I think the RBA is frightened to pop the property bubble whereas the UK has nothing but contempt for property owners and actively attacking small landlords. The new RBA governor is interesting and potentially signals a desire for weaker aussie dollar so inflation may be allowed to run hotter there for longer.
Aussie dollar should be alot stronger given Federal Gov Surplus, strong iron ore, gas and coal prices, and a large superannuation saving system. In my view the RBA is deliberately slow walking rate increases and QE run off, so as not to blow up the housing market and keep the labour market reasonably strong, despite high inflation which is resulting in the AUD being a lot weaker than expected.
On the diversion between the Australian Dollar and Terms of Trade, have you looked into the growing influence of the structural, continuous outflows of capital as Superannuation funds allocate an outsized share of their investments to foreign equities and fixed income?
That is a common argument - is that capital flows have changed, with Australia now a capital provider (hence change in current account etc). Still means if RBA raised rates more, Aussie dollar would rally.
I ‘m in the US and have a son who has lived in Australia for over 10 years. He became an Australian citizen, married an Australian girl, and lives on the Sunshine Coast, one of the nicest places in the world to live, in my opinion. I am of Swedish descent, so I am familiar with the quality of life i Scandinavia, Australia, and the US. For years I have called Australia “Sweden at the Beach.” I 100% agree with your assessment of the drift of Australia. People get along and are not at each others throats as they are in the US. The public schools have good International ratings. Kids wear uniforms to public schools and class sizes are small. There are lots of holidays and time off. The roads are good. Blue collar workers (“Tradies”) are well paid. The public services look to be top-notch. Trash is picked up and the countryside is clean (like Sweden). It’s a great place. I’m not encouraging my son to move back.
Hard to see where pro-labour policies are going to come from when looking at each party’s policy platforms. Trade Union membership continues downward, now at 12.5%, there were just 211 disputes in all of Australia in 2023, Martin Place becoming more political and Albanese’s lacklustre industrial relations reforms were token at best, and most certainly the last attempt at it during this term of office. Grassroots politics is also changing as the composition of voters rapidly changes due to huge levels of immigration. New voter blocs have quite different sets of preferences than we’ve seen in Australian politics before but none of them really equate to a set of policies that fix issues such as Australia’s collapse in industrial manufacturing complexity (we now jostle for position in the rankings at 92nd with Laos and Kenya) or the incredible number of invisible taxes now being paid in the form of traffic, hospital wait times (a record 43% of patients spend 4hrs or more in emergency departments in NSW) and lack of school places. Then there is the solvency issues facing many State governments given the perverse political incentives that grants immigration control and taxation benefits to the federal government while responsibility to provide Health, Education, Roads, Police, Fire and Ambulance services falls on State governments. All of this while households have the 3rd highest debt to disposable income ratio in the world. I struggle to see where the next wave of industrial relations reforms come from or the policies that actually address these issues - and while coffee might be cheap compared to London, Albo is being killed right now because cost of living is by far the biggest issue facing voters.
I think there are always problems to be dealt with. This is the nature of the human condition. But I just can’t get over high quality life in Australia is. One example is the cricket. Last time I went to the SCG was back in the 90s for ODI. Basically we dodged fights almost non-stop on the way in and way out. And to be honest - i thought nothing of it, used to the craziness of Friday nights in pubs. Went to the big bash at the SCG, and just staggered by the quality of the infrastructure, but also the tolerance of authorities to drinking. The 5 guys next to us downs 8 cans Jack Daniel and Coke at least! UK makes it hard to buy that much booze…. And then on to light rail to get back to Randiwck - fantastic!
Al this, and the federal government running a budget surplus? Seems good to me…. And with the prospect of a potentially booming India buying Australian commodities and services going forward…. Seems like the lucky country to me.
The question is what do you compare with - an ideal or other countries. Sure, compared to an ideal we can find Australia wanting, but I don’t see too many exciting alternatives- so it’s really a glass half empty/half full discussion
I think this read of yours on the Aussie strategy with the US and China is where I disagree with you the most. China is a threat to Oz not as an invader but as a coercer. China is closer to Australia and more economically intertwined with it than the US ever will be. At the very least it should take submarines from the US and money from the Chinese similar to India. Isn’t this the best policy? To balance the great powers. But the reality is China is a threat to its independence in a way the US never will be. I think you’ll also find overwhelming support for alignment with the US in the population. Keating is kind of a Gerhard Schroeder. Bought and paid for.
Sure - I think resisting Chinese influence is a good policy. You can buy a lot of influence with USD 300bn - which is my point - why spend it on submarines? Want to make a real impact? Station an Australian army brigade in Taiwan. Cheaper, quicker and probably more effective - and absolutely transparent in what it aims to do - unlike AUKUS.
Admittedly I don’t have a good knowledge of the cost benefit ratio of purchasing X weapon system over Y alternative. My guess is that the subs are some combo of deterrents to China, signaling mechanism of alliance, and corruption/what-lockheed-wanted-to-sell.
And I don’t think Australia wants to go all in on Taiwan. Stationing troops there might be cheap but it could trigger an international crisis and limit their ability to play Scylla off Charybdis.
That’s sort of my point…. Why are we going all in on a weapon system that will starve investment to other parts of the military if we are not committing to the full logic of saying we will defend Taiwan. There are significant concerns that the subs wont be fit for purpose by the time they enter service - and they require the building of a nuclear fuel distribution system from scratch. There are a lot of issues with AUKUS that were not discussed before it was signed.
Good stuff Russell. It would be nice to hear your thoughts on the new Great Taking book. It sounds a bit like conspiracy but it is making waves. The main point is that securities are pooled by Clearing Houses and are no longer owned by the investor, they are owned by the bank & Clearing House. The customer just owns an IOU from the bank and in the next financial crisis the shareholders of stocks will find themselves behind the secured creditors.
This could have been a huge issue, and I thought it was a huge issue - but in practice the clearinghouse have a de facto government guarantee. I dont see anyone allowing them to fail.
Inflation is out of the box in Australia and the current Australian Treasurer has deliberately changed the mandate of the RBA to curtail the latter's ability to clamp down on this inflation - They have changed the mandate to an equal weight for inflation and wages and has given the RBA a specific mandate for financial stability which is code for the RBA printing money to bail out the banks if they get in trouble) The states are running huge infrastructure programs and running up large debts. While the Federal government is running a surplus (due to increased inflation [more GST revenue and bracket creep] and commodity price strength} it has substantially ramped up domestic spending. All of the above is very inflationary. The Australian Treasurer is in denial about the actual reasons for inflation (i.e. RBA QE during covid) and is actually handing out more money to people to offset these cost of living pressures which will add flame to the inflationary fire. The Labour Government is also ramping up minimum wages and public sector wages and has very pro labour/union policies. The cost of living pressure, due to inflation, is however, hurting people and Labour support is weakening, so we may end up with a very close result at the next election.
This is exactly what I expect pro-labour polices to look like. That why I think Australian government bond at 4% yield are a short. Even if labor loses the next election, I would not expect much change from the liberals. Deomcratic governments tend to choose popular policies….
If Labour support weakens then the Greens/ Independents will probably hold the balance of power, with neither the Liberals or Labour having a clear majority. The Greens/Independents are all pushing to shut down new coal and gas development and increase renewables spending which is all inflationary and, in addition, the Greens are pushing back strongly against RBA rate increases (as their main constituency is a young inner city demographic with high mortgages) which is also inflationary.
I think the RBA is frightened to pop the property bubble whereas the UK has nothing but contempt for property owners and actively attacking small landlords. The new RBA governor is interesting and potentially signals a desire for weaker aussie dollar so inflation may be allowed to run hotter there for longer.
Aussie dollar should be alot stronger given Federal Gov Surplus, strong iron ore, gas and coal prices, and a large superannuation saving system. In my view the RBA is deliberately slow walking rate increases and QE run off, so as not to blow up the housing market and keep the labour market reasonably strong, despite high inflation which is resulting in the AUD being a lot weaker than expected.
Probably true - which is why inflation will be stronger than expected. Certainly I feel like prices could rise more here…
On the diversion between the Australian Dollar and Terms of Trade, have you looked into the growing influence of the structural, continuous outflows of capital as Superannuation funds allocate an outsized share of their investments to foreign equities and fixed income?
That is a common argument - is that capital flows have changed, with Australia now a capital provider (hence change in current account etc). Still means if RBA raised rates more, Aussie dollar would rally.
Hi Russell, I’d be curious to hear your angle on investing from an Australian perspective, considering the environment you’ve just described
With yield curve inverted, hard to go past money market at the moment…
I ‘m in the US and have a son who has lived in Australia for over 10 years. He became an Australian citizen, married an Australian girl, and lives on the Sunshine Coast, one of the nicest places in the world to live, in my opinion. I am of Swedish descent, so I am familiar with the quality of life i Scandinavia, Australia, and the US. For years I have called Australia “Sweden at the Beach.” I 100% agree with your assessment of the drift of Australia. People get along and are not at each others throats as they are in the US. The public schools have good International ratings. Kids wear uniforms to public schools and class sizes are small. There are lots of holidays and time off. The roads are good. Blue collar workers (“Tradies”) are well paid. The public services look to be top-notch. Trash is picked up and the countryside is clean (like Sweden). It’s a great place. I’m not encouraging my son to move back.
Hard to see where pro-labour policies are going to come from when looking at each party’s policy platforms. Trade Union membership continues downward, now at 12.5%, there were just 211 disputes in all of Australia in 2023, Martin Place becoming more political and Albanese’s lacklustre industrial relations reforms were token at best, and most certainly the last attempt at it during this term of office. Grassroots politics is also changing as the composition of voters rapidly changes due to huge levels of immigration. New voter blocs have quite different sets of preferences than we’ve seen in Australian politics before but none of them really equate to a set of policies that fix issues such as Australia’s collapse in industrial manufacturing complexity (we now jostle for position in the rankings at 92nd with Laos and Kenya) or the incredible number of invisible taxes now being paid in the form of traffic, hospital wait times (a record 43% of patients spend 4hrs or more in emergency departments in NSW) and lack of school places. Then there is the solvency issues facing many State governments given the perverse political incentives that grants immigration control and taxation benefits to the federal government while responsibility to provide Health, Education, Roads, Police, Fire and Ambulance services falls on State governments. All of this while households have the 3rd highest debt to disposable income ratio in the world. I struggle to see where the next wave of industrial relations reforms come from or the policies that actually address these issues - and while coffee might be cheap compared to London, Albo is being killed right now because cost of living is by far the biggest issue facing voters.
I think there are always problems to be dealt with. This is the nature of the human condition. But I just can’t get over high quality life in Australia is. One example is the cricket. Last time I went to the SCG was back in the 90s for ODI. Basically we dodged fights almost non-stop on the way in and way out. And to be honest - i thought nothing of it, used to the craziness of Friday nights in pubs. Went to the big bash at the SCG, and just staggered by the quality of the infrastructure, but also the tolerance of authorities to drinking. The 5 guys next to us downs 8 cans Jack Daniel and Coke at least! UK makes it hard to buy that much booze…. And then on to light rail to get back to Randiwck - fantastic!
Al this, and the federal government running a budget surplus? Seems good to me…. And with the prospect of a potentially booming India buying Australian commodities and services going forward…. Seems like the lucky country to me.
The question is what do you compare with - an ideal or other countries. Sure, compared to an ideal we can find Australia wanting, but I don’t see too many exciting alternatives- so it’s really a glass half empty/half full discussion
I think this read of yours on the Aussie strategy with the US and China is where I disagree with you the most. China is a threat to Oz not as an invader but as a coercer. China is closer to Australia and more economically intertwined with it than the US ever will be. At the very least it should take submarines from the US and money from the Chinese similar to India. Isn’t this the best policy? To balance the great powers. But the reality is China is a threat to its independence in a way the US never will be. I think you’ll also find overwhelming support for alignment with the US in the population. Keating is kind of a Gerhard Schroeder. Bought and paid for.
Sure - I think resisting Chinese influence is a good policy. You can buy a lot of influence with USD 300bn - which is my point - why spend it on submarines? Want to make a real impact? Station an Australian army brigade in Taiwan. Cheaper, quicker and probably more effective - and absolutely transparent in what it aims to do - unlike AUKUS.
Admittedly I don’t have a good knowledge of the cost benefit ratio of purchasing X weapon system over Y alternative. My guess is that the subs are some combo of deterrents to China, signaling mechanism of alliance, and corruption/what-lockheed-wanted-to-sell.
If you are really into Australian foreign policy you should talk with Tom Switzer. He’s an old friend from his days in DC. Here’s his take on the Australia/China relationship: https://www.afr.com/policy/foreign-affairs/we-cannot-rebuild-trust-with-china-20210715-p589xy
And I don’t think Australia wants to go all in on Taiwan. Stationing troops there might be cheap but it could trigger an international crisis and limit their ability to play Scylla off Charybdis.
That’s sort of my point…. Why are we going all in on a weapon system that will starve investment to other parts of the military if we are not committing to the full logic of saying we will defend Taiwan. There are significant concerns that the subs wont be fit for purpose by the time they enter service - and they require the building of a nuclear fuel distribution system from scratch. There are a lot of issues with AUKUS that were not discussed before it was signed.
Good stuff Russell. It would be nice to hear your thoughts on the new Great Taking book. It sounds a bit like conspiracy but it is making waves. The main point is that securities are pooled by Clearing Houses and are no longer owned by the investor, they are owned by the bank & Clearing House. The customer just owns an IOU from the bank and in the next financial crisis the shareholders of stocks will find themselves behind the secured creditors.
https://thegreattaking.com
https://rubino.substack.com/p/great-taking-part-2-more-heavyweights?utm_source=%2Finbox&utm_medium=reader2
This could have been a huge issue, and I thought it was a huge issue - but in practice the clearinghouse have a de facto government guarantee. I dont see anyone allowing them to fail.
Inflation is out of the box in Australia and the current Australian Treasurer has deliberately changed the mandate of the RBA to curtail the latter's ability to clamp down on this inflation - They have changed the mandate to an equal weight for inflation and wages and has given the RBA a specific mandate for financial stability which is code for the RBA printing money to bail out the banks if they get in trouble) The states are running huge infrastructure programs and running up large debts. While the Federal government is running a surplus (due to increased inflation [more GST revenue and bracket creep] and commodity price strength} it has substantially ramped up domestic spending. All of the above is very inflationary. The Australian Treasurer is in denial about the actual reasons for inflation (i.e. RBA QE during covid) and is actually handing out more money to people to offset these cost of living pressures which will add flame to the inflationary fire. The Labour Government is also ramping up minimum wages and public sector wages and has very pro labour/union policies. The cost of living pressure, due to inflation, is however, hurting people and Labour support is weakening, so we may end up with a very close result at the next election.
Sorry I should have written ëqual weight for "inflation and unemployment" rather than "inflation and wages"
This is exactly what I expect pro-labour polices to look like. That why I think Australian government bond at 4% yield are a short. Even if labor loses the next election, I would not expect much change from the liberals. Deomcratic governments tend to choose popular policies….
If Labour support weakens then the Greens/ Independents will probably hold the balance of power, with neither the Liberals or Labour having a clear majority. The Greens/Independents are all pushing to shut down new coal and gas development and increase renewables spending which is all inflationary and, in addition, the Greens are pushing back strongly against RBA rate increases (as their main constituency is a young inner city demographic with high mortgages) which is also inflationary.
You lost me with the first line, Brazil of Cricket. You don’t remember the Ashes obviously. More like the Arsenal of Cricket.
Hmmm cricket world cup?!?
🤣 50 over cricket, good one.