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358: The Personalization of Personal Finance

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Welcome back to the show, everyone, today. My guest and well, for me the podcast is Emmanuel Daniel. He is an entrepreneur, author and is recognized as a global thought leader in the future of finance. He’s also the author of The Great Transition. The Personalization of Finance is here. Emmanuel, thanks for joining Wealth Formula podcast.

Emmanuel: Thank you for having me on, but I enjoyed the few podcasts that I had and watched, and let’s see where we take this conversation.

Buck: Great, great. Well, you know, I think there’s a lot to talk about here. You talk in your book about everything becoming financialized. What does that mean?

Emmanuel: Well, very simply, anything that can be turned into data can be turned into a financialized product. And when you think about what money is today, it’s just numbers rolling and and the markets are looking for any form of data that they can trade on. And today, you know, I think what’s Jeff Immelt in 2014 who said even G.E. is not going to be a manufacturing behemoth anymore. It’s going to be producing lots of data out there. And, geez, you know, balance sheet is going to start looking like a trading book rather than a manufacturing company. You know, and the thing about markets is that it goes around, goes out there, looks for X data in any form that’s tradable. I mean, it started with label and indices and stuff like that.

And today, you know, all sorts of businesses, Tesla is saying that it’s more of a data company rather than, you know, manufacturing cars and things like that. So so the more data we have, I think entire civilizations are going to go to look for, you know, what’s tradable and what’s not. And so we are in a learning curve. You know, that that there will be data that is tradable and there will be data that is non-tradable, you know, and over time will start settling down. But it’s going to be a very rough ride. And, you know, there will be people out there who would run after certain data because they think it’s it’s going to be going up or it’s going to be valuable and then discover that, you know, in most cases, data in the end is going to turn out to be commoditized. In other words, the more data you’re going to have out there, the, you know, the less valuable it’s going to be. I think that some of your viewers would have heard the phrase that data is the new gold, a new oil or something like that. I say in my book that data is actually vegetable in the sense that the more data you have, you know, it loses its value, the less data you have usable.

00:07:32:01 – 00:08:05:21


The older your data, it’s unusable, the younger your data in you need for it to mature, you know, that kind of thing. So when I say when I say that we are becoming we are creating a financialized economy. You know, the the the perspective on things like GDP is also changing, I think in the US now, you know, the statistics department has put in elements that constitute the GDP that is no longer manufacturing or you know, hard core assets. It now starts to look into soft assets, intangibles, even, you know, value that is created out of perception. That is part of the GDP. So just based on that alone, there is no saying that the US GDP can go from, what, 21 trillion right now to 45 trillion based on a lot of intangible assets, a lot of which will be data. So we need to prepare for that, for, you know, for the rewriting of entire economies going going forward.

Buck: Where are the implications of that for, you know, our manufacturing state partners like China or India? You know, it seems to me like if we’re moving, obviously we’ve moved away from manufacturing in general. But what you’re really talking about here is that, you know, all of these trading markets are just going to be data driven. And, you know, as you said, entirely intangible. So where does what is that? What’s the effect on, you know, our manufacturing partners in various countries?

Emmanuel: I think that, you know, the US has effectively given up its manufacturing capability and used it. And it started on a journey in the 1990s in about 1995 when it was companies like G.E. saying to the unions and saying to investors that, you know what, we need to reduce cost. And since labor in the US is very hard, very difficult to negotiate with, we’re going to take it out to somewhere else. And this journey started in the 1990s and that journey has gone to such a, you know, such a deep, you know, meaning that you’ve actually created other countries like China and India, which have now taken on, you know, the mantle of being the manufacturing states. And they themselves will be going through a, you know, to a maximal forces which will make them, you know, export their manufacturing capability to other, you know, less developed countries and so on.

What the U.S. has become and that’s something that we need to put our finger on is that it’s become a the world’s leading frontier of being able to handle information and data. And from data, it then handles perception because the real value in data is there are no underlying assets. That’s it. But it’s actually driven a lot more by perception than anything else.

We see that today. When you think about cryptocurrencies, for example, and where they get their valuations from. It’s it’s basically what the market perceives or what segment of the market perceives the value to be.

Buck: Cut off their liquid. You know, that’s that’s kind of I think part of my what I’m trying to understand is, you know, with with most cryptocurrencies, if not all, they’re really I mean, I don’t know how much actual data there is per se rather than speculation. Right. I mean, what what So are we really talking about data or are we talking about speculation, ways to speculate?

Emmanuel: Well, that’s a very complex question. In there, because part of the speculation comes from the use of cheap credit and high liquidity, a lot more money that there are assets out there. And that’s a historical problem that already exists. But there is a new element in speculation that comes out of, you know, assets that are created in the digital world which have no underlining value or value or no underlining business that drives it. There is the promise of future business because the digital world is creating applications, utilities that will be very specific to the digital world. And then there is speculation there as well. So the thing that I do in my book, which is, you know, towards the last chapter, I borrowed an idea from a futuristic in the 1990, he wrote this. He said, society is, you know, transitioning from transition from the tribal origins to institutions and then to markets and then to networks. And we are right now in the transition between markets and networks. So when you say, you know, speculation, speculation in markets is a little different from speculation in the network phase, in the market space, the speculation is exactly the same as everything that we have experienced in the securities markets.

You know, when you think about a big Bitcoin, you the rules for Bitcoin are the same as the rules for, you know, any other securities that exist. And when you buy and sell shares and the reasons why it goes up and goes down exist operates on the same principle for, for, you know, cryptocurrencies. But in the network world, there’s a whole set of new rules that are just being created. So we need to sort of separate the two and figure out, you know, what is it that we are playing on, you know, and then and then sort of track where it’s taking us.

Buck: So you talk about your books, about the personalization of finance. You want to talk a little bit about, you know, presumably with regard to all this data, what what is what exactly is the personalization of finance?

Emmanuel: Well, the personalization of finance is that the function of the intermediary is being depleted. A lot of that has to do with the fact that, of course, because of data, But a lot of that has to do with so much technology being put into the ability of people to relate to each other, to transact value, to to be able to actually exchange, you know, tokens of value with each other, which do not require an intermediary anymore.

So financial institutions of all kinds, whether their banks or fund managers, you know, and markets in general platforms and exchanges, they’re finding that their role is being diminished increasingly and that individuals like you and me, we will start to be able to exchange value, discover each other, trade with each other directly, so the personalization of finance is that the power of the relationship is actually transitioning to the individual.

Now, this is a long, you know, a road. It will take, you know, several generations to, you know, to finally begin to create new realities, because what’s happening now is that the platform play, as you know, it can be the Googles of the world or a, you know, exchange. And there are lots of different types of exchanges for cryptos, for commodities and and so on. It’s so easy to build an exchange. Now the intermediaries are trying to redefine their role and still be relevant to the individual, you know, But increasingly, we’ll see that the individual will have a stronger, you know, role and a power in that equation.

Buck: So, I mean, you know what you’re talking about, I think a lot is, you know, we’ve talked a lot a lot about blockchain and smart contracts and that kind of thing. It seems to rely fairly heavily on on that kind of technology. And this is the kind of technology that a lot of media, major institutions like Chase Bank and stuff have been pretty antagonistic towards. And I’m curious, you know, I guess what what do you what do you anticipate the impact on those large institutions to be or do they figure out a way to, you know, to get themselves involved somehow? You know, it’s almost to me, it’s almost like you’ve got this situation where you’ve got a Kodak and they’re making, you know, cameras and film and stuff, and all of a sudden you’ve got a digital camera. How are you going to, you know, how are you going to save your business? So how how do these institutions how are they going to look at this?

Emmanuel: So what I’m saying in the book is that and I’m saying I speak to the institutions when I say this is that Kodak invented the digital film in 1995 together with a few other players, but it loved its core product so much, which was the 35 M, you know, yellow box, a bunch of selling that well into the 2000s while Sony took over the mantle of the older digital camera and then later the iPhone came out and by 2010 Kodak was in bankruptcy.

So the funny thing about institutions is that they love their products so much that they won’t give up what they have until, you know, they until it affects them directly. Now, the thing about Jp morgan and a whole lot of institutions that talk down to some of these innovations that are coming true is that they are creating their own tokens. They you know, they’re creating new bonds to this. That’s the first thing to be said. The second thing to be said is that today institutional investors are just as important as, you know, the old guy who is investing in cryptocurrency these days. They have cryptos on their balance sheet, you know, and that’s affecting the valuation of crypto as much as the, you know, the few individuals who are considered to be whales in the industry and so on. 

And the same central banks that are trying to create their own, you know, central bank digital currencies, which actually, you know, sort of changing the technology that’s being advanced on cryptocurrencies will start being able to have cryptos on their balance sheets. From 2015, the Bank for International Settlements has made it a set up set of rules so that central banks can carry them as well.

So all the while they’re talking against it. They are also, you know, preparing for a world where cryptos will become, you know, a necessity Now by saying all this and not necessarily, you know, just giving a blanket, you know, approval of crypto. In fact, I think that the valuation of crypto is just, you know, distracts from the real the essence of what it is going, the function that it’s going to be playing in the future. You know, in all likelihood, the valuations that we see today is going to collapse in the future because today they’re dominated by a few whales whose transactions then chase prices up and down and so on. The more investors there are, the more liquidity there are in any market. It stabilizes the market in many regions close to, you know, what the trading the trades are.

So, you know, the genie is out of the box. The question to now ask is what is the utility of these cryptos in the digital world? And we are starting to see a lot of the utilities. But you take any one of these cryptos like Solana of Tezos, and so on, you know, they represent like 300,000 programmers in open source platforms, you know, building applications and working on them.  There is not a single I.T. company in the world that has that amount of energy around, you know, just one proposition or one platform in that way. And then on top of that, they’re being funded through all the money that is being put into cryptos to be able to, you know, make money on the on the on the applications that they’re developing.

So that’s the real value of the crypto world. Now, the question then is how is traditional old banking that we are familiar with going to morph and embrace some of these technologies that are being created in the crypto space? And I’ve been looking at a lot of the, you know, utilities being created in crypto. I can actually see how they can apply back into traditional banks. You know, I’ve been recently, you know, around after I completed the book, I started looking at specific areas of the banking industry. So like the Treasury function, for example, that’s actually decentralized finance. You know, what a Treasurer does in the bank is that on a daily basis he tries to square out all the positions of the banks as remove as much of the risk and increase the profitability of the bank for the amount of assets that need holes on any one day.

And that’s becoming increasingly difficult to do for any institution. And yet in the crypto space there are hundreds of little applications, you know, with algorithms put into them that enable the crypto world to function, you know, seamlessly. And so I can see some of that technology being applied to traditional institutions, you know, so the genie is out of the box. We are not going back to a non crypto world, you know, since to ask is what is the utility of what’s happening in the digital space that’s going to transform the dollar? You know, the manual world that we are familiar with?

Buck: Sure, sure. How do you think you know, a number of these a number of cryptocurrencies are under scrutiny from the S.E.C. and they’ve got all these other regulatory issues. Um, doesn’t that have to sort of fix itself before this whole movement starts? I guess there are some certainly there are some platforms that have been pretty good about trying to trying to follow the rules. I mean, for example, Hedera I think is a good one. But in general, how much is are those regulations, regulatory issues going to slow down the process?

Emmanuel: It’ll be we live in a world where the regulators are chasing after the innovations that are taking place. And so, you know, there will always be gaps and there will always be, you know, the need to try and make sense of where this is going and what the proper regulation should be and we are now at a point where the regulators in the U.S. are asking, you know, whether crypto is an asset or a security. You know, that’s a very basic question. And, you know, it’ll debate that true until it comes to an understanding. At the same time, the technology itself will keep moving and it will keep evolving such that maybe it won’t be a security, it will clearly not be a security further down the road. You know, and when we think about all this happening on the regulatory front, we think about every time there’s been an innovation, you know, what was the story?

So, you know, in the early 1900s after the automobile became commonplace, in other words, you know, Henry Ford made it possible for anyone to have automobiles. The original set of regulations was stacked up against the automobile because they were trying to safeguard, you know, the traditional horse carriages. So, you know, you couldn’t go ahead of the horse. And the automobile was heavy damage to streets and all of that, you know, And then over time, the automobile became quieter, faster, lighter, you know, and safer. So the regulations didn’t apply, you know, after a while. So I think that’s what you will see in the crypto space, you know, And right now, the biggest problem in the crypto space is that because the early investors in the crypto market still control so much of the value in the market, we need to see that release over time and before the market becomes stabilized and the valuations that we see in the market actually distracts from the utility of the technology as it’s evolving. know, what the technology is capable of.

Buck: What’s your take or your your knowledge on this idea of central, you know, central bank decentralized currencies? So there’s been a lot of talk about those. Do you have a sense of, you know, how realistic that is? And if it is, then what what would serve it? What does it what purpose does it serve?

Emmanuel: Yeah, you know, central bank, digital currency, that’s what you’re meaning now, the thing is that I’ve been following central bank’s, you know, throughout my nearly 30 years of following the industry and I actually, you know, visit the bank for each level settlements in Basel and I know, you know quite a number of you know central bank governors and and how you and I walk into central banks. I know how they operate. And still I’m just surprised at the level of support that they are giving themselves for the idea of a central bank digital currency. Now, I’ve also been following the central bank digital currencies from the time when it was not a big topic, you know, in the early 20 tens or where there were central banks that experimented with it and then put it aside saying that, you know, that’s not something we want to, you know, go ahead with.

And I think it’s because China took it on and made it a big project that the other central banks, you know, also fell in line and said, you know, we want to do this to this south central bank, this operate, by the way, you know, every time one central bank comes up with an idea that the others like and then everyone else follows through. So just recently, Jeremy Powell saying that, no, we’re going to keep the, you know, inflation targeting in the US to 2%. Yeah, he was actually repeating, you know, an idea that originated with New Zealand about 20 years ago, you know, and then it became popular for just about every central bank the world to to subscribe to this idea of inflation targeting.

And so today this notion that every central bank should issue a central bank, digital currency is very popular. But having said that, in a number of countries, the central bankers just went into the streets and just asked people if they wanted. They subscribe to the idea that a central bank should issue a central bank digital currency, which is direct from the central banker to the end user, which by the way, bypasses the commercial banks. And so all the central banks that are toying with this technology are saying, you know, we don’t really need the banks when we do this, but we will give them a role. We will make them be the issue of the central bank, digital currency. So that in itself creates the first problem, which is that it’s a solution looking for a problem. You know, if you’re going to be the, you know, own institutions, then why are you doing this? You know?

Buck: Well, and then the other question, too, is, is that, you know, I mean, frankly, most, you know, look at dollars, most dollars are digital already. So what’s the additional benefit of having the decentralization? Yeah, you know, what’s the point?

Emmanuel: So the the digital digitalization that you’re talking about is a digital account, which is your money is in the bank. And when you transfer it to another person, you’re doing it digitally anyway. But that’s fiat money and that’s actually a bank balance of transfer transfer a balance which is a balance sheet problem. You know, there is no real money moving anyway. So, you know, it’s my account against your account and we just square icons to each other. A central bank digital currency is actually a token that gets transferred. So regardless of the balance sheet, you know, a digital token, just like a physical token, got passed on from one person to the next.

Buck: So so you can avoid the issue of settlement, I guess, in that matter. Right?

Emmanuel: So that’s what they say. But what’s interesting is that everything that’s happened in the crypto world has gone on fast, faster and further down the road than what the central bankers are doing today. In the experiment for trying to set up a central bank, digital currency. You know, and I actually visited two of the countries that I’ve already implemented them and the governors have told me personally that the projects have been a failure, you know, and and that the take up of central bank digital currencies has not been very good because, you know, the traditional banks still believe in India credit card swiping technologies because that’s where they.

Buck: Make their make their money they’re right and in that in in that is what I where I see a lot of the challenge because a lot of these institutions are so powerful and in terms of their lobbying and everything else to just kind of continue to sidetrack these things. But I would I would imagine that over time there would be a you know, inevitability about it that would make some of them adapt, just like in your your example of Kodak and Sony.

Emmanuel: Well, and in order to adapt, they have to keep up with the speed and the depth of the technology as applied in open source. Open source is still a world where, you know, any i.t programmer can just go onto a platform and look at other i.t programmers, you know, working on the same applications that you are, you know, and it’s a very powerful force in which technology is being created, which central banks will never be able to match, you know, just when they get there. The central bank digital currencies. Right? The applications for it would have gone like ten times down the road. And so so I’m not confident, I’m not convinced that that any central bank, digital currency will actually take off in in a in a meaningful way. You know, and in fact, there is an alternative, which is for central banks to tame what’s happening in Stablecoins today and to onboard the stablecoins that meet regulatory requirements which have good balance sheets that are audited to be to play the function of a central bank, digital currency, because they are the central bank is actually benefiting from the energy that’s out there.

Buck: Fascinating stuff. Emmanuel. The book again is The Great Transition. The personalization of finance is here. Presumably it’s available at their usual outlets such as Amazon. Yet another book coming out too. What is that book called.

Emmanuel: The Winning Civilization

Buck: Yeah, what it is, What is that one about ensure and sort of at a high level.

Emmanuel: Actually with completing the book on, you know, the great transition, the personalization of finance is here. I came to the conclusion that if finance is going to be highly personal, it’s going to have an impact on on how entire societies are going to be organized. And so this is this book is about, you know, the critical success factors for countries, you know, to have in place for them to make that transition.

Emmanuel: And as you alluded to in our conversation, the US still leads in the use of information. It I mean, I see it leaves it means that it is both a victim as well as a purveyor of the future of information and data and that’s why we see a lot of the confusions that we see today. But what the US learns the rest of the world will love in the future.

Buck: Emmanuel Daniel Everyone, thanks for being on Wealth from your podcast this week.

Emmanuel: Thank you very much for having me on.

Buck: We’ll be right back.