Economy heading for recession, global bosses takeover PwC, Putin’s crisis

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Michael Thompson: Australia is heading towards a recession according to market economists.

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Michael Thompson: The global bosses of PWC take over the Australian operations

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Michael Thompson: in an effort to stem the crisis engulfing the firm.

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Michael Thompson: And Vladimir Putin seriously weakened after an aborted coup over

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Michael Thompson: the weekend. It’s Monday the 26th of June 2023. Welcome

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Michael Thompson: to Fear and Greed. Australia’s most popular business podcast. I’m

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Michael Thompson: Michael Thompson, and good morning, Sean Aylmer.

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Sean Aylmer: Good morning, Michael. What a crazy weekend for news.

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Michael Thompson: Oh, it’s been a massive couple of days, hasn’t it?

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Michael Thompson: And it’s just been, and international stories and local stories,

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Michael Thompson: it’s just been unfolding.

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Sean Aylmer: So much going on.

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Michael Thompson: It is. And we’ve got an interview coming up after

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Michael Thompson: the show. One of our favorite guests, Elise Kennedy from Jarden.

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Sean Aylmer: Yes. We talked to Elise all about this tech stocks.

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Sean Aylmer: We start on Wall Street, companies like Nvidia, et cetera,

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Sean Aylmer: how they’re going, but then we go pretty specific in

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Sean Aylmer: terms of what the company outlooks are like for in

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Sean Aylmer: Australian. These are Australian listed stocks, of course. So if

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Sean Aylmer: you’re interested in investing, you certainly get your own advice,

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Sean Aylmer: but also listen to Elise and what she thinks about them.

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Michael Thompson: Yeah. It’s always a good chat with Elise, because she

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Michael Thompson: just goes through so many different companies and it’s well

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Michael Thompson: worth a listen if you’re an investor. The main story

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Michael Thompson: this morning though, Sean, the Australian economy is facing a

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Michael Thompson: recession with the ongoing hikes in interest rates and the

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Michael Thompson: potential for more, likely to stop the economy from growing.

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Sean Aylmer: That’s according to several market economists who are now calling

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Sean Aylmer: on the Reserve Bank to stop lifting rates. One of

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Sean Aylmer: the most vocal is AMP’s Shane Oliver, who says the

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Sean Aylmer: risk of recession in Australia is now very high. He

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Sean Aylmer: says the Reserve Bank has already done enough to slow

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Sean Aylmer: the economy and bring inflation back to target, and we

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Sean Aylmer: are seeing clear evidence of slowing demand in terms of

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Sean Aylmer: falling retail sales, falling building approvals, slowing plans for growth

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Sean Aylmer: in business investment, slowing economic growth, and early indications of

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Sean Aylmer: a slowing jobs market.
He wants the Central Bank to

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Sean Aylmer: stay on hold for a few months to judge what’s

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Sean Aylmer: going on, but he isn’t confident that they’ll do it.

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Sean Aylmer: Westpac’s Bill Evans expects more rate hikes, because of the

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Sean Aylmer: resilience of the labor market. While he isn’t quite forecasting

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Sean Aylmer: a recession yet, he says there’s a high degree of

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Sean Aylmer: uncertainty around. Commonwealth Bank’s Gareth Aird puts a chance of

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Sean Aylmer: recession at about 50%. National Australia Bank’s Alan Oster has

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Sean Aylmer: warned two more rate risers and a heavy hit on

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Sean Aylmer: the economy. There’s plenty more who now think that we

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Sean Aylmer: are heading for a recession.

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Michael Thompson: Sean, obviously the Reserve Bank is independent, but do these

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Michael Thompson: opinions, these external opinions, because these are heavyweights in terms

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Michael Thompson: of market economists. Does the Reserve Bank listen at all

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Michael Thompson: to what’s being said?

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Sean Aylmer: For sure. They do their own analysis, and there is

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Sean Aylmer: no better machine in terms of analyzing the economy than

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Sean Aylmer: the Reserve Bank. They have dozens and dozens of economists,

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Sean Aylmer: and so guys like Bill Evans and Shane Oliver and

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Sean Aylmer: Alan Oster, they’ve been around for a long time, but

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Sean Aylmer: they’re limited in terms of how many people they’ve got

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Sean Aylmer: working to predict the economy. They have great experience, of

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Sean Aylmer: course, and there is no doubt that the Reserve Bank

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Sean Aylmer: is interested in what these guys are saying, but at

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Sean Aylmer: the end of the day, the Reserve Bank is independent

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Sean Aylmer: and will make its own decision based on the work

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Sean Aylmer: it’s done.

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Michael Thompson: All right. So when then is the recession likely to hit?

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Sean Aylmer: Well, it’s a very good question. Economics isn’t an exact

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Sean Aylmer: science. Michael, you might have worked that one out.

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Michael Thompson: I have gathered that now. Yes.

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Sean Aylmer: And recession sometimes actually happen in hindsight. So for example,

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Sean Aylmer: the most recent GDP figures suggest there was a per

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Sean Aylmer: capita contraction in the March quarter. So growth per person.

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Sean Aylmer: The only reason we didn’t actually have a recession was

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Sean Aylmer: because we had lots of immigration. But if you look

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Sean Aylmer: at growth per person, we actually went backwards in March.

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Sean Aylmer: So if this happens this quarter, that would make two

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Sean Aylmer: in a row, and that’s classed as a per capita

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Sean Aylmer: recession. Broadly though, economists think that people will truly feel

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Sean Aylmer: the slowdown in the second half of this year and

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Sean Aylmer: into next year into 2024 so much so that some

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Sean Aylmer: actually think interest rates could start falling next year as

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Sean Aylmer: the Reserve Bank tries to reverse what it’s done to

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Sean Aylmer: boost the economy. So probably in the next six months

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Sean Aylmer: or so, if it does happen.

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Michael Thompson: All right. So recession looking more likely and really not

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Michael Thompson: starting the week off on good news, are we?

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Sean Aylmer: No. Sorry.

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Michael Thompson: That’s all right.

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Sean Aylmer: A very bad start.

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Michael Thompson: Well, what about last week? How did the markets, local

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Michael Thompson: markets finish up on Friday?

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Sean Aylmer: Well, this doesn’t improve the conversation either.

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Michael Thompson: Oh, great.

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Sean Aylmer: I mean the week started pretty well last week, but

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Sean Aylmer: it finished really poorly. The S&P, ASX 200 closed down 1. 3%

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Sean Aylmer: on Friday to just under 7100 points. For the week,

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Sean Aylmer: it was off a couple of percent. Fears of a recession

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Sean Aylmer: has pushed the oil and gas companies lower. This is

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Sean Aylmer: more of a global recession fears. Woodside fell nearly 5%,

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Sean Aylmer: Central dropped more than 4%. ANZ was off more than 2%.

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Sean Aylmer: Commonwealth Bank, Westpac, Macquarie Bank, National Australia Bank, they weren’t

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Sean Aylmer: far behind. Other under performers included UK based Virgin Money,

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Sean Aylmer: which tumbled 4% after yet another rate rise in Britain.

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Sean Aylmer: And Gold Road Resources was off 5% following a production

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Sean Aylmer: downgrade earlier in the week. One just of interest was

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Sean Aylmer: Cochlear. Its share price fell more than 3% after British

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Sean Aylmer: regulator, the Competition and Markets Authority said the ear implant

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Sean Aylmer: groups $ 170 million acquisition of a Danish hearing business doesn’t

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Sean Aylmer: raise competition concerns or good, but the regulator prohibited Cochlear

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Sean Aylmer: from buying part of that business, which is actually a

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Sean Aylmer: UK business. This UK bone conduction implants business, it’ll have

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Sean Aylmer: to rid itself of that Cochlear if it wants to

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Sean Aylmer: buy the Danish business that’s in its share price lower.

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Michael Thompson: All right. And what’s happening on international markets?

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Sean Aylmer: Well, worth mentioning Bitcoin. It had one of its strongest

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Sean Aylmer: weeks of the year last year helped by speculation that

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Sean Aylmer: proposed exchange traded funds heralds a whole new source of

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Sean Aylmer: demand for the largest digital asset. The token was up

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Sean Aylmer: more than 25% last week. It’s nearly doubled so far

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Sean Aylmer: this year. Smaller coins like XRP, Cardano and Solana have also

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Sean Aylmer: done much better. BlackRock last week said it’s interested in

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Sean Aylmer: developing an ETF for Bitcoin. It put an application into

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Sean Aylmer: the Securities and Exchange Commission. It’s just one of a

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Sean Aylmer: number of US applicants for that, hence, we’re seeing some

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Sean Aylmer: support for cryptos.
In equity markets, all three major Wall

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Sean Aylmer: Street indices finished lower over the weekend on the back

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Sean Aylmer: of lingering worries about a recession and comments from the

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Sean Aylmer: Federal Reserve chair, Jerome Powell, that rates may still have

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Sean Aylmer: to rise. The Dow Jones Industrial Average, the S& P

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Sean Aylmer: 500 and tech heavy Nasdaq all fell by around 2%

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Sean Aylmer: last week. The Aussie dollar fell further against US dollar

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Sean Aylmer: over the weekend. It’s trading just under 67 US cents.

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Michael Thompson: There’s plenty happening, Sean. I think the big question here,

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Michael Thompson: is my voice going to hold out-

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Sean Aylmer: Yes.

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Michael Thompson: … until the end of the episode? I’m getting progressively

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Michael Thompson: worse, aren’t I?

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Sean Aylmer: Well, you had a very big weekend with the book

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Sean Aylmer: launch on Friday night. You’ve got being launched in the

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Sean Aylmer: US on Wednesday, Look, I think it’s all your fault

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Sean Aylmer: that you’ve losing your voice, Michael, to be perfectly honest.

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Michael Thompson: I have no one else to blame, but I have so much

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Michael Thompson: kind of tea and there’s like all these home remedies,

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Michael Thompson: and when you work in radio for a while, you

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Michael Thompson: hear all of these remedies over time. And the one

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Michael Thompson: that kind of seems to work best is tea with

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Michael Thompson: lemon and honey.

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Sean Aylmer: Really?

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Michael Thompson: Which is actually very, very refreshing. And you put a

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Michael Thompson: little bit of ginger in there and it becomes very,

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Michael Thompson: very nice actually.

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Sean Aylmer: Lemon and ginger tea. There you go. Who would’ve thought?

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Michael Thompson: I’m starting to sound like you, aren’t I?

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Sean Aylmer: Yeah. Sure. I’m so proud. So proud.

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Michael Thompson: Oh, goodness me. All right. We’ll be back in a

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Michael Thompson: moment with the rest of the day’s business news. Sean,

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Michael Thompson: the global leaders of PWC have taken control of the

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Michael Thompson: Australian business pushing aside the local CEO who’s been acting

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Michael Thompson: in the position for just seven weeks.

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Sean Aylmer: In a demonstration of how worried the global partnership is

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Sean Aylmer: about what’s happened in Australia, a Singaporean- based manager will

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Sean Aylmer: take the reigns locally. The firm’s global chair, Bob Moritz said, ”

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Sean Aylmer: PWC Australia had failed to meet the network’s code of

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Sean Aylmer: conduct and uphold the network’s professional standards and values. That

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Sean Aylmer: is under the previous leadership. Of course, he added its

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Sean Aylmer: past actions are not representative of the work and behaviors

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Sean Aylmer: of PWC around the world. And I’m deeply sorry to

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Sean Aylmer: our clients, our broader stakeholders and our people. PWC Australia

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Sean Aylmer: has significant work to do, and I’m confident that the

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Sean Aylmer: steps they’re taking with the network support will result in

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Sean Aylmer: a stronger firms.”
It comes as the AFR reports that

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Sean Aylmer: the local PWC business is planning to sell off its

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Sean Aylmer: government consulting arm, which is where all the problems arose,

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Sean Aylmer: to a private equity investor, Allegro Funds, for the sum

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Sean Aylmer: of $ 1. This is happening while the firm is trying

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Sean Aylmer: to convince dozens of partners to move into retirement, and

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Sean Aylmer: it wants to retreat to core auditing management, consulting, and

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Sean Aylmer: tax compliance work.

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Michael Thompson: Sean, the PWC saga has really hit the whole industry

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Michael Thompson: now, hasn’t it? Because the partnership structure of the big

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Michael Thompson: four consulting firms, Deloitte, EY, KPMG, and PWC, and how they operate

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Michael Thompson: is all becoming the subject of a parliamentary inquiry with

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Michael Thompson: the potential for new penalties for poor behavior.

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Sean Aylmer: So the PWC tax scandal, which of course listeners will

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Sean Aylmer: remind you once again, it’s where the firm used information

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Sean Aylmer: gained from working with the government to help multinationals avoid

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Sean Aylmer: tax. That scandal has triggered the inquiry by the Parliamentary

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Sean Aylmer: Joint Committee on Corporations and Financial Services, Labor Senator Deborah

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Sean Aylmer: O’Neill chairs the committee. She said the big four are

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Sean Aylmer: no longer operating as envisaged. So a major review of

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Sean Aylmer: the sector is needed.
Now the inquiry will consider partnership

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Sean Aylmer: structures, examine gaps in reporting obligations, inquire into fit and

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Sean Aylmer: proper person requirements and prevailing cultural practices, and also the

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Sean Aylmer: regulatory regime that partnerships currently operate under.

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Michael Thompson: All right. Now, Sean, the federal government is proposing new

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Michael Thompson: legislation, including penalties of close to $ 7 million for digital

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Michael Thompson: platforms failing to address systemic disinformation and misinformation.

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Sean Aylmer: Yes. This is getting quite a big run around the world in terms

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Sean Aylmer: of news, mostly because the government is trying to stop

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Sean Aylmer: this flood of disinformation on the social media platforms that

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Sean Aylmer: so many people use. So the government’s released a draft

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Sean Aylmer: framework to empower the Australian Communications and Media Authority to

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Sean Aylmer: hold digital platforms responsible for misleading or deliberately deceptive information

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Sean Aylmer: online. Minister of Communications Michelle Rowland said the proposed legislation

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Sean Aylmer: was aimed at protecting Australians from the growing threat.
For

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Sean Aylmer: the first time, ACMA will be empowered to access documents

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Sean Aylmer: from digital providers related to misinformation and disinformation on their

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Sean Aylmer: platforms. The proposed authority would not extend to the content

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Sean Aylmer: of private messages sent online, but it would in the

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Sean Aylmer: public sphere. So it’ll be very interesting to watch this one.

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Michael Thompson: Now, Sean, Labor has watered down plans to force multinational

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Michael Thompson: companies to disclose an unprecedented level of tax information opting

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Michael Thompson: to follow less onerous international standards.

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Sean Aylmer: Yes. It’s a bit of a win for big business.

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Sean Aylmer: This one global fund manages and Australian companies including medical

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Sean Aylmer: giants like Cochlear and CSL warned the Albanese government’s proposed

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Sean Aylmer: country by country tax reporting rules that were supposed to

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Sean Aylmer: start next week. Those rules risk exposing sensitive commercial data

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Sean Aylmer: to competitors and undermining cooperation by international revenue authorities according

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Sean Aylmer: to the financial review. About 2500 multinational entities with Australian

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Sean Aylmer: activities would have been required to publicly disclose their approach

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Sean Aylmer: to tax compliance, their effective tax rate in each country,

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Sean Aylmer: where they do business, expenses from related party transactions, and

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Sean Aylmer: a list of intangible assets held by their operations. But

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Sean Aylmer: amended legislation introduced into Parliament last week basically winds that

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Sean Aylmer: back quite significantly. The government’s also opted to delay application

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Sean Aylmer: of the new laws by 12 months. So certainly a

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Sean Aylmer: big win for big business.

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Michael Thompson: And a very late change, isn’t it?

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Sean Aylmer: Very late given they’ve only got a week to go.

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Michael Thompson: Yeah. I can understand delaying the application of the new

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Michael Thompson: laws by 12 months. (inaudible) , ” We just need some

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Michael Thompson: time to work through this.”

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Sean Aylmer: Yeah. Absolutely.

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Michael Thompson: Now, Sean, last one before we get to international news.

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Michael Thompson: The corporate regulator has had a crack at the major

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Michael Thompson: insurers saying they had probably ripped off customers with pricing,

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Michael Thompson: but made no effort to refund them.

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Sean Aylmer: The review into why insurers have failed to pass on

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Sean Aylmer: at least $ 815 million in promised discounts or awards since

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Sean Aylmer: 2018 was published on Friday. And while insurers are now

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Sean Aylmer: repaying customers, ASIC has a warning. The industry is potentially

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Sean Aylmer: making misleading, ” misleading” being the operative word here, representations by

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Sean Aylmer: charging some customers more because they know they won’t shop

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Sean Aylmer: around, while also promising a loyalty discount. The report says

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Sean Aylmer: that pricing failure since 2018 were most at IAG and valued

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Sean Aylmer: at $ 447 million. Then, RACQ insurance valued at $ 222 million,

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Sean Aylmer: and QBE valued at $ 90 million. Mostly the failures were

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Sean Aylmer: inaccurate discount descriptions in documents and errors in the pricing system.

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Michael Thompson: All right. International news now. Big story developing over the

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Michael Thompson: weekend, Sean. Russian leader, Vladimir Putin’s hold on his country

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Michael Thompson: has been badly damaged by the aborted coup against him

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Michael Thompson: with the path ahead over the next few months. Well,

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Michael Thompson: really very uncertain, isn’t it?

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Sean Aylmer: Sure is. The head of the Wagner Group, Yevgeny Prigozhin

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Sean Aylmer: said he had called off the advance of troops on

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Sean Aylmer: the Russian capital to avoid bloodshed. Kind of ironic, really,

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Sean Aylmer: because the group is a bunch of mercenaries that kill

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Sean Aylmer: for a living. Anyway, that was the reason he gave.

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Sean Aylmer: Fighters had reached within 120 miles of Moscow. The capital’s

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Sean Aylmer: mayor told Russian residents to remain at home. He gave

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Sean Aylmer: them a day off as they braced for the arrival

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Sean Aylmer: of these troops.
Now, back on Friday, Prigozhin calls for

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Sean Aylmer: an uprising against military leaders. He said he had 25,000

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Sean Aylmer: fighters ready to battle the Russian Army and called on

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Sean Aylmer: regular Russian soldiers, including the National Guard to join his

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Sean Aylmer: coup attempt. A truce was apparently brokered by the Belarusian

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Sean Aylmer: president. Putin called it treason over the weekend, but then

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Sean Aylmer: backed down. He allowed Prigozhin to be exiled to Belarus

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Sean Aylmer: as part of that truce.
The general consensus this morning,

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Sean Aylmer: Michael, seems to be that the coup has demonstrated the

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Sean Aylmer: deep cracks within Russian politics, but particularly within the military,

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Sean Aylmer: and put that next to the failed invasion of Ukraine,

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Sean Aylmer: Vladimir Putin’s position has been severely weakened. He’s now under

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Sean Aylmer: threat as far as some people are saying. I suppose

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Sean Aylmer: it makes for a very, very volatile few months ahead,

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Sean Aylmer: which is quite scary.

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Michael Thompson: Yeah. Certainly is. Sean, Facebook and Instagram users in Canada

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Michael Thompson: will be blocked from viewing Canadian news according to Facebook’s

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Michael Thompson: parent company, Meta. This is after Ottawa passed a bill

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Michael Thompson: requiring digital giants to pay for such content.

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Sean Aylmer: Yes. Google, another critic of Canada’s online News Act has

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Sean Aylmer: previously said it’s considering a similar move to what Meta’s

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Sean Aylmer: doing. The two tech giants have pushed back against the

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Sean Aylmer: bill, which aims to support a struggling Canadian news sector

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Sean Aylmer: that has seen hundreds of publications closed in the last

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Sean Aylmer: decade. Sounds very familiar. In recent days, the bill has

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Sean Aylmer: passed the final hurdle in the Senate in Canada. It

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Sean Aylmer: will become law. Canadian government officials have met with Facebook

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Sean Aylmer: and Google. They say they’re looking forward to further discussions

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Sean Aylmer: about the new law, but Facebook’s parent, Meta and Google

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Sean Aylmer: are taking pretty drastic action by stopping news being viewed.

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Michael Thompson: Sean, for a few days now, people have been talking

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Michael Thompson: about the most livable cities, the rankings that were released

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Michael Thompson: with Vienna at number one. And you are big on

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Michael Thompson: pronunciations. Do you say Copenhagen or Copenhagen? I say Copenhagen.

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Sean Aylmer: I would’ve said Hagen, but I’m happy to go with Hagen.

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Michael Thompson: Oh, deep divisions existing within Fear and Greed. Copenhagen, that

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Michael Thompson: came in at number two, and then you had Sydney

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Michael Thompson: and Melbourne at three and four. But what about the

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Michael Thompson: other end? What about the least livable cities?

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Sean Aylmer: Oh, excellent question. So the Economist Intelligence Units Global Livability

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Sean Aylmer: Index 2023 came out late last week.

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Michael Thompson: That’s a ridiculous name, isn’t it?

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Sean Aylmer: It just goes off the tongue.

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Michael Thompson: Come on, guys, tighten it up a little bit. Come

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Michael Thompson: on. Good places to live. There you go.

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Sean Aylmer: So it came out late last week and post- COVID

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Sean Aylmer: Sydney and Melbourne have jumped up the list. Done very

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Sean Aylmer: well. Vancouver was number five, then Zurich, Calgary, and Canada,

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Sean Aylmer: Geneva, Toronto, Osaka, and Auckland came in at number 10.

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Sean Aylmer: The rankings consider stability, healthcare, culture and environment, education and

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Sean Aylmer: infrastructure. Now some of the big losers, I reckon this

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Sean Aylmer: is where it gets more interesting. So the British cities

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Sean Aylmer: of Edinburgh, Manchester and London went backwards, so too Los

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Sean Aylmer: Angeles and San Diego. But let’s have a look at

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Sean Aylmer: the very bottom end. Coming in last at 173 is…

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Sean Aylmer: Any thoughts?

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Michael Thompson: Somewhere where there’s conflict?

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Sean Aylmer: So Damascus, capital of Syria.

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Michael Thompson: Oh, that would make sense.

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Sean Aylmer: Tripoli was 172. Algiers in Algeria was 171. Port Moresby in

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Sean Aylmer: Papua New Guinea was 168.

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Michael Thompson: Oh.

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Sean Aylmer: Way down there. All these cities were actually worse than

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Sean Aylmer: Kyiv in the Ukraine, that came in at 164. So, yeah.

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Michael Thompson: So they’re still worse than an active kind of war zone.

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Sean Aylmer: Yeah. So I mean it worries me, Port Moresby, that’s

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Sean Aylmer: I mean-

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Michael Thompson: That’s pretty confronting because that’s-

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Sean Aylmer: That’s our neighbor.

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Michael Thompson: Yeah.

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Sean Aylmer: Anyway, that’s the livability index or the lack of livability

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Sean Aylmer: or something like that.

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Michael Thompson: Yes, indeed. All right. Interesting story. Now, Sean, up next

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Michael Thompson: is the Fear and Greed daily interview. You are speaking

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Michael Thompson: with Elise Kennedy from Jarden.

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Sean Aylmer: All about tech stocks, in particular, tech stocks on the

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Sean Aylmer: ASX, what she likes, what she doesn’t. Well, worth a

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Sean Aylmer: listen if you’re an investor. I mean more generally, it’s

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Sean Aylmer: well worth a listen, but especially if you’re an investor.

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Michael Thompson: Yeah. It is a really good chat. It’s coming up

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Michael Thompson: next in the Fear Greed playlist on your podcast platform

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Michael Thompson: or at fearandgreed.com.au. And Sean, considering our lead story today

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Michael Thompson: was all about what economists think is going to happen

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Michael Thompson: to the Australian economy, it’s also worth listening to Fear

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Michael Thompson: and Greed the week ahead with Stephen Koukoulas.

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Sean Aylmer: Sure is very big week this week. Nothing more important

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Sean Aylmer: than the monthly inflation numbers out this week. If they

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Sean Aylmer: fall sharply, that will probably influence the Reserve Bank according

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Sean Aylmer: to Stephen. He gives us his view on all that

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Sean Aylmer: sort of thing in that show, well worth a listen.

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Michael Thompson: Yeah. It’s a great one. Thank you very much, Sean.

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Sean Aylmer: Thank you, Michael.

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Michael Thompson: It’s Monday, the 26th of June 2023. Make sure you’re

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Michael Thompson: following the podcast. Join us online on Instagram and LinkedIn and Twitter

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Michael Thompson: and Facebook. I’m so close to the end. I’m going

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Michael Thompson: to make it. Make sure you stay up to date

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Michael Thompson: on all the business news with Alexa and your Amazon

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Michael Thompson: Echo Smart speaker. Simply say, Alexa, play the Fear and

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Michael Thompson: Greed podcast at catch latest episode. Grab yours now@ amazon. com.

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Michael Thompson: au. I’m Michael Thompson and that was Fear and Greed.

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Michael Thompson: Have a great day.