Australia | Jul 29 2011
By Greg Peel
The economists at ANZ now expect the RBA will raise the cash rate from 4.75% to 5.00% next Tuesday. Realistically this should not be a surprise, because a couple of months ago economist consensus was exactly that – the RBA would wait for the June quarter CPI data and then raise.
The problem is that economist consensus has flipped several times in that period, and while mostly this has been between “rate rise in 2011” and “no rate rise in 2011”, Westpac's economists shocked the country last week by suddenly suggesting that not only would there actually be a cut in 2011 instead, it would be the first of four leading into 2012.
Before Westpac dropped its bombshell, the futures market was suggesting the same.
The reason for the flip-flopping is quite simply the flow of data over the period. One minute we're talking record terms of trade and massive capex intentions, and the next we see a weak GDP result. Then we start focusing on a very weak retail sector, before along comes an inflation scare in the CPI result.
Frustrated by the apparent headless chooks, one FNArena subscriber emailed me this week and asked why we have to put up with economists at all. Why can't we just make up our own minds based on the data and the RBA statements?
Well, we can, of course, but the general populace will still run screaming from the room or hide behind the couch to watch the nightly news whenever an economist appears. By the same token, we could also ignore stock analysts, who often put Buy and Sell on the same stock, or even weather forecasters, who often get it right but we only remember when they get it wrong.
Unfortunately we're stuck with economists, and their role is primarily to provide advice to their own in-house traders and wealth managers so they can stay ahead of the market. This should be comforting for those with money under management, except that there is rarely agreement between houses. What is the humble investor to do? ANZ says up next week, Westpac says no change and the next move will be down. Others are looking for a hike later this year or maybe 2012.
All we can do is remember one very important fact – just because someone might be “in the market”, ie brokers, analysts, economists etc, does not mean they have any particular “inside knowledge” that you don't. They're just more experienced at markets than you are. And if everyone agreed, then there simply wouldn't be a market.
I would wager that “TV economists” probably don't like having to make their predictions public (with the possible exception of Craig James), but such exposure is meant to be a marketing tool for their respective houses. It would be safer to be anonymous if wrong.
So who's right? Don't ask me. I'm not even an economist. Were we sure Cadel was going to win?
The devil will be in the data. Oh and I'm just kidding Craig.
