Perspectives: Episode 115 – Dispatches from the US

Perspectives: Episode 136 – Between Trump and a bond place

In this episode of Perspectives, Escala Chief Investment Officer, Tracey McNaughton, talks about why we are not trying to build the portfolio that performs best if we're right. Rather, we're trying to build one that can still achieve its purpose when we're wrong. (1:03) Do you think there's another shortage emerging that investors probably aren't thinking enough about? (3:09) Japan still owns roughly US$2.4 trillion of overseas debt. So nobody is suggesting Japanese institutions are suddenly going to dump that portfolio and bring the money home, are they? (3:49) But presumably Japan isn't the only reason yields are rising? (5:16) Since the risk-free rate sits underneath almost every asset valuation, this rise in bond yields, the rise in bond yields is becoming an equity market story as well. (6:23) We've talked about the price of capital. But you had an interesting question from a client last week which takes this discussion in a slightly different direction. That's the location of capital. (8:09) But gold is gold, so why does it matter whether it's sitting underneath New York, London, or Amsterdam? (9:01) So this is not just a gold story, is it? I remember during the GFC, it was important to know which bank kept your savings because some of those banks were ring-fenced by the government, but others weren't. (10:24) This is almost precisely the philosophical change we've been making in our new asset allocation methodology. (12:13) One of your strong criticisms of the traditional way we label assets in a portfolio is the label itself. What do you mean by that? (13:22) How does your methodology deal with that? (14:34) And what would today's discussion change? (16:53) That sounds less like optimization and more like engineering, doesn't it? (17:38) But presumably there's a cost to doing that

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.