|
Hedge Clippings | Friday, 09 October 2020
As much as Hedge Clippings would like to avoid the "C" word, there's no escaping it. Covid is so much a part of all our lives, such that the news is dominated by infection, testing, and mortality statistics both at home and abroad. And looking back at recent editions of Hedge Clippings, we have been as guilty of being Covid focussed as anyone else.
Realistically, as much as we'd love to move on, Covid isn't just about the present as this week's delayed budget shows. Even allowing for some political spin, the Goverment's Budget 2020-21 summary included the following headline:
"The once-in-a-century COVID-19 pandemic has fundamentally reshaped Australia's economic and fiscal outlook."
Without the spin, the word "outlook" would, or should, have been replaced by "future". From a forecast surplus of $6.1 billion (0.3% of GDP) in 2020-21, the figure is now a deficit of $213.7 billion, or 11.0% of GDP. Somewhat optimistically this is expected to improve to 3% in 2023-24, and then decline further to 1.6% by the end of the medium term. Hedge Clippings is not exactly sure of the definition of "medium term", except it's likely to be well beyond 2024. Although we guess, like age, it's relative. A bit like a medium bodied wine, but maybe we're getting ahead of ourselves, even though it is Friday afternoon.
To be fair, there's a valid get-out included: "Until a vaccine is developed and widely deployed, significant uncertainty remains".
Equally, we did opine last week that the government shouldn't hold back, urging the Treasurer to spend more, not less, but just not to waste it. What he did waste was the opportunity to ensure more of the nation's superannuation was funnelled into infrastructure spending, and as a result employment and the future. Maybe next year...
And given the global effects of Covid, the financial and health risks here are minuscule compared with those elsewhere. With the US election less than 4 weeks away on the first Tuesday in November (coincidentally also Melbourne Cup day), the polls are increasingly looking like a Biden victory, which if correct is going to significantly impact the future.
As of 6 October, according to the Guardian's poll tracker, Biden is leading 50.4% to Trump's 41.3%. Polls, however, can be misleading (just ask Bill Shorten) and the US system is not simply a case of who gains the most votes on the day (just ask Hillary Clinton). The outcome will undoubtedly affect markets, but the view that Biden is far-left seems to be incorrect based on The Economist's latest edition, which describes a Biden win as "only a little lurch leftwards" based on his spending proposals of around 3% of GDP (presumably excluding any Covid stimulus), compared with Bernie Sanders' 23%.
However, that's still considerable, with a forecast total new spending of US$7.27 trillion between 2021 and 2030, about half of which might be covered by tax rises, and the balance by public debt which is forecast to double - from the current 100% of GDP to a mouthwatering (for some) 200% by 2050.
Over $3.5 trillion in increased taxes will certainly scare a few (and possibly Trump amongst them if he ever gets to pay tax), but in reality only a few. Again from the Economist, the greatest change in after-tax income (-18%) as a result of Biden's tax plan will only affect the top 0.1% of income earners, followed by a fall of less than 10% for those in the top 99 - 99.9%. Even those in the 95-99% of income earners will only be worse off by around 2%, so they still should be able to scrape by.
The Economist describes Biden as "The Pragmatist". Assuming he wins - not a sure-fire outcome, and even if he does, there's no guarantee the current President will vacate the White House - it will certainly make for a change to the evening news.
Finally, before signing off we remember that today would have been John Lennon's 80th birthday had he not been shot in New York aged just 40.
News & Insights
Sep '20 - Speculative Markets, Deteriorating Backdrop, Where to Hide? by Laureola Advisors
Deferred loan repayments are hitting the banks by Montgomery Investment Management
New Funds on Fundmonitors.com
|
