During my break I attended a dinner party packed with very bright and successful white collar Australians. The conversation was revealing when it turned to the economy and three consensus views dominated. The first was that interest rates are going to rise. The second was that iron ore stocks were a good buy given the sell off. And third was the notion that the share market is back.
None of those attending was an investment or economic professional and these presumptions are perhaps understandable given they represent the mainstream opinion of politicians, economists and the media. But it helped highlight just how complacent and wrong is the general frame of reference for the Australian economy in mainstream opinion and policy-making, which led me to this post.
The basic assumption that links the three points of dinner party consensus is that Australia (and China) are muddling through just another business cycle and so staying the course with assets, as well as buying the dips when they come, makes sense. Activity and rates will rise together as the cycle strengthens.