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12 Nov 2021 - Hedge Clippings | 12 November 2021
By: Australian Fund Monitors

    

Hedge Clippings | Friday, 12 November 2021

Inflation:

If you haven't noticed, there's a major debate underway about inflation. The debate is not about inflation per se, as it is pretty clear inflation is, after a long period of decline or dormancy, rebounding. Figures out of the US this week showed consumer prices jumping 6.2% in October, the biggest jump in 30 years, which will spill over to the world, and to Australia as well.

Australia of course has its own inflationary pressures, with supply chain issues thanks to COVID, particularly in the building industry, and higher petrol prices. In addition, in certain sectors labour costs are on the rise, as the shortage of foreign workers begins to hit home, in spite of an increase in unemployment in October to a six month high of 5.2%.

So inflation is here. The debate is firstly around how long it is going to last? The RBA believes (or hopes) it will be temporary, as the effects of COVID pass through the system, and then subsides such that they won't need to raise interest rates until 2023. Others, particularly the bond market, aren't quite so sure pointing to the US 5 Year Treasury yield which has been rising since September. As a result, borrowing costs for fixed rate mortgages are already on the rise.

Australia is not the only country in the world to have a runaway property market and a large number of overindebted homeowners who will be at serious risk if rates were to (or when they) rise, albeit from current record low levels. However, while even a 1% rise in official rates is going to cause some grief, anything much more than that - say 2% - is likely to have a serious downward effect on the property market, and flow on effect on an economy which is just getting off its COVID induced knees.

Moving on:

On the political side this week it was former PM Paul Keating's turn to weigh into the ex PM's ring - presumably upset that Malcolm Turnbull had been grabbing all the limelight in his desperate quest for revenge following his rejection by voters. Keating seemed to think that letting China invade and subjugate Taiwan was nothing to do with Australia, and we should keep our noses out of it.

As much as we might like to not get involved if such an event occurred, trying to ignore it won't stop it from happening. And what Keating is presumably going on about is the fact that we now have an alliance with the US and UK, which goes way beyond simply purchasing nuclear powered submarines. Keating's dislike, or disdain, for both the US and UK is well known, as is his attachment to French clocks. Maybe both he and Malcolm could cosy up to President Macron (who Turnbull seems to think is Bonaparte reincarnated) at the same time?

And one final word on Glasgow: From where we were standing, watching or reading, there wasn't much focus on nuclear energy as a partial solution to the very real issue of global warming. It was therefore pleasing to read that Rolls Royce has raised almost $1 billion in government and private equity funding for their "small scale modular nuclear reactor" design. Long term readers of Hedge Clippings might recall we've banged this drum before, but if we're going to have nuclear powered submarines, why not nuclear powered electricity?

The anti-nuclear brigade will quote the safety red-herring - but the technology has moved on since the days of Three Mile Island in 1979, or Chernobyl in 1986, or even Fukushima in 2011. The chart below shows the deaths from energy related accidents over the past 40 years per unit of energy, and nuclear is less than even solar!

For those wanting some light week-end reading on nuclear safety, click here.

                                                 


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