I said this a while ago…rates are going down, down, down…
Like the prices at Coles. Or was that Safeway? So much for tens millions of dollars invested in a campaign to promote a brand.
The rest of the world is at ZERO.
… can't see why we be should be at 3% ( now 2.75%)
But despite the blind obvious to most, 83 % of economist survey last week said
“unlikely to happen in the first Tuesday of May…”
I'm not an economist… Lucky you. I'm a real person, that invests real money, in a real world… Looking for real returns.
Economist… Not sure what they do.
Whilst rates are going down… Assets are going up up up.
Anyway it was all good news yesterday… but what does it all mean for you?
I've been saying for a while that we could expect to see lower rates this year, and most economists had been predicting that rates would keep heading south, but the timing of yesterday's move took most people by surprise.
And why was it a surprise?
Well, mostly because no one's sure just what has changed.
Normally, if you're going to take a chunk out of interest rates you need a good reason to do it. You typically have to make the case that the outlook is worse, and we need lower rates to get things back on track.
But Glenn “let the good times roll” Stevens is giving nothing away.
I thought maybe he thought the international outlook was worse. But no, nothing's changed there. The US is “on a path of moderate expansion” and China's growth is looking “more sustainable.”
Maybe the outlook for Aussie growth was worse? No, Australia is growing just a bit below trend, with consumption “strengthening” and dwelling investment “firming”. There was a small pick up in unemployment but it was hardly a game changer.
Maybe the outlook for inflation was tanking? Nup. Prices are still “consistent with the target”, now and across the forecast horizon.
Maybe it was the Aussie dollar, spiraling out of control?
As I've written before this is probably the single biggest worry on Glenn's mind, and he was keen to point out that he's still losing sleep over the strength of the Aussie Dollar. However, it is no worse than a month ago, and if anything had actually come down a few cents against the USD.
So what have we got? Nothing. Glenn is keeping his cards very close to his chest. All he said was:
“The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today's meeting the Board decided to use some of that scope.”
We did it ‘cos we can.
Thanks Glenn. Very enlightening.
So what is the RBA not telling us? What do they know that we don't?
The answer to that lies in another piece of news yesterday, that didn't quite have the same level of sexiness and front-page worthiness, but was just as important.
And that was Labor's plan to jettison it's Family Tax Benefit – Part A scheme.
With a widening budget black hole threatening to suck the whole economy down the gurgler, the decision to scrap a handout to families with children was sold as “regrettable, but responsible”.
The scheme was originally part of Labor's way of selling the mining tax – a way of “sharing the boom”.
But the mining tax was a dud, and it turns out Labor wasn't able to secure that much mining largesse to share with the reset of us.
And what that means is that families with one child will miss out on a $300 handout. Families with 2 children or more will miss out on $600.
So imagine you're a two child family with a $300,000 mortgage. Yesterday, you found out that you're not getting a $600 bribe this year. At the same time, you're mortgage is now around $50 a month, or $600 a year cheaper.
Net benefit of May the 6th?
The Stevens giveth, the Swan taketh away.
And that's exactly the game that's going on.
Labor has been posturing for a stricter, more contractionary budget for weeks.
Wayne “ButterFingers” Swan announced last week that Labour had misplaced $12 billion. Yesterday, Penny “we got the forward estimates” Wong announced that actually, it was going to be more like $17 billion.
Belts are going to be tightened.
And with a budget deficit quickly getting away from us, both Labor and the Coalition are going to be drawing up plans to up the tax take and cut back on spending.
Thing is though, that a contractionary fiscal stance like that puts a brake on economic growth.
But with the broader economy barely spluttering along above stalling speed, that's not really what you want.
But what it does do is open the way for monetary policy to take a more accommodative stance. It opens the door to lower rates.
And as I've noted before, Glenn would be worried about widening interest rate differentials between Australia, and most of the rest of the world. Rates look pegged to zero in the US, Japan and Europe for the foreseeable future.
So if Glenn can cut rates and narrow that differential, that should, in theory, take some of the pressure of the Aussie dollar.
Which, if it happens, would be great news for Australia.
So Glenn will be gladly taking every chance he can get. And this month, ButterFingers and the mob gave him a golden opportunity.
So this is the game of re-balancing that's going on.
But of course, it doesn't rate a mention in the Guv'nas statement because the RBA doesn't want to be seen to be playing politics.
They can hardly be out there saying, “Since Labor's made a mess of the budget, we'll be cutting rates”…
… even if that's exactly what's going on.
And so what does this mean for investors like us?
Well, first off, it means that interest rates will be staying lower, for longer – which is what I've been saying all along.
Secondly, as Glenn noted, “savers have been changing their portfolios towards assets with higher expected returns… and asset values have risen.”
Cheap money will keep flooding into asset markets (including property), and asset prices will keep on rising. Again, just like I've been saying for months.
The flood of money is set to continue, and if you own a house right now, you should be rubbing your hands with glee. If you don't, what are you doing? It's time to get on board.
Want you want to do is own lot of houses…maybe 20…50 … 100… wouldn't that be cool?
The delicate dance between Stevens and Swan is locking in a boom…an asset boom.
Don't sit on the sidelines and just watch.
Time to get educated, time to get serious, time to make a move and make some money…
If you listen up now and take action, in 3-5 years you'll thank me big time.