The big economic story is the proposed break-up of Telstra. Not a nice outcome for long-suffering Telstra shareholders, but then Telstra has hardly been a rewarding stock since that first post-float surge, when smart people exited the stock.

So those of us still suffering may reflect with some bitterness on the old saying “Beware of Mexicans pretending to be great corporate leaders”.

There were actually two more important pieces of economic news yesterday. The minutes of the Reserve Bank board meeting held on  September 1 were released. (Henry’s advice to the board on the day is linked here.)

Though it is too soon to be sure, the global economy is “most likely on a sustained, if modest, recovery path”. It is “hard to disentangle the contribution that Asian demand, fiscal stimulus and easier monetary policy had each made to the better-than-expected outcomes”. Liaison with resources companies suggests that they are “very confident about medium-term prospects”. “Clear signs of wage moderation” is reassuring. If the economy continues to “evolve as in the latest forecasts, the Bank would in due course need to adopt a less expansionary policy stance”.

The market has generally interpreted this and other beautifully crafted judgments as suggesting that, if the economy continues to evolve as it has since this statement was written, the first rate hike is unlikely in October. An especially brave expert said November was a likely time to announce a bias to hiking followed by a 25 basis point hike in December.

Happy Christmas, Australia!

However, as is often the case, markets have a collective mind of their own — trouble is, of course, it sometimes seems just a tad demented.

In another important paragraph, the Reserve pointed to an evolving market development that is less prospective.

“Members also noted that business credit was still very weak and that borrowers were facing tight credit conditions and rising borrowing costs as banks continued to review risk margins as lending facilities were renewed. For some sectors, particularly those related to property, this was likely to continue to be a brake on economic activity in the near term. The rise in market yields, in expectation of a monetary tightening, was also adding to borrowing costs”.

Henry must say the members concerned are right on the money, perhaps experiencing the effects of some margin restoration themselves. (Henry is pleased to report he is debt-free himself, so under no immediate threat of bankruptcy.)

The margin creep of the banks is the not so good news.