RBA - Strategy Change?

Discussion in 'Markets & Economies' started by BuggedOut, Aug 5, 2016.

  1. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    So, RBA cut rates this week but unlike previous cuts, this time the market barely even flinched. You could say that the market had already priced it in, or that the cut wasn't big enough....or you could say that rate cuts at this historically low end of the spectrum really are not going to give the desired effect of devaluing our currency and stimulating inflation....

    I'm expecting that the AUD will continue to creep upwards as our neighbours all play thier parts in the currency wars and trash thier own currencies faster than ours. So I am also expecting that inflation will stay low (maybe even deflation) and other economic data will also suggest that this last cut is not having the desired effect of stimulating anything other than the housing market.

    Many analysts are predicting the RBA to cut down to 1% (another 50 basis points) before the end of the year, but is that really going to achieve anything? Other countries are starting to try out various forms of Quantative Easing, bond buying programs and other forms of stimulus - so how long until the RBA starts trying some of that stuff here?

    We have a new RBA governor coming on board soon, so it may be as good a time as any for a strategy change.

    If so, whats the next step for the RBA? What will we see here in Australia? I know that if it was up to the politicians we'd probably get a big fat infrastructure spend that will create jobs. But on what? Is it likely that we will see bond buying programs here in Australia soon? It seems to be all the rage in England, Japan, Europe....and we are hardly innovators when it comes to this stuff - we follow the herd.

    So what sort of investments are likely to benefit from a strategy change. I figure investing in GOVT.AX or BOND.AX might be good for government/corporate bond buying programmes (respectively) but what about infrastructure spending. Where does this spending manifest on the market? Companies like Boral who build stuff, or Infrastructure Funds? Does anyone have any idea how this has worked in other countries.

    I'm trying to put together a bit of an investment plan for the family and I'd appreciate any input from some of the wise heads here on SS. Please discuss with me!
     
  2. Caput Lupinum

    Caput Lupinum Well-Known Member Silver Stacker

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    The RBA and government doesn't really have the room to manoeuvre compared it's European and Japanese counterparts etc due to the smaller size of Australia's economy, the heavy reliance on foreign capital investment which expects higher rates of return due to perceived higher risks and more conservative central policies otherwise foreigner investors will pull out and the large and growing account deficit.

    If the Australian government were to announce anything like negative rates (won't happen) or deficit spending for infrastructure projects, the current account will blow out, Australia will lose its AAA credit rating (It's going to lose it anyway) foreign capital will flee and Aussie dollar will tank along with the economy. The only alternative is if the government tries to force Australian superfunds to investment in infrastructure projects through a bond issuance. If you hear politicians continually start referring to superannuation as a "national" asset rather than a personal asset, get your money out of your retail superfund.
     
  3. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    Didn't mean to thank. Are you looking forward to it from an investment perspective in that it may be the next government induced bubble that the OP is looking for, or from a policy perspective in that you support the government assisting in the misallocation of funds and capital investment?
     
  4. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    And I have no issue with anyone profiting from any government policy that creates a misallocation of funding and capital expenditure as long as they risk their own money.
     
  5. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    Can't speak on behalf of all libertarians of course but I prefer to see the free market spell out the cost benefit of any investment and potential profit to participants rather than leaving it to the government to artificially reduce risk and/or encourage waste.

    To use the example on the website linked, if Dylan wants to start a business making pet tracking collars then Dylan can use his own money or he can borrow/crowd fund without the government creating a misallocation of resources by way of a tax incentive/competitive advantage.

    Edit to add: but then again if the government exempted all profits earned from investments and allowed tax deductions for all investments, not just start-ups I'd probably have to agree with that. ;)
     
  6. Caput Lupinum

    Caput Lupinum Well-Known Member Silver Stacker

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    Anything the government touches turns to sh*t
     
  7. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    I've heard Bill Shorten make such references and I was ready to ring fence my super if Labor got in, but I'm optimistic that the Libs wont go there.

    Losing our AAA is inevitable but I don't think the pollies will go down without a fight if we are facing deflation and recession due to a high AUD. If there is a bit of capital flight that drops the AUD then that might be what the doctor ordered. Maybe Australia should take a leaf out of the Feds book and see if we can manage it just by "jawboning" alone. :rolleyes:
     
  8. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    NAB Chief Economist starting to talk about what comes after the RBA cuts reach the limit :-

    http://www.abc.net.au/news/2016-08-09/nab-rate-cuts-business-confidence/7704546

    This line of commentary in MSM will gain momentum over coming months IMHO.
     
  9. errol43

    errol43 New Member Silver Stacker

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    The only alternative is if the government tries to force Australian superfunds to investment in infrastructure projects through a bond issuance. If you hear politicians continually start referring to superannuation as a "national" asset rather than a personal asset, get your money out of your retail superfund.

    Why not let the Chinese fund the Infrastructure projects like fast rail and underground rail in our Capital cities? If the Chinese can make a profit, good luck to them. Think of all the jobs they will provide, not to mention all the materials and services needed!

    If problems occur down the track, Nationalize them.

    Regards Errol 43
     
  10. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    If the TPP is in place it would probably make nationalisation of such assets illegal - leading to massive compensation claims. You sure you want to open that can of worms?
     
  11. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    Glenn Stevens was saying that the efforts of Reserve banks around the world were never going to be enough to repair the economy, he's arguing that cutting government expenditure is required.

    Edit to add: change that, he's arguing for increasing public debt.
     
  12. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    Bankers blame the government....
    Government blame the banks....

    Glenn Stevens is getting out at the right time. Sounds like he knows the goose is cooked :rolleyes:
     
  13. bubblebobble2

    bubblebobble2 Well-Known Member Silver Stacker

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    Glenn Stevens should've cut 50 points for AUG to really impact ozzy dollar.. look at it now.... perhaps increase 20 point next months..

    let it roll!!!
     
  14. brexitbaby

    brexitbaby New Member

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    So one cut this month did nothing and possibly 2 more similar cuts by years end (?) could do nothing also.

    I'd better prepare the veggies to have with BuggedOut's nice cooked duck :p

    The future is going to be full of surprises,I hope you like surprises :D
     
  15. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    It seems that Governor Glenn Stevens is trying to point back to government for the solution (with a parting shot?) :-

    http://hotcopper.com.au/resources/australias-central-bank-highlights-limits-to-monetary-easing.12709

    So there you have it. According to this (and the previous article I posted) it looks like the two likely options (after the next rate cuts fail to have the desired effect) is either for the RBA to do QE and buy government debt (bonds) or for government to go deeper into debt and spend up on infrastructure projects.

    Pretty much as I was suggesting was likely in the OP.

    Now before Caput cuts me off at the knees (because yes, Caput I think you are right) I'm saying that just because this kind of experimental policy might be a dumb idea for Australia and will cost us our AAA rating it doesn't mean we won't try it out.
     
  16. Caput Lupinum

    Caput Lupinum Well-Known Member Silver Stacker

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    Glenn Stevens is a Keynesian c**ksucker

    If they want to float the idea of running up huge public debt to fund infrastructure projects that will be come in well over budget and will do nothing to increase productivity they should address public concern over the account deficit and impact it will have on Australia's credit rating and foreign investment. Major infrastructure projects should have and could have been funded during the mining boom of the early 2000s when there was a surplus without or with a lot less need to go into debt to fund them. The more I see articles like that, the more I have concerns that superannuation is going to be targeted by the government.
     
  17. errol43

    errol43 New Member Silver Stacker

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    The Tpp might not get the numbers in the US..Clinton and Trump against Obama for.

    Regards Errol 43
     
  18. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    If they were going to try and force superannuation into something like buying govt debt, surely it would have to be legislated in some way and there would be a significant lead time on implementing stimulus this way. So, that does give people a chance to move and it also may occur too slowly to be effective in any short horizon downturn?

    It's a bit like promising a junkie that you can get them a hit of heroin "next month". It's just not good enough. The addict needs a hit NOW DAMMIT!

    This is the merry little dance the US is doing over TPP at the moment. IMHO Clinton pretends to be against it (to get votes) but knows damn well that Obama will get it over the line before she takes office. By then it will be "too hard" for her to repeal. I mean FFS, didn't Clinton have a hand in drawing it up?
     

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