Thursday, December 13, 2007/
The clouds have cleared from my crystal ball. Why? It all has to do with some decisive gnomes…
I’m forced to make a few adjustments to my cloudier than usual crystal ball as we can head more confidently into the festive season.
Although we could all expect the small rate cuts in the United States and the deferred rate rise (until after the Wayne Swan song) that we are going to continue to be “economic conservatives” but still get our $31 billion of tax cuts), an outbreak of optimism today was less predictable.
So, my friends ask, why didn’t you expect good news today?
Surely nothing has really changed. The sub-prime crisis will still be requiring the Bush/Clinton freeze on inappropriate loans, the mid-town banks around the world will still be punishing any small business that is looking for a friendly domestic banker and the prospect for oil at $US100 and gold at $US800+ is still on track for an end of season write-down.
Fortunately, the masters of the global banking institutions “got it” and decided to link up the US Federal Reserve, the European Central Bank, the central banks of Canada, England and Switzerland to provide a swimming pool of funds for a global auction of credit to underwrite a happy Christmas.
The Bank of Japan and the Risksbank of Sweden have already indicated that they will support the plan. As The Australian newspaper reports, Sherry Cooper, chief economist for BMO Capital Markets in Toronto says: “This is the biggest act of global economic cooperation since September 11.”
What’s different is that while PM Kevin (still 07) Rudd was delaying a detailed set of global warming targets in Bali, the central bankers decided that they couldn’t wait for their political masters to protect the international currency and trade markets.
Setting up a bargain basement discount banking service was the only way to channel funds to any company with real export earnings potential such as energy, materials, industrials and technology. The Federal Open Market Committee had been working behind the scenes to balance the very evident storm clouds of rising inflation, climate change limits to economic expansion in the BRIC (Brazil, Russia, India and China) economies and the emerging global liquidity crisis in the financial institutions.
The market response to yesterday’s cuts in interest rates had marginal impact and the US homebuilding market continued its freefall into depression and loud pleas about a pending recession.
The major financial institutions like Citibank and Morgan Stanley continued to take the axe to their bloated staff numbers, chopping multiple thousands of jobs.
Technology stocks rose as expectations of gains from labour-to-machine substitutions got the nod from corporate treasurers. Foreclosures on property loans went over the million mark for the year.
But that was all before the unlucky 13th December that had my attention has arrived with better news than this column had anticipated.
The continuing financial crisis and credit crunch, fears of a US recession and a further Chinese reflation of the yuan had all lead me to warn that the gnomes had decided that we were not going to have a Happy New Year any time soon.
This was my pessimistic perspective despite the minimum 0.25% cut by the US Fed and the subsequent surge in the sharemarket following our own RBA having held its nerve.
The tsunami has gone away with its early warning protagonist about to warm the back bench waiting for Richard Alston to come home and rescue the party.
While the US Fed informs us that a couple of $US20 billion money auctions are only to tide us over the short term, we can sleep easier knowing that this facility will, according to the Fed, “help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress”.
The good news is that we do not have any elections in Australia in the coming year, the drought appears to have broken and everyone wants to buy up our commodity producers now that all the deals can go back on the table.
We can now go on holidays, spend time with the kids and brush up our merger and acquisitions policies, as there will be enough cash to go round to give our staff a bonus for surviving into the new year.
Season’s greetings to all.