Conflicting forces

Delivered on By Justin Pyvis

Good morning! The Liberal Party skeletons are all coming out of the closest and they’re… not a good look on the eve of an election, to say the least:

“When confronted about the ‘horrible, horrible person’ text by host Leigh Sales on ABC’s 7.30 on Tuesday night, the Prime Minister interjected, saying: ‘Which she denies, by the way’.

His claim was quickly rebutted by Mr van Onselen, who shared Ms Berejiklian’s initial text to Twitter, saying it proved the Prime Minister’s claim was ‘an out and out lie’.”

Channel 10 journalist Peter van Onselen has yet to produce a source for the images but Gladys Berejiklian has also never denied that the exchange took place, just that she didn’t recall what was said.

Judge for yourself:

The now-infamous leaked text messages.
The now-infamous leaked text messages. Source

Reading the tea leaves

Daily % change







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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 US S&P500 fell again, losing -0.97% after the minutes from the Federal Reserve’s March meeting were released, indicating “potential rate hikes of 50 basis points at upcoming meetings… [and] there was considerable sentiment to go higher last month”, with the war in Ukraine the main reason some officials held off.

Oil prices fell again after the head of the International Energy Agency said its 31 members were moving ahead with a “collective oil stock release” of 120 million barrels.

Locally the ASX200 fell -0.59%, as materials (-1.7%) and energy (-0.6%) both lost ground following hawkish comments from the US Federal Reserve the night before – increasing the value of the dollar vis-à-vis commodities – and a continued lack of European sanctions on Russian oil. Europe is by far the largest consumer of Russian energy, buying 50% of its crude oil and 75% of its natural gas.

But the biggest loser in percentage terms was the tech sector, which dropped -2.9% as government bond yields jumped. Tech companies tend to trade on higher estimates of future earnings, which are discounted when interest rates rise.

Food for thought

How the US government spent its $US5 trillion stimulus.
How the US government spent its $US5 trillion stimulus. Source

Jamie Dimon, CEO of JPMorgan Chase, published the company’s widely-read annual letter this week, warning that “America and the rest of the world are facing the confluence of three important and conflicting forces”.

Those forces are (the dot points below are direct quotes):

  • a strong U.S. economy, which, we hope, has COVID-19 in its rearview mirror;
  • high inflation, which means rising interest rates and, importantly, the reversal of quantitative easing (QE); and
  • the war in Ukraine and the accompanying humanitarian crisis, with its impact on the global economy in the short term, as well as its significant impact on the geopolitics of the future.

Dimon warns that those forces “will likely have a meaningful effect on the economy over the next few years and on geopolitics for the next several decades”.

In terms of inflation and interest rates, Dimon points out that the rate rises needed to rein in inflation are likely “significantly higher than the markets expect”. That’s in no small part because of the Fed’s “enormous” QE amounting to $US4.4 trillion, or 18% of GDP, and equally “enormous fiscal stimulus (which has been and always will be inflationary)”, of approximately $US5 trillion, or 21% GDP.

But all hope is not lost:

“If the Fed gets it just right, we can have years of growth, and inflation will eventually start to recede. In any event, this process will cause lots of consternation and very volatile markets. The Fed should not worry about volatile markets unless they affect the actual economy. A strong economy trumps market volatility.”

Getting it “just right” will be the challenge, made more difficult by the fact that the Fed is probably commencing its tightening cycle about a year too late.

In a warning that would also apply just as well to our own bureaucrats at the Reserve Bank of Australia, Dimon cautions Fed officials that “there are no models that can even remotely give us the answers”:

“I have always been critical of people’s excessive reliance on models — since they don’t capture major catalysts, such as culture, character and technological advances. And in our current situation, the Fed needs to deal with things it has never dealt with before (and are impossible to model), including supply chain issues, sanctions, war and a reversal of QE in the face of unparalleled inflation. Obviously, the Fed always needs to be data-dependent, and this is true today more than ever before. However, the data will likely continue to be inconsistent and volatile — and hard to read. The Fed should strive for consistency but not when it’s impossible to achieve.”

There’s plenty more in the incredibly long letter. Do check it out.

Chewing the fat

Bits and bytes

📢 This should be interesting: Elon Musk is now on the board of Twitter, enabling him to influence decisions but also preventing him from purchasing more than 14.9% of the company (he owns 9.2%).

🔐 The lockdown of Shanghai was extended indefinitely: “At least 38,000 personnel have been deployed to Shanghai from other regions in what state media has described as the biggest nationwide medical operation since the shutdown of Wuhan in early 2020.”

💸 Here we go again. China’s cabinet agreed to “use monetary policy tools at an appropriate time and consider other measures to boost consumption”.

🎶 Locked-down residents of Shanghai “go to their balconies to sing & protest lack of supplies. A drone appears: ‘Please comply w covid restrictions. Control your soul’s desire for freedom. Do not open the window or sing’.”

🛂 Victoria’s government extended its “pandemic declaration” for another 3 months, giving the Minister for Health additional powers “to protect public health”.

📰 Larry Summers responds “to the main challenges to my analysis… that Federal Reserve policy remains dangerously behind the curve in ways that will lead to poor economic performance in the years ahead”.

🔥 Peru’s government imposed a curfew “just hours after officials in Lima ordered schools to shut down for a second consecutive day due to mass protests by transport workers”, due to soaring inflation.

📖 “Oregon romance novelist who wrote ‘How to Murder Your Husband’ goes on trial in fatal shooting of longtime spouse.”

👷‍♀️ There is no Great Resignation: “Historical data on quits in manufacturing suggest that the current wave is not unusual. Waves of job quits have occurred during all fast recoveries in the postwar period.”

📉 The Caixin services PMI fell to 42 in March from 50.2 the previous month, as: “Activity in China’s services sector contracted at its steepest pace since February 2020 in March… the first contraction in seven months.”

👁️ The Zuck is delusional: “Some of the folks I work with at the company [Meta] — they say this lovingly — but I think that they sometimes refer to my attention as the Eye of Sauron.”

⚔️ Ukraine’s ambassador to Australia, Vasyl Myroshnychenko, said: “I don’t see any prospect of a peace deal in the foreseeable future – I think we need to keep on fighting.”

❌ The US imposed additional sanctions on Russia, including Sberbank, its largest financial institution, Alfa-Bank, its largest private bank, and Putin’s two adult daughters.

🛢️ Fresh off an election win, Hungary’s Prime Minister, Viktor Orbán, “is once again going against the EU, and says he will pay for Russian gas with rubles”.

🗳️ Jeremy Rockliff, the current Deputy Premier, has been confirmed as the next Premier of Tasmania.