Bending over for Apple. Australian telcos really have bent over backwards to get the iPhone. Apple already demands a bigger subsidy from carriers than other smartphone manufacturers. In the US, for example, AT&T pays Apple US$325 per unit compared with the usual $200 or so. However two individuals working within Telstra confirm that all three telcos offering iPhone here are also paying Apple an ongoing percentage of revenue. AT&T has escaped that revenue-sharing deal, but not the Aussies — they’re that eager to get Apple’s shiny new toy. — Stilgherrian
Qantas’s illusory holidays. A Crikey tipster yesterday pointed out that the ever-consumer friendly Qantas (through its low-cost subsidiary Jetstar) had “recently cancelled the confirmed bookings of 5000 passengers traveling to Malaysia. Most of these 5000 booked during a May fare promotion when the price of oil was around $120.” Leaving aside the morality of the cancellations (most of the customers who were holiday makers would no doubt have purchased linking flights and booked hotels which cannot be cancelled without penalty), there is a basic contractual issue of whether such a move is legal. While Jetstar/Qantas would no doubt include a swathe of terms and conditions which allow it to cancel whatever flights it likes, there is a basic contractual principle that a contract cannot be illusory. That is, a party cannot enforce a contract upon which performance is optional. If Jetstar/Qantas is able to cancel flights simply because it feels like it (say, because the oil price goes up or Geoff Dixon catches a cold), then it would appear to be a somewhat illusory contract. While this doesn’t help the 5000 stranded holiday-makers, it may help a Jetstar/Qantas passenger who is trying to cancel a booking in the future.
While on the topic, Crikey has been informed that Jetstar is telling the 5000 jilted customers that they will receive their money back for the cancelled flights in 5-6 weeks. That means many customers may be unable to afford replacement flights and Jetstar/Qantas can profit from holding onto the cash for almost two months. — Adam Schwab
Pricing gold. It’s enough to make a bull tremble. In 2000, Bill Bonner of the Daily Reckoning suggested that investors sell stocks and buy gold, traditionally the reserve currency. For the best part of a decade, that call seemed badly wrong. Since last July, Bonner has looked prophetic. Yesterday, Bonner noted that:
An ounce of gold would buy the whole Dow in 1926 … again in the 1930s … and once again in 1980. If gold stays where it is, the Dow would have to drop below 1,000 for the gold/Dow ratio to return to one. More likely, the Dow will drop and gold will rise to meet it. In 1999, gold bottomed out at around $260 an ounce. Since then it is up nearly 5 times. The U.S. money supply, however, has gone up 11 times. So, our guess is that there’s plenty of upside left for the stuff they make dental fillings out of. If it were to equal the increase in M3, its price could rise to $2,700 or so. This is all guesswork, of course. But the Trade of the Decade still looks good to us. Gold and the Dow will probably come together somewhere north of 3,000 ….
While Bonner chose his dates conveniently (in 1980 the gold price briefly peaked while the Dow bottomed — over the past century, gold has tended to trade at between 5% and 20% of the Dow), his thesis remains correct. That is, the price of gold rises during periods of inflation (and general economic instability) and while the money supply increases. Just to get things started, the Dow dropped a lazy 236 points yesterday. Gold was up $US10. — Adam Schwab
Tha mad man of Wall Street. While Jim Cramer isn’t very well known in Australia, the former broker is a household name in the United States. Cramer has a nightly stock-market show on top-rating US Cable station MSNBC (which is owned by General Electric) called Mad Money, and has written top-selling books Mad Money: Watch TV, Get Rich, Jim Cramer’s RealMoney, Confessions of a Street Addict and You Got Screwed and regularly appears on radio. Cramer is famous for his ranting style of stock advice. To critics, Cramer is known for a complete inability to recommend stocks, pick trends or provide a modicum of useful advice.
Cramer has had an interesting rise to fame — attending Harvard law school and later founding website thestreet.com (as well as his own hedge fund, which allegedly provided a return of 24% annually for its 15 year existence). However, it is Cramer’s highly entertaining yet forceful persona which has made him one of the most dangerous men on television. BusinessWeek once dubbed him the Mad Man of Wall Street. (Cramer reminds us of a hyperactive version of the late Rene Rivkin).
If you have a few minutes, check out this video which features Cramer’s comments on 13 June this year, where he recommended investors pile into banking stocks like Wells Fargo, JP Morgan, Research-in-Motion, home builder stocks and retailers. Cramer also told viewers not to buy oil and gas stocks. Fast forward seven days and Cramer noted that the market had been led down by all the stocks “we hate”, specifically banks and retailers. Cramer then accused viewers of “not listening” if they owned bank or retail stocks. Which just happened to be the exact sectors which Cramer recommended one week before. Cramer’s best investment on June 20? The petroleum complex — the exact sector which Cramer recommended avoiding a week earlier. — Adam Schwab
Servcorp a lesson in creative billing. Bernard Keane’s article on serviced office provider Servcorp, and its links to shady businesses is, in a sense, much like pointing out the sky is blue. Servcorp’s business involves leasing entire floor(s) in prestige office buildings (such as 101 Collins Street in Melbourne) and sub-letting the floor out by the room. That rogues would leverage off a prestige address (for a bargain price) is inevitable, and it is difficult to blame Servcorp for such a result. One of the more amusing Servcorp clients was “Prince” Omar Yusef, the self-styled business tycoon. Yusef rented an office from Servcorp in 101 Collins and claimed he was millionaire Saudi Prince with a trucking empire. Anyone stupid enough to believe Yusef’s claims and actually invest in his trucking company well and truly deserved to be liberated from their hard-earned.
However, while Servcorp can be excused for the tenants it services, it can be rightfully criticised with regard to its treatment of legitimate customers. When your correspondent worked at a top-tier firm, it would regularly use Servcorp’s offices for data-rooms for corporate deals. Rarely would a company so blatantly rip-off its best customers in the manner which Servcorp did. On one occasion, a firm owned by BRW Rich 200 member, Alf Moufarrige, attempted to bill its law-firm client $600 for paint damage to a wall (there was no damage, nor was the wall painted as Servcorp had claimed). On another instance, Servcorp charged a “return fee” for a security pass (that was in addition to a fee for obtaining that security pass). That is akin to a video rental store charging a fee to not only borrow a DVD, but to return that DVD as well. What was most startling was that the Servcorp employee claimed that no-one had previously complained about the charge.
Fortunately for Servcorp, most large corporate clients probably don’t closely check their Servcorp bill which must often resemble works of great creativity. — Adam Schwab