Heed the warning from the top end of town: Gottliebsen

There is a real element of caution emerging in the reports from some large Australian corporations led by BHP, Commonwealth Bank and Stockland. All three are confident about the future, but that confidence has a short term qualification and it is part of a world trend, which is now being reflected in stock markets.

On Wednesday, we saw Wall Street perform strongly, which boosted the Australian opening. However, by the end of the day Australia had lost almost all the early gain. Last night, Wall Street struggled to hold the previous day’s gains.

The Australian market had been hoping for a BHP capital return but there is no way BHP would contemplate such a return given the uncertainty in global commodity and capital markets. BHP is husbanding its capital. Similarly, the market and institutions were expecting a big rise in the Commonwealth Bank’s dividend. There is no way CBA chairman John Schubert and chief executive Ralph Norris would contemplate a big rise in dividends given the dangers in the world banking system and the proposed changes to liquidity rules.

Stockland, which has a major land development and investment portfolio, is keeping its gearing at a low level because it fears what might happen abroad.

It’s not clear that local and international institutions fully appreciate the nervousness among Australian and world chief executives. The rise in the local and world share markets over the last year has given institutional managers a different view of both the outlook and what is taking place in the real world. In this context, across my computer this morning suddenly came the summary of a book sponsored by the global business consulting BCG Group.

BCG is in very close touch with businesses of all sorts around the globe including a vast number in Australia. What they are telling us is that the apprehension we saw in BHP, the Commonwealth Bank and Stockland is a global phenomena.

I must confess that I have not had time to go beyond the summary points of the book ‘Accelerating Out of the Great Recession’, written by BCG senior partners David Rhodes and Daniel Stelter. But those summary points help explain the BHP, CBA and Stockland caution.

BCG says that the global economy faces several years of continued slow growth as trade imbalances, shaky banks, and overleveraged consumers burden the recovery. Growth will be difficult. At the same time BCG says history shows that shifts in industry rankings occur more often in difficult times ,so businesses have the opportunity to make moves today that will improve their position for years to come. And this is of course exactly what BHP and Stockland are doing and CBA did brilliantly via the BankWest takeover.

BCG has also detected the dangers to business created by new government attitudes. BCG says that understanding the new political environment is critical. In the new economic environment, even in countries with strong growth rates, business will have to adjust because the political intervention in Europe and the US is likely to affect business around the world.

All this feeds on itself and so the caution (to which governments, in their ignorance, are contributing) actually multiplies the nervousness. But at the heart of the matter is the fact that governments and banks must raise vast sums and no one is quite sure how this will affect business and markets.

This article first appeared on Business Spectator.