Terry McCrann: We can thank Trump, Powell
Australia’s market is in a bizarre, unhealthy and totally inappropriate embrace with Wall St and it will end in tears — maybe worse, maybe not as bad, as the Global Financial Crisis, writes Terry McCrann.
Terry McCrann
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Overnight on Friday, Wall St powered to a record high. The Dow went straight past 27,000 and the broader measure, the S&P 500, went past 3000.
Short of some global shock, they will continue, and in the process drag our market — finally, finally — to a record, irrespective of anything happening down here.
We are totally hostage to Wall St, which is totally hostage to Jerome Powell, the head of the Fed — their version of our RBA — who is in turn totally hostage back to Wall St.
It’s a bizarre, unhealthy and totally inappropriate embrace and will end in tears — maybe worse, maybe not as bad, as the Global Financial Crisis.
But for now, it’s unstoppable.
Just as we’ve long been told that you “can’t fight city hall”, the pre-Powell Fed had long decided that it wouldn’t fight Wall St and its temper tantrums.
And now Powell has humiliatingly buckled as well. And not just to Wall St, but also to a certain late-night tweeter.
The one reason and the one reason alone that Wall St resumed its surge in the closing days of last week was Powell going before the House of Representatives and promising — really promising, crossing his heart and hoping to die promising — that he would never, never raise the Fed’s interest rate and would indeed “probably” cut it.
In contrast, and not exactly incidentally, our RBA head Philip Lowe could do exactly the same thing down here and it would have exactly zero effect on our local market.
Indeed the two rate cuts that Lowe has actually delivered were insignificant in their effect on our market relative to the overnight news from across the Pacific.
As I wrote two weeks ago: Thank you (Mr President) Donald, thank you (Mr Chairman) Jerome — for around $140 billion added to our superannuation balances in the 2018-19 financial year.
Our share market was up just under 7 per cent over 2018-19, adding that $140 billion to share values.
The one and one reason only for the rise was the near-10 per cent surge on Wall St over the year.
And the only reason for that surge was the 180-degree switch by the Fed from pre-Christmas promising rate rises through 2019 to a New Year promise of rate cuts.
As I wrote, back then he buckled to two “spoilt brats” throwing tantrums: Wall St and President Trump. But the more potent is Wall St and last week he locked his buckle in cement.
But it could turn out to be the sort of cement we often see in third world buildings.
The promise to probably cut rates in based on the assumption that the US economy might be slowing.
But good jobs numbers a week ago — the US jobless rate is just 3.7 per cent against our 5.2 per cent (before the next numbers this coming week) — suggested it might actually be OK if not quite a rollicking A-OK.
Wall St expects — and I mean expects — him to cut at the next meeting at the end of the month.
Assuming he does, it will remain buoyant.
But if he doesn’t it will plunge. And spark an immediate grovelling apology from Jerome and a promise that he really, really, really, will cut at the next meeting.
So we sort of have three weeks for a stronger Wall St to drag our market up the couple of hundred points (on the 200 index) to finally get above that high all the way back in late 2007, a full year before the actual GFC hit.
It’s worth noting that whereas we are only now about to finally get back to our 2007 high, Wall St is nearly double — yes double — the record it hit before the GFC.
The main reason is the long period of near-zero rates from the Fed and its multi-trillion dollar money printing.
Neither of which happened down here.
JOSH, IT’S TIME TO BORROW A TRILLION DOLLARS
It was also because of the rise and rise of the 21st century tech stocks — led by a very 20th century one, Microsoft. It is now worth nearly $US1.1 trillion — at around $A1550 billion, not far short of the value of every stock on the ASX.
Interestingly, it’s the relatively mature new tech stocks Amazon and Apple that come next in value.
Both are now pushing towards $US1 trillion.
The younger new techs, Google and Facebook, have lagged as they hit regulatory issues.
But the five of them have a total value on Wall St of over $6 trillion — or nearly three times the entire ASX value.
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