Sunday, 19 February 2012

Silly Judgement versus The Facts

This article popped up on The Australian’s web page a short while ago .  It contains a lot of comment that is really silly and amazingly ignores what the market has done today. 

At the time of writing (around 12.45pm, Monday 20 February), the ASX200 is on a surge, up a touch over 1.1% so far for the day, the Australian dollar has rocketed to 1.0785, 0.8% higher than Friday and bond market yields are up a few ticks with the odds of further interest rate cuts a small fraction less likely than on Friday.

In any language, it is a very positive assessment of Australia today from stock investors  (ASX up); global investors (Australian dollar up) and the bond market move is in lock-step with US bond market trends.

While it is simplistic to say a one day move is a strong vote of confidence in the future of the Australian economy, it hardly smacks of “risks to the economy” from political ructions and the moves build on some longer run trends.

The story on the Australian’s web site begins:

  • Peter Anderson, the chief executive of the Australian Chamber of Commerce and Industry (ACCI), said today that speculation that Foreign Minister Kevin Rudd may soon challenge Gillard for the country's top job posed risks for economic management. 

"This needs to be resolved soon. There are risks to the economy especially when there is instability within the governing party," he told ABC radio.”

This is an odd assessment given how markets have moved today.  If there were “risks to the economy”, it would be safe to think that stocks and the Australian dollar would fall, not rise.  Mr Anderson may have missed looking at market trends when making this comment.
The article then quoted Bell Potter’s Managing Director Charlie Aitken suggesting there was a growing sense among foreign investors that the mining boom wasn't being handled well by policy makers.
Mr Aitken is quoted:
  • "They believe that politicians, Treasury and elements in the Reserve Bank of Australia (RBA) are nonchalant about the ramifications of the structural adjustments taking place within the economy," he said in a market note.  

The article went on:
  • “Mr Aitken said foreign investors believe Australia is generating its own self-inflicted economic wounds with a misguided policy response to structural change.”

Charlie, Charlie, Charlie.  Foreign investors?  Misguided policy? Self inflicted wounds?
Who says?  You?  Anyone else?  Any facts?
I'll present a few facts.  Foreign investors are voting with their wallets, driving the Australian dollar to record highs in recent weeks with another jump of almost 1 cent today in the first reaction to the latest bout of leadership turmoil and economic risk.  What's more, foreign holdings of Government bonds are currently in excess of 75% - a record high as investors flock to the three fold Triple-A rating of the Australian economy.  RBA Assistant Governor noted that demand for Australia is so hot at the moment, that the Australian dollar is disengaging from the terms of trade which have fallen in recent months.  
Looks like foreign investors and others are rightly ignoring Mr Aitken's prognostications.
I suspect something else - Charlie is peddling mischief.

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