It’s sometimes refreshing to get a laugh out of the business press, especially when much news is rather gloomy.
First up today is James Glynn (writing in the Australian) who attempts to defend the Reserve Bank of Australia. His headline says it is unfair to rage against the RBA. Long time readers of this blog will know that I have been a harsh critic of the RBA for many years, so I naturally expected this piece to start my day on a humorous note. James did not disappoint.
Remember that the RBA Governor said in November 2021, less than a year ago, that there would be no interest rate rises until at least late 2023. Suffice to say, he was badly wrong. See these posts for more.
Back to James’ defense of the RBA in which he made three points: 1) Everyone ought to have known that interest rates couldn’t remain at close to zero so don’t complain now that they are speeding northwards. 2) The RBA wasn’t the only central bank getting this wrong. (I must say, for his first two points, they aren’t very compelling.) 3) Look at how low the unemployment rate is.
That was the essence of the defense. The first two are summarised as ’well of course the RBA is hopeless at its job but everyone should know that and so are all central banks.’ The third point is an attempt to distract – look over there! Managing unemployment is not part of the RBA’s role. Its sole purpose is to protect the integrity of the currency. The low unemployment rate is not thanks to anything the RBA has done.
Raging at the RBA remains fully justifiable.
Next up are reports that the National Broadband Network (NBN) is facing major disruption from the increasing roll out of 5G cellular network. 5G delivers data speeds at up to 12 times that delivered by the NBN and for a lower price. Remember the clueless, but malevolent, PM Rudd who championed the NBN? A massive project at ghastly cost to the taxpayer it had to be scaled back and it was never completed. Arguments against it at the time along the lines of new technology will see the NBN obsolete within a few years were dismissed by the madman Rudd. Well, we were right and Rudd was wrong. You gotta laugh, otherwise you’d cry.
Tempering the comedy follows with news from the US that the latest Purchasing Managers Index (PMI) is rapidly deteriorating. The PMI measures business supply and demand conditions. It is calculated such that an index higher than 50 indicates growth and lower than 50 indicates contraction. It has fallen below 50 and is similar to where it got down to during the Global Financial Crisis of 2008/09. Further, its fall has been sharp. This points to trouble in the US economy with the already high inflation and likely increasing unemployment. That combination is called stagflation, and it was decades ago when stagflation last blighted the US and other advanced economies.
Also one to keep an eye on is the Eurozone. The EU is in a very bad pickle. Interest rate rises have begun (can I say years too late?) as the ECB raised the rates on its key three benchmarks. The last time there was an ECB induced rate rise was over 10 years ago. For 6 years up until this last week, two of the three rates were negative and the other was zero. Now, two are zero and the other 0.5%pa. So not much of a rise, you may say. Of course they will have to rise properly as they remain unsustainably low. However, the political elite in the EU have got themselves into a bind. The rates will have to rise but prices are already rapidly escalating, the Euro currency is falling, the money supply has been inflated which will make the currency even weaker and prices will rise faster. On top of that, the supply of energy is being reduced. Germany in particular, but also Italy and some others, allowed themselves to become reliant on Russian gas. When they joined in with applying sanctions on Russia over Ukraine, Russia responded by slowing down the gas. (This was predicted years ago by the former President of the US and he was mocked at the time.) So in such times as this, just how much further damage will be done by rising interest rates remains to be seen, but it will be grim. The Europeans are suffering at the self-inflicted wounds made by the EU political class of clowns.
Finally, one of Australia’s airlines, Regional Express (Rex), has announced plans to begin converting some of its fleet of aircraft to electric power. Batteries. I hope the Board of Directors and CEO are all willing to demonstrate their faith in the first conversion by taking the first flight from, say, Melbourne to Sydney. We’ll see. I used to be a shareholder of Rex. I’m glad I sold and took my profit.