Why the PM should be paid $5 million, not $600k

1. Can a sports administrator be a good CEO of a listed company?

2. Politicians deserve much more pay

3. The death of the BNPL sector was widely misreported

4. Why is there so much war in the world?

THIS WEEK'S BIG STORY

The Reserve Bank board kept interest rates on hold but considered lifting them

Inflation, and particularly services inflation (insurance, rents, hairdressers etc), is why the Reserve Bank won't cut rates - and even considered raising them. It says that the best way to help struggling Australians in the long term is to get inflation lower. Inflation is currently around 3.6 per cent and the central bank wants it to drop back into its two to three per cent target band. Keeping interest rates high slows the economy and takes pressure off prices. It also runs the risk of going too far, and putting Australia into a recession.

What happened?

Anyone hoping for a little bit of interest rate relief on their mortgage or personal loan or credit card debt were disappointed when the central bank kept the official benchmark rate at 4.35 percent - a 12 year high. That means borrowers are paying around 6.8 per cent on their home loan. The benchmark rate has gone from 0.1 per cent in April 2022 to today's level, 4.35 per cent. It might seem high, but today's rate is still below the benchmark for most of the two decades prior to 2010.

Why not cut rates?

The short answer on rates is not anytime soon. Many of the market economists who thought rates should be falling by now, have pushed out the timing to late this year or even next year. A different question is should interest rates start falling? I've been firmly in the "yes" camp on this one, though recent government budgets, which are expansive, haven't helped my argument. What everyone does with their July 1 tax cuts might be the 'smokey' in this debate. If people save the money, then a rate cut is much more likely.  

Why is inflation high?

Inflation is too high because the economy has not yet cooled enough. Interest rates have done much of the heavy lifting already, culling price rises from eight per cent to 3.6 per cent. But the labour market remains tight, as seen by a four per cent unemployment rate. When people have a job, they buy stuff. Spending in federal and state budgets isn't helping. Neither is a lack of productivity. In economic-speak, there is still excess demand in the economy. That means things need to get worse before they get better.

When will rates fall?

BEST OF THE WEEK

IF YOU MISSED THIS GUEST, CATCH-UP NOW

Commonwealth Bank's share price hit an all-time closing high of $127.98 yesterday. Many analysts say the big banks are too expensive - so why are investors still mad for them? Nathan Zaia from Morningstar explains.

CALL IT FOR WHAT IT IS

BEST SOCIAL CALLOUT 

@AboveAndBeyond via TikTok, taking a different stance on politician pay rises:

"What if the wage decreased significantly? That would sort out the politicians who really want to help the country and set a moral example."

GOT A HOT TOPIC?

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

- Sean Aylmer

Good luck to Gillon McLachlan, the former head of the AFL, who this week was appointed chief executive of gaming group Tabcorp. Chair Bruce Akhurst said McLachlan was one of Australia's leading CEOs with a deep understanding of sport, racing and wagering, as well as commercial acumen. Akhurst should also have said McLachlan is a great dealmaker and has enormous political nous. Fair enough but does McLachlan have any idea how to run a business in a sector with all sorts of governance issues? Does he know much about technology? Gaming is an online business in 2024. And exactly what does he know about wagering? Under McLachlan's ten-year tenure, AFL's revenues doubled thanks to a massive TV deal. He is acknowledged as one of the best leaders of a sports organisation in Australia. But he hasn't run a listed company. He hasn't run a for-profit organisation. And he has been tasked with turning around a legacy company whose share price is down 40 per cent over the past year. I'm not sure who is more the fool - Akhurst or McLachlan. Or maybe Tabcorp's shareholders. 

Federal politicians received a 3.5 per cent pay rise this week, but what caught me off guard was how little they make. The Prime Minister earns $607,000 a year to run the country. That's about 60 per cent of the highest-paid federal bureaucrat. Opposition leader Peter Dutton earns not much more than $400,000. Yet they must spend months away from home. They carry the weight of policy decisions on education, health, the environment, armed conflict, detention centres and a myriad of other issues. Fame is one thing but it is much better if it comes with fortune. That doesn't happen for Aussie pollies. Recent Australian prime ministers, with a couple of notable exceptions in Malcolm Turnbull and Kevin Rudd, have not been wealthy. Maybe it's time we doubled their salary, or maybe tripled it. I'd give the PM $5 million and the Opposition leader $3 million. That way we might attract higher quality candidates to run the country. I understand that politics is a calling, or a vocation. But more money might help a broader range of Australians listen to the call.  

No stock in my memory epitomises the mood of the times more than Nvidia, the US-based chip maker that manufactures the 'brains' for artificial intelligence. This morning its market capitalisation reached $US3.4 trillion - more than Microsoft and Apple and more than the combined value of the Australian superannuation sector. It debuted on the Nasdaq stock exchange in 1999, made the S&P500 three years later (taking the place of disgraced oil-trading company Enron) and since then has become the best performing stock on Wall Street. The stock is up more than ten per cent in the past five days, 40 per cent in the last month, 170 per cent in the past half-year, and 591,078 per cent since its IPO. Its CEO Jensen Huang is one of the richest people on earth. Its place in history is now assured, although its place atop Wall Street isn't. Three times in its life, Nvidia's share price has, on an annual basis, halved. For the time being, while customers keep spending billions on AI, Nvidia will reign.    

Russian President Vladimir Putin is visiting North Korea's Kim Jong Un. Beijing is warning senior US politicians in northern India not to meet with the Dalai Lama, the exiled leader of the Tibetan people. Israeli Prime Minister Benjamin Netanyahu has reportedly dissolved the influential war cabinet that has overseen fighting in Gaza, and a ceasefire to the conflict, which has killed thousands, seems nowhere in sight. The war between Ukraine and Russia drags on while this week vessels from China and The Philippines collided in the disputed South China Sea. These are the disputes we hear about. According to the Council on Foreign Relations, there are about 30 ongoing conflicts around the world including in Armenia and Azerbaijan, Honduras, Syria, Lebanon, Iraq, Iran, Afghanistan, Pakistan, Sudan, Libya, Congo, and closer to home Myanmar and Taiwan. Why? A popular theory is that the demise of relations between the US, China and Russia, due to poor leadership, is at fault. I come from the lucky country so maybe it is just too remote for me, but I do not understand why there is so much war in the world. 

Twelve months ago, I was speaking to a restructuring expert who explained that buy now, pay later services are here to stay. A whole generation of people have grown into adulthood using four payments to make purchases. And they will explain that to their children who will do the same thing. The BNPL trend is reality. This week the Reserve Bank said the sector is worth $20 billion each year and growing fast. The average fee on purchases is 3.5 per cent. That's the amount the BNPL operator charges the retailer, who currently is not allowed to pass it on to customers. The equivalent charge for debit cards is 0.4 per cent and 0.8 per cent for credit cards. While the consumer doesn't pay the transaction fee directly, undoubtedly it feeds into overall pricing models. The BNPL fee arrangement is totally non-transparent. Of course retailers should be able to disclose the fee to customers and add it on, if they choose to do so. Why should BNPL have an unfair advantage over debit and credit cards? The BNPL operators will fight this transparency, but if it doesn't happen, the losers will be customers. 

5. Hail the new king: Nvidia eclipses Apple, Microsoft