December 2009

Andrew Pegler - 21 December 09

To parity and beyond! No this ain’t Toy Story, it’s the real world and it’s great news for the great Aussie consumer who this Christmas will be piling those cheap imports under the Christmas tree, near the new stereo on top the Playstation resting on the new European designer table.

As we have covered before in this column parity refers to that moment when AU$1 equal US$1. At the moment it’s hovering at about 92 cents and as it rises the price of imports goes down. So not surprisingly importers and Australian consumers who like cheaper products are cheering the little Aussie dollar upwards. Go you good thing.

Think of it in terms of saffron.

That intrepid Aussie importer wandering through the Egyptian souk looking to buy saffron with the AUD in his skyrocket can now buy 30% more of the stuff than he could at the start of the year. And when he comes back to Australia he can pass that savings on to the saffron lovers of this great nation, who will sprinkle it on their Christmas lunch with abandon. The same goes for the acres of consumer electronics arriving literally by the boat load. Everything is cheaper from computers to iPhones from Nauruan synchrotrons to French solar-powered combobulators. And while the new plasma may not fit comfortably under the average Aussie Christmas tree I am sure you’ll find a way.

This may be great news for the patriots, the travellers, the importers and hence you the humble punter but some sectors of the economy are finding the rise and rise of the dollar unbearable. Specifically people who make stuff for export or for sale to other Aussies. The relative price of their goods had shot up, way up, and that has scary implications for the economy and for your job security. For example, while the higher dollar makes imported cars cheaper, the wheels have come off for Aussie car parts manufacturers whose prices have gone through the sun roof forcing some offshore and others out the door. And then there’s agriculture which, between the exchange rate, the weather and rising interest rates, continues to get hammered. So as you pile those cheaper imports under the Christmas tree this year spare a thought for the millions of jobs that are on the line.

And now, for no fathomable reason, here’s a little Christmas ditty you can sing between the beers, tears and cheers of this festive season.

On Donner on Blitzen, on Kevin on Wayne. On Tony on Barnaby - oh gawd here we go again.
You guys can argue, you guys can fight, but at the end of the day just get the economy right.

In other news… Time Magazine has named Federal Reserve Bank Chairman Ben Bernanke its 2009 Person of the Year. Managing editor Richard Stengel reckoned that without him “it would have been a lot worse. He helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivalled power over our money, our jobs, our savings and our national future”. I say fair enough too.

Andrew Pegler - 7 December 09

Wow, what a week eh? New faces, old faces, green faces, red faces. But let’s face it, who actually knows what an ETS is and how it will affect us? Read on for the plain English version.

As Dr Seuss says “let’s begin at the beginning and start from there”. The Rudd government wants an ETS to restrict the amount of pollution that businesses can belch into the environment each year i.e. Kev wants to set an emissions cap or target. (BTW FYI ETC an ETS is also called a “cap and trade” system OK?) To make sure overall emissions do actually go down, that cap/target has to be less than the amount of yucky gases businesses would burp during “business as usual”.

The idea is that each business, for example a widget factory in Wigetoria, gets a permit to emit a certain amount of gas as they go about making stuff. If they go beyond that they get smacked with a fine. Or worse, are forced to ride in an elevator with Tony Abbott wearing only budgie smugglers and a cheeky smile.

Businesses that can reduce their emissions below their allowed level can sell the bit of their permits they didn’t use to other businesses. Hence emissions TRADING scheme. See it’s not that hard.

In other words business that can’t afford the cost of changing how they do things to be less green house gas intensive can buy permits off businesses selling what they have left on their permit. See there’s that trading idea again. The underlying principle is that the market will force change towards the creation of less planet-warming gases.

So how would all this hot air affect you?

For the average household the cost energy like electricity and petrol will a definitely go up. One estimate I heard was that it will cost each household about $1100 a year, or $20 a week. In its most recent budget the government offered to compensate some households with cash handouts and tax breaks.

If you work in a heavy-polluting industry, like construction or mining, you’ll notice jobs start to shift as businesses try to reduce their emissions and energy dependency. While this raises the spectre of serious job losses, the counter argument is that a whole new raft of “green” jobs will be created.

Hopefully (and please excuse the pun) that clears the air a little.

In other news… the Dubai sandstorm in a tea cup that threatened to plunge us into a second shockwave seems to have passed. However, keep your eye on Greece, which needs to roll over and raise close to $US70 billion of loans in 2010. Many are saying fat chance, which could mean a default with dire implications for our interconnected global economy.

Andrew Pegler - 27 November 09

This GFC has made a habit of chucking accepted conventions of economics out the window (no Great Depression gags please). Black is now white, up is now down etc. The reversal of the price relationship of gold and shares is the latest. Traditionally they go in opposite directions but they’re not following the script and this presents opportunities for savvy investors.

As you may know, the shiny stuff has shot up 30% this year and the market has risen 50% since its March smashing. This is weird because the two usually enjoy a sort of Turnbull/Rudd relationship i.e. travel in opposite directions. This is because in a recession gold is safe and predictable like a network news anchorman while shares are like most FM morning crews: unpredictable and bad.

Since things have started to turn good, shares have had stunning bounce even by dead-cat standards. This is because, while shares are the first things to suffer in bad times, they are also the first thing to sniff a recovery. And if you add to that the fact that bank deposits are paying near zero interest in the US then investing in a rocketing shares market is a no-brainer.

It’s the gold thing where it becomes interesting and it’s all to do with the weak US dollar.

The falling USD since March has seen risk-averse investors buy into gold and right now hardly a day goes by without news that it has reached a new high. As I write it’s $1180 per ounce and this is because India and Sri Lanka’s central banks are buying truckloads of the stuff to reduce their reliance on the declining and unstable USD. Basically, like many investors and central banks, they’re not happy with the dependence of the global monetary system on the health of the USD, which, as I have written before, is unwell. In fact right now the USD is at its weakest since the late 60s and is 30% down from its peak in 2002. So in line with the laws of supply and demand the more people buy gold, the more its value rises and that’s why we have this weird situation where gold and shares prices are rising in tandem. Capiche?

And in other news… US consumer spending and incomes rose in October, new-home sales unexpectedly climbed and jobless claims fell to their lowest level in 12 months. My strong interest in such US data is simple - once the US motor starts humming again we can all call time on this mess and these figures bode well for fourth quarter US GDP growth of close to 3%. Is that light I can see at the end of the tunnel?