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 than  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.

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 lifted  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.

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.

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.”

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.

1. Gilbert said end benefit estimates are different from online calculations The regulatory approach would need to recognise that.
2. The statements should be used only as an educational tool.
3. The system should recognise members’ concerns about liability.
4. Standardised assumptions are crucial
5. All end benefits should be represented in today’s dollars
6. The assumptions used in the calculations should not change too often and
7. Specific and consistent disclosures are required.

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.”

But why?

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 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 won’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?

Take care.

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 “balanced options” 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.

That’s because they probably wonn’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 country’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.

Don’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:“in the long run, we are all dead.”

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.

That’s why regular checks on your super are necessary.

SuperRatings CEO Jeff Bresnahan said his agency’s latest figures are certainly no cause for alarm.

He says, on his firm’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 “snapshots.”

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 Australia’s unions.

They, generally, have lower charges than the commercial funds.

So more of your money comes back to you, when you retire.

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.

There will be bitter laughter, throughout Australia today, as people read that the authorities want the nation’s superannuation funds to provide their members with “snapshots” of their likely payouts, on retirement.

The Australian Securities and Investments Commission, which has advanced this proposal, could not have chosen a worse time to do so.

That’s because the nation’s superannuation funds have just suffered their biggest collective loss, ever.

The Superannuation research group SuperRatings, says the median super fund lost 6.4 per cent in the year to the end of June.

Losses of that size were, perhaps, inevitable, with both share prices and profits falling.

That, of course, is not the whole picture.

The latest loss had been preceded by four strong years of double digit returns.

And younger workers, in particular, will probably see their funds recover well, in future.

SuperRatings managing director, Jeff Bresnahan, says balanced funds have negative returns about once every six years.

But he conceded that the latest results will be a blow for people who plan to retire soon.

And he said the real problem, at present, is the extreme volatility of the market.

None of that, though, detracts from the merit of the snapshots ASIC is proposing.

It admits that there are problems with the idea, but says they can be solved.

And its proposal is very much in line with the Federal government’s own thinking.

Like to know more? Try www.asic.gov.au

Wayne Swan and Guy Debelle are, certainly, right.

There is no doubt that Australia does have “a well regulated banking system, capable of withstanding the fallout from…international developments,” as the Treasurer says.

Mr Debelle’s remarks are forceful, too, if a little more technical. But that is to be expected of a Reserve Bank Deputy Governor, who has special responsibility for financial markets.

Debelle surprised no-one, at a credit summit in Sydney yesterday, when he admitted that global credit markets had been “turbulent” over the past year.

But he saw reason for hope, too.

“While there have been areas of dislocation in the Australian credit market, there have also been areas of strength,” he said.

Such as?

Mr Debelle answered that question, too.

“The process of re-intermediation has seen strong issuance by financials, particularly the major banks,” he explained.

“This has substituted for the dislocation in asset backed corporate bond markets.”

In both cases, these words are comforting.

Especially so, after two of Australia’s big four banks, the NAB and the ANZ,  announced that they are increasing their provision for bad debts.

Equally, though, it might be said that neither of these men is telling the whole story.

We can’t blame them for that.

These troubles spring, primarily from the US credit crunch.

That, in turn, arose from what the US economist, Paul Krugman, calls the “double bubble.”

Mortgage originators, in the US, lent recklessly, on a huge scale.

That produced both a lending bubble, then a bubble in US property prices.

Predictably, both bubbles burst, with disastrous results, which have still to be fully played out.

Krugman has hailed the rescue of Fannie Mae and Freddie Mac as “good news.”

But he adds “it won’t change the fact that that this decade’s double bubble in housing prices and loose lending has been a disaster for millions of Americans.”

And not just them.

As we have now seen, the collateral damage has already spread to two, well regulated, Australian banks.

But what happens, now?

A reporter, who attended a brief press conference, that Mr Swan held in Canberra yesterday, asked a particularly succicnt question.

“Bank lending,” he said, “has fallen by about 20 per cent so far this year.

“Do you think that increases the risk of a hard landing for the Australian economy?”

The Treasurer’s response was blunt, but not entirely convincing.

“No.

“I don’t necessarily accept that at all,” he said.

Once again, it is hard to blame him.

The full story of the credit crunch has yet to be told.

So what can be done?

Krugman says the financial regulation, which flowed from the Great Depression of the 1930s, must now be updated, to suit current conditions.

“The desperate rescue efforts of the past year make expanded regulation even more urgent,” he says.

But can the US Fed chief, Ben Bernanke, rise to that challenge?

That is still not known.

Major Australian banks have been issuing so-called Samurai bonds in the Japanese market to protect themselves against the disruption caused by the global credit crisis.

An Assistant Governor of the Reserve Bank, Guy Debelle, confirmed this today, in a speech he gave to the Credit Summit in Sydney.

Mr Debelle, who has special responsibility for financial markets, said that the financial sector had driven much of the growth that had occurred, over the past year, in the stock of non government bonds.

“Banks have been tapping new sources of funds and diversifying their issuance across different markets,” Debelle said.

“A significant share of bond issuance in the March quarter was in the form of extendible bonds in the US through private placements.

“Each of the major banks has also recently tapped the Japanese market by issuing so-called ‘Samurai’ bonds for the first time.

“This enabled the banks to issue bonds at longer tenors (typically five years) than those issued in the US in early 2008,” Debelle said.

He said the stock of non government bonds had “increased markedly” over the past year.

“Australian banks’ bond issuance has been very strong, particularly in the first half of 2008,” Debelle said.

He said this had totalled $67 billion, in that time.

That was well above the average $32 billion raised in the same part of the previous financial year.

“The strong bond issuance reflects the re-intermediation that has taken place during the credit market turmoil, with banks undertaking a larger share of financing for the non-government sector,” Debelle said.

“In part, the issuance by the banks has also been precautionary in case the dislocation in credit markets was to worsen,” he added.

“The major banks are generally ahead on their funding plans.

“The issuance has been more than enough to meet the banks’ asset growth and maturation of existing issues,” Debelle said.

Over two-thirds of the banks’ bond issuance has been offshore and denominated in foreign currencies, particularly US dollars and euros.

“The choice of funding location primarily reflects cost considerations and the ability to tap long-standing buyer relationships.

“Earlier in the year, there were concerns that investors would have difficulty ‘digesting’ further offshore issuance, but this has not been borne out.

“Investor demand for bank paper (onshore and offshore) has been strong, with most recent issues oversubscribed, Debelle said.

more at www.rba.gov.au

Australia has escaped the worst of the US credit crunch - so far - according to an Assistant Governor of the Reserve Bank, Guy Debelle.

Mr Debelle, who has special responsibility for financial markets, made the observation while addressing a debt summit in Sydney today.

He admitted the world financial markets are in turmoil.

“It has been a turbulent time in global credit markets over the past year,” Debelle said.

But he said Australia had stood up well to the challenge.

“While there have been areas of dislocation in the Australian credit market, there have also been areas of strength,” the Reserve Bank chief said.

“The process of re-intermediation has seen strong issuance by financials, particularly the major banks,” he added.

“This has substituted for the dislocation in asset-backed and corporate bond markets.”

But Mr Debelle said there had been other effects.

“The rating downgrades of mortgage insurers and monoline bond insurers have had an effect on parts of the local bond market,” he said.

But that had not been widespread.

“…that exposure has been confined to a few relatively small pockets,” he said.

And, even there, the impact had been light.

“Those parts of the market which have been directly affected have proven to be relatively resilient to these downgrades,” Debelle said.

“In the case of the mortgage insurers, in part this has reflected the strength of the underlying asset class which has reduced the importance of mortgage insurance in the value of the security,” he added.

A burst oxygen bottle may have ripped open the fuselage of a Qantas jet, bound for Melbourne, on Friday night.

So the Civil Aviation Safety Authority has ordered the airline to check the oxygen cylinders on all of the airline’s Boeing 747 aircraft.

The authority’s spokesman, Peter Gibson, said the checks would begin immediately.

Gibson said that while investigators have still to establish the cause of Friday night’s incident, the authority knew that there were two oxygen bottles close to the damaged area.

Investigators established that one was missing from the stricken aircraft.

Qantas says it will comply with the order and the inspections should be completed by Friday.

The damaged aircraft was 16 years old.

Although no-one was seriously injured in the incident, some of the passengers on board have reported that they had difficulty using the oxygen masks, which fell from the plane’s bulkhead, during the emergency.

Those claims will be investigated in detail.

The aircraft, which was travelling from London to Melbourne, was forced to make an emergency landing in Manila.

CASA is undertaking its own investigation of the mis-hap.

So far, there has been no suggestion that terrorists were involved, in any way, in the incident.

Fear gripped Wall Street overnight, wiping out gains made earlier in the week.

This followed a grim assessment of the US economy and rising unemployment.

The US central bank warned of slow growth and rising price pressures.

The Fed has now lent a record $US16.4 billion to support  commercial banks hit by the US credit crunch.
Oil prices, too, rose overnight, after solid falls earlier in the week.

They had tumbled by more than $US20 a barrel earlier in the week.
The Dow Jones industrial index fell 283.10 points to 11,349.28.
The S&P 500 lost 29.65 points to close at 1,252.54.
And the NASDAQ composite index fell 45.77 points to 2,280.11.

Oil futures rose $US1.12 to close at $US125.56.

The fall in the financial sector was the biggest in eight years.

And Washington Mutual suffered sharp set backs.

The motoring giant, Ford, reported an $US8.7 billion loss on write-downs.

It is planning to convert truck plants to car making operations.

The $A also fell against the $US, trading a short time ago at 95.7 us cents

Community care programs have been identified as good investments for Australia’s taxpayers.

This was confirmed in a new study that the Federal Minister for Ageing, Justine Elliott, released yesterday.

It showed that these programs:-

• help to preserve the physical and mental y health of older Australians
• increase “cognitive function” and help to sustain social networks
• reduce the strains on those caring for older relatives.

The study was initiated by the Baptist organisation Baptcare and carried out by Monash University’s Department of Epidemiology and Preventative Mediciine.

Mrs Elliott said Federally funded community aged care packages and extended aged care home packages often delayed admission to residential aged care.

In that way, they help old people to maintain independence and to continue living in their communities.

“These packges generally allow care recipients to maintain their quality of life and, in some instances, as this study shows, improve their quality of life,” Mrs Elliott said.

She said the need for such packages would increase as the Australian community ages.

“So it is vital that we have evidence like this study to ensure that we are supporting best practice in community care,” Mrs Elliott added.

She noted that the government has budgeted to provide $2.2 billion, over four years, for community care services.

“In 2008-09 alone, we will be providing $2.2 billion to community care,” Mrs Elliott said.

She said this represents an increase of $260 million, over the 2007-08 budget figure.