Here's a deeper interpretation of last week's stellar Australian consumer confidence index reading:
1. What the mood is
The mood remains investor friendly. The Economic Time™ in Australia is characterized by an
• excess supply of money, and an
• excess demand for goods
Here are more recent data supporting Australia's Economic Clock™:
• Unemployment. A hiring boom has depressed unemployment to its lowest since 1974;
• Consumer confidence. Thus, in June, consumer confidence stood at an index level of 120.8: a reading exceeding 100 means that optimists outnumber pessimists;
• Petrol prices. Next to low unemployment, falling petrol prices are acting like a tax cut: people are keeping more of their money, so they can spend more.
• Business confidence. Last month it stayed at its two-year high, and
• Currency. Rising commodity prices have pushed the A$ to its highest since February 1989.
Our guess is that the Central Bank won't raise rates until it sees clear inflation pressures. But these are a long way off. For one thing, a rising A$ means that imports cheapen in A$ terms, so down goes imported inflation. This downward pressure keeps a lid on domestic prices, of course.
How to Make Money Off This Idea
Keep buying the market. In particular, keep focusing on
• resources stocks;
• companies that are involved in the "resources ladder," e.g. transport, processing, packaging;
• consumer stocks, on account of strong consumer confidence, and on
• brokers: if the market keeps performing, their own profits must keep rising.