Turnbull's 30th news poll loss

This week in Talking Finance, it’s all about politics, the markets, the economy and the technology sector.

• Malcolm Farr, National Political Editor for news.com.au tells me how Malcolm Turnbull weathered his 30^th news poll loss;
• Alan Oster, Chief Economist at NAB runs me through the week’s economic news and in particular, NAB’s business survey;
• David Robertson, Head of Economic and Market Research at ‎Bendigo and Adelaide Bank tells us about the markets which have been jumping all over the place; and
• Vassilis Kostakos, Professor of Human Computer Interaction at the School of Computing and Information Systems at University of Melbourne talks to us about Facebook and what’s going on with Mark Zuckerberg and his testimony to Congress this week which was a big event. 

Hello and welcome to Talking Finance, I’m Alan Kohler, and what a big week it’s been in both politics and the markets.  To help us through it we’re joined by Malcolm Farr, National Political Editor for News.com.au.  He’ll tell me about how Malcolm Turnbull weathered his 30^th news poll loss.  Alan Oster, Chief Economist at NAB, runs me through the week’s economic news and in particular, NAB’s business survey.  David Robertson, Head of Economic and Market Research at Bendigo and Adelaide Bank tells us about the markets which have been jumping all over the place. 

And finally, Professor Vassilis Kostakos, Professor of Human Computer Interaction at the School of Computing and Information Systems at The University of Melbourne talks to us about Facebook and what’s going on with Mark Zuckerberg and his testimony to Congress this week which was a big event. 

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Joining me now is Malcolm Farr, the National Political Editor for News.com.au.  Malcolm, as expected of course, Malcolm Turnbull passed his 30^th losing news poll this week, but it seems to me maybe he came out of the week stronger than he entered it in a way.  I mean, everyone kind of came out and supported him.

MF:  Yes.  I don’t know what the expectations were, that 30^th would come out, he would lose, head-fall, window in tall building, leap out – of course he was never going to do that and of course nobody was going to announce that they were going to challenge him.  No serious candidate anyway.  The 30^th poll said, the battalion of bitterness, as I might call them, this troop of ex ministers have got it in for Malcolm Turnbull and they are of course Tony Abbott, Kevin Andrews, Eric Abetz, the ‘Triple A Gang’, but plus Barnaby Joyce – who made that very clear – they’ve all got a grudge against Malcolm Turnbull and they milked the 30^th poll.

But in effect, it meant nothing because the suggestion within the party among sensible people there be a leadership change now barely a month to the budget, probably within 12 months going into an election would be sheer madness.  We’ve seen a what happens when the leadership of a party is passed around like a party favour, the ALP demonstrated what a disaster that is and no one is keen to do that sort of thing again. 

It is interesting though that those Triple As as you say, continue to snipe from the background and it does seem that Malcolm Turnbull might have underestimated what Paul Kelly calls the transaction cost of changing leaders.  Do you think that they can in some way put on a united front by the time an election comes around or will they stay divided?

MF:  I think they’ll stay divided.  There’s several things interesting about this.  One thing is the way this antagonism towards the Prime Minister is being dressed up as a policy debate.  You go to Tony Abbott and say, ‘Why are you making these remarks that are critical of energy policy and he’d say, “Oh, no, these are the sort of things like immigration we have to talk about.”  Yeah, that’s true, but they’re a way of talking about things and he’s chosen a very public route.  He really is throwing barbs at Mr Turnbull whilst trying to adopt the camouflage of a serious basic and valid policy discussion.  We all know he’s not doing that. Will he keep doing that?  I would think so.  Increasingly, the Triple A gang and others are being isolated within the party.  There’s no mass support for them.  Certainly, Tony Abbott has talked his way out of ever becoming Prime Minister again and possibly not even becoming a minister again depending on how the next election goes but he’s not going to relent.  Having come this far he can’t go backwards.

What effect is this having?  It’s exposing Malcolm Turnbull’s impotence in the face of these critics.  Yeah, maybe he should have handled things better after the last election.  Maybe he should have handled things better when he ousted Tony Abbott.  He’s not a particularly political sort of chap.  We all know John Howard used to make sure he spoke to everybody in the party, every backbencher that had a view on things, he’d sit down and listen to them and then go ahead and do what he was going to do anyway, but no one could say that the Prime Minister hadn’t given him or her a hearing. 

Malcolm Turnbull isn’t quite like that, as you probably know very well.  He sort of goes into a room thinking that I’ve got this really clever master plan and none of these dolts understand it so I won’t even both explaining it.  I’ll just keep going and they’ll soon realise how brilliant I am, I’m exaggerating, but it’s not far off that.  He has mishandled his advent to power and the feelings of those he usurped.  But these are grown-ups, they’re not kids.  You would think they would have primary loyalties to their party, to their electorates, rather than their own sensitive little sooky feelings.

Do you think this means that if they stay a party divided that they will inevitably lose the next election?

MF:  I think the great problem is the electorate is starting to believe, and certainly Bill Shorten is encouraging this view, that the Liberal Party is more concerned about each other than it is about voters.  Percy and Penelope Punter our there are wondering when Malcolm Turnbull is going to get around to them rather than commenting on what Tony Abbott or Peter Dutton or anybody else is doing.  As a journalist you’ve got to accept some responsibility for the fact that journalists keep asking the Prime Minister what he thinks about Peter Dutton, Tony Abbott, etcetera…

But it seems to have sunk through to the Prime Minister that he’s got to come up with some projects that will convince voters he’s thinking of their needs.  The coming budget might do that with a personal income tax cut perhaps, we’ll wait and see.  We’ve got a big announcement in Melbourne today of a major proposal to fund a Tullamarine to the city rail link some time off in the never-never.  Anyway, if and when there’s state participation and partnership.  But you can often get more value out of a $500,000 donation to a local sporting field than a $5b rail project. 

Bill Shorten knows that, he’s been through Queensland and Western Australia with Anthony Albanese announcing infrastructure projects which directly affect people in specific electorates and he’s leaving behind him the sense that Labor is committed to helping those voters rather than talking about what’s going on within the Labor party. 

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I’m joined now by Alan Oster, the Chief Economist at NAB.  Alan, you had your business survey this week.  I guess it wasn’t surprising that business confidence fell down to kind of average level – long term average – given what’s going on in the world at the moment.  Were there any surprises in the survey for you?

AO:  I think probably we tend to look more on how business actually performed.  That came off a little bit but from really high levels.  I suppose we were expecting some of that revision down.  If I’m looking at some of the details in the survey, what we are seeing is a closing of the gap, if you like, between the Western Australian economy and the rest.  The west, for the first time, has got back to long run trend sort of readings and within the various industries a surprise to me was that miners are now, those that are basically saying they’ve got the best business conditions.  I think that’s very much on the back of commodity prices.  They’re not going to go and open new mines but given what’s sort of happened in terms of their profitability, they’re pretty happy.

New South Wales was also slightly surprising for me because they basically slowed down a fair bit and it looks like it’s in the services sector.  A few slight differences than what I was expecting, but fundamentally the survey is still strong and saying there’s good momentum in the economy.

Any industries going backwards at the moment?

AO:  No.  For the first time in, I think it’s about four years, every industry is sort of at or above its long run trend.  If you’re going to say which are the less performing sectors, it’s still discretionary retail and wholesale, so we’re still seeing the consumer basically struggling in terms of spending in the shops if you like. 

And you sort of seem to be discounting the business confidence a bit.  Is that simply because you’d expect it to be where it is or because it’s not that important?

AO:  Well, I think it’s important but we have found in the past that actual outcomes are more important than people’s confidence.  If you’ve got low confidence then you don’t invest and you don’t employ and so therefore it’s an issue.  But what tends to be driven is that it goes from actual outcomes to confidence rather than the other way around.  The only thing I didn’t like about the confidence was again in this non-retail, in other words, the services sector in the retail space, it’s the weakest of any.  They’re sort of saying business conditions in – if I can say, non-retail consumption is starting to weigh on New South Wales and in terms of confidence they’ve got the lowest reading of any confidence that we’ve seen…

Do you think that’s because of house prices?

AO:  It could be an element of that.  I think it’s also an element of the weakness in the retail space maybe moving into the non-retail space, so people to the extent they can will basically not buy as much utilities and that sort of thing.  It’s early days, it’s still okay, but it’s noticeably different.  I mean, not that long ago, NSW was the number 1 performing state on just about every measure.  Whereas, now it’s Victoria/Queensland.  New South Wales sort of is down there with Western Australia and South Australia.

One of the important bits of your survey is always capacity utilisation.  What in this survey about capacity utilisation, what does it tell you about what’s going to happen with employment in the future?

AO:  What it sort of says is capacity utilisation was pretty much unchanged at 82.4%, and so that’s sort of saying it’s about one point above long average.  When we look at employment, the readings that we’ve got are consistent with something like 20,000 jobs per month, which would be enough to bring unemployment down.  The survey’s saying for the Labor market outlook, it’s going to be improving, particularly in employment anyway and as long as you don’t get the participation continue to go up, then you’ll see unemployment come down. 

Just finally, did you get anything out of Philip Lowe’s speech yesterday?

AO:  Well, Phil was basically just reiterating what he’s said for a while.  I mean, the themes were that the west is not as bad as it was, so he used our data to say that.  Then he also said on monetary policy, “Look, the next move is going to be up, not down.”  They haven’t had a move up for seven years and so it might surprise some people, the fact that rates are more likely to go up than down is saying something about what he thinks is happening in the economy.

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I’m joined now by David Robertson, Bendigo Bank’s Head of Economic and Market Research.  David, the market’s volatility has certainly gone up, Mr Trump has engineered that.  But I suppose traders don’t know which way to turn.  One minute they’re worried about trade war and now it’s about the possibility of a Syria strike.  Where do you think things stand now in the market?

DR:  Absolutely, it’s clearly geopolitical developments rather than looking at the economic data that’s driving the markets at the moment.  Just when we got comfortable – when was it, Tuesday – with Xi Jinping’s comments at the Boao Forum which would seem to placate the concerns about trade, now suddenly it’s Russia that’s in focus and some of Trump’s tweets that missiles are heading for Syria and that Russia should be ready.  Clearly, that’s taken over in the geopolitical rankings as the number one issue right now.  But as for the impact on the market, clearly it’s moved the risk on tone to risk off and it certainly hasn’t helped stocks.  Maybe the most important part of that is it’s pushed the oil price higher.  Oil is up to I think it’s highest level since late 2014.  That might be the short term impact that we need to digest the consequences of. 

Do you think that after all the sort of jumping around that the market is expensive or cheap at the moment or around about where it ought to be?

DR:  I think in terms of stock markets I probably need to answer that in terms of where the US market is and Australia’s a slightly different equation.  Certainly, the US stock market, having given up 10% of its gains are now sitting pretty much in the middle of that range.  You need to be a bit careful I think until we break back above January’s highs.  In terms of expense, the PE ratios other than some of the stocks like Amazon and so on don’t look ridiculously high, but I think I’m more concerned about the length of the bull market, the fact that it’s nine years since it kicked off in the states, rather than just the outright PE ratios.  I’d be surprised if the US market’s got more than 12-18 months to run, if it hasn’t peaked already.

But the Australian market’s a pretty different sort of occasion.  We don’t have the tech stocks to drive some of those price gains, so I’m not sure that we’re expensive but I suspect the US is.

Yeah, you mentioned the tech stocks, I mean one of the factors that’s been driving the volatility in the market has been the travails of Facbook and the way that that seems to have invested the rest of the big tech stocks.  Where do you think they sit now?  They’ve fell down and they’ve recovered a bit, what’s your view on that factor now? 

DR:  Well, it’s interesting that Facebook shares have recovered after Zuckerberg’s congressional hearing. He was certainly put under the pump but he appears to have handled those comments and that grilling pretty well.  The fact that those shares have recovered is a reasonable sign.  Tech stocks make up about half of the Nasdaq and about a quarter of the S&P500, so clearly that’s part of the reason that US stocks have been doing so well.  As to from here, I think they’ll continue to drive the market.  As I say, I suspect the bull market’s got a little bit further to play out.  But I’ll be more comfortable in that view when we break back above highs that we hit in January.

Just looking at the Australian market, you mentioned that obviously our market has held back a bit.  We don’t have the tech stocks and we’ve got the banks that have had headwinds.  Do you have any particular views on the banks themselves and in particular the impact of the Royal Commission?  I mean obviously you work for a bank, but not one of the big four?

DR:  That’s right, and so the Royal Commission will take its course and clearly the financial stocks have been under pressure during that initial process that the finance part of the ASX200 is off about 8% from the highs I think and the industrials are under a little bit of pressure as well.  You’d expect that once that has run its course that it will perhaps return to looking at the fundamentals.  I mean we’ve got a very well run financial system here in Australia and there’s good value in a range of finance stocks.  They pay a good dividend.  It’s a pullback and it’s going to take time to play out.  Just at the moment the energy and the resource stocks look to be where the rotations are heading through to them and that probably makes sense given not just where oil is but where the commodity cycle is. 

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Joining me now is Professor Vassilis Kostakos, Professor of Human Computer Interaction at the School of Computing and Information Systems at The University of Melbourne.  Professor Kostakos, it was interesting to see Mark Zuckerberg sitting in front of the Congress this week, sitting on his cushion being grilled.  Do you think that we’re in a sort of a tipping point, some sort of big change here that’s going to take place both with Facebook, possibly other social media, or do you think it will blow over? 

VK:  No, I think it’s a tipping point and it’s one that’s overdue.  I think people have now realised that we need adequate policies to make sure people’s data information is protected to a reasonable extent.  I believe so far the technology by itself is not capable of protecting information and making sure it’s not passed on to third parties in inappropriate ways.  That is not something we cannot control or enforce purely by technology.  Therefore we need to introduce policies that will deter people from taking these inappropriate actions. 

What do you think needs to be done and separately I guess what do you think will be done?

VK:  I think it’s interesting to describe that so far the way this information has been handled, people’s personal information has been handled using effectively a code of honour.  Basically the third party applications get their hands on people’s information and then they promise that they will treat this information appropriately and then they promise to delete it at some point.  Facebook really has no technical means of checking whether those promises are fulfilled.  One thing that Facebook is now doing is saying, well, we’re going to monitor for suspicious activity and if we determine that a company needs full auditing, we will carry that out and if an organisation refuses to be audited, then they will be banned from Facebook. 

Basically, they’re kind of really clamping down on enforcing these new policies and making sure that people play by this honour code and they make it very clear that if you lie about what you’ve done with data, then you will be banned from the platform. 

That’s what Facebook is doing already, right?

VK:  Yes, they’ve started doing this.  They’re now calling for more fuller audits.  They have added to their back bounty program by kind of rewards for identifying cases where personal data is misused.  There’s now financial rewards to identify these kind of situations.  They’re adding some other mechanism, for example, if a Facebook user has not interacted with a third party app for more than 30 days, then that app stops getting access to people’s information.    

Do you think that the Congress or the lawmakers will introduce regulations that simply reinforce what Facebook is already doing or will they go further? 

VK:  I think of course it’s up to each government to determine what regulations are appropriate.  I honestly don’t think Facebook can do much more technically at this point.  It’s as simple as me sending you a file and making you promise that you’re not going to give that file to anyone else.  It’s really hard for me to check whether you’re doing that, abiding by your promise or not.  So, I think there is many ways forward.  I would like to highlight a very interesting detail which says that the insights that this company, Cambridge Analytica, was using is actually not the raw data that was collected from Facebook. 

So there is an issue that hasn’t been really discussed yet and it’s a bit of a technical issue.  Basically, once I get my hands on the data from 50 million users and I do some analysis and I do some models and I figure out for example that people who like French fries are likely to vote republican.  Once I start gaining those insights I do not really need the raw data anymore, I have the statistical models that help me predict and understand people’s behaviour.  The question really is, what happens to these models, because they’re not the raw data, they’re not even metadata.  So, I think being very clear about what happens to those statistical models, who owns them and are these third party companies required to delete those models as well after they delete the data.  I think that’s a really important question.

It is interesting that Facebook’s been using this data for years to allow advertisers to better target the advertising and in fact, that’s what Facebook’s business model is based on, the ability to target advertising more precisely than has ever been able to be done.  But it’s really only since it turns out that Facebook data helped Donald Trump get elected that Mark Zuckerberg’s really got into trouble.

VK:  Yes, that is true.  Political parties have been using Facebook for a long time to advertise and promote both explicitly and implicitly, but this also happens on television and radio and the web, so perhaps there needs to be a discussion on whether Facebook should ban political advertisement all together or maybe we need to think very carefully about what kind of advertisements go on Facebook in general.

The other thing is, in Europe they’ve got the General Data Protection Regulation, which up to this point America has not really wanted to or there hasn’t been any discussion in America going down that path where the GDPR requires permission of people like Google and Facebook for the use of the data.  Do you think that America might introduce their own version of GDPR?

VK:  It’s possible.  That’s a very tricky question.  To be honest, I’m not sure under the current leadership of the US, what the outcome might be.  I’m really not sure, but it’s definitely a possibility.

Happy Birthday, Jimmy Destri, who turned 64 today.  Now, you’ve probably never heard of Jimmy but he was the rock keyboardist in Blondie and here’s, ‘Heart of Glass’ which he was behind.

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That’s it for Talking Finance for another week.  I’m Alan Kohler, have a great week ahead!