Why do some days drag on, every minute feeling like an hour while our to-do list remains intact. While others seem to fly by with ...

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There’s an aching difference between an adult and the child the adult once was.

When I was a small child I wanted to be a broadcaster. I didn’t know the meaning of this big word at the time, all I knew was that I wanted to be the lady in the radio who is so friendly and knows so much. (I thought she was actually inside the radio).

By the time I got to high school and had to choose my subjects, I chose science and math because that was a sensible choice and a guarantee for work. I had completely forgotten about the friendly woman in the radio.

My story is not unique. Maybe you were that child who were always told to sit still, while inside you the dancer was fighting to get out. Or maybe you were the one who spent hours drawing and painting, but was told not to take art at school because you can’t make a living with art. Or maybe the math was just so difficult it usurped all your energy and left nothing for creativity.

So you listened to the wisdom of the day and chose sensible subjects and forgot about creating something new.

Society functions on the daily grind of millions of unmarked individuals marking time on a mind-numbing treadmill of rise, commute, work, commute, eat, sleep, repeat.

How did so many of us land there?

This is the question that Alike answers (see video below). The Pixar-like short by Madrid-based animators Daniel Martínez Lara and Rafa Cano Méndez, is a 7-minute story about Copi and his son Paste. Copi is teaching his son how to live, what the correct, acceptable behaviour is and Paste changes from entering school as a happy, excited child to a miserable unwilling little boy, all signs of engagement erased from his being.

But don’t criticise Copi. He is just a father teaching his child what he was taught: do this and you’ll succeed; do that, and you won’t. We are all victims of victims – an insight from Louis Hay.

The critically-acclaimed film originally debuted at Mundos Digitales in 2015. It has received 69 awards at festivals all over the world and has been played 10 million times on youtube, vimeo  and social networks.

Do yourself a favor and take some time out of your daily grind to be charmed by this beautifully crafted animation into reflecting on the woeful values of our society.

The post This is exactly how society kills our creativity – in a breathtaking short film appeared first on Ideapod blog.

Submitted by Wolf Richter of WolfStreet

Tired of feeding an opaque, slimy industry of bots and fake clicks

Procter & Gamble, one of the largest and most sophisticated advertisers in the world, reported on Thursday that sales were slightly down in the fourth quarter and for the fiscal year, despite consumer price inflation. It’s the epitome of corporate revenue stagnation: only price increases keep revenues from declining. An activist investor – formerly called “corporate raider” – is breathing down its neck. So cost cutting to raise profits is the trick.

When a corporate giant cuts costs, it cuts the revenues of other companies.

And it did. Its “selling, general, and administrative expenses,” which include advertising and marketing, fell 7% in the quarter. Net income jumped 12%. And digital advertising took it on the chin in P&G’s earnings report:

Digital ad spending was lower versus a high base period and due to current period choices to temporarily restrict spending in digital forums where our ads were not being placed according to our standards and specifications.

Back in the day before digital ads, advertisers lived by a rule of thumb: Half of our advertising doesn’t work and is wasted; we just don’t know which half.

Digital advertising with all its consumer tracking technologies and direct micro-targeting promoted by now withering “adtech” companies or booming Facebook was supposed to have changed that equation. But it hasn’t. The hard part still is figuring out which half is wasted. But P&G is working on it.

When P&G speaks about cutting digital advertising, people listen, other companies follow, and the advertising industry quakes in its boots.

In April, P&G announced some details of its $12 billion or so cost-cutting binge over five years. This includes slashing $2 billion in advertising expenditures – among them $1 billion in media and $500 million in agency fees.

A year ago P&G announced that it would move away from ads on Facebook that micro-target specific consumers. Facebook is trying to leverage its enormous trove of consumer data to enhance its income. This has been its big promise. But P&G found that this micro-targeting of specific consumers based on the data Facebook has collected on them reduced reach and wasn’t working.

During the earnings call with analysts on Thursday (transcript via Seeking Alpha), CFO Jon Moeller explained the gist of it:

“In the fourth quarter, the reduction in marketing that occurred was almost all in the digital space. And what it reflected was a choice to cut spending from a digital standpoint where it was ineffective: where either we were serving bots as opposed to human beings, or where the placement of ads was not facilitating the equity of our brands.”

He touched on the two most common complaints about digital advertising scams:

• Advertisers are paying for ads that are viewed and clicked on by bots, not humans.
• Ads are placed by thousands of automated “ad exchanges” that are out of control of the advertiser on sites and pages that don’t match the advertiser’s products.

The entire vast space between legitimate advertisers and legitimate publishers is populated by a murky slimy world of often invisible entities, usually automated, that try to extract their cut and in the process further dilute the effectiveness of advertising expenses.

So P&G cut over $100 million out of its digital advertising spend in the fourth quarter, and this is what happened, according to Moeller: “We didn’t see a reduction in the growth rate.” And he added, “What that tells me is that that spending that we cut was largely ineffective.”

These spending cuts on digital ads are part of a larger strategy to more quickly halt spending on things – from ad campaigns to product development programs – that aren’t working, CEO David Taylor told the Wall Street Journal:

“We got some data that said either it was in a bad place or it was not effective,” Mr. Taylor said of the digital cuts. “And we shut it down and said, ‘We’re not going to follow a formula of how much you spend or share of voice. We want every dollar to add value for the consumer or add value for our stakeholders.”

P&G didn’t say if it would shift its ad spend from digital to other media, such as television. TV networks have long been clamoring that much of digital ad dollars disappear without trace in the opaque world of the Internet. But back in the day when we lived by the rule that half of ad spending was wasted and that we just didn’t know which half, there was no digital advertising – and TV networks got a big part of the pie, and still, half of the ad money just disappeared without producing results. So TV isn’t going to be the solution.

Marketing executives of other companies too have long riled against the murkiness of digital advertising, the false promises, the intractability of the Internet, the clicks and views by bots on which advertisers are wasting their money, and the billions of dollars that get blown without results. But getting a grip on what works and what doesn’t is hard.

There’s a larger issue: Retail spending (not adjusted for inflation) has grown on average 2.4% per year in the US over the past five years. Over the same period, digital advertising nearly doubled to $72.5 billion in 2016. Clearly, even digital advertising – despite the lure of Facebook and the like – cannot induce consumers overall to spend more and increase the size of the overall pie for advertisers. It can only, at best, divide up the pie differently.

And when one of the most sophisticated high-tech advertisers in the world decides it is overspending on digital advertising and is able to very carefully remove the rot, thus bringing down its costs without hurting its revenues, other companies will follow, with some consequences for the relentless but often ineffective surge of digital advertising dollars.

Investors who bought the hype of “adtech” in the world of digital advertising are left holding the bag.

For those of a cynical persuasion, it’s difficult to ignore the similarities between Islamic State’s brand of puritanical Islam and Saudi Arabia’s propagation of Wahhabism. Put simply, indoctrinating the masses with an ultra orthodox ideal that breeds intolerance sows the seeds of extremism and on that score, Riyadh and Raqqa are really no different. Indeed, Kamel Daoud, a columnist for Quotidien d’Oran, and the author of “The Meursault Investigation” recently described the Saudis as “an ISIS that made it.” 

Still, the US (and the international community in general) turns a blind eye to the problem and Washington counts Riyadh as one of its closest geopolitical allies. Indeed, The Pentagon and the CIA are now part of a Saudi-led effort to arm and fund Sunni extremists operating in Syria. In short, Washington and its regional allies (which include Qatar) are engaged in the perpetuation of the same type of terrorism that just this month left 130 people dead in France, killed dozens of innocent civilians in Beirut, and led to the explosion that brought down a Russian passenger plane over the Sinai Peninsula killing all 224 people on board. Now, those incidents will be trotted out as an excuse to demonize Muslims residing in Western countries when it was Western governments that created the problem in the first place by supporting Sunni extremists and using radicalized Muslims as a tool to effect regime change across the Mid-East. 

Meanwhile, Shiite Iran is branded a pariah state by the US and is considered to be evil incarnate by Washington’s ally in Jerusalem. True, the Ayatollah doesn’t help matters by habitually whipping the populace into an anti-America frenzy, but at the end of the day, one would be hard pressed to make a convincing case that the US is on the right side when it comes to picking allies in the Mid-East.

Indeed, it’s Tehran that’s proven to be the most effective (with the possible exception of the Kurds) at battling Islamic State and although it now appears that Iran may be funneling guns and money to the Taliban (a rather unlikely alliance made necessary by the rise of ISIS), it would behoove Washington to reassess its position in the region because as it stands, America is on the wrong side.

It’s with that in mind that we bring you the following open letter from Ayatollah Khamenei addressed to the youth in Western countries. It’s presented without further comment.

*  *  *

To the Youth in Western Countries,

The bitter events brought about by blind terrorism in France have once again, moved me to speak to you young people.  For me, it is unfortunate that such incidents would have to create the framework for a conversation, however the truth is that if painful matters do not create the grounds for finding solutions and mutual consultation, then the damage caused will be multiplied.

The pain of any human being anywhere in the world causes sorrow for a fellow human being.  The sight of a child losing his life in the presence of his loved ones, a mother whose joy for her family turns into mourning, a husband who is rushing the lifeless body of his spouse to some place and the spectator who does not know whether he will be seeing the final scene of life- these are scenes that rouse the emotions and feelings of any human being.  Anyone who has benefited from affection and humanity is affected and disturbed by witnessing these scenes- whether it occurs in France or in Palestine or Iraq or Lebanon or Syria. 

Without a doubt, the one-and-a-half billion Muslims also have these feelings and abhor and are revolted by the perpetrators and those responsible for these calamities. The issue, however, is that if today’s pain is not used to build a better and safer future, then it will just turn into bitter and fruitless memories. I genuinely believe that it is only you youth who by learning the lessons of today’s hardship, have the power to discover new means for building the future and who can be barriers in the misguided path that has brought the west to its current impasse.  

Anyone who has benefited from affection and humanity is affected and disturbed by witnessing these scenes- whether it occurs in France or in Palestine or Iraq or Lebanon or Syria.  

It is correct that today terrorism is our common worry.  However it is necessary for you to know that the insecurity and strain that you experienced during the recent events, differs from the pain that the people of Iraq, Yemen, Syria and Afghanistan have been experiencing for many years, in two significant ways.  First, the Islamic world has been the victim of terror and brutality to a larger extent territorially, to greater amount quantitatively and for a longer period in terms of time. Second, that unfortunately this violence has been supported by certain great powers through various methods and effective means. 

Today, there are very few people who are uninformed about the role of the United States of America in creating, nurturing and arming al-Qaeda, the Taliban and their inauspicious successors.  Besides this direct support, the overt and well-known supporters of takfiri terrorism- despite having the most backward political systems- are standing arrayed as allies of the west while the most pioneering, brightest and most dynamic democrats in the region are suppressed mercilessly. The prejudiced response of the west to the awakening movement in the Islamic world is an illustrative example of the contradictory western policies.

I genuinely believe that it is only you youth who by learning the lessons of today’s hardship can be barriers in the misguided path that has brought the west to its current impasse.  

The other side of these contradictory policies is seen in supporting the state terrorism of Israel.  The oppressed people of Palestine have experienced the worst kind of terrorism for the last sixty years.  If the people of Europe have now taken refuge in their homes for a few days and refrain from being present in busy places- it is decades that a Palestinian family is not secure even in its own home from the Zionist regime’s death and destruction machinery. What kind of atrocious violence today is comparable to that of the settlement constructions of the Zionists regime?

This regime- without ever being seriously and significantly censured by its influential allies or even by the so-called independent international organizations- everyday demolishes the homes of Palestinians and destroys their orchards and farms.  This is done without even giving them time to gather their belongings or agricultural products and usually it is done in front of the terrified and tear-filled eyes of women and children who witness the brutal beatings of their family members who in some cases are being dragged away to gruesome torture chambers.  In today’s world, do we know of any other violence on this scale and scope and for such an extended period of time?

Shooting down a woman in the middle of the street for the crime of protesting against a soldier who is armed to the teeth- if this is not terrorism, what is? This barbarism, because it is being done by the armed forces of an occupying government, should not be called extremism? Or maybe only because these scenes have been seen repeatedly on television screens for sixty years, they should no longer stir our consciences.

The military invasions of the Islamic world in recent years- with countless victims- are another example of the contradictory logic of the west. The assaulted countries, in addition to the human damage caused, have lost their economic and industrial infrastructure, their movement towards growth and development has been stopped or delayed and in some cases, has been thrown back decades.  Despite all this, they are rudely being asked not to see themselves as oppressed.  How can a country be turned into ruins, have its cities and towns covered in dust and then be told that it should please not view itself as oppressed? Instead of enticements to not understand and to not mention disasters, would not an honest apology be better?  The pain that the Islamic world has suffered in these years from the hypocrisy and duplicity of the invaders is not less than the pain from the material damage.

Dear youth! I have the hope that you- now or in the future- can change this mentality corrupted by duplicity, a mentality whose highest skill is hiding long-term goals and adorning malevolent objectives.  In my opinion, the first step in creating security and peace is reforming this violence-breeding mentality.  Until double-standards dominate western policies, until terrorism- in the view of its powerful supporters- is divided into “good” and “bad” types, and until governmental interests are given precedence over human values and ethics, the roots of violence should not be searched for in other places.

Unfortunately, these roots have taken hold in the depths of western political culture over the course of many years and they have caused a soft and silent invasion.  Many countries of the world take pride in their local and national cultures, cultures which through development and regeneration have soundly nurtured human societies for centuries.  The Islamic world is not an exception to this.  However in the current era, the western world with the use of advanced tools is insisting on the cloning and replication of its culture on a global scale.  I consider the imposition of western culture upon other peoples and the trivialization of independent cultures as a form of silent violence and extreme harmfulness. 

Humiliating rich cultures and insulting the most honored parts of these, is occurring while the alternative culture being offered in no way has any qualification for being a replacement.  For example, the two elements of “aggression” and “moral promiscuity” which unfortunately have become the main elements of western culture, has even degraded the position and acceptability of its source region.      

So now the question is: are we “sinners” for not wanting an aggressive, vulgar and fatuous culture? Are we to be blamed for blocking the flood of impropriety that is directed towards our youth in the shape of various forms of quasi-art?  I do not deny the importance and value of cultural interaction.  Whenever these interactions are conducted in natural circumstances and with respect for the receiving culture, they result in growth, development and richness.  On the contrary, inharmonious interactions have been unsuccessful and harmful impositions.

We have to state with full regret that vile groups such as DAESH are the spawn of such ill-fated pairings with imported cultures.  If the matter was simply theological, we would have had to witness such phenomena before the colonialist era, yet history shows the contrary.  Authoritative historical records clearly show how colonialist confluence of extremist and rejected thoughts in the heart of a Bedouin tribe, planted the seed of extremism in this region.  How then is it possible that such garbage as DAESH comes out of one of the most ethical and humane religious schools who as part of its inner core, includes the notion that taking the life of one human being is equivalent to killing the whole humanity?

One has to ask why people who are born in Europe and who have been intellectually and mentally nurtured in that environment are attracted to such groups?  Can we really believe that people with only one or two trips to war zones, suddenly become so extreme that they can riddle the bodies of their compatriots with bullets?  On this matter, we certainly cannot forget about the effects of a life nurtured in a pathologic culture in a corrupt environment borne out of violence.  On this matter, we need complete analyses, analyses that see the hidden and apparent corruptions.  Maybe a deep hate- planted in the years of economic and industrial growth and borne out of inequality and possibly legal and structural prejudice- created ideas that every few years appear in a sickening manner. 

Any rushed and emotional reaction which would isolate, intimidate and create more anxiety for the Muslim communities living in Europe and America not only will not solve the problem but will increase the chasms and resentments.

In any case, you are the ones that have to uncover the apparent layers of your own society and untie and disentangle the knots and resentments. Fissures have to be sealed, not deepened. Hasty reactions is a major mistake when fighting terrorism which only widens the chasms. Any rushed and emotional reaction which would isolate, intimidate and create more anxiety for the Muslim communities living in Europe and America- which are comprised of millions of active and responsible human beings- and which would deprive them of their basic rights more than has already happened and which would drive them away from society- not only will not solve the problem but will increase the chasms and resentments.

Superficial measures and reactions, especially if they take legal forms, will do nothing but increase the current polarizations, open the way for future crises and will result in nothing else.   According to reports received, some countries in Europe have issued guidelines encouraging citizens to spy on Muslims.  This behavior is unjust and we all know that pursuing injustice has the characteristic of unwanted reversibility.  Besides, the Muslims do not deserve such ill-treatment.  For centuries, the western world has known Muslims well- the day that westerners were guests in Islamic lands and were attracted to the riches of their hosts and on another day when they were hosts and benefitted from the efforts and thoughts of Muslims- they generally experienced nothing but kindness and forbearance.

Therefore I want you youth to lay the foundations for a correct and honorable interaction with the Islamic world based on correct understanding, deep insight and lessons learned from horrible experiences.  In such a case and in the not too distant future, you will witness the edifice built on these firm foundations which creates a shade of confidence and trust which cools the crown of its architect, a warmth of security and peace that it bequests on them and a blaze of hope in a bright future which illuminates the canvass of the earth.

Sayyid Ali Khamenei

8th of Azar, 1394 - 29th of Nov, 2015

Last week, we brought you the latest from Puerto Rico’s debt debacle. The commonwealth is desperately trying to restructure some $72 billion in debt while staring down a $354 million bond payment due on December 1. 

As we discussed at length on Friday, some $270 million of what’s due next week is GO debt guaranteed by the National Public Finance Guarantee Corp. Defaulting on that is bad news and as Moody’s warned earlier this month, a missed payment on the commonwealth’s highest priority obligations “would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention.” 

Make no mistake, federal intervention is likely to be anything but “swift.”

A Senate judiciary committee headed by Iowa Republican Charles Grassley will meet on December 1 to discuss a legislative proposal to assist the Padilla government, but it’s hard to imagine that a decision will be made in time to avert at least a partial default. 

Ultimately, the decision will be between paying bondholders and ensuring that the government can continue to provide public services, and just as Greece prioritized pensions over IMF payments last summer, Padilla isn’t likely to sacrifice the public interest at the altar of the island’s debtors. 

So, as the clock ticks, we bring you the following helpful guide courtesy of Bloomberg who has made a “list of the island’s debt, how much is outstanding, when major monthly payments are due, and the source of funds that back the securities.”

*  *  *

From Bloomberg

• Puerto Rico Sales Tax Financing Corp.: $15.2 billion. The bonds, known by the Spanish acronym Cofinas, are repaid from dedicated sales-tax revenue. A $6.2 billion portion of the debt, called senior-lien, is repaid first. The remaining $9 billion, called subordinate-lien, get second dibs. $1.2 million of interest is due in February and again in May. Senior Cofinas maturing in 2040 last traded for an average yield of 9.5 percent, while subordinate ones yielded 18 percent.
• General-obligations: $12.6 billion. The debt backed by the commonwealth’s full faith and credit. The island’s constitution says general obligations must be repaid before other expenses. Puerto Rico owes $357 million of interest in January and an additional $805 million of principal and interest is due July 1. Securities due in 2035 last traded for an average yield of 11.5 percent.
• Puerto Rico Electric Power Authority: $8.2 billion. Prepa, as it’s called, is the island’s main supplier of electricity and repays the debt from what it charges customers. The utility owes $196 million of interest in January and $420 million of principal and interest July 1. Prepa is negotiating with bond-insurance companies after reaching an agreement with some of its bondholders, who agreed to take a 15 percent loss. Bonds maturing in 2040 last traded at an average yield of 9.2 percent.
• Puerto Rico Government Development Bank: $5.1 billion. The GDB lends to the commonwealth and its localities. When those loans are repaid, the bank can pay off its debt. The bank owes $354 million in December and $422 million in May. Federally taxable bonds maturing in 2019 last traded for an average yield of 57 percent.
• Puerto Rico Highways & Transportation Authority: $4.6 billion. The highway agency repays its debt with gas-tax revenue. It owes $106 million of interest in January and $220.7 million of principal and interest in July. The commonwealth has the ability to divert revenue that cover some highway bonds to pay its general-obligation securities, if there are no other available resources, according to the island’s most recent financial disclosure. Bonds maturing July 2028 last traded for an average yield of 32 percent.
• Puerto Rico Public Buildings Authority: $4.1 billion. The PBA bonds are repaid with lease revenue that public agencies pay for their office buildings. The agency owes $102.4 million of interest in January and $208 million of principal and interest in July. Bonds maturing 2042 last traded for an average yield of 10.4 percent.
• Puerto Rico Aqueduct & Sewer Authority: $4.1 billion. The utility, called Prasa, supplies most of the island’s water. The debt is repaid from water rates charged to customers. The water agency owes $86.5 million of interest in January and $135.1 million of principal and interest in July. Bonds maturing in 2042 last traded at an average yield of 8.7 percent.
• Puerto Rico Pension-Obligation Bonds: $2.9 billion. The taxable debt was sold to bolster the island’s nearly depleted pension fund. The bonds are repaid from contributions that the commonwealth and municipalities make to the retirement system. The system pays $13.9 million of interest every month in this budget year. Securities maturing in 2038 last traded for an average yield of 22 percent.
• Puerto Rico Infrastructure Financing Authority: $1.9 billion. Called Prifa, the agency has sold the island’s rum-tax bonds. These are securities repaid from federal excise taxes on rum made in Puerto Rico. Prifa owes $37.2 million of interest in January and $77.8 million of principal and interest in July. Bonds maturing in 2046 last traded for an average yield of 28 percent.
• Puerto Rico Public Finance Corp.: $1.09 billion. The bonds are repaid with money appropriated by the legislature. The agency has defaulted every month since August on its debt-service payments because lawmakers failed to allocate the funds. It owes interest every month, the largest being a $24 million payment in February. Bond maturing in 2031 last traded for 7 cents on the dollar, according to trade reports. The yield wasn’t disclosed.

*  *  * 

As a reminder, Puerto Rico's Treasury Single Account likely has negative cash balance, which, according to Height Securities analyst Daniel Hanson, "will make it 'nearly impossible' to meet all government payroll obligations over the next six weeks."

In other words, even if the government does default in order to save money for the provision of public services, social unrest may now be unavoidable.

Day after day, the 'stability' in the stock "markets" (specifically in AsiaPac) is posited as 'proof' that China is 'fixed', the worst is over in EMs, The Fed can raise rates, and massive monetray policy manipulation of market signals had no mal-investment consequences. Well all of that utter crap just got obliterated as China's right-hand-man in the credit-fueled commodity boom bust - Australia - just saw its business capital expenditure collapse 20% YoY - the biggest drop ever, accelerating the crash in business spending to 11 quarters. As Goldman warns, this exposes significant downside risk to any forecast for GDP recovery in 2016.

Recovery? Spin this into recovery!!

As Goldman Sach details,

For consecutive quarters, Australia’s private capex report was weaker than expected across the board – highlighting the risk of an outright contraction in domestic demand in 3Q2015 and a disappointing recovery in growth through 2016. In particular, we note a -9.2%qoq decline in capex in the quarter (BBG consensus: -2.9%qoq), and further sequential deterioration in the FY16 investment intentions component of the report. As it stands, the data speak to an ~-20% contraction in capex in FY16 which – even assuming better capex trends outside of this survey – appears completely at odds with the ~-7% decline in investment forecast by the broader consensus (Consensus Economics). Today’s data highlight that domestic demand likely contracted outright in 3Q2015 and the downside risk to the RBA’s forecast recovery in GDP to a +3.0%yoy pace by end-2016. If growth continues to fall short of expectations as we fear, the prospect of RBA rate cuts remains a very real one.

Private capital expenditure, Septquarter: -9.2% qoq, -20.0% yoy (Bloomberg consensus: -2.9% qoq, GS: -4.0% qoq);

By Component:

• Machinery & equipment (MEI): -8.2% qoq, -12.7%yoy
• Building & structures (B&S): -9.8% qoq, -23.6% yoy

Private capital expenditure,2015-16Intentions (4thestimate): -19.7% (down from -18.8% 3rd estimate)

By industry:

• Mining sector: -30.6% (from -29.1% previously)
• Manufacturing: -9.8% (from -8.8% previously)
• 'Other': -8.5% (from -8.1% previously)

    
Main Points:
    
1. Today’s capex report was weaker than expected across the board, with weaker implications for both investment in 3Q2015 and the outlook through FY16 as a whole. Looking specifically at the historical data , the headline -9.2%qoq decline in private capex was a far larger contraction than expected (GS: -4.0%qoq; BBG consensus: -2.9%qoq), with weakness equally spread across the building & structures (-9.8%qoq) and machinery & equipment (-8.2%qoq) components. It is this fall in the latter that has the most relevance for next Wednesday’s 3Q2015 National Accounts and – alongside yesterday’s weak construction data - is a stark reminder that the unwind of Australia’s mining investment boom presents a profound headwind to overall growth.

2. Looking at the investment intentions data, the read-though was also to the weaker side. To be clear, on face value, the “raw” estimate for FY16 spending increased by ~$4.6bn to $120.4bn compared with the third estimate for FY16. There are several important caveats to this apparent improvement however:

1. Firstly, compared with the fourth estimate for capex spending for FY15, the raw $120.4 number implies a 20.9% fall.
2. Secondly, as there is typically a tendency to initially under-estimate in the survey process and therefore almost always a very strong increase in capex estimates at this point in the survey, it is important to adjust the raw numbers using realization ratios. Using long-run realization ratios, for example, has markedly weaker implications – we note that compared with the third estimate for FY16 (-18.8%), the fourth estimate suggests capex will fall by an even larger -19.7% in FY16. In context, there has now been a sequential deterioration in the FY16 capex outlook over each of the past four estimates, with this deterioration broad-based across the “other selected industries” (-8.5%) and mining sectors (-30.6%).
3. Finally, putting the ~20% decline in FY16 capex suggested by today’s data in context, we note that markedly more modest declines in broader business investment are currently baked into the forecasts of consensus (~-7.0%), Treasury (-7%) and ourselves (GS: -11.5%). To be fair, the capex survey does not incorporate trends in public spending in health and education – however, fiscal constraints and relevant leading indicators all suggest that the outlook in these sectors is subdued at best. All things considered, this survey appears completely at odds with the relatively modest contraction in investment many are forecasting. For our part, we remain the most bearish in the market on the investment cycle and see the risks to our own forecast as skewed to the downside (For full details on our relatively cautious views on the investment outlook, please see: Detail - Australia and New Zealand Economic Analyst: Ongoing risks to Australian Investment: A Regional Perspective, 17/8/2015).

     
3Q2015 GDP estimate:Ahead of next Wednesday’s National Accounts, today’s weaker-than-expected capex numbers require a -20bp reduction in our 3Q2015 GDP tracking estimate to +0.8%qoq. On face value at least, this is still a relatively solid expansion in activity, but today’s update highlights that the headline increase is masking markedly weaker underlying trends. Specifically, with net exports adding ~1.4pts to GDP in the quarter, domestic demand looks on track for an outright contraction.

We will revisit our estimate on receipt of the remaining partial data on Monday (profits & inventories) and Tuesday (trade and public demand) next week.

Monetary Policy:

Reflecting on the implications of the composition of 3Q2015 GDP for monetary policy, we note that such a large (in part weather-related) boost to growth from net exports is likely unsustainable, yet severe headwinds from the mining capex cycle are expected to remain in place for some time. Indeed, on the RBA’s own forecasts, the adjustment in mining capex is only half complete, with ~3% of GDP worth of mining capex to fall out of the growth equation over the coming years. With the tailwinds from the housing construction cycle starting to fade, population growth slowing and public demand constrained by Australia’s public finances – it is hard to find a sustainable offset to the capex headwind elsewhere in the economy. While it is true that LNG export volumes will ramp-up over time, the trend has been towards project delays and the shipments will be delivered into a very weak price environment in any case.

Overall, we remain concerned about the growth outlook in Australia. Notwithstanding, a reported improvement in surveyed business conditions, there is nothing in today’s update to comfort the RBA that this is translating to anything concrete on the investment front. In turn, we see material downside risks to the RBA’s forecast reacceleration in GDP growth to a +3.0%yoy rate by the end of 2016. To the degree growth continues to fall short of the RBA’s expectations, the prospect of further easing will remain on the table.

Charts: Bloomberg