February 2009
ETS lacks strong support
Tuesday, 10 February 2009 20:16 | Written by Graham Young

As climate change was the biggest issue last federal election I assumed that an emissions trading scheme (ETS) – what the government calls a carbon pollution reduction scheme (CPRS) – would be generally popular, but with pockets of resistance, mostly amongst Liberal and National voters..

That's not how it works at all.

Our responses were almost evenly balanced between supporters and opponents with 40% approving and 39% disapproving. More or less a dead heat. But it gets worse for the proponents.

When I analysed the qual from respondents I found that of those who strongly approved, 18% had reservations, while 28% of those who approved did as well. 31% of those who were unsure also expressed reservations as did 46% of those who neither approved nor disapproved. So, opposition is almost the same as support, but supporters are equivocal about the benefits.


A break-down by major parties shows that while I was correct about the Liberal and National opposition (to which I’ve had to add "Liberal National" because of Queensland), there is also significant opposition amongst Greens, Independents, and Undecideds.


The net approve is slightly better than for the total sample because of the categories that I had to exclude because they were too small for the result to be meaningful.

The qual showed that there were a number of grounds for opposition, but overall the pattern is consistent with what has occurred overseas when charges have been imposed to curb greenhouse gas emissions. While voters agree that something needs to be done about the issue, most of the policies that are implemented are seen as primarily an attempt by government to increase its tax take. Voters therefore reject the measure while accepting that something needs to be done.

The "hardest" opposition is probably from those who believe that CO2 is not a risk. While a minority they appear to be a substantial minority. Their number is much larger than recent polls, such as this one from Newspoll, suggest they should be.

Apart from that opposition rests on three major premises. One is that the policy will be ineffective. Another is that it will impose unacceptable costs on the economy.

The effectiveness argument has a number of variations. Many respondents, most particularly Greens, think that the targets have been set too low. So, while the scheme might achieve the targets, this is seen as insufficient. A typical comment was that the measure was "a good start".

The market-based nature of the measure contributes to the view that the scheme is ineffective. Many respondents cannot see how you can reduce emissions while allowing "big" emitters to pay to continue to emit. They also thought that it was more likely to be designed to make money for middlemen than to reduce emissions. There was support for a carbon tax, rather than a trading scheme.

Another common comment about the system was that it was so complicated that people did not understand it, which resulted in resistance.

The economic arguments centred on the increase in costs and the need to have a scheme that is global, rather than just domestic. Respondents were concerned that industries and jobs would move overseas under the ETS. Traditional concerns about Australia being a small isolated economy also played a part in this.

The Leximancer Map illustrates how these themes interact. The three themes closest to those who approve are Start ("at least this is a start"), Market and Change ("we need to change things"). So while change represents their urgency, the other two themes relate to reservations. Emissions is the theme right at the centre of the map, which is to be expected.


Those who disapprove are at opposite poles on the map. One group is associated with the theme Big. The word "big" is almost always associated with "polluters", "emissions", and "companies". This is the concern that large corporates will get away with something.

The group who most strongly opposes the ETS is associated with Global and Tax. Global is a theme that is also close to those who strongly approve. It stands for global warming, but there is also a strong component of concern for how Australia is affected in a global context explaining why it is relevant to both groups.

Tax has two separate uses. One is by those who believe that a carbon tax would be a better solution. The other is that an ETS is a tax, and the last thing that Australia needs at the moment. The former is a strong theme amongst Greens voters, the latter amongst Liberals and Nationals.

The final theme is Work, which means at one level that respondents don’t think the scheme will work, and at the other that it is too complicated for them to understand it. This theme is most closely associated with those who neither support nor oppose the scheme, or who are unsure.

Macquarie Bank survey on investment intentions
Tuesday, 10 February 2009 19:47 | Written by Graham Young

We know what you have told us about your investment intentions - mortgages and credit cards to be paid-off first and fresh investments in shares and real estate last. Here is an alternate take from Macquarie Securities and Investment Trends.

Note that while it is phrased in terms of what "clients" will do it is actually a survey of client advisors.

Financial planning clients cashed up and looking to invest in capital protected products, according to latest research

· Planners estimate over $58 billion in excess cash has been built up across their client base over the last year

· The mix of investments recommended is evolving:

o 35 per cent of planners intend to increase their use of direct equities over the next 12 months

o 59 per cent of planners intend to use structured products in the year ahead

o 87 per cent of planners intend to invest new client money into at least one alternative investment in the next 12 months, with $17.1 billion expected to be invested in alternatives over the next year.


SYDNEY 10 February 2009 – Cashed up but cautious clients are looking to invest in growth assets this year and are showing an increasing demand for capital protected solutions. These are some of the findings of new planner research launched today titled the Macquarie/Investment Trends Alternative Investments: Planner Report, which aimed to understand how advisers’ appetite for different products has changed as a result of market volatility.

Mark Johnston, Principal of Investment Trends, said the comprehensive survey of 650 financial advisers conducted in November 2008 found that $58 billion in excess cash had been built up over the last year across the planning industry’s clients. Despite continued volatility in share markets and interest rates falling to historically low levels, planners are beginning to cautiously look to invest this cash, and are looking for higher growth opportunities.

“Planners reported that many clients are shell-shocked and are cautious about making new investments in the current volatile market. This reflects the classic investment conundrum where money flows into investments following good performance when prices are high, but dries up following poor performance when prices are lower, often resulting in clients missing out on the full extent of the market upswing.”


However, advisers have clear views on what will trigger their clients into a move back to growth investments:

1. Economic stability/recovery


2. Rise in confidence


3. Stock market recovery


4. Reduction in volatility


5. Positive media coverage


6. Planners advice:


7. Already happening


The current extreme market environment has also prompted changes in the mix of investments and the types of products being recommended. Thirty five per cent of planners intended to increase their use of direct equities over the coming year, while only seven percent are planning to decrease their use. Similarly, structured products are a growth area with 29 per cent intending to increase their use of capital protected products versus only nine percent planning a decrease.

Kurt Jeston, Division Director in Macquarie Securities Group, said the report provides an invaluable insight into planners’ attitudes towards alternative investments after a tumultuous year in investment markets.

“Ongoing market volatility means planners are looking for investment solutions that allow them to weather the storm during these more turbulent times. In particular, they are looking to offer their clients exposure to investments offering higher growth potential, however they have also highlighted their shift in appetite towards more transparent and simple structures. These findings also reflect what we’re seeing in our business, with increased demand for alternative investments - and capital protected products in particular - expected this year compared to 2008,” he said.

Eighty-seven per cent of planners surveyed intended to invest new client money into at least one alternative investment in the next 12 months, with 59 per cent of planners intending to use structured products. Ten per cent of these planners are newcomers to the category. In total, $17.1 billion is expected to be directed into alternative investments in the year ahead. Alternative investments were defined as assets or product structures that were not considered ‘mainstream’.

Mr Jeston said the report shows that financial planners are adjusting their investment strategies to respond to global market volatility. “We’re working with a number of planners who are keen to give their clients access to equities following recent market falls, but are concerned about ongoing volatility. So we’re developing investment solutions in conjunction with these advisers that provide this exposure for their clients but with features that help to mitigate the risks in the current market,” he said. “This will include the release of a number of new innovative solutions over the coming months.”

In addition to protecting their clients’ capital, half of the planners surveyed cited diversification as a key reason to use alternatives, while 36 per cent were attracted to the longer term investment horizon.

Planners are hesitant about their performance expectations for the year ahead with an average expected sharemarket return of eight per cent (plus dividends). Despite expectations of moderate performance, planners are generally optimistic, not expecting volatile conditions to have a significant impact on their own business. While most planners are concerned about the challenging economic environment, the chart below shows 82 per cent said they had lost only a few or no clients since the downturn began, with profits expected to be down an average of eight per cent this financial year.


Maccquarie continues to rank highly among planners for alternative investments, with 35 per cent of planners identifying Macquarie as excellent or outstanding for alternatives.

About Macquarie Securities Group (MSG)

MSG offers a range of specialised investment, trading and risk management solutions to wholesale and retail customers in Australia, Asia, United States, Europe, Latin America and South Africa. MSG also operates the no. 1 equities research house in Australia[i], Macquarie Research Equities, and conducts the Bank’s global securities lending and equity finance activities.

MSG recognises that investors’ individual circumstances are unique and their investment requirements evolve through changing environments. As a result, MSG consults with financial intermediaries on an ongoing basis to deliver tailored solutions relevant to their clients’ needs.

MSG was formed in April 2008 following the merger of the Equity Markets Group (excluding the Funds Product Division) and the Macquarie Securities Division of Macquarie Capital.

About Investment Trends

Investment Trends is a leading supplier of decision support research to the Australian retail investment industry. Investment Trends’ clients include the regulators, all of the top five Australian banks, the top ten investment platform providers, the top five online brokers, the top seven margin lending providers, the top five contracts for difference providers, as well as leading fund managers, dealer groups, planning software providers and many other industry participants.

Australians and debt
Saturday, 07 February 2009 15:14 | Written by Graham Young

Reader Jeff, a seasoned political analyst, suggested that "I suspect the mob are very susceptible to a fear campaign about the level of government debt. That is the one problem for 07 with his package - the mob will like the package but worry about the debt."

In fact that doesn't appear to be the case at the moment. While our respondents are looking to pay-down their own debt levels, they are relaxed about government debt. This could be for a number of reasons.

First, they are not really sure what level of net debt the government has. Less than a third could accurately pick the figure closest to Australia's net debt level, which the government estimates to be -$16.2 billion for this financial year (that is a cash surplus).


Coincidentally, a similar number was also concerned about net debt, but the majority (54%) were unconcerned, and 16% were neither concerned nor unconcerned.


And most saw no connection between government debt and their own personal economic plans.


As noted in our last post, Australians would pay back their personal debt if they had a cash surplus. These tables give some more detail on that.

Privately our respondents are very contractionary. Only 9% are thinking of increasing their mortgage, while 67% are likely to pay it back.


On credit cards they are even more cautious with 79% likely to reduce and only 2% contemplating a spending spree.


11% said they did not have a credit card. Of the balance, 75% said they tried to pay their credit card bill entirely each month.


Latest Roy Morgan
Saturday, 07 February 2009 02:26 | Written by Graham Young

The latest Roy Morgan poll, out today, shows a drop in Labor's primary vote and a similar rise in the Coalition vote. If an election had been held last weekend, Labor would still have won 56% of the two-party preferred vote.

It also shows a significant drop in the "confidence rating" while those who say Australia is heading in the right direction have declined in number by 6%. Those who say it is heading in the right direction are up by 2%, which means 4% must have reserved judgement.

Will these findings be mirrored in our poll taken at roughly the same time? I'll let you know next week. Have a good weekend.

Cash grants versus tax cuts
Friday, 06 February 2009 17:31 | Written by Graham Young

Federal Parliamentarians are debating whether tax cuts or cash grants are more effective in encouraging spending. Our research suggests that it probably doesn't make much difference.

Between January 30 and February 3, 1573 Australians gave us their views on politics and the economy. This research is qualitative, and we normally use quantitative results to place the qual in context. However, it would appear that despite the limitations of our quantitative figures they are likely to be better than anything else currently available.

I will be releasing the research results over the next few days, and am releasing these figures first in response to circumstances.

How much of the $10.4 billion cash grant was spent over Christmas, and on what?

68% of our respondents received nothing. Of the 32% who did, 53% spent the money (including 20% who used it for house maintenance or improvement). The balance saved it.


What would you do with any surplus funds?

This question was deliberately held neutral so that we didn't mention tax cuts, or cash. So in one sense it doesn't answer the question of which is more effective, because it could have been that respondents had one or the other in mind, and there is no way of telling.


However, what the figures actually show is that there is no predictable answer to this question because the answer depends on who you are and what your needs are. While 30% say they would spend as their one or two preference, 37% say it is their last or second last preference. This seems fairly flat. But if you remove expenditure on housing because it may have qualities of both spending and saving, then the trend is quite clear.

So, whatever form the money comes in, people say that they are most likely to either save it, or spend it on their largest capital asset. So perhaps a voucher for your local hardware store would be the best way of getting money out into the economy.

And if you take the housing effect out of the Xmas figures, the proportion who spent declines to 33%.

All of which suggests that it probably doesn't matter how you provide the benefits, if people think that things are getting worse, then the rational thing is to hoard.

There is a lot more depth in the data, and we'd be happy to provide more in-depth analysis if you think you need it. This e-mail address is being protected from spambots. You need JavaScript enabled to view it if you do.

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