• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

This omnibus report aims to be more succinct.

Australian 20 Stock Model Portfolio

The last rebalance involved an exit in Macquarie Group XASX: MQG and an addition of the gas pipeline company APA Group XASX: APA. There were other minor adjustments to stock weights to adjust them up and down to round numbers for quarter end.

No further changes are contemplated at this stage. The markets are too volatile for any high conviction moves other than the increased weight to energy stocks via the addition of Woodside Energy XASX: WDS, on 3-Mar-2026, and APA Group.

The first quarter to 31-Mar-2026 was negative, due to a large drawdown in March, for both the model portfolio and the benchmark S&P/ASX 200. The Q1 numbers saw our model down -2.13% and the market -1.61% for a net lag of -0.52%. This is down to a string open to the year, followed by a pullback in March.

The month of March was ugly, due to the uncertainty created by the war on Iran and the high exposure Australia has to rising diesel fuel costs. This nation, with its long distances between cities, and fuel intensive mining and agriculture is at risk.

The US markets have been more sanguine, due to the perceived self-sufficiency of that economy on domestic crude oil and natural gas supplies.

The jury remains out on whether it will stay that way, because US diesel prices are rising, as are gasoline, and US sourced West Texas Intermediate.

On a month to date basis, the Australian portfolio rebounded 2.40% to the market close 24-Apr-2026, lagging 1.20% behind the S&P/ASX 200, which was up 3.60%.

The fiscal year is still very positive, with our model up 11.70% since 30-Jun-2025, while the S&P/ASX 200 is only up 1.98%, for a lead of 9.72%. Not as great as before, but the model portfolio is still doing well. The bets we have on commodities are balanced to bulk miners like BHP and RIO, energy via Woodside and APA, gold via NEM and EVN, and lithium via PLS and IGO. Presently, we are underweight Australian technology, which has rebounded somewhat from a deep correction over the past year.

In summary, there is no compelling reason to adjust the portfolio as we see tightness ahead in both monetary conditions and commodity prices. The status of the cycle in China will determine if we lighten exposures in the industrial metals market.

While gold has not performed as most people expected in this wartime environment, we remain constructive on holding these stocks in Australian portfolios. Traditionally, the USD tends to strengthen on weakening global conditions. The Australian dollar remains firm, for now, due to the expectation of higher interest rates. However, we think the Australian economy will struggle with the cost-of-living pressures.

Locally, the Australian banks are expensive, especially the Commonwealth Bank, and there are signs of weakness in retail. Our tilt to yield plays, inflation hedged utilities, like rail haulage in Aurizon, and gas transport in APA Group, plus commodities, is a bet on tricky times ahead for mainstream Australian businesses.

Let us see what the Federal Budget brings, and whether the Iran war is brought to a timely close or metastasizes into a global stagflationary supply shock.

USA 20 Stock Model Portfolio

The 31-Mar-2026 rebalance saw us exit positions in Meta Platforms XNAS: META and Cummins XNYS: CMI, to add Boeing XNYS: BA, and Moog XNYS: MOG.A. The capital expenditure boom in the USA is likely to widen into defense aerospace, due to the planned 50% increase in the Pentagon forward budget for 2027.

There are already high levels of capital expenditure on the data center build for AI, but we think this is largely priced by the market. Moreover, much of the electrical, chips, and cooling systems are sourced overseas. The trade is real but seems crowded.

The defense focus of the Trump Administration has been made clear by the war on Iran, and initiatives like the Golden Dome missile defense, and Golden Fleet.

We already own a position in Raytheon Technologies XNYS: RTX, which has a key role in naval defense missile systems and antiballistic missiles. However, we see a possible multi-year turnaround underway at Boeing XNYS: BA, off the back of their platforms for military transport, airborne refueling, and early-warning radar aircraft.

Boeing has struggled for years with the aftermath of the 737-MAX debacle, which was a failed design exercise in cutting corners to meet civilian aerospace demand.

The cheque book now seems open for new design work, like the F-47 Next Generation Air Dominance (NGAD) fighter, plus the renewal of the US manned space program.

Space-X is coming to market, via IPO, and we see renewed interest in space.

One little known area of aerospace that is also set to benefit is motion control. This is the field of electromechanical and hydraulic actuators to control motion in flight.

The field has good margins, from technical knowhow, and the high degree of trust that manufacturers place in the performance of these vital subsystems.

Here we added Moog XNYS: MOG.A, the premier US firm in this area.

The name Moog may sound familiar; the company was founded by the brother of the inventor of the Moog synthesizer, the one that shaped electronic music in the 1970s.

Invention runs in the family!

The model performance to 31-Mar-2026 was down. The market fell -5.00%, with the portfolio down -5.31%, for a net lag of -0.31%. This has been followed by a rebound of 10% for the S&P 500 through to 27-Apr-2026. This was concentrated in the large capitalization technology companies. We hold these at 21% below the market 45.5%. Consequently, we were up a lesser 5.34%, squaring the prior month fall, but a huge -4.66% behind the market. This highlights the large risk investors are running now being so concentrated in the single theme of AI. This is why we are diversified.

Note that the largest negative contributors MTD have been Exxon XNYS: XOM and the defense contractor Raytheon XNYS: RTX. Wall Street has taken the view that this war in the Persian Gulf will soon be over, there will be no lasting consequences, and we can return to putting all of our capital into the AI basket. Perhaps. Perhaps not.

Trading single month volatility is mug’s game, we will wait this one out.

International (non-USA) 20 Stock Model Portfolio

The major changes at 31-Mar-2026 were to exit German defense play Rheinmetall AG XETR: RHMG, Swiss luxury goods firm Richemont XSWX: CFR, and Hong Kong gaming firm Tencent XHKG: 0700. These were replaced by Telstra XASX: TLS, Brazilian oil firm Petrobras XNYS: PBR, and Swiss reinsurance firm Swiss Re XSWX: SREN.

Rheinmetall had performed very well for us since inception, but we have tilted to US and Japanese defense exposures as the German story is fully priced. The other moves are to shore up some yield in strong currencies, like the Swiss Franc, and to fill out an energy tilt in the international model via Petrobras. We already have exposure to the offsetting Electric Vehicle thematic via BYD XHKG: 1211.HK and CATL XKHG: 3750.HK, plus Xiaomi XKHG: 1810.HK. The war on Iran has lifted all boats in alternative energy but also benefits those oil and gas producers outside of the Persian Gulf. Telstra is a likely beneficiary of the multi-year trend for AI-related telco services.

The return in March was -8.03%, behind the FTSE Global All Cap Index at -6.21%, for a lag of -1.82%. Note that the benchmark includes US stocks, which we did not own.

The rebound MTD was modest at +4.74%, behind the FTSE benchmark at +8.68%, for a negative lag of -3.94%. The key driver of this was US technology stocks which we do not own in this non-USA focused strategy. Note that the top performer was Taiwan Semiconductor XNYS: TSM, our second-largest position after CATL XHKG: 3750.HK.

These moves are related to the singular focus of Wall Street on US technology.

Global Best Ideas 25 Stock Model Portfolio

The Global model is supposed to be our top 25 ideas drawn from the US and non-US models. The changes last month just squared up the holdings for new additions. The global model already holds Exxon, so we did not add Petrobras. However, we added new US position Boeing XNYS: BA, and Swiss firm Swiss Re XSWX: SREN. To make room we exited US insurer Allstate XNYS: ALL and Richemont XSWX: CFR.

The performance in Mar-2026 mirrored that of the international model. We were down -6.59%, a modest -0.37% behind the FTSE benchmark at -6.21%.

The MTD performance was +6.42%, versus the FTSE at +8.68%, for a lag of -2.25%. The drivers of this result are again the US technology rally off the March lows.

The above contribution chart highlights the swing back to technology names, with the results led by Nvidia XNAS: NVDA, Amazon XNAS: AMZN, Alphabet XNAS: GOOG and Taiwan Semiconductor XNYS: TSM. The key laggards were our geopolitical hedges in Exxon XNYS: XOM and Raytheon XNYS: RTX, along with CME XNYS: CME.

In my view, those risks remain.

There are no changes planned this month, but we may choose to take some profits in the technology names that ran and top up the laggards. This market is treating the war lightly and clearly wants to “return to the prior trend” consensus.

With inventories of oil, gas, refined fuels, petrochemicals, fertilizer, industrial gases, and other vital industrial commodities being drawn down, we do not see a rapid return to normalcy. Worse, the higher cost environment may see a scaling back in planned capital expenditures, outside of defense and energy needs.

Conclusion

These remain turbulent market conditions, and we are unpersuaded that the coast is clear to an imminent end to the Iran war, and attendant geopolitical tension.

Rhetoric from the White House remains detached from reality.

There has been no visible regime change in Iran, apart from a natural hardening of the national resolve in the face of US and Israeli attacks. Strategic bombing campaigns do not end wars, and we do not expect this circumstance to be any different.

Presently, the global model has 54% in US stocks, rather than the benchmark 62% and is underweight global technology by about 10%, and overweight resources by 14%.

Time will tell if this positioning will be rewarded.

Our logic is that present conditions resemble those of the 1973-1974 bear market, the proximate cause for that was the Jan-1973 Arab Oil Embargo of the USA.

This time is different in two ways: the USA and Israel started this war, and so could choose to stop it; and the USA is a net producer of oil and gas.

Superficially, the USA looks invulnerable to major economic damage.

However, wars are costly to finance, and this one is likely to damage the world and thereby cause a blow-back into US multinational profits and confidence.

Due to the valuation disparity between US and non-US markets, we do not see the US market as a durable safe haven for capital. Indeed, the level of animosity displayed towards foreign actors could see conditions ripen for capital flight.

We are not there yet, but I do not see present conditions as stable.

Granted, we have already seen instability, and relative underperformance these past eight weeks from our non-US and non-technology holdings. However, what has propelled that difference is capital-expenditure related growth expectations.

Capital expenditure booms usually die of old age meeting higher costs.

There remains enormous enthusiasm for the AI-related capital expenditure boom, especially in the USA, but the rise in construction-related costs due to diesel and material prices, plus manufacturing interruptions to supply chains, could soon be upon us. There is also the prospect of higher interest rates.

The US economy has run fiscal deficits >5% for some years now.

We have a planned 50% budget increase for the Pentagon, an active war in the Middle East of uncertain aims and duration, and a deteriorating geopolitical environment.

Guns and Butter sank the administration of President Lyndon Baines Johnson.

The US adjustment from the excesses of the late 1960s gave us the 1970s.

Students of market history will note that the Nifty Fifty stock boom of the 1960s fully died in the 1973-1974 Bear Market. It took decades for some names to recover.

This all happened at a time of continued innovation.

While the US Space Program stalled in the mid-1970s, the consumer markets were very active, and the shift to greater fuel economy helped foreign firms.

There are undoubted reasons to keep betting on US innovation, but we think that the present focus of US technology investors is too crowded in those spending money.

We are not fools, and believe that you must spend some money to make money.

However, the set-up today means that young innovators are literally given brand new tools for reshaping entire industries for free. Intelligence is not a new thing, and the belief that this can be controlled through mechanisms of ownership seems naive.

The US mega-tech firms have splendid advantages, but they also seem blinded by the market power they wield. This was built on network effects to aggregate attention.

However, the growth of replicable Large Language Models (LLM) via open source and shortcuts like model distillation could leave the technology majors looking like very expensive telecommunications firms who have put all their cash into infrastructure.

The truth of software economics has not left us. The marginal cost to replicate any software is close to zero, in media terms, but was formerly high in barriers to entry.

Since the process of generating software is now automated, we foresee a widening of opportunity for disruptors to reshape all software dependent process industries.

This does not seem to be a stable environment for massive capital expenditure.

The problem is who will capture the return on AI investment.

I am a believer in the powers of human creativity, which I now see amplified.

The major technology firms have great present businesses, but the future of any and all business now looks uncertain to me. In that world prospect, I prefer to reallocate capital towards the fruits of nature, via commodities, and infrastructure which is unlikely to be disrupted, such as gas pipelines and railroads.

The virtual world seems set for cataclysmic change.

In consequence, I am looking for investment opportunity in the physical world.

It is too early to say, for certain, that these instincts are correct.

We are baby stepping in those directions we think are likely to prove more rewarding over time, and perhaps less exposed to a collapse in sentiment.

These are both disturbing times and exciting times.

1984 came and went…

It was not as bad as the book made out.

I am looking forward to finding new opportunity.

Take care and happy investing!

This note was titled Gold in the Hand versus Gold in the Ground.

The principles I outlined there are commonly used in the Hedge Fund world.

Many moons ago, I used to write broker research on these so-called pair trades.

Cml Vs Wow Pairs Analysis

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The above note on Coles Group versus Woolworths is twenty-five years old now.

The method of pair trading comes and goes because you need the right kind of markets to have it work well. Ideally, these are ranging not trending markets.

Trending markets tend to produce one-way bets.

Ranging markets tend to produce back-and-forth motion.

You could still have a trend overlayed with relative cycles, and I will show how to do the statistical analysis for that in a later note. The key thing to note is that a growth stock market is generally dominated by trends. Value stock markets are opposite.

You can tell by my resurrection of twenty-five-year-old methods that I am retooling for the possibility of a different kind of market, one I am also at home in.

The particular kind of trade I want to revisit today is called impulse reversion.

In the original stock price chart of Northern Star XASX: NST it looked like this.

When there are few value investors around the moves can be huge, as you can see above when Northern Star announced a second delay on the KCMG mine expansion. Delays in production cost some short-term excess expenditures to fix and shift the Net Present Value (NPV) further out in the future, leading to a lesser value.

If you were in a hedge fund trading pod, you might well have a model ready to go on stressing the valuation impact to find a warranted price level for entering the trade.

Good value investors have a few rules of thumb on discounting they can do in their head. In the old days of floor trading, this was an essential skill.

Since we have been in a growth market for some decades the skill has atrophied.

That is why you got a 45% down move in a weak gold market. Evolution XASX: EVN was down about 33% over the same period. The value impact of delay circa 5%. In this case, you could look at NST on a relative to see pricing in gold.

You can see on 23-Mar-26 the relative purchasing power of gold, the product, for the gold mine had soared by about 30%. The trade is then to sell GLDN, the gold ETF and buy the stock, NST. This is why I generally own some precious metal and some stock.

Think of the gold as like cash, which substitutes for the output of the mine.

The purchasing power of gold in the hand for gold in the ground, using the ratio of price of one to the other is a simple test of relative value. This works in a trading pod because you have risk capital to tap, and target rates of return to make.

Obviously, the trade is not worth doing if the stock does not appreciate. Therefore, you only do things this way in a rising Bull market. We have that for both gold and gold miners, so it is a fair bet to do the trade. We can expect impulse reversion.

Let us see what happened to NST after 23-Mar-2026.

It turns out it bottomed on that day and is up about 28% since to close 1-Apr-2026.

I did not do my trade until 30-Mar-2026, for a lesser gain of 13%. This is for several reasons; the main one has to do with managing risk. When it is your money at risk caution on the turn is advisable. We can see that turn on the relative chart below.

I did my trade when the relative price ratio clearly looked to be moving back and had crossed back through the level of the prior peak. This is a desk trader kludge.

There is no hard and fast rule for where this should go.

You lean into it when it feels right and cut it if it does not act right. Presently, this one is acting right, and we would anticipate a return to the former level.

Note carefully that the “return to the former level” is a rule of thumb judgement that reflects some mental arithmetic on how much the gold miners’ profits are affected by a given change in gold, and or oil prices. In a real pod setting, you would have done the sensitivity modelling, the AISC cost/margin model, and peer valuation.

This is just an educational note as I think we will see plenty of these opportunities.

Twenty-five years ago, when I first learned this method there were proprietary traders on every major investment bank floor, and fund shops full of value investors.

The proprietary traders are gone.

The value shops are dead.

The quant models today are all artificial intelligence black boxes.

If you know what you are doing, this is a good method.

Have fun!

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• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

The licensing and complaints procedure is outlined in our Financial Services Guide.

These portfolios follow the Jevons Global investment process.

1.19MB ∙ PDF file

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The last change to the model portfolio was effective at close 10-Mar-2026.

On the last portfolio change, which happened pre-war we exited these positions:

• AAPL Apple Inc

• ORCL Oracle Corp

This was to make way for new inflation hedges:

• XOM Exxon Mobil Corp

• LIN Linde Plc

This month we need to synchronize the Global 25 Model with the latest changes to our US 20 Model and our International 20 Model.

The theme of this rebalance is a more defensive posture.

The main areas we seek to strengthen are hedging to higher energy prices, the risk of higher interest rates, and the possibility of a consumer slowdown.

Since the last 10-Mar-2026 change the benchmark FTSE Global All Cap Index (ETF: VT) fell -6.08%, and the portfolio a lesser -4.25%, for a 1.83% positive alpha. The complete figures for the month will be out tomorrow, but will include the initial period, plus the results of overnight trade. Including, the period from the start of the month, the alpha was a more modest 1.26%, and the benchmark return -9.02%, and model -7.76%.

The above chart shows relative contribution by stock. Exxon XOM and Linde LIN both added value, while Newmont NEM, Taiwan Semiconductor TSM and IHI 7013.T were a drag on performance. This chart is from the start-of-month, and so includes Oracle ORCL, and Apple AAPL, which were exited in the US rebalance.

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Read more

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

The licensing and complaints procedure is outlined in our Financial Services Guide.

These portfolios follow the Jevons Global investment process.

1.19MB ∙ PDF file

Download

The last change to the model portfolio was effective at close 30-Jan-2026.

On the last portfolio change, which happened pre-war we exited these positions:

• MQG.AX Macquarie Group Ltd Def

• PBR.N Petroleo Brasileiro Sa Petrobras

• 9101.T Nippon Yusen

• PHIA.AS Koninklijke Philips Nv

• GMG.AX Goodman Group Units

The one change we regret, was removing Brazilian oil major Petrobras. While there were negotiations happening between the USA and Iran at the time, we thought a new war in the Persian Gulf was too crazy to contemplate. Silly me.

The new additions at the same time were:

• D05.SI Dbs Group Holdings Ltd

• 8411.T Mizuho Financial Group Inc

• 9988.HK Alibaba Group Holding Ltd

• 3750.HK Contemporary Amperex Technology Lt

• 7013.T Ihi Corp

I remain content with these additions but note that there is severe supply risk to the Asian energy market, and some elevated risk for consumer names. The high natural gas prices in both Asia and Europe are likely to negatively impact industrial.

The main theme of this rebalance is a more defensive posture.

The main areas we seek to strengthen are hedging to higher energy prices, the risk of higher interest rates, and the possibility of a consumer slowdown.

In spite of the sharp -9.02% fall in the benchmark FTSE Global All Cap Index (ETF: VT) our International 20 Model Portfolio fell a lesser -8.26% for a positive lead of +0.75%.

The main changes this month are to reverse our (bad) Petrobras exit and shore up some of the more obvious risks in European industrials and the Asian consumer.

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The updates for close-of-trade 31-Mar-2026 are below the paywall.

Read more

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

The licensing and complaints procedure is outlined in our Financial Services Guide.

These portfolios follow the Jevons Global investment process.

1.19MB ∙ PDF file

Download

The last change to the model portfolio was effective at close 5-Mar-2026.

We exited Apple XNAS: AAPL, Oracle XNAS: ORCL, and Allstate XNYSE: ALL to hedge a possible energy crisis due to the US-Israel war on Iran. The new positions we added were oil major Exxon XNYS: XOM, industrial gas giant Linde XNAS: LIN, and insurer XNYSE: Chubb Inc. This on the outlook of rising interest rates and energy prices.

The investment thesis of a protracted war in the Middle East is playing out. While the gold sector and gold miners were initially weak, we think that was the first wave of selling to raise USD in affected central banks defending their currencies.

Our prospective outlook is that the USD will initially strengthen, on the natural view that the USA is less affected by an energy crisis. However, the pressure of war finance is likely to lead to further upward pressure on US interest rates, and globally.

In the near term, we are raising US asset exposure in our global model portfolios from 50% towards 60% by shedding more consumer-oriented names and energy exposed economies across Asia and Europe.

However, we think the US safe haven will prove temporary once bonds weaken.

The economies most affected by this war are those outside of the USA which are heavy importers of oil, like India, China and much of Asia.

There is also a problem with lost oil revenues impacting Persian Gulf states.

In the near term, that puts downward pressure on liquid precious metals. In the longer term it places acute risk on the US Treasury Bond market from foreign selling.

None of this is baked in, but it seems more likely now.

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Thematic Positioning

Our big picture revolves around the Global Power and Energy Transition. We have described this here, and here. The short version is that we see a tug-of-war between relative price-stability in Asia, driven by Japanese reflation and Chinese deflation.

This dynamic, and the security rivalry between China and Japan in their own backyard creates a recipe for trade detente and stability, since both nations benefit from rising global demand for their goods and services in the developing world. Europe is stable and low growth, but insecure over Russian intentions, and US hectoring.

The USA is running a new race for hegemonic global dominance. This may work, and we should not discount that possibility, but there is an acute risk of overreach. While the United States is the largest global economy, and very dynamic, it seems intent on playing to military strength and a weaponized financial market to secure its aims.

If this gambit should go awry, then a stagflationary slump is possible.

Earlier we displayed the S&P 500 Index, valued in ounces of gold.

This single chart should serve to remind us of the risks attending each downswing.

The US markets are not cheap, by historical standards. If the US Treasury Bond market were to sell off further, and the 10-year note reached the 5-6% range, a US recession is quite possible. With energy prices rising, this would portend a global recession.

Read more

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

The licensing and complaints procedure is outlined in our Financial Services Guide.

These portfolios follow the Jevons Global investment process.

1.19MB ∙ PDF file

Download

The last change to the model portfolio was effective at close 3-Mar-2026.

The changes were to shed Cochlear COH.AX and Iluka Resources ILU.AX and to add new positions in Rio Tinto Ltd RIO.AX and Woodside Energy WDS.AX.

In a nutshell, we chose to add LNG exposure in the immediate aftermath of the Israel and US action to attack Iran. This decision has been validated by events.

The changes to come this month, effective 31-Mar-2026, are again limited to tactical moves to upweight dividend yield exposure for a higher interest rate market, and to take advantage of swings in the market since the start of the war on Iran.

I do not expect a quick end to this war as the Strait of Hormuz is being used by the Iranians as a geopolitical bargaining chip. The effective closure of that waterway to ships that do not accept the Iranian terms of passage has no foreseeable military solution. This is a rocky coastline overlooked by high mountain ranges.

There are few places to land an attacking force.

The military solution to this problem looks vexed to us.

The above Times Radio interview with Lt. Col. Daniel Davis, a 1991 combat veteran of the first Gulf War, Operation Desert Storm, mentions the difficulty of unblocking the Strait of Hormuz by military means. For comparison, the troops committed to Desert Storm were fifty times greater in number than the troops now enroute to the gulf.

We cannot know how this conflict ends, or on what terms.

What we can anticipate is upward pressure on interest rates, rising prices, weaker consumer confidence, and the increasing risk of credit and liquidity events.

Our Australian portfolio positioning already has a bias to commodities and real assets and is lighter on long-duration growth equities that are negatively impacted by the uplift in bond yields now playing out in markets.

This process has discounted some positions we have in real estate, but the yields and inflation hedging properties of those have been neglected. The primary unpriced risk we see in the larger sectors of the Australian market lies in the banks.

We are already underweight in the financial sector but are further reducing exposure to those parts of finance which generally do poorly in a liquidity crunch.

The bad debt cycle in Australia is contained, but there is risk to funds management businesses, like Macquarie Group MQG.AX, and high-priced banks with low yields compared to history, and to a ten-year Australian bond yield nudging 5%.

In our judgement, the market has further to correct. Without making radical changes, and recognizing that we run fully invested portfolios, we are selectively moving our capital in the direction of value, with yield support, regulated cashflows, or a clear structural deficit on the supply side. This is energy and energy infrastructure, the provision of new and affordable housing, and sustainable capex themes.

There is a case to be made for growth franchises, which have corrected in the past year, but we still see too much valuation risk from a global reappraisal of the very protracted trend to pay higher multiples for software businesses.

In the age of Artificial Intelligence, we see disruption risk to established businesses and prefer to allocate capital into lower multiple businesses which can use debt on the balance sheet to improve return on equity and enjoy pricing power.

We do not yet know which class of business will be best rewarded by whatever falls out of this tumultuous economic adjustment but are prepared to be guided by the reality of cash returned through dividends, and some pricing power.

This is unlikely to be the same kind of pricing power we saw in high gross margin software businesses that grew rapidly in the recent enthusiasm for innovation.

The new market enthusiasms are unknown but likely to center on must haves.

Food, fuel, shelter, security and pipes, poles, and wires.

Supply shocks of the kind we are now facing in the energy, chemicals, food, fuel and fertilizer market, have a habit of upending the apple cart by reminding investors of necessary capital expenditures versus experimental innovation expenditures.

This is not the first time this has happened, and older readers may well remember the huge societal behavior change induced by the 1970s energy crises.

The Global Power and Energy Transition is now upon us and about to get serious.

This does not have to mean radical change all at once.

However, it does mean we need to be alert to how the world changes when money and energy rise in price at the same time. The effects may shock some people.

This is not the world of free stuff that made the growth of digital services fun.

It is quite the opposite of that, which creates its own force for change.

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Macroeconomic Context

There is a visible cycle, which is not regular, like clockwork, but which does repeat over time in relation to commodity prices and interest rates. In simple terms, commodities have a tendency to rise in price when interest rates rise. This is not simple relationship, because the supply of money is not fixed, nor is that of commodities.

However, the relative price of financial claims, like stocks and bonds, is susceptible to a relative change in value versus a basket of commodities. In the 1970s, when price levels for oil and gold soared, so did the cost of living, and financial claims became less valuable in relative terms. The reasons are unknown, but the topic has attracted leading economic thinkers like John Maynard Keynes. Cycles have been observed in the relationship between commodities and rates of interest back to the 1800s.

One version which is easy to display is the S&P 500 Index, normally a price level in dollars, remeasured in the value of gold as $/oz. This index is in ounces of gold.

Times of rising prices for money, as indicated by rising interest rates, are often associated with falling relative purchasing power of stocks for commodities.

The labelling on the above chart is coincidental with historical events. Note that the 1929 Crash and the 2000 Tech Wreck marked a period of widespread speculation in stocks. In contrast, the 1968 Tet Offensive, during the Vietnam War, and the 2022 seizure of Russian central bank gold, marked periods when interest rates started marching upwards from a period of relative historical stability.

The 1970s inflation really started in the late 1960s with the Guns and Butter agenda of President Lyndon B. Johnson, the Great Society Program, and the Vietnam War.

The period of renewed inflationary pressure began with the COVID supply shock in 2020 but was exacerbated when easy money struck the Russia-Ukraine war.

Wars tend to be inflationary in the short run, but the long-term response really depends on circumstances in relation to the supply of commodities.

What links the 1970s to the 2020s is a series of major wars linked to interrupted supplies of commodities, in this case energy.

The 1930s and 1980s were times of weak aggregate demand. The lesser slump around the Global Financial Crisis (GFC) was also a demand slump. The conditions now seem rosier because unemployment is relatively low and demand is good.

The problem is that we are stressing the supply of energy, through war interruptions, at the same time as we have high price levels for essentials like housing.

This is hazardous for the future trajectory of inflation and interest rates.

History never repeats, but there are similarities now to the 1970s.

The path now will differ, but we think the key similarity is a supply shock.

When people become familiar with a large enough supply shock, it does change their behavior. The fear of shortage brings forward activity and inflation expectations.

The optimal policy shifts from just-in-time to just-in-case.

This pattern is now familiar due to the COVID lockdown. People soon hoarded items in the fear that they would run out. This change looked temporary, until it appeared again, soon after the news of the war against Iran broke. Gas stations emptied.

This will seem very strange and foolish to those who never lived through periods when such bring-forward, just-in-case, consumer behavior was the norm.

Just-in-case was the mindset that defined living in the 1970s.

Those who lived through it will recall how long it took to shed this mindset once the 1990s period arrived. Nobody could believe it, and so the change was slow.

I cannot know what happens next, but I do see the early signs of a changing mindset.

There is no need to do anything radical, but we will lean in this direction.

The question to be asked is always the same:

Do I really need this, and will the price be higher tomorrow?

This is completely different to thinking that prices will always fall, and incomes will be higher tomorrow. The one place this mindset has already changed is housing.

People are so used to it going up that they think it can never fall.

If it did people would jump at the chance to buy.

Inflationary times are value-oriented times where cheap is bought.

You buy it just-in-case it does not stay cheap, or it disappears altogether.

The key for stocks in such a time is cheap in value not in price.

Cheaper in price can get a lot cheaper still if there is no real value on offer.

This is why we are tilting progressively more to value when it appears.

The model changes to the portfolio are below.

Read more

The Need for a Framework

In this note, I bring together a number of strands of thinking that inform our moves within the model portfolios. These are not major changes by turnover but establish consistency in positioning to match how we view the unfolding macro-outlook.

The markets remain relatively calm in spite of the sharp adjustments in commodity prices, with energy up, and precious metals down. We think this is calm before the storm. Orientation is important, and so it is worth recording how we think about:

• The tactical decision on cash holdings

• The likely impact of foreseeable disruption to the Australian economy

• The Global Power and Energy Transition dynamic that is now in foreground

• A Tri-Polar model of fading, rising and dominant global power centers

The purpose of model portfolio constructions is to make all of this concrete with a particular set of stock selections, and allocations, across stocks and regions.

The short version of this story is that we are becoming more defensive, with a tilt to value and yield, select commodities for inflation hedging, real asset-based business, and appropriate growth franchises that will likely maintain pricing power.

I never like to bet on a single outcome, so you can think of this background thinking as my attempt to start gathering a foundation for analysis of current events.

I am conscious that geopolitics is in the ascendant and so we need a way to reason about it which does not get caught up in foolish narratives on winners and losers.

There is latent potential for many bad financial outcomes in this setup.

The wise thing to do is to take stock of them and diversify our bets.

However, supply shortages, higher prices, and tighter money seem baked in.

Tactical Questions

In a private portfolio context, there is always the option to raise cash, or to position among different asset classes: equities, real estate, infrastructure, bonds and gold.

There is also cash which we treat as a liquidity pool and last resort.

In the present market conditions, some cash is good, and I would personally let the income from investments build up as cash, without deploying new cash to market.

Having some cash preserves optionality if opportunities present themselves.

This newsletter consists of general advice only and cannot take account of personal circumstances. I do not and cannot know your personal risk appetite, nor your stage of life, upcoming cashflow requirements, or anything of that nature.

You should seek help from a licensed advisor for personal financial advice.

This substack is designed to be informative, and educational, and we run our model portfolios in listed equities to provide concrete implementations of our thinking.

The thematic background to these strategies is also of value.

The outlook is clouded by a rising risk of stagflation. For this reason, we begin with a discussion of the Australian economy as a leveraged bet on commodities.

Australia has a Commodity Economy

It is important to appreciate that the Australian economy is nothing like that of the United States. We may share a lot in common, but the economic structure is very different, due to the dominance of commodity production in Australia.

Furthermore, while the bulk of Australian Foreign Direct Investment (FDI) may come from the United States, that impacts our capital account. In discussing the outlook for the domestic economy, we need to look at the income account.

It is customary for the Australian financial press to ignore this distinction in market commentary due to the penchant for reporting the view from Wall Street.

The view from Wall Street is very different to the view from Martin Place.

At times like this, it really is essential to understand and work with the difference.

Working against the intrinsic nature of your home economy is a bad idea.

We have seen this play out already with populist ideas that we should diversify our commodity trade away from China and towards the USA. This is not a sound idea because the American demand for minerals is a small fraction of that of China.

It suits US-funded think tanks to promote this idea but not Australia.

In our opening note Commodity Outlook 2026, I used US Geological Survey reports to dimension the share of global critical minerals demand represented by the USA.

On average, across 60 critical minerals nominated by the USGS, the dollar-weighted average of US demand is 6.7% of the global total. This is small.

China is the global market for critical minerals.

You can complain, but China has a monopsony position as the dominant buyer of minerals globally. To fix this you need new Western factories, not new mines.

The problem, for Australia, is that we are diversifying away from our key buyer, and are shunning FDI from China, in mines, whose output goes to China.

This will prove problematic down the track.

Our largest mineral commodity exports are bulk commodities like iron ore, thermal coal, coking coal, natural gas, copper and gold. That is how we make money to buy manufactured imported goods. Historically, the terms of trade for Australia, which measures the price level of what we export, versus what we import, was boosted by the entry of China into the global trading system. China demanded copious mineral exports from Australia, at elevated prices, and returned cheap manufactures.

This golden economic bargain is now breaking apart.

The fracturing of this model does not appear to have been driven by China. It is a deliberate policy decision of the Australian Federal Government.

I will not get into the why of this policy decision, but it is bipartisan.

With the rising temperature of geopolitical tensions, I do not expect any reversal of the policy is likely, or even possible. Chinese investment now shuns Australia.

As shown with the demand profile above, US FDI will not replace Chinese FDI in the growth of our minerals and energy industry. The US demand for minerals is small.

For whatever reason, Australia has chosen a deliberate policy to shrink our minerals and energy industry, with respect to the prospects for Chinese investment.

This is not everything, there is Japanese and South Korean minerals investment.

However, there is precious little US investment in minerals.

When looked at this way, the prospects for the Australian economy are less fulsome in potential growth than they were before. Western Australia and Queensland, and to a lesser extent South Australia and the Northern Territory, still have good prospects.

However, the states that do not depend on resources, but perform all the services that have historically recycled export earnings into a high domestic standard of living, face a potentially difficult and volatile period of adjustment.

The uncomfortable truth is that Australia benefited greatly from higher terms of trade, due to Chinese minerals and energy demand, which kept our currency higher than it otherwise would have been, and interest rates and inflation lower.

That magic circle of a firm currency and lower interest rates is now reversing.

Leave aside, for a moment, the fact that this was a deliberate bipartisan policy, pursued by both sides of politics, in the name of derisking our economy.

It falls to private investors to derisk their portfolios and survive this policy.

I have lived in Australia long enough to know that it is possible to survive Australian policy errors, no matter how egregious, and no matter how damaging and foolish.

I survived the 1970s stagflation and lived to write about it.

Do not get me wrong.

Australia is the Lucky Country in that we always have opportunity to invest, and when the dust has settled there look to be terrific inflation hedged opportunities across the agriculture sector, and the energy transition, along with minerals and energy.

Remember that all of our model equity portfolios are fully invested.

Derisking means repositioning the mix of stocks with an eye on what is coming.

For that, we need a framework for thinking about the future.

The Global Power and Energy Transition

Everybody understands that there is an energy transition in progress, from fossil fuels towards low carbon replacements: wind, solar and nuclear energy.

Due to the large role played by oil and gas in transportation, this transition has a natural focus on electrification, electric motors, generators and batteries.

Given the radical technology shift involved, there is a huge requirement for capital investment, to phase out the old, and bring in the new.

The political economy of this energy transition is fraught.

The old model of business activity is potentially obsolete, and yet there is enormous wealth and power tied up in the business-as-usual model.

Naturally, the politics of this momentous change becomes fractious.

What ought to be a technological transition, ruled by the principles of science and engineering, soon becomes a power transition and a global political bun fight.

There are many historic examples of a new choice of fuel having huge ramifications in the world of geopolitics and military power. In 1911, Winston Churchill became First Lord of the Admiralty, in Great Britain at a time when the Royal Navy had few ships powered by oil. They were almost all coal fired. Churchill observed that oil fired battleships were faster, had longer range and superior tactical flexibility.

In 1914, Britain had abundant Welsh coal, but no domestic oil. At that time, the only major British interest in oil production was the Anglo‑Persian Oil Company (APOC). The oilfields were located in south‑western Iran, in the Khuzestan province.

Khuzestan remains the heart of Iran’s oil industry today.

In 1914, Britain bought 51% of Anglo‑Persian Oil Company providing direct control of Persian oil. That enabled Winston Churchill to convert the Royal Navy to oil, which was a decisive move in cementing the dominance of British warships over Germany.

The choice of fuel for transportation can have a huge strategic impact.

These choices echo across history. From 1914 until 1933 APOC dominated the Iranian oil industry, paying only small royalties to Iran, and booking the rest as profit.

This exploitative practice, whose origins were military, created huge resentment in the state of Iran. You can read about the consequences of that period, which resonate in the modern theocratic state of Iran, the 1979 Islamic Revolution, and all that.

Now we are living through a war-of-choice that started with a surprise attack by Israel and the USA, on the state of Iran, which was ostensibly about nuclear weapons, now twice obliterated, but has since morphed into control of the Strait of Hormuz.

Cynics might suggest that this Gulf War is all about control of oil.

The year started when President Trump took control of Venezuela. Now he is talking about taking control of the Strait of Hormuz. Can you guess where this ends?

Pipelines that supply cheap natural gas to Europe, supplied by Russia, were blown up in mysterious circumstances. The USA then stepped in to supply gas to Europe.

Now 20% of Persian Gulf oil and gas is cutoff by war, and President Trump offers to form a coalition of states to “unblock” the Strait of Hormuz and to seize Iranian oil loading terminals on Kharg Island. The war aims of this crisis remain unclear.

The war aims are unclear, but the battle is for the Strait of Hormuz.

We started with obliterated nuclear facilities that needed to be re-obliterated, and have been, except for the possible need to go back, and the fight is over oil.

If the USA does succeed in wresting control of the Strait of Hormuz from Iran, and the oil assets of the country, then control of the global oil market falls to them.

Control of the global oil market is a just reward for the good guys.

They can then decide who gets the oil and who does not.

Imagine this was an airport novel.

Who are the bad guys in this noble effort to save the world from Iranians?

Of course, I do not know. The White House never handed me the script behind all the official noise that has flooded this war zone with random tweets and nonsense.

Just follow the trail of Persian Gulf Oil to locate the bad guy on the other end.

Roughly 80% of all Persian Gulf oil exported through the Strait of Hormuz goes to Asian markets. China is the top destination for these flows. Around 50% of Chinese imports ship from Saudi Arabia, Iraq, UAE, Oman and Qatar. Another 10-15% are estimated to originate from Iran, although that number is hard to pin down.

60–65% of China’s total crude imports come from the Persian Gulf.

I guess that is your bad guy. They will hurt a lot if this energy supply is cut off.

In this story, we see how the Global Power and Energy Transition has become the single investment thematic that rules them all. It is positively existential for some.

If Israel and the USA lose this war, the Gulf State oil capacity is likely destroyed and the bad guy in Asia will be in a pickle. If Israel and the USA win this war, they will presumably enjoy strategic control of the Strait of Hormuz.

Either way, it looks like the bad guy in Asia is in a pickle.

Lest folks get too excited by this prospect, China might have other ideas about how to end this war. This is potentially very worrying if you know your modern history.

This geopolitical Great Game is a minefield for investors to navigate.

When you are dealt these cards, you do not trust the dealer.

The overriding challenge is how to navigate a looming global crisis of trust.

Who do we trust and why?

Do we trust official reasons for action, or do we look at the market signals?

Obviously, we need to retain a healthy skepticism on news flow.

The wise thing to do is diversify.

The Emerging Multipolar World

The patterns of world trade in goods and services, financial flows, and geopolitical power and influence are changing rapidly. The rise of China is very clear when you examine data on trade flows, like the major trading partner, by country.

China dominates global manufacturing and so has an outsize role as the source of manufactured goods for most countries globally. This contrasts with dominance in financial markets for Western nations, particularly the United States.

Once we consider the BRICS bloc of nations, and their expansion of membership, it is clear how the patterns of global power and trade are changing geographically.

This map from the Visual Capitalist helps understand the scale of the BRICS bloc.

Rhetoric in many Western capitals has pitched this grouping of nations as being an anti-Western project. I interpret it as a pro-development cooperative grouping.

The concept of developing versus developed markets seems to presume that the categories are fixed, and that there is some natural order to be preserved.

The engine of all human development is knowledge and ingenuity applied to those problems that limit growth and opportunity. This is no special preserve of the West. Indeed, China has successfully harnessed this model so effectively that the uplift in prosperity in that nation is now widely perceived as a threat to Western interests.

Understandably, the developing nations who perceive developed nations as actively trying to limit their growth and development, are suspicious of the motivations.

This has increased geopolitical tensions.

Whereas the old order typically involved a bipolar us vs. them dynamic, such as I recall during the Cold War, this period of tension is quite different.

The model of bipolarity retains some significance, whenever there is a clear regional balance of power, such as between Europe and Russia, or China and Japan.

However, this model does not work at all well when considering the global map of competing interests. There is much mineral wealth in Latin America and Africa, but Western demand is insufficient to develop that. It is a simple matter of per-capita mathematics. Chile produces around 30% of copper globally, but the USA only consumes 6% of global copper supply. It cannot absorb that supply.

For an even starker example, Australia produces about 35% by iron content of global iron ore but the USA only consumes about 1.5% of that supply.

This is population and demographics.

The commodity intensive phase of national development is the infrastructure build that takes a low-income nation to a middle-income nation.

The West is only about 15% of global population, and that infrastructure build is done.

Geopolitical stratagems based on coercive economic control and throttling of access to commodities will not promote global growth.

These policies of restriction will cause global stagnation.

We can see this playing out now, where the USA has elected to attack Iran, the Strait of Hormuz is blocked, global supplies of vital energy and industrial commodities are interrupted, and the prevailing attitude on Wall Street is that no harm will come.

This multipolar world demands that we view each action holistically.

This world will not tolerate 5% of the population, who live in one nation, telling the rest of the planet what to do, when to jump, and how high.

The present situation is intrinsically unstable.

Attempting to roll back the clock, to a past unipolar world, cannot end well.

Nonetheless, some nations seem to think this is a good idea.

In order to better manage this volatile time, we choose a tripolar model.

There are three structural drivers at the heart of the transition:

• 🔥 Energy Security

• 🏭 Industrial Policy

• 🎯 Geopolitical Risk

Earlier, I alluded to the importance of the energy transition underway and gave an example of how past transitions interacted with industrial policy and geopolitics.

The energy system and global industry is moving towards electrification.

This trend works hand in hand with a new industrial revolution involving intelligent machines that make decisions autonomously and respond to a changing world.

The mental model of unipolarity elevates conflict over cooperation.

In this view, there must be winners and losers in this transition.

This is fine at the local level of industrial competition, and the innovation race, but is profoundly risky on a global scale. Humanity has had nuclear weapons for eighty years now. Positioning for one large group of humans to lose is a bad idea.

The Win-Lose contest of unbridled competition will degenerate to Lose-Lose.

That conclusion seems self-evident to this global investor.

There is no fancy philosophy of good-will to all men in this equation.

It is pure hard-bitten pragmatism born of living on this planet for sixty-two years.

Pressing advantage on others, in the popular language of the “chokehold”, can only degenerate into a collapsing global system of international trade and finance.

The United States is pursuing a Lose-Lose strategy for itself and this world.

Given that the three structural drivers are happening in a world whose industrial structure is split across three regions, it is useful to construct a trichotomy.

The transition of power naturally has three psychological perspectives:

• The perspective of the dominant center which has that dominance to lose.

• The perspective of the rising center which has much to gain just by rising.

• The perspective of the faded center which cannot decide who to back.

One force is vital, that of the rise. One force is anti-vital and seeks to contain the vital force. The third force is one of vacillation and indecision.

Who to back, when, why?

Reflection on this structure, in relation to world history, explains much of what we see happening. It makes psychological sense. Identification with one or other attitude is revealed in the daily discussion of global opinion makers and politicians.

Geographically, there are three main centers of change, the United States, Europe and East Asia. West Asia, Africa, Latin America, Russia and Oceania also matter, but they are not the prime centers of industrial transformation.

The fact that there are three centers is not that surprising.

• America is the dominant hegemon which appears focused on what it has to lose.

• Europe is the former center of world power that is anxious about its own future.

• East Asia is the returning superpower of past centuries focused on what to gain.

What is interesting about this dynamic is that Europe claims cultural cohesion, as the cradle of Western civilization, but is internally a fractious political union of states that often pull in different directions. East Asia, by contrast, is many civilizations, that are used to coexisting, competing, and cooperating, because none was on top.

The United States is on top, objectively, in many aspects of comparison. Measured on nominal currency values it is the largest global economy. It has the largest financial markets, that are also the deepest and most liquid. It also has a superb innovation system based on a solid scientific and engineering base.

However, success can breed instability, and the great one in the USA stems from the rise in wealth inequality, combined with a retreat from manufacturing, declining or decaying infrastructure and fractured political and social institutions.

Recent moves by the USA have been restrictive and coercive towards the interests of other nations. Rather than facilitating global growth and development, it appears that the common thread behind all foreign policy is to frustrate global development.

Increasingly, it looks like the USA stives to win by making others lose.

This not a pro-growth attitude to take for the leading global economy.

In contrast, China is committed to its own path of development, which emphasizes industrial development and technology deepening. The per-capita GDP of China is around $12,000 USD, which is right around the World average. In many ways, this economy is a proxy for the average global consumer.

The development strategy for China is focused on developing Global South nations as consumers of manufactured product, suppliers of commodities, and clients for the development of infrastructure. Japan did the same thing in the 1970s.

Increasingly, it looks like China wants to keep others afloat, so it does not lose.

Strategically, this approach to foreign policy makes perfect sense. War is risky at any time, and more so when you are an emerging challenger. There is much to lose.

Japan is a willing partner in this game simply because it is the last great capital goods provider outside of China. New factories need precision machine tools and elaborately manufactured items, plus advanced materials, to support modern technology.

Japan has not weaponized trade and is globally trusted.

The position for Europe is murkier. While it started this century as a leader in green energy that competitive position was lost to China. The Ukraine-Russia war focused minds in Europe on remilitarization against a backdrop of energy insecurity. Tariffs imposed by the USA have reminded Europeans that all is not fair in love and war.

The tripolar configuration of societal attitudes fits well with the geopolitics.

It is this model that informs my thinking on global markets.

The Tripolar Model

Pulling this together, we can summarize our thinking in this one diagram.

In this new system, each major region plays a distinct role.

• The United States is the stagflationary hegemon: the only major economy that benefits from higher oil prices, armed with energy dominance, fiscal dominance, and a defence‑industrial complex expanding at the fastest pace in decades.

• Europe is the energy‑vulnerable stabiliser: a region forced into strategic re‑militarisation while relying on healthcare, utilities, insurance, and high‑quality cashflows to buffer the shocks of imported energy and slow growth.

• China is the industrial deflation engine: the world’s producer of electrification hardware, operating under deflationary pressure and energy insecurity, and doubling down on the sectors it considers strategically indispensable—EVs, batteries, energy security, telecoms, and financial stability.

• Japan is the industrial reflation engine: the mirror image of China, with rising wages, rising capex, defense expansion, and a once‑in‑a‑generation industrial renaissance driven by supply‑chain rewiring and BOJ normalization.

Around these four pillars sit the essential minor players in Asia:

• Taiwan anchoring semiconductor sovereignty

• Singapore anchoring Asian financial stability

• South Korea for semiconductor and smartphone diversity

• Australia anchoring hard‑asset supply

Together, these roles form the architecture of our portfolios.

Outside of these major areas, we have non-aligned nations like India, the northern bloc of Russia, and a great diversity of other nations in West Asia, Africa, and Latin America, alongside ASEAN, the United Kingdom, and Canada.

I do not mean to pretend that the world is as simple as sketched above.

However, this tripolar dynamic is the governing principle.

Notice that Asia is not a unified bloc in any political sense, but the trade flows are very integrated. The most likely reason we can see for the continued rise of Asia, is that it has trade and economic development as the primary focus, not conflict.

• The USA may benefit from higher oil prices and restricting technology access.

• Europe may find itself united militarily by an external threat.

• Asia is united by common interests in prosperity not civilizational homogeneity.

Personally, I hesitate to call one player a winner and another a loser in the game of life.

Who am I to say who won and who lost?

However, I am an investor, and I think the Asian model is the one with hybrid vigor.

With this fact in mind, we are underweight Europe, and the USA, and overweight Asia. The relativity of that will change over time, but this is how I see the world today.

In this rebalance, it is important to share the long-term big picture as the Asian region is very sensitive to the unfolding energy shock. We need to be mindful of this in the selection of stocks to ride out this period of volatility.

The updated portfolios will be out over the weekend.

We have at least ten days on our hands before the troops arrive.

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However, following the wild action in precious metals markets we have to ask the obvious question: Why is the US bond market so quiet with this huge shock?

Look at gold, via COMEX futures. It is up 1.97% year to date but has swung like crazy.

The same goes for crude oil, although the direction of trade makes more sense.

While the United States is a net exporter of fossil fuels domestic gasoline is surging.

The supposed immunity of the USA to this energy shock applies even less to diesel.

To find some relative peace and quiet you have to go the US bond market.

The other quiet place has been New York Henry Hub gas futures.

Is this the calm before the storm?

Certainly, the USA is self-sufficient in energy, so it appears immune from this global energy crisis. Certainly, the Trump Administration is behaving as though it has total impunity to do whatever it pleases with this war on Iran, in the Gulf.

However, the supply shock looks huge by any measure.

Oil share from Persian Gulf

~20% of global oil supply comes from the Persian Gulf.

~21–25% of global seaborne oil trade transits the Strait of Hormuz.

Current disruption

• At least 10 million b/d of Gulf production shut in, per IEA—over half of normal Hormuz‑transiting crude.

• Effective global supply loss: ~10–12% of world supply.

Natural gas share from Persian Gulf

~20% of global LNG supply passes through Hormuz.

Qatar alone supplies ~20–21% of global LNG.

Current disruption

• Global LNG supply down ~20% since the conflict began.

• Qatar’s Ras Laffan and Mesaieed facilities suffered missile damage; multi‑year recovery expected for some trains.

Urea share from Persian Gulf

The Middle East (Qatar, Saudi Arabia, Oman, UAE, Bahrain) accounts for ~30–35% of globally traded urea.

Current disruption

• Qatar Energy halted LNG and associated products, shutting QAFCO’s 5.6 Mt/yr urea plant—one of the world’s largest.

• If disruptions persist beyond two weeks, CRU warns of meaningful regional supply loss for March and potentially beyond.

Sulfur share from Persian Gulf

The Gulf is one of the world’s largest sulfur exporters, contributing ~35–40% of global elemental sulfur trade (industry consensus; IEA notes it as a “vital artery”).

Current disruption

• IEA confirms sulfur trade is “interrupted” due to damaged energy and petrochemical infrastructure and halted shipping.

Helium share from Persian Gulf

Qatar supplies ~30% of global helium (Helium 1, 2, 3 plants at Ras Laffan).

Nearly all Qatari helium exports must transit Hormuz.

Current disruption

• IEA confirms helium trade is “interrupted”.

• Damage to Qatar’s LNG infrastructure directly affects helium extraction (helium is a by‑product of LNG processing).

Other petrochemicals share from Persian Gulf

The Gulf is a major global exporter of:

• Ammonia (Saudi Arabia, Qatar, Oman)

• Methanol (Saudi Arabia, Iran)

• NGLs & condensate (Qatar, UAE)

These collectively represent 20–30% of global seaborne petrochemical feedstocks.

Current disruption

IEA: Petrochemical trade flows are interrupted, with >40 regional energy assets “severely damaged.”

The Gulf States Budget Hole

Numerous analysts and strategists are adding this up with the petrodollar equation.

The petrodollar circuit refers to the money-go-round mechanism by which oil is sold for US dollars, under an arrangement negotiated between Saudi Arabia and the USA after the first OPEC Oil Embargo and the savage bear market of 1974-1975.

In return, Saudi Arabia recycled dollars from oil into purchases of US Treasury Bonds and defense equipment under a security guarantee from the United States.

This arrangement has been under increasing pressure due to the rise of BRICS, and the move for dedollarization that accelerated following the Western seizure of gold and foreign currency reserves ($300 - 355B USD), from Russia’s foreign central bank holdings in the aftermath of the Russian invasion of Ukraine.

This event kicked off the current gold bull market.

Lately, precious metals have been coming under immense pressure, but the US bond market has been comparatively quiet. There is doubtless some liquidity driven sales of gold by hedge funds, Commodity Trading Advisors (CTA), and other speculators.

However, the market is beginning to (quietly) discuss another reason.

With 10 million barrels a day of Gulf crude oil production shut in that is around $600 to $700 million a day of collective lost revenue. This directly impacts revenues that fund governments in the Middle East.

This is the revenue that would have been earned under normal conditions.

The counter-factual revenue foregone (which would have been there normally) is:

• 10 million barrels/day × $60–70 Brent (pre‑war)

• = $600–700 million/day of foregone revenue

• = $18–21 billion/month

• = $220–255 billion/year if the outage persists

This is a lot of cash to find in a crisis, some private, some public.

The Gulf states are not just losing barrels — they are losing:

• Budgetary stability

• Forward‑sold hedges

• Long‑term contracts

• Market share

• Refinery utilisation alignment

• Downstream integration flows

• Petrochemical feedstock continuity

These are not offset by higher spot prices.

This is why the IEA, OPEC+, and sovereign wealth funds treat volume loss as more damaging than price volatility.

The curious feature of this crisis is the volume loss may be made up for by the rise in prices for what production remains. The 10 million b/d of Gulf oil production shut in amounts to about half of the total, now sold at $100/barrel. That is about $400m per day of extra revenue to plug some of the gap of $600-700m per day that was lost.

This would convert the Gulf budget hole to:

$100–300 million per day

≈ $36–110 billion per year

This is the number governments actually need to plug with:

• Sovereign Wealth Fund (SWF) drawdowns

• New government borrowing

• Funding gold swaps

• Infrastructure project deferrals

Not the full $600–700m/day.

The Gulf Sovereign Wealth Funds

Gulf governments have:

• Saudi PIF: $900B+

• UAE ADIA/ADQ/Mubadala: $1.5T+

• Qatar QIA: $500B+

• Kuwait KIA: $800B+

Short‑term revenue losses do not immediately impair fiscal capacity.

This rainy-day fund, along with central bank holdings of gold and foreign currency assets like US Treasury bonds could sustain the GCC states for some time.

Realistically, they might last 2-5 years under pressure, although the knock-on effects of this war on tourism, finance, and real estate, would multiply the damage.

The position for Iran is unknown, but they have been sanctioned for many decades and likely have reserves of their own that they can access.

Petrodollar Liquidation Unlikely

At this stage of the war, it seems unlikely we will see a large scale forced liquidation of common reserve assets like gold and US Treasuries. However, the lack of fresh dollars earned from trade is likely to diminish buying power at the margin.

We may already have witnessed this effect, at the margin, in the gold market.

There are two data sources to monitor globally:

Treasury International Capital (TIC) System

World Gold Council Central Bank Gold Statistics

The first shows month foreign holdings of US Treasury Securities by country.

The second has data on central bank purchases and sales of gold.

Monthly reported central banks activity, tonnes*

Note that the pace of central bank net buying dipped in the last part of 2025, likely due to the run in gold in the last quarter. The data for this month may well show a negative dip, like the period around April 2023.

At this stage, we think the liquidity call on gold is temporary and likely related to too much leveraged positioning in precious metals going into the recent blow off.

Nonetheless, we should monitor the situation closely.

For a timely discussion of this point see What Iran means for the dollar: a perfect storm for the petrodollar, by Deutsche Bank strategist Mallika Sachdeva.

Conclusion

It is noteworthy that major investment banks, like Deutsche Bank, are beginning to consider the possibility of a petrodollar crisis resulting from the Iranian de-facto blockade of the Strait-of-Hormuz through threats to sink unfriendly ships.

There is significant geopolitical leverage to offer unimpeded passage to ships that declare their cargoes to be destined for “friendly” nations paid for in yuan.

This could be an inversion of the deal the USA and Saudi Arabia struck to end the first oil crisis. The irony would not be lost on anyone if a petroyuan market were to rise from the ashes of this crisis, with the implied security guarantees.

This war began on the premise that it was about an alleged Iranian nuclear program.

It may end with a new monetary system bifurcated on US dollars versus Chinese yuan and a divided trade community centered on a Western and an Asian Hemisphere.

Australia will need to manage this passage carefully, as we are de-facto part of the Asian Hemisphere on trade and the Western Hemisphere on defense.

US security guarantees to the Gulf States do not look that valuable today.

The big question is whether this collapse in faith leads to volatility in asset markets.

It will be a close-run thing.

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It does not matter what it was. There will be a new one soon enough.

Let us blank out the Trumpian Dog Trumpet and think about price versus value.

Our challenge, whether we like it, want it, or need it, is to survive this mess.

The Theory of Financial Relativity is my chosen path.

This is a learn by doing newsletter.

Let’s do it!

What is price?

Superficially, this is a really stupid question.

The price of bananas is how much cash you hand over for them at Woolworths.

Of course, the time of year matters, the choice of currency, and a whole bunch, pardon the pun, of other matters. The price of bananas changes a lot.

If you measure the price of Banana in Bitcoin, two crypto, you get this.

Some lucky crypto-monkey got out of Banana on the spike.

Otherwise, it is a living Hell for those still holding Banana!

While it is easy to forget, the price of something is always an exchange value.

The Micronesian Island of Yap has money based on rocks with holes in them.

The exchange rate and values are determined by the cost of labor.

Obviously, large heavy stones are more valuable than light ones.

They remain valuable even when the canoe sank and they are on the lagoon bottom.

Obviously, it would take some labor to get them from the sea floor to the shore.

The point I am making is that money is a proxy for effort.

If I want you to do something for me, I must pay you.

Price is an exchange ratio, and money is a convenient way to negotiate exchange.

I give you $0.81 Aussie Pesos.

Mr Woolworths Cavendish Banana Man, you give me one banana!

What is value?

If you were to shop around for bananas, you may find an agreeable deal, where the banana is good, but the price is better. You can get more for the same money.

In the same good, this is easy, especially if it is standardized.

Aside from shipping and storage costs a 99.99 fine gold bar should cost the same, but there will be differences due to inventory effects. It takes time to resolve imbalances between local demand and supply, and so the price changes.

Time is money, as they say, and financing inventory across any span of time, will cost money, representing the opportunity cost between selling today versus tomorrow.

Since prices are fluctuating all the time, including the cost of borrowing and lending money, there can be periods of value versus price. If you are prepared to be patient, value will often appear in a financial market, when securities are cheap in price.

Obviously, this happens between securities and cash, which is thought of as stable.

Cash is stable, within a single monetary system.

One Aussie Peso today is worth the same as another today, always.

However, the purchasing power of an Aussie Peso for a US Greenback changes all the time. That of both changes for their future cousins, being cash on deposit.

Recognizing that the unit of account is not the same as a yardstick of value is critical whenever relative prices are changing rapidly.

If I went from cash to oil, then to gold, and then back to cash, I have a circuit. This could leave me with more or less cash in the future. This is the key to trading.

What is the right discount rate?

The way we deal with this in finance is to compare the exchange value of a future cash amount, that may be the result of trade, with that we would earn passively via interest. This is an obvious equation for durable commodities that earn no interest. Gold today will still be gold tomorrow, if I leave it under the bed. This is not true of the cash in my broker account. That will be larger due to the earnings from accrued interest.

When other things are held equal, it would make sense to put cash on deposit, versus buying gold today, provided the price of gold was not higher tomorrow.

There is a lot written on Wall Street about how higher interest rates are bad for gold. This may be so in the time it takes an investment bank to call their clients and advise them to sell their gold. Once they have done that, we see what happens.

For five years gold, which makes no interest, has beaten US Treasury 10-to-20-year bonds with income reinvested, as measured by the AMEX: TLH/AMEX: GLD spread.

This can seem very counterintuitive, at first, but is due to a changing estimate of the future inflation environment in the USA. This form of relative value ratio has a key role in finance through the technique of discounting. When we divide the price of one security by another, and account for income, we are showing a through time comparison of value across time. This is what we care about, looking forward.

Buying bonds, via TLH, and then switching to cash, versus buying gold, via GLD, and then switching to cash would have left you with 67.21% less cash. It mattered.

What did cash do over that time?

A brokerage account deposit is typically in a short-term money market fund, which is proxied by US 3 Month Government Bonds, which bear 90-day interest.

Presently, the 3M Treasury Yield sits at about 3.72% and looks set to rise again. Note that gold has appreciated versus bonds since 2022, and the very recent drop.

The driver of this behavior is rising inflation expectations.

This is clear in the total nominal return chart for bonds.

Over that five-year period, the TLH lost -16.49% in nominal terms. That comparison is made worse in real terms due to the eroding effects of inflation.

Over the same period, non-interest bearing gold, in a rising interest rate, because of rising inflation expectations regime, appreciated +154.69% in nominal terms.

The reasons for this gold bull market have been discussed elsewhere. For me, the big one is central bank buying, as a hedge against sovereign risk holding US Treasuries, combined with an increasingly volatile geopolitical situation.

We are in uncharted territory now, but I remain focused on comparing the relative value over time between different securities. Discounting one choice by the other, accounting for income, in a common currency, offsets monetary effects.

It is the only way I know of to analyze markets without the confounding noise from investor sentiment, which skews each price wildly compared with cash whenever a market panics. On those days, all correlations go to one. It is pure noise.

Gold in the Hand versus Gold in the Ground

Let us now apply this thinking to an important recurring decision.

Which is better to own? Gold or Gold miners?

There are times when I have owned neither. There are other times when I have been very titled towards one over the other. The driver is the relative value chart.

The other thing to point out is the difference between gold in the hand, gold in the ground, and gold that might be in the ground. This is the difference between gold bullion, major gold producers, and gold developers and explorers.

• Gold in the Hand is gold bullion or an ETF like AMEX: GLD

• Gold in the Ground is major gold producers like AMEX: GDX ETF

• Gold in the Mind is gold juniors like AMEX: GDXJ ETF

Here is the Gold in the Hand total return chart.

Here is the Gold in the Ground total return chart.

Here is the Gold in the Mind total return chart.

Notice that Gold in the Hand has done about as well as Gold in the Ground.

Gold in the Mind is the smaller capitalization juniors that have a higher sensitivity to market sentiment and are therefore off more than the producing majors.

Now let us proxy the costs of gold mining with diesel NYMEX: HO.

The relevant spread is COMEX: GC/NYMEX: HO, measuring the relative purchasing power of gold, the product of gold mining, with diesel, the labor for mining.

Of course, the local human labor costs will also go up, but the price structure of food and minerals production is closely tied to the cost of diesel, explosives and chemical reagents. The feedstocks originate from the petrochemicals complex.

Donald J. Trump looks set to blow up those costs with his war of choice.

Reasoning this way, it is not hard to see why gold miners have taken it in the neck in recent trading sessions. However, higher costs mean the production frontier shrinks.

The forward strip of gold price for future delivery is still rising into 2031. The market is pricing contango, meaning adequate near-term supply, and higher future prices to account for storage and shipping costs. This has not changed, except for the level.

The opposite condition of backwardation applies to Heating Oil (Diesel), showing that the market views this supply disruption as acute but not permanent.

These dynamics are consistent with near term higher costs for gold producers, that will negatively impact their cost structure, but not on a permanent basis.

We should expect gold producers to reprice downwards when measured in gold.

To see this let us compare Gold in the Ground versus Gold in the Hand.

Notice that for the first four years of this five-year period gold was doing better than the miners, and that it reversed around the start of 2025 when equity investors began looking for more leverage to future gold prices through the mining sector.

The same is true for Gold in the Mind versus Gold in the Hand.

I would expect this retreat to continue until gold stabilizes and the cost position of the gold producers becomes clearer. However, in my piece Best Global Idea: ASX Gold Stocks, from April-2025, I called attention to the central bank buying trend. This war in the Middle East has only confirmed the suspicion of many that US Treasuries were fraught as a store of value. They are a geopolitical tool of coercion.

The USA now has to fund a ballooning budget deficit with new issuance to finance an ever-expanding war of choice whose aims seem to be a moveable feast.

There is no doubt that the US Military can wreak enormous damage on Iran but at the cost of its international reputation in global affairs.

The world required no persuasion that the US Military is powerful.

We knew that already.

The persuasion required is one of commonsense in knowing when to stop.

Iran will keep on fighting because it is a sovereign nation subjected to attacks on its own people, assets, and territory, with no warning, during active negotiations.

It is going to be difficult for any nation to trust what the USA says and will do.

This elementary point, and the connection between it and the purchasing power, of the US dollar, which only the USA has the power to print, seems lost in the noise.

This war can only accelerate the move towards dedollarization.

In our view, the fundamental reasons for this bull market, namely better financial return, and security to holding gold over US bonds, have not changed.

There is a great deal of market volatility to navigate in coming sessions, with the likely move upwards in US bond yields, bringing the spread gold vs. bonds into sharp focus. I wrote The Market Schwerpunkt (Gold vs. Bonds), three weeks before the first attack by Israel and the USA on Iran. I think that story is only made sharper now.

We cannot predict the outcome, but we do know what to watch.

The way to action this is to look for relative value trades between:

• Gold in the Hand

• Gold in the Ground

• Gold in the Mind

I will look at a single stock examples below, but it is important to first look at Gold in the Ground versus Gold in the Mind. I expect the juniors to get whacked more.

Generally speaking, smaller capitalization stocks are more susceptible to major selloffs than the larger capitalization stocks. The above chart suggests there is more of that to come as investors get more nervous about the continuation of this gold bull.

An in illustrative single stock idea is shown below

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Financial Relativity for Investors

The first thing novice investors observe is that financial markets are subject to periods of relative calm interrupted by wild volatility. Instinctively, one is led to seek the safety of cash, in the belief that this will prevent further losses. While having cash at hand is always great in a market crisis, the problem of raising cash in a falling market, soon creates a dynamic that is hard to manage. When do I sell? When do I buy?

The problem of moving back and forward to cash is one of market timing.

Invariably, any change to your investment portfolio involves timing. You must sell one asset to buy another. However, the difficulty with cash is that, in the short run, it has a fixed value. Cash deposits cannot go down, unless your bank fails. This is great, but it obscures the longer-term issue, which is the purchasing power of cash.

When managing a portfolio, we always need to mindful that the objective is balance between the preservation and the growth of purchasing power.

Wild swings between growth assets and cash can be counterproductive. There are always two decisions involved: the move into cash, and the later move out.

The dirty little secret of investor psychology is that we are all herd animals.

What we tend to learn, over time, is that the urge to raise cash is strongest when the markets are falling rapidly, and so our personal timing decision is herd timing.

There is always timing involved in any buy or sell decision. What causes problems is when we abandon control of when we choose to move to the crowd at large.

This creates a problem of selling lows to buy later highs.

The dynamic occurs because it feels safe to dash for cash in a market rout, and we feel safe to step back in when markets have recovered. It is hard to resist this urge, and so my approach is different. When holding non-cash assets, whose values move around every single day, I look instead at the relative purchasing power of assets.

When you travel abroad it is natural to watch currency exchange rates.

Think of shares in miner BHP Group XASX: BHP as a form of currency, that earns income through dividends, and can be exchanged, on a daily basis, for another currency, like miner RIO Tinto XASX: RIO. They have an exchange rate.

Let us explore this idea with some relative value charts.

I use Trading View for most market watching purposes.

Let me start by drawing attention to the percentage chart format.

In the above chart of RIO, since 1991, I have used the pop-up menu on the vertical scale axis to change from the price, in AUD, to the percent change over time.

The cumulative price return of RIO over that period was 1,662.41%.

However, the stock pays dividends.

Adjusting the chart format for this is possible by choosing “Adjust for Dividends”.

The cumulative total return of RIO over that period was 7,792.36%.

Notice the big difference when dividends are reinvested. This can often be done on an automatic basis using a Dividend Reinvestment Plan (DRIP). For long-term holdings this is a good idea, provided you are comfortable with doing the accounting.

The main issue is keeping track of tax lots which a good broker will do for you.

Now let us look at the total return for BHP over the same period.

Of course, the comparison of two stocks as investments requires a common period, but the data for this vendor starts on the same date.

The cumulative total return of BHP over that period was 7,919.61%.

Notice that the total return is near identical.

Switching back to price only, we find 1,484.46% for BHP, which is considerably less than that for RIO. The difference is the higher historical yield on BHP.

Now comes the cute trick…

The feature that professional traders look for is the relative value chart. I have shown how to this in my charting tool using a formula: ASX:BHP/ASX:RIO. The result will be a comparison of the relative total return between both stocks over time.

Notice that there has been virtually no difference in the final result over that period of thirty-five years. Currently, you were down -10.10% holding BHP vs. RIO.

What I want you to notice is that there have been large relative swings, especially the one in the Global Financial Crisis (GFC), where RIO had a stretched balance sheet and needed to do an emergency capital raising. Counterintuitively, this was a great time for investors to sell BHP and buy RIO. We know that with hindsight.

This is financial relativity: there are opportunities trading between stocks.

What I have shown here is a standard method used by hedge fund traders to help them make decisions on what to sell in exchange for what to buy.

In this substack, our portfolios are fully invested, so all changes are of this kind. You will hear me talk of the cash decision, but mostly I try to avoid it. Some conditions benefit from direct cash holdings, but usually when you cannot find a hedge.

To cement this idea let us look at ASX:BHP/ASX:NAB. The NAB chart alone over that period since 1991 shows a total return of 5,651.89%, versus BHP at 7,919.61%. You expect that BHP should beat NAB in the relative value chart.

How about that?

They are nearly the same: the difference over 35 years was 39.43%.

If you annualize this result you get about 0.95% in favour of BHP.

There are a couple of lessons here, so let us take stock.

There are big relative swings between stocks, which can be spotted easily using a ratio chart, and adjusted for dividends, to get a full total return comparison.

There are also big relative swings between industries, which can be hard to track if we do not take out the market cycle effects of changes in sentiment.

The timing of a shift between two stocks in a common industry, or two stocks across two different industries need not coincide with market tops or bottoms.

This is the main market insight that I want to share at this time.

Professional traders look at ratio charts to help them decide on when to trade. The pure risk asset versus cash decision is fraught because all correlations tend towards one in a market panic. There is no signal there, just noise.

The Market Schwerpunkt Revisited

Once you have grasped the concept of financial relativity, your investment world expands to readily encompass all asset classes. When measured in a single basis currency, two assets expressed in a ratio chart have a relative return.

This may be surprising, but the relative chart is the same in any currency.

Provided that you quote both assets in the same currency, the ratio is not changed when you alter the measurement currency.

This is a subtle but key point.

What investors care about is growing their asset purchasing power.

The illusion of cash is that it has a fixed purchasing power. This is only so when considered in isolation. The purchasing power of cash for assets is variable.

Once we use ratio charts and adjust these for the income that any asset may generate, the true changes in relative purchasing power become clear.

To illustrate, let us compare the total returns on a developed market mining country MSCI Australia AMEX: EWA with a developing one, MSCI South Africa AMEX: EZA.

These MSCI indices are large company biased and traded in USD in the USA. The South African Rand (ZAR) has underperformed the Australia Dollar (AUD).

This is not an artificial comparison. You could have bought both ETFs in New York, using US Dollars (USD) to buy them, reinvested the USD dividends from each, and wound up ahead buying South Africa over Australia.

Unfortunately, this sort of crazy comparison is likely to become the norm. When there is substantial government intervention in interest rates and exchange rates finding a true comparison of investment return is difficult. Relative return charts fix that.

Note that the recent period of marked underperformance of MSCI Australia versus MSCI South Africa has reversed this year. While Australia and South Africa are each major mining markets, the core commodities are different. Australia has iron ore as the key export commodity, while South Africa has gold and platinum.

Let us turn this into a more topical question: US equity vs. non-US equity.

The Vanguard ETF series as two convenient members for comparing the total returns on US stocks versus non-US stocks, with currency removed. Above I have plotted the total return chart for the Vanguard Total Market Index AMEX: VTI, versus the non-US Vanguard Total Market ex-USA Index XNAS: VXUS. Over the period since 2011, US stocks have won hands down. the five-year picture is less convincing.

There are always swings and roundabouts in global markets, but you can appreciate that it is worth paying attention to long-term trends in relative total return.

In The Market Schwerpunkt (Gold vs. Bonds), written on 5-Feb-26 before the Gulf War began, I noted the long-term trend of relative total return between gold and bonds.

The Gulf War began on Friday 27-Feb-26. There has been a modest reversal, with bonds gaining relative to gold to recover the value on Friday 16-Jan-26.

Let us look at the S&P 500 AMEX: SPY vs Gold AMEX: GLD five-year chart.

The three-month picture for the S&P 500 versus gold is showing a recent uptick.

If we look back to encompass the GFC period we can see that the present recovery is delicately poised. We are at about the halfway point, and unclear on direction.

To check stocks versus bonds, we can look at the S&P 500 versus the TLH.

None of these analyses are conclusive, but there is one message I take away. US stocks have done great versus everything else, until about two years ago.

US bonds have been doing badly, in relative terms, for most of the past five years. In the last trading session, US ten year note yields rose to the highest since Sep-2025.

In the last month, we have seen major volatility in precious metals, which fell and the dollar index, which rose, although it has since fallen back some.

Gold has corrected to the start-of-year levels.

West Texas Intermediate (WTI) is back pushing to 2022 levels.

In our Market Schwerpunkt piece from 5-Feb-2026, we nominated gold versus bonds as the key ratio to track. This view has not changed, and we have a war now.

There are clear and present danger of a repricing of all risk assets.

War narratives are likely to push to the fore, with the USD regarded as a safe-haven currency, but we are cautious on that view. There is looming stagflation risk due to supply shocks in energy, fertilizer, and basic chemicals, like sulfur, from the Gulf.

Upwards of 20% of oil and natural gas come from the Guld region, and even higher levels of nitrogen fertilizer, as urea, of 30% and 50% for crude oil derived sulfur.

There is an acute risk of war-induced stagflationary slump.

Cash looks like the easy decision, but I would caution against that choice.

There is enormous relative volatility in asset prices.

Just a few days of trading are skewing key relatives wildly.

What we can do is baby step towards better portfolio allocations, taking weights up in some areas and down in others. This is a dynamic process, and relative value is key.

Conclusion

The purpose of this note was to lay out clearly the reasoning and methods behind the use of relative value total return charts to compare across asset classes.

This is an important technique to have in your toolbox for times like now when the news is full of both information and disinformation, and it is hard to tell which is which. The bottom line is that we are headed for a global supply shock.

This global supply shock was initiated by a war of choice in the Gulf.

Unlike the 1973 Yom Kippur War related OPEC oil-embargo, this supply shock can be directly traced to a decision by Israel and the USA to make a surprise attack on Iran.

Whatever the merits of regime change in Iran the global supply shock that is coming is due to the political decisions of the USA and Israel.

This alters the geopolitical circumstances considerably.

The USA is traditionally a safe-haven market that attracts global fund flows during a time of crisis. It has also been home to a well-performing stock market.

The challenge at this time is that US finances are stretched, and there are likely many new bonds to be issued to fund this war. Apparently, the Trump Administration now seeks another $200B USD of funding to the Pentagon for this war. That is 20% more than the current annual budget, with a 50% increase over that sought in 2026.

This does not augur well for the trajectory of US bond yields.

The year-to-date performance of US yields is up, with a big move in the last session.

We must also note the severe reach down in gold futures.

There is no hidden mystery here, both gold and bonds are falling relative to cash.

In the short-term, cash is undoubtedly king when all normal hedges fail.

However, note that the purchasing power of gold for bonds is largely intact.

Note that a sudden break upwards in US yields is now possible. War financing can be expensive in terms of the risk premium demanded by investors. The USA is financing itself and Israel and will likely need to subsidize higher gasoline prices through tax cuts, handouts, or other political inducements to US voters.

What will turn this market is a clear answer to this one vote of confidence:

Is the USA still a financial safe haven in a global geopolitical storm?

In all honesty, it matters little what I think the answer should be. The entire purpose of this form of analysis is to accurately track investor voting in real time.

In the early stages of this Market Schwerpunkt battle, twixt US Bonds and Gold, we have seen a few recent tactical wins for US Bonds. The trouble is that there is clear support for dedollarization outside of the West.

Will China now sell US Treasuries and put a floor under gold?

This is a vexed question as the US has a lot of war issuance to do.

Why would China willingly fund this war of choice in the Middle East?

Conversely, will we see BRICS nations selling some gold to purchase oil.

The relative value of gold, when used to buy oil, increased over 200% over the last five years, but has fallen a huge amount, due to the spike in oil prices.

This ratio directly impacts the valuation of gold miners, due to the high use of diesel fuel in gold mining as a component of the cost of production. This fact promotes the relative spread of the VanEck Global Gold Miners AMEX: GDX to GLD ratio.

From one point of view, the dash for cash across precious metals and miners of them looks like the smart bet. However, crude oil cannot stay high without causing a very serious global recession. Coming out of that, gold has high purchasing power for miners of gold. The financial relativity of this comparison matters.

In conclusion, there is a serious prospect we are entering a new financial regime with supply shocks and accelerated government demands for war financing, and the social offsets to a higher cost of living, starting to eat into investment returns.

There are risks that the US safe-haven status of prior cycles morphs into something else due to the nexus between US dollar issuance and war financing.

It is hard to see who benefits from this war apart from those selling weapons.

Even the arms manufacturers are likely to run into supply challenges due to shocks to shipping and counter actions from key suppliers, like China, through sanctions.

The only recent guides we have are the COVID supply shock, which led to enormous monetary stimulus, followed by inflation, and the Russian experience at the start of the Ukraine war, followed by currency weakness and domestic inflation.

The one thing the USA and Russia have in common is that they are net fossil fuel energy exporters. The assumption is that the USA will be fine and avert domestic inflation and budget problems. This was not true of Russia in 2022.

In conclusion, we think it is advisable to allow cash from dividends and income to accumulate in your portfolio. I would not commit new cash to this market.

In the global context, I would closely follow key asset spreads:

• Gold versus Bonds: GLD vs. TLH

• Gold versus Stocks: GLD vs. SPY

• Gold versus Oil: GC versus CL

Notice that I have gold as the anchor of each of those three spreads.

Of course, I look at others and would urge you to do so also.

The reason I have gold as the anchor is that it forms a major allocation of my own portfolio and is therefore a funding source for any value that emerges.

At this time, nothing looks screamingly cheap versus gold, even though gold is back to where it was at the start of 2026. If I am to reallocate, I want clear value in what I am switching into. Investor leverage in precious metals, via futures markets, is likely the cause of the recent violent correction. However, other larger asset markets, in stocks and bonds, have yet to see any significant move towards cash.

That looks to be starting now, which is why I mention those three spreads.

This note also serves to highlight how I am thinking about locating value, and the decision to trade withing our model portfolios. These are fully invested. Cash is no option within those strategies, so we must look at stock vs. stock relatives.

To give you a taste of that, look at NAB XASX: NAB vs Stockland XASX: SGP.

There can be many reasons for a rapid change in one stock versus another, but the narrative can easily overshoot. Banks now look expensive versus REITs.

I will take this up in future notes.

Good luck with your investing!

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Artificial Intelligence can be useful to quickly explore an investment case through active search and reasoning. It is not foolproof, but it is helpful.

Of course, the quality of the answer depends on the sense of the question.

Short answer: Exxon Mobil is not currently involved in Venezuelan crude and based on both public statements and the economics of Venezuela’s heavy‑oil sector, Exxon would likely only participate at sustained Brent prices in the high‑$70s to mid‑$80s plus credible legal guarantees.

No — Exxon is not operating in Venezuela.

Citations from your search results show:

• Exxon’s CEO expressed skepticism about investing in Venezuela even after Maduro’s removal, prompting Trump to say he was “inclined to keep ExxonMobil out of Venezuela” .

• Exxon has historically had a hostile relationship with Venezuela after Chávez expropriated its assets in 2007–2008. Exxon pursued arbitration and won multi‑billion‑dollar awards.

• Chevron — not Exxon — is the only U.S. major with active waivers and operations in Venezuela.

Conclusion: Exxon is not returning under current conditions.

What oil price would Exxon require to participate?

Exxon’s threshold is higher than the breakeven price for Venezuelan heavy crude, because Exxon demands:

• Rule‑of‑law certainty

• Contract sanctity

• Sanctions clarity

• High returns vs global alternatives (Guyana, Permian, LNG, deepwater)

Estimated Exxon participation threshold:

➡️ Sustained Brent of ~$75–$90/bbl
AND
➡️ A stable, internationally recognized government with enforceable contracts.

This is consistent with:

• The heavy‑oil full‑cycle economics you already mapped (new projects need $70–85 Brent).

• Exxon’s own reluctance, as shown in the White House meeting where the CEO was skeptical about Venezuelan investment prospects .

• Exxon’s global portfolio: they already have better barrels in Guyana, Permian, and LNG, so Venezuela must offer superior risk‑adjusted returns to compete.

Kharg Island is Iran’s single most strategically important energy asset: a tiny island that handles 80–94% of all Iranian crude exports, making it the economic “kill switch” of the Islamic Republic. Its location in the northern Persian Gulf—just outside the Strait of Hormuz chokepoint—means that any attack, seizure, or blockade of Kharg would instantly cripple Iran’s economy and send global oil markets into crisis.

Kharg Island is the heart of Iran’s oil export system

Multiple sources confirm that 80–94% of Iran’s crude exports move through Kharg Island’s terminals, pipelines, and storage farms.

• France 24 calls it Iran’s “crown jewel” of oil infrastructure.

• Yahoo News Australia reports it holds 94% of Iran’s crude for export, mostly bound for China.

• Geographical notes that up to 90% of Iran’s oil has historically passed through Kharg.

Implication:
Destroying or capturing Kharg would collapse Iran’s export capacity almost overnight.

It is Iran’s main deep‑water loading terminal

Kharg is one of the few Iranian locations capable of:

• Loading VLCCs (super‑tankers)

• Storing millions of barrels

• Handling 7 million barrels/day of loading capacity at peak design

This makes it the indispensable node for Iran’s long‑haul crude shipments.

Geography: close to Iran, but exposed

Kharg sits:

• 12–25 km off Iran’s coast

• Northwest of the Strait of Hormuz

• In shallow waters that are hard to defend against precision strikes

AS USA describes it as Iran’s “Achilles’ heel”—small, exposed, and catastrophically important.

Why this matters:
It is close enough for Iran to defend, but isolated enough that a determined adversary could target it without invading mainland Iran.

A prime military target in any U.S.–Iran or Israel–Iran conflict

Because Kharg is the single point of failure for Iran’s oil economy:

• U.S. and Israeli planners have debated striking it.

• U.S. officials have discussed seizing the island as a strategic lever.

But striking it risks:

• A global oil shock

• Escalation into a regional war

• Long‑term environmental damage

This is why, despite its vulnerability, it has remained untouched even during intense conflict phases.

Global energy market implications

If Kharg were disabled:

• Iran’s exports would fall by 80–90% immediately

• China, India, and other buyers would lose supply

• Brent could spike dramatically

• Hormuz traffic disruptions would compound the shock

The Hill notes that Iran exports 80–90% of its oil via Kharg, making it central to global supply stability

Why Kharg matters more than the Strait of Hormuz

Hormuz is a chokepoint for global oil.
Kharg is a chokepoint for Iran’s oil.

If Hormuz closes:
Iran can still export a trickle via pipelines or smaller terminals.

If Kharg is hit:
Iran’s export economy collapses.

This asymmetry is why Kharg is considered the single most decisive pressure point on Iran’s economy.

Summary

Kharg Island is the most strategically important piece of energy infrastructure in the Middle East that has not been attacked in the current conflict. It is:

• Iran’s primary oil export hub (80–94% of exports)

• A deep‑water VLCC terminal

• A small, exposed island that is militarily vulnerable

• A single point of failure for Iran’s economy

• A potential trigger for a global oil crisis if struck

If Kharg Island were taken offline, you’re essentially removing 80–94% of Iran’s crude export capacity in a single stroke. That’s the largest single‑point oil vulnerability in the world, and markets would react accordingly.

Immediate Market Reaction (first 24–72 hours)

This is the “shock premium” phase—markets price in worst‑case scenarios before fundamentals catch up.

Brent: +$12–$20/bbl jump

WTI: +$10–$16/bbl jump

If Brent were at $82 at the moment of the strike, you’d likely see it print $94–$102 within hours.

This is consistent with:

• 2019 Abqaiq attack (+$12 intraday)

• 2022 Russia invasion (+$15–$20 over several days)

• Iran–Iraq War tanker attacks (persistent $10–$15 premia)

Kharg is more important to Iran than Abqaiq is to Saudi Arabia, because it is a single point of failure.

Conclusion

US oil majors, like ExxonMobil look good in this wartime period.

I do not think that the market has fully priced the supply risk before us.

Donald Trump ordered a U.S. military invasion of Venezuela on January 3, 2026, under the codename Operation Absolute Resolve.

This provided effective control of Venezuelan Oil Reserves, which are the largest in the world, although they are expensive-to-produce heavy crude.

Taking control of those oil reserves before attacking Iran makes strategic sense.

For now, any move on Kharg Island has been downplayed. It is certainly valuable if the facility is left un-bombed and intact should a US-friendly regime in Iran arise.

I am not sure how friendly Iranians, at large, will be to the USA and Israel following the attack on oil facilities in Tehran that left that city shrouded in toxic smoke.

However, Kharg Island is the lever President Donald J. Trump has on China.

The lever on ExxonMobil to invest in Venezuela is the oil price.

We expect the new price to be $80 to $90 USD per barrel.

In the latest China five-year plan, they resolved to build significant Coal-to-Liquids refining capacity, far inland, in Xinjiang. This is a technology that was used in WWII when German access to Middle Eastern oil was cut off. It is also the technology of choice in South Africa to produce diesel from coal.

Sasol still runs the largest coal-to-liquids liquefaction (CTL) plant st Secunda.

The Chinese have been working, in collaboration with Sasol, since at least 2006.

There is a lot of talk about nuclear weapons, but I think it is about oil.

The USA and Israel killed the Supreme Leader who had a fatwa against acquiring nuclear weapons. I think the new regime will go ahead and build them.

Oddly enough, that would likely bring a Mexican Standoff and some semblance of peace, in much the same way that Kim Jong Il and the DPRK are off the radar.

I do not advocate for that.

I am simply an analyst.

The real question of importance is what happens to Kharg Island.

Note that the background issues point to the importance of this book.

Folks who did not grow up in the 1970s may be a bit shocked by all this. However, the operating principle is much older than that. It is Machiavelli, pure and simple.

Once you have assimilated this Zeitgeist, investment strategy becomes easier.

When Great Games are being played, the players must be careful not to put too many playing pieces into the light. They must also be careful about public opinion.

The United Nations may well be emasculated, but there are limits to how hard Iran, the USA, and Israel can push this war. They may miscalculate.

Public anger is the peacemaker of our time.

If this war is pushed too hard and too far it will be pitchfork time.

I make no judgement on this ill-conceived war other than this:

It is better to be a seller of safely sourced crude oil than a buyer.

It will be tricky to navigate these markets, especially for those nations that are net energy or fuel importers. Australia imports 90% of liquid fuels.

This is why we added Woodside Energy XASX: WDS and ExxonMobil XNYS: XOM to our model portfolios last week before the big Monday crude oil price spike.

The price reaction in markets has been modest.

I would still be buying those stocks now.

The present markets are highly volatile, with the onset of the US-Israel war on Iran. The prior month did not span this period, and so this report does not cover any of the market action since. For major changes see the USA Twenty Stock Portfolio: Feb 2026 Strategic Move to a Stagflation Barbell. We made no changes in the International Twenty Stock Portfolio: Feb 2026 Global Power and Energy Transition.

For further detailed discussion of our strategy read those prior reports.

For a succinct summary, note the following point.

International markets ex-USA are largely being driven by the oil price factor.

This makes sense since the USA is the largest oil producer globally and is in the driving seat for this war. The pain of this war will not be equally shared.

Our major changes this month were to add natural gas and oil to the portfolio in the Australia Model, via Woodside Energy XASX: WDS, and in the US Model, via Exxon Mobil XNYS: XOM. There were other changes also that are listed below.

The positioning reflects the view that there is now elevated stagflation risk. The effects of this are somewhat asymmetric, and mostly dependent on oil intensity.

Europe could well experience a major slump, but we are underweighted anyway.

Japan imports much of its oil, and is at risk, but most of our exposure is in defense, banks and trading houses that are long copper. Once the dust settles, it will make sense to think further on our positions in Japan, but it looks okay for now.

China is the wild card, but our major exposures are electric vehicle stocks, that may well benefit from pressure on oil supplies. There are other exposures in Taiwan, to semiconductor equipment firm Taiwan Semiconductor XNYS: TSM.

Overall, I think it makes sense at this time, to make a positive bet on stocks we think can do well in the USA, given the extent to which this war elevates the importance of oil and defense. Implicitly, the first trading days of this month have been a negative bet, by the market, on everything else. This is not sustainable, for global economic growth. That provides some check on US war aims.

Paradoxically, this period discloses the limits of dominant military power.

Indeed, the US, along with its ally Israel, can cause a lot of destruction in Iran. On the surface, this looks like the ticket to dictate terms to all and sundry.

The problem with this war is at what cost do you continue.

The Iranian threat to send oil to $250 USD per barrel is not crazy when it moved to $120 USD per barrel in one trading session. This standoff is a ticking time bomb.

The belligerents seem destined to go on fighting, and we see a long conflict ahead, but neither side can afford to push the limits of global tolerance.

There is a real limit to what other nations will tolerate, and we are close to it. I do not simply mean Iran, as the proximate cause of the war was a surprise attack, and some dubious justification that does not pass muster outside the USA, as a legal war.

In some circles, this does not matter.

In the real world it does.

The Terminal High-Altitude Area Defense (THAAD) is an integrated ballistic missile defense system, which is considered vital to maintain the air defenses against the larger Iranian ballistic missiles. Several have been reported destroyed.

With the reported rate of Iranian missile firings reduced, and the US, Israel, and Gulf states that have been the subject of Iranian attacks, running low on interceptors, the pace of war may shift. The USA is more likely to rely on conventional gravity bombs, and less on missiles. Iran will likely modulate its own war effort for sustainment.

In simple terms, we expect a prolonged conflict, with oil in the range $80 to $90 USD versus the Armageddon scenario of $150 USD per barrel. In real terms, these prices are lower than they were in the period 2011-2014.

It may seem crazy to suggest an oil detente brokered by Donald Trump and Vladimir Putin, but that interpretation does fit the visible data.

This South China Morning Post report describes the background.

Does this mean an end to the Iran war?

Not likely.

It just means that how the USA and Israel go about the war will be modulated to a tempo and target list that leaves oil prices elevated but manageable.

How is this possible?

I am no diplomat, or military strategist, but I imagine Trump made a deal:

How about I temporarily lift oil sanctions on Russia to free up the market and you do not provide the latitude and longitude of remaining THAAD radars to Iran? Quid pro quo. I hold the leash on Israel. You hold the leash on Iran.

The war will go on but will have “finished” somehow.

The bombs will drop but the oil price will not rise.

This is what Balance of Power politics looks like.

It sounds nuts but let us see what happens.

Model Portfolios

The Savvy Yabby Report distributes our institutional grade model portfolios to paying subscribers on a monthly basis. The current list includes these strategies.

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

Regulatory Disclosures

This service is owned and operated by Jevons Global Pty Ltd.

The licensing and complaints procedure is outlined in our Financial Services Guide.

For legal reasons, I need to include this informational disclosure.

These portfolios follow the Jevons Global investment process.

Jevons Global Investment Process January 2026

1.19MB ∙ PDF file

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The last change to the model portfolio was effective at close 30-Jan-2026.

These changes were described in our note Global Model Portfolios.

NB: Past performance is no guide to future results.

Model portfolios are not audited and are only approximate guides to real results.

Performance Summary for Feb-2026

The month was positive for the FTSE Global All-Cap, which was up 1.64%, while the global portfolio was flat at -0.04%, for a negative alpha of -1.68%. This reversed the prior month positive alpha of +1.65%, so we are flattish on a year-to-date basis.

Overall, the model performance since inception has remained robust.

The month-on-month variability is not out of line with history.

Key Contributors

The top three positive contributors to performance in Feb-2026 were:

The top three negative contributors to performance in Feb-2026 were:

The drag was attributable to a retreat in technology and Novo Nordisk, the Danish pharmaceuticals firm that produces Ozempic. Competition with Ely Lilly, and the attempts by US Drug Regulator, the FDA, to cap pricing have hurt the outlook.

Portfolio Valuation Metrics

The portfolio valuation is cheaper than the market on both a trailing and forward Price-to-Earnings ratio basis, and also cheaper on book value.

The dividend yield is in line with market and the Return on Equity (ROE) is lower.

The sector positioning is overweight resources, financial infrastructure, neutral digital technology, and underweight consumer needs, and consumer wants.

The regional weighting of the portfolio is skewed to Asia, via Japan and Hong Kong

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The current weights for month-end are below, including recent US model changes.

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Last week I updated our US Model Portfolio with the tagline:

Strategic Move to a Stagflation Barbell

Here I update the non-US International Portfolio with the tagline:

Global Power and Energy Transition

This may seem a little odd.

Why two different names for one unified strategic outlook?

The answer is that our view on stagflation risk in the West is motivated by what I view as the strategic response of the USA to the rise of multipolarity.

These are contentious topics, and there is no guarantee that my prognosis will prove correct in any detail, let alone all of them. However, as I explained in Hegel and Thematic Investing, I reason about market scenarios by identifying a dialectic.

Market Dialectic: Tension between Thesis and Antithesis.

This is a philosophical idea that I was led to co-opt for investment purposes.

The entire content of my investment philosophy is summarized in one idea:

The moment we identify two assets for investment contention we naturally have a pair of opposing tendencies: There is the thesis “A beats B”, and antithesis “B beats A”. There is both a narrative and a dialectic.

The moment I write:

USA = A

China = B

We can pose the Boss dialectic of our time:

Does the USA beat China or does China beat the USA?

Do you notice that this framing excludes the middle:

Neither China nor the USA beats the other.

This is the viewpoint that I subscribe to.

The binary narrative of the dialectic is what informs my strategy.

To the extent that Copilot may be considered reliable I posed this question:

What is the present global market weight in equities for the USA?

It responded with this table, which seems close enough for me.

Notice that the LLM is smart enough to notice that China has fallen in market weight since 2020. There was a benchmark decision by MSCI and FTSE to use free-float market cap, not total market cap. This excludes state-owned enterprise.

I am not going to argue with this decision.

You can make up your own mind on which measure makes sense when thinking about the relative scale of equity markets. It is a horses for courses decision, in my view.

In the last Global Model Portfolio piece, you can see the weighting I have.

Notice that we own the USA at 50% weight, which is under the international level of most benchmarks. This is a reflection of relative value in relation to these themes:

• Global mining - especially precious metals and copper

• Global defense - with a focus on Europe, Japan and the USA

• Global energy transition - with Hong Kong listed China technology the leader

• Global artificial intelligence - with the USA and China equally represented

• Global biotechnology - spread across Europe and the USA

• Global finance - with banking in Asia and commodity markets in the USA

• Global diversifiers - consumer stocks and some food conglomerate exposure

This is how I atomize the Global Power and Energy transition.

Formerly, I had not much oil and gas in the Energy transition basket.

That is because I saw oil and gas as being well-supplied globally. They are essential to keep the economy running in its present state, and any phase-out is a long project.

If you take China, it does not envisage becoming carbon-neutral until 2060.

In the contemporary politics of the USA, one might be forgiven for assuming that the idea of an energy transition is moot, and fossil fuels are here to stay.

I am not going to take sides in this debate on winners, other than to choose a relative weight of allocation. I am betting as much as 16% of portfolio on China, and that is a statement of recognition. China leads the renewable energy transition.

In the rebalance of this month, the primary changes I am making reflect adjustments to my thinking on the nature and pace of the global power transition.

There are two forms of power that dominate discussion in geopolitics:

The dialectic of power balance distinguishes soft versus hard power.

Until recently, the common view is that China lacked for both forms of power. The USA weas considered to be strongest in both hard and soft power.

It is early days, but I think this assessment is in global flux.

The change has been very apparent since the re-election of President Donald Trump. The tariff actions, use of sanctions, military power, and convening efforts like the new Board of Peace, the Shield of the Americas, and the Minerals Security Partnership, are signifiers of the strategic competition between the USA and China.

This is the sharp end of the global power transition.

Can the USA recover its former position as the sole global hegemon?

I do not think so, but I must reflect the possibility in portfolio choices.

In relation to our stated themes, I see a bifurcation between the West and non-West.

The West has the power to lose and looks set to reinforce the status quo.

The non-West has the power to gain and is betting heavily on the new.

Notice that this dichotomy is not clear cut. The West has plenty of innovative capacity but seems to be tilting that to military aims and the defense of traditional markets.

The non-West is showing great dynamism in the adoption of new ideas.

If you are skeptical, check out Brazilian digital bank Nu Holdings XNYS: NU.

We used to think of Brazil as a mining market, but the financials are now larger.

Notice that non-resources comprise 71.17% of the Brazilian market ARCA: EWZ.

In Australia, ARCA: EWA, the proportion of non-resources firms is 73.27%. Notice that Brazil is more heavily weighted to consumer defensives, like staples, and utilities.

If we look at another resource-rich emerging market, like South Africa ARCA: EZA, we can see a similar pattern to Australia and Brazil.

Gold and Platinum miners comprise 40.97% of the South African equity market. The other point to notice is that consumer discretionary is 11.77% of market. There is a dominant player called Naspers XJSE: NSP, which is a digital e-commerce group.

Naspers is the third largest company in South Africa, and returns have been good.

The same is true of Buenos Aires, Argentina based Mercado Libre XNAS: MELI.

The purpose of this brief excursion into global markets is tell a story that is not often heard in the Western media. Contemporary Emerging Markets are modern.

Look at the MSCI Emerging Markets ARCA: EEM ETF sector breakdown.

In comparison, the US S&P 500 ETF ARCA: IVV is only marginally higher.

There are a few caveats with the last statement, as some US technology giants, such as Amazon XNAS: AMZN are classified under consumer discretionary, while search and advertising giant Alphabet Inc XNAS: GOOG is under communication.

However, notice that Australia is 1.25% Information Technology versus the 32.56% in that sector within the MSCI Emerging Markets. Some might contend that, really this picture is distorted by the large weighting to Taiwan Semiconductor XNYS: TSM, the presence of Samsung Electronics XKRX: 005930, Tencent XHKG: 0700 and Alibaba Group XHKG: 9988. How so? These are real companies, just like BHP or RIO.

The point to be made is that the non-West is rising.

I do not think that can be stopped.

Nor should it.

Model Portfolio Offering

The Savvy Yabby Report distributes our institutional grade model portfolios to paying subscribers on a monthly basis. The current list includes these strategies.

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

Regulatory Disclosures

This service is owned and operated by Jevons Global Pty Ltd.

The licensing and complaints procedure is outlined in our Financial Services Guide.

For legal reasons, I need to include this informational disclosure.

These portfolios follow the Jevons Global investment process.

Jevons Global Investment Process January 2026

1.19MB ∙ PDF file

Download

Download

The last change to the model portfolio was effective at close 30-Jan-2026.

These were described in the note International Twenty Stock Portfolio: Jan 2026.

NB: Past performance is no guide to future results.

Model portfolios are not audited and are only approximate guides to real results.

Performance Summary for Feb-2026

The month of February was marred by a poor showing following the result for major holding Novo Nordisk XNAS: NVO. This dragged us down to a -1.17% return behind the benchmark FSTE Global All-Cap Index, or Vanguard ARCA: VT, up 1.64%. This resulted in a negative alpha of -2.81%. The one-year alpha slipped to -1.42%.

Overall, the model performance since inception has remained positive.

The negative month dragged us down from an otherwise good start.

Key Contributors

The top three positive contributors to performance in Feb-2026 were:

The top three negative contributors to performance in Feb-2026 were:

The correction to technology stocks in Hong Kong and a negative outlook for Novo Nordisk were the main drivers of this pull back. Novo Nordisk had reported good earnings results on 4-Feb-26 but was hit by US actions on drug pricing.

Our timing of the lift in weighting on 30-Jan-26 proved premature. The impact of the correction has taken the portfolio weighting back to 3.83%. We will wait on this one.

Portfolio Valuation Metrics

The portfolio valuation is above market on trailing earnings and inline on forward.

The dividend yield and Return on Equity (ROE) is below market.

The portfolio is underweight resources, and financials, neutral digital technology, and is overweight industrials, via analog technology and healthcare via consumer needs.

There are no portfolio changes for the international portfolio this month.

The current portfolio weights are shown below.

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Oil breaches $100USD

Presenter: Shazana Mokhtar, Wong Shou Ning

Producer: Jake Lim

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With the unexpected ferocity of the US-Israel vs. Iran war in the Middle East, we are making a strategic move to hedge stagflation risk. For those who were not alive in the 1970s this may seem like a brave or foolhardy call.

Not to me.

I first sounded the warning back in May-2024, three months after gold first broke out to the upside and I turned bullish on the yellow metal.

I wrote on the gold bull market to come on 8-Jan-2024 for the Market Online.

Thematica Moods And Moves 20240108

1.03MB ∙ PDF file

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There I recalled the Wizard of Id comic strip:

Remember the Golden Rule! Whoever has the gold makes the rules.

These conditions define for us a century scale investment theme:

We are now living through a major Global Power and Energy Transition.

The energy bit is obvious. The world is moving from fossil fuel powered combustion engines towards a future of ubiquitous electrification.

This supports themes like battery minerals and copper.

The power bit is less obvious. The world is moving from a global political and financial system ruled by the West to a more diverse multi-polar world.

Emerging economies are growing stronger.

The counter to this has been an “America First” geopolitical strategy.

We saw the tariff measures first. Now we see the sharp end of US military power.

This is total war, as evidenced by the US Navy electing to sink an Iranian frigate in international waters that was not in the theater of war.

If you a fan of propaganda, you might presume that this is the natural order in war. However, it is not proportionate, and a state of war remains undeclared.

This latest US action is demonstrative and signals the return to gunboat diplomacy.

There is no other plausible explanation for taking such extreme action.

You do not sink every ship on the high seas that belongs to a sovereign nation that you chose to attack, by surprise, in a war of choice, without ever declaring war.

There are precedents for such actions but none of them are good ones.

We must now assume that the US Department of War is at war.

Due to the global reach of this conflict, and US intent to widen it, there can be no doubt that this will be a long war, and that it will soon drag in the Europeans.

The Significance of the Strait of Hormuz

In the Market Schwerpunkt, I wrote about the Elbridge Colby Strategy of Denial in the context of blockades to trade, such as we now see playing out in the Gulf war. There we see how denial is used by Iran to punish its Gulf neighbors for assisting the war.

This active blockade will have secondary effects on all nations that depend on oil and gas that passes through the Strait of Hormuz, including India and China.

Australia adopted the strategic principles laid down by Elbridge Colby in the 2024 National Defence Strategy. The object is to maintain a favorable regional strategic balance by preventing any power from coercing others through force, particularly within the Indo-Pacific region.

That is all well and good, except that the source of coercion is not China!

The USA coerced the United Kingdom to allow the use of its airbases to facilitate the present war against Iran. The European allies, in NATO, are now pressured to follow.

It is entirely possible, that NATO will be mobilized, by such coercion, to prosecute this war of choice, in the Middle East, or suffer tariff and other punishments.

Paradoxically, the Colby Strategy was sold to Australia as a means to deter coercion.

I guess coercion is bad when it does not come from the USA!

I am no naive young fool intending to mimeograph pamphlets for the International Socialist down behind the old ANU Refectory. Nor was I ever in that camp.

I am an investor and a geopolitical realist.

Whatever may be said by US ally Benjamin Netanyahu, speaking for the State of Israel, it makes little sense to me that the USA would indulge this war with no objective.

The stated objective concerns Iran, but I view it as Act One in The Play of Denial. The real objective is to control oil trade as a coercive lever.

There will be strident denials of this motive.

I know that.

However, the task of a good intelligence analyst is to look behind the obvious efforts to shape the global information space and discern the wider plan in play.

Earlier this year, President Trump dropped the bombshell that he would seek a 50% rise in the Pentagon budget for 2027. That is a huge increase in peacetime.

Whether declared, or otherwise, the US Department of War is now in a war.

This could easily turn into a wider war because the Strait of Hormuz is blocked.

The poor analyst would note:

“Well, that is the fault of Iran.”

Indeed, it is Iran that is denying passage to ships through the Strait of Hormuz.

However, that was entirely predictable and telegraphed action in the event of war.

Why then did the USA proceed with the attack?

There are many possible reasons, most of which I discount as lacking credibility.

It has been commented by many that U.S. Intelligence assessments had discounted the possibility that Iran was actively trying to make a bomb.

Nobody doubts they had nuclear enrichment facilities, but these were bombed, and allegedly destroyed, to great fanfare in Operation Midnight Hammer.

Operation Epic Fury had Supreme Leader Ali Khamanei as the first target.

That individual was assassinated.

Khamanei was the Iranian leader who issued a fatwa against nuclear weapons.

The official story from the USA and Israel is murky at best and not proportionate.

The above line from Sherlock Holmes offers an invitation to further contemplation.

Why undertake such a risky open-ended war of choice with no clear objective?

The answer surely lies in the hidden objectives which comport with the data.

We can only guess at such objectives and so must use plausible reasoning.

Ever since the time of the 1979 Islamic Revolution, the threat, from Iran, to close down all oil and gas traffic out of the Gulf has been on the table.

In earlier times, this served as a useful coercive deterrent to Western action aimed at the fall of the Iranian regime. The USA is now self-sufficient in oil and gas.

The USA is now a big exporter of oil and gas.

Deliberate US action, in Venezuela, has given the USA control of those reserves.

Actions, by forces unknown, to destroy the Nordstream pipeline, plus sanctions against Russian oil and gas have made Europe dependent on the Gulf and USA.

With Qatari gas offline, which is 20% of global supply, Europe will be desperate.

Much of Asia, including India, China and Japan, derive oil and gas supplies on the Middle East. The Iranian action will hurt the global non-US economy.

Since the cessation of hostilities is in the hands of the USA and Israel, other nations are now under the gun to help destroy the Iranian regime.

The US-Israel-Iran war will widen, and US coercive power is established.

This is a plausible motive for the USA to assume this war risk.

The energy supply risk is a lever on other states to line up behind the USA.

China is not such a state, and so will pay close attention to this display of power.

What is happening now is the Colby Doctrine to a “T”.

There is the public smokescreen to manufacture consent.

Then there is the active geopolitical strategy.

Stagflation Barbell

Perhaps it is in the blood to not wait for the sirens to take cover.

I am a contrarian investor. I have no need for the comfort of the crowd.

I exit before the theatre burns down and aim not be trampled in the rush.

The markets seem sanguine about all of this because they focus on current visibility.

Portfolios need not impound certainty but lend themselves to scenarios.

Below the paywall line, I lay out our remodeled portfolio.

This impounds a stagflation barbell, that has the bulk of capital in steady as she goes growth trends, some natural defensives, a minimum of interest rate sensitives, and a hard core of real asset exposure, and inflation pass-through businesses.

The turnover this month is high at 24% of the book.

I think that is warranted.

Model Portfolio Offering

The Savvy Yabby Report distributes our institutional grade model portfolios to paying subscribers on a monthly basis. The current list includes these strategies.

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

Regulatory Disclosures

This service is owned and operated by Jevons Global Pty Ltd.

The licensing and complaints procedure is outlined in our Financial Services Guide.

For legal reasons, I need to include this informational disclosure.

These portfolios follow the Jevons Global investment process.

Jevons Global Investment Process January 2026

1.19MB ∙ PDF file

Download

Download

The last change to the model portfolio was effective at close 8-Dec-2025.

These changes were described in our note USA 20 Stock Model Portfolio.

NB: Past performance is no guide to future results.

Model portfolios are not audited and are only approximate guides to real results.

Performance Summary for Feb-2026

The year opened positively for the benchmark S&P 500. Through the month the total return of the index was 1.47%. The return for the model was 3.39%, which was 1.92% ahead of the benchmark. These are total returns in USD.

Overall, the model performance since inception has been excellent.

The strategy has now posted two consecutive years of +5% alpha. The risk has been anomalously low in recent years. We expect that to rise going forward.

Key Contributors

The top three positive contributors to performance in Feb-2026 were:

The top three negative contributors to performance in Jan-2026 were:

Notice that our gold exposure, via Newmont NEM, did very well in February, despite the late correction to gold and gold stocks in January. Year to date, Newmont is the top contributor, having added 232 bps of 468 bps total.

Portfolio Valuation Metrics

The portfolio valuation is significantly cheaper than the market.

The dividend yield and Return on Equity (ROE) are in line with the market.

The sector positioning is more overweight resources, and underweight digital technology, but remains well diversified across the other sectors.

The big tilt in this rebalance is evident in the resources and energy sector. The shifts are not blind bets on all commodities, as we explain in the stock selection below.

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This is not the world I want, but a portfolio manager must respond to visible events and judge which changes warrant a change in relative portfolio weights.

Our strategy is to canvas a set of viable themes, in a balanced manner, but to reflect our conviction via relative portfolio weights. When this works well, winners can run and profits are made available to rebalance upwards other improving themes.

This note serves as an object lesson on how we implement this philosophy.

Model Portfolio Offering

The Savvy Yabby Report distributes our institutional grade model portfolios to paying subscribers on a monthly basis. The current list includes these strategies.

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

Regulatory Disclosures

This service is owned and operated by Jevons Global Pty Ltd.

The licensing and complaints procedure is outlined in our Financial Services Guide.

For legal reasons, I need to include this informational disclosure.

These portfolios follow the Jevons Global investment process.

Jevons Global Investment Process January 2026

1.19MB ∙ PDF file

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The last change to the model portfolio was effective at close 8-Jan-2026.

The changes were described in the Australian Twenty Stock Portfolio as published on this substack on 7-Jan-2026. The performance published here is based on the total returns for the model portfolio, on a dynamic weight basis to capture movement.

Real portfolios will differ in terms of the costs of trade, which are not included and the timing of any stock switches. The trades are modeled at close, but that is not known ahead of time. Therefore, these records do not represent a real portfolio.

Nonetheless, they are a guide to the approximate performance of the model.

NB: Past performance is no guide to future results.

Model portfolios are not audited and are only approximate guides to real results.

Performance Summary for Feb-2026

Overall, it was a terrific month for the benchmark S&P/ASX 200. Through the month the total return of the index (XJT), was 3.76%. The return for the model was 5.50%, which was 1.74% ahead of the benchmark, renewing our positive alpha trend.

The positioning in resources helped with that sector contributing 2.82% of positive performance, with Finance adding 1.34% and other sectors detracting.

The recent episode of performance has lifted averages over all periods since inception.

Note that uplift in relative performance has been most noticeable in recent years and is reflective of a period where we avoided expensive stocks like Commonwealth Bank, CBA.AX, and much of the technology sector, except Technology One TNE.AX.

Around the middle of 2025 we judged that resources were undergoing a cyclical shift to higher commodity prices, and a broader and stronger demand outlook.

In July of 2025 we funded an overweight in gold miners and battery mineral stocks by selling our long-standing position in Technology One. That proved to be an excellent move and set the stage for a six-month strong run in performance.

Now we are adjusting that strategy once more with increased conviction on a broader recovery in base metals and uranium, alongside gold and energy transition metals. We are purposefully down weighting rare earths.

Our short in rare earths is a contrarian call, which is explained below the paywall.

The summary data continues.

Key Contributors

The top three positive contributors to performance in Feb-2026 were:

The top three negative contributors to performance in Feb-2026 were:

In a nutshell, it was a positive month for resources, despite the earlier correction in gold and other precious metals. It was a bad month for technology, real estate and health care. Cochlear reported a poor result and outlook and was punished.

Portfolio Valuation Metrics

The portfolio is showing valuations generally in line with market.

The dividend yield and Return on Equity (ROE) are also in line with market.

The portfolio is overweight resources, physical infrastructure, consumer wants and digital technology, and underweight in financials and consumer needs.

This positioning is driven by relative valuation and a thematic bias to those sectors which benefit from persistent above target inflation. In our view these are:

• Commodities

• Real Estate

• Import-oriented Consumer Sectors

The first two are fairly clear. Provided that global demand holds up commodities are a clear beneficiary of slow supply response regulating demand via higher prices.

Real estate is less obvious, and was punished last month, on the view that is sensitive to interest rates. In the first-order, valuation is sensitive to higher interest rates, but Australia has a housing shortage, and rising prices lift replacement values.

In our studies of the 1970s, which included living through all of it, land values and real estate are a beneficiary of stagflation. The best of all assets is a long-life asset that can be funded with fixed-rate debt and has rising replacement values.

Railroads are a great example, which is why we are long Aurizon Holdings AZJ.AX.

Other great examples are housing developers with land banks, like Stockland Group SGP.AX, data centre owners and developers like Goodman Group GMG.AX and the major planned infrastructure groups like Lend Lease LLC.AX.

We had a bad month in these plays, with the exception of Aurizon, because the market has yet to assimilate the prospect of stagflation in Australia.

It is not necessary for this scenario to arise for our positions to make money.

The valuations are good.

However, if stagflation does arrive then it is better to have some hedges in place.

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The current weights and portfolio changes are below.

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Tariff Uncertainty - Impact

Presenter: Shazana Mokhtar, Wong Shou Ning

Producer: Jake Lim

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• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

Regulatory Disclosures

This service is owned and operated by Jevons Global Pty Ltd.

The licensing and complaints procedure is outlined in our Financial Services Guide.

For legal reasons, I need to include this informational disclosure.

These portfolios follow the Jevons Global investment process.

Jevons Global Investment Process January 2026

1.19MB ∙ PDF file

Download

Download

The last change to the model portfolio was effective at close 30-Jan-2026.

These changes were described in our note Global Model Portfolios.

NB: Past performance is no guide to future results.

Model portfolios are not audited and are only approximate guides to real results.

Performance Summary for Jan-2026

The year opened positively for the benchmark FTSE Global All Cap Index. Through the month the total return of the index was 3.11%. The return for the model was 4.76%, which was 1.65% ahead of the benchmark. These are total returns in USD.

The relative performance chart shows cumulative alpha versus the benchmark.

The alpha has been relatively flat over the past year.

Overall, the model performance since inception has been excellent.

The month to date figures are included up until 13-Feb-2026 close.

Key Contributors

The top three positive contributors to performance in Jan-2026 were:

The top three negative contributors to performance in Jan-2026 were:

In the last rebalance we exited both Rheinmetall and Petrobras.

Portfolio Valuation Metrics

The portfolio valuation is cheaper than the market on both a trailing and forward Price-to-Earnings ratio basis, and also cheaper on book value.

The dividend yield is in line with market and the Return on Equity (ROE) is lower.

The sector positioning is overweight resources, financial infrastructure, neutral digital technology, and underweight consumer needs, and consumer wants.

The regional weighting of the portfolio is skewed to Asia, via Japan and Hong Kong

Subscribe now

The current weights for month-end are below.

Read more

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

Regulatory Disclosures

This service is owned and operated by Jevons Global Pty Ltd.

The licensing and complaints procedure is outlined in our Financial Services Guide.

For legal reasons, I need to include this informational disclosure.

These portfolios follow the Jevons Global investment process.

Jevons Global Investment Process January 2026

1.19MB ∙ PDF file

Download

Download

The last change to the model portfolio was effective at close 30-Jan-2026.

These changes were described in our note Global Model Portfolios.

NB: Past performance is no guide to future results.

Model portfolios are not audited and are only approximate guides to real results.

Performance Summary for Jan-2026

The year opened positively for the benchmark FTSE Global All Cap Index. Through the month the total return of the index was 3.11%. The return for the model was 6.28%, which was 3.17% ahead of the benchmark. These are total returns in USD.

The relative performance chart shows cumulative alpha versus the benchmark.

The alpha has improved in the past three months.

Overall, the model performance since inception has been excellent.

The month to date figures are included up until 13-Feb-2026 close.

Key Contributors

The top three positive contributors to performance in Jan-2026 were:

The top three negative contributors to performance in Jan-2026 were:

In the last rebalance we exited both Rheinmetall and Petrobras.

Portfolio Valuation Metrics

The portfolio valuation is dearer than the market on a trailing Price-to-Earnings ratio basis, but cheaper on forward.

The dividend yield and Return on Equity (ROE) are lower than market.

The sector positioning is underweight resources, financial infrastructure, and physical infrastructure, neutral digital technology, with an overweight to analog technology, consumer needs, and consumer wants.

The regional weighting of the portfolio is skewed to Asia, via Japan and Hong Kong

Subscribe now

The current weights for month-end are below.

Read more

• Australian 20 Stock Model Portfolio

• USA 20 Stock Model Portfolio

• International (non-USA) 20 Stock Model Portfolio

• Global Best Ideas 25 Stock Model Portfolio

The existing research notes and newsletter offer remains, but you will see some tighter integration between what we write there and the model portfolios.

ERRATA: The performance has been corrected as it missed the last trading day.

Regulatory Disclosures

This service is owned and operated by Jevons Global Pty Ltd.

The licensing and complaints procedure is outlined in our Financial Services Guide.

For legal reasons, I need to include this informational disclosure.

These portfolios follow the Jevons Global investment process.

Jevons Global Investment Process January 2026

1.19MB ∙ PDF file

Download

Download

The last change to the model portfolio was effective at close 8-Dec-2025.

These changes were described in our note USA 20 Stock Model Portfolio.

NB: Past performance is no guide to future results.

Model portfolios are not audited and are only approximate guides to real results.

Performance Summary for Jan-2026

The year opened positively for the benchmark S&P 500. Through the month the total return of the index was 1.47%. The return for the model was 3.39%, which was 1.92% ahead of the benchmark. These are total returns in USD.

The relative performance chart shows cumulative alpha versus the benchmark.

This had deteriorated going into mid 2025 but has improved since then.

Overall, the model performance since inception has been solid.

Since this report is mid-month, for the period ended 31-Jan-2026, I included the month to date numbers for February, up until 13-Feb-2026 close.

There has been some serious damage to US software stocks in the past few weeks, but our model portfolio largely dodged this bullet.

Key Contributors

The top three positive contributors to performance in Jan-2026 were:

The top three negative contributors to performance in Jan-2026 were:

The strategy clearly benefited from risk management through a diversified exposure to a range of industries. The hedging with gold miner Newmont XNYS: NEM was particularly helpful, along with exposure to the better value Meta XNAS: META.

Diesel engine and heavy equipment play Cummins XNYS: CMI rounded out the list of top contributors. On the negative side, Apple XNAS: APPL, Microsoft XNAS: MSFT and Oracle XNAS: ORCL led the drag, but damage was contained via position sizing.

Notwithstanding the current fear concerning damage to software business models due to growth of Agentic AI, and “vibe coding” of new tools, we are constructive on current valuations for our technology holdings. The model is 7% underweight the current S&P 500 holdings in Digital Technology, which is 46.9% of the index.

We are overweight in Resources & Energy and Physical Infrastructure.

The situation will require active monitoring, but we can report that month to date, for the close of trading in New York on 13-Feb-2026, the model is up 0.99% while the benchmark S&P 500 is down -1.48%. So far, we are 2.47% ahead this month.

Portfolio Valuation Metrics

The portfolio valuation is significantly cheaper than the market.

The dividend yield and Return on Equity (ROE) are better than market.

The sector positioning is overweight resources, physical infrastructure, and analog technology, paid for with a clear underweight to digital technology.

The situation remains very volatile in the US market. Presently, we see no reason to alter the settings but will monitor the conditions.

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The current weights for month-end are below.

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