Australia has Baumol’s disease

Why does the wage of a musician in a string quartet rise over time at roughly the same pace as wages in other areas of the economy, despite the lack of productivity gains in the performance of music? William J Baumol solved this riddle in the 1960s.  His insight, known as Baumol’s cost disease, is

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September 16 links: QE gone

Down: $US, gold, metals, grains, Treasuries Flat: CCI, Aussie Up: euro Contagion reversion: Greece 2 Year 5 Year 10 Year Portugal 2 Year 5 Year 10 Year Ireland 2 Year 5 Year 10 Year Spain 2 Year 5 Year 10 Year Italy 2 Year 5 Year 10 Year Belgium 2 Year 5 Year 10 Year France 2 Year 5 Year 10 Year Germany


No point of intervention for currency

Find below footage of Wayne Swan speaking with Bloomberg this afternoon. His responses include deeply contradictory commitments to a diversified economy and an Australian dollar free to appreciate for ever. Apparently he “would never want to see our economy become too excessively dependent upon one country or one commodity”!?!


Trading Day

The S&P/ASX 200 Index closed up 1.6% or 66 points today to 4071. In after hours trading, the market is steady whilst the Euro and US futures point to similar gains. Asian markets experienced similar moves, with the Nikkei 225 up 1.69% to 8662 points, whilst the Hang Seng was steady at 19073 points. In


Where are the job losses?

The ABS released its detailed quarterly labour force survey data for August today.  Digesting this data takes a little time and it needs to be interpreted alongside the monthly employment data, which has shown an uptick in unemployment in July and August. Since August 2008 the following sectors of the economy have reduced their share


Car sales bounce again (or do they?)

ABS new cars ales are out for August and show a 3.3% jump yoy: TOTAL NEW MOTOR VEHICLE SALES The August 2011 trend estimate (83 720) has increased by 1.3% when compared with July 2011. Seasonally Adjusted – The August 2011 seasonally adjusted estimate for new motor vehicle sales (87 935) increased by 3.3% when


Consumers’ dour expectations

Westpac has today released its “Expectations Chart Pack”, which includes both inflation and employment expectations (find it below). This month’s results are fascinating. It is no surprise that consumers view of future inflation remains unchanged from last month as the heat has gone out of the CPI debate: I am a little surprised, however, at


Chart of the Day

Today’s chart is from Zero Hedge (h/t Bullion Baron), showing how New York Stock Exchange (NYSE) short interest has returned to July 2009 highs (black bars) vs the S&P 500 (red line), the broadest US stock market measure. What is short interest? It’s a measure of the number of shares that have been borrowed (the


China doom mongering

Exclusively from Michael Pettis’ newsletter: The world seems to be rapidly moving away from the China-is-the-most-successful-economy-in-the-history-of-the-world rant to the China-is-weeks-away-from-collapse rant. But repeating a story often doesn’t make it more true. My guess, and it is only a guess, is that China can continue with the current growth model for at least another four or


European unity!

Another exciting episode in the European Soap overnight. Yet another German Finance representative, this time Bundesbank President Jens Weidmann, released statements containing the opposite message to the one delivered by Angela Merkel when she’d asked all of the elites in her country to keep quiet for the sake of unity: The European Central Bank has burdened itself with “considerable


More signs of US slowing

I’ve been arguing for some months that the US economy is slowing. More recently I added the narrative that at the zero bound for monetary policy, where the core price signal ceases to have meaning, it is the expectation of price intentions in the economic leaders themselves that becomes the primary signal. In short, it


Accounting for the rentier

My post last week on APRA’s Discussion Paper on the new Basel III Capital requirements, created a few ripples around what APRA did not address in the discussion paper. Perhaps I can turn these ripples into waves by providing more detail on why APRA’s failure to address these issues will eventually lead to systemic failure


Harry leaves a dent on Australia

Harry S Dent is a well known author and founder of HS Dent Investment Management, an investment firm based in Tampa, Florida. Dent writes a regular economic newsletter and has written seven books analysing demographic trends and their affect on the economy and asset markets. I first stumbled across Dent’s work early last year at my


CPI change confuses markets

Yesterday the ABS released a revision to their methodology for seasonal adjustment to CPI subgroups – an outcome of the 16th Series CPI review.  It resulted in a new lower estimate (not a revised estimate) of the trimmed mean and weighted median measures of inflation for the June quarter. News headlines and the foreign exchange


China versus India

Earlier, I read a wonderful book by Yasheng Huang on Chinese growth model.  He is a critic of the Chinese way.  He believes that the current Chinese growth model is more like South American model (old Brazilian way, for example) which ultimately failed. In the below video, he compares China with India, and the gist of his


September 15 links: Feeling the effects

Down: $US, energy, metals Flat: CCI, gold, grains, Treasuries Up: Euro, Aussie Contagion: Greece 2 Year 5 Year 10 Year Portugal 2 Year 5 Year 10 Year Ireland 2 Year 5 Year 10 Year Spain 2 Year 5 Year 10 Year Italy 2 Year 5 Year 10 Year Belgium 2 Year 5 Year 10 Year France 2 Year 5 Year 10 Year Germany 2


José Manuel Barroso’s speech

The EU Commission President José Manuel Barroso just spoke to the European parliament in Brussels in hope of addressing the on-going economic problems of the 17 common currency nations. Below is the full text of the speech. Eurobonds and tighter integration are being re-visited, it will be interesting to see how the leaders of the


How the CPI hid the housing bubble

Recent discussions about the CPI have brushed over a key change that occurred in the construction of the index in 1998. In its 13th Series the CPI became a pure price index utilising an acquisitions approach, rather than a cost-of-living index utilising an outlays approach. One feature of this change is that it removed land


Trading Day

The S&P/ASX 200 Index closed down 1.6% or 67 points today to 4005, after a solid up-session in the morning, when the one-two punch of lower inflation and Moody’s downgrade of French banks tipped the bourse into the red. In after hours trading, the market is steady whilst the Euro and US futures point to


CPI revisionism

Here are a couple of bank takes on today’s ABS CPI revisions. Consensus is that the RBA’s job of holding rates steady just got a bit easier. I beg to differ. The ABS just handed a PR weapon to every disgruntled business lobby in the services economy. Anyways, Rumplestatskin, our very own CPI guru, will


Moody’s downgrades French banks (updated)

Just flashing across the terminal, Moody’s moves on French banks: By David Whitehouse Sept. 14 (Bloomberg) — Societe Generale SA had its debt and deposit ratings cut by one level to Aa3 from Aa2 with a negative outlook by Moody’s Investors Service. The bank has adequate capital to support its exposure to Greece, Portugal and Ireland, Moody’s said


Taxpayer takes it in the team

Last weekend Wayne Swan announced a new permanent guarantee of bank deposits up to $250,000 under the Financial Claims Scheme (FCS).   The existing scheme, introduced during the financial turmoil of October 2008, guarantees bank deposits up to $1million, and will expire when the new scheme takes over on 1 February 2012. We now, in theory,


China is not a white knight

The last day or so has seen a string of wild rumours about China buying European bonds.  A hilarity in the whole thing is that in another report, Giulio Tremonti, the Economy Minister, complained that Asian investors just won’t buy bonds because the ECB isn’t buying enough.  So are Chinese really buying?  Probably. There is something


SQM reports falling listings

The latest SQM research newsletter contains some more rays of sunshine for the property market. Figures released this week by SQM Research revealed that residential property listings have actually declined during the month of August 2011, coming to a total of 362,793 nationally. Falling by 14,522 listings since July 2011, total amount of stock on


Interest rate magic

Consumer Confidence for September is out and shows a jump of 8.1%. Bill Evans puts this down to: This is a surprisingly strong result. We think it emphasises just how important interest rates are to households. Recall that since early May the Reserve Bank has been threatening to raise interest rates. As recently as the August Board meeting


Chart of the Day

Today’s chart comes from Avid Chartist, and shows why understanding the US equity markets for an Australian investor is paramount. The chart shows the ASX 200 and S&P 500 both priced in US dollars (USD), for all of 2011 up to September 12. They have tracked each other especially closely since early May, just after


Australian Housing Valuation Report

Australian housing is overvalued. Nobody denies it. Debate remains, however, about how overvalued. Surveys by The Economist and Demographia claim Australian housing is the most expensive in the world. On the other hand, the Reserve Bank of Australia and local data providers like Rismark acknowledge the overvaluation but see it as less extreme and sustainable. The


Do we need a media inquiry?

Well…yes…I should say so. Rupert Murdoch owns 70% of Australian newspapers. One of his UK operations has been shown to use unethical practices on an unsettling scale. Those two seem fair enough reasons to me. On the first, the concentration of ownership in newspapers is both a competition issue and a social-democratic one. Many of


A crazy 24 hours in Europe

Another crazy 24 hours for Europe. It would seem that Angela Merkel is trying to muster some form of actual leadership and set a direction for Greece. Her first step was to tell her counterparts in German parliament to stop talking to the media because every time they do the market blows up. Her second


A bizarre oversight of national financial prudence

  The liberties available to the real estate industry over other purveyors of financial goods is a constant source of angst for me. The fact that a real estate agent is able to spruik to his or her hearts content about the virtues of the “never declining” housing market with impunity while your local bank teller has