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Interest Rates Are Interesting

I have a theory that the easiest job in Australia is to be the head of one of big four banks. On day one of my employment as CEO I would do two things. First and foremost make certain they had the correct banking details so that my grossly inflated salary went into the right bank account. i would then send out a memo telling everyone to do exactly the same thing as they did last year. There is to definitely be no innovation and no customer care because that had worked so well for the past 50 years. I would wish everyone good luck and I would see them in a year to repeat the process.

However, my opinion is shifting and there is a new contender – being head of the Reserve Bank of Australia. I have come to this decision based on the fact that it has been 2528 days since the RBA last made a decision to raise interest rates and 456 days since there was any change at all. I tend to discount the endless cycle of interest rate cuts as being non decisions since rolling down hill is always much easier than walking up hill.  You can get a sense of the inertia around interest rates with the chart below.

Capture

I find the current interest rate environment very interesting because of its lack of historical parallel. However, in life all things are governed by the simple maxim of regression to the mean. Sooner or later interest rates will move back towards their long term historical average which is about 5%, which should make it interesting for all the property investors who have already spent their unrealised gains.

 

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Comments

  1. james hay says:

    RBA board is one of the few groups that works on Melbourne Cup day – very onerous

  2. Bill Miles says:

    It is interesting how subtly pervasive is the oft-heard notion that, sooner or later, things must return to normal, or even a long term historical average. There is nothing to say that the future will look anything like the past and just because it has done so many times before does not mean that it will continue so. The story of the world is not a historical statistics lesson. Point changes in history have occurred recurrently over thousands of years. Civilisations died. Wars ripped apart long-established communities and instituted new regimes that did not reflect the past.
    The charts of many of the parameters by which we measure the world are now in a rapidly rising exponential phase where all bets are off, except collapse. Best to take profits? I have been told by more than one wise and very knowledgeable person that what good technical traders are good at is that they don’t anticipate, they trade what they see. When looking for comparators, statistics is only useful in a defined population. Looking around, it seems to me that all that could change, especially the populations. Keep your powder dry!

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