left leaning governments will tend to push more money into an economy, in the form of wages for government employees and expansion of government services. They will also seek to tax the wealthy with land taxes and other taxes that can be labeled wealth taxes.

Conservative Governments will seek to reduce taxes, cut government spending and work to create government budget surpluses so that projects may be funded from savings as opposed to borrowings.

Higher Economic Growth leads to higher tax revenues which are crucial to big spending leftist governments. Conservatives tend to aim to support this growth to come from business, whilst liberal governments will drive some of the growth through government activity.

Capital Expenditure items demonstrate to the public that the government is “doing something”. Successful capital projects are a powerful tool for keeping a government in power. Hence, bringing big projects across the line may lead to more money being driven into the economy to cover cost over-runs.

Of course, as the growth of our cities slow down, the need for major projects will be reduced. If this happens, how do we feed the beast? How do we keep the growth occurring in the economy to keep the “expected growth” occurring year after year?

Massive Institutional Investors

If it all crashes, who stands to lose?

I look at the Stock Market and I see volatility. As we have seen a couple of times in my life, it can crash overnight. Fortunes can be lost in the blink of an eye. Robust companies can be left teetering on the brink of collapse in no time at all.

Stock markets are no longer about buying a share in a healthy business and then receiving annual dividends. It has become about hedging bets and gambling on the rise and fall of stocks, making money from the market ebbs and flows, as opposed to participating in the creation of goods and services.

Ownership of the business, sometimes fleeting, is of little concern to the profit hungry trader, chasing wins daily to build wealth and perhaps status.

But then there are the massive equity funds, some holding trillions of dollars in stocks. Black Rock, Black stone, Vanguard, State Street. These are in a different league and collectively hold up to 25% of all the Fortune 500 companies on the NYSE. These companies have profound power.

Consider their options. They hold seats on boards and can influence who the CEO will be. They can do deals with Government. For example, for some unexplainable reason, Black Rock, the biggest of them all, is driving all companies it invests in to follow new and rigid ESG policies, even if it compromises profits.

Now I am stepping into exploration here because I don’t know. I am seeking to see beyond what appears to be to learn what is happening.

What is the payoff for a company like Black Rock supporting extreme left-wing agendas? What do they get, in return, from the governments who want to see these changes take place?

Then I think of all the changes happening due to Climate Change.

Some Thoughts on Climate Change.

I just do not buy into the climate change and global warming rhetoric. There are so many flaws in the argument that it is almost laughable, and it would be if it was not driving so much wasteful change. Consider:

·        Carbon is a tiny percentage of the atmosphere. The atmosphere itself has methods of dealing with increased carbon.

·        The earth is 15% greener than it was in 1980 because of slightly elevated carbon.

·        The earth is heating up, perhaps. But who says it is warming? Over what period is this being evaluated? When out stretch out the graph, you see a different story.

·        In the 1970’s we were told we were headed for another ice age.

·        People are frightened by the rhetoric. Others are using climate as their righteous cause. And certainly, teenage children are feeling a sense of hopelessness as a direct consequence of the rhetoric.

Some Thoughts on Renewables:

·        The resources used to build solar panels and windmills are staggering. Windmill blades have a life of 28 years and are not recyclable.

·        We do not have all the essential minerals we need to take these alternative energy systems to completion.

·        Brutal, slavery based, mining practices in the Democratic Republic of Congo provide 74% of the world’s cobalt, an essential ingredient in batteries.

·        We have not looked far enough into this.

The Charter of the Equity Funds

They need growth. They see the massive Green Religion emerging on the planet and see an opportunity.

When countries are not growing and there is a limited need for new infrastructure, how do you create growth.

One way might be to get in behind the green push, create a plan to shut down the “pollution creating” power infrastructure and start from scratch. This brings decades of sustained growth.

And of course, while you are at it, no point your coal and oil companies going broke. They too can continue to make huge profits, exporting their products to other countries who have no such plans.

As I write this, over 500 new Coal Fired power plants are either being constructed or planned in China and India. And the US and Australia, who are closing their plants, will gleefully provide the coal.

As a result, these equity funds just get bigger and more powerful. And whilst you might think they are evil; you may be contributing to their wealth.

But perhaps because these companies are so huge, and so powerful, we are being driven down a path we do not need to go, just so that insanely wealthy people can continue to amass fortunes.

Or perhaps they are just trying to stave off the decline that could see their wealth collapse.

Perhaps the Capitalists are hijacking the Leftist Social agenda to create profits and power way beyond what many of us could ever imagine. The dark and ugly shadow of the Left’s utopian dream.

And whilst we are completely distracted by Government over-reach, pandemics, fear-based climate rhetoric, transgender issues, wars, inflation, interest rates and rising energy costs, investment behemoths sabotage our future as they devour everything in their path. Their appetite can never, ever be satisfied.

Note: I am all for caring for the planet. But right now, we may be drifting further from genuine care than we have been for decades as we create millions of tonnes of non-disposable and non-recyclable waste.