Three things I’m thinking about today…

1) Here’s the deal these days…

Active investing doesn’t get the kudos it once did.

I’m one of the old guard. I believe the shrewd stock picker can beat the market.

It’s never all the time. But, certainly, enough to turn a starting level of capital into something much greater over a long time.

One man who has done exactly that is Rajiv Jain. He’s the chief investment officer of funds management group GQG Partners ($GQG).

Rajiv popped up at a recent conference.

He’s warning that the current rally in big US tech stocks is based off unreasonable earnings expectation based off Trump’s trade war and Chinese competition.

Jain has some form here. He jumped out of US big tech before they got whacked in the 2022 bear market…before Jain rode their recovery back up.

Looks like he’s out again.

Right now he’s missed the big rally out of the April low. However, I don’t dismiss his concerns. The “big buy” for US tech was in 2023, to my mind. 2025 is more complex to assess.

2) Specifically, Alphabet (Google) is the most fascinating from this bunch.

Over in the USA, former fund manager Whitney Tilson remains staunch that Alphabet is a good buy.

But its core business of search is under threat after looking unbreachable for years.

Why? You can guess: AI.

Users are defaulting to services like ChatGPT and Claude now. This throws up all sorts of implications.

A marketing chap in the Australian Financial Review today writes…

“These systems don’t cite sources in any meaningful way. They replace discovery with assertion, and increasingly, they’re learning from content that they or their peers already produced.

“We’ve entered the search ouroboros. It feeds on its own outputs and erodes its utility.

“If we reach the tipping point where both search and content are AI-generated, the system becomes fully recursive. A closed loop. A Frankenstein’s monster where truth is untethered from fact.”

Hey, we could also see this as a sign of the time. The US President often spouts whatever bullshit fits his agenda at the time.

Good luck making sense of what’s really happening as these two factors roll on!

At least we’ll always have the price signal of the markets to help us.

We could say that about the current rise in at the “long end” of the interest rate curve. But what does it mean?

One answer might be stronger expected growth. Another might be worry about future inflation. Short term, a rise in long yields can cause pressure to come on the stock market.

But there’s another factor at play here. The yield curve is “steepening” as this plays out.

Arguably, that’s bullish for the banking sector because it widens the spread they can earn. It’s also positive for growth because it could engineer more bank lending.

3) One wonders what these two factors – AI and a steeper yield curve – are playing in the prodigious rise in CBA.

Everyone seems to dismiss it as passive, dumb money bidding on the stock.

Yes, that may be an explanation, possibly even the most likely.

I’m not so gung ho.

AI could reduce the bank’s staffing cost, help it price risk better and capture more market share. It has the muscle to invest heavily and leverage AI way beyond most other firms.

Is this what the market sees? Possibly. There are no sure things when it comes to markets. Paradoxically, keeping an eye on BHP ($BHP) may help here.

I tuned into a fund manager presentation yesterday. He made the point that, at some point, passive money will flow into resource stocks.

They’re cheap, but still very profitable with iron ore at US$100 because of their premier position on the cost curve.

They give exposure to copper, too, whose pricing pressure becomes more acute at the end of the decade. Signs of buying in BHP and RIO might be a hint that CBA is leaking flows elsewhere.

And, of course, you can always ask ChatGPT for an opinion on that too.

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Murray’s Chart of the Day –
US 10-Year Bond Yield

By Murray Dawes, Thursday, 22 May 2025

Bond yields in the US are close to causing trouble for stocks.

The US 10-year bond yield has remained stubbornly high for the past couple of years.

But the consensus was that it was only a matter of time until the Fed started cutting rates as inflation fell and bond yields would fall too.

Trump has thrown a spanner in the works with his tariff war as inflation expectations start rising again.

Also his ‘Big Beautiful Bill’ looks like it will add to deficits over the next few years rather than cutting them.

That means the government will need to issue more debt to cover their spending.

The chart above shows you a quarterly chart of the US 10-year bond yield since 1981.

You can see the clear downtrend in yields over that time period that stoked all asset prices higher.

In late 2022 yields busted out of that channel and surged higher as inflation got out of control.

10-year bond yields had fallen to silly levels of below 1% in 2020 which couldn’t last anyway.

10-year bond yields hit 5% in October 2023 as inflation fears peaked but have since been trading in a range between 3.6-4.8%.

If yields spike above 5% there is the possibility of a sharp jump in yields as the uptrend since 2020 continues without any resistance above.

Stocks would find that hard to ignore and another correction could occur.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps