What is Blockchain?

Posted on 22 February 2018
What is Blockchain?
Callum Godde
(Australian Associated Press)

An Australian university is banking on Blockchain, the technology behind the lucrative yet volatile cryptocurrency industry, by launching a nation-first course in the emerging sector.

Australia's first short course on Blockchain strategy, aiming to educate the nation's next wave of tech start-up entrepreneurs, will take flight on Tuesday at Melbourne's RMIT University.

"Blockchain is now becoming a core part of contemporary digital literacy," Vice Chancellor Martin Bean said.

The online eight-week program is set to begin in mid-March with students given the chance to hear from global experts in the growing space.

Blockchain is a decentralised, shared ledger that with the help of complicated cryptography records transactions in a verifiable, secure and permanent way.

Before Blockchain's birth in 2008, it was impossible to place value on virtual currencies like Bitcoin as there was no way of distinguishing a legitimate digital coin from a copy.

The same principal applies to managing real money digitally, with banks slowly grasping Blockchain's potential benefits as a faster, inexpensive and autonomous system.

"There is a real demand for Blockchain training and a skills gap in the market that needs to be addressed," Alan Tsen, the Melbourne manager of financial tech company Stone and Chalk, said.

As demand presently outstrips supply in the US, there is a desperate need for more programmers in the growing industry predicted to be worth $176 billion by 2025, according to Gartner Research.

Aside from banking, the database system has potential applications for tracking the ownership history of real-world items, electronic voting, cybersecurity and electricity management.

In 2017, the Australian government tipped in $2.57 million to help power a cutting-edge start-up project that could make peer-to-peer solar energy trading a reality.

Posted in: News  

Australia needs broader tax reform: IMF

Posted on 22 February 2018
Australia needs broader tax reform: IMF
Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

The International Monetary Fund has backed the Turnbull government's pursuit of a lower corporate tax rate, but has again called for a broader tax reform package.

The IMF estimates broad-based tax reform could boost economic growth by at least a further 1.3 percentage points through lower corporate and personal income taxes, while increasing the GST and introducing a land tax.

The government's aim to reduce the corporate tax rate to 25 per cent would grow the economy by up to one per cent but only when fully implemented in a decade's time, according to the Treasury.

"For a country like Australia looking at the international standing of corporate tax rates is important and we would endorse that," the IMF's Thomas Helbling said after the annual assessment of Australia was released on Wednesday.

But he said there are inefficiencies in the current taxation system, with corporate and personal taxes relatively high, while land and consumption are taxed relatively low.

He believes there is also scope to reduce "generous" tax exemptions, some of which are not means-tested.

Treasurer Scott Morrison said the report reinforced the need for Australia to maintain its international competitiveness.

"The report notes that Australia's corporate tax rate is currently in the top tier of advanced economies," Mr Morrison said in a statement, but he did not comment on the IMF's call for broader tax reform.

Two years ago, Prime Minister Malcolm Turnbull ditched a plan to raise the GST as a funding mechanism for broad-brush tax cuts because modelling showed it would lift growth by just 0.3 per cent.

The IMF report suggests while there are concerns about raising tax on consumption, or the GST, at a time of low wage growth, this could be addressed by broadening its base.

Dr Helbling told reporters via a teleconference that moving to a land tax from stamp duty would be more efficient and improve the functioning of the housing market.

However, the report concedes any change would have to be gradual, given the importance of stamp duties to state revenues and the additional burden on existing property owners.

The IMF also believes lower capital gains discounts and limits to negative gearing for investors are "desirable".

Shadow treasurer Chris Bowen said the treasurer's resistance to Labor's negative gearing and capital gains tax reforms has become an "international embarrassment".

"Mr Morrison has not only failed millions of young Australians when it comes to adequately dealing with housing affordability, but he has also overseen an Australian economy and housing market that is more vulnerable to future economic shocks," Mr Bowen said in a statement.

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Market corrections

Posted on 15 February 2018

ClearView Chief Investment Officer Justin McLaughlin addresses recent share market volatility, particularly in the US, and explains why market corrections occur.  


Posted in: News  

Fortune favours the bold and patient

Posted on 15 February 2018

Jessica Schlosser, Investment Analyst at ClearView

What to do when everyone else is doing it

A synchronised global expansion coupled with ultra-low interest rates created prime conditions for global equity investors in 2017. For the first full calendar year in history, US equities climbed higher month-on-month with the S&P 500 Index ending the year at its second highest point (the first being the dot.com boom). The MSCI China Index and the MSCI Emerging Markets Index also soared, returning 53 per cent and 34.8 per cent respectively for the year to December 31, 2017. Even Iranian bonds were oversubscribed.

But the stellar performance of global equity markets is creating concern, not only joy.

The problem is that overvalued equity markets are nothing new and usually precipitate a correction or crash.

Throughout the 1920s, the US economy was booming. Investors saw shares as an easy way to make money rather than a long-term stream of discounted cashflows. The combination of economic prosperity and corporate earnings growth justified pouring into the share market without regard for valuations. 

As economists and professional investors Benjamin Graham and David Dodd observed in their book Security Analysis, "it was only necessary to buy 'good' stocks, regardless of price, and then let nature take her upward course. The results of such a doctrine could not fail to be tragic".

Indeed it was for those who applied this logic during the 1920s and also the dot.com boom.

Yet despite better economic tools and the benefit of hindsight, investors are still prone to following the 'herd' and making poor investment decisions. At this critical juncture, it's clear that more care must be taken to ensure history does not repeat itself.

Part of that involves investors understanding the role they play in contributing to, and sustaining, extreme valuations.

A key contributor to current day valuations is the rise of index investing. When buying the index, investors ignore a company's valuation, debt levels, corporate governance, strategy and ability to grow earnings over the long-term.

Active managers, on the other hand, identify risks and underweight risky or overvalued stocks. As a result they may underperform in the short-term when share markets are running hot but good managers also provide some downside protection, ensuring that their portfolios don't fall as far as the market during market corrections.

The catch is that good managers are hard to find.

There is a general misconception that equities are guaranteed to increase wealth over the long-term.

Furthermore, given equities are riskier than government bonds, investors should be financially rewarded, or compensated, for taking a higher degree of risk. This is referred to as the equity risk premium. Ironically, for long-term investors, as more people pile into equities, valuations rise to the point where the likelihood of equities continually outperforming decreases.

The chart below shows the total returns from equities (MSCI World Index), and 10 year US government bonds.

As American economist Paul Samuelson wrote: "Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas". Observing a bond portfolio for 30 years may well be akin to watching paint dry but your patience and conviction will be rewarded over the long-term.

It's also worth remembering that shares on paper don't represent net wealth or purchasing power over the long-term. According to Warren Buffet, it is the future stream of cashflow from owning shares that creates wealth, and the ideal holding period is "forever".

To avoid tragedy, investors must purchase shares for their long-term future cashflow, not to make a quick buck.

Making a good long term investment requires investors to pay fair value in order to reap the benefits of growth over time. As painful as this can be in the short-term, if the facts haven't changed, sometimes it's best to sit back, stick to a disciplined strategy and wave as fads pass by. Just because everyone else is doing it, doesn't make it right.

Posted in: News  

Banks edge closer to instant payments

Posted on 15 February 2018
Banks edge closer to instant payments
Christian Edwards
(Australian Associated Press)

Three of Australia's big four banks have begun rolling out their new $1 billion payment system that allows customers to transfer funds between rival institutions in near real-time.

Customers will be able to pay tradies or transfer cash to family and friends almost instantly, bringing the financial services sector into line with digital payments in other sectors like e-commerce and retail.

"This will give consumers new levels of personalisation and innovation not seen before in Australia," Westpac general manager Di Challenor said.

"Payment delays of up to three days can be a real pain point for customers."

Westpac, Commonwealth Bank, and National Australia Bank began limited use of the system on Tuesday, while ANZ is holding off while it undertakes further "rigorous testing" of the platform.

CBA said it has opened the NPP to 130,000 customers, while Westpac said it will be phasing in access to an initial "small group" of consumer customers.

"The security of our customer data is paramount and we are committed to ensuring our customers have a safe experience," Ms Challenor said.

The system has been in development for six years by government, the RBA and 13 financial institutions including the four major banks.

The lenders faced criticism on Monday's opening day of the industry royal commission when they said they would miss the deadline to hand over information on misconduct to commissioner Kenneth Hayne.

Adrian Lovney, chief executive of the so-called New Payments Platform, said the world-leading technology follows the rapid growth in mobile and digital payments.

BPAY chief executive John Banfield said users will eventually be able to transfer money instantly via their phone as services and products become available on the platform.

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