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How Big Business and Government play with our future - Part 1

Written on the 8 February 2017 by James Cagney

(A five minute read)

It is incredible to think that companies like Google, Facebook, Amazon, Microsoft, and Apple, can go to court against an order from one of the most powerful person in the world the American President. It does not matter what you think of Donald Trump's travel restriction policy, which was introduced to protect national security, the fact that these companies would dare to oppose  the President is monumental and has set a president in American and  world politics. One hundred companies mostly Tech companies signed the brief lodged to the Ninth US Circuit Court of Appeals. It is suspected that Google and Apple were the force behind the appeal but did this not to attract the ire of Donald Trump. Only 1% of Tech workers employed in the USA are affected by the temporary ban which indicates these signatories are more interested in not offending Muslim customers than taking a moral stance.  

These companies have become so powerful that they believe they can change government national security policies.   Many of these icons of industry have turnovers larger than the Gross Domestic Product (GDP) of many independent countries in the world today and are a force to be reckoned with. Look at the growth and influence of Facebook. It announced in early February 2017 that their advertising revenue for the year had leaped by 57% to $28.8 billion and profits of $10.2 billion (USD) an increase of 117%. No wonder these companies are starting to flex their muscles against governments' policies.

Big business is having more and more influence over government policy in Australia as well. One of the main reasons for this is that the State and the Federal government's futures are dependent on employment of their voters. This was made evident when the Queensland Labour Government bent over backwards for the Adani Group for their Carmichael mine project in Central Queensland.  They made this decision despite Federal Labour policy of replacing fossil fuels with renewable energy and reducing carbon emissions.  It's about getting votes and unemployed people are never happy with a government which does not create jobs. Look at what happened in the USA where citizens voted for Trump because he promised he would bring back jobs to hard working unemployed Americans.

In 2015 the Liberal National coalition government announced they were no longer going to pour tax money into the motor vehicle manufacturing industry. No problem for General Motors, Ford and Toyota who decided soon thereafter to close their manufacturing plants ending 60 years of manufacturing in Australia. The government was 'caught on the back foot' with this decision of the motor companies and unfortunately Geelong and Adelaide workers, property owners and investors are the big losers.Thousands of people will be out of work in the next few months - a fact which will not go down well with voters.  This event has spawned business start-ups as training organisations are cashing in as the government attempts to re-skill these workers.  We know what a disastrous route this is as the only winners are 'training organizations' which spring up, rort the system while the unemployed remain 'unemployable'.

Herron Todd White commented "The decision by General Motors and the Federal Government's policy shift in supporting the industry, exemplifies the problems facing almost all forms of general manufacturing in South Australia, which is having flow-on effects through the entire industrial property sector".

So the Federal and South Australian government had to step in again. HTW's comment is:

"Throughout 2017 the industrial market is expected to continue its adjustment from the core activity of manufacturing to Defence and technology.  Securing of Defence construction contracts is positive for the market. After the completion of the Air Warfare Destroyer (AWD), the Future Frigates programme will commence in 2020 with an estimated spend of c$35 billion. Following this in 2022 is the Future Submarine project comprising 12 submarines at an estimated spend of c$50 billion. The projects are expected to provide over 2,000 jobs".
Not enough jobs for the unemployed people affected by the closure of Holden but the good thing is that both the State and Federal governments cooperated to create jobs.

I believe the many Governments around the globe will impose more pressure on big business in the future. For example, Donald Trump threatened to impose an import duty of 35% on vehicle imports in order to influence big business to remain in the USA. Ford immediately scrapped their plans for a manufacturing plant of $1.6 billion in Mexico.  Now the Chinese government has announced it will open a motor vehicle manufacturing plant in Mexico. They claim it is to capture a share of the Central and South American market. Could it be they want to stick it to Trump for his rants about China?

Trump is now targeting the pharmaceutical companies to return manufacturing back to the USA. Make no bones about this - other political leaders like Turnbull and Shorten are watching attentively to see how Trump fares to see how they can promote manufacturing within Australia.

The Coalition government is lying about the unemployment figures in Australia. Michael Matusik who is a respected property researcher and commentator made the following comment  about unemployment in Australia:  "Using the 'official' unemployment figures, as produced by the Australian Bureau of Statistics (ABS), allows the Government to rely on inflated figures of real employment while simultaneously down-playing the real levels of (much higher) real unemployment and under-employment."

"According to the latest ABS figures, 5.8% (741,000) of Australians are unemployed.  In contrast, the more accurate measure of unemployment by independent research firm, Roy Morgan Research, estimates that 9.2% (1.2 million) of Australians are unemployed". "According to the ABS, to be classified as employed you need to work just one (1) hour per week.  To be considered to be in full-time employment you need to work over 35 hours each week, and, to be categorized as part-time workers, less than 35 hours per week.  This 35 hour rule applies across all jobs.  So you can hold five jobs, working eight hours per week in each, and be deemed as being employed full-time. "

"The process used by Roy Morgan differs importantly from the ABS.  They conduct a once-off, Australia-wide, face-to-face interviews.  A person is classified as unemployed if they are looking to work, period".

"In addition, Roy Morgan estimates a further 1.4 million Australians (10.8% of the workforce) are under-employed.  These people are employed but want more work. So, the real employment estimates suggest that 20% (2.6 million) of Australians are either unemployed or under-employed'.

These figures must be alarming for the Coalition. I suppose that the government  could continue to tell lies about unemployment but people like Michael Matusik are sending the message out there exposing the lies of the bureaucrats and now that you know the facts. How will you vote?

Listen to what Craig James, the Chief Economist of CommSec, stated about the economy and housing in Australia:

"The broad-based health of Australian housing markets reduces the potential for further rate cuts. While fixed-term lending rates have lifted, it is still too early to canvas possible rate hikes from the Reserve Bank.  Housing is far from homogeneous and investors need to carefully do their homework on the states, suburbs and streets which are on their radar screens.
The Australian Industry Group compiles the Performance of Manufacturing Index (PMI) each month. The PMI is one of the timeliest economic indicators released in Australia."
"The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key 'forward looking' components are orders and employment. Activity in the manufacturing sector is encouraging especially the lift in new orders that has been identified in recent months. All the published data and anecdotes indicate that business conditions have markedly improved since the flat spot recorded for the economy in mid-2016".

Craig James is one economist who is upbeat about the future of manufacturing during 2017. If we spoke to other economists I am sure that they would have different opinions. There is a saying that if you put 200 economists in a room for a year they still would not reach consensus.

We do need to mention mining because it is big business and a large employer in Australia. Mavericks like Clive Palmer can destroy people's lives and property values overnight.
Throughout 2016, the depressed mining and manufacturing sectors dictated the state of the Townsville industrial markets. Closure of Clive Palmer's  Yabulu Nickel Refinery did not help local market sentiment. There may be signs of recovery in the investor market, driven by flight of capital from the southern metro markets, but this is in its infancy, and whether it flows through to the broader property market remains to be seen.

The recent approval of Adani's $22 billion Carmichael Coal Mine and the announcement that Townsville will be its regional headquarters and a fly-in fly-out hub is tipped to have a positive impact on the local economy but the tangible impact this will have on the property market remains to be seen. Mining companies are making big profits as the price of iron and steel rises and demand, predominantly from China, soars once again.

Adam Creighton, economics correspondent of The Australian, wrote: " Australia has clocked its biggest monthly trade surplus in history thanks to a surging iron ore and coal prices, dousing fears the economy faces a recession and pushing the Australian dollar above US76c for the first time since Donald Trump was elected."

Chris Richardson  from  Deliotte Acess said "We are seeing a Chinese economy , a global economy and an Australian economy all benefiting from the Chinese Government's stimulus spending especially us. Because we get such a price impact from it."

Please don't rush off to buy delinquent properties in mining towns just yet!  Citi chief economist Josh Williams says " The current high commodity prices will through to households by less than previous boom because there isn't the investment and labour market boom in construction and downstream services now."

The government has once again stepped in to bolster the profits of mining companies in Australia. Dennis Shanahan of The Australian reported that " he (the Turnbull government) has had a significant win for the future investment in modern coal-fired power stations in Asia and Australian exports by getting the $100 billion Asian Infrastructure Investment Bank to drop its ban on financing coal-powered electricity generation."  

However the good done by the Federal government is about to be undone by the Victoria State government. Greg Brown of the Australian wrote " The long term viability of the nation's last glass manufacturing plant is at stake unless state moratoriums on gas exploration are lifted and cheaper energy supply is secured, according to the industrial trial company CSR."
CSR managing director Rob Sindel said power prices at the Victoria glass manufacturer plant in Melbourne's Dandenong South had doubled in the past two years, costing the ASX-listed company an extra $30 million a year."

Over time if nothing is done everything is at risk, all manufacturing in Australia is at risk, as electricity and gas gets to levels which are far and above the rest of the world, and of course it puts these facilities at risk." Mr Sindel said.

The fact is that we have economical and accessible gas fields in Gippsland that would provide sufficient gas for local consumption and exports. This would reduce the cost of gas to local manufacturers and create export income. It's ludicrous to observe as these idealistic numnut politicians in Victoria carry on regardless in their pursuit to keep allied political factions happy. Courting the "Do-gooders" and "Tree-huggers" in our country, many who are affluent and wealthy land owners who have the time and energy to protest instead of working to make ends meet like most Australians have to do. The  risk for labourers and semi-skilled workers losing their jobs does not even enter the mind of these groups. When you have the money you can afford to be philanthropic but if you are struggling to pay the bills every week you need a job. The Victorian government has the power to halt the monitorium on LPG gas in Gippsland but will these numnuts see common sense?

I wrote an article entitled 'Bring in the Clowns' which exposes these politicians as self-serving clowns playing games with people's lives. Definitely worth a read, click >>> CLOWNS. I wish we could laugh about it but we have the power to vote them out. Let's use it whilst we still have jobs.

In a previous article I discussed the influence Micro & Macro economics has on the future of investment property in Australia. This is a worthwhile read if you are wanting to buy or sell real estate in the future. Click >>> MICRO & MACRO ECONOMICS to read this important information.

In the next article I discuss how big business and government affect the property market as they pour billions of dollars into local economies. Property operates within many cycles and keeping track of the trends will allow you to make money within your portfolio. Ignore these cycles at your peril. Call James Cagney: +61 416 137 645 to get invaluable advice on these important trends which will make or break you during 2017 or click >>> INFRASRUCTURE .

DISCLAIMER

This is not financial advice. You should not act solely on the basis of the material contained in this article for your investment strategies. Changes in government and legislation occur frequently and without prior notice and financial markets are unpredictable.
Please note that the information herein is of a general nature only and is not intended as specific advice for any particular person or entity.

This information was written and compiled by James Cagney.  The opinions expressed herein do not necessarily represent the views and opinions of his associates including
Asset Finance Pty Ltd.

ACKNOWLEDGMENTS:

Thank you to the resources of Terry Ryder, Property Observer, The ABS, BIS Shrapnel, Michael Matusik, Property Monitors, Colliers, On the House, Corelogic, RP Data, Residex, SQM, Herron Todd White, NAB Residential Property Survey, Australian Bereau of Statistics, Peter Wargent, Port Phillip Publishing, Economy & Markets, Harry S. Dent and the many others for the material discussed above.


Author: James Cagney
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