Business Confidence Lows and Stock Market Lows

NAB trotted out its business conditions survey yesterday. It’s at about the same level as the darkest days of the Tech Wreck.

Should you care two hoots, reader? One hoot?

Perhaps a fraction of a hoot. These surveys are only useful as contrarian indicators. The stock market tends to hit low tide when everyone’s crying into their beer. And you can expect to see every analyst dusting off their favourite ‘turn-around’ indicator in the next year and a half.

It’s a little too early to be talking about stock market bottoms. But here’s our view…the best time to compare our own period with is the last real recession. Back in the early 1990s. Not the Tech Wreck.

So how did business conditions perform during The Recession We Had to Have? They bottomed out in mid-1991. Business confidence had hit a low about a year and a half earlier. High interest rates choked an economy already struggling to deal with global slowing. Tax rates were high. Spending was a luxury. There was enough political hot air to lift Australia off its tectonic plate.

People were wandering the streets looking for dogs to kick. Dogs, by that stage, had figured out the order of things and skipped town. It was a time of gloominess and sore cats.

And what happened right between the lows in business confidence and conditions?

The stock market turned around. Then it went up for 16 years.

Well. We’re not expecting that to happen today, reader. There a lot of differences between that recession and the one we’re facing. But it’s a reminder. When things look ugly, and everyone agrees they’re getting worse, they’re all usually wrong.

One chart, by the way, that’s starting to look particularly gloomy is the CRB Commodities Index. Everyone’s busy agreeing on it too. Gabriel takes a look at that further down.

More Good Numbers for the ‘Out Economy’

Meanwhile, the big firms servicing the mining industry are making a lot of money. Still. The stock market is predicting a big crash in earnings for these guys. It hasn’t happened yet.

Worley Parsons (ASX:WOR) is the Michael Phelps of engineering and mining services. It’s the complete, all-round package. And it’s doing a lot of winning too. The firm just put up annual earnings growth of 53%.

Revenues grew by 33%. Costs grew by 30%. That’s the story at the moment. Firms like Worley and Leighton (ASX:LEI) are winning enough new contracts to outpace rising costs. Leighton just claimed another $422 million of contracts through subsidiaries. Unless the hustle in the mining sector loses a bit of its bustle, that seems to be the trend. There’s plenty of work to do supporting the metals, iron, coal and energy sectors.

Aussie Mining Goes Alternative

But maybe the most interesting news about Worley was its latest renewable project. Worley wants to knock up a solar plant for the Pilbara. That’s the big mining district. It’s also pretty sunny.

So miners are already shifting away from fossil fuel-based resources. Not a moment too soon. Maybe this’ll be what turns the ignition on the alternative energy small caps in Australia. Demand from the mining sector. We’re thinking geothermal and solar.

Australian Small Cap Investigator guru Dan Denning is also The Daily Reckoning Australia’s managing editor. He’s got more reckoning for you on Worley’s solar story today. If you’re not a reader yet, you can sign up here for free.

The Business of Banking Loses More Ground

The ‘In Economy’ isn’t doing so well, unfortunately. By that, we mean the companies that depend on Aussie demand, opposed to demand from developing countries.

Aussie banking leans pretty heavily on domestic demand. And the Commonwealth Bank (ASX:CBA) released yearly results too, yesterday. Total profit was up 7%.

But the biggest earner for the banks is the spread they make on interest. Interest revenues were up 23%. Interest costs came over the top, growing at 26%. It’s like a mirror image of Worley-Parsons. Possibly Australia’s greatest era of banking profits is over.

The Business of Banking Loses More Ground

The ‘In Economy’ isn’t doing so well, unfortunately. By that, we mean the companies that depend on Aussie demand, opposed to demand from developing countries.

Aussie banking leans pretty heavily on domestic demand. And the Commonwealth Bank (ASX:CBA) released yearly results too, yesterday. Total profit was up 7%.

But the biggest earner for the banks is the spread they make on interest. Interest revenues were up 23%. Interest costs came over the top, growing at 26%. It’s like a mirror image of Worley-Parsons. Possibly Australia’s greatest era of banking profits is over.