Funny business

The big end of town cuts back on bonuses, and consumers are pessimistic. It’s funny business, and the spin doctors are getting out of their depth.

At a time when Aussie cricketers are proving that the market still works, it is time to review the funny business of international markets.

At home the RBA is doing its best to stamp out optimism in the local market, while in Britain and the US central banks are cutting interest rates to build consumer confidence and restore small business investment.

Are we at last seeing the end of the housing bubble that allowed those with an inability to borrow to be lent funds that the institutions could not afford to support so that derivatives could be promoted that had no firm foundation? Funny business in the money market.

What is obvious is that there is a galactic level realignment of financial institutions that is still being papered over by sovereign funds from China and Russia to prop up huge losses in the mortgage insurance business.

Truth, trust and transparency are being pared down by the spin doctors associated with hedge funds and brokers interested in the “she’ll be right” philosophy that has them ringing their clients rather than the other way around.

Remember when the media were having a go at the Coles Myer response to Kohlberg Kravis Roberts (KKR) threat to Coles’ independence through a disappearing consortium of leveraged buy-out funds. Now we find that KKR has begged for time to pay off its debts to next month.

In Britain, there is a back-to-the-future nationalisation of Northern Rock bank by the British Treasury. In France, Société General is slowly admitting that it encouraged speculative plays that lead to the loss of billions. Credit Suisse, Citibank and the big financial houses are only now admitting that they face even more billions of losses in payouts to the mortgage insurers.

Expect a slow drip of information that will show massive write downs, company mergers, lower dividends and pressure on the hedge funds to declare their real exposure to the funny money business.

In this environment it will be important to prepare for a six months credit squeeze and a focus on cash flow rather than market manipulations in the equity casino. Small business owners in Australia can assume that their financial institutions are going to be hunting for every last dollar to prop up their liquidity and demanding more and more strategic and business plans before endorsing any domestic expansion.

Five action steps may prove of value:

1. Examine product distribution to the British, European and US markets and start to build market entry strategies into the BRIC economies.
2. Sit down with key staff who have contacts around the world in emerging markets and ensure that they feel part of your company’s future.
3. Consolidate terms of trade and pay early attention to clients who are outside their normal cycle of orders and credit lines.
4. Reduce the cycle time between initial client contact and service delivery to maintain the future order book and business opportunities.
5. Explore the potential of the internet and e-commerce to extend the market reach of the business to force a greater awareness of on-line, on-time and below-budget efforts to recession-proof the business.

In this context, we should all appreciate Glenn Steven’s sensitivity to the evidence that the big end of town has started to cut back its excessive bonus payments and respond to the fact that the more affluent Roy Morgan Values segments are showing early signs of restrained pessimism.

A decision to defer a further interest rate rise until May will allow businesses time to prepare for a further extension of the credit crunch.

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