Although Keating was responding to a poor GDP print and doing his best to control the narrative, at the start of the rate hiking cycle in mid-2022 most in the market spoke of an impending recession with almost as much certainty. As it stands today, said recession is yet to materialise.

So, what happened? And perhaps more importantly, what does it mean for investors?

In explaining why a recession hasn’t occurred, Sebastian Mullins, Head of Multi-Asset, Australia at Schroders points out that both the Australian and US governments pumped money into their respective economies—something we hadn't seen in a long time.

“During the GFC, you had targeted programs to bail out banks and stimulate the economy, but on average, you had a very, very loose monetary policy and very tight fiscal policy to preserve balance sheets – i.e. improve the fundamentals of both corporate and government balance sheets”, says Mullins.

“This time around, it's the reverse. We're hiking rates but the government's stimulating aggressively. So that has offset quite a bit of it”, says Mullins.

Regarding America, where most of the recession indicators have been flashing red, Mullins adds that the US went into the current downturn un-levered – at least compared to previous episodes.

“If you think about what the pillars of the economy are, you have the consumer, you have corporates, and you have the government”, notes Mullins.

The US consumer de-levered after the GFC, reducing their amount of debt to GDP, as did corporations. “You'd expect higher interest rates to crack corporates”, says Mullins, but that hasn’t happened.

And while the government has been hurt by higher rates due to the bigger interest payments on its debt pile, “If the two pillars of the private economy are fine and the corporates are all fine, then there's no recession”, says Mullins.

For Mullins, the inflation conversation depends on how far into the future you look. “So in the short term, inflation's definitely coming down,” says Mullins.

As for the next five years and beyond, Mullins believes there are structural forces that will mean inflation could stay above the long-term targets of central banks – although that doesn’t have to be a bad thing.

“There are more inflationary forces in the system now than they were over the past decade” notes Mullins, adding that “things like fiscal stimulus that's here to stay”.

“You're seeing more populous governments come in around the world. You're talking about the election in the US, they're both going to spend.

"It doesn't matter who wins, it just depends on who they spend on. But there's no tea party candidate or fiscal conservative”, says Mullins.

Mullins points to other inflationary factors, including de-globalisation, on-shoring, and increased security spending—whether that means military, food, mineral, or cybersecurity.

“So all that is to say, we're not saying we're going to 1970-style inflation, but if in the US 2% was the ceiling of inflation for the past decade, we think it's going to become a floor. So, it might be between two to three, maybe two to four [percent]”, says Mullins.

A potentially higher floor for longer-term inflation seems like a small price to pay following the most aggressive rate-hiking cycle in living memory.

If someone offered the current economic and investing scenario back in late 2022 and early 2023 – with equity markets near all-time highs, bonds providing a decent yield, and an absence of recession – we’d all likely take it in a heartbeat.

So, as a multi-asset strategist, how is Mullins shaping portfolios in light of macro developments and a seemingly benign backdrop? Find out in this edition of The Rules of Investing, presented by James Marlay.

Mullins provides a view on Australian, US, Chinese and Japanese equities, bonds, and Australian vs. US credit. Finally, he outlines the bull case moving forward as well as the biggest risk to the outlook.

Note: This episode was recorded on 27 August 2024.

https://www.livewiremarkets.com/wires/what-happened-to-that-recession-we-were-promised

In this episode of The Rules of Investing, Livewire's Ally Selby learns about some of the companies that meet these criteria, why Rizzo believes AI will be far more transformative than investors currently think, as well as why he believes that investors are likely to do more harm waiting for a correction in some of these tech winners than a correction itself.

Plus, he shares what he is seeing on the ground in the US right now in terms of economic weakness, the stocks he believes are worth paying up for right now, and how he takes advantage of sell-offs when he holds very little cash.

Note: This episode of The Rules of Investing was recorded on Wednesday 14 August 2024.

https://www.livewiremarkets.com/wires/why-ai-will-have-a-bigger-impact-on-the-world-than-the-invention-of-electricity

• 0:00 - Intro
• 2:10 - Making sense of the volatility in tech stocks
• 3:11 - This is a healthy bull market correction
• 4:44 - The true transformational nature of AI
• 8:11 - Spotting the imposters from the real AI winners
• 11:06 - There are risks but we are starting to see business acceleration from AI
• 13:27 - Should you take advantage of sell-offs in AI companies?
• 15:08 - What Dom is seeing on the ground in the US in terms of economic stability
• 17:08 - How to identify winning tech stocks
• 19:53 - How Dom thinks about risk
• 22:01 - Dom's wishlist of stocks he would own at a cheaper price
• 24:15 - Stocks it is worth paying up for right now
• 26:32 - A deep dive into semiconductor stocks and cycles
• 30:20 - NVIDIA at the point of deceleration and what this means for investors
• 31:16 - How to take advantage of sell-offs with very little cash
• 34:19 - One thing investors are getting wrong about markets
• 34:53 - Biggest lessons Dom has learnt during his career
• 39:06 - One stock Dom would hold if the market closed for 5 years.

Much has been made of the “Great Rotation” of late and the move away from highly concentrated large caps into small-cap equities, particularly in the US.

Greg Dean, founder of Langdon Equity Partners, is having none of it. When quizzed about whether the rotation was impacting how Dean and his team invest, the short answer was ‘no’.

Late last year, amid widespread commentary about 2024 being the ‘year for small caps’, Langdon wrote about the time and energy people spend talking about timing in small caps and called it a “big waste of time”. Dean feels a similar way about the rotation.

“The reality is if you wait for the perfect time, you've probably missed out on a lot of opportunity during that period when fewer people were interested”, says Dean.

Dean founded Langdon in 2021 on the concept of a “clean sheet of paper” – i.e. not being beholden to anyone but investors.

His philosophy is built on deep research and holding management to account, allowing him to ‘trust but verify’. He adds that speaking with management is a delicate balance that is often “executed poorly”.

“You think you have to be aggressive and definitive or you have to be a “yes” person and agree with everything that they're telling you, and neither of those is optimal”, says Dean.

In the following episode of The Rules of Investing, Dean delves deeper into small-cap investing, explains why he and his team take more than 300 individual company meetings each year, talks through the current portfolio tilt, and shares why the fund favours Europe over the US.

He also upacks two global small-cap stock ideas that highlight Langdon’s approach.

Note: This episode was recorded on 31 July 2024. You can watch the video or listen to the podcast below.

https://www.livewiremarkets.com/wires/why-trying-to-time-small-caps-is-a-big-waste-of-time-and-2-long-term-stock-ideas

0:00 - Intro 1:36 - Investment background and founding Langdon 5:05 - Biggest influences over the journey and why small caps? 8:39 - Investment philosophy origin story 11:01 - When is enough, enough? 12:45 - The Great Rotation and current market conditions 15:31 - Company meetings how the best stand out 20:09 - Honing the craft 23:42 - Current portfolio: underweight US, overweight Europe 26:58 - Why cashflow is Landon's North Star 28:07 - Other non-negotiables 29:12 - Testing beliefs 30:40 - Navigating patience as a small-cap investor 32:57 - Small-cap stock ideas 37:52 - What are investors getting wrong about today's markets? 49:27 - Courage of conviction 41:29 - The five-year stock