The great US housing myth…

It’s hard to believe that we are seeing the housing crisis we are in the
US.  I was just flicking through one of the US lending sites (as seen on Dr Phil and Oprah so you know its good), reassured by the fact that it did not require a credit check.  After all, as the site promotes, you don’t need perfect credit to purchase a home.  It’s a very easy site to navigate and it is a pleasure to avoid all that troublesome paperwork that unnecessarily delves into your personal finances just to see if you
can pay it back.  I always found that sort of attitude obstructive to the great American dream.  So imagine my joy when all this site wanted to know about my credit history was provided via a drop-down menu: Excellent; Good; Fair; Needs Improvement; Poor.  As the civil libertarians have assured us, it is every American’s right to buy a home they can’t afford with money they don’t have taking on a mortgage they
can’t possibly hope to pay back…

https://www.lowermybills.com/servlet/LMBServlet?the_action=LpvFirstStep&

typeOfLoan=LRE&TAG_ID=6225E1298C10C3C15C1EE93762E7E1C91188421619740&sour
ceid=seomsnconlre012307a43&moid=14888

Babcock & Brown Wind (or lack of it)

I went for a bike ride this morning.  Conditions were perfect…sunny and plenty of interannual variability.  That apparently is the new euphemism for no wind according to the management team at Babcock & Brown Wind, the listed windfarm satellite of Babcock & Brown (ticker BBW).  It basically means buggered if I know what happened to the wind but I’d be amazed if this happens again next year.

This is an excellent stock that suffers just one problem…no wind.  Not ideal for a wind farm operator.  Management is still very happy to stick with P50 (ie. an estimated wind yield that is expected to be exceeded at least 50% of the time…in the last 7 quarters BBW hasn’t).  Regional diversification should go some way in rectifying the issue.  You see, 75% of the latest result’s shortfall was caused by wind and 75% of that came from the Spanish portfolio.  So far this year, BBW’s regional exposure has risen from 6 to 11 regions.  To put that into context, Spain’s representation of the group portfolio has fallen from 30% to 13%.

While BBW will see over $200m from the Alinta deal and came to the market back in April, they will have again tap the equity market when they exercise the right to pick up the balance of Enersis.  In the meantime, there are still plenty of acquisition opportunities given the fragmented nature of the industry.  The top 4 players hold about 20% with the rest made up of small operators like German dentists who may have just 2 turbines to milk tax benefits.

BBW is trading at a significant discount to the only other listed pure wind play, France’s Energie Nouvelle.  There is also another player nearing its IPO, Spanish player Iberenova.  That too is being priced at a significant premium to BBW despite the fact that BBW actually has a significant development pipeline (so strong in fact that they can’t even consider massive markets like India or China given the opportunities still available in the OECD).  

European investors understand windfarms.  They have been using them for 20 years and they now represent about 6% of Germany’s power use.  In Australia, wind power is still in its infancy and accounts for only 1% of all power generation.

So regardless of whether the wind blows or not, there is enough conservatism in the guidance to ensure that the distribution is protected.  That’s an 8.5% yield…and that’s not blowing in the wind…

Kudos Clover Moore, kudos

Dear Clover

Just a quick note of congratulations in winning the right to host the 2007 APEC meeting in Sydney.  What a coup!  It speaks volumes of your tough negotiating skills and never-say-die attitude.  What a remarkable feat!  I can only imagine how convincing you must have come across when you sold the idea to Sydney.  After all, it could not have been a pushover when you told them about building a 3 metre wall around the CBD to keep people away from their city and their jobs, for local businesses to expect not only a loss of business over at least 3 days but also to brace for property damage.  And that’s even before you would have broached the subject of mass road closures and disruptions to public transport in a town already struggling under inadequate infrastructure.  Well played.

What a pleasure it will be for the 21 delegates to enjoy the beauty of Sydney in peace and quiet without the hustIe and bustle you would normally expect to find in a world class city.  Won’t they be impressed by the millions of dollars we have spent on securing their safety.  Let’s face it, that money would have just gone into trivial fluff like fixing potholes, addressing traffic bottlenecks, plugging holes in an antiquated storm water systems or bringing the rail network into the 20th century.  The Black Hawks, surveillance cameras, army personnel, Tactical Response Groups, riot police, dog squads, 3 metre perimeter fences, countless additional police brought in from interstate, water police, naval patrols and counter-terrorist teams will sure make those unkempt and unruly tofu-eating student mobs think twice before they even contemplate offensive street theatre.

Well done Clover.  Another rung in your ladder where you have put Sydney’s interests first.  It boggles the mind to think of how much tourism and business this will generate when these 21 delegates go home to their respective countries and tell their partners and friends about how much fun they had and how accommodating the locals were.  Word of mouth is after all the best reference.

Kudos

Tips of the Day…

Having recently become a father for the second time, it is an opportune
time to share some of the wisdom passed on by one of my colleagues leading up to the birth:
1)  Stay up near her face, holding her hand and NEVER, repeat NEVER,
walk down the pitch to the  ”business end” to inspect proceedings.
2)  This second point is going to be tough for you – Do not, under ANY
circumstances, complain about anything to do with you.  i.e. “How long
is this going to take, my feet are aching” or “Darling – not so tight -
your fingernails are digging into my flesh”
3)  You will, unequivocally, know how the following saying came about -
When you were born a bloke, you won life’s lottery!

Political 101

According to our house political lobbyist, the polls for the upcoming Federal election show 44:56 in favour of the ALP.  A figure that has remained stagnant for 6 months despite some of the incumbent’s best work. 

Words cannot describe the extent of my disappointment by what I heard.  If they could, they would probably note my disbelief at the prospect of living in a country led by a man named Kevin.

What’s more unbelievable is the fact the Kev, as he will be known outside of question time, has just undergone a well publicised emasculation.  Special K has had to apologise for visiting a strip joint while on an overseas work trip.  What sort of a message is he sending to the youth of this country?  I ask you, have you seen his wife?  This man does not need to apologise.  His lesson is that when you marry for money there is a price to be paid.  But I digress.  This beer & boob bender may have just won him an election.  Kevin has gone up in many people’s eyes…Nowhere is this more evident than in the incumbent government’s decision not to pounce on this revelation…

Telstra is a Sell

Coles-Myer (before and after the split) was and still is the worst retailer in the country saved only by the grace of scale.  Before selling off the Myer business to private equity, Coles-Myer traded off its glory days when it could boast attracting 20c cents of every retail dollar spent in Australia.  The problems that Coles currently has in selling itself are reflective of its ability as a retailer.

Telstra is arguably the worst telco in Australia saved too, only by the grace of scale and infrastructure, a legacy from when it was a government-owned entity.  It is the country’s incumbent telco.  A powerhouse whose share in the broadband market is growing despite having the worst offers on the market.  It defies belief that to report a faulty modem I had to wait cumulatively over 3 hours on hold over 3 days before being sent another modem that was equally faulty.  A visit to the Telstra stores with the faulty product seeking a replacement was met with a curt, “We can’t do that.  You’ll have to do it via the phone”.  ‘That’s half my problem!’ I thought.  The kicker was when I finally got through to Telstra to cancel my broadband account I had to call back because their systems were down.

Telstra is a sell.  The result has come and gone and management failed to provide the surprise the market as expected…From here on in you have nothing more than headwinds: In November the capital gains tax for the instalment receipts halves; In May 2008 the second instalment is payable, and; there is about another 18 months of uncertainty re a decision on Fibre To The Node (FTTN).  If I wouldn’t use them for my own purposes, why would I invest in them?

Unemployment gets a boost

Revenge is sweet but instant gratification but is even better.  An abusive and aggressive truck driver almost knocked my colleague and I over today when he came hurtling out of my building’s underground garage.  When my colleague highlighted to the driver the driver’s obligation to stop when crossing a footpath (one of the busiest walkways in Sydney), the curt response started with an f and ended with an uck off.  He then threw it into 2nd gear and accellerated off.

Three things worked against this individual from the outset.  Firstly, there is no such thing as a quick getaway in the most congested city in Australia.  Secondly, the advantage of anonymity is promptly lost as soon as you step into a truck plastered with your employer’s name followed by a toll free number (revenge it seems can also be free).  Thirdly, it’s a shame when you lose your sense of accountability and it bites you on the ass.

By mid-afternoon I received a phone call from the General Manager of the driver’s firm to be informed that it was the driver’s third warning and as a result had been let go.

Do I feel guilty?  No.  You live by your choices.  Unemployment is currently at record lows.  If this clown can’t get a job in this environment then he probably shouldn’t.