My inbox has been flooded with messages from public relations spokespeople representing the investment industry. The outbreak of war means dusting off the well-worn crisis checklist.
Step one: say something - anything! - as fast as possible.
Step two: wait and see what happens.
Given the Pavlovian nature of the response and the emphasis on speed over substance we’ve all heard the same things repeatedly. Little qualifies as pearls of wisdom.
I’ve learned there may be volatility and oil prices may rise. I got my semiannual reminder about the Strait of Hormuz. I’ve heard about how every conflict from the First World War to the Emu War has impacted markets.
Traders must be busy. Each twist and turn of the market is an opportunity to profit. If you are a long-term investor it is best to do nothing while the war plays out.
When events are dramatic and unpredictable many people reflexively turn to short-termism. Take the media fixation on rising oil prices. This obscures the most likely scenario that an accommodation or regime change will lead to more oil supply over the long-term. Especially given what has happened in Venezuela.
Focus on the potential for the conflict to accelerate or slow the emerging trends shaping markets. These include the impact of AI, the dismantling of the globalization era, and structurally higher inflation and interest rates.
It is the second order effects that will matter. Those are the ones that are far harder to predict.
Think about the headlines that will appear the day after the war ends when the market goes back to worrying about something else. Pay attention to the things that slip under the radar as the front page is dominated by Iran.
Most of all, remember the key is always you. Controlling your own emotions will lead to success.
You will be faced with the same investment challenges when this war is over. Figuring out the best strategy for your unique situation is far more important than any forecast.
As Ben Graham said,
“The investor can scarcely take seriously the innumerable predictions which appear almost daily and are his for the asking. Yet in many cases he pays attention to them and even acts upon them. Why? Because he has been persuaded that it is important for him to form some opinion of the future course of the stock market, and because he feels that the brokerage or service forecast is at least more dependable than his own.”
You won’t find this edition of Firstlinks filled with news on Iran. Instead, the focus continues to be on providing unique insights to help you achieve your long-term goals.
We have a retirement heavy edition tackling the triple threat of aging, super inheritance, borrowing in your SMSF and the perennially hated annuities. We also get an overview of results season, a look at financial advice and a little fun to coincide with the start of the AFL season.
Mark Lamonica
In this week's edition...
The age of retirement is upon us, declares Aaron Minney. An ageing population is putting new demands on super and aged care and how this disruption plays out will impact the lives of older Australians.
A strong ASX reporting season was widely expected and Australian companies delivered. Jun Bei Liu outlines what companies delivered dividends and capital returns and what risks investors are facing going forward.
Tobias Barkley outlines a crucial step to take if you want your loved ones to inherit your super.
Did you know there were 16 steps to get a mortgage on an investment property in a SMSF? If not, read the approach that Peter Townsend recommends for anyone considering property.
The goal of finance advice is to improve outcomes. Joachim Klement takes a look at two studies that show good advisers can create enormous value for clients…but average advisers don’t.
When the new AFL season kicks off a wild-card will be added to the finals. Tony Dillon breaks down the change and provides an analytical assessment of the new format.
Academics love annuities. Almost everybody else hates them. Don Ezra explores how you can get your ‘money’s worth’ and the emotional aspect of exchanging a lump sum for a stream of future income.
This week's white paper from Schroders' QEP Investment Team explores the anatomy of asset bubbles that aren't quite there yet.
Curated by Mark Lamonica and Leisa Bell
***
Weekend market update
Two Morningstar articles this week. I explained why you would find two popular investments in my portfolio and Tyger shared our view of three of the most traded investments by Morningstar Investors subscribers in February.
From Shane Oliver, AMP:
News surrounding the war between the US, Israel and Iran dominated global markets this week. Since the coordinated attacks from Israel and the United States on Iranian sites on 28 February, global shares have been largely down (unsurprisingly!), albeit with divergence across regions: the S&P 500 has barely moved and is only down by 0.7% and Chinese shares are down 1.2%; while Australian shares were in the middle of the pack, down 2.8% so far. On the other end, European shares have fallen by 5.7%, Japanese shares fell 6.1% and the Korean KOSPI dropped by 10.6% over the five days – all are countries with relatively higher energy dependence on imports.
While tensions around Iran have already been built up in the past few months, this time feels different given the broad-based military strikes on Iranian targets with a goal of a regime change, including an assassination of the Iranian Supreme leader Khamenei and other officials. In retaliation, Iran has launched drones and ballistic missiles at US military bases in other neighbouring oil producers throughout the Persian Gulf, including in Kuwait, Qatar, Saudi Arabia and the UAE. While Iran only accounts for less than 5% of global oil production and other countries have spare capacity to offset this supply loss, alternative shipping routes are not yet equipped to quickly replace the volume of supply passing through the Strait of Hormuz, which is currently effectively shut, despite Donald Trump’s promise to provide insurance and escort oil tankers to cross “as soon as possible”. It is estimated that around a quarter of global oil supply pass through the strait, with the bulk going to China (33%), India (14%), Japan (12%), South Korea (10%) and Europe (7%). Meanwhile almost all of Qatar’s LNG (20% of global supply) also transit through the waterway to be delivered to Europe and other East Asian countries. As a result, oil prices have risen sharply to around $81/bbl from around $67/bbl last week while the average Australian petrol price at the pump has already spiked to $1.69/litre (from $1.56/litre prior).
Rising oil prices, if persisted, have sparked fear of a global “stagflation” scenario through two channels. One, higher commodity prices (with oil up to $150/bbl in case of a prolonged war) and supply disruption could raise household energy costs and manufacturing input costs, while reducing households demand for discretionary consumption; and two, higher geopolitical risk and economic uncertainty will force households and businesses to delay big purchases, holding back investment plans while adopt higher borrowing costs. Australian exports revenues could also be impacted given lower global trade. In fact, markets have pushed back expectations for the timing of a Fed rate cut, with a full 25bps cut priced in by September at the moment, rather than by July a week ago, while futures’ bets have switched to a hike from a cut in the ECB rate in the next twelve months. Longer-term bond yields have also risen, with the US 10year increasing to 4.1% from 3.9% last Friday.
Where to go from here? While there seems to be no end in sight as President Trump indicated that he was willing to fight for several more weeks using larger strikes and the Iranian leadership remained defiant, our base case is for Trump to find a way to declare victory before significant energy disruption and higher inflation expectations become entrenched. US voters’ number one concern remains inflation and affordability, and with the midterm elections coming up, it is likely that Trump will take an off-ramp to limit consumer dissatisfaction with rising gasoline prices. There is also limited domestic support from the MAGA base and even the Republican Congressmen for “forever wars”.
In addition, the economic impact of a spike in oil prices will be limited given that the amount of oil required to produce a unit of GDP around the globe has consistently fallen over the years (thanks to technological development, rising productivity, and a shift to alternative energy sources). In addition, the US is now a major exporter of crude oil while Australia is also a net exporter of energy, so rising commodity prices could boost national income. China, despite being the largest importer of both Iranian and global oil, has a 100-day import stockpile and an energy mix dominated by coal and renewables (rather than oil and gas).
Latest updates
PDF version of Firstlinks Newsletter
Monthly Investment Podcast by UniSuper
ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade
Listed Investment Company (LIC) Indicative NTA Report from Bell Potter
Plus updates and announcements on the Sponsor Noticeboard on our website