Hedge Clippings | Friday 15 March, 2019

Talking, talking, talking. Sooner or later you've got to walk the walk.

Is there any point in talking any more about Brexit? It would have contributed more column inches (that's how they measured media coverage prior to TV, the internet, and social media) on any subject since the end of WW2, but without a victory, or a clear winner. 

Whatever the outcome there are losers galore (UK, Ireland, Europe, and subsequently global trade and economic stability). Winners? A Pyrrhic victory ("a victory won at too great a cost to be worthwhile for the victor") for Boris maybe, but he went AWOL while the going was good and is either keeping his head down, or his powder dry, and will emerge after Mrs May - who must be one of the most resilient (even if not the most popular) leaders since Winston Churchill - meets her eventual end.

We actually thought we'd seen (or heard) the end of talking about, or at least the demise of, the phenomenon of negative yielding bonds last October. However it appears not, with Bloomberg reporting that there's been a 60% increase over 5 months with the Bloomberg Barclays Global Aggregate Negative-Yielding Debt Index increasing in value by over $3 trillion in that time to reach $9.3 trillion - albeit well below the all-time record of $12.2 trillion in June 2016.

The concept of negative yields seemed impossible a couple of decades ago, as would Australian 10 year yields below 2% as they are now. However, as an indicator of future economic growth they tell a story worth listening to, both globally and in Australia where we might just see a risk to the crown of 30 odd years of uninterrupted economic growth. Speculation that the next move in RBA rates will be downwards is mounting, which, while it may please the under pressure property industry, doesn't auger well for the economy as a whole.

Meanwhile, talking of China, another Bloomberg report we noted this week concerned the fact that their economic slowdown deepened in the first two months of 2019, with unemployment sharply higher, industrial output posting its worst start to a year since 2009, and retail sales expanding at the slowest pace since at least 2012 even though investment in real estate rose to its highest since 2014. We're not sure the Chinese slowdown is entirely due to the Trump/Xi negotiations, a resolution of which has been postponed further, but it certainly won't have helped. It could be the sign of a maturing economy, or a slowdown in the migration of the rural farm worker to the industrialised cities, or the overall global slowdown.

Then again these are Chinese economic figures based on the two months to the end of February, amazingly collated across a population of 1.2 billion, and released in just 14 days.