Afternoon all,
Some complaints last week that it was all business and no pleasure so in honour of the G20 Summit in China it’s time to lift the lid on a little-known Chinese Summertime tradition: The Beijing Bikini.
This is not a drill….
This is not a drill….
The New York Times covered it last week and for more information here’s a link. Follow Link Here
The phenomenon has been going on for some time and is colloquially referred to as “bang ye,” which, according to the Times, roughly translates to “exposing yourself like a grandfather.”
I repeat, this is not a drill…
We hope Malcolm Turnbull has managed to beat the heat on his away mission and avoids embracing too many of the local customs.
Speaking of Heat*
Our PM made the record books last week for leading the Government to the first House of Reps vote loss of a Majority Government in five decades.
I’ll put that a little more clearly: Majority Governments don’t lose votes in the House. The last time was 1962.
Then Thursday afternoon came along and Labor became wise to the fact up to eight Liberal MPs had gone AWOL. Eight!
Labor sprung with that incredible ability to organise and mobilise that all Laborites learn in University and used it to call for a Banking Royal Commission. No big deal, really.
Crisis was narrowly averted but our Banking System was almost thrown under the bus because a few Members had decided to check out early and head home.
In summary: We’ve not had a functioning Government for a quarter of a year. They return to work and in the first week manage to drop the ball. It will be a long few months ahead. We deserve better than this. More importantly our Credit Rating deserves better than this…
Back to the Capex…
A theme I have been discussing over the last month which has been concerning me is that of Australian Capex Investment. It has been a theme underlying much of the global rally in equity markets, that being cheap money being used to buy back stock (or worse, pay dividends) instead of being used to grow or build their company. Macquarie Bank put it into a beautiful image about three weeks ago:
Macquarie were correctly concerned with the amount of business investment in Australia. Simply put: no investment, no growth. No growth, eventually something needs to give on equity markets. Dividend ratios are high. Unsustainably so, some would say.
Capex again appeared on my desk when the Financial Review ran a front page article regarding the excess of dividend payouts and the lack of investment revealed in the last month of company reporting. Telstra is a rare example of a company that used the reporting season to announce an infrastructure spend. It’s not been taken well by the market.
On Thursday the ABS released business investment data which was forecast to show a 4% quarter on quarter decline. Actual data showed a 5.4% decline for the June quarter. Mining is obviously the drag but non-mining investment was up 2% and expectations are that this will continue to climb. New investment in manufacturing is climbing which is exactly what the RBA wants to see. This, tied together with our dollar coming off vs the US means we may well have seen the bottom in the rate-cutting cycle. Wait for the but…
BUT…
The paragraph above was actually written late last week. The way everything was meant to go was that Non-Farm Payrolls would be strong, the Fed would be expected to really consider raising rates in late September, our dollar would keep coming off and the RBA would have its job done for it.
NFP’s were not as strong as expected, the Fed has no certainty this month so we’re all back to listening to the same record as we were months ago. Yield assets are getting a bid again as markets see some (small) potential for another RBA rate cut within the next six months.
Some pretty pictures to close…
The fine people at Business Insider were good enough to post this Soc Gen Black Swan Chart which has the crowd talking this week:
Full article here courtesy Paul Colgan at BI
To the US and something else that we’re looking at is a Goldman’s strategy paper outlining how yields will most probably remain low whilst economic growth will not continue as it has. The “Goldilocks” days that drove the recent rally are receding into the next most probable scenario, that of ‘Fat and Flat.’ In this scenario, stable defensives outperform emerging markets. Something to think about for your international portfolio.
Source: Goldman Sachs Investment Research
Things could be much worse….
All the best,
James
*Best. Segue. Ever.
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