Readers of our Japan Foreclosed Property blog will be aware that we have been expecting Japan to engage in an easy monetary policy for a time now, and now its coming through. The consequence is going to be good for Japanese property, but also for the commodity stocks, to which we are overly exposed. Copper, gold and tin are all at record highs, and even other metal prices fared better despite the rapid growth in their warehouse inventories over the last year. Clearly this is not simply about economic stimulus. Commodities are denominated in USDs, and since the USD is one of the three major currencies being debased - USD, Euro and Yen, you can expect more strength in the commodities, and also a corresponding strength in the commodity currency.
The Reserve Bank of Australia did not raise the Official Cash Rate at its last meeting, causing a big drop in the currency. We might expect it to do so at the next meeting. I have a more probable explanation for the lack of action. I think the Australian Labor government is going to go on a spending spree in order to keep the Australia dollar competitive. Expect it to announce a national campaign to build a mag-lev train network or some other scheme like that. I reckon Kevin Rudd will spend his time in China trying to develop a cozy partnership with the Chinese to supply the tracks, since they have been building such maglev systems lately.
The Australian currency is going to be strong, so expect such efforts as these to manage the currency so that manufacturers and farmers are not too disadvantaged.....even though its not its natural constituency. Its also about managing the volatility in an era of government financial intervention that really re-started in 1983 after a short hiatus. Like one year. Was there an Olympics that year?
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Andrew Sheldon www.sheldonthinks.com
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