When does this war stop? That is the question. Asia's future is looking rocky. Brace for impact: inflation or demand destruction? Why not both.
Recession is now likely according to NAB, and the impacts will not be pretty. The CAPE remains very high historically and much caution is warranted. Most macro indicators are screaming overvaluation, but many investors are still content to play with fire.
When does this war stop? The ceasefire was extended but Iran has refused to attend US-led talks, calling them a waste of time. VP Vance visited Pakistan last week and the diplomatic channels remain open, but there is no off-ramp in sight. The Strait of Hormuz remains functionally closed, oil sits above $96, and the downstream effects are accelerating.
Asia's future is looking rocky. Even if a peace deal materialises, the region is already facing months of cancelled flights, surging food prices, factory pauses, delayed shipments, and empty shelves for everyday goods: plastic bags, instant noodles, vaccines, syringes, microchips. Countless businesses across Asia are verging on insolvency. Governments are taking on enormous debt to slow inflation. By year's end, in the most dire projections by the United Nations, millions across Asia could be pushed into poverty.
The ceasefire extension buys time but changes nothing structurally. Iran says the talks are a waste of time. The US says talks are the only path forward. If diplomacy fails by early May, expect a rapid repricing of risk across energy, equities, and sovereign debt.
The new Fed Chair nominee, Kevin Warsh, struck a hawkish stance during his Senate hearing. He stated Trump never asked him to commit to rate cuts, and fighting inflation would be his top priority. No rate relief is coming from the US side.
Recession is now likely according to NAB. The big four bank most plugged into business now believes there is an almost one-in-two chance Australia will fall into a biting recession later this year. NAB has increased its downside scenario probability to 45%, up from 42.5%. Only a 52.5% chance of a positive economic outlook remains. That is essentially a coin flip.
In NAB's worst-case scenario, the economy could shrink by as much as 2%, unemployment could spike above 9%, and house prices collapse. NAB has set aside $706 million in provisions for the first half, including $300 million in collective provisions for unspecified losses, more than $220 million higher than the end of last year. The bank is building cash buffers by increasing the discount on its dividend reinvestment plan, aiming to raise up to $1.8 billion. This is battening-down-the-hatches behaviour.
Does this sound like a war footing? It should. The federal government is now exploring building another oil refinery at the cost of approximately $10 billion. Queensland Premier David Crisafulli announced from Brisbane's Lytton refinery that the state is streamlining approvals and providing new funding so the facility can start producing Australia's first renewable diesel.
While the article in the free edition highlights the problems for Asia, it can also include Australia. The longer this war continues and the longer the Strait of Hormuz remains closed, the more shortages we will see over time. This is not a distant risk. It is here now.
A tough week on the ASX as the market fell around 2%. Probably not helped by Cochlear, which fell 40.7% on Wednesday after slashing FY26 guidance by nearly a third. Over $4 billion in shareholder value wiped out in a single session. The stock hit a decade low of $99.58, down from $167.94 the day before. Cochlear cited a convergence of headwinds: softer developed-market implant volumes, Strait of Hormuz supply chain disruptions, hospital capacity constraints, and falling referrals.
The question is how does the ASX respond to what we believe are rough times ahead? Confession season is in full swing. Any company carrying full-year guidance set against different assumptions, with concentrated offshore revenue and a premium rating that leaves no margin for error, is carrying the same risk Cochlear just realised. The Macquarie Conference starts in less than two weeks. Watch carefully.
When volatility strikes you can either use it to your advantage or allow it to control you. If you allow it to take control, you will become emotional at every change, making buying and selling mistakes.
It bears repeating that volatility is simply a change in price. And stock market prices change every minute. The stock market is really a great place to generate wealth since we know that while there are extended periods where returns are low (which we broadly know from valuation tools like CAPE), the market rises over time.
What panics investors is not the market. The maths of the market is quite simple: it goes up or down. That is it. And most of the time it goes up. What panics investors is their beliefs and goals. One strong belief among many investors is that time is running out and they need to get rich quick. This is a recipe for speculation and gambling, and results in losses because emotions dominate over logic and maths and you respond to every move.
That is why we have the 3 Wells. They are the same principles applied over different timeframes.
There are many ways to make money in stock markets, and contrary to popular belief, Buffett's way is not the only way. Jim Simons is an example of someone who generated superior returns over extended periods using an entirely different approach.
We see time as our competitive advantage because most education focuses on getting rich "quickly and easily." Every advert for financial services shows men in their holiday homes or travelling the world. The message is obvious: use our system and you will get rich with minimal effort. That is not how markets work.
Yes, a small investment in Nvidia years ago would have delivered millions, but the chances of doing that by design is nearer to zero than 100, as Bessembinder demonstrates. The 3 Wells is designed to make money over different timeframes, so Well One can generate shorter-term returns while Wells 2 and 3 might hold a higher level of cash, waiting for more favourable valuations.
You get rich by understanding three central principles: market cycles, asset allocation, and how to rebalance. All of those involve having a philosophy about how to manage change over time. Patience is central to that.
A scattershot of issues this week regarding rare earth metals and the urgency of governments to develop a supply chain that cuts out China's stranglehold.
The Serra Verde acquisition is significant: it is one of the only mines outside China with a high concentration of heavy rare earths. A 15-year contract to supply the US government signals that Washington is serious about building parallel supply chains. Meanwhile, Lynas continues to benefit from the structural demand shift, and the Trump administration is pressuring allies to share the cost of securing critical mineral supply.
We continue to believe there is a long way to go for critical minerals. The structural demand from energy transition, defence spending, and AI infrastructure continues to outpace supply investment. This is a multi-decade theme, not a trade.
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Cochlear lost 40.7% in a single day. How long does it take to recover? Use the calculator to see the maths for yourself.
