Founder CEO Endeavour Equity Strategy Macro /Research/ Technicals. Aust Treasury, Strategist ABN-AMRO. Ski, Ocean Swimming & Surf. Sydney Swans
Sydney, New South Wales
Joined March 2014
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US Semis took a pasting this week down nearly -20% ex-$NVDA.
Catalyst included:
* China Kimi K3 AI competition;
* TSMC raising CAPEX guidance/ questions on sustainability;
* $GOOG is months behind in delievering Gemini 3.5 Pro
* Jittters on US-Iran Conflict & Concern Semis are a bubble
* BUT ARE SEMIs A BUBBLE? *
Yes – in our view…(though it could run furthe)
i) Ex $NVDA SEMIs are on 40X forward PE🔥👀⬇️
ii) $NVDA is on 19X – not expensive – BUT * EPS is a bubble * spurred by Vendor Financing & Off Balance sheet leverage.
The Circular Financing deals have boosted EPS 🧵1/
A good take...We likely get Stagflation for Households from here. Inflation gets worse before better....potentially materially worse...
RBA hikes. Three dissenters. Now on hold - at least three months potentially nine months. Next move is still more likely up than down but markets and commentators will go the other way and even price in cuts at various points in early 2027. But in the absence of a major downturn, cash rate still not high enough to stabilise inflation at 2.5%.
Hawkish Hike – RBA Board may be split but with Inflation expectations breaking out doesn’t matter.
While there were several Dovish parts: The 6-3 split; Tightening Bias was dropped; Weaker growth & jobs forecasts: GDP dropped 30bps to 1.3% with unemployment to 5.1% by Dec-28 up from 4.8%. Highlighting House prices have fallen significantly
The tone & substance was HAWKISH: Inflation revised up sharply - Inflation 3.5% for Dec-26 (from 3.0%) back 3 quarters later than Aug-28 forecasts; Inflation “increasing risk that higher inflation expectations will become embedded”; Price pressures are spreading. The board judges capacity a little tighter than it thought. It cites fuel costs passing through to other prices, firms raising prices
Multiple references to Inflation Expectations breaking out, RBA surveys, liaison are all highlighting the CB “nightmare” scenario of Wage -Cost Spirals are a live issue (even if played naming it down). Endeavour’s own analysis highlights this: i) CC surcharge when ban led to 5-7% increase in the price of coffees/ beers; ii) Tradies hiking prices with “fuel surcharge +10%”; iii) NDIS rate of $65 per hr is the new baseline for cleaners. Australia has always been a “tinderbox” of inflation expectations in an Oil Shock due to Oil import dependency & wage centralisation.
In conclusion - With the RBA having been dangerously overly dovish for 5 years + & stagflation returning we expect they will need to take Real Rates up another 25-50s, to 150bps+ before the household spending “breaks”. We got the Hawkish hike expected today as a consequence.
ALT RBA faces 2nd Mission Fail underway or is it a 5 year + continuous fail? Hauser note firms aren’t treating the RBA’s 2.5% Target Seriously….why would they?
if that's the case...its only because they have been so reckless & negligent in their over-dovishness since Covid that they need to address the inflation they caused - primarily via pushing the Resi bubble higher in 24/25!
Expect a “Hawkish Hike” from the * RBA today +25bp with more to come
* CPI Hotter vs consensus & RBA expected inflation – inflation is running away
* Hauser has sounded alarm over inflation expectations => suppression is the the main job of a CB in a Supply Shock
* Hawkish “grass roots” analysis & tinderbox history: all incendiary for Inflation expectations.
The RBA main driver of * cost of living crisis * via housing over-stimulus – up to them to fix it. /1🧵
IN AGGREGATE HYPERSCALERS FREE CASH FLOWS HEADING -VE 👀⬇️🔥
In a market punishing -VE FCF from stocks (eg $GOOG & $INTC) NOTE BELOW FREE CASH FLOW 12NTH OUT: $GOOG -VE & $AMZN a dip south
Q3 – Tech Earnings we are likely Peak of Sales Acceleration Cycle & market is increasingly treating AI-CAPEX as a number that requires substantiation in terms of AI-Revenue growth
$GOOG & $AMZN slumped on AI threat & CAPEX spend respectively.
· Problem for $GOOG: “One of the most aggressive investors in AI-CAPEX to protect its core business, showed vulnerability to AI.”
· $AMZN lower total revenue growth for Q3 at 12% to $201.9bn as Prime Day moved to Q2. Net income << consensus however while revenue was a meet. AWS brought in $US46bn in revenue for Q3 as record above expectation. Free Cash plunged to an outflow of US$42.4bn for trailing 12mths.
· $INTC: negative free cash flow in Q3 result 2/
Exactly right NDIS overspend/ ledgerdemand is a ticking time bomb on productivity
AND the minimum wage is now essentially $65 per hr effectively largely due to NDIS
Inflation is going to be VERY hard to beat with additional Oil price pressure
Last year, former Opposition Leader Bill Shorten lauded the NDIS for employing over half a million people and greater spending on the scheme preventing an economic downturn.
Its hard to see how this is not a political and economic time bomb in the long term.
Want to fix the NDIS and get it back to what it was originally intended?
You will effect the livelihoods of hundreds of thousands of people, along with the economic challenges that come from pulling tens of billions a year out of the economy vs the baseline.
Meanwhile, politically those individuals and their families would have a bone to pick with whatever government pushed them out of such lucrative employment.
This is the problem we now have, not just with the NDIS, but with taxpayer funded economic activity and employment more broadly.
The pre-GFC norms for government spending as a % of GDP, even relative to our changed demographics cannot be restored with major labour market and economic dislocation.
So we end up where we are today.
Australian CPI re-accelerating – headed for 4% given
* Government Spending, NDIS base wage of $65 per/hr
* High Immigration Rates
* Tight labours &
* Tight Housing Market / Rental markets with petrol subsidies expiring.
RBA BOARD was *RECKLESS & NEGLIGENT* to cut in 2025 with no labour slack before 2.5% Inflation target sustainably achieved
RBA Board ignored RBA Research Dept. Advice & the consensus of Global Peers that NAIRU was 5%, instead believing 4.2% was enough labour slack to green light their rate cuts in 2025.
=> this spurred a +20% further rally in Home Price taking Australia to an "impossibly unaffordable" 9.5X Median Income.
Prepare for more hikes:
Sarah Hunter (RBA Chief Economist) on 60 Minutes overnight repeated themes from the RBA Minutes & Hauser interview last week:
· RBA minutes: pass through will be faster and more extensive" and "risk of inflation expectations drifting higher is elevated".
· Hauser last week: cited from the RBA liaison survey "an increasing share of businesses who are thinking that, maybe, sort of 3 per cent, 3.5 per cent [inflation] is the new normal". “Look, that is the central banker's nightmare. ”We can't allow expectations to shift away from target."
Hauser highlighted the RBA had hard choices for 'Laying shorter-term pain on top of pain' in order to avoid potentially far worse pain down the track if inflation expectations get locked in.
Punters aren't stupid
They can read the tape...
And know when the "cupboard is bare" due to 5 years + of mission fail by the RBA
A hawkish deputy RBA Gov Hauser notes:
"The inflation outlook looks materially worse than we projected in the August report..."
"...inflation's been high for a very long time now"
"people in the community are not sure if we're going to bring inflation back into target at all."
Doesn't sound like a central bank that thinks it can raise rates once in September and be confident all its work is done.
Douglas Orr, CFA retweeted
RBA's Deputy Gov Hauser Hawkish Panic?
Hauser sounds RBA alarm inflation expectations untethering at 3-3.5%. Endeavour Base case rides as 2ndOrder Oil Shock effects light Australian Tinderbox of Inflation again (like 1974, 1979, 1987) after years of RBA over-stimulus & Government Overspending & Surge Immigration.
Hauser highlighted today:
"We are beginning to see some signs that some people in the community are not sure if we're going to bring inflation back into target at all, or certainly not for an extended period,"
Hauser today highlighted the RBA liaison program and surveys showed there was
"an increasing share of businesses who are thinking that, maybe, sort of 3 per cent, 3.5 per cent [inflation] is the new normal".
“Look, that is the central banker's nightmare.”
"We can't allow expectations to shift away from target."
🧵
Better SELL quick!
This home - if you can call it that - has recently been completed in Sydney - and put to sale.
It is a good 35 minutes drive from the city in good traffic conditions.
Does this mark a top?
vimeo.com/1232269137
I would state it as
RBA has been reckless & negligent in their overstimulus - contrary to RBA research & global peers. Conventional wisdom is NAIRU is 5% meaning *no cuts* in 24/25 with Unemployment ar 4.2% + Inflation not sustainably at target!
Douglas Orr, CFA retweeted
Australian House Prices
Median Price to Income 9.5X just shy of most expensive in history....
= NB last time Australian House Prices facing high 6s Mortgage Rate P/ I was 7X not 9.5X
=> that was with negative gearing
I dont think a lot people truly grasp how much social mobility in terms of housing has been absolutely decimated.
In 1999, you could afford to buy a median house in every capital but Sydney on a median household income, in some cases absurdly easily.
Today, a place like Albury is unaffordable and in price to income terms is roughly in the same ballpark as California.
Dual income households in the top 20% of earners are today fighting tooth and nail for homes in same percentile that a bus driver and a part time canteen lady were buying at a canter at the turn of the millenium.
And it is entirely underappreciated what a major social issue this is.
If you cant build a decent life even with hard work and a huge income relative to the median, whats the point especially after all that tax.
Douglas Orr, CFA retweeted
Hauser & RBA now panic as Inflation runs away due to 2nd Order effects post the Oil Shock of Q1-26
LOOK BELOW the RBA has run REAL RATE 160bps below NZ/ Canada for 5 years
=> no wonder Australian House Prices & Inflation/ Cost of Living has run away from them!!!
RBA's Deputy Gov Hauser Hawkish Panic?
Hauser sounds RBA alarm inflation expectations untethering at 3-3.5%. Endeavour Base case rides as 2ndOrder Oil Shock effects light Australian Tinderbox of Inflation again (like 1974, 1979, 1987) after years of RBA over-stimulus & Government Overspending & Surge Immigration.
Hauser highlighted today:
"We are beginning to see some signs that some people in the community are not sure if we're going to bring inflation back into target at all, or certainly not for an extended period,"
Hauser today highlighted the RBA liaison program and surveys showed there was
"an increasing share of businesses who are thinking that, maybe, sort of 3 per cent, 3.5 per cent [inflation] is the new normal".
“Look, that is the central banker's nightmare.”
"We can't allow expectations to shift away from target."
🧵
Hauser & RBA now panic as Inflation runs away due to 2nd Order effects post the Oil Shock of Q1-26
LOOK BELOW the RBA has run REAL RATE 160bps below NZ/ Canada for 5 years
=> no wonder Australian House Prices & Inflation/ Cost of Living has run away from them!!!
RBA's Deputy Gov Hauser Hawkish Panic?
Hauser sounds RBA alarm inflation expectations untethering at 3-3.5%. Endeavour Base case rides as 2ndOrder Oil Shock effects light Australian Tinderbox of Inflation again (like 1974, 1979, 1987) after years of RBA over-stimulus & Government Overspending & Surge Immigration.
Hauser highlighted today:
"We are beginning to see some signs that some people in the community are not sure if we're going to bring inflation back into target at all, or certainly not for an extended period,"
Hauser today highlighted the RBA liaison program and surveys showed there was
"an increasing share of businesses who are thinking that, maybe, sort of 3 per cent, 3.5 per cent [inflation] is the new normal".
“Look, that is the central banker's nightmare.”
"We can't allow expectations to shift away from target."
🧵