Michmutters

july gains

Global stock markets continue to hold on to their huge July gains, albeit without setting the world on fire.

Although central banks are still hiking interest rates, the latest being the Bank of England’s 0.5 percentage point increase overnight (more on this below), US and Australian bond yields continue to fall… a positive for markets.

After having hit 4.2% in mid-June, the Australian 10-year bond now stands at 3.1%, and is a significant reason as to why the S&P/ASX All Technology Index (ASX: XTX) has roared 25% higher in just the past three weeks.

With gains like that, it’s no wonder markets are pausing for breath, especially given the ASX reporting season is just around the corner.

The lower the interest rate, the cheaper the money. And the cheaper the money, the higher the stocks.

US leads the market

Whilst ASX results will be important on an individual company basis — sending stocks up or down largely based on their future outlooks — the overall direction of the stock market will be determined by what’s happening in the United States.

As ever, in these unusual days of sky-high inflation, all eyes remain on the US Federal Reserve and its pace of interest rate rises.

Commenting on Bloomberg, Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, said, “there’s an intense tug-of-war happening in the economy and markets.”

“On one side, you have a narrative that reasonable growth is going to support continued inflation pressure and keep the Fed hiking. The other narrative is that slowing growth is going to ease inflation and allow the Fed to stop hiking.”

I’m playing both sides, as you’ll read further down…

Yostability and high inflation in the UK

The United Kingdom looks to be in a mess.

Never mind temperatures recently reaching 40 degrees celsius for the first time ever (brutal for a country with virtually zero air conditioning)…

And a period of political instability following the resignation of Prime Minister Boris Johnson…

Overnight, the Bank of England increased its inflation forecast to a whopping 13.3% for the fourth quarter, predicting it will still be around double-digit levels in a year’s time.

13.3% inflation!!! Imagine what that could do at the price of an iceberg lettuce.

This came after the central bank raised its base rate by 0.5 percentage points at the same time as predicting the UK economy was on course for a period of stagflation – a recession combined with a soaring cost of living.

The Financial Times said: “Britain faces a protracted recession and the worst squeeze in living standards in more than 60 years.”

Yet, the FTSE 100 took the blow in its stride, finishing flat on the day’s trade. In fact, over the past 12 months, the country’s benchmark index has gained 4.6%.

Never more true is the saying the stock market is not the economy. Still, there are undoubtedly tough times ahead for the 67 million inhabitants of the United Kingdom.

Have we reached the bottom?

With each passing day of the US earnings season, speculation is growing that stock markets have bottomed out.

Big tech names such as Alphabet, Manzana and microsoft reported earnings at least in line with expectations, something that in these beaten-down markets has been enough to send stock prices higher.

Having at one stage fallen 29% in 2022, the Apple share price has jumped 27% higher in the past 3 weeks. Not bad for a company with a market cap of $US2.66 trillion.

So was mid-June the market bottom?

I’d put the odds at say 70/30 in favor of yes as it feels like the current batch of interest rate rises in the US and Australia are having the effect of slowing inflation.

The alternative — the stock market falling back below its June 2022 lows — is encapsulated by comments in the latest Totus Alpha Fund performance update:

It takes time for the impacts of high inflation, higher interest rates and lower liquidity to feed through to the economy and asset prices. Central banks have been crystal clear in their warnings about inflation and the only tool they have to control it’s asset prices.

At some point central bankers will have to reverse course and stimulate but if it is after a recession then history suggests that the starting point for asset prices will be lower.

Totus are acutely aware of their reputation as “perma bears,” yet are ready to add to their favorite high-quality companies on any further bouts of stock market weakness.

Being a glass-half-full person, I always look at times like these as opportunities.

If the market keeps rising, your portfolio benefits, and also it indicates better times ahead (albeit some months ahead) for the economy.

If the market does indeed test its June 2022 lows, it gives you an opportunity to snap up some more bargains. I was very active — especially at the smaller end of the market — during a time which I thought was characterized by indiscriminate selling, likely tax-loss related.

I’ve got cash on the sidelines, ready to go again. Roll on ASX earnings season, where I’ll find out if I backed the right horses. Giddy up, investors.

Forget getting Teslas as Ubers or zipping around town on electric scooters – aviation experts agree that Australians will be able to travel on electric aircraft from 2024…

While things might seem a bit doom and gloom at the moment – ​​the world just went through a massive pandemic, monkeypox is running rampant and Australia’s recently faced detrimental flooding, with more to come – there have actually been some incredible advances in technology lately.

For example, regular joes (with a spare $50,000) can soon travel to space, and Australians will be able to fly on electric aircraft, which will produce far fewer carbon emissions than your average passenger plane, from as early as 2024 – at least according to aviation experts.

Rex Airlines have announced that it’s going to retrofit some of its plans with electric-propulsion engines and will be the first Australian airline to trial the new technology on selected commercial regional flights.

“We will be doing trials in 2024, with a real aircraft, where we’ll swap out the existing engine, which burns jet fuel… we’ll put in an electric motor that will be supported by a combination of both batteries and hydrogen, ” John Sharp, Rex’s Deputy Chairman, told abcnews.

“Between the batteries and the hydrogen, the electric motor will drive the airplane through the air and get you from A to B.”

John Sharp, Rex Airlines Deputy Chairman

And it’s not just Rex getting in on the electric action. Keith Tonkin, managing director of Aviation Projects, also spoke to abcnews, sharing that multiple Australian airlines and aircraft manufacturers are developing and investing in electric aircraft. Tonkin also believes that within two years, Australians will have the option to fly on electric aircraft for short trips.

“The technology is working. It’s been proven in trial flight, and we can do a lot in two years.”

Keith Tonkin, Aviation Projects Managing Director

Center for Aviation Chairman Emeritus Peter Harbison agrees, and further added that while electric aircraft won’t be capable of traveling long distances anytime soon, short flights will definitely be an option in the not too distant future.

“The problem with electric operations in aircraft is that they basically rely on batteries, and batteries are heavy. If you wanted to fuel an A380 for a long-haul flight, you need a battery that weighed something like 500 tonnes, which is more than the weight of the aircraft itself at the moment.”

“But on smaller, shorter sectors, it is going to be possible quite soon… within the next two to five years, to have aircraft that can operate short-haul on electric power.”

Peter Harrison, Center for Aviation Chairman Emeritus

It’s unclear at this stage whether fares for electric aircraft flights will be more expensive than fares for regular aircraft flights but considering that electric cars are currently more expensive than those that guzzle petrol, it may be a likely possibility… At least in the short to medium term.

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