NEWS
8 Sep 2023 - Hedge Clippings | 15 September 2023
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Hedge Clippings | 14 September 2023 After all the machinations which have surrounded Qantas over the past few weeks, and which have taken the focus of Hedge Clippings away from the real task of looking at economic issues and the performance of managed funds, it is probably time to get back to basics. Having said that, the trials (literal and figurative) facing Qantas, and in particular the new CEO, Vanessa Hudson, and Chairman Richard Goyder are far from over. Hudson of course can, and will claim - or blame - her predecessor, although it seems like she either endorsed his policies, or didn't or couldn't stand up to his overbearing style. She'll no doubt get away with that excuse, but Goyder has nowhere to hide as chairman, and one who was cheer-leader-in-chief for the recently departed Irish elf. Goyder either believed Joyce was the "best CEO in Australia by a length of a straight" as he described him, or he was fooled into thinking so. Either way, it was a massive character judgment failure on his part, as well as one of corporate governance. The upcoming Qantas AGM is scheduled for November 3rd, and should be a jam packed and fiery event. Qantas might even resort to selling non existing tickets to it, but even though it's scheduled just a few days before the Melbourne Cup, it's doubtful if the chairman will be referring to his previous racing analogy when farewelling his disgraced former CEO. What the whole Qatar / flightless tickets debacle has done is to call into question the level of overt, or maybe covert, influence membership of the Qantas Chairman's Club wields throughout the corridors of Canberra and beyond. Power corrupts: Absolute power corrupts absolutely, or so the saying goes. The issue in this case is not power, but undue influence, or the perception of it. Didn't we say it was time to get back to basics of the economy? The hard/soft landing debate continues, both here and overseas - at least in the US, as it appears the landing in the UK is unlikely to be anything but hard. China's landing is likely to be bumpy at best, but getting an accurate picture of the world's second largest economy is anything but easy, coupled with the centralised and authoritarian decision making process. Australia's tightening phase would appear to be over, although it looks like rates won't come down anytime soon, given the unemployment rate remains sub 4%. There are a few wild cards out there, as always. Saudi Arabia and Russia are in lockstep to reduce oil production and keep oil prices, and therefore inflation, high. Tensions around Taiwan remain, even if overshadowed by China's economic issues, and of course Ukraine remains an unknown outcome. Thankfully it's footy finals season to take one's mind off such issues, although you can always stay up late / get up early to watch the Wallabies trying to get out of their pool into the quarter finals of the RWC. Watch this space! News & Insights Cultivating change - Nestlé's leading approach on sustainability and creating shared value | Magellan Asset Management Quay podcast: How high rates are impacting REITs | Quay Global Investors August 2023 Performance News Bennelong Concentrated Australian Equities Fund Argonaut Natural Resources Fund Bennelong Long Short Equity Fund Delft Partners Global High Conviction Strategy Glenmore Australian Equities Fund |
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8 Sep 2023 - Hedge Clippings | 08 September 2023
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Hedge Clippings | 08 September 2023 Yesterday marked what will probably be Philip Lowe's final speaking engagement whilst RBA Governor before handing over to his deputy Michele Bullock on 18th September. Free from the shackles of his position and convention, the outgoing governor took the opportunity to set the record straight on what he had (and had not) promised, whilst also taking a few shots at the level of reporting and attention his previous statements and comments had received. Of course, whilst in the role he had carefully avoided having an all out war with the media (Eddie Jones, take a lesson in humility) understanding that one rarely gets the last word in - no doubt remembering the old adage "never to argue with the person with the microphone". Whilst being pretty direct in his comments and opinion of the media, he was somewhat more subtle, but equally correct in also having a go at government in his speech entitled "Some Closing Remarks". Lowe stated the obvious: Government should carry some of the can for inflation and interest rates, and thus the property market and mortgage stress. In reality the RBA is very much the messenger, in spite of the so called independence. It is the government of the day that has the authority and ability, plus a wide variety of potential policy tools to steer the economy, instead of leaving it to the RBA and the blunt instrument of monetary policy to do the work for them. Fat chance of that happening! As Lowe said, it would require some "innovative thinking" which is a rare commodity in politicians, particularly once they're elected, and don't want to lose the benefits of office - even the unofficial ones, such as membership of the Qantas chairman's lounge, (which really should have been renamed Joyce's Jolly long ago). History has shown we've had multiple examples of "innovative thinking" over the years - think Mark Johnson's 2009 report, Australia as a Financial Centre, or Ken Henry's 2010 Tax Review with its 138 recommendations, most of which are still gathering dust. The major item from the Henry Review which was implemented by the then Rudd Government was the move to create a resources Super Profit Tax. The proposal was highly controversial, and has been suggested as the main reason why Rudd lost power. Both were announced with great fanfare (even if then Minister for Financial Services, Chris Bowen released his response in mid January, 2010, hardly likely to get anyone's serious attention) but neither Johnson's and Henry's efforts or recommendations resulted in little to no "Committed Action". Bottom line - don't trust politicians to actually do anything innovative, even if it is clearly in the national interest, if it also involves personal risk - as Paul Keating said "in the race of life always back self interest - at least you know it's trying". During his term as RBA Governor, Lowe did exactly what was required with the tools available to him, and given the cards he was dealt by the global economy, and policy of the day. He lowered rates to zero in response to COVID and government policy, which resulted in households and corporates being awash with cash, which along with Russia's invasion of Ukraine led to an outbreak of inflation. Like all central banks, he tightened rates (less than the US or UK) to stifle inflation, hopefully without choking the economy in the process. The government takes the credit for low unemployment, but is happy for Lowe and the RBA to take the blame for high interest rates and mortgage stress, to the extent they declined to renew his term in office. It's the government's responsibility to ensure there's sufficient housing to accommodate an immigration level of 300,000+ this year which is helping to keep house prices high, but they won't take the blame when it hurts those under mortgage or rental stress. Lowe will leave with a record of having set and kept to his narrow path, and what may shape up to be a soft landing - no mean feat. He should be applauded. Meanwhile the government has been left with a mess of its own making with - whatever the outcome - a divisive referendum campaign, and egg, or worse on its face over the Qatar fiasco, as has the Qantas board. Alan Joyce is probably public enemy Number 1 in Australia at present, and most people would be lining up to give him the following treatment: News & Insights New Funds on FundMonitors.com Hybrid securities - How risky are they? | PURE Asset Management The Experiences Megatrend | Insync Fund Managers August 2023 Performance News Bennelong Australian Equities Fund |
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1 Sep 2023 - Hedge Clippings | 01 September 2023
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Hedge Clippings | 01 September 2023 Reputation and trust are everything! Anyone involved in financial services - irrespective of which side of the desk they're on - is well aware of the importance of reputation and trust, particularly so as an advisor providing financial advice, or as a fund manager investing other peoples' money. Of course, that doesn't stop dodgy operators, normally driven by both their own greed, and assisted by the greed of some investors, from having a go. When it does occur, it inevitably ends up in tears for the investor, and loss of reputation (or worse) for the perpetrators, as the banks discovered during the Hayne Royal Commission. Mayfair 101 is a prime example and one suspects that's the reason head honcho and salesman James Mawhinney is trying so desperately to salvage his reputation. For the record or the forgetful, Mayfair went down the gurgler, along with over $200 million of "sophisticated" investors' money, thanks to some slick advertising and endorsements from some who should have known better. Finally, ASIC took court action to shut the failed operation, and Mawhinney in turn has fought back, and is reportedly set to re-launch Mayfair. However, in spite of 93% of their reviews on Trust Pilot being "5 star", his reputation is forever settled. If anything, the reputation of Trust Pilot as a reliable source of information is tarnished by association as well. Which brings us to the complete destruction (in our view) of the reputation of Qantas, along with that of CEO Alan Joyce. To be fair, the so called "National Carrier's" reputation as a five star airline took a beating some time ago, as service levels, baggage handling, flight delays, and just about every other factor, other than their safety record, went into a spin. More recently, the obfuscation around expiring flight credits (since reversed thanks to widespread publicity including a Senate grilling for Joyce), Qantas Chairman's Lounge membership for Albo's son, and political pressure to block competition from Qatar Airways, has added to their woes. Finally, this week the ACCC finished the job by taking Qantas to court for advertising flights which had already been cancelled. Presumably, the logic behind this was either to garner even more flight credits, or to stop passengers booking elsewhere. Either way, immoral, and in the ACCC's view, illegal. Qantas was once one of the most valuable brands in Australia, and possibly the world. Greed and a simple lack of ethics has destroyed that, and Joyce's reputation with it. Along with Albo's, and the combined Qantas boards', reputations tarnished by association. As the ACCC's case drags through the courts, and the media, the damage will continue. Joyce meanwhile will be long gone, pockets bulging. We pity his successor, who will have to pick up the pieces. While on the subject of handovers and successors, next Tuesday's RBA meeting will be Philip Lowe's last before handing over to his deputy Michelle Bullock. We suspect no change in direction, and that Lowe will leave - as history will show - with an excellent reputation. Some will note his misjudged "no rate rise until 2024" comment "forecast" but he seems to have traversed his "narrow path" well. Finally, last week we included this photo of Mick Jagger and Mitch McConnell. The week's news only confirmed what we all (possibly with the exception of Mitch himself) knew. News & Insights What really matters in investing | Magellan Asset Management Investing Essentials: How a financial adviser can help | Bennelong Funds Management July 2023 Performance News |
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25 Aug 2023 - Hedge Clippings | 25 August 2023
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Hedge Clippings | 25 August 2023 Wow! What a funny old week that was... but then again when one stands back from the headlines, it was more like a slow moving train wreck - or in the case of Yevgeny Prigozhin's presumed mid-air "mishap", more a question of "what took so long"? From what we can glean so far, and given that news out of Russia is curated to say the least, nothing is yet confirmed, other than the fact that a private jet crashed with the loss of all on board. Was Yevgeny among them, was he a target, or was it a way for him to "distance himself" from the long arms of his ex mate, the President? Sooner or later Putin, not widely known for forgiveness, would have found a way to extract his final revenge, either via poisoning Prigozhin's food (which would have been ironic considering he was reportedly once Putin's chef) or some other means. If he was on the plane, it's difficult to have much sympathy. If he wasn't, the best advice would be to watch what you eat, and avoid tall buildings. And then there's the case of Donald, once (and still) known as "President" Trump, facing up to Fulton County Jail to have his mug shot recorded for posterity, and no doubt a whole lot more, along with a dozen other of his co-conspirators. Once again Trump stole the show, having previously (according to some) tried to steal the 2020 US Presidential election, or according to him, having it stolen from him. Sounds more "banana republicanish" to us than Republican, but probably just symptomatic of where the world, or at least the US of A is heading. No doubt he'll garner even more applause and support from his followers, while (just like Prigozhin) it remains to be seen if he survives, or swaps his famous red tie for a more mundane uniform and a potential 641 years in the slammer. Closer to home, even the government's chief media apologist the ABC was questioning the curious co-incidence of the PM's son winning the frequent flyer lottery, and ending up a member of the Qantas Chairman's Lounge. Soon to depart Qantas CEO Alan Joyce deflected questions on how that occurred, citing "privacy" concerns, while at the same time defending a full year profit of $2.47bn., and refusing to refund all or any of the close to $1billion in COVID-19 support the government handed out while he decimated the Qantas workforce. And while Qantas are enjoying record profits on the back of limited seat availability, Albo's transport minister refused to be drawn on the logic of refusing just 21 additional flights per week from Qatar Airways, citing Qantas as the "National Carrier" (actually a commercial and publicly listed company) as in the "national interest". Apparently, any benefits to the long suffering Australian traveling public don't come into the equation, maybe because Albo and co. either don't pay for their tickets, or fly on an RAF VIP aircraft. Barring a complete fall out in the Chinese economy it looks as if Australia will avoid a major recession - unless of course Xi presses ahead with his stated intention of invading Taiwan. That would create a dilemma across the globe for governments, and businesses alike given the level of dependence on China as the world's manufacturer, and consumer. That might make Xi think twice, but in the meantime businesses are moving to reduce that dependence by moving or reducing their exposure. Either way, that's not going to assist China's current economic slowdown. Finally, on a lighter note, we gather the Rolling Stones are quietly planning the release of a new album in September. Which brings us to the following image, or should that be the following question: Whoever thought, back in the 60's, that Mick Jagger would still be around, let alone pumping out music? News & Insights Market Update July | Australian Secure Capital Fund AI reaches an inflection point | Insync Fund Managers July 2023 Performance News Bennelong Emerging Companies Fund Emit Capital Climate Finance Equity Fund Equitable Investors Dragonfly Fund |
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18 Aug 2023 - Hedge Clippings | 18 August 2023
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Hedge Clippings | 18 August 2023 Chinese property dominoes are looking wobbly All is not well with the Chinese property market - and given its importance to the overall Chinese economy, and thus to our major trading partner, there are some worrying signs on the horizon. Domestically, the property sector has been a major driver of China's growth, and thus the overall economy. And for a snapshot of the importance of China's economy on global trade, China is 1st in the world by maritime trade volume, 2nd in the world by shipping capacity, 1st in the world by port foreign trade volume and container throughput, and 1st in the world in shipbuilding by completed gross tonnage. Back to the property sector itself, and the empty or partially completed high rise buildings mean that the worrying horizon is not too far away. In the past week, two of China's most visible property developers' problems have hit the headlines for all the wrong reasons. Country Garden, the largest privately owned development company in China suspended interest repayments on a small number of on-shore bonds, and Beijing-backed developer Sino-Ocean conceded it had missed almost USD 21m of interest repayments on a series of off-shore bonds. As a result, Moody cut Country Garde's rating from B1 to Caa1, and Country Garden shares fell 18% in one day in Hong Kong. Country Garden sales in H1 2003 are down 30% YoY, and according to John Browning's excellent "Letter from Shanghai" the reluctance of buyers to place large deposits - which are then used to complete projects - is causing the developers' liquidity and cash flow problems. The problems in the property sector don't end there, as Browning explains: "The market is looking at the maelstrom that circulates around Zhongrong International Trust, and its connected parent Zhongzhi Enterprise Group. Zhongzhi acts to pool the deposits of its clients to invest in real estate, equities, bonds, and commodities. The guaranteed rates offered investors head towards 8%. Zhongrong International Trust has 270 products, which in totality offer an average yield of 6.88%. Coupled with a sales team that reportedly received 2-3% of the initial deposit, if we then throw in management fees, the investment managers of these pools would have to find investment opportunities that earn in the area of 12% P.A. just to break even after costs." As Browning rather drily notes: Looking at it dispassionately, there would be at first glance a temptation to manage the pool according to the Book of Madoff. Elsewhere in China retail sales figures disappointed, with July YoY coming in at 2.5% vs. previous 3.1% and expected 4.5%, followed by Industrial Production, July YoY actual 3.7% against previous 4.4% and expectations of 4.4%. Hedge Clippings has always been wary of Chinese data being shall we say "massaged", but our concerns were not helped (or were possibly confirmed) by a report that the numbers will no longer be published for the Chinese Youth Unemployment Rate - those unemployed between the ages of 16 and 24 - which is running at 21.3%. The official reason for the non-publication was the need to "further improve and optimise labour force survey statistics." Obviously not publishing bad news won't solve the problem, but it will save having to explain it (except to those unemployed). Maybe the unemployed youth could be conscripted and used to invade Taiwan? The Chinese authorities will no doubt act to revive their slowing economy, but longer term the social and demographic issues they face (population growth fell by 0.2% in 2023, having flatlined in 2022 in spite of the end of the One Child policy) are significant. According to this report, the UN forecasts that China's population will decline from 1.426 billion this year to 1.313 billion by 2050 and below 800 million by 2100. If you're interested in receiving John Browning's daily "Letter from Shanghai" you can register using this link https://mailchi.mp/ News & Insights Market Commentary - July | Glenmore Asset Management Investment Perspectives: Thinking about the cycle | Quay Global Investors July 2023 Performance News Bennelong Australian Equities Fund Delft Partners Global High Conviction Strategy Bennelong Long Short Equity Fund |
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11 Aug 2023 - Hedge Clippings | 11 August 2023
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Hedge Clippings | 11 August 2023 CBA's results shows what's happening in the 'burbs. News & Insights Political lobbying risks in the US | 4D Infrastructure The three factors driving stock returns | Magellan Asset Management July 2023 Performance News 4D Global Infrastructure Fund (Unhedged) Glenmore Australian Equities Fund Quay Global Real Estate Fund (Unhedged) |
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4 Aug 2023 - Hedge Clippings | 04 August 2023
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Hedge Clippings | 04 August 2023 To the surprise of very few, including the combined team at Hedge Clippings, for the second month in a row, the RBA and Philip Lowe left interest rates on hold at 4.1% this week at his penultimate board meeting. That doesn't mean we're out of the woods, or that future rises are off the table. Equally it's too early to forecast an early spring, and an associated easing, any time soon. As usual, particularly after his previous attempt of unsuccessfully predicting a date for future movements, Lowe was cautious, as the following extract from his post meeting statement shows: "Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks." We think that's the RBA's version of having two bob each way on a two horse race, but with the inevitable over-ride to finish: "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that." Today's RBA quarterly statement on monetary policy was also to a great degree a case of stating the obvious: Inflation is on the way down, but still too high. The labour market is still tight, unemployment at 3.5% is historically low, but both job vacancies and underemployment are showing positive signs (unless you're under-employed). Economic growth is subdued, and the outlook for the domestic economy is "subject to a range of uncertainties". Finally, "there are both upside and downside risks to the inflation outlook." There's another two bob each way bet! Ever consistent, the Statement's Overview page finished with their familiar and now favourite phrase: "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome." We can't say we haven't been warned. Meanwhile yesterday's ABS Retail Sales figures for the June quarter confirmed just how finely balanced the economy is. The numbers showed that volumes fell (-0.5%) for the third quarter in a row, the first time since 2008 (during the GFC and the chaotic days of Kevin '07) that Australia has clocked three negative quarters on the trot. The June result takes the full fall over 12 months to 1.4%, the worst 12 month result (excluding the period during the Covid lockdown) since Keating's "recession we had to have" in 1991. Retail spending on food, takeaway, cafes and restaurants fell, as did household goods, while clothing, footwear, and "personal accessories" were the only category to go against the trend, rising 1.1%. On the face of it, those struggling cut back on food and household items, but still looked after their appearance and personal items, obviously the new "real" necessities of life. However, it does seem that Lowe will leave the RBA in mid-September with the economy still on his "narrow path". Whether Michele Bullock can carry on the task, and steer the Australian economy to its much hoped for soft landing, remains to be seen. News & Insights Stage two of the downturn - earnings downgrades | Touchstone Asset Management In Conversation with Airlie's Analysts | Airlie Funds Management June 2023 Performance News Digital Asset Fund (Digital Opportunities Class) |
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28 Jul 2023 - Hedge Clippings | 28 July 2023
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Hedge Clippings | 28 July 2023 One of the difficulties of including the topics of inflation and interest rates in a weekly commentary is that in recent times it has been difficult to avoid the subject, even if it does end up becoming a tad tedious - quite possibly for both the author and recipients! This week therefore we'll cover it briefly before moving onto managed funds and peer group performances. True to our previous expectations, this week's June CPI figures (+0.8% for the quarter, and 6.0% over 12 months), provided some positive indications for inflation, and thus for next week's decision on interest rates. Wednesday's figures at least justified the RBA's July pause, and should herald a further pause next Tuesday. It's too early to claim the inflation battle has been won, and further "stickiness" could well trigger calls for another rise, but the June quarter figure of just 0.8% (annualised at 3.6%) is the lowest since, or equal to, the quarterly result for the June quarter of 2021. All this with historically low unemployment, and a strong labour market. The RBA's current cash rate of 4.1% (assuming it doesn't rise next week) is well below US rates, which rose again by 0.25% to 5.25 to 5.5% this week, as did European rates, while the UK's rate is at 5%, and is expected to touch 6%. The previously much maligned Philip Lowe looks to have been vindicated for his "narrow path" approach, balancing the fight against inflation with the need to keep the economy running, and with as close to full employment as possible. However, don't expect the RBA to take their foot off the pedal too quickly, and certainly don't expect any forecasts when that may happen from incoming RBA governor Michele Bullock. While overseas central banks are still increasing rates in an attempt to put the final nail in their inflationary coffin, Australia may have to accept 4.1% for a while longer yet to ensure the RBA's 2-3% target is secure. Moving right along... to fund performance: Inevitably, at the individual fund level the results over the past year or so have been varied. Over the six months to June, 58% of equity based funds outperformed the ASX200, while over twelve months that number dropped to just 8.1%, indicating how difficult many managers found 2022 as central banks grappled with unexpected inflation, and Russia invaded Ukraine. However, all but one of the 17 Peer Groups that make up the Fund Monitors database of 700+ managed funds recorded a positive result in June, and also over the previous three and six months. The exceptions were Fixed Income - Bonds (-0.48% in June, and -0.50% for three months) and Property (-0.32% over six months). However, over one year to the end of June, all Peer Groups (averages) were in positive territory, with Equity Long, both Large and Small Cap, and Australian and Global, all returning 10% or more. Digital Assets topped the twelve month list at 32.64%, having recovered from their (very) average 12 month return of -48.68% to December 2022. Looking at comparative Peer Group performances on a broad consistency basis (in other words, no drawdowns over both the short or longer term), the standouts have been Equity Alternatives, Alternatives, Fixed Income, and Hybrid Credit. Full details (registration required) can be found here. Finally, next Tuesday at 4.15 PM AEST we are running the latest of our webinar series, featuring three managers investing in Infrastructure assets. Register here or below to join AFM's COO Damen Purcell, as he delves into the opportunities and risks of infrastructure investing with Sarah Shaw from Bennelong's 4D Infrastructure, Ben McVicar from Magellan's Infrastructure Fund, and Matt Lorback from Atlas Infrastructure. Upcoming Events Infrastructure Funds - Analysing the Opportunities and Risks Webinar | FundMonitors.com Altor AltFi Income Fund - June 2023 Quarterly Webinar Update | Altor Capital News & Insights Market Commentary | Glenmore Asset Management Forever Chemicals - PFAS | PURE Asset Management June 2023 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Concentrated Australian Equities Fund Insync Global Quality Equity Fund |
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21 Jul 2023 - Hedge Clippings | 21 July 2023
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Hedge Clippings | 21 July 2023 Following last week's widely anticipated news that RBA Governor Philip Lowe would be replaced by Michele Bullock, the flurry of media coverage has died down as it quickly became apparent that the governor's baton would pass pretty seamlessly. Dr. Bullock has worked with or alongside her predecessor for close to 40 years, including most recently as his deputy. One would assume their thoughts and opinions on the economy, inflation, and the bank's role in fulfilling its task are or have been pretty similar. In spite of all the criticism leveled at Lowe for his now famous "slip" of making a forecast on future interest rates, he was more committed to a less aggressive hiking regime than his overseas counterparts when achieving his "narrow path" objective, as opposed to Jerome Powell's "whatever it takes" approach in the US. If anything, Bullock's speech in late June, focusing on the RBA's other mandate, that of maintaining full employment, suggested she might take a more aggressive approach if needed, but which we doubt will be necessary. This week's surprisingly strong May employment numbers, which added 33,000 people to the workforce, and saw unemployment remain at an almost unprecedented level of 3.5%, and 64.5% of the population employed, led various economists to revise their expectations and suggest another rate rise in August. Next week's CPI numbers, (due on Wednesday), Labour Force (Thursday), and June PPI, along with June Retail Trade, (both due on Friday), should hopefully clarify their arguments one way or another. Inflation appears to be easing in the US, with June's number of just 3% the lowest since March 2001, while even in the UK inflation has shown signs of abating, albeit from higher levels. Lowe has only two more RBA board meetings to chair, and he'd love to leave Martin Place with rates paused, and his narrow path maintained, prior to handing over to Bullock to complete the task he started. Not that there aren't still inflationary risks over and above the strong labour market. Russia's renewed ban on Ukranian grain exports, and the effects on food prices of the record heat across much of the northern hemisphere, are yet to play out. (If there's one ironic outcome of this week's record temperature of 45C + degrees in Spain, while in England it struggled to reach 21C, it must be the reverse migration of thousands of Brits fleeing the Spanish heat, to bask in the cool and damp of a typical English summer!) Of course, they may not be quite so happy if the rain spreads north to Manchester, and saves the Australian cricket team from a serious baz-balling defeat. While on the subject of sport, congratulations and good luck to the Matildas, as the women's game has raised awareness of and interest in, the game of soccer (sorry "football") in a way that the men's equivalent has ever managed to achieve. And while off on a tangent, yesterday marked the 54th anniversary of Neil Armstrong's historic landing on the moon and his now famous "one giant leap for mankind" quote. Some of you/us can remember the day clearly, while for many it's ancient history. That's life! News & Insights Investing Essentials: Active vs passive | Bennelong Funds Management Why railroads are an attractive investment and how PSR is helping | Magellan Asset Management June 2023 Performance News Bennelong Australian Equities Fund Argonaut Natural Resources Fund Glenmore Australian Equities Fund Bennelong Twenty20 Australian Equities Fund Quay Global Real Estate Fund (Unhedged) |
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14 Jul 2023 - Hedge Clippings | 14 July 2023
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Hedge Clippings | 14 July 2023 Have We Reached the Tipping Point of Inflation? As widely predicted by all and sundry, and frequently hinted by Treasurer Jim Chalmers, RBA Governor Philip Lowe's seven year tenure will end in September, to be replaced by current Deputy Governor, Michele Bullock. While there's a change at the top, and about to be widespread changes to the bank's board structure and decision making, the appointment provides continuity of the outgoing Governor's thought processes - assuming there was cohesion and agreement between the two over the past couple of years. We'd expect that to be the case. Both are longstanding RBA employees, Bullock with 38 years under her belt, whilst Lowe has 43. Jim Chalmers noted that the incoming Governor will provide a "fresh perspective", but we doubt it will cause major underlying changes to the overall approach, or the bank's actions when it comes to interest rates. Lowe has taken all the heat from the rate rises that the RBA has announced over the past 15 months, and of course for his earlier comments that rates wouldn't rise from an unprecedented 0.1% until 2024. Those earlier comments have been used by all and sundry, plus Chalmers and Albanese, to point the blame at Lowe for the fact that global inflation has caused rates to rise across the western world. The fact is that Australia's inflation rate is less than the UK's, on a par with the Eurozone, and until this week's surprise number, the US as well. Australia's cash rate at 4.1% is less than both the UK and the US, both at 5.0%. The government has been happy for Lowe to be blamed, having done nothing to help. In fact, they did the opposite by supporting wages rises that are yet to flow through the system. They've done nothing to try to control the inflationary impact of higher energy costs in a country where exports account for 70% of thermal coal production, and 82% of our gas. According to the Australia Institute as of 2020, only 1% of the gas produced in Australia is used in Australian manufacturing, less than 10% of the amount the LNG export industry uses itself. Twice as much gas is used just running gas export terminals as is used by Australian households. Whilst we're proud capitalists, and not fans of government control, one would have thought Canberra (on both sides of politics) might have stepped in somewhere or somehow along the line. For Bullock, the timing couldn't be better, and in our humble opinion she's a good choice. She's perfectly qualified, full of appropriate experience, and after 38 years, understands the bank. She comes in at a time of change, but will presumably maintain the current course. And for Chalmers, it allows the blame for mortgage pain to be laid squarely at the feet of Philip Lowe, just as it looks as if he might have achieved his "narrow path" balancing high inflation, low growth, and close to full employment. Just in time US inflation numbers have peaked, with this week's annual figure at 3%, down from 9.1% a year ago. With the delayed effects of the 13 rate rises to date working their way through the system, we may, or may not, see a (mild) recession by the end of the year. If we avoid one, we'll no doubt hear all about it from Dr. Chalmers, but how much credit he'll give to Philip Lowe is less certain. The CPI numbers due on 26th July will be critical. News & Insights Global Matters: The importance of emerging markets to the infrastructure opportunity | 4D Infrastructure Market Update June | Australian Secure Capital Fund June 2023 Performance News Bennelong Long Short Equity Fund Emit Capital Climate Finance Equity Fund |
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