To understand how short selling works, it’s valuable to watch the movie Trading Places.

Let me explain the final scenes of this movie that’s all about making money out of short selling.

Tech stocks have been under pressure here and in the US of late and they copped another smacking on Wall Street overnight. This comes as a local hedge fund manager explains why these very good companies are being targeted by stock players who make money when share prices fall!

The AFR’s Gus McCubbing told us about Dave Allen of Plato Asset Management, who has shorted the likes of Catapult, DroneShield and data centre operator NextDC.

And recent months, market darlings such as Xero, WiseTech and Zip have been sold off big time.

While this has led the likes of yours truly to look at some of these businesses and argue that they look like good value for the long-term investor, Allen has rattled my confidence a little.

In contrast, the analysts are on my side, with the tech stocks that I think will come good. And here’s a quick snapshot of their views on some of these tech companies:

1. NextDC: six out of six analysts surveyed on FNArena like the company and see a 6.1 rise ahead.
2. Xero: six out of six give the company the thumbs up, with a consensus rise of 85.9%.
3. ZIP: it too has six out of six supporters and a gain of 53.6% is predicted.

On Allen’s other shorted plays i.e., Catapult Sports and DroneShield, the tipped gains were 57.1% and 18.4% respectively.

While I don’t like these two companies for other reasons, the likes of NextDC and Xero do look like good long-term plays, even if Allen is right in the short term. And that’s an important lesson for inexperienced stock players.

Recently, the shorters were anti-lithium companies. They were right for a time until they weren’t, as the chart shows.

As one story (headlined in the AFR) on this bounce back of PLS said: “Hedge funds get toasted after lithium spike sends PLS soaring.”

For those who don’t understand short selling, go and watch the movie with Eddie Murphy called Trading Places.

While many people have loved this film, they didn’t understand how Billy (Eddie Murphy) and Louis (Dan Ackroyd) were able to outsmart the market savvy Duke brothers and render them poor. The process was short selling.

Billy and Louis gained the report of frozen concentrated orange juice (FCOJ) supply, which was a normal harvest. They doctored it for the Dukes to say that it was poor harvest. This would mean demand would be greater than supply, so the Dukes expected the price of FCOJ to rise. Because of this, they instructed their ‘man in the pit’ to buy to a high level, knowing they would make a profit on a rising price.

However, knowing the harvest was OK, Billy and Louis sold contracts at the rising prices, even though they didn’t own any FCOJ.

When the report was released saying it was a normal harvest, buyers like the Dukes were desperate to get out or sell their contracts at the highest price possible as the price fell earthwards.

Billy and Louis were able to be the only buyers and they did this at lower and lower prices.

They sold at high prices and bought contracts to meet those sales obligations at really low prices, making a big profit.

The textbooks tell us that short selling happens this way:

1. A hedge fund is a short seller that ‘borrows’ the shares of other people or funds, which they think will fall in value.
2. If they’re right, they buy them at a lower price and give the shares back to the lender, which they got at a lower price.
3. Why does the lender of the shares do this? First, the short seller pays a fee to ‘use’ these shares. Second, the lender might think the short seller is wrong and the price won’t fall. That said, if the short seller is right, it could hurt the portfolio value of the lender.

While Allen and his cohort might be right for some time, eventually good companies such as Xero and NextDC are bound to make comebacks. I love buying quality outfits when the market hates them.

The two qualities worth having with stocks is patience and time on your side.

After numerous days of positive finishes for US stocks, market indexes in the States have headed into negative territory. Why is this so?

President Trump has resumed his ‘Mad King’ persona that he last imposed on us when he delivered his so-called Liberation Day tariffs that led to a convulsive market reaction. After numerous days of positive finishes for US stocks, which included a nice Santa Claus rally, market indexes in the States have headed into negative territory.

Our stock market will find it hard to resist the gravitational pull of a series of Trump actions and threats. The US President will have to give one of his clarifications of the reality that’s more likely to eventuate, or else markets could go negative for some time.

Remember, US stocks are often determined for the year based on what January ultimately spits out. And given the historical cuteness of American labelling, the January Effect says, “as goes January, so goes the year.”

We are getting used to Donald Trump’s ways, and in a world of psychopathic leaders of countries such as Russia and China (and let’s not ignore some of the Middle East crowd), the West has to accept that Donald is our ‘psychopath’. Sometimes you have to fight fire with the same substance.

However, when I think of the bombastic approach Trump leads with that unsettled financial markets overnight, I can’t help but contrast his personality with the world’s number 2 tennis player. I had the pleasure of hearing Jannick Sinner interviewed for an AO-related function in Melbourne last night for the Explora cruising operation (Sinner is an ambassador for this luxury liner).

When watching Sinner play, I’ve always admired his demeanour and talent on court, but I’ve never listened to him discuss his early life, his family and how he copes with the pressure of playing the best at the highest level.

This is a 24-year-old that any parent would be proud to call a son. His attitude is potentially a great lesson for any person looking for how to create a winning composed persona.

Leaders could learn a lot from Sinner, though I don’t think Donald is about to embrace Jannick’s more contemplative and composed style. No, our American ‘saint’, who’s having a huge impact on the US and global economy as well as financial markets right now, isn’t likely to become a sinner of a Jannick kind. He’s more likely to remain a sinner until financial markets make him repent.

So, what were the sins he committed overnight that have hurt stock prices? Here goes:

1. He keeps hounding US central bank boss Jerome Powell accusing him of lying, and now the world’s central bankers are riding to their colleague’s defence. Overnight Trump called him “incompetent” or “crooked”.
2. Markets can’t ignore the potential independence reduction of the Federal Reserve, with Trump clearly ‘playing the man’ on what many regard as a silly subject about the cost of renovating the Fed’s headquarters. It looks like the President is using this to get rid of Powell before his retirement date in May, to get a replacement who’ll cut rates early to please Trump!
3. The President is threatening banks that he’ll put a 10% cap on credit card charges for one year. US bank stock prices headed south on the news. Overnight, JPMorgan reported better-than-expected on both top and bottom lines and its share price still fell!
4. Trump said Americans won’t cop higher utility costs because big tech companies use a lot of power and force up energy bills. Microsoft’s share price was down on the news.
5. Oil prices spiked on the news that Trump has cancelled all meetings with Iran and has told Iranian protestors, some who are being burnt in the streets, that “help is on the way!” This follows a Trump threat that any country doing trade with Iran will cop a 25% tariff on all business done with the US.
6. Finally, his eyes (green with envy over Denmark’s control of Greenland) have seen the Greenland PM declare in a message to Trump: “We choose Denmark!”

Of course, while we’re getting used to Trump’s unusual approach to leading not only his own country but also the Western world, all these curve balls (just as the Dow Jones and S&P 500 indexes hit all-time highs yesterday) set up stock markets for a sell-off.

On a good sign, US inflation looks OK, with the CPI for December coming in at 0.3%, taking the annual reading to 2.7%. Core inflation was 0.2% for the month and 2.7% for the year, which matched economist’s predictions.

Right now, markets aren’t coping with Donald’s big serves. Trump looks like he could be copping a few double faults. Crowd reaction on global markets might see the US President tone down his game, though I can’t envisage that he’ll ever play a considered calm contest like Jannick Sinner.

This guy in the White House is more like John McEnroe of old. Like Trump, McEnroe could play like a saint but at times sinned and carried on when he didn’t get his way.

The US stock market looks set to have another ripper of a year. Is our market going to follow suit or have another relatively disappointing performance?

My first story of the year for The Switzer Report yesterday (subscribing is the smartest money you'll spend all year!) questioned the likelihood of US stocks having a good year again. My answer was ‘yes’, it’s likely! But the question I didn’t answer was why our local market has done so poorly in comparison and will it have a better year?

Remember, if Wall Street goes up, we follow but by a lesser amount unless the negatives hurting our market change.

This morning the AFR informs us that the CBA is being challenged by BHP as the biggest by market capitalisation in the S&P/ASX 200 index. This comes as a commodities boom pushes up mining prices and the market finally accepts what analysts have been saying for over a year: the CBA (good bank that it is) is overpriced.

The analysts surveyed by FNArena are still anti-CBA, with the consensus predicting a 23% fall from its current price of $154. I think this is over-the-top but look at the table below.

Last year, the US-based S&P 500 index (which captures the stock price moves on America’s top 500 companies) rose 19.5% before dividends over the past 12 months. Meanwhile, the local S&P/ASX 200 was up only 6.93% as of yesterday. That’s underperformance with a capital U!

I don’t think this is purely a double-T effect explaining this (i.e., tech and Trump in the US) as the UK-based FTSE 100 index was up 23.3%.

Even in the politically troubled left-leaning France, the CAC 40 was up 12.82%.

What explains this underperformance? Here’s a list of issues that has held us back:

1. Because inflation has remained stubbornly high or interest rate cuts have been curtailed. The figures we’ve seen for the CPI have lots of economists tipping rates will rise this year and that’s not good for stock prices.
2. The Albanese Government has given tax cuts to offset the rising cost of living, but it has kept demand high and unemployment low. However, it has reduced the potential for rate cuts. And stock markets like rate cuts as they promise future economic growth and lower costs.
3. We don’t have many tech companies to excite overseas investors and the market here.
4. Resource stocks struggled for a big part of last year. If they’d risen as our banks surged higher, we would’ve had a great year for share prices.
5. Our productivity isn’t great. In fact, it’s poor. That affects company profitability and then the stock prices of those companies.
6. China isn’t booming. They’re an important export customer and we get a lot of growth from selling our mining, agricultural and tourism goods and services.

So, what we have here is an economy that currently has unemployment at a good 4.3% but our inflation rate is a pretty bad 3.4%, while our economic growth rate is a weak 2.1%.

For the year ahead, an improving China could help our stock prices. This partly explains why BHP is closing in on the CBA as the market’s biggest stock.

Cecile LeFort at the AFR tells us today that “BHP is now worth $236 billion by market capitalisation, nipping at the heels of CBA’s $258 billion valuation.”

“It’s the realisation that CBA had a valuation which was one of the highest in the world for a bank that resulted in the shares being sold down,” said Sean Sequeira, chief investment officer of Australian Eagle Asset Management, which owns both stocks. “At the same time, BHP is being supported by strong commodity prices and a strong outlook.”

China grew at 5% in 2025. While this is good, in the 1990s the world’s second biggest economy grew at rates ranging from 10% to 15% in 1994!

I can’t see the Albanese Government doing much to excite stock prices or raise productivity, and we won’t create tech giant companies any time soon.

So, the big issue for stocks will be our inflation rate. That puts January 28 and February 3 in the spotlight for our stock market.

On January 28, we get the December quarter inflation number. If it’s lower than expected, then the RBA won’t raise interest rates on February 3, which the market will like. And if China and Trump can stop goading each other and the Chinese economy can get into overdrive, then our market will have a better-than-expected year.

In terms of the help our market gets from Wall Street, a CNBC survey looked at the forecasts for the S&P 500 of 14 financial and broking businesses. They all saw US stocks heading up. The average rise was 10%.

It’s why I remain positive on stocks. But if we want a great result in 2026, then a lot of local negatives have to turn positive and Beijing need to get the Chinese economy going.

I know many of you are thinking rate rises this year are a done deal but let me show you what expert economists think is likely to happen.

Goodbye holiday world! Welcome back to the real world. And yep, hello, we’re back!

The first exaggeration I want to send on a break is the belief that interest rates have to rise this year. Yep, while I know many of you are thinking this is a done deal, let me show you what expert economists think is likely to happen.

Sure, while I know expert economists tipped we’d see more rate cuts than we got last year, these people are like expert horse tipsters — they can get it wrong. But they’re generally better informed about the ‘form’ on the economy than the man in the street or the journalist who wants to drag you into read their story.

While I know bad news sells, my history (which started out as a teacher and then lecturer in economics at great halls of learning like the University of NSW, to name one) means I am in the truth-seeking caper.

On that subject, a great piece by the AFR’s respected journalist Cecile LeFort looked at what 38 economists were thinking about interest rate changes this year.

Her piece had the headline: “Rapid, repeated interest rate rises coming this year, economists say” but when you read the piece, a different interpretation could be made. (By the way, the one thing I learnt after decades writing for the likes of The Daily Telegraph, The Sun Herald and The Australian was that as a writer I never got the headline I wanted. Headlines are the domain of sub-editors, whose job it is to get readers to read the story.

So, what were the conclusions from LeFort’s work? Try these revelations:

1. The CBA and NAB economics teams expect a rate rise next month, taking the cash rate from 3.6% to 3.85%.
2. 17 out of the 38 economists tip at least two hikes this year!
3. However, 16 out of 38 economists see, wait for it, no change in rates this year.
4. And it gets better for those praying for a cut. Nine economists see the cash rate below the current 3.6% by year’s end!
5. So, adding the ‘no change’ economists to the ‘rate cut’ economists, we now have 25 out of 38 economists not thinking we’ll see a rate rise this year!
6. But wait there’s more, with four economists seeing at least two cuts this year, with Yarra Capital Tim Toohey telling us that the cash rate might be 2.85% by Christmas this year!

If Toohey’s right, then our economy will have slowed, and unemployment would’ve gone a lot higher.

The bottom line is that there is no consensus from the experts that track our economy every day and the argument for rates on hold is actually a more majority view than the “rates must rise” prediction.

While you were holidaying, we saw the November CPI number that showed inflation wasn’t quite as bad as many have been guessing. But it was a monthly figure, which isn’t regarded as highly as the quarterly number.

On this basis, annual inflation dropped to 3.4%, which was lower than the 3.6% forecasted by our expert economists. While that was a good sign, it was helped by the Black Friday discount sales, so the December quarterly figure out on January 28 will be crucial for what the RBA does on rates on February 3.

And it will be important to see what economic models are the more accurate.

In a bid to keep the Super Tax train on the tracks, Treasurer Jim Chalmers dropped a new version of the legislation on the Friday before Christmas. What a gift. This isn’t a minor update, either, it’s big bikkies that fundamentally changes how the Super Tax works. Here’s how the new version affects you. This is the Super Tax explained.

What's changed? The quick summary

The new exposure draft of the Super Tax legislation gets right some of the things that the original legislation was getting very wrong according to its critics.

First, there's now no tax on unrealised gains. Then there's a new $10 million threshold on top of the $3 million threshold for those who will cop the tax itself. And unlike on the old versions, the new Bill sees these thresholds tied to the CPI (to the cheers of critics).

Finally, timing shifts so everyone can get their affairs in order before it kicks in from the 2026-27 income year.

There are a bunch of other little changes too. Read on below to learn more.

What is the “Super Tax”?

The “Super Tax” is our little shorthand for a new tax created by the Albanese government targeting those with large Super balances. Formally, it's known as the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill. Catchy.

In its simplest form, the Bill creates the Division 296 tax targeting those with over $3 million and now $10 million in their Super. It won't look to cap how much you can hold in Super, and it doesn't mess with your contribution limits. Instead, it reduces the concessional tax treatment applied to part of the earnings associated with large balances.

Under existing rules, most superannuation earnings are taxed at up to 15 per cent in accumulation, and potentially at 0 per cent in retirement phase. The government’s policy position is that once balances swell into the "large" ($3m +) and "very large" ($10m +) range, it gets hard to justify concessional tax benefits.

The government says fewer than 0.5 per cent of Australians are affected in the first year, and fewer than 0.1 per cent will face the highest rate.

You can read our previous coverage to see exactly what was targeted and when if you're interested. What's new is below.

What’s new in the Christmas 2025 Super Tax draft?

The government has been clear that this is not just a re-announcement of the original Super Tax. Instead it's a revised design shaped by feedback (read: very vocal criticism) to the previous draft legislation.

In its Exposure Draft, Treasury acknowledges that the government asked for practical changes to the design and implementation of the Super Tax after hearing all the whinging.

But rather than one or two simple changes, there are many. Some actually serve to reshape the tax entirely.

New Super Tax thresholds

Under the revised draft, the Super Tax now operates across two balance thresholds rather than one.

The first threshold remains at $3 million. Superannuation balances up to this level continue to receive the existing concessional treatment, with earnings taxed at up to 15 per cent.

For balances between $3 million and $10 million, an additional layer of tax applies, lifting the overall tax rate on that slice of earnings to up to 30 per cent.

A second threshold is introduced at $10 million. For balances above this level, a further 10 per cent tax applies, lifting the overall tax rate on those earnings to as much as 40 per cent.

No more taxing unrealised gains

The removal of unrealised gains from the tax base is potentially the most consequential technical change in the new draft. I can almost hear the crowds cheering from here as I type.

The original legislation relied on changes in value as a proxy for earnings, which meant unrealised gains and losses could trigger tax. The 2025 draft goes in a different direction.

Under the new draft legislation, funds calculate their realised taxable earnings and then attribute a share of those earnings to individual members above the thresholds.

Thresholds are now tied to inflation

Again, is that more cheering I hear?

The 2023 bill fixed the $3 million threshold in nominal terms, meaning inflation alone would have pulled more people into the tax over time.

The revised draft indexes both the $3 million and $10 million thresholds to inflation.

The stated intent is to reduce bracket creep and maintain relativity over time.

It's likely to be music to the ears of Greens MPs and Senators alike who specifically had indexation on their list of boxes to be checked should the Government ever want them to vote for the thing.

SMSFs have to calculate their earnings differently

One of the quiet but important changes in the new legislation is that it openly accepts different super funds will calculate and report earnings in different ways.

For large retail and industry funds regulated by APRA, the government allows earnings to be attributed to members on a “fair and reasonable” basis. These funds pool assets across thousands or millions of members, often across multiple investment options. It is not practical for them to track realised earnings at an individual asset level for each person, so the law lets them estimate each member’s share of earnings using fund-level data and agreed principles.

For members, the trade-off is straightforward. You won’t see a precise, asset-by-asset breakdown of how your Division 296 earnings were calculated, but you also won’t be required to do anything yourself. The fund does the work and reports the result to the ATO.

SMSFs are treated differently because they operate differently. Self-managed super funds are small, closely controlled, and typically hold specific assets that trustees choose and manage directly. Because of that, Treasury considers they have a greater ability to influence how income and gains are allocated between members if given flexibility.

Under the revised rules, SMSFs must use more prescriptive, proportionate methods to attribute earnings between members. In practice, this means earnings are shared based on each member’s interest in the fund over the year, rather than being linked to particular assets or transactions.

The upside is transparency. SMSF trustees will be able to see clearly how earnings are calculated and attributed. The downside is flexibility. The rules are deliberately designed to prevent trustees from managing asset sales, income flows or timing decisions in ways that reduce the Division 296 tax.

New integrity rules to prevent people “gaming” the system

There are other "integrity" measures that pop up in the new draft legislation, too. They're all aimed at ensuring there aren't any loopholes by design that allow you to potentially reduce or dodge part of your Division 296 tax burden.

The concern is that someone with a sizeable Super balance could hold their assets inside super for most of the year, then draw down or shift money out just before 30 June so their end-of-year balance falls below the threshold. Under the original design, that sort of timing could have significantly reduced the tax bill.

Instead of looking only at a person’s total superannuation balance at the end of the financial year, the tax office will now use whichever is higher: the balance at the start of the year or the balance at the end of the year.

And you don't get a year off in the event of your death, either. Your assessment is based on balance levels across the year, right up to 30 June.

These so-called "integrity rules" are part of the reason why the Super Tax now has a delayed fuse. If introduced in its current form, it wouldn't take effect until the 2026-27 income year.

What’s next?

The legislation is still in draft, and there's a public consultation period open until 16 January, 2026.

As I mentioned, Dr Chalmers is keen to get this one into Parliament as quickly as possible. Especially considering that it's aimed to take effect from the 2026-27 income year.

For anyone close to the thresholds, or aiming to get there, understanding how these rules apply to their own structure and circumstances will require professional advice from a licensed financial advisor.

Make sure to chat to yours about what this new Bill would do if it became law so you aren't caught out.