Eyes

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A slow climb

The slow price climb continues. I’ve written about the scale of the psychological barrier that is $100k before. Back in February “it will take time”

Then we had this in December.

It’s now May. We are still where we were. 

We can make all sorts of excuses about global trade wars and general market turbulence but exactly what we thought would happen has played out. It was a significant barrier for a lot of traders and long term holders. It will break eventually and there will be some breathing room above.  

This is the third visit above $100k, some six months after the first. Let’s see. 

Rational

A bit harsh but I thought it worth looking into. It is increasingly true; “high status” jobs pay relatively less. There are lots of CTO positions that pay more than $220k, but plenty that pay less. It’s not a bad salary either but the fact is if you take such a position, with its attendant ‘status’, your hourly rate will rival McDonald’s. 

It’s depressing then to admit this is true:

“you’re literally better off working for the government on $150k in some shit kicker role where no one even knows you exist”. 

If you work for the government, as a rule, you won’t be in the office more than two days a week.  Let’s face it we just had a referendum on the issue. You will absolutely go unquestioned if you take all your sick leave at very convenient holiday times. So, in effect you will have six weeks leave per year plus public holidays. The $150k is really $180k in the private sector. None of this is to suggest that all public servants do this, or all public servants are lazy. The talented rise fast, another reason in fact why taking the government job is no longer a terrible idea. 

What is more, if you are talented and you take the $150k from Anthony, you will have plenty of time to work on a side business or internet website that might earn you a few thousand dollars a month to begin with and a great deal more in future. An entirely achievable proposition now. What if they find out? Well, pretty hard to get sacked by the Federal government for selling online dog-treats, so probably worth the risk.

There will I suspect be huge demand then for government jobs going forward. The very last people to adopt Artificial Intelligence “because privacy etc” will be the government. So if you don’t want to compete with an LLM, you really should move to Canberra. It is not at all a stupid thing to do provided you use the additional time to learn some new skills that you can work with when the gig is finally up. 

I took a quick glance at the private sector too. Starting salaries at the Big 4 for auditors. In 2005 about $45k, now $67k. Higher at PwC of course because they are a bit on the nose at the moment (my first job was there and I enjoyed it). 

On average then graduate salaries have increased by 2% CAGR since 2005. It’s insane. Over that same time period the CPI has had a 2.7% CAGR. I don't believe those numbers but assume they are true, then real wages have dropped 13%. 

If you use housing as a proxy for actual inflation, housing CAGR over that time period is 4.7%. That's a 40% drop in real wages, which sounds a bit more like it. If we choose gold it is an 80% drop. If we choose QQQ, the NASDAQ tracker, its a 90% drop.  Anyway the government says it's a 13% drop, the private sector says 90% drop, we could reasonably agree real wages have halved in 20 years. 

Back in 2022 we talked about this type of thing happening. Financial Repression which was highlighted in an excellent podcast by financial historian Russell Napier. In essence, all that is required is that the government talk up the situation. Suppress the inflation numbers slightly, massage real GDP numbers slightly and the returns to labour will fall like they have been doing. It’s insidious, you don’t really notice, but all the time things don’t seem quite as good as perhaps they should be.

So here we are. Talented people are emerging from university having studied for 15 years. They might get a job paying $67,000, better ones are available, but still. In 10 years, if they work hard and all goes well they might be on $350,000 in today’s money. More likely less though because relative wages will continue their decline.

The trend of wage decline is only just beginning though. Microsoft just sacked 6,000 developers this week. Not that big of a deal (3% of the workforce) but overall the big tech firms employ fewer people than they did three years ago. Those jobs are high-paying USD750k/year stuff. Of those 6,000 people I would wager at least half of them will never replicate their old salary again in their working lives. 

We seem to be in total denial about it though. Australia’s Federal Education Minister had this to say this week:

I think he’s totally wrong. I think he will waste billions of dollars on stupid stuff. Some of his ideas include “catch-up tutoring because of covid losses; student wellbeing to improve attendance”. 

More than that though: 

“Australia will have ‘Full Service Schools’ with on-site medical support from doctors, pediatric nurses, psychologists, speech pathologists and occupational therapists”. 

It’s all here and sounds rather like One Flew Over the Cuckoos Nest.  Now may I ask, which child would want to attend such a place? 

Coinbase

Coinbase will finally join the S&P 500 next Monday. They will replace Discover Financial Services, owners of Diners Club International . 

Diners Club closed in Australia in 2024 presumably because nobody uses it anymore. It was once quite the status symbol, check out the advert from the 1980s. Outstanding stuff, even the music is weirdly bonkers. Naturally, I now want a Diners Club card.  

All it tells us is things change. Tether went through $150 billion in market cap this week. Stablecoins generally are surpassing $500 billion in weekly volumes now. Far in excess of Visa ($300 billion) and PayPal ($30 billion).

The principal argument from naysayers is that most stablecoin volume is for prop-trading and not for actual purchases. Economic activity is what it is though, old mechanisms die because they are clunky and closed source. It's far easier to build an app that accepts stablecoin payments than it is to build one that accepts Diners Club International (which still exists in the US). Even if you are successful in getting credit cards working, settlement on cards still takes a week and you can suffer chargebacks for six months. It’s a joke, and an expensive one. 

I think Coinbase will ultimately outperform Discover Financial Services. Stablecoins will grow more quickly than credit card volume. Why? because the market will choose. Money has to be instantly programmable and settle near instantly. These days, it can be if you choose the right medium. 

One thing we can learn from Diners Clubs is that our adverts are nowhere near as good as the oppositions. Check out how the lady looks at the Diners Card holder. I don’t think this happens with Tether. 

Asset classes

Assume you didn’t know much. You know roughly what asset classes exist but you don’t know much about them. What you do know is that new asset classes are very rare. The pace of their emergence is rising from the thousands of years to the hundreds of years but they still don’t come along often. 

If one did come along, would you buy it? The sensible thing to do would be to say no, “I don’t know anything about it at all”. If you sought advice on whether to buy it, the answer would still be no. Every wealth manager (at least in Australia), would say “no”. Super Funds would say “no”.

There is a lot to recommend saying no. It is much safer in assets with longevity. Agricultural assets for example have a tremendously resilient record over the longer term, as does gold. 

Our old friend Willy Woo has a different view: 

“Chatting” to a global macro fund doesn’t really mean anything. Even so, it is accurate to say this kind of thing does not happen that often. Our various 50% + drawdowns over the years will attest to the risk, a risk that remains, but there is no doubt that what is happening is unusual. 

Therein, in our view, lies the attractiveness and the alpha. It’s very hard to outperform if you simply do what everyone else does.  

Euro-Trash

This is mostly a European story, the buyers of Swiss bonds being 75% (ish) local and European. The next 12 months, not good for the Euro. So we all hide in Swiss bonds and effectively pay the Swiss for the privilege.

3 - 10 years, a bit more confidence. AI is starting to bite, robotics should help productivity a lot. Despite the dogs breakfast Europe made of artificial intelligence they will still benefit. 

The most interesting part of the curve is the decline from 20 years to 50 years. How could it possibly be that one would receive a lower rate of interest for 50 years than for 20? 

There is only one thing that can be predicted with any sort of certainty at that longevity and that is the number of people in the workforce. We know from birth rates roughly who will be working in the future so predictions of future working populations are accurate. We can obviously make more babies, but we cannot instantly make more 38 year old engineers at the peak of their powers. 

In addition, there will be pressure on the long end due to a lack of supply. Switzerland runs a tight ship ~ 37% debt to GDP and an almost balanced budget. There just aren’t that many long bonds. Pension funds love them though for liability matching. Their 20 year old members are probably unknowingly buying 40 year bonds and getting an annual 0.3% for life, which doesn’t sound that good. 

In short then, the bond market says there are insufficient future skilled workers in Europe. It would be hard to disagree.

Further information

Our April 2025 report to investors can be found here.