monday trading, page-56

Is it just me or does it seem like goods and services providers are getting better margins now than before the GFC.

Just a few examples I have observed in day to day life.

Petrol is still fairly expensive despite a big dump from $150 a barrel. When it dumped to $35 lows, the price didn't drop proportionally. Even though it has doubled in price from it's lows, the price of oil is still half what the peaks were, yet we are paying approx 75% of the petrol price we were paying at the highs. I know there is a currency component in the price but the aussie dollar is nice and strong so that shouldn't be making the difference. Conclusion... oil companies are pocketing more margin.

Groceries... My intake of food hasn't changed much since I was a teenager so in theory my grocery bill shouldn't change much more than inflation. In the last few years, my grocery bill has pretty much doubled and I'm still buying the same types of food. Yes there was a drought and that had some effect but things have improved a bit and yet my food prices are still going up. We have also seen more and more articles about farmers getting crap prices at their gate. Quite often the stories involve said farmer getting paid less than production costs. Yet I'm paying record grocery prices. Where is the money going? Bigger margins for Coles and Woolies.

Utility bills... Power, water, gas, emergency services levy, telephone etc etc. All of them are going up with some sort of "higher cost of business" claims to support the price rises. Ummm... how does water flowing down the same pipe, or the power line in my street cost 10-20% more all of a sudden. Yes I realize this is simplistic but if these companies couldn't do a little forward planning to keep their infrastructure intact and maintained, why should I pick up the tab?

Interest Rates... During the GFC, interest rates were slashed by Banks all around the world in a effort to stop the arterial bleeding in the money market. Australia was no exception. Now we "appear" to be recovering (I'm happy to argue this one as well) interest rates are creeping up again. On the way down there was plenty of opportunities for the banks to cut less than the RBA and they took them. Not passing on rate cuts immediately and not passing on the full amount either. Now rates are on the way up, we have several examples of banks hiking rates faster than the RBA and always doing it as soon as they can. Some even preempting the RBA. So where is the extra money going? Banks pockets.

And lets not get me started on real estate prices...that's just a bubble...and I wont hear any other arguments....

So what is my point? I have several actually.

Firstly, the little guy is getting screwed. He/She is paying more for goods/services that shouldn't really be costing much more. In fact I'd bet most goods and services prices are going up faster than the headline inflation number and the extra is going into the pockets of big corporations.

Secondly, our economy is supposedly recovering. I'm no economist so I can't point to a chart of this and a chart of that but using a little common sense and the above examples, I think the little guy is fueling the "so called" recovery. Only problem is, it's at the expense of his/her's financial future and probably their kids. Is that Australian?

Mr Sheen is also "helping" the recovery along by spending large amounts of borrowed money on things we don't need. Yes some of our infrastructure needs a refresh, but do we really need a shiny new Gym in every school? Do we need to hand out free laptops that will be worth nothing in 6 months time?

There is a political term for this kind of spending, it's called pork barreling and for those that haven't heard the term before, it refers to buying votes with large hand outs right before elections. Hands up who has a state election coming up? Federal one isn't to far away either...

Despite me having a bit of a stab at our current leader, regardless of who you vote for, the kind of spending and screwing over the little guy (by big business)that is going on is irresponsible and unAustralian imho. Australia Day was less than a week ago...

All of this is probably the reason the market has been bullish of late. Companies are recording good profits because margins are good even if sales are down a bit. A few interest rate hikes also looks healthy for the economy and will probably take a bit of steam out of the bounce, but just remember what is funding this "recovery". As a generalization, it's credit and whether it's household credit or government credit it has to be paid back some time.

These are just my views of our economy and they quite possibly seem simple. I like simple and common sense. I'm sure there are economists out there that could prove some of my thoughts wrong, but economists are notoriously after the fact.

Treggs steps down off his soap box....

and before a political argument starts and clogs up the thread, yes I voted for Johnny. I was in the minority apparently and since this is a democracy, I have no problem with those that voted for the other teams. Political discussion is like the PC vs Mac argument.... Just use what works best for you.