Be alert, not alarmed. Well, maybe a little alarmed.
By now all the ships loaded with oil and other goods that left the Gulf prior to the conflict have reached their destination. From here, we see an increasing probability of supply shortages, and if we are correct, then stock markets may move quickly to reprice companies affected by the shortages. Things may get very volatile.
► Watch this week's Weekly Video Review
Trump calls off the attack. Europe and China are openly at odds, and we expect more of this where countries complain about each other's trade and investment policies. Budget feedback is everywhere. And the bigger picture: money used to be the goal. Now, increasingly, stuff is.
One thing we have seen over the past 30-40 years is a lot of change. But change, like volatility, often comes in fits and starts. We think society is at the beginning of much change which over the next decade will substantially reorient our economy and our relationships.
The recent Albanese/Chalmers budget is a strong move and signals a directional change away from a focus on capital gains toward income. The financialisation of every aspect of the economy is over. Houses will become homes. Stocks will be for income generation. Long-term wealth will increasingly be built through superannuation.
Bye bye influencers. No entrepreneur ever simply said "I'm doing it solely for the money." There is more to life than just asset gathering, and we are about to enter a new period where work becomes more meaningful.
One thing most people don't like is change. Constant change brings uncertainty, and we haven't found too many investors who adore volatility, especially high volatility.
With markets at or near all-time highs, it seems eerily stable given the turmoil in global geopolitics. Markets are prone to volatility clusters, and the trick is understanding whether this is a small cluster or a large one. With our macro indicators like CAPE ringing the bell, we think the next bout could be serious.
The point is to understand your exposure to unpredictable events. Knowing the average return is 8-10% tells you nothing and misleads most of the time, because you simply never get exactly 8-10% in any given year.
Inflation is a thief. And we believe it will be driven by government purchases. Government gets what government wants at any price. So expect commodities to rise. Rare earths become extremely valuable because our missile defence systems need them, and government prioritises missile defence as part of national security. Your iPhone may well cost a lot more as production moves out of low-cost nations like China and meets higher materials costs.
Europe joins the US. Another nail in the coffin of free trade. The SCMP this week ran a thoughtful piece framing the EU-China relationship as a "sinking ship" and explaining why the bloc and Beijing could be heading toward a full trade war.
Read on SCMP →
Coming for Commodities. We continue to believe commodities have a bright future. The combination of Western governments rebuilding industrial capacity, military spending on missile defence and resilience, and the structural energy transition demand creates a multi-decade tailwind for the right resources.
The Democratic Republic of Congo is taking an unusual step to secure its critical minerals: it plans to create a new paramilitary unit to protect mining sites and transport routes, backed by funding from the US and the UAE. In 2020, Frontier Services Group Congo signed an agreement with a Chinese mining firm (Sicomines) to provide security. The DRC is now formally rewriting that arrangement with Western backing.
Watch on YouTube →
It is all about property this week, but actually much more. This is a no-holds-barred realistic look at options for property investors and the range of issues they need to consider.
For TMM, we think all investors need to understand the broader picture surrounding how wealth is built over the next few decades. There is a regime change happening, and few have understood how these changes impact wealth building and portfolios because the sole focus is on the property market.
We think houses will become homes again, like they were in our grandparents' generation. They will no longer be a way to grow wealth through capital gains or tax tricks. We spoke about the transition from capital gains to income a couple of years ago, and it will be a major theme going forward. Government in many countries (including the US) have rejected the 40-year belief that free market solutions and capital gains incentives are the best way for economies to deliver benefits. Those days are over.
Watch on YouTube →
China is creating pressure on countries like Australia and forcing them to match the subsidies used by Chinese governments in seeking to control markets. As we have stated previously, globalisation is dead. Investors who don't adapt will be caught investing in a world that no longer exists.
Read on ABC →
A relatively quiet week on the ASX surface, but the undercurrent has shifted. Energy and resources held up well. Banks were soft. Healthcare continues to digest the CSL implosion. Most importantly, the budget's directional shift toward income and away from capital gains is starting to filter into broker conviction across property-heavy sectors.
And the macro picture has not improved. The S&P 500 Shiller CAPE has now climbed to roughly 40.3, sitting just below the all-time high of 44.2 set during the dot-com peak.
The Australian Treasurer this week instructed Chinese owners of Northern Minerals to divest their holdings within 14 days. That is not a gentle nudge. That is a national security directive backed by the Foreign Investment Review Board.
"Australia has been very clear for several years that critical minerals are no longer simply a commercial issue. They now sit at the centre of strategic competition, industrial resilience and economic security."
Dr Coyne told the ABC that the government "appears to have concluded" that several China-based investors have "ignored repeated direction." It sends an important signal that Australia is far more willing to use investment policy as a tool of economic security.
We continue to believe the rare earth sector has opportunities available, but it is not open slather. There is a need to assess each opportunity on its merits, partly because there will be a rise in the number of "rare earth experts" appearing out of nowhere offering all sorts of free advice. Be selective. The thesis is right. The execution requires discipline.
Watch on YouTube →
We received a letter from a reader, Luca, this week with some fair critiques. Worth addressing properly.
Fair, although we haven't been bearish for 3 years since we haven't been going that long. The inference is that we have missed the gains in tech. But this is not the case. Our Wells programs have done very well, and last year was a solid year for our returns. Just because we are not in the momentum stocks doesn't mean we can't make money. There is more than one way to skin a cat.
Long-term returns are best when you buy low and sell high. Picking growth stocks looks easy until they stop growing. And at some point they all stop growing. Over time a growth stock becomes a value stock. We just think it is easier to select large, dividend-paying companies (Buffett-style) when they are cheap. History and our record shows we have done well. We have also recently added some smaller stocks growing in the global realignment of national and international economies.
We don't criticise buy and hold altogether. We criticise the way it is sold as the solution when the data shows it is possibly the worst way to invest over the long term. Buy and hold looks great on the way up. It does not look great on the way down. It is why we also criticise dollar-cost averaging.
Investing is about time. Most people are unaware that it is a sequence of returns that matters. This means we should pay attention to the geometric return, not the arithmetic return. That is why market cycles and understanding valuation help beat the market.
Yes, guilty, and it works. See all our discussions on our Risk Hierarchy. You also need to understand how risk mitigation works. That leads us to hedging and why it works. If you understand how markets work (and you read a bit) you can see why hedging is critical to returns at different points in the cycle.
At 63, Steve has spent 26 years developing his investment knowledge and even longer on economics and politics. Jacob and Tom have 20 years between them. We think education is worth paying for given that you can use that knowledge and pass it on to your children (which we encourage). An average financial adviser/fund manager charges around $7,000 a year.
We are and will always be independent. What others choose for their podcast is entirely up to them. But we always ask: is this in the interests of our audience? We don't spruik, and we don't bring on people who simply pitch their products.
We know we are not for everyone. Nor do we want to be. We are for people who want to explore, educate themselves, and take control of their financial future.
Premium members join the team live each month. Bring your questions on current market conditions, portfolio positioning, the Wells framework, specific sectors, or your own situation. Included with every Signals & Noise Premium subscription.
Available on Spotify, Apple, and YouTube. Leave a review to help us grow.
Listen on Spotify →
We will continue to update the sector scorecards, momentum indicators, and macro notes as the theme unfolds. If conditions shift, you will see it reflected in the Wells calls, Signals and Noise Premium updates, and portfolio insights.
At Total Money Management, we work alongside our clients for 12 months to help build and structure their share portfolio using disciplined, proven frameworks. Throughout the year you receive one-on-one support, guidance through market conditions, and the tools needed to manage your portfolio with confidence and clarity as you grow your wealth.
Learn About Our Courses →