Brisbane Roads Circling Globe Twice Needed in National Disaster

To build an average house, you need 6,200 bricks, 2,950 roof tiles, 785 floor tiles and 15 cans of paint -- multiply that 28,000 times and you get a picture of the task to rebuild Brisbane after Australia’s worst flood.

It gets worse: the state of Queensland will need to rebuild 90,000 kilometers (56,000 miles) of roads, enough to circle the globe twice, thousands of kilometers of rail line, almost 100 schools, an unknown number of bridges, several regional airports, power lines, sewers and water treatment -- the list goes on.

Australian companies, including its largest building- materials seller Boral Ltd., the No. 1 furniture and electrical retailerHarvey Norman Holdings Ltd., paint maker DuluxGroup Ltd. and plumbing supplier Reece Australia Ltd., will benefit from the reconstruction estimated to cost A$20 billion ($20 billion). The floods are the most expensive natural disaster in the nation’s history and have claimed at least 20 lives.

“The state’s a disaster zone,” said Greg Hoffman, general manager at the Queensland Local Government Association, which estimates up to 90,000 kilometers of road and “tens of thousands of drains” will need to be replaced or repaired across Queensland. “Roads have been torn away, airport terminals have been uprooted and you can’t believe your eyes when you see the wasteland left behind,” he said in a telephone interview.

Reinforcements Needed

The average cost of building a new home is A$300,000, meaning the bill to replace housing alone in Brisbane, Australia’s third-largest city with a population of 2 million, may be A$8 billion, Australia & New Zealand Banking Group Ltd. says. ANZ based its forecast on the state Premier Anna Bligh’s Jan. 16 comment that 28,000 dwellings need rebuilding. Bligh says 2.1 million people have been affected by Queensland’s flood.

Since Jan. 10, 20 people have died and nine are missing as a result of the floods, Queensland police said yesterday.

It will take two years and 34,000 tradesmen to rebuild homes in Brisbane, according to Graham Cuthbert, Master Builders Queensland executive director.

“Australia has never before seen a program of this scale,” Cuthbert said in a telephone interview. “We will probably need reinforcements.”

Builder John Rist, from Port Sorrell in Australia’s southernmost island state of Tasmania, is ready to pack his tools and drive 1,800 kilometers north to Queensland.

“I’ll be there in a flash, as long as there is a need,” 38-year-old Rist said in a telephone interview. “Things will probably slow down here, so it could be just what I need.”

Competition for Labor

Finding skilled labor for the reconstruction in Queensland, plus the flood-damaged eastern states of Victoria and New South Wales, may be difficult. A mining boom, to feed China’s appetite for raw materials, has caused a shortage of tradesmen at a time when the jobless rate was just 5 percent in December, the lowest level since January 2009.

Already two coal-seam gas projects, expected to cost more than A$30 billion, are proceeding near the Queensland port of Gladstone. Santos Ltd., Australia’s third-largest oil producer, and BG Group Plc, the U.K.’s third-biggest gas producer, will start hiring the first of more than 10,000 construction workers needed for the two projects later this year.

The Queensland Resources Council estimates A$2.3 billion of coal sales have been lost because of the floods and just 15 percent of Queensland coalmines have been at full production.

The extra construction work and spending to replace lostconsumer goods may add as much as 1 percentage point to the nation’s economic growth rate, according to ICAP Australia Ltd. senior economist Adam Carr. The Reserve Bank of Australia forecast in November that the economy would grow 3.75 percent this year.

Curtains to Cars

“Think of the building supplies that will need to be purchased, the carpets that need to be bought, the curtains, toasters, refrigerators and the cars,” Carr said in a Jan. 19 note.

Gerry Harvey, executive chairman of Harvey Norman, said sales in Queensland would outpace the rest of the country in February and March as people replaced plasma televisions, washing machines and household goods.

“This is Queensland’s very own economic stimulus and our sales will be stronger there than anywhere else,” Harvey said in a telephone interview. “People will need to refurnish their homes, so there will be a benefit for retailers.”

Boral and James Hardie Industries NV, Australia’s largest supplier of fiber cement products, both told Bloomberg News they expect demand for their products will increase as the damage becomes clearer. The Insurance Council of Australia on Jan. 19 said companies had so far received 12,000 claims worth A$410 million.

Stocks to Watch

“It’s clear that there’s going to be a significant rebuild required in areas both involving construction materials and building products,” said Penny Berger, a spokeswoman for timber, tiles and concrete supplier Boral. Berger said customers would lodge orders after the clean-up was completed.

Since Jan. 12, after evacuations began in Brisbane, Boral shares gained 0.8 percent, Reece rose 4.3 percent, Harvey Norman gained 7.9 percent, James Hardie fell 4 percent and DuluxGroup advanced 1.1 percent.

“There are more losers than winners, but the winners are the homebuilders and some of the smaller retailers,” said Chris Stott, who helps oversee about $400 million at Wilson Asset Management in Sydney. “It’s clear they’ll benefit, but in terms of quantifying that, it’s still too early because the clean-up is still happening.”

Stocks he tips will benefit include Boral, Harvey Norman, Reece, Dulux, Fantastic Holdings Ltd., a furniture seller, Breville Group Ltd., an electrical appliances maker, CSR Ltd., which manufactures building materials, and Brickworks Ltd., which makes bricks and floor tiles.

Volunteer Army

Queensland’s initial flood clean-up is being done by about 60,000 mop-wielding volunteers.

“They’re scraping mud from walls, shifting ruined furniture, it’s dirty work,” Volunteering Australia spokesman Peter Cocks said from Brisbane. “After the clean-up, people can assess the damage and look toward replacing things and rebuilding their homes. It’s a process.”

The flooding across three states represents Australia’s biggest natural disaster in economic terms, said Prime Minister Julia Gillard, who has pledged the federal government will cover 75 percent of the reconstruction cost. ANZ Bank said the bill to rebuild just Queensland could be as much as A$20 billion, or 1.5 percent of the national economy.

The sugar- and coal-producing state accounts for about 20 percent of the A$1.3 trillion economy. The national and state governments have not yet said how much the flooding will cost.

“This effort is bigger than Cyclone Tracy in 1974, which destroyed Darwin, it’s bigger than the 1989 Newcastle earthquake, the 1999 Sydney hail storm and any other flood or bushfire we have seen,” said Professor Peter Grace, from the Queensland University of Technology. “It will take at least two years.”

Ireland Races to Pass Budget as Coalition Government Collapses

Irish political leaders said they’ll press to pass a budget before elections as the collapse of Prime Minister Brian Cowen’s coalition threw the government into disarray.

Finance Minister Brian Lenihan will meet today lawmakers from the Green Party, which withdraw from the coalition yesterday, and opposition parties in Dublin to discuss a timetable for passing the Finance Bill. The plan would enact 6 billion euros ($8.2 billion) of tax increases and spending cuts.

Enacting the budget is a condition of Ireland’s 85 billion aid package from the International Monetary Fund and the European Union. The Greens said yesterday an election may take place late next month. Cowen said the finance bill has to pass before national elections are held on March 11.

“It looks like the finance bill will pass,” said Kevin Rafter, a professor at Dublin City University who has published books about Irish politics including a history of Fine Gael, the biggest opposition party. “All the parties want it off the table before the election.”

Lenihan said it may be feasible to pass the bill on Feb. 2, telling national broadcaster RTE late yesterday, “I accept we have to accelerate the timetable for the general election.”

Opposition parties are pushing for faster passage.

James Reilly, deputy leader of Fine Gael said yesterday the bill can be passed this week. TheLabour Party said it will table a confidence motion this week if the government doesn’t commit to passing the law by Jan. 28.

Off the Table

The extra yield investors demand to hold Irish 10-year bonds rather than German securities of similar maturity narrowed 3 basis points to 561 points on Jan. 21. That is still lower than a euro-era record of 680 points on Nov. 30, two days after Ireland accepted the bailout.

“More uncertainty is about to enter the stage with negative consequences for European sovereign debt and the euro,” said Mark Grant, managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, yesterday. “If the finance bill does not pass or is postponed until after the elections then there will be a significant amount of stress placed upon both sovereign and bank debt in Europe.”

The political turmoil was triggered when Cowen said on Jan. 22 he’ll stand down as leader of his Fianna Fail party.

Backing for Cowen’s party has dropped to 14 percent, according to a poll carried out this month. Since Cowen succeeded Bertie Ahern 2 1/2 years ago, unemployment has doubled, the financial system has come close to collapse and emigration resumed.

Banana Republic’

“It’s almost like a banana republic,” said Eugene Murray, 52, a nurse, speaking in front of prime minister’s office in central Dublin. “Brian Cowen probably should have resigned a lot earlier.”

Foreign Minister Micheal Martin, who lost a leadership challenge to Cowen last week, is favored to become new leader of the party, according to Dublin-based Paddy Power Plc. Lenihan is second favorite.

“A new leader may save a few seats, but the election will still be fought on the government’s handling of the economy,” Rafter said. “The Irish people are getting ready to hand them a thumping.”

With Retirement Savings, It’s a Sprint to the Finish - CNBC

What would you do if your financial planner prescribed the following advice? Save and invest diligently for 30 years, then cross your fingers and pray your investments will double over the last decade before you retire.

You might as well go to Las Vegas.

Yet that’s exactly what many professionals and fancy financial calculators have been telling consumers for years, argues Michael Kitces, director of research at the Pinnacle Advisory Group in Columbia, Md., who recently illustrated this notion in his blog, Nerd’s Eye View.

The advice is never delivered in those exact words, of course.

Instead, this is the more familiar refrain: save a healthy slice of your salary from the start of your career, invest it in a diversified portfolio and then you should be able to retire with relative ease.

The problem is that even if you do everything right and save at a respectable rate, you’re still relying on the market to push you to the finish line in the last decade before retirement.

Why? Reaching your goal is highly dependent on the power of compounding — or the snowball effect, where your pile of money grows at a faster clip as more interest (or investment growth) grows on top of more interest.

In fact, you’re actually counting on your savings, in real dollars and cents, to double during that home stretch.

But if you’re dealt a bad set of returns during an extended period of time just before you retire or shortly thereafter, your plan could be thrown wildly off track.

Many baby boomers know the feeling all too well, given the stock market’s weak showing during the last decade.

“The way the math really works out is unbelievably dependent on the final few years,” Mr. Kitces said. “I just don’t think we’ve really acknowledged just what a leap the very last part really is.”

Consider the numbers for a 26-year-old who earns $40,000 annually, with a long-term savings target of $1 million.

To get there, she’s told to save 8 percent of her salary each year over her 40-year career. (We assumed an annual investment return of 7 percent, and 3 percent annual salary growth, to keep pace with inflation).

Yet after 31 years of diligent savings, her portfolio is worth just slightly more than $483,000.

To clear the $1 million mark, her portfolio essentially must double in the nine years before she retires, and the market must cooperate (unless she finds a way to travel back in time and significantly increase her savings).

Should the markets misbehave, however, delivering a mere 2 percent return over the 10 years before retirement (not all that hard to imagine, considering the return of a portfolio split between stock and bonds over the last decade), she falls short by about a third.

Her portfolio would be worth only about $640,000.

You can quibble with our assumptions in this example. But a similar pattern emerges regardless of your financial targets and projected returns, Mr. Kitces says.

So if your target is to save $500,000 or $2 million, and if you assume a 6 percent return or a higher 10 percent, you’re still relying on your investments to roughly double in the final years before retirement.

Of course, an extended period of dismal returns during any point in your career can inflict damage.

But the homestretch before retirement is often the most anxiety-inducing because workers have neither the time nor the financial capacity to recover before they begin taking withdrawals.

"Getting the bad 2 percent decade in the earlier years has far less impact because there are fewer contributions already invested,” Mr. Kitces said. “Conversely, when the bad returns come in the final 10 years, no reasonable amount of savings will make up the shortfall."

So what’s an investor to do about all of this, especially as one of the other pillars of retirement savings — pensions — disappears? And who’s to say how Social Security may change by the time that 26-year-old retires?

Most of the solutions, if you can call them that, fall into the “easier said than done” category.

If you can’t handle the uncertainty of missing your financial targets, you can try to save more and create a less volatile portfolio, Mr. Kitces says, which may also provide a firmer retirement date.

And naturally, the earlier you start saving, the sooner you’re likely to reach the critical mass you’ll need for compounding to accelerate (assuming the markets provide some lift in the first half of your career).

But you will still need to save more than many retirement calculators suggest, since they’re likely to recommend saving a lower amount when you have such a long time horizon.

Then you can end up in the same predicament, where you are heavily leaning on market returns in the years before retirement.

“What the wise person does is save a large amount of money when they are young,” said William Bernstein, author of “The Investor’s Manifesto: Preparing for Prosperity, Armageddon and Everything in Between” and other investing books. “And if they can do that, when they are older, they can cut back on their equity allocation. When you’ve won the game, you stop playing the game.”

But that can be hard to accomplish when you have other needs competing for those dollars, whether it’s a down payment for a house, a 529 college savings plan or starting a business.

Or perhaps you’re already living on less because you’re unemployed (or underemployed) or because health insurance consumes a significant chunk of your income.

“It’s the cruel irony of retirement planning that those people who most need the markets’ help have the least financial capacity to take the risk,” said Milo Benningfield, a financial planner in San Francisco. “Meanwhile, the people who can afford the risk are the ones who least need to take it.”

A more prudent course of action is a flexible one that acknowledges the many possibilities and accounts for ideal and less-than-ideal spending amounts.

Try using different assumptions for the years leading up to retirement, suggests Scott Hanson, a financial planner at Hanson McClain in Sacramento.

If you want to retire in 25 years, for instance, you might use a return assumption of 8 percent for the first 15 years of savings, then reduce that rate to 6 percent or less in the final decade, he says.

“Here’s the catch: most folks aren’t saving enough using standard growth assumptions,” he said. “If they begin to use lower growth assumptions in order to ensure their retirement, they’ll fall further behind and become even more discouraged.”

But simply going through these exercises may help the reality sink in. At the very least, it will show how imprecise even the most sophisticated projections may be.

“The actual date I get to check out with my target sum to retirement is much more uncertain than we give it credit to be,” Mr. Kitces said. “It’s more like 40 years, plus or minus five to 10 years. If you want more certainty, you can have it, but you have to save more and take less risk.”

Super-Cycle Leaves No Economy Behind as Davos Shifts to Growth

For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher.

The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury SecretaryTimothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.

With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.

Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.

Global gross domestic product will swell to $143 trillion by 2030, allowing for inflation and market-exchange rates, from $62 trillion in 2010, with China and other emerging markets accounting for about two thirds of the rise, estimates Gerard Lyons, chief economist and group head of global research in London for Standard Chartered, which generates most of its earnings from Asia.

Investment, Urbanization

Lyons and his colleagues predict a “super-cycle” of historically high growth that will last at least a generation and will be led by booming trade, investment and urbanization, according to a report published in November. He reckons such a cycle has occurred only twice since the end of the 18th century: the four decades before World War I and the three following World War II. He’s betting the new phase will contribute to a reversal in the three-decade decline for U.S. bond yields after 10-year Treasury notes lost an average 40 basis points a year since the early 1980s.

Richard Dobbs, a director of the research division at New York-based McKinsey & Co., will use the Davos meeting to highlight a study by the international consulting firm that sees an imminent end to cheap capital. The causes are a building bonanza in developing economies and aging populations who are draining their savings, according to the report, which was released Dec. 9.

Signs of Momentum

The 10-year U.S. Treasury note yielded 3.41 percent in New York on Jan. 21, according to BGCantor Market Data, compared with 15.8 percent in 1981 and a record low of 2.04 percent in December 2008. Signs of momentum in the U.S. economy have helped increase the yield from about 2.9 percent at the start of December.

“It’s a topic capturing the attention of people who want to think beyond the crisis,” said Seoul-based Dobbs.

While Goldman Sachs Asset Management Chairman Jim O’Neill has found fame for promoting the “BRIC” economies of Brazil, Russia, India and China, he says their rise has positive impact beyond their borders, with Chinese imports totaling about $400 billion, almost the equivalent ofSouth Africa’s economy last year. That should attract investors to rich-nation companies with links to these markets, and the resurgence in the U.S. economy has prompted O’Neill to predict higher U.S. bond yields in 2011. He didn’t provide a specific forecast.

‘Out of Date’

“World-trend economic growth is being lifted,” said London-based O’Neill, who helps manage $840 billion. “The notion that BRICs benefit at the expense of others is increasingly out of date.”

Investors should buy copper, coal and oil to take advantage of the growth of cities in emerging markets, according to Standard Chartered, which says the Chinese yuan, Indian rupee and Korean won will appreciate on strengthening domestic growth.

Developed nations also will benefit as their emerging- market counterparts invest more abroad, hire more of their workers and rely on their expertise in areas such as financial services, said Lyons, who will be at Davos. He predicts both the U.S. and European Union will enjoy an average trend growth of 2.5 percent through 2030, compared with the 1.9 percent and 1.7 percent he forecasts for this year.

“It’s a win-win situation,” said Lyons, who concedes growth won’t always be strong and continuous during the entire period.

Increasing Integration

The increasing integration of China and other developing economies will boost commerce and investment worldwide, agrees Edward Prescott, a senior monetary adviser to the Federal Reserve Bank of Minneapolis who shared the 2004 Nobel Prize for analysis of business cycles and economic policy.

Prescott points to South Carolina, which has benefited from new factories opened by Chinese companies such as appliance maker Haier Group. The International Monetary Fund projects this year will be the first in which Chinese foreign investment outpaces inward flows.

“The whole world’s going to be rich by the end of this century,” Prescott said.

Such euphoria may be muted in Davos, given the European sovereign-debt crisis, fears of a real-estate bubble in China and mounting public-debt burdens, said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, who is attending the meeting.

“There’s going to be more optimism but still some worries,” he said.

High Unemployment

Talk of a super-cycle gets little support from Joseph Stiglitz, a Davos veteran and 2001 Nobel laureate. He contends that globalization and free trade may be stymied by unemployment in rich nations and the risk that more of these countries’ jobs will be lost abroad. The U.S. jobless rate has remained above 9 percent since May 2009.

“Standard Chartered works mostly in developing markets, and that shapes its world view,” said Stiglitz, an economics professor at Columbia University in New York. “If you work in emerging markets, you feel the energy. If you are in the U.S. or Europe, you see the numbers and it’s hard not to feel depressed.”

The difference reflects a “shift in the center of gravity in the world economy, in which the West is struggling to keep up with turbo-charged,” emerging markets, says Stephen King, chief global economist in London at HSBC Holdings Plc and a former U.K. Treasury official. He will outline in Davos what he calls the next phase of globalization: increased trade among emerging countries.

Rising Global Output

His team calculated this month that by 2050, global output will have trebled and average annual growth will accelerate toward 3 percent from 2 percent in the last decade, with emerging markets contributing twice as much to the expansion as the developed world.

Ian Bremmer, president and founder of the Eurasia Group, a political-risk consulting company in New York, is more downbeat as he heads to the Swiss ski resort. He predicts what he calls a “G-Zero” era in which no country has the political or economic leverage to dominate the international agenda and all nations focus on their own priorities. That will reduce economic efficiency and prompt trade conflicts, he said.

Volatility, Uncertainty

The subsequent volatility and uncertainty mean U.S. assets will prove the “comparative safest bet” and the price of gold will stay high, Bremmer said, after touching a record $1,432.50 an ounce on Dec. 7. Fixed-income securities still may suffer as nations impose capital controls, which Brazil and South Korea have done lately, while companies will continue saving rather than spending, he predicted.

“Corporations will keep trillions of dollars on the sidelines,” he said Jan. 5 on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “They’re just very uncertain about where the world is heading.”

John Hawksworth, the London-based head of macroeconomics at PricewaterhouseCoopers, is confident a so-called zero-sum world isn’t in the cards. His own attempt to see into the future this month generated a projection that a bloc of seven leading emerging markets, including India and China, will be 64 percent larger than the current Group of Seven by 2050 at market- exchange rates, compared with 36 percent smaller today.

Even so, average income levels in the G-7 countries will rise in absolute terms as new market opportunities open up for their businesses, and consumers will benefit from lower-cost imports, predicts Hawksworth, who has served as a consultant to the World Bank and whose company will release its annual survey of executives in Davos tomorrow.

“There is a shift in economic power from West to East, but the West can still do well,” Lyons said.