Episode 215: KPMG Scandal Explodes, Labor's CGT Shambles, ATO Scares Small Business, Ferrari Goes Electric, and Adore Beauty Goes Sideways
The guys discuss KPMG's implosion, Labor's chaotic CGT Reverse Ferret, the ATO's small business scare campaign, Big W's surprisingly good chatbot, Ferrari's electric future and Adore Beauty's reality.
The Contrarians catchup
Adir’s Howard Stern/David Letterman clip got four likes on LinkedIn. His more combative posts about the budget went viral but attracted personal abuse. “I find that if someone I have had an interaction with writes personally mean stuff to me on LinkedIn, I find that quite hurtful. But like even random people that I don’t know, anonymity is worse, clearly.”
The episode kicked off with a quiz: the world’s top startup ecosystems by value. The answer: 1. Silicon Valley, 2. New York, 3. London, 4. Tel Aviv, 5. Austin. Sydney is 26, Melbourne is 30. Adir’s take on Tel Aviv: “There’s been a war in Tel Aviv, incredible. Like all of these founders, literally they’re going to the army. But foreigners are scared to invest VC money in the country and yet it’s recent number four with no population.”
Adir used Claude to compare his electricity bill against competing providers after the government comparison tool gave him completely wrong results: “I uploaded screenshots of prices from different providers into Claude and my bill and I said can you just work this out? I double-checked the end result.” He also discovered he was taking longer and more frequent showers than anyone else.
The ASX has returned just 32% since 2006, compounding at 1.4% per year over 20 years before dividends and inflation cancel each other out. Adam: “The ASX has been just a quagmire for two decades. What a disastrous state of affairs.”
Adam wrote a 2,000-word piece on Luke Sayers for The Contrarians newsletter and says it was the best reaction he’s had to anything he’s ever written: “It went into the real background of pre-Dick Pic Day. Luke was a controversial character at PWC. He was fined for having alleged relationships with staff. There’s a lot of stuff that hasn’t really been reported much.”
Albanese accidentally admits he doesn’t believe in capitalism
The government announced a partial retreat from its most controversial CGT changes, creating a 50% discount for innovative businesses meeting strict criteria, and lifting the small business concession threshold from $2M to $10M in turnover. But a $10M lifetime cap applies, and the new rules are near-impossibly complex to qualify for.
Adir: “I sincerely apologise for calling you a shill because they wouldn’t say backdown. But I don’t think this is a backdown. This is basically, you know, like I call this, you know the Simpsons episode where Homer and Chief Wiggum are in a hole and they say, how are we gonna get out? And Chief Wiggum yells no, dig up stupid. Like this feels like that moment to me.”
Adir: “It’s like you’re trying to do a puzzle, but people have poured in pieces from eight different puzzles. And now make the picture. It doesn’t fit together. You can’t make this picture.”
Adam: “What Albanese and Chalmers don’t seem to get is the fact that the CGT reforms will change the cost of capital and push investors towards higher yielding, more mature companies to pay big dividends. They have no understanding of that concept whatsoever.”
On Albanese’s claim that the aspiration of a small business owner is the same as for every worker:
Adam: “There in one barely comprehensible sentence is a treatise where he is saying I do not believe in the principles of capitalism, because in capitalism, capital and labour do not get treated the same, for better or for worse. And Albanese has just, I do not believe in the fundamental cornerstone of capitalism.”
Adir: “A politician who is paid from the public purse is as aspirational as someone that opens a hairdressing business and doesn’t pay themselves for four years. We are the same aspirational. Now, you might be the same ambitious, but he’s not as aspirational. And we should not compare the taxpayer-funded salary that a politician gets with the hairdresser and the sweat equity they’ve built up and the risks they’ve taken. And if you do compare those things then frankly you no longer believe in capitalism.”
Adam: “He is not lying about his core ideology. His core ideology is I do not believe in capitalism. And there are not really democracies that have managed to exist anywhere around the world in history for extended periods of time that have not been based on capitalist economies. This is a slippery slope to democratic disaster if we start eroding capitalism.”
On who is actually paying for it all:
Adir: “The biggest travesty is we’re all fighting about CGT, and Chalmers’ comment was basically, how many young people even are affected by CGT? And that triggered a thought in my mind, which is we shouldn’t be arguing whether 10 or 20% are affected by CGT. We should be saying, how come 70% of young people are not affected by CGT? And the answer is, because if you earn $45,000 to $135,000, you’re paying an extra 30% in income tax. If you’re earning $100,000, the average wage in Australia, it’s usurious levels of tax. And somehow the entire tax debate has been completely deviated towards CGT.”
KPMG is worse than PWC, and barely reported
A Senate inquiry revealed that KPMG had systematically shared confidential client board papers, including those of 70-year client Lendlease, to win new audit work. The firm’s former CEO Andrew Yates, who publicly condemned PWC’s behaviour in 2023 while this conduct was ongoing inside his own firm, has been ousted. He was paid $3M in salary last year and is receiving a $1.7M termination payment. A former KPMG partner who is now chairman of Westpac’s audit committee stayed at chairman Martin Shepherd’s house while KPMG was pitching for Westpac’s $32M audit. A separate KPMG partner left the firm and within months joined the Macquarie board, chairing its audit committee. KPMG subsequently won Macquarie’s $75M audit.
Adam: “Not only did he basically try to steal clients from PwC, he also lied about the whole process in front of Parliament. This guy said this is why the PwC issue is so disturbing. Based on the findings of the Tax Practitioners Board, the conduct of PwC was clearly unethical and unacceptable. Yates even emphasised that KPMG did not use legal personal privilege improperly. He then went and claimed it.”
Adam: “They’ve got this law firm to investigate. They’re using this internal investigation to avoid giving it to a real investigator. The whistleblower is being exposed internally throughout the organisation. He got fired. They certainly dismissed the claims. And ASIC has conceded that they have inadequate powers to protect the whistleblower because something about these types of partnerships don’t exactly fall under ASIC. This whistleblower who has now said I wouldn’t do this again. This country can’t even protect the whistleblowers that are doing the right thing.”
Adir: “One of the things that I’ll generally say to players is exactly what I feel like should be said to this board and this CEO. You should never do anything that you would be embarrassed about on the front page of the Financial Review. All of this would not have been hard to understand was going to look terrible on the front page of the Financial Review. They just didn’t think it was going to. And they came to stop it getting there. But welcome to the reality.”
Adam: “This is horrifying. How many column inches were devoted to PWC? This is so much worse. It’s not just the crime, not just the stealing the documents and using it for your own money-making schemes, but to effectively victimise this poor whistleblower. And God knows the mental state of this heroic whistleblower who tried and tried and tried.”
Ferrari’s EV problem
Ferrari’s new electric car, the Luce (meaning “light” in Italian), has drawn criticism for its looks, which don’t carry the instantly recognisable Ferrari silhouette. Yet Ferrari’s brand machinery has ensured that loyal clients feel they need to buy it to maintain good standing and preserve their access to limited edition supercars. The Ferrari F-80 sells for US$3.9M and trades for $5M on secondary markets. The FXXK (this isn’t us avoiding saying “fuck”, that’s its name), a track-only car, sells for $3M and $4M on the collector market.
Adir: “Even if you don’t see the badge, you know it’s a Ferrari. You couldn’t say that about this car. I think that’s the difference.”
Adam: “This is better than brand forgiveness. Forgiveness would usually mean, don’t worry that we made a mistake, when we make the next thing we’ll be fine. This is, we made a mistake, but our brand is so strong and our customers are so desperate to be a part of it that they will buy this thing that no one maybe wants in the same way, just to show us that they’re there for us in hard times as well as good times. This is absolutely remarkable.”
Adir: “They’ve got this unique characteristic, or I don’t want to say unique because that would mean only one has it, but very, very uncommon brand characteristic, which is people will buy things from us that they don’t even really want in order to have standing to buy the stuff that they do want because it’s so unattainable and inaccessible. That is like a very, very tough game to play that almost no one pulls off.”
Adore Beauty: the IRE Index claims another victim
Adore Beauty, which IPO’d at a $600M valuation, rejected a $1.20 per share ($130M) acquisition approach roughly a year ago. The shares now trade at 30c, implying a market cap of around $25M. Insiders including founders and private equity backer Quadrant sold down a combined $250M across the IPO and thereafter, giving an IR (Insider Relative Exit) Index ratio of approximately 10, making it a strong contender for number one on the all-time leaderboard.
Adir: “The problem they’ve got is the problem that we foresaw they were going to have. You’re selling third-party retail stuff against an enormous, very well-run competitor in Mecca, who also has exclusive brands that bring people in. You can’t compete with them.”
Adir: “And when they opened stores, which I generally favour, you know, I hate third-party retail, but they’re opening stores three doors away from Mecca. That is not a road to victory.”
Adam: “If David Jones stays solvent, that will be a dramatic achievement in my view. Like that has big problems. But if you’re Myer, how would you not launch a takeover bid for Adore Beauty now? For $20M, very cheap. There is a brand that has a loyal customer base that will respond to offers from Adore Beauty, and there’s a real brand there.”
Five other stories worth following:
US and Iranian negotiators met in Switzerland overnight after talks turned tense, while Trump threatened harder strikes unless Tehran reined in Hezbollah. Qatar and Pakistan reported encouraging progress, with negotiations continuing through the week.
Keir Starmer said he will resign as UK prime minister, promising an orderly transition after Labour lost confidence amid an Epstein-linked ambassador scandal and Andy Burnham’s rise. A successor is expected by September recess.
Serena Williams will return to Wimbledon singles next week after accepting a wild card, nearly four years after stepping away at the 2022 US Open. She will also play doubles with sister Venus.
Nipsea researchers in Singapore developed an ultra-black paint absorbing 99.9% of visible light, creating optical illusions and potential luxury vehicle uses. It recalls Vantablack, used by BMW concepts, satellites and submarines.
Snap unveiled Specs, chunky AR glasses costing about $2,200, after a decade in development. Shares fell over 5%, though Evan Spiegel compared the device’s all-in-one computing power to a premium computer.