So below is a "no names summary" of what is going on in certain parts of the Australian economy.
I suppose the most concerning thing for me was the consistent feedback from the SME sector that "days debtors" were blowing out. Common feedback was "people are taking longer to pay", "it's hard to get paid", and "financing inventory is particularly difficult". Interestingly, many SMEs reported that consumers were now using cash or EFTPOS rather than credit cards to spend, which either means credit cards are "maxed out", or consumers are actually using savings over credit to fund purchases. Similarly, there are many people reporting that the major credit card companies are being far more vigilant in policing account balances and arrears. Even I have had a call from Amex about an account balance and I have never paid an account late! I suspect consumer credit is getting significantly tighter as you would expect in a "credit crisis".
A couple of SMEs also told me that Armaguard (Linfox), the cash delivery company, had sent them a letter saying they were "short of $100 notes" and expect to be for some period. That begs the question how on earth did the economy become "short $100 notes" in a credit crunch? The answer lies in the numerous million-dollar cash withdrawals that high-net worth individuals and unlisted corporates did over the last month from major Australian banks. People did walk into bank branches and withdraw all their cash to the point where we now have a "$100 note" shortage in Australia. Truly amazing, but a trend that should reverse with the government's deposit guarantee.
On a more serious note, there are also reports of children being pulled out of private schools and similarly waiting lists for private schools suddenly shortening. It also clear that waiting lists for private clubs and golf clubs have also evaporated. Some clubs are offering reduced "entrance fees" while other are offering "deferred entrance fees". I am also hearing from the licensed pub and club sector that poker machine revenue is starting to fall while consumers are switching back to lower-cost alcohol. The great "sauvignon blanc" bubble may have burst!
Residential real estate agents tell me I am grossly underestimating the number of houses actually for sale. They believe the number of high-end houses "quietly" on the market may actually outweigh those physically listed. Nobody wants the embarrassment of the "for sale" sign outside their house and there are apparently a mountain of properties for sale that aren't physically listed. This will take some time to resolve and high end residential real estate vendors need to revise their price expectations down by about 25%, according to my real estate agent contacts. This may happen during 2009.
Commercial real estate agents are even more bearish. The emergency equity issues from the LPT sector are telling you how bad it is in the commercial property sector. The commercial property sector is "seller no buyer"; literally. Many LPTs were breaking bank loan to value ratios on commercial property and because they can't sell the property they have been forced into deeply discounted emergency capital raisings to recapitalise balance sheets and appease the banks. The LPT index has wiped out 12 years of gains and one thing I can claim to have called right is calling LPTs "listed property timebombs" and forecasting a five-year bear market for LPTs. We are 18 months into that five-year bear market for LPTs. If only I had realised the "timebombs" were all forms of leverage, not just LPTs.
Used and new car sales are a complete bloodbath. It's so bad most used car dealers aren't even bidding on stock for fear of not being able to move it. This is not just about finance; it's about demand evaporating in the new and used car markets. As one very high-end car dealer told me:"The luxury car market is offered with no bid." When the dealers won't even make a bid you know there is a major problem. I am told Volvo sold 54 new cars nationwide last month compared with an average of 300 a month, while SAAB sold just four cars nationwide last month. If those statistics are right they are alarming and show this is mess is moving into middle Australia. I am yet to get the numbers on Holden, Toyota and Ford.
Travel agents report a similar stalling of both individual and corporate travel. Business is dramatically cutting back travel spend and making executives travel economy-class on longer-haul flights. The collapsing Australian dollar has seen many offshore trips cancelled by households. It's not pretty in corporate or individual travel but that could hardly come as a surprise to any of us. Probably not great for Flight Centre, Virgin Blue, Macquarie Airports or Qantas in the shorter-term despite fuel costs falling.
The advertising markets have hit the wall. I am now hearing reports that activity has collapsed so dramatically that major media sector employers are wielding the knife aggressively in terms of staffing. Melbourne is worse than Sydney, according to my contacts, and I'd expect another round of downgrades to earnings for domestic media stocks with the interim results in February to be very ordinary. Clearly, the private equity buyers of Australian media assets are in for a nasty period as are those banks who lent to those syndicates.
In fact, just about anyone in a service industry is claiming there is evidence of a very big winding back in capital expenditure and outsourcing by big business. Contracts that end don't get renewed and the big end of town is really winding back spending. Again, this has ramifications for just about all small-cap listed industrials. The only place increasing spending is the government, so there will be some defensiveness in those who service the federal government.
The fine art world has similar issues, with collapsing clearance rates and increasing stock for sale. Art was most likely a bubble and the correction here could be dramatic. All feedback points to an imminent collapse in the high-end art market. Dealers hopefully tell you "art is a defensive asset class", but I think we are about to find out that is not correct. A painting is only worth what someone else will pay for it and it's hard to identify who that someone else is right now. Get ready for some cheap paintings over the next 12 months as art investors are also forced to deleverage.
Similarly, there's plenty of debate about the thoroughbred horse market. The optimists say "oil money, coal money and restocking" will support the yearling market. My contacts suspect that is very hopeful thinking and they expect the yearling sales to see solid price drops in anything outside of the very best lots. It's the middle ground in yearlings that will be hit hardest. Yes, the top end will also correct, but the clear global trend in the horse trade is the middle ground has been collapsing. Clearly, horses are a "luxury and lifestyle" item for most and I can't see how the thoroughbred market isn't involved in the global correction in "luxury and lifestyle". Get ready for some cheap yearlings over the next 12 months as bloodstock investors are forced to deleverage. My contacts understand there is a tonne of investor leverage in the yearling space.