Monday 17 September 2012

Reality and Make-Believe.


Last week was a busy one for journalists in Australia.

It began with Federal opposition leader Tony Abbott being accused of physically threatening and verbally bullying political opponents during his university days:

"He [Abbott] approached [progressive opponent Barbara] Ramjan. She thought he was coming over to congratulate her. 'But no, that's not what he wanted,' she recalls. 'He came up to within an inch of my nose and punched the wall on either side of my head'.  Thirty-five years later she recalls with cold disdain what he did. 'It was done to intimidate.' Abbott tells me [former Fairfax Media journalist David Marr] he has no recollection of the incident: 'It would be profoundly out of character had it occurred'." (See here)

The news generated controversy. Predictably, Abbott's supporters were quick to cast doubt on it (initial response by Christopher Pyne -Coalition MP -, conservative columnist Gerard Henderson's response); unexpectedly, however, barrister David Patch came publicly forward in support of Ramjan's allegations. Apparently, Patch was prompted by Henderson's piece.

After a week in the sidelines, Abbott formally reiterated the denials Marr reported previously:

"Fronting the media yesterday for the first time in almost a week, Mr Abbott sought to reconcile his previous statements that he could not recollect the incident and that it never happened. 'How can you recall something that never happened?' he said.
"He did admit to another allegation - that after Ms Ramjan became the SRC chairman and asked to be known as chairperson, he called her 'chairthing'.
" 'There were lots of silly, embarrassing, childish things done in student politics and I wasn't immune to that,' he said.
"Mr Abbott denied the wall-punching allegation and claimed the matter had been dredged up by a Labor dirt unit."
(See here)


Last Tuesday, QLD premier Campbell Newman (Liberal National) unveiled his first state budget. Newman announced his plans to slash state payroll by 14K positions and increase mining royalties by AUD1.6bn over four years. (See here)

Both announcements were unpopular among those directly affected (for state public servants' reactions, see here)

Among miners, supposedly affected by the increase in mining royalties, one of the most vocal critics was gazillionaire Clive Palmer, who is also a major donor to the Liberal National Party (QLD's equivalent to the federal Liberal /National Coalition).

Palmer, who 3 years ago claimed credit for Kevin Rudd's removal from the Prime Ministership, had this to say about Newman:

" 'Well I'd be very surprised - if he sticks with this policy - that he'll be Premier by Christmas, to be honest with you" (See here)

Newman, who apparently agrees with Wayne Swan in at least one subject, had already said this about Palmer:

" 'Mr Palmer clearly is speaking from the good old standpoint of vested interest,' Mr Newman told ABC's Lateline program earlier this week".

I, however, remain sceptical about this Newman vs Palmer spat:

"Mr Newman's royalty increase, however, may be of no net benefit to his budget bottom line if Mr Swan penalises Queensland for the move.
"Under the terms of its Minerals Resource Rent Tax, the government agreed to refund coal and iron ore miners for all present and future royalty increases.
"But this loophole has enabled the states to keep increasing royalties and gouge the profits of the mining tax, which have already been budgeted for small business tax cuts, superannuation increases and infrastructure projects.
"With the mining tax revenue and the budget surplus target already under threat, Mr Swan wrote to all the states three weeks ago saying those that proceeded with royalty increases after July 1, 2011, would be docked the same amount of federal funding, be it GST revenue or infrastructure money.
"The leader of the Greens, Christine Milne, repeated her call for the loophole to be closed by legislation."
(See here)

Has anyone heard of the World Wrestling Federation?

No economist that I know of has included these variables in their models. So, there's a challenge for you.


By midweek, another local gazillionaire was in the news. Last Thursday, after Standard and Poor's put Fortescue Metals Group on credit watch, an announcement that it was asking its lenders for credit relief caused FMG stock to lose 13.8%:

"The day's plunge shaved about AUD1.5 billion off Fortescue's market capitalisation, thereby reducing the value of chairman and founder Andrew 'Twiggy' Forrest's nearly 33% stake in the company by AUD500 million - AUD330 million of which was wiped out in less than an hour of trade late this afternoon". (See here)

Referring to this, Morningstar analyst Mathew Hodge said: " 'If the iron ore price goes up to USD120 [a tonne], we'll wonder what all the trouble was,' Mr Hodge said. 'If it hangs around at USD100, there'll be trouble'."

The following day, FMG asked ASX to halt trading on its shares: "Fortescue shares are suspended in the wake of revelations that its bankers had been asked to waive their loan covenants". (See here)

Steve Keen has an interesting piece explaining how capitalists leverage themselves expecting that price booms will never come to an end. You can read it here


In the meantime, the NSW government of premier Barry O'Farrell (Liberal) announced a AUD1.7bn cut to education.

Originally, the cut was to affect both public and private institutions. However, miracles do happen. O'Farrell apparently found a solution that does not affect so much the private sector:

"Funding for independent schools is to be frozen instead of being cut $67 million a year, as originally planned. The Premier, Barry O'Farrell, stepped out of a cabinet meeting yesterday to phone the Catholic Archbishop of Sydney, Cardinal George Pell, about the decision.
"The decision means the planned cut of 8 per cent is reduced to 3 per cent - $116 million over four years. That will be matched by a $201 million cut over four years to public school budgets.
"It would not be capped forever and the cap would not come into effect until July 1 next year,
[NSW Education minister] Mr Piccoli said". (See here)

By comparison, the public sector will have to shed 1,800 positions: which goes to show that "we" are all equal, only some are more equal than the others.

18-09-2012 FMG got an AUD4.3bn loan from Credit Suisse and JP Morgan, payable in 5 years and at 5%. Not too bad.

Iron ore went up:
"Since hitting the low, iron ore has regained some strength, rising by $US9 to $US105.1 after the US Federal Reserve unleashed its latest monetary stimulus which lifted global commodities prices.
"Leyland Asset Management senior portfolio manager Rohan Schmidt said the deal would be positive for Fortescue shares, but over the longer-term fate of the company was still tied with the direction of iron ore prices."
(See here)
So, let's wait and see.

Image Credits:
[A] "A wrestler (Christopher Daniels) leaps off the top rope", by Hugo Hernandes. Wikipedia. Image licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license. My use of the image does not imply the author's endorsement of it.

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