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EYE-BALL Opinion – EYE-BALL MediaZone Growl No: 1 – The Australian’s – Adam Creighton

– EYE-BALL MediaZone Growl No: 1 –
– The Australian’s – Adam Creighton on a story titled –
“Interest rates fall to record low as RBA fires first shot in currency war…”
| Author: EYE-BALL MediaZone | 8th May 2013 |

This post under the new EYE-BALL MediaZone header is the first of a new category of stories aimed at a MediaWatch type critique.  The aim is to highlight media content that misleads, is inaccurate in its reporting, and has an agenda other than to report the true facts as they relate to the content and context of the story.

The first story on what was a big day for choices is a story by Adam Creighton from the Australian.  The Title of his story is:  “Interest rates fall to record low as RBA fires first shot in currency war…” and was published on the 8th May 2013 in The Australian.   The story is reproduced below:

Interest rates fall to record low as RBA fires first shot in currency war

| Author: Adam Creighton | Date: May 8th, 2013| Link to On-Line Story. |

Click here to see video link with story:

THE Reserve Bank is being drawn reluctantly into the global currency wars, surprising economists and financial markets yesterday by cutting rates to a record low largely to take pressure off the stubbornly high Australian dollar

Governor Glenn Stevens pointed to waning economic growth and weaker than expected consumer price inflation in cutting the cash rate to 2.75 per cent yesterday, but dwelt on the prolonged high level of the local currency.

“The level of the exchange rate is playing a bigger part in the Reserve Bank’s policy settings,” said Matthew Johnson, a currency strategist at UBS, suggesting the high dollar had hobbled the effectiveness of the RBA’s series of seven rate cuts since late 2011.

Governor Glenn Stevens said the board had “judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy”, which should drag Australia’s key lending rate to global financial crisis lows.

He said in his accompanying statement that “the exchange rate has been little changed at historically high levels over the past 18 months, which is unusual given the decline in export prices and interest rates during that time”, singling out for the first time this year Japan’s new extreme quantitative easing and fiscal stimulus, which have depreciated the yen by more than 20 per cent against the Australian dollar since December.

“Easing by other central banks increases the likelihood the Reserve Bank will have to ease policy, too,” added Mr Johnson.

The European Central Bank eased its policy rate for the first time in 10 months earlier this month to 0.5 per cent, while the US Federal Reserve has suggested it is in no rush to return policy rates to normal levels.

Rob Henderson, chief markets economist at National Australia Bank who had been expecting a cut in June, said the case for a cut had been “compelling” based on domestic economic conditions including rising unemployment.

“We’ve seen ongoing weakness in business conditions, and the strong retail figures earlier this year now appear to be consistent with other data,” he said.

The announcement at 2.30pm AEST yesterday knocked more than half a US cent off the dollar, which closed at $US1.019, down US0.82c, while the S&P/ASX 200 climbed almost half a per cent on the announcement but still finished the day 12.4 points lower at 5143.7 points.

The RBA’s controversial move followed calls from Westpac chief executive Gail Kelly, who in The Australian yesterday suggested weak consumer confidence and the high dollar should be enough to convince the Reserve to cut.

CommSec chief economist Craig James said “with the Aussie dollar still high the Reserve Bank embraced the new mantra of global central banks — ‘do whatever it takes’ to lift economic growth”.

Wayne Swan said he was pleased that all the major banks — except ANZ, which has a strict rate-setting timetable — had reacted quickly to pass the 25-basis-point reduction on in full to mortgage holders.

The Treasurer’s opposition counterpart, Joe Hockey, said the record low rate settings reflected badly on the government’s economic management.

“The government’s budget is in chaos, the Reserve Bank is now in uncharted territory and yet Wayne Swan says Australia is doing well,” Mr Hockey said.

Mr Swan said it was “utterly irresponsible” to suggest that because the cash rate was now below GFC levels it reflected a poorly performing economy.

Nationals Senate leader Barnaby Joyce welcomed the cut in rates and the fall in the dollar, pointing to falling cattle prices

“We manufacture a lot more than cars in this country and the importance of our rural sector is often overlooked,” Senator Joyce said.

“Other countries are manipulating their currencies but we’ve been standing by.”

Mr Stevens conceded that inflation had been lower than expected, and would be even lower were it not for the impact of the carbon price.

Although the Reserve Bank has now cut interest rates seven times by a total of 200 basis points since late 2011, Australia’s official cash rate remains far in excess of policy rates near zero in other advanced economies.

Markets yesterday afternoon were pricing in a 36 per cent chance of another quarter-point rate cut next month. “My guess is they’ll sit on their hands for a while to see what asset prices do,” Mr Henderson said.

Mr James said the RBA was taking a calculated risk, that “this is a new environment where rate cuts don’t spark spending and borrowing booms or higher inflation”.

Bank shares were sold off despite the rate cut, surprising brokers who expected that a cut would make them more attractive because of their high yield.

Where to start – the A$ has been above trend/average values for more than 10 years, it returned to below its mean average since 1983 during the worst of the GFC crisis late 2008 and 2009. It sold off from above parity levels to hit lows of below A$0.60c as off shore investor unwound the ‘cash and carry resource’ trade. When markets settled they returned with a vengeance and drove the value of the A$ from A$.60c levels to above parity and highs of $1.10c levels. For the past 4 years it has averaged in the $1.04 range and still some $0.30c above its mean average of $0.75c. See 1998 – current A$ v US$ Chart below for confirmation. [click on chart to enlarge in a new window.]

In the Creighton story above the author talks of the 0.25% reduction from 3.00% to 2.75% as being the RBA’s first shot in a looming currency war.  Where is the evidence to make such an assumption?

Since the GFC – European and Nth America interest rates have been at or near 0.00 -0.50%.  In all of that time the interest rate differential with Australia has allowed offshore investors to strip wealth from the Nation.  The RBA’s singular focus during that timeframe, and since the early 90’s has been to keep inflation targets within set parameters set by agreements between both sides of politics.  the RBA has never targeted currency in the time since the A$ began to rise above its 30 year mean average .

I ask the question – why is it now as reported in the story above, why has the RBA waited some 10 years to think that it can influence a high A$ value with a 0.25% interest rate reduction?

The answer is simple – the writer of the story hasn’t a clue about currency, interest rates, global investment, labour costs, or any of the other interconnected motives behind global investment.

This story does more harm than good to investors and the moms and dads readers listening to an unqualified journo reporting a story that should never have been published.

The story misrepresents the truth about the reasoning behind the .25% reduction in official interest rates.  The RBA has stated publicly that it has no interest in intervening in currency markets to stem the capital inflow to the A$ – see Oct ’12 story here.

More to the point – the RBA themselves have been targeting inflation when the rest of the world has had zero interest rates for 5 years and inflation has never been a problem.

EYE-BALL Guru has been writing about this stuff for years and it is only now when Australia’s finances and projected revenues are at a crisis level – have Government spokespersons and media commentators started to talk about the cost of the high A$.

Creighton’s “largely to take pressure off the stubbornly high Australian dollar” comment in his first paragraph has no research creditability whatsoever.  The RBA has reduced interest rates since the early part of 2009 in .25% increments and never has the move had any lasting impact on the A$.  In fact any fall on the announcement encourage more buying.   From the above comment onwards – the story has no basis in fact or truth.

In fact the RBA Governor at times during these interest rate reductions talked the A$ up giving confidence to off-shore investors to keep pouring funds into the Nation.  Sadly – the old adage remains – ‘… what went up, must and will come down…’

When Australia has become too expensive for the rest of the world, and we are on our way to being the most expensive Nation in the world – I think we were ranked 6th last time I review the rankings,  and when jobs have been exported, when farmers no longer get value for their crops, when miners are receiving a fraction of $A returns they were receiving in the early times of the mining boom, then the off-shore investors will see they have sucked us dry and look elsewhere for value investment.

Why do you thing the P.I.G.S want out of the EuroZone – they need their currency back so they can become a competitor on global markets once again.

For 10 years the Government, yes both Howard and Costello, and the idiots there now got this wrong.  The RBA and Treasury were no help as advisors – they all had a think-tank that may have been useful 20 odd years ago and none have upgraded their modeling to factor in the current global marketplace incentives .

It’s journalism like this – and there had to be an editor who approved the story mixed in there as well – that makes the Australian media at large hopeless at their jobs.

Wayne Swan’s attributed comments highlight just how insignificant he is as a financial manager – his track record on budget forecasts and the ability to explain the numbers – i.e. Nominal GDP as opposed to Real GDP shows his and the journalists ability to read the numbers and call Swan out when he is telling them porkies and misrepresenting the facts.

Creighton should take a good look at his output and ask a recognised economist of other market operative about his story.  The shock advice about his inaccuracies will do harm … and another less than qualified journalist might bite the dust.

The EYE-BALL Opinion plea for action:

A Note:  This site is dedicated to having Gillard as Prime Minster removed by all legal means in the shortest timeframe possible.

Gillard’s Government is poison to this Nation … how do we get rid of her now?

The message has to be sent – there are some 14 million registered voters represented by 150 MP’s – 72 of which are ALP.    If each of these 72 ALP MP’s received an e-mail, a fax, a phone call, or a letter from all the people who want her gone with a simple message like the one below –  :

This is a protest message …

… do you think it might motivate caucus …

Please – send this message to as many and as often as you can – bombard the Caucus Members with a message so clear and with weight of numbers that it will force them to act.

You could also think about sending it to the Independents, Oakeshott, Windsor, Wilkie, and Brandt,  as well … Katter already votes with the Coalition, and Slipper and Thompson are a lost cause and their fate already sealed.

Links to every MP e-mail can be found using the Australian Parliamentary Website Members and Senator links below … pick your ALP MP or Senator, or send it to all – voice your opinion now.

Please – if you found this story to your liking and would like to promote it to your social media contacts – i.e. Twitter, Facebook, or other icon linked account below – please use/click on your favoured Icon(s) to promote the story.  Thankyou.

Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.

Links to Australian Parliamentary Website – MP’s

The EYE-BALL Opinion’s – MEDIAZONE …

  1. Guru
    May 9, 2013 at 9:46 am

    In a new story today written by David Uren, ‘The Australia’s’ Economics editor and titled: “Rate cuts not designed to lower currency ” – the Creighton story above is put in its true perspective …

    … read more here…

    An even better story on “Rate cuts not the answer to high $A written by The Australian’s Henry Thornton published earlier in the week gives alternatives to what can be done to try and weaken the A$ value …

  2. Herman O Hermitage
    May 9, 2013 at 11:13 am

    The rate cut is simply a function of deteriorating business confidence and consumer sentiment. The contraction in budgetary fiscal stimulus will not help. Currency is another story.

    ANZ job ads last Monday predict unemployment approaching 6% later this year. RBA reports low demand for housing finance. Building approvals are static at best, and mothballing of mining projects creates a different set of problems. We all await treasury estimates of GDP for 2013/14 next week. Inflation is benign.

    No one dares to talk the economy down, but what is reality?

    Action on the currency is too long overdue.

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