Inaction bias

Delivered on By Justin Pyvis

Good morning! Just a reminder that this will be our last update until 10 January, unless we’re compelled to return earlier for another potentially world-ending disaster (haven’t the last couple of years been bad enough?!).

With that out of the way let’s turn to NSW where just one day after granting freedoms to the unvaccinated, Jobs Minister Stuart Ayres warned that if they start showing up in hospitals, “the government will take action to ensure that we protect people and protect our health system”.

He added that despite previous statements from earlier this month such as “We aren’t going backwards, we are going forward in regards to this new strain of the virus”, the government’s latest position is “We’re not saying we’re never going back”.

These ‘pledges’ clearly aren’t worth the paper they’re printed on, so why make them at all? πŸ€·β€β™‚οΈ

Elsewhere, the Kiwis hit a 90% vaccination rate (people aged 12+) making them the 20th most vaccinated country in the world, having recently pipped Australia (21st) where the rate currently sits at 88.8%.

See you in 2022 – be sure to have a Merry Christmas and hopefully a less COVID-ridden New Year!

Fully vaccinated (aged 16+)


Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



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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 theΒ US S&P500Β was down 0.8%, with big losses in growth stocks (tech) after the Bank of England unexpectedly gave everyone a bit of a reality check by raising interest rates 15 basis points despite the emergence of Omicron, citing higher than expected inflation in a decisive 8-1 vote.

However, sentiment was starting to turn late in the session following positive data releases including an 11.8% rise in US housing starts in November (the highest since March), along with relatively strong weekly initial jobless claims, which only increased marginally to 206,000.

Locally, theΒ ASX200 ignored the strong 1.6% rally in the US the night before to fall 0.43%, a third consecutive decline led by biotechnology giant CSL (worth nearly 10% of the entire index), which dropped 8.2% following a large capital raising to acquire Switzerland’s Vifor Pharma.

Food for thought

Doing nothing can cause much bigger problems in the future.
Doing nothing can cause much bigger problems in the future. Source

Yesterday was a big day for Australian market-moving news, which kicked off with a speech from Reserve Bank of Australia (RBA) governor Philip Lowe who double-downed – although it’s probably more like decuple-downed at this stage – on his view that inflation is not a risk to Australia:

“The situation here in Australia is quite different. In underlying terms, inflation is 2.1 per cent and has only just returned to the 2–3 per cent target range for the first time in six years. In headline terms, it is higher than this at around 3 per cent, largely due to higher prices for petrol and constructing a new home. Nevertheless, headline inflation in Australia is much lower than it is in the North Atlantic.”

Lowe’s correct that inflation and wages are currently subdued in Australia. But they were also subdued in other countries, until they weren’t. Take Canada, where inflation was 3.1% in June (below Australia’s 3.8%) but has now jumped up to 4.9%, despite workers also “still receiving wage increases starting with a two”, as Lowe put it (it’s 2.8% in Canada).

There are two other reasons for the lack of price movements in Australia that Lowe failed to consider. One was the lockdowns in NSW and VIC, which forced activity in around half the country to grind to a halt for a few months.

The second is the fact that Australia hasn’t reported any inflation data since the September release, while those in the North Atlantic report on a monthly basis.

Time will tell, but Lowe and the RBA risk falling for what the International Monetary Fund (IMF) recently dubbed “inaction bias”, where doing nothing can result in much higher “costs associated with containing second-round impacts”.

And those risks of inaction are rising, if the second big release of the day was anything to go by. Australian employment data, a monthly product (thank you!), showed that unemployment dropped to 4.6% in November despite a large 1.4 percentage point increase in the participation rate to above levels seen at the start of the pandemic.

Consensus estimates only had unemployment dropping to 5.0%. In other words, Australia’s labour market is red hot, which when combined with the “almost $A400 billion put away in savings through the pandemic”, and soaring asset prices, could see Australia fall victim to the demand/supply mismatch that has seen prices soar in the North Atlantic.

On that sobering note, have a great summer and we’ll see you again in mid-January!

Bits and bytes

πŸ’Έ The federal government’s Mid-Year Economic and Fiscal Outlook was released, showing it “has squired away up to $A16 billion in spending decisions to be unveiled between now and the federal election”. The 2021-22 deficit is expected to be $A99.2 billion resulting in net debt reaching 30.6% of GDP by June 2022, rising to a peak of 37.4% in 2025.

πŸ“ˆ The NSW state budget blew out to a record deficit of $A19.5 billion, four times more than it forecast a year ago. Net debt is now forecast to rise from 3.1% of GSP in 2020-21 to 13.7% in 2024-25.

πŸ’° The WA state budget update included $A1.3 billion in new spending for health as it gears up for a reopening. It predicted an operating surplus of $A2.4 billion this year but still expects net debt to rise from 9.0% of GSP in 2020-21 to 11.2% in 2024-25.

πŸ¦— Australia’s test captain Pat Cummins was ruled out hours before the start of the second Ashes test after he was identified as a close contact of a positive COVID-19 case.

🦠 A new lab study found that Omicron “infects & multiplies ~70x faster than the Delta variant and the wild type SARS-CoV-2 in the human bronchus, but not in the lung”, which “may suggest lower severity”.

πŸ€“ New York City banned natural gas in new buildings, forcing them to use electricity generated primarily by burning… natural gas.

πŸ€ͺ A bank robber in Delaware demanded $US150 in cash from a teller (yep, just the one zero), then stopped to make “a deposit in the ATM on the exterior of the building” before fleeing to a nearby shopping centre where he was apprehended.

πŸ‘©β€πŸ’Ό US President Joe Biden nominated Caroline Kennedy, JFK’s daughter, as his ambassador to Australia.

πŸ’‰ Biden’s infectious disease advisor, Anthony Fauci, said two doses of Pfizer “still offers considerable protection against severe disease”.

✈️ Qantas said it had noticed a “significant drop in [international] booking momentum due to the news of the Omicron variant and the additional quarantine restrictions imposed”, as it posted a $A1.1 billion loss for the December half.

❌ South Korea’s government (10th most vaccinated country in the world) reimposed restrictions on gatherings and implemented a 9:00pm curfew on bars, restaurants and cafΓ©s.

🍁 Ontario’s government reinstated a 50% cap on attendance at dozens of venues, including cinemas, museums and stadiums.

😒 Five children died and several were injured in Tasmania after a “freak” gust of wind lifted a bouncy castle they were using, causing them to fall an estimated 10 metres.