With apologies to Paul McDermott… Its been a good news week!
Some of the best news in ages
2022 has been a doozy. And it's not over yet.
But this week has been a good one.
First, inflation came in lower than expected. Now, if you'd told me 12 months ago that we'd be celebrating an inflation rate of 6.9%, I'd have told you there was a better chance of the Socceroos making it to the Round of 16 at the World Cup and…
Oh.
Well, anyway, an unexpected drop in the inflation rate is good for everyone (except those who were seriously indebted and hoping rising prices would do most of the heavy lifting!).
It hopefully means things will be cheaper, in future, than they otherwise might have been.
It hopefully means interest rates won't have to go up as far, or for as long.
And it means fewer Australians will do it tough than otherwise could have been the case.
There's a long way to go.
This could be a false dawn.
But… it's something!
Speaking of good news, though, the ASX was up 6.1% in November.
Remember those people who said, a month ago, that it was all doom and gloom?
Yeah.
Not so much.
Of course, share prices could fall again. And maybe further than they've risen, at least in the short term.
But it's yet another reminder not to listen to the permanently-morose brigade.
And over the long term? My money is – literally – on the fact that I think the ASX will continue to generate serious long term value.
Capping Gas? It's a tough one.
The news this week, that the Federal Government is planning to cap the price of natural gas, is a big deal.
First, it's great news for Australians already doing it tough financially. Remember, the Federal Budget predicted gas prices would go up another 50% in 2023. Many people just couldn't have afforded that, on top of other rising prices and rising rates.
Second, speaking of rising prices, a cap on gas will help alleviate the pressure on other prices right across the economy, taking (a little) heat out of inflation. That's good too.
But third, this is pretty challenging ideological territory. Does a country that embraces our system of democratic capitalism really want to start whacking price caps on things? And after the fact? We have ways to get our share of profits – tax being the biggest one – and shouldn't that be enough, as prices rise? (I'm on record saying resource rents should be higher, but this is different altogether.)
Gotta say, I'm torn. On balance, I think the good that a price cap will do, more than offsets the clear and unwelcome downsides. But I'd hate to think this sort of thing becomes a regular or permanent feature of government policy.
How about some planning, huh guys?
And how did we get into this mess? Well, in part because of an unforeseen war in Europe. That's one of those things you can't really predict.
But that's not the only cause. And you can plan for these sorts of unexpected surprises.
It's easy, in hindsight – just as with COVID – but we can at least learn some lessons and plan for the next unexpected issue.
Me?
I'd implement a national strategic reserve for fuels, including oil and gas. It's a no-brainer.
And the mad scramble on energy prices and security is a direct consequence of policy paralysis in Canberra. Investors aren't going to fund coal projects that will be socially and environmentally unviable in a few short years. But renewable energy investments weren't going to be made unless and until the backers of these potential projects had sufficient certainty.
And so here we are. It truly was a failure of national policy, and we're now – literally – paying the price.
But it's not just supply policy. It's demand policy, too. Building standards, efficiency measures and other things – which would reduce demand, and hence prices – are no-brainers.
Investors know about putting a little money down, now, for a bigger return later. Maybe the pollies missed the memo?
… and a bouquet
I'm probably biased. No, not politically. But I was a big fan of David Pocock on the rugby field, so I'm probably inclined to be positive about his time as a Senator.
But his work on the workplace policy that has just been passed by both houses of Parliament was exemplary. Not because of his final decision, per se – you can draw your own conclusions on what you think of it – but because of the way he went about learning as much as he could, then speaking to as many people as possible, trying to weigh up the pros and cons, then negotiating in good faith with the government.
The result? He voted on the policy. Not the politics. And did his best to improve the bill.
Well done, Senator.
Quick takes
Overblown: The FTX thing. I mean, it's a big deal. Lots of money has been blown up. But I mean the soap opera bit. Getting sucked into the soap opera of the whole thing is bad for your wealth. As reality TV goes, I guess it's tantalising and exciting and, well, car-crash TV. But, it's still reality TV. There are lessons to be learned, for sure. But it's not a 'business' story anymore – it's just theatre. Don't get distracted.
Underappreciated: We spend a lot of time talking about people who might have got themselves in over their heads because of what Phil Lowe did or didn't say. But – and stay with me here – he didn't say 'never', he said '2024'. Those borrowers were going to have to pay the piper at some point. Which is not to say I don't care – I do – but it's a reminder that the difference is probably 15 months. 18 tops. But the other lesson? It's yet another example of people assuming their current circumstances will continue forever, when we all know that's not the case. The same is probably true of share prices…
Fascinating: Maybe it's just me. Or the people I hang around with. Or random chance. But it feels like a change is in the air. Increasingly, I'm seeing people pay up for quality, on the basis that paying more, now, for something that's going to last longer, is a better bet. It's something I've been increasingly doing, something I chatted about with my podcast co-host Andrew Page, in an upcoming episode, and something I'm seeing with friends and on social media. Maybe it's just a coincidence. Or a flash in the pan. But I'm not so sure. I'm keeping an eye on it.
Quote: "The risk of paying too high a price for good-quality stocks – while a real one – is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favourable business conditions." – Benjamin Graham
Fool on!
