The death knell of the dot-com bubble

Delivered on By Justin Pyvis

Good morning! The higher education and farming lobbies have certainly been hard at work, as the federal government yesterday waived all visa application fees for new arrivals on student and working holiday visas for the next 8 (students) to 12 (working holiday) weeks.

It turns out that applying for a visa and actually using it are, in fact, two separate things – ScoMo said that “there are around 150,000 students”, along with “some 23,500 backpackers who have visas to come to Australia right now”, but so far they have stayed away.

The cherry on top is a $A3 million advertising campaign “to target backpackers and students to get them out [here]”.

Phew! Hopefully they can get in soon to save the fruit picking season, the peak of which is imminent. Wouldn’t want farmers to have to offer decent conditions to incentivise locals to do the work, now would we?


Reading the tea leaves

Daily % change

AUD/USD

72.3

+0.7%

AUD/CNY

4.58

+0.4%

AU Bond

1.96

-1.4%

US Bond

1.83

-2.0%

ASX200

7,333

-1.0%

S&P500

4,561

-0.5%

Brent (bbl)

88.2

+0.3%

Gold (oz)

1,843

+1.6%

Iron ore (t)

131.4

+3.6%

Bitcoin

41,843

+0.5%

Ethereum

3,127

+0.3%

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 the US S&P500 was trading down -0.49%, slipping late in the day after opening higher on the back of a pause in bond yields, an expectations beat by Bank of America and consumer goods bellwether Procter & Gamble upgrading its sales outlook as price hikes offset rising inflation.

US housing starts also showed signs of life, unexpectedly rising in December to a nine-month high.

Locally, the ASX200 played follow-the-leader and shed -1.03%, with only the energy (+0.6%) and utilities (+0.2%) sectors finishing in the black.

The sell-off was not confined to Australia, with Japan’s Topix (-2.97%), China’s CSI 300 (-0.68%) and South Korea’s Kospi (-0.77%) all losing ground as investors bet on higher borrowing costs going forward.


Food for thought

Autos, corporate debt, credit, cryptos, housing, stocks – it's all so very expensive!
Autos, corporate debt, credit, cryptos, housing, stocks – it's all so very expensive! Source

Did you know that the last time the US Federal Reserve (Fed) hiked interest rates by more than 25 basis points was way back in May 2000, which was also the death knell of the dot-com bubble?

The Nasdaq index peaked in March 2000, three months after the Fed started its tightening cycle. The bubble was so big and the crash so severe that it took the index 14 years to recover.

The reason we bring that uncomfortable piece of history up is because markets are now pricing in at least four 25 basis point hikes within a year, with the odds of a 25-50 point hike in March rising to 93.7%.

Some think it could even be at the upper-end of that range. Billionaire investor Bill Ackman called for the Fed to hike by 50 basis points in March to “restore its credibility”, while William Nelson, a former Fed staffer, said it “needs to prepare the public for the possibility that they will tighten by 50 basis points in March”.

There’s no doubt something needs to be done about inflation, and not just in consumer prices – many believe we’re in the midst of an “Everything Bubble”, with valuations for just about anything you can imagine, from Bitcoin to stocks, bid up to unprecedented levels on the back of ultra-easy monetary policy and over-the-top fiscal spending.

There’s a lot riding on the Fed. While a 50 basis point interest rate hike in March will certainly help cool things off, it could also be the beginning of the end for many elevated asset prices, as it was in 2000 and 2007.


Bits and bytes

📈 UK inflation hit a 30-year high of 5.4% in December, well above expectations and swamping wages growth (just 3.8% in November). According to the ONS the pandemic cannot be blamed this time, as its “effect on the headline rate of inflation is negligible”.

🍁 Canadian inflation also hit a 30-year high, rising 4.8% in December, which could be enough to trigger the start of a rate hike cycle as early as next week.

✈️ From Saturday, fully vaccinated international travellers flying into Queensland no longer need to quarantine and will only need to take a RAT within 24 hours of arriving, rather than a PCR test.

🧪 The street value is at least $A2 million. “A hunt is underway for a man who stole 42,000 rapid antigen tests from a freight depot in Sydney’s south… with a value of $A500,000”.

⛏️ Mining giant BHP cut its Queensland metallurgical coal production guidance due to the Omicron outbreak and La Nina rains, warning that when Western Australia’s border opens it “may introduce some short-term disruption to the [iron ore] operating environment as the Covid-19 pandemic evolves in the state”.

💉 The governments of NSW and VIC reduced the booster interval to three months after a person’s second dose, effective immediately.

🛂 Victoria’s Premier Daniel Andrews said “I think we’re close to a change in policy that will simply reflect the fact that… to be fully vaccinated, you need three [doses].”

📊 The monthly “Westpac-Melbourne Institute Index of Consumer Sentiment fell by 2.0% to 102.2 in January from 104.3 in December… a surprisingly solid result given the rapid spread of the omicron COVID variant over the last month.”

😬 Many will be at risk of default: “A group of 74 low-income nations will have to repay an estimated $US35 billion to official bilateral and private-sector lenders during 2022, according to the World Bank, up 45% from 2020.

🐊 Only in Florida: “The Florida Department of Health Medical Director has been put on leave for encouraging his own staff to get vaccinated.”

🦗 New Zealand’s cricket team postponed its tour of Australia because the Kiwi government could not guarantee their ability to return home, given a lack of available hotel quarantine beds.

🏄‍♂️ According to Federal Sports Minister Richard Colbeck, American surfing legend Kelly Slater has “no chance of getting into the country [Australia] without the vaccine”.