Friday, 10 April 2009

Things you find in the pub...

K took me out for dinner on Wed night (tapas, very nice especially the salt cod croquettes) and then we went to our local pub for a nightcap. The Kirribilli Hotel is a bit of a dive but it's bearable. We found ourselves a corner in the outdoor bit, but as far away from all the smokers as possible. Someone had left a pile of papers on the table near us so we went to move them, when we realised that said pile of papers was an inside report on the state of the Australian market & economy, prepared by one of the main financial services companies here (I won't name them in case I get sued!)

It was fascinating stuff, particularly the assessment of the reality of the economic outlook at the moment. Their main view seemed to be that despite the media doom mongering, actually the worst is probably over, or almost over (or to put it another way, it will be back to 'business as usual' fairly soon. A few choice quotes:

"Nice to see the green starting to sprout in more and more places - and more and more minds. So far most seem to regard this ferocious rally in equities and risky assets as bear market rally, but one or two starting to explore the possibility that it might be for real."

"Among the developed economies, the UK is arguably showing the most sprouting, with many indicators taking a turn for the better, including all the ISM type indicators and now, a number of them from the housing world."

"Though the newsflow around job losses continues to escalate and the unemployment rate is now clearly ratcheting higher, this was offset by a number of positives since the last survey period...While our expectations for the unemployment rate to gap-up rapidly in the coming months will put renewed pressure on confidence, it is worth noting the signal the confidence index is now sending. Should confidence maintain these levels it would imply the beginning of a recovery in spending or at the very least a surge in spending on the back of the stimulus. We continue to favour a gradual recovery in consumption over the remainder of the year."

On housing, "We continue to expect a second half 2009 recovery. Initially a first-home buyer phenomena the increased willingness of individuals to take on more debt is broadening to other owner-occupiers. Residential investors are now the only major category that continue to moderate their exposure to debt (probably reflecting the fact that cashed-up first home buyers are outbidding investors for a largely static housing stock.)"

I find all of this really fascinating, particularly the role that perception plays in confidence - people's job insecurity is palpable at the moment even though, in reality, Australia still relies significantly on inward migration of labour to keep its economy going. Unemployment is rising but as always, the people who are worst hit by that are the people who were already unemployed and were struggling to get into the labour market - the hard core few hundred thousand people in Australia without skills, qualifications, work experience, who have almost zero chance of getting a job without significant support. The housing market may be stagnating but again, the people who are worst hit are those who are homeless or vulnerable to homelessness - as competition for housing stock increases, those on the margins are squeezed even further out. This has been a recession for the middle classes and while I wish no-one any harm, I do find it hard to feel too much sympathy for people who see the value falling on their 4 bedroom, 2 bathroom, 2 car space detached house in the suburbs. Similarly, I've just read that 60,000 people in the City of London have lost their jobs in the last 18 months. How many of those people are now sailing round the Med or using their huge cash windfalls from the good times to do something else, and how many are genuinely facing long-term hardship. I wonder. Meanwhile millions of migrant workers in the Gulf are losing their low-paid, long-hours, menial jobs building temples to greed for rich Westerners visiting Dubai and are arriving back in their poor home countries by the planeload to a life of poverty.

But hey, the green shoots are sprouting - people will soon get back to borrowing to consume in their merry way and we'll all go back to normal.

Our economic system is built on mass exploitation of people at the bottom - always has been and looks like it always will be. What's the alternative - answers on a postcard, or at least on a blog comment please...


Will Bryson said...

I quite agree, and no I don't have the answer either. I know it doesn't involve going back to Business As Usual though.

by the way, I like the idea of people leaking secret reports to your blog via the table in the corner outside The Kirribilli Hotel. I look forward to your next scoop. :-)

CBQ said...

I think the report is too optomistic. The housung market still has a long way down to go (in the UK anyway) until it reaches "fair value", which is roughly what you could afford to buy on a mortgae of say 3x salary with a 25% deposit - it's this last bit that will scupper most people cos they've indebted themselves to the max for the flashy car and the flat screen TV


As regards the recent upturn - there is no good news driving this - it's the fact that while the news is still desperately bad, it's not quite as bad as was expected.

Any rise driven by the recent Goldamn Sachs profit announcement is built on sand too - since that "profit" derives almost entirely from cash gained via AIG (or indeed directly) from government bailouts.

Amazing that people are still buying bank stocks.

Of course I may be proved wrong but don't expect to be.