Inflation Confidence
MSQ Capital’s Managing Director Paul Miron explores the world’s hottest and most controversial topic.
3 min
OPINION
The Government — particularly Josh Frydenberg — is breathing a sigh of relief as the most recent positive economic data demonstrates a strong Australian economy.
Inflation is now both locally and internationally the hottest and most controversial economic topic for the year. Put simply, it’s because the entire global economic recovery hinges on the ability of central banks to keep interest rates low for an extended period in order to give the global economy the push it needs towards a full recovery.
The most recent Australian inflation figures have come in lower than anticipated at 1.1% per annum. This re-affirms the RBA’s carefully articulated argument about maintaining low interest rates until the economy reaches a level of full employment. Unemployment is now down to 5.6%, consumer spending is racing back to pre-Covid-19 levels, and trade figures are strong due to high iron ore prices — all of which contributed to a $30b windfall in the current budget figures.
It seems the ‘Achilles’ heel’ to all this good news is inflation uncertainty.
The topic of inflation has not been part of our vocabulary since the era when Paul Keating was treasurer in the 1980s and Australia experienced “the recession we had to have”.
An analogy that best describes the importance of inflation is that like watering a plant, both too little or too much water may kill it. And so it is the right balance of low constant inflation increases business profits over the long term — increasing business productivity. Such strategy helps to reduce unemployment, increases tax revenue and naturally erodes the real value of debt.
Too much inflation can have the opposite impact. The most powerful tool left to control high levels of inflation is the RBA’s use of contractionary monetary policy (increasing interest rates). However, this is not without risk — done prematurely, it will have a negative price impact on assets such as shares and property, further stunting economic growth and possibly spiralling the economy into a recession.
Governments and central banks will need to put on a brave face and maintain confidence in their ability to steer the global economies through these tricky times. A loss of confidence from consumers and businesses is enough of a catalyst for a self-fulfilling prophecy for inflation issues to emerge unfavourably.
This is, in itself, a very thought-provoking concept as inflation is not purely driven by economic data and activity. It is also driven by the future expectation of businesses and workers, which drive businesses to make decisions such as increasing prices on goods and services and employees hitting up bosses for a pay rise.
Covid-19 has completely skewed economic data
Worth contemplating when attempting to interpret economic data is the “base effect”. Covid-19 forced the economy to a complete standstill, with all the major economic indicators falling off a cliff. Once the economy has been rebooted from a virtual standstill, the economic indicators are all being overly exacerbated during the economic recovery. As an example, we have had two quarters of GDP growth at 3%, however, our economy is still nowhere near the same levels as it was pre-Covid-19 despite the data implying otherwise.
Be prepared that the next inflation figure will be an absolute whopper, as it will reflect people returning to work and spending money on normal items such as childcare, entertainment and transport.
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Paul Miron has more than 20 years experience in banking and commercial finance. After rising to senior positions for various Big Four banks, he started his own financial services business in 2004.
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3 min
Lost for decades, an acoustic guitar John Lennon used at the height of the Beatles’ fame is going up for auction after being found in the attic of a home in the British countryside.
The 1965 Framus Hootenanny is arguably one of the most historically important guitars in the history of the Beatles, and was used on some of the group’s classic songs and played by Lennon in the movie Help! , released the same year.
The 12-string acoustic guitar will headline Julien’s Auctions Music Icons event on May 29 and 30 at the Hard Rock Cafe in New York, the auction house announced Tuesday morning in London.
Darren Julien, the firm’s co-founder and executive director, expects the Framus to exceed its presale estimate of between US$600,000 and US$800,000 and says it could set a new record for the highest-selling Beatles guitar, a record his auction house set nearly a decade ago.
Rupert Hitchcox/Julien’s auctions
“Julien’s sold a John Lennon [Gibson J-160E] guitar in 2015 for US$2.4 million, and because this, historically speaking, is a more significant guitar, our expectation is that this guitar—played by John Lennon and George Harrison on the Help! album and other recordings—will be in the top five most expensive guitars ever sold at auction,” Julien says. “It’s likely the last chance for someone to buy and personally own an iconic John Lennon/George Harrison guitar.”
While equating its discovery to that of a “lost Rembrandt or Picasso,” Julien believes this is the greatest find of a Beatles guitar since Paul McCartney ’s lost 1961 Höfner bass, which was returned to him in February after it had been stolen in 1972.
The rediscovered Framus was famously seen in the 1965 film Help! , and was used in recording sessions for classics such as “You’ve Got To Hide Your Love Away,” “It’s Only Love” and “I’ve Just Seen A Face.” It was also played by George Harrison on the rhythm track for “Norwegian Wood” on the 1966 album Rubber Soul .
According to the auction house, by the late-1960s the guitar was in the possession of Gordon Waller of the British pop duo Peter & Gordon, who later gave it to their road managers. The instrument was recently discovered in an attic in rural Britain where it sat forgotten and unplayed for more than 50 years. After finding the guitar in the midst of a move, the homeowners contacted Julien’s.
Along with co-founder Martin Nolan, Julien traveled to the U.K. and immediately recognised that it was the storied Help! guitar. While on the premises, they also discovered the original guitar case in the trash and rescued it. It’s an Australian-made Maton case that can be seen in photos taken of The Beatles in 1965 The sale of the guitar is accompanied by the case and a copy of the book The Beatles: Photographs From The Set of Help by Emilo Lari.
In addition to Lennon’s acoustic Gibson J-160E—which fetched three times its presale estimate—Julien’s has broken multiple Beatles records, including Ringo Starr’s Ludwig drum kit (which sold for US$2.2 million), the drumhead played on the Ed Sullivan Show (US$2.2 million), and a personal copy of the White Album , (US$790,000), all of which sold in 2015.
Julien’s also holds the record for the world’s most expensive guitar ever sold at auction: Kurt Cobain’s MTV Unplugged 1959 Martin D-18E acoustic electric guitar, which sold in 2020 for US$6 million.
More than 1,000 pieces of music memorabilia will also be part of the auction, including items used by the likes of AC/DC, Nirvana, Guns N’ Roses, Judas Priest, Heart, Queen, and Tupac Shakur.
Sartorial highlights include custom dresses worn by Tina Turner (Versace) and Amy Winehouse (Fendi), both of which are expected to sell for between US$4,000 and $6,000, and Michael Jackson’s stage-worn “Billie Jean” jacket from 1984’s Victory Tour (presale estimate: US$80,000 to $100,000).
Bidders will have the chance to buy items benefitting a pair of U.K. charities. Several collectibles from The Who and other British musicians will be sold to benefit the Teenage Cancer Trust, and an assortment of memorabilia—ranging from a Stella McCartney dress worn by Helen Mirren and an Armani jacket stage-worn by Phil Collins to artwork created and signed by Pierce Brosnan—will be offered to help fund the King’s Trust.
Rounding out the two-day auction is Randy Bachman’s collection of more than 200 museum-quality guitars. Known for his role in The Guess Who and Bachman-Turner Overdrive, the Canadian rock star used the instruments on hits such as “These Eyes,” “Takin’ Care of Business,” “You Ain’t Seen Nothin’ Yet,” and “American Woman.”
The public can view the Help! guitar and other auction highlights at Hard Rock Cafes in London (April 23-29) and New York City (May 22-28).
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