ACCC boss Rod Sims gets bolshy, does jobs growth mean higher wages and will the government crack down on industry super funds?

This week in The Money Café, John Durie and I discuss:

  • Rod Sims is getting “bolshy”. It seems to boil down to EastLink and WestConnex, but do toll roads actually compete with each other?
  • Jobs growth has rebounded, but when will it translate into higher wages? Dominos CEO Don Meij, now our highest paid CEO, isn’t complaining.
  • The government wants to crack down on industry super funds, but each year industry funds do better than retail funds.


Hello, I’m Alan Kohler, Publisher of The Constant Investor.

Hi, I’m John Durie, Columnist at The Australian.

And we are The Money Café.

The Money Café.

That voice you can hear is John Durie, as he said, Columnist at The Australian and he is talking to us this week in The Money Café because Kirby is in Limerick as we speak.

Yeah, lucky fellow.

Visiting his family, I don’t think he’s that lucky.  I haven’t been to Limerick but he’s glad to see his family but he doesn’t like Limerick too much, it sounds like it’s a good place to leave.  It’d be nice to be in Ireland anyway.

It would indeed, and they’re having a heatwave over there.

We’ve got tonnes of things to talk about this week as always and perhaps we can just start off with the ACCC, John, because that’s your special mastermind topic I think.  I just note that it seems to me that Rod Simms, the Chairman of the ACCC, is getting bolshy lately.

He is indeed.

What’s going on?

Next month he goes into his last year as ACCC boss and legend has it that in their last year ACCC bosses always get bolshy. 

Is that true?  You should know that, you’ve been watching them for years.

Yeah, I think the most famous case under Alan Fels when he was ACCC chief was he did a dawn raid on Caltex head office and he got all the staff to take out boxes from Caltex.

This is in his last year?

That’s right, and the boxes were meant to be full of incriminating documents but then it was discovered they were empty and it was all just a stunt for the TV cameras which didn’t look at all good so hopefully Rod Simms is looking better than that.

No pulling out empty boxes from people.

No, that’s right.

But I suppose one of the news items is that they’ve delayed the decision on Transurban’s acquisition or something or other.

This could be really pernicious because next Monday tenders close for the WestConnex Toll Road in Sydney which is an $18 billion deal so it’s big dollars involved.  The ACCC said look I’m sorry, we can’t make up our mind whether you can bid or not, we’ll tell you in September which is going to be too late, of course, for the…

They’re going to miss out?

Unless the New South Wales government can delay the tender by maybe they miss out altogether, yeah.

Devil’s advocate here, I reckon that toll roads don’t compete with each other.  The fact that Transurban owns City Link in Melbourne and WestConnex in Sydney is irrelevant, it seems to me, under competition law because you can’t actually decide not to ride on City Link and then I’m going to drive on WestConnex instead.

That’s part of what Transurban also says, our toll roads aren’t monopolies because you can ride on the road next door and that’s free.  As we’ve seen in Melbourne what they do is they put in proposals to government like they’re doing for the Westgate Bridge and they want to build a tunnel there and they’ll build the tunnel so long as they get a monopoly on the City Link out to the airport for another 10 years and that’s how they operate.  The idea is the bigger they are they bigger they get and the more control they have over governments.

Yeah, I guess that’s it.  That’s a matter for the government rather than the ACCC.

Arguably.  The ACCC is going to look at that and now we wait what the New South Wales government has to do.  The other decision was an interesting one because Rod Simms used the extraordinary analogy of Coles and Woolworths getting together which of course we know won’t happen, but the case in particular was a rail merger.  There’s what they call  intermodal which are the rail tracks which take in containers between Aurizon and Pacific National and the ACCC has taken legal action against that and also alleging that they did an agreement which was going to upset competition being that Aurizon agreed that they’d close their interstate container business leaving the game all to Pacific National so a very cosy deal all around.

Right, trains.

But the ACCC is trying to stop it.  Trains, that’s right.

There you go.  The only other thing I have to ask about the ACCC is Fairfax and News Corp have agreed to share their printing.

That’s right.

They should have done that years ago, wouldn’t you say?

Yeah, maybe if they did it years ago they wouldn’t have been allowed to do it.

But now nobody cares because nobody is reading the newspapers.

You might say that, Alan, but of course I wouldn’t agree with you.  You’re right, less people are reading newspapers today than they were 20 years ago.

No, they’re queuing up to read your column, John.

Of course, but maybe online too.

Indeed online, that’s exactly the point.

That’s right.

Of course, they’re listening to our podcast.

That’s right.

We’re speaking today on Thursday afternoon and we had the jobs data this morning.  50,900 jobs seasonally adjusted in June which is a very big number, bigger than we’ve seen all year so it was looking like in the first six months it seemed that jobs growth was quite down a lot from last year which was very strong last year and now it’s popped up for June so that’s pretty good.

It is good.  The economy is clearly ticking along very nicely.  It’s interesting, earlier this week we had people warning about there’s going to be a housing crisis and we’re worried about the Royal Commission and what impact that might have on banks lending on housing but then every time we got new economic figures coming out they seem to be positive and the economy is going along quite nicely.

The unemployment rate is down to 5.37 which is the lowest unemployment rate since 2012.

What we all want to know is when that’s going to translate into wage increases.

We do.

We do because the rule of thumb says that when unemployment gets lower, when the unemployment rate goes lower, then wages go up because employees need to attract wages but that’s simply not happening here, it’s not happening in America, it’s not happening in Europe and we’re all scratching our heads as to why.

I’m just trying to remember the last time I had any kind of wage increase, what about you?

It’s been a long time, Alan, but in your case, Alan, there’s plenty of jobs on the go so I think you’ll be okay.

But none of them have increased my wage.  I do all these jobs and they bloody well don’t give me a pay rise.

Well that’s unfortunate, that’s what’s happened.

News Corp are terribly stingy, very nice people of course.

Very fine employees, yeah.

Very good.  Speaking of wages we’ve got a survey or we’ve got some data on salaries, CEO salaries from the Council of Superannuation Investors, ACSI, and Don Mejj, Dominoes Pizza Enterprises, tops the list with $36.8 million realised pay in financial year 17, so that’s not the most recent financial year.  What do you reckon, is Don Mejj worth $36.8 million, John?

No, clearly not.  What came out of this survey, I think the most pernicious thing from this survey was executive bonuses and what’s happened is that one in three chief executives get paid nearly their maximum bonus every year.  The way bonuses were meant to work was that you got bonuses if you did something extraordinary or the company did extraordinary well but they’re just the same as take home pay now and executives are expecting to deliver on this.  I find the worst part about this is there is a big push on now to cut out long term bonuses because that’s something the executives have no control over what happens with their company in ten years’ time and instead they want it all loaded up into short term bonuses which are payable in shares.  That, of course, just plays into the executives’ hands because it just so happens that most of them get their short term bonuses.  It’s something boards have got to watch out for.

I’ve seen a few chairman and boards coming out saying that executive pay, CEO pay, has got too high.  There seems to be a bit of a backlash going on but we’re not yet seeing it translated into action, are we?

No, we’re only seeing it translated into action where there’s a change in Chief Executive and more often than not the replacement gets lower paid than the guy that went out before him.  The guy is an interesting point that I said, which was a slip of my tongue, but of the top 100 companies in Australia the survey showed there are only four female Chief Executives and in fact there are more people running ASX100 companies who are called Andrew than there are females.  How about that?

There you go, and I bet all the Andrews are paid more than the women.

They are, absolutely.  People like Andrew McKenzie from BHP and Andy Penn from Telstra who are all doing maybe not as well as they could but they’re paid well.

Elizabeth Gaines from Fortescue is getting paid quite a lot less than her predecessor, Nev Power.

Neville Power, that’s right, absolutely.  That’s the only thing keeping CEO’s salaries down, is that boards are at least willing to cut the pay for the incoming person.  Bonus is the big concern that ACSI…

Well it’s difficult for them to cut people’s pay once they’ve started because they’ve joined on one basis, a contract, and that’s been hard to change the rules as you’re going along.

I agree with you on fixed pay but the bonuses are what they don’t have to pay.

I know, but the thing is that they’ve all got hurdles in their contracts that they have to meet, presumably they meet the hurdles but the hurdles are too low, that’s what they’re saying.  Don Mejj’s hurdle is he doesn’t have to make enough pizzas, he’s obviously – he knows the hurdle is too low.

The figure you read out was realised pay and that measures his stock options and things.  If he has got a lot of options and the value of those goes up because the stock market goes up then his realised pay gets higher and that’s what’s happened to Don Mejj in his case.

Adelle Ferguson has been writing how they’re ripping off their franchisees.

Exactly, franchisees have big problems, exactly.

The other thing that happened recently, or today, is super fund returns for the year have come out, the average, I think, is 9.3%, top fund again is Host Plus, 12.5% for the year return which is a bit less than they made last year, the previous year was 13.7%.  It is interesting that Host Plus keeps winning.  Do you know them very well, David Elia and the rest of them, and Sam Sicilia, the CIO, the Chief Investment Officer?

I don’t know them well but this continues the trend of industry funds doing a lot better than so called retail funds and it’s something that’s sort of a political problem for the government because they want to crack down on industry funds yet the reality is that industry funds each year are doing much better than the retail funds.

They are, exactly.  It’s interesting, we need to get onto the questions in a moment but part of the reason – it possibly should be our BT Financial Group Mega Trend, which is something that – you’re looking at me puzzled, John.

I am.  We can get too technical about this but one concern some people have is that a lot of these industry funds, people like Australian Super which is now the biggest super fund in the country, over half of their money is managed in house.  Now a lot of that in house money is managed passively as in they’re just trying to match the index or at the very least very defensively and they don’t stray much from the index and so you’ve got to worry if we’ve got so much passive money running around the market just how efficient the market can be because we’ve got too much money that’s just following the index rather than making their own market calls which is what should happen.

David Elia says that part of the reason that Host Plus does so well is that they don’t give any money to index hugging fund managers. 

They say that, yeah, but what do they do with their own money?

They give it to active fund managers.

Yeah, well that’s good.

Half of their money, 47% of their money, is in unlisted investments, infrastructure and private equity, and so on.

Yeah. 

Let’s get onto the questions, John.  This is always the most exciting part of this because you never know what you’re going to get and people get cross at us and everything.  First question is from Tristan.  Is it time for markets to be open longer?  The time period is so short it’s hard to believe.  It’s ten to four, it’s always been ten to four, it was ten to four when I was a kid.

I remember they used to have a lunch time, we all used to go to that restaurant called The Joint just at the old Melbourne Stock Exchange there on Little Collins Street.

We used to go to the Mitre Tavern.

The Mitre Tavern, that’s right, they were the good old days.

We don’t have a lunch time any more.

No, that’s true.

I suppose to some extent, Tristan, markets are 24 hours these days.

They are, by the time we’re closing this afternoon everyone will be focussed on what the DOW futures are saying about where they’re going to run and then that translates into…

When the Australian market closes the European market opens and when they close the US market opens.  Fair enough, maybe they should open longer, Tristan, but you’ve got to get your trading done within those six hours.  William says I’m in my mid 20s and work full time, it’s difficult to know where to start with investing in shares.  What do you think is the best way for younger investors to learn more about the market, excluding your columns – well, don’t exclude our columns, William, come on.  What would the priorities be for younger investors?  What do you reckon, John?

I went to something yesterday where Matt Williams, who is a former Perpetual fund manager who is now at Magellan.  The sort of things Matt looks at are companies that are in good industries, so the industry dynamics are good and it’s growing, they’ve got strong cash flow because if you worry about financial accounts because companies can manipulate these and make merry whereas it’s pretty hard to fudge cash.  If you can see good cash coming in.  He also looks very closely at the management and just how strong the management is and how they’re controlled.  Then he also goes for brand names, so he likes companies like Qantas where it’s just got a strong market position.  There are a few tips.

William, if I can say I’m actually half way through doing a book on this very subject which will be out early in the new year, I’ve got to deliver it by September to the publisher.  It’s all systems go.

William, all your questions will be answered.

In the book.  Keep an eye out, William, for the book by me and the title of the book is going to be It’s Your Money.

It’s your money, that’s very true.

Not just Your Money.  Do you want to read the next question, John, from Jai?

Okay, Jai says hi guys, love the podcast.  I wanted to gauge your opinion on medical marijuana stocks.  With all the news on legalisation in different US states and countries including Canada there is slowly becoming developed economies with large markets to service.  Do you believe this investing in these types of companies will provide long term returns due to the fact that Marijuana will only become legislated in more countries over time?  Alan, what do you think?

I do think that.  I think that medical marijuana is here to stay and will be legalised.  I think that marijuana seems to be efficacious for a lot of things but the trouble with it is like a lot of new industries where there’s lots of excitement and people are getting carried away the place is infested with crooks and spivs.  It’s a bit hard to figure out which company is not crooks and spivs and which are.  It is difficult, it’s a bit of a shark pit at the moment.

It is.  It’s not a sector I know well but I was interested just on marijuana because a lot of people, of course, trumpet the health benefits.  There was a show on television on how to get fit and what sort of things you could fit, and one of the things people say is that when you go running a lot you get what’s called a runner’s high.  This was a look by doctors at what this medical high is and it in fact is the same effect you get from smoking marijuana but just in more limited quantities.  If you go jogging a lot you can get the same impact.

There’s not much danger of me getting that kind of high, John.

There you go, Alan.

I no longer get high on marijuana, in fact these days I just get high on life.

Very good.

Brett.  I used to run a website, now defunct, about how to use copy trading, i.e. eToro, ZuluTrade and many more.  We mentioned eToro which is a copy trading system or website, platform, something or other, which means you go into the website and you follow other traders, you copy what they do.  The website eToro allows you to do that.  Brett is saying that the traders you follow make money on every trade you copy from them if you win or lose so they don’t care how good the system is as long as it attracts more followers.  Every account I came across that looked to be good ended up blowing itself up and the people’s funds who were following them.  I think they may have recently added in a new system where traders only get paid if the account grows but there are still a lot of the older style systems out there.  A lot of traders would blow up an account and then come back the following week under a different name.  You would use the accounts with minimal funds so they lost a small amount but made a fortune from those following them.  Brett’s advice is to stay away from copy trading platforms as there is no way to verify that they are legit traders.  Many of the sites show the win loss ratio that does not take in the trades. 

That’s a warning for everybody thinking about copy trading websites from Brett, I pass that on with no comment.

Yeah.  I think it sounds like sound advice to me.

Graham says thanks for raising the regional bank rate issue in last week’s Money Café.

I think he does raise a good point because last week of course we had Bendigo put their rates up and it really is just a question of time before the major banks put theirs.  I don’t know whether you’d agree with that, Alan.

Yeah, wholesale rates are going up, that’s right.

Yeah, I think the reality is it is going to be harder for home buyers as we said before because we’re not getting more money in our wages either.

That’s right.  Fraser’s main point, if I can move along, is a recent podcast you made assertions that investor lending has fallen substantially.  You may be right but watching Martin North’s podcast from Digital Analytics I suspect you two are dead wrong.  Martin North stated that mortgages are still growing at 8% a year whereas wages are growing at 2%.  What we were talking about, Fraser, just to be clear was we were saying that investor lending has fallen and is something approaching flat but owner occupied lending is still rising, I don’t know about 8% but it’s still 5% or more than 5%.

I think the last figures from the RBA said it was either 4.5% or 4.8%.

In total?

Yeah, in total.

Right.

It was, I think, 2% for investor and I think you’re right, about 8% for owner/occupiers.

Yeah, so Fraser goes on; be very careful painting a rosy picture of a situation where debt around the world has skyrocketed since the GFC.  You are both dodgy brothers if you don’t spell out the dire situation.  Okay, Fraser, whatever you say.

The good news there, Fraser, is that I was talking with National Bank this week and they’re actually predicting that home loans will still continue to be a positive trend but right now they’ve got business lending running at 3.8% and they reckon by this time next year business lending will be higher than home rate lending in terms of the increase which is very bullish for the economy, I would have thought, if we were going to have more business lending.

Very good, it is, you’re right.  Matthew is actually correcting us here so I’ll just read this out.  Matthew says just listening to today’s episode, while I know you don’t offer advice it’s still extremely disappointing to hear you give incorrect information in the podcast.  Today it was said that using Raiz increases your credit card balance, this is absolutely untrue.  Deposits and roundups are funded from a bank account not a credit card, I have no affiliation with Raiz.  Okay, Matthew, I did think it was on the credit card but obviously I’m wrong.  Dave is nodding his head saying I’m wrong.  Who uses their EFTPOS anymore anyway, fair dinkum.  If it’s not off your credit card then that’s what I thought because everyone is using the credit card now with Pay Wave.  You can’t actually Pay Wave EFTPOS off your bank account, can you?

Yeah, you can.

You can?

Yeah.

Who knew.  Okay, you can read the last one, John.

This is from Daniel.  Hi guys, thanks for the podcast.  Just wondering if you have general thoughts on FGG and FGX as 7 to 10 year buy and hold shares for a reasonable component of your portfolio.  Forgetting the charity component for a moment as a fund of funds the managers’ support seem relatively active.  Most of the index unaware and invest in a combination of stocks not overly concentrated on top 50 which I like.  Additionally, only 1% fees which go to charity.  Additionally, the managers include Bennelong, WAM, MUNGO, Magellan and L1 Capital.  It would be great if they had a Montgomery as well but all very reputable managers.

So, FGG and FGX stands for Future Generations, Domestic and Global, to LICs, right?  Future Generations, and they’re great, I really like them because Geoff Wilson of WAM set them up and what he did was he persuaded a whole lot of fund managers to provide their expertise and their management for nothing in return for the fee of 1% in FGG and FGX, the fee goes to a charity.  You can choose the charity off a list.  The other thing is that they’re really good performers.  It is true, as you say, Daniel, that the managers are terrific and I agree that it’d be good to have Montgomery as well but the managers they’ve chosen are great.  Their performance – I can’t remember exactly what it is but you can find it easily off their website, Future Generations, and as a long term investment I think they are really good.

Yeah, I couldn’t dispute any of that.

Very good.  That’s where we’ll leave it there today, John.  Thanks very much for filling in for JK.

Okay, thank you.

It’s been a pleasure to have you here in The Money Café.

Thank you very much for having me, thank you.

Don’t forget you can subscribe to The Money Café on Apple Podcasts or your app of choice and while you’re there it’s helpful to leave a review or a rating because it helps listeners find the show.  Send in a question if you want and we’ll answer it, as we’ve just been doing, on next week’s episode. E-mail us on hello@theconstantinvestor.com and my daughter, Phoebe, will pass it on.  Until next week, I’m Alan Kohler, Publisher of The Constant Investor.

I’m John Durie, and we’ll talk to you soon.