BIS Shrapnel wrong on housing. The housing bust is certainly starting to bite, with the rest of Australia now joining in Western Sydney’s malaise. Clearance rates nationally are around 50%. In Melbourne’s leafy eastern suburbs, I was told of numerous auctions which didn’t garner so much as a single bid last weekend, casting serious doubt over the feasibility of the auction process. Despite the gloom, BIS Shrapnel has come out with yet another study predicting house prices will continue to rise, increasing by upwards of 22% in the next three years, largely based on population growth. However, we prefer to believe the excellent Daily Reckoning newsletter which noted: “The demographic argument [proposed by BIS] for higher house prices is also a stupid and misleading one. We heard it for years in the States as a way to justify stupid financial decisions. Everyone needs to eat, too. But if you don’t have a lot of money, you don’t eat in fancy restaurants. You shop at Woolworth’s and cook at home.” — Adam Schwab
Reconsidering BNB’s executive pay. With Babcock and Brown’s recent implosion, it’s fair to suggest that the 2006 remuneration of CEO Phil Green remains a high watermark for executive greed and complete director incompetence. In 2006, Green received a grotesque $17 million in base pay and bonuses. Even worse, more than $14 million of that payment was in cash. Since then, Babcock’s share price has been decimated, perfectly exhibiting why paying a bonus in cash is a terrible idea. What kind of company pays its CEO a gigantic salary mostly in cash? Possibly the kind which has that very CEO on its remuneration committee. Other members of Babcock’s remuneration committee include Ian Martin, James Babcock (who is also an executive), Elizabeth “the Black Widow” Nosworthy and Michael Sharpe. The Black Widow launched an impassioned defense of her role as an independent director of Babcock at a recent AGM as Crikey’s Stephen Mayne questioned her independence. Mayne pointed out that Nosworthy may not have been independent given her roles as a director of GPT (which is in a $7 billion joint venture with Babcock), chairperson of Commander (which Babcock previously owned a stake in) and her previous Chairmanship of Babcock and Brown Infrastructure. James Babcock and Phil Green are dead men walking, with their model being exposed as a debt funded house of cards. Babcock’s independent directors, Nosworthy, Sharpe and Martin, who allowed Green’s obscene salary certainly have some explaining to do and would probably be rethinking their roles on the Babcock board. — Adam Schwab
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Corn at record high. Corn hit an all time trading high of just over $US7.91 a bushell before the price eased to finish unchanged at Friday’s record close of $US7.65 a bushell. US cattle futures though were hit by the strong rise in corn (and soybeans) and they jumped to a 22 year high in Chicago. Corn and wheat prices eased in early Asian trading today. A combination of rising demand from ethanol and exports saw corn plantings rise in 2007, but then wheat and soybean prices soared even further than corn earlier in the year, and farmers switched from corn to these products to try and grab the higher prices. While the price reaction at the consumer level is slow to appear compared with oil, the big difference is that prices have been rising steadily now for the best part of the past year, so that’s why food companies have been steadily lifting prices, changing product shapes and sizes to save money (and boost returns) or altering packaging and transport methods. The factor to watch is the impact on US corn prices (and on many foods) as ethanol producers and exports chase a reduced amount of the grain later in the year. Ethanol is estimated to be using around a third of the new crop, exports usually take around 19%, and human consumption takes between 11% and 12%. The animal feed sector takes the rest, with carryover stocks. — Glenn Dyer
Nestle boss says high food prices here to stay. Take heed of the warning from the head of the world’s biggest food company, Nestle. Peter Brabeck-Letmathe, the former CEO of the food giant who is now its chairman, told Bloomberg that high food prices “are here to stay”. “I think higher prices are here to stay,” Brabeck said from Kuala Lumpur, Malaysia, referring to wheat, soybeans, milk, coffee and other food crops. “A third of it is due to the utilization of a part of food to fuel. Another third is another political decision: we intervene by not allowing exports.” Food prices “will establish themselves on a higher level but not at the peaks we have seen,” Brabeck, said in an interview yesterday on Bloomberg Television. — Glenn Dyer
Mining boom beginning to moderate? The rapid growth characterising the mining boom may be over, as soaring operating costs and power shortages eat into the earnings of the industry. And despite strong commodity prices, some mid-tier miners face a challenging future, a PricewaterhouseCoopers report finds. “While it seems the industry will continue the strong run of the past five years, several indicators suggest that the rate of growth may slow,” PricewaterhouseCoopers Australian and global mining leader Tim Goldsmith said. “Declining margins caused by rising costs, procurement constraints, power shortages and ongoing skills shortfalls have made the environment far more challenging.” Worldwide, operating costs for miners reached $US51 billion ($54.3 billion) in 2007, up from $US37 billion ($39.39 billion) in 2006. — news.com.au
Qantas vs Virgin vs Australia-US route. Qantas has fired the first shot in a potential price war with Sir Richard Branson’s new US-Australia airline, V Australia. Qantas is enticing Americans to fly to Australia with bargain basement $US380 ($A405) return airfares. The cheap seats are part of Qantas’s launch of its new super jumbo passenger jets, the A380, which begin service between the US and Australia on October 20. The deal puts pressure on Branson, who at V Australia’s launch party in Hollywood in March, vowed to take Qantas on with bargain airfares between Australia and the US. V Australia is set to begin its service on December 15. Qantas plugged its cut-price deals in the US media on Monday, including a striking coloured, half page ad in The Los Angeles Times broadsheet newspaper featuring an A380 flying over a sparkling Sydney Harbour, the Opera House and the Sydney Harbour Bridge. — CompareShares