Financial Review 20-Page End-of-Financial Year Wrap
Over the last five years or so I have found myself regularly buying the Australian Financial Review (AFR). Up until then, say my mid-50s, I doubt if I had read ten AFRs in my life; and I had certainly never actually purchased one. Then about five years ago, and I don’t know what brought the change about, I started buying the AFR occasionally
Now I buy it about three times during the week and I always try and get the Weekend Review and, in fact, I feel like something has gone badly wrong with my whole weekend if I somehow miss out on picking up a Weekend Review.
I really don’t know why I get it. As I often say to the person serving at the counter at whatever newsagent I happen to be buying that day’s copy from, it has to just about be the most depressing paper there is. Especially over the last three years or so. There just never seems to be any uplifting news to be found anywhere in the whole paper.
But tonight when I picked up a copy of today’s AFR, at about 5:50 p.m. just before the newsagent was about to close, I got that bit extra excited. The headline banner said “20-Page End of Financial Year Wrap”.
Sadly, I think that on balance, this has to be about the most depressing AFR I have ever flicked through.
But before I get to the depressing news I would just like to point out that the AFR has recently upgraded its paper stock. It is no longer printed on the browny-grey newsprint that most other newspaper use. Since Monday last the AFR has been printed on thicker whiter stock paper. This was a huge change over requiring them to change the inks they use so they work better on the higher quality paper. I have to say the AFR does look a lot classier with the black print now looking much ‘harder’ and the colour features really pop off the pages.
So that’s the end of the good news . . . Following are some ‘highlights’ from the 20 page financial year round up as briefly as I can cover them so that this post does not get too long.
The Share Market: The share market is down. It has fallen 11.14 percent compared to where it was this time last year. Overall it is still basically at levels from three years ago. Never before in the history of the Australian share market has it stayed so low for so long.
That’s not the bad news about the markets. The bad news is that the experts do not expect the market to improve much over the next 12 to 18 months.
Resources: All the major resources with the exception of copper, and just very recently nickel, are trending down; sharply.
In the case of iron ore and aluminium; way down. Alumina/Aluminium is below the break even level for some miners meaning they are selling their output for less than it is costing them to mine it.
The profit margin on iron ore, which just twelve months ago was seen as the never ending source of giddy amounts of money coming into the state, has halved. Worse, in the longer term, other countries that can mine iron ore at much lower prices due to the much lower cost of labour (such as Africa) are starting to come on stream. This is likely to further impact upon future contracts for iron ore from India and China.
As an outcome of the above both Rio Tinto’s and BHPB’s share prices today are lower than than they were mid-2009.
Europe & USA in the Doldrums: The demand for goods from two of the biggest consumer markets on the planet, Europe and the USA, has either stalled or is stalling. If these massive markets are not buying then China has nobody of significance to sell its thousands of cargo ships full of stuff to. This in turn reduces China’s demand for raw materials. Basically the only raw materials they need are those that they are going to use themselves which is about a third of what it was requiring just two years ago.
About the only things anyone is buying is tablet computers and mobile phones and you can’t maintain an economy on those kinds of sales; not for very long anyway—and you don’t need any iron ore to make these items.
Housing: This is an interesting one. Very interesting—as I own a house. Depending which articles you read there are three completely different expert views on the what is going to happen with real estate over the next year.
1st View—The thinking of the economic experts sort of lines up behind the view that although the fall in the housing market has levelled off in the last quarter (April to June) it is currently “defying gravity” (their words) and still has at least a further 10 to 15 percent correction to come before it hits base level.
The current levelling off is just a short pause in the overall correction.
2nd View—The thinking of the banks seems is that real estate has more or less bottomed and will now stay at current levels for about 18 to 24 months. In about 18 months time it will start a slow upward trend, but at a rate far more realistic than the hectic increases of the property boom between 2000 and 2007.
3rd View—The real estate industry, as one might expect, has the most optimistic forecast for the next 12 to 18 months and are predicting a solid rise in real estate values in the order of 8 to 11 percent.
Most real estate companies are currently running aggressive marketing campaigns encouraging home buyers and investors to come back into the market. Sadly, as most high-end investors have lost truck loads of cash on the stock market they are probably not likely to dive into the real estate market just yet.
My View—Well, as I have stated before many times, I am not smart enough to know which of these three predictions for the next 18 months is likely to come true. But based on the overall world economy at this point I kind of don’t think the view of the real estate industry has much chance of coming true—as much as they would want it to. So that leaves the 1st and 2nd views as likely outcomes. Of these two I would much prefer the 2nd view as my superannuation has still not returned to pre-2008 GFC levels and I really don’t want the value of my house to decline any further.
