Friday, February 24, 2012

Total eclipse of the sun

This years total eclipse is shaping up as our biggest ever event with predictions of up to 40,000 visitors.
Tourism Tropical North Queensland CEO Rob Giason said the event was attracting global interest with cruises and hot air balloon packages on offer for an expected 40,000 visitors.

"We are expecting a vibrant festival atmosphere in the region to complement nature's spectacular solar show," Mr Giason said.
The TTNQ estimate for the recent Chinese new year was 16,000 visitors over the period. Cummings Economics estimated 11,200 room bookings for last years Cairns Amateurs. Although with attendance of 9,500 for the day and 5,000 for ladies day i'm guessinig those bookings are attributable room nights for the period to make the numbers stack with local participation?

The eclipse also falls at a quite good time of year seasonally, before the Christmas season and after peak tourism season and school holidays. The action starts from sunrise on 14 November. I did find this great site including details of the eclipse from different areas. There are four minutes extra eclipse up the road at Palm Cove than in Cairns.

I wonder which party in the current election campaign will be the first with a promise to make the eclipse an annual event?! Is travel insurance available to cover rain and cloud on that date?

Thursday, February 23, 2012

January Employment Effect?

The latest regional ABS employment data has reversed much of last months gains in the Far North. However, it isn't clear how much of that is due to a 'January effect' as the regional data isn't seasonally adjusted and January is a less than typical month.

To demonstrate that, since the series started the declines in estimated employment for January in te Far North have been (thousands) 2008: -7.1k; 2009: -10.4k; 2010: -7.8k; 2011: -3.9k; 2012: -6.8k. The same trend is apparent in most regions and also in the (not seasonally adjusted) State data.

So it may be best just to post the updated chart and wait to see how the year unfolds. A weaker participation rate with higher unemployment is probably the biggest concern in the recent data although again there is a January effect also apparent in addition to the usual volatility.

Wednesday, February 22, 2012

Reef keeps rolling

Reports from Reef Casino Trust (RCT) usually provide something of interest and the latest annual result continues recent momentum despite a difficult trading period:
Trust distributable profit* was $11.6 million for the year ended 31 December 2011. This compares with $7.7 million in 2010 or 52.0% higher. Total Trust revenue (comprising mainly of rental income from the Reef Hotel Casino) was $22.0 million,21.8% higher than 2010. This increase is due to good growth in revenues across casino and hotel operations at the Reef Hotel Casino. In addition, a better than “theoretical” win rate on premium casino
play assisted in generating revenues growth.
Casino visitations were actually down 3% attributed to impact of the natural disasters in the first half of the year. The reference to premium player win rate is interesting as subsequent commentary refers to focus on nearby markets. RCT has previously commented on PNG as a source of premium players. I wonder if that win rate will continue if more gambling savvy Chinese premium players start rolling through the doors?

Again, RCT have reaffirmed a China focussed strategy albeit seeing direct flights still a couple of years away. Cafe China also gets a mention for contribution to profitability. The relevance of the Casino as a regional tourism asset increases with Chinese tourism.

The downside, an independent valuation reduced the value from $143 million at June 30 2009, down to $125 million at December 31 2011. However, I dont think that would really be unexpected?

Disclaimier: I have no financial interest in Reef Casino and don't gamble at all myself.

Monday, February 20, 2012

4% unemployment a sustainable target?

The LNP have previously announced a 4% target for the Queensland unemployment rate within 6 years. Campbell Newman did seem to equivocate on this subsequently, however has reiterated the 'promise' again today as the campaign begins.

The number is certainly technically feasible given that the associated employment target of 420,000 jobs is really just consistent with historcal averages for such periods and we are now starting from a lower base. This is a chart comparison from OESR of the Qld v Australia unemployment for the last 30 years:

Yes, we have been below 4% before quite recently and we got there from a far higher starting point. However, periods where Qld has been below the state average have mostly been an aberration. The most recent was a period where resources boom Mk1 combined with cheap money and bouyant property construction.

The particular confluence of that period is unlikely to return anytime soon. However the question I have is whether it was sustainable anyway or would be again? This chart from the RBA of inflation measures shows the large inflation spike that was associated with that period:

Had it not been for the GFC it is reasonable to presume that the RBA would have hiked rates higher to induce a more conventional slowdown. Is memory really so short that the issues of 2007 are already forgotten? The LNP have also committed to lowering the cost of living which may be a contradiction?

There is at some point a trade-off between employment and inflation referred to as NAIRU. Current estimates are that this is around 5% unemployment for Australia which seems consistent with recent experience. It was interesting to see the evidence of senior Treasury official  Dr David Gruen to Senate estimates this week.
''In a well-functioning economy like ours, with unemployment close to its lowest sustainable rate, it is not the case that individual industries are creating jobs, they are simply re-distributing them … there really isn't a multiplier.''

The real question shouldn't be whether 4% unemployment is achievable, but under what conditions it would be sustainable? That is the question that should create an agenda for Guvmint policy. Certainly it can't be achieved in Queensland unless the unemployment rate can be sustained significantly below a national average without inflationary outcomes.

Update: More learned commentary than my own at Queensland Economy Watch.

Packer swings at tourism again

James Packer has taken another swing and called for tourism reforms to focus more on China which has now become our largest national tourism market. 

Mr Packer suggested that targeting China for even more tourism is the best, and perhaps only, way to bolster the weakened $34 billion tourism sector. 
With China standing atop the list of visitors to Australia, Tourism Australia spends about one-fifth of its overseas budget on China, according to The Australian.
Packer does have a vested interest with his gambling business which should be noted. I wonder how the Chinese feel about 'gateway' marketing and perhaps signs such as this should be in Chinese?

Sunday, February 19, 2012

building approvals, stocks & receiver sales

The most recent ABS monthly data for building approvals was quite weak with only Queensland showing positive growth for December 2011. As previously posted here, I really like the OESR data which also reports a stock of approvals and flow status through the development process, but is not regular.

Much of that approved land stock in Cairns has been tied up in corporate collapses and receiverships so it was interesting to see two significant sales in the last few weeks. The Woree drive-in site now has a new owner following the collapse of Glencorp.

" part of the due diligence process the new owners had been able to obtain an extension on the development approval, due to expire next month, from the Cairns Regional Council. Mr Wood said he was pleased with the sale because the 6.27ha site went on to the market in August last year at an "awkward time" when there were other receiver land sales including the huge land bank of the former CEC Group."
The issue of approval expiry and rollover (2 years?) was raised at the OESR seminar in Cairns last year along with comment on a stock overhang of approvals. The other transaction this week was the Smithfield Northpoint development site to local property interests.

This site was previously held by Shaquil Haque's Capital Globe which collapsed after his murky assassination in an Islamabad guesthouse. The Capital Globe tower site on the CBD fringe is also still for sale, and a site where any extension of approval should be refused. Probably the most inapproriate Council decision during my time in Cairns.

Saturday, February 18, 2012

The two-speed job conundrum

This weeks positive labour force data from ABS provoked much discussion without much illumination on the current status of the disparate national economy. Roy Morgan research had previously posted their own survey of a jump in January unemployment, albeit based on different criteria. Some leapt on this as a portender of doom.

Morgan yesterday came out swinging in defence and suggested the ABS had it wrong and was lagging. Differences in criteria of unemploment are a meaningless distraction. However, macrobusiness have posted an interesting chart based on the ABS data estimate for aggregate hours worked by state rather than the unemployment rate or numbers employed.

Macrobusiness have used seasonally adjusted data which can be quite volatile on a monthly basis and year-on-year for January is influenced by last years floods in Queensland. I have graphed this with the ABS trend data for percentage change in year-on-year estimate of aggregate hours worked. Note: this is percentage change so anything above zero% is still growth on the previous year.

The Queensland performance is clearly relatively strong, which may come as a surprise to LNP 'treasurer-elect' Tim Nichols who suggested the opposite . Clearly there is also a problem in Victoria which has plunged into negative territory, and I would suggest this is not just simply the current manufacturing situation but also related to a weakening property market in Victoria which had previously been a leader.

Thursday, February 16, 2012

regional building snapshots

The Master Builders have released a regional survey of building conditions. Queensland Economy Watch has an overview and as expected the building sector is subdued outside those regions most closely linked to resources.

I'm not sure how representative the Master Builders are of the sector, however the snapshot for the Far North was weak with the summary:
  • Building activity in Far North Queensland is expected to remain fairly subdued over the coming quarter, with results amongst the weakest of the regional centres.
  • Business profitability and turnover fell during the quarter, remaining below satisfactory levels and making Far North Queensland amongst the weakest regions in the state.
  • Employment levels fell during December, with a substantial proportion reporting a reduction in the size of their workforce; however, the outlook for employment improved, with the majority forecasting no further staff cut backs over the next three months.
  • The subdued level of demand was once again the number one constraint on business growth, followed by finance availability and cost and interest rates.
The most interesting regional differentiation is actually in the 'hot topic' question with this chart outcome for the Far North:

While other regions do rate the factor highly the Far North is the leader, well above the average and all other regions, in responding that financial assistance for buyers is the most effectve strategy for housing affordability. I had thought buyer grants had been pretty much discredited as a means to housing affordability and generally rather become grants to the vendor. I guess the Master Builders are vendors?

The other anomaly is that only the Far North placed such prominence in second place to Guvmint requirements. This was even noted in the comments and is unique to Far North. The Far North relegated land development cost to near irrelevance while this is in the top two everywhere else and also top of national economic debate on affordability! What to make of this anomaly?

The Far North response is entirely based on direct Guvmint intervention whether it be funding grants or reduced regulaton? Does this say something?

Saturday, February 11, 2012

The case of the TIO

An aspect of the strata insurance inquiry that has drawn some comment is the operation in the NT of the Territory Insurance Office (TIO) which remains an anachronism as a state / territory insurer.

However. the TIO operates as apparently the only insurer in Australia not under the umbrella of Federal APRA regulation (Australian Prudential Regulation Authority). How can that be? 

The Insurance Council and the parliamentary committee seem to have been unaware of this during the Cairns hearings.
CHAIR: Does APRA manage the Northern Territory entities' funds? Do you know, Mr Whelan?
Mr Whelan: APRA manages licensed insurers. I am assuming that they do, but I could not be absolutely sure.
TIO state that is is their intent to comply with APRA prudential requirements, however they currently have specific exemption under NT provisions for the motor accident compensation fund (MAC).The position here has improved but has been as low as 35% of APRA capital requirements in recent years. The remainder of the TIO insurance book appears to be currently in line with that of the APRA regulated insurers.

There is also an interesting incident where the chairman of committee Graham Perrett (Moreton) quiped that Wayne Swan would be surprised by a suggeston that the Commonwealth may in fact have a guarantee on NT catastrophe risk?! I'm no constitutional lawer but that may be an interesting question given that the NT exists as an act of the Commonwealth, and the TIO state that they are guaranteed by the NT Guvmint.

APRA have been an effective regulator in recent years and their most recent Insight provides some interesting information on the impact of recent catastrophe events on reinsurance, and consequently the position of our insurers. There are key aspects of the TIO position which are relevant and to a regional centre such as Cairns (which will be discussed later) and it may be helpful and constructive if the current anomaly was removed and TIO brought within APRA.

The parliamentary inquiry has extended submissions deadline until 14th February. The submisson from Strata Community Australia provides a good analysis of the position with tropical strata insurance.

Tuesday, February 7, 2012

MSF Sugar End Game

The takeover of MSF Sugar by Thailand's Mitr Phol has entered an end game. The offer is now unconditional. Mitr Phol now has 57.69% percent so the condition for at least 50.1% became irrelevant anyway. I would think it inevitable they will achieve 90% in the remaining two weeks which would trigger a compulsory takeover of the remainder.

MSF controls Mulgrave, South Johnstone, and Tableland mills and is based in the thriving CBD of Gordonvale where the chamber of commerce, led by MSF director and shareholder Brett Moller, remain resistant  to a Woolworths supermarket at the same time as they cash in on an offer from Thailand!

Apparently it's good to sell your sugar interest to Thailand at an attractive price, but bad for Woolworths to commit capital to our region with a substantial development and also provide competition to the residents of Gordonvale? Woolworths have appealed after CRC rejected their application and a hearing is set down for June.

The use of planning laws and objections to restrict competition has drawn comment in the past, including from the productivity Commission.In that context the reported comment from local councillor Paul Gregory is interesting.

"Basically a lot of the community is happy to see Woolworths come, but there are those in the Chamber of Commerce and others that don't want to see that happen,' he said.

There is also an interesting commentary at The Conversation on the misguided hypocrisy of Dick Smith when it comes to foreign ownership of his old electronics business. There are some good points made in that link to the frequent assertion that we must always keep business local because the profit stays here.

Monday, February 6, 2012

Qantas threat to air services

After a string of positive news on flight connections into Cairns Airport, this morning Qantas boss Alan Joyce delivered a warning before a Senate inquiry on proposed restrictive labour legislation for the airline:
"The proposed amendments would quite simply force the Qantas Group to withdraw from services connecting Darwin and Cairns to the tourism and trade markets of Asia and Europe," he said.

"The impact on regional tourism and development would be immediate and negative. Strangling our international business and forcing us to pay uncompetitive wages compared to our foreign airline competition is no way to make us stronger, better or more Australian."
Joyce also suggested that it may force Qantas to sell Jetstar to enable it to survive outside the Qantas Sale Act. When Joyce grounded Qantas I previously posted that a win for Qantas would be a win for Cairns. That may offend the ideological sensibilities but is the reality of our position for connections with Asia.  

Further coverage at Cairns Post, and also at BusinessSpectator.

Sunday, February 5, 2012

MBA program targets Port Douglas

An interesting initiative in Port Douglas with MBA students from Melbourne Business School to develop a five year strategic plan as part of their final year program. MBS is usually regarded as Australia's leading business school and rates highly in international rankings. Something to keep an eye on as the year progresses.
Melbourne Business School (MBS) Joint Project – Re Vitalising Port Douglas
The difficult business environment facing Port Douglas over the last few years is the greatest concern of the Chamber. We recognise that we need help to identify strategies which may assist us in these difficult times. The Chamber now has the opportunity to work jointly with the MBS to first research the issues and then recommend strategies which may be adopted to improve our business levels. This project will produce a five year strategic plan to revitalise business. The project will commence on 2 February when 35 final year MBA students will be in Port Douglas working with the Chamber of Commerce, Cairns Council and Port Douglas Daintree Tourism to research the issues.
The students are mature age candidates for the University of Melbourne MBA undertaking a final year elective in integrative studies. With backgrounds in finance, marketing, engineering and general management, they will bring a collective wealth of experience to the project. They will be led by professional consultants who will bring their own considerable intellectual input and experience to the project.
The Chamber views this as the right time to develop a plan revitalizing Port Douglas as a tourist destination as well as look more broadly to opportunities which may be available to Port Douglas. We are fortunate to be working in conjunction with Australia’s leading business school to get this process started. The expectation is that the results of this study will yield tangible benefits to the Port Douglas community and business interests.
If you want to input  your ideas send your vision to