The ASX: Hostage to the Freak Show – Global Politics, QE and the Markets

The ASX Down and Global Politics

Talk about a total freak show. Look at the events happening around the world.

Prince Andrew of Britain is stepping down from royal duties because of his association with convicted sex offender Jeffrey Epstein.

The US president has impeachment proceedings against him. The Israeli prime minister is now on a charge of corruption.

And Australia’s oldest bank, Westpac, is on the hook for facilitating payments related to child pornography.

Let’s not forget the Channel 7 guy that was shagging his assistant while supposedly giving his full attention to running the company.

Oh, and Cardinal George Pell went into the big house this year, too.

Is it any wonder the average Joe holds politics and business in contempt?

Our beat is money and finance here at Profit Watch. It may seem unwise or irrelevant to stray into such matters.

But it’s not. I have the work to prove it…

It’s a new book called Narrative Economics by economist Robert Shiller.

You might know him from his previous work Irrational Exuberance. He’s been around a long time.

There’s lots to explore and say about his new book. But a broad point is that you cannot separate finance — and asset markets — from the wider cultural milieu in which they live.

Why so? Because stories and narratives drive human behaviour far more than cold, logical interpretations of GDP, wages and employment figures.

For example, we’d all love nothing more than Aussie stocks to start soaring so we can all cash in.

But is this likely when the public is preoccupied with fires and droughts, low wage and economic growth, plus Australia’s obvious corporate and cultural deficiency?

It hardly seems the recipe for the optimistic and blue sky thinking that takes a stock market like the ASX to an excessive peak.

That’s not to say you can’t make money these days. But, as I’ve said for a while, it’s a stock picker’s market.

Right now, I just can’t see the index taking off.

Of course, money could trump culture in the end.

A strategist, cited in today’s Australian Financial Review, advises that central bank liquidity will start juicing the markets.

He may have a very good point. I’ll be keeping a sharp eye on this going forward.

This is another reason you and I should be keeping an eye on gold and base metals.

Money injections could take the industrial cycle up or have fund managers seeking some shelter in hard assets.

It will come into sharper focus once RBA Governor Phillip Lowe gives his speech on Quantitative Easing (QE). That’s due next week.

We don’t know the script yet. But presumably he will put some parameters down about what could trigger this policy from the RBA.

I think it’s a certainty…

The RBA: The only game in town

Australia’s dismal growth figures need juicing and the private banks are going to stay under intense pressure for a while.

The federal government wants to deliver the federal surplus. That leaves the RBA as the only game in town.

Naturally, anything to do with the RBA and monetary policy will be wrapped in acronyms and jargon to make it as obscure as possible.

Here’s the crux of what they’ll do: print money from nothing and buy assets. That’s it!

They like to use the term Quantitative Easing, probably to lend it an air of intellectualism and sophistication.

You might be surprised to know that the term came about from an academic called Richard Werner who created the term as an English translation from a policy he proposed in Japanese.

The central banks took the name of the policy, but did the opposite of what he said. Go figure!

I’ve spent a lot of time studying QE as it has been applied in the Japan, US, UK and Europe. That should come in handy next year.

More soon!


Callum Newman Signature

Callum Newman,
Editor, Profit Watch