Wry & Dry

Rex exed by text. Franking Shortened. Election weekend.

A revolving week

Wry & Dry's head is spinning, the revolutions per minute surging:

Exhibit A: The Court of Tsar Trump, where the revolving door of employment turns faster and faster.

Exhibit B: The Banking Royal Commission, where bankers, tightly and horizontally wrapped in embarrassment, on a spit gently revolving over a blazing fire, are slow-roasted at the hands of Commissioner Hayne. 

Exhibit C: The Bill Shorten rapidly revolving franking-credit-refund policy, where he spins and spins faster and faster a half-meritorious, half-flawed policy, like a coin tossed in a two-up game. Which way will it land?

Read on.

Exhibit A: Rex exed by text

Tsar Trump couldn't even have the courage to phone Rex Tillerson, his Secretary of State to give him the DCM. 

Readers will know that in the US, the Secretary of State (roughly equivalent the Minister for Foreign Affairs) is the third-highest official of the executive branch of the Federal Government of the United States, after the President and Vice President and is fourth in line to succeed the Presidency, coming after the Vice President, the Speaker of the House of Representatives, and the President pro tempore of the Senate.

So the role requires, to W&D mind, a measure of courtesy and respect.  But to Tsar Trump, a DCM text is as close as it gets to courtesy.  Lucky to get a text, actually.  Could've just changed the locks.

Tillerson white house dog house

Rex' successor is Mike Pompeo (W&D could do a lot with that), the Director of the CIA.  He is known to be 'a tough bastard', and very hawkish.  Pompeo is a smart fella: first in class from West Point, Juris Doctor from Harvard, etc.  As well as serving in the US army in Berlin (before the Wall came down) and then the Gulf War.  Pompeo is in favour of regime change in North Korea, up-ending the Iran nuclear deal and confronting Tsar Vlad.

This man is far to the right of the soup spoon.  But he does attend a Presbyterian Church, where he is a Deacon and teaches fifth-grade Sunday school class.

Whew!

Exhibit B: The slow roasting of bankers

Who said we didn't need a Royal Commission into banks?

The Hayne Royal Commission has provided W&D with more entertainment than seeing Melbourne defeat Collingwood at the MCG on a Queen's Birthday Monday.  Well, almost.  Two things stand out.

Firstly, the slow, deliberate and scientific slicing of banking witnesses, as each is uncomfortably forced to explain the most egregious behavior by his/ her employer.  W&D well remembers the excruciating skewering of Christine Nixon, former Victorian Chief Commissioner of Police, by Rachel Doyle SC at the Bushfires' Royal Commission.  It was revealed that on Melbourne's hottest ever day, with the northern edge of the city aflame and where 173 people were killed, Ms Nixon, instead of policing, spent the day at the hairdresser, with her biographer and thence to dinner.  Ms Nixon's reputation and career never recovered.

And so it is with Australia's pillars of fiscal rectitude, the Big Four Banks. 

Secondly, this week NAB was forced to air, inter alia other extremely dirty washing, that employees had accepted cash bribes (in white envelopes, of all things; whatever happened to the brown paper bag?) for facilitating home loans based on false documentation.  W&D is keen to know why no-one was charged with fraud.

Actually W&D knows the answer.  The banks are most reluctant to bring fraudulent practices to the attention of the coppers as it would bring unwanted attention to the banks.

Banker dont ask

And then the CBA trying to explain the logic, consistency and fairness to borrowers of its policy of commission payments to mortgage brokers.  Err, there is no logic, consistency or fairness.  Just get the business in the door! 

As Charlie Munger, investing guru and partner of Warren Buffett, once said, "show me the incentive and I'll show you the outcome."  It's all about commissions.

Don't get W&D started.

Exhibit C: Franking Shortened

W&D has a lot of time for Chris Bowen, the Labor Party's shadow treasurer.   Bowen drove the Oppositions' last election policy on negative gearing (no future negative gearing except for new homes) and CGT discount (halved to 25%), each of which W&D considers to be a sound policy.  These policies upset more than a few folk - and might be what Sir Humphrey would have called "courageous decisions."

The same affection cannot be said for his boss, the smarmy Bill Shorten.  Who has caused W&D's quill to run dry with pejoratives over the years.  More on Mr Shorten, below, in relation to the Batman by-election.

The big issue of the week was Shorten's policy announcement to end the cash refund of franking credits not used to offset tax payable elsewhere.  W&D sees six issues with Shorten and this policy.  Work with W&D on this.

Firstly, any seeming 'soak-the-rich' budgetary policy is lazy policy.  Creating budget surpluses to fund good things is about addressing both sides of the income statement: income and expenditure.  When last in government, Labor borrowed lots and spent recklessly.  In opposition it has blocked a range of sensible measures aimed at cutting expenditure.  W&D wishes Labor would tackle expenses before searching for more income.  As might any household struggling to make ends meet.

Secondly, the policy is brave.  And in that sense is similar to Labor's last election policies.  This contrasts to the timidity of Croesus Turnbull, not only in tax policy (other than in superannuation) but especially industrial relations.

Thirdly, the policy is yet another tinkering of the taxation for self-funded retirees (and others).  It must be difficult for Readers to keep up with all the changes and proposed changes - unless Readers have expert personal financial advisers on hand.

Fourthly, Shorten has announced a policy without doing his homework.  W&D suspects the announcement of the policy, with its 'soak-the-rich' flavour, was brought forward to assist Labor in tomorrow's Batman by-election.  But it is clear from the myriad of analysis undertaken by a myriad of vested interests that many low income earners will be damaged by the policy. 

Fifthly, whether the policy is fair depends upon Readers' view of the role of dividend imputation. But there is no doubt that it is flawed.  The simple principle is that company dividends are taxed in the hands of the shareholder at the shareholder's marginal tax rate.  If the shareholder doesn't pay tax then he/ she/ it is entitled to claim back the tax already paid by the company. 

Shorten's policy is that the credit for company tax already paid can only be used to offset tax liabilities, and will not otherwise be paid.  But it is flawed for many reasons.  For example, the policy doesn't apply if you are a charity, or the Future Fund.  Why are they treated differently?  And Industry and public offer superannuation funds can spread imputation credits across all their fund members, offsetting tax.  That is one member's imputation credit can offset the contribution tax on another member (that's a nice socialist principle).  But self managed superannuation funds, with fewer members cannot do that - their imputation credits will be wasted.

And Shorten's example of one taxpayer receiving a $2.5m tax refund from imputation credits is irrelevant.  He/ she/ it is just getting back tax already paid by the company.

W&D, without mentioning the effect on pensioners, could go on. And on.

Finally (at last), W&D is deeply concerned that Readers haven't seen the last of Shorten's 'soak-the-rich' policies.  There is something in his DNA that is disturbing.  W&D warns of two possible future Shorten taxation policies:

1.  Abolition of any CGT discount - currently, generally, 50% for assets held longer than 12 months.

2.  Making the death of an asset owner a CGT event - currently, generally, CGT is applied when the beneficiary sells the asset.

Be afraid.  Be very afraid.

Elections

The folk of South Australia, Batman and Russia go to the polls this weekend.  W&D has had his eye to the keyhole and ear to the ground... 

South Australia

In the last South Australian election, the Liberals received 53% of the vote.  And lost.  But that didn't stop the 16-year old Labor government from being bold.  And focussing on a renewable energy target of 50%, now upped to 75% by 2025. 

Readers will know that SA is known as the Blackout State, after it's renewable energy supply didn't renew in a storm.  But for power bought from Victoria, the Eveready people would have made a motza. 

Windfarm blowin in the wind

But the real issue in SA is whether that maverick former federal politician Nick Xenophon will obtain enough votes to become king-maker.  Liberal and Labor are running at about 32% each and Xenophon's party at 22%.   

Of the more interesting policy promises, Premier Weatherill wants to roll out high-speed internet that is 10 times faster than NBN (no difficulty there), Liberal's Marshall wants to consider construction of an underground CBD rail line (a faintly weird idea in view of Adelaide's size (small); topography (flat) and traffic problems (zero)) and Xenophon wants to halve the number of poker machines (he's been trying for 20 years).

W&D's tip: Liberal's Marshall, on Xenophon undirected preferences.

Batman

Batman is not a super hero, but a federal electorate in Melbourne [1].  This is a by-election following the effective DCM given to Labor's David Feeney by the High Court. The northern half of the electorate is Labor, the southern half is Green.  All the polling suggests a Green win.  But Bill Shorten is pulling out all stops to keep the seat for Labor: denouncing the Queensland Adani coal mine (whilst supporting it in Queensland) and bringing forward the announcement of Labor's 'soak-the-rich' no-franking-credit-tax-refunds policy.

The Adani issue has shown Shorten to be a 'transactional leader' (as one Labor operative suggested) i.e. willing to change his view on a principle, depending on the votes that might be maximised. 

Shorten Batman superman

The no-franking-credit-tax-refund announcement has shown that Shorten doesn't know what he talking about, and confirmed by his volte-face yesterday to give pensioners compensation for franking credits lost. [See more, above].

Labor's candidate, Ged Kearney, is probably wishing that Shorten had kept out of the electorate all together.

W&D's tip: Greens, by the length of Bill Shorten's nose.  And then the Greens will move the change the name of the electorate to Batperson.

Russia

Russia's go to the polls on Sunday, to re-elect Tsar Vlad for another six years.  Tsar Vlad has been in power since 2000 and has been tightening his grip on the levers ever since.  His first ten years were amazingly successful, as he pulled the Russian economy back from the disastrous years of Yeltsin.  But since then he has become more hairy-chested (err, not actually, his chest hair is somewhat sparse).  Crimea, Eastern Ukraine, Syria, cyber-espionage and a massive increase in military spending are all external power-plays in which the average Nikita and Svetlana delight.  

Western sanctions following the annexation of Crimea backfired somewhat: the rouble devalued and Russian oil and gas exports boomed.  The economy has recovered somewhat.

Putin is also moving aside his oligarch mates and replacing them with former KGB pals.  The oligarchs have had a very strong hint to be on their best behaviour, following the nerve-agent poisoning of a Russian in London last week. 

Russian whats your poison

There are no coincidences in Russia. 

W&D's tip: Tsar Putin, by the length of [insert your own distance here].   

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

...where he and Anjali should live, in a perfect world.

"What's wrong with Australia?" W&D asked.

"Anjali thinks the governments are self-indulgent, short-sighted, spend-thrift fools."

"Ah, so what are your critical success factors for a country in which to live?"

"Well, Anjali likes Europe.  But not north, it's too cold.  And for me, an Uber driver, the economy must be growing, most people must be working and the government must have money to spend on roads."

W&D had some data at his finger tips.

Economic data

"Well," began W&D, "Your choices narrow. Of the major countries, Greece, Italy and France have high unemployment.  You'd be up against too many other Uber drivers.  And their economies are not growing by much.  The UK is sort of okay, but the government has real budgetary problems.  That leaves Germany: good growth, low unemployment and a budget surplus.  And great roads."

"Maybe not, on second thoughts," Deepak responded.  "Germany is, well, full of Germans.  Germans do not tip very well."

"What about the USA," W&D countered, "Americans are great tippers, it's a good economy with low unemployment.  And Mr Trump has promised to spell zillions on roads."

"I don't want to get shot," was the sharp response.

"Okay, wild card.  How about China?  Great growth."

"You cannot be serious.  How many Indian restaurants are there in Shanghai?  None."

"Okay, okay," W&D calmed. "That leaves Australia.  If Anjali can ignore the government, it's a pretty good place to live and work.  And, according to the World Happiness Report, after the Nordic countries, Canada and New Zealand, Australia is the home of the world's happiest people."

"Maybe if I can get Anjali to stop watching television and reading The Age, she might be happier about living here."

"And perhaps you should keep her away from news of investment markets," W&D summarised.

Not for the first time, Deepak went white.  Well, almost.

Tsar Trump's new economic adviser: a TV star

In the revolving door of employment at the White house, Tsar Trump has appointed an economic adviser: Larry Kudlow.

The 70-year-old from New Jersey is a made-for-TV economist, which will suit Trump.  He is a chatty Reaganite commentator with an everyperson touch. He can express economic wonkery in plain English and can dodge awkward questions with a smile.

Mr Kudlow is no empty vessel. But W&D's question looming over his appointment is one of substance versus style. Has Tsar Trump picked Mr Kudlow for his advice on economics — or because he can present the president’s ideas on screen with a verve Mr Cohn (his predecessor) could never muster?

Interestingly, Mr Kudlow was once fired from the now defunct Wall Street firm Bear Stearns for taking cocaine.  

And, to soothe your troubled mind...  

Miscellany 

Last words...

"So, what happens at the end of all this, does anyone get convicted or charged?”  

-   Security guard at the Banking Inquiry in Melbourne.

Err, no.  No-one will get charged or convicted.  The aim of the banking inquisition is to provide a basis for the federal government to impose even more regulation on the banking industry.

First Samuel client events calendar

Date 

Description

Details

2018 Events  (Invitations not yet sent)

Tue-29-May-18

Eat Street - food & wine fest

Sofitel

Wed-18-Jul-18

NGV Winter Masterpieces Exhibition

Masterworks from Moma (New York)

NGV

Tue-14-Aug-18

Forum - guest speaker TBA

Leonda

Some lightly salted absurdities from all over...

At the extreme left-hand end of the Bell Curve

Guess what happened next

Paul Borroni, 57, of St Louis, was imprisoned at age 19 for murdering his girlfriend.  He was released after 38 years.   He had trouble finding work and a place to live. What happened next?

a.  Another former prisoner gave him a job at a car-wash;

b.  The local catholic church had a room in their 'homes for the homeless' building, and took him in;

c.  He bumped into an ex-girl friend, who took him in; or

d.  He faked a robbery so he could go back to jail.    

Close.  But no cigar.  The correct answer is d.  He held up a bar — hiding his right finger beneath his coat and pretending it was a gun. He told the bar-girl to give him cash or he would shoot her. Then, police say, he ordered her to call police so he could be arrested.  So he's now back in jail, charged with first degree robbery   

(Stltoday)  

Pro-tip: if you are going to scam £38,000 as a disability pensioner, don't enter the London Marathon

Graham Totterdale, 72, claimed UK's highest rate of Disability Living Allowance after he claimed he could barely walk and was a frail old man.  His wife, April, had signed benefit application forms telling how he needed a zimmer frame, a stick and crutches because of two injuries.  She had even written in one appeal for more money that her husband was so doddery she had to put toothpaste on his brush.

But he was spotted by a neighbour running the London Marathon.

Jail time of 18 months each for husband and wife.

(KentOnline) 

Sweden: where everything works like...

The 34 passengers at Stockholm airport, awaiting their Nextjet plane to Gothenburg, were pleased when it was ready to depart after a three hour delay because of bad weather.

They scanned their boarding passes and got on board.  As it was now 8pm and dark, it wasn't possible to see which way they were going.  Daylight might have been helpful as the plane landed at Lulea, some 720 kilometres north of Stockholm, rather than 460 kilometres to the south-west to Gothenburg.

(Fox News) 

The passengers were provided with accommodation and a flight to Gothenburg the next day .

Have a wry and dry weekend. 

Anthony

[1]  Named for John Batman, one of the founders of the city of Melbourne.  Batman came from his property in what was then called Van Diemen's Land (now Tasmania) to the Port Hillip Bay area in 1835.   The artist John Glover, Batman's neighbour in Van Diemens Land said Batman was "a rogue, thief, cheat and liar, a murderer of blacks and the vilest man I have ever known".