More global economic gloom to come

23/07/2008 - 22:00

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Briefcase has previously predicted that economic conditions will deteriorate, both globally and locally.

More global economic gloom to come

Briefcase has previously predicted that economic conditions will deteriorate, both globally and locally. It is interesting to monitor the news flow, since the bottom of the market is typically marked by unremitting gloom in the daily papers. Briefcase believes that we are yet to see this crescendo of gloom, but it is increasing and if history is any guide, it will arrive, just as the market itself begins to pick up. You should expect to see more media coverage of rising unemployment and falling house prices, which are lagging indicators of economic activity, as the situation unfolds.

So far, the list includes rising unemployment in the US, with redundancies at Starbucks, building materials and pharmaceutical companies, automakers, Wall Street banks and many others. Rising job losses locally have also been a feature of daily coverage, as some of the high-cost nickel mines begin to close and the airline industry cuts jobs to maintain its cash flow in a high energy cost environment.

Local job ads have also plummeted and in Western Australia, there have been job losses, if temporary until January 2009, resulting from a shortage of natural gas, following the Varanus Island fire. The interesting take from the Varanus incident is that it is likely to cost the state about $6.7 billion, which is at least 20 times the replacement value of the actual gas facility! Perhaps the state government needs to take a more holistic view on the operation and regulation of such key pieces of the state's infrastructure?

WA has also recorded a 10.3 per cent rise in bankruptcy levels over the June quarter, while national levels over the past financial year were at their second highest on record. Meanwhile the state's total insolvency activity, which includes bankruptcy, debt agreements and personal insolvency agreements, increased 11 per cent to 513 cases, putting WA at second place behind New South Wales, which rose 13.35 per cent to 3,514 cases.

In response to this growing gloom, the gold price jumped about $50 per ounce last week, where it was up about $80 per ounce over the past month. This move comes as the US dollar continues an inevitable decline, which will take it to parity and beyond against the Aussie dollar over coming months. Investors are bailing out of the US dollar as credit ratings on all types of US dollar denominated bonds and debentures decline.

This de-rating comes on the back of sub-prime and mortgage stress relating to the positions of Fannie Mae and Freddie Mac, compounded by debt issues on Wall Street and soon to be revealed, huge problems with the US auto finance industry, as Briefcase has previously outlined.

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At a recent market briefing by the chief stock spruiker of one of Australia's leading independent securities firms last month, Briefcase was asked what my best bets in the market were, by one of its directors. One must assume that the individual concerned must have a basic understanding that holders of an AFS licence are unable to give free advice to complete strangers randomly met at cocktail parties. Under the circumstances, Briefcase suggested that keeping money in the bank was my first 'tip' and the second was to subscribe to StockAnalysis!

This comment was met with howls of indignation and derision, saying that my advice was no good for a stockbroker, with the underlying sub-text that a broking business relies on transaction for its daily bread.

I was immediately reminded of Woody Allen's description of a stockbroker, as someone who invests your money until it is all gone! The thing is that brokers also need their clients to retain some cash, if both are to survive over the long term. Given a 10 per cent drop in the market since this event, my advice appears to have been fitting and appropriate.

Briefcase now sees that long-term value opportunities are appearing amongst the banks, with several leading the charge into 'uber' value territory. Other solid industrial companies, such as Transfield Services, United Group, Fairfax Media and Fosters to name a few, have fallen back, with some close to five-year lows.

However, given Briefcase's previous diatribe on the US auto lease ponsi scheme, a move by St George Bank to underpin its recent asset backed securities issue with auto loan receivables is indeed a blindingly stupid and poorly researched move, which could put the Westpac takeover in jeopardy.

While the market will probably see a further three to six months of weakness, taking a two-year view from this point could prove prescient.

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Most of us were taught to leave personal lives at home when we went to work. However, over the past 15 years, Briefcase has observed that the work-world has become a higher-pressure and a very high-demand environment, intruding into our private moments. Work now demands performance, with constant, 24/7 communication, resulting in pressures which intrude into all aspects of our lives. We have even coined a new addiction called 'crackberry', for those who cannot turn off their mobile phone and e-mail devices.

Increasingly, employers are recognising that work has become personal. Employees whose lives are out of balance or who may be facing personal difficulties, don't perform to their maximum efficiency and this can put a brake on any business looking for the maximum effort from every scarce skilled worker in today's tight environment.

In WA and other parts of Australia, such as the Northern Territory and Queensland, much of the economic growth we are now experiencing derives from a mining sector which relies heavily on fly-in fly-out workers who are regularly separated from their families and social contexts; it's a particularly potent issue. While there are plenty of women on the circuit, the vast majority of these workers are men.

The most productive, creative employee is physically and mentally healthy, with a personal life that is fulfilling and in balance with their work life. This simple realisation has profound implications in most workplaces.

In WA, the Men's Advisory Network is a peak body representing providers of counselling services to and for men and their families. Briefcase has had the privilege of working on a committee which is organising a three-day event, with internationally-recognised speakers, to be held at Fremantle's Esplanade Hotel, starting on August 3.

The conference will cover the many personal issues impacting specifically on men, from birth until old age.

The event will take a holistic, whole-of-life approach to men's issues, including health, relationships, parenting, personal development, the socialisation and education of boys and spirituality. The conference has a strong focus on workplaces as a focal point in issues affecting men's lives.

The conference will be a great opportunity for businesses to find out how they can do more to improve the wellbeing of their workforce - and how ultimately, they can reap a bottom line reward in increased work performance and productivity. It will also be a gathering, at which individual men can seek to explore and understand themselves.

For those wanting more information, go to www.promaco.com.au/2008/man or email promaco@promaco.com.au

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- Peter Strachan is the author of subscription-based analyst brief StockAnalysis, further information can be found at Stockanalysis.com.au

 

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