Speaker 1: You can listen to the Front on your smart speaker
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Speaker 1: the news from the Australian. From the Australian, here's what's
Speaker 1: on the Front. I'm Claire Harvey. It's Wednesday, August seventh.
Speaker 1: White hot tensions in the Middle East, with the United
Speaker 1: States rushing military assets to the region in anticipation of
Speaker 1: a war between Iran and Israel. That story is moving fast.
Speaker 1: Check out the very latest right now at the Australian
Speaker 1: dot com dot AU. Senator Linda Reynolds says the late
Speaker 1: Labor Senator Kimberly Kitchen told her Labor was going to
Speaker 1: weaponize Brittaney Higgins rape allegations against her. That's the latest
Speaker 1: bombshell in the defamation trial where Reynolds is suing Higgins
Speaker 1: and her husband David Charaz for mortgage holders. No rate
Speaker 1: cup this time the Irbas kept the cash rate at
Speaker 1: four point three five percent and ruled out a cut
Speaker 1: for the next six months. It's a welcome bit of
Speaker 1: certainty after days of chaos on global markets. So what
Speaker 1: is going on with the share market and what's it
Speaker 1: all going to mean for US superannuation balances. That's today
Speaker 1: on the front. The stock markets have an unsettling habit
Speaker 1: of about once a decade going into complete meltdown, prompting
Speaker 1: the rest of society to have to start paying attention
Speaker 1: to what it is they actually do in their pinstriped
Speaker 1: shirts and expensive warches.
Speaker 2: From the Independent News, this is USA tonight.
Speaker 3: Today is Black Monday, the day the Dow dropped more
Speaker 3: than five hundred points. But this crash of nineteen eighty
Speaker 3: seven is not just an American experience. Around the world,
Speaker 3: stock markets fell faster than a skydiver without a parafute.
Speaker 1: The cliche goes something like this. On a Monday morning,
Speaker 1: a bunch of twenty four year old stockbrokers go into work.
Speaker 1: They've had a big weekend partying and they've all got headaches.
Speaker 1: They've got themselves whipped up into a panic about something
Speaker 1: that happened over the weekend in international stock markets for
Speaker 1: the currency trade, and they get on their phones and
Speaker 1: start shouting sell at one another. The mood becomes grim.
Speaker 1: People lose money. Like that miss panic, everyone's a path.
Speaker 1: Well this week it's all happening again. On Monday. The
Speaker 1: Australian Stock Exchange's top two hundred index was down three
Speaker 1: point seven percent, the worst session since May twenty twenty,
Speaker 1: when the panic was about the global pandemic.
Speaker 4: I've been doing this for a while so.
Speaker 1: Eric Johnston is The Australian's associate editor. He's m go
Speaker 1: to expert on business, banking and the economy. The last
Speaker 1: time I had him on the front he was explaining
Speaker 1: why I shouldn't be in a rage about multi billion
Speaker 1: dollar bank profits. Eric is very zen. He doesn't tend
Speaker 1: to panic.
Speaker 4: When I saw stock markets around the world starting to crash,
Speaker 4: you always think, in the back of your mind it
Speaker 4: was sort of bottom outed of fall about two percent,
Speaker 4: two point one percent or so on. But to see
Speaker 4: the markets keep getting lower and lower, crossing a three
Speaker 4: percent threshold, that's a red line. Certainly when you look
Speaker 4: at it as a financial journalist seeing shares in Japan
Speaker 4: crash by twelve percent, they are numbers that you just
Speaker 4: don't see. They're once in a lifetime type figures.
Speaker 1: But every time this kind of market panic happens, I
Speaker 1: can't help myself. I go and check my superbalance. I'm
Speaker 1: a bit worried about this because last time I did this,
Speaker 1: one of these things happened. I checked my superbalance and
Speaker 1: it was way down.
Speaker 3: Eric.
Speaker 1: As soon as I heard about market chaos, the S
Speaker 1: and P falling, the Nasdaq in crisis, I immediately went
Speaker 1: and checked my superbalance.
Speaker 2: Is that something you would recommend people do.
Speaker 4: No, definitely not. Remember your super is long term, so
Speaker 4: that's for your career. You've got another twenty or thirty
Speaker 4: years worth of working, Claire, So the super is going
Speaker 4: to go up and down from day to day, so
Speaker 4: kind of meaningless in the biggest sense of that focus
Speaker 4: on the long term trend.
Speaker 1: It does make me worried though, that a bunch of
Speaker 1: twenty seven year old stock traders wearing pin striped suits
Speaker 1: and shouting at each other are potentially going to wipe
Speaker 1: out all this money that I've been saving over the
Speaker 1: years in my super account.
Speaker 4: Well, the first point I have to put you up on,
Speaker 4: I'm not sure they wear pin striped suits anymore.
Speaker 2: I'm a twenty years out in my references.
Speaker 4: So they're all sitting at trading desks and behind screens,
Speaker 4: and it's actually big boxes in the back of Gold
Speaker 4: and Sacks or City Group or something actually do in
Speaker 4: the trading. Those traders don't exist The broader point is,
Speaker 4: though there are big global forces that often influence the
Speaker 4: value of our shares that we sort of park away.
Speaker 4: These things rise and fall on global currents.
Speaker 1: Okay, so this time what caused the big panic.
Speaker 4: So initially Australia was reacting to quite a violent sell
Speaker 4: down in the US on Wall Street on Friday. What
Speaker 4: we're starting to see is what's called the unwinding of
Speaker 4: the carry trade. The carry trade is when you borrow
Speaker 4: money from a country where the interest rates are very
Speaker 4: low and reinvest that money somewhere else in the world
Speaker 4: where returns are much higher. So you might borrow money
Speaker 4: from Japan, which have near zero interest rates, and put
Speaker 4: those funds in, say the United States or in Australia,
Speaker 4: where interest rates are much higher. You get that return
Speaker 4: that represents your profit on that investment. That only works
Speaker 4: as long as interest rates in the borrowing countries stays
Speaker 4: low and stable, and markets remain stable as well.
Speaker 1: Right now, in Tokyo, it's a sweltering, humored late summer
Speaker 1: thirty three degrees. The locals are drinking ice cold cans
Speaker 1: of milky soft drinks and listening to twenty four carrot
Speaker 1: gold Genesis. The chart topping single from a sixteen member
Speaker 1: jpop band called The Rampage from Exiled Tribe Genesis. Yeah,
Speaker 1: and there's something else making everyone sweaty. The economy is
Speaker 1: going through a massive change. Interest rates are going up
Speaker 1: for the first time in nearly twenty years.
Speaker 4: So what happened last week was the Japanese central Bank,
Speaker 4: the Bank of Japan, increased its interest rates and suggested
Speaker 4: that there could be more increases to come. At the
Speaker 4: same time, you're seeing the prospect of interest rates in
Speaker 4: the United States coming down faster than expected. That's because
Speaker 4: of a fear that the economy there is slowing. So
Speaker 4: you're seeing this great arm wrestle, this great reallocation of money.
Speaker 2: Money being sucked.
Speaker 4: Out of the US market, particularly there was in high
Speaker 4: yielding shares such as tech stocks. So you like your Navidia's,
Speaker 4: your Microsoft's, your Amazons, and that's been reallocated back into Japan. Also,
Speaker 4: with the Japanese shares falling so violently, you see money
Speaker 4: sucked out of their Japanese share mark, which has been
Speaker 4: bit up and moved into Japanese bonds. And what can
Speaker 4: you do when you sit there watching your Comwealth bank
Speaker 4: shares rise and fall not much. You just hang on
Speaker 4: for the ride.
Speaker 1: Coming up. Why interest rates here still aren't going down?
Speaker 1: It's always reassuring to talk to Eric, and you can
Speaker 1: read his soothing analysis every day by joining us describers
Speaker 1: at the Australian dot com dot au. We'll be back
Speaker 1: after this break. It seems every time there is a
Speaker 1: big story about a big kind of global share market
Speaker 1: sell off, that what it boils down to is some
Speaker 1: exotic new product that has been invented. You know, it's
Speaker 1: credit default swaps, or it's a CEOs or something that
Speaker 1: people are selling to each other that nobody else can understand.
Speaker 1: Is the carry trade another one of these exotic products,
Speaker 1: or is it something that is more significant?
Speaker 2: It's more serious.
Speaker 4: This time it really is different. We talk about in
Speaker 4: markets what we do know, what we don't know, and
Speaker 4: then what we really don't know. So this time it
Speaker 4: is different because we do know what the risks are
Speaker 4: out there. We've got the Chinese economy slowing, but we've
Speaker 4: known about that for some time. That's starting to play
Speaker 4: out on commodity prices. The US economy is slowing. What
Speaker 4: we don't know is the pace of it. Even here,
Speaker 4: we've just seen the Reserve Bank keep its cash rate
Speaker 4: on hold. Although the statement was hawkish, which means that
Speaker 4: they are threatening further interest rate hikes, we kind of
Speaker 4: know that they're going to hold on until they watch
Speaker 4: inflation go down. There's nothing that seems to be lurking
Speaker 4: in the corners for markets this time. What we do
Speaker 4: know is the valuations of stocks like your common Wealth
Speaker 4: Bank shares have been bit up incredibly so Commonwealth Bank
Speaker 4: is trading a historic highs and is so overvalued. It's
Speaker 4: like when we previously walked into a shop and we're
Speaker 4: paying ten dollars for a lettuce. We all knew that
Speaker 4: they were so overvalued anyway, must have us still bordered anyway.
Speaker 4: Common Wealth Bank shares a little bit like that, has
Speaker 4: been bit up to such an extent that it is overvalued.
Speaker 4: So that's why this pullback is different. It's not something
Speaker 4: that we're all sitting here white knuckled and scared about.
Speaker 4: We know the risks in the world. We've been living
Speaker 4: with geopolitical risks for the last two years. We know
Speaker 4: inflations out there, so the kind of the bad stuff
Speaker 4: is already out there.
Speaker 1: You mentioned that so much trading now is automated. It's
Speaker 1: done by big box sitting in the corner. Has that
Speaker 1: created a kind of different mood in the markets? Are
Speaker 1: they more mature now than they were when a whole
Speaker 1: bunch of people who'd done too much coke were frantically
Speaker 1: selling everything at the drop of a hat.
Speaker 4: I don't know what the computers are doing, but look,
Speaker 4: the potentially the valuations and the calculations are going to
Speaker 4: buying and selling is much more sophisticated than what a
Speaker 4: desk jockey could ever figure out. So the instinct will come.
Speaker 4: Wealth Bank hit its turnings targets this year based on
Speaker 4: what we know about the economy. Yes or no, a
Speaker 4: computer can figure that out much more accurately. But we
Speaker 4: are still talking about markets which are driven ultimately by emotion.
Speaker 4: You and I still walked into that supermarket and we
Speaker 4: still paid ten dollars for that letters because how we
Speaker 4: wanted it and everyone else wanted it at the same time.
Speaker 2: Cabbage is just not the same, just not the same.
Speaker 4: So look, markets are driven by emotion still. However, there's
Speaker 4: more buying and selling, there's more turning over. It's easier
Speaker 4: to buy and sell shares compared to what it was
Speaker 4: when we're talking about Back in the day of the stockbrokers,
Speaker 4: you had to physically ring somebody up, you had to
Speaker 4: place an order, you had to have the money. Now
Speaker 4: you can just do it at a hit of a button.
Speaker 4: Big fund managers can just buy and sell and churn
Speaker 4: over their portfolios. Liquidity. People often think it's a bad thing,
Speaker 4: but it is actually a good thing because it helps
Speaker 4: markets discover prices much more efficiently.
Speaker 1: On Tuesday afternoon in the office, I saw you pouring
Speaker 1: over the statement from the Reserve Bank along with some
Speaker 1: of our other big brains in the business section. What
Speaker 1: is the Reserve Bank saying about the future of the
Speaker 1: economy and what do you think about how we're going
Speaker 1: to fare over the next few months.
Speaker 4: Yeah, this one. There was a lot of scrutiny coming
Speaker 4: into this Reserve Bank meeting because there was talk just
Speaker 4: a few weeks ago, real serious talk among economists that
Speaker 4: the Reserve Bank could in fact be forced to raise
Speaker 4: interest rates again, and that would be a really hard
Speaker 4: shock to a lot of people paying mortgages. The Reserve
Speaker 4: is concerned that there is still quite a lot of
Speaker 4: spending in the economy, but it's in different areas and
Speaker 4: it might not be those people that have just bought
Speaker 4: into a house or a mortgage. We know that those
Speaker 4: people are doing it tough, particularly in the late twenties
Speaker 4: and early thirties. They're the cohort that are really feeling
Speaker 4: the squois. They've just got a house, maybe they've got
Speaker 4: a young family as well, so money is just going
Speaker 4: out of the door like nothing else. There's a category
Speaker 4: of consumers in Australia net savers. Those people have never
Speaker 4: seen it better before and they're spending as well. Another
Speaker 4: factor is and despite what we hear, unemployment is still
Speaker 4: quite low in the economy. If you're starting a business
Speaker 4: or if you're still trying to hire, it's maybe eased
Speaker 4: up a little bit, but it's very hard to get labor,
Speaker 4: to get workers in the door. So the RBA is
Speaker 4: still concerned, like the economy is still sort of maybe
Speaker 4: a little bit too overheated, and that's why they're talking
Speaker 4: about potential for the raid hikes.
Speaker 1: Eric Johnston is an associate editor with The Australian. Sixteen
Speaker 1: thousand US marines should be deployed to Australia every year
Speaker 1: to help us defend ourselves. That's according to a report
Speaker 1: revealed in The Australian Today. Check it out at the
Speaker 1: Australian dot com dot au