Is the economic worm turning?
So, the RBA put rates up, again, this week. Making it the 8th consecutive month, the one of the fastest rates of increase on record, and the highest official cash rate in a decade.
They've now added 3% to the official cash rate since May.
And, if their most recent statement is anything to go by, they're not done yet. No guarantees, and they have committed to future decisions being 'data dependent', but that's their expectation.
Me?
I think it was the right thing to do. Inflation remains far too high, and the RBA is (rightly) determined to take excess demand out of the economy. Rates aren't the only way to do that, by the way, but they're the traditional option, and the only one at the Reserve's disposal (the others would require government action).
But I also think they'd be very happy that there's no scheduled meeting in January. It gives them the opportunity for a 'Clayton's pause' – the pause you have when you're not having a pause (kids, ask your parents about the non-alcoholic Clayton's – those were the days when you couldn't sell a non-alcoholic gin for $60 and have people fall over themselves to buy it!)
No meeting in January means it'll be at least two months until the next rate rise – giving the RBA ample time to see what their 2022 handiwork has achieved without actually having to make a call.
And economically? It kinda feels like the worm is starting to turn. Retail sales were down for October (but Black Friday sales in November might tell a different story) and corporate profits were down 12% in the last quarter.
Now, GDP is still positive. And unemployment remains low. But the 'full steam ahead' vibe of a couple of months ago now seems to be squarely in the rear vision mirror. We'll see.
For whom the bank branch bell tolls
Speaking of slowdowns, some sobering numbers out this week suggest that Australian bank branch numbers have shrunk by almost one-third over the past five years, and by 300-odd in the last 12 months alone.
That's… a lot.
For all of the talk about the end of certain industries – think printed newspapers – it's possible that banks' branch networks might get there first.
Oh, there might be a few branches in big population centres for those things that just can't be done digitally, but that'll be it.
And I don't think it'll be far away.
Banks are looking to cut costs. ANZ this week launched a 'digital mortgage' that it says will be suitable for up to 30% of us by 2024. And we're just not using bank branches anymore.
Truly, were it not for the social and political pressure, I'd imagine we could have maybe 25% – 50% fewer branches already. But a slowing economy and market pressures will make the banks bite the bullet at some point relatively soon.
Be careful of hindsight bias
The RBA is getting grief. Again.
This time, it's because Governor Lowe 'ignored a warning not to give calendar-based forecasts' (i.e. rates won't go up until 2024).
Now, I've said before that he shouldn't have done it. It's unnecessary, and only exposes you to the very criticism he's getting now.
But the current brouhaha is because he was apparently 'warned' in an 'internal report' not to do it.
See… he was told, but he didn't listen!
To which I say… spare me!
Why? Well, let me explain.
Investors have their own version of this problem: the usual suspects who predict a market crash every year.
Eventually… they'll be right.
Then they'll say they told us so.
But were they? And were they right, or just lucky?
One more example?
Let's say I write a report about every Motley Fool recommendation, and I send it to the boss. 'This recommendation could go badly because…'.
Then, if it does, I trumpet my prescience. And if I'm wrong? Well, I say nothing, of course.
Heads I win. Tails I don't lose.
But back to the RBA.
Maybe, somewhere, someone warned Governor Lowe not to increase rates in May, because inflation would be transitory. He (rightly) ignored that theoretical warning.
And so it goes. Someone is always telling you what to do. Every so often they'll be right.
But that doesn't mean the RBA should react to every 'warning' it gets. Someone has to tally the risks and the potential rewards, then make a call.
And sometimes they'll be wrong.
It says nothing good about our ability for critical thinking and sober judgement if we expect perfection or crucify those who make mistakes.
Because the former is impossible, and the latter is unavoidable. Believing anything else is a fantasy-land… and eventually that leads to politicians of no conviction who just pander to us.
Oh…
Quick takes
Overblown: We obsess over CEO pay as if it matters. How's that for an inflammatory statement! No, there's no justification for anyone to be paid $21 million a year, but how much does it actually matter to the performance of our investments? They're probably not worth that 8-figure salary, but it usually won't impact the bottom line. Far more important is whether they're the right people to run the company, and will create value for shareholders. Don't get sucked into the reality TV soap opera – focus on they impact they do (or don't) make,
Underappreciated: Back during the GFC, Apple continued to sell more and more iPhones. The 'original' BNPL player, Flexigroup, grew strongly. Why? In the former case, it was relatively early in the adoption of smartphones. In the latter, Flexigroup was signing up more and more retailers, even as total retail sales flatlined. Large, mature businesses often have little choice but to float up and down with the tide. Small, growing companies that are finding new audiences don't (necessarily) suffer the same challenges. Worth thinking about in 2023.
Fascinating: Maybe I should say 'fascinating', in quotation marks. Lobby groups are going to lobby, and the ongoing review of the RBA is no different. It's probably a good thing to have those lobby groups present their views, to aid the national debate, but just a reminder that none of them are truly trying to present or promote a balanced policy. Business wants changes that are good for business. The Unions want 'full employment' as part of an updated mandate. The Australian Council of Social Service wants more inflation. Again, all worthy inputs. Just remember they're closer to football fans cheering on their team, rather than the referee in the middle who needs to make the calls.
Where I've been looking: I've regularly said that one of the great things about the Betashares Nasdaq 100 ETF (ASX: NDQ), available on the ASX (and in which I own units) is that the index is dominated by companies who are at the forefront of 'creating the future'. That's as true as it ever was, but I think we can find disruptive innovators here on the ASX, too. It doesn't need to be out on the 'bleeding edge', but l'm looking for tomorrow's winners.
Quote: "I skate to where the puck is going to be, not where it has been." – Ice hockey great, Wayne Gretzky
Fool on!
