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25 Nov 2022 - Hedge Clippings |25 November 2022



Hedge Clippings | Friday, 25 November 2022

"One swallow doth not a summer make"

So goes the old saying - just how old might surprise some readers, given its origin can be traced back to the Greek philosopher Aristotle, (384-322 BC) following which its first recorded use in the English language was more recently in 1539. But we digress, because we're using the phrase to describe the economy, and markets, which following a dismal year to date, not only had a welcome bounce or spring in October but have continued onward and upward in November. Time will tell if that's two "swallows" in a row, but it is certainly welcome.

While quite possible that the market is bouncing back having been oversold - particularly during a particularly brutal September when the ASX Total Return Index fell over 6%, and its US big brother, the S&P500 was down over 9%, there seems to be less panic about surging inflation, and associated hikes in interest rates designed to quell the surging dragon. Maybe we're all just getting used to it after years of falling interest rates and resultant rampant property prices, and listening to the RBA trying to stimulate the economy and inflation, not dampen it.

If the RBA is trying to dampen consumer demand, it seems they're having little success, in spite of successive rate increases, although the flow-on effect through the mortgage market is likely to lag activity. Inflation meanwhile - currently 7.3% to the end of September, and forecast by Treasury to peak at 7.75% by the end of December, appears to be alive and well based on anecdotal evidence such as airfares, and the $16 bacon and egg roll which Hedge Clippings ordered this morning. (No, the diet's not going well, thank you very much!).

The point is that in spite of what seems to be a fair degree of opportunism by some businesses to increase prices, consumers don't seem to have got the message yet. By "the message" we mean pulling their heads in (or in our case, belts) and changing their spending habits. As a result, company profits are healthy, as in turn are markets, which at this rate are likely to post a gain for the calendar year.

So if neither COVID-19 (and 20, 21, and 22) nor inflation and interest rates have killed the economy, what will?  If Treasury's forecast of 7.75% peak inflation is wrong, and it continues onward and upwards, will the RBA keep jacking up rates until the tipping point arrives? Of course, what happens in practice is the target is overshot, both on the up and downside.

While on the subject of up and downside, and continuing our "Top 10" theme of last week, the 12 month performance of the Top 10 funds to the end of October ranged from +24% through to +43%, while the bottom 10 ranged from -45% through to -68%, with the latter group not surprisingly heavily populated by crypto funds.

Finally, we can't let a Friday afternoon pass without a comment on the antics of some characters from the Federal Parliament. The report into Scomo's "Minister in secret for everything" antics was released today, with predictable findings. Interestingly, Scomo himself didn't, wasn't, or declined to be interviewed by the report's author, former High Court Justice Virginia Bell. His silence or non appearance hasn't enhanced his reputation.

And talking of reputations and Canberra, how about Queensland MP Stuart Robert - who you may recall had to repay $38,000 worth of excess home internet charges back in the days he was in government? This week it was revealed he'd been helping a mate and an another ex colleague with their lobbying efforts in Canberra. Except they weren't really "lobbying", just helping a few multi-national companies find their way around the back-streets and corridors of the government for a fee. Of course, he was a back bencher at the time, so he had no influence!

No wonder Scomo didn't want a Federal ICAC!


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