What’s that sound? Oh, it’s the engine slowing as the Fed takes its foot off the accelerator. If you haven’t heard, the US central bank decided to keep short term interest rates on hold.
Not only that, they knocked down how much they expect to raise rates in 2016 and beyond. That’s from their earlier estimates in December last year.
What gives? According to the Wall Street Journal, this caution is in light of ‘lingering risks to the economic outlook posed by soft global growth and financial-market volatility.’
Blah blah. Maybe a better reason is the one we’ve identified over at Cycles, Trends and Forecasts.
Read on to find out…
Political control of the economy revealed
Historically, the Fed keeps monetary policy nice and loose in presidential election years such as this.
You don’t believe that stuff about the central bank being independent of the government do you?
There’s a book called Political Control of the Economy by Edward R. Tufte. He demonstrated quite clearly that it’s deliberate policy of the American government to pump money into the economy in an election year, especially the last half of the year, to lift markets and to make people happy. Democrat or Republican, it doesn’t matter.
That’s all I’ll say about the Fed. I agree with my colleague and stock analyst Chris Mayer. In 2014 he wrote the following:
‘It’s incredible to me that people spend so much time talking about the Federal Reserve. My newsletter peers, people in the media. It’s unbelievable. Don’t these people get bored? Or do they do this because they’re bored?’
What’s much more exciting is to keep track of who is going after the natural resources of the planet. After all, military bases follow pipelines. And there’s been some interesting developments on that front…
India has announced it aims to attract $25 billion dollars in oil and gas investment with the help of reforms to its licensing and production rules. According to the Financial Times, the government has previously said it expects to monetise unexploited gas reserves of around 6.75 trillion cubic feet. That’s worth more than US$28 billion from existing and future discoveries.
This is important. India imports three quarters of its oil. It’s one of the reasons for its chronic high inflation and trade and current account deficits. If India can transition to a gas based economy, with supplies well sourced from home, it could fire the Indian economy higher than it already is.
Billionaires and booms a new way forward for India
Make no mistake, there’s plenty of wealth being generated in India already. According to Domain, the number of billionaires in India has rocketed 333% over the last 10 years. For the broader economy, India’s growth rate is tipped to outdo China’s this year and probably for the foreseeable future.
India does have plenty of catching up to do on China. Commentator Martin Wolf noted last week that between 1980 and 2014 China’s GDP per head grew 17 times. In the same period India’s GDP just grew fourfold.
Times change. India is now the fastest growing economy in the world. Every second now three Indians experience the internet for the very first time. In 14 years, the country will have one billion internet users. This growth can run a long time. Two thirds of the Indian population are under 35. I’m not sure exactly what Harry Dent would say about that, but I presume he’d take that as a positive.
Certainly there’s opportunity for Australia as a country. In fact, the huge LNG projects we have need an export market as big as India’s to soak up the prodigious supply they’re going to bring online.
Unfortunately it’s not so easy to trade Indian stocks for us as foreigners. India doesn’t have the same freedom of capital like we do here in Australia. I do have one mate who trades futures on the Indian stock exchange through Singapore. He says the Indian market might be the best market to trade for the next decade at least.
He may be right, but that’s a bit too complicated for most of us. Probably the bigger question may be how of much of that Indian wealth will begin to flow into Australian real estate. It’s already playing a part in the sense of Indian migrants already living in Australia stoking the booms in Sydney and Melbourne.
It’s the offshore money that has the potential to really crank up. There’s no suggestion of that really driving prices now. But let’s see if Indian money begins to shake Australia in the same way China has.
It’s doesn’t take much stretch of the imagination to see how prodigious that could really be. Indeed, between the ongoing rise of China and India, you can see why over at Cycles, Trends and Forecasts we say we’re still on track for the biggest boom of all time. Go here to see how to get your share of it.