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  •   25 February 2021
  • 26

Weekend market update: Friday was a tough day at the office for the S&P/ASX200 index, down 161 points or 2.3%. The fall for the week was 1.8% to close February with a 1% gain. In the US on Friday, NASDAQ clawed back 0.6% while the S&P500 fell 0.5%. Bond rate rises worried share investors relying on heady company valuations with the week's loss in the US at 2.5% and heavier falls in Asia. The yield on the US 10-year bond is up about 1% from its lows of 2020 and 1.3% in Australia.

Bitcoin fell again and is now down 22% since its peak, and while still at highly-elevated levels, 22% in a few days shows it does not have a realistic place in a retirement portfolio for most Australians. All it takes is an Elon Musk tweet and it's off to the races. 


There's a favourite phrase that climate change sceptics like to use, that ‘the science is not settled’. It's powerful because it's easy to find a qualified scientist who disagrees with 95% of his or her colleagues. Investing is even worse, because it is more open to personal interpretations and subject to behavioural biases. The science is certainly not settled.

So one minute, a leading investment analyst says we are in a stockmarket bubble and then the next, another reports it's the best conditions for equities ever. Confusing? While there are parts of the market where stocks are priced for perfection, the shares of other companies have struggled. Consider the sectors which have done well during COVID, and those which have lost.

While many US experts such as Jeremy Grantham and Stanley Druckenmiller are predicting market doom, a leading Australian investor, Chris Stott of 1851 Capital told the AFR on 22 February 2021:

“So the data over the next 12 months should look pretty spectacular, some of the best economic prints we’ve seen for well over a decade if not longer. I think the outlook for the economy today is a lot stronger than what it was pre-COVID. And the sharemarket’s still just shy of its pre-COVID peak, so when you marry all that up the outlook for the equity market looks as good as we’ve ever seen it.”

Strong stuff. "As good as we've ever seen it". Chris invests in Australian stocks, which have not seen as much of the frothy excess of the US. This Vanguard chart shows current equity valuations (based on Price/Earnings measures) relative to fair value, and Australia looks reasonable.

This week on LinkedIn, Bridgewater's Ray Dalio asks the question, 'Are we in a stock market bubble?' and he uses his systemised 'bubble indicator' for a perspective on the US market. He concludes:

"In brief, the aggregate bubble gauge is around the 77th percentile today for the US stock market overall. In the bubble of 2000 and the bubble of 1929 this aggregate gauge had a 100th percentile read ... There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles ... the share of US companies that these measures indicate being in a bubble is about 5% of the top 1,000 companies in the US, which is about half of what we saw at the peak of the tech bubble."

So when anyone asks if the market is in a bubble, ask which market they are talking about. Take care, for example, with long-term fixed rate bond issues for corporates in the current rising rate environment. Spreads are very tight.

The other complication in assessing value is that many companies are coming out of COVID much better than expected. If anyone should be able to predict the health of corporate Australia, it is the CEO of a major bank, but ANZ's CEO Shayne Elliott said this week:

"Look at the results of corporate Australia. It's pretty staggering in terms of profitability. What we didn't count on was the level of government support and the impact of really low interest rates."

As we head into the final days of the February 2021 company reporting season, Marcus Padley takes a look inside the frantic world of stockbrokers and their struggle to cope with dozens of companies releasing results each day. He explains why so many broker forecasts tend to a consensus level.

If you think Marcus is exaggerating, consider this chart of broker stock recommendations for the Dow Jones Global Titans 50 Index which covers multinational companies in the Dow Jones Global Indices. The companies are mainly listed in the US, and many are tech companies identified as driving a bubble. Look at the Consensus Summary columns. Of the 50 companies in the so-called bubble market, only 12 sells across the six biggest brokers among 300 recommendations. 'Holds' are more common but both are overwhelmed by 'buys'. What generates such optimism?

Drawing out this theme of Australian versus US equity performance, David Bassanese explains why the markets differ, the impact of currency and which he expects to perform best in future.

Then Reece Birtles pitches in with his take on 'value versus growth'. It's another example of the stocks left behind in the rally, and the cycle is already showing signs of turning. Value's time in the sun will come.

A major change in the investing landscape hit the markets in 2020 with the rapid increase in participation by younger investors. Gemma Dale documents the trend including what they are investing in, and it's not what most people assume. The newbies have started well on the investing journey.

Back to the US success stories and the big tech stocks, Ishan Ghosh makes a surprising claim that their exceptional performance is not unusual compared with big companies of the past, and in fact, many large US tech companies have done poorly over the last year. So those themes we think are running hot are harder to pick than we might think.

Rachel Lane is a leading policy influencer in aged care, and she explains the changes needed to a poor system. Anyone who has been through the tedious detail will sympathise. 

And Alastair MacLeod focusses on a problem facing many people, especially retirees, that their 60/40 portfolio is dragged down by low bond rates, and he suggest alternatives in 'defensive equity' strategies.

In this week's White Paper section, something different with a new podcast recording with Hamish Douglass of Magellan. He speaks to Morningstar in the US on their The Long View programme about how Magellan started and how he builds compounding portfolios.

And the Facebook thing? I didn't realise so many people receive their news via a social media feed. And don't the news organisations post their content and links onto Facebook so more people will read them? That's what Firstlinks does and we benefit from traffic directed back to our website, so it's not clear to me why Facebook should pay for it.

I'm old school in paying subscriptions for news I want, reading the website, app or newspaper directly. For Firstlinks, only 2% of our users come through social, with 98% of readers directly accessing through our website, the newsletter, search or referrals. We have developed our direct audience for nearly 10 years and do not rely heavily on Facebook. Treasurer Josh Frydenberg was speaking as if the only way to view web sites was via Facebook when he said on Channel 7's Sunrise about his call to Mark Zuckerberg:

"We spoke yesterday morning and I expressed my deep disappointment as to what Facebook had done ... we view those actions yesterday as unnecessary, as heavy-handed, as wrong and as damaging the reputation of Facebook here in Australia. To restrict access to the New South Wales Fire and Rescue or to restrict access to the Royal Children’s Hospital or other important sites, is very problematic and it was a heavy-handed tactic."

Restrict access? Does Facebook control access to web sites? Don't people know how to find web sites on the internet? We welcome any comments on this issue ... what proportion of the news you read or watch do you receive on Facebook?


Graham Hand, Managing Editor

A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.

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Kevin Buxton
March 10, 2021

Let's face facts - climate change has occurred from the point when the atmosphere was able to sustain life on this
planet, and there have been periods when the planet experienced periods when it has cooled as well as warmed.
In the middle ages, the planet evidently entered a cooling phase as records indicate the river Thames actually
froze during winter......obviously that was centuries ago but the factors that created this phenomenon could repeat.
Whether climate models have allowed for the occurrence such " inconvenient " events is problematic - however the northern hemisphere recently encountered an outbreak of severely cold weather which tested the reliability
of electricity generating facilities in the areas affected. Is this the commencement of a new phase of the climate
change phenomenon?? Those committed to strident proclamation of future catastrophic global warming may need to radically revise their assumptions for the future ....or perhaps not.....
What is apparent is that predicting the outcome of any future event, whether it's movements in financial markets, or variations in the planet's climate, or the winner of the next Melbourne Cup, entails a process astute risk analysis.
This is not scientific methodology which is essentially a process of observation and measurement as opposed to

Warren Bird
March 10, 2021

Still waiting for some of the 'facts' that you claim to want to face, Kevin.

What we have before us is a thesis, held by the vast majority of scientists - you know, those folk who are actual qualified and trained experts in a discipline that by its nature opens every idea up to peer scrutiny and the potential to be debunked by experimentation and evidence. The thesis is actually in two parts.
1) that the climate is changing more rapidly than normal and becoming more extreme in its fluctuations, with dangerous consequences. (Not that it's getting warmer all the time and that there will never be any times when cold weather will also be extreme, but that around a warming average there's also a greater standard deviation of climate.) Almost no one disagrees with this - but maybe you have some facts other than the easily rebutted observation that it was once very cold and the Thames froze over.
2) that the rapid changes we're now observing and experiencing are the result of human activity, specifically the burning of fossil fuels, particularly since the industrial revolution. This is where the thesis is most open to challenge, as per the way science always works. This part is also where the risk analysis comes in - if this is what's happening, and carbon emissions are continuing to increase, then it's entirely reasonable to be concerned that climate will become more extreme and that we'll see more events that threaten communities, livelihoods and the value of investments that rely on assets that are exposed to climate change - either to the climate itself (such as properties built in the thick of the Australian bush) or to policy changes to address climate change (such as coal fired power stations which are going to become stranded assets).
I'd love to see your alternative, peer reviewable, thorough, data-based rebuttal of this thesis with a credible alternative thesis that explains the observations in part 1. We all would. We'd love climate change to be something we could count on reverting to mean again soon because the sunspot activity or whatever else might be causing it will soon end.
I'd love you to be right, but you haven't actually produced any facts that credibly challenge either part of this thesis. You haven't challenged this thesis with your Thames river example, it needs more than that.

You are right that what you do with the science of climate change is a risk assessment. That's exactly what the world's investment management industry, at least the majority of it that's signed up to the Principles for Responsible Investment or similar, is doing. It's what most of the world's leading companies, including those in the mining and energy sectors, are doing as they reposition their businesses for a more volatile climate future under a different policy regime. That doesn't mean the climate change thesis is proven - but until it's disproven, it's the prudent and right thing to do.

So, Kevin, let's face facts. You have nothing to substantiate your baseless assertion. And without that, then you are even more guilty of not following scientific methodology than those you choose to criticise here. It's a pretty bold claim to be saying that the vast majority of the world's scientific community don't understand or use scientific methodology. If I were making such a claim I'd want to be standing on much firmer ground.

Kevin Buxton
March 10, 2021


I am not qualified as a scientist - however i am aware that in no way, shape or form does fundamental scientific methodology conform to any process or procedure intended to predict the occurrence of
a future event.

I am aware that bona fide scientists create models in order to predict future outcomes within their areas of expertise. However, it is misleading to refer to this process as " science " - the term " scientific prophecy "
seems more appropriate. My understanding is that scientific process entails rigorous peer review.
Perhaps you will enlighten me and any other interested parties by pointing to examples of this process.
It would be interesting to learn whether there are examples of bona fide scientific dissent as obviously this will
invalidate the popular contention that future global warming phenomena is " settled science "......


Warren Bird
March 10, 2021

Kevin, try the science of medicine, where it is predicted that if I take antibiotics then it will help my body eliminate an infection. Or the science of agriculture that says that if I water my crop it will grow. Or the science of engineering that predicts that if I don't build a bridge with appropriate supports then it will collapse under the weight of traffic that uses it. Or the science of meteorology that makes short term weather predictions based upon observations of patterns.
I've heard a few people try to claim that science doesn't exist to make predictions as if that means that all the observations about climate change are thus irrelevant. It's simply not true. Science is used in all sorts of predictive ways. And the climate change science says that if we reduce our carbon emissions then we will arrest the change in average temperature so that we don't get the continued increase in extremes we're starting to see come through, the rising sea levels, etc.
As for whether there are peer reviews that have debunked the consensus on climate change, well they aren't out there because they haven't been able to debunk it yet. All I've ever seen are people saying stuff like you've said which in the end amounts to nothing more than "I don't like what you're saying so I think you should stop saying it."
Now, if you want some facts, try this website: And in particular this discussion of your very point:

Kevin Buxton
March 10, 2021


Unfortunately this discussion is becoming absurd - ergo your insinuation that because i don't necessarily agree with your point of view, i am subverting your right to make the comments in the first place - preposterous !!!

Actually the examples you have provided support my stance - antibiotics or therapeutic drugs are exhaustively tested before being released. Scientific protocols have been designed to eliminate ( as far as possible ) any prospect of undesirable side effects. I'm not certain that engineering qualifies as a science - however it relies on established mathematical principles viz. known science. Meteorology, especially short term forecasting relies heavily on the interpretation of radar data which is a process of observation / measurement ( scientific protocol ).
The essence of science is to eliminate ( as far as possible ) all known uncertainties / risks. Climate
predictions are based on a modelling process where the results are determined by certain underlying
assumptions. These assumptions are not necessarily disclosed let alone subjected to rigorous peer review. The public is, in effect, conditioned to believe in a long term outcome, by the subterfuge of labelling this
process as ( settled ) science......

The NASA references referred to, indicate a 97% consensus among scientists, that current global warming
projections are realistic. This is close to being unanimous, but as you should be aware, genuine science has nothing to do with being " close enough ".....

I intend to close by paraphrasing a noted expert on climate issues, Bjorn Lomborg

" ....if all wealthy countries were to cut their carbon emissions to zero tomorrow and for the rest of the century,
societies would be devastated. By utilising the standard UN climate model, the effort would result in an almost
imperceptible reduction in temperatures of 0.4C by year 2100.....

What's left to be said - put simply, be careful what you wish for.....


Warren Bird
March 11, 2021

Quoting Bjorn Lomborg does make the conversation absurd, Kevin.

Clearly we're on the opposite sides of this discussion and it's probably best we just accept and leave it at that.
All the best.

March 11, 2021

Agreed Kevin. Climate change is one of the consistencies of the earth's existence. Is the climate changing? Sure, but when you hear of "scientists" going back to adjust historic temperature records to fit their narrative one should at least be somewhat sceptical of their output. Conditions of grant money is a good indicator of what the results will be from a set of "scientists". Should we be kinder to our environment? Yes, without a doubt, but the hype of doom and gloom is beyond the pale considering phenomenal climatic changes over (lots of) time. Indeed, a good example is the "more frequent and more severe cyclones" predicted for Northern Australia. I cannot remember a season where we have had so few. None have made landfall in NQ this year. 

D Ramsay
March 06, 2021

re your comment: "Does Facebook control access to web sites? Don't people know how to find web sites on the internet? "

Just another sign of the gradual dumbing down of folks in general. If you want to get a long term perspective of what I am talking about, watch the documentary "The Devoltion: Devo" on ABC TV iview. Back in the late 70's, it was this phenomenon that inspired their music. Western society is de-evolving i.e. collectively they are going backwards in the thinking for yourself department. Average IQ of population has been dropping since 1970

February 28, 2021

Your last newsletter spoke to me. I must be old school like you because I buy newspapers every day and don’t even use facebook at all. Not even connected to it

I agree with you that people have access to websites and news all day long elsewhere, so what is the big deal?

Facebook is perfectly entitled to remove access to anything it likes, it is under no obligation to provide news or website access to anyone

After all it provides its services free to everybody

The real problem is, as everybody knows, that facebook and google are sucking up all the advertising dollars and the news media can no longer afford journalists as they used to

This is a real problem and I don’t know the answer to it, apart from what is happening now

February 28, 2021

I’m retired, so I do lots of reading. FirstLinks is always one of my favourites. Hope it keeps on going. I was just belatedly catching up on this week’s FirstLinks and noticed you upset a few climate change sceptics in your opening lines.
As one such sceptic myself, I have to say I was slightly irritated as well. I’m happy enough to be labelled a “climate change sceptic” but it’s a misleading term. I’m not at all sceptical about the fact that climates change. They always have, always will.

But I’m deeply sceptical about current changes being caused by man-made emissions of carbon dioxide. And even more sceptical about any attempts to “fix” it.

I acknowledge your valiant attempt to skate around the “95%” comment but any talk of “90-something % of scientists agree” on this subject will rile anyone who knows that the oft-quoted figure (I think it was 97% actually) was a fabrication.

As far as I can tell, no-one has yet demonstrated that rising CO2 has caused rising temperatures. Real, experimental science normally has to demonstrate something.

But all we can do with climate is computer modelling which can be very useful but can never “prove” anything.

All models require assumptions. If the assumptions are wrong, the conclusions will be wrong but we can never know if the assumptions are wrong (otherwise they wouldn’t be assumptions), so we can never know if the conclusions are right. At best, they can give us an idea of what might be happening.

So, any talk of the science being “settled” is nonsense, as it’s not repeatable, experimental science. It’s just computer modelling.

And if the modelling was any good, we’d expect the occasional forecast derived from it to be accurate. But, alas . . . We are yet to see the millions of “climate refugees”, the disappearance of snow on the Himalayas, permanently empty dams, sinking islands, extinction of the polar bear etc. On that last one, the latest is that the bears are proliferating to such an extent that there are calls to cull them. These were all very confident predictions, expected to have eventuated by now. Of course, even if those things did happen, we would only assume that it was CO2 what dunnit, we wouldn’t know.

With all that uncertainty, it’s amazing that we’re willing to risk so much. “Net zero emissions” by 2030 or 2050 or whenever is likely to have dire consequences economically.

What’s strangest of all is that, despite all the warnings of imminent catastrophe, the biggest emitter of carbon dioxide (who, by the way, is currently building 227 coal-fired power plants) is not required to do anything until way off into the never-never. Why would that be? Is it a crisis or isn’t it?

Countries like Australia are criticised for not doing enough, even though we can have no measurable impact, even if we closed down entirely.

If it was just about reducing CO2 then you’d try as hard as possible to reduce the total, rather than ignore the biggest contributor and focus on the minnows.

Given that, it’s hard not to suspect that the whole thing is largely about global governance and global re-distribution of wealth and power.

The global warming theory seems to be just a tool to achieve the bigger objectives.

I wouldn’t be allowed say all that in a public forum, would I? I would be banned or cancelled or branded a heretic. But I can’t ignore the facts and just go along with the approved narrative.

Of course, I could be entirely wrong. Sorry to bore you with all that, Graham. But the co-opting of “science” for political purposes really annoys me.

SMSF Trustee
March 03, 2021

Hi Phil

millions of scientists, who do know how to use models and what their limitations are by the way, disagree with your dismissal of the mass of evidence that human activity is behind the current climate trends.

So does almost every government in the world.

So does almost every investment management business in the world, which is shifting capital into new technologies to reduce carbon emissions and generate the energy we need in renewable and clean ways.

But you can keep on just ignoring all the things going on in the world and pretend that it's just about whether Australia should go it along and keep digging up coal and creating an economy that will one day collapse because we've invested so much in a product that has a very limited life.

Science hasn't been co-opted for political purposes! For goodness' sake it took the scientists years of hammering governments with the evidence before the political process caught up. Unlike politicians who usually only think ahead to the next election, scientists can and do take a longer term view. (As do good investors.) In that sense, if anything, politics has been finally co-opted for scientific purposes. Except in Australia, where short termism still rules.

February 26, 2021

Some perspective is required by a portion of your readers who think any mention of "climate change" (previously "Trump") is trigger to share their views

Facebook however is Darwinism in action

February 26, 2021

You might be correct. Some people live on Facebook and don’t know or don’t want to know how to look up a web site.

February 25, 2021

And I would posit that throughout human history the "scientific consensus" has mostly been wrong -whether it be about the earth's position in the solar system or the cause of stomach ulcers to give just two examples, our knowledge constantly evolves and many long and widely held beliefs are overturned

February 25, 2021

I have rarely met a person adamant about climate change who has made any material change to their lifestyle (or investment return expectations) to mitigate their personal carbon footprint. It's mostly posturing, but I hope you're the exception Graham.

February 25, 2021

Regarding Facebook, I do not understand why anyone would go to Facebook for information. Instinctively you would go to the source would you not? Be it news, bush fire updates, science or whatever.

February 25, 2021

+1. I don't understand why people would go to Wikipedia for information (as it is the average of what a collective deems is "correct", or "reality", a.k.a. wikiality), but they do. Thankfully, people like Galileo, J.A. Newlands and Niels Bohr didn't listen.

February 28, 2021

This is like saying I don’t understand why anyone would go to a department store, wouldn’t they just go direct and cut out the middle man. It’s about convenience, and in the case of fire updates, reaching audience that otherwise may have missed the update.

February 25, 2021

Just remember people that 95% of statistics are made up on the spot.

Bill Pritchett
February 25, 2021

Graham, your second sentence is inaccurate, The 95% you refer to has been debunked years ago.
I have been following First(Cuff)links and subscribing to Morningstar for years. I now ask myself, do I trust your Financial wisdom/accuracy. Cheers, Bill

Graham Hand
February 25, 2021

Hi Bill, what's inaccurate? I quote a favourite claim that 'the science is not settled', and say it's easy to find a scientist who disagrees with 95% of colleagues. I don't argue the 95% or the 5% are right, at least not here.

Bill Pritchett
February 25, 2021

Thanks for your reply Graham. That's my point. It's a favorite claim from those pushing their barrow of fear. Controlling people through Fear would have us all fully invested in Term Deposits/Bonds. And, you would be looking for a job. If the 95% is questionable, why state it. We read Firstlinks and many other articles in order to learn and become educated which leads to wisdom. The wisdom bit let's us know who to trust and not trust. Almost all the Firstlink articles are informative and go into the melting pot. However, if my investment decisions had an outcome similar to the past outcomes of the scientists and their models/predictions, I could not afford my Morningstar subs. Cheers, Bill

February 25, 2021

Graham, you really need to talk to scientists not just quote the discredited quote. As a scientist I can confirm many many do not subscribe to the fear ‘consensus’ that has no place in science...Bill is spot on.

Reiterating ridiculed science ad in finitum is akin to gaslighting

will stuart
February 25, 2021

I absolutely agree with Bill's comment.I could put Mr Hand onto a good number of reputable and credible scientists who do not make up the "95%"

February 26, 2021

I think you guys need to read Graham’s statement more closely

February 25, 2021

On Facebook, let's focus on the estimate the 95% of payments will go to News, Nine and Seven. It's not media diversity when Rupert receives a big payment and a small publisher misses out. Strange how mainstream media immediately painted Facebook as the baddie in this.


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