Interest rates in Australia and America are headed in opposite directions. The Fed could cut twice by Christmas. The Reserve Bank may raise twice by Christmas.
What’s that under the Christmas tree we see? It’s parity.
In fact, on this side of the planet, you begin to wonder if the economy hasn’t reached its absolute peak. The dollar is at a 23-year high. And it will be summer soon, meaning we can start working on our base tan here at the Old Hat Factory. Is this as good as it gets?
“Australia is riding the wave of the most propitious world economic conditions in half a century, with jobs and business investment booming, personal wealth at record levels, tax coffers overflowing and the global and domestic crises that dominated so many elections from the 1970s seemingly quite distant,” according to Steve Burrell in the Sydney Morning Herald.
It does make you wonder, though. Let’s say we reach parity. Let’s say someone, anyone, wins the Federal election, and spends around AU$34 billion. Oil prices rise. Food prices rise. Employment remains tight and the economy runs at full capacity. Where does the Australian stock market go from there?
Your guess is as good as ours. All we have here is our knowledge of history and market cycles. We seem to be at the apogee of a great growth cycle. But if you look around in the two main engines of that cycle—China and the US—you begin to see evidence that the cycle is at its limit. A great contraction is in order. Or even a crash.
“Crash is coming, warns top investor,” write Jason Dowling and Peter Weekes in the Age. The gentlemen have spoken with Leo de Bever, the chief investment officer of the Victorian Funds Management corporation. He thinks that when things can’t get any better, they don’t.
“The man responsible for investing AU$41 billion of the State’s money has warned mum-and-dad investors to prepare for a massive sharemarket crash. He says a dramatic downturn is inevitable as the rapid rate of investment is unsustainable, and the repercussions of the US$300 billion subprime lending crisis in the US are yet to be felt fully.”
Who are you tipping for the Melbourne Cup? Just wondering…
In geopolitical news, what the heck is going on in Pakistan? President Pervez Musharraf has declared a state of emergency and begun arresting political opponents. Pakistan has nuclear weapons.
Markets and Money