rob zdravevski's blog

America – the new low cost producer ?

Forget India & China – they are seeing rising wage inflation. Their goods don’t seem to be as cheap as they once were.

The United States could be “new” low cost, high quality producer of the world?

With 10 million unemployed people, 2.2 more million in overflowing prisons, a low minimum hourly wage, factory capacity isn’t strained and large public U.S. companies have plenty of cash on their balance sheets (they also offer health care coverage) and they can borrow cheap money by selling bonds quite easily as they are more creditworthy than the U.S. Treasury !

It seems that many investors have given up on America and their corporations (large and small). American companies know how to admit their mistakes, take write-downs, cut costs and start again. In other words, they allow the fire to pass through so the forest can rejuvenate.

America may be a fertile investing habitat.

US$89 Oil and not a peep !

Oil is hitting 26 month highs, touching US$89 per barrel. This affects the price of many things.

Most noticeable to everyday life are products collectively known as “fast-moving consumer goods” or FMCG’s.

The price of oil is felt in its chemical derivatives (benzene, ethylene), packaging and transportation to mention a few.

Normally, rising input prices will be passed on by manufacturers, but this time around, I don’t think consumers will accept this so easily.

So, if manufacturers swallow the rising costs associated with a rising oil price, look for a squeeze in their margins.

For the European giants, a strong Euro translates into cheaper USD denominated oil while a weak USD means the American brands are beneficiaries of a globally competitive product, but as ice hockey great, Wayne Gretsky once said “skate to where the puck is going to be, not where it has been”.

Embracing Australian banks ?

As public distaste grows against large Australian banks, it’s equally relevant to acknowledge their position and power.

Government and customers have built them into the goliath’s that they are today. I see them as giant planets in their own right, spinning above Australia dominating business and money flows.

It’s futile to resist their dominance.

The shame is that banks often cite the importance of shareholder value ahead of customer service and satisfaction. Shareholders buy and sell your shares while it’s usually customers that stay with you, until perhaps they too are disappointed or ignored.

When another crisis of confidence occurs, citizens will once again ask and worry about where their money is custodied and unfortunately, the small building societies will have a difficult time appeasing those concerns.

If you think the large Australian banks are making a lot of money now, just wait until their funding costs ease and they actually start lending again !

Business Idea – Horse Dentist

In Australia, there are 850 horse dentists (most double as veterinarians) compared to 700,000 registered horses.

That’s an average of 824 horses (clients) for each dentist.

I have understood that only 30% of Australia’s horses are receiving their annual checkups.

This seems like a good example of a positive demand story.