State of Play - Autumn Edition

Well, well well the RBA may finally be listening to the consumers as well as small to the medium business alike, what a relief.

The cash rate is now 4.25%, after the December reduction; interest rates are at the lowest level for two years. It seems farcical now that our rates are back to where they were 18 months ago, when the RBA decided on increases in May 2010 and again in November 2010.

Increases that were not required nor warranted; some of the pain for consumers and small to medium business may have been avoided if the RBA had noticed what was happening. There may be more reductions coming.

Here is what our newsletters have said over the previous 2 years to our regular clients, when the Reserve Bank had the blinkers on.

October 2009
"The RBA has again increased interest rates by a further 25 points; a rise that in my opinion is unnecessary and highlights that the RBA may be out of touch. There are already signs that consumers are changing their spending habits to meet their rising housing costs, this rise increase will further reduce their spending on non-housing items. The Australian economy does not need a repeat of early 2008 when the RBA used a sledge hammer to slow the economy down, by increasing interest rates far too early"

June 2010
"The RBA seems a lot more upbeat on the economy than a number of Australia's larger retailers who are reporting slower sales and lowering forecasts as consumers take a breather.

Perhaps the RBA should listen to the retailers more; after all they operate in the real world rather than their insulated confines."

Dec 2010
"Small to medium businesses are the engine room of the Australian economy; borrowings for this sector has been difficult over the previous 2 years. The October interest rise will add further pressure on unemployment as the business community will be reluctant to invest.

Retailers are also cautious that December trading will be lacklustre, due to 7 interest rate increases over the past 15 months. These increases are now starting to take effect and will reduce the spending power of consumers and restrain business growth"

May 2011
"The recent events and slump in consumer confidence has seen the RBA hold interest rates in March. The retail business community is struggling after a below average Christmas shopping period.

Consumer confidence has slid with the recent interest rate rises. Together with this, petrol prices have increased 25% in the past year. The talk of an introduction of the carbon tax has also spooked consumer spending. There's a distinct lack of confidence amongst the general consumer who rely so heavily on confidence to spend."

The Facts:

Consumers and business alike are nervous at present opting to save rather than spend; many retailers / businesses are still not surviving.
The US and Europe are struggling to get their heads around how to solve not only their domestic issues, but also the weaker countries financial woes.
The domestic issues may last up to 7-10 years in US and Europe.
The weaker European countries and their debt laden banks are similar to two drunks leaning against each other, if one happens to stumble and fall; it will inevitably bring them both down.
One would question why it is not easier to forgive their debt rather than keep lending them money, as the foreign Banks and Governments did with Mexico and Brazil in 1989/1990
The AUD has risen to $1.08 back now to $1.00, our dollar is in the top five traded world currencies. The level of the exchange rate also affects the strength of the economy. Manufacturing, tourist industries, as well as university and other educational exporters are also major causalities of the higher $AUD
Exporter's need a lower $AUD, importer's and consumers want a higher $AUD, a lower $AUD will improve GDP with more exports, 90c may appease all

The Stats:

Core inflation for the past two quarters annualizes at just on 2 per cent - the bottom of the RBA's target range.
The APM figures show house prices fell across the country by 8% and many high end areas have fallen more.
Commodity prices have soften in the last 6 months
Long term fixed home loan rates have dropped dramatically
Unemployment remains at around 5.5%
China's rate of growth is still at 9% or are they not telling us something?
The price of petrol is all over the place, it is sure to rise in the next 3 weeks

The Bright Lights:

Interest rates lowest in a number of years - Call for a quote - Home loans under 6.5%

The housing prices in the Melbourne market have turned to the purchasers favour

Discounted motor vehicles packages are readily available especially at years end

The Future:

More interest rate reductions in 2012, maybe up to 3, a cash rate of 3.75%

Growth in China is integral for Australia, China slows, we will stop

Banks will continue to favour consumer lending

If your bank calls you to recommend a fixed the interest rate, wait !

Housing prices will continue to reduce

The Action Plan:

Contact one of the team at SME for motor vehicles & equipment finance

Check with our office and compare our rates against your bank

Our team do all the "leg work"

Spread your business risk (have a number of finance options).

MORTGAGE FUNDING: Contact: Michael Pratt - This e-mail address is being protected from spambots. You need JavaScript enabled to view it

When you are next considering the purchase of new capital equipment, motor vehicles, construction and transport equipment etc. we would appreciate the opportunity to see if we can be of assistance to you. It is prudent to source additional facilities and spread your risk.

For all business equipment & transport inquiries please contact:

David Williams – This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Derham Stewart - This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Arthur Kalinchev ‐ This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Len Fuller ‐ This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Ken Mclean – This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Michael Pratt – This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Harry Ren – This e-mail address is being protected from spambots. You need JavaScript enabled to view it

(N.B .Pratt & Co & SME email addresses for staff are interchangeable and forwarded)

We hope you find this information helpful and would be pleased to assist you further with any inquiries you may have. SME pride ourselves on innovative financial solutions and we look forward to speaking with you when considering a mortgage, capital equipment, motor vehicle or other such purchase.

Best Wishes

Michael Pratt

Managing Director