Money Farm

by Clif Miller

  Chapter 5

  Still at the restaurant, the conversation turned gradually to the seriousness of making some more money. Less than six months from the start of the combined enterprise, Jim was able to count a clear profit of well over one million dollars, and Peter had made almost thirty-five million dollars after taxes and expenses.

  Peter led the discussion.

  “You know ” he said, “while I was having my little interview with the gentlemen from the very revered Australian taxation department, one of them let slip a tidy little bit of information that might guide our thoughts on the next project. I was just making a point about taxation of capital gains on short selling and pointed out all the tax benefits given to MIS scheme promoters.”

  “What’s MIS?” asked Peg and Angelique almost in unison.

  “Managed Investment Schemes. Once they were exclusively forestry plantations I think, but then they spread to things like horticultural crops such as wine grapes and olives as well as cattle and even emus.”

  “Yes, I know about them” said Jim. “They gave tax breaks often up to 150 percent on investments in trees or whatever because of the long lead time before you got any return.”

  “That’s correct” said Peter. “Anyway, we were having this little chat when this bright fellow, Robert, said that the Tax Office is shortly going to close down all these MIS schemes and even charge tax retrospectively. So there’ll be people who thought they were getting a tax break and put loads of money in now finding out that they have a huge tax bill to pay. Many of them will have to sell out of the MIS schemes and take a loss. But do you know what the great thing is? Some of these companies also have shareholders and the shares are listed on the Stock Exchange.”

  Jim expressed some shock that Peter had got information from a Taxation official to which Peter responded by reiterating that it was all in the way in which questions were asked. If you lead a horse to water he had said, then sometimes it will drink a surprising amount. So I just played around with the issue until I got this fellow spouting off about things to come. So even while Peter was under the pressure of an interview regarding his money-making he had had the foresight to pump the officials for ‘insider’ information. That’s what I like about my younger brother, mused Jim.

  “So we sell them down before the proverbial hits the fan, eh Pete?” said Jim.

  “Like taking candy off a blind man” said Peter. “We just need to work out the timeframe so we don’t tie up funds that we may be better able to use elsewhere. I’m going to put the word out to a couple of other people I know who might be able to sniff out what the expected tax change timetable will be.”

  “I thought I read something about that recently. Perhaps it’s already public?” replied Jim.

  “No, they put out smoke screen stuff and then back away to test public reaction. The real action will be when the Government suddenly goes ahead and rules a line in the dirt so to speak,” said Peter.

  “Yeh, knowing that would be the trick I guess?” replied Jim.

  “Exactly” said Peter. “So while you’ve got part of your mind on trees and stuff, how about we think about the business of private equity capital?”

  “What’s that?” said Peg.

  “Well it’s these corporations, often American, that have gathered so much money together that they literally have hundreds of millions of dollars or even billions. They then go on the war path looking for vulnerable companies that they can take over, gut out and sell the choice bits then leave the rest to rot on the vine.”

  “Is that the connection with the MIS, rotting on the vine?” laughed Peg.

  “Seriously Peg, Pete’s trying to make a point here” said Jim, in some mild frustration. “Go on mate.”

  “Well,” said Peter, “the way I see it, sometimes these corporations are really out just to manipulate the stock price. Just suppose, for example, there’s this fairly ordinary company, say an airline, struggling to stay afloat, eh? Well, along come the white knights as they are known in the business, ‘tally ho’ and all that, to rescue said airline and inject loads of cash into it to get it up and running again. Now what do you think will happen to the share price of the airline?”

  “Alright, we get it. It soars, not to put too fine a pun on it” rejoined Angelique.

  All eyes went briefly towards Angelique who so rarely contributed that it was almost a given that she merely observed a three-way interaction. Evidently, thought Jim with some surprise Angelique also has a solid grasp on what we are all doing.

  “Why does the price soar?” said Jim. “Surely the airline has a fairly fixed amount of earning capacity, fixed levels of debt and on-going expenses?” he continued. “But I suppose it soars because people come to believe the new team can do a better job and make more profits for shareholders” he observed, answering his own question.

  “Yes but here is the real point. Suppose the private equity group has no intention of actually coming good with the cash. In fact, they’ve planned the whole thing to boost the share price. What do you think they’d be doing in the back room while the share price is in top gear, knowing that they are going to withdraw from said discussions?” asked Peter.

  “Selling plenty of shares” said Peg.

  “You forgot one thing” said Peter. “They don’t yet own the bloody shares. So they are selling them short. Later, when the talks break down as intended, the price slides back to earlier levels and the rest is a piece of cake.”

  “Isn’t that all just so corrupt?” said Jim, deliberately mimicking a guileless broad grin like that of a clown at the circus.

  “So, what do we do here?” said the more practical Peg.

  “I don’t know yet but I’m catching a rumour that there may be a private equity go at one of our two major airlines very soon. It might even affect both airlines. If so, watch this space. We should wait until the talks are well advanced and the share price is well up into the stratosphere. Then sell down heavily and wait to pick up the pieces when the share price falls.”

  “ Maybe it won’t fall” said Jim.

  “It’s a certainty. The shares will be so overvalued even if the takeover completes they’ll never sustain the price at those levels. Anyway, who’d really want an airline with the world clearly heading into high oil prices. Just look at the oil price in the last twelve months” Peter responded.

  “So this would be just an opportunity awaiting astute market investors, Pete?” said Jim.

  “Yes” said Peter, but we could give it a little shove along.”

  “How mate?” said Jim.

  “What about if we got someone inside the airline’s engineering team to give us a helping hand?” said Peter, quietly.

  “You don’t mean what I think you do?” said Peg.

  “No, not to cause any sort of major disaster or anything but many things can be done to upset planes in minor ways. Like mucking around with the air conditioning unit and forcing a plane to make an unscheduled stop. Like causing an oxygen tank to leak and thus setting off gas alarms or the like” replied Peter.

  “Okay, so you want Peg and me to go to the aircraft repair shop and literally throw a spanner or two into their works, eh?”

  “Not this time, mate. But there are always people who can be paid for such little faulty repairs you know” said Peter.

  “How do you find them?” said Jim.

  “Not here in Australia. Some of our airlines are sending planes overseas for regular maintenance. In Taiwan they have aircraft repair and maintenance companies as they also do in Singapore and other parts of South East Asia. All about bottom line profits you know. So what we do is hire an agent to find an appropriate employee who is willing to do a little extra maintenance that was non-scheduled.”

  “Do you know such an agent?” asked Peg.

  “I wouldn’t have mentioned it if I didn’t” said Peter.

  “So what if your efforts to muck around with the share price of said airline conflict with a take-over
bid, or a pretend take-over bid for the same airline?” asked Jim.

  “We’ll wait to see if there’s any truth to the rumours about a take-over. Then we’ll wait till the share price rises” responded Peter.

  “Then sell it down again” said Peg, getting thoroughly into the swing of things now.

  “You are becoming an expert” said Peter. “Don’t forget that if we’re right about the private equity partners’ real intentions we’ll have competition when we start selling down the shares” he added.

  “So that will mean a very short time frame to sell down” said Jim.

  “Right” said Peter. “But we have to wait for the thing to happen first, so with this one we bide our time, but keep some cash in the float with the broker. We might only have days to sell at the top. We’ll then have months to await the full impact of the fall and we can sell close to the old price or even lower.”

  By the time Jim and Peg returned to their home in Summer Hill it was with a feeling of euphoria. Their future was looking rosier every day. New challenges lay just around the corner and new opportunities would doubtless arrive beyond that.

  “I don’t know why I put up with that crap job at the University for so many years Peg” said Jim. “It’s like all my life I worked to make enough money just to avoid being eligible for an old-aged pension. I worked my butt off with never any thanks, just rising expectations. Every time a job was well done it was ‘so now do this even bigger job’. On and on the grind went, and what for? We’ve cleared more money in six months than I could ever have dreamed of. And still lots to go. Thank God Pete came to the rescue.”

  “You know my job as a social worker wasn’t much easier. All those years with three kids at home and a full time job in the public service. And I got paid much less than you remember” said Peg. “But now things are going just great, aren’t they?”

  “I do hate that slang you picked up while we were away” said Jim.

  “Oh go on, you’ve fallen into the slang trap too” replied Peg. “I hear you talking to Pete like two little kids when you’re reminiscing about the days in the old housing estate. I loved the story of the dunny man spilling the can right over himself when you put a trip rope out for him. Must have been horrific.”

  “Dad gave us the worst thrashing he ever dished out over that little episode. Apparently the guy was in his union. How were we to know?” said Jim.

  “Anyway, all this getting together with Pete lately has brightened up our lives a bit eh?” responded Peg.

  “Yes ” said Jim. “Do you know I’ve just checked our wealth position and if we keep going at this rate for another year we’ll be able to buy an apartment somewhere over near Pete in the Eastern suburbs; possibly even one as spectacular as Pete’s.”

  “So what will you want then? More money? More meals out like that one? Or just to begin to relax again like when we first retired. You know you haven’t made love to me in weeks” replied Peg.

  “I’ve just had a lot on my mind, that’s all” said Jim.

  “Not another woman then?” asked Peg.

  “There’ll never be another you Peg” he said.

  “That’s not what I asked” Peg replied.

  “Okay, I’d very much like it you would be my lover tomorrow afternoon. Please turn up at the front door dressed in something extremely revealing and I’ll invite you in to our boudoir while madam is out shopping. Shall we say about 3 pm?” Jim responded.

  “Yes, Sir. Now I think I’m ready for a good night’s sleep” said Peg.

  The little afternoon encounter was just beginning however when the telephone jangled. “Hi Pete” Peg heard, and knew immediately that the little get together was doomed. She was right.

  Peter had telephoned to say his contact in the tax office had come good with information to the effect that trees would be quarantined but that all other MIS stuff was going to lose its tax status. Jim asked Peter how he had turned the official into a source but Peter simply indicated that once he had the name of the official he was easily able to arrange a meeting and offer a little inducement for the right information. In layman’s terms, it was bribery but the way Peter explained the situation it was simply mutual assistance. Of course there was a little cash that changed hands to facilitate things he’d explained.

  “We have to move fast” said Jim. “The news’ll be out in a day or two. Pete’s going to unload thirty million dollars worth of shares over the four relevant companies and he wants us to dump as much as we can, suggesting about one and a half million dollars worth. I told him I thought we could manage that. So I have to get onto it right now as there’s still over an hour to go before the market closes” explained Jim to a rather disappointed Peg.

  “So, that puts an end to our little tryst for today?” Peg asked.

  Jim only gave her a sympathetic shrug, raced to his computer and began unloading parcels of shares he did not own. They had the next day and part of the third before the news was announced. Then they had to join the downward spiral that soon became rather pointless. In the end, almost all the cash was again accounted for in a pending repurchase hold, Peter advising that he had unloaded about 28.0 million dollars worth before the news came out.

  The shares appeared to bottom for a week or two, then fell again but more slowly as the respective companies started advising the market of their true changed circumstances. Over the next month or so, Peter got Jim to hold his nerve and not recommence purchasing shares. Sellers still outnumbered buyers and the prices were still very weak. At the end of six weeks Peter advised they should start buying back very slowly. This they did in a pattern that appeared not to place upward pressure on the share prices although there were days that saw slight upward tendencies. Nevertheless, after another three weeks they had repurchased all the short sold shares and more than doubled their total funds.

  The restaurant celebratory outing was becoming a ritual. Back at Sails on the Dock, the menu included some striped trumpeter from the island state. This is one of the truly great tasting fish and the char grilled version done at Sails left little to be desired.

  “So we’ve done it again Pete” beamed Jim.

  “Like taking candy off a kid, eh?” responded Peter.

  “It was nice that we didn’t have to do anything at all dodgy this time too” said Peg.

  “Well there was a little more to it than that” replied Peter. “We did need to get to the inside information a bit before most other people. That’s all. And well we did it too.”

  “I could get very used to this” said Jim, looking comfortable and replete after the main course. “But I guess you’re going to tell us something new is coming up eh Pete?”

  “Yep, you always were too intuitive for your own good, Jim. The airline thing is on” Peter responded dryly.