May rate cut is go

Predicting month-to-month interest rate movements by Bubble HQ has become bloody difficult in recent times as the Martin Place bubble managers flip flop between concern for the economy and concern for the bubble. This has rendered me rudderless in making judgements in the short term – though the long term remains very clear – and so marginal signals like potential media leaks take on greater importance than one’s own judgement.

Today we get a clear signal to prepare for a May cut, from Peter Martin, one of the RBA’s “chosen ones”:

Concern about a deteriorating economic outlook and a resurgent Australian dollar will force the Reserve Bank to cut interest rates on Tuesday…

Among the concerns driving the bank is a realisation that unless it cuts its cash rate on Tuesday, financial markets will stop believing that it is prepared to cut and push the dollar even higher.

Of most concern to the bank is new data on business investment plans, which shows that not only is mining investment set to fall sharply in 2015-16 but that non-mining investment is expected to fall as well, despite the talk about new economic drivers emerging to take the place of mining.

Although the Bank is concerned about the effect another of  cut on Sydney house prices, it is prepared to rely on its sister regulator, the Australian Prudential Regulation Authority to ensure banks do not cut their lending standards…

The RBA is acutely aware that the upcoming federal budget will do little to boost the economy…

No word yet from Terry McCrann but that’s as clear a signal as your going to get for this meeting. The Australian dollar took the hint and slid 40 pips on the story and has kept falling since along with a renewed strong bid for bonds.

Houses and Holes
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Comments

  1. I was listening to Glenn Stevens on the radio on Wednesday evening while driving home. I just caught the last bitof it but I think it was on PM. He was talking about a corrupt culture at the Banks. It was fortunate I wasn’t home and having a beer at the time or i think I’d have choked and subsequently drowned on it. This is the bloke who is seriously setting about the final corruption of everything worthwhile in this country with his evermore serious negative RAT interest regime. Now viewing our declining ethics and culture we are all gathered around cheering him on for another cut!!!! Strewth!
    The problem is that there is now no end to this. As Albert Edwards says – It can never stop! There is no way out.

    • ” He was talking about a corrupt culture at the Banks”. Here’s a date for when that started in earnest…12th December 1983…..

      • I know there has to be something obvious about that date but you’d better tell me!!!!!! I’m not that bright and it’s still dark outside here!!!!

      • The Day the A$ gave away its sovereignty – it Floated. “But there was no other choice!”. Really? I can see a few countries about us this very day that are doing quite nicely, thank you, with a fixed currency and the attendant control of their capital and trade markets….When the A$ floated, the banks were let loose….

      • Ah! Thank youJjanet – TFFFFFEFR!!!!!! Cheers

        Edit: It’s one of the big factors in my propensity for tinfoil hats!!!! Who the hell actually controls this nation? Who is it that BOTH sides of the political fence answer to?

      • Easy one flawse.
        Money controls the nation.
        One dollar one vote.
        In Oz…
        Always was..always will be…

      • Corruption can be defined as the employment of an object or pursuit of a goal to a purpose other than intended. As the purpose of fiat money was always about absolute control, I’d have to say “There is no corruption”. Perhaps delusion on the part of the serfs, but no corruption.

      • But hay… they defeated those ev’bal commies and socialists…. Janet… I mean whats more important.

        Skippy… and what a fine job the Bernays monkey grinders [economists {runaround to realpolitik] did, the muzak and dancing simians sure did turn everyone’s brains to monkey goo….

        P.S. @Hugh, deception, intellectual dishonesty, lower bound ethics and morals are the corruption being evoked.

      • Geez Skippy! Sometimes a find you something of an intellectual pain in the a..e! But blimey you’ve posted an absolute gem there!
        “deception, intellectual dishonesty, lower bound ethics and morals are the corruption being evoked.”

    • moderate mouse

      “I was listening to Glenn Stevens on the radio on Wednesday evening while driving home….”

      There should be a law against this. Like operating heavy machinery while taking certain prescription drugs….

    • SweeperMEMBER

      “He was talking about a corrupt culture at the Banks”. That’s rich coming from the head of a bank who secretly sold currency printing technology to Saddam Hussein…
      Stevens seems clueless sometimes. Eg. his recent speech in New York. Here he is scratching his head trying to work out why business confidence and investment demand is so weak despite very low risk free rates. Well maybe it has something to do with the chaotic earning environment that the same corrupt banks (you know the ones who rigged Libor) create through there idiotic business model – which primarily consists of betting all the shareholders money on the latest fad, raiding shareholders money to pay non-performance based obscene executive salaries and settling billion dollar legal disputes. Here’s an idea – if the banks are engaging in corruption, maybe ASIC could actually do their job and hold the Directors responsible

  2. “The RBA is acutely aware that the upcoming federal budget will do little to boost the economy…”
    How can any Federal Budget now boost the economy? If we want reform we have to accept that such reform will deliver a serious hit to the false pillars that now hold up this economy. The apparent effect would be quite devastating.
    On the other hand to have a budget designed to just run bigger and bigger deficits drives us down the debt and asset sales road.
    There is no fairy damned godmother who is going to wave a magic wand and make everything good! There is no magic money tree. There is only stark reality about our situation. It’s time we faced it rather than kick the can down the road with another irrational interest rate cut.

    • Andrew LeesMEMBER

      They could provide modest grants for R&D. Start up assistance for small businesses. Encourage new industries like.. ummm… I know, renewable energy! They could make maths, science and engineering degrees significantly cheaper than any others. Increase the budget for the CSIRO. Make investment in start-ups tax advantageous, and investment in non-productive assets disadvantageous. Generally look at changing incentives to move investment in people and of capital to productive enterprise.

      They could give APRA clear direction on housing loan regulation. They could start to clear up the supply side mess in housing in so many simple ways – a land tax on subsivisible and urban land that is not being built on that kicks in after a period and ramps up over time might make land banking less attractive. They could recognise that a housing bubble and services are not going to save the economy, just make the blow-up bigger when it happen.

      The PM should declare “I’m the productivity PM!” and then put his policy and vision where his mouth is.

      There is SO MUCH that could be done in the budget.

      I know, complete fantasy.

      • Heresy! Productive enterprise? Are you insane? Next you’ll be suggesting we make stuff and export it, or even worse, innovate.

        No, what must be done in Australia is hike rates to crush the housing bubble, and if the productive trade-exposed economy is taken down by a rampaging AUD then to hell with that. Its not like Australia needs these people anyway, they’re leaners not lifters.

      • Don’t be disingenuous Lorax. You very well know that none of it is even remotely possible until housing bubble is crushed. You just cannot ignore how housing has a choke-hold on everything that is Australia, including productive enterprises.

  3. P.S. Nevertheless I reckon you are right HnH ….I agree…these mad b….ds are going to cut again!

    • Yes they are going to cut again, if not in May, then later this year and probably several times. The RBA will not tolerate the AUD going back above 80c, and rightly so, I’m sure Mr Holes agrees. Monetary policy should not be determined by Sydney house prices alone.

      • Pfh007MEMBER

        Lorax,

        How do you think monetary policy works? It is all about driving more debt and where does that debt go? House prices. The reason the RBA and APRA are doing nothing re MP is that there is little demand for debt by business or for purposes unconnected to betting on asset prices.

        I understand your concern about the exchange rate and share it but surely you are starting to understand that trying to manage the exchange rate with interest rate policy simply doesn’t work. Our trade rivals can and are determined to out bid us every step of the way.

      • Lorax, if you believe this madness is only limited to Sydney, then I am sorry to say, you have completely become unhinged from reality.

        Wake up. Everybody understands the need for lower AUD. But this orthodoxy of using rates as a lever to achieve that is sheer madness in current situation.

        EDIT: Ah, I see Jedi master Pfh beat me to it.

  4. Brett Edgerton

    Yeah I had come around to this way of thinking…

    Most seem to have forgotten that the downgrade of the RBA growth forecasts – foreshadowed by McCrann as ushering in the Feb cut – actually were based on then market pricing for 2 rate cuts… so to not cut this month and release their updated forecasts unchanged would thus represent an upgrade to forecasts, which I can’t see happening… my guess is that they were holding back to respond to possible market repricing on delayed US raising, which is now happening, so all and all it’s time to show that they are still very much in an easing cycle (so I expect a cut – to prove it – and re-statement of their continued easing bias)

  5. There’s mostly a bit of a lack of ‘quality’ of comments at ZH – but I thought this one pretty good
    Rainman
    “aye …. negative yields are like the wife … until death do us part”

    • Economic disaster. If the aim of lower rates is to encourage inflation, then how is dropping the price of every commodities, services and capitals determinant – money – inflationary? It can’t be! It does the opposite; it lowers the price of ‘production’ and hence consumer price of all things. Plus, who is going to borrow and apply debt when we get to the stage when the only alternative is, up; there is no more downside to % rates, only higher future cost?
      End Game? That $1 you have in your pocket is going to buy you $10 worth of goods at today’s prices; and that $1 worth of debt you have today is going to use $10 of your future income to service.

      • “End Game?That $1 you have in your pocket is going to buy you $10 worth of goods at today’s prices; and that $1 worth of debt you have today is going to use $10 of your future income to service.”
        Nailed it!

      • The aim of lower rates is to avoid deflation, for as long as possible, hopefully until the mood changes.

        And that dollar of debt you have, may be written off and you have acquired a fantastic asset for next to nothing, leaving you in a great position on the up

      • BuyHighSellLow

        @ God, mate you can’t keep the asset and get the debt written off, what an absurd notion

      • The ultimate success of capitalism is deflation ie. highly competitive markets (bit like IO at the moment).

    • Like any drug hit, and that’s what it is; an econonic drug hit, there’s a period of euphoria followed by a long period of depression as the nation craves the next hit.

  6. It is embarassing enough that the RBA have lost control of the economy and are now watching it rotate faster and faster as it disappears down the ZIRP / household debt / foreign debt plug hole.

    We can put that down to the ideological obsessions of the economic model they have been made responsible for implementing by the pollies.

    The bit that is outrageous is the lack of clear unambiguous warnings of what is happening and any explaination of the alternatives to the current model that should at least be discussed.

    There is nothing about their charter or their role as public servants especially ‘independent’ public servants that prevents them from making clear public statements to the following effect.

    “Our job is to apply the model that we have been tasked to apply and we are doing that but it is clearly not working and causing lasting damage to the economy. The nation must immediately start discussing what changes to the model should be made. These are some of the options…”

    It is what the RBA are not saying that is culpable.

      • SoMPLSBoyMEMBER

        That’s a mighty fine assessment of what ‘is’ Pfh. ” Is’ is all most people have ever known and think the current ‘system’ is as natural as rain and other ‘natural’ laws and occurrences and there can be no other ‘way’. The mission is to publicize there is a ‘better’ way. In fact, a whole lot better way imo.
        Iceland will be interesting to watch. Bank of North Dakota (USA) is the model I think will eventuate but not until enormous ‘learning’ is ‘unlearned’ and widespread financial pain can be traced to a source that folks can ‘see’. Contemporary banking is now a granite walled, empty PO box if one has an ‘issue’ and they act with an impunity that may be unassailable, for now. But, things change.

        http://banknd.nd.gov/lending_services/index.html
        PS Happy May Day- Workers of the World run by Bankers- Unite!

  7. It’s a game of musical chairs – and the bankers are playing the music.

  8. The sequity elloff now had me worried, but this is a very good reason not to join in…need to have some skin in the gain or watch cash be wiped out by debt fuelled asset inflation….there are enough idiots out there that add an extra 50k to their house purchasing price with every cut

  9. What a joke. Low interest rates means inflation in residential and commercial property and fat cat exorbitant hotel accommodation and high education….

    Our dollar lowers so we can be competitive??? FFS

    We are priced out of housing while foreigners can afford housing at low exchange rates.

    Education is expensive except for foreigners due also to a low exchange rate.

    Hotels room rates are expensive for us to holiday at home, but not for foreigners with an ever reducing exchange rate.

    Seafood is expensive, but not for foreigners with a low exchange rate. …

    We’re [email protected]#$*d

    • Exactly Escobar – that is the inevitable end of chronic and large CAD’s and there is sfa we can now do about it. Everything is corrupted.

  10. “Although the Bank is concerned about the effect another of cut on Sydney house prices, it is prepared to rely on its sister regulator, the Australian Prudential Regulation Authority to ensure banks do not cut their lending standards”

    Good move! APRA are doers not watchers 😉
    And what lending standards hahaha.

  11. So the RBA cuts – to lower the A$, no doubt (chuckle). But into the face of USA economic fears, how’s that going to play out if they too want to reverse the direction of the US$?
    “The bad news for wheat trade continued with the revelation of the worst week ever for US export sales of the grain. The US, until this season the world’s top wheat exporter, sold a negative 449,167 tonnes of wheat last week for 2014-15 delivery. That is, cancellations of wheat orders exceeded new sales by 449,167 tonnes – the biggest negative figure, on a current season basis, on record” http://tinyurl.com/m8pjjc5

  12. bernard collins

    Glen says to retirees get used to it “thats low interest rates”.
    My take on this is that those with money have stopped spending because its got worse if you want certainty in retirement through interest rates.
    Can anyone name an income source that has been halved in 3 years 6% to 3 % if you dont want to risk your capital the stock market presents us with.
    My strategy if this continues is as i approach 65 the old age pension and buy an expensive primary place of residence which i conclude is adding to the property bubble and claim the pension.

    • Can anyone name an income source that has been halved in 3 years

      Ask non-mining exporters as they watched on helplessly as the AUD rose from 50c to $1.10 during the mining boom. Of course, non-mining exporters are economic parasites that no-one gives a sh*t about, unlike the true economic contributors — housing speculators and mining magnates.

      • Ha ha ha! Yup, I was one of those. Not living in Oz now, go figure. Oz is going to have to offer a sweet deal to risk moving back!

  13. Well – I heard this morning on 7Sh*trise – one of the CBAs merchants of debt saying that because of the low interest rates the savings are starting to decline and that’s a good thing. You see, people don’t find it appealing to have their savings diminish, so they take them out and put them into property and such, so therefore RBA’s goal – to diminish the amount and the rate of saving – is now appearing to be achieved.

    I facepalmed myself so hard it gave me a concussion.

    Yes – we are fu*ked. We are so utterly, irreversibly f*cked, it has gone off the scale of the f*cked-o-meter.

    • Yep, the businesslast night kept flicking from Saul Eslake to some schmuck saying the same thing.

      The Sith Lords are out and about.

    • Wellie savings deposits are a liability in the banks purview, so from a rational actors point of view w/ self interest noted, its quite logical.

      • Lucky I didn’t see that ino – I’d have kicked the TV screen in. Geez I’ll bet he got some searching questions from the &s..t interviewer as well!!!!

  14. It was new investment (or lack of) data. So they risk a temporary further inflation of a housing bubble to offset the mining cliff assuming that the high house prices would stimulate house building thereby soaking up the excess labour coming off the mines. The trouble is all this money is borrowed from overseas as usual to pay for these houses and prices still haven’t come down. I assume eventually there will be adequate supply and prices will reverse and finally there will be nothing left to take their place. This process could take awhile.

    • Home building can’t take up the excess labour off the mines because the labour wages for mine workers were ridiculous, and the expectation of high wages for labourers remains. We won’t be doing massive home construction throughout the country when you have to pay a bricklayer $70 an hour.

      • Wages have been stagnate since the 70s, because of the inflation bogeyman, all whilst productivity went so hyperbolic hockey stick that Gore should have used – that – graph…

    • C.M.BurnsMEMBER

      Listening to “dr” Wilson on house prices is like listening to goebells on multiculturalism or twiggy on competition policy.

      • SoMPLSBoyMEMBER

        Lol! Or getting ‘gentle’ dental work from ” Dr’ Szell (Marathon Man) and discussing ‘safe as houses’.
        to Babe: “Oh, please don’t worry. I’m not going into that cavity. That nerve’s already dying. A live, freshly-cut nerve is infinitely more sensitive. So I’ll just drill into a healthy tooth until I reach the pulp… unless of course you can tell me that it’s safe.

        Is it safe?

  15. The Patrician

    Another “emergency” rate cut.

    The only “emergency” is the RBA-generated mal-investment emergency.

  16. ComingMEMBER

    Not too late to buy a house at auction this saturday before the rate cut guys – get in now, they are going all the way to 0

  17. Cut, cut, cut! The next economic shock will be epic! And just remember kids, such shocks generally happen every 8 to 15 years.

    With rates this low, and govt credit ratings under threat, there will simply be no way to stimulate or provide relief. One of the things that saved us last time was the IR buffer; we rapidly reduced everyone’s mortgage repayments substantially.

    Can’t happen this time!