On the agenda today of course is the Reserve Bank of Australia decision on interest rates. Everyone seems to be offering their opinion on what the bank will do, so why should we be any different.
In our opinion the RBA will cut/raise/hold (delete as appropriate) interest rates at today’s meeting.
In other words, we’ve got no idea. And neither do most of the talking-head economists you’ll watch on the news today leading up to it. But one thing is certain, they’ll turn “I don’t know” into about five minutes of dross.
And the market isn’t completely certain either…
Well, it’s certain there will be a 0.25% cut, but it’s even built in about a 30% chance of a 0.5% cut.
But whatever happens, it’s unlikely the RBA will draw much criticism. They are it seems, untouchable.
Two sets of stats out yesterday suggest the economy is taking a turn for the worse – the TD Securities/Melbourne Institute Inflation Gauge, and the ANZ Job Ads numbers. Although based on what you would have read in the mainstream press, the inflation number was met with joy.
Why? We’re not sure, but the comment from Stephen Koukoulas, global strategist at TD Securities probably explains it: “Inflation is dead.”
It’s not the first time we’ve seen such comments. Alan Oster from NAB said a similar thing at the ASX presentation we attended a few weeks back.
What’s worrying is that policy makers don’t seem to be worried by the inflationary pressures that are still evident in a faltering economy. But then again it’s a little difficult for them to be worried about it seeing as they are doing everything they possibly can to prop prices up.
Even more extraordinary is the sudden recognition of fuel prices. As we’ve mentioned many times before, when fuel prices were rising we were told to ignore it because they were so volatile. Now that fuel prices have remained steady for some time, and in fact fell by 5% in March, it is seen as significant.
Even though prices in March fell by 0.1%, writing off inflation is a big mistake. After all, prices have still risen by nearly 3% since this time last year, and the increase in the money supply over the same period should be another warning.
If prices aren’t falling during the worst economic period in seventeen years in Australia then something isn’t right. It tells you that retailers feel comfortable keeping prices at current levels. And why wouldn’t they when the government is determined to underwrite any part of the economy that moves.
But that’s just on the prices. As we’ve often noted, the other side of the equation is the supply of money. And that’s being ramped up like nobody’s business thanks to handouts and increased public sector debt.
In other words, once there is a whiff of a recovery in the air, inflation will take off like a rocket. If we had had a period of falling prices that wouldn’t be so bad, but it looks as though we won’t. So sooner rather than later, the excess cash that is being built up will be released on the economy.
For companies that have maintained their pricing power but cut production, it will be a boom for them as prices will inevitably rise prior to increasing supply.
How to Buy One Ounce of Gold for Under $10
We’ve noticed the price of gold slipping further away from the USD$1,000 mark in recent days. Ask any gold bug and they will tell you it’s a perfect time to buy. We’ve asked Swarm Trading technical analyst Gabriel Andre to take a look at gold in his “Trade Ideas” column for Money Weekend this week.
One problem for gold bugs is getting hold of the stuff. Again we’re seeing stories about how the Perth Mint is struggling – unsuccessfully – to keep up with demand.
Aside from owning the physical, you can buy gold on an exchange as an exchange traded fund. That’s available on the ASX and overseas. You buy and sell just like a share.
But there is another way, and that’s using CFDs. My old mob, CMC Markets can let you trade a number of different precious metals in various forms, such as gold and silver. And you can trade them on the spot price or based on the futures price.
And because it’s traded on margin you don’t have to stump up the full amount. But remember, just because the leverage is there it doesn’t mean you have to use it.
It’s worth taking a look especially if you’re a short term trader. The price of gold is pretty volatile, so if you pick it right you can lock in a decent profit (er, but don’t forget the downside as well).
My tip would be to register for the “Going for Gold” webinar they are holding on Wednesday 15th April. That should give you the chance to find out how it all works and whether it’s your cup of tea. Click here to register.
Of course, don’t forget to check out all the ins and outs first, and keep an eye out for Gabriel’s notes on gold in Money Weekend.
Other Stuff on the Markets
The Dow Jones Industrial Average fell by 0.5% last night and the broader indices fell by almost 1%.
European markets had similar sized falls. Perhaps some of the gloss is already coming off of the G20 bash.
The Aussie dollar continues to hold ground above USD$0.70.
The Fairy Ruddfather’s Australian Business Investment Partnership (ABIP) will charge a premium to access its financing. Perhaps they have seen the poor numbers coming out of Westfield’s flagship Shepherd’s Bush development in London and have got cold feet on commercial property after all.
Interesting interview by Alan Kohler with Future Fund chairman David Murray. Our instinct that the Future Fund would be used as a ‘backstop’ to prop up the economy may have been truer than we thought. More on that tomorrow.
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