2022 Edition #3 – Just Smoke and Mirrors

(written down by Black Swan)

Big Picture

Firstly, we don’t condone smoking, of any sort. Lots of reasons why, and one in particular will become clearer later.

We had predicted that Putin would agree to Chinese requests to delay action on Ukraine until after the Olympics.

He is using that old joke: sending in heavily armed ‘peace-keepers’ to ‘save’ oppressed Ukrainians.

China will be sitting back watching and waiting.

These things take decades, but it is certainly obvious that a change in the ‘global order’ is underway.

It is unlikely that the Ottoman’s (or the Dutch) will make a a huge comeback. 

It also unlikely that Russia will gain much standing (outside of internal feel good status) from any major expansion. Gas is their key asset, and that seems to have a relatively short use-by date.

The West’s chest thumping sanctions will impact, but not immediately. It is unclear just how much it will bite. Russia holds a pretty good foreign balance of payment book.

We covered here last year just how much gold was being repatriated back to ‘home’ countries from being held by the The UK BOE and the US Mint. Russia was a big player in this starting back in 2015/16 when they built up gold, as seen below. They might have been lucky, or smart.

The real lack of negative market response (of great significance) surprises me. Perhaps it was all priced in after all.

The ASX is down 1.5% over the last 5 days, but is still up on the month. Surprising given above conflict and the quick change in RBA positioning on cash and liquidity.

In fact, I’m reading more market ‘fear’ about the US Fed intentions and inflation.

To bring things closer to home, Reserve Bank of New Zealand hiked rates this week for the third straight meeting in a row (now at 1.0%) in an effort to tame inflation.

I did see a cracking US inflation chart this week. Whilst inflation has gone up nearly 55% this century, it is the ‘where’ that counts.

The expansion of global trade (read mainly China) has seen prices of tech goods fall massively. Wages have grown above inflation, but the costs of health and education (service sector) is where the real rises have been.

I’m not certain what that same chart would look like in Australian terms.

US has many strange attributes. One that has always intrigued me is that some 70% of US mortgages are written as fixed – and fixed for 30 years

How these actually work is a mystery to me, given here in Oz, the average duration of a home loan is circa 7 years.

There must be some inbuilt ‘free’ repayment option built into the loan costs.

The BIG thing over recent weeks though is the Fed’s tough talk on rate hikes is working.

I imagine the FOMC like this:

The markets are now doing what they call “flattening the curve”. The spread between 10-year interest rates and 2-years was about 1.5% this time last year. It is now only 40 odd basis points. Two year rates are expected to go higher much quicker, but the 30-year rate has not really moved. Ends up looking like a fish with no tail.

People don’t believe that the current US inflation will last more than another 18 months before heading back towards Goldilocks zone.

Some pundits believe Putin has thrown the FOMC a lifeline by taking focus off them and giving the market reason to pause.

Whatever the reason, a truck load of funds left the money market in the last four weeks – the most ever.

Some went to gold, and not much to crypto, so where did it all go?

I saw some data this week that supported the US and Aussie equity growth. S&P and ASX charts match pretty closely to company revenue that have risen strongly over the last few years.

That is great, but what is the future? Their view is that earning will taper in 2023 and put equities under the pump. I agree with the sentiment, but the timing could be sooner.

Finally, with no context other than my interest. Stories that China’s economy is slowing may well be true – who knows.

But I would challenge any other country to match the impressive increase in their rail network over the last decade or so. New blue line trains can travel over 300 km/h and green up to 300.

Domestic Duties

Our smoking mascot of the week was the former CEO of Tassie’s Lark Distilling. A good outfit, its share price tripled under his good vibes.

He stepped down late last week when the photo was released. Shares tumbled by nearly a third.

There was some sympathy when he hired a PR person to explain the photos were taken in Asia 5 years ago, when he was set up.

Sympathy evaporated when savvy journos thought it very unlikely that the pictures on the room walls would exactly match those of his own home (that he has only been in for 18 months).

Market lesson 1: don’t get photo captured smoking crack.

Market lesson 2: don’t lie about the who/how/when.

His Lark shares are still worth $12 million, so he can seek solace however he feels he needs to.

RBA have already announced it has ceased its bond buying (QE) and this week announced it has lowered its OMO (not the washing powder, but Open Market Operations) from $100B in mid 2020 to just $10B now. CBA are booking a RBA cash rate hike in for June this year.

I think that may be early, but finally good wage data is starting to come through – something the RBA wanted badly. Wages up over 2.5% on an annual basis or 2.8% if bonuses are thrown in.

That, on top of pretty good employment data last week (unemployment unchanged at 4.2%). Hours worked fell, but forward signs are strong.

This will be touched on in politics, and has been highlighted before. It is a difficult fence to sit on, acknowledging that China is our head-n-shoulders biggest trading partner that thus supplies our economic quality of life… and also the bogeyman.

Of course the fear is that all this coal and iron ore may come back to bite us.

Anyone with interest in an earlier similar Aussie history may enjoy this related link:

Dalfram iron ore to Japan WW2

CBA data:


Reporting season for banks is now over – most beat forecasts by around 10%. Strong results.

We took a look at Judo Bank late last year.

They are new challengers in the market and are growing strongly. Their first half profit result broke even.

They pick the spaces they want to play in, in particular, equipment loans and thus seem to have the ability to generate a greater lending margin than the majors.

They are not without risk, but seem on a good path.

This one seems fit for the bank section:

The Aussie Dollar and Commodities

There should be a rush to ‘safe haven’ US dollars given the Russian issues.

A higher USD would usually see the AUD under the pump.

This time it has been a little different. One big reason is commodities have been going north in price, and the AUD is a commodity currency too.

Oil hit a seven year high. Hopes that Iran can add some supply, but the issue seems multi dimensional.

Aussie dollar stuck still around 72 cents.


Clive Palmer is in court against President McGowan from the Republic of WA. Palmer says he feared for his life against ‘Nazi’ rules of the WA Government. The very unkind TwitterSphere suggested his life was more at risk from his next Big Mac.

I think the AFR has lost its way a little bit recently. But this article is exactly right. I understand ALP’s reluctance to put forward bold plans, only to get used against them by their opponents. But equally, Albanese’s biggest issue is that he is seen as beige.

The AFR says: “Australia’s creaking tax system relies too heavily on taxing personal and company income, which dulls work and investment incentives, as well as on distorting taxes on transactions such as stamp duty on home purchases.”

GST was the last major tax reform, over two decades ago. Blind Freddie can see Australia needs tax changes.

AFR – tax changes needed

Federal politics is running on cue despite not having an election date set yet.

The run on national security has frankly been very much in-sync with this mob. Bereft of morals or truth.

Peter Dutton was named this week by the National Audit Committee for dodgy grant payments.

‘On water’ matters are a closed shop for Mr Potato Head… unless he can use it. Language matters, and “China fired a military grade laser” at an Australian ship is not good.

Just by way of coincidence, the USA made the same complaint about China in late 2018 – interesting in the lead up to Trumps mid-term election.

If security doesn’t scare you into voting Coalition, the next step appears to be standard union bashing.

The cock-up of the NSW rail ‘strike’ is an early example.

And how could I not mention Cosplay ScoMo getting into the hi-vis again for a crack at welding. “I’ve done it before,” he says as he lifts the safety welding helmet to use the welder.



I read a report on housing this week from Quay Global. It was bloody good.

They reviewed housing prices in a supply and demand manner.

It highlighted that Australia has been running short in new housing for many years.

Chart below shows that shortage – confusingly presented as a negative excess. When demand exceeds supply, economics 101 says prices rise.

Whilst there are a number nuances that effect that theory, I believe it holds generally true.

So, what happens when Covid stops immigration? Given an increase in new construction, we see a true excess.

They are not calling a plummet, nor major correction. But they see the above data as suggesting the continued growth in prices is unlikely in 2022.

Lets hope so.

Crypto and Gold Land

Gold has continued its good run. Conflicting future for it. As an asset that earns the holder no income, it tends to fall as holding costs (interest rates) rise. Of course a good international stink is helping it for now, but a quick resolution would see just as quick a fall in price. Anyway, it’s heading higher for now.

Growing consensus though that gold is no longer the perfect hedge against inflation. Maybe so, but I’m equally not convinced that crypto is either.

All major Crypto prices seem to be largely range bound. Ethereum is up 5% on the month but still down 20% over the last 6 months.

Update on our report about El Salvador making Bitcoin legal tender in September 2021. With the BTC price fall, it has been a disaster.

El Salvador is looking for $1B in additional emergency finance from the IMF. Negotiations have stalled and it appears the IMF want El Salvador to get ban BTC to increase financial transparency. The old money seems to be winning the battle at the moment.

Speaking of transparency, some bad dudes ripped off a lot of crypto punters but got caught – and crypto ‘found’.

Can’t be that secure after all. Crypto hack goes wrong

My twitter account seems less clogged with punters pushing crypto.

ESG and Carbon

It has been an interesting week.

Australia’s largest coal fired power station Origin’s Eraring announced it will close in 2025 – 7 years earlier than otherwise planned.

Then Mike Cannon-Brookes (pictured below), fired an offer to buy AGL’s coal fired stations with a plan to switch them to renewables.

Rather than the Federal Government “getting out of the way” of “can do Capitalism”, it suggests this is potentially a very bad thing, and electricity prices will rise.

I say it highlights that they have bullshitted to Hunter Valley coal miners who may now start to realise that change is coming and will need to look for ways to adapt.

Thought of the week: Energy.

Related to above, there has been a lot written about tech stocks having a very good run on the US share-market, particularly as compared to commodity and energy stocks.

People want to have the new shiny thing, but old tech has a place too. There are very few things Angus Taylor and I agree on, but one is that reliable energy is critical. I differ from him as to the way forward to guarantee that, but it must be done.

Bloomberg has calculated that the entire US energy sector is valued at 40% less than just the value of Apple alone.

Yet those same old tech stocks produce 47% more cash than Apple.

Hard to play Wordle on your I-Phone when there is no power.

Drinking favourite… 

You may have realised by now that I am not a huge fan of the traditional heavy Aussie red.

This dirty and dusty Hunter Valley shiraz was drunk amongst friends last weekend.

The label was dirty and dusty but the contents was quite lively.

They say: “Maurice O’Shea was a pioneer of Australian wine, creating long-lived, highly celebrated wines from the 1920s through to the 1950s that were admired the world over. Named in Maurice O’Shea’s honour, this wine was crafted using the very best rigorously selected parcels from the Mount Pleasant Estate to create a wine that firmly speaks of its Hunter Valley home.”

At $270 odd a bottle, it is not well matched for a pizza.

Nor was it everyone’s cup of tea – not all loved it.

Very good but not fantastic.


Listening to… 

Some negative feedback about tainting Nina Simone with modern add ons last week.


Will the cricket season passing by with little fan fare an old song for easier listening.

Feedback always appreciated…

If you want to write a piece – long or short, drop us a DM.

Cheers, BS


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