Newsletter – July 14 2017
“Bloody fools, they really are.
It’s just ridiculous, this.
When your natural advantage should be cheaper energy prices than other people in other parts of the world, and you suddenly find you’re settled with some of the most expensive energy in the world”
The Week That Was…
This week has had a couple of major surveys released.
First, on Tuesday, The National Australia Bank released their monthly business survey that shows that business conditions returned to “pre-GFC” levels.
This was due to stronger trading conditions, particular in sales which increased 4 index points.
Now, most industries performed well – especially wholesale, construction and manufacturing experiencing the biggest gains in conditions, up 25, 16 and 7 points respectively.
However, what was the most interesting of the report was the worst performer.
Mining takes this trophy, with a 10 point drop in business conditions.
This was mainly due to negative movements in many commodity prices.
Now, I’ve talked a lot about the impending arrival of the e-commerce giant Amazon to Australia, and whilst many retailers are worried it may disrupt the traditional retail industry, it might not have as big of an impact as predicted.
The NAB business survey shows that the retail sector finally had some improvement last month.
However, the bank noted that business confidence has lagged behind business conditions “for a long time, and that trend continued in June”.
Last month, the business confidence index rose by a single point to +9, which is still higher than the long-run average of +6.
Though this is still better than the May result – which saw confidence fall by 6 points.
The Commonwealth Bank also released some interesting figures on Wednesday that show Australia’s population growth is actually masking our economic weakness.
According to senior economist Gareth Aird, Australia’s high immigration intake is hiding our economic weakness in headline figures, but when you break down those numbers per person a bleaker picture is revealed.
While Australia’s high levels of immigration makes Australia’s headline economic growth rate look reasonable, on a per capita basis GDP growth has been trending downward since the recovery from Australia’s last recession in the early 1990s.
This in turn has seen the Bureau of Statistics’ key measure of household living standards – real net national income per capita – essentially flatlining since the GFC.
This weakness is reflected in many aspects of living standards: from stubbornly high underemployment and weak wages growth to surging home prices and debt, as well as an increase in urban congestion.
Our economy really has not progressed as it should have with our population at its current number. Wage growth has not kept up with inflation, property prices are out of control on the eastern seaboard and the underemployment levels are just rising, month to month.
Something needs to happen, Gareth Aird is definitely correct about that.
In keeping with this idea of living standards in Australia, household debt is truly at an all-time high.
And the local head of one of the world’s largest bond fund, PIMCO, has said that it’s due to the household debt that the RBA is locked into low-interest rates for the foreseeable future.
PIMCO’s Australia managing director and portfolio manager Robert Mead said the willingness of Australian households to take on more debt had been a key driver of the Australian economy in recent years.
And as I said, with wage growth below inflation, many households had been dipping into their savings or taking on more debt to fund consumption growth.
So if interest rates were to rise, people wouldn’t be able to afford it.
So this is a huge hurdle for the RBA. With the US and Canada raising there, its expected we should raise ours as well. However, this seems very unlikely until at least 2018.
A topic we have covered extensively on Money News is the rising cost of energy.
This whole situation is just so frustrating.
Australia is not a third world country. We are a developed nation. Let’s just make that clear.
Yet, we somehow cannot sort out our energy crisis.
Energy bills are rising by 20 per cent in nearly all states, South Australia is having blackouts every other week.
State governments are closing down power stations and people are losing their jobs.
This energy crisis has truly gotten out of control and if something is not done quickly, Australia will become a third world country.
Liberal backbencher Craig Kelly made a good point on Thursday when he said that high power prices meant many households were unable to adequately heat their homes.
They can’t! They can’t afford to!
I told you last week about a South Australian business that was forced into liquidation when their energy bill rose $100,000 in the space of a year.
I’ve told you countless times that state and federal governments need to be more sensible about their renewable targets.
I understand why we need to go renewable, but if its causing energy prices to rise this significantly, people need to step back and realise what a detrimental impact this will have on households and businesses.
Bloody fools, they really are.
Last year we had aluminium smelters in Tomago and Newcastle threatened to be closed down. Portland as well had problems. Jobs are being lost! Jobs that Australia needs to keep!
Tell you what, it is a fundamental problem.
It is a fundamental and very significant problem.
You can’t have politicians sticking their heads in the sand and just ignoring it, hoping it goes away because it’s a real life problem if you suddenly have your energy bill go up by a $100,000 bucks a month.
That’s more than the money you’re making in the business.
China has released 10 Crown Resorts employees, including two Australian citizens, from prison after they were convicted of illegally promoting gambling last month. But has Crown read the political climate in China wrong? – Read here
Money News –
All this talk of interest rates is causing quite a stir. I spoke to one of Australia’s most respected chief economist in the country, and former member of the Reserve Bank, John Edwards who thinks that we could see eight rate rises over the next two years – Listen here
Work. Life. Money –
As a child, it was a fantasy to look through a telescope and discover a new planet. And this Sunday, I talk to a retiree who did just that. TG Tan has discovered planet “LHS 1140b” from his Perth backyard – Listen here from Sunday