For the past 40 years, the free market has been unleashed and seen as the first solution to most problems, whether economic or social. Government looked at every issue and did a cost-benefit analysis. This was the driving force behind public-private partnerships.
In our The New Normal from two years ago, we stated the days of free trade and free markets were over and we are heading "back to the future." The future would see more, not less, government intervention. This has largely come true.
Instead of breaking apart monopoly companies, they grew larger, made more profits, and reduced workers' share of company earnings. Governments supported the company rather than regulate them. Now that is changing.
Let me tell one story from my employment history. I worked at a regional city managing the waste collection. Some folks were not committed to recycling and would fill bins with chemicals, car parts, nappies. When the garbos reported them and we sent warning letters, the residents would contact their local councillor and claim we were lying. The politicians would then tell me to ignore any issues and just "do the job." So instead of taking recycling to the recycling centre, we took the "contaminated" loads straight to the dump. Reality is different to theory.
Now imagine that problem at scale. Imagine trying to price a company where politicians will interfere or promote certain businesses because they are helping government achieve objectives. How do you value an oil company when governments change export rules overnight? How do you value a company that donates to Trump?
The world is about to get a lot more political.
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War: Round 2 is about to begin. Assassins like Trump: they are just not very good shots. Trade is dead. China starts to bully Europe. Markets are increasingly volatile and complacent at the same time.
China has threatened unspecified retaliation against the EU's proposed "Made in Europe" law, fearing the bill to strengthen European industry will hurt Chinese companies. The hypocrisy is striking: Made in China 2025 was celebrated as strategic genius. Made in Europe 2035 is apparently unacceptable.
Intergenerational fairness. Treasurer Jim Chalmers says it will be an important factor in the upcoming budget. He says younger people are at risk of being denied the opportunities of those who came before them. This is a phrase you are going to hear a lot more of. Stand by.
Inflation at 4.6%. Rate rises? Watch unemployment from here.
The budget is being written in the dark as the Hormuz oil crisis upends the economic outlook. PM Albanese announced $45 million over four years to fast-track housing and energy projects by streamlining environmental planning approvals. He says building national resilience in the face of the Middle East conflict will be the focus of the upcoming federal budget.
We said a while ago that government would "streamline" environmental planning regulations to get projects up and running. On Wednesday, Albanese confirmed it. We will no longer be at the end of the supply chain. This means we will do more of the value-add and production ourselves. The world has changed, and Australia is changing with it.
Early Friday morning the ASX bounced back from 8 straight down days. If it remains in the green, it will probably finish around the starting level. So pretty much a nothing burger. The All Ordinaries sit around 8,887.
Many people get blinded by what is happening and project current events well into the future. China's rise is a combination of opening up to the outside world, internal economic reforms, foreign investment, and lots of debt and financial repression. It is exactly the same model Japan and many other countries used to boost GDP. But like all models, they have problems.
China's money supply is now more than double that of the United States. That is an extraordinary amount of liquidity creation. But China also faces a demographic cliff: its working-age population peaked around 2015 and is projected to halve by 2100. India is set to overtake China by the 2030s. These structural headwinds do not disappear with stimulus.
Made in China 2025: good. Made in Europe 2035: bad. That is the double standard playing out in real time as Beijing threatens Europe for daring to protect its own industries.
A scattershot of issues this week regarding rare earth metals and the urgency of governments to develop a supply chain that cuts out China's stranglehold.
When China cut off rare-earth exports last year, auto factories in the US and Europe were forced to stop production. Now Lynas is at the vanguard of an effort by the US and its allies to prevent Beijing from using its monopoly power to squeeze the rest of the world. The Pentagon needed rare earths and found a supplier in Malaysia. This is not a short-term trade. It is a structural reshaping of global supply chains.
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