Economy

Macquarie Research released some thoughts to ponder about the US economy and its effects on the global equity markets and the Australian sharemarket.

What does the US Economy hold for the Market?

The week has been an eye opener for market watchers, traders and investors alike. We’re at a crossroads. (Aren’t we always at a crossroad?) Australia is going to elections at the end of November on Saturday 24th. US elections are coming too but that’s next year. Billionaire investor George Soros is warning of an impending market correction. The US dollar is continuing to decline all the while oil and gold is seeing all time highs. There you have it, the five topics that have caught my eye in the past week: George Soros, elections, the US dollar, oil and gold.

The Australian sharemarket as well as international stockmarkets have been in bull mode for a while. The twentieth anniversary of the 1987 stockmarket crash is today: October 19th. The Australian economy has seen four years of continuous growth. So what's going to happen to our booming Australian economy? What are all these signals telling us?

Economic History 101

Did you know, today, Friday October 19th 2007 is the 20th anniversary of the history making, record breaking October 1987 market crash. Back in the 1980s global stocks and the Australian economy were booming after the early 80s recession, economic reform ad deregulation and re-rating of shares as a result of lower inflation. Australian shares nearly doubled in a year to the September 1987 high which was strongly supported by entrepreneurial stock gains. The American stockmarket peaked a month earlier in August. On October 19th the US stockmarket fell 20 percent and the Australian market followed the trend dropping 25 percent on the next day's trade (October 20). From pre-crash highs to their lows, the American stockmarket fell 35 percent and the Australian sharemarket fell by 50 percent. It took the USA stockmarket two years to recover and surpass previous highs while the Australian sharemarket took a little longer to recover: it only surpassed highs made in 1987 in February 1994.

Milton Friedman (July 31, 1912 – November 16, 2006) died today at the age of 94, a US Nobel prize-winning economist. He won the 1976 Nobel Laureate in Economics for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilisation policy. Other awards he received are the John Bates Clark Medal in 1951, National Medal of Science in 1988 and the Presidential Medal of Freedom in 1988.

Has anyone noticed that Peter Costello has had a bearish mood all year? I would think that Peter Costello as Australia's Federal Treasurer would have some reason why he is trying to warn the Australian people about impeding doom in the markets all year. Is it because he is a politician and by knowing that the market simply goes in cycles of booms and busts, he will inevitably be right anyway?

The dictionary definition of "interest rate" is: the cost of borrowing money. The interest rate is often expressed as an annual percentage of the principal. There is more than meets the eye than just the one number. Interest rates are used by a country's national bank (Such as The Fed in the USA or the Reserve Bank of Australia or RBA) as part of their monetary policy to either stimulate growth or slow down the expansion of an economy.

If you ave been living under a rock, I would like to inform you that the Reserve Bank of Australia (RBA) has lifted the official cash interest rate by 25 basis points to 5.75 per cent. If you live in Australia basically the main stories this week are the poor men that are trapped in a gold mine in Tasmania and the impact of the Australian interest rates on the economy as well as the hip pocket of households. But the question lies - what is the impact for share traders? I'm a little busy this evening and tomorrow, but I promise I'll write a blog entry about the Australian interest rate rise.

The Reserve Bank of Australia (RBA) Raises Interest Rates by 25 basis points to 5.75 per cent; Aussie dolar spikes: The Reserve Bank of Australia (RBA) raised the interest rates for Australia by 25 basis points to a 5 year high and the first . Lifting the benchmark official cash rate to 5.75 per cent from 5.5 per cent credit tightening in 14 months. The Aussie dollar spiked 50 pips on the announcement of the interest rate rise at 9.30am AEST, hitting US$0.7660 cents.