Australia's Two Speed Economy

The Reserve Bank of Australia has released its quarterly statement on monetary policy and economic conditions. In it they note that the resource sector is indeed booming, as

it is likely that over the next year the level of business investment in the economy
will reach its highest level, relative to GDP, in at least half a century.

The report also goes on to say about the rest of the economy:

Beijing's Iron Grip Fails to Fine-Tune China's Economy

The Chinese economic super-bubble is currently all about real estate which is vehemently refusing to follow the direction set by the omnipotent hand of the central government. WhatIf surmised in an earlier post that such attempts are likely to fail. And true enough, the situation appears quite dire as Xinhua reported yesterday that

Commercial property sales in China's booming Zhejiang province fell sharply in 2011 following tough government curbs. The total floor space sold slumped 20.5 percent year-on-year

This slump has also had a devastating impact on the highly leveraged smaller developers, as the article goes

RBA Playing With Fire - Keeps Rate Unchanged

Today the Reserve Bank of Australia decided to keep the cash rate unchanged at 4.25%. Analyst consensus was for a quarter point cut. Also the OIS market was implying a ~75% chance of a cut. RBA's decision comes as a surprise, given the recent labor market weakness and drop in retail sales. Governor Stevens' statement reads a little bit like "everything is on track and on trend so why change anything?", but does recognize that

Year-ended CPI inflation will fall further over the next quarter or two. In underlying terms, inflation is around 2½ per cent. Over the coming one to two years, and abstracting from the effects of the carbon price, the Bank expects inflation to be in the 2–3 per cent range.

As inflation is unlikely to present a problem in the near future and given the challenges to global growth (and China in particular) a rate cut might have been a lot more prudent. As always time will tell.

Israeli Strike on Iran Appears Ever More Likely

In a recent interview for NBC quoted by Reuters, Obama says

I don't think that Israel has made a decision on what they need to do. I think they, like us, believe that Iran has to stand down on its nuclear weapons program.

What he does not say, however, is that the US would be against such an attack. He appears to leave the diplomatic door completely open for Israel to do as they see fit to protect their national security. The timing
of Netanyahu's statement that

In such a region, the only thing that ensures our existence, security and prosperity is our strength

as quoted by Bloomberg is certainly no coincidence. Overall it looks ever more likely that Israel will resort to military action against Iran, barring a breakthrough in the talks on Iran's nuclear program.

At Least One Seller Cashing Out on Facebook Before the IPO

The forthcoming Facebook IPO has been all the hype - and large amounts of it. Most of the pundits have been negative, citing overblown Price/Sales ratio and a shift in user base from developed to developing countries. Since the sentiment is quite negative, the IPO would probably do OK at least at first. The Nasdaq closing at an 11-year high on Friday certainly indicates strong investor demand for tech stocks and the social network space has a scarcity of liquid public stocks as a vehicle for betting on the future of the sector.

There are signs that the hype may be too much. According to Reuters, a woman in Wisconsin was arrested

Beijing Cannot Deflate China's Real Estate Bubble

According to comments made at a State Council meeting and published by Reuters, Chinese Premier Wen Jiabao

wants to see a "reasonable pull-back" of housing prices.

The government will clearly keep tightening credit to developers and restricting purchases of multiple homes for speculative purposes. The intentions are certainly admirable - everyone agrees that affordable housing is a must for social stability. However once the bubble has inflated, it often can only either keep inflating further or simply burst.

Can One Trust China's Economic Statistics?

The Dec reading of the Chinese official Purchasing Managers Index came in better than expected at 50.5. This would indicate a small expansion in manufacturing activity. If it were free of official manipulation, that is. And therein lies the issue with China's economic statistics - it is not clear if the numbers can be trusted.

Anecdotal evidence has been pointing to shrinking margins and difficulty in obtaining financing for the majority of Chinese small and medium manufacturers. Guangdong province is home to a large percentage of Chinese manufacturing and has in the past been dubbed "the factory of the world". However a survey by the