Members Podcast – Friday 27 March

Good morning everybody this is the Marcus today members podcast coming at you on Friday 27th

of March and the futures this morning had us down 93 points but we've been doing a little bit better

that we were down 70 on the low currently down 48 and almost on the moment the US markets closed

Trump announced a 10 day pause and that's led to all sorts of speculation I've written about it in

the strategy portfolio section today sorry the market strategy section today and what is the 10 day

pause by the way 10 day pause takes us until April the 6th what does Trump pushing out the five day

pause to a 10 day pause mean initially the oil price dropped about three or four dollars but it's

gone back up again initially the Nasdaq and S&P 500 futures popped up but they fell back again as

well because the 10 day pause rather than being a positive is seen as a few things it is an admission

that talks with Iran are going nowhere it's another 10 days we assume without progress on anything

including the opening of the Strait of Hormuz and it is also being seen as maybe another delaying

tactic by the US as they prepped for boots on ground which is a little bit like the pre-war

period where the US said they were negotiating with Iran meanwhile we knew there were aircraft

carriers heading towards the Middle East and they were clearly just playing for time and this

is thought to be playing for time as they potentially playing for time as they prepped for boots on

ground that sort of thing doesn't happen in a snap of the fingers and consequently the market hasn't

really taken it positively despite taking it positively initially and there is a developing

idea that maybe what's really happened is that Trump doesn't want to hit Iranian power plants

because he knows that is going to see the oil price up at $130 there's one broker today saying

there's a 70% chance of the oil price going to $120 and sitting there but if he hit the power

plants and everyone assumed a prolonged escalation of the war and a prolonged closure of the

strait of Hormuz the oil price would spike and that would be and especially if it lasted a long time

would be economically and politically for Trump devastating so the feeling is he's been bluffing

on the power plants but we will see ultimately it's not for us to divine the truth it's up to us if

we're going to time the market as we're trying to do at the moment as we're hoping we're going to

see an irresistible buying opportunity if we're trying to time the market it's not about the truth

it's about distilling what the herd currently thinks and spotting when it changes what it's

thinking so we'll continue to do that day by day interestingly today column if you look at the ASX

today section columns picked up on the Trump pain point index which is an index which includes the

S&P 500 bond yields mortgage rates gasoline prices inflation expectations and the presidential

approval ratings and somehow they've put those together in a basket of indicators and the

thinking goes that Trump blinks whenever this combination of indicators spikes or plummets and

in particular at the moment it is way up there with bond yields rising stocks falling political

deadlines approaching and the feeling is that this is why Trump has pushed back again combination

of the markets going wrong in the midterm elections anyway the Trump pain point index have a

look at the ASX today section for more on that so for whatever reason we've got a 10 day pause

and the assumption is that we're not going to see any significant market bottoming until

something changes so we just sit here and make decisions day by day we're not predicting anything

and I would just point out as I have in the strategy portfolio section today that it's not about

the war it's about the oil price the oil price causing an inflation risk which is pushing

interest rates higher causing earnings down grades and economic slowdown and all of that could change

on the opening up of the strait of hall mues and there are some interesting signs of it easing as

we now know Trump's present from Iran was 10 Pakistan flagged oil tankers being allowed through

the strait and the BBC is interestingly reporting six tankers coming through unscathed by turning

off their transponders and war aside it does make you wonder whether the strait of hall mues is

really closed or whether Iran just says it is and that could be tested at some point things could

turn around for the oil price in a blink if it turns out that Iran is not actually capable of

closing the strait and traffic returns we can't assume that as I say it's not about guessing

what's going on it's about what the herd believes and when its beliefs change and the current

perception is that Iran controls the strait that the US is stalling for time that boots on grounds

of serious possibility and we could suddenly see an invasion of cargo island it could get very

messy suddenly it would be foolish in the extreme for us to put any of your money in front of

a gamble that the strait of hall mues isn't exactly closed so we'll go along with the herd

until proven wrong or until everybody changes their mind the good news is our irresistible buying

opportunity is quietly building the more fear that the market feels the better it's going to be for

us and for the opportunity that a turnaround in the markets will present it's not today by the

looks of it last night in the US was a good night because it was a bad night and it was based on

Iran of course saying that they are that messaging through Pakistan is not negotiation that there is

no peace deal and one of their firm terms is that they want the US to recognize their sovereignty

over the state of hall mues which is asking the US to legitimize Iran's right to control it and

that's not going to happen hence this 10 day pause but you can see from the markets hopes for peace

despite the pause of fading once again from the almost euphoric reaction to Trump's peace talk

post on Monday night about 10 30 and all that is now unwinding and on top of all that you've

got to say we are still factoring it factoring in a progressively fading AI enthusiasm and a private

equity cancer and on that front you probably saw meta dropped 7.9% last night following a legal

defeat regarding social media harm to children and the other texts followed alphabet down 3%

in video down more than 3% and other interesting events on the private credit front there is a

liquidity crunch emerging in this sector over 4.6 billion US dollars of investor capital is

trapped behind withdrawal limits with Apollo Aries Blackrock and Morgan Stanley all capping

redemptions in their funds the other interesting development was on the venture capital front i'm

not sure whether you're aware but there have been a bunch of stocks or funds that have stakes in

space x which is coming up to an IPO and also and thropic and any fund that has seen as having a

private unlisted holding in those forthcoming IPOs has been roofing it and today a venture capital

fund called fund rise innovation fund drop 31% after citron research however they are they're

probably hedge fund revealed that they were shorting the fund because it was trading at more than

20 times its net net asset value just because it holds stakes in space x and anthropic right what

else is going on Australian interest rates again I've written about this in the market strategy

section Australian interest rates are getting ugly the 10 year bond yield is over 5% hit 5.18 at

one point the two year bond yield is bordering on 5% that's the highest since 2011 and I've written

in the market strategy section there's a 57% chance of another rate rise but in the AFR today there

is the suggestion there is now a 74% chance of another RBA rate rise after the one we've just had

are at the next meeting on May the 5th and if war doesn't break we're probably looking at

three rather than two rate rises this year and if oil goes to $130 and above and stays there we're

probably looking at more it does seem perverse that interest rate rises in Australia are not going to

have the blindest or make the blindest bit of difference to the oil price yet that's why they're

raising them just seems odd that they can't carve out of the statistics the fact that this element

of the CPI number is something they can't do anything about of course the problem is it's feeding

into everything else feeding into packaging costs into plastic prices food prices supermarket prices

petrol prices obviously diesel prices transport prices airline prices and there's lots of stuff

about the price of airline tickets and if it goes on for too long it all gets ingrained you probably

saw there's a 5% call from the hospitality industry to simply add 5% to every restaurant and cafe

bill to cover the extra costs the longer it goes on the more ingrained it gets of course the fabulous

part of all this is as you probably saw after the last RBA rate rise last week your Macquarie

Saver account is going to be paying your 4.75% from the end of this month and if they raise rates

again at another 25 basis points we'll be back to 5% deposit rates if in pre-COVID 2020 when interest

rates were sitting around 1% if I had set up a fund that promised you 5% risk free I would have been

hit with billions and yet here we are now where risk free essentially risk free assuming the whole

world doesn't go bust where the risk free deposit account is going to be paying you 5% so interest

rates are only really impacting people who have mortgages drive a lot and for all those cash rich

retirees who sit at home in their slippers drinking cups of tea without driving a diesel truck

things are actually getting pretty good they're also getting good for the strategy or folio which is

in cash and for the empty 20 real poor folio which is sitting in the AAATF which puts money into

a number of bank deposit accounts those returns will be creeping up as well of course all this could

be over tomorrow so it's all about duration and that's the big unknown at the moment but the

10-day pause suggests that the duration is going to be longer than we thought before the 10-day pause

not helping the oil price you might have noticed wood sides LNG operations in WA have been shut in

by a cyclone if you add on the Katari plant being offline that's 30% of the world's LNG I think

the price up 50% not today but since the war broke out what else talk of the emergency rate hike

in the US to combat war induced inflation the media are making a fuss about lobster prices at

Easter shooting up because the fishing industry is seeing costs go up I'm not sure I was going to

have lobster at Easter but there you go another interesting one is turkeys gold dump the Turkish central

bank has sold 60 tons which is worth 8 billion of gold in just two weeks to stabilize its economy

and that explains maybe why the gold price has been not behaving like a safe haven since war broke out

it is a source of funds for any country that needs to pay for anything other suggestions from

the markets today team to watch out for is if the Middle East is suddenly finding itself a bit

short of cash they will be selling gold they will also be repatriating sovereign wealth funds which

are invested in equity markets and bond markets hence the pressure on the equity and bond markets

and the other thing to watch out for we think is whilst we don't have another result season until

July the US first quarter result season is going to be starting a couple of weeks into April we're

going to start seeing companies reporting earnings and depending on of course what the oil price has

done since but if the oil price is up there we've seen almost no companies yet make any announcements

about profit downgrades because of all the issues we know about rising costs rising input costs

for any any companies like well quantity is the most obvious one but you assume agricultural stocks

transport stocks just immediately they're feeling the impact of war yet we've had no comments

from any company yet downgrading earnings forecast they've now got the perfect excuse to do so

and you assume it's coming and the longer it lasts the longer the oil price stays up the bigger

the downgrade so and this is why equities are falling because not only a fuel price is going up

but interest rates are going up so any sectors if you look at the REIT sector the real estate

investment trust sector which is built on borrowed money interest rates go up it's like a profit

downgrade and the sector is already 20% off the top and this is why the stock market goes down

when the oil price goes up because interest rates go up so you've got all sorts of reasons for

everybody to be downgrading earnings with higher input costs anyone who imports everything shipping

costs have just gone through the roof anybody that exports same thing a higher oil price and higher

bond yields are undermining in some cases probably cratering earnings and we have yet to see companies

start to tell us and we have the US first quarter result season coming up in two weeks and then

it will start what else the OECD you've probably seen has issued a stern warning to Australia flagging

a resurgence in inflation that predates the war so we've got we had inflation going up even before

the war and our CPI number this week which was quite benign didn't take into account the impact

of a higher oil price so that's going to tick up as well and they upgraded the Australian inflation

forecast as they did to most other countries actually and downgraded GDP forecast so OECD not helping

either hence the 74% chance the RBA are going to raise interest rates on May the 5th how much

else to tell you about stock specific KMD Kathmandu suspended its shares unable to finalize half-year

results until it confirms funding for a capital raising and the debt refinance 40X 40 medical

see Henry stuff up another 9% today after getting European regulatory clearance actually let me

just check that I'm not sure that's right now I think that was yesterday up 1% today 1.3% right

that's about it that's enough as I leave you ASX 200 down 47 points

rent crew was up about 5% this morning at 108 sitting at 106 60 at the moments come a little bit off

which is mildly positive the S&P 500 futures up 0.36 Nasdaq futures up 0.32 Dow Jones futures up 175 points

as I look at our heat map not a lot happening gold continues to be drifty financials a little

bit on the nose CBAs up west packs up hpm Rio pretty flat it's all pretty boring stuff really

we wait for April the 6th to roll around and see whether we get any progress with peace or boots

that's it you have a fabulous afternoon we'll be back with the end of podcast but we'll also be

back tomorrow with the weekend newsletter you have a good day