How to Win in the Monopoly Economy of the 21st Century


Bring it on! That was my reaction after reading the latest news from the West Coast of the United States — the most exciting place in the world right now.

Did you see the news? BMW is going to become the first car manufacturer to launch a premium ‘Airbnb for cars’ under an initiative called ReachNow.

Yep, BMW owners in Seattle are going to be able to earn extra cash renting out their cars. BMW is getting the ball rolling by renting out a fleet directly from the company itself on pay-per-minute basis, according to the Financial Times.

You may even be able to hail a car from your phone, like Uber. Somehow the company even scored free parking off the Seattle transport authorities for the people using the service. BMW has tagged 12 other US cities for a trial if the locals in charge will go for it.

Here’s why, according to the FT: ‘According to Barclay’s analysts, vehicle ownership could decline by 50 per cent before 2040, on the assumption that self-driving cars and shared services take off.’

Here’s how I read this: peer to peer car sharing has yet to really take off in the same way as Airbnb. But the car manufacturers can see the writing on the wall.

The world is changing in ways we can’t even imagine. Consider the latest start up to launch in Australia…

Will you own a car in 10 years?

It’s called Easicar.

They only launched in February, and already have 200 clients. That’s double the figure they estimated for their first year in operations, according to the Australian Financial Review.

They offer tailored insurance and finance products, and have begun by targeting Uber drivers. That happened after they saw a gap in the market. That was drivers that wanted to work for Uber but didn’t have a car and/or couldn’t get suitable insurance cover.

According to the AFR, ‘Secondly, and more importantly, financing cars and writing insurance for the rapidly growing ridesharing market opened their eyes to other fields of unmet demand for credit.

This is how one new technology or a new business opens the gates for another. More and more of this will come, in lots of ingenious ways.

In the case of Easicar, this is a lot like aircraft leasing.

A major reason air travel is so cheap today is because airlines no longer have to buy their planes. They can lease them from a bank.  Or a financial leasing company who buy the plane with a bank loan, then lease it out to an airline.

The lease company is happy as long as the airline payment is larger than what it pays to the bank.

The airline is happy as long as the bums on seats cover the lease payment per aircraft, plus their other costs such as fuel and wages.

This is actually very good use of bank credit. It is exactly what it SHOULD be used for — to help increase business.

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But the debts build and build

Of course there is danger here. When the next big collapse comes and passenger traffic falls badly, then so will an airline or two that are overly-leveraged at precisely the wrong time. Or if one of them launches a takeover for a rival right at the top.

Just like Allco in 2008.

All this is the real estate cycle, which we study over at Cycles, Trends and Forecasts, at work. As the cycle builds, the debt eventually gets into EVERYTHING — every sector, every industry and every business.

Consider your average can of beer. Nothing that flash about that industry. But only last year the third biggest takeover in global corporate history was launched.

Anheuser-Busch InBev reached a final agreement to take over SABMiller, to create a company that will supply a third of the world’s beer. That includes a record corporate borrowing package of around US$75 billion.

Deals and debts like this will keep building and building. How big the real estate cycle will be will depend on how much credit gets created.

Now apply this to housing…

Now think about this process for housing going forward.

Airlines don’t own their planes, Uber drivers don’t own their cars — should you do same for housing? After all, it’s about control, not ownership.

If you asked my colleague Phillip J Anderson, he’ll tell you the game of Monopoly is now out date. That’s because the games gets you to buy the property outright, but there’s no need anymore. You simply get control of the land/house via the lowest mortgage payment possible, then rent it out.

The bank can stay the owner; you just keep the rent to pay the mortgage and wait for the uplift in price.

You can play this game for a long time — but not forever. You need to study the economy and the market to know when to get out. For more information on that, you’ll have to click here.

Best wishes,

Callum Newman
Associate Editor, Cycles, Trends and Forecasts

Callum Newman

Callum Newman

Callum Newman is the editor of Markets and Money and Associate Editor of Cycles, Trends and Forecasts. He also hosts Markets and Money Podcast. Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect. To have Callum’s thoughts and insights on the current state of the currency, commodities and stock markets delivered straight to your inbox, take out a free subscription to Markets and Money here.

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