NEWS
13 Sep 2024 - Hedge Clippings | 13 September 2024
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Hedge Clippings | 13 September 2024 After the last couple of weeks' war of words - or maybe that should be attacks on the RBA from both the treasurer Jim Chalmers, and ex-treasurer, Wayne Swan - life returned to normal this week, if there is such a thing. If nothing else, the less than subtle comments from each of them only served to reinforce the importance of central bank independence. The RBA may not be perfect, but having monetary policy dictated, or influenced by, the government of the day would be a dangerous and slippery slope. News & Insights Manager Insights | Seed Funds Management Emerging Middle Class Megatrend | Insync Fund Managers August 2024 Performance News Bennelong Australian Equities Fund Seed Funds Management Hybrid Income Fund 4D Global Infrastructure Fund (Unhedged) Bennelong Long Short Equity Fund |
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6 Sep 2024 - Hedge Clippings | 06 September 2024
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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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30 Aug 2024 - Hedge Clippings | 30 August 2024
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Hedge Clippings | 30 August 2024 This week's July CPI figure was the first downward movement since last December, falling 0.3% to 3.5% depending on which indicator one chose - Headline (3.6%), Seasonally Adjusted (3.6%), Excluding Volatile Items (3.7%), or Trimmed Mean (3.8%). However, all fell, thanks in most part to the fall of 5.1% in electricity prices, which in turn fell thanks to a range of state and federal handouts. It seems unlikely that the improvement, while welcome, will sway the RBA at their next meeting, on 24 September, but Michele Bullock may give some clues when she's due to have a "fireside chat" next Thursday at a Women in Banking & Finance event in Sydney. In the mean-time we expect the phone lines will be running hot between Jim Chalmers and the RBA to encourage a rate fall, which is unlikely. All the Bank's prior comments and commitments suggest they won't be fooled by one-off numbers, however welcome, triggered by governments - state and federal intent on re-election. Today's flat July retail sales figures may assist somewhat, but the August CPI figure due inconveniently on 25th September, the day after the RBA's meeting and announcement, will also be impacted by further flows of government rebates. By which time of course we'll be totally focused on footy finals of one code or another, with the AFL plus the Wallabies second Bledisloe game on the 28th, and the NRL a week later. Prior to that of course, the Sydney Swans play the GWS Giants this week-end. Who would have thought that two Sydney teams playing in a final a possibility even 10 years ago? News & Insights 10k Words | Equitable Investors Market Commentary | Glenmore Asset Management July 2024 Performance News Seed Funds Management Hybrid Income Fund Bennelong Twenty20 Australian Equities Fund Insync Global Quality Equity Fund |
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23 Aug 2024 - Hedge Clippings | 23 August 2024
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Hedge Clippings | 23 August 2024 Firstly, let's start with an apology: Last week's "Hedge Clippings" incorrectly stated that the July CPI numbers would be released on Wednesday this week, whereas they actually aren't due until Wednesday next week. As not much has changed in our view since last Friday, we could simply "rinse and repeat" and see if anyone noticed, but that would be lazy to say the least. For the record however, and for those who missed last week's edition, expectations are that inflation will remain stubbornly in the 4% region (July 3.8%, or 4% excluding fuel, fruit and veg, and holiday travel, or 4.1% trimmed mean) and if so, the RBA are unlikely to change their current monetary policy settings. If anything, the risk is that any deterioration in the CPI numbers, and they'll make good on their threat to raise rates, rather than keep them steady. What was noticeable in Tuesday's release of the RBA's minutes of their August meeting was an argument for increasing rates, or holding them steady, but nothing about the case for easing. That option still seems to be off the table for at least the next few months. However, that didn't stop three of the big four (and a host of smaller lenders in response) from dropping their term deposit rates this week, with cuts as large as 0.8% in some cases, as discussed earlier today on FNN with Nick Chaplin from Seed Funds Management. While disappointing for the banks' depositor clients, it accentuated the attractiveness of other fixed income and credit options in the managed fund sector, where returns (although not bank guaranteed) of 8-10% are readily available. Meanwhile in the USA, where a September rate cut seems all but assured, and with the main question being the choice between 0.25 and 0.50%, and then how many moves will follow before Christmas. Fed Chair Jerome Powell is due to speak at a symposium of central bankers in Jackson Hole, Wyoming on Friday, US time, which will hopefully clarify his thinking. Over in the US the concern is more focused on the potential for economic weakness, or worse. Elsewhere the political focus in the US has all been on the Democratic National Convention and the nomination of Kamala Harris to lead the Democrats to what seemed an unlikely presidential victory just a month or so ago. Harold Wilson (British PM 1964-1970, and again 1974-1976) once said a week is a long time in politics. To date we've seen an attempted assassination, and a change in candidate, so with 74 days to go to the US election, anything can happen and we won't make a prediction - other than it will come down to voter turnout on the day in the six so called "swing" states. News & Insights Manager Insights | Seed Funds Management What's Social Proofing? | Insync Fund Managers Stock Story: National Grid | Magellan Asset Management July 2024 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Argonaut Natural Resources Fund Bennelong Australian Equities Fund Glenmore Australian Equities Fund Bennelong Concentrated Australian Equities Fund |
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16 Aug 2024 - Hedge Clippings | 16 August 2024
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Hedge Clippings | 16 August 2024 Next Wednesday's July CPI result will be crucial for a number of reasons - particularly for those with a mortgage (more on that later) but also for the reputation of the Treasurer and PM, who keep spinning the story of what a wonderful job they're doing with the economy and helping overcome the cost of living crisis, while at the same time doling out financial support left, right and centre, which is helping to keep inflation around 4% a year. As the chart below from the ABS shows, in spite of what the RBA is doing to try to rein in inflation, Chalmers and Albo aren't helping the cause - probably as the "cause" in their case is the looming election. From the peak of 8.4% in December 2022, inflation fell to 3.4% a year later, only to move back up and is stuck around the 4% mark, and if anything, trending up, and not down, as the government would like you to believe. Unfortunately for them, their spin can't overcome the budget stress which various sections of the community are feeling. Even if next Wednesday's result provides a move in the right direction, the messages coming from the RBA are pretty clear: Deputy governor Andrew Hauser, one of the more colourful and entertaining central bankers to step out of Martin Place (or any other central bank for that matter), took a pot shot at market gurus (a.k.a. economists and forecasters) trying to shape or comment on monetary policy, claiming the space was "a world of winners and losers, gurus and charlatans, geniuses and buffoons" and often only good to claim headlines, or support their space on their respective soapboxes. Governor Michele Bullock was absolutely clear earlier today in her remarks to the House of Representatives' economics committee, saying it is "premature to be thinking about rate cuts" as the RBA's forecast is that trimmed mean inflation won't return to the 2-3 per cent target band until the end of 2025. Clearly the RBA has decided to leave no doubts in anyone's mind what to expect - or if it comes to that what they think of the market's speculation. Elsewhere this week the CEO of the CBA, Matt Comyn gave some insights into part of the problem with inflation and the cost of living crisis - it's not affecting everyone equally, but is particularly affecting those under 50. That sounds pretty obvious, but with much of the cost of living stress being built into mortgage repayments, and although two thirds of the population own their own home, (2020 statistics from the ABS) around 37% have a mortgage, and 30% are debt free. So without having the exact science behind the numbers, it's probably fair to say that while everyone understands prices are higher than they were a year or two ago, around half the population "just keep calm and carry on". Unfortunately, the other half aren't as lucky, but they can at least thank Dr. Jim and Albo for their help. That should really get Andrew Hauser's gurus, charlatans, geniuses, and buffoons on their soapboxes. News & Insights New Funds on FundMonitors.com Quarterly State of Trend report - Q2 2024 | East Coast Capital Management Investment Perspectives: Thinking about (REIT) timing | Quay Global Investors July 2024 Performance News 4D Global Infrastructure Fund (Unhedged) Bennelong Emerging Companies Fund |
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9 Aug 2024 - Hedge Clippings | 09 August 2024
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Hedge Clippings | 09 August 2024 The result of this week's RBA board meeting came as no surprise given the CPI number from the week before, and the board's previous insistence that they were - or are still - "resolute in their determination" to curb sticky inflation which is stubbornly close to 4% whichever number you look at. As the RBA's statement's headline noted, "Inflation remains above target and is proving persistent," and a trimmed mean figure of 3.9% is way off the board's target of 2.5%. Not only way off numerically, but way off in the future as well, with the RBA's forecast that it will be December 2026 before the target will be met. In addition, the statement added another headline that "The outlook remains highly uncertain," which had the market's soothsayers basically writing off any chance of a rate cut this year. However, it could have been worse - the board gave strong consideration at their meeting to raising rates, which would have upset home owners with a mortgage, as well as the treasurer Jim Chalmers. Why so? The RBA indicated that the government wasn't helping, with tax cuts, support for wage rises, and energy support all contributing to the problem. But the Treasurer was quick to refute that - as he would. However, simple logic and facts tell you that while the RBA is trying to curb consumption, the government, with an election not too far away, are tipping money into consumers' pockets as fast as they can. It seems to us that the RBA and the government are pulling on different ends of the same rope. When Chalmers announced the appointment of Michele Bullock as the new RBA Governor last year, it was all smiles, generally at the expense of departing Governor Philip Lowe. Less than 12 months into her tenure, and there may be some gritted teeth behind his smile, but if he really expected any change in her approach he must have been deluding himself. Bullock has been at the RBA since 1985 and was deputy governor since 2022 under Lowe. At the time of her appointment Albo was quoted as saying "Ms. Bullock is eminently qualified to lead this national institution," although he was also quick to claim credit this week for getting inflation under control - sort of. On the radio interview we heard Albo was quick to change the subject away from inflation, moving to safer ground, namely Australia's medal tally at the Paris Olympics. In particular he was quite excited about Aussie success in the skateboarding and break-dancing, obviously pitching for younger voters in the upcoming election. Before that occurs (maybe even later this year) we're sure he'll be basking in reflected Olympic glory, either at the potential ticker tape parade through the streets or the inevitable reception at the Lodge on the athletes' return. News & Insights New Funds on FundMonitors.com The RBA's August decision: Insights from Nick Chaplin of Seed Funds Management | Seed Funds Management Market Update | Australian Secure Capital Fund Market Commentary | Glenmore Asset Management |
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2 Aug 2024 - Hedge Clippings | 02 August 2024
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Hedge Clippings | 02 August 2024 Central bankers love to use the term "a narrow path" as they manage their respective economies delicately between manageable growth, and the risk of recession. With the single tool of monetary policy to balance their twin objectives of inflation and employment, there's always the risk they move too quickly - or not quickly enough - and so miss the so called soft landing that the market craves. The US Fed looked as if they were on track to do that, but the market has become impatient. Just a day after Jerome Powell held rates steady but indicated they should be able to start easing in September, the ISM manufacturing index came in lower than expected, and at 46.8% indicating the economy was contracting. Suddenly the market's thinking bye-bye soft landing, hello possible recession. This couldn't come at a worse time for markets, particularly the NASDAQ and the Magnificent Seven, which were already seeing signs of a pull back from nosebleed valuation territory, coupled with concerns over reporting season - or at least missing analysts' estimates. Falls in the US of course lead to falls elsewhere, and Australia is no exception. To make matters worse the RBA has its own problems, although this week's CPI numbers have at least taken the pressure off them to raise rates at next week's meeting. Not that the CPI numbers were particularly good - June quarter up 1% and 3.8% over the past 12 months - they just weren't bad enough for the Board to raise rates on Tuesday as had been feared. One problem for the RBA is that Australia has a two speed economy - or at least two sections of the community that are faring very differently. At one end - say 20-25% - are doing it tough and struggling to make ends meet, and, as we hear continually, the government is doing everything it can to save, or at least support them - tax cuts, wage rises, energy and power support, etc. At the other end of the spectrum are those who have either paid off their mortgage, or at least paid it down to manageable levels, are comfortably retired, or are higher paid, and for whom inflation of 4%, and/or higher interest rates, aren't creating the same issue, partly because they're also beneficiaries of the government's generosity or stage 3 tax cuts. Of course there are those in the middle, and overall the average, who makes up the economy. It's the old conundrum: When your feet are in the freezer, and your head in the oven, your temperature is probably average. The next challenge for investors and fund managers reporting season in the US, and the ASX, where it runs through to the end of August. This is the period when Warren Buffett's famous quote "Only when the tide goes out do you discover who's been swimming naked..." comes into play. Missing market expectations - particularly when valuations are sky high - can result in savage sell offs. Overnight in the US Intel fell 17% after suspending its dividend, Snap also fell 17%, while Amazon fell 6% on disappointing quarterly sales and sales guidance in spite of net sales which are expected to grow by between 8% and 11% compared to Q3, 2023. Local hero, but NASDAQ listed Atlassian, fell 13% after close of trading, as its revenue projection is only for an increase of 16% this FY, having previously advised it would be 20% per year for 3 years. This week's edition of "The Last Word" covers all this and more. The Last Word In Episode 3 of "The Last Word", Chris Gosselin and Manny Anton delves into the latest market trends and economic developments. This episode covers key movements in the US, the impacts of recession fears on the US market, and the upended outlook for the US election following Joe Biden's withdrawal. News & Insights New Funds on FundMonitors.com Manager Insights | Argonaut Trip Insights: The US | 4D Infrastructure July 2024 Performance News Insync Global Capital Aware Fund |
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26 Jul 2024 - Hedge Clippings | 26 July 2024
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Hedge Clippings | 26 July 2024 The US economy picked up in the second quarter, rising 2.4% - buoyed by consumer spending on services, which in turn were supported by wage increases - up from 1.5% in January to March. Overall, 2nd Qtr GDP rose 2.8%, but with inflation subsiding it's looking as though the Fed could start cutting interest rates when they next meet. Given that FOMC meeting doesn't occur until September 25th, there's plenty of water to flow under the bridge by then, but virtually all (as in 82 out of 100) of the economists surveyed by Reuters in the States are predicting that outcome, and most are then expecting another cut before the end of the year. If that's the outcome - (and surely 82% of economists couldn't be wrong?) - then the FED would appear to have achieved the soft landing they've been aiming for. Closer to home, the outlook is not so clear, but at least we'll have an answer - like it or not - sooner when the RBA meets in early August. Between then and now we'll have CPI inflation figures for both the month of June, and the June quarter, both due next Wednesday, along with Retail Trade. Following that, and with plenty of time for the RBA to chew over them, will be June's Labour Force figures on Thursday, and both PPI and Household Spending on Friday. While locally economists aren't all in agreement on the need for a rate rise, there aren't any we've heard calling for a cut - unless you include the Treasurer Jim Chalmers, who one might suggest has his own agenda and motivation for doing so. As a result we expect that the RBA will still be trading that well worn, but increasingly narrow path, not helped of course by the government's support of above inflation wage rises, and their recent tax cuts. The Last Word This week's Hedge Clippings includes a new video segment, "The Last Word" which we'll be recording and distributing each Friday in conjunction with Finance News Network. We'll take an overall view of markets and global economic issues over the last week, along with politics, with a dash of customary cynicism as appropriate - or in some cases, probably inappropriate, as we try to end the week with literally, the last word. News & Insights Investment Perspectives: Why are we listening to central banks? | Quay Global Investors Attention shifting from inflation to the growth outlook | Magellan Asset Management June 2024 Performance News Bennelong Concentrated Australian Equities Fund Digital Income Fund (Digital Income Class) |
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19 Jul 2024 - Hedge Clippings |19 July 2024
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Hedge Clippings | 19 July 2024 Last week's Hedge Clippings' commentary (and the one before that) dealt almost exclusively with global politics and elections, and inevitably a focus on the US. As much as we'd like to think we were ahead of the curve, we can't claim access to any crystal ball, and the rest, as they say, is history. However, when it comes to US Presidents, a combination of history - 15 attempted assassinations since 1835, four successful - plus the polarising nature of the current campaign, one shouldn't really be surprised. Maybe those statistics give the answer to the question we've frequently asked: "How come in a country of 330 million, the only two candidates they can find are Trump and Biden"? Maybe not many of them like the odds! As we write, Joe Biden, seemingly one of a dwindling number of Democrats who think he should stand, is still in the race. Trump, rather than being deterred, is emboldened, as are his MAGA supporters as Trump is speaking at his party's nomination. A cynic would suggest he's milking last weekend's event for all it's worth among the Republican faithful, but what else would you expect? You have to give him points for presentation. Less excited about the potential for Trump's return would be Ukaine's Volodomyr Zelensky, Taiwan's Lai Ching Te, and quite possibly China's Xi Jinping, although the latter may think his task of enveloping Taiwan might now be easier. If nothing else, the next four years will be interesting. Enough of that! On to the economy... US inflation has fallen such that Fed Chair Powell has hinted they'll start cutting rates later this year, while at the same time the potential for the RBA to raise Australian rates at their upcoming August meeting is likely to be dependent on CPI data due on 31 July. The RBA's narrow path seems to be getting narrower, as inflation stays high, keeping interest rates high, which in turn have slowed Australia's two speed economy to a crawl. Far from a narrow path, the risk is we reach a tipping point. News & Insights 10k Words | July | Equitable Investors June 2024 Performance News Delft Partners Global High Conviction Strategy Bennelong Emerging Companies Fund Quay Global Real Estate Fund (Unhedged) Skerryvore Global Emerging Markets All-Cap Equity Fund |
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12 Jul 2024 - Hedge Clippings |12 July 2024
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Hedge Clippings | 12 July 2024 If there was one topic aside from inflation and interest rates that was set to dominate the news in 2024, it was going to be elections - or more importantly their outcome. 64 countries, plus the European Union, have held, or are due to hold elections this year, representing 49% of the world's population. You would expect therefore to say "Democracy Rules" - except it doesn't always apply. The potential for change in Russia (even though elections were held) was limited to say the least, as it was in Bangladesh, or Pakistan, where the most popular politician, Imran Khan, was in jail. Last week's UK election is another case in point: Democracy, of a sort, took place with an overwhelming vote of no confidence in the ruling Conservative government, although only 59% of the population thought it was worth the effort to vote on the day. Presumably a fair proportion of the 41% who didn't vote were still following the UK's WWll era slogan "Keep Calm and Carry On". Meanwhile, a fair proportion of the 61% who did vote will have to do the same for the next 4 years. However, the result was lopsided. While the winning Labour Party control 412 or 63% out of the total of 650 House of Commons seats, they received only 34% of the overall vote. Much of the skew can be blamed on the UK's system of first past the post voting - although if blame is to really be apportioned, Rishi Sunak and his 4 predecessors in 10 Downing Street should really shoulder it. This system saw 12.2% of the vote cast for the Liberal Democrats, who won 72 seats, while arch-spoiler Nigel Farage's Reform UK party out-polled the Lib Dems with 14.5% of the vote, but only won a paltry 5 seats for their efforts. As above, Democracy of a sort, but we have to admit better than that available - or not, depending on your view - in Putin's Russia, or for that matter Xi's China, where he was unanimously elected by almost 3,000 delegates of the National People's Congress last year. Australia's political system may not be perfect, but proportional representation, thanks to our preferential system, sure beats the heck out of the UK, let alone China and Russia! Which leads us to the looming election in the US, where earlier today Joe Biden was mumbling and bumbling his way through an hour-long news conference following the end of the NATO Summit commemorating its 75 years' existence (six years short of Joe's own age). In between slips of the tongue (mixing Putin with Zelensky, and for a moment naming Trump as his Vice President) Biden sounded more like he was at an election rally than a summary of the NATO deliberations. Meanwhile Trump, thanks to the US Supreme Court's ruling on presidential immunity, was busy filing an appeal against his conviction on criminal charges stemming from hush money paid to a porn star. Unless Biden has a change of heart, which it seems he's unwilling to do, one of them will end up as President of the free world come November. Whichever side of politics you're on in Australia, thank your lucky stars you're here! News & Insights Down-trading Megatrend | Insync Fund Managers Why invest in global equities | Magellan Asset Management June 2024 Performance News Bennelong Australian Equities Fund Glenmore Australian Equities Fund Bennelong Long Short Equity Fund |
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