Friday, 12 June, 2015

RBA Stevens wrong on “low rates for long”

AFR: RBA Stevens wrong on “low rates for long” From AFR Contributing Editor Christopher Joye In The Australian Financial Review this weekend I hammer my buddy the RBA governor, Glenn Stevens, for getting his logic twisted when forecasting that rates will remain low for long (click twice on that link or AFR subscribers can access the direct link here). Never one to pull my punches, I also slam the Guv’ for suggesting that the “crazy” house price action in Sydney is “acutely concerning” for reasons unrelated to the fact that mortgages rates are at their lowest levels in history. To quote from the column: “Don’t blame interest rates. Apparently it’s a “social problem”. Hilarious.” I contend that the central banks’ benign vision of “new normals” with low rates as far as the eye can see will find itself in conflict with reality in the form of hard economic data that implies inflation could become an existential problem as artificially easy monetary policy is sustained while the jobless rates in the US, UK and Germany cruise below their full employment levels. This will be exacerbated by the strong incentive governments have to foster inflation to alleviate the nominal cost of their fixed-rate debts. I point out that such non-linearities can be hard for the human mind to anticipate ex ante: “Who would have thought that the 5.9 per cent mortgage rate in 1970 would hit 10.4 per cent in 1976 or 15.5 per cent in 1986? How many economists or traders forecast in 2008 that the RBA’s 7.25 per cent cash rate would slump to 2.0 per cent today? None.” Given we all need to earn decent dough in the interim that beats our cost of living, I evaluate three new high-yield bond deals from Rabo, Genworth and Heritage…Click here twice to read the full column or AFR subscribers can access the direct link here. Comments and feedback always welcome—nobody has a monopoly on knowledge! Archr LLP is Authorised and regulated by the Financial Conduct Authority (FCA reference 617163). Archr LLP is not covered by the Financial Services Compensation Scheme (FSCS). Archr is registered in England and Wales No. OC371018. Registered office Chancery House, 30 St Johns Road, Woking, Surrey, GU21 7SA This message may contain confidential or privileged information. If you are not the intended recipient, please advise us immediately and delete this message. The unauthorised use, disclosure, distribution and/or copying of this e-mail or any information it contains is prohibited. This information is not, and should not be construed as, a recommendation, solicitation or offer to buy or sell any securities or related financial products. This information does not constitute investment advice, does not constitute a personal recommendation and has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive it. You are receiving this email because you are a valued client of Archr.