Wall Street posts a trifecta

Wall Street rose again overnight, Australian time,for the third consecutive day.
That happened as a computer giant reported strong profits and oil prices continued to ease.

The Dow Jones industrial index closed 52.19 points up on the day, at 12,646.22.

But the market had been 130 points higher, earlier in the day.

Financial stocks captured much of the day’s attention.

Mastercard predicted strong revenue growth.

And shareholders approved the buyout of Bear Stearns.
The S&P 500 closed 7.42 points higher at 1,398.26.

And the tech heavy NASDAQ composite index rose 21.62 points to 2,508.32.

The rises occurred after Dell reported a first quarter profit of $US784 million, or 38 US cents a share.

Analysts had been predicting a profit of 34US cents a share.

Oil futures, too, continued to fall. They easedl by $US4.60 a barrel, to $US126.43

Tax Office lapse on offshore havens exposed

A significant gap has been identified in the Tax Office’s efforts to catch cheats who use offshore tax havens.

It was exposed in a new report, published by the Auditor General.

The report notes that the Tax Office has adopted a risk management framework for its compliance program.

This is meant to identify and assess risks associated with tax havens.

Mitigation strategies are then developed.

“This (system) comprises a combination of oversight committees, intelligence areas and compliance staff from a number of areas,” the report says.

It adds that this is meant to work at both formal and informal levels.

“However, at a formal level the key steering committee, responsible for determining strategic direction has not yet met, ” the report adds.

So it is not providing the strategic direction that is expected of it.

“The Tax Office can improve its governance of tax haven risks by ensuring that this key strategy setting committee meets on a regular basis, in accordance with the terms set out in its charter,” the Auditor General said.

The Tax Office has accepted this advice.

Australia’s miners go on a spending spree

Business confidence is down. Consumer confidence has plunged.

And the Australian economy is said be heading for an abrupt slowdown.

Yet Australian companies still expect to spend $87 billion on new capital projects this financial year.

That is 11.1 per cent more than they said they would spend, last financial year.

This shows up in the latest estimates of likely new capital spending, published by the Australian Bureau of Statistics.

These estimates, in both cases, are the sixth in the regular series, collected by the Statistician.

So why are the nation’s CEOs planning to spend so much, when the world is facing a global credit crisis?

The answer, for once, is simple.

Demand for Australia’s resources, such as iron ore and coal, is high.

China and India are particularly good customers.

But there are problems.

Australia’s ports, railways and mines cannot cope, even with the present level of demand, let alone increased orders.

And, if that continues, these customers -and others – will start looking for new suppliers.

So Australia’s resource companies companies are responding, as enthusiastically as they can.

They are doing that by expanding their operations.

And that – as the latest new capital spending figures show – is an extremely expensive business.

Rudd attacks on petrol pricing

The Prime Minister Kevin Rudd went on the attack over petrol prices today, declaring that his government” National Fuel Watch bill would be introduced into parliament “in a few hours.”

He was speaking to reporters in Canberra, just before the start of question time, at which the opposition is expected to quiz the government closely on aspects of the controversial bill.

But Rudd was firm.

“The debate is simple,” he said.

“Whether Australian motorists should have the same information (about prices) as oil companies.

“We say they should.

“The opposition says they should not,” he said.

Under the bill, service stations would be obliged to hold their prices, at advertised levels, for 24 hours.

The government has been severely embarrassed by two leaks of confidential information, over the bill.

The first revealed that its Resources Minister, Martin Ferguson, opposed the bill.

The second exposed the fact that four government departments, including the Federal Treasury, also advised the government not to proceed with it.

However, Rudd quoted the Chairman of the Australian Competition and Consumer Commission, Graeme Samuel, who has supported the bill.

Samuel said the West Australian Fuel Watch scheme, which the Federal government is copying, had produced “statistically significant” cuts in petrol prices, in that state.

Wall Street rises, but so does oil

Share prices rose slightly on Wall Street overnight, despite a prediction that oil prices could soon hit $US150 a barrel.

That prediction, by Morgan Stanley,saw oil futures rise above $US130 a barrel again, a jump of $US1.89 a barrel on the day’s trade.

The Dow Jones industrial index rose 45.68 points, to close at 12,594.03.

The S&P 500 also rose, gaining 5.49 points to close at 1,390.84.

The NASDAQ composite index rose. too. It put on 5.46 points to reach 2,486.70.

The turnabout, from recent losses, caused one optimistic trader to declare:”the bottom is in.”

It was, after all, the second straight day of gains.

But there were more cautious assessments, too.

“The market is seeking direction,” one analyst said.

But even he conceded that sentiment is now on the upside, however weakly.

The rises, overnight, were wide-spread.

Seventeen of the 30 components of the Dow Jones industrial index recorded rises, on the day’s trading.

Fuel hike hits Labor – again

Soaring oil prices brought the Whitlam government’s honeymoon to an abrupt end, a generation ago.

And the Rudd government’s luck, with oil prices, hasn’t been good, either.

So far, though, it hasn’t suffered anything like the damage that the Whitlam government did.

But the opposition, led by a reinvigorated Brendan Nelson, has been making its attack stick.

Nelson – and his colleagues – have been demanding a guarantee that the government’s Fuel Watch scheme won’t add to fuel prices.

The Prime Minister, Kevin Rudd, has of course, refused. Political leaders, since the time of King Canute, have known that government orders don’t hold back waves.

Bob Hawke learnt his lesson, on decrees, the hard way, after he had he boldly declared that “by 1990, no Australian child will live in poverty.”

Still, Rudd has been left in an awkward position.

His Fuel Watch scheme was never going to have much effect on fuel prices, either way.

And it became an embarrassment, when news that the Resources Minister, Martin Ferguson, had opposed the plan  was leaked.

The government’s embarrassment became acute, a few days later, when another leak revealed that at least four government departments had also advised the government against adopting the Fuel Watch plan.

That’s the rub. The government appears to be incompetent, because it can’t stop its own public servants leaking embarrassing information, about their submissions to Cabinet.

The government’s defence is sound enough. The Treasurer, Wayne Swan, says the Competition and Consuumer Commission, which is the expert in this area, had said that the scheme would probably help to keep fuel prices down.

But there are, also, more fundamental forces, like supply and demand, at work.

Governments, of course, do have a right to reject bureaucratic advice, when they believe that is necessary.

That’s what we have governments for. To make democratic choices. And to take the consequences, if they get it wrong.

But a sense of perspective is needed, too.

Fuel price hikes are certainly painful.

But petrol prices in Australia are still among the lowest in the developed world.

We should remember, too, that oil prices quadrupled, in a very short time, back in the early 1970s.

So far, they have risen by just 60 per cent, in the six months the Rudd government has been in power.

The responses of the two governments have been very different, too.

The Whitlam government came to power, back in 1972, with a big spending program.

It destroyed any economic credibility it might have had, when it persisted with its heroic spending, despite the then rising threat of oil fuelled inflation.

The Labor party has never forgotten that lesson.

With inflation a serious problem, once again, the Rudd government cut deeply into Federal spending programs, when it brought its first budget into parliament in May.

But the present oil price hike will, certainly,  require a careful response.

It is due, in large part, to increased demand from developing countries, such as China and India.

That suggests that higher oil prices will be permanent, this time. It’s time, as Gough Whitlam might have said, to start thinking of smaller cars a better public transport.

Australia’s two speed economy sighted

Although building construction work in Australia is flat, engineering construction is booming.

And this development, already evident in figures produced by the Austrlian Statistician, might well be the first glimpse of the two speed economy that is thought to lie just over Australia’s economic horizon.

The bureau reported that Australian companies spent more than $13.5 billion on engineering work, on seasonally adjusted figures, in the March quarter of this year.

That was 5.2 per cent up on the December quarter figure.

Although the bureau did not provide a break-up, it’s a safe bet that much of this work was done, directly or indirectly, for the mining industry.

High interest rates, though, have dampened demand for other kinds of construction work.

The value of residential work, for example, rose by a bare 0.3 per cent, in the March quarter, to just $9.7 billion.

And the value of non-residential building fell by 0.5 per cent in the quarter to just $6.7 billion.

The Federal Treasury is worried about the secondary effects of the mining boom.

It has warned that money flowing into Australia, under new, higher priced contracts, could have a serious inflationary effect on Australia.

But Westpac data, released yeterday, shows that other sectors of the Australian economy are likely to slow down abruptly in the months ahead.

And another bank, the ANZ, is already predicting that Austraiia’s inflation will hit 4.9 per cent, later this year.

It is warning, too, that further interest rate rises will be needed, if that happens.

Australia’s economy cruising for a bruising

A major bank says the Australian economy is heading for an abrupt slowdown.

And some people – such as homebuyers – might welcome that – as it could reduce the risk of further interest rate rises.

But that is by no means certain.

Westpac reported today that its leading index now stands at its lowest point in almost five years.

Its senior economist, Matthew Hassan, said this indicator is continuing to point to “an abrupt slowdown.”

He said shoppers had already been “jolted” by previous rate rises.

“Meanwhile business investment is also coming under pressure,” Hassan added.

He pointed to the likelihood of a two speed economy, with the minerals boom continuing to run at full speed, while other sectors of the economy slowed.

But Australia’s banks are by no means unanimous in their predictions.

The ANZ, for example, expects Australia’s inflation to peak at 4.9 per cent, later this year.

And it believes this will lead to further interest rate rises.

“…further rises will be the appropriate policy,” an ANZ economist said.