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Iran crisis special: what you need to know · The Money Puzzle

0:20
Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
0:23
Speaker 1: James Kirby. Welcome aboard everybody. We've a special edition for
0:27
Speaker 1: you today. It's on the Iran crisis and what it
0:31
Speaker 1: may mean for you the investor. You know, it's early
0:35
Speaker 1: days in this and so far the response from share
0:38
Speaker 1: markets has been mixed, you might even say muted, as
0:42
Speaker 1: someone put it. But if you look a little deeper,
0:44
Speaker 1: of course, so the response from the bond markets, which
0:47
Speaker 1: by the way, are often considerably more important than share
0:50
Speaker 1: markets in terms of how everything ultimately goes well. Eiels
0:55
Speaker 1: are rising around the world, that treasury yields have been
0:57
Speaker 1: rising in the US, and our own bond markets, our
0:59
Speaker 1: own yiels have been rising. So one thing is clear.
1:01
Speaker 1: There's a very distinct risk of higher inflation and higher
1:05
Speaker 1: interest rates. And then inside the markets there's quite extraordinary
1:08
Speaker 1: sort of individual stories going on, obviously oil being the
1:13
Speaker 1: big one which is really lifting right now, really lifting
1:15
Speaker 1: and scaring people. You've probably seen reports of queues at
1:19
Speaker 1: petro stations, which tells you that this crisis can turn
1:26
Speaker 1: on a dial and can mean a lot very quickly.
1:30
Speaker 1: So I thought we'd have a discussion on this. I
1:33
Speaker 1: needed someone who was very well briefed. Who better than
1:35
Speaker 1: Will Hamilton of Hamilton Wealth Partners.
1:39
Speaker 2: How are you will? Very well, James, thank you for
1:41
Speaker 2: having me on for the listeners.
1:42
Speaker 1: Let's just give him a part of a recap I
1:44
Speaker 1: suppose of what's happened. So we've had this war for
1:48
Speaker 1: roughly yet six days now. In where America has attacked Iran,
1:52
Speaker 1: there is a distinct escalation. Iran obviously has attacked in
1:57
Speaker 1: its fashion nine different countries, which means it is a
2:01
Speaker 1: Middle East wide escalation. The immediate impact has been, as
2:07
Speaker 1: I said, which has been moving up pretty fast in
2:10
Speaker 1: terms of price share. Market's kind of all over the place.
2:13
Speaker 1: Gold is all over the place. The only thing I
2:15
Speaker 1: can see a clear line on is bond. So far, well,
2:17
Speaker 1: how do you read it?
2:19
Speaker 3: Yeah, it's look, it's been a benign response. But I
2:22
Speaker 3: think what's happened is, you know, I think we've talked
2:24
Speaker 3: about this in the past. Geopolitics and these type of
2:27
Speaker 3: events often have provided a buying opportunity. But I think
2:31
Speaker 3: that markets have become unfortunately used to these things. Is
2:35
Speaker 3: you know, we've got Crane's been going on for four
2:37
Speaker 3: years we've had this year alone. This is the second
2:40
Speaker 3: conflict we've had because we had Venezuela, which was very
2:43
Speaker 3: short and sharp, but back in January. And I think
2:46
Speaker 3: geopolitics has become somewhat market risk as well. So markets
2:50
Speaker 3: are getting used to it, but you know, there's no
2:52
Speaker 3: doubt there's been a sell off in some areas. And
2:55
Speaker 3: one of the things that I've repeatedly said for about
2:59
Speaker 3: six month, we think the biggest risk in markets is inflation.
3:03
Speaker 3: And I think a lot of people are saying that
3:05
Speaker 3: as well as a result of what we're going through
3:07
Speaker 3: and our oil prices and how that will flow through.
3:10
Speaker 1: How does this arrival of a war out of the
3:14
Speaker 1: blue to some extent in that Iran has been an
3:18
Speaker 1: issue for many years, So how does this escalation and
3:23
Speaker 1: war in the mid least, what's its impact potential impact
3:27
Speaker 1: on inflation? How does it color your existing views on inflation.
3:32
Speaker 3: I think the big thing is, you know a lot
3:35
Speaker 3: of forecasters that are a lot smarter than they are
3:37
Speaker 3: saying at around eighty dollars for the oil price, and
3:39
Speaker 3: Brent's eighty one seventy six last night, West Texas is
3:44
Speaker 3: just about seventy five, and that's worth about point two
3:47
Speaker 3: to points three on global inflation across the board.
3:50
Speaker 2: And therefore, you know, we.
3:54
Speaker 3: Were talking only a week ago of two rate cuts
3:57
Speaker 3: in Europe and now talking price in a fifty percent
4:01
Speaker 3: chance of a rate rise the ECB, and you'd have
4:06
Speaker 3: to say that something. You'd have to think that a
4:09
Speaker 3: rate cut in the US is potentially on hold. And
4:12
Speaker 3: as we've seen, without even factoring an oil governor Bullet
4:18
Speaker 3: is talking about the potential flagging the potential.
4:21
Speaker 2: Of another rate rise in Australia even this month.
4:24
Speaker 1: And she mentioned, didn't she first thing in the morning she
4:27
Speaker 1: mentioned or and that was clearly well she put it
4:30
Speaker 1: on the table as an extra risk but also an
4:32
Speaker 1: extra wasting if you like, towards the likelihood of a
4:35
Speaker 1: rate rise.
4:36
Speaker 2: Correct.
4:37
Speaker 3: And so I think that inflation expectations have shifted in
4:41
Speaker 3: as you said, six days, and therefore interest rate expectations
4:45
Speaker 3: when you look at the ECB. I will admit that
4:47
Speaker 3: one shocked me when I heard yesterday I think it
4:50
Speaker 3: was on a podcast, that's a fifty percent possibility of
4:54
Speaker 3: a rate rise is factored in fifty percent.
4:56
Speaker 1: Now I presume I'm expecting one of the things is
4:58
Speaker 1: that they are stilled to some extent dependent on imported oil,
5:02
Speaker 1: unlike the US for instance, and of course we are too.
5:05
Speaker 1: But before we go into that and that area, standing
5:08
Speaker 1: back from it, for investors, we've had three great years, right,
5:12
Speaker 1: so the US has had remarkable three year bull run. Statistically,
5:17
Speaker 1: the possibility of a fourth year bull run on the US,
5:20
Speaker 1: where they're putting in double digit growth historically is very unlikely.
5:25
Speaker 1: And now we have this event, whatever happens to the
5:29
Speaker 1: market today, tomorrow, yesterday, what do you think the broader
5:34
Speaker 1: implication for markets are with what's going on?
5:38
Speaker 3: Or Rotation has definitely been the same as twenty twenty
5:41
Speaker 3: six ed Yeah, Daney.
5:42
Speaker 1: Explain that to everybody what that means.
5:44
Speaker 3: Yeah, So rotation basically, we've had seven big stocks and
5:49
Speaker 3: then sets and a few other things dominate performance in
5:53
Speaker 3: the S and PLA five hundred in particular, and we've sayen, yeah,
5:56
Speaker 3: the SAS sell off, so the software as a service
5:58
Speaker 3: sell off in particular last month, and if you actually
6:03
Speaker 3: look at the rustle two thousand and in the last
6:05
Speaker 3: six so, people have been diversefying into midcaps, have been
6:07
Speaker 3: diverse fying geographically out of the United States and they've
6:10
Speaker 3: been diversifying across the S and P five hundred, so
6:14
Speaker 3: the other four ninety three, as a lot of commentators
6:17
Speaker 3: call it.
6:18
Speaker 1: So they're swinging back to the traditionals, the non software,
6:20
Speaker 1: the non magnificence.
6:23
Speaker 3: If you look at quality, qualities have that second worst
6:26
Speaker 3: performance in about the last twenty five years. The last
6:30
Speaker 3: time were actually longer than is about last thirty years.
6:33
Speaker 3: And the last time you saw the underperformance in quality
6:36
Speaker 3: and quality of companies that have earnings. The last time
6:39
Speaker 3: you saw this was in nineteen ninety nine when quality
6:42
Speaker 3: underperformed such an extent. If you look at the Rustle
6:44
Speaker 3: two thousand, since the middle of last year twenty twenty five,
6:49
Speaker 3: those that don't have earnings have massively outperformed those that
6:52
Speaker 3: do have earnings.
6:54
Speaker 2: So crap has run as well last for a.
6:57
Speaker 1: Long right, so kid industry could tell that cannot last
7:01
Speaker 1: for long. So you think that might become at an end?
7:05
Speaker 2: I think so, I really do.
7:06
Speaker 3: And I think one reason why geographic rotation has occurred.
7:11
Speaker 3: You heard me say ed Jardini. But the market commentator
7:13
Speaker 3: Ed Jardini recently said on another.
7:15
Speaker 2: Podcast, you can't go overweight.
7:18
Speaker 3: Something that's overweight and being the US, and because the
7:22
Speaker 3: US is sixty three ish percent of the Morgan Stanley
7:26
Speaker 3: Capital Index, Yeah or country World Index, And as he said,
7:32
Speaker 3: you can't go overweight. So hence money has been shifting
7:35
Speaker 3: into Japan, which was one of the worst performing markets
7:37
Speaker 3: two days ago, into emerging markets and yeah, which have
7:41
Speaker 3: also been very disappointing performers. In the last five days,
7:44
Speaker 3: you've also seen a shift back, which you would expect
7:47
Speaker 3: in this sort of conflict, back towards safe having currencies
7:49
Speaker 3: like the US dollar. The Australian dollar is now high
7:53
Speaker 3: sevent it's in the seventies, seventy cents, but just above
7:56
Speaker 3: it's just below seventy one, but it was you know,
7:58
Speaker 3: it's full and effectively one scent against US dollar.
8:00
Speaker 2: But the last fact that.
8:01
Speaker 1: When we look at this war has broken out, and
8:05
Speaker 1: the certain things we could assume, we could assume all
8:08
Speaker 1: goes up. We could assume travels stocks are in trouble,
8:11
Speaker 1: we could assume airlines are in trouble. We could assume
8:13
Speaker 1: a whole bunch of things. But there's certain things we
8:15
Speaker 1: might not have assumed. And one was when there's a
8:18
Speaker 1: global crisis. International crisis traditionally often started by the US.
8:24
Speaker 1: Classic being the GFC, they triggered a crisis. They've triggered
8:27
Speaker 1: this one by invading Iraq, at least striking Iraq. The
8:30
Speaker 1: big irony is that the whole world rushes into the US,
8:35
Speaker 1: puts their money into the US. And there was fears
8:40
Speaker 1: or concerns that this might not happen this time because
8:42
Speaker 1: the Trump administration is so erratic and so unpredictable and
8:47
Speaker 1: has eroded a lot of the key institutions in the US,
8:51
Speaker 1: has eroded the status of the US. So what happened.
8:54
Speaker 1: Did the US hold up this time so far?
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Speaker 2: Yes, relative to other markets, it has. I don't think that.
9:01
Speaker 3: I don't think it's seen that the rush in as
9:03
Speaker 3: I just said, even with respect to the US dollar, yeah,
9:06
Speaker 3: God's comfortable about fifty one hundred at the moment, but
9:10
Speaker 3: it's been incredibly volatile. So I think there's other alternatives.
9:13
Speaker 3: And I think that you know when you get this
9:15
Speaker 3: type of crisis in a previous life. When we were
9:18
Speaker 3: just talking before we went on air about being in
9:20
Speaker 3: Hong Kong. When I was in Hong Kong, one of
9:22
Speaker 3: the things is I had a very large trading book
9:25
Speaker 3: report to me close to billion euros and we ran
9:29
Speaker 3: that on what's called of our basis or value at risk.
9:32
Speaker 3: And then these type of times the risk managers come
9:35
Speaker 3: to you to tap you on the shoulder and say
9:37
Speaker 3: pull your risk in. It's impossible really to trade with
9:40
Speaker 3: a degree of certainty given the amount of volatility that
9:43
Speaker 3: you're seeing at this point in time. And I do
9:45
Speaker 3: think that's what's happened. Hence why you've seen a sell
9:47
Speaker 3: off in certain areas which have been quite aggressive, because
9:49
Speaker 3: that's where the gains have been as well, like career.
9:52
Speaker 1: Just to take it on a big helicopter level for
9:55
Speaker 1: everyone listening. So so far, folks, of the has been
9:59
Speaker 1: predictable to considerable degree, but there are some question marks.
10:03
Speaker 1: I mean, I thought you'd be I thought the money
10:05
Speaker 1: had really rushed back to the US will and as
10:07
Speaker 1: you say, it has, but maybe not in a convincing fashion. Similarly, gold,
10:12
Speaker 1: I don't think gold is selling gold so far is
10:14
Speaker 1: telling us nothing because except that it's had a six
10:17
Speaker 1: percent fold and one day, which was extraordinary. But maybe
10:22
Speaker 1: to some extent that happens every time there's a crisis,
10:24
Speaker 1: that people sell gold to liquidate their position or their
10:27
Speaker 1: losses in other areas, So we don't really know the
10:30
Speaker 1: pattern on gold just yet. But looking across from as
10:34
Speaker 1: I say, from a helicopter view, the big trend this
10:37
Speaker 1: year has been getting out of the US and certainly
10:39
Speaker 1: getting out of the Magnificent seven into traditional whatever you've
10:44
Speaker 1: got Pepsi, Disney, et cetera, to traditional stocks that carry
10:48
Speaker 1: the world. Now, if we have this, if this escalates
10:52
Speaker 1: and oil continues to rise, inflation continues to rise, and
10:57
Speaker 1: rates go up in the US, which would be the
11:00
Speaker 1: big one obviously, or in Europe or here there, does
11:02
Speaker 1: it mean for investors? And what are the chances of
11:04
Speaker 1: those double digit returns on the share market coming back
11:07
Speaker 1: again for a fourth year in the row? This is
11:09
Speaker 1: Wall Street.
11:10
Speaker 3: I want to remind people of twenty twenty two, and
11:12
Speaker 3: I actually reminded the time here at HWPL yesterday that
11:18
Speaker 3: when interest rates go up, equity markets underperform. And I
11:22
Speaker 3: just said, look, what worries me more than anything else
11:24
Speaker 3: at the moment is rising interest rates.
11:28
Speaker 1: So what if an investors listening and they say, okay, well,
11:31
Speaker 1: you know my portfolio is not all shares. Just before
11:34
Speaker 1: we leave shares, actually, I we'll talk about everything else
11:36
Speaker 1: in the moment. But one last thing, last time we're
11:38
Speaker 1: on the show, you were very hot on, very keen
11:40
Speaker 1: on emerging markets. Yep, they would be terribly exposed to
11:45
Speaker 1: or wouldn't they in the US and South Korean market.
11:48
Speaker 1: I had to close down yesterday. I have just have
11:50
Speaker 1: to actually suspend trading. What's the emerging market's picture just now?
11:56
Speaker 3: So seth, Look, South Koreas are the best performing market
11:59
Speaker 3: and what was the best mark in the world is
12:00
Speaker 3: up fifty percent. It's sold off seventeen percent in the
12:03
Speaker 3: last two days. It's still up over twenty percent year
12:06
Speaker 3: to date, so that's over to just two months. But
12:10
Speaker 3: there's two stocks there that you know. Samsung fell ten percent.
12:13
Speaker 3: I think it's twelve percent for Skhinex, and these two
12:17
Speaker 3: companies alone a sixty seven percent of global d RAM
12:20
Speaker 3: eighty percent of high bandwidth memory or HBM. Now, these
12:24
Speaker 3: two components are absolutely critical in AI. Every data center
12:29
Speaker 3: depends on them, and they're made in South Korea, and
12:32
Speaker 3: that's why they've run well. But South Korea gets ninety
12:36
Speaker 3: seven percent of its energy comes through the states of
12:39
Speaker 3: straits of humans. So everyone's been saying chips are the
12:42
Speaker 3: big day. Well, what's the big danger factor to AI
12:46
Speaker 3: that at the checkpoint so to speak, that could collapse,
12:49
Speaker 3: and that they're thinking it's chips. Well, I would actually
12:51
Speaker 3: throw one out there. It's energy security.
12:54
Speaker 1: Because energy because there are such energy users notoriously so
12:58
Speaker 1: isn't that interesting? And that give out the straits of
13:00
Speaker 1: harmless folks, which I'm sure you know. It's an extremely
13:03
Speaker 1: narrow strip of water between Iran and the Gulf States
13:07
Speaker 1: and one in five barrels of oil in the world
13:12
Speaker 1: that are basically produced and transported each day come through there.
13:16
Speaker 1: That is why there is fear about old price. But
13:21
Speaker 1: specifically interestingly in terms of knock on effects, there's one
13:25
Speaker 1: energy into tech and AI splendidly revealed there by the
13:32
Speaker 1: South Korean issue yesterday. Isn't that interesting? Okay? That is
13:36
Speaker 1: the big picture. I hope we've covered some basis there.
13:40
Speaker 1: What we're going to do in the next part of
13:41
Speaker 1: the show is have a look at some of the
13:43
Speaker 1: flashpoints and what you need to know what you should
13:45
Speaker 1: be doing just now back in the moment. Welcome back
14:00
Speaker 1: to The Australian's Money Puzzle podcast. I'm James Kirby talking
14:04
Speaker 1: to Will Hamilton of Hamilton, well partner's regular contributor to
14:07
Speaker 1: the show and to the Australian Wealth Section. And a
14:11
Speaker 1: great day to have him on board, a great week
14:13
Speaker 1: to have him on board, because we have this international
14:16
Speaker 1: crisis now out of Iran and we're trying to fathom
14:21
Speaker 1: I suppose in this early stage, extremely early stage, by
14:25
Speaker 1: the way, I mean, anyone who's old enough to know
14:28
Speaker 1: how these events play out, they don't tend to play
14:31
Speaker 1: out very quickly. Someone was asking me just yesterday they
14:37
Speaker 1: were flying to Europe through the Middle East on one
14:40
Speaker 1: of those terrific Middle East airlines which so many Australians
14:43
Speaker 1: go through. Now one hundred thousand Australian is supposed to
14:46
Speaker 1: be in that area right now, one hundred thousand. I mean,
14:50
Speaker 1: how many of them are in transit on planes? I
14:51
Speaker 1: want to because the used to always go through Singapore
14:53
Speaker 1: now or Hong Kong, and everyone else goes through the midleast.
14:56
Speaker 1: Just to give you an example of unexpected consequences. One
15:00
Speaker 1: of the point I'm leading to is we can't judge
15:02
Speaker 1: what's happening today's market, tomorrow's market. This is going to
15:05
Speaker 1: play out, This is going to take minimum I would
15:08
Speaker 1: think months for the for investors to decode. But what
15:12
Speaker 1: were the if we take the flash points in the
15:15
Speaker 1: market so far, the clear overpricing of AI stocks for instance,
15:20
Speaker 1: the boom in private credit, and the cracks scares, et
15:27
Speaker 1: cetera that are shaping up all around the world just
15:30
Speaker 1: now in the US, and here how did how are
15:33
Speaker 1: they exposed to this or how might this change things
15:37
Speaker 1: will be? If we got to change in risk appetite,
15:39
Speaker 1: for instance, how would it affect them?
15:43
Speaker 3: Look the effect on the Magnificent seven. The video came
15:47
Speaker 3: out with a result was that last week or the
15:48
Speaker 3: week before. And I never ordinarily would have done this,
15:52
Speaker 3: but I actually listened to a podcast which covered the
15:57
Speaker 3: video result with all these different analysts.
16:00
Speaker 1: Knocked it out of the park right once again?
16:01
Speaker 3: Yeah yeah, yeah, fifty three minutes. At the end of
16:04
Speaker 3: that fifty three minutes, I thought, this thing's going to
16:06
Speaker 3: go up. This was a great result. Well wow, I
16:11
Speaker 3: got that wrong.
16:12
Speaker 1: Yeah yeah. But the context is that in and of itself,
16:16
Speaker 1: it was a great result, and companies that have great
16:18
Speaker 1: results that be downing should go up. But that's not
16:21
Speaker 1: the start. Within video, it's a rocket and it has
16:24
Speaker 1: had this extraordin I mean extraordin in every sense of
16:26
Speaker 1: the world. It's the biggest became the biggest stock in
16:28
Speaker 1: the world out in a couple of years, so it's
16:31
Speaker 1: just the standard company. But what were the point what's
16:33
Speaker 1: the point you were making really about that?
16:36
Speaker 3: I think that they are so finally priced now and
16:39
Speaker 3: then that there is this doubt there's six hundred and
16:41
Speaker 3: forty six billion. I think it is of Capex between
16:45
Speaker 3: the big guys yea Alphabet, Microsoft, Video, et cetera. That
16:49
Speaker 3: you know on Capex that they're all spending they've got
16:51
Speaker 3: to get a return on this, And put that into
16:54
Speaker 3: perspective from memory, the Australian stock market today is worth
16:57
Speaker 3: about one point nine to two trillion dollars, so a
17:00
Speaker 3: third of the Australian stock market capitalization is being spent
17:04
Speaker 3: by these massive companies and they've got to get a
17:06
Speaker 3: return on that. And that's what I think the market's
17:08
Speaker 3: just saying, Wow, it's just so great that the extent
17:12
Speaker 3: of this cap X it's coming out of cash flow,
17:14
Speaker 3: which is extraordinary.
17:15
Speaker 2: That's how they're trying to fund it.
17:17
Speaker 3: And the market there's for saying basically in some respects
17:22
Speaker 3: enough as enough its these.
17:23
Speaker 2: Things have done so well, but they're so finely priced.
17:26
Speaker 1: Yeah, under some gigantic reason is going onder, some gigantic
17:29
Speaker 1: IPOs planned across the market. So cut to the chase.
17:35
Speaker 1: Is the US market more vulnerable now than it was
17:38
Speaker 1: due to this?
17:40
Speaker 3: Or I think look, as you started the show by
17:43
Speaker 3: saying that we're now in the fourth year of a
17:45
Speaker 3: bull market, and therefore investors become a little bit more
17:49
Speaker 3: cynical as well, and that they look for reasons the
17:52
Speaker 3: market's also it is expensive.
17:54
Speaker 1: They look for reasons to what just.
17:56
Speaker 3: To sell sorry, and hence why we've had this We've
18:00
Speaker 3: discussed both within the US and also geographically. It is
18:04
Speaker 3: interesting that the market's been very on geographic, has been
18:08
Speaker 3: very specific where it's gone. There's no doubt money is
18:10
Speaker 3: also a little bit of money. We're into Europe as well,
18:12
Speaker 3: but that doesn't have the earnings growth and the economic growth.
18:15
Speaker 3: But the US has had exceptional earnings growth. And I
18:19
Speaker 3: think the other thing people are starting to be cynical
18:21
Speaker 3: about is we've got to run in We know that
18:24
Speaker 3: the president is going to try and stimulate the economy
18:28
Speaker 3: and benefit the people of America running into the midterms,
18:32
Speaker 3: but the evidence on how these midterms are going to
18:36
Speaker 3: play out as becoming more and more convincing that at
18:40
Speaker 3: this stage, and I know they're not until the first week,
18:43
Speaker 3: first Tuesday November, that the Democrats will gain control the
18:46
Speaker 3: House at this stage.
18:50
Speaker 1: So looking at the wider market, the other I mean,
18:54
Speaker 1: obviously the over pricing of stocks typified by Wall Street
19:03
Speaker 1: and its narrow dependence on a handful of stocks is
19:07
Speaker 1: one issue in the market. The other I mean, a
19:09
Speaker 1: major issue has been the boom in private credit and
19:12
Speaker 1: that a lot of investors around the world have gone
19:14
Speaker 1: into private credit. It's come from a standing start. Really,
19:18
Speaker 1: I'm talking among retail investors now into private credit. They
19:22
Speaker 1: don't have the liquidity that public markets have, which is
19:25
Speaker 1: what everybody wants at times of stress. And it's a
19:29
Speaker 1: flashpoint right right now. It would seem to be a
19:31
Speaker 1: market that needs to prove itself. What has this affair?
19:36
Speaker 1: What do you think it will have an impact on
19:38
Speaker 1: this area private credit.
19:41
Speaker 3: I was in the United States in September and came
19:44
Speaker 3: back and said, we have to review private credits. Everyone
19:47
Speaker 3: I spoke to over there have a wealth management firms,
19:51
Speaker 3: and I saw one or two really big guys and
19:53
Speaker 3: the others also of firms like ours, which are more specialized,
19:56
Speaker 3: specialist ferms. They're all ringing the bell on private credit.
20:00
Speaker 3: I find it quite interesting that we've all rushed in
20:03
Speaker 3: here to the these global US funds, just as they
20:08
Speaker 3: were ringing the bell back then. We definitely reviewed everything,
20:13
Speaker 3: and liquidity has become very important. We just said we're
20:17
Speaker 3: prepared to put at leave a little bit of return
20:19
Speaker 3: on the table and make sure we've got liquidity, and
20:22
Speaker 3: we make sure that we're taking far more conservative starts.
20:25
Speaker 3: So we exited some sectors, some parts of private credit,
20:28
Speaker 3: like property we only had a little bit left, but
20:31
Speaker 3: we exited that completely. Anything that was just cash flow
20:34
Speaker 3: dependent as well, you know, not our set backed we
20:37
Speaker 3: exited completely.
20:39
Speaker 1: So that's very interesting. Tell me what you would say
20:42
Speaker 1: to the listener who hasn't diverse FOD portfolio. Do you
20:46
Speaker 1: think that's a useful strategy now? Do you think people
20:49
Speaker 1: should be building cash? Do you think they should be
20:53
Speaker 1: more conservative? Do you think they should have another.
20:54
Speaker 2: Didn't build cash.
20:55
Speaker 3: We're actually overweight diverse FI credit, but it's where we're invested.
21:00
Speaker 3: I think that's really important. Liquidity and we're in highly
21:03
Speaker 3: liquid areas of the market and we've gone very conservative,
21:09
Speaker 3: have you.
21:10
Speaker 2: We haven't crossed the border.
21:11
Speaker 1: Is it just in this credit.
21:13
Speaker 3: In this space where were we became increasingly concerned about it?
21:18
Speaker 3: And and whilst we have we talked to fifteen different
21:21
Speaker 3: private credit funds, including all these US funds, and in
21:25
Speaker 3: the right time, these US funds are very good, but
21:27
Speaker 3: we haven't put any money into any of them. And
21:31
Speaker 3: be careful when they talk about or you're someone tells
21:36
Speaker 3: you these evergreen structures are semi liquid. We've always referred
21:41
Speaker 3: to evergreen or semi liquid as variable liquidity because the
21:45
Speaker 3: liquidity is there to ex to the extent that it is.
21:49
Speaker 3: They usually have a liquidity window of five percent per quarter.
21:53
Speaker 3: Blackstone came out two days ago, I think it was,
21:55
Speaker 3: and said that the redemptions for the last for the
21:57
Speaker 3: December quarter were seven point nine percent, so they funded
22:01
Speaker 3: that differential through inflows. And I actually heard Blackstone talk
22:07
Speaker 3: here in Australia last week. They said that they believe
22:10
Speaker 3: that there's some funds out there with fifteen percent redemptions
22:13
Speaker 3: last quarter, meeting that through inflows. So whilst some parts
22:17
Speaker 3: of the market have been really concerned, like the US,
22:19
Speaker 3: there's some other parts that you are supporting these funds.
22:24
Speaker 2: Therefore, sorry, yes, we'll My only.
22:27
Speaker 3: Advice and I'm not giving I'm giving general advice only
22:30
Speaker 3: is make sure you are with big names. There's some
22:32
Speaker 3: big names out there that know how to manage this.
22:35
Speaker 3: There's some smaller ones that I hope they don't lock up.
22:39
Speaker 3: But you just be careful.
22:41
Speaker 1: The deep pocket that can fund the outflows within flows
22:45
Speaker 1: that for a longce they're supposed to be investing it.
22:47
Speaker 1: But I hear what you're saying. I suppose Adultarek, who
22:50
Speaker 1: you knew, was on the show. I think it was
22:51
Speaker 1: just a week ago and he just said, same sort
22:54
Speaker 1: of thing for the everyday investor. When you're going too
22:57
Speaker 1: the private fund and they say you can have your
22:58
Speaker 1: money out quarterly, there's fine print there always and they
23:05
Speaker 1: can lock it up. They can stop or freeze it.
23:07
Speaker 1: The biggest names in town can freeze it. And you know,
23:10
Speaker 1: just keep that in mind. Share market never freezes, right
23:12
Speaker 1: unless things are extraordinarily dramatic. You'll get your money out
23:16
Speaker 1: in particularly in funds in the share market if they
23:20
Speaker 1: are listed right, because the low always find a matching
23:22
Speaker 1: trade nine times out of ten. That is not the
23:25
Speaker 1: case in private credit where they have basically run their
23:27
Speaker 1: own machines. All right, I have some questions and want
23:30
Speaker 1: to put to you will from listeners, just more broadly
23:33
Speaker 1: on the markets. From here then it's like it sounds
23:36
Speaker 1: to me like you're saying it's getting tougher. You need
23:38
Speaker 1: to be more conservative. The distinct risk in the market
23:42
Speaker 1: perhaps is oil. Not so much oil, but energy. That
23:46
Speaker 1: energy can kick in all sorts of fashion, not just
23:49
Speaker 1: in obvious ways, but in particular pockets, for instance AI
23:54
Speaker 1: stocks who are enormous energy users. That's a very interesting point.
23:58
Speaker 1: Also more broadly in terms of rates, the pressure is
24:01
Speaker 1: now upwards, really, isn't it? In every market off the
24:03
Speaker 1: back of and possibly an inflation. I don't know what
24:08
Speaker 1: Fast says to say spike, but I mean what prices
24:11
Speaker 1: could be an inflation re spike, couldn't they?
24:14
Speaker 2: Yes I can.
24:15
Speaker 3: And whilst I'm not expecting interest rates to rise to
24:18
Speaker 3: the extent that they did in twenty twenty two, just
24:21
Speaker 3: look back to what increasing interest rates can do do
24:25
Speaker 3: equity market.
24:26
Speaker 1: Yes, yeah, absolutely, all right, okay, folks, I think we'll
24:29
Speaker 1: take a break. I want to do some questions as well,
24:32
Speaker 1: and we have some very good questions from Eric and
24:36
Speaker 1: Peter and others back in a moment. Hello, Welcome back
24:43
Speaker 1: to the Australian's Money Positive podcast. James Kirby here with
24:47
Speaker 1: Will Hamilton of Hamilton Well Partners. So, folks, just looking
24:50
Speaker 1: back on those first two segments, I think if you
24:54
Speaker 1: are a seasoned investor, and even if you're not a
24:56
Speaker 1: seasoned investor, be aware of history, be very careful watching
24:59
Speaker 1: daily moviements on the share market.
25:01
Speaker 2: Here.
25:02
Speaker 1: This is an extraordinary crisis. This is a full scale war.
25:08
Speaker 1: No one knows where this goes, and certainly no one,
25:11
Speaker 1: absolutely no one knows how it ends.
25:13
Speaker 2: You can go.
25:14
Speaker 1: It's one thing to strike and start the war, it's
25:16
Speaker 1: a very difficult business to finish it. And similarly on
25:20
Speaker 1: share markets, there's such a bullish mood in the US
25:25
Speaker 1: that you know, when they got worried about the AI
25:27
Speaker 1: stocks being overpriced, they didn't leave the market, they just
25:30
Speaker 1: swung to traditional stocks. But that bullish mood can turn
25:33
Speaker 1: on a dial, and oil is certainly the It's like
25:38
Speaker 1: the vis. Oil is what you got to watch here
25:42
Speaker 1: in that as a symbol of how much trouble we
25:44
Speaker 1: could have from this point on. But I will certainly
25:47
Speaker 1: not underestimate in any fashion, regardless of what market's do
25:51
Speaker 1: today or tomorrow. These the depth and potential risks for
25:55
Speaker 1: investors in a crisis like this. Okay, first question from Peter.
25:59
Speaker 1: I've in turns on the interpretation of private credit. Not
26:04
Speaker 1: all private credit is bad. You give your money on
26:09
Speaker 1: trust with no guarantee of return. However, we all buy
26:13
Speaker 1: shares that can do the same thing. The recent program,
26:17
Speaker 1: and this actually was our program with Doug turette Turek,
26:20
Speaker 1: it was based on fear. I've been a customer and
26:23
Speaker 1: he mentions Balmain Private for years. I hold him in
26:25
Speaker 1: high regard. I believe interviewing one of their principles would
26:32
Speaker 1: be illuminating. Okay, thank you, Peter. Balmain Private, yes, folks,
26:36
Speaker 1: you probably know. They are a secured mortgage operation and
26:41
Speaker 1: they have an excellent track record and I'm quite impressed
26:44
Speaker 1: with them.
26:44
Speaker 2: Disclosure disclosure.
26:46
Speaker 1: Yes, I use them in my own SMSF and half
26:48
Speaker 1: for years and they are very reliable and they've had
26:51
Speaker 1: very good returns. I think like nine or ten percent
26:53
Speaker 1: a year. It's a bit I won't say messy, but
26:55
Speaker 1: it's a bit of a laborious where all this stuff
26:57
Speaker 1: comes in little dribs and praps from each particular investment
27:00
Speaker 1: they make. But sure, but would you classify that, first
27:03
Speaker 1: of all as private credit? Is that what we're talking about?
27:06
Speaker 3: Well, it's one part of the pool there's.
27:10
Speaker 1: That would be that it would be the safest part.
27:12
Speaker 1: Would that be fair to see?
27:14
Speaker 3: It's an area where I've sort of been more concerned
27:17
Speaker 3: about liquidity is I think is the absolute tea at
27:23
Speaker 3: the moment. But you know, look, they've done very well.
27:25
Speaker 3: We don't use them, so we know them a little bit.
27:28
Speaker 3: But I think that you've got to look at be
27:32
Speaker 3: able to be comfortable that And this is the one
27:34
Speaker 3: thing that we we stress to people remembering if it's
27:38
Speaker 3: a single asset loan and you know, things like this
27:40
Speaker 3: aren't there. That's a pool of loans, but single asset
27:42
Speaker 3: lines have one hundred percent downside first of all. Secondly,
27:45
Speaker 3: have you looked under the bonnet?
27:46
Speaker 2: Are you? Do?
27:47
Speaker 3: You actually know what you're investing your money in? And
27:51
Speaker 3: that's really important to us that we can look under
27:53
Speaker 3: the bonnets. And I think that's really important and make
27:56
Speaker 3: sure that manager allows you to do that.
27:58
Speaker 1: I'm privately is it to see the private credit in
28:01
Speaker 1: Australia is very much based on property. By finding the
28:03
Speaker 1: global sense and the US sense, it's much wider and
28:05
Speaker 1: more diversified.
28:07
Speaker 3: Correct, I'd say the most the largest area offshore is
28:11
Speaker 3: probably lending private equity. Actually, yeah, providing that leverage you
28:16
Speaker 3: have a very different game.
28:16
Speaker 1: But would not be would you not be reassured by
28:19
Speaker 1: the presence of hard assets in areas version of private credit?
28:27
Speaker 3: We is it residual stock or on with respective property
28:34
Speaker 3: or is it development? We've avoided development completely in property
28:38
Speaker 3: at the moment, so we've exited that. Absolutely, we aren't
28:41
Speaker 3: putting any more money into property at the moment whatsoever.
28:44
Speaker 3: If there is residual stock, we haven't redeemed on that.
28:47
Speaker 3: But yeah, we've been very selective on property at the moment.
28:51
Speaker 3: We and the whole private credit area as I.
28:54
Speaker 1: Mentioned, okay, and folks, there is bonfires all the time
28:59
Speaker 1: and we're seeing the yes, okay, Well, I suppose that
29:02
Speaker 1: the issue is for local investors the nature of who's
29:07
Speaker 1: who in this game, and it is a new game,
29:09
Speaker 1: and as well says stay with the big names or
29:11
Speaker 1: certainly people with whom you are utterly convinced by. I
29:15
Speaker 1: say this because there's been spotfires across the market, and
29:18
Speaker 1: if you watch every couple of days, it seems there
29:21
Speaker 1: is a private credit outfit in trouble of one sort
29:25
Speaker 1: or another. The issue so far, hopefully is that none
29:29
Speaker 1: of the major players have had to have dramatic redemption freezes.
29:36
Speaker 1: But if that comes, that will be the big test
29:39
Speaker 1: of this market. Okay, thank you very much Peter for
29:41
Speaker 1: your question. This is always information not advice, all right, Eric,
29:46
Speaker 1: longtime listener, Thanks for all the work you do for
29:48
Speaker 1: financial education. Thanks Eric. General advice of course here. But
29:52
Speaker 1: I was wondering if you could talk a bit about insurance.
29:55
Speaker 1: Most of the information online is written by brokers, yes,
29:58
Speaker 1: indeed it is. What are you thoughts on disability insurance,
30:02
Speaker 1: life insurance, income protection insurance? Does everyone need them? Brokers
30:06
Speaker 1: seem to imply they do, But what roles should they
30:09
Speaker 1: play in an overall financial plan?
30:11
Speaker 3: Now?
30:12
Speaker 1: Will This is asking you to come right down, to
30:14
Speaker 1: come right down onto the runway from being pretty high
30:16
Speaker 1: up on the sky in terms of what we're talking
30:18
Speaker 1: about global global investments. But hey, everyone has faces the
30:22
Speaker 1: same issue. Personally, I'm extremely skeptical of income protection insurance.
30:27
Speaker 1: I think people should review it every year and test
30:30
Speaker 1: it hard whether they need it. And even life insurance.
30:33
Speaker 1: I also believe as you get older, especially if you
30:36
Speaker 1: have your own super, there's a point at which you
30:39
Speaker 1: may not need to pay it anymore. That's sometimes seen
30:42
Speaker 1: as debatable. There's my twopence worth for you, Eric, what
30:46
Speaker 1: do you say will?
30:48
Speaker 2: So we don't do insurance, but we refer on to
30:51
Speaker 2: you kind of must do it early.
30:52
Speaker 3: Or advice on this bass. We have discussions with plants
30:56
Speaker 3: on that. So it depends on one year age. And
30:59
Speaker 3: I sudized that a list that are over fifty and
31:01
Speaker 3: they do have these insurance, we have insurance premiums in
31:04
Speaker 3: these areas. They'll notice that the minute you go over fifty,
31:07
Speaker 3: the step up, the step up and these premiums is enormous. Secondly,
31:11
Speaker 3: what is your the set? So what is your age,
31:14
Speaker 3: what are the premiums paying? What is your asset base
31:17
Speaker 3: and what is that? Is that sufficient to provide the
31:20
Speaker 3: income you need? So they can become a point in
31:22
Speaker 3: time that you can self insure. And so the people
31:26
Speaker 3: that we deal with, what's one thing we would like
31:28
Speaker 3: that we want them to have a conversation with our
31:31
Speaker 3: clients about have they at a level where they can
31:34
Speaker 3: self insurre or is there a point where they unfortgether
31:36
Speaker 3: they need to continue to pay these premiums. So it's
31:38
Speaker 3: not one size fits all, but self insurance is something
31:42
Speaker 3: that you know, people need to consider at some point
31:45
Speaker 3: in time if they've got the asset base.
31:48
Speaker 1: And folks, no insurance broker ever will say that to you, Okay,
31:54
Speaker 1: I mean really, unless they're planning, unless they're planning to
31:56
Speaker 1: retire themselves, they're not going to say, you know what,
32:00
Speaker 1: actually you don't need annie. Don't want to be flippant here,
32:03
Speaker 1: be really careful. We're not talking about everyone every time,
32:06
Speaker 1: but we are saying, if you are an investor and
32:08
Speaker 1: you have accumulated investments, and you own your own home,
32:11
Speaker 1: and you have a substantial amount in super, or you
32:13
Speaker 1: have enough in super that you know that if you'd
32:15
Speaker 1: stopped today you could pay you the income you were
32:19
Speaker 1: hoping to have. What are you insured? What are you
32:21
Speaker 1: paying life insurance for? Especially because it is absolutely goes
32:25
Speaker 1: through the roof once you're over fifty. All right, terrific,
32:29
Speaker 1: Thanks very much. Will great to have you on board
32:31
Speaker 1: this morning.
32:33
Speaker 2: Thank you, James. Great discussion, great show.
32:34
Speaker 1: Was always all right, thank you and thanks everyone for listening.
32:37
Speaker 1: Today's show was produced by Leah Sam mcglue. And keep
32:40
Speaker 1: those terrific questions, observations, comments and criticisms if you like
32:45
Speaker 1: Rolling the Money Puzzle at the Australian dot com dot
32:48
Speaker 1: au and do leave us a review on the Apple
32:52
Speaker 1: podcast app. We would love to see some fresh ones
32:55
Speaker 1: on there. Okay, talk you soon.
33:00
Speaker 2: The Wood, The
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Speaker 3: S