The Rules of Investing

Charlie Jamieson: Bond market pricing in ”extraordinary” rate hikes

The RBA lifted the cash rate yesterday by 25 basis points, to 0.35%. And just like that, its war on inflation - which it will wage against aggregate demand - is underway. 
The threat of inflation has been written on the wall for some time, though, prompting some to wonder if the central bank has dropped the ball. Today's guest, Charlie Jamieson, co-founder of Jamieson Coote Bonds, questions whether the RBA ever had the ball in the first place, having stated as early as last year that it didn't expect to lift rates for three years.
"It was absurd to think we'd be in 0.10% settings until 2024," says Jamieson. 
The hikes will now come thick and fast, if bond market prognostications are anything to go by. 
"The bond market is pricing the RBA to hike rates higher than the US Federal Reserve... that's extraordinary."
In today's episode, Charlie rates the RBA’s handling of the inflation (and he doesn’t mince his words), how bonds will perform in light of it, and pulls back the curtain on bond portfolio construction - namely, which bonds to include and when. 
1:26 - Did you expect inflation to be that high?
5:05 - Has the RBA dropped the ball?
12:35 - How culpable are central banks for inflation?
20:40 - The yield curve inversion - trajectory for rates?
28:30 - How possible is it for credit markets to freeze up?
31:50 - Bond return expectations
37:15 - How do you balance the duration as rates and expectation change?
41:45 - Active vs passive bond funds?
45:00 - Absolute return vs index bond funds
48:00 - How bad will it get?
50:55 - 3 questions

Like the traditional resources sector? Here’s why you’re gonna love renewables

Conventional wisdom holds that 'traditional' natural resource investments are a sure, safe bet. And justifiably so: Land, from which natural resources have been extracted, is one of the classic four factors of production. 
They offer diversification and inflation protection courtesy of increased pricing power when costs go up. 
It doesn't take much to realise the relevance of these attributes in the current environment. 
But here's the thing. Renewables offer all those benefits and more, according to today's podcast guest Lucas White - portfolio manager for GMO's Resources and Climate Change strategies.
"The broad economy could be struggling, or GDP growth could be flattish or barely growing, but if the world is rapidly transitioning to clean energy, there's no reason why a clean energy strategy couldn't do very well." 
In this episode of The Rules of Investing podcast, you'll also hear why renewable energy will be taking the commodities sector along for the ride, and how GMO filter their clean energy stocks to capture outsized returns. 

The Greatest Hits (Volume 1)

After 4 and a half years at the helm, Patrick Poke is parting ways with The Rules of Investing. Please enjoy some highlights from the most popular episodes of the podcast to date. We also introduce the new host of the show. 

3 ingredients for small cap success

The multi-bagger is the “holy grail” for most small cap investors. Whether you like tech, resources, industrials, or all the above, there’s nothing quite like the satisfaction of watching your stock go up three, five, or even 10 times.
Dean Fergie from Cyan Investment Management has had a few of these stocks in his nearly-25-year career in Aussie small caps. He has noted a few similarities among them – though he freely admits its “obvious stuff”.
The company’s product or service must be scalable.
People love what the company is selling. These types of companies tend to generate ‘buzz’ – think Afterpay in the early days, or for those that remember, Sanity stores when they were being rolled out in the 90s.
People are forced to use it, regardless of whether they like it. He points to Transurban (it was a small cap once!) as a good example.
In this episode of The Rules of Investing podcast, Dean explains how to handle it when markets aren’t going your way, we discuss a handful of Aussie small caps – some well-known, some not so – and he tells us why he thinks it’s time to start putting cash to work after the recent sell off. 

The companies that Wall Street legend Jim Chanos is shorting in 2022

It's not easy being one of the world's most-famous short-sellers. 
As Jim Chanos knows, it takes thick skin to deal with daily negative backlash, and, of course, markets storming "parabolically" higher over the past few years. 
But now the tides are turning, and rather dramatically, according to the 64-year-old Wall Street veteran. In fact, since September 2021, investors have been slowly waking up to misleading accounting practices among the world's most highly valued firms, and their share prices have plunged accordingly. 
And while Chanos is adamant his market predictions should be taken with a grain of salt, he notes that there continue to be several well-loved companies, Tesla included, that still could have a long way further to fall. 
"We have a number of US$100 stocks that we think are probably worthless, because the business model is broken, and yet they are reporting numbers that are not real," he says. 
So which companies could be misleading investors today? In this exclusive Livewire interview, you'll get an inside look at the legendary short seller's view on markets, as well as some of the global companies that Chanos considers to be posting fraudulent financial figures and could be in for a rude awakening over the months to come. 

3 Aussie stocks for today’s market

Rising rates, rising volatility, and rising geopolitical tensions. It's tough being an equity investor in today's market. 
But Australian investors have generally fared better than most. With a heavy skew towards resources and financials, both of which have outperformed the broader index in recent months, the ASX 300 has outperformed the S&P 500 by nearly 5%. 
In the latest episode of The Rules of Investing podcast, I speak to John Lockton, Head of Investment Strategy at WILSONS. He shares his views on the banking, resources, and healthcare sectors following the recent reporting season, he tells us about one important macro issue the market is overlooking, and we hear about several Aussie stocks with significant upside.

Why Platinum is short US tech stocks and long China

According to Andrew Clifford, CEO and Co-Chief Investment Officer of Platinum Asset Management, there's one variable that matters more than any other in stock markets. That variable is interest rates.
Interest rates can't get much lower than current levels, and, until recently, central banks have been pushing rate hike expectations years out into the future. But that narrative has changed abruptly, and market participants are scrambling to dial up the speed and quantum of rate hikes in their forecasts.
In a note sent to Platinum's investors, Clifford said he sensed a 'regime change' was on the cards and that January could be a sneak preview for what lies ahead in 2022.
The significance of this regime change has been well articulated. Low-interest rates have been a powerful tailwind for a long time, especially for the valuations of defensive and growth companies.
Every bull market has two things in common, according to Clifford. Firstly, it has a great story, which is a true story. In the case of the current market, we've seen some unique companies emerge in the US tech sector. The second ingredient is easy monetary conditions.
He says that bull markets die with higher interest rates, and then the underlying fundamentals of companies get questioned.
James Marlay recently had the opportunity to sit down with Andrew Clifford to explore his views on the investment backdrop, why he is short US equities and long China and two high-conviction ideas in the Platinum International Fund's portfolio.

What war in Ukraine means for investors

Guest: Tim Toohey, Head of Macro and Strategy at Yarra Capital Management.
Just a few minutes ago, Russian President Vladimir Putin announced a "special military operation" in Ukraine - an apparent euphemism, for the world watching on, for "invasion". Despite weeks of speculation, the news of war in Europe is truly shocking no matter where you are on Earth.
Most investors have never witnessed anything like this in their lifetimes, and how markets react in the short term is anyone’s guess.
Just a couple of days ago, I had an in-depth discussion about what were then just ‘tensions’ in Ukraine with Tim Toohey, Head of Macro and Strategy at Yarra Capital Management. We discussed the likely effects on different parts of the market, as well as the best way to hedge portfolio risk.
In this episode of The Rules of Investing podcast, we also hear why markets may be underestimating the rate rises set to come from the US Federal Reserve, and he explains a critical piece of data out of China that could have global ramifications.