Overkill as we play the blame game

THE problem about losing money in the stock market is deciding who to blame for it. The candidates might include your wife, dumb financial writers, or that man in the pub. In very extreme circumstances, it might even be you.

The government, which spends every waking minute worrying about the five million investors in our shareholder democracy, suspects the culprit might be your stockbroker, or those ubiquitous financial advisers.

When Financial Services Minister Joe Hockey was appointed, we thought his job was to vigorously promote Australia as a financial centre, encourage the ASX to get on with the job of linking up with overseas exchanges, and to ensure that someone rides shotgun against the more dubious manipulative activity. As it turns out, it was none of these. He drafts Bills or, more accurately, the sorcerer’s apprentices in his department draft Bills.

Hence the imminent arrival of the jumbo 600-page Financial Services Reform Bill. Those who have seen parts of it say the legislation is no more than ordinarily incomprehensible, and contains several sound ideas. However, we look like getting the inevitable overkill. It seems stockbrokers will be obliged to maintain a record of telephone conversations they have with retail clients and record in meticulous detail anything they say which sounds like advice, or a recommendation to buy or sell shares – whether the customer follows it or not.

He or she must disclose if there is a relationship between the firm and the issuer of the financial product they recommend. That requirement stems from some very dodgy behaviour by some Wall Street brokers, who were studiously stuffing shares issued by their investment bank masters up the noses of novice retail customers. Many are now being sued.

There was little of that malpractice here. The worst of our brokers might be indolent, and on occasion ill informed, but rarely venal. The best are as good as any in the world. Most have already embraced the spirit of the proposed legislation. Its introduction will cost a lot of money – guess who would ultimately pay the bill?

Unless clients believe they have found a broker possessing the holy grail of accurately predicting share prices, they would be wise to pay attention to any advice, and then make up their own minds, based on their personal circumstances and risk tolerance.

One former chief of the Australian Securities and Investment Commission might not have been entirely joking when he said a sophisticated investor was one who has lost money.

Oil on troubled waters

A PLUNGE in the price of oil at the end of last month panicked some investors into selling their Woodside and Santos shares. Naturally the fall cheered up economists who feed fuel prices into their “what if?” forward scenarios. Craig James of CommSec, who is invariably quick off the mark, makes the point that oil prices closer to $20 than $30 a barrel is good for most economies and particularly for companies that burn oil to carry goods and people – not least Qantas and the other airlines.

Mr James also crunches the numbers down for motorists. From January 2000 to May 2001, the average household had to dig into the budget for an extra $28 a month as petrol prices soared – that is the equivalent of a quarter per cent interest hike on a home mortgage of $180,000.

The esteemed economists say prices at the pump will probably have shown a decline of 7 per cent in the September quarter and are likely to fall another 3.5 per cent by Christmas. Such an outcome would clip a handy 0.3 per cent off the Consumer Price Index, and make it easier for Reserve governor Ian Macfarlane to hand around yet another cut in interest rates. Well, all this sounds good.

The only problem is that OPEC is

dominated by Middle Eastern countries, some of which may be shown to have sponsored

the WTC terrorists. If that translates into gunfire, the oil price would head smartly north, no matter how flat the US economy is.

Traders of that turn of mind were no doubt among the heavy buyers of Australian energy shares this week. Woodside recovered more than a dollar to $13.70 and Santos bounced off $5.55 to reclaim the $6 mark.

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