We’re taking it easy today. Once we have cranked these notes off to you it will be time to drop the Financial Review and pick up the Form Guide. Today will give us the opportunity to give back to the bookies the money we won at Derby Day.
And so in the spirit of the Spring Carnival season we shall resist all temptation to compare investing with horse racing. Instead, as will remind you that we are into the eleventh month of the year – already. It is nearly over. What can we expect for the remaining two months?
Is The ‘Wages Bubble’ Next?
Well, according to the market’s reaction to the TD Securities inflation forecast everything is looking rosy. The survey of 1,000 products by TD Securities and the Melbourne Institute showed that inflation increased by 3.9% for the twelve months to September.
This was a drop from the previous month from 4.6%. That spells good news and makes it even more likely that the Reserve Bank of Australia (RBA) will drop interest rates at its meeting today.
Unfortunately we won’t know the official figure until the ABS releases those statistics at the end of January next year. The RBA has convinced itself that it knows how to handle inflation and so it is therefore unlikely to hold off.
Amongst all the euphoria about this wonderful inflation figure let us not forget that it is still 3.9%. That means that during the past year you would have needed at least a 3.9% return on your money just to break even. It means that what cost you $10 or $20 or $100 last year will now cost you $10.39, $20.78 and 103.90 today.
So far wages have kept up the pace. The last statistics from the ABS indicated that wages had risen by 7.3% from June 2007 to June 2008. Therefore our only note of caution here is that after just been through the credit bubble will the next bubble to pop be the Wages Bubble? If the economy truly is destined to slow down it is inevitable that some businesses will find paying higher wages unsustainable.
The Bulls Are Back in Charge
There are two schools of thought for predicting the future. One is that history repeats itself. The other is that lightening never strikes twice. And so, armed with that toolkit of indecision we look forward to the next two months.
Having just come through the biggest credit crisis in living memory the market almost seems to be on the verge of forgetting it already.
Since everything started to hit the fan back in 2007 the potential fall-out has been underestimated on a massive scale. One set back followed another. As each event happened it was widely thought that it couldn’t get any worse.
Only it did. Time and time again. And each time the government intervened it only seemed to be too little and much, much too late.
But now it appears that the wheel has turned. The full might and power of sovereign wealth has been lined up behind free markets. Where there was risk there is now safety. Where there was perceived safety there is even more safety.
So now we are back in an uncomfortable position. The actions of the markets, regulators and governments may be irrational, however if their intention was to bail out and prop up the free market – which it seems to have been – so far it has worked. And despite the initial caution markets have responded warmly and have taken the opportunity to buy in at perceived cheap prices.
Whether you agree with the policies or not, it doesn’t matter. In yesterday’s Money Morning our swarm trading technical analyst Gabriel Andre told us that following a string of up-days the All Ordinaries is now looking more bullish than bearish.
Nobody said investing was meant to be easy.
Cheers,
Kris