Turmoil-enomics V

Overnight :

  • in the US, the US Federal Reserve chairman has asked for more money from the US congress to stimulate the economy
  • The Dow Jones was up 4.67%
  • China’s growth slowed to below 10% for the first time since late 2005
  • The Future Fund had a miniscule collapse in it’s value – a whopping 0.24%!

So – this is todays thread for any economic.

UPDATE:

The share market has opened more than 2 per cent higher this morning after world markets rebounded on news of increased government action to ease the impact of the global financial crisis.

At 10.13am (AEDT), the ASX200 had gained nearly 90 points to 4232, while the All Ords was 2.2 per cent higher to 4189.

ASIC this morning announced it had:

– extended the ban on shorting non-financials until 18 November, and

– extended the ban on shorting financials until at least 27 January (i.e. stocks in the ASX200 Financial Index).

 

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26 Responses

  1. Does anyone know what Julie Bishop is on about in her ‘Blog’ today?

    http://blogs.theage.com.au/business/archives/2008/10/rudds_crisis_management_failures.html

    Why does she refer to Labor’s previous release nf information in 1992 as an example of what Rudd should have done but not Howard’s information in 2001 after September 11 or the late 90’s Asian banking crisis, or the end of the tech bubble? Oh … that right …

  2. What I can’t believe is this crazy notion to tax people who earn over $1 miillion, 50 cents in the dollar.

    Surely this will only serve to encourage these people; no doubt highly skilled, to move offshore ??

  3. One other thing – it just occurred to me that it is probably rather pointless, and possibly dangerous from a confidence POV to release the type of information JB is referring to at the present time. From memory, the situation in 1992 wasn’t changing daily – it was possible to prepare a reasoned package over a number of weeks and then release it with supporting justification. Now however, the situation is changing daily and occasionally hourly. Any release of information or models would almost certainly be out of date within a matter of weeks at the very least and possibly daily due to matters out of the control of the Government. If the coalition were then to jump of these differences and use them to cast doubt on the response by the Government, this could result in loss of confidence in the Government and correspondingly, the Aus economy.

    I am all in favour of releasing information that is valuable and in JB’s blog, she makes reference to information being critical in a crisis – she’s right in that decisions should be made using all available information however it is quite another thing to extend this principle to releasing all available information to the public, particularly when doing so could scare the horses or be taken out of context by those more than willing to do so for some political relevance. I can’t see what the release of this information will achieve other than give the coalition coming to attack the Government with. Provided the Government are basing their decisions on the best information available at the time the decisions are being made (and there is nothing to suggest that this isn’t the case), I am happy for them to continue doing so and we can run post mortems later when things have settled down and we can assess the information and the decision making process in the cold light of day..

  4. I am happy for them to continue doing so and we can run post mortems later when things have settled down and we can assess the information and the decision making process in the cold light of day..Dave55

    My only reservations would be setting a precedent that could be used by either side of politics.

    Spend a lot of money – see how it works out, then “design” the decision criteria backwards to depending upon success or failure…not a good way to do it…

    …I bet all your decisions are based on some criteria not just “gut” feeling?

    I understand unusual times, unusual methods – still we aren’t quite at war – yet! (…and even wartime decisions are made with available info.)

    In other words the government must have some reasoning for decisions made and transparent governance translates into sharing that information with the public (and the alternative government) – I for one, am getting fed up with being treated like an uneducated moron by so-called business and political “experts”.

    It is, after all, 2008 not 1808…

  5. Are we having a dead cat bounce again at the moment or are some of the hysterical players out there starting to calm down and realise that life will still continue.?

  6. Your call, Shane…:-D

  7. LOL thanks TB 🙂

    My call, OK prediction. Our market will close the week higher than last week. Probably up 2% overall due to profit taking in the meantime.

  8. My only reservations would be setting a precedent that could be used by either side of politics.
    Spend a lot of money – see how it works out, then “design” the decision criteria backwards to depending upon success or failure…not a good way to do it…

    I agree TB, it’s just that I don’t trust the Coalition to use the information responsibly. Governments must act based on the advice they receive but we aren’t governed by bureaucracy and Government must make their own decisions based on this advice.

    I don’t think anyone is doubting that the Government received and acted on the advice of Treasury, the RBA, APRA etc but what happens where that advice is conflicting – the Government still has to make a decision, especially where a decision needs to be made quickly to restore some confidence. The Coalition showed that they are willing to get political mileage out of the Government preferring the advice of one agency over another (Fuelwatch). Similar criticism now has the potential to cast doubt on the adequacy or appropriateness of the Government’s response when consumer and business confidence in the Government is critical.

    At the moment, business groups and most economists have given the Government’s response a big (or at least a biggish) tick; what then will the release of agency advice (which is Cabinet in confidence and never would have been released by Howard) achieve other than something negative – after all, isn’t that why the coalition wants it (my cynicism certainly doesn’t allow me to think that they want the information released to show how good a job the Government is doing)?

    The MYEF will be released next month and that will show how we are tracking.

  9. Reports in the media today indicate that inflation remains above 5%, this is disturbing.

    Having pressure to reduce interest rates in response to economic decline, while inflation is increasing could cause a return to the 70s & 80s economic conditions – high inflation, high unemployment, and high interest rates.

    Combine this with union pressure for greater centralisation of wage outcomes, and we have reason to be worried.

  10. Tom of Melbourne.

    What parts of the economy are causing inflation to be at 5%. If they are out of our control then what can we do.

    Regarding unions pressure for centralisation of wage rises, I think you will find that CEO and top level management have distorted the wages portion of inflation for the last 5 or more years. I do not know any AVERAGE employee who has received a payrise of more than 3.5% for the last 4 years.

    Once again it is a numbers game with the big end of town screaming, yet their own actions contributing a hell of a lot more to the % and outcome than the average Joe.

  11. I’m familiar with a CEO of a reasonably sized organisation who earns about $2M a year. This is for an organisation that employs about 6,000 people. If you paid him nothing, you could afford to pay each employee about an extra $6 a week.

    WOW!!!

    It is not CEO salaries that are having any significant effect on wages or prices. In this case his salary is about 0.1% of the turnover of the business. Again, paying him nothing will have about zero effect on the price structure of the business.

    Realise that the attack on CEO remuneration is about emotion, jealousy and punishment; it has nothing to do with price or inflation.

    I’ve not look at the ABS data on cost of living lately, but I suspect that CEO salaries will not be an underlying cause of our current high level of inflation.

  12. Tom

    Why are you talking about turnover of a business, that has nothing to do with inflation at all. In addition turnover of a business is not a reflection of its profitabilty or stability or debt levels for that matter. try comparing a companies management wages to other employees 15 years ago compared to today, then you will see the change.

    It is now a proven fact that 15 years ago CEO wages were 20 times the average salary. Now they are over 200 times the average salary so please do not tell me it does not effect inflation.

    I am not jealous, rather simply astounded at the greed that has been perpetuated by this group for the last 15 years. As if they now work 200 times harder than their employees. lets get real here.

    You want to see a good CEO with morals and ethics then look no further than Paul Simon.

  13. The market goes down and the US fat cats through Bernanke call for more public money to be thrown at it, the market goes up.

    So am I to assume that from now on whenever the market goes down the US taxpayer will throw hundreds of billions they haven’t got at it?

    Surely the US is really heading for one mammoth fall at this rate and just what is the limit to the amount of money they can conjure up out of thin air?

  14. Tom , no-one is worth $2,000,000 to any organisation.

    I agree that $2 mill won’t have much impact but 100’s of inflated egos (‘scuse the pun) on $20 mill plus does! (Especially those that don’t perform!)

    Money may not be a long term motivator but excessive senior exec pay and perks is certainly a long term demotivatorand anger generator…

    Greed is alive and well at the top…

    Dave , agree re big business are on board (should that be a problem? Just jokin’).

    If they do have info that can be demonstrated to have existed before the decision that’s fine and I agree that the opposition will use it politically – but they will use it politically whenever it is released – why are people so shy with truth and honesty it will always come out and predicting the “best” time is like predicting the share market bounce!

    People in general seem to think that the sharemarket only affects their super – the economy has nothing to do with them, its a government problem – we’re all right Jack…some of ’em are going to be stung very badly. Truth, is not always what people want to hear but it is the truth.

    Anecdote: Out yesterday with friends, their 30 something daughter – she and husband have just borrowed $100, 000 @ 9% to invest with a property developer in Ipswich and expect a 20% return over the next year (husband runs his own business auto electrician with two apps. made a net profit of $5000 last year – his father in law – our friend does his books/admin three days a week). The daughter was saying that they also have an option to keep the money in the deal longer and get a higher return – I was quite chuffed with myself – said nothing just sipped on my wine…(BTW my two kids have just upped their house repayments – they both pay 3x more than needed – just the contrast) Oh! When they first discussed this “deal” I was told that the contract was one A4 page…my mate (the father), is ex bank IT and has a Diploma in Financial Planning – I know who will pick up the pieces from this lot…

    Shane , reasonable call given the current info.

    My prediction at least three bounces in the old cat yet!

  15. Adrian

    I can’t help but think there is a whole lot more to be written down and written off. So it can’t be business as usual until that reality is realised.

    Weapons useless when problem is solvency, not liquidity
    http://business.smh.com.au/business/weapons-useless-when-problem-is-solvency-not-liquidity-20081017-536h.html

    Since the explosion of the US property bubble and the consequences around the globe, the response has been the same – huge increases in liquidity.
    But the problem has not been liquidity. It has been solvency. The value of US real estate is less than the loans advanced over it. Until that painful readjustment takes place, the system will not be fixed.
    In the 1990s, Japan let its banks avoid the pain caused by reckless loans that fuelled a property boom. The economy was in effective recession for 15 years.
    What we have seen in the past year has been nothing short of extraordinary.
    But some of the measures employed to soften the blow could blow up spectacularly. Take this week’s innovative plan for governments worldwide to guarantee new loans made by banks. It may well end up helping banks to lend to one another again.
    But it is taxpayers who are putting up the collateral for new lending. In the process, the very people who have created this crisis have been given AAA-rated government guarantees to put themselves back into business.
    They were reckless enough when they were running organisations with balance sheets rated A and less.
    The world’s biggest investment banks have paid their senior executives something in the order of $US40 billion in bonuses during the past five years.
    If these rescue plans work, not only have they been allowed out of jail, they have been put right back in business.
    In all the uproar and the spectacular amounts of cash that have been splashed about, several other changes have been made that slipped under the radar that, if not removed when normalcy returns, will come back to haunt us.
    One was the suspension of “mark to market” accounting. Introduced to improve transparency after the collapse of Enron and Worldcom, it ensured companies valued assets at market prices, rather than put in any number they like.
    No one complained when asset values were rising and business leaders were paying themselves huge bonuses based on those rising values. Suddenly, since asset prices have fallen, it has become a problem. The accounting principle has been suspended.
    But it may prove to be a time bomb that will ignite when we least expect it.

  16. PS: Economics is mispelt in the heading. Just shows how observant I am when it takes this long to even notice

  17. LOL and Turmoil is wrong too ROFL

  18. shane – the title is not wrong :-p
    it is a composite of turmoil and economics

    but yes – turnmoil IS spelt wrong… I blame the drugs that I am taking…

  19. Sorry joni

    My analytical brain doesn’t think outside the square box it came in.

  20. That’s OK Shane… It’s bloody hard to come up with titles for the threads. Tim (who’s he again?) was a master at it.

  21. joni

    And here I was thinking it was a clever take on Turnbull’s name – Turnmoil was quite an appropriate description of the Libs under Nelson with all the Turnbull speculation going on.

  22. Closed up 2% hey maybe I am an economist LOL

    EDITOR REB: I’ll pay that.. ka-ching!! 🙂

  23. TONIGHT ON INSIGHT (SBS 7.30pm)

    To what extent did greed kill America and will it kill us? As Australians feel the chill of the economic slow-down, Insight asks if greed is to blame. The recent crash on Wall Street has sent the American economy into a spin and left many criticising American capitalism. Some say Australia will weather the storm, but others are not so optimistic. Host Jenny Brockie asks experts and people feeling the pinch what is happening. Can greed be good? And is the free market – as we know it – over?

    Might be worth watching. Will have to quickly see if Kerry’s got anything interesting on the 7.30 report first and then quickly flick back and forth.

    and bugger it! The Chopping Block’s on at 7.30 too!

  24. Shane, don’t get too cocky, the week’s not over and we are down 385.35 points for the month! 😦

  25. My deity, Julie Bishops just keeps saying the same thing over and over and over and over on Lateline.

    She does never says anything new – just the same old soundbites again and again.

    Does she not realise that she is making a fool of herself!

  26. She just gets worse and worse – trying to make something where there is nothing.

    I have a feeling that she may not hold the shadow treasurer position for very long.

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