Don’t believe the ‘everything’s fine’ bleat

Are we heading for a Swan dive with the Australian economy, with his version of the slowdown we have to have (shades of another novice treasurer)? COLIN BENJAMIN

By Colin Benjamin

As we head for a Swan dive with the Australian economy, with his version of the slowdown we have to have (shades of another novice treasurer), don’t be sucked in by the broker’s underlying message that the ASX is back on the way up and everything’s fine.

Despite all of the RBA’s belief that it can do the reverse of every other bank in the globe and keep raising rates for the 13th time in a row, there is every sign that the world is going into significant decline. 

Last month US new car sales dropped by historic amounts, with GMH down by 12% and even Toyota going down by nearly 3%. We are seeing evidence of Schumpeter’s destructive capitalism with JP Morgan swallowing Bear Stearn and central banks pumping out liquidity in the belief that otherwise there may be no tomorrow in a presidential election year.

It makes you wonder what makes Glenn continue to turn a blind eye to the message from Morgan, and now the world’s consumer confidence studies, that indicate that the average customer is looking to reduce debt, not increase consumption.

The US consumer confidence level is down to levels last seen five years ago and the NZ level is down to areas seen a dozen years ago. In Australia, eight out of 10 Morgan Values segments – especially the more affluent segments are falling rapidly.

The US has just announced the lowest level of new housing sales for 13 years after a further 1.8 % decline last month continuing a long term trend, consumer confidence dropping like a stone and the Fed pumping dollars into mortgages that have already proven that they should never have been issued, but we are informed that the housing crisis is finding its own bottom and the worst may be over.

More US banks are in trouble than is being admitted by US Treasury secretary Paulson with Citi coughing up $US1.63 billion for its part in the Enron collapse five years ago (without of course admitting any fault on its part). There’s more financial problems with mortgage insurance layoffs of US loans than has been admitted despite Paulson’s call for greater truth and transparency in capital markets.

We are now finally being told that banks as big as Deutche and Citi are in trouble and that there is nearly a $US500 billion exposure of financial institutions around the world that “is being worked through” as the market is given a liquidity boost by Bernanke and Paulson.

Under these conditions, don’t be surprised to see Kevin and Lindsay making the most of savage cuts to Howard’s legacies to the rich and powerful, while Julia, Jenny, Nicola, Tanya et al explain how “working families” will be protected against another decade of higher interest rates and energy costs etc.

There is a flight to the euro and away from the $US and sterling as just about every English speaking country bar Australia is facing hedge fund pressures to lower their rates further. Watch this space in Australia when they get tired of playing with other people’s currencies as China starts to let its yuan rise to take down some emerging inflationary pressures, which is why the Futurist is recommending that smart companies will want their contracts specified in TWI terms with a bias towards euros.

If you have an export business that can lock in firm long term contracts, try to avoid writing them in $US and go for a TWI basket that includes a high proportion of euros. If you are in a service business lock up your key staff with love and special attention because its going to be a buyer’s market for experience and people with export network access.

Britain’s FSA has yet to do anything about the short sellers that tried to manipulate its biggest banking stocks despite announcing the “mirror-mirror” disclaimer (“we’re looking into it”). It is now admitted that the British bank crisis that ended up with nationalisation was a direct result of the feather duster regulatory approach of the FSA.

In Australia the broker’s self-managed regulators and the ASX has looked into the same Luna Park mirror to announce that it is quadrupling fines for any broker actually caught manipulating the sharemarket to $1 million, while we still await action in the court case related to the HIH collapse that sent Adler and Williams to jail. Why do we let the Beagle Boys run the prison?

Which leads me to say, when they tell you that the fact that we have had a couple of consecutive days of sunshine on the ASX it’s time to get back into the market – don’t believe a word of it. They make their money by increasing volatility, and who can remember any Aussie broker or finance house staff being found guilty of making money for the ASX or its members?

The United States is no longer the centre of the Australian universe. India’s Tata Motors, which has just bought Land Rover and Jaguar for a third of what it cost Ford to buy them in the last decade, is three times the capitalisation of General Motors and also is producing the world’s cheapest car in India.

HP, which is suffering along with other high tech stocks, claims that it will be OK because it now has only a third of its income coming from within the US market. Durable goods orders are down and gold is on the rise again as people see it as a hedge against the falling greenback.

Looking at car sales again, it is interesting to note that US car maker fortunes in other countries are doing relatively well. GMH in China for example has enjoyed 15% growth, and an average of 8% across the BRIC economies. 

Putting everything into terms of the US/UK experience will not serve Australia to best advantage.

The equities brokers are making hay while the Commonwealth works out how to put a short lead on the short sellers and brings them back into some form of accountable level of truth, trust and transparency and stop them promoting Bottomtraders Pty Ltd. Don’t believe a word of their buy and sell messages – the feeding frenzy requires continuing volatility to help them get their end-of-financial-year bonus.

When we get a series of storm warnings, it is far too easy to wait until it all blows over and neglect to heed Peter’s prophetic pre-electoral tsunami call. Now it’s time to watch for the backbench smirk as the alternative treasurer weeps crocodile tears in his budget reply in the hope that like the coming court cases from the HIH collapse, he can avoid taking any responsibility and capture any advantage.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.

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