THE MAINSTREAM PRESS

 The Mainstream Press are picking up the themes in my Ping Pong Pang Series. Of note is one of Australia’s most eminent economic commentators, Robert Gottliebsen. Writing in the Australian (26^th October 2012), he assesses the potential impact of competitive devaluations (so-called currency wars) on Australia. His conclusion is not pretty.

It is also consistent with my blogs. Germany will finance Europe. There is no doubt about it, and they will do it using a manufacturing base which is world competitive in terms of product differentiation, but more so given the money printing undertaken by the European Central Bank. The United States similarly in respect of its manufacturing sector. For the United States, this will be given huge impetus given that a new era of cheap energy is going to concurrently drive that economy. Australia is going to be sidelined. In the short run, the Australian dollar is likely to appreciate against these currencies, and in the medium term, significantly depreciate. I don’t know exactly when dear readers, but consider using your powerful Aussie dollars whilst you can. The end of that era is bound to come. The era of volatility will replace it.

 

WITHER NOW THE AUSTRALIAN DOLLAR?

For those of you who have followed my Ping Pong Pang Series, there is a report from Goldman Sachs this week which recommends taking long Euro and short Australian dollar positions. Please remember where you read this strategy first.

If you want long Euro positions, you can invest your dollars in Millhouse, Inc. PLC, listed on the Frankfurt Stock Exchange. If Goldman is anywhere near correct, you could possibly double your money in currency volatility alone.

The Australian media is not replete with people who understand what is happening in Europe, so please read the latest Economic Strategy from Michael Knox at RBS Morgans. Entitled “Reconstructing Europe’s Banks”, he reports the spreads in the Euribor credit market falling to their lowest since mid-2007 and concludes that “the EBA and ECB have brought the European banking crisis to an end”. Long Euro sounds good to me, especially v. the AUD, given falling terms of trade, declining commodity prices and rising Australian Federal and State government debt.

PING PONG PANG #3

Actually, this one is Pang. It is not often that I agree with Professor Ross Garnaut after his foray into climate change (Australian Financial Review 2^nd October 2012), but this article on China is spot on. His prognosis is that Australia will be hit by “three mutually reinforcing negatives underway in China”. These are shifts away from heavy industrial investment, a move to lower emissions, and a cyclical downturn. He compares the challenges faced by Australia today to those of the Great Depression and the 1970-1983 period. He talks a lot about “hardship” and “sacrifice”.

This is a long way from the “miracle economy” speak we get from the Australian government. I was in Sydney this week where even CBD drycleaners are reporting revenue drops of 30% or more. This may be anecdotal, but the For Lease and For Sale signs aren’t.

I became Foundation Chief Executive of UniQuest Limited in 1983 and we were able to build a great business, although the 1987-1993 period was tough. But volatile times do create opportunities. That’s what we have now, but perhaps not in iron and coal.

PING PONG PANG #2

Dear Readers

My last PPP (#1) Blog suggested buying USD, €, & £ sterling assets whilst the AUD is where it is. Given the money printing in all of these countries (and Japan), it seems inevitable that those currencies will devalue against the AUD and the Renminbi (if China doesn’t follow suit). One noted economist has the AUD at USD1.40. The USD has lost around 95% of its value since Richard Nixon decided to leave the Gold Standard.  Given the policy purity in the Reserve Bank and the demand for Australian Government AAA securities, it is unlikely that Australia will follow a competitive currency devaluation strategy anytime soon, if at all.

Again, it’s a great time to buy foreign assets, but it is going to get worse for trade exposed SME’s or those who want to import venture capital to build them. There is a dearth of domestic venture capital in Australia since the comparative returns do not presently justify the risks. And importing it does not work for offshore venture capitalists in this devaluation climate.

The only thing you can do is offshore yourself. Sorry about employment prospects here, but we are talking survival, at least for a while. Rectification will take substantial reductions in nominal interest rates in Australia, further declines in commodities prices and volumes, and dealing with the flow-on effects in the Australian property finance market. If you don’t have a job, you can’t afford a mortgage. Doesn’t matter how cheap money is. 1991 here we come!

ABOUT DAVID MILLHOUSE:

An international entrepreneur based in Brisbane, with more than 30 years in venture capital and private equity internationally, David Millhouse is a specialist in venture financing and capitalisation. He is renowned for his management of high growth companies, many of which proceed to IPO and he has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. David is a scientist by original profession, with an MBA and LLM from Bond University in Australia.

VENTURE CAPITAL IN AUSTRALIA

My last blog referred to the paucity of venture capital in Australia and a consequential inability to fund emerging growth companies in the SME and technology sectors. If you read the Australian newspaper report on the imminent Australian Venture Capital and Private Equity Association conference (AVCAL, 18^th September 2012), it describes in more detail my blog of yesterday.

In particular, the withdrawal of public sector investment and the reluctance of superannuation fund trustees to authorise investments of this nature. The report stated that there had been NO investment from superannuation industry funds since 2008/9.

This forces entrepreneurs and companies offshore where the investment environment is more conducive, or to conduct an IPO, usually years ahead of when they should adopt this strategy.

The AVCAL Conference runs this week and there should be more reports from it. I expect that the inability of the remaining private equity and venture funds to raise new capital will feature significantly.

ABOUT DAVID MILLHOUSE:

An international entrepreneur based in Brisbane, with more than 30 years in venture capital and private equity internationally, David Millhouse is a specialist in venture financing and capitalisation. He is renowned for his management of high growth companies, many of which proceed to IPO and he has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. David is a scientist by original profession, with an MBA and LLM from Bond University in Australia.

WHERE HAS ALL THE CAPITAL GONE?

I am approached at least twice a week by companies and entrepreneurs trying to obtain capital. There is nothing new about this.

In 1994 I founded Corporation Builders because the lack of available venture capital was starving SME’s and technology companies. They could not develop. Most of them needed early stage equity. Hence the founding of enterpriseangels with the assistance of the Queensland Government in 1996. Since those times, Corporation Builders, with strong Australian Federal Government, State Governments, NZ Government and Singapore Government support, operated in all of those countries and states. The need for capital was universal and constrained the SME sector.

The 2000’s saw more capital flowing and more credit availability. Governments in all these countries supported the growth the venture capital sector.

That cycle stopped in 2009 and has not restarted. We are back to where we were in 1991. Private investors do not have the discretionary capital they once did, governments are tightening the seat belts apart from some headline projects like the NBN in Australia, and pension fund trustees are under increasing pressure not to approve investments in unlisted assets, although it is common practice in the United States. Hence Silicon Valley.

It is also true that many project proponents are woefully unprepared to raise capital. They can come back to Corporation Builders for some one-on-one coaching. No promises of capital, but at least it minimises the opportunity cost of valuable entrepreneurial time.

ABOUT DAVID MILLHOUSE:

An international entrepreneur based in Brisbane, with more than 30 years in venture capital and private equity internationally, David Millhouse is a specialist in venture financing and capitalisation. He is renowned for his management of high growth companies, many of which proceed to IPO and he has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. David is a scientist by original profession, with an MBA and LLM from Bond University in Australia.