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The actions of Governments around the world to guarantee or recapitalise banks is starting to bring some stability to the financial sector, but markets are now expecting a worldwide economic slowdown and with it a dramatic decline in demand for oil. This has led to a collapse in the US dollar price of oil and, despite large falls in the value of the Australian dollar, even in Australian dollars oil has reached its lowest level this year.
Brent Crude Oil Prices*
On last night’s ABC news report, financial journalist Alan Kohler showed a chart of oil prices and petrol prices and questioned whether motorists were seeing price falls coming through to the bowser. This prompted me to revisit the regression model I have used in a number of previous posts. As I suspected, retail petrol prices as reported by the Australian Automobile Association (AAA) continue to track wholesale prices closely. While the AAA only publishes a monthly timeseries, they do publish a price each day supplied from FUELtrac, so I have also added a red dot on the chart showing today’s FUELtrac price. Contrary to Kohler’s conclusions, it is clear that petrol prices are falling in line with wholesale prices (in Sydney at least) and, subject to the fortunes of our dollar, it looks as though prices will be back below $1.30 per litre before long.
Sydney Petrol Price Regression Model*
*Data source: Australian Automobile Association, Bloomberg.
Treasury Secretary, Ken Henry, appeared before a Senate Estimates Committee today to provide some clarity on the nature of the consultation between the Government, Treasury and the Reserve Bank prior to the 12 October announcement that the Government would provide guarantees for all Australian banks. This followed yesterday’s article in The Australian which claimed that the Reserve Bank and Treasury were at odds on the question of providing an unlimited guarantee. Opposition leader Malcolm Turnbull tried to capitalise on the issue in Parliament the same day and, despite scoring some initial points, he lost the upper hand when he appeared to question Henry’s integrity.
In current phase of the GFC* we are witnessing extraordinary Government intervention in the financial markets, with a host of countries providing enormous guarantees of bank liabilities, purchasing distressed assets or directly investing in ailing banks. Switzerland is the most recent country to follow this route, injecting around 6 billion Swiss Francs (A$8 billion) into UBS, gving the Government an estimated 9% stake in the erstwhile investment banking giant.
While the immediate aim of these moves is to save a financial system that is on the verge of collapse, there is also increasing concern that the ructions in the financial sector are a precursor to an extended global recession. This is also generating responses by Governments around the world. Here in Australia, the Rudd Government has announced a A$10.4 billion stimulus package, shelling out money to low-to-middle income families, pensioners and home-buyers.
The latest moves by the US Treasury in the GFC have been hitting news headlines on the screens today:
This is a big shift in strategy from the original intention of the TARP bailout plan which aimed to help banks by buying up distressed assets from troubled banks rather than investing directly in them. Continue reading
In the latest instalment of the Global Financial Crisis (“GFC”), following the lead of Ireland and other countries, the Australian Government has taken the extraordinary step of guaranteeing all deposits with Australian banks, building societies and credit unions as well as locally incorporated subsidiaries of foreign banks. The guarantee can also extend to wholesale debt (if banks pay an as yet undetermined guarantee fee), which allows protection of bonds issued by Australian banks offshore.
A colleague has lent me a copy of Oliver James’ book “Affluenza” and, while I am not far through it yet, it is scathing in its damnation of the effects of capitalism on individuals in society. At a time when capitalism is rapidly losing it shine on a global scale, with the financial sector collapsing around us, this individual perspective is an interesting small scale counterpoint to the large scale picture we are seeing on the news each day.
The thesis of the book is that an “affluenza virus” has spread thoughout English-speaking countries. This virus leads us to be obsessively focused on shallow material pursuits. At the same time, it leaves us anxious and prone to low self-esteem, addictions and depression as there is always someone with a faster car or a bigger cigar (to quote The Beautiful South).
In the latest development in the ongoing train-wreck that is global financial markets, the Irish Government has stepped in to guarantee deposits and debt of all Irish Banks. This is an extraordinary step to take and reflects a banking system that is truly broken. Finance, particularly banking, is built on trust more than law (as described in Francis Fukuyama’s book “Trust”) and that trust has well and truly gone from the market.
Update: regular commenter Mark L has helpfully identified they reason behind the apparent anomaly in the statistics that motivated me to write this post. I had misinterpreted one of the statistics. While this takes the mystery out of the numbers, it does highlight how tricky it can be to get to grips with the statistics of medical tests. I have edited this post to correct that misinterpretation. I decided not to use a the strikethough editing approach popular among bloggers as the content can be confusing enough already!
Despite the fact that more banks have been failing (Bradford & Bingley, Wachovia, Hypo Real Estate, Fortis,…), in this post I will continue to stay away from the subject of the financial markets and will instead look at some mathematics, trying not to lose too many readers in the process.
Recently I was contemplating results from an “NT-plus” test, which combines ultrasound measurements of the nuchal translucency with maternal blood-tests to provide a screening test for various chromosomal abnormalities, particularly Down Syndrome. Tests of this type abound with statistics and the mathematician in me could not resist crunching the numbers a little to get a better understanding of the test.
It’s time for a break from watching the financial markets implode. Instead, this post will focus on the arts, Newtown-style. Every year, the shops of Newtown become an extended gallery exhibiting the works of young Australian artists. Or at least, that’s how I describe it. According to the City of Sydney website, the aim of the exercise is “to combat the exclusivity fostered by institutional gallery spaces”. In years gone by, the exhibition was called “Walking the Streets”, but this year it goes by the name “2042: Art on the Street”. For those who are not local, 2042 is the postcode of Newtown and the immediate surrounds.
Being locals, Henry, my five year-old son, and I took a walk up King Street today to look at some of the works on show. Inspired by the blog Nosey in Newtown, we decided we would document the event, so we set off both armed with cameras. The undoubted favourite was the sculpture of giant ants beginning to rip into a car.
