Randomly Noted

One of the more popular newsletter writers/blogger in the FX world is John Mauldin. His most recent newsletter contains yet another sober view of the economy. Mauldin always tries to take a forward view of the world and in this newsletter, he keeps to form. He takes a look at why the recent soft GDP numbers will be, well, soft in quarters ahead. He warns that voters should be careful for what they wish for in this election season regarding deficit reduction and campaign promises that will be hard to keep. And he offers a sharp look at the effect the upcoming expiration of unemployment benefits will have on personal income. A good read all around.

A mutiny in Australian politics is not unheard of, but certainly this one has caught many people by surprise.
Kevin Rudd was increasingly unpopular as prime minister in voter opinion polls for a number of reasons—his rollback of a pledge on a carbon emissions scheme and a plan to levy a new tax on profits in the mining sector–but to remove him so close to an election, with one expected within a matter of months, is a high-stakes gamble.

The anecdotal feedback among voters so far is that the manner in which the centre-left Labor party leadership has ousted Rudd, and installed Julia Gillard as the country’s first female prime minister, was all a bit unpleasant.

The move came swiftly, and most probably in response to internal party polling that would have shown Rudd–who came to power on a wave of optimism and popularity in late 2007–would struggle to win a federal election against his Liberal party counterpart, Tony Abbott. The government was in danger of becoming the first since before World War II not to secure a second term.

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(This is a Money Talks column that first ran on Dow Jones Newswires earlier Wednesday)

Thailand is not the new Indonesia but the speed with which the country’s financial markets have calmed down over the recent political upheaval is encouraging.

Political ups and downs are nothing new for Thailand. Recent years have seen the ousting of former prime minister Thaksin Shinawatra, a military coup and frequent protests, and that’s kept investors away, leaving a hardy core of players.

The country’s been off the radar for many global fund managers for a while. Those who have been prepared to put money into Thailand in the first place know the risks involved and are prepared to take them.

That’s why we saw Thailand’s share market jump 5.4% Tuesday, while foreign investors were net buyers of THB1.38 billion worth of shares Monday, the first time they have been net buyers in five sessions. So far Wednesday, the index has slipped 0.2%.

The market had fallen 3.6% Monday last week, and–after a three-day market holiday–another 3.3% Friday, in response to the outbreak of violence between the armed forces and anti-government protesters known as Red Shirts, many of whom are allied with Thaksin.

Things have calmed since, though the protesters have pledged to continue their rally into May, and still demand Prime Minister Abhisit Vejjajiva dissolve parliament and call new elections.

But as players turn optimistic and markets look sharper (the U.S. dollar has fallen to a 23-month low against the baht, apparently leading to central bank intervention to try and curb the baht), the real question for Thailand going forward is longer-term money and whether funds that have previously skirted the country decide it’s time to park money there.

Bangkok must be looking at the investment renaissance that’s taking place in Indonesia with some envy.

Indonesia has not only managed to retain its core of investors, but also draw in fresh money from those who had previously given the country a miss. That’s in no small part due to the relative political stability in Indonesia these days, compared at least to Thailand and with elections coming up in the Philippines.

Thailand though is still some way from being a draw for funds that have avoided it in the past.

For that to happen there needs to be greater continuity in political leadership and for that leadership to put clear strategies in place to entice in foreign money for projects and development, not just markets, and for building domestic demand.

The current political uncertainty, as well as the tendency for Thai leadership in the past to make sudden and counterintuitive policy changes, will keep many funds out for some time yet.

Argentina’s stock and bond markets are up following the weekend’s midterm elections which dealt a humiliating blow to the ruling leftist Front for Victory coalition. In Honduras, many people are celebrating as its Chavez-embracing president is ousted – amid some odd tut-tutting by the Obama administration. WSJ columnist Mary Anastasia O’Grady raises this interesting issue: Why is Secretary of State Hillary Clinton, on behalf of President Obama, condemning what might be considered a legal ouster of a constitution-defying political leader? At the very least, one would think the U.S. President would avoid taking sides in this particular fight. Here’s the column:http://online.wsj.com/article/SB124623220955866301.html

Talk about irrational exuberance! India’s stock markets have had to close for the day, thanks to equity investors’ outsize response to the weekend’s election results. As happened when Barack Obama was elected, the Congress Party now bears the weight of huge expectations. Seizing the goodwill and momentum, Prime Minister Singh’s top economic adviser has just now vowed to implement pension and insurance reforms, sell some state-owned companies, and free up foreigners to invest in more industries. If completed, the changes should channel many more rupees into equity markets. Check out DJN colleague Abhrajit Gangopadhyay’s  interview with Suresh Tendulkar, a top economic adviser to the Prime Minister: ”UPDATE: India Econ Reforms Easier Post-Election -PM Adviser.”  Continue reading…

How optimistic should one be about India in the wake of the Congress Party-led government coalition’s electoral success? Very, I say. But DJN colleague Ros Mathieson argues the United Progressive Alliance coalition has been “patchy when it comes to acting on promised reforms.” Among the UPA’s “unfulfilled promises ” Ros includes failure to open the banking sector to foreign direct investment or to allow pension funds to invest in the stock market.  Fair enough. Have a look at her “Money Talks” column this morning for more: “MONEY TALKS: India Govt May Not Capitalize On Reformist Mood” Continue reading…

Today’s robust victory for the Congress Party (and humilation of opposition BJP) should provide stability and clarity for India at just the right time. Its economic growth has slowed but Congress’s mandate will let the government continue – and hopefully speed up – vital industrial, bureaucratic and social reforms. Years from now one might look back at this period – leading to the elections and the aftermath – as a sort of economic golden age for India. Even the economic downturn hasn’t dented the country’s tremendous promise.

Indonesians have something the Thai don’t:  A convincingly stable political economy. Peaceful parliamentary elections appear to have robustly supported the Democrat Party of President Yudhoyono. Shares are up today (Monday) and the Indonesian rupiah’s firm. There really was no reason for Indonesians to punish Yudhoyono’s party, given the respectable trajectory the country’s been on from an economic and security standpoint. Could this sprawling archipelago of wondrous natural resources with a majority Muslim population be emerging as a smart play for foreign investors who hitherto would have avoided it due to perceptions of political risk? The WSJ cites a Jakarta-based political analyst named Kevin O’Rourke saying continuation of coalition-party government will stymie needed economic reforms as Yudhoyono will have to negotiate with his partners.  In contrast to O’Rourke, an economist named Helmi Arman at Bank Danamon tells DJN investors expect “continuity on the implementation of market friendly policies” if Yudhoyono is re-elected in July presidential elections.  More broadly, the WSJ story notes: “Overall, the results showed Indonesia, a country that has only recently been grappling with homegrown Islamic terrorist groups, is becoming a deep-rooted secular democracy. In 2004, Islamic-based parties, some of which had espoused Islamic law for Indonesia, did better than expected.”