Once upon a time in a land not so far away, if you wanted to start a business, you had to choose a city in which to settle–not just for the business but for yourself. A lot of thought went into figuring out where to set up your new company’s home base. Delaware and Nevada, for example, have been popular choices because of its business friendly regulations and corporate tax laws. Once you got your central location up and running you could think about expanding to multiple locations or turning your company into a franchise.
Those days are over. Sure, there are some who prefer to build businesses traditionally, but today thanks to advancements in technology and the rise of the internet and the ability to receive and send money online, even internationally, people can start a company anywhere and operate it from anywhere else (provided local incorporation laws do not require a specific length of time spent on site).
Migrants have long moved to a new country for work, and then transferred funds home. This has been nearly completely those migrating from poor countries (or poor areas in the countries) to rich countries. Now individuals from rich countries are taking advantage of low cost countries to lower their living expenses while running most of your day to day from…just about anywhere.
Businesses Can’t Really Be Nomadic, Can They?
It’s true: not every business is suited to a nomadic lifestyle. Independent retail shops, for example: though it is possible to oversee basic operations from wherever you are, until you have a full support staff you are going to be needed onsite. Local service businesses that specialize in trades like contracting, plumbing, electrics, etc. Those are difficult to operate via telecommute. Most other companies, however, can be adapted to a global marketplace and base of operations fairly easily.
I traveled for 4 years in SE Asia while operating my business. During that time my brother took a year to travel around the world with his family while running his business. He visited clients during his travels which took him through Brazil, Turkey, South Africa, India, Singapore, Australia and more. We met up for a week in Bali. There are challenges but there are great rewards also for businesses that allow you to travel while you work.
Rice field opposite our bungalow in Ubud, Bali.
Which Businesses Are Best Suited to the Nomadic Lifestyle?
As previously stated, if you work hard enough at building your company and support team, you can run just about any sort of business from anywhere. That said, there are some companies and business types that lend themselves more easily to the nomadic lifestyle.
Chris Guillebeau covers a few of these businesses and the entrepreneurs who started them in his book, The $100 Startup. One entrepreneur, for example, runs a linguistics and translation business internationally. He loves languages and loves teaching so he moves from country to country, learning the local languages and then teaching them to tourists and expatriates who choose to move there. Guillebeau himself has turned his book into a tour, a conference (The World Domination Summit) and a series of Unconventional Guides. He travels all over the world and writes from wherever he happens to be at the time.
European government debt has been sold at negative interest rates recently. The United States Treasury has now come as close to that as possible with 0% 3 month T-bills in the latest auction.
The incredible policies that have created such loose credit has the world so flooded with money searching for somewhere to go that 0% is seen as attractive. This excess cash is dangerous. It is a condition that makes bubbles inflate.
Low interest rates are good for businesses seeking capital to invest. These super low rates for so long are almost certainly creating much more debt for no good purpose. And likely even very bad purposes since cash is so cheap.
One thing I didn’t realize until last month was that while the USA Federal Reserve stopped pouring additional capital into the markets by buying billions of dollars in government every month they are not taking the interest and maturing securities and reducing the massive balance sheet they have. They are actually reinvesting the interest (so in fact increasing the debt load they carry) and buying more debt anytime debt instruments they hold come due.
The Fed should stop buying even more debt than they already hold. They should not reinvest income they receive. They should reduce their balance sheet by at least $1,500,000,000,000 before they consider buying new debt.
Unless the failure to address too-big-to-fail actions (and systems that allow such action) results in another great depression threat. And if that happens again they should not take action until people responsible are sitting in jail without the possibly of bail. The last bailout just resulted in transferring billions of dollars from retires and other savers to the pockets of those creating the crisis. Doing that again when we knew that was fairly likely without changing the practices of the too-big-to-fail banks. But I would guess we will just bail them out while they sit in one of the many castles their actions at the too-big-to-fail banks bought them and big showered with more cash in the bailout from the next crisis.
How to invest in these difficult times is not an easy question to answer. I would put more money in stocks for yield (real estate investment trusts, drug companies, dividend aristocrats), I would also keep cash even if it yields 0% and actually a new category for me – peer to peer lending (which I will write about soon). Recently many dividend stocks have been sold off quite a bit (and then on top of that drug stocks sold off) so they are a much better buy today than 4 months ago. Still nothing is easy in what I see as a market with much more risk than normal.
I am almost never a fan of long term debt. I would avoid it nearly completely today (if not completely). For people that are retired and living off their dividends and interest I may have some long term debt but I would have much more in cash and short term assets (even with the very low yields). Peer to peer lending has risks but given what the fed has done to savers I would take that risk to get the larger yields. The main risk I worry about is the underwriting risk – the economic risks are fairly well known, but it is very hard to tell if the lender starts doing a poor job of underwriting.
Related: The Fed Should Raise the Fed Funds Rate – Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000 – Buffett Calls on Bank CEOs and Boards to be Held Responsible – Historical Stock Returns
I believe a huge amount of money will be made due to self driving cars. Figuring out who will make that money is not easy.
The value of being able to use the time you are moving to your destination instead of concentrating on driving is huge. And the reduction in deaths, serious injuries, injuries, damages, frustration and waste of time caused by accidents will be a huge benefit to society. Many people attempting to focus on phone calls or whatever else instead of driving create lots of that damage due to accidents.
There will also be big restructuring in how the economy works. Car sharing (such as Zipcar) will greatly increase I think and Uber and Lyft will likely be big players in a move to driverless cars. It sure seems like fewer cars will be needed. Space wasted on parking cars should be greatly reduced. Deliveries will likely see big changes. The impact on the economy will be huge. Even the health care system may see billions in savings.
Toyota is an amazingly well managed company. They should capitalize on any important shifts in the auto industry. But will they do so for driverless cars? Will there be a decrease in demand for cars so large that Toyota losses more than it wins? My guess is the decrease in demand globally will not be huge for the next 10 years (of course I could be wrong). My guess is Toyota will do well, but may be caught a bit behind, but then will come back strongly.
For those that don’t think Toyota can innovate, remember the Prius. Also they have been big investors in robots. That they haven’t turned robots into a big business yet though may be a sign of weakness (related to turning innovation into business profits).
I think Toyota will do the best of the large traditional car companies at taking advantage of this opportunity. Honda would be my second pick.
Google has been at the forefront of the driverless car efforts; I first wrote about self driving cars in 2010 about Google’s efforts (on my Curious Cat Engineering Blog). They are willing to take big gambles. They have a very good engineering culture. They are very profitable. They haven’t done much at creating profitable businesses outside of search and ads though. Still I think they may be huge winners in this area. I would guess by licensing technology to others, but things are involving quickly we will see how it plays out.
Tesla has a great engineering culture with a priority given on innovation and customer focus. They are in the car industry though I don’t lump them with the “traditional car companies.” I give weight to the value Elon Musk will bring them. They have big potential to be one of the big winners in a self driving car future. But they have yet to create much profit. Will they be able to turn promising engineering and leadership into a huge business? I think the odds are good but that is still a difficult challenge. Others have much more money than Tesla. Apple has so much money they could even buy Tesla easily.
Elon Musk recently spoke about the current state and near term future:
Musk also stressed that the new Tesla autopilot system, which uses radar, ultrasonic sensing and cameras to create a sort of super-smart cruise control, obstacle avoidance and lane-keeping system, is not the same as a self-driving car.
Apple seems like a long shot to me. It doesn’t seem like the type of business Apple has gone into in the past. The argument for doing so is the huge pile of cash they have (over $170 billion which is an absolutely huge number – it is also a bit fake in that they have started borrowing tens of billions instead of spending that cash). The moves with the cash are based on 2 circumstances. First they would have to pay large amounts of taxes to use that cash in the USA (taxes are delayed as long as they hold it overseas). And second interest rates are so low, borrowing money hardly costs them anything.
USA health care spending increased at a faster rate than inflation in 2013, yet again; increasing 3.5%. Total health expenditures reached $2.9 trillion, 17.4% of the nation’s Gross Domestic Product (GDP) or $9,255 per person.
While this remains bad news the rate at which heath care is increasingly costing those in the USA has been slower the last 5 years than it has been in past years. Basically the system is getting worse at a slower rate than we used to be, so while that isn’t great, it beats getting worse as quickly as we used to be. For the last 5 years the rate of increase has been between 3.6% and 4.1%.
GDP has increased more than inflation. As the GDP grows the economy has more production for society to split. The split between the extremely wealthy and the rest of society has become much more weighted to the extremely wealthy (they have taken most of the gains to the overall economy in the last 20 years). Health care has a similar track record of devouring the gains made by the economy. This has resulted in health care spending soaring over the decades in an absolute basis and as a percentage of GDP.
The slow down in how badly the health care system has performed in the USA has resulted in the share of GDP taken by the health care system finally stabilizing. Health care spending has remained near 17.4% since 2009. While hardly great news, this is much better news than we have had in the last 30 years from the USA health care system. The percentage of GDP taken by the USA health care system is double what other rich countries spend with no better health results.
It is similar to if a team started as a championship team and then got worse every year and now they have finally stopped getting even worse. Granted they have become the worst team in the league but if, say, their record has now been 5-55 for 3 years in a row, they at least are not winning fewer game in each subsequent year anymore. But you can hardly think you are doing a great job when you are clearly the worst team each and every year.
Obviously there is a need for much much more improvement in the USA health care system. Still stopping the growth in spending, as a percent of GDP, is a positive step toward drastically decreasing it to reach a level more in live with all other rich countries. Even this goal is only to have the USA reach a level of mediocrity. If you actually believe the USA can to better than mediocre that would imply a combination of drastic declines in spending (close to 50%) and drastic gains in outcomes. Decreasing spending by 50% would put the USA at essentially the definition of mediocre – middling result with average spending.
Health Spending by Type of Service or Product
- Hospital Care: Hospital spending increased 4.3% to $936.9 billion in 2013 compared to 5.7% growth in 2012. The lower growth in 2013 was influenced by growth in both prices and non-price factors (which include the use and intensity of services).
- Physician and Clinical Services: Spending on physician and clinical services increased 3.8% in 2013 to $586.7 billion, from 4.5% growth in 2012. Slower price growth in 2013 was the main cause of the slowdown, as prices grew less than 0.1%, due in part to the sequester and a zero-percent payment update.
I was recently interviewed on equities.com, read the full interview – Financial Blogger Profile: John Hunter. Some quotes from the interview:
John Hunter: I look for good individual investments, but I also weigh my guesses about long term macroeconomic conditions in making investment commitments. I think there is much more risk to the drastic measures central banks have been making for the past few years than the market is factoring in. I think the poor job regulating risk in the financial system is also very risky at the macroeconomic level.
I don’t have any real idea of what the chance of massive economic failure is, but I am much more worried today than I have been. Pretty much, my worry has remained the same over the last few years. We did avoid an immediate meltdown, though we still had plenty of economic pain. Yet, in my opinion, the risk has remained very high for the last few years, but people seem to think central banks can continue this extraordinary behavior without consequences; I see a great deal of risk in the economy.
…
Three macro-economic factors make healthcare an appealing investment. First, the aging population should provide a booming market. Second, the huge increase in rich people globally that can afford very expensive medicine again provides an ever-growing market. Third, the broken healthcare system in the USA results in exceedingly high-priced medical care in a very large and rich market.
I also close out the interview with some tips I have shared on this blog over the years
John Hunter: I can’t pick one, but I can pick a few short pieces of advice:
- Save 15%, or more, of your income and invest it wisely. If you want to buy more, then earn more, or save extra until you can pay for it with the extra savings.
- Minimize costs on investments, use Vanguard or similar low fee funds. Buying individual stocks reduces even the costs of Vanguard. There are tradeoffs to diversity of your portfolio when buying individual stocks.
- Pay attention to the overall risk of the portfolio, and even beyond that, your entire financial picture. For example, in the USA we have extra healthcare expense risk that is outside our portfolio risk, but is part of our entire financial picture. Building your portfolio with extra-portfolio risks in mind is wise. Don’t get fooled into thinking about the risks of investments taken individually, even though that is what you will continually be bombarded with.
I think those that find this blog worthwhile will also enjoy the interview so I hope you read the full interview.
Related: more interviews with John Hunter – Investment Options Are Much Less Comforting Than Normal These Days – How to Protect Your Financial Health
This is a startling piece of data, from The nagging fear that QE itself may be causing deflation:
The situations have many differences, for example, China is a poor country growing rapidly, Japan was a rich country growing little (though in 1990 it showed more growth promise than today). Still this one of the more interesting pieces of data on how much a bubble China real estate has today. Japan suffered more than 2 decades of stagnation and one factor was the problems created by the real estate price bubble.
The global economic consequences of the extremely risky actions taken to bail out the failed too-big-too-fail banks including the massive quantitative easing are beyond anyones ability to really understand. We hope they won’t end badly that is all it amounts to. Noone can know how risky the actions to bail out the bankers is. The fact we not only bailed them out, but showered many billions of profit onto them (even after taking billions in fines for the numerous and continuing violations of law by those bailed out bankers), leaves me very worried.
It seems to me we have put enormous risk on and the main beneficiaries of the policies are the bankers that caused the mess and continue to violate laws without any consequences (other than taking a bit of the profit them make on illegal moves back sometimes).
The West ignored pleas for restraint at the time, then left these countries to fend for themselves. The lesson they have drawn is to tighten policy, hoard demand, hold down their currencies and keep building up foreign reserves as a safety buffer. The net effect is to perpetuate the “global savings glut” that has starved the world of demand, and that some say is the underlying of the cause of the long slump.
I hope things work out. But I fear the extremely risky behavior by the central banks and politicians could end more badly than we can even imagine.
Related: Continuing to Nurture the Too-Big-To-Fail Eco-system – The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – USA Congress Further Aids The Bankers Giving Those Politicians Piles of Cash and Risks Economic Calamity Again – Investment Options Are Much Less Comforting Than Normal These Days
USA health care spending increased at a faster rate than inflation in 2012, yet again; increasing 3.7%. Total health expenditures reached $2.8 trillion, which translates to $8,915 per person or 17.2% of the nation’s Gross Domestic Product (GDP).
The GDP is calculated was adjusted in 2013 and the data series going back in time was adjusted. These changes resulted in increasing historical GDP values and making the portion of GDP for health care to decline (for example in 2011 using the old calculation health care was 17.9% of GDP and now 2011 is shown as health care spending representing 17.3% of GDP).
While health care spending increased faster than inflation yet again, the economy actually grew at a higher rate than health care spending grew. That the spending on health care actually declined as a percentage of GDP is good news; and it may even be that this hasn’t happened for decades (I am not sure but I think that might be the case).
Still health care spending growing above the rate of inflation is bad news and something that has to change. We have to start addressing the massive excessive costs for health care in the USA versus the rest of the world. The broken USA health care system costs twice as much as other rich countries for worse results. And those are just the direct accounting costs – not the costs of millions without preventative health care, sleepness nights worrying about caring for sick children without health coverage, millions of hours spent on completing forms to try and comply with the requirements of the health care system’s endless demand for paperwork, lives crippled by health care bankruptcies…
Health Spending by Type of Service or Product: Personal Health Care
- Hospital Care: Hospital spending increased 4.9% to $882 billion in 2012.
- Physician and Clinical Services: Spending on physician and clinical services increased 4.6% in 2012 to $565 billion.
- Other Professional Services: Spending for other professional services reached $76 billion in 2012, increasing 4.5%. Spending in this category includes establishments of independent health practitioners (except physicians and dentists) that primarily provide services such as physical therapy, optometry, podiatry, and chiropractic medicine.
Based on my thoughts on killing the Goose laying golden eggs in Iskandar Malaysia posted on a discussion forum. The government has instituted several several policies to counteract a bubble in luxury real estate prices in the region (new taxes on short term capital gains in real estate [declining amounts through year 6]), increasing limits on purchases by foreigners, new transaction fees (2% of purchase price?) for real estate transactions, requirements for larger down-payments from purchasers…
Iskandar is 5 times the size of Singapore and is in the state of Johor in Malaysia. Johor Bahru is the city which makes up much of Iskandar but as borders are currently drawn Iskandar extends beyond the borders of Johor Bahru.
The prospects for economic growth in Iskandar Malaysia in the next 5, 10 and 15 years remain very strong. They are stronger than they were 5 years ago: investments that produce economic activity (theme parks, factories, hospitals, hotels, retail, film studio…) have come online and more on being built right now.
Cooperation with Singapore is the main advantage Iskandar has (Iskandar is next to the island of Singapore similar to those areas surrounding Manhattan). It provides Iskandar world class advantages that few other locations have (it is the same advantages offered by lower cost areas extremely close to world class cities – NYC, Hong Kong, London, San Francisco etc.). Transportation connections to Singapore are critical and have not been managed as well as they should have been (only 2 bridges exist now and massive delays are common). A 3rd link should be in place today (they haven’t even approved the location yet).
A MRT connection to Singapore (Singapore’s subway system) should be a top priority of anyone with power interested in the future economic well being of Iskandar and Johor. Johor Bahru doesn’t have a light rail system yet this would be the start of it. It has been “announced” as planned for 2018 but not officially designated or funded yet.
The world has become very interconnected. This is no surprise, the evidence is all around us and continues to increase. What this actually means though is more complex than it appears.
One area this impacts greatly is the workplace. More and more people are working internationally. This continues to largely be either through large multinationals or cheap labor that is imported to do largely unskilled or minimally skilled labor.
There is also a continuing increase in skilled and educated labor working overseas for other than huge multi-nationals. The infrastructure to support this is often not in place. The current structure (visas etc.) support the two modes mentioned above.
But I see an increasing number of opportunities for countries that encourage entrepreneurship and high skill jobs. I relocated to Malaysia and in doing so did a bit of research. It is difficult to get a long term visa in most countries without a full time job (and given the complexity of hiring foreign workers this often means dealing with companies that do a lot of it – in the 2 categories mentioned above).
Career prospects are enhanced with international experience. One way to get a jump start on your career is international education. This has been popular for a long time but is becoming more and more popular. Students studying in London can get the benefits of international experience (unless they are from England, obviously) and enjoy the great city of London and accessible travel to Europe.
The importance is to truly gain an international perspective. Those in the USA have the greatest problem as knowledge workers in most other countries are much more aware of the global economy. Europe is an easy way to get started and is packed with lot of great schools and processes in place to make it easy to become a student.
As I mentioned in a previous post, I believe the most important factor for a career is finding something you love to do, but within those possibilities it is nice to know the payoff of different college degrees.
Those that see Asia as the economic engine for the next 50 years might well be tempted to look at attending school there. There are plenty of options though it may take a bit more work on your part to make it happen. I think attending at least some portion of college internationally is a great idea as is getting international work experience early in your career.
Related: How to Balance the Benefits of Foreign Workers and the Potential Damage to Citizen’s Job Prospects – Leading Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland
Fed Continues Adding to Massive Quantitative Easing
In fact, while the Fed has pumped about $2.8 trillion into the financial system through nearly five years of asset buying.
Bank excess reserves deposited with the New York Fed have mushroomed from less than $2 billion before the financial crisis to $2.17 trillion today. In essence, roughly two-thirds of the money the Fed pumped into the banking system never left the building.
The Fed now pays banks for their deposits. These payment reduce the Fed’s profits (the Fed send profits to the treasury) by paying those profits to banks so they can lavish funds on extremely overpaid executives that when things go wrong explain that they really have no clue what their organization does. It seems very lame to transfer money from taxpayers to too-big-to-fail executives but that is what we are doing.
Quantitative easing is an extraordinary measure, made necessary to bailout the too-big-to-fail institutions and the economies they threatened to destroy if they were not bailed out. It is a huge transfer payment from society to banks. It also end up benefiting anyone taking out huge amounts of new loads at massively reduced rates. And it massively penalizes those with savings that are making loans (so retirees etc. planing on living on the income from their savings). It encourages massively speculation (with super cheap money) and is creating big speculative bubbles globally.
This massive intervention is a very bad policy. The bought and paid for executive and legislative branches that created, supported and continue to nurture the too-big-to-fail eco-system may have made the choice – ruin the economy for a decade (or who knows how long) or bail out those that caused the too-big-to-fail situation (though only massively bought and paid for executive branch could decline to prosecute those that committed such criminally economically catastrophic acts).
The government is saving tens of billions a year (maybe even hundred of billions) due to artificially low interest rates. To the extent the government is paying artificially low rates to foreign holders of debt the USA makes out very well. To the extent they are robbing retirees of market returns it is just a transfer from savers to debtors, the too-big-to-fail banks and the federal government. It is a very bad policy that should have been eliminated as soon as the too-big-to-fail caused threat to the economy was over. Or if it was obvious the bought and paid for leadership was just going to continue to nurture the too-big-to-fail structure in order to get more cash from the too-big-to-fail donors it should have been stopped as enabling critically damaging behavior.
It has created a wild west investing climate where those that create economic calamity type risks are likely to continue to be rewarded. And average investors have very challenging investing options to consider. I really think the best option for someone that has knowledge, risk tolerance and capital is to jump into the bubble created markets and try to build up cash reserves for the likely very bad future economic conditions. This is tricky, risky and not an option for most everyone. But those that can do it can get huge Fed created bubble returns that if there are smart and lucky enough to pull off the table at the right time can be used to survive the popping of the bubble.
Maybe I will be proved wrong but it seems they are leaning so far into bubble inflation policies that the only way to get competitive returns is to accept the bubble nature of the economic structure and attempt to ride that wave. It is risky but the supposedly “safe” options have been turned dangerous by too-big-to-fail accommodations.
Berkshire’s Munger Says ‘Venal’ Banks May Evade Needed Reform (2009)
Related: The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – Is Adding More Banker and Politician Bailouts the Answer? – Anti-Market Policies from Our Talking Head and Political Class