Why the RBA should have waited and not lifted interest rates
The RBA (Reserve Bank of Australia) has been widely criticized for its conduct of monetary policy over the last two years. Some of that criticism is misplaced. Yes, the Bank’s inflation forecasts were far too low, but the bond market’s forecasts were not much different.
No interest rate rise in 2022 should be the RBA’s New Year’s Resolution
The RBA (Reserve Bank of Australia) Board doesn’t meet in January. That is a pity, because otherwise the Board might announce a New Year resolution. One particular resolution would be very reassuring to hear: A resolution to not raise interest rates until inflation expectations are re-anchored well above their pre-Covid levels. That is, not to […]
Finance fallacies: Share buy-backs
When a corporation buys back its own shares, then what happens to the share price? A classic finance fallacy is as follows. The share price will rise because the buyback reduces the number of shares among which the firm\’s profits will be divided (true), which increases earnings per share (also true), which in turn will […]
Global minimum corporate tax rate: How the G7 plan could reboot Australia’s moribund tax debate
Should Australia cut its corporate tax rate to 15% and eliminate dividend imputation? That question arises again now that the G7 countries have agreed, in principle, to a global minimum corporate tax rate of 15%. There would be winners and losers in such a change and the losers have a lot more political influence than […]
Correct Terms: Institutions
\’Institutions\’ is a word that is used so freely that many people don\’t even realise they don\’t know its true meaning. That is unfortunate because an understanding of the nature and purpose of institutions, and how they evolve through time, is essential to not only economics, but history, politics, and much else. This article is the second […]
The swap curve gets weird
The biggest global markets for transferring risk (by far) are the interest rate (IR) risk markets. A key relationship in these markets has recently broken down. It is the relationship between the treasury yield curve and the swap rate curve. It is another example of how broken the global financial system is, and it seems […]
Show us the money
During the commodity price boom from 2004-2011 BHP Billiton\’s board raised the firm\’s dividends to unsustainable levels and now in the commodity bust it has been forced to cut dividends by 75%. Well, so what? A firm that experienced an unanticipated surge in cash flows paid out a large part of that cash to shareholders […]
A convergence trade: Qantas and Virgin
There is something odd about Australia\’s airline duopoly at the moment. Over the last two years Qantas shares have risen in price by 225%, but Virgin Australia\’s shares are up a mere 25%. It is not so unusual for two firms in the same industry to have highly divergent fortunes, but it is unusual in […]
On the money
Quantitative easing is often described as \’printing money\’. But that statement is incorrect and portrays a misunderstanding of what QE really is.
Digital disruption: Peer-to-peer
Platforms that connect household borrowers to household lenders will soon push banks aside. The only reason capital still flows through banks from savers to lenders in 2015 is because the banks have a historic monopoly. As soon as new platforms can be created to directly connect households to households, then borrowers will pay lower interest […]