Friday, April 08, 2011
Captains Macro Log, star date 08/8&^7/9&18
We have spent the last 3 days searching sector Alpha for the Ultimate Trade. Having taken damage from a surprise attack from the Aussieyen, USS-TMM has been repaired using its long Dilithium battery stocks and long equity core. We have now entered a spectacular binary star system in the Spendor Australis sector on a most critical mission of Australasian research. Our eminent professor, Dr Cpmppi, will attempt to study the decay of the consumer expelled at relativistic speeds from the massive stellar explosion in the commodities sector which will occur in a matter of weeks. Meanwhile our sensors are continuing to indicate a strong presence of the Borg who have locked on to the strong trend signals emanating from this system.
There are a few things about this system that have been causing USS-TMM's research crew to scratch their heads in recent months, the first of which is the slightly strange prudence of the Aussie consumer. The crew of the USS-TMM must admit that they have been surprised that despite a record surge in income growth on the back of the Klingon, sorry China driven Terms of Trade shock and very sharp rebound in the Aussie economy that Skippy and the rest of the Romulans haven't been loading up on plasmas and Priuses. Indeed, the savings ratio (see chart below), having spiked to levels not seen since the early-1980s has just gone sideways over the past couple of years.
Now, Starfleet Command reckon this is the result of the two speed economy of this Binary System, as the East deleverages from the housing boom, while the West increasingly falls under the gravitational influence of the Klingon Empire which has been scouring the galaxy for raw materials. And, as an explanation, that makes sense to some extent, but doesn't really stand up well to what the data is showing: State Unemployment rates (see chart below), while higher than the peak of 2007/8, are all still below what one might assume to be NAIRU.
So is it the debt load? The crew of the USS-TMM must admit they shake their heads in despair when the Bondvigilantians start jabbering on about debt-to-GDP ratios and the like, because that neglects to consider the other side of the balance sheet. And, as the below chart clearly demonstrates, while household debt stands at around 150% of household disposable income, household Net Worth sits at just below 600% of that number. It is therefore something of a stretch of the imagination to argue that the Romulans have over-leveraged themselves.
To dig a little deeper, TMM constructed a rudimentary model of Australian Retail Sales, which involved much tweaking to the warp drive engines given that the ABS appears stuck in the 20th Century in terms of both data frequency, quality and the existence of appropriate deflators, and make the ONS look positively competent. But anyway, TMM eventually managed to get the engines back online, inputting Consumer Confidence, Consumer Expectations, Wages, personal credit, terms of trade & house prices, with the system spitting out something vaguely resembling the actual data (see chart below). What is interesting to TMM is that post the 2001-3 slowdown, retail sales were also slow to move higher post the initial rebound, underperforming what one might imagine given what TMM reckon affects consumption. After a year or so, sales began to rise quite strongly to more in line with the model. So, under that prism, perhaps we should not be surprised at how tepid consumption has been so far? And although TMM's model has retreated from its highs, it is still pointing to ~2.5% real growth in retail sales in the coming months. Given that the official measure appears to have bottomed out, TMM are optimistic that the Romulans will return to their old habits in the coming months.
So what does that mean for the RBA? Well, in recent months, headline CPI has been falling, helped by the seemingly bulletproof Aussie Dollar, but in the coming months, favourable base effects drop out and the TD Inflation Gauge (see chart below, white line; headline CPI - orange line, RBA Trimmed Mean -yellow line) is pointing to inflation moving higher. TMM reckon the RBA is too optimistic in its inflation forecasts given both this and their expectation that the consumer is about to reawaken...
...so while on TMM's adjusted Taylor rule, the RBA are marginally ahead of the curve after November's hike, in TMM's view, in the coming months Fleet Admiral Stevens is likely to get itchy trigger fingers.
And given this, the curve does not appear to be pricing in enough tightening (see chart below, courtesy of TMM's allies on Planet Nomura).
Captains log Star date 08/8&^7/9&19
Target has been acquired and firing solution calculated. Photon Torpedoes armed and locked. USS-TMM is engaging Aussie Bills.