Telstra (ASX: TLS), Macquarie Bank (ASX: MBL) and “The New Pharaohs” of Dubai

Eighty-eight percent of Telstra (ASX: TLS) shareholders who are not the government voted against the appointment of Geoff Cousins to the Telstra board of directors. But because the government owns 51.8% of Telstra Shares (for now, anyway), the government got its man installed on a board that didn’t want him.

Hey… whatever happened to one man, one vote?

We have nothing against Geoff Cousins. For all we know, he may be the right man at the right time for the wrong company. We are merely fascinated by the whole process. The government is not just “one man.” It is all of Australia and speaks for all Australians, presumably.

Its “one vote” counts for more because it owns more shares, and in the market, at least with most kinds of common stock, one share equals one vote. How undemocratic! Or is it, “how democratic!” We are a little confused about the whole thing. Whose interests are really being served here, Telstra’s Board? The Howard Government? Telstra Shareholders? The Australian people?

We also note that a bare majority of voters who are not the government rejected the pay package for Telstra’s directors. We wonder what the other 49% were thinking. It doesn’t really matter since the government backed the board and voted for the pay package, which brings us to our next question: Is Sol Trujillo really an $8 million dollar man? The shareholders have had their say and the answer is “yes!” All in favor of Democracy, say aye!

If Trujillo feels underpaid or underappreciated, he could always look for work with Macquarie Bank (ASX: MBL). Yesterday the company reported that after-tax profits grew by 51% in the last six months, from $482 million to $730 million. Sadly, for frugal shareholders, salaries grew by almost as much, increasing 50% from $1.2 billion to $1.8 billion.

This proves the household adage that expenses usually rise to match income, even if you’re a multinational billionaire bank, busy buying up and managing assets all over the world. It’s obviously a good time to be part of the Macquarie family, at least from an employment perspective.

As to the quality of the bank’s assets… well.. .that is a much more complicated matter for another day. But there’s no doubt that the bank is styling itself as a world-class evaluator of investment opportunities. It has a keen eye for undervalued assets and a pocket full of cash and credit. But then, there is a lot of cash and credit flowing around the world these days, which means a lot of money chasing a limited universe of assets.

Take Dubai for example. We read today that Dubai Islamic Bank (DFM: DIB) has launched two $1 billion private (pirate) equity funds. The funds will be run by Millennium Finance, the investment banking unit of the bank (and presumed competitor with Macquarie Bank) and will be, according to, “Sharia complaint.” We assume they mean “compliant.”

Will the bankers in Dubai be better at investing petro-dollar profits than Mac Bank is investing superannuation money in foreign assets? We have no idea. They are all pirates. But the Dubai bankers have a lot of booty to work with.

“A new Dubai-led Arab fund will be looking for up to $US10 billion ($13 billion) in investments in blue-chip stocks globally as the Gulf emirates seek a lead role in recycling petro dollars abroad,” reports today’s Australian. The article fascinates us because we have just finished writing about the very same subject in the December issue of Outstanding Investments.

“The New Pharaohs” is what we’ve decided to call Dubai’s bankers and capital allocators, although “The New Pirates,” would work just as well. Flush with hundreds of billions of dollars in oil and gas profits, Dubai and other members of the United Arab Emirates are trying to put that capital to good use in a mind-boggling portfolio of capital-intensive building and construction projects.

The scope of the construction and infrastructure projects in the Emirates is stunning. It would humble Howard Hughes, we think. But Dubai is looking beyond the Gulf for other projects, too. From South Africa’s BusinessDay we learn that the Premier of the Western Cape is traveling to Dubai seeking investment capital.

His visit is, “unashamedly about harnessing new sources of investment capital,” which is “looking for lucrative destinations,” says Ebrahim Rasool. He may find a willing partner in Dubai, who imagines transforming Capetown in time for the next FIFA world cup in 2010. “Once they make up their mind to turn Cape Town into a Dubai, then we are going to be challenged significantly, because they move at a pace that is vast, and work on a scale that may even be outlandish.”

Outlandish? For sure. Vast? No doubt. But is it also the world’s most stupendous waste and misallocation of capital? We don’t know. And from an investment perspective, it doesn’t really matter. These things will be built, whether they are put to productive use or not, only time will tell. In the meantime, it’s who is going to build them is what interests us most. That is what we spent our time investigating in the December issue of OSI, due out later this week.

Despite record pay packages for executives of Aussie firms, lucrative and growing orders for Aussie construction firms, and soaring house prices in Perth (up 46%), Australians are losing their confidence. According to the Westpac-Melbourne Institute Index of Consumer Sentiment, consumers feel 9.7% worse about the state of things than they did the last time the Institute checked.

“Cheer up Australia,” we say! There is a lot of opportunity to be excited about. The Dow is making new highs. Dubai is on a spending kick that should be great news for Aussie firms, and house prices haven’t crashed. What’s not to like? True, the Reserve Bank of Australia says core inflation will remain high. But we think you can outpace inflation with even larger gains in certain stocks. At least, that’s what we’ll be aiming for.

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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