Ecenomics. Whats REALLY going on?

[Intrinsic_Value]

The share market is an unbiased source and it reckons discretionary spending is down. Check out the charts for Harvey Norman (HVN) and JB Hi Fi (JBH)

Woollies reports next week I think. They don't expect too much there either.

I think you are spot on, i currently have minimal exposure to discretionary retailers.
Its not just the sales numbers you have to look at but also margins (which i think are getting hammered at least in electricals).

In regards to non-discretionary, ie WOW, im not there either as i think but im hoping to if the price comes down sufficiently.

WOW has never failed to deliver over the last 10 years. If we go into a period on negligable or better yet negative food price inflation, they might get hit, and thats when i will come on board.

 

[Sunfish]

WOW has never failed to deliver over the last 10 years. If we go into a period on negligable or better yet negative food price inflation, they might get hit, and thats when i will come on board.

They're priced for perfection with a high PE. If growth doesn't happen they will be re-rated.

What many fail to understand (I know you do IV) is that a company which delivers constant 10% gain YoY is rated higher (measured by it's P/E) than one which just matches inflation, even if they make the same profit. But when it has a flat year without an easily identifiable short term influence and "guidance" is more of the same the share price does not just flatten it "re-rates".

Let's take Woolies. It's shareprice is $26.60 and earning $1.50 ie 16.6 P/E (some rounding!) If it only makes the same next year and is unsure of a better 2012, it will be rerated to a P/E of 12. ie an $18.00 share price.

You may have noticed that the "blue chip" tag means little to me and that is why.

 

[willair]

Scary to think that we expect subsidised spending and tax breaks to drive the economy now. Thats not healthy at all. Its not like there is mass unemployment either is there?

I think the unemployed levels are a lot higher then most think,if you were to consider for instance the number of over 45 men that don't work and are not in the system at all,it does not matter about Mr Rudds strengths and weaknesses which are on display each day,the people i talk too mostly in trades all tell me it's very slow,reno work has come to a halt,just part of the bigger picture,just different opportunties..willair..

 

[topcropper]

Whats really going on?
If you ask me the recession is biting harder than ever on our retail business. FWIW we didn't feel a thing when the media told the public that we were in the depths of the worst.

I'm going to go down a different track to everyone else here. It's hard for me to think locally. What's going on in the Sydney CBD means nothing to me. All Sydney is, is 4.5 million consumers now, eating food, consuming energy and building houses, it's where I go to get on an airplane to go overseas. I tend to think globally, as I grow grain for export, and all my inputs are imported, so that's how I think.



I reckon there is a permanent shift in global wealth happening. Australia hopefully will be a winner, obviously due to our luck in so much mineral and energy wealth and land and divided by a low population. Plus we don't need manufacturing so we don't have to compete with hungrier and harder working and smarter asians. Asians who simply can't fail, as they don't have much commodity wealth or land to ride on.

Lots of countries are going to be losers, due to them living beyond their means for many decades. Countries without resource wealth, and that don't produce enough internally to pay for their imports, have to lower their standard of living. It's as simple as that. If you can pay for your imports, you will continue to live as you want. If you can't bad luck, and the market will find a way to bring these countries back down to where they should belong.

I got these figures from the world fact book. They are roughly the worst basketcase economies to the strongest.


Country..................population million.....Exports billion....Imports billion.

Greece...................10.7.......................21...................64.
United States..........307........................994.................1445.
United Kingdom........61.........................351..................473.
India......................1160......................165..................253.
Canada...................33.........................298..................305.
Australia.................22.........................161..................160.9.
Japan.....................127.......................516...................490.
Germany.................82.........................1121.................931.
China.....................1338......................1194.................921.
Norway...................4.6........................122..................64.


Notes.

Greece, the UK, the US have all been living way beyond their means. With asia now taking over manufacturing it's hard to see how this will turn around. They are in for a permanent lowering of standard of living. At least the US has hope. They still have a major manufacturing industry, unlike the Poms, who have de-industrialised but do not have the primary sector to support them unlike us. The US also have commodity wealth and is the worlds food basket.

India looks like a basket case compared to the mighty China. Why is India regarded as a possible winner? Plus China has it's population growth under control, India doesn't. India is headed for a crash and burn I'd reckon.

The surplus countries are China, Japan, Germany and Norway. But Japan has huge government debt. 192% of GDP, so their production has come at a cost. Not helping Japan is it's 3 million farmers that are basically on welfare. Draining $US 50 billion a year and doubleing food prices at the till due to tarrifs. Japans welfare payment to it's farmers is way more than the total value of agricultural production. Hard to believe. Germany is a massive powerhouse. Germany is a manufacturing nation, and is under attack from asia. I suppose it's suffered from two decades of proping up east Germany with reunification, plus I'd reckon being a member of the EU has been pulling Germany back.



If retail sales are down, that would simply be due to the Rudd stimulous from earlier. I suppose retail is now where it would be without the cash splash. You should see all the new farm machinery in my parts? The 50% investment rort was crazy. US machinery manufacturers thank Kev immensely.

There has been no change in my area. There was no change at the height of the GFC, or before it, or after. Seems we just plug along out here. Population growth is rising fast now with mining pulling people in and city people getting out of the rat race. Still full employment for who ever wants work


See ya's.

 

[Piston Broke]

Our trade deficit has been negative for 11 consecutive months.
June -0.09B
July -0.56B
Aug -0.44B
Sept -1.56B
Oct -1.52B
Nov -1.85B
Dec -2.38B
Jan -1.70B
Feb -2.25B
Mar -1.18B
Apr -1.92B

 

[topcropper]

Our trade deficit has been negative for 11 consecutive months.
June -0.09B
July -0.56B
Aug -0.44B
Sept -1.56B
Oct -1.52B
Nov -1.85B
Dec -2.38B
Jan -1.70B
Feb -2.25B
Mar -1.18B
Apr -1.92B

I thought we mostly ran trade deficits too. I'm just going off the info on CIA world fact book.

I looks like we were running trade surplus's last year, but have slipped back into deficits the last 12 months. This news item from 12 months ago,...

http://www.marketwatch.com/story/australia-posts-its-second-largest-ever


......"Australia's trade surplus inched towards a record in February, marking the country's second-largest-ever figure, defying analysts' expectations of contraction amid the global economic slump, and helping lift the Australian dollar to a 12-week high against the euro.

The surplus totaled A$2.11 billion ($1.48 billion) on a seasonally-adjusted basis, more than double the A$926 million in January, the Australian Bureau of Statistics said Thursday. The figure was the largest since October's A$2.95 billion and exceeded the average estimate of A$700 million".......



With iron ore and coal prices set to improve by a lot shortly you should think we might be into surplus again soon?

The figures I listed were also only exports and imports. I wonder how trade in services gets accounted here?


See ya's.

 

[WinstonWolfe]

PB, you're doing well to have got the Apr trade balance already
TC, those CIA figures are USD.

Here's some updated WW charts to paint the picture.

Australia has run trade deficits for 78% of months since Jul 1970.
That's 362 out of 464 mths.

It's pretty disturbing that we can't run surpluses even when there's unprecedented demand for our commodities and the AUD is approaching parity with the USD. But that's what happens when we can't afford to hold a higher % of our resource companies.....and invest in houses instead, funded 25% by foreign capital!!!

The unbroken violet line below is the quarterly current account balance, which has been permanently in deficit since the mid 70s.
It is the sum of trade balance, primary and secondary income.
But note since the early noughties, how steep the red primary income line has become.
Most of that is interest we pay on growing private debt..... to buy houses.

Anyway, I've said it all before......and hopefully I'll be dead before the std of living deteriorates dramatically.

 

[Graemsay]

I've come to the conclusion over the past year that I don't understand what's going on, and that any predictions are a mug's game.

Anyway, I'd agree with the above that a number of countries are living beyond their means. The US is about a year behind where Greece is (though has the benefit of the reserve currency) give the size of their deficit and debt, and the UK is a further year back.

The problem is that governments are unwilling to take the painful decisions necessary to resolve things. See this rather gloomy piece from the FT Alphaville blog:

http://ftalphaville.ft.com/blog/2010/04/26/211896/some-horrendous-keynesianmonetarist-nightmare/

There's been a debate about the UK's fiscal position, as we're about to have an election. The opposition party (the Conservatives) has been accused of planning sharp and damaging cuts, but the differences between them and Labour is about 12 billion pounds.

The budget deficit is currently around 160 billion. I'd suggest that spending cuts are going to need to be an order of magnitude bigger...

In some ways Australia is well positioned. Government debt is relatively low compared to GDP, and the country didn't suffer a painful recession. But the high level of public indebtedness could be a concern.

I don't know how it's going to play out, but I think that the Germans have the right idea. They have a number of successful engineering and manufacturing companies, many are medium sized, and aren't that far behind China in the export stakes. But that's been achieved by working hard on productivity.

 

[topcropper]

Australia has run trade deficits for 78% of months since Jul 1970.
That's 362 out of 464 mths.

It's pretty disturbing that we can't run surpluses even when there's unprecedented demand for our commodities and the AUD is approaching parity with the USD. But that's what happens when we can't afford to hold a higher % of our resource companies.....and invest in houses instead, funded 25% by foreign capital!!!

Your not wrong there Winston. It is disturbing.

But can you imagine how bad the deficit will get if we continue our population growth, and at the same time are de-industrialising. All the new people working in service industries but not producing stuff for export to pay for the increase in imports that invariably happens with more people/consumers. We are either going to drastically drop our standard of living or have to dig up much more dirt and rocks. Maybe we could shift everyone out of rural areas now, so the whole place can just get dug up and import our food. That's if there is food to import?


See ya's.

 

[Tony3008]

The problem is that governments are unwilling to take the painful decisions necessary to resolve things. See this rather gloomy piece from the FT Alphaville blog:

http://ftalphaville.ft.com/blog/2010/04/26/211896/some-horrendous-keynesianmonetarist-nightmare/

There's been a debate about the UK's fiscal position, as we're about to have an election. The opposition party (the Conservatives) has been accused of planning sharp and damaging cuts, but the differences between them and Labour is about 12 billion pounds.

The budget deficit is currently around 160 billion. I'd suggest that spending cuts are going to need to be an order of magnitude bigger...

As someone who came to Australia from the UK in 2008 I watch the UK economic situation with semi-detached horror. I timed things badly in selling my UK home at the bottom of the market, but did at least move most of the money across here when the rate was around 2.30 versus the current 1.66.

The interesting question is where the exchange rate goes next: the days when you could sell a modest property in the UK and buy something much better here in Australia are now history - if the rate slides even more then migration from the UK and mainland Europe must surely dry up.

T.

 

[ozharp]

I've always felt that the term 'the lucky country' as applied to Australia has always been misinterpreted. Rather than being in a fortunate position through good government and private sector management and investment, it is in fact only by 'luck' that Australia is in the position that it's in as a result of what by pure 'luck' just happens to be what is sitting in the ground, and that at this time there is a demand for it from foreign interests. Notice how the Australian dollar dropped to US$0.60 when the GFC hit as it was expected that the demand for Australia's natural resources would diminish? Notice how property prices in mining towns drop drastically when the mines close?

For all the **** people put on the place I actually feel that NZ has managed its limited resources far better than Australia has. The Kiwis can't reply upon digging up their country and selling it to the rest of the world for the next 200 years to prop up its economy and so has had to manage its limited resources to the max and not assume that the rest of the world will look after it, and quite frankly I think they've done a great job under the circumstances. Sadly the Key government still has to pander to those in the electorate that want every thing for nothing rather than take the strong steps he'd like to so as to make NZ 'Norway 2'.

There are quite a few Volvos on the roads in Australia. How many Holdens do you think are being driven on the roads of Sweden? There are millions of Nokia mobile phones in use throughout Australia and around the world. How many Australian mobile phones or other common-place high-tech devices are in common use in Finland (home of Nokia) or anywhere else?

 

[topcropper]

For all the **** people put on the place I actually feel that NZ has managed its limited resources far better than Australia has. ?

True. I'd reckon the kiwis are the second most fortunate after us then.

For a race of people who have managed their resources the best, surely it's the Japanese, who had very little to start with.

They didn't get it all right though. They decided to go to war to secure what they needed, but that was a balls up, especially after bombing Pearl Harbour and bringing in to battle a sleeping giant, probably the greatest ever military bad decision. Subsidising agriculture was a stuffup. From then on they have done things almost perfectly I'd reckon.


See ya's.

 

[Ausprop]

How many Australian mobile phones or other common-place high-tech devices are in common use in Finland (home of Nokia) or anywhere else?

pull the phone off of their ear and see what type of hearing aid they have

 

[steveadl]

pull the phone off of their ear and see what type of hearing aid they have

Or where the metal the phone is made from came from, or what pallet the container of phones was delivered to the warehouse on, or what shopping centre they bought the phone in (ok not in Finland), or what you could do if your on the phone all night because you can't sleep, or if you get lucky after calling a girl for a date and it leads back to the bedroom, or if you don't pay attention while on your phone, get hit by a car and need a blood transfusion, or if you see that phone advertised on television/newspaper or in a movie.......

Hey this game is fun!

 

[Sunfish]

I've always felt that the term 'the lucky country' as applied to Australia has always been misinterpreted. Rather than being in a fortunate position through good government and private sector management and investment, it is in fact only by 'luck' that Australia is in the position that it's in

I think you will find that's what Donald Horne was saying when he coined the phrase.

 

[WinstonWolfe]

All the new people working in service industries but not producing stuff for export to pay for the increase in imports that invariably happens with more people/consumers. We are either going to drastically drop our standard of living or have to dig up much more dirt and rocks. Maybe we could shift everyone out of rural areas now, so the whole place can just get dug up and import our food. That's if there is food to import?


See ya's.

Couldn't agree more. There's no way mining and agriculture (our main export industries) require 150,000-200,000 new workers year on year.

We'll just have to keep packing them in the cities to exchange services with other city folk.

Eventually we're going to have to import the jobs we exported, to give everyone something to do apart from complain about how expensive houses are.

And not only are we importing goods and services TC, we're doing a good job on capital as well.....which is why most of our infrastructure is being privatized and sold off to Canadian teacher pension funds, as well as associated cash flows.

The talking heads keep defending this with "Aussies are finding better investments than our own infrastructure".......I wonder what investments they mean.

 

[Graemsay]

Tony, if you managed to sell your house in the downturn in the UK market in 2008 then you did very well.

My brother took most of a year to shift his last one, and there are a number of places still for sale in his new home town that were on the market this time last year, or earlier.

The economy is a bit of a train wreck. Apart from the financial sector, which is in rude health due to the vast bailout it received, the rest of the country is pulling out of the hole it found itself it.

As for the Pound, my guess is that it'll end up higher in the medium to long term. I'd be holding onto them right now, and be prepared to wait it out.

 

[Ausprop]

friends in manchester just managed to sell their house after about 18 months. trouble is over there it's only ever a handshake unti you exchange contracts, such a painful system.

 

[Tony3008]

Tony, if you managed to sell your house in the downturn in the UK market in 2008 then you did very well.

My brother took most of a year to shift his last one, and there are a number of places still for sale in his new home town that were on the market this time last year, or earlier.

The economy is a bit of a train wreck. Apart from the financial sector, which is in rude health due to the vast bailout it received, the rest of the country is pulling out of the hole it found itself it.

As for the Pound, my guess is that it'll end up higher in the medium to long term. I'd be holding onto them right now, and be prepared to wait it out.

No, with the benefit of hindsight I could have done a lot better. A year before I emigrated I realistically expected to get £300-320K, once the necessary improvements had been done (I'd been there 25 years and it rather showed). So I worked endless hours and spent £££ to bring it up to shape, thinking that it would be worth going the extra mile in a softening market.

It went on the market at £280K, no interest after a month. At that point the agent said I would have to accept £250K max (stamp duty step), so the price was dropped to this. In the end, because I desperately needed to sell, I accepted £235K. By the time the sale completed the estate agent had gone out of business! I think the buyer will do very well if they wait a couple of years; one of the strategies put forward here and elsewhere is to bide your time and find sellers under pressure as I was.

With a crystal ball I would have sold a year earlier as unfinished renovation project and got another £50K and saved loads of money and time. But, as I said before, had I decided to wait for the market to improve I would now be looking at $1.66 for each pound instead of $2.30.

 

[Graemsay]

Ausprop, the English system means that a sale isn't binding until the contracts have been signed. However under the Scottish system an offer becomes legally binding once it's been formally accepted.

That said, the Scottish system isn't perfect. Houses are generally advertised as "offers over", and the vendor might be looking for 10% or 20% over the given asking price. In a hot property market this can lead to bidding wars (as no one knows what the others have bid), and also the failed bidders can spend a significant amount of money doing their due diligence before making an offer.

Tony, it sounds like things went worse for you than I imagined.