By Business editor Peter Ryan
An improvement in energy efficiency of just 1 per cent would add $26 billion to Australia's economy by 2030, according to a new report.
Research commissioned by the Climate Institute and US energy giant General Electric says Australia's poor investment in energy efficiency is costing tens of billions of dollars in potential economic growth.
But instead of following the lead of other developed nations, the study says Australia is failing to match efficiency improvements in other economies.
The research by Vivid Economics found that on average a 1 per cent improvement in energy efficiency would boost gross domestic product (GDP) per person by 0.1 percentage point and generate an additional $8 billion by 2020 and $26 billion by 2030.
Climate Institute chief executive John Connor says the improved energy efficiency is critical given the Prime Minister's proposal to lift annual productivity growth to 2 per cent.
"This is an important contribution to improving Australia's productivity as well as cutting our energy bills and carbon pollution," Mr Connor said.
"Our research puts a figure on just how much we are missing out on. The reality is that our current policies are inadequate to address the barriers preventing smarter energy use.
"To get to the next level, we need policies like a national energy saving initiative, ambitious performance standards for vehicles and equipment and bipartisan support for a robust long-term signal for low-carbon investment."
The research examines 28 countries including Japan, China, South Korea, the United States and Britain and is forecast over 30 years.
It points to key sectors such as manufacturing, resources, construction, freight and transport as areas which could cut their energy use by 11 per cent and save $3 billion per year.
Recent research by ClimateWorks Australia says companies can save energy by upgrading equipment, retrofitting buildings and recalibrating operational processes.
"We need to get beyond the idea that energy efficiency means changing light bulbs. In fact, just about every product and process can be streamlined to reduce energy waste, " Mr Connor said.
"Businesses are starting to recognise this, but there's a lot more they can do."
While the Climate Institute wants energy pricing to more accurately reflect the true cost of energy use, it also wants to maintain the carbon price mechanism which the Prime Minister is about to scrap in favour of an emissions trading scheme.
"Emissions trading puts not just a price but also a limit on carbon pollution," Mr Connor said.
"In moving from the fixed carbon price to a limit on carbon emissions, the interaction with other climate action becomes critical.
"Remember why we did all this in the first place: it is about reducing Australia's disproportionate contribution to climate change and making our high-carbon economy competitive in the low-carbon reality of the 21st century."
Mr Connor says any decision to bring an emissions trading scheme forward should include a "statement of increased ambition" and an continuing role for the independent Climate Change Authority.
Monday, July 15, 2013
China's economy slows again. But how low can the China powerhouse go?
The latest growth figures from China were highly anticipated given concerns the world's second biggest economy is in the midst of a slowdown.
There was little doubt that China's annualised growth would dip from the previous reading of 7.7 per cent - the question was by how much.
The result of 7.5 percent growth in gross domestic product (GDP) in the second quarter was welcomed because it was in line with forecasts, and to use jargon from the global financial crisis, "less worse than expected" given recent sombre data releases.
AUDIO: China's economy continues to slow, but still remains strong (The World Today)
Today's result is a long way from the 12.08 per cent annualised growth achieved in 2010, as Chinese authorities continue with their strategy of a managed slowdown.
China's economy has now slowed in nine of the past 10 quarters.
Newly-appointed Federal Treasurer Chris Bowen would also be watching the China numbers with interest, given his recent downbeat comments about Australia's economy.
Despite the slowing, the pace of economic growth in China remains stellar: urban investment grew at an annualised 20.1 per cent; retail sales expanded at an annualised pace of 13.3 per cent; and industrial output grew at an annualised 8.9 per cent
China's National Bureau of Statistics has described the results as "stable", suggesting the government does not see the need for stimulus to protect the economy from a hard landing.
While the Chinese government's official growth target for 2013 is 7.5 per cent, it remains the slowest pace in 23 years.
A significant concern for Chinese authorities is whether the slower economic times add to the jobless rate, which could result in social unrest as workers are turned away from cities when projects dry up.
The Australian dollar jumped to 91.09 US cents after the data hit, suggesting investors remain confident that China's demand for resources will continue to underpin Australia's economy.
But it is now very clear that any piece of data from China will be scrutinised and anticipated as investors hedge bets on the lifespan of the China growth story.
There was little doubt that China's annualised growth would dip from the previous reading of 7.7 per cent - the question was by how much.
The result of 7.5 percent growth in gross domestic product (GDP) in the second quarter was welcomed because it was in line with forecasts, and to use jargon from the global financial crisis, "less worse than expected" given recent sombre data releases.
AUDIO: China's economy continues to slow, but still remains strong (The World Today)
Today's result is a long way from the 12.08 per cent annualised growth achieved in 2010, as Chinese authorities continue with their strategy of a managed slowdown.
China's economy has now slowed in nine of the past 10 quarters.
 |
| Rollercoaster economy - China GDP since 1999 Source: Bloomberg |
Newly-appointed Federal Treasurer Chris Bowen would also be watching the China numbers with interest, given his recent downbeat comments about Australia's economy.
Despite the slowing, the pace of economic growth in China remains stellar: urban investment grew at an annualised 20.1 per cent; retail sales expanded at an annualised pace of 13.3 per cent; and industrial output grew at an annualised 8.9 per cent
China's National Bureau of Statistics has described the results as "stable", suggesting the government does not see the need for stimulus to protect the economy from a hard landing.
While the Chinese government's official growth target for 2013 is 7.5 per cent, it remains the slowest pace in 23 years.
A significant concern for Chinese authorities is whether the slower economic times add to the jobless rate, which could result in social unrest as workers are turned away from cities when projects dry up.
The Australian dollar jumped to 91.09 US cents after the data hit, suggesting investors remain confident that China's demand for resources will continue to underpin Australia's economy.
But it is now very clear that any piece of data from China will be scrutinised and anticipated as investors hedge bets on the lifespan of the China growth story.
Friday, July 12, 2013
NBN Co boss MIke Quigley jumps - but was he pushed?
After months of speculation, the embattled chief executive of NBN Co Mike Quigley has announced his resignation.
Mr Quigley, who was appointed to the role four years ago, will remain as CEO until a successor is appointed.
Significantly, Mr Quigley says he will "retire from corporate life" after coming out of retirement to build the National Broadband Network.
Mr Quigley has been plagued by political pressure and more recently has been criticised for delays in the rollout and disputes with contractors.
Wednesday, July 10, 2013
More pain expected for mining industry, expert warns
Insolvency experts are predicting more pain to come over the next six to 12 months as the shakeout in Australia's mining sector takes hold.
Restructuring firm Ernst & Young is expecting to see more receiverships and distressed sales as miners end their investment and construction phase to focus on production.
The forecast comes after almost half of the listed companies exposed to mining services issued profit downgrades as projects are deferred and market conditions falter.
Ernst & Young's Asia Pacific leader of mining and metals transactions, Paul Murphy, told AM the slowdown in mining is starting to reverberate in the sector, especially among companies with high debt
"I think that's inevitable. I think things grew so quickly as all the mining companies were looking at growth at all costs," he said.
"A lot of inefficient companies went along for the ride with that. And some companies that have the higher debt levels and are more vulnerable than others, there will be a rationalisation period that occurs and some will become insolvent and go to the wall.
"Overall it is a bit of a correction in some ways that had to happen. What tends to happen during these periods of rationalisation is that longer-term the industry becomes stronger and better able to withstand these shocks to slow-downs and capital expenditure."
The Reserve Bank has repeatedly warned that mining investment will peak earlier than expected and that other sectors of the economy are not taking over quickly enough.
The transition is also hostage to the fortunes of China, which is undergoing a growth slowdown from double digit pace to the current 7.5 per cent.
Mr Murphy says the recent political uncertainty and the restoration of Kevin Rudd as Prime Minister has contributed to mining sector instability even though the slowdown began a year ago.
"Like any sector really, uncertainty in the political sphere or the regulatory sphere creates a period of uncertainty for the sector and so people tend to delay and defer investment decisions," Mr Murphy said.
He says while capital expenditure in mining is expected to fall by as much as 20 per cent, there will be winners as well as losers.
"Players that are more diversified, that have stronger tender and management practices are going to be in stronger positions," he said.
"That means that the players that don't exhibit those characteristics - they're not diversified, they might have one contract, they tend to have weaker management and tender practices - are going to be more vulnerable.
"It just depends how quickly this slow-down in [capital expenditure] takes hold. So hopefully a lot of these smaller players will be able to reposition, do something about their debt and not necessarily go to the wall. "
Ernst & Young's analysis shows 49 per cent of listed companies which generate revenue from mining services have issued profit downgrades in the past six months - more than third in the past three months.
The study shows the market capitalisation of the 84 listed mining services companies has fallen 16 per cent in the year to June.
The performance of mining companies is expected to be a major focus of the the upcoming reporting season as investors seek to identify winners and losers.
Restructuring firm Ernst & Young is expecting to see more receiverships and distressed sales as miners end their investment and construction phase to focus on production.
The forecast comes after almost half of the listed companies exposed to mining services issued profit downgrades as projects are deferred and market conditions falter.
Ernst & Young's Asia Pacific leader of mining and metals transactions, Paul Murphy, told AM the slowdown in mining is starting to reverberate in the sector, especially among companies with high debt
"I think that's inevitable. I think things grew so quickly as all the mining companies were looking at growth at all costs," he said.
"A lot of inefficient companies went along for the ride with that. And some companies that have the higher debt levels and are more vulnerable than others, there will be a rationalisation period that occurs and some will become insolvent and go to the wall.
"Overall it is a bit of a correction in some ways that had to happen. What tends to happen during these periods of rationalisation is that longer-term the industry becomes stronger and better able to withstand these shocks to slow-downs and capital expenditure."
The Reserve Bank has repeatedly warned that mining investment will peak earlier than expected and that other sectors of the economy are not taking over quickly enough.
The transition is also hostage to the fortunes of China, which is undergoing a growth slowdown from double digit pace to the current 7.5 per cent.
Mr Murphy says the recent political uncertainty and the restoration of Kevin Rudd as Prime Minister has contributed to mining sector instability even though the slowdown began a year ago.
"Like any sector really, uncertainty in the political sphere or the regulatory sphere creates a period of uncertainty for the sector and so people tend to delay and defer investment decisions," Mr Murphy said.
He says while capital expenditure in mining is expected to fall by as much as 20 per cent, there will be winners as well as losers.
"Players that are more diversified, that have stronger tender and management practices are going to be in stronger positions," he said.
"That means that the players that don't exhibit those characteristics - they're not diversified, they might have one contract, they tend to have weaker management and tender practices - are going to be more vulnerable.
"It just depends how quickly this slow-down in [capital expenditure] takes hold. So hopefully a lot of these smaller players will be able to reposition, do something about their debt and not necessarily go to the wall. "
Ernst & Young's analysis shows 49 per cent of listed companies which generate revenue from mining services have issued profit downgrades in the past six months - more than third in the past three months.
The study shows the market capitalisation of the 84 listed mining services companies has fallen 16 per cent in the year to June.
The performance of mining companies is expected to be a major focus of the the upcoming reporting season as investors seek to identify winners and losers.
Monday, July 8, 2013
ASIC to monitor analyst briefings in wake of Newcrest investigation
By Business editor Peter Ryan
The corporate watchdog will conduct random checks on companies this reporting season to ensure discussions with analysts don't break insider trading laws.
The Australian Securities & Investments Commission will have its officers sit in on boardroom briefings because of concerns some analysts sometimes receive inside information not available to the general public.
Listen to my interview with ASIC commissioner Cathie Armour broadcast on AM.
The crackdown comes as ASIC investigates allegations that Newcrest Mining selectively briefed analysts days before officially revealing deep job cuts and a multi-billion dollar profit downgrade.
In the leadup to the market announcement on June 7, analysts at six investment houses downgraded their outlook which saw the Newcrest share price fall almost 12 per cent.
ASIC commissioner Cathie Armour says the reporting season is an "opportune time" to send a message to listed companies that the regulator is watching what is said in communications to analysts.
"One of the things we're looking to do is to check with a limited number of companies exactly how they go about doing this, how they go about briefing analysts, and what sort of conversations they have, what sort of procedures they may put in place," Ms Armour told AM.
While the random checks by ASIC will have to be approved by companies, ASIC is expecting a high level of cooperation.
"We think companies will be delighted to do so, because this issue really goes to that heart of market integrity and this is a matter that companies are as interested as ASIC is," Ms Armour said.
However, Ms Armour rejected criticisms that companies will be on their best behaviour if an ASIC officer is sitting in on briefings.
"It doesn't matter if there's great behaviour when we go along; we learn something from that. We have some guidance already that we've published about how companies should interact with analysts, and the things we learn from what we see will inform our assessment of whether the guidance we have is good enough."
Ms Armour refused to rule out the option of using telephone interceptions if there was evidence of insider trading.
"If there's a reason for a concern, we'll consider using all of our powers. At the moment, we're just talking about a thematic and proactive approach to the issue, as distinct from a law enforcement approach."
The crackdown from ASIC might prompt better boardroom behaviour, but a tougher challenge will be to eliminate the informal passing of privileged information away from offices.
ASIC has refused to comment on the Newcrest investigation.
Newcrest recently appointmed former ASX and ABC chairman Maurice Newman to review its adherence continuous disclosure laws.
The corporate watchdog will conduct random checks on companies this reporting season to ensure discussions with analysts don't break insider trading laws.
The Australian Securities & Investments Commission will have its officers sit in on boardroom briefings because of concerns some analysts sometimes receive inside information not available to the general public.
Listen to my interview with ASIC commissioner Cathie Armour broadcast on AM.
The crackdown comes as ASIC investigates allegations that Newcrest Mining selectively briefed analysts days before officially revealing deep job cuts and a multi-billion dollar profit downgrade.
In the leadup to the market announcement on June 7, analysts at six investment houses downgraded their outlook which saw the Newcrest share price fall almost 12 per cent.
 |
| Newcrest share price slide in leadup to to June 7 announcement Source: Bloomberg |
ASIC commissioner Cathie Armour says the reporting season is an "opportune time" to send a message to listed companies that the regulator is watching what is said in communications to analysts.
"One of the things we're looking to do is to check with a limited number of companies exactly how they go about doing this, how they go about briefing analysts, and what sort of conversations they have, what sort of procedures they may put in place," Ms Armour told AM.
While the random checks by ASIC will have to be approved by companies, ASIC is expecting a high level of cooperation.
"We think companies will be delighted to do so, because this issue really goes to that heart of market integrity and this is a matter that companies are as interested as ASIC is," Ms Armour said.
However, Ms Armour rejected criticisms that companies will be on their best behaviour if an ASIC officer is sitting in on briefings.
"It doesn't matter if there's great behaviour when we go along; we learn something from that. We have some guidance already that we've published about how companies should interact with analysts, and the things we learn from what we see will inform our assessment of whether the guidance we have is good enough."
Ms Armour refused to rule out the option of using telephone interceptions if there was evidence of insider trading.
"If there's a reason for a concern, we'll consider using all of our powers. At the moment, we're just talking about a thematic and proactive approach to the issue, as distinct from a law enforcement approach."
The crackdown from ASIC might prompt better boardroom behaviour, but a tougher challenge will be to eliminate the informal passing of privileged information away from offices.
ASIC has refused to comment on the Newcrest investigation.
Newcrest recently appointmed former ASX and ABC chairman Maurice Newman to review its adherence continuous disclosure laws.
Wednesday, June 26, 2013
Friday, June 21, 2013
US foundry moves to Australia to exploit resources boom
Times are tough for Australian manufacturing, even though the Australian dollar has fallen from its recent highs.
But while some companies are struggling to survive by off-shoring, a big US company is reversing the trend.
Weir Minerals has moved its divisional headquarters to Australia to be closer to the production phase of the mining boom.
Listen to my story broadcast on this morning's edition of AM.
Hidden on Sydney's lower north shore, the company's foundry makes heavy duty pumps and components for the mining industry - 1,000 parts a week from 11,000 tonnes of molten metal poured every year.
It is the biggest foundry of its type in Australia.
Late last year it "in-shored" - relocating its divisional headquarters from the United States to Australia.
Weir Mineral's plant manager Howard Cullis believes the company on track for growth.
AUDIO: Weir Minerals relocates to exploit mining boom (AM)
"I think geographically we're well placed to service the whole of Australia," he said.
"We have probably some of the shortest lead times with what we manufacture anywhere else in this business so the customer gets what he wants when he wants it."
The company's managing director Dean Jenkins says basing the division in Australia was a no-brainer.
"It's a matter of being prepared to make quick decisions and being flexible about where you do things and what you do, and making sure you understand in a local environment what really adds value that customers will pay for,"
"And for us here in Australia it's about how do we get parts to the customer very quickly. And to be in Australia, have a manufacturing capability in Australia allows us to do that."
Weir employs a thousand people in Australia, half of them at Artarmon.
It is evidence that manufacturing in Australia is not necessarily fading, despite the outlook for the resources sector.
And it is not just hot work in the foundry.
Weir also carries out major research and development locally as it stays ahead of industry needs to keep the business model viable.
But while some companies are struggling to survive by off-shoring, a big US company is reversing the trend.
Weir Minerals has moved its divisional headquarters to Australia to be closer to the production phase of the mining boom.
Listen to my story broadcast on this morning's edition of AM.
Hidden on Sydney's lower north shore, the company's foundry makes heavy duty pumps and components for the mining industry - 1,000 parts a week from 11,000 tonnes of molten metal poured every year.
It is the biggest foundry of its type in Australia.
Late last year it "in-shored" - relocating its divisional headquarters from the United States to Australia.
Weir Mineral's plant manager Howard Cullis believes the company on track for growth.
AUDIO: Weir Minerals relocates to exploit mining boom (AM)
"I think geographically we're well placed to service the whole of Australia," he said.
"We have probably some of the shortest lead times with what we manufacture anywhere else in this business so the customer gets what he wants when he wants it."
The company's managing director Dean Jenkins says basing the division in Australia was a no-brainer.
"It's a matter of being prepared to make quick decisions and being flexible about where you do things and what you do, and making sure you understand in a local environment what really adds value that customers will pay for,"
"And for us here in Australia it's about how do we get parts to the customer very quickly. And to be in Australia, have a manufacturing capability in Australia allows us to do that."
Weir employs a thousand people in Australia, half of them at Artarmon.
It is evidence that manufacturing in Australia is not necessarily fading, despite the outlook for the resources sector.
And it is not just hot work in the foundry.
Weir also carries out major research and development locally as it stays ahead of industry needs to keep the business model viable.
Thursday, June 20, 2013
Markets melt as Bernanke suggests Fed money printing is almost over
The world's most powerful central banker has declared that the economic emergency in the United States is nearing an end.
The chairman of the US Federal Reserve, Ben Bernanke, has signalled that the unprecedented money-printing program, known as quantitative easing, might be wound down by the end of the year.
But the cautious optimism about the US sparked a heavy fall on Wall Street as investors fretted that an era of cheap and easy money might soon be over.
The Australian dollar dived to a two-year low as global investors moved their bets to a resurgent greenback.
The straight talk from Dr Bernanke is as significant as earlier mixed signals about the future of quantitative easing, which have in the past have sparked confusion and major sell-offs in global markets.
But today, his language was explicit.
Using a driving analogy, Dr Bernanke said the Fed's current bond purchases, valued at $US85 billion a month, might be about to go into reverse.
"If the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of purchases," he said.
The comments are being interpreted as Dr Bernanke coming out of the economic closet after weeks of speculation that the Fed was about to taper its money printing.
Speaking after the Fed's two-day meeting, he even flagged some rough dates - a scaling back by the end of the year, and maybe an end by mid-2014.
AUDIO: Bernanke flags end to US stimulus program (The World Today)
These are qualified forecasts, and are coupled with the prediction that the US jobless rate will fall from the current 7.6 per cent to 6.5 per cent by next year.
So does that mean US interest rates are about to rise?
Using the driving analogy again, Ben Bernanke said although the Fed might be taking its foot off the accelerator, it wouldn't be slamming on the brakes any time soon.
"The economic conditions we have set out as proceeding any future rate increase are thresholds, not triggers," he said.
"For example, assuming that inflation is near our objective at that time as expected, a decline in the unemployment rate to 6.5 per cent would not lead automatically to an increase in the federal funds rate target but rather would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase."
Negative reaction
After almost five years of crisis since the collapse of Lehman Brothers, you might expect elation on Wall Street.
But instead of popping champagne, investors started selling as soon as the Fed's statement hit their screens.
The Dow Jones Industrial Average closed 1.3 per cent weaker in what some see as an overreaction to the prospect that the era of easy stimulus money is over.
Fund manager Cliff Noreen told Bloomberg that Dr Bernanke's intention to slow money printing should not have been a shock.
"I think what he said was very logical. A lot of market participants forget that we've had quantitative easing for four and a half years now," he said.
"Eventually this has to stop and they need to pull the throttle back on it."
The Australian share market followed the US lead and was down 2.4 per cent at 1:25 pm (AEST).
JP Morgan senior economist Ben Jarman says the Fed is moving cautiously with a clear timeline to ensure investors don't panic.
"He's been very clear this time around to make clear that if they do follow the plan and if they are tapering their QE and in effect and absolutely stopping that by mid-next year, then they'll only be doing that in a situation where the labour market is hitting its stride," he said.
Mr Jarman doubts the Australian dollar is in a permanent decline.
"It's going to go higher from here and that's really on the view that China, while there are risks around it, actually the talk around the downside is somewhat overdone," he said.
But that China insulation theory might not be has not been immediately validated.
Factory production shrank at a faster pace this month, adding to signs that growth is weakening in the world's second-biggest economy.
The chairman of the US Federal Reserve, Ben Bernanke, has signalled that the unprecedented money-printing program, known as quantitative easing, might be wound down by the end of the year.
But the cautious optimism about the US sparked a heavy fall on Wall Street as investors fretted that an era of cheap and easy money might soon be over.
The Australian dollar dived to a two-year low as global investors moved their bets to a resurgent greenback.
The straight talk from Dr Bernanke is as significant as earlier mixed signals about the future of quantitative easing, which have in the past have sparked confusion and major sell-offs in global markets.
But today, his language was explicit.
Using a driving analogy, Dr Bernanke said the Fed's current bond purchases, valued at $US85 billion a month, might be about to go into reverse.
"If the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of purchases," he said.
The comments are being interpreted as Dr Bernanke coming out of the economic closet after weeks of speculation that the Fed was about to taper its money printing.
Speaking after the Fed's two-day meeting, he even flagged some rough dates - a scaling back by the end of the year, and maybe an end by mid-2014.
AUDIO: Bernanke flags end to US stimulus program (The World Today)
These are qualified forecasts, and are coupled with the prediction that the US jobless rate will fall from the current 7.6 per cent to 6.5 per cent by next year.
So does that mean US interest rates are about to rise?
Using the driving analogy again, Ben Bernanke said although the Fed might be taking its foot off the accelerator, it wouldn't be slamming on the brakes any time soon.
"The economic conditions we have set out as proceeding any future rate increase are thresholds, not triggers," he said.
"For example, assuming that inflation is near our objective at that time as expected, a decline in the unemployment rate to 6.5 per cent would not lead automatically to an increase in the federal funds rate target but rather would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase."
Negative reaction
After almost five years of crisis since the collapse of Lehman Brothers, you might expect elation on Wall Street.
But instead of popping champagne, investors started selling as soon as the Fed's statement hit their screens.
The Dow Jones Industrial Average closed 1.3 per cent weaker in what some see as an overreaction to the prospect that the era of easy stimulus money is over.
Fund manager Cliff Noreen told Bloomberg that Dr Bernanke's intention to slow money printing should not have been a shock.
"I think what he said was very logical. A lot of market participants forget that we've had quantitative easing for four and a half years now," he said.
"Eventually this has to stop and they need to pull the throttle back on it."
The Australian share market followed the US lead and was down 2.4 per cent at 1:25 pm (AEST).
JP Morgan senior economist Ben Jarman says the Fed is moving cautiously with a clear timeline to ensure investors don't panic.
"He's been very clear this time around to make clear that if they do follow the plan and if they are tapering their QE and in effect and absolutely stopping that by mid-next year, then they'll only be doing that in a situation where the labour market is hitting its stride," he said.
Mr Jarman doubts the Australian dollar is in a permanent decline.
"It's going to go higher from here and that's really on the view that China, while there are risks around it, actually the talk around the downside is somewhat overdone," he said.
But that China insulation theory might not be has not been immediately validated.
Factory production shrank at a faster pace this month, adding to signs that growth is weakening in the world's second-biggest economy.
Wednesday, June 19, 2013
ADM's shady history probed by Senate committee as suitor sells GrainCorp deal to regulators
By Business editor Peter Ryan
ADM has encountered intense questioning from a Senate estimates committee amid concerns that the $3 billion deal would put a foreign stranglehold on grain storage and infrastructure.
Listen to my report on the ADM grilling broadcast on The World Today.
The company's grains boss Ian Pinner attempted to deflect the past accusations during occasionally hostile questioning, and has assured the committee that ADM is now a fundamentally different business.
Mr Pinner is in Australia to convince farmers and the Foreign Investment Review Board that the GrainCorp takeover will not leave them worse off.
He also has to win over politicians like Liberal senator Bill Heffernan, who has been digging into ADM's alleged history of price-rigging and corruption.
Senator Heffernan, himself a GrainCorp client, confronted Mr Pinner with a myriad of past accusations and proven incidents that go to concerns about ADM's ethics and market power.
"It's less than glorious, your past record," the Senator said to Mr Pinner during the hearing, before reading out a number of headlines from media reports.
"Archer Daniel Midland settles price fixing charges for $400 million; Deal in food enhancer fixing suite on hold; Court reinstates seed alleging Archer Daniels suite in the market rigged; Archer
Daniels accused of espionage; Big citrus acid buyers sue Archer Daniels; Former ADM official indicted for fraud; and so it goes on."
Mr Pinner told Senator Heffernan that those episodes would not be repeated.
"Senator, there have been incidents in the past which ADM is not proud of, that is absolutely clear, but I would say that there have also been changes," he said.
"ADM is committed to not only acting in a compliant way but acting in an ethical way."
The Senator offered a warning.
"Can I just tell you that our mob here, GrainCorp, we're not into that s***," he said.
"No. And we don't want anything to do with anyone that is."
The New South Wales Nationals Senator Fiona Nash also appeared unconvinced, despite ADM's assurances that it was all history.
"Is price fixing a mistake? How do you term that as a mistake?" she asked.
"I think you're referring to an incident which was nearly 20 years ago now," Mr Pinner replied.
"Sorry, no. The timeline's not of that much interest, we're actually trying to get a sense of the company, where it's been, where it is now, in terms of fit and proper," Senator Nash said.
ADM is also trying to hose down concerns that grain grower access to storage and transport infrastructure that comes with the deal.
ADM says its committed to fair and open dealing, and plans to ramp up its infrastructure spending to $300 million.
But once again Senator Heffernan suggested the deal would hurt rather than assist farmers.
He also wanted assurances that A-D-M was committed to paying its fair share of Australian tax if the deal goes through, given recent allegations that giants like Apple and Google have been avoiding it.
"We hope we don't put the hurdles too high for you but we, also in your aspiration, we want to include a national interests benefit and make sure you pay your tax and all the rest of it," he said.
"God bless you and get on that plane and have a safe journey."
"We will pay our tax, chairman, we can assure you of that," Mr Pinner replied.
The Senate grilling was a warm-up for what might be in store for ADM as it works to convince the Foreign Investment Review board that the GrainCorp takeover passes the national interest test.
The Treasurer Wayne Swan gets the final say.
But unless there is a decision by the 12th of August when the government goes into caretaker mode, a potential Coalition Treasurer could be influenced by National Party concerns.
The US agribusiness giant Archer Daniels Midland has been forced to confront a history of alleged price-fixing and market-rigging as its seeks to win regulatory approval for its controversial takeover of GrainCorp.
Listen to my report on the ADM grilling broadcast on The World Today.
The company's grains boss Ian Pinner attempted to deflect the past accusations during occasionally hostile questioning, and has assured the committee that ADM is now a fundamentally different business.
Mr Pinner is in Australia to convince farmers and the Foreign Investment Review Board that the GrainCorp takeover will not leave them worse off.
He also has to win over politicians like Liberal senator Bill Heffernan, who has been digging into ADM's alleged history of price-rigging and corruption.
Senator Heffernan, himself a GrainCorp client, confronted Mr Pinner with a myriad of past accusations and proven incidents that go to concerns about ADM's ethics and market power.
"Archer Daniel Midland settles price fixing charges for $400 million; Deal in food enhancer fixing suite on hold; Court reinstates seed alleging Archer Daniels suite in the market rigged; Archer
Daniels accused of espionage; Big citrus acid buyers sue Archer Daniels; Former ADM official indicted for fraud; and so it goes on."
Mr Pinner told Senator Heffernan that those episodes would not be repeated.
"Senator, there have been incidents in the past which ADM is not proud of, that is absolutely clear, but I would say that there have also been changes," he said.
"ADM is committed to not only acting in a compliant way but acting in an ethical way."
The Senator offered a warning.
"Can I just tell you that our mob here, GrainCorp, we're not into that s***," he said.
"No. And we don't want anything to do with anyone that is."
The New South Wales Nationals Senator Fiona Nash also appeared unconvinced, despite ADM's assurances that it was all history.
"Is price fixing a mistake? How do you term that as a mistake?" she asked.
"I think you're referring to an incident which was nearly 20 years ago now," Mr Pinner replied.
"Sorry, no. The timeline's not of that much interest, we're actually trying to get a sense of the company, where it's been, where it is now, in terms of fit and proper," Senator Nash said.
ADM is also trying to hose down concerns that grain grower access to storage and transport infrastructure that comes with the deal.
ADM says its committed to fair and open dealing, and plans to ramp up its infrastructure spending to $300 million.
But once again Senator Heffernan suggested the deal would hurt rather than assist farmers.
He also wanted assurances that A-D-M was committed to paying its fair share of Australian tax if the deal goes through, given recent allegations that giants like Apple and Google have been avoiding it.
"We hope we don't put the hurdles too high for you but we, also in your aspiration, we want to include a national interests benefit and make sure you pay your tax and all the rest of it," he said.
"God bless you and get on that plane and have a safe journey."
"We will pay our tax, chairman, we can assure you of that," Mr Pinner replied.
The Senate grilling was a warm-up for what might be in store for ADM as it works to convince the Foreign Investment Review board that the GrainCorp takeover passes the national interest test.
The Treasurer Wayne Swan gets the final say.
But unless there is a decision by the 12th of August when the government goes into caretaker mode, a potential Coalition Treasurer could be influenced by National Party concerns.
Tuesday, June 18, 2013
RBA says dollar demise key to rebalancing economy in transition
The Reserve Bank has signalled it is counting on further falls in the high Australian dollar to help rebalance the economy.
In the minutes from its June board meeting, the RBA said recent cuts to the cash rate had helped tame the currency which was stubbornly high above parity until recently.
Noting the impact of the surprise cash rate cut in May to 2.75 per cent, the RBA said, "the exchange rate had also depreciated noticeably, though it remains at a high level considering the decline in export prices" over the past year.
"It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help to foster a rebalancing of the economy," the minutes concluded.
The decline in the Australian dollar began on budget night last month as the Treasurer began his speech, and it has since fallen by as much as 8 per cent.
This morning, the Australian dollar was trading at 95.26 US cents at 11:38am (AEST), and had eased by around 0.3 of a cent after the release of the RBA's minutes.
While recent cash rate cuts and the outlook for slower economic growth have played a role in the dollar's demise, better fortunes for the US economy and a resurgent greenback has been the principal driver.
The minutes released today provide one of the more extensive snapshots on the RBA's view on the direction of the dollar after 2 percentage points in rate cuts since late 2011.
National Australia Bank currency strategist Ray Attrill expects the dollar's decline to continue.
"It is not going to return to the levels we saw at the beginning of the year and for much of last year, and that inherently makes the Australian dollar a less attractive asset for global investors," he said.
"The risks associated with owning a currency like the Australian dollar, in terms of the risk that you're going to get completely blown out of the water by very short-term movements in the currency, is what I think underlies a lot of the reversal of the Australian dollar's fortunes."
Room to move
The RBA's June board meeting left the cash rate steady at 2.75 per cent, but added that the outlook for steady inflation "might provide some scope for further easing".
But TD Securities Asia-Pacific Strategist Alvin Pintoh believes there is no clear indication the RBA is planning a rate cut in July.
"The global backdrop has changed very little since the June RBA meeting, and the tone of the domestic data have been mixed," he wrote in a note.
"A rate cut can't be ruled out, but there is little here to dissuade us from expecting the RBA to stand pat again next month."
The board also "observed that the effects of low interest rates had been evident in a range of housing market indicators", with building and loan approvals higher.
At the same time, the RBA says labour market conditions remain "somewhat subdued", with monthly employment data continuing to be "volatile".
The minutes released today pre-date official data released after the meeting which showed the Australian economy grew by a slower than expected annualised rate of 2.5 per cent in the March quarter.
The RBA also pointed to uncertainty on global markets because of speculation that the US Federal Reserve was about to taper its quantitative easing program.
In the minutes from its June board meeting, the RBA said recent cuts to the cash rate had helped tame the currency which was stubbornly high above parity until recently.
Noting the impact of the surprise cash rate cut in May to 2.75 per cent, the RBA said, "the exchange rate had also depreciated noticeably, though it remains at a high level considering the decline in export prices" over the past year.
"It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help to foster a rebalancing of the economy," the minutes concluded.
The decline in the Australian dollar began on budget night last month as the Treasurer began his speech, and it has since fallen by as much as 8 per cent.
This morning, the Australian dollar was trading at 95.26 US cents at 11:38am (AEST), and had eased by around 0.3 of a cent after the release of the RBA's minutes.
While recent cash rate cuts and the outlook for slower economic growth have played a role in the dollar's demise, better fortunes for the US economy and a resurgent greenback has been the principal driver.
The minutes released today provide one of the more extensive snapshots on the RBA's view on the direction of the dollar after 2 percentage points in rate cuts since late 2011.
National Australia Bank currency strategist Ray Attrill expects the dollar's decline to continue.
"It is not going to return to the levels we saw at the beginning of the year and for much of last year, and that inherently makes the Australian dollar a less attractive asset for global investors," he said.
"The risks associated with owning a currency like the Australian dollar, in terms of the risk that you're going to get completely blown out of the water by very short-term movements in the currency, is what I think underlies a lot of the reversal of the Australian dollar's fortunes."
Room to move
The RBA's June board meeting left the cash rate steady at 2.75 per cent, but added that the outlook for steady inflation "might provide some scope for further easing".
But TD Securities Asia-Pacific Strategist Alvin Pintoh believes there is no clear indication the RBA is planning a rate cut in July.
"The global backdrop has changed very little since the June RBA meeting, and the tone of the domestic data have been mixed," he wrote in a note.
"A rate cut can't be ruled out, but there is little here to dissuade us from expecting the RBA to stand pat again next month."
The board also "observed that the effects of low interest rates had been evident in a range of housing market indicators", with building and loan approvals higher.
At the same time, the RBA says labour market conditions remain "somewhat subdued", with monthly employment data continuing to be "volatile".
The minutes released today pre-date official data released after the meeting which showed the Australian economy grew by a slower than expected annualised rate of 2.5 per cent in the March quarter.
The RBA also pointed to uncertainty on global markets because of speculation that the US Federal Reserve was about to taper its quantitative easing program.
Friday, June 14, 2013
News Corp shares bounce as Murdoch-Deng split clears decks before company split
News Corporation shares trading in New York ended 2.4 per cent higher in the wake of news that Rupert Murdoch and Wendi Deng were divorcing.
Listen to my take from this morning's edition of AM.
Investors appear more confident that the bad news has cleared before the official company split between publishing and entertainment arms.
Also, confirmation - if needed - that Mr Murdoch had an ironclad pre-nuptial agreement with Ms Deng soothed fears of a messy divorce.
Quote of the day goes to the celebrity divorce attorney Raoul Felder who told Bloomberg:
"If he (Mr Murdoch) doesn't have a prenup, he would have to see a psychiatrist and not a lawyer."
Friday, May 31, 2013
Need for Internet speed heralds zettabyte era
By Business editor Peter Ryan
A leading technology firm forecasts that the need for internet speed will increase at a mind-boggling pace over the next three years.
"Our report is showing that in the year 2017, in four years time, the internet and IP traffic will be three times larger than it is today," forecast Ken Boal, Cisco's managing director for Australia and New Zealand.
Listen to the interview with Ken Boal broadcast on this morning's AM.
"If you summed all of the traffic on the internet from 1984 through to the end of last year, 2012, the traffic in 2017 will actually surpass that in one year alone, so huge growth across the world and it is going to be very large in Australia as well. We'll still be twice as large as what it is in Australia today - so huge growth."
Cisco is expecting 1.4 zettabytes of internet traffic by 2017 and, for those who have never heard of a zettabyte, it is an enormous amount of data.
"A zettabyte is the equivalent of a trillion gigabytes. It's a very, very large number with a lot of zeros - 21 zeros - but what that means in reality is if you digitised all of the movies ever made, that could cross the internet every four minutes around the world. So it's an awful lot of data and huge volumes," Mr Boal explained.
"Obviously it's going to have implications for government, business and everyone concerned with the internet."
Cisco's report forecasts that much of the growth will not come from direct human usage, but from automated business processes that are increasingly using the internet.
"It's predominately been, historically, PCs and computers, phones and those things," Mr Boal observed.
"Now we're seeing the rise of the machines - video surveillance cameras, digital health monitors, asset tracking for business, public transport vehicles and cars will also be connected, so in Australia that will sum to about 145 million devices. So considering we'll have roughly 23, 24 million people, that's a lot of extra devices per every user connected."
Outside increasing business use of the internet, Ken Boal says households are increasing accessing their entertainment via the web.
"Three-quarters of the traffic will be video, and we're connecting things like TVs, so high definition TVs, internet video will be absolutely a huge contributor to the growth," he said.
"11 per cent of the internet use in Australia in 2017 will be through internet connected TVs, and that's got new opportunities for providers, content players and so on."
Mr Boal says the increase in internet usage will necessitate a massive increase in access speeds.
"If we look at the global trends, the average worldwide speed will be 39 megabits per second for broadband residential access in 2017. At the moment Australia is around about 9 megabits per second on average, so clearly there's a significant platform upgrade required," he said.
"You know, we're agnostic on the access technology but clearly significant increase in capacity is required and that's what this report is highlighting."
Thursday, May 30, 2013
OECD warns about Australia's post-boom outlook
By Business editor Peter Ryan
The future growth of Australia's economy has been questioned in a surprisingly frank update from the Organisation for Economic Cooperation and Development (OECD).
It is an unusually direct warning that the OECD makes deep inside its World Economic Outlook, on page 103, and it says Australia's economic growth will temporarily slow to 2.5 per cent this year before picking up to 3.5 per cent in 2014.
However, the report cautions that the anticipated weakening in mining investment, which the Reserve Bank has been warning about for the past year, will only be gradually offset by mining exports and the strengthening of the non-mining sector.
The OECD also says the persistently high Australian dollar and a lack of confidence are holding back new drivers of growth.
Here's my analysis from this morning's AM.
Read the OECD's World Economic Outlook here.
Even so, Australia remains a pretty bright spot in a world of gloom - ranked 16th out of 59 countries, down one notch.
Professor Stephen Martin, chief executive of Committee for Economic Development of Australia and a former Labor MP, says local businesses need to thinking beyond mining and how to cut the cost of doing business in Australia.
"These are genuine issues which the business community has to confront," he said.
"It's about innovation in management practices, it's about looking at some of the labour flexibility questions again but, look, we are a high wage country but we're a very productive country, and we could do better and I think we'll see some of the changes on how, for example, labour productivity is measured when the effects of the mining investment actually can be measured and come on line."
The OECD's report card has a tick for the Reserve Bank's economic management, which has seen the cash rate cut by 2 percentage points since late-2011. The OEDC says more cuts might be needed.
It says a marked slowdown in China would weigh on exports, hence the need for an accommodative monetary policy to help stimulate the non-mining sector.
On balancing the budget, the OECD says if activity worsens, fiscal policy could be relaxed - so it is not calling for a return to surplus at any cost, but sees it as a desirable aim.
The OECD also thinks that an increase to the GST would enhance efficiency.
On the political front, it thinks the uncertainties weighing on the pace of budget consolidation will probably be clarified one way or another after the September election.
Today also sees the release of the latest quarterly figures from the Australian Bureau of Statistics on business investment - economists are looking at a slight improvement after a 1.2 per cent fall in the last reading.
These figures go to both the weakness and low confidence in the manufacturing sector, and also what mining companies have been doing - paring back or reconsidering their spending plans.
The transition from the resources boom to non-mining growth could be bumpy and these figures will give an indication of how rocky that road might be.
Tuesday, May 28, 2013
Corbett warns Work Choices rollback went too far
By Business editor Peter Ryan
Reserve Bank board member Roger Corbett has warned the nation is under-taxed and labour markets are over-regulated.
Mr Corbett, who's also the chairman of Fairfax Media and a board member of the US retail giant Walmart, was very careful to say he was not advocating a return to WorkChoices.
However, he argued that a sensible balance needed to be achieved and, at the moment, employment costs are eating away at foreign investment and he wants to see a middle ground that respects both employer and worker rights.
Mr Corbett said cost overruns had already seen major resource projects shelved, with Woodside's Browse project in WA a case in point, and his comments would appear to put pressure on the Coalition to take a harder line on industrial relations in the lead up to the election.
"I think this argument of whether we're going back to WorkChoices is highly emotive and clearly very political. I think, very simply, there is a sensible balance between labour and enterprise," he argued.
"It is my judgement and view ... that has moved under the current Government a little far, and I think that needs to be corrected."
However, while Mr Corbett is calling for less labour market regulation, he is also calling for more taxation if Australians want to fund social schemes such as a national disability insurance scheme and more school funding.
"Very clearly, if we are to sustain the level of education, the Gonski report, if we are to sustain a disability provision, a facility across the nation, if we are to provide for health as we need to do so moving forward, if we are to provide other social structures that we need as a community, then very clearly we've got to pay for them, and it would appear that our current taxing base is not adequate for that purpose," he cautioned.
Mr Corbett also had a warning about the ABC in his role as Fairfax's chairman.
Like other commercial media organisations, Mr Corbett is worried about the growth and influence of public broadcasters such as the ABC.
He said restrictions needed to be placed on the ABC's taxpayer funded activities because, at the moment, commercial companies like Fairfax are finding it difficult to compete in the new digital era where traditional media models are hurting badly.
Friday, May 17, 2013
Miners not giant ATM for government to plunder, Gina Rinehart warns
By Business editor Peter Ryan
Australia's richest person, mining magnate Gina Rinehart, says the Government has an unhealthy reliance on the resources sector and has been treating it like an ATM.
In a speech delivered to an Australian Mines and Metals Association conference in Melbourne today, Mrs Rinehart says the nation's debt levels are unsustainable.
She says that without reform, Australia risks following the eurozone into financial and social chaos.
Here's my analysis from this morning's edition of AM.
"What few seem to properly understand - even people in government - is that miners and other resources industries aren't just ATMs for everyone else to draw from without that money first having to be earned and, before that, giant investments are made," she said in a video recorded for the conference.
"It is incredible that after the last six years of record commodity boom times, we now find the once lucky country in record debt, with the federal budget tipped to deliver yet another deficit, to further increase our record debt.
"This debt is simply unsustainable, especially when Australia now faces an increasing elderly population with increasing needs, and fewer workers to pay for it all. This lucky country has got to start thinking, and acting.
"What few seem to properly understand - even people in government - is that miners and other resources industries aren't just ATMs for everyone else to draw from without that money first having to be earned and, before that, giant investments are made."
In a call to arms, Mrs Rinehart again describes Australia's economy as "too expensive and cost uncompetitive", saying government red tape and regulations are damaging the nation's reputation on the world stage.
Mrs Rinehart has cited Woodside Petroleum's recent decision to shelve its $40 billion gas project at James Price Point in Western Australia, and comments from the former global head of Ford, Jac Nasser, who predicted the eventual demise of the Australian car industry, as evidence that Australia was becoming am unattractive place to do business.
"No wonder major projects like Browse have been cancelled. This should make us all sit up and think," she said.
Mrs Rinehart's address, to be posted on YouTube, was highly critical of Australian governments and
the complacency of taxpayers.
However, it does not mirror earlier inflammatory remarks about African workers being prepared to be paid "less than two dollars a day" that were made in a similar recorded speech last year.
Mrs Rinehart - who is executive chairman of Hancock Prospecting - also appears to attack the complacency of both Labor and Coalition governments which have relied on taxes from the resources sector.
Wednesday, May 15, 2013
Business lobby slams Budget as lost opportunity
Business is the big loser out of last night's budget.
Without a sweetener in sight, business groups are now expected to ramp up their campaign against the government.
The Business Council of Australia, which represents Australia top one hundred companies, says it has no reason to believe the budget will return to surplus by 2016.
The BCA's chief executive Jennifer Westacott says the Budget was a lost opportunity to put the economy on a stable footing and thinks the government will continue to "muddle along".
Listen to my interview with Jennifer Westacott broadcast this morning on AM.
Australian dollar falls on Treasurer's Budget speech; slow growth forecasts renew RBA rate cut talk
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| A$ falls from from 99.73 US cents as Budget speech begins Source: Bloomberg |
Tuesday, May 14, 2013
Business lobby sink boot into unseen budget in strategic broadside
By Business editor Peter Ryan
Even though much of tonight's Budget has already been leaked, Australia's business lobby groups seem convinced Wayne Swan's cupboard will be bare.
The big players have gone on a on a major offensive against the government, describing the budget process as "chaotic".
The frustration has boiled over with the big four business lobby groups launching a carefully planned broadside against the government well before the Budget fine print is out.
The strategy by the Business Council of Australia, the Australian Industry Group, the Australian Chamber of Commerce & Industry and the Minerals Council represents a new war footing from the big end of town.
The big players normally restrict themselves to traditional lobbying tactics - issuing discussion papers, commissioning reports, sending out media statements and maintaining a constant presence in the Canberra press gallery.
Then of course there are pre-Budget submissions delivered in the weeks and months before the Budget which is accompanied by targeted briefings to journalists with influence.
That is normally the extent of the diplomatic prodding in addition to the odd diplomatic foot in the door.
The "powder is kept dry" on any criticism - or praise - until the fine print has been examined.
Not this time.
Rather than wait, the business lobby is ramping up its complaints about a lack of genuine process and consultation as concerns deepen about the credibility of the Budget.
Today's Budget will be the culmination of significant tensions about the consultation style of the Rudd and Gillard governments.
Business is still seething from the legacy of the super mining profits tax, the carbon tax and more recently the funding model for the National Disability Insurance Scheme.
The Business Council for example is worried that an increase to the Medicare levy without a cost benefit analysis could set the NDIS up to fail.
On the dollars and cents from, the business lobby knows there will be few - if any - sweeteners. A cut to the corporate tax rate seems off the table, although business remains concerned about how it will fund the recent increase to employer superannuation.
But at the very least, business groups are looking credible budget assumptions, an end to ad hoc changes and realistic plans for spending rather than timing shifts that could see spending pushed out over ten years.
Which underscores the business lobby's view about the government reputation and credibility which was damaged by the dumping of the surplus commitment a week before Christmas last year.
In the leadup to the dumping of the surplus commitment, business groups have warned that while they wanted to see a surplus, it didn't have to be immediate and shouldn't come at any cost.
Once again, there is unusual unity from the big four business groups.
But there's also solidarity from the government today, with senior ministers showing there's no love lost, describing business leaders as self-interested whingers and moaners who have ignored the government's reforms.
It's hard to find an olive branch amid the spin from both sides.
But it's clear that any concession to business in today's Budget papers seems unlikely.
Tuesday, May 7, 2013
Thursday, April 25, 2013
Tweet revenge: ASIC warns on social media risks; calls for old fashioned commonsense and due diligence
By Business editor Peter Ryan
As US authorities investigate the source of a fake Twitter message that sparked a share slip on Wall Street, the Australian market regulator is warning that social media cannot be trusted.
The chairman of the Australian Securities and Investments Commission, Greg Medcraft, is in New York for conference, and says yesterday's brief but sharp dip on Wall Street due to a fake news tweet this week's brief, sharp dip on Wall Street due to a fake news tweet should be a wake up call to investors everywhere.
Listen to my interview with ASIC chairman Greg Medcraft.
"New media, particularly Twitter, is not necessarily the source of truth," he cautioned.
"The other thing its highlighted is good old common sense and scepticism that basically you've got to do your due diligence."
Reports from the US have suggested that some of the market response to the fake tweet was generated by automated trading algorithms that monitor Twitter and other social media sources and trade based on that information.
Greg Medcraft says automated trading is the "new normal", including in Australia.
However, he warned that algorithms that scan news headlines and social media for key words need to have better filters to ensure that humans - and not emotionless machines - decide when to buy or sell.
"I think what is important is to make sure that if your algos [algorithms] have that type of element built into them that you're constantly reviewing it to make sure that doesn't come out with a potentially adverse outcome," he said.
"But also, that you've got the overall protection, which we've now required, that you do have a filter that allows for the algo to not operate where there perhaps is an extreme price movement that might be occurring for an unexplained reason."
In an Australian context, Mr Medcraft says the false takeover bid for David Jones provides a good example of why traders need a high level of scepticism when confronted with unverified breaking news or rumours.
"You really do need to focus on the accuracy of information being provided to the market and you need to think about what action you take in relation to perhaps where the market is trading on misinformed information," he said.
Mr Medcraft says companies also have a role to play by asking for a suspension of trade in their stock when they believe trading is being driven by misinformation.
Wednesday, April 24, 2013
Labor doesn't understand us, business leaders lament. Company directors say relationship is at new low.
By Business editor Peter Ryan
The Government's already strained relationship with the business community has hit a new low according to a survey of company directors.
The Australian Institute of Company Directors polled more than 500 business leaders and only 8 per cent said they thought the Federal Government understood business.
The Institute's "Director Sentiment Index" points to the mining tax, the carbon tax and the National Broadband Network as examples where companies say poor process and a lack of consultation damaged the business relationship.
"In the old days perhaps - and this might be looking through rose coloured glasses - but we used to have say a green paper which said, 'here's an issue which needs to be discussed and thought about', and then you'd go to a white paper and you'd say well look, 'here's some options how you can deal with this issue', and then you'd go to legislation and then you'd have in-detail legislation and discussions about that, and you end up with a pretty good result," said the Institute's chief executive John Colvin.
"I guess the concern of the directors is that that type of good process hasn't been applied to so many issues - including legislation coming unannounced - without proper analysis of whether this is good legislation, whether it's good regulation, and then surprises."
Mr Colvin says the survey outcome reflects the business reaction Labor Government since it came to power in 2007.
"The figures speak for themselves, 80 per cent of the directors think that our Government doesn't understand business," he said.
"I think that it's really the cumulative effect of the way in which directors and business have been treated over, you know, the long period of time.
The Opposition comes out better in the survey, but still only half of those surveyed believe the Coalition has a good understanding of business needs.
John Colvin says that should send a message to both major parties to consult more widely with business before announcing policies.
"It's a warning that business and the director communities can't be taken for granted, can't have laws just changed willy-nilly, can't have sectional interests running policy, and must have really good processes and really good policy discussions before moving in big directions. It's that synergy which is so critical," he concluded.
Wall Street dives on false tweet about White House explosions; shows markets vulnerability to social media
By Business editor Peter Ryan
Markets live and die on rumours - as the interchangeable saying goes "buy on the rumour, sell on the fact".
But what happened on Wall Street around three hours before the close of trade (3.08am Sydney time) shows how sensitive markets are to rumours that now abound on social media outlets such as Twitter.
A report on a Twitter account managed by The Associated Press wire service said there had been explosions at the White House and that President Obama had been injured.
Investors, clearly sensitive after last week's bombings in Boston, appear to have sold on an unverified report from a reputable source that terrorism had struck again.
The brief panic from the report - immediately denied by the AP - erased around US$130 billion from the Standard & Poor's 500 Index. Market movers like Apple, Exxon-Mobil and Microsoft were caught up in the selling.
However, Wall Street's broad market indicator quickly recovered to end the day more than one percent higher.
Speculation is focusing on computerised trading as a key cause, where "stop loss" orders can be triggered when a certain price threshold is hit.
However, in the world of expanding social media, there are concerns that algorithmic trading programs can be programmed to read news headlines and tweets where key words can spark alerts.
So it's possible that an algorithm - rather than a human - may be responsible for this morning's selloff when the fake AP tweet was retweeted around the world.
The snowball effect - where unverified reports and rumours are often aired without normal checks and balances - shows the world's exposure to social media.
Today's brief plunge is a reminder of the "flash crash" in May 2010 where rolling stop loss orders - rather than a fat-fingered human trader - saw the Dow plunge 1,000 points in a few minutes.
The brave new world of social media will have many investors yearning for the days when human emotion - rather than computers - made decisions that can change lives and manage minds.
Thursday, April 18, 2013
Auditor warns China debt crisis could dwarf GFC
By Business editor Peter Ryan
There are warnings that China could face a financial crisis bigger than the United States or Europe unless it gets its debt under control.
One of China's top auditors has revealed his accounting firm has stopped approving requests from local governments to increase their debt exposures.
Listen to my report from this morning's edition of AM.
Concerns about a potential meltdown come as China's stellar economic growth begins to slow.
It is pretty hard to get an accurate reading on China's total debt levels, much of which is held by local authorities, but estimates are that China's provinces, cities, regions and villages owe a collective $US3 trillion.
All of this stems back to 2008, when the collapse of Lehman Brothers triggered the global financial crisis and China needed to protect its growth and status and, as a result, pumped more than $US500 billion of stimulus into its economy and created a massive credit boom.
Now a senior Chinese auditor who is the head of China's accounting association, Zhang Kew Hoc, has told the Financial Times of London that he has stopped signing off on risky bond sales by local governments.
Michael Pettis, a professor of finance at Peking University, says the ramped up caution shows China's debt party might soon be over.
"The problem is that so much of this investment is going into empty real estate, empty highways, empty airports, unnecessary manufacturing capacity, etc, that we're in the position, and have been for many years, where debt is rising more quickly than the ability to service that debt," he warned.
"So that's the conundrum they face - if you want to bring that problem under control, you have to bring investment down, and if you bring investment down growth rates will slow very, very sharply."
The International Monetary Fund has also been warning about China's debt levels, and investment banks and ratings agencies have been on the front foot after failing to read the initial signs leading up to the GFC.
There is a very big focus on China's real estate sector, which accounts for 13 per cent of the country's GDP.
There has already there has been a sharp decline in values but, unless Chinese authorities intervene to stop a real estate bubble, some economists are quite worried that there could be much more than a correction but a crash that could rival the US one, which of course almost brought down the US economy back in 2008.
There are warnings that China could face a financial crisis bigger than the United States or Europe unless it gets its debt under control.
One of China's top auditors has revealed his accounting firm has stopped approving requests from local governments to increase their debt exposures.
Listen to my report from this morning's edition of AM.
Concerns about a potential meltdown come as China's stellar economic growth begins to slow.
It is pretty hard to get an accurate reading on China's total debt levels, much of which is held by local authorities, but estimates are that China's provinces, cities, regions and villages owe a collective $US3 trillion.
All of this stems back to 2008, when the collapse of Lehman Brothers triggered the global financial crisis and China needed to protect its growth and status and, as a result, pumped more than $US500 billion of stimulus into its economy and created a massive credit boom.
Now a senior Chinese auditor who is the head of China's accounting association, Zhang Kew Hoc, has told the Financial Times of London that he has stopped signing off on risky bond sales by local governments.
Michael Pettis, a professor of finance at Peking University, says the ramped up caution shows China's debt party might soon be over.
"The problem is that so much of this investment is going into empty real estate, empty highways, empty airports, unnecessary manufacturing capacity, etc, that we're in the position, and have been for many years, where debt is rising more quickly than the ability to service that debt," he warned.
"So that's the conundrum they face - if you want to bring that problem under control, you have to bring investment down, and if you bring investment down growth rates will slow very, very sharply."
The International Monetary Fund has also been warning about China's debt levels, and investment banks and ratings agencies have been on the front foot after failing to read the initial signs leading up to the GFC.
There is a very big focus on China's real estate sector, which accounts for 13 per cent of the country's GDP.
There has already there has been a sharp decline in values but, unless Chinese authorities intervene to stop a real estate bubble, some economists are quite worried that there could be much more than a correction but a crash that could rival the US one, which of course almost brought down the US economy back in 2008.
Wednesday, April 17, 2013
Europe carbon price plunges to record low; adds heat to Australia's $23tax
By Business editor Peter Ryan and staff
The price of carbon in Europe has plunged after the European Parliament rejected an emergency plan that would have forced companies to pay more for polluting.
European carbon permits fell as much as 45 per cent to as little as 2.63 euros ($3.34) a tonne, and German power prices for next year fell to their lowest level since 2007.
The slump resonates here given that Australia has a fixed carbon price of $23 a tonne until moving to a floating market price linked to the European scheme in 2015.
Listen to my report from the morning's edition of AM.
The unprecedented slump has raised debate about whether emissions trading schemes are the best way to handle climate change or to make carbon polluters pay.
The problem for the EU scheme is that the eurozone debt crisis and slowing economic growth has meant less industrial output - that means less pollution and, as a result, companies have been buying fewer carbon permits and the price has dived from highs of as much as 31 euros a tonne in early 2006.
Today's proposal to reduce the short term supply of carbon permits as a way of pushing up the price came from France, but was rejected 334 to 315 with 63 abstentions by the EU Parliament.
"We now expect waves of speculative selling, followed by industrials also liquidating their surpluses," Konrad Hanschmidt, an analyst at Bloomberg New Energy Finance in London, told Bloomberg News.
"There is still a theoretical chance that the measure may pass, but that is not looking at all likely."
One man who voted in favour of the proposal is Chris Davies, a Liberal Democrat from Britain, who says it is a dark day for the environment.
"This is a blow against all who want to see Europe leading in the fight against climate change, and it also represents us turning our back on our own industrial future because most of the big engineering companies recognise that we need to develop low carbon technologies," he argued.
"In order to do that we have to put a price on carbon, create the right incentive. If there's no price, there's no incentive, we're not going to develop these new technologies. This decision today is really very bad news for our future."
Friday, April 12, 2013
Woodside backdown caps rocky week for Australian economy
By Business editor Peter Ryan
This morning's announcement from Woodside shelving the Browse project in north-western Australia caps a rocky week for the Australian economy.
Resource projects aren't the only worry. There's a prediction that the demise of the Australian car industry is inevitable - but more on that later.
The combination of the high Australian dollar and the cost of doing business in Australia has been taking a toll for some time, especially with the dollar now back over 105 US cents.
Listen to my analysis from this morning's edition of AM.
Read Woodside's announcement to the Australian Stock Exchange
But simple economics and basic housekeeping rules are at work here for the resource giants - especially when it comes to multi-billion dollar projects like Browse.
And Woodside isn't the only company running a ruler over massive cost versus returns.
Just last year BHP Billiton shelved its much hyped Olympic Dam project in South Australia, citing the cost of doing business here in addition to the Australian dollar.
And Woodside's expected decision fits in with predictions that the investment phase of the resources boom will peak earlier than expected - that's something the Reserve Bank has been saying for the past year as it manages expectations about the long term life of the boom.
Woodside is one headline today. But other industries - such as the car manufacturing sector - are also putting the government on notice.
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Jac Nasser, currently the chairman of BHP Billiton and the former boss of Ford, has ramped up the warnings.
Speaking in Melbourne yesterday, Mr Nasser said all businesses including miners are wary about the cost of doing business in Australia, industrial relations and the thorny issue of tax and how much they say they're already paying.
But on the future of the local car manufacturing industry, Mr Nasser is quite pessimistic and he believes it's inevitable because of the factors, in particular the high dollar, that the local industry currently Ford, Holden, Toyota will eventually shut down.
"As soon as you have a reduction in the scale of domestic manufacturing, let's assume one of the three decide to exit Australia in terms of manufacturing, then you end up potentially with a subscale supplier infrastructure. And once that happens, I think it's a domino effect," Mr Nasser said.
"It would be a very sad day for Australia but unfortunately it looks like it could be inevitable."
But the latest unsettling news about resources amounts to a reality check.
It comes after Australia's official jobless rate hit 5.6 per cent after more than 30,000 jobs disappeared in March after expectations had been for a steady result.
Thursday, April 11, 2013
Jobless rate spikes to 5.6 per cent
By Business editor Peter Ryan
Australia's unemployment rate has jumped to 5.6 per cent catching some economists off-guard.
According to the Bureau of Statistics, the number of people with jobs fell by more than 36,000.
Listen to my report from The World Today.
The result has added to concerns that the economy is weakening in some sectors and keeps the prospect of another interest rate cut on the agenda.
The outcome for March is a significant snap back or adjustment after the February result which had 71,500 new jobs which has been revised upwards to 74,000.
But this time around it's all about payback. A jobless rate of 5.6 per cent is a three year high last seen in mid-2009 at the height of the global financial crisis.
Overall jobs are down by 36,100 and of that 7,400 full-time positions have disappeared.
The participation rate has fallen to 65.1 per cent which is often a sign that some people have actually given up the hunt for work.
JP Morgan's chief economist Stephen Walters says the result counters signs of a pickup in non mining parts of the economy
"Just this week alone we've now got a much higher unemployment rate, we've had business confident deteriorate this week, certain business conditions were a lot weaker particularly the employment measures and we also had consumer confidence slump yesterday and to top all that off we've now got the currency at post float high in terms of, in trade weighted terms so a pretty sobering message today," Mr Walters told The World Today.
Australia's unemployment rate has jumped to 5.6 per cent catching some economists off-guard.
According to the Bureau of Statistics, the number of people with jobs fell by more than 36,000.
Listen to my report from The World Today.
The result has added to concerns that the economy is weakening in some sectors and keeps the prospect of another interest rate cut on the agenda.
The outcome for March is a significant snap back or adjustment after the February result which had 71,500 new jobs which has been revised upwards to 74,000.
But this time around it's all about payback. A jobless rate of 5.6 per cent is a three year high last seen in mid-2009 at the height of the global financial crisis.
Overall jobs are down by 36,100 and of that 7,400 full-time positions have disappeared.
The participation rate has fallen to 65.1 per cent which is often a sign that some people have actually given up the hunt for work.
JP Morgan's chief economist Stephen Walters says the result counters signs of a pickup in non mining parts of the economy
"Just this week alone we've now got a much higher unemployment rate, we've had business confident deteriorate this week, certain business conditions were a lot weaker particularly the employment measures and we also had consumer confidence slump yesterday and to top all that off we've now got the currency at post float high in terms of, in trade weighted terms so a pretty sobering message today," Mr Walters told The World Today.
Wednesday, April 10, 2013
One pleasant surprise from the financial crisis as IMF ponders missing inflation mystery
By Business editor Peter Ryan
The International Monetary Fund has signalled that inflation appears to be under control despite the trillions of dollars that have been pumped into the global economy in recent years.
For those who might glaze over at talk of inflation and quantitative easing, do not switch off now, the International Monetary Fund wants you to stay tuned.
Listen to my report from The World Today.
"We understand that these topics can sometimes be a little bit dry so we've tried to construct this one as a bit of a mystery story and so we've made a reference to Sherlock Homes and one of his famous cases about the dog that didn't bark," said the IMF's senior economist John Simon.
That dog is inflation, and recently Fido has been in his kennel despite trillions of dollars of quantitative easing - or metaphorical money printing - by central banks around the world.
The IMF and most economists around the world would normally be bracing for outbreak of inflation.
Mr Simon says, in terms of conventional monetary policy, it is a thriller.
"The basic mystery is that during the Great Recession we've seen very large increases of unemployment and in the past when you've had something like that inflation has fallen quite a lot, really there's been very little movement in inflation and the question is why was this?" he asked.
Speaking in Washington at the release of the IMF's World Economic Outlook, Mr Simon said the credibility and independence of central banks meant inflation targeting was working.
"There's been an evolution in central banking such that now it's very possible that we really are reaping the benefits of the low and stable inflation targets the central banks have set," he said.
"So one of the consequences is that we think there are actually substantially cyclical unemployment gaps, which means that there is actually the scope for falls in unemployment as the recovery progresses without there being corresponding bursts in inflation."
The head of investment research at Perpetual, Matt Sherwood, says the IMF's confidence that inflation will remain low is well placed.
"It really has been probably the great surprise in the post-GFC world that, despite the fact the growth's at trend and there's been record stimulus in the form of large fiscal deficits and near zero interest rates, I mean inflation does remain very well anchored," he observed.
"In essence I think the IMF's just really reflecting the data which has been coming out, which continues to show that despite all this stimulus there's very little inflation in the global economy at all."
Mr Sherwood says economists have generally been pleasantly surprised by the tame inflation readings in the face of such low interest rates and large money printing programs.
"I think it's been a great surprise to all economists, because given the amount of stimulus in the economy at present one would normally associate that of course with higher inflation," he added.
The one exception of course is that Japan is using massive money printing to push inflation higher, which is perhaps another challenge for the IMF.
There is also the future of inflation targeting by central banks. The IMF's John Simon says perhaps it is time to consider it should be the principal tool in massaging economies.
"There is a case to think about whether inflation targets as they currently constituted are the best way of maximising the welfare of an economy," he said.
"This is not to say there's any predetermined answer here, it's just saying that you can see, for example in the UK, they've been thinking you know is this inflation targeting regime we have and the precise way we've implemented it the best way to go about maximising economic wealth, happiness in our economy."
Inflation is also on the mind of the Reserve Bank of Australia, and for good reasons.
RBA assistant governor Christopher Kent repeated that low inflation provided scope for another cut to the cash rate.
"With inflation remaining recently well contained, and certainly a bit below the mid-point of the target and expected at the current assessment to remain at target over the next little while, with that in place the board's made it clear there's scope to ease monetary policy further should that be necessary," he said.
While another rate cut is increasingly unlikely because of stronger economic news, the latest consumer confidence reading from Westpac shows Australians are less optimistic because of softer share markets and concerns about the eurozone after the near banking collapse in Cyprus.
The International Monetary Fund has signalled that inflation appears to be under control despite the trillions of dollars that have been pumped into the global economy in recent years.
For those who might glaze over at talk of inflation and quantitative easing, do not switch off now, the International Monetary Fund wants you to stay tuned.
Listen to my report from The World Today.
"We understand that these topics can sometimes be a little bit dry so we've tried to construct this one as a bit of a mystery story and so we've made a reference to Sherlock Homes and one of his famous cases about the dog that didn't bark," said the IMF's senior economist John Simon.
That dog is inflation, and recently Fido has been in his kennel despite trillions of dollars of quantitative easing - or metaphorical money printing - by central banks around the world.
The IMF and most economists around the world would normally be bracing for outbreak of inflation.
Mr Simon says, in terms of conventional monetary policy, it is a thriller.
"The basic mystery is that during the Great Recession we've seen very large increases of unemployment and in the past when you've had something like that inflation has fallen quite a lot, really there's been very little movement in inflation and the question is why was this?" he asked.
Speaking in Washington at the release of the IMF's World Economic Outlook, Mr Simon said the credibility and independence of central banks meant inflation targeting was working.
"There's been an evolution in central banking such that now it's very possible that we really are reaping the benefits of the low and stable inflation targets the central banks have set," he said.
"So one of the consequences is that we think there are actually substantially cyclical unemployment gaps, which means that there is actually the scope for falls in unemployment as the recovery progresses without there being corresponding bursts in inflation."
The head of investment research at Perpetual, Matt Sherwood, says the IMF's confidence that inflation will remain low is well placed.
"It really has been probably the great surprise in the post-GFC world that, despite the fact the growth's at trend and there's been record stimulus in the form of large fiscal deficits and near zero interest rates, I mean inflation does remain very well anchored," he observed.
"In essence I think the IMF's just really reflecting the data which has been coming out, which continues to show that despite all this stimulus there's very little inflation in the global economy at all."
Mr Sherwood says economists have generally been pleasantly surprised by the tame inflation readings in the face of such low interest rates and large money printing programs.
"I think it's been a great surprise to all economists, because given the amount of stimulus in the economy at present one would normally associate that of course with higher inflation," he added.
The one exception of course is that Japan is using massive money printing to push inflation higher, which is perhaps another challenge for the IMF.
There is also the future of inflation targeting by central banks. The IMF's John Simon says perhaps it is time to consider it should be the principal tool in massaging economies.
"There is a case to think about whether inflation targets as they currently constituted are the best way of maximising the welfare of an economy," he said.
"This is not to say there's any predetermined answer here, it's just saying that you can see, for example in the UK, they've been thinking you know is this inflation targeting regime we have and the precise way we've implemented it the best way to go about maximising economic wealth, happiness in our economy."
Inflation is also on the mind of the Reserve Bank of Australia, and for good reasons.
RBA assistant governor Christopher Kent repeated that low inflation provided scope for another cut to the cash rate.
"With inflation remaining recently well contained, and certainly a bit below the mid-point of the target and expected at the current assessment to remain at target over the next little while, with that in place the board's made it clear there's scope to ease monetary policy further should that be necessary," he said.
While another rate cut is increasingly unlikely because of stronger economic news, the latest consumer confidence reading from Westpac shows Australians are less optimistic because of softer share markets and concerns about the eurozone after the near banking collapse in Cyprus.
Monday, April 8, 2013
Coalition to release NBN policy as early as tomorrow
By Business editor Peter Ryan
A leak of the Coalition broadband policy in News Limited newspapers says that document finds the final price tag of the NBN could exceed $90 billion.
The Australian Industry Group says if that figure is correct it is very alarming.
AI Group chief executive Innes Willox has told AM he wants the government to provide a genuine cost-benefit analysis of the NBN.
"There are those who argue the government has been fairly transparent on costs all the way through, but a rigorous cost benefit analysis that would be done while the rollout continues, that can do no harm, it can only instil further public confidence in the rollout," he said.
However, the Federal Government has dismissed the leaked figure, saying it is scare mongering.
"The corporate plan, audited by the Auditor-General, is produced each year, and what you're seeing in that corporate plan is $37.4 billion is the cost of building the NBN - not, as today the Coalition is claiming, $90 billion," the Communications Minister Stephen Conroy told AM.
Innes Willox says business just wants high speed broadband to be built quickly and cost-effectively, and a cost-benefit analysis would assist in ensuring the project is on track to deliver on its promises.
"We believe the NBN, or a high-speed rollout of broadband, is very important to our future, but we don't want to get the productivity argument lost in the debate about costing. We believe it's very important as a productivity enabler and driver in Australia," he said.
"We're not particularly fussed about whether it's fibre to the home or fibre to the node, as long it's a good product, rolled out expeditiously, that business can utilise as well as the broader community."
Business groups have raised concerns about a potential cost blowout on the National Broadband Network ahead of the release of the Coalition's broadband policy.
 |
| The Daily Telegraph Mon April 8, 2013 |
AI Group chief executive Innes Willox has told AM he wants the government to provide a genuine cost-benefit analysis of the NBN.
"There are those who argue the government has been fairly transparent on costs all the way through, but a rigorous cost benefit analysis that would be done while the rollout continues, that can do no harm, it can only instil further public confidence in the rollout," he said.
However, the Federal Government has dismissed the leaked figure, saying it is scare mongering.
"The corporate plan, audited by the Auditor-General, is produced each year, and what you're seeing in that corporate plan is $37.4 billion is the cost of building the NBN - not, as today the Coalition is claiming, $90 billion," the Communications Minister Stephen Conroy told AM.
Innes Willox says business just wants high speed broadband to be built quickly and cost-effectively, and a cost-benefit analysis would assist in ensuring the project is on track to deliver on its promises.
"We believe the NBN, or a high-speed rollout of broadband, is very important to our future, but we don't want to get the productivity argument lost in the debate about costing. We believe it's very important as a productivity enabler and driver in Australia," he said.
"We're not particularly fussed about whether it's fibre to the home or fibre to the node, as long it's a good product, rolled out expeditiously, that business can utilise as well as the broader community."
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