Growth Hope
By the time you read this blog it is probable the total amount of cash saved by Australian individuals, businesses and superannuation funds will have exceeded $1 trillion, an amount of money so colossal that if you stacked it up in $1 coins it would reach 400 kilometres into space.
Let’s be frank – this money will not stay in cash forever and the moment the economy starts to get some positive signals about the future, or even some robust information from the Government sector then it will start to flow out of cash and into something more interesting.
The saving of cash isn’t news in the public or the private sector and it’s easy to see where it’s been sucked out of the economy; retail sales and house sales are at 20 year lows for a start – it’s what happens next that is on everyone’s mind.
For the businesses that are hoarding cash there are two choices; return the money to the shareholders or, which is frankly more likely, buy something – either another company or potentially their own shares.
It’s clear that this is underway at least in financial services. AMP has bought AXA and now CBA is in the process of hoovering up Count Financial Services, and there are any number of other deals on the boil.
But the big question on the mind of accountants, financial planners and private bank managers everywhere is what is going to happen to all the retail money? The estimated $50 billion that the mass affluent Australians have been slowly putting away since the fan became unusable in October 2007.
It’s curious given that we know there is about $50 billion of otherwise investable cash being stockpiled at the moment that will create a benchmark for the next few years’ success. As the money flows out of cash – what share will your business get?
Here at CoreData we’ve been tracking the savings rate very closely every quarter looking for the first signs that the love affair with cash is over and that something more interesting is going to happen to the cash – and for the first time we started to see a flattening in the growth of the savings rate.
Year on year, the cash savings rate has now returned to 7.5% of GDP – towards the bottom of the normal range which suggests that something else is going to start to happen to the money that was previously being saved as cash.
The question remains: where is it going to go? There are two probable scenarios for this; the first is that some of it gets sucked up by what is called deferred spending, which means all the cars and washing machines and fridges we didn’t buy suddenly start to get bought again and money starts to flow back through the retail coffers.
The second is that it starts to be invested; that the rich – who tend to lead the market by three to six months in this type of behaviour – stop hoarding cash and once again start to invest.
But as far as we are able to tell, the rich in particular have changed the way that they think about their relationship with the market and what they think is going to happen.
Right now, our data suggests that they are still out of love with the investment market; they have a punctuated view of the stock market (still too choppy, they reckon it will be three years before some sort of normality returns); a dim view of managed funds (far too expensive); a binary view on ETFs (while there are some lovers of the product, a large number of them are convinced they are a scam and it will end in tears); and a broad view that property still remains overpriced.
A more interesting finding that emerged from a recent focus group held by CoreData in Melbourne was the question of who they would turn to for advice.
While there was the usual smattering of adviser and accountant aficionado’s, by and large the group were not able to give a clear answer on who they would be working with to maximise their wealth.
When it came to the question of private banking – all of the people in the room had at least one private bank relationship (most had two) – all of them were unaware that their private banker was able to do anything other than debt, either housing debt or investment debt.
It seemed the total value of the relationship with their banker was based on how cheaply they were able to source funds for them. There was no mention of structuring, no mention of planning, no mention of floats, of opportunities or what to do other than cash.
When asked if they would like to hear from their private banker about those opportunities – they all said yes. When asked how long it had been since they had heard from their private banker – the vast majority said that their private banker had never contacted them about anything other than the debt they held.
4 Comments on “Growth Hope”
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burningpants says:
Thanks for your comments. Cammo it was interesting to hear at a recent focus group among stock brokers that clients are somewhat polarised over this; while it’s certainly true that many pre- and post-retiree clients are ducking for cover, many of the younger HNW are actually viewing this as an opportunity. Two-speed economy and two-speed investor universe?
Cammo. says:
Or mabe it is the Baby Boomers stockpiling the cash..? 50B not that much really.. my info says they want to make money, but not at the risk of losing what they already have, safety thats the key …
Lloyd says:
How about a third option? Debt repayment. Private debt stands at over $1.3 TRILLION.
Pah, a measley $50 Billion would not even dent that…
GuerillaBanker says:
“all of them were unaware that their private banker was able to do anything other than debt, either housing debt or investment debt.”
Yup. And that is the only things they know how to sell – most have a background in standard banking products little experience in anything else. Compare that to the Europeans or Americans with plenty of experience in more advanced products. The locals need to start stealing bankers from this talent pool!