Boundless uncertainty

With Wayne Swan desperately seeking ways to stay “determined” to return early to surplus and Joe Hockey encouraging belief that we are heading for a rash of electioneering before the nation can determine its investment future, “uncertainty” is becoming the new financial media filler.

The Sydney Morning Herald reported a spokesman for Pacific Hydro as saying that the Coalition ”seemed intent on creating a sovereign risk for investors”.

In The Age, Nathan Fabian, chief executive of the Investor Group on Climate Change, representing super funds and investment managers with more than $600 billion under management, is reported as saying: ”There are consequences in terms of price impacts in electricity markets. Prices will rise because of uncertainty.”

Across the globe, the gnomes in the central banks are writing down their estimates for end of year growth, fretting about the prospects of a double-dip recession in the US. Politicians are meeting this weekend to twiddle the knobs of debt crises across Europe as austerity measures fuel an ample supply of street demonstrations in city after city.

At the same time, China is stamping its foot on rates of growth to maintain double digit growth in its economy and ramping up its investments in materials supply chains around the world. The sale of Telstra’s copper network comes at a time when the fall in copper as a lead indicator encourages the pessimists to stay in gold and hold their nerve.

This two-speed view of the international economy provides the platform for an appreciation of the uncertainty that is driving market responses – with unprecedented levels of projected investment in the quarry/farm economy and a morose market for other sectors that are yet to experience any trickle down benefits.

Smart companies will maintain steady growth into the second half of the financial year as major company earnings reports continue to show stability and limited growth. The key to success lies in closer ties with both their customers and their suppliers as large company profits continue to recover, the equity markets remain volatile but stable and the RBA holds rates steady until early in the new year.

Gary Morgan reports that the Roy Morgan Consumer Confidence has increased to 111. 8 – its second straight weekly increase. An increasing number of Australians say their family is “better off” financially than a year ago. Australians’ assessment of their personal financial situations this time next year shows 37% (up 2%) say they expect their family to be “better off” financially and 21% (up 3%) expect to be “worse off”. More than half the population (52% of Morgan’s consumer confidence respondents) still say now is a “good time to buy” major household items bringing it to the levels seen last Christmas season.

Increasing optimism that there will at last be a solution to European debt problems has led to sharp increases in the Australian dollar from a low below 94 US cents to again being traded around $1.03 US. The volatility in the All Ordinaries shows that there is still a high level of uncertainty holding back a major equities rally and a shift back from more secure hedge investments.

The jobs supply picture is no longer an effective indicator of things to come as many small business leaders are looking to freelancers, sub-contractors and part-time workers to give them the flexibility and productivity they need to manage changes in their production schedules.

The more risky, confusing and costly is it to employ someone directly, the more businesses look towards outside contractors and marginal labour supply sources. This is particularly the case with SMEs, which usually lack the HR resources to handle unfair dismissal claims and the financial penalties on employment imposed by the ultimate tax on labour – the pay roll tax limits.

Glenn Stevens’ team recognises that global and domestic developments make it easier to let lending levels for small business rise without letting inflationary fears out of the cage.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Colin is also a member of the global Association of Professional Futurists.