Scala Private Wealth Beyond the News: Australian Policy failure, August 2021
Australia just had the biggest policy failure since 1788. And not just at federal level.
The Liberals and PM Scott Morrison failed in understanding that you cannot isolate a country, especially after decades of dismantling any manufacturing business.
They failed the oldest grandmother test (don’t put all your eggs in one basket) betting everything on a single untested vaccine.
They failed in being honest and admitting their fault.?
They failed in lying when the vaccine online booking system says “vaccines will be administered in accordance with Government guidelines” and if you do not call you find that you will be always given the Astra Zeneca.
The Labour State Government has a myriad of failures, written in too many newsletters.
The latest one is why continuing AFL and Rugby games with a supposedly scary Delta variant around and at the same time putting hard patrons cap in smaller venues and art exhibitions??
And again, lying. Premier Andrews always says that the Delta variant is an uncontrollable monster.?
The truth (20.7.21) 7,822,576 tests conducted of which 0.3% positive – 81 people of which 1 in hospital and zero in ICU. This even has 2 positive cases from the MCG with 15,000 fans.
Two of the worst parts are:
-?????Even in a disaster, the two political sides are concentrating on blaming each other with no one rising above for the good of country and its people.
-?????The messaging is very “penal colony” style – aggressive and scary – none of the compassionate positiveness that a father figure that cares should show. Yes, probably they do not care, unless their position is threatened by an election.
The Australian GDP has been hit because of these failures and has already nullified the Federal Government Budget statistics for May. GDP could potentially turn negative, with the Westpac chief economist indicating a -0.7% (-3.1% for New South Wales) while Morgan Stanley in a later review indicated -1.2%.
The hit on small businesses is immeasurable.
The hit on mental healthcare is so extensive that in Sydney most of the psychologists have no availability until 2022.
An utter and complete failure. In comparison to these failures, other countries (Italy, France, Germany) saw the rise of alternative parties. Most were not much better – but at least an alternative.?In Australia, there is no one to challenge the incumbents. Maybe this is the biggest disgrace, together with instead of coming together as a nation we are showing massive partisanship.?A Prime Minister that clearly privileges New South Wales and Premiers that are squabbling between themselves to score political points.
Vaccine and Covid-19 data
Some investigative journalists in Italy, Paolo Becchi and Nicola Trevisan, analysed thoroughly the English data on the infamous Delta variant from 1 February 2021 to 21 June 2021.
On 50,283 cases (28.8% of all cases) there were 117 deaths (0.12%) and 11,250 with medical attention (not hospitalization) for over 30 days. Lethality was at 0.001% under 50 and 1.14% over 50.
Only 26.6% got Covid-19 with 2 doses (33.5% with one dose). Only 10% of vaccinated under 50s had an emergency care visit (the degree of severity is unknown).?
So the vaccines work and also remember that in 2019, the year before the pandemic, 705 people died of influenza in 2019 in Australia. In 2020, in Australia it killed 914 people. In 2021, four people died.
While Covid-19 is still dangerous, it is becoming more like a flu. Nobody locked anyone down due to the flu.
In Victoria data looks suspicious. Two persons were at the AFL with 15,000 while contagious with the “terrible” Covid-19 Delta variant in our government’s opinion. While data is not clear, in the subsequent days there were between 6 and 20 cases. Even if they were all linked to the AFL (which they were not) it would be a 0.0013% infection rate in a max spreading event.
Second China-USA meeting
After the first Alaska meeting that ended up in insults, there has been a new meeting. Also, this meeting went badly with China demanding unconditional lifting of all VISA restrictions and other conditions. All Western media were barred from the media. No potential Biden-Xi meeting was discussed.
USA
The US is slowing down from peak growth, but the economy is still going well. Plus the “terrible” Delta variant does not seem to affect spending – in July retail has been strong, infrastructure plans are still heading in the correct direction and more stimulus is coming.?It is simply slightly slowing from its manic growth. The exit from Afghanistan is an utter disaster, but the US needs to redeploy its forces against China.
The Delta variant is posing an issue especially as there are large parts of the population, especially in the “Bible Belt”, who are refusing to get vaccinated.
The Democrats hope for a bipartisan infrastructure bill, but they also want a separate reconciliation bill focussed on Democratic agendas.
Again, we are reaching the Debt Ceiling issue and the Fed is looking to communicate how it will taper its Quantitative Easing and reduce the stimulus. Always dangerous talks for the market.
European Union
US and Germany agreed to the Nord Stream 2 Pipeline – a gas pipeline that brings Russian gas to Europe by passing Ukraine. This is a highly suspicious move – it is not clear what it does preclude, but it is a politically charged matter. It could well show an “independence status” to the rebel provinces in Ukraine or a Ukrainian shift towards China. There is more than shown.
Theories include a US realisation that they cannot stop an easy pipeline of energy from capital starved Russia to energy starved Europe or a subtle reconciliation with Russia against a Chinese threat. Almost a reverse of what happened in the periods 1950-1960 where from an almost state of war (Korea, 1952 – Taiwan -1954 and 1958), the US in 1960 became friends of China with the Sino-Soviet split. One of the greatest US diplomatic victories.
Lithuania is the first European country to recognize Taiwan and open a Taiwanese embassy, angering China.
Europe is introducing a Green Pass where people must have a vaccination pass to do most things like go to restaurants, holiday etc. There are massive protests about it. For sure the same will happen in Australia as soon as the vaccine rollout issues will end.?
Analysis from Italian data shows that only 1% of the vaccinated got hospitalized or died.
United Kingdom
The UK is holding the greatest Covid-19 experiment in the world, as the population is vaccinated the UK reopens as per normal life.
The jury is out there. While the media are focussing on the extremely high numbers of Covid-19, very few notice that the death and hospitalization numbers are very low, especially in the vaccinated cohort. Not too dissimilar from the flu.
One side effect has been the “pingdemic”. When the NHS’s contact-tracing app ‘pings’ a worker that they had Covid-19, the worker has to stay at home in isolation, creating some serious labour shortages.
At the moment, the Covid-19 infections are decreasing rapidly. Everybody is trying to understand if it is due to the vaccines (70% of population has 2 doses) or something else.?
Middle East
In Iran, the hard liners won and now it will be harder to come to an Iran/USA nuclear solution. Syria is still in a frozen war conflict, but the Russian-supported Syrian government is now a fact.
Israel continues its double strategy against Palestinians and opening to Arab countries – there are the first direct flights between Israel and Morocco. There are always skirmishes with Iranian proxies.
Afghanistan has pretty much fallen into the hands of the Taliban. Taliban are looking to Turkey as its first friendly nation.
Yemen is still in a state of never-ending war.
China
China is a tale of two stories. On the surface it is the champion of Covid-19 which has been treated as history – if you can believe the government. On the other side, uniquely in respect of the world, China went to accommodative stance (while US, Australia and Europe are thinking how to decrease the stimulus) showing that the economy is slowing down.
领英推荐
The China war on tech gives no sign of letting up – this time it targets for profit education companies leading losses across the sector of about 60%. This issue can easily snowball and create a global issue like in January 2016.
Why it is happening no one knows, but if you are interested, please read this article
The biggest headache for China is not, yet, tech – but property. Evergrande is the biggest property developer in China, and up to three years ago of the world. Evergrande shares are plummeting and its bonds pointing at bankruptcy. The Chairman Hui is still a Party man, but next year over 2 billion will have to be repaid and Evergrande has over USD300 billion in debt with projects in 225 Chinese cities. The Chinese government is in a quandary – save the group and condone the behavior fueling more speculation or make an example and risk a systemic event. And the situation is made worse as China’s bond defaults are piling up at the fastest pace on record. It is still a tiny fraction of the total Chinese bond market and mostly imply that the tacit “Government guarantee” does not exist anymore. But as the FED showed us in 2008, errors can happen.
My thoughts on China
My thoughts on China are quite different from the rest of the world. Since a few years ago, I thought that China will implode (or start a war, as a distraction) before taking over the US.
Some issues:
-???????Technology developments require a level of freedom that is incompatible with dictatorship;
- ??????Confidence in the State among business and citizens is paramount for the society to strive. Ask yourself: how can you decide to spend or consume more or make more children when anything can be taken from you in an instant?
- ??????It is a society that thrives on perpetual stimulus and that hides issues.
When will this happen? President Xi is now 68 years old and, as many emperors, will become more and more irrational with age, but the Party has a lot of levers to pull. China will have an issue when, due to President Xi’s age, a new leadership will come up. At the moment, there is no one – the young have been eliminated and the other people in power are much older than President Xi.
Market Update (29 July)
Towards the end of July, we saw some market fast correction and the media attributed it to the Delta variant. It is wrong. Stimulus is still coming in and vaccines have been shown to be highly effective in preventing hospitalization and deaths. So what happened? The reality is that there is a slowdown on growth and seasonality that coincides with the typical mid cycle transition to more defensive positioning (consumer staples, healthcare, utilities for example). The SP500 behaviour is similar to that in 2004 where after a mad rally until April there was a “weaker choppiness” until October. The weakness should be in August, also as market breadth is bad (new shares making new highs) and volume of the market is quite low.
What could be the cause of a correction? Impossible to say – but there are a few outliers in the market:
-???????Delta variant;
- ??????US Debt Ceiling and winding down of stimuli;
-???????The “Chinese tech crash” could extend to the West like it happened in 2015 – the US had a 2-month delay;
- ??????Seasonality as August and September are usually the worst months for the market; and/or
-???????The fact that some shares fell after good earnings is a bad omen.
Meanwhile, we just exited the China trade which now is in the grip of a meltdown due to the regulatory crackdown. We suffered some losses – but we avoided bigger ones. Now the risk is that this malaise could spread to the West.
If it does, it could be short and sharp. There are USD700 billion cash on the side-lines invested in money markets. A lot of Western managers are pulling out as China is becoming not investable and money will have to be reallocated.
Financial Planning regulatory costs and price increases.
While I am trying to keep the fees stable, regulatory costs are always increasing.
The ASIC financial planning levy increased from $907 in 2018/2019 to a current predicted $3,318 in 2021.
These levies go directly to finance ASIC litigation costs – mostly against the big banks.
The new compensation scheme of last resort will be another $850 per adviser circa. It does cover also product failure issues that should not be an adviser issue.
The Professional Insurance has increased circa 50% year on year.
This is on top of new educational costs and the new compliance regime that oblige them to report even minor breaches.
The government for all it says that they want affordable advice for all Australians, is trying to have all Australians, apart the wealthy, be an industry fund client.
Based on AFCA (Australian Financial Complaints Authority) data, only 1.4% of complaints were about financial advice - the vast majority were about insurance products and product manufacturers.
A lot of the issues are related to the Royal Commissions findings which already have been addressed (font Money Management).
Consequently, prices are rising for consumers. A research from CoreData showed that in 2021:
-???????52% of advisers increased the initial Statement of Advice fee and 47% intend to increase it by the end of the year.
-???????46.1% of advisers have increased their fee for ongoing advice and 30.3% plan to increase it by the end of the year.
The majority of the increases are approximately 10%.
A pattern of fear - conspiracy theory
If you look at the data from afar, the governments are creating a pattern of fear – almost similar to the 007 Spectre organization.
In 2001, there was the 9/11 terrorist attack and the subsequent years of terror induced fear. Most people were happy to give away their privacy to feel protected.
As soon as Al-Qaeda and its derivative ISIS got defeated (March 2019), in 2020 appears Covid-19 for which people are giving away their freedom to be anywhere they want to feel protected.
I am already seeing the “evil Chinese empire” as the next fear mongering monster.
007 Spectre, anyone?
50 Years Ago
In 1971, the Lamborghini Countach was presented to the world with 375bhp. It was the ancestor of all current hyper cars in a world where most cars were box shape and the ultimate Mercedes SL had just 225bhp.
The Countach is the only Lamborghini not named after a racing bull in Lamborghini tradition – “Countach” apparently was the expression in dialect (equivalent to OMG) that the designer, Marcello Gandini, used when he saw it in the flesh for the first time.
A Joke
A local bank is trialling an ATM built into a tree. If successful, they might expand to other branches!
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