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Hedge Clippings | Friday, 19 February 2021
Markets and the economy
Markets, both in Australia and overseas, touched new highs during the week - albeit the ASX has lagged its US counterparts - furthering fears of being in "Bubble" territory. By mid-week Australia's share market had closed above 6900 points for the first time since February last year, and Wall Street's main indexes hit all-time highs, with investors piling into economically sensitive stocks on hopes of more fiscal aid to lift the world's biggest economy from a coronavirus-driven slump.
And no wonder - optimism over the rollout of a vaccination, Biden's US$ 1.9T stimulus (plus more to come), and locally, The Reserve Bank of Australia (RBA) flagging the need for ongoing and "very significant" monetary support in the aftermath of the COVID-19 crisis. The RBA released the minutes from its February monetary policy meeting where it made the call to keep the cash rate at its record-low 0.1 per cent and extend its quantitative easing (QE) program by A$100 billion.
In Australia, payroll jobs have recovered to the same level as they were a year ago, according to the latest Australian Bureau of Statistics figures, which showed that in the last fortnight of January the number of payroll jobs increased by 1.3 per cent nationally -- with almost every industry benefiting. More from ABC news
Bubble or otherwise, the combination of government stimulus, central bank policy and a "recovery springboard" suggested that there is, or was, a way to go yet. Maybe economic activity will increase to such an extent it will catch up to market valuations - as long as valuations don't keep leaping ahead (which it seems they will) unless...
No sooner had markets made their new highs than Inflation - which recently had only been the remotest and faintest of clouds on the horizon - or at least investors' collective consciousness - came along to spoil the party.
Following the US market's closure on Monday in observance of President's Day, 10-year US treasury yields surged to a one year high. As we flagged previously in Hedge Clippings, and as detailed in Longview Economics' detailed research and reviews of Charles P. Kindleberger's book "Manias, Panics and Crashes", bubbles end when easy money disappears, and with it the prospect of credit tightening and higher interest rates.
There's still going to be an argument for investing in the market, and particularly the "new economy" tech sectors as detailed by Michael Frazis of Frazis Capital Partners in this video interview we recorded earlier this week. As Michael explains, his performance of 108% in 2020 was driven by being FULLY invested in the future, and he explains risk as NOT having exposure in these sectors or themes for the longer term.
Which argument will win the day is yet to be seen. 10- Year Bond rates hitting a 12 month high might sound alarming, but 30-Year yields at less than 2.1% don't seem high historically.
Leaving markets alone for a moment, the media, and particularly Facebook and News Limited, have been in the news (apologies for the pun), with Facebook incurring the wrath of the Australian Government, which made headlines around the world for daring to stand up to the social media giant's bullying tactics. Scomo now has a bit of history standing up to outside pressure, albeit from China, rather than a corporation that according to the AFR wants to scoop up Australian advertising revenue to the tune of $674 million in 2019, while minimising profits to under $23m and paying minimal tax of less than $17m, and not paying a cent for content. Hedge Clippings isn't a user (or necessarily a fan) of Facebook, but they're in a tough spot. Give in to Australia's pesky demands and they'll open the floodgates of having to pay for content elsewhere.
Still on the News theme, it appears Kevin Rudd believes News Limited's Sky News is biased against left leaning views (and we presume therefore Labor politicians). Funnily enough, we didn't notice him complaining about the other side of the house when it comes to the ABC's political coverage.
At the end of the day, we assume that most people consume the news they want to hear - or believe, biased or not. If we agree with the news, or view, we believe it to be correct. If we don't, then of course it must be biased - or in Donald's case, "Fake"!
China has a simpler answer to the problem:
China is cracking down further on online speech, with the Cyberspace Administration of China issuing a requirement that bloggers and influencers have a government-approved credential before they can publish on certain topics.
That's enough of Hedge Clipping's views for the week, noting that Bill Michael, the head honcho of KPMG in the UK recently lost his job for suggesting there was no such thing as "unconscious bias" (calling it complete cr*p) and telling his (now ex) employees to get a grip and take control of their own lives.... Watch the video here and make up your own (biased or otherwise) mind.
News & Insights
Video interview with Michael Frazis from Frazis Capital Partners
Video interview with Chris Wheldon from Magellan Asset Management
RATES OUTLOOK 2021 - Getting ahead of the year ahead by Nikko Asset Management
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