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The Business -

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(generated from captions) Closed Captions by CSI I'll see you next week.

Tonight the real deal. Golden assistance for Holden. Golden

$2 75 million tax payer dollars

to keep the company motoring. Governments are being played

for suckers. There's no

ambiguity that car makers go to

different governments to see

how much money they can and you're watching The extract. I'm Ticky Fullerton

Business. Propping up a

struggling Holden, it is a

strategic investment, not a handout, says the Prime

Minister. The policies a the

generals revved up and ready to

go but critics say it is

running on empty. Subscription

channels pay the price for the

switch on to internet TV. And

why the west's not ready for

the rise and rise of Asia. We

talk to former banker to the

world Sir James Wolfensohm.

First a quick look at the

markets. Concerns over China

did worry investors. The All Ordinaries edged up driven by good

good gains in the banking

sector. In Japan the Nikkei

was in positive territory.


Hong Kong's Hang Seng was also

up there. Holden has struck a

landmark deal with the Federal,

Victorian and South Australian Government to keep building Government

Arsenal cars in Australia for

the next 10 years. The 275

million taxpayer investment

will deliver $4 billion in

benefits. Industry groups have

welcomed the deal, some

economist argue governments

have been sold a lemon. Sir

James Wolfensohn

reports. Holden has been making

cars in Australia for over 60

years. They will be staying

for another 10 years at least

under a deal with the fed rag,

Victoria and South Australian

Governments. It will cost the

public purse $2 75 million.

designed This major investment is

designed to make Holden he a operations competitive when the

Australian dollar is around

parity with the US dollar now

and in years to come. Government are being come. Government

played for suckers. There's no

ambiguity that car maker go to

different governments and see

how much money they can extract. Australian car

manufacturing noise 50,000

workers directly and 200,000

indirectly. Industry groups

have welcomed the latest assistance package Government

says without it, Holden would

have left Australia. Holden's

estimate is that that will

generate more than $4 billion

of value to the Australian

economy. This is truly a

strategic co-investment, not a

handout. I don't think that

figure is credible. Of course

billions it always comes at a cost. The

billions of dollars that the

Government throws into the car

industry comes from it being industry

used in nor productive sectors

which would be a far more

valuable use of money than if

we keep throwing good money

after bad. Under the agreement,

Holden will stay in Australia until

until 2022, vests about $1

billion itself and build two

new lines of next generation

cars. Australia does not

compete on a level playing field. Would you co-investment field.

this country would struggle to attract new

attract new capital investment. What we've got now investment. What we've got

is not even a product

agreement, but an individual

vehicle brand agreement and I

think that you go almost to the

point of nonsense when you

start to get to that sort of

start to get to that sort of

level. It has to be something

that isn't really based on any

sort of coherent and continual

sort of policy. Martin Feil

generally supports industry

assistance, but says this deal

seems to be more based around

political than economic

considerations. Everybody in

Australia benefits from the

revenue that the Government

collects in taxes. One way or

another, it is a nonsense to

suggest that one small part of

suggest that one small part of

it shouldn't benefit. We've

gone from 27% down to 8% of GDP

in manufacturing. Tim Wilson in

from the free market think-tank the Institute of Public Affairs

says the local car industry

hasn't adapted to what

consumers want and he's also

concerned about the way in

which industry assistance is

now being provided. In the

past, we gave money to car

companies to get them off tariffs, to make them

competitive and to get them

engaged in export markets so

businesses. Now Government is they were sustainable

co- investing in these

companies and is basically

paying them to stay onshore and

in the process, are just ex

political bribe from traging basically a form of

government. With Holden back in

the driver's seat for the time

being, it is up to Ford and

Toyota to see what sort of

long-term deal they can strike

for themselves. Internet TV it

is making fortunes and shaking them. Australia's pay TV

industry gathered in Sydney

today to discuss the challenges

ahead as the internet opens up

new con tears. Foxtel says it

can increase subscribers, but

it's keeping one eye on the internet threat. Phillip

Lasker has this report. Good

evening, and welcome to

television. ABC, brings you

the next phase of television

broadcasting. What we see and

how we it is a world that never

stops changing and the pace is

accelerating. Now with the

internet and coming more with

NBN, there's significantly more

choice for everyone, free

models, pay models, hybrid models, cheap,

models, cheap, expensive. Those

operating the pay TV industry

are trying to prepare for it as

best they can while growing

their businesses. The best

model for driving penetration

subscription television, strong

and smart original

entrepreneurial up starts.

Right? Google was an up start.

FaceBook was an up start. You

know, YouTube, look what

they've done in such a

they've done in such a short

period of time. The vote of

confidence for the national broadband network from the Ned

of NBC's international

television business. Two days

ago I was working I came into

Australia and downloading a 30

second video took me four times

as long as it would have in

Rio. That's an issue. I mean Rio. This is Australia. Mike Quigley

told the conference he's

winning PR war that will soon

be stepped up. We're going to

be announcing fairly shortly a

threeier plan, what will be

building up to mid 2015. Soon

after that we'll be out there

telling people this is what it is,

is, this is what it does, this

why is it is food for the

nation. The new Foxtel chief

knows it is a game changer which

which intensifies the internet

TV threat. We believe the value

of our offer with a beautiful

channels and using our Ticky to

enhance that with high

definition and IQ creates a

compelling Kuster experience.

We rill absolutely participate

in the IPTV market. To in the IPTV market. To me I

look at it and I say even if you

you just raise penetration 20%,

that's a home run. I would put

Australia right there at my top

five countries. And you thought

there was enough choice. Now to

the investment market. Tower

Watson has tested companies

with over 100 institutional

asset managers with a combined

$10 trillion with assets under

investment. Carl Hess joined

me at some ungodly hour his

time in New York a short time

ago. Carl Hess welcome to the

program. Pleasure to be back,

Ticky. Predictably, in your

recent survey there seems to be

quite a lot of concern about Europe,

Europe, but that doesn't seem


to be a concern about contagion

spreading and globally these

fund managers see mild growth, moderate inflation and

presumably no heartland ing

inChina. That's quite

optimistic? It does make for

an optimistic central scenario.

I don't think anyone is

ignoring the fact we could have

one or two hiccoughs along the

way. That's not in central

thinking. People view that way.

indeed Europe is going to be

the loser over the short-term

and both east and west have a bit

bit to gain. I guess it

translates to a rather

conservative investment

strategy that many of them are

following. On the other hand,

these managers believe that their institutional clients

will demand a good investment

performance. Is there a

contradiction there? There is.

We have seen it in the terms of

very, very low yields on Government Government bond across the very,

world. In fact, we at towers

Watson would rate bonds a sell.

The real question is where

you're going to pick up returns

if you can't park the money

safely. You'll look to

diversify and you'll look I

think for opportunities as they've rise.

they've rise. One area we see

in particular is attractive we

just vested asset as the

deleverage effect in the

western economies causing financial inc-Tuesdays to shed

assets. When I spoke to you

last in October, I think, you

were very focused on emerging

markets. I notice some of your

fund managers see the US as

holding the most rewarding

investment opportunities right now. I think there are two

reasons for that. One is the

rebound story. The stimulus

has begun to really sink in so

the US is showing some

promising signs of growth. I

note here we have a long way to

go yet. Creating 200,000 jobs

a month, half of that goes to keep up with the population growth. It doesn't sound like

you agree with some of your

you agree with some of your

fund managers. I think they are

entitled to their opinions,

weir entitled to ours. We try

to take a bit of a midterm lens

and when you're managing money

it is moment to moment, I think. One of the things that's

happened since the financial

crisis is the implementation of

the Dodds frank legislation and

particularly that rule that's

put a new layer of regulation

on to banking. How has that

impacted or impaired America's

ability to recover? Unclear as

yet. We have seen if you're a

large bank your spending in the

100 million type range to worry

about compliance with the

effect of Dodd Frank, that

can't be good overall for

loosening up credit and getting

the economy going. That being

said, if the rules work as they are intended

are intended to, and that's a

big if, as we've got something

like 80 regulations and they've

only made a start on 20 of

them, what you do is avoid

major crises. It doesn't mean

you've got higher growth you've got higher growth on

average, but perhaps you have

better than average growth when

things aren't going so well. In

the meantime, do you think that

there could be flow-on effects

elsewhere in the world if the

legislation does become very

restrictive for banking in the

US? Certainly it will have the

possibility for capital flows

elsewhere. I think there's

nothing the Chinese would like

more than to be able to put up

real competing institutions to

American ones and this presents

opportunities for them. Let me

ask you specifically about

equities. I think you're quite optimistic optimistic about the

sharemarket. We talked earlier

about bonds, but quite optimistic about the

sharemarket. What sort of

equity returns are expected

over the next, say, 10 years?

I think mid to high single digits digits which isn't necessarily

all that optimistic until you

recognise we're dealing with a lower inflation climate than

we've had over the last sever

decades. It is not that bad

decades. It is not that bad really especially compared with

the fact if we can manage to

wreak out small positive returns from returns from the bond market

you will be doing well.

Equities not just attractive on

their own merits but especially

relatively attractive. What

about the price of oil? How is

that likely to play into your

investment strategy? I think

oil price volatility is

certainly part of the central

strategy. Certainly, hard to

avoid that as a central

scenario. I think the markets

largely factored it in. I'm

not to say spike up to $300 isn't

isn't going to do us all a bit

of harm, but it wouldn't surprise

surprise me if we see something

like that over the next few

years anyway. It is really

steady as she goes as far as

tower watt Watson is

concerned. Is this anything particular taking up your


Headspace at the moment? We

Headspace at the moment? We do

worry about the Eurozone.

We've seen a deal on Greece.

I'm not convinced of the

stability of that deal nor

whether it will work if Spain

or Italy is in needs of similar

terms. Carl Hess, thank you

very much for joining

us. Always a pleasure, Ticky.

Australia's biggest brick

maker has seen interim earnings

slump 54% to $55 million as the

housing market languishes in the doll drum.

the doll drum. Bricks works

owns the Austral brand and says

the last six months have been

particularly challenging with

ref revenue down 17 per cent. The

The company has jets fingers

crossed the second half of the

year will be better.

Hopefully the Reserve Bank will

start to see light and put

interest rate down leer than

they are now. An industry shake out has seen break making capacity cut by a capacity cut by a quarter in

the last three years. Bricks works

works is hoping when the

housing market does improve, it

can pick up some of that

business. The bank's took the

local market up today but

worries over Chinese manufacturing trimmed the

gains. I spoke to market watcher Marcus Padley

earlier. Marcus Padley, a

positive finish for the market

today. That latest Chinese

manufacturing measure was a bit earlier. Marcus

of a bucket of cold water for

of a bucket of cold water for both currency and equity markets, wasn't it. It

certainly was. Our market was up

up 28 before that came out and

ended up below that and

resources also tipped over. It

was just the HSBC number, it

wasn't the official Chinese PMI

number, but it is a lead

indicator. It does feed into

that recent downgrade by the

Chinese themselves of forecasts

for GDP and feg into

for GDP and feg into the

negative sense tent around

yesterday from the BHP iron ore

presentation and resource

seemed to being lag the next of

lot the markets. Financial doing a

lot better at the moment. We

just have a Goldman Sachs US sphrat

just telling us it is a once-in-a-generation moment to once-in-a-generation

tell bonds, US bonds and buy

equities. Would his rationale

apply here to Australian investors? It probably would.

This is one of the classic

relationships that brokers look

at or strategists look at which

bond is the relationship between

bond yields and equity yields

and equities is the obvious

place. PEs are 33% below the

15 year average. Yield are

high. It would be good for

equities. That's point Goldman

Sachs is trying to make which

is completely the opposite

point of Ken Henry. The joke

in brokes houses is when a

has politician tells you everyone

has too much equities that's a

sign to buy. To a couple of

stocks. David Jones was

punished yesterday after its

profit announcement and those

dismal scbroks s. What's happened to the stock today.

It was down 11% yesterday. It was

was hard down first thing but

recovered a bit. There are six broker recommendations out broker

today. Three of them have got

a sell, two an under perform

and the most optimistic is a

neutral. It doesn't look like

people think David Jones is a

bargain yet. A change of

auditors at Leighton Holdings.

What's going on there? They

got fine Ted weekend $300,000

for that profit warning back in

April 2011 which ASIC had

problems with and they've just

accepted whatever ASIC has been

saying and maybe it is a

function of that they're now

changing their auditor. It may

be nothing Machiavellian at all. It is not really

explained. The share price was

down on the back of it, but

again recovered. Don't think

it is a long-term issue for

anyway, the information. All Leightons. Not disclosed

right, Marcus Padley, thank you

very much for joining us today.

My pleasure, Ticky. To the

other major movers on the local sharemarket. Sigma Pharmaceuticals had paid a Pharmaceuticals

special dividend as it returns

to profitability. Newcrest

shares were up as gold inched

higher. Macquarie Group was

also up as it took to the knife

to expenses. NAB led the big

banks up as bank shares rallied

generally. Turning to currency

markets. in commodities.

Australia has a few great

exports in human capital and

markets. very high on the list would be

New York based Sir James

Wolfensohm, a former two term

head of the World Bank. Sir

James has been in Sydney to

give a speech at the Asia give a

Society's annual dinner. As I

found out, Asia is very much on

his mind. Thank you so much for

joining us, Sir James Wolfensohm. Great pleasure. Wolfensohm. Great

Thank you. You've come over

here qua shirt fronting

statistic that 60% of global

GDP will come from Asia in the

next four decades. I get the

impression you feel that

western countries simply don't

get it and that they're very

focused on their own current

economic challenges as opposed

to future reform. What do you

mean by future reform? I think

it is very clear that today the

western countries are facing

great problems of internal

growth and until the year 2002

they dominated the world. They had had 80% of the world's income

and after that it just started

to change a bit and people

started to recognise that China

and India and Asia were taking

a bit of their business. What

is likely is that we will have

by 2050 a world in which a lot

of that business has moved to

Asia, probably of the order of

50 to 60%. Even beyond the

economic zones, the Asians are preparing

preparing for it. They're

sending their students an our

universities, they're visiting

the Premier of China visits

much more than we visit Asia in

terms of the collective of the

West. You see education as crucial, don't you, in terms of

keeping up? I see education as

really the foundation. If you

have the young people of Asia

really educating themselves on

what's happening in the West,

and we're not educating

ourselves on what's happening

in China and India, by the way,

we never have, it really is a

heavy burden to pay and that's

why it will just go ahead n my

opinion. They also work very hard. You're very great

supporter of getting our

western children to learn

Mandarin. If I take my son who

is four and here in Australia

in his generation there will be

many Chinese Australians, your

old school Sydney boy's high is

wouldn't a classic example of that. Why

wouldn't for him Spanish, say,

be better? Well, he might

enjoy Spanish. It is a great

language, but if he wants to

get into business, if he wants

also to be part of the region's

dynamics, he would be crazy not

to learn Mandarin. This is

because we often talk about Australia deciding whether it

wants to be western or eastern.

Is it as black and white as

that? In view of Australia's

location and its proximity to

Asia and the possibility of

being a bridge between the West

and Asia, it seems to me that

it is a unique opportunity for

our country to fill that role

and if we can get our young

people to feel just as easy

about going to Beijing or

Shanghai or to Dehli or

wherever as going to Oxford and

Cambridge and to the sore bond,

it seems to me that in the

world of future that would be

both interesting and also a tremendous opportunity for our

young people. Of course the

standards of Chinese universities are going up very

fast, aren't they. They're

enormous. To Africa now.

Africa China's relationship with

Africa is very interesting. I know you're on the know

international advisory council

corporation. for the China investment

corporation. What drives is

off rip fund investment in

places like Africa? Is it

returns, resource security or

is it a keenness for more political influence, do you

think? The financial

institutions in China, to my

experience, do not have a

political agenda. But they do

have an agenda to get natural

agenda resources. They have an

agenda to get markets. In the

case of Africa the Chinese in

10 years have put 1 million

people to live there. You have 10

a million ethnic Chinese living

in Africa building not just the 10 town halls and the public

spaces, but building roads and

also securing mines. I would

love to ask you about the Dodd Franks

Franks rule and the Act and the Volker

Volker rule because Paul Volker was

was one of your partner.

There's grumbling amongst

investment banks, I know in the

States, and questions whether

this will hamper recovery in

the United States. What's your

view? The anxiety is mainly

with the commercial banks that

have investment banking affiliates

affiliates and are active.

Very simply, what these two

bits of legislation want to do

is to separate the de posit

taking institutions and say "if

you make a deposit with a bank,

it's safe because they're not

going to speculate with it."

Whereas if you go to an investment bank, they can

speculate, they can do of what

they like, but at least then you know what you're dealing

with. I think what Dodd Frank

with. I think what Dodd Frank

is doing and what Paul Volker

is doing to say q listen, let's

go back to a more standard

situation in which banks are

banks, investment banks are

investment banks. If you want

to invest in an to invest in an development

bank do so, but if you want to

make a deposit and ensure it is

safe do in a commercial bank.

In the commercial banks you can

have a small amounts of the

speculation but it is very

small. My own judgment is that's

that's not only entirely

reasonable, it is obvious, and

it has to happen now. I think

it is in the course of

happening. Sir James, you don't

come back to Australia nearly enough.

enough. Thank you so much for

joining us. If you ask me I'll

certainly come back. Thank you

very much. Thank you, sir. In

other stories making business

news, the corporate watchdog is

set to approve an alliance

between Virgin Australia and WA

airlines Skywest. The ACCC says

says the deal will lead to

lower prices due to increased

competition with Qantas. The

tie up clears the way for the

bundling of the international

domestic services from

corporate customers. Funding costs for Australian banks are

on the rise, according to the

RBA. Assistant Governor Guy

Debelle says they've increased

sharply over the last few years

mainly because they've had to

pay higher ratsz on term

deposits. The big banks

recently drew fire for bumping

up their mortgage rates even

though the Reserve Bank kept

the cash rate steady. And two

Australians are facing criminal

charges over a major oil spill

off the drizzlian coast last

November. They're amongst 17

executives from Chevron a

drilling company being held responsible for what

prosecutors are calling

prosecutors are calling an

environmental crime. An $11

billion civil suit has been

launched with claims the spill

could wreck the economy. And the Federal Government's

last-minute amendment to its launched

future of financial advice laws

today will retain the opt-in

requirement that demands

advisers gain permission from

their clients to continue

charging ongoing fees, but

significantly, the Minister for financial services, Bill

Shorten, says under the

Shorten, says under the

amendment, ASIC can exempt

those who comply with a code of conduct.

conduct. There will be a lot

of investigation there I'm sure.

sure. Before we go a look at

what's making business news in

overseas newspapers. Lon

dough's Financial Times says

the dash for trash has made a

come back this year as

investors have piled into the

riskiest corporate bonds they

can find. Global high yield

bonds junk bonds have returned

5.8% already this year. That

pales neck to the 10.7% returns

on bonds operated CCC, the

lowest rating rung. That's the

business. Alan Kohler is here

with 'Inside Business' on Sunday.

Sunday. I'm Ticky Fullerton.

Thank you for watching.

Goodnight. Closed Captions by CSI