The Fed cut rates yesterday. Or was it the day before?
Visitors to this sunburned country are often confused. At least, this visitor is.
‘What time is it?’ he wants to know. ‘What day is it? What day is it in the rest of the world?’
He has a hard time getting his bearings. He can’t sleep at night, and can’t stay awake during the day. He looks for the North and finds the sun shining in his face. The trees are peculiar looking things that seem to be shedding…the cars are on the wrong side of the road…and the taxi-drivers want him to sit in the front seat.
It is particularly confusing because, otherwise, it seems so familiar.
Yesterday, we drove out to the Yarra Valley. Melbourne is usually ranked as one of the most livable cities in the world. We can see why. The houses are cute…many with double-decker porches and wrought iron trim. The place is clean…safe…and easy to get around.
Down in St. Kilda, it seems like a beach resort, with crowds filling the bars and restaurants, and young people gaily and drunkenly cavorting in the streets. In fact, our only reproach is that the city is relentlessly casual, like Florida or California.
Out at the Tarrawarra winery, it looks more like the Shenandoah Valley. The country is beautiful, open…with horses and vineyards…and friendly people serving up so many wine samples we had to lie down.
“This place is not that different from the United States and Britain,” says our man on the scene, Dan Denning. “It’s really the same story. Lots of debt. High asset prices. People who’ve bought houses they really can’t afford, counting on price increases to save them. So far, they’ve done well…very well. Australia hasn’t had a recession in 16 years.
“All the Anglo-Saxon economies are similar – in that they all depend on consumer spending and have a lot of debt. But Australia – and Canada, too – have a great advantage. Especially Australia, because it’s so close to Asia. This is where the Chinese buy their raw materials. It’s a resource economy, not simply a consumer economy. Australians have gotten rich as prices of raw materials have gone up, especially out in Western Australia. And as long as the Chinese keep ordering resources, prices are probably going to keep going up…and the Australians are going to keep making money. But that’s the big question. If US consumers stop buying, the Chinese aren’t going to need so many raw materials.”
US consumers buy one-fifth of everything the whole world sells. And US consumers are feeling the effects of lower housing prices. As prices fall, the average person’s net worth goes down…and with it goes his desire to buy.
“But wait,” said a man at our get-together the other night. “There are about 3 billion people in Asia. And right now, the Chinese government is encouraging domestic demand. They have plenty of potential demand in Asia. They just have to tap into it. Even if the US stops buying, it shouldn’t hurt the Chinese economy for very long. They’ll still want houses and refrigerators…which means, they’re going to want to buy copper and iron ore from us here in Oz. I think we’ve got a long
boom still ahead of us here.”
Maybe so. But our guess is that the Australians may have a short bust in front of them too.
Markets and Money