CBS MarketWatch on Dec 31, 1999: "nary a bear has stirred on Wall Street this season." CAPE was 44.2. Twelve weeks later the S&P 500 began its 50% drawdown. CAPE today is 42.7. The mood is strikingly similar.
Australia Q1 GDP was just 0.3% qtr, the softest print since Q2 2024. Data centres single-handedly drove all of the growth. Outside that, the economy is already in a slowing posture.
Westpac flags possible Q2 contraction. If it prints it will be the first quarterly GDP decline since the GFC (ex-COVID). Middle East conflict effects only fully appear in Q2 and Q3.
Property days-on-market climbing across every major Australian capital. Adelaide +2, Hobart +3, Townsville +9, Newcastle +6, Brisbane stalling. Broad-based deterioration.
Rare earths environmental concerns are now hitting western processors. Lynas Malaysia is the template. Selectivity in the sector remains the rule.
Shiller's model implies 1.3% annual real returns over the next decade.
Steve dug up an old article this week. The headline read "Wall Street's Outlook for 2000," published by CBS MarketWatch on December 31, 1999. The opening line is preserved below in its original form.
The article was published twelve weeks before the S&P 500 began the slide that would erase nearly half its value over the following two and a half years. The CAPE ratio at the time was 44.2, the highest in 140 years of US market data.
The CAPE today is 42.7. The consensus tone is uncannily similar:
- Strategists struggling to find genuine bearish positioning
- Permanent justification for higher multiples (then: tech productivity, now: AI productivity)
- Brief drawdowns treated as buying opportunities by reflex
- Genuine pessimists treated as outliers or contrarians
We are not predicting a crash. We are observing that universal bullishness at extreme valuations has been one of the most reliable contrary indicators in markets.
The headline number was 0.3% qtr, 2.5% yr. Softest quarterly growth since Q2 2024. Underneath that, the picture is more concerning:
- Data centres alone drove essentially all of the quarter's growth, and ~0.8 percentage points of the annual rate
- New business investment +5.7% qtr, the strongest since Q3 2011 mining boom, almost entirely data centres
- Productivity -0.6% qtr, the cost impact offset only by softer wages growth
- Public demand fell as Energy Bill Relief Funded ended December 31, 2025
- State and local government consumption fell -0.8% qtr
Outside one single category, the economy is already soft. The cyclical upswing has come to an end.
Westpac has flagged the possibility of a quarterly contraction in Q2 2026. If that prints, it will be the first quarterly decline in Australian GDP since the GFC (excluding COVID). The Middle East conflict and the latest rate hike will only fully appear in Q2 and Q3 numbers.
Properties are taking longer to sell across Australia, with every major city recording an increase in median days on market compared to last month:
- Adelaide — 20 days (+2)
- Hobart — 21 days (+3)
- Townsville — 28 days (+9)
- Newcastle — 28 days (+6)
- Brisbane — 29 days
The previous bull market in property assumed permanent demand acceleration and unlimited finance availability. Neither holds today. The broad-based nature of the slowdown matters more than any single city's number. When every major capital is recording deterioration in the same direction, it is no longer a localised story.
The Financial Times this week ran a feature noting that the race for rare earths is sparking concerns about environmental damage. Companies seeking to boost western supplies face legal and community obstacles.
This is the tension at the heart of the western rare earth thesis:
- Western processing capacity has to come online to break China's grip
- The processing itself is dirty, water-intensive, and toxic
- Legal and community pushback creates real project risk
- The Lynas Malaysia experience over the past decade is the template
Expect this to feature heavily in the next phase: project delays, cost overruns, and the occasional "rare earth expert" appearing out of nowhere offering opinions on environmental impact. Selectivity in the sector remains the rule.
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Steve, Tom & Jacob
The TMM Team
