What a lark!

  • The wealth grab continues
  • Clicks-to-mortar
  • He wrote it, did you trade it?

Ah, the ‘war on cash’ continues.

According to Bloomberg:

Australia should follow India’s lead and scrap its biggest bank notes, UBS Group AG said.

“Removing large denomination notes in Australia would be good for the economy and good for the banks,” UBS analyst Jonathan Mott said in a note to clients on Monday. Benefits would include reduced crime and welfare fraud, increased tax revenue and a “spike” in bank deposits, he said.

Unfortunately for Mr Mott, the rationale for scrapping large notes becomes redundant if he truly believes that doing so will increase bank deposits.

We’ve seen this argument used around the world to justify abolishing large bank notes — and eventually all forms of cash.

The theory is that only pimps, drug dealers and master criminals use large denomination bank notes.

The Bloomberg articles concludes by saying:

The European Central Bank in February said it was considering withdrawing 500-euro notes because of an “increased conviction in world public opinion” such high-value notes are used for criminal purposes.

The problem is, if criminals really are responsible for keeping billions of dollars in bank notes out of the system, what makes anyone think they would suddenly choose to turn up at a bank to deposit their cash? Or open an online account to deposit their ill-gotten gains?

It doesn’t make sense.

Besides, our bet is that most of Australia’s $100 notes just reside somewhere within the economy. Mostly likely comprising the ‘float’ of various cash-heavy businesses.

A reasonable number no doubt sit in the cash registers of foreign exchange bureaus in Australia and around the world.

And since the near collapse of the world’s money and financial systems in 2008, we equally have no doubt that more than a few $100 notes lay under mattresses, in shoe boxes, and in safety deposit boxes…in preparation for when things take a turn for the worse again.

The reality is that the whole idea of eliminating large denomination notes has nothing to do with eliminating criminal activity. It’s all about protecting the banking system.

The giveaway appears elsewhere in the Bloomberg article:

If all those notes were deposited with banks, household deposits would rise by about 4 percent, Mott estimated. That would likely be enough to fill the big banks’ regulatory-mandated net stable funding ratio and reduce reliance on offshore funding, he said.

There you have it. Once upon a time, the banking industry was supposed to help support the rest of the economy — to be an intermediary between savers and borrowers.

No more. Now it appears to be the role of individuals and businesses to help support the banks.

Yet again, the general public is on the hook for underwriting the banks. And as thanks for doing so, the bankers cash their fat paycheques while slugging consumers and businesses for obscene fees and interest rates.

What a lark!

Markets

Over the weekend, the Dow Jones Industrial Average gained 39.78 points, or 0.21%.

The S&P 500 fell 3.03 points, or 0.14%.

In Europe, the Euro Stoxx 50 index closed down 16.57 points, for a 0.54% fall. Meanwhile, the FTSE 100 lost 1.43%, and Germany’s DAX index rose 0.36%.

In Asian markets, Japan’s Nikkei 225 index is up 284.67 points, or 1.64%. China’s CSI 300 is up 0.49%.

In Australia, the S&P/ASX 200 is down 41.34 points, or 0.77%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$43.36. Brent crude is US$44.80.

Gold is US$1,217.30 (AU$1,612.38) per troy ounce. Silver is US$17.24 (AU$22.84) per troy ounce.

The Aussie dollar is worth 75.5 US cents.

The wealth grab continues

When commodities prices were going through the roof from 2004 to 2011, there was a regular refrain about how these commodities were owned by ‘all Australians’.

It was a neat piece of jingoism.

Of course all that iron ore, copper, and bauxite in Australia’s Outback is owned by everyone.

It’s only right therefore, that governments should levy taxes and royalties on those resources, and then redistribute the revenue to its rightful owners — all Australians.

That was the theory behind Kevin Rudd and Wayne Swan’s ludicrously infantile ‘super profits tax’.

The fact that they didn’t appear to be able to define the difference between a ‘super profit’ and a ‘normal profit’, made the whole thing even more ludicrous.

However, while it may have a nice ring to it, to say that ‘all Australians’ own Australia’s resources is not really true.

To claim that ‘all Australians’ own undiscovered and unexploited resources deep beneath the earth, is the equivalent of saying ‘all Australians’ own your physical labour. (Technically, thanks to income taxes, we guess they do. That doesn’t make it any less ridiculous.)

The real owners of the resources are the capitalists, businesspeople and investors who put their money at risk.

Until these people get involved, the resources in the ground only have a theoretical value. Their actual value is nothing — until someone invests millions of dollars to dig them up.

In recent years, the claim that ‘all Australians’ own these resources has tailed off. It probably has to do with the fact that commodity prices have taken a dive.

Everyone had their hands out when iron ore was US$180 per tonne. When it fell to less than US$50 per tonne, nobody wanted a bar of it.

But government budgets are tight, and this year, commodities prices have rebounded. That perhaps explains this from Bloomberg:

Western Australia’s Nationals party leader Brendon Grylls has proposed raising levy on BHP and Rio operations to A$5 a tonne from 25 Australian cents.

At the current price of US$79.81 per tonne, that would represent an increase from 0.3%, to 6.26%.

The Minerals Council of Australia says it would slash the workforce in WA’s Pilbara region by 4.3%.

It may very well do that. Or it may not. Either way, the one thing it definitely means is a further redistribution of wealth from the private sector to the public sector.

It means higher costs to the end users of the iron ore, or if BHP and Rio can’t raise prices, it means less in the pockets of investors by way of dividends.

The era of the wealth-grab lives on.

Clicks-to-mortar

It may not be a wealth grab, but it has been somewhat of a ‘wealth destruction’ over the past few years.

Your editor is talking about Woolworths Ltd [ASX:WOW]. It’s a stock your editor owns in our family super fund, and one that we have no intention of selling.

According to our colleague, Callum Newman, that could be (how can we put this) a terrible decision.

As Callum wrote in Money Morning Trader last week:

US consumers in their 20s and 30s are visiting supermarkets less frequently than their parents, according to government records and survey data. They no longer buy everything at once, or in the same place for that matter.

With Amazon launching in Australia, you wonder how long before the same thing really kicks in here at home.

This looks ominous for a stock like Woolworths [ASX:WOW].



chart image

Source: Optuma
Click to enlarge


Woolworths is already conceding market share to Aldi. Costco is also expanding, and there’s the chance of Lidl, another low-cost German supermarket chain, launching in Australia as well.

Now comes a second front.

Amazon could really hurt WOW if it can reach markets both inside and away from the urban centres.

Woolworths is a classic “blue chip” stock — but no more “buy and hold” with this one. There are no ‘easy sleeps’ holding anything anymore. There’s simply too much disruption going on worldwide.

WOW is going to have to invest heavily in new technology, creating smartphone apps and delivery services that appeal to millennials to hold off their competitors’ advances.

If they don’t, Amazon, and new start-ups like Shipt or UberRUSH, will soon follow them here and eat WOW for breakfast.

Your editor has ‘swum against the tide’ on Woolworths for the past two years.

As we’ve done so, the share price has sunk from above $35, to its current price of $23.25.

And if Callum is right, it could get worse for the big Aussie retailer (a retailer that’s still smarting from the Masters hardware debacle).

Today’s Sydney Morning Herald would seem to support that view:

One of the world’s biggest retailers, Amazon, is on track to launch bricks and mortar grocery stores and an online supermarket in Australia within two years.

An Amazon supermarket would be different to a typical Australian supermarket, if it is built as once advocated by an executive supporting Amazon’s grocery rollout globally, Brittain Ladd.

It would be smaller than a Woolworths or Coles; similar in size to an Aldi store.

It would stock only the items people like to inspect before purchasing, namely fruit and vegetables, meat, dairy and alcohol.

The article continues:

An August report by Citi’s Australian retail analysts estimated Amazon could generate between $3.5 billion and $4 billion in Australian sales within five years of launching, assuming an entry within two years.

“This would be about 14 per cent of online retailing and 1.1 per cent of all retail sales in Australia (including food),” they said.

“Amazon Fresh would be a disruptive force on the Australian grocery market, but developing the supply chain and dealing with Australia’s lower capital city population density makes entry more challenging.

“We expect Amazon would initially focus on its more successful general merchandise categories like electronics and toys.”

As this and other articles note, ‘clicks’ are going ‘mortar’. Understanding that there are still some things that shoppers want to ‘touch and feel’ before they buy them, establishing shopfronts could be Amazon’s next step towards global retail dominance.

In reality, we wonder whether dominance is really the best solution for Amazon, or whether piggybacking on existing businesses could be the better option.

We’re thinking of online takeaway ordering services, such as Menulog. Just as Menulog doesn’t establish a chain of takeaway restaurants, perhaps Amazon will ultimately licence or franchise its ‘mortar’ business.

Could that make Woolworths and Coles potential long-term partners? Or is your editor just a Woolworths shareholder grasping at a slippery straw?

We’ll see.

But either way, something big is going down in clicks-to-mortar retailing, and Amazon looks set to be the driving force behind it.

He wrote it, did you trade it?

If you’re not familiar with the work that Callum Newman does at Money Morning Trader, you can check it out here.

It’s a unique service among our advisories, in more than one way.

First, we see Money Morning Trader as a good entry point for new traders. Instead of the four digit annual fee charged by most of our trading services, Money Morning Trader bills on a monthly basis — and at a super low cost too.

Second, instead of giving tips, the service profiles key events and key stock moves that indicate something could be happening in the market.

For instance, last Friday, Callum wrote this:

One stock to keep an eye on is computing company NVIDIA [NASDAQ:NVDA]. These guys are supplying the gear that powers Tesla’s autopilot system in all of its factory-produced vehicles. They produce the PC cards that make video game graphics look good, and their chips, from all accounts, just so happen to be perfect for running deep-learning processes. The growth of these services, and artificial intelligence in general, could provide the next platform for growth for this company.

On Friday night, this happened:



chart image

Source: Bloomberg
Click to enlarge


The stock closed the day, up 23.6%. For the year, it’s up 189%. Which just goes to show, you don’t have to get in first in order to make a good return.

For more details on Money Morning Trader, go here.

Cheers,
Kris