Cut! Cut! Cut!

I think everybody (except those on the board of the Reserve Bank) were surprised when the RBA announced a massive 1.0% cut in the official interest rate. Nearly everyone in the media had been predicting that the RBA would follow up last month's 0.25% cut with another cut, but they were expecting the RBA would perhaps double their usual adjustment by making a 0.5% cut. The decision to cut by a massive 1.0% suggests a couple of things:
1. That the RBA, having only stopped INCREASING rates with last month's cut, was scrambling to "get ahead of the curve" now that the world economy looked like going pear-shaped in a hurry
2. That with the recent plunge in oil and commodity prices they are no longer worried about the inflation rate staying above the target 2%-3% band for long. There had always been a few that the RBA shouldn't have been too concerned about the part of the inflation surge that was purely extrinsic (caused by commodity and oil price spikes) as it was a one-off (like the introduction of the GST). Now it looks as if at least part of that inflation component will be unwound as commodity prices drop back to sustainable levels.
3. That they have started to worry about just how robust the Australian economy can be when the EU and USA are falling into recession. The view that the Australian economy would continue to grow due to the expansion of the Chinese economy assumes that the Chinese economy will continue to grow strongly even if the EU and USA are in a prolonged recession, due to domestic demand. However, domestic Chinese demand will surely slow as exports drop off and inventory starts to accumulate.

The big banks appear to be passing on around 0.75% of the interest cut, which will benefit our cash flow. We have around half of our property loans at a fixed rate for a few more years, but the half that is at variable rate will benefit from the rate cut. 0.75% interest rate cut will trim our interest payments by around $230 each month.

Subscribe to Enough Wealth. Copyright 2006-2008

Online businesses need more time than money

My annual domain name registration for a couple of my online business ideas fell due yesterday - FreeHeraldry.org and PickingBabyNames.com

I think both of them are worth keeping, so I stumped up the $13 or so renewal fee for each (Dotster is not the cheapest registration option around, but I can't be bothered trying to transfer them to another service). I've been getting a few hits on freeheraldry.org even though there is no content there as yet, so I think it has potential for generating some AdSense revenue if I load up the site with useful content. But the fact that I still haven't got around to doing anything with the site twelve months after I first registered the domain shows that it won't be easy to convert a good idea into a money spinner. At least I did take a lot of great digital photos of heraldy in various churches and castles while I was on holiday, so I now have some original content to upload! Now I just need to find the time to work on articles and artwork for the site...

Subscribe to Enough Wealth. Copyright 2006-2008

Dive! Dive! Dive!

It's a public holiday here in NSW, so I'm sitting at home getting my SMSF tax documentation organised and trying to ignore the jungle that replaced our garden while we were on holiday overseas. It's not a national holiday, so the stock market was still trading today, managing to post the lowest close for almost three years. The Aussie dollar has also plunged to a two year low (against the greenback!), and most commentators expect the Reserve Bank to cut the official interest rate tomorrow - possibly by 0.5% rather than the normal 0.25% move. With inflation still running well above the RBA's target of 2%-3% "on average", the RBA normally wouldn't be looking at cutting rates yet, but, despite the latest figures showing the economy is still growing and unemployment remains close to 20-year lows, the global financial situation gives the impression of Wiley Coyote running off a cliff. His legs are still running and his eyes are on the Road Runner, but the ground has dropped out from beneath his feet. The Aussie dollar had been strong on the back of the commodity boom, but commodity prices have started to come off the boil in the past couple of months. The Australian economy would be relatively unscathed by a recession in the US and the Eurozone, but, it would suffer from a slow-down in the Chinese economy. And since a US and Euro recession would impact the Chinese economy, the Australian economy will be affected by recent events in the US and Europe - it's just a question of lag.

Overall, the global financial crisis feels a bit like one of those submarine movies where something has gone disastrously wrong and the sub is plunging rapidly towards the abyss. All the ballast has been blown, and yet the submarine is still going down, maybe just a little bit slower. We're all sitting on the edge of our seats, wondering if things will level out before the financial system implodes.

Subscribe to Enough Wealth. Copyright 2006-2008

Back from my holidays

Arrived back Sunday night after five weeks driving a campervan around Germany, Switzerland, Austria, England, Scotland, Ireland and Wales. Some glitches with my new laptop meant that I couldn't log into WiFi available at some camp sites, so I didn't access the 'net during our trip.

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