Author: Paul Costas

Ratan Tata GBE – India’s Real Money Maker for More Than Two Decades
Ratan Tata GBE, born 1937, was the chairman of the Indian conglomerate, Tata Group, from 1991 to 2012. He also held the position for four months between 2016 and 2017. During his time as chairman annual revenue grew from $5.7 billion to more than $100 billion. His personal wealth is believed to be just shy of $1 billion. Despite the meteoric rise of the Tata Group during his stewardship Ratan Tata doesn’t really get the recognition he deserves. The main reason for this is due to the way that the Tata Group has been structured.

This year the conglomerate is celebrating 150 years since it was founded by Jamsetji Tata back in 1868. The holding company of the Tata Group is Tata Sons. The holding company is as old as the trading company with two-thirds of the shares belonging to charitable trusts. The two biggest trusts, with over 50% of the shares are the Sir Dorabji Tata and Allied Trusts and the Sir Ratan Tata Trust.

Tata Philanthropic Trusts

Dorabji and Ratan were the two sons of the Tata Sons founder, Jamsetji Tata. Ironically Dorabji and Ratan both died without any sons to pass the business on to. The Trusts that were created after they died are amongst the oldest philanthropic Trusts in India. Sir Ratan Tata (1871 – 1918), not to be confused with Ratan Tata GBE, and his brother Dorabji were both knighted in the days of the British Empire. Whereas Ratan Tata GBE received his honorary “knighthood” in 2014, long after the fall of the British Empire.

The Tata family have been leading philanthropists for more than 100 years with a focus on education and medicine. In 1941 the Sir Dorabji Tata Trust set up the Tata Memorial Centre in Mumbai and other notable donations have included:

$50 million awarded to Cornell University in 2008, the University Ratan Tata GBE graduated from.

“The endowment consists of $25 million to establish the Tata-Cornell Initiative in Agriculture and Nutrition, which will contribute to advances in nutrition and agriculture for India; and $25 million for the Tata Scholarship Fund for Students from India, to help attract more of the best and brightest students to Cornell from India.”

$50 million awarded to the Harvard Business School (HBS) to build Tata Hall. Ratan Tata also graduated from the Advanced Management Program at HBS in 1975. Tata Hall was constructed as an academic and residential building for executive education.

Other well-known philanthropists like Mark Zuckerberg, Warren Buffet and Bill Gates have tended to amass their fortunes and then distribute their wealth to good causes. For Tata, the philosophy has always been to benefit the employees and the society as a whole rather than its Directors. Hence the two-third ownership of Tata Sons by the Charitable Trusts.

Tata Brands

Tata founder, Jamsetji Tata, set up the business to trade tea and opium with China. In 2000 Tata expanded their tea business when it purchased the inventor of the Tea Bag, Tetley. At the time it was the largest international takeover in history by an Indian company. Ratan Tata said of the Tetley takeover:

“It was a momentous occasion for the company and a bold move which he hoped other Indian companies would follow.”

Tata has been involved in steel production in India since 1907 and in 2007 Ratan oversaw the purchase of UK based Corus for $12 billion. In 2008 he was also involved in the acquisition of global brands Jaguar cars and Land Rover for $2.3 billion. Ratan is also responsible for the “$2,000” Tata Nano, at the time the world’s cheapest motor vehicle.

Interesting Facts About Ratan Tata GBE

Like his namesake Sir Ratan Tata and Sir Dorabji Tata he has no sons and has never married but came close on four separate occasions. He qualified as an Architect from Cornell University and is also a qualified pilot. Ratan has his own private jet, a Falcon 2000. He was also the first Indian to fly a supersonic F-16 Falcon jet.

Ratan Tata GBE has an impressive collection of motor vehicles. Which is not too surprising based on his previous control of Tata Motors, Tata Daewoo, Land Rover, and Jaguar. His fleet of vehicles includes a red (his favorite color) Ferrari California, Maserati Quattroporte, a red Cadillac XLR convertible, Chrysler Sebring, and a red Jaguar F-Type convertible.

During his career, he has received a plethora of awards with honorary doctorates from Universities across the globe. These include Ohio State, Warwick, Cambridge, Carnegie Mellon, York (Canada) and New South Wales. In addition to the GBE, he received from the UK he also holds the following titles:
- Commander of the Legion of Honour (France)
- Grand Cordon of the Order of the Rising Sun (Japan)
- Grand Officer of the Order of Merit of the Italian Republic (Italy).
Ratan received the honorary title of Chairman Emeritus by the Tata Board in 2012. He technically falls well short of the top 10 richest people in India. However, based on his impressive record as Chairman of Tata he is regarded by many as one of India’s leading industrialists.

Featured image from Shutterstock.
November 23, 2018
Cashless Transactions in India Set to Boom over the Next Few Years
The proportion of cashless transactions varies widely across the globe with some countries, like India, still considered a cash economy. Last year more than 70% of Point of Sale (POS) transactions in India were in cash and just 20% were credit or debit card transactions. Whereas cash transactions in South Korea were only 11% with credit and debit cards making up a staggering 85% of POS transactions. However, data suggests that cashless transactions in India are set to boom over the next few years.

It’s not just India which is expected to see an upsurge in cashless transactions though. If you run a business with an international client base it’s important that you follow the trends in eCommerce and POS systems.

Potential customers will look elsewhere for goods and services if you make it too difficult for them to pay you. During a recent visit to the UK, I was surprised to find that cash is no longer king.

It started before I even arrived in the UK with British Airways no longer accepting cash, of any kind, on their flights. At London Heathrow, one of the world’s busiest airports, traditional cashiers have been replaced with self-service, cashless tills in at least one store.

Worldpay Annual Global Payments Report

Worldpay published their annual global payments report a few days ago and the first thing you will notice is that it’s twice as long as their 2017 report. The 108-page PDF starts with a global summary of the status of eCommerce and POS payment methods.

In 2018 eWallets are expected to account for 36% of online payments and to increase to 47% by 2022. Globally POS payments in cash are expected to fall from 31% to 17% over the same period.

Source: Worldpay Annual Global Payments Report

The Worldpay report goes on to provide data for North America, Latin America, EMEA, and Asia Pacific. The data is then broken down by country. At present, cashless transactions in India are considerably lower than the average for the Asia Pacific region.

“Cash continues to be the primary payment method for point of sale purchases and eWallets dominate for online payments.”

With only an estimated 45% of the population in India currently having access to the internet eCommerce and cashless POS payments have not yet reached the levels of many other nations.

“As internet penetration and the digital economy continues to grow, there will be room for ongoing shift of payment forms.”

Why Cashless Transactions in India Are Set to Boom

In some areas, India is already ahead of many nations when it comes to cashless payments. The Unified Payments Interface (UPI), promoted by the Indian government, is one such example. It allows users to send funds based solely on knowing the recipients mobile phone number.

Traditionally India has tended to use feature phones rather than the more expensive smartphones. UPI works with either type of phone but smartphones are much more user-friendly. Smartphone sales in India continue to grow and IDC announced November 15 that they now match those of feature phones.

More than 42 million smartphones were purchased in India in Q3 2018 with Xiaomi leading the way with 11.7 million units sold in the quarter.

Increased smartphone usage in India will see an increase in eCommerce and cashless POS transactions in the coming years. Worldpay estimates that eCommerce will expand by 21% per year between 2018 and 2022. Smartphone adoption is being driven, in part, by lower costs for internet use.

Pushing down the Cost of Internet Use in India

Mukesh Ambani, Forbes ranked 18th wealthiest man in the world and India’s richest person, is helping to reduce the costs of using the internet in India.

He’s the largest shareholder in Reliance Industries Limited (RIL). Jio, a subsidiary of RIL, has slashed 4G data costs in recent years. Jio offers an annual, pre-paid 4G contract, with 1.5GB of daily data allowance for around $24.

The annual contract brings the cost per GB down to less than $0.05. Previously costs for 1GB of mobile data in India were as high as $2. Jio has also launched 4G feature phones from as little as $20.

With the significantly reduced data tariffs, Jio was able to attract 100 million customers in just three months. They now boast a customer base of more than 250 million customers.

Keep up to Date with Payment Trends

It’s important that business owners know what payment systems their customers have access to and they vary significantly across the globe. For much of the world, traditional debit and credit cards are very popular. Some of the most prestigious cards used by the rich and famous include:
- Coutts World Silk card – believed to be favored by the Queen of England
- JPMorgan Chase Palladium Visa – the “ex-US President Barack Obama” card
- Bank of Dubai First Royale MasterCard – diamond embedded card
- American Express Centurion Card – used by Oprah Winfrey and Kim Kardashian
Some of these cards have no credit limits but are often available via invitation only and come with undisclosed perks.

In recent years cryptocurrency cards like Wirex and Revolut have grown in popularity. Many merchants are now accepting cryptocurrency payments on their websites with some incorporating instant, almost fee-free processing.

It might be quite sometime before your cash is refused in India but don’t visit this British pub with only cash in your pocket.

Featured image from Shutterstock.
November 18, 2018
Funeral for Billionaire Vichai Srivaddhanaprabha Began in Thailand Today

Humble Thai-Chinese billionaire, Vichai Srivaddhanaprabha, was killed when his helicopter crashed last week. Srivaddhanaprabha regularly used the helicopter to attend matches at the British football club, Leicester City, which he purchased in 2010.

Today sees the start of his funeral in Thailand, and the Leicester City players were due to fly out from the UK to attend when their game against Cardiff City ended.

Most sports teams invite investment from billionaire owners, and the supporters of Leicester City welcomed him with open arms. Just before his investment, the team was in the third tier of the UK’s national game. They were promoted as Champions of League One in the 2008-09 season.

Srivaddhanaprabha is little known outside Thailand and the UK, but his Duty-Free business, King Power, was proud of the investment he made in the club.

Why Was Vichai Srivaddhanaprabha Revered by Leicester City Fans?

As a lower league club, with sizeable debts, he was able to snap up the team for a very modest sum. His investment skyrocketed as they went on to win the League Championship in 2013-14.

Followed by the pinnacle of British soccer, the English Premier League in 2015-16, Leicester City started the Premier league winning season as rank outsiders at 5000-1 with almost nobody expecting what they went on to achieve.

Local Leicester lad, BBC TV pundit and former England captain Gary Lineker, started his illustrious career at Leicester City. Prior to Srivaddhanaprabha’s investment, the club had endured decades without anything remotely close to success.

Lineker was ecstatic at the achievements of his former club, primarily due to Srivaddhanaprabha taking an interest in the club.

Some wealthy sports club owners are more interested in the money the club can make for them than what the club can achieve for their supporters. Some owners don’t even attend the games, but Srivaddhanaprabha was very different. He was considered humble and generous to those that knew him. Even though he was quite a reserved individual he always had time for the fans.

An Emotional Day for Leicester City Fans and Players

The club’s home ground was renamed the King Power Stadium after Vichai Srivaddhanaprabha bought the club. As a continuation of the generosity shown by him towards the Leicester City fans, the club provided free breakfast to fans arriving at the stadium today, before the journey to the match against Cardiff City.

Tributes were held around the grounds before the English Premier League games. None more poignant than the giant banner at the Cardiff City game which read “R.I.P. Vichai.”

Keeper, Kasper Schmeichel was visibly shaken during the tribute and was one of the first people on the scene of the tragic accident at the stadium last week. Fortunately, he held it together during the game and “The Foxes” came out on top 1-0.

It’s never easy to play a match under such circumstances with emotions running high. Vichai would have been proud of his boys.

Featured image Getty Images.

November 3, 2018
Did Elon Musk Commit Securities Fraud with Tesla Q3 Earnings?

During the Tesla Q3 earnings Q&A webinar, Elon Musk was questioned on the gross margin for the Model 3 by Pierre Ferragu of New Street Research. Other “analysts” on the call included Adam Jonas of Morgan Stanley, Dan Galves of Wolfe Research, and CNBC’s Phil LeBeau. The analyst from Morgan Stanley started his questioning with a dig at CEO, Musk.

“… as the company conducts its search for a new Chairman, what are the attributes, experiences of that person that you think would be a best shared or best value for Tesla?”

Musk, noticeably offended, pushed him for an alternative question on operational matters. Many analysts were wide of the mark with their forecasts for Tesla Q3 earnings. The median forecast was another loss-making quarter for Tesla Motors. During the one hour webinar, several questions came up on the better-than-expected gross margin. Analysts were trying to justify their inept forecasting.

Chief Financial Officer, Deepak Ahuja, in an earlier earnings call had stated profitability would come from their improved gross margins on the Model 3. It was widely known that the revenue mix swung significantly from the Model S and X to the Model 3 in the quarter.

This was reinforced in the Model 3 teardown conducted by Sandy Munro of Munro & Associates. Previously, Munro had criticized the build quality of the vehicle, but his final analysis was very different. Munro assessed the gross margin for the Model 3 at a staggering 30%. Well ahead of the “financial analysts” crunching their numbers.

In June, Musk took to Twitter when news leaked that 9% of the workforce was to be offloaded. Some of these cost savings probably came through in Q3.

Choose Your Analyst Carefully

Market analysts, on the whole, got the Tesla Q3 earnings wrong. The internet is awash with opinions on the earnings with some asking if the numbers are accurate. One YouTube channel held their own Q&A session straight after the webinar. One viewer asked:

“Is there any way that Tesla could have manipulated or event [sic] faked the numbers in their earnings call or is there some overseight [sic] from agencies?”

The host pointed out it would mean jail time if the earnings were false and those involved are not that stupid. Interim results are not just provided for investors. Quarterly statements are required by the SEC, and indeed it would be very foolish to “cook” the books.

However, accountancy is not an exact science. Errors do occur, and accounting principles can be “modified,” subject to auditors’ approval. When executives own a significant share of the company’s stock, they might be tempted to do an “Enron.”

Small owner-occupied businesses tend to understate their earnings to reduce tax liabilities. Whereas larger corporations have done the opposite to boost the stock price.

In my very early days as a junior accountant, I was told an interesting tale about one of the largest engineering companies in the world. For some unknown reason, one of their many subsidiaries wanted to show lower earnings for the current accounting period. This was achieved by loading up a fleet of trucks with finished goods on the day the auditors attended the annual stock count.

Analyst Harris Kupperman Calls Tesla Q3 Earnings a Fraud

When you read an analyst’s report decide for yourselves if they have a hidden agenda. Some are short selling the stock. Others have a grievance with the executives, and some are just poor analysts. Harris Kupperman scores highly on the latter. Kupperman’s blog site states:

“I’ve been successfully investing in the markets for over two decades. In 2003 I started a hedge fund, Praetorian Capital, so that others could invest alongside me.”

How he can be a successful trader with little or no understanding of financial statements is beyond me. Following the release of Tesla Q3 earnings, he published an article on his blog which was also covered by ZeroHedge. Part of the mission statement for ZeroHedge is:

“to widen the scope of financial, economic and political information available to the professional investing public.”

They are certainly widening the “scope” with Kupperman’s shoddy analysis. It’s abundantly clear that he hasn’t studied the published accounts for Tesla. Strangely, the full year accounts don’t seem to be available on Tesla’s website. The weighty 276-page report for the year ending December 2017 is widely available on other sites.

Kupperman starts his review of the earnings figures with:

“While I am certain that Tesla collapses in the near future, all evidence seems to show that they’ve used every trick from every financial fraud over the past 100 years to put lipstick on the Q3 financial results.”

Why Kupperman Is Wrong

Kupperman goes on to illustrate his lack of knowledge by proclaiming the earnings are false because depreciation per car in Q3 was almost half that of Q2. Kupperman’s cursory glance of the financial statements probably picked up the entry towards the top of page 78:

“Depreciation for tooling is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the respective assets. As of December 31, 2017, the estimated productive life for Model S and X tooling was 250,000 vehicles based on our current estimates of production. As of December 31, 2017, the estimated productive life for Model 3 tooling was 1,000,000 vehicles based on our current estimates of production.”

I have reproduced the calculations done by Kupperman but for clarity switched to $m rather than $000, except for the depreciation per car.

Two glaring mistakes by the analyst. Firstly, the mix of vehicles changed dramatically from Model S and X to Model 3. The Model 3 being depreciated over 1 million vehicles compared with just 250,000 vehicles for the S and X. This would significantly reduce depreciation despite the doubling of the total number of cars sold.

Tooling Costs

Secondly, the original cost of tooling in December 2017 was just $1.3 billion. Whereas the total asset costs are close to $18 billion. Pages 89 and 90 of the financial reports show the historical costs for solar energy systems and property, plant and equipment. Some of these fixed assets are depreciated over decades, especially the big-ticket items. They are not written off based on cars produced in the quarter.

The figures for depreciation picked up by Kupperman are the total for all assets depreciated and not just the $1.3 billion of tooling. The financial records do show a further $2.5 billion of assets in construction. Some of which ultimately will be depreciated as tooling. Also, further tooling costs from Q1 to Q2 would be depreciated in Q3. However, we don’t have a breakdown of these figures from the interim results. It is my opinion that Kupperman’s assertion that the Tesla Q3 earnings are fraudulent is without basis.

Featured image Evening Standard.

October 28, 2018
Tesla Motors 3rd Quarter Financial Results Embarrass Many Analysts

Tesla Motors Q3 financial results were published after closing bell yesterday. They turned out to be considerably better than many analysts had expected.

The hastily arranged Q&A webinar which Tesla announced earlier this week caught some analysts off guard. Just before the release of the interim financial results by Tesla Motors we suggested Q3 figures would be ahead of forecast:

“It’s widely accepted that good results are announced early, and bad results held back as long as possible. In 2016, Tesla announced their Q3 figures early. Q3 2016 was the only profitable period to date. So the clues suggest we should be bullish on TSLA.”

There’s a school of thought that its also good form to get bad results out early so the company can move on. This was far less likely for Tesla Motors when you consider their results since they went public in 2010.

Tesla stock price was up 13% on Tuesday, and there was a possibility it had already factored in better-than-expected forecast results. Before the closing bell, the gains from Tuesday were maintained but with no clear indication of direction.

Tesla Motors Q3 2018 Results

GAAP net income came in at $312 million (non GAAP $516 million) from $6.8 billion revenue. This compared with Q2 figures of a net loss of $718 million from $4.0 billion revenue.

Having lost money every year since it went public, the cash flow figures were eagerly anticipated. Tesla didn’t disappoint. Free cash flow for Q3 was an impressive $881 million and operating cash flow $1.4 billion.

Elon Musk backed up the Q3 results in the Q & A webinar by saying he “hoped” income and cash flow would be positive for every quarter, hereon in. It has to be said though that he didn’t sound too convinced when he said it.

The Q3 results break down the results between automotive products and energy products. It also looks ahead and confirms they are still on target to deliver 100,000 Model S and X vehicles this year.

The first part of the webinar also covered Tesla’s safety designs with a recent 5-star rating and the highest standard of all 943 vehicle models ever tested in the US.

One hour after the closing bell TSLA was trading as high as $330 before falling back to around $317. The stock price is now ahead of the mean target from analysts of $304.

What Did the Tesla Analysts Get Wrong?

Revenue figures didn’t shock the analysts as much as the gross margin. The Model S is stated at more than 20%. Many analysts were simply not prepared for such an improvement in margin given the much-publicized difficulties in production and shipment.

Jamie Powell of FT Alphaville published a revised Q3 profitability forecast just a couple of weeks ago. It proved to be wholly inaccurate despite being released after Model S deliveries for Q3 had been reported by Tesla Motors.

In an earlier forecast, FT Alphaville had estimated 60,000 units would be delivered. They updated the forecast to the actual Model S deliveries of 55,840. They also increased their margin forecast from 11% to 15% and threw in some possible cost savings.

Their overall assessment was that Q3 would be another loss-making quarter:

“So returning to our model, and it is hard to figure out just how Tesla can eke out a profit this quarter, even with Model 3 gross margins of 15 per cent.”

How wrong they were, but that could be said for many market analysts covering Tesla Motors. Elon Musk was on his best behavior during the Q3 Q&A session with analysts.

This is in stark contrast to the Q1 webinar where Musk was quite belligerent to several Tesla analysts. Surprisingly, no tweets from Musk after the webinar, in fact, no tweets at all yesterday, which is quite rare for the serial tweeter.

Featured image from Shutterstock.

October 25, 2018
Will Elon Musk Get High with Tesla’s Q3 2018 Financial Results?

Tesla Inc (TSLA) and founder Elon Musk have had quite a year so far, and analysts will be pouring over the Q3 results to see if there is any clue to both their futures. Having started the year at $320, Tesla stock has ridden a bumpy road with a low of $245 and a high of $387.

Tesla stock this year

Yesterday the price moved up almost 13%, gaining $33.19 to close at $294.14. This followed the latest publication by Citron Research and news that the Q3 results would be published ahead of schedule. TSLA is now down less than 6% from $311.50 at the start of the year.

Tesla stock yesterday

Short Seller Andrew Left Now Very Bullish on Tesla

Habitual Tesla short seller Andrew Left is now buying TSLA. This is quite a turn around for Left, founder of Citron Research, who published a nine-page analysis on TSLA ahead of the Q3 financial results. The report looked at what the competition had to offer, and Left was not impressed:

“What has changed?? Plain and simple–Tesla is destroying the competition… Competition is nowhere to be found and no electric vehicle is slated to launch at the Model 3 price point until 2021.”

This is a sharp contrast to the criticism aimed at the company late last week when they appeared to remove the vehicles’ self-driving feature.

Q3 Results for Tesla Published Early

Many analysts were expecting the leading electric car manufacturer to announce Q3 results in November. On Monday, it brought forward the results announcement to after market close today.

Investor Relations has announced that they will have a live Q&A webinar following the publication of the results at 6.30 PM, Eastern Time (3.30 PM Pacific Time).

It’s widely accepted that good results are announced early, and bad results held back as long as possible. In 2016, Tesla announced their Q3 figures early. Q3 2016 was the only profitable period to date. So the clues suggest we should be bullish on TSLA.

A Tough Year for Elon Musk

If the results are better than most analysts were forecasting it would be welcome news for Elon Musk. His anger at short sellers cost him tens of millions of dollars earlier this month. He paid a high price for tweeting that he was taking the company into private ownership. As the tweets were factually incorrect, the SEC charged him with Securities fraud.

Musk’s recent tweet, reported by Reuters, regarding the Boring Company’s progress was less problematic. This is, in part because the Boring Company is privately owned and not subject to SEC reporting guidelines.

The Twitter account for Musk was briefly suspended yesterday following his reference to Bitcoin. There were suggestions that Twitter objected to his promotion of the leading cryptocurrency, which celebrates its 10th anniversary this month.

Musk is well known in the crypto community with many scammers making money from impersonating the billionaire entrepreneur. Some members of the community have even speculated that Musk is the Bitcoin creator “Satoshi Nakamoto.”

As an avid fan of Twitter, he has used the social network to dispel such rumors.

As soon as his Twitter account was reinstated he Tweeted:

Twitter thought I got hacked & locked my account haha

— Elon Musk (@elonmusk) October 23, 2018

There are probably quite a few Executives as Tesla Inc that were hoping Musk had been permanently banned from Twitter.

Featured image from Shutterstock.

October 24, 2018
Do You Have to Be a Billionaire to Own a Private Plane?
Being a billionaire will help if you plan to operate a private plane as it certainly doesn’t come cheap. A list showing some of the most famous private plane owners does indeed include a high proportion of billionaires.

In the list are President Donald Trump, Prince Al-Waleed bin Talal, and actor Jackie Chan. Other famous owners include Bill Gates, Tom Cruise, Steven Spielberg, Roman Abramovich, the Sultan of Brunei, and Tiger Woods.

Of the 15 high profile owners, there are nine billionaires and six with a net worth in the range $150 to $740 million. Saudi royal Prince Al-Waleed bin Talal heads up the list as the owner of the most expensive plane, which is valued at $500 million. But actor Jackie Chan picked up his private “wings” for just $20 to $30 million.

Do You Want Your Own Private Plane?

Musician Jimmy Buffett owns an ex-military Grumman HU-16 Albatross. The flying boat was purchased for an undisclosed sum. When you compare Buffett’s Albatross to the Bombardier BD-700 ($45 million) of Bill Gates, it’s clear the owners have different priorities when choosing a private plane.

Net worth probably comes into play with Buffett at $550 million (well short of Gates at $90 billion). But it will also depend on other factors like whether the owner intends to fly the plane themselves, how far they expect to travel, and how often and how big their entourage is going to be.

Running costs can be astronomical for older, less fuel-efficient planes, but they can be picked up for not much more than a Ford Mustang. A Piper J-3 Cub, from 1946, is available for less than $30,000.

https://www.trade-a-plane.com/

With an entourage the size of Beyoncé, the Piper is not going to work, but if you’re a bit of a Howard Hughes, it might be the one for you. For most celebrities, the budget is upwards of $20 million with running costs on top.

Tom Cruise and John Travolta are stars with a pilot’s license, and other famous pilots include Angelina Jolie, Harrison Ford, and Gisele Bündchen.

Start Your Own Airline

Some famous people are happy to use scheduled flights for their business trips and meetings. Conversely, other entrepreneurs have taken it to the extreme by setting up their own airline. Sir. Richard Branson set up his airline as he wasn’t impressed by the service offered by other ones. He is on record as saying:

“I started our airline, Virgin Atlantic, as a response to the poor service that I was subjected to on other airlines.”

He does, however, own a private plane which he justifies as it provides flexibility and saves him time. Over the years many other entrepreneurs have tried and failed, to run successful airlines. To emphasize just how difficult it is Boeing’s own website includes this stark warning:

“Starting an airline is tough. Running a profitable airline is even tougher. From startup airlines to established industry leaders, the process involves constant learning and adaptation.

Few businesses have as many variables and challenges as airlines. They are capital-intensive. Competition is fierce. Airlines are fossil fuel dependent and often at the mercy of fuel price volatility. Operations are labor intensive and subject to government control and political influence. And a lot depends on the weather.”

Airline Failures

In fairness, Boeing’s website does provide a very informative guide for anyone wanting to take the risk. This includes leasing planes rather than outright purchase and considering second-hand rather than new.

Despite the comprehensive guide from one of the world’s largest aircraft manufacturers, many airlines fail. Wikipedia has a huge dossier on defunct airlines of the United States. Almost 550 US airlines have fallen by the wayside according to the list. Wikipedia does point out:

“some of these airlines have changed identities and/or FAA certificates and are still operating under a different name”

Budget airlines in Europe, like Ryanair and EasyJet, are significantly cheaper to operate than their US counterparts. International Airport Review quotes US budget airlines as being about 10 to 20% more expensive. They suggest European airlines are cheaper for the following reasons:
- Essential services only – Ryanair doesn’t offer an in-flight TV service
- Bought wisely – modern fleets bought following 9/11
- Streamlined services – one genre of aircraft per business
- In-flight savings – fixed seats are cheaper to buy and maintain
- Staff savings – employees are often just starting in the industry
- Buying power – charge for everything onboard, even lottery tickets
- Cheaper airports – use provincial airports
- Aircraft usage – very quick turn rounds and busy schedules
Even in Europe running an airline is a high-risk venture. Another company was added to the list this week with the BBC reporting that Cobalt has ceased trading. Barely two years since Cobalt began operations from their base in Cyprus, they halted all flights without notice.

Source / www.express.co.uk

Taking a Punt on Airline Stocks

Rather than buying your own private plane or adopting the high-risk strategy of setting up an airline it might be worth taking a punt on airline stocks. We’ve just started the US airline interim reporting season with United Airlines (UCL) first out of the blocks.

Third quarter figures were released this week with some analysts upgrading them from hold to buy. UCL price is up from just below $60 a year ago to around $88 today.

American Airlines (AAL) has not fared quite so well with the price down from $52 to $32. Analysts are eagerly awaiting the earnings figures for American Airlines which are due out October 25. Expectations are high that they will follow the trend set by United, making AAL a strong buy.

And if a private plane is not on your bucket list then maybe you have your eye set on a superyacht instead.

Featured image from Shutterstock.
October 21, 2018
Will Donald Trump Default on His $22-Trillion-Dollar Debt in 2019?

President Donald Trump has had a history of credit defaults throughout his career. But could he be about to oversee the biggest one in history? Trump is sat on $22 trillion of debt with no outward signs that he has any control over it.

The budget deficit is now at 3.9% of GDP and well above the 3.2% 40-year average. Although the $779 million deficit for the last fiscal year was below the Federal budget of $833 billion, it’s still huge by any standard.

US Debt Ceiling

The US debt ceiling is defined as the maximum borrowings permitted by the Federal government and is currently set at $20.7 trillion. As of Monday, October 15, the debt ceiling stood at $21.7 trillion.

So how has Donald Trump managed to exceed the limit by $1,000 million? In February 2018 he suspended the debt ceiling which is basically a political fudge.

It’s considered more acceptable to suspend the debt ceiling than increasing it or slashing the Federal budget to stay within the ceiling. Debt ceiling suspension isn’t a new phenomenon, though. Congress regularly shies away from accepting the inevitable.

The Economy Is Booming so Why Is Debt Increasing?

Almost all the data coming out shows the US economy is booming, so why is the national debt increasing? Donald Trump’s tax cuts have had a significant impact on Federal receipts. If you couple this with spending more than you receive, the debt must increase.

Nations with debts that many consider unsustainable would normally see interest rates on government bonds rise sharply. Also, foreign exchange markets would look to switch to a more stable currency.

With a GDP of $20 trillion, the US is still considered an economic powerhouse. It is responsible for a third of the world’s production. At present, the US dollar is considered a very strong currency. A downgrade by one of the credit rating agencies could quickly change that.

Can the US trade its way out of debt? Not according to analyst “Sovereign Man” who worked out:

“a financial model which shows that, even with absurd assumptions (7%+ GDP growth for years at a time, low interest rates, etc.), it is simply not feasible for the US government to ‘grow’ its way out of the debt.”

Global Implications of a US Credit Default

8.1% of Federal revenues currently go towards servicing the enormous debt and this figure is set to rise to over 20% before the end of the next decade.

Interest rates have started to increase from historically low rates and are expected to reach 4.3% by 2024. Another problem facing the US is the relatively short maturity dates on treasury bonds compared with the EU and Asia.

Donald Trump has previously gone on record as saying his corporate bankruptcies were strategic defaults to reduce debts. If he defaults on the $22 trillion US debt, there will be far-reaching consequences for the country and the global economy.

Countries like China, Japan, and Brazil, would be worst affected as they hold more of the US debt than other nations. The impact would be far-reaching with global debt already at record levels.

Some financial pundits would argue that a US debt default is very unlikely, but even they have to acknowledge the worrying signs are there.

Featured image from Shutterstock.

October 18, 2018
Microsoft Co-Founder Paul Allen Dies After Losing His Fight with Cancer

The billionaire co-founder of Microsoft, Paul Allen, took to Twitter earlier this month to announce he was battling with non-Hodgkin’s lymphoma. He was quite upbeat and wrote that his doctors were hopeful that treatment would help.

Some personal news: Recently, I learned the non-Hodgkin’s lymphoma I battled in 2009 has returned. I’ve begun treatment & my doctors are optimistic that I will see a good result. Appreciate the support I’ve received & count on it as I fight this challenge. https://t.co/ZolxS8lni5

— Paul Allen (@PaulGAllen) October 1, 2018

Sadly, his sister, Jody, broke the news earlier today that he had lost his battle with cancer. Paul Gardner Allen passed away on Monday afternoon.

Paul Allen January 21, 1953 – October 15, 2018

Allen was perhaps best known as the co-founder of Microsoft which he created with Bill Gates in 1975. In 1982 his involvement with Bill Gates and Microsoft was significantly reduced.

Citing differences in management style and share ownership, he had informed Gates in the summer of 1982 that he would be leaving the business. Before the end of the year, Allen was diagnosed with non-Hodgkin’s lymphoma and exited the company in February the following year.

Vanity Fair published an in-depth report of the early days of the partnership between Gates and Allen in 2011, titled “Microsoft’s Odd Couple.” The article was an adaptation of Allen’s book “Idea Man” and in the article he confirmed:

“On February 18, 1983, my resignation became official. I retained my seat on the board and was subsequently voted vice-chairman—as a tribute to my contributions, and in the hope that I would continue to add value to the company I’d helped create.”

Despite his fight against cancer, he remained on the board at Microsoft until November 2000. Much of Allen’s wealth came from his Microsoft stock, but he also had lucrative investments which added to his worth.

He once stated that he saw his investment in Seattle Seahawks as a “civic duty.” Allen also acknowledged it was a good investment for him. Including the cost of the new stadium, his investment totaled around $330 million. In 2014, Bloomberg valued the team at more than $1.25 billion.

Years before his death Allen confirmed his plan to give away half of his wealth to charitable causes. Even though he had a rewarding career away from Microsoft many of us will always remember the pioneering work he did alongside Gates, RIP Paul.

Featured image by Wikipedia.

October 16, 2018
Bloomberg Suggests You Are Not Worthy With Wealth Below $25 Million

A recent article by Bloomberg states that many banks and fund managers will turn you away if you’re a pauper with less than $25 million. It doesn’t mean that investment advice is only available for the super-rich, but you should expect an inferior service if the “big boys” don’t want to review your portfolio.

Co-Founder & Managing Partner at TwinFocus in Boston Paul Karger expects a $250,000 minimum fee from his clients. So, turning up with half a million dollars would be slashed in half before you even left the office. Note that the figure of $25 million quoted by Bloomberg is not based on net worth, rather:

“Twenty-five million dollars in investable wealth. The kind of money you could afford to see dip into the red for a quarter or three, maybe even a year or two, without breaking a sweat. With $25 million, maybe, just maybe, you’re starting to be rich.”

Time Effect of Money

As highlighted in the article, the figure of $25 million was around $3 million 25 years ago. We all know that money erodes in value over time and you might be thinking that $25 million is just keeping up with inflation.

No, using the CPI figures available from multpl suggests $3 million would now be around $5.2 million. This perhaps highlights that bankers and fund managers are overcome with gluttony or conversely they “could” be working on lower margins, you decide.

As a child, more than four decades ago, the word millionaire conjured up great wealth, akin to the references to billionaires today. Numbers were always my forte even from a very young age, so it wasn’t that I didn’t understand the “value” of a million dollars.

As the decades passed and I achieved the million-dollar net worth status, I came to realize how insignificant it was. The intervening decades between childhood and my first million had seen the relative value dimish, but it was much more than this.

Property prices had gone through the roof over the years and even though the average US property sells for $200,000 we all know that popular locations command much higher prices.

Many cities across the globe have properties starting from a million dollars, and at the extreme, Knightsbridge in London it could cost you more than $200 million. Millionaires are as common as Trump haters these days and times have moved on.

Millionaire Pad in Knightsbridge by Rob Deutscher

Set Yourself Higher Targets

After many years plodding along in business, I set myself a target of $1.5 million net worth within the next two years and achieved it six months ahead of schedule. Maybe I should have been a little more adventurous and gone for $10 million or perhaps $25 million so bankers and fund managers, per Bloomberg, would take me seriously.

Although I have always considered myself a hard worker, like many, the idea of retiring early has always appealed to me. However, it appears that to retire early, we need to aim for a net worth of at least $5 million if we want to retire before we’re 60. So, that’s another goal you might want to set.

Billionaire status is likely to remain a constant term of reference for the super rich even for decades to come, especially if the forecast global slump comes to pass.

As a child, my mother would often say “who do you think I am, Rothschild?” when I pushed her for the latest tech device. Do parents of today refer to Zuckerberg, Bezos, and Bloomberg or do families in the West simply go out and buy whatever their offspring desires?

I doubt that Zuckerberg set himself a target of being worth more than a billion dollars as a child but for sure children of today will be dreaming of wealth in the order of tens of millions of dollars. Dreams of millionaire status are very much dated back in the 1970’s.

Featured image from Shutterstock.

October 15, 2018