Wry & Dry

Delayed gratification. Oil up. AMP's index hugging Popeyes.

Budget: a national psychological test

The recent federal budget brought down, as they say, by Jimmy Morrison, was the first decent budget since 2006 (Costello's penultimate).  Wry & Dry won't go into the weeds with details. Except to note to Readers that is contained the most innovative tax-cut proposition: delayed gratification.

Tax no 2

W&D sees this as a psychological test on a national scale.  Delayed gratification is not something with which W&D is familiar.  So W&D has dug into his library to see what there is about the subject.  And found the Stanford's child's marshmallow experiment (first performed in the 1960s). 

In the experiment, a child was offered a choice between one marshmallow provided immediately or two marshmallows if the child waited 15 minutes, during which time the tester left the room and then returned.  In follow-up studies, the researchers found that children who were able to wait longer for the two marshmallows tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures.

Will Australians be able to wait a full seven years to obtain the full tax-cut gratification?  And show a great sense of maturity.  Or will they want it all now (as might be alternatively offered)?

W&D suspects the average voter will seek instant gratification.

Tax option 1

And that's W&D's last word on the budget.  For now.

Oil price keeps on rising

Like a thief in the night, the price of oil is quietly moving: upwards.  Brent Crude is now at $77 per barrel,   In January 2016 it fell to just below $30 per barrel.  What's happening?


Oil price

Firstly, there is now economic growth in all of the major economies, which hasn't happened since 2006.  Higher economic growth means higher demand.

Secondly, there is nervousness that Iran may again be subject to embargoes, reducing supply.

Thirdly, the oil shale producers, which were the marginal price makers as oil raced to $30, now cannot, it seems, meet the demand.

Fourthly, Venezuela's output is falling (see last weeks' W&D) because of failing infrastructure.

And where will the price go?

W&D's view doesn't matter; actually, he doesn't have one.  Except to note that with the price of oil rapidly rising and the Australian dollar falling, the price of petrol in Australia will continue to rise.

And with it, push up inflation.  Inflation means higher interest rates.  Now, about the banks' loan books... 

The world's top city for university students...

... is London.  Not surprisingly.  The criteria used by QS Higher Education group, which publishes the World University Rankings, included the number of top universities in a city, the local jobs market, the diversity of the culture and the quality of life.

Second place went to Tokyo, which did very well on factors such as safety, pollution and quality of living.

Third place went to Melbourne.  That is, Melbourne, Australia.  Not meaning to, err, boast, but Sydney came in ninth.

There were not any US cities in the top 10.  But New York and Boston were in the top 30.  

Have a look at the full list here

Why do more than W&D dislike the banks?

Sometimes, W&D feels as lonely as a cloud [1] in his musings.  But often Readers rally with encouraging stories.  In fact, W&D has been overwhelmed with stories of bankers' ridiculousness (to put it gently).  Here's two, with names changed to protect the guilty.

Miss Bennet applied 6 weeks before settlement for a loan from Big Talk Bank, where her family's business had banked for 30 years.  Miss Bennet was assured all was well and the loan and mortgage documents were to be signed on the Monday before settlement. On the Friday before the Monday, Miss Bennet had an email from the bank saying it would not proceed with the loan “given the recent developments in the Royal Commission into banking”.

On the morning of settlement, the bank said they could have another look at it.  Miss Bennet responded that this was too little, too late.  Being a resourceful lass, she had arranged finance through non-big bank sources.

And there was Mr Darcy, having been given assurances for three weeks by Bigger Talk Bank of loan approval, the night before the auction at which Mrs Darcy hoped that Mr Darcy's hand would be the last in the air, the private banker phoned to say it couldn't approve the loan, just yet.  Mr Darcy didn't proceed.  And when the bank came back the next week with its approval, Mr Darcy declined, pointing out that (a) the auction had already occurred and (b) he had found, for next time, a regional bank of greater flexibility and responsiveness.


There must be thousands of similar stories.  

Please, Tsar Vlad, can you invade next week?

Because, err, we (Germany) are not quite ready.  Consider these:

Germany's air-force (Luftwaffe) has 128 premier front-line fighter aircraft - the Eurofighter Typhoon.  Oops.  Sorry.  Only four are serviceable.

But, it's okay, there's the German Navy (Deutsche Marine).  It has six world class submarines.  Oops.  Hang on.  Sorry.  None are serviceable.

But, it's okay, there's the German Army (Deutsches Heer).  It has 244 battle tanks.  Just what's needed on the Eastern front.  Oops.  Sorry.  Err, 149 are in the workshop.

But, it's okay, there's the German troops leading a multinational battle group in Lithuania, as part of NATO's 'enhanced forward presence'.  Now this is where the muscularity comes in: the German presence is, err, (sotto voce) 450 soldiers.

Good grief.  

German military

Readers will know that the chart is slightly misleading, as it doesn't consider the military technology used by each country, rather than just heads under a helmet.  But even looking at defence spending as a percentage of GDP, the NATO agreement is defence spending should be 2% of each country's GDP.

Of NATO's 28 members, only the US (3.5%), Greece (2.4%), Estonia (2.2% - God bless them), Poland (2%), Romania (2%) and the UK (2.1%) pay their way [2].  The rest are bludgers.

Invade between the flags?



 "I need a head...."

Readers will recall Margin Call, one of the great Wall Street movies.  W&D won't distract you with the story, but essentially a Wall Street investment bank's risk controls well, lost control.  It stood to go under. 

The board needs a scapegoat, and so pinpoints chief risk Officer Sarah Robertson (played by Demi Moore, in a surprisingly measured role).  She is approached by the Chairman (John Tuld, played by Jeremy Irons):

Tuld pauses. "Sarah, I need a head to feed to these traders... and the board... this morning.

Robertson: "Is it me or Cohen?"

Tuld: "It's you."

So, Sarah is to be fired, notwithstanding her competence and warnings.  Her head has to be lopped (figuratively speaking), to appease others.  W&D will spare Readers the genuine but grisly head-on-a-plate story of Salome (the appeasee); Herod (the appeaser and father of Salome) and John the Baptist (the unfortunate loser of his head). 

And so it seems that this week the 'market' needed more AMP heads to roll.  AMP's institutional shareholders have awoken from their comfortable index-hugging slumbers (why else hold large lumps of AMP?) and Popeye-like, swallowed the can of spinach and flexed their muscles.  And demand, "off with their heads!"

W&D is not suggesting that AMP heads should not have rolled.  And clearly, both the Chairperson and the CEO had risen some rungs higher on the ladder than the Peter Principle might have suggested [3].  Each deserved the DCM.  And W&D recognises that the ultimate responsibility for a company lies with the Board.


But, equally, what about those down the line who did the lying, thieving and cheating? Are they to be left untouched?

The reason for W&D wringing his gnarled hands is that those institutional shareholders, in wanting to give an AMP head or two to the media, have lopped the wrong heads. 

Each of Holly Kramer and Vanessa Wallace brought considerable external experience to the AMP board.  Kramer had been in the AMP role for just over two years - she had a wealth of operational experience (as distinct from, say, a legal background).  Wallace also had been on the Board for just over two years.  Her background was in high level corporate strategy, something that AMP sorely needed.

In each case, the skills Kramer and Wallace brought to the AMP board were desperately needed 'looking-forward' skills.  Trying to better assess a future strategy for AMP to get it out of the leaden-saddle-bags of financial planning. 

And much of the corporate malfeasance at AMP happened before their tenure.

But the lazy index-hugging institutional investors thought that "something must be done!".  And something was done.  What a shambles.


Budget's missing page

As the world marches towards electric vehicles, W&D was moved to ponder the fate of a little known earner for the government, the fuel excise, some 40 cents per litre.  Well, not so much the fuel excise itself, but what will replace it.

Y'see, the problem for the boffins in Canberra is that this unseen little earner for the government brings in some $12.4 billion per annum.  If we-the-taxpayer drive electric cars, the logic is that we don't need petrol.  And therefore the government won't collect all that dosh.

Let W&D give Readers the whisper, somewhere in Canberra is a darkened room, with iris-recognition technology permitting entry, with a drink-cooler in the corner and a plate full of vegan biscuits on the table.  There will be an electronic white-board, covered in multi-coloured charts, lines and doodles.  And in the bottom right-hand corner will be an = sign, followed by those fatal words 'road-user-charging'. 

Watch this space. 

Deepak, W&D's Uber driver, was talking about Tesla...

... and its prospects.  "It's an amazing car.  I'm thinking of buying," he said, as W&D got into his jalopy.

"Hang on, Deepak", responded W&D.  "It was only in December that you thought of buying one.  But then rightly feared Anjali's reaction if you did."

"That's right," he smiled.  "She'd be very angry.  But that was to buy the car, not invest in the company."

"Whaaaat!  Invest in Tesla," screamed W&D.  "You've got rocks in your head!  Tesla is way, way overpriced."

"But I thought that Tesla was the way of the future.  It's the best EV (electric vehicle) on the market and EVs will soon be the only car that you can buy."

"That's the wrong way to look at the data," sighed W&D.  "EVs are the future.  And Tesla has the best EV on the market.  But Tesla is losing money, last year it lost almost $2 billion.  It is the least well-equipped financially to compete on price. Almost all other manufacturers are showing operating profits and hence can absorb losses whilst they develop their capability, distribution channels and competitive positioning.  Tesla has no such luxury.  All it does is make EVs."

"I see.  Well, sort of," Deepak conceded.  "But surely all Tesla has to do is ramp up production."

"Well, on that point, it's failing miserably. it keeps missing production targets - by a long way.  There will come a time when shareholders are going to stop putting in money.  And even if they do, share issues dilute the share price."

"And I'm sensing that it cannot cut its prices."

"Exactly," concurred W&D.  That would mean even heavier losses, as it cannot increase supply.  But the biggest threat is not from within.  There will be over 100 new EVs coming onto the market within four years.  And there will be significant price competition."

"Oh. no," muttered Deepak.  "Maybe instead of buying the stock I should 'short' the stock."  

"A fatal conclusion," W&D muttered as he got out of Deepak's car. "That's a risky game.  You need to have deep analysis to do that; it's a game for professionals.  And if you get it wrong, you lose your shirt. And all of Anjali's money."

"I'd be doomed," wailed Deepak, "Anjali would withhold privileges, again.  She's still angry about me speaking of Bitcoin."

"As it should be", concluded W&D as he strode off.  "Deepak, I think it's best that when you speak to Anjali, you only speak of love.  Not money.  The two do not mix."  



And, to soothe your troubled mind...  


Last words...

"We have a strict vetting process. There is no cloud over any of our people." 

-   William Shorten, Leader of the Labor Opposition, in August 2017, speaking of Labor MPs and their eligibility to sit in Parliament.  He called it a 'rolled gold guarantee.'

Yesterday four of his Labor colleagues resigned from Parliament because they were ineligible, under the High Court ruling at the time that Mr Shorten gave his rolled golden guarantee.  By the way, 'rolled gold; is a cheap form of gold, being a very thin layer placed over a cheap metal, thereby making the metal appear 100% gold.  So Shorten's rolled-gold guarantee was exactly that.

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NGV Winter Masterpieces Exhibition

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Forum - guest speaker TBA


Some lightly salted absurdities from all over...

At the extreme left-hand end of the Bell Curve

A 91-year-old man wasn't happy with the speed of the queue at a McDonald's drive-thru.  So he did what any frustrated American would do.  He pulled a gun and shot at the car in front.

(Daily Mail)

He missed shooting the driver.  And was arrested.  He didn't get his Happy Meal.

Guess what he did

The CEO and president of the oldest New York credit union is facing charges in connection to embezzling money.  Over the past 5 years he stole millions.  On what did he spend the money? 

a.  Wine, women and song;

b.  Drugs;

c.  Paid off his mortgage; or

d.  Bought lottery tickets.    

Close.  But no cigar.  d. is correct.  Kam Wong bought $3.55m in New York State lottery tickets.  No news on whether he won anything.


Clearly an attempt to launder the stolen funds.  But he'd have to be unlucky not to win something from $3.55m of tickets.  Well, maybe not.     

Ford Mustang 0  Lava flow 1 

Ford Mustang: "You shall not pass."

Lava flow: "We'll see about that."

See the erupting footage here


 Have a Wry & Dry weekend. 


[1]William Wordsworth: I wandered lonely as a cloud/ That floats on high o'er vales and hills,/ When all at once I saw a crowd,/ A host of golden daffodils;/ Beside the lake, beneath the trees,/ Fluttering and dancing in the breeze.

[2]  Australia's defence spending is 2% of GDP. 

[3]  The Peter Principle: in an hierarchy people tend to be promoted to their level of incompetence.  The theory was formulated by Canadian educator Laurence Peters in 1969.