ScoMo, the quintessential dark-horse...

Christopher Joye

Coolabah Capital

In the AFR I write that "there is absolutely no doubt that global financial markets want the Liberal Party to select Scott Morrison as prime minister" (click here to read column or AFR subs can click here). Excerpt:

On Thursday, an overseas investment bank opined in a note to clients that as Prime Minister Morrison would be received "positively by the markets and see some recovery in the Australian dollar and risk ".

"Morrison is a solid Treasurer, business friendly, and has put the budget back on track to surplus," the investment bank continued.

"For markets, he would likely be preferred as Prime Minister to Dutton, who has signalled some dubious and populist policy ideas… dropping the GST on electricity bills, using the revenue from the failure of the large company tax cuts for lower income, and large cuts to immigration."

"ScoMo", as he signs off his emails, has always been the dark-horse. While he does not seek acclaim for his accomplishments, the fact is that ScoMo literally "stopped the boats" as immigration minister and has shocked investors around the world with extraordinary outperformance via the budget as Treasurer, saving Australia's AAA credit rating in the process.

In 2017, CBA forecast that the AAA rating would be lost while credit rating agency Standard & Poor's derided ScoMo's budget as having no hope of hitting its forecast of a surplus in 2020-21.

And yet over the first 11 months of the 2018 financial year ScoMo pushed the budget into a technical surplus—years ahead of schedule—on two of its three core measures (the fiscal balance and net operating balance)...

I personally find the business of politics distasteful, and try to minimise the time I have to allocate to thinking about it.

Put more bluntly, politicians tend to be highly narcissistic and myopic individuals. But in my dealings with Morrison, he has struck me as genuinely different.

Unlike most of his peers, Morrison always under-promises and over-delivers, as he has done in the treasury and immigration portfolios.

He's consistently smashed his own budget forecasts for revenue and spending despite every man and their dog claiming his assumptions were wildly optimistic.

An interesting counter-factual is that we used to hear endless criticisms of Joe Hockey. And yet this harping has disappeared on Morrison's watch.

Morrison is also a real grinder, outworking most politicians I've come across. And, finally, he's seriously smart, but this intelligence is crucially leavened with a pragmatic overlay.

His innovative big bank tax, which for the first time priced the implicit government guarantee that artificially lowers the price of money for the major banks, was a terrific example of this practical creativity.

I remember one meeting where an incredibly complex set of financial structuring relationships was outlined to Morrison and his advisers.

The Treasurer instinctively started sketching a flow-chart as this was being explained, and it perfectly described the concepts diagrammatically. The experts on the other side of the table were left speechless by its lucidity.

In May 2018, I wrote that Morrison had delivered what should be "an election-winning budget", which has been turbo-charged by the decision to drop the corporate tax cuts.

I concluded that Morrison's "accomplishments and rising public faith in his ability to deliver on promises in an understated way create the foundations for the Treasurer to one day argue that he is prime ministerial material".

This day has arrived sooner than anyone anticipated.

Read the rest of the column here.

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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