Volatility remains high with much hanging on Trump's announcements. Threatening to wipe out a country and its civilisation does not go down well, and then in the next few days announcing a two-week ceasefire really does add to the unpredictability of markets.
We remain cautious and somewhat sceptical the ceasefire will hold.
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.
All the action this week was Trump's announcement of a ceasefire. The market loved it, but questions remain as to whether it holds and what happens after the ceasefire is over.
The Week That Was
The two-week ceasefire expires around April 21-22. If talks in Pakistan break down, expect a rapid repricing of oil and equities. A two-week pause is not a resolution. Markets remain highly sensitive to headline risk, and any sign this agreement is fraying could reverse sentiment quickly.
The Strait of Hormuz remains barely functional. 187 tankers carrying 172 million barrels remain stuck inside the Gulf. Maritime insurance is the bottleneck. Even if Iran grants safe passage, insurers may not underwrite the risk. Energy markets will not normalise quickly.
Inflation continues to rise. The latest monthly CPI for February came in at 3.7% annually, only slightly below January's 3.8%. Trimmed mean inflation held at 3.3%. Both remain well above the RBA's 2-3% target band, and the RBA has already hiked twice this year, bringing the cash rate to 4.1%.
And jobs are looking a little less steady. Employment rose by 48,900 in February, which sounds strong, but the unemployment rate actually ticked up to 4.3% on a seasonally adjusted basis because more people entered the workforce. Real wages remain negative: wage growth at 3.4% sits below inflation at 3.7%. People are working more but going backwards in purchasing power.
We have highlighted on multiple occasions the problems surrounding Australia's debt levels. This never ends well. It is no fun missing out, but it is even less fun when you are the last one in. All these properties have been purchased at a price, and with serious headwinds ahead, I can only hope the damage is minimised.
Inflation expectations have spiked to 6.9% in mid-March according to the ANZ-Roy Morgan survey, the highest in years, driven largely by the petrol price shock from the Iran war. Average retail petrol prices surged above $2.38 per litre, up over 40% in weeks. This feeds directly into consumer sentiment and RBA decision-making.
This week's members video is 13 minutes long and really worth your time, especially in the context of Australia's housing debt and the broader question of what actually causes markets to break.
If the video does not load above, watch it directly on YouTube →
This clip focuses on a simple but important idea: major financial crises are often preceded by a rapid rise in private debt. Not government debt, private debt. Whether it was 1929, Japan in 1991, the Asian crisis in 1997 or the GFC in 2008, the pattern is familiar. When private debt-to-GDP rises too quickly on top of an already stretched base, the system becomes fragile. Australia's household debt-to-income ratio remains among the highest in the world, which is why this video is worth your time.
All the action was on Wednesday when the market bounced over 2.5% on Trump's announcement regarding a two-week ceasefire. Oil took a large dive on the day but has since bounced a bit. Big positive days are fun, but it pays to remember year-to-date returns are sitting at about 1%. So before Wednesday, we were still underwater.
We can never be too sure when the cycle turns, but emerging markets look attractive on a valuation basis, with higher GDP growth prospects and what we believe is the start of a longer-term bull market for commodities.
The structural case is straightforward: emerging economies are where the population growth is, where urbanisation is accelerating, and where commodity demand is growing fastest. When developed market valuations are at historic extremes (CAPE ~36.5, Buffett Indicator ~210%), capital eventually rotates. The question is timing, and we think the conditions are forming now.
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.
A recent note from Christopher Ecclestone at Hallgarten reframes the critical minerals conversation. His argument: strip away the padding from critical minerals lists, and a far narrower, more urgent group emerges: tungsten, antimony, tin, rare earths, and helium. These are not fashionable metals. They are functional ones. They are the inputs of munitions, electronics, and industrial resilience. They are, increasingly, the metals of a rearming world.
The key takeaway from Ecclestone: investors are no longer rewarding "perpetual drillers." They are backing developers, projects that can move from resource to production quickly. In a world where supply chains are weaponised, optionality has less value than deliverability.
We keep saying "don't lose money" for a reason. The mathematics of losses are brutally asymmetric. Use this calculator to see exactly how much gain you need to recover from any given loss.
Total Market Cap / GDP = Buffett Indicator. Buffett called this "probably the best single measure of where valuations stand at any given moment." Current reading: ~210%.
A book or research paper that shapes how we think about markets, risk, or long-term wealth building. Read the source material, not the summary.
