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EYE-BALL Guru on – Shareholders – holding back the World … scared money – scared boss’s

November 3, 2012
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Title:
– Shareholders –
– Holding back the world –
– scared money – scared boss’s –
| Author: EYE-BALL Guru | 3rd Nov 2012 |
Fof a very long time I’ve had more than a niggling thought that the World is looking at itself from the wrong perspective.  The struggle to gain clarity of thought on this subject has been difficult, and at times rendered me thinking that the concepts, and thought material were clouded and bordered on a lunacy bought on by the plight of the world in a post apocalyptic GFC marketplace.

I plan to share a few of these thoughts and the first is ‘shareholders’ and their need to be satisfied – both in terms of dividend returns, and the perception their investment is secure and will lead to more prosperity, this perception has a cause and effect not easily understood, nor blamed as a consequence that has led us to this place.

‘Shareholder’ equity has been the mound tat the world has relied upon and now sits squatted, spent, and afraid to do what it has done for centuries past.   It is afraid to invest, to risk, it has now become a matter where the world sits and reviews, becomes satisfied with a ‘rate of return’, where to aim is to minimise ‘tax liability’, and to ‘risk the investment capital’ is no longer an option.

Gone are the days where entrepreneurs – ‘bet the bank’ – on self belief and an investment strategy where they risk all to prove themselves.  Replacing that belief in humanity and that innovative thinking forged humanity – is a conservatism born from protection that new investment is not engineered by vision, but by ‘bean counters’ working over the numbers that streamline, repackage, and strip an existing asset to give it a higher yield.

Since the GFC true ‘venture capital’ investment is on the wane – risk aversion is the new module and all the capital in the world is chasing the same market.   New Investment is not happening – gone are the times when large Companies took a risk that spooked shareholder confidence … everybody now steers the straight and narrow road of appeasement, of steady growth, of shareholders being placated, and soothed over by reading financial statements of asset and returns protecting their investment.

The investment world has lost the will to seek out new markets, to see beyond the next quarterly review, they now seek to respond to monthly numbers as if the incremental rise and fall of a PPI, a Non Farm payroll number, of an Inflation indicator, the markets now look to these release dates and gear themselves to ‘buy of sell’, all based on a perception of how an abstract number might influence the marketplace.

Gone are the days when investment drove these numbers – now the investment world sits and awaits the numbers before they make and move to make a decision on where to move their money pool.

As economies in the northern hemisphere bounce along the seabed floor – drowning in a overburden of Government debt – opportunity for investment abounds – yet Governments and their inability to deal with the toxic debt inherited from failed bail-out measures – the private sector sits poised, hesitant because none want to lead – they are fearful of their shareholder response – and even more fearful of losing their $10 + million paychecks and lifestyle none want to risk.   The funds are there – locked away and fearful of failure more than success.

It’s a world sitting on a powder keg of emotion and having a convexity of opportunity that nobody sees, or wants to ‘take a leap of faith’ and see what lies on the other side.

Shareholders have done this – their apathy in relying on others to make there lifestyle sustained … the shareholder faith is more important to CEO’s, and new investment opportunities are now based upon conservatism where shareholder contentment is more important than the opportunity of risk returns.

There was a time where – ‘use it or lose it’ – was the way of the world … where – ‘he who hesitates, created an invitation to the opposition to clean out your house and take you to the cleaners’ – if an investor looked at the world right now and said where is opportunity – what would they find …

  1. Greece – not until they dump the Euro and become a stand alone currency – that would invite investment  …
  2. America – in currency terms cheap as chips – long-term investment potential across all industry … debt burden is the worry …
  3. China – currency to begin appreciating, but local investment against a management style based on bribery and corruption creates many risk uncertainties …
  4. Australia – overvalued in currency, more of a sell than a buy …
  5. Russia, exciting opportunities, yet corruption and political issues are a negative …
  6. Sth America – the best value anywhere … untapped resources, huge population wanting a better lifestyle … corruption opportunities exist …
  7. Africa – a graveyard of colonialism speculation … very high risk across the lands … only for the insiders with knowledge of corrupt leaders willing to sell the farm for personal wealth …
  8. India – emerging and singular in its endeavour – very class orientated and corruption again the problem …
  9. Europe/UK – at the end of an economic cycle that will take a decade or two to understand … a veritable changing of the guard is in play … old money, inherited money … and a ruling class lazy and too obtuse to understand that protecting a lifestyle and living off the income from capital is a slow death that sneaks up on you …

The World has become this product of past and brave investment,  now suddenly unsure how to function … they want Governments to show them the way … shareholders have forced the World into this corner and to break free and to allow money to work again – laws have to be changed.

The ‘Wall Street’ catchcry – ‘money never sleeps’ is a marketplace where speculation is the game – high stakes poker – ‘texas holdem’ style where the money comes from life savings, super funds, and other free capital that once invested in bricks and mortar and other ‘growth industries’.   For far too long, money itself has been the growth industry – build your war chest so you can bet it on a sure thing – a currency play here or there – George Soros showed us how all those years ago when he broke the Bank of England …

Unless Regulators grow a brain, and Legislators have a brain transplant – they will never see what I see … they live among the carcass rotting in a world of chewed up morality … where executives check their private investment portfolio before they go home every night, and at least one other time during the day.  Where personal wealth protection is more important that interfacing with a real world where poverty, hunger, and malaise abounds, and the human compassion is a forgotten emotion.

No … shareholders need to be awoken and introduced to uncertainty … where tax liability on dormancy is severe but lessened when new venture is undertaken.   You’d think Politicians would understand this … yet none have commercial backgrounds and their lack of experience in the real world has contributed to the policy vacuum that lacks creativity, and would never think to create opportunity through aggressive tax policy.

All Governments want to do is add a tax to plug a revenue hole … stupid, dumb, and scary, and a reason why shareholders have allowed themselves to be a cause and not an effect …

Money is meant to be used – used to create and not to mitigate … it’s a commodity and if left dormant and dependent on the efforts of others to increase its worth … then that is a sure sign that those who have it don’t deserve it, and should pass it on to someone who will make better use of it …

Burn the shareholder I say because it is they who have bough upon the world a toxic faith – where to do nothing and protect what you have has created a pit that we are all slowly descending into … a pit of darkness where at a certain trigger point – wealth will be but an illusion and disappear like paper upon a fire …

 

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The EYE-BALL Guru …

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  1. Gerry Hatrick
    November 3, 2012 at 2:23 pm

    Some believe this is a generational thing. It is best described through the world that exists in the eyes of your youth. As a Baby Boomer you were born after the war years. Your Parent generation were born in the 1920’s or 30’s. The are the Hope generation. (Bob Hope) maybe but post depression, post world war II. Your Grandparent generation were the Henry Ford generation. Baby Boomers have similar fashion to Henry Ford, X generation have similar fashion to Hope Generation. Very few X generation are yet in the Boardroom or senior government posts. Gillard and Obama are both in their 50’s. Tinkler and maybe a few others might be Gen X but by virtue of the world they inherit shapes their thinking.

    Baby Boomers and Ford gen both loved pin stripes wide lapels somewhat flashy derring do.Look at how the next generation have reverted to crew cuts. They love tattoos. It tends to conform to some type of super cycle. If you count back through your parentage you will find on average a generation is roughly 30 years.

    Recently some bank economist was saying how Share investment is now right out of fashion. From a bank deposit (bond) you get your capital back, and a meagre return. In the States and Euro at times you earn a negative return. (consider inflation adjusted return or after tax return). Owning those same bank shares you get a higher dividend return (maybe franked) but what is the risk of a capital loss. GFC will take half a generation to work it way through business confidence. Banks are risk averse. They have mean mindset. Recall how in the 1970’s Finance Companies and Merchant Banks filled that void. This started the deregulation of the banking industry post depression. But it went too far!

    LGS and SRD became PAR and now called Basle or Capital adequacy. How did Shearson and Lehman and UBS and AIG do what they did to contribute to GFC. Basle was totally ineffective. So now we talk in Basle III. It is still a system based on Riskmetric’s approach to normal logics, when it is proven time and again financial returns do not conform to normal logics. CDO’s were intentionally parceling risk into tranches. Which central banker said you are destroying all concept of normal? A piece triple A rated, some double A and some subordinated. What if the original debts were poorly rated. Hence we blame the rating agencies.

    When returns stabilise, the clever will spot opportunities. The sheep will continue to graze were the feed is nearly exhausted.

    Tomorrow morning on Inside Business Alan Kohler will interview Cameron Kline from NAB about the problems of Clysdale and their other Northern Britain problem. Most suggest NAB want to exit that investment. I feel NAB are possibly now better positioned than other Australian Banks who continue to chase only mortgage backed lending because it is a lower usage of capital under Basle. If Cameron Kline is not man enough to work through the issues in Northern Britain then some other entrepreneur will do it, and do it handsomely. That is one of the most central tenets of capitalism. What do the NAB shareholders think. Those who are not ready for that challenge will mindlessly crystalise their losses.

  2. Hog Shooter
    November 3, 2012 at 2:41 pm

    Great article Guru …

    Gerry – what about the Super funds investing in infrastructure and inovation as opposed to being shareholders in other ventures taking a dividend return.

    Then there are the Banks themselves – in a yesteryear Banks took equity and yes Capital adequacy made Banks pay for that risk profile – were the regulators wrong? Protecting depositors funds by suring up Banks proberty and capital assurance was a transference of risk return.

    The big ticket items – i.e. NBN – requires Goverment initatives with taxpayers funds – why not have the shareholders and venture capitalist with attached tax benefits put up the capital and take the risk?

    No … Governments want the control over the outcome … but then we end up with a CBA or a Telstra which the Government then sells to balance budgets and fund other spending priorities. It is not a simple debate, shareholders have become fat lazy porkies and expect the graft payments before they even sniff at an opportulity. Then came the lobbyist with the ‘brown-envelopes’ for the corrupt politicians buying deals with inside knowledge of re-zoning or other sure thing investments.

    Fu_k ’em all … ‘I’m not gonna take it anymore’ … you see a pig with its snout in a money pot – shoot the fu_ker …

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