Australian Economics At a Glance

For you to fully enjoy the laugh and tears of this bungle, let me describe the exact background and understanding related to the state of Australian economics. Just bear with me in this 3 paragraphs and you have more laugh!

Like it or not, the world just got trough the biggest financial crisis in the history (thanks mostly to US banks!). And to my surprise, Australia is one of the few countries in the world that did not go into recession, technically. (The definition of recession requires 2 consecutive quarterly negative economics growth of economics, it didn’t happen – yes, some slow down happened but no recession). Why? Well beside the abundance of treasure in the ground, we need to admit that the excellent and strong shape of Australian Banking is one of the reason we got thru the hard time with less pain.

Australia is dominated by only 4 big banks, namely: Commonwealth Bank, Westpac Bank, National Australia Bank and ANZ Bank (Australia and New Zealand Banking Group) dubbed as “the big four bank”. This is the situation of Australian Big Four Banks:

(*)All are 12 months to September, except CBA which is ended in June<

Then afraid of high inflation instead of recession, the Reserve Bank of Australia become the first and the only reserve bank in the world to increase the cash rate 3 times for the last 3 months after record low of 3.0% since April 2009. Each by 0.25%. This is where all this saga starts…..

Westpac Bank and Banana Smoothie

The WestPac Saga

Tuesday, 1 December 2009 14:30, Reserved bank announce that they will hike interest rate by 25 basis point. That’s 0.25 increase from 3.50% to 3.75%. This practically means, if you have a mortgage of $300,000, you will pay additional $62.5 per month.

And this is the sequence of events:

1. Only less than 2 hours later, Westpac announced that they increase their interest rate by 45 basis point, almost double than what RBA did. This practically means, if you have a mortgage of $300,000, you will pay additional $112.5 per month. In Australia, bank is not required to follow the reserve bank as the competition is expected to self adjust the action. (The problem is hardly any competition so far)
2. Immediately condemnation from politician, economist, customer and community all around the country. Federal treasures Way Swan comment “I see no justification at all for this move by Westpac”. He also added that the excessive rise is a “slap in the face” for consumers. He warned the bank to brace itself for a possible “customer backlash”
3. National Australia Bank (NAB) deliver an uppercut to Westpac, they decided to raise on 25 basis point. The other 2 big four “play save” with ANZ increase 35 basis points and CBA increase 37 basis points. With its standard mortgage rate is no 0.27% cheaper, NAB take he competition to another level. Even they have “mobile branch” that camp outside Westpac prominent Sydney branch with its staff wear “It’s time for a change?” t-shirt.
4. Monday 7 Dec: Westpac said “We’re not the JetStar of banking.’’ (I guess this should be a compliment to JetStar, one of the leading low cost airline in Australia) – So, basically Westpac said: “No, our products are not cheap”. Also  Westpac chief executive Gail Kelly added ‘‘We’ve been holding back from passing on additional costs,’’ she said.

The Banana

Then Westpac send a video clip to explain themselves to customers which turn out to be public relation nightmare. Here is the banana:

Basically what the video said: since it’s okay for the banana smoothies seller to increase the price without any fuss when banana disappear because of storm, why people is really fussy about us (Westpac) increasing the mortgage rate when the supply of money disappear

Westpac again need to defend themselves -  after the video become viral and disastrous – that the video is actually not for customer, it’s only for internal training for staff. (Probably this is quite an insult for the staff, then)

About the video itself, it’s actually quite good for explaining the basic economy and banking. I am quite surprise that Westpac with the old and conventional style could embrace this very Web 2.0 element.

Your Laugh & Tears

• Hey, the video is great to teach my 7 years old about basic trading, money and banking !
• It’s classic corporate greed at its finest. Like 5 years old caught red handed with hand still in the cookie jar and trying to explain themselves with stutter.

• They forget that they just made another $3 billion after another $3bilion last year…

• This really remind me of the great clips explaining about credit crisis. Pretty sure Westpac get the idea from them.
• Wish can switch to other bank easier… (The cost to exit current contract, and switch to another bank is quite expensive and too much paperwork – it’s still usually cheaper take a deep breath , sigh, and just pay the higher interest)
• Doesn’t matter 45 basis point or 25 basis point, it is still INCREASE !! (And other bank does not really take the heat)

Message to WestPac

• There should be other banana smoothie seller out there. Don’t think you are the only one with banana…
• Last November you still gave dividend 60c per share, even beat the market expectation by 4 cents. Hence, there is no sign of cash flow problem, isn’t ?
• Don’t be overly comfortable about the lack of competition. If NAB with smaller cash and customer can do it, why can’t you ?
• Understand that you work to please your shareholder, but angry customer will be much more important than any shareholder…. Just see
• Agree with Wayne Swan: “There is no justification” – just greed.

Don’t get me wrong, I support capitalism where competition and open market rules everything. But where the competition is lacking (Thanks to NAB to start one, let see how it goes), there is no other choice than government to wet its feet: regulates this sector.

After all, an affordable mortgage is to underpin things as basic as a home, people’s most basic things in life as remarked Prime Minister Kevin Rudd when criticized Westpac

For security reason, could you tell me ….?

For security reason, can you tell...

When you call your service provider and asking about specific detail of your account, this question will always come up in the conversation. Start from date of birth, mother maiden name, email address,  current address to some other difficult question such as when the account was open (who remember this?) or even the amount of the last credit card transaction. Sounds familiar ?

Well, for this one, it’s all still good and within reason. After all, they need to protect your privacy, isn’t it? You call them to access some sensitive data, they need to know whether you are really the person that authorized to access the account before giving the information. Yes, it’s not fool proof as somebody close to you may actually impersonate you and pass this verbal questioning, but it’s quite effective and easy to the extend that almost all company use this method.

But, now… They are the one who call….

What if the company is the one who call you at your number ? The conversation will be something like this:

“Hi, this is Jane from [Your Bank], may I speak to John, please ?”
“Yes, John here. What’s up?”
“We have some transactions on your account that need to be confirmed with you, do you have time now”
“Yes, sure. What transaction you are talking about ?”
“But before we continue, for your security, can you confirm your date of birth, please ?”

Right there at that point: what would you say ?

Since we get used to this kind of verbal identification process, it’s not surprising that people will go ahead and answer the question as per normal. It is okay (at least safer) to answer this kind of check when you call the company as you know exactly who you call to (at least the company or bank name) – yes, people that can hijaak the communication system will still be able to mis-use it, but that require major criminal operation to hijack the exchange, so less likely happen.

But for identity theft or people doing fraud and scam, how difficult is it to go to the pay phone/public phone and initiate the conversation above for evil purposes? It’s very easy!
Also, this outgoing call from company will usually hide their number. But so does the public phone. So there is no way you can see on your caller ID from where it is calling.

So, the conversation should continue like this:

“Sorry, that’s not how it works. Can you give me some kind of reference number and I will call back to you straight away”
“Sure, I understand. Please quote this reference number ABC1234 when you call. Our call center is 1800123456. We will wait for your call, then. Thank you”

Another Corporate Bungle…

I think all those companies who keep doing the verbal verification where they are the one who initiate the call need to be slapped in the wrist.  They should know better the privacy and security best practices. Similar like the scam email impersonating banks to click the fraudulent website. They will never sent such email for their own reputation. Then they should not do this kind or verbal identification (where they are the one who call)

It does not prevent any company to call any customer though, but if some privilege information is involved and some verbal verification is needed then customer has the right to do the right thing.

The most important thing

But the most important thing is that you should be the one aware of this potential threat and act accordingly when it happen. Be responsible and take charge of your own privacy and security.

Also, this should make you think twice to put all your life and details on facebook, friendster myspace and the like….

Background

I am member of one of great Eastern Suburbs golf club in Sydney (at this stage I make the name of the club anonymous ). A few year back our family decided to move further west to get our first step of the great Australian dream: having our own home and we move further west. After a year there, it turns out that driving almost around 100km return for a round of golf is rather tiring, so I decide to put my membership on hold and play nearer course instead. Yes, there is a scheme to put my membership on hold for a few years, so I don’t lose my joining fee when I want to go back to your club later on. And there starts this story.

The Bungle

Let say I pay $150 per year for holding the membership, while the full member rate is $2000 per year (Yes, the number is not the real one for anonymity, also I drop all the frills: house fee NSW GA affiliate fee, etc for simplicity). And also let say the membership year is fixed from January to December (all member have the same membership period).

So, by paying this $150 I am entitled to not paying my full rate for 12 months without losing my joining fee (no need to pay joining fee again when I become active member again next year). Let us also say that after 6 months of holding off my membership, I cannot stand it anymore, I want to go back and play in the club again. The question is how much now I have to pay to become active again?

Well, when I ask the question before, the answer is “it will be pro-rated”.  So, I make a quick calculation: (6/12) x $2000 = $1000. Guess, what? Nooooooo…

I was asked to pay: $2000 – (6/12) x $150 = $2000 – $75 = $1850 for 6 months membership -or- $308 per month. While the standard rate is $2000/12 = $166 per month. They do the pro-rata calculation only on the holding fee and refund the rest, but the full year rate still need still to be paid in full. WTF ?

Let’s do another extreme example: let say I want to be back at the club at November (leaving only 2 months on that year’s membership cycle), how much I have to pay? Yes, you get it right: $2000 – (2/12)x$150 = $1,975 -or- $987.50 per month for 2 month membership… Who want’s to pay $1975 only for 2 months while other pay $2000 for 12 months?

The more normal approach will be (2/12) x $2000 = $333 for 2 months – may be plus some $50 administration fee or something.

Strange Policy, Arrogant or Just Silly ?

I ask that question “Who want’s to pay $1975 only for 2 months ?” to that officer from the club that attend, and his answer was “I would advise that you just wait another 2 month before activate your membership back” … Haloooo ????  In other words, the club prefers to get only $150 from holding fee rather than $483 ($150 holding fee + $333 2-months membership) -  more than 300% income from that member.

I also asked, why the club having the policy. And listen to the answer… which is “to be fair for the rest of the member“. To tell you the truth the the lamest excuse I can even thing of. The club is saying since active member pay $2000 for 12 months membership, then it is unfair for them if other member who only enjoy half the membershipperiod (6 months to pay only half. Can somebody tell me where is the logic here ?

And it become more absurd when he added “what if someone have some financial difficulties or something that want only to pay half for half year, it’s not fair for others” – Well, again absolutely against any sane thinking: when the club agreed to be paid $150 holding fee , the club giving the member a pause of membership due for the full 12 months. If that member  wants to return to the club before 12 months, that a bless for the club as additional income is the direct result. As for the fairness, what kind of fairness more fair than “half benefit, half pay – full benefit, full pay”? Furthermore just at a matter of “financial difficulties”, what wrong if a sport club is helping member that is under financial difficulties? – unless of course if the purpose of the club is to rip-off member.

From commercial/business point of view, this matter also really out of the norm. Since when, a commercial entity refuses to get some more income that not only legal, but also show the spirit of fairness and even sportsmanship more than anything else….  I really cannot understand.

Conclusion

I would say that the whole policy about this issue is not only strange, silly and arrogant with it could violate some fair trading rule (Although I have not check with fair trading as yet – I’ll comeback with it later here). For me, I don’t want to pay that extra premium rate that they want to rip-off from member, I just wait the next cycle. I just can sigh: $1000 is Better than $150, Silly!

Monday, 8 Dec, I got the weirdest margin call I’ve ever know: my broker call ans ask me to deposit some money to cover the margin for my option position. Well, fair enough… but which one? The one needed margin cover is the Covered Call¹ Option position. The problem is that I have covered that position with the stock that being optioned itself.

Background

I have covered call position on OZL (OZ Mineral Ltd) for December 2008 expiry date. As we know, on 1 Dec 2008, OZL have requested to suspend the trade of their security pending some refinancing issue. The suspension is expected to last up to end of December.

Then because of the suspension, both stock and option trading stop and basically all OZL security activity is being frozen on the market. And ACH then decide to declare the OZL security is illegible as  collateral/margin. Have a look at the excerpt of ACH and ASX Market Notice #22308 below ²:

…ACH may from time to time require the removal of collateral securities lodged with ACH where these securities are subject to a corporate action or event. This is done in accordance with standard procedures which apply when any corporate action or event has collateral implications for ACH.

On 1 December 2008, OZ Minerals Limited (OZL) announced that the Company will be
suspended from quotation prior to the commencement of trading on Tuesday, 2 December
2008.

ACH and ASX Participants are advised that all OZL shares lodged as collateral with ACH
must be removed before or by the close of business, Wednesday, 3 December 2008. Any
collateral held after that date will be removed by ACH.

The Real Problem

The removal of collateral securities lodged with ACH is routine item and is needed to ensure the margining system is working smoothly. For example, people doing “Naked Put” for BHP securities can lodge OZL securities as the collateral instead of cash. Since OZL securities is non-liquid, it’s a reasonable and required decision to remove OZL securities as collateral and demand other collateral such cash or other security. I understand this fully and support it. BUT NOT FOR COVERED CALL !

People who buy the call option have the right to buy the security at strike price. So the collateral on covered call is just to make sure that the writer of the option have enough money to buy the securities from the market and sell it cheaper (hence making a loss) to the option holder that will exercise the option.

Now, having already the stock itself for collateral (Providing OZL securities for OZL call option collateral) is actually the most secure and reliable way to ensure smooth transfer in case of exercise. Once the option exercised, the ACH just need to transfer the security to the new owner. Nothing else to be done.

Asking cash collateral for call option is actually more risky. Imagine if the stock price shoot up 100%, then ACH will need to demand 100% of the amount. Then, what is the real reason to reject OZL securities as collateral of OZL call option ? Let see what is the possibility:

• If the OZL securities shoot up above the strike price of the option, ACH just need to hand out the stock to the option holder who exercise the option. That’s it.
• If the OZL securities goes down below the strike price of the option, no one will exercise the option anyway, so nothing to be done.

So, the real problem is ACH reject the securities that being optioned as collateral and asking cash margin which is more risky and totally unnecessary if you have the stock itself as the collateral.

Does Mr Eddie Farah who authorized the removal of all OZL securities, know about this basic fundamental of how option works? If he knows, why he still remove the collateral for the covered call? Does ACH know what they are really doing ? Anybody could lighten me up, please ?

The Effect

The obvious effect for option writer is of course unnecessary margin call. People who hold about $50,000 worth of OZL securities have to lodge more than $15,000 cash collateral.

But the real damage for wider audience is losing confidence. Does ACH knows what they are doing? If the official clearing house of ASX does not know the real effect of their action, who does ? Or is this careless decision is just because of negligence of certain person only ?

What should happen?

The solution of this problem is just simple additional 1 line of English sentence of the notification. The market notification/decision should read:

….

ACH and ASX Participants are advised that all OZL shares lodged as collateral with ACH,  except those lodged as collateral for OZL call option, must be removed before or by the close of business, Wednesday, 3 December 2008. Any collateral held after that date will be removed by ACH.

See… easy and everybody is happy ! Nobody can complain or whinge about this matter anymore, even me.

Is that easy enough or I am asking too much ?

If you are one of those affected, or market participant that tired being played by ACH or anybody else that care about the credibility and the correctness of stock market, please kindly have your thought heard via the comment box below. Thank you.

p.s: I have tried call the ACH and email them, but as expected, no one wants to talk to small retail investor like me. It seems the broker also does not seems interested to stand up for their customer. Hence this post!

Well, it’s has been wonderful for the last 6 years. Until one day they claim they “upgrade” their software. And it started.

Could you give more money, please ?

I chose to have smaller credit limit as possible. So, every month I usually need to ‘top up’ (pay off some) before the due date for me to be able to keep using it for the rest of the month. For good six years with this bank, that always been my ‘customer behavior’. If there is still outstanding money, the auto-payment will take care the payment.

This particular month, somehow the auto-payment transact weird amount of money from my saving account to my credit card. It somehow calculate only part of the ‘manual payment’ that I have. For example: if my debt were $2000 total, and I paid $1500 already, then usually the auto-payment will take $500 only. Not this time. The auto payment take almost the whole amount say $1750. Weird number.

So a call to customer service is due. At first the CS representative remind me that all manual payment need to be transacted at least 4 days clear of the due date. But she then have nothing to say after comb through my account because her theory simply does not add up. She claimed that a software upgrade was just done and someone will look into it. She apologized and I received the refund in 3 days. Good one.

Unfortunately, the next month it happening again. Same exact scenario. I received a sorry and the refund of over-payment in no time. But you know that “someone will look into it” is just a lips service.

You see, I have been in software industry before and understand that bug is always lurking. The testing and fool-proofing a system is more than 50% of the process. But if a big bank with huge resources cannot catch this simple addition formula:

[Amount to be transfer]= [Amount due] – [Amount already paid]

Don’t you a bit worry ?

Third time charm

And you won’t believe it. It happened again 3 months in a row! Again, refund in few days with apology. But this time my patience is a bit over.

I make letter of complaint to their official complaint handling procedure about this bungle. I also contribute a flowchart for them to fix the problem (of course for free)…

But at the same time, I cancel the auto payment system. I decided to end this situation and choose to take 100% responsibility of the payment.

Nice Surprise

I started to forget the whole thing as I received a nice surprise call. They acknowledge the problem and also offer me some compensation which I gladly take.

So one good lesson if the bank fed you up, don’t fiddle with that nice customer service reps, save your energy and just write the letter according to their complain handling procedure. Apparently they are required by law to response, if not, ombudsman is the next step.

I still do my manual payment, though….

Unleashed Your Marketing Genius (UYMG – PDF dump, 276k) is one of the signature event from the great Stephen Pierce. With proud, yes, I am one of his disciples.

The Promise

All participant were bound to bring the laptop. The promoter even suggested a rental unit if anybody got difficulty with one. A pre-home work also assigned and everyone is promised “dedicated Internet Connection for the full duration of the event”

Of course it’s not free. For this internet access, $295 was the ticket price. This is on top of the program enrollment of $2500 per person.

Well, for 3 days internet access, at about $100 per per day, that’s quite an expensive internet access
But that’s the cost of education, isn’t it ? Or is it ?.

Internet ? What Internet?

On the first 10 minutes of entering the Grand Ballroom of Acer Arena, nothing in my head will alert me about major problem with the internet connection. After all, it’s the Olympic 2000 site. There was hundreds of journalist there all with connection during the olympic, so the infrastructure is not a problem.

“Cool, no wiring, all will be wireless..” I told my friend. Turn on computer, login, select access point, open Sydney Morning Herald website. Quite fast. No problem.

But wait until everybody ready with their laptop, about 300 of them. One by one all the connection knocked out and the familiar “Server Not Found” or “Internet Explorer cannot display the webpage” turning up. Even my laptop. Not only cannot connect to internet , my laptop even cannot connect to the network – probably the DHCP was running out of IP address. But we are not alone, even Stephen himself experience the same problem right there on the stage with huge projector.

In the afternoon, tehnicians were called and additional wired connection is being setup. It helps a bit, at least everybody got LAN connection, but internet? What internet ? The presenter have to ask the audience not to follow the website that he went. All interactive activity were cancelled. It’s no longer workshop, just show and tell as usual. Until the last day, the condition is not improved.

Embarassment for Australia

Well, Empowernet is at it again (see Credit Card bungle). They know exactly how many person will attend (as they need to pay before hand), so the math will be simple:

[bandwidth required]=[bandwidth per person] x [number of person]

So, if everybody is given 56kbps (dial-up bandwidth), then with 300 laptop in the room, therefore at least 16.8 Mbps uplink need to be allocated.

There are 2 possibilities that is the root-cause of the problem, nothing else:

1. The IT contractor did not deliver what they should provide.
2. Empowernet did not order enough bandwidth (obviously for cost cutting)

But either way, Empowernet – as promoter and organizer – is responsible for the problem and make an embarrassing event for Australia.

Stephen Pierce and team do the UMYG program all over the world. Of course, they depended heavily from local organizer to make everything right. In this case, Empowernet has damaged Stephen’s reputation as well. All the 300 attendee would went home with a grudge how awful is the internet connection at UYMG which is one of Stephen’s signature event.

If Stephen and team did not take any legal action or compensation on this UYMG, I would reckon that’s early Christmas gift for Empowernet. Because I can guarantee it will be there on their contract whose responsibility was the internet connection.

Apology

“Stephen, sorry about that, mate !”
As Australian, I feel embarrass by this problem, we do have broadband here !
As one of the attendee, I feel that UYMG definitely will be much better without this bungle.
Perhaps there is other better promoter/organizer here down under that you can choose for your next UYMG !

“Oh, hello. Is this Mr Kristanda ?” – a pretty voice on the other side.

“Mr. Kristanda, we have a problem with your credit card, sir …”

This big international seminar promoter “Empowernet” who carry some big name such Anthonny Robbins on their pay check, contacted me in relation to my installment payment of one of the program that they sell.

For you that ever go to any motivational or investing seminar, you should know this scheme. The presenter shows great product then he/she offers big discount to buy the product “only for today”, “for the first x person” and “save $x000″. This scheme is one of the main cash flow for any seminar promoter as they got big chunk of the proceed (at least 50%) as their commission and time slot on their seminar.

I am one of that ‘victim’ … Well, to my defend, as I want to buy the product and it’s still affordable and furthermore they provide 3 installments without interest, why not ?

The big problem with this company is their administration and infrastructure are not good terrible. Judge yourself: broken sign-up page on the website, no confirmation/ receipt after online purchase (both programming related error), non-responsive customer service / technical support (I try to feedback those website problem with email/call for three months without any response) and the account is a bit chaos.

My credit card was supposed to be charged 4 weeks apart for “easy budgeting”: November (purchase month), December and January. Somehow they “forget” to charge the December one. They just charge the January one on 30th, and this call is 1 week after that. Yes, this time I am on the advantage as payment delay always good for customer.

“Is this for the final payment?”, I asked the girl
“Yes”
“I think I remember that you just charged my credit card last week”, I am probing whether they know that the missed the December payment.
“O, yes, sir. We did not charge your credit card on December, so this is the final one.” So, they know exactly.

Probably she is under pressure to take the money as soon as possible.

“OK, what’s the problem with my credit card ?” (Genuine question, the credit limit still quite far)
“Hmm, yes, Sir. We cannot charge your credit card. We got the message from the computer”

“What is the message?”
“It’s.. Host Not Found. Do you have any alternative credit card?”

(What the ???? …lol… I almost chuckle immediately, but I just cough. Then, I just told her to contact IT support. For non-geek: the real problem she had was the internet connection, not the credit card)

Knowing that on Feb 2008 (that month) there is scheduled for Extraordinary General Meeting, it is clear to me that they are in a hurry to patch up the Half Yearly report. The company is in $320k loss the year ended 31 Jan 2007.