NEWS
27 Sep 2024 - Hedge Clippings | 27 September 2024
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Hedge Clippings | 27 September 2024 On the face of it, this week's inflation figure of 2.7% for the 12 months to August was good news, and within the RBA's target band of 2-3%. However, as always, the devil was in the detail. Firstly, the numbers were cushioned by a reduction in electricity costs of 17.9% thanks to State (WA, Queensland, and Tasmania) and Federal government hand-outs, which will not recur. Secondly, excluding volatile items such as fruit & veg, and fuel, the figure rose to 3.0%. Meanwhile the annual trimmed mean - also excluding the fall in electricity and fuel of -7.6% was higher still at 3.4%. Finally accommodation costs have remained high, with new dwellings up 5.1% and rental prices up 6.8%, both of which have been stubbornly high for over 12 months. As such, the RBA declined to follow the US Fed's example and cut rates (although noting these are still above Australia's number of 4.35%), with the board's statement using now familiar terminology such as "inflation remains above target and is proving persistent", plus "the outlook remains highly uncertain" and "returning inflation to target is the priority" to reinforce their point. With no RBA meeting next month, and the next CPI results from the ABS not due until October 30th, the market's main pre-occupation will be this weekend's AFL Grand Final, followed by the Rugby League the following weekend. Meanwhile, the Bledisloe Cup remains an elusive goal for yet another year. News & Insights New Funds on FundMonitors.com Trend Following in Uncertain Markets | East Coast Capital Management August 2024 Performance News
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20 Sep 2024 - Hedge Clippings | 20 September 2024
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Hedge Clippings | 20 September 2024 The US Federal Reserve eased rates by 50 bps earlier this week, ending months of speculation - not over the fact that they were going to cut, but by how much. Now the speculation will be on the size and timing of the next cut, or cuts, with J.P. Morgan predicting two more totalling 1.25% this year, and more in 2025. In reality, they cut not only because US inflation is coming down and under control, but because the underlying economy is slowing more than the numbers suggest. Next Tuesday it will be Australia's turn, but there are not many, if any, economists expecting a cut based on the messages that have been coming out of the RBA. As evidenced by an article outlining 9 insights on the Australian economy for the June quarter published by the ABS, Australia is stuck - and the RBA with it - between a rock and a hard place. Sticky inflation at 3.8% has the RBA's hands tied. Growth of 0.2% for the June quarter was "modest" and only positive thanks to government spending adding 0.2%. GDP per capita fell 1% over the year to June. Household spending fell 0.2%, yet wages grew 4.1%. Household saving was at its lowest rate since 2007. Capital investment dipped (again). The labour market remained tight, with unemployment at 4.1% (now 4.2%). Admittedly, the article reflects the 3 months to June. Since then, wages have increased, stage 3 tax cuts have kicked in, and state and federal government energy support has been introduced, all of which may assist household spending or saving, but won't improve inflationary pressures. No wonder the government is wanting to blame the RBA, particularly with an election around the corner, the result of which is looking increasingly uncertain. Hence our very own political version of Flanders and Swann* have been pressuring the RBA to cut rates, and blaming them for smashing the economy. In fact, if the RBA were to cut next week it would immediately lead to cries of government interference into what should be an independent reserve bank. *By an extraordinary coincidence, given a couple of glasses of pinot noir over a Friday lunch, Chalmers and Swan sounds a little like the legendary Flanders and Swann. of the 1950's era musical comedy act, "At the drop of a hat" and its sequel, "At the drop of another hat" which wowed audiences in the days before YouTube. The real Flanders and Swann wrote numbers such as "The Reluctant Cannibal", which by today's standards would be considered politically incorrect, while the current Chalmers and Swann are being politically clumsy. News & Insights New Funds on FundMonitors.com Investment Perspectives: Is the US headed for recession? | Quay Global Investors Market Commentary - August | Glenmore Asset Management August 2024 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Concentrated Australian Equities Fund Bennelong Emerging Companies Fund |
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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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