RBA Governor’s speech 26/11/19

Discussion in 'Markets & Economies' started by mmm....shiney!, Dec 7, 2019.

  1. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    A few notes of interest from Lowe’s speech the other night.

    He addressed this BIS report https://www.bis.org/publ/cgfs63.pdf providing a good summary of the tools at the disposal of CBs, some of the potential pitfalls and a bit of a road map for what we can expect the RBA to do in the near and mid-term. He spoke for about 30 minutes and then opened the presentation up to questions from the floor. I haven’t listed to the questions yet.

    He began by talking about the four UMPs (unconventional monetary policy tools - negative interest rates, injecting liquidity, asset purchases and forward guidance) and citing the positive and negative experiences these countries had.

    Of the four polices discussed, NIRP and lending operations are not on the RBA’s radar at all, as far as asset purchases go the acquisition of private assets is not on the RBA’s radar but importantly the purchase of public assets (government debt) is on the RBA’s radar but only if inflation is not within the 2-3% objective, unemployment doesn’t fall further and most importantly, not until the cash rate is down to 0.25%. Forward guidance will remain a tool of the RBA in calming markets and giving some sense of confidence in the direction the economy is going - Lowe made it clear that low interest rates are here to stay.

    Critically he stated that an overeliance on UMPs can lead to complacency on the part of regulators (amongst other problems) and he noted that he would hope that some fiscal polices would be introduced in order to support monetary policy.

    That last bit is the one that is fraught with electoral danger as there are two strategies and two camps and both sides would rather see mankind obliterated than see the opposing strategy implemented ie tax cuts v government spending on infrastructure.

    So for now we can expect the cash rate to fall further, maybe some government spending and/or further tax cuts and only then will we probably see the RBA purchase debt if the economy shows no sign of improving.

    By the way, I got the impression that Lowe thinks everything is currently going along okay.

    https://www.rba.gov.au/speeches/2019/sp-gov-2019-11-26.html
     
    Last edited: Dec 7, 2019
  2. 66rounds

    66rounds Well-Known Member Silver Stacker

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    Thanks, appreciate your summary. Seems like were going to kick the can down the road which suits us stackers very well.
     
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  3. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Yes, one outcome is that I think we will probably see further declines in the value of the AUD, and even further rises in the price of assets.

    Edit: as a result, those hoping to stash PMs as a pathway to owning property will be hoping capital gains in metals will be greater than gains in RE.
     
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  4. willrocks

    willrocks Well-Known Member Silver Stacker

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    Not a good time to be holding AUD.
     
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  5. leo25

    leo25 Well-Known Member Silver Stacker

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    I guess it depends how fast we devalue/stimulate relative to every other central bank. I only see the AUD falling if China reduces buying from us.
     
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  6. leo25

    leo25 Well-Known Member Silver Stacker

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    This is very interesting. Maybe people are expecting our AUD to dump and are getting out. What are other peoples view on this? Maybe I'm viewing this wrong.



    Untitled-1.jpg
     
  7. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I was thinking USD/AUD
     
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  8. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    Yep I think in part cos RBA has flagged to the market lower interest rates in 2020, thus the investment dollars leave AUD denominated assets (inc Aust Govt Bonds) looking for better returns. Interest rates go down, therefore demand for AUD by o/s investors goes down = lower AUD unless USD tanks too.

    Using the same graph leo25 used, I overlaid the Aust interest rates for same period. Whilst not perfect, there is come correlation between the lower Aust interest rates and capital out flows. Note: I think the capital flow up/downs circa 2007-2015 could be affected by mining related investment flows at the time.

    [​IMG]
     
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  9. madaw1

    madaw1 Well-Known Member

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    I would be more confident holding CHF...
     
  10. leo25

    leo25 Well-Known Member Silver Stacker

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    I listened to the whole talk and the main takeaway is he thinks negative interest rates are bad and QE is great. Oh and central banks haven't created any problems and have only fixed problems that markets have caused. :rolleyes:


    That’s because other central banks are dumping massive amounts of credit into the global system. So no, they are not working normally.

    Why would it reduce the ability for a bank to lend? The risk spread shouldn’t change. If a bank borrows at 5% and lends at 8% how is it different from them borrowing at 0% and lending at 3%? Or even borrowing at -3% and lending at 0%. The spread is always the same.


    Some other notes he made;

    -He talks about buying State government bonds along with federal government bonds.

    -Says 0.25% target rate is as low as he will go, as 0.25% cash rate means the RBA pays 0% on ES balances (deposits at the RBA)

    -If the mortgage market shows signs of issues they will consider buying RMBS (Residential mortgage-backed security) :eek:

    -Will start QE if/when rates get down to 0.25%

    -He says the FED is not doing QE atm o_O

    -He notes that if credit growth picks up in the housing market it will be an issue for them. Atm they are relying on tighter lending standards to limit this.

    -He gets very defensive at the end of the Q&A talk :confused:
     
    Last edited: Dec 7, 2019
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  11. systematic

    systematic Well-Known Member

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    Stop the brainwashing...



    According to Professor Werner the legal reality is banks don't take deposits and don't lend money... they are in the business of purchasing securities...
     
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  12. madaw1

    madaw1 Well-Known Member

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    '
    Interest rate down-gold up in AUD /if nothing will change in relation to USA-China trade war/...
     
  13. 66rounds

    66rounds Well-Known Member Silver Stacker

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    Fair point, but if stays relatively flat, big money may feel confidence in stock market and move away from gold, lowering cost slightly for us stackers. It's all relative though, when only buying grams like me spot up or down fifty cents doesn't matter. Only rich people buying kilo bars need to worry about gold spot!
     
  14. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    Printing and qe is all we have keeping our heads above the boil in the US. If that ends or rates go up it's all over with.
    Everything is focused on the stock market and it's all that matters.
    The oncoming slump is more apparent everytime they report their fake numbers. It's not good.
     
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  15. madaw1

    madaw1 Well-Known Member

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    That's correct-these days this is more related to fake news and numbers than facts.
     
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  16. systematic

    systematic Well-Known Member

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    Karen Hudes worked for the World Bank and found the financials corrupted at some of the highest levels of the financial system ... economic theory does not mean much when the books are cooked...
     
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  17. leo25

    leo25 Well-Known Member Silver Stacker

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    To follow up on Lowe's talk, i found this video worth a watch.



    Thought this was worth quoting :). Blue (RBA guy) Black (Senator For SA)
    RBA guy completely missed the joke. :D
     
    Last edited: Dec 17, 2019
  18. leo25

    leo25 Well-Known Member Silver Stacker

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    AUD is dumping, cracked the 65c range today. I guess this is what the RBA wants. They have been talking very openly that they will print like there is no tomorrow.

    I did a tour in the RBA and took a photo of their keyboard.

    rba print.jpg
     
    Last edited: Feb 21, 2020 at 3:04 AM
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  19. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I would've thought they'd have pried out the "ctrl, alt, del" keys too.
     
  20. leo25

    leo25 Well-Known Member Silver Stacker

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    They did for the juniors.

    rba print2.jpg
     
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