Jeor

RBA lifts rates again and signals more to come. With inflation still at 6.8% it's bound to keep going. I am very fortunate to have fixed my mortgage until August 2024 but goodness knows what the rate is going to jump to when I come off it! I'm hoping by then inflation will be under control and they will have cut by then.

I still moved about 40% to cash in the last month (not consciously because of the debt ceiling, but a couple of my stocks had started to enter a downtrend and triggered my stops). Now looking to redeploy it. I'm still relatively cautious but now looking into an Asian ETF as I don't have any exposure there and in the long run they might not be a bad investment, even though lately they haven't been travelling well. I don't think the Chinese economy is going to be going all that well in the future but some of the other Southeast Asian economies are looking better.

Yes, no one saw that McGowan thing coming. He was invincible and could have gone on as long as he wanted, but I guess politicians are real people and get tired and exhausted after a while. Six years in the job, three of them COVID, would test anyone's nerves and McGowan picked a particularly combative path. Still a long way back for the WA Liberals though.

Yes, hence my use of the "vaunted" adjective. It would be amusing if the House Republicans have the votes to roll McCarthy but don't have the votes to decide on another Speaker again, but I doubt that will happen in practice. Given the farce it was the first time, the majority of the caucus wouldn't vote him out unless they knew for sure who his replacement was going to be e.g. Scalise.

In theory he's supposed to if he's going to bring it to the floor (the vaunted Hastert Rule). But I wouldn't be surprised if he circumvents it given current circumstances. Regardless of how it comes to the floor, if it ends up passing I'm sure McCarthy will face a motion to vacate the Speakership, which will mean breaking out the popcorn. There will be plenty of Republican House members who will be unimpressed with McCarthy's negotiating (not that any of the hard right have ever had to actually be pragmatic themselves).

Will be interesting to see how the debt ceiling deal affects the markets. I suspect it's only going to be a light and short-lived bounce, if any, given that there hadn't really been any major market drops in the past few weeks. It seems everyone was expecting a deal, so I think a couple of days of exuberance before resumption of normal service in the equities markets?

What are the chances of this actually passing, though? There will be lots of Republican defections, but I guess Dems will have to do the heavy lifting. What was the reason Dems didn't get rid of the debt ceiling when they had control of the White House and Congress again...? I don't know why you wouldn't just have gotten rid of it in that lame duck session.

I have wondered myself on how to handle a possible debt ceiling disaster in the equities markets. In my one-page investment manifesto I do make reference to avoiding single-issue investments (i.e. don't invest in a biotech company that is dependent on one drug being approved) which is what this debt ceiling feels like. My largest positions are in (roughly equally) cash, gold miner, telco and a Vanguard Global fund. Apart from the global ETF, the others are quite resilient in a default disaster, and I am comfortable holding onto the ETF as it's always been a long-term buy with no intended exit point. What I'm a bit more worried about are my middle-weight positions in BHP (diversified iron/copper miner), a lithium miner, a rare earths miner, and bank. All of those are susceptible to a market crash.

Term deposit rates are quite healthy. All the Big Four are offering 12-month term deposits at rates exceeding 4% (i.e. greater than the RBA cash rate) which isn't to be sneezed at. Deposit rates in more flexible savings accounts are lagging but every bank actually has a decent interest-bearing account, it's just often of the "bonus" nature requiring a few hoops to jump through, growing balances, depositing more money etc. I'm glad we don't have the patchwork of banks that the US does, and most importantly, that all banks in Australia have to abide by the same regulation (rather than the two-tier system). When your whole business is in confidence and trust, you want there to be a pretty high bar for entry into the market.

In some ways it is actually a confirmation that the Big Four government policy is working. With four major players there is enough competition to keep prices rational. This doesn't help the non-bank lenders or regionals, but it's at least proof that the dominant market position of the Big Four isn't a cartel.

In some ways the rapid interest rate rises have not been their friend. The cost of living crunch has put much more onus on mortgagees to shop around and find any deal that is better which is why the competition is so high and banks are having to offer inducements to keep good customers and hence undercut their own profits. Sort of the way a free market is supposed to work, but it does mean money isn't automatically flowing into the bank coffers as easily as it used to. They're still making big profits overall, of course. But a lot of the Big Four strategically concentrated their businesses into the mortgage lending book, divesting their wealth management, insurance, and financial advice arms. They might be regretting that now.

Pacwest stock tanking. This could become a neverending hunt for the next-weakest wildebeest to pick off, until there's an explicit government guarantee for all banks including the smaller regionals who don't have the systemic protection. Who would've thought that alongside "Too Big To Fail" there was also "Too Small To Fail"?

Yes, NAB's stock price (and the other Big Four) all tanked today. I think people are sensing any coming recession isn't going to be pretty for the banks. I think banks generally have come a long way - especially after the Royal Commission. I remember in the mid 90s my uncle had his house repossessed and he was thrown out of it after his life went in a downward spiral (my parents took his children in and they lived with us while he got himself back on track). These days I think there are a huge amount of hoops banks have to jump through before they can take that kind of action. But yes, if a banker called me and asked if I needed help I can understand why some might be suspicious at first blush.

I think it really depends on your demographic. A lot of older Australians are doing pretty well, sitting on big property gains, at higher income levels with lower (or no) debt, and not doing as much travel as before. Interest rate rises won't do much to them because they don't have big mortgage balances, and if they're saving money they would have usually spent on a big overseas trip, their incomes will have "gone up" regardless of inflation. Most people in this older, richer demographic also have much more controllable spending. They don't have to spend on young kids, education, activities etc. At the other end you have younger people on lower incomes (early career), much higher expenditures if they have children (and the type of expenditures that are beholden to inflation), and much higher mortgage balances. Interest rate rises are killing this group and it's a real shame that as such it really is widening the inequality gap. I'm fortunate to be somewhat in the first group despite still being youngish (37). Our household has a boatload of expenditure (two young kids) which seems neverending and doesn't allow for any level of savings, but our mortgage balance is comparatively low (about 3 times my gross income, which would be even less when/if wife goes back to work), and we had the presence of mind to fix our rate until August 2024. At the moment, on my income, we're just about breaking even. No real ability to save, but if a big bill did come up, I held onto some liquid assets (shares, from the time when I was single and actually had excess money!) that I could sell if we needed to cover a big emergency. I'm banking on the fact that wife will be back at work by the time we come off the fix in 2024, assuming rates are still pretty high then.

And the RBA surprises with another 0.25% rate increase, just one month after they had paused.