Signs of a new bubble
Economics correspondent Stephen Long examines the bull run on global stock markets and whether or not it's justified.
Source: PM | Duration: 5min 16sec
MARK COLVIN: In the wake of those jobs numbers we reported at the top of the program, they come amid renewed optimism among investors worldwide but is it justified?
Joining me in the studio to discuss this is economics correspondent Stephen Long.
Starting with Australia's jobs figures, they look like champagne numbers from one point of view. What do you think of them?
STEPHEN LONG: I think you'd have to take the numbers with a grain of salt Mark, 71,000 jobs this is based on a sample not a survey. And what we can say with almost complete certainty is that there was employment growth in the month, there might have been quite strong employment growth but the range within the Bureau of Statistics confidence interval, they say with 95 per cent confidence there could have been 16,000 jobs, there could have been 125,000. So this is somewhere in the middle.
MARK COLVIN: Blimey, as wide as that?
STEPHEN LONG: Yeah. That's the range. That's why we should never take this survey seriously as an actual number as some people actually reported.
MARK COLVIN: What's the difference between a sample and a survey?
STEPHEN LONG: Well they have a rotating sample of people that they speak to each month so it's a very volatile survey. The trend is clear and the trend is that the unemployment rate is flat and fairly stable at 5.4 per cent, not going up higher as people were expecting that it might, and we are seeing modest employment growth but only really on the trend enough to soak up new entrants into the labour market.
So we're going okay much better than much of the western world but it's not that strong.
MARK COLVIN: Are they permanent jobs?
STEPHEN LONG: Well they were mainly part-time jobs in this month and not permanent.
MARK COLVIN: Men, women - about the same numbers of each or what?
STEPHEN LONG: Well it was a mix. I didn't actually see a clear pattern within it about which industries or particular genders but there was victorious centric thing where you had a big dip in one month and a big rise in another possibly just a statistical correction. It's good news but we shouldn't take the headline as some sort of Gospel number.
MARK COLVIN: Well, place that within a global context?
STEPHEN LONG: Well what we're seeing around the world is really renew optimism amongst investors Mark. We've seen that here. The global equity index of share markets around the world is up around 25 per cent since the middle of last year.
But what I wonder is really within terms of the economic fundamentals. Does this make sense?
Now we know we're going okay in Australia, not extraordinarily well. But if we look at the OECD economies, they shrank over the past year. France and Germany I suppose the powerhouses of Europe are going backwards on the latest numbers. Southern Europe is in its fourth year of recession. Britain's facing a possible triple-dip recession. The US is...
MARK COLVIN: I mean, we know the result of the Italian election puts the whole euro zone in an even more precarious situation.
STEPHEN LONG: Yes, yes. So why are the stock markets rising? I guess that's the question and is it a bubble?
MARK COLVIN: Are the American employment numbers as questionable as the ones, as you say the ones here are?
STEPHEN LONG: The US employment situation is improving. There's certainly employment growth. The labour force participation rate has fallen however and the US is clearly experiencing a recovery. Good news, but it's a tepid recovery from a deep recession.
MARK COLVIN: You're worried about a bubble, what would be driving that bubble?
STEPHEN LONG: It's the central banks. What we've seen is extraordinary action by central banks which has staved off the global financial crisis to some extent, cutting interest rates to near zero around the world, buying government bonds.
MARK COLVIN: Pumping more money into the economy. Quantitative easing as they call it?
STEPHEN LONG: Pumping more money, yes. But what that's done Mark is it means you can't make much money having your money in cash if you're an investor, you can't make much money in government bonds and so it's basically forcing the money into equity markets.
Now there is optimism that we're not going to hell in a hand basket as it appeared we were but part of it is a push factor that basically in the search for a decent return, money is being forced into higher risk categories such as shares, such as some of the bonds, corporate bonds and derivatives that were an absolute no-go zone.
MARK COLVIN: So the derivatives are back?
STEPHEN LONG: The derivatives are back and really the question is, is this sustainable or is it another bubble? That is the big debate going on at a high level in investment circles at the moment.
MARK COLVIN: When do you think we'll know? It's hard to forecast the pricking of a bubble.
STEPHEN LONG: It certainly is. That's a hard, almost impossible, thing to get the timing right. But I don't know, unless we see a concomitant recovery in the economies, that we can see this sustained and in fact Mark the Australian stock market was down just a little, 1 per cent today, but that trend that we're seeing, it's running in advance of the economic recovery.
MARK COLVIN: Stephen Long thank you very much.