NEWS
5 May 2023 - Hedge Clippings | 12 May 2023
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Hedge Clippings | 12 May 2023 Treasurer Jim Chalmers was understandably pleased to be able to hand down a budget forecasting a surprise surplus, but according to more than a few economists the real surprise will be whether it eventuates or not. As has been widely questioned, the risk is that the selected spending initiatives will be inflationary, leaving the RBA with no alternative but to either increase interest rates further or keep them higher for longer. Meanwhile, on the revenue side, there is still no appetite from either the government nor the opposition to fix or address the reliance on personal income tax. The opportunity has been lost for another year, as it has every year since the Henry Tax Review in 2010, and no doubt will be put in the too hard basket again next year as well. Hedge Clippings is not going to dwell on the budget too long - it is covered more than enough elsewhere. However, it was interesting, if not alarming, that a research paper out of the RBA this week estimates the chance of a recession next year at 80%. If inflation does continue at an elevated level as many believe it will, and the RBA sticks to its determination to address it, a recession, whether with a "hard" or "soft" landing, is likely to be the outcome. It's going to be a delicate balance, or as Philip Lowe describes it, a "narrow road". Turning to markets and managed funds. Market shocks, such as the '87 crash, the tech wreck of 2000, or the GFC, tend to create opportunity - particularly for the brave - after extended periods of investor exuberance, which when coupled with excessive leverage lead to stretched valuations. The past two to three years however have been different, but according to many managers we have spoken to, could be considered one of the most challenging periods in recent memory. Certainly there were stretched valuations, particularly in the tech and growth sectors, post GFC thanks to QE and central bank intervention, but little could have prepared markets for the combined effects of COVID, Russia's invasion of Ukraine, and the resultant outbreak of global inflation. The small cap sector always takes the brunt when investors switch from risk on to risk off - having paved the way and outperformed in the first place. Over the year to December 2022, the average performance of the 86 funds which make up the Australian Mid and Small Cap Peer Group fell by 19% compared with the Australian Large Cap Peer Group, which fell on average only 4%. By contrast they topped the performance tables three years before. This cycle is not unusual given the lack of liquidity often accompanying stocks outside the ASX200 (and sometimes within it) but there's little doubt that as a result the lack of interest, or appetite for risk accentuates the losses, and in turn creates opportunity. The key of course comes in the timing, so earlier this week we hosted a webinar discussion with three "small cap" fund managers, namely Dean Fergie from Cyan Investment Management, Steven Johnson from Forager Funds Management, and Gary Rollo from Montgomery Investment Management, to ask them the sometimes difficult question about their experiences over the past two years or so, but more importantly, if the worst of the current market was behind them? You can watch a recording of the discussion below, but there were some key take-aways from each of them. None of them shied away from the difficult questions but were all consistent in their view that trying to time the bottom or turning point in the market was an impossible exercise. Each gave examples of oversold companies or markets, and each reiterated that holding profitable, successful businesses, with strong balance sheets (sometimes trading at or below asset, or even cash backing) will provide outsized future returns, rather than selling them at current depressed valuations. Of interest is the fact that while the small cap sector has still underperformed the ASX200 in the six months to the end of April (+3.83% to +8.71%) at least it is positive, while over the past three months while marginally negative, the small cap peer group has just outperformed (-0.70% to the ASX200 at -0.80%). Maybe the tide is about to turn? |
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5 May 2023 - Hedge Clippings | 05 May 2023
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Hedge Clippings | 05 May 2023 "This budget will be handed down in the context of an uncertain and volatile global economy which is precariously placed." Thus Treasurer Jim Chalmers summed up his view of the challenge facing him next Tuesday following his visit to the US to meet his offshore counterparts, and things would seem to have become even more volatile and precarious since then. That was back in mid April when he returned with the message that the IMF was forecasting "an incredibly weak five years of economic growth." Since then the US banking system has gone from bad to worse following the collapse of Silicon Valley, Signature, and now First Republic Bank, with others likely to follow as investor confidence tumbles. Bank failures are not that uncommon in the US, as shown by this list from the FIDC, with some analysts estimating that over 50% of the 4,800+ US banks could be under threat. While in Australia we have a well capitalised, and much more concentrated banking landscape, we too rely on the market's - and in particular depositors' - confidence that their funds are secure, irrespective of government guarantees. While Australia's economy and budget may be insulated to a degree by record low unemployment, bracket creep, and high commodity prices, they are not immune to the stubbornly high inflation which is spreading to the services sector, and increased labour costs. Basic wage demands, along with calls for improved welfare, are likely to feature heavily in Tuesday's budget, even if any increases will be insufficient for those unable to offset the increases in their basic living costs. What is almost certain to be missing on Tuesday is any serious attempt to fix the outdated, inefficient and broken taxation system on which the welfare system relies. Meanwhile, given this week's further tightening both here and the US, seemingly the only remedy to the current inflation is higher interest rates - with the outlook for a prolonged period of both, and the risk that the desire to dampen inflation will damage the economy to the point of recession. The RBA's March quarterly Statement on Monetary Policy, released earlier today, claims at the outset that inflation has passed its peak, and expects the current level of 7% to decline to 4.5% by the end of the year, before returning to 3% by mid 2025. That's dependent on GDP growth of just 1.25% as inflation and interest rates take effect, and with recent declines in retail sales, and the post COVID slump in the Household Savings Ratio, and a 3% decline in Household Disposable Income Growth, that may well be the case. The Statement is careful to add the caveat that the "outlook is subject to a range of uncertainties," but what is certain is the Board's focus on inflation, which in the Statement's Overview gets mentioned no less than 49 times, more than interest rates, wages, labour and the economy combined. If that's not enough, it is worth taking notice of the last paragraph, and the final sentence: "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that." The RBA's intentions are one uncertainty Jim Chalmers won't have to deal with next Tuesday. Meanwhile, it's no secret that the small cap equity sector, having returned on average 17.42% p.a. over the past three years to be the best performing peer group in AFM's database, has struggled over the past year, falling 11.63%. There's been some recovery over the past six months, so next Tuesday at 4:15 AEST we will be hosting a "round table" webinar featuring three fund managers from the Small Cap sector.
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News & Insights 10k Words | Equitable Investors Stock Story: QBE Insurance | Airlie Funds Management |
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28 Apr 2023 - Hedge Clippings | 28 April 2023
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Hedge Clippings | 28 April 2023 |
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Economic Cross Winds Following last week's release of the Review of the Reserve Bank, which targeted the RBA's culture, management and performance, the focus now returns to next week's board meeting, and the potential for an extension of the policy pause announced in March. Supporters of this view - by no means unanimous - were encouraged by this week's inflation figure which saw annual inflation to the end of March fall to 7.0%, down from December's 30 year peak of 7.8%. Others saw it differently, particularly those who pointed out that inflation at 7% is still at least 4% above the top of the RBA's target range of 2-3%, and are wary of the inflationary effects of wages policy, plus any inflationary impact from the Government's first budget, due on Tuesday week. Thereafter it is going to be more difficult for Chalmers to blame Scomo (a.k.a. Minister for Everything) and Josh Frydenburg for Australia's inflationary and economic woes, when the root cause of the current situation was global or external. Our call is for a continuation of the pause, even if only for a month until the budget is out of the way and the picture is clearer. However, barring a recession, expectations are for inflation to remain elevated for longer than the RBA expects, so it is likely to be well into 2024 or beyond before Australia's inflation rate starts with a "2", by which time, if Jim Chalmers has anything to do with it, Philip Lowe will be long gone. Turning to the US, there is also a Fed meeting scheduled for next week, with the Federal Reserve chairman Jerome Powell facing further economic cross winds as core inflation picked up in the March quarter, while growth was just 1.1%, well under the median forecast of 1.9%. Higher inflation, coupled with lower growth, is not a positive formula, particularly while the Fed is also grappling with falling confidence in the banking system as San Francisco based First Republic Bank suffered withdrawals of 40% of its deposits in the first three months of the year. Coming on the back of the collapse of US banks Silicon Valley and Signature, and the Swiss National Bank's emergency liquidity of US $120 billion to support the UBS absorption of Credit Suisse the risk of contagion in the US and the global banking system is heightened. This article from the Economist Intelligence Unit - although a few weeks old - argues that financial contagion is unlikely. However, if consumers or depositors' confidence is shaken by the chance of their loss of capital, this could change very rapidly. |
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News & Insights Australian Secure Capital Fund - Market Update March | Australian Secure Capital Fund Investment Perspectives: Banks, balance sheets and bailouts | Quay Global Investors March 2023 Performance News Bennelong Concentrated Australian Equities Fund Emit Capital Climate Finance Equity Fund Insync Global Quality Equity Fund Insync Global Capital Aware Fund |
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21 Apr 2023 - Hedge Clippings | 21 April 2023
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Hedge Clippings | 21 April 2023 This week Treasurer Jim Chalmers released his "independent" Review of the Reserve Bank of Australia and by all accounts he intends to accept all recommendations of the Review's three person expert panel. By and large the panel was broadly critical of the Bank board's structure and governance, with most of that criticism, implied or otherwise, and rightly or wrongly, falling on the shoulders of the RBA's embattled governor, Dr. Philip Lowe. Lowe's been a convenient punching bag for a while now, but in particular, he's copped criticism from those who took as gospel his mid Covid forecast that the then cash rate of 0.1% wouldn't rise before 2024. History of course tells a different story, and hindsight is easy, but Lowe was only echoing what most central bankers were saying at the time at the height of the COVID panic, and before Putin invaded Ukraine. However the expert panel's Review of the RBA went much further than that, and the ramifications will be significant, with the change in the Bank's mandate to take into account both managing inflation and, or while maintaining full employment. In future there will be dual boards, one responsible for governance, and another, whose members will have greater economic expertise, responsible for setting monetary policy. The external Monetary Policy Board will meet 8 times a year, with policy decisions to be more transparent, including a press conference after each meeting. Board members should speak publicly "occasionally" about the work of the Board. Chalmers has wasted no time in appointing two new members of the Board, Iain Ross and Elana Ruben. This is in spite of the Review's recommendation that "External Monetary Policy Board members should be appointed through a transparent process. Positions should be advertised for expressions of interest, drawing on a matrix of required skills and experience. A panel comprising the Treasury Secretary, the Governor and a third party should recommend options for suitable candidates to the Treasurer." We're not doubting Ross or Ruben's skills and experience, but we're not too sure about the transparency, or the positions being advertised for expressions of interest. As for Philip Lowe's reaction to the criticism, implied or otherwise, he was his usual measured self, albeit no doubt through gritted teeth. In the RBA's official release when defending the organisation he heads up, he included this quote: 'The Review Panel rightly acknowledged the substantial contribution the Bank has made to Australia's economic success and the skills and dedication of the staff. It also acknowledged the RBA is highly regarded and respected in Australia and overseas.' He was even more defensive at a press conference later, describing the overall review's finding as "kind of excellent" and saying the panel's comments about the workings of the board "didn't really resonate with me". Lowe's term as RBA Governor is up in September, and although he's offered to continue (if asked), we suspect the writing's on the wall. Meanwhile, tucked into the appendices at the back of the 282 page Review was a list of the 137 people who contacted, or were contacted by, the expert panel. Fourteen were members of parliament, including understandably both the Treasurer and Shadow Treasurer. Of the remaining twelve, two (Costello and Frydenberg) were former Treasurers, leaving eight of the final ten being Independents, including Jacqui Lambie. We're not sure if it's relevant that Pauline Hanson wasn't on the list, but her absence probably didn't affect the outcome of the final report! Overall (Philip Lowe excepted) the Review's findings have been well received, but particularly by Treasurer Jim Chalmers, who having initiated it, accepted 100% of its recommendations. It's a shame he won't take the same approach to the more important reform of Australia's taxation system, starting with his budget due next Tuesday week. |
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News & Insights The Lipstick Effect | Insync Fund Managers Quay podcast: FORA - fear of renting again | Quay Global Investors Why quality matters? | Magellan Asset Management March 2023 Performance News |
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14 Apr 2023 - Hedge Clippings | 14 April 2023
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Hedge Clippings | 14 April 2023 Jim Chalmers headed off to Washington this week for meetings with the G20, the World Bank, and the International Monetary Fund (IMF) among others, and ahead of his first full federal budget in May. The Treasurer's visit coincided with the IMF's release of their latest economic outlook, which to say the least, was not rosy, predicting an uncertain global outlook driven by financial sector turmoil, high inflation, the ongoing effect of Russia's invasion of Ukraine, and three years of COVID. |
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News & Insights Market Commentary - February | Glenmore Asset Management March 2023 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Emerging Companies Fund Delft Partners Global High Conviction Strategy Bennelong Twenty20 Australian Equities Fund |
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6 Apr 2023 - Hedge Clippings | 06 April 2023
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Hedge Clippings | 06 April 2023 Last week's Hedge Clippings correctly predicted that the RBA would hit the pause button on their combined rate rises of 3.5% since last May. However, the key word is "pause". As always, after all the preliminaries in the RBA's post meeting statement, check out the last paragraph, and particularly the final sentence: "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that." That target of course is the oft' quoted range of 2-3%, but the Governor's statement also noted that inflation, while moderating, is not expected to reach "around" 3% until mid 2025. As we also discussed last week, while the latest monthly inflation figures are improving, (no doubt helping the "cause for a pause") the tight labour market, as evidenced by unemployment at 3.5% and at around 50 year lows, coupled with calls for wage increases in some sectors of 6-7%, are a "cause for concern". The RBA release noted that at the aggregate level wages growth is still consistent with their inflation target, (i.e.2-3%) but our best guess is that this is where the wheels may fall off the RBA's calculations. The RBA's statement referred to it in classic central bank-speak by saying the board will "pay close attention to both the evolution of labour costs and the price setting behavior of firms". By which they also presumably mean the public sector in the Labor controlled mainland. Calls for Philip Lowe's head on a platter have (sensibly) diminished over the past couple of months, but going forward this will no doubt depend on him being able to navigate the narrow path between taming inflation with higher rates, and so slowing the economy, and at the same time achieving a soft landing. That's a tough juggling act. For the moment - at least for another month - the RBA is buying some time as they wait for clarity on both inflation, and the effect of their efforts to control it over the past 12 months. Thereafter, expect rates to rise by another 0.15 to 0.25%, while any reduction - barring a recession - seems a long way off. Meanwhile, staying on the RBA, their latest Financial Stability Review, released this morning, looks at household budgets and associated financial stress, and confirms the bank's Baseline Economic Scenario; namely, that over the course of 2023 unemployment increases slightly to 3.75%, incomes will grow by 4.25%, expenditures will increase by 4.75%, and the cash rate will peak at 3.75%. In that scenario, the RBA predicts that around 15% of households will have "negative spare cash flow" (aka mortgage and living expenses greater than income), which from the perspective of the overall economy, they expect to be manageable. The Adverse Scenario - unemployment rising to 5.5%, under-employment 8%, and with wages growth and inflation dropping as a result, would see 17% of households with negative spare cashflow - as usual with the stress falling unevenly on lower income borrowers with low, or zero, savings buffer. The Bank expects the broader financial stability implications (i.e. damage to lenders' balance sheets) to be limited. However, as Philip Lowe pointed out in his address to the National Press Club earlier in the week, one of his major concerns is the level of inflation and stress in the rental market, where the data and statistics are more difficult to assess. This is dry subject matter for a Thursday, but we'd like to take this opportunity to wish everyone a safe and "Happy Easter" or whatever you may be celebrating. |
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News & Insights New Funds on FundMonitors.com 10k Words - SVB Special | Equitable Investors Cyber security - the new world order | Magellan Asset Management March 2023 Performance News |
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31 Mar 2023 - Hedge Clippings | 31 March 2023
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Hedge Clippings | 31 March 2023 Good news on the inflation front! This week we saw Australia's CPI decline for the second month in a row to an annualised rate of 6.8%, down from 7.4% in January, and from 8.4% in December last year. One would imagine it's too early to expect the RBA to cut rates at their meeting next Tuesday, but it does bring about the possibility of a "pause", and no doubt a collective sigh of relief from homeowners, and probably RBA Governor Philip Lowe as well. However, as the saying goes, "one swallow doth not a spring make", and while it looks as if overall inflation may have peaked, there's a risk that wages-linked inflation has yet to impact the full CPI numbers. Casting our minds back a year or two, inflation seemed dead in the water - in fact, the RBA was concerned about disinflation, which of course was one of the reasons Lowe and the RBA were caught unprepared, in line with virtually every other banker and economist in the world (outside Argentina, where inflation hit 102.5% in February). Two events coincided - the sudden invasion of Ukraine forcing up energy prices, and the widespread easing of COVID restrictions, at the same time as China closed or locked down, creating a supply chain driven jump in the price of imported goods. That was followed by more general price increases of goods and services, some of which might have been opportunistic, after a long period of stability and margin compression. What is yet to come is inflationary pressure as a result of wages, with the RBA's estimate of wages growth of 4.2% year on year likely to be exceeded given the ACTU are pushing for increases in line with inflation, and East to West labor governments are more likely to agree or give in to them. If that's the reality, then the RBA's core inflation target of 2.9% by mid 2025 - or hope that the inflation genie is back in the bottle at 2-3% - is looking optimistic at best. Our (uneducated) guess is that 2-3% inflation may be a long way off, if ever. Maybe the low inflation, QE induced post GFC era was a one-off - and apart from the low inflation, in some ways, we hope that's the case. For a more educated analysis this piece of research from the nab - although over a month out of date, argues the case in more detail than we can. So all eyes will be on the RBA's announcement at 2.30 next Tuesday afternoon. We expect a welcome pause, but any reduction to be way off in the distance. Meanwhile, it was good to see Teal MP for Wentworth, Allegra Spender hosting a round table of experts - including Ken Henry - to shake up Australia's taxation system. As the discussion was only being held today in Canberra it's too early to comment on the outcome, but hopefully it puts some pressure on both major parties to take the subject of real tax reform (and not just tinkering with super balances affecting 0.5% of the population) out of the too hard basket, and into the action tray, as detailed in Hedge Clippings on March 10th. Australia and Australians are being held back by an overly complicated, inefficient tax system that governments of both persuasions have contributed to, and don't have the political will to fix. Maybe the independents will force them to get on with some real reform. |
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News & Insights Market Update February | Australian Secure Capital Fund Investment Perspectives: Is the Aussie residential market bottoming? | Quay Global Investors February 2023 Performance News Insync Global Quality Equity Fund Bennelong Long Short Equity Fund Equitable Investors Dragonfly Fund |
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24 Mar 2023 - Hedge Clippings | 24 March 2023
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Hedge Clippings | 24 March 2023
What defines the best managed fund? This week we thought we'd give politics and politicians a rest, as well as tax and the superannuation system. We're not even going to elaborate on the frailty or otherwise of the US or global banking system, except to say "who ever thought the Swiss would run into trouble?" Instead, we're looking at the performance of equity markets, and managed funds - and specifically the best performing ones, over varying time frames. We also refer to an excellent article (see link) by Romano Sala Tenna, Portfolio Manager at Katana Asset Management in Graham Hand's excellent "First Links" newsletter. The essence of the article is that time, and patience, are the keys to successful long term investing in the equity market. While there may be some volatility along the way, Romano clearly shows that the market's direction (given time) is always upwards. Which of course begs the question why so many investors try to "punt" the market, with highly variable results. Maybe it is simply the love of the punt, or possibly one, the other, or both of the two most common flaws of investing; greed and fear. As Romano points out, the sharpest fall (3 months) in the history of the ASX was in early 2020, thanks to COVID. Those who sold in February or March 2020 missed out on one of the strongest rallies which followed. He also points out that the market has averaged a return of 10.8% over the last 147 years. That may be longer than most fund managers propose, but you probably get the point. Romano's message is to invest for the long term and stay patient. As the chart below shows, on a rolling basis if you had invested in the market for any 8 year period since 1875, you won't have experienced a negative return. Some might wonder why, given Fund Monitors' focus is on managed funds, we're looking at investing directly in the market. Quite simply, choosing a managed fund is not so easy investing in the index. Managed funds come in all shapes and sizes, and performance varies between them. Performance also varies over time, and we would agree that when analysing the performance of funds one has to look at performance over the longer term. However, some of the best performing Australian Long Only funds over one year don't always back it up, year after year. The top 10 performing funds over the longer term however (7 years) don't always appear in the top 10 over 5, 3, and 1 year. Careful analysis shows consistency (at least in the top 10 list) is difficult to achieve. For the record, Romano's Katana Australian Equity Fund makes the Top 10 list in all four time frames - 1, 3, 5, and 7 years. Rob Gregory's Glenmore Asset Management doesn't have a 7 year track record but makes the top 10 over 5, 3, and 1 year. DMX Capital Partners and Anacacia's Wattle Fund appear in the top 10 tables 3 times, each over 7, 5, and 3 years. Analysis of managed funds isn't as simple as just selecting the top performing funds. Join our webinar "Making the Most of Fund Monitor's Data" next week, either on Tuesday 28th at 11:30 in the morning, or alternatively on Thursday 30th at 4:00 in the afternoon (both AEST) and we'll give you a site tour and tips on how to use the website to compare and track over 700 funds. |
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News & Insights Experiences Rule! | Insync Fund Managers Trip Insights: Americas | 4D Infrastructure February 2023 Performance News Digital Asset Fund (Digital Opportunities Class) Insync Global Capital Aware Fund Bennelong Emerging Companies Fund Emit Capital Climate Finance Equity Fund |
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17 Mar 2023 - Hedge Clippings | 17 March 2023
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Hedge Clippings | 17 March 2023 With friends like Keating, Albo doesn't need enemies! This week saw former PM Paul Keating, the Labor Party's elder statesman, and in his day chief head-kicker of the Liberal Party, give an almighty serve to PM Anthony Albanese, his deputy and Minister for Defence, Richard Marles, and Foreign Minister Penny Wong. This was vintage Keating, except it seems he's become a grumpy old man. Once upon a time he mixed sarcasm and humour to make his point. This time it was pure bile, and all the more extraordinary as it was aimed at his own troops. With friends like that, who needs enemies? In our view it was also hypocritical of Keating to say of Penny Wong: "Running around the Pacific Islands with a lei around your neck handing out money, which is what Penny does, is not foreign policy. It's a consular task." For the record, below is a photo of the then PM wearing what looks like a cross between - we're not even sure how to describe it - and wearing a lei around his neck, back in the day when he thought he was the Messiah. An opinion of himself he obviously still holds. Both the photo above and Wednesday's verbal spew were of course theatrics, but what's apparent is that Xi Jinping's hand is seriously manipulating somewhere up the back of the Keating puppet. He seems to think China is blameless, faultless, and just a benign and growing power in the Pacific, and around the globe. Forget human rights abuses, forget the facts, forget playing the ball - play the man, or in this case the woman. And when Keating was asked a question he didn't want to answer - by a young (female) journalist - he used the old get-out-of-jail put down response: "the question is so dumb, it's hardly worth an answer." And to another journalist's question on human rights and the treatment of Uyghur minorities in Xinjiang, he said it was open to debate, and deflected the question by referring to India's treatment of Muslims. Here's what Amnesty International say about China's approach to Ethnic Autonomous Regions: "The (Chinese) government took extreme measures to prevent free communications, independent investigations, and accurate reporting from the Xinjiang Uyghur Autonomous Region (Xinjiang) and Tibet Autonomous Region (Tibet). The government continued to implement far-reaching policies that severely restricted the freedoms of Muslims in Xinjiang. These policies violated multiple human rights, including the rights to liberty and security of person; privacy; freedom of movement, opinion, and expression, thought, conscience, religion, and belief; participation in cultural life; and to equality and non-discrimination." Keating's approach is, and always has been, to tip a bucket on anyone with the temerity to challenge his bigoted view of whatever subject he chooses to be an expert on. And there aren't many he doesn't! He obviously loves China, and equally hates America. As for the cost of the submarines under the AUKUS deal, it is budgeted at A$368 bn. in total through to the mid 2050's. China's announced defense budget this year alone is US$224.8bn. (A$321bn.) up 7.2% in 2022, although the Center for Strategic and International Sudies (CSIS) reports the actual figure maybe 1.1 to 2 times higher than the official budget. According to this search of Google, China has 79 submarines, 12 of which are nuclear powered and armed. China's defense spending in 2021 was higher than the next 13 Indo-Pacific countries combined. No doubt Keating will pooh pooh those figures as well. One can argue the cost and the strategic and military wisdom of the AUKUS deal, but while Keating's kow-towing to China might win Xi's praise, it won't win his respect. And while there's some months to go yet, it's our guess he's off Albo's Christmas card list this year! Moving right along... Good to see Ken Henry re-enter the fray, arguing for a complete re-think of Australia's over complex and outdated tax structure. However, as we argued in last week's Hedge Clippings, finding politicians of any persuasion to grapple with the issue won't be easy. But maybe if there's bi-partisan support for AUKUS submarines, there's a chance? Contagion in the banking system has been front and centre of the financial pages since SVB ran out of cash last week, thanks to rumours that spread virally via social media and Silicon Valley's IT savvy elite, with the problem spreading to First Republic Bank. At this stage, it seems that the contagion, while real, will be contained by all banks standing shoulder to shoulder, but it's a clear reminder that when faced with the potential for loss of capital, bank depositors large and small will act first, and ask questions later. And finally, Happy St Patrick's Day to the (reported) 70 million people of Irish heritage who live outside Ireland, and to the 7 million who still inhabit the Emerald Isle. Ireland plays England in the six nations rugby in Dublin tomorrow, and based on form should win hands down, as long as the Irish team didn't overdo their St Patrick's day celebrations beforehand. |
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News & Insights New Funds on FundMonitors.com Manager Insights | PURE Resources Fund The Long and The Short: Could the year ahead defy the Fed? | Kardinia Capital Stock Story: Walmart | Magellan Asset Management February 2023 Performance News Bennelong Kardinia Absolute Return Fund Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Australian Equities Fund L1 Capital Long Short Fund (Monthly Class) |
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10 Mar 2023 - Hedge Clippings | 10 March 2023
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Hedge Clippings | 10 March 2023
Let's have a real conversation about tax! Following the flurry of indignation, debate, and media comment raised by the government's changes to super balances over $3 million, everything seems to have gone quiet. Maybe this is just the temporary or short-lived nature of the news cycle, or possibly that it's hard to maintain the rage or focus on something that affects less than 1% of the population, and a seemingly privileged one at that. However, that doesn't change a couple of key issues we have with Dr. Jim's "discussion" with Australians about the purpose of their super. Firstly, the increased 30% tax rate is triggered by the value of the asset, not the amount of income earned. Secondly, if triggered, tax is payable on both realised and unrealised gains. However, those are just the details. What also seems illogical is that Treasury forecasts estimate the new tax will raise just $2 billion out of almost $250 billion a year in concessions, or less than 1% of the total. Watch out, because what the government would really like to do is to come after some of the remaining 99% if they can. Of course to do that - as Bill Shorten discovered in 2019 - they'll upset far more voters than the 0.5% impacted by their current plans, most of whom are unlikely to be Labor voters in the first place. Of course, what is needed is a total review or conversation, not only around super but the overall taxation system in Australia. We had one of those in the form of the Henry Tax Review (aka Australia's Future Tax System Review) announced by then PM "Kevin '07", in 2008. Having taken 2 years to prepare, this was handed to the hapless Rudd two days before Christmas in 2009, but not released until May the following year. For the record, Kevin Rudd was also careful to shackle Henry's review before it started. It was not allowed to consider increasing the rate of, or broadening the base of the GST, or consider imposing tax on super payments to retirees aged over 60! Henry's report made 138 recommendations grouped under 9 broad themes. Rudd implemented just 3 of the 138 changes suggested in the report, lost his job over one, the proposed resources Super Profit Tax, which became the Minerals Resource Rent Tax (MRRT), passed in 2012 under Julia Gillard, and promptly repealed by Tony Abbott in 2014. History shows it is wise to choose your targets carefully, and avoid upsetting the powerful, and in the case of the resources Super Profit Tax, well resourced (pun intended) self interested companies, 83% of which were reportedly offshore owned. History also shows the futility of trying to overhaul or change the existing system, however broken, inefficient, or inequitable it may be. Most of Henry's report and its recommendations remain in the too hard basket, gathering dust. Some, such as a reduction in company tax, have been partially implemented. This leads us to two questions: Firstly, will we ever get the reform Henry's review proposed, such as just two levels of personal income tax and a much higher tax free threshold ($25,000), across the board company tax of 25%, and a simplification of superannuation, deductions, and offsets? And secondly, will any politician ever dare to increase the GST from its current 10%, and broaden its base in return for a reduction in personal income tax? This 2020 report from PWC estimated that by increasing the GST rate to 12.5% and broadening the base to include water, childcare, health, education, and food, it would generate $40 billion a year - so a rate of 15%, (as it is in New Zealand) let alone 20% (the OECD average rate is 19.3%), it would presumably take that towards $100 billion. The answer to both questions is "unlikely" given the political pain involved. However, that's the conversation Dr. Chalmers needs to have with Australians. And then get on with it! |
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