The big economic indicators are all pointing south: GDP, interest rates, the currency, inflation. The ranking of women in cabinet has fallen. Franking credit pensions are down. The dole, just above a return Qantas business class airfare to London, remains half what you need to live on.

This is the second instalment of the MW30. These numbers illustrate what you get if you are living in Australia now: in markets and government.

The most dramatic movements are in interest rates, which point to recession. Government bond yields have more than halved since the beginning of this year, that’s the amount it costs the Federal Government to borrow.

 December 2018March 2019June 2019last quarter changelast quarter dole units
Personal Incomes
Dole$14,305$14,4481.0%1.00
Tax-Free Threshold$21,595$21,8841.3%1.51
Single Pension$23,457$23,7151.1%1.64
AFSA Single Modest Income$27,648$27,6460.0%1.91
ASX20 Franking Credit Pension$28,610$26,553-7.2%1.84
Minimum Wage$37,501$38,6273.0%2.67
AFSA Single Comfortable Income$43,317$43,255-0.1%2.99
Bank Franking Credit Pension$45,366$41,365-8.8%2.86
Small Business All-Offsets Sweetspot$66,110$67,7752.5%4.69
Median Full Time Earnings$69,466$69,8830.6%4.84
Women and Government
Females on ASX 20 Boards33.9%34.2%0.3%
Females in Federal Cabinet30.4%30.4%0.0%
Ranking of Females in Cabinet (out of 23)12.716.1-14.9%
Average Age of Federal Cabinet Member50.651.31.3%
Average Years Cabinet Members in Parliament11.110.1-9.0%
Days Prime Minister has held office113
203295
Investment Economics
Annual CPI1.89%1.78%1.33%-0.45%
2 Year Government Bond Yield1.98%1.59%1.02%-0.58%
10 year Government Bond Yield2.45%1.98%1.38%-0.60%
Annual GDP Growth2.80%2.32%1.74%-0.58%
Currency - AUD:USD0.71930.70870.6872-3.04%
ASX 20 Dividend Yield5.33%4.91%4.56%-0.35%
ASX 20 Franking Credit Yield1.89%1.79%1.66%-0.13%
ASX 203159343636756.93%
4 Banks Dividend Yield7.03%6.68%6.09%-0.59%
4 Banks Franking Credit Yield3.01%2.86%2.61%-0.25%
4 Bank Index41044231466410.24%
Occasional Numbers
Qantas Business Class, Perth to London$13,292$12,999-2.2%
4 Schools' Fees yr 12$35,185$35,1850.0%
Government Members HofR49.7%51.0%1.32%
Opposition Members HofR45.7%45.0%-0.66%
Minor Party Members HofR4.6%4.0%-0.66%
Government Senators42.1%46.1%3.95%
Opposition Senators32.9%34.2%1.32%
Minor Party Senators25.0%19.7%-5.26%

Some of these numbers result from decisions made by government. Others reflect market expectations. Many follow from the intersection of the two.

We believe it is worth watching the shifts in these numbers, quarter by quarter. All numbers are averages of three days around 15th of each quarter month.

Income Basics

We’ve assumed that the Josh Frydenberg pre-election draft budget will now be passed, at least as it affects tax brackets and offsets next financial year. Labor has agreed to this.

Bond yields, inflation, GDP growth and the currency have all been falling, and ASX share prices have been rising since December. Rising share prices decrease ASX20 yields. So do the reduced dividends paid by Amcor, NAB and Suncorp.

Only Macquarie lifted its dividend, the only entity in the Top 20 to do so. That’s another sign these are not good; directors tend to hold their dividends back if they anticipate trouble.

ASX 20 franking percentages have not changed for any of the ASX20 stocks. The model portfolios assume they were acquired on June 15, 19. We compare the position against portfolios notionally acquired on December 15 and March 15.

The yield on 2 year and 10 year Australian government bonds has nearly halved in 6 months. By some measures the Australian real risk-free rate is now negative. This may change when the June quarter CPI is released on 11 July.

Women in the Cabinet

While the number of women in the Scott Morrison cabinet remained the same, their rank (out of 23) fell from 12.7 to 16.1, largely because of the fading careers of Linda Reynolds (markedly downgraded from 8 to 21) and Nationals Deputy Leader Bridget McKenzie (her leadership ranking is down from its conventional 4 to the materially lower 8).

Among the 23-member cabinet, Marise Paine stays at 9 with both foreign affairs and women, Michaela Cash and the little-known Karen Andrews stay at 16 and 17. Sussan Ley returns at 20 and newcomer Anne Rushton arrives at 22.

It is unusual for a conservative government to downgrade Defence from 7 (under Christopher Pyne) to 21 (under army reserve Brigadier and Conspicuous Service Cross holder, Linda Reynolds).

The changes on the male side which influenced the downgrade of women were: David Littleproud up from 21 to 4 and in charge of droughts and natural disasters, and newly arrived Harvard graduate Alan Tudge at 5 with population, cities and infrastructure.

Greg Hunt, having disposed of Liberal defector Julia Banks in the election, was upgraded from 19 to 12. Apart from these there was little disturbance to the Liberal Party pecking order.

What we are watching

We are watching the moves in the 2 and 10 year Government bond yields. And quarterly GDP growth. For how long can these continue their downward trend? And if they do, when will this have any adverse impact on ASX shares?

It gets down to the bond-pricing theory of shares versus the future earnings theory of shares. The bond theory – that investors flock to equities as the bond yield falls – is driving the ASX now. With interest rates ominously low however, expectations of future company earnings come into question and this can have an adverse impact on share prices.

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Sources:

ASX website. Bloomberg LP website. S&P Dow Jones Indices LLC. Parliament of Australia website. Australian Taxation Office website. Australian Bureau of Statistics website. Fairwork website. Department of Human Services website. Qantas website. Four Sydney and Melbourne boys and girls school websites. Association of Superannuation Funds of Australia website.

Notes:

Tax-free threshold is calculated after the effects of LITO and LAMITO.

Small business all-offsets sweet spot is the maximum LITO, LAMITO and SBITO offsets, assuming the small business owner  carries on no other activities.

Share prices and bond yields are three-day averages around the date.

4 Bank Index: derived from capitalisation of the four major banks.

A franking credit pension: ASX20 – franking credits derived from last two dividends, percentage franked and share price; average of equally weighted and index weighted notional portfolios. Four banks – derived from average of two notional portfolios. Each portfolio holds $1.6 million (the pension-phase cap).

Females on ASX boards: reported board membership supplemented by reported senior non-board positions.

School fees: average of four prominent Sydney and Melbourne non-government schools

The Qantas fare is the fare quoted on June 15 to fly on September 15, 2019.

MW30: the numbers which count

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