28 May 2022

Labor Wins Expected Victory, But Surprisingly the Election Result Has Rendered the Greens and Teals Irrelevant! 

An unexpected election outcome may render the Greens and Teals irrelevant. We may look forward to an unstated or tacit coalition of Labor and Liberal for the next three years.

Subject to expected postal votes, Labor looks like having an outright majority or at least a near majority. It will not be in the interest of Liberal/Nationals to support no confidence motions or oppose Labor budget bills. They have a common interest with Labor in each rebuilding their respective primary vote percentages.

The respective party strategists will quickly determine that they have a mutual strategic interest in denying the Greens and Teals oxygen by rendering their impact on legislation irrelevant. Once the media realizes that Greens and Teals are not in a position to influence legislation, they will become non-newsworthy and irrelevant for the next three years. Both Labor and Coalition know that for them to remain relevant at the next election they each have to rebuild their primary support level from the present low 30s percentages of support to around 40 percent each and this can best be achieved by a tacit agreement to sideline both the Greens and Teals.

Crypto Ponzi Schemes Crashing Back To Earth: Bitcoin Or Bitcon? Share Markets And Housing To Decline Further 

Warren Buffett once observed that you only find out who is swimming naked when the tide goes out. Warren was reflecting on those investing in highly speculative financial markets with borrowed capital. When a major economic disturbance occurs the difference between sound businesses and unstable businesses becomes apparent. Falling asset values and increased financing costs are crippling for those whose decision making was seduced by interest rates too low to last or asset value growth temporarily way beyond the long-term norm.

Lessons of the Collapse of the 1980’s Entrepreneurs Are Still Relevant

The 1987 stock market collapse exposed a large number of then prominent Australian business entrepreneurs, but it took several years for the full damage to them to be recognized and for some of the criminals among them to face justice. The events following the crash saw the collapse of Bond Corporation and the jailing of Alan Bond, the flight into Spanish exile of Christopher Skase of Qintex infamy and to Poland by Abe Goldberg, one time supremo of the Linter Group. The liquidation of the Adsteam Group headed by John Spalvins occurred after the four largest banks compared notes and discovered to their horror that Adsteam debt was far larger than any of them individually had been aware of. The head of Tricontinental was jailed in Victoria and the head of failed investment bank Rothwells, Laurie Connell, died in jail in Perth. John Elliott, one time CEO of Elders and prominent in other walks of life, was rendered bankrupt.

Elliott and his most senior executives had acquired a substantial portion of shares in Elders through their private entity Harlin. These heavily geared shareholding in Elders became unable to service the related debt as large interest rate increases destroyed business profitability and dividends. The structure imploded.

Each major financial collapse has its own story but a common element is that personal greed blinded a large segment of the population to the risks involved in borrowing huge sums of money to buy inflated assets. At the height of his fame Alan Bond was written about as a titan of business and attracted huge financing and share market support, but his diverse corporate empire was destined to collapse. The collapse was brought forward after he unwisely started buying shares in a British company controlled by another ruthless business man, Tiny Rowlands. Rowlands had a team of forensic accountants meticulously document the huge financial weaknesses in Bond’s business empire and dumped the detailed report into the financial media. Once the financial world realized how unstable the debt laden Bond empire was it was game over and the empire imploded. 

Unstable Crypto Currencies and Buy Now Pay Later Businesses 

The collapse in Crypto currencies and the meltdown of the “buy now pay later” sector are current unstable financial activities in which a multitude of investors are being burned.

Increased inflation in the US and elsewhere leading to increased interest rates have turned share markets into bear markets. Illusions that Crypto, including Bitcoin, is a reliable alternative investment or a safer form of currency are in the process of being consigned to the dustbin of history along with Dutch Tulip Bulbs and the South Sea Bubble. Crypto currencies have no intrinsic value beyond the hope that their investors can convince others to assign a higher price to them. This is otherwise known as the “greater fool theory”.

Unregulated markets in crypto currencies have pulled in vast numbers of gullible “investors” on the assumption that they were a hedge against inflation yet as inflation has reemerged crypto currencies are being put to the torch. Rather than being a store of wealth they are mediums of wealth destruction.

Even more gullible investors bought ‘Stable Coins’, which were supposed to protect wealth by pegging their value to the US dollar but were another illusion since they were backed by other cryptocurrencies. Inevitably they too have crashed.

Crypto’s proponents argued that it would supplant traditional bank and credit card payment systems, yet 13 years since Bitcoin’s appearance it is near impossible to use it in normal settings to pay or receive wages, pay mortgages, buy groceries or refuel your car etc.

Crypto currencies are largely used to speculate on other cryptocurrencies, perpetuating the illusion that there is always a greater fool until there is an event that brings the music to an end when those holding cryptocurrency watch what they thought was an asset disappear into an unregulated black hole.

Crypto currencies are unable to guard against catastrophic loss and are devoid of practical use outside of promoting Ponzi schemes, money laundering, tax evasion and supporting other illegal activities. 

Don’t Buy the Dead Cat Bounce

When fundamental data underpinning markets changes, it is imperative not to be induced back into the market by temporary bounces commonly referred to as ‘dead cat bounces.’ The underlying trend which is being driven by rising inflation forcing higher interest rates will undermine temporary improvements. A substantial overall correction is in the early stages because interest rate increases are mainly yet to occur and work their way into the economic system. As higher interest rates reduce spending power and cause some to liquidate non-core assets equity markets weaken, reflecting a withdrawal of capital. This process which has been initiated by the US Federal Reserve has a significant way to run. The long-term wisdom is “do not fight the US Federal Reserve”.

Stock Markets and Housing Markets Are in the Early Stages of Correction

A period of excess central banks liquidity resulted in a huge lift in share markets and housing markets. Both are now in the early stages of unwinding. Australian interest rates are in the early stages of increasing and already there is softening of the housing market. It is likely that the apparent easy gains of the past two years will be reversed over the coming year.  US share markets which set the pace globally are already well below recent highs. Australian superannuation funds which had spectacular returns in 2021 financial year are looking at negative outcomes this financial year.

Changed Investment Weighting

Our superannuation fund now has well above 50 percent cash and bank hybrid investments with substantially reduced share portfolio. The time at which it will be sensible to reverse strategy and increase the funds share weighting is a way off. At present capital conservation is necessary to be prepared for the opportunities which will reoccur after current bear markets have corrected. A great deal of patience is required.

Dental and Veterinary Practices and Other Businesses with Good Cash Flow

It is now even more important to concentrate on the basics of maintaining good control over cash flow, reducing home mortgages, attending to the appearance of premises and funding superannuation while maintaining conservative investment strategy.  It is not the time to be gearing into investment property because increasing interest rates will reduce investment value.

The initial small increases in housing interest rates are the beginning of greater interest rate increases to come and are unavoidable as actions in major economies will force a series of interest rate increases in Australia over the next 12 to 18 months. Australia may be less effected than some, but the pain will be considerable. Regardless as to the election outcome, a period of rising interest rates and declining house prices is now inevitable.

Looking back to July 2020 I noted that the four foundations of financial success for dentists, which applied equally to veterinarians were:

1.     Home Ownership

2.     Practice ownership

3.     Practice premises ownership with possible country exceptions

4.     Their superannuation fund

Looking back over the 35 years since I began advising dental, medical and veterinary professionals these four cornerstones to success have endured.

No corporate practice is as efficient as the best privately owned and conducted practices. Rather by, hopefully, using different EBITDA valuation multiples akin to the stock market, they seek to achieve greater capital value even though individual practice profitability has diminished.  The elementary truth is that a collection of small businesses do not have the characteristics which set successful large businesses apart.

The Ukraine-Russian War Headed For Long Term Stalemate

It is evident that the Russian invasion failed in its initial objectives. Russia redefined its aims to more limited objectives but has been surprised by the intensity of Ukraine’s counter offensives. The Russian army and air force have suffered substantial losses.  Russian leader Vladimir Putin is increasingly unlikely to gain a victory but similarly Ukraine cannot defeat the vastly larger Russia. Putin cannot withdraw his troops without demonstrating failure to his nation. Meanwhile Western nations intelligence services are identifying Russian weaknesses and their governments are channeling sufficient military aid to Ukraine so as to impose a huge cost on Russia’s army and air force thereby weakening Russia’s military strength vis a vis NATO. Satellite and drone surveillance is showing continuing evidence of Russian losses.

Russia still receives much of its income from its oil and gas sales to Europe. That to is being wound back but dependence on Russian supplies for a proportion of Europe’s needs will continue.

A stalemate is likely to ensue. It may take the death of Putin, or his, unlikely, overthrow to enable a new Russian leader to be able to withdraw and assign the blame to Putin.

The Fallout from the Russian Attack on Ukraine Includes:

1.     5 million Ukraine refugees, overwhelmingly women and children who have been displaced into Western Europe

2.     A huge jump in global oil and gas prices

3.     Potential 3rd world starvation as Russian and Ukraine grain exports are slashed

4.     Higher global inflation

5.     A yet to fully occur, massive contraction in Russia’s economy

6.     Weakening of Russia’s threat to NATO enabling the USA to concentrate more fully on the Indo-Pacific

7.     Massive damage to Ukrainian towns and cities

8.     Finland and Sweden seeking to join NATO albeit that Turkey and Hungary, both NATO members are trying to leverage the situation as a bargaining lever to have certain of their concerns addressed

9.     Isolating Russia from much of the world

Financial Success for Dentists

Financial Success for Dentists: Rules for How to Approach Your Dental Career sets out the key strategies which make dentists successful. It is specifically written for those dentists and dental specialists owning their own practices and for those aspiring to own practices. Among the topics included:

·      Understand key practice valuation criteria.

·      Learn how some dentists inadvertently reduce the value of their practice by $500,000

·      Avoid long term errors when purchasing your practice.

There are many accountants, financial advisers, marketing consultants, web site designers and practice advisers who give advice from their particular disciplinary experience, but very few have the wider breadth of experience to define for their clients the key rules to follow to optimize their practice and their long-term financial outcomes. An otherwise competent financial adviser may have little understanding of what makes one practice much more successful than another. Many accountants have detailed knowledge of the taxation rules but cannot identify if a dental client has broached invisible barriers to practice growth or a threat to practice goodwill value.

I spent 33 years examining dental practice financial outcomes and reviewing the key strategies and decisions which separated successful Australian dental practices and practice owners from the less successful and this led to relevant conclusions and advice to dental practice owners.

A complete and comprehensive career guide for mature and aspiring dentists.

Based on real life situations and a lifetime of dealing with dental practice ownership outcomes this book is worthy of Text Book status for every dental teaching school.

—Merv Saultry, Founder Dental Innovations Network

To Obtain a Copy:

·      Go to the Delany Foundation website at http://www.delanyfoundation.org.au

·      Click on the Donations tab and make a donation of minimum $60. This is easiest by Mastercard or Visa.

·      Email graham.george.middleton@gmail.com confirming that your donation has been made, as well as your name and mail address

·      A copy of the book will be mailed directly to you

All production costs and mail costs are met by me personally, so all money donated goes to the Delany Foundation which contributes toward the running of schools in Ghana, Kenya and Papua New Guinea. Naturally donations above $60 are welcome.

The donation to obtain this publication will be the most cost-effective practice advice most dentists will ever receive.

Please Pass On

If you like these newsletters, please pass them on to colleagues. Past newsletters and articles in Australasian Dental magazine on business issues are at grahammiddleton.com. I can be contacted directly at graham.george.middleton@gmail.com

General Advice

I sold my interest in a financial services and accounting group on 30 June 2020 and have no intention of starting another financial services business. My website is now available at grahammiddleton.com.

Those who find my newsletters of value to them are asked to consider making a donation to the Delany Foundation, a registered charity which assists schools in Papua New Guinea, Ghana and Kenya. Delany Foundation c/- Holy Cross College, 517 Victoria Road Ryde NSW 2112.

Best wishes to all readers

Graham Middleton