A few macro and related stories today…

A few macro and related stories today…

Greece – best line have heard so far: ‘The 11thhour ended in 45 minutes’. 
Greek negotiators walked out of the European Commission’s Brussels headquarters only 45 minutes after the talks began. According to an EU official who has seen the much-anticipated Athens counterproposal, long sought by negotiators representing Greece’s creditors, it fell well short of expectations and was not adequate for a compromise deal’ (FT)

Greece #2 – but what are the differences really about? This IMF blog link has all the answers:
‘Proposed to lower the medium term primary budget surplus target from 4.5% of GDP to 3.5%, and give Greece two more years to achieve that target… the Greek government has to offer truly credible measures… Why insist on pensions? Pensions and wages account for about 75% of primary spending… We are open to alternative ways for designing both the VAT and the pension reforms… European creditors would have to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability’

Greece #3 – Greek FM Varoufakis tells BILD he rules out Grexit. says debt restructuring is only way possible for Greece. Would agree with the latter point…but as noted above there has to be a meeting in the middle…
UK pensions: and you thought that only Greece had a pension issue. As this report in The Times notes:
‘The bill for private pensions is now greater than Britain’s entire annual output, according to a report. The future cost of paying pensions promised to 11 million people in defined benefit schemes has rocketed in the space of a year from £1.7 trillion to £2.1 trillion, compared with a national annual output of £1.8 trillion’
U.S. junk-bond defaults rose to the highest level since October 2009 as depressed prices plague energy, metal and mining issuers that represent the largest contingent of debt from the riskiest companies. Got to keep watching bonds…

Asia/China thoughts –

$CNY 5.7trl to be locked up due to 25 IPO’s this week while the CSRC limits brokerages’ margin trading volume

According to a report from Bloomberg the value of Chinese stocks rose above $10 trillion for the first time last week, adding an astonishing $6.7 trillion to the market capitalisation of Chinese firms compared to levels of a year earlier. To put the gain into perspective, based on calculations by Bloomberg, the 12-month increase is more than the entire market capitalisation of Japanese firms which currently sits around $5 trillion.

Great graphic on this on today’s Fast FT:
Cosy audit relationships in the US…wow, look at those tenures!

I need to convert a Peachtree PC file on a remote service to a Quickbooks file on my Mac…

Wow!  One of the more complicated conversions I have done for a client came my way the other day.  Not only was my client switching from Peachtree to Quickbooks, not only were they switching from PC to Mac, but they also had their Peachtree files located on a remote server out-of-state.

Intuit offers a free conversion tool that can easily be downloaded onto your pc to convert a Peachtree file into a Quickbooks file.  The client had already purchased Quickbooks for MAC.  (You must have Quickbooks for MAC 2007 or newer)  In addition he had to purchase the Quickbooks PC license and installed it on the Windows 7 platform that was already installed on his MAC.

The big complication in this particular conversion was that the Peachtree and Quickbooks software as well as the conversion tool have to be installed on the same computer and that computer has to be a local computer.  Because his Peachtree files were located out of state on another computer we had to send the file to Intuit tech-support for conversion.  The conversion was completed quickly and we had our new file back in less then 48 business hours.  And, because my client went through a ProAdvisor his conversion was free.

We restored this converted file to Quickbooks using the PC version of the software.  The next step was to open this company file and use the feature in Quickbooks to prepare the file for a MAC conversion.  (This is found under the “File” drop down menu on the top menu bar, and the “Utilties” feature.  Select “Copy company file for Quickbooks MAC”.  Save the prepared file to your Desktop if your are already working on your MAC or to a flash drive if you are moving it to another computer.)  Once complete we were able to open the company file in the MAC version and the training commenced.

One thing to NOTE if you are considering using Quickbooks for MAC and you have a Proadvisor or Accountant that regularly accesses you Quickbooks file.  The remote access feature built-in to Quickbooks does not work with the MAC platform.  Therefore, you can either allow access through Remote Desktop Connection, or run your Quickbooks on the Windows 7 parallel platform with your MAC.

The client I worked with in this incident actually used the PC version to create a file for his personal bookkeeping.  He wanted to have a handle on his personal spending and was able to download several years worth of transactions from his bank.  This gave him the opportunity to become more familiar with Quickbooks software before tackling his multiple company files in the Mac version.  I have a feeling he may end up sticking with the PC version now that he has experience with all of the extra features, and consequently the increased ease, that the PC version provides.

With the outside services provided intuit this project took several visits.  Now that everything is complete this client should be making great progress with minimal follow-ups.

Regional Australia is not creating jobs

Regional employment floundering
The ABS released its Detailed Labour Force figures for the month of May 2015.
As expected, the release confirmed that the between capital city and regional employment growth has widened to become a gaping gulf.
Let’s take a snapshot a few bits and pieces from my chart packs in three short parts…
Part 1 – Capital cities driving the job gains
Over the past year Sydney has added 77,200 jobs and Melbourne has added 73,000. 
The larger capital cities are thriving, partly fuelled by a boom in residential construction, and in Sydney’s case, non-residential construction.
If only the same could be said of the regional centres in those states where employment growth is flat-lining. 

In fact, since Q1 2007, Sydney has added a sprightly 350,000 jobs.

Melbourne has added an even more impressive 361,000 positions on a net basis, albeit many of them of the part time variety, which quite incredibly is 7.3 times as many as the rest of Victoria over the same time horizon.

In terms of the other capital cities, over the past two years Brisbane has added 55,900 positions and Perth 45,700, although the outlook is more than a little mixed.

You could just about throw a wet blanket around the rest, with Adelaide having actually shed 11,900 positions over that time.
In fact, until this month Adelaide had not added any jobs for around four years. Zip. Nada. Zilch.

Pulling all together into the one “holy chart” shows how focused employment growth has become on just a few hubs in the past couple of years…

Part 2 – Capital city unemployment 

Recent Housing Finance and Lending Finance data have suggested that dwelling prices in Adelaide may be set for a modest upturn.
A few words of warning, though…words that I have repeated here on numerous occasions.
In an economy with a growing population but zero employment growth, only one outcome can reasonably occur over time, which is higher levels of unemployment.
High unemployment is bad, bad, bad for property markets, and a number of Adelaide’s cheaper outer suburbs are suffering this dynamic right now.
According to the latest ABS data Adelaide has by a huge margin the highest unemployment rate in the country at 7.6 per cent, with only Hobart at 6.2 per cent getting even remotely close. 
Now granted, I don’t rate the accuracy of the monthly figures too highly, but below I have charted the capital city unemployment rates smoothed on a rolling annual basis.
Sydney is comfortably the best placed economy having recorded successive readings of just 4.9 per cent.
Adelaide now has the highest level of capital city unemployment, and it is trending up.
Perth’s unemployment rates are also clearly trending up from a much lower base as mining investment wanes.
Brisbane recorded an unemployment rate reading of just 5.3 per cent in May, which sounds suspiciously low to me, but the rolling annual trend is now improving after a couple of monthly spikes.

Generally capital city labour markets ex-Adelaide appear to be in decent nick, although of course Perth and Darwin in particular face resources-related headwinds.

Part 3 – Regional unemployment

The real point of concern for mine is the near total lack of jobs growth in regional Australia, which can only result in higher unemployment over time.
Indeed, this has already been happening over the eight years or so since the financial crisis first rolled into town.
The trend in regional unemployment in Queensland since 2007 is nothing short of alarming, the dis-spiriting result of a mining capex cliff fused with coal mining employment hitting the wall.
It’s something I warned of here last year, and the Reserve Bank even ran a special piece on the thermal coal markets malaise in its enlightening Bulletin yesterday.

To take my “home” state as an example, have a look at the divergence in unemployment rate trends between Sydney and the “rest of state”.

New South Wales has thermal coal markets of its own, of course.
The unemployment rate prints in Newcastle and Lake Macquarie have eased a little in recent months which is heartening to see, although they do remain at somewhat elevated levels.
Unemployment rates have also declined to some extent since February in the Hunter, although they do remain in double-digit territory.

Rebalancing is now well underway

Services employment surges
Australia’s monthly Labour Force figures have pointed towards some promising employment figures of late.
Another 42,000 jobs were added in the last month of data on a seasonally adjusted basis, taking total employment to a new high of well over 11.75 million.
The detailed quarterly figures released on Thursday shed further light on where the new jobs are being added (in short, services), and where they are not (mainly mining, manufacturing and agriculture).
Generally speaking this is positive news for the largest capital cities, but not such great news for cities with a heavy dependency on manufacturing.

And it is rather calamitous news for many resources regions.

Let’s take a look via two charts…
Trend 1 – Mining & manufacturing decline
There are a few interesting points to note from the first chart below, within which I have pulled together figures from a selected range of industries.
Firstly, the light blue line indicates the long, slow and structural decline of manufacturing employment in Australia, from a peak of close to 1.2 million towards just 900,000 today.

The lower Aussie dollar might help the outlook over the medium term, but the long term trend is nevertheless down, down, deeper and down.

Secondly, mining employment is clearly now heading back down from whence it came, after the mining boom fired total employment to an exuberant peak of more than 275,000.
Despite the huge ramp up in resources export volumes, mining employment is likely to have some way further to fall – some marginal coal producers look particularly vulnerable according the Reserve Bank’s liaison – although it is estimated that employment in the sector will remain considerably higher than its long run average before the mining boom began.
Thirdly, it is interesting and important to note that mining is in fact only a relatively small employer in absolute terms at around 229,000.
Healthcare, by comparison, is a booming sector which employs more than 1.48 million people, while professional, scientific and technical employment has surged to now also sit above 1 million.
Approximately 70 per cent of economic activity in Australia is accounted for by the services sector, and therefore it is critical to the rebalancing process that this sector continues to record strong employment growth.

Although I didn’t include it in the above chart so as not to over-complicate matters, another key growth sector is set to be education which now accounts for 937,000 employees, or 8 per cent of the total workforce.
The growth in the booming export industry that is foreign students will have a key role to play here – this is another sector which benefits from a lower Aussie dollar, with a record 147,000 enrolments seen in the first quarter of 2015 alone. 

The good news is that, as the above chart clearly indicates, low interest rates are taking effect and services employment has surged materially higher over the past year.
Trend 2 – Services now driving employment growth
In the early stages of the rebalancing process jobs growth was very much about the residential construction boom story.
The flip side to this was that last year some 33,000 jobs have been shed from the mining sector, and it is sure to be a tough time ahead for many resources regions.
Manufacturing employment has also continued to shrink, albeit at not quite such a dramatic pace, while agriculture and fishing shed some 28,000 positions over the year to May 2015.
Despite the drag from these sectors the Australian economy has added more than 255,000 jobs over the past year according to the ABS “original” data series, very much driven by strong growth in services employment.
Healthcare added a whopping 98,000 new jobs in the year to May 2015, and this is a sector which is expected to thrive over the decades ahead as the Australian population both expands and ages.
Meanwhile professional, scientific and technical services accounted for a further 92,000 net new positions added in just the past 12 months.
Accommodation and food services employment has surged by 55,000 over the past year, and arts and recreational services added another 28,000 positions (#culture).
The lower dollar has helped to drive these two sectors in particular in a pincer movement of positive feedback – that pincer consisting of record tourist numbers visiting Down Under in the past year and fewer Australians holidaying overseas, a double whammy of the encouraging variety.

The above graphic underscores quite neatly how the next couple of years is likely to play out in Australia.
Mining employment is all set to continue its decline, that much seems clear, while there are also headwinds facing the manufacturing sector, particularly in automobile manufacture.
It will be services employment which needs to pick up the slack, and the latest data suggests that this rebalancing process is now well underway.
Futures markets expect that by June 2016 we might well have seen one further interest rate cut to a cash rate of just 1.75 per cent in order to generate the requisite growth.

What price Hershey's then?

I wrote a piece earlier today in my Yahoo Finance Contributor’s column about Hershey’s China challenges.  As I noted in the article  fascinatingly the famous chocolate company made a sharply differentiated comment about the progression of sales and profits in America compared to China:

‘The company’s North America confectionery business is on track to deliver on its 2015 financial objectives…In China, Hershey chocolate growth was below expectations in April and May. As a result, the company has tempered its expectations for organic net sales and operating income growth. Macroeconomic challenges and trends are affecting consumer shopping behavior resulting in continued softness within the China modern trade, particularly the tier one hypermarkets where the company generates the majority of its chocolate sales’

Which makes me think: what price Hershey’s then?

Looking at the company’s statement published earlier today and, additionally, a productivity initiative release (here) which detailed personnel change and a US$100m+ charge, the company’s earnings capability is going to be impacted.  As Hershey’s management note:

‘full-year reported earnings per share-diluted, including charges related to the productivity program announced today in a separate press release of $0.29 to $0.35 per share-diluted, is expected to be in the $3.62 to $3.79 range. In 2015, the company expects to achieve approximately 15% to 20% of the aforementioned productivity program total pretax savings of $65 million to $75 million. The company expects adjusted earnings per share-diluted to be in the $4.10 to $4.18 range, an increase of 3% to 5% versus 2014, including dilution from acquisitions and divestitures of around $0.20 per share’

So basically a 3-5% underlying EPS increase for 2015 stripping out the restructuring spend element.  No shocker for a well-known consumer brand but for a company trading on over a x14 EV/ebit multiple not the most compelling multiple and even lower than the sales CAGR over the last 5 years or so (earnings would typically grow faster than this due to operational leverage).  
This is no surprise given that whilst international sales are only c. 15% of total Hershey sales, international operations account for over 30% of total growth.  Therefore a slowdown in China does feed negatively through.  

Fortunately Hershey’s has a good balance sheet including a propensity not to be shy to buy back shares. 2014’s buybacks were equivalent to around 2.9% of the current market cap.  Add onto this the 2%+ dividend yield and Hershey’s has not been shy to return effectively a 5%+ yield to shareholders.  That is not too shabby at all – albeit that this equates to broadly the free cash flow yield (note that the company does have a target debt:ebitda range at x1.5-2 nicely above the current c. x1.3 i.e. plenty of scope for releveraging if required.  

Thoughts then.  As noted above (and despite the solid balance sheet and cash flow situation), a x14s type multiple is not super cheap – but is not super expensive either.  Broadly speaking a sub US$85 share price is a touch below a prospective x14 EV/ebit multiple (about the right starting purchasing level for a global branded business with a good balance sheet) and a sub US$75 share price (or c. x12 EV/ebit prospectively) would be a ‘double up’ / augmentation sort of level perhaps reflecting further patchy shorter-term performance/conditions.  
In short, two levels to be thinking about Hershey’s stock.  I have added them to my flag list.  

The advantage of downloading from your bank regularly – Fraud Prevention

Many of my clients download their bank transactions directly from their banks online system.  Some, however, only do this once a month when they are ready to reconcile all of their accounts.  There is one very strong reason I recommend completing the bank download feature in Quickbooks at least once a week.


I have experienced this personally, and I have seen it happen to my clients. 

You could be in for a very rude awaking as you trod along during the month keeping track of your account register as you enter each transaction that you complete.  Then one day you get a phone call from the bank saying you are overdrawn.  Or, perhaps you are out in the field and attempt to use your credit or debit card only to have the charge declined.

Downloading regularly can bring fraudulent charges to your attention immediately and allow you to dispute those charges before overdraft and/or over limit charges start to pile up on your account.  It’s much easier to get credit for these charges with your bank as soon as the fraud is detected  then it might be a few weeks or even months later.

You may think that you have nothing to worry about.  You take every possible precaution you can think of to prevent identity theft.  You shred every paper, pay monthly fees to a credit monitoring service, and more.  But a stolen debit card number can wipe out your cash on hand in one day!

Consider keeping your personal records on Quickbooks (in a separate “company file”) so that you can use the bank download feature for these accounts as well.  Being diligent, and monitoring for yourself is your best defense.

AFG record May for mortgage lending

Record May for AFG
Australia’s largest mortgage aggregator Australian Finance Group (AFG) released its May 2015 mortgage figures, and it proved to be the biggest May on record. 
The group wrote 10,668 mortgages in the month (note that the index is not seasonally adjusted).

The total value of loans in the month broke $5 billion for the second time in May at $5,017 million.

The first time this barrier was broken was in March of this year.

This result represents a thumping 18.9 per cent increase on the May 2014 figure, with the record values written driven predominantly by a surge refinancing.
Consequently the proportion of loans written to investors pulled back from 43.1 per cent in April to 40.9 per cent in May.
Non-major lenders increased their market share from 25.3 per cent in April to 28.1 per cent in May, which is an interesting point given the recent tightening in lending standards.
AFG noted that many borrowers believe that we are now close to the bottom of the interest rate easing cycle.
Despite this, Reserve Bank Governor Glenn Stevens noted in his Brisbane speech today that the Reserve remains “open to the possibility of further easing”.

So we many not have seen the last of the interest rate cuts just yet.

Index goes quarterly post listing

Historically AFG has released its Mortgage Index on a monthly basis.

However, following AFG’s successful listing on the securities exchange, the group has determined that its Mortgage Index will then be published on a quarterly basis from July 2015.

And the average fund manager says…

Yes it is that time of the month again for all fund management industry watchers as the BoA-Merrill Lynch Fund Manager survey hits town.  It is fair enough that putting your hands on a copy is harder than ever but with all due reference to the content providers here are a few of the graphics that I have managed to get hold of…plus a few thoughts of my own surrounding them.

Well when Mr Draghi in the most recent ECB interest rate decision press conference tells you to anticipate volatility…that is what you logically do.  Funny how yesterday I sold my long EU volatility positions at a pleasant profit…  Quite amazing to see how little H2 2008 volatility protection there was…

The anti US dollar love is high and after touching 100 the DXY (trade weighted US dollar) is now trading at a more reasonable 95 and change.  For what it is worth I think euro/US dollar is about right here. If you are looking for crowded trades then high yield or the Chinese stock market are probably more sensible places to look.

 Fair enough…I guess my preferred scenario of some some sort of Greek reform/restructuring bundle has element of the first two bars

Again personally thinking I don’t think the Federal Reserve should raise rates BUT I guess the bigger insight is that we are a long distance from normalisation.

Frankly volatility is probably now more apparent if the Fed don’t raise rates in September and people ask why (if pushed my personal preferred scenario):

 Following on from the above, the ‘behind-the-curve’ option is simply laughable.  Geopolitics is, of course, an easy catch-all (but quite sensible).  Striking new entry from ‘Eurozone breakdown’!  The Eurozone being ranked ahead of China as a source of volatility is certainly correct.

So what do you then?  Well you build up cash…

A bit like the volatility statistics though above if this is the prevailing thought then you should be looking for opportunities to put cash to work now in the bouts of volatility.  
And additionally?  A few copies on the report were also passed to me including the stock selection friendly observation (because others are not really taking views) about Europe that: 

 Shorts across the SXXP are 28% below YTD highs and 42% below the 12 month high. Market is being led by reduction in longs and top down hedging…
On a similar basis the emerging markets are a good place to look as others are not:

The proportion of investors expecting to underweight global emerging markets surges to a net 21 percent from net 6 percent in May.

So lots of insights but the consensus is telling me that during the summer the trick is to be more active despite it maybe feeling uncomfortable to be so as the beach calls.  


Cranes, cranes…
There has been a strong supply response for a number of the Australian housing sub-markets in response to low interest rates and rising prices.
Indeed, rolling annual building approvals are now at their highest level on record, and the residential construction industry is now likely to be approaching its full capacity.
The above chart shows that this cycle has been very much been about an increase in attached dwelling approvals and construction, rather than detached housing.
Much more detail on this phenomenon can be found here.

Where might we see oversupply?
In Sydney, around the inner south we are already seeing new supply aplenty.
If you want to see the kind of thing I am talking about, check out a few of my photos here.
Brisbane too has a number of sectors of the market which are prone to overbuilding (I took some more photos here, for example).
Back in the harbour city there have also been than 7,000 approvals in Parramatta and Auburn combined in the year to April 2015, so that particular sector of the market is also likely to be flooded with new apartment buildings in due course.

CoreLogic-RP Data‘s excellent research also suggests that both Hornsby and the Hills District are likely to see more units constructed than the underlying demand for them.

Caveat emptor…

How Do I Record A Pre-Payment From My Customer In Quickbooks

You have two options depending on how you wish to have the information appear on your balance sheet.

Method #1

The simplest way is to enter the payment in the Customer menu under “Receive Payments”.  If there are invoices already entered for this customer and you do not want to apply this prepayment to those invoices, just un-check the invoice that Quickbooks auto-applied the payment to.

After you uncheck this option the Overpayment note at the bottom of the screen will disappear.  Click Save & Close and an option box will pop up on the screen.  Since this is a prepayment will want to the select OK which will save the payment to the Customers account as an un-applied payment.

Entering the pre-payment using this method will have the effect of reducing the accounts receivable balance in the Assets portion of your balance sheet.

If you need to see which customers have un-applied payments posted to their accounts you can run the A/R Aging Detail report under the Customers & Receivables section of the Reports menu.  Any un-applied payments will appear as credits (minus) on the report.

In addition, by using this method you can apply the prepayment to any Job associated with this customer by double clicking on the payment in the Customer Center and selecting the invoice(s) to apply it to.  All Jobs for a Customer will appear for a payment posted just to the Customer and not to a specific job.

Method #2

If you wish to post your Customer’s prepayments to a liability account that will appear in the liabilities sections of your Balance Sheet you can do this using a Sales Receipt to record this transaction.

Step one is to create an account on your chart of accounts for the liability such as Customer Deposits.  Use the Other Current Liability account type when setting this up.  Next you will need to create an Item in the Item list to direct to pre-payment to this liability.

From the Item button on the Item list select New.  Choose the “Other Charge” Item type.

Enter the appropriate name and description for the item, choose the non-taxable tax code and select the account the you created in the chart of accounts for this liability.

 Create a sales receipt for the customer using the Sales Receipt form.  Use the Item that you created in the item list and enter the amount of the payment.

  In this way you can record the payment number the payment method, and because you are using a Sales Receipt and not an invoice the funds appear as a balance in the liabilities section of the balance sheet rather than reducing the Accounts Receivable balance on the balance sheet.  Once this Sales Receipt is created you can see the transaction on various Customer reports.  However, it will not appear in any Accounts Receivable reports.

When you are ready to apply this prepayment to a customer invoice you will need to do a journal entry to move this amount into accounts receivable.  Simply debit the Customer Deposits account and credit Accounts Receivable.  Include this Customer name in the Customer/Job column of the journal entry.  If you use Jobs under your Customer register, the journal entry to credit accounts receivable must be attached to the “Job” (in the Customer/Job column) that is being invoiced. 

To apply this prepayment to an invoice, open the invoice by double clicking on it in the Customer Center and click the Apply Credits button.  Once the available credit has been selected choose Done.

This material is for informational purposes only and not intended and financial, legal or tax advice. Please consult your finance, legal or tax professional to confirm the accuracy of all information. Quickbooks is a registered product of Intuit.

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