An irresponsible statement
By Justin Pyvis – Delivered on 24 Nov 2021

Good morning! The Australian government is being held to ransom by... itself, with backbencher George Christensen refusing to vote for his own party's bills following the defeat of One Nation's proposed vaccine mandate discrimination laws on Monday.

That means if the government wants to pass any new laws between now and the federal election (sometime before 21 May 2022) it will need to convince an independent or opposition MP to vote with it, or risk being a lame duck government for the next few months.

Moving on, Chief Minister Michael Gunner confirmed that the NT town of Katherine will probably remain locked down until 4 December following three new COVID-19 cases in the area. Katherine's current vaccination rate is 77%, with the NT Police Commissioner Jamie Chalker suggesting that "hopefully by the time Katherine reaches 80% we should be at least through this".

Fully vaccinated population (aged 16+)


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Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

At the time of writing the US S&P500 was slightly weaker (-0.01%), with tech sold off again (Nasdaq -0.80%) as rising yields continue to make their future earnings less attractive while the banks performed well for the opposite reason (e.g. Goldman Sachs +2.2%).

Locally, the ASX200 finished Tuesday stronger thanks to large gains to the iron ore miners (materials were up 2.30%) led by Fortescue (9.81%), as futures prices surged during the day to mark three straight days of gains for the China-dependent commodity. Woodside (+3.46%) also did well after it approved its Scarborough LNG project and finalised its deal to acquire BHP's petroleum assets.

In the other direction was tech (-3.49%), led by Afterpay (-5.37%) which plunged following a beating for tech stocks in the US on Monday night after the confirmation of Jerome Powell's second term at the helm of the Fed (he's slightly more of an inflation hawk than the other candidate, Lael Brainard).


Singapore joins the party: The inflation party that is, after consumer prices jumped 3.2% from a year ago in October, "well above market expectations for a 2.5% gain", as almost all sub components increased. The Monetary Authority of Singapore is a relatively hawkish central bank and these data mean it may well tighten policy again in the coming months.

Euro pulse: Eurozone business activity picked up in November from a six-month low last month, according to the IHS Markit flash composite PMI. Both services (56.6) and manufacturing (58.6) improved in the month, although inflationary pressures intensified with firms' costs and average selling prices rising at record rates.

Firms were also quite worried about the future as "optimism about the outlook sank to a ten-month low on renewed COVID-19 worries and lingering supply constraints".

Supply will flow: The US will join India, China, Japan, Korea and the United Kingdom in a world-first coordinated release of strategic oil reserves in an effort to drive down prices. According to the White House, "The President stands ready to take additional action, if needed, and is prepared to use his full authorities working in coordination with the rest of the world to maintain adequate supply as we exit the pandemic."

From transitory to endemic: US Treasury Secretary Janet Yellen said "I think we do have to be concerned about inflation. It's reached the level that concerns most Americans who are seeing it in their pocketbook when they go to the store to buy food or to fill up their cars at the pump."

However, she believes that it's "part of demand supply imbalance", and that if it looks as though it might become "endemic.., I think we can leave to the Fed. I have confidence in their ability to make good judgments there."

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An irresponsible statement

Does Australia have a housing problem? Former Treasurer Peter Costello certainly thinks so and he has planted the blame squarely at the feet of the Reserve Bank of Australia (RBA). Speaking in an interview on Australia's property market, Costello said:

"It was an irresponsible statement to make that they [the RBA] could hold that rate until 2024. I suppose they were saying to people, 'Try and get a fixed mortgage because we can hold the rates out to 2024.' They now admit they can't hold that rate at 0.1 per cent to 2024, and in fact, it will be irresponsible of them to try if inflation took off."

Breaking it down: Costello was no doubt referring to the RBA's failure to maintain a yield of 0.1% on the April 2024 bond as promised, forced to abandon the policy in the face of economic reality.

One thing the RBA didn't fail at is convincing Aussies to pump more debt into housing. A new report by McKinsey found that in the two decades between 2000 and 2020, "Australia, Canada, France, and the United Kingdom had the highest growth in the value of household real estate relative to GDP" in the world, with declining interest rates playing a "decisive role", along with "inelastic land supply".

As a result, per capita net worth in Australia – most of which is tied up in housing – was $US351,000 in 2020, more than any other country in the world.

Why this matters: Costello is concerned:

"I think the Reserve Bank should worry. I think the prudential regulators should worry. I think the government should worry. I think all policy makers should worry."

We agree – in just the past six months (so well after the McKinsey report's cut-off) the total value of Australia's houses has risen another 12% from a very high base.

The RBA is increasingly playing fast and loose with Australia's financial future, whether it's encouraging people to load up on debt by talking down interest rates (as Costello alludes) or speculating on government bonds, which could end up costing taxpayers billions.

According to McKinsey, higher asset prices accounted for 77% of the growth in global net worth between 2000 and 2020, while saving and investment made up only 28%. That's a problem – investors have been incentivised to "prioritise potential asset price increases over real economic investment in and improvement of operating assets", which have historically been what drives productivity and growth.

The world is also more fragile given that the rise in global asset prices was fuelled by debt, which grew "at an average of twice cumulative net investment. In other words, $4 in financial liabilities were created for every $1 in net new investment".

Looking forward: Topping the global wealth index on the back of rising property prices doesn't necessarily mean Australia will face a debt crisis, or a potentially catastrophic asset price collapse (as, say, Japan experienced in the 1990s when it last topped this index). But the risks of such scenarios have certainly increased, in part due to the RBA's role in encouraging people into taking on even more housing debt.

The Wrap Up
    📣Queensland LNP MP Andrew Wallace is Australia's new Speaker of the House of Representatives, replacing Tony Smith who resigned from the role ahead of his retirement from politics at the next election.
    🙄China's government "will more tightly regulate the online information of celebrities", with the aim of "creating a positive and healthy internet environment, describing the proliferation of gossip and star-chasing as impacting mainstream values".
    ⛈️The Bureau of Meteorology officially declared a La Niña event, "typically associated with wet conditions for eastern and northern Australia over summer".
    🧒Pfizer reported that a late-stage trial of its COVID-19 vaccine was "100% effective" in teenagers aged 12 to 15 from seven days to four months after the second shot, with no serious safety concerns observed.
    ✡️An anti-vax Italian politician "caused a storm of controversy after referring to Milan life senator and Holocaust survivor Liliana Segre by the number tattooed onto her arm by the Nazis".
    🐷In a bizarre speech, UK Prime Minister "extensively praise[d] Peppa Pig World, compare[d] himself to Moses and imitate[d] the noise of an accelerating car".
    💉As you do. A Northern Territory man allegedly knocked a COVID-19 vaccination out of a medical staffer's hands and then "grabbed the needle and injected himself".
    🏦Online British Bank Atom cut its work week without reducing pay, increasing daily hours slightly but still leaving employees with a 34-hour work week over four days, instead of 37.5 hours over five days.
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