Alright, what’s going on around here?
After two weeks back in the country of his birth, your editor hopped off an airplane, dashed home in a taxi, showered, and is now sitting down trying to figure out what has changed in Australia since we left. For one thing, it seems warmer and the trees are budding. So is the Aussie dollar.
Today’s Daily Reckoning will be a bit of a cautious and casual affair. Jet lag is supposed to have the same effect on the human body as drinking three beers. We’re opposed to drinking and reckoning. So today’s task is to survey the territory and compare it to what we thought about while out of the country for two weeks.
The first obvious sign, when converting the currency, is that it now takes 96 U.S. cents to buy one Australian dollar. The Aussie hasn’t been this high, so to speak, since the heady days of 2008 – before the plunge. The RBA meets next week. Some of this recent strength could be traders betting on a rate rise.
Are things in Australia so awesome that the RBA is justified in moving rates higher? Well, to be honest, we don’t think the folks at the RBA – even if they were mind-reading rocket surgeons or brain scientists – know what the price of money should be. They’d like you to believe they are wise money mavens. But a bunch of charts and spreadsheets can’t disguise the fact that they’re really just guessing and hoping you take them seriously.
Still, there is probably some data set that came out in the last two weeks (like trade figures) which suggests the Aussie economy is chugging along with vigour and in danger of “overheating”. Blah blah blah. All those attempts to correlate current economic events with the case for a higher price for capital ignore the central lesson of the last ten years: central banks screwed up royally and it had real world (wealth destroying consequences) for investors.
One big question now is if they have screwed up again with reflationary interest rates that stabilised markets after the 2008 meltdown. Ben Bernanke and his global cronies probably feel pretty good about themselves at the moment, at least as far as stock prices are concerned. But at least in America, the labour market continues to tell a different story.
And then there’s gold. In U.S. dollar terms it’s telling you something. But in value terms, is it speaking the truth like an Old Testament prophet, or is it lying like a 1999 tech stock? If it’s telling you the truth, then the U.S. dollar is being exposed for the deeply flawed currency that it is. Gold at $1,300 is not the end of the gold bull market then, although it could be the end of the beginning.
If gold is lying, then its current run is a portent of things to come. But those are pretty big things. And we’re not going to go into them today. The brain is starting to fade.
But speaking of brain fades…how about a quick story about the Transportation Security Agency screeners in Baltimore? We were leaving the airport in Baltimore for Denver, fully prepared to surrender a bit of dignity in the screening process to board the plane. The Baltimore-Washington airport is especially thorough and draconian because it’s so close to DC.
As we snaked through line we noticed a giant metal and plastic cylinder making a humming noise.
“What’s that?” we asked the TSA agent.
“It’s a body scanner,” the TSA agent replied.
“Is the body scan compulsory?”
“Are you refusing the body scan sir?”
The agent than called over another agent for a “manual” inspection. Manual, having to do with the hands, meant hands on. Quite literally.
“Sir, because you have refused the body scanner I will be giving you a through manual pat down. Please spread your arms and turn around.”
“But my computer and wallet are in the x-ray machine. I won’t be able to see them if I turn around.”
“They’ll be fine sir.”
“I’m sure they will. But I won’t be able to see them if I turn my back. I would like to keep them in sight.”
“Someone in a blue shirt will be watching them. They’ll be fine.”
“I’m sure they will. I’d like to keep them in sight.”
“Fine. Step over here.” He moved the items and to where we could see them and then described what he was about to do.
“I will pat down your entire body using my gloved hands. On your legs and buttons I will lightly cup your jeans. If you prefer a private inspection one can be arranged. For your front I will be using the back of my hand to pat down the zipper area.”
Then he started. And frankly, we haven’t received that much thorough attention from a stranger in quite some time. Other passengers passed by, some averting their eyes and others grinning (either out of sympathy or lechery, it was hard to tell). It took about five minutes of careful, gentle, comprehensive molestation by a public servant.
And then at the end, apparently without any sense of irony, he finished his lingering inspection of your editor and said, “That’s it. You can go now. You’re a free man.”
for The Daily Reckoning Australia