Asians spend their money on education

It was quite interesting to listen to Michael Milken this week as he hosted his annual Milken Institute event.

To paraphrase, he said;

The top two things Americans spend their money on is Housing (whether it’s renting, acquiring, furnishing, improving) and Transportation;

while the top two expenditures for Asians happens to be Food and Education……


Not snobs – We’re just a bunch of drunks


A recent article in The Australian newspaper (see link below) highlighted more than the buying power exhibited by Australia’s dominant supermarkets has over wine producers. It talked about how the supermarket duopoly is selling its own branded wine too.

A report from Australia’s Bureau of Statistics says that beer consumption amongst Aussies has hit a 66 year low, while wine sales have risen. News agencies have tried to spin their feeble creative minds to develop a story based around our growing sophistication towards finer tastes. Interestingly the report doesn’t tell us at which price point most of the wine was bought at, but I can confidently predict it wasn’t at the middle nor higher end of the price range.The reason that wine sales are growing is because wine is cheap. It is being sold cheaply by the supermarkets who account for 77% of the domestic wine sales. The reason beer sales are falling is because its expensive.

Mainstream consumers are looking for a cheap way to get drunk at the behest of drinking a quality artisan product.

The price of beer has risen over the past 30 or so years, yet we still think you can buy a glass of beer for $1 at the local bowls club.

Some fancy pubs & restaurants charge $9-$10 for a pint of beer and many happily pay for it, because it’s “craft beer”.

Wine producers at the medium to premium end of the market need to continue to focus on improving their brand, the quality of their product & the “love & care” that they put into making their wine. This is their differentiation, just like craft beer makers are doing it.

One benefit of living in “wine country” is that I have friends who are wine makers and mine happen to all be a part of boutique, independent enterprises. They do not try to be volume based manufacturers. They do not create “cookie cutter” batches of wine.

A $9 bottle of wine tastes like a $9 bottle of wine.

If you choose to enter the lower end of the market, you then compete against those who can be the lowest cost producer and have pricing power. This shouldn’t be a surprise.

We drink a $28 bottle of wine because the quality, love & taste shows.






Danish Admiration

During a recent supermarket trip, I was buying some ingredients for homemade pizza and a few extra things. By sheer co-incidence, I bought Danish feta cheese, Danish ham and Danish Butter (Lurpak – Yum).

Carlsberg Labels

This got me thinking about Denmark and its business influence. Various things that were “Danish” started running through mind ranging from furniture design, consumer brands and companies.

Names such Bang & Olufsen, Carlsberg, AP Moller Maersk (shipping), Lego, Vestas (wind turbines), Georg Jensen & Pandora (jewellery) & Novo Nordisk which is a pharmaceutical company boasting a market cap of $76 billion and employing 36,000 people.

Furthermore, when various publications list their most livable cities of the world Copenhagen continues to rank highly in the various judging criterium.

It’s quite amazing how well Denmark punches above its weight in terms of economic activity and business brands.

According to the IMF, it has an annual GDP of $313 billion (ranking it 32nd in the world, while its GDP per capita is an impressive $56,200 per annum, which is 8th highest in the world.

It has a low crime rate, open labour laws, a corporate tax rate of 25%, low unemployment and although part of the EU, it maintains it’s own currency.

Not bad for a small nation of 5.6 million people with a land area which is 30% smaller than Tasmania or a little more than the U.S. state of Maryland.

The Cycling Cycle Has Peaked

Shimano Deore XT Schaltwerk hinten (am Mountai...

The Tour de France turned 100 years old and the past 3 years hasn’t seen a continental European winner.

There are cycling shops everywhere now selling accessories that cover your toes. And since when should bikes cost $6,000?

Too many middle aged men are wearing lycra and hobbling around coffee shops in cleats.

A plethora of local cycling events have popped up.
Heck, everyone knows what peloton means !

Newspapers feature cameos with business executives asking them about their favourite weekend routes.

The stock price of Shimano has nearly tripled and Giant’s has quadrupled over the past few years.

And there is no shortage of cycling touring holidays and charitable events involving the riding of bicycles.

I’m not saying that people will stop riding their bikes or that the sport will cease to exist but popularity usually wanes once its reaches a plausible saturation peak but especially when the hoard of “late adopters” embrace it.

I nearly bought an expensive bike and lycra yesterday, but I stopped myself. If I was an owner of a specialist bicycle store I would probably sell and look for the next trend.

Do you remember how marathon running, tennis, golf & yoga all become very popular aided by technical improvement in the equipment used?

Maybe it’s golf’s turn again?

Homonym of the month – Utility

I have just read an interesting article by Justin Fox of the Harvard Business Review that discussed the “utility” of dominating technology companies. The article commenced with the innuendo of the word “utility” suggesting its connection to power, water and telephone companies, while later it shifts its use of the word to something can offer a broad use to the population.

A utility could also be person, often a sportsperson, who has skills that are handy and can be attributed to a range of roles that they are asked to perform.

Some dictionary definitions of utility include the state of being useful, beneficial, able to perform several functions (a utility truck), an economic term referring to the total satisfaction received from consuming a good or service, utility clothing that is functional rather than attractive (there’s a market opportunity) or something useful or designed for use.

The keywords that I extract from this paragraph of selected definitions are “broad” & “useful”.

My definition, in an economic sense is: To have a choice of using a service or product that provides the broadest utility to many people for the lowest possible cost.

Does Facebook or Twitter provide utility? Well, Yes, according to my definition.

Do telephone companies or electricity utilities provide “utility”? Yes, but I’m not entirely sure.

Depending where you live, you may not have a choice of which electricity company you can use and as a result they don’t need to offer the lowest possible cost.

I wonder if a company does provide a broad utility to many people, does it then become a monopoly and the sheer goodness, genius or effectiveness of providing my type of “utility” is ultimately regulated.

The words regulation and “lowest cost” just don’t seem comfortable occupying the same sentence.

Australia’s fiscal problems

I have just seen Australian political opposition leader, Tony Abbott announce the Liberal Party’s new “Real Solutions” Plan.

While such publications cover various issues ranging across healthcare, foreign policy and labour markets, this post is not about addressing any of those topics and nor do I know enough in order to offer intelligent advice, BUT from a financial perspective, this is what I think needs to change in Australia.

Housing is unaffordable and the increasing cost of residential rent is ridiculous.
Personal taxes are too high
Corporate tax rates are globally uncompetitive
The re-unionisation of industrial workers is dangerous
High wages are prohibitive
A strong Australian Dollar is nothing to cheer about
Attitudes about innovation & entrepreneurism need to improve

There is a whole generation who have never seen a recession (which was at least 20 years ago) or been fired from a job.

With the decline of the manufacturing sector, it seems like Australia will end up selling tourism experiences along with financial services and insurance.

The Protest Vote Is Over

Make Our Votes Fair

Make Our Votes Fair (Photo credit: cliffjamester)

2012 has been a big year for elections around the world, especially amongst G-20 countries.

It seemed that the first half of 2012 saw a rise in a “protest vote” against the incumbent leader for reasons that may have included a disapproval of how politicians reacted to the effect of the global financial crisis and an emotional spillover from citizen uprisings such as the ones seen in the Arab world.

Voters decided that “they’ll show ’em” by voting for the opposition, as we saw in Spain & France but their citizens haven’t seen any improvement to their woes.

The shift that I noticed in the 2nd half of 2012 was to re-elect the devil that one already knows, as seen in Mexico, Venezuela & the U.S.A.

If this trend continues, it’ll bode well for the re-election chances of Julia Gillard & David Cameron.

We are cheering for the wrong guys

Why does Australia and its financial press still celebrate and laud the mediocrity of our corporate leaders?

I’m referring specifically to the CEO’s & Chairmen of large public companies.

I’m not writing this to convince anybody with statistics but I think it is safe to believe that they are paid too much when compared to any metric that you wish to measure them against.

They aren’t company builders but stewards of the titles given to them after expensive recruitment searches. These companies have been in existence long before they were anointed and it doesn’t look like many CEO’s are leaving them in a better state than when they first arrived.

They don’t own many shares in the companies they work for and any share ownership is a result of generous grants rather than having bought the them with their own “after-tax” money, which is an extension of the financial syphoning that they manage so well.

More disturbing is that the same CEO’s and Chairmen seem to rotate from one organisation to another, whilst their poor performance and incompetence continues to be rewarded and revered.

Large Australian companies are littered with overpaid managers and tired, old Chairmen who have used phrases such as “moving forward”, “corporate governance” and “limited visibility” in order to stay on the gravy train. They take no risk with any of their own money.

The likes of Graham Turner from Flight Centre, Paul Bassat from Seek, Andrew Forrest of Fortescue and even Gerry Harvey should be celebrated more so than the bosses of banks, conglomerate and multi-nationals. After all, they built their companies from the ground up.

Entrepreneurs shouldn’t be sniggered at, as if they are mad. Australia needs to encourage a more positive culture of economic creation otherwise all we’ll end up doing is selling financial services and insurance.

We should be cheering for the owners and creators of small, private businesses where people risk their own money and lifestyle, every day.

Terrific presentation on Illicit Flow of Money Around the World

Click the link below and look for follow-up presentations.
It’s time for the real “richest person in the world” to step forward.
I’m sure they live somewhere in South America, Africa or Central or even South-East Asia.

China Needs To Spend Almost $8 Trillion To Cope With Massive Migration


China Needs To Spend Almost $8 Trillion To Cope With Massive Migration Of Rural Peoples Into Cities

By Palash R. Ghosh – International Business Times

China needs to spend £5 trillion ($7.8 trillion) over the next two decades as an additional 200 million people are expected to move into the urban centers of the country, a new government report warned.

There are already up to 300 million migrant workers who have taken up residence (often illegally) in China’s metropolises. Many of these arrivals live in substandard housing and toil at low-paying, menial jobs.

The report, entitled “Blue Book of Cities in China” and released by the Chinese Academy of Social Science’s Institute for Urban and Environmental Studies, underlines the massive problems China faces as its population rapidly urbanizes.

Shan Jingjing, a researcher from the Institute for Urban and Environmental Studies, or IUE, told the Daily Telegraph newspaper of Britain that a gargantuan amount of money will be required to provide housing, social welfare and infrastructure projects for the new migrants.

“The rural population currently working in the cities has not turned into an urban population yet,” he said. “They don’t have the same social insurance, housing, education, public service and citizen rights as urban residents.”

The urbanization of China has been an extraordinary, perhaps unprecedented, phenomenon.

In 1949, when the Communists seized power in the country, 90 percent of the populace lived on farms and rural regions. As recently as 1982, only about one-fourth of the people lived in cities.

Now, the urban population has exceeded that of the rural for the first time in China’s history.

Dr. Peter Liotta, a professor of political science at Salve Regina University in Newport, R.I., says the urban portion of the population will continue to climb in tandem with economic growth.

“In the next decade, 70 percent of the China’s population will live in cities,” he said.

“By 2030, China will have 221 cities with populations exceeding 1 million residents each, and its total urban population will add 400 million new residents — more than the entire population of the United States then.”

Liotta noted that Chinese authorities have prepared well for the oncoming crush in its cities.

“China has been thinking strategically about how to handle this astounding increase in population and its accompanying need for capacity resilience and infrastructure support,” he noted.

“China has specific plans for building metro systems, highways and high-speed trains for its top 170 cities. In Beijing, for example, from 2004 to 2006 alone, spending on urban transportation increased over 50 percent. So, for these 170 ‘top’ Chinese cities that are a strategic priority, China will need 28,000 kilometers [17,000 miles] of metro rail lines and 5 billion square meters of paved road — and it is likely that China will achieve these goals.”

Still, China faces some huge challenges.

Liotta indicated that China now has five mega-cities: Chengdu (approaching 35 million residents), Chongqing, Shanghai, Beijing and Shenzen. Many of these cities are new creations.

“The mega-city of Shenzhen in southeastern China (across the straits from Hong Kong), for example, did not even exist prior to 1979 except as a simple fishing village,” he said.

“Today, its population is 14 million. The movement of peasant populations from the west to the mega-cities of eastern China represents the largest — and most rapid — migration in human history.”


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