This is an election budget - the nasties come later

1. BHP eyes its prey

2. Inflation really is falling, and rates will fall too

3. Farewell Bruce, hello Justin

4. Follow the money

THIS WEEK'S BIG STORY

Treasurer Jim Chalmers announces $300 energy rebates for everyone, and a budget surplus

Look beyond the next 12 months, and this is where the spending really kicks in. The budget surplus this year of $9.3 billion goes to a deficit, over four years, of $112 billion. That's because the government has promised billions in tax credits and incentives for the greening of the economy, even daring to take on the might of Chinese manufacturing in some areas, notably solar panels. The Future Made in Australia strategy is a big spending package, and we don't know what the money is going to be spent on. 

The good news

The next 12 months is about Stage Three tax cuts, $300 energy rebates for households, and more rental assistance. It allows the government to say it is a cost-of-living budget, looking after those that need it most. Certainly this government has provided more for the lower and middle income earners. The $300 rebate, rather than a hand out, allows the Treasurer to say the extra money is disinflationary, and the inflation rate will fall into the Reserve Bank's target range this year.

Yes, yes, yes. Think of the goodies households are getting. Everyone gets a tax cut from July 1. Everyone gets a $300 rebate on their energy bill. Renters get extra assistance. Students get a cut in their HELP debt. And the budget could persuade the Reserve Bank to cut interest rates ahead of the next federal election, which is likely early next year. The government got lucky. Less spending on welfare payments and more revenue has helped the bottom line. The nasties in the budget, and there are a few, mostly kick in later. It is definitely an election budget. 

What about the economy?

The federal Treasury is confident Australia can avoid falling into recession, even if growth this financial year is only forecast to come in at 1.75 per cent and two per cent next year. The unemployment rate is expected to tick up to 4.5 per cent over the next 12 months while Treasury is forecasting that the inflation rate will come down to 2.75 per cent at the end of this year, and 2.5 per cent next year. That is within the Reserve Bank's target range. Okay, Australia isn't booming but it ain't going too badly given where rates are.

Is this an election budget?

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- Sean Aylmer

BHP hasn't always been considered the most fiscally-disciplined miner around the world, but its stealth efforts to buy UK-based rival Anglo American show that things have changed. This week it made a second bid in a month for Anglo at 27.53 pounds a share. It sent Anglo's share price down. Yes, down. Investors were hoping BHP would come back a second time with a knockout offer. BHP wasn't snared into the trap. It came back with a higher, but not ridiculous, offer. For its part, Anglo American announced a restructure including the sale of its platinum and diamond businesses, which sounded much like what BHP is proposing. Now investors have a clear choice. Go with management and the demerger plan, or accept the offer from one of the most efficient miners in the world, which also demerges the same rump of the business. If BHP gets its prey, and I think it eventually will, it's unlikely to overpay for it. 

What we have learnt over the past few weeks is that the pace of price rises (ie. inflation) is falling, but in some areas, it is stubbornly high. Rents, insurance and education inflation all remain elevated. Generally services inflation is too high, and goods inflation is pretty much under control. The good news is that over the past week, the National Australia Bank Business Conditions report and various bank household spending sets show that the pace of price rises across the economy is slowing. The federal budget's energy rebates will also help. There is plenty of noise and better (or worse) data points can throw markets. But as Treasury forecasts in this week's budget suggest, inflation is slowing and the next move in rates will be down. 

Roaring Kitty is back. I think. He has other aliases, including DeepF---ingValue, but his real name is Keith Gill. This week he posted on X a pencil drawing of a person leaning forward, apparently gaming. Some of the 12 million people who viewed the post took it to mean Roaring Kitty is back. Gill is synonymous with meme stocks. In 2021 he called on retail traders, through outlets such as Reddit, to call short sellers' bluff on video game retailer GameStop. His inference was that the stock was worth more than it was trading at. GameStop's share price went from around $US18 to almost $US500 in less than a month. It was the ultimate meme stock. After appearing before Congress and conceding, among other things, that he isn't a cat, Roaring Kitty disappeared. No more posts on X. GameStop's share price tumbled back towards where it was pre-Gill. Then the pencil drawing appeared this week. No words. GameStop's share price more than doubled. Crazy. 

In the 1976 movie All the President's Men, which was all about the Watergate scandal in the US, the phrase 'follow the money' was popularised. In that instance, following the money trail revealed political corruption. Putting corruption to one side, the phrase is also applicable to investing. When senior management and directors sell, then maybe it's a good time to follow the money. When Block bid $39 billion for Afterpay in August 2022, the founders of the buy now pay later (BNPL) group said 'thanks very much', even though the bid price was way below the peak share price of Afterpay. The next 12 months proved to be a bloodbath for BNPL operators. This week we found out that directors in the Magnificent 7 tech stocks, which have run hard over the past 12 months, are selling faster than they have done in years. Think Apple, Nvidia, Alphabet, Meta, even Tesla. Bloomberg calculated that a dozen directors and executives have sold since late 2023, earning more than $US160 million. Some made their first sales in nine years. Get your own advice, of course, but I just keep hearing that phrase... follow the money.

Over the past week, the first Bonza aircraft to leave the country, nicknamed Bruce, headed to Hawaii and then probably Canada to be, presumably, renamed something like Justin or Wayne (as in Bieber and Gretsky). Administrators Hall Chadwick said employees would be stood down for another fortnight. Ticket holders will become "contingent creditors" meaning they can take a spot in line to get something, anything, back from the airline. What was surprising was that Hall Chadwick said there were about 20 interested parties. Surely no-one in their right mind thinks they can revitalise Bonza, or a third airline in this country. And since Bonza doesn't own the planes, I'm not sure what the 20 parties are interested in. It is a funny world.

5. Roaring Kitty is back ... maybe

The nasties