Welcome back to The Rate of Change with York
Wealth Management. As advisors to some of the
wealthiest families in the country, The Rate
of Change is a podcast designed to help you in
the pursuit of burning long -term wealth through
the insights of some of the brightest minds in
asset management. I'm your host, Murdoch Gaddy,
and in today's broadcast, we're bringing you
something a little bit different. Introducing
Quarterly Insights with Jason Coggins. I think
you're really going to benefit from Jason's perspectives
and for those unfamiliar with Jason, he is one
of the leading industry minds in strategic asset
allocation, wealth management and economics.
He's worked with some of the biggest names in
the industry from the banks, ANZ, CBA type of
very, very wealthy wealth management firms, Cota
Capital, and currently advises five major institutions
and family offices. We're very fortunate to have
him as the Investment Committee Chair at the
Heysen Wang Family Office and Initium, with whom
York Wealth Management is proud to be partnered.
This Insight Series focuses on strategic asset
allocation. and macroeconomic themes. If you're
a client of York and you were lucky enough to
join us live last week, I really hope you found
these insights as valuable as we did. If you're
not a client and would like to attend future
strategy sessions, as this current episode will
always be a delayed release, feel free to reach
out and we'd love to have you at our next quarterly
live broadcast. We're also pleased to introduce
our soon -to -be high net worth family client
advisor, who is currently an associate, Anthony
Adlam, who will be introducing and organizing
the Insight Series going forward. Before we get
into the conversation, please remember this broadcast
is made for entertainment purposes only. Past
performance is not a reliable indicator of future
returns, and today's discussion is intended...
to help you better understand the lay of the
land and what's currently happening in the world
and where you should be thinking about allocating
your assets going forward. It is not personal
advice. If you need advice, just reach out and
we'll help you work with you in your portfolio.
I encourage you to listen to the disclaimer at
the end of the broadcast and as always, keep
your feedback coming. You can reach me at mgatty
at ywm .com .au. With that being said, I hope
you enjoyed this conversation as much as we did.
So sit back, relax and enjoy it. Everyone to
insights with your wealth management. My name
is Ed Natham. I'm an associate here at York Wealth
and I'd like to extend a thank you to all of
us for you joining us here today, not only the
families and individuals as well, to this forum.
Now, today we're lucky enough to be hearing from
Jason Coggins, Investment Committee Chair at
Amishian Capital and the Hayson and Huang Family
Office. Furthermore, we're also joined by Murdoch
Gaddy, as you can see in his strings here, founder
of York Wealth and host of the podcast Rate of
Change. We felt that given the current climate
we're experiencing, not only financially, markets,
but politically, pending the current election
as well, it was more important than ever to open
a forum such as this. Furthermore, we'll be seeking
to run this sort of asset allocation strategy
session monthly, designed in the sort of assist
in the pursuit of building our portfolios holistically.
Now, our conversation this afternoon is directed
to current events, covering a wide range of topics
such as... Globalisation in reverse and Trump
and his tariffs and the like. And then obviously
RBA cuts, imminent Australian property outlooks
and the upcoming election impact markets as well.
Also, we'll delve into many of the standards
that Jason and Murdoch may explore during the
conversation. And we look forward to seeing what
gets unpacked along the way. Just in terms of
housekeeping today as well, given the interactive
nature of the session, if you do have any questions
during the discussion, feel free to drop them.
There's a chat box located on the right of your
screen there. Feel free to drop them in there,
or there's a typing option available. Also, if
you can just wait to the end as well, when we
do open up the forum, you can save them there
for Jason and Murdoch as well. We'll be addressing
some of the pre -submitted questions that was
available via our registration form as well,
so that'll also be looked at in time. And then
we'll open the floor up in an open forum as well.
Regarding technical issues that anyone may experience...
feel free to message me directly. I'll assist
as best I can once we get the discussion underway.
But without further ado, I will hand over now
to Murdoch and Jason. So, gents, take it away,
Murdoch. Welcome, everyone. Glad to have you
with us. Jason, why don't we kick off like we
always do in the podcast and tell everyone a
little bit about yourself, what you've been doing
for the family office and what you're currently
doing now. Hi everyone, thanks for taking the
afternoon to listen to this podcast. So again,
we're going to make this interactive. So look,
for the past 20 years, I've been involved in
financial services, primarily in investing, consulting
and researching. So in the last 10 years, I was
at a private wealth firm. quite a large private
wealth firm nationally, where my colleague and
I built out the investment capabilities. So that
started with a blank sheet of paper. It involved
creating a philosophy, identifying investments,
traveling the world, and most importantly, talking
to clients and making sure that those investments
are applicable and right for them. Before private
wealth, I was at ANZ, where I led the advice
research team. which included a whole lot of
advisors at one point over 2000. And before that,
consulting, institutional asset consulting. Thanks,
Jason. Why don't we always kick off with the
elephant in the room, the fun one. There's been
a very, very large shift in government over in
the States that everyone's aware of. I think
one client joked to me that after he watched
Squid Game on Netflix that it kind of feels like
red light, green light. You go to bed, you think
it's one way, then you wake up, you know, it's
completely done a backflip and it's just changing
red to green on the screens continuously. So
I think we're discussing, Jason, you mentioned
that you think globalization is now in reverse.
So with all these changes coming through, you
know, where did we actually stand, you know,
from an asset allocation perspective? What's
currently happened and where do you think it's
going? So, look, I wouldn't go so far to say
it's reversing. It is ultimately changing. Now,
I also think we need to look at the context in
how the president, President Trump, negotiates.
Now, you don't have to like the guy and a lot
of people don't, but he has a very unique approach,
almost bullying into what he does. Now, what
I would caution is what he says one minute will
ultimately change. And it's almost to get everybody
confused. And then therefore he has an apparent,
you know, lift in negotiating. Right. So I think
what ultimately occurs is very different to what
he says initially. Now, I do think what you will
see and what you've already started to see, right
or wrong, the US believes it's got the short
end of the straw in terms of trade, has a lot
of free trade with other countries. It's not
reciprocated. And so I think what they're trying
to do is get some quick wins. I wouldn't look
at the rhetoric and say they want to. produce
iPhones or they want to produce textiles in the
US. They're simply making a lot of noise and
they want to renegotiate trade deals. Now, if
you saw where the first tariffs came out, there
was about 20 countries seeking access to the
White House to negotiate fairer trade. That's
really what I think. So I don't think it's in
reverse. I do think what you will see, and this
has really been happening for, you know, since
its first term, is you're very likely to see
supply chains globally alter. And instead of
having a single global supply chain, which was
based in China, you effectively are going to
have regional supply chains. So you'll have a
supply chain closer to the US. You'll have a
supply chain closer to the Middle East. You'll
have a supply chain closer to Europe. Now, the
issue... is moving from one supply chain to multiple
supply chains and even ignoring the cost to develop
that. That will be inflationary. So I do think
while inflation is coming down, it's definitely
down from the peaks, inspired by COVID, supply
chain disruptions, and also the Ukrainian war.
Inflation has come down, but I think it is ultimately
sticky with tariffs and changes to supply chains.
So the one thing between you and I, the thing
when I'm allocating capital that's just quite
been on my mind is like, what does this actually
mean? So when you say that, you know, the Trump
government has said a whole bunch of crazy stuff
to bring people to the table and start renegotiating,
a lot of the biggest question was, okay, where
did you get the percentages from the tariffs,
right? But can you explain to me? Take Japan
as an example. Japan may have very low percentage
tariffs, but I think Donald Trump even said if
you try to sell rice back into China or say,
take Australia, everyone's like, oh, you should
never have stuck a tariff on Australia. But he's
like, hold on a second, US can't sell beef into
Australia. His argument was something along the
lines that they... Technically, these countries
do have tariffs, but they're not technically
a tariff. They're like a firm barrier to entry,
and it's only like one way. Like the Japanese
can sell whatever they want, cars, you name it,
straight in one way, but it's not reciprocal
the other direction. So can you explain that?
And potentially, the other thought I'm having
is when we're looking at a lot of, say, these
companies, US, and you're talking about how they
restructure and how things change, is this going
to necessarily... change the profitability of
these companies or the capacity, the ability
for them to actually do business in particular
countries? You know what I mean? That's essentially
what I'm thinking. Yeah, so back to my first
point. I don't think he's looking for a complete
reorganisation of globalisation. But to your
point, it's exactly that, right? So, you know,
there are trade barriers that are set up despite
of having free trade. And so that's his focus.
Now, to your point... what does this mean for
investment implications? Now, I don't think you
want to be second guessing or predicting how
policy will evolve. But at Initium, we spoke,
you know, late December, early January to frame
up some of our views on markets. And we had three
core themes that we thought we should look at.
And this becomes important in the context of
what happens in the US and whether or not profitability
stays up. So the first theme that we had, we
wanted to be underweight US dollars. and we want
to be overweight rest of the world. I think after
trade, he will then go for an orderly managed
accord to have a lower US dollar. That is really
the only way to support US trade. The second,
we saw two standard deviation, three standard
deviation, extreme valuations in the US market
versus the rest of the world. And we viewed having
an underweight position to the US market. not
a 0 % weight, but an underweight position. Remember,
the US market was 75 % of the misky world. It
was huge. It was overrepresented. We thought,
particularly with the German election in the
first quarter of the year, that Europe looked
cheap and Asia looked cheap. And lastly, particularly
given the massive growth in index funds with
the preference to be invested in the US market,
huge amounts of flows. were being directed into
the mega caps in the US. And we said it's probably
time to down weight those. So non -USD, rest
the world over the USD, and then also non -mega
caps. Now, to your point, what does it mean for
US companies? The reason we took that view was
you can't predict what will happen. But where
US valuations were, you were not being paid up
to take the risk, right? valuations were so high
that if something went wrong, the market was
going to fall quite heavily. Now, we knew tariffs
were coming. That was the campaign on that. One
of the events that I don't think we saw coming
was deep seek and AI, the progress that China
has made. And that really threw a spanner in
the works around valuations of the big AI companies
in the US. Now, that's not to say they are very
high quality, but when they're trading at 30,
40, 50 times earnings, there's not much room
for error. Yeah. So can you explain a bit more
the potential opportunity in Europe? Because
we're talking about, if you think about Europe,
right, everyone thinks about how the banks fell
over. You know, the pigs are horrible. You know,
there's debt everywhere. You know, there's bureaucracy
and people can't, you know, actually manage Greece
properly. But we've had a conversation and you're
saying that potentially the opportunity lies
in Europe. Do you want to give a bit of colour
around that in the thinking? So there's a couple
of angles here. So after the banking crisis with
Portugal, Italy, Greece and Spain, there's been
a lot of reform in some of those countries. So
I would now say that Spain and Greece and Portugal
are showing much stronger rates of growth and
much stronger rates of reform than what we see
even in Australia. So how things change, and
it changes pretty quickly. Now, what Europe does
in times of crisis, they do work very well together.
And so they are increasingly working together.
You also had the German elections, which resulted
in a very pro -fiscal stance. So if you think
about the German DNA, they don't like deficits
and they don't like inflation. And so they have
had a very balanced budget since World War. Now,
what they've committed to doing. because growth
is so slow, is really having a massive fiscal
spending program. And this is not just in defence.
This is across the entire economy. So when you've
got... And then you've got the other countries
who are endorsing that within the EU. So even
if, you know, Germany recorded, you know, massive
deficits, larger than what we see in most countries
now, they could do that for five to ten years
and still be the second lightest geared... country
from a fiscal perspective. So there's a lot of
capacity there. So I look at the region as a
whole. You know, I think France just does its
own thing. It's not really interested in growing
or reforming. You've got Germany who's going
to spend. You've got Italy who's, you know, it's
an older population, but there's definitely a
reformist element in that government. And in
Greece, Spain is booming and Portugal. So I think
it's an interesting market. Look, the market
has rallied substantially. So that was one of
the things we thought would happen. It was really
dependent upon the German election. I still think
relative valuations are still pretty cheap. I
mean, a lot of companies have gone up significantly,
but I think that fiscal boost over the next couple
of years is going to be very powerful. So we've
seen a lot of the banks, like in the UK, Barclays
Bank, and a lot of the banks actually put on
some serious returns. I think Barclays is up
somewhere nearly 80 % for the past 12 months.
But inside Europe, what specifically are the
subsectors that are of interest in Europe? Look,
I try not to take an overly micro approach to
things. So, you know, my role is to be very macro
driven and find strategies. But really, if you
think about what's happening in Europe, there's
economic reform. So that's broadly positive for
the entire market. You've got population growth
and you've got defence spending. So there's some
of the key themes you would expect portfolio
managers to look at. But I think, you know, it's
a rich hunting ground. that market. A lot of
people have spent a lot of time in the US. I
think every portfolio in the domestic space here
is overweight US markets, by and large, because
it made up such a large part of the index. But
there's interesting companies in Germany. Now,
if we go to China, for example, whether or not
the market's investable or not, it's rallied
a lot this year on its ability to demonstrate,
whether or not you believe it or not, that they
can do AI with a hundredth of the cost and a
quarter of the processing speeds for chips. Now,
I've always had the view on China. It's very
dangerous to bet against China. Now, that doesn't
mean you have to have an investment in it. It
doesn't mean you have to have a large investment
in it. But if you think about the top 1 % of
people in China, being entrepreneurs, being scientists,
being engineers, and compare that to the top
1 % in the US, they are as good, potentially
better. So the innovation capability within that
economy, it would be very dangerous to ignore
that. It's interesting you mentioned the economy
in China over the past 30 years. They went from
rice farmers to an extended large part of the
population. They just completely built up the
middle class, you know, the expensive, say, the
US class. So I think the biggest, what I'm hearing
right now is a lot of the reform essentially
is dictating which way you think the wind's blowing
based on a macro component. Is that fair? And
where I'm going with this is... If other governments
are thinking from a reform perspective, the only
way to fix their economy is to essentially help
build up their middle class right across the
board, just like what China's done for the past
number of years. Do you think that strategy is
actually going to help the middle class and will
that overflow to Australia or bring back manufacturing
and that type of thing or just a long journey
ahead? No, so I think China, in saying quite...
positive of what's happened in the last year
in the market uh it still has very large structural
issues right so a very aging population significantly
aging population uh you've got large amounts
of debt levels in some parts of the economy uh
you've got a lot of idle infrastructure and you've
got the dreaded deflation and so when your population
and you've got you know people not really having
children so it's it looks like a deflationary
uh time bomb And we saw that happen to Japan
over 20, 30 years. But it is a very large economy.
Now, on the idea that we can recreate our middle
class, Australia is not going to be able to do
that through manufacturing. We don't have a comparative
advantage in that. We don't have the size of
the population. And we are very far away from
the rest of the world. The only way to restore
the middle class is through economic reform.
removing the impediments of doing business in
this country, making it easier to employ people,
making it easier to build and develop things.
Now, unfortunately, that has been absent in Australian
policy for the good part of the last two decades.
Speaking of Australia, we've got an election
on. A lot's been happening the past three years.
You know, what do you think is going to happen
there? Do you think potentially whoever gets
in are going to make those reforms to benefit
Australians? Or is this the same on the same
again? And what do you think is happening for
the Australian election? So in saying that, I
shouldn't be too hard on Australia. The economy
is still doing okay. I think that, you know,
one thing that we're very good at is population
growth. And so we have a naturally increasing
population over time. I think when you want to
invest in Australia. you know, the top 20 companies
don't look that interesting to me. You have this
very interesting concept in Australia. The large
superannuation inflows every month that we receive,
you know, 20 % to 30 % of that makes its way
into the ASX and that makes its way into the
top 20 companies. So we call it the lowest cost
of capital in the world, right? Because these
companies just, they stay at high valuations
because there is so much money coming in the
market. Despite... The ASX, for example, this
will be the third consecutive year where the
ASX 20 earnings have gone backwards. Now, I think
where some of the more interesting things in
the market is where the super funds can't play.
Despite not having productivity reform, you know,
our small companies, our universities, and our
entrepreneurs still punch above their weight
globally. So I think certain segments in smaller
mid -caps in the Australian market is very interesting.
And then also some of the more private equity,
private market plays, where you're really in
that lower mid -market segment, where you're
not competing against, again, big super funds
or institutional investors. So there's opportunities
here, but like any market, you have to be extremely,
extremely selective. The one thing we talk a
lot about in the Australian market is private
credit. We dig into this quite a bit. We've discussed
a number of the major players in the Australian
market on the podcast as well. But my question
is, considering, as you mentioned, the ASX, what
on average returns something like 8%, some of
these private creditors and private lenders are
doing 10 % higher for asset -backed, less volatility.
Do you think the private credit Australian market
is better than the international market from
a regulation of robustness? And do you think
it's here to stay? Is there any risk associated
to this particular space? Okay, so before I answer
that, I'm going to say that I work with a few
groups, families and some other wealth managers,
and people have different views on this. Now
I'm going to be very clear, very, very, very
clear. I think there's a role for different...
assets in portfolios. So I think the debate private
credit versus liquid credit versus offshore private
credit misses the whole point. Now, I will be
on record to state that I'm very bullish on local
private debt. Now, if you think about what local
private credit is, it is bridge financing by
and large. And by and large, it's 80 % asset
-backed lending. So it's against a physical hard
asset like a property. or a shopping centre,
or an office tower, versus cash flow lending
to the corporates in the small to medium -sized
range, which is probably a little bit more risky.
Now, if I think about the Australian market,
it's still largely in its infancy. We have, and
what I mean by that, it's still relatively new,
and so the inefficiencies within that market
is really great. Now, despite all the hysteria
in the media, and I think these are... probably
competitors to the asset class, making a lot
of noise. We have not seen any systemic risk
in the asset class. We have not seen any instances
of poor underwriting. We have not seen any instances
of declining underwriting. And we have not seen
many instances of default rates. Now, people
can claim that the asset class hasn't gone through
a stress point or a cycle. Yes, it has. This
asset class was around. pre -COVID. It was around
during lockdowns. It was there when we were closed
off to the world. And it was there when we had
a rapid normalization of interest rates from
zero to 4 .6 % or wherever it was. So the asset
class has been tested. Now, the most important
thing, and I think this gets missed by some of
the journalists who are trying to get a gotcha
moment. The fact of the matter is that this asset
class has two massive structural tailwinds that
are permanent. One, the economy needs lending
and banks simply aren't going to do it in certain
segments because they haven't trained underwriters
and they haven't done it for a long period of
time. So the economy needs lending to grow. That's
not going to change. And second of all, as the
demographics change, as we get older and as people
move to retirement and deaccumulation, they will
want higher income. Now, one final aspect on
the dynamic of Australian private credit, it
is by and large bridge financing. It's not long
-term loans. It can be anywhere from six months
to 12 months to 24 months. That's important for
a number of reasons. If you lend on a seven -year
basis, things change. A sector may not be around.
Inflation may go from really high to really low.
You know, we may have a prolonged recession or
the asset just deteriorates. Bridge financing,
shorter term. not as many things can go wrong.
Now, lastly on private credit, Australia has
some of the best credit protection rights in
the world. It's universally regarded. When a
loan goes pear -shaped, the key is to fix it.
And so the discussion should not be around whether
or not private credit is systemically sick. It's
actually you want a manager who can go in and
get their hands dirty and fix a loan and do it
quickly. It's asset -backed. You don't want to
see that deteriorate. Now, that's very different
to the US market where you have Chapter 11 and
you have no control and it's extremely value
destructive. So there's some really unique attributes
of Australian private credit. The structural
thematics are there. People want income. People
need lending. But in saying all of that, it's
not one or nothing. So a lot of the discussion
has been... don't have private credit because
you should be invested in listed credit. I think
that misses the complete point and it's more
around competitors trying to position their own
product. That makes a lot of sense. You said
that was the last thing on private credit, but
one of the biggest questions that we get from
clients is people keep... So the RBA keeps discussing
rate cuts. You know, you did say it did supply
practically zero. It's gone back up. You're talking
about it coming back off. You know, what does
potential rate cutting schedule look like, say,
for, you know, Aussie equities, the Australian
market property and, you know, same thing, private
credit. What does that look like? Let's start
with private credit and let's then go into bonds
and then we'll go to equity markets and not.
So look, private credit, interesting. So private
credit. And apologies for the jargon, it's not
typically a spread product. So when you have
a mortgage, interest rates are cut, your cost
of interest goes down. It's not how private credit
works. Private credit is typically a fixed rate
asset class, and it is less influenced by interest
rates. It will charge for some type of bridge
financing anywhere from 6 % to 12%, and that
will be largely independent of the interest rate.
uh cycle or where interest rates are and really
largely reflective around how much the asset
is worth and how much value is going to be created
by lending to it so interest rate sensitivity
to private credit is not really there where it
becomes interesting if term deposits come become
lower. If alternatives to private credit become
lower, then private credit becomes more advantageous
and its role in a portfolio is very important.
In terms of traditional bonds, absolutely traditional
bonds might have a role in a portfolio. I think
if we look at what the RBA is likely to do, looking
at the forward implied curve, which is simply
a measure of what the market is expecting the
RBA to do, this may shock some of you, but Four
months ago, it was forecasting two rate cuts
this year. As of May, the forward curve is implying
nearly five rate cuts. More likely four, but
nearly five rate cuts. Now, that's probably more
of a reflection of the uncertainty around trade,
tariffs, noise, geopolitics. But the market is
really getting ready to factor in four to five
rate cuts. That would be advantageous to bonds.
It would be advantageous for all card assets.
So property, you know, particularly will benefit
in that cycle. You know, more broadly in property
markets, we've seen a massive underbuild, not
just in residential, but, you know, things like
shopping centers, things like office towers.
You know, the replacement costs are very high.
We haven't built much. And a lot of these, you
know, their cap rates went up. When interest
rates went up, IE valuations went down. If interest
rates come down by 100 to 125 basis points, bringing
the cash rate to below three, that's going to
have a huge, powerful impact on property prices
in this market. Yeah, it's so interesting how
it all goes in together. So with the bonds and
then we rotate into property, just on the bond
point you mentioned, I think I can't remember
the gentleman's name, the current treasurer of
the US. He mentioned that something like he got
the bond rate down from five to four. then essentially
the deficit, the debt which has to be paid back
purely in the interest is something ridiculous
like, was it $100 million? It was something insane.
And then, what, the next day you saw the largest
bond trade in history when, in a sense, China
gave the middle finger and essentially said,
we're not going to let this happen. You know,
what is the impact of, and will they even let
it happen, you know, for that 10 -year bond rate
to essentially fall? And what does that mean
for, say, you know, the impact on Australia and
Australian property? Yeah, so look, I think,
again, it's all noise. I mean, when the tariffs
were first announced, the currency in the US
was more volatile than it's been in 20 years.
The 10 -year yield curve or 10 -year bond moved
the most in a day since the tech wreck in the
2000s. And the 30 -year bond rate moved the most
in a week than it ever has since the 1980s. Wow.
This is not what first world countries do. This
is what emerging markets do that are on the brink
of default or politics is out of control. So,
again, I think it's unorthodox. I think he creates
noise to start the negotiating tool. His first
deal, the office, is not the end. It's the starting
point for negotiations. I do think, look, the
interesting thing is, and I was looking at some
stats today. You've had bond yields come down
substantially everywhere around the world. Even
in Germany, we've got that massive fiscal spending.
Even in the US, we've got instability. It's around
the concerns around growth and concerns around
tariffs. But interestingly, at the same time,
the forecast that the market is expecting around
inflation expectations has risen substantially.
And so people are expecting higher inflation,
but they're expecting lower interest rates. So
that's inconsistent, but it could be people fearing
around that instability in US policy, but also
the dreaded stagflation fear. Yeah, it's very
interesting to see how this all plays out. So
when this plays out and the volatility and everything
settles, maybe a better question is, which everyone's
kind of thinking, you're looking at the market
today. right you know you've seen these play
-outs and a huge amount of volatility multiple
different ways and then all of a sudden uh they've
come out with the negotiations there's like a
90 -day hiatus on we won't impact these tariffs
everything's stable looks like the market's starting
to rally a bunch of green in the screens do you
think this is here to stay for a period or are
we pretty much like one headline away from it
all unfolding again. Like a lot of people are
asking, like, you know, it's definitely a, you
know, which way is the wind blowing type of question.
But from an asset allocating perspective, one
of my colleagues mentioned it's very, very difficult
to invest in this current market because you're
damned if you do, you're damned if you don't.
So I'm just wondering with everything playing
out right now, do you think it's kind of stabilized
a bit for the next couple of months or you sleep
with one eye open? I think market's always difficult.
to invest. I think structurally long -term, you
want to be in the market. I think timing the
market is inherently difficult and that's not
a cop -out. It just is. You can always have an
excuse of not investing in the market. Now, if
I look at the market now, everybody has a strategic
weight. You have your asset allocation and your
strategic weight to equity is maybe 10%. It could
be 20%. It could be 50%. I would say at this
point, you would want to be slightly less in
your strategic weight. And the reason I say that
is I think it's going to be volatile up until
February, March next year. And why do I say that?
I think he's got a lot to do. This is his final
term. The midterms are November next year. Now,
the Republicans will be very, very, very aware
that they do not want to lose their Senate majority,
53 to 47 for the Democrats. He will make a lot
of noise until the campaign starts for the midterms.
You know, they don't want to lose the House.
They don't want to lose members, effectively.
They've got the majority in the Senate, but they
don't want to lose, you know, he doesn't want
to be a lame duck president. And so I think a
lot of noise until February. I also think that
markets are expensive. You know, the US market
is not cheap. Maybe it doesn't deserve to be
cheap, but you're not. being paid up. And if
there's another bit of volatility, the market
can fall. So I think in this environment, you
want to be overly diversified. You want to have
some key thematics. And that's why we set those
three, non -USD versus USD, rest of the world
versus US market. more active, more small, more
mids versus large caps. I think you then want
to be opportunistic in allocating to things like
alternatives with much lower correlation and
much lower reliance on the market. I think there's
definitely an opportunity for private credit.
I think there's definitely an opportunity in
property selectively. And I think you just got
to look at every investment, but I think in terms
of broad market indices. and large caps and US
dollar investments, you probably want to be slightly
to moderately underweight. Thanks, Jason. One
thing we've been discussing here with the family,
which they do, as everyone knows, they do specialise
in the property space. But one thing which we've
seen, which has been so exciting to experience,
has been the changes in New South Wales, to your
point about, you know, the houses are expensive,
you know, middle class kind of fall into essentially
purchase. So they've come out and proceeded to...
put in zoning changes like across the board in
areas that you would never have thought that
would occur that was at 400 meters from essentially
a city centers and there's a number being named
and then practically overnight with the stroke
of a pen um some of these r2 or r3 dwellings
can now build to six to nine stories high when
it used to only be essentially a two -story da
allowed so can you give a bit of a color around
for the people in New South Wales that may have
missed it or the people that live externally,
what's actually changed in New South Wales with
the zoning and how that may impact property,
please. So these are called transport -orientated
development sites. Now, effectively, what we
saw over the last 20, 30 years is how difficult
it is to build things in Sydney, particularly
with local government approval. So with the stroke
of a pen, the New South Wales government implemented
a policy that I think it's within 200 metres
of a major transport corridor. You can build
six to eight storeys and within 400 metres, you
can subdivide without council approval. Now,
it is probably, I would argue, maybe the only
reform the entire country has seen in the last
decade. It is really the most powerful reform
to improve supply of housing. Now, it's kind
of under the radar. I would probably argue that
there's probably a lot of annoyed people in some
of the North Shore or the North Shore particularly.
Why do New South Wales feel they could do this
now? Now, if you think about the amount of investment
that is going on, particularly in the Sydney
Metro project. So now that the Northwest City
is opened, you'll then have Bankstown. which
is being completely converted to a metro system,
I think opening at the end of the year, early
next year. And then you have the giant one, Metro
West, which will go all the way to Parramatta
in less than 20 minutes. Now, this is very different
to a suburban rail network. These move people
around very fast and they enable a lot more density.
The fact of the matter is we had two options
in Sydney. close its new residence or build infrastructure
like this country's never seen which has been
you know we're halfway through the next stage
is then if you're building a 20 billion dollar
or a 40 billion dollar metro project you've got
to build apartments and high -rises around them
so i do genuinely believe this is a fundamental
race shape of of sydney it's a brave reform I
think there'll be a lot of pushback. It's been
enacted. There's going to be a lot of pushback
at the election. You're going to see some, not
the federal election, the state election, which
is some time away off. But it's an exciting change
and something had to be done. And you could have
governments pumping money into... silly projects
and spending $10 billion or planning to spend
$10 billion, but it actually achieves nothing.
This is a big reform and it was, I argue, it's
needed. There's probably a couple of people listening
in right now that it's either incredibly popular
for or not popular for. Could you imagine you
woke up the next day and essentially, depending
on the side of the street you are on, a particular
suburb, it's like your house went up. dramatically
in value or essentially you miss the boat by
like a metre. I'm hearing also as well the other
suburbs. I'm hearing also as well a number of
the people living in congested suburbs. These
things can go up. The number of cars coming on
the roads. The transport. The roads can't handle
the amount of traffic as well. Isn't it an infrastructure
problem as much as an opportunity for... The
key here is that these TDOs have been developed
around mass transportation systems. If it's an
existing train line on New South Wales trains,
if it's a new station for the Metro project particularly,
so you think about what's going to happen at
Crows Nest, North Sydney, it's going to be concentrated
in those areas and also major bus interchanges.
It makes no sense to have a Metro project at
Crows Nest and have... houses sitting on 600
square metres of a block, right? Population grows,
it's a fact. Yeah, it's great. Do you see this,
if it's successful in New South Wales, expanding
to the rest of the country? No idea. No idea.
Look, I think if you look at Brisbane as a single
council, Brisbane is pretty easy to do things.
So Brisbane is one giant council next to another
giant council, the Gold Coast, so it's pretty
easy to... Not pretty easy, but it's easier to
deliver. The problem here is if you propose something,
councils could reject it, and then there was
a way to get state significant development approval,
which was costly and hard and time -consuming.
So I think Sydney was unique in the number of
councils. Well, that isn't just fascinating.
The council was just removed. It's just like
we're making the decision at the top, and you
need to jump, otherwise you're not going to get
funding. And the question is how high. It's just...
And the most interesting thing, as you mentioned
in the beginning, I think there hasn't been a
change of this kind since the 1930s. And it was
like when the new airport came in, it was just
huge. But apparently, you know, our friends are
saying that was like 1 % equivalent of this change.
It's just such a dramatic effect for the stroke
of a pen overnight in New South Wales. So, look,
if anyone wants to know more about this topic,
we love discussing it, so please reach out after.
But in the light of just time, just moving on,
I just... Anyone have any specific questions
they want to ask? It can be as controversial
as you like. Yeah, we love it. Get into the detail.
We do have some pre -submitted questions actually
lodged in the course there. From Michael in terms
of... I mean, we may have covered it already
to some extent. What will happen to the US dollar
from here more so and the impact on the Australian
dollar as well that Jason and Miriam? Yeah, so
I think the US dollar will, you know, still produces
the most amount of innovation. But I think the
next stage after tariffs and trade will be some
type of agreement that the US dollar needs to
appreciate. Now, you know, most currencies have
already done that. So the euro has rallied quite
substantially. The yen, Australia's been a little
bit left behind. The Australian dollar is quite
unique. The Australian dollar, it's a top 10
currency in the world, may even be in the top
six in terms of tradability. And so investors
around the world use this, and I'm talking about
hedge funds and investment banks. They use the
Australian dollar as a proxy on China. So if
they want to, because you can't trade the Chinese
currency. So if you want to express a view that's
negative on China, which China's a bit. growth,
low growth state for the last couple of years,
people have expressed that by being short the
Australian dollar. So look, I think the Australian
dollar is going to be more linked to China and
commodities, but more globally, including Australia.
I think we've seen the peaks of the US dollar.
Excellent. Thank you, Jason. We also had another
one jump in there as well in terms of the outlook
for the Australian resource sector. Yes, there's
a few things. So gold, obviously, what we've
seen in this instability is record gold prices.
And so gold has been one of the best performing
assets over the last three years. Australia produces
a lot of gold. So I think our export numbers
will hold up. I think the cyclical stuff is really
hard. because China is so weak. This may be a
little bit controversial, but we've also done
everything we possibly can to make it harder
for our resource companies. We're putting more
regulation, more time to get through environmental
approvals, more rejections by the government.
You know, this is one of the sectors that we
are genuinely competitive in and we're making
it next to impossible. We could have been the
single largest LNG exporter in the world, but
we just decided not to be. Woodside is progressively
going, Australia is too hard. I'd rather do this
in the US. And they announced the giant Louisiana
$27 billion US dollar project in the US yesterday.
And that will come at the expense of investing
in Australia. So I think we've really got to
quickly decide if we want a resource sector.
And if we don't, what else are we going to be
good at? Well, we just lost the Beedaloo Basin
like a couple of years ago. It was all Tambourine,
had it up and running, Australian based, and
then they got the labour and the greenies stepped
in and made it challenging. So what did they
do? They moved the company and the tax paid to
essentially Delaware. They're still saying, hey,
you're going to get your first contract into
the Northern Territory. But it's just, isn't
it insane how you've got it all in your backyard
and through a few technicalities you make it
too difficult and they've just lost. hundreds
of millions of revenue for multiple generations.
It doesn't make any sense. I won't make a political
view on it because I think most political parties
are at fault here. The problem you have is the
seats to win. If you can't communicate properly
why we need a resource sector and why we may
still need gas and energy, it's going to be very
hard to win seats in the city. I think you need
someone who can communicate it very well, why
it's important, why we need to make one area
that we have a comparative advantage in against
the rest of the world, and political stability.
If you think about most resource regions in the
world, they're not in political stable areas.
So we have that advantage. But it is quite sad
to see that, you know, even our own countries
are not making investments here and rather doing
it overseas. Yeah. So... One thing we've discussed,
you and I, some of our clients have allocated
to, we've had a conversation on the podcast,
but I just really want to cover it because, you
know, resources are so important. What's your
opinion on resource royalties? Yeah, so look,
I, you know, I think if, you know, the commodity
sector is always going to be there. So commodity
companies are extremely cheap, extremely cheap.
Maybe they should be. Maybe China doesn't grow.
Another segment that you can get exposure to
indirectly is royalties. So, effectively, what
commodity companies will do is they'll effectively
sell some of their balance sheet. And you're
entitled to a percentage of gross revenue that
those mines produce. You don't take operational
risk. You don't take capex risk. You just get
a percentage of commodity price of what you're
selling. It typically has less cyclicality to
it to commodity companies that have a lot of
costs and cyclicality to their earnings. So I
think royalty is a great asset class. I think
it provides probably cleaner, less risky exposure
to the industry, and it's growing. So there's
a couple of funds here. There's a broader range
of royalties. It's just not resources. It can
be pharmaceuticals. It can be IP. It can be music.
It can be a whole bunch of things. So, again,
those type of alternatives, which have lower
correlation to the rest of the market, I think
is a good place to be hunting. Excellent. Thank
you, Joe. So we just had some thoughts as well
in relation to China and how they're booming
with Evergrande going belly up. However, China
has recovered as a whole. Yeah, so the property
market evergreen. So look, I think there's still
a lot of weakness in the property market. I think
that when you don't have a population growing
and you overbuilt houses, it's not a great spot
to be in. China this time has been more targeted
in its response in providing fiscal support.
No longer do we have the bazooka of just spending
a whole lot of money. But I think the Chinese
definitely turned a corner. at the beginning
of the year and late last year, not just in terms
of their economic response, but also their warm
embrace of the tech sector. Now, a big part of
why the Chinese market underperformed was when,
you know, Jack Ma was effectively banned from
being in the media, and this is Alibaba. The
government in China really went hard against
the technology sector, and the technology sector
stopped investing and stopped feeling like it
could contribute to the economy. That fundamentally
shifted, I think it was in November to February,
of reintegrating that and bringing them back
to the table. That was a big move. And then you
had DeepSeek happen, and I think that's been
the catalyst of why people are looking at China
again. Yeah, they're all kind of ties into each
other, doesn't it? One thing we haven't... touched
on is digital assets you know crypto um just
that on a whole on a macro and why this is interesting
it ties into the deep seek it ties into nvidia
it ties into the infrastructure demand for natural
gas for electricity like the grid you know they're
discussing now over in the u .s like they've
sold so many teslas but the grid is in there
to support essentially the electrical you know
california was told stop charging in teslas because
we may have a brownout and then they had to fight
right so what i'm wondering is you know where
do you think uh where to for digital assets you
know has it become more robust the etfs have
been announced you're starting to see uh you
know private credit or essentially you know hybrid
style scalping of you know uh the lending rates
you know you know i mean like these uh these
fund managers are starting to pop up offering
you know 20 % returns on just doing what hedge
funds used to do, you know, scalping interest
rates, moving one to the other. So do you think
the digital asset market is, I suppose, old enough
now to be taken seriously? Do you think the demand
from the resources from the infrastructure and
the economy, you know, is going to keep continuing
this? Or am I mad? Like, what's your opinion
on the digital asset space currently? So I'll
be honest. I wish I bought digital currencies
a long time ago. I wish I did. I was wrong, completely
wrong. But I still, obviously, I may not just
get it, but I've been wrong, and I'll admit that.
But I think still, yeah, I don't gravitate towards
it like some people do, but I did, and I wish
I kind of understood it better. Yeah. the new
nasa nasa class uh there's the core hardcore
believers you know there was a few events where
and this was wrong again where i thought bitcoin
would have went up when it didn't and that kind
of shaped my view when china implemented capital
controls kind of remember what it was but when
they introduced capital controls i would have
expected bitcoin to rally because that was a
way to potentially get money out of china i didn't
i also expected bitcoin to rally at the commencement
of russian sanctions It didn't. So those two
kind of points, and maybe Bitcoin is a lot larger
than that, but the two points of capital controls
in China and sanctions on Russia, I would have
expected those countries to have warmly embraced
Bitcoin to get money out of their economy. And
it just didn't happen. But again, I was wrong.
But I look at those two catalysts and it didn't
happen. Yeah, it's quite interesting how that
all works. Just have a quick question. I'll quickly
summarise. With mass immigration, there's been
some changes in laws in Australia, which I believe
came into effect as of April. Yes, regarding
foreign money coming in, you have to be a resident
in order to own property. and you're locked out
for essentially two years or something equivalent.
Do you want to give a bit of colour around that
and how it may impact the Australian property
market? I haven't followed that aspect. The bigger
aspect is the kind of pausing of the special
investor visa. So this was a visa where bringing...
You know, bring five mil in, invest that in a
prepackaged product, which included some VC assets,
venture capital. It included some listed micro
caps and then a diversifying component. A lot
of countries have these. New Zealand has just
re -implemented their special investor visa and
actually made it really easy. Really, really
easy. Trump. You just have to invest. Trump has
announced a pure cash component. So pay five
or 10 mil, whatever it is, and you get a visa
on the spot. Look, Australia removed it. It did
have an impact on some aspects, but there's ways
to come in. I think there's another visa called
the Innovatives Visa where it costs 10 mil and
you've got to put it in a company that has certain
criteria. Look, it hasn't had a... measurable
impact on the luxury property market. But these
new changes could very well. But the special
investor visa, the concerns around that was that
it was bringing people with questionable backgrounds
and money laundering. But a lot of countries
have these. And yeah, Australia is taking a view
that it doesn't want it. Well, the US is bringing
out the gold card now, right? To my understanding,
yes, it gives you five years, but if you commit
a crime, you're out. So was the Australian version,
if you committed a crime, it doesn't guarantee
you residency? No. I think it has to be invested
for three to five years, and then at the end,
you get approved. There's probably criteria.
I'm sure if you committed crimes, you wouldn't
get it, but there's criteria. But as soon as
you meet that whatever term, you then apply,
and then you get it. Anyway, thank you very much
for joining us. I really appreciate the questions
that you brought in for Jason. Jason, before
we go, is there anything we haven't covered that's
front of mind or a message you want to leave
for everyone? Yeah, look, while I said that markets
were expensive, I think there's a lot of opportunity
when drilling down. And so the role and what
we do and what we spend all our time is trying
to find those ideas. We don't want to be making
wholesale shifts of... pulling all your money
out of the market and sitting in cash. But the
portfolio definitely will evolve over time. I
think it's, you know, in this environment, I
wouldn't be jumping at shadows in terms of what
comes out of the US. I would be, you know, taking
a measured approach to managing my allocation
to the market. And I, you know, it sounds a bit...
you know, cop out, but it's a time in the market
rather than trying to time the market. But if
you can have some liquidity in the portfolio,
you can tactically allocate when the market falls
heavily. And maybe, you know, I do think to February
next year, markets will remain volatile, but
take advantage of, you know, I'm not saying buy
the dip, but if there is a meaningful drawdown,
that's an opportunity to buy stuff. So quite
literally, play red light, green light. Pretty
much. Pretty much. And I think that's what it's
going to be for February. So essentially play
conservative with your core and then essentially
you have liquidity around and play red light,
green light when the opportunity arises is pretty
much what you're thinking. Is that right, Jason?
Correct. And also be prepared just lastly, I
know everybody has to go, but interest rates
are coming down. The forward curve is pretty
anchored in that kind of three or potentially
below three, whereas it's 4 .1 now. That will
have a powerful impact for the economy. you know,
spending all the way to asset prices, particularly
hard asset prices that are priced off interest
rates. So I think we are, you know, we saw just
lastly, we saw, you know, office towers particularly,
you know, see 30 to 40 % declines. I think capital
is coming back into that market as people realise
we haven't built enough for a growing population,
you know, shopping centres and retail. You know,
Nishim has a proud legacy in retail. I would
say in some of the largest shopping malls, we've
not built a single shopping center on a large
scale in nearly 20 years. And the population
has gone from 15 mil to 28 mil. So, you know,
you see these property markets move in cycles.
And I think when interest rates come down particularly,
that is a very powerful driver of capital growth
in property markets and hard assets. Thank you
very much for that, Jason. Thank you very much
for joining us. If anyone wants to reach out,
please do. I'm happy to talk to you after this
if you have any specific questions. But in that
case, thank you very much. And we will distribute
this conversation around so you can hopefully
listen to it again and pick up anything that
you want to pick up. But thank you very much,
everyone, for joining us. Really appreciate it.
Don't forget to vote. Don't forget to vote. That
is true. Do not forget to vote. Thanks, Jason.
Thanks, Anthony. Any use of this recording does
not represent the view of any other third party
and are the sole personal opinions of the speaker.
Any reference to financial products does not
constitute advice or recommendation and before
any action you should seek proper advice from
your financial professional. Australian listeners
should head to www .moneysmart .gov .au to find
more information on obtaining