November Rain

The next few weeks leading up to the US midterm elections on 3 November could be particularly volatile for investment markets. At the centre of the political battle is an issue far more immediate to American voters than foreign policy or government debt. It is the price of fuel, particularly diesel, and the growing financial pressure on the industries and communities that depend on it.

Farming, construction, mining, and transport are all heavily dependent on diesel. When prices rise sharply, the consequences flow through almost every part of the economy. These are also communities that have traditionally provided strong support for Donald Trump and the Republican Party. Rising fuel costs threaten that support at exactly the wrong time. With control of both houses of Congress at stake, the Republicans can’t afford to lose voters.

Trump understands the political consequences. His determination to bring energy prices down was highlighted on 9 October when he announced an extraordinary agreement with Vladimir Putin for Russia to supply diesel to American and global markets. The agreement involved Washington easing sanctions imposed on Russia over its invasion of Ukraine. Regardless, it is a remarkable reversal of policy and it demonstrates the political urgency surrounding energy prices.

But there is another side to this equation. Iran has its own reasons to want Trump politically weakened. With the conflict between Iran and the United States continuing, sustained pressure on global energy supplies serves Tehran's interests. Higher oil prices hurt American consumers, damage business confidence and increase the political cost of the conflict for the administration. Whether Iran is deliberately seeking to influence the election is impossible to establish, but the potential political consequences are difficult to ignore.

This creates a difficult situation in the lead-up to the 3 November vote. Trump has a strong incentive to contain energy prices and avoid further disruption before the election. Meanwhile, Iran has little reason to make that task easier. I suspect the recent escalation by the Iran backed Houthis in Yemen, including attacks on Saudi infrastructure, are directly related to this political calculation.

What concerns me more is what happens after 3 November. Once the election is over, the immediate political pressure to contain fuel prices diminishes. I think Trump will feel considerably less constrained in his response to Iran, particularly if he believes a more aggressive military campaign could bring the conflict closer to a conclusion. Further air strikes, attacks on critical infrastructure or a broader escalation of American military involvement are all possibilities. After the midterms, if Trump believes a more aggressive approach to Iran is necessary, I think he will be prepared to accept considerably higher oil prices as a consequence.

None of these outcomes is inevitable, but the political calculations will change quickly once the votes have been counted.

For investors, this matters because energy prices influence inflation, interest rates, corporate profitability, and economic growth. Another significant disruption to oil supplies would arrive when financial markets are already dealing with considerable uncertainty.

My concern is that investors may be concentrating too heavily on the election itself and not enough on what follows. I see a meaningful risk of higher energy prices in the months ahead, with consequences extending well beyond the oil market. The greatest risk may have less to do with how Americans vote than what happens once they have, regardless of the outcome.

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.

Busy or Productive?

Being busy has become a strange measure of modern success. People complain about it but also wear it as a badge of honour. A full calendar suggests that they are in demand. There is always somewhere to be and something that needs their attention. Somewhere along the way, we have come to associate being busy with being important. Perhaps they worry that without all that activity, they might not be.

We are conditioned from a young age to work harder and do more. Effort is rewarded, which is fair enough. But working hard at something worthwhile is very different from filling your days with tasks and activities that achieve very little. People spend so much time trying to get everything done that they forget to question why they are doing it.

In my own case, I prioritise being productive over being busy. I find there are a lot of things I just don’t need to do. Saying no to an event or a meeting that does not fit your core priorities is a good place to start. An invitation might be interesting, but unless it's very worthwhile, I am just not going. You can appreciate being asked and still decide your time is better spent elsewhere.

I go to very few industry events. In fact, I go to very few events generally. Some are worthwhile, and I enjoy seeing people. But I deliberately avoid being busy because it eats into the quiet space where I do my best thinking. I like having time to research and read about investment markets as and when I want to, including following an idea further than I had planned.

That time matters to my work. I want to work out where best to invest funds given everything going on in the world. That requires reading widely and thinking independently. Talking to other investment people can be useful, but I don’t want to do what everyone else is doing. Often, it's better to do the opposite and have a different view. The focused work that matters most to me rarely comes with an invitation, so unless you protect space for it, other people’s requests will fill the day.

The same applies to life outside work. People become so caught up in being busy that they lose sight of what makes them happy. Every spare hour becomes available for another commitment. The days fly by, and suddenly another year has passed. Doing less gives us a chance to enjoy an afternoon without watching the clock or thinking about where we need to be next.

By the same token, the answer is not to turn life into an elaborate exercise in optimisation. There is plenty of advice about ice baths, perfect routines, and extracting more from every minute. That nonsense becomes exhausting too. We do not need to manage ourselves like a production line. Keep it simple. Use your common sense. If something adds little value and you don’t enjoy it, stop doing it. But if something is fulfilling or creates real productivity, then keep doing it.

There is no right answer for everyone. We all have responsibilities and commitments. But we do get to choose more than most people are willing to admit. I want to do my work at a very high level and have time to enjoy my life. Being busy tells me very little about whether I’m achieving either. I’d much prefer to be productive.

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.

When Risks Converge

There are several significant risks unfolding across the global economy. Higher oil prices from the war with Iran, persistent inflation, pressure on central banks to raise interest rates, rising bond yields and stress in parts of private credit. Each is a material concern in its own right. My greater concern is what happens as they begin to reinforce each other.

Oil is the most immediate pressure point. Its influence extends well beyond the petrol bowser. Higher energy costs flow through freight, manufacturing, agriculture, and the logistics behind almost everything we consume. Businesses will either absorb those costs or pass them on. Either way, someone pays. Margins fall, household purchasing power weakens, and an economy already dealing with stubborn inflation faces another obstacle.

That puts central banks in a difficult position. Higher interest rates don’t reopen a shipping route or produce more oil. But they will reduce spending elsewhere in the economy. If higher energy costs become embedded in broader prices and inflation expectations, central banks may well hike rates further, even as growth slows. The risk is that controlling inflation ends up delivering more economic pain than markets have allowed for.

Bond markets add another layer. Rising yields increase borrowing costs for governments and businesses, while also placing pressure on asset valuations. They also make refinancing more difficult. A business might manage its existing debt today but face a very different calculation when that debt matures. These pressures take time to work through the system. The absence of an immediate crisis does not mean the consequences have been avoided. There are material problems brewing here.

Private credit deserves particular attention in that environment. Many borrowers face interest costs that rise with market rates, making them vulnerable when financing becomes more expensive. If earnings also weaken, the squeeze comes from both directions. This is a sector I have long been concerned about. The economic conditions now emerging will likely expose more of its underlying weaknesses.

That does not mean every private credit fund is in trouble, that a bond crisis is imminent, or that a global recession is inevitable. An easing of the conflict could also relieve energy pressure and improve the outlook. But with the US midterm elections approaching, political calculations on both sides could complicate efforts to resolve the conflict.

The point is that the risks to the global economy are not only mounting, but they are also converging and beginning to reinforce each other. Higher oil prices sustain inflation. Persistent inflation keeps interest rates elevated. Higher borrowing costs weaken cash flow. Weaker cash flow increases credit stress. If lenders then become more cautious, businesses find it harder to access capital, adding another constraint to growth, potentially creating a downward spiral.

We do not need to predict a specific breaking point to recognise that the margin for error is narrowing. Individually, these risks are significant. Collectively, they threaten the global economy because each can make the others harder to manage.

For investors, this is a time to remain disciplined and manage your portfolio prudently. Strong balance sheets, low levels of debt, reliable cash flow, and sufficient liquidity become far more valuable when conditions tighten. While markets appear to underestimate these risks, we continue to take profits on selected stocks and build our cash holdings.

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 End Game

When the war with Iran began, I wrote that the market was treating it as a short conflict. My concern was that Iran had a different end game: create another 1979. An energy shock would spread through the economy until the pressure to end the war not only became impossible to ignore, but it would also serve as a warning for the future.

Nearly seven months on, we are approaching the pointy end.

The Strait of Hormuz has been severely disrupted for months. Saudi Arabia’s east–west pipeline helped keep oil moving around it, carrying roughly four million barrels a day to the Red Sea. Then that pipeline was attacked, just as the Houthis intensified their activity around the Red Sea. Saudi Arabia has since restarted the pipeline, but that event shows how exposed the alternative route really is. Iran and its allies have shown how much of the world’s energy supply they can disrupt. It leaves the world with little room for further setbacks.

Countries around the world continue to draw down on their strategic reserves. The International Energy Agency estimates that observed global oil inventories fell by 507 million barrels between the start of the war and August. Meanwhile, Europe is heading towards winter, when heating demand puts more pressure on supply. In the United States, the midterm elections are just over five weeks away. The price of fuel at the pump will influence the election.  That could give Iran an incentive to escalate if they want to apply real pressure. This makes the next three months critical.

Oil recently climbed back above US$100 a barrel, although it has since eased as hopes of diplomacy and the pipeline restart brought some relief. The number I am watching even more closely is diesel. US diesel and gasoil prices passed US$200 a barrel in early September; European diesel futures reached US$210 a barrel. That is the wholesale price, not the pump price, but the pain is already reaching businesses and households.

Diesel powers the trucks that move goods, the machinery that plants and harvests crops, and much of the work done in mines and on construction sites. A farmer cannot just stop harvesting because fuel costs have risen. A freight company still has to deliver food. Those costs move through supply chains, often with a delay, until they appear in the prices everyone pays. At the same time, businesses facing higher bills may postpone investment or cut back elsewhere.

To me, we are still in the first of three distinct stages. First an energy shock, then growth shock, and ultimately economic shock. Higher prices squeeze consumers, while higher operating costs squeeze businesses. If both last long enough, recession becomes a real possibility. It is the same danger I have been writing about since the beginning. We are seven months in, and the energy shock phase is still playing out.

There is now talk in the US of restricting diesel exports to ease domestic prices. I understand the political appeal, particularly before an election. It might provide temporary relief at home. But an export ban does not create more diesel, and countries that rely on American supply would be left competing harder for what remains. The pressure would move elsewhere rather than disappear.

Markets still broadly seem to expect that somehow everything will return to normal soon enough. I think the opposite is likely true. I think Iran has been strategic and deliberate from the day they were first attacked. I still hope diplomacy provides an exit. But I do not expect it.

The risks I outlined at the start of this war are now coming into focus. Ultimately, the timing rests on how long the world can absorb an energy shock before the economic damage becomes the force that determines the wars end game.

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.

Who Wants to Be a Millionaire?

If you have children or grandchildren in their twenties, this might be worth sending to them. Right now, they have an enormous financial advantage that they will never have again: time.

The idea is simple. From the age of 25, invest $1,000 a month into a diversified portfolio of shares and continue doing it until you are 65. Don't try to pick the next great company or predict when markets will rise and fall. Just invest every month and give your money 40 years to compound. It may sound boring, but it is extremely effective.

To put some reasonable numbers around it, Australian shares have returned around 9% a year over the 30 years to June 2026, including reinvested dividends. US shares have done even better. Past returns are no guarantee of future returns, but let's use 9% as our long-term assumption and allow for inflation of 2.5%.

It is important to talk about the result in today's dollars. Telling a 25-year-old they could have $5 million or $6 million in 40 years sounds impressive, but it doesn't tell them what that money will actually buy. So in this example, we assume the $1,000 monthly investment also increases with inflation over time, meaning they are always investing the equivalent of $1,000 today.

Do that for 40 years and the result is around $2 million in today's money.

That is a significant outcome. They will have personally contributed the equivalent of $480,000. Compounding does the rest. This is before considering their superannuation, their home, any additional savings as their income increases, an inheritance, or anything else they accumulate during their life.

Of course, $1,000 a month might be difficult at 25. If it is, start with $300 or $500 and work towards it as your income grows. What matters most is starting, because the one thing you cannot make up later is time. Someone starting at 25 has 40 years of compounding ahead of them. Wait until 35 and a quarter of those years have disappeared.

Financial independence doesn't necessarily require earning an extraordinary income or finding an extraordinary investment. Sometimes it comes from doing something quite ordinary for an extraordinarily long time.

For parents and grandparents, I think this is one of the most valuable financial lessons we can pass on. For anyone lucky enough to be reading this in their twenties, don't underestimate what you have.

You have time.

Invest $1,000 a month, give it 40 years, and create financial freedom for the future.

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 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.

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. 

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.

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.

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 

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.

Pest Control

Jamie Dimon, CEO of JPMorgan Chase, raised eyebrows recently with a warning about cracks emerging in the private credit market. After the collapse of a few sub-prime car-loan lenders linked to private credit funds, he said: “My antenna goes up when things like that happen. And I probably shouldn’t say this, but when you see one cockroach, there are probably more. Everyone should be forewarned on this.”

Dimon’s point was deliberate, it was about awareness. When isolated failures appear in a system built on confidence, it’s rarely an isolated problem. Private credit has expanded at a breathtaking pace globally as investors chase yield in a low-rate world. In Australia, it’s now a $224 billion market. That includes $132 billion in corporate and business lending and $92 billion in commercial real estate. The sector’s rapid growth has now drawn the attention of regulators.

ASIC chair Joe Longo warned this week that private credit faces major problems if complacency continues. The regulator’s surveillance report found opaque fees, aggressive marketing, and inconsistent valuation practices, with some behaviour “close to illegal.” I’ve downloaded the report and read it today and it reinforces all the concerns I have about the sector. As Longo put it, “In times of prosperity when money flows freely, no one worries about liquidity. However, it’s the first thing everyone will miss in a crisis.”

The problem isn’t that private credit is inherently flawed. Done well, it fills a legitimate gap between banks and borrowers, supporting business investment and economic growth. But when the focus shifts from quality to scale, risk management becomes an afterthought. In too many cases, loans are made because they can be sold, not because they should be made. No one is incentivised to say no.

The real test comes when the repayments stop. That’s when investors discover what these portfolios are truly backed by. Some loans are secured by property, but many rely on looser definitions of “assets”, anything from invoices and raw materials to plant or machinery. They look great on a spreadsheet, but in a downturn, those assets can be difficult to value or sell. A theoretical asset is not the same as a liquid one.

Defaults are a normal part of credit markets, but in this corner of finance, the safeguards vary widely. ASIC’s findings revealed that some funds even define “default” differently, making true comparisons impossible. In a benign environment, that inconsistency is overlooked; in a stressed one, it magnifies contagion risk.

History tells us these cycles rarely end neatly. A few isolated losses are rationalised, confidence holds, until it doesn’t. Then the feedback loop between leverage and liquidity tightens. The pattern may not mirror 2008, but the psychology is familiar.

At some point, private credit will face its reckoning. It will separate lenders built on discipline from those built on momentum. That’s why I’ve avoided the sector despite its popularity. In too many cases, investors are taking equity-like risk for bond-like returns, a trade-off that only looks good in fair weather. The bigger concern is the systemic risk presents to the broader economy. When growth outpaces governance, and confidence replaces caution, risk hides in plain sight.

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.

Are we in an AI Bubble?

I first read about the singularity and Ray Kurzweil's predictions back in 2010. He spoke about a point in the future where artificial intelligence surpasses human intelligence leading to rapid technological advancement. I remember being fascinated by the concepts and how it would change the world. But I thought he was crazy, not so much because of what he predicted, which was mind blowing but plausible, but because of the time frame he outlined.

At the time there was no AI and nothing close to it. For Kurzweil’s predictions to come true, AI itself would have to be invented within a decade or so. Well obviously, that happened, and in line with his predicted timing. So, if his timeline is right then the AI revolution has only just begun. This is critical to understand because the scale of this is unlike anything we have seen before.

Now, as the boom gathers pace, we are hearing more talk of an “AI bubble”. Commentators are drawing comparisons to the dot-com era boom of the late 1990s where wild optimism ended in a spectacular collapse. But there are some crucial differences this time.

This is not a once in generation boom. Those were the personal computers, internet, mobile phones. This is an AI industrial revolution. A once in a lifetime shift that will reshape the course of human history in the same way the first industrial revolution transformed the world. This is not hyperbole. This is real.

What we are seeing now is an explosion in demand for semiconductors, data centres, and energy. We are in the foundational infrastructure phase of AI. We are building the roads, powerlines and factories of the digital age. Companies like NVIDIA, AMD, TSMC, and ASML are the new industrial giants. They are equivalent to the steelmakers and rail companies in the 1800s. What they produce isn’t visible to the naked eye, but it powers everything else. Billions are being spent not on end products but on the capability to create them.

Then come the architects, the platforms building on top of that foundation. Alphabet, Amazon, Apple, Meta, and Microsoft are spending tens of billions to construct the superstructure of the AI economy. Their investments in chips, data centres, cloud networks, and proprietary models aren’t just a corporate arms race, they are laying the digital plumbing the next century will run on.

When Mark Zuckerberg tells investors Meta will spend $70 billion in a single year, or when Microsoft and Amazon pour capital into global data infrastructure, they’re building for the long term. Investors are impatient, especially when they see large capital investment, they want to see returns. But this is critical infrastructure and those companies that don't invest will be left behind in the future.

The same applies to energy. Data centres are already account for 4.4% of all electricity consumption in the US and that share will rise sharply (within a range of 6.7% to 12.0% by 2028 according to the 2024 United States Data Centre Energy Usage Report). Nations and corporations are racing to secure the energy and cooling capacity needed to support AI infrastructure. It's not glamorous but it’s essential to power what’s to come.

If this were a skyscraper, we’re still pouring the concrete slab. The real transformation comes when applications begin to rise from that base. Today the market is being driven by infrastructure investment, but the next wave will be powered by what people build on top of it. It will be the Agentic AI systems that don’t just respond to instructions but carry them out. We’re entering an era where AI can complete tasks end-to-end. Scheduling meetings, building software, managing portfolios, designing products, all autonomously. That’s when productivity leaps, and entire industries are reshaped.

Innovation will expand to fill any excess capacity that’s created. Even if companies overbuild data centres today, history shows that technology quickly catches up. The same happened with railways, telegraphs, and broadband. Supply precedes demand, and demand then explodes.

The software revolution will soon meet its physical counterpart. Anything that needs to be moved will eventually be moved by a machine directed by AI. The distinction between digital and physical will blur. Companies across the world are now developing robots capable of performing manual and repetitive work. It sounds like science fiction, but the prototypes already walk, grasp, and learn. Amazon recently announced plans to replace 500,000 warehouse roles with robots which equates to half its current workforce. That’s not a headline about layoffs it’s a glimpse into the new labour economy.

This convergence of software and hardware, when intelligence and motion combine, is where the true scale of AI’s impact will be felt. The long-term economic gains will dwarf anything seen in previous tech cycles.

For long term investors, the question isn’t whether AI is overhyped, it’s whether the market is mispricing how deep and long this cycle runs. Valuations for major tech companies may look stretched in the short term, but the structural trend remains intact. The capital being spent today is building the operating system of the future. There will be market setbacks and pullbacks along the way. Some projects will fail. But these will be moments to add to core holdings, not reasons to exit. Each correction will likely prove a buying opportunity in hindsight.

The scale of change ahead is hard to comprehend. Kurzweil’s timeline may have sounded crazy fifteen years ago, but it’s starting to look prophetic. If he was even close to right, what we’re seeing today is not the peak of an AI bubble; it’s the first chapter of a story that will define the century.

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.

Does the US Government Shutdown Matter?

Every few years the US government runs out of money. It’s not that America is broke, it’s that Congress has again reached the debt ceiling, the legal cap on how much the government can borrow. Both sides know it will eventually be lifted, but they use the process as leverage. The result is political theatre with real-world consequences.

The US spends far more than it earns. The budget deficit this year is roughly $2 trillion, with $5 trillion of income and $7 trillion of expenses. That shortfall adds to a national debt now above $36 trillion. Before the country can even start paying that back, it would need to balance the budget through higher taxes or lower spending. Neither is politically possible. Instead, the debt ceiling has been raised or suspended more than a hundred times since 1960.

Shutdowns happen when negotiations stall, and funding expires. Workers are stood down, services freeze, and government departments grind to a halt until a deal is reached. Economically, the damage is limited. Each week of shutdown shaves about 0.1% off GDP, but growth usually rebounds once back pay and spending resume. Markets barely react because they’ve seen it all before. The real risk isn’t the short-term disruption, it’s the erosion of confidence in the system itself.

That confidence used to be rock solid. US Treasuries are considered the safest asset in the world. But the world is changing. Governments everywhere are now competing for capital as debt levels rise and interest costs bite. When too many borrowers chase too little capital, not everyone will be funded on favourable terms. Although Fitch downgraded the US last year over fiscal governance concerns, many other nations face a similar problem. Bond yields show investors are quietly recalibrating the idea of “risk-free.”

What’s different this time is the intent behind the shutdown. Trump and his team have reportedly seen it not just as a negotiating tactic, but as a way to reshape the federal workforce itself. By letting agencies go unfunded and contracts lapse, they could use fiscal gridlock to force structural change across government. To his supporters it’s long-overdue discipline after years of bureaucratic expansion. To critics it hollows out the machinery that keeps the world’s largest economy running. Either way, it introduces a new kind of uncertainty: weaponising dysfunction for reform.

Viewed in isolation, a government shutdown doesn’t matter much. Viewed as a pattern, it matters a lot. It reflects a system where short-term politics consistently override long-term responsibility. America can still borrow easily because of its size, its credibility, and the dollar’s dominance. But every cycle of brinkmanship chips away at that credibility.

The rest of the world is watching. Many advanced economies now face the same problem of too much debt, too little discipline, and no political will to fix it. For now, markets still reward inertia because no one wants to believe the system could crack. The question isn’t whether the US can keep borrowing, but how markets will price that privilege in the years 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.