Christopher Joye: No margin for error for risk junkies craving rate cuts

The past six months have been golden for investors, with everything from equities to gold and even Bitcoin enjoying stellar runs. And if risk assets are not your bag, then there have been juicy yields on offer across a range of cash and fixed-income asset classes.

Animal spirits woke from their slumber in late October 2023 when the Fed effectively claimed victory in the fight against inflation. Markets have been led to believe that rate cuts are a foregone conclusion in the year ahead, and participants have been piling into risk assets accordingly.

But Christopher Joye, portfolio manager and chief investment officer at Coolabah Capital Investments, says that markets have become so complacent that they appear to be completely ignoring a growing set of data suggesting that the path forward might not be smooth.

Most notably, the resurgent inflation data coming out of the US is causing interest rate cut expectations to be dialled back and kicked down the road. When asked what he thought investors were getting wrong about markets today, Joye was quick to call the dichotomy between what the economy is suggesting needs to happen with interest rates and market expectations.

“If this strong data keeps coming through then hold onto your hats because the world is not priced for this risk. Make no mistake, there is no margin for error in listed equities. There is no margin for error in venture capital, private equity, zero in crypto, in commercial real estate, nothing,” Joye argued.

Tune in to the latest episode of The Rules of Investing, where Livewire’s James Marlay asks Joye about his views on the outlook for both the US and Australian economies, the three risks he is watching, and where he sees value in Australian residential real estate.

Follow & Listen

• Podbean
• Spotify
• YouTube

Time codes

• 0:00 - Introduction
• 1:48 - Motivations for publishing articles and research
• 5:15 - Cognitive dissonance in markets
• 9:34 - Inflation is bubbling back in the US
• 17:05 - Two scenarios Joye is contemplating for the path forwards
• 22:56 - Higher for longer and the potential for US rate hikes
• 25:34 - Is Trump a risk investors need to think about?
• 29:45 - An update on the corporate default cycle
• 33:30 - Risks around the explosive growth in private debt markets
• 40:35 - Has the RBA lost control of the inflation fight
• 44:07 - Joye’s views on Australian residential property
• 48:15 - Floating Rates versus duration in fixed-income
• 50:30 - What investors are getting wrong about markets right now
• 53:37 - A loss and a win and the lessons learned
• 57:59 - An asset class to buy and hold for the next 5-years