Interest rates in Australia are on hold at 4.5 percent after the Reserve Bank of Australia (RBA) made the right decision to keep interest rates on hold at it’s September board meeting yesterday, says the Housing Industry Association (HIA).

Australia’s construction industry continues to contract, with the latest AiG/HIA Australian Performance of Construction index at 43.2 for the month of August (with index figures below 50 indicating contraction). The HIA attributes this slow down in part to the increase in the RBA’s official cash rate during the first part of the year.

“The housing industry is continuing to lose momentum in the second half of 2010. New home building activity is set for a renewed decline and investment in renovations is proving disappointing,” said HIA Chief Economist, Harley Dale.

“There is widespread anecdotal evidence that housing conditions in some states are deteriorating markedly and this is the case even with the steady interest rates of recent months,” Harley Dale said.

The HIA believes that construction in Australia is suffering with the withdrawal of first home buyers stimulus for the housing sector and the building the education revolution fiscal stimulus from the Federal Government drying up in the first part of the year. This is being compounded by the RBA’s decisions on rates earlier this year.

“This is certainly not an environment supportive of further rate hikes and it goes without saying that includes independent moves by Australia’s trading banks,” Harley Dale said.

“To be spruiking demand on the one hand while heavily restricting finance for development on the other is suspect enough. To top that up by independently hiking rates would be unjustified, especially given the fragile nature of the new home building cycle in the early stages of 2010/11,” added Harley Dale.

Media giant Fairfax Media has lost a copyright fight with fellow publisher Reed International, after claiming that Reed had infringed its copyright by using headlines from the Australian Financial Review in a press clipping service. Reed owns and operates the LexisNexis, which publishes stories from a daily abstracting service called ABIX, which provides abstracts from 70 publications, including the AFR. Fairfax wrote to LexisNexis in February 2007, alleging that the reproduction of AFR headlines in ABIX infringed Fairfax’s copyright. In July 2007, Fairfax launched action in the Federal Court over the allegations.
 The media giant did not seek damages, but was instead looking for the Court to prevent LexisNexis using AFR headlines in the ABIX abstracting service. The case, which came before Federal Court Judge Annabelle Bennett, centred on 10 AFR headlines used by ABIX. As Bennett commented, the headlines ranged from the more prosaic: ‘Investors warned on super changes’ and ‘Builders report fall in house sales’ to ones that employ what might be thought of as a more interesting and clever use of words, such as ‘Blackout probe sheds little light’ and ‘Returns after tax will be simply super’.

However, Bennett’s judgement – which contains a thorough examination of the process of writing, compiling and editing a story, and deciding on a headline – came down in favour of Reed.

“Headlines generally are, like titles, simply too insubstantial and too short to qualify for copyright protection as literary works,” she wrote.

“The function of the headline is as a title to the article as well as a brief statement of its subject, in a compressed form comparable in length to a book title or the like. It is, generally, too trivial to be a literary work… even if skill and labour has been expended on creation.”

“Fairfax has failed to prove that any of the 10 selected Article/Headline Combination is a discrete work of joint authorship in which copyright can subsist.”

Fairfax said in a statement that it is considering an appeal. Michael Gill, chief executive officer of the Financial Review Group, said the decision was “disappointing for newspaper publishers in general. It is inconsistent with what is necessary to protect intellectual property in the digital media environment.”

Law firm Mallesons Stephen Jaques, which represented LexisNexis, said in a statement that the case had wider applications for businesses that use headlines from other sources.

“Businesses that abstract and summarise the works of others will be able to continue to use the title or headline of the original source when citing the original source.”

Australia’s troubled forestry sector has lost another member, with timber group Willmott Forests placed into the hands of receivers with $120 million of debt and a huge question mark over $400 million of investor funds. The listed timber company has been suspended from trading on the Australian Securities Exchange since July and has been locked in a dire battle to secure the on-going support of its banks. Yesterday, key lenders Commonwealth Bank of Australia and St George lost patience with the company, placing it in the hands of Mark Korda, Mark Mentha and Bryan Webster of insolvency firm KordaMentha.
 This effectively signed the death warrant for many timber companies that had specifically set their businesses up to sell timber products (or rather, rights to future timber harvests) to the managed investment scheme promoters. With sales falling, the global financial crisis further exacerbated the problems experienced by the forestry companies, which had to borrow large sums to properly maintain their plantations.

This toxic mixture has already claimed a number of other big forestry companies, including Great Southern Plantations and Timbercorp. Mark Korda said in a statement that Willmott had attempted to restructure in the last few months with a plan to offload assets and refinance its debt, but its debt obligations meant this plan could not be executed in time.

Korda also slammed what he said was a “fundamental flaw” in Willmott’s business model – its near total reliance on future MIS sales. “It became clear that the MIS forestry had collapsed after the failure of Environinvest, Timbercorp, Great Southern, FEA Group and the Rewards Group.”

“Willmott Forests experienced a decline in new MIS sales from $66.5 million in 2008-09 to $19.5 million in 2009-10.” “This severely hampered cashflow, particularly when the Willmott schemes did not require annual maintenance or rental payments from growers.”

KordaMentha will now begin assessing Willmott’s various plantation schemes with a view to seeing which can be sold off. The company has more than 56,000 hectares of radiate pine, silky oak and she-oak plantations in NSW, Victoria, Queensland and the Northern Territory. Potential buyers are expected to include Tasmanian timber giant Gunns.

Uncertainty surrounding the global economic outlook, consumer spending and Australia’s political situation is likely to mean the Reserve Bank of Australia board will leave official interest rates on hold at 4.5% when it meets today.

Rates have been on hold since May. Prior to that, concerns about rising inflation forced the RBA to lift rates by 25 basis points in March, April and May.

However, these rate rises appear to have had the necessary dampening effect, with consumer spending, house prices and business confidence all falling slightly in the last three months.

Yesterday’s TD Securities–Melbourne Institute inflation gauge added weight to the argument for a fourth consecutive rates pause from the RBA. The gauge showed inflation increased 0.2% in August, taking the annual pace of inflation from 2.8% to 3%, which is at the top end of the RBA’s target band of 2-3%.

Annette Beacher, senior strategist at TD Securities, said strong economic data about Australia’s improving growth prospects are not yet feeding through to higher inflation.

“The inflation gauge is telling us that the mid-year return to trend economic growth, the income surge from the terms of trade boom and ongoing tight labour market are yet to translate into worrisome price pressures,” she said.

“The RBA can easily sit tight for the remainder of 2010.”

CommSec chief economist Craig James has backed that view.

“Overall the Reserve Bank is ahead of the curve on the inflationary front,” he says.

“The Reserve Bank believes inflation will hold at near the top end of its 2-3% target band and at present the data is largely consistent with these forecasts. Given consumers reluctance to spend, retailers are more likely to be discounting rather than raising prices, keeping downward pressure on inflation in the economy.

“We believe that the Reserve Bank would be best served by waiting for a couple of months to gauge the strength of the recovery deciding the next move on interest rates.”

Prestige property values will fall during the spring selling season, especially in overheated markets such as Melbourne, with a flood of listings and fewer buyers causing sellers to discount heavily, one expert warns.

The prediction comes as real estate experts are carefully watching the market’s performance over the next few months, with sales during the spring selling season set to determine the likely pace of activity over the next year. M3 Property national research director Frank Sorgiovanni believes the Melbourne prestige market will experience some deflation as it backs down from an overheated year, when prices grew by about 25%.
Analysis confirms the prestige market, which historically is not typically sensitive to interest rate rises, is showing signs of slowing, particularly in suburbs Bright, Armadale and Camberwell.

Arguably, investors also represent a significant risk to house prices if they become widespread sellers should rents and values begin to stagnate or fall. There is evidence of this now occurring. Sorgiovanni believes clearance rates will drop slightly as bidders back away due to uncertainty over both the domestic economy and troubles overseas.

The global economy is still suffering from the effects of the GFC and now a weaker than expected. Australian economy in 2011 and potentially inflation-driven increasing interest rates may limit prestige house price growth.

The service sector contracted for a fourth consecutive month in August, according to the latest figures released by the Australian Industry Group-Commonwealth Bank performance of services index. The index rose by 0.9 points to 47.5, but this is still below the 50-point level separating expansion from contraction.

The survey’s measure of sales grew by 7.4 to 51.8 with six sectors reporting growth, and new orders rose 0.9 points, but the employment index fell by 3.4 points to 47. Senior CBA economist John Peters, however, said spending still remains strong. “We think that households, buoyed by ongoing labour market strength, a falling unemployment rate, and gifted with real wage increases, and likely rising asset prices in the year ahead, will become more confident and relaxed about the future,” he said.

 “They will thus become increasingly less jittery about balance sheet repair, and will boost their spending levels and the breadth of their purchases.” Pharmaceutical group Nufarm is now facing a class action from shareholders regarding a profit downgrade announced earlier this year. Law firm Slater & Gordon has said it has been approached by shareholders, following the company’s announcement earlier this year which sent shares plummeting.

“The proposed class action will allege that Nufarm engaged in misleading or deceptive conduct when it provided its profit guidance on 2 March 2010, and breached its continuous disclosure obligations throughout the period,” Slater & Gordon said.

Meanwhile, Telstra has announced its Chinese subsidiary SouFun Holdings has applied for an IPO with the US Securities and Exchange Commission. The IPO will value the group at $US810 million to $US850 million.

Sources have told Reuters previously Deutsche Bank, JPMorgan Chase & Co, Bank of America Merrill Lynch and UBS AG have been working on the proposal.

Many Australian businesses are not protecting themselves against the risk their customers might go insolvent, according to a joint survey by the Institute of Internal Auditors – Australia (IIA) and credit insurer, Atradius.

A survey issued to more than 400 Chief Audit Executives found that despite almost one in five businesses experiencing a significant financial loss due to debt defaults in the last year, almost 20 percent did not take action to mitigate the risk of non-paying customers.

In addition, the survey found that 70 percent of businesses do not insure against customer insolvency, a surprising result given the number of high profile corporate collapses in the wake of the Global Financial Crisis.

These results coupled with the latest Dun and Bradstreet business-to-business payment figures which found that lagging payments are hurting half of Australian companies, send a very clear message.

David Huey, managing director of Atradius Australia and New Zealand warns businesses to “Keep a close eye on your creditors’ ability to pay their bills.

“While local economic indicators point to recovery, cash flow is still a concern and we’re continuing to see a spate of corporate insolvencies.”

Not only do businesses need to know who their clients are but also their client’s clients as one major insolvency can have a crippling affect throughout a supply chain,” added Mr Huey.

The IIA/Atradius survey also identified some of the risk mitigation strategies used by the respondents included implementing a credit management policy (79 percent), reducing reliance on a single buyer (37 percent), requesting up-front payment (32 percent) and credit insurance (11 percent).

Despite a large number having a credit management policy, alarmingly less than half (45 percent) undertake credit checks on would be buyers and for those who do credit check, 95 percent relied only on credit agency rating.

According to IIA chief executive Chris McRostie, even though the threat of recession has receded, organisations must not repeat the mistakes of the past.  “As we found out, one of the big lessons from the GFC is that low probability, high impact risk can indeed crystallize and precipitate catastrophe for the unprepared.

“The upshot is that organisations cannot afford to be complacent and the risk of a major customer being unable to pay their bills is a major risk in anyone’s language.

“We strongly encourage companies to vet all possible solutions on a cost-benefit basis to work out what’s right for them.  In some cases, credit insurance will make sense, in others it won’t – but companies will never know unless they do a proper risk analysis in the first place,” added Mr McRostie.

Microsoft and PBL yesterday launched Cudo.com.au, yet another Groupon clone in an already crowded Australian market filled with the likes of JumpOnit, Ouffer, Spreets, OurDeal and Scoupon run by Catchoftheday.

Groupon clones like Cudo.com.au have sprung up like weeds in Australia since the start of the year, we have already covered JumpOnIt’s launch in July as well as OurDeal’s launch into new territories and Catchoftheday spinoff Scoupon.

Until now all of these Groupon clones have been run by small nimble start-up businesses or in the case of Catchoftheday as a spin off of an already successful daily deals business model, this is the first time a big corporate has decided to muscle in on this growing market.

Cudo is a joint venture between Microsoft, PBL Media and ninemsn and hopes to leverage the size and marketing resources of the three companies to carve out a profitable niche in an overcrowded market.

Initially Cudo.com.au will launch in Sydney and Melbourne with daily deals, in addition to national weekly deals, with Cudo to launch in Brisbane in October followed by other capital cities and key regional hubs such as Newcastle and the Gold Coast. Existing Groupon clones in Australia face an all out assault from Cudo.com.au with Cudo launching a major multi-channel advertising campaign, including TV, print and online media nationwide, with the majority appearing across the PBL Media properties of Channel Nine, ACP and ninemsn.

Billy Tucker, CEO, said Cudo.com.au and its parent organisations provide a unique competitive advantage for the new site, giving it significant reach at launch thanks to integration across the PBL Media network:

“This reach and the continued commitment we have from our partners puts us in an enviable position and at a competitive advantage when it comes to securing the best value and lowest price offers for our customers.”

Retail spending increased by 0.7% in July, following revised increases of 0.4% in both June and May, according to the latest figures from the Australian Bureau of Statistics. The biggest increase was in cafes, restaurants and takeaway food services, which recorded a 1.5% increase in sales, followed by food retailing at 0.4%, clothing, footwear and personal accessory retailing at 0.4% and other retailing at 0.4%. Department store retail turnover decreased by 0.4% during July. Victoria and New South Wales recorded the highest increases at 0.8% and 0.6% respectively, while Western Australian, Tasmania and the Australian Capital Territory all recorded declines.

Meanwhile, the ABS also reported a seasonally adjusted current account deficit of $5.64 billion in the June quarter, down from a revised deficit of $16.457 billion in the March quarter. The ABS said the decrease of $1.26 billion in the deficit in chain volume terms would contribute 0.4 percentage points to growth. It also said net foreign debt increased by 2% to $671.8 billion in the June quarter, while It was at $624.2 billion in the same period during 2009. The Bureau also said building approvals increased by a seasonally adjusted 2.3% in July, with a total of 13,732 buildings given approval, the first increase in three months.  The result comes after a Reuters poll indicated economists predicted a 0.7% decline in building approvals.

“Both (retail and building) are potential indications that some of the dead weight from rapid-fire rate rises earlier this year is starting to ease up,” Commonwealth Banking Group chief economist Micheal Blythe told Reuters.

“I think we are a long way from that (rate cut) nor is there enough here to say (that there will be) imminent rate rises either. There is plenty of information to come tomorrow, and the next month or two will be more important for that interest-rate story.” Centro Properties Group has recorded a loss of $652.7 million during the year to 30 June, but notes this is an improvement from the $3.54 billion loss recorded during the previous corresponding period.

The company said the improvement was due to lower property valuations and the impact of the strong Australian dollar. Chief executive Robert Tsenin said the company at $18.6 billion in investment properties and $18.4 billion debt.  “This is clearly an unsustainable capital structure,” he said in a statement. “Any restructure will be complex and must be critically linked to reducing the leverage and financial risks confronting us.”

“Subject to market conditions, it is expected that any restructure could take through to the end of 2011 to implement.”

Senior Reserve Bank official Guy Debelle has warned there remains a risk of a double-dip recession, although quantifying just how likely it is remains difficult. The RBA deputy governor gave the warning following a speech this morning, said the situation was difficult for government and policy makers to read. “I think it’s a risk, but it’s a somewhat unquantifiable risk,” Debelle said in response to a journalist’s question about the potential for another recession. “It’s difficult to take into account risk and uncertainty in structure in balance sheets and the like, it’s difficult to take risk and uncertainty into account when conducting policy.”
“In policy you have to take account of the modal events rather than the tail event, which means almost certainly you’re going to be wrong. You’re just not sure in which direction you’re going to be wrong.” Debelle was speaking just a day after US Federal Reserve chairman Ben Bernanke said that the US central bank remained ready to provide the struggling US economy with further stimulus is required. Fears that the US could crash into a fresh recession have weighed heavily on share-markets in recent months, and appear to be acting as another drag on consumer and business confidence.

Debelle also gave a speech focussing on risk and uncertainty in the financial world after the GFC, and called for regulators to look to restrain the level of debt in the global financial system.

“Leverage played the major role in translating events which would have been somewhat damaging, but survivable, into events which were fatal.”

He also argued banks and other financial institutions may have misread the potentially disastrous problems that debt can cause as strong economic growth continued through the 1990s and 2000s.

“The decline in volatility led many to conclude that a new, more stable, regime had been established.”