Inflation

[over9k]

China's reducing some of its covid curbs. They're starting to break.

Remember that we're heading into winter in the northern hemisphere too - reduced energy demand but cold wrecking russian supply.

 

[over9k]

Overnight index swaps are now showing a much lower terminal rate. Markets are VERY confident in fed tapering now. Take that for whatever you think it's worth.

 

[over9k]

Lots of this type of exuberance now. My thoughts are that it's... optimistic.

 

[mullokintyre]

My thoughts are it is plain old ramping.
The US, as is so many other countries (and possibly Australia),are heading for a recession.
Whatever levels the bourse jumps too just means the higher the levels of pain when it overcorrects.
Mick

 

[waterbottle]

View attachment 149107

Lots of this type of exuberance now. My thoughts are that it's... optimistic.

Yep, might be jumping the gun. Market has definitely done this before (see Jun to Aug), only for JPowell to come out and say they're sticking to their plan - and rightly so, cpi is still 7.7%.
Having said that, we could see the hikes decrease in size. 50bps may be the next move which will also boost markets.

 

[over9k]

Yep, might be jumping the gun. Market has definitely done this before (see Jun to Aug), only for JPowell to come out and say they're sticking to their plan - and rightly so, cpi is still 7.7%.
Having said that, we could see the hikes decrease in size. 50bps may be the next move which will also boost markets.

Yeah, that's my thoughts too - taper brought forward by a quarter or something. A halt seems seriously unlikely.

 

[InsvestoBoy]

GBP's well on its way to parity and AUD at 50 U.S cents will probably be the next domino.

Anything is possible but the dollar sure does seem overbought here.

Nothing goes up or down in a straight line.

What are you basing this on?

? if you peer close enough you can see it
View attachment 147490

Technicals? In this environment?

?

 

[sptrawler]

I wonder if the New Zealand experience, is going to be duplicated here?

ANZ: New Zealand house prices to "fully unwind"

ANZ Bank has released research tipping that the Reserve Bank of New Zealand (RBNZ) will have to lift the official cash rate (OCR) another 1.5% to a peak of 5%. ANZ has based its aggressive OCR forecast on the nation’s ‘wage price spiral’, which has caused “significant upside risk” to the...

www.macrobusiness.com.au

 

[mullokintyre]

I wonder if the New Zealand experience, is going to be duplicated here?

ANZ: New Zealand house prices to "fully unwind"

ANZ Bank has released research tipping that the Reserve Bank of New Zealand (RBNZ) will have to lift the official cash rate (OCR) another 1.5% to a peak of 5%. ANZ has based its aggressive OCR forecast on the nation’s ‘wage price spiral’, which has caused “significant upside risk” to the...

www.macrobusiness.com.au

It will be interesting if some of the other NZ stats are replicated here.
From Interest.co.NZ

“Previous patterns of seasonal price movement for fruit and vegetables suggest it’s more typical to see a larger fall in fruit and vegetables for the October month,” Growden said.

The monthly price rise was broad-based, with increases seen in 125 of the 162 items Stats NZ measures. In October 2021 they only saw price rises in 82 of the items measured, with the other 80 all falling.

Monthly food prices were +0.8% higher in October 2022 compared with September 2022. After adjusting for seasonal effects, they were up +1.8. Fruit and vegetable prices fell -5.2%, but after seasonal adjustment rose +1.3%.

Food prices were 10.1% higher in October 2022 compared with October 2021, Stats NZ said today.

“This was the highest annual increase since November 2008,” consumer prices senior manager Nicola Growden said.

In October the annual increase was due to rises across all the broad food categories measured.
Compared with October 2021 grocery food prices increased by +9.7%, fruit and vegetable prices increased by +17%, restaurant meals and ready-to-eat food prices increased by +7.5%, non-alcoholic beverage prices increased by +8.7% while meat, poultry, and fish prices increased by +10%.

“Increasing prices for barn-raised eggs, cheddar cheese, and two-minute noodles were the largest drivers within grocery food,” Growden said.

Potatoes, bananas, and cabbages influenced fruit and vegetables prices the most.

The month on month increases as shown on the chart below do not show signs of tapering.



Mick

 

[Value Collector]

My thoughts are it is plain old ramping.
The US, as is so many other countries (and possibly Australia),are heading for a recession.
Whatever levels the bourse jumps too just means the higher the levels of pain when it overcorrects.
Mick

A recession doesn’t really affect the actual long term value of a good company that much, I mean when you are valuing a company you kinda factor in a recession or two every twenty years anyway.

But, so many high quality companies are already trading a values that are low, so a recession is already factored in IMO.

Take a look at Disney for example, it’s now trading at what it was during the covid pandemic when it’s theme parks were literally shutdown and no cinemas were open.

In fact Disney is was $200 in November 2020, it’s $95 now, and the theme parks are open now and booked out, it’s hotels are full, it has two extra booked out cruise ships, etc etc.

I can tell you I would rather a recession any day, than a pandemic.

Of course people do over react to recessions, and share prices crash, but the actual company values of the good companies doesn’t change much, and as we have seen there has already been large falls/ over reactions.

 

[sptrawler]

Of course people do over react to recessions, and share prices crash, but the actual company values of the good companies doesn’t change much, and as we have seen there has already been large falls/ over reactions.

Yes it all depends on your personal situation, I've lived through plenty of recessions, when you are young and trying to climb the ladder it is hard, when you are set up and have a secure income stream it is easy.
Just depends where you fit in to the scheme of things.
I'm fortunate enough to have been through most scenarios, so can appreciate the difficulties and it is just as hard for those who have worked hard for what they have gained and lose it, as it is for those who are struggling to start the climb up the ladder.

 

[Value Collector]

Yes it all depends on your personal situation, I've lived through plenty of recessions, when you are young and trying to climb the ladder it is hard, when you are set up and have a secure income stream it is easy.
Just depends where you fit in to the scheme of things.
I'm fortunate enough to have been through most scenarios, so can appreciate the difficulties and it is just as hard for those who have worked hard for what they have gained and lose it, as it is for those who are struggling to start the climb up the ladder.

Oh yeah, it can definitely be hard for people on a personal level if they lose their job, or can’t get enough business etc or are not setup to survive high interest rates.

but, I was nah my referring to long term company valuations, let me give you an over simplified example.

Eg, Let’s say a company has a fairly stable business, and pays $5 a year in dividends, if on average the market wants a 5% return over time it’s worth $100 per share.

Now let’s say a recession hits and it’s dividends are going to drop to $2.5 for the next 2 years, before returning to the $5 that the $100 valuation was based on.

That 50% drop in dividends for two years only really lowers the companies valuation by less than 10%.

So if the market drops in value by 20%, it’s an over reaction, seeing some companies drop by 50% and then still expecting larger drops just because a “recession” might come is of course a huge over reaction.

Now ofcourse huge market drops to happen, but they should be something to take advantage of, not fear or let spook you into inaction.

 

[JohnDe]

A timely reminder, be wary of people yelling at clouds -

The reality gap between gloomy sentiment and reality of wider economy is captured perfectly in the debate around bank shares

Sometimes the figures don’t square with the mood on the street. For investors, that reality gap between gloomy sentiment and reality of resilience in the wider economy is captured perfectly in the debate around bank shares that goes something like the below.

Q: Should I sell my bank shares?

A: Why would you do that?

Q: Because, you know, isn’t there a recession coming?

A: Actually, there is reason to believe we won’t have a recession.

Q: Well, what about the housing crash?

A: Crash? House prices are down 7 per cent from the peak. That’s not a crash

Q: Yes but mortgage stress? It’s going through the roof.

A: No, it’s not – mortgage delinquencies rates in the banks just went lower, not higher.

Q: Huh, what planet are you on?

This week we had results from both Westpac and NAB and On just about every measure you can find banks are doing well.

The average return on equity across the sector is 10.6 per cent; That’s the ultimate test of a stock’s value and the banks are beating it out of the park. CBA still leads on an ROE of 12.7 per cent but NAB is catching up with 11.7 per cent.

Most of the key items everyone looks for in bank stocks were either flat or better than expected. Costs – reflected in cost to income ratios were steady near 50 per cent. Margins were also steady but importantly showed signs of expanding in recent months.

As for mortgage stress it is – as yet – nowhere to be seen.

I know this sounds unbelievable but it is simply not there in the books. Mortgage delinquencies on 30 day or 90 day ratios actually improved.

The so-called “impairment ratio” at every one of the big four banks – ANZ, CBA, NAB and Westpac – was lower this year than last year.

Better still, the sins of the past are finally being absolved: remediation costs – expenses relating to the appalling behaviour of banks at the time of the royal commission – are fading away.

In fact, the banks can’t get into that particular sort of trouble again because they have exited that line of business by selling off a string of wealth management units.

Of course, this year’s bank results do not tell us what next year’s results are going to be like – but they tell us the banks are in remarkably good shape.

KPMG head of banking Steve Jackson calls the outlook for banks both uncertain and challenging but as for their financials he says: “The banking majors realised more normalised and positive results across the year.”

Now here’s a thing – if a stock sector was about to sink then we would see share prices sinking ahead of the actual numbers. Look at the resources sector – Rio was $120 a share earlier this year now its hovering near $100.

Then take a look at Commonwealth Bank – the proxy or the bank sector – it is trading at $105 – up 12 per cent in the last month – and testing its 2021 high near $110.

Australian bank stocks continue to pay generous fully franked dividends of 5.6 per cent. Compared to past downturns they now depend on their own customers for funding and they are operating on payout ratios near 70 per cent which signals dividend payments are not in any danger.

This is not to say the banks won’t have a tougher period ahead. Neither should we underestimate the difficulties of mortgage stress when it appears. But it is an ill-defined phenomena which gets exaggerated in the wider media.

Random surveys from companies with an interest in refinancing loans that suggest people are ‘losing sleep’ over rate rises is not mortgage stress.

Every economic cycle has a different flavour. We are clearly heading for a slowdown – where GDP growth may crawl along at less than one per cent.

But a recession?

There are very strong reasons to believe we will – yet again – sidestep negative economic growth. In tandem there are very good reasons to believe we will sidestep a big sell off in bank stocks.

Consumer confidence might be weak, but business confidence is exceptionally high along with the linked issue of business investment plans. More jobs should sustain low unemployment.

High household debt does not mean households will not pay their mortgages when they become due. We also have continuing evidence that bank customers are ahead on mortgage payments

In short it looks very like the issue of mortgage stress – and the bank sector’s exposure to a housing downturn is being overplayed.

The issue that may be underplayed is cyber security risk. The banks are understood to have the most sophisticated IT security systems in the market. They run regular drills on how they would respond to a cyber breach.

We have never had such an incident. The worst thing so far was Westpac’s run in with Austrac over money laundering and that cost $1.3bn.

But a Medibank-style attack on a bank would surely be the ultimate prize for hacker gangs and the share price response to such an event is hard to imagine.

For the record, the Medibank Private share prices has fallen about three times as much over the year to date as the wider market: 18 per cent against 6 per cent.

No wonder it was a banker – NAB boss Ross McEwan – who has gone on the front foot over potential solutions to how corporate Australia deals with this toxic issue.

NAB rejected out of hand the notion of government penalties where businesses could face fines for breaches representing 30 per cent of turnover. He also asked the entirely sensible question of why on earth they most hold onto customer data for seven years/?

There are no clear signals we are heading for a recession and as a direct consequence there are no convincing signals that bank stocks – the backbone of Australian investor portfolios – are heading for trouble.

If you want to worry about your bank shares, save yourself the bother over mortgage stress and worry about Russian hackers instead.

 

[Belli]

A timely reminder, be wary of people yelling at clouds -

Generally happens when you are continually fed a diet of bad news and also go actively looking for it.

Tends to be white noise in the main and I have found if able to put it aside and continually invest with available funds, it'll be fine. Also depends on the focus mine being income rather than price movements. Back of the envelope calcs indicate that to date I have received some 60% income compared with the 2022FY total income. Haven't check the prices of my holdings for a couple on months. They go up, they go down, they may go sideways or they may do a double backflip with pike for all I know.

Of course it requires not spending all the income received and available funds means those you never have to withdraw from the market.

I think it helps not being a cat on a hot tin roof jumping from one thing to another merely because, like you know, you can.

 

[over9k]

So have you guys bought into the banks then?

 

[JohnDe]

So have you guys bought into the banks then?

I had been up until recently specifically MQG, doubt I'll buy or sell for quite a while. Was holding one of the traditional banks which I picked up during the Covid crash, sold recently to fund a property investment.

 

[divs4ever]

So have you guys bought into the banks then?

not me

since August 2022 i have been buying small and smallish parcels in

August - REP , BKL , BEN ,ABC , HLS , while exiting OGC ,

September - REP , LNK , CAM , RND , EAI , GPT , CMW and EVN,

October - RND , TWR , EVN , HLS , ABC , LNK , PAI , while reducing WHC

November - CMW and QVE ( so far )


my top ten holdings as of the beginning of the month

( by $value )

1. MQG. ( 'free-carried ')

2. PME ( 'free-carried ' )

3. APE ( at reduced risk )

4. CMW ( at full cash risk )

5. WES ( at full cash risk )

6, NHC ( at full cash risk )

7. BHP ( some profit taken )

8. JHG ( at full cash risk )

9. CDM ( at full cash risk )

10. FMG ( at full cash risk )

with GRR ( at full cash risk ) very close behind

i started and stopped buying MQG back in 2011 , and reduced ( 66% of the holding ) after the SYD divestment , but still fully participate in the DRP

and CMW moved into 3rd over-taking APE during the month ( partly as a result of the buying )

 

[over9k]

I don't see things changing based on one batch of CPI data either.

 

[over9k]

Futures now deep into the red with the ndx the worst.

How surprising (not).

 

[divs4ever]

well traditional thinking is , that official interest rates should be above the CPI for a while ( maybe a year or two )

i have seen analysis that claims that Volcker was lucky ( not the successful strategist others call him )

i guess we are looking at an attempt to hike rates above the CPI without causing the consequences Volcker encountered

maybe this time they powers that be will try a combination of stealth taxes ( import tariffs ) and a series of small rate rises ( so the rate doesn't exceed the CPI rate)

personally i don't see how this will work , looks like i am in for an education