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The news have been that Tom Hedley, the proprietor of Hedley Leisure and Gamming Property Fund, both pub operators and at their pinnacle in 2007 worth $715million, will see his empire crumble and will be left with only two pubs. Hedley made a story of rags to riches, but unfortunately will have go back to rags.
The reason for this fall was that Hedley bought the pubs at full price at the top of the market and borrowed too much in margin loans with Suncorp and ANZ bank when credit was easy, being that now he cannot pay his margin calls.
But what brought me to write this post was that, at the top of his career, with business worth, as already mentioned, $715 million, Hedley lived in a modest house in a Cairns suburb. You could imagine the entrepreneur going about his substantial business by day and then coming back to his modest home by night. About this one it can be said that, disregarding his failure in business, money did not corrupt him. As it appears, he is content.
Contrast this with Eddy Groves, the founder of ABC Learning Centres, a business that imploded last year. His business failure was also mostly too much gearing and perhaps also too much greed. His lifestyle, though, at the top of his career was astonishing: he drove a Ferrari, wore crocodile boots, owned an array of apartments and houses worth many millions of dollars, flew a 16 seat private jet, piloted a helicopter and captained a yacht docked in the Versace marina in the Gold Cost. A true banana life, I would say.
When threatened with liquidation, Groves responded by contracting a marketing agency to promote his image, this to me meaning that this guy is purely a hot air balloon. Problem is, he is going to have a really hard time trying to adapt to a rags type of living, since as I believe, ABCs liquidators wont let him keep anything. He may even end up having to work, who knows. Ouch.
In the middle ages common people were just happy with finding enough to eat and a roof to keep them warm. That would suffice. This is not to say that it was good, no, life then was hard, but to establish a contrast with todays consumption society.
Today, after the industrial revolution and the emergence of the welfare state, we all engage in the generalised consumption of many goods. We buy too many gadgets which are only interesting for a moment after being purchased. We buy large houses and large cars to ensure that everybody knows our status, which is certainly higher than that of the Joneses. We buy also certain other status items such as the recreational boat, the leather sofas, the trips overseas and, who knows, one day a weekend in the moon too.
Not content with the above, we also stuff ourselves up with food of all kinds, industrially processed foods, lots of fat and red meat dishes, too much chips and other fried foods, too many sweets and so on and in the end we find ourselves suffering from obesity, diabetes and cardio-vascular disease. But we consume a lot, that we can be sure of.
Our current society has become a consumption machine loaded with industrial factories in strategic places whose sole purpose is to make us possess their products. If you just turn on commercial TV, you will be swamped with countless advertisements each one shouting louder the message that you have to buy their product now. Some people even turn on the commercial channels to know what goes on in the commercials.
Marketing and commercials are for me and for the most part a bother, yet most people want, with their abiding purchasing, to follow the move of the herd. Most of the phenomenon of consumption capitalism is based in most peoples herd mentality doing as they see others doing and being the best at it. Industry makes millions, retailers make millions, banks make millions and we consume obligingly.
Consider this little statistical piece: the population of rich, developed countries, which is around 25 per cent of humanity, consumes 80 per cent of the resources of the world. We definitely are consumption mad.
When I was a youth my hero was Mahatma Ghandi. Ghandi moved millions of people and compelled the British Empire to give independence to India. Yet, his only possessions at death were his sandals and his glasses.
Today, when the average person in our society moves home he needs several truckloads to carry his possessions. These are the proof of our success, the mark of our social standing, the label of modernity. A dispossessed person compared with this is nothing. Its only when we suffer a fire, a flood, when we are burglared, when we suffer a car accident that we realise the precariousness of our asset consuming behaviour.
In this fake sea of consumption capitalism, how should the true man be? The true man should stand in the two legs of his human inner dignity, his spiritual essence, his inherent respectability. But in our consumption society we want to think of ourselves as better than our next door neighbour by having more possessions and consuming more than him. And indeed, most peoples need to possess, to compete and to follow is enormous.
I wonder where this will lead us to.
Its been in the news: should the government give subsidies to private schools for whatever purpose? The related question is whether the government should also subsidise the exclusive parents their childrens school fees.
This begs the question of why are there private schools beside public ones, why should private schools expect the government to pay for their luxurious approach to education and why should the no-body who pays taxes every year pay for that as well.
Lets start from the beginning. Taxes paid to the government, in a welfare state such as our country Australia, are for the provision of essential services such as health and education, transportation, police, defence, social security etc.
Both rich and poor pay taxes to the government and these, at least conceptually, get somehow allocated into the above non-exhaustive list of social applications.
Milton Freedman, in his book Capitalism and Freedom, defended that rich people, who wanted to put their children into private schooling, could withdraw their contributed taxes or at least the slice of them that fitted the purpose of funding public education, and use it to pay their childrens private school.
While this construction may look very smart a priori, look into it now from the outside. You lost your job, and theres many like you now-a-days, you are at the door of Centrelink in a cold winter morning and you witness this.
Mr Top Corporate stops his Porche 911 at the front door of Centrelink, gets out of the car whose lights flash compliantly, enters the edifice, joins the queue and, when finally its his turn, says: I earn one million a day could you please refund my taxes so that I can pay for my childrens private school? The clerk behind the counter must have though it was fools day that day. Everybody around must have started laughing hilariously.
When the government collects taxes from society his obligation with regards to education is to provide the best schools and teachers necessary to educate the countrys children to a defined standard.
As with other services such as health, the basic principle the government follows is to set up a uniform method for achieving these goals which applies to the overall society, meaning with this that public education is the best it can be and is the same for all students. This is so because the government has to offer equal opportunities for all. Discrimination only happens when special needs call for it such as with students with disabilities or gifted students who get their own special school.
Now, if someone does not want their children to go to school with the children of the average, the blue collar or the migrant and prefers them to be in company of the well-to-do because its their choice shouldnt it also be their expense? Is this unfair?
As a matter of fact, if someone turns away from the schools the government provides him and is prepared to pay $24,000 or so per anum in private school fees per child, why then should he be given any government money at all, whether it is fees subsidies or school subsidies? On what basis?
Why should the hardworking people of this country, who pay most of the taxes collected by the taxation office, finance Mr Porche Carrera childrens private school? Why would the common wealth of Australia in any way subsidise the rich who turned away public schooling and engage in exclusivist and luxurious behaviour with regards to their childrens schooling?
I cant find any good reason.
When you go to business school they tell you certain things. One of them, which I never cease to laugh at, is this: there are no free lunches. Not meaning to discount the readers intelligence, and willing just to state it plainly, this means that, every time you get something, you have to give something for it. But, really? I doubt. Lets see.
In recent times quite a few companies have been raising equity from investors, both institutional and retail. If you read the news you would know that the prices practiced were well below the market price for the same shares. Just from the top of my mind these are a few examples
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Investing, definitely, is fraught with danger. If not, consider the recent cases of the Brisconnections stapled securities with undetected compulsory inbuilt future payments and the case of the people who trusted Storm Financial enough to mortgage their homes and get a margin loan from them.
The Brisconnections investors fell into it like angels. They were said not to be sophisticated. But, on hindsight, mostly anyone would have fallen because it was hard to find out that these stapled securities were not fully paid. If you consider that, after it became a scandal and brokers were required to warn prospective investors of that fact in writing, then maybe they were not so unsophisticated
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For 16 years up to 2008 Macquarie Group roared ahead. Its earnings, its satellite fund valuations and its share price at almost $100 where the envy of the market. Alan Moss was the man at the rudder of the ship. Then, suddenly, it all came to a halt. The credit crisis ensued, capital was not anymore cheap and plentiful as it used to be, infrastructure started losing money, valuations came down, and the whole thing looked like in tatters.
The business model that gave Macquarie the success that distinguished it was this: it would buy infrastructure assets around the world with credit and paying always a much higher price than the competition; then it would sell these assets to one of its various satellite funds which then sold their units to retail and institutional investors. These, then, beared the investment risk
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Rio Tinto had a hard look at Chinalco and its $US19.5 billion convertible bond proposal and decided to avoid it despite having to pay a break fee of $US195 million. Instead it joined BHP Billiton in the Pilbara, WA, for a 50/50 joint venture to merge explorations of iron ore there. In the process it received from BHP a payment of $US5.8 billion to even the deal.
Rio will go to its shareholders for equity money to retire their $US38 billion debt contracted when purchasing Alcan, an aluminium company, at the top of the market in 2007. Rio will be offering 21 shares for 40 existing ones at a whopping $28.29 Rio closing share price on Friday was $72.49. These monies plus BHP fee total a recapitalisation amount of $US21 billion
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Rio Tinto is a remarkable Australian company. Its has been through something less of its dignity, though. Just as a note, Rio Tinto achieved in December 2008 revenues of $78,325.6 million and net profit of $5,306.0 million while its equity has topped $29,789.3 million a set of impressive figures. Yet, it has been through a lot of criticism lately. What is wrong with Rio Tinto?
In the year ended 2008 two things combined to make Rio Tinto an underperformer: they were the BHP Billiton rejected takeover attempt and the purchase of Alcan. By todays rule, the 2008 BHP takeover offer of three and a half shares to one was very good. Yet Rio shunned it. Concomitantly, Rios management bought Alcan at the top of the market for $1.8 billion
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Two news stories pervaded the newspapers last week: one was the halving in revenue from James Packers casino business in the USA, Macau and also in Australia. It was thought that gambling was recession proof, but the fact is that it hit hard in these places affecting mostly the small gamblers. The question to be asked now is how far down and for how long will it go?
The big gamblers continue to gamble heavily and the second story of this week was the one of a Gold Cost Developer, Mr Kakavas, who gambled in Melbourne Crown casino $1.5 billion yes, billion not million across15 months and is now suing Crown for the restitution of $30 million. The claim is that he was induced to gamble that crazily by the casino which offered him boxes full with $30,000 and $50,000 for him to gamble when he was sort of short of money and let him use the private GulfStream jet to travel to the Gold Coast
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The really big event this past week was the Australian Federal Government Budget presented to parliament by Treasurer Wayne Swan. It offered the prospect of a $58 billion deficit in 2009-10, but notice that, even without doing anything the deficit for the next four years would be $210 billion.
This is so because of the automatic stabilisers of the budget. The automatic stabilisers are the progressive tax rates for individuals and the company tax rate and the dole payments. When the economy is in recession less money gets collected as tax and the dole payments increase injecting money into the economy. When the economy booms the tax rates remove more money from the economy and, in this case, help repay the deficit
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Comment by Fernando Monteiro
on Will Qantas be Sold?
Australian Business News
X Finance
The Measurement of Infinite Realities
Market Gladiator
If Qantas can keep the attributes that made it successfull, such as service and safety, then appart from onership nothing should change. Notice that Qantas management, including its MD, will take a part of it (up to $100 million).
I just wonder whether the bid will be acceptable given the restrictions on foreign ownershipt of Qantas.
Bye,
FM