AI revenues
The below doesn’t match what I understand from their press releases, so I am hesitant to put too much stock in it, but, at face value, this would be quite a slowdown.
OpenAI seems to be going much better, pretty much the opposite of what I’d understood for the two companies.
The monetisation of AI has great bearing on how the AI trade goes, and thus for the entire stockmarket, which is why we watch it closely.
Stocks vs bonds
Stephen Kirchner makes the good point that the bond market weakness in response to the AI capex narrative (which is driving stocks) is a good reminder that the hedge is still there. If you read the above (as in, the note on Anthropic revenues flattening, or alternatively, yesterday’s note on the fairly implausible revenue assumptions that the hyperscalers would need to deliver on) and think “gosh this is a bubble” then when it goes away the bonds should perform better.
The narrative can’t run in only one direction (bonds are selling off because growth is strong and issuance is strong and that both derive from the AI trade) and not the other.
So, if AI is real, GDP growth will be strong, the yields will rise, the equities will (likely) be strong, and the bonds weak, and a diversified fund will still likely be okay.
If the AI trade is a bust, GDP growth will be weaker than otherwise, the yields will fall, the equities will (likely) be weak, and the bonds strong, and a diversified fund will still likely be okay.
Why mention this? Well, we see many writing that the 60/40 is dead, that it is silly to follow, and that moving away from duration is advisable. Our view is “everything in moderation”. It is fine to have a bit less duration, and a bit more shorter dated stuff, and it is fine to get creative and use diversifiers (trend following is something we often like!) within alternatives, even things like gold if you’re a believer, but that is very different from thundering out of an asset class in its entirety (in this case, a sub asset class).
RBA
So the RBA hiked, as expected. Not an especially hawkish read, just acknowledging that the Middle East got worse, that AI remained strong, that capacity growth isn’t great, and that demand, whilst softening a touch in August, has still been pretty strong, and hence a hike is warranted.
Certainly didn’t read as “we will hike into oblivion in order to slay the inflation dragon”.
Nothing particularly iconic happening in the immediate aftermath.
Important Information: This document has been prepared by Aequitas Investment Partners Pty Ltd ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of AIP FS Pty Ltd ABN 49 680 982 478 (Australian Financial Services Licensee no. 700016) and is for distribution within Australia to wholesale clients only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Aequitas is not authorised to provide tax (financial) advice and is not a registered tax agent. Investors should seek their own tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law. We recommend that you consult a registered tax agent or a tax specialist to confirm your taxation position.
