The Loewy Blog Edition 1

Welcome to the first edition of the Loewy Blog.

We are currently seeing recession talk from suppliers, clients and the banks.
NSW is not a happy state.

 Unemployment levels are above 5.3%, higher than the balance of most states and are experiencing a general economic malaise.

However, these unemployment levels are historically low, interest rates reasonable at or near long term averages.

What, in my view we are seeing, is a delayed reaction to the GFC, 10% of incomes are being diverted to savings. Mortgages and debt reduced, credit card levels declining, current retail declining (excluding on-line).

We are in the brave new world of post GFC capitalism. We predict small declines or sideways movements on stock markets and real estate for the short to medium term.

There is no sense of increase in a person’s wealth and hence the propensity to panic and restore household and company balance sheets and prepare for the worse. Even conversations with our wealthier clients and at dinner parties all the talk is of exorbitant veggie and banana prices and cost of living increases, not Eastern or Northern Shore real estate prices. How times have changed!

Is this a passing phase?

 No, in my view I think, in the short term we will see a period of continued consolidation economic fear and conservatism. Cash and term deposits will be key as it is liquid and can’t be effectively lost by a rogue company director and invested without shareholder control.

The risk of massive debt failures in USA and Europe are real, but due to the global coordination of the advanced economies of the world this should be avoided albeit with lots of pain. Our links are invariably now tied to China and Asia as we no longer have any real manufacturing industries except the minerals from the ground and related services thereon. Sadly, we have become a pure service industry economy with mineral exports.

The possibility of continued government deficit and possible less tax take will invariably lead to pressure on death type taxes. Recent movements by the Tax Office on pension funds with single members in ‘pension phase’ who die with capital gains tax levied at 16.5% along with non-dependents of members taxed at 16.5% of members taxable balance are leading to a death tax by stealth through superannuation.

Plan your superannuation funds carefully

As you get older and if your spouse is deceased, plan to liberate your funds from significant pensions, whilst you can, so your kids can get their inheritance without getting slugged. This is all on the assumption we don’t have a gift or death tax regime. A wealth redistribution agenda may lead us down this path and may well be on the cards.

However, all is not doom and gloom Capitalism has continued to thrive and prosper though the last 500 years. It continually reinvents itself and finds new industry and new sources of wealth and capital.

Our proximity to Asia and general professional and educated population will always allow us to be smart and flexible enough to find ways to reinvent ourselves. Therefore look at your business run it cleverly assume tepid and moderate growth but don’t’ believe the dooms day theorists. This is generally a press beat up. If you run your business negatively you and your business will eventually retard and decline. In these times, review growth and merger opportunities and utilize them. Build up your infrastructure and reinvest in your business as when the resulting good times come again, your business will be poised and in a position to really fly, thrive and prosper.

Tom Loewy

Disclaimer - The material contained in this newsletter does not constitute advice. DPL is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.