4 July 2020
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Don't bet on a rate cut today! Try these tips instead

Peter Switzer
1 November 2016

By Peter Switzer

The chances of a rate cut today before the Cup — the Reserve Bank’s decision is at 2:30 this afternoon and the race is at 3pm — are at Prince of Penzance odds and that was 100/1.

On the 6 o’clock news last night on Sky, I used this line with my colleague Laura Jayes when she asked me the question many are asking this week and her reply was “but Prince of Penzance won!”

And she was right but it was a 100/1 chance! Those sorts of horses (or odd things in life) can win but not usually, otherwise bookies would be in the poor house! Right now, the money market thinks a rate cut is a 4% chance.

Sure, if the new RBA boss, Phil Lowe is on medication or has partied it up in Melbourne overnight, then he could make a wrong decision and cut rates. However, unlike the six economists out of 27 in the Bloomberg survey, I suspect Phil is sound of mind.

Here’s why he won’t cut:

  • The economy was last growing at 3.3% in the September quarter.
  • Unemployment is 5.6%.
  • House prices are a big worry and excessive doomsday merchants are tipping a property crash, so adding more rate-cut fuel to a homebuyer fire doesn’t make a lot of sense.
  • Consumer confidence has spiked, so optimists now outweigh pessimists.
  • Business confidence and the current business conditions reading are above their long-term average.
  • Commodity prices are rising and the terms of trade had its biggest lift in five years last week.
  • The above rise should help inflation, with job vacancies increasing in mining regions, which should help overall wages growth, which has been a worry of late.
  • Business investment (another recent concern) is also starting to rise.
  • There’s a potential crazy called Donald Trump who could end up being the President of the USA! Markets are still betting he will lose but those FBI emails have put him back in the race.

Michael McCarthy of CMC Markets says that if he wins, there could be a 10% slump in stocks. If this happens, central banks will want to cut interest rates. And while many would have to go into negative rates, Phil Lowe would want to have 1.5% of cuts up his sleeve.

Why could he and his team think about a cut? Try these:

  • They have a negative view on the economy. However they don't, as their upper growth forecast for next year is 4%, so forget this one.
  • The Oz dollar is too high at 76 US cents. This is the only valid reason but I reckon the RBA thinks that if Trump loses, the Fed will raise rates in December in the US, which will push the greenback up and our dollar down.
  • There has been a recent trend of part-time jobs replacing full-time jobs but this could be a short-term development, which might not respond to a rate cut. This could be related to the threat of the online world to conventional businesses and the failure of labour laws to respond to things such as Uber, AirBnB, etc., which take jobs away from the taxi industry, hotels and motels and so on.

I think the case for ‘no cut’ is pretty clear. So what should you put your money on today with the Cup?

I interviewed Tom Waterhouse yesterday, given that I like to seek expert advice when I try to furnish you with wealth-building tips! I think the Waterhouse family are well-placed students of the turf and this is what Tom (who’s CEO of William Hill nowadays) told me.

He likes Hartnell, which is trained in Australia, and has been only beaten once this season by the incredible Winx in the Cox Plate.

For a longer priced shot, he tipped Wicklow Brave, which his father, Robbie, says is the best rated horse of the overseas contingency.

After hearing his tips, I asked him what his Dad was tipping and he looked at me strangely and said: “Do you think I would tip against my father — he’s a genius with ratings.”

Tom did tip Green Moon at 26/1 three years ago. And he tipped his Mum’s horse, Fiorente, three years ago and Protectionist two years ago. However he did miss Prince of Penzance last year!

What about his Mum’s horse — Excess Knowledge? He says she thinks it can win but I’ve never heard her not say that about a horse she trains! He did say its odds are way too long.

On the subject of ladies, Jameka is the only Australian bred horse in the field and the only female neddy in the Cup. And the experts tell me she’s a really good horse that took out the Caulfield Cup, which historically is the best guide for the big race.

Good luck on the four-legged lottery!

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