26 Jan 2022

Today is Australia Day or as some call it Invasion Day.

Australia Day is the official national day of Australia. Observed annually on 26 January, it marks the 1788 landing of the First Fleet at Sydney Cove and raising of the Union Flag by Arthur Phillip following days of exploration of Port Jackson in New South Wales.

It is a wonderful thing when you learn things from your kids. My daughter is a leftie who fights for all those who are discriminated against and disenfranchised. While it makes some of our conversations particularly testy as I am more of a conservative type, I still regard myself as a compassionate human being. Through my daughter I have learned to respect today, to understand what it meant for the indigenous people of the land, but I also believe it is important to celebrate the accomplishments over the past 200 plus years.


The market sold off into the US close which is not a good sign for those who are still in the buy the dip camp.

If you read the note in the chart below – retail investors were big time sellers on Monday. I would have to say the equity markets are now starting to have a very bearish feel about them.

One more thing to say is how dried up gold volatility has become. You will recall me saying that about Bitcoin 5 days before volatility exploded and has made writing options pleasurable again. Dare I say it with all the inflows coming into gold of late it is ripe for an explosion in volatility. You would think with inflation on the up and interest rates looking set to follow that gold will fall out of favour. My prediction is that if Powell hesitates to tighten because the markets continue their route then that will be the cue for gold to take off, otherwise I am a little on the fence for now.

Money Complex

As it is Australia Day it is fair to start with Australian inflation. Headline inflation spiked to 3.5% to year ending 31 Dec and underlying (trimmed) inflation reached 2.6% slap bang in the middle of the RBA’s target of between 2 – 3%. The numbers were higher than expected and suggest that the RBA is behind the curve and will need to intervene by August which is well in advance of what they have been telling the market.

Still the message coming from the RBA is that they see some of these spikes as temporary.

One just needs to look around and see what is happening in the rest of the world. Singapore has just tightened its monetary policy, Canada looks set to lift rates as inflation is taking off there in a meaningful way.

Either Governor Lowe is a top class fortunate teller or he is asleep at the wheel. I am reading one of the best books on monetary policy I have ever read its a page turner of note, The Lords of Easy Money: How the Federal Reserve Broke the American Economy. The book has reinforced my understanding of macro economics and also given me great insights into the working of what goes on at the Fed in its inner sanctum. For me it is a better read than the enjoyable Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America.

All I can say is that the path the central bank took starting with Greenspan and then to a whole new level with Bernanke has sown the seeds of an almighty cluster #@ck coming to an economy near you.

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