The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Thursday, April 29, 2010

Has the RBA stitched up media commentators?

Actually, I don't have a strong view on which way the RBA will move at the next Board meeting. But the media does according to Macquarie Bank's Rory Robertson:

“Shadow RBA Governor Terry McCrann [FN] has spoken: “THE Reserve Bank is all-but certain to deliver its third successive interest rate increase next Tuesday.”

Now, I don’t recall even once in the past 15 years when Terry McCrann was wrong within a few days of the Board meeting (scheduled for next Tuesday).

So it’s a brave soul who bets against him on this occasion. Nevertheless, I wonder if the call is not a bit closer to “line ball” than suggested by “all-but certain”. If Terry McCrann ever is going to get it wrong, this is how it would happen: simply by putting more weight on a single piece of data than does the RBA."

FN: The term “Shadow RBA Governor McCrann” is not mine but it’s a beauty - given Terry McCrann’s long-standing and apparently growing authority on local monetary-policy matters - so I’m going to use it on occasion."

Now, maybe big Tezza has overplayed his hand. You see, as I explained some time ago, the RBA recently changed its practice when communicating with journalists.

According to one very senior commentator, the RBA no longer speaks with journo's following the internal caucus on the Thursday before the Board meeting that resolves the executive’s recommendation.

Of course, Terry ran his article in advance of this discussion, which "almost certainly" means he got worded up by senior RBA staff before the event. That would presumably explain his extreme confidence, which does contrast strikingly with the decidedly uncertain market forecasts prior to his article being published. It is an unfortunate governance fact that these probabilities changed dramatically following the release of McCrann’s piece.

My own (perhaps low probability) speculation is this. The RBA has come in for some scorching criticism from the media, politicians and economists for leaks before its own Board has had the chance to determine its monetary policy position. I have written about this extensively in the past, and had a hand in trying to eliminate the practice, which the Governor went on-the-record to deny (see here, here, here and here).

So on Thursday we had all three big guns--McCrann, Stutchbury, and Mitchell--come out and make confident calls about a rate hike next week. I am guessing that the RBA does not really mind whether it pauses for a month in May. And if the Governor was really keen to insulate the Bank once and for all from criticism of undermining the Board's decision-making process, the May meeting would be the perfect opportunity given the Greek crisis. For a long time hence the RBA would be able to point to the May outcome, and the Governor’s own dovish statements, and highlight the fact that their three main voice-pieces got their calls embarrassingly wrong.

So while I would venture that the RBA are still more likely to hike than not given their publicly stated desire to normalise rates, I also think there is a decent (toss-of-the-coin) chance they are about to seriously stitch-up Stuchbury, Mitchell and McCrann. After all, the downside is next to nothing. What are the journo's going to do—complain about a little harsh treatment after years of being fed sensitive information? Ahum, well given the RBA has a monopoly on monetary policy insights, the media can whine all they want. The fact is that next month they will have to go back to the Bank cap-in-hand.

At the very least, market participants should stop pricing off Mr McCrann. My guess is that the once well-informed pundit is no more. Time will tell. If the RBA wanted to eviscerate his otherwise impeccable forecasting credentials, May would be the ideal opportunity. Don’t get me wrong. I think Tezza is one smart cookie. But I very much doubt he could independently and consistently out-think real money.