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Profit wrap: Aussie companies cashed up

Corporate profit season

Comment from: Craig James, Chief Economist, CommSec

The profit-reporting season has largely concluded, although there are around 24 of the smaller ASX 200 companies (mainly resources companies) to report over the next two days. CommSec has assessed the results of the 115 companies that reported full year (FY) results and 36 companies that reported for the half year (HY) to June.

Overall 101 companies or 88 per cent of FY companies produced a profit for full year while only three of the HY companies didn’t report a profit. And 69 per cent of the FY companies reported an improvement in profit while 78 per cent of HY companies reported a similar lift in earnings.

As at June the 151 companies had cash balances of $100 billion, up 11 per cent on the previous reporting periods.

Dividends are back. Of the FY reporting companies, 83 per cent issued a dividend while 72 per cent of the HY reporting companies issued a dividend.

While the strength of earnings is encouraging, analysts wanted more. Bloomberg reports that 45 per cent of companies beat market expectations for earnings per share (positive surprises) while 55 per cent disappointed.

What do the figures show and what does it all mean?

In aggregate, the 115 companies reporting for the full year (FY) to June posted earnings of $43 billion while the 36 companies reporting for the half year (HY) to June posted earnings of $11.5 billion. The good news is that cash balances and retained earnings are even stronger. The FY companies have retained earnings totalling $103 billion (up 16 per cent) with cash balances of $70 billion (up 8.5 per cent). The HY companies have retained earnings totalling $38 billion (up 16 per cent) and cash balances of $30 billion (up 17 per cent).

The FY companies achieved a 118 per cent aggregate lift in earnings from a 1 per cent increase in revenue and 5 per cent fall in expenses. The HY companies did better with a 20 per cent lift in sales outpacing a 4 per cent rise in earnings. Given substantial turnarounds on a year ago, it’s not possible to calculate HY aggregate earnings. But even excluding bellwether results from Mirvac and Rio Tinto, aggregate earnings were almost five times higher than a year ago.

Compared with analyst forecasts, earnings per share (EPS) results were mixed, just as they were in the interim reporting period to December 2009. Bloomberg indicate that 45 per cent of FY reporting ASX 200 companies beat analyst forecasts while 55 per cent fell short. Bloomberg have assigned results to either positive or negative “surprises” with no classification on companies reporting earnings “in line” with market expectations.

While 45 per cent of companies beat EPS forecasts, 48 per cent beat profit forecasts and 46 per cent beat analyst sales forecasts.

In terms of EPS positive surprises marginally outweighed negative surprises in basic materials, industrials and telecommunications. By contrast negative surprises dominated in heath care (67 per cent of results) and in financials (65 per cent of results).

According to Bloomberg the companies that surprised most with the strength of EPS results were Seven Group, Transurban, Australian Infrastructure, Bunnings Warehouse, Prime Infrastructure and Paperlinx. The disappointments were led by Ardent Leisure, Asciano, Riversdale Mining, Goodman Group, Alesco, AWE Limited and Foster’s.

The other pleasing aspect of the earnings season was that the majority of the companies chose to pay a dividend. A year ago uncertain economic conditions and weak balance sheets forced a rash of companies to either cut or suspend dividends. But fast forward twelve months and 83 per cent of FY reporting companies issued a final dividend while 72 per cent of HY reporting companies issued an interim dividend.

But in line with the cautious guidance, companies sought to strengthen balance sheets rather than boost dividends. Of the FY reporting companies only 40 per cent lifted final dividends compared with a year ago and only 25 per cent of HY reporting companies increased dividend payments.

Outlook:

Corporate Australia is back in the black. Not only did the majority of companies report profits during the earnings season but they also reported an increase in earnings on the previous period. Clearly the results are generally off a low base. But for many companies the past 6-12 months has still been a struggle given an uncertain global environment, a mood of conservatism amongst consumers and businesses and deflationary tendencies in many markets.

Investors would look at the situation quite positively. Companies are earning money again, dividends are back in vogue, balance sheets have strengthened and companies are sitting on a pile of cash. Analysts may have wanted more but they under-estimated the conservative mood of Aussie consumers and over-estimated how quickly economies like the US and Europe would bounce back from the global financial crisis.

Understandably Aussie companies have recognised the significant uncertainties dominating the operating environment and have been reluctant to provide guidance. But nobody is expecting companies to guess what will happen next, so if there is no basis to provide guidance, why try. Companies would just be on a hiding to nothing.

The lack of guidance by companies in the latest reporting period may be something that analysts will have to get used to – at least for the next 3-6 months. While companies still must update the market when there are material changes in the environment or affecting the firm, there is no compulsion on companies to give predictions.
Companies have focused on substantially strengthening balance sheets over the past year, trimming debt, lifting cash balances and retained earnings and cutting gearing levels. The risk is that companies become too conservative. So despite high cash levels being maintained, it doesn’t mean that companies will go on a spending spree. Certainly companies such as BHP Billiton are pursuing acquisitions and others like Woolworths are focusing on capital management, but companies will need greater confidence on the outlook before putting cash to work.

There is the risk that balance sheets may be seen as a little lazy but investors are likely to give companies a little more time before demanding that the cash is more actively put to work. Of the 151 major companies assessed, 63 lifted cash balances with 25 doubling cash held compared with a year ago. Interestingly The Reject Shop is sitting on $4.3 billion in cash (near zero a year ago) with Bradken, Adelaide Brighton, OneSteel, Amcor and Transurban also reporting big increases in cash held.

While Aussie companies are in good shape, we remain cautious on prospects for the ASX 200. The Australian sharemarket is still tracking other international markets, in particular the US. Foreign investors are also inclined to look for growth opportunities or turnaround stories. In Australia the coming year looks to be more of the same – the economy getting back to “normal” growth with “normal” interest rates and “normal” profit growth. Overall this is hardly the type of conditions that would prompt investors to take big bets on Australia. CommSec expects the ASX 200/All Ordinaries to lift to 4,800 by mid-year and to 5,400 by the end of 2011.

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

Past returns are not an indicator of future performance. Any advice provided in this email is general in nature and does not take into account the financial circumstances of any particular person. Before making an investment decision based on the above, you need to consider whether the advice is appropriate for your own personal financial circumstances.

*** IMPORTANT INFORMATION ***

This document should be read only by those persons to whom it is addressed and its content is not intended for use by any other persons. If you have received this message in error, please notify us immediately by email or by telephoning +61 2 9979 4300 and delete it from your computer. Any unauthorised form of disclosure or reproduction is strictly prohibited and may result in legal action.

The addressee should not rely on any of the information or recommendations in this email without first seeking advice from GHR Financial Planning Pty Ltd (GHR) in respect of the addressee's individual financial circumstances. GHR and/or its associates may receive brokerage or commission in connection with a recommendation or a dealing in financial products as a result of a recommendation. GHR and/or its associates may also have some other pecuniary interest or other interest in making the recommendation. Particulars of brokerage or commission and any other interests will be disclosed when the addressee seeks the advice of GHR.

Please find enclosed a link to the cover story from this morning’s Sydney Morning Herald Money section regarding estate planning.

http://www.smh.com.au/money/planning/will-power-get-it-right-before-you-go-20101109-17l1v.html

As most of you would know, there are entire industries based around life events such as births, deaths and marriages and it’s hardly surprising, these are the times in our lives when emotions rule our heads and we are most vulnerable. The financial consequences of any of these life events, however, is very real and can be very confronting.

Death in particular is one of the most difficult issues we deal with in public practice, particularly when it occurs suddenly or unexpectedly. From my experience, if ever there was going to be a good outcome it will occur where there has been adequate planning and forethought about what happens at the time. The concept of estate planning is something that should be considered from the time someone turns 18, gets married, takes out a mortgage, has kids, gets divorced, remarries, plans retirement, or loses a spouse. Estate planning itself covers a multitude of issues including wills, testamentary trusts, enduring powers of attorney, medical guardianship, guardianship of children, superannuation and personal insurances. For business operators it can be even more complex if you consider issues such as succession planning for a family business, buy/sell agreements and key man insurance while a business is operating. The items I’ve listed here are not exhaustive, nor am I suggesting that everything I’ve listed will apply to all people. The fact is that most people find dealing with these issues difficult and confronting. As a result they often place the matter into the too hard basket which in reality is not dealing with the issue and relying on luck to protect their family’s wellbeing.

The majority of our clients have their superannuation affairs in order, and for good reason, the taxation benefits are very tangible and something that can be enjoyed while we are alive and well. Insurance on the other hand is something less tangible and viewed by many as another discretionary cost that can be avoided. Even those who hold insurance rarely revisit the policies they hold relative to their present circumstances running the risk of being underinsured or not having critical assets, such as their ability to earn an income, insured at all.

One of our partners, Bradley Cuss, holds a particular interest and specialisation in risk insurance products. He is accredited with most life companies including Macquarie, ING, Asteron, Colonial and Comminsure to provide advice about life, disability, income protection and trauma cover. Brad is particularly concerned with developing a solution that is simple to understand, cost effective and tax efficient for the client. He can be contacted on 9979-4300 or brad@ghr.com.au to discuss any enquiries you may have about personal insurance products, superannuation or if you require a referral to an appropriate practising solicitor to discuss wills and other aspects of estate planning.

Regards,

Brian Hrnjak

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

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Our End of Year Update newsletter is ready for you to download which also includes our Christmas closing dates.

We would like to take this opportunity to wish our clients and their families a Merry Christmas and all the best for 2011.

This issue includes:

Year-round planning for Businesses
Deadline for Investment Tax
Marketing during the holidays
Tax and Christmas party expenses
Government acts against business tax debts
ATO tracking loans made through trusts
Surviving the holidays
7 Steps to a Successful Year End

To view the full newsletter please click here: Newsletter 15.12.10.pdf

To discuss these topics covered in the newsletter, or any other matters that may be relevant to you or your business, please contact us to arrange an appointment:

Financial planning provided by
GHR Financial Planning Pty Ltd ABN 84 059 359 885
GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of
Premium Wealth Management Ltd AFSL 237498
Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103
Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499
Locked Bag 2002, Mona Vale NSW 1660
www.ghr.com.au

General Advice Warning

Any advice provided in this email is general in nature and does not take into account the financial circumstances of any particular person. Before making an investment decision based on the above, you need to consider whether the advice is appropriate for your own personal financial circumstances.

*** IMPORTANT INFORMATION ***
This document should be read only by those persons to whom it is addressed and its content is not intended for use by any other persons. If you have received this message in error, please notify us immediately by email or by telephoning +61 2 9979 4300 and delete it from your computer. Any unauthorised form of disclosure or reproduction is strictly prohibited and may result in legal action.

The addressee should not rely on any of the information or recommendations in this email without first seeking advice from GHR Financial Planning Pty Ltd (GHR) in respect of the addressee's individual financial circumstances. GHR and/or its associates may receive brokerage or commission in connection with a recommendation or a dealing in financial products as a result of a recommendation. GHR and/or its associates may also have some other pecuniary interest or other interest in making the recommendation. Particulars of brokerage or commission and any other interests will be disclosed when the addressee seeks the advice of GHR.

GHR to the full extent permitted by law, disclaim any liability for any loss (including but not limited to consequential and economic loss) arising in connection with the improper or incomplete transmission of this email or delay in its receipt, or with any information, recommendation, advice or omissions in or from this email. GHR does not guarantee the security of any information electronically transmitted.

It’s deflation, not inflation, that rules

Comment by: Craig James, Chief Economist, CommSec

Consumer Prices

· There are more goods falling in price than at any time over the past twenty years. In the December quarter 37 items were cheaper than a year ago, up from 29 items in the September quarter.

· Discounting from retailers, the advance of technology, a higher Australian dollar and lower tariffs on imported items are just some of the influences that have been pushing down prices over the past year.

· In the December quarter the CPI rose 0.4 per cent to be 2.7 per cent higher than a year ago.

What does it all mean?

· Despite all the fretting about inflation, it is clear that deflation – falling prices – remains a major influence on the Australian economy. A whole raft of items from eggs to cars, men’s shoes and furniture are lower in price than a year ago. In fact car prices are near the lowest levels in 22 years.

· Clearly not all prices are falling with fruit and vegetables up sharply in the latest quarter and poised to rise further in coming months. But at the same time the floods are pushing up food prices, retailers are complaining that they are still slashing prices to get consumers to spend.

· If there was to be a ‘best’ time to be hit by a price shock, this is probably it. Underlying inflation is at the lowest levels in a decade so the upcoming spike in food prices shouldn’t lead to a sustained lift in the broader inflation rate and inflationary expectations.

· The current experience with deflation is not a new development. Over the past year the extent of deflation across the economy has actually been growing. Certainly the January 2010 tariff cut will cease to be an influence in the next inflation figures, but it will be replaced by the high Aussie dollar and retailer discounting as factors serving to keep prices low.

· In addition there is the march of technology. Big-screen TVs, DVD players, computers, printers and mobile phones continue to be quicker, more feature-packed and cheaper in price.

· Clearly the extent to which deflation is holding court in Australia continues to surprise economists. Economists had tipped the consumer price index to lift by 0.7 per cent in the December quarter and no-one got within cooee of predicting the modest 0.4 per cent lift in prices in the quarter.

· Usually there are one or two special influences each quarter that affect the inflation outcome. But not so in the December quarter. Rather, retailer discounting and the influence of a higher dollar had widespread effects in the quarter and even some food items were cheaper in the quarter, such as milk and beef.

What are the implications for interest rates and investors?

· The Reserve Bank over-estimated the strength of the economy when it lifted rates in November. The economy is now struggling for momentum, keeping downward pressure on prices. Certainly interest rates won’t be rising any time soon.

· It shouldn’t come as a surprise that some economists will claim that the next move in rates will be down, not up. Certainly the annual inflation rate is at greater risk of falling below 2 per cent currently, than exceeding 3 per cent. But the Reserve Bank must remain forward-looking. Inflation will probably lift from here, but most likely gently, and there is no risk of the 3 per cent inflation ceiling being broken any time soon. In short, interest rates are on hold.

· Retailer profits will remain under pressure. Consumers want bargains, and competitive retailers are prepared to deliver those bargains to keep the tills ringing.

Peter Beverley and The Home Loan Company are long standing clients of GHR and we are delighted to be able to introduce them to you. Peter and his wife Kelly have a wealth of experience in the mortgage industry and have the ability to offer independent advice on a range of lending solutions. Please contact your GHR partner should you like an introduction or refer to our website for a link.

INSIDE THIS ISSUE.....

What's in Store for 2011?
Directors Penalty Notices
GST - Are You Managing It Effectively?
Protection From Credit Card Fraud
You Need Customers To be Successful
What's it Mean?
Business Plans Questions to Consider

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

Businesses bank on second half recovery

Private New Capital Expenditure; Average weekly earnings

Comment by: Savanth Sebastian, Economist, CommSec

· New business investment rose by a less than expected 1.3 per cent in the December quarter. Manufacturing dominated investment plans with investment in the sector up by 7.0 per cent as opposed to mining investment which fell by 4.8 per cent in the December quarter.

· Businesses expect to invest $128.9 billion in the 2010/11 year up 3.6 per cent on the fourth estimate from the September quarter and slightly above the usual (decade average) upgrade of 2.2 per cent made by firms at this time of the year. Investment plans are up 16.2 per cent on the equivalent estimate made a year ago.

· The first estimate for business investment in 2011/12 is $132.7 billion, up 30.3 per cent on a year ago – marking the biggest percentage lift in first estimate investment plans on record.

· Average weekly earnings rose by 1.1 per cent in the three months to November after a small 0.6 per cent lift in the previous three months. Wages rose by 3.9 per cent over the year – in line with yesterday’s wage cost index, however the result marked the slowest annual growth in four years.

· Over the year male wages rose by 3.8 per cent while female wages rose by 4.5 per cent. The average wage stands at $66,264. The highest average wage can still be found in the mining sector, at $108,009 per year.

What does it all mean?

· The latest capital investment plans certainly paints a mixed picture of the domestic economic landscape. The sluggish 1.3 per cent lift in December quarter investment suggests that businesses remain cautious, investment plans are still not being committed to, and as such activity is likely to be subdued in the near term. However the longer term outlook is much more buoyant. In fact businesses expect to invest around $132 billion over 2011/12 - a record 30 per cent upgrade on the first estimate for 2010/11.

· Overall the results confirm the CommSec view that interest rates will lift in the second half of 2011 with the cash rate ending the year near 5.50 per cent. However it is likely that in the near term interest rates will remain on hold until there is confirmation that Corporate Australia will commit to the ramp up in future spending.

· The result is consistent with the Reserve Bank's view that growth in the near term is likely to be subdued. No doubt the impact of the natural disasters will have a further detrimental impact on March quarter economic growth. Clearly the focus is the second half of the year and beyond. If the ramp up in investment plans does come to fruition, and given the rebuilding that will take place in flood damaged areas, further rate hikes will indeed be on the cards.

· There is a nice balance in the economy at present. Consumer spending is restrained while business spending is rising modestly. Inflation is under control, wage growth is benign. And according to the Reserve Bank, the job market is not overly tight at present. The Reserve Bank can stay on the interest rate sidelines for a few more months. It's not nirvana but it is a Goldilocks scenario.

· Investment has been far from uniform, and in past quarters it has been the mining sector that has driven investment. However in the latest quarter investment spending has been largely dominated by the manufacturing sector – providing a degree of comfort given the sustained weakness in the sector.

· Over the coming year it is clear that Australia will be riding on the back of the mining sector. But the non-mining states are unlikely to feel the effects of the rise in incomes until the recovery is well and truly in full swing. No doubt as the recovery gains traction the mining states will be in the driver’s seat and continue to enjoy strong investment flows.

· It is important to highlight that while economic growth is expected to rebound in the second half of the year it is unlikely to be firing on all cylinders. Even the Reserve Bank believes that at present the labour market remains well supplied and that employment growth is likely to moderate to some degree. In fact the latest forecasts only have the unemployment rate dropping just half a per cent over the next two years. More importantly the lift in planned investment is encouraging for the economy as a whole, serving to boost productive capacity and therefore keep any potential inflationary pressures in check.

· According to the latest data average weekly earnings rose by almost 3.9 per cent over the year. Unfortunately this measure tends to be quite volatile and changes in the composition of the labour force - which was especially evident during the global financial crisis - can tend to skew the result. As such the best guide to wage pressures in the economy is the wage price index with the latest figures showing that wage growth is under control.

· The AWOTE data are also affected by compositional changes, such as the shift from full-time to part-time and movements across sectors. But the average weekly earnings data provides useful dollar estimates for wages.

· The latest data on wages highlights what the Reserve Bank has been stating for some time - that the industrialisation of China and India will lead to major shifts in our economy. Wages in the mining sector are now more than double the earnings in food sectors like cafes and restaurants as well as across the retail sector. And the resources states of Western Australia, Northern Territory and Queensland are dominating in the pay stakes.

· The mining states have been major winners in the pay stakes over the past year, with Western Australia the undisputed leader. However coming up quickly is the Northern Territory. Wages in the 'top end' have been stunning, up 7.3 per cent over the past year - well ahead of its counterparts. The industrialisation of China, and in turn, India are paying dividends, and domestically the reallocation of resources in terms of labour to the mining states will only gain in traction over coming year.

What do the figures show?

· Business investment rose by 1.3 per cent after rising by 6.9 per cent in the December quarter. The September quarter result was revised up from the earlier-reported rise of 6.2 per cent. In annual terms investment was up 5.6 per cent on a year ago.

· Spending on buildings fell by 2.8 per cent in the quarter. Spending on equipment rose by 6.1 per cent after easing by 0.8 per cent in the September quarter.

· Spending in the mining sector fell by 4.8 per cent in the December quarter, however investment rose by 7.0 per cent in the manufacturing sector and by 4.6 per cent in “other selected industries”.

· Investment fell in just one of the eight states and territories in the December quarter. The biggest increase was in ACT (up 56.7 per cent), Northern Territory (up 31.8 per cent), South Australia (up 26.6 per cent), Tasmania (up 24.8 per cent), NSW (up 3.0 per cent), Queensland (up 2.7 per cent), and Victoria (up 2.0 per cent). Spending fell only in Western Australia (down 4.9 per cent).

· The overall deflator for investment goods fell by 0.5 per cent in the December quarter after rising by 0.7 per cent in the September quarter. The price of buildings and structures rose by 0.6 per cent in the quarter while the cost of equipment fell by 1.5 per cent.

· Over the year, the cost of investment goods fell by 1.0 per cent. The cost of buildings rose by 2.5 per cent over the year, while the cost of investment equipment fell by 4.8 per cent over the year.

· The fifth estimate of investment for 2010/11 was $128.9 billion, up 3.6 per cent on the fourth estimate and slightly above the usual (average) upgrade in the quarter of 2.2 per cent. Compared with a year earlier, the fifth estimate of investment was up 16.2 per cent on a year ago.

· The first estimate of investment for 2011/12 was $132.7 billion, up 30.3 per cent on a year ago.

Average weekly earnings

· Average weekly earnings rose by 1.1 per cent in the three months to November after a small 0.6 per cent lift in the previous three months. Wages rose by 3.9 per cent over the year – in line with yesterday’s wage cost index.

· Private sector wages rose 1.3 per cent in the quarter and by just 3.5 per cent over the year. Public sector wages rose by 0.8 per cent in the quarter and by 5.1 per cent over the year. Male wages rose 1.3 per cent in the quarter and by 3.8 per cent over the year. Female wages rose by 1.1 per cent in the quarter and by 4.5 per cent over the year.

· Wages rose most over the year in Transport postal and warehousing (up 10.3 per cent), Electricity, gas, water & waste services (up 9.1 per cent), Financial & insurance services (up 8.8 per cent). Wages were weakest over the past year in Rental Hiring and Real Estate Services (down 2.6 per cent), followed by Administrative and support services (up 1.3 per cent), and Retail trade (up 1.4 per cent).

· Across states & territories, we have calculated average annual wages as follows: NSW $66,565 (up 2.7 per cent over the year), Victoria $64,620 (up 4.5 per cent), Queensland $65,619 (up 4.1 per cent), South Australia $60,414 (up 4.0 per cent), Western Australia $73,148 (up 5.4 per cent), Tasmania $57,808 (up 5.5 per cent), Northern Territory $65,900 (up 7.3 per cent) and ACT $76,367 (up 4.3 per cent).

· The highest average wage can still be found in the mining sector, at $107,510 per year. Next highest is scientific & technical services ($79,612), finance & insurance services ($78,933), and information media & telecommunications ($77,110). The lowest average wage is obtained by workers in the accommodation and food services sector ($47,518), followed by retail trade ($48,422) and “other services” ($53,352).

What is the importance of the economic data?

· Private New Capital Expenditure and Expected Expenditure is released quarterly by the Bureau of Statistics. The figures show actual and expected spending by businesses on tangible assets such as new buildings, machinery and office equipment. The figures are obtained after sampling 8,000 private business units.

· The data on actual spending is broken-down at a state and industry level and estimates are represented in nominal and price-adjusted (volume) terms. The data on expected spending contains a mix of short and longer-term estimates. The short-term estimates may focus on periods just three months ahead while the longer-term estimates may look as far as 18 months into the future.

What are the implications for interest rates and investors?

· Interest rates will continue to rise as the recovery gains traction. However business and consumers will need a few months to adjust to the current economic conditions. Spending and activity needs to be firmly entrenched before interest rates are raised once again.

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

The GHR April 2011 newsletter is ready for you to download.

Inside this issue:

Succession Planning Has To Be Planned!
R and D Registration Deadline
Annual Leave Loading
Self Education Expenses
Key Aspects To Achieve Business Success
Business Plans - Questions to Consider
What's It Mean?
Fringe Benefits Tax

To view the full newsletter please click here: - April 2011 Newsletter

General Advice Warning

*** IMPORTANT INFORMATION ***

The GHR April 2011 newsletter is ready for you to download.

Inside this issue:

Succession Planning Has To Be Planned!
R and D Registration Deadline
Annual Leave Loading
Self Education Expenses
Key Aspects To Achieve Business Success
Business Plans - Questions to Consider
What's It Mean?
Fringe Benefits Tax

To view the full newsletter please click here: - April 2011 Newsletter

General Advice Warning

*** IMPORTANT INFORMATION ***

The GHR April 2011 newsletter is ready for you to download.

Inside this issue:

Succession Planning Has To Be Planned!
R and D Registration Deadline
Annual Leave Loading
Self Education Expenses
Key Aspects To Achieve Business Success
Business Plans - Questions to Consider
What's It Mean?
Fringe Benefits Tax

To view the full newsletter please click here: - April 2011 Newsletter

General Advice Warning

*** IMPORTANT INFORMATION ***

GHR to the full extent permitted by law, disclaim any liability for any loss (including but not limited to consequential and economic loss) arising in connection with the improper or incomplete transmission of this email or delay in its receipt, or with any information, recommendation, advice or omissions in or from this email. GHR does not guarantee the security of any information electronically transmitted.
Inflation: RBA alert but not alarmed

Consumer Price Index

Comment by Savanth Sebastian, Economist, CommSec

·         The main measure of inflation in Australia – the Consumer Price Index (CPI) rose by 1.6 per cent in the March quarter, well above economist expectations centred on a 1.2 per cent increase. The annual rate of inflation rose from 2.7 per cent to 3.3 per cent.

·         Higher prices for fruit, vegetables, education, pharmaceutical and petrol were partially offset by lower prices for electrical and technology goods, clothing, footwear and recreation goods.

·         The Reserve Bank focuses on three “underlying” price measures – trimmed mean, weighted median and CPIX (CPI less fruit, vegetables, petrol and deposit and loan facilities). The trimmed mean rose by 0.9 per cent (2.3 per cent annual); the weighted median rose by 0.8 per cent (2.2 per cent) and we estimate that CPIX rose 0.7 per cent (2.6 per cent).

·         The average of the Reserve Bank’s “underlying” measures of inflation – weighted median and trimmed mean – held at 2.3 per cent in annual terms.

What does it all mean?

·         The latest inflation result is certainly on the high side of expectations, with the quarterly increase of 1.6 per cent marking the highest reading in a decade. However it is important to point out that the robust inflation result was largely driven by one off items like the higher food and vegetable prices due to the natural disasters, and seasonal rises in education fees as well as pharmaceuticals. Added to which there is not much the Reserve Bank can do about the recent surge in oil prices and the flow on effect to domestic pump prices.

·         In recent times the Reserve Bank has commented that it is willing to look through the short term implications of the natural disasters and focus on the longer term outlook. The latest result is unlikely to make the Reserve Bank uncomfortable but certainly watchful in coming months. The Reserve Bank cannot afford to over react on just one set of numbers especially given that in the near term the domestic economy lacks momentum, while the strength of the Australian dollar will continue to keep imported inflation low and curb Aussie export industries.

·         Importantly last time round the underlying measures of inflation (excluding volatile items) probably understated inflation while this time the result was more than likely was a little bit above. So on balance over the past six month’s underlying inflation was closer to 0.6 per cent a quarter. Even the annualised reading of underlying inflation posted at 2.3 per cent - suggesting inflation is still comfortably at the lower end of the Reserve Bank’s target band of 2-3 per cent.

·         The domestic economy is expected to pick up speed in the second half of year and no doubt the concern for policymakers will be if the higher inflation reading becomes entrenched and feeds through the economy. There is no question that inflationary pressures will remain the hot button issue for the Reserve Bank over the midterm, and the key will be how quickly labour markets tighten up. However it is important to highlight that interest rates are already mildly restrictive and as such CommSec expects the Reserve Bank to remain on the interest rate sidelines well into the second half of the year.

Financial planning provided by
GHR Financial Planning Pty Ltd ABN 84 059 359 885
GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of
Premium Wealth Management Ltd AFSL 237498
Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103
Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499
Locked Bag 2002, Mona Vale NSW 1660
www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

Please find enclosed a review of last night’s Federal Budget as prepared by Dr Chris Caton, Chief Economist, BT Financial Group. Having read through numerous reviews this morning prepared by fund managers this one is the most comprehensive and covers what I consider to be the major financial impost in last night's Budget, the flood levy.

The other much discussed proposal was the means test to be applied to the private health insurance rebate, this was something put forward in last year’s Budget and the Treasurer last night merely reaffirmed the Government’s commitment to introducing a means test, however, this remains subject to Senate approval which may be easier to obtain after 1 July when the Greens have a balance of power.

Looking through the brokers comments this morning most of the impact of the Budget on equity markets can be described as benign with the major impact likely to centre on a number of health related stocks following changes to mental health funding, MRI rebates and health insurance rebates referred to above.

Please click on the following link to read the review: Federal Budget Update 2011.pdf

Kind Regards,

Brian Hrnjak

GHR Accountants & Financial Planners

General Advice Warning

*** IMPORTANT INFORMATION ***

The GHR End Of Year Tax Planning newsletter is ready for you to download.

Inside this issue:

The 2011 Financial Year Is Coming To An End
End Of Year Tips
Taxing of Trading Income
Small Business Entity Rules
Deductions
Deductions on Accruals Basis
Stock
Assets
Employment Issues
Superannuation Funds
Income Issues
Companies
Capital Gains Tax Items
Personal Planning
Zone Allowance
End Of Financial Year Review
Business Review 2010/11

To view the full newsletter please click here: End of Year Tax Planning.pdf

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

The GHR End Of Year Tax Planning newsletter is ready for you to download.

Inside this issue:

The 2011 Financial Year Is Coming To An End
End Of Year Tips
Taxing of Trading Income
Small Business Entity Rules
Deductions
Deductions on Accruals Basis
Stock
Assets
Employment Issues
Superannuation Funds
Income Issues
Companies
Capital Gains Tax Items
Personal Planning
Zone Allowance
End Of Financial Year Review
Business Review 2010/11

To view the full newsletter please click here: End of Year Tax Planning.pdf

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

The New Aussie Consumer

Consumer spending trends

Comment by: Craig James, Chief Economist, CommSec

Meet the new Aussie consumer. Consumers are now more likely to save rather than spend; pay for purchases with their own money, than on credit; are more likely to stay home and watch their TVs and computers than go out to restaurants & the cinema; and more likely to use public transport than use their own cars.
Aussies also drink less and smoke less. And our mobile phones are less important – that is the share of spending on phones and the internet has fallen in the past five years.

There are also signs that Aussies are embracing healthier lifestyles (but given obesity levels, probably need to cut back even more on the amount of food consumed).

Big Picture Changes

The conventional wisdom is that Australians spend like there’s no tomorrow, are reluctant to save, put purchases on the credit card and love a beer, smoke and flutter. But the stereotype is out-dated. Today’s consumer is more likely to spend cautiously; put purchases on EFTPOS than the credit card; more inclined to put money in the bank; less likely to smoke; and more likely to aim for quality rather than quantity when drinking alcohol.
The data on spending trends has just been updated. The Bureau of Statistics has released detailed figures on spending at retail outlets as well as broader consumer spending figures. The ABS has also issued latest figures on alcohol consumption as well as spending on domestic and imported wine. Unfortunately the ABS has reduced the amount of detail on broader spending trends. In the past, specific spending figures were available on petrol and gambling. But this level of detail is not now available. Hopefully the ABS can issue the more detailed figures at a less regular frequency in the future.

Some of the main trends and changes:

Spending growth has slowed: Over the past five years real consumer spending growth averaged 2.9 per cent a year. Over the previous five years the average was 4.0 per cent. Over the long-term, growth rates have averaged closer to 3.5 per cent. For the year to March, consumer spending grew by 3.0 per cent.
We are spending less money on “essentials”: Fifty years ago 41 per cent of our spending would go on food, clothing, alcohol and cigarettes. Today it is 18 per cent. Add in housing costs and the share of spending has fallen from 58 per cent to 39 per cent. In short, we are richer, have more choice, and the relative cost of goods such as TVs, furniture, cars and restaurants has fallen over time.
We are spending more on recreation: In the late 1980s, 1.4 per cent of our spending went on a raft of recreational goods. This includes TVs, cameras, computers and other home entertainment gear as well as sporting equipment and toys. Today 4.5 per cent of our spending goes on the same items. This is double the spending on electricity & gas and a third more than we spend on clothing & footwear.
We are spending more at retail outlets: Twenty years ago, real spending at traditional retail outlets (retail trade series issued by ABS) was 29 per cent of total consumer spending. Today it stands at 34 per cent. The share has stabilised over six years after rising sharply in the 1990s.
But we are making fewer purchases at Department stores: Consumers have more choice about where to buy goods. In the late 1980s around 3.2 per cent of all spending was done at department stores. Today it is almost 2.6 per cent. It may not seem like a lot, but the department store share is at record lows.
We are opting for quality, rather than quantity: Figures released on Friday show that alcohol consumption has fallen for the past three years. We are drinking less than we did over the 1970s, and 1980s and current consumption is on par with the mid 1960s. Beer consumption is at 62-year lows; wine consumption is at record highs.
We are buying more foreign wine: Blame the high Aussie dollar, but price-conscious consumers have been buying more foreign wine. Imports of wine account for around 15 per cent of all sales, up from just over 3 per cent a decade ago.
We are saving more: The household saving ratio stands at 10.7 per cent in trend terms (11.5 per cent seasonally adjusted). That compares with close to zero just five years ago and is the highest in 34 years.
We are travelling overseas in greater numbers: Exporters may not like it, but Aussie consumers love the strong Australian dollar. In April alone 691,300 Aussies travelled overseas for holidays or business, an increase of almost 25 per cent in the space of a year. In the same month we could only attract 489,800 overseas visitors.
We are buying goods on EFTPOS, not credit cards: In March, the average credit card balance was up just 2.3 per cent on a year ago – less than the rate of inflation. Spending on EFTPOS was up 20.5 per cent on a year ago whereas spending on credit cards was up just 3.5 per cent. Aussie consumers are also unlikely to take cash out with their credit cards and are increasingly likely to take cash out at retail outlets when they make purchases than use automated teller machines (ATMs).

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

The New Aussie Consumer

Consumer spending trends

Comment by: Craig James, Chief Economist, CommSec

Meet the new Aussie consumer. Consumers are now more likely to save rather than spend; pay for purchases with their own money, than on credit; are more likely to stay home and watch their TVs and computers than go out to restaurants & the cinema; and more likely to use public transport than use their own cars.
Aussies also drink less and smoke less. And our mobile phones are less important – that is the share of spending on phones and the internet has fallen in the past five years.

There are also signs that Aussies are embracing healthier lifestyles (but given obesity levels, probably need to cut back even more on the amount of food consumed).

Big Picture Changes

The conventional wisdom is that Australians spend like there’s no tomorrow, are reluctant to save, put purchases on the credit card and love a beer, smoke and flutter. But the stereotype is out-dated. Today’s consumer is more likely to spend cautiously; put purchases on EFTPOS than the credit card; more inclined to put money in the bank; less likely to smoke; and more likely to aim for quality rather than quantity when drinking alcohol.
The data on spending trends has just been updated. The Bureau of Statistics has released detailed figures on spending at retail outlets as well as broader consumer spending figures. The ABS has also issued latest figures on alcohol consumption as well as spending on domestic and imported wine. Unfortunately the ABS has reduced the amount of detail on broader spending trends. In the past, specific spending figures were available on petrol and gambling. But this level of detail is not now available. Hopefully the ABS can issue the more detailed figures at a less regular frequency in the future.

Some of the main trends and changes:

Spending growth has slowed: Over the past five years real consumer spending growth averaged 2.9 per cent a year. Over the previous five years the average was 4.0 per cent. Over the long-term, growth rates have averaged closer to 3.5 per cent. For the year to March, consumer spending grew by 3.0 per cent.
We are spending less money on “essentials”: Fifty years ago 41 per cent of our spending would go on food, clothing, alcohol and cigarettes. Today it is 18 per cent. Add in housing costs and the share of spending has fallen from 58 per cent to 39 per cent. In short, we are richer, have more choice, and the relative cost of goods such as TVs, furniture, cars and restaurants has fallen over time.
We are spending more on recreation: In the late 1980s, 1.4 per cent of our spending went on a raft of recreational goods. This includes TVs, cameras, computers and other home entertainment gear as well as sporting equipment and toys. Today 4.5 per cent of our spending goes on the same items. This is double the spending on electricity & gas and a third more than we spend on clothing & footwear.
We are spending more at retail outlets: Twenty years ago, real spending at traditional retail outlets (retail trade series issued by ABS) was 29 per cent of total consumer spending. Today it stands at 34 per cent. The share has stabilised over six years after rising sharply in the 1990s.
But we are making fewer purchases at Department stores: Consumers have more choice about where to buy goods. In the late 1980s around 3.2 per cent of all spending was done at department stores. Today it is almost 2.6 per cent. It may not seem like a lot, but the department store share is at record lows.
We are opting for quality, rather than quantity: Figures released on Friday show that alcohol consumption has fallen for the past three years. We are drinking less than we did over the 1970s, and 1980s and current consumption is on par with the mid 1960s. Beer consumption is at 62-year lows; wine consumption is at record highs.
We are buying more foreign wine: Blame the high Aussie dollar, but price-conscious consumers have been buying more foreign wine. Imports of wine account for around 15 per cent of all sales, up from just over 3 per cent a decade ago.
We are saving more: The household saving ratio stands at 10.7 per cent in trend terms (11.5 per cent seasonally adjusted). That compares with close to zero just five years ago and is the highest in 34 years.
We are travelling overseas in greater numbers: Exporters may not like it, but Aussie consumers love the strong Australian dollar. In April alone 691,300 Aussies travelled overseas for holidays or business, an increase of almost 25 per cent in the space of a year. In the same month we could only attract 489,800 overseas visitors.
We are buying goods on EFTPOS, not credit cards: In March, the average credit card balance was up just 2.3 per cent on a year ago – less than the rate of inflation. Spending on EFTPOS was up 20.5 per cent on a year ago whereas spending on credit cards was up just 3.5 per cent. Aussie consumers are also unlikely to take cash out with their credit cards and are increasingly likely to take cash out at retail outlets when they make purchases than use automated teller machines (ATMs).

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

We are having technical issues with our main phone line we expect to have the issue resolved shortly. In the mean time you can contact the office on (02) 8667 7895 or email who you are after (firstname@ghr.com.au) and they will contact you. We apologise for the inconvenience.We are having technical issues with our main phone line we expect to have the issue resolved shortly. In the mean time you can contact the office on (02) 8667 7895 or email who you are after (firstname@ghr.com.au) and they will contact you. We apologise for the inconvenience.

Year in review 2010/11: Two steps forward…

Economic & financial issues

Comment By: Craig James, Chief Economist, CommSec, Savanth Sebastian, Economist, CommSec

The global economy has proved multi-speed over the past year. Asian economies remain strong; European economies have been mixed; while the US economy has lost momentum.
In Australia, the cash rate rose just once in 2010/11 – the most stable period for monetary policy in six years.
Global share markets have risen over the past year but will finish 2010/11 off the highs set in February. Overall the Australian All Ordinaries index lifted by 7.7 per cent in 2010/11 after lifting by 9.5 per cent the previous year.
Last year we noted that “High budget deficits and debt levels in Europe, uncertainty about the sustainability of strong growth in China and question marks about the US economic recovery will be the main issues in 2010/11.” It looks to be another year of the same in 2011/12.

Key developments over the past year

Global economy: Just a few months ago, there was plenty of optimism around. The US economy was posting solid growth and employment was picking up pace. Asian economies were powering higher. Chinese authorities were continuing to deal with the inflation threat and smaller European governments were going about the process of rebuilding their economies.
But fresh doubts have emerged about the path of the US economy. The recovery continues, but slower than expected. In smaller economies like Greece, constituents have protested at the harshness of austerity measures – in part, justified. Economies need to grow at the same time that spending is pared back. Germany and France remain in good shape, but the smaller economies are restraining momentum in the Eurozone. And in contrast to most regions of the world, Asian economies remain strong.
After solid growth of 5.1 per cent in 2010, the International Monetary Fund expects the global economy to grow by 4.3 per cent over 2011 – still well above the 30-year average of 3.8 per cent. China will again make the biggest contribution to global growth, followed by the US and India. Little change in these rankings is expected in coming years.
Australian economy: In Australia, the record economic expansion continues, but the economy looks like limping, rather than leaping, into the 20^th consecutive year of growth. Floods across Queensland, NSW, Victoria, South Australia and Tasmania in late 2010/early 2011, together with Cyclone Yasi which hit north Queensland in February, pushed the economy into reverse over the March quarter by 1.2 per cent.
While the floods and cyclone have taken much of the blame, the economic slowdown has proved broad-based, driven by more conservative spending by consumers and businesses. In addition, full-time jobs have fallen over April and May by almost 80,000 people. Annual economic growth stands at just 1.0 per cent.
Interest rates: Last year we suggested that the Reserve Bank had time on its hands before deciding the next move in interest rates given that rates were back at “normal” levels. And that proved to be the case. The Reserve Bank lifted rates just once over the year – by 25 basis points in November 2010. This was the most stable period for monetary policy in six years.
Contrary to the forecasts of most private sector economists, the Reserve Bank hasn’t had to lift rates more than once over the financial year as a slowdown in non-mining sectors together with the effects of floods and cyclone have offset solid growth in the resources sector.
Ninety-day bill yields held between 4.70-5.12 per cent over 2010/11 while 10-year bond yields held between 4.78-5.72 per cent.
Despite the relative stability, Australian interest rates remain the highest in the advanced world. Three-month rates are well above the US (0.12 per cent), Japan (0.16 per cent), UK (0.83 per cent) and Europe (1.43 per cent). Australia has the 14^th highest interest rates of 42 countries tracked by The Economist.
Aussie dollar: The Aussie dollar trended higher against major currencies over much of the past year. The salutatory event was when the Aussie dollar hit parity with the US dollar for the first time in 28 years on October 15. The Aussie dollar held close to parity through to March 2011 before again gapping higher and hitting a fresh 29-year high of US110.12 cents on May 2. The Aussie weakened from these highs over May and June when the Greek debt crisis flared again, serving to reduce the attraction of riskier assets such as commodity currencies and equities.
While the Aussie dollar lifted to generational highs against the greenback over 2010/11, it also hit historic levels against other currencies such as the Euro and the UK pound sterling. On December 29, the Aussie hit a 22-year high against the Euro at 77.37 euro cents and hit a fresh 26-year high against pound sterling on June 30 at 67.16 pence.
Global currencies: The US dollar was generally weaker against other currencies over the past year. Of the 120 currencies tracked, 67 currencies lifted against the greenback with 31 currencies broadly unchanged while 22 currencies were weaker. The Swiss franc was the best performer (up 21.9 per cent against the US dollar) while the Australian dollar was second strongest (up 21.6 per cent) followed by the Hungarian forint, Czech koruna and Swedish krona.
The Euro rose by 15.6 per cent against the USD with the Japanese yen up 8.8 per cent while the UK pound was stronger by 6.8 per cent.
The list of the weakest currencies over the year is dominated by countries from Africa and the Middle East. The Ethiopian birir fell by 24.6 per cent against the greenback with the Maldives rufiyaa down by 20.7 per cent followed by the Uganda shilling down 12.5 per cent.
Commodities: Commodity prices posted solid gains over most of the past year, only losing ground with the second round of the Greek debt crisis from May. The Commodity Research Bureau (CRB) index began the financial year at 256.21; hit the lows of 253.80 on July 6 and lifted to the year’s highs of 370.56 on April 29. The Greek debt crisis and concerns about the health of the US economy then combined to drag the CRB lower to end the year at 338.05, up 31.9 per cent.
Amongst commodities with the biggest price increases have been agricultural products such as wool, up 98 per cent in US dollar terms, followed by cotton, up 67 per cent, sugar, up 63 per cent, lead, up 49 per cent, and wheat, up 40 per cent. Gold rose by 21 per cent last year after lifting 34 per cent the year before and oil was up by 26 per cent.
Australian share market: The All Ordinaries index began 2010/11 at 4,324.8 with the ASX 200 at 4,301.5. After hitting lows of 4,250.6 in early July, the course for the All Ords can be best summed up as ‘two steps forward, one step back’. The All Ords hit highs of 5,026.1 on February 18 and then sold off over 400 points over the following month. The All Ords index then rebounded to hit the year’s peak of 5,064.9 before a revival of the Greek debt crisis dragged the market lower again. The All Ords closed the year at 4,659.8, up 7.7 per cent. The ASX 200 rose by 7.1 per cent to 4,608.
After lifting by 13.8 per cent in 2009/10, the All Ordinaries Accumulation index (measuring total share market returns) grew by 12.2 per cent in 2010/11 – above the 10.3 per cent average growth rate recorded over the past decade. So shares have posted the second year of above-average returns after the sharp declines experienced in the 2008 and 2009 financial years.
Over the past seven years, total returns on shares have averaged 11.6 per cent a year – consistent with the longer-term 25-year average performance.
Share market sectors: Small companies (or the small caps) did best over the year, up by 13.5 per cent, followed by Mid-caps with an 9.7 per cent gain. The ASX 100 index rose by up 6.8 per cent and ASX 50 was up 6.4 per cent.
It is clear that the gains in small caps have been concentrated in resources with the Small Resources index up 23 per cent, outpacing the still very attractive growth of 11 per cent in the Small Industrials.
Across sectors, the stand-out was Autos and Components, up 23.3per cent, due solely to Fleetwood Corp. Next best was Commercial & professional services, up 19.1 per cent, underpinned by gains in Brambles and Transfield. Materials also record healthy gains up 17.5 per cent. At the other end of the scale, Consumer durables & apparel fell by 22.5 per cent with Retailing down 15.1 per cent and Media, down 11.0 per cent.
Global share markets: Asian share markets generally finished near the top of the global leader-board in 2010/11. The strongest share market gains occurred in Argentina (up 54 per cent), followed by Sri Lanka (up 48 per cent) and Russia (up 43 per cent). Indonesia was in 5^th spot of 72 countries tracked, with Pakistan 7^th, Thailand 8^th, Philippines 9^th and South Korea 13^th.
The Australian share market under-performed over the past year – in 46^th position of 72 countries tracked. The stronger Australian dollar clearly crimped the interest of foreign investors and total returns. Other countries with strong currencies also had under-performing share markets in 2010/11.
The major share markets of North America and Europe generally out-performed Australia over 2010/11 but Japan under-performed. The US Dow Jones lifted by 27 per cent, the S&P 500 gained 28.1 per cent and the Nasdaq rose by 31.5 per cent. In Europe the UK FTSE grew by 20.9 per cent and the German Dax gained 23.6 per cent. But the Japanese Nikkei rose by just 4.6 per cent over 2010/11.
Other asset classes: For the second straight year returns have been positive across asset classes. Over 2010/11 returns on Australian residential property are likely to have grown by around 3 per cent with returns on bonds lifting around 5 per cent and cash returning on average 4.7 per cent.
Over the past eight years Australian shares have out-performed other asset classes, growing just over 11 per cent versus just over seven per cent for residential property, and around 5.3 per cent for both bonds and cash. Of course if you rejig the investment period by a year or two you do get slightly different results. For instance over the past decade average annual returns on residential property were almost 11 per cent versus around 8.5 per cent for shares.

Outlook for 2011/12

Domestic & Global Economies

Policymakers across the globe continue to be focussed on markedly different issues. In Europe, the spotlight shines brightly on highly indebted nations such as Greece, Portugal, Spain, Italy and Ireland. The hope is that these countries take the hard decisions to wind back spending and reduce budget deficits and debt loads. Meanwhile the bigger economies such as Germany and France just want to maintain their good economic performances and avoid getting dragged lower.

In the US, politicians need to achieve agreement on reducing the budget deficit and increasing the debt ceiling. While agreement should be reached, it’s always important to remember that anything can happen in politics. Meanwhile the US Federal Reserve will be hoping that the economic recovery gains momentum after a mid-cycle pause. Interest rates remain super-low, and thus accommodative, and company balance sheets are in good shape. The missing ingredient is jobs – companies still remain reluctant to hire. But we expect the economy to gradually strengthen over the coming year without the need for assistance from another bout of quantitative easing (effectively, printing money)

In China, policymakers have made good progress in slowing the economy to a more sustainable growth pace. Inflation has peaked – or is close to peaking – at an annual rate of around 5.5 per cent.

Other Asian economies will also be focussed on maintaining solid growth over the coming year while at the same time keeping inflation under control.

The International Monetary Fund recently shaved the growth forecast for 2011 from 4.4 per cent to 4.3 per cent but it tips 4.5 per cent growth in 2012. While Germany and France are now expected to grow more strongly in 2011, the near term growth forecast for Japan was slashed from 1.4 per cent to a contraction of 0.7 per cent. And the US economy is expected to expand by 2.5 per cent in 2011 rather than 2.8 per cent.

China will continue to drive the global economy with growth of 9.6 per cent expected in 2011.

In Australia, the Reserve Bank has highlighted the challenges that lie ahead – trying to balance strong growth and investment in the mining sector with weaker growth and structural change in other parts of the economy.

While we tip stronger economic growth over the coming year for the broad economy, it is far from ‘locked in’. A lot will depend on the conservatism of consumers and businesses – with caution on spending and hiring currently restraining economic momentum.

CommSec expects 4.4 per cent economic growth in 2012, up from 2.6 per cent in 2011. The jobless rate should ease to around 4.5 per cent over the coming year, putting modest upward pressure on wages and prices. Underlying inflation should drift up from around 2.25 per cent to around 3.0 per cent over the coming year.

Financial markets

The European debt crisis, Japanese earthquake/tsunami/nuclear accident, US ‘jobless recovery’ and China’s struggle with inflation have been dominating issues over the past year. At face value that suggests little to celebrate, but the global economy has continued to record above-average growth while the majority of global share markets have tended to lift, rather than go backwards. In fact 53 of 72 bourses monitored are estimated to have grown over the past year and by an average of around 17 per cent.

At the same time commodity prices will finish the year with solid gains, in line with above-average global economic growth and a weaker greenback.

Resolution of the Greek – and broader European – debt crisis would clearly be a major positive factor for global investors. The share market gains recorded from December to April show what can be achieved if European debt issues are taken from the table and US economic indicators turn positive.

Our central view is that the US economy is undergoing a mid-cycle pause and that growth will start to lift again late in 2011. As such, we believe that the Federal Reserve won’t provide additional monetary stimulus and will in fact start to withdraw the stimulus in early 2012. The gradual withdrawal of stimulus is expected to translate to a firmer greenback over 2012.

We tip the Aussie dollar to ease from US104 cents at the end of 2011 to US102 cents by March 2012 and US97 cents by June 2012. The Aussie is also expected to ease from 70.75 Euro cents in December 2011 to 70.30 Euro cents in June 2012.

The weaker Australian dollar should cause foreign investors to become more positive about the Australian share market. Around 40 per cent of all our listed shares are owned by foreign investors, so the stronger Aussie dollar caused some investors to become overweight Australian shares, prompting some to lessen their exposure. In the March quarter foreign investors sold $1.9 billion of Aussie shares – the first reduction in just over eight years.But while a weaker currency should improve interest in Aussie shares, other factors such as proposed taxes on carbon emissions and mining profits, as well as a potential ban on the live animal trade, may also serve to restrain interest by foreign investors.

Valuations on the Australian share market remain broadly favourable. Currently share prices stand at 13.6 times historic earnings – below the long-term P/E ratio of 15. At face value the share market appears cheap, but given investor preference for liquid investments such as cash and bank deposits, it may actually just be regarded as fairly valued in these more conservative times.

CommSec expects the ASX 200/All Ordinaries to end 2011 at 5,000 before lifting to 5,500 points by the end of 201.

Shares are expected to out-perform other asset classes over 2011/12. Returns on residential property are expected to remain modest at 0-3 per cent given that supply and demand for property has become more balanced. Cash is expected to provide returns of around 5 per cent over the coming year with Government bonds also earning close to 5 per cent.

The $64 question is when will the “new conservatism” come to an end. Unfortunately no one has the answer. We expect cash to rise from 4.75 per cent to around 5.25 per cent over the coming year. However, just like 2009/10, the risk is that “new conservatism” results in rates remaining stable for longer

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

Please find enclosed a report prepared by ANZ Research outlining the Government’s proposed carbon tax and climate change plan. This is a fairly comprehensive look at the proposal covering most areas of the economy, details on the personal financial impacts are contained at pages 9 and 10.

Please click on the following link: Australia's Climate Change Plan July 2011.pdf

Kind Regards,

Brian Hrnjak

GHR Accountants & Financial Planners

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

RBA warns the ‘good old days’ won’t return - RBA Governor’s Speech

Comment by: Savanth Sebastian, Economist, CommSec

· The Reserve Bank Governor Glenn Stevens delivered a speech today titled “The Cautious Consumer”.

· The Reserve Bank has finally acknowledged the more cautious consumer behaviour – that is, consumers are spending less and saving more. The Governor did indicate that the decision by consumers to save more and spend less is more choice rather than necessity.

· The Governor did flag that while weakness in spending won’t last forever, it is unlikely to return to the “’good old days’ for consumption growth of the 1995-2005 period”.

· The key message for retailers is don’t expect the previously strong rate of spending growth (in the late 90’s / early noughties) to return. The Governor stressed that the rise in the terms of trade has probably come to an end and it will have to be productivity growth which drives income and spending growth higher.

What does it all mean?

· The sustained weakness in retail sales has resulted in the Reserve Bank weighing into the debate surrounding consumer spending. The speech delivered by the Governor focused entirely on consumers and households spending patterns, and the view portrayed by the Governor was encouragingly in line with what we have been writing for some time.

· The longer term fundamentals are sound but the lack of consumer activity displays an inherent level of cautiousness by consumers. The decision by consumers to save more and spend less is more choice rather than necessity and is a reflection of natural disasters, economic problems in Europe and the US, political wrangling and the psychology following in the post GFC era. In effect the uncertainty about the domestic and global economic recovery has resulted in consumers’ squireling away any additional dollars in case the economy starts to backtrack.

· Interestingly the Governor highlighted that future economic growth will be predominately based on an investment boom rather than being “characterised by very strong growth in areas like household consumption”. In other words the recovery is still on track, it is just going to take time to be felt by some sectors of the economy.

· The household saving ratio is at 24-year highs, however at some point in the economic cycle it will start to ease from the highs. And as such the Governor believes, as we do, that retail activity levels will start to pick up as the recovery gains traction, but it is difficult to pick when this turnaround is likely to take place.

· In addition the Governor did stress that future growth in household consumption is unlikely to return to the heady pace noted in the late 90’s / early noughties. The Governor believes that the terms of trade (ratio of export prices to import prices) has effectively peaked, and as such will not support future income growth. The key will be productivity growth.

· As the Governor noted, recent productivity growth has been relatively poor and an improvement in productivity will be the defining factor in how quickly incomes can grow in the future.

· Overall the speech suggested that the Governor was generally optimistic about the medium term outlook, but in the near term the domestic economy seems to be facing some headwinds. And as such it is looking more likely that interest rates are on hold over the next few months until activity levels pickup before once again assessing the need for further rate hikes.

What do the figures show?

Key takeouts from RBA Governor’s Speech

· “It's not that people haven't got the money to spend, rather they are choosing not to spend.”
"It's not that the income is not there, it's that people are choosing, for whatever reason, not to spend it in the same way as they might have a few years ago."

· Why have people decided to cut back spending? The Reserve Bank Governor suggests it’s because our wealth has been growing at a slower rate.
"Casual observation suggests that this change of trend in the growth of assets, or ‘wealth’, roughly coincided with the slowing in consumption spending relative to its earlier very strong trend. It seems fairly clear that these financial trends and the real consumption and saving behaviour of households were closely connected."

· What could cause us to lift spending? The RBA Governor says that the rate of income growth is likely to slow as the rise in the terms of trade has come to an end. So he says it comes down to increased productivity.
"So everything comes back to productivity."
"The thing that Australia has perhaps rarely done, but that would, if we could manage it, really capitalise on our recent good fortune, would be to lift productivity performance while the terms of trade are high. The income results of that would, over time, provide the most secure base for strong increases in living standards. That sort of an environment would be one in which the cautious consumer might feel inclined towards well-based optimism, and re-open the purse strings."

· The RBA Governor doesn't expect the ‘good old days’ for consumption growth over 1995-2005 to return. So unless productivity growth improves, retailers should get used to slower spending growth than has occurred in the past.

What are the implications for interest rates and investors?

· CommSec believes that the next move in rates will most likely be up, but not until November at the earliest. But a rate hike is by no means assured. For the Reserve Bank to start lifting rates again, it will need to see a substantial improvement in the business environment, and be of the belief that underlying inflation is again rising to the extent that its three percent ceiling will be breached, or likely to be breached. And clearly that’s not the view at present.

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General Advice Warning

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Recent Volatility in Sharemarkets

Market movements on wall street last night and today on the Australian exchange were reminiscent of the volatility experienced around the time of the GFC in 2008.

While US futures late last night were positive going into the session, closing numbers this morning were surprising to say the least. The Early comments from floor traders on the NYSE reported on the ABC this morning left us in the dark with traders unable to point to any specific item that caused the selloff.

Later analysis has pointed to ongoing concerns in the Euro-zone and the US with seasoned market observer Tom Bignill from Mason Stevens saying this morning: “If we were to venture a catalyst for the price action overnight, it is the implicit acknowledgment that the global recovery is at risk of foundering from two of the world’s major central banks.” Goldman Sachs in its view also pointed to: “Nervousness. The emotional aspect of this is ticking higher, It’s left everybody with this mindset that things are not good.” Bignill did however note that: "the scale of the selloff in the US last night suggests we are in the latter stages of this re-pricing.” Most observers are expecting a poor employment report in the US tonight which to some degree is being priced into the fall last night.

John Durie writing in the Australian this morning picked up on the magnitude of the fall and the impact of the recent actions of the Bank of Japan:

STOCK prices will fall sharply today but it's not the time to sell shares.

Market pundits are tipping at least a 150-point fall at the opening, or just more than 3 per cent, but warned it could fall as much as 200 points to 4076 points.

Australian stock prices have already fallen 14 per cent from the April high, so the local market is officially in correction territory which is signalled by a 10 per cent or more fall.

When stock prices are down 20 per cent, then it is bear market territory.

All eyes on Wall Street are on tonight’s employment data, with market consensus tipping a gain of 85,000 jobs. Anything less will be met by another sharp fall for stocks.

But local investors should be careful because part of last night’s fall was driven by hedge fund liquidations after the Bank of Japan intervened to drop the value of the yen.

This destroyed the carry trade where investors borrow cheaply in yen and invest in the US. So once that is hit it triggers mass sales everywhere.

This said sentiment is obviously very negative, with growing fears Europe faces more disasters and the US is going nowhere.

Hold tight, but don’t sell now unless you need to because the market will bounce sometime soon.

Hamish Douglass from Magellan Asset Management also commented on the European and US situation in an email this morning:

The sovereign debt issues in Europe and recent poor economic data out of the United States have led to considerable market volatility in recent days and months. The sovereign debt issues in Europe cross two complex and associated issues.

The first issue is a solvency issue. In our view Greece is effectively insolvent and Portugal and Ireland have potential solvency issues. The good news is that the European Union and the European Central Bank have finally recognised the insolvency issue in Greece. The new Greek bailout package is a fundamental step in the right direction. The package materially reduces Greece’s financial burden via the extension of loan terms and the reduction in interest rates; these measures were also extended to Ireland and Portugal. The proposed involvement of private sector creditors to swap Greek sovereign debt for longer duration lower interest debt will also materially reduce the present value of Greece’s outstanding debt. This reduction in Greece’s debt burden is a fundamental step in putting Greece on a path to sustainability. We suspect that more still needs to be done, however we are optimistic that the tools and policies are now in place to address Greece’s solvency issues.

The second issue engulfing Europe is a potential sovereign debt liquidity crisis affecting larger European countries, particularly Italy and Spain. We do not believe that either of Spain or Italy are insolvent, however a collapse in bond market confidence could push yields on sovereign debt to levels that create a true liquidity crisis. In our view monetary union presents particular challenges to addressing this situation. For a country that has its own currency and an independent central bank able to readily print money this situation would be addressable. In such circumstances the central bank could print money and buy bonds on the open market to drive down yields and monetise government funding requirements. The current policy path potentially involves the European Stability Fund (which is constrained in size) and the ECB buying affected bonds (with necessary offsetting asset sales) on the market to stabilise yields.

Unfortunately if this situation continues to escalate and in the absence of a dramatic and possibly unlimited increase in the size of the European Stability Fund, this policy path is akin to bringing a pea shooter to a gun fight.

We do believe that there are two potential policy options which would address these liquidity difficulties; either allowing the ECB and EU central banks to print money or allowing the EU to issue Eurobonds to finance the struggling economies.

We feel it is unlikely that these liquidity issues will result in a financial Armageddon scenario and that correct policies will eventually be pursued. However there are divergent views on the correct path of action and thus we could have a sustained period of considerable volatility until this is resolved.

We remain realistic and relaxed about the difficulties facing the US economy. The recent decision to raise the US debt ceiling has removed considerable risk in the short term and we are confident that the US will take action over the next few years to ensure it is on a sustainable long term fiscal path.

The US S&P 500 index closed last night at 1200, its peak this year was 1360 on 29 April 2011 and its low was at 1039 on 27 August 2010.

Kind regards

Brian Hrnjak

GHR Financial Planning

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General Advice Warning

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Market Volatility Update

The biggest single question that seems to crop up during this latest stock market drama is if the US credit rating has been downgraded by Standard and Poors, why are people dumping shares of perfectly good companies to put their money into US debt?

The first thing to understand about the stock market is that it is a forward looking mechanism usually looking around 6 to 9 months ahead. Traders are considering issues such as last Friday’s US credit downgrade, recent congressional wrangling over the debt ceiling and the European debt problem and extrapolating these into an outlook which they are reacting to now. The size and the scope of their reaction is inversely proportional to the level of confidence they have so the only conclusion you could draw at present is that confidence tanks are running on fumes. An article in this morning’s Wall Street Journal said: “What markets and the economy desperately need is confidence. Business leaders need confidence that, if they hire and invest their cash hoards, customers will emerge and they won't be left with excess capacity. Investors need confidence that the economy is resilient enough to push stocks higher without aid.”

The basic fear is not the downgrade of US credit, it’s the fear of recession and it will be an ongoing fear until the politicians in the US establish a credible plan to place that country back on a firmer financial footing. There is no doubt (now) that what played out in Washington last month with the US debt ceiling negotiations severely damaged the credibility of US politicians and led market participants to head for the exits – as one newspaper put it during the negotiations: “Washington wants a deal but the people want a solution.”

And so we get to our contradiction; shares in good quality companies have been are sold off in response to these fears and the money is placed in the very instruments downgraded by Standard and Poors, US treasury notes. The reason why is that the US treasury market is the deepest and most liquid bond market in the world and the prospects of the US defaulting on its debt are barely quantifiable whether they are rated AAA or AA+.

In the meantime markets here and in Asia have moved in lockstep to the US even though our economies have nothing like the issues confronting the US. In a briefing note one observer pointed out that our market is now 20% below its closing high on 11 April 2011 and trading on 10.3x forward earnings – 29% below the 10 year average. Permabear Michael West in this morning’s SMH quoted from a Goldman Sachs briefing paper on previous corrections of over 10% in a 10 day period of the S&P 500 index since WWII. In each case: March 2009 (-15.2%), August 1998 (-13.1%), October 1987 (-9.8%) and November 1974 (-9.7%) the market has been higher six months after the event by: +58%, +28%, +24% and +31%, respectively.

Until the fear factor ebbs away volatility will be a feature of world markets. Locally, we have a number of bellwether shares reporting results that may promote interest from investors – bank yields in particular are around 8% cash yield (+ franking) at current prices and Telstra, reporting on Thursday, has a cash yield in excess of 10% (+ franking).

Kind regards

Brian Hrnjak

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General Advice Warning

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IMF growth downgrade is hardly dire

IMF economic forecasts

Comment By: Craig James, Chief Economist, CommSec

The International Monetary Fund has cut its forecast for global economic growth. The IMF expects growth of 4.0 per cent this year, down from its previous forecast of 4.3 per cent. The Australian economy is tipped to grow 1.8 per cent this year and 3.3 per cent in 2012.

What does it all mean?

The long-term average economic growth rate for the world economy is 4.0 per cent, so the downgrade in the growth forecast is hardly dire. And two years of 4 per cent growth would be very good after 5.1 per cent growth in 2010. There are risks ahead, and the risks are very much focussed on Europe and the US. The simple fact is that European and US politicians must start governing for the good of their people and for the world as a whole. But provided China, India and the rest of Asia remain in good shape, then the global economy will post “trend” growth.
The main reason that the global growth forecast was cut from 4.3 per cent to 4.0 per cent is because the US economy is now tipped to grow 1.5 per cent and not 2.5 per cent.
The Australian economy remains in reasonable shape, basically because our major trading partner, China, continues to grow strongly. Australia’s growth forecast this year has been sliced because of the floods and cyclones of earlier this year and the conservatism of consumers. But our economy is expected to bounce back to “trend” growth next year. The rebound in growth is by no means assured, but if the Reserve Bank had to cut interest rates to support growth, it is well placed to do so.

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General Advice Warning

*** IMPORTANT INFORMATION ***

Market Volatility Continues

According to index futures, our market is likely to finish around 100 points lower today on the back of news that Italy’s debt yields have risen to over 7%.

This is in stark contrast to yesterday’s trading session when markets here and offshore rallied following the news of the pending resignation of the Italian prime minister. Indeed, US futures for most of yesterday indicated a positive open only to reverse sharply after European bond trading began.

A quick lesson in bonds, what has occurred is that holders of Italian bonds have sold them off at sharply lower prices in recent trading. Bond prices have an inverse relationship to their yield, for example, a $100 face value bond yielding a 5% coupon sold in the secondary market for $70 actually has a yield of 7.1%. This change in price can be due to movements in interest rates demanded by investors or it can be in response to credit risk (the risk of getting back your $100 when the bond matures). The change in Italy’s bond yield to over 7% is seen as significant as it represents the point at which future borrowings become unsustainable and it was the point at which Ireland, Portugal and Greece all required assistance. Italy doesn’t need to access credit markets again until February 2012 however markets dislike uncertainty and it will take the urgent resources of the Euro zone to stabilise.

Despite the recent run up in our market (from 3,900 to 4,350) on the back of the Greek situation seemingly being managed, a positive local and US reporting season and modest inflation being reported in China, it seems that volatility will still be a feature for some time to come, one only has to look back to the 4 week period between 9 August and 6 September where the market basically fluctuated +/- 7% each week to see what is possible.

Kind Regards

Brian Hrnjak

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General Advice Warning

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The GHR November 2011 newsletter is ready for you to download.

Inside this issue:

How Would You Cope If Your Business Partner Died?
Age Limits For Superannuation To Be Scrapped
Business Plans
Who Are The "Winners" And "Losers" In The Carbon Tax Debate?
Team Member Appraisals
Export Market Development Deadline
Stress Test Your Business
Business Outlook Confused
Compulsory Superannuation Contributions To Rise
New Work Health and Safety Laws
What’s It Mean?

To view the full newsletter please click here: November 2011 Newsletter.pdf

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

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General Advice Warning

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Businesses cut prices to move stock. Petrol prices need to fall further.

Economic Indicators

Comment by Craig James, Chief Economist CommSec

Inflation is under control: The TD Securities-Melbourne Institute monthly inflation gauge fell by 0.1 per cent in November and stands 2.1 per cent higher than a year ago. The trimmed mean fell by 0.2 per cent (up 2.2 per cent annual) and the measure excluding volatile items was flat in November (1.4 per cent annual). Prices haven't budged the past four months.
The services sector is contracting: The Performance of Services index fell 1.1 points to 47.7 in November. A reading below 50 suggests that the services sector is contracting. Employment fell to 46.2 and the index of selling prices hit a 2-year low.
Employers are still not hiring: According to ANZ, job advertisements were flat in November (up less than 0.1 per cent) and were up just 0.2 per cent on a year ago. Previously job ads had fallen in six of the past seven months.
Tourist arrivals up, departures down: Tourist arrivals surprisingly rose by 4.9 per cent in October while departures actually fell by 1.3 per cent. Permanent settler arrivals were up 32 per cent on a year ago.
Petrol prices ease - slightly: According to the Australian Institute of Petroleum the national average petrol price fell by 0.8 cents to 140.7 cents a litre last week. The wholesale price rose by 0.2 cents to 129.8 cents a litre. The wholesale price has still fallen 2.6 cents more than the pump price over the past seven weeks. There is an 11 cent gap between the wholesale and retail price.
Less stock on shelves: Inventories fell by 1.1 per cent in the September quarter but profits rose by 4.8 per cent. Construction and utilities led the gains in profits. Sales fell in 7 of the 15 industry groups but rose in retail, mining, manufacturing and construction sectors.
More cars sold: The Federal Chamber of Automotive Industries report that 88,654 cars were sold in November, up 1.5 per cent on a year ago. It was the second highest sales result for a November month, behind the 2007 result.

What does it all mean?

Great news for the Reserve Bank and great news for Australians more generally – inflation is under control. Interest rates are certainly not headed higher any time soon and the Reserve Bank shouldn’t have any qualms about cutting rates and thus giving the economy some much-needed momentum. While we believe that the Reserve Bank should be cutting rates tomorrow, we aren’t confident that they will follow through, preferring instead to wait until the new year. If the RBA decides to wait it may be for tactical reasons - not willing to fire too many bullets in case more ammunition is required in 2012 to address any fall-out from Euro region problems.
The latest activity indicators confirm that the economy is struggling for momentum with conditions mixed across regions and industries. Encouragingly companies are trimming stock levels in response to firmer sales. But businesses remain reluctant to hire and the services sector is contracting.
The lift in tourist arrivals and the number of permanent settlers is great news for consumer-focussed sectors like retail as well as the housing sector. More people coming to our shores mean more spending, especially if combined with the fact that fewer Australians are taking their shopping dollars overseas. The problem for retailers is that other news is less positive with the services gauge confirming that businesses are trimming prices to move stock while other news shows that businesses are reluctant to take on new staff.
The petrol price is still coming down, but ever so slowly. It would be interesting what the Petrol Commissioner has to say about the lofty margin between the wholesale and retail petrol price. At close to 11 cents a litre, the gross retail margin remains near record levels. CommSec expects another 1-2 cent fall in pump prices in the coming week. Motorists need to carefully watch the new 10 day discounting cycle - the cheap days for filling up end in the next day or so.
The lift in car sales shows that consumers know a bargain when they see one. Car affordability is at the best levels since the 1970s and perhaps approaching the best levels on record. Car prices are flat or lower but more features are being squeezed into vehicles.
While profits rose in the latest quarter, they did so from a low base. In 2010/11 profits rose by just 0.4 per cent - the weakest financial year outcome in the 17-year history of the series apart from the global financial crisis period. Companies are slashing prices to clear inventories, while at the same time keeping a tight rein on costs. Profits rose in the latest quarter but the sustainability of the rise is called into question.
There was a huge amount of economic data out today and all the pieces fall into place quite nicely. The economy is struggling for momentum; businesses are trimming prices and costs but achieving useful results in terms of higher sales - to clear stocks - and thus securing a short-term boost to profits.

What is the importance of the economic data?

The Performance of Services index is released by Australian Industry Group and the Commonwealth Bank each month. The PSI is designed to provide a guide to conditions in retail, financial and other service sectors.
The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are rising then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.
The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.
Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
The Australian Bureau of Statistics releases data on overseas arrivals and departures is produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.

What are the implications for interest rates and investors?

The Reserve Bank should cut rates tomorrow, but we aren’t confident that it will deliver the much-needed Christmas present. Economic conditions remain very mixed and it would be valuable to support the Australian economy especially with the on-going problems in Europe. The Reserve Bank needs to judge when it is best to deliver the stimulus.
Retailers have reason to be a little more positive. While job ads barely rose in the latest month, at least they didn't fall. Further, more tourists are hitting our shores and interest rates are set to fall - if not tomorrow, then early next year.
If rates are headed lower, investors will need to give greater thought about where to invest funds. Term deposits are attractive, but arguably fully-franked dividends on bank stocks are even more enticing.

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

Businesses cut prices to move stock. Petrol prices need to fall further.

Economic Indicators

Comment by Craig James, Chief Economist CommSec

Inflation is under control: The TD Securities-Melbourne Institute monthly inflation gauge fell by 0.1 per cent in November and stands 2.1 per cent higher than a year ago. The trimmed mean fell by 0.2 per cent (up 2.2 per cent annual) and the measure excluding volatile items was flat in November (1.4 per cent annual). Prices haven't budged the past four months.
The services sector is contracting: The Performance of Services index fell 1.1 points to 47.7 in November. A reading below 50 suggests that the services sector is contracting. Employment fell to 46.2 and the index of selling prices hit a 2-year low.
Employers are still not hiring: According to ANZ, job advertisements were flat in November (up less than 0.1 per cent) and were up just 0.2 per cent on a year ago. Previously job ads had fallen in six of the past seven months.
Tourist arrivals up, departures down: Tourist arrivals surprisingly rose by 4.9 per cent in October while departures actually fell by 1.3 per cent. Permanent settler arrivals were up 32 per cent on a year ago.
Petrol prices ease - slightly: According to the Australian Institute of Petroleum the national average petrol price fell by 0.8 cents to 140.7 cents a litre last week. The wholesale price rose by 0.2 cents to 129.8 cents a litre. The wholesale price has still fallen 2.6 cents more than the pump price over the past seven weeks. There is an 11 cent gap between the wholesale and retail price.
Less stock on shelves: Inventories fell by 1.1 per cent in the September quarter but profits rose by 4.8 per cent. Construction and utilities led the gains in profits. Sales fell in 7 of the 15 industry groups but rose in retail, mining, manufacturing and construction sectors.
More cars sold: The Federal Chamber of Automotive Industries report that 88,654 cars were sold in November, up 1.5 per cent on a year ago. It was the second highest sales result for a November month, behind the 2007 result.

What does it all mean?

Great news for the Reserve Bank and great news for Australians more generally – inflation is under control. Interest rates are certainly not headed higher any time soon and the Reserve Bank shouldn’t have any qualms about cutting rates and thus giving the economy some much-needed momentum. While we believe that the Reserve Bank should be cutting rates tomorrow, we aren’t confident that they will follow through, preferring instead to wait until the new year. If the RBA decides to wait it may be for tactical reasons - not willing to fire too many bullets in case more ammunition is required in 2012 to address any fall-out from Euro region problems.
The latest activity indicators confirm that the economy is struggling for momentum with conditions mixed across regions and industries. Encouragingly companies are trimming stock levels in response to firmer sales. But businesses remain reluctant to hire and the services sector is contracting.
The lift in tourist arrivals and the number of permanent settlers is great news for consumer-focussed sectors like retail as well as the housing sector. More people coming to our shores mean more spending, especially if combined with the fact that fewer Australians are taking their shopping dollars overseas. The problem for retailers is that other news is less positive with the services gauge confirming that businesses are trimming prices to move stock while other news shows that businesses are reluctant to take on new staff.
The petrol price is still coming down, but ever so slowly. It would be interesting what the Petrol Commissioner has to say about the lofty margin between the wholesale and retail petrol price. At close to 11 cents a litre, the gross retail margin remains near record levels. CommSec expects another 1-2 cent fall in pump prices in the coming week. Motorists need to carefully watch the new 10 day discounting cycle - the cheap days for filling up end in the next day or so.
The lift in car sales shows that consumers know a bargain when they see one. Car affordability is at the best levels since the 1970s and perhaps approaching the best levels on record. Car prices are flat or lower but more features are being squeezed into vehicles.
While profits rose in the latest quarter, they did so from a low base. In 2010/11 profits rose by just 0.4 per cent - the weakest financial year outcome in the 17-year history of the series apart from the global financial crisis period. Companies are slashing prices to clear inventories, while at the same time keeping a tight rein on costs. Profits rose in the latest quarter but the sustainability of the rise is called into question.
There was a huge amount of economic data out today and all the pieces fall into place quite nicely. The economy is struggling for momentum; businesses are trimming prices and costs but achieving useful results in terms of higher sales - to clear stocks - and thus securing a short-term boost to profits.

What is the importance of the economic data?

The Performance of Services index is released by Australian Industry Group and the Commonwealth Bank each month. The PSI is designed to provide a guide to conditions in retail, financial and other service sectors.
The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are rising then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.
The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.
Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
The Australian Bureau of Statistics releases data on overseas arrivals and departures is produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.

What are the implications for interest rates and investors?

The Reserve Bank should cut rates tomorrow, but we aren’t confident that it will deliver the much-needed Christmas present. Economic conditions remain very mixed and it would be valuable to support the Australian economy especially with the on-going problems in Europe. The Reserve Bank needs to judge when it is best to deliver the stimulus.
Retailers have reason to be a little more positive. While job ads barely rose in the latest month, at least they didn't fall. Further, more tourists are hitting our shores and interest rates are set to fall - if not tomorrow, then early next year.
If rates are headed lower, investors will need to give greater thought about where to invest funds. Term deposits are attractive, but arguably fully-franked dividends on bank stocks are even more enticing.

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GHR Financial Planning Pty Ltd ABN 84 059 359 885

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Premium Wealth Management Ltd AFSL 237498

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Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to lower the cash rate to 4.25 per cent, effective 7 December 2011.

Growth in the global economy has moderated this year after a strong performance in 2010. Some of the slowing reflected temporary factors, and as these passed, the pace of expansion in the United States and much of Asia began to pick up around mid year. China's growth has been slowing, as policymakers there had intended. Trade in Asia is now, however, seeing some effects of a significant slowing in economic activity in Europe.

The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead. Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe. This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased. Commodity prices have reflected this, declining further over recent months and taking pressure off CPI inflation rates. This has increased the scope for some easing in monetary policy in a number of countries.

Information about the Australian economy suggests output growth has been close to trend, with demand growth stronger than that. The terms of trade have now peaked and will decline somewhat in the near term, but they remain very high. In response, investment in the resources sector is picking up very strongly, with much more to come. Some related service sectors are enjoying better-than-average conditions. In other sectors, changed behaviour by households and the high exchange rate have had a noticeable dampening effect. The unemployment rate has increased a little since mid year, though it remains close to 5 per cent.

CPI inflation on a year-ended basis remained above the target at the latest reading, due to the effects of weather events last summer, but is now starting to decline as production of key crops recovers. Moreover, with labour market conditions now softer, the likelihood of a significant acceleration in labour costs outside the resources and related sectors in the near term has lessened. Accordingly, the Bank's current judgement is that inflation is likely to be consistent with the 2–3 per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme.

The reduction in the cash rate as a result of the Board's previous decision flowed through to lending rates, which are now around their average level of the past 15 years. Short-term market interest rates have tended to decline a little further in recent weeks, though term funding conditions for financial institutions have become more difficult. Credit growth remains subdued and asset prices have declined further over recent months. The exchange rate has been quite variable over the past few months, but remains at an historically high level.

Overall, the Board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate. The Board will continue to set policy as needed to foster sustainable growth and low inflation over time.

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

Introducing the EASY Insurance Solution for Self-Managed Superannuation Funds

We often look to the New Year as a time to take on board those things we know we should do but often fall into the ‘too hard’ basket. One of those issues is personal insurances – life cover, total and permanent disability (TPD) and income protection insurance.

Through the resources of AIA Australia Limited we are pleased to be able to offer an insurance solution exclusively for the members of Self-Managed Superannuation Funds that is of the highest quality, inexpensive and genuinely easy to access.

This insurance offer is priced on a wholesale, group life basis which means that premium rates are highly competitive. A full range of covers including uncapped Life cover, TPD to $3 million and income protection to $30,000 per month are available. You can even make application to transfer up to $2 million of existing life, TPD and up to $20,000 per month income protection cover from other insurers to the AIA SMSF Master Insurance Plan.

For genuine ease, members can use the automatic group acceptance limits in the plan to access up to $500,000 of life and TPD cover in their self-managed fund in around 5 minutes by simply answering 7 questions online. Link your fund bank account to the application and the premium will be automatically deducted from your fund either monthly or in a single discounted annual premium.

Using the example of $500,000 life cover for a non-smoking white collar male professional and a non-smoking, non-working spouse, life cover premiums are:

Age/Gender	Male (Annual/Per Month)	Female (Annual/Per Month)
30	$312 p.a./$27 p.m.	$254 p.a./ $22 p.m.
40	$352 p.a./ $30 p.m.	$334 p.a./ $28 p.m.
50	$880 p.a./ $75 p.m.	$780 p.a./ $67 p.m.
60	$3,059 p.a./ $263 p.m.	$2,352 p.a./ $202 p.m.

Results generated by the quotation tool are for illustration purposes only. All amounts are in Australian Dollars and include any applicable commission, fees and government charges. They neither constitute an offer nor do they represent any terms of any product offered by Australian Group Insurances Pty Limited or AIA Australia Limited. They are also not to be taken as financial advice. Please seek independent financial advice to ascertain the suitability of any product you may consider. Applicable terms are set out in the SMSF Master Insurance Plan Product Disclosure Statement. Offer or acceptance of cover will be subject to normal underwriting terms and conditions of AIA Australia. Note the Annual Cost includes a 3% premium discount available for the annual payment option.

About AIA Australia

AIA Australia Limited is an independent life insurance specialist offering a range of life insurance products which protect the financial health and welfare of Australians. In addition to being the country´s biggest group life insurer by market share, AIA Australia also offer retail insurance products through independent financial advisers and through a valued network of affinity partners.

AIA Group Limited and its subsidiaries (collectively "the AIA Group" or "the Group") comprise the largest independent publicly listed pan-Asian life insurance group in the world, with a broad footprint spanning 15 markets in Asia Pacific. The Group traces its roots in the region back more than 90 years and has total assets of US$107.9 billion.

How to Obtain Cover, Get a Quote or Request Further Information

Simply go to www.agismsf.com.au to access the insurance needs calculator and quoting tool. Use PRE901 when requested for the SMSF provider code and ensure that you have the details of your SMSF on hand. Please note that applications can only be made on a member by member basis for each fund. This is general advice only and does not take into account your personal circumstances, for full terms and disclosures and to determine whether this product is appropriate to your needs please refer to the product disclosure statement via the following link: SMSF Master Insurance Plan Product Disclosure Statement.

If you have any questions, need further information or require assistance please contact Bradley Cuss at our office on 02 9979 4300 or email brad@ghr.com.au.

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

China successfully engineers ‘soft landing’

Chinese economic data

Comment by: Craig James Chief Economist CommSec

Chinese economic data was generally firmer than expected. The Chinese economy grew at an 8.9 per cent annual rate in the December quarter (consensus 8.7 per cent) down from 9.1 per cent in the previous quarter. It was the slowest annual growth rate in 2½ years.
Retail sales in December were up 18.1 per cent on a year ago (consensus 17.2 per cent); industrial production was up 12.8 per cent (consensus 12.2 per cent); but fixed asset investment over 2011 was up by 23.8 per cent (consensus 24.1 per cent).
Good news for Australia. The solid, sustainable rate of economic growth in China is clearly a good outcome for Australian raw material suppliers. The Aussie dollar held near US103.5 cents after the results while the share market was up 54 points.

What does it all mean?

Usually there are no significant surprises with Chinese economic data – results tend to come in broadly in line with economist forecasts. But not so this month, with most of the readings ahead of consensus estimates. Overall, the results indicate that the Chinese authorities have engineered a ‘soft landing’ with activity growing at a more sustainable rate and inflation on the way down.
At first glance economic growth of 8.9 per cent hardly sounds like a ‘soft landing’. But when you consider that the economy had been growing at a near 12 per cent rate and that the long-term average growth rate is 9 per cent, the latest economic growth reading appears spot on.
At the margin, the firmer-than-expected economic readings reduce the urgency for a significant easing of monetary policy. But as is the case here in Australia, policy certainly doesn’t need to be as restrictive, keeping the door open for a gradual lowering of bank reserve requirements.
Some view the glass as ‘half-full’, others as ‘half-empty’. While the Chinese economy will likely slow further in 2012, it remains in strong shape and should be supported by judicious easing of monetary policy.
You couldn’t have conjured up a better outcome for Australia. Our major trading partner is continuing to grow at a solid, sustainable rate and it is still poised to ease policy gently to maintain the current growth pace. Clearly there are challenges ahead but you would argue that both Australia and China are amongst the best placed economies to ride through challenging global conditions over the next few months.
In commenting on the latest economic data, China’s statistical bureau chief was reported as saying that December quarter growth was “normal” but that growth was likely to ease further in coming quarters as the government tried to restructure the economy in favour of consumption rather than investment. The stats bureau chief was further quoted as saying that it will be difficult to maintain steady growth over 2012.

What do the figures show?

The Chinese economy grew at an 8.9 per cent annual rate in the December quarter (consensus 8.7 per cent), down from 9.1 per cent in the previous quarter. In constant price terms the Chinese economy grew by 2.0 per cent in the December quarter, down from 2.3 per cent in the September quarter but in line with forecasts.
Over 2011 consumption contributed 51.6 per cent to economic growth; investment contributed 54.6 per cent while net exports detracted 5.8 per cent from the growth pace.
Industrial output expanded at a 12.8 per cent annual pace in December, up from 12.4 per cent in November and above forecasts centred on a result near 12.2 per cent. Production is still well off the highs of 20.7 per cent annual growth in January/February 2010.
China’s urban fixed asset investment, such as spending on roads and power plants, grew at a 23.8 per cent annual pace in 2011, modestly below forecasts (24.1 per cent) and down from 24.5 per cent in November.
Retail sales grew at an 18.1 per cent annual rate in December, up from 17.3 per cent in November and above forecasts, centred on 17.2 per cent annual growth.
China processed 39.23 million tonnes of crude oil in December (9.24 million barrels per day), beating the previous record in November.

What is the importance of the economic data?

China’s National Bureau of Statistics releases its monthly economic statistics around the middle of each month. Quarterly GDP data is released around the 16^th of January, April, July and October. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications for interest rates and investors?

At face value the firmer-than-expected Chinese economic data may translate to less urgency to ease monetary policy in both China and Australia. However we believe that the case for an easing of policy remains, but it should be applied judiciously. CommSec expects the Reserve Bank to cut rates by 25 basis points in February, in part because lending rates are still modestly above the Bank’s favoured 15-year average. The People’s Bank of China is also likely to ease bank reserve requirements by 50 basis points to 20.5 per cent within the next fortnight, but wait to assess further data before moving again.
The latest Chinese economic data is supportive for Australia’s mining, energy and agricultural sectors. The Chinese economy is arguably faring much better than many of the gloomier economists had expected. There are challenges ahead but China faces them from a position of strength.

Financial planning provided by

GHR Financial Planning Pty Ltd ABN 84 059 359 885

GHR Financial Planning Pty Ltd is a Corporate Authorised Representative (240944) of

Premium Wealth Management Ltd AFSL 237498

Suite 12, Ground Floor, 20 Bungan Street, Mona Vale NSW 2103

Telephone: (02) 9979 4300, Facsimile: (02) 9979 4499

Locked Bag 2002, Mona Vale NSW 1660

www.ghr.com.au

General Advice Warning

*** IMPORTANT INFORMATION ***

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