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Hedge Clippings | 06 September 2024 In last week's Hedge Clippings we "expected that the phone lines would be running hot between Jim Chalmers and the RBA to encourage a rate fall" following the July CPI figure. While we're pretty sure the phone lines did in fact run hot, what we didn't expect from the Treasurer was a broadside delivered via multiple media appearances, including his now infamous claim that the RBA was smashing the economy with high interest rates. The government is obviously keen not to be seen as responsible for any household financial pain, but such a direct and openly critical comment - although he subsequently denied that it was meant as criticism - made the issue very public, which it was no doubt intended to do. As we've previously commented, the government and the RBA are each pulling on the opposite ends of the same rope. The RBA is trying to curb inflation by keeping rates elevated and reducing demand, while the government is trying to offset the effects of inflation by increased spending, supporting above CPI wage increases, and handouts, subsidies, and tax cuts for all. Having dispensed with the former governor, Philip Lowe, and replaced him with his deputy, Chalmers finds there's been no change in policy, or message - only the messenger. Meanwhile the message was reinforced again on Thursday by Michele Bullock with a speech given at the annual Anika Foundation lunch entitled "The Cost of High Inflation" which not only suggested there would be no easing before Christmas, but that it would be 2026 before the bank's inflation target was met. She was careful to emphasise that conditions, or the numbers, may change between now and then, in which case the RBA would adjust policy settings accordingly. While that might suggest an earlier timeline for easing if conditions allow, it could also mean the opposite. Meanwhile, we expect Jim Chalmers to continue with his line that the government is doing all that it can to help stretched household budgets - which it is - but it is certainly not helping the RBA fight the costs of high inflation. Of course he also has one eye (or maybe both) on the upcoming election. Rather than continue the public spat he started, it seems Dr. Chalmers called for some back-up in the form of ex (Labor of course) treasurer Wayne Swan, who maintained the pugilistic tone by accusing the RBA of "punching itself in the face" and so continuing the issue. Chalmers and Swan may be trying to shift the blame for household mortgage pain, but borrowers don't seem to be pulling their collective heads in based on housing finance statistics released today by the RBA. Investors led the charge, with new investor loans up by 35% over July, 2023, new owner occupied loans increased by 21%, and owner occupied first home buyer loans were up 19.7%. As the ABS noted, these numbers were only partially driven by higher property prices. So in between accusations of "smashing the economy", and "punching itself in the face", the RBA is steadfast in its fight against inflation, the government is pouring more fuel into the economy, while the property market - or at least the financiers of it and real estate agents - aren't taking any notice. Finally on the political front, Bill "Wee Willy" Shorten announced his exit this week, having tried, but never made it to the lodge, in large part due to his policy to cancel franking credits in the lead up to the 2019 election, when he and shadow treasurer Bowen "misread" the level of investor anxiety about the move. Yet another case of politicians being totally out of touch with both the electorate, and common sense. Even so, maybe Shorten can see the writing on the wall for the next election? News & Insights New Funds on FundMonitors.com What not being born and not dying is doing to investments | Insync Fund Managers Stock Story: Stryker | Magellan Asset Management |
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