Bonfire of the Vanities

Smart companies will remember the fireworks that could come with Joe Hockey’s hope that a series of rate rises will place him on the treasury benches with a baton change in November.

They will give their best customers a friendly call without asking for an order, take their best sales staff out to lunch, plan for a deserved Christmas bonus to their import agencies and tell their families not to expect to see much of them until after Guy Fawkes day is just another pleasant memory.

Activity in the manufacturing sector contracted in September due to the strong Australian dollar, increased raw material costs and weaker demand, a survey shows. The Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index (PMI) fell 4.4 points to 47.3. It is the first time this year that the PMI has fallen below the 50-point level that separates expansion from contraction.

October is likely to follow its long-term trend with a sharemarket write down which would be exacerbated if the RBA takes a pre-emptive strike against an outbreak of business optimism.

Confidence among US consumers unexpectedly dropped to a one-year low in September, indicating the biggest part of the economy is being handcuffed by a struggling labour market. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 66.6 from 68.9 in August, the group said today. Flagging optimism with unemployment close to a 26-year high may increase the risk consumers will cut back on their purchases, which account for 70% of the economy.

“Already cautious consumers are even more cautious,” said Jim O’Sullivan, global chief economist at MF Global in New York. “Consumer spending has certainly been a weak part of the recovery and there is no sign in these numbers of any sudden change in that.”

To attract shoppers, companies such as Wal-Mart and Kroger are discounting merchandise. The US cost of living, minus food and energy prices, was unchanged in August, the Labour Department said today. The overall consumer price index rose 0.3%, reflecting in part more expensive gasoline. Staff reductions at companies such as FedEx Corp. indicate it will take years to recover the 8.4 million jobs lost in the recession.

Unsurety will generate a combination of panic attacks, anxiety and mood swings as the media feeds upon the minority government pyrotechnics, falling consumer confidence and tax summit reviews. The gold bugs are spruiking a continuing demand for solid gold by the central banks who are facing European and American banks pleas for more guarantees and bailouts.

The offshore QE printing presses are at full pace encouraging a flood of funds into the Aussie dollar, and despite the call from Westpac’s Bill Evans, Glenn Stevens is likely to give home owners the pain that comes with the success of the mining and banking barons.

Bill Evans says, “I think things are still quite tenuous. And we saw in that long period of consecutive rate hikes coming from a very low base that that really did have quite an impact on the consumer. An early return to rate hikes would have that sort of an effect again. I believe that we can wait until at least early next year. There is a degree of consumer caution all around the world now and it’s obviously related to the aftermath of the global financial crisis – the fresh memories that they have of potentially losing their jobs only a couple of years ago – and the fact that they do have higher levels of debt.”

Stephen Promnitz of Kingsgate Consolidated says, “As we see gold going up and as we see M and A activity, yes, it inspires investment bankers and hedge funds to get in behind that story. People are concerned about paper currencies. They want to see hard assets. We’re seeing that across Asia, so we seeing Asian buying and now we’re actually seeing investment funds going, ‘Look, I don’t really know what’s going to happen with the global economy, but I’d better just buy a little bit of gold and put it in my portfolio’.”

For those of us old enough to remember Tom Wolfe’s Bonfire of the Vanities – the story is a drama about greed ambition, social class and politics – November is going to be another case of plots to wreck the parliament, plots to blame rate rises on reckless government spending and takeover talk in the M&A market.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
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