by Alan Thornhill
Wayne Swan says he’s still an optimist.
And he says the Federal budget will recover much more quickly, after the global economic crisis than it did after previous recessions, in 1980 and 1990.
Addressing business leaders in Sydney, the Treasurer, said none of this would even be realistic, if it had not been for the stimulus the government applied to the Australian economy, after the crisis struck.
“We kept the economy growing,” Mr Swan said.
“Which means we are now building from a position of strength.
“We’re not wading through the rubble of a recession.”
Mr Swan said the budget he brought into parliament earlier this month is highly “disciplined.”
He was speaking shortly after a new study was released, showing that consumer confidence fell sharply this month, after a string of interest rate rises.
The Treasurer said his budget would deliver the fastest fiscal consolidation Australia has seen since the 1960s.
As a result, the Federal budget would return to surplus three years earlier than the government had previously predicted.
“As the global economy slowly climbs out of recession and gravitates towards Asia, we can expect that Australia will become one of the biggest winners, if not the biggest,” Mr Swan said.
“This makes me an optimist about the future of our economy,” he added.
However Mr Swan also warned that Australians can’t afford to be complacent.
“We have to work together to get the settings right and make the most of our unique position on Asia’s doorstep,” Mr Swan said.
He said that, too, must be translated into what he called “balanced growth.”
by Alan Thornhill
The Reserve Bank’s relentless rate rises are damaging consumer confidence in Australia.
They are also worrying the Federal government.
The Reserve bank, itself, admits that Australians are now spending less and that its rate rises are at least partly responsible.
There have now been six rate rises over the past eight months.
The full impact of these rises shows up in the latest issue of the Westpac Melbourne Institute index of consumer sentiment, which fell by 7 per cent in this month.
The survey partners said Australia’s home loan interest rates had now reached a sensitive point at 7.4 .
They warned that further interest rates now could damage consumer confidence “quite substantially.”
They noted that when interest rates reached 7.3 per cent – back in 2005 -when rates were last rising – -consumer confidence had fallen very sharply.
Cconfidence had continued to fall – quite substantially – back then - in subsequent months as interest rates kept rising.
That’s the last thing the Federal government wants to see now – as it must face an election before the end of the year.
Under Australia’s current system, though, it is the Reserve Bank, not the government, which sets the nation’s interest rates.
Young families have already seen rising interest rates and higher house prices combine to make first home purchases much less affordable now, than they were just a year ago. (see separate story)
The survey partners said the latest survey had been conducted after both the May interest rate rise and the May budget.
Those surveyed were asked how they believed the budget would affect them.
Over half – 51 per cent – said they expected it to have little effect.
Another 27 per cent said they believed their finances would be damaged and only 11 per cent expected an improvement.
The rest said they didn’t know how the budget would affect them.
by Alan Thornhill
Australian families, buying their first home, now face some of the toughest situations ever.
And their plight is likely to get worse.
A survey ,conducted jointly by the Commonwealth Bank and the Housing situation shows affordability levels, for first home buyers, crashing to their lowest levels ever, with the last two rate rises.
It showed that the mid-level price, for a first home, at the end of March, was $498,100.
Once average income levels and movements in home loan interest rates are taken into account, the survey showed affordability in this sector, pllunged by 28.7 per cent in the 12 months to the end of March
The situation is, most likely, even worse now, as there have been two further interest rate rises since then.
These probably won’t be the last either, even though the Reserve Bank says Australia’s interest rates are now, once again, approaching “normal” levels, after the rate cuts it ordered last year, to ease the effects of the global economic crisis.
Even so, the veteran Sydney economist, Dr Don Stammer, is warning Australian families to plan for more rate rises, when they buy a house.
Dr Stammer said there might be a pause, in the months immediately ahead, but fresh rate rises must be expected next year.
But a paper, just released by the Reserve Bank, strongly suggests that the next rate rises might arrive earlier than that.
The bank aims, primarily, to keep Australia’s inflation rates under control, in its management of the nation’s monetary policy.
Its stated aim is to keep inflation within a 2-3 per cent range over the course of a business cycle.
However, in the minutes of its latest board meeting, earlier this month, the bank revised up its inflation forecasts and said it expects inflation would not fall “much below the top of the target range” over the next couple of years.
The bank was also optimistic about Australia’s export prospects and predicted that national growth would, once again, approach 4 per cent, either next year or the year after.
Analysts say the bank will certainly be tempted to raise Australia’s interest rates, yet again, as this recovery gathers pace.
A senior Reserve Bank economist, Luci Ellis, acknowledged the importance of the home market, in a speech she gave in Sydney.
“Housing is a big deal,” Ms Ellis said.
“It’s the biggest purchase most of us will make.
“It’s an asset class worth almost $4 trillion, accounting for around 60 per cent of household assets in Australia.
“Loans to buy property account for nearly 90 per cent of all household debt and around 40 per cent of the assets of Australian banks and other deposit-takers, ” Ms Ellis said.
She said, too, that population growth has been a significant factor in the rises Australians have seen in house prices, over the past year.
The Reserve Bank admitted, in its paper too, that the string of rate rises that it has ordered over recent months is having an impact on the economy, hitting Australia’s shops quite hard.
It conceded that consumption spending had been “quite subdued” and said this may well “reflect” some impact from rising interest rates.
by Alan Thornhill
You can be environmentally responsible – and stay ahead.
This shows up very clearly in the results of a new survey of the investment practices of Australia’s superannuation funds.
The survey, by SuperRatings, also revealed, though, that the nation’s superannuation industry, itself, still has some way to go in adequately addressing environmental issues.
It concluded that only 10 of Australia’s mainstream superannuation funds are already doing that, in their daily operations.
However those that are have seen positive results.
SuperRatings said those with “sustainable balanced options” had fully kept up with the pack over the past five years.
And those with “sustainable share options” now found themselves 8 per cent ahead of their mainstream counterparts.
So what does SuperRatings itself make of these results?
It says they show that long term performance, in the investment of superannuation money, “is not hindered by giving due consideration to environmental, social or governance issues.”
“In fact the opposite can be seen in the first illustration with the SR sustainable Australian shares index outperforming the traditional SR50 Australian shares index by over 1.5 per cent per annum over the last 5 years, leaving those members some 8 per cent ahead of their mainstream counterparts over the same period,” the agency said.
SuperRatings said, though, that Australia’s superannuation funds are becoming more environmentally conscious in their investment strategies.
“During the year, a flood of superannuation funds have incorporated responsible investment principles into their investment processes.
“Funds appear to be responding to increased consumer demand for clear sustainability practices.”
SuperRatings said increased competition, the threat of government intervention and the funds’ own desire to do the right thing all appear to be contributing to this improvement.
One question, though, remains.
All this might work for the big investors.
But what about you?
All we can say about that is that the indications look good.
by Alan Thornhill
Like to do better at work and make more money?
Are poor language or numeracy skills holding you back?
A new survey shows that is quite likely.
In fact, the survey, conducted by the Australian Industry Group, shows that many Australians are trapped in low paid labouring and process work, because their language and numeracy skills are low.
Migrants, from non-English speaking backgrounds, are particularly likely to be caught in this trap.
So what can you do about it?
Where can you go for help?
Surprisingly, perhaps, your boss might be willing to help.
More than 75 per cent of the businesses that responded to the survey reported that their operations were being held back, by low literacy and numeracy levels among their workers.
And the AIG’s chief executive , Heather Ridout, said that, collectively, these low skill sets are holding Australia back, too, particularly in a time of rapid technological change.
The employers who responded to the survey were adamant about one thing.
The survey’s findings put that bluntly.
“…all employees – regardless of their educational attainment, qualifications or employment skill level – need to build their existing set of literacy and numeracy skills.”
“To acquire new capabilities and adapt to workplace change,” the AIG declares.
O.K. So these findings do apply to middle managers and professionals as well as process workers and labourers. So, wherever and however you work, all this does affect you, personally.
Once again, surprisingly, the survey suggests that your boss would prefer your retraining to be conducted at work.
However, that is not always practical.
Small businesses, in particular, often don’t have the facilities to support in house retraining.
You should, however, discuss your plans with your boss, though, before you set out to upgrade your skills.
Your local TAFE college might well be able to help.
That will, at least, be a good place to seek advice.
Don’t hold yourself back, though, by doing nothing,
by Alan Thornhill
Superannuation is still a good, long term bet – for young workers.
Economist Don Stammer says he is confident that long term returns, on Australian shares, will return to their trend level of 10 per cent a year.
That is 4 per cent in dividends and 6 per cent in growth.
Dr Stammer, who was addressing a superannuation function in Sydney, admitted that he has now “given up” trying to forecast short term movements in the share market.
However he said he had observed a long term trend of 10 per cent returns on Australian shares.
Returns had fallen below that level in the 1890 recession and again after the share market crash of late 2008.
But he predicted that the established trend would be restored as the local and global economies recovered.
Why, though should all of this matter to you, as a young member of a superannuation fund?
Well, Australian superannuation funds invest heavily in Australian shares.
Thousands of Australians, who were close to retirement, suffered badly, as a result of the stock market crash.
They found that their superannuation payouts would be much smaller than they had expected.
However, younger fund members can protect themselves against that kind of risk in future.
By moving the money you probably have in a growth fund to something more conservative, as your retirement approaches.
Perhaps when you are about 55 or 60.
There might be a cost.
That is what you would lose, by having your money invested in government or bank bonds, while the share market continues to rise.
However, investment is always about balancing risks and rewards.
How would you go about this?
Have a word with your financial adviser, or your superannuation fund.
Neglecting your investments is never a good idea.
That goes for the money you have invested in super, as much as any other investment.
by Alan Thornhill
“Buy on rumour. Sell on fact.”
Those thoughts once guided investors – however badly – before the global economic crisis.
Naturally, the excesses exposed by the crisis brought demands for better investor protection, even in the dark,misty world of market rumours.
How, though, can the authorities tie down something as ephemeral as, say, gossip that looks like good, hard, inside information?
The fine regulators at the Australian Securities and Investment Commission have been wrestling with that puzzle.
They have been discussing it, too, with some of the best people in Australia’s financial sector.
So we shouldn’t be too surprised to see that ASIC has just made an announcement on the subject.
Essentially, it says, “We need more time to work this one out.”
ASIC adds, too, that it hasn’t been idle in this field, in the meantime.
Hey, though, these people are adults.
We should let them speak for themselves.
So we have reproduced ASIC’s statement, in full.
It is set out below.
Market update on confidential information and rumours
Wednesday 12 May 2010
ASIC today announced it will continue working closely with the market over the next six to nine months to improve industry standards on the responsible handling of rumours and corporations’ management of confidential information but will not issue regulatory guidance on either subject at this stage.
These proposed standards are among the many initiatives, primarily enforcement action on insider trading and market manipulation, that ASIC is pursuing to maintain confidence in the integrity of Australia’s markets.
ASIC’s decision follows industry and public consultation on these two issues.
‘ASIC is focused on these and other initiatives to improve market integrity, such as enforcement action on insider trading and market manipulation. During the process of consultation, concerns were expressed and these related to issues of regulatory certainty, costs versus benefits and possible consequences of denying the market important information,’ said Ms Belinda Gibson, ASIC Deputy Chairman.
‘As a result, we have decided to continue our consultation with industry over the next six to nine months and then make a decision on whether and what additional regulatory guidance is needed.
‘I would like to thank the people who have been involved in the consultation to date. They have made an important contribution on both these important initiatives, and I look forward to their continued input. Over the next six to nine months our focus will be to work with industry to deal with their concerns and explore ways of achieving a lift in standards in the management of information’, Ms Gibson said.
In September 2009, ASIC set out principles to assist market participants when handling rumours in Consultation Paper 118 Responsible handling of rumours (CP 118).
The principles were developed noting concerns that confidence in the integrity of Australia’s markets could be undermined if investors believe rumours are actively spread in the market to distort proper price discovery. These concerns were also noted by CAMAC in its report Aspects of Market Integrity (June 2009). The concerns were highlighted during the market volatility at the time of the Global Financial Crisis.
In response to CP 118, ASIC received 12 submissions. Many of them noted the practical difficulties involved in drafting specific regulatory rules that define rumours and distinguish those from genuine expressions of opinion to inform price discovery. Cost and benefit implications were also raised.
ASIC acknowledges these concerns merit further discussion. ASIC remains of the view that, at a minimum and in line with practices in the major overseas capital markets, AFS licensees who are actively involved in the market should consider:
- having in place written procedures which provide clear guidance for operational areas involved in the market about how to deal with rumours;
- training employees in the relevant areas about these procedures, and
- monitoring compliance with these procedures and being able to demonstrate compliance with the procedures.
As a next step, ASIC will monitor the market and work further with industry over the next six to nine months to understand their concerns and how these principles on rumours might be adopted in practice before making a decision about whether and what further regulatory action may be needed.
In December 2009, to help improve market practices on listed entities’ handling of confidential information, ASIC released Consultation Paper 128 Handling confidential information (CP 128). The Consultation Paper proposed best-practice guidelines to assist entities manage their information, and thus promote confidence in Australia’s capital markets.
In response to CP 128, ASIC received 25 submissions. While the submissions welcomed guidance in the area, many had specific comments or suggestions on particular situations. ASIC’s goal is for the guidelines to be widely adopted and applied as broadly as possible, so ASIC intends to work with industry bodies so they might finalise this important guidance on behalf of their members. ASIC will do this over the next six to nine months.
In March 2008, ASIC commenced Project Mint a major market integrity investigation that focused on false rumours and their effect on market prices. This investigation was intended to be a disruptive enforcement technique, that is, it sent a reassuring signal to the market that ASIC was actively engaged and this helped shape market behaviour.
The objective of Project Mint is now well understood – that making false statements and spreading false rumours is illegal and that ASIC will act to address possible breaches in this area to promote market integrity.
Since January 2009, ASIC has achieved 11 significant convictions:
- Three insider trading convictions;
- Five market manipulations convictions; and
- Three false and misleading conduct convictions.
Insider trading matters
Mukesh Panchal – insider trading (MR 09-71)
In April 2009, former Queensland Gas Company executive Mr Mukesh Panchal, was sentenced to two years jail for insider trading in Queensland Gas Shares.
John Francis O’Reilly – insider trading (AD 10-80)
In April 2010, Mr John Francis O’Reilly pleaded guilty to insider trading in Indophil Resources NL and sentenced to ten months imprisonment. He was immediately released upon entering into a recognisance of $500 to be of good behaviour for 18 months. Mr O’Reilly also ordered to pay a $30,000 fine.
Noel James Stephenson – insider trading (AD 09-254)
Mr Noel James Stephenson pleaded guilty to insider trading when he disposed of 4,514 shares in Sam’s Seafoods Holdings Limited. He is yet to be sentenced.
Market manipulation matters
Richard John Wade & Rocco Muscumeci – market manipulation (AD 09-19)
In February 2009, Mr Rocco Muscumeci was sentenced to a seven month fully suspended sentence on market manipulation charges in Genetic Technology Ltd shares. Mr Richard John Wade received a 15 months fully suspended sentence.
Geoffrey Edgar Newing – market manipulation (AD 10-58)
In March 2010, Mr Geoffrey Edgar Newing, the former Genetic Technologies Limited chief operating officer, pleaded guilty to five counts of market manipulation following an ASIC investigation. He was sentenced to 22 months imprisonment and ordered to serve six months before being released on a recognisance release order.
Dr Martin Soust – market manipulation (AD 10-88)
In April 2010, ASIC obtained declarations that former Select Vaccines Limited managing director Dr Martin Soust, engaged in market manipulation and false trading. ASIC obtained a pecuniary penalty and disqualification order.
Newton Chan – market manipulation (AD 10-49)
Mr Newton Chan pleaded guilty to eight counts of market manipulation in Bill Express Ltd shares while a senior Macquarie Equities adviser. Awaiting sentence.
False and misleading conduct matters
Gregory Barnes & Landon Roberts – False and misleading information (AD 10-76)
In April 2010, former Chameleon Mining NL managing director, Mr Gregory Barnes, was sentenced to nine months imprisonment on two counts of providing false and misleading information to the Australian Securities Exchange. Former Chameleon Mining director and secretary Mr Landon Roberts was sentenced to eight months imprisonment on three counts of providing false and misleading information.
Ravi Amrit Narain – misleading or deceptive conduct (AD 10-69)
In March 2010, ASIC obtained a declaration against former Citrofresh International Limited chief executive (now Paragon Care Limited), Mr Ravi Amrti Narain, that he engaged in misleading or deceptive conduct relating to a financial product. Mr Narain received a $20,000 fine and was disqualified from managing a company for seven years.
by Alan Thornhill
Investors are returning to Australia’s housing market, but finance approvals for owner occupied housing has fallen.
These developments are apparent in the March housing finance figures, which the Australian Bureau of Statistics has just released.
These showed that investors borrowed more than $6.6 billion that month to finance home purchases.
That was a 3 per cent rise over the February figure.
Australians, purchasing homes for their own use, borrowed more than $13.5 billion in March.
However, that was a 3.4 per cent fall from the previous month.
All of these figures are seasonally adjusted.
These developments are significant as investors had been scarce in the housing market, in the wake of the global economic crisis.
Special factors, though, lie behind the fall in financial commitments by owner occupiers
Many Australian families brought forward their house buying plans last year, to take advantage of first home buyers’ subsidies – and other measures the Federal government offered – to keep Australia out of recession.
These measures have now been withdrawn.
However they have created big backlogs of building work, in many parts of Australia.
Many people who are presently planning building projects in Canberra, for example, are striking significant delays.
They are being told that they will have to wait up to three months for essential items, like wooden framework, which would usually be available on demand.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Friday May 24
The Dow Jones Index fell 12.44 points to 15,294.70
Ford Australia says it will close its Australian manufacturing plants in October 2016. Some 1,200 jobs to go.
Hazel Hawke dies at 83
A British soldier is hacked to death in the London suburb of Woolwich, in an apparent terrorist attack
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- Harry on The Prime Minister, Julia Gillard’s, New Year’s Message
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