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Monday, 20 September 2021
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In the wake of persistent inflation, the Fed may jams down hard on the monetary brakes, leading to upward moves in bond yields. There may be a significant correction in equity markets, but what would the RBA do?
The inflation genie is still in the bottle. While wage growth remains low and the US Fed maintains current settings, we should expect the RBA's accommodatory approach to continue.
The refusal of both sides of politics not only to adopt ‘microeconomic reform’ but in some cases reverse reforms, looms as a bigger driver of unemployment than any failure to fine-tune macro or monetary policy.
Social media, app and trading platforms that drive retail participation also open doors for greater volatility. Ironically, easy money is contributing to market risks, with shorting hit by spiking to the upside.
The outlook for emerging market debt in 2021 revolves around liquidity, uneven recoveries and debt sustainability. Damage has been done to many countries’ finances and watch for central banks withdrawing support.
Much has been written about the rise of 'zombie firms' which should have gone bankrupt, but new research should be comforting to economists and investors alike, with focus on a particular segment.
Bonds markets have continued to defy the notion that low yields imply low returns, and most investors need the solid foundation that bonds give to a portfolio.
The RBA is likely to first exhaust conventional easing by cutting the cash rate to 0.5% by year end before deploying unconventional measures. Negative interest rates are unlikely.
For a decade of accommodative central bank monetary policy, investors have been more macro-oriented, following liquidity and rate patterns. It’s time to focus on companies and be more micro-oriented.
Most investors think the relationship between interest rates and prices only applies to fixed rate bonds, but the rate impact on discounting future cash flows applies to all income-producing assets.
Market risks are skewed to the downside for the next 12 to 18 months, and if the Federal Reserve is forced to counter inflation, a 30% broad-based correction in equity markets is a possibility.
Since the 1950s, predictions on the death of economic cycles have come and gone, and each time they have been wrong. But since no two cycles are the same, we ought to look for what’s different this time.
Who knew? With some surprise results, the Government is on unexpected firm ground in asking people to draw on all their assets in retirement, although the comments show what feisty and informed readers we have.
The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?
It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.
Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.
Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.
Some high-quality companies have emerged even stronger since the onset of COVID and are well placed for outperformance. We call these the ‘COVID Opportunists’ as they are now dominating their specific sectors.