Build Back Never

Delivered on By Justin Pyvis

Good morning! The Kiwis are getting cold feet about reopening to Australian-based NZ citizens, after Prime Minister Jacinda Ardern went from being “very committed” to a 17 January reopening to saying “we need to review the latest details and evidence around Omicron”, with a final call to be made sometime between 7-8 January.

Hardly reassuring for a nation with a close to world-leading 89% fully vaccinated rate (people aged 12+)!

Moving on, Victoria will be home to the first mRNA manufacturing facility in the Southern Hemisphere following an agreement between Moderna and the federal and state governments. The plant won’t be operational until 2024 when it will be able to produce 25 million vaccine doses per year, scaling to 100 million if required.

Elsewhere, Tassie opened its borders to fully vaccinated travellers today and NSW unshackled its unvaccinated residents, allowing them back into pubs, cafes, gyms and shops despite rising case numbers.

Confirming the change, Health Minister Brad Hazzard said “We’re not about to start backflipping on issues we promised.”

Let’s just hope that statement holds for more than a few months. πŸ™

Please note that unless the sky falls in we’ll be taking a few weeks off after Friday’s issue, returning on 10 January 2022.

Fully vaccinated (aged 16+)


Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



Iron ore (t)









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 theΒ US S&P500Β was around 0.6% weaker after US producer prices posted their biggest annual jump on record, rising 9.6%. Even ‘core’ prices – which strip out energy and food – surged 6.9%, also the highest on record.

It all points to an acceleration of the Federal Reserve’s monetary stimulus tapering plan, which is expected to be announced this week. As the easy money is taken away, certain stocks will start to look very expensive again.

Locally, theΒ ASX200 nudged 0.01% lower after consumer staples (-3.96%) were smashed following an update from Woolworths, which plunged -7.67% after warning of higher costs that will “slash the profitability of its flagship Australian food arm”.

Food for thought

For some Democrats inflation is a bigger issue than Biden's stimulus.
For some Democrats inflation is a bigger issue than Biden's stimulus. Source

Build Back Better. That’s the name of US President Joe Biden’s proposed $US1.75 trillion stimulus plan (according to the Congressional Budget Office, it’s closer to $US3 trillion) but it may end up as Build Back Never, with Democrats so far unable to convince their moderate peers of the need to pump more deficit spending into an economy where inflation is running at 6.8% per year.

Yesterday economist Larry Summers, who served as Treasury Secretary under Bill Clinton, raised further doubts as to the need for such spending, expressing his bemusement as to “why so many in Admin & out cling to the idea that inflation is caused by bottlenecks & will soon recede to normal levels”.

In terms of supply, Summers rightly noted that it’s not a case of relative price rises caused by bottlenecks but broad-based price inflation:

“Less than 10% of [the] index saw inflation below 3% & aside from housing where figures are problematic, the share below 4% is less than quarter.”

It’s not just goods prices that are rising anymore, which was the argument put forward by Reserve Bank of Australia governor Philip Lowe a month ago, with the price of services also rising above 3% – for example restaurants, where prices spiked 5.8% in November (the most since 1982).

In terms of the outlook, Summers noted that “even if inflation subsided to .2 percent a month, the annualized inflation rate would be 6.5% in March 5.1% in June and 4.0% before the election in September”, although he expects “headline inflation will round to 5 percent [by next fall]”.

If Biden’s stimulus passes, there’s a good chance the Federal Reserve will have to act to offset it by tightening policy more than it would otherwise. It also increases the risks of an inflation trap, where higher interest rates actually raise inflation due to increased public debt servicing costs, rather than cool it (provided there’s no corresponding fiscal tightening).

It’s all very exciting and so far we’ve been relatively immune down under. However, we could face similar issues next year, as consumer price pressures from unprecedented fiscal deficit spending and loose monetary policy were probably only delayed by extended lockdowns in half the country.

Bits and bytes

πŸ’‰ New real-world data from South Africa showed the two-dose Pfizer vaccine was 70% effective at preventing hospitalisation from Omicron, down from 93% during the previous Delta wave. Protection against catching COVID-19 had slumped to 33% from 80% previously.

🍺 Things are getting dire in Norway, where the government just banned “the serving of alcohol in bars and restaurants” in an attempt “to curb the outbreak of the Omicron variant of the coronavirus”.

πŸ“ˆ Australia’s NAB business confidence survey edged higher due to “a rise in the employment index as businesses re-hired staff alongside the recovery in activity”. Businesses have started to pass on some of their cost pressures as “inflation indicators remain elevated”, including labour costs which “continued to rise in November”.

😷 California’s government reintroduced mask mandates in all indoor public spaces and will ban the unvaccinated from any event with more than 1,000 people unless they produce a recent negative test.

🧐 The NSW Auditor-General refused to sign off on the state’s Budget update unless it can fix a $A14.6 billion black hole due to “significant accounting issues” involving the Transport Asset Holding Entity.

πŸš€ Time magazine named CEO of Tesla and SpaceX Elon Musk as its Person of the Year, “a marker of influence, and few individuals have had more influence than Musk on life on Earth, and potentially life off Earth too”.

πŸ• The price of Dogecoin surged over 20% after Time’s Person of the Year tweeted “Tesla will make some merch buyable with Doge & see how it goes.”

πŸ‘©β€πŸ”¬ Scientists investigating microplastic pollution in the Southern Ocean surrounding Antarctica discovered that 89% of samples analysed came from paint on their own ship.

πŸ’£ Russia’s government said it will relocate intermediate-range nuclear weapons (500-5,500km range) to Europe if NATO refuses to sign a new treaty barring their use, after the previous one expired in 2019 and tensions over Ukraine escalate.

🌏 Eastern Indonesia was rocked by a 7.3 magnitude earthquake north of Maumere, on Indonesia’s Flores Island and “hazardous tsunami waves are possible”.

✈️ A FIFO plane was forced to crash-land on its belly at Perth Airport after its landing gear collapsed. No one was injured.