By MoneyMorning.com.au
Shouldn’t we be giving credit where credit is due…?
“Retailers preparing for the last-minute Christmas rush are expecting stronger sales than last year but recent chilly weather could see clothing stores miss out on the spree.” – News.com.au
If all else fails… blame the weather.
It’s an easy excuse. And it doesn’t wash.
For instance, we’re sure bad weather isn’t why: “Myer will close stores in Victoria and New South Wales and shrink surviving stores in response to the two-speed economy and online shopping.” [The Age]
The fact is it’s tough being a retailer right now. After getting hit last Friday, JB Hi-Fi [ASX: JBH] shares have taken another pounding this morning… down nearly 4% in early trade.
So, if it’s not the weather what is it?
It’s lack of understanding by the mainstream.
They see falling retail sales and they look for an immediate cause: the weather, the rise of online sales, or what about the high Aussie dollar and cheaper imports?
But it’s none of those.
The real reason is the end of the credit boom.
Not So Smart After All
Yes. It’s simple. For years, big business executives have been praised as geniuses. And the Aussie economy has been labelled a miracle economy due to 20 years of growth.
In reality, it’s all about the credit bubble. Remember, a bubble can make anyone look like a genius when the market is going up.
It’s the same as the housing bubble. An entire generation of 50-60 something’s still think it was their know-how and street-smarts that caused them to buy a house for $10,000 in 1971 and sell it for $2 million in 2011.
Where in reality they benefited from nothing more than a good old-fashioned easy-money credit boom.
But based on that brief 40-year period, an entire industry was born – property spruiking.
The good news is, slowly but surely the message is seeping through to the mainstream that asset prices don’t always go up. But boy is it slow. Yet we note a good article on the Business Spectator website by Phil Soos, a researcher at Deakin University.
Mr. Soos pretty much says everything we’ve said for the past three years.
He even mentions the ridiculous National Housing Supply Council (NHSC) report that counted the homeless as proof of a housing shortage!
By the way, we’re waiting with bated breath for the latest NHSC report. According to correspondence we’ve had with them, the 2011 report is due this month.
It’ll be interesting to see what the report says on the housing shortage (especially the impact of homeless people) and whether it acknowledges falling house prices.
But back to our point…
It’s the Credit Boom What’s Done It
Whether it’s slower retail sales or falling house prices, there’s one thing that links both – slowing credit growth. It was credit growth that fuelled the boom. And it’s lack of credit growth that has halted the boom and is set to send Australia into a recession.
Bottom line: the only reasons you go into debt is if you want to buy something now because you aren’t prepared to wait to buy it, or because you think it will be more expensive in the future.
And credit growth compounds that belief. The more people borrow, the higher prices grow, which requires people to borrow more.
That happens until credit growth reaches breaking point (where we are now). The fact is there just isn’t enough new credit to repay the old credit… let alone enough credit to increase the supply of credit.
That’s why Myer is downsizing and closing stores… it’s why JB Hi-Fi is set to post lower profit growth… and it’s why the Aussie housing market is heading down the toilet.
The era of the miracle economy is almost over. It’s now just a matter of “when”, not “if” the Aussie economy finally hits the skids. All eyes should be on China’s economy… because what happens there will have a direct impact on Australia’s future.
Cheers.
Kris
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Why the End of the Credit Boom is the Only Reason Stocks are Falling
