Rudi Interviewed: Tough February

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Feb 16 2023

It has become the 'unofficial' tradition in recent years: an interview with Livewire Markets ahead of yet another corporate reporting season in Australia. Below is a sub-edited transcript from last week's interview, released this week by Livewire (also available on YouTube).

James Marlay: Since early October the ASX200 has rallied a stunning 17% to the highest point in February. Straight off the bat: is this still a bear market or a rally with more positive long term implications?

Rudi Filapek-Vandyck: It'll depend on one's definition. We all tend to get more excited when share prices rally and we get more optimistic about the future. But I would caution that after a return of that magnitude which, let's call it out, has surprised most people in and around the market, such a strong rally is going to colour the February reporting season.

It will have a massive impact. Needless to say, company reports will be judged differently from when markets were still -17% lower. It's good for investors to keep this in mind. The benchmark for company results to exceed has now been reset. The bias has shifted. At the depths of last year, companies would be given a lot more leeway. Right now, I think companies will have to prove why share prices should still go higher.

Early indications are in most cases companies that release financial results see their share prices weaken, in some cases quite significantly so. While it's still early days, I think this trend may well dominate this season.

James: We'll touch on that trend in a bit more detail later on. I want us to revisit some commentary that we covered in our last interview (August last year). Back then it was your view that commodities were not recession-proof. I bring it up as we can all see today that the commodities component of the market has been very strong and a big driver of the market's recovery. Have you been surprised by the strength in commodities and what's the impact of China re-opening for Australian commodities?

Rudi: Similar to what has happened with equities in general, I think commodities have rallied ahead of fundamentals, and the China re-opening is part of it. The other thing which I think is very important to note is that the process of raising interest rates, higher bond yields and then the impact on the economy has been much slower than history would suggest.

Markets are not patient. They are not going to sit around and wait for things to happen. So the obvious observation is that the direct correlation between an economic slowdown, economic recession and commodity prices weakening is usually a pretty solid correlation. The problem thus far is, of course, we haven't seen any recessions just yet; we have hardly seen economies slow down.

This is an important part of the picture that is weighing over this reporting season. Some of the corporate results will look absolutely fantastic. But the question remains: what comes next?

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