Week Ending April 17, 2026
Signals & Noise
Expanded analysis, valuations and portfolio positioning for members
The VIX is Wall Street's fear gauge, measuring the market's expectation of 30-day volatility. After spiking above 30 during peak Iran war uncertainty, it has pulled back to around 18 as peace talks progress. The war peak and pre-war baseline tell the story.
<15
15โ20
20โ25
25โ35
35+
The Shiller CAPE ratio averages 10 years of inflation-adjusted earnings to give a smoothed view of market value. At elevated levels, expected future returns compress. Right now, CAPE is at one of its highest readings in 150 years of data.
<15
15โ20
20โ30
30โ40
>40
At ~40.7, the CAPE is more than double its historical median. It has only been this high once before in 150 years: briefly in late 1999, just before the dot-com crash. Shiller's own research implies forward 10-year annual returns of approximately 2% from here. The odds are firmly stacked against the buy-and-hold investor right now.
Those of you who have done our Well 2 course would be familiar with this story. Groupthink can be so powerful that even one of the best investors of the past 40 years can get caught up in the fever. As Robert Shiller said, it spreads like a virus. It is contagious.
The most famous contrarian who can resist is Warren Buffett. But even Munger recalled how a few years before the GFC, they became shareholders in a "great" office furniture company. Great numbers, bright future. Then it crashed in the GFC. Munger realised too late that the numbers were partly a product of the property bubble bleeding into commercial real estate. They failed to check the inputs.
We appreciate valuation as a simple but effective tool. As Buffett says: price is what you pay, value is what you get.
Joan Robinson, a well respected economist, predicted what we are seeing as early as 1937. Once trade surpluses become too large to be absorbed, retaliatory moves set off a process where countries compete to pass off the costs of trade imbalances by further intervening in their external trade accounts.
Trade wars are now moving to positions where returning to the old ways is not an option. Expect the major players to make move and countermove. Global trade flows are changing, and the movement of global capital is next.
Lowest auction clearance result since 2018. It would make sense โ just as buyers grabbed the 5% deposit incentive, they now face rate rises and falling values. Every market produces winners and losers. We are supposed to believe this property market is not a bubble.
The contest for ideas has begun. The coming decade will be defined by those who believe governments have a substantial role in economic development, and those who don't.
We raised the expectation of higher defence spending 12 to 18 months ago. Here it is. Expect more.
The ASX has basically treaded water, heading into the Friday close slightly lower. It is a little above the 200-day SMA which may be positive, but higher volatility is making future calls difficult for shorter-term investors and traders.
1. Don't Lose Money
One thing we discuss is the issues surrounding compounding. Many get this wrong and mislead investors into thinking they will compound at 8 to 10% over the long term. This is not true in theory or in empirical evidence.
The first thing to acknowledge is that things change. We like the old Horace reply when the King asked for a statement that holds true at all times. Horace replied: "And this too shall pass."
Compounding is about multiplication, not addition. So 2+2+2=6 whereas 2ร2ร2=8. This is crucial to understand because the finance industry gets this wrong. Ignore statements about average returns. Think multiplication, not addition.
Two steps: First, work out the current compounding rate. Second, over time, account for future changes (Horace's principle).
Compounding at a set rate is only valid if nothing changes. With a cash account at 5%, the Rule of 72 gives you the answer: 72 รท 5 = 12 years to double your money. But what about when things change? Think about the two Vs: valuation and volatility.
Use CAPE as an accurate measure of expected 10-year geometric returns. In 1982, CAPE showed the next decade returns would be around 18%. In 1992, CAPE was 20 and the next decade returns were 9% nominal and 7% real. The cheaper the investment, the better the compound rate.
At the start of every period, assess the opportunities available and adjust your portfolio to account for the new compound rate. This is why rebalancing is crucial to securing above-average long-term returns. It explains why buy-and-hold will not lead to superior returns, why patience works, and why we say: don't lose money.
2. Commodities & Precious Metals
The Hormuz disruption is not just an energy story. Some 41% of global sulfur is exported through this chokepoint. US sulfur prices have risen 165% year-over-year and surged a further 25% since the Iran war began.
This matters because sulfur feeds sulfuric acid, and sulfuric acid is foundational to copper extraction, semiconductor fabrication, and battery material processing. The disruption sits upstream of almost everything that powers modern defence production.
The lesson: the decisive vulnerabilities in a conflict are often not the finished weapons, but the obscure reagents and materials that make them possible. Sulfuric acid, helium purity, copper processing: these are the prelogistical chokepoints that determine whether an industrial base can actually surge when called upon.
This is exactly why we have been focused on critical minerals and commodities as a long-term investment thesis. The world is waking up to what the supply chain is actually made of.
This week's Signals & Noise video is ready to watch. Click below to open it on YouTube.
