The Royal Commission could send us into recession

Friday, 23 November 2018
London, UK
By Sam Volkering

  • Today’s the big day
  • What is reality?
  • Are you buying crypto today?

Remember this name…

Hayne.

It’s going to be the most important name for Australia’s near term future. And it could very well be the name that leads the country into recession.

Kenneth Hayne is now the most powerful man in Australia.

Thanks to the banking royal commission, former Chief Justice Hayne is now in control of the future of Australia’s financial services. More than that, he’s in control of boardrooms across Australia.

In fact he’s singlehandedly in control of what our future business environment looks like. For anyone that’s sick to death of ruling elite, it doesn’t get more ruling elite than this.

It’s of course wrapped in in the guise of a Royal Commission. But both sides of the political agenda have said whatever Hayne recommends after this Royal Commission, they’ll implement.

We’ll see if that’s truly the case, but it’s a frightening thought.

Of course Hayne does have a team of lawyers and experts on his side. But still, let’s not beat around the bush here. The control of our country’s future lies in the hands of an elite few.

And you have no say in it whatsoever.

If it heads the way it looks like it might, you should be very worried. At least you should be worried for the state of the Aussie economy. We see a future post-Hayne with higher costs, risk-averse business, more bureaucratic delays and a country where people don’t want to do business.

That has all the hallmarks of slow to negative growth. All the hallmarks of an impending recession.

But it doesn’t have to be that way. Or even it is that way, there are a few things you can do to avoid personal calamity. Taking power and control back. You can still navigate the minefield of a ‘Hayne-built Australia’.

And I’ll tell you how shortly. But first, the markets…

Markets

Overnight the Dow Jones Industrial Average closed down 0.95 points, or 0.0039%.

The S&P 500 gained 8.04 points, or 0.30%.

In Europe, the Euro Stoxx 50 index finished down 27.24 points, or 0.86%.

Meanwhile, the FTSE 100 fell 1.28%, and Germany’s DAX fell 105.68 points, or 0.94%.

In Asian markets, Japan’s Nikkei 225 is up 139.01 points, or 0.64%. China’s CSI 300 is down 1.44%.

In Australia, the S&P/ASX 200 is up 24.40 points, or 0.43%.

On the commodities markets, West Texas Intermediate crude oil is US$53.86 per barrel. Brent crude is US$62.50 per barrel.

Turning to gold, the yellow metal is trading for US$1,227.59 (AU$1,693.34) per troy ounce. Silver is US$14.49 (AU$19.99) per troy ounce.

One bitcoin is worth US$4,230.86.

The Aussie dollar is worth 72.53 US cents.

How Hayne is going to ruin business in Australia

More, more, more of everything

According to the Australian Financial Review’s Chanticleer column,

‘…the Hayne governance era looks something like this: verbatim records of conversations held by board and sub-committee members, longer board meetings, more extensive board room information packs, intensive director induction programs, more robust challenging of management, and increased employment of lawyers and accountants as non-executive directors.’

Let us tell you what happens if this end up coming true.

The cost of business will rise. You will see this passed on to consumers of all kinds of goods and services. As if Australia needs things to get even more expensive.

Business will take even longer to make critical decisions. They will be tied up with more red tape. There will be more regulatory oversight. They will face more hurdles, and have more interested parties to please.

These delays will slow business growth. They will hamper business confidence. They may very well see Australia lose its ever-so-famous AAA credit rating.

Australian businesses will be forced to become more risk-averse. They will have to be conservative. They will have to make more prudent, safe decisions. We’ll end up with boardrooms across the country simply giving in to bureaucracy.

That’s the worst thing that could happen to business. A bunch of boring, regulator-fearing businesses not willing to take risk, lumbered down in red tape. That’s bad for business, and bad for the country.

Then there’s the suggestion that more accountants and lawyers need to be on boards. Nothing against lawyers and accountants. I know many, some are close friends. But they’re also bad for business.

Look, I’m not saying business should flaunt the law. By all means they should operate within the limits. But stifling boardrooms and high-level executives with more frustrations and micromanagement is not going to be good for economic growth.

The aim shouldn’t be to prevent business from taking risk or pushing the envelope. But that’s exactly where this royal commission seems to be heading. The aim out of all of this should be to find a way to enhance scrutiny and enforce reasonable rules, while cutting back on red tape and oversensitive regulation.

The business environment in Australia is making it an unattractive place to do business. Why come to Australia when you could set up in Singapore? Why deal with the uncertain, volatile Australian government when you could set up in Malta or Ireland?

Australia will lose potential business to intercontinental competition. Regions that want to support and foster growth. Places that incentivise business and want new, promising, exciting opportunities. Not somewhere that wants to bend you over backwards to appease their worries.

This is all leading to increasing uncertainty, anxiety and fear across the Australian business community. It’s spooking markets and making investors incredibly nervous. We’re seeing the result of this with the wild volatility in the ASX and in other asset classes.

Actually we should note, there is a pretty good hedge against all this turmoil. Gold investors have been saying for a long time that gold is one of the best volatility hedges there is. Any maybe they’re right. Maybe in this environment gold is one asset class you should really be looking at.

The good news is we’re about to launch a special report next week that explains exactly how to hedge political and economic shocks using gold. It’s a cracking report which anyone who’s thinking about how to beat all this insanity should absolutely read.

Of course gold, while one way to look at beating this mayhem, isn’t the only way…

There is a way out

We best not forget there’s a reason why Hayne is now so powerful. There’s a reason why the future of business Australia so bleak. It’s the banks and financial institutions flaunting the law and cutting all the corners.

It’s their own arrogance and greed for profits that’s brought us to this point. They should be hung, drawn and quartered for some of the actions they’ve taken and the harm they’ve done.

But the solution isn’t to regulate more and rule with a harder iron fist. You can make the penalties more severe, and should do. But then they should do the opposite of what you might first assume.

Relax oversight, cut back red tape, and provide tools for efficiency gains and ways to improve economic benefit. Let business run free and foster a country that has an ‘open for business’ policy.

Reduce corporate tax, provide more incentives, rebates and grants. You can still require all the self-reporting, you can still maintain an eye on how things are going. But take the foot off the throat, rather than press down harder.

And if they still cut the corners, flaunt the law and operate outside those track limits, then you royally throw the book at them. You make them pay…personally and from a corporate perspective.

But how does that work? How do you increase the watchful eye, while decreasing the watchful eye at the same time?

Well the advances in regulatory technology (regtech) and smart, forward thinking financial technology (fintech) companies can help provide the answers the Royal Commission seeks.

There are ways to improve governance, security, and privacy while lowering the cost to serve. It’s a win-win. But it takes forward thinking people to press the industry in that direction.

Of course we wouldn’t expect it to come from Hayne or his ‘crack team’. We wouldn’t expect it from the government. Maybe, just maybe the banks will take it upon themselves to pick up and run with these new technologies.

We think they will. We think if they’re going to get the stick from Hayne, they have to implement these technologies to cut their cost base elsewhere.

There’s no way this Royal Commission, Hayne or any government recommendation is going to be a good outcome for Australia’s business community.

But we still believe with the new tech out there that industry can save itself. And investors that have put their money in the right fintech and regtech plays at the right time stand to massively profit.

But if left to the devices of the almighty ruling elite, then we’re all in trouble.

Regards,
Sam