Reef Casino targets China

The ASX listed Reef Casino continues to post creditable results despite difficult trading conditions in recent years. Profit for the most most recent half year was up 41% on the previous year. Growth  in inbound tourism from China should be a positive for the Casino given the Chinese reputation for gambling. However, it would be good to think that direct flights from China could be closer than a couple of years away given the aviation deal agreed earlier this year.

Café China, the best Chinese restaurant in Cairns became a tenant of the Reef Hotel Casino in mid 2010.

The addition of Café China has assisted our hotel profitability in 2011 besides being an important part of

our casino’s China strategy. While we think direct flights from mainland China are about a couple of

years away, so far in 2011 we continue to see a slow and steady increase in the number of Chinese

visitors to Cairns.

Complex visitations in the first half year were slightly down by 3% because the natural disasters

mentioned earlier caused a drop in tourist numbers including mainland Chinese, Japanese and domestic

tourists.

In the casino, grind (main floor) table games revenues were up 8% while electronic machine revenues

were up 3.9% reflecting higher spending by patrons. Premium play revenues were up 15.3% in part due

to a higher than “theoretical” win rate. Overall, casino rentals paid to the Trust were up 13.6%.

In the hotel, accommodation revenues were up 9.9% due mainly to a better average room rate being

achieved. Our Pullman Reef Hotel Casino continues to lead the 5 star market in Cairns in terms of

revenue per available room. Food and beverage revenues were also slightly higher with better profit

margins being achieved. Overall, hotel rentals paid to the Trust more than doubled.

Indigenous Disadvantage

Peter Martin has a couple of posts on this weeks Overcoming Indigenous Disadvantage progress report. Although perhaps 'progress' is perhaps not quite the correct word?

Australia's Indigenous Report Card

Indigenous imprisonment - worse

Substantiated child abuse - worse

Chronic disease - worse

Employment gap - unchanged

Education gap - unchanged

Income gap - unchanged

Home ownership rate - improved

Infant mortality gap - improved

Steering committee for the review of government service provision, Overcoming Indigenous Disadvantage.

Indigenous disadvantage represents a substantial loss of potential human capital, particularly for regions such as the Far North.

Cairns Group Anniversary

KS had intended to turn up to the Cairns Chamber annual economy update yesterday by Bill Cummings and Rick Carr, however other things got in the way. The presentations should be available online sometime and KS will link.

The Cairns Post has run with a front page on "Agriculture the key to FNQ's economic fortunes". Nick Dalton has been doing an improved job with finance reporting at the Post in recent times although the surprise is probably that the potential for agriclture has even come as a surprise. KS has been saying for some time that Cairns is not badly placed to take advantage of many global trends. I don't think the opinion of Bill Cummings on this is new either.

This view of KS does not contradict his earlier rant at the King Parrot's delusions at the Post that if everyone just buys more regional food we will all be more prosperous, which demosntrated a certain degree of economic illiteracy among other logical flaws. The King Parrot was actually proposing that less trade in food would be a good thing economically. The google gremlins have eaten my post on that which I will need to recompose. With typical ignorance from the parrot cage at the Post the comments on this story are dominated by misguided rantings from the local Katter Party candidate.

Our eponymously named Cairns Group of agricultural exporting nations was formed at a meeting here in Cairns on 27th August 1986. Which means it celebrates its 25th birthday party this Saturday. If we wanted to promote potential of local agriculture maybe we should have brought it back home for this years meeting of Trade Ministers as a 25th anniversary event. The objective of the Cairns Group is to promote further liberalisation of trade in agriculture.

The Trade Ministers of the 19 nations which form the Cairns Group are scheduled to meet next month in Canada.  Australian Trade Minister Craig Emerson has recently been supportive of foreign investment in agriculture and trade.

     

Complexity and the God Complex

Economics writer Tim Harford from last months TedGlobal 2011. There are some aspects here which resonate with some of us who remember twenty years ago the trend to Japanese style TQM, based on the work of Deming, and continual improvement of a system rather than management  goals and targets.

education and exports

There are some good posts currently at Core Economics including a futher post by Stephen King from Monash University on education. King has posted on this issue previously and given that education is a significant local industry in Cairns it's baffling that our media and political leaders have almost completely ignored any comment. Perhaps that's because it relates to immigration?

Education exports, ie foreign students, is another sector that has been under pressure from the high $AUD. International education is booming in the USA. However, as King continues to point out the currency is not the only factor with the sector also hit by deliberate Federal Guvmint policy on student visas:

A major reason for the drop in Australian education exports is the federal government’s visa policies. The government changed these rules to prevent exploitation of immigration rules – which of course are also set by the federal government. So to solve one problem (that it created) the federal government has so restricted student visas that it is undermining a major Australian non-mining export industry. The irony of course is that a major beneficiary of education exports is the Australian government who owns/funds almost all our Universities.

King also links to this initiative in NZ to attract foreign students.

July Unemployment

Regional July unemployment data was released this week and didn't attract as much media interest as usual. Far North unemployment fell to 8.2%, down from 8.6% last month. In the typically volatile ABS survey data the number employed and the number unemployed both actually declined, and the participation rate also fell to produce the decline in the unemployment rate. The Far North participation rate, currently 67.7%, is still typically higher than the national rate which is at 65.6%.

For a change of perspective this month the graph is from the post at Queensland Economy Watch. This is a 12 month moving average to smooth out the volatility and emphasise the longer term trends. Given its large population base the consistent rise in unemployment on the Gold Coast has become at least as significant as the Far North rollercoaster.

Cape York Coal Rush?

The Australian has reported today on a recent "rush" of applications for coal exploration on Cape York. There may be a certain amount of hyperbole in this and much of the story concerns calls from the Wilderness Society to ban coal mining on Cape York: Huge dirty coal mine planned for Cape York.

Many in the Far North may not be aware that there are coal deposits on Cape York mostly in the Laura Basin. Coal exploration here is not new and at one time exploration permits were held by BHP, which had been acquired in the takeover of Utah. Waratah Coal and MCI have held exploration leases for a few years now.

KS has a long backgrouund in the coal mining industry and recalls nostalgically a colleague who did some of the early exploration for BHP Utah. His assesssment was that there was not much potential at that time but always wrote a report recommending that they drill a few more holes during the next barramundi season.

The Cairns Post reports on the potential for underground mining with lesser environmental impacts than surface mining. This was a particular expertise for KS during a previous life and may update comments later.

Apart from environmental and logistical constraints there is a long queue of proposed coal mining developments elsewhere, and I doubt these are a high enough priority to see much actual mining anytime soon even if  approval could be obtained.

Note: This map is from the Wilderness Society. KS thinks someone should buy them a compass so they can tell east from west, or is this superceded technology in the GPS age?

rental vacancy and dwelling approvals

The Cairns Post has reported on a rental property squeeze in Cairns with declining vacancy rates. Care must always be taken with real estate reports at the Post as they tend to include advertorial content for their real estate advertiser base. However, the following comment did draw some attention:

Tightening rental vacancies, a slump in building approvals in the past 18 months and wary southern investors has left Cairns agents searching for rental properties, in particular, houses.

Building approvals may have slumped, however the seminar presentation last month from OESR seemed to indicate there was still a substantial overhang in the pipeline of approved lots. The presentation on 'Residential development trends in the Cairns and Far North region' has not been posted online and I have sent a query to OESR on this.

My hardcopy of the presentation with vaguely decipherable notes and diminishing recollection shows 'lots within the pipeline' to have declined from the peak in 2008 (7,000) but still around the same level as 2006 (6,000). OESR break up the 'pipeline' into "approvals", "production" (operational works approved, showing serious intent to proceed including Council charges etc), registration. Lots classified in the production phase are similar to the peak in 2008 and actually increased in 2010 from the previous year as new approvals slumped.

I am hardly an expert on the development process but recall the presenter did comment on the previous boom in approvals creating a supply overhang, and whether these would be rolled over by Council in time as they expire? Who knows how many of those approved lots are now locked up with receivers at CEC and Glencorp?

As previously posted a recent study showed CRC had the third highest rate of approvals in Queensland (behind the Gold and Sunshine Coasts?). Council did provide incentives recently to try to progress the approvals process to development.

The post report also refers to rental demand "for four bedroom houses or units seaside of Sheridan St." Even if funding for development was available, the current strata insurance crisis would make any significant unit development in that area difficult for an investor to justify.


Note: From a much lower base the strongest region was Tablelands with lots in the pipeline more than double 2006.

Redcape Skewers Investors

Interesting things continue at the old Hedley pub fund, now know as Redcape (not to be confused with the Red Beret). Australia's best forensic financial journalist, Bryan Frith, posted last week on the recent recapitalisation proposal from Goldman Sachs and some curious board behaviour.

The offer from Goldman Sachs pretty much wipes existing shareholders, with significant holdings in the Far North. Frith notes some curious behavious from the Redcape board which has also been noted by KS. Apart from Frith and Loose Change this has been covered almost nowhere else.

"AMID talk of a rival bid for Redcape Property Fund, the struggling pub investor itself appears to be accentuating the negative."

They certainly do seem to be trying to talk Redcape down, as outlined by Frith! More curiously, Frith reveals that the Redcape board were approached with alternative offers last years which would have produced far superior outcomes for those battered local investors:

"The other approach is believed to be from Toby Lewis's Marquette Properties.
The latter claims to have approached Redcape late last year, through the hotel broker Jones Lang LaSalle Hotels, with a proposal to buy 55 of its pubs, which are leased to the retailer Coles, at book vale of about $440m but to have been dismissed.
Redcape claims to have no knowledge of any approach but Marquette is adamant that it was made."

The Coles pubs are the key assets and the strategy had been to focus on those while trying to sell down the rest, which obviously has not been too successful for shareholders. Colin Henson has been Chairman all through the ongoing debacle at Redcape from day one. Henson was also some time ago associated with Burns Philp at the same time that Kiwi Graeme Hart made extraordinary wealth from saving that company, and diluting small holders in the process. CEO Armstrong was a senior exec at Coles and one of those cleaned out by Wesfarmers after their successful takeover of Coles.

More recently a couple of Hedley receiver representatives have been appointed to the board. The other board member is our own local business consultant Greg Kern, sometimes known even to his own staff as "the man with no soul".  Kern has one of the more abysmal records of any director of ASX listed companies. His gigs at Hedley, CEC, and Early Learning have managed to wipe out almost all or most of investors funds. However, Kern did manage to pull somme handsome fees along the way.

Prominent local identities on the Redcape register at June 30 last year:

Hedley receivers: 58.34%
Donnelly Discretionary Trust: 3.22%
Ms Jeanine Lee Cooke: 3.11%
Kern Consulting Group Super Fund: 0.75%
Jean & David Barry: 0.62%
Donnelly Family Super Fund: 0.44%

Donnelly is the former Hedley CFO who left in curious circumstances before the collapse, Jeanine Cooke is Tom's partner, Jean & David Barry are from Westco Motors, who were also large holders in CEC. A substantial number of local investors and ex-Hedley employees invested in the IPO.

Donnelly and Kern bought most of their stake on day one of the float, when as directors they bravely bought heavily to support the price at some of the highest prices traded on market. Remaining IPO investors at $3.50 are now being offered 8c from the Goldman Sachs consortium. A large, and in many ways unnecessary destruction of wealth.

OESR Cairns Seminar

I had meant to do a post on last months OESR Cairns seminar on the most recent population projections for Queensland and the regions. May update with some notes at some time, but the presentations are available online.

Population trends and projections in the Cairns and Far North Region - Ross Barker, OESR Qld Treasury.

Contemporary Population Issues - Alison Taylor, Principal Demographer

Link: OESR Far North Index

a perspective on consumer sentiment

Peter Martin has posted a breakdown of consumer sentiment by voting intention. This weeks Westpac Melbourne Institute survey of consumer confidence slumped to recession - like levels.

A near-record 48 per cent of those surveyed said their family finances had worsened in the past year. A near-record 36 per cent expected even worse family finances in the year ahead.

Both results are worse than any recorded during the global financial crisis....
The index tracking tracking views on the outlook for economic conditions over the year ahead has fallen 30 per cent since the May budget.

This weeks employment data was also weak with jobs growth stalling. Regional employment data is released next Thursday.

efficient markets

An oldie that has been around for many years but some things always retain their relevance ......

Kaltoons

Advance Contarino

Noted in todays 'busy bits' in the Cairns Post:

"The word from Townsville is that former Advance Cairns CEO Ross Contarino has been shortlisted to take over running Townsville Enterprise. He left Cairns late last year after two years at the helm of the Cairns body"

I don't think it's really any secret that Contarino was crucified and had been asked to look elsewhere as he had failed to achieve the miraculous in the midst of a regional recession, economic shock and pesssimism, and walked straight away into a senior position at Townsville Enterprise.

Perhaps there is a double meaning in the reference to Advance Cairns as a "body"?

"Toil and Trouble"

Well, it has been quite a few days in the financial world. Today's gyrations were about as good as any KS has seen in 25 years of fiddling in financial markets! Reading a whole lot of different opinions in the internet age has become tiresome and infested with the psychological phenomenon of 'confirmation bias'.

What do you want to believe and there can be a link to a commentator to confirm your belief! This is called 'media content' at places such as News Ltd where the content is often tailored to the beliefs of the advertising target and agenda of the advertisers.

Optimist Adam Carr at BusinessSpectator opines that this is "the biggest bout of mass hysteria I have seen for a long time" and lets his readers know he will away for a holiday for two weeks:

Hopefully the world won’t slip back into worshipping the moon and cannibalism while I’m away, but who knows! At this rate anything is possible. Please, keep it real and I'll see you in two weeks.

Nobel economist Krugman (a committed keynesian who is by no means positive on the US outlook either) has even posted a link to John Hempton down under who has queried whether there were some big hedge fund margin calls in recent activity?

In the event of a real crisis, rather than a market and media crisis, Australia has plenty of ammunition on both interest rates and the currency. CBA has today slashed fixed interest mortgage rates. The $AUD has fallen back below parity, at least for now. May we live in interesting times.

Up here in Cairns the Journal of Ignorance has posted today on what the impact may be on Cairns. Complete with a finishing spruik from their real estate advertisers! Actually, the Journal has turned surprisingly positive of late if anyone has noticed with some improved work from Nick Dalton! We had this yesterday reporting the latest CairnsWatch report from Rick Carr at HTW.

"The trend average for June 2011 stood at 315 job vacancies advertised per week, up 17 per cent since December 2010."

Mr Carr said it was clear tourism was leading the jobs bounce back.

He said accommodation in the Far North was fully booked.

"They have been full for the past four weeks and the bookings show they are full for the next four weeks," Mr Carr said.

"The people are here. The challenge is to get them to spend their money.

"The town looks a bit more vibrant. If you go to the Esplanade the restaurants are full."

What? Tourism is leading a jobs bounce? It's good to see Rick's closing reference to the fave indicator of  KS Global Economics which is the EPWI (Esplanade People Watching Index) which has been quite positive in recent months despite recent screaming, wailing and pessimism about the currency and almost everything else.

Regardless in times of "toil and trouble" KS only advice as ever is always to avoid anyone who says they know. As the great modern philosopher Billy Connolly has said: "avoid the company of those who say they know the answer; seek the company of those trying to understand the question".


Postscript: This post may seem too optimistic and is not dismissive of current risks or outlook but rather relates to the media frenzy. The more pessimistic views at such as HenryThornton and Macrobusiness and also Paul Krugman are respected and understood. Australia was the only market in Asia to rally strongly today. Stephen Bartholomeusz has commented on this amazing intra-day U-turn on the ASX.

Update: Ross Gittins best reflects the sentimment I was trying to convey with that last note. Elsewhere Warwick McKibbin, probably our most significant economist of global standing currently, and recently removed from the RBA board by the Feral Guvmint, is worth a read on where he sees problems and required responses in the USA and Europe.

the two trillion dollar f*** up

A curious little fact is that the downgrading ratings agency for the USA, Standards & Poors, actually made a  two trillion dollar f*** up in it's own assessment of the US budget. This is the same organisation that previously gave Triple - A to the sub prime mortgage securities before the GFC! Go figure?!

Some charts from the RBA

Some interesting charts from the latest RBA Statement on Monetary Policy.

Christopher Joye has posted that the mining capex itself is worth 10 percentage points of GDP while the non-mining capex mailaise continues ......

 Mining and retail at opposite ends of the scale. Much uncertainty in retail particularly related to how much of the problems are structural rather than cyclical with the growth of online shopping for discretionary items. Queensland Economy watch has also posted on retail trading hours restrictions holding back retailers.

Those loan arrears for recently originated mortgages in Qld (and WA) are probably part of the story on where some of the problems are  in the Qld economy. Presumably there is a correlation here with the last Federal first homeowner stimulus? The latest Qld scheme is now open for business apparently with some reports of strong interest. No amount of economic rationality can stand between a politician and a first home owners scheme!

storming on

An interesting update at macrobusiness on Storm Financial. When I sold my Toyota a few years ago I always recall the buyer, a technical professional, extolling a seminar where she was being flogged by Storm (pre gfc) and was particularly impressed by the fishtanks in the office. If there are fishtanks walk away ........

As a resident of Townsville in North Queensland during the pre-GFC stock market frenzy I witnessed first hand the madness that was Storm Financial. Many of my colleagues would strut around the office spruiking about their wealth and their up-and-coming all expenses paid holiday to Europe where Tina Arena would be doing a personal concert for them in a 800 year old castle ( I’m not making that up ).


The foolproof plan went something like this:


1.Go to the bank and get loan against any existing assets, usually your home.


2.Give all that money to storm financial


3.Storm financial would buy shares on your behalf


4.When the value of your shares goes up you go back to the bank and get a bigger loan


5.Go back to step 2, until you retire a zillionaire.


It all sounds mad and was obviously too good to be true but when “you can’t lose” and “everyone is doing it” it turns out is is easy to find willing participants. From 2004 until that faithful day in November 2007 more than 14,000 people ballooned the storm financial investment fund to a value of $4.8 billion with nearly 40% funded by margin lending. The rest is history.

checkout cheats

Self-service checkouts: are bad apple scan cheats going bananas? 

Prosperity through Autarky?

Over at Kitchenslut I touched briefly on local food economics after a feature article by the King Parrot in last Weekend's Compost (not available online).  This advertorial style journalism was based on the oxymoron of 'research by the Cairns Post' and claimed a million dollars a week could be addded to the local economy if just 35,000 of us had one more meal a week from just local produce.
KS has angsted and looked at some numbers on how to respond best to this but has decided that the recent post by Nicholas Gruen at Club Troppo is quite adequate.

Gruen is one of Australia's most respected economists at the aptly named Lateral Economics. Hardly a hardline economic fundamentalist he was previously an adviser to the quirkily recalcitrant John Button as Industry Minister in the Hawke Government! Many intelligent people are smelling something unpalatable in the local food propaganda wind?

A more wonkish economic rebuttal of the local food economics is here on economic of local food.

Harvard's Ed Glaeser is always worthwhile when it comes to regional economics:  Dilemma of the Locavore 

Fair trade or no trade? Economic illiteracy alive and well in our think tanks

Posted by Nicholas Gruen on Wednesday, July 27, 2011


The right wing think tanks have been having a ball denouncing dreadful things like fiscal stimuli which saved a good hundred thousand odd jobs in Australia. Meanwhile New Matilda carries a story about life in Ladakh:

Sun-drenched images of rural life in Ladakh in the 1970s where Himalayan villagers in traditional clothing sow and winnow before sharing joyous meals with their extended families are all very evocative. But what relevance can this view of life in an exotic locale during a much earlier era possibly have for our highly urbanised modern world? A great deal, according to Helena Norberg-Hodge, whose documentary The Economics of Happiness, has been showing around Australia.

Globalisation is bad, and what you need to do is buy local food. No matter that if you buy food from Mildura it is local food for people in Mildura. No matter that there might be a reason, like season, varieties or quality that might mean that you want to buy a pineapple from Queensland and Kiwifruit from Tassie and not the other way round.

From San Francisco, where all the food for public facilities — hospitals, schools, even prisons — is now sourced locally, to places as far apart as Ogawamachi in Japan and Lewes in England, where each town’s own currency can be used to buy goods and services from local providers, more and more people are appreciating the benefits of keeping money at home.

Prosperity through autarky.

No mention of the billion odd people that globalisation is lifting out of poverty. No mention that Oxfam is one of the leading advertisers on the New Matilda website – in this case advertising pineapples which, when exported, earn the poor people who grow them some income.

Maybe Ladakh is the only place ever in the history of the world where people wouldn’t prefer to trade and become richer . . . but I doubt it.Note: Nola Craig and Gavin King have been contacted and asked to detail and reference the basis and assumptions of their economic "research" but have not responded.

Customs Cuts?

The Sydney Morning Herald has posted on proposed cuts to customs services at Australia's eight international airports. 

At the worst possible time for the Australian tourism industry, it’s been revealed the Australian government plans to cut Customs and Immigration staff, with an immediate effect on processing times at airports.

The loss of up to 90 positions is suggested with increased passenger processing times. The cuts, described as "puzzling" by the Airports Association, are apparently all part of the objective of getting the budget back into surplus by FY2013. KS reckons he could find alternatives for priority cost cutting?