We are pleased to republish a unique video interview with one of the world’s most influential miners. Robert Friedland is the founder of Ivanhoe Mines and his grasp of the past, his explanation of the present and his perception of the future makes for thought provoking viewing. In our view his most telling insights revolve around his reflection of technological developments in China and particularly his timetable for the evolution of clean sustainable energy. Technological progress is occurring at an accelerating rate. Friedman’s forecasts for the next ten years need to be reflected upon by all investors. Technological advancement leading to change – possibly through disruption – makes this an exciting but volatile era for investing. We trust that you will enjoy the interview.
Next week we will revisit the global economic situation, reflect upon a most disappointing G20 Leaders Meeting in Germany and review the RBAs July minutes.
Since the G20 the $A has lifted from about US76 cents to US79 cents. Over the last 24 hours the $A was spurred on by the RBAs review of what a “neutral cash rate setting” maybe.
The rally has been accompanied by a plethora of economic forecasters suggesting that the $A may well go higher and that cash interest rates may be adjusted upwards by the RBA sooner than expected.
Whilst we doubt that the RBA will move cash rates this year, we do acknowledge that the next move will be higher. BUT it will follow overseas leads and not pre-empt them.
To be very frank the discussion by the RBA of what may constitute a neutral cash rate was both unnecessary and ill timed. It is hard to believe that they did not understand the consequences of the statement and today the $A has lurched higher for no real benefit. Indeed the rise in production of Australia’s major exports has been offset by the currency revaluation. Claims that the $A is rising because of commodity price rises are nonsense. In $A terms commodity prices are not moving.
The RBA commentary, like so much of mainstream opinion is consistently oblivious to the cash rate settings in US, Europe and particularly Japan. It is nonsensical to discuss Australia’s neutral rate independent of the neutral rate in offshore jurisdictions.
Notably the Japanese Central Bank- before the G20- reaffirmed their intention to maintain an aggressive QE program to target ten year bond yields at just 0.1% yield.
The Japanese and European Central Banks continue to sabotage economic policy settings across the world. The RBA should ignore this as there seems a complete reticence for the G20 to challenge the interest rate settings of its members.
In his interview Robert Friedman reflects upon the introduction and effect of “free money”. What was needed some eight years ago is no longer necessary but it continues.
The following table discloses the current situation for interest rates across the developed world.
Two-year yields in Europe and Japan suggest that their central banks are deliberating spoiling normalisation of interest rates. So why would the RBA proffer an opinion on neutral rates without noting that they will not and cannot occur independent of moves by major offshore central banks?
Overseas policy settings effectively handcuff Australia. That’s why our cash rate is 1.5%. It has nothing to do with economic reality but everything to do with economic manipulation.