The Number to Watch

For most of the past two years, the conversation around interest rates has focused on what the US Federal Reserve will do next. Will they cut? How quickly? By how much? But that's not really the right interest rate to watch today. The number that matters most from here in my opinion is the US 10-year bond yield, and in particular what happens if it moves above 5% for a sustained period. The 10-year is already around 4.7%, while the 30-year is above 5.2%, so we are getting increasingly close to that point.

There is nothing special about 5% itself. The US economy has lived with much higher interest rates before. The problem is the environment those rates are being applied to today. US Government debt has passed $40 trillion, mortgage rates are already close to 7%, consumers are carrying more debt and corporate borrowers face years of refinancing ahead. At the same time, economic growth is slowing, employment has weakened and the energy shock is adding another layer of pressure.

At around 5%, I think there is an immediate risk to financial markets. Higher bond yields make equities relatively less attractive and increase the discount rate investors apply to future earnings. That puts downward pressure on the sharemarket and stock valuations. It doesn't require a recession to produce a correction. Investors simply have to decide they are no longer prepared to pay the same price for the same dollar of future earnings.

The more concerning scenario begins around 5.25% to 5.5%. At that point it becomes less about sharemarket valuations and more about the economy itself. Higher Treasury yields flow through to mortgages, corporate borrowing, commercial property and private credit, and eventually into employment and consumption. If earnings begin falling at the same time valuation multiples are contracting, a relatively ordinary market correction can quickly become a 20% or 30% bear market.

There is another complication I am mindful of. Normally when an economy weakens, the Federal Reserve cuts interest rates, bond yields fall and financial conditions begin to improve. But if the Fed cuts interest rates and long-term bond yields don't fall because investors are demanding a higher return, that’s a serious problem. If investors are worried about inflation, government debt and huge new issuance of bonds, monetary policy becomes considerably less effective. The Fed can control short-term rates. It cannot really control what investors demand to lend the US Government money for ten or thirty years.

So the 10 year bond yield is really important to watch right now. A 10-year yield of 5% is a real warning for equity markets. At 5.25% the economic risks become considerably more serious. At 5.5%, particularly if sustained, I think something probably breaks.

It is important to note that none of these numbers exists in isolation. A 5.5% bond yield in a strong economy with healthy employment and moderate debt would be one thing. A 5.5% yield alongside slowing growth, weakening employment, an energy shock and enormous government borrowing is something very different.

We aren't at crisis levels yet. But we are getting closer to the point where higher bond yields stop being just another number and start having meaningful consequences for markets and the economy. That is why the US 10-year bond yield may now be the most important number to watch in financial markets.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The National Security Economy

Back in early 2024 I wrote about the three major themes we were focused on from an investment perspective. The first was AI, the second was energy, and the third was more complex: a world preparing for war.

At the time, I explained that preparing for war was about much more than increased defence spending. It was also about changing supply chains, reshoring manufacturing, securing critical resources and reducing dependence on countries that may not always remain friendly.

More than two years later, I think that theme has become broader still. A better way to describe it today is the national security economy. This is about the economics of sovereignty, security and resilience in a more uncertain world. Governments and companies are increasingly asking, what happens if the system we depend upon suddenly stops working? It’s no longer simply about the cheapest and most efficient way of doing something.

For several decades globalisation was largely built around efficiency. Manufacturing moved to wherever it could be done most cheaply. Supply chains became longer and more complicated. Inventories were reduced. Energy was sourced from the most economical supplier. It worked well, as long as everyone continued to cooperate. That can no longer be assumed. Efficiency still matters, but security matters more.

The infrastructure that makes a country resilient is surprisingly broad. Defence is part of it, but so are electricity grids, data centres, ports, water infrastructure, agriculture, energy production, semiconductor manufacturing and critical minerals. These are not just industries; they are also matters of national security.

Artificial intelligence provides an interesting recent example. Earlier this year the US government designated Anthropic a supply-chain risk following a dispute over how its technology could be used by the military. Then in June, citing separate national security concerns, the US temporarily restricted foreign access to Anthropic's newest models.

Whatever the merits of those decisions, it highlights a much bigger issue. AI models are becoming embedded into the everyday operations of businesses and governments. If your organisation becomes dependent upon one of them, who ultimately controls your access to it? The same question increasingly applies to cloud computing, payment systems, satellites and communications infrastructure. Access to technology itself is becoming a matter of national security.

National sovereignty is starting to extend well beyond borders.

We already understand this when it comes to oil, rare earths and semiconductors. Taiwan Semiconductor Manufacturing Company is perhaps the clearest example. TSMC is an extraordinary business that I would otherwise love to own. But for me there is one major problem. I believe that at some point China will make a play for greater control over Taiwan. I don't know when or exactly what that looks like, but if it happens, the value of TSMC becomes extraordinarily difficult to assess.

That is one side of the investment equation. The national security economy creates risks for companies sitting on geopolitical fault lines. But it also creates opportunities for the companies helping countries remove those vulnerabilities. Some of the biggest opportunities will be in areas far less glamorous than AI or defence.

Water is one. Food is another.

A country can survive without the latest smartphone. It cannot survive without reliable electricity, clean water or food. It is not just food and water themselves that matter. Everything required to produce and secure their supply becomes strategically important. Fertiliser, irrigation, agricultural machinery, water treatment, storage and transport all become part of the national security equation. As governments think more about resilience, security and strategic independence, more investment in this critical infrastructure will inevitably follow.

The world spent decades optimising for efficiency. We built very sophisticated systems on the assumption that goods, energy, technology and capital would continue flowing relatively freely across borders. The next decade will be about building greater self-sufficiency, stronger contingency planning and eliminating single points of failure. That will be expensive and at times inefficient. But that is the price of national security.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Unmistakably Human

This week I turned 50. When I was younger, fifty seemed old. I’ve grown considerably as a person, but I don't really feel that different to the person I was twenty years ago. My interests have evolved, my perspective has broadened and hopefully I've become a little wiser, and perhaps more patient. Over time you become aware of just how much you don’t know. That everyone is working life out as they go no matter what age they are. Everyone has their own lessons to learn at different stages of life.

What has surprised me most is not how much I've changed, but how much the things I admire have changed. When I was younger, success always seemed to be about more. More achievements, a bigger business, more money and more recognition. We tend to think if something was good, then making it bigger was even better. Growth becomes the measure of success. Scale became the goal. There is nothing wrong with ambition. The world needs ambitious people because ambition builds companies, creates jobs, solves problems and pushes society forward.

But everything today is about scale. The café becomes a franchise. The software company must become a unicorn. The YouTube channel becomes a personal brand. The hobby becomes a side hustle. Every success is expected to become something bigger. Somewhere along the way we have confused growth with progress. We have become so obsessed with optimisation and scale that we risk overlooking something far more valuable. Craftsmanship. Authenticity. Trust. Humanity.

I find myself increasingly admiring people who dedicate themselves to mastering something simply because it is worth mastering. The family bakery that has perfected the same loaf of bread for generations. The cabinet maker whose furniture will outlive him. The restaurant owner who refuses to open a second location because quality matters more than growth. There was a time when we admired these people.

Where have all the craftsmen gone?

More than sixty years ago the German writer Heinrich Böll wrote a short parable that has since been retold around the world. A tourist sees a fisherman relaxing by the water and asks why he isn't catching more fish. The fisherman replies that he has already caught enough for the day. The tourist explains how he could buy more boats, build a fleet, become wealthy and eventually retire somewhere beautiful where he could spend his days fishing and enjoying life. The fisherman simply smiles.

"But I'm already doing that."

It is such a simple story because it asks one of life's most important questions.

How much is enough?

That question stayed with me as my wife Paula, and I travelled through Sicily in May to celebrate our 30th wedding anniversary. Like most visitors, we were captivated by the coastline, the history and the food. But what stayed with me most was something much quieter. Life didn't seem optimised. It simply was.

The baker wasn't trying to build an international bakery chain. The winemaker wasn't talking about dominating global markets. The family restaurant wasn't searching for investors. They simply wanted to make beautiful food, great wine and welcome people into their corner of the world. There was a quiet pride in doing ordinary things extraordinarily well. It reminded me that there is a profound difference between becoming bigger and becoming better.

There are examples of this all around us.

Every Italian child grows up familiar with The Last Supper. Prints of Leonardo da Vinci's masterpiece hang in the dining room of Italian family homes all over the world. Millions of perfect reproductions exist. You can buy one online for less than a hundred dollars. Then you stand in front of the original in Milan. It isn't perfect. The colours have faded. Sections have deteriorated. Five centuries have left their mark despite extraordinary restoration efforts. Ironically, many reproductions are brighter, sharper and closer to what the painting may once have looked like. Yet the original is priceless.

Why?

Not because it is perfect, but because it is authentic. Every faded brushstroke and every imperfection is evidence that Leonardo himself stood before that wall more than five hundred years ago. The imperfections do not diminish its value. They are part of its value.

The same principle explains why collectors pay millions of dollars for a rare trading card, a first edition book or a vintage watch while a flawless replica is worth almost nothing. Investors understand this instinctively. Scarcity creates value. The replica may look identical. It may even function better. But it lacks the one thing that cannot be manufactured. A human story with history and provenance.

I can see the same thing happening to humanity itself as artificial intelligence rapidly makes intelligence abundant. It will write better than most people. Analyse faster than us. Create images, music and software that will often be indistinguishable from or even better than human work. For most of history, knowledge has been scarce. Increasingly, it will become almost free. As intelligence becomes abundant, humanity becomes scarce. As perfection becomes cheap, imperfection becomes valuable.

I believe that is where the value of the future will lie. In people who are authentic. In the founder who genuinely cares about their employees. In the artist whose brushstrokes reveal the hand that painted the canvas. In the musician whose voice cracks during a live performance. In the conversation that wanders without an agenda. In the local café where the owner still knows your name. These things are valuable because of their imperfections.

That is the main lesson I have taken from turning fifty. I haven't become less ambitious. I still admire great companies and remarkable founders. I still believe in building things that matter. But I have become just as fascinated by those who know when enough is enough. People who choose craftsmanship over scale, depth over breadth and authenticity over optimisation. The premium of the future will shift to trust, craftsmanship and genuine human connection.

For much of the past century we have pursued efficiency, perfection and endless growth. But I don’t think the future will necessarily belong to those who are the biggest, the fastest or even the smartest. What will matter is whether something is real. Whether it has a story. If it bears the fingerprints of the person who created it. Those whose relationships are built on trust rather than algorithms. Who understand that craftsmanship matters. The greatest irony of the AI age may be that the closer machines come to becoming like us, the more valuable it will be to remain unmistakably human.

Choke Points

We are now 5 months into this “4-week war”, and my thesis remains the same. Iran is not interested in a deal. They want to teach the world, especially the US, a lesson. If you attack us, we will choke off the world's oil and gas supply and bring your economy to its knees.

What does that look like? At this point, the most likely outcome is an energy shock that morphs into a growth shock and quite possibly a global recession. Their playbook takes a leaf out of the 1979 oil crisis. But the worst-case scenario could be far more severe.

How severe will depend on how far Iran wants to take it. That's the key point, and it is why I am especially cautious at the moment from an investment perspective. Where this goes next might well be out of the hands of the US and the rest of the world. Iran appears to hold the strategic initiative.

The 1979 oil crisis led to the recessionary environment of 1980-81. Back then Iran stopped producing oil for about 8 months. It amounted to around 5%-10% of global supply. Yet today by closing the Strait of Hormuz, they can disrupt around 20% of the global oil supply and almost 20% of global LNG trade.

How could it be worse? Well in the past week or so the Houthis of Yemen, who are aligned with Iran, started attacks on ships in the Red Sea. This is a significant potential escalation and brings into question whether the Bab-el-Mandeb Strait will be next to close.

If the Houthis close this Strait, it not only puts more pressure on the supply of oil but also a range of other cargo. Bab-el-Mandeb accounts for around 12% of global trade as it leads to the Suez Canal and is the gateway to Europe from the Middle East.

All of this demonstrates just how little control the US really has over the current situation. I think it is unlikely military action alone will deter Iran. They are fighting a completely different war to the one the US thinks it is fighting.

So, what is next? Again, this depends on Iran and its allies. Saudi Arabia has a 1,200km pipeline that was built to bypass the Strait of Hormuz to help in a situation just like the one unfolding today. My concern is that the next phase of escalation in the months ahead is focused here.

If Iran's strategy is to create prolonged disruption and uncertainty both geopolitically and in financial markets, then attacks on infrastructure including this pipeline are possible. That will come with its own set of risks by way of response from the US and its Gulf allies.

The rest of the world is watching too. There are many chokepoints around the world that are critical to global trade. There’s the Suez Canal in that same region, but then there’s the Strait of Malacca in Asia which sees 25-30% of global trade pass through it as well as the Taiwan Strait and the South China Sea.

So how the fight for control of the Strait of Hormuz unfolds will be strategically important for many other regions. There are precedents being set here that will reverberate around the world depending on the outcome and who manages to wrest control of the waterways.

In its simplest form, for now, this starts as an energy shock. But that is just the beginning. There are multiple flow-on effects. If the disruption does persist, the price of oil and gas will skyrocket. That will quickly flow through to higher fuel prices, renewed inflationary pressure, and a further increase in the cost of living.

The increase in prices hurts everyone from consumers to businesses. Higher inflation presents a major problem. Not only as costs increase but because there are implications for interest rates. Higher inflation puts pressure on central banks to raise interest rates.

That is bad enough, but an energy shortage means there simply isn’t enough. Paying more for the commodity doesn't create more of it. There is no alternative. Less energy means less of everything. Less production, less output. Unavoidably economic growth takes a hit.

This is where the real flow-on effects occur; higher costs meeting slower growth or even negative growth. When these forces converge, the risk of a global recession rises materially. Then there is nowhere to hide. The global economy slows, the share market falls significantly, businesses lay people off, unemployment rises, and consumers stop spending.

The longer this remains unresolved, the greater the probability that this scenario unfolds. It is a scenario we have been preparing for and one where the downside risk is potentially much more serious than the market is factoring in. At a stage in the market where many sectors are priced for perfection, the reality unfolding is very different. We will continue to take profit and build a cash war chest.

The Price of Greatness

Every generation produces a handful of companies that seem capable of changing the world. The challenge for investors isn't just identifying them. It's deciding whether it is a great company to own shares in and if so, what price to pay for them.

There is no shortage of opinions about SpaceX. Depending on who you ask, it is either the greatest private company ever built or the latest example of irrational exuberance. The truth is probably somewhere in between. It has transformed the economics of launching rockets, become a critical partner to governments, built a rapidly growing global communications network through Starlink, and continues to pursue one of the most ambitious commercial visions of our lifetime. With SpaceX now public and companies such as OpenAI and Anthropic expected to follow, investors are about to face one of the biggest waves of technology IPOs in history. The critical question isn't just whether these are great companies. It's whether they are great investments at today's valuations.

This is an important distinction that investors often overlook, especially during periods of technological change. Transformative innovations attract huge amounts of capital. Railways, electricity, the internet and now artificial intelligence have all experienced periods where money flowed faster than opportunities could absorb it. Some of that capital funded businesses that changed the world. Others disappeared almost as quickly as they arrived. Today's AI ecosystem is attracting capital at very high valuations, but that should not automatically be confused with the quality of the underlying technology. Great technologies can coexist with expensive prices. The challenge for investors is separating the two.

The valuations are extreme in my opinion. SpaceX is currently valued at around 50 times annual revenue and has traded at more than 100 times, while OpenAI and Anthropic are valued at roughly 34 and 20 times revenue respectively. Those aren't multiples of profit. They're multiples of revenue. None of these businesses are generating the level of profits that would traditionally justify valuations of this magnitude. Investors are paying for what these businesses might become over the next decade, not what they earn today. That means an enormous amount of future success is already reflected in today's prices.

The SpaceX IPO also highlights how much the world of capital raising has changed. Twenty years ago, businesses typically listed much earlier because they needed access to capital. Today, the largest private companies can raise tens of billions of dollars without ever listing on a stock exchange. Deep pools of venture capital, sovereign wealth funds and institutional investors are prepared to fund these businesses for far longer than was previously possible. The result is that much more of the value creation now occurs while companies remain private. For decades, ordinary investors could participate in much of a company's growth after it listed. Increasingly, that is no longer the case. Many of the largest gains are now captured by founders, employees and private investors long before an IPO takes place.

That changes the investment equation. Increasingly, an IPO is less about raising capital to build the business and more about providing liquidity for founders, employees and early investors who have backed the company for years. None of that is inherently negative, but public market investors need to be mindful that they are entering at a very different stage of the journey. SpaceX shares were issued at around US$135, surged to more than US$225 as excitement built and have since fallen below the issue price and now sit at around US$116. The underlying business didn't materially change during that time. The market's expectations and hype certainly did. It's also worth remembering that many founder, employee and early investor shares remain subject to lock-up and vesting arrangements. In other words, they can’t yet sell. As those shares become tradeable over time, supply and demand dynamics may change again, regardless of the quality of the underlying business.

SpaceX may well justify every dollar of its valuation over the coming decade. OpenAI and Anthropic may do the same if and when they reach public markets. They could become defining companies of this century. But that doesn’t mean everyone should invest, or that they are appropriate investments. These are not investments for the faint of heart. Equally, they may prove that even extraordinary businesses can produce ordinary investment returns if purchased at too high a price. That is not a criticism of any of these companies. It’s a reminder that finding great companies is only half the job. Paying a fair price for them is what ultimately determines long-term returns.

Future Me Problems

Going back a few weeks, I was talking with my 23-year-old son Will about something he was intending to do. I laid out the more sensible case for what might be a better choice for the longer term. I punctuated my parenting masterclass by highlighting the problems that lay ahead with his preferred option.

He replied instantly, “that sounds like a future me problem” and proceeded to ignore all my advice.

It made me laugh in the moment, but it was a great insight into the mindset of not only young people but everyone these days in a world of getting what you want now and worrying about the ramifications later.

The world seems to be accumulating a lot of “future me problems”.

The more I thought about it, the more I realised Will had tapped into something deeper than he probably intended. He had perfectly captured one of the defining characteristics of human nature. We all have an incredible ability to separate today's decisions from tomorrow's consequences. We naturally overvalue immediate rewards and undervalue future costs. Behavioural economists have studied this tendency for decades, but sometimes a 23-year-old can explain it in five words.

The evidence is everywhere. We promise ourselves we'll start exercising next week because our health is a future me problem. We put off difficult conversations because repairing relationships is a future me problem. We delay saving and investing because retirement belongs to someone we'll meet decades from now. Unfortunately, future me eventually becomes present me, and the bill always arrives.

Businesses aren't immune either. Underinvestment in technology, neglected maintenance, weak cultures and postponed strategic decisions rarely cause immediate pain. In fact, delaying them can often make this quarter's numbers look better. The consequences belong to a future management team. Until one day they don't. Many corporate crises are not unexpected events at all. They are simply years of future me problems finally demanding attention.

The same pattern plays out across society. Governments can borrow and spend more because servicing the debt is a future taxpayer problem. Infrastructure can be delayed because congestion is a future commuter problem. Housing shortages, energy security and countless other long-term challenges often begin with decisions that were easier to postpone than confront. The temptation is always the same. Enjoy today's comfort and let tomorrow deal with the consequences.

The trouble with putting off problems is that they rarely stay the same size. Left unattended, they have a habit of compounding. A missed opportunity becomes regret. A small issue becomes a crisis. One poor decision is manageable, but a series of deferred decisions changes the direction of a career, a business or even a life. The longer we convince ourselves that tomorrow will deal with it, the fewer options we are left with.

That might be one of the most overlooked characteristics of successful people. They don't necessarily make fewer mistakes than everyone else. They are just more willing to accept a little discomfort today to avoid much greater discomfort tomorrow. They make the difficult phone call. They invest before they spend. They exercise even when they don’t feel like it. They address small problems before they become big problems.

We end up spending much of our lives trying to solve problems our younger selves created. The quality of our future often depends less on intelligence than on our willingness to do difficult things before they become urgent.

Every decision is ultimately a negotiation between today's comfort and tomorrow's freedom.

The most successful people, businesses and societies aren't those who don't have many problems or don't have big problems. They're the ones who tackle them front on and refuse to leave them for future me.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

Mining for AI Gold

I've spoken before about the stages of the AI revolution. The first stage is the infrastructure build-out. The second is the rise of agentic AI, where systems begin acting independently rather than simply responding to prompts. The third is what I call "everything AI", where artificial intelligence becomes embedded in almost every product, service and industry. We are still firmly in the first stage. 

In my opinion, AI will prove to be the most significant technological advancement in human history. It will likely surpass even the Industrial Revolution in both its scale and its impact. Like every transformational technology before it, however, the path forward will not be a straight line. Investors should expect periods of extraordinary optimism followed by equally painful corrections. The innovation may be exponential, but investment cycles are not. 

The first phase is the easiest to understand because it involves building the foundations. Think of it like constructing a new mine. It may take a thousand workers to build the roads, install the equipment, connect the power and prepare the site. Once the mine is operational, only a fraction of those workers are needed to keep it running. The same principle applies to AI. Today we are pouring huge amounts of capital into chips, data centres, networking equipment, cooling systems and electricity generation because that infrastructure is needed before the next phase of AI can prosper. 

That has created an enormous investment opportunity, but investors also need to exercise caution. Every major technological revolution has experienced a period where investors assume today's shortages will last forever. Railways required steel. Electricity required power stations. The internet required fibre optic cables. AI requires computing infrastructure. These periods often lead to extraordinary investment returns, but they also result in overbuilding and excess capacity as companies race to meet seemingly insatiable demand. 

Throughout history, technology has advanced at an exponential pace. Every generation of computing becomes more powerful and more efficient than the last. AI models continue to improve, software extracts more performance from existing hardware, and specialised chips deliver greater computing power in smaller and more efficient packages. Over time, demand for AI infrastructure will change. The market tends to extrapolate current conditions indefinitely. That doesn’t always hold up, especially with regards to technology.    

None of this changes my long-term optimism. AI will transform businesses, industries and society over the coming decades. Productivity gains will be massive, entirely new business models will emerge and many of today's largest companies will look very different in ten or twenty years' time. The opportunity is real. 

The challenge for investors is recognising that a technological revolution and an investment boom are not the same thing. The AI revolution is real. Parts of the infrastructure build-out may also prove to be overvalued over time. Understanding the difference will likely be one of the most important investment decisions of the next decade. Investors cannot blindly invest in AI. It is critical to understand the technology, the pace of change and consider the future revenue and profit that will ultimately justify and drive company valuations.  

Deal or No Deal

US President Donald Trump and Iran have announced they have agreed on a deal. Markets have welcomed the news, and oil prices have responded positively. But before declaring the crisis over, it's worth asking a simple question. Have the issues that brought both sides to the brink of conflict actually been resolved?

I'm not convinced.

Since the early days of the war my thesis has been that Iran will use the Strait of Hormuz to teach the US and the rest of the world a lesson. They want to send a message: if you attack us, we will choke off the oil and gas supply and create a global recession. They want to make the outcome severe enough that no one ever attempts this again.

There's an argument that Iran's economy is in such a bad state that they need a deal more than the USA. I think that's a very western assumption. Firstly, their economy has been bad for decades. Secondly, they are facing what many in the regime would view as an existential threat. Economics becomes a secondary concern. The hardliners in Iran will do whatever they believe is necessary to survive.

There is another angle here, too. After decades of trying to draw the US into a conflict, Israel has little incentive to see America disengage before its objectives have been achieved.

The US appears to have underestimated both Iran's ability to influence events in the Strait of Hormuz and its ability to control the broader outcome of the conflict. Since then, Trump has appeared increasingly keen to find an off-ramp.

To his credit, he has done a good job of jawboning the economic fallout to date. The memes on the internet declaring that Trump has won this war more times than anyone else has won a war humorously allude to his many declarations of victory and repeated assurances that a deal was imminent. Does anyone believe him now? Oil markets seem to. Share markets too. 

That has been a major win for him. It has helped keep oil prices below $100 a barrel and supported the share market.

The price of oil matters even more as the US midterm elections approach. Higher fuel prices are a lightning rod for the US consumer, including many of his most ardent supporters. So a deal, or at least the perception of progress towards one, is politically valuable.

But this is not really a deal. It's a deal to do a deal. It's actually just a headline.

The most difficult matters have been deferred for 60 days. Iran is still insisting that it will place a toll on the Strait of Hormuz. That is unpalatable to both the US and many nations in the region. Both sides appear to have red lines that remain fundamentally incompatible.

How much oil and gas is actually getting through the Strait of Hormuz is all that really matters. Countries around the world have been drawing down strategic reserves. In the weeks and months ahead, as those reserves deplete, that is when shortages become critical. At that point, only physical supply matters. The key variable is the volume of oil and gas moving through the strait.

I think the hardliners in Iran will ultimately get their way. I also doubt Israel will be enthusiastic about seeing the US withdraw its military support before the conflict's objectives are achieved.

Those forces are the weakest link in this agreement.

That is why I remain very sceptical. This may prove to be a successful deal. But for now it looks more like a temporary pause than a lasting settlement.

Precariously Placed

I had a conversation with a client yesterday who asked a simple question; why are we raising interest rates? It wasn’t rhetorical. It was genuine curiosity. They said all I see is people dealing with cost-of-living pressures and businesses struggling to get by. Won’t raising rates make everything worse?

That question gets to the heart of the real problem for the RBA and the Federal Government right now. Financial conditions are already tight for both consumers and business, yet interest rates are rising again. The short answer is because inflation is back, but before deciding whether the response is right, it's worth stepping back and understanding why.  

Before the war with Iran, annual inflation in the US was about 2.4% compared to roughly 3.7% for Australia and trending higher. We already had an inflation problem brewing. Interest rates were already being raised here while other countries were holding or were cutting them.

Now overlay an energy shock poised to push headline inflation beyond 5%, and it has given the Albanese Government and Treasurer Jim Chalmers a convenient explanation. The narrative shifts quickly. Instead of being held to accountable for reckless government spending, the focus turns outward to the war and the surge in energy prices.

Without accountability there’s little pressure to change their ways. Government spending is still far too high and a big contributor to inflation. Increasing interest rates will slow consumer spending. But if the government doesn’t reign in its spending, we might not be solving the inflation problem.

So, we enter the Iran war with consumers and businesses already under pressure from rising costs. Now we layer on an energy shock. Higher petrol and diesel prices don’t just hit households at the pump, they flow through transport, retail, construction and mining. This touches almost every part of the economy.

Headline inflation will rise quickly, but this isn’t being driven by demand. It’s a supply shock. Costs are increasing and are being felt almost immediately. Raising interest rates into that environment doesn’t fix the problem. It doesn’t create more supply. It simply adds another layer of pressure by hitting profitability and reducing consumer spending.

The move to increase interest rates is logical but the RBA risks reacting the wrong way at the wrong time in this case. Usually, inflation reflects too much demand in the system. Government spending has played a role, but this supply shock is different. Responding to it in the same way risks amplifying the downturn rather than stabilising it.

The real problem is that Australia entered this shock without having its house in order. Inflation was already elevated, spending was already high, and the economy was already under pressure. Leaving us in a far more fragile position as the energy shock unfolds.

A Small Cut, A Big Shock.

One of the most useful ways to understand what’s unfolding today is to look at how similar shocks have played out before. The 1979 oil shock is as close as we get to a reference point for what’s now building in the Middle East.

As part of that research, I went back through the dates, the figures, and the sequence of events. The first is that the 1979 shock was, at its core, a production shock. Supply fell and that reduction was held for around eight months. It wasn’t temporary. It was a sustained loss of supply that the global economy had to absorb over time, and the consequences were severe.

The second point is the one that should make people pay attention now. The amount of global oil supply lost in 1979 was around 4 per cent. Later, with the Iran-Iraq war, total global disruption rose to roughly 7 per cent. On paper, that doesn’t look like much, but it was enough to create a very damaging period for the world economy. Inflation surged, growth slowed, and the effects spread far beyond the countries directly involved.

That is why the current situation is more serious than markets seem to be taking it. We are only around two months into this disruption, but the scale of supply at risk through the Strait of Hormuz is enormous. This isn’t about production being switched off. It’s about whether supply can move at all. And in this case, we’re talking about roughly 20% of the world's oil and LNG supply. That changes the equation. In many ways, the current situation is even more fragile and precarious than in 1979.

The uncomfortable reality is that the Strait of Hormuz remains at the mercy of Iran. They do not need to permanently shut it in the traditional sense. They only need the ability to occasionally strike a vessel with a relatively cheap drone or missile, and insurers step away. Once that happens, trade can grind to a halt without the need for a formal blockade. Fear and uncertainty can be just as disruptive as physical destruction.

I expect some degree of partial reopening is possible through heavy military escorts, but that should not be mistaken for a real solution. Escorting ships through a danger zone may restore some movement, but it does not restore confidence, normal insurance markets, or stable energy flows. Markets are still not pricing a sustained disruption.

History shows that it does not take the loss of all supply to do serious damage. It only takes enough disruption, held for long enough, for the system to start breaking under the strain. The scale of supply at risk today is far greater than 1979; it just hasn’t been offline for as long. Unless there is a definitive resolution soon, it is only a matter of time before share markets realise this and respond to the economic crisis unfolding.

The Window to Act is Closing

The human body is made up of 60% water. You don’t need to lose all of it to die. Lose around 20%, and the system starts to fail. The global economy isn’t that different. You don’t need to lose all the oil supply to break it. You just need to lose enough, and that’s what we may be about to find out.

There is an energy shock building beneath the surface. It hasn’t fully hit yet, which is why markets appear to be calm. For weeks, shipments that left the Strait of Hormuz before the disruption have continued to arrive. On the surface, it looks like business as usual. But that’s changing as those final shipments clear, and countries move from incoming supply to drawing down reserves. That is when the real effects begin to show. As supply shortages emerge, pricing pressure hits, and ultimately economic activity slows down.

In that sense, the event has already happened. We just haven't felt it yet. That disconnect creates a kind of cognitive dissonance. Investors can see the risk, but they can’t yet feel the impact, so they hesitate. They wait. They look around at each other for confirmation. This is the phase I think of as the window of opportunity. It’s a short, finite period where a serious problem is visible but not yet fully reflected in markets. Everyone knows something could go very wrong, but investors tend to simply wait. After all, that's what long-term investors are meant to do.

In early 2007, cracks were already forming in the U.S. housing market. Subprime lenders were failing and credit conditions were tightening. It was clear to those watching closely that something was wrong, yet the S&P 500 continued to push higher, ultimately peaking in October 2007. The prevailing narrative at the time was that the problem was contained. It wasn’t. By the time losses spread through the system and that view was proven wrong, markets had already begun to reprice.

A similar pattern played out during the COVID-19 pandemic. By January 2020, the data coming out of China was already concerning. Case numbers were accelerating and the implications for global supply chains and economic activity were obvious. Yet markets continued higher into February. It wasn’t until the reality became undeniable that the sharp sell-off began. The pattern is consistent. First comes the signal. Then the debate. Then the recognition, and finally the repricing.

We are somewhere between the first and second stages now. Part of the delay comes down to how the financial system processes information. Large institutions don’t react to instinct, they react to data. So, economic forecasts need to be revised; company earnings need to be updated, and guidance needs to be cut. That takes time. By the time the data confirms the problem, the market has usually already moved.

In the meantime, narratives fill the gap and optimism persists. Analysts perform all sorts of mental gymnastics to explain why this time might be different. A ceasefire. A deal. A quick resolution. It’s possible, and I hope it happens. But with each passing week, it becomes less probable that we see a real long-term solution. So markets hold up, partly because they want to, and partly because until the impact is tangible, it’s easy to assume it won’t be as bad as feared.

But there are moments where you don’t need a model. You can apply simple logic. You cannot remove around 20% of global energy supply and expect the system to function as it did before. The modern economy runs on energy. Disrupt the flow, and everything downstream is affected.

This has the hallmarks of one of those moments. A situation where the risk is visible, the implications are significant, and the response is delayed. Where investors of all types look at the market not falling and conclude that maybe it won’t. Until it does. When the window of opportunity closes, it usually closes quickly, and decisions become reactive instead of proactive.

In many of our client portfolios, we’ve been using this period to gradually reduce exposure in areas most sensitive to a global economic slowdown and build a cash buffer. Not wholesale changes, but recognising that when the balance of risk shifts, positioning should too. Should the problems materialise, we have funds to deploy. Because by the time everyone agrees there’s a problem, the window to act has already closed.

Risk On, Risk Off

“Risk on, risk off” sounds like something wise Mr Miyagi would tell Daniel-san before a karate tournament. But right now, global markets aren’t following a disciplined strategy. They’re swinging between risk on and risk off depending on the latest headline. One day risk on. The next day risk off. Driven by escalations, ultimatums, ceasefires, and political signaling.

As I write this, the USA share market has just had a risk-on day. A two-week ceasefire has been agreed following the latest escalation, after President Trump issued another ultimatum to Iran. Markets have rallied accordingly. This volatility feels largely manufactured. Equity markets appear increasingly disconnected from energy markets. When Trump escalates, markets barely react. When he de-escalates the very threat he created, markets celebrate. None of it makes a great deal of sense. Prices are swinging between hope and fear.

But a ceasefire is not the end of a war. In fact, there is every chance one or both sides breach the terms. If that happens, we return to the cold, hard reality that Iran sits in a position of control over the Strait of Hormuz. Everything else is noise layered on top of that reality. This is the market today. Not driven by earnings or valuations but by headlines.

It is very easy to get caught up in the drama. It's very serious and lives are at stake but from an investor perspective, much of it is drama. The escalation, the de-escalation, the ultimatums, the negotiations. It creates movement, but not necessarily value. For long-term investors, there is very little benefit in reacting to this carry-on. The more markets swing day to day, the more tempting it becomes to do something. But activity is not the same as progress.

So who benefits from volatility? Traders and hedge funds thrive on it. Volatility creates opportunity for short-term positioning, leverage and rapid capital rotation. It also rewards those who somehow know the direction ahead of time. When markets swing on political announcements, the advantage naturally shifts toward speed and information. For long-term investors, however, volatility is mostly noise unless it creates genuine mispricing. Short term movements are not where serious long-term investors sit.

This is where perspective matters. In a recent interview, Warren Buffett described the current market decline as “nothing.” He noted that a five or six percent fall is not meaningful and reminded investors that markets have dropped more than 50 percent several times during his career. He indicated Berkshire would only deploy significant capital after a much larger dislocation. In other words, while small moves create headlines, large moves create opportunities.

That patience is reflected in Berkshire Hathaway’s balance sheet. The company currently holds roughly US$370 billion in cash and Treasury bills, around 30 percent of total assets. Buffett is not reacting to volatility. He is waiting for opportunity. That patience stands in contrast to current market optimism. Despite risks at every turn, markets continue to lean toward best-case outcomes. Yet the conflict itself is far from resolved.

The war is not over.

It is entirely possible that Iran consolidates control over shipping through the Strait of Hormuz. If, hypothetically, a toll of around US$2 million per ship were imposed on roughly 100 to 140 vessels per day, that equates to approximately US$70 billion to US$100 billion per year. In the context of the global economy, that is actually a relatively small price to avoid a full-scale energy shock or global recession. But the toll itself is not the real issue. The real risk is control. The longer Iran effectively controls global energy flows, the more likely volatility turns into a genuine economic shock.

The longer the Strait of Hormuz stays disrupted, the more permanent damage to the global economy and the more likely a serious recession becomes. Markets continue treating this like temporary noise. But if the structure of energy supply changes, it isn’t noise. It’s repricing. For long-term investors, the real advantage comes from patience, discipline, and perspective. Being ready for an economic shock that creates genuine mispricing is when the real opportunity occurs.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

When the World Feels Unstable

Consumers and businesses are only just starting to feel the impact of the current global turmoil. The squeeze is coming through fuel, interest rates, and now food and groceries. That alone is enough to put pressure on household budgets and business margins. But there’s something deeper going on.

Beyond the cost of living, there’s a growing psychological weight. People are trying to navigate a constant stream of bad news, and it’s starting to show. It’s not just that prices are rising. It’s that the backdrop feels less stable, less predictable. Conversations that once sat on the fringe now feel mainstream. World War III. AI taking jobs. What the future even looks like.

So, what do you do when things feel like this?

You start by controlling what you can control. That sounds simple, but it’s not easy, because the modern world is designed to pull your attention in the opposite direction.

Noise is everywhere. Not just the news, but the endless stream of content competing for your focus. What used to be “sex sells” has evolved into outrage and fear. These platforms are engineered to provoke emotional responses, because the stronger the reaction, the longer you stay. Once you understand that, it becomes easier to step back from it. Turn off notifications, reduce the firehose of daily information, and protect your attention. Block out the noise and decide deliberately what you feed your mind.

From there, come back to the basics. The things that are almost too obvious to take seriously, but matter more than anything else. Eat well, move your body, sleep properly, and stay hydrated. There’s nothing revolutionary in that, but during periods like this, the basics become your foundation. Most people let them slip at exactly the wrong time. You don’t need to be obsessive about these things. Just doing them better makes a huge difference.

The same principle applies financially. Don’t wait for a recession to be declared before you act like conditions are tightening. By the time it shows up in the data, behaviour has already changed. Spending slows, risk appetite fades, and businesses start to delay hiring and investment. That shift doesn’t just reflect a slowdown. It helps create it. From an individual perspective, it’s far better to prepare early while you still have flexibility than to react late when options are limited.

What makes all of this harder is uncertainty. People can handle bad outcomes. What they struggle with is not knowing what the outcome will be. Uncertainty lingers. It drains energy and creates anxiety that has nowhere to go. In many cases, it feels worse than the thing you’re actually worried about. Recognising that doesn’t remove the uncertainty, but it changes how you sit with it. You stop trying to eliminate it and start learning how to operate within it.

Perspective matters here as well. Things are rarely as bad as they feel in the moment, and they’re rarely as good as they seem at the top. There’s value in remembering that, especially when emotions are running high or you feel overwhelmed. I’ve been reading Viktor Frankl’s Man’s Search for Meaning, and it’s a powerful reminder that even in the worst imaginable conditions, your response remains within your control.

Finally, don’t forget to actually live and have fun. When things feel uncertain, people tend to narrow their world. Work, family, responsibilities, it’s easy to go into survival mode. The things that bring enjoyment are often the first to go. So, be deliberate in making sure you schedule time for fun and life's simple pleasures. For me, it’s an espresso to start the day and thirty minutes of reading at night. It’s not much, but I really enjoy that process each day.

In times like this, small anchors matter more than you think. You can’t control global events or financial markets. You can’t control how this plays out. But you can control how you respond. Over time, that’s what separates those who drift from those who move forward.


General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

Markets Are Priced for the Best Case

While markets remain optimistic that President Trump will find a way to get Iran to reopen the Strait of Hormuz, the longer this goes on the more concerning this becomes a global economic catastrophe.

In the past, such as the introduction of tariffs in April last year, Trump has managed to push and pull the information flow to address problems as they escalate. This time he is trying to do the same, but he is learning the hard way that Iran was in a stronger position than he realised.

From an investors perspective this situation needs to be fixed quickly. The global economy needs the Strait of Hormuz to be reopened urgently. For Trump to do this it will require either massive concessions from the US via negotiations, regime change or a significant escalation.

The military might of the US is not in question. But Iran is clearly in control of the Strait of Hormuz. Trumps rhetoric around winning the war and ongoing negotiations with Iran seems to have placated investment markets so far. Markets are down slightly. But there is a general expectation that Trump will get a deal done, the Strait reopens and away we go. The concerns for markets will be if they stop believing Trump and realise that if he could have reopened the Strait by now, he would have.

If the Strait of Hormuz takes weeks or even months to reopen, then we are in for a severe 1970’s style energy shock that will reverberate through the global economy. In that situation you get rising prices across energy and food, interest rates rising, slowing global growth, falling company profits and rising unemployment.

In the late 1970s and early 1980s in the United States, oil prices more than doubled, inflation pushed above 13%, interest rates peaked near 20% under Paul Volcker, unemployment rose from around 6% to over 10%, and equity markets delivered negative real returns of roughly 50% over the broader period. In Australia, and across much of the world, the pattern was the same, high inflation, rising unemployment and weak real returns.

There is so much more downside risk than upside opportunity in the share market right now. The S&P500 and ASX200 are both down a little over –7% from their highs. So, if everything is reopened tomorrow that’s about the extent of your upside. But if this drags on the downside is significant, easily another –10% to –20% or even more. A global recession would wreak havoc with the economy and the share market. And the longer this goes the more likely that is.

Markets are underestimating the level of control the US has over this situation. But they are also underestimating the supply chain and second order effects. Investors have become so conditioned to the market recovering quickly after a crisis and buying the dip that they underestimate the potential of something deeper.

I usually describe myself as cautiously optimistic. However, as more time passes my approach is becoming increasingly cautious and far less optimistic. If Trump somehow conjures a deal, the US facilitates regime change or Iran willingly reopens the Strait of Hormuz, then markets will celebrate and away we go. But in the absence of the Strait reopening then markets will quickly adjust for what is ahead. As we’ve seen repeatedly in recent years, markets don’t price risk like they once did, they move once an event occurs. From here, outcomes for markets diverge sharply depending on what happens next. That’s the gap investors should be thinking about.


General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

Strait Talk

If the world is to avoid a global recession, it will come down to one thing. The reopening of the Strait of Hormuz. Around 20% of the world’s oil and roughly a quarter of global LNG flows through that narrow passage. It is not just a geopolitical pressure point. It is one of the most important economic arteries in the world.

The problem is that the ball is well and truly in Iran's court, and it is effectively the only meaningful card they have left to play. They have absorbed significant economic and military pressure and have not capitulated. Having endured that level of strain and still holding its position, it is unlikely to give up the one lever that genuinely shifts the balance of power. The Strait is that lever.

So why would Iran reopen it? Not out of goodwill, and not simply because of pressure. They will only do so if the incentives are compelling enough. That likely means some combination of sanctions relief, de-escalation, or at the very least recognition of the strategic leverage they have demonstrated. Without that, reopening the Strait voluntarily makes little sense from their perspective.

How it plays out it from here might simply come down to who blinks first. At first glance this looks like a contest of military strength, but it isn’t. It is a contest of endurance and the longer this drags on, the more the economic consequences compound. Energy prices rise, supply chains tighten, and confidence falls. What started as a geopolitical conflict has already morphed into an economic one.

Iran can withstand pain and has done so for decades under sanctions. The United States faces different constraints. Political pressure, market pressure, and voter pressure. Trump may have overestimated the brute strength of the US military as a strategic advantage. Consequently, Iran is now using their position to drag this out and create chaos for the global economy.

There are few topics that generate as much concern globally as the price of fuel. A spike is a cause for concern. A sustained spike will quickly morph into outrage. In the middle of a cost of living crisis, an energy shock hits discretionary spending hard. Making matters worse, as the prospect of higher prices and inflation leads to central banks increasing interest rates. That's the double hit and we are already seeing that play out here in Australia.

The second-order effects are where this becomes more dangerous. It’s not just oil. Fertiliser markets begin to tighten, pushing up agricultural costs and ultimately food prices. Industrial inputs like helium, critical for medical and semiconductor industries, become constrained. Shipping costs rise as routes are disrupted and insurance premiums spike. The longer the Strait remains compromised, the more these pressures ripple through the global economy. This is how a shock turns into something more systemic, slowing global growth and the possibility of recession.

Allies are reluctant to join Trump in this conflict. It appears many are happy to keep their distance, ensuring that at the end of this it is clear where the blame rests. This is a USA decision. This is a Trump decision. His problem right now is that there is no obvious solution and not one that he can easily control.

From here it may well be Trump who is more desperate for this to end. He can declare victory and manage the narrative but unless the Strait reopens and the supply of commodities is restored then he has a problem. One that the world knows he has created and one that he needs to fix. He knows this.

Iran knows this too.

They want the world to understand the strength of their position and their ability to inflict economic pain on the world if they so choose. The question is how deeply they want the world to feel that pain. Push too hard and they risk uniting the world against them. The most likely path is controlled pressure. Enough to make the point but not enough to become the clear villain. They will want Trump to be seen as the problem, not move so aggressively that they are seen as the problem.

That said, Trump is nothing if not a creative problem solver. He is also unpredictable. So, it would be unwise for Iran to push Trump too hard or for markets to underestimate his ability to manoeuvre out of difficult situations. Push too far and his response may not be linear.

From an investor’s perspective, this is much less about the war itself and far more about the reopening of the Strait. Markets have shown they can absorb conflict. What they struggle with is sustained disruption to critical supply chains, particularly energy. The key variables to watch are simple. The duration of the disruption, the trajectory of oil prices, and any credible signals that shipping flows are normalising.

I still think this is resolved in a reasonable timeframe. There will be economic consequences, and some of them will linger. But as is often the case, it won’t be the conflict itself that does the real damage. It will be the bottleneck. Right now, markets are underestimating just how powerful that bottleneck is.


General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

Positioning For War

For much of modern history, war and markets moved together in predictable ways. Conflict meant panic. Panic meant falling markets.

Yet the past few years have challenged that assumption.

Investors have lived through a remarkable sequence of shocks. The global shutdown of the COVID-19 Pandemic. Russia’s invasion of Ukraine in 2022. Rising trade tensions and tariffs between the United States and China. Each episode initially rattled markets. Each one, in time, faded into the background.

The pattern has been strikingly similar. Markets fall sharply on the news. Investors assess the damage. Then, almost inevitably, the recovery begins. Within months the narrative shifts from fear to opportunity, and markets move on to new highs.

Against that backdrop, the emerging confrontation between Iran and the alliance of United States and Israel has so far been treated in much the same way. Investors appear to be assuming that this will be another geopolitical shock that ultimately proves temporary.

That may well prove correct.

But there are a few caveats this time.

The first is escalation. War has a habit of taking on a life of its own. Once events begin to move quickly, the range of possible outcomes expands dramatically. Supply chains can be disrupted, alliances can shift, and energy markets can react violently. In those circumstances forecasting becomes far more difficult. Markets dislike nothing more than uncertainty.

The second risk is duration.

For markets and the global economy to remain resilient, this conflict likely needs to be short and sharp. A drawn-out war lasting many months would create a very different economic backdrop.

Energy sits at the centre of the issue.

Roughly a quarter of the world’s oil and gas supply moves through the narrow shipping corridor known as the Strait of Hormuz. Any disruption there would ripple through the global economy almost immediately. Oil prices will quickly push well beyond US$100 per barrel.

But the real problem is not just price. Energy is a physical commodity. When supply is disrupted, it is not simply a matter of paying more and carrying on as normal. There is literally less energy available to power factories, move goods and fuel transport networks.

That scarcity feeds directly into inflation.

Higher energy prices raise the cost of almost everything. Businesses pass those costs through where they can. Consumers feel it in fuel, food, and transport. Central banks, already wary after the inflation surge of recent years, are forced to keep interest rates higher for longer.

Growth slows. Confidence weakens.

In short, a prolonged disruption to global energy supply would materially change the economic outlook.

Yet there is also a counterbalance to this pessimism.

If the past few years have shown us anything, it is that the global economy has developed a surprising level of resilience. The shock delivered by the COVID shutdowns was arguably the most severe economic interruption since the Second World War. Entire industries stopped overnight. Borders closed. Global travel collapsed.

Yet the system adapted.

Supply chains reorganised. Governments deployed unprecedented fiscal support. Central banks flooded markets with liquidity. Within a remarkably short period the global economy found its footing again.

That experience has reshaped investor psychology. Markets now tend to assume disruption is temporary unless proven otherwise.

There is also a political dimension to consider.

Much of the timing and trajectory of this conflict ultimately rests with Donald Trump. If history offers any guide, markets play an important role in that calculation. Trump has long treated financial markets as a barometer of political success. When markets are strong, the narrative is working. When markets fall sharply, the pressure to change course increases.

For that reason, it is difficult to see a scenario where a prolonged conflict that significantly damages markets is allowed to continue indefinitely. At some point a declaration of victory, however loosely defined, becomes politically convenient.

This may not be conventional diplomacy. But Trump has rarely followed conventional scripts.

In that sense markets may already be assuming an implicit floor. A conflict that escalates too far risks undermining the economic backdrop heading into an election cycle. That is not a position any administration would welcome.

For investors, the implication is relatively clear.

The base case remains that this conflict proves short lived. Markets will wobble, volatility will increase and then attention will gradually shift back to the underlying drivers of the next cycle. Chief among those remains the extraordinary investment wave unfolding in artificial intelligence and advanced technology.

If that scenario plays out, periods of weakness are opportunities.

However, prudent investing always requires acknowledging the alternative paths. If the war escalates or drags on for months rather than weeks, markets could experience a more meaningful correction as energy prices rise and growth expectations fall.

That is why positioning matters.

We are selectively adding to our preferred companies, particularly those aligned with the long-term technology and AI themes that continue to reshape the global economy. At the same time we remain mindful that volatility may create even better opportunities ahead.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

Historical Performance Disclaimer: Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions 

Father-Son Trek to Mt Kosciusko Summit

There is nothing quite like a father-son adventure. The youngest of our four kids, Will, is 22 and earlier in the year he went for a trek through the mountains of New Zealand. When he returned, we started talking about doing something together. A father-son trek to the summit of Mt. Kosciuszko seemed like the perfect place to start. We’re new to mountain trekking, so this felt like a challenging but achievable entry point. We decided on a date and booked it in.

One thing I’ve learned over the years is that taking action the moment you decide something is critical. Too many people talk about trips, adventures, or goals but never follow through. There’s always “later”, and later never comes. If we discuss something and we both say yes, my next step is to book it immediately. Not tomorrow. Not next week. Right now. I want to live life, not just dream about it. And I want my kids to think the same way too.

So, we set the date, made the plan, and last weekend we arrived at Charlottes Pass ready for the 18.4km round trip to the summit and back.

When we arrived early in the morning, the weather was shocking; strong winds, cold rain and an unfriendly sky. No one else was around. Then, out of nowhere, a man appeared and approached us. He told us he’d trekked the mountain many times and this weather was going to get nasty. Wind strong enough to blow you over. Hail the size of golf balls. He pointed to the dark clouds building across the range and said they are going to get worse this afternoon.

We already knew thunderstorms were expected but they were forecast to be late in the afternoon.

So, before our first step, we were faced with a decision to make.

Play it safe, turn back, drive 40km to Jindabyne, and accept that the summit wasn’t happening. Then five hours back to Sydney the next day.

Or press on and see how the conditions felt in the first couple of kilometres, ready to turn back at any point.

We definitely didn’t want to be the people on the news who ignored warnings. But we also didn’t want to walk away from something we’d been planning and looking forward to. So, we decided to start, stay alert, and pull the pin if things deteriorated.

We progressed well and the storms seemed to be holding off. We crossed the Snowy River (4.5km mark), past Seaman’s Hut (6km) before reaching Rawson Pass (8km). There we met a hiker who had been camping overnight in brutal conditions. As we talked to him, he had clearly spent a little bit too much time alone, but he did give us some critical information for the last 1.7km to the summit.

He told us the trail ahead had been snowed-in, but only one section. If we could get past that, the rest of the climb to the summit was straightforward. It was an incredibly fortunate and timely conversation.

We assumed the track would be covered in some light snow. But when we reached it, we realised the mountain had completely reclaimed the trail. A steep 100-200 metre stretch was buried under solid, icy snow. Only a faint, narrow line of footsteps showed where others had crossed. Without that, we would have turned back on the spot.

We stepped cautiously onto the snow. It was extremely slippery, and a stumble would mean sliding fast down the icy slope into rocks below. But knowing it was just one section, and that others had crossed it, gave us the confidence to continue. It was a slow, nerve-wracking traverse that felt like it would never end.

Once we got to solid ground, we were only one kilometre from the summit.

We charged ahead through the strongest winds I’ve ever experienced and eventually reached the peak. We took a few photos and sat for a moment to celebrate. But almost immediately, we felt the weather shift. We got up and it started to move quickly as the rain hit, within seconds we realised we were getting hit by hail.

We needed to get back across the snowed-in section fast in case conditions worsened and we found ourselves on the wrong side of the mountain and were blocked in. We jogged down the next kilometre bombarded by wind and hail until we reached the snow. Crossing it a second time was just as scary, but once we were across, we were safe.

From there, it was a wet and windy but straightforward descent back to Charlottes Pass.

There were 2 times we could have turned back: right at the start, and at the snowed-in section. Twice we listened to the warnings, weighed the risks, and ultimately made our own decisions. And we’re glad we did.

It was an incredible experience. The scenery was stunning, the adventure unforgettable, and the time together priceless. These are the moments that stay with you as a parent, the shared challenges, decisions made together, the doubt, the trust, the laughs, the uncomfortable parts and the moments you both know you will talk about for years.

We’re already planning our next father-son adventure: Mt Fuji, Japan, in 2026.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Scale Game

There is an uncomfortable paradox that plays out every time technology takes a leap forward. The companies that end up shaping the future rarely look sensible in the moment. Their valuations seem to be inflated. Their cash burn looks reckless, and their ambitions appear unrealistic. But history tells us that the biggest and best tech companies succeed because they win the scale game.

In the age of artificial intelligence, this dynamic becomes even more pronounced. Elevated valuations will feel normal because we are trying to price something that has not fully arrived. Much of the future value is bound to technologies and applications that do not yet exist. Productivity gains that have not yet been created let alone measured. Industries that have not yet been created. The market is being asked to look ten years forward even though most people struggle to see ten months ahead.

AI is a multi-year tailwind. It will be volatile. It will overshoot. It will disappoint at times. But over the course of the journey, it will lift both growth and productivity across the global economy. In that type of cycle, buying the dips will matter more than trying to call the top because the structural direction is up. The growth is exponential.

This is also why OpenAI, even as an unlisted company, keeps dominating headlines. People are fascinated by the numbers. A valuation in the hundreds of billions simultaneously burning billions of dollars in cash annually. The debate tends to stop right there. But the real question to ask is what those numbers actually mean.

A big number without context means nothing. Most people cannot conceptualise the difference between a million and a billion, let alone a billion and a trillion. One million seconds is around twelve days. One billion seconds is more than thirty-one years. One trillion seconds is more than thirty-one thousand years. The mind boggles. Investors backing OpenAI are not confused by this. They are not funding short-term profits. They are funding the race to scale.

We have seen the exact same story before.

Amazon lost money for more than a decade. For years investors rolled their eyes at the billions pouring into data centres, fulfilment networks, and cloud infrastructure. But Amazon understood what others did not appreciate. First you scale. Then you monetise. Profit is the final step, not the first. The benefit became obvious when AWS emerged as one of the most profitable business models in the world.

Meta followed a similar path. Heavy spending on data infrastructure, algorithm development, machine learning, and global distribution. Huge amounts of cash that looked irresponsible from the outside, some of it probably was. But from the inside it was the only way to win. The company that scales first becomes the company that sets the rules and controls the market. Monetisation becomes a strategic choice rather than a desperate scramble. Now Meta’s ad engine is a global monopoly.

OpenAI is not profitable because profit is irrelevant at this stage of the journey. They are building foundational infrastructure for a technology that will power the next decade of economic expansion. They are racing to scale because scale determines who survives. When the market shakes its head at the losses or scoffs at the valuation, what they are reacting to is discomfort because the future is difficult to value.

When the market cannot value something clearly, the instinct is to assume it is overpriced. But the early stages of a platform shift work differently. The pricing is not about current earnings. It is about capturing the optionality of every future application that can be built on top of the technology. That is why the smartest investors focus on the direction of scale rather than the quarterly burn rate.

This does not mean every AI company wins. Far from it because many will not. But the ones that do will define the next generation of productivity and wealth creation. They will pull forward years of economic efficiency, and they will reshape entire industries. That is why valuations look high today and why they may look cheap in hindsight.

If the next decade belongs to AI, then the next decade belongs to the companies that can scale faster than anyone else. That is the game right now. It is why buying the dips during a structural tailwind becomes one of the more rational decisions an investor can make.

Profit comes later. Scale comes first.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Do The Hard Yards

There are moments in life that remind you that time isn’t slowing down for any of us. Watching my youngest daughter, Rachel, and her partner of five years, Danny, buy their first home this week was one of them. Anyone with adult kids or grandkids knows the feeling. That first property isn’t just a financial decision; it carries their hopes and dreams for the future. It’s exciting, but it can also be overwhelming and emotional. As a parent, your role shifts. You’re no longer steering the wheel; you’re there to guide them along the way.

What made me proud was how Rachel really owned the process. Paula and I were there for advice when they needed it, but they drove everything. They saved their deposit. They liaised with the mortgage broker and negotiated with the real estate agents. They worked with the conveyancer on the details and reviewed and signed the contracts.

There are always government incentives and schemes in the background, but none of them replace the need for discipline and a genuine deposit. Banks still assess serviceability the same way. You still need stable income. You still need to budget. Anything happening on the policy front might help around the edges, but it doesn’t replace the habits that build long-term financial confidence.

The journey really starts with saving the deposit. My parents always told me, “We won’t give you money, but you’ll always have a roof over your head if you need it.” I passed the same message on to my kids. You make your own way. For Rachel and Danny, that meant moving out of their rental and moving in with Danny’s mum for almost a year so they could save more quickly. Over 12 months they were able to save a sizeable deposit.

That’s what building wealth for the future looks like. It’s a collection of decisions and even sacrifices that might not be very “Instagrammable” but really matter for your future. Whether you’re saving 5% or 20%, the behaviour is the same. Live below your means and build through saving and investing.

As they saved over the 12 months they started to become familiar with the property market in the areas they liked. It’s critical to understand what fair prices are. During this time they met with a mortgage broker to understand their borrowing capacity and obtain pre-approval. Pre-approval is one of the most underrated parts of the process. It gives you clarity around what you can borrow, what your real price range is, and what bank policies apply to you. Without it, everything else is guesswork. With it, every home open inspection and negotiation becomes real. This was an important process for Rachel and Danny to go through. Once they had pre-approval they went from dreamers to serious buyers.

Understanding the market is important because the more you inspect, the clearer the patterns become. Recent comparable sales. How long properties sit on the market. The gap between guide price and reality. The more time you spend listening and watching, the easier it is to understand what an agent says, what they don’t say, and what they really mean.

Understanding the process is just as important. Once it’s explained clearly, it isn’t complicated: save the deposit, get pre-approval, inspect properties, request the contract and strata, engage a conveyancer, negotiate or bid, exchange, and settle. The overwhelm comes from not knowing what's next. A good mortgage broker and a good conveyancer turn that uncertainty into structure.

Negotiation is where most first-home buyers feel out of their depth. It’s emotional for them and methodical for agents. That imbalance is where people overpay. The rules are simple: know your walk-away number, don’t negotiate against yourself, ignore noise you can’t verify, and move quickly when the right property appears. Rachel and Danny negotiated on multiple occasions and did walk away from properties when it would have been easy to let emotion take over.

Watching them navigate the whole process reinforced something important for me. Buying your first home teaches you discipline and sacrifice in a way nothing else does. It is great to see kids today doing the hard yards. Working hard. Saving consistently. Going without. Rachel and Danny did all of that, and the lessons they learnt along the way might be more valuable than the keys they’ll collect on settlement day.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Take the emotion out of it

Over the years, I’ve learned that some of the most costly investment mistakes aren’t caused by economic forces; they’re caused by emotional ones. The subtle emotion that shows up in the hesitation to sell, the urge to chase, or the fear of making the wrong call. Markets are indifferent to all of it, but your portfolio isn’t.

I see this most clearly with clients who become attached to the stocks that have treated them well. On 27 June 2025 I wrote that CBA was massively overpriced. Objectively overpriced. It had nothing to do with the quality of the company, just the valuation sitting way above where it made sense. While clients trimmed their holdings, very few cut as much as they should have. The emotional history was too powerful. When a stock has delivered for more than a decade, people expect it will deliver forever. With CBA falling to $158.38 on Tuesday, it’s obvious in hindsight. Bias feels safe, but it doesn't help the outcome.

Wesfarmers is another good example. Being from WA, I’ve had many conversations over the years with farmers who held outsized positions in WES for generations. Their families built their livelihoods alongside the company long before they had portfolios. When a stock becomes part of your life, taking profit starts to become a question of loyalty. Sometimes people just couldn’t bring themselves to sell it even when the price was stretched beyond logic, or the concentration risk was too high.

This emotional pull isn’t limited to financial markets. My daughter is in the process of buying her first property, and while she has handled the transaction herself, it's been great talking through the negotiation process with her along the way. There’s always a point where you fall in love with a place, but you need to stay detached enough to keep your power in the negotiation. I emphasised to her that the ability to walk away from a deal is everything. If you can’t walk away, you lose your leverage and end up paying whatever it costs. She took that onboard, and it clearly helped her as she progressed.

A different challenge emerges when founders decide to sell their company. The real tension isn’t just the valuation, it’s the shift in control. A founder spends years calling every shot, setting the pace, shaping the culture. Then suddenly a buyer or investor enters the picture, and the power dynamic changes. I’ve seen founders hesitate not because the offer was wrong, but because they weren’t ready for what came after: stepping back, letting someone else steer, or adjusting to being part of a larger machine. It’s not a financial obstacle, it’s a psychological one.

High stakes situations amplify this. In sport, the champions aren’t the ones who feel the most; they’re the ones who manage their emotions best. Final-quarter plays, last second shots and penalty shootouts aren’t won with adrenaline. They are won with calm under pressure. Politics is no different. Leaders who react emotionally get swallowed by the moment. Those who stay outcome-focused shape events rather than being shaped by them.

Investing requires the same discipline. Biases like the endowment effect, familiarity bias, loss aversion, and recency bias work against you precisely because they feel so natural. They offer emotional comfort, but not financial clarity. If they influence too many decisions they can gradually steer your choices away from what’s best for your long-term wealth.

Emotion is part of being human, so you’ll never remove it entirely. But in important moments like selling a stock, buying a property, negotiating a deal, exiting a business, you need to separate feeling from judgment. You can feel the emotion. You just can’t let it make the decision.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.