Bitcoin spivs go marching in. Why Jessica Rudd is a daigou queen. Could Chinese tourists replace coal mines?

This week James Kirby and I discuss:
  • Does amazon = the end of Aussie malls?
  • The bitcoin spivs go marching in.
  • What’s the other use of bitcoin?
  • Jessica Rudd: Daigou Queen par excellence.
  • Only 5% of China has a passport. Australia’s market share of Chinese tourism is only 1%.

Hello, I am James Kirby, Wealth Editor at The Australian. 

And I’m Alan Kohler, publisher of The Constant Investor.

And we are the Money Café.

The Money Café.

Well, Alan, it’s a great week in many ways, a historic vote, of course, a national vote just yesterday on the yes campaign.

And you came up with a wealth angle.

I did, I did come up with the wealth angle, yes, which was quite elaborate.

Quite a feat, what was it again?

Something about construction, but nonetheless…

It wasn’t even the wedding boom that’s going to happen with flowers and cakes.

No, it wasn’t the wedding boom, no, that was too obvious.  It was that in if in the courts the ultimate proof of a relationship is marriage and that was a proof not available to same sex couples and it will be available now.  So, when there’s a row over a deceased estate – and there’s actually precedents in the courts.  Actually, an important development in the dizzyingly exciting world of estate planning.

Well done, Jimmy.

Thank you, you’re welcome.  Now, in the much more exciting world of retail it was also a big week because a long time ago, Monday morning, Amazon kind of for the first time really stood out in public in Australia and said a few things, didn’t they?  They sort of revealed their colours.

Well they had a summit and the summit was in association with the Australian Retailers Association and the SME Business Association and I think it was interesting that they did that because the fact that it was in association with the SMEs indicates that it was about small business and it was about the thing called the Amazon Marketplace which is where they rent their website and their warehouse space and their fulfilment system to other manufacturers, to sell directly to people.

So, this is how you as a producer of something get your gear onto Amazon, and how to do it.

Yeah, and so to some extent it’s a bit like eBay where you can just sell your stuff via Amazon and virtually it’s open to anybody who is an Amazon customer, can sell their stuff, and then you can go through various levels of association with Amazon and get them to fulfil your orders and so on.  But it’s interesting because the Amazon Marketplace has recently, this year, a few months ago, become larger than Amazon’s own products.

That is its turnover.

Yeah, the turnover of the Amazon Marketplace is larger now than Amazon’s own products.  It’s clearly an important part of what they’re doing in Australia because that’s really the first public event they’ve held which is a summit for SMEs.

So, are we going to see Australian Amazon this year, inside this year before the end of this year?

They still haven’t put a date on it, I don’t know, I mean they’ve got their thing in Dandenong, their fulfilment centre or whatever it is, their distribution centre, it’s clearly ready to go but if it’s not this year before Christmas it’ll be early next year.

Yeah, and so are you saying that the big impact perhaps in reality not so much – we all know there’s trouble, right, for David Jones and there’s trouble for Woolworths.  Are you saying the opportunity might be for the smaller guys?

Huge, I think.  It’s a big opportunity for the smaller guys and it’s interesting as to – I mean what happened in the US is that it had a devastating effect on small shopping centres.

Shopping strips as we know them, is it?

No, shopping malls.  So far the only shopping malls that are surviving are the premium ones, the big high quality shopping malls, the smaller ones in regional places, they’re all closing down because they’re just not surviving, people aren’t going to them.  People only go to those shopping malls to buy stuff.  I interviewed the CEO of Scentre Group this week, Peter Allen, who…

Which is a shopping centre mall property trust.

Company – well, it owns all of the Westfield shopping centres.  He reckons he’s going to be okay because people are still going to go to them.  What they’re seeing in their figures is a big increase in food consumption at the shopping centres and a decline in department store turnover.  Myer and David Jones are all heading south and that’s being replaced so far by food courts.

Okay, that’s interesting, and you have to think that that may repeat itself here.

And what they won’t be doing probably is at this point selling stuff for Bitcoins.

No, or accepting them, but who knows, Alan, who knows where it’s going?

You’ve been looking at Bitcoin this week, you’ve been looking at some Bitcoin marketing stuff this week.

Well, we’re both looking at them, yeah.  I have.  Well look, I wanted to actually…

And I want to know what you’ve been reading.

Well, what’s fascinating is not – I mean most people know about Bitcoin but what intrigues me is how come so many people are interested in it, how come so many people are actually engaged in buying and selling Bitcoin and playing in the space, if you like.  One of the things I’m starting to look at is the sort of – there’s no better word for this than sort of marketing material that’s going around and it’s going around through Facebook, it’s going around through Twitter on sponsored posts and it’s getting to people.  The number of people who have talked to me about Bitcoin it’s amazing, and more people are talking to me about Bitcoin than shares for instance.  Here’s two slices, if you like, of marketing.  One is from a group called [IRR 0:05:35.8] Finance and they’re putting stuff through Twitter, and it says Richard Branson, Bill Gates and Warren Buffett, among other billionaire moguls, have all agreed Bitcoin is not already huge, it’s going to get way bigger.  Then it says in another four years a single Bitcoin – now remember, a Bitcoin is worth about $7,000 at the moment…

US.

  1. In another four years a Bitcoin will be worth – he says that as a fact – will be worth between $100,000 and $1 million and in 10 years it could be worth up to $10 million and it will make thousands of new millionaires. Here’s the killer line; you can turn $50 into a fortune.  People love to see that sort of thing, Alan, and that’s the sort of stuff that’s going around and that’s what’s drawing people in to Bitcoin.  Now, the other thing I saw during the week which is almost as good but on a more sophisticated basis for the sort of sophisticated investor.  It comes from another operation who have been pushing about valuation.  They say that the old valuation techniques are wrong and they basically don’t work anymore.  This is a group called Dentacoin.  They say that these techniques will give you a wrong idea about the true value.  When was the last time you heard that the old valuation models no longer work?

Well, they certainly don’t work with Bitcoin because the way that you value an asset is by bringing the future cash flows back to a net present value, right.

Sure.

Well Bitcoin has no future cash flows.

I know, so when was the last time you remember that sort of thing going on where people were so…

Valuation models?

Yeah.

That was 1999.

It was, the dot.com.  Here we go again.  I mean it’s a game of pass the parcel.  No one knows about cryptocurrency, of course it could be wonderful, blockchain could be wonderful, but what’s going on with Bitcoin right now is wild speculation.

It is mostly, yeah.

Yeah, and it’s fun if you see it as fun but people are going to lose some money.

There is an ASX listed company that is a Bitcoin cryptocurrency business called Digital X, and I spoke to the CEO this week named Lee Travers.  He says Bitcoin is basically like gold, it’s a store of value.  The thing about gold is that it is priced at $1,600 an ounce now but it also has no cash flow, there’s no way of valuing gold.

Sure, but you know what you can do, you can put it in a vault.

Yeah that’s right.

You can bury it in your back garden.

No, but the point he is making which is interesting – as a store of value Bitcoins are much easier to store, you don’t have to have a vault.

That’s okay, I’ll have a vault, I’ll pay for the vault.

And you don’t have to lug them around, they’re easy to carry around.

That’s alright as well, don’t worry about that.  That is the most unconvincing argument…

I can see you’re not convinced, James.

Well no, but it’s interesting to hear what these guys were saying.

Yeah that’s right, it is.

Okay, so what are they called again?

Digital X is the company.  Now, their main business model is advising companies about doing Initial Coin Offerings.

Yeah.

Which a lot of people are doing now, they’re issuing new coins, right.

Yeah, Initial Coin Offerings.  The dot.coms of our time, yeah.

I can see you’re bored with this, you don’t want to talk about this anymore. 

No I’m not bored, I’m intrigued but…

I can see where we sort of – what are we, ten minutes into our little session and we’ve got to move on.

I am worried.

I mean we could talk about Bitcoins all day.

We could, and you know what, I bet you there’s lots of people who want us to talk about it because they want to make money from it.

One thing I want to say about Bitcoins to finish with is that I’ve been thinking about this analogy with gold, right, because the thing about gold is it’s a store of value, you put it in a vault and all that stuff.  But, it’s also got another use which is that you can put it on, you can wear it, right.

Yeah, you can.

Also, it’s used in dentistry and electronics to some extent but it’s got other uses as well as a store of value.  Think about if there is a genuine analogy with gold here what’s the other use of Bitcoin and the answer is ideology.  Yes, it’s mostly or partly a game of pass the parcel speculation, which everyone is on board with, but there’s also an element in it of people believing that the fiat money system is coming to an end or should come to an end, or that you want to show or you want to be a part of the digital future, you want to be cool, right.  People are investing in Bitcoins also both to express their views about fiat money, the money system, and also to express their wanting to be cool digitally.  There is this adornment aspect.

Adornment, I get it, there’s the link, adornment, yes I see.

Gold is an adornment.

Yes.

And Bitcoin is a kind of an adornment as well, so people are buying it for that reason.  I just would throw that out there for you.

And they’re buying it for the gamble that they might double their money.

No, I’m acknowledging that, of course.  It is a speculation.

Well, everyone loves a bit of speculation.  Talking about the ASX there was a bunch called – there’s several of these, by the way folks, ASX listed Bitcoin or cryptocurrency linked stocks.  One is called Byte Power and it had a speeding ticket a few days ago on the ASX, you know why?  Because their share price went up tenfold last Friday.

Tenfold last Friday?

Tenfold last Friday, and they had to explain why they went from 0.1 to 1 cent.

I’d be interested to read their explanation.  I’m going to go and have a look at that.

So would I.

Byte Fold you reckon?

Byte Power.

Byte Power, sorry, not Byte Fold but tenfold and Byte Power.

A micro-cap.

Okay, you got that everybody out there, folks.

There you are, now you’ve been told.  Also, we have Chinese tourism and we mentioned daigous a few weeks ago, the business of taking infant formula to China in a suitcase but…

Apparently, Jessica Rudd is a daigou queen.

Jessica Rudd, Kevin Rudd’s daughter, is a daigou queen and she has got an operation called…

Daigou queen goes together.

Yeah, is there any daigou kings?

if you’re a woman and you’re involved in daigous you’re a daigou queen.

So, the Daigou queen, par excellence, is Kevin Rudd’s daughter, Jessica, who has an operation called Jessica’s Suitcase.  She is not beating around the bush on what the business is, it’s literally taking stuff into China.

Suitcases.

Yeah, suitcases full of infant powder.

Full of infant powder.

Yeah, it’s called Jessica’s Suitcase.  But, she is so influential in her sphere that this morning the AACo.

Australian Agricultural Company.

Australian Agricultural Company, which is the beef company basically, appointed her a director for her connections in Chinese social media and daigou circles.

Well they’ve had a bad week because they came out with a shocking profit result the other day and the shares fell 10%.  They’ve got to do something.

They have to do something and that’s one of the things they’re doing.  It’s interesting, isn’t it, this whole interaction with China.  You were doing some work on China tourism, were you?

Well it’s just, look, I was staggered the other day because I was talking to Paul Bloxham, who’s the economist at HSBC, and he tells me that – and probably everyone knows this, I didn’t know it, that Chinese tourists are now the largest cohort of tourists in Australia overtaking New Zealand, right.

Yes.

5% of Chinese population has a passport, 5%.

Right.

60% of Australia’s population has a passport.

Yeah, so our biggest tourist group comes from 5% of China.

No, well Australia’s market share of the Chinese people who travel is 1%.

Of the Chinese people with a passport?

Of the Chinese people who travel – I mean it’s actually probably less than those who have a passport – of the Chinese people who get out we get 1% and they’re now our largest number of tourists.  You think heavens above.  Paul reckons the number of people who travel in China is probably going to 10%, maybe 20%, and our market share is going to go to 2% maybe.

Which would be incredible by our standards.

Which will be incredible.

And there won’t be enough hotels and we have no idea what’s coming, because if you go to, Hong Kong is worth seeing actually…

It’s a tsunami.

Yeah.  But, something that investors will have an eye on – you think about the Mantra Group being sold recently.

The important thing to know about to discuss about this in my view is that our relationship with China since 2000, over the last couple of decades has been about raw materials, iron ore and coal mainly, and it’s all been about large companies, BHP, Rio Tinto, Glencore, all these big companies which are partly foreign owned and so on.  Tourism is about small companies, it’s all about hotels, cafes, souvenir shops spread throughout the country.  It isn’t just WA and Queensland it’s everywhere.

You reckon it could be a healthier relationship?

There are so many more jobs involved in tourism.

Yeah, there’s more jobs, yes.

Than mining.  Mining involves almost no jobs, tonnes of money and they pay lots of royalties and tax and everything, but tourism is about jobs.  I actually think that it’s already leading to a decline in Australian unemployment which we saw employment figures out this morning.

I saw that, but that’s the participation rate going up, is there any evidence it’s going into tourism?  I haven’t looked.

Well no, there’s no real – I mean as far as I’ve seen there’s no way of really knowing, it spreads everywhere, all sorts of businesses, small businesses benefit from Chinese tourism.

It’s one of those things that’s really frustrating because as an investor you knew exactly how to play the China commodity boom, it was very simple.  It was BHP, Rio, Fortescue and a whole bunch of junior miners.  But in tourism it’s not as obvious.  Now, I’m not saying it’s impossible but I’m just thinking…

Well there’s not many listed companies.

There’s not many, there’s only three or four hotel groups, one of which is just gone.  That was Mantra which was bought by Accor and then you’re into little marginal games like Dreamworld or the casino or whatever, but there’s probably going to be a lot more to come.

Also the domestic airlines, Qantas and Virgin, will be beneficiaries because they…

Sydney Airport.

And Sydney Airport, that’s right, because they come here and they go elsewhere.

Yeah.

So, look, I think it’s a big deal, this.

Yeah it is, it’s under our nose if you know what I mean.  If you think of Bloxham’s figures even the smallest natural increase, incremental increase from a China point of view, means that…

I think we should rightly call this our BT Mega Trend.

Absolutely, this week’s Mega Trend is China tourism.

I think it deserves two megas.  So, the Mega Mega trend.

Maybe we should call for some questions on it because we’re looking actually for lines of inquiry here and maybe it’s something we can come back to.  Before we go to the questions actually, Alan, let’s have a look at one of two other things quickly that happened around the traps during the week.

Well, you’ve got a thing here on your list.

BHP, yes.

BHP, miserable and for Santos, BHP, environmental games, what does that mean?

Well, Santos was almost taken over it turns out and there was a passing bid by ex-Shell people who were going to bid around $5 or so for Santos and this was seen as a great thing.  It didn’t happen as it turns out.

I thought the story this morning was that it is going to happen.

I think it was rebuffed, I’ve just seen – literally this is before I walked out the door there was stories coming in that it was rebuffed at that time.

Oh.

Yeah.  But, Santos anyway was $12 back in 2007.  Santos is just a miserable story, it’s like one of those companies that’s just a perennial disappointment.

It’s been turned around.

Let’s see if it’s being turned around.

I’m on board, mate.

Well, you may be on board but it’s interesting because you’ve got to think if it wasn’t turning around they would have accepted an offer because if you don’t accept a decent offer which was a 20% premium you’re in big trouble these days.

No, because they reckon that they’re going to do better, obviously.  If they hadn’t turned it around they’d accept the offer.

Perhaps.  Perhaps they would.

They’re confident.

Yes, well I tell you Santos is one of those companies where it’s been so disappointing so many times in so many ways that I’d be very slow to believe a turnaround, I’d have to see strong numbers, Alan.

I did a long interview with the CEO this week.

Of Santos, yes.

Mark Gallagher.

And guess what, he said everything is fine and we’re turning around.

Yeah, would you believe it?  Can you believe it, the CEO said that everything is great.

Actually, let’s be fair.  What we’ll do is we’ll briefly look at Elders where the CEO also says things are great but he has numbers on the board, doesn’t he?

Well, sure, I mean…

What’s his name, the CEO of Elders?

I think his name is Mark Allison, I just got him mixed up with the other guy.  I speak to so many CEOs now they’re all merging into one, I can’t remember their names.

They’re all merging into one, very bullish…

I’m doing a CEO a day at the moment, I don’t know who’s who, whether they’re Arthur or Martha.

Tell us about Elders.  Most people think of Elders as sort of the struggling rural franchise.

But it’s not.  This bloke, Mark Allison, took it over – I’m sure that’s his name – he took it over in 2014 as CEO.  He had been a non-executive director.

And it was on its knees, wasn’t it?  It was absolutely…

The share price was 80 cents.  It was burdened with debt, it was going nowhere, so what he’s done is he’s sold a whole lot of businesses, he’s brought it down to a pure rural business, they had all this other rubbish in there.  He’s got rid of it, he’s got the debt down, the share price is now $6 if you don’t mind, in two years it’s gone up sixfold – no, three years.

That’s very impressive.

But it’s really impressive, and it’s now more or less another China play.

An agri China play.

Well, so much of Australian agriculture is now focussed on China evidenced by AACo putting Jessica Rudd on the board today.

There you go, nicely looped there, Alan.

Nice segue there, you like that?

Very nice.  Okay, let’s have a look at the questions.

Questions.  Now, I should ask you the question because I’ve got no idea about this one.

Okay.

Well, maybe I do but anyway there’s a fascinating article.  Alan says, not me another Alan, there is a fascinating article recently released by Matt Barry, CEO of Freelancer, called House of Cards, Australia’s Economy is a House of Cards.  Conscious this piece is very much in the glass half empty camp, or more correctly the glass is totally empty he reckons, what’s your reaction to that?

Yes.  Well, just to let people know.  Matt Barry is CEO of Freelancer.  Freelancer is a company of course that came on about three years ago with a big hullabaloo about how it was going to be this innovative wonderful company, and it had Paul Basset of Seek in there and all these star investors came on at 50 cents three or four years ago, and today it’s valued at 53 cents.  It’s actually been going nowhere.

Massive increase of 3 cents.

Yeah, so not one of our star stocks.  Anyway, Matt Barry has a high profile of course and he has out doing this gigantic – I would say at a glance a 10,000 word article about all that’s wrong with Australia.

Who published it?

It’s on Medium, you know…

It wasn’t The Australian, that’s for sure, 10,000 words.

No.  In fact they’re pushing it, they’re pushing it at all the media sources to cover it.  It’s on Medium, you know Medium which is the website?

Medium, yeah.

And look, to super-abbreviate what Matt Barry says in this piece he just basically does a big long rant about how Australia is in big trouble, that we’re too dependent on commodities, education standards are poor, we’re not innovative, we all depend on rising property prices, it’s just this big long shopping list of all the things that are wrong with Australia.  It’s fine as far is it goes, if you want an extremely negative reading of the situation have a look at the article.  I don’t know why – I’m intrigued why Matt Barry is doing this more than anything.  Why would a CEO of a listed company, which is struggling to lift its share price, take time out to do a manifesto?

Yeah, well I don’t know, why would he?

Maybe because he has other things on his mind.

He’s going to stand for parliament?

Well there was an interesting Four Corners a few weeks ago where this guy was a disgruntled ex-employee of Freelancer and he says in the show that Barry has political ambitions.

I see.

So, Alan – that is Alan the questioner – it is a fascinating article, it’s extremely bleak.

Maybe you should do what Mark Zuckerberg has done which is a finding out tour of – you know, Zuckerberg has been travelling around America listening, he’s been on a listening tour.

Just like a president, yeah.

And he’s come back worried about the opioid epidemic in America.  Well, maybe Matt should do the same thing, go around and find out, and come back worried about the ice epidemic and he’d have that to add to his woes.

So there you are, Alan, that’s our answer.  It’s more intrigue, it’s not original thought from Matt Barry, it’s extremely negative and not loaded but biased, I would say, towards the negative.  We don’t really know why he did it.  The other question, which is a carryover from last week, Alan, and we have a question from David who asked this earnest question which we had no ability to answer whatsoever.  It says, “I’m a huge fan of the podcast, I work at an insolvency firm.  There’s a lot of anticipated changes surrounding law reforms, safe harbour for directors.  What effect on business do you think these changes will have?”  Well I went and checked out…

You did your homework, did you?

I did, I did some homework.  Safe harbour for directors, well it’s a little clause.  You know recently where under the Corporations Act all the directors were worried they were going to be extremely liable if things went wrong and a company was insolvent, especially if it was trading when insolvent, that they were personally liable.  Well there’s a carve out of that legislation, that’s the safe harbour for directors.  What it means briefly is that insolvency practitioners, by my reading of it anyway, David, they get pushed to the side basically.  The way it works is that a company can carry on longer and the directors can try harder to take it out of trouble before they call in the insolvency practitioners.  So, at the very least I think what it means for insolvency practitioners is they will be less in demand and they will be later in the process than previous.  That’s about it, let’s have some more questions.

Well done, James, I think that’s great.  I think David, who works at a large insolvency firm, should have asked his boss.

Well he might want to know without asking his boss, that would be a smart career move I expect.  Thank you, David.

So, thanks to you, James, he can tell his boss.

Yes, exactly, and let’s have some more questions next week on any subject you like.  Alright, look we’d better leave it there for today, Alan.  Don’t forget you can subscribe to The Money Café on Apple Podcast or your app of choice.  While you’re there it’s super helpful if you could leave a review or a rating, it does help listeners find the show.  Send in a question, we’ll answer it of course, and the address is hello@theconstantinvestor.com.  Okay, until next week I am James Kirby, Wealth Editor at The Australian.

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

Thank you and talk to you next week.