What's wrong with the RBA

A well written piece looking at the short-sightedness of the RBA revealed by Philip Lowe in his speech this week.  While there was a logic to Lowe's statements, it is argued that they were unbalanced, skewed by bias and importantly not based on sound assumptions.  Couldn't agree more!

..., had macroprudential tools been used then the RBA would never have had to fear a blowoff in credit associated with the boom, rates wold have been much lower and the dollar too. We would not have had to embrace Dutch disease as a way of managing surging mining investment...

...Lowe’s internal balance (note it is not “external” balance leaving him an out later on) of course did have its casualties. The major ones being Australia’s non-mining tradable goods sectors: tourism, education, services generally and manufacturing especially. As we know, the last ABS private capex report showed manufacturing investment in outright collapse, running at 1989 levels before inflation adjustment: 

..The truth is it’s a punt and in this context it is hardly fair to describe Australia’s growth as  enjoying “internal balance”. If China does revert to mean, we’ll have nothing but under priced dirt to sell overseas...(here)

and that's not to mention the currency war!!

The Financial Times has a more sober analysis, focussing on the yield curve returning to normal (with its suggestion of a return to normal interest rate expectations).  As above, expectations of lower short term yields probably rests on assumptions which may simply not be true...wait and see.

Dumbest guys in the room?

As has been recounted in plenty of famous financial tales, a big crisis requires dumb money.  People who come to the party late and end up holding the can, or missing the musical chair.  In the 2007-8 crisis it was the German landesbanks who ended up holding worthless subprime paper.  Now in an interesting exercise in market timing - the Azerbaijanis are coming!

..."We plan to travel to Australia in order to meet with the leading market participants including regulators, developers, asset owners, and overseas investors to gain deeper understanding of the market," said the State Oil Fund of the Republic of Azerbaijan, or Sofaz, in an emailed response to questions from The Wall Street Journal. "This trip is planned to take place during the course of this year."...

...Sofaz, the wealth fund was set up in 1999 to capture revenues flowing from the Caspian nation's vast oil and gas fields, said that it's ramping up its investments in Australia after buying shares in "major" Aussie companies that appear in the MSCI World Index for the first time last year and government debt..

.....But investment in Australia isn't without risk for the Azeri fund. ...(here).

And to be sure, the smart money is leaving the market...the Japanese are quits