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Printed: 05 December 2022 1:08 PM

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05 Aug 2022 - Hedge Clippings |05 August 2022
By: FundMonitors.com

    

Hedge Clippings | Friday, 05 August 2022

This week, to the surprise of no-one, the RBA increased interest rates by 50 bps to 1.85% in an effort to curb inflation and "to return it to the 2-3 per cent range over time, whilst keeping the economy on an even keel." The statement from the RBA's Governor, Philip Lowe was full of caution, and we'd suggest he's covering his bets when it comes to economic forecasting, and probably with good reason: Firstly, it's a pretty uncertain world, and secondly, his track record in the economic forecasting area hasn't been exactly spot on over the past couple of years.

The RBA cited a variety of reasons for the widespread inflation, but omitted to mention "commercial opportunism to increase prices" which anecdotally also seems to be a contributing factor.

Encouragingly (subject to his previous track record) the Governor expects inflation to peak later this year and then decline back to 2-3%, although he was careful not to put too tight a timetable on that, expecting 7.25% over 2022, falling to "a little over 4%" over 2023, and around 3% over 2004. That's mild given some forecasters are expecting UK inflation to top 15% within a year. The RBA is expecting a sharp slowdown in GDP growth from 3.25% this year, to just 1.75% over 2023 and 2024, as the effects of the rate hikes to date (plus those still in the pipeline) start to take effect. As above, given there have been calls from some economists for his resignation, Philip Lowe is covering his bets, stating the bank is "not on a pre-set path" and will be "guided by the incoming data".

That's a little harsh, but it's probably a lesson in caution when predicting the economic future while the likes of Putin and Xi remain in power. Putin's foray into neighbouring Ukraine was probably unexpected. Xi's ambitions in the South China Sea seem much more clear cut and more a case of when, not if, China will move on Taiwan.

Elsewhere this week, the ever ebullient and litigious Clive Palmer copped a paltry $20,000 payment to WA Premier Mark McGowan, who was ordered to pay Clive $5,000 in return in their joint defamation case. Given Palmer's reputation for having a thick skin and broad back, not to mention plenty of front, metaphorically as well as physically, he copped an equally paltry serve from Justice Lee, who "did not consider it safe to place any significant reliance upon Mr. Palmer's evidence". That would appear to indicate that he thought Clive was telling fibs, or dealing leniently with the truth, something most Australians worked out a long while ago. Most would be embarrassed to have been so described - Clive probably wears it as a badge of honour. Meanwhile, we wait to hear about costs, likely to dwarf the amount of damages, but probably not either of the litigants' egos.

More importantly, and probably of more concern to Clive, was news that Environment Minister Tanya Plibersek has proposed the rejection of his Central Queensland Coal Project due to its likely damage to the Great Barrier Reef, which lies just 10 km away. Nothing is certain, as there are 10 days of further consultation and public comment.  

Uncharacteristically, Clive hasn't (to our knowledge) commented to date, but no doubt this will change in time based on his past history. One thing is certain however: If Tanya's rejection comes to fruition, it's going to cost Clive a motza, whatever the cost of his antics in WA's legal system, but unlikely to change his demeanour.

This week we also released our Spotlight article on the FY 2022 Peer Group Analysis, covering the past 12 months, 5 and 10 years. While the past six months has been difficult for most Peer Groups there have been some encouraging signs that June may have marked a base, with some early July performances reflecting improved equity markets.


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