The New Investment Boom the RBA Should Be Looking For
By The Daily Reckoning Australia | February 21, 2013 3:01 PM EST
Quick, somebody tell the Reserve Bank of Australia (RBA) about natural gas. It's the new investment boom the bank is looking for, only it's already happening in the energy sector, not the housing sector. Even central bankers can't always get what they want.
The bank released the minutes from its February meeting yesterday. It's still sticking to its idea that even though mining investment has peaked/will peak this year, low interest rates (175 basis points cut from the cash rate since 2011) should kick off a housing investment boom. It also vaguely hopes that low interest rates will work their way through the economy this year, stimulating everything they touch. Here's the key paragraph:
'Members were briefed on the updated staff forecasts. GDP growth was expected to be a bit below trend at around 2½ per cent over 2013 before picking up a little over the course of 2014. The forecasts had been revised down slightly, largely reflecting information that accumulated late last year suggesting a softer outlook for mining and non-mining investment. The forecast for growth over the next year or so incorporated several factors, notably the likelihood that the mining investment boom would reach its peak, the effect of both fiscal consolidation and the persistently high level of the Australian dollar, and few indications of an impending pick-up in non-mining business investment at this stage. At the same time, improving conditions in the housing market were expected to continue to provide support to dwelling investment, while non-mining business investment was expected to pick up gradually over time.'
Analysing the minutes of central bank meetings is as tedious as re-shelving books in the library. Having said that, we used to re-shelve books in college and always found it satisfying to put everything back in its proper place, at least for a little while. But the orderly progression of the RBA minutes is misleading.
The more you read the minutes the more you realise the bank is hoping everything works out okay. But fundamentally, it's wedded to the simplistic idea that the mining boom will give way to the housing boom and the economy won't miss a beat. If investors subscribe to this theory, they'll miss the only real boom likely to happen in 2013.
Yes, it's the energy boom we're talking about. That's the one sector capable of leading the indexes to much higher highs. It's the one sector of the economy that could lead a new investment boom. And it's the one sector that could deliver lower energy prices - in effect, a massive tax cut - to households and manufacturers, not to mention profits to shareholders. This being an investment newsletter, it's the last possibility that intrigues us most.
Most Popular Slideshows
- Top 5 Richest Tennis Athletes
- Angelina Jolie & Brad Pitt Heads to Malta For New Movie After A Whirlwind French Wedding [PHOTOS]
- 2014 US Open Update (Day 4 - Men's Singles): Murray, Djokovic, Raonic and Isner Advance to 3rd Round [PHOTOS]
- Kate Middleton’s Mom Accused Of Being A Social Climber, Prince George Not Seen By Relatives
Join the Conversation
- Apple iWatch is iPhone 6 Accessory on Sept 19 Release Date: 6 Confirmed Specs & Features
- iPhone 6 Release Date Update: 4.7-Inch Model Scores 65.8% In Screen-To-Size Ratio; A Surprise Entry Scales Top Spot [List Attached]
- Canada Vs Russia War Erupts Via Twitter on Russia-Not Russia Maps
- Product Recall Alert: Hewlett-Packard Pulls Out 6M Power Cords from US, Canada Over Fire Hazard Concerns, Australia Also Affected
- ISIS Wants $6.6M and Release of Aafia Siddiqui in Exchange of Head of Female US Humanitarian Aid Worker, 1st American Fighting for Jihadis Dead
- Ukraine Ceasefire Looks Remote As Putin Talks Tough At Meeting With Poroshenko
- James Foley Torture Involves CIA Waterboarding Technique