I am Leon Gettler. My job is to review and monitor the week’s news in business, finance, and economics. I bring it all to you, every week.
This is episode number fourty in our series for 2019 and today’s date is Friday November 1.
First I talk to Rod Horin, the managing director of Joseph Palmer & Sons talking about all the financial issues facing the aging population, how to manage the costs of getting the right care for an aged parent and how senior citizens should handle their retirement income when interest rates are falling.
And I’ll be talking to economist Nicholas Gruen about restoring trust in areas like auditing and law.
But first, let’s talk to Rod Horin.
In order to halt climate change, some $US50 trillion ($73 trillion) of investment will be required to decarbonise the economy. That’s according to the latest analysis by investment bank Morgan Stanley, which found five key areas will be required: renewable energy, electric vehicles (EVs), clean hydrogen, biofuels and carbon capture and storage (CCS). Unsurprisingly, it’s renewable energy that Morgan Stanley recognises as “the cornerstone of decarbonisation”. In order to do so, $US14 trillion will have to be invested by 2050 according to those same calculations, presenting a huge opportunity for those green energy companies that help power the world.
It’s official. Hong Kong has fallen into recession and is unlikely to achieve any growth this year following almost five months of anti-Government protests, the city’s financial secretary says. Preliminary estimates for third-quarter GDP shows the city is officially in recession “The blow [from the protests] to our economy is comprehensive,” Paul Chan said in a blog post, adding that a preliminary estimate for third-quarter GDP on Thursday would show two successive quarters of contraction — the technical definition of a recession. He also said it would be “extremely difficult” to achieve the government’s pre-protest forecast of 0.1% annual economic growth. Hong Kong’s tourist numbers plunged 50% in October
Third-quarter consumer price inflation met economist expectations at 0.5% for the quarter and 1.7% on an annual basis. Second-quarter CPI was 0.6% quarter-on-quarter and 1.6% on an annual basis.
Voters are more inclined to argue the Morrison government should stimulate the economy to avoid a downturn than preserve the long-promised budget surplus at all costs, according to the latest Guardian Essential Poll. The latest survey of 1,033 respondents suggests more than half the sample, 56%, would prioritise stimulating the Australian economy and delaying the surplus to help prevent a downturn over pushing the budget back into black at all costs (33%), with 12% unsure.
Reserve Bank governor Philip Lowe has effectively ruled out the possibility of cutting its official interest rates below zero and urged business to take advantage of the already historically low borrowing costs. Dr. Lowe says previously unviable big investments were now making economic sense at current historically low-interest rates “It is extraordinarily unlikely that we will see negative interest rates in Australia,” Dr. Lowe said in a prepared speech in Canberra this evening. In a question and answer session later, Dr. Lowe expanded on his distaste for negative rates, arguing they were having a “pernicious” effect on the functioning of the financial system and the pension system in Europe. The markets odds on another rate cut next week have eased significantly
The August CoreLogic Hedonic Home Value Index results show the national housing market moving out of its correction, led by Sydney and Melbourne. The national index for home values had fallen for almost two years before house values began to rise around the September quarter. National house values on track to fall by 7% in 2019, before rising by 5.4% in 2020. Apartment values are forecast to fall by 3.8% in 2019, before rising by 5.1% in 2020. The housing market improvement has been driven by some easing of credit standards, alongside the Reserve Bank of Australia reducing the cash rate. The RBA has reduced the cash rate by 75 basis points so far this year to 0.75% and a further 25-basis point reduction is expected for early 2020.
An Australian government program aimed at helping first-time homebuyers cut off support at a little more than half the value of an average property in Sydney where the real estate market has been booming. The First Home Loan Deposit Scheme will guarantee eligible buyers purchasing a property with a deposit of as little as 5%. The program’s price cap for homes in Sydney is A$700,000 ($478,000), according to details announced by the Treasury on Sunday That contrasts with a median property value of A$1.2 million for the city, where a typical house costs A$1.4 million, according to CoreLogic, a real-estate data provider. The purchase-price thresholds under the new government program for other major cities are lower than Sydney.
The Australian Competition and Consumer Commission will face off in a world-first court battle against one of the world’s most powerful companies, accusing Google of misleading Android users about how to stop it tracking and using their location data. This was because Android users had to switch off both their “Location History” setting and a second setting called “Web and App activity” to block Google from collecting location data. ACCC chair Rod Sims said everyone with an Android device had been misled by Google, and this was the first time in any jurisdiction that a regulator had launched a case like this against it.
Treasury warned Josh Frydenberg that bank profit margins will be “squeezed” by the Reserve Bank of Australia’s ultra-low interest rates and raised the possibility of the RBA offering cheap funding to banks to stimulate the economy. The internal government advice analysing “unconventional monetary policy” undermines Prime Minister Scott Morrison’s argument that the big banks were unjust “profiteering” by failing to fully pass on the recent three RBA cash rate cuts to 0.75 percent. Instead, in a paradox, Treasury suggested the RBA could provide cheap debt finance to banks either by buying their bonds or via direct lending. This would compensate for the “intense pressure” on profit margins and ensure lower borrowing costs flowed through to the economy. The advice had been “protected” but was released under Freedom of Information laws. Treasury also said superannuation funds and life insurers faced pressure from ultra-low rates reducing returns on a fixed income.
Netflix Australia paid only $341,793 in tax for the 2018 calendar year despite reaping an estimated $600 million to $1 billion from local subscribers. That’s 0.06% tax. While the US-based streaming giant nearly doubled the amount of income tax it pays in Australia from $175,516 in 2017, it continues to use a corporate structure that allows a Netherlands-based subsidiary to recognise the hundreds of millions of revenue earned here. Its tax bill for 2018 amounts to about 0.06 percent of the lowest estimate of its Australian income, or 0.04 percent at the upper end. In Australia, Netflix customers are not billed by the locally incorporated company. They are instead billed by Netflix International BV, a private company based in Amsterdam, Netherlands, which is a subsidiary of the US-listed Netflix Inc.
Falling interest rates, weak loan growth, and hefty compensation costs are expected to dent the annual profits of ANZ Bank, Westpac and National Australia Bank, with the big four’s combined earnings forecast to fall to about $27 billion. With three of the four major banks set to unveil full-year earnings over the next fortnight, analysts predict weaker revenue growth and the impact of compensation payouts will take the big four’s combined profits for 2019 to about $27 billion, from $29.5 billion last year. The market is bracing for “messy” results, due to divestments and already-announced provisions for customer refunds. Another focal point for investors will be whether profit margins are being crunched by the decline in lending rates.
Scrap metal group Sims Metal Management has warned that it could slide to a loss of up to $30 million in the first half because of a collapse in ferrous scrap prices and a build-up of inventory in the United Kingdom. Sims chief executive Alistair Field said margins and volumes were ”meaningfully lower” across all of the metals recycling operating regions because of a global slowdown in car sales, manufacturing and the fall-out from trade wars. Sims warned on Monday it now expected an underlying loss on an earnings before interest and tax basis of between $20 million to $30 million for the first half of 2019-2020.
A phosphate mining company has scooped-up a $20 million “facilities management” contract at the Christmas Island detention centre for the next three years. The news comes after revelations in Senate estimates that the controversial and near-empty Christmas Island facility has cost almost $27 million since it was reopened this year. CI Resources Limited is an ASX-listed company with mining and agricultural interests on Christmas Island, a remote Australian territory in the Indian Ocean.
The drought has hit two companies.
First, fruit and vegetable giant Costa Group has been forced to raise $176 million from investors to pay down debt as it battles drought, high water prices and smaller harvests from its key horticulture crops. The company, Australia’s biggest grower and marketer of fresh fruit and vegetables, also released its fourth profit warning for the year, forecasting a 2019 calendar year net profit of $28 million. In a statement to the ASX shortly after 5 pm Monday, Costa said: “previously foreshadowed challenges facing the company have continued to crystallise”. These included the ongoing, extremely dry conditions which were now affecting the size and yield of key crops for the company; avocados, blueberries, and the late-season citrus crop.
Bega Cheese has warned that drought and weaker demand for export products will eat into its profits even more than first thought over the next 12 months. Bega said it had been hit by unprecedented competition for milk supply and weaker demand from third-party branded businesses. Bega Cheese has warned earnings could be as much as 17.4 percent weaker in 2019-20, saying market conditions were tightening. The company blamed unprecedented competitive milk supply conditions and easing demand from third party-branded business for the weaker forecast. The company said it expected earnings before interest, tax, depreciation, and amortisation to be in the range of $95 million to $105 million in 2019-20, down from $115 million in 2018-19. The 2019 result was much weaker than the $123 million to $130 million forecast by Bega at the half-year mark but in line with a downgrade issued in early August as the milk supply continued to dry up. The continuing effects of the drought have also further decreased the total Australian milk production, increasing milk competition and pushing prices higher across the industry.
There’s a new force working quietly behind the scenes in Australian politics, linked to big money, and headed by the scion of one of Australia’s wealthiest families. The Climate 200 group backed 12 candidates in the May election, donating a total of $305,000 When the Australian Electoral Commission releases figures on political donations this week, it will show sizeable contributions from a little-known group called Climate 200. It’s an initiative by Simon Holmes a Court, son of Australia’s first billionaire, and backed by Mike Cannon-Brookes, tech entrepreneur and billionaire co-founder of Atlassian. Climate 200 is avowedly “clean and green” and will support any MP who champions “strong action on climate change”. In the lead up to the 2019 federal election, Climate 200 raised a tidy sum: nearly half a million dollars. Most of the money went to independent candidates and crossbench candidates who support strong policy action to limit global warming and promote a transition to clean energy. It is part of a conscious effort to try and counter the influence of the fossil fuel lobby.
Victoria is primed for a new gold rush as the state government throws open 1500 square kilometres of land for international companies to probe for the precious metal. Authorities estimate there is still $150 billion worth of gold in the ground with only half the gold across Victoria thought to have been discovered. The new area for exploration lies in the east and north-east of Bendigo. The broader Bendigo region is estimated to hold 32 million ounces of gold, according to the geological survey of Victoria. Authorities believe the geology of the land is similar to Fosterville near Bendigo, which has a gold deposit of about 9 million ounces. The Fosterville goldmine produced about 350,000 ounces last year but is expected to yield about 600,000 ounces this year as gold mining gathers pace again in Victoria. Extremely high-grade gold discoveries deep underground in 2015 have turned Fosterville, o, into Australia’s most lucrative pure-play gold mine, with rivals like Newcrest’s Cadia mine only being more lucrative because of their copper byproducts. The gold price is currently higher than $2100 per ounce. Gold mining could provide a handy income stream for the state government after introducing a new 2.75 percent gold royalty despite angry protests from mining companies
Coles’ same-store supermarket sales rose at the slowest pace in 12 years as the retailer struggled to match the boost it enjoyed from handing out miniature plastic toys and free plastic bags a year ago. Same-store supermarket sales for the three months ending September rose just 0.1 percent after rising 2.2 percent in the June quarter and by 5.1 percent in the September quarter last year, boosted by Little Shop promotion, and the retailer’s decision to hand out free single-use plastic bags. The result was the weakest in about 48 quarters but nevertheless, beat analysts’ forecasts for a fall of between 0.9% and 1.5% and was helped by higher prices.
By way of contrast, Woolworths’ same-store Australian supermarket sales grew at a record 6.6% in the September quarter as shoppers flocked to stores for free Lion King ooshies and plant seedlings. Woolworths also enjoyed less of a bump from rising food prices, with prices rising 0.3% (after falling 1% in the year-ago period) while Coles’ food prices rose 1.4%
At the same time, Woolworths disclosed it will repay at least 5700 salaried staff between $200 million and $300 million after a review found they had been underpaid under the General Retail Industry Award for several years. Woolworths chief executive Brad Banducci revealed the massive underpayments and apologised “unreservedly”, saying the retailer had let the staff down. The underpayments affect about 5700 salaried staff, including store managers and category managers in Woolworths supermarkets and Metro stores.
A Melbourne man who laundered $4.6 million through a bogus meat exporting business and whose deposits formed part of AUSTRAC’s money laundering case against Commonwealth Bank of Australia faces deportation after serving jail time. Kit Tang, 42, ordered staff at export business CC&B International to carry bags of cash – as much as $530,000 at a time – down the street to a CBA branch in Springvale in 2015. He then funneled the money back to his bosses in Hong Kong. CC&B’s deposits at the Springvale bank branch formed part of a larger court case in which financial intelligence regulatory agency AUSTRAC alleged the CBA had breached anti-money laundering laws 53,700 times. The case settled for $700 million in June last year.
And that’s it for this week. And next week, I’ll be talking to Michael OHannesian, the CEO of Praemium, a leading provider of scalable managed accounts technology, portfolio administration and financial planning tools for the wealth management industry. And I’ll be talking to RMIT economist Jonathan Boymal about whether Australia is headed for another debt-fuelled property boom.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.