Consumers are a grumpy bunch. Even though anyone who wants a job can find one, and inflation is falling, sentiment surveys show consumers have been more miserable during the past two-and-a-half years than at any time in at least three decades, with the exception of COVID and the global financial crisis (GFC). The good news is that the mood is improving, slowly, according to the Westpac-Melbourne Institute Index. It is important that people have hope for the economic future, because if they do, they are more likely to spend money, and that is good for the economy. It becomes self-fulfilling. The consumer sentiment survey shows just how important interest rate expectations are to people. For the period of consumer misery, rates were rising, or there were threats that they’d rise. (Keep in mind that interest rates today are still lower than they were before the GFC.) The pick up this month coincides with a big shift on consumer views about rates. People think they are going to fall, even if the Reserve Bank says it's unsure whether the next move is up or down. Just the fact that people think rates will fall either this year or next is enough to pick up confidence, and presumably get people spending money. Without even moving on rates, the Reserve Bank has orchestrated a shift in attitudes among consumers. Well done.
2. Get set for a wild ride from resources companies
Mining stocks are going to be great to watch over the next couple of years, especially if you are an Australian investor. First and foremost there’s the growth trajectory of China. Australia sells about $220 billion worth of goods and services to the world’s second largest economy each year. That’s one-third of all our exports. If China does well, so too do Australian exporters. Beijing has announced a bunch of stimulus measures that have helped push commodity prices, including the all-important iron ore price, higher. But that hasn’t stopped the World Bank from downgrading its forecast for economic growth in China to 4.3 per cent next year, which is way below historical norms. Second is the economic cycle. If developed and developing economies manage a soft landing, demand for commodities will hold up. It seems to be the case in the United States. Third, and this is the most interesting part, is the takeover activity going on. This week it emerged that Rio Tinto was preparing to bid up to $9 billion for Arcadium Lithium, a major global player listed on the NYSE and ASX, which is likely to produce about five per cent of global lithium supply next year. Lithium prices are in the toilet, and unlike a couple of years ago, it is not the mineral of choice (that’s copper). But lithium remains crucial for the energy shift, and low prices trigger corporate activity. Rio will probably have to offer more to get Arcadium, and it might. There will be plenty more corporate activity in the sector in coming months.
3. A lack of political courage is hurting future generations
Fixing the tax system, on paper, isn’t that hard. Reduce direct taxes on income earners and corporates. Increase and broaden the GST. Tax carbon emissions, windfall profits of big companies and land. And cut out, or reduce, concessions for the rich and middle class such as capital gains tax concessions and negative gearing. The big problem over the past 20 years is that the only tax to keep up with economic growth has been income tax, and that’s via bracket creep (or fiscal drag). I hate how much tax (and superannuation guarantee) I pay each month. With tax reform, it wouldn’t be the case. Big reforms of the Hawke-Keating and Howard-Costello governments are hard to remember. The problem is fixing the tax system in the current political climate is impossible. There isn’t even a hint of bipartisanship on reforming what will cost future generations trillions of dollars. At the moment, the government can’t even suggest changes to capital gains tax concessions, lest a scare campaign emerge from the Opposition. Neither side of politics has any courage on tax reform. It’s a blight on our political leaders.
4. Hydrogen - the great disappointment
Transitioning to cleaner energy is hard work, and notwithstanding all the grand plans of government and business, we aren’t doing a very good job of it. Hydrogen is part of the answer, though that has taken a hit in the past week. Origin Energy said it is exiting its existing hydro ventures, including its Hunter Valley Hydrogen Hub which had been in line to get funding from the federal government. In July, Fortescue dropped plans for green hydrogen production. The problem is the technology doesn’t yet exist, and the expense is enormous, to ensure hydrogen is both clean and usable. The Albanese government is all for it and has committed to a $2-a-kilogram subsidy for hydrogen producers under its Hydrogen Headstart program, along with $6.7 billion in production tax credits. The government says Australia has the largest pipeline of hydrogen projects of any country in the world, with an estimated value of $225 billion. But how many of them are going to eventually produce clean energy? The clean energy sector is becoming notorious for big announcements with little end result, and hydrogen is at the forefront of disappointments.
5. The tech barons are too rich
Eight of the top ten richest people in the world made their money in technology. Tesla’s Elon Musk is richest, worth $US256 billion. That is about the annual GDP of the country of Portugal. There’s a new number two - Meta’s Mark Zuckerberg, worth $US207 billion. Amazon’s Jeff Bezos comes in at number three, worth $US204 billion, according to the Bloomberg Billionaires Index. The eight individuals have made a total of $US263 billion extra so far this year, or about $US33 billion each. The two non-techies in the top ten are LVMH owner Bernard Arnault, who has lost more than $US10 billion this year, and legendary investor Warren Buffett, who has made $US21 billion. The tech barons are getting absolutely and relatively richer. This isn’t a good thing. Elon Musk is everything good and bad about the rich. He is incredibly successful, having reinvented the automobile industry and recast the space industry for the better. He is also a narcissist who uses his wealth to further his own ambitions with little regard for others, as demonstrated by his unbridled support for Donald Trump and seeming contempt for the laws of many countries, including Australia. Is the rise of the tech barons a good thing for society? I don’t think so.
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How much should you spend on renovations? Are there certain rooms that'll give you more bang for your buck? Or does it all depend on whether you're renovating to live in, to sell, or to keep as an investment? All of these questions and more are answered in the latest episode of The Property Pendulum, presented by Domain and Fear & Greed.
"If a government needs - for example - $100 million to run, what difference does it make how it receives its income? What are the benefits to the economy of tax reform?"
AND ONE LAST THING...
This week former UK Prime Minister Liz Truss was a guest of Opposition Leader Peter Dutton at Parliament House in Canberra. Ms Truss was ousted as PM in 2022 after just 49 days, following a disastrous economic plan that saw the pound fall to a 37-year low.
Which brings us to the lettuce. In the days before her departure, a British tabloid newspaper started a live stream of an iceberg lettuce, to see whether it would outlast the Prime Minister. It did - and just this week, this plaque was installed outside the Tesco supermarket where the iconic lettuce was apparently bought.
