by Alan Thornhill
Australians spent less as winter approached, cutting their clothing budgets by 5 per cent.
Retail sales figures, that the Australian Bureau of Statistics released today, showed that Department stores are having a particularly tough time.
Their takings fell by 5.2 per cent in June.
On seasonally adjusted figures, overall retail sales that month were 1 per cent lower thanÂ they had been a month earlier.
Retail sales have been falling sharply all year.
There was better news on the trade front, though.
Australia’s exports rose by 2 per cent,on seasonally adjusted figures, in June while our import bill fell 1 per cent.
That left the nation with a $411 million dollar trade surplus for the month.
The Reserve Bank has accepted that Australia’s falling retail sales are a genuine sign that the nation’s economy is slowing.
And that, certainly, brings the next interest rate cut at least a little closer.
However, at this stage, few economists expect the Reserve Bank board to cut rates, when it meets next Tuesday to review them.
by Alan Thornhill
The failure of the latest round of world trade talks will cost Australia about $7 billion a year.
High hopes had been held for these extremely difficult talks, almost up to the last minute.
But they collapsed on a disagreement between the United States and a group of developing countries, led by China and India.
The Australian Chamber of Commerce and Industry is making no secret of its dissapointment.
“A bold and comprehensive outcome from the Doha round could potentially have been worth another $7 billion a year to the Australian economy,” the chamber said.
It said there would also have been similar benefits for many other countries.
Thousands would have been liftedÂ out of poverty.
“Given the current global economic climate, it is disappointing that a small minority of the 153 WTO member countries have failed to demonstrate the leadership required to make the hard decsions necessary to benefit the gobal economy, it said.
Economists have estimated that the previous round of world trade talks, the Uruguay round, has already boosted Australia’s economic output by about $4.4 billion a year.
The chamber said Australia’s trade minister, Simon Crean, had worked tirelessly for a better outcome.
Mr Crean, too, was frank about his disappointment.
“We were poised to get significant improved access into the European market, into the US market – particularly in agriculture, but also in industrial products,” he said in a radio interview.
“…we would have seen the end to export subsidies out of this round
” we would have seen the end to the special safeguards mechanism that existed for developed countries.,
” We would have seen big cuts to tariffs.
“And the other big gain that came was the signalling conference on services;
“It’s such a frustrating circumstance.
“You know you’re that close, but, close enough is not good enough,” Crean said.
by Alan Thornhill
Australia’s interest rates will probably start to fall early next year, if not before.
And when that happens, house prices could explode.
There are at least two reasons why that is likely.
The first is that many familes, who cannot afford to buy a house, with interest rates at their present level, might be able to buy, if rates fall.
The second is that home building activity this year has fallen well short of potential demand, both from natural population increase and the number of new migrants coming to Australia.
And figures released yesterday show that situation is getting worse.
The Statistician reported that, in trend terms, home building approvals fell in June, for the seventh consecutive month.
The chief economist of the Housing Industry Association, Harley Dale, said approvals for detached houses had fallen 2.4 per cent in the first six months of this year.
“For the multi-unit sector, the decline was a sharper 13.3 per cent,” Mr Dale said.
He said home building approvals are now at their lowest level since the end of 2006.
But high interest rates aren’t the only problem.
Mr Dale said the situation had been made worse by draconian legislation, ridiculous tax grabs and restrictive land release programs.
by Alan Thornhill
Share prices snapped back on Wall Street overnight, as traders found their confidence and oil prices approached a three month low.
However Australia suffered a severe blow in Geneva overnight as late hopes of a breakthrough, in the world trade talks, in the seven year long DOHA round collapsed.
That happened when the United States refused to accept safeguards against import surges that China, India and other developing countries had sought.
The Dow Jones industrial index surged 266.48 points to close at 11,397.56.
The S&P 500 also rose strongly, gaining 28.83 points to reach 1,263.20.
And the tech heavy NASDAQ composite index rose 55.4 points to 2,319.62.
Traders were encouraged when steel profits exceeded expectations and the $US strengthened against the Euro.
The $A was trading early today at 95.08 US cents.
But oil futures closed $US down at $US.
Oil futures fell $US2.94 a barrel to $US121.79.
Australia’s trade minister, Simon Crean, was bitterly disappointed at the collapse in the world trade talks.
“It matters in a big way to Australia,” he told the ABC.
“There were significant gains on the cards for Australia out of this round,” Crean said.
“Not just in agriculture, but some important ones in sectors of manufacturing…and important offers in services as well,” he added.
The European Union’s negotiator, Peter Mandelson, described the collapse as “heartbreaking.”
And Mr Crean said it had been “a great disappointment.”
by Alan Thornhill
It’s the carrot without the stick.
One of Australia’s biggest financial industry associations has declared its support for the principles set out in the Australian Securities and Investments Commission’s consultation paper, Superannuation Forecasts.
Richard Gilbert, the chief executive officer of the Investment and Financial Services Association, has declared his support, for the principles spelt out in that paper.
He said end benefit estimates are the best way to capture the attention of superannuation fund members.
The commission wants to develop simple snapshots of those benefits, so that super fund members know what they are likely to get, on retirement.
Mr Gilbert is supporting that idea, enthusiastically.
“If implemented correctly, estimates will help Australians to see how their current super savings are tracking,” Gilbert said.
“Ultimately, these estimates will will help boost the levels of engagement in super,” he added.
He warned, though, that the proposal would need to be managed carefully.
His association set out seven principles.
- Gilbert said end benefit estimates are different from online calculations The regulatory approach would need to recognise that.
- The statements should be used only as an educational tool.
- The system should recognise members’ concerns about liability.
- Standardised assumptions are crucial
- All end benefits should be represented in today’s dollars
- The assumptions used in the calculations should not change too often and
- Specific and consistent disclosures are required.
by Alan Thornhill
High interest rates. tight credit, record oil prices and shaky markets have chilled business confidence in Australia.
The results of the National Australia Bank’s quarter Business Survey put that beyond doubt.
They show, for example. that local business confidence is now at its lowest level in almost two decades.
As the bank, explains, in one of its headlines:”Business confidence falls to the lowest level since Australia was exiting the 1990 recession.”
The credit crunch is certainly dampening business spirits in Australia, as it is throughout the world.
But there is more on Australia’s economic horizons than that.
Australia’s iron ore and coal miners have just signed lucrative contracts with their Chinese and Indian customers.
But the business people, that the NAB surveyed, seem to be leaving that out of their calculations.
The Reserve Bank certainly isn’t.
Its governor, Glenn Stevens, is making no secret of the fact that he fears that the huge amount of money that these contracts will to pump into the Australian economy, over the coming year, will send inflation skywards.
Of course, as H.L. Mencken once said, bankers are always worried that someone, somewhere might be happy.
Oddly, though, the NAB, itself, seems to be discounting Australia’s bright export prospects, too.
It left its forecast for Australia’s growth in 2008 at 2.75 per cent, but cut its 2009 forecast by 0.5 per cent to just 2.25 per cent.
In its May budget, the Federal government forecast 2.75 per cent economic growth for Australia, this financial year.
It would have little, or no, hope of achieving the $22 billion budget surplus that it has forecast, if Australia’s economic growth falls sharply.
Indeed, it is not too much to say that sharply lower business confidence, itself, could seriously damage the government’s entire budget strategy.
by Alan Thornhill
By R.U. Reddy
Keeping an eye on your super is now more necessary than ever before.
A good superannuation fund will help you live well, in retirement.
That’s a big job.
Even if you retire at 65, you will need to finance 25 to 30 years of good living.
That wonâ€™t be cheap.
Sadly, the credit crunch, which has sent share prices spiralling downwards, means that watching your super fund is now more urgent than ever.
It has raised a new danger.
Put bluntly, that is robbing yourself, in what should be your golden years.
Superannuation is, essentially, an investment.
And, like other investments, it involves both choices and risks.
These are unavoidable.
But there is no need to panic.
With good information, an intelligent approach and good advice, you should do well.
Remember, always, that it is your, particular, circumstances, that matter most.
And what works for some-one else might not work for you.
There are no typical cases.
You will need to do your homework regularly.
But even that might seem confusing, at first.
Especially with newspaper reports warning that fund members are now facing their worst returns, since the introduction of compulsory superannuation in 1992.
Those losses, over the past year, could hit 10 per cent.
But figures produced by an expert company, SuperRatings, help to put some necessary perspective on that figure.
Much depends on where you choose to invest the savings you invest in your superannuation.
You might , for example, have decided to go for growth.
In that case, we will assume that you have told your super fund to put all your money into international shares.
If you did that, your returns, according to SuperRatings, would have fallen by 17.3 per cent, in the year to the end of June.
That figure would be even higher now because share prices have kept falling, since then.
Super, essentially, is a long term investment.
So SuperRatings did some calculations, over a five year period, as well.
These show that, over that time, the brave investors, who took the same option, would still have seen their earnings rise by an average 6.1 per cent a year.
That’s because there were four good years, on international share markets, before the latest bad one.
Those who took the more conservative option, of cash only investments, would have been well ahead, over the past year, enjoying 5.4 per cent return.
And, even over the five year period, they would have received an average returns of 4.8 per cent a year.
Not too bad, eh?
The right answer to that question is not, necessarily as obvious as it might appear to be.
The thing to remember about superannuation is that it is, essentially, a compounding investment.
So over a 20-30 year period, that apparently small difference between between, say, annual returns averaging 4.8 per cent and those averaging 6.1 per cent, will be substantial.
A whole heap of retirement money, in fact.
These figures, of course, represent extreme positions.
Fortunately, Australia’s superannuation funds offer other choices, too.
These include â€œbalanced optionsâ€ which mix share and cash investments.
SuperRatings has done it sums on them, too.
So what were the results?
Over the past year, their earnings fell 6.4 per cent.
But over the five year period, their average annual return was 11 per cent.
These figures are all products of the basic economic forces that lie behind them.
So there are more basic issues to be settled, before you make your decisions.
Business cycles were, traditionally, thought to happen over three to five year periods.
However, something odd has been happening over recent years.
There hadn’t been a big downturn, in a business cycle, between 1991, when the last recession ended and August last year, when the credit crunch hit.
The years, in between, mostly saw strong economic growth.
You have worked very hard for your money.
So you should expect it to work hard for you, when it is invested.
People who told their super funds to invest all of their money in fixed interest investments, would, largely, have missed out on any rewards for that growth, over that 15 year period.
They could be said, in effect, to have robbed themselves of that money, by being too cautious.
Equally, though, those who put all their money into international shares would have suffered a serious set back, over the past year, as the share market fell.
That would be particularly serious if those investors were, say, 64 years old.
Thatâ€™s because they probably wonnâ€™t have a chance to recoup their losses, before retirement.
But they would still have that extra money, from the preceding good years.
The examples, that we have taken from the extremes, certainly make a middle path, the so-called golden mean, look attractive.
But that, too, can be deceptive.
The intelligent approach is to try to work out where the global and Australian economies are heading and adjust your strategies accordingly.
Nobody is pretending that will be easy.
The American economist Paul Krugman, for example, says the US government, so far, has done little more than apply bandaids to the struggling American economy, with its well publicised rescue of that countryâ€™s housing finance institutions, Fannie Mae and Freddie Mac.
If he is right, the present downturn in the American economy, is likely to run for some time yet.
But the signs, in Australia, are much more positive, with exports of iron ore and coal still on an upswing.
And there is, certainly, no need for despair.
Even those of us, who do not have higher degrees in economics, can do well.
But that is much more likely if we keep watching our investment in super and making the necessary adjustments, regularly.
Donâ€™t expect to get the best out of your super, though, if you just put your policy in the bottom draw of your filing cabinet and ignore it.
Confronted with the SuperRate figures, in a radio interview, the Superannuation Minister, Nick Sherry, said it is important to keep the longer term in mind.
Those who like to panic, will probably recall the famous words of the great economist, John Maynard Keynes, at this point.
It was Keynes, after all, who once said:â€œin the long run, we are all dead.â€
The point he was making there is that the short term matters, too.
That is, indeed, a very good point.
Especially as very often, short term indications are all we have to guide us.
Thatâ€™s why regular checks on your super are necessary.
SuperRatings CEO Jeff Bresnahan said his agencyâ€™s latest figures are certainly no cause for alarm.
He says, on his firmâ€™s website,(www.superratings.com.au) that in a balanced fund, a negative return can be expected about once in six years.
Fortunately, too, keeping an eye on your super is likely to be easier in future, than it might have been in the past.
Both the Federal government and the Australian Securities and Investments Commission are currently working on ways to present likely outcomes, in a simple form.
ASIC is recommending what it calls superannuation â€œsnapshots.â€
It is important to assess, too, what fees and administration charges are costing you.
How you pay those charges is also important.
Good financial advice is very valuable.
Paying for it upfront is always worth considering.
The usual alternative is an apparently modest charge of , say, 1.4 or 1.5 per cent.
But that can add up to a very tidy sum, over the years.
The choice is yours.
But do your calculations, before you make it.
Your choice of super funds is important, too.
You might, for example, be eligible to join one of the so-called industry funds, launched by Australiaâ€™s unions.
They, generally, have lower charges than the commercial funds.
So more of your money comes back to you, when you retire.
by Alan Thornhill
US stocks plunged overnight, with banking stocks falling sharply, and the International Monetary Fund warning that global financial markets are still “fragile.”
The Dow Jones industrial index closed 239.61 points down, at 11,131,08, after sliding sharply throughout the day.
The S&P 500 fell 23.39 points to 1,234,37.
And the tech heavy NASDAQ composite index fell 46.31 points to 2,264.22.
The optimism that had been generated by the rescue of Fannie Mae and Freddie Mac simply evaporated overnight, Australian time.
And oil prices edged higher.
Oil futures rose $US1.53 a barrel to $US124.79.
The Australian dollar was trading at 95.71 US cents early today.
The Federal Treasurer, Wayne Swan, issued a special statement, in response to the warning that the IMF issued, in its Global Financial Stability report.
He said, once again, that Australia is “well placed” to withstand the global financial turmoil, that the IMF had described.
“Our banking sector is taking prudent steps by putting in place provisions to cover off the potential impact of the difficult financial conditions and poor investment decisions of the past,” Swan said.
“The Australian economy and financial sector are better placed than most other countries to withstand the current global economic turmoil.
“We have a strong well-regulated banking sector and a disciplined budget position,” Swan said.
“We are also continuing to receive high prices for our commodity exports.”
He said that while most losses from the US credit crunch now appear to have been realised, the US economy and its housing market are still weak.
And structured financial markets “remain effectively shut,” Swan said.
Swan said Australia fully supports the efforts the IMF is making to promote reforms that would strengthen international markets.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Sunday May 19
The Dow Jones Index rose 121.18 points Friday,New York time) to 15,354.40
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