Business Cycle Upswing is Playing Out

Some clear signs from the higher order goods sectors that suggest the money supply manipulated economic upswing is playing out. Business Day reports this morning [ed note: my emphasis in bold]:

DEAL activity in the chemicals sector heated up last week and the share prices of companies such as Omnia and AECI touched new highs. During intraday trading on Friday, Omnia’s share price rose to a new high of R95,24 a share. The share price closed 1,12% stronger at R93,28 a share.

Most stocks that are exposed to the broader economic cycle are doing well at the moment, according to Warwick Lucas, an analyst at Imara SP Reid. Apart from AECI, examples include Imperial, Bidvest, Omnia, PPC, Barloworld, Cashbuild and furniture stores, he says.

AECI has said that it expects earnings per share for the year ended December last year to be between 27% and 32% higher than those achieved for the full financial year ended December 2010. Headline earnings per share were expected to rise by between 22% and 27% from those of the prior corresponding reporting period, it said.

The improvement is due to more favourable trading conditions in both the mining and manufacturing sectors, as well as the effects of the weaker rand against the US dollar in the last quarter of 2011,” AECI said in a trading statement.

Austrian business cycle theory teaches that an upswing of money supply and credit growth tends to boost economic activity in the higher order goods sectors (capital goods sectors) before other sectors of the economy.

AECI and Omnia service miners and manufacturers, meaning they could be classified even further removed from the final consumer good level than  mining/manufacturing.

The SARB is finally generating the credit and money manipulated business cycle upswing that will lead to rising price inflation and rate hikes going forward.

But first, we will see a marked improvement of real GDP growth, that will catch the Keynesians – who are expecting growth below 3% in the first half of 2012 –  completely offsides.