Reserve Bank stranded. The Reserve Bank has been appealing to government to help it lift the economy over the hump of below-trend growth and weak employment — and its appeals are clearly falling on deaf ears in Canberra, state capitals, and among big-city investors, judging by the slide in spending on building new schools and classrooms. A bit of background first: Brickworks Ltd, the Sydney-based brick and masonry maker, always produces great building-industry stats in its interim and full-year reports and it did so yesterday, with the figures showing the current building boom is being carried by the housing sector with no support from commercial or government spending. Brickworks says there was a massive 27% slide in the value of approvals in non-residential projects in the six months to December (to a total of $14.05 billion). But the big surprise was the 31% slump in approvals from the education sector (new schools, classrooms, etc) to just $1.78 billion. At a time when the economy is struggling to grow — when unemployment is edging higher — it is unacceptable that politicians and public servants, from the noisy, and useless Christopher Pyne and Joe Hockey downwards, have failed to help the Reserve Bank and its interest-rate cuts to support the economy’s transition from the resources investment boom to domestic-based growth, including building new schools. — Glenn Dyer
Home building is carrying the load, alone. Brickworks says total dwelling commencements in Australia rose 13.2% to 102,736 for the six months ended December. “This level of residential building activity is the highest on record in Australia, with detached housing activity now two years into a recovery and other residential commencements continuing to record unprecedented growth,” the company said. Detached housing commencements were up 13.5% on the prior corresponding period. “The growth in detached housing was broad-based, with all states experiencing improved conditions. Following two years of growth, the level of detached-house building now exceeds the 25-year average, but remains below recent peaks and some 16% below the record level,” according to Brickworks. Other residential activity (apartments, etc) jumped a further 12.8% to a new record high of 43,677 for the six months to December 31, 2014. So for all the hand-wringing from Joe Hockey and Tony Abbott about the sluggish economy and the budget, not to mention the flawed and badly organised Treasury department, the culprit is clear — and it’s not the private sector, which is doing its best to stimulate demand by leveraging off-the-record low interest rates. The real problem lies with weak-kneed governments unwilling to grasp the seriousness of the problem and preferring to cut spending and maintain a fictitious ideological purity about the sins of government financed stimulus (and that includes Mike Baird in NSW). — Glenn Dyer
Twiggy, here’s the answer to your woes: war. Oil is up more than 4% this morning in New York at just over $41 a barrel after Saudi Arabia (Sunni) started dropping bombs on parts of Yemen as it seeks to halt advances by the Shia (Iran) rebels. But the current level seems to be as far as the oil-price rebound gets, absent an intensifying of the conflict. The Saudis have kept producing as much oil as they can (around 10 million barrels a day) despite the supply glut and price slide as they refuse to allow other producers room to move, starting with the rebounding American oil sector. There’s a parallel there for iron ore, isn’t there? BHP, Rio and Vale are producing as much ore as possible to drive high-cost operators out of the market — and that has damaged Fortescue and its fragile finances, just as the Saudis and the Americans are inflicting financial damage on a range of rivals from the UK, to Nigeria and Venezuela. Yemen is important, though, because it backs on to the most important bit of desert in the world: the huge oil-rich Eastern Province, home of the world’s biggest oil field and most of Saudi Arabia’s 10 million barrels a day of oil production (with a big wodge of gas as well). — Glenn Dyer
Hey Twiggy, you’re a … The echoes of Rio Tinto boss Sam Walsh’s attack on Andrew “Twiggy” Forrest and his silly idea of a cap on iron-ore production for BHP, Rio and Vale to drive up prices — and relieve the growing financial pressure on Twiggy’s baby, Fortescue Metals Group — are still reverberating around the Australian business scene, especially the clubby world of big resource companies. They might say nasty things in private about each other, but in public it’s all happy faces and unity. Walsh, the former driving force behind Rio’s iron-ore business, didn’t hold back in telling the world yesterday that Twiggy’s cap idea was a “harebrained scheme” and “nonsense”. (Don’t hold back, Sam). He told a mining lunch yesterday, “I don’t know what Andrew was thinking”.
The Twigster’s comments brought an immediate reaction from the Australian competition regulator, the ACCC, but the one I would be worried about if I were Twiggy (but I am not) is China’s competition authority, which has started taking a very aggressive stance about the activities of foreign companies in China, picking out car companies and parts suppliers and hitting them for over charging (and levying big fines). Talk about a silly way to start a cartel — usually it’s done over bottles of Grange Hermitage, a few coffees and beers, or at a hotel in inner Melbourne (Amcor and Visy). The Twig, of course, failed to face up to the fact that his company played its part in the over production by adding more than 100 million tonnes of extra iron-ore exports in the past three years. Still, there are some in the markets who reckon the Twig is really trying to buttress the Fortescue share price and then force it higher so it can raise a couple of billion dollars via a high-priced share placement to some Chinese companies. But if that’s the plan, why antagonise China by raising the idea of a cartel in a speech in China? — Glenn Dyer
US$100 oil anyone … in 2018. So while oil prices float higher because of the situation in Yemen, there’s talk around the oil market that one group (or groups) of investors have punted on oil hitting $US100 a barrel in late 2018 — over three years away. The trading raised eyebrows because it’s contrary to what other futures markets’ prices are telling traders, which are around US$75 a barrel in late 2018. The Financial Times and other business media say the group or groups have been buying call options, which will pay if oil hits US$100 a barrel three years hence. — Glenn Dyer