Political Indecision

It’s been a year since one of the most interesting nights in Australian politics and Julia Gillard channelled her inner Adolf Hitler and orchestrated the political assassination of Kevin Rudd.

Unlike the Nazis in 1934, she spared her competitor for leadership the bullets in the back of the head that Ernst Roehm got in the German version of the game.

But then almost systematically since that time, Australia has been beset by the politics of indecision and what appear at least to be irrelevant issues, while the big issues, like the economy, our place in the world and the economic certainty of all Australians get lost in the debate.

Right now the Labor Party has picked a fight in order of significance with the mining industry, the finance industry, electricity generators, the agriculture industry, the clubs and pubs and the tobacco industry – and as a consequence nothing has happened.

While the Government continues to talk up the economy and the irrelevant effects of the new taxes (mining and carbon) and the new costs for the financial planning industry (the ‘opt in’ effect) consumers it seems aren’t so sure.

The reality is that the sharemarket has ground sideways since 2007 (this means that there will be some horrible shocks in superannuation returns this June – but more on that next week) and that cash has been the asset class of choice.

To be honest this isn’t a new phenomenon as you can see here:

The venerable economist has been monitoring this phenomenon since 2008 and in reality it’s only gotten worse since this was recorded.

We’ve been reporting on the build up of cash for sometime here at burningpants and talking about the fact that this is going to be an issue for the financial services industry in the future, as the way in which money is saved changes and changes the way in which banks and building societies make money may have changed forever.

Right now though the signs from investors are really clear and planners everywhere ought to understand just how uncertain their clients are feeling.

Australian shares are less attractive than they were last quarter – only 20.6% of investors think they will be attractive in the next three months – down from 24.9% the quarter before.

The local sentiment, however, does not extend to international shares, with an increase in those likely to rebalance to international equities to 12.5% from 9.6% last quarter.

The property market is dead – effectively no Australian investors are interested in it as an asset class – while there is signs of life in bonds, with 6.3% of investors now stating they will invest in bonds this quarter (up from 4.7%), in line with the longer term average.

But the big winner this quarter (having briefly dipped last quarter) is cash. Almost one third of Australian investors will be increasing their cash weighting this quarter (29.1%) and when they are asked why – the answer is crystal clear: because they have no idea what the future holds.