The MYEFO has come out and well, Scott Morrison isn't exactly cutting everything in sight. Yes, he's cutting some things, but he's vowing not to chase the fall in revenue down.
Scott Morrison has learnt well from Joe Hockey, Chris Bowen and Wayne Swan.
The best thing to do when revenue is collapsing is to let it, lest it bring the economy down with it.
As he put it: extreme measures would have placed "a hand brake on household consumption and business investment growth" and unnecessarily threatened emerging signs of economic momentum.
That's pretty contrary to the Coalition diatribe about debt only months ago, and as enacted in two disastrous budgets under WTE Joe Hockey. It must be that at heart, we're all Keynesians now, as the saying goes.
It also shows that the Turnbull Government really is a different beast to the Abbott Government, at least on an operational level. A simple question of "what would Tony have done?" yields images of a cigar-chomping, axe-wielding WTE Joe. Instead, he's telling us it's not going to be austerity all the way down. I don't want to praise Scott Morrison in the least freaking bit but you have to hand it to him, he's not reacting as one would have imagined from his turn as minister for turning back boats.
I have to admit, I'm a little surprised. On another level, I think I can see we're heading towards ZIRP a lot more than raising interest rates. As it turns out, it's really hard to get the market off the easing bias. Who'd a thunk it?
Which leads me to the next thing...
When The US Fed Dons Wolf's Clothing
This is weird when you reflect back to the utter chaos of the GFC at its height in August 2008. The US Fed is about to raise interest rates by 25bps sometime this week or early next year. Indeed, the speculation is that they have to do it this month because there are no more months beyond December and they committed to doing it before the year was out. So, logically, it's this month. The countervailing view is that the situation is so dire and the High Yield bond market is collapsing so fast, the Federal Reserve Bank would have to be crazy to pull the trigger.
The fact of the matter is, they didn't pull the trigger when it was benign back in October, so we were left asking the question, if not then, when? If things get precarious enough, the FRB is going to have to think about easing again in no time, which means they'll back at ZIRP in a matter months. It is as if Wall Street is permanently addicted to having cheap indefinite credit and anything else makes it fatal to the whole financial system of the planet. In other words, nothing structural has been fixed since the GFC, that caused the GFC. The risk factors are right back up to where they were on the eve of the meltdown.
And still, the language from Janet Yellen has been that they're going to raise rates because things are going so much better now. Goodness, it's hard to think all the way back to Paul Volcker in the 1980s. Would he have hesitated? No not a chance.
On a more local note, the anticipation of the move has created ructions in our own equity market in Australia. It's very strange:
"Amazingly enough it hasn't been priced in. It really is quite extraordinary," he said. "Perversely we may see markets rallying on the back of it once we have some certainty about what the central bank is doing in the US."
"It's all around these issues regarding sustainable, stable commodity prices and whether we get a decision out of the US Federal Reserve," said Mr Lakos.
Chris Conway, head of research at the Australian Stock Report said while some traders were dipping back into beaten down stocks, the overarching vibe was one of caution.
"We don't expect any large moves ahead of the US Fed decision on Thursday morning (Australian time), with no-one ... willing to take on too much risk or place any big bets despite the outcome being largely expected," he said.
"We also expect some volatility immediately after the decision but hopefully, once everyone has processed the result, markets calm and we rally into the end of the year."
So shares got oversold in the last 48hours because everybody suddenly remembered that Janet Yellen was possibly/probably going to go for it with the interest rate hike. Which means that if and when it gets announced, shares are likely to bounce back from 2.5year lows. Like I said, this is really weird.
China Crisis On The Brew
Nobody's really talking about it in the mainstream news but, China's economy's actually on the ropes. How do we know this? Pretty simple. When China was going great guns, commodity prices were up. For commodity prices to hit the skids this low, this hard and for this long, means China's really run out of puff and can't turn the commodities into economic growth. The collapse in demand for iron ore and coking coal is more than telling, it's both a white flag from China and a red flag for the Australian economy.
In that spirit, here's a story that you might find explains a lot of things.
Several local officials in China's Northeast region sought to explain dramatic economic drops in their areas by admitting they had faked economic data in the past few years to show highgrowth when the real numbers were much lower, Xinhua News Agency reported on Friday.
"If the past data had not been inflated, the current growth figures would not show such a precipitous fall," one official was quoted as saying.
The report cited several officials in the region who acknowledged they had significantly overstated data ranging from fiscal revenue and household income to GDP.
Three years ago Liaoning province's GDP growth was reported at 9.5 percent, but its current figure－over the first three quarters of this year－is just 2.7 percent. Jilin's growth was reported at 12 percent three years ago, but its current rate is 6.3 percent in the same period.
That right there is your confirmation. The Chinese figures have been worse than rubbery, they've been fraudulent. Not only is the commodity boom over, we're in uncharted waters as to exactly what the hell is going to happen next in China when all the debt racked up to fake the demand to fake the growth comes home to roost. So if you're inclined to believe this week's offical statement about strong industrial production and retail sales in China... sure why not? Let's all take that blue pill from Morpheus' hand.
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