From Down Under......some good news...I guess:
The real numbers look better than false optimism
Article from: Herald Sun
Terry McCrann
November 28, 2008 12:00am
AND now for the good news. Yes! There really is good news.
A number of people from Reserve Bank Governor Glenn Stevens down have said we should beware of talking ourselves into a recession.
While that is certainly true. Nothing destroys confidence more than, well, a lack of confidence and its replacement by prognostications of gloom and doom.
Yet at the same time we also want realism and honesty. So rather than well-spun and plain shonky false optimism, just tell the - good news - truth.
There were a few important examples yesterday.
First the capex figures. Business has never been investing more.
Yes, the total investment in building, structures, plant and equipment levelled off in the September quarter.
But across Australia it was still up 16 per cent over the year in both nominal money and real inflation-adjusted terms.
And it wasn't all just in mining. Even investment in manufacturing was up year-over-year, although it had been slipping slightly from quarter to quarter this calendar year.
Even New South Wales -- yes, even the deadbeat state -- recorded a year-over-year increase in investment. Although with Victoria it took quite a hit in the latest three months.
Now investment by business is good news on two levels. First the direct stimulus it gives the economy. Second because it builds the production and wealth and jobs of tomorrow.
The strong level of investment through 2008 is one side of a double-sided economic picture that the RBA wanted to see unfold. Which it precisely set out to achieve by raising rates.
To on the one hand slow consumer spending, to make way for continued very strong investment on the other. 'Allowing' both in the booming economy would have unleashed serious inflation.
Before everything of course changed in September when the global financial crisis suddenly turned seriously bad. Thanks to the collapse of Lehman Brothers.
The other good news was that despite the devastation wreaked on share prices, the hit to super is much less. Because less than half of total super assets are in the local share market.
The ABS data on Managed Funds showed that super fund (unconsolidated) assets fell by $59 billion to $949 billion over the year to end-September.
The real pain is actually much worse than that. Because that doesn't allow for inflows through the year; and of course we've taken a bigger hit since the end of September.
But it could have been a lot worse. Local share investments dropped $79 billion. Although some of that would have been switching into especially cash.
So where exactly is the good news? Super funds had a massive $147 billion sitting in the bank at the end of September. Able to snap up bargains at these low prices.
Many companies, even those with some issues, are finding it very easy to raise big lumps of fresh equity. QBE pocketed $2 billion yesterday.
I hasten to add that QBE doesn't have any 'issues'. It's using its cash to do exactly what I describe. Snapping up bargains. At least we and QBE hope they are.
A few weeks back the National Australia Bank put its hand up for a similar $2 billion. It got swamped and so decided to accept $3 billion.
ConnectEast has got a pretty sizeable $400 million of new equity lined up. And there are plenty more examples.
This is good news on at least two fronts. It shows investors are still prepared to invest. And it keeps businesses, well, in business.
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