Australia has a "new" government. Perhaps.
Most probably, it will be painting over some quickly growing cracks which were rapidly becoming an electoral tsunami which destroyed the "old" government.
Reports in the Sydney Morning Herald this morning state that four of six of Australia's states are in recession measured as declining state final demand. It also states that unemployment in Bankstown (an area of western Sydney) is twice the national average. And some, if you read my previous blogs on Australia's underemployment problem. The most reliable source of data seems to be Roy Morgan Research, not the Australian Bureau of Statistics. It is not just Bankstown.
Australia's true un- and underemployment problem is not that far away from France and other European countries. Ask the people who cannot find work, are losing their jobs in droves, and are moving back into their parents homes.
The SMH also carries an interesting article about Cash Converters, being a large listed pawnbroking firm. Middle income families are visiting the pawnbrokers. Professional people are starting to visit Centrelink, the Australian government's social insurance agency.
Interest rates, as set by the Reserve Bank, appear to be heading lower, a rare generational event. That doesn't assist small business since the banks do not reduce their lending rates accordingly. Or credit card holders. Or pensioners relying on fixed income. It does assist mortgage holders to reduce debt, an essential strategy since the deflation in house prices means that they end up in the same position viz a viz their bank loan covenants.
Electricity prices in Australia are now amongst the highest in the world, and rising. This is self inflicted in a country which has endless energy resources of most forms.
Energy price inflation is increasing. In addition, the relative decline in the value of the Australian dollar will mean significantly increased petrol prices.
This is a double whammy for Australian business and households in an environment of deflating end product and services prices.
Some of these problems are a result of the China led boom in commodities. Most of the problems faced by businesses and households are inflicted by their own "old" government, previously led by the same person who now purports to head the "new" government.
The only saving grace may be that the leader of this "new", "old" government, may actually listen to Prof. Ross Garnaut, whom he knows well. If so, the magnitude of the problem may be realised in Canberra. Whether or not there is political will to accept the truth and do something about it remains to be seen, and will in part be determined by the fact that Australia is due to hold a Federal General Election this year. The date of this is now open (it was to have been 14th September). The date of the G20, that platform for middle power peacocks, will be a factor in setting the new date.
For Australian businesses and households, that date with destiny cannot come quick enough. Then perhaps, there can be a true NEW government, not a recycling of the failures of the recent past.
Monday, 1 July 2013
Thursday, 20 June 2013
"SOFT EMPLOYMENT GROWTH GETS SOFTER"
So writes Michael J Knox, Chief Economist of RBS Morgans (Economic Update 19th June 2013), as it happens concurrently with my reporting yesterday of the unemployment and underemployment statistics from Roy Morgan Research (19th June 2013).
He continues: "Unemployment in trend terms continues to steadily drift up. Unemployment is rising and jobs are getting harder to get going into a Federal election. Most people are not economists. But everybody looking for a job knows that the economy feels worse".
"The last growth recession that Australia encountered where fiscal stimulus was not an option was back in 2002". Fiscal contraction is happening across Australia.
Michael is one of Australia's most prescient economists and his reporting is reflecting what you see in the suburbs, and, I understand, the increasing number of professionals visiting Australia's Centrelink social support network.
It probably means a reduction in Australian short term interest rates. Whether the exchange rate follows depends on the international money printers.
David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.
For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au
Wednesday, 19 June 2013
INVESTING IN VOLATILE TIMES: THE SEARCH FOR ALPHA
"The message to come out of this latest period of profit downgrades is that the (Australian) economy is in far worse shape than the movement in the overall share market would indicate". Tony Boyd, Australian Financial Review 19th June 2013.
The Australian Bureau of Statistics reports Australian unemployment to be 5.5%. Roy Morgan Research in its monthly sample of 330,000 people reports it to be 9.5% plus another 7.8% who do not have enough work. This is a total of 16.3%.
What this data does not say, is that these people (2.1 million) are concentrated in the younger (<30) and older segments (>50) of the labour market, and in geographies where European levels of real unemployment are being experienced today.
It is all very well for the Federal Government and institutions to quote aggregate data which are heavily skewed by the resources industries, but the reality is that there are significant and growing areas of Australia where the social consequences of un- and underemployment are readily apparent.
These organisations are projecting that other industries will somehow fill the economic gaps being left by the tapering off of resource industry investments. This will require entrepreneurial effort and the drive for alpha and will take a decade at least.
I have written extensively in these blogs how, for investors, the search for alpha can drive investment returns in such a volatile macroeconomic climate. I have also written how government debt and market interventions crowd out industries which are able to generate alpha.
In Australia, alpha generation, if it is understood at all by governments, is severely hampered by government policy, including the upfront income taxation of Employee Stock Option Schemes in venture backed investments.
Other jurisdictions, including the United States and the United Kingdom are already more alpha friendly than Australia. As these countries move out of recession, Australia is heading into one, at least a "growth recession".
The next Australian government will need some serious policy incentives to solve the employment problem and retain its entrepreneurs. There are moves in this respect presently in the review of the Corporations Act to accommodate the use of social media for capital raisings ("equity crowd funding") but Australia is behind other jurisdictions.
Unfortunately, given the political uncertainty in Australia, it will be at least a year before investors and entrepreneurs are likely to see real change.
David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.
The Australian Bureau of Statistics reports Australian unemployment to be 5.5%. Roy Morgan Research in its monthly sample of 330,000 people reports it to be 9.5% plus another 7.8% who do not have enough work. This is a total of 16.3%.
What this data does not say, is that these people (2.1 million) are concentrated in the younger (<30) and older segments (>50) of the labour market, and in geographies where European levels of real unemployment are being experienced today.
It is all very well for the Federal Government and institutions to quote aggregate data which are heavily skewed by the resources industries, but the reality is that there are significant and growing areas of Australia where the social consequences of un- and underemployment are readily apparent.
These organisations are projecting that other industries will somehow fill the economic gaps being left by the tapering off of resource industry investments. This will require entrepreneurial effort and the drive for alpha and will take a decade at least.
I have written extensively in these blogs how, for investors, the search for alpha can drive investment returns in such a volatile macroeconomic climate. I have also written how government debt and market interventions crowd out industries which are able to generate alpha.
In Australia, alpha generation, if it is understood at all by governments, is severely hampered by government policy, including the upfront income taxation of Employee Stock Option Schemes in venture backed investments.
Other jurisdictions, including the United States and the United Kingdom are already more alpha friendly than Australia. As these countries move out of recession, Australia is heading into one, at least a "growth recession".
The next Australian government will need some serious policy incentives to solve the employment problem and retain its entrepreneurs. There are moves in this respect presently in the review of the Corporations Act to accommodate the use of social media for capital raisings ("equity crowd funding") but Australia is behind other jurisdictions.
Unfortunately, given the political uncertainty in Australia, it will be at least a year before investors and entrepreneurs are likely to see real change.
David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.
For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au
Friday, 14 June 2013
PROFITING IN A VOLATILE INVESTMENT CLIMATE
For my readers in 28 countries, you might be interested to see how we are going to generate profits from these volatile times. There is a lot of strategy generation in these blogs and its implementation can be found below.
Please visit ACF Equity Research in London at:
http://www.acfequityresearch.com/millhouse/
for a more detailed analysis.
Please visit ACF Equity Research in London at:
http://www.acfequityresearch.com/millhouse/
for a more detailed analysis.
Wednesday, 12 June 2013
THE SEARCH FOR ALPHA IN INVESTMENT STRATEGY
Do you hedge against inflation or deflation? Some economists predicted a massive inflation surge from the money printing occurring in most major economies. Yet there is little evidence of it in the real economy for tradeable assets and services, and especially given the slowdown in China and other Asian countries. There is massive supply of underutilised capacity.
In those sectors, it looks as though investment strategy should be profiting from a deflationary environment.
That is not the case with non-tradeable assets in the worlds' two growth economies, being the United States and Germany. In some cities and regions, including California, New Zealand, and Berlin, real estate prices are inflating. Some years ago, I constructed the Deutsche Property Trust, and had a Term Sheet from Lehman Bros for USD 200 million. That was in 2007, so no guesses what happened shortly after.
Now, wherever you invest, you are investing in volatile conditions. That volatility creates opportunities, the windows for which could be quite short, and sometimes strategically and rapidly obsolete.
In the United States (where I have along predicted a resurgence in growth (please see my Ping Pong Pang blogs), the volatility is on the upside at present and in my view likely to remain so even if the money printing stops. This view stems from the US and Canada being able to source and export their energy needs from domestic sources at lower than present world prices. There will be a resurgence of manufacturing as the key strengths of the US economy build on this advantage.
Germany similarly, and whatever the present difficulties in the European Union, it is important to note that Germany is playing a long term game which is likely to result in more Europe rather than less (refer my blog on Joschka Fischer recently). Manufacturing and employment is growing strongly in Germany and this is now reflected in inflating real estate prices.
Generating alpha from opportunities in these two countries will be from upside potential including in the IPO markets.
Other countries, including Australia, will be on the downside, and include acquisitions of deflating asset prices, including some real estate. That is likely to continue for at least another year, and certainly until the political and economic mess in Canberra is resolved. Until then, the present socialist Federal Government has seen fit to destroy Australia's comparative advantages, disincentivise its entrepreneurial and aspirational workforce, and destroy the country's previously enviable fiscal position. Hence, every day, in most the mainstream press and commentaries, there are predictions of recession. Hello, I predicted it in these blogs nearly a year ago. Australia is looking more like France everyday.
Nonetheless, alpha is there to be earned, but on the downside.
Alpha generation is the true skill in private equity and hedge fund investing. But one size most definitely not fit all, and all investor presentations need to reflect that.
David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.
In those sectors, it looks as though investment strategy should be profiting from a deflationary environment.
That is not the case with non-tradeable assets in the worlds' two growth economies, being the United States and Germany. In some cities and regions, including California, New Zealand, and Berlin, real estate prices are inflating. Some years ago, I constructed the Deutsche Property Trust, and had a Term Sheet from Lehman Bros for USD 200 million. That was in 2007, so no guesses what happened shortly after.
Now, wherever you invest, you are investing in volatile conditions. That volatility creates opportunities, the windows for which could be quite short, and sometimes strategically and rapidly obsolete.
In the United States (where I have along predicted a resurgence in growth (please see my Ping Pong Pang blogs), the volatility is on the upside at present and in my view likely to remain so even if the money printing stops. This view stems from the US and Canada being able to source and export their energy needs from domestic sources at lower than present world prices. There will be a resurgence of manufacturing as the key strengths of the US economy build on this advantage.
Germany similarly, and whatever the present difficulties in the European Union, it is important to note that Germany is playing a long term game which is likely to result in more Europe rather than less (refer my blog on Joschka Fischer recently). Manufacturing and employment is growing strongly in Germany and this is now reflected in inflating real estate prices.
Generating alpha from opportunities in these two countries will be from upside potential including in the IPO markets.
Other countries, including Australia, will be on the downside, and include acquisitions of deflating asset prices, including some real estate. That is likely to continue for at least another year, and certainly until the political and economic mess in Canberra is resolved. Until then, the present socialist Federal Government has seen fit to destroy Australia's comparative advantages, disincentivise its entrepreneurial and aspirational workforce, and destroy the country's previously enviable fiscal position. Hence, every day, in most the mainstream press and commentaries, there are predictions of recession. Hello, I predicted it in these blogs nearly a year ago. Australia is looking more like France everyday.
Nonetheless, alpha is there to be earned, but on the downside.
Alpha generation is the true skill in private equity and hedge fund investing. But one size most definitely not fit all, and all investor presentations need to reflect that.
David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.
For personalised solutions to the issues raised in the blog, please contact Corpbuilders TM at www.corpbuilders.com.au
Wednesday, 29 May 2013
PROFESSOR ROSS GARNAUTS' VIEW OF POOR PUBLIC POLICY
For my readers who are the remotest bit sceptical of these blogs, please have a read of the speech given yesterday at the University of Melbourne by Professor Ross Garnaut and reported extensively today in the Australian Financial Review and Australian newspapers.
Garnaut is one of Australia's leading economists and can be credited in part for Australia's 20 + years without a recession for his advices and guidance provided to Australian Federal Governments. He is worth listening to.
His message is quite simple: Australia wake up from your slumbers or face destruction (rather like Smaug the Magnificent in Tolkiens' Hobbit). Destruction in this sense means a slide into European style recession and unemployment.
One firm I should have included in my list of nine prospective industries we could have is one which is long established and manufactures and exports very specialist electronics based products - Codan, based in Adelaide. Codan fits nicely with a sustainable competitive advantage in astrophysics and the management of space. It is part of the defence related cluster in Adelaide and could become a key participant in such an industry.
Codan, like Cochlear, Resmed, CSL and others I mentioned yesterday demonstrates that you can successfully manufacture and export from Australia, at todays labour and exchange rate regimes, without tariff protection and without constant subsidy.
Garnaut is one of Australia's leading economists and can be credited in part for Australia's 20 + years without a recession for his advices and guidance provided to Australian Federal Governments. He is worth listening to.
His message is quite simple: Australia wake up from your slumbers or face destruction (rather like Smaug the Magnificent in Tolkiens' Hobbit). Destruction in this sense means a slide into European style recession and unemployment.
One firm I should have included in my list of nine prospective industries we could have is one which is long established and manufactures and exports very specialist electronics based products - Codan, based in Adelaide. Codan fits nicely with a sustainable competitive advantage in astrophysics and the management of space. It is part of the defence related cluster in Adelaide and could become a key participant in such an industry.
Codan, like Cochlear, Resmed, CSL and others I mentioned yesterday demonstrates that you can successfully manufacture and export from Australia, at todays labour and exchange rate regimes, without tariff protection and without constant subsidy.
David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.
For personalised solutions to the issues raised in the blog, please contact Corpbuilders TM at www.corpbuilders.com.au
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