Friday, March 16

Letters to the editor

These letters were published in the Australian Financial Review which is Australia’s leading national business paper with a weekday circulation of around 237, 000 and 153, 000 for the weekend edition.

All the letters with a link to the original article can be read " on line " by clicking on the heading to this post. Some were chosen to have cartoons attached created by their resident cartoonist.

A sample of some is reproduced below :

Security risk overdone

Local Huawei chairmen John Lord is justified in rejecting the assertion that a security risk justifies exclusion of the local arm of the telco giant, the second-largest supplier of telecom infrastructure in the world, in the building of the $36 billion national broadband network (“Huawei: “We’re no risk”, March 27).

Huawei has more than 100,000 employees with nearly half employed in research and development in Germany, India, Russia, Sweden and the United States. Their network extends to over 100 countries including most of the world’s 50 largest telecoms.

ASIO, of course, doesn’t have to justify its position to the public nor has our Prime Minister in her muted response “it’s prudent”. But with a project of this size one might reasonably ask why security safeguards and undertakings for all contractors aren’t already sufficiently robust to afford security protection.

Perhaps we should also ban US companies on the basis that more US military involvement here poses a national security risk bearing in mind the ease with which their own top secrets were posted for all to see on the Wikileaks website.

It doesn’t seem as if we have travelled too far forward from the time when the headlines screamed “Reds under the bed”.

Harvey’s groans still make a case

In “Please stop whingeing, Gerry Harvey’’ (Letters. January 12) I note Kieran Kelly avoids mentioning the one salient point that Gerry Harvey and Dick Smith attempt to make.

Simply put, overseas purchases by Australian consumers from internet sites owned and operated outside Australia avoid paying GST on purchases under $1000.

The growth in on line sales from these sites enjoying this cost advantage has nothing to do with innovation or changing modes of business or anything else but is due to this tax cost advantage.

Australians will and do purchase electronic goods, or any for that matter, when they are cheaper offshore. This year the government will collect hundreds of millions of dollars less in GST as a result of consumers sourcing goods from overseas which are not subject to GST. This means less tax is available for schools roads and heath. Retailers can, of course, set up their own on line shopping, but will be uncompetitive as they are subject to GST and import levies.

Baillieu’s Work Cover grab

James McKenzie’, chairmen of the Transport Accident Commission and Victorian Work Cover Authority, reaches the inescapable conclusion that a state government’s decision to impose a dividend on the workers compensation and work safe authorities is akin to simply another tax on employers. (“Baillieu raid threatens Work Safe’s full funding", Opinion. February 28).

The Baillieu government has taken just this course in its move to take $471 million in additional diviends from the WorkCover Authority.
I can remember the previous mess for workers compensation in the state several decades earlier prior to the present reform when employers faced crippling premium rates as high as 8% of wages as a consequence of large payouts under common law underwritten by a number of private insurers. Fortunately today after much needed reform we now benefit from the lowest rates in Australia.

But as McKenzie correctly points out, these are now at risk if the government decides on a policy of dividend imposition which can only be recovered in increased premiums from employers.
Hiding behind this ideological bent to pay a dividend should be seen for what it is – an additional premium hike on employers for no reason other than to boost the Treasury coffers and give the appearance of good economic management.

Asia resilient on Indian demand

Stephen Wyatt’s gloomy assessment on commodities (“China props up shaky demand” (January 30) notes that while China remains the elelephant in the room, it is not the only game in town.

Wyatt fails to mention some of the supply restraints emerging or that other resilient markets such as India and those in our Asian region which can and are leading the way in a revival in construction projects whose increased demand for steel will lead to an increase, for instance, in iron ore consumption.

In fact India’s consumption of iron ore is rising at a time as it reverses its position from self sufficiency to one that is a major importer since the government took action against illegal miners.

Further supply constraints are arising from Brazil whose mines were recently affected by the very heavy rains.

Depressed levels in the Euro zone and the USA are unlikely to get much worse so that overall even if there was curtailment in China’s appetite, the slack may be offset by demand elsewhere combined with emerging supply restraints.

Resources Future Assured

Stephen Wyatt’s “Boom glory days drawing to a close” (Commodities observed February 23) continues his theme commodity prices beginning in 2013 will suffer severe falls and put pressure on the share prices of BHP Billiton, Rio Tinto and Fortescue Metals.

Forecasting one year ahead is difficult enough, but predicting a 50% reduction in iron ore price over the next three years, as Wyatt does , even when quoting commodity analysts, is implausible.

Wyatt fails to acknowledge that in India and China softer future steel making demand for construction (and hence iron ore demand) may be more than offset by robust growth in the consumption-related sectors such as machinery and transportation.

This is a natural progression for these developing economies fuelled by demand from a burgeoning middle class and echoes China’s latest five year plan.

China is aiming at reducing its reliance on exports and investment to be more reliant on local consumption to sustain its economy.

If there is going to be any slowing in demand in commodities than a more likely scenario is a gradual decline but anyone predicting further massive falls is foolhardy. The dynamism of developing economies and their ability to sustain demand for resources over the next several decades should not be underestimated.

Hewson’s bank bashing unfair

John Hewson’s “Greedy banks cry foul” (Opinion, February 3) is another example of bank bashing lacking substance. I am intrigued by his idea that banks operate in a privileged position as a virtual oligopoly and are greedy.

Bank returns for the four majors vary from around 13 % to 17 % on shareholders’ funds with the top notch going to the Commonwealth and each has a very distinctive customer base.

Many listed Australian icons easily exceed this return such as Telstra at 26%, Woolworths 28% and BHP 38%. Given the cost of Capital is 12% the banks average returns of 15% can hardly be viewed as excessive. In fact the Australian banking industry is extremely competitive as evidenced by the string of foreign banks that closed their local operations unable to realise commercial returns.

Thankfully we have a strong banking industry which did not succumb to the overtures by foreign banks to become engaged in the sub-prime securities and derivatives market which caused those banking giants in the USA and Europe to need huge publically funded bailouts to remain solvent.

The only reason banks have to seek wholesale funding overseas at higher interest rates is because their local depositor base here is insufficient. Hewson and the flurry of bank bashes only serve to undermine what is needed: a continuing strong healthy profitable competitive banking sector which is critical at a time when overseas credit markets remain constrained.


Mercutio said...

1) We handle this as a "use tax" administered by (most of) the states. The states also administer our sales taxes, with various local taxes added in.

2) Dividends? That seems really out of place. Is there something I'm missing here?

3) I don't think that India enjoys the level of industrialization as China, so I would expect the effect of any surge in materials to be likewise muted.

4) India is able to side-step the demand for raw ore to some degree. There's some place where ships are left out to rot, and the people there go out to cut off pieces of them. Those pieces are then remade into steel.
Though I would presume activities as this to have some manner of effect, I wouldn't expect it to drive the market.
Some of that steel coming out of China is so low-grade I don't even see how it passed the testing procedures.
Ukrainian steel is much better.

5) I'm thinking that I should pay more attention to Australian banks. I've been tentative about Aussie securities due to the extended pre-market sessions.
I remember you telling me that the banks looked good, and all I could see was Canadian take-overs of American banks.
I suppose the view is a bit different from Down Under.

And it's good to see you're still on the ball.

Lindsay Byrnes said...

Hi Mercutio - I have now included a reference to all the articles – if you click on the heading you’re taken to the Australian Financial Review page which has all my letters and the original article cross-referenced should it be of interest.
1. The government has put collecting the GST and import duties on the sub $1000 overseas internet imported goods into the too hard basket saying it will cost more to collect then the tax will provide. This is a nonsense- it could easily be collected !! !!
2 - It is just a grab for money under the guise of a super efficiency dividend!! Some of the people are fooled for some of the time but not all the time. But for the time being it’s going ahead since it’s not of much concern to your average punter!!
3 & 4. True, corruption, a lack of governance and development in India are the major disappointments to many who saw much promise just a few years ago -- but it is improving slowly.
Don’t expect much growth from the banks except they could be re rated and attract more interest as your US banks come back into favor.
Best wishes

Mercutio said...

Any general insights on trading the pre-market session?

Lindsay Byrnes said...

not sure what you mean- I'm not a trader but here are a few thoughts for you on investing and hedging.

I think investing during these uncertain volatile times requires one to analyze the available investor tools available, the support services, methodologies and where possible ( providing it is within the capability and knowledge of the investor) employ hedging strategies to reduce risks.
I like to write covered calls both as a hedge against any falls but also to provide income to supplement dividends and or capital appreciation. In other words as the writer of a call one sells the option to another at an strike agreed price and it is covered to the extent you physically own the stock. The option sold can be rolled up if the price of the stock later exceeds the strike into another further down the track or you can allow it to be exercised on the due date. The other side of the transaction might be a super fund hedging against a rally so that it not so much an adversarial market but one with different parties can gain from different hedging requirements. I am also not against writing puts providing your keen to acquire a designated stock at a designated future strike price( should the option be exercised ) so that you gain from a reduction in cost inherent in the time value of the option. But much more importantly you need to be able to determine whether or not a company is above or below its intrinsic value. Excellent research facilities are available from my broker but additionally I have the past history and consensus forecasts for every listed entity on the ASX (about 2000) with to sort to a large number of designated criteria. Currently there are many good companies in your market and your options market is also much deeper than here where it is restricted to the larger blue chip companies. None of this is for free - but you need to invest in support services to be a sage investor in my opinion.

Best wishes

Mercutio said...

Probably more information than you care to have, but...
I can trade any exchange in New York through one broker. If I want to execute a trade in Chicago, I have to go through another broker.
If I execute a trade in New York after the market has closed (or before it opens), and it's executed as pre-market, there's no price attached, and it typically executes at the high of the day. I've learned to execute those trades as limit orders, and then the execution is attached to the price.
I can also trade in Australia, Tokyo, Zurich, and London. I used to get up at midnight and trade the London exchange before New York opened, but I'm not really into it that much any more.
But London moves much like New York, and Zurich does as well, to a lesser extent.
Tokyo is completely independent. It will provide very little insight as to what will occur in New York.
Australia is like Tokyo in that regard. But the Australian exchange has an extended pre-market session, which appears to have movement independent from the trading session itself.
As I remember, the pre-market session begins at 8:30, and the market doesn't open until 10.
The movement of the same securities isn't the same across the board. I can buy German shares of an American company, and it may actually do better than the shares available in New York.
I never have figured out the Australian exchange, or Tokyo for that matter, and as a result, I've stayed out of them.
But the extended pre-market session is a feature of the Australian exchange that is unique to it.
Not sure, but I think it might have something to do with the date line.

Lindsay Byrnes said...

Hi Mercutio – info for you on our ASX :
Pre-opening phase is from 7:00 am to 10:00 am when Brokers enter orders into the ASX Trade in preparation for the market opening.

As an Investors you may enter orders on-line which are queued according to price-time priority but they will not trade until the market opens.

Overnight and overseas trades may be reported until 9:45 am, Sydney time but theses trades must take place according to ASX Market Rules.

The opening takes place at 10:00 am Sydney time and lasts for about 10 minutes. ASX Trade calculates the opening prices during this phase. Securities open in five groups, according to the starting letter of their ASX code:

Group 1 10:00:00 am +/- 15 secs A-B, e.g. ANZ, BHP
Group 2 10:02:15 am +/- 15 secs C-F, e.g. CPU, DVT, ECP, FXJ
Group 3 10:04:30 am +/- 15 secs G-M, e.g. GHP, KYC, LIB
Group 4 10:06:45 am +/- 15 secs N-R, e.g. QAN
Group 5 10:09:00 am +/- 15 secs S-Z, e.g. TLS

According to the ASX time is randomly generated .
Between 4:00 pm and 4:10 pm, Sydney time, the market is placed in Pre-open. Trading stops and brokers enter change and cancel orders in preparation for the market closing and the closing Single Price Auction
The Closing Single Price Auction takes place between 4:10* pm and 4:12 pm, Sydney time.
ASX Trade calculates closing prices during this phase.
*Random +/- 15 secs
Best wishes

susan said...

I'm unfamiliar with Australian economics but I just thought I'd stop by to say 'hello'.

Lindsay Byrnes said...

Hi Susan - the next post may be more topical or of interest !! Best wishes