Iron ore, cracks in Chinese and US property, and the crash in PPIs

Is The Iron Ore Trapdoor Opening?

In this podcast, we look at how to profit from a falling iron ore price.

The market has been obsessed with the prospect of Chinese stimulus. Finally, belatedly, the realisation is emerging that the stimulus is not coming.

Further, it looks as though the entire development sector is now effectively publicly owned. Utilities, designed to finish the prepaid housing, offered enough debt roll-overs to do so.

Nucleus Wealth’s Chief Investment Officer Damien Klassen, Chief Strategist David Llewellyn-Smith and Senior Financial Adviser Samuel Kerr examine strategies that investors can use in current markets to benefit from this trade.

Agenda:

• Depression economics grip China
• Iron ore market balance
• Market implications

Watch the episode here.

Jonathan Rochford: When A Distressed Debt Manager Meets An Economic Bust

Are we heading into a classic central bank-created bust, following a boom fuelled by low interest rates?

So far this has been primarily about asset prices. Is it really a recession if unemployment remains low?

Minsky’s hedge, speculative and Ponzi categories are playing out as businesses/investments that can’t generate enough to cover their interest payments are heading to bankruptcy.

The most obvious victims are cryptocurrencies, venture capital and loss-making businesses.

Main areas of concern:

US commercial property, high-yield bonds and leveraged loans are much bigger but more of a slow burn. Defaults are ticking up, well above the last two years.

There is an increase in both the base rate and credit spread hitting borrowers at the same time.

Lenders/investors are also tightening their criteria. The Twitter loan is stuck with the banks that underwrote it, estimated to be worth about 60% of face value now. Recovery rates are much worse this cycle than previous cycles.

Refitting commercial properties for residential apartments seems logical, but zoning restrictions and layout issues (e.g. access to natural light, plumbing/electricity) mean it is often cheaper to demolish and start again.

Extension of the ideas:

The review of the RBA missed the key change needed. Adding more economists and changing the number of meetings will do very little, we need to stop following Keynesian economics and cutting rates too far when downturns inevitably arrive. The review recommended nothing to stop the boom-bust cycles.

Population growth might stop Australia from having a recession, but per capita GDP could easily decline. We’ll pay for that sleight of hand in other ways. (housing affordability, infrastructure spending, lower quality of life)

In this investment podcast, Chief Investment Officer Damien Klassen, Narrow Road Capital Portfolio Manager Jonathan Rochford, and Senior Financial Adviser Samuel Kerr delve into this topic.

Watch the episode here.

Will US Commercial Property Be The Epicenter Of The Next Property Crash?

In this podcast, Nucleus Wealth’s Chief Investment Officer Damien Klassen, Senior Financial Adviser Samuel Kerr and Julian Campbell-Wood of Global REITS – Resolution Capital run through the following topics:

• Office: The dangers of contagion in US commercial property and what the future of work holds.
• Retail: Macro data (weak) vs. microdata (OK).
• Industrial: The Yellow insolvency and what it means for the sector. Will companies continue to keep inventories higher (“just in case” rather than “just in time”) or will they simply revert back to pre-pandemic levels?
• Residential: US rental growth, will it peak then pause or will it fall? Comparison with Australia.
• Self-storage: end of the dominance of products over services?
• Data centres: AI affect whether AWS/Google/Microsoft are going to dominate the smaller players.
• Are there differences between countries/regions?

Watch the episode here.

Is The Chinese Snowball Getting Bigger?

We delve into the world's largest asset class in this podcast. Alarming economic data has sparked investor jitters, but imbalances have existed for a decade or more.

Over the past 15 years, China's construction frenzy has reached historic proportions. The trigger point is elusive, akin to predicting an avalanche. Conditions are ripe for a seismic shift, this time we ask the big question: Why now?

Part of the answer lies in the developers. But the big names of Country Garden and Evergrande aren't exceptions; they mirror the industry. China's top developers grapple with four massive challenges.

Then we look at macro construction stats. Something's off. The numbers just don't add up.

Can infrastructure fill the gap? How much bigger can China grow that spending?

We also consider shadow banking issues, fading hopes of a consumer-led rescue and financial repression's paradox.

This is China's fourth attempt at breaking its property addiction—stakes are rising.

In this podcast, Nucleus Wealth Chief Investment Officer, Damien Klassen and Senior Financial Adviser Samuel Kerr delve into the arguments and look at the evidence.

Agenda:

• Biggest asset class in the world
• Property Developers
• Macro construction stats
• Infrastructure to the rescue?
• Shadow banks
• Consumers to the rescue?
• Financial repression can’t be a cause and a cure
• Latest Data
• Investment Outlook

Watch the episode here.

PPI Crash: Unveiling Inflation’s Future or Corporate Gouging?

Globally producer price indexes have turned down quite decisively. China is trying to deal with deflation.

There are two main explanations, with diametrically diverging investment outcomes.

Under the first scenario, producer price inflation is a leading indicator for consumer price inflation. Falls in the producer price indexes will inevitably flow through to inflation indexes. Sell stocks, buy bonds.

Under the second scenario, the gap is an indicator that companies continue to be able to expand margins. It is a sign that companies are raising prices to consumers faster than their own costs are growing. Buy stocks.

In this podcast, Nucleus Wealth’s Chief Investment Officer Damien Klassen and Senior Financial Adviser Samuel Kerr dig into the arguments and look at the evidence.

Agenda:

• What is the Producer Price Index
• Divergence or lag
• Two options: good for margins, terrible for margins
• Reporting season

Watch the episode here.