|
|
|||
   |
If you are a bewildered citizen that doesn’t understand why your nation is being asked to choke down austerity measure, the question posed by this Irish journalist to ECB representatives is a good place to start. Hopefully this clip will go viral and wake a few people up to the fact that austerity is another way of aying the public is footing the bill for the poor decisions of bondholders and bankers. For a change of pace, here is something that affects all of us who like to share content on the web.
The Australian economy produced no jobs in calendar year 2011 according the latest labour force data released by the abs today. The total number of people employed fell 29,300 in December bringing the year over year change in employment to 0%. The last time the Australian economy produced no jobs in a calendar year was 1992 at the tail end of the last recession. The last time year over year growth in employment reached negative territory was 1997.
The unemployment rate remained unchanged from the revised 5.2% in November. However that is only because more than 33,000 people dropped out of the workforce sending the labour force participation rate down to 65.2% from 65.5% in the prior month.
On the positive side, hours worked are still holding up reasonably well rising 1.4% from a year ago. Employment growth in Australia over the past 12 months has been the most sluggish for 14 years, investors would do well not to ignore this trend. Australia’s two speed economy is in a more precarious situation today than it was on the eve of the financial crisis. As I have noted over the last few months, the risk of an Australian recession in 2012 is high. Yes the commodities sector of the economy is doing very well, but that could easily be blindsided by a slowdown in China, which I believe is already underway. The Australian government does not have same level of the fiscal resources to combat a significant slowdown as they did in 2008. 2012 is not a year that you want to be complacent on the prospects of the Australian economy. Yesterday’s GDP growth numbers out of China whilst showing a slowdown from a year over year growth rate of 9.7% in 1Q11 to 8.9% in 4Q11, still look reasonably good, some would describe it as a ‘soft landing’. But under the surface there are some nasty trends in Chinese Real Estate, which accounts for approximately 13% of Chinese GDP. As avid China watcher Patrick Chanovec noted recently
In an article yesterday, Chanovec goes on to make some projections about Chinese GDP growth in the event that year over year real estate construction leveled off at zero in 2012. With that assumption, Chanovec predicts that Chinese GDP would fall to 6.6% and that is assuming no other sectors of the economy would be affected, which of course is unrealistic at best. With Australia’s two-speed economy barely muddling through, a slowing Chinese economy could provide significant headwinds. It will be interesting to see if the likes of BHP a forecast of demand for commodities out of China for the rest of the year when they report half year results next month.
If you had one word to describe global markets in 2011, volatile wouldn’t be a bad effort. All that volatility resulted in generally bad market returns across the globe. The stand out performer in the group above was the Dow Jones with a mere 5.5% return. The consensus at the beginning of 2011 were quite the optimists, predicting returns on average in the low double digits for the S&P500. That turned out to be low double digits too much as the S&P500 finished the year flat. Easy to throw peanuts from the peanut gallery I know, so what did I say last year? Let’s take a look:
So I was relatively pessimistic at the beginning of 2011 but turned out to be slightly optimistic. Other predictions were as follows:
The unemployment rate finally fell below 9% so an F on that one. We know the Fed is now committed to low rates for some time, that was easy prediction to make – A. Home Prices have hit new lows according to Case-Shiller seasonally adjusted numbers, however data is only in for October so you can expect the unadjusted numbers to show new lows through December 2011 – A The call on China was a good one, we know both property sales volumes and prices fell sharply toward the end of the year in China and the economy is clearly slowing so I think China is in for more pain in 2012 – B. Wikileaks revelations didn’t materialize – F. Turning to predictions for 2012: I’ll start with the usual caveat that I have no strong convictions about any predictions for the coming year and nor does my investment philosophy depend on them playing out. Stock market – S&P500 earnings are at record highs as are profit margins. That says to me that we are closer to a market top than a bottom. Around August/September last year I saw signs that the US economy was tipping into recession, that view was supported by a call from the ECRI and people I respect enormously such as John Hussman of Hussman Funds. For the time being the US economy seems to have avoided that fate but I suspect the risks are no less severe than they were 3 months ago. In short, I could’t get excited about the long term prospects for the US stock market without a reasonable correction taking the S&P500 below 1000 and preferably below 900. For 2012 though I’m just going to take a stab and say it will be down mid to high single digits.
Europe is probably in recession right now and sovereign risks won’t go away in 2012, Japan is at risk of a blow up because of its debt problems. Debt overhang continues to plaque the world as governments have refused to deal with it and have embraced can kicking instead. It all makes for an interesting 2012, hopefully I can add some food for thought for readers.
US Home Prices fell 1.2% in October according to the latest 20 city Case-Shiller Home Price index for October (actually an average of Aug, Sep Oct). These are the non-seasonally adjusted numbers that Shiller himself prefers to use. 19 out of 20 cities recorded price declines with a 0.3% rise in Phoenix the only exception. On a seasonally adjusted basis US home prices hit a new post bubble low whilst on a non-seasonally adjusted basis prices remain just 1.9% above the post bubble lows of March 2011.
As can seen above, the trend into October is following approximately the same pattern as last year meaning that you can expect to see month on month price declines all the way to March next year. As stated above seasonally adjusted US home prices are already at new post bubble lows and the non-seasonally adjusted data will show the same in a few months time. For a great source of information on the state of China’s economy and the Chinese property market, you can;t go past Patrick Chanovec’s blog at http://chovanec.wordpress.com. In his latest missive, Chanovec explores some rather nasty data on recent price and volume implosions in various Chinese cities. I have quoted a few pertinent paragraphs below, for the full story click on the link. China Data, Part 1A: More on Property Downturn
Last Thursday JB Hi-Fi (JBH) warned that 1H12 profits would be below last years by approximately 5% at the EBIT level. That sent the stock price tumbling 15% on Friday. Today Billabong (BBG) warned that 1H12 EBITDA would be between 20 – 26% lower than last year, at the time of writing BBG’s stock price is off 40%. Also making the news today is MYER (MYR), which aims to close stores in New South Wales and Victoria and shrink surviving stores. There is no single reason for the state of retail in Australia, BBG for example is an international business and is being hit particularly hard in Europe. JBH is feeling the effect of heavy discounting and MYER is waking up to the fact that Australian consumers are sick of being ripped off in store and are increasingly going online. However, specific reasons aside, the message is clear that Australian retailers are struggling and have been for some time, the Australian Industry Group’s performance of Services index has been down for 9 of the last 12 months. With China clearly slowing and threatening the part of Australia’s two-speed economy that is still booming, risks are high that 2012 could be a worse year for the Australian economy than 2008. Lakshman Achuthan of the Economic Cycle Research Institute is sticking with his call of recession for the US in his most recent interview on Bloomberg with Tom Keene. Note the point he makes about GNP and GDP and what it says about the state of the US economy about two-thirds of the way in to the interview. |
|
|
|
|
|||
