The big implications of this small budget allocation

Wednesday, 9 May 2018
Melbourne, Australia
By Bernd Struben

  • The budget…and blockchain
  • I would not feel so all alone…

Have you had a chance to run through Treasurer Scott Morrison’s budget yet?

It’s packed with a little something for everyone. And surely not cobbled together with a pending election in mind.

Right.

According to the government’s figures, even with the planned tax cuts, the budget deficit in 2018/19 should come in at $14.5 billion. A small surplus of $2.2 billion is forecast for 2019/20.

It would be good to see any kind of return to surplus. Though even under the rosiest of predictions, it’s going to take a long time for the government to climb its way out of the half trillion plus dollar debt hole they’ve dug for Aussie taxpayers.

The latest figures show federal government debt will be ‘only’ $558 billion in 10 years. That was forecast to be $684 billion less than six months ago.

Let’s hope six months from now doesn’t see an equal, or larger, downgrade on those projections.

I won’t cover off all, or even a small fraction, of the budget details here. You can find a comprehensive summary in today’s Australian Tribune.

Just don’t get too excited about it. Or upset by it, depending your political leanings and personal financial situation.

If the proposed budget passes through parliament as is, it would be a historic first.

Nonetheless, the Coalition will present its new seven-year tax plan to parliament as one package.

The alternative would be to break up the package and vote on its various elements. But that would likely see Labor support a few of the immediate tax breaks for the low and middle income earners, while moving against tax relief for higher income earners down the road.

Speaking to Sky News, Morrison said:

I’m introducing the whole plan, and it’s a test for Labor — do they want taxes to be lower or do they want them to be higher… If Bill Shorten doesn’t back the whole plan then Bill Shorten has told Australians he thinks taxes should be higher.’

Yep. No politics at play there.

Now to the markets…

Markets

Overnight US markets closed almost flat. The Dow Jones Industrial Average closed up 2.89 points, or 0.01%.

The S&P 500 fell 0.71 points, or 0.03%.

In Europe the Euro Stoxx 50 index finished down 6.31 points, or 0.18%. Meanwhile, the FTSE 100 lost 0.02%, and Germany’s DAX dropped 35.93 points for 0.28%.

In Asian markets, Japan’s Nikkei 225 is down 141.14 points, or 0.63%. China’s CSI 300 is down 0.09%.

In Australia, the S&P/ASX 200 is up 10.51 points, or 0.17%.

On the commodities markets, West Texas Intermediate crude oil is US$70.71 per barrel. Brent crude is US$76.72 per barrel.

Oil prices nudged up on the news that Trump is taking the US out of the Iran nuclear accord. The move had been widely anticipated, as indicated by the limited price rise.

I still expect increased drilling, especially among the US shale sector, to bring prices back below US$60 per barrel by the end of northern summer. But in the meantime, the higher prices will be good for most oil stocks.

And US companies may be some of the biggest beneficiaries, as the nation’s nascent energy export market could boom.

From Bloomberg:

A revival of U.S. oil sanctions on OPEC’s third-largest producer may set the stage for record-high U.S. crude exports by the end of this year.

President Donald Trump’s decision to exit the 2015 Iran nuclear deal and reinstate sanctions on the Islamic Republic will remove Iranian oil from the global market, pushing prices higher and increasing the demand for U.S. oil, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in phone interview.’

The image below gives you a good visual of the rapid growth of US crude exports:



chart image

Source: Bloomberg
Click to enlarge


On pulling out of the deal, Trump stated, ‘The United States no longer makes empty threats. When I make promises, I keep them.’

Trump’s tough words — and a likely boost to the US oil sector — will play well with his supporters. But he’s also stated he remains open to renegotiating the ‘horrible one sided deal that should have never ever been made’.

While Tehran may publicly balk at the idea of renegotiating now, if US sanctions begin to bite they’ll likely change their tune.

Turning to gold, the yellow metal is trading for US$1,311.30 (AU$1,763.45) per troy ounce. Silver is US$16.45 (AU$22.12) per troy ounce.

One bitcoin is worth US$ 9,172.26.

The Aussie dollar is worth 74.36 US cents.

The budget…and blockchain

If you’ve had a chance to review Morrison’s budget, there’s one expenditure you probably missed.

While the amount is small — $700,000 — the implications are far reaching.

From CoinDesk:

The Australian government has allocated AU$700,000 to its Digital Transformation Agency to explore blockchain applications within government services.

Officials earmarked the funds, which will be gleaned from existing Agency resources and allotted over the course of the next four years, as part of its 2018 – 2019 budget…

“The Government will provide $0.7 million in 2018-19 for the Digital Transformation Agency to investigate areas where blockchain technology could offer the most value for Government services,” the budget document states…

‘[I]n late 2017, the government announced its plans to provide more than AU$8 million worth of grants to a blockchain-based smart utilities pilot project.’

With bitcoin-mania having subsided, you’ll hear a lot of naysayers proclaiming the end to cryptos is nigh. Even blockchain detractors are coming out of the woodwork, proclaiming the distributed ledger technology isn’t all it’s been hyped up to be.

Admittedly there’s been plenty of hype. But when the Aussie government is handing out $8 million worth of blockchain related grants — and budgeting an additional $700,000 for its Digital Transformation Agency — it tells me this technology is only just getting rolling.

So how about the cryptos themselves?

Bitcoin is no longer doubling in price every month. A phenomenon that saw it hit US$19,315 on 18 December last year. But even the biggest crypto enthusiasts knew that was never a sustainable path.

After bottoming at around US$6,114 on 6 February this year, bitcoin is currently trading for US$9,172.26, according to data from CoinMarketCap.

That’s a gain of 50% in three months. And with less price volatility than it’s historically displayed. Though that doesn’t mean it’s been going up in a straight line.

At time of writing bitcoin is down 2.54% over the previous 24 hours. In fact, nine of the top 10 cryptos are down over this timeframe. Only IOTA — the ninth largest crypto by market cap — is in the black. It’s up 5.40%.

That’s not to say that there aren’t still big daily gains up for grabs in the crypto market. Because there are.

Like Zilliqa, the 24th largest crypto. It’s up 17.75% in the last 24 hours of trading. Then there’s Pundi X, up 18.65%. And Nexo, which has gained 27.06% in that same time.

Now I’m betting you haven’t heard of all — or maybe any — of these tokens before. If so, you’re not alone. It’s not an easy market to keep track of. And the names don’t exactly roll off your tongue.

This is where a little expert advice can go a long way. And when it comes to expert advice in the complex world of cryptos, I invariably turn to Sam Volkering.

It’s no exaggeration to say that Sam wrote the book on cryptos. Or at least a book; one that covers everything you should know, from A–Z.

Of course, the world of cryptocurrencies moves fast. And over at his entry level advisory service, Sam Volkering’s Secret Crypto Network, Sam makes sure his readers are up to date on all the latest developments.

Not to mention which cryptos look set for big push higher…and which ones are likely to tumble.

You can find all the details here.

I would not feel so all alone…

The last time I checked the Port Phillip Insider mailbox…a tumbleweed came rolling out.

Now I know this hits about 35,000 inboxes each day. That’s a lot of readers recieving — and presumably reading — our latest investment ideas and political rants each day.

With that in mind, feel free to drop us an email at letters@portphillipinsider.com.au to share your thoughts or questions on the latest in the markets or geopolitical shenanigans.

If we publish your letter we’ll only use your first name.

And finally, this from The Australian Tribune:

Bureaucracy Hamstrings New Zealand’s Security Intelligence Service

Question: What would happen if a country’s espionage agency was unable to conduct video surveillance of terrorism suspects for half a year?

Answer: Nothing. At least not if the country in question is New Zealand.

That’s the takeaway after it was revealed that a lawmaking blunder stopped New Zealand’s domestic spy agency from…

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

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You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd