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Simon Bond
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About Simon Bond

Simon is 48 years of age and has been in the investment world almost all his life.

His father Bruce Bond was a pioneer in the world of personal financial advice and appeared as a regular in a large number of publications and the electronic media over a number of decades. His success and following gave rise to many of the financial journalists that are now heard around the nation on so many different programs and various formats.

Bruce was a trusted and respected member of the investment community and Simon has followed in his father’s footsteps.

Simon is a Partner at the Newport Office of Morgans Australia, after having spent almost two decades learning his trade in the heart of stockbroking in Melbourne's Collins Street at various firms.

He relocated his family back to Sydney for family reasons around five years ago, coming almost full circle, having begun his career in the 70s as a “chalkie” at the Sydney Stock Exchange

Simon is fanatical about the way that technology and the internet is altering the investment landscape around the globe and focuses much of his outlook on how these profound changes will affect the outcomes and futures of investors everywhere.

The everything store

Monday, July 03, 2017

By Simon Bond

The Amazons, Googles and Facebooks of the world remind me so much of some historical monopolies that ended up being broken up by the Government of the day who saw them as companies that had simply amassed too much power. The irony of this is that following the forced breakups, the sum of the parts ended up being greater than the original.

The best illustration that I can think of is The Standard Oil Trust which was formed in 1863 by John D. Rockefeller. He built up the company through 1868 to become the largest oil refinery firm in the world. In 1870, the company was renamed Standard Oil Company, after which Rockefeller decided to buy up all the other competition and form them into one large company.

The company faced legal issues in 1890 following passage of the Sherman Antitrust Act. That also brought unwanted attention to the company by Ida M. Tarbell, a McClure's Magazine reporter, who began an investigation. Following publication of her report, the Standard Oil Company was forced to break up into separate state companies the "Seven Sisters" each with its own board of directors.

The Standard Oil Trust had quickly become an industrial monster. The trust had established a strong foothold in the U.S. and other countries in the transportation, production, refining, and marketing of petroleum products. Early on, Rockefeller and partners attempted to make money on the home lighting market, converting whale oil to kerosene. Gasoline had been nearly worthless up to 1911. However, with a growing demand for "juice" needed to power the newly emergent automobile, Standard Oil Trust's moneybags began to bulge. 

The Trust broke up in 1911, which led to the skyrocketing of the trust's stock prices. Some historians contend that the breakup of Standard Oil closely resembles the more modern monopoly breakup of AT&T and the Bell telephone system. 

Like the telephone industry’s "Baby Bells," many of big oil’s "Baby Standards" kept the old company name as they went into business for themselves. However, if a company separated on its own, it was restricted from using the "Standard" brand. Just as Bell had accomplished later on in its history, the Standards soon rose up to dominate the market, becoming more valuable than the original trust.

The impending arrival of Amazon to Australian shores has sent the retail market into a frenzy. Tens of millions of dollars of market capitalisation has been erased from the listed Australian retail sector, just on the back of the (free), fear mongering, thanks to the generous Australian media who are saving the company millions in advertising costs and publicity, that’s even before Amazon has stepped ashore here.

Just ask Gerry Harvey how he feels about Amazon and it’s impending arrival. Perhaps top of the 'probably shouldn't say that' list was a suggestion that Australia stop Amazon from coming here "like Donald Trump not letting the Muslims in". Later he would refer to Amazon as "parasites".

Harvey's issue focuses on Amazon's pricing, which he believes is part of a long-term plan to "send everyone broke, then put up the price." Among Harvey's more reasonable concerns: the fact that Amazon, and global companies like Amazon, aren't paying corporate tax in Australia. “They pay virtually no company tax [globally] and make virtually no profit in relation to their turnover. They’re not good corporate citizens, they send lots of people broke, they contribute virtually nothing to society. They’re not someone that we’d want around the place”, thundered My Harvey.

Having such market power means never having to say you’re sorry -- even to your owners. Beyond taxpayer subsidies, Bezos can afford to be a voracious predator because his Wall Street investors have allowed him to keep operating without returning a profit. On paper, his revenue-generating machine has lost billions of dollars, yet his major investors, enamoured with Amazon’s takeover of one consumer market after another, haven’t pulled the plug. Amazon uses their capital to buy its competitors and/or to market its own version of competitors’ products, which it then sells at a loss in order to squeeze hapless competitors out of business. To many that’s the very definition of predatory pricing.

Brad Stone’s book about Amazon gives a chilling example of one such predation. According to the author, Amazon has its own corporate espionage team called Competitive Intelligence that tracks rivals. In 2009, CIAmazon spotted a fast-rising online seller of one particular baby product: Diapers.com. A Bezos lieutenant was dispatched to inform the diaper honchos that the cheetah was going into that business, so they should just sell their firm to it. No thanks, replied the upstart.

Amazon promptly responded to the rebuff by marketing another line of diapers with a price discount of 30%. It kept dropping the price even lower (plus free shipping) when the smaller firm tried to fight back. Diapers.com’s investors grew antsy, and in September 2010, the two founders of the company met with Bezos himself and surrendered. The final blow was their discovery that Bezos, in his campaign to crush them and control the market of online diaper sales, was on track to lose $100 million in just three months.

Fast forward to where we now sit with the behemoths. Stratechery.com writes about “Aggregation Theory” which is about how business works in a world with zero distribution costs and zero transaction costs; consumers are attracted to an aggregator through the delivery of a superior experience, which attracts modular suppliers, which improves the experience and thus attracts more consumers, and thus more suppliers in the aforementioned virtuous cycle. It is a phenomenon seen across industries including search (Google and web pages), feeds (Facebook and content), shopping (Amazon and retail goods), video (Netflix/YouTube and content creators), transportation (Uber/Didi and drivers), and lodging (Airbnb and rooms, Booking/Expedia and hotels).

The first key antitrust implication of Aggregation Theory is that, thanks to these virtuous cycles, the big get bigger; indeed, all things being equal, the equilibrium state in a market covered by Aggregation Theory is monopoly: one aggregator that has captured all of the consumers and all of the suppliers. This monopoly, though, is a lot different than the monopolies of yesteryear: aggregators aren’t limiting consumer choice by controlling supply (like oil) or distribution (like railroads) or infrastructure (like telephone wires); rather, consumers are self-selecting onto the Aggregator’s platform because it’s a better experience.

It’s my long-held view that in time the new Standard Oils, aka the Internet guys, will incur the wrath of Governments globally and will also be broken up. 

And then, yet again, the sum of the parts will be worth more than the whole. 

My view of Amazon and Jeff Bezos is complete awe. In my mind he is the businessman of our generation, but gee these guys really do scare me. So, as Andy Grove of Intel continually said, “Only the paranoid survive”.

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The new world order

Monday, May 29, 2017

By Simon Bond

Not a day goes by when there is not some "left field event" that roils markets. News is now instant and constant via social media, and an attack in the UK for example, is news globally within seconds. The traditional news networks now chase the netizens for information, images and footage.

How the world has changed. In April 2007, the world's largest company was Exxon Mobil. Gazprom, Royal Dutch Shell and BP were also on the ticket. Fast forward a decade and those guys are gone, to be replaced by Apple, Google, Amazon, Facebook and Co. In another decade, the list will probably be populated by companies we have not yet considered. So whats next? Below, I have encapsulated my view of the future. In a nutshell, the network always wins. In the future, companies might not even have a "marketing" department. It may come with a new title, the "networking" department. 

The new world order

The network always wins

What is happening in front of our eyes is that everything is becoming connected to everything else. Information is flowing through networks with greater intensity, and that completely changes everything. Markets are disappearing, becoming networks of information with the customer at their heart.

And if the outside world becomes a network, companies will have to follow suit. 

Volatility comes from the Latin verb volare, which means “to fly.” It basically means that things tend to vary often and widely. In today’s world, things are changing faster and faster, and stability often seems unattainable. After the financial crisis and the economic turmoil of the past few years, many people have been wondering, “When will things get back to being stable again?” 

The answer could be never. 

Perhaps we’re living in times of greater and greater instability, more and more turbulence, and increasing volatility. Stability is flying away.

Many of us grew up trying to build a world based on security, things that we could count on, bank on, and build on. Now, more and more, we seem to be surrounded by uncertainties. We’re uncertain about where the economy is heading. We’re uncertain about where technology is heading. We’re uncertain about whether our companies will survive, how our customers will react, and how our markets will evolve. 

We seem to be heading toward a world in which we have more uncertainties than certainties to deal with.

The result is that in the world of today, business strategies have become more fluid. The traditional five-year plan makes no sense to companies whose world is changing faster and faster. What use is a five-year strategy for the newspaper industry, which is watching its markets disappear at the hands of Twitter and Craigslist? 

What use is a five-year strategy for the television industry, which is seeing its markets flip completely because of YouTube, Netflix, and Hulu? The reality is that companies now update their strategies more frequently than ever before. They have to, if they want to survive. I heard one CEO say, “We still have a five-year strategy. Actually I have a new one every three months.” 

This is the era of “fluid strategy,” and it means that companies have to act more quickly and be more agile than ever before.

Thanks to the new normal effects of digitisation, we’ve started to build a society that is entirely based on the concept of networks. We have networks of information, networks of knowledge, networks of entertainment, networks of friends, and networks of enterprises. 

Everything we see around us is based on the concept of networks.

What we’re beginning to see appear in society, business, and our social lives is that the world is completely defined by networks.

Facebook, for example, was founded on the idea that while there’s value in discrete information about people (their names, what they do, etc.), there’s even more value in the relationships between them.

Antonio Damasio, professor of Neuroscience at the University of Southern California said it beautifully: “Our emotions influence our thinking much more than our thinking influences our emotions.” 

In this era, companies must understand how to influence networks in order to influence individual consumers. 

Careers are mechanisms of advancement, and the concept of climbing ladders and structures has become rather meaningless in the age of networks. More and more people are focused on individual projects, not on one overarching path. People want to be able to sample new insights and try out fresh approaches. They want to keep their options open and be able to change direction. 

Old-style serial résumés, which depict one job after another, are on the way out. Today, more and more people are embarking on parallel paths, with multiple interests and simultaneous projects. 

When the laws of network behaviour overturn our understanding of market dynamics, we will see that the companies that survive will be those that have understood the need to drastically rethink their organisational fabric.

So there, thats my view.

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Straight Up

Monday, May 08, 2017

By Simon Bond

Last week, we wrote to you to point out the situation with US-based Millimetre Wave Spectrum business Straight Path.

Excerpted below is a part of the note sent regarding what was transpiring regarding Straight Path Inc, listed in the US.

What is it? And why should you care? Well, you should take note of recent developments in the United States regarding the 5G strategies of the major telcos, where they see the future, and what will be able to be achieved. A couple of weeks ago, a little-known listed company in the US called Straight Path Communications Inc were trading around $35.00, until AT&T, not an unknown telco in the US, launched a bid for the company, (which incidentally holds a large trove of 28 GHz and 39 GHz millimeter wave spectrum used in mobile communications, and would give a new owner an advantage in 5G development).

The bid price was $95.63 which represented about a 170% premium above the price at the time, one would have thought a knock out bid. Well not so fast, now another bidder has emerged, rumoured to be Verizon with a bid of $104.64. AT&T are not yet out of the race and are currently considering their position.

And now this; shares in Straight Path Communications (STRP) soared on Wednesday last week, as a bidding war heated up for the wireless company between AT&T (T) and another major telecom player, believed to be Dow component Verizon Communications (VZ).

Straight Path stocks jumped on word that the company received a $2.3 billion offer from an unidentified "multinational telecommunications company" — an offer that it called a "superior proposal." Straight Path said in a statement that the unnamed company had revised its offer to $135.96 per share, up from $104.64 per share.

The bidding for Straight Path began on April 10, when AT&T agreed to pay $95.63 per share, a near 160% premium over Straight Path's closing price of $36.48 on April 7.

Straight Path is a key acquisition target, as the company controls a spectrum-rich bandwidth of wireless licenses that are inviting to telecom providers. Straight Path owns high-frequency airwaves in what is known as the 28-gigahertz and 39-gigahertz millimeter wave band, that can be used for 5G wireless services.

Both AT&T and Verizon plan to deploy 5G wireless services, which are expected to include high-speed broadband to residential homes as well as connections to self-driving cars, drones, and other web-connected devices, generally called the "Internet of Things."

And the best placed Australian listed company to be a part of all of this is, in my opinion, Superloop Ltd.

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Leading the horse: Superloop

Monday, May 01, 2017

By Simon Bond

As they say, you can lead a horse to water.

When Superloop (SLC) acquired Big Air in late 2016, many market participants were curious as to how the business would fit in with one that was predominantly about building fibre in Singapore and Hong Kong.

At the time, Bevan Slattery, CEO of Superloop said, "The acquisition of BigAir will allow us to leverage our fibre network plus provide us with new wireless capabilities to deliver low cost gigabit connectivity".

The company stated at the time that BigAir is a strong strategic fit with Superloop, they noted;

  • The Proposed Acquisition fundamentally enhanced opportunities for Superloop’s fibre business, allowing Superloop to accelerate the rollout of fibre across Australia.
  • Superloop will hyper-scale BigAir’s wireless and “fibre extender” capability, and by leveraging Superloop and it's fibre network, Superloop will build a low-cost access alternative for Gigabit+ speeds.

Well, fast forward not even 6 months, and how the telco landscape has changed, the earth really has moved. Vocus and TPG have seen their share prices decimated, Telstra has felt the burn of the blowtorch as TPG announced it's entrance into the mobile market, so if you have been an investor in this space, it's not made for happy times.

But, for the keen observer of the sector, the changes underway have given cause for an optimistic view of Superloop. Mr Slattery was interviewed by many industry publications and also the mainstream financial press. In these interviews he kept referring to "millimetre wave technology". 

What is it? And why should you care? Well you should take note of recent developments in the United States regarding the 5G strategies of the major telcos, where they see the future, and what will be able to be achieved. A couple of weeks ago, a little known listed company in the US called Straight Path Communications Inc were trading around $35.00, until AT and T, not an unknown telco in the US, launched a bid for the company, (which incidentally holds a large trove of 28 GHz and 39 GHz millimeter wave spectrum used in mobile communications, and would give a new owner an advantage in 5G development).

The bid price was $95.63 which represented about a 170% premium above the price at the time, one would have thought a knock-out bid. Well not so fast, now another bidder has emerged, rumoured to be Verizon with a bid of $104.64. AT and T are not yet out of the race and are currently considering their position.

Wireless firms are eyeing high-frequency bands for broadband services to homes as well as new apps, such as drones and self-driving cars. In the 39 GHz band, Straight Path owns spectrum in the 40 largest markets across the U.S., including New York City, Los Angeles, San Francisco, Atlanta and Washington, D.C.

Wireless companies want next-generation gadgets to download at rates of gigabits per second. The question is how to make it happen. So again, you may ask yourself the question, why should I care? Well it's worthwhile taking a few minutes to look at Millimetre wave technology and the spectrum it uses and what can be achieved. Please see below some excerpts from an interview I read a while back.

The details of 5G are a long way from being decided but it is expected to provide Internet connections 40 times faster and with at least four times more coverage worldwide than the current 4G Long Term Evolution (LTE) wireless communications standard. Even without a clear definition of 5G, testing is underway or in the works in places including Finland, Russia and South Korea.

One of the most promising potential 5G technologies under consideration is the use of high-frequency signals—in the millimeter-wave frequency band—that could allocate more bandwidth to deliver faster, higher-quality video and multimedia content. Other lines of research seek to enable a single mobile device to simultaneously connect to multiple wireless networks to boost connectivity and speed.

Mustafa Cenk Gursoy, an Associate Professor in Syracuse University’s College of Engineering and Computer Science, and researchers at The Ohio State University study ways to more efficiently access the radio spectrum. Scientific American spoke with Gursoy about the need for 5G and the role that millimeter-wave frequencies, in particular, could play. [An edited transcript of the interview follows.]

Why do we need a new wireless standard?

The motivation behind a new standard is the exponential growth in wireless. We’re talking about billions of users, billions of devices and billions of connections. That’s something that a new standard has to address, because 4G is not going to be efficient enough to handle this much growth, much of it due to mobile video traffic. Smartphones, tablets, social networking sites and video-sharing sites have helped mobile video traffic become more than half of all mobile traffic.

On top of this, people have really high expectations for wireless services. They want a high level of reliability, low levels of latency [delayed uploading or downloading of content] and constant connectivity—anytime, anywhere. The Internet of Things, where new types of devices are connected digitally, as well as the increasing use of mobile technology for health care, smart power grid and vehicular networking create new expectations for wireless, especially when it comes to speed and reliability.

Any move to 5G wireless technology is still years away. What should we know about the standard at this point?

There’s been an increase in interest in 5G within the past year, particularly from the research community. And telecom companies in the U.S., Europe, South Korea, China and Japan are interested in designing, testing and implementing these kinds of systems, so there’s definitely some momentum building. It’s not definite what 5G will be but people are talking about candidate technologies and what needs to be addressed in this next-generation wireless standard. And it might not be that far away—some companies are thinking they will have 5G systems up and running by 2020. That’s not really a lot of time.

How will 5G differ from 4G?

One difference will be that 5G may move wireless signals to a higher frequency band, operating at millimeter-length wavelengths between 30 and 300 gigahertz (GHz) on the radio spectrum. That’s going to open up a huge amount of bandwidth and alleviate concerns about wireless traffic congestion. Radar, satellite and some military systems use this area of the spectrum currently but it’s definitely less occupied than the spectrum currently in use. In addition, whereas 4G supports hundreds of megabits-per-second data rates, 5G is promising data rates in the gigabits-per-second range. It may not support those higher rates at all times in all places, but it will lower latency rates overall.

Are there drawbacks to wireless devices operating at such high frequencies?

Generally, as you move to higher frequencies, transmission range gets shorter—hundreds of meters rather than kilometers. And signals are unable to penetrate walls easily. Some hardware components, such as analog-to-digital converters, might also be expensive. We are still learning about millimeter wave and are testing its capabilities. Another challenge is if the transmitter and the receiver don’t have a line-of-site connection, there is a lot of attenuation [loss] in the signal. We’re conducting performance analyses to better understand the communication reliability and plan to publish a paper in the fall at the IEEE Vehicular Technology Conference in Boston.

What can be done to overcome these limitations?

There has been a trend toward small cells [portable base stations often called microcells, femtocells or picocells, depending on their ranges]. Millimeter waves can take advantage of these technologies, as they are better suited for transmission over relatively short ranges. High-frequency signals can also be reused across short distances by different cells in a network, meaning the available spectrum is used more efficiently. In addition, antenna size is inversely proportional to frequency size, so higher-frequency signals would require smaller antennas. You could pack more antennas into devices. That enables directional transmissions—you could actually steer the signal in a particular direction. This could overcome the loss of some of the signal transmission strength. More than one antenna operating in the same frequency range can also send multiple streams of data, increasing the data rate.

What research are you and your colleagues doing in the area of millimeter waves?

This first year we are learning the characteristics of communication in the millimeter range of frequencies and doing some performance analyses of millimeter-wave networks. For a short range, with devices in fixed positions, millimeter waves can connect devices to a network. The challenge is delivering this service to a user who is walking or driving. I also want to see networking scenarios where you can actually support multimedia traffic in a mobile environment using millimeter wave.

How does millimeter wave improve energy efficiency?

The use of directional transmission between the base station and a mobile device reduces signal interference, and that might account for the reduction in energy use we’re seeing. When you establish a direct link and suppress interference, you can send data at higher rates for a given transmission energy level. Therefore, throughput per unit energy increases and hence energy efficiency improves. In such an analysis, it is also important to take into account possible increases in hardware energy consumption due to operation at high frequencies. Energy efficiency is very important here as well because of the growth in the number of users and devices—and efficiency should be considered with any new standard.

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How can Telstra unlock value and reassure shareholders?

Monday, April 10, 2017

By Simon Bond

The share price of Telstra has been on a gradual decline since the day David Thodey announced his departure as CEO of the business - it's all in the timing they say.

Telstra shares are a significant holding in most portfolios, and they are seen as a stable income producer for yield-oriented investors, but the decline in capital value over the past year and more has many investors becoming increasingly nervous.

So how does a business like Telstra unlock value and reassure its shareholders about its future? The past few years have also seen the value of Telstra's property portfolio scaling new heights, so the question again comes back to how the business unlocks value for its stakeholders.

Considering the developments in Data Centre technology, the build out of the NBN, and the huge increase in "mobile" over the past five years, one can only wonder what the business will look like five years from now.

Back in April 2011, we published a note discussing exactly this strategy, so maybe it's now time for the company to consider the strategy we put forward six years ago. The note is republished below. 

"I am surprised that Telstra has not been in receipt of a strategy to unlock the value in these assets by someone such as Macquarie, or a private equity player.

The exchanges all around Australia could also be used as data centres, as they are all already connected by fibre. Some exchanges may become redundant as technology moves forward and the prime locations of where the exchanges are located would have many a property developer salivating at the prospects of redevelopment.

According to recent Telstra records that I located, there are 1,043 Telstra telephone exchanges in Sydney, 1,095 in Melbourne, 605 in Brisbane, 369 in Perth, 252 in Adelaide and 95 in Hobart.

Many of these exchanges could be converted to cloud-based computing operations and data centres offering hardware and software to access web-based applications. The IP infrastructure used by companies such as Telstra is better suited to cloud services.

By way of illustration as to where some of these exchanges are located, please see below.

Melbourne snapshot:

Brighton 9

South Yarra 15

Sandringham 8

Mount Eliza 5

Kew 7

Hawthorn 8

Sydney snapshot:

Mosman 4

Cremorne 15

Hunters Hill 6

Paddington 11

Waverley 12

Manly 8

Across Australia, there are thousands of other well-positioned Telstra exchanges that may be fit well for future requirements, in fact, the total number that I identified was 6,353. 

Both the Government and Telstra realise that cloud computing is redefining traditional IT. 

The growth in the cloud is still very much underestimated and a recent study by Forrester Research puts more meat on the bone.

When everything runs inside an Internet Browser cloud based email, accounting and customer tracking systems enable companies to reduce complexity and maintenance costs, think Webjet, Real Estate.com, Wotif, Car Sales.com, Reckon, RP Data and Seek to name a few. 

In general, cloud computing customers do not own the physical infrastructure, instead avoiding capital expenditure by renting usage from a third-party provider. They consume resource as a service and pay only for resources that they use. 

Many cloud-computing offerings employ the utility computing model, which is analogous to how traditional utility services (such as electricity) are consumed, whereas others bill on a subscription basis. Sharing "perishable and intangible" computing power among multiple tenants can improve utilisation rates, as servers are not unnecessarily left idle (which can reduce costs significantly while increasing the speed of application development). 

A side effect of this approach is that overall computer usage rises dramatically, as customers do not have to engineer for peak load limits. In addition, "increased high-speed bandwidth" makes it possible to receive the same response times from centralised infrastructure at other sites. 

Cloud computing users can avoid capital expenditure (CapEx) on hardware, software, and services when they pay a provider only for what they use. Consumption is usually billed on a utility (resources consumed, like electricity) or subscription (time-based, like a newspaper) basis with little or no upfront cost. Other benefits of this time sharing-style approach are low barriers to entry, shared infrastructure and costs, low management overhead, and immediate access to a broad range of applications. In general, users can terminate the contract at any time (thereby avoiding return on investment risk and uncertainty), and the services are often covered by service level agreements (SLAs) with financial penalties.

According to Nicholas Carr, the strategic importance of information technology is diminishing as it becomes standardised and less expensive. He argues that the cloud computing paradigm shift is similar to the displacement of electricity generators by electricity grids early in the 20th century.

Other factors impacting the scale of any potential cost savings include the efficiency of a company’s data center as compared to the cloud vendor’s, the company's existing operating costs, the level of adoption of cloud computing, and the type of functionality being hosted in the cloud.

In the future, cloud capacity can be rented as required, providing near infinite scalability giving firms the option to outsource either all or part of their IT Infrastructure and will do for modern day business what the electric grid did for the early industrial age when companies no longer had to invest in expensive electric generators and were able to instantly scale their power usage to meet product demand through a simple power line hookup to the local utility.

Until now, the telecom related companies have been absent from cloud computing, however cloud computing offers significant potential for telecom service providers by combining their competitive advantage as network operators with technological innovation. 

Cloud services can increase the value of carrier networks in multiple ways and create new revenue streams. At a minimum, cloud services can significantly increase network traffic and network utilisation as Telecom operators can charge both end users and cloud-based providers for a given level of e-service quality.

Cloud computing lowers barriers to entry, accelerates innovation and intensifies competition and will ultimately lead to massive consolidation as the telecom and networking sectors converge."

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What’s it worth?

Monday, March 27, 2017

By Simon Bond

Ever since Michael Dell and his partners started quietly acquiring small independent TV stations in the US for a “song” I have been watching how this story unfolds. He’s not alone as Private Equity Firms in the US have been scouring the country for TV stations as well. It’s not been unusual for folks in small US country towns to see a raft of well dressed players rolling into town looking to “tune in”. 

Why would a billionaire buy a TV station in Pittsburgh that airs only a local Catholic daily Mass and old Roseanne reruns? How could a collective investment of $80 million dollars potentially reap up to $4 billion dollars? 

Well it’s all in the spectrum. That spectrum is becoming more and more valuable every day for the telephone companies and less and less valuable for the TV Networks it seems. In the US TV stations who hold rights to spectrum will be in the position to put this spectrum up for auction, and the buyers will be the likes of Verizon, Sprint and T Mobile in order to enhance their own wireless networks. 

The spectrum is becoming more and more valuable due to the insatiable demands of the consumer for video and broadband services, and it lays the groundwork for the upcoming 5G networks, which will usher in a whole new world of services, applications, and as they say “the Internet of things”. 

As TV broadcasters go, KSCI Channel 18 in Long Beach is a little fish in a big pond. The independent station, which airs local shows in Chinese, Korean and Tagalog as well as other Asian-language programs, was in bankruptcy in 2012 when Texas-based NRJ TV bought it and two small stations for a reported $45 million. NRJ TV purchased KSKT Channel 36 in San Marcos in northern San Diego County for $9.8 million from Blue Skies Broadcasting. The FCC's opening bid is $142 million for the airwaves of the station, which broadcasts local programming. KSCI's slice of the nation's second largest market could be a precious catch as well and may be worth as much as $585 million to telecommunications companies, according to opening bids released by the Federal Communications Commission. 

As more people access the Internet wirelessly, demand for airwaves has increased. An FCC spectrum auction that ended in early 2015 brought in a record $44.9 billion. 

Broadcast airwaves are the highest quality, able to carry signals deep into buildings and over long distances. The Congressional Budget Office has estimated the auction could raise as much as $40 billion for the federal government after payments are made to broadcasters. 

In simplistic terms if the case were the same in Australia it would make sense for say the Nine Network to buy the Ten Network. The Internet has changed the game of delivery as everyone knows and the market capitalisation of TEN is $210 million dollars. The broadcasting licence it seems is in the books at a value of $350 million dollars. 

Give the license back to the Federal Government and they then get to sell the spectrum to say Telstra, TPG, Optus or anyone else who can make a go of it.  

The spectrum would appear to be worth a lot more to the new types of telcos than it’s worth to an old TV network. 

Maybe the larger and more recent shareholders in the Ten Network have formed a similar view. But then again who knows? 

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What lies ahead

Monday, February 20, 2017

By Simon Bond

We continually pound the page about what is heading our way, and as always, one of our key objectives is to understand the trajectory of disruptive technologies, and how to leverage them via investing.

Over the next five years, multiple exponential technologies will converge to disrupt virtually every aspect of the global economy. This is crystal clear.

Follow the people who have the ability to look over the horizon and understand the scale of disruption that lies ahead.

Rapid advances across a broad range of sectors during the last year characterise the scale of change, and it's only just begun.

At the top of the list is communications via the connection of eight billion plus people, through high-speed 100MB broadband networks via undersea cable, drones and satellites and that infrastructure building is currently underway.

As more of the world comes online, commerce and economies will continually come alive, new technologies will assist in ease of communications and connectivity will lift many economic boats in the poorer nations.

There are so many smart people in places where network connectivity will allow them to make an impact. Below are the projected GDP ranking changes predicted between now and 2050.

Increased connectivity combined with the excellent demographic profiles of the emerging countries will be a game changer.

 

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Got beer? The world's best beer growth market

Monday, February 13, 2017

By Simon Bond

Since it's been a bit warm over the past few weeks, I thought I better take a look at Australia's general beer consumption habits, and that of our neighbours.

I really did it to figure out where the best growth market in the world for beer is, since we are all getting hotter under the collar these days. Surprisingly to some (but not others) it seems Vietnam is the best market for beer growth. This explains why the larger beverage and beer companies are making a beeline for Vietnam considering the Government's upcoming selldown of their ownership in this sector. Hardly surprising that studies show Australia is the best beer market, but also the most expensive to shout a round.

Southeast Asia (SEA), with its high economic growth and low alcohol consumption compared to the developed world, coupled with a young population and emerging middle class, is a promising market for beer producers. International giants such as Heineken, Carlsberg, and Kirin are aggressively expanding in SEA by acquiring dominant domestic brands and each other, as Heineken bought the remaining stake in its subsidiary - Asia Pacific Breweries - from Fraser and Neave (F&N) in 2012. At the same time, prominent local players are also making deals: Thailand’s Boon Rawd is in a joint venture with Carlsberg, while Thai Beverage acquired F&N in 2013.

Vietnam is the largest market with the highest consumption level per capita as well as annual growth. Thailand, on the other hand, is the only country examined with negative annual growth rates in alcohol consumption at -2.4%. Thailand’s negative growth is mainly attributed to the political crisis that took place at the end of 2013 and efforts to reduce alcohol consumption by the government. The Philippines appears to be static, while Malaysia and Indonesia, both containing a large Muslim population, understandably have relatively low annual consumptions of beer per capita. Interestingly, however, both their annual growth rates in beer consumption are comparatively high. This reflects the increase in consumption by the non-Muslim population of both countries, as well the effectiveness of the beer companies’ aggressive advertising campaigns.

Myanmar's beer consumption in 2014 reached 210,000 kiloliters. Per-capita volume was a mere tenth or so that in Southeast Asian neighbours, Thailand and Vietnam. But with its economy growing rapidly, beer drinking is on the rise, mainly in cities. The market is expected to more than double from 2013 levels by 2018.

But, Vietnam still looks to be the standout investment opportunity due to their favourable demographic profile. 

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Brambles just got Amazon'd

Monday, January 30, 2017

Brambles "shock" profit downgrade recently, which saw 3.1 billion dollars wiped off the market capitalisation, "surprised" management. That's what is actually a surprise, and what it shows is that company executives and management need to study the big maps more than they are now, to understand the inevitable changes that are currently underway.

A recent front page of the Financial Review (below) emphasises that US retailers are sending back more pallets than they are receiving.

To put it simply Brambles just got Amazon'd. And it hasn't happened overnight as some of the charts below graphically display.

We continually write about the disrupters, the Amazon's, the Netflix's, the Uber's, the AirBnb's. The Internet has not only disrupted existing businesses it's blowing them to bits. Amazon has, and will continue to do what it does best. And that spells trouble for those who fail to grasp whats coming down the line.

Below is a chart of the market values of US retailers in 2006, and the corresponding values in 2016. A picture, or chart in this case is worth more than a thousand words. If the company that your invested in has a chance of being Amazon'd you should consider your position; because it's only just begun.

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Signs from Trump's inner circle

Monday, January 23, 2017

By Simon Bond

The whole world is waiting to see what policies the new Trump Administration will be enacting. The new administration team is untested in the Political arena but have hit the ground running with strategy and ideas. It's vitally important to study the "players" and their past history, in particular, the Trump inner circle which includes Steve Bannon, who is expected to play an large role going forward. It's a longer read than usual however every part is as important as the other to understand the line of thinking. It's possibly a snapshot of what we have to look forward to over the next term and it needs to be considered with regard to future investment strategy.

This is how Steve Bannon sees the entire world; the White House chief strategist laid out a global vision in a rare 2014 talk, one where he said racism in the far right gets “washed out” and called Vladimir Putin a kleptocrat. Donald Trump’s newly named chief strategist and senior counselor, Steve Bannon, laid out his global nationalist vision in unusually in-depth remarks delivered by Skype to a conference held inside the Vatican in the summer of 2014.

Well before victories for Brexit and Trump seemed possible, Bannon declared there was a “global tea party movement” and praised European far-right parties like Great Britain’s UKIP and France’s National Front. Bannon also suggested that a racist element in far right parties “all gets kind of washed out,” that the West was facing a “crisis of capitalism” after losing its “Judeo-Christian foundation,” and he blasted “crony capitalists” in Washington for failing to prosecute bank executives over the financial crisis.

The remarks — beamed into a small conference room in a 15th-century marble palace in a secluded corner of the Vatican — were part of a 50-minute Q&A during a conference focused on poverty hosted by the Human Dignity Institute. The group was founded by Benjamin Harnwell, a longtime aide to Conservative member of the European Parliament Nirj Deva to promote a “Christian voice” in European politics. The group has ties to some of the most conservative factions inside the Catholic Church; Cardinal Raymond Burke, one of the most vocal critics of Pope Francis who was ousted from a senior Vatican position in 2014, is chair of the group’s advisory board.

Here is what he said, unedited:

Steve Bannon: "Thank you very much Benjamin, and I appreciate you guys including us in this. We’re speaking from Los Angeles today, right across the street from our headquarters in Los Angeles. Um. I want to talk about wealth creation and what wealth creation really can achieve and maybe take it in a slightly different direction, because I believe the world, and particularly the Judeo-Christian west, is in a crisis. And it’s really the organising principle of how we built Breitbart News to really be a platform to bring news and information to people throughout the world. Principally in the west, but we’re expanding internationally to let people understand the depths of this crisis, and it is a crisis both of capitalism but really of the underpinnings of the Judeo-Christian west in our beliefs.

It’s ironic, I think, that we’re talking today at exactly, tomorrow, 100 years ago, at the exact moment we’re talking, the assassination took place in Sarajevo of Archduke Franz Ferdinand that led to the end of the Victorian era and the beginning of the bloodiest century in mankind’s history. Just to put it in perspective, with the assassination that took place 100 years ago tomorrow in Sarajevo, the world was at total peace. There was trade, there was globalisation, there was technological transfer, the High Church of England and the Catholic Church and the Christian faith was predominant throughout Europe of practicing Christians. Seven weeks later, I think there were 5 million men in uniform and within 30 days there were over a million casualties.

That war triggered a century of barbaric — unparalleled in mankind’s history — virtually 180 to 200 million people were killed in the 20th century, and I believe that, you know, hundreds of years from now when they look back, we’re children of that: We’re children of that barbarity. This will be looked at almost as a new Dark Age. 

But the thing that got us out of it, the organising principle that met this, was not just the heroism of our people — whether it was French resistance fighters, whether it was the Polish resistance fighters, or it’s the young men from Kansas City or the Midwest who stormed the beaches of Normandy, commandos in England that fought with the Royal Air Force, that fought this great war, really the Judeo-Christian West versus atheists, right? The underlying principle is an enlightened form of capitalism, that capitalism really gave us the wherewithal. It kind of organised and built the materials needed to support, whether it’s the Soviet Union, England, the United States, and eventually to take back continental Europe and to beat back a barbaric empire in the Far East.

That capitalism really generated tremendous wealth. And that wealth was really distributed among a middle class, a rising middle class, people who come from really working-class environments and created what we really call a Pax Americana. It was many, many years and decades of peace. And I believe we’ve come partly offtrack in the years since the fall of the Soviet Union and we’re starting now in the 21st century, which I believe, strongly, is a crisis both of our church, a crisis of our faith, a crisis of the West, a crisis of capitalism.

And we’re at the very beginning stages of a very brutal and bloody conflict, of which if the people in this room, the people in the church, do not bind together and really form what I feel is an aspect of the church militant, to really be able to not just stand with our beliefs, but to fight for our beliefs against this new barbarity that’s starting, that will completely eradicate everything that we’ve been bequeathed over the last 2,000, 2,500 years. 

Now, what I mean by that specifically: I think that you’re seeing three kinds of converging tendencies: One is a form of capitalism that is taken away from the underlying spiritual and moral foundations of Christianity and, really, Judeo-Christian belief. 

I see that every day. I’m a very practical, pragmatic capitalist. I was trained at Goldman Sachs, I went to Harvard Business School, I was as hard-nosed a capitalist as you get. I specialised in media, in investing in media companies, and it’s a very, very tough environment. And you’ve had a fairly good track record. So I don’t want this to kinda sound namby-pamby, “Let’s all hold hands and sing ‘Kumbaya’ around capitalism.” 

But there’s a strand of capitalism today — two strands of it, that are very disturbing. “I believe we’ve come partly offtrack in the years since the fall of the Soviet Union and we’re starting now in the 21st century, which I believe, strongly, is a crisis both of our church, a crisis of our faith, a crisis of the West, a crisis of capitalism.”

One is state-sponsored capitalism. And that’s the capitalism you see in China and Russia. I believe it’s what Holy Father [Pope Francis] has seen for most of his life in places like Argentina, where you have this kind of crony capitalism of people that are involved with these military powers-that-be in the government, and it forms a brutal form of capitalism that is really about creating wealth and creating value for a very small subset of people. And it doesn’t spread the tremendous value creation throughout broader distribution patterns that were seen really in the 20th century. 

The second form of capitalism that I feel is almost as disturbing, is what I call the Ayn Rand or the Objectivist School of libertarian capitalism. And, look, I’m a big believer in a lot of libertarianism. I have many many friends that’s a very big part of the conservative movement — whether it’s the UKIP movement in England, it’s many of the underpinnings of the populist movement in Europe, and particularly in the United States.

However, that form of capitalism is quite different when you really look at it to what I call the “enlightened capitalism” of the Judeo-Christian West. It is a capitalism that really looks to make people commodities, and to objectify people, and to use them almost — as many of the precepts of Marx — and that is a form of capitalism, particularly to a younger generation [that] they’re really finding quite attractive. And if they don’t see another alternative, it’s going to be an alternative that they gravitate to under this kind of rubric of “personal freedom.”

The other tendency is an immense secularisation of the West. And I know we’ve talked about secularisation for a long time, but if you look at younger people, especially millennials under 30, the overwhelming drive of popular culture is to absolutely secularise this rising iteration. 

Now that call converges with something we have to face, and it’s a very unpleasant topic, but we are in an outright war against jihadist Islamic fascism. And this war is, I think, metastasising far quicker than governments can handle it. 

If you look at what’s happening in ISIS, which is the Islamic State of Syria and the Levant, that is now currently forming the caliphate that is having a military drive on Baghdad, if you look at the sophistication of which they’ve taken the tools of capitalism. If you look at what they’ve done with Twitter and Facebook and modern ways to fundraise, and to use crowdsourcing to fund, besides all the access to weapons, over the last couple days they have had a radical program of taking kids and trying to turn them into bombers. They have driven 50,000 Christians out of a town near the Kurdish border. We have video that we’re putting up later today on Breitbart where they took 50 hostages and threw them off a cliff in Iraq.

That war is expanding and it’s metastasising to sub-Saharan Africa. We have Boko Haram “Look at what’s happening in ISIS … look at the sophistication of which they’ve taken the tools of capitalism … at what they’ve done with Twitter and Facebook” and other groups that will eventually partner with ISIS in this global war, and it is, unfortunately, something that we’re going to have to face, and we’re going to have to face very quickly.

So I think the discussion of, should we put a cap on wealth creation and distribution? It’s something that should be at the heart of every Christian that is a capitalist — “What is the purpose of whatever I’m doing with this wealth? What is the purpose of what I’m doing with the ability that God has given us, that divine providence has given us to actually be a creator of jobs and a creator of wealth?” 

I think it really behooves all of us to really take a hard look and make sure that we are reinvesting that back into positive things. But also to make sure that we understand that we’re at the very beginning stages of a global conflict, and if we do not bind together as partners with others in other countries that this conflict is only going to metastasise. 

They have a Twitter account up today, ISIS does, about turning the United States into a “river of blood” if it comes in and tries to defend the city of Baghdad. And trust me, that is going to come to Europe. That is going to come to Central Europe, it’s going to come to Western Europe, it’s going to come to the United Kingdom. And so I think we are in a crisis of the underpinnings of capitalism, and on top of that we’re now, I believe, at the beginning stages of a global war against Islamic fascism.

Benjamin Harnwell, Human Dignity Institute: Thank you, Steve. That was a fascinating, fascinating overview. I am particularly struck by your argument, then, that in fact, capitalism would spread around the world based on the Judeo-Christian foundation is, in fact, something that can create peace through peoples rather than antagonism, which is often a point not sufficiently appreciated. 

Bannon: One thing I want to make sure of, if you look at the leaders of capitalism at that time, when capitalism was I believe at its highest flower and spreading its benefits to most of mankind, almost all of those capitalists were strong believers in the Judeo-Christian West. They were either active participants in the Jewish faith, they were active participants in the Christians’ faith, and they took their beliefs, and the underpinnings of their beliefs was manifested in the work they did. And I think that’s incredibly important and something that would really become unmoored. I can see this on Wall Street today — I can see this with the securitisation of everything is that, everything is looked at as a securitisation opportunity. People are looked at as commodities. I don’t believe that our forefathers had that same belief.

Harnwell: Over the course of this conference we’ve heard from various points of view regarding alleviation of poverty. We’ve heard from the center-left perspective, we’ve heard from the socialist perspective, we’ve heard from the Christian democrat, if you will, “With all the baggage that those [rightwing] groups bring — and trust me, a lot of them bring a lot of baggage, both ethnically and racially— but we think that will all be worked through with time.” perspective. What particularly interests me about your point of view Steve, to talk specifically about your work, Breitbart is very close to the tea party movement. So I’m just wondering whether you could tell me about if in the current flow of contemporary politics — first tell us a little bit about Breitbart, what the mission is, and then tell me about the reach that you have and then could you say a little bit about the current dynamic of what’s going on at the moment in the States.

Bannon: Outside of Fox News and the Drudge Report, we’re the third-largest conservative news site and, quite frankly, we have a bigger global reach than even Fox. And that’s why we’re expanding so much internationally. 

Look, we believe — strongly — that there is a global tea party movement. We’ve seen that. We were the first group to get in and start reporting on things like UKIP and Front National and other center right. With all the baggage that those groups bring — and trust me, a lot of them bring a lot of baggage, both ethnically and racially — but we think that will all be worked through with time. 

The central thing that binds that all together is a center-right populist movement of really the middle class, the working men and women in the world who are just tired of being dictated to by what we call the party of Davos. A group of kind of — we’re not conspiracy theory guys, but there’s certainly — and I could see this when I worked at Goldman Sachs — there are people in New York that feel closer to people in London and in Berlin than they do to people in Kansas and in Colorado, and they have more of this elite mentality that they’re going to dictate to everybody how the world’s going to be run.

I will tell you that the working men and women of Europe and Asia and the United States and Latin America don’t believe that. They believe they know what’s best for how they will comport their lives. They think they know best about how to raise their families and how to educate their families. So I think you’re seeing a global reaction to centralised government, whether that government is in Beijing or that government is in Washington, DC, or that government is in Brussels. So we are the platform for the voice of that. 

Now, with that, we are strong capitalists. And we believe in the benefits of capitalism. And, particularly, the harder-nosed the capitalism, the better. However, like I said, there’s two strands of capitalism that we’re quite concerned about.

One is crony capitalism, or what we call state-controlled capitalism, and that’s the big thing the tea party is fighting in the United States, and really the tea party’s biggest fight is not with the left, because we’re not there yet. The biggest fight the tea party has today is just like UKIP. UKIP’s biggest fight is with the Conservative Party. 

The tea party in the United States’ biggest fight is with the the Republican establishment, which is really a collection of crony capitalists that feel that they have a different set of rules of how they’re going to comport themselves and how they’re going to run things. And, quite frankly, it’s the reason that the United States’ financial situation is so dire, particularly our balance sheet. We have virtually a hundred trillion dollars of unfunded liabilities. That is all because you’ve had this kind of crony capitalism in Washington, DC. The rise of Breitbart is directly tied to being the voice of that center-right opposition. And, quite frankly, we’re winning many, many victories.

On the social conservative side, we’re the voice of the anti-abortion movement, the voice of the traditional marriage movement, and I can tell you we’re winning victory after victory after victory. Things are turning around as people have a voice and have a platform of which they can use.

Harnwell: The third-largest conservative news website is something to be extremely impressed by. Can you tell for the people here who aren’t within the Anglosphere and they might not follow American domestic politics at the moment — there seems to be a substantial sea change going on at the moment in Middle America. And the leader of the majority party, Eric Cantor, was deselected a couple of weeks ago by a tea party candidate. What does that mean for the state of domestic politics in America at the moment?

Bannon: For everybody in your audience, this is one of the most monumental — first off, it’s the biggest election upset in the history of the American republic. Eric Cantor was the House majority leader and raised $10 million. He spent, between himself and outside groups, $8 million to hold a congressional district. He ran against a professor who was an evangelical Christian and a libertarian economist. He ran against a professor who raised in total $175,000. In fact, the bills from Eric Cantor’s campaign at a elite steak house in Washington, DC, was over $200,000. So they spent more than $200,000 over the course of the campaign wining and dining fat cats at a steak house in Washington than the entire opposition had to run.

Now, Eric Cantor, it was a landslide. He lost 57-43, and not one — outside of Breitbart, we covered this for six months, day in and day out — not one news site — not Fox News, not Politico, no sites picked this up. And the reason that this guy won is quite simple: Middleclass people and working-class people are tired of people like Eric Cantor who say they’re conservative selling out their interests every day to crony capitalists.

And you’re seeing that whether that was UKIP and Nigel Farage in the United Kingdom, whether it’s these groups in the Low Countries in Europe, whether it’s in France, there’s a new tea party in Germany. The theme is all the same. And the theme is middle-class and working-class people — they’re saying, “Hey, I’m working harder than I’ve ever worked. I’m getting less benefits than I’m ever getting through this, I’m incurring less wealth myself, and I’m seeing a system of fat cats who say they’re conservative and say they back capitalist principles, but all they’re doing is binding with corporatists.” Right? Corporatists, to garner all the benefits for themselves.

And that center-right revolt is really a global revolt. I think you’re going to see it in Latin America, I think you’re going to see it in Asia, I think you’ve already seen it in India. Modi’s great victory was very much based on these Reaganesque principles, so I think this is a global revolt, and we are very fortunate and proud to be the news site that is reporting that throughout the world.

Harnwell: I think it’s important to understand the distinction that you’re drawing here between what can be understood as authentic, free-market capitalism as a means of promoting wealth that [unintelligible] involves everybody with a form of crony capitalism which simply benefits a certain class. And we’ve watched over the course of our conference, we’ve watched two video segments produced by the Acton Institute about how development aid is spent internationally and how that can be driven away from — it damages people on the ground but it also perpetuates a governing class. And the point that you’re mentioning here, that I think that you’re saying has driven almost a revolution movement in America, is the same phenomenon of what’s going on in the developing world, which is a concept of government which is no longer doing what it is morally bound to do but has become corrupt and self-serving.

Bannon: It’s exactly the same. Currently, if you read The Economist, you read the Financial Times this week, you’ll see there’s a relatively obscure agency in the federal government that is engaged in a huge fight that may lead to a government shutdown. It’s called the Export-Import Bank. And for years, it was a bank that helped finance things that other banks wouldn’t do. And what’s happening over time is that it’s metastasized to be a cheap form of financing to General Electric and to Boeing and to other large corporations. You get this financing from other places if they wanted to, but they’re putting this onto the middle-class taxpayers to support this.

And the tea party is using this as an example of the cronyism. General Electric and these major corporations that are in bed with the federal government are not what we’d consider free-enterprise capitalists. We’re backers of entrepreneurial capitalists. They’re not. They’re what we call corporatist. They want to have more and more monopolistic power and they’re doing that kind of convergence with big government. And so the fight here — and that’s why the media’s been very late to this party — but the fight you’re seeing is between entrepreneur capitalism, and the Acton Institute is a tremendous supporter of, and the people like the corporatists that are closer to the people like we think in Beijing and Moscow than they are to the entrepreneurial capitalist spirit of the United States.

Harnwell: Thanks, Steve. I’m going to turn around now, as I’m sure we have some great questions from the floor. Who has the first question then?

Bannon: First of all, Benjamin, I can tell you I could hardly recognize you, you’re so cleaned up you are for the conference.

[Laughter]

Questioner: Hello, my name is Deborah Lubov. I’m a Vatican correspondent for Zenit news agency, for their English edition. I have some experience working in New York — I was working for PricewaterhouseCoopers auditing investment banks, one of which was Goldman Sachs. And considering this conference is on poverty, I’m curious — from your point of view especially, your experience in the investment banking world — what concrete measures do you think they should be doing to combat, prevent this phenomenon? We know that various sums of money are used in all sorts of ways and they do have different initiatives, but in order to concretely counter this epidemic now, what are your thoughts?

Bannon: That’s a great question. The 2008 crisis, I think the financial crisis — which, by the way, I don’t think we’ve come through — is really driven I believe by the greed, much of it driven by the greed of the investment banks. My old firm, Goldman Sachs — traditionally the best banks are leveraged 8:1. When we had the financial crisis in 2008, the investment banks were leveraged 35:1. Those rules had specifically been changed by a guy named Hank Paulson. He was secretary of Treasury. As chairman of Goldman Sachs, he had gone to Washington years before and asked for those changes. That made the banks not really investment banks, but made them hedge funds — and highly susceptible to changes in liquidity. And so the crisis of 2008 was, quite frankly, really never recovered from in the United States. It’s one of the reasons last quarter you saw 2.9% negative growth in a quarter. So the United States economy is in very, very tough shape.

And one of the reasons is that we’ve never really gone and dug down and sorted through the problems of 2008. Particularly the fact — think about it — not one criminal charge has ever been brought to any bank executive associated with 2008 crisis. And in fact, it gets worse. No bonuses and none of their equity was taken. So part of the prime drivers of the wealth that they took in the 15 years leading up to the crisis was not hit at all, and I think that’s one of the fuels of this populist revolt that we’re seeing as the tea party. So I think there are many, many measures, particularly about getting the banks on better footing, making them address all the liquid assets they have. I think you need a real clean-up of the banks balance sheets.

In addition, I think you really need to go back and make banks do what they do: Commercial banks lend money, and investment banks invest in entrepreneurs and to get away from this trading — you know, the hedge fund securitisation, which they’ve all become basically trading operations and securitizations and not put capital back and really grow businesses and to grow the economy. So I think it’s a whole area that just — and I will tell you, the underpinning of this populist revolt is the financial crisis of 2008. That revolt, the way that it was dealt with, the way that the people who ran the banks and ran the hedge funds have never really been held accountable for what they did, has fueled much of the anger in the tea party movement in the United States.

Questioner: Thank you.

Bannon: Great question.

Questioner: Hello, Mr. Bannon. I’m Mario Fantini, a Vermonter living in Vienna, Austria. You began describing some of the trends you’re seeing worldwide, very dangerous trends, worry trends. Another movement that I’ve been seeing grow and spread in Europe, unfortunately, is what can only be described as tribalist or neo-nativist movement — they call themselves Identitarians. These are mostly young, working-class, populist groups, and they’re teaching self-defense classes, but also they are arguing against — and quite effectively, I might add — against capitalism and global financial institutions, etc. How do we counteract this stuff? Because they’re appealing to a lot of young people at a very visceral level, especially with the ethnic and racial stuff.

Bannon: I didn’t hear the whole question, about the tribalist?

Questioner: Very simply put, there’s a growing movement among young people here in Europe, in France and in Austria and elsewhere, and they’re arguing very effectively against Wall Street institutions and they’re also appealing to people on an ethnic and racial level. And I was just wondering what you would recommend to counteract these movements, which are growing.

Bannon: One of the reasons that you can understand how they’re being fueled is that they’re not seeing the benefits of capitalism. I mean particularly — and I think it’s particularly more advanced in Europe than it is in the United States, but in the United States it’s getting pretty advanced — is that when you have this kind of crony capitalism, you have a different set of rules for the people that make the rules. It’s this partnership of big government and corporatists. I think it starts to fuel, particularly as you start to see negative job creation. If you go back, in fact, and look at the United States’ GDP, you look at a bunch of Europe. If you take out government spending, you know, we’ve had negative growth on a real basis for over a decade.

And that all trickles down to the man in the street. If you look at people’s lives, and particularly millennials, look at people under 30 — people under 30, there’s 50% really under employment of people in the United States, which is probably the most advanced economy in the West, and it gets worse in Europe.

I think in Spain it’s something like 50 or 60% of the youth under 30 are underemployed. And that means the decade of their twenties, which is where you have to learn a skill, where you have to learn a craft, where you really start to get comfortable in your profession, you’re taking that away from the entire generation. That’s only going to fuel tribalism, that’s only going to fuel [unintelligible] … That’s why to me, it’s incumbent upon freedom-loving people to make sure that we sort out these governments and make sure that we sort out particularly this crony capitalism so that the benefits become more of this entrepreneurial spirit and that can flow back to working-class and middle-class people. Because if not, we’re going to pay a huge price for this. You can already start to see it.

Questioner: I have a question, because you worked on Wall Street. What is the opinion there on whether they think bank bailouts are justified? Is there a Christian-centered [unintelligible] that they think should be bailed out? The crisis starts earlier than 2008. What was the precedent then? What was the feeling on Wall Street when they bailed out the banks? How should Christians feel about advocating or being against that?

Bannon: I think one is about responsibility. For Christians, and particularly for those who believe in the underpinnings of the Judeo-Christian West, I don’t believe that we should have a bailout. I think the bailouts in 2008 were wrong. And I think, you look in hindsight, it was a lot of misinformation that was presented about the bailouts of the banks in the West.

And look at the [unintelligible] it. Middle-class taxpayers, people that are working-class people, right, people making incomes under $50,000 and $60,000, it was the burden of those taxpayers, right, that bailed out the elites. And let’s think about it for a second. Here’s how capitalism metastasized, is that all the burdens put on the working-class people who get none of the upside. All of the upside goes to the crony capitalists.

The bailouts were absolutely outrageous, and here’s why: It bailed out a group of shareholders and executives who were specifically accountable. The shareholders were accountable for one simple reason: They allowed this to go wrong without changing management. And the management team of this. And we know this now from congressional investigations, we know it from independent investigations, this is not some secret conspiracy. This is kind of in plain sight.

In fact, one of the committees in Congress said to the Justice Department 35 executives, I believe, that they should have criminal indictments against — not one of those has ever been followed up on. Because even with the Democrats, right, in power, there’s a sense between the law firms, and the accounting firms, and the investment banks, and their stooges on Capitol Hill, they looked the other way.

So you can understand why middle class people having a tough go of it making $50 or $60 thousand a year and see their taxes go up, and they see that their taxes are going to pay for government sponsored bailouts, what you’ve created is really a free option. You say to this investment banking, create a free option for bad behavior. In otherwise all the upside goes to the hedge funds and the investment bank, and to the crony capitalist with stocks increases and bonus increases. And their downside is limited, because middle class people are going to come and bail them out with tax dollars.

And that’s what I think is fueling this populist revolt. Whether that revolt is in the midlands of England, or whether it’s in Middle America. And I think people are fed up with it.

And I think that’s why you’re seeing — when you read the media says, “tea party is losing, losing elections,” that is all BS. The elections we don’t win, we’re forcing those crony capitalists to come and admit that they’re not going to do this again. The whole narrative in Washington has been changed by this populist revolt that we call the grassroots of the tea party movement.

And it’s specifically because those bailouts were completely and totally unfair. It didn’t make those financial institutions any stronger, and it bailed out a bunch of people — by the way, and these are people that have all gone to Yale, and Harvard, they went to the finest institutions in the West. They should have known better.

And by the way: It’s all the institutions of the accounting firms, the law firms, the investment banks, the consulting firms, the elite of the elite, the educated elite, they understood what they were getting into, forcibly took all the benefits from it and then look to the government, went hat in hand to the government to be bailed out. And they’ve never been held accountable today. Trust me — they are going to be held accountable. You’re seeing this populist movement called the tea party in the United States.

Harnwell: Okay, I think we’ve got time for just one or two more questions for Stephen K. Bannon, chairman of Breitbart Media, third-largest news organization in the States. I know you’re a very, very busy man, so we’re very grateful for the time that you’ve agreed to put aside for this, to close this conference.

Bannon: I’m never too busy to share with a group that can do as much good as you guys can.

Questioner: What do you think is the major threat today, to the Judeo-Christian Civilization? Secularism, or the Muslim world? In my humble opinion, they’re just trying to defend themselves from our cultural invasion. Thank you.

[Question restated by Harnwell].

Bannon: It’s a great question. I certainly think secularism has sapped the strength of the “I certainly think secularism has sapped the strength of the Judeo-Christian West to defend its ideals, right?” Judeo-Christian West to defend its ideals, right?

If you go back to your home countries and your proponent of the defense of the Judeo- Christian West and its tenets, often times, particularly when you deal with the elites, you’re looked at as someone who is quite odd. So it has kind of sapped the strength.

But I strongly believe that whatever the causes of the current drive to the caliphate was — and we can debate them, and people can try to deconstruct them — we have to face a very unpleasant fact: And that unpleasant fact is that there is a major war brewing, a war that’s already global. It’s going global in scale, and today’s technology, today’s media, today’s access to weapons of mass destruction, it’s going to lead to a global conflict that I believe has to be confronted today. Every day that we refuse to look at this as what it is, and the scale of it, and really the viciousness of it, will be a day where you will rue that we didn’t act [unintelligible].

Questioner: Thank you very much. I’m [unintelligible]. I come from Slovakia. This is actually the source of my two very quick questions. Thank you very much for the work that you do to promote the Judeo-Christian values in the world. I really appreciate it, and I also feel that the danger is very high. I have two minor questions, because you have mentioned, in terms of UKIP and Front National [unintelligible]. From the European perspective, listening to the language which has become more and more radical from these two parties, especially before the European Parliament elections, I’m just wondering what are your plans on how to help these partners from Europe to maybe focus on the value issues and not with populist? And also it goes in terms — you have mentioned the involvement of state in capitalism as one of the big dangers. But these two parties you’ve mentioned, they actually have close ties with Putin, who is the promoter of this big danger, so I’d like to know your thoughts about this and how you’re going to deal with it.

Bannon: Could you summarise that for me?

Harnwell: The first question was, you’d reference the Front National and UKIP as having elements that are tinged with the racial aspect amidst their voter profile, and the questioner was asking how you intend to deal with that aspect.

Bannon: I don’t believe I said UKIP in that. I was really talking about the parties on the continent, Front National and other European parties. 

I’m not an expert in this, but it seems that they have had some aspects that may be anti-Semitic or racial. By the way, even in the tea party, we have a broad movement like this, and we’ve been criticised, and they try to make the tea party as being racist, etc., which it’s not. But there’s always elements who turn up at these things, whether it’s militia guys or whatever. Some that are fringe organizations. My point is that over time it all gets kind of washed out, right? People understand what pulls them together, and the people on the margins I think get marginalized more and more.

I believe that you’ll see this in the center-right populist movement in continental Europe. I’ve spent quite a bit of time with UKIP, and I can say to you that I’ve never seen anything at all with UKIP that even comes close to that. I think they’ve done a very good job of policing themselves to really make sure that people including the British National Front and others were not included in the party, and I think you’ve seen that also with tea party groups, where some people would show up and were kind of marginal members of the tea party, and the tea party did a great job of policing themselves early on. And I think that’s why when you hear charges of racism against the tea party, it doesn’t stick with the American people, because they really understand.

I think when you look at any kind of revolution — and this is a revolution — you always have some groups that are disparate. I think that will all burn away over time and you’ll see more of a mainstream center-right populist movement.

Question: Obviously, before the European elections the two parties had a clear link to Putin. If one of the representatives of the dangers of capitalism is the state involvement in capitalism, so, I see there, also Marine Le Pen campaigning in Moscow with Putin, and also UKIP strongly defending Russian positions in geopolitical terms.

[Harnwell restates, but unintelligible]

Harnwell: These two parties have both been cultivating President Putin [unintelligible].

Bannon: I think it’s a little bit more complicated. When Vladimir Putin, when you really look at some of the underpinnings of some of his beliefs today, a lot of those come from what I call Eurasianism; he’s got an adviser who harkens back to Julius Evola and different writers of the early 20th century who are really the supporters of what’s called the traditionalist movement, which really eventually metastasized into Italian fascism. A lot of people that are traditionalists are attracted to that.

One of the reasons is that they believe that at least Putin is standing up for traditional institutions, and he’s trying to do it in a form of nationalism — and I think that people, particularly in certain countries, want to see the sovereignty for their country, they want to see nationalism for their country. They don’t believe in this kind of pan-European Union or they don’t believe in the centralized government in the United States. They’d rather see more of a states-based entity that the founders originally set up where freedoms were controlled at the local level.

I’m not justifying Vladimir Putin and the kleptocracy that he represents, because he eventually is the state capitalist of kleptocracy. However, we the Judeo-Christian West really have to look at what he’s talking about as far as traditionalism goes — particularly the sense of where it supports the underpinnings of nationalism — and I happen to think that the individual sovereignty of a country is a good thing and a strong thing. I think strong countries and strong nationalist movements in countries make strong neighbours, and that is really the building blocks that built Western Europe and the United States, and I think it’s what can see us forward.

You know, Putin’s been quite an interesting character. He’s also very, very, very intelligent. I can see this in the United States where he’s playing very strongly to social conservatives about his message about more traditional values, so I think it’s something that we have to be very much on guard of. Because at the end of the day, I think that Putin and his cronies are really a kleptocracy, that are really an imperialist power that want to expand. However, I really believe that in this current environment, where you’re facing a potential new caliphate that is very aggressive that is really a situation — I’m not saying we can put it on a back burner — but I think we have to deal with first things first.

Questioner: One of my questions has to do with how the West should be responding to radical Islam. How, specifically, should we as the West respond to Jihadism without losing our own soul? Because we can win the war and lose ourselves at the same time. How should the West respond to radical Islam and not lose itself in the process?

Bannon: From a perspective — this may be a little more militant than others. I think definitely you’re going to need an aspect that is [unintelligible]. I believe you should take a very, very, very aggressive stance against radical Islam. And I realize there are other aspects that are not as militant and not as aggressive and that’s fine.

If you look back at the long history of the Judeo-Christian West struggle against Islam, I believe that our forefathers kept their stance, and I think they did the right thing. I think they kept it out of the world, whether it was at Vienna, or Tours, or other places… It bequeathed to use the great institution that is the church of the West.

And I would ask everybody in the audience today, because you really are the movers and drivers and shakers and thought leaders in the Catholic Church today, is to think, when people 500 years from now are going to think about today, think about the actions you’ve taken — and I believe everyone associated with the church and associated with the Judeo- Christian West that believes in the underpinnings of that and believes in the precepts of that and want to see that bequeathed to other generations down the road as it was bequeathed to us, particularly as you’re in a city like Rome, and in a place like the Vatican, see what’s been bequeathed to us — ask yourself, 500 years from today, what are they going to say about me? What are they going to say about what I did at the beginning stages of this crisis?

Because it is a crisis, and it’s not going away. You don’t have to take my word for it. All you have to do is read the news every day, see what’s coming up, see what they’re putting on Twitter, what they’re putting on Facebook, see what’s on CNN, what’s on BBC. See what’s happening, and you will see we’re in a war of immense proportions. It’s very easy to play to our baser instincts, and we can’t do that. But our forefathers didn’t do it either. And they were able to stave this off, and they were able to defeat it, and they were able to bequeath to us a church and a civilization that really is the flower of mankind, so I think it’s incumbent on all of us to do what I call a gut check, to really think about what our role is in this battle that’s before us.

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