The former Prime Minister Paul Keating has a lot of detractors, but one quality that was respected on both side of politics was his acerbic wit and his use of pithy quips to either make a point or heap scorn on his opponents. John Hewson was the target of many a Keating barb ("debating him is like being bashed with a warm lettuce"), while other political opponents like Howard ("the desiccated coconut") and Peter Costello ("all tip and no iceberg") drew some of his fire during the last election.
My favourite however is his description of the Senate as "unrepresentative swill". At a time where the fate of several important pieces of legislation rest in the hands of the dangerously naive Family First Senator Steve Fielding and the quirky South Australian Nick Xenophon, the expression has never been more apt. The vast majority of Australians did not vote for these people, so how did they land themselves such influential positions? Also after the numerous examples of oddball senators having undue influence on the country's affairs (eg Albert Field in Whitlam's time and more recently, Brian Harradine), why do we continue to tolerate the way the Senate is elected?
The problem essentially stems from the way the nation was formed back in 1901 and our reluctance as a country to change the Constitution so that it better reflects the circumstances of the 21st century. Similar to the USA, the Australian Government was formed when the separate colonies of the states agreed to join together to break away from England and form a Commonwealth. Prior to this, each of the States each ran their own affairs independently of the others and had much more diverging priorities than what they do now. The bizarre fact that each state had its own rail gauge rendering interstate rail travel either impossible or impractical is testament to this. Similarly, while a lot of matters that it makes clear sense for a central government to control (for example: income tax and company regulation) now fall within the responsibility of the Federal Government, the states were generally very slow and reluctant to cede powers to the new central government. It was for this reason that the Senate was conceived as the legislative house designed to represent the interests of the States and with equal representation for each State.
The problem now however is that with modern methods of travel and communication making the world a much smaller place and with the interests of the States much more aligned than what they once were, the idea of determining Senate representation based on lines on a map drawn over 150 years ago is hopelessly outdated. However, because of the way the Constitution was drawn and the extreme difficulties faced in changing it, we are likely to be stuck with this anachronistic system for the foreseeable future. Which unfortunately for everyone means a future full of more Senators like Harradine and Fielding.
I generally agree with the idea of an upper house. Consitituted properly, it can act as an effective house of review and both improve and where necessary, temper legislation conceived by the lower house. When one party controls both houses of Parliament, there is nothing to filter the excesses of Government policy and you wind up with odious laws like Workchoices being passed without their harsh edges being knocked off. However, when the Government is forced to make undesirable changes to laws to satisfy the capricious whims of an independent senator, then the upper house is clearly not serving its purpose. This is especially when an overwhelming number of people did not vote for these senators, nor for their policies - if in fact they have any and aren't just making them up on the run.
To illustrate just how disproportionate the representation is, take a look at the results from the last Federal Election. Because Senators serve 6 year terms, only 6 Senate seats were up for grabs in each state. Under the Senate quota system, a senator needed just under 600,000 votes in New South Wales to secure a seat. In Victoria, the number needed was 450,000 but in South Australia it was closer to 145,000 and in Tasmania a paltry 47,000. This means that 47,000 Tasmanians have the same Senate representation as 12 times that many New South Welshmen and 10 times as many Victorians. When you consider this it's small wonder that Keating started calling the Senate all sorts of names.
What this voting system does however is make it a relatively easy proposition for a maverick senator to make his way into the Upper House in one of the smaller states, which is why the independents tend to come from either Tasmania or South Australia. Getting hold of either 47,000 or even 145,000 votes after distribution of preferences is fairly achievable but 450,000 or 600,000 is a whole different proposition. While it's true that the smaller states need a decent degree of representation and the proportion should not be solely based on population, equally it's not fair on the rest of the country that an individual elected by 47,000 Tasmanians has the power to frustrate or cripple laws that are of critical importance.
Which brings me back to Steve Fielding, who unusually for an independent senator comes from Victoria. The story of his election in 2004 is certainly an interesting story. Of the primary vote , Fielding received just 56,000 votes, less than 1/8th of what he needed to secure a seat. However, because of a sleazy preference deal struck by Labor to try and dud the Greens and swing themselves a 3rd senate seat, Fielding somehow after distribution of preferences leapfrogged not only the Democrats and the DLP but also the Greens (260,000) votes.
As a result of Labor's misconceived deal, we now have a situation where this gormless twit and his homespun policies are going to potentially determine whether several pieces of hugely important legislation get through the Senate. Kevin Rudd must cursing Mark Latham to high heaven right now, because the early signs are not encouraging.
Witness Fielding's attitude to the Alcopops legislation. This could hardly be considered a law of groundbreaking or nation-building importance, however in order to pass it, Fielding wanted to impose an immediate ban on ALL alcohol related sports advertising. Yep, great idea, let's drop that one in overnight in the middle of a recession and see what happens to all sporting codes in the country.
It was announced in the press the other day that Labor are looking to reverse some of the idiotic and unnecessary middle-class welfare measures introduced by Howard and Costello, the most pertinent of these being the elimination of the baby bonus. In the driest, most forbidding continent on Earth, who in their right mind wants to encourage INCREASING our population? If it's true then this is a great piece of policy by Labor and should be rushed into law so that money can be applied to solving more pressing issues in the economy. However, with Steve Fielding calling the shots in the Senate, don't expect this legislation to get through without significant amendment or perhaps at all. For him, it's Families First and the national interest a very distant second.
Unrepresentative swill? They're much worse than that. I think for once Keating was being too kind.
31 March 2009
24 March 2009
Enjoy your Walk, Dr Keen
While surfing the net during a particularly asphyxiating Melbourne train trip, I came across an Sunday Telegraph article on the housing market which cited comments from the Sydney economist, Dr Steve Keen.
As usual, Dr Keen's comments were laden with predictions of economic doom, tanking house prices and warnings that first home buyers would be turfed out of their homes as they struggled under a pile of crippling debt. To reinforce his point of view, the paper sought a quote from the legendary market bear Gerard Minack, who obliged by forecasting halving of values on the Gold Coast and value drops of 20% in some cities.
To anyone who knows anything about real estate markets (and I happen to know quite a lot having worked in this area for almost 20 years), in the context of Australia's current circumstances these predictions are simply asinine, not to mention irresponsible. As with any downturn there will be individual horror stories but falls of this magnitude just aren't going to happen across the board. However, in an environment where newspapers are actively looking to run bad news stories, they will eagerly publish all manner of rubbish from all manner of idiots as long as it supports their editorial direction.
To illustrate my point, try typing "Dr Steve Keen" into Google. I did, and I gave up navigating after about 10 screens as the media references were unending. The man is so addicted to publicity you have to wonder whether he ever gets time to lecture at his university. He hoovers column space like Shane Macgowan of the Pogues hoovers whisky. The plethora of media references evoke a recent quote made by an eminent Melbourne investment banker about the American business analyst, Jim Chanos: "He's full of sh!t, but he gets an audience."
Of course it's inevitable you will get in the paper when you go and pull publicity stunts like the bet Keen entered into late last year with the Macquarie Group economist, Rory Robertson. Under the terms of the bet, if house prices drop less than 20% from their 2008 peak level, Dr Keen is required to walk from Canberra to the top of Mt Kosciusko. As Dr Keen has openly predicted a 40% drop, he presumably felt he was fairly safe in agreeing to 20%.
However, by the looks of things, he should be investing in some decent hiking boots fairly soon. The peak-to-trough looks like being closer to 8% than 20% and early signs in some capital cities are that median prices are heading up again - even BEFORE we hit the bottom of the interest rate cycle. No wonder Dr Keen is so motivated to talk things down. He can obviously see some nasty blisters in his immediate future.
Why are Keen's predictions set to fall so wide of the mark? After all, everyone has seen the horror stories in the press about US and UK house values, which seem hopelessly caught in a dangerous downward spiral. When housing in the big economies is floundering so badly, what hope does a small country like Australia have?
The answers can be found first in the fundamentals of the Australian market, which are completely different to those in the US and UK and secondly, through a basic understanding of how those fundamentals correlate and determine price movements.
House prices are predominantly driven by 4 things: supply, demand, credit availability and the big one -affordability. In fact if you were to create any chart depicting movements in house prices and overlay affordability, apart from a slight lag the correlation between the two is as close as you can get. This helps explain the dramatic collapse in prices at the start of the 1990s. In Sydney, it took approximately 80% of the average wage to pay the average Sydney mortgage - a crippling figure if there ever was one and it's hardly surprising prices plummeted when the economic bubble burst.
In most cities, prices tend to fall where 40% or more of the average salary is required to service the average mortgage, while they tend to rise when the figure drops below 30%. Despite the economic boom, with the exception of Perth prices in the capital cities didn't rise enough to reduce affordability to dangerous levels. Now thanks to a succession of huge interest rate cuts, this key figure is hovering in the mid 30% range and continuing to head down. If, and this is a big "if", unemployment doesn't rise too much then more rate cuts will give a further kick to affordability and set the scene for a return to growth in values. Contrast this to the US and UK, where even after substantial price drops, affordability is still relatively low by historic standards and further price drops will need to take place before these markets hit bottom.
In addition to being relatively affordable, the Australian market is also in the happy position of being undersupplied rather than oversupplied. A lot of the US housing market's problems can be traced to the huge amount of overbuilding that took place earlier in the decade, fuelled by a seemingly endless supply of cheap credit and price rises that ultimately proved unsustainable. Before the US can recover, it needs to work through the large volume of unsold housing stock generated by the construction boom. This will take some time but given affordability has risen substantially in the last year, the bottom now is clearly in sight. In Australia however we have been underbuilding now for a few years and vacancy rates for rental properties are around 1% in most capital cities. Given banks are reluctant to lend money to property developers at the moment to build housing, this situation is unlikely to change, even though strong migration levels into Australia would suggest a fairly urgent need for more housing.
Finally, while credit markets for commercial property markets are in the toilet, in Australia housing loans are still readily available at reasonable rates due to the strong position of our banking system relative to the UK and US. Unlike their offshore counterparts, Australian banks maintained reasonably sound credit practices through the economic boom and as a result, aren't suffering from crippled balance sheets and the consequent flow on effect to liquidity. The fact that US and UK banks just don't have money to lend to homebuyers is a cruel kick in the teeth that those markets just didn't need.
What all this means is that median prices should start to stabilise about now and start trending up towards the end of 2009. The one thing that might save Dr Keen from a rather lengthy walk is if there is a dramatic spike in unemployment, as nothing affects affordability more than not having an income. However, when unemployment rises the Reserve Bank generally counters with even lower official interest rates, which should help offset some of the negative effects of unemployment. Further, the Government are spending money like drunken sailors in order to ward off a recession and a lot of their largesse is directed towards propping up housing. Therefore in these circumstances further major price drops are unlikely.
A quick read of Dr Keen's soundbites reveal a lot of scary sounding statistics like high historic debt levels and high house prices relative to salaries. However any economist worth their salt knows that in order to be meaningful, the statistics or trends you are spruiking MUST correlate with the trend you are trying to establish. Otherwise the contentions made based on those statistics are not economics, they're histrionics. Unfortunately for Dr Keen, all of the dreadful numbers he cites have little to no correlation to the way house prices behave and this is why in a few months he will start looking like a rather large goose. Not to mention a fairly exhausted one after he makes his trek to the top of Kosciusko.
So, to all homeowners out there, I would just disregard the rubbish in the press from these so-called experts and just hang in there. Even if you don't want to delve deeply into the statistics to make yourself feel better, just take some schadenfreude from this - in anticipation of his predictions coming true, Dr Keen sold his Sydney property last year at a point which is now shaping as close to the bottom of the market.
Doh ! A lung-busting walk, a substantial capital loss and sizeable embarassment in few months time when he is exposed as yet another economic "Chicken Little". I wouldn't be too keen to be in Dr Keen's shoes right now.
As usual, Dr Keen's comments were laden with predictions of economic doom, tanking house prices and warnings that first home buyers would be turfed out of their homes as they struggled under a pile of crippling debt. To reinforce his point of view, the paper sought a quote from the legendary market bear Gerard Minack, who obliged by forecasting halving of values on the Gold Coast and value drops of 20% in some cities.
To anyone who knows anything about real estate markets (and I happen to know quite a lot having worked in this area for almost 20 years), in the context of Australia's current circumstances these predictions are simply asinine, not to mention irresponsible. As with any downturn there will be individual horror stories but falls of this magnitude just aren't going to happen across the board. However, in an environment where newspapers are actively looking to run bad news stories, they will eagerly publish all manner of rubbish from all manner of idiots as long as it supports their editorial direction.
To illustrate my point, try typing "Dr Steve Keen" into Google. I did, and I gave up navigating after about 10 screens as the media references were unending. The man is so addicted to publicity you have to wonder whether he ever gets time to lecture at his university. He hoovers column space like Shane Macgowan of the Pogues hoovers whisky. The plethora of media references evoke a recent quote made by an eminent Melbourne investment banker about the American business analyst, Jim Chanos: "He's full of sh!t, but he gets an audience."
Of course it's inevitable you will get in the paper when you go and pull publicity stunts like the bet Keen entered into late last year with the Macquarie Group economist, Rory Robertson. Under the terms of the bet, if house prices drop less than 20% from their 2008 peak level, Dr Keen is required to walk from Canberra to the top of Mt Kosciusko. As Dr Keen has openly predicted a 40% drop, he presumably felt he was fairly safe in agreeing to 20%.
However, by the looks of things, he should be investing in some decent hiking boots fairly soon. The peak-to-trough looks like being closer to 8% than 20% and early signs in some capital cities are that median prices are heading up again - even BEFORE we hit the bottom of the interest rate cycle. No wonder Dr Keen is so motivated to talk things down. He can obviously see some nasty blisters in his immediate future.
Why are Keen's predictions set to fall so wide of the mark? After all, everyone has seen the horror stories in the press about US and UK house values, which seem hopelessly caught in a dangerous downward spiral. When housing in the big economies is floundering so badly, what hope does a small country like Australia have?
The answers can be found first in the fundamentals of the Australian market, which are completely different to those in the US and UK and secondly, through a basic understanding of how those fundamentals correlate and determine price movements.
House prices are predominantly driven by 4 things: supply, demand, credit availability and the big one -affordability. In fact if you were to create any chart depicting movements in house prices and overlay affordability, apart from a slight lag the correlation between the two is as close as you can get. This helps explain the dramatic collapse in prices at the start of the 1990s. In Sydney, it took approximately 80% of the average wage to pay the average Sydney mortgage - a crippling figure if there ever was one and it's hardly surprising prices plummeted when the economic bubble burst.
In most cities, prices tend to fall where 40% or more of the average salary is required to service the average mortgage, while they tend to rise when the figure drops below 30%. Despite the economic boom, with the exception of Perth prices in the capital cities didn't rise enough to reduce affordability to dangerous levels. Now thanks to a succession of huge interest rate cuts, this key figure is hovering in the mid 30% range and continuing to head down. If, and this is a big "if", unemployment doesn't rise too much then more rate cuts will give a further kick to affordability and set the scene for a return to growth in values. Contrast this to the US and UK, where even after substantial price drops, affordability is still relatively low by historic standards and further price drops will need to take place before these markets hit bottom.
In addition to being relatively affordable, the Australian market is also in the happy position of being undersupplied rather than oversupplied. A lot of the US housing market's problems can be traced to the huge amount of overbuilding that took place earlier in the decade, fuelled by a seemingly endless supply of cheap credit and price rises that ultimately proved unsustainable. Before the US can recover, it needs to work through the large volume of unsold housing stock generated by the construction boom. This will take some time but given affordability has risen substantially in the last year, the bottom now is clearly in sight. In Australia however we have been underbuilding now for a few years and vacancy rates for rental properties are around 1% in most capital cities. Given banks are reluctant to lend money to property developers at the moment to build housing, this situation is unlikely to change, even though strong migration levels into Australia would suggest a fairly urgent need for more housing.
Finally, while credit markets for commercial property markets are in the toilet, in Australia housing loans are still readily available at reasonable rates due to the strong position of our banking system relative to the UK and US. Unlike their offshore counterparts, Australian banks maintained reasonably sound credit practices through the economic boom and as a result, aren't suffering from crippled balance sheets and the consequent flow on effect to liquidity. The fact that US and UK banks just don't have money to lend to homebuyers is a cruel kick in the teeth that those markets just didn't need.
What all this means is that median prices should start to stabilise about now and start trending up towards the end of 2009. The one thing that might save Dr Keen from a rather lengthy walk is if there is a dramatic spike in unemployment, as nothing affects affordability more than not having an income. However, when unemployment rises the Reserve Bank generally counters with even lower official interest rates, which should help offset some of the negative effects of unemployment. Further, the Government are spending money like drunken sailors in order to ward off a recession and a lot of their largesse is directed towards propping up housing. Therefore in these circumstances further major price drops are unlikely.
A quick read of Dr Keen's soundbites reveal a lot of scary sounding statistics like high historic debt levels and high house prices relative to salaries. However any economist worth their salt knows that in order to be meaningful, the statistics or trends you are spruiking MUST correlate with the trend you are trying to establish. Otherwise the contentions made based on those statistics are not economics, they're histrionics. Unfortunately for Dr Keen, all of the dreadful numbers he cites have little to no correlation to the way house prices behave and this is why in a few months he will start looking like a rather large goose. Not to mention a fairly exhausted one after he makes his trek to the top of Kosciusko.
So, to all homeowners out there, I would just disregard the rubbish in the press from these so-called experts and just hang in there. Even if you don't want to delve deeply into the statistics to make yourself feel better, just take some schadenfreude from this - in anticipation of his predictions coming true, Dr Keen sold his Sydney property last year at a point which is now shaping as close to the bottom of the market.
Doh ! A lung-busting walk, a substantial capital loss and sizeable embarassment in few months time when he is exposed as yet another economic "Chicken Little". I wouldn't be too keen to be in Dr Keen's shoes right now.
17 March 2009
Volunteers? We Should Swear by Them
A curious story arose from the Victorian bushfire tragedy last week. According to the Herald-Sun in Melbourne and the Daily Telegraph in Sydney, a firefighting chief called John Wills got sacked from his position for swearing over an emergency radio while directing his subordinates. Subordinates who had, apparently, disregarded Mr Wills' directions and put themselves in serious danger.
The story was unusual from a couple of viewpoints. First, while the Victorian bushfires made headlines around the world, this aspect of it is hardly newsworthy relative to some of the appalling tragedies arising out of the fires. So, why the front page treatment? One can only assume it was a slow news day for the Herald Sun, with no genius from the IMF foretelling economic doom or no prominent footballers caught urinating in public.
Secondly and more relevantly, if the story can be taken at face value, what on Earth were the Country Fire Authority thinking? On the face of it, the punishment just doesn't fit the crime. For better or worse, profanity has become ubiquitous in modern society and while Mr Wills should probably have minded his P's and Q's, swearing in public is hardly the no-no it once was. Also when faced with what Mr Wills was up against, I'm tipping most people would have let fly with a few choice expletives. Battling raging bushfires in 46 degree heat - $£*@ that !
As with a lot of newspaper articles, I suspect we aren't getting the full story or there has been a misreporting of the facts. If however the story as reported resembles the truth, then Mr Wills should feel entitled to hurl a few more profanities in the CFA's direction. They seem to be missing the point here. Mr Wills is a volunteer, not a paid employee and was entitled to be treated with a bit more respect and leniency.
Unfortunately though this seems to be just another sad example of how volunteers are grossly underappreciated in this country. Year in, year out, these selfless souls fight our fires, patrol our beaches and man our charities and for no other reward other than the satisfaction of a job well done. We are all guilty of taking these people for granted, and why? Because generally they aren't the sort of people who big note themselves and are content just to serve the community in their own way without making a fuss.
The work they do clearly merits a substantial slice of government funding, however unfortunately the maxim that the squeaky wheel gets the oil applies all too often here. Many government programs that are less worthy but have more persistent lobbyists wallow in cash while organisations like the Surf Lifesavers have to eke out an existence based on chook raffle proceeds and other forms of private fundraising.
Another thing that might get firefighters swearing a blue streak is the benefits received by Army Reservists called in to help the volunteers. As Army Reservists, these men and women are entitled to tax free money for the time spent on active duty. Sure, they gave of their time and out themselves in the line of fire (literally), but if they can get some tax-free cash from the government, why not offer the same sort of breaks to volunteers? It would be a lot more tangible reward for effort than what they usually get, which pretty much starts and ends with a "thankyou".
It's hard to see this happening however, so let's pray that volunteers continue to give selflessly of their time and expect nothing much in return. If they did pull up stumps and started putting themselves first, society would be mush the poorer.
So, Mr Wills, take heart. Despite your occasional potty-mouth, there are those of us out there who appreciate you. I think you're a #£$%*# top bloke, and anyone who disagrees is a #%$#@ ##£!%%* and can go and get ##&@* !
The story was unusual from a couple of viewpoints. First, while the Victorian bushfires made headlines around the world, this aspect of it is hardly newsworthy relative to some of the appalling tragedies arising out of the fires. So, why the front page treatment? One can only assume it was a slow news day for the Herald Sun, with no genius from the IMF foretelling economic doom or no prominent footballers caught urinating in public.
Secondly and more relevantly, if the story can be taken at face value, what on Earth were the Country Fire Authority thinking? On the face of it, the punishment just doesn't fit the crime. For better or worse, profanity has become ubiquitous in modern society and while Mr Wills should probably have minded his P's and Q's, swearing in public is hardly the no-no it once was. Also when faced with what Mr Wills was up against, I'm tipping most people would have let fly with a few choice expletives. Battling raging bushfires in 46 degree heat - $£*@ that !
As with a lot of newspaper articles, I suspect we aren't getting the full story or there has been a misreporting of the facts. If however the story as reported resembles the truth, then Mr Wills should feel entitled to hurl a few more profanities in the CFA's direction. They seem to be missing the point here. Mr Wills is a volunteer, not a paid employee and was entitled to be treated with a bit more respect and leniency.
Unfortunately though this seems to be just another sad example of how volunteers are grossly underappreciated in this country. Year in, year out, these selfless souls fight our fires, patrol our beaches and man our charities and for no other reward other than the satisfaction of a job well done. We are all guilty of taking these people for granted, and why? Because generally they aren't the sort of people who big note themselves and are content just to serve the community in their own way without making a fuss.
The work they do clearly merits a substantial slice of government funding, however unfortunately the maxim that the squeaky wheel gets the oil applies all too often here. Many government programs that are less worthy but have more persistent lobbyists wallow in cash while organisations like the Surf Lifesavers have to eke out an existence based on chook raffle proceeds and other forms of private fundraising.
Another thing that might get firefighters swearing a blue streak is the benefits received by Army Reservists called in to help the volunteers. As Army Reservists, these men and women are entitled to tax free money for the time spent on active duty. Sure, they gave of their time and out themselves in the line of fire (literally), but if they can get some tax-free cash from the government, why not offer the same sort of breaks to volunteers? It would be a lot more tangible reward for effort than what they usually get, which pretty much starts and ends with a "thankyou".
It's hard to see this happening however, so let's pray that volunteers continue to give selflessly of their time and expect nothing much in return. If they did pull up stumps and started putting themselves first, society would be mush the poorer.
So, Mr Wills, take heart. Despite your occasional potty-mouth, there are those of us out there who appreciate you. I think you're a #£$%*# top bloke, and anyone who disagrees is a #%$#@ ##£!%%* and can go and get ##&@* !
14 March 2009
Curl up and Die, Costello
He's barely 18 months into his first term, but nonetheless Kevin Rudd should be under electoral pressure. While the global economic crisis is not of Labor's making, voters tend to ignore this fact and blame the incumbent government for any pain they are feeling. Further, the government's response to the crisis has missed the mark in a lot of areas and Rudd's novice economic team ought to be feeling some political heat.
Instead it is the opposition who are in disarray and floundering way behind Labor in most polls. This is despite having a viable alternative PM in Malcolm Turnbull leading the party. Why is this so? It's true that Turnbull's shadow ministry lacks some depth, however a lot of the Liberals problems can be attributed to the insidious presence of Peter Costello on the back bench.
On any reasonable measure, Costello's behaviour since the 2007 election has been a complete disgrace. In a display of petulance that would make any self-respecting 2 year old blush, he very publicly passed up the party leadership after the 2007 election. He has spent his time (and taxpayers money) writing his turgid memoirs and turning up in Parliament sporadically at best. Now, 18 months later, he seems to have done an about face and wants to become leader again. Not by gathering support from his colleagues and openly challenging Turnbull - oh no. We know very well from his years playing second fiddle to John Howard that Costello lacks the intestinal fortitude for an upfront, mano-a-mano leadership battle. Instead, he is running a behind the scenes, weasel campaign designed to deliberately and cynically undermine Turnbull's leadership and leave the party with no other option but to install him as leader.
Why is he doing this? Well, for a start he has probably realised he has few other career options. The word in corporate circles is that his CV has done the rounds of most of the investment banks and other business heavyweights, but there was little to no interest from prospective employers. It's unsurprising in this market that the corporate sector isn't exactly a jobhunters paradise, but equally all the cheap political points Costello used to score about investment banking salaries won't have endeared him to would-be employers. If indeed he has applied for work at some of the organisations he so publicly castigated as Treasurer, you can add "blatant hypocrisy" to his already extensive list of undesirable qualities .
Secondly, and more pertinently, he clearly sees an opportunity. A return to office in 3 years must have seemed a remote possibility to Costello when he had his post-election dummy spit, but with the host of problems now facing the country, there is a genuine possibility that the Coalition could get re-elected in 2010. Ironically, Costello is probably closer to his dream now than when he was working under Howard.
Whatever his motives, the Liberal Party should act decisively and put a stop to this nonsense. Otherwise, the scenario Costello is very clearly trying to bring about is bound to happen. Costello may have his failings, but he is a very adept politician. After all, he studied under the master for 12 years and some of Howard's rat cunning has clearly rubbed off.
The simple fact is that the country doesn't need politicians games at the moment. It needs leadership, and the best person the Liberals have to deliver that leadership is the incumbent. Turnbull is both intelligent and articulate but best of all, he's made a success of his life before politics. He therefore has a much broader perspective he can bring to the role that career politicians like Costello, Howard and Rudd can never have. The party hierarchy should give him a reasonable chance to let him display his obvious leadership qualities and tell Costello to go jump in the lake.
If Costello genuinely wants to make himself useful and contribute to public life, then he could do a lot worse than go work with his brother Tim. It really is hard to believe that the two Costellos were spawned by the same mother. On one hand, you have the saintly, inspirational Tim who has devoted his life to defending the poor and disenfranchised and on the other you have the smirking, petulant Peter.
Nonetheless he would have a rolodex full of contacts in world governments that an organisation like World Vision would die for. Putting his contacts and experience to charitable use would be a fitting exclamation mark on Costello's contribution to public life. However, from what we know about the man, I wouldn't hold my breath waiting for it to happen. For Peter Costello, playing politics and feathering his own nest seem to be much more important than helping improve the world.
Instead it is the opposition who are in disarray and floundering way behind Labor in most polls. This is despite having a viable alternative PM in Malcolm Turnbull leading the party. Why is this so? It's true that Turnbull's shadow ministry lacks some depth, however a lot of the Liberals problems can be attributed to the insidious presence of Peter Costello on the back bench.
On any reasonable measure, Costello's behaviour since the 2007 election has been a complete disgrace. In a display of petulance that would make any self-respecting 2 year old blush, he very publicly passed up the party leadership after the 2007 election. He has spent his time (and taxpayers money) writing his turgid memoirs and turning up in Parliament sporadically at best. Now, 18 months later, he seems to have done an about face and wants to become leader again. Not by gathering support from his colleagues and openly challenging Turnbull - oh no. We know very well from his years playing second fiddle to John Howard that Costello lacks the intestinal fortitude for an upfront, mano-a-mano leadership battle. Instead, he is running a behind the scenes, weasel campaign designed to deliberately and cynically undermine Turnbull's leadership and leave the party with no other option but to install him as leader.
Why is he doing this? Well, for a start he has probably realised he has few other career options. The word in corporate circles is that his CV has done the rounds of most of the investment banks and other business heavyweights, but there was little to no interest from prospective employers. It's unsurprising in this market that the corporate sector isn't exactly a jobhunters paradise, but equally all the cheap political points Costello used to score about investment banking salaries won't have endeared him to would-be employers. If indeed he has applied for work at some of the organisations he so publicly castigated as Treasurer, you can add "blatant hypocrisy" to his already extensive list of undesirable qualities .
Secondly, and more pertinently, he clearly sees an opportunity. A return to office in 3 years must have seemed a remote possibility to Costello when he had his post-election dummy spit, but with the host of problems now facing the country, there is a genuine possibility that the Coalition could get re-elected in 2010. Ironically, Costello is probably closer to his dream now than when he was working under Howard.
Whatever his motives, the Liberal Party should act decisively and put a stop to this nonsense. Otherwise, the scenario Costello is very clearly trying to bring about is bound to happen. Costello may have his failings, but he is a very adept politician. After all, he studied under the master for 12 years and some of Howard's rat cunning has clearly rubbed off.
The simple fact is that the country doesn't need politicians games at the moment. It needs leadership, and the best person the Liberals have to deliver that leadership is the incumbent. Turnbull is both intelligent and articulate but best of all, he's made a success of his life before politics. He therefore has a much broader perspective he can bring to the role that career politicians like Costello, Howard and Rudd can never have. The party hierarchy should give him a reasonable chance to let him display his obvious leadership qualities and tell Costello to go jump in the lake.
If Costello genuinely wants to make himself useful and contribute to public life, then he could do a lot worse than go work with his brother Tim. It really is hard to believe that the two Costellos were spawned by the same mother. On one hand, you have the saintly, inspirational Tim who has devoted his life to defending the poor and disenfranchised and on the other you have the smirking, petulant Peter.
Nonetheless he would have a rolodex full of contacts in world governments that an organisation like World Vision would die for. Putting his contacts and experience to charitable use would be a fitting exclamation mark on Costello's contribution to public life. However, from what we know about the man, I wouldn't hold my breath waiting for it to happen. For Peter Costello, playing politics and feathering his own nest seem to be much more important than helping improve the world.
02 March 2009
De-list and De-louse
Another half yearly reporting season has been and gone, and the ASX continues to plumb new lows as investors panic blindly in the face of uniformly poor economic news. In this environment, if you are a CEO of well run listed company you must surely be thinking "Well, is staying listed really worth it?".
Where taking a company private is a viable option, the answer right now is an emphatic "no". Managers have a great opportunity to buy back their businesses at bargain basement prices, and even disregarding this obvious attraction for a moment, what possible utility is there for a company to remain listed, anyway? The one big benefit of being listed, namely getting efficient access to capital markets, is not there at the moment except at ridiculous discounts to true value. On the other hand, all the disadvantages associated with being listed are manifesting themselves in a big way. These include panic selling, over-emphasis on short term targets vs long-term value creation and worst, overzealous scrutiny and second-guessing of management from everyone from fund managers to regulatory authorities.
It's true that a number of ASX-listed companies have been poorly run, are unlikely to survive the current recession and may deserve the criticism being hurled at them by the finance industry. However, on any rational measure, many other well-run companies have been unfairly and in some cases, irresponsibly singled out for criticism and must be seriously contemplating taking their stock off the market. After all, times like these bring out the worst instincts of the investment community and demonstrate why they are often unworthy and unhelpful investors.
At the forefront of the problem is the attitude taken by a lot of fund managers and equities analysts. Because they have a degree in finance and worked in an investment bank for a couple of years, they often have the arrogance to think they are better qualified than the board and management to run a business, when clearly they are not. Some companies have the fortitude and good sense to ignore the ill-informed advice of these armchair experts and focus on an appropriate business strategy. Others, unfortunately, let them influence decision making, often to disastrous effect.
Industry examples of this are legion. Analysts have been quick in the past to castigate boards for having "lazy" balance sheets then equally quick to change tack and criticise when investments they fully encouraged turn sour and a company runs short of cash. They will attack boards incessantly for excessive executive remuneration while conveniently disregarding their own six-figure bonuses - bonuses they derived on the back of the good share price performance driven by the efforts of the executives they don't want to reward. Finally, they tend to maintain a blinkered and destructive focus on the performance of the next quarter or next half, and will punish companies who don't meet their short-term expectations, even where the reason for doing so is driven by the need to successfully execute a long-term strategy.
The press don't help the situation, either. Whenever a company proposes a transaction that might be in the company's interest but may at the same time require some sacrifice from shareholders to get it done, the media response is always histrionic. Company directors are painted as being crooks and charlatans for promoting the deal, while at the same time the press print verbatim the comments of analysts and fund managers clamouring for a better deal. The press conveniently overlook the fact that in a lot of cases, the directors they are savaging are also shareholders and in many cases, were responsible for building the business up from scratch. They have just as much if not more interest in both seeing the company succeed and shareholders get the best deal.
Unfortunately, due to these blinkered attitudes, a couple of major privatisations have already been shot down by fund managers, to the severe detriment of all investors. I have spoken at some length in this column about the failed bid to privatise Qantas, and why shareholders should clearly have regarded the $5.45 offered as a very good price. The fact that Qantas shares have taken a battering down to $1.40 on Friday again reinforces this.
Another sorry example occurred in early 2007 when the Queensland-based travel agency Flight Centre put forward a proposal for its privatisation at a price of $17. The founders of the company stated in the proposal documents that both Flight Centre and the industry it operated in had some challenges to face in the coming months and years, and that those challenges would best be met if the company were able to operate as a private company away from the glare of the Australian Stock Exchange.
Well, boy, weren't they right. But in spite of the board's all too accurate prophesy, one of the large fund managers, Lazard Asset Management killed off the proposal, claiming it was too low and questioning the board's assessment of the company's prospects.
On Friday, Flight Centre's shares closed at $3.74, roughly 75% below the bid price. On this basis alone, Lazard and the other fund managers who voted the deal down should be taken out and shot. Instead, the media spotlight has been not on Lazard but on Flight Centre and the reduction in its profits that it so accurately predicted. The board of Flight Centre must be absolutely furious, and rightly so.
So, corporate Australia, the ball is in your court. Stay listed, and you can continue to suffer a tanking share price and idiotic scrutiny from the industry louses well into 2010. Alternatively, team up with some sophisticated and "sticky" capital and buy back the farm. In the process you might just have the happy effect of eradicating a whole useless element of the industry.
Where taking a company private is a viable option, the answer right now is an emphatic "no". Managers have a great opportunity to buy back their businesses at bargain basement prices, and even disregarding this obvious attraction for a moment, what possible utility is there for a company to remain listed, anyway? The one big benefit of being listed, namely getting efficient access to capital markets, is not there at the moment except at ridiculous discounts to true value. On the other hand, all the disadvantages associated with being listed are manifesting themselves in a big way. These include panic selling, over-emphasis on short term targets vs long-term value creation and worst, overzealous scrutiny and second-guessing of management from everyone from fund managers to regulatory authorities.
It's true that a number of ASX-listed companies have been poorly run, are unlikely to survive the current recession and may deserve the criticism being hurled at them by the finance industry. However, on any rational measure, many other well-run companies have been unfairly and in some cases, irresponsibly singled out for criticism and must be seriously contemplating taking their stock off the market. After all, times like these bring out the worst instincts of the investment community and demonstrate why they are often unworthy and unhelpful investors.
At the forefront of the problem is the attitude taken by a lot of fund managers and equities analysts. Because they have a degree in finance and worked in an investment bank for a couple of years, they often have the arrogance to think they are better qualified than the board and management to run a business, when clearly they are not. Some companies have the fortitude and good sense to ignore the ill-informed advice of these armchair experts and focus on an appropriate business strategy. Others, unfortunately, let them influence decision making, often to disastrous effect.
Industry examples of this are legion. Analysts have been quick in the past to castigate boards for having "lazy" balance sheets then equally quick to change tack and criticise when investments they fully encouraged turn sour and a company runs short of cash. They will attack boards incessantly for excessive executive remuneration while conveniently disregarding their own six-figure bonuses - bonuses they derived on the back of the good share price performance driven by the efforts of the executives they don't want to reward. Finally, they tend to maintain a blinkered and destructive focus on the performance of the next quarter or next half, and will punish companies who don't meet their short-term expectations, even where the reason for doing so is driven by the need to successfully execute a long-term strategy.
The press don't help the situation, either. Whenever a company proposes a transaction that might be in the company's interest but may at the same time require some sacrifice from shareholders to get it done, the media response is always histrionic. Company directors are painted as being crooks and charlatans for promoting the deal, while at the same time the press print verbatim the comments of analysts and fund managers clamouring for a better deal. The press conveniently overlook the fact that in a lot of cases, the directors they are savaging are also shareholders and in many cases, were responsible for building the business up from scratch. They have just as much if not more interest in both seeing the company succeed and shareholders get the best deal.
Unfortunately, due to these blinkered attitudes, a couple of major privatisations have already been shot down by fund managers, to the severe detriment of all investors. I have spoken at some length in this column about the failed bid to privatise Qantas, and why shareholders should clearly have regarded the $5.45 offered as a very good price. The fact that Qantas shares have taken a battering down to $1.40 on Friday again reinforces this.
Another sorry example occurred in early 2007 when the Queensland-based travel agency Flight Centre put forward a proposal for its privatisation at a price of $17. The founders of the company stated in the proposal documents that both Flight Centre and the industry it operated in had some challenges to face in the coming months and years, and that those challenges would best be met if the company were able to operate as a private company away from the glare of the Australian Stock Exchange.
Well, boy, weren't they right. But in spite of the board's all too accurate prophesy, one of the large fund managers, Lazard Asset Management killed off the proposal, claiming it was too low and questioning the board's assessment of the company's prospects.
On Friday, Flight Centre's shares closed at $3.74, roughly 75% below the bid price. On this basis alone, Lazard and the other fund managers who voted the deal down should be taken out and shot. Instead, the media spotlight has been not on Lazard but on Flight Centre and the reduction in its profits that it so accurately predicted. The board of Flight Centre must be absolutely furious, and rightly so.
So, corporate Australia, the ball is in your court. Stay listed, and you can continue to suffer a tanking share price and idiotic scrutiny from the industry louses well into 2010. Alternatively, team up with some sophisticated and "sticky" capital and buy back the farm. In the process you might just have the happy effect of eradicating a whole useless element of the industry.
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