The ASX held its annual general meeting yesterday. Not for the first time it has been in the spotlight recently. The short selling debacle being one instance.
Aside from this and the fact that it is seeing lower trading volumes and fewer listings, it has its back to the wall over proposed competitors entering the market. Fortunately for the ASX the government has deferred making a decision that would allow three companies to set up rival exchanges - AXE, Liquidnet and Chi-X.
Outgoing chairman of the ASX Maurice Newman claimed that competition to the ASX is “not in the national interest.” When a private company invokes the “national interest” argument you know they are really in trouble. Former AIG CEO Hank Greenberg claimed that company was a “national treasure” prior to the US government’s USD$85 billion loan.
To claim that a competing stockmarket somehow threatens our daily lives is genuinely bizarre. Has competition in supermarkets, airlines and bookshops threatened the national interest? We wouldn’t have thought so.
In fact it is the lack of competition in markets that does more to threaten the national interest than anything else.
We seriously wonder whether the ASX would have taken the liberty of opening the markets one hour late on Monday if it had competition from three other exchanges. Again we doubt it. Funnily enough, exchanges in the UK and the US where competition is rife all operated as normal on the days that the restricted use of short selling was implemented.
Two weeks ago a computer glitch at the London Stock Exchange caused trading to be closed for seven hours. What could traders do? Well those that were able to, could execute trades through rival systems.
A similar problem here, or where the ASX just doesn’t bother to open on time like on Monday, means that investors have nowhere else to go.
Vive le competition.
Beware Rich Men Bearing $6 Billion
Let’s get a couple of things straight before we start. First, we agree that Warren Buffett is probably the best investor the markets have seen in the last fifty years. Second, we have no problem with the fact he is worth over $40 billion.
We do have a problem with the fawning that has surrounded his $6 billion investment in Goldman Sachs. The headlines have been typical:
“Buffett’s buy heartens stricken market”
“Buffett waves a $6bn magic wand”
“Warren Buffett, Goldman’s White Knight”
“Buffett Deal at Goldman Seen as a Sign of Confidence”
The gist of all the newspaper reports suggests that this investment shows that Buffett believes the US economy is “fundamentally” in a great shape. And that this must be the bottom of the market because Buffett never gets any investment decisions wrong.
The key comment from Buffett was that he would not have done the Goldman Sachs deal unless he believed the US Congress would pass the USD$700 billion bail-out bill.
Why should that matter if he is so confident in the Goldman Sachs business? We can only conclude that Goldman’s will get something out of the deal. And not just indirectly, but directly.
From Taxpayer to Buffett
In other words Goldman’s can be virtually assured of being involved in some shape or form with a slice of the $700 billion. After all, when the US government gains ownership of these assets it will need someone to manage them.
We wonder whom they will look to. Goldman’s perhaps. Treasury Secretary Paulson is the former CEO of the company. It also explains the urgency by Paulson to have his plan completed as soon as possible, while he is still Treasury Secretary, to ensure Goldman’s gets their slice of the action.
Buffett claimed last night on an interview with CNBC that if he had a spare $100 billion he would gladly leverage that up to $700 billion and buy the stinky mortgage assets himself. In his view they would be a great investment.
We don’t know whether that is true or not. But it is certainly good propaganda to convince Congress that the government should proceed with the bail-out. Once it goes through and Goldman’s are installed as one of the asset managers they won’t care whether the mortgages make a profit or not for the government.
It’s the management fees and excising of bad credit from the market that they will be celebrating.
Projects, People & Partners - Investing For Big Returns
On a final note, Diggers & Drillers editor Al Robinson arrived back in the office today following an editorial conference in France. Our first question to him wasn’t “How was Paris?” or “Isn’t France lovely in Autumn?” Instead we asked him what he thought of the front page story on the AFR - ‘Mines stall as money dries up.’
The AFR listed almost $30 billion worth of resource and mining projects ‘under threat’ today.
“I have to agree” Al said, “financing is a real threat to mining investors in 2008. We’re in the ugliest leg of the credit cycle. Money isn’t as cheap as it used to be.”
“That doesn’t mean you can’t invest in hard-commodity miners anymore. You just have to be more clever about it. Our D&D approach is to hunt for the Three Ps: projects, people and partners. Some great projects are selling for a song at the moment. Some of them will make pretty handy investments in the years to come.”
“But without the right people to develop them, they might never see the light of day. Even more important (especially for the juniors) is to have a financing partner in place. If you have access to money, a good deposit of rock, and savvy management, as a miner you’re ahead of the game. Investors that can find those Three Ps in a miner will be ahead of the game too.”
That makes a lot of sense to us. Check out Al’s latest ‘Pebble Stocks‘ report for the company he believes can make big gains even while many investors are fleeing to cash.
It’s a philosophy that we also follow when looking at resources companies in ASI. Incidentally, we are wrapping up the latest version of ASI over the next few days. The PPP approach is something we heavily relied upon when choosing our latest recommendation.
Cheers.
Kris
