Coolabah Capital Investments

Since we have just tipped into the new financial year, it is instructive to reflect on the returns rendered by different asset classes over the past 12 months. And let’s try to rank these investments by their relative risk...

Risks around a sharp rise in unemployment - our analysis https://bit.ly/4eNZ5NO

‘Marking their own homework’: Inside Australia’s $200b unregulated private credit boom: An investigation by The Australian Financial Review has found evidence that funds are reluctant to write off badly performing loans – and tell those invested. Others are paying themselves in fees more money than they hand over to investors. Some are even lending to companies that promptly go broke, raising questions about the thoroughness of due diligence. https://lnkd.in/g3cHKNx8

My preternaturally diplomatic analysis today in the AFR: The Reserve Bank of Australia is truly screwed. It has once again been humiliated by a predictably protracted, and now re-accelerating, inflation crisis that it refuses to tackle for fear of upsetting its political masters, who control negotiations over the future of monetary policy setting. https://lnkd.in/gaa3fzm3

Our latest Complexity Premia podcast Episode 52, listen now: Sovereign Debt Crises are Back; France on the Brink; Aussie States Out of Control; Inflation Numbers Key to Asset Prices Ying Yi Ann C. Warwick Boys Gary Walsh Andrew Reidy Kyle Macintyre Darcy Graham Callum Evans Megan Jenner, CFA Nina Redfern Wes Campbell Tully R. https://lnkd.in/g26MaA8n

Barrenjoey's Andrew Lilley puts a 60% probability on RBA hike in August: "Following May monthly CPI I would upgrade August from a possible hike (20% likely prior to seeing the data) to a likely hike (~60% likely after seeing the data). On our updated simulations (taking into account our usual forecast errors) we see a: -36% chance of a 1.1% trimmed mean or higher (which they’ll almost surely hike on) -43% chance of a 1% trimmed mean (very close to 50/50 call, but if I had to come down off the fence, I’d say they hike)?"

Antipodean Macro on the ugly ugly Aussie inflation data: The more important CPI ex travel and ‘volatiles’ measure also rose +4.0% y/y (+4.1% y/y on a seasonally adjusted basis), which was in line with our forecast (of +4.1% y/y). On the same basis, the +1.2% rise in 3m/3m terms was in line with our forecast and points to a significant risk that the RBA’s +0.8% q/q Q2 trimmed mean inflation forecast is much too low.

Deutsche Bank's Phil Odonaghoe just shifted his rates call to an RBA hike in August (we've long expected inflation to be stronger than the RBA and the doves anticipated): "In light of a significantly stronger than expected trimmed mean inflation print for Australia in May, we now expect the RBA to hike by 25bps to 4.6% at its next meeting in August. Underlying inflation is intolerably high in Australia. In fact, Australia is the only G10 country where underlying inflation has increased since December. And as the chart below shows, the scale of that acceleration is material. Trimmed mean inflation - the RBA's preferred measure of inflation - stood at 4.4%yoy in May up 0.4ppts since December. In contrast, every other G10 country has seen a deceleration in underlying inflation since December, and the average decline is 0.9ppts. Moreover, the monthly CPI indicator shows that trimmed mean inflation is now running more than ½ppt higher than the RBA's forecast for Q2 at 3.8%. Unless there is a stunning reversal in underlying inflation pressures in the month of June, we think that another material beat on the RBA's near-term forecasts for trimmed mean inflation is looking very likely. That should prompt a rate hike. Just a few hours before the monthly CPI was released, RBA Assistant Governor Chris Kent gave a speech in which he described the RBA's policy stance as "restrictive". We don't quibble at all with that conclusion, but think the more important question facing the RBA is whether policy is restrictive enough. On our estimates, we think the evidence shows that the RBA eased substantially more than either the Fed or the ECB during covid, and has subsequently tightened by substantially less. We would argue that the acceleration in inflation evident in today's CPI print for May provides tangible support of that conclusion."