Everybody's Knackered

This week's members message is a video walk-through of the issue itself: Steve, Tom and Jacob take you through the whole picture in one sitting, oil and shipping, the property ratio, the CAPE panel and where we are watching for the next call. If you would rather watch than read, start there and use the written issue below as the reference document.

The short version: three separate chokepoints are squeezing at once. The Strait of Hormuz, where tanker traffic and insurance costs have both moved sharply this week. The private credit market here at home, now large enough that ASIC has put the whole sector on notice. And valuations, where Korea's CAPE has more than doubled in a year while emerging markets elsewhere sit near a third of that level. None of these on their own is a crisis. Together, they are the environment we are positioning around.

The Iran ceasefire has come apart, and the numbers moving in shipping tell the real story better than any headline. Tanker traffic through the Strait of Hormuz is running at roughly a third of its normal level, and insurance costs to move a cargo through it have jumped sevenfold in a matter of weeks. Oil is not one homogenous market either. Different grades move on different routes, and the risk premium is currently being priced into shipping and insurance well before it shows up at the bowser.

There is also a quieter signal worth noting. Warren Buffett's exit from IBM this year has been read by some as a comment on where the easy gains in this AI cycle already sit. We are not in the business of reading tea leaves from a single trade, but it lines up with a broader point: the earnings story behind this rally is being carried by fewer companies than the headline index suggests.

ASIC has put the private credit sector on notice this week, and the number behind the warning is the one worth sitting with. The local market has grown from around $35 billion a decade ago to roughly $250 billion today, much of it now sitting inside superannuation funds without members necessarily knowing it is there. Commissioner Simone Constant's point was blunt: the sector has never been tested through a real downturn, and a lot of Australians are exposed to it without having chosen to be.

Property is telling a related story. Monthly dwelling price growth across the five capital cities has been rolling over through 2026, with Sydney and Melbourne now running negative and even Perth, the strongest performer of the cycle, well down from its early-year peak.

The S&P 500 has now returned around 521% in real terms since the March 2009 low, the fourth secular bull run of this scale in 150 years of data. The two most recent comparisons are worth holding in mind: the run into December 1968 gained 413% before a long, grinding decline, and the run into August 2000 gained 666% before the dot-com unwind. Every one of these secular bulls has ended the same way. None of them ended on the day it looked obvious.

Zoom into individual markets and the same story plays out faster. Korea's CAPE ratio has gone from 17 to 44 in twelve months, a repricing that has whipped the local index around all week. Compare that with Indonesia, Brazil and Turkey, all still sitting near a CAPE of 10. That gap is exactly the kind of dispersion that makes the case for emerging markets and commodities as a place to look for value while developed markets sit at extreme readings.

Lynas is named here for education only. This is not a recommendation to buy, hold or sell the stock, and it should not be treated as personal advice. Rare earths sit right inside this week's chokepoint theme, so it is worth understanding why the sector is being talked about.

The global rare earth market is small in absolute terms, around $21 billion in final sales, but the value is concentrated downstream in magnet manufacturing and end-use production, where China holds close to $19 billion of that $21 billion. Any shift in that balance, driven by tariffs, supply chain policy or new processing capacity outside China, changes the economics for the handful of producers positioned to take share.

Lynas reported its Q4 FY26 result on July 22, delivering gross sales revenue of A$288.9 million, up 70% on the same quarter last year, on a record average selling price of A$98.2 per kilogram. The stock fell on the day despite the revenue beat, because sales volumes and total production missed analyst expectations. Total rare earth oxide production came in at 3,481 tonnes, while NdPr output, the higher-value output most tied to magnet demand, slipped to 1,857 tonnes on ore quality variations at the Mount Weld mine.

Beyond the quarter, the company is carrying cost increases on its heavy rare earth and Kalgoorlie processing expansions, and has signed a Letter of Intent with the US government on rare earth supply. Interim CEO Pol Le Roux is now steering the business following the retirement of long-serving CEO Amanda Lacaze. None of this changes the fact that the total addressable market outside China's downstream is still small relative to the ambitions being priced into names across the sector.

Episode 144 is this week's full companion listen: Steve, Tom and Jacob work through the Hormuz shipping numbers, the Korea CAPE spike against emerging markets sitting near 10, the AI earnings question nobody wants to raise, and why margin debt at $1.5 trillion deserves attention. If you have not hit follow on your podcast platform yet, do it now, we put out a market update every Monday.

A number of you have asked about capital gains tax timing given how much of this issue is about positioning ahead of a top. We have put together a plain-English explainer on how the CGT discount actually works, useful reading before you make any changes to a portfolio you have held for a while.