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Lateline Business -

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web site at abc.net.au/lateline. Near here

is 'Lateline Business' with

Greg Hoy. Tonight is it too

late to revive the clever

of the 'National Review On country, we talk to the author

Innovation'. This goes to the

heart of our future prosperity

as a country. Retail trading is

sluggish, but Gerry Harvey

senses a turning point. Maybe

we hit the bottom, we are off

the bottom. And from the

financial pages to the theatre,

the cartoon character Alex

takes aim at high finance. I

have done the show before, you

have a lot of people in the audience nudging their husbands

saying, "That's you". And them

going s surely not."

First to the markets and

despite big gains on Wall

Street overnight the rescue of

Fannie Mae and Freddie Mac lost

some of its lustre. Among

Australian investors, the All Ords failed to Ords failed to recover.

From a poor start.The ASX 200

fell over 1.5%. Weighed down by

falls in resource and energy

stocks.The Nikki lost half of

yesterday's gains. Following

the computer crash that halted

much of yesterday's trade in

London, the footscy is up 0.5%.

Without inaggressive

investment standards of living

here, will decline. Australia

is losing ground in science and

innovation with profound

implications for international business competitiveness. Business groups and the Rudd

Government have welcomed the

review. Which calls for a major

increase in funding and

investment. I spoke with the

innovation review's chairman,

Dr Terry Cutler today from

Melbourne. Dr Terry Cutler,

thanks for joining us. It's a

pleasure . How important is it

for Australia to get the goals

right in innovation. Hugely

important because this goes to

the heart of our future

prosperity as a country. If you

look at our scorecard around

innovation, for how we've been

performing over the last decade

or more, we have been falling

further and further behind. The

upshot of this is if we don't

move to invest more

aggressively in developing

capability for the future as a

company, to make our firms more

competitive in a global world,

the standards of living in

Australia are just going to

decline. What went wrong in Australia's national innovation

system. I think the - what went

wrong is that we took our eye

off the ball. Also we focussed

only on half the playing field.

We focus a lot on research and

saying to universityies they

should commercialise, and we

forgot things like innovation

happens around the firm. That's

what business does, business

commercialises, and we need to

promote a cardray of businesses

in Australia that can take on

the world's best. Your

determines of reference ask you

to develop a set of national

innovation priorities, what did

you come up with. First of all

focus on your strengths,

Australia is a small economy in

global terms, roughly 2% of the world's innovation system. We

need to focus on what we do

best, lever edging where we

have natural advantages, like

resource, agriculture and so

forth. Secondly, we need to look at look

Where we face major national

challenges, which are also

global challenges, and where

the sort of solutions we might

develop are going to be

globally relevant and develop

new industry opportunities.

Thirdly, we need to look at

where we can apply merging

technologies to reinvent the

competitiveness of our existing

industry base. That is a

really important one. Fourthly,

we need to internationalise our

innovation system, finally, we

need to invest in developing the capability to support all

of the above. Indeed, you have

recommended a national

innovation council be established, not yet another

layer of bureaucracy The real

problem is how to get a whole

of Government response and have

Government interface with

industry on a whole of

Government basis. So that's

what we are saying, we need a

central coordinating point at

the centre of Government to

provide that strategic

direction, strat eegic

assessment and leadership to

sit over the whole system. On a

subject no doubt close to your

heart given you wear a halt as

board member for the CSIRO --

you wear a hat for the

CSIRO. Organisations like CSIRO

and other agencies have a role

to mobilise the responses to

major national challenges.

Around things like climate

change, water, sal jinty and so

forth. We have seen that

developing, I think, very

strongly in CSIRO through their

national flagship program. And

these public research agencies

play a key role in hosting

major national facilities, and

developing those

capabilities. Your report

emphasises Government

investment in science and

innovation has fan by a

quarter, the number of

researchers has fallen despite

surging revenues from the

resources boom. Would your

recommendations cost of the

Government more? Yes. And the

point here is that we shouldn't

think about this as a cost, as

expenditure. This is about

investment to get a return. If

we invest - and so the question

is are we investing enough now

proportionate to the opportunities that we should be

seizing and addressing, the

short answer is we are not. If

we invest now, we are talking

about the future return from

increased taxes. From an

increased - increasingly

prosperous business community.

We have to think of it in terms

of that sort of equation. How much more should the Government

be spending? Well, I would like to see step function increase

insist a whole lot of areas.

But we are all pragmatic and

clearly this is not a matter

for a one-off budget hit. The

whole framework of this report

is to say we need, as a

country, a long-term commitment

to investment. So this report

is framed around a 10-year view

of where we need to head to.

So, for example, how we double

our investment in research and

R&D over a 10 year period and

so forth, how we move to being

in the top quarter ile of our

competitor countries. Dr Terry

Cutler, thanks for joining

'Lateline Business'. It's a pleasure. The eagerly

anticipated release of ABC Learning's annual accounts is

weeks away, the troubled child

care operator expects to

release the figures by the end

of the month, Ernst & Young are

expected to restate the

companies profits for the last

two years, and in an effort to

restore investor confidence ABC

Learning hired former CSR and

Rinker Group Peter Trimble as

its knew chief financial

officer, ABC shares remain

suspended at 54

cent. Counterveiling forces

beset the Australian share

market today diminishing

yesterday's gains, for his

perspective I spoke earlier

with stockbroker Marcus

Padley. Marcus Padley, thanks

for joining us much OK. The

local market has surrendered a

substantial portion of

yesterday's big gains, what do

you put it down to. Debate on

the news wires was about

whether the Cata lift, the

bailout of Fannie Mae and

Freddie Mac - whether that

really was a long-term turning

point for the market, or whether there was still

problems ahead. I think the

general debate came out that

there were problems ahead.

There are still clearly

concerns for financials,

Macquarie Bank was up 15%

yesterday, fell 7% today, the

financial sector up 6%

yesterday, down 1.6 today. The

big theme running through the

market is the Aussie dollar,

now getting - very close to 80

cent today, and that is done

for all the resources. So how

significant a role are hedge

funds playing in falling

stocks, especially in the

commodities area. Very large

role. At any one time in the

market there's probably 20-40%

of our equities held by international institutions and

they are like men in the moon,

they are cold, calculating,

they don't have to be in our

market at all. Over the last

five years of bull market and

in particular the Aussie dollar

going up, they have been just

ploughing money into the market

and especially our resources

sector, not just because of

resources but by investing in

BHP and Rio, they are getting

exposure to the Aussie dollar,

going up with resources. It's

become a very crowded trade to

have international institutions

owning Aussie dollar stocks and

resources. Not all bad news, of

course, to what degree does the

resource sell-off present

buying opportunities? You with

BHP and Rio trading on PEs

below 10, some of the nickel

stocks trading below 5 times, a

lot of the earnings numbers

dependent on metal prices

currencies and may as well be

plugged in by comedians, they

are so volatile, the drivers

are volatile, you can't believe

the PEs, there's no doubt the

moment the US dollar goes down

again the Alice Springsy dollar

goes you, the funds will --

Aussie dollar goes up, the

funds will back off and

there'll be value around, I

would say without being too

sophisticated the obvious

stocks to by is BHP Biliton and

Rio, they are the most liquid,

and where the international

funds will come back first. Has

the US Government rescue of

Fannie Mae and Freddie Mac put

a bottom under the market. This

is not a catalyst for the

bottom. It's worth mentioning

in the short term when Bear

Stearns was bailed out all the

market turned and we had a 16%

rally. Who knows in the short

term. In the long-term it's a

sign of weak, not strength for

the US. Marcus Padley, thanks

for the update. Thanks. To the

other major movers on the

market:

BHP Biliton fell 4%. Oil

producers fared little better.

Woodside Petroleum dropping 3%,

Origin Energy easing 1.5 prpz.

Britain's BP Group giving up on

a takeover bid. Brambles

managed a 1% gain after the

logistics giant said it was on

track to meet profit forecasts.

Gold has dropped well below

$800, and in New York crude oil

is trading at a five month low

amid expectations OPEC won't

cut its production levels.

Economic data out today has

confirmed what the business

community already knew, trading

conditions remain sluggish.

Financial markets are betting

on further interest rate cuts,

but today's figures support the

Reserve Bank view that there's

little risk of recession.

Andrew Robertson reports. When

Glenn Stevens faced his

political masters yesterday he

gave a clear indication that

this month's cut in interest

rates would not be an isolated event. Unless something

surprising happens, it seems to

me unlikely we'll reverse

course up again in the near

term. Mr Stevens wouldn't have

been surprised by the Mabuiag

Island's monthly survey of

business conditions -- NAB's

monthly survey of business

condition showing a result down

on last October's peak, according to the survey sales

and profits are poor, there's

been no reported increases in

Jobs, capacity utilisation is

depressed, forward orders

weakening. The most hardest hit

sectors are those exposed to

the tighter financial

conditions, and the lower share

and to some extent house prices

emerging in the last year. As

the tighter financial

conditions and weakening demand take their toll business

conditions fell in every state

in August with the biggest

state NSW by far the worst

performer. It doesn't have

quite as big a waiting towards

the resource sector, some parts

do, of course, around the

Hunter Valley and other parts

of the State. It's largely more

highly-geared, more exposed to

the financial tightening occurring during the last

year. Which isn't helping the

housing industry with home

lending figures for July

showing little sign of

recovery. The value of lending

for all dwellings was up over

half a percent to 18.2 billion,

while the number of loans to

owner occupiers fell. Over the

last 12 months loan to owner

operators are down 21%, the

value of which is down 18%,

while the value of loans to

investors fell 20%. The key

concern at the moment is we've

had consecutive declines for a

number of months now, and that

is suggesting that new Home

Building Activity will fall

through the second half of 2008

and into 2009. Retail sales

figures for July have been

released but because of Budget

cuts the Bureau of Statistics

is more than halved the sample

survey, according to the Bureau

sales were up 1.4% in

seasonally adjusted terms, economists believe the

realability of that result is

diminished. The sample size is

smaller, the errors are

potentially big are. We just

can't look at the latest

figures and say, "This is what

people spent during the month". Nevertheless Craig

James believes the latest data

on the economy supports the

asrtion from Glenn Stevens that

Australia is unlikely to see a

recession. We believe the

Reserve Bank has again got to

right this the economy

softened, there was scope to

cut interest rates, by no means

are we in tire dire

circumstances, Nothing in the

latest dat weigh would stop the

Reserve Bank cutting interest

-- data would stop the Reserve Bank cutting interest rates,

the only question whether the

nest one is in October or

November. As outlined in the

report there are questions

about the accuracy of the

latest official retail figures,

so for an update from the

shopfront I spoke today to

Harvey Norman's chairman Gerry

Harvey. Thank you for joining

us. That's fine.

We are told retail trade picked

up in July by around 1.4%

seasonally adjusted, has that

been your experience. Yes, I

think to, July/August, we were

a little skewed because large

screen TVs sold well. We had

sales unit wise 20, 30, 40, 50%

up in the stores, our

July/August figures weren't too

bad. That's fallen back a bit

in September. Could you feel

the effect of tax cuts and the

fall in petrol prices flowing

through. At the minute, like,

today particularly, you know,

after what's happened in

America yesterday, I think that

maybe we did hit the bottom and

we are off the bottom, and the

whole world is going to

suddenly get a bit better. I

talk to people saying, "Do you

think it will get better?",

mostly they are saying, "Yeah,

I think it's a bit better",

there's a general feeling out

there at the moment that July,

August, September is better

than April, May, June. Not just

an aberration driven by fuel

and tax cuts. No, I think it's

just - we have turned the

corner, I hope we have. Yet

some analyst have spoken of a

retail recession with National

turnover dropping for two quart

efforts in a row, in the light

of the later figures is that

overstate ing things. It's

close, I was talking to other

retailers for two hours, people

that run shops, you know, and

every one of them said over the

last few months, "It's a bit

tight and we are down on last

year", they are all saying the

same thing, if you are not

going to go into two quart of

minus, it will be close. Are

you happy with how the Reserve

Bank handled the recent turbulence I think they have

done a wonderful job, they did

what they had to do, and they

acted very responsibly, and I

don't know how they could have

done a better job. Do you find

we are caught between two

economies in the

Australia. That's the

situation, we have stores, a

lot of stores in WA, 24 stores

or something, we have stores in

Karattur, Port Hedland,

Kalgoorlie, and, you know,

those sort of places are

trading extremely strongly, but is it percentage of our

business, it's small. Then you

go to Gladstone, Townsville,

and they are trading well. I

was in Cairns, that's dropped

off a little bit. But, you

know, that resource is there,

it's still very strong. Looking

ahead, would you go as far as to say we are out of the

trough, it's all upside from

here on, or not? Tentatively -

I think there's a very good

chance we'll have a, you know,

a reasonable October, November,

December, I wouldn't get

excited about it, I don't think

it will be great. Gerry Harvey,

thanks for joining us. Thank

you. Some dark clouds are

looming for the Australian

insurance industry, severe

weather conditions and the

economic slow down cut profits.

While KPMG's annual analysis analysis of the industry points

to uncertainties ahead. Desley

Coleman reports. This year's

floods and Hale storms that

savaged the East Coast of the

Australia also hit the

insurance industry. We are

having a long-term trend in

terms of increasing natural

events and severity, we have

more people living on the

eastern seaboard of Australia

in particular, where these

events tend to occur more

frequently, therefore we have

increased losses as a result of

that. Last year's harsh weather

conditions washed away 20% of

the insurance industry's

profits. The sector's earnings

slumped to $3.2 billion.

According to a survey by global

accounting firm KPMG severe

weather events are no longer

seen as unusual, and insurers

are adjusting price models to

reflect this. Premiums for

personal lines of insurance

like home and car insurance

increased across the industry

by between 5-15%. In terms of

commercial lines, they are

still experiencing significant

pressure on rates, there is some evidence of hardening

during the second half of the

financial year. With commercial

motor rates up, and rates in

the SME market, small, medium enterprise end of the market

gaining traction. Volatile

financial markets are also put

earnings under pressure, and

seen the industry fall out of

favour with investors, the

slump in insurance company

share prices has been in clear

evidence since the global

credit crisis erupted in August

last year, since Jan QBE shares

down 28%, IAG 39% lower,

Suncorp Metway has dipped

35%. The market at the moment

is taking a much more sceptical

view about the insurance cycle,

which is the correct view, a

lot of the cyclical factors

turned against the insurers,

premium rates falling, investment markets are causing

problems. There was, I felt

more of a focus on rewarding

insurers in terms of promoting

them in terms of their top-line

growth as opposed to bottom

line ability. As well as

unsettled global market the

local insurance industry is

confronting a slowing domestic

economy, Nats say while the

foundations of the Australian

insurance industry is strong,

discipline, rather than growth

is key to weathering the

storm. The ANZ Bank is overhauling its management

structure in an effort to rekindle profitability, the

bank will cut an unspecified

number of jobs and reorganise

its operations into three

regions, Australia, New Zealand

and the Asia Pacific. ANZ says

the changes will cut

bureaucracy and complexity. The

banks' performance has been hit

by its exposure to troubled

stockbrokers, including Opes

Prime. He's a legend of

London's banking scene, now

Alex Masterley leapt from the

cartoon pages to the West End

Theatre, after a successful run

in London, 'Alex The Stage

Show' was embarking on a

three-month tour of Australia

and Asia, Neal Woolrich calling

up with the star of the Alex,

Robert Bathurst. For more than

20 years cartoon fans have been

amused by the antics of Alex

Masterley, the devious

long-lunching London investment

banker, surviving the 1987

crash, dot-com boom and bust

and soldiers on through the

credit crisis, he's been

brought to life in an uplikely

setting, the theatre. Penny

gave me a kiss, she knows I

hate public displays of

affection. Actor Robert

Bathurst plays Alex Masterley

in something of a one man show

interacting with animated

sequences on stage, projected

to 13 screens. You don't need

to be a fan of the strip or

have a BSC in economics,

there's little business, it's

about the character, and how he

undermines them and himself in

the process. Charles Peattie

and Russell Taylor created Alex

to satterise yuppies, and over

two decades have taken aim at a

range of personalities in high

finance. Jumped out of his

skin. I have done the show

before, there's a lot in the

audience nudging their husbands

saying, "That's you" them

going, "Surely not", or they

recognise other people's

characteristics. He's a

caricature, he comes out of

cartoon land, he's a realistic

character. The investment

banker is a proud

traditionalist, reluctantly embracing mobile phones and

Brack Brisbane, shameless

conniving -- blackberries,

shameless conniving keeping him

ahead of euro trash

juniors. He's a dinosaur,

old-fashioned city, there's a

lot of stuff in the play about

that. You might argue that is -

old-fashioned cynicism is alive

and well. Good man Alex, you

have your edge. He still

doesn't get it. I'm going to

have to deal with this. But

with London's reputation as the

world's banking capital taking

a battering, good Alex

Masterley be an example of art

imitating life. Highs

duplicitiy and cynicism is -

shows that something that he's

good at business, it's about

positions yourself for maximum

short term advantage and maybe the city suffers from

that. That's a lesson Alex

Masterley is unlikely to heed

so long as he has a corporate

credit card to pay his

bills. Now a look at tomorrow's

business diary, and official

lending finance data is

out.Along with the Westpac

Melbourne Institute monthly

consumer sentiment index.Seven

Network holds a meeting to talk

about the buyback of 40 million

shares.

Jean Claude Trichet testifies

before a European Parliamentry

committee. What's making news

in the business sections of tomorrow's newspapers, 'The

Age' examining the ANZ

management shake-up predicting

hundreds of jobs lost. 'The

Australian' leads on BG's

decision to walk away from

Origin Energy, the 'Australian

Financial Review' looks at the

implications of today's

innovation review, and the

'Sydney Morning Herald' says

doubts grow about the survival

of ABC Learning. And that is

all for tonight as I leave you

the Dow Jones industrial

average is down 8.15 points,

the FTSE up 27 point 9 points.

I'm Greg Hoy, goodnight. Closed Captions by