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Political
challengers, you just saw a great example of how to run against an incumbent
when things in your country are perfect, a seemingly impossible task:
convince voters there is essentially no difference between your ideas and
those of the incumbent. This strategy was just worked to perfection in
Australia, where a week ago the liberal Labour Party's Kevin Rudd was elected
as the country's new prime minister, unseating the long-ruling conservative,
John Howard.
Despite
the stark contrasts between the two men, the same mantra was repeated over
and over by the campaign and in the press: there really is little difference
between the two men's positions.
Really?
The
folly of that assertion was made plain yesterday when the new prime minister
signed Australia onto the Kyoto Protocol in his first political act the same
day as his swearing in. Regardless of whether one believes this to be good
policy, it can't be argued that it will impose heavy new burdens on the
nation's economy -- particularly the resource-based economy of Western
Australia -- as well as additional costs that will fall onto businesses and
consumers alike. John Howard refused to ratify Kyoto.
Here
are a few other "non"-differences:
- Mr. Rudd has
vowed to pull Australian troops from Iraq
- He is a
close friend of unions, one who will almost certainly roll back labor
reforms made over the past few years and his appointees are already
issuing stern warnings to employers
- Despite
campaigning as a fiscal conservative (aren't they all when they're
running?!), Rudd will certainly be a bigger spender than his predecessor
- Kevin Rudd
has decried Australia's interest rate increases and made that
"issue" a central point of his campaign
See,
no difference between the two men at all!
That
last point about interest rates, however, is particularly noteworthy because
the country's big interest rate differential with other countries has
underpinned its strong currency in recent years while likely minimizing the
effects of global inflation on everyday Australians, which are being felt
more here as our currency falls.
Should
the new government work to pressure the central bank to lower interest rates
in the face of evidence they should act to the contrary, it could help weaken
the Aussie dollar; indeed, the Rudd's economic team is already loudly beating
the drum against rising mortgage rates, which probably marks just the
beginning of its push for lower rates overall.
And
all of this leads to a larger point: despite the ongoing litany against the
U.S. dollar -- and there are many reasons to worry about its direction and
health -- currencies are a much more complex story than many commentators
would make it seem. Other central banks, most notably that of the U.K., are
already starting to clearly tilt toward lowering interest rates; should that
trend take hold across the board, it could make currency trading much less
clear in the intermediate term and might explain why the U.S. dollar actually
strengthened last week despite the confirmation from some Fed board
members that a December rate cut was a certainty.
A
global trend of falling interest rates would be beneficial to the ongoing
commodity bull market but it is a matter of ongoing analysis to determine
which currencies will rise and fall, anti-U.S. rhetoric aside.
Back
to Australia, for which economic conditions had been literally perfect in
recent years and which had also been managed admirably by Mr. Howard: the
country will now most definitely proceed along a different course, one which
will likely change which of its industries will be most attractive for
investment purposes and perhaps take some of the luster off of its currency.
The
age-old adage of, "if it ain't broke, don't fix it," was roundly
ignored by Australian voters. We will soon find out at what cost.
*Note:
you can listen to a further discussion of currencies, interest rates and the
Fed's upcoming meeting on this week's edition of my podcast, "Market
Neutral."
Chip
Hanlon
President, Delta Global Advisors, Inc.
19051 Goldenwest,
#106-116 Huntington Beach, CA 92648 Phone: 800-485-1220
Fax: 800-485-1225 www.deltaga.com
A widely-followed
market commentator, Mr. Hanlon served as the C.O.O at Euro Pacific Capital
prior to taking the reigns at Delta Global. He had previously been the
President of Unfunds, Inc. and spent 7 years prior with Sutro & Company
as a Vice President and the company's Los Angeles Director of Syndicate
Offerings.
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