by Alan Thornhill
The word “fragility” is certainly in danger of serious over-use, as economists struggle to assess prospects for global economic recovery.
But it is particularly important in Australia, where a strong $A, high iron ore and coal prices and – largely – successful stimulus measures have brightened national prospects.
It would be all too easy, though, to make too much of the $A’s brief break through parity with the once almighty $US dollar, late on Friday night, for the first time since it was floated, back in 1983.
Don’t forget that happened, in European trading, shortly after the US Federal Reserve chairman, Ben Bernanke, warned of further weakness ahead.
The breakthrough, though, was important, even if the $A eased back in later trading.
Wayne Swan welcomed that event, saying:”This milestone reflects the stark difference in the strength of our economy, relative to other nations.”
That “stark difference” though is also important.
Australia is a vigorous trader.
So what happens in the rest of the world matters, very much, here too.
Once again, we have been lucky.
China, which is now our most important customer, is still growing strongly, despite the global economic crisis.
So iron ore and coal prices are still high.
But China, too, depends very heavily on world trade.
And Wayne Swan, just back from Washington, also said:”….the key message I took away from my meetings….was the fragility of the global recovery….”
The Nobel prize winning economist, Paul Krugman, is now warning that the “mortgage mess” in the United States “threatens to produce another financial crisis.”
He says that is , basically, down to bad book-keeping.
Writing in The New York Times, Krugman says:”Now the awful truth is becoming apparent.
“In the frenzy of the bubble, much home lending was undertaking by fly-by-night companies trying to generate as much volume as possible.”
As we all know now, only too well, many of those mortgages were later sliced and diced, into a nasty pudding of ill-fated mortgage backed securities.
And “In many casesthe necessary documentation now doesn’t exist.”
That means it is now very difficult, indeed often impossible, to clean up the mess.
Two hearty cheers, then, for that little Aussie battler, the $A.
Let’s never forget, though, that the global economic crisis isn’t over yet.
by Alan Thornhill
Tantalisingly close. But the prize – parity – remained elusive.
There is no doubt though that the little Aussie battler, the $A, is strong.
It set another post float record yesterday, touching 99.80US cents shortly before 2pm, then touching 99.93US cents, as internati0nal markets opened.
And – as Hollywood tells us – money never sleeps.
So it may not stop there.
But what, really, is going on?
Are wicked speculators targeting the $A?
Or does its strength simply reflect the strength of the Australian economy?
Wayne Swan is in no doubt. He favours the second explanation.
Though careful not to comment too directly on the value of the Australian currency, the Treasurer has admitted that.
Partly, though, the $A’s apparent strength actually reflects the relative weakness of its trading partner, the once almighty US dollar.
The $A was fetching 99.02US cents early yesterday.
By mid-day, Eastern time, it was at 99.61US cents – and purposefully pursuing parity with the $US.
At 1.42PM it hit 99.80US cents.
After that, it eased back, sliding to 99.58US cents by 4pm.
The Reserve Bank will be pleased.
A strong $A should help to curb inflation, by cutting the $A price of imported goods.
So will many Australians, who want to visit the US.
That, too, will be cheaper now.
Australia’s tourist operators won’t be happy, though.
They can expect their business to ease, as more people plan holidays overseas.
by Alan Thornhill
Australians are more confident about shopping, but still cautious about borrowing.
These trends are confirmed in data that has just been released.
The Westpac Melbourne Institute Index of Consumer Confidence rose by 3.3 per cent this month.
The Reserve Bank’s decision to keep interest rates on hold is thought to have contributed to this result.
The Bureau of Statistics also reported that personal borrowing fell by a total of 0.3 per cent in August, on seasonally adjusted figures.
The amount borrowed on fixed loans fell by 2 per cent during the month.
That was offset though by a rise of 1.4 per cent in the amount borrowed on our credit cards and other forms of revolving credit.
Commercial borrowing, though, plunged by 11 per cent during August, as business people, rattled by the Federal elections, held back until they saw the results.
Westpac’s Chief economist, Bill Evans, said many positives had contributed to the boost in consumer confidence, reflected in the latest figures.
These included a surge in full time employment and a stronger Australian dollar, as well as the Reserve Bank’s decision to keep rates on hold.
Mr Evans said Australian families had responded to a range of positive news.
But he said Australians are still worried by poor economic news from the United States and Europe.
In other finance news today:-
- The National Australia Bank warned that Australia’s capital city housing markets would remain weak for the coming year and
-The Australian Securities and Investments Commission warned that it would be targeting insolvent trading in the months ahead.
by Alan Thornhill
If you are thinking of starting a self-managed superannuation fund – as thousands of Australians have already done – there are some things you should know.
The first is that the Federal government is being urged to check whether these funds are being set up as vehicles for tax minimisation.
The second is that authorities, like the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority might soon take a more interventionist stance in this area in future.
The Federal Treasury is worried about possible abuse of self managed super funds. It warns, in its Red Book, that:”The superannuation system is increasingly leaking (tax) revenue, with Self Managed Superannuation Funds now the tax minimisation vehicle of choice.”
No worthwhile Federal government is going to ignore advice like that, especially not one that is determined to get its budget back into surplus within three years
Meanwhile an industry leader is also warning that self regulation of the entire superannuation industry – which now has more than $1 trillion of Australian retirement money on its books - is “failing.”
Jeff Bresnahan, who heads SuperRatings, said the failure of regulators, like ASIC and APRA to implement simple, yet clearly defined regulations, is leaving the public confused and exposed, on issues such as the performance of their funds and the fees they charge.
Mr Bresnahan said SuperRatings had been trying for eight years to encourage superannuation funds to “bring about a change in the behaviour of Australia’s superannuation funds in dealing with the the “honey pot” of retirement income flows.
The Labor party has invested much of its political credibility in the development of Australia’s superannuation industry.
So it won’t ignore this advice, either.
But what can you do, if you want to set up a self managed super fund?
The first step is to get good advice, and be prepared to pay for it, upfront.
Your accountant should be able to recommend a good source.
Whatever else you do, resist anyone whose advice comes with a small, on-going commission.
Fees of that kind can make a very big difference to your payout, when you retire.
Don’t treat your fund as a tax dodge, either.
Those who do are all too likely to attract unwelcome attention from the Tax Office.
You won’t, exactly, be pioneering, though.
Some 80,000 Australians are already running their own self-managed superannuation funds.
by Alan Thornhill
Investors and first home buyers are taking cautious positions, in Australia’s generally soft housing market.
The Bureau of Statistics reports that fixed loans, taken by housing investors, fell by 3.9 per cent – to just $6.5 billion – in August on seasonally adjusted figures.
And, on original figures, first home buyers took just 15.5 per cent of all new home finance commitments in August, compared with 15.9 per cent in July.
Talk of further rate rises is clearly curbing the enthusiasm of prospective property buyers.
The Reserve Bank watches developments behind figures like these very closely, as a speech its Deputy Governor, Ric Battellino, gave last week shows.
Mr Battellino acknowledged then that growth in household credit is still moderate, a situation he says the Reserve Bank finds “quite satisfactory.”
“Over the past year or so, household credit has increased by around 7 per cent,” he said.
But Mr Battellino admitted that most of of that rise has, in fact, been due to housing loans.
He said:”…other forms of household debt, such as credit card debt, margin loans and personal loans have been relatively flat.”
Australians, though, have taken much bolder approaches to property purchases, in previous booms.
Not, apparently, though in the present mining boom.
Indeed, house prices have been easing, in most Australian cities, over recent months.
There has been no sign yet , though, of any likely US style crash, in Australian property prices.
Indeed, any development of that kind seems very unlikely, in view of the fact that, even now, Australia needs something like 150,000 more homes than it actually has.
Especially as the bureau also reported, only last week, that the number of new, full time jobs, in this country, has surged over recent weeks.
Few experts, though, are predicting any sudden surge in Australia’s housing prices.
by Alan Thornhill
The stronger Aussie dollar will keep pressure on car prices.
It will make overseas holidays cheaper, too.
But these are just the first effects.
The $A may help to restrain interest rates, too.
It’s no secret that the Reserve Bank has been looking at the up button, as it reviews Australia’s interest rates.
That’s because Australia’s underlying inflation rate hovering just below the 3 per cent lid, that the Reserve Bank wants to keep on price rises.
When the bank’s board next meets, on Melbourne Cup day, it will be placing a few bets of its own.
If it sees inflation rising, over the next few months, a rate rise will be a sure thing.
If inflation is held back, though, the board might well keep interest rates on hold, a little longer.
A strong Aussie dollar will help to restrain price rises.
Shopkeepers, now, want every sale they can get.
The strong Aussie dollar means retailers can buy more cheaply.
And, as these are still subdued times, they will probably sell more cheaply, too.
So look out for the bargains.
Back in April 2001, at the time of he Asian economic crisis, the $A hit a low point, under 48 US cents.
It soared above 99 US cents on Friday, before easing slightly, with pundits predicting that parity, with the once almighty greenback, is now just a matter of time.
The Aussie’s new strength reflects the strength of the Australian economy.
Wayne Swan says we should be proud of that.
But the Treasurer warns, too, that:”"The global outlook is fragile.”
Nowhere is that clearer, than it is in the present row between the United States and China, over currency alignments.
The US believes China is deliberately keeping its currency, the Yuan, undervalued, to protect its own industry and jobs.
The Shadow Treasurer, Andrew Robb, agrees.
He says Mr Swan’s silence on the issue, at an IMF meeting in Washington, is “cowardly.”
Certainly, though, that currency row is real enough.
And it is just one of many clear and present dangers, that could still upset Australia’s applecart.
by Alan Thornhill
Almost 56,000 new – full time – jobs – in a single month.
Then the $A hits a post-float high above 99.00 US cents.
So is a rate rise imminent?
If wishing made it so, certainly.
Eric Abetz says it’s only a matter of time, if the government keeps spending the way it has been. That’s the opposition’s call.
The government, too, admits that a strong set of job numbers, like those the Statistician released yesterday, can influence things like interest rates.
Gordon Gecko – and his mates – certainly believe a rate hike is imminent.
They are betting heavily on a rate rise, very soon.
Bank economists – and economic reporters – too are pushing for a rate rise, in the near future.
The collective wisdom, of all these people, is very powerful.
But it has left Glenn Stevens looking very lonely.
Glenn who? Oh, you mean the Reserve Bank Governor?
The man who actually decides what interest should be, with a little help from his board?
Yes. That’s the one!
Mr Stevens said on Tuesday that Australia’s underlying inflation rate has been hovering around 2.75 per cent.
He said, too, that the bank expects that to continue, for some time yet.
Well, it’s no secret that the bank aims to keep that rate between 2 and 3 per cent, over the course of the business cycle.
It keeps its eyes on that prize, when it sets interest rates.
And, as recently as Tuesday, it kept Australia’s interest rates on hold.
Mr Stevens noted, then, that retail sales had been slow and home sales haven’t – exactly – been sparkling.
He said, too, that the public’s appetite for new debt had eased, in the wake of the global financial crisis.
The Reserve bank acknowledges, too, that there are l risks in the global economy, that could still hit Australia.
Those things weren’t swept away, by yesterday’s – admittedly strong – job figures.
There will be further rate rises, in future. It’s always hard to stop at just six.
The big question is when.
There are grounds for caution, despite the new euphoria.
by Alan Thornhill
Australia’s unemployment rate stuck at at 5.1 per cent last month, even though 49,500 new jobs appeared in that time.
The Bureau of Statistics said the rise in employment was driven by a seasonally adjusted increase of 55,800 in full-time jobs.
But part-time employment fell by 6,300.
The Bureau also reported the workforce participation rate in September increased 0.2 percentage points to 65.6 per cent.
Overall, this is a picture of a strengthening labour market, which is encouraging people to seek – and often find – jobs.
Australia’s total employment has been rising steeply since November last year.
The nation’s unemployment rate has also fallen substantially since then.
The government had been hoping that the nation’s unemployment rate would have dropped below 5 per cent by now.
Oddly, perhaps, the main reason that this did not happen is that the nation’s work-force has expanded, as its economy improved.
The Bureau counts both people who have work – and those who are actively looking for a job – as part of the nation’s work force.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Sunday December 8
The Dow Jones index rose 198.69 points (Friday, New York time) to 16,020.20
Australia’s first same sex marriages take place in Canberra, but may over-ruled by the High Court Thursday
ACCC puts a cap on the fuel shopper dockets offered by Coles and Woolworths.
Qantas shares placed in trading halt
|Aud To Usd||0.9102||N/A||N/A|
|Bhp Blt Fpo||36.750||-0.030||-0.08%|
|Rio Tinto Fpo||66.410||+0.410||+0.62%|
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