Some comments - emailed to subscribers - 24th July, 2002

Well the bears are loose; they attack more savagely than bulls, unless you are with their trend. That is up for discussion next email, first some comments.

I had to chuckle about East Timor's recent attempt at defining its boundaries, and extending its borders the full 200 nautical miles offshore. Well wouldn't you? There is $30 billion worth of gas underneath. Some of you would remember how we followed the politics of this region thru the Petroz chart some years back. This time you could do the same with Woodside. Note the sideways move lately. Woodside is the operator of the 'Sunrise' project in the Timor Sea affected by East Timor's new claim. It needs to be sorted out so the issue of taxes, rents and royalties can be settled; how much and to whom.

Of course that is what it was all about, the play for rent, when Australia and Indonesia, in better days together, drew up the Timor Sea boundaries for themselves, then promptly overran East Timor. This, chasing the rent, what drives politics, economics, and the price of many listed companies as well. Once the fiscal terms are finalized, and treaties drawn up, Woodside can get down to business. There is a lot of promise in this field; which is why Shell wanted Woodside in the first place. So you have a company to watch long term. You know what to do on any break to the upside, which will occur way before the politics are public knowledge, as we saw via Petroz. The level of gas rents Woodside will eventually have to pay will help determine the share price in the long run too.

One thing I can say further; the guy that wrote the book "one up on wall street" (Lynch ?) made the observation that his best investments were often in vacant sites in the city where the oil/gas is pumped to. Why the vacant sites? This is where government build their monstrous bureaucracies to regulate the oil/gas businesses off shore. If the sunrise field is developed the way Phillips Petroleum want it (they bought Petroz by the way), the gas will be piped to Darwin. Shell would prefer an offshore floating platform.

Just something on the business cycle;
See how the turning involves business and investors paying ever escalating prices for government granted licenses and privileges, (this cycle spectrum assets, 1929 it was radio), bought with money lent to them by banks and investment companies, or sometimes thru share market capital raisings, then greed takes hold, or efforts have to be made to justify the high prices paid, which may require a bit of false accounting where necessary, and if it all takes place in an atmosphere where a lot of new market players are involved; first the bubble, then the reckoning. The capitalization of rent, and bank credit creation; a deadly cocktail. Be on the right side of the moves in the market here, and do not hold your losses. Banks and Wall street have always been complicit in what goes on; I believe now all my comments from old classes about such things are being borne out - some didn't like my comments at the time.

Two banks in the US have even been shown to have (allegedly) deliberately helped companies like Enron falsify their profit figures. It might surprise half of the US investors, but really, this is nothing new. Financial history books are resplendent with such stories. And remember, up until 1932, insider trading was legal, still is in some countries, and efforts to enrich insiders were plentiful. The years I spent learning accounting at Uni, and then even more years auditing business in the Chartered profession, taught me that despite the prevailing view of accounting as being a way to assess a company's performance, or its worth, it can also be a way for business managers to deliver a result that suits them, not investors.

Talking about rent; you are only seeing half the story of President Bush. I reckon he would have made a lot more money from his investment in the Texas Rangers, than his 'perfectly timed' (love to see a chart...) stock sale. By the way, the SEC Chairman at the time of the stock sale was Richard Breeden, appointed, as is US custom, by the incoming President. (Bush Senior). The SEC guy that would have made the call on action to investigate such stock sales was, in his former job, George W's personal lawyer (I kid you not), the same man who negotiated purchase of the Texas Rangers for Bush, so if you think anything is likely to change in the US this time around, I don't think so.

The scam goes like this, buy up poor sporting clubs, but especially their stadium, then use public ratepayer monies, sought with the help of a friendly local governor (helps if you are both governor, AND stadium owner) to improve the stadium, improve road access, develop the site, all with public money, then sell out - the stadium - at a profit having spent none of your own capital. Pretty neat eh. Ahhh America, land of the free, home of the brave. Like Kiyosaki says, most of us are seated inside the stadium, rather than being owner.

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