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2 Sep 2022 - Hedge Clippings |02 September 2022



Hedge Clippings | Friday, 02 September 2022

Pendulums swing much like markets do - or maybe that should be the other way around. In the case of a pendulum, the extent of the swing is known as its amplitude, and once reached, it inevitably reverses according to science, returning back through equilibrium to the opposite amplitude. The time it takes to complete the whole cycle is technically known as the period. Yours truly knows this, not from paying attention in science class at school, but thanks to Uncle Google. Where would we be on a Friday without Google to check facts?  But back to markets...

Markets inevitably swing from one amplitude to the other, however not over a specific period, with the rhythm of science replaced by a multitude of known and unknown unknowns - including human nature and the psychology of greed and fear, economics, inflation, and central banks' reactions. Hence of course why harmonic motion and the pendulum can be taught in a single lesson, but markets continue to baffle and confuse even the experts. The last week has seen a sharp reversal in markets, thanks to comments from Jerome Powell at the Federal Reserve's Annual Jackson Hole Economic Symposium, where he basically said the Fed would do whatever it takes to tame inflation - even at the expense of the US economy being driven into a recession.

Markets take notice of central bankers, whether they're right or wrong, and Peter Costello, in his role as Chair of the Future Fund called out our own RBA this week while explaining the fund's negative return of 1.2% for the year to June. The ex Treasurer's criticism may well be valid, but surely the Future Fund has the resources, data, and ability to judge (or understand) when the RBA is heading in the right - or in this case, wrong direction?  Not only were the Fed and the RBA "caught napping" in Costello's words, but it sounds like the team at the Future Fund was too. Mind you, plenty of investors and fund managers would have been happy with -1.2% to the end of June 2022.

Other pendulums also swing - none more so than politics. The current talkfest in Canberra is a litmus test of the changes following the demise of Scomo in May. Equally in the USA, the swing right to left as Biden replaced Trump heralded a new harmonic motion, although harmony is hardly a word one would use when referring to Trump. This week the death of Mikhail Gorbachev, the last leader of the Soviet Union, also bought into sharp relief the political pendulum's swing in Russia as Putin attempts to turn back the clock and recreate a past empire - preceding even that of the USSR. Putin was no fan of Gorbachev, as evidenced by the fact he reportedly won't attend the funeral. Or could that be on security grounds?

Putin's war is not going well - or as well as he had hoped. Russia's great past victories have been repelling invaders (Bonaparte and Hitler) assisted by a long cold winter. This winter will see the boot on the other foot, but assuming no victory either way by Christmas, the long cold winter will see energy shortages across Europe which will certainly test the West's resolve.

Finally, while still on Russia, Ravil Maganov dies (officially put down to suicide) as a result of another unfortunate window failure and fall from the 6th floor of a Moscow hospital. Anyone who has read Bill Browder's excellent book "Freezing Order" would understand the likelihood of that!

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