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At 2.35pm Last Friday, the RBA Became Irrelevant

In today’s Money Morning:…Aussie banks on a collision course with the RBA…reasons to be optimistic about the future…low inflation numbers are a fraud…a cost greater than losing money…timeless investing wisdom…

At 2.35pm Last Friday, the RBA Became Irrelevant

One of the supposed benefits of the Aussie market is that the Reserve Bank of Australia (RBA) can move interest rates and the retail banks will follow suit.

We’re sure you’ve heard mainstream commentators say, “Our economy will be fine because the RBA has plenty of room to move.”

So, when the RBA cuts interest rates to boost the economy, the banks cut rates… and when the RBA raises interest rates to slow the economy, the banks raise rates.

Or that’s how it worked until 2.35pm last Friday. [Read more →]

February 13, 2012   No Comments

Markets: Greece Returns To Haunt Markets.

February 13 2012 - Australasian Investment Review – (AIR)

Commodity and stock markets across Asia and Europe and the US are on alert as Greece moves back to centre stage with a vital week for the stricken country to either accept sweeping cuts and a huge new round of debt, or head for default.

Shares and commodities fell on Friday (the US markets had their worst day of 2012 so far) as previously confident investors suddenly got a dose of Greek-inspired jitters.

Gold, oil and copper were weak on Friday and they capped a week which saw falls all round.

The worries saw the Aussie dollar lose ground on Friday night and it lost a cent against the greenback to close at $US1.060 in New York.

European sharemarkets fell from six month highs as the delays and doubts about Greece spread. [Read more →]

February 13, 2012   No Comments

Why The RBA Uses The Terms of Trade Indicator… And Why You Should Too

Today, the Reserve Bank of Australia meets for the first time this year. I’ve spent the last week reading the papers as they make a case for a rate cut this week.

Most papers are keen to analyse the data you’re familiar with, like gross domestic product, retail trade data and inflation-related data. But they ignore another measure of our economy that I believe is a very good indicator of the action the RBA will take on rates.

The thing is, when this economic indicator goes ‘up’ interest rates tend to follow it higher… and when it goes south… well, a cut in the cash rate isn’t far behind.

Glenn Stevens, the governor of the Reserve Bank of Australia, mentions the ‘terms of trade‘ when a policy decision has been made. At the September 2011 meeting, he said it’s ‘…now at very high levels and national income has been growing strongly’.

And he referred to it again when the RBA cut rates at the December meeting: ‘The terms of trade have now peaked and will decline somewhat in the near term, but they remain very high.’ [Read more →]

February 8, 2012   No Comments

The Economy: Stronger Than Retail Suggests Ahead Of Rate Decision

The Reserve Bank makes its first decision for 2012 on the level of interest rates today.It could move rates any way, but there’s a sneaking suspicion abroad the central bank might sit on its hands after recent data from Australia, the US, China and especially Europe hasn’t been as gloomy as many analysts had forecasts.

But equally, a cut wouldn’t surprise.

But the tone of recent data has been very much upbeat, as the recent surge on major stockmarkets suggest, as well as the rise in the price of copper and the value of the Australian dollar. [Read more →]

February 7, 2012   No Comments