Ep 37 - 2026 market outlook with Anthony Doyle - feat. Anthony Doyle

Welcome to the Finance Garage Podcast, your go-to podcast for navigating the world of finance. I'm Jonathan, your financial guide bringing the latest Mark Trends investment strategies and financial news that matters to you. And by the way, I'm also going to share my other passion, which is cars. At the SW Roo Group, we help everyday families achieve financial success. Our integrated services include financial planning, accounting, credit advisory and estate planning. We are here to guide and support you every step of the way, from custom investment strategies to maximizing tax efficiency. We ensure your financial goals are met with peace of mind. Visit SimonRoo.com.au for more information. Hey everyone, and welcome back to another episode of the Finance Garage. As always, it's Jonathan. We're here seeing your financial advisor and principal here at the SW Roo Group. So I thought to start the 2026 year off, we would have a look at a 2026 outlook. But of course, we can't have an outlook without having a 2025 year review. And so I've asked a good mate of mine, Anthony Doyle, who is the chief investment strategist at Pinnacle Investment Management, to have a chat about what happened in 2025, which was a very interesting year, given its Donald Trump's first year in his second term, and how governments has reacted as well as central banks, and where does that leave the outlook for 2026. Because frankly, the last couple of years, equity market investors have been very happy, and very pleased with performance, but will this performance continue? In this whole concept of the AI investment cycle, where every company in the tech sector is trying to create this God computer until they can, or they've worked out that they can't, what does that all mean for investors going forward? And whether or not it has any mirror image to the tech rec we saw 25 years ago. So enjoy today's episode, talking about what's to come in 2026, and as always, remote to listen to the disclaimer at the end, as this podcast is for entertainment purposes only, and does not give personal financial advice. Enjoy. Hey, Doyle, welcome on the podcast. G'day, Jonathan. Thanks for having me. So let's talk about the 2026 outlook. We've had an interesting year. We're recording this in sort of the second week of December. And, you know, originally we had Trump's tantrums of different sorts, and then the market bounce back. And then we seem to be in this continuous period of everyone's making money in their equity market, right? And the growth momentum surprised everyone. We've seen recent US data show growth expectations drop sharply, obviously in early of 2025, and then rebounded again. Why do you think US growth has been stronger than expected, and do you think markets are still underpricing the strength of the 2026 growth outlook? The US has really been supported by two main factors today, which is surprised economists in terms of their expectations for growth. And one is driven equity markets higher over the course of the last three years, and that's the AI-CAPEX cycle, and the amount of money in capital that the hyperscalers like Microsoft and Amazon and Metta are committing to building out the data center growth within the US, and you're talking about half a trillion dollars. So that adds around half a percent to GDP over the course of the next 12 months. And so there's another half a trillion dollars next year as well. So it is extraordinary. That will add another half a percent to US GDP. You've also, of course, had highly stimulatory fiscal policy. So Donald Trump has managed to pass through Congress the One Big Beautiful Bill Act, which will add another half a percent. It's front-loaded in terms of consumer tax cuts and corporate tax cuts, and so that's helping to support growth. And of course, generally, the labour market has been pretty resilient, and consumption is around two-thirds of the US economy, and if people have jobs, they typically spend, and they typically meet their obligations, debt obligations, like a mortgage or a credit card. And so what we're seeing is that spending has been stronger than economists had anticipated, particularly post-April when there was so much uncertainty about what impact a higher tariff regime would have on the US economy. Put all of that together, and we're actually entering into 2026 in terms of the US specifically with really robust economic growth momentum, really strong. And so there's a now forecasting tool that one of the Federal Reserve banks, the Atlanta Fed, has developed using real-time economic data. It's all about big data now, and that's suggesting 4% year-on-year GDP growth for the third quarter. And so generally, when you have an environment or robust economic growth, well, then typically stock markets do pretty well as well. So effectively, could we say that Trump's tariff regime hasn't done very much, at least domestically. We can't speak on behalf of other parts of the world, but it doesn't seem to have been a blip. I mean, it's just been a really, really difficult time for economists and strategists, because no one's really dealt with a regime where the average tariff rate goes from 2% to 20% overnight. And you're talking about the world's most dominant economies and training partners in China and the US, and the relationship there, which has continually evolved over the year. And so markets will sell the rumor, and by the fact, as we know, John O, and it's not to say that tariffs are not having an impact. They certainly are, but it's quite discreet in terms of the sectors and the companies that are being impacted. And so when you think about the S&P 500 in particular, it's dominated by tech firms, and tech firms aren't importing manufactured items from countries outside of the United States. And so with that in mind, when you've got 30, 35% of the S&P 500, which are those mag-seven type stocks, apart from Tesla and Apple, when I think of the Magnificent 7, a lot of them have been pretty immune to the higher tariff regime. And actually, when you think about the lagards within the Magnificent 7, it is a company like Apple, which is manufacturing items in China, for example. And so it's not to say that tariffs aren't having an impact. They certainly are. And I don't think we still fully understand or have fully seen the true impact and flow on effect of higher tariffs, particularly on US inflation, for example. And it is something to be highly cognizant of. But one acronym that started to float around the market earlier in this year was TACO, Trump always chickens out. You know, he's already his book, John O, out of the deal. And part of what Trump does is he takes a very hawkish position. Aussies will be familiar with it, and it's one of the biases. Now, he anchors the negotiating party to an extreme position, and he eventually concedes. But he gets some way to what he wanted to initially achieve. And so when we think about tariffs, it looks like that liberation day, placard that he held up for the world, was a hawkish starting point where he was anchoring other countries to a higher tariff regime, and eventually rode back from some of those higher tariffs in the fullness of time as we progress throughout the year, but certainly markets have evolved from being highly concerned around what does the future trade outlook look like? To one now where it certainly is AI is the dominant narrative within the market. And that's important for short term investors in particular. I'm going to park the AI a bit for a second, because there's a question about this theory of a God computer, right? So for the time being, everyone's pummeling money into this theory called AI to hopefully get to build a God computer. Let's park that thought aside for a minute, because I want to stick with policy. The other side of fiscal policy is monetary, so we've seen U.S. Fed cut rates, Australia's cut rates, but I think we're probably at the end of our cycle for other reasons with inflation. How do you see how the markets pricing in next year's U.S. Fed cuts, and then how do you think that's going to flow through to the economy? Yeah, it's been really interesting, and again, in an environment of heightened levels of uncertainty, you typically see less certainty around the future path of policy rates as well. So when you look at forward curves in terms of the bond market and pricing of interest rates going forward, the U.S. has around three interest rate cuts within the next 12 months. The ECB is expected to remain on hold. The Bank of Japan, unlike other central banks, is expected to hike once or twice more within the next 12 months. And in terms of the RBA, we now actually have a rate hike priced in in August of next year, following some sticky inflation numbers earlier this month. The first monthly inflation reading that the ABS has produced for October. So we're now starting to see the outlook according to bond markets for central banks begin to diverge. Typically, the course and the story of this year has very much been one of monetary policy accommodations, so interest rates declining, Bank of England, European Central Bank, Bank of Canada, Fed, RBA, RBNZ. So that's been a real supportive element for the equity market and equity market valuations in particular. Next year, I would suggest that tailwind from lower interest rates and easy monetary policy, that will begin to fade. And as a result, the market and investors in equities in particular will become a lot more focused on what is the earnings outlook for companies. As opposed to this year, where we've described it as a dash for trash, and if you think about the Nasdaq in particular or the tech sector in the US, it's been unprofitable, pre-earnings, pre-revenue tech firms that have led the rally, and that's what we mean by a dash for trash. There's no earnings there. Like the TechRex. Exactly. Yeah. So I think that we'll see a lot more discipline, and interestingly, what we describe as passive investing, or beta, which is the market moving up and down as a whole, I think going forward, the equity market and equity market investors will be a lot more discerning as to the winners and losers in an environment where the cost of capital is higher, and you don't have that necessarily that tailwind of lower rates coming through. So this year has been a fantastic year. Yeah. It's well above long run averages, you're talking about 16% in the US, around 18% for the MSCI world index. It's been great region by region as well, whether it's the AM, Asia, Europe, UK, discrete countries within Europe, the US, actually the laggards really being Australia, with only around a five percent price return, then you've got your dividends on top of that. But I think next year, it would make sense for equity investors to moderate their expectations for four year total returns because of some of those tailwinds from rate cuts beginning to fade a little bit. Now, you talk about the dangers going forward with passive investing. Can you break that down a little bit, because I think a lot of people just go, "I'll just find the cheapest way to access the market, therefore I buy an ETF for the index. Just ride the S&P 500 or ASX S&P 200." What is the biggest weakness of continuing to be a passive investor, because as I understand that the theory is that it's based on market weights, and therefore it's banquet looking. And if going forward, if CBA or whatever, D-Rates, you actually were overweight when you put money in. Can you sort of walk through what's the nuance of passive investing and the weakness of it? The academic literature shows that the average active investment manager underperforms the benchmark. And so most passive acolytes would say, "Why bother?" Why bother trying to outperform the index, because markets are efficient, and they know all available information at any one time. So you just invest in a passive way, and then you will get a market return outside of paying a nominal cost for fees, depending upon what the index is you're tracking. But I would argue that that will focus on a large tail of active managers that are suboptimal for whatever reason. And so my belief is that if you are a financial advisor, or a retail investor, or an institutional investor like a superannuation fund, part of your role as a steward of capital or looking after your own investments is attempting to identify those exceptional investment managers and active approaches that have a track record of delivering alpha or delivering excess performance after fees. And they exist out there, and if you can focus on those top quartile or top desire of managers that deliver those excess returns over a long period of time, well then that's when you start to get compounding to work in your favour. And so the passive approach today, the difficulty is indices generally, as you say, reward the winners, and that means that capital is flowing to the very largest stocks. The ASX is a case in point where the top ten largest stocks represent today around 46% of the ASX 200. And so as an Aussie investor, most Australians have a home bias, which means we invest, we overallocate to the Australian equity market. And of course the superannuation funds do as well, with an average allocation to Australian equities between 20 and 30% for a balanced option. Well largely that money is just flowing to four banks, four banks and Macquarie, CSL, West Farmers, Telstra for example, and so it's not particularly well diversified. And you can see there that if you start to see any sort of difficulty in the outlook for one particular company like CSL, which derated, and since August by around 30%, it can act as a significant anchor to the types of total returns that investors are looking for and seek to achieve from equities. It's not just an Aussie story, it could be the UK FTSE 100, the Euro stocks 50 index, and of course the S&P 500 or the MSCI world index. And when you think about, we've talked about academic literature in terms of passive investing, academic literature also shows that building diversified portfolios is the most appropriate way to deliver long-term returns, this practicality that you can diversify your investments but generate a higher level of return with a less diversified portfolio of assets that's all correlated. And I would suggest that that's probably the most appropriate thing for investors to do because the last decade really since the GFC and since the reopening boom since COVID has been all about liquidity, all about interest rate reductions, and the tide lifting all boats. Well, I think now we have a risk-free rate, which will settle around 3%. There are regions that do better than others, there are sectors that do better than others, and there are companies that do better than others. And when you have a heightened level of uncertainty, whether it's around geopolitics or whether AI will persist and permeate through all our lives, that's when you get significant amount of idiosyncratic discrepancies within markets. And we've seen that with Europe's largest stock, earlier this year, Novo Nordisk, which is a healthcare pharmaceutical company, produces what are known as weight loss drugs, what are known as GLP1s, and derated around 40% for example, because the earnings outlook deteriorated for Novo Nordisk because of the persistence of, they're not fake, but they're compounding GLP1 weight loss drugs because there was a supply issue in getting the GLP1 drugs out to users. So, with that in mind, whether it's blending passive with active or a fully active approach, I think it certainly is prudent for investors today to think about their portfolios and what's going to work going forward, not what has worked well in the past. Yeah, fair enough. Before we move on to AI, let's talk a little bit about the Australian outlook. It's really weird. I had dinner last night at a Chinese restaurant down south in Mortdale, and the manager who we know quite well for the last 20 years, and he was like, "Oh, John, Connie is pretty crap." And I go, "Yes or no?" and I said, "What makes you say that?" He said, "Well, the cost just keeps going up and up, and it doesn't seem to be stopping." And, "Look, there's only three tables here tonight, on a Sunday night." And he goes, "I don't even know how to outlook 2026 for me as a small business owner. This is ridiculous." And rates aren't going to come down anymore, and inflation's up again. Now, you then look at all the macro stuff that comes out. Growth doesn't seem to be that bad, and now we know we've got a productivity issue. And then we had, I think, using my very simple mind, there was sort of like a 5% growth in retail spending. Recently, there was a figure that came out. But then 5% looks good on the surface, but we've got a 3% population growth. Then let's call it 2% inflation. You net net have no growth. But I remember trying to get stuff for Black Friday and a lot of stuff sold out really quick. My wife went and got some clothes. It's all sold out. What do you think the true picture is for the Australian economy at the moment in 2026? Yeah. I mean, growth is very simple, as you say, it's productivity growth, plus population growth. And then I always bring it back to economics 101, or what you studied in year 11 economics, growth is consumption, plus government spending, plus investment, plus net exports. So exports minus imports. And I think what we're seeing at the moment is a big disparity within those that are doing well in the Australian economy and those that are finding that they have to tighten the purse strings a bit. And certainly when we talk to consumer facing companies within Australia like JB Hi-Fi or Harvey Norman, for example, right at the point the end of the consumer, they're definitely identifying trends of behaviour amongst Australian consumers where they're becoming a lot more discerning around price discovery like Black Friday. They're waiting up for the sales. And then they go in order to save money. They're going out and spending then as opposed to any other time before the Christmas spending period. And it's interesting that the Black Friday's ours have now become a Black Friday month. As consumer facing companies, consumer discretionary type companies are trying to incentivise individuals to lighten those purse strings or. Front load spending. Yeah, exactly. And so when I talk about the sort of disparities we're seeing amongst the Australian population, it very much is those that have assets and those that don't. Exactly. Those that are in the sort of pain trade like myself at the moment, mortgage, kids, school fees, etc. You're not Robinson Cruiser. No, no. You're a younger person renting, you know, uni fees are up 20%. We're paying a mortgage because, you know, we do have higher rates than we were experiencing in the COVID type environment versus those that have assets have done very well out of say their home equity price with no capital gains tax, have a solid amount of assets and superannuation, maybe they're an investment property or two that don't have a mortgage. And actually in a world of higher rates, then generally income-producing assets like cash, term deposits, fixed income, all of a sudden generate a positive real return again. Correct. And so I think what we're seeing in the Australian economy at the moment is that you actually have that sort of wealth transfer occurring to some extent at an earlier stage in life and, you know, it's so called Bank of Mum and Dad, which I've seen statistics on suggesting it's like the fifth or sixth largest lender in the land. Not surprising. So grandparents helping their kids out in terms of getting on the housing ladder or maybe grandparents paying school fees and helping out in that way as well because certainly when you look at the costs of items of non-discretary spending like insurance or gas fuel, you know, utilities, dental, health care, hospital fees, these are tuition fees, these have all materially outpaced the official rate of inflation since COVID and what has biased down the overall rate inflation, more discretionary type items, books, toys, audiovisual telecommunications equipment, etc. And so I think, you know, I've got my own index, which is how many people bring lunch into work every day in the pinnacle office. I've noticed you John O'Brien in a couple of times, but certainly there's a lot more people bringing in their lunch and so anecdotally, I think that people are tightening their purse strings to some extent. But when you look at the overall figures for the economy, well, what is supporting growth here, government spending, the government spending is still firmly the taps are turned on, whether it's supporting the NDIS, whether it's health care, whether it's education, what we're seeing is that employment within these sectors has remained very strong and actually the private sector has been shedding labour. Yes. And so without government spending as strong as it is, well, we would actually, we know that we experienced a per capita recession, we know we would be in a much more difficult environment and you now have the population growth tap turned on again. Yes. That in mind, he's starting to see, you know, pressures build within housing again in terms of rents, but also the supply of housing as well. As you talk about the Bank of Mum and Dad, statistic, the yellow scary thing I saw, Vanguard came out with a report about three months ago around looking at how Aussies retire and there's, the statistic came out, they surveyed about two and a half thousand Aussies of different demographics ages and so on and so forth, half of the baby boomers and Gen X are of the belief that when they retire, they will still have a mortgage. Yes. That's quite scary. And the rationale for that was based on the fact that they are drawing on equity to help their kids get on the ladder, which is leading to a detrimental lifestyle from them in retirement. It's quite scary if it plays out that way. So the average age of the first homebuyer in the US is 40 years old now. Really? 40 years old. It's really 30 years old. It puts off household formation, it puts off people having family and kids and that's a driver of economic growth as well, household formation. Correct. And so I think from a society perspective, when you start to see income inequality grow to the extent that it is and in particular when you see a generation believe that they're not going to have a standard of living that is equivalent or higher than their parents, that's when you start to see some of the fabric of society begin to break down to some extent, which is why I've seen the shifts to the left and the right across Europe and the US in particular as income inequality has grown. As a result, largely of some of the monetary and fiscal policies that we've seen implemented post GSE, like quantitative easing, where financial assets inflated, but real wages and employment was an inflation obviously was quite high as well, didn't follow suit and that's the difficulty when real incomes are going backwards and people's standards of living are being eroded. That's when you start to see people start to think about well is there a different type of party I might be able to vote for? And that will support my prospects going forward. Correct. Let's go back to AI. So this whole theory of, you know, and I'm raising this as a potential risk and I want to see if you think it is a risk, you know, we're plowing this much money, you know, half a trillion, as you said, into AI to build what tech companies believe they can build a God computer. And for the time being, they believe they can. I saw a figure, I think it was last night, and they said, we have now surpassed within like in six months, we have surpassed the amount of money that was put into the Manhattan project, which is the basis of the open-hiver movie, right, to build the nuclear. In real terms? In real terms, right? In real terms, adjusted for inflation today, we have surpassed that. So imagine the mindset then of how much money we need to plow into building nuclear weapon in the same way this is like a God computer. There's an earnings risk whereby as you said, you know, you could be, I'm going to be very cheeky. I'm going to pick on, I don't know, calls. And they all said, you know, we're using AI, and they announced that they're using AI at a company announcement. Share price goes up because they use AI, right? And then there are companies that don't make a profit, and then obviously that is a risk, which is the one that we alluded to from the tech rec. Is there a potential risk whereby we plow so much, as in we as in the world, plow so much money into AI. And then one day finding out we can't actually build a God computer. And then that just dissipates everyone in one hit and go, "Shit, that was a bad idea. Is that a risk?" I mean, in terms of the companies that are undertaking the CapEx, they're the most profitable companies in the world. And so when you look at CapEx as a percent of operating cash flow, it's only around 45%, it's expected to go to 60 before tailing off again. But when you look at forecasts past three years, you know, whether they actually materialise or not is a question mark. And so you look at more the next 24 months. And so CapEx has a percent of operating cash flow, we'll rise to around 60% for the hyperscalers, like Meta and Alphabet and Amazon, for example. And so they're highly, highly profitable companies. And the question mark is the irrational exuberance that you see in pockets of the market, if you do start to see disappointments around the ability of companies to monetise some of the tools that they're building as part of this new technological innovation, the magic that we're seeing, whether they start to get hit very hard and what impact does that have on shareholders. So we saw it recently with COVID, it was so uncertain in the outlook about what the world would look like when we were in lockdowns. What were the companies that did very well? Well, Peloton, you know, we were never going to go back to the gym because we were too scared of getting a virus. Beyond meat in terms of protein replacement, Moderna was going to solve all viruses, what were some other ones? We were going to zoom forever, we were never going to meet again. All these companies have derated to the tune of 75 to 90 per cent since reopening. And in the environment, we're in at the moment, the outlook is uncertain. In terms of the impact that many of these AI tools will have, not only on the consumer facing front, but within organisations and in terms of their ability to generate higher revenues and earnings through productivity growth. And then the roll out to real world applications like driverless cars and even the benefits that AI will have in terms of the healthcare sector in identifying disease and improving mortality rates, for example. And when you get that type of environment, where uncertainty is higher, then narratives can drive particular stock stories or sectors in particular. And as I mentioned, we saw it recently with GLP1s, where the roll out of GLP1s was going to cure diabetes and cure obesity, and I'm not sure if you remember, but there was even research done suggesting that airlines were going to benefit from weight loss drugs because the overall passenger load would be lighter. This is some of the stuff that was going around just 18 months ago, two years ago, in terms of oh, so it's a new technology, it's a new drug, the roll out, and in terms of the benefits of obviously having a lower weight is on comorbidities like cardiovascular disease as well on heart disease, for example. And so I think at that sort of environment where it is so uncertain, it comes back to what financial advisers are telling their clients every day, diversify. You do want some eggs in that AI basket, but you also don't want to be all in the AI basket because certainly there are areas in terms of valuations and the outlook. But there is also a risk that you are underweight, that part of the market, that has driven the market, and so you're leaving a lot on the table. And the opportunity cost of not being exposed there, I would argue, is as great as if some of these AI benefits don't, or they fail to materialise, or we don't see the earnings growth come through, or we start to see rapid depreciation of computer chips, for example. So from my perspective, it is a very uncertain environment, no one really knows. And in that type of environment, it's about diversification. So I want diversification by region, I want diversification by sector, I want diversification by investment factor, whether it's growth, value, quality, and I want to build this into a robust investment portfolio, one that can sail through the different types of scenarios that could inevitably occur over the course of the next one, three, five, seven years, and beyond. I mean, for me, and talking to our managers at Pinnacle, our affiliated managers, I think you certainly want exposure to that AI thematic, but you want it in a very conceded and discreet way, because as I mentioned earlier, if you're investing in those unprofitable tech names, that's really a coin toss, whether the earnings materialises, and whether they grow into those lofty multiples of, say, 150 times, there is no earnings. So, infinity, yeah, there's there. And, you know, because certainly if you have been underweight or naked AI since chat GPT was launched three years ago, that's a significant active risk that you've had in your portfolio, and you're looking at the main driver of your wealth going forward in terms of global equities or equity risk, premier, having not delivered for you in a world where the equity markets up 50 per cent over the last three years, and up, as I said, almost 20 per cent this year as well. And so, it really comes back to the cornerstones of modern financial advice. Diversify, take a long run view, but be very active in how your building portfolios, given the outlook for how the market might develop over the next few years, I would argue that the tail risk to the outlook have risen. And so, there are ways that you can both protect yourself, but also benefit from some of these investment risks that have materialised, both on the upside and down side, because one of my favourite lines from Peter Lynch at Fidelity, who wrote one up on Wall Street, a book everyone to read, is there's more money lost waiting for the recession than in the recession itself. And in my view, recession, likelihood, is very low today from where we sit in terms of the outlook for economic growth in the next 12 months, and you don't typically get big bear markets unless you see a big deterioration in the labour market and a recession. Ready to take the first step in investing, or just looking to continue growing your wealth, without being inundated with financial information. With SWU Online Invest, we offer a range of expertly managed portfolios designed to match your investment needs. Whether you're a seasoned investor, or just getting started, know that we will work tirelessly to ensure your investments are strategically positioned to maximise your goals. Visit SWUonlineinvest.com.au today. Let's sort of finish off talking about the other side of the investment spectrum which is income. And I've had to be in my bonnet about bonds broadly since COVID, and you know, you have asset allocators that, you know, because of the way of their framework or their essay or whatever, I have to have an X amount in bonds. And when rates were zero, bonds paid you nothing. No, this is why we floated towards private credit. Right, right. When bonds were giving you zero or half percent, we will get private credit and say four and a half percent. Right. And this sector is starting to evolve quite a lot. There's been some asset activity as well. But if we start with bonds, now that we've got, you know, sort of a terminal-ish interest rate of, as we said, 300 basis points of data about, why do bonds matter again to you? Well, firstly, it's the correlation benefits, as you say, when we were in a zero interest rate world, or very low interest rate world, the yield curve was very flat to inverted. And so you weren't being paid for investing in bonds, and what we describe as duration risk or interest rate risk. And in that type of world, it made no sense. You know, there was a bond issue during COVID by the Austrian government with a hundred-year duration rate, a hundred-year maturity, sorry, a hundred-year maturity. And it's lost 80% in face value since that issue date today. But there was, again, academic theory suggested that interest rates couldn't go below zero. So there was a zero low bound, but we were obviously proven wrong, where the ECB rate went below zero. And at one stage, you paid to lend to the German government. And the reason for that was the ECB refinancing rate was minus 50 basis points. The yield on the 10-year German government bond was only minus 10 basis points. So you were losing 40 basis points less. And so there were the perverse and extraordinary things going on at that time. And again, the narrative was we were in a dysinflatory, deflation world. And this was likely to persist because of the overhang of debt and debt-deliveraging, for example. And obviously COVID upended that all of that. To one now, where very much the consensus view is we're in a structurally higher inflationary type of world, whether that's because of de-globalization or global aging, particularly in the West. And so workforces are becoming less efficient. So that's structurally higher inflation. But also the view that China is no longer exporting deflation to the rest of the world as well. So these narratives permeate and persist through time. But where we sit today is firstly, fixed income is providing a diversification benefit to equities, which is exactly what you want. Unlike say when interest rates are very very low and equities and fixed income risks became correlated. Secondly, yield curves are steep, which means that the yield on a five-year government bond is more than the yield on a one-year government bond and the yield on a 10-year government bond and so on and so forth. And so you are being compensated for taking duration risk. Whether it's in lending to the Australian government, the US government or a corporate bond, all in yields are compensating you for taking that risk, interest rate risk and credit risk. And so certainly the time to not invest in fixed income was exactly when you were saying like public fixed income was exactly, you know, 2020-2021 and we saw that 2022 interest rate repricing. We're now in a world where yield curves are steep. You're being compensated again for taking duration risk and arguably the outlook for the US in particular is one of lower interest rates and so that should support the capital value of your bond allocation as well. But you want it as a diversifier. I mean, the greatest tragedy of all is that the young kid going into your first job, putting a balanced fund, we say 20 or 30% in fixed income, they don't need that, you know, 100% equities because they're not retiring for 50 years. And so depending upon your outlook and your own personal circumstances, fixed income certainly has a very strong role to play in a diversified portfolio, particularly for retirees. As an extension of that private credit, you know, as broadly if we use investment-grade public bonds as your sort of benchmark, private credit's paying would say two, three hundred basis points above that. And then so that's attracted a whole lot of capital in that direction too. And people say, oh, this is like the risk-free version of a bond. There's like no no price volatility. I'm picking up income of like seven, eight percent today. It's like a free kick. Is it? And how do you sort of communicate that to, you know, investors that you speak to? Yeah, I mean, it's not fr- it's not risk-free for sure. The reason that's playing a higher yield or higher income is because there's ill-equity risk, but there's also more covenant risk that has to be assessed by the lender as well. And so certainly there aren't many risk-free assets in this world. Even if you put cash under your mattress, you know, there's inflation risk. If you think about lending to the Austrian government for a hundred years, you'll probably get your money back. You know, the euro still exists, but obviously there's a lot of interest rate risk. And so when the corporate bond as well, there's credit risk. And then you have, if you're lending offshore as currency risk. Now in terms of private credit, it has been a fantastic asset class. And when would I want to allocate to Aussie or Kiwi private credit? Well, it's when economic growth is relatively robust. Unemployment is low. Businesses are in a relatively strong position. Inflation risk is relatively well-contained and inflation expectations are well anchored. And so default rate risk is lower as well. And the issue with private credit as a sector in Australia is that there have been a number of firm setup shop. And the space of private credit or the loans that they're making are often say sub 20 or sub 30 million dollars in size. And that type of space where you're building your portfolio, which is again not diversifies, it might just be purely to real estate developers in a certain city or a certain sector. You know, I think that that could definitely get into difficulty in an environment where you had an economic growth slow down. And you started to see that some of these companies weren't able to meet their debt obligations or loan obligations. In private assets and private markets, fund manager selection is more vital than in public markets. Because the dispersion that you see in say in Australian equity or a global equity manager in terms of the range of outcomes from a particular style or a particular exposure is typically less than what you'd see in private markets, whether it's private credit, private equity, unlisted infrastructure. It's very different, deal dependent, asset dependent, for example. So the type of private credit manager that I would be allocating to, I'm not an advisor like yourself, but you know, you want to look for someone that has scale, someone that has experience, someone that's managed through different multiple market cycles and someone that works very proactively with their borrowers. So they can sort of see off any difficulties before they occur. And finally, you know, when it comes to our manager, can I mention a firm named metrics, you know, they're focused on businesses with $750 million of annualized revenues. I'm annual revenue, sorry. These are big, big firms, right? These are big, big companies. And so I have seen portfolios in private credit land of 10, 12 loans, very few exposures. You know, we want something that's well diversified with low, low insolvency rates or low difficulties in terms of meeting areas, for example. And so from my perspective, you want to go with sort of the blue chip private credit type managers, the ones that in a sort of downturn type scenario, they're actually going to do better because there's less competition, the competition of capital. So they actually do better in a downturn type of scenario whereas the real sort of nervousness is coming from those smaller operators that may not be able to meet their redemption obligations in an environment where investors were ahead for the exits. I mean, I tell my clients very similar messaging to you. I mean, there is literally, you know, two men a dog that's opening up a private credit shop every single week. Well, I must say, you must see them. I've seen sandwich boards advertise in high yields and that's too good to be true. And they just walk in and they say, oh, yeah, we've got a deal for 300 grand. I'm like, what, like 300 grand? How much do you want of this? I'm going, where are you sourcing your capital from? Right? Because that's a big issue for private credit managers. While the investor sits there and goes, oh, I'm picking up seven, eight percent every month and so this is easy, right? The manager is doing a whole lot of hard work to match inflows and outflows too. And if you don't have a deal flow and or you don't have investor capital, right? You've got real mismatch problems if you don't have scale. Yeah, totally. So that's something that we've been focused on. It's all about scale. All about scale. So Doyle, thanks very much for jumping on for the 2026 outlook. She's Janine, thanks for me. This podcast is not financial product device and is intended to provide information only. It does not take into account the investment objectives, financial situation or needs of any person. You should assess whether the information is appropriate for you and consider talking to a financial advisor before making any investment decisions. Any investment examples are for illustrative purposes only. The information is taken from sources which are believed to be accurate, but Simon Roo, Jonathan Roo as some of you financial planning and personal financial services limited except no liability of any kind to any person who relies on the information containing the podcast. Unless expressively stated, none of the information should be taken as a recommendation. For more information, please visit www.simonroo.com.au.