Tuesday, June 28, 2011

Bloody hell. The market is pricing in a rate CUT, big-time.




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9 comments:

Anonymous said...

Wasn't there an article in the Age yesterday screaming about expected rate rises, stealing yr moneee!!?!?!?

Kymbos.

Peter Martin said...

The economists think rates will rise. The weight of money thinks rates will fall. Go figure.

The Lorax said...

The economists have been wrong all year.

The Lorax said...

Adam Carrs head just exploded. Witness todays rant...

Aussie 30-day futures are pricing in a 100 per cent chance of a rate cut by year-end. Although maybe that’s more to do with the fact that we could be in a recession, according to the TV this morning. Again, this kind of stupidity opens up fantastic trading opportunities. The only real risk at the moment is Greece and if the vote gets through it’s going to be very exciting indeed. There will be lots of money to be made as growth both domestically and abroad is actually very good. The perception is different, I know, but this does not reflect reality. It reflects fear – and when that occurs trading opportunities are created. Remember that basic economics shows that default is not inevitable. To say this is false. The Greeks can, if they choose, embark on a privatisation program – similar to what Australia did in the 90s – and pay down their debt. The issue is whether the Greeks have the political will to do this. Whether default occurs or not comes down to a political choice. The burden of debt is manageable.

Then in comments below:

Adam, the Greeks have a debt of 350 billion euros, half of which needs to be repaid by 2015. Meanwhile Greek GDP is 120 billion per annum and falling.

So ... a question for Mr Carr: What are these public assets the Greeks can sell to pay down their debt? Does the Greek government own anything that could make a dent in 350 billion Euros?

Seems to me the Greeks want to avoid the situation where they sell off all their assets but still default. Much better to default while still owning something!

Anonymous said...

I'm sure France and Germany will only be too happy to take ownership of the greek islands.

The Lorax said...

Greeks want to default before handing over islands.

Pretty understandable really.

Carr et al would like to see the Greeks:
a) Sell everything they own
b) Suffer endless austerity measures
c) Endure a decade-long recession.

Somehow I just can't see the Greek people accepting this!

voda said...

How reliable are these punters? Will the graph be the other way up next month? And does the expectation of falling interest rates mean that the exchange rate will fall relative to the US$ too? You should have a FAQ page here, Peter Martin.

Peter Martin said...

The exchange rate is falling.

Although it looks as if the market is pricing in a 100% chance of a 25 point rate cut in a few months time, another way of looking at it is that the market is pricing in a 25% chance of a 100 point cut.

There is a precedent for a 100 point cut in a financial crisis, a very recent one.

Peter Whiteford said...

On Greece, as far as I can see the consequences of default would be pretty serious for the Greeks. No one would lend them money, so they have to stop paying public servants and pensioners in a few months, since they can't print their own money.

It took about 3 years to introduce the Euro as a physical currency - you have to change the ATMS, the parking meters, the accounting programs, the pay systems etc, and you also have to print and coin the new currency, so they can't leave the Euro overnight and I guess that it would take 2-3 years to physically establish a new currency. How long did it take us before we were able to decimalise on 14 February 1966 (I'm old enough to still have that jingle in my head!)

In my totally non-expert opinion the only way out of this is some combination of banks taking a managed haircut, and the sort of thing that French Banks are doing which is to roll over debt for very extended periods.

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