by Alan Thornhill
Shareholders don’t necessarily stand behind other creditors these days, in the queues that form after company collapses.
Their claims, for a little of what is left, can be as good as any-one else’s, if they were misled when they bought their shares.
That, at least, is the broad thrust of the decision the High Court took, in the case of a small investor, Luke Margaretic, who bought shares in the historic Sons of Gwalia mining company, shortly before it failed.
In a six-one decision, the High Court confirmed the decisions of lower courts, which had ruled that Mr Margaretic had this status, because he had been misled, when he bought the shares.
Sons of Gwalia had collapsed, essentially, because one of its senior officials had been engaging in secret trades, without authorisation and had chalked up huge losses, over several years.
The Margaretic case, though, upset long-standing traditions of that had governed who stands where, in creditors’ queues.
As part owners of the failed company, investors were traditionally believed to rank well behind ordinary commercial creditors.
Understandably, the Margaretic case raised tempers.
And one leading law firm, Malleson Stephen Jaques, warned that unless the law is changed urgently, the Margaretic decision would present “significant practical problems for current insolvency administrations and future administrations.”
With Australian companies collapsing right and left, as a result of the global economic crisis, that issue could hardly be more critical than it has now become.
So should the law be changed, to put investors like Mr Mrgaretic, back in queue, as tradition once demanded?
The Howard government sought official advice on that point, during its last year in office.
And its successor, the Rudd government has just received it, from the experts in the Corporations and Markets Advisory Committee.
But the news, for administrators, is not good.
The Minister for Superannuation and Corporate Law, Nick Sherry, put out a statement yesterday “acknowledging” release of the CMAC report.
And he said the government would “closely examine” the committee’s report.
But, critically, he noted that the committee had recommended that the current law, as reflected in Mr Margaretic’s case, “be retained.” Senator Sherry declared that the government would “closely examine” that recommendation.
Translated from Canberra’s bureaucratic speak, that means “If you think we are going to overturn a High Court decision just to keep lazy accountants and lawyers happy, you’re mad.”
Yes, the administration of failed companies’ affairs will be more difficult in future, just as the lawyers and accountants had feared.
But there is always a bright side.
Their fees will be bigger, too.
by Alan Thornhill
The Treasurer Wayne Swan now accepts that the Australian economy is in for a very rough time.
That means that you are, too.
In a statement issued early today, Mr Swan noted that the International Monetary Fund has, once again, downgraded its forecast of global economic growth.
“The IMF is now forecasting that the global recession will be much deeper and more protracted than previously envisaged,” he said.
The news was, indeed, very bad.
The IMF now expects global growth this year to be just o.5 per cent.
And, what’s worse, it is predicting that advanced economies will contract by 2 per cent, collectively, in that time.
The IMF is now forecasting, also, that China’s growth will be just 6.7 per cent this year. That’s half the growth China recorded in 2007.
“It is inevitable that Australian jobs and growth will be affected,” Mr Swan said.
The Treasurer said the Rudd government had taken decisive action to protect Australians from the worst impacts of the downturn and would continue to do so.
Perhaps oddly, though, the IMF’s widely expected predictions had little impact on Wall Street, where share prices surged in early trading.
That surge was based on rumours that the Obama administration will set up a bad bank, to buy the toxic debt that is clogging the books of America’s commercial banks.
The Dow Jones index was still almost 167 points up, shortly before 3pm, New York time, even though the rally had eased by then.
by Alan Thornhill
Australia is heading straight for a recession.
It might still escape. But that now seems unlikely.
And the Federal government is becoming cagey about what else it might do, to meet this challenge.
The increased risk of recesssion became evident yesterday, when the results of the latest Westpac Melbourne-Institute leading index caluclations were published.
That indicator – for November – stood at -2.2 per cent, well below its long term average of 3.5 per cent.
Three times before, when a similar negative indicator appeared, the Australian economy went into outright recession.
On two other occassions, when the same thing happened, Australia escaped, merely chalking up very slow growth, instead.
Westpac’s chief economist, Bill Evans, was blunt, though, about the likely implications of the latest data.
He said it “…intensifies the risks that the Australian economy will contract through 2009.”
The Statistician also reported yesterday that Australia’s headline inflation rate fell from 5 per cent to just 3.7 per cent, on the December quarter consumer price index figures.
Falling fuel prices took most of the credit for an overall fall of 0.3 per cent in the index, over the quarter.
However, at 3.7 per cent, Australia’s underlying inflation rate is still above the Reserve Bank’s target rate of 2-3 per cent inflation, over the course of the business cycle.
Even so, a substantial cut in the nation’s interst rates can still be expected when the bank’s board meets next Tuesday.
That’s because, as the Treasurer Wayne Swan notes, inflation is no longer the main challenge facing Australia’s policy makers.
That honour has now gone to sustaining the economy and keeping jobs.
Mr Swan is still saying that the government still stands ready to take any extra steps that might be needed, to achieve those goals.
But he was tight lipped, when he met reporters in Canberra yesterday, about when and how the government might act, on these matters.
by Alan Thornhill
Fresh stimulatory measures, that will drive the Federal budget into deficit, now appear to be inevitable.
Business groups, including the Australian Chamber of Commerce, are pressing for tax cuts.
And the government is listening, even though cutting taxes is not a particularly efficient way to boost the economy.
The Federal government’s decision to spend $4 billion, to support large scale commercial construction projects, has shown that it is prepared to take unconventional steps to preserve jobs.
Welfare groups, which met the Deputy Prime Minister, Julia Gillard, yesterday, are urging the government to increase unemployment benefits.
The government, understandably, prefers measures that will keep Australians in jobs.
That way, its own tax revenues are sustained.
The Finance Minister, Lindsday Tanner, says the Federal budget is probably still in surplus, but “only just.”
New measures, at this stage, would certainly drive it into deficit.
That suggests that the total cost of measures announced so far probably tops $20 billion.
But Australia is far from alone, in its stimulatory policies.
Both Germany and Japan announced big stimulatory packages, overnight.
In Japan, that included a cash handout to all Japanese citizens.
Australia will probably not go that far.
But the Prime Minister, Kevin Rudd, will start consulting State premiers today, on what should be done.
He will get plenty of help, there.
by Alan Thornhill
The Federal government’s stimulatory package seems to be sustaining trade and profits.
This shows up in the results of the National Australia Bank’s latest business survey, which have just been releaed.
The survey showed that business confidence and conditions bounced in the December quarter, rising 10 and 11 per cent respectively.
But the bank warned also that the survey still implied no economic growth at all in the December quarter.
And it reported that forward orders and employment both remained stuck at 1991 lows.
However there was good news in the survey results, too.
Specifically, they showed that credit is now at least a little easier to obtain than it was immediately after the global economic collapse last September.
And labour costs were flat.
NAB economist Alan Oster said this was the first time that had happened since the bank started its monthly surveys.
Mr Oster warned, too, that the NAB now expects Australia’s unemployment rate to rise from its present level of 4.5 per cent to 7 per cent, by next year.
The NAB said the government’s stimulatory package had encouraged Australians to shop, io the weeks before Christmas.
However it warned that the measures the government has announced so far will have only a temporary effect on the Australian economy.
by Alan Thornhill
The global economic crisis is about psychology as well as economics.
And the Federal Finance Minister, Lindsay Tanner, who makes that observation backs it with some advice.
He does that with a sharp comparison between the fortunes of the nation – and those of its national cricketers.
Australia’s cricketers are performing about as well as the Australian dollar right now.
So what can be done about these testing times?
“A modern nation isn’t quite the same thing as a national sporting team,” Tanner says.
“But the same principle applies.
“When things get tough, we have a choice.
“Do we go on the front foot or the back foot?’
Australia has just lost the current test series to South Africa.
So what is the path back?
Three things are necessary, Tanner says.
“Attack, change and invest in youth,” Tanner says.
That’s not a bad plan for economic renewal either.
Especially when the first faint signs of recovery in the global economic crisis might be appearing.
An overnight report shows that home sales rose, unexpectedly in the US last month.
Sales of existing homes there rose 6.5 per cent last month.
And the New York Conference Board has boosted its forecast of economic activity in the US by 0.3 per cent.
It’s not all good news, in America, though.
General Motors and Caterpillar are still laying of staff by the thousands.
But mental states matter.
Tanner says public debate, in a downturn, inevitably focusses on “what’s wrong, not what’s right.”
But he says the Australian character is well suited to times like these.
“We try hard. We attack and we take risks.”
Now’s the time to try it.
The holidays are over.
And we are back at work today.
by Alan Thornhill
A subtle re-alignment is occurring among the world’s major currencies – and there’s a message in that for you.
The Japanese yen is now close to its strongest level against the once almighty greenback in 13 years, hitting 88.31 to the $US early today.
With that appreciation likely to continue, it is now safe to say that the yen is now acquiring the status of a safe haven, or reserve currency.
But that’s all in the world of high finance, isn’t it. It can’t mean anything to me, can it?
Sadly, the answer is that changes like these are important to all of us.
To see that, all we need to do is ask ourselves why this is occurring.
This realignment is happening because the world is rapidly losing faith in the US economy.
Currency traders are betting that the $US will be weak, for most of this year, at least.
It’s not hard to see why.
The US economy, itself, is weak – and likely to remain that way for 12 months, at least.
Two indicators, in particular, reflect that.
- Established home sales are still falling in America, even though prices have already plunged and
- Republicans are preparing to fight President Obama’s already probably inadequate stimulus package, because they believe it does not contain enough tax cuts.
The yen is also gaining strength against the euro, as the effects of the global economic crisis spread, hitting the German economy particularly hard.
So is the Japanese government delighted about all this? Probably not.
A strong currency, that acquires even something of the the status of a global reserve, is certainly a national honour.
But that honour comes at a price.
Sterling’s place, as a reserve currency in the immediate post war years, ultimately became a burden that contributed to Britain’s decline in world affairs.
Those tempted to predict that the US will decline, too, may have a point. But, we believe, they seriously understimate the resilience of the American economy.
US bankers, in particular, have certainly made their full share of mistakes and their role, in precipitating the global economic crisis, has been huge.
Let us not forget, though, that the role of the $US as a world reserve currency has also had a small, but still important part, in producing the US recession.
by Alan Thornhill
The Federal government is thinking of supporting commercial property developers to save jobs.
The Finance Minister, Lindsay Tanner revealed this yesterday, after warning reporters that Australia faces the grim prospect of heavy job losses, as China’s economic growth slows.
Mr Tanner was blunt about the implications of that slow-down.
“Today’s growth figures from China are bad news for jobs in Australia and bad news for (Australia’s) economic growth,” he said.
Figures released earlier in the day had shown that China’s economic growth slowed to just 6.8 per cent in the final quarter of last year from 9 per cent in the previous three months.
Senior Federal ministers had previously hoped that China would not be hit too hard, by the global economic crisis, saying booming domestic demand in the Asian giant would probably take up any slack.
But the latest figures show that is not happening.
Mr Tanner said it is also becoming clear that there might well be an interruption to normal roll-over finance, for major property developments, such as shopping centre construction.
He revealed, too, that the government has been holding private talks with Australia’s banks, both to gauge the extent of the possible problem and to assess what might be done about it.
“The issue that is under contemplation is a very specific one and that relates to commercial property,” Mr Tanner said.
“These are all dimensions of what is a very complex problem and one which we are still considering…,” he added.
Mr Tanner said the government must first decide “whether or not we need to take any action.”
“But we would be absolutely derelict in failing to address the question,” he added.
“We have to deal with this issue.
“We have to engage with it,” he said.
Mr Tanner’s remarks, which go further than the broad, but obscure hints that Prime Minister, Kevin Rudd, and his Treasurer, Wayne Swan, have given reflect a tough new pragmatism in the Federal government.
They also challenge popular perceptions of traditional Labor biases.
There would certainly have been mass protests from Labor supporters if the Whitlam government, for example, had even thought of supporting private property developers, who were then regarded, by most Labor people as class enemies.
But as the Communists used to say: “Circumstances determine everything.”
And the circumstances the government faces right now are very grim indeed.
Thousands of jobs are already being lost in the mining industry and many more – throughout the economy – are in great peril.
The Federal government intervened late last year to bolster credit in the car industry after big international financiers withdrew from the country. That has already boosted local car sales.
Mr Tanner has now declared that the government will not stand idly by, in the weeks and months ahead, as thousands of commercial construction industry jobs are lost, because of an avoidable blip in that industry’s underlying finances.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Wednesday December 11
Holden has announced it will stop producing vehicles in Australia in 2017. Toyota likely to follow suit
The Dow Jones index fell 53 points to 15,973
Acting PM Warren Truss writes to Mike Devereux seeking “a clear statement” on Holden’s future
The Federal Treasurer, Joe Hockey, says the Mid-Year Economic and Fiscal Outlook will be released next Tuesday, at the National Press Club.
|Aud To Usd||0.9097||N/A||N/A|
|Bhp Blt Fpo||36.180||-0.640||-1.74%|
|Anz Bank Fpo||30.590||-0.190||-0.62%|
|Qbe Insur. Fpo||11.010||+0.190||+1.76%|
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