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What stops the nation more than a horse race?
The Melbourne Cup isn’t the longest horse racing distance in the world anymore. However, it’s still the richest ‘two miles’ race in the world.
And this time last year, Jim Rickards and I were hanging out at the Melbourne Cup.
Not just any old spot, mind you.
We were seated 10 rows back in the grandstand, directly opposite the finishing post.
You couldn’t ask for a better spot to watch the ponies roll in.
There we sat, both enjoying a Jim Beam and coke, watching the grandstand fill up with more and more people.
After discussing the distance (3,200 metres really is a long race to watch), we yelled like maniacs as those gee-gees thundered past the gate.
I didn’t win. I followed my old man’s stupid superstition of always betting on the grey.
Jim, from memory, placed second.
Later on that week over dinner, Jim’s assistant asked me if the Melbourne Cup really is a horse race that ‘stops the nation’.
Look, I get it. It sounds absurd, right? Australia is a modern economy. And here we are in fancy frocks and funny hats, screaming out a pony’s name.
Then I had to back that up, and mention that not only does Melbourne get a public holiday to watch horses run around fence posts, but our eyes really are glued to all three minutes and 20 seconds of it.
Two days later, I sent her a copy of this chart.
Melbourne Cup Day – Credit & Debit Card Transactions on 7 November, 2017
Source: Commonwealth Bank; News.com.au
See that drop? That’s the moment when ALL the banking transactions stop for just a few seconds.
Turns out, Melbourne Cup really is the race that stops the nation.
Ready for the same old hogwash from the central bank?
Horse racing is a funny old thing.
I mean, Aussies will take more note of that today than the Reserve Bank of Australia’s announcement at 2:30pm this afternoon.
Don’t worry, you won’t miss anything.
Our central bank will keep the cash rate at 1.50%. Then it’ll waffle on about the market. Make vague statements about being aware of ‘adverse developments’ and noting down ‘changing conditions’.
At the end, it’ll wrap up the cut-and-paste statement with some attempt at economic re-assurance. Like how it expects the Aussie economy to improve ‘gradually’.
Of course, that bland market announcement won’t stop analysts — myself included — from pulling apart the statement, looking for any clues as to what’s happening with monetary policy.
Although, I might save myself the trouble this week.
You see, two key pieces of data for the RBA to over-analyse will be last week’s inflation and retail figures.
As I explained last week, I believe our inflation figures are a work of utter fiction.
The ‘official’ inflation figure of 1.9% bears no actual resemblance to our own rising personal costs. And once again, the central bank will find the inflation figure outside the 2-3% band again.
It’s now been three years of the consumer price index (CPI) constantly falling short of central bank expectations.
In spite of what most mainstream punters will tell you, the CPI rate isn’t about to spike up higher.
However, the CPI numbers not being in the RBA’s desired ‘band’ is old news. I’m sure the RBA can live with it there for now.
What is causing bigger problems, is the consumer.
How Australia will come to a grinding halt
While the Melbourne Cup may bring the nation to a halt for six minutes, there is something that is certainly more pressing that will STOP the nation.
And that is you.
You see, Australia is a consumerist society.
People think iron ore or gold or coal and gas drive the Aussie economy.
Mineral exports account for roughly 8% of our total gross domestic product (GDP). Throw in our agricultural exports, and both sectors account for 10% of total GDP.
But given the amount of noise those two sectors get, you would think they were the ONLY drivers of the Aussie economy.
Consumption is THE most important category in the Australian GDP. Consumption accounts for 55% of total GDP.
That’s more than half the value of our nation’s total income.
Without people buying things, this whole country stops running.
And if the latest retail data is anything to go by, Australia is in big trouble.
Check this out.
Australian retail sales – September quarter 2018
Source: ABC News
Retail sales make up what is called discretionary spending.
That is, the money we have left over to spend on the fun things. Like silly hats for a horse race, for example.
Yet, if the September data is anything to go by, people’s wallets are empty.
We can clearly see that spending at supermarkets and on food has risen slightly.
However, the fun things — like clothing, books and gardening supplies — are all shrinking.
In other words, we are spending more and more on what we have to, and less and less on what we want to.
That tells us Aussie are broke.
Meaning that the Reserve Bank of Australia can waffle on and pretend that things are okay. It can continue to put out statements that claim all the economic numbers will increase ‘gradually’.
But the reality is that if Aussies don’t start spending money soon, the nation really will grind to a halt.
We are in a far more precarious state than our leaders want us to know.
Punting on the gee-gees is a welcome distraction.
Enjoy your Melbourne Cup Day.
And if you like throwing money away, do as my old man says and always bet on the grey.
Until next time,