Show Notes
In this episode of Perspectives, Escala Chief Investment Officer, Tracey McNaughton joins Ed to explore sudden lane changes in markets, what rising bond yields mean for investors, and why cash flow is coming into sharper focus - from Meta to Procter & Gamble. With lessons from a weekend motorbike ride, they discuss how to keep portfolios moving when conditions change.
(1:25) Now, Tracey, before we get into markets, How was your weekend? (2:14) Sense an investment analogy coming along? (2:34) Quite a comment for someone whose business is right in the middle of it. (2:58) Tracey, we've seen a pretty substantial lane change between the 2nd and 3rd quarters. (3:45) Tracey, what does that tell us? Were people too quick to write off the 7? (4:25) So, what looked like everyone suddenly switching lanes had something more fundamental behind it? (4:43) So, Tracey, let's talk about those road conditions. Why did rising bond yields make such a difference? (5:18) That's happening to everyone. Everyone now is facing a higher cost of capital. So why does it change which companies lead the market? (6:03) So, you can get squeezed from both directions. Your costs go up and your customers have less to spend. (6:24) Brings us to the puzzle. Technology companies are usually considered sensitive to higher yields. So why did the Magnificent 7 come back in Q3? (7:48) So, the advertising business can be doing well, but there's no cash left over after building the infrastructure. (8:10) Fairly abrupt lane change for a company that investors had been backing. (8:55) So we've had changing market leadership. Higher borrowing costs and now investors questioning the spending of companies like Meta. What are you watching to work out where we go next? (9:33) A steady flat road is easier to navigate than one that keeps getting steeper. (9:57) And the second thing, Tracey, earnings. (10:27) Rather than simply announcing a bigger investment budget and expecting applause? (11:05) From artificial intelligence to washing detergent? (12:20) So Tracey, is that investors becoming defensive or evidence that the opportunities are broadening? Those were pretty big moves. (13:03) What did the wider market tell us? (13:31) The technology lane slowed down, but other lanes were moving. (13:48) How does that influence the way you build portfolios? (14:22) We're back to your weekend ride. Watch the conditions, leave yourself some room. (14:37) What does that look like in practice? (15:14) Tracey, how does that translate into a portfolio? Because the temptation is to keep switching into whichever lane has just moved ahead. (16:03) So, leave yourself some room? (16:18) So the lesson from the weekend ride?
More from 'Perspectives' by Escala
Perspectives: Episode 136 – Between Trump and a bond place
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Perspectives 134 – Ride to the Conditions
In this episode of Perspectives, Escala Chief Investment Officer, Tracey McNaughton, discusses just how large the AI capital expenditure budgets have become, where the money is coming from, and which parts of the AI supply chain are most at risk of overinvestment. (0:51) It feels as though every major technology company is announcing another massive increase in AI investment. Just how big has this AI spending boom become? (2:00) What's interesting, though, is that the spending doesn't seem to be slowing. If anything, every earnings season the budgets seem to get bigger. (4:10) Microsoft seems to have convinced the market that the investment is paying off. Was that true for everyone? (5:58) For Alphabet and Meta, investors are still asking, "Show me how this next wave of spending turns into future earnings." (6:57) If the hyperscalers are collectively spending more than US$400 billion this year, where is all that money actually coming from? (8:38) Where does that capital come from? (10:47) AI has become one of the world's largest consumers of investment capital. The unfortunate thing is this is happening at the same time as bond yields are hitting multi-decade highs. (12:12) So, Tracey, whenever we see an investment boom of this magnitude, history tells us that eventually somebody builds too much. Is AI heading down the same path? (12:49) Let's work through the supply chain. Where do you think the risks are highest? (13:54) What about data centres – surely that's where everyone's worried about a bubble? (14:41) What about the companies actually making the equipment? (16:01) So, not all parts of the AI supply chain should be treated the same – particularly when we are talking about capex?
In this episode of Perspectives, Escala Chief Investment Officer, Tracey McNaughton, explores why productivity has become the defining investment and economic challenge - and why getting it right could unlock stronger growth, lower inflation, higher living standards and a more durable bull market (1:00) What do you think? What are you saying to clients? (3:55) Those high expectations tend to be a feature of a mature cycle. Is that more the issue? (5:03) The first was the Prime Minister's new AI strategy. The second was the debate around whether Australia's superannuation system should play a bigger role in funding nation-building projects. (9:15) So perhaps the role of government isn't to direct capital. It's to create the conditions that attract it (9:23) How do you think this will change how Australians choose to invest? (13:03) If fewer investors purchase rental properties, there's also the possibility that rental supply becomes tighter, placing further upward pressure on rents. (15:02) Tracey, listening to everything we've discussed over the past two weeks, it feels like all roads lead back to one issue. Productivity.