Money Farm

by Clif Miller

  Chapter 8

  The visits to the Point Piper apartment were now routine. Jim sometimes simply called Peter and said he was coming over for a catch up. It had also become apparent to Jim that he could now afford to purchase a property in the Eastern suburbs but for the moment he decided to remain liquid and keep his financial war chest for more productive investment opportunities.

  When he walked in, Peter had a newspaper article from Britain for him to read. A front-page story there concerned an investigation into whether laboratory security had been breached in the last foot and mouth disease outbreak there. It seemed that no sooner had they got one such episode behind them after destroying huge numbers of livestock and the stock numbers been built up again than ‘bingo’, another farm would have an outbreak. Yet all the recent outbreaks were close to laboratories that held stocks of the germ. So there must be many laboratories holding foot and mouth virus in the UK, Peter had pointed out.

  “Do you know much about foot and mouth disease Jim?” asked Peter.

  “No, not really. Only what I’ve read in the press. But I remember how serious the last outbreak ten years or so ago was. They had piles of burning cattle and sheep from one end to the other of Britain. It must have cost them billions” Jim replied.

  “Has Australia ever had an outbreak?” Peter continued.

  “No, not that I’m aware of ” said Jim, “but I do know they’re very concerned about the possibility from the measures quarantine take to ensure that travellers don’t bring in the infection.”

  “Do you think there might be scope in this for us?” said Peter.

  “It’d be difficult” said Jim. It’s not like mad cow. You would have trouble at every point of the infection chain and you would have great difficulty isolating it once it got out” replied Jim.

  “Well that just brings me to another possible biological thing. You know we are growing salmon in sea cages in the cold waters of Tasmania and we’re growing tuna in cages off South Australia. This is high-cost high-input food production for affluent people you know. It’s not for ordinary folk. The animal protein that goes into this industry is high cost environmentally. Some of the companies doing it are listed on the stock exchange as well. They’re already getting introduced diseases among the intensive seafood industries around the coast. There’s a virus in the abalone now. It wasn’t there before they started farming the molluscs or sea snails or whatever they are. No, these high intensity operations are very vulnerable to disease. I’m told they literally pour antibiotics into the water where the salmon are. And look at the damage the misuse of antibiotics is doing to the world. You have germs now that resist all known antibiotics” said Peter.

  “You’re getting pretty worked up mate” said Jim. “I didn’t think you cared much for the environment.”

  “I was down in Tasmania a couple of years back and we went down the D’Entrecastreaux Channel south of Hobart. Mate of mine has a yacht and we cruised down there for a couple of days. You wouldn’t believe how much of the area is taken up by these big ugly sea cages. And all the little bays where you used to be able to pull in and anchor - gone. Filled up with sea cages and notices to mariners to keep away. Anyway, we shouldn’t let all that get in the way of making some money, eh?” said Peter.

  “How could we put a frightener on the salmon industry?” asked Jim.

  “Again it would have to be a biological agent. Sounds like biological warfare doesn’t it? Almost everything we seem to do lately is about the living resources of the planet” Peter mused.

  “Are there listed companies involved in the farming of fish?” asked Jim.

  “There are several” said Peter. “One of them is even on a ‘buy’ recommendation from most of the major brokers.

  “Okay, so what do you know about anything that could put a spanner in their works?” asked Jim, in a methodical and analytical manner that Peter was beginning to respect.

  “Well they dose them up against some form of amoebic gill disease. The disease is already there but they’re holding it off with said antibiotics. But there are lots of diseases in the Northern Hemisphere salmon populations, especially where they’re farming them as well, such as in Scotland and in BC, Canada” Peter replied. “I’m not sure I’d want to be responsible for stuffing the entire industry though” he continued. “But you know they could do with a little shake-up now and again. There’s a disease in New Zealand trout that’s commonly called ‘whirling disease’. I reckon if we got some of that over here and fixed up a few sample fish with it we could put the frighteners on them and drop their share price enough to make a dollar on the enterprise.”

  “So what does ‘whirling disease’ do to the fish?” asked Jim.

  “From what I know it gets into the spine of the fish and cripples it so it can only swim in circles, usually one way at that. It progresses to the brain and eventually kills the fish but in the meantime there are whole streams where all the fish are swimming in circles and have great deformities along their backs” said Peter.

  “So how could we make it work to scare the daylights out of the salmon industry in Tasmania?” asked Jim.

  “I’ll need to think about it a bit more but just suppose we got some infected blood from fish in New Zealand, then set up a small discrete cage with salmon in it somewhere in the hills above the D’Entrecastreaux Channel, say at Middleton or thereabouts. We could get some live salmon easily enough. There are so many that escape from the cages that they often run thick in the waters there. So we could catch a few and keep them alive and inoculate them with whirling disease. Then we’d wait until they showed definite symptoms then ‘catch’ one on a line and take it to the quarantine folk because it was swimming in circles, and they’d do the rest. That way we wouldn’t actually infect the commercial population but we’d throw a spanner into the view that Tasmania is immune from this type of fish disease” Peter replied.

  “Another trip over to Kiwi Land then?” said Jim, sounding less than enthusiastic.

  “So you’re not so sure of this one Jim?” queried Peter.

  “All too complicated for my way of thinking Pete,” said Jim. “I liked the foot and mouth one better. You could infect a discrete herd in Australia and they could be destroyed and you could effectively wipe out the disease because of the huge distances between farms, especially in the Top End.”

  “No, I don’t think you could be so sure of that. There are feral cattle and camels and donkeys running throughout Northern Australia and once foot and mouth was in there’d be no stopping it” said Peter.

  “Well I vote we leave both these as potential operations and find something a lot more straight forward” concluded Jim, raising his voting arm.

  “And wouldn’t it be nice if it was all legal again?” said Peg.

  At this point Angelique interrupted and invited them to the table. She had prepared another barbecue of seasoned Porterhouse and stir-fried vegetables and the meal was as good a barbecue as Peg and Jim could do and they both complimented the younger woman on her skill in the culinary department. During the meal, Peter said that there was another way to find their next opportunity. He suggested that they should think about the consequences for Australian companies arising from the financial ructions in the USA. It had been becoming evident for some months now that the sub-prime mortgage difficulties in the USA were also spreading to broader credit markets. Peg said that she didn’t really understand the term credit markets so Peter explained how major companies need to use credit to keep their growth trajectories on track.

  “Why do companies need to grow all the time?” said Peg.

  “Essentially, if they don’t grow they won’t be able to keep up with the competition, much less continue paying their shareholders, and if that happens their share price will decline and then they’ll have trouble borrowing money and so it will become a vicious circle” explained Peter.

  “Why can’t people just be satisfied with what they’ve got?” said Peg, unaware of t
he ironic smirk that crossed Peter’s face as he continued to explain that capitalism was a competitive process and if companies just sat still and didn’t try to improve their size and their profits then other companies would come along and swallow them up.

  “Farmers and small shop keepers might be able to sit in their own little patch and be content with the same level of income year after year but if major companies do that, especially public companies, they’ll fall victim to the take-over merchants” he said.

  “Okay, so if small banks, for example, are to survive, they really have to try to take over other banks, grow and compete or else they’ll be taken over themselves. Is that about it Pete?” replied Peg.

  “Yes it is” Peter replied.

  “So are you suggesting we go and look at some take-over targets Pete?” said Jim.

  “Exactly” affirmed Peter.

  “But wouldn’t a company that was likely to be a take-over target be in for a share price rise if the take-over bid happened? We couldn’t really risk selling such a company down or we might have to pay double to buy the shares back” Jim pointed out.

  “That’s why we need to be careful” replied Peter. “The current shortage of credit should work in our favour. There might be many more companies sitting there badly in need of some bigger company to buy them up but the bigger companies are having too much trouble raising capital for their own needs to even contemplate taking over other companies. So this is where some companies might be getting close to collapse. They can’t grow, they can’t make enough money at the present point in time, and they can’t find anyone willing to invest in them. We might find some sell down opportunities or indeed some near basket cases if we go out and look hard in the market.”

  “So, you think we should have a look at some over leveraged companies in Australia and see if we can do a Boar Simes on them?” said Jim. “We’ll have to be careful. We won’t have anywhere to hide if we do anything to spike their share price.”

  “Point taken, but let’s see what can be done by legitimate means, as Peg would like” responded Peter, looking across the table at his sister-in-law who had been following the conversation in interested silence.

  “Okay” said Jim “let’s go through the financial section of the ‘Factsfair Review’ and choose the companies we think are likely to be the biggest users of credit. Then we’ll look up their financial health data on the Stock Exchange server and we’ll make a list of any company that has more than 60 percent net debt to equity. That’ll give us a start and then we can do some detailed homework on the best candidates.”

  Peter got up and rummaged through a pile of newspapers on the coffee table and handed a financial section to Jim.

  “There you go, mate. All yours.”

  “Ok” said Jim, “I did ask for that. No, let’s do it over the next few days and let’s see if we can come up with common lists of vulnerable firms. So, you go through this one Peter and I’ll pick up tomorrow’s press and do the same with it. Let’s get together in a couple of days and see where we’re at.”

  “That seems fair enough” said Peter. “I might also call up David, Rudi’s son whom I haven’t spoken to in quite a while. He’ll have the goss on what’s looking over-leveraged.”

  Peg chimed in and said “Jim’s a pretty fair hand on the barbecue. Why not come over to our place at Summer Hill on Saturday afternoon and we’ll cook some slabs of fish? We’ve also a back-yard pool you know, and it can be quite relaxing in suburbia once in a while.”

  “That sounds great” said Angelique not waiting for Peter for a change. “I’m sure we’d love to, wouldn’t we Pete?”

  “I’m all yours Peg” Peter responded.

  “Thanks mate” said Jim. “I’ll have to rush round now and cut the lawn and fix up the pool before Saturday. Good excuse anyway. Should be a fun time. So we’ll see you soon after lunch.”

  By the Saturday, both Jim and Peter had completed a preliminary search for listed Australian companies holding high debt levels. They sat down to compare notes and found that each had gathered names that the other had missed but there were about 20 companies common to both lists.

  “What do you think are the standouts?” said Peter.

  Jim pointed to small dots to the left of five of the companies on his list. “Look at these five mate” he said, excitedly. “Gold mines.”

  Peter concurred.

  “Great minds think alike. I’ve got your five and one more” he said, writing the extra name on the bottom of Jim’s list.

  “Did you notice something in particular about all these companies?” said Jim.

  “Apart from the fact that they’ve all got big debts, I can’t think what you mean” responded his brother.

  “Well, they’re all property related” replied Jim.

  “Come to think of it, you’re right. Three of them describe themselves as merchant banks, one as an investment house and the other two are property trusts” said Peter, tallying up just to make certain. “What is at the core of all of them? Property” he continued.

  “Okay” said Jim, taking the lead again, “so if our friends in the global finance sector across the Pacific manage to keep this credit crisis going for long enough we are going to see problems with the property sector in Australia, right?”

  “They keep saying that Australia is decoupling from the USA because of the resources demand coming out of China” said Peter. “But, if you think of things like the price of houses in Australia over the last five years or so we’ve seen exactly the same surge as they had in the States. And wasn’t it really the falling price of homes that was behind all the sub-prime worries over there?” he continued.

  “Now what about commercial property?” ventured Jim.

  “Yes, office towers, retail shopping centres, industrial properties and so forth. We have also had a rapid rise in their valuations in recent times” responded Peter.

  “So why can’t we get a big fall in house prices and commercial property prices in Australia?” ventured Peg, who had been attentive but silent to this point.

  “Surely the experts have considered this?” asked Jim, looking to Peter for some response.

  “According to one view, Australia has not over-built houses like the USA has and its lending practices have been considerably more prudent. They’re even saying that house prices will rise further in the next few years because of immigration and natural population increase, but if people suffer a relative drop in incomes and therefore capacity to pay their mortgages off, there may well be a fall in house prices. The flip side is that rental costs are going up at this point in time so people can’t readily give up their mortgage as they do in the USA and just walk away. They still need to live somewhere” said Peter.

  “Right” said Jim, “but is there a different view out there?”

  “Oh, yes” said Peter “there are some experts calling a thirty percent or greater fall in house prices in the next two or three years right across Australia.”

  “Why might they be right?” asked Peg.

  Angelique was sunning herself on a sunbed but Jim noticed that she was also listening to the conversation.

  “Well, they say that the ratio of house prices to average income levels should be about three times when in fact in Australia it is now closer to six or seven times. It did not matter too much when interest rates were low and when house prices still seemed to be rising, but now that interest rates have begun to rise and prices have apparently stabilized, there’s a feeling that the next trend may be down” explained Peter quietly.

  “But house prices won’t fall below what it costs to build them together with the cost of land, will they?” said Jim.

  “There’s never any logic to markets” said Peter. “They could. They did in the Great Depression.”

  “Okay, so let’s look at our selected list of companies” said Jim. “Which ones would be vulnerable if house prices were to fall?”

  “Nearly all of them” said Peter. �
�All the merchant banks and the big investment houses have money tied up in residential mortgages. In some cases it’s in high-rise residential apartments and in other cases it’s in suburban residential property. As for the property trusts on our list, you can bet that somewhere they have some residential apartments or mortgage loans to other financial institutions.”

  “I noticed something else when I began to research the financial leverage of these so-called banks as well” said Jim. “Two of them have set up separately listed investment trusts that are very highly specialized. They’ve marketed these trusts to poor old mug punters as a good stable source of dividends yet they’ve not, in many cases, had enough income from their investments to pay their dividends. They have been borrowing more money each year just to keep up the expected level of dividends. Now that’s fine if the economy keeps growing but if the economy slows or goes into reverse surely this means that the mug punters in these so-called trusts are in danger of losing their shirts?”

  “I’ve also watched some of these investment trusts over the years” said Peter. “They never seem to pay down their debt levels. They’ve just gone on and on as though there’s no tomorrow. In other words, lending to them is rather like lending into the sub-prime market in the USA.”

  “I wonder if we could help them have a big nosedive in their share values?” asked Jim.

  “Well I think that if there was one of these trusts that had a heavy weighting in residential property right now, all we’d have to do is something like what we did to Boar Simes. We call up the brokers and ask them if it’s true that there is a financial crisis in such and such a trust? By doing that with as many brokers as possible we could start the ball rolling and probably clean up. In any case, most of these trusts have already moved down in price in recent months. That suggests a lot of people are already getting out. If we get it wrong, I don’t believe it’ll be too wrong because I can’t see any major improvement in their prices in coming months. Anyway, we won’t know how susceptible to rumour they are until we have a go at it” said Peter.

  “So, a little selling campaign this week, eh Pete?” said Peg.

  “Yeh, can’t go too far wrong I think” Peter responded. “Okay, first off tomorrow, let’s sell down these two.” Peter placed two pieces of paper on the table on which he had written the Stock Exchange codes. One was a property trust and one was a listed investment trust that owned residential land and built freestanding residences in outer suburban locations in most of the major capital cities.

  Jim took the pieces of paper and compared his list, saying “Yes, they’re as far up the leverage stakes as its possible to get I reckon, so we’ll sell down as many as we can while the price holds reasonably well, then we’ll call the brokers and start some debate about their solvency.”

  The rest of the afternoon was spent enjoying the pool and Jim helped Peg prepare and cook a delicious oven casseroled striped trumpeter and barbecued prawns. Over dinner, Jim said he had been looking at apartments in the Bondi area but they were still a little too pricey for he and Peg.

  “You want to wait mate ” said Peter. “I reckon these 3 million dollar apartments will go for half that by this time next year. No, stay where you are for twelve months and then see what transpires. Anyway, you’d have a conflict of interest being a property buyer and a seller of stock in property trusts all in one week, eh?” he laughed.

  “Well we love your apartment so much” said Peg. “Jim’s just getting a little tired of the lawn mowing and the rest of the garden, and I guess we’re looking forward to a more relaxed lifestyle.”

  “Yes, well apartment living has its drawbacks too. Even with our pad there are neighbours closer than you have here. We have some above, below and on one side of us. At times it can seem that we’re a bit boxed in too” said Peter.

  Angelique added that their shared pool at the apartment wasn’t as nice as this open air one. “Here, you own the pool and decide who uses it. In the apartment you can have bad timing and end up with half your neighbours joining you.”

  “Unless you want to go late at night, which we often do” added Peter.

  “You don’t seem to get out to the ranch at Bathurst very much Pete” said Jim. “.What’s it like there? Do you have a pool and your own tennis court?”

  “Yes, all those mate” replied Peter. “We also have stables, a horse or two and a full-time crew to maintain the property. But it’s going to have to wait for a while yet while we tidy up the profits to be made in the city” replied Peter.

  By the time the evening was over all agreed that no matter where one lived the grass was always a little greener on the other side of the fence.

  On the following Monday they commenced selling on the two chosen entities. The market was thin but not entirely absent, so both Jim and Peter dropped their prices just enough to entice some buyers into the market. The strategy worked and the routine was established.

  Over the following 10 days they kept dribbling their offerings out and the market would take its time but eventually digest them in a more or less predictable fashion. By the end of some two full selling weeks Jim was short some 2.35 million dollars worth of the first stock, the property trust, and some 2.25 million dollars worth of the listed investment trust. Peter still had a way to go because he had more security at his disposal and was looking to sell close to 21.0 million dollars worth of stock in all. However, by the end of the third week the market as a whole was beginning to slide on more concerns about the health of the global economy, so Peter called a halt having sold down some 19.0 million dollars worth of the two entities.

  The meeting that followed at the Point Piper apartment was almost routine. Peter suggested they might first call several brokers at random and ask the question about the firms’ solvency or liquidity and then call their own broker saying that a friend had tipped them off that there was a problem at one of the firms. They also decided for the first time to employ the now widely used internet public access facility to raise the query, but under assumed identities, of course. The results of quite a few calls were somewhat disappointing. Nothing seemed to happen to the share prices of the target entities for several days.

  After a week there had been some very slight downwards movement, but that was all. Then a statement was issued by the parent entity of the investment trust to say that there were no unusual factors that impacted the outlook for the trust, and that did the trick. At first slowly, then with increased speed, the investment trust began to slide. The Property Trust was more resilient. In the end, the persistence of the rumours did the trick and it too began to lose value.

  The wait was longer than expected. The prices fell by 15 then 20 percent and seemed to regain a little upward momentum at this point. Peter suggested that the problem was that large institutions held a high proportion of both entities and they were holding the line. The price movement was pretty well all due to small retail investors. So the tactics changed.

  Through their helpful broker they approached the share registry for a list of the largest twenty holders of each entity. Then they devised a scheme that depended upon a little acting ability. They telephoned individuals in these larger investment entities and feigned a disgruntled employee role, passing on the insider call that there were serious shortfalls in the accounts of the respective companies and their forthcoming results would be very disappointing to the market.

  Again, for a week there was no discernable change in the share prices other than normal daily ranges in prices but by the second week their persistence began to pay off. By the third week, the hoped for sell down was on. Both entities lost some 30 percent relative to the market as a whole which was also in a downwards creep.

  After a few more days and continuation of the downward slide of the two leveraged entities to five-year lows, the decision was made to buy back in. They did so, taking more than a week to regain the sold shares. People seemed very willing to part with substantial numbers of shares at prices more than fifty percent b
elow their averages for the preceding months.

  When all the shares were recovered, Peg and Jim joined Angelique and Peter for dinner on the waterfront.

  “We’re a bit closer to the spare change for that new boat and the apartment now,” chuckled Jim.

  “Put your own house on the market first” advised Peter. “You never want to own more than one property when markets are in retreat. If you own only one you don’t really have too much to worry about because most property will move more or less proportionately in the one direction. But there’s nothing worse than buying before you sell, especially if things get really tight” he went on.

  “Thanks, little brother” said Jim, biting his tongue because he did not wish to spoil the evening by pointing out to his younger brother that he did understand the logic and had no intention of buying before selling out of his suburban home.

  Angelique suggested they eat some more before their meal got cold and Peg laughed because they were still on the cold crab course.

  “I was just trying to change the subject from this nasty piece of work sitting here” Angelique said, pointing to her now established matrimonial partner. Peter laughed warmly for once and went on with his crab claws.

  Towards the end of the meal, Peter said: “Are we ready for the next round of sell-downs then, big brother?”

  “Yes” replied Jim, “but let’s hope it doesn’t take quite so long this time. I found the last lot heavy going there for a while. I was lying awake at night wondering if we’d done the right thing or not.”

  “Well we did” said Peter “and we can do it again and again while this market is the way it is.”

  “Right, so the next on the list is the other Property Trust, the one with all the high rise apartments on their books and no cash to keep building because there’s no sales to keep the cash rolling in” said Jim.

  “Right” said Peter, “do we do this one on its own?”

  “That might work better. I did find it distracting having to keep switching from one to the other before” replied Jim “I’ll go four million on this one.”

  “Okay. First off on Monday, sell as many as we can. Just keep going and see where we get to by market close. If not enough, we’ll just keep it up through the next week or so and see what the results are at the end. You’ll see my trades sitting there. They’ll be the larger ones. Just come in below me from time to time, get some sold then pull back to leave me at the bottom till I also get some out of the way. We’ll just swing back and forth like that and have a chat on Monday night” instructed Peter.

  “Right you are mate” replied Jim, “and thanks again for the delectable meal.”

  “Your turn will come mate. See you” said Peter, in mock annoyance.

  Monday morning was slow. The market was almost frozen then Peter and Jim realized that three of the states including Victoria had a public holiday on that day. They placed some sell orders but only modest in size and awaited the following day. On the Tuesday things were much better and a good numbers of shares was taken by the market, which was again in a buoyant mood.

  Peter rang Jim that night:

  “They should have a long week-end every week. People seem to have come back to work in a very happy frame of mind, the world looking much more rosy. They’re back buying like there’s no tomorrow.”

  It took just over a week for the combined effort to sell sixteen million dollars worth of shares in the listed property trust. Again from the payphone Jim telephoned Peter and pointed out that the way the market seemed to take them was as though some larger party was happy to load up on them.

  “Probably some superannuation fund buying for the long run” suggested Peter.

  “Well they sure will be in for a dismal performance in the short run” joked Jim.

  “So the task now is to help push the price a lot lower, eh mate?” said Peter, mocking Jim’s ironic tone.

  “Right” said Jim. “Any thoughts?”

  “Yes, but let’s not talk on the phone.”

  “Okay, see you soon” replied Jim and both knew what he meant.

  Peg and Jim arrived at the apartment and brought a bottle of Lark Scotch, Peter’s favourite. Jim having noticed the supply in Peter’s cabinet becoming a little low. “This is just for a lend mate, I wouldn’t want you getting the idea that I can afford this stuff, you know” he said with a laugh.

  “Oh, right, big brother” said Peter “make sure you collect the empties when you leave. You can cash them in at the recyclers.”

  The friendly banter over, the brothers sat down to review strategy to force the indicated company to a lower share price.

  “We’ve about played the ‘direct to the broker’ idea for a bit now” said Peter. “We need a new way to spook the market.”

  “No more sign of the friendly folk from the Taxation Office or the securities regulators yet?” asked Jim.

  “No mate. That doesn’t mean they’re not keeping a watching brief though” Peter replied.

  “Perhaps this would be a good one just to sit on and await developments. What do you think?” Jim suggested.

  “What, wait till the market falls all by itself?” replied Peter.

  “Don’t you think it will?” said Jim.

  “Yes, but not necessarily for six months or more. You could have quite a while to wait, you know” Peter said.

  “I agree” said Jim “but I’ve also got extra funds to go short on at least one more entity without having to borrow any more. We could run two shows together. Maybe the market would move for us anyway. The rumbling in the jungle is still going on in the States you know. They’re not likely to get things back together there for quite a while. I don’t think we’re in any danger of a major rebound here at the moment.”

  “So you want to go short on one more off our list?” asked Peter.

  “Yes” replied Jim, Axle Property Trust is just waiting to go. I’ll tell you why if you like.”

  “Okay, mate. First, have a Scotch. Rocks or water?” said Peter.

  “Just a little water mate, thanks” replied Jim.

  “What about you Peg?” said Peter.

  “Oh, do you have some cold cider?” asked Peg.

  “Sure. Angie could you get that for Peg please, while I get a shot of the good stuff for Jim?” Peter asked, turning towards the kitchen but Angelique was already at the fridge and drinks were quickly served. Her own was a neat scotch as well.

  “Well now” said Jim. “By the way you must thank the person who brought you that Scotch, it’s truly wonderful” he said, giving himself time to come to the point. He then continued: “I once owned some stock in an Australian based Property Trust that prided itself on the fact that it could pick the profitable shopping centres from the less successful ones. It was not top of the range like Wescharters but it was a serious player in the market. It then borrowed a huge amount of readily available credit and launched out into the USA to purchase somebody else’s unwanted middle ranking shopping centres. Blind Freddy could have seen that this form of growth was not going to be good for the bottom line. There was the problem of devolving administration to an off-shore company and the issue of whether these particular shopping centres were likely to be by-passed as new centres were being built. You can’t just pick up a shopping centre and move it, but if the traffic moves you can very quickly be stuck with empty stores. I followed up on a couple of these centres when Peg and I drove from San Francisco into the Sacramento Valley. That was the story there. The centres I saw had up to fifty percent of their floor space empty. Now, I have worked out that this Property Trust must be burning cash. They can’t possibly sell those shopping centres and they have loan repayments to make on huge amounts of borrowed money. Of course, I got out of them before the acquisition in the USA was even a done deal, but their share price is only now beginning to show some softness. I think they could well go to the wall.”

  Peter raised his glass and said: “To good health, I like it very much.”

>   “So, do we agree to go ahead and sell down Axle Property Trust next week?” asked Jim.

  “Yes, fine with me. My bank is up to it” said Peter, “but why don’t you take a bigger slice this time? Can you go five million on this one?” he asked.

  “Okay with you Peg?” Jim asked looking to the other side of the coffee table.

  “Just fine” said Peg “everything seems to be working out fine so far. Just remember you have four million out on the other Property Trust that you have to repurchase within the next month.”

  “Yes, but we can manage both now. The bank’s got enough in it” said Jim. “I’ll set things going on Monday morning and see what we can unload.”

  “So if and when we need to speed up the fall in the share prices, do you have any thoughts, Jim?” Peter asked.

  “Why don’t we try the disgruntled employee one again. It’s been a few months since we last used it. Send an anonymous letter to a Factsfair journalist purporting to be from a disgruntled employee inside one of the companies, and indicate the state of affairs as perilous, then suggest he do an article on the company’s situation. They might whitewash the information they give him but if we tease him enough to really raise his curiosity it might well be that he’ll do the rest” suggested Jim.

  “Well let’s do the sell down on Axle first and then we’ll have a look at strategy” said Peter.

  Again, Monday was a slow day for selling, but it improved on Tuesday and Wednesday then fell away again before the last trading day of the week. A second week produced slightly better results but it was not until near the end of the third week that the target volume of shares had been sold into the market without greatly adversely affecting the company’s share price.

  Peter telephoned and suggested another overnight trip up the Hawkesbury to which both he and Peg agreed with great alacrity. The departure on the Saturday morning was in rain, but as Peter said:

  “This is Sydney, raining one minute, pouring the next.” The run up the coast was hampered by fairly poor visibility and the rain did not stop until they were settled in their old deepwater spot beyond Mooney Mooney.

  “Wonderful to be warm and dry on a day like this while out on the water ” said Jim. “It sure beats floundering around in a tinnie, eh Peg?”

  “Yes dear” Peg responded indulgently.

  Angelique grumbled mildly about not being able to sunbathe as the deck and awnings were still wet and spilling rainwater but within the hour the sun was out and the day had warmed up to a bright afternoon.

  The afternoon was lazy but also a relaxed work mode as Jim later described it when talking alone with Peg.

  “Pete always has one part of his brain on the next move, don’t you think?” he said.

  “That’s why he’s been so successful” she responded, almost with a hint of envy.

  “Now come on, we’ve also hit the big time now. We could afford a mansion at Bondi if we wanted, or a boat like Peter has, you know” said Jim.

  “Yes, but not both” replied Peg, and Jim saw too late that she was just teasing.

  “All in all it’s been an amazing year” said Peg, without awaiting a reply.

  Meanwhile, back on the boat and down to business, Peter brought the conversation to their very weighted sell positions at the present point in time.

  “Are you at all worried about this, mate?” asked Jim.

  “You should always worry about your investments” responded Peter “but no, I’m not unduly worried about where we are. I’d just like things to start to move our way.”

  “Okay” said Jim. “On Monday I’ll telephone the Factsfair Property journalist and feign my disgruntled employee voice. No names, no meetings, I’ll just blow the whistle on Axle a bit and suggest he do an investigative job. It might work.”

  “Right” said Peter, “hope so mate.”

  The assorted catch of flathead, perch and a nice bream meant fresh fish on the barbecue and some to take home. The evening was spent in enjoying the warm summer night and the next morning was bright and sunny, enticing them to an early departure and leisurely cruise around the sights of Pittwater before making the final run to the Heads and home.

  By Monday morning Jim was in top form and sitting near his computer so the sound would carry down the phone as though he were in a private office. He found the switch at Factsfair reasonably cooperative once he said he had a scoop story for the particular journalist who often wrote articles about property matters. Once he was through to her secretary, he was a little disconcerted and flummoxed, but in the end the secretary said she’d get him to call back and Jim had the presence of mind to give her his mobile rather than his home number.

  When the return call came later in the day the journalist took him completely by surprise.

  “Oh, don’t worry” she said “we’ve got a fairly negative article coming out in about a week on several of the property trusts. Yours is not the only one that looks like it might be getting into trouble.” Jim thanked her and was glad to be relieved of culpability in the matter. True to her word, about a week went by then the article appeared and within hours the prices of several of the property trusts began to slide. The second trust they had sold did not get a mention in the article but its share price also fell anyway. In the next few weeks, almost all the property trusts fell, whether well-capitalized or not.

  Peter urged a wait of a few more days by which time the price of Axle was 45 percent lower than their average purchase price and the apartment trust was 30 percent lower.

  “That should do it, mate” came the voice on the other end of the phone when Jim picked it up.

  Selling had been fairly tough going, but when you put in a buy order on a declining market you’d be amazed how quickly people snap up your offer, Jim thought. Peter and Jim went at it almost non-stop, what with clearing the paper work on each trade, filing it away and keeping track of totals, the work proceeded for two and a half days before they had recaptured all their short-sold stock. Total profit from the property trusts, after taxation and expenses, was over two million dollars for Jim and about eleven million dollars for Peter.

  “A satisfactory outcome Jim” said Peter at the subsequent debrief in the apartment.

  “I think it could have been more” said Jim. “Guess what I just heard on the radio as Peg and I were coming over?” he said.

  “Tell me” said Peter.

  “Axle has just gone under” said Jim, “we could have delayed a few days and walked away with the lot!”

  “But we didn’t” said Peter. “Better luck next time.”

  Jim and Peg made themselves comfortable and again sat where they could overlook the lights of the Harbour. The night traffic never seemed to lose its fascination for them both. Ferries were constantly plying back and forth to Mosman or out to the more distant Manly, container vessels sliding back and forth and all manner of smaller pleasure craft or fishing vessels were trailing their lights around or across the Harbour.

  “I think we’re almost ready to sell the house and make a move, Pete” said Jim.

  “Still Bondi?” replied Peter.

  “Maybe a high-rise on the point here” Jim responded, what’s the going rate for something a little more modest than yours?”

  “About four million would get you into something not too bad, mate” said Peter.

  “Okay, what with the need to put some away for a rainy day as well as the boat, I think we might just about get us there and still leave our kitty for short selling in very healthy condition, especially with the funds from the house at Summer Hill.”

  “It’d be great to have you in the area, mate” replied Peter “want me to look around and see what’s on the market?”

  “What are you guys up to?” said Peg from across the room. “No new property until the old one is sold, I thought that was the rule” she said firmly.

  “Oh, nothing like that” replied Jim “I was just saying to Peter I think we’re getting close to putting the house on
the market.”

  “I’d still need a pool and a garden for flowers” replied Peg, gently reminding Jim that real estate involved the two of them.

  “Of course, Peg” Jim responded in his most enigmatic tone. Then turning back towards Peter he said: “So, any ideas on our next project, brother?”

  “Yes, responded Peter “it’s on the list we drew up last time. Have you read anything lately about ‘Johnson and Jacobs’? They’ve been gathering a few adverse write-ups of late.”

  “I don’t really know much about them” commented Jim. “They were on my list because, presumably, they have a high level of borrowing. What do they do exactly?”

  “They started off as a couple of young merchant bankers who leveraged funds from regular banks for high risk non-core development projects that came off and they made a bundle. Then they got into funds management and raised heaps from investors to develop infrastructure such as toll roads and power plants, aircraft leasing and ports, railroads, and more real estate” replied Peter.

  ‘They sound pretty big and diversified” said Jim. “Surely they’re not going to get into trouble?”

  “In this market, anyone can get into trouble. They may not go broke but they might be forced to sell assets and at fire sale prices just to pay back their borrowed funds” replied Peter.

  “How’s their share price look after the recent turmoil?” said Jim.

  “Well down. Perhaps twenty-five percent off their peak, but far from the bottom” his brother replied.

  The conversation was just beginning to get interesting when the doorbell rang. Angelique rose, looking questioningly at Peter, and exited to the lower floor entrance foyer. Peter suggested that Jim and Peg might want to make their good-byes if this was anything out of the ordinary.

  Angelique returned and said that two gentlemen from ‘Prudential Regulation’ were waiting in Peter’s downstairs study.

  Peter told Jim and Peg to wait for a while then make a casual exit from the front door. He would bid them a quick good-bye there. He walked casually down the flight of stairs to the lower room and could be heard introducing himself, perhaps deliberately a little louder than normal. One of the officers was a Mr Jenkins and the other a Mr Goldsmid.

  Jim found it difficult to remain calm, and Peg looked flustered and anxious, but Angelique remained the picture of calm and after some five minutes ushered them past the opened study door where they bid Peter a quick farewell and were on their way home.