Who’s running the company?

In the recent issue of Boss Magazine the leading lights of Australia’s funds management industry were quoting as telling Australia’s CEOs how to run their companies and how these money movers would punish overseas expansion.

It’s true that Australian corporates have not been that successful when it comes to foreign expansion, and some of the fund managers made good points about CEOs expanding for the sake of expansion, but I had to wonder how many of these celebrity fund managers – for their opinions are constantly sought  in the financial press before giving the poor CEO right of reply – have ever run a Top 200 company.

It seemed to me that they are treating CEOs like school kids let loose in the lolly shop. Thje fund managers don’t want expansion or growth; they just want any loose change, usually brought about by cost-cutting, to find its way in their investors’ pockets and indirectly into their own pockets.

The takeaway from the story seemed to that Australian companies just aren’t good enough to compete overseas, especially our banks, and we shouldn’t even try. This view has been particularly evident in ANZ’s foray into Asia, Telstra’s aborted investment in the Philippines, and more recently Wesfarmers strategy to take the Bunning concept in to the UK. No mention of success stories like CSL, Computershare, Westfield, or banking maverick Macquarie Group, and one can only wonder whether Rupert Murdoch would even be running one newspaper in Adelaide if he had to deal with these vocal investors in the past.

Seems to me that its OK to inform the company you disagree with their strategy, but not threaten them. If you don’t like it the just sell the shares!

That enough of a rant so lets look at real data shaping the economy.

INTEREST RATES ON HOLD

Firstly those recent notes from The Reserve Bank on why the board was sitting on interest rates.

The latest statement from the RBA was interesting for its brevity but while apparently content to see the economy tick over at the slightly higher rate of 3 per cent, without inflation, the bank seemed to indicate it would wait on more economic data and the conclusion of overseas developments, before revisiting its interest rate strategy. The market suggest this might happen in August, The RBA also make a pointed observation on the revival of the property market, remarking  “considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.”

CommSec economists interpreted this as follows: “returns on residential real estate have averaged 13 per cent over the past two years. But over 2011 and 2012 returns averaged 2 per cent. With housing supply set to rise, even views on high-flying real estate will need to be adjusted downwards”

JOBS: MORE CASUAL THAN PERMANENT

More employment numbers with a steady 5.7 per cent jobless number has backed up that 3 per cent GDP growth figure. Much was being made that all the job growth was in the part-time category but do you really think business is going to rush out and put more people on the full-time payroll ahead of a federal election and uncertain international events?

ALL OUT TOURISTS IN ONE BASKET

Underpinning those good GDP numbers tourism continues to boost our export of services, which rose by 1.6 per cent in April to record highs. Annual growth stands at 15-year high of 18.9 per cent. The numbers can just about be all slated home to the growth of Chinese visitors. China (including Hong Kong) went past New Zealand in March to be our largest source of tourists. Chinese tourists have doubled in the past five years to a 1.33 million annual rate. Construction of new hotels in Sydney and the appearance of a string of luxury brand outlets show that the boom is only just starting. But if the growing Chinese middle class are attracted to Australia by growing consumerism fuelled by a lower Australian dollar are we putting all our eggs in one basket just as we did during the resources boom?

SNAPSHOT ON OTHER KEY DATA

New vehicle sales fell by 1.1 per cent in seasonally adjusted terms in May but it wasn’t enough to stop the annual figures hitting a record 1,172,402. Still it shows some hesitation the car market as dbdata highlighted recently.

Discount airfares fell by 3.2 per cent over the year to June, which CommSec sees as a win for competition but dbdata sees as a fallout from the lower Australia dollar.

Wealth Report  The Reserve Bank released a report: “Household Wealth In Australia”. The report found that the average Australian household had total wealth of around $740,000 in 2014. The good news was it was growing from the bottom up.

Steady prices The RBA found that retailers have been actively cutting costs rather than putting up prices in response to stronger competition.

So the takeaway was more Australians were employed: they could use their wages to buy a car, or a cheap airfare, and if they just spent their cash at the supermarket they could expect that prices weren’t going up.

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