26/11/2009 - 00:00

The fear’s gone amid the flat new normal

26/11/2009 - 00:00


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It looks as though we’re in for a prolonged period of modest growth.

IF you look carefully at what’s happened on the stock market over the past few months you can detect the shape of the new economic ‘normal’. In a word, it is flat.

Gone is the fear that followed the crash of 2008, and gone too is the excitement of the bounce between April and August this year.

In place of those two emotional extremes is a market that has effectively been boring, which is not a bad thing after so much turmoil.

Even Western Australia, which rocketed out of the slump, has slowed dramatically, as shown in the ‘Bystander 30’, a measure of the local economy exclusive to WA Business News after being launched elsewhere in August.

Before the detail, a word of advice for investors in everything from shares to property – do not expect the new normal to be quickly replaced by either a re-run of the crash, or a repeat of this year’s big bounce.

Get used to a prolonged period of modest economic growth and modest investment returns.

What’s happened in WA during the past three months – a time when the gold price has boomed and big new gas projects have been announced – is a pointer to the flat future.

Close proximity to Asia will help exports, but not if they continue to be sold in rapidly depreciating US dollars.

The currency effect is one of the signals being detected in the Bystander 30, which measures the performance of 30 WA-focused companies.

Rather than rising strongly, which has been the norm all year, the local index has performed slightly below the national average – an unexpected result, and a warning.

Unlike rival indices, which measure the WA component of the stock market by picking companies based on the location of their head office, the Bystander 30 looks at where companies do most of their business to provide a more accurate measure of economic performance.

The Deloitte WA Index, which last week showed a rise of 0.2 per cent in WA stocks during October (how flat is that), actually has five African-focused stocks in its top 10 – Paladin, Equinox, Centamin, Aquarius and Extract.

It’s a useful tool, but only if you’re interested in the economies of Zambia, Egypt and Namibia.

The Bystander 30, in the three months since its launch up until last week, rose by 5.1 per cent, which looks good, but was actually less than the 5.7 per cent recorded by the ASX200, an index that measures Australia’s top 200 listed companies.

To put that modest 5.1 per cent rise into perspective (and it is likely to be less this week given the uncertainty about the pace of global economic recovery), the WA-focused index rose by 39.5 per cent between April and August, easily eclipsing a 22.5 per cent rise in the ASX200 over the same time.

Another way of looking at the relevance of WA’s 5.1 per cent rise is to compare it with the gold index on the ASX, which is up by 25.5 per cent since late August.

Gold is a useful proxy for fear and uncertainty in the global economy, especially the likely direction of the US economy, and its currency.

For WA, this is a classic two-edged sword. We benefit from a higher gold price, but suffer from the falling US dollar because most of our exports are priced in US dollars.

Next year, which will be all about governments struggling to managed their mountains of debt (and among other things that means higher taxes), the big game to watch will be currency values as the new, and far-from-exciting ‘normal’, takes shape.

Money moves

CURRENCY fluctuations do not have to be a bad thing, as anyone taking an overseas holiday has noticed.

The curious thing is that so few Australian investors seem to be enjoying the same benefits as Australian tourists travelling overseas.

Rather than shopping with a dollar valued at US60 cents (and less), we can buy $US-dictated airfares and accommodation at US92 cents (and better).

A recent example, which put the investment potential of this currency shift into perspective, came when Bystander was told by a friend how he had recently bought an apartment in Scotland, close to his favourite golf course, St Andrews.

In theory, much of any annual servicing cost can be covered by a brief period of renting out the apartment for the exorbitant fees available during major golf tournaments.

But from an investment perspective the really interesting aspect is that, between a deal being agreed and settlement, the British pound slumped in value (or the Australian dollar rose, depending on how you want to tell the story), knocking more than $50,000 off the Australian-dollar purchase price.

The period when that sort of one-off windfall can be enjoyed has probably passed.

But the benefit of investing overseas with Australian dollars is no different to the benefits being enjoyed by UK-bound holidaymakers.

A bungle to remember

EVERYONE has had a crack at the Keystone cops running Australia’s corporate watchdog, the Australian Securities and Investments Commission, in the wake of its failed $35 million prosecution in NSW of One.Tel co-founder, Jodee Rich.

A few years ago, WA actually produced a better farce in the form of the failed prosecution of one-time Bond Corporation executive, Tony Oates.

Not only did the case collapse when ASIC’s lawyers tried to introduce evidence not previously seen by the defence (a huge legal no-no), but the regulator insisted on calling Bystander as a witness for the crown despite the obvious problem of a journalist being the ultimate bearer of hearsay (it’s how we earn a living).

How much time and money was spent bothering with Bystander’s gossip (of the paid, professional, variety) will never be known, though even this ageing scribbler knew he should not have been in the witness box, as ASIC also quickly discovered when the truth (as seen through a journalist’s eyes) was not what its lawyers wanted to hear.

The really sad part is that no-one at ASIC ever pays for wasting our money – unless making a public fool of yourself (with public money) is considered a fair price.


“No government has ever been, or ever can be, wherein time-servers and blockheads will not be uppermost .”

John Dryden



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