Trump, Australia, Tesla, Bitcoin and the Aussie dollar

1. Not much joy from the RBA

2. It is going to be a wild four years under Donald Trump.

3. The rise and rise of Australia's banks.

4. Mineral Resources CEO must go, now.

House prices are hitting new records - but the market is changing. There's more supply, properties are taking longer to sell, and in some cities growth has flatlined or is even going backwards. The Property Pendulum, presented by Domain and Fear & Greed, asks the question: is now the time to buy?

Listener Scott asks:

"I've been reading about the decision by the Washington Post not to endorse a candidate for the election. Do newspapers normally do this? Do we do it here? I haven't really noticed it in the past."

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Thanks for reading my opinions on the week's biggest stories.

- Sean Aylmer

While most of us are getting excited about falling inflation, the boffins at Reserve Bank HQ remain largely unmoved. In Governor Michelle Bullock's words, nothing can be ruled in or out. That means a rate hike can't be ruled out. There was some good news from this week's monetary policy announcement. The board and management of the RBA seem a little more concerned about household spending falling too sharply. The inference is that interest rates remain high and there is a risk they will push the economy into a recession (not just a per capita recession, like the one we are currently experiencing). It takes about 18 months for the full impact of a rate hike to hit the economy, and the last hike was just 12 months ago. High rates are still working through the economy, so the brakes are still well and truly on. However, the central bank is fixated on aggregate demand and aggregate supply. It is worried about all of demand and supply, including government spending, not just the household bit. The consensus view is the first cut in interest rates sometime in the first half of next year.

In the end, the US election wasn't that close. The popularist movement of Donald Trump and JD Vance encapsulated in the Make America Great Again campaign took the White House, the Senate, and probably the House of Representatives. Unlike 2016, Americans know what they voted for, even if the rest of us are unsure what happens next. What does it mean for Australia? Trump won't follow through on many of the statements he made during the campaign, but he will focus on US manufacturing, and that's likely to result in tariffs on imports, including from Australia. We are also likely to get caught up in the probable trade war between the US and China, which will hurt global growth. Trump's policies are big spending and he wants to slash the corporate tax rate. He is likely to do both and ultimately that means higher interest rates for longer. That could trickle down to Australian home owners. The Aussie dollar is under pressure short term - if you are heading on holidays in North America that will hurt. Then there's climate change and what happens to the Inflation Reduction Act in the US which is benefitting some Aussie companies. There's also a plethora of other factors from the Middle East and Ukraine through to how a Trump Presidency will change societal norms. It is going be a wild four years. 

What do Tesla, Bitcoin and the Aussie dollar have in common? They could all be long term beneficiaries of the Trump Presidency. Elon Musk donated millions of dollars to Trump's campaign and his ties to the incoming President are well known. He stands to benefit greatly, not least because Tesla's share price jumped 15 per cent overnight on the back of the Trump election. Musk is also a major contractor with the US Department of Defence through his ownership of the Starlink satellite broadband system. (He is also a beneficiary of policies introduced by the Biden Administration that encourages use of electric vehicles.) Bitcoin is trading at a record level because Donald Trump has become a crypto advocate and during the campaign promised to make the USA the "crypto capital of the planet" and create a "strategic reserve" of Bitcoin. That has given crypto currencies a gravitas they've never had before. The Aussie dollar is the outlier, but it too could eventually end up higher against the USD. In the short term it has been sold off as investors rush to the greenback. But the huge deficits expected under a Trump Administration will eat into the USD credibility as a safe haven asset. It will take time, but big deficits in the US will make the Australian dollar look more attractive.  

If corporate governance is to be taken seriously in Australia, the founder and CEO of Mineral Resources, Chris Ellison, should be removed immediately. Instead the board of the mining group said Ellison will step down within 18 months, notwithstanding it found that he used company resources for his personal benefit and had not acted with integrity. The Australian Financial Review reported that Ellison allegedly benefited through an offshore tax scheme, was caught out, and took several years to tell the board about it. The board's inquiry also found that MinRes staff worked on Ellison's personal boat, and he used company employees to manage his personal finances. Yet Ellison gets to keep his job for another 18 months. Big investors, notable the Future Fund which owns about $90 million worth of MinRes shares, are not impressed. The Future Fund is making its own inquiries. (Of all investors, Australia's sovereign wealth fund needs to set the standard.) That might be enough to force the MinRes board to do more, but I doubt it. Corporate governance is critical to the fair running of a market. In MinRes' case, corporate governance has failed. 

Australia's banking sector, according to the experts, has been over-priced for months. Yet share prices keep rising. This week the Commonwealth Bank hit a new record high of $145.58 and is up 45 per cent over the past year. In terms of market capitalisation, it is worth almost $30 billion more than BHP and is five time bigger than Telstra. Westpac released its full year earnings to the end of September. They show a three per cent drop in profit to $7 billion but the all-important net interest margin - essentially the difference between what the bank pays on deposits and receives on loans - rose an impressive eight basis points. Westpac's share price is up more than 50 per cent over the past year. National Australia Bank is due to release its results this morning. Its share price is up 35 per cent over the past year, while ANZ is 23 per cent higher. Can they keep going. The consensus is 'no', but that's been the view ever since Commonwealth Bank hit $120 a share. Like Americans love for Donald Trump, Australians love for the banks is a bit of a mystery.

5. Tesla, Bitcoin and the Aussie dollar

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AND ONE LAST THING...

When booking an Uber, have you ever been tempted by the cheap Uber Pool option, where you'll be matched with other passengers heading (roughly) your way? The Guardian Australia has run a fun experiment, cruising around in an Uber Pool for a week to see whether it's all awkward silence, or whether it could be the start of some beautiful friendships.

And just quickly - we know there are a few economics fans out there. The Australian Financial Review has put together the ten hardest questions from the last three years of HSC economics exam. If you think you've got what it takes, give it a go here (paywall).