I joined Phil Clark on ABC Nightlife to discuss the Federal Government’s changes to capital gains tax (CGT) and negative gearing, and whether the reforms will improve housing affordability for younger Australians. We explored the potential impact on property investors, first-home buyers and housing supply, as well as the broader economic consequences of reducing incentives to invest. We also discussed the upcoming SpaceX IPO, concerns around its rapid inclusion in major indices, and why calm oil prices may be masking growing risks in global energy markets.

Listen here: ABC Nightlife

On May 11, Wall Street’s most bullish analyst raised his year-end S&P 500 target from 7700 to 8250, the highest forecast on Wall Street. He did so because of the strength and breadth of S&P 500 earnings during the Q1 earnings reporting season.

Citing Fabulous Earnings Momentum (FEMO), Yardeni expects this year’s stock market melt-up to be more sustainable than a FOMO (Fear of Missing Out)-led rally.

However, even Yardeni has turned more cautious in the near term.

In another non-consensus view, Yardeni believes the resilient U.S. economy, stable labour market, and rising inflation mean the U.S. Federal Open Market Committee (FOMC) is turning hawkish and could possibly shift from an easing bias to a tightening bias as early as this month, followed by a rate hike in July. The consensus view doesn’t expect a rate hike until late this year at the earliest.

Finally, it’s worth remembering there are three epochal Initial Public Offerings (IPOs) coming to market this year (SpaceX, Anthropic and OpenAI), which might add volatility. Even though there’s more than enough liquidity in the market to invest in these companies (they’re listing only small proportions of their total shares), their early inclusion in the major indices will increase thematic concentration.

Oiling a problem

The war in the Middle East appears likely to linger, even as oil giants Exxon and Chevron warn that global oil inventories are dangerously low and that oil prices, which are trading calmly around US$100/bbl, could soon spike to US$150/bbl or higher.

Why?

Strategic Petroleum Reserves (SPR).

There’s some merit in the idea the U.S. government is employing financial shenanigans to manipulate near-term oil prices lower, and that will eventually backfire.

At its peak, the U.S. Strategic Petroleum Reserve (SPR) held over 700 million barrels of oil. Its current maximum capacity is said to be 714 million barrels.

In March this year, the U.S. began releasing 172 million barrels through a series of term exchanges or repo-loans, as part of a coordinated international effort to reduce pressure on prices and economies.

1. The Repo-Loan scheme or oil swap

Normally, when the U.S. wants to lower petrol (‘gas’) prices, it just sells oil from its SPR. But today, the SPR has hit its lowest inventory level in 40 years – bottoming out at 243 million barrels. Direct sales aren’t an option.

To understand the use of “term exchanges” or “repo-loans” instead of a direct sale, imagine lending your neighbour a dozen eggs, but at steep interest.

The U.S. government ‘lends’ 172 million barrels of oil to Exxon or Marathon today, and instead of paying with cash, Exxon and peers repay by returning physical oil in the future, plus a steep 25 per cent premium (interest in the form of additional barrels of oil). If they ‘borrow’ 100 barrels from the strategic reserve today, they have to return 125 barrels later.

The SPR will actually hold 460 million barrels. Physically, the tanks are much lower, but on paper (the ‘forward curve’), those companies legally owe the government 215 million barrels of oil over the next couple of years.

2. Backwardation

Investors might notice that Crude Oil WTI futures for July 2026 delivery are currently trading at US$95.40/bbl, while October 2026 futures are trading at $85.77/bbl, November 2028 delivery is trading at $71.08/bbl, and, all the way out, September 2034 futures are trading at $57.61/bbl. Clearly, oil traders believe the oil price will fall in the future, and the futures curve is said to be in backwardation. Oil today is more expensive than oil in the future.

This dynamic creates a massive profit incentive and arbitrage opportunity for oil companies. They borrow the government’s $96 oil today, sell it immediately into the market for a high price, buy cheaper $70 futures contracts for 2028 delivery to lock in the oil they owe back to the government, and pocket the price difference as profit – even after paying the premium.

3. Gold’s historic warning

Back in the 1990s, central banks lent physical gold to mining companies. The miners sold the gold immediately to finance operations, flooding the market and keeping gold prices artificially low for a decade.

However, it created a massive trap: if gold prices suddenly spiked, those companies wouldn’t be able to afford to buy back the gold they owed the banks. In 1999, an ill-executed gold price hedge led by Goldman Sachs caused a major mining company, Ashanti, to lose US$190 million in 1999 and collapse because it couldn’t cover its massive loans. The crisis triggered a merger with AngloGold to create the world’s second-largest gold producer, AngloGold Ashanti company, and it also caused a crisis in the gold market.

Gold prices bottomed at US$256/oz in July 1999 before commencing an almost uninterrupted rise to US$1,826/oz in August 2011.

4. A predictable outcome?

Just as we saw with gold in the 1990s, today’s borrowing and selling of oil are said to be artificially suppressing near-term prices. By flooding the market with paper contracts and loaned physical oil today, the U.S. government effectively caps oil prices. Oil companies are strongly incentivised to increase the short-term velocity of oil trading, thereby keeping the market artificially supplied.

The issue is the U.S. has traded physical, ready-to-use emergency or ‘strategic’ oil for a promise of oil years from now.

The risk is that a true geopolitical emergency occurs between now and 2028.

With strategic reserves depleted, the U.S. can’t pump paper contracts into a domestic refinery during a crisis.

Between now and late 2028, oil giants will have enter the open market to buy up more than 200 million barrels of oil just to pay back their debt to the government. This massive, mandatory buying pressure could drive global oil prices way up in the future. If oil production fails to grow aggressively to meet this hidden demand, the market will suffer a severe supply shock.

The concern should be that the U.S. government is trading temporary fuel price relief today for the high risk of an oil shortage and a price spike tomorrow.

The four horsemen of the Apocalypse are Conquest, War, Famine, and Death. Artificial intelligence (AI) has ‘Conquered’; in the Middle East, ‘War’ is underway and could take years to resolve, and changes afoot in enterprise-level AI spending would be akin to ‘Famine’ for AI hyperscalers that have spent trillions on scaling out the technology. All that awaits is the ‘Death’ of the AI bubble.

Consider these four observations:

• 23 May 2026, Rapid Response Podcast: Uber COO, Andrew Macdonald, says spending Uber’s entire AI budget in the first four months of the year, primarily on Claude Code, has not produced “more useful consumer features”. In other words, drawing a link between spend and revenue “is not there yet.” Meanwhile, Uber CEO, Dara Khosrowshahi said AI “Token Maxxing” has no connection to delivering genuinely valuable products.
• 29 May 2026, Axios reports that an AI consultant revealed that a client company had forgotten to set a usage cap on employee licenses for Claude, resulting in a US$500 million expenditure in just one month. As AI costs surge, businesses are feeling financial pressure, and senior execs are publicly questioning the yield from AI spend.
• Ask a Large Language Model (LLM) to answer a question, and about 100 tokens are used for every 75 words produced. But ask an AI agent to create a worker to follow a competitor’s announcements, to track property opportunities or to alert a fund manager to a new investment theme, and, according to analysis from U.S.-based SemiAnalysis, almost 100,000 tokens will be used even before an answer is generated.
• As quickly as AI has emerged, customer AI experimentation (which has triggered massive revenue increases for the likes of Anthropic, largely from tokenmaxxing leaderboards at Meta and Amazon) is now giving way to budgeted and considered token usage. The dreamers and builders are moving out, and the accountants are moving in. Enterprises that earlier embraced AI at all costs are publicly adopting a return on investment (ROI) lens.

Worryingly, this shift is occurring just as stock markets have turned hyper-exponential, and Private Equity valuations also reflect maximum hype.

Figure 1. General purpose technology (GPT) booms and busts, Gartner’s hype cycle

Source: Gartner

According to reports, NVIDIA CEO Jensen Huang, speaking at a recent employee meeting, discussed staff concerns about ‘running AI intensively every day, merely wasting tokens on superficial efforts without boosting productivity.’ His response is perhaps telling; He noted that when people encounter any new technology or tool, the initial period of experimentation or “unfamiliarity” produces “imperfect usage”, adding, what matters is taking the first step to embrace new technologies – “It’s fine to waste a little money, but never waste time.”

Huang’s words reflect the certainty of AI’s adoption, which I don’t contest. But will enough revenue from AI customers be generated to provide a reasonable return on the investment made by hyperscalers and data centre developers?

It would be unusual if this time is different

It might be worth remembering the words of journo Derek Thompson, who wrote in his November 4 newsletter, AI Could Be the Railroad of the 21st Century. Brace Yourself, “Memories are short, and prudence and natural risk aversion are no match for the dream of getting rich on the back of a revolutionary technology that “everyone knows” will change the world.

The global railway mania of the 1800s bankrupted thousands of investors, wiped out hundreds of companies, but left nations with a rail network that powered a century of industrial dominance. Similarly, when the fibre-optics/internet/broadband boom of 1999 crashed in early 2000, it vaporised $US5 trillion in market value, but it also laid the wiring on which the Internet Age was built. Similar stores can be told about the electricity bubble, aviation, broadcast radio and automobiles.

Indeed, about three-quarters of General-Purpose-Technology (GPT) booms share a similar pattern of colossal over-investment, financial carnage through creative destruction, then lower prices and decades of productivity gains assembled on the residual infrastructure.

At the core of today’s AI boom is a GPT on the scale of electricity or the internet, and the infrastructure being built will support decades of economic activity. And unlike the Dot.Com bubble, the investment isn’t billions in speculative debt being loaned to ‘pre-revenue’ companies with no path to profitability. This time, the investment is coming (so far) mostly from companies with strong balance sheets. But beyond that core, the classic signs of every bubble are on display.

It would be unusual, given the great enthusiasm or hype, the high asset prices, the overbuilding, the uncertainty of future demand, indeed, the many elements that conform to past bubbles, if this boom doesn’t also conform to the pattern illustrated in Figure 1. it would indeed be a first.

Bullish investors believe AI is a new, infinite fourth factor of a nation’s production and wealth creation. In the past, we had labour, capital and land as production inputs, all of which were, of course, finite. Land provided the raw materials, labour the muscle and the mind to transform them, and capital was the tool.

Enter AI. The transformative aspect of this fourth ingredient is that, unlike the physical limitations of land or the finite hours of the human workforce, data is a resource that is functionally unlimited. And, importantly, it’s the only factor of production that actually grows more abundant the more we use it.

This article was first published in The Australian on 27 May 2026.

I joined Niav Owens on ABC Newcastle Mornings to discuss what history tells us about oil-price spikes and share markets, and why falling oil prices are not always positive for equities. We also explored the growing excitement around SpaceX, including the bullish case for the company, concerns about its proposed IPO structure, and why investors should be cautious of getting caught up in market hype.

Tune in from 27:50 – ABC Newcastle Mornings 

In this week’s video insight, I take a closer look at the upcoming SpaceX IPO and some of the concerns being raised by critics. While many investors expect the listing to be a major success, I explore questions around the company’s unprecedented valuation, the folding of other Elon Musk ventures into SpaceX, rule changes that could accelerate its inclusion in major indices, and whether forced buying by index funds may help drive the share price higher. I also discuss the risk that early investors and insiders could benefit most, while everyday investors are left carrying the long-term risks.

Transcript: 

The upcoming SpaceX IPO might look like a historic milestone for space exploration, and the bulls suggest that it will be hugely successful. Why? Well, it owns the largest satellite network ever. It owns the world’s fastest and cheapest toll road into space. It’s the Pentagon’s primary access to orbit, the world’s dominant launch provider, and the home of xAI, Grok, and now Twitter, or X. There’ll also be a very small percentage of stock available to trade, which will ensure investors or speculators make money.

But what are the counterpoints? Some critics suggest the SpaceX IPO represents the biggest wealth transfer in financial history.

So here’s seven SpaceX counter facts. Number one, the extreme precedent-defying valuation. SpaceX is targeting a $1.75 trillion valuation, which is over fifty times its projected revenue and ninety times trailing revenue. To put that in perspective, Facebook went public at roughly ten times revenue.

Two, bailing out underperforming ventures and the billionaires who invested in them. Some say this IPO is a mechanism to bail out investors in the financially troubled parts of Musk’s empire. In 2022, Elon Musk raised billions and bought Twitter for $44 billion US dollars. His backers included firms like Andreessen Horowitz, Sequoia Capital, and a subsidiary of ARK Ventures and 8VC, as well as individuals including Bill Ackman, Sean Combs, and a Saudi prince.

Twitter was then folded into xAI, which was then folded into SpaceX. It’s a cashless chain of mergers that transfers the financial baggage of Twitter’s loss in value into SpaceX’s balance sheet so early investors can cash out.

You see, the value has to hold because nobody has been paid. And it’s worth pointing out the only profitable venture is Starlink, and the company generates more revenue from renting out its NVIDIA chips to Anthropic than it does from its rocket systems.

Three, dumping shares on unprofessional investors. While typical IPOs allocate ninety percent of shares to institutions and ten percent to retail investors, SpaceX is giving thirty percent to ordinary investors. And critics say this is because institutional investors refuse to pay such an inflated price. Ever wondered why you’re being given access through CommSec in Australia?

Four, fast-track index rules. Under traditional rules, new stocks require a seasoning period of up to a year before they’re included in major indices like the Nasdaq.

This protects smaller passive investors from buying novel ideas without an established track record on the stock market. SpaceX would need a rule change if it wanted to be included in an index early.

Well, according to The Wall Street Journal, the Nasdaq has changed the rules, allowing a fast entry within fifteen days for SpaceX. Why? Because Musk could have gone to the New York Stock Exchange, who might have offered to change the rules too.

Five, you’ll own some SpaceX whether you like it or not. By entering the NASDAQ almost immediately, index funds are required to buy billions of dollars worth of SpaceX stock to mirror the index, regardless of whether it’s a good investment. This is a positive, of course, for those speculating on short-term support.

Six, the bag-holder dynamic. The combination of artificial scarcity, offering less than five percent of total shares to the public, and immediate index fund demand is designed to rapidly spike the stock price. But this allows early institutional and insider investors to cash out, potentially at a much higher than warranted price, leaving ordinary retirement savers holding the bag.

And finally, seven, NASDAQ’s rule change marks a peak. Over time, you see regulation tighten, then loosen, then tighten again. When times are good, regulations loosen so everyone can join the party, which then keeps going. Eventually, the party ends. And when it does, regulation tightens again in an attempt to ensure it never happens again.

SpaceX could mark an important milestone in stock market history.

A tiny supply of shares mixed with forced buying from retirees and new investors might put a rocket under the price, pun intended. But if it does, the smart money, the early investors, and the insiders look set to cash out. SpaceX has literally rewritten the rules to ensure that everyday investors will be holding the bag irrespective of the outcome. So you can stay up to date with my insights by following me on Facebook and Instagram. And who knows? You might still be able to follow us on X.

I joined Jess Maguire on ABC Statewide Drive to discuss what rising oil prices and the conflict in the Middle East could mean for markets. We looked at historical data showing that past oil-price peaks have often been followed by weaker share markets, and also explored the growing excitement around SpaceX, including the opportunities and risks for investors considering investing in the company.

Tune in from 1:46:33 here: ABC Statewide Drive

Inflation seems to be the topic du joúr. Perhaps surprisingly, however, is the variety of opinions, even on the same day.

Economists, strategists and analysts don’t seem to be able to agree on anything regarding inflation (except for the current number), even on the same day (in this case, today the 28th of May 2026) – even when presented with the same data.  

Here is just a small selection of comments about inflation that arrived in my inbox this morning, and as you will see, facts are open to interpretation.

The United States

1. ‘Inflation is rising and at risk of heading higher yet, thus central bankers are already pivoting to rate hikes; at the margin, policy is becoming less supportive for risk assets.’ – Topdown Charts
2. ‘The “Run It Hot” Mandate: Policymakers must keep the market elevated to prevent economic collapse, choosing inflation over deflation to manage the debt burden…The resulting commodity supercycle is the best vehicle for ordinary investors to capture the wealth effect and outpace structural inflation. “We’re going to grow the economy hot… non-inflationary growth stronger than people expect.”…Supply-side policies combined with A.A. productivity point to strong non-inflationary growth.’ – Metals & Miners
3. ‘Despite the relatively calm price action over the last seven days, Bitcoin’s situation continues to weaken underneath the surface. That’s casting increasing doubt on the recovery trend and raising the risk of another leg lower in the short term. Some of the recent macro developments are not helping either. Treasury yields are moving higher on the back of inflation, and Bitcoin’s own demand indicators continue to soften at the same time.’ – Ecoinometrics
4. ‘Yes, the inflation rate remains above the arbitrary 2 per cent target rate adopted by the Fed in January 2012. And true, Consumer Price Index (CPI) inflation only averaged about 1.8 per cent between 2010 to 2019 during the aftermath of the Great Financial Crisis when real Gross Domestic Product (GDP) growth was fairly disappointing…But in the last almost three years, suddenly anything above a 2 per cent inflation rate is considered a tragedy, an assault on consumers and businesses, and a crisis demanding the entire focus of economic policy officials. Why? Is the ongoing obsession with any inflation above 2 per cent really warranted? And if the inflation bogeyman is chronically thought to be around every corner, how much is this obsession holding back U.S. real economic growth, job creation, economic sentiment, and basically, the American Dream?’ – Jim Paulsen

Australia

1. ‘Inflation, even in core terms, remains above the Reserve Bank of Australia’s (RBA) target band and is likely to remain there for some time. Housing inflation is a key concern, with construction costs and rents likely to remain supported, although our view of a broader housing market slowdown will provide some offset. Over coming months focus will be on: 1) broadening cost-push pressures from higher energy costs; and 2) domestic demand indicators for signs of ability for these costs to be passed through. We expect to see more evidence of weakness in the latter over coming months – a key reason why we expect the RBA to stay on hold at the current cash rate from here.’ – Morgan Stanley
2. ‘The market’s expectations of another interest rate rise from the Reserve Bank of Australia (RBA) this year are starting to fade after a surprisingly cool inflation report reduced the pressure on the central bank to keep tightening monetary policy. Bond traders trimmed their rate rise bets after the monthly consumer price index for April cooled at a faster clip than anticipated to 4.2 per cent. Core inflation still ticked up to 3.4 per cent, which is the highest since late 2024 and well outside the RBA’s target. “This will be a big relief for the Reserve Bank for sure, they will receive this data print with open arms,” said Andrew Lilley, chief rates strategist at Barrenjoey. Lilley noted a surprising decline in domestic inflationary pressures that dominated much of last year. He said that while costs remained undeniably high in sectors such as fuel, electricity and new housing, market services inflation over the past three months had actually fallen below the RBA’s 2 per cent to 3 per cent target band. “It’s going to make the RBA less concerned about the breadth of inflation pressures for the economy.”’ – The Australian Financial Review
3. ‘According to Saraha Hunter, assistant governor of the Reserve Bank of Australia, the RBA anticipates that inflation will rise more than previously anticipated due to rising oil process brought on by the Middle East crisis. Hunter clarified in a speech and interview that the RBA is concentrating on three factors.’  – MacroBusiness

I joined Juliette Saly on Ausbiz today to discuss why global equity markets may be closer to a peak than many investors expect. We explored the historical link between oil-price spikes and weaker share markets, why even strong artificial intelligence (AI) –driven earnings growth may not protect valuations in a higher-rate environment, and how the excitement surrounding SpaceX is pushing many listed “proxy” space stocks into hyper-exponential territory untethered from fundamentals.

You can watch via Ausbiz here: Global equities may be closer to a peak than many investors expect

In this week’s video insight, I explore the growing debate around whether AI stocks are in a bubble by revisiting a strikingly familiar research note published during the DotCom era in 1999. At the time, investors were told there were “good reasons to pay through the nose” for leading technology stocks because their growth and disruptive potential made “this time different.” Drawing on my own experience working through the DotCom bubble, I reflect on how speculative excess can continue far longer than expected before eventually unwinding, often with devastating consequences for investors. While today’s artificial intelligence (AI) leaders may have strong fundamentals, history reminds us that every bubble comes with a compelling narrative that sounds convincing in the moment.

Australia and the United States (U.S.) currently have one thing in common. 

Consumer confidence is in a world of pain. 

In the U.S., the Consumer Sentiment Index (CSI) has fallen to the lowest level ever recorded since the University of Michigan began tracking the data in 1952.

The Index, see Graph 1. and Table 1. below, hit 44.8 in May 2026, as Americans fear inflation, rising fuel costs, economic instability associated with the Iran War and the worry artificial intelligence (AI) will take white collar jobs.

When I look at the U.S. inflation rate – which was 3.8 per cent for the year to April 2026 – and the U.S. Federal Funds Rate at 3.75 per cent, I again point out a significant anomaly.

That is, the U.S. inflation rate in 1980 hit 13.5 per cent, three and a half times the current rate; and by 1980 the U.S. Federal Funds Rate had hit 20.0 per cent, five times the current rate.

The unemployment rate in the U.S. is currently 4.3 per cent after peaking at 10.8 per cent in 1972.  

In March 1984, the University of Michigan Consumer Confidence Index hit 101, more than 56 points above the current level. And in June 2000, the Index reached a peak of 112. As the Americans would say, “go figure”.

Graph 1. The Michigan Index of Consumer Sentiment

Source: Surveys of Consumers, University of Michigan May 2026 

Similarly, in Australia. After three consecutive 0.25 per cent increases in the three months to May 2026, the Reserve Bank of Australia (RBA) cash rate is 4.35 per cent, and this compares with 17.5 per cent in January 1990. 

Also, in 1982 inflation hit 12.5 per cent. Now it is 4.2 per cent. Unemployment peaked in December 1980 at 11.2 per cent and that compares with the current unemployment rate of 4.5 per cent.

And meanwhile the ANZ/Roy Morgan Consumer Confidence Index has, over recent weeks, hit the lowest level since the data collection began in 1972.

Table 1. U.S. and Australian economic indicators 

*All data at 27 May 2026 with exception of the inflation data at 30 April 2026

I believe this is a story of debt and hope, or lack thereof. 

In Australia, for example consumer indebtedness as a proportion of disposable income, has jumped more than four-fold since 1980 from sub 40 per cent to 180 per cent. 

Graph 2. Australia’s household finance: Ratio: Debt to disposable income from March 1977 to December 2025

Source: RBA, CEICDATA.com

The national unemployment rate has also risen to its highest level since November 2021 and is expected to worsen as the RBA tightens monetary policy, governments rein in spending, AI takes some white collar jobs and the global energy shock takes its toll. Australian home values have grown well beyond what buyers can afford at current interest rates – and as rates rise further, prices must fall to close that gap.   

The dilemma facing home prices is summarised by the following chart from Shane Oliver, Economist at AMP:

Graph 3. Australian home prices versus capacity to pay

Source: Cotality, ABS, AMP

So, unless you’re lucky to have rich parents or grandparents, good luck with buying a house, or even renting an apartment. 

Adding to this anxiety is the fear of falling property prices. Investment bank Morgan Stanley has warned that the 2026 Federal Budget’s changes to negative gearing and capital gains tax could trigger a national decline in home values of as much as 10 per cent – the sharpest fall in at least 40 years.

With investors making up one-third of marginal housing demand, the tax changes carry a huge impact on potential demand. Auction clearance rates have recently declined to multi-year lows in Sydney and Melbourne, while new listings are tracking above the five-year average. For the millions of Australians whose wealth is tied to their home, this is likely another source of uncertainty eroding consumer confidence.

Consumer sentiment measures confidence, and despite historically low unemployment, cash rates and inflation, this confidence is currently in short supply.

While it may not inform your investing decisions, it’s undeniably enjoyable to look at what bulls were saying during a previous bubble and comparing those comments to what is being said today.

In this post, I compare the statements from the latest post of stock market bull Ed Yardeni, and the statements made in the April 1999 Merrill Lynch report entitled ‘e-Commerce: Virtually Here’.  

Published on 8 April, 1999, the section beginning on Page 13 and titled The Epicenter, was authored by Henry Blodget. According to The Guardian, “As the dotcom bubble was rapidly expanding in the late 1990s and early 2000s, Blodget was arguably the world’s most famous financial analyst, named Institutional Investor’s “all-star” analyst three years running and taking home a salary of US$12m from Merrill Lynch.”

Figure 1.  The April 1999 Merrill’s Report.

Source: Montgomery

Ed Yardeni 2026: The bears say the exuberance is irrational, driven by lots of excitement about artificial intelligence (AI). We say it is rational, based on our Buzz Lightyear Theory (BLT) of “To Infinity and Beyond!” According to our BLT, there’s a fourth factor or [sic] production, not just the historically recognised three. In addition to land, labor, and capital, which are relatively scarce, there’s now data, the supply of which is unlimited.

Merrill Lynch 1999: It is important to keep in mind that a major driver of internet stocks is an imbalance of supply and demand. The price of any good or service is determined not by its inherent “worth” but by the law of supply and demand – and good internet investments are in short supply and great demand.

Ed Yardeni 2026: Instead of focusing on rational versus irrational exuberance, let’s compare FOMO to FEMO. The former stands for “Fear Of Missing Out.” Investors pile into stocks, bidding up their price-to-earnings multiples. FEMO is “Fabulous Earnings Momentum.” Analysts raise their earnings estimates because hard data and company guidance give them reason to do so.

Merrill Lynch 1999: Stocks go up or down not because they are trading at particular multiples of published projections but because, for a variety of reasons, investors decide to buy or sell them.

Ed Yardeni 2026: This year has been all about FEMO (Fabulous Earnings Momentum). Through Friday, the S&P 500 is up 9.2 per cent year-to-date (ytd), forward earnings is up 14.4 per cent, and the forward price-to-earnings (P/E) is down 4.6 per cent. The entire rally has been driven by forward earnings. The multiple has contracted. FOMO inflates the P/E. This market did the opposite. That is why we are not in the bubble camp. FOMO is based on hope and hype. FEMO is based on fundamentals. At 21.1 times forward earnings, the S&P 500 is not irrationally valued unless a recession is coming in the foreseeable future. We don’t see one.

Merrill Lynch 1999: For several reasons, moreover, we believe that even when viewed through the lens of a more rigorous valuation framework, the stocks are worth more than the casual observer might think. These reasons include: 1) that no one knows with any degree of certainty what the future cash flows will be or what the real risk associated with them is (the leading companies have been blowing away expectations from the get-go); 2) the potential for unprecedented returns on invested capital, which will ultimately equate to higher P/E multiples, and 3) benefits from the “network effect,”  through which franchises are made more valuable and sustainable with every new customer or supplier they add.

It’s said history doesn’t repeat, but it certainly appears to rhyme. Whether analysts and strategists are unwitting pawns in a greater game of chess or victims of the fads and fashions of the day, it certainly seems they respond similarly to price stimuli across time and space. 

Figure 2.  NASDAQ composite index 1998-2001

Source: Montgomery

On December 11, 1974, influential Austrian-born British economist and philosopher, Friedrich von Hayek, best known as a champion of free-market capitalism and classical liberalism, and a fierce critic of socialism and state intervention, delivered “The Pretence of Knowledge” as his Nobel Memorial Lecture. It was later published as an essay and remains one of his most famous critiques of central planning and hubris in economics.

He said, “We know, of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information. And because the effects of these facts in any particular instance cannot be confirmed by quantitative evidence, they are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.”

And while Hayek’s observations could be usefully considered, but likely ignored, by the ideologues* in Australia’s Labor Party, I will leave that discussion for another time. Today, it seems Hayek is also being channelled by CIO, Portfolio Manager, Global Macro and Geopolitical Strategist at Singapore-based Convex Strategies, David Dredge.

[*Ideologues: Uncompromisingly and strictly adhering to their ideology, often to the point of dismissing or ignoring opposing viewpoints, and often prioritising theoretical ideals over practical compromises and real outcomes.]

In a recent interview published online, Dredge makes the following observations, each of which is useful for today’s investor to ruminate on as they navigate the impacts of the war in Iran, and particularly, its inflationary impacts:

1. “History alone is a very poor measure of risk. It only tells you what did happen. It doesn’t tell you what could have happened.”
2. “Central banks should not be central planners trying to optimise some future outcome. They should be risk managers. They should be like the forest manager who’s keeping the forest floor clean, who’s doing controlled burns, who’s cutting fire breaks, et cetera. They shouldn’t be trying to optimise the perfect forest of something that they don’t understand and can’t control.”
3. “The one thing I think [Warsh] can do and has to do is put the death nail in forward guidance. Why are we sitting here not just, not ever, adjusting our policy but telling people what our policy will be into the future with no knowledge of what the future’s going to be?”
4. “If you couldn’t see already in March that the Iran War had a very likely potential impact on direct resource prices, indirect resource prices and second-order effects, and if you’re not aware of the long memory implications of having just come through a massive increase in your price level across the entire system, you’re fools. You’re outright fools. And the way they sit and misrepresent, “Oh, monetary policy is not the right tool to manage oil prices, and we’re going to look through the supply shock, and this is temporary, and it’ll come back down. We’re watching for indirect and second order…Garbage, garbage, garbage”
5. “The forest accumulates risk through time. And so you shouldn’t be surprised that there’s fires when lightning strikes. You should have known it was already there. And this is really the fundamental flaw.”
6. “…this new competition for debt issuance by governments, and after the long period of [Quantitative Easing] QE and zero interest rates and massive reserve accumulation and adding leverage to banks in the Basel I, II, III and zero risk-weighted assets and the proliferation of liability-driven investment and this massive absorption until you got to – I can’t remember the number, $17 trillion of negative-yielding debt and zero interest rates and the largest outstanding debt ever at the highest price ever, the mother of all bubbles – something happened and they lost control and so it was really easy. And so everybody blew through 100 per cent of debt to [Gross Domestic Product] GDP and people were still buying the bonds at zero yields and negative, even though they went through 100 per cent of debt to GDP, and now we can’t do QE anymore because we lost control of price stability, and the banks are all so full on bonds that they bought at 1 per cent yield and the yield’s now 4.5 per cent. And they have these massive unrealised losses, and this was the whole premise around, “Who’s going to buy the bonds?” and yet, the guys selling them still need to sell more.”
7. As to whether it is ignorance, or just the academic condition, “Well, they’ve simplified the math down to make it easy. The whole premise of economic math, as Hayek said in his famous Nobel lecture, is “We’ve decided to treat as important that which we can measure.”

While Dredge advocates using volatility funds such as his to protect against the downside, noting it’s cheap to buy insurance against big drops, he’s also suggesting the market is inherently unstable. Perhaps we can add Dredge to the growing cohort of reputable investors who believe the market’s bull run is on borrowed time.

As the list of bears publicly declaring the end of the stock market’s bull run grows, so does the wave of charts, indicators and correlations used to explain or justify the growing chorus of crash predictions.

The bear camp’s advocates now include, most vocally, Scott Galloway, Ray Dalio and Michael Burry, and perhaps more reservedly, Torsten Sløck. Others in the bear camp include Jim Rogers and Morgan Stanley’s Mike Wilson.

By way of a quick summary, Michael Burry is sounding the alarm over an excessive debt frenzy and venture-capital overconcentration in artificial intelligence (AI), comparing it to the dangerous tech-bubble excesses of the past. Mike Wilson has outlined bear-case scenarios in which escalating international tariffs and restrictive Federal Reserve policies could trigger a steep correction or recessionary drop in the S&P 500. Meanwhile, Jim Rogers is warning of a severe, potentially historic global financial crisis, citing excessive global debt and escalating geopolitical shocks. And finally, Scott Galloway notes that whenever new tech infrastructure spending exceeds 2-to 3 per cent of Gross Domestic Product (GDP), a massive market correction follows, just as it did after the railroad boom, early electrification, telecom buildout, and the 2000 dot-com bubble.

And then there’s Warren Buffett, who’s said little but has acted convincingly, selling down the equity portion of Berkshire Hathaway’s portfolio and building cash to almost US$400 billion.

On the periphery of these high-profile calls and moves, a conga line of analysts is pointing to a variety of indicators to support their bearish thesis. And while I am not inferring they are wrong or right, it’s important for investors look critically at one before deciding to adopt it as a basis for an investment decision.

Figure 1.  Composite Valuation Indicator

Source: TopDown Charts, LSEG, Callum Thomas

The chart in Figure 1., plots the S&P 500 against a proprietary indicator called the Composite Valuation Indicator. Upon first glance, the indicator appears to have reached an extreme overvaluation score of more than +1, and the indicator’s creator states, “valuation indicators are sounding a background warning tone.” 

Because the line primarily oscillates between -1 and +1, it tells us the indicator is denominated in units of Standard Deviations from a historical mean. According to the empirical rule of a normal distribution, also known as the 68-95-99.7 rule says that about 68.3 per cent of all historical data points will naturally fall within +/- 1 standard deviation of the mean. Movements outside of this band represent statistical anomalies or tail events. For instance, the massive spike toward +3 during the year 2000 (the Dot-com bubble) is an outlier, an event with a theoretical probability of less than 0.3 per cent in a perfectly stationary distribution.

It all sounds reasonable and even insightful. That is, until we realise that there aren’t a sufficient number of occurrences (observations) above +1 over the last 41 years to say whether the signal is reliable. As there have only been five occurrences, there’s little option but to keep observing.

And practically, at what point after the line transitions above +1 should the investor be so sufficiently ‘warned’ that they should sell equities – if, presumably, that’s the point? The indicator rose above +1 in 1997 or 1998, and we know the stock market roared higher for another 2-3 years. It seems the indicator also exceeded +1 in 2021, and the market rallied that year. 

Perhaps it’s just another indicator used to warn investors to be on the lookout for other warning indicators, indicating that investors have been warned. I am not sure. 

Instead, it seems reasonable to conclude that rising bond rates, if they persist, will negatively affect asset valuations. They always have, and the relationship is mathematically irrefutable. That this comes at a time when another new general-purpose technology (GPT) has produced a hyper-exponential spending race to scale that technology and simultaneously produced an associated jump in valuations is also noteworthy. 

While indicators can be a convenient visual representation of market conditions, they can also be used by investors as a shortcut for ill-considered decisions. By all means, watch the graphs, but don’t forget the fundamentals that drive markets and investor sentiment.

Four consecutive years of high double-digit returns in the stock market is a rare occurrence.  Indeed, it’s happened once in 100 years. If this year ended on a high, it would be the second time investors enjoyed four consecutive high-returning years. 

A growing number of reputable investors, however, are suggesting that the outcome is unlikely and they’re citing the relentless rise of sovereign bond yields.

According to Torsten Sløk, chief economist at Apollo Global Management, government bond yields across the Group of Seven (G7) nations have surged to their highest levels since 2004.

Figure 1.  G7 Government bond yields highest since 2004 (22 years)

Source: Apollo Global Management

The milestone has sparked widening concern among analysts that the equity market has entered the potentially volatile late stages of a speculative boom. The prevailing view among a growing chorus of bearish predictions is that soaring risk-free rates and a staggering mountain of public debt, particularly in the U.S., pose a direct threat to equity valuations.

Since the Global Financial Crisis (GFC), artificially suppressed interest rates acted as a powerful tailwind for equities, pushing investors into riskier assets on the assumption that There Is No Alternative (TINA). Today, however, fixed-income securities are offering a highly competitive haven for investor capital.

To understand why elevated bond yields should trouble stock market investors, you have to consider the mechanics of asset pricing. Financial markets operate under the laws of what Warren Buffett once referred to as economic “gravity”, where government bond yields dictate the baseline cost of capital.

When risk-free sovereign bonds offer yields near five per cent, the hurdle rate for investing in stocks rises dramatically. Institutional investors are less incentivised to absorb equity market volatility and risk when they can lock in historically high, guaranteed returns backed by sovereigns with the power to tax their constituents to raise revenue (as we are discovering in Australia!).

Furthermore, higher bond yields impair equity valuations through the discounted cash flow calculation. The present value of future corporate earnings is calculated using a discount rate heavily tied to prevailing treasury yields. As yields climb, this discount rate spikes, automatically compressing forward price-to-earnings (P/E) multiples. This valuation compression severely damages high-growth sectors like technology, where projected cash flows lie out in the distant future. Consequently, even if earnings remain healthy, rising capital costs force a downward repricing of equities, presenting a structural headwind for stocks – even if earnings are expected to grow.

More importantly, the forces driving yields upward appear to be structural rather than cyclical because they’re tied to expanding government deficits and morphing central bank policies.

It was economist and strategist Ed Yardeni who famously coined the term “bond vigilantes” to describe investors who sell bonds to protest inflationary fiscal policies. Yardeni, a noted stock market bull, has admitted that these bond market actors are actively forcing the hands of policymakers.

In the wake of escalating geopolitical tensions, including the closure of the Strait of Hormuz and consequent resurgence in global energy prices, headline inflation is proving stubbornly uncooperative. In fact, the U.S. Federal Reserve’s preferred inflation gauge – the Personal Consumption Expenditures (PCE) price index – last sat below its 2 per cent target in February 2021. That’s over five years since PCE inflation was below 2 per cent.

The bond market has reacted by demanding a significantly higher inflation risk premium, pushing yields to levels that directly challenge Trump, and by extension, the Fed’s agenda – to lower rates.

One interpretation of rising bond yields, and in particular the yield curve flattening we are seeing, is that bond traders -Yardeni’s ‘vigilantes’- are effectively forcing the Federal Reserve to abandon its accommodative bias in favour of a prolonged tightening stance, locking the economy into a higher-for-longer interest rate regime that must sap equity market liquidity.

Meanwhile, Ray Dalio, the billionaire founder of Bridgewater Associates, and something of a market and economic Cassandra, views the current turbulence through a different lens – one that prioritises long-term debt cycles. Dalio reckons the United States must navigate debt saturation, which is the consequence of massive structural deficits that require an unprecedented volume of new debt to be issued. With nearly US$10 trillion dollars of American public debt requiring rollover in the near term, Dalio suggests the sheer supply-and-demand imbalance threatens to destabilise the financial system.

Dalio worries that foreign buyers will reduce their appetite for American sovereign debt amidst rising geopolitical fragmentation and a creeping capital war. Either bond yields have to spike higher to attract capital, or the central bank will be required to print money, triggering further rises in inflation as well as severe currency debasement.

In either scenario, equities are less attractive, just as long-term debt assets look unappealing, creating an environment in which equity risk premiums (the extra return an investor expects to receive for choosing to buy ‘risky’ stocks instead of safe, risk-free government bonds) have become unsustainably compressed – you’re just not being offered enough ‘extra’ return for being in stocks.

And then there’s Michael Burry, the contrarian investor renowned for predicting, and profiting from, the 2008 subprime mortgage crisis, whom I wrote about recently here: Yardeni vs. Burry – The Bull vs the Bear.

The parallels between current market euphoria and previous episodes that produced historic speculative collapses have caught Burry’s attention. Burry warns today’s market echoes the peak of the dot-com bubble. While the public has been captivated by an artificial intelligence (AI) driven boom, the underlying reality is a market trading at extreme valuation multiples completely disconnected from historical norms.

Burry further points out that speculative frenzies depend on cheap, abundant leverage. With borrowing costs now rising and potentially rising permanently, the structure supporting these inflated stock prices unwinds. Rising interest rates act as the ultimate pin that pricks speculative bubbles, and this has seen Burry to publicly shift his own capital away from overextended technology mega-caps and into uncorrelated, discounted value assets.

While you might not be convinced by Yardeni, Sløck, Dalio or Burry, consider the cautious thesis implied by Warren Buffett’s recent moves.

While Buffett officially transitioned to ‘Chairman Emeritus’ of Berkshire Hathaway at the conclusion of 2025, handing operational control to Greg Abel, his conservative capital allocation philosophy continues. Berkshire Hathaway’s cash pile has reached an astronomical and record-breaking US$397 billion. The cash pile has grown amid a multi-year net liquidation of stocks, which included slashing Berkshire’s stake in Apple and cutting its holdings in Bank of America by more than half. And the cash has been parked in short-term U.S. Treasury bills, capturing a safe, predictable return of four to five per cent, while share buybacks have been halted for nearly two years. What are we to read from this other than Buffett believes stretched equity valuations and high sovereign yields mean risk-free government debt will outperform speculation on an overextended AI-driven stock market.

Can they all be wrong? The short answer is yes. But their track records suggest it’s unlikely they’re all wrong at the same time. Given the era of artificially suppressed interest rates is firmly in the past, and bonds are reclaiming their place as a harbour for global capital the stock market’s recent near vertical ascent seems oddly misplaced. Unless it is a blowoff top, that is.

As long as structural fiscal deficits, geopolitical division, and energy-driven inflation shocks continue to push sovereign yields to multi-decade highs, the stock market’s highs will remain in direct conflict with the laws of gravity.

Perhaps equity investors accustomed to decades of cheap money haven’t read the memo?  The transition to realisation could prove expensive and volatile.

Scott Galloway is an American academic, author, podcast host, and serial entrepreneur. He’s best known as a Clinical Professor of Marketing at the New York University Stern School of Business and a prominent commentator on big tech, modern economics, and social trends.

Galloway has recently and publicly joined the ranks of stock market bears, predicting we’re on the precipice of a US$10 trillion wipeout while immediately noting he, “gets this wrong all the time [so] this is not financial advice.”

Galloways catalyst is not the war in Iran, it’s what comes after – a chain reaction.

Galloway believes oil won’t remain at extreme levels like US$150/bbl, but believes oil is going to stay elevated through the rest of the year, reigniting inflation in some markets. He thinks corporate earnings will be impaired as consumers stop spending once some of them start paying five bucks a gallon for gas and the value of their 401(k)s starts to decline.

He thinks the Q2 earnings season heralds a deterioration in corporate performance. In turn he believes this will influence CEOs to “throw in the kitchen sink and they’ll make it look like a bloodbath just to get all the bad shit out.”

But Galloway also says, “the real contagion here is going to be from emerging markets.”

“I think there’s a decent chance that Pakistan and Egypt default, as well as Sri Lanka and Bangladesh,” adding, these are the countries with “Dollar denominated debt, [are] very energy dependent, [and] very fragile economies.” Galloway believes “there’s this domino effect in those markets because they can’t afford oil imports and their dollar-denominated debt just becomes unpayable.”

And then, he says, the real downward spiral starts. European banks holding that emerging market debt start announcing write-downs. Foreign banks, including Deutsche Bank, and BNP, Paribas, are all hugely exposed.

Next, Galloway predicts, credit spreads blow out, “and we get sort of an 08-style, ‘which bank is next(?)’ moment, except this time it’s happening while the U.S. is fighting a war we started for no reason.”

The Stern School of Business Professor suggests that by August, the narrative shifts from transitory war shock to “we may have broken the global financial system.”

He believes by then the S&P will be “off 20 to 40 per cent from its peak…and quite frankly, the only thing that probably goes up is canned goods and ammunition.”

“The contagion is going to start in emerging markets that can’t afford oil and where their debt is dollar denominated. It’s just a toxic cocktail.”

Before I begin; I use the term ‘workers’ in this article. It’s not intended to be disparaging. It’s a reference to a label that the Labor Government gives their core constituency. It’s the voting base Labor frequently refers to and says they support.

The 2026 Federal budget may offer an insight into Labor’s logic:

‘Tax the asset to fund their so-called ‘worker’, so that worker can buy an asset.’

The problem?

They haven’t solved a generational divide; I believe they’ve just designed a wealth-recycling machine where the Government takes a service fee at every turn.

If we look a bit closer, we find a paradox.

1. The ‘Subscription’ model of citizenship

If assets are perpetually targeted to fund current consumption or ‘level the playing field,’ then private property effectively ceases to exist.

Instead, ownership becomes a lease from the state. If you ‘own’ a home but the tax regime (land taxes, removal of capital gains tax (CGT) discounts, inheritance taxes) is designed to claw back its value to fund the next generation of workers, you don’t actually own the asset.

You’re renting your status as an ‘owner’ from the government. The ‘worker’ isn’t being elevated to an ‘owner’ either; they’re being elevated first to a state-subsidised beneficiary and then to another status renter.

So, setting up a system that takes from the class of asset owners, simply means taking from a worker’s own future self.

2. Institutionalising the ‘Middle-class trap’

If the ‘asset class’ is the villain, then the moment a worker succeeds in saving enough to cross that threshold, they become the new target. And that’s why this budget may not help the young as is claimed to.

Instead, a permanent ‘middle-class’ is created that’s simultaneously too wealthy to receive benefits and too poor to survive the taxes on the assets they just managed to acquire.

This is not a ‘fix’ for the generational divide.

The only entities that survive the ‘land grab’ or are protected are the ultra-high-net-worth families who have the scale to absorb or negotiate these costs, or the mobility to move their capital offshore.

3. Consumption: The social control tool

There’s irony in the idea that Australians should ‘give to the workers’ so they can consume. Consumption is ephemeral; it disappears the moment the transaction is over. Assets, however, provide leverage and autonomy.

If a government prioritises ‘flows’ (giving ‘workers’ more cash to spend) over ‘stocks’ (protecting the ability to hold and grow wealth), they are essentially keeping the population on a liquidation treadmill – assuming they sell these assets.

If you give workers more money but don’t increase the supply of assets (like building more houses), the workers just bid against each other. The supposed ‘gift’ flows straight back to the asset class via higher prices.

Meanwhile, the worker enjoys a slightly better lifestyle today but remains dependent on the next ‘transfer’ or ‘tax tweak’ to survive.

And finally, the government becomes the indispensable arbiter of who gets what, gaining more power as the ‘intermediary’ between the two classes.

4. The ‘Entropy’ of capital

Capital requires maintenance. Houses need repair, businesses need reinvestment, and portfolios need growth to outpace inflation. If you treat the ‘asset class’ as a giant piggy bank to be smashed and re-distributed to people who can’t afford to buy anything with the little they’ve received they will consume it.

Once again, the invented generational divide isn’t fixed; it’s just nationalised.

The real issue

The real fix Chalmers and others are chasing isn’t about equity; it’s about solvency.

In a world of massive sovereign debt and aging populations, the state cannot afford a private asset class that sits on what it thinks of as ‘dead’ wealth (like family homes or old-money portfolios). They need to force that capital into the ‘flow’ of the economy so they can tax the movement.

The ‘Generational Divide’ that is frequently described is just the moral wrapper on what the government see as a necessary economic squeeze. They aren’t trying to make workers into owners; they are trying to turn owners back into taxpayers to help fill the hole created through waste like NetZero, the NDIS and the black market in tobacco.

Policymakers argue the goal is to shift the tax burden away from labour and more toward passive asset ownership. Critics, however, contend that over time these types of policy changes reduce the incentives for long-term private ownership and capital formation – making asset ownership increasingly difficult for ordinary Australians. Own nothing and be happy.

I joined Niav Owens on ABC Newcastle Mornings to discuss the growing divide between market bulls and bears, and how artificial intelligence (AI) is reshaping the investment landscape. We explored why investors are becoming increasingly optimistic about AI’s long-term potential and the productivity gains it could unlock across the economy. We also discussed the risks rising inflation, higher bond yields and elevated interest rates could pose to markets and asset valuations if economic conditions deteriorate.

Listen to the segment here: ABC Newcastle Mornings

There’s a thesis many investors are now positioning for: The artificial intelligence (AI) infrastructure buildout being led by the hyperscalers can’t proceed without copper, silver, and other critical metals, such as scandium. Their conclusion is that commodity prices will rocket higher if the the A.I. revolution continues.

Current forecasts suggest the combined capital expenditure of Amazon, Google, Meta, and Microsoft will reach US$715 billion in 2026, up 98 per cent on 2025 and nearly three times their combined capital expenditure (capex) in 2024.

The scale of the AI Buildout has evolved from what was only recently an ambitious corporate goal, to what some are describing as the largest industrial mobilisation in human history.

To give the spending some sense of scale, Amazon’s US$200 billion annual capex is roughly equivalent to the entire Gross Domestic Product (GDP) of countries like Greece or New Zealand. And this is being injected into silicon and steel every twelve months.

In fact, it’s not an exaggeration to say the hyperscalers are treating capex as their new economic ‘Moat’ or competitive advantage.

“I’m willing to go bankrupt rather than lose this race.”- Larry Page, Google Founder

Now, as an aside, there are some accounting shenanigans one should be aware of. 

The huge cash sums being injected into data centres and chips will be capitalised and then depreciated over time. The revenues, however, will be booked immediately. So, the profits will look epic and will drive rising earnings per share estimates for the Nasdaq and S&P500 in 2026 and 2027. Behind it, of course, a massive amount of cash is being burned. But no matter. 

For now, it all looks great, and the most validating sign for that conclusion is the explosive revenue growth of AI models like Anthropic. Anthropic recently reported US$44 billion in annual recurring revenue (ARR), up from US$9 billion in less than a year, representing a 46.6 per cent month-on-month increase, and roughly US$96 million in new revenue per day.

And keep in mind a significant portion of Hyperscaler spending isn’t just buying NVIDIA H200s or Blackwells; it’s building proprietary silicon too. Microsoft’s Maia 200 (a breakthrough inference accelerator engineered to dramatically improve the economics of artificial intelligence (AI) (token generation) and Amazon’s Trainium3 are now being deployed at “planet-scale” cluster levels to bypass Nvidia silicon margins. 

We’re also seeing capex on energy. Microsoft’s deal to restart Three Mile Island and Amazon’s massive nuclear-adjacent data centre acquisitions the spend is expanding to secure the energy grid itself, not just the servers. 

Elsewhere, it’s worth noting that US$25 billion of Microsoft’s guidance is attributable solely to component price inflation and supply chain premiums, highlighting how desperate the race for capacity has become. 

The old Software-as-a-Service (SaaS) model was built on a ‘per-user, per-month’ pricing and revenue model. That model appears to be under attack by a far superior replacement. Anthropic’s growth, for example, is driven by Agentic AI – autonomous systems like Claude Code that consume tokens at 100x the rate of a human typing into a chat box. But despite the massive compute costs, Anthropic’s inference margins have reportedly hit 70 per cent, suggesting software optimisation and specialised hardware are making AI delivery significantly more profitable as it scales. 

That experience probably explains why these companies are comfortable spending more than $600 billion collectively on the transition to Agentic Computing. Unlike Large Language Models (LLMs) that are essentially just smart web searchers, 2026-era agents are performing complex, multi-step workflows (coding entire apps, managing supply chains, conducting research), and 2027-era agents will be apps in the palms of everyone’s hands.

Follow that to its logical conclusion, and a massive bottleneck appears in the supply of copper, silver, and other critical metals because the global mining industry has not been significantly investing in developing new supply for the last 10 to 12 years.

Figure 1. Hey Big Spender, 2010-2025.

Source: S&P Global Market Intelligence

Conclusion

Tech companies are spending hundreds of billions and forecasting hundreds of billions more, but the mining companies they will be relying on to supply the raw materials have not. The only result (if the AI infrastructure boom continues) is for commodity prices to adjust upwards.

And that’s what many investors are positioning for.

If you were thinking of buying a, say, a $2 million property to renovate and flip in 18 months, Labor’s 2026 budget just made that a perilous strategy, while also making investing in an AA rated Private Credit Fund way more attractive.

The 2026 Federal Budget has significantly shifted the goalposts for you. If you haven’t signed a contract yet, you are stepping into a very different tax environment than the one that existed last week.

In the current 2026 climate, a private credit fund returning 7.22 per cent as at 31 March 2026*, is almost certainly the superior choice for a $2 million allocation over an 18-month horizon.

*Returns are net of fees and assumes reinvestment of distributions. Past performance is not a reliable indication of future performance. Inception date 4 October 2022.

According to our assessment, property flipping has, thanks to Labor, become a ‘hero’s errand’ compared to the steady clip of private credit.

The 2026 Budget: Flipping the bird at Property Investors

If you were looking to buy after May 12, 2026, you are going to be hit by two specific changes that gut the traditional property flipping model:

• Quarantined Losses: If you are buying an ‘established’ property, you can no longer offset your holding costs (interest on any finance, council rates, insurance) against your salary. These carrying costs or losses are now ‘quarantined’ and can only be used to reduce the eventual capital gain. This creates a larger 18-month cash-flow drag that didn’t exist before.
• The CGT Cliff: The new rules kick in on July 1, 2027. Any profit you make after that date will be subject to the new regime (cost-base indexation + 30 per cent minimum tax) rather than the simple 50 per cent discount. While there are transitional arrangements, the administrative headache and the likely higher tax bill at the tail end of your profit make the maths uglier.

And none of this considers the massive entry and establishment costs. Just to break even on a property renovation flip, you have to overcome:

• Stamp Duty: on a $2 million property that’s roughly $110,000–$130,000 (depending on the state) gone the moment you sign.
• Selling Costs: Agent fees and marketing at 1.5-2.5 per cent will eat up to another $55,000.
• Renovation & Holding Costs: Assuming a $200k renovation and $100k in holding costs, you need the property to sell for at least $2.5 million just to break even.
• Market Sentiment: Treasury modelling predicts the government’s budget changes will dampen established house prices by about 3 per cent. You are essentially trying to flip into a headwind.

Private Credit: The good news gets better.

In a double AA-rated private credit fund earning, say, 7.22 per cent per annum, your $2 million is working for you from Day 1 without you needing to pick up a hammer or deal with a council permit.

Conclusion

The property flip requires you to manufacture circa $500,000 in value over 18 months just to compete with the after-tax return of the credit fund.

In a market where tax benefits for established homes have just been stripped away, finding a property that can support that kind of “forced appreciation” is statistically unlikely.

Unless you are a licensed builder who can do the work for the cost of materials and a slab of beer, the 7.5 per cent for no work offered by private credit has just become a lot more appealing following the 2026 Labor Federal Budget.

Disclaimer:

You should read the relevant Product Disclosure Statement (PDS) or Information Memorandum (IM) before deciding to acquire any investment products.  

Past performance is not a reliable indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.  

This information is provided by Montgomery Investment Management Pty Ltd (ACN 139 161 701 | AFSL 354564) (Montgomery) as authorised distributor of the Aura Core Income Fund (ARSN 658 462 652) (Fund). As authorised distributor, Montgomery is entitled to earn distribution fees paid by the investment manager and may be issued equity in the investment manager or entities associated with the investment manager.  

The Aura Core Income Fund (ARSN 658 462 652)(Fund) is issued by One Managed Investment Funds Limited (ACN 117 400 987 | AFSL 297042) (OMIFL) as responsible entity for the Fund. Aura Credit Holdings Pty Ltd (ACN 656 261 200) (ACH) is the investment manager of the Fund and operates as a Corporate Authorised Representative (CAR 1297296) of Aura Capital Pty Ltd (ACN 143 700 887 | AFSL 366230).   

You should obtain and carefully consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the Aura Core Income Fund before making any decision about whether to acquire or continue to hold an interest in the Fund. Applications for units in the Fund can only be made through the online application form that accompanies the PDS. The PDS, TMD, continuous disclosure notices and relevant application form may be obtained from www.oneinvestment.com.au/auracoreincomefund or from Montgomery.  

The Aura Private Credit Income Fund is an unregistered managed investment scheme for wholesale clients only and is issued under an Information Memorandum by Aura Funds Management Pty Ltd (ABN 96 607 158 814, Authorised Representative No. 1233893 of Aura Capital Pty Ltd AFSL No. 366 230, ABN 48 143 700 887).  

Any financial product advice given is of a general nature only. The information has been provided without taking into account the investment objectives, financial situation or needs of any particular investor. Therefore, before acting on the information contained in this report you should seek professional advice and consider whether the information is appropriate in light of your objectives, financial situation and needs.    

Montgomery, ACH and OMIFL do not guarantee the performance of the Fund, the repayment of any capital or any rate of return. Investing in any financial product is subject to investment risk including possible loss. Past performance is not a reliable indicator of future performance. Information in this report may be based on information provided by third parties that may not have been verified. 

Red Corner (Bull) Ed Yardeni

I have written about and referenced both gents for years, and if you’d like to hear from them first-hand, you can subscribe to their musings on Substack. In the red corner is Ed Yardeni, founder of Yardeni Research and in the blue (bearish corner) is Michael Burry.

Figure 1.  Yardeni Research price-to-earnings (P/E) chart.

Source: LSEG Datastream, Yardeni Research

Dr. Ed Yardeni (born March 15, 1950) is an American economist and investment strategist, formerly for EF Hutton, Prudential Securities, and C. J. Lawrence before founding Yardeni Research.

Yardeni invented the disputed “Fed model” of equity valuation and coined the term “bond vigilante”. He is generally bullish, and his often optimistic outlook on economic expansion, particularly regarding technology’s impact on productivity, has earned him the nickname “Dr Boom”. 

In 1999, while an economist for Deutsche Bank, Yardeni – one of the most outspoken Y2K “doomsayers” leading up to the year 2000 – predicted a 70 per cent chance that Y2K computer bugs would cause a severe global recession and a 5 per cent chance of a depression.

In December 1999’s Y2K Reporter, due in part to companies that had preannounced a reduction in earnings during the first and possibly second quarters of 2000 because of Y2K computer glitches, Yardeni was quoted, “there should be some signs that the worst is over and that a recovery is on the way.” 

In the same article, and just prior to the Tech Wreck stock market crash, which began in March 2000 and ended the DotCom bubble, Yardeni told Y2K Reporter that he sees lower stock prices over the next six months and a rebound to new highs next year (2000) with the Dow Jones Industrial Average topping 15,000 by 2005.

From the Dow’s monthly closing high of 11,497 points, the index fell 34 per cent by September 2002. At the end of 2005, the Dow Jones closed at 10,717.50

Blue Corner (Bear) Michael Burry

Michael Burry earned a bachelor’s degree in economics from UCLA and an M.D. from Vanderbilt University School of Medicine. While working as a neurology resident at Stanford and later at Lucile Packard Children’s Hospital, Burry practised investing in his spare time. He gained a reputation on online forums (Silicon Investor) for his analysis of value stocks, which led him to leave medicine and start his own hedge fund, Scion Capital, in 2000.

Burry analysed mortgage-backed securities ahead of the Global Financial Crisis (GFC), determining they were highly unstable. As popularised by the book and subsequent film The Big Short, Burry purchased credit default swaps against MBS, allowing him to profit when the housing market collapsed. He reportedly made over US$100 million for himself and roughly US$700 million for his investors.

Scion Capital was closed in 2008, and Scion Asset Management was opened in 2013 and subsequently closed in November 2025. He has since launched a Substack subscription-based newsletter called Cassandra Unchained, where he shares his investment insights.

Burry’s bearish calls have been criticised by observers for being frequently wrong, to which Burry has recently responded, “I got it right in 2000, got it right in 2007,” adding, “Got it right in 2019, helped by COVID, and I called the meme stock crash in mid-2021. I called the bank stock run in 2023. In 2017, I had trouble finding good stocks, and I discussed the passive investing bubble for the first time. I did not say it meant that we would crash any time soon. My case was that crashes would become more correlated and more acute, and 2020’s COVID crash was the most acute, correlated stock market crash in history.”

What are they saying now?

Yardeni v Burry

Yardeni (Bullish)

In economics, the wealth of a nation is built and sustained through production, and that production requires three ingredients: Land, Labour, and Capital. These are the finite building blocks of prosperity. Land provides the raw materials, Labour provides the muscle and the mind to transform them, and Capital represents the tools.

The primary challenge for every society has always been the efficient allocation of, and between, these inherently scarce resources. If you run out of one, growth grinds to a halt. You need all three. That was, it seems, up until recently, when a fourth ingredient – data – was proposed.

The transformative aspect of this fourth ingredient is that, unlike the physical limitations of land or the finite hours of the human workforce, data is a resource that is functionally unlimited. And importantly, it’s the only factor of production that actually grows more abundant the more we use it. Meanwhile, today, artificial intelligence (AI) appears to be an engine that turns raw information into a productive force. One that can boost the efficiency of each of the other ingredients, making workers smarter and capital more effective.

The logic is that because every interaction with AI generates more data, which in turn requires more memory and processing power to analyse, what’s been created is a self-reinforcing growth loop.

While the adoption and embrace of this new way of looking at AI – as a fourth force in production – won’t make the market immune to setbacks, it could very well mean the current stock market rally isn’t just a speculative bubble driven by hype, but a reflection of a structural rebuilding of the global economy.

As of May 11, 2026, in a forecast eerily similar to his 1999 prediction for 2000, Yardeni has raised his 2026 year-end S&P 500 target to 8,250 (up from 7,700), predicting an “earnings-led melt-up” driven by strong corporate profits and artificial intelligence. He remains highly bullish, seeing nearly 12 per cent further upside from early May levels and projecting the S&P 500 will reach 10,000 by 2029.

Burry (Bearish)

Burry is warning that the U.S. stock market – particularly the technology and semiconductor sectors – is experiencing a “parabolic” surge similar to the final months of the 1999-2000 dot-com bubble.

Noting that massive infrastructure spending is occurring despite slowing growth in big tech cloud services, Burry believes the AI-driven, narrow rally has propelled valuations to unsustainable heights, with market concentration mirroring that of early 2000.

Writing on his Substack last Friday, after listening to financial television and radio coverage during a long drive, “Absolutely non-stop AI. Nobody is talking about anything else all day.”

“Stocks are not up or down because of jobs or consumer sentiment,” Burry wrote. “They are going straight up because they have been going straight up…On a two letter [AI] thesis that everyone thinks they understand. … Feeling like the last months of the 1999-2000 bubble.”

Noting the SOX Index is up more than 10 per cent in a week, pushing its 2026 gains to 65 per cent, Burry compared the recent performance of the Philadelphia Semiconductor Index (SOX) with the run-up that preceded the collapse of tech stocks in March 2000.

Burry further contends that tech companies are using accounting tricks to understate depreciation on Graphic Processing Unit (GPU) and server assets, thereby artificially inflating profits. In his Substack in May 2026, he acknowledged his reputation as the “boy who cried wolf” regarding market crashes but stands by his mean reversion framework, saying, “ALL the silliness must go”, and believes a prolonged market-wide selloff is imminent.

Backing his view with his own money, Burry has disclosed that he has recently ramped up bearish bets against the semiconductor sector, specifically buying well-out-of-the-money 2027 put options on the iShares Semiconductor ETF (SOXX). He also holds substantial put options against Nvidia (NVDA) and Palantir (PLTR), betting these high-growth, AI-focused companies will also fall significantly.

A Postscript

It’s worth noting that, based on historical data up to early 2026, the S&P 500 has delivered four consecutive years of greater-than-20 per cent annual returns only once in its history (1995–1998). Were 2026 to deliver the bullish end Yardeni predicts, the 2023-2026 bull run would be the second historical occurrence of four consecutive greater-than-20 per cent annual total returns.

Following the Federal Reserve’s rate-hiking campaign in 2022, both the S&P 500 and Dow Jones posted massive back-to-back gains in 2023 and 2024, but this only marked the first time in two and a half decades that back-to-back 20 per cent+ years occurred.  And while back-to-back 20 per cent years have occurred roughly three to four times since 1950 (such as 1954-55, 1995-96, 1996-97, 1997-98, and 2023-24), stretching that performance to four consecutive years is an exceptionally rare event.

For the S&P 500 in 2026, analysts are forecasting an average return of 12 per cent, citing continued earnings growth and resilient consumer demand.

Multiple investment firms, including Goldman Sachs and JP Morgan, expect momentum in tech, AI, and small-cap sectors to drive performance this year.

Goldman Sachs writes, “In 2026, equity markets are expected to deliver positive but more moderate returns, with greater dispersion across sectors and stocks.”

The 2026-27 Australian Federal Budget, handed down on May 12, 2026, fundamentally alters the economics of property flipping.

For decades, a tax system that rewarded capital growth over rental yield made the “buy, renovate, and flip” property model a popular way for middle-class investors with a bit of energy and an idea to get ahead.

However, Labor’s latest proposed tax reforms have gutted the high margins that once made short-term established property speculation rewarding.

To be fair, the margins were declining before the budget. Rising building costs made production more expensive, while rising interest rates reduced the end customer’s purchasing power.

But now, by targeting the structural advantages of discretionary trusts, eliminating the capital gains tax (CGT) discount, and restricting negative gearing, Labor has essentially terminated “house flipping” as a viable wealth-creation tool.

Capital gains no more

The first significant impact is the introduction of a 30 per cent minimum Capital Gains Tax (CGT) rate for individuals and trusts, effective July 1, 2027. Previously, the 50 per cent CGT discount allowed property flippers who held a property for at least 366 days to effectively ignore half of their profit at tax time.

Under the return to the pre-1999 system of indexation, house flippers are protected against the “bracket creep” of inflation, but are hit much harder on the excess returns generated by rapid value-adding.

The tax liability under the new 30 per cent minimum floor will be significantly higher than under the old discount regime, materially eroding the net profit margin that might otherwise justify taking on a renovation.

Negative gearing

Negative gearing changes mean that for any established property purchased after the budget announcement on May 12, 2026, the ability to offset carrying costs like mortgage interest, insurance, land tax and council rates against other income, such as personal salaries, has been abolished.

This is particularly critical for flippers during the ‘holding’ phase of a project, which can be long, as renovation projects often involve lengthy periods where a property is vacant and the building site inactive.

Previously, the carrying costs provided a welcome tax refund that reduced those costs and could be reinvested into the renovation. Now, those losses are quarantined, meaning they can only be carried forward to offset future rental income or the final capital gain. This creates a severe cash-flow drag, as the investor must now fund the full cost of debt and maintenance out of their own pocket for the duration of the project.  How this helps the government’s stated goal of improving housing supply is anyone’s guess.

A loss of Trust(s)

Parallel to the CGT and negative gearing overhauls is a direct assault on the use of discretionary trusts. These vehicles were historically favoured by property investors for their flexibility in distributing capital gains to beneficiaries in lower tax brackets or to “bucket companies” taxed at a flat 30 per cent.

From July 1, 2028, the budget removes the tax-arbitrage opportunities that flippers might have used to maximise their after-tax returns.

Other changes

By scrapping the CGT discount for investment properties, while leaving the family home entirely tax-free, the government has increased the relative appeal of re-investing in the primary place of residence. High-net-worth individuals and upgraders are now incentivised to pour excess capital into luxury renovations or larger family homes rather than secondary investment properties, which are now subject to the 30 per cent minimum CGT floor.

This concentration of capital into the owner-occupier sector will drive up prices for established homes, as buyers compete more aggressively for tax-sheltered assets, further pricing out first-home buyers.

Simultaneously, restricting negative gearing benefits to new builds will reduce supply of rental properties. Historically, the ability to offset rental losses against personal income encouraged many ‘mum and dad’ investors to open up established housing at a lower yield. As investors exit the established market due to the diminished tax benefits, the pool of available rental stock could shrink.

Additionally, with carrying losses now quarantined and holding costs rising, landlords are likely to pass these increased expenses onto tenants to maintain their cash flow.

The consequent supply-demand imbalance, coupled with the need for landlords to cover the full cost of debt without immediate tax relief, creates a perfect storm for sustained rental inflation in the established residential market.

And we haven’t said anything about the immigration tidal wave’s impact on the rental market.

For the regular investors, another opportunity to get ahead and ultimately self-fund your retirement has been killed off. 

I joined Juliette Saly on Ausbiz today to discuss the 2026 Federal Budget and whether changes to Capital Gains Tax (CGT) and negative gearing could ultimately create unintended consequences for younger Australians. While the reforms are aimed at improving housing affordability, I explained why reduced incentives for investors and forecasts for fewer homes to be built could place further pressure on supply and long-term wealth creation.

We also spoke about growing concentration risks in global equity markets, with artificial intelligence (AI) and technology stocks now accounting for an increasingly large share of the S&P 500. Historically, periods where a small group of companies dominate market performance have often been followed by higher volatility and mean reversion, making diversification and valuation discipline increasingly important for investors.

Watch via Ausbiz here: Roger says the Federal budget is a ‘disaster’ for younger Australians

Higher global inflation and lower growth will reflect the scale of impact dependent on the length and severity of the U.S./Iran war. 

The near-term forecasts for global Gross Domestic Product (GDP) from the International Monetary Fund (IMF) use a Reference Scenario, Adverse Scenario and a Severe Scenario, as illustrated in Graph 1 below.

Graph 1. IMF Global GDP Growth Forecasts

Source: IMF, Macrobond, Macquarie Macro Strategy

The Adverse scenario assumes average petroleum spot prices of US$100/bbl. in 2026 and US$75/bbl. in 2027. The Severe scenario assumes price increases to US$110/bbl. in 2026 and US$125/bbl. In 2027.

In the recently released Australian Budget, Treasurer Jim Chalmers refers to the most severe scenario if the Iran War drags on, meaning the oil price could spike to US$200/bbl. during the September 2026 Quarter. Treasury’s forecasts appear to be significantly more negative than those from the IMF. That said, it is worth exploring these forecasts given the U.S. has a history of starting wars whilst having trouble finishing them.

This (severe scenario) could occur if the conflict is protracted or if an escalation further damages energy and export infrastructure across the Middle East and shuts off supply from the region, including through the Red Sea trade route.  

The Red Sea trade route connects the Mediterranean Sea to the Indian Ocean via the Suez Canal and the Bab-el-Mandeb Strait. It facilities approximately 12 per cent of global trade and 30 per cent of container traffic. 

Under this scenario, Treasury expects Australia to record negative real GDP growth in the September 2026 Quarter of minus 0.6 per cent and persistent weakness in the economy over the balance of the decade, whilst the rate of inflation could hit 7.25 per cent in the year to December 2026. The unemployment rate would be expected to peak at around 5 per cent in 2027/2028.

Graph 2. Scenario impact on a real GDP level

Source: ABS Australian National Accounts: National Income, Expenditure, and Product and Treasury.

Graph 3. Consumer Price Index growth in scenario

Source: ABS Consumer Price Index and Treasury

Given the size and population of Australia and the amount of goods transported by road, we are one of the biggest global consumers of diesel per head of population. With the potential for higher price for diesel, fertilizer and other petrochemical products increasing input costs, there would also likely be disruptions to the physical supply of products throughout the supply chain, and many companies would see pressure on both margins and their potential viability.

Investors should keep a close eye on the U.S./Iran war to assess whether the “Reference scenario” gets worse!

In my latest video insight, I explain why I believe the budget could fundamentally reshape property investing in Australia. Changes to negative gearing and capital gains tax may discourage investment in established properties, slow housing and credit growth, and create unintended consequences for banks, property-related businesses and younger Australians trying to build wealth.

Transcript
Hi. I’m Roger Montgomery. So we’ve had a few hours now to digest the changes in the budget, and there’s a lot there.

The headlines of course have focused on the big items including changes to CGT and negative gearing as well as the gutting of trusts and the bucket company which has been a huge incentive to invest. But there’s also changes afoot to PAYG for businesses as well as incentives for investors in startups Although the capital gains tax changes disincentivize founders and employees who sweat for equity.

So what’s my take so far?

Well, this budget will flip thinking on property investing. It will kill some forms of property investing and it will incentivize others. Property flippers are probably hit the hardest. If you were buying an established property to renovate and flip say over 18 months, you can forget it now. You can no longer offset your holding costs. So for example, interest on any finance, council rates, insurance against your salary. These carrying costs or losses are now quarantined and they can only be used to reduce the eventual capital gain. Now this creates a larger 18 month cash flow drag that didn’t exist before. Any profits made after July 1 2027 are going to be subject to the new capital gains tax regime. That means cost based indexation plus 30 per cent minimum tax rates rather than the simple 50 per cent discount. While there are transitional arrangements, the administrative headache and the higher tax bill at the tail end of your profit makes the maths uglier for property flippers.

And then there’s the stamp duty, the selling costs, renovation and holding costs. You might actually need the property price to rise 20 per cent just for you to break even. That kind of forced appreciation is statistically unlikely.

And if you’re renovating to appeal to a property investor, forget it. Unless the government classifies the renovated property as a new build. Buyers of established properties don’t enjoy any of the negative gearing benefits of the past. So half your buyers or more than half have just vaporised. And that means you’ll be selling into a headwind, making a profit statistically even less likely.

Next, who’s going to buy an established property to rent out when the tax benefits for established homes have just been stripped away. These negative gearing changes discourage everyone, including the young, from buying investment property that isn’t new. That means even the young are held back from building wealth.

And here’s the thing. Where will the new properties come from? Builders, well, they’re gonna be too busy renovating luxury homes. Why? Well, the primary place of residence has been protected and kept free from capital gains tax. Fantastic news. So guess what happens though? People will pour millions into renovating their homes. Trophy home prices will rise the most as money that might have gone into a rental investment now chases a bigger and fancier primary home.

And back to those new builds that the government thinks the young will buy. Why would they when their new build is an established home when it comes time to upgrade and there aren’t any buyers because negative gearing doesn’t apply to them.

This is all bad news for the banks, by the way. Property price growth will slow, meaning credit growth will slow as people have less growing equity against which they can borrow to do other things. Bank profit growth will slow, and they’ll compete more aggressively on owner occupier loans and renovation loans, which means lower margins. Don’t be surprised if bank shares start falling for a while. The budget could also be bad news for the likes of REA Group, the owner of real estate dot.com.au. Property listings might initially pick up, but those listings are gonna take longer to sell for all the reasons I’ve just explained. And eventually, listings will slow or new listings will slow. The company might also find it harder to increase prices.

This budget has very little in it to help the young, and it now looks like it’s bad for the economy too.

Disclaimer:

The Australian Eagle Trust holds a short position in REA Group. This article was prepared 14 May 2026 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade REA Group, you should seek financial advice.

This week I am back with Over The Money Fence with Nicola Dale and Di Edwards.  

This series aims to help you take control of your finances with clarity and confidence. 

In this episode, I reassure Nicola and Di that despite everything that’s going on globally, it’s not all doom and gloom when it comes to the economy and markets. 

Are we in a recession? I discuss the cost-of-living crisis and how this is changing our spending habits, plus the latest pricing tricks used by supermarkets and airlines. 

We also talk about property and why I believe that people who are predicting that property prices in Australia will fall by 40 per cent are wrong.

I go through all of the reasons why this isn’t likely to happen and explain the two major drivers of property prices.  

I also share my thoughts on negative gearing and capital gains tax, and what they mean for investors – very timely given this week’s budget announcement. 

Is now a good time to spend or save? I give an excellent and practical tool for how we can build up our savings when the cost of living is high.  

I also share insights about where we should be investing now and go through the difference between various private credit funds and the importance of investing in quality.  

For further information, please contact David Buckland, Chief Executive Officer or Rhodri Taylor, Account Manager on (02) 8046 5000 or investor@montinvest.com

Listen on Apple podcasts here:

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Find out more about Montgomery Investment Management here – https://montinvest.com

Find out more about Montgomery private credit funds here – https://www.montinvest.com/privatecredit

Read Roger’s Whitepaper on private credit funds here – https://bit.ly/3QW36bH 

Buy my book Value.able here – https://rogermontgomery.com/valueable-book/

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The 2026 Federal Budget has landed with some significant implications for investors.
I discuss the key economic indicators and the tax changes that are set to reshape the investment landscape.

Economy

The starting point is to expect higher global inflation and lower growth with the scale of impact dependent on the length and severity of the U.S./Iran war.

Growth in Australia is expected to slow to 1.75 per cent in 2026/2027.

Real wages are expected to go backwards again, which means living standards are expected to decline.

Headline inflation hit 4.6 per cent in the year to March 2026 and is expected to hit 5 per cent in the foreseeable future as fuel prices flow through to other goods and services.

Gross debt will hit $1 trillion in 2026/27 with a 1 per cent deficit to Gross Domestic Product (GDP) ratio, excluding ‘off budget’ expenditure – and this is not coming down this decade.

Keep in mind it’s the young who pay a disproportionately larger share of increases in government debt.

Capital Gains Tax reforms

From 1 July 2027 the 50 per cent capital gains tax discount on assets held for more than one year will be scrapped. There will be a return to the pre-1999 policy of taxing inflation – indexed gains with a 30 per cent minimum tax on net capital gains.

These changes will apply to all Capital Gains Tax (CGT) assets, held by individuals, trusts and partnerships. The 50 per cent CGT discount will continue to apply to gains realised up to 30 June 2027.

Importantly, all pre-CGT assets (acquired before 20 September 1985) will be brought into the tax net for disposals occurring from 1 July 2027.  In other words pre-CGT status will be scrapped.

Negative gearing

From today, purchasers of “established” investment properties will not be able to offset rental losses against personal income.

From 1 July 2027, investors buying existing (established) residential properties cannot deduct rental losses against other income (such as salary).

Losses from established properties can only be offset against income from residential property (rental income or capital gains), with excess losses carried forward.

Negative gearing remains available for newly built residential properties, allowing losses to be offset against other income.

Properties acquired before 7:30 PM AEST on 12 May 2026 are exempt from these changes for the life of their ownership.

Who loses

The young, for whom building wealth has been made much harder; new investors in established homes; beneficiaries of trusts; National Disability Insurance Scheme (NDIS) rorters; risk-takers in high-growth opportunities; the Jim Chalmers ideology – not bold, brave, courageous or visionary.  

With these changes now in motion, investors should review their portfolios and seek professional financial advice to understand how the new capital gains tax rules and negative gearing restrictions may affect their individual circumstances.

Contact Montgomery

If you would like to discuss your investments, please contact David Buckland, Chief Executive Officer or Rhodri Taylor, Account Manager on (02) 8046 5000 or investor@montinvest.com

I was fascinated by this ABC article, which welcomed the federal Labor Government’s expected changes to negative gearing and capital gains tax in the 2026 Budget. While the article focuses heavily on tax policy as the lever for change, it largely omits the supply-side pressures of record migration and high construction costs. It also ignores the massive burden Labor’s massive and unbridled spending has on the budget, ensuring the young are locked in to paying off the debt for decades to come. Finally, it ignores the fact that when the older generation have taken out a mortgage to fund a rental property investment, they are reducing their burden on social welfare, specifically the government funded pension.

The ABC article asserts that Australian real estate has shifted from a means of providing shelter to a “casino” where wealth is determined by inheritance rather than hard work, creating a class of “landed gentry.” By citing Parliamentary Budget Office data, the article claims current tax settings disproportionately benefit the top 10 per cent of earners and have fueled a 25-year price surge, specifically pointing to the 1999 CGT changes as a primary catalyst.

Meanwhile, the ABC disputes the argument that tax incentives drive housing supply, noting that 77 per cent of negatively geared investors buy established dwellings, and are therefore simply “swapping flats”, outbidding first-home buyers for entry-level stock and doing nothing to increase supply.

Of course, if migration were considered in the article, one might realise the supply issue is the result of a demand issue. Too much migration.

Ultimately, the article suggests the 2026 budget changes are a moral imperative to ensure that future generations are not permanently locked out of home ownership. I can assure you these changes will do nothing to improve supply for the young or increase affordability for those who cannot already afford a property.  What they will do is distract voters from Labor’s mismanagement of its finances, distract from the massive impost rising energy prices (the result of Labor’s Net Zero policy) is having on the young, and distract from the fact an increasing number of people will be dependent on the government pension for their retirement incomes.

The article makes several startling claims that require careful consideration.

Ignoring migration

The article attributes the “soaring” value of real estate almost exclusively to tax arrangements. However, it ignores the fundamental law of supply and demand. In 2023-2024, Australia saw record-breaking Net Overseas Migration (NOM), with over 500,000 people arriving in a single year.

Tax policy doesn’t create the physical need for a roof; population growth does. When population growth outstrips housing completions (which have stagnated due to planning bottlenecks), prices rise regardless of tax incentives. By ignoring migration, the article mislabels a demand-driven “supply shortage” as a “tax-driven” bubble.

The landed gentry

The ABC further contends negative gearing and Capital Gains Tax (CGT) are “Handouts” for the “Landed Gentry”, and that these tax settings are unfair advantages for the wealthy, creating a “class-ridden society.”

According to Australian Taxation Office (ATO) data, the vast majority of “investors” are not “landed gentry.” Approximately 71 per cent of property investors own only one investment property.

The largest cohorts of property investors are middle-income earners, including nurses, teachers, and police officers, who use property as a long-term retirement vehicle because Australia’s pension system is insufficient.

Negative gearing is not a “handout” but a standard tax principle: the ability to deduct the costs of earning income against that income. Removing it specifically for property would be a “carve-out” that treats property differently from other forms of investment (such as shares or business expenses).

Negative gearing and supply

Comfortably retired economist Saul Eslake is quoted as saying landlords mostly buy established properties, “swapping flats” and doing nothing for supply. But this view ignores the secondary market’s role in the construction ecosystem.

You see, developers rely on “off-the-plan” sales to secure financing for new high-density projects and investors are the primary buyers of these units. If you remove the incentive to hold property (CGT discount/Negative Gearing), the pool of investors shrinks, making new projects unviable. Less supply.

Furthermore, when an investor buys an established home and renovates it, or replaces a single dwelling with townhouses, they increase the density and quality of the stock. Removing tax incentives reduces the capital available for these essential property improvements.

1999 Capital Gains Tax Change

The article cynically draws a causal relationship between Peter Costello’s 1999 CGT changes and strongly rising house prices since then. 

This is a ‘correlation vs. causation’ fallacy. Several other massive economic shifts occurred simultaneously. The first was global interest rates began a 30-year structural decline in the late 90s, dramatically increasing borrowing capacity. Second, as more women entered the workforce and stayed in full-time roles, the “purchasing power” of a standard household doubled, allowing couples to bid higher for the same homes.

And finally, banks became more aggressive in lending, moving from “3x salary” rules to more complex serviceability models. To blame a 50 per cent CGT discount – which replaced a complex “inflation indexing” system – for a 25-year price trend is economically reductive, but perhaps convenient!

The Covid rental experiment

The article claims that when investors “fled” during COVID, renters became owners, proving that the ownership mix can change without destroying the market.

This “experiment” actually proved the opposite: a rental crisis. While some renters became owners, the total number of people needing homes stayed the same, but the average household size decreased (people wanted more space/home offices).

The exit of investors contributed to the record low vacancy rates seen in 2023-2024 (below 1 per cent in many cities). When investors sell, the property often moves from a high-density rental (e.g., four students in a house) to a low-density owner-occupier home (e.g., a couple). This reduces the total number of people housed in the existing stock, worsening the shortage for those who can’t afford to buy.

The “Insidious” bank of mum and dad

Finally, the article frames this intergenerational help as a symptom of a broken, class-based system while ignoring that intergenerational transfers are a natural response to government-imposed costs.

Up to 40 per cent of the cost of a new home in Australia consists of government taxes, fees, and charges (Stamp duty, GST, infrastructure levies, and developer contributions). If the government truly wanted to help young people buy homes, it would focus on reducing these transaction costs rather than attacking families who are trying to help their children overcome the very hurdles the state has created.

The bottom line is the “Bank of Mum and Dad” is a symptom of regulatory failure (zoning laws that prevent high-density building) rather than tax policy failure.

As we approach the middle of the year, markets and the global economy appear to be locked in a “tug of war” between the geopolitical shock of the war in the Middle East and the rapid maturation and deployment of artificial intelligence (AI).

The war has removed an estimated 12 million barrels of oil per day from the global market – the largest supply hit in history. Indeed, according to Macquarie Bank, global crude oil declines so far in 2026, have significantly exceeded those during the 1973 Yom Kippur War, the 1979 Iranian Revolution, the 1990 Gulf War and the second Gulf War of 2003.

Consequently, we have seen oil prices flirt with US$150 per barrel, and shipping costs for tankers have spiked as naval blockades and damage to infrastructure from drone strikes dominate the headlines. For many observers, this feels like a return to the 1970s, a decade defined by energy queues and stagflation.

Indeed, with U.S. real private demand growth below average, inflation moving higher (even before the war began), and the University of Michigan consumer survey suggesting sentiment remains historically low, the timing of an oil price spike is not ideal.

Despite all of this, a record-breaking surge in business investment, driven by AI, has pushed U.S. equity markets to all-time highs. 

Investment in Information Technology (IT) is currently growing at its fastest pace since the tech boom of the late 1990s. A growing number of reports suggest companies are fundamentally restructuring their operations to integrate these AI tools.

Importantly, however, while the micro-level stories of efficiency gains from AI are becoming more frequent, we have yet to see a definitive macro productivity boom in the official aggregate economic data.

Nonetheless, this investment surge is providing a critical offset to the energy price spike.

By boosting demand for high-tech services and driving business spending, AI is helping to keep global Gross Domestic Product (GDP) growth afloat even as the Strait of Hormuz remains a chokepoint. And perhaps more importantly, the labour market hasn’t succumbed to the AI-driven unemployment wave feared by many.

Sure, overall employment growth in the U.S. remains weak, but unemployment remains low, and even recent graduates are finding work despite fears AI would do them out of jobs.

The churn of the labour market continues, with 60 million Americans (35 per cent) changing jobs last year alone. This suggests that A.I. is augmenting rather than simply replacing human labour, creating a “zero-employment growth” equilibrium that is stable for now. 

While hopes of A.I. productivity gains could be driving the stock market higher, another explanation could be speculation and the fear of missing out (FOMO). If the latter is the real driver, a blow off top is possible followed by a significant correction. If the war drags on and forces oil prices toward the $200 mark, the resulting demand destruction could overwhelm the A.I. boost.

If, however, AI tools become a permanent fourth force in the economy (alongside Land, Capital and Labour) this rally is only just getting started.

We are witnessing something of a historic collision between conflict and computer code, war versus web applications, and oil versus open-source software. The question is; can technology move faster than a geopolitical crisis?

The outcome of the tug-of-war is still uncertain. Do the bulls win? For now, the resilience of the global economy is the real story, and if the S&P 500 is any guide, so far in 2026, the answer is a cautious ‘Yes’.

I joined David Taylor on ABC’s The Business to discuss the recent strength in the Australian dollar and why markets are viewing the Reserve Bank of Australia (RBA) as one of the more hawkish central banks globally. I explained that investors are increasingly betting on further Australian rate rises, which has helped push the Australian dollar higher relative to other currencies. We also discussed how rising oil prices, ongoing geopolitical tensions and the upcoming federal budget could all influence inflation and the future direction of interest rates.

I also shared my thoughts on why the Australian share market continues to lag the U.S. over the long term, pointing to Australia’s dividend-focused tax system and lower levels of retained earnings for growth. While U.S. markets continue to rally on artificial intelligence (AI) enthusiasm and big tech, I noted that periods of rapid market acceleration are often unsustainable and can lead to short-term pullbacks. I also highlighted ongoing investor nervousness around valuations and uncertainty surrounding future policy decisions in the U.S.

Watch the full segment here: ABC The Business

Trump recently boasted on Truth Social of the US$45 billion he made for the U.S. by investing in Intel.

Source: Truth Social 

While the Nasdaq 100 is up 13.32 per cent this calendar year but the gain masks much larger gains for individual artificial intelligence (AI) compute stocks. AMD, for example, is up 96 per cent, Arm Holdings is up 117 per cent, and Intel, a company that most investors wrote off and Trump acquired, is up 206 per cent.

So, what’s going on?

The answer is the advent of agentic AI.

In the past it might have taken an experienced coder (even an experienced Vibe coder) a few days to create an app or a piece of code that automated an online task, such as price comparison, finding a product or asset that met your criteria such as a house or car for sale on a platform like Carsales or realestate.com.au in Australia or TradeMe in NZ or Zillow in the U.S. 

Today, these goals can be achieved by a worker created by an AI Agent. We can simply use voice commands to tell the agent what we want the worker to do, and the agent will write the underlying code, check it, execute it, and handle it for us. The worker then acts autonomously, filtering what it finds online based on the criteria set and presenting its results in the format required, daily, weekly or even continuously. 

We live in a new world where AI agents have the potential to automate almost anything we ask of them.

Compute 

Compute refers to the raw processing power a computer needs to perform tasks, calculate data, and run applications. Think of it as the brain or the engine of a machine.  At its core, compute is the action of calculating and solving problems, such as processing a 3D image or running an AI model. Just as a car needs an engine to move, a computer needs compute (CPU or GPU) to turn on, load apps, and process information. A “lot of compute” means the machine can handle complex, fast tasks like video editing or simulation.

Why has Trump made so much money on Intel?

Since ChatGPT was launched in November 2022, requiring massive numbers of Nvidia GPUs to train and serve large language models (LLMs), Nvidia’s stock price has risen 1,199 per cent. But the advent of Agentic AI means that when they are tasked to perform certain functions, such as browsing the web, comparing listings and prices and then preparing spreadsheets or websites and lists and populating them with results, these tasks load the Central Processing Unit (CPU) more than the Graphics Processing Unit (GPU).

The GPU excels at highly parallel tasks like rendering visuals during gameplay, manipulating video data during content creation, and computing results in intensive AI workloads.

The CPU is commonly referred to as the “brain” of the computer. It’s essential to all modern computing systems because it executes the commands and processes required by your computer and operating system. The CPU is also important in determining how fast programs run when performing tasks such as surfing the web, running calculations for game physics, and building spreadsheets.

As we migrate from more reasoning and inference, which is GPU-heavy, to more web scraping, code execution and testing, and multi-agent tasking, the CPU to GPU ratio will change. More CPUs for every GPU. Indeed its already happening. According to Morgan Stanley Research, earlier server builds used 1 CPU for every 12 GPUs.

With the rising agentic workloads, described above, the ratio is now closer to 1 CPU per 2 GPUs.

It’s because of this trend that compute stocks are rallying. In my opinion, it’s possible they have run too hard, as investors tend to overestimate the short term. But it’s also true that investors underestimate the long term, which means the future is promising for these companies. 

Why?

Goldman perhaps articulated it best: “agentic use cases are [currently] more hobbyist tinkering with an idea than full-fledged commercial deployments. The moment when (if?) an enterprise agent, which is on 24×7 and can do complex operations, we see an inflection point in token usage. When an agent can run profitably (i.e., the value of the work it does exceeds its token usage), adoption will explode.”

The theory goes that hyperscalers will be in the box seat because the cost to process each token is falling, while the price per token is stabilising, and demand is exploding, so hyperscalers will be able to dramatically improve their margins. That could wipe away concerns about adequate return on investments (ROIs) for the hyperscalers (GOOG, AMZN, META) on the hundreds of billions spent on AI data centres.

As an aside, last week’s earnings from Amazon, Microsoft, Meta, and Google validated the AI super-cycle. These companies also noted they are supply-constrained, demand is even higher, and they could have made more money.

• Amazon – Revenue of $181.5 billion (+17 per cent year-on-year (YoY)), beat by 2.4 per cent | AWS Revenue of $37.6 billion (+28 per cent YoY), fastest growth in 15 quarters.
• Google – Revenue of $109.9 billion (+22 per cent YoY), beat by 2.7 per cent | Cloud Revenue of $20.0 billion (+63 per cent YoY), beat by 8.8 per cent.
• Microsoft – Revenue of $82.9 billion (+18 per cent YoY) | Azure revenue growth of +40 per cent, beat guidance of 37–38 per cent.
• Meta – Revenue of $56.3 billion (+33 per cent YoY), beat by 1.4 per cent | Ad revenue +33 per cent YoY.

Back to the CPU thesis…

According to Delaware based Market Sentiment Inc., if you are looking only for exposure to CPU demand, the four companies with meaningful exposure are:

• AMD – the market leader in data centre CPUs, with the gap expected to widen further with the launch of 2nm Venice chips. AMD should receive a better share of the incremental revenue driven by agentic demand for CPUs.
• Intel– staging a comeback with Xeon 6 processors being adopted by Nvidia and Google as the CPU “head node” in AI infrastructure. Plus, being strategically critical to the U.S. does not hurt. 
• Nvidia – has launched its AI CPU, Vera, designed exclusively for AI agents.
• ARM – launched its first-ever data centre processor – AGI CPU focused on handling agentic tasks. Rather than going the raw-power route, ARM is developing a more efficient processor to reduce token costs.

In economics, the wealth of a nation is built and sustained through production, and that production requires three ingredients: Land, Labour, and Capital. These are the finite building blocks of prosperity. Land provides the raw materials, Labour provides the muscle and the mind to transform them, and Capital represents the tools.

The primary challenge for every society has always been the efficient allocation of, and between, these inherently scarce resources. If you run out of one, growth grinds to a halt. You need all three. That was, it seems, up until recently, when it was proposed a fourth ingredient exists, and today this emerging thesis is inspiring stock market bulls.

That fourth factor of production, according to some economists, is data.

The transformative aspect of this fourth ingredient is that, unlike the physical limitations of land or the finite hours of the human workforce, data is a resource that is functionally unlimited. And importantly, it’s the only factor of production that actually grows more abundant the more we use it.

As a production resource data was often ignored by traditional economic models because, while it existed, it was “dirty”. In other words, it was expensive to extract, difficult to refine, and nearly impossible to use at scale.

In April 1964, the IBM mainframe first brought data processing into the corporate world, but it took almost 60 years for the “Digital Revolution” to evolve beyond merely counting things faster. It wasn’t until the arrival of OpenAI and artificial intelligence that economists can safely say the ‘refinery’ for this new resource was finished.

Notwithstanding its limits and arguments about whether it actually thinks, artificial intelligence (AI) today appears to be an engine that turns raw information into a productive force. One that can boost the efficiency of each of the other ingredients, making workers smarter and capital more effective.

Perhaps without articulating awareness of a fourth resource, enterprise is now, understandably, pouring billions into it, giving life to what was formerly a research paper theory.

In the early days of the computer age, high-tech investments represented only about 20 per cent of what businesses spent on equipment and infrastructure. Today, according to economic researchers like Yardeni Research, that figure has reached a staggering and record-breaking 55 per cent.

While the adoption and embrace of this new way of looking at AI – as a fourth force in production – won’t make the market immune to setbacks, it could very well mean the current stock market rally isn’t just a speculative bubble driven by hype, but a reflection of a structural rebuilding of the global economy.

Companies investing in all layers of AI might unwittingly be betting the ability to process data becomes more valuable than land, labour and capital. If that’s true, demand for the physical hardware required to run the new digital world – specifically, the semiconductors and memory chips that act as the brains and library of AI – is headed way higher.

The logic is that because every interaction with AI generates more data, which in turn requires more memory and processing power to analyse, what’s been created is a self-reinforcing growth loop.

This could be the story currently being reflected in the stock market, particularly in the soaring valuations of semiconductor and memory stocks.

Not everyone subscribes to the theory. Famed short seller Michael Burry last week publicised a new short position through put options on the SOXX semiconductor index expiring in early 2027. 

Burry, however, is betting against a broadening theme. For a long time, the gains were concentrated in a handful of massive tech giants. Recently, however, the optimism has spread to the Russell 2000, which tracks smaller, more domestically focused companies. One reading of small and mid-sized technology firms outperforming their larger counterparts suggests the AI trade is trickling down. It’s no longer just about Silicon Valley; it is about a regional manufacturer in the Midwest or a services firm in the South using these tools to find efficiencies that were previously hidden in their data.

The alternative view is one I’ve observed during past bubbles. When the leaders have risen too far, the ‘also-rans’ are bid up amid fear of missing out by those who have indeed missed out. It’s the reason you always see laggards ‘catching up’ to the leaders. After 50 races in which the Ferrari beats the VW Kombi, eventually, people bet the Kombi will have a win.

Nevertheless, despite persistent tensions in the Middle East and the looming shadows of inflation and unsustainable debt in the U.S., the American economy is currently growing at 3.7 per cent. This is a remarkable figure for a developed economy, especially one facing the highest interest rates in decades.

Meanwhile, the U.S. labour market is also resilient, with hiring comfortably exceeding the number of people leaving their roles, and Redbook retail sales, which track the pulse of actual store registers, growing by 7.8 per cent.

Of course, the bulls aren’t without their worries. High levels of optimism can quickly morph into irrational exuberance, and once everyone agrees that the future is bright, there are fewer left to buy and bid up prices. And 2027 harbours geopolitical risk from China and Taiwan – that latter being the global hub for the very semiconductor chips that make the Fourth-Production-Factor theory possible. If that supply chain were to be disrupted, the AI trade would likely face a reckoning.

Ultimately, the bull argument rests on the idea that AI has triggered a historic economic transformation, one that holds that data itself changes the rules of scarcity. If a company can use AI to do more with less – less labour, less physical capital, and less money  – then the potential for profit and productivity growth is higher than at any point since the Industrial Revolution.

With the prospect of a full-scale war in the Middle East increasing, with bond yields heating up, and with famed short seller Michael Burry increasing his short position against the U.S. SOXX Semiconductor Index, could this month be the month that investors will look back on with regret, wishing they’d diversified?

It’s a midterm election year in the U.S.

Let’s begin with the U.S. Midterm elections in mind. Did you know the midterm year is historically the worst year of the four-year presidential cycle for stocks? Some analysts suggest it’s because of something called the “midterm discount.”

We’re told markets despise uncertainty. If that’s true, the midterm years offer a maximum dose. Over the last 23 midterms, the sitting president’s party has lost an average of 27 House seats and three Senate seats. That means a large amount of legislation being rewritten for tax and trade policy, as well as industry regulation. The higher volatility could also be thanks to the negative messaging of U.S. election campaigns as well as politicians pointing to the problems facing the country. Then, regulatory priorities shift, and committees are overthrown, gutted, upgraded or reshuffled.

The result is heightened volatility.

Figure 1., shows the average trajectory of U.S. equity returns throughout midterm election years since 1931, compared to non-midterm election years. Each point on the lines represents the average year-to-date (YTD) return as of that month and day, calculated from daily price returns.

Figure 1. S&P 500 average index returns since 1931.

Source: HBKS, Capital Group, RIMES, Standard & Poor’s.

A couple of observations are useful at this juncture.  The first, of course, is that the market tends to rise strongly in the fourth quarter of the year. It seems clear the election results mark the end of the election-related ‘uncertainty’.

The second observation is that to arrive at the average election year market return profile in Figure 1., there will have been positive and negative years. The average of those is a positive year meaning the winning years tended to be bigger than the years that ended in a loss. But the average of all those years also produces a negative period between late April and October.

Indeed, other studies reveal this period to be negative for the S&P500 irrespective of whether the full year ended positively or negatively.

Finally, with the midterm elections held in November, we discover, going back to 1926, the S&P 500 has seen an average drawdown of 18.2 per cent in the 12 months before midterm elections. Going back to 1965, the smallest drawdown has been 7.4 per cent, while the largest was 41.8 per cent.

Four war scenarios

As I write, the U.S. is deploying 15,000 service members and over 100 aircraft to escort stranded commercial vessels through the Strait of Hormuz under Project Freedom.

You might not know this but the first two U.S.-flagged merchant tankers were successfully escorted earlier this week. But…and it’s a big one… Iran struck the UAE’s Fujairah energy hub and a UAE oil tanker, and hit residential areas in Oman.

Meanwhile, the U.S. reportedly destroyed six small Iranian boats and intercepted multiple missiles and drones.

With the two sides diplomatically deadlocked, there are perhaps four scenarios that could play out next:

1. A prolonged stalemate, with the Strait remaining closed, while the U.S. blockades Iran’s ports. Oil prices would rise and inflation would persist.
2. A negotiated deal, which is unlikely given Iran wants to retain its nuclear program. Oil prices would plunge, and inflation would ease, eventually.
3. The U.S. opens the Strait militarily, and continues to blockade Iran. Sounds good on paper, but would lead to (4),
4. Recommencement of a full-scale war with more damage to energy infrastructure around the Persian Gulf and further rises in the price of oil.

Given these scenarios and their probabilities, it is perhaps unsurprising the launch of Project Freedom is already causing the price of oil to rise. 

Bond yields rising, inflation and U.S. debt

Since the war commenced, and helped along by the rising price of oil, U.S. Treasury yields and mortgage rates have been rising (see Figure 1.)

Figure 2. U.S. Treasury 2-year & 10-year yields & 30-year mortgage rate

Source: LSEG Datastream and Yardeni Research, Federal Reserve and Freddie Mac

With expected inflation – as measured by the spread between 10 years bond yields and the 10 year Treasury Inflation-Protected Securities (TIPS) yield  – closely correlated with the price of oil, it is perhaps unsurprising that the 10 year Treasury bond rate has been pushed higher.

With the U.S. national debt at more than US$36 trillion (this is understated because it doesn’t include Social Security reserves, which are held in instruments that do not trade on open markets and never appear in the standard national debt calculation, but still represent future repayment obligations), and representing a 39-fold increase since 1981, rising Treasury yields today carry systemic implications.

With 10-year Treasury yields at 4.434 per cent, and 2-year yields at 3.948 per cent, the resulting spread of approximately 0.49 basis points reflects a yield curve that has normalised from its deep inversion of 2022–2023. But this time, the elevation at the long end is not driven by growth expectations but by term premium – the additional yield investors require as compensation for the risk of holding long-duration U.S. debt in an environment of expanding supply and an unpalatable fiscal trajectory.

The U.S. needs more debt to fund Trump’s Big Beautiful Bill Act and to fund a fast-rising military budget. And with China pulling back from increasing its U.S. Treasury portfolio the U.S needs to attract new buyers. To do that, it needs to offer higher rates, which it can ill afford as its debt rises to even higher all-time records.

Consequently, the question for investors is not whether Treasury yields are elevated relative to the recent past. They clearly are. The more important question serious investors are asking, is whether August 2020 – when bond yields hit historic lows –marked the beginning of a bear market for bonds not unlike the bear market that ran from 1958 to 1981. And within that episode, there were periods like that between 1965 and 1978, during which enormous volatility caused the S&P500 to produce no net gain.

And adjusted for inflation (Figure 2), the S&P 500 produced a negative real return from 1958 to the end of 1981.

Figure 3. S&P 500 real return 1958-1981

Source: Macrotrends.net

Conclusion

We began this discussion by looking at Midterm election years and the returns between April and October.  We ended by looking at the S&P500’s real returns between 1958 and 1981. We linked them by looking at the war in the Middle East and its impact on the oil price, inflation expectations, and bond yields, with a nod to the U.S. debt picture.

If equities can overcome all of that and produce another double-digit return, we will have achieved something not seen for a very long time – four consecutive years of double-digit positive returns.

An oft-made and persistent mistake investors make is assuming what’s worked recently will continue to work indefinitely.

Referred to as ‘representativeness” it’s a psychological recency bias trap. Essentially, the comfort of the current winners prompts us to ‘bottom drawer’ them and simultaneously blinds us to the inevitability of economic cycles. Indeed, despite historical evidence of economic cycles and industry leadership change, we prefer the path of least resistance, which means hanging onto current winners, hoping they will always be so.

Consider the consequence of your portfolio reflecting last decade’s trends; you would have missed much of the artificial intelligence (AI) boom as well as the systemic risk hiding in plain sight. History tells a very different story from the one currently being told by the market’s biggest winners.

Over the past four decades, the composition of the largest companies in the S&P 500 has changed with monotonous regularity. What dominated in one era rarely maintained that position in the next. In the past it was energy, industrials, and then financials that dominated the leaderboards. Today its technology. Each have had their moment in the sun and in a decade’s time, if history is any guide, it will be something else. 

Concentration always, but never consistent

Back in 1985, the top ten U.S. companies were worth a combined US$251 billion and included names like DuPont, Kodak, IBM, General Motors, GE, and Exxon. Twenty years later, in 2005, the top 10 had shifted to a US$2.4 trillion cohort including AIG, Pfizer, Walmart, and Microsoft. Fast forward another two decades to 2025, and the top ten is a US$19.4 trillion behemoth dominated almost entirely by technology-driven entities like Broadcom, Meta, Alphabet, Amazon, Nvidia, Apple, and, of course, Tesla.

Despite the compelling narratives and widespread investor confidence that supported each of these eras, leadership changed anyway. It didn’t happen because the underlying companies suddenly became irrelevant, but because markets evolve and economic conditions shift.

Capital flows adjust to chase new inventions and ideas and that capital fuels new sources of growth while older themes mature and even tire from boredom.

An interesting aside, what’s notable is that the aggregate size of the Top 10 companies as a percentage of the total market remained stable for nearly forty years before suddenly doubling. The result is extreme concentration. 

Today’s concentration reflects real innovation, but history suggests that such extreme leadership is often a signal of a transition rather than a ‘permanently higher plateau’.

The question for you is how much of your equity portfolio is implicitly assuming today’s leaders will remain dominant for another decade. If history is any guide, the environment ahead will look nothing like the one we have just experienced. That means you need to be particularly aware of extreme price-to-earnings (P/E) ratios, which imply ongoing leadership and uninterrupted double-digit growth.

And when the rebalancing occurs, the greatest risk is not volatility, but being positioned for the wrong version of the future.

Tesla

Nowhere is this risk more concentrated and gobsmacking than in Elon Musk’s orbit. To understand the distortion of the current market, one just has to look at the wealth of the man at the centre of the company.

Forbes currently puts Musk’s net worth at approximately US$776 billion, a figure so vast it defies imagination. Think of what you can do with US$1 million. Musk has 776,000 of those.  It’s reported that Musk’s personal fortune is roughly equal to the Gross Domestic Product (GDP) of entire nations like Ireland, Belgium, Sweden, or Israel. And evidently, he wants or needs more. 

Tesla shareholders recently approved a pay deal that could potentially total US$1 trillion if certain requirements are met – which I doubt they will be. But even the more immediate figures are staggering; this month, it was revealed Musk’s compensation for 2025 could total US$158.4 billion. If correct, it’s approximately double the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) that Tesla has generated in the last 26 years.

The discussion inevitably leads to the valuation of Tesla itself, which currently trades at a price-to-earnings (P/E) ratio of 357 times.

Compare that to Nvidia, a company currently printing cash and at the heart of the AI bubble.  Nivida trades on a P/E of 41. Google sits at 29, and Microsoft at 25.

Tesla is priced not as a car company, or even a tech company, but as a miracle-making cult – a cult that has sidestepped the consequences of missteps that would have destroyed lesser companies permanently. 

Self-driving on the road to nowhere

The most recent crack to appear is becoming impossible to ignore. During the Tesla Q1 2026 earnings call (held in late April 2026), Elon Musk made a significant admission regarding the technical limitations of Hardware 3 (HW3). Elon Musk admitted on that call that Hardware 3 simply does not have the capability to achieve unsupervised Full Self-Driving (FSD).

In fact, Musk explicitly stated that vehicles equipped with Hardware 3 – the computer suite used in millions of Teslas – cannot achieve unsupervised Full Self-Driving (FSD). Since 2016, Musk has promised that every car being produced had “all the hardware necessary” for full autonomy. In the recent call Musk acknowledged that although Tesla had previously believed HW3 would be sufficient, the complexity of current AI models has outstripped the hardware’s capabilities.

In fact, Musk noted that the memory bandwidth of those vehicles is only one-eighth of what Hardware 4 requires.

One suspects this news would be devastating for the four million Tesla owners currently on the road with Hardware 3, many of whom paid between US$8,000 and US$15,000 for the capability promised since 2016. Indeed, as recently as 2022, Musk was publicly assuring owners that HW3 was sufficient. Those promises are now officially broken.

The proposed solution to this hardware failure is not a refund or a free upgrade, but a “discounted trade-in” toward a new car equipped with Hardware 4. This is essentially asking customers to pay for the privilege of fixing a broken promise. With nearly 300,000 FSD purchasers affected, Tesla’s potential liability runs into the billions. Furthermore, when Musk was asked whether the current FSD version 14.3 was ready for unsupervised deployment, he initially said yes, only to walk it back immediately, admitting that “major architectural improvements” were still needed.

While the stock market initially popped on news of a ‘double beat’ in revenue and earnings, a look into the actual U.S. Securities and Exchange Commission (SEC) filings reveals a much bleaker reality. Tesla reported US$22.4 billion in revenue and US$0.41 in non-Generally Accepted Accounting Principles (GAAP) earnings, but the driver of this income wasn’t innovation or volume growth. The company’s own shareholder letter listed “one-time benefits related to warranty and tariffs” as the primary reason for the improvement.

Tesla released warranty reserves and booked tariff refund windfalls to make the quarter look healthy. They also stretched supplier payments and took on billions in new debt while presenting metrics that stripped out over US$1 billion in stock-based compensation. When you look at the GAAP net income of US$477 million on US$22.4 billion in revenue, the net margin is a paltry 2.1 per cent.

For a company with a US$1.4 trillion market cap, this is more than just a disconnect. If you annualise that quarterly GAAP profit, you get a trailing P/E ratio north of 700. Even using adjusted numbers, the company is trading at 250 times earnings. Clearly investors are still putting value on the ‘options’ of robots, batteries and space.

But those options cost money and the financial pressure is mounting. Tesla recently raised its 2026 capital expenditure guidance to over US$25 billion, a US$5 billion increase in a single quarter. This is three times the company’s historical annual capital expenditure (capex) run rate.

Tesla’s CFO has already confirmed the company expects negative free cash flow for the remainder of the year. This creates a problem that’s impossible to solve without further diluting shareholders. You have a company that generates roughly US$6 billion in free cash flow in a good year, planning to spend US$25 billion. They will almost certainly need to issue equity, which means the current earnings will be spread across even more shares, further devaluing the stock.

The car business

For as long as I have been talking to investors, I have explained the car business is a tough one. It’s a capital and machinery-intensive, land-intensive business where you make heavy fashion items, with tastes and themes changing annually. Tesla’s core automotive business is deteriorating in real time (China’s brands will eventually experience the same).

Tesla delivered 358,000 vehicles in the first quarter, missing estimates, while producing 408,000. This means 50,000 cars are sitting on lots, unbought and depreciating. Inventory days have jumped from 10 to 27 in just a few quarters. Even in California, Tesla’s most friendly and vital market, registrations declined, nay slumped, 24 per cent year over year (YoY), with market share falling from 9.2 per cent to 7.7 per cent.

The company’s entire valuation rests on the story of robotaxis and autonomy, but even that story is being debunked by the competition. Waymo, today’s leader in autonomous driving, completed 15 million rides in 2025 and operates commercially across six cities. Waymo recently raised capital at a US$126 billion valuation – that’s the market’s verdict on what a leading, functional robotaxi company is worth.

According to some analysts, if you assign Tesla the same US$126 billion valuation for its robotaxi business – despite it being years behind Waymo in actual deployment – it equates to about US$33 a share. If you add the automotive business at generous industry multiples, you might arrive at another US$20. Add energy storage and services, and you are looking at a sum-of-the-parts value of roughly US$65 to US$70 a share.

Yet, Tesla is trading at US$387. Investors are paying for a narrative that is increasingly detached from the physical and financial reality of the company. But they have been doing this for a long time. The cult of Musk is indeed very powerful. 

The result is what one observer described as one of the most egregious “mispricings” in the history of the modern market. Tesla is a case study in what happens when the market ignores the lessons of the last four decades and decides that this time, and this one leader, is different. The laws of physics and economics eventually apply to everyone – even those worth US$776 billion.

I joined Paul Turton today on ABC Newcastle Mornings to discuss the growing use of personalised or “surveillance” pricing, where companies use data like your browsing history, location or even behaviour in-store to charge different prices for the same product, often without consumers realising. I explained how this is already happening in areas like airline bookings and online shopping, and warned it could soon extend to essentials like groceries, with algorithms identifying what individuals are willing to pay and adjusting prices accordingly. While legal in many cases, I argued this practice erodes transparency, removes consumers’ ability to compare prices, and ultimately risks everyday Australians paying more, highlighting the need for stronger regulation to balance profit motives with fairness.

You can listen to the segment from 32:14 here – ABC Newcastle Mornings 

For as long as I have been around, the local supermarket and grocery store were the bastions of “what you see is what you get.” You picked up a jar of Vegemite or a tin of baked beans, looked at the price sticker stuck on the lid or the paper tag on the shelf, and you knew exactly what you were going to pay when you arrived at the checkout. 

But if companies and their board members have their way, that certainty will soon evaporate. And it will be replaced with something far more fluid, algorithmic, and, quite frankly, offensive and invasive and designed to handicap you.

It is called Surveillance Pricing, and if the government allows it, it will be the icing on the cake of the rip-off society we now live in, where Aussies are constantly shafting other Aussies.

From manufacturers shrinking contents but keeping the packaging the same, to petrol stations raising prices before their costs have gone up; from bus companies charging fuel levies of $15 for each of the 50 people they transport to an excursion instead of the $60 they pay extra in fuel, to fake discounts at the super-market and to airlines charging your credit card a different price to the one advertised, the cost of living crisis is made worse by this corporate greed and indifference to the well-being of fellow humans.

Now, they’d like to charge you even more.

Try this one for fun. Jump online, onto one of Australia’s domestic airline websites.  Search for a flight to a specific location on a specific date and time, and write down the price. Then close the browser and leave your computer for 45 minutes. Return to the same computer or laptop, navigate to the same airline’s website and search for the same flight again. Is it more expensive? Don’t be surprised if it is. Alternatively, ask a friend in another state or suburb to look up the same flight. Same price? Don’t be surprised if it’s different. You’ve been tracked via cookies or device fingerprinting. Welcome to the first versions of surveillance pricing. Different prices for different people, based on what the company knows about you and your behaviour.

From paper tag to the black box

In physical stores, one of the pieces of hardware of this revolution is the Electronic Shelf Label (ESL). These small e-ink screens look innocent enough, but they’re the front end of a massive data engine. In the United States, Kroger has been a pioneer with its “EDGE” shelving technology. In Australia, the rollout has been more cautious but no less deliberate.

The danger isn’t the screen itself; it’s the algorithm behind it. Unlike a paper tag that takes a staff member an hour to change, an ESL can be updated in milliseconds. This allows stores to implement Dynamic Pricing, a practice already common among airlines and Uber.

Here are some examples of what you can expect in-store and online from the technology supermarkets would have you believe is innocuous:

• Surge pricing: Raising the price of cold water or ice cream on a 40°c day.
• Phone battery: Charging you more when your phone battery is low, and you just have to pay quickly and get home.
• Fast delivery:  Charging you more when you are rushed and therefore not price sensitive.
• Phone brand: Charging you more if you use an iPhone to pay – you must be wealthier.
• Location: Charging customers more where the supermarket has few competitors and customers have no alternatives.
• Disadvantage advantage: Charging more on a day when the trains or buses aren’t operating, and you can’t travel elsewhere.
• Peak-hour hikes: Increasing the cost of bread, milk and dinner essentials at 5:30 pm when parents are rushing home.
• Inventory shifts: Lowering the price of meat as it nears its expiry date – not to save you money, but to prevent a loss for the store.

2. The U.S. investigation: Privacy as a luxury

In early 2026, the U.S. House Oversight Committee and the Federal Trade Commission (FTC) launched a sweeping inquiry into “Individualised pricing.” The concern is no longer just that prices change for everyone – it’s that they change for you.

Recent reports provided to the committee revealed that some artificial intelliogence (AI) -based pricing tools could charge identical products differently from one customer to the next by as much as 23 per cent. This is “Surveillance Pricing” in its purest form: using your geolocation, browsing history, and even your phone’s battery life to determine your “pain point” – the maximum you are willing to pay before walking away.

3. The Australian Frontline: Coles, the ACCC, and the “Great Value” irony

While the U.S. fights over data privacy, Australia is embroiled in a legal battle dubbed the “Case of the Century.” The Australian Competition and Consumer Commission (ACCC) has taken major Australian supermarkets to court over allegations of “fake discounts” – the practice of hiking prices for a brief window, only to “drop” them to a price still higher than the original.

If proven, we can confidently say that teams of people who work in the head offices of the major supermarkets  – with their happy smiling faces all on LinkedIn – actively plot and scheme to lie to their customers and rip them off. Do you really want to give these same people Electronic Shelf Labels (ESL) technology?

The marketing spin

Coles has recently doubled down on its “Great Value, Hands Down” campaign. The advertisements are masterclasses in “techno-optimism.” They feature upbeat music, bright red “Down Down” hands, and smiling team members. The marketing makes light of the technology, framing ESLs as a way to “save paper” or “free up our team to help you.”

“By automating our labels, we’re putting the focus back on service,” the ads suggest.

But behind the “Great Value” branding, the 2026 ACCC filings suggest a darker reality: a system that will make it impossible for consumers to track real value or compare prices. When a price can yo-yo around five times in a week, or even fives times in a day, the consumer loses something called ‘price memory’, which is their only weapon.

Quite frankly, Electronic Shelf Labels (ESL) technology and any form of surveillance-informed pricing must be banned.

Your loyalty card is providing all the information they need

If we think of ESL as the engine of surveillance pricing, your loyalty card – Flybuys or Everyday Rewards – is the fuel. In 2026, Coles 360 (the retailer’s media arm) reported a massive uptick in revenue. They aren’t just selling groceries; they are selling you through your data.

By scanning your card, you give the store a map of your vulnerabilities. If their AI agents know you have a newborn, it knows you must buy nappies, regardless of a 10 per cent price hike. That’s a loyalty tax.

When you tap your loyalty card, you think you are saving, but ultimately you will pay more because the store knows everything about your budget, and you know nothing about their margins.

Soon, major Australian supermarket AI agents will use demographic data to set higher baseline prices in captive communities where resides have fewer transport options to shop elsewhere.

Reclaiming your rights to privacy, transparency and honesty

As of May 2026, legislative pushback in the U.S. has commenced. With Trump hitting his second-term low in the polling averages, with 39 per cent of Americans approving of his job and 57.7 per cent disapproving, and with U.S. first quarter Gross Domectic Product (GDP) growth numbers showing that most of the increase in economic activity has been driven by intangible items like intellectual property and software, which don’t require workers, Senator Cory Booker, along with Elizabeth Warren, Martin Heinrich, Chris Murphy, and Mazie Hirono, introduced an important bill that would genuinely discipline Wall Street and reorder corporate America to serve Americans.

Meanwhile, Progressive Democrats, led by Texas Congressman Greg Casar, introduced the Progressive Caucus plan on affordability, which is not unlike the 1994 “Contract with America” introduced by Newt Gingrich. One of the most significant of the ten proposals is a ban on surveillance pricing, which they will pursue through a bill called the Stop AI Price Gouging and Wage Fixing Act drafted to prohibit personalised price setting. Likewise, Maryland and California have introduced bills to ban Surveillance Pricing in grocery stores, arguing that food is a human right, not a data-harvesting opportunity. New York has taken a softer option, not banning it, but requiring disclosure when prices are set by algorithms – they may as well make it Open Season.

This technology already exists, and through its advertising, Coles is flagging its intent to introduce ESL here. You will need to write to your MP and support laws that ban the technology and enforce price stability, such as setting prices once for each batch or delivery of goods.

Alternatively, you can shop without a loyalty card or use cash to break the data link, but this is only a short-term fix because it won’t prevent many of the surge-pricing examples I’ve highlighted above, such as during dinner times and on hot days.

While some suggest we should shop at analog stores, these stores will eventually fold and go bust as big supermarkets increase their margins, allowing them to afford more aggressive competitive tactics.

And it won’t end at supermarkets.

As a fund manager, you might think I would be cheering for higher margins and profits that this technology can deliver, but I value social cohesion and support for the disadvantaged far more, as we all should. This technology will undermine both, and to what end?

I joined Jess Maguire on ABC Statewide Drive to break down what’s actually on the table ahead of the federal budget. With a large deficit, ongoing inflation and rising government spending, I said this is an important budget and a time when rumours can spread quickly. I pushed back on claims of an inheritance tax and a cash ban, noting there’s little political appetite for either, while highlighting that changes to superannuation for higher balances are already in place. We also discussed how an EV road user charge could be introduced over time as fuel excise declines. On housing, I said policy tweaks like negative gearing changes are unlikely to have much impact, with credit availability and migration remaining the key drivers.

Listen to the segment from 1:45:30: ABC Statewide Drive 

In this video insight I challenge the idea that Labor’s federal budget is delivering genuine intergenerational fairness, arguing instead that it overlooks the fundamental drivers of Australia’s housing pressures. While Labor focuses on taxing investors and reshaping incentives, the reality is that strong migration and limited housing supply continue to fuel demand, keeping vacancy rates tight and affordability under strain. I also question whether shifting the burden onto “mum and dad” investors addresses the real issue, suggesting that broader structural reform and a more honest assessment of policy trade-offs are needed.

Worley Limited (ASX: WOR) has spent much of the past decade trying to redefine itself. Once known primarily as a traditional engineering contractor tied to cyclical project work, the company expanded aggressively into energy services through the acquisition of Jacobs’ ECR division in 2019, just before the world turned against fossil fuels. What followed was a difficult period marked by integration challenges, weak energy markets and a sharp de-rating as investors questioned both the strategy and the sustainability of earnings. Today, that same business is being viewed through a very different lens as the importance of energy and infrastructure are being highlighted by headlines and capital allocation.

Backlog growth remains one of the most important metrics for Worley and momentum in contract wins has been strong, with twelve separate awards and appointments in the March 2026 quarter alone contributing to improving visibility over future earnings. The approval of Venture Global’s CP 2 project Phase 2 is particularly significant, reinforcing confidence in the durability of the pipeline and anchoring a meaningful portion of future workload.

At the same time, Worley is improving the quality of its earnings and reducing operational complexity as organic growth and disciplined cost control drive stronger margins and cash conversion. The business is fundamentally in solid shape, with consistent free cash flow generation supporting shareholder returns, including an almost complete $500 million on-market share buyback. This combination of operational momentum and financial discipline is indicative of a business that is not only growing but doing so with improving efficiency and capital management .

Looking ahead, Worley is a global company but retains a strong presence in both the U.S. and Middle East and positions the company well to benefit from both ongoing energy investment and the rebuilding of critical infrastructure following recent military strikes. While publicly listed international peers have already benefited from this increased focus and industry tailwinds, the market is underappreciating the durability of this demand and Worley’s strategic positioning within it, creating an attractive opportunity to gain exposure to a structurally improving earnings profile at a valuation that is considered to be at a significant discount to local and international peers.

The combination of improving earnings quality and growth, priced at a single -digit multiple, presents an asymmetric risk-reward opportunity that aligns with our focus on identifying underappreciated change in earnings quality and growth. 

Disclaimer: 

The Montgomery Fund, The Montgomery [Private] Fund, Australian Eagle Trust and the Australian Eagle Equities Fund own shares in Worley. This article was prepared 30 April 2026 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Worley, you should seek financial advice.

Today on Ausbiz, I pushed back on forecasts calling for a 20–40 per cent collapse in Australian housing prices. In my view, that outcome is highly unlikely given the way our system is structured.

Yes, prices can fall. But when you’re bringing in tens of thousands of people each month and vacancy rates are sitting around 1 per cent, supply simply isn’t keeping up with demand. That imbalance continues to support prices.

Then there’s policy. For decades, governments of all persuasions have introduced schemes to support home ownership, from low deposit programs to shared equity and access to super. With two thirds of households either owning or paying off a home, there’s no real incentive to engineer a sharp decline in prices.

Importantly, the banks, regulators and the Reserve Bank of Australian (RBA) are all aligned around maintaining stability. With the majority of bank assets tied to residential mortgages, a significant fall in prices would have broader consequences for credit growth and the economy.

That’s why I think a large-scale collapse is improbable. A pullback in parts of the market is possible, but I’d be more inclined to see that as an opportunity rather than a crisis.

Watch the episode via Ausbiz here: Roger’s reasons why the housing market wont crash