A special kind of reverse genius

Delivered on By Justin Pyvis

Good morning! New Treasurer Jim Chalmers is certainly making sure he gets ahead of the economic pain that’s coming our way – he won’t want to take the blame for what was set in motion well before he took over – warning that inflation will be “significantly higher” than what Treasury forecast in its Pre-election Economic and Fiscal Outlook (3.0% in 2022-23):

“It’s now really clear that the inflation challenge that Australians are facing is worse than what was factored in by the former government at the election and in their most ­recent budget.

It is highly likely that I will have to change the inflation forecasts in the statement that I give to the parliament when it returns.

I’m working with the Treasury on it now, but people should anticipate that it will be higher than it is now. Significantly higher.”

The RBA meets today and is widely expected to continue playing catch-up, hiking rates by at least 40 basis points to 0.75%.


Reading the tea leaves

Daily % change

AUD/USD

72.0

-1.0%

AUD/CNY

4.79

-0.2%

AU Bond

3.49

-0.3%

US Bond

3.04

+2.7%

ASX200

7,206

-0.5%

S&P500

4,121

+0.3%

Brent (bbl)

119.9

+0.2%

Gold (oz)

1,845

-0.0%

Iron ore (t)

144.4

+1.2%

Bitcoin

31,425

+5.1%

Ethereum

1,861

+3.1%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 added 0.31% overnight on positive signs in China, e.g. regulators going easy on Didi and the end, for now, of hard lockdowns.

Amazon.com performed well along with other mega-cap growth shares, although Twitter was a notable loser, falling -1.5% after Elon Musk’s lawyer filed a letter claiming that “Mr Musk believes the company is actively resisting and thwarting his information rights”, and that if Twitter fails to provide him with “a complete and accurate understanding of the very core of Twitter’s business model - its active user base”, he might execute “his right to terminate the merger agreement”.

Twitter shares now trade at a -27% discount to Musk’s original offer price, suggesting significant uncertainty about whether or not the deal will go ahead.

Locally the ASX200 fell -0.45% despite strong gains for energy (+2.1%), which were more than offset by declines in eight of the ten other sectors, led by tech (-1.6%).

A notable mover was fund manager Magellan, which dropped -13.9% to an eight-year low after announcing that funds under management had fallen $3.6 billion (-5.2%) in May.


Food for thought

Despite an abundance of resources, weather-related coal outages and strong demand have caused Australian natural gas prices to soar.
Despite an abundance of resources, weather-related coal outages and strong demand have caused Australian natural gas prices to soar. Source

A special kind of reverse genius: So wrote Tim Blair, who was puzzled by how, exactly, Australia’s politicians have managed to “create an energy crisis in a country blessed with Australia’s wealth of energy sources”:

“We’ve got centuries' worth of coal, uranium and gas. We’ve also got abundant sunshine and wind, if you prefer your energy delivered in boutique artisanal instalments.

And yet we have an energy crisis. In Australia. This is like a petrol shortage in Kuwait, an inadequacy of self-regard at the ABC or a bitterness deficit in Kevin Rudd’s house.”

An obvious solution that meets both the need for affordable, reliable energy while also being “the cleanest large-scale energy source known to humankind” is nuclear – but alas, “even new Liberal leader Peter Dutton has ruled that out”.

State, territory and federal government ministers are due to meet tomorrow “to discuss solutions to the gas crisis”.

A false dawn: There could be a lot of bankruptcies later this year following the long period of low interest rates and “huge pandemic support schemes”, which have driven up the number of “zombie” companies – “businesses solely being propped up by government intervention”. In the UK:

“…small businesses also got hooked on cheap debt during the pandemic. At the end of last year, the Bank said a third of Britain’s small businesses were classed as highly indebted, more than double the amount than before the pandemic.

SMEs, many of which would not have met pre-pandemic lending requirements and never before borrowed, made up around two thirds of the £79bn increase in UK corporate debt between the end of 2019 and the first quarter of 2021, the Bank warned.

So how bad could things get – or, rather, how good might they get for insolvency and restructuring practitioners? Bonney is blunt: ‘There is a storm coming’.”

Australia’s a bit behind the UK in terms of inflation, energy prices, interest rates and the unwinding of pandemic support schemes but is by no means immune.

He says a lot of things: Elon Musk was very busy over the weekend. First he threatened to sack 10% of his Tesla employees only to backtrack two days later by tweeting:

“Total headcount will increase, but salaried should be fairly flat.”

Musk then went on to warn all Tesla employees (not just executives) that they need to spend a “minimum” of 40 hours in the office or find a new job, which sparked a tweet war with Atlassian co-founder Scott Farquhar after he attempted to poach disgruntled Tesla staff.

Finally, Musk somehow found the time to opine about US politics (perhaps he’s doing a lot of pretend work during all those office hours), tweeting that:

“Term limits help with the gerontocracy problem, but, frankly, there should be a max age beyond which you can’t run (maybe 70?), just like there are min ages for house, senate & president.”

Joe Biden turns 80 this year.


Chewing the fat


Bits and bytes

✈️ Albo’s in Indonesia today with a small army including “Foreign Minister Penny Wong, Trade Minister Don Farrell and Industry Minister Ed Husic and nearly a dozen business leaders including the bosses of Wesfarmers, Telstra and Commonwealth Bank”.

💳 The Albanese government abolished the controversial cashless debit card, which reportedly cost $36.5 million to operate in 2020-21 – or $2,187.59 per person participating.

🏥 New Government Services Minister Bill Shorten said he’s looking into an audit of the mess that is myGov. Hopefully it also covers My Health Record, which after 12 years and more than $2 billion sunk is used by “hardly anyone” (and is a privacy breach waiting to happen).

🌀 Monetary stimulus → inflation → wage rises → unemployment → stagflation. “NSW will give all public sector workers a pay rise after the state government agreed to lift the cap on wages to 3% this year, increasing to a possible 3.5% next year.”

🕵️‍♂️ “Victorian Premier Daniel Andrews has a data agency to monitor Victorians' everyday activities, including social media sentiment and credit card transactions.”

🗳️ UK PM Boris Johnson survived a no confidence vote from within his own Conservative Party “following revelations he and his staff repeatedly held boozy parties that flouted COVID-19 restrictions”.

🔐 That didn’t last long: “Multiple neighbourhoods in Shanghai were placed back under lockdown only a day after city-wide restrictions were lifted.”

☢️ The tech has been around for decades: “There is enough energy in the nuclear waste in the United States to power the entire country for 100 years with clean energy.”

🔥 Unsustainably hot: Unemployment in the US remained at 3.6% in May, “just above the lowest level since December 1969”.

🤫 Russian state media outlets were ordered not to mention the fact that Russia’s “special military operation” has now stretched over 100 days to avoid shining “an uncomfortable light on the Russian military’s failures in the conflict”.

📈 Inflation in South Korea hit a nearly 14-year high 5.4% in May, well above the Bank of Korea’s target of 2.0%. Core prices – which strip out food and energy – rose 3.4%.

💉 US drug regulator, the FDA, reported that Novavax’s COVID vaccine was effective but as with mRNA vaccines it also “carried the risk of causing heart inflammation, particularly in young males”.

🤥 Oh the humanity: Following the indictment of former Trump White House adviser Peter Navarro, US congressman Louie Gohmert said: “if you’re a Republican, you can’t even lie to Congress or lie to an FBI agent or they’re coming after you”.

🔬 A new (unpublished) paper by City University of New York epidemiology professor Denis Nash estimated that official COVID-19 case numbers are underestimating the true figures by up to 31x.

🎮 “A fan of the popular mechanised combat simulator ‘War Thunder’ shared the specs of China’s Type 99 Main Battle Tank online in order to win an argument over the game.”

💸 It would take over $US100,000 to fully gear up a character in the new ‘free to play’, mobile-first videogame Diablo Immortal.

🍎 About time: Next year’s iPhone 15 “will upgrade to the USB Type-C interface”, unifying “the charging interface of mobile phones, tablets, and headphones”.

👎 US President Joe Biden’s approval rating has “sunk below those of Donald Trump, whom Biden routinely refers to in private as ‘the worst president’ in history and an existential threat to the nation’s democracy”.

🚀 “South Korea and the United States said they fired eight surface-to-surface missiles early on Monday off South Korea’s east coast, responding to a barrage of short-range ballistic missiles launched by North Korea on Sunday.”

👩‍🚀 “China sent three astronauts on Sunday on a six-month long mission to oversee a pivotal period of construction of its space station… [which it expects to be] completed by the year-end.”