Trump Centre Stage But Australia Has Other Problems

This week saw the US stock market have one of its biggest corrections this year, which only added to the already heavy Australian market.

That said though, the worst is probably already behind us, or very close to it.

All the panic in the US, which washed around the world, was about Trump interfering with an FBI investigation into Russia’s involvement in the US election. Let’s be clear here, there is only a scrap of evidence if that, which points to such interference. Unfortunately for Trump that evidence comes from the personal notes of the man he sacked this week as head of the FBI

This sacking had already raised eyebrows as it was made as a public announcement, while the FBI Director was giving a speech. Trump didn’t even have a private meeting with the fellow first to make him aware. Quite improper, but not illegal. It did however, fall perfectly into the media’s lap and for many of Trump’s not so favourite people to suggest this was a follow-up action to stop that investigation.

A couple of things to keep in mind. Firstly, the Russian hacking that occurred during the US election also helped Hillary Clinton, who used some of the information in her campaign. So this is not a clear cut situation of Russia helping Trump. it doesn’t mean that Russia’s hacking should not be investigated however.

Trump thinks the whole thing is in his own words a “witch hunt” and denies trying to intervene in the investigation. All there is to suggest this is the FBI Directors para-phrasing notes of one of their usual briefings which involved other matters as well.

Secondly, even if Trump has done the wrong thing, and even if he were found to have done the wrong thing by an investigation, that does not automatically make him impeachable. Two Presidents have previously seen attempts to impeach them. Nixon and Clinton. Nixon was, and Clinton wasn’t despite a strident effort to do so. You see it takes a vote of Congress and two-thirds of the Senate, to impeach a President. It doesn’t matter what he or she has done unless the move to impeach is successfully voted on, it doesn’t happen.

In summary then, it is not as clear as the frenzied media would have us believe that Trump is guilty of actual intervention, beyond a conversation that was held about matters in the normal course of President/FBI Director Oval Office meetings. It may be the case, but it is not clearly so. Furthermore, even if he has, it is unlikely an impeachment vote would succeed. Unless of course, more substantial and damning evidence came to light.

So the wave of selling, and mostly buyers simply standing aside for a couple of days has likely run its course.

When you add to this the reality that the US economy is really booming at the moment, accelerating growth, still low-interest rates, and full employment, then one wonders if all the fuss in the stock market was appropriate. No doubt a great deal of fuss in Washington and politically is warranted.

We look for stocks in both the US and Australia to be somewhat stronger next week, as again will of course, the Australian property market generally.

There have been forecasts by one foreign bank, that the RBA will have to cut interest rates several times this year.

Please note, having worked in the banking sector, such a call is more likely to be about obtaining publicity, than substance. Their claim rests in their belief that Australia’s employment statistics have an upward bias, and this week's employment data saw full-time employment decline.

The overall employment rate for Australia improved slightly, due to part-time employment, with an overall rate of 5.7%.

This is way above the USA, Mexico, Japan, China, and the UK. That the RBA and the government have both shown a degree of satisfaction with this level of unemployment in recent times is truly abhorrent. It goes a long way to displaying the false confidence Australia has had over the past decade which I speak of all the time in my talks.

Australia’s unemployment is far too high, because we are a severely over-governed, over-taxed, and over-regulated society.

This does not mean however that the RBA will suddenly wake up to this fact and start cutting interest rates. That’s a nonsense suggestion. We might want it to happen, which is why we may think it makes sense, but we always have to step back and ask if really will?

As I have always said with regard to the RBA, there are two questions to ask, not one.

1. What should the RBA do? 2. What will the RBA do?

They are two separate questions. The suggestion this week that the RBA has to cut rates because of falling full-time employment, is a clutching at a straw approach. Australia has much bigger domestic self-created problems that that. The decline in full-time jobs is the result, not the cause of our problems. To solve the employment outlook requires a great deal more than the RBA cutting rates further from what are already historically low levels.

We cannot solve Australia’s problems here, but we can again highlight why the RBA will keep rates at 1.5% or the rest of this year, and may even raise them once in 2018. it’s because of the bank's internal culture and the types of Governors that just seem to automatically rise to the position. The current Governor is not a shadow of his incompetent predecessor. Governor Lowe wants nothing more than to do nothing, and he has basically said as much. His whole career was spent explaining what happened several years ago with lots of charts and analysis. Skills of thinking in real time, and “imagining” what the future might look like, he cannot find in his 1960’s textbooks. So he doesn’t.

Whether there is an argument for rates to be higher or lower, doesn’t much matter. Lowe will not change them unless he is absolutely forced to do so by events that have already occurred.

The great news for Australian property is that domestic economic performance will continue to improve, despite our RBA and government, because of the burgeoning acceleration of the global economy. Particularly of the two largest economies, the USA and China. With interest rates remaining stable at 1.5%, property values can only continue to rise.

Clifford Bennett