S&P/ASX200 - Domestic market

It was a rough start to the week as the Australian market finally got to respond to the previous Fridays 403.89 point, or 1.34%, Dow Jones Industrial Average meltdown in the United States. The local market went a stretch further with the S&P/ASX200 plunging 1.4% to 6664.40 by the close of Monday. 

It pushed the year-to-date fall for the index to 10.48%, but some clawbacks as the week progressed saw the index down 9.59% by Thursday’s close. 

We are at that part of the cycle where stocks are punished when they disappoint. Building materials company Adbri (ABC) dived 21% to $1.45 following the release of an inflation and weather impacted trading update and the surprise departure of its chief executive. It had climbed back to $1.50 by Thursday’s close. 

Horticultural company Costa Holdings (CGC) was also punished as its shares dropped 13.43% to $2.00 following Monday’s trading update that full year earnings would be “considerably lower” than it had previously advised, due to the impact of adverse weather conditions on its citrus fruit operations. It had recovered to $2.23 by Thursday’s close but volumes were low, and the stock remains in a bearish trend with its shares below a declining 200-day moving average. 

An evolving story during the week was the Medicare Private (MPL) data breach. Last week when the issue first emerged it was reported the healthcare company had caught the data hack before customer details were captured. That turned out to be false, and on Thursday Medicare revealed it had been provided with a sample of customer data by the hackers, including client’s names, addresses, birth dates and phone numbers. There is also an unverified claim the breach included credit card information. Medibank went into a trading halt “until further notice” on Wednesday. 

The breach follows the recent Optus data breach, the largest in Australia’s history, and data hacks have also been reported by online wine seller Vinomofo and Woolworths’ MyDeal website. 

As Optus is not listed, it will be interesting to see how the market responds to the Medibank breach once trading resumes 

Source: nabtrade 

International markets 

Internationally there are few bright spots to suggest the Australian market will end the week positively. 

Although the UK’s U-turn on proposed tax cuts created upward European momentum during the week, as of last night ongoing economic uncertainty, recession fears and problematic inflation had European markets indicating a negative opening following falls the previous day. 

Source: nabtrade 

Fears of a recession and rapid-fire US Federal Reserve interest rates hikes have helped push US markets to yearly lows in recent weeks. Fears of a recession remain a topical conversation point but the current earnings cycle has thrown up some bright spots. 

During the week Tesla CEO Elon Musk said it was “pedal to the metal” recession or not. Although the stock has lost 45% of its value this year its adjusted earnings of US$1.05 a share beat analysts’ median expectations of US99c a share. 

Enterprise software and consulting company IBM jumped 6% on Wednesday after beating analysts third quarter earnings expectations. It also lifted full year growth forecasts. Reported revenue at US$14.11 billion compared with analysts forecast US$13.51 billion, according to Refinitiv. 

Limited US economic data out next week will provide few global market leads, but ongoing blue chip earnings reports will be monitored closely. 

Resources 

In the materials space there is little cheer as recession fears slash economic growth forecasts. 

Source: nabtrade 

BHP (BHP) has been under selling pressure from traders recently and its Thursday close of $38.35 is up from last month low of $35.56 but still a chunk below the $40.00+ the resources giant has traded at through most of the year. 

Rio Tinto’s (RIO) share price slump has been similar to BHP’s, and since July the iron ore giant has been trading below $100 a share. It closed Thursday at $92.26 

Source: nabtrade

Energy and resources companies topped the gains made on Thursday 

Battery materials maker Novonix (NVX) climbed 7.04% to $2.28 on high trade volumes after an announcement it was in negotiations with the US Department of Energy for a $US150 million grant. Gas producer Woodside Energy Group (WDS) jumped 6.16% to close at $34.56 following the release of its September quarterly report revealing a doubling of both production and the realised price for liquified natural gas (LNG).  While nickel miner Chalice Mining (CHN) sneaked into the top three performing stocks of the day with a 4.08% increase in its share price following positive exploration results on Wednesday from its nickel-copper-platinum project in Western Australia.  

Analysis as at 20 October 2022. This information has been provided by WealthHub Securities Ltd the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances.

When Kevin Rudd became Prime Minister in 2007 he had a big climate change agenda, so I wrote a book called The Carbon Crunch, explaining the business and social implications of his party’s proposed changes. When Rudd backed away from his big promises for political purposes, which incidentally didn’t work for him, that book didn’t have a big audience.

However, the research for the book convinced me that even if the science was wrong or exaggerated, something close to 50% of the populations of countries such as Australia, the UK and the US were either strong or growing believers that modern business and consumer habits had to change.

Big companies such as Toyota were making hybrid cars and people were buying them, especially in places like California. And Elon Musk (and people like him) was sure his idea of an electric vehicle would one day be a winner.

At the beginning of this year, Bloomberg reported that: “Tesla smashed its previous record for global deliveries, putting a cap on the year where it joined the $1 trillion valuation club. The electric vehicle (EV) market leader's stock soared almost 50% in 2021, to give it a market valuation exceeding $1 trillion ­- one of only a handful of U.S.-based public companies to achieve that status.”

Capitalism is changing and climate change believers are making it happen. And it’s now being powered by billionaires, with the founder of clothing brand Patagonia transferring ownership of the company after nearly 50 years into two entities that will help fight the climate crisis. This business has been around since 1973 and its founder, Yvon Chouinard, said in a press release on Wednesday that “effective immediately, [his] family will transfer their entire ownership stake into two newly created entities. Those entities will ensure that the company's values will continue to be upheld — and that Patagonia’s profits are used to combat climate change.” (CNN)

The report went on to reveal this from the founder on Wednesday: “If we have any hope of a thriving planet 50 years from now, it demands all of us doing all we can with the resources we have. Instead of extracting value from nature and transforming it into wealth, we are using the wealth Patagonia creates to protect the source.”

This comes as two of our well-known billionaire entrepreneurs and public company founders — Atlassian’s Mike Cannon-Brookes and Fortescue’s Andrew “Twiggy” Forrest are throwing a lot of their wealth to find different ways to power their businesses and their profits which are greener and cleaner and will have a gradual impact on what we do to the planet.

Of course, these are still small steps and we need China and the US to commit to bigger reforms of business processes to have a big effect on climate, but this is a trend that businesses and investors can’t ignore.

If you were a cock-eyed optimist and believed in Elon Musk, you would’ve bought shares in Tesla at US$23 in 2017, which now would be worth US$303. If you put $10,000 into these shares at that time, then it would now be worth $150,000! That’s the payoff for being alert to the changing social trends, which always have economic and then stock price implications.

We’re seeing the prices of lithium stocks surge as more and more governments commit to killing off gas-guzzling petrol cars and they pass legislation climate bills as the Albanese Government did recently, which clears the way for a 43% reduction in emissions by the end of the decade.

And the billionaires are being joined by big super funds that are Australia’s biggest stock players. And these owners of stocks are telling Boards to get green or they will be out on their ear.

As Bob Dylan sang: “The times they are a-changin’”.

For investors, Bob’s words are useful guides to where your money might need to go:

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is rapidly fadin’
And the first one now
Will later be last
For the times they are a-changin’.

Following the actions of billionaires can be a useful tip, whether you believe them or not.

When I get a break from my usual routine in Australia and get a chance to holiday in places like the Peloponnese in Greece, where I am now, and where the daily routine is swimming and eating in wonderful beach-based tavernas, I actually read books.

Oh yes, I don’t get a total break, as you can see but that’s the occupational hazard of being Peter Switzer.

Call me over-exposed to money, business and success stories but I’ve long avoided escapist novels such the Da Vinci Code, which I loved when I read it years ago, but now I want to learn from legends.

And the legend I took with me on this Greek odyssey — or is it a geek odyssey? — was Elon Musk via the writings of US journalist, Ashlee Vance in his New York Times Best Seller, ELON MUSK: HOW THE BILLIONAIRE CEO OF SPACEX AND TESLA IS SHAPING OUR FUTURE.

Vance, like Walter Isaacson in his great book Steve Jobs, doesn’t try to teach people, like me, what these great business builders did to succeed, instead they tell a story and you have to draw out the lessons.

The characteristics of the likes of Musk and Jobs are often similar — unlike many of the Greeks at Grexit, they are workaholics. Both these two guys were headstrong and quite ruthless with people, especially those who were not as committed as them. They wanted to create something unique, purposeful and hugely successful and they were not afraid to take on huge rivals such as Microsoft and IBM, in the case of Jobs and the big car companies of the world and governments of the US and Russia when it came to rockets!

Did I say these guys were unique? And it was their drive to build the incredible that was a huge lesson in itself for anyone who wants to achieve something special.

The book on Musk is an important read for anyone trying to build an enduring business, but I think what you learn about him can be valuable for anyone wanting to be a successful wealth-builder in general.

Business-building and wealth-building actually can use the same building blocks and Musk certainly reminded me of something I learnt over the years, which now influences how I invest.

So, let me link what I’ve learnt from the brains behind Tesla. By the way, he was not the founder, but it would never have been the success it has become without this very odd South African-raised man, whose family actually hailed from Canada and the US.

History records that South Africa and its sporting madness did not suit the bookish Musk, who actually read every book in his school library and had to petition the librarian to get more books!

When that did not happen as he wanted, he turned to devouring the Encyclopaedia Britannica, and armed with his photographic memory he ended up very bright!

The Musk story was one of a very successful entrepreneur. He started the online business directory Zip2, which was sold to Compaq for $US307 million and that money rolled into X.com, which merged with rival PayPal leaving Elon as the major shareholder. When it was sold to eBay for $US1.5 billion, it was a big payday for Elon.

In fact, he’s had trouble with his business partners but he’s still made a lot of money with his net worth now at $263.7 billion, despite his hassles with his Twitter purchase and the slide in the price of bitcoin.

I suggest you learn this from Musk when it comes to money and investing:

1. Read all you can about what you want to invest in. You should read the likes of Warren Buffett and even the likes of yours truly, who will pass on lessons we’ve picked up over the years, after hanging out with legends.
2. Rigorously test out the potential of any investment.
3. Once you know it will work/succeed go in 24/7 with it.
4. Keep tabs on what’s happening in the company you are invested in and make decisions like you are the owner of the company because you are!
5. Be fanatically committed to your investments and be brutally objective about them. If you have to accept you have made a mistake, be wise enough to own it, cop your losses and then invest in a company that will win in the future — big time.
6. Invest in what consumers care about and spend money on and if it has a positive purpose for the community, it’s likely to be accepted and supported.
7. Take a professional approach to every investment in a company you are investing in and ask yourself these questions:
   - Is this a winning business?
   - Is it led by the right people?
   - Is it a business that the future will embrace, like the electric vehicle?

If you ask these questions, like Musk continually asked of his business and his team, then you will end up with a number of investments that will make you look like a real professional.

One last tip for you to assess yourself and your approach to investing. When Musk decided to invest in his rocket business — SpaceX — he read everything that had ever been written by credible rocket scientists and engineers, such that pros in famous rocket businesses such as Boeing and Lockheed Martin, were staggered at his knowledge.

That’s the standard a great investor should set for him- or herself, and it will ensure great returns of Tesla proportions down the track.

This chart proves my point.

Tesla (TLSA)

Learn from Elon Musk and even Steve Jobs and you could easily end up with returns like the ones shown on the chart above or the one below for Apple.

Apple Inc (AAPL)

The Jobs and Skills Summit starts today in Canberra and this is the first ‘fair dinkum’ test for the new Albanese Government. While there’ll be a lot of important observations made by unions, business leaders, employer groups and community-concerned stakeholders in the labour market, there’ll be a lot of baloney uttered as well. So the real test of the value of this talkfest will have to be what it does for productivity.

I know it sounds ‘boring’ to normal people (let’s call them employees) but to abnormal people (CEOs, managers and business owners), it’s crucial to profitability, so when they get it, it’s really exciting.

That means for employees, productivity really should be an exciting concept because it has to be the source of a more successful operation and potentially greater chances of better pay and promotion opportunities. You don’t have to be an economist to understand how important productivity is, and I’d argue unions have an interest in seeing that productivity gains are shared with employees.

That’s especially so if businesses are pocketing the productivity gains, but the information of productivity isn’t readily available. And it’s why I cringe when I hear union leaders, such as the intelligent Sally McManus, Secretary of the ACTU, say that the income going to profits at the expense of wages has to change.

Unions can’t generalise like that and expect employers to treat them with credibility. Clearly, as some industries boom, such as mining nowadays, there’d be a stronger case for employees to share in the gains, especially if productivity is helping this sector’s improved profitability.

On the other hand, industries and businesses that have been struggling through the pandemic lockdowns are hardly in a position to boost pay, but many are being forced to, without any improvement in productivity but they’re responding to a tight labour market because of an absence of foreign workers.

In other cases, such as the finance sector, some 10,000 financial planners have left the industry because of tougher qualification demands, meaning more study and a new tough exam that has made older advisers retire. This has led to higher wage demands from those still in the industry, without any increase in productivity.

And at the same time, ASIC, the regulator, has increased the regulatory demands that have slowed up productivity and loaded up costs, hitting profitability.

Other businesses have had to accept that employees want to work from home, which many employers argue is not only hurting their productivity, it’s loading up their costs.

One example of the new cost impost of this work-from-home trend is that cyber insurance to protect clients’ records is cheaper if all workers access records only from the office. When records go mobile to employees’ homes, coffee shops and so on, the risks rise and so do the insurance premiums.

One interesting development linked to this new trend of employees working from home was revealed by Stanford economist Nick Bloom on Bloomberg.com, who argues “remote work is fuelling economic growth”!

“Productivity was up 13% for the people working from home, which is a huge improvement,” his research found. “Of that 13% increase, about two-thirds was due to the fact they were working more minutes because they were late less, and took shorter lunch and toilet breaks. Then one-third was that they were more productive per minute.”

The Stanford study of 16,000 workers over nine months found that “the increase in performance was due to more calls per minute attributed to a quieter more convenient working environment and working more minutes per shift because of fewer breaks and sick days,” apollotechnical.com reported. “In this same study workers also reported improved work satisfaction, and attrition rates were cut by 50%.”

Another piece of research from ConnectSolutions came up with the following: “77% of those who work remotely at least a few times per month show increased productivity, with30% doing more work in less time and 24% doing more work in the same period of time.”

What’s interesting about all this research is that it’s the view of the employee on how productive they are. Many employers, anecdotally, have the opposite view but it’s still early days in this trend. Over the next two years, the impact on productivity from this work from home movement will be revealed.

“Elon Musk is the latest, demanding Tesla workers return to the office full-time or quit,” kk.tv.com reported in July this year. “Goldman Sachs is already back full-time, and 90% of JP Morgan’s staff is there at least three days a week.

“Their CEO Jamie Dimon said work from home ‘doesn’t work for those who want to hustle,’ a Reuters report revealed. And in New York, Mayor Eric Adams sent a memo telling city workers to get back to the office to re-energize the city’s economy.

That said, productivity could actually rise for many local businesses because of this trend, which has forced those operations to look at overseas workers working from their home countries. If employees insist on working remotely, employers might try foreign workers doing it remotely.

That innovation too will be tested over the next two years, to see if it provides the gifts of greater productivity, lower costs and higher profitability.

Treasurer Jim Chalmers has placed a lot of importance on productivity improvement before the election. This is what he has said: “Productivity has been flatlining on the Coalition’s watch. Labour productivity – output per hour worked – grew at around 2% a year from the 1970s to the early-2010s, but from 2014-15 to 2019-20, productivity grew at an average pace of just 0.5% – well below the historical average.

The decade ending in 2020 saw the slowest rate of growth in income per person of any decade in the post-war era. That’s true even if we exclude the COVID-19 pandemic.”

He then threw this in: “Poor productivity performance means a smaller economy, growing slower than it could be, and another decade of failed productivity targets would leave hardworking Australians worse off.

He then explained how we’ll get more productivity that will help workers get better wages this way: “To really get productivity moving we need investment in energy, technology, infrastructure and human capital - in people not politics. We need investment in infrastructure that will propel our economy forward, like cleaner and cheaper energy and an NBN that will underpin our digital economy.”

This is how we will have to assess the value of the Jobs and Skills Summit. Will it do what Jim says needs to be done?

Warnings are out for aspirational money-makers that a sophisticated mob of overseas scam merchants have been attracting investors to fake investment websites.

And the AFR says that after targeting unsuspecting investors in Britain, Europe and Canada, their new focus is Australia.

The masterminds behind these scams are luring investors in with promises that the products are stable, guaranteed and suitable for the weary investor/saver who fears the uncertainty of the stock market, generally.

Using Google Adwords, the cyber con artists have set up many dodgy financial websites that use the right kind of wording and terms to attract unsophisticated investors.

The Australian Financial Review has found a syndicate operating investment scams that have already worked their way through and are increasing its attention on Australia. The fraudsters manipulate Google results so scam investment opportunities appear prominently for search users.

“As of late last month, Google AdWords, the company’s paid search advertising platform, delivered several scam websites to users searching for terms such as Australian bonds, high-yield investments and fixed bond rates,” The AFR’s research team has revealed. “Those websites included AusBond-Trust, Au-Investor and Millennium Bonds. The websites are often fake comparison services where users hand over contact information, and act as lead generation for scammers to follow up by email and phone.”

Here are my tips to avoid these financial fraudsters:

1. If any deal sounds too good to be true, it probably is!
2. If you’ve never heard of the website, forget it.
3. If it’s a well-known bank name, don’t do anything online until you are sure it’s the real McCoy. One 2GB listener put hundreds of thousands of dollars into what he thought was a CBA fixed deposit product but it was a fake website that the CBA did not know about.
4. If the website/business is registered in Iceland’s capital, Reykjavik, avoid it like the plague.
5. If the trading name is London Choice Investments SL, then dump any idea of reading any further.
6. If it’s trying to flog anything that sounds like AusBondTrust, Au-Investor and Millennium Bonds, shut the site down.
7. And if the messages are asking you to sign up to work with stockbrokers from unknown businesses then suspect a rat!

These financial fraudsters are pretty smart, but if they ask you to hand over too much info and too much money, then whatever you do, don’t play ball.

One of Australia’s great business success stories, the franchise gym operation F45, is now being forensically examined by US law firms to see if there has been bad business behaviour explaining why the company’s share price and business prospects have tanked.

Since listing on the US stock market, the share price has been smashed by 88%, with the July trading update so bad that the fall in its stock price was 61%.

This gym junkies’ business, once seen as the best-of-breed fitness operation in the world, debuted on the market at US$16. It’s now US$1.82, explaining why lawyers are asking what has happened.

By the way, this business was then valued at US$2.1 billion but now, according to the AFR, is down to US$183.6 million.

The future of F45 was so promising that Hollywood actor Mark Wahlberg invested $450 million into the company in 2019 for 25% of the company. When it listed, Wahlberg made $200 million on his punt on this Aussie business. But that’s when its share price was US$17!

After planning to roll out 1,500 new franchises this year, F45 will instead aim for 350 to 450. Its forecasted revenue has dropped from $275 million to $130 million.

So what happened?

Some say taking the company public was a mistake. Many great private companies fail when the owners who drive a business are replaced by corporate employees.

Clearly, Covid lockdowns that bread emptier CBDs and people working from home would have played havoc with F45 gyms in office precincts. I bet many suburban F45s are doing OK with employees working from home, but the lockdown era did create home gyms in garages and spare rooms.

Also, there’s a big issue with franchising because owners of the overall group make money when they sell new franchises but these can eat into the business of existing franchisees.

Right now, co-founding CEO Adam Gilchrist (not the cricketer) has stepped down as chairman and CEO and has his home at Freshwater on the market for $14 million. The other co-founder, Robbie Deutsche, who sold out of the business in 2020 before it listed, is said to be devastated at what has happened to his once hugely successful business.

This sad story is a lesson for all investors in new businesses, with some of this country’s big investing groups losing out on F45.

The AFR revealed some big losers from this once strong but now unhealthy business: “Sydney-based hedge fund Caledonia invested $100 million in the fitness firm at a share price of $14.95. Meanwhile, Melbourne fund L1 Capital bought 1.1 million shares from major shareholder and actor Mark Wahlberg in April and told investors the 50 per cent fall was a major detractor in July, when its ASX listed fund fell 3.3 per cent.”

The whole story wasn’t helped by rising interest rates, which hurt growth companies like F45 and tech companies. Also, there has been serious recession talk in the US for months and that wouldn’t have helped this company.

What the big-name US law firms come up with should make interesting reading.

The big lesson for investors is to be wary of hype companies because their share price can fall even quicker than they rise. There’s an old saying that stocks go up by the stairs and go down via the elevator. F45’s US listing story followed that script, unfortunately, for a once great Aussie success story.

A big news story of the day has been the former NSW premier Gladys Berejiklian (who we didn’t want to lose) winning a prize contract for her new boss Optus and, interestingly, it was NSW government business.

This has raised the eyebrows of some scribes in the media. Undoubtedly Gladys’s old running mate, Digital Minister Victor Dominello, who took the Service NSW contract off Telstra to give it to Optus, will be ultimately scrutinized for fair play in the court of public opinion or even at a higher level.

This is Gladys’s first big win since leaving the top job in the NSW parliament. Many of the state’s electors saw her as a star premier. And for a long time during 2020 and 2021 when Covid lockdowns dominated Australia, there were many electors in Victoria and Queensland who wished they had their own Gladys to run their states.

Clearly, the once highly-regarded premier made two mistakes: she tolerated a partner and then did not make him fess up to his errors of judgement. But history will show she was a ripper of a premier and a politician who was, under most circumstances, a great role model.

This win for Gladys is also a coup for Kelly Bayer Rosmarin, the Optus chief executive, who came out of the CBA and was always seen as a woman who one day might lead the bank. It would be fair to say that she was in competition with Matt Comyn for the top job at the bank but when she lost out, making the move to Optus was a smart one.

I’ve interviewed Kelly in her former CBA days on my old Sky Business TV show and she was clearly a person going places. Her Gladys play proves that point.

It’s going to be interesting watching the success of female CEOs as they grow in number. It comes as the number of women winning seats in parliament and ministries in federal and state governments is growing significantly.

If you don’t believe me, check out the Teal independents who basically rocked Scott Morrison and the Coalition out of government.

In case you’ve forgotten, the successful Teal independent candidates were Zali Steggall, Kylea Tink, Sophie Scamps, Allegra Spender, Monique Ryan and Zoe Daniel.

Many of these were women who really should have been dominant forces within the Liberal Party. That became clear to me when I heard Allegra Spender speak after winning the seat of Wentworth.

Allegra was the daughter of Carla Zampatti (a great Aussie designer and entrepreneur) and her father John and grandfather Percy Spender were Liberal Party politicians in the House of Reps of this country.

How did she get away and become a teal? Dumb blokes running the Liberal Party!

Over the next decade, it’s going to be intriguing to see how women succeed in positions of power. Jacinda Ardern has made a big splash as New Zealand’s PM and she hasn’t been afraid to embrace big changes.

She’s recently said that “it’s not if but when” that the Kiwis could change their NZ name to Aotearoa, which is Maori for “land of the long white cloud”.

In business, we saw the success of former Fortescue CEO Elizabeth Gaines, who has been replaced by Julie Shuttleworth.

Fortescue Metals Group (FMG)

Gaines took over when the FMG share price was about $5 and before the Coronavirus crash, it was close to $28!

My experience with Christine Holgate when she was the CEO of Blackmores convinced me that women are much more accountable to their shareholders than many of the men who’ve been gifted top jobs.

Christine would show up for an interview when the news was good or bad, but under her stewardship at Blackmores, it was usually great!

I’m keen to see how EML Payments new CEO, Emma Shand performs. This is a potentially successful company but it has met more ‘bad luck’ or bad management than any business or shareholder should have to deal with. And this chart proves it with the share price oscillating from $1.11 in 2018 to $5.66 before the Coronavirus crash of the market to $5.70 by May 2021. It’s now $1.16, despite a lot of smart people telling us that this is a good company with bright prospects!

EML Payments (EML)

My experience with CEOs of many public companies says they’re often under-talented and over-promoted, so I’m glad to see some kick-arse women get some big wins on the board. And I also say, go Gladys!

The world’s financial markets are on US inflation watch, which will be released overnight, and our stock market will go up or down on Thursday because of this number. Unbeknown to many, inflation is an incredible life changer.

While parents and employers can sometimes complain about younger generations, history has shown that except for babies (who are the world’s most effective life-changers of a young couple ever!), there’s no better reality biter than inflation.

But I digress.

The ABC has looked at the impact of the rising cost of living and how it has intermixed with the impact of the post-pandemic-lockdown world and created a virtual army of Aussies with a side-hustle. We used to call these extra income activities on top of your full-time work, a part-time job or part-time business, but those were the days before creative US journalists came up with this new term.

Frankly, I like the side-hustle because it actually acknowledges the small-time entrepreneur who actually has gone into a small business, which could easily become the direct or even the indirect pathway to these side-hustlers actually creating great businesses.

Out of adversity can come opportunity, and inflation with its more expensive interest rates, rent, food and fuel whacks everyone’s hip pocket, forcing everyone ‘feeling the pinch’ to either cut back on spending or look for other ways to earn income.

According to the ABS, young people are the biggest side-hustlers out there because they are usually renters, have lower-paid jobs, have fewer savings and their inflation is generally bigger because of their lifestyle of going out, eating out and enjoying life as young people should.

“According to the ABS, just under 900,000 Australians were working more than one job in the December quarter — more than at any other time since the bureau started keeping such records in 1994,” the ABC’s James Purtill and Ellie Grounds revealed. “But not all age groups were affected equally — this rush to pick up extra work was by far the greatest among young people.”

The big spike in December 2021 was young people embracing the side-hustle after lockdown, as prices were increasing and the country’s employers were crying out for staff with about 500,000 foreign workers back home because of the pandemic’s lockdowns.

The ABS put the inflation hit into simple perspective, revealing that wages grew by 2.4% in the March quarter but we’ve seen rents rise by 10% over the past year and fruit and veggies prices rise by 6% in the June quarter alone.

It's good to see young people take on the challenges of inflation and the new world we all live in. Out of all this will come some great business owners and entrepreneurs, just like what happened after the inflation of the 1980s and the recession of 1990-91.

It was no fluke or coincidence that the legends of local business (i.e., John Symond of Aussie Home Loans and Mark Bouris of then Wizard Home Loans and now YBR) arrived offering homeowners an escape hatch from their relationships with the big banks.

That period of inflation and recession also spurred the growth of mortgage brokers, who also increased the pressure on banks to give their customers a fairer go.

And the take-up of the internet and computers became a huge opportunity that then encouraged many employees to become contractors, which also has become the first step in many individuals becoming business owners, employers and significant taxpayers!

There’s an old saying that “when the going gets tough, the tough get going” and the people getting off their butts and having a go at beating the threats of inflation will be the winners.

They’ll learn ‘stuff’ that will make them better at competing with others, and they’ll be forced to confront their weaknesses. Many smart ones will learn from this tough experience.

I know the inflation/recession experience in large part explains how we’ve grown our business. One of the great observations I’ve learnt over my years in business, is, as Jim Rohn put it: “Just about everything you want in life, is just outside your comfort zone.”

This inflation challenge is putting about 900,000 Aussies in such a position that they have to give up watching Netflix or footie on free-to-air channels, to do extra work. And a hell of a lot of them will be better for the experience.

Like babies, inflation is a life-changer. I’d recommend you be in the group who we call ‘tough’ and who 'get going' when life throws a few curve balls at you. Why? Because life will always toss curve balls and bouncers at you. It’s how you respond that will have a big impact on your success and happiness.

Tourism has been the fourth most important export industry for Australia and that mantle has been undermined by the Coronavirus, so we should welcome a new tourist attraction that opens its doors today in the shape of the Crown casino in Barangaroo. However, this comes when those leaving Australia vastly outnumber those who want to come here.

The Australian Bureau of Statistics (ABS) reports that incoming travellers to Australia are currently 80% lower than Aussies heading to overseas destinations, despite sky-high airfares and a lack of seats on planes. The ABS says 231,480 short-term tourists came here in May but 420,110 Aussies went the other way.

Those numbers aren’t being helped by our current political problem with Beijing, which recently got worse when Foreign Minister Penny Wong stuck it to China over their military exercises and missile launches following the visit to Taiwan by US Democrat Speaker Nancy Pelosi.

The Daily Mail said that Senator Wong, Japanese Foreign Minister Hayashi Yoshimasa, and US Secretary of State Antony Blinken met at an ASEAN foreign ministers’ meeting in Cambodia this week and gave it to Beijing. “They condemned the People's Republic of China’s launch of ballistic missiles, five of which the Japanese government reported landed in its exclusive economic zones, raising tension and destabilising the region,”  the newspaper’s Padraig Collins reported. “The secretary and the foreign ministers urged the People’s Republic of China to immediately cease the military exercises.”

Important as it is to get China to behave like a cooperative global citizen, this chastising of the Chinese leadership is no help in getting the 1.4 million Chinese tourists, who used to come here each year before the pandemic, back here holidaying. And for Crown, these people like a bit of gambling as well!

Sure, it will be a VIP-only casino, but I can see tourism operators creating the saloon passage package of hotel rooms, Sydney hot spots and a bit of time on the cards, the roulette table and other playthings of gamblers.

The new tourism attraction is now owned by US investment firm Blackstone, which paid $8.9 billion for the publicly listed company, majority-owned by James Packer. While Packer is no longer a shareholder, selling his stake for $3.3 billion, he intends to move himself and his family into his $60 million apartment in the Barangaroo tower.

Clearly, this is a good news story within a tourism sector that will take time to recover, with overseas travellers still discouraged by Covid concerns, the price of overseas plane tickets, seating availability and the perennial concern about how far away Australia is for non-intrepid travellers.

The Albanese Government certainly needs to ramp up its overseas marketing to get all manner of potential workers to Australia as soon as possible, because the economy is desperately short of employees. This will be a brake on economic growth and won’t help the Government reduce its budget deficit and debt.

Before the pandemic, tourism directly employed 666,000 Australians, making up 5% of Australia's workforce, and 44 cents of every tourism dollar was spent on regional destinations. As I pointed out above, tourism was Australia's fourth largest exporting industry, accounting for 8.2% of our export earnings so we need to move heaven and earth to get this country of ours back on the global travellers’ maps.

The size of the Australian workforce is about 13.5 million workers and it looks like millions of those employees and contractors could be put out of work by machines and automation. How long will it be before these Australians heading for the jobs scrapheap see their jobs cancelled? Try a decade!

This revelation comes at a time when lots of employees have the upper hand with their bosses, as a very tight job market meets a new age post-pandemic worker who wants to work from home and redefine their relationship with the workplace and their employers.

This has forced bosses to rethink their business models, which includes tapping employment resources (also known as people!) in places such as the Philippines and thinking about alternative ways to look after customers. And this is where technology, machines, automation and artificial intelligence are set to KO jobs.

The AFR has looked at research work from an unusually named company called Faethm by Pearson. Earlier this year, the AFR’s Therese Raft positioned the outfit this way: “Launched in 2017 in Sydney, Faethm is a software-as-a-service platform that uses 16 different forms of AIs and millions of data sources to understand the impact of new technologies on businesses across 21 industries and 26 countries in real-time.”

Faethm comes from old English and means fathom. The analytical grunt of this company has been directed at our workforce and businesses to fathom what lies ahead for jobs over the next 10 years.

Here are the jobs most at risk, with finance brokers likely to see 59% of their positions threatened by automation and other labour-replacing technology, while even road traffic controllers might kiss 24% of their jobs goodbye!

(For the full list, check out the AFR's article.)

Chief data scientist Dr Richard George says if the work you do is based on routine tasks, then your job’s in trouble. “If you’re sitting in an office pushing text around on a Word document, or entering data in an Excel spreadsheet, this is a job that’s already being highly automated. If you’re still doing that – these things will disappear quickly.”

I’ve always looked at these stories with suspicion, figuring that the companies in question were looking for publicity by coming up with scary stories about the future. However, the pandemic’s impact on the workplace and what employees want, will force a lot of bosses to think outside the box.

If there’s one word that has become part of the common language coming out of our struggles with the Coronavirus challenges, it has to be “pivot”.

Governments, central banks, employers and employees all pivoted to get through lockdowns, the lack of supplies and the disappearance of jobs and services. I forget who said it but one lark I interviewed in those days looked at the first long Melbourne lockdown, with businesses such as hairdressers closed down, and revealed: “There’s a very real danger that half-a-million blondes could disappear from the city within a few months!”

Since then, pandemic pivoting has not only been the requirement for businesses (say in the CBDs of our capital cities, who are missing the employees who used to go to offices), employees have innovated their working lives to accommodate their social/family lives.

That virus has infected what we once called ‘normal’ so the next phase will be pivoting by bosses, who will employ overseas, look at artificial intelligence solutions as well as technology-laden machinery, like driverless vehicles and automation.

This week we learnt Uber driver numbers hit a record high of 5 million, which might explain why in some places it’s nearly impossible to find a taxi. News stories say inflation has forced a lot of new drivers to get in their cars with an uber sign on the back window, but some of this trend would be workers making their new life out of the office, work.

We’re in what Alvin Toffler wrote about 52 years ago in his best seller Future Shock. In that book, Toffler said the following:

1. The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.

2. If you don't have a strategy, you're part of someone else's strategy.

3. Our technological powers increase, but the side effects and potential hazards also escalate.

Employers are coping with the post-pandemic threats, while many employees are enjoying a new world of employment. But this tech-threat of automation and AI will now be considered by more bosses than ever before and future shocks are out there waiting to happen.

Toffler predicted that the rapid change in technology would profoundly change the way people would interact with each other. That’s certainly one of the many predictions Alvin got absolutely right!

Regular readers know I try to be as realistically positive as possible but in my 30+ years of being in a serious business, I’ve never seen the threats to business success so numerous. And accounting software giant, Xero, with a window on millions of customers, says the business threats prevailing now means the number of small operators set to go broke will rise.

Piling the pressure onto business owners are spiking interest rates, the great resignation of workers, the work-from-home trend, a lack of overseas workers since the pandemic, rising wage rates, a blowout of the cost of imported products in the production process and, wait for it, a Tax Office that’s set to stop playing nicely.

One of the many commands from former Prime Minister Scott Morrison (as he navigated us through the shock of the pandemic-created lockdowns) was directed at the Tax Office and the banks to cut a lot of slack for borrowers and those with worrying debts until normalcy started coming down the pike.

Well, normalcy is making a comeback when it comes to going out to dinner, going to a footie match or even thinking about flying overseas. But as you can see, if you’ve tried to fly recently, it’s not quite business as usual, with endless queues making the experience close to insufferable, not to mention the price of the flight tickets. Even restaurants are staggering opening times because they can’t get staff.

Unfortunately for business owners, banks and the Tax Office are coming for you and the results could push up insolvency rates.

Andrew McKellar, CEO of the Australian Chamber of Commerce and Industry, said a resumption of normal debt collecting operations by banks and the Tax Office was also adding to cash-flow pressure. ‘‘The cost of living is getting more difficult, but also the cost of doing business is going up at the same time,’’ Mr McKellar said.

‘‘Banks and the Australian Tax Office are returning to normal in terms of their approach in administering outstanding debts, and that’s putting pressure on many businesses who have had some breathing space.’’

A look at the subject by Xero has found that “annual insolvencies during the COVID-19 pandemic sank to long-term lows, as a softening of the insolvency laws, extraordinary government support and stimulus took pressure off staffing costs and sparked a boom in goods consumption”.

But that was 2020. It’s 2022 now.

Businesses in administration and facing bankruptcy sank from 7,300 to 4,200 in 2020-21, thanks to accommodating banks and the nation’s tax collectors played their part as well. Businesses on death row crept up to near 5,000 in 2021-22, however, with inflation pushing up prices, interest rates on the rise and consumption slowing, on top of the labour market challenges prevailing right now, the number of businesses facing a forced closure because it’s time to pay up is on the rise.

‘‘We do expect in the next six months or so we will see business insolvencies and businesses going into administration – we’ll see those numbers pushing up. That is inevitable,’’ Mr McKellar said.

And the relentless rise of interest rates is keeping the negative pressure on many businesses, with the average small business variable just below 5%, according to data published by the Reserve Bank. But that’s an average — many business owners would be paying higher rates and they’re the ones really feeling the pressure right now, especially if your business misses workers now working from home!

Louise Southall, chief economist at Xero, warned many small businesses had never experienced anything like the current uncertain inflationary environment. ‘‘The 6.1 per cent year-on-year rise in the CPI in June shows that inflation continued to rise in the first half of the year,’’ Ms Southall said.

‘‘This is the highest inflation rate since the introduction of the GST, which means many small business owners have not had any experience in running their business in such an environment.’’

The RBA and Treasury think inflation will get to 7.75% this year. Xero thinks this will add pressure to the one in five small businesses that experience a cash flow crunch (where expenses exceed revenue) at least 50% of the year.

By late 2023, many economists are tipping interest rates will fall but that would be in the context of a slowing economy, which isn’t great for business.

There should be other pluses for business in 2023, such as these:

1. Rising immigration to help loosen the job market.

2. More foreign students and backpackers to also help employers find workers.

3. Inflation should be on the wane.

4. The cost of imports, including oil, should be a lot less.

5. Hopefully the Ukraine war will be over, which will help inflation, the cost of oil and other commodities, as well as the people of Ukraine.

Given the potential for a better kind of normalcy next year, the new PM and his Treasurer might need to counsel their ATO and the big banks to delay their hardball plays for the sake of getting businesses on safer ground to do business.

Go Albo!

When the AFR publishes it Top 50 Rich Bosses list, most people want to know two questions. The first is who’s on the list? And the second is what are they worth?

Many years ago I realised that the answers to these questions really don’t help me build wealth.

After building a business and being helped by roles in the media, where I interviewed the greats of business either in my role as editor at Australian Small Business magazine in the 1990s, to then being the small business editor at The Australian, and over that time being the first host of Talking Business for a decade on Qantas.

Of course, after that I spent more than a decade hosting Switzer on the Sky Business Channel. Over that time I learnt that you can learn from legends. Whether it be Mark Bouris and John Symond, building huge finance businesses such as Wizard and Aussie Home Loans or Warren Buffett, when it comes to understanding how to invest successfully, you can learn from legends.

And when you look at even the top 12 of the 50 bosses in the AFR’s list, you know we’re talking legendary leaders or legendary businesses.

I also love the top 12 part of the 50 list because three guys I taught came in at 9^th, 10^th and 11^th! Ninth was Afterpay founder, Anthony Eisen, 10^th was David Tudehope and 11^th was Aidan Tudehope, who started Macquarie Telecom.

More on them later.

Looking at the top three, you see the link to legends:

1. Andrew Forrest of Fortescue, with $20.048 billion.

2. Richard White of Wisetech Global with $4.732 billion.

3. Gerry Harvey of Harvey Norman, with $1.472 billion.

Forrest and Harvey are famous for building world class mining and retails businesses, while Richard White is lesser known to average Aussies, but his business is growing in stature over time.

Wisetech operates globally to provide software solutions for the international logistics industry, with offices in Australia & New Zealand, the Americas, Asia, Europe, Africa and the Middle East. White combined the technology of the Internet to the need for businesses to do logistics in a new world of global supply chains to create a business, whose share price chart looks like this:

Wisetech

The company’s share price has gone from $4 to $48 in six years, which shows you the kind of company you either want to build yourself or at least invest in!

The story of Anthony Eisen and his neighbour, Nick Molnar have been told many times but I love the fact that both Anthony and Nick were working late at night in their respective homes, both trying to come up with a great business concept. After chatting about what they were up to, both could see how they could create something like Afterpay, which was bought and rolled into the US company called Block, which also owns Square. (I taught Anthony at Sydney Grammar School, did private coaching with him on economics, and when I was teaching at UNSW, he was in one of my tutorials!)

The Tudehopes — David and Aidan — are less well-known but their business is legendary in the telco space.

Macquarie Telecom is an Australian cloud, data centre, government cyber security and telecom company, with offices in Sydney, Melbourne, Canberra, Brisbane and Perth. It owns and operates five data centres in Sydney and Canberra.

These guys built their business targeting Telstra’s neglected medium-to-big business customers and never played in the highly competitive retail or small business sector. They built this public company on the smell of an oily rag, with David explaining how he’d catch a Pioneer bus overnight to get to Melbourne for a morning meeting before taking a bus home!

Airline tickets were too expensive and there was no Internet or zoom links in those days.

As a group, these bosses are really impressive Aussies and should be hailed like we celebrate our great and legendary sports stars because they create jobs, pay big taxes, earn important export income and have a big influence on the people they work with. And it’s their exceptional talent and gutsy commitment that explains why they make a big contribution to the lives of many Australians, either directly by employing or providing ‘stuff’. And then there’s the indirect impact via the income they create, which is taxed to be used by governments to help others.

So why are these people so successful? Try these observations:

1. They’re focused.
2. They know their potential or actual customers.
3. They find a gap in the market.
4.  They cope with early failure.
5. They have self-belief.
6.  They hire great people.
7.  They SWOT themselves and their business, where SWOT means strengths, weaknesses, opportunities and threats.
8.  They have mentors.
9. They often have a plan for self-improvement to make sure they get better at what they’re doing.
10. They really want to win!

This quote from the great tennis player, Chris Evert, which explained her success, is what I think powers so many high achievers: “There were times deep down I wanted to win so badly I could actually will it to happen.”

If you want to win but you’re currently not, deep down think about how you actually want it. These people did, and look what happened.

P.S. I do have one question about this list and that’s: “Where’s Gina Rinehart?