Myer’s executive sale. The struggling department store retailer Myer this morning announced a clean-out of its top management. Bernie Brookes, CEO for almost nine years, is departing almost immediately. That’s no great surprise, as he has been in the departure lounge for a while. He was due to retire last August, but stayed on to complete a merger with rival David Jones, which failed. Since then, he’s been waiting for a ride out of Myer via a board decision about his successor. The board has now decided. But, instead of naming the favourite –former chief merchandise and marketing officer Dan Bracken — the board has opted for relative-newbie Richard Umbers, who’s only been at Myer since mid-2014 as chief information and supply chain officer. As well as these changes, chief financial officer Mark Ashby is quitting to take up a role offshore. To mollify Bracken, the board has named him deputy CEO, which looks like a bit of an insurance policy in case Umbers doesn’t make the cut.

Umbers was hired by Myer last July to be the company’s first chief information officer in years. In that role, he was to lead the technology that underpins the Myer One loyalty card program, which now has over 5 million users representing 70% of the department store’s sales. Before Australia Post, where he was general manager of e-commerce and parcel services (the growth area of Australia Post), Umbers ran customer-engagement programs at Woolworths and held roles as managing director of Aldi in the north-west region of the UK and Ireland. From that appointment, it’s clear the Myer board wants to lift its game in e-commerce and online retailing, through Umbers’ experience. Bracken is there to backstop on the performance of the company’s key department stores, just in case anyone forgot Myer’s still-dominant selling channel.

So what does the Myer CEO announcement tell us? Well, the interim financial results are due out on March 19, so the change announcement tells us the board has been spooked by what must be a bad set of numbers — good profit figures don’t result in CEOs vanishing in something of a hurry. The sharemarket panicked at the news (for that reason) and sent Myer shares down 13% in early trading to an all-time low of $1.615. They recovered to be down more than 9% at 10.40am at $1.685. Should Myer now bring forward the results to keep the market fully informed by laying out all the bad news? — Glenn Dyer

China is getting worried. We should be as well, as we approach budget time — not to mention tomorrow’s Reserve Bank of Australia board meeting. Why?  Because China is our biggest export market, and it’s in trouble. Two interest-rate cuts in three months means the Chinese government is very, very concerned about the health of the economy. Growth is weakening, as we know (the 2015 economic target will be revealed at 7% in Beijing on Wednesday, down from 7.4% in 2014) and the fall in oil prices won’t be a big boost for China. But Saturday night’s surprise interest-rate cut by the People’s Bank of China has elevated deflation as a new, very real concern.

“In recent months the scale of consumer price increases has come down and the scale of producer price falls has widened and this has had the effect of pushing up the level of real interest rates,” read a statement from the People’s Bank of China, released Saturday night. In other words, the combination of disinflation in consumer prices and outright deflation in producer prices is increasing the interest-rate burden on businesses already finding it hard to with sluggish demand and weak growth. “Deflationary risk and the property market slowdown are two main reasons for the rate cut this time,” said a central bank official in an interview late Saturday quoted on Marketwatch.com. And China is dangerously close to “slipping into deflation,” a newspaper owned by the central bank, Financial News, warned last week.

The next inflation report is around 10 days away, but the January update showed disinflation crushing consumer prices lower (to an annual rate of just 0.8%), while producer prices have been falling for the past three years — the longest period on record — and deflation is now running at an annual rate of 4.3%. The timing of the second rate cut in three months on Saturday night wasn’t picked by forecaster, local or foreign. It should be an amber light for the RBA tomorrow. — Glenn Dyer

How does our economy grow? So China’s woes are worsening, and if we accept conventional wisdom that the Australian economy is limping along under the weight of the dying investment boom and weak domestic demand — despite the home building boom — then that will make for an interesting Reserve Bank board meeting tomorrow and subsequent statement from RBA governor Glenn Stevens. The slowing economy story will also be clear in Wednesday’s national accounts, which will reveal quarter-on-quarter growth estimated at around 0.5% (AMP) or 0.6% (CommSec). Other forecasts are down at 0.3% to 0.4%. They could change with more data today and tomorrow. Quarterly growth around 0.5% to 0.6% would give us growth over calendar 2014 of 2.5% to 2.7%, depending on if there were revisions to the previous three quarter’s data. This slowing economy story was behind the surprise cut in interest rates last month and will again be the reason if the RBA cuts again tomorrow. It is also the narrative of the struggling Treasurer (labelled in the weekend papers as “the unfortunate Joe Hockey”) and former Swiss banker (UBS) turned Treasury secretary John Fraser who, on Friday, advocated more spending cuts to rebalance the economy — an argument that will fall on deaf ears in the government. Fraser’s long speech was so very 2011-2013 and out of touch with what the economy needs at the moment: a bit of TLC, not more of Swiss banker Fraser’s spending axe. — Glenn Dyer

So how does our growth stack up? If quarterly GDP growth staggers in around 0.5% to 0.6%, the average growth rate for 2014 of 2.5% to 2.6% will stack up quite nicely relative to other major economies. For example, US fourth-quarter growth was a touch over 0.5% for an annual rate last year of 2.2% for the quarter (and down sharply from the 5% surge in the three months to September). Growth for the year was 2.4%, not much different to what ours could be. Of course, there are differences in composition, but US economists and the central bank say the US economy is growing at less than its ideal “trend” level, and so does the RBA and others here (including Fraser). The US economy is the best performing among the major industrialised countries at the moment, followed by the UK economy, which also experienced a slowing to a quarter-on-quarter rate of 0.5% (from 0.7%) with an annual rate of 2.6%. If that’s the case, then Australian growth in 2014 will have turned out to be similar to much of the developed world, and probably stronger than Japan and much of Europe. — Glenn Dyer

Goodbye cheap petrol. One thing we will have to do is stop focusing on the so-called lower petrol price bonus for consumers. Price rises for oil and the weaker Aussie dollar are busily eating the benefits from the big drop in oil prices for Australian petrol consumers and business. In fact, rather than continued weakening, there’s now a growing belief the sharp fall in oil prices from last June is close to the bottom. In February, Brent crude futures soared 18.1%, the biggest gain since May 2009, in that belief. But futures prices for US West Texas-style crude were up just 3.2% for the month, with all that gain coming on Friday. The smaller rise in the US represents the greater realism in the US markets about oil prices than in Europe and Asia, where there’s growing confidence the worst is over. Everyone is watching data from the weekly reports from the US Energy Information Agency (EIA) on production and stocks and consumption, and the Friday release from drilling services company Baker Hughes showing the number of drilling rigs in use.

Up to 10 days ago, the Baker Hughes report had been showing rigs in use dropping by more than 80 a week. But, in the past fortnight, that has slowed to just 33 fewer rigs in use last week. According to Baker Hughes, the US may have lost more than a third of its oil rigs in use over the past four months, but that hasn’t put a lid on US oil production. The EIA says oil output will rise to climb to 9.3 million barrels a day this year in the US, the highest since 1972. And output almost reached that forecast peak in the week ended February 20, when a 5000-barrel-a-day rise took output to 9.29 million barrels a day, just under that forecast peak and the highest rate in weekly EIA data going back to 1983. And stocks of crude rose 8.43 million barrels to a record 434.1 million over the same period, the highest for this time of year for 80 years. The weekly EIA report is out every Wednesday night (our time) and this week traders will be watching to see if output topped that forecast peak last week, and by how much, and the size of the rise in unsold stocks. A big rise in output and stocks could cause US oil prices to fall sharply; a smaller rise in both will add to the growing belief of an end to the price collapse. — Glenn Dyer

Buffett blasts private equity firms. High-flying private-equity companies and their promoters, Wall Street bankers and brokers, all get a whack in the latest annual letter from Warren Buffett to shareholders in Berkshire Hathaway for their overuse of debt and their approach to the buying and selling of companies.

Millions of investors around the world will have spent yesterday and last night poring over the words of Warren Buffett in his annual letter to Berkshire Hathaway (BH) shareholders, plus a bonus for the 50th anniversary of his taking control of the company, along with a similar letter from vice-chair Charlie Munger. There are pearls of investment wisdom as usual throughout his letters, with more clarification on succession (someone, unnamed, has been found), corporate culture, investment and his comments on private equity and Wall Street Bankers. In fact these comments were absent from the extensive media coverage in Australia and the US the morning of Buffett’s annual letter. Perhaps some of the US media in particular think he’s cutting a little too close to the bone for their mates in private equity and on Wall Street.

Buffett accuses private equity companies of being something of a misnomer, or as he wrote to shareholders (and thousands of other readers) “In truth, ‘equity’ is a dirty word for many private-equity buyers; what they love is debt … For some years, these purchasers accurately called themselves ‘leveraged buyout firms.'” But, when that term got a bad name in the early 1990s — remember RJR and Barbarians at the Gate? — these buyers hastily relabeled themselves “private-equity”. The name may have changed, but that was all: equity is dramatically reduced and debt is piled on in virtually all private-equity purchases. Indeed, the amount that a private-equity purchaser offers to the seller is in part determined by the buyer assessing the maximum amount of debt that can be placed on the acquired company.

And he gave Wall Street types a touch-up as well when he pointed out that in 10 to 20 years time, Berkshire Hathaway, his creation, will become too big for its own good.

“The bad news is that Berkshire’s long-term gains — measured by percentages, not by dollars — cannot be dramatic and will not come close to those achieved in the past 50 years. The numbers have become too big. I think Berkshire will outperform the average American company, but our advantage, if any, won’t be great,“ Buffet wrote. “Eventually — probably between 10 and 20 years from now — Berkshire’s earnings and capital resources will reach a level that will not allow management to intelligently reinvest all of the company’s earnings.”

The rest of Buffett’s letter makes for some very interesting reading. — Glenn Dyer

Peter Fray

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