1
April/May 2009 BCM Australian Monitor
Summary:
• Economy has peaked in terms of spending, production & employment
• Australian economy in Stage 5 – Early Downturn
Stocks: May have further downside risk (perhaps 20%)
Commodities: Likely to have formed a bottom
Government Bonds: Likely to have formed a top
Firm Strategy: Budget offerings, look for long-term supplier contracts
Personal Strategy: Protect job, expand skills, reduce spending, rent
April/May 2009 BCM Australia Monitor

2
Australian Economic Summary, Asset, Personal & Business Strategy
Australian Economy Business Strategy
1. Consumer sentiment remains at historical 1. Competitive Strategy: Continue budget
lows offerings
2. Consumer wealth is falling with stocks down 2. Operational Strategy: Continue cost
and property falling
reductions, reduce inventory
3. Consumer spending (demand) growth
3. Human Resources: Review remuneration
continues to slow
conditions
4. Business production/service activity
4. Supplier Strategy: Anticipate upcoming
continues to contract
purchase of capital equipment
5. Unemployment is rising at an increasing rate
5. Acquisitions/Divestments: Anticipate
6. Leading economic indicators continue to fall,
possible acquisitions
albeit at a slowing rate
7. The Australian economy is early in Stage 5 –
Personal Strategy
Early Downturn
1. Conservative Investor: Cash is king, wait for
Asset Classes transition to equities
1. Equities: Possible short-term bottom in
2. Aggressive Investor: Long-term government
place, further risk to downside
bonds
2. Property: Further falls ahead
3. Property: Rent over buy if possible
3. Bonds: Likely top in place
4. Employment: Protect job, expand skills
4. Commodities: At or near bottom
5. Finances: Reduce debt and spending
April/May 2009 BCM Australia Monitor

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April/May 2009 BCM Australia Monitor

Global Economy: What stage are we in? 4
The business cycle is
Expansion Slowdown Downturn Recovery
Actual currently in Stage 5 – Early
Economy 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late Downturn.
OECD Leading
Over the next few months
Indicator (100)
we expect to see further
declines in economic
OECD Reference
Series (100) indicators until consumer
sentiment and spending
Consumer
recovery.
Sentiment
Consumer
The trigger for the
Spending Grth
transition to Stage 6 – Late
Downturn is recovering
Industrial
Production spending in leading sectors
of the economy, whilst
Rising Stagnating Falling Falling Stagnates Rising Rising Stagnating
PMI lagging sectors continue to
Above 50 Above 50 to 50 Thru 50 Below 50 Below 50 To 50 At 50
decline.
Rising Stagnating Falling Falling Stagnates Rising Rising Stagnating
PSI
Above 50 Above 50 to 50 Thru 50 Below 50 Below 50 To 50 At 50
Eventually sentiment and
spending improves across
Unemployment
the economy bringing us to
Rate
Stage 7 – Early Recovery.
Business
Investment
For now the momentum is
to the downside.
Reserve Bank
Funds Rate
8 Stage Business Cycle
April/May 2009 BCM Australia Monitor

8 Stage Asset Class Cycle: Where to invest? 5
Expansion Slowdown Downturn Recovery
Asset
Classes 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late
Stock
Market
Commodity
Sectors
Government
Bonds
Stock Market
• Stock market performance matches our 8-stage business cycle prediction
The March/April rally appears to be anticipating a 2010 1st quarter recovery
•
• There is a risk of further downside until a signs of economic stabilisation occur
Commodity Sector
• Commodity performance appears slightly ahead of our 8-stage business cycle model
• Commodities appear to be forming a base with accumulation on weakness warranted
Bond Sector
• Extreme central bank interest rate interventions have bonds ahead of our 8-stage model predictions
• The top in bonds appears to have been achieved in Dec 2009
8 Stage Business Cycle
April/May 2009 BCM Australia Monitor

8 Stage Firm Business Cycle: Business Strategy Ideas? 6
Expansion Slowdown Downturn Recovery
Business
Strategy 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late
Competitive Budget Quality
Key Customers New Customers
Offerings Offerings
Strategy
Sales Consider long- Move to long- Key Customers Consider short- Move to short- New Cust.
term contracts term contracts Budget Offers term contracts term contracts Quality Offers
Strategy
Operations More cost Expand
Cost cutting Plan Expansion
cutting Operations
Strategy
Human Review
Avoid wage Enter wage
Limit Hires Hire Staff
negotiation negotiation
conditions
Resources
Acquisitions/ Avoid acq., Sell Plan for Make
assets acquisitions acquisitions
Divestments
Supplier Move to short- Press for Move to long-
Press quality
term discounts term
Contracts
Debt (Loan) Sell assets, Seek short-term Ensure credit Procure capital Seek long-term
reduce debt funds availability equip funds
Management
Firm Business Cycle Strategy Ideas
• Continue to focus on budget offerings, consumers/customers/clients are under financial pressure
• Target sales activity towards key customers with budget offerings (recognise their financial pressure)
• Look to use the crisis to implement cost cutting, institute more efficient work practices/processes
• Look to review wage remuneration rates to lock in lower unit labour costs
• If cashed up, start planning for acquisitions that will expand market share or product offering
• Continue to press for discounts from your major suppliers
8 Stage Business Cycle
April/May 2009 BCM Australia Monitor

8 Stage Personal Business Cycle: Personal Strategy Ideas? 7
Personal Expansion Slowdown Downturn Recovery
Strategy 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late
Conservative Stock
Transition to Transition to
Stock Market Stock Market Term Deposit Term Deposit Stock Market
cash stock market
Investing Strategy Market
Aggressive Stocks & Stocks & High Quality High Quality Corporate Transition to
Commodities Stock Market
Commodities Commodities Long Bonds Long Bonds Bonds Stocks
Investing Strategy
Employment Pursue Seek secure Become Plan next Assume Pursue
Seek wage rise Expand skills
promotion employment indispensible career move responsibility promotion
Strategy
Spending & Debt Cut back, Focus on Buy major Take long-term
Essential only
retire debt retiring debt items debt
Strategy
Housing Avoid buying here, prices and Avoid buying here, lower as Try to buy here, prices and
sentiment buoyant lower prices are ahead sentiment subdued
Considerations
Personal Business Cycle Strategy Ideas
• Conservative investors remain in cash. Begin planning your stock investments as we approach Stage 6
• Aggressive Investor may look to transition towards corporate bonds or look for a stock market bottom
• This is a time to expand career skills through skills training or difficult assignments
• Focus on essential purchases only at this stage, look to retire debt
• Avoid buying property here if possible, lower prices are ahead
8 Stage Business Cycle
April/May 2009 BCM Australia Monitor

8
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April/May 2009 BCM Australia Monitor

OECD World/Australia CLI & Industrial Production 9
The World* CLI declined 0.82 to 91.41 in February Declined 0.69 to 96.05 in February (previous
(previous month decline 1.05). If the trend of a month decline 0.79). If the trend of a slowing rate
slowing rate of decline continues the CLI should of decline continues the CLI should bottom in 7
bottom in 4 months (June 2009). months (September 2009).
Industrial production continues to collapse. A 6 Industrial production continues to decline. A 6
month lag from the CLI sees IP bottom in month lag from the CLI sees IP bottom in March
December 2009. 2010.
Global Leading Indicators
April/May 2009 BCM Australia Monitor

OECD CLI Analysis: US, China, Australia, & World 10
The peak rate of decline of the US (consumer), China (manufacturer) and World CLI was in November 2008. Australia
(commodities) decline rate peaked in January 2009. We anticipate global CLI bottoming around Qtr 4 2009, with an
economic recovery in 1H 2010.
Leading Indicator Analysis
April/May 2009 BCM Australia Monitor

Consumer Sentiment; Household Consumption & Income 11
Consumption falling with rising disposable
Sentiment steady around 85. Setting higher lows
income? Consumers are saving and paying down
is positive. A rise above 91 is convincing.
debts.
Australian Consumer
April/May 2009 BCM Australia Monitor

Household Assets, Saving, Debt and Interest 12
After peaking at 155% of DI, debt is falling as
With assets falling in value, households are saving
households save.
at 1987 levels. Note the savings low of minus
4.2% 2002.
Interest paid falls to 13% with interest rate cuts.
Still a major drag on consumer spending.
April/May 2009 BCM Australia Monitor

Housing Indicators and Affordability 13
Interest rate cuts are working, affordability
Approvals stabilise at low levels, commence-
improving even though prices falls are not yet
ments still falling. This will be a drag on the
significant.
economy.
Australian Property
April/May 2009 BCM Australia Monitor

Australian Capital City House Price Indices 14
Australian prices peaked 1H08. All cities except Darwin are now in decline.
Perth rose from 77 to 198 in 6 years (160%), whilst the average rose from 76 to 131 (72%),
thus Perth is most at risk of major price declines.
Australian Property
April/May 2009 BCM Australia Monitor

Australian Capital City House Price Indices: YoY % Change 15
Australian prices peaked 1H08. Perth lead Australia into decline in March 08.
Only Adelaide and Darwin are yet to decline. Perth is leading the decline with a 6.7% fall.
The likely future direction for prices is down, perhaps by as much as 20-30%.
Australian Property
April/May 2009 BCM Australia Monitor

Australian PMI*, Australian PSI* 16
The March PSI rose 3.4 points to 35.6 well below
The March PMI was steady at 33.4 well below 50
50 and indicating continued services decline.
and indicating continued manufacturing decline.
March services capacity utilisation % was 73.5,
March production capacity utilisation was 67.3,
down from 80.2 in March 2008.
down from 75.7 in September 2008.
Note the PSI covers sales, capacity, new orders, employment, wages,
Note the PMI covers production, employment, new orders, inventories,
inventories, deliveries, input prices, selling prices.
deliveries, input prices, exports, selling prices and average wages.
Australian Economy
April/May 2009 BCM Australia Monitor

Australian PCI*; Trading Conditions & Capacity Utilisation 17
Trading conditions improved slightly following
The March PCI rose slightly to 30.4 well below 50
major decline.
and indicating continued construction decline.
Capacity Utilisation declining though not yet
March construction capacity utilisation was
at 2001 recession lows. Further to fall.
74.8%, down from 79.9 in March 2008.
Note the PMI covers production, employment, new orders, inventories,
deliveries, input prices, exports, selling prices and average wages.
Australian Economy
April/May 2009 BCM Australia Monitor

DEEWR Leading Indicator of Employment 18
The Department Employment Education & Workplace Relations LIOE continues to decline at an
increasing rate. Note also the decline in the LIOE 3m rate of change (green line).
Further declines in LIOE and employment are expected.
Australian Employment
April/May 2009 BCM Australia Monitor

Australian Labour Force (Employment and 12m change) 19
Unemployment has bottomed for the cycle and is
The growth rate in full-time equivalent
now rising rapidly.
employment negative (contracting).
Unemployment above 7-8% is expected.
Further falls in full-time employment is certain.
Australian Employment
April/May 2009 BCM Australia Monitor

Global and Australian Unemployment 20
The US is leading the unemployment rise cycle,
WA yet to register rising unemployment. NSW and
followed by the Euro Area and Japan. Australia
SA rising the most. More rises ahead.
with a strong commodity economy is a late
starter.
April/May 2009 BCM Australia Monitor

Business Conditions & Confidence 21
Expected economic activity (future) plunges to
Business conditions (current) and confidence
1990 recession levels.
(future) look ominous.
Matches NAB survey results.
Firms are bracing themselves for the worst.
Australian Economy
April/May 2009 BCM Australia Monitor

Business Profitability and Profit Expectations 22
NAB and Sensis profit expectations surveys still
Corporate profits remain strong at this stage.
declining. Will firms hire and expand under these
conditions?
April/May 2009 BCM Australia Monitor

Business Investment & Capital Expenditure 23
Business investment (up to Dec 2008) yet to CAPEX holding up into Dec 2008, mining
show an recession-induced falls. strongest.
Australian Economy
April/May 2009 BCM Australia Monitor

Credit by Sector & Nominal Interest Rates 24
The boom was fuelled by credit growth; the Interest rates continue to decline (as expected in
recession by declining credit expansion (now the business cycle).
contraction in personal credit).
Scale of the global crisis suggests further declines
No recovery until credit declines stabilise. ahead.
April/May 2009 BCM Australia Monitor

Credit/GDP ratio and rate of change 25
The continuous expansion of credit (debt) from The recession in one chart. With debt greater
1993 ended in 2008. than 140% of GDP, slowing credit growth directly
impacts GDP.
Now the repayment begins…
No recovery until credit begins expanding.
April/May 2009 BCM Australia Monitor

Forecast EPS and Australian Share Prices (by major sector) 26
Stocks are cheap based on P/E ratios. Even with
Earnings estimates beginning to factor in the
further declines in earnings, it may be time to
global recession. Analysts are lagging indicators,
nibble at these prices.
further declines are likely.
April/May 2009 BCM Australia Monitor

P/E Ratios and Dividend Yields 27
Stocks are cheap based on P/E ratios. Even with
Earnings estimates beginning to factor in the
further declines in earnings, it may be time to
global recession. Analysts are lagging indicators,
nibble at these prices.
further declines are likely.
April/May 2009 BCM Australia Monitor

Business Capex and Nominal Interest Rates 28
The business cycle through cash rates (recession
Quality government and corporate bond yields
bars shown).
bottom (prices peak). It is likely to late to invest
in quality bonds.
The economy will recover before cash rates rise.
April/May 2009 BCM Australia Monitor

Base Metals & OECD Production; AUD and TWI 29
The Aussie follows the commodity cycle, itself
Base metals prices lead OECD industrial
following the business cycle (through production).
production. Is a commodities bottom in place?
The AUD will stay low till commodity prices
Possibly, too early to call.
recover.
April/May 2009 BCM Australia Monitor

BCM Book of the Month: Meltdown… 30
Meltdown: A Free Market Look at Why the Stock Market
Collapsed, the Economy Tanked, and Government Bailouts
Will Make Things Worse
• Is Capitalism the Culprit?
• The media tells us that \"deregulation\" and \"unfettered free
markets\" have wrecked our economy and will continue to
make things worse without a heavy dose of federal
regulation.
• But the real blame lies elsewhere. In Meltdown, bestselling
author Thomas E. Woods Jr. unearths the real causes
behind the collapse of housing values and the stock market-
-and it turns out the culprits reside more in Washington
than on Wall Street.
• And the trillions of dollars in federal bailouts? Our
politicians' ham-handed attempts to fix the problems they
themselves created will only make things much worse.
• Available on the BCM Website:
– Podcasts
– Book Reviews
– Websites
April/May 2009 BCM Australia Monitor

Disclaimer, Fair Use, Copyright 31
Disclaimer. Mark Walmsley B.Eng, MSc, MBA is the Business Cycle Monitor editor. The statements, opinions, buy or
sell signals, and analysis presented in this document are provided as a general information and are for news
commentary and educational services only. All opinions, estimates, buy or sell signals, and predictions
expressed herein constitute the judgment of the author as of the date indicated and are subject to change
without notice. The information contained in the newsletter is expressed in good faith, but its accuracy is not
guaranteed. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment
advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment
decision, you are advised to consult your financial planner, broker or other appropriate tax or financial
professional to determine the suitability of any investment. Neither Business Cycle Monitor nor Mark Walmsley
shall be held responsible or have any liability for investment decisions based upon, or the results obtained from,
the information provided.
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Copyright. Copyright 2009. All rights reserved.
Business-Cycle Information. This summary should be read in conjunction with the business cycle articles and
references provided at www.business-cycle-monitor.com. These provide additional information on how the
business cycles functions.
Description and References. Additional information on these indicators, global maps, the simplified economic model
and the sources used in this publication can be found at the BCM website.
www.business-cycle-monitor.com
April/May 2009 BCM Australia Monitor