05/07/2005 - 22:00

Tim Tredgold: Briefcase - Waiting for the inevitable result

05/07/2005 - 22:00

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The late Robert Holmes a Court once remarked that a lot of people are bankrupt long before they realise it themselves. The same can be said for a range of game-changing events in life, some of which we’re watching right now, where in each case the players have already lost but they’re yet to get the message.

Briefcase will demonstrate what this means with a series of examples which, for want of a better title, will be called the “weight of numbers case studies”.

Example one is the battle being fought by Australian unions against proposed new industrial laws. Despite the thunder and lightning at protest rallies this is a non-event for two reasons – the Howard Government has the numbers to pass the laws, and most workers don’t care because they’re not unionised.

The world of work, much to the annoyance of true believers in the union movement, has moved on. Whether union membership of the workforce is 22 per cent or 25 per cent (depending or how it is measured) that simply means that at least 75 per cent of the workforce is non-union – game over by weight of numbers.

Example two is claims by Franklin Tate and a few friends who said for years that there is no wine glut, it’s just a question of marketing properly. Big asset-value write downs, a thumping loss and a large serve of humble pie finally forced Mr Tate to acknowledge what everyone else knew: there is a wine lake washing around Australia the size of Sydney Harbour that’s not going away quickly. So it’s a wonderful time to be a wine drinker (and an awful time to be a wine maker).

Example three is broadband versus daily newspapers. This is a particularly nasty situation where newspaper proprietors keep saying that they’re not affected (too much) by the rise and rise of the Internet as a news and advertising source. As anyone on broadband knows, that’s nonsense, and as broadband take-up accelerates and the cost drops, newspapers will start to play second fiddle to a genuine media revolution.

Example four is the power shift from free-to-air television to pay TV. This is another example of how weight of numbers eventually delivers a winner – though the winner can be seen now. In the latest TV rating period most comments focused on who won between Channels 7, 9 and 10. What they overlooked is that pay TV (read Foxtel) outrated the ABC – and was less than 2 per cent behind Channel 10. The all-TV ratings were: Channel 9 at 23.6 per cent, Channel 7 at 22.4 per cent, Channel 10 at 18.3 per cent, pay TV 16.4 per cent, ABC 13.1 per cent and SBS 3.4 per cent. And the trend is growing.

Example five is the impact of ‘grey power’ on governments in Australia. This is a factor in the repeated re-election of John Howard and will become a more powerful issue as the demographics of Australia change. Quite simply, older voters are more conservative, and Australia is slowly becoming an older country.

Example six is the looming economic fight between the US and Europe. This, arguably, is the biggest economic (and ideological) battle fought since the US. locked horns with the Soviet Union after World War II, and won. First skirmishes in the US versus Europe have been seen in Iraq policy, trade issues, and the legal fight over subsidies between Boeing and Airbus. With Europe already frayed at the edges politically, and increasingly showing economic tensions (little growth), it is a fair bet that the US has already won by simply having a younger population and a ruthless approach to business (and human rights).

Example seven is Geoff Gallop and Eric Ripper versus Peter Costello over dropping state taxes because of the introduction of the GST. Messrs Gallop and Ripper lost this one weeks ago when most of the other states caved in. The final blows from Mr Costello are threatened but will probably not be needed because of the weight of numbers (the federal treasurer has a firm grip on the purse strings). Apart from that, the WA pair is trying to re-write a deal that is recognised even by Blind Freddie (and his dog).

Example eight is that oil at $US60 a barrel crushes most business. The real damage is yet to be quantified but the pain is there to be measured, if not yet admitted. Think for a nano-second what it costs to run a 100-tonne Haulpak truck out of the Superpit in Kalgoorlie and measure the impact on profits. Or the cost of a truck fleet running around Perth, or simply a suburban car – and wonder why retailers are being crushed as the dollars they had been counting on go on a tank of fuel.

Briefcase never claims to be the font of all knowledge (and never gives investment advice) but it seems that each of the eight examples chosen falls in to the somewhat obvious category – even if the players in the game can’t see it, or pride prevents them from admitting it, the result is a given.

•••

Watch out, the ‘gold bugs’ are on the loose, again.

Over the past few weeks Briefcase has been inundated by bold forecasts that the price of gold is marching ever upward to a new and glorious future. In one case a price of $US850 an ounce was tipped – about double where it is today.

Perhaps some of these predictions are true, but Briefcase suggests they be taken with a large pinch of salt because: every time gold rises just a fraction the ‘gold bugs’ come out of the woodwork; there is a fundamental shortfall in new mine production and consumption, but gold is the most easily recycled of the metals; and gold has been a particularly bad performer over the past few years.

If, for example, you had been given the choice of buying a pound of copper, lead, zinc or nickel, or a pound of gold two years ago, the wiser choice was the anything but gold. Copper, for example, has roughly doubled from US80c a pound to around $US1.60/lb as have lead (US23c/lb to US43c/lb) and zinc (US37c/lb to US55c/lb). Gold, however, is up 25 per cent from $US350/oz to around $US437/oz.

And, these are the two the ‘gold bugs’ absolutely hate, there is the small issue of the central banks of the world retaining enough spare metal to kill the gold market at their choosing.

Investing in metals (including gold) does not earn you one cent in interest, so there is, in effect, roughly, an annual 5 per cent discount at work because gold has to rise by 5 per cent a year just to stand still against cash.

•••

“It’s amazing how nice people are to you when they know you’re going away.” – Michael Arlen

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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