- Money Morning Australia

Market News this Week

Written on 16 July 2010 by Shae Smith

There’s nothing like a ‘nervous Fed’ to slow the markets down.

The recent meeting minutes that were released have highlighted again, just how fragile the American economy really is. And the Federal Reserve Bank knows it.

And adding to the Fed’s woes is the ever present thorn in its side, Thomas Hoenig, chairman of the Kansas City Federal Reserve Bank. You may be familiar with his name, as he has been the lone ‘dissenter‘ at the past four Fed meetings.

This time, not only has he said that interest rates need to be lifted to 1% in the US, but has also lowered his forecast for 2010 gross domestic product (GDP) to 2.5% – 3%.

That will upset the Fed, as they have the much more optimistic number of 3% -3.5%. It’s interesting to note that these guys have access to the same data, and yet only one of them has a much lower growth figure.

Ultimately, Hoenig does believe that there will be growth and that the delicate American economy should recover. However he just doesn’t support flooding the system with money to fix it.

He’s already been critical of the 0.25% cash rate, believing that leaving the rate low for an extended period will only create another boom and bust cycle. And it’s been suggested that Fed will do more to hurry the recovery along. Something he is completely against.

‘I’ve seen some of those who have advocated purchasing other assets – which industry do you want to favor,’ he said. And he has a point. After bailing out banks, how do you start picking what you want to save next?

‘Monetary policy can’t solve every problem in the United States.’

He’s right too. The Fed flooded the financial system with over USD$1 trillion dollars (AUD $1.13 trillion) during the financial crisis. Clearly the monetary policy isn’t saving the US now, so how can further purchasing of assets fix things?

If it hasn’t bolstered the recovery up to this point, what makes the Fed think that further money shuffling will help?

Hoenig’s comments reached the media two days before the newspapers picked up that the Fed may be seeking other stimulus measures to keep the economy going.

As noted in the Fed’s minutes ‘…the committee would need to consider whether further stimulus might become appropriate if the outlook were to worsen appreciably.’

Jerry Webman, chief economist at OppenheimerFunds said ‘It is not clear to me that the Fed could so anything at about it at this point. They don’t have a lot of levers to pull.’

What are the options for the Fed should they want to pump more money into a failing system? Guarantee bank loans to give car buyers? Ensure lenders provide mortgages? Give every American a ‘free’ Visa preloaded with ‘cash’?

But no matter what measures the Fed may choose to put in place, they can’t force the consumer to spend if they don’t want to.

Chinese growth slows…

Just as the US can’t get growth quick enough, China can’t slow growth soon enough.

Gone are the days when all that mattered were America’s numbers.

And a journalist from the Australian Financial Review has explained this better than anyone else.

‘Policy makers around the world have been focused on China’s economic performance in the hope that it would neutralize the effect of a slowing Europe and fragile US economy’.

The northern hemisphere is so desperate for someone else to be doing better to order to ‘save’ the global economy, that we just keep pinning all our hopes on China. And so far, China has looked like the savoir, but is it sustainable?

Yesterday saw the highly anticipated Chinese GDP came in yesterday, and the 10.3% for the second quarter was lower than the expected 10.5%. Now growth has dropped off for the Chinese economy, as first quarter GDP was 11.9%.

But let’s get one thing straight. A double digit GDP is hardly the death of an economy. Quite simply, it’s still a massive amount of growth. A large number of that due to stimulus of course…

While this does mean the Chinese economy is slowing down, it’s more likely the effects of withdrawing stimulus that we are witnessing. The Chinese central bank has increased lending criteria, and it’s highly likely that at some point this year the Chinese people will face a few, perhaps aggressive, interest rate hikes.

However that financial markets seem to forget, when they over react to the ‘news’, is that China could have created one big messy bubble for itself, so it had to slow down.

Have they put the brakes on the economy soon enough? Only time will tell…

And finally don’t be surprised to hear of all the retailers crying out ‘no more’ when it comes to interest rate rises.

Oh yes, our lack of spending is being blamed on those six interest rate rises from the Reserve Bank of Australia, or so says a director from the Australian Retailers Association.

The latest Australian Bureau of Statistics data showed that retail sales at major department stores dropped 5.8%.

What does that mean? Well, we’re just not spending as much.

Apparently some retailers are finding their business models ‘unsustainable’ because of all of the ‘skinny margins’. Which is simply a nicer way of saying shops are constantly on sale and they aren’t making as much cash as they were previously.

A particular group which represents retailers have said that poor sales in Australia are just a ‘delayed reaction to the global financial crisis’.

No, it’s not a delayed reaction, it’s just that we aren’t spending our Rudd money – sorry, ‘stimulus’ money anymore.

Our retailers were all reporting surprisingly results for nearly twelve months after the dreaded ‘GFC’, however now that the stimulus has all dried up, people are back to paying off debt rather than loading up on it again.

And clearly, the retail industry doesn’t like that.

There is an upside of the almost permanent sales cycle for consumers. For those few who are choosing to spend their money, you should be able to pick a few bargains.

Now let’s have a look what happened on the market’s yesterday…

Yesterday the S&P/ASX 200 closed to 4,442.60, lower by 19 points. Surprisingly, the market has opened higher his morning after the last minute surge from the US.

At one points last night, the Dow Jones Industrial Average was 100 points down. The index spent most of the day in the red after JP Morgan Chase & Co had a very somber outlook on the economy. For the first time in twelve months manufacturing output fell for June.

The Dow managed to climb back and finish the session only 7 points down, to 10,359.31.

Shares in BP [NYSE: BP] gained over 7% last night during the US trading session as news that oil spill in the Gulf of Mexico has been temporarily plugged.

The FTSE was lower overnight on fears that the economic recovery is slowing after US manufacturing data was released. BP in the UK, [LON: BP] received another boost, adding 8% to the shares price.

The Footsie closed down by 42 points to 5,211.29.

The Nikkei ended the day at 9,685.53, lower by 109 points.

The price of spot gold in Australian dollars is trading at $1,370.82 while in US Dollars it is trading 1,208.94. The price of silver in Aussie dollars is $20.76 and in US Dollars it is $18.31.

The Aussie dollar versus the US dollar was USD$0.8827, and gained against the Japanese Yen JPY77.17

Crude Oil closed at USD$77.10.

For the biggest movers on the market yesterday click here…

That’s all I have you this Friday, have a great weekend.



[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning unless specifically stated. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]


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37 Comments For This Post

  1. peter fraser Says:

    Message to the Moderators – Can I ask that you allow PuntPal to post again on this site. If he has been offensive can you alter his ban to a short term of a few days or perhaps one week rather than a complete ban forever.

    Thank you…

  2. cb Says:

    Moderator, I will second that. PuntPal has been one of the more colourful personalities in this forum and he generated a lot of discussion. If you ban everybody who argues their point of view with a passion, you will kill the forum. Thanks.

  3. cb Says:

    Here is a link to a most thoughtful and intelligent talk:
    Thursday, July 15, 2010
    Chalmers Johnson – The Coming End Of The American Empire

  4. Nick Says:

    the latest from “Citizens Electoral Council of Australia”

    “Bubble trouble: Australian housing most unaffordable in the world!

    Because the Government chose to prop up Australia’s banks, and not implement the Citizens Electoral Council’s Homeowners and Bank Protection Bill 2008, Australia has the worst housing unaffordability crisis in the world, CEC leader Craig Isherwood said today.
    Mr Isherwood was responding to the 6th Annual Demographia International Housing Affordability Survey, which ranked Australia as the most unaffordable housing market in the world, with median house prices 6.8 times annual median household income, ahead of New Zealand, 5.7 times, and the United Kingdom, 5.1 times.
    Last month, visiting American fund manager Jeremy Grantham bluntly assessed Australia’s property “bubble” as a “time bomb”. Grantham forecast a 42+ per cent collapse in Australian property—our market is “twice the size” that it should be, he stated.
    “The property bubble is teetering over Australia’s economy, and is threatening to come down on it with the ferocity of an avalanche,” Mr Isherwood said.
    “The people of Australia are already the victims, because what has been mischaracterised as a ‘boom’ has all along been nothing more than an unaffordability crisis, crushing families and first homebuyers under severe mortgage stress.
    “When the bubble does collapse, it’s the banks and financial system which will be wiped out, as the overinflated mortgage assets vaporise, which comprise the majority of the business of all of Australia’s banks.”
    Mr Isherwood accused the Government of deliberately setting up the Australian people, by making the population pay through the nose for property prices artificially inflated by schemes such as the First Home Owner Grant scheme and the housing shortage lie, in order to prop up bankrupt banks.
    “The CEC put forward Lyndon LaRouche’s firewall solution to the financial crisis in 2007, the Homeowners and Bank Protection Bill 2008, which attracted widespread support among Australian elected officials, but the government put the banks ahead of the welfare of the people,” he charged.
    “To cover the government’s butt when it had to intervene in 2008 to prop up the banks, Julia Gillard lied, ‘No-one twelve months ago was talking about a global financial crisis.’
    “Wrong! The CEC was, and still is, and is the only political party in Australia with the solutions to the crisis.”
    Mr Isherwood concluded, “Australia will only survive this crisis, if the people demand that whatever the government, it puts the welfare of the people first, and not the banks. “

  5. cb Says:

    As against that, here is what Christopher Joye says about the subject in his latest interview on Switzer:

    Someone is wrong, or worse, about the price to income ratio involved.
    But what really prickek my ears in the interview is Rismark’s development of a property index that will be tradeable on the ASX, which according to him, will enable home owners to hedge their exposure to the property market.

    My take on it: Yeah, right, and which will enable the likes of Goldman Sachs to front run an engineered collapse of the property market. Time to sell, especially to reduce debt, me finks.

  6. cb Says:

    Sandra, I responded to you in the Rare Earths thread. You can simply bring your response forward to this thread if you are going to write. Ta.

  7. Nick Says:

    cb…yes! I’m with you. I’m no academic so I can’t put it into words….I leave that up to those more capable…. All I have to go by is a cold shiver up my spine.

  8. Nick Says:

    just off track a little, here is more evidence of the “brilliance” of “orthodox medicine”. Wolf this may be of interest to you.


  9. michael francis Says:

    The first boatload of American refugees are headed towards Hayman Island in the Whitsundays.

    Asylum seekers include Bill Gates and Warren Buffet.

  10. Drew Says:

    pf, was puntpal really banned or were you joking?

  11. OREO-ruddxpin-BASHER-BUMMER Says:

    In The New World Order Gold is Worthless


  12. cb Says:

    Drew – He was. Or, at least that is what he told PF. Banning him was just plain dumb, in my view. Hopefully they will allow him back if we ask them to. Please, everyone, request that decision to be corrected. I miss PuntPal, and what him back!!!

  13. peter fraser Says:

    drew – I emailed PuntPal (he has a website)

    I got concerned when he hadn’t posted for some time. He told me he had been banned but didn’t know why – perhaps it is a glitch – who knows.

    We disagreed of course – but I still want him to be allowed to air his point of view. It was rather disappointing to see my plea and cb’s voted down heavily when we just asked for the re-instatement of fellow poster. In another forum I asked the guy from Japan (is it SV) to post here in support of PP but nothing????

    I am a little bewildered that only us “bad guys” seem to care. I’m also dumbfounded that PP was banned when his posts were making more and more sense from a logic and knowledge perspective, and he had become much more disciplined in his choice of words.

    Who knows…..

  14. Drew Says:

    pf, it’s not just you “bad guys” who care. It was puntpals comments (and his exchanges with you guys) that got me hooked on this forum.

    Hopefully it was a glitch. I also never noticed anything offensive from puntpal recently. Although possibly his offending posts were never published??

    Moderator, if puntpal was banned, please let this be his warning and give him a second chance.

  15. peter fraser Says:

    Ha Ha – thanks Drew – I gave you 5 stars and a thumbs up.

    I hope the others also air their support of PP. Not sure if it will help, but at least PP will know he is missed.

    In the meantime cb and I can get go and buy our “bad guys” black hats and perhaps get a scar on our left cheek just to get the image right.

    I start practising my sneer.

  16. Drew Says:

    I’ve always pictured cb typing with one hand, while stroking a white cat with the other.

  17. GB Says:

    PuntPal has my vote to come back too

    Maybe he was banned because he ripped on Joye.

  18. Nick Says:

    “Comment moderation policy: Port Phillip Publishing supports free speech and frank and open conversation. “……..who are you kidding!!

    If the youthful exuberance of a blogger such as puntpal is banned, what is the purpose of this forum. His observations and views are shared by many I speak to on a daily basis.

    If ALL sides of an argument are not placed on the table, how can it be accurately debated? If the views are wrong, it presents an opportunity for others to argue why they are wrong, from their own experiences.
    It seems a trend of late, worldwide, that all who try to reveal the truth are systematically being “closed down” ….ask Helen Thomas!

    Now we can’t hear the views of the younger generation who are clearly frustrated with the current state of affairs and have the intelligence and drive to seek answers through debate. How will this “improve” their frustration. I’ve been a “lone wolf” in my views for most my career, and although it took time, I have proven all my adversaries wrong.

    I’m afraid, banning the likes of puntpal just proves that he was on the right track.

  19. GB Says:

    To add to that last comment

    I posted on business spectator last week on one of Joye’s articles. I started with “I thought Joye had a PHD” My article was re-written by business spectator and all the negative points against Mr Precious were taken out


  20. Nick Says:

    yet another example of what happens to those who try to spread the truth!


  21. peter fraser Says:

    Nick @ 21 – if he endangers soldiers lives he should be locked up forever.

  22. cb Says:

    I am yet to catch up on this thread, but in the meantime here it is a link to a must see Keiser episode on the subject of off-shoring:
    [OTE63] On the Edge with Paul Craig Roberts [Updated]

  23. cb Says:

    Not sure what you mean, PF. Assange is a hero, one of the very few truly effective defenders of uncensored information and free speach. He is providing an essential channel for whistleblowers. Those who seek to silence him are the ones that we must fear. I am convinced of that.

  24. Nick Says:

    so PF we crucify the messenger and glorify the criminal culprits…good one mate!!!

  25. cb Says:

    And, as for putting our soldiers at risk, well, here is my take on it: They are being put at risk by the warmonders and war criminals who send them into foreign lands where they fight for their lives while blowing up the infrastructure of those lands along with the local people. What has Afghanistan or Iraq ever done to us? Sheeeesh!!!

  26. OREO-ruddxpin-BASHER-BUMMER Says:

    @26-thank-you for clearing that up CB-spot on

  27. OREO-ruddxpin-BASHER-BUMMER Says:


  28. OREO-ruddxpin-BASHER-BUMMER Says:


  29. Peter Fraser Says:

    25 and 26 – so on one hand we have men and women doing the hard jobs for us, and on the other hand we have a dirty little money grubber trading the soldiers lives for cash – and you support that??????

    I’m absolutely against the iraq war, but I support the men and women who are there.

    I must say I am puzzled.

  30. cb Says:

    PF – How do you support the soldiers in a war to which you are opposed? Now I am puzzled.

    I have nothing against our soldiers, but they have absolutely no business picking fights on foreign soils, or supporting the US in its ghastly foreign policy of oppression, destruction and torture. No matter how they dress it up, US foreign policy is morally bankrupt and Australia’s support of it looks no better from where I stand.

    I find myself these days agreeing less and less with the Greens, but on this score the only decent political voice appears to be that of Bob Brown’s.

  31. peter fraser Says:

    cb – soldiers don’t pick fights, they just do what they are told. You can take any shots you like against the political masters who send them to war, but the soldier himself is just doing his job. One that he has sworn an oath to carry out.

    For me their is a very clear delineation – Wars are political failures that soldiers have to clean up, not the reverse.

    There is no compromise on that issue.

  32. OREO-ruddxpin-BASHER-BUMMER Says:

    yeah & whos above &/ that controls the politicks???????????????????

  33. cb Says:

    PF – At one level we do not disagree. But at some point the individual soldier also bears responsibility, unless the dismissal of the Nuremberg defence decades ago was a gross injustice. After all, none of these soldiers have been conscripted and there is such a thing as conscientious objection to participating in an unjust and misguided endeavour.

    Also, saying that wars are political failures, while true, it is overly simplistic to deal with the issues. Our soldiers had no business being in Iraq, and have even less business guarding the drug trade in Afghanistan. Their presence there is not cleaning up any sort of political mess. If anything, it is making a bad situation worse. All who participate are in the wrong, from the politicians all the way down to the grunts, and they should all desist. I cannot see how any of them could be absolved of moral responsibility for the injustice and misery they inflict in the course of discharging their alleged, and so-called, “duties. “

  34. peter fraser Says:

    cb – you have never served in the military. A soldier has no option but to follow orders regardless of whether he agrees with that duty or not.

    There were some very compelling reasons for attacking Afghanistan (Trade Tower 3000 deaths) but I always viewed the war against Irag as a grave mistake. Had I been a soldier at that time though, I would have gone to Iraq if I was ordered to do so. The army does not make war, they carry it out. Once the politicians decide to make war the forces then do their bidding. It cannot be any other way.

    The Nurenberg trials did convict many SS officers as war criminals, but men fighting in the German army in the frontline were never mentioned, they were doing their duty. Had they chosen to refuse orders they would have been shot as traitors.

    There is a very clear difference between the two roles mentioned, although I concede that many guards etc may have been put in situations beyond their control, and made to perform duties they did not agree with. That is a difficult area. To the best of my knowledge those brought to trial were those who relished their task the most.

    I was in Germany (and Nurenberg) a few years ago, it is still a very sensitive topic.

  35. cb Says:

    PF – Actually, I have served in the military, and I have first hand experience of the things you talk of.

    As far as I understand it, nobody is forced to be in the army in this country, and no soldier will be put in front of the firing squad if they refuse military adventures that they consider, in good conscience, to be wrongful. Hence, the duress under which our soldiers are supposed to be serving is not of the nature and intensity that you describe.

    Unfortunately, most of our young turks do not see the wrong in which they are participating. The cure for youth and lack of life experience is slow, and fast learners tend to be in the minority. They are blind to what they are doing, in a way, but that does not mean that they are not in the wrong. Their responsibility and culpability for it might be diminished, but not the fact that they are in the wrong.

    Many seem to believe that they are making a positive difference, that it is only a matter of time before they will be winning over minds and hearts in foreign lands where they haven’t the faintest clue what they are dealing with, or who they are fighting, let alone whose interests they are serving. Talk of being naive and misguided … I find it very sad.

  36. peter fraser Says:

    cb – I was forced into service, so you are not quite correct when taking a long term time frame into account.

    I expect the west to fail in Iraq and Afganistan, but I don’t blame the soldiers in the field.

    My original point was not that information should not be ever released, but information that endangers our men in the field should not be released. I think that whistle blowers still have some responsibility to not cause loss of life.

  37. cb Says:

    PF – No disagreement from me on the principle. Alas, the devil lies in the detail of just how that principle is being applied. For example, atrocities and blunders committed by our soldiers if revealed, will cause increased resentment against them, which in turn will increase the chances of revenge attacks. Should we therefore suppress the publication of such information? The wardogs and warmonders would argue so. But what about the rights of the victims, the injustices, the degradation they are suffering?

    Truth be out, I say, and let everyone account for themselves in big ways and small, as is their due.

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