State of Play: Business Confidence

Hi there and welcome to our State of Play for Thursday. So it seems things are getting better. Latest figures out show that we have indeed had a bit of a bounce. It doesn’t mean we’re out of the water yet, but we should all take confidence in the fact that the latest Roy Morgan poll for business confidence shows a bounce. So you can see there were hit rock bottom, and they were talking about the economy snapping back. We have bounced up. So people are feeling better. Businesses are feeling more confident about the future. We’re out of lockdown. Things are starting to get back to normal and the economy is doing okay.

Remember, we’ve got nothing to fear, but fear itself, as Roosevelt said in the Great Depression and we’re less fearful now. So if businesses are feeling good, they’re going to go out. They’re going to invest. They’re going to hire people. More people will have jobs and the faster we get back to normal. So the Roy Morgan poll is one business confidence survey. Another one is the NAB business confidence survey, which came out yesterday. And what they said is when we look at employment as part of… So one of the things they measure is are businesses employing people. And yeah, that’s recovered a little bit from May, between May and June. We are employing slightly more people, as well as I look at forward indicators. In other words, what are businesses investing in? What’s in the pipeline? Are they using all full capacity? It’s weak, unfortunately.

And the other thing, and even though we’re slightly better, we’re going from bad like horrific to slightly less bad. Alan Oster, the head economist at NAB said, “We will still remain deeply negative and we haven’t seen levels like this since the global financial crisis.” So back in 2008, 2009. So the business confidence survey from NAB followed the same pattern as the Roy Morgan one. You can see a bounce there in May as we started to come out of lockdown.

If we look at it by industry, the green lines are the ones where the line of 100 is the difference between equal, good, and bad. Anything above 100 is slightly more positive. So we can see there that property and business services are slightly more positive. I’ll talk about that in a moment. Australian business on the whole is more negative than positive. You see the 89.9. So below the 100 breakeven mark and the blue ones show also negative territory. So negative territory in administrative and support services and professional scientific technical services. So they’re not feeling so good.

On a state by state basis, South Australia and Western Australia are okay, like in terms of business confidence, there are more businesses positive than negative. Overall, we see the Australian average. New South Wales and Victoria are negative, but Queensland and Tasmania are even worse. So alarm bells ringing there. So that’s in terms of states in employment, businesses feeling good about themselves wanting to invest further. And the government’s aware of this. So this week, they said, “We are going to extend the business investment.” So they’ve got an instant asset write-off. What that meant was when COVID started back in March, they announced, “Hey, if you invest in your business, you get that back in terms of tax deductibility.” Problem with it was that you actually had to go out and pay the money and then you’re out of pocket. So everyone was so fearful no one invested. And what they’ve said is now, “Okay, we’ll extend that to the 31st of December.

So what it means is that if you are looking to invest in terms of business, if you’re going to buy some sort of asset or reinvest funds into the business. So if you’re a tradesman and you’re going to buy a [inaudible 00:04:17], the cost of that. So anything up to $150,000 worth of investment, and it can be several business assets. That is tax deductible. And of course, you can do it now before the 30th of June and get the deduction this financial year and then if you’re really wanting to invest, you can do it next financial year as well. So with a lot of distressed assets around and distressed businesses, it may be a good time to go shopping if you’re wanting to expand and invest and to lean into a downturn.

So how it works is if, for example, your tax revenue is 500,000. Let’s just say you spend 150,000. You’re going to be, and claim that instant write-off, you would be paying tax on 350,000. Then you’d have all your other deductibles and it might mean your net profit is 150,000 after that. That’s the figure you’ll pay tax on. So they’re really encouraging businesses to take any money that they have and invest it back into the business. It’s a sign of business confidence. It means businesses will grow rather than hoard cash. It’s invested back into the business. As the business grows, it employs more people. They all have money burning a hole in their pocket. Everyone spends, everyone gets richer. They pay more taxes and our economy expands. It’s a way of getting us through a recession.

So they’ve extended that until December and it means like three and a half million businesses are eligible now for that instant write-off. The other thing that they’re doing, so they’re directing money now. JobKeeper was very much about, “Look, just everyone, here’s some money.” That was kind of what they call helicopter money. So they did that in The Great Depression. They dropped it almost literally from the sky. They said, “We should have put money into the economy.” The government kind of did nothing. And that’s why it went on for 20 years. What should have happened and what economists have said since is that governments need to intervene and help economies. They go bust and boom and it’s a big roller coaster with so much upheaval and collateral damage that governments and policy makers should be on the front foot.

So the economic idea now is that they use interest rates, monetary policy, and government spending, fiscal policy to control an economy so that the highs aren’t too high and we have bubbles and the lows aren’t too low and we have depressions or recessions, but of course, no one could foresee this. And we are in for a bit of a ride with a formal recession now. Josh Frydenberg said last week, “Two consecutive quarters of negative growth is a recession.” So what they’ve said is, “Where can we pump money that’s good for the economy rather than just helicopter scattergun money?” They’ve said into building and construction and residential real estate because a lot of wealth there. If we can hold up that sector, everyone gets richer. Everyone feels more confident. The wealth effects, they call it. And they said also into business. So hence the extension of that tax deduction, that instant write-off.

So the other thing that’s happened with the home builder grant, they said everyone who builds a new home or does a significant renovation over $150,000 is entitled to this $25,000 grant from the government. So that’s meant a lot of people, like thousands of people within a couple of days registered for this grant. So a lot of house and land packages going at the moment. There’s definitely people not shying away from property. People are seeing it as an opportunity to grow their wealth through property. It only applies, by the way, to homes though, owner occupied homes. And it’s not all renovations. You can’t build a tennis court or a swimming pool. It’s got to be building works with a licensed builder at arms length inside your house. So things like bathrooms, kitchens to keep tradies and builders in jobs and to support the property industry where most of our wealth is. The hope is that it will underwrite asset prices.

So government’s doing a lot to stimulate the economy and that has translated into propping up our property market. So one of the metrics that they look at and call logic, who has their finger on the pulse when it comes to this sort of data, have said that, “Okay, if we look at the last 28 days in capital cities, on the left here, we see a bounce in new listing.” So with coronavirus, that yellow line, that’s the 2020 year. We can see that when we were in lockdown, people weren’t listing their properties for sale. No one could go to an auction. People couldn’t go for open for inspections. So property just dried up in the sense that there were no transactions. Sellers weren’t coming to market, buyers were waiting on the sideline.

So what we’ve seen now is an increase now in available stock. So that little uptick there of the yellow line means more stock coming onto the market. But if we look at total listings on the market, so the amount of stock sitting there on the market, that’s actually gone down. So what that’s telling us, the difference between those two graphs is yes, sellers are there. They’ve come on the market and said, “Yep. Yep. Buy. I’m going to list.” Stocks gone up. But total listings, if we look at the figure, has gone down. That means people have snapped up. Buyers have snapped up whatever’s come on. They’ve soaked that up. And there’s still not enough supply to meet the demand, but that’s the law of supply and demand. There’s more buyers looking for properties than there are sellers. Prices haven’t really fallen.

The latest data from CoreLogic that we talked about on Tuesday, they’ve fallen a little bit, like a fraction of a percentage point, and maybe that will get a whole lot worse when people come off their loan holidays in September and when job caper ends and government stimulus ends, there’s going to be, the tide will go out. As Warren Buffet said, “We’ll see, who’s been skinny dipping.”

The other thing affecting our economy right now is tensions with China. So we know China put a levy on our barley last month when Scott Morrison said, “Well, there should be an inquiry into coronavirus. The World Health Organization should look into it.” That angered China. China’s further been angered and their state media has come out and said that Australia has an unfriendly attitude, racist attitude to Chinese. And there’s a warning for Chinese students and tourists not to come to Australia. That’s going to have a big impact. Not only do we have a massive tourist industry and we could see why economies like Queensland economy, when we looked at the consumer confidence and the business confidence had dropped. They’re very dependent on tourism and other states like New South Wales, Victoria are not as dependent. The whole economy though, our GDP, a large part of that is tourism. And a huge part of our multi-billion dollar education, higher education industry is from foreign students.

So as the Chinese press said, “The tourism and the closing borders are just the tip of the iceberg. There’s a whole loss of Chinese interest in Australia.” So that’ll represent already a $12 billion loss in education. 35% of our foreign students supporting that whole market are Chinese students. So Chinese investment in Australia has dried up. That was happening anyway. So they’re focusing on the inward looking now in the Chinese economy. So you can see what a big boost we had with [mining] back in 2008, very dependent on Chinese money coming in here. We’ve started to tighten that up. So Australia is going to have to become a lot more self-reliant. We’re going to have to look for alternative sources rather than the quick fix and the easy fix of the massive Chinese market.

We tightened up our foreign investment laws, which meant that we had a lot lower investment in Australia last year from China to the tune of 2.3 billion and even lower now. So Josh Frydenberg has changed laws with no objections, sailed through parliament to stop Chinese investment in Australia so that we’re more self-sufficient. Of course, we’re still highly dependent on Chinese trade. So we grew our trade, our earnings, our GDP from China last year by more than 21%. So $235 billion is the Chinese trade market and foreign students are the tip of the iceberg as is barley, there’s wine, tourism, there’s so much that goes hand in glove with China. So some issues there, and a point to watch.

Our consumer confidence is not good, but it is getting better. So the Australian Bureau of Statistics figures came out Wednesday, yesterday, and they showed a 25% fall in personal loans. A lot of that was made up of a 38% fall in car loans. So people aren’t borrowing, which is kind of a good thing. We were massively indebted. We’re the most indebted country in the private sector, one of the most in the world, second most after Denmark. So what happens is we spend nearly 200% of what we earn. If we earn $1, we spend nearly $2. So that extra dollar comes from debt. We are still using our credit cards though. So in the past three weeks, if they look at them, one of the metrics they use is Commonwealth Bank terminals for credit cards. So that’s increased three to 5% compared to the same period in 2019.

So spending has actually gone up from this period, the last three weeks from 2019 to 2020. Part of that is a big pick up from the health crisis. We kind of went out with a bang and everyone who hadn’t been to restaurants or shopping or retail therapy just hit their cards. Household confidence over the next 12 months is up. People are feeling a little bit better, 8% out of lockdown, but don’t forget it was coming from historically low levels. So if you’ve been following us and our feeds, we were off the charts, like Great Depression. Since records were kept, we had never, ever seen consumer confidence so low. So now we’re still at the lowest level reading since the GFC. So things are pretty bad, which makes sense, which is why Josh Frydenberg says, “Yeah, we’re going to have a recession.”

The good thing is that we don’t see it. Australians as [inaudible] see it. Okay, we’ll get through this. So the survey showed that in five years, our confidence lifts. So when people are asked, “Okay, do you feel bad now? How long do you think this will take to pass? Will your confidence improve in five years?” And yes, people are feeling better. So they think we’ll pass through it in anywhere between 12 to 18 months to five years.

Westpac have put out their consumer sentiment figures. And again, we’ve lifted 6% to 94 points in June from 88 points. Remember that 100 is the breakeven point where more people are pessimistic than optimistic. So it’s still below 50%. In other words, more than 50% of people think it’s bad and that’s pretty big when you’re looking at a whole economy. If half of us, or more than half of us have our hands in our pockets and we won’t spend money and we’re scared, then that means the economy tanks. Think of it like a seesaw, but we had even 20% less than that in March when we were in lockdown. So we’ve regained a lot of ground and you can see that here, but we were trending down anyway, maybe that was bushfires and other things happening in January and February.

So our faith seems to be a little bit restored in the future and we can see that bounce back there, our consumer sentiment in the blue line, but still well below the breakeven point. So more than 50% of people depressed or negative when it comes to the future of their earnings and their money and the economy. So there’s an increase on what people are spending on credit cards and at the shop and ATM withdrawals are lower. I mean, that could be a cash thing. I know a lot of shops say, “Don’t give us cash. We won’t touch the cash because of germs and coronavirus.” But it also tells us that overall spending was trending lower during coronavirus by a great amount, like 20% less in April and starting to get back into positive ground. Good spending way up, like 21% up. Overall services spending still low, still 11% down on the year before.

And we’re still buying property. So auction clearance rates are still happening. So people are still spending and people are generally more confident and it’s a sign that things are going from bad to less bad, but we have to remember, we’re still on life support. So we still got government stimulus coming out of areas, being extended in some areas, we’ve got the reserve bank still printing money and pumping it into the economy, buying government bonds. So they’ve got that up their sleeve. Historically low rates and banks giving people a holiday on their loans. And the reason for that is they don’t want all of those impaired loans on their books. So they’re saying that they’re wanting to prop up property as well. It’s in their interest because it’s their asset security. If property prices drop 30% and the banks have lent 80% in funding, then that’s their loss as well.

So of all the auctions listed on the weekend, there was nearly a 60% clearance rate Australia wide. That’s up from the same period last year. So yeah, things are looking better in terms of people spending and people getting out there. Although, it looks like that could get worse come September. So still unclear, still in uncharted waters and that is the time that entrepreneurs come out of hiding. So Warren Buffet once said that the secret to wealth is to be fearful when others are greedy. You don’t want to buy in a bubble at the top of the market, but greedy when others are fearful. So people are fearful now, but as we can see, it’s having a bout. Things are going from bad to less bad. And that’s when the smart money gets in. There’s going to be a wave to ride, but it’s going to be very different from other waves because we have not had a recession in Australia for nearly 30 years.

The last one we had was the recession we had to have back in 1991. We had a bit of a road block, a little bit of speed bump in the GFC, 2008, 2009, but we recovered and it wasn’t a formal recession. So a lot of people are going to lose money. We know that 600,000 people lost their jobs in April. What we’ve seen, even though we’re feeling better, that’s kind of like a bounce because we’ve come out of lockdown. It doesn’t mean that there’s happily ever after, meadows and green fields here on in, and we just go up and up and up. We are still going to get a brood shock when stimulus packages and everything gets turned off in September because we can’t, our government is funding all of this with debt, it’s artificial money. We can’t go on like this forever.

So we need to be self-reliant just like businesses and like the government have said, and Philip Lowe, governor of the Reserve Bank has come out and said, “Yes, some people will fail. We want to get the maximum of people through this, hence stimulus packages, but there will be industries, there will be businesses, there will be individuals who were just circling the drain when all this started, because they were inefficient, there was too much debt, it was unsalvageable.” So now’s the time for that all to be cleaned up, winnowed out, clean slate. And because of that, there will be a lot of disruptive change. And that’s where entrepreneurs make money. Money doesn’t disappear. It just changes hands. That’s what a recession means. That money goes from where it was to others who are more inventive, more intrepid, who make moves, who have the right knowledge, and who take action.

What worked before for the last 30 years is not going to work going into a recession, but there are other strategies and tactics that will work and that will see you set up. That’s why I’ve introduced, I told you the other day, I had a big announcement for today. So for those of you here, my big announcement is I’m introducing a recession series. So I’ve gone out globally, whatever you want in life, start at the top. I’ve got top minds and thought leaders to come and share their thoughts. Not just anyone. I’ve handpicked people who have an affinity with Australia, who’ve been to Australia, who understand our economy and have a perspective of the whole global economy, because we’re very intertwined right now. There’s no isolation of oh, Australia’s better. We’re going to come through this. The rest of the world can go to hell in a hand basket. As you can see, we’re very dependent on China, the US, other countries. If they go down, we go down with them.

So it’s a global perspective, but the first step to anything is to arm yourself with knowledge. So kudos and respect to you for gaining knowledge, for understanding what’s happening in the world and the economy around you. That’s where you’ll be able to spot opportunities, but we need bigger minds. The thinking that got us to where we are now, won’t get us to where we want to go. So starting at the top, I went out and sourced experts who get it. And so my first expert that I’m going to introduce in this series to come and have a little fireside chat with all of us is a book that I read later in life, somewhat later. I wish I had read it when I was 18 or so, but Rich Dad, Poor Dad.

So those of you who’ve read that book, Robert Kiyosaki talks about the cashflow quadrant. It’s number one best seller when it comes to financial growth and personal wealth. It changed the way I thought. So I was very much into formal education, degrees, law degree, practicing as a lawyer, but really trading time for money. And the real wealth of Robert Kiyosaki says is investment and so investment, like property, as well as where your money works for you, as well as business, that’s the side and they’re the quadrants of the cashflow quadrant that you want to be in. And the great news is that Robert says now is the time. So I had a chat with him today about what I want him to cover and what the most benefit for you from our live stream. And he’s going to share his thoughts on that, but he made his wealth each time in recessions.

He says, “There’s no good or bad. There’s just objective facts and once you know the facts, the question is forensically, ‘What I do now?’ Forget about everyone else, everything else, and just look at it objectively.” So he’s going to share with us where the opportunities are from this. He’s going to get out his crystal ball what’s happening in the world. What does it mean for you? What’s the timing of all this? And he’s going to talk more about the downtimes. Remember, be greedy when others are fearful, fearful when others are greedy. And he’s got a very intimate knowledge of Australia owned property here himself, and understands our market and said to me, just quietly, this morning, “You are in the best country in the world.”

So giving you the quick heads up and today’s the first day that I’ve announced this. So if you head over, if you want to hear Robert live on Saturday week, he’s going to join us. And if you go to DGinstitute.com.edu/RobertK, so that link there is in the description of this session. So if you go up to that description and click on that, you can register for that. And we’re also going to have Tim lawless here. I know that our community loves Tim. So Tim, you would have seen him on the news all the time. He’s the head analyst for property at CoreLogic for the whole Asia Pacific region. So he’s just going to tell us his thoughts on the future of property and where the hotspots are, what you need to be doing now and what the trends will be and timing around that.

So there’s nothing like arming yourself with knowledge when it comes to seizing opportunity and I’ve lined up, starting Saturday week, I’m going to be bringing you the best of the best in terms of thought leaders and Rich Dad, Poor Dad and Robert Kiyosaki changed my life and it all happened in a recession. So it’s going to blow you away. I look forward to sharing that and bringing you those experts and that unique knowledge for an Australian angle and our economy.

Don’t forget, also follow us on Facebook. Share this with friends and family. The knowledge is to empower everyone. I want to create a ripple effect. So just tag them in the comment section and also follow us on YouTube. Don’t forget to subscribe and ding the bell if you like it. And we can send you advance notice of any other future content that we’re bringing out.

As always wonderful to connect to you. I look forward to sharing so much more with you. Stay safe, take care, and we’ll talk next week on our State of Play at 4:02 on Tuesday.

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