Why ScoMo Won

Christopher Joye

Coolabah Capital

In my column today I analyse why ScoMo really won, noting that "during the week I advised my investors, media colleagues and friends that it would not be surprising if Scott Morrison won the election comfortably". Click on that link to read the column or AFR subs can click here. Near the end of the column, I argue that ScoMo's triumph is incredibly positive for housing, reinforcing our prediction in April that the record correction will be over if the RBA cuts, and also immensely good news for franked assets like equities and especially bank hybrids. I pity the poor buggers that were advised to sell their hybrids on the basis of the claim they would lose their franking credits, which I repeatedly countered was not the right thing to do, and spruiked high-yield debt LICs/LITs to replace them by folks being paid enormous conflicted sales commissions...Brief excerpt enclosed:

For months this column argued that the betting markets and political pundits were wrong in assuming ScoMo had no chance. Indeed, it posited that he possessed impressive "prime ministerial material" in May 2018 and warned in January that Labor risked a John Hewson-redux.

These insights were not predicated on any political inside information. The belief ScoMo could win was premised on pure first principles logic. In fact, he intuitively felt like a good trade – a massively mispriced asset.

A couple of weeks ago this column submitted that the election would be an "intelligence test" for the community. Or, more precisely, a test of whether rational self-interest would prevail. The bottom line is that Labor made a catastrophically fatal error betting so boldly against self-interest.

As my eight-year-old wrote on Friday, voters were being forced to make what should have been a simple choice. On the one hand was a party proposing to actively take away wealth from vast swathes of middle Australia through Labor’s tax-everything-that-moves platform and redistribute it to those Labor subjectively judged were more deserving.

Embedded within this bargain was the ask that the community should trust Labor to spend the money raised from all its new taxes wisely.

Setting aside Labor’s bad luck in presiding over the 1991 recession and the global financial crisis, the empirical fact is that they have had a long history of running up large budget deficits. It was asinine to think the community would buy the argument that Bill Shorten would manage their money better than they could.

On the other hand, you had Scott Morrison, whom this column described as that rare politician who relentlessly under-promises and over-delivers. He stopped the boats. He saved Australia’s AAA credit rating, sparing borrowers rate hikes. He put the budget back into surplus, after the biggest run of (mainly Labor) deficits in history. (It's currently in surplus on all measures on a rolling 12-month basis.)

And ScoMo has been serially underestimated all of his political life by colleagues and media experts...

The choice he came to the election with was brilliant in its elegant simplicity. In contrast to Labor, he was not going to take our wealth away on the basis he could spend it better than we can. On the contrary, he would reduce our taxes and leave us with more money. He just wanted to empower us to be the best versions of ourselves.

This column described it as a battle between Labor’s desire to regress winners to the mean, and socially engineer "equality of outcomes" by punishing the hardest workers in the community, and ScoMo’s vision of cultivating aspiration and "equality of opportunity".

Read the full column here.


Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 26 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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