02/12/2010 - 00:00

Taking the wrong turn onto struggle street

02/12/2010 - 00:00

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The GFC has changed the game, and it’s time some of our wealthiest individuals wised up.

THE rich, like children, should sometimes be seen and not heard. That’s one of the more interesting observations of the past year as the financial world recovered from a deep slump, a feat achieved largely by transferring private debts to governments – which means taxpayers like you.

Marius Kloppers, the mercurial and undoubtedly talented South African chemical engineer who heads BHP Billiton, discovered (twice) how having oodles of cash could not buy him the happiness of a successful takeover.

Despite having access to BHP Billiton’s multi-billion dollar war chest, Mr Kloppers failed to understand European history, and its politically run, anti-monopolies laws; ignorance which led to a failed iron ore merger with Rio Tinto.

A few months later he did it again, this time in Canada, when he misread the local political signals in that country and failed with a takeover bid for Potash Corporation.

If there is any compensation for Mr Kloppers, it’s that he’s not alone.

Many rich people are yet to understand that the GFC changed the rules. Governments are not amused at being lumbered with the debts of business failures, and taxpayers are certainly not in the mood to be told how to live by the rich.

Another example is the suggestion by one of Australia’s top retailers, Gerry Harvey, that a goods and services tax should be applied to items bought from his international rivals over the internet.

Legally, Harvey’s GST suggestion might make sense but what a man reportedly worth $1.69 billion is really saying is that ‘the little people’ should pay more tax to help a struggling billionaire.

Andrew Forrest, despite his cult-hero figure in Western Australia, is doing much the same thing with his anti-mining tax crusade.

Popular at home, and undoubtedly touching a nerve because of the sneaky way the Australian government tried to bushwhack a successful industry, Mr Forrest is also singing from a hymn sheet headed ‘self interest’ as he struggles along with his $6 billion fortune.

Kerry Harmanis made the same mistake of suggesting how we might all live a more peaceful, thoughtful and spiritual life – while standing atop a $500 million bag of money.

Next cab off the richies rank is likely to be Gina Rinehart, who has just splashed out $168 million for a 10 per cent stake in Ten Network, a seat at the national media table, and a louder voice on issues that interest her.

A hint as to what Mrs Rinehart might tell us came in her first statement after the investment when she said her company was interested in the media because of “it’s importance in the nation’s future”, an odd point to make by someone who has never exposed herself to a full-blown media interview.

She might have added in her statement that the media has also played a role in the past, including several ill-considered investments in the media by her father, the late Lang Hancock.

There is a pattern here, and probably always has been and it’s shaped like this. The rich make their pile, and good luck to them. But they then believe that money gives them the right to tell other people how to live, a mistake repeated by the wealthy in every generation.

Pondering palladium

LEAVING the rich, though perhaps in the hope of joining them, it was interesting to spot an emerging investment opportunity that might be worth a line in your black book of money making ideas.

Palladium, a sister metal to platinum, neither of which is mined in Australia, has been enjoying a price spike that is out of kilter with its close relation.

Since mid-August the palladium price has rocketed up by almost 50 per cent from around $US475 an ounce to trade briefly above $US700/oz, but more recently around $US694/oz.

The issue with palladium is that Russia, the dominant producer, seems to have finally chewed its way through a mountainous stockpile, perhaps setting the scene for palladium to match the platinum price at $US1,660/oz – a possibility as both metals share similar end-use as a catalyst in automotive engines.

In WA, that might present an opportunity to re-run the numbers on the mothballed palladium-rich Panton project in the Kimberley, which Platinum Australia mothballed in 2003 when the palladium price crashed to $US200/oz.

The drag on Panton is the high value of the Australian dollar, but even that can be washed away if the Russians really have solved their stockpile problem and palladium keeps rising.

Food for thought

IN a slightly riskier category is the possibility that rural real estate prices will rebound after decades in the doghouse.

The reason for a glimmer of optimism, despite the dreadful dry season we’re enduring, is a United Nations report that the world is moving “dangerously close” to a new food crisis.

Translated, that means there might be a food shortage as the global bill for food imports tops the $US1,000 billion mark for only the second time in history, matching the pre-crash boom year of 2008.

We need a few things to go right, such as more rain, but if the food shortage lives up to the UN’s prediction then prices will surely rise, and keep on rising thanks to Asia’s growing middle class, the shortage of arable land, and the lack of a productivity breakthrough as the Western world rejects genetically modified food.

Don’t rush, because we seen a lot of those signals before, though perhaps this time it will be different for rural Australia.

Fee hike

BACK to the rich for a final thought on how they might be getting stung. Fees at top private schools have just topped $20,000 a year, with one of the payment options being by credit card.

Interestingly, if that option is taken a 2 per cent ‘administration’ fee is charged by some schools, which adds $400 to the total, though how that price for an electronic (near-free) transaction can be justified is something parents might ask.

And you thought the banks were greedy.

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“That which is called firmness in a king is called obstinacy in a donkey.”

Thomas Erskine

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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