Sometimes, as my colleague Chris Hill likes to say, the News Fairy just arrives unexpectedly, dropping a great story in your lap.
That was the case this morning, as I was just getting to the end of an article I was writing.
I didn't finish it.
Instead, my attention was captured by an article in today's AFR.
It was headlined, appropriately enough, "CFD crackdown will cost $400m tax revenue"
And inside, this line:
"More than 1000 local jobs and $400 million a year in tax revenue are at risk if ASIC massively reduces leverage on derivative products used by investors, according to product providers."
It's those last four words that really made me laugh.
It's the sound of an industry desperately fighting a rearguard action.
Appealing to a government's self-interest.
'It's jobs, doncha know?'
'And just think of the tax revenue'
CFDs, if you've been blissfully unaware until now, allow you to take a massively leveraged bet on the movement in the price of a financial security. Most often, it's the ASX200 or another, similar index.
And I didn't use the word 'bet' loosely.
The CFD 'provider' should be better termed the 'bookie'. And the CFD 'investment' is more akin to two-up than real investing.
But, because it was offered by otherwise respectable brokers, and because the underlying financial security is stock market-related, it's somehow considered 'investing' or 'trading' by most.
Talk about a PR coup. When you can turn roulette into a financial product, offered by respectable people to others who think they're investing… well, that's textbook marketing.
And not in a good way.
Appealing to our egos and greed, these guys get us to bet against each other, clipping the ticket on the way through.
The more we 'bet', the more they make. Until…
Until we're spent.
Then it's off to find more suckers.
When you and I gamble at the track, the TAB or online, we know the game. We, as a group, are going to lose. The house, as the facilitator, is going to win.
There is, in the parlance, a 'negative expected return'.
Now, some poor sods get addicted. And I reckon there's too much advertising and too many options available to those poor bastards — and our kids. The government should have the guts to tighten that up.
But at least — and the very least — we know the game, and the odds. It mightn't stop us, but we're under no false illusions.
Unlike CFDs where many, almost certainly most, start off planning to invest. You know, buy a few shares of something, maybe a blue chip stock or an index fund, and try to build wealth.
Then, because they want more action, they get greedy, they see some slick marketing — or all of the above — they start to wonder if they can make more with CFDs.
Maybe they win the first time. Maybe they lose. The winners are sucked into believing they're actually good at this thing. The losers want to earn their losses back.
And eventually?
Eventually, all but a tiny, tiny fraction of them lose.
Usually big time.
The good news is that the corporate cop, ASIC, is cracking down on these 'products', looking to ban many of them.
More power to their arm!
But that's why we're now seeing this sob story about the job losses and forgone tax revenue.
That part of the finance industry is fighting a rear-guard action.
Now, to be clear, I don't take those potential job losses lightly.
There but for the grace of God go any of us.
But the lead paint industry had to change. So did the refrigeration industry, when HFCs were linked with ozone damage. There are no cigarette girls any more.
Yes, jobs are a consideration. So is tax revenue.
But we have laws — and rules — for a reason.
I have no doubt the government can make up the revenue. After all, it's not like those people who find themselves not bankrupted by CFDs won't spend their money somewhere else.
You know, like on different products, with GST, and for which people are employed in the manufacturing, distribution and sales process. And the companies selling those products will pay their share of income tax, as will their employees.
The difference? Fewer people will be made poor in the process.
So, CFD guys: Cry me a freaking river.
And ASIC, you're on the side of the angels on this one. Please don't let them push you around.
Everyone else, keep on investing. In real businesses. For the long term.
After all, wouldn't you rather get rich slowly than go broke, quickly?
I thought so.
Fool on!
