Max Newton, “We have seen the future … and it is New Zealand,” The Australian, July 18, 1989, p. 17.
Fear and loathing of the Australian economy, the Australian financial markets, the dollar, the Australian Government and the Australian Reserve Bank have now reached such a peak worldwide that I am almost forced to conclude that Australia has to be rated a “buy”.
The “consensus” is so unanimously negative on Australia that, like any good contrarian, I am beginning to think maybe things can’t get worse.
Perhaps I have not reckoned sufficiently with the sensational ability of Australian government officials and politicians to get things wrong, Murphy’s Law is certainly alive and well in Canberra.
Australians and foreigners seem to agree on one thing — Australia is almost down to Third World status.
Perhaps the country can soon expect a visit from President George Bush, who will offer “technical help” but “no money” to help Australia rejoin the West.
But surely the global and local disgust with Australia is becoming just a tad too much — belting the Aussie is so popular it has to be on the way out.
The real problem from the foreigner’s viewpoint appears to be that the dollar won’t fall over and die, as all the world wants and expects it to do — thus allowing major bargain hunting in the Australian stock, bond and property markets by predatory capitalists with cash.
How good are the bargains supposed to be?
Is Australia going to be sold for 10 cents on the dollar like New Zealand? Many global capitalists evidently hope so.
Apart from Hong Kong, the Australian stockmarket has already performed worse in the first half of 1989 than any of the 24 stockmarkets plotted by the London Financial Times.
The Mexican Bolsa rose 77.22 per cent in the first six months of the year — Australia’s stockmarket just 1.69 per cent.
South Africa rose more than 31 per cent. Malaysia by 24.5 per cent. Even New Zealand rose 7.3 per cent. And the British stockmarket rose nearly 20 per cent. Can’t the Aussies at least outdo the Poms?
If only the dollar would turn up its toes and drop to US70 cents as it’s supposed to … anyone with cash could make heaps at Australia’s expense.
By last Friday, 90-day Banker’s Acceptances (short-term bank borrowing rates) were 17.97 per cent in Melbourne and 8.48 per cent in New York. That “spread” tells us that those with money are expecting something absolutely terrible to happen in Australia. Inflation [in Australia] is about 8 per cent, in New York about 5 per cent. Yet the difference in the cost of cash between New York and Melbourne is 9.5 per cent.
The money men are telling us they expect the dollar to drop about 6 per cent soon. Or they are expecting Australian inflation to rise to 14 per cent. Or both?
London cash is about 5 per cent more than New York cash — yet British wages are rising more than 9 per cent a year. So why does Australian cash have to be 9.5 per cent of New York cash?
It’s far too much. Certainly, there’s an “incompetence premium” built into the Australian interest rates — what you might call the “Hawkie disaster discount”.
But even Bob Hawke isn’t that hopeless.
In this week’s issue of Barons, the Dow Jones weekly financial newspaper, global money managers were surveyed. Here are comments made on Australia.
From Michael Partlett, Scotland-based chief investment officer of Chicago’s Kemper Murray-Johnstone International (US750 million under management):
“We are very light in Australia. We don’t like it for all sorts of reasons.”
“We are very dubious about a country that seems to be going increasingly into debt at a time when commodity prices had been relatively strong. And we see quite a slowdown in world economies in the period 1990-91. If commodity prices weaken, we think the Australians will find themselves in very serious problems on their current account.”
From Michael Kramer, a German whose firm, Matuschka Moser Partners, manages $US841 million out of Greenwich, Connecticut:
“Australia is on the edge of disaster. Never in my business life have I seen so many well-researched scenarios predicting recession and corporate bankruptcies, all of which have been discounted by the market.”
“The reason we have any stake in Australia is our belief that over the next six months or so, commodity prices (especially gold and silver) will stabilise. Australia is a low-cost producer of many commodities and stands to benefit. In other words, though we are bearish on the country, we are bullish on this one sector.”
(There you go again. It’s good to be a Digger mining for the OECD, but you can forget the rest of Australia.)
From Bob Burgess, who manages $US250 million in his own firm, Burgess Capital Corp, in Redwood City, California:
“We have close to 5 per cent of our money in Australia, but it has not done very well for us in the past year. The economy had grown so fast it has overheated.”
“Australian interest rates at around 18 per cent are now among the highest in the world. For all this, the stockmarket has been hit so severely we reckon it is probably one of the best buys in the world right now.”
From Barry Melton, director of Global Equity investing with London-based Country NatWest Investment Management, a group managing some $US17 billion in assets:
“We follow Australia quite closely. And this is a difficult one to call. Though we are currently ‘overweight’ (invested disproportionately heavily in Australia), we are sitting here with our fingers crossed.”
“The biggest problem is the economy and the upcoming election. On one hand, the Government is pushing interest rates up to cut off inflation; on the other, it is looking over its shoulder at the upcoming ballot and giving away sweeping tax cuts to people.”
Before these searching remarks about the Lucky Country had been published, the following report came over Telerate, the worldwide screen system read by anybody who is somebody in world money:
“Westpac, the huge Australian banking group stated stated: ‘Australia will soon see painful bankruptcies and capital losses will ripple through the economy,’ Westpac Banking Corp. economists forecast.”
“The economist predict in Westpac’s monthly Market Insights publication a shakeout that will some highly borrowed companies to collapse.”
“‘Spurred on by inflation and biases in the tax system in the past decade, some business increased their borrowing to take advantage of rising asset prices,’ Westpac says. When asset prices rise strongly, leveraged debt works to increase the borrowers equity.”
“‘This is a key reason why broad lending has grown so much faster than spending. Now that asset prices are at best standing still, financial difficulties lie ahead for companies that paid premium prices for assets,'” the economists say.
“They forecast collapse for some of those businesses but contend that the shake-out eventually should result in less reliance on foreign savings for Australia and a greater focus on productive assets.”
In the Barrons interviews, David Skinner, chief executive officer of Edinburgh-based Martin Currie, with $US4 billion under management, spoke of New Zealand:’
“We are bullish on New Zealand, a market that has had little success in recovering from post-crash lows. In some senses, New Zealand’s economy is in a truly dreadful state, but I think that the value is truly there.”
“We have heard nothing but bad news. All the little wheeler-dealers have become unstuck and are literally littering the streets. But there is value in that market — when everybody is scared absolutely rigid about it, it is not a bad time to pick up one or two things.”
“It is a pure contrarian game. We are, if you understand the Irish, quite positive in a negative way.”
I suppose you could say that if a Scottish firm sees value, a Sassenach should hop in quick.
There is one big difference between Australia and New Zealand — Australia is walking into the flames, New Zealand is coming out, albeit badly burned and covered with scar tissue.
Unemployment in New Zealand in May was 10.86 per cent of the labour force, up from 7.9 per cent in May last year. In June, Australia’s unemployment rate was 6 per cent — the lowest level in seven years.
Wage and salary rates paid in all sectors of the New Zealand economy increased an average of 4.9 per cent in the year to March, a big deceleration from an 8.1 per cent jump the year before.
From the Australian viewpoint, you could say: “We have seen the future … and it is New Zealand.”
And the present policy attitude of most international money managers appears to be one of waiting until Australia, like New Zealand, crumbles into the dust — upon which it may not “be a bad time to pick up one or two things” in a “pure contrarian game, if you understand the Irish”.
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