Business as usual: Indeed it was for the Reserve Bank at its board meeting a fortnight ago today. After resting in February, the bank lifted rates 0.25% to 4.0% because “On balance, members concluded evidence that had become available recently had confirmed that it remained appropriate for interest rates to move gradually towards normal levels, and that it was timely to take another step in that direction.” The phrase, ‘finely balanced’ that has been evident in previous minutes, especially February, was absent from March’s. The use of the world “timely’ in the quoted but above indicates that its business as usual. When the bank and the board thinks its time to lift rates, it will. So forget the breathless day-to-day swings of sentiment and reportage and look at the data flow.
Lehman watch 1: Lehman Brothers unveiled its plan to repay about 65,000 creditors from its collapse in September, 2008. The creditors claim they are owed a total of $US875 billion from the bank’s failure 18 months ago yesterday. Of course, the claims won’t all be met, Lehman will fight it hard, or rather the rump of the once mighty investment bank will. The repayment plan had to be filed by yesterday under US bankruptcy law. It came four days after the court examiner’s 2200 page report into Lehman’s failure was released. Lehman says it will pay creditors in cash: now it doesn’t have $US875 billion. The lawyers will get rich out of this one.
Lehman watch 2: The examiner’s report had one big fan, Judge James Peck, who commissioned it. He said late last week that it read “like a bestseller” and was as “one of the most extraordinary pieces of work product I have ever encountered”. Certainly Barclays, the UK bank that picked up the US business of Lehman cheaply, and the Office of Thrift Supervision that came in for some adverse comment on its regulatory failings in the report, are both in court trying to prevent the release of millions of pages of Lehman emails, internal company files and other documents. Barclays says there’s confidential stuff in those documents about clients, the OTS (which has been exposed by other reports as being a slack regulator) wants a load of documents made confidential because it claims it was misled by the examiner. Given what’s in the report already, the stuff Barclays and the OTS want to keep secret, must be really bad for them. The trouble is that the examiner wants to make every document he obtained open to the public and searchable on the web.
A surge coming? More and more US economists are starting to wonder if the American economy might see a sharp rise in job creation very shortly. Some claim the March and April figures for employment could see a a big jump in new jobs. The US has to create 125,000 jobs every month to keep pace with the growth in the labour market. Some wilder forecasts have been for 250,000 to 300,000 new jobs to be reported in March and perhaps April. But one moment please, Macquarie Bank economists Rory Robertson calculated last week that if the US creates jobs at the strong rate it did from 2003 to 2007, it won’t push the number of US jobless back to its previous peak of just over 138 million people. The 8.4 million jobs lost from December 2007 to last month has cut America’s employed work force to just under 130 million. Robertson points out the closely watched weekly initial jobless claims figure (out every Thursday in the US) is stuck around 470,000, which is still near the peak in the 2001 recession.
Inflation, ha: With the Fed meeting tonight, our time (and not expected to do anything) and figures on industrial production (up a touch in the report overnight) and inflation (both wholesale and consumer) to be released, there will of course be the usual inflation hawks ready to squawk doom and bust at the latest hint or a rise in prices. But Robertson makes another point not much appreciated by inflation doomsters: he says the “output gap (that’s the difference between the potential growth rate of the US economy and the actual rate) in the American economy is the largest in generations” and has “downshifted US wages growth and core inflation. And there’s more to come in the next year or two. Forecasts of excess US inflation are just down the track, are a joke.” And the industrial production report overnight reinforced that point: US industry operated at 72.7% capacity in January, up from 72.5% in December, but well under the 80% average of the past 20 years. Robertson’s point is confirmed, inflation is not going to be a problem for some time, so rates will remain low.
Commodity price deflation? A big influence on US inflation will be food prices. In 2007 and 2008 prices for rice, wheat, corn, soybeans all soared as demand jumped, especially from Asia and production fell in the US, Australia, Brazil and Argentina for various reasons. Last year production recovered and prices eased as demand fell because of the recession. This year more huge crops in many producing countries and demand is edging higher, but the rising US dollar is a new factor. Now the US Department of Agriculture (USDA) says that America’s domestic wheat stocks inventories could hit their highest level in 22 years. Corn and soybeans will be higher as well. Wheat stocks could top 1 billion bushels, the highest since 1988. That’s more than 27 million tonnes, or well above what Australia would produce in an extraordinary year. Don’t look for higher bread, beer, feed and meat prices in the coming year.
Do we believe this Greek stat? The Greek economy contracted 2.5% in the fourth quarter of 2009, from the same quarter of 2008, slightly better than the first estimate of 2.6%. The quarter-on-quarter fall was 0.8%. That was after a similar-sized fall in the September quarter and falls of 1.9% in the second quarter and 1.0% in the March quarter, compared with the same quarter of 2008. That is contrary to how all other economies performed: their biggest falls were in the first two quarters of 2009, with an improvement in the final two (except for Germany, which went backwards to zero growth in the three months to December. The government expects annual growth to shrink 1.5% this year, some private forecasters are now saying 2% and 3% might be more realistic.
Rent relief? In Australia there’s been a lot of talk about the impact rising immigration is having on housing prices and rents, but has anyone noticed that the fastest growing part of the inflow, the number of students from India, has slumped as reports of violence, particular in Melbourne, have escalated. Some of the reports have been in real estate promoting papers, such as the Fairfax broadsheets (the Melbourne Age), but they haven’t bothered to go further and try and think about the impact on rentals in particular, and in the tight Sydney market. The collapse of at least two groups flogging education to Indian students, has also cut intake numbers. Many students come with non-student family members, putting further pressure on home rental costs. In 2008-09 almost 28,000 students were refused visas, up 68% on the year before.
Asper watch: Lenny Asper has quit his other gig at Canwest Global, head of the newspaper business. He had quit as head of the TV operations so he could join Goldman Sachs and a Canadian equity group in making a bid for the electronic assets of the company he and his mates loaded up with debt and drove into bankruptcy. Now Canadian reports (the Toronto Globe and Mail) claim he’s interested in a bid for the papers, which went up for auction earlier in the year. He is said to be preparing a joint bid for those to try and recreate Canwest Global, but under the tight control of his family. Bids for the papers closed last Friday week, but none seem to have been good enough because the auction has now been extended until April 30 to try and get higher-priced offers. The extension will also give Lenny time to come up with a firm deal, and time also to complete his moves to grab back control of the TV assets. The extended auction will only accept bids for all the papers, not just some of the titles, as senior executives of the National Post attempted to do in the first round.
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