Altus Insight - November, 2013

There are several ways to visit someplace away from home. You can be a tourist, a business traveler or an out of town guest. My wife and I and our 18 month old daughter spent the last three weeks traveling through Queensland, Australia and the southern island of New Zealand. The purpose of the trip was mainly to visit friends and as a result our trip was far more that of out of town guests than as tourists. We stayed in the homes of our friends most nights, travelling by car town to town to squeeze all our visits in within the short three weeks. In each country we spent time with entrepreneurs, real estate agents, builders, and visited multiple farms. Being who I am and given what I do for a career, substantial effort was made to understand the economies and politico economic situations in each of the countries with three specific questions in mind.

1.       Is this a good place to invest in real assets?
2.       Is this a good place to do business and what are local business opportunities?
3.       What lessons can be learned that can be applied to domestic investment, business practices, or create domestic opportunity.

Below I will try to share my findings and lessons learned. All my interactions were with regular middle class people and the currencies between each of the two countries and the US is roughly on par, so in making any comparisons I could easily compare what I saw in the countries with a typical middle class situation in the States.

Australia: A large country comprised of a small but lovely population, most of which is clustered around a handful of principal cities with the remainder spread out across vast swaths of land, with the highest concentration, though not high at all by American standards, along the eastern seaboard. Australia is approximately the size of the continental US but has a population roughly equivalent to the New York metro area. The low population density leads to challenges but also provides many benefits and opportunities.

Pulse of population: Towards the end of our stay in Australia I started to feel like I had a pretty good feel of the pulse of the country (at least Queensland) but before verbalizing any of my thoughts I asked my wife what she thought. Her words were exactly what I had been thinking, “It seems as if everyone is beat down.” That isn’t to say people are living uncomfortable lives but there is a decided lack of optimism about anyone improving their individual lot in the future. It’s as if everyone is resigned to spend the rest of their lives treading water. It can be seen in the condition of businesses and neighborhoods. Rarely is anything fixed up, cleaned up, sparkling…instead places seem to be maintained just enough to not be the worst property in the neighborhood, drab but not falling apart. Salaries are good in Australia but overall it seems that the standard of living is below that of the US.

Toughness: The Aussies are way tougher than us Americans. This is easy enough to tell just from watching an Australian Rules Football match but that toughness runs throughout the population. One home in which we stayed was a “Queenslander”, older but in good condition (a Queenslander is architectural design in which the living structure is raised to allow breezes under the house – most Queenslanders also have louvered windows and little insulation). When I noticed that there was no heating source in the house I asked the man of the house about it. He said it only got down into the 30s and 40s a couple weeks a year, rarely got below 40 inside the house and normally would warm up to a pleasant temperature during the day. During those time periods they would just put more blankets on the beds and wear more clothes inside the house. He said it was common for houses in that area not to have a heating source. Such a situation in a California rental property (and many other states) would result in immediate condemnation of the house until the heating source was installed.  This Australian toughness is a trait to bet on in rough times.

Two speed economy: Australian mining and crop farming are doing very well and provide the economy with a strong export base. Individuals employed in those areas are doing very well financially.
However, it seems like everything else is struggling to stay afloat. While not seemingly connected at first glance, we also noticed that there are almost no “small pleasure” businesses other than in the highly tourist areas. By small pleasures I am referring to the nonessential consumable items that people in the States spend money on a daily or weekly basis, usually without a second thought. This would be a Starbucks coffee, a Moxies frozen yogurt, a movie, a hand carwash, a meal out, etc. I am an ice cream lover and prior to leaving for weeks of long drives I comforted myself that we would be passing through lots of small towns with homemade ice cream, except there was no ice cream. This in a climate similar to that of Louisiana…very hot most of the year. There simply wasn’t ice cream for sale other than the mass produced ice cream bars found at every gas station. I thought maybe Australians didn’t like ice cream like Americans but the locals assured me that was not the case. It is just too expensive to buy such small pleasures on a regular basis. Despite salaries and many basic living costs being roughly equivalent, a bowl of ice cream costs double what the same bowl would cost in the States. It certainly isn’t because of the cost of the ice cream itself. Milk products are extraordinarily cheap in Australia at the present. Coffees and frozen yogurt are also roughly double the price of what they would cost in the States. I had trouble wrapping my head around such disparate pricing in two equivalently leveled economies.

The mystery continued when some friends showed us a bathroom they were having remodeled. This family now owns a retail business in a tourist area but had previously been home builders and have a son in law that lives locally that is currently a home builder. The price of their new bathroom will be $15,000. We do similar bathroom remodels on a consistent basis for $3,000 - $4,000. Even taking into account that we aren’t paying retail for the work that is being done, the US bathroom easily costs less than ½ that of an equivalent Australian bathroom, probably closer to a third. We went through the materials item by item. While the material costs in the States are better than that which the Australians are paying, the differences aren’t drastic, certainly not $10,000 on a bathroom remodel. The difference is due almost entirely to the labor costs associated with the rehab.

 As it turns out, the entire country works under a rigid compensation structure* with salaries for the lowest level retail position paying $20/hour for a 21 year old employee and increasing based on the age/experience of the employee. Can you imagine what would happen to the cost of discretionary basics if the barista at your local Starbucks was suddenly making $20/hour? There are benefits to this compensation structure. Relatively young individuals and families are able to live comfortably, often even purchasing homes at much younger ages than their American counterparts. But there are also lots of downsides.

For one, everything, especially items with any level of unskilled labor included, costs more, often drastically more. Not only does this result in people not being able to afford things they would love to afford, the removal of small pleasures from peoples budget reduces an economy’s vitality. In many towns everything but the gas station closes at five p.m. The gas station may stay open until 8:00. Businesses have to make their revenue in a much shorter work day because people aren’t out in the evenings. They can’t afford to spend money on the things that Americans (and citizens from other countries) spend money on as normal course of life so there is no reason to be out in the evenings. Instead of paying $8 for an ice cream, many Australians instead put the money aside and end up travelling internationally. Money that could have been spent in the domestic economy (with the standard money multiplier then being applied) is instead spent entirely outside the country’s borders where there are no taxes collected by the government nor benefits to the local economy. Why would you pay to upgrade your bathroom when for the same price you and your spouse can take a two week vacation to Fiji and still come out with money in the bank?

 Additionally, because labor costs are so high business owners are extremely reticent to take on more staff. This results in fewer jobs in the economy.

Also, because unskilled young people can make such a decent living the incentive to obtain an advanced degree or training is greatly diminished, thus reducing the skillsets of the labor force of the country in aggregate.

Lastly, the rigid compensation structure reduces the likelihood of overachievement. Why work harder than your co-worker and why take risks in your career when your compensation is largely going to be limited by the underlying compensation structure?

Lagging technology: I was frankly amazed at the lack of internet and wi-fi available throughout our Australian travels. Some people don’t have it all and many others have internet linked to only one computer (no wifi) with a severely limited amount of access each month. There are few public hotspots (tied to the same issue of lack of inexpensive niceties like coffee) and even some of the motels/hotels of which we inquired didn’t have access. Additionally, technological gadgets that we have become used to in the states, such as iPads, are few and far between. By all appearances this lag in technology doesn’t afflict the agriculture and mining industries. By keeping current with equipment Australian miners and farmers are able to minimize labor inputs (did you know there are now cow milking machines that self-place prior to beginning to milk?) which in turn allows them to compete in the export markets against countries with a much lower labor costs.

Business practices: I think there is great room for upside in the business practices of the Australian small business. It seemed to me that many small business people are working under a severe scarcity mentality and are afraid to spend anything on their business to set it apart. In general retail service throughout the country is poor, although very friendly, and by all appearances inefficiencies abound. The Australian government is intrusive by increasing the difficulty of running a business, and especially starting a new one, so these best practices will only bring value to an entrepreneur who can also deal with headaches of compliance. One word of caution however, when the public is involved as a business’s customer, not all the good ideas in one country or region will be good ideas in another country or region. Frozen yogurt is hot in many places around the world, but how good of an idea is it when you have to sell 20 yogurts per hour just to cover your labor costs and a yogurt shop’s prime hours are 7 – 9 p.m. but no one leaves their house after getting home from work?

 Politics and the economy: Australia has cattle, lots and lots of cattle. Up until fairly recently, a good portion of these cattle were loaded on boats and shipped off and sold to Australia’s closest neighbor Indonesia for fattening and slaughter. But then an Australian decided they didn’t like the way Indonesia was treating the cattle after they purchased them and convinced enough people to protest the issue such that the government then disallowed live cattle trade to Indonesia. That cattle is now over populating and over grazing Queensland pasture land, in danger of starving to death. The money coming from Indonesia no longer enters the country, an especially big blow to all the little towns that serviced the cattle ranches that no longer have income to in turn spend in the towns. The old government has been replaced and the new government is trying to rectify the situation but Indonesia now has other suppliers. Australia is like the US and so many other countries. Politics and the effort to win votes often end up causing unconsidered collateral damage. As an aside, remembering back to last month’s article on risk versus uncertainty, I am pretty sure that the possibility of the government restricting their ability to export live cattle due to the treatment of the cattle by the buyer is not something the ranchers included in their risk mitigation strategies.

Opportunities: Because of the increase in property values throughout Australia over the past several years I have been watching the Australian real estate market from afar for some time. Sydney is now one of the most expensive real estate markets in the world, in the same breath as London, New York, San Jose, and Hong Kong. I have expected that this is a price bubble that will pop, just like prices did in the US, resulting in strong buying opportunities. I continue to believe this to be the case but do not believe it is as imminent as I did previously. Home prices in Australia fell 5% last year but most people still believe they are going up. This ignorance can do wonders for the stability of the market. Since people don’t move as often as they do in the States they don’t pay as much attention to the market value which in turn means they don’t panic if prices start to slide. Panic is what led to the over-correction in many US markets. Additionally, because it costs so much to build a house (I believe I could build an Australian house 30 – 40% cheaper than their going costs) there doesn’t appear to be excess supply due to over-building. However, if there is a hiccup with the Chinese economy, especially if it coincides with a strengthening of the US dollar (a possibility through either increases in domestic energy production or due to the tapering of the quantitative easing), and in light of the current debt issues facing the new Australian government, there could be substantial buying opportunities. This is a play that may take some patience.

Due to the meddling of the government into the economy and general lack of any sort of passion in the mood of the population I would be hesitant to make a business investment into the generic Australian economy at present. There are always good jockeys in good races but those are particular opportunities that have to be reviewed within their own particular context.

I think an active and creative business owner can eat the lunch of their competitors within many Australian markets and because of this I do see opportunity for business operators focused on providing for non-luxury domestic demand. I think there may also be a niche opportunity in importing consumer technology. 

New Zealand: For the sake of disclosure I must note that we only visited the south island but I was truly stunned by my New Zealand experience. New Zealand is a beautiful country and similar to Australia in that it has a very low population density with the south island only having 19 residents per square mile (less than North Dakota, more than Alaska). We didn’t find the Kiwis to be quite as warm as the Queenslanders but it is a comparison similar to saying Bill Gates doesn’t have as much money as Warren Buffet. The New Zealanders are wonderful.  Because this article is already longer in length than I like my articles to be, I won’t go into detail on my New Zealand experience however I will share a couple basic thoughts. In many ways New Zealand is similar to Australia. Mostly an export driven country with a small population not located at the heart of the world’s trading routes, except that New Zealand is even smaller in population and a further freight trip from suppliers and to buyers. Yet the feeling in New Zealand is drastically different than that which we experience in Australia. It is a land of advanced business practices, advanced technology and a land full of optimistic people.
 
What I learned:
1.       There is a benefit to living in a country with as large as a population base as the US. We have access to a variety of goods and services unknown to many in the world. The material costs are also lower due to quantities being imported and sold.
2.       Australia is far ahead of the US in water conservation. Nearly every property has a cistern that captured rainwater off the roof with the water then being used for flushing toilets, doing laundry, and in many cases filtered for drinking. Additionally, most properties, and all the new ones, capture gray water separately from brown water and use it for irrigation. Not only does this provide water for landscaping, it reduces the affluent that has to be treated. Despite parts of Australia getting lots of rain, drinking water is very expensive. Bottled water costs more than milk, gasoline and sometimes even soda. There will come a time in the US where water costs more than gasoline.
3.       Despite our complaints about the government in the US, it could be worse. Of course, based on what I saw in New Zealand, it could also be better.
4.       Innovation is one of two keys to improving the quality of life of a population. We need to encourage innovation by whatever means necessary. We also need to be cognizant of passing laws and instituting regulations that hinder innovation.
5.       The other key to improving the quality of life of a population is a consistent increase in size of that population.
6.       Quantitative Easing has repercussions far beyond what most of us bother to imagine. Since no one has ever been down this path before we can’t predict the outcome, but we can determine there is a chance it could be very, very ugly. Not just for the US, but for the world. More people seem to be concerned about it outside the US than in the US, which tells me those of us in the US may be suffering from familiarity bias.
7.       It is far more dangerous to post a portion of needed warning signs than to post none at all but only slightly more dangerous to post none than it is to post all of them. For example, a driver on a curvy road without signage will take great caution in driving that road. That same driver on the same road well marked with recommended speeds and corner warnings will likely feel more confident and will be able to safely drive the that same road at higher speeds. However, a driver that has confidence in a road being be well marked that isn’t in fact well marked is at a much higher risk of causing an accident. The Federal Reserve communicates in confidence that it has marked all the sharp economic curves ahead. In so doing it is creating a false sense of comfort that is likely to lead to an ‘accident’. The Federal Reserve is taking us all down a road no one has been before. They can’t have confidence in the signage. They have never been down this road either.
8.       Building and planning codes in the US make it difficult for us to build structures that are suited to natural heating and cooling and in one of many government contradictions it results in more energy usage despite construction that is considered more energy efficient.   
One thing I love about travelling is that it gives me a chance to see different perspectives, opportunities, and even challenges. There is no economy, business, or investment environment from which we cannot learn. Maybe we are learning something that will help us if we come back to that same place to do business or invest in the future. More likely we are learning something that we can apply to our current business or investment decisions. As business owners and investors, the important thing is to be able to have a mindset that allows us to do that learning.
 
Forrest Jinks
 
*Note: There are ways to work around the Australia compensation structure but it is burdensome. Even if a business goes through the hoops to be able to compensate outside the “official” structure, they will have trouble finding employees willing to work in a structure not appearing to be as favorable for the employee as the standard structure.

There are several ways to visit someplace away from home. You can be a tourist, a business traveler or an out of town guest. My wife and I and our 18 month old daughter spent the last three weeks traveling through Queensland, Australia and the southern island of New Zealand. The purpose of the trip was mainly to visit friends and as a result our trip was far more that of out of town guests than as tourists. We stayed in the homes of our friends most nights, travelling by car town to town to squeeze all our visits in within the short three weeks. In each country we spent time with entrepreneurs, real estate agents, builders, and visited multiple farms. Being who I am and given what I do for a career, substantial effort was made to understand the economies and politico economic situations in each of the countries with three specific questions in mind.

1.       Is this a good place to invest in real assets?
2.       Is this a good place to do business and what are local business opportunities?
3.       What lessons can be learned that can be applied to domestic investment, business practices, or create domestic opportunity.

Below I will try to share my findings and lessons learned. All my interactions were with regular middle class people and the currencies between each of the two countries and the US is roughly on par, so in making any comparisons I could easily compare what I saw in the countries with a typical middle class situation in the States.

Australia: A large country comprised of a small but lovely population, most of which is clustered around a handful of principal cities with the remainder spread out across vast swaths of land, with the highest concentration, though not high at all by American standards, along the eastern seaboard. Australia is approximately the size of the continental US but has a population roughly equivalent to the New York metro area. The low population density leads to challenges but also provides many benefits and opportunities.

Pulse of population: Towards the end of our stay in Australia I started to feel like I had a pretty good feel of the pulse of the country (at least Queensland) but before verbalizing any of my thoughts I asked my wife what she thought. Her words were exactly what I had been thinking, “It seems as if everyone is beat down.” That isn’t to say people are living uncomfortable lives but there is a decided lack of optimism about anyone improving their individual lot in the future. It’s as if everyone is resigned to spend the rest of their lives treading water. It can be seen in the condition of businesses and neighborhoods. Rarely is anything fixed up, cleaned up, sparkling…instead places seem to be maintained just enough to not be the worst property in the neighborhood, drab but not falling apart. Salaries are good in Australia but overall it seems that the standard of living is below that of the US.

Toughness: The Aussies are way tougher than us Americans. This is easy enough to tell just from watching an Australian Rules Football match but that toughness runs throughout the population. One home in which we stayed was a “Queenslander”, older but in good condition (a Queenslander is architectural design in which the living structure is raised to allow breezes under the house – most Queenslanders also have louvered windows and little insulation). When I noticed that there was no heating source in the house I asked the man of the house about it. He said it only got down into the 30s and 40s a couple weeks a year, rarely got below 40 inside the house and normally would warm up to a pleasant temperature during the day. During those time periods they would just put more blankets on the beds and wear more clothes inside the house. He said it was common for houses in that area not to have a heating source. Such a situation in a California rental property (and many other states) would result in immediate condemnation of the house until the heating source was installed.  This Australian toughness is a trait to bet on in rough times.

Two speed economy: Australian mining and crop farming are doing very well and provide the economy with a strong export base. Individuals employed in those areas are doing very well financially.
However, it seems like everything else is struggling to stay afloat. While not seemingly connected at first glance, we also noticed that there are almost no “small pleasure” businesses other than in the highly tourist areas. By small pleasures I am referring to the nonessential consumable items that people in the States spend money on a daily or weekly basis, usually without a second thought. This would be a Starbucks coffee, a Moxies frozen yogurt, a movie, a hand carwash, a meal out, etc. I am an ice cream lover and prior to leaving for weeks of long drives I comforted myself that we would be passing through lots of small towns with homemade ice cream, except there was no ice cream. This in a climate similar to that of Louisiana…very hot most of the year. There simply wasn’t ice cream for sale other than the mass produced ice cream bars found at every gas station. I thought maybe Australians didn’t like ice cream like Americans but the locals assured me that was not the case. It is just too expensive to buy such small pleasures on a regular basis. Despite salaries and many basic living costs being roughly equivalent, a bowl of ice cream costs double what the same bowl would cost in the States. It certainly isn’t because of the cost of the ice cream itself. Milk products are extraordinarily cheap in Australia at the present. Coffees and frozen yogurt are also roughly double the price of what they would cost in the States. I had trouble wrapping my head around such disparate pricing in two equivalently leveled economies.

The mystery continued when some friends showed us a bathroom they were having remodeled. This family now owns a retail business in a tourist area but had previously been home builders and have a son in law that lives locally that is currently a home builder. The price of their new bathroom will be $15,000. We do similar bathroom remodels on a consistent basis for $3,000 - $4,000. Even taking into account that we aren’t paying retail for the work that is being done, the US bathroom easily costs less than ½ that of an equivalent Australian bathroom, probably closer to a third. We went through the materials item by item. While the material costs in the States are better than that which the Australians are paying, the differences aren’t drastic, certainly not $10,000 on a bathroom remodel. The difference is due almost entirely to the labor costs associated with the rehab.

 As it turns out, the entire country works under a rigid compensation structure* with salaries for the lowest level retail position paying $20/hour for a 21 year old employee and increasing based on the age/experience of the employee. Can you imagine what would happen to the cost of discretionary basics if the barista at your local Starbucks was suddenly making $20/hour? There are benefits to this compensation structure. Relatively young individuals and families are able to live comfortably, often even purchasing homes at much younger ages than their American counterparts. But there are also lots of downsides.

For one, everything, especially items with any level of unskilled labor included, costs more, often drastically more. Not only does this result in people not being able to afford things they would love to afford, the removal of small pleasures from peoples budget reduces an economy’s vitality. In many towns everything but the gas station closes at five p.m. The gas station may stay open until 8:00. Businesses have to make their revenue in a much shorter work day because people aren’t out in the evenings. They can’t afford to spend money on the things that Americans (and citizens from other countries) spend money on as normal course of life so there is no reason to be out in the evenings. Instead of paying $8 for an ice cream, many Australians instead put the money aside and end up travelling internationally. Money that could have been spent in the domestic economy (with the standard money multiplier then being applied) is instead spent entirely outside the country’s borders where there are no taxes collected by the government nor benefits to the local economy. Why would you pay to upgrade your bathroom when for the same price you and your spouse can take a two week vacation to Fiji and still come out with money in the bank?

 Additionally, because labor costs are so high business owners are extremely reticent to take on more staff. This results in fewer jobs in the economy.

Also, because unskilled young people can make such a decent living the incentive to obtain an advanced degree or training is greatly diminished, thus reducing the skillsets of the labor force of the country in aggregate.

Lastly, the rigid compensation structure reduces the likelihood of overachievement. Why work harder than your co-worker and why take risks in your career when your compensation is largely going to be limited by the underlying compensation structure?

Lagging technology: I was frankly amazed at the lack of internet and wi-fi available throughout our Australian travels. Some people don’t have it all and many others have internet linked to only one computer (no wifi) with a severely limited amount of access each month. There are few public hotspots (tied to the same issue of lack of inexpensive niceties like coffee) and even some of the motels/hotels of which we inquired didn’t have access. Additionally, technological gadgets that we have become used to in the states, such as iPads, are few and far between. By all appearances this lag in technology doesn’t afflict the agriculture and mining industries. By keeping current with equipment Australian miners and farmers are able to minimize labor inputs (did you know there are now cow milking machines that self-place prior to beginning to milk?) which in turn allows them to compete in the export markets against countries with a much lower labor costs.

Business practices: I think there is great room for upside in the business practices of the Australian small business. It seemed to me that many small business people are working under a severe scarcity mentality and are afraid to spend anything on their business to set it apart. In general retail service throughout the country is poor, although very friendly, and by all appearances inefficiencies abound. The Australian government is intrusive by increasing the difficulty of running a business, and especially starting a new one, so these best practices will only bring value to an entrepreneur who can also deal with headaches of compliance. One word of caution however, when the public is involved as a business’s customer, not all the good ideas in one country or region will be good ideas in another country or region. Frozen yogurt is hot in many places around the world, but how good of an idea is it when you have to sell 20 yogurts per hour just to cover your labor costs and a yogurt shop’s prime hours are 7 – 9 p.m. but no one leaves their house after getting home from work?

 Politics and the economy: Australia has cattle, lots and lots of cattle. Up until fairly recently, a good portion of these cattle were loaded on boats and shipped off and sold to Australia’s closest neighbor Indonesia for fattening and slaughter. But then an Australian decided they didn’t like the way Indonesia was treating the cattle after they purchased them and convinced enough people to protest the issue such that the government then disallowed live cattle trade to Indonesia. That cattle is now over populating and over grazing Queensland pasture land, in danger of starving to death. The money coming from Indonesia no longer enters the country, an especially big blow to all the little towns that serviced the cattle ranches that no longer have income to in turn spend in the towns. The old government has been replaced and the new government is trying to rectify the situation but Indonesia now has other suppliers. Australia is like the US and so many other countries. Politics and the effort to win votes often end up causing unconsidered collateral damage. As an aside, remembering back to last month’s article on risk versus uncertainty, I am pretty sure that the possibility of the government restricting their ability to export live cattle due to the treatment of the cattle by the buyer is not something the ranchers included in their risk mitigation strategies.

Opportunities: Because of the increase in property values throughout Australia over the past several years I have been watching the Australian real estate market from afar for some time. Sydney is now one of the most expensive real estate markets in the world, in the same breath as London, New York, San Jose, and Hong Kong. I have expected that this is a price bubble that will pop, just like prices did in the US, resulting in strong buying opportunities. I continue to believe this to be the case but do not believe it is as imminent as I did previously. Home prices in Australia fell 5% last year but most people still believe they are going up. This ignorance can do wonders for the stability of the market. Since people don’t move as often as they do in the States they don’t pay as much attention to the market value which in turn means they don’t panic if prices start to slide. Panic is what led to the over-correction in many US markets. Additionally, because it costs so much to build a house (I believe I could build an Australian house 30 – 40% cheaper than their going costs) there doesn’t appear to be excess supply due to over-building. However, if there is a hiccup with the Chinese economy, especially if it coincides with a strengthening of the US dollar (a possibility through either increases in domestic energy production or due to the tapering of the quantitative easing), and in light of the current debt issues facing the new Australian government, there could be substantial buying opportunities. This is a play that may take some patience.

Due to the meddling of the government into the economy and general lack of any sort of passion in the mood of the population I would be hesitant to make a business investment into the generic Australian economy at present. There are always good jockeys in good races but those are particular opportunities that have to be reviewed within their own particular context.

I think an active and creative business owner can eat the lunch of their competitors within many Australian markets and because of this I do see opportunity for business operators focused on providing for non-luxury domestic demand. I think there may also be a niche opportunity in importing consumer technology. 

New Zealand: For the sake of disclosure I must note that we only visited the south island but I was truly stunned by my New Zealand experience. New Zealand is a beautiful country and similar to Australia in that it has a very low population density with the south island only having 19 residents per square mile (less than North Dakota, more than Alaska). We didn’t find the Kiwis to be quite as warm as the Queenslanders but it is a comparison similar to saying Bill Gates doesn’t have as much money as Warren Buffet. The New Zealanders are wonderful.  Because this article is already longer in length than I like my articles to be, I won’t go into detail on my New Zealand experience however I will share a couple basic thoughts. In many ways New Zealand is similar to Australia. Mostly an export driven country with a small population not located at the heart of the world’s trading routes, except that New Zealand is even smaller in population and a further freight trip from suppliers and to buyers. Yet the feeling in New Zealand is drastically different than that which we experience in Australia. It is a land of advanced business practices, advanced technology and a land full of optimistic people.
 
What I learned:
1.       There is a benefit to living in a country with as large as a population base as the US. We have access to a variety of goods and services unknown to many in the world. The material costs are also lower due to quantities being imported and sold.
2.       Australia is far ahead of the US in water conservation. Nearly every property has a cistern that captured rainwater off the roof with the water then being used for flushing toilets, doing laundry, and in many cases filtered for drinking. Additionally, most properties, and all the new ones, capture gray water separately from brown water and use it for irrigation. Not only does this provide water for landscaping, it reduces the affluent that has to be treated. Despite parts of Australia getting lots of rain, drinking water is very expensive. Bottled water costs more than milk, gasoline and sometimes even soda. There will come a time in the US where water costs more than gasoline.
3.       Despite our complaints about the government in the US, it could be worse. Of course, based on what I saw in New Zealand, it could also be better.
4.       Innovation is one of two keys to improving the quality of life of a population. We need to encourage innovation by whatever means necessary. We also need to be cognizant of passing laws and instituting regulations that hinder innovation.
5.       The other key to improving the quality of life of a population is a consistent increase in size of that population.
6.       Quantitative Easing has repercussions far beyond what most of us bother to imagine. Since no one has ever been down this path before we can’t predict the outcome, but we can determine there is a chance it could be very, very ugly. Not just for the US, but for the world. More people seem to be concerned about it outside the US than in the US, which tells me those of us in the US may be suffering from familiarity bias.
7.       It is far more dangerous to post a portion of needed warning signs than to post none at all but only slightly more dangerous to post none than it is to post all of them. For example, a driver on a curvy road without signage will take great caution in driving that road. That same driver on the same road well marked with recommended speeds and corner warnings will likely feel more confident and will be able to safely drive the that same road at higher speeds. However, a driver that has confidence in a road being be well marked that isn’t in fact well marked is at a much higher risk of causing an accident. The Federal Reserve communicates in confidence that it has marked all the sharp economic curves ahead. In so doing it is creating a false sense of comfort that is likely to lead to an ‘accident’. The Federal Reserve is taking us all down a road no one has been before. They can’t have confidence in the signage. They have never been down this road either.
8.       Building and planning codes in the US make it difficult for us to build structures that are suited to natural heating and cooling and in one of many government contradictions it results in more energy usage despite construction that is considered more energy efficient.   
One thing I love about travelling is that it gives me a chance to see different perspectives, opportunities, and even challenges. There is no economy, business, or investment environment from which we cannot learn. Maybe we are learning something that will help us if we come back to that same place to do business or invest in the future. More likely we are learning something that we can apply to our current business or investment decisions. As business owners and investors, the important thing is to be able to have a mindset that allows us to do that learning.
 
Forrest Jinks
 
*Note: There are ways to work around the Australia compensation structure but it is burdensome. Even if a business goes through the hoops to be able to compensate outside the “official” structure, they will have trouble finding employees willing to work in a structure not appearing to be as favorable for the employee as the standard structure.