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Mysterious economics

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by Peter Switzer

The wonderful thing about the world of economics is that it’s like the great line in the movie JFK, which described the enormous unanswered questions around the late president’s death. It goes like this: “It’s a mystery wrapped in a riddle inside an enigma.”

In fact, moviemistakes.com says this actually was a line lifted from one of the world’s greatest orators — Winston Churchill. History lessons aside, my interview with Chris Cuffe on my Sky News Business Channel program – SWITZER – reminded me of how challenging it can be working out the economy.

A day of ups

It was the day when the latest NAB business survey told us that we registered the first positive reading in seven months on business confidence. This followed the month when the confidence measure had the biggest jump since May 2001.

The survey also revealed a massive 12-point rise in the rating of business conditions and while it is still just in negative territory at minus two, this was a great indicator of economic improvement. The profitability reading was the best in 12 months and the employment number was the biggest improvement in 12 years!

And this was on a day when Wall Street threw off its recent negativity for a big gain and our stock market put on 121 points to finish at 3,859.

Brain-picking

So it was great to have Chris Cuffe to pick his brain on where he thought the market was heading. This guy basically took the wealth management business of Colonial First State from a start-up to something that is now a multi-billion business owned by the CBA.

When he left, his accumulated back-pay, performance bonuses and other payments came in around $33 million and the guy was given a tough time by the media. Executive pay has become a red-hot issue again, but the point has to be made that most of the current complaints relate to those who were rewarded handsomely while their companies have gone backwards, taking its share price with it, which has not pleased investors.

Cuffe, in a sense, came, he saw and he conquered — end of argument.

Nowadays, he works with a mob called Social Ventures Australia which helps not-for-profit organisations get their business and money-raising acts together. Business hotshots lend their time and experience to professionalise these feel-good outfits to ensure they can spread their great efforts further.

He also runs a fund called the Third Link Growth Fund, where his returns are channelled back into his charitable activities.

Market outlook

Having such an insightful guy on my program, I cut to the chase and asked what he thought about the market going forward.

His view was neither bullish nor bearish. He admitted he was knocked out about the volatility we were seeing on the markets. He couldn’t say we wouldn’t see the old March lows on the stock market, but he showed no inclination that he was a bear waiting for another market-shocking show to drop.

On the other hand, he didn’t see us getting over this current resistance level on the stock market and then going back to the pre-November 2007 boom times.

He agrees with the likes of bear academic Steve Keen from the University of New South Wales that consumers' debt as a percentage of income had got too high, and the paying down of that debt means that we won't be seeing a reversion to the old growth levels any time soon.

Smaller gains

Before the boom ended and the market crashed, Australia was used to economic growth over three per cent, which brought unemployment down and boosted the stock market.

Cuffe says we will have to get used to slower growth and smaller rises on the stock market for some time. He also thinks interest rates will eventually track up as the demand for money from governments armed with the stimulus packages drive up the price of money.

This smart market operator has a realistic approach to the future of the economy and the stock market and he thinks he can make money going forward — that’s why he has his fund. That said, he warns it will be just a tad harder following the credit crunch and the Global Financial Crisis.

For advice you can trust contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, July 15, 2009