Three gears, one destination

Progress against big goals is often made in small steps but only in the fullness of time do you see the results. The world sees the pink perfection of Barbie or the three hours of impending menace of Oppenheimer as completed things. This view misses the journey that Margot, Greta and Nolan fought through to make movies that drive against the grain of what has been done. While these hits are two things: a panacea for cinema chains (hello again IMAX and $35 tickets) and a point of unity, they are a rarity in today’s world. They have united audiences, are well-loved and have also achieved reach that not even the World Cup can deliver.

In a world of an always-on endless content wheel splitting eyeballs and attention spans it has taken a girl in pink and a man in a hat to get us to sit down and pay attention. If only they could make the Climate Emergency into something as cinematic. These two box office hits disguise the biggest declining medium of our time, linear content. With brands needing to still be built it presents a dilemma. On one hand it has never been more cost effective to build brands in the short term thanks to cheaper and more effective targeting. On the other hand, to grow long term, brands need more and more availability. If brands are to grow, we need more 'Barbenheimers' rather than more 'Cocaine Bears' and 'Mission Impossibles'.

Big, but too heavy to fly?

While not painted pink the other big brand news is of course the death of light blue tweety bird. While it is sad to see the friendly face of a cauldron of hate one-up-man-ship lose its mascot I feel people are missing the bet Elon could actually be making. His actions say he is the brand and is pursuing the most prevalent brand strategy of our time. Consolidation. The digital world does two things. It pushes returns away from an average distribution of return. There are bigger winners, but many less of them. It also pushes us all towards singularity. Being bigger but more monolithic. We used to seek to hide bigness through complicated brand architectures, now it is good to be a whale. He might be blowing up the brand equity rulebook like his recent rocket Starship did across the skies of Florida but Musky also might be baking in a new model where X marks the biggest branded ecosystem in the world. Not saying it is certain, but it is definitely plausible.

The other plausibility is we all might avoid an inflation induced recession. We are now through the back of our earning reporting season, and it is clear to see that outside of discretionary retail we are mostly managing our own version of a soft landing. Some businesses are knocking it out of the park but overall, most profits are down in line with the inflation rate of costs in your business's sector. In essence, we are living in a three-lane economy. The hard shoulder, anything exposed to large mortgage holders or low-income families, is struggling. Think baby products, clothing, and household goods retailers.

The slow lane are businesses exposed to middle-income households with middling mortgages who USB recently reported are expected to sharply reduce spending on things like entertainment, eating out and other ‘fun’ categories. Think health insurance brands, Toyotas, grocery chains and confectionary brands.

The fast top tier are businesses exposed to the mortgage-free who are spending like their savings are growing at 5% a year. It is almost enough to make you think the 50-plus crows run our country. Think mass luxury travel brands, premium shopping centres and step-up tipples.

Will we get out of first gear?

While we might miss a technical recession it is pointing towards a less rosy future as business has also stopped investing in change. Our GDP is growing less than the rate that the global sea levels are rising (0.1% to 0.2% YTD for those keeping score at home).

The United States is actually onto this and banking on climate adaptation being the next boom industry. They have gone all in. Not business, but government. The Inflation Reduction Act is the largest peacetime investment in building new national capability and all the associated industry and IP that comes with it. They are building Carbon Alley while still benefiting from the ongoing boom driven by Silicon Valley.

From the outside it is easy to mistake the US as being built on the free market when really it is built on the back of big government spending on what matters. Silicon Valley came from the space race and Carbon Alley will come from getting to Net Zero first. The reason government is leading the way is simple. It is patient capital, and they are the only ones with the investment window to deliver future breakthroughs in technology. When you really think about it government is the ultimate two-sided marketplace. They can set the agenda through regulation and taxation and invest in building the national inter-disciplinary capability to meet the market need they made. Hello nuclear fission.

They even have a fancy term for it. Bidenomics. Here our economic policy can be also captured in one word, Boomernomics.

Rather than investing in our own version of next we are banking on our elders to keep knocking back $70 dollar steaks, doing a lap of the Simpson track in the new Landy and renovating the house again. Our policies are still way too focused on consumption rather than capital investment. As we pointed out in a recent repost from The Economist our oligopolistic tendencies in banking, digging and infrastructure are good but are also coming back to bite us in the ass through an underfed innovation system. Spending on research and development comes to just 1.7% of our GDP against an OECD average of 2.7%.

The biggest risk in any part of your life is to do nothing. Except now we are breaking that logic and changing the incentives. These days it not ballers and builders who are winning. When the return on stuffing money into a bank is 4.5% and you only have twenty years to live it makes sense to play your own version of checkdown poker while you knock down a couple of drinks on the house. Let’s hope we get back to bit of old-fashioned Australian ingenuity when we built things other than toll roads.

We can start with renewing our electricity grid, investing in our education system and incentivising business to co-invest here at home to help turn our shores and deserts into the clean energy we need to build our own version of Carbon Alley.

After all, our times call for more bravery rather than more bullshit.

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Be better to each other.