Wry & Dry

It's all about power. 'Toppy' share-market? New Ziland enters fairy-land.

It's been a week all about power

Wry & Dry has been drowned this week by the deluge of power issues.  So... welcome to the W&D Power Issue.  

Power #1: NEG

W&D has hitherto kept well clear of the chaos of the seeming Australian energy crisis, except to occasionally alert Readers to the photo taken from the space shuttle of South Australia at night:

SA at night

The lights of Adelaide (photo source: NASA)

And so the government's 'National Energy Guarantee' seems to W&D like a well thought-out solution to a seemingly intractable problem.  That problem is essentially the intersection of (a) a misplaced but popular view that renewable energy will speedily and cheaply replace base-load coal-fired power with (b) the reality that it won't for many years.  The only person seeming to complain about NEG was that fatuous spoiler, Tony Abbott. 

Even the extraordinarily ambitious William Shorten was warming (in a non-climate-changing way, of course) to the idea.

Power #2: New Zealand enters fairy-land

The charismatic new Prime Minister of New Ziland, Ms Jacinda Ardern, is now the youngest female leader in the world.  And is one of the wave of populist, celebrity leaders popping up all over the planet.  Canada has Justin Trudeau (aged 45); Austria has Sebastian Kurz (31); France has Emmanuel Macron (39) and now Ms Ardern.

NZ election sheep

Ms Ahdern won the backing of the populist veteran politician Winston Peters to lead a coalition Labour, Greens and the nationalist NZ First party.

Ms Ahdern campaigned on offering free university education; a promise of having net zero carbon emissions by 2050 (which should be an easy task: 30 years to dismantle NZ's industry); more public transport, etc.  But she stumbled badly on the campaign trail as she couldn't express her party's tax policy.  That's because they didn't have one.  But what the heck, university students don't pay tax and don't have to worry about housing costs as they live with mum and dad.

W&D Readers will recall GB Shaw's quote:

"A government that robs Peter to pay Paul can always depend on the support of Paul." 

Power #3: Realpower

The gloves are off.  The veil removed.  If there was ever any doubt about the ambition for China of President Xi Jinping, he removed it on Wednesday with his 3.5 hour speech to the Chinese Communist Party Congress.  

He made it clear China's goal of world economic and military domination by 2050.  That is realpower.  No pussyfooting around here.  China has developed a harder edge in almost everything.  See below for more.

Power #4: Power without power  

That shy, retiring Senator from South Australia, Nick Xenophon, according to the latest polling, is now the preferred Premier in that state.  And his party has 30% of the expected primary vote, just behind Liberals 31%.  Labor is on 26%.

The issue is that Xenophon and his party do not have a single policy, only policy 'principles'.  W&D considers that they really do not want to have government.  But they want power.  The actual responsibility and accountability of government wouldn't suit Nick-the-Greek-Cypriot.  Too hard.  There's no wriggle room.  Far better to let either Liberal or Labor have minority government but have them rely on Xenophon.  That is real power.  

A sure sign that the share-market is getting 'toppy' is...

...when Wry & Dry's Uber driver starts discussing stocks.  Well, it's not quite at that stage yet: the conversation remains at the elevated level of cricket because the driver is invariably from India, Sri Lanka or Pakistan. 

But when W&D sees headlines such as...

'ASX's $100b rally could be far from over....'

'Share-market in 'sweet spot' almost immune to bad news...'

...as he has this week, then it's worth a look under the bonnet.

Consider the following:

Firstly, the ASX200 (including dividends) is up 4.7% this fiscal year - hardly a boom.  But October is the 5th successive month of positive returns; the last 5-month-positive return period was in FY-13 when there were eight successive months of positive returns.  The delirium seems to be that the market has popped its head above its last post-GFC peak, which was in May.  The ASX200 is trading on a P/E of about 16, well above its long-term average of 14.5.

Secondly, the US market (S&P500) is up 5.7% this fiscal year - also nothing about which to write to Mrs W&D.  But consider:

  • the S&P500 is now trading on a P/E of 25, compared to a long-term median of 15
  • the Shiller CAPE ratio [1] is now at 30, compared to a long-term median of 16.  CAPE has only twice been higher, in 1929 and 2000
  • the lowest ever yields on low-rated bonds
  • the S&P's longest streak without a 5% drop

And the markets keep on rising. 

And if Readers put all of:

  • Catalan President Puigdemont's refusal to clarify whether Catalonia has or hasn't declared independence from Spain
  • the escalating conflict between Baghdad and Erbil
  • the seemingly interminable Brexit negotiations
  • all kinds of mixed messages from Trump on tax reform  
  • North Korea's comment that it is not interested in diplomacy
  • China's President Xi Jinping's turning back the power-clock to the centrality of the Communist Party

in the one basket, you'd have a nice geopolitical mess.

But.  Was it ever thus?

It was just 19 months ago that a prominent investment bank came out with the remarkable call, "Sell everything."  The S&P500 is up 14% since then (the ASX 200 up just 4%, but Readers will get W&D's point).  Perhaps unwise to sell everything.

W&D's point is that 'macro' calls are risky.  The market may be over-valued, but always remember that the market can be irrational for longer than you can remain solvent.

Better to keep invested, mostly, but in inexpensive securities (less downside).  Readers will know that First Samuel's target share portfolio now has about 28% cash and with a P/E of about 11.

See today's accompanying Investment Matters for more from CIO Dennison Hambling.

"All the news that's fit to print"

The above is the motto of the venerable New York Times.  Of course, what is 'fit to print' means different things to different people.  The NYT's main rivals when the motto first appeared in 1887 were the New York Journal (run by William Randolph Hearst - portrayed as Citizen Kane in the movie) and the lurid New York World (Joseph Pulitzer - who commenced the Pulitzer Prize for journalism and books).  The NYT outlived each of them.

But, at least you want the news to be, well, the news.  And not on-going celebrity celebration.  Or an advertising piece.  

Which brings W&D to his local café, where he reads the tabloids only when waiting for his piccolo latte.  And then the focus is, of course, on the sports' pages.  But W&D couldn't help but notice the last four days of hysterical front page reporting about an Australian female television person changing her work-place.   Something to do with not getting equal pay.  But then she has moved to a new job where she is getting thrice the salary of her male co-compare.   But who gives a fig?

W&D recalls the sign on the desk of the above-mentioned William Randolph Hearst, speaking of his readers, "remember, they are only twelve (years old)".

But for turning a commercial decision into a media headline, W&D dips his lid to Qantas, an Australian airline.  Because all week, and especially today, Readers will have read in the media and seen on the television news that this airline has taken delivery of a new aircraft, a Boeing 787-9, the 'Dreamliner'.  This will be Qantas' first Dreamliner.   

But who gives a toss about an airline taking delivery of a new aircraft?  Well, not W&D.

Especially as Dreamliners have been in service since 2011 and there are already more than 600 of them flying all over the planet.  Air New Zealand flew its first in 2014.

Why the fuss?  Qantas is somewhat late to the party.     

UK National Health restricts elective surgery to non-smokers and BMI<30 

W&D noticed a somewhat radical move in the medical world.  The UK National Health Service will ban patients from non-urgent surgery indefinitely unless they lose weight or quit smoking.

Under the new rules, drawn up by clinical commissioning groups (CCGs), obese patients (i.e. BMI>30) “will not get non-urgent surgery until they reduce their weight”, unless the circumstances are exceptional.


W&D did what any sensible person would do.  Find out what the heck was a BMI [2]?  And is his less than 30? (Readers and Mrs W&D will be pleased that it is).

The NHS criteria also mean smokers will only be referred for operations if they have stopped smoking for at least eight weeks, with such patients breathalysed before referral.

The aim is to get better surgical outcomes.  But the UK social media has gone nutzo. 

China: on the path to power

Notwithstanding Xi Jinping's 3.5 hour speech and its ambitions, China has along way to go to be a world power.  The UK's Henry Jackson Society's Audit of Geopolitical Capability has classified the world's eight major powers.  China currently comes a poor fourth.

Whilst Readers will argue with the magnitude of some of the rankings in the subcategories (Geographic integration; Demographic condition; Economic clout; Technological prowess; Diplomatic leverage; Military strength and Cultural prestige), the direction of overall outcome is most interesting.

geo political power

W&D's obvious question is, who, other than the US, wants to be a 'Hegemon'.  The answer is now clear, if there was ever any doubt: China.  The UK, France, Germany, India and Japan are not in the running.  Tsar Vlad is still wish'n, and hop'n, and pray'n.  Close.  But no cigar, Vlad.

China's path to hegemony will not run in a straight line.  And in W&D's mind will not be achieved by 2050, if at all.  More of why at another time.  

China house auction

Australia's attempt at being a regional power

But for now, W&D reminds readers of two matters. 

The first was when the Olympic Torch was being run around the world prior to the 2008 Beijing Olympics.  Remember the 'escort' of very large, very fit, Chinese athletes who ran with the torch.  It wasn't the local police who did the security.  It was all very secretive who these Chinese folk were.  But they were making a statement: don't mess with us.

The second was this week's timely announcement by ASIO of the increasing influence of the Chinese government on Australian university campuses.  And the increasing restriction of free speech if that speech criticises China or its policies (especially vis-a-vis Hong Kong and Taiwan).  Of course, the universities, supposed bastions of free speech, have scoffed at such suggestions.  As W&D might expect: with 30% of their revenue coming from Chinese students universities are not going to allow the sordid matter of money to over-rule centuries of academic independence.

More vigorously defending

It is the season to be vigorously defending.  First CBA, now Rio Tinto.  The somewhat large mining company said that it will be 'vigorously defending' charges brought against two former executives by the US corporate Bulldog, the SEC.  It has to do with a US$3.7 billion coal mine investment in Mozambique that 36 months later was valued at US$50m.   That's a lot of shareholders' dosh flushed down the Zambezi River (barges on which were to transport coal from the mine).  And that was after Rio invested US$38b in acquiring Alcan, which was followed by a total of $30b in write-downs.  

What were they thinking?  They being not only the CEO at the time but also the Board.

But wait, there's more.  There are lots of side issues in this latest case, such as why hasn't the Australian corporate Labrador (ASIC) been on the job?  Especially as it now emerges that the UK's Financial Conduct Authority has fined Rio US$36m for non-disclosure matters in the company's 2012 financial accounts.   

It was 30 years ago today, that...

Today is the 30th anniversary of the 1987 share-market crash, when the All Ordinaries Index fell 25% in the day.  This day was the tail-end of the era of massive Australian corporate greed.  Readers will remember names such as Christopher Skase, John Elliot, Laurie O'Connell, Alan Bond and Robert Holmes à Court.  These corporate cowboys took advantage of the entry of foreign banks into Australia and poor lending practices by Australian banks (which led to Westpac being effectively bankrupt in 1991 and ANZ not far behind) and made and lost squillions.

W&D worked for Schroders, the venerable British merchant bank, at the time.  And well remembers the panic on the day.  But also the corporate shenanigans that were later uncovered.

Those were the days of some corporate paternalism: Schroders offered to staff members who had 'become financially disadvantaged' because of the crash immediate and cheap finance until they re-organised their affairs.  W&D is not suggesting that he had invested all his hard-earned in fast cars, slow women and old wine, but there was none left to put into the stock-market.


The Australian economy has achieved 12 successive months of jobs' growth, for the first time in 20 years.  The unemployment rate dropped to 5.5%, a four-year low.  A good week for Croesus Turnbull. The Peoples' Socialist Nirvana State of Victoria has the highest unemployment rate, of 6%, whilst NSW has the lowest, at 4.6%.

China's GDP grew at 6.8% in the year to end September.  Above expectations and announced the day after Xi Jinping's power speech.  No coincidence there. 

And, to soothe your troubled mind...  


Last words...

"Xi's replacing collective leadership with a one-man party authoritarian rule. He's reformed the security, the military and economic systems, everything is reported to him. He is in the process of transforming the party," 

-   Professor Wu Qiang, Independent Political Commentator and Former Lecturer of Department of Political Science, Tsinghua University, speaking of Xi Jinping.

Wu was removed from his position at the prestigious Tsinghua university because he refused to write propaganda extolling the virtues of Mr Xi and his policies.

First Samuel client events calendar

See below       
Chief Investment Officer Dinners
Invitations Sent
Tue-24-Oct Stillwater at Crittenden Estate Almost Full
Wed-25-Oct Quaff, Toorak Places
Tue-14-Nov Centenove, Kew FULL
Wed-22-Nov Donovans, St Kilda Lunch & Dinner (FULL)
Tue-28-Nov Elyros, Camberwell Filling 
Wed-29-Nov Bottega, Melbourne CBD FULL

Sometimes cancellations occur, so please call Jess if you now wish to attend.  She will find a place for you.

Some lightly salted absurdities from all over...

At the extreme left-hand end of the Bell Curve

A man in Des Moines, Iowa was pulled over after a 15-minute high-speed police chase.

He told the policeman that he wanted to be chased as it was on his bucket list.


Bonus:  no word if jail time, fines, lawyers fees, etc were also on that list. 

Guess the outcome I

A man from Tucson, Arizona, decided to use a blowtorch to get rid of spiders under his mobile home.  What happened next?

a.  The spiders fled;

b.  Two hobos who had been sleeping under the home fled; 

c.  His blowtorch didn't work, so he used Mortein; or

d.  The home was razed to the ground.

Close.  But no cigar.  The correct answer is d.  Only ashes were left.  But the spiders had gone.   


Guess the outcome II

Harvey Weinstein told the world he was going to a rehabilitation centre in Arizona.  What happened next?

a.  He checked and is doing just fine;

b.  He checked in and is really struggling - with the menu; 

c.  He checked in and is really struggling - it's an all-male clinic; or

d.  He checked into a five-star resort hotel instead.

Close.  But no cigar.  The correct answer is d. Instead of seeking help he has checked into a resort, which also has a golf course and a spa because he ‘doesn’t want to go a place where he can’t use his cell phone’.

(Metro UK)


Have a wry and dry weekend



[1]  The Shiller Cyclically Adjusted PE Ratio

[2]  BMI = Body Mass Index and is calculated by dividing a person's weight, in kilograms, by height, in metres squared.