Building a bubble
By Justin Pyvis – Delivered on 30 Sep 2021

Good morning! After leaking it to the media the night before, Treasurer Josh Frydenberg formally revealed that the Commonwealth disaster payments for people in locked-down states will phase out once a state or territory reaches the 80% double-dose vaccination milestone:

"If you look around the world... whether it is in the UK, US, Canada, Japan, people are starting to get about their normal lives. Learning to live with the virus in a COVID-safe way.

As our vaccination rates hit 70 and 80%, we need to do that as well. So this announcement today backs our plan and allows Australians to get their lives back."

Frydenberg is not-so-subtly changing the incentive structure to give a light kick up the backside to certain states: if a state government decides to lock down after reaching those vaccination milestones, they'll have to draw on their own budgets to support those affected.

Moving on, Tasmania's Premier Peter Gutwein officially flipped the bird to the National Plan by confirming his state will not open its domestic borders until it reaches a 90% fully vaccinated rate, citing his own yet-to-be released modelling from the Garvan Institute of Medical Research. Gutwein expects to "hit our target for the over 16 cohort by the first of December, and the remaining 12- to 15-year-olds should be completed shortly thereafter".

Elsewhere, the NSW government provided some insight into how, exactly, its vaccine passports will work. In short: they won't. Health Minister Brad Hazzard said businesses won't fined if they don't check people's vaccination status and NSW Police also deflected responsibility, only assisting businesses if requested.

Asked about what that means in practice, Premier Gladys Berejiklian said that "there is a very obvious onus on the individual to make sure they do the right thing... For a large venue with hundreds of people in there, we would expect a staff member to be checking that as people come in. For very small premises, that expectation is less".

So it's the honour system then. That's probably not a bad outcome – outside of large venues or places that already have security (stadiums, airports, nightclubs, etc), enforcement of a vaccination passport would essentially be impossible. Presumably going to the footy or getting on a plane will be incentive enough for most people to get vaccinated (NSW is approaching the 90% first doses mark, so it seems to be doing the trick).

Finally, the Kiwis recorded a whopping 45 new cases after several days of notching up around 12 cases. According to COVID-19 response minister Chris Hipkins, "We've still got to hold our nerve here. We're still aiming to run this into the ground." 😬

Fully vaccinated population (aged over 16)


Daily % change




10Y Bond






Brent (bbl)



Gold (oz)



Iron ore (t)






Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

The US S&P500 was flat overnight, adding just 0.16% as the 10-year US Treasury yield declined slightly, providing some respite for tech stocks with are very sensitive to yields.

Locally, the ASX200 (-1.08%) fell for a second straight day to a four-month low as energy stocks cooled, banks dropped, mining stocks priced in some of the prior day's iron ore declines and tech followed Wall Street lower on rising interest rates.


Powell problems: US Fed Chair Jerome Powell's term expires in February and he'll have a fight on his hands to be renominated, after Senator Elizabeth Warren said "Over and over, you have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed, and it's why I will oppose your renomination."

No longer transitory: After spending years with his foot firmly on the gas trying to stir up inflation, Jerome Powell said the current inflationary pressures are "frustrating", with "bottlenecks and supply chain problems... holding up inflation longer than we had thought". 🙄

Lacking resilience: Australia fell a further 3 places to 34th in the world on Bloomberg's latest Covid Resilience Ranking. "The lower risk of being infected initially damped demand for vaccines in some places, until delta got in through strict border curbs, prompting places like New Zealand and Australia to speed up their rollouts."

Pfffssszsz: Hear that? It's some of the air coming out of the Australian property market. The Australian Prudential Regulation Authority (APRA) confirmed that it's "preparing to release lending restriction options within two months".

Powering down: More than half of China's mainland provinces are limiting electricity use, making up more than two-thirds of China's GDP, "prompting banks from Goldman Sachs Group Inc. to Nomura Holdings Inc. to issue warnings over growth and sparking concerns over supply chain snarl-ups".

Building a bubble

China is all the rage, and for good reason – it's where the troubled and most-indebted property developer in the world, Evergrande, is located. Writing in Bloomberg, historian Niall Ferguson wonders "if the Communist Party has inadvertently produced a Chinese version of Napoleon III, whose reign was also marked by rampant real estate development":

"To put it simply, China's growth has been boosted for many years by the construction of an excess supply of housing units. This has been financed by an unsustainable mountain of debt.
Relative to the size of the economy, nonfinancial corporate debt in China is now even bigger than it was in Japan in the late 1980s. And both tower blocks and debts have been going up at a time when the Chinese workforce has begun to come down."

Why this matters: Acknowledging that "for every article over the last 10 years that predicted China's economy would overtake that of the U.S., there were at least two prophesying a 'China crisis'," Ferguson notes that while China's President Xi Jinping will know all too well how to avoid a Lehman Brothers moment because "the Chinese have learned from the American experience":

"Yet, as the great English historian A.J.P. Taylor once observed of the French Emperor Napoleon III, he 'learned from the mistakes of the past how to make new ones'."

Ferguson cites estimates that between 20-25% of China's apartments are empty, with the Rhodium Group recently claiming that there's "enough empty property in China to house more than 90 million people", as shown in the graphic below:

China loves property – "around 27% of Chinese bank loans come from the real estate sector", 18% of the urban labour force is employed in real estate, local governments get 35% of their revenue from land sales, and housing wealth represents 78% of overall assets (in the US it's 35%).

But wait, there's more! All of that is happening at the same time as China's birth rate is falling and its official debt-to-GDP ratio increased 45 percentage points over the past five years, "leaving it with among the highest debt ratios for any developing country in history".

Looking forward: China will avoid a repeat of the Lehman Brothers crisis because it has studied it. But according to Ferguson, the real threat to Chinese growth is Xi Jinping himself, who "has learned from the crises of others only how to make a crisis of his own... analysts who continue to predict a Chinese economic takeover of the world have only themselves to blame if they have failed to learn the lessons of the Soviet collapse".

The Wrap Up
    🤒WorkSafe charged Victoria's Department of Health with 58 breaches of the Occupational Health and Safety Act in relation to Victoria's initial hotel quarantine program.
    🦇Definitely too soon. "PwC [Australia] diversity executives mocked Chinese accents, dressed as 'bat from Wuhan' during company trivia event."
    💉United Airlines, which employs around 67,000 people, "has begun the process of terminating 593 employees who declined to be vaccinated and did not apply for a health or religious exemption".
    🎮Amazon's first video game, "New World", is a hit, reporting 500,000 concurrent players on its first day.
    🦠Four CFMEU staff in Victoria tested positive for COVID-19 despite not being involved in the protests last week, with the headquarters declared a Tier 1 exposure site.
    🏭The New South Wales government plans to cut emissions by 50% below 2005 levels by 2030.
    🗾Japan's new Prime Minister will be 64-year-old Fumio Kishida, the country's former Foreign Minister who wants to "spend big on new pandemic stimulus".
    🐊After misleadingly claiming the military is "enforcing" Australia's lockdowns, Florida Governor and Presidential hopeful Ron DeSantis said: "In fact, I wonder why we would still have the same diplomatic relations when they're doing that. Is Australia freer than communist China right now? I don't know."
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