THE DISTILLERY: Bad bear magnifier

One jotter says an unbalanced focus on bearish forecasts in the new year misleads investors, while another unpacks price discrimination.

The Distillery is back…even though a number of business commentators are clearly still on holidays. The holiday lull has an observable impact on media and financial journalism is not immune. One of Australia’s senior business columnists addresses that point this morning.

Also in the first shot from The Distillery for 2013 a Fairfax columnist explains price discrimination, one of Business Spectator’s own offers a priceless observation about the journey of Rio Tinto’s diamond business and an M&A expert delivers his take on the Billabong battle. Perhaps the holiday period isn’t all bad.

Firstly, The Australian Financial Review’s Chanticleer columnist Tony Boyd flips through the musings of the world’s leading economic forecasters. While the results are relatively predictable – a slightly bullish bias – the commentator offers a lot more for the readers with his analysis on this time of the year.

"Chanticleer is privileged to peruse the work of just about every global pontificator with an axe to grind, a book to sell, a position to talk up or a share portfolio to defend. Not surprisingly, the consensus tends to be bullish. Financial market participants are usually optimists and if they are not they have a vested interest in talking it up. That makes the bears stand out and, accordingly, they get an undue focus of attention, which is often to the detriment of investors who are guided by their musings.”

Fairfax’s economics correspondent, Peter Martin, puts on a clinic on the topic of price discrimination, which can occur when a company uses subtly different prices for essentially the same product to lure in different socio-economic groups, or when they flat out charge different rates for different people.

"New technology is being applied to the task. This newspaper has reported that Australian web-based retailers charge higher prices to customers from wealthier suburbs. Amazon has experimented with charging regular customers more. Online customers don't know it's happening: they are only presented with one price (sometimes a higher price if they are accessing the web from an Apple machine). One of the easiest ways to divide up your customers is to let the government or an educational institution do it for you. Cinemas don't charge less for students out of the goodness of their hearts. They do it to fill cinemas without cutting everyone's price. If they are at risk of filling their cinemas with full-paying customers they often suspend discounts. McDonald's offers a seniors' discount. It does it not because it is partial to seniors but to free-ride on the work the government has already done issuing cards to price-sensitive customers.”

Business Spectator’s Stephen Bartholomeusz makes a unique observation about the potential sale of Rio Tinto’s diamond business to Harry Winston Diamond Corp.

"There is nice potential symmetry in the prospect that the $US1 billion of cash Harry Winston Diamond Corp will release by selling its diamond jewellery and watch division to Switzerland’s Swatch group might be used to acquire more of the diamond mine that paid for that business’ acquisition in the first place. The sale of the 80-year-old luxury brand business for $US750 million plus $US250 million was announced overnight, with Harry Winston’s chairman and chief executive, Robert Gannicott, making it clear that ideally he’d like to use the cash to buy the 60 per cent interest Harry Winston doesn’t own in Canada’s Diavik Mine, now held by Rio Tinto. It was off the back of the 40 per cent Harry Winston does own that Aber Corp, as it was then known, bought the downstream business in two tranches in 2004 and 2006 for a total of about $US250 million.”

And The Australian’s Bryan Frith delivers a compliment of sorts to a recent strategic decision by Billabong International – seriously, that’s been a rare occurrence from any Australian business commentator lately.

"Allowing the Sycamore consortium to conduct due diligence on a non-exclusive basis was important because it has enabled Billabong to attract another potential bidder and to create the possibility of an auction developing for control of the company. Billabong and its adviser Goldman Sachs are aiming to ‘run a process to evaluate whether a change of control proposal can be secured at a price and on terms that the board would recommend’. What that probably means is that Billabong will seek to develop a timetable which will apply to both prospective bidders. During that period they will both have access to a data room and will be able to receive management presentations and on-site visits.”

In other company news, The Australian’s John Durie writes that one of Cameron Clyne’s central tasks when he returns to work at the top of National Australia Bank next week is to "oversee the final stages of his ‘Win Today, Win Tomorrow’ strategy”. That strategy is to make the domestic operations more efficient by cutting costs, then leveraging the $1 billion technology upgrade.

Meanwhile, The Australian’s Glenda Korporaal speaks to former ANZ senior executive Jenny Fagg who has some solid advice for companies trying to find ways to appoint women to their senior ranks.

"You appoint them,” says Fagg, who’s just completed a report for networking group Chief Executive Women.

The Australian Financial Review’s Matthew Stevens explores the lingering concerns in the mining industry about the potential for the government to expand the Minerals Resource Rent Tax to copper and gold. He concludes that the industry should cool its heels, because the government is unlikely to move and the transition from the Resource Super Profits Tax to the MRRT was a good one.

In international news, The Australian Financial Review’s Karen Maley examines the rapidly growing environmental pressures in China that come ‘naturally’ from such rapid economic growth.

And finally, The Australian Financial Review’s Washington correspondent Ben Potter says US President Barack Obama sounded rather unconvincing in his last first-term press conference when he said he would not negotiate with Republicans over the debt ceiling.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles