Martin North – Digital Finance Analytics (DFA) Blog

Gouged By ColesWorth, In Spades?

Last Tuesday I had Andy Schmulow the ACP Candidate for the Senate in NSW in the upcoming election, on my live show. Dr Schmulow left no stone unturned as he methodically called out the power of big business from the Banks, Airlines, Big Consulting Firms and Supermarkets, across Australia who are systematically gouging ordinary households and businesses across the country, protected by the current political system.

Its corruption on a grand scale, which is why our big banks, airlines, gas companies and supermarkets are making super high profits at our expense, and many shareholders by the way in these companies are overseas, so we lose out there too.

And in an interesting happenstance, the ACCC on Friday released their massive 441 report on the Big Supermarkets. It is a thorough examination of the extraordinary number of moving pieces in the grocery sector, and the legitimate concerns of different players at different stages though the value chain.

The ACCC says that Grocery prices in Australia have been increasing rapidly over the last 5 financial years. Most of those increases are attributable to increases in the cost of doing business across the economy, including particularly production costs for suppliers, which has increased supermarkets’ input costs. However, ALDI, Coles and Woolworths have increased their product and EBIT margins during this time, meaning that at least some of the grocery price increases have resulted in additional profits for ALDI, Coles and Woolworths.

They say Coles’ and Woolworths’ apparent ability to increase retail margins for packaged grocery products by more than is necessary to accommodate a wholesale price increase indicates they have – and sometimes exercise – a level of market power in retail markets.

But despite the furore over rising prices, the ACCC noted there’s nothing illegal about businesses making a profit. Woolworths recorded a profit of $739 million in the first half of the current financial year, with Coles reporting a $576 million profit during the same period.

The ACCC says there’s no “silver bullet” to address all of the issues identified in its full report but has recommended a suite of potential legislative and policy reforms to address areas that aren’t working well — particularly when it comes to competition in the industry.

At the heart of the final report of the Australian Competition and Consumer Commission’s supermarket inquiry is a simple truth: the horse has bolted. They suggest things cannot change. But I say, rubbish, time for new broom, to stop the gouging… but that needs real political intent. Cue Andy!

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“Transitory” Inflation Is Back, Baby…

Overnight we got the latest decision from the US Federal Open Market Committee keeping its benchmark federal funds rate steady for the second straight meeting, in a target range of 4.25%-4.5%.

But in the subsequent press conference, where Fed Chair Jerome Powell seemed to be tip-toeing through a potential minefield, he said the committee had down forecast growth, increased inflation expectations, and said the full impact of tariffs had yet to work though. And while the FOMC did slow the pace of balance-sheet runoff — their updated forecasts and dot plot betrayed little concern about the growth scare that has gripped markets. More rate cuts are expected, perhaps two though the year, despite the higher inflation and lower growth.

Significantly though he dusted off the old “transitory” moniker again, which you will recall was used through the early phase of the strong inflationary pulse we saw post COVID. It was then dispatched to the dustbin of stupid and unhelpful terms, that is until it was resurrected in the press conference. Seeing as they got it so wrong last time, was it wise to do that, as I am not sure it will help their credibility this time around.

Incidentally, because the Fed will also start shrinking its balance sheet at a slower pace starting in April, meaning it will reduce the amount of bond holdings it lets roll off every month that is a quasi rate cut, without being a rate cut. Again, this is engineering a watch and wait period, for the FED, and perhaps the possibility of the real rate cut will be clearer by the Northern Summer.

So this was a do not harm press conference, but I suspect despite wanting to calm the markets, and avoid tripping over Trump, the truth is the data-dependent FED is itself unsure of future trajectory. Which may not bode well for the rest of us!

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Seeking The Bottom, Choppy Waters For Markets Again!

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, covering commodities and crypto along the way.

World markets on Friday ended another choppy week on an upbeat note as investors pushed aside growing concerns over the global trade war and bought back beaten down stocks, although few will be confident a definitive market bottom has been reached yet. U.S. President Donald Trump’s tariff agenda is very much in place, and markets remain vulnerable to the next escalation in tensions. The lack of any new announcement from Trump on Friday was, for investors, perhaps a classic case of ’no news is good news’.

The U.S. Senate did pass a stopgap spending bill, averting a partial government shutdown, after Democrats backed down in a standoff driven by anger over President Donald Trump’s campaign to slash the federal workforce. After days of heated debate, top Senate Democrat Chuck Schumer broke the logjam on Thursday night, saying that he would vote to allow the bill to advance. Schumer said he did not like the bill but believed that triggering a shutdown would be a worse outcome as Trump and his adviser Elon Musk were moving swiftly to slash spending.

And another dose of good news on Friday came from Germany, where Chancellor-in-waiting Friedrich Merz secured support from the Greens to revise the country’s debt brake and unleash the biggest fiscal package since 1990, proposals that should deliver a massive boost to German and European growth.

But frankly, the broader horizon is filled with dark, ominous clouds, indicated by some key market moves and economic data on Friday – safe-haven demand propelled gold above $3,000 an ounce for the first time, while U.S. consumer confidence fell to its lowest in nearly two and a half years and longer-term inflation expectations hit their highest since 1993.

In a post on X, former US treasury secretary Larry Summer said: “I am convinced there is nearly a 50 per cent chance of recession, and maybe even a far greater risk of recession, unless the current policy approach of tariff threats lurching is altered.”

Although markets clawed higher on Friday, the global MSCI Index was down a further 1.77% across the week, while the European STOXX 600 was down a further 1.22% over the 5 trading days.

In the US, The S&P 500 confirmed a correction on Thursday with the index closing down more than 10 per cent from its February 19 record high amid heightened uncertainty about President Donald Trump’s tariff moves and his determination to revamp the US federal government. That said, U.S. stocks rebounded on Friday as investors hunted for bargains at the end of a tumultuous week. S&P 500 +2.13% Dow +1.65% NASDAQ +2.61%. The S&P 500 and NASDAQ logged their biggest one-day percentage gains since November 6, the day after the U.S. presidential election. It was a broad rally, with recently battered tech-related megacaps enjoying a comeback.

The S&P/ASX 200 closed on Friday with its third-largest weekly loss this year despite a rally in Australian iron ore and gold mining stocks. The index shed almost 2 per cent of its value this week. It closed 9 per cent off its February 14 peak of 8555 points, after hovering at correction levels for days. It rose 0.5 per cent, to 7789.7 – its first day in the green since Monday. But Morgan Stanley has recommended clients avoid Australian equities citing their close correlation to Wall Street after a torrid start of the year for both markets as they hover at or near correction territory.

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Are Investors The Reason Home Prices Are Rising Into Unaffordability?

The trends are clear, in many western countries around the world, home prices have been rising, and in recent years rising fast. The underlying drivers are the freeing up of mortgage markets, and lower interest rates, allowing more people to borrow more, which is why debt has been rising too. As you know I have long argued the rise in home prices to stupid levels is all due to the deregulation of the financial system, driven by neo-liberal thinking which leaves ordinary people in the dust. Greater debt driven demand lifts prices.

Of course, the Government is fixated on the supply side story. And we can expect they will peddle this hard into the election. The government’s housing policies include 1.2 million new homes built by mid-2029, a $9.3 billion agreement with states and territories to support social housing and homelessness services, a scheme to help 40,000 households purchase a new or existing home, and tax incentives to support investment in new build-to-rent developments. One of those latter tax incentives includes increasing the capital works tax discount depreciation rate from 2.5 per cent to four per cent.

The other factor in play is high migration, another demand driver, with another 2 million people expected to land in the country over the next few years. This was subject to interesting questioning from Senator Bragg in Estimates recently. Astonishingly, Treasury has not considered the impact of high migration on housing demand (and implicitly) price.

But what of the tax breaks for investors? Well according to a new report from Australian Council of Social Service (ACOSS), Two tax breaks are “disproportionately” benefiting Australia’s richest while simultaneously fuelling the housing affordability crisis. The report criticises the capital gains tax deduction for property, where only 50 per cent of capital gains made from an asset are taxed when it is sold, and negative gearing, which allows investment expenses to be deducted from income.

ACOSS says the wealthiest 10% of households own two-thirds of all investment properties and are receiving 82% of the $16 billion in tax relief the two breaks provide.

While I absolutely agree the investor tax breaks are part of the problem, unless we address too high migration, control unsustainable lending growth, and also work on building enough new homes to meet new demand, the affordability situation will continue to deteriorate.

As a result, many will choose to leverage up just to get into the market and out of the rental sector. Government policy is at fault here. And they appear to be avoiding the elephants in the room. Address too high migration, and control unsustainable lending growth.

I wonder if this is because many politicians are also property investors?

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