September 26, 2019 Edition.
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The US and Australia came together as a mutual admiration society on the ScoMo State Visit with the trade war and oil issues steaming away in the background. Things are rather uncertain on both these key issues. We know have Trump looking at impeachment over his Ukrainian Conversations. He is plain furious and lashing out.
In the UK the Supreme Court is wondering about the legitimacy of Boris’s recent actions. Time is running out to get all this sorted - but at least Parliament is meeting again - the next few days will be crucial I reckon!
In Australia we have all sorts of rather odd legislative initiatives on all sorts of things. We will hear more when Parliament comes back in a few weeks! In the States ScoMo claims we are doing well on Climate Change. Most informed commentators say he is fibbing.
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Major Issues.
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RBA sees 'risks' in Trump-China trade deal
Sep 16, 2019 — 12.00am
A US-China trade deal poses "longer-term downside risks" to Australia's economy, including farmers and gas exporters, so we shouldn't "get too comfortable" if Donald Trump ends the conflict with China, according to Reserve Bank of Australia correspondence.
As Prime Minister Scott Morrison prepares to fly to Washington this week to ask President Trump to resolve the trade war, the RBA released internal documents paradoxically showing Australia could lose from a US-China trade deal.
The US-China trade war's impact on the Australian economy is likely to be "small", shaving about 0.20 of a percentage point off economic growth in 2019 and 2020, the RBA's internal July world forecast meeting document said.
Australia may even benefit in the short term from the trade war resulting in Chinese authorities resorting to stimulus and demanding more natural resources such as iron ore, coal and liquefied natural gas, according to the RBA.
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Trade war enters the end game
The hard heads in Washington and Beijing have recognised that trade war is a disastrous path. But there are five steps needed to secure a deal by November, writes Kevin Rudd.
Sep 15, 2019 — 9.00pm
We are about to enter the end-game in the US-China trade war. The negotiations set to resume early next month represent the last real chance to find a way through the trade, technology and wider economic imbroglio engulfing both countries.
Failing that, we should all buckle up and get ready for the rockiest of rides that the global economy has seen since the global financial crisis, including a real risk of America sliding into recession.
Not to mention wider economic decoupling, the poisoning of the well for the future of the overall US-China relationship, giving vent to a growing nationalist constituency in both countries believing the two countries are indeed destined for conflict or even war.
The recent decision to recommence trade negotiations marks the beginning of phase four for the trade war.
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Rare earths on the Trump-Morrison agenda
Sep 15, 2019 — 8.00pm
The development of alternative supplies of critical minerals, as well as other joint efforts by Australia and the United States to address Chinese influence in the region, will dominate talks in Washington DC at the end of this week between Scott Morrison and Donald Trump.
Mr Morrison leaves on Thursday for what will be the first state visit to the US by an Australian prime minster since John Howard was feted by George W Bush in 2006, and what is only the second state visit to be offered to any leader by Mr Trump.
Talks in Washington will focus on how both sides can boost their efforts in the Indo-Pacific.
This will include the Pacific step-up announced last year by Mr Morrison; a joint program by the US, Australia, New Zealand and Japan to provide electricity to 70 per cent of Papua New Guinea by 2030; other critical infrastructure projects; and joint US-Australian efforts on so-called “critical minerals”.
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Ben Morton says he's not bashing big business
Sep 16, 2019 — 12.00am
"I want to provide a prescription for how business leaders can work better as partners with the Morrison government to deliver what we both want," he says.
It’s still a prescription that will irritate much of corporate Australia.
But it's a message chief executives will have to pay attention to if they want to repair strained relations with the Coalition. And Morton maintains such an approach will help improve the reputation of big business in the broader community more successfully than chief executives have been able to manage so far.
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GFC lessons forgotten, says McKibbin
Sep 15, 2019 — 11.59pm
Washington | The US Federal Reserve appears not to have learned the lessons of the 2008 global financial crisis, and will need to justify further cuts in borrowing costs, says former RBA board member Warwick McKibbin.
Markets are on tenterhooks this week ahead of the Fed's latest rate decision on Wednesday (Thursday AEST), with most economists anticipating a 0.25 percentage point cut to between 1.75 per cent and 2 per cent.
The Reserve Bank of Australia is likely to follow suit, say economists, continuing to follow the Fed's lead since it abruptly switched from last year's steady drumbeat of "normalisation" to its first rate cut in more than a decade in July.
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Rise of ETFs sends ripples across cosy industry
Sep 16, 2019 — 12.00am
The rise and rise of exchange traded funds (ETFs) and so-called “passive investing” has no doubt caused ripples across the once cosy global actively managed fund industry.
Pay for performance has never been under so much scrutiny.
And understandably, there’s been a push back of sorts, with some suggesting passive investing is just “dumb” money that is potentially giving rise to a dangerous bubble in investment markets that will inevitably explode.
The critics have one thing right: passive or index investing is on the rise, especially through ETFs. In the United States, for example, the share of the managed fund industry accounted for by passive investing has doubled from 18 per cent to 36 per cent over the past decade, of which ETFs account for around half.
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Negative rates: punishment for being good?
Tamar Hamlyn
Sep 15, 2019 — 11.59pm
Ever lower bond yields have raised concerns that yields may eventually become negative in Australia, as they already are in many other advanced economies.
With the 10-year bond yield in Australia bouncing off a low of 0.85 per cent, and speculation rising that the RBA may soon reach a terminal policy rate of 0.25 to 0.50 per cent, now is the time to be having the conversation about what low or negative interest rates mean for investors.
This question is also crucial for the broader economy. As a society, we have a lot riding on the benefits – or otherwise – of low or negative interest rates.
The winners here have been borrowers and the wealthy, as real asset values and share portfolios have soared.
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'Something has shifted': Morrison senses a tipping point is at hand
By Sean Kelly
September 16, 2019 — 12.00am
When Scott Morrison stands next to Donald Trump in Washington later this week, he may find himself feeling envy for the American President’s ability to blithely say things with no concern for their relation to reality. Well, envy is one word – nostalgia might be another.
There was lots of noise in Parliament last week, but the most significant event, I suspect, was the long-overdue snapping of the elastic tying the words of government MPs to political consequences.
The first instance occurred when David Littleproud expressed ambivalence about man-made climate change. Not long ago such views might have been noted then allowed to slip away, seen within the context of a dying, conflict-prone government. This time, someone with authority clearly gave Littleproud the news that expressing such views as the minister responsible for natural disasters was not OK. Within two days he was exhibiting the zeal of the converted
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Investors fatigued by daily dose of calamity
The risk is investors become too complacent. The attack on Saudi oil is a potent reminder of the vulnerability of the world's energy security infrastructure.
Sep 16, 2019 — 4.30pm
There once was a time when a foreign attack on Saudi Arabia's oil industry, coupled with China's Premier warning that maintaining 6 per cent growth was "very difficult", would have unleashed a massive sell-off.
Stocks would have been smashed, bonds would have been well bid, and there would have been high-fives all round among gold bugs. But now? Meh.
The seemingly bearish one-two punch of grim news from Saudi Arabia and China was greeted on Monday by stocks finishing in the green, a continuation of the sell-off in bond prices (with yields rising), and gold meekly clawing its way back above $US1500 an ounce.
In an age where there is a daily drip-feed of calamity and chaos, investors could be forgiven for becoming inured to headlines heralding yet another body blow to the global economy and financial markets.
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Hard heads need to convince quiet Australians
Business leaders and federal ministers can both claim to have some right on their side in their differences – but that’s not good enough.
Sep 16, 2019 — 10.00pm
Scott Morrison likes to dismiss the Canberra bubble as irrelevant to the lives of ordinary, hard-working Australians.
He’s now effectively telling chief executives they have to get out of the business bubble to appeal to those same people. The response from much of the business community is telling the government to get out of its own Coalition bubble.
It’s a tension that will be obvious at the annual gathering of business leaders at the Business Council of Australia meeting in Canberra this week, including a dinner on Tuesday with the cabinet and a speech by Josh Frydenberg.
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Why central banking has become a whole lot more fractious
Sep 16, 2019 — 4.22pm
Financial markets are confident that the US Federal Reserve will deliver a modest quarter-percentage point rate cut when it meets this week, and that the bank's chairman Jerome Powell will likely point to the more sombre global economic outlook to justify the decision.
Investors are also sanguine that Powell will maintain a stoic composure even if US President Donald Trump opts to continue his vicious attack on the Fed for failing to heed his instruction to slash US interest rates below zero.
After all, a key attribute of any self-respecting central banker is the ability to maintain an air of calm in even the most trying circumstances.
But behind his imperturbable facade, Powell will be keeping a close eye on the level of support for the rate cut among key Fed officials. After all, back in July, two Fed officials – Boston Fed chief Eric Rosengren and Kansas City Fed chief Esther George – formally dissented against the Fed's decision to cut rates.
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Morrison government's big stick should be pointing at itself
Peter Hartcher
Political and international editor for The Sydney Morning Herald
September 17, 2019 — 12.00am
In 1992 the supreme leader of China at the time, Deng Xiaoping, remarked that "the Middle East has its oil, China has rare earths". China dominates world trade in rare earths, as vital to the computer and electronics economy as oil is to the industrial economy. And today the world confronts a situation where supply of both strategic commodities is at risk.
Dawn footage shows fire raging at what is said to be one of the Aramco factories in Abqaiq, Saudi Arabia, hit by a drone strike.
A single attack on a Saudi oil facility on the weekend knocked out half its output, temporarily at least, removing about 5 per cent of all world oil production. The price of oil on world markets jumped by about 10 per cent on Monday in response. The system will respond and the world economy will cope. The worry is not so much this attack as where it's leading.
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Banks release customers' loan data to credit bureaus
Sep 18, 2019 — 9.21am
The quality of data that banks will use to vet borrowers has been dramatically improved in the past few days, with all the major banks now providing the credit bureaus with their customers' full loan and repayment history.
The data will also be accessed by other lenders when reviewing credit applications.
Commonwealth Bank was the last of the major banks to go live with comprehensive mortgage data at midday on Tuesday, following ANZ Banking Group and Westpac Banking Corp providing more detailed information on mortgages and personal loans over the weekend. National Australia Bank was an early adopter of the ‘comprehensive credit reporting’ (CCR) regime.
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Iran's hostage diplomacy is tangling an already difficult situation
Tony Walker
Columnist and award-winning foreign correspondent
September 17, 2019 — 11.40am
Australia’s attempts to secure the release of an Australian national and two with joint UK-Australian citizenship from an Iranian prison have become vastly more complicated following the brazen attacks on Saudi oil facilities over the weekend. Room for quiet diplomacy has been narrowed while the world comes to terms with a strike at the very heart of global energy security.
At this stage, it is not clear to what extent facilities at Saudi Arabia’s main refinery have been crippled, but initial reports indicate it could be weeks and possibly months before it is brought back into full production. Saudi Arabia’s Abqaiq refinery processes about half the kingdom’s oil production. According to initial reports, the attack reduced throughput by 5 million barrels a day, or nearly 5 per cent of global production.
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Why a 'big stick' is the only way to tame power prices
Consumer trust is more important than worries about industry intervention. But the need for drastic policy is only temporary.
Sep 19, 2019 — 12.00am
Calls for business and investors to focus on stakeholders beyond shareholders aren’t new. Most business people understand the need to deliver for customers, suppliers, employees and communities, even if shareholders come first. But shrill demands from aggressive activists on social media and elsewhere are relatively new, and many business leaders are understandably rattled.
The energy sector, in particular, now has a choice. Should CEOs capitulate to the demands from the green left to prematurely close down coal and gas generators, without regard for customers? Or should they focus more on those quiet Australians in the suburbs and regions, the small businesses they run and the industries they work for?
The government believes the energy sector needs to focus on middle Australia, with clear implications. We can’t afford premature closure of baseload generators to satisfy the activists. Abuse of market power isn’t on, despite the temptation in thin, uncompetitive markets. And sharp practices won’t be accepted, despite the disengagement of many energy customers.
I see increasing evidence that the energy sector is taking responsibility and focusing on customers. But there is some way to go and the lack of trust is still real. As trust rebuilds, the government and regulators must be willing and able to act against poor conduct.
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'Bad for democracy': Alan Joyce weighs in as war of words between government and business intensifies
By Rob Harris and Shane Wright
September 18, 2019 — 7.00pm
A war of words between big business and the Morrison government is intensifying, with Qantas boss Alan Joyce vowing to speak up on contentious issues after the prime minister's right-hand man told industry leaders the Coalition did not "represent corporate Australia".
The government has endured a fortnight of internal unrest over what some MPs claim is an anti-free market policy agenda that has included open attacks on the social and environmental stances taken by major firms.
Assistant Minister to the Prime Minister, Ben Morton, used an address to the Business Council of Australia on Wednesday to make clear the government was putting the lives of Australians ahead of what the nation's corporate leaders wanted.
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Budget improves but economy isn't on the same page
By Shane Wright
September 19, 2019 — 7.45pm
The best budget position in a decade will be used by Treasurer Josh Frydenberg and Finance Minister Mathias Cormann as a badge of economic management.
A deficit of $700 million, in a budget of $485 billion, in an economy approaching $2 trillion, is little more than a rounding error. But it is miles from the record $54.9 billion deficit delivered in 2009-10 when the world went through its biggest economic shock since the 1930s.
With a jobs market that is still swelling - in part because people are being forced into work as wages aren't growing fast enough to help make ends meet - and iron ore prices still strong, a surplus for the 2019-20 financial year is all but assured.
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'Really, really tough': Small retailers say they are facing GFC-like conditions
By Dominic Powell
Over her 25 years in retail, Catherine Cervasio can't remember the last time trading conditions were this difficult.
"Retail in Australia is really, really tough right now. Sales are really dropping off in smaller stores," says Cervasio, who founded skincare retailer Aromababy in 1994.
"I think if it weren't for exporting, a lot of businesses wouldn't be surviving."
This is the prevailing feeling for many small retailers, who are hoping stimulus from income tax cuts will lure consumers back to stores amid conditions some say are as bad as during the global financial crisis.
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Conventional capitalism is dead
Statism is killing capitalism, which means all market prices are wrong – with huge consequences for investors.
Sep 20, 2019 — 11.45am
In response to the 2008 crisis, central banks and treasuries threw the baby out with the bathwater.
Unable to tolerate the pain associated with capitalism’s most important attribute, “creative destruction” – or the cathartic process by which markets punish bad businesses and reward good ones – government agencies decided that they would take control of private market prices when the signals embedded in them wrought too much disruption.
They did this by buying all manner of bonds to manipulate the short- and long-term risk-free “discount rate” that investors use to price the present value of the cash flows produced by all assets. And when that was not enough, governments bought direct stakes in companies, including many banks, and equities more broadly.
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OECD cuts Australian growth outlook to 1.7pc
Miners Andrew McGregor, Chris Davy, and Scott Howlett at the Rix's Creek North coal mine in the
The Paris-based OECD has demanded tax cuts for big business as it slashed the Australian economy’s — and the world’s — growth prospects amid mounting economic fallout from the Sino-US trade war, as it slammed the Coalition’s effort to mitigate climate change.
Pointing to “continued challenges in climate change policy”, the OECD called on the government to “firm up and improve” its greenhouse reduction plans as it cut Australia’s forecast growth for this year to 1.7 per cent — far below Reserve Bank and Treasury forecasts.
“Catch up in income per capita relative to the upper half of OECD countries has paused since 2011, as growth has lagged, affected by lower commodity prices and reduced resource-sector investments,” the OECD said.
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Government and business face up to new realities
The Coalition and business ended the week closer amid all the culture war distractions
Sep 21, 2019 — 12.00am
Even after Bill Shorten’s attack on the big end of town helped Labor lose the election, junior minister Ben Morton last week put big business in its place. The Coalition government doesn’t represent corporate Australia, he told a business gathering. The Assistant Minister to the Prime Minister accused business of pandering to noisy elitist political activists rather than delivering on the aspirations of the “hard-working middle and aspirational Australians” who returned the government to power. As political editor Phillip Coorey exclusively foreshadowed last Saturday, Energy Minister Angus Taylor then reintroduced the Coalition’s “big stick” legislation to allow the government to break up integrated energy companies found to have rigged the market or gouged electricity consumers. Notwithstanding whimpers of protest from Liberal backbench dries, it started to look like an avalanche of new regulation promoted, ironically, by the assistant minister responsible for cutting red tape.
The business culture wars looked like escalating as the likes of Qantas boss Alan Joyce and BHP chief Andrew Mackenzie defended the role of business in various social causes and in combating climate change. The Millennials who turned out for Friday’s climate change strike are not the “quiet Australians” whom Scott Morrison and Mr Morton want to reward for returning the Coalition to government. Nor are the activist shareholder investors who are becoming the new capitalist owners of corporate Australia.
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Swarming drones: the future of warfare
James Brown
Sep 20, 2019 — 11.00pm
The aerial strikes on oil facilities in Saudi Arabia last weekend offer a glimpse of the future of warfare.
The largest disruption of global oil supplies on record wasn’t caused by a bomber strike or fast jet raid. Instead, the devastating attack, which cut oil production and rocked energy markets, was brought about by the precise deployment of an unmanned swarm of low-cost drones and cruise missiles.
The attack most likely came from territory controlled by Iran or its proxies, which have been investing in low-cost drone technology for the past decade. But the use of cheap and lethal unmanned (and often unattributable) weaponry is spreading beyond nation states and prompting significant changes in the way advanced militaries undertake their own defence procurement. It could have far-reaching consequences for the way Australia invests its defence budget.
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Crisis building while Morrison plays king of the Canberra bubble
Peter Hartcher
Political and international editor for The Sydney Morning Herald
September 21, 2019 — 12.15am
Australian politics is waiting. On the most obvious level, it's waiting because the two main parties are unsure of their purpose.
The Morrison government has no serious agenda. Lots of fine-tuning, some implementation work, some tidying. But busyness is no substitute for progress. The government is a political group still recovering from the trauma of serial regicides, the wounds of civil war, and the surprise of winning a new term it wasn't ready for.
Scott Morrison has arrived in Washington with his wife Jenny ahead of his visit to the White House.
Its leadership has conducted multiple "deep dives", or internal policy investigations, in search of some agenda items. But there's no point going on deep dives if you don't come up with anything.
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The kids didn't stay in school, and the politicians lost their cool
Jacqueline Maley
Columnist and senior journalist
September 22, 2019 — 12.04am
By the time you're reading this, civilisation may have collapsed. On Friday, hundreds of thousands of students across the country marched in the streets to protest government inaction on climate change.
This meant they missed approximately three hours of school on a Friday afternoon - between midday, when the strike began, and knock-off time at 3-ish.
As anyone with passing knowledge of the childish and adolescent attention spans will attest, these hours are probably not the most productive of the school week.
But they are school hours nonetheless, and they should be treated with reverence, for they are full of potential knowledge.
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US-Aust moon project brings SA investment
South Australian Premier Steven Marshall is over the moon that Australia will support the US lunar project, saying it will be a great investment for the state.
Katina Curtis and Emily Cosenza
Australian Associated Press September 21, 201911:00pm
South Australian Premier Steven Marshall is over the moon about the Australian Space Agency's support for NASA's lunar project.
He told reporters on Saturday he "couldn't be more excited" that the Australian and American space agencies signed the joint statement of intent.
"It's a pretty exciting project to be involved in - assisting NASA getting to the moon," Mr Marshall said.
"We're the home of the headquarters Mission Control and Space Discovery Centre for the Australian Space Agency and I think it's going to get even more investment into our state."
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When the work runs out
In 1963 Queen Elizabeth II visited the Adelaide suburb that bears her name, a pristine, planned satellite city that was riding the crest of a manufacturing wave and a post-war migration boom.
Hosted by Sir Thomas Playford, the Liberal premier who governed South Australia for a record 26 years and turned it into a seemingly unassailable manufacturing powerhouse, the Queen and Prince Philip toured the centrepiece of the state’s economic miracle, the General Motors Holden factory.
Faded video in the archives of the State Library of South Australia shows the Queen nodding approvingly as Holden’s newest model, the EH sedan, rolls off the line. “The Queen shows a keen interest in the display and is provided with some of the facts and figures relating to the manufacture of 600 Holdens each working day,” the plummy-voiced narrator states in the official tour video.
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Royal Commissions And The Like.
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Industry super funds must keep in touch with members’ views
Over a decade a small group of people have skilfully guided the industry superannuation funds around the hazards that captured most of the big retail funds.
Accordingly, industry superannuation funds moved from` being the underdogs to dominance but they are now too big for that small group to cover the governance issues, as they have done so successfully in the past. And, as you would expect, given the money avalanche small cracks are appearing in industry funds.
The unsung heroes of the industry fund victory include (in alphabetical order) former Victorian premier Steve Bracks, Industry Super Funds chairman Greg Combet, AustralianSuper chief Ian Silk, and former Industry Funds Management chief Garry Weaven.
When an issue arose one or all of this group (plus a few others) would quickly sort out the issue before it exploded. The current industry fund dominance of institutional superannuation is obviously partly a result of the horrendous mistakes made by retail funds like AMP, MLC and Colonial. But the common sense approach of the above group patched over obvious industry fund governance weaknesses.
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CFD crackdown will cost $400m tax revenue
Sep 16, 2019 — 2.52pm
More than 1000 local jobs and $400 million a year in tax revenue are at risk if ASIC massively reduces leverage on derivative products used by investors, according to product providers.
Less market liquidity caused by a squeeze on the notional $22 trillion exposure in annual trades – an amount equivalent to more than 10 times Australia’s gross domestic product – could have unforeseen impacts on market liquidity, efficiency and costs in other sectors, such as foreign exchange, they warn.
(A notional value is a term used to value the underlying asset in a derivatives trade.)
Contract for difference (CFD) providers are also repeating claims that proposed lowering of leveraged positions will drive business into offshore financial centres, such as Vanuatu or the Seychelles.
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ASIC takes aim at the battlers
The corporate regulator's decision to appeal the Federal Court's "wagyu and shiraz" ruling is an attempt to dictate which borrowers should be permitted to own their own homes.
Sep 18, 2019 — 12.00am
They may have picked up the moniker "The Magnificent Seven", but there's precious little evidence that the seven commissioners at the Australian Securities and Investments Commission have the slightest clue as to what is happening in the critically important home lending market.
What's more, bankers have been dismayed by the arguments that ASIC is now using to defend its decision to appeal Justice Nye Perram's judgment in the "Wagyu and shiraz" case.
Last month, Westpac secured a stunning victory in the landmark case over responsible lending, with the Federal Court dismissing ASIC's case and instead ordering it to pay the bank's $5 million or so in legal costs.
At that time, ASIC commissioner Sean Hughes justified the regulator's decision to take legal action against Westpac on the grounds that the regulator saw it as a "test case" that would provide judicial clarification of a key legal obligation on lenders.
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Watchdog with more bite welcome
John Collett
Personal finance editor
September 18, 2019 — 12.00am
We are witnessing the reincarnation of the corporate regulator, the Australian Securities and Investments Commission (ASIC), as a cop on the block that not only has more powers but is prepared to use them.
It's quite a turnaround from times past, when the regulator appeared, sometimes, to be a bit too accommodating to those it regulated.
No one knows how much money has been lost by small investors, mostly retirees, in the financial collapses and disasters of the past 15 years where commissioned-driven sales were often involved.
However, it must run to the billions of dollars and affected hundreds of thousands of investors, some of whom lost their life savings.
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Test banks on fairness, ACCC asks Frydenberg
The competition watchdog is seeking approval from Josh Frydenberg to conduct another inquiry into banks after persistent complaints that consumers are not being treated fairly.
It is understood the Australian Competition & Consumer Commission wants a formal directive from the Treasurer to examine the industry’s competitiveness — a move that would unlock powers, including the right to request documents, that were used in the recent digital platforms inquiry.
Mr Frydenberg will have to seriously consider issuing the directive, given the strong anti-bank community sentiment fanned by last year’s financial services royal commission, as well as the political embarrassment suffered by the government before establishing the royal commission in late 2017.
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Not The Castle: APRA's 'vibe' case fails
Chris Kelaher could be forgiven for asking the same question as Wayne Byres: Was this case really worth it?
Sep 20, 2019 — 3.51pm
The prudential regulator has got exactly what it deserved from its failed Federal Court action against IOOF: a brutal slapdown from Justice Jayne Jagot.
Few would question that the Australian Prudential Regulation Authority needs to be, in the words of chairman Wayne Byres, constructively tough. And few would argue that IOOF, which is spending hundreds of millions on customer remediation and has been far too slow to meet the regulator’s demands, needs strong supervision.
But APRA’s first big legal case in a generation was, in the view of Jagot, weak and poorly executed.
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New fight brewing over banker pay as bonuses in spotlight
Clancy Yeates
Banking reporter
September 21, 2019 — 12.00am
Some of the most powerful investors in the Australian sharemarket have recently revealed how they voted in last year's annual general meetings. It's not a pretty picture for three of our biggest banks.
National Australia Bank's executive pay packets were comprehensively rejected by giant American asset managers Vanguard and State Street, and our very own Future Fund. BlackRock, the biggest asset manager in the world, abstained after lengthy consultation with NAB, which copped a record-breaking vote on executive pay.
Westpac's remuneration report was also knocked back by the Future Fund, while State Street and BlackRock abstained, and Vanguard gave its support.
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Let’s have a climate change royal commission
As a follow-up to the “climate strike” that kicked off yesterday, we need a royal commission into climate change. Before you have me arrested, consider the banking royal commission.
The government and sections of the media denied the existence of a serious problem in banking and financial services from the moment former National Party senator John “Wacka” Williams started calling for a royal commission in 2013, after the Commonwealth Bank financial planning scandals were first uncovered. A Senate committee recommended it in 2014 and the Labor Party made it a policy in 2016.
Through all this the government played a delicate game of having it both ways: denying the need for a royal commission, while introducing a series of its own measures that it claimed would deal with the obvious corruption being uncovered by whistleblowers leaking to the media.
Once the Hayne royal commission eventually began, plainly exposing the corruption in financial services in a judicial setting, under oath, the resistance melted away. The government is now filled with crusaders against banking corruption, implementing all of Hayne’s recommendations, while the banks themselves are pillars of rectitude, diligently sweeping out the stables.
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National Budget Issues.
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It may be time for helicopter money
There was a quite interesting bit of central bank action last Thursday, and no, I’m not talking about European Central Bank President Mario Draghi’s swan song 10 basis point rate cut – to minus 0.5 per cent - and the restart of quantitative easing.
It was the Central Bank of Turkey’s decision, on the same day, to cut its benchmark rate by 325 basis points to 16.5 per cent.
It was new governor Murat Uysal’s second board meeting. At the first, in July, the bank cut the benchmark by 425bp, from 24 per cent. His predecessor had been sacked by President Erdogan for not cutting interest rates, and five days before last week’s second cut in succession by the new bloke, the President uncannily predicted it.
But that’s not what was interesting – it was that both President Erdogan and Governor Uysal asserted that easing monetary policy would bring inflation down.
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'Long past time' for more stimulus: Vanguard
Sep 16, 2019 — 2.26pm
A financial crisis or recession seems the only thing that will spark government into increasing fiscal stimulus, says the Australian head of bonds at the world's second-largest asset manager, Vanguard.
Vanguard's Australian Head of Fixed Income Jeff Johnson says investors need to lower their return expectations.
Jeff Johnson also said investors and business needed to "reset" expectations on investment returns, reflecting calls from Reserve Bank board member Ian Harper for companies to lower investment hurdles as rates drifted lower.
With interest rates at record lows and monetary policies around the world becoming less effective, fiscal stimulus was needed more than ever, he said.
"With rates so low we question the impact of further cuts. We would love to see monetary policymakers get a bit of help from fiscal policymakers," Mr Johnson said.
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Consumer confidence hits two-year low: ANZ
Consumer confidence cratered to a two-year low at the weekend, a survey by ANZ and Roy Morgan suggests.
Michael Mehr
Australian Associated Press September 17, 201910:10am
Consumer confidence has slumped to its lowest level in more than two years as people anticipate more difficult economic conditions over the next five years.
The ANZ-Roy Morgan Australian Consumer Confidence index fell 3.5 per cent from the previous week, with respondents' perception of the economy - including the outlook for the next 12 months - dipping 0.6 per cent and sentiment about conditions during the next five years plummeting 7.6 per cent.
The weekly measure of consumer mood, which is based on about 1,000 face-to-face interviews conducted on Saturdays and Sundays, also recorded a 4.6 per cent drop in how people felt about their current financial condition compared with a year ago and a 4.8 per cent slide regarding their finances during the next 12 months.
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House prices poised for lift but consumer spending concerns RBA
Sep 17, 2019 — 1.47pm
Consumer spending has not lifted "noticeably" despite tax cuts and remains a key concern for the Reserve Bank of Australia in holding off interest rates.
Transcripts of the minutes from the last board meeting on September 3 on the effect of tax cuts noted: "The bank's liaison with retailers suggested that this had yet to lift spending noticeably."
But it added weakness in construction and housing investment combined with greater household disposable income may in fact stimulate further growth in house prices.
The central bank board members, headed by RBA Governor Philip Lowe, said the federal government's tax cuts were still expected to boost household income and consumption growth, and that the "seeds of an upswing" in the housing market may also be growing due to the lack of dwelling investment.
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Alarm bells ring over housing debt
Sep 20, 2019 — 2.07pm
Highly leveraged households in Australia have reached "problem levels" as poor housing affordability combined with an over-extension of household debt create a tipping point that, with an extra ingredient, would create the perfect storm for a recession, according to a new report by Oxford Economics.
The research investigates the probability that housing markets in several advanced economies around the world will not just slow, as many already have, but will experience a correction "deep enough to constitute a recession risk".
"Over the last five decades, sharp house price corrections (negative year-on-year house price growth rates) have been followed by recessions," senior economist at Oxford Economics Tamara Basic Vasiljev said.
Ms Basic Vasiljev said three ingredients in a severe downturn - the over-extension of household debt, low housing affordability and rising mortgage rates - played a larger role in influencing the broader economy and in such an environment "tipping points were easily breached".
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Health Issues.
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First case of extensively drug-resistant typhoid reported in Australia
By Rachel Clun
September 16, 2019 — 6.18am
Australia's first case of extensively drug resistant typhoid has been confirmed in a 20-month-old girl, who was taken to hospital suffering with high fever and vomiting.
Dr Philip Britton from the Children's Hospital at Westmead and the University of Sydney said given the fact the young girl had recently returned from six weeks in Pakistan led doctors to believe she had typhoid.
"It was only actually when we grew the bug from her blood stream that we became aware it was a highly resistant form, and a bug that's associated with an outbreak of this extensively drug resistant typhoid in Pakistan and western India," he said.
The finding from February this year, was published in the Medical Journal of Australia on Monday.
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Largest ever skin cancer study looking for the disease's genetic cause
By Stuart Layt
September 17, 2019 — 12.05am
Almost every member of Cathy Matt’s family has developed skin cancer, but she’s hoping a major clinical study will offer some hope to people like them.
The Queensland Institute of Medical Research (QIMR Berghofer) is putting together a genetic study with a target of 20,000 Australians, in an effort to drill down into the genetic causes of skin cancer.
Ms Matt said she has never doubted skin cancer had a genetic component, after her mother, two siblings and a number of her extended family including two of her grandparents developed multiple skin cancers.
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Xanax still being overprescribed despite policy changes
By Rachel Clun
September 19, 2019 — 1.00am
Patients are still being prescribed hundreds of Xanax tablets a year despite a cut in government subsidies.
Reports of anxiety drug poisonings have also remained relatively stable, suggesting more people were turning to private prescriptions, a report published in JAMA Internal Medicine on Thursday said.
In 2017, the government made changes to the public subsidy of Xanax through the Pharmaceutical Benefits Scheme (PBS) in an effort to limit its misuse. The large two-milligram tablet was removed from the subsidy, packet sizes were reduced from 50 to 10 tablets and refills were removed so new prescriptions were required.
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Pharmaceutical opioid harm surges in Vic
New data reveals more Victorians are showing up to emergency departments due to pharmaceutical opioid-related harm.
Kaitlyn Offer
Australian Associated Press September 19, 20199:17am
Victorians are inundating hospital emergency departments suffering from pharmaceutical opioid-related harm at a cost of $16 million over two years.
Opioid-related emergency presentations increased annually by an average of 3.1 per cent during the 10-year period of 2008-09 to 2017-18, according to the Monash University Accident Research Centre.
The centre's Hazard report released on Thursday says in 2015/16 to 2016/17, the years where costs were available, hospital treatment both direct and indirect for hospital admissions totalled $16.35 million.
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Australia then and now: how quality of life has improved worldwide over the past century
By Craig Butt
September 19, 2019 — 10.52am
The health of a typical Australian has improved so much over the past century that if you revisit the state of affairs in 1919, the sheer scale of that era's misery is hard to comprehend.
The First World War had concluded, but it had left a terrible toll on the nation. More than 60,000 Australian men were killed and more than 170,000 people were left with injuries or illnesses that lasted a lifetime.
That equates to about one in 20 Australians. If something of the same magnitude were to happen in the present day, the number of dead or injured would tally to about the current population of the Northern Territory, Tasmania and the Australian Capital Territory combined.
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Big Pharma feels the pain over opioid crisis
America’s giant pharmaceutical industry is facing a reckoning on a scale that hasn’t been seen since the days when Big Tobacco was brought to heel by the courts and by public opinion, ending the glory days of cigarettes.
A stunning decision by a judge in Oklahoma last month ordering drug giant Johnson & Johnson to pay $US572m ($842.6m) for the destruction wrought by its opioid prescription painkillers has rattled Big Pharma.
It comes ahead of a scheduled federal trial in Ohio next month that combines lawsuits from more than 1500 US cities and counties against large drugmakers and distribution companies that could leave those entities liable for combined payouts as high as $US150bn.
The impact of the Oklahoma decision is already rippling across the country’s $US300bn-plus pharmaceutical industry forcing major players to try to negotiate multi-billion-dollar payouts to head off similar court decisions for their role in creating the prescription opioid crisis that has killed more than 400,000 Americans since 1999.
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International Issues.
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Yemen rebels claim responsibility for crippling attacks on Saudi oil facilities
Kareem Fahim and Steven Mufson
Sep 15, 2019 — 10.20am
Istanbul/Washington | Explosions and towering fireballs struck the heart of Saudi Arabia's oil empire on Saturday in an apparent wave of drone attacks claimed by Yemen's Houthi rebels.
The blows knocked out more than half the kingdom's oil output for days or more and threatened to drive up already high tensions between Iran and its foes in the Persian Gulf.
The pre-dawn blasts on facilities of the state-run oil giant Aramco - which the rebel group claimed were carried out by a fleet of 10 drones - marked one of the most devastating strikes into Saudi territory claimed by the Iranian-allied Houthis in more than four years of war in Yemen.
It was also the most serious attack on Saudi Arabia's oil infrastructure in decades, which includes barrages of Scud missiles fired by Saddam Hussein's forces during the 1991 Gulf War. A NASA satellite image showed what appeared to be a long streak of black smoke flowing to the south-west from the Aramco site.
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Saudi Arabia drone attack is a strike at oil's future
As much as oil markets usually like nothing more than a bit of strife in this corner of the world, it is ultimately pernicious to the industry's longer-term fortunes.
Updated Sep 15, 2019 — 3.57pm, first published at 3.51pm
We're about to find out just how laid back the oil market really is. It has shrugged off sanctions on Iran, exploding tankers and drones getting shot down over the Strait of Hormuz.
But the weekend's strike against Saudi Arabia's Abqaiq processing facility – perhaps the single most important piece of oil infrastructure on the planet – is of a different order.
Saudi Arabia said the attack affected 5.7 million barrels a day of output, or roughly half their production. The more important issue is how long any disruption lasts. It is unclear whether the strike involved drone-fired weapons or missiles or a combination of them.
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US 'locked and loaded' after Saudi attack, says Trump
By Roberta Rampton and Arshad Mohammed
September 16, 2019 — 10.34am
Washington: US President Donald Trump says the United States is "locked and loaded" for a potential response to the attack on Saudi Arabia's oil facilities, after a senior official in his administration said Iran was to blame.
"There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!" Trump said on Twitter on Sunday.
He said he had also authorised the use of the US emergency oil stockpile to ensure stable supplies after the attack, which shut 5 per cent of world production.
"Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorised the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount sufficient to keep the markets well-supplied," Trump said.
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The Saudi oil refinery attack could be a Pearl Harbour moment
By Alan Levin
September 16, 2019 — 7.55am
For many of the national security teams that monitor threats on the US, the apparent drone strike on the heart of Saudi Arabia's oil production facilities was the realisation of their worst fears.
Based on early reports, multiple relatively inexpensive drone devices were able to pierce Saudi defenses in a way that a traditional air force could not: flying long distances to drop potent bombs that apparently set vast portions of the Saudi petroleum infrastructure ablaze.
Iran rejects U.S. claims it was behind air strikes on refineries.
"This has the potential to be as significant as Pearl Harbour," said Randy Larsen, a former professor and department head at the US military's National War College.
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Intelligence suggests Iran behind Saudi refinery strike, says US
By Roberta Rampton
September 16, 2019 — 6.38am
Washington: The scope and precision of drone attacks on Saudi Arabian oil facilities show they were launched from a west-northwest direction rather than from Yemen to the south, where Houthi rebels claimed responsibility, senior US administration officials said on Sunday.
US officials pointed to satellite imagery showing 19 points of impact on the oil facilities. The attacks on Saturday risk disruptions to the world's oil supplies, and oil prices were expected to jump on Monday.
The officials said they had additional evidence they would reveal in the days to come that would show that Houthi claims of responsibility for the attacks were not credible.
"There's no doubt that Iran is responsible for this. No matter how you slice it, there's no escaping it. There's no other candidate. Evidence points in no other direction than that Iran was responsible for this," an official told a small group of reporters, speaking on condition of anonymity.
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China’s digital payment systems threaten US dominance
“How would you like to pay for that, sir?” For most of my lifetime, there have been three possible answers to that question: cash, a cheque or a plastic card. Go to Beijing, however, and you will see few transactions in those forms. People pay with their phones, using systems created by the two biggest Chinese tech companies, Alibaba and Tencent.
And not only in Beijing. For the Chinese way of paying is spreading around the world — from taxis in Tokyo to the Harvard gift shop in Cambridge, Massachusetts. I think this is a big deal. Indeed, it could be a much bigger deal than China’s dominance of 5G telecommunications networks.
Since 1971, when Richard Nixon severed the last link between the US dollar and gold, the world has been on a fiat monetary system (meaning the money supply is unconnected to any scarce reserve asset such as gold). Because of the size of the American economy and its dominance of financial and commodity markets, the US dollar has been the No 1 currency since that time.
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Saudi attacks reveal oil supply fragility in asymmetric war
Anthony DiPaola and Verity Ratcliffe
Updated Sep 16, 2019 — 2.21pm, first published at 2.11pm
Dubai | The latest and most destructive attacks on Saudi oil facilities provide stark evidence of the vulnerability of global crude supply in an age of disruptive technologies that can bring a century-old industry to its knees - at least temporarily.
From remote-controlled drones to anti-ship mines and computer worms, hostile parties have employed an unpredictable array of asymmetric weaponry to confound one of the best-equipped militaries in the Middle East.
Saudi Arabia blames many of the attacks against its oil assets on Houthi rebels in impoverished Yemen, where Saudi forces have been fighting since 2015 in a civil war that's spilling across their shared border.
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More attacks on Saudi oil infrastructure likely, analysts say
12:35PM September 16, 2019
A drone attack on two major oil facilities in Saudi Arabia at the weekend is unlikely to be a one-off, putting the region more squarely on the path to military conflict, experts say.
The attack on the Saudi facilities was the largest ever disruption to global supplies, outstripping disruption caused by incidents including the invasion of Kuwait in 1990 and subsequent war with Iraq, and the Islamic Revolution in Iran in 1979.
While officials have indicated that exports would restart in the coming days, head of global commodity strategy at Royal Bank of Canada Helima Croft said there was nothing to suggest Iranian-backed Houthi rebels would forgo further strikes on Saudi sites.
“There is nothing to suggest that this is a one-off event,” she said.
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'I have seen this happen before': Nobel prize winner sounds an economic warning
By Tom Rees
September 17, 2019 — 8.19am
Economist Robert Shiller thinks his peers have missed something big. Most experts in his sphere believe the cogs of the economy are turned by policies and mathematics. But Nobel prize-winning Shiller has always sought out the human side of the so-called dismal science.
He instead sees stories, beliefs and, most dangerously, irrational greed as key drivers of the global economy, wedding maths and psychology together. Economists, he argues, don't "talk about things that people really care about that are driving them to behave differently. They need to listen to what these other disciplines have to say and start talking about an important driver of economic change, which is narrative."
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The Saudi oil crisis, volatile leaders and the risk of escalation
Ever since Donald Trump’s election in 2016, nervous observers have wondered how the president would behave in a real foreign policy crisis. We are about to find out.
Sep 17, 2019 — 10.28am
For decades, any list of global geopolitical risks will have had “attack on Saudi oil facilities” near the top. Now it has happened.
The good news is that the world is less vulnerable to an oil price shock than it was in the 1970s, when the OPEC oil embargo created turmoil in the global economy.It is also true that all of the major powers involved — Saudi Arabia, Iran and the US — have strong incentives to avoid an all-out conflict.
The bad news, however, is that the key decision makers in this particular drama — Donald Trump, the US president, Mohammed bin Salman, the crown prince of Saudi Arabia, and the leadership of Iran — are all headstrong and prone to taking risks.
It is likely that, if the US sticks to its claim that Iran was behind the attack, it will stage a military response. If and when that happens, there are no guarantees that the conflict will not escalate further. Given that the weekend attacks have already caused a 20 per cent spike in the price of oil, the potential for further mayhem on the markets is clear.
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Saudi Arabia has no excuse for its military failures
The Abqaiq attacks should not – could not – have come as a surprise.
Bobby Ghosh
Sep 17, 2019 — 3.47am
President Donald Trump has declared that, once it has been verified that Iran was indeed responsible for last weekend's attack on major Saudi Arabian oil facilities, the US is "locked and loaded". To do what, exactly, is unclear.
Trump has previously threatened the Islamic Republic with "overwhelming force", but only if it attacked American targets. Last month, he ordered – and then cancelled – an American bombing run against Iranian sites, but that was in response to the downing of an American drone.
Trump's close circle is now bereft of its fiercest proponent of bombing Iran – freshly fired John Bolton – and his remaining political and military advisers will likely urge caution. With the United Nations General Assembly opening in New York this week, Trump will have an ideal platform from which to unleash rhetorical fusillades, instead of real bombs, against Iran. Perhaps that will satisfy him.
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An oil price shock is the last thing the world economy needs
Sep 17, 2019 — 3.53pm
A doubling in oil prices on average has preceded every US recession since the 1970s - is history about to repeat itself?
Over the weekend there was an attack on national oil giant Saudi Aramco's Abqaiq facility, a processing plant that prepares close to 70 per cent of the country's oil for export.
By some accounts it's the world's most important crude oil facility, accounting for 7 per cent of the world's total oil supplies. The attacks knocked out 5.7 million barrels per day in production, Aramco said, or around 5 per cent of the global total.
After spiking as much as 20 per cent in initial trade on Monday, Brent crude has settled around $US68 a barrel, but it's still up a hefty 13 per cent from last week's close of $US60.
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https://www.afr.com/world/middle-east/why-the-psyche-has-been-altered-in-oil-markets-20190917-p52s8e
Why the psyche has been altered in oil markets
Clifford Krauss
Sep 17, 2019 — 4.03pm
Houston | Fixing the damage done by the attack on the Saudi oil processing plant may be the easy part. The hard part will be calming energy markets, where oil prices have jumped faster than at any time in more than a decade.
The attack on Saudi Arabia’s Abqaiq plant, which accounts for 5 per cent of global oil supplies and a nearby facility took 5.7 million barrels a day of production offline for at least a few days. It also highlighted the vulnerability of the sprawling processing plants, pipelines and refineries of the Persian Gulf.
“The psyche has been altered,” said Tom Kloza, global head of energy analysis for Oil Price Information Service. “Now you have the thought, `What if the other shoe drops and we have a wider conflict?’”
For years, US and Saudi security analysts have worried about the Abqaiq processing centre, which removes sulfur impurities and makes crude oil less volatile so it can be safely exported on tankers. Without the plant, much of the oil that Saudi Arabia produces at its giant Ghawar and Shaybah oil fields would have nowhere to go.
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Saudi wealth and weaponry still can't guarantee oil's protection
Marc Champion
Sep 17, 2019 — 3.58am
How could Saudi Arabia, a country with the world's third-largest military budget and six battalions of US-built Patriot missile-defence systems, fail to defend the beating heart of the oil industry on which the kingdom depends?
That question lies at the heart of responses to Saturday's attack on Abqaiq – which cut Saudi oil production by half – and is critical to any assessment of whether investors will have to permanently factor higher political risk assumptions into the price of oil.
As audacious as the strike was, it was only the latest in a series and should have come as no surprise. The effectiveness of the Saudi military machine has long been questioned, despite spending $US83 billion ($120 billion) on defence last year, compared to $US45 billion for Russia and $US20 billion for regional rival Iran. The kingdom's formidably equipped air force has been bombing Iran-backed Houthi rebels in neighbouring Yemen since 2015, but has so far failed to tip the civil war in favour of Saudi allies.
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Donald Trump is facing his first foreign policy crisis
Five steps for the White House to take if it wants neither war with Iran or an oil price spike.
Sep 18, 2019 — 12.00am
Saturday's attack on Abqaiq, home to one of the most important petroleum processing facilities in Saudi Arabia, threatens to dramatically escalate tensions in the Persian Gulf. While the Saudis have not yet attributed blame, they are likely to do so soon – and to react accordingly. US Secretary of State Mike Pompeo has declared what most observers suspect: the Iranians might not have directly orchestrated the attacks but are almost certainly behind them.
If true, Iran is continuing its response to the administration's "maximum pressure" campaign with its own version of maximum pressure. The Iranians have long declared that if they cannot export their oil, others won't be able to do so either. In May, just weeks after President Donald Trump decided to add to existing sanctions with the aim of reducing Tehran's oil exports to zero, the Iranians began their "deniable" assault on oil supplies out of the area, twice attacking oil tankers and using proxies in Yemen and Iraq to attack Saudi oil facilities.
Using proxies and denying responsibility for such attacks is the Iranian way of reducing the risks of such actions. And the US response to date has persuaded Supreme Leader Ayatollah Ali Khamenei that the risks of what the Quds Force of the Revolutionary Guard is doing are manageable. After all, when Trump declared that we don't get our oil out of the Persian Gulf, so others should bear the main responsibility for keeping the Strait of Hormuz open, he reversed the policy of every president since Jimmy Carter – who declared the Persian Gulf a vital national security interest of the United States in January 1980.
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Saudi Arabia says oil output will return to pre-attack levels in weeks
Taylor Telford and Thomas Heath
Sep 18, 2019 — 7.56am
Saudi Arabia has restored half of the crude production that was lost to devastating attacks on its oil industry, and the kingdom said output will be fully restored by the end of this month.
The details came during a news conference Tuesday afternoon in Jiddah by Saudi Energy Minister Prince Abdulaziz bin Salman.
Saudi Aramco's critical Abqaiq processing plant has restored 2 million barrels day that was lost due to the wave of drone and missile attacks on the Saudi oil fields, bin Salman said. The energy minister said production will reach 11 million barrels per day by the end of September.
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'Low or negative returns for years, even decades': World Bank chief warns of steeper global growth slowdown
By Jeff Kearns
Updated September 18, 2019 — 7.49amfirst published at 7.45am
World Bank president David Malpass said the global economy is poised to decelerate more than previously estimated, with the pile of negative-yielding debt indicating growth will be slower in the future.
"The slowdown in global growth is broad based," Malpass said Tuesday in a speech in Washington. Recent developments signal the 2019 world expansion will likely to fall short of the lender's June projection of 2.6 per cent in real terms, Malpass said. The nominal growth rate appears poised to slow to less than 3 per cent - "a big letdown" from the about 6 per cent pace in 2017 and 2018, he said.
Roughly $US15 trillion ($22 trillion) of bonds with zero or negative yields indicate that investors accept "the market's premise of very low or even negative returns for years, even decades," he said. "This frozen capital implies slower future growth."
The comments by Malpass at the Peterson Institute for International Economics in Washington, his first major public address since taking office in April, come as the global economic outlook dims ahead of next month's annual meetings of the bank and the International Monetary Fund. The fund is preparing to update its growth forecast in the new World Economic Outlook, after reducing the projection, already the lowest since the financial crisis, in July to 3.2 per cent this year.
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An oil shock may be enough to push the global economy into recession
By Ambrose Evans-Pritchard
September 18, 2019 — 10.35am
The US has now categorically accused Iran of staging a swarm attack of 20 drones and a dozen missiles on the Saudi separation plant at Abqaiq, the biggest oil operation in the world. The Saudis have in turn stated the weapons used were Iranian. They deny the assault was an autonomous action by the Shia-aligned Houthis in Yemen, Iranian military proxies in any case. The Middle East is therefore on a war footing.
This is not a "black swan" event. It became predictable after US President Donald Trump chose to tear up the nuclear accord with Iran, shut down 2 million barrels a day of Iranian oil exports and throw US strategic might behind Saudi Crown Prince Mohammed bin Salman.
It is more like a Middle East "Sarajevo" moment. The long-festering contest for Gulf dominance between the Shia and Sunni regional powers is coming to a head.
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Jakarta pulls the teeth of anti-corruption watchdog
Indonesia has ended a 17-year era of accountability after its parliament voted yesterday to fatally weaken the powers and reach of the country’s most trusted institution — its anti-corruption commission.
MPs are also poised to pass amendments to the criminal code that will criminalise sex outside of marriage, including gay sex, restrict media freedom, impose prison terms for criticising the president but reduce stretches for corruption convicts.
The Indonesian Anti-Corruption Commission (KPK) was created in 2002 as an embodiment of a determination to end the rampant cronyism and corruption of the Suharto regime and usher in an era of clean and transparent government.
Its work has been widely lauded ever since as a role model.
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Trump has his global crisis, and he is woefully unprepared
Predicting what the Trump administration will do is a fool's errand. What seems worth pointing out, however, is just how bad the US position looks on the Middle East chessboard.
Daniel Drezner
Sep 18, 2019 — 1.06pm
One of the mantras about President Donald Trump's first few years in office is that he has not faced a real foreign policy crisis.
This requires a very narrow definition of "crisis" - there are many, many examples of slow-motion debacles Trump has done little to stop - but now is not the time to quibble. One could make a case that Trump had not faced a global crisis not of his own making for his first 2½ years in office.
Well, we are in crisis mode.
The weekend attack on the Abqaiq oil-processing plant and the Khurais oil field in Saudi Arabia has roiled global oil markets and escalated tensions in a region that was not exactly chill before this happened.
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Powell just showed he does have (some) guts
Fed chairman Jerome Powell, after his second rate cut this year, avoided a repeat of his confusing July performance which preceded America's summer of turmoil
Updated Sep 19, 2019 — 7.46am, first published at 6.58am
Washington | Eight weeks ago when Jerome Powell cut interest rates, Donald Trump used the temporary monetary policy stimulus to double down on his bruising trade war with China.
This time, the President might be a little more circumspect. His demand then for sharply lower rates led to a 1600-point collapse in the Dow Jones Industrial Average and inverted the US government yield curve.
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Fed does the 'right thing' in supporting repo market: Dimon
Katanga Johnson
Sep 19, 2019 — 3.51am
Washington | JPMorgan Chase & Co chief executive Jamie Dimon credited the US Federal Reserve on Wednesday with doing the "right thing" in supporting the overnight funding needs of banks after borrowing costs suddenly spiked on Monday.
The Fed, for the first time since the 2007-2009 financial crisis, injected more than $US125 billion ($182 billion) over the last two days into the overnight repurchase agreement markets that banks rely on for short-term funding.
Dimon, who spoke to reporters at an event hosted by the Business Roundtable in Washington, said he did not believe the funding squeeze problem that prompted the Fed to act was a cause for immediate concern. But he said it highlighted underlying structural issues with the market that should be fixed.
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Saudi Arabia displays missile and drone debris from oil attacks
September 19, 2019 — 1.47am
Riyadh: Saudi Arabia displayed remnants of what it described as Iranian drones and cruise missiles used in an attack on Saudi oil facilities as "undeniable" evidence of Iranian aggression.
Defence Ministry spokesman Colonel Turki al-Malki said a total of 25 drones and missiles were launched at two oil plants in last weekend's strikes on Saudi Arabia.
The news conference took place with a backdrop of broken and burnt drones and pieces of one cruise missile allegedly collected from the attacks.
Al-Malki described the drones as "delta wing" unmanned aerial vehicle models, which looked like large triangles. The cruise missile, which al-Malki described as a "Ya Ali" type, had a small jet engine attached to it. He said the missiles have been used by Iran's Revolutionary Guards.
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Cash shortage: The plumbing system of the global financial system just sprung a big leak
Stephen Bartholomeusz
Senior business columnist
September 18, 2019 — 1.34pm
Something rather peculiar happened within a key piece of the global financial system’s plumbing overnight.
The cost of short-term borrowing in a critical money market suddenly soared, forcing the New York branch of the Federal Reserve Board to do something it hasn’t done since the financial crisis and inject $US75 billion ($110 billion) into the market for repurchase, or "repo’’ agreements.
The repo market is a key piece of the financial system’s architecture, providing short term liquidity to companies and institutions short of cash. It’s also a market of global significance, affecting the cost of borrowing US dollars globally.
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the health of poorer people, those in remote areas and Indigenous Australians.
Trump has created an economic fog, leaving everyone uncertain
Stephen Bartholomeusz
Senior business columnist
September 19, 2019 — 10.50am
The cliché often used when discussing central bank decisions is to focus, not on what they do, but on what they say. The US Federal Reserve’s latest rate decision doesn’t inform on either count.
While the Fed’s decision to cut the federal funds rate by 25 basis points for the second time this year was predictable, and widely predicted, what wasn’t as anticipated is how divergent the views within the Fed’s Open Market Committee have become.
There were three dissenters from the majority decision to reduce the rate, two arguing for no reduction and one for a larger cut. The divisions were, however, larger when it came to the outlook, with only seven members of the 17-member committee expecting one more 25 basis point cut this year. Roughly half the committee expect another rate cut next year but some members expect rates to be rising again.
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Missiles that struck Saudi Arabia snuck under the radar from Iran
· The Wall Street Journal
US and Saudi military forces and their elaborate air-defence systems failed to detect the launch of airstrikes aimed at Saudi Arabian oil facilities, allowing dozens of drones and missiles to hit their targets.
Saudi and US focus had been largely on the kingdom’s southern border with Yemen, where Riyadh has been fighting Iranian-backed Houthi rebels, US officials said. The attacks, however, originated from Iranian territory in the northern Persian Gulf, people familiar with the investigation into the strikes said.
As Saudi officials review information coming in from the US, Kuwait and their own investigators, they are increasingly confident that drones and missiles launched near Iran’s southern border with Iraq flew low to the ground on their way to slamming into the heart of the Saudi oil industry early on Saturday.
Investigators have found debris that appears to be Iranian cruise-missile technology.
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Why rigged capitalism is damaging liberal democracy
Sep 19, 2019 — 9.42am
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”
With this sentence, the US Business Roundtable, which represents the chief executives of 181 of the world’s largest companies, abandoned their longstanding view that “corporations exist principally to serve their shareholders”.
This is certainly a moment. But what does - and should - that moment mean? The answer needs to start with an acknowledgment of the fact that something has gone very wrong. Over the past four decades, and especially in the US, the most important country of all, we have observed an unholy trinity of slowing productivity growth, soaring inequality and huge financial shocks.
As Jason Furman of Harvard University and Peter Orszag of Lazard Frères noted in a paper last year: “From 1948 to 1973, real median family income in the US rose 3 per cent annually. At this rate . . . there was a 96 per cent chance that a child would have a higher income than his or her parents. Since 1973, the median family has seen its real income grow only 0.4 per cent annually...As a result, 28 per cent of children have lower income than their parents did.”
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Index funds the new kings of Wall Street
· The Wall Street Journal
Money managers that mimic the stock market just became the new titans of the fund-management world.
Funds that track broad US equity indexes hit $US4.27 trillion in assets as of August 31, according to research firm Morningstar, giving them more money than stock-picking rivals for the first-ever monthly reporting period. Funds that try to beat the market had $US4.25 trillion as of that date.
The passing of the asset crown is the latest chapter in one of the most dramatic transformations in the history of financial markets.
In the past decade, nearly $US1.36 trillion in net flows were added to US equity mutual funds and exchange-traded funds that mimic market indexes while some $US1.32 trillion fled higher-costing actively managed counterparts.
That shift lowered the price of investing for individuals, reduced the influence of stock pickers and turned a handful of Wall Street outsiders into the biggest powerbrokers in the industry.
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Trump's team split over response to Saudi oil attacks
Lara Seligman and Elias Groll
Sep 19, 2019 — 11.00pm
After a devastating attack on Saudi Arabia’s oil infrastructure that jolted international markets and raised fears of a confrontation with Iran last weekend, US President Donald Trump’s administration is weighing whether to get more deeply involved in yet another conflict thousands of miles from home.
All options are on the table, including sending additional American forces to the region, according to US officials who requested anonymity, following a series of attacks that took half of Saudi Arabia’s daily oil production offline at the weekend.
Although Trump initially promised on Twitter the US military was “locked and loaded” to hit back, his administration now appears to be taking a breath and stepping back to assess its options.
The internal deliberations are also revealing new divisions within Trump’s national security team, a week after he unceremoniously fired his national security advisor, John Bolton, a longtime Iran hawk. While the State Department is pushing a major force increase in the region, the Defence Department is urging caution, a senior administration official told Foreign Policy. Defence officials are mindful such an increase would be costly and siphon military resources away from other combatant commands, the official said.
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Trump charts course to chaos
Buckle up for a wild ride. A capricious and campaigning US president is in the mood for a currency war.
Aug 2, 2019 — 9.55pm
Washington | It look fewer than 24 hours for Donald Trump to burn through any short-term benefit that might have been gained from Jay Powell’s inexplicable interest rate cut this week.
That must be some kind of record.
Stocks began on Thursday in positive territory with the Dow Jones enjoying a healthy 300-point rise.
For investors left shaken by the post Fed rate cut slump it looked like a reasonable start. After all few were convinced the move wasn’t really about assuaging a bellicose White House rather than sound monetary policy.
But as the day wore on and as investors began to relax into the asset-market soothing benefits of Powell’s “mid-cycle adjustment”, Trump did a belly flop straight into the punchbowl.
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Trump really wants a China divorce
Trade war or even cold war does not convey the problems of unravelling 40 years of growing economic integration.
Sep 20, 2019 — 2.51pm
The phrase “new cold war” should never have been coined. Nothing in the original stand-off between the Soviet Union and the United States could prepare the global economy for what Donald Trump is demanding of America’s trading partners.
Moscow and Washington existed in separate orbits. Now the rest of the world is being asked to make a choice between China and the US, two intimately entwined economies. Nor does the label “trade war” begin to capture the dimensions of what this implies.
America’s partners are being pressured to eject Huawei, China’s leading telecoms equipment supplier, from their 5G networks. But Trump’s all-or-nothing ultimatum is by no means confined to Huawei. Almost every Chinese product is now under suspicion of concealing the “Manchurian chip” — backdoor technology that can lie dormant until it is activated.
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China trade war to last at least another year: Trump
Sep 21, 2019 — 5.23am
US President Donald Trump says his trade war with China will not be resolved before the presidential elections in November next year but Australia should not worry because its economy was doing well regardless.
Standing alongside Scott Morrison, who is in Washington for an official visit and state dinner, Mr Trump said the Australian economy was doing "very well'', despite the uncertainty caused by the trade war.
"Australia is doing very well. If we end up doing a deal (with China), Australia will do even better,'' Mr Trump said.
Asked about collateral damage to Australia and others as a result of the trade war, Mr Trump pointed to the exemptions his administration had granted for Australian steel and aluminium exported to the US.
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US troops to bolster Saudi air defences
· Reuters
President Donald Trump has approved sending American troops to bolster Saudi Arabia's air and missile defences after the largest-ever attack on the kingdom's oil facilities, which Washington has squarely blamed on Iran.
The Pentagon said on Friday the deployment would involve a moderate number of troops - not numbering thousands - and would be primarily defensive in nature. It also detailed plans to expedite delivery of military equipment to both Saudi Arabia and the United Arab Emirates.
Reuters has previously reported that the Pentagon was considering sending anti-missile batteries, drones and more fighter jets. The United States is also considering keeping an aircraft carrier in the region indefinitely.
"In response to the kingdom's request, the president has approved the deployment of US forces, which will be defensive in nature and primarily focused on air and missile defence," US Defense Secretary Mark Esper said at a news briefing.
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Iran warns US of all-out war’ after Saudi oilfields attack
· The Times
Iran warned that an attack on its territory would be met with “all-out war” as the US backed away from military action while claiming a “wide consensus” that Tehran was to blame for bombing Saudi oilfields.
Mohammad Javad Zarif, the Iranian foreign minister, raised the stakes as the US and Saudi Arabia consider their response to the bombings by declaring: “We’ll have a lot of casualties, but we won’t blink to defend our territory.”
Mr Zarif denied that Iran played a part in the attacks, which were claimed by Houthi rebels based in Yemen. His comments came as Mike Pompeo, the US secretary of state, completed a visit to Saudi Arabia and the United Arab Emirates saying that President Trump wanted a “peaceful resolution”.
Saudi oil output was severely affected by the attacks on the Khurais oilfield and the Abqaiq facility last weekend.
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I look forward to comments on all this!
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David.
