The BlueNotes Debate: Will 2015 belong to the bulls or the bears?

BlueNotes Debates bring together important voices across the business, economic and social spectrum to thrash out where the issues lie. Managing editor Andrew Cornell chaired a forum of regional corporate advisory, restructuring and administration professionals to debate their particular take on the outlook.

Below is an edited excerpt from the debate with McGrath Nicol executive chairman Peter Anderson, KordaMentha senior partner Michael Stiassny, FTI Asia pacific chairman Rod Sutton, PPB chairman Steve Parbery, Ferrier Hodgson partner Steve Sherman and PWC partner John Fisk. ANZ managing director global commercial banking Mark Whelan and  ANZ International and institutional CEO Andrew Géczy also attended.

"There has to be an unwind because just printing more money can’t fix the world."
Peter Anderson, McGrath Nicol executive chairman

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Andrew Cornell: Is the outlook for the economy over the next six to 12 months good or bad?

Anderson: I usually give quite a bearish answer to this, which most of my very good banker clients don’t like hearing. I feel that the globe hasn’t yet paid the price for the GFC, to be honest.

The GFC was caused by a chronic excess of liquidity and the answer for that has been for all major western powers to print more money and flood the markets with more liquidity. It’s easy to forget you can’t do that without there being a price. 

The fact is debt levels of governments and countries have gone sky high. At some point that has to unwind. I think many of us here sat there in 2005 and thought “when is this stopping?  It can’t go on forever”. But we knew it would be pretty dramatic when it happened.  

I honestly sit here today thinking the same thing and I’m not sure what the trigger will be - it may be the property bubble collapsing in China. It may be Europe just working out that it’s dysfunctional, it might be the first country leaving the Eurozone and everyone going, “Well, crikey, how does that unwind?”  

Sherman: In Australia there are signs of stress just starting to creep in for property, construction and mining services. If we look around the cities, particularly Melbourne, there’s a glut of things that everyone has got an insatiable appetite for. 

It’s interesting and it’s very hard to predict where the fall is going to come and you don’t know whether it’s going to be a geopolitical issue that creates the havoc. I can’t see Australia being a catalyst to change it because inevitably we’re followers of other markets. 

It’s very hard to predict when it’s going to be. I don’t have a crystal ball when it’s going to change but I think we’re moving faster towards it than away from it. 

Parbery: There is re-engineering happening in Australia. It has been happening for some time.  We’ve obviously been through development in the mines. The mining services companies have caught up. We’re now in the production stage and now we’ve got commodity price issues.

The question now is: where are the employment floaters going to come from and are we going to be able to fill up those gaps? We’ve got a huge amount of capital tied up in mining and that’s now going to transfer somewhere else. 

If you took a global view of the economy, the economy is probably not going to be too bad, but it’s where the readjustments are occurring and in what sectors and that’s usually the art of how we try to resource our own firms and the art of trying to understand how we can service our bank clients. 

Sutton: I don’t see, all things being equal, any risk to the US economy. They can continue to print money. They’ve got shale oil, which is in our lifetime totally different to what we’ve got in order of dependency, but the great risk is China. 

No one knows the numbers and no one knows the figures and the domestic debt is at the present standard 218 per cent of the gross domestic product. I think China will have significant stress but it will be able to spend its way through it one more time and the world will have, probably in the next two years, slow growth because China is slowing things down, trying to rebalance the economy. 

What I think is that we’re back to maybe 50s and 60s-type growth and we’re going to have that for the next five or six years before we move into the 70s and it starts to accelerate again.  

We’re going to rebalance but if China doesn’t get its house in order and doesn’t develop domestic expenditure and does continue to develop infrastructure projects that never will be used and it continues to try and export its way out of these problems, the next time they can’t spend their way out of it. 

Géczy: I can remember in the crisis we all talked the recovery and the L-shaped economy, the U economies, the V economies. So probably Europe is long, long L and the US is a U and the rest of the world is a U-ish type. It’s not a V type. 

When I think of the two big drivers of the world economy, I think the US will continue to improve itself. China, everyone has talked about it and there’s this transformation from an export to a consumption economy and that’s why the government has to build trust.  

I’m less bearish on Australia. I see two big headwinds. One is wage labour reform and a lack of political initiative to address this. That’s due partially to this growing sense of entitlement and it’s also because it’s a really fantastic part of the world and Australia has always found a way to solve its problems. 

Cornell: Mark, can I get your perspective? 

Whelan: I’m certainly not bearish in a global sense. I think there are risks. I think the business confidence that we have in Australia is getting quite busy, but it’s fragile and it’s fragile based on global events and some liquidity issues.  

I’d be on the more positive side because I think China will continue and I think the US will continue and Europe is probably irrelevant at the moment and I can say that. 

What does that mean domestically and what does it mean for middle market Australia? There is no doubt that we’re seeing an economic shift. Agriculture, health and age care, we’re very good in those areas. 

Infrastructure, nobody yet has come out and said infrastructure is important. We’re going to see that across India, Indonesia and I think continued in Asia. Pharmaceuticals, tourism, education, these are all things that we’re actually very good at here in Australia. So it’s not just an agriculture story for us.  

I think on the global issue what we find a little frustrating in the bank is that it is good in Australia but it doesn’t feel good. When you talk to middle market their balance sheets are actually better than we’ve seen for a long, long time. 

Cornell: John, you’re in New Zealand?

Fisk: I think we’ve got to be in a better space politically than Australia is at the moment. If you look at our political climate we’ve got a stable government in its third term with a pretty strong majority.

There are actually some good downstream benefits, if that’s what you can call it, from the Christchurch earthquake in terms of rebuild and so that’s generated economic activity. In terms of our population, there’s a drift towards Auckland, which is probably causing a bit of an Auckland housing bubble. The dairy sector, which in New Zealand obviously is a major part of our economy, has done very well, although it has cooled down in recent months.   
There’s probably a bit of two-speed economy happening. There’s a lot of talk in New Zealand about zombie towns, the drift towards Auckland and the Christchurch rebuild emphasise this.   
If you look at it on a broad basis, in fact things are pretty good but the risk is probably something happening with one of our major trading partners and we’re not alone in that.  I was told this morning that 142 countries considered China to be their biggest market and we’re one of them. China is incredibly important.”

Stiassny: New Zealand, I’m a little bit dark on it. We did have a stable government. We’re just starting to see the first crack and it will continue and it will crack down over the next three years.  

Christchurch is so significant that it’s created a false utopia. I mean the fact insurance money funds this - has to stop at some point. 

I’ll leave you with four issues that could make all of the world unstable and make all of us quite busy. The first one is conscious capitalism. I think it’s a really big thing and there will be some negatives that come out of that.  

There is the terrorist threat. Shale gas I think is one of the most dramatic changes in the world, coupled with the talk about renewables. All of those things together can create a position that will be darker rather than brighter in our future.

Photo: Jorg Hackemann /

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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