Chris Judd Thinks You're Wrong About Rates, Bonds and AI

**Chris Judd** (0:00)
The consensus view that's building in the US now is the next move is going to be a hike. I do think US administration feels it's an existential threat to the US empire if they don't win the AI race. This demonising of oil and gas, this is crazy.

**Bryce** (0:16)
Welcome to another episode of Equity Mates, a podcast where we explore what's possible in the world of investing. If you've just joined us for the very first time, a huge welcome to our community. My name's Bryce.

**Ren** (0:26)
And I'm Ren, and today we are talking with Chris Judd about everything going on in the world. And Bryce, that's not much of an exaggeration.

**Bryce** (0:34)
It's not much of an exaggeration. Chris Judd, you may know him as the former AFL champion at West Coast and Carlton. He's now the founder and portfolio manager at Cerutty Macro Fund.
And we love chatting with Chris because he has a great view on all things macro, and there is a lot going on at a macro level at the moment.

**Ren** (0:54)
Yeah, and he has some non-consensus views, and we unpack that. Like, there are things where he thinks the market is wrong in a major way, or just about like big things, you know, the future direction of interest rates in the US being one that comes to mind. And so we love getting someone on who's got big views and is willing to back it up. And Chris certainly fits that bucket.

**Bryce** (1:15)
So we're going to cover the US, we're going to cover inflation, Kevin Warsh and the Fed. Back home here in Australia, we get his views on what he thinks about the gas tax.

**Ren** (1:23)
Yes, yes, Bryce got that question.

**Bryce** (1:25)
There is a lot in this interview and of course how he is positioning the portfolio to take advantage of some of these huge themes and trends that are playing out.

**Ren** (1:35)
Last time we had Chris on in 2024, he said he was very bullish on gold for people who've been following the gold price. That's done well in the past couple of years, obviously had a recent pullback. So we get his views on where gold is and where it's going from here. So yeah, a wide ranging interview covering a lot of what's happening in the world and how that can translate into a portfolio. So I think Bryce, with that said, let's get to our conversation with Chris Judd.

**Bryce** (2:01)
Well, Chris, welcome back to Equity Mates.

**Chris Judd** (2:03)
Very good to catch up.

**Bryce** (2:04)
We last had you on August 2024 What's one thing that you've changed your mind on since we last spoke?

**Chris Judd** (2:11)
Well, thinking back then, I think Australia is that we were in a rate cutting cycle and it felt small caps broadly. We're going to have a run in Australia. Now, we've still got plenty of positions in small caps, but we don't think it's just a broad based run in the small cap space in Australia. We think for that to happen in Australia, you need rates flat at the very least, but ideally coming down, we think once people feel their house isn't going up in value, they're less inclined to put risk capital at work. Well, there's some institutional flows in the small end.
A lot of those smaller stocks really do rely on the retail flows as well, and you've just seen liquidity really come out of that market, not just with the rate rise, but with the budget news as well, which really knocked a lot of people's confidence around in the local economy. So I'd say that is something that's changed. It doesn't mean we don't like small cap stocks, but we feel the small cap stocks are in have to be exposed to a thematic that's so strong and a management team that's so elite, that it can overpower the headwind of a rising rate environment and the recent budget news is created.

**Ren** (3:24)
Well, Chris, you're really focused on the macro and thinking about how the macro flows into individual stocks and if we think globally, there's probably no bigger macro story than Iran, Strait of Hormuz and the oil situation at the moment. Let's start there and maybe let's start with as us sitting in Australia, like why should we as investors care?

**Chris Judd** (3:46)
The price of oil and availability of oil and energy products is, I guess, as important as any other data point in the world for, not just financial markets, but for people's lives as well.
It's easy when you've been in a world with commodity availability whenever you want it at a reasonable price that people can forget just how correlated the price of energy is to food or clothing or basically just about every input has a direct correlation in the price of energy. It's not just energy which is having issues because the Strait of Hormuz, it's fertilizer, it's gas, it's helium, sulfur, which has implications for copper production and uranium production. So it's more than just energy, energy alone would be a significant enough event for people to take notice, both as investors but just people in their day-to-day lives. It's an expense people can't avoid. It's like the cost of money. Interest rates are an expense that anyone who's borrowed money can't avoid paying and oil is very much like that. So we think it's important, it's important people have a view. We don't have any idea what's going to happen in the short term, regarding the Strait and the war in Iran. And I think people that believe they do, are probably incredibly close to the administration or they're lying. Yeah.