Twenty Third Floor
Technical Business Advantage

Brian Richardson, CEO of mobile banking company Wizzit doesn’t understand the monetary policy, or so it seems.

He claims there is approximately R12bn of money outside of the formal banking system, or “under mattresses” as I believe he put it. This may be true.

Then, and this is where I have a problem, states that “It would have a massive impact if that money came into the market” with the implication that this would be a good thing. This reflects a broken understanding of monetary policy.

Putting this un-banked money into banks would allow it to be re-loaned, applying the multiplier effect and effectively expanding the money supply. Whether expansion of the money supply by R120bn (assuming effective multiplier is around 10) is a good thing or not is a question of fact, yet to be resolved.

Of course, if this were a good thing, the Reserve Bank could achieve the same thing through a combination of open market purchases of bonds (released cash into the money supply), weakening reserve requirements (allow the same money to be relent more times) or printing bank notes and dropping them from helicopters. They haven’t yet done this.

So it’s not really a good thing for the economy as a whole. It is a compelling argument for mobile banking though. Just saying.

Sharemax appears to be spiralling to its doom. Multiple stories today report that they are late on dividend payments to investors and may not be able to pay dividends in the forseeable future.

Cash has run out. The overvalued, over-geared properties cannot support the income stream that was demanded from them.

No surprises here then.

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Lightstone have a trick up their sleeves. Their raison d’être is collecting, analysing, understanding and packaging data for themselves and others to use to understand past, current and future property valuations.

Their housing price index is more robust (and more independent) than those of the banks based off their own data and target markets. Rather than consider only the average price of houses sold in that particular month (which is a function of house price growth / decline but also how the type, condition, size and location of the houses sold that month differ from the prior month and year) they consider repeat sales where the same property has been bought and sold more than once.

This data is combined or “chain-linked” to provide a continuous measure of house price inflation over time.

House Price Inflation 2010 source: lightstone.co.za

The result of all of this data, best-in-class methodology and analysis? When Lightstone says “opportunities abound in local market” I actually listen. Since their business model is to sell information, I’m more likely to trust what they say.

Tyler Reed blogs about entrepreneurs having to make decisions with limited information.

It’s almost all unknown

I don’t disagree.  It’s just that almost every meaningful decision ever made is made without all the information.

Unknowns can be categorised a hundred different ways. One way is to think about:

1. Unknown past information
2. Uncertainty around the current situation or position
3. Unknown future outcomes

Even a game like chess, where the past history of the game is easily known by good players, the current position is clearly visible and all the possible moves are knowable, it is not possible have all the information about how your opponent will react to your move.

How to deal with decision making under uncertainty – part 1

Tyler suggests that gut-based decision making can be effective much of the time – and it can. It there genuinely is no time for anything more than an instinctive reaction, you probably are best going with your gut.

Even if you have plenty of time, listening to your guy to formulate an idea is a great idea. Insight comes partly from experience and the reinforced neural pathways of our learning brain. If you stop with the gut though, you are missing out. There is a tremendous amount of research showing how ridiculously badly our instincts perform in many areas, particularly those relating to uncertainty and complexity! (more…)

I haven’t played Monopoly in a while (preferring Settlers of Catan, Carcasonne, Tigris and Euphrates and even Cranium), but after a recent conversation I started thinking about the game dynamics. There is surprisingly much that is relevant to the current story of our economy.

1 The Competition Commission is necessary

Monopolies serve to increase prices for consumers. In Monopoly, the “rents” charged are instantly higher as soon as a player has a monopoly on property in a certain area.

Worse than the increase in prices and decrease in supply, the additional profit for suppliers is not equal to the cost to consumers from higher prices, resulting in an overall “dead weight loss of monopoly” or an overall cost to society. (more…)

From Stats SA

The headline inflation rate in July 2010 (i.e. the Consumer Price Index for all urban areas in July 2010 compared with that at July 2009) was 3,7%

The official inflation rate (i.e. the percentage change in the CPI for all urban areas in July 2010 compared with that in July 2009) was 3,7% at July 2010. This rate was 0,5 of a percentage point lower than the corresponding annual rate of 4,2% in June 2010 (i.e. the Consumer Price Index for all urban areas in June 2010 compared with that in June 2009).

From June 2010 to July 2010 the Consumer Price Index for all urban increased by 0,6%

CPI Headline July 2010 = 3,7%

So this is close to the bottom of our 3% to 6% inflation targeting range. Economic growth is struggling, unemployment is high, but we haven’t reduced interest rates? Something here is a little odd.

I’ll put another $100 in Kiva, to be “microlent” to businesses and people across the world, if the next monetary policy committee meeting doesn’t cut interest rates.

In researching my previous post on accurately measuring the risks associated with vehicle crimes based  on colour, I stumbled across another colour related risk measure.

Red cars, supposedly, attract more than their fair share of traffic fines.

Turns out this is incorrect.  Snopes.com has (as usual) an excellent article on red cars, including references to research showing red cars are not more likely to be fined than other vehicles. Unfortunately, the underlying research isn’t available online (as far as I could find).

Apparently, car thieves don’t want your pink car. It’s not because they don’t like the colour (although they probably don’t). It’s also not only that it’s too distinctive and will be easily spotted (see the discussion later about red cars).

It’s that nobody else wants it. The resale value is much lower than other vehicles, and the risks and costs of stealing it are no lower.

Unlike the conclusion around high risk vehicles in my post on hijacking, this actually means you should be safer in a pink car. Just not safer from ridicule.

Dutch professor, Ben Vollaard, studied theft rates for vehicles as part of his research area of the economics of crimes. The data covered 109 vehicles from 2004 to 2008. Not the largest sample size, but enough to start thinking. (more…)