Freshly Baked in Ireland

 John Abernethy & Paul Zwi

The above headline does not refer to the G8 cheap NFL jerseys Meeting at Lough Erne Resort in Enniskillen, Northern Ireland, but to the ACCC allegations against Coles Supermarkets for the promotions they have made regarding“freshly baked” bread.

Lough Erne holiday snap – who is in which hut?


Coles’ activities show the parlous state of Australian manufacturing. When a company can import dough patties from Ireland, some 15,000 kilometres away, bake it and sell it profitably in Australia, then something is surely rotten. If it were an isolated case then it КАПУСТЫ could be dismissed. However, the closures of Australian car manufacturing, the importation of roof tiles from Spain by Brickworks and the importation of floating LNG processing plants from Asia are other well-known examples. Indeed there are many more examples and they do not support the musings of some economic commentators who quaintly declare that the Australian economy is transforming. Really – transforming into what?

The Australian economy and our costs of doing business should be a concern for all of us. Indeed we can draw two important conclusions from the above:

  1. The looney tunes who continue to forecast that the Australian dollar will go back above parity need to understand the consequences of what they are saying. If we do go back to parity (and we doubt it) , the risk of an Australian all recession moves from odds against to odds on; and
  2. The decline of the Australian food processing industry caused by the concentration of Australian food retailing, high cost structures and the high $A will continue unabated unless a national approach is undertaken.

Despite the above misgivings, the long term outlook for the Australian economy continues to be good with the burgeoning growth of incomes projected for Asia in the next 15 years. You may recall that the Australian Government recently produced a White Paper headed the “Asian Century”. That document suggests that the per capita income of our Asian trading partners (ex Japan) will rise from $8,000 per annum (2010) to $15,000 per annum in 2025. Only a fraction of this 87.5% growth in income will be moved into savings by these people. Rather, it will roll into increased demand for products and services that hopefully Australia can supply.

Surely processed food products would be high on the list of potential Australian exports? Australia is fortunate to have a justifiable reputation for high quality local produce, a brand quality that should be more comprehensively commercialised and built upon, and that we can supply a burgeoning Asian lower middle class. Therefore the actions of Coles, which may be commercially sensible for them, are highly disruptive to the long term potential of Australian bakeries to export “frozen bread patties” to Asia.

This sorry saga has failed to attract an appropriate reaction from our Government in Canberra, which appears to be totally transfixed upon who will lead them to decimation. As for the Opposition, or the Government in waiting, there is nothing relating to policy that flows from them. Frankly, neither party has a grand vision of what Australia’s engagement with Asia in the year 2020 will look like.

The Australian people deserve better leadership than that currently on offer in Canberra. Their decisions or lack thereof will have profound consequences for younger generations. Will Australia offer real employment or career opportunities to the next generation? Well, if we cannot effectively produce dough in this country, then the answer is No!

The G8 meets in Ireland

The current G8 Meeting in Ireland should remind us of what can go wrong when economies are not managed for the greater good and without a vision. When inept governments, sleepy regulators and corrupt financial institutions come together the result can be truly devastating. The Irish economy was the beacon of Europe in 2006 but collapsed in 2008 as its economy geared itself out of control. Today its banks are owned by the Irish Government and unemployment hovers above 10%.

Q. Prime Minister Cameron “Any idea where the meeting is?” President Obama “Well I just walked from Belfast and I haven’t a clue”
Image Source: Prime Minister David Cameron’s Twitter page


The very hotel where the G8 is meeting has been on the market for sale since 2010. It is a wonderful golf course and hotel. Its remote location, in the middle of Northern Ireland, makes it perfect for world leaders to gather away from the glaring eyes of just about everybody. However, the logic of its original construction and therefore its financing is impossible to explain today. Sort of like the world economy when you think about it?

Fake storefronts hide the reality. Are these leaders out of touch or what?
Image Karácsonyi Source: AP/DPA

A woman walks past a derelict shop, its windows covered in giant posters to make it look like a deli in Northern Ireland. The use of window-sized posters is designed to hide the fact that the shops are empty shells, a reflection of economic decay in the area. Almost GPB 300k of government funds have been invested in sprucing up more than 100 properties in the Northern Ireland county of Fermanagh, which is hosting the international G8 economic summit from June 17-18.

The View from the RBA

The Reserve Bank released the minutes of its last meeting on Tuesday, and made a number of interesting observations in relation to Japan.

They noted that growth in the Japanese economy picked up in the March quarter and indicators of activity pointed to continued growth in April. This was consistent with the increased optimism following the election of Shinzo Abe for his second stint at running Japan. Abe was quick off the mark to announce very significant additional fiscal and monetary policy measures, and the stock market in Tokyo took off.

The RBA drew attention to developments in international financial markets over the past month, “largely driven by uncertainty about the likely effects over time of the Bank of Japan’s recent policy announcement and whether the US Federal Reserve was approaching a turning point in its monetary policy cycle”. We have written extensively about the US Fed, so will confine Idol our comments today to Japan, where market gyrations over the last six months have been quite extraordinary with a 60 percent increase followed by a 20 percent fall.

Nikkei 225 performance over the last 6 months
Source: Financial Times


Despite a sharp fall in late May and early June, the Japanese market remains around 50 percent higher than in November 2012 at the time the Japanese elections were announced. Apart from being a market bedevilled by chronic low returns on equity, the market has become the prisoner of movements in the Yen. The weakening Yen has been the driver of improved profitability expectations, with its predictable impact on export profits, and the correlation between the weaker currency and the rising stock market is as strong as it has ever been.

Financial markets in Japan have been weighing up two competing forces: the direct, downward pressure on yields from bond purchases by the Bank of Japan as part of their ramped-up Quantitative Easing program, versus the upward pressure from expectations that these purchases would succeed in reflating the economy. The net result has been a marked increase in volatility and higher bond yields in Japan.

While Japanese investors have shifted out of bonds and into equities (and then out again), there had been little evidence to date of a shift into foreign bonds. If such a shift were to occur, it would have the potential to affect Australian foreign exchange and debt markets. Despite Japanese investors allocating a relatively small share of their holdings of foreign bonds to Australia, the absolute value of this allocation is very large relative to the size of both Australian debt markets and capital inflows. Unfortunately, the level of Japanese investment in Australian equity markets has always been relatively small and seems destined to remain that way for some time to come.

The message is that Australia remains a trade-oriented open economy, and the actions of financial mandarins in Tokyo could easily have material consequences for both bond prices and the level of our currency. The most recent national accounts released in Australia show an alarming slowdown which is likely to continue during this pre-election period. Unless policy planning incorporates medium Aaliyah term and long term strategies to improve our competitiveness, Australia will doubtless be buffeted by forces beyond our control – periodically giving rise to highly pernicious consequences.

Business investment declined in the March quarter. According to the latest ABS capital expenditure survey, the decline has been in both the mining and non-mining sectors. The fall in capital imports since the beginning of the year was consistent with a decline in investment in the first quarter. According to the ABS survey of firms’ capital expenditure plans, non-mining investment was expected to show moderate growth over the next year or so. While the survey also continued to imply cheap NFL jerseys further growth in mining investment, in the past actual annual capital expenditure by mining companies has often cheap jerseys differed by a wide margin from their forecasts. Based on public statements by mining companies, it seems likely that mining investment is past its peak, with considerable uncertainty about mining investment in the near term. Overall, conditions in the business sector remain subdued – a situation we expect to persist until after the September election.

If ever there was a time for visionary and responsible economic and political leadership, that time is now.

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