There was plenty of teeth gnashing this week over Westpac's "out of cycle" mortgage rate rise, including from the new PM and his equally new treasurer. It's always amazing how banks are to blame when rates rise, while the politicians of the day (ok, they last a little longer than a day, but you never know) take the credit when rates fall.

While banks are fair game when they misbehave, mislead ASIC (ok that was NAB and AMP, but same, same), charge clients fees for no service etc., what is essential is that their basic operations - i.e. the margin between their cost of funding and the rate they charge their customers - are profitable. Note we didn't say fair and reasonable!

So if their funding costs (particularly offshore) are increasing, the obvious result is that mortgage rates will rise as well. We're in a global village, and the banks' offshore funding sources - estimated to be 35% - are global as well.

Given that rates have been so low for so long, and that we've seen US rates rise (and about to do so again), there should be no surprise that eventually they will increase. There have been plenty of warnings. The problem is that while rates may be moving up, and lending practices have been tightening over the past 12 months, the banks have been falling over themselves for the previous 8-10 years to shovel credit onto the willing consumer, thereby driving up household debt to record levels, and helping to fire the furnace under residential property.

Of course consumers should shop around, but that won't help them much, simply because the other banks and lenders will follow suit sooner rather than later. And while the RBA cash rate may not shift off its current floor of 1.5% for a while, with US rates tipped to rise as soon as next month the only way from here is up.

Meanwhile back to the Hayne Royal Commission: Amidst all the drama and revelations from the HRC over the past six months, what has been amazing is the sheer volume of intelligence that the Commissioner and his Counsel seemed to have lined up to skewer some hapless witness or another.

It stands to reason that much, if not most of this would have been sourced from the regulators - ASIC and APRA, and the FOS. Which begs a question: If the regulators had the information, why weren't they able to line the naughty boys and girls up themselves?

Was it the system, the regulations, a lack of resources, a lack of intention, or what?

Hedge Clippings' most likely answer is that many in the financial services sector treat ASIC and APRA, the corporate cops, the way most motorists treat the highway patrol (until they need them).  There would seem to be an attitude of "get away with what you can, when you can, and hope you don't get caught". Australians have a long history - dating back to the earliest days of the first fleet - of having a well-honed disregard for regulations and authority. Maybe it's all just a game to see how far you can go.

That's worked up until now.  The HRC should lead to some miscreants facing criminal prosecutions - and the resulting time in the sin bin that may well follow!

BENNELONG TWENTY20 AUSTRALIAN EQUITIES FUND

Attached is our most recently updated Fund Review on the Bennelong Twenty20 Australian Equities Fund.

• The Bennelong Twenty20 Australian Equities Fund invests in ASX listed stocks, combining an indexed position in the Top 20 stocks with an actively managed portfolio of stocks outside the Top 20. Construction of the ex-top 20 portfolio is fundamental, bottom-up, core investment style, biased to quality stocks, with a structured risk management approach.

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Australian Fund Monitors

ATTACHED FILESAFM Fund Review - July 2018 (pdf format)

Where's the leadership we deserve?

At a time when the government needed leadership, unity and stability, the combination of personal ambition and the desire for revenge delivered exactly the opposite. Irrespective of who one believed should be in the top job, the country deserved better, and only time will tell if it gets it.

Personalities, and personal ambition, and in our view a misreading of the mood of the majority of people in the street, has resulted in the running of the country put to one side, while a bunch of self-centered politicians have indulged themselves, in just the same way as their predecessors did.

The real tragedy is that the economy, while not booming, is sound and growing, employment is growing, inflation and interest rates are low (probably too low) and taxation, except for the "big" end of town, is coming down. The federal budget is forecast to make it back to a surplus way ahead of forecast, and given the potential change of government at the next election, that's probably now in doubt.

If there's one good (?) thing to come out of the debacle in Canberra it's probably that the chief destabiliser and those pulling the strings didn't win, although they'll no doubt be happy enough they've dispatched the one person - now the previous PM - they didn't want to win. The question is will they now be satisfied and pull their heads in, or will they work to destabilise another moderate?

If there's one good (?) thing to come out of the week's media focus it is that the Hayne Royal Commission wasn't on the front pages.

Meanwhile AMP's appointment gets out thumbs up - experience and ability, and hopefully prepared to make the changes necessary - or enforced by the HRC and future legislation. Hedge Clippings has previously been critical of both AMP and David Murray, but this is a good and smart move. However, there's still a long, long way to go.