There are a few stories today for which...for what it's worth...I thought I'd write down a few of my thoughts.
Greece:
Yes it's true the resilient George Papandreou won a no confidence vote earlier this week. Markets are funny though - they're high maintenance and at present are very short term in their thinking. Yes it was an important step in the right direction and it means it's more likely that the parliament will be able to pass the austerity measures that the IMF is seeking. But there's still a long way to go. It's also mind blowing that there are reports today that they're still trying to weasel their way out of some of the measures. European Union leaders have had to fend off attempts by Greece to water down some of the austerity measures and the privatisation package. It really seems to me that the Greek financial crisis is more to do with a mentality than not being able to manage their books - though that needs some serious work too.
US:
The latest figures on jobless claims (rising 9000 to 429,000) and some weak housing numbers points to further evidence the US economy is just sputtering along. The Federal Reserve downgraded the country's growth forecasts this week and basically said that the economy's in some serious doo doo and we're not entirely sure how to manage it now. Oh and the unemployment rate should be down to 8 per cent (still seriously high for a developed nation) by the end of next year. The US is arguably in a worse situation that Greece, but there's no chance you'll ever hear a banking economist say that. They'd lose their job.
Australia:
A leading rating agency has suggested the exposure of our banks to the unfolding European debt crisis is in fact material. Truth is the further Greece (and Europe) goes down the path of financial disorder, the more expensive money will become. That'll raise the funding costs for banks and lead to higher interest rates (as they pass those higher funding costs onto consumers). Is it any wonder then that Australia's in the midst of a savings boom? Yes investors want to take advantage of higher returns for their money (in bank deposits) but there are also so many investment risks out there that shareholders are simply voting with their feet - and putting their money in cash. Keep watching the savings rate, that's the real test for investment muscle out there.
David Taylor
